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 and SSNOI for the Seniors Housing Operating segment for the years presented (dollars in thousands):

		Year Ended								One Year Change							Year Ended				One Year Change							Two Year Change
		December 31,				December 31,											December 31,
		2016				2017				$				%			2018				$				%			$				%
NOI		$	814,114			$	880,026			$	65,912			8	%		$	985,022			$	104,996			12	%		$	170,908			21	%
Non-cash NOI attributable to same store properties(1)		1,990				1,242				(748		)		-38	%		836				(406		)		-33	%		(1,154		)		-58	%
NOI attributable to non same store properties(2)		(77,334		)		(132,604		)		(55,270		)		71	%		(251,803		)		(119,199		)		90	%		(174,469		)		226	%
SSNOI(1)		$	738,770			$	748,664			$	9,894			1	%		$	734,055			$	(14,609	)		-2	%		$	(4,715	)		-1	%

(1) Relates to 348 same store properties.

(2) Primarily relates to the acquisition of 66 properties subsequent to January 1, 2016 and the transition of 69 properties from Triple-net to Seniors Housing Operating.

The following is a summary of our results of operations for the Seniors Housing Operating segment for the years presented (dollars in thousands):

				Year Ended								One Year Change							Year Ended				One Year Change							Two Year Change
				December 31,				December 31,											December 31,
				2016				2017				$				%			2018				$				%			$				%
Revenues:
		Resident fees and services		$	2,504,731			$	2,779,423			$	274,692			11	%		$	3,234,852			$	455,429			16	%		$	730,121			29	%
		Interest income		4,180				69				(4,111		)		-98	%		578				509				738	%		(3,602		)		-86	%
		Other income		17,085				5,127				(11,958		)		-70	%		5,024				(103		)		-2	%		(12,061		)		-71	%
		Total revenues		2,525,996				2,784,619				258,623				10	%		3,240,454				455,835				16	%		714,458				28	%
Property operating expenses				1,711,882				1,904,593				192,711				11	%		2,255,432				350,839				18	%		543,550				32	%
		NOI(1)		814,114				880,026				65,912				8	%		985,022				104,996				12	%		170,908				21	%
Other expenses:
		Depreciation and amortization		415,429				484,796				69,367				17	%		529,449				44,653				9	%		114,020				27	%
		Interest expense		81,853				63,265				(18,588		)		-23	%		69,060				5,795				9	%		(12,793		)		-16	%
		Transaction costs(2)		29,207				—				(29,207		)		-100	%		—				—				n/a			(29,207		)		-100	%
		Loss (gain) on extinguishment of debt, net		(88		)		3,785				3,873				-4,401	%		110				(3,675		)		-97	%		198				-225	%
		Impairment of assets		12,403				21,949				9,546				77	%		7,599				(14,350		)		-65	%		(4,804		)		-39	%
		Other expenses(2)		—				8,347				8,347				n/a			6,624				(1,723		)		-21	%		6,624				n/a
				538,804				582,142				43,338				8	%		612,842				30,700				5	%		74,038				14	%
Income (loss) from continuing operations before income taxes and other items				275,310				297,884				22,574				8	%		372,180				74,296				25	%		96,870				35	%
Income tax benefit (expense)				(3,762		)		(16,430		)		(12,668		)		337	%		1,202				17,632				-107	%		4,964				-132	%
Income (loss) from unconsolidated entities				(20,442		)		(105,236		)		(84,794		)		415	%		(28,142		)		77,094				-73	%		(7,700		)		38	%
Gain (loss) on real estate dispositions, net				9,880				56,295				46,415				470	%		(2,245		)		(58,540		)		-104	%		(12,125		)		-123	%
Income from continuing operations				260,986				232,513				(28,473		)		-11	%		342,995				110,482				48	%		82,009				31	%
Net income (loss)				260,986				232,513				(28,473		)		-11	%		342,995				110,482				48	%		82,009				31	%
Less: Net income (loss) attributable to noncontrolling interests				2,292				8,472				6,180				270	%		(660		)		(9,132		)		-108	%		(2,952		)		-129	%
Net income (loss) attributable to common stockholders				$	258,694			$	224,041			$	(34,653	)		-13	%		$	343,655			$	119,614			53	%		$	84,961			33	%

(1) See Non-GAAP Financial Measures below.

(2) See Note 3 to our consolidated financial statements.

Fluctuations in resident fees/services and property operating expenses are primarily a result of acquisitions, segment transitions and the movement of U.S. and foreign currency exchange rates. The fluctuations in depreciation and amortization are due to 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. The decrease in other income for the year ended December 31, 2018 is primarily a result of insurance proceeds received during 2017 relating to a property as well as a bargain purchase gain recognized in conjunction with a single property acquisition.

During the three years presented, we recorded impairment charges on certain held for sale properties as the carrying value exceeded the estimated fair value less costs to sell. The fluctuations in gains (losses) on real estate dispositions are due to the volume of property sales and sales prices. Beginning January 1, 2017, transaction costs related to asset acquisitions are capitalized

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

as a component of purchase price. The increase in other expenses since 2016 are primarily due to noncapitalizable transaction costs from acquisitions.

During the year ended December 31, 2018, we completed two seniors housing operating construction projects representing $86,931,000 or $459,952 per unit and one expansion project totaling $2,672,000. The following is a summary of our Seniors Housing Operating construction projects, excluding expansions, pending as of December 31, 2018 (dollars in thousands):

Location		Units/Beds			Commitment				Balance				Est. Completion
Wandsworth, UK		98			$	75,185			$	41,833			1Q20
Potomac, MD		120			56,623				7,627				4Q20
		218			$	131,808			49,460
Toronto, ON		Project in planning stage							39,898
									$	89,358

Interest expense represents secured debt interest expense which fluctuates based on the net effect and timing of assumptions, segment transitions, fluctuations in foreign currency rates, extinguishments and principal amortizations. The fluctuations in loss (gain) on extinguishment of debt is primarily attributable the volume of extinguishments and terms of the related secured debt. 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, 2016						December 31, 2017						December 31, 2018
						Weighted Avg.						Weighted Avg.						Weighted Avg.
		Amount				Interest Rate		Amount				Interest Rate		Amount				Interest Rate
Beginning balance		$	2,290,552			3.96%		$	2,463,249			3.94%		$	1,988,700			3.66%
Debt transferred in		—				—%		—				—%		35,830				3.84%
Debt issued		293,860				2.90%		228,772				2.72%		45,447				3.40%
Debt assumed		60,898				4.30%		—				—%		121,612				5.55%
Debt extinguished		(159,498		)		3.66%		(668,804		)		4.81%		(240,095		)		4.83%
Debt deconsolidated		—				—%		(60,000		)		3.80%		—				0.00%
Principal payments		(49,112		)		3.89%		(47,153		)		3.60%		(47,886		)		3.59%
Foreign currency		26,549				3.48%		72,636				3.23%		(93,021		)		3.31%
Ending balance		$	2,463,249			3.94%		$	1,988,700			3.66%		$	1,810,587			3.87%
Monthly averages		$	2,391,706			3.93%		$	2,065,477			3.66%		$	1,915,663			3.74%

The majority of our seniors housing operating properties are formed through partnership interests. The fluctuations in income (loss) from unconsolidated entities are largely due to the recognition of impairments related to one of our investments in unconsolidated entities during the year ended December 31, 2017. Losses are also attributable to depreciation and amortization of short-lived intangible assets related to certain investments in unconsolidated joint ventures. Net income attributable to noncontrolling interests represents our partners’ share of net income (loss) related to joint ventures.

Triple-net

The following is a summary of our NOI and SSNOI for the Triple-net segment for the periods presented (dollars in thousands):

		Year Ended								One Year Change							Year Ended				One Year Change							Two Year Change
		December 31,				December 31,											December 31,
		2016				2017				$				%			2018				$				%			$				%
NOI		$	1,208,860			$	967,084			$	(241,776	)		-20	%		$	900,049			$	(67,035	)		-7	%		$	(308,811	)		-26	%
Non-cash NOI attributable to same store properties(1)		(28,538		)		(23,764		)		4,774				-17	%		(17,093		)		6,671				-28	%		11,445				-40	%
NOI attributable to non same store properties(2)		(709,606		)		(465,820		)		243,786				-34	%		(401,878		)		63,942				-14	%		307,728				-43	%
SSNOI(1)		$	470,716			$	477,500			$	6,784			1	%		$	481,078			$	3,578			1	%		$	10,362			2	%

(1) Relates to 364 same store properties.

(2) Primarily relates to the acquisition of 264 properties and 40 properties sold or held for sale at December 31, 2018.

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

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

			Year Ended								One Year Change							Year Ended				One Year Change							Two Year Change
			December 31,				December 31,											December 31,
			2016				2017				$				%			2018				$				%			$				%
Revenues:
	Rental income		$	1,112,325			$	885,811			$	(226,514	)		-20	%		$	828,865			$	(56,946	)		-6	%		$	(283,460	)		-25	%
	Interest income		90,476				73,742				(16,734		)		-18	%		54,926				(18,816		)		-26	%		(35,550		)		-39	%
	Other income		6,059				7,531				1,472				24	%		17,173				9,642				128	%		11,114				183	%
	Total revenues		1,208,860				967,084				(241,776		)		-20	%		900,964				(66,120		)		-7	%		(307,896		)		-25	%
	Property operating expenses		—				—				—				n/a			915				915				n/a			(915		)		n/a
	NOI(1)		1,208,860				967,084				(241,776		)		-20	%		900,049				(67,035		)		-7	%		(306,981		)		-25	%
Other expenses:
	Depreciation and amortization		297,197				243,830				(53,367		)		-18	%		235,480				(8,350		)		-3	%		(61,717		)		-21	%
	Interest expense		21,370				15,194				(6,176		)		-29	%		14,225				(969		)		-6	%		(7,145		)		-33	%
	Loss (gain) on derivatives and financial instruments, net		68				2,284				2,216				3,259	%		(4,016		)		(6,300		)		-276	%		(4,084		)		-6,006	%
	Transaction costs(2)		10,016				—				(10,016		)		-100	%		—				—				n/a			(10,016		)		-100	%
	Loss (gain) on extinguishment of debt, net		863				29,083				28,220				3,270	%		(32		)		(29,115		)		-100	%		(895		)		-104	%
	Provision for loan losses		6,935				62,966				56,031				808	%		—				(62,966		)		-100	%		(6,935		)		-100	%
	Impairment of assets		20,169				96,909				76,740				380	%		107,980				11,071				11	%		87,811				435	%
	Other expenses(2)		—				116,689				116,689				n/a			90,975				(25,714		)		-22	%		90,975				n/a
			356,618				566,955				210,337				59	%		444,612				(122,343		)		-22	%		87,994				25	%
Income from continuing operations before income taxes and other items			852,242				400,129				(452,113		)		-53	%		455,437				55,308				14	%		(396,805		)		-47	%
Income tax benefit (expense)			(1,087		)		(4,291		)		(3,204		)		295	%		1,611				5,902				-138	%		2,698				-248	%
Income (loss) from unconsolidated entities			9,767				19,428				9,661				99	%		21,938				2,510				13	%		12,171				125	%
Gain (loss) on real estate dispositions, net			355,394				286,325				(69,069		)		-19	%		196,589				(89,736		)		-31	%		(158,805		)		-45	%
Income from continuing operations			1,216,316				701,591				(514,725		)		-42	%		675,575				(26,016		)		-4	%		(540,741		)		-44	%
Net income			1,216,316				701,591				(514,725		)		-42	%		675,575				(26,016		)		-4	%		(540,741		)		-44	%
Less: Net income attributable to noncontrolling interests			1,221				4,603				3,382				277	%		19,306				14,703				319	%		18,085				1,481	%
Net income attributable to common stockholders			$	1,215,095			$	696,988			$	(518,107	)		-43	%		$	656,269			$	(40,719	)		-6	%		$	(558,826	)		-46	%

(1) See Non-GAAP Financial Measures below.

(2) See Note 3 to our consolidated financial statements.

The 2017 and 2018 decreases in rental income are primarily attributable to the disposition of properties exceeding new acquisitions, segment transitions and the reduction in the Genesis HealthCare ("Genesis") annual cash rent obligation due to the restructuring of the master lease as of January 1, 2018. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index (“CPI”) 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 CPI do not increase, a portion of our revenues may not continue to increase. 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, 2018, we had 17 leases with rental rate increasers ranging from 0.18% to 0.76% in our triple-net portfolio. The decrease in interest income is primarily attributable to the volume of loan payoffs during the three years presented. The increase in other income for the year ended December 31, 2018 is primarily due to $10,805,000 of net lease termination fees recognized.

Depreciation and amortization decreased primarily as a result of the disposition of triple-net properties exceeding acquisition and segment transitions. To the extent we acquire or dispose of additional properties in the future, our provision for depreciation and amortization will change accordingly.

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” below and Note 6 to our consolidated financial statements. During the years ended December 31, 2017 and 2016, we recorded provision for loan losses related to certain first mortgage loans to Genesis of $62,966,000 and $6,935,000, respectively.

During the three years presented, we recorded impairment charges on certain held for sale properties as the carrying value exceeded the estimated fair value less costs to sell. The fluctuations in gains on real estate dispositions are due to the volume of property sales and sales prices. Beginning January 1, 2017, transaction costs related to asset acquisitions are capitalized as a component of purchase price.

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

Other expenses primarily represents noncapitalizable transaction costs from acquisitions, segment transitions and the termination/restructuring of pre-existing relationships. In addition, during the year ended December 31, 2017, we recognized an other than temporary charge of $18,294,000 in other expenses on the Genesis available-for-sale equity investment.

During the year ended December 31, 2018, we completed two triple-net construction projects totaling $90,055,000 or $283,472 per bed/unit and two expansion projects totaling $17,357,000. The following is a summary of triple-net construction projects, excluding expansions, pending as of December 31, 2018 (dollars in thousands):

Location		Units/Beds			Commitment				Balance				Est. Completion
Westerville, OH		90			$	22,800			$	8,160			3Q19
Union, KY		162			34,600				9,848				1Q20
Droitwich , UK		70			16,153				4,573				4Q20
Total		322			$	73,553			$	22,581

Total interest expense represents secured debt interest expense and related fees. 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 fluctuations in loss (gain) on extinguishment of debt is primarily attributable to the volume of extinguishments and terms of the related secured debt. The fluctuation in loss (gain) on derivatives and financial instruments, net is primarily attributable to the mark-to-market adjustment recorded on the Genesis available-for-sale investment in accordance with the adoption of Accounting Standards Update 2016-01 described in Note 2 to our consolidated financial statements. The following is a summary of our Triple-net secured debt principal activity for the periods presented (dollars in thousands):

		Year Ended						Year Ended						Year Ended
		December 31, 2016						December 31, 2017						December 31, 2018
						Weighted Avg.						Weighted Avg.						Weighted Avg.
		Amount				Interest Rate		Amount				Interest Rate		Amount				Interest Rate
Beginning balance		$	554,014			5.49%		$	594,199			4.58%		$	347,474			3.55%
Debt issued		166,155				2.21%		13,000				4.57%		—				—%
Debt extinguished		(118,500		)		5.56%		(274,048		)		5.95%		(4,107		)		4.94%
Debt transferred out		—				—%		—				—%		(35,830		)		3.84%
Principal payments		(10,627		)		5.68%		(5,863		)		5.66%		(3,982		)		5.38%
Foreign currency		3,157				5.25%		20,186				2.91%		(15,169		)		3.44%
Ending balance		$	594,199			4.58%		$	347,474			3.55%		$	288,386			3.63%
Monthly averages		$	497,213			5.41%		$	408,688			3.91%		$	321,730			3.51%

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.

Outpatient Medical

The following is a summary of our NOI and SSNOI for the Outpatient Medical segment for the periods presented (dollars in thousands):

		Year Ended								One Year Change							Year Ended				One Year Change							Two Year Change
		December 31,				December 31,											December 31,
		2016				2017				$				%			2018				$				%			$				%
NOI		$	380,264			$	384,068			$	3,804			1	%		$	380,136			$	(3,932	)		-1	%		$	(128	)		—	%
Non-cash NOI attributable to same store properties(1)		(8,190		)		(7,694		)		496				-6	%		(8,226		)		(532		)		7	%		(36		)		—	%
NOI attributable to non same store properties(2)		(53,220		)		(58,076		)		(4,856		)		9	%		(35,619		)		22,457				-39	%		17,601				-33	%
SSNOI(1)		$	318,854			$	318,298			$	(556	)		—	%		$	336,291			$	17,993			6	%		$	17,437			5	%

(1) Relates to 212 same store properties.

(2) Primarily relates to the acquisition of 48 properties and the conversion of 15 construction projects into revenue-generating properties subsequent to January 1, 2016.

The following is a summary of our results of operations for the Outpatient Medical segment for the periods presented (dollars in thousands):

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

			Year Ended								One Year Change							Year Ended				One Year Change							Two Year Change
			December 31,				December 31,											December 31,
			2016				2017				$				%			2018				$				%			$				%
Revenues:
	Rental income		$	536,490			$	560,060			$	23,570			4	%		$	551,557			$	(8,503	)		-2	%		$	15,067			3	%
	Interest income		3,307				—				(3,307		)		-100	%		310				310				n/a			(2,997		)		-91	%
	Other income		5,568				3,340				(2,228		)		-40	%		4,939				1,599				48	%		(629		)		-11	%
	Total revenues		545,365				563,400				18,035				3	%		556,806				(6,594		)		-1	%		11,441				2	%
Property operating expenses			165,101				179,332				14,231				9	%		176,670				(2,662		)		-1	%		11,569				7	%
	NOI(1)		380,264				384,068				3,804				1	%		380,136				(3,932		)		-1	%		(128		)		—	%
Other expenses:
	Depreciation and amortization		188,616				193,094				4,478				2	%		185,530				(7,564		)		-4	%		(3,086		)		-2	%
	Interest expense		19,087				10,015				(9,072		)		-48	%		7,051				(2,964		)		-30	%		(12,036		)		-63	%
	Transaction costs(2)		3,687				—				(3,687		)		-100	%		—				—				n/a			(3,687		)		-100	%
	Loss (gain) on extinguishment of debt, net		—				4,373				4,373				n/a			11,928				7,555				173	%		11,928				n/a
	Provision for loan losses.		3,280				—				(3,280		)		-100	%		—				—				n/a			(3,280		)		-100	%
	Impairment of assets		4,635				5,625				990				21	%		—				(5,625		)		-100	%		(4,635		)		-100	%
	Other expenses(2)		—				1,911				1,911				n/a			7,570				5,659				296	%		7,570				n/a
			219,305				215,018				(4,287		)		-2	%		212,079				(2,939		)		-1	%		(7,226		)		-3	%
Income from continuing operations before income taxes and other item			160,959				169,050				8,091				5	%		168,057				(993		)		-1	%		7,098				4	%
Income tax benefit (expense)			(511		)		(1,477		)		(966		)		189	%		(125		)		1,352				-92	%		386				-76	%
Income (loss) from unconsolidated entities			318				2,683				2,365				744	%		5,563				2,880				107	%		5,245				1,649	%
Gain (loss) on real estate dispositions, net			(1,228		)		1,630				2,858				n/a			221,231				219,601				13,472	%		222,459				n/a
Income from continuing operations			159,538				171,886				9,490				6	%		394,726				3,239				2	%		12,729				8	%
Net income (loss)			159,538				171,886				12,348				8	%		394,726				222,840				130	%		235,188				147	%
Less: Net income (loss) attributable to noncontrolling interests			768				4,765				3,997				520	%		6,150				1,385				29	%		5,382				701	%
Net income (loss) attributable to common stockholders			$	158,770			$	167,121			$	8,351			5	%		$	388,576			$	221,455			133	%		$	229,806			145	%

(1) See Non-GAAP Financial Measures below.

(2) See Note 3 to our consolidated financial statements.

The fluctuations in rental income are primarily attributable to the acquisitions of new properties and the conversion of newly constructed outpatient medical properties, offset by dispositions. Certain of our leases contain annual rental escalators that are contingent upon changes in the CPI. 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 the CPI does not increase, a portion of our revenues may not continue to increase. 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, 2018, our consolidated outpatient medical portfolio signed 77,850 square feet of new leases and 184,349 square feet of renewals. The weighted-average term of these leases was seven years, with a rate of $36.23 per square foot and tenant improvement and lease commission costs of $21.90 per square foot. Substantially all of these leases contain an annual fixed or contingent escalation rent structure ranging from 2.0% to 3.9%.

The fluctuation in property operating expenses and depreciation and amortization are primarily attributable to acquisitions and construction conversions of new outpatient medical facilities, offset by dispositions. To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly. During 2016 and 2017, we recognized impairment charges related to certain held-for-sale properties as the carrying values exceeded the estimated fair values less costs to sell. Changes in gains/losses on sales of properties are related to volume of property sales and the sales prices.

During the year ended December 31, 2018, we completed one outpatient medical construction project representing $11,358,000 or $296 per square foot. The following is a summary of outpatient medical construction projects pending as of December 31, 2018 (dollars in thousands):

Location		Square Feet			Commitment				Balance				Est. Completion
Brooklyn, NY		140,955			$	105,306			$	58,390			3Q19
Houston, TX		73,500			23,455				5,097				4Q19
Porter, TX		55,000			20,800				4,198				4Q19
Total		269,455			$	149,561			$	67,685

Total interest expense represents secured debt interest expense. The change in secured debt interest expense is primarily due to the net effect and timing of assumptions, extinguishments and principal amortizations. The fluctuations in loss (gain) on

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

extinguishment of debt is primarily attributable the volume of extinguishments and terms of the related secured debt. The following is a summary of our Outpatient Medical secured debt principal activity for the periods presented (dollars in thousands):

		Year Ended						Year Ended						Year Ended
		December 31, 2016						December 31, 2017						December 31, 2018
						Weighted Avg.						Weighted Avg.						Weighted Avg.
		Amount				Interest Rate		Amount				Interest Rate		Amount				Interest Rate
Beginning balance		$	627,689			5.18%		$	404,079			4.85%		$	279,951			4.72%
Debt assumed		—				—%		23,094				6.67%		171,275				3.99%
Debt extinguished		(210,115		)		5.97%		(137,416		)		5.99%		(61,291		)		7.43%
Principal payments		(13,495		)		6.55%		(9,806		)		6.85%		(3,197		)		5.91%
Ending balance		$	404,079			4.85%		$	279,951			4.72%		$	386,738			4.20%
Monthly averages		$	536,774			5.11%		$	294,694			4.62%		$	238,214			4.25%

A portion of our outpatient medical 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 or loss relating to those partnerships where we are the controlling partner.

Non-Segment/Corporate

The following is a summary of our results of operations for the non-segment/corporate activities (dollars in thousands):

			Year Ended								One Year Change							Year Ended				One Year Change							Two Year Change
			December 31,				December 31,											December 31,
			2016				2017				$				%			2018				$				%			$				%
Revenues:
	Other income		$	939			$	1,538			$	599			64	%		$	2,275			$	737			48	%		$	1,336			142	%
Expenses:
	Interest expense		399,035				396,148				(2,887		)		-1	%		436,256				40,108				10	%		37,221				9	%
	General and administrative expenses		155,241				122,008				(33,233		)		-21	%		126,383				4,375				4	%		(28,858		)		-19	%
	Loss (gain) on derivatives and financial instruments, net		(2,516		)		—				2,516				-100	%		—				—				n/a			2,516				-100	%
	Loss (gain) on extinguishments of debt, net		16,439				—				(16,439		)		-100	%		4,091				4,091				n/a			(12,348		)		-75	%
	Other expenses		11,998				50,829				38,831				324	%		7,729				(43,100		)		-85	%		(4,269		)		-36	%
	Total expenses		580,197				568,985				(11,212		)		-2	%		574,459				5,474				1	%		(5,738		)		-1	%
Loss from continuing operations before income taxes			(579,258		)		(567,447		)		11,811				-2	%		(572,184		)		(4,737		)		1	%		7,074				-1	%
Income tax benefit (expense)			24,488				2,070				(22,418		)		-92	%		(11,362		)		(13,432		)		n/a			(35,850		)		n/a
Net loss			(554,770		)		(565,377		)		(10,607		)		2	%		(583,546		)		(18,169		)		3	%		(28,776		)		5	%
Preferred stock dividends			65,406				49,410				(15,996		)		-24	%		46,704				(2,706		)		-5	%		(18,702		)		-29	%
Preferred stock redemption charge			—				9,769				9,769				n/a			—				(9,769		)		-100	%		—				n/a
Net loss attributable to common stockholders			$	(620,176	)		$	(624,556	)		$	(4,380	)		1	%		$	(630,250	)		$	(5,694	)		1	%		$	(10,074	)		2	%

The following is a summary of our non-segment/corporate interest expense for the periods presented (dollars in thousands):

		Year Ended								One Year Change							Year Ended				One Year Change							Two Year Change
		December 31,				December 31,											December 31,
		2016				2017				$				%			2018				$				%			$				%
Senior unsecured notes		$	368,775			$	364,773			$	(4,002	)		-1	%		$	387,955			$	23,182			6	%		$	19,180			5	%
Secured debt		310				127				(183		)		-59	%		115				(12		)		-9	%		(195		)		-63	%
Primary unsecured credit facility		16,811				17,863				1,052				6	%		34,626				16,763				94	%		17,815				106	%
Loan expense		13,139				13,385				246				2	%		13,560				175				1	%		421				3	%
Totals		$	399,035			$	396,148			$	(2,887	)		-1	%		$	436,256			$	40,108			10	%		$	37,221			9	%

The change in interest expense on senior unsecured notes is due to the net effect of issuances and extinguishments. Please refer to Note 10 to consolidated financial statements for additional information. The change in interest expense on our primary unsecured credit facility is due primarily to the net effect and timing of draws, paydowns and variable interest rate changes. Please refer to Note 9 of our consolidated financial statements for additional information regarding our primary unsecured credit facility. Loan expenses represent the amortization of costs incurred in connection with senior unsecured notes issuances. The loss on extinguishment of debt in 2016 is due to the early extinguishment of the 2017 senior unsecured notes. The loss on extinguishment of debt in 2018 is due to the term loan facility drawn on in July 2018 and paid off in August 2018.

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

General and administrative expenses as a percentage of consolidated revenues for the years ended December 31, 2018, 2017 and 2016 were 2.69%, 2.83% and 3.63%, respectively. The decrease in general and administrative expenses since 2016 is primarily related to a reduction in professional service fees for tax and legal consulting and compensation costs as a result of execution of our strategic initiatives.

Other expenses for 2017 primarily represents $40,730,000 of costs related to finalization of an agreement with the University of Toledo Foundation to transfer our corporate headquarters as a donation. Other expenses for all years also includes severance-related costs associated with the departure of certain executive officers and key employees.

The fluctuations in income taxes are primarily due to benefits recognized in the year ended December 31, 2016 related to the release of a valuation allowance reserve on a taxable subsidiary and the restructuring of an unconsolidated investment. The decrease in preferred dividends and the preferred stock redemption charge are due to the redemption of our 6.5% Series J preferred stock during the three months ended March 31, 2017.

Other

Non-GAAP Financial Measures

We believe that net income and net income attributable to common stockholders (“NICS”), as defined by U.S. GAAP, are the most appropriate earnings measurements. However, we consider FFO, NOI, SSNOI, EBITDA and Adjusted EBITDA to be useful supplemental measures of our operating performance. Historical cost accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time as evidenced by the provision for depreciation. However, since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies that use historical cost accounting to be insufficient. In response, the National Association of Real Estate Investment Trusts (“NAREIT”) created funds from operations attributable to common stockholders (“FFO”) as a supplemental measure of operating performance for REITs that excludes historical cost depreciation from net income. FFO, as defined by NAREIT, means NICS, computed in accordance with U.S. GAAP, excluding gains (or losses) from sales of real estate and impairment of depreciable assets, plus depreciation and amortization, and after adjustments for unconsolidated entities and noncontrolling interests.

Consolidated net operating income (“NOI”) is used to evaluate the operating performance of our properties. We define NOI as total revenues, including tenant reimbursements, less property operating expenses. Property operating expenses represent costs associated with managing, maintaining and servicing tenants for our seniors housing operating and outpatient medical facility properties. These expenses include, but are not limited to, property-related payroll and benefits, property management fees paid to operators, marketing, housekeeping, food service, maintenance, utilities, property taxes and insurance. General and administrative expenses represent costs unrelated to property operations. These expenses include, but are not limited to, payroll and benefits, professional services, office expenses, and depreciation of corporate fixed assets. Same store NOI (“SSNOI”) is used to evaluate the operating performance of our properties using a consistent population which controls for changes in the composition of our portfolio. As used herein, same store is generally defined as those revenue-generating properties in the portfolio for the reporting period subsequent to January 1, 2016. Land parcels, loans and sub-leases, as well as any properties acquired, developed /redeveloped, transitioned, sold or classified as held for sale during that period are excluded from the same store amounts. We believe NOI and SSNOI provide investors relevant and useful information because they measure the operating performance of our properties at the property level on an unleveraged basis. We use NOI and SSNOI to make decisions about resource allocations and to assess the property level performance of our properties.

EBITDA stands for earnings (net income) before interest, taxes, depreciation and amortization. We believe that EBITDA, along with net income and cash flow provided from operating activities, is an important supplemental measure because it provides additional information to assess and evaluate the performance of our operations. We primarily utilize EBITDA to measure our interest coverage ratio, which represents EBITDA divided by total interest, and our fixed charge coverage ratio, which represents EBITDA divided by fixed charges. Fixed charges include total interest, secured debt principal amortization, and preferred dividends. Covenants in our senior unsecured notes and primary unsecured credit facility contain financial ratios based on a definition of EBITDA that is specific to those agreements. Failure to satisfy these covenants could result in an event of default that 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. Due to the materiality of these debt agreements and the financial covenants, we have disclosed Adjusted EBITDA, which represents EBITDA as defined above excluding unconsolidated entities and adjusted for items per our covenant. We use Adjusted EBITDA to measure our adjusted fixed charge coverage ratio, which represents Adjusted EBITDA divided by fixed charges on a trailing twelve months basis. Fixed charges include total interest (excluding capitalized interest and non-cash interest expenses), secured debt principal amortization and preferred dividends. Our covenant requires an adjusted fixed charge coverage ratio of at least 1.50 times.

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

Our supplemental reporting measures and similarly entitled financial measures are widely used by investors, equity and debt analysts and rating agencies in the valuation, comparison, rating and investment recommendations of companies. Management uses these financial measures to facilitate internal and external comparisons to our historical operating results and in making operating decisions. Additionally, these measures are utilized by the Board of Directors to evaluate management. None of our supplemental measures represent net income or cash flow provided from operating activities as determined in accordance with U.S. GAAP and should not be considered as alternative measures of profitability or liquidity. Finally, the supplemental measures, as defined by us, may not be comparable to similarly entitled items reported by other real estate investment trusts or other companies.

The table below reflects the reconciliation of FFO to NICS, the most directly comparable U.S. GAAP measure, for the periods presented. Noncontrolling interest and unconsolidated entity amounts represent adjustments to reflect our share of depreciation and amortization, gains/loss on real estate dispositions and impairments of assets. Amounts are in thousands except for per share data.

		Year Ended December 31,
FFO Reconciliation:		2016				2017				2018
Net income attributable to common stockholders		$	1,012,397			$	463,595			$	758,250
Depreciation and amortization		901,242				921,720				950,459
Impairment of assets		37,207				124,483				115,579
Loss (gain) on real estate dispositions, net		(364,046		)		(344,250		)		(415,575		)
Noncontrolling interests		(71,527		)		(60,018		)		(69,193		)
Unconsolidated entities		67,667				60,046				52,663
Funds from operations attributable to common stockholders		$	1,582,940			$	1,165,576			$	1,392,183
Average common shares outstanding:
Basic		358,275				367,237				373,620
Diluted		360,227				369,001				375,250
Per share data:
Net income attributable to common stockholders
Basic		$	2.83			$	1.26			$	2.03
Diluted		2.81				1.26				2.02
Funds from operations attributable to common stockholders
Basic		$	4.42			$	3.17			$	3.73
Diluted		4.39				3.16				3.71

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

The table below reflects the reconciliation of EBITDA and Adjusted EBITDA to net income, the most directly comparable U.S. GAAP measure, for the periods presented. Dollars are in thousands.

		Year Ended December 31,
Adjusted EBITDA Reconciliation:		2016				2017				2018
Net income		$	1,082,070			$	540,613			$	829,750
Interest expense		521,345				484,622				526,592
Income tax expense (benefit)		(19,128		)		20,128				8,674
Depreciation and amortization		901,242				921,720				950,459
EBITDA		2,485,529				1,967,083				2,315,475
Loss (income) from unconsolidated entities		10,357				83,125				641
Transaction costs		42,910				—				—
Stock-based compensation expense(1)		28,869				19,102				27,646
Loss (gain) on extinguishment of debt, net		17,214				37,241				16,097
Loss (gain) on real estate dispositions, net		(364,046		)		(344,250		)		(415,575		)
Impairment of assets		37,207				124,483				115,579
Provision for loan losses		10,215				62,966				—
Loss (gain) on derivatives and financial instruments, net		(2,448		)		2,284				(4,016		)
Other expenses(1)		7,721				176,395				111,990
Additional other income		(16,664		)		—				(14,832		)
Adjusted EBITDA		$	2,256,864			$	2,128,429			$	2,153,005
Adjusted Interest Coverage Ratio:
Interest expense		$	521,345			$	484,622			$	526,592
Capitalized interest		16,943				13,489				7,905
Non-cash interest expense		(1,681		)		(10,359		)		(10,860		)
Total interest		536,607				487,752				523,637
Adjusted EBITDA		$	2,256,864			$	2,128,429			$	2,153,005
Adjusted interest coverage ratio		4.21x				4.36x				4.11x
Adjusted Fixed Charge Coverage Ratio:
Total interest		$	536,607			$	487,752			$	523,637
Secured debt principal payments		74,466				64,078				56,288
Preferred dividends		65,406				49,410				46,704
Total fixed charges		676,479				601,240				626,629
Adjusted EBITDA		$	2,256,864			$	2,128,429			$	2,153,005
Adjusted fixed charge coverage ratio		3.34x				3.54x				3.44x

(1) Certain severance-related costs are included in stock-based compensation and excluded from other expenses.

Our leverage ratios include book capitalization, undepreciated book capitalization and market capitalization. Book capitalization represents the sum of net debt (defined as total long-term debt less cash and cash equivalents and any IRC section 1031 deposits), total equity and redeemable noncontrolling interests. Undepreciated book capitalization represents book capitalization adjusted for accumulated depreciation and amortization. Market capitalization represents book capitalization adjusted for the fair market value of our common stock. Our leverage ratios are defined as the proportion of net debt to total capitalization. The table below reflects the reconciliation of our leverage ratios to our balance sheets for the periods presented. Amounts are in thousands, except share price.

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

				Year Ended December 31,
				2016				2017				2018
Book capitalization:
Borrowings under primary unsecured credit facility				$	645,000			$	719,000			$	1,147,000
Long-term debt obligations(1)				11,713,245				11,012,936				12,150,144
Cash and cash equivalents(2)				(557,659		)		(249,620		)		(215,376		)
Total net debt				11,800,586				11,482,316				13,081,768
Total equity and noncontrolling interests(3)				15,679,905				15,300,646				16,010,645
Book capitalization				$	27,480,491			$	26,782,962			$	29,092,413
		Net debt to book capitalization ratio		42.9		%		42.9		%		45.0		%
Undepreciated book capitalization:
Total net debt				$	11,800,586			$	11,482,316			$	13,081,768
Accumulated depreciation and amortization				4,093,494				4,838,370				5,499,958
Total equity and noncontrolling interests(3)				15,679,905				15,300,646				16,010,645
Undepreciated book capitalization				$	31,573,985			$	31,621,332			$	34,592,371
		Net debt to undepreciated book capitalization ratio		37.4		%		36.3		%		37.8		%
Market capitalization:
Common shares outstanding				362,602				371,732				383,675
Period end share price				$	66.93			$	63.77			$	69.41
Common equity market capitalization				$	24,268,952			$	23,705,350			$	26,630,882
Total net debt				11,800,586				11,482,316				13,081,768
Noncontrolling interests(3)				873,512				877,499				1,378,311
Preferred stock				1,006,250				718,503				718,498
Market capitalization:				$	37,949,300			$	36,783,668			$	41,809,459
		Net debt to market capitalization ratio		31.1		%		31.2		%		31.3		%

(1) Amounts include senior unsecured notes, secured debt and capital lease obligations as reflected on our Consolidated Balance Sheet.

(2) Inclusive of IRC section 1031 deposits, if any.

(3) Includes all noncontrolling interests (redeemable and permanent) as reflected on our Consolidated Balance Sheet.

The following tables reflect the reconciliation of NOI and SSNOI to net income, the most directly comparable U.S. GAAP measure, for the years presented. Dollar amounts are in thousands.

						Year Ended December 31,
NOI Reconciliation:						2016				2017				2018
Net income						$	1,082,070			$	540,613			$	829,750
Loss (gain) on real estate dispositions, net						(364,046		)		(344,250		)		(415,575		)
Loss (income) from unconsolidated entities						10,357				83,125				641
Income tax expense (benefit)						(19,128		)		20,128				8,674
Other expenses						11,998				177,776				112,898
Impairment of assets						37,207				124,483				115,579
Provision for loan losses						10,215				62,966				—
Loss (gain) on extinguishment of debt, net						17,214				37,241				16,097
Loss (gain) on derivatives and financial instruments, net						(2,448		)		2,284				(4,016		)
Transaction costs						42,910				—				—
General and administrative expenses						155,241				122,008				126,383
Depreciation and amortization						901,242				921,720				950,459
Interest expense						521,345				484,622				526,592
Consolidated net operating income (NOI)						$	2,404,177			$	2,232,716			$	2,267,482
NOI by segment:
		Seniors Housing Operating				$	814,114			$	880,026			$	985,022
		Triple-net				1,208,860				967,084				900,049
		Outpatient Medical				380,264				384,068				380,136
		Non-segment/corporate				939				1,538				2,275
				Total NOI		$	2,404,177			$	2,232,716			$	2,267,482

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

		Year Ended December 31,
SSNOI Reconciliation:		2016				2017				2018
NOI:
Seniors Housing Operating		$	814,114			$	880,026			$	985,022
Triple-net		1,208,860				967,084				900,049
Outpatient Medical		380,264				384,068				380,136
Total		2,403,238				2,231,178				2,265,207
Adjustments:
Seniors Housing Operating:
Non-cash NOI on same store properties		1,990				1,242				836
NOI attributable to non same store properties		(77,334		)		(132,604		)		(251,803		)
Subtotal		(75,344		)		(131,362		)		(250,967		)
Triple-net:
Non-cash NOI on same store properties		(28,538		)		(23,764		)		(17,093		)
NOI attributable to non same store properties		(709,606		)		(465,820		)		(401,878		)
Subtotal		(738,144		)		(489,584		)		(418,971		)
Outpatient Medical:
Non-cash NOI on same store properties		(8,190		)		(7,694		)		(8,226		)
NOI attributable to non same store properties		(53,220		)		(58,076		)		(35,619		)
Subtotal		(61,410		)		(65,770		)		(43,845		)
Total		(874,898		)		(686,716		)		(713,783		)
SSNOI by segment:
Seniors Housing Operating		738,770				748,664				734,055
Triple-net		470,716				477,500				481,078
Outpatient Medical		318,854				318,298				336,291
Total		$	1,528,340			$	1,544,462			$	1,551,424
SSNOI Property Reconciliation:
Total properties		1,510
Acquisitions		(378		)
Developments		(32		)
Disposals/Held-for-sale		(55		)
Segment transitions		(113		)
Other(1)		(8		)
Same store properties		924

(1) Includes seven land parcels and one loan.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions. Management considers accounting estimates or assumptions critical if:

•	the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and

•	the impact of the estimates and assumptions on financial condition or operating performance is material.

Management has discussed the development and selection of its critical accounting policies with the Audit Committee of the Board of Directors and the Audit Committee has reviewed the disclosure presented below relating to them. Management believes the current assumptions and other considerations used to estimate amounts reflected in our consolidated financial statements are appropriate and are not reasonably likely to change in the future. However, since these estimates require assumptions to be made that were uncertain at the time the estimate was made, they bear the risk of change. If actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations, liquidity and/or financial condition. Please refer to Note 2 to our consolidated financial statements for further information on significant accounting policies that impact us and for the impact of new accounting standards, including accounting pronouncements that were issued but not yet adopted by us.

The following table presents information about our critical accounting policies, as well as the material assumptions used to develop each estimate:

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

Nature of Critical Accounting Estimate	Assumptions/Approach Used
Principles of Consolidation The consolidated financial statements include our accounts, the accounts of our wholly-owned subsidiaries, and the accounts of joint venture entities in which we own a majority voting interest with the ability to control operations and where no substantive participating rights or substantive kick out rights have been granted to the noncontrolling interests. In addition, we consolidate those entities deemed to be variable interest entities (“VIEs”) in which we are determined to be the primary beneficiary. All material intercompany transactions and balances have been eliminated in consolidation.	We make judgments about which entities are VIEs based on an assessment of whether (i) the equity investors as a group, if any, do not have a controlling financial interest, or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. We make judgments with respect to our level of influence or control of an entity and whether we are (or are not) the primary beneficiary of a VIE. Consideration of various factors includes, but is not limited to, our ability to direct the activities that most significantly impact the entity's economic performance, our form of ownership interest, our representation on the entity's governing body, the size and seniority of our investment, our ability and the rights of other investors to participate in policy making decisions, replace the manager and/or liquidate the entity, if applicable. Our ability to correctly assess our influence or control over an entity at inception of our involvement or on a continuous basis when determining the primary beneficiary of a VIE affects the presentation of these entities in our consolidated financial statements. If we perform a primary beneficiary analysis at a date other than at inception of the VIE, our assumptions may be different and may result in the identification of a different primary beneficiary.
Real Estate Acquisitions On January 1, 2017, we adopted Accounting Standards Update 2017-01, Clarifying the Definition of a Business (“ASU 2017-01”) which narrows the Financial Accounting Standards Board’s (“FASB”) definition of a business and provides a framework that gives entities a basis for making reasonable judgments about whether a transaction involves an asset or a business. ASU 2017-01 states that when substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the acquired asset is not a business. If this initial test is not met, an acquired asset cannot be considered a business unless it includes an input and a substantive process that together significantly contribute to the ability to create output. The primary differences between business combinations and asset acquisitions include recording the asset acquisition at relative fair value, capitalizing transaction costs, and the elimination of the measurement period in which to record adjustments to the transaction. We believe that substantially all our real estate acquisitions are considered asset acquisitions. We are applying ASU 2017-01 prospectively for acquisitions after January 1, 2017. Regardless of whether an acquisition is considered an asset acquisition or a business combination, the cost of real property acquired is allocated to net tangible and identifiable intangible assets based on their respective fair values. Tangible assets primarily consist of land, buildings, and improvements. The remaining purchase price is allocated among identifiable intangible assets primarily consisting of the above or below market component of in-place leases and the value of in-place leases. The total amount of other intangible assets acquired is further allocated to in-place lease values and customer relationship values based on management’s evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant. Real property developed by us is recorded at cost, including the capitalization of construction period interest.	We make estimates as part of our allocation of the purchase price of acquisitions to the various components of the acquisition based upon the relative fair value of each component. The most significant components of our allocations are typically the allocation of fair value to the buildings as-if-vacant, land, and in-place leases. In the case of the fair value of buildings and the allocation of value to land and other intangibles, our estimates of the values of these components will affect the amount of depreciation and amortization we record over the estimated useful life of the property acquired or the remaining lease term. In the case of the value of in-place leases, we make our best estimates based on our evaluation of the specific characteristics of each tenant's lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions, and costs to execute similar leases. Our assumptions affect the amount of future revenue that we will recognize over the remaining lease term for the acquired in-place leases. We compute depreciation and amortization on our properties using the straight-line method based on their estimated useful lives which range from 15 to 40 years for buildings and five to 15 years for improvements. Amortization periods for intangibles are based on the remaining life of the lease or lease-up period.

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

Nature of Critical Accounting Estimate	Assumptions/Approach Used
Allowance for Loan Losses The allowance for loan losses is maintained at a level believed adequate to absorb potential losses in our loans receivable. The determination of the allowance is based on a quarterly evaluation of all outstanding loans. If this evaluation indicates that there is a greater risk of loan charge-offs, additional allowances or placement on non-accrual status may be required. A loan is impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the original loan agreement or if it has been modified in a troubled debt restructuring. Consistent with this definition, all loans on non-accrual are deemed impaired. To the extent circumstances improve and the risk of collectability is diminished, we will return these loans to income accrual status.	The determination of the allowance is based on a quarterly evaluation of all outstanding loans, including general economic conditions and estimated collectability of loan payments. We evaluate the collectability of our loans receivable based on a combination of factors, including, but not limited to, delinquency status, historical loan charge-offs, financial strength of the borrower and guarantors, and value of the underlying collateral. Any loans with collectability concerns are subjected to a projected payoff valuation. The valuation is based on the expected future cash flows and/or the estimated fair value of the underlying collateral. The valuation is compared to the outstanding balance to determine the reserve needed for each loan. We may base our valuation on a loan’s observable market price, if any, or the fair value of collateral, net of sales costs, if the repayment of the loan is expected to be provided solely by the collateral.
Revenue Recognition Revenue is recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of collectability risk. Substantially all of our operating leases contain fixed and/or contingent 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. We recognize resident fees and services, other than move-in fees, monthly as services are provided. Lease agreements with residents generally have a term of one year and are cancelable by the resident with 30 days’ notice.	We evaluate the collectability of our revenues and related receivables on an on-going basis. We evaluate collectability based on assumptions and other considerations including, but not limited to, the certainty of payment, payment history, the financial strength of the investment’s underlying operations as measured by cash flows and payment coverages, the value of the underlying collateral and guaranties, and current economic conditions. If our evaluation indicates that collectability is not reasonably assured, we may place an investment on non-accrual or reserve against all or a portion of current income as an offset to revenue.
Impairment of Long-Lived Assets An impairment charge must be recognized when the carrying value of a long-lived asset is not recoverable. The carrying value is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If it is determined that a permanent impairment of a long-lived asset has occurred, the carrying value of the asset is reduced to its fair value and an impairment charge is recognized for the difference between the carrying value and the fair value.	The net book value of long-lived assets is reviewed quarterly on a property by property basis to determine if there are indicators of impairment. These indicators may include anticipated operating losses at the property level, the tenant’s inability to make rent payments, a decision to dispose of an asset before the end of its estimated useful life, and changes in the market that may permanently reduce the value of the property. If indicators of impairment exist, then the undiscounted future cash flows from the most likely uses of the property are compared to the current net book value. This analysis requires us to determine if indicators of impairment exist and to estimate the most likely stream of cash flows to be generated from the property during the period the property is expected to be held. Properties that meet the held-for-sale criteria are recorded at the lesser of fair value less costs to sell or carrying value.