Item 6. Selected Financial Data

The following selected financial data for the five years ended December 31, 2016 are derived from our audited consolidated financial statements (in thousands, except per share data):

			Year Ended December 31,
			2012			2013			2014			2015			2016
Operating Data
Revenues			$	1,805,044		$	2,880,608		$	3,343,546		$	3,859,826		$	4,281,160
Expenses				1,619,132			2,778,363			2,959,333			3,223,709			3,571,907
Income from continuing operations before income taxes and income (loss) from unconsolidated entities				185,912			102,245			384,213			636,117			709,253
Income tax (expense) benefit				(7,612)			(7,491)			1,267			(6,451)			19,128
Income (loss) from unconsolidated entities				2,482			(8,187)			(27,426)			(21,504)			(10,357)
Income from continuing operations				180,782			86,567			358,054			608,162			718,024
Income from discontinued operations, net				114,058			51,713			7,135			-			-
Gain (loss) on real estate dispositions, net				-			-			147,111			280,387			364,046
Net income				294,840			138,280			512,300			888,549			1,082,070
Preferred stock dividends				69,129			66,336			65,408			65,406			65,406
Preferred stock redemption charge				6,242			-			-			-			-
Net income (loss) attributable to noncontrolling interests				(2,415)			(6,770)			147			4,799			4,267
Net income attributable to common stockholders			$	221,884		$	78,714		$	446,745		$	818,344		$	1,012,397
Other Data
Average number of common shares outstanding:
	Basic			224,343			276,929			306,272			348,240			358,275
	Diluted			225,953			278,761			307,747			349,424			360,227
Per Share Data
Basic:
	Income from continuing operations attributable to common stockholders		$	0.48		$	0.10		$	1.44		$	2.35		$	2.83
	Discontinued operations, net			0.51			0.19			0.02			-			-
	Net income attributable to common stockholders *		$	0.99		$	0.28		$	1.46		$	2.35		$	2.83
Diluted:
	Income from continuing operations attributable to common stockholders		$	0.48		$	0.10		$	1.43		$	2.34		$	2.81
	Discontinued operations, net			0.50			0.19			0.02			-			-
	Net income attributable to common stockholders *		$	0.98		$	0.28		$	1.45		$	2.34		$	2.81
Cash distributions per common share			$	2.96		$	3.06		$	3.18		$	3.30		$	3.44
				December 31,
Balance Sheet Data				2012			2013			2014			2015			2016
	Net real estate investments		$	17,423,009		$	21,680,221		$	22,851,196		$	26,888,685		$	26,563,629
	Total assets			19,491,552			23,026,666			24,962,923			29,023,845			28,865,184
	Total long-term obligations			8,474,342			10,594,723			10,776,640			12,967,686			12,358,245
	Total liabilities			8,936,441			11,235,296			11,403,465			13,664,877			13,185,279
	Total preferred stock			1,022,917			1,017,361			1,006,250			1,006,250			1,006,250
	Total equity			10,520,519			11,756,331			13,473,049			15,175,885			15,281,472
	* Amounts may not sum due to rounding

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

	EXECUTIVE SUMMARY
	Company Overview Business Strategy Capital Market Outlook Key Transactions in 2016 Key Performance Indicators, Trends and Uncertainties Corporate Governance	41 41 42 42 43 44
	LIQUIDITY AND CAPITAL RESOURCES
	Sources and Uses of Cash Off-Balance Sheet Arrangements Contractual Obligations Capital Structure	44 45 45 46
	RESULTS OF OPERATIONS
	Summary Triple-net Seniors Housing Operating Outpatient Medical Non-Segment/Corporate	46 48 51 53 55
	OTHER
	Non-GAAP Financial Measures	56
	Critical Accounting Policies	60

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is based primarily on the consolidated financial statements of Welltower Inc. for the periods presented and should be read together with the notes thereto contained in this Annual Report on Form 10-K. Other important factors are identified in “Item 1 — Business” and “Item 1A — Risk Factors” above.

Executive Summary

Company Overview

Welltower Inc. (NYSE: HCN), an S&P 500 company headquartered in Toledo, Ohio, is driving the transformation of health care infrastructure. The Company invests with leading seniors housing operators, post-acute providers and health systems to fund the real estate and infrastructure needed to scale innovative care delivery models and improve people’s wellness and overall health care experience. WelltowerTM, a real estate investment trust (“REIT”), owns interests in properties concentrated in major, high-growth markets in the United States, Canada and the United Kingdom, consisting of seniors housing and post-acute communities and outpatient medical properties. Our capital programs, when combined with comprehensive planning, development and property management services, make us a single-source solution for acquiring, planning, developing, managing, repositioning and monetizing real estate assets.

The following table summarizes our consolidated portfolio for the year ended December 31, 2016 (dollars in thousands):

	Net Operating			Percentage of		Number of
Type of Property	Income (NOI)(1)			NOI		Properties
Triple-net	$	1,208,860		50.3%		631
Seniors housing operating		814,114		33.9%		420
Outpatient medical		380,264		15.8%		262
Totals	$	2,403,238		100.0%		1,313
(1) Excludes our share of investments in unconsolidated entities and non-segment/corporate NOI. Entities in which we have a joint venture with a minority partner are shown at 100% of the joint venture amount.

Business Strategy

Our primary objectives are to protect stockholder capital and enhance stockholder value. We seek to pay consistent cash dividends to stockholders and create opportunities to increase dividend payments to stockholders as a result of annual increases in net operating income and portfolio growth. To meet these objectives, we invest across the full spectrum of seniors housing and health care real estate and diversify our investment portfolio by property type, relationship and geographic location.

Substantially all of our revenues are derived from operating lease rentals, resident fees and services, and interest earned on outstanding loans receivable. These items represent our primary sources of liquidity to fund distributions and depend upon the continued ability of our obligors to make contractual rent and interest payments to us and the profitability of our operating properties. To the extent that our customers/partners experience operating difficulties and become unable to generate sufficient cash to make payments to us, there could be a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. To mitigate this risk, we monitor our investments through a variety of methods determined by the type of property. Our proactive and comprehensive asset management process for seniors housing properties generally includes review of monthly financial statements and other operating data for each property, review of obligor/partner creditworthiness, property inspections, and review of covenant compliance relating to licensure, real estate taxes, letters of credit and other collateral. Our internal property management division actively manages and monitors the outpatient medical portfolio with a comprehensive process including review of tenant relations, lease expirations, the mix of health service providers, hospital/health system relationships, property performance, capital improvement needs, and market conditions among other things. In monitoring our portfolio, our personnel use a proprietary database to collect and analyze property-specific data. Additionally, we conduct extensive research to ascertain industry trends. We evaluate the operating environment in each property’s market to determine the likely trend in operating performance of the facility. When we identify unacceptable trends, we seek to mitigate, eliminate or transfer the risk. Through these efforts, we are generally able to intervene at an early stage to address any negative trends, and in so doing, support both the collectability of revenue and the value of our investment.

In addition to our asset management and research efforts, we also structure our investments to help mitigate payment risk. Operating leases and loans are normally credit enhanced by guaranties and/or letters of credit. In addition, operating leases are typically structured as master leases and loans are generally cross-defaulted and cross-collateralized with other real estate loans, operating leases or agreements between us and the obligor and its affiliates.

For the year ended December 31, 2016, rental income and resident fees represented 39% and 59%, respectively, of total revenues. Substantially all of our operating leases are designed with escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. Our yield on loans receivable depends upon a number of factors, including the stated interest rate, the average principal amount

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

outstanding during the term of the loan and any interest rate adjustments.

Our primary sources of cash include rent and interest receipts, resident fees and services, borrowings under our primary unsecured credit facility, public issuances of debt and equity securities, proceeds from investment dispositions and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (including acquisitions, capital expenditures, construction advances and transaction costs), loan advances, property operating expenses and general and administrative expenses. Depending upon the availability and cost of external capital, we believe our liquidity is sufficient to fund these uses of cash.

We also continuously evaluate opportunities to finance future investments. New investments are generally funded from temporary borrowings under our primary unsecured credit facility, internally generated cash and the proceeds from investment dispositions. Our investments generate cash from net operating income and principal payments on loans receivable. Permanent financing for future investments, which replaces funds drawn under our primary unsecured credit facility, has historically been provided through a combination of the issuance of public debt and equity securities and the incurrence or assumption of secured debt.

Depending upon market conditions, we believe that new investments will be available in the future with spreads over our cost of capital that will generate appropriate returns to our stockholders. It is also likely that investment dispositions may occur in the future. To the extent that investment dispositions exceed new investments, our revenues and cash flows from operations could be adversely affected. We expect to reinvest the proceeds from any investment dispositions in new investments. To the extent that new investment requirements exceed our available cash on-hand, we expect to borrow under our primary unsecured credit facility. At December 31, 2016, we had $419,378,000 of cash and cash equivalents, $187,842,000 of restricted cash and $2,313,122,000 of available borrowing capacity under our primary unsecured credit facility.

Capital Market Outlook

We believe the capital markets remain supportive of our investment strategy. For the year ended December 31, 2016, we raised $1,235,138,000 in aggregate gross proceeds through the issuance of common stock and unsecured debt. The capital raised, in combination with available cash and borrowing capacity under our primary unsecured credit facility, supported pro rata gross new investments of $3,007,040,000 for the year. We expect attractive investment opportunities to remain available in the future as we continue to leverage the benefits of our relationship investment strategy.

Key Transactions in 2016

Capital. In March 2016, we issued $700,000,000 of 4.25% senior unsecured notes due 2026, generating approximately $688,560,000 of net proceeds. In May 2016, we closed on a new primary unsecured credit facility that includes a $3,000,000,000 unsecured revolving credit facility, a $500,000,000 unsecured term credit facility and a $250,000,000 Canadian-denominated unsecured term credit facility plus an option to upsize the unsecured revolving credit facility and the $500,000,000 unsecured term credit facility by up to an additional $1,000,000,000, in the aggregate, and the $250,000,000 Canadian-denominated unsecured term credit facility by up to an additional $250,000,000. The facility also allows us to borrow up to $1,000,000,000 in alternate currencies. Based on our current credit ratings, the unsecured revolving credit facility is priced at 0.90% over LIBOR with a 0.15% annual facility fee and the unsecured term credit facilities are priced at 0.95% over LIBOR for the U.S. tranche and CDOR for the Canadian tranche. The unsecured term credit facilities mature on May 13, 2021 and the unsecured revolving credit facility matures on May 13, 2020. The unsecured revolving credit facility can be extended for two successive terms of six months each at our option. Also, for the year ended December 31, 2016, we raised $527,530,000 through our dividend reinvestment program and our Equity Shelf Program (as defined below).

Investments. The following summarizes our acquisitions and joint venture investments made during the year ended December 31, 2016 (dollars in thousands):

	Properties		Investment Amount(1)		Capitalization Rates(2)			Book Amount(3)
Triple-net	14	$	450,537		6.7%		$	526,814
Seniors housing operating	34		1,680,165		6.2%			1,801,446
Outpatient medical	3		51,434		6.3%			56,386
Totals	51	$	2,182,136		6.3%		$	2,384,646
(1) Represents stated pro rata purchase price including cash and any assumed debt but excludes fair value adjustments pursuant to U.S. GAAP.
(2) Represents annualized contractual or projected income to be received in cash divided by investment amounts.
(3) Represents amounts recorded on our books including fair value adjustments pursuant to U.S. GAAP. See Note 3 to our consolidated financial statements for additional information.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Dispositions. The following summarizes property dispositions made during the year ended December 31, 2016 (dollars in thousands):

	Properties		Proceeds(1)		Capitalization Rates(2)			Book Amount(3)
Triple-net	151	$	2,288,211		8.8%		$	1,773,614
Outpatient medical	7		80,300		7.9%			78,786
Totals	158	$	2,368,511		8.8%		$	1,852,400
(1) Represents pro rata proceeds received upon disposition including any seller financing.
(2) Represents annualized contractual income that was being received in cash at date of disposition divided by disposition proceeds.
(3) Represents carrying value of assets at time of disposition. See Note 5 to our consolidated financial statements for additional information.

Dividends. Our Board of Directors increased the annual cash dividend to $3.48 per common share ($0.87 per share quarterly), as compared to $3.44 per common share for 2016, beginning in February 2017. The dividend declared for the quarter ended December 31, 2016 represents the 183rd consecutive quarterly dividend payment.

Key Performance Indicators, Trends and Uncertainties

We utilize several key performance indicators to evaluate the various aspects of our business. These indicators are discussed below and relate to operating performance, credit strength and concentration risk. Management uses these key performance indicators to facilitate internal and external comparisons to our historical operating results, in making operating decisions and for budget planning purposes.

Operating Performance. We believe that net income attributable to common stockholders (“NICS”) is the most appropriate earnings measure. Other useful supplemental measures of our operating performance include funds from operations attributable to common stockholders (“FFO”), net operating income from continuing operations (“NOI”) and same store NOI (“SSNOI”); however, these supplemental measures are not defined by U.S. generally accepted accounting principles (“U.S. GAAP”). Please refer to the section entitled “Non-GAAP Financial Measures” for further discussion and reconciliations of FFO, NOI and SSNOI. These earnings measures are widely used by investors and analysts in the valuation, comparison and investment recommendations of companies. The following table reflects the recent historical trends of our operating performance measures for the periods presented (in thousands):

				Year Ended December 31,
				2014			2015			2016
Net income attributable to common stockholders				$	446,745		$	818,344		$	1,012,397
Funds from operations attributable to common stockholders					1,174,081			1,409,640			1,593,143
Net operating income from continuing operations					1,940,188			2,237,569			2,404,177
Same store net operating income					1,404,158			1,425,795			1,445,748

Credit Strength. We measure our credit strength both in terms of leverage ratios and coverage ratios. The leverage ratios indicate how much of our balance sheet capitalization is related to long-term debt, net of cash and IRC section 1031 deposits. The coverage ratios indicate our ability to service interest and fixed charges (interest, secured debt principal amortization and preferred dividends). We expect to maintain capitalization ratios and coverage ratios sufficient to maintain a capital structure consistent with our current profile. The coverage ratios are based on earnings before interest, taxes, depreciation and amortization (“EBITDA”) which is discussed in further detail, and reconciled to net income, below in “Non-GAAP Financial Measures.” Leverage ratios and coverage ratios are widely used by investors, analysts and rating agencies in the valuation, comparison, investment recommendations and rating of companies. The following table reflects the recent historical trends for our credit strength measures for the periods presented:

				Year Ended December 31,
				2014		2015		2016
Net debt to book capitalization ratio				43%		45%		43%
Net debt to undepreciated book capitalization ratio				38%		40%		37%
Net debt to market capitalization ratio				28%		33%		31%
Adjusted interest coverage ratio				3.73x		4.20x		4.19x
Adjusted fixed charge coverage ratio				2.96x		3.32x		3.32x

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Concentration Risk. We evaluate our concentration risk in terms of NOI by property mix, relationship mix and geographic mix. Concentration risk is a valuable measure in understanding what portion of our NOI could be at risk if certain sectors were to experience downturns. Property mix measures the portion of our NOI that relates to our various property types. Relationship mix measures the portion of our NOI that relates to our top five relationships. Geographic mix measures the portion of our NOI that relates to our top five states (or international equivalents). The following table reflects our recent historical trends of concentration risk by NOI for the periods indicated below:

				December 31,
				2014		2015		2016
Property mix:(1)
	Triple-net			53%		54%		50%
	Seniors housing operating			33%		31%		34%
	Outpatient medical			14%		15%		16%
Relationship mix:(1)
	Genesis Healthcare			16%		17%		16%
	Sunrise Senior Living(2)			15%		13%		13%
	Revera			4%		5%		6%
	Brookdale Senior Living(2)			9%		7%		6%
	Benchmark Senior Living			4%		4%		4%
	Remaining customers			52%		54%		55%
Geographic mix:(1)
	California			10%		10%		10%
	New Jersey			8%		8%		8%
	Canada			5%		6%		7%
	United Kingdom			7%		9%		7%
	Texas			7%		7%		7%
	Remaining			63%		60%		61%
(1) Excludes our share of investments in unconsolidated entities and non-segment/corporate NOI. Entities in which we have a joint venture with a minority partner are shown at 100% of the joint venture amount.
(2) Revera owns a controlling interest in Sunrise Senior Living.

We evaluate our key performance indicators in conjunction with current expectations to determine if historical trends are indicative of future results. Our expected results may not be achieved and actual results may differ materially from our expectations. Factors that may cause actual results to differ from expected results are described in more detail in “Item 1 — Business — Cautionary Statement Regarding Forward-Looking Statements” and “Item 1A — Risk Factors” and other sections of this Annual Report on Form 10-K. Management regularly monitors economic and other factors to develop strategic and tactical plans designed to improve performance and maximize our competitive position. Our ability to achieve our financial objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging economic and Company-specific trends. Please refer to “Item 1 — Business,” “Item 1A — Risk Factors” and “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K for further discussion of these risk factors.

Corporate Governance

Maintaining investor confidence and trust is important in today’s business environment. Our Board of Directors and management are strongly committed to policies and procedures that reflect the highest level of ethical business practices. Our corporate governance guidelines provide the framework for our business operations and emphasize our commitment to increase stockholder value while meeting all applicable legal requirements. These guidelines meet the listing standards adopted by the New York Stock Exchange and are available on the Internet at www.welltower.com/investors/governance. The information on our website is not incorporated by reference in this Annual Report on Form 10-K, and our web address is included as an inactive textual reference only.

Liquidity and Capital Resources

Sources and Uses of Cash

Our primary sources of cash include rent and interest receipts, resident fees and services, borrowings under our primary unsecured credit facility, public issuances of debt and equity securities, proceeds from investment dispositions and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

property investments (including acquisitions, capital expenditures, construction advances and transaction costs), loan advances, property operating expenses, and general and administrative expenses. These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows and are discussed in further detail below. The following is a summary of our sources and uses of cash flows (dollars in thousands):

		Year Ended						One Year Change					Year Ended			One Year Change					Two Year Change
		December 31,			December 31,								December 31,
		2014			2015			$			%		2016			$			%		$			%
Beginning cash and cash equivalents		$	158,780		$	473,726		$	314,946		198%		$	360,908		$	(112,818)		-24%		$	202,128		127%
Cash provided from (used in):
Operating activities			1,138,670			1,373,468			234,798		21%			1,628,695			255,227		19%			490,025		43%
Investing activities			(2,126,206)			(3,484,160)			(1,357,954)		64%			(309,503)			3,174,657		-91%			1,816,703		-85%
Financing activities			1,303,172			2,006,449			703,277		54%			(1,240,448)			(3,246,897)		n/a			(2,543,620)		n/a
Effect of foreign currency translation on cash and cash equivalents			(690)			(8,575)			(7,885)		1,143%			(20,274)			(11,699)		136%			(19,584)		2,838%
Ending cash and cash equivalents		$	473,726		$	360,908		$	(112,818)		-24%		$	419,378		$	58,470		16%		$	(54,348)		-11%

Operating Activities. The change in net cash provided from operating activities is primarily attributable to increases in NOI, which is primarily due to acquisitions, net of dispositions. Please see “Results of Operations” for further discussion. For the years ended December 31, 2014, 2015 and 2016, cash flows from operations exceeded cash distributions to stockholders.

Investing Activities. The changes in net cash used in investing activities are primarily attributable to net changes in real property investments, real estate loans receivable and investments in unconsolidated entities which are summarized above in “Key Transactions in 2016.” Please refer to Notes 3 and 6 of our consolidated financial statements for additional information. The following is a summary of cash used in non-acquisition capital improvement activities (dollars in thousands):

		Year Ended						One Year Change					Year Ended			One Year Change					Two Year Change
		December 31,			December 31,								December 31,
		2014			2015			$			%		2016			$			%		$			%
New development		$	197,881		$	244,561		$	46,680		24%		$	403,131		$	158,570		65%		$	205,250		104%
Recurring capital expenditures, tenant improvements and lease commissions			59,134			64,458			5,324		9%			66,332			1,874		3%			7,198		12%
Renovations, redevelopments and other capital improvements			73,646			123,294			49,648		67%			152,814			29,520		24%			79,168		107%
Total		$	330,661		$	432,313		$	101,652		31%		$	622,277		$	189,964		44%		$	291,616		88%

The change in new development is primarily due to the number and size of construction projects on-going during the relevant periods. Renovations, redevelopments and other capital improvements include expenditures to maximize property value, increase net operating income, maintain a market-competitive position and/or achieve property stabilization. Generally, these expenditures have increased as a result of acquisitions, primarily in our seniors housing operating segment.

Financing Activities. The changes in net cash provided from financing activities are primarily attributable to changes related to our long-term debt arrangements, the issuance/redemptions of common and preferred stock, and dividend payments which are summarized above in “Key Transactions in 2016.” Please refer to Notes 9, 10 and 13 of our consolidated financial statements for additional information.

Off-Balance Sheet Arrangements

At December 31, 2016, we had investments in unconsolidated entities with our ownership ranging from 10% to 50%. Please see Note 7 to our consolidated financial statements for additional information. We use financial derivative instruments to hedge interest rate and foreign currency exchange rate exposure. Please see Note 11 to our consolidated financial statements for additional information. At December 31, 2016, we had twelve outstanding letter of credit obligations. Please see Note 12 to our consolidated financial statements for additional information.

Contractual Obligations

The following table summarizes our payment requirements under contractual obligations as of December 31, 2016 (in thousands):

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

		Payments Due by Period
Contractual Obligations		Total			2017			2018-2019			2020-2021			Thereafter
Unsecured revolving credit facility(1)		$	645,000		$	-		$	-		$	645,000		$	-
Senior unsecured notes and term credit facilities:(2)
U.S. Dollar senior unsecured notes			6,050,000			-			1,050,000			900,000			4,100,000
Canadian Dollar senior unsecured notes(3)			223,447			-			-			223,447			-
Pounds Sterling senior unsecured notes(3)			1,295,385			-			-			-			1,295,385
U.S. Dollar term credit facility			505,000			-			5,000			500,000			-
Canadian Dollar term credit facility(3)			186,206			-			-			186,206			-
Secured debt:(2,3)
Consolidated			3,465,066			550,620			1,321,310			516,038			1,077,098
Unconsolidated			668,282			22,886			153,360			40,919			451,117
Contractual interest obligations:(4)
Unsecured revolving credit facility			53,638			10,728			21,455			21,455			-
Senior unsecured notes and term loans(3)			3,386,130			352,450			686,783			578,625			1,768,272
Consolidated secured debt(3)			623,851			132,620			188,243			121,016			181,972
Unconsolidated secured debt(3)			163,201			24,801			49,414			33,968			55,018
Capital lease obligations(5)			93,836			4,731			9,012			8,346			71,747
Operating lease obligations(5)			1,105,992			16,939			34,332			33,457			1,021,264
Purchase obligations(5)			523,099			242,962			277,995			-			2,142
Other long-term liabilities(6)			4,179			1,475			2,704			-			-
Total contractual obligations		$	18,992,312		$	1,360,212		$	3,799,608		$	3,808,477		$	10,024,015
(1) Relates to our unsecured revolving credit facility with an aggregate commitment of $3,000,000,000. See Note 9 to our consolidated financial statements.
(2) Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet.
(3) Based on foreign currency exchange rates in effect as of balance sheet date.
(4) Based on variable interest rates in effect as of balance sheet date.
(5) See Note 12 to our consolidated financial statements.
(6) Primarily relates to payments to be made under our Supplemental Executive Retirement Plan, which is discussed in Note 19 to the consolidated financial statements.

Capital Structure

Please refer to “Credit Strength” above for a discussion of our leverage and coverage ratio trends. Our debt agreements contain various covenants, restrictions and events of default. Certain agreements require us to maintain financial ratios and minimum net worth and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions. As of December 31, 2016, we were in compliance with all of the covenants under our debt agreements. None of our debt agreements contain provisions for acceleration which could be triggered by our debt ratings. However, under our primary unsecured credit facility, the ratings on our senior unsecured notes are used to determine the fees and interest charged. We plan to manage the Company to maintain compliance with our debt covenants and with a capital structure consistent with our current profile. Any downgrades in terms of ratings or outlook by any or all of the rating agencies could have a material adverse impact on our cost and availability of capital, which could in turn have a material adverse impact on our consolidated results of operations, liquidity and/or financial condition.

On May 1, 2015, we filed with the Securities and Exchange Commission (1) an open-ended automatic or “universal” shelf registration statement covering an indeterminate amount of future offerings of debt securities, common stock, preferred stock, depositary shares, warrants and units and (2) a registration statement in connection with our enhanced dividend reinvestment plan under which we may issue up to 15,000,000 shares of common stock. As of January 31, 2017, 7,737,978 shares of common stock remained available for issuance under this registration statement. We have entered into separate Equity Distribution Agreements with each of UBS Securities LLC, KeyBanc Capital Markets Inc. and Credit Agricole Securities (USA) Inc. relating to the offer and sale from time to time of up to $630,015,000 aggregate amount of our common stock (“Equity Shelf Program”). As of January 31, 2017, we had $170,640,000 of remaining capacity under the Equity Shelf Program. Depending upon market conditions, we anticipate issuing securities under our registration statements to invest in additional properties and to repay borrowings under our primary unsecured credit facility.

Results of Operations

Summary

Our primary sources of revenue include rent, resident fees and services, and interest income. Our primary expenses include interest

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

expense, depreciation and amortization, property operating expenses, transaction costs and general and administrative expenses. We evaluate our business and make resource allocations on our three business segments: triple-net, seniors housing operating and outpatient medical. The primary performance measures for our properties are NOI and SSNOI, which are discussed below. Please see Note 17 to our consolidated financial statements for additional information. The following is a summary of our results of operations (dollars in thousands, except per share amounts):

			Year Ended						One Year Change					Year Ended			One Year Change					Two Year Change
			December 31,			December 31,								December 31,
			2014			2015			Amount			%		2016			Amount			%		Amount			%
Net income attributable to common stockholders			$	446,745		$	818,344		$	371,599		83%		$	1,012,397		$	194,053		24%		$	565,652		127%
Funds from operations attributable to common stockholders				1,174,081			1,409,640			235,559		20%			1,593,143			183,503		13%			419,062		36%
Adjusted EBITDA				1,813,241			2,091,754			278,513		15%			2,246,507			154,753		7%			433,266		24%
Net operating income from continuing operations				1,940,188			2,237,569			297,381		15%			2,404,177			166,608		7%			463,989		24%
Same store NOI				1,404,158			1,425,795			21,637		2%			1,445,748			19,953		1%			41,590		3%
Per share data (fully diluted):
	Net income attributable to common stockholders		$	1.45		$	2.34		$	0.89		61%		$	2.81		$	0.47		20%		$	1.36		94%
	Funds from operations attributable to common stockholders			3.82			4.03			0.21		5%			4.42			0.39		10%			0.60		16%
Adjusted interest coverage ratio				3.73x			4.20x			0.47x		13%			4.19x			-0.01x		0%			0.46x		12%
Adjusted fixed charge coverage ratio				2.96x			3.32x			0.36x		12%			3.32x			0.00x		0%			0.36x		12%

The following table represents the changes in outstanding common stock for the period from January 1, 2014 to December 31, 2016 (in thousands):

			Year Ended
			December 31, 2014		December 31, 2015		December 31, 2016		Totals
Beginning balance			289,564		328,790		354,778		289,564
Public offerings			33,925		19,550		-		53,475
Dividend reinvestment plan issuances			4,123		4,024		4,145		12,292
Senior note conversions			259		1,330		-		1,589
Preferred stock conversions			233		-		-		233
Option exercises			498		249		141		888
Equity Shelf Program issuances			-		696		3,135		3,831
Other, net			188		139		403		730
Ending balance			328,790		354,778		362,602		362,602
Average number of shares outstanding:
	Basic		306,272		348,240		358,275
	Diluted		307,747		349,424		360,227

During the past three years, inflation has not significantly affected our earnings because of the moderate inflation rate. Additionally, a large portion of our earnings are derived primarily from long-term investments with predictable rates of return. These investments are mainly financed with a combination of equity, senior unsecured notes, secured debt and borrowings under our primary unsecured credit facility. During inflationary periods, which generally are accompanied by rising interest rates, our ability to grow may be adversely affected because the yield on new investments may increase at a slower rate than new borrowing costs. Presuming the current inflation rate remains moderate and long-term interest rates do not increase significantly, we believe that inflation will not impact the availability of equity and debt financing for us.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Triple-net

The following is a summary of our NOI for the triple-net segment (dollars in thousands):

				Year Ended						One Year Change					Year Ended			One Year Change					Two Year Change
				December 31,			December 31,								December 31,
				2014			2015			$			%		2016			$			%		$			%
SSNOI(1)				$	536,231		$	566,188		$	29,957		6%		$	575,764		$	9,576		2%		$	39,533		7%
Non-cash NOI attributable to same store properties(1)					43,448			53,578			10,130		23%			44,215			(9,363)		-17%			767		2%
NOI attributable to non same store properties(2)					447,455			556,040			108,585		24%			588,881			32,841		6%			141,426		32%
NOI				$	1,027,134		$	1,175,806		$	148,672		14%		$	1,208,860		$	33,054		3%		$	181,726		18%
(1) Change is due to increases in cash and non-cash NOI (described below) related to 397 same store properties.
(2) Change is primarily due to the acquisition of 144 properties and the conversion of 26 construction projects into revenue-generating properties subsequent to January 1, 2014.

The following is a summary of our results of operations for the triple-net segment (dollars in thousands):

				Year Ended						One Year Change					Year Ended			One Year Change					Two Year Change
				December 31,			December 31,								December 31,
				2014			2015			$			%		2016			$			%		$			%
Revenues:
	Rental income			$	992,638		$	1,094,827		$	102,189		10%		$	1,112,325		$	17,498		2%		$	119,687		12%
	Interest income				32,255			74,108			41,853		130%			90,476			16,368		22%			58,221		181%
	Other income				2,973			6,871			3,898		131%			6,059			(812)		-12%			3,086		104%
					1,027,866			1,175,806			147,940		14%			1,208,860			33,054		3%			180,994		18%
Property operating expenses					732			-			(732)		-100%			-			-		n/a			(732)		-100%
	Net operating income from continuing operations (NOI)				1,027,134			1,175,806			148,672		14%			1,208,860			33,054		3%			181,726		18%
Other expenses:
	Interest expense				32,135			28,384			(3,751)		-12%			21,370			(7,014)		-25%			(10,765)		-33%
	Loss (gain) on derivatives, net				(1,770)			(58,427)			(56,657)		3,201%			68			58,495		-100%			1,838		-104%
	Depreciation and amortization				273,296			288,242			14,946		5%			297,197			8,955		3%			23,901		9%
	Transaction costs				45,146			53,195			8,049		18%			10,016			(43,179)		-81%			(35,130)		-78%
	Loss (gain) on extinguishment of debt, net				98			10,095			9,997		10,201%			863			(9,232)		-91%			765		781%
	Provision for loan losses				-			-			-		n/a			6,935			6,935		n/a			6,935		n/a
	Impairment of assets				-			2,220			2,220		n/a			20,169			17,949		809%			20,169		n/a
	Other expenses				8,825			35,648			26,823		304%			-			(35,648)		-100%			(8,825)		-100%
					357,730			359,357			1,627		%			356,618			(2,739)		-1%			(1,112)		0%
Income from continuing operations before income taxes and income (loss) from unconsolidated entities					669,404			816,449			147,045		22%			852,242			35,793		4%			182,838		27%
Income tax benefit (expense)					6,141			(4,244)			(10,385)		n/a			(1,087)			3,157		-74%			(7,228)		-118%
Income (loss) from unconsolidated entities					5,423			8,260			2,837		52%			9,767			1,507		18%			4,344		80%
Income from continuing operations					680,968			820,465			139,497		20%			860,922			40,457		5%			179,954		26%
Discontinued operations, net					7,135			-			(7,135)		-100%			-			-		n/a			(7,135)		-100%
Gain (loss) on real estate dispositions, net					146,205			86,261			(59,944)		-41%			355,394			269,133		312%			209,189		143%
Net income					834,308			906,726			72,418		9%			1,216,316			309,590		34%			382,008		46%
Less: Net income attributable to noncontrolling interests					1,874			6,348			4,474		239%			1,221			(5,127)		-81%			(653)		-35%
Net income attributable to common stockholders				$	832,434		$	900,378		$	67,944		8%		$	1,215,095		$	314,717		35%		$	382,661		46%

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The increase in rental income is primarily attributable to the acquisitions of new properties and the conversion of newly constructed triple-net properties from which we receive rent. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index and/or changes in the gross operating revenues of the tenant’s properties. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If gross operating revenues at our facilities and/or the Consumer Price Index do not increase, a portion of our revenues may not continue to increase. Sales of real property would offset revenue increases and, to the extent that they exceed new acquisitions, could result in decreased revenues. Our leases could renew above or below current rent rates, resulting in an increase or decrease in rental income. For the three months ended December 31, 2016, we had no lease renewals but we had 26 leases with rental rate increasers ranging from 0.07% to 0.60% in our triple-net portfolio.

The increase in interest income is attributable to higher loan volume in the current year, which includes first mortgage loans to Genesis Healthcare. The decrease in other income is due to the receipt of an early prepayment fee in 2015 related to a real estate loan receivable.

During the year ended December 31, 2016, we completed two triple-net construction projects totaling $46,094,000 or $251,880 per bed/unit and one expansion project totaling $2,879,000. The following is a summary of triple-net construction projects pending as of December 31, 2016 (dollars in thousands):

Location		Units/Beds			Commitment			Balance		Est. Completion
Raleigh, NC		225		$	95,700		$	83,566		1Q17
Livingston, NJ		120			53,439			37,566		1Q17
Edmond, OK		142			27,300			23,881		1Q17
Tulsa, OK		145			28,500			19,197		1Q17
Lititz, PA		80			15,200			13,867		1Q17
Lancaster, PA		80			15,875			12,778		1Q17
Piscataway, NJ		124			40,800			34,924		2Q17
Bracknell, England		64			15,573			10,394		2Q17
Alexandria,VA		116			60,156			20,918		1Q18
Total		1,096		$	352,543		$	257,091

Total interest expense represents secured debt interest expense and gains and losses on forward exchange contracts. The change in secured debt interest expense is due to the net effect and timing of assumptions, segment transitions, fluctuations in foreign currency rates, extinguishments and principal amortizations. The following is a summary of our triple-net secured debt principal activity (dollars in thousands):

		Year Ended					Year Ended					Year Ended
		December 31, 2014					December 31, 2015					December 31, 2016
					Weighted Avg.					Weighted Avg.					Weighted Avg.
		Amount			Interest Rate		Amount			Interest Rate		Amount			Interest Rate
Beginning balance		$	587,136		5.394%		$	670,769		5.337%		$	554,014		5.488%
Debt issued			-		0.000%			-		0.000%			166,155		2.205%
Debt assumed			120,352		5.404%			44,142		5.046%			-		0.000%
Debt extinguished			(22,970)		6.235%			(132,545)		4.695%			(118,500)		5.562%
Foreign currency			(2,180)		5.317%			(15,633)		5.315%			3,157		5.247%
Principal payments			(11,569)		5.564%			(12,719)		5.450%			(10,627)		5.682%
Ending balance		$	670,769		5.337%		$	554,014		5.488%		$	594,199		4.580%
Monthly averages		$	596,941		5.381%		$	551,803		5.518%		$	497,213		5.414%

In April 2011, we completed the acquisition of substantially all of the real estate assets of privately-owned Genesis Healthcare Corporation. In conjunction with this transaction, we received the option to acquire an ownership interest in Genesis Healthcare. In February 2015, Genesis Healthcare closed on a transaction to merge with Skilled Healthcare Group to become a publicly traded company which required us to record the value of the derivative asset due to the net settlement feature. This event resulted in $58,427,000 gain. During the fourth quarter of 2015, the cost basis of this investment exceeded the fair value. Management performed an assessment to determine whether the decline in fair value was other than temporary and concluded that it was. As a result, we recognized an other than temporary impairment charge of $35,648,000 which is recorded in other expense.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Depreciation and amortization increased primarily as a result of new property acquisitions and the conversions of newly constructed properties. To the extent that we acquire or dispose of additional properties in the future, our provision for depreciation and amortization will change accordingly.

Transaction costs are costs incurred with property acquisitions including due diligence costs, fees for legal and valuation services, the termination of pre-existing relationships, lease termination expenses and other similar costs. The change in transaction costs from year to year is primarily a function of investment volume. The fluctuations in loss (gain) on extinguishment of debt is primarily attributable to the volume of extinguishments and terms of the related secured debt.

Changes in gains on sales of properties are related to the volume of property sales and the sales prices. We recognized impairment losses on certain held-for-sale properties as the fair value less estimated costs to sell exceeded our carrying values.

During the year ended December 31, 2016, we recorded a provision for loan loss related to the restructuring of two first mortgage loans. During the years ended December 31, 2014 and 2015, we did not record a provision for loan loss or record loan write-offs. The provision for loan losses is related to our critical accounting estimate for the allowance for loan losses and is discussed in “Critical Accounting Policies” and Note 6 to our consolidated financial statements.

A portion of our triple-net properties were formed through partnerships. Income or loss from unconsolidated entities represents our share of net income or losses from partnerships where we are the noncontrolling partner. Net income attributable to noncontrolling interests represents our partners’ share of net income relating to those partnerships where we are the controlling partner.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Seniors Housing Operating

The following is a summary of our NOI for the seniors housing operating segment (dollars in thousands):

				Year Ended						One Year Change					Year Ended			One Year Change					Two Year Change
				December 31,			December 31,								December 31,
				2014			2015			$			%		2016			$			%		$			%
SSNOI(1)				$	625,732		$	614,044		$	(11,688)		-2%		$	619,850		$	5,806		1%		$	(5,882)		-1%
Non-cash NOI attributable to same store properties					(1,044)			(1,003)			41		-4%			(2,404)			(1,401)		140%			(1,360)		130%
NOI attributable to non same store properties(2)					6,575			88,221			81,646		1,242%			196,668			108,447		123%			190,093		2,891%
NOI				$	631,263		$	701,262		$	69,999		11%		$	814,114		$	112,852		16%		$	182,851		29%
(1) Relates to 278 same store properties.
(2) Primarily due to the acquisition of 137 properties subsequent to January 1, 2014.

The following is a summary of our results of operations for the seniors housing operating segment (dollars in thousands):

			Year Ended							One Year Change					Year Ended			One Year Change					Two Year Change
				December 31,			December 31,								December 31,
				2014			2015			$			%		2016			$			%		$			%
Revenues:
	Resident fees and services			$	1,892,237		$	2,158,031		$	265,794		14%		$	2,504,731		$	346,700		16%		$	612,494		32%
	Interest income				2,119			4,180			2,061		97%			4,180			-		0%			2,061		97%
	Other income				3,215			6,060			2,845		88%			17,085			11,025		182%			13,870		431%
					1,897,571			2,168,271			270,700		14%			2,525,996			357,725		16%			628,425		33%
Property operating expenses					1,266,308			1,467,009			200,701		16%			1,711,882			244,873		17%			445,574		35%
	Net operating income from continuing operations (NOI)				631,263			701,262			69,999		11%			814,114			112,852		16%			182,851		29%
Other expenses:
	Interest expense				64,130			70,388			6,258		10%			81,853			11,465		16%			17,723		28%
	Loss (gain) on derivatives, net				275			-			(275)		-100%			-			-		n/a			(275)		-100%
	Depreciation and amortization				418,199			351,733			(66,466)		-16%			415,429			63,696		18%			(2,770)		-1%
	Transaction costs				16,880			54,966			38,086		226%			29,207			(25,759)		-47%			12,327		73%
	Loss (gain) on extinguishment of debt, net				383			(195)			(578)		-151%			(88)			107		-55%			(471)		-123%
	Impairment of assets				-			-			-		n/a			12,403			12,403		n/a			12,403		n/a
	Other expenses				1,437			-			(1,437)		-100%			-			-		n/a			(1,437)		-100%
					501,304			476,892			(24,412)		-5%			538,804			61,912		13%			37,500		7%
(Loss) income from continuing operations before income from unconsolidated entities					129,959			224,370			94,411		73%			275,310			50,940		23%			145,351		112%
Income tax expense					(3,047)			986			4,033		-132%			(3,762)			(4,748)		-482%			(715)		23%
(Loss) income from unconsolidated entities					(38,204)			(32,672)			5,532		-14%			(20,442)			12,230		-37%			17,762		-46%
Net income (loss)					88,708			192,684			103,976		117%			251,106			58,422		30%			162,398		183%
Less: Net income (loss) attributable to noncontrolling interests					(2,335)			(1,438)			897		-38%			2,292			3,730		-259%			4,627		-198%
Net income (loss) attributable to common stockholders				$	91,043		$	194,122		$	103,079		113%		$	248,814		$	54,692		28%		$	157,771		173%

Fluctuations in revenues and property operating expenses are primarily a result of acquisitions and the movement of U.S. and foreign currency exchange rates. The increase in other income for the year ended December 31, 2016 is primarily a result of insurance proceeds received relating to a property as well as a bargain purchase gain recognized in conjunction with a single property acquisition. The fluctuations in depreciation and amortization are due to the net impact of acquisitions and variations in amortization of short-lived intangible assets. To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly. Losses from unconsolidated entities are primarily attributable to depreciation and amortization of short-lived

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

intangible assets related to our investments in unconsolidated joint ventures with Chartwell in 2012, Sunrise in 2013 and Senior Resource Group in 2014.

During the year ended December 31, 2016, we completed one seniors housing operating construction project representing $18,979,000 or $210,878 per unit plus one expansion project representing $8,484,000. The following is a summary of our seniors housing operating construction projects, excluding expansions, pending as of December 31, 2016 (dollars in thousands):

Location		Units/Beds			Commitment			Balance		Est. Completion
Camberley, England		12		$	3,487		$	3,436		1Q17
Chertsey, England		93			38,160			18,727		1Q18
Bushey, England		95			48,861			16,949		2Q18
Total		200		$	90,508			39,112
New York, NY		Project in planning stage						126,781
							$	165,893

Interest expense represents secured debt interest expense. Please refer to Note 10 to our consolidated financial statements for additional information. The following is a summary of our seniors housing operating property secured debt principal activity (dollars in thousands):

		Year Ended						Year Ended					Year Ended
		December 31, 2014						December 31, 2015					December 31, 2016
					Weighted Avg.						Weighted Avg.					Weighted Avg.
		Amount			Interest Rate			Amount			Interest Rate		Amount			Interest Rate
Beginning balance		$	1,714,714		4.622%			$	1,654,531		4.422%		$	2,290,552		3.958%
Debt issued			109,503		3.374%				228,685		2.776%			293,860		2.895%
Debt assumed			18,484		4.359%				842,316		3.420%			60,898		4.301%
Debt extinguished			(114,793)		3.626%				(285,599)		4.188%			(159,498)		3.656%
Foreign currency			(39,379)		3.727%				(110,691)		3.625%			26,549		3.483%
Principal payments			(33,998)		4.296%				(38,690)		4.126%			(49,112)		3.888%
Ending balance		$	1,654,531		4.422%			$	2,290,552		3.958%		$	2,463,249		3.936%
Monthly averages		$	1,657,416		4.515%			$	1,894,609		4.261%		$	2,391,706		3.926%

The fluctuations in gains/losses on debt extinguishments is primarily attributable the volume of extinguishments and terms of the related secured debt. During the year ended December 31, 2016, we recorded impairment charges totaling $12,403,000 relating to two properties. Transaction costs represent costs incurred with property acquisitions (including due diligence costs, fees for legal and valuation services, and termination of pre-existing relationships computed based on the fair value of the assets acquired), lease termination fees and other similar costs. The change in transaction costs from year to year is primarily a function of investment volume. The majority of our seniors housing operating properties are formed through partnership interests. Net income attributable to noncontrolling interests represents our partners’ share of net income or loss related to those partnerships where we are the controlling partner.