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

Seniors Housing Operating

The following is a summary of our SSNOI at Welltower's Share for the Seniors Housing Operating segment (dollars in thousands):

						QTD Pool																								YTD Pool
						Three Months Ended												Change												Year Ended												Change
						December 31, 2020						December 31, 2019						$						%						December 31, 2020						December 31, 2019						$						%
SSNOI(1)						$	154,373					$	216,166					$	(61,793)					-28.6		%				$	591,133					$	764,328					$	(173,195)					-22.7		%

(1) Relates to 514 properties for the QTD Pool and 399 properties for the YTD Pool. Please see "Non-GAAP Financial Measures for additional information and reconciliations.

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,
												2020						2019						$						%						2018						$						%						$						%
Revenues:
						Resident fees and services						$	3,074,022					$	3,448,175					$	(374,153)					-11		%				$	3,234,852					$	213,323					7		%				$	(160,830)					-5		%
						Interest income						618						36						582						n/a						578						(542)						-94		%				40						7		%
						Other income						7,223						8,658						(1,435)						-17		%				5,024						3,634						72		%				2,199						44		%
						Total revenues						3,081,863						3,456,869						(375,006)						-11		%				3,240,454						216,415						7		%				(158,591)						-5		%
Property operating expenses												2,326,311						2,417,349						(91,038)						-4		%				2,255,432						161,917						7		%				70,879						3		%
						NOI(1)						755,552						1,039,520						(283,968)						-27		%				985,022						54,498						6		%				(229,470)						-23		%
Other expenses:
						Depreciation and amortization						544,462						553,189						(8,727)						-2		%				529,449						23,740						4		%				15,013						3		%
						Interest expense						54,901						67,983						(13,082)						-19		%				69,060						(1,077)						-2		%				(14,159)						-21		%
						Loss (gain) on extinguishment of debt, net						12,659						1,614						11,045						684		%				110						1,504						n/a						12,549						n/a
						Provision for loan losses						671						—						671						n/a						—						—						n/a						671						n/a
						Impairment of assets						100,741						2,145						98,596						n/a						7,599						(5,454)						-72		%				93,142						1,226		%
						Other expenses						14,265						26,348						(12,083)						-46		%				6,624						19,724						298		%				7,641						115		%
												727,699						651,279						76,420						12		%				612,842						38,437						6		%				114,857						19		%
Income (loss) from continuing operations before income taxes and other items												27,853						388,241						(360,388)						-93		%				372,180						16,061						4		%				(344,327)						-93		%
Income (loss) from unconsolidated entities												(33,857)						12,388						(46,245)						-373		%				(28,142)						40,530						144		%				(5,715)						-20		%
Gain (loss) on real estate dispositions, net												328,249						528,747						(200,498)						-38		%				(2,245)						530,992						n/a						330,494						n/a
Income from continuing operations												322,245						929,376						(607,131)						-65		%				341,793						587,583						172		%				(19,548)						-6		%
Net income (loss)												322,245						929,376						(607,131)						-65		%				341,793						587,583						172		%				(19,548)						-6		%
Less: Net income (loss) attributable to noncontrolling interests												20,301						56,513						(36,212)						-64		%				(660)						57,173						n/a						20,961						n/a
Net income (loss) attributable to common stockholders												$	301,944					$	872,863					$	(570,919)					-65		%				$	342,453					$	530,410					155		%				$	(40,509)					-12		%

(1) See Non-GAAP Financial Measures below.

Decreases in resident fees and services and property operating expenses are primarily a result of property dispositions and decreases in occupancy across the portfolio due to the COVID-19 pandemic. Occupancy within our Seniors Housing Operating portfolio has declined as follows:

						Feb.						Mar.						Apr.						May						Jun.						Jul.						Aug.						Sep.						Oct.						Nov.						Dec.
Spot occupancy (1)						85.6		%				84.9		%				82.6		%				80.9		%				79.9		%				79.3		%				78.7		%				78.4		%				78.0		%				77.3		%				76.2		%
Sequential occupancy change												(0.7)		%				(2.3)		%				(1.7)		%				(1.0)		%				(0.6)		%				(0.6)		%				(0.3)		%				(0.4)		%				(0.7)		%				(1.1)		%

(1) Spot occupancy represents approximate month end occupancy for properties in operation as of February 29, 2020, including unconsolidated properties but excluding acquisitions, dispositions and development conversions since this date.

In addition, we have experienced increased operational costs, net of reimbursements, of $78,792,000 during the year ended December 31, 2020, included in property operating expenses relating to our consolidated properties. These expenses were incurred as a result of the introduction of public health measures and other regulations affecting our properties, as well as additional health and safety measures adopted by us and our operators related to the COVID-19 pandemic, including increases in labor and property cleaning expenses and expenditures related to our efforts to procure PPE and supplies, net of reimbursements. We expect total portfolio expenses to be elevated during the pandemic and potentially beyond as these additional health and safety measures become standard practice.

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

In 2020 applications were made for amounts under Phase 2 and Phase 3 of the Provider Relief Fund following the announcement from the Department of Health and Human Services that it expanded the eligibility of the CARES Act Provider Relief Fund to include assisted living facilities. During the fourth quarter, we received Provider Relief Funds of approximately $9 million which was recognized as a reduction to property operating expenses. To date in 2021, we have received approximately $34 million of Provider Relief Funds.

During the year ended December 31, 2020, we recorded impairment charges of $100,741,000 related to 15 held for sale or sold properties and six held for use properties. During the year ended December 31, 2019, we recorded impairment charges of $2,145,000 related to four held for use properties. Transaction costs related to asset acquisitions are capitalized as a component of the purchase price. Changes in the gain on sale of properties are due to the volume of property sales and sales prices. During the year ended December 31, 2020, we recognized a gain on real estate disposition of $313 million related to an 11 property U.S. portfolio. During the year ended December 31, 2019, we recognized a gain on real estate disposition of $520 million related to the Benchmark Senior Living portfolio. The fluctuation in other expenses is primarily due to the timing of noncapitalizable transaction costs associated with acquisitions and operator transitions.

Depreciation and amortization fluctuates as a result of acquisitions, disposition and transitions. To the extent we acquire or dispose of additional properties in the future, our provision for depreciation and amortization will change accordingly.

During the year ended December 31, 2020, we completed three Seniors Housing Operating construction projects representing $93,188,000 or $300,606 per unit. The following is a summary of our consolidated Seniors Housing Operating construction projects, excluding expansions, pending as of December 31, 2020 (dollars in thousands):

Location						Units/Beds						Commitment						Balance						Est. Completion
Potomac, MD						120						$	56,720					$	48,783					2Q21
Beckenham, UK						100						64,348						45,722						3Q21
Barnet, UK						100						70,769						41,215						4Q21
Hendon, UK						102						75,824						50,817						1Q22
Princeton, NJ						80						29,780						19,209						3Q22
Berea, OH						120						14,934						1,538						4Q22
Painesville, OH						119						14,462						1,508						4Q22
Beaver, PA						116						14,184						1,152						4Q22
						857						$	341,021					209,944
Toronto, ON						Project in planning stage												46,856
Brookline, MA						Project in planning stage												23,679
Washington, DC						Project in planning stage												22,951
Columbus, OH						Project in planning stage												11,492
Raleigh, NC						Project in planning stage												3,107
																		$	318,029

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 to the volume of extinguishments and terms of the related secured debt. The following is a summary of our Seniors Housing Operating segment property secured debt principal activity (dollars in thousands):

						Year Ended												Year Ended												Year Ended
						December 31, 2020												December 31, 2019												December 31, 2018
												Weighted Avg.												Weighted Avg.												Weighted Avg.
						Amount						Interest Rate						Amount						Interest Rate						Amount						Interest Rate
Beginning balance						$	2,115,037					3.54%						$	1,810,587					3.87%						$	1,988,700					3.66%
Debt transferred in						—						—%						—						—%						35,830						3.84%
Debt issued						62,055						2.55%						343,696						3.11%						45,447						3.40%
Debt assumed						—						—%						183,061						4.58%						121,612						5.55%
Debt extinguished						(441,208)						2.18%						(219,864)						4.28%						(240,095)						4.83%
Debt transferred out						—						—%						(12,072)						3.89%						—						—%
Principal payments						(48,498)						3.30%						(43,997)						3.45%						(47,886)						3.59%
Foreign currency						18,803						2.93%						53,626						3.33%						(93,021)						3.31%
Ending balance						$	1,706,189					3.05%						$	2,115,037					3.54%						$	1,810,587					3.87%
Monthly averages						$	1,875,910					3.19%						$	1,966,892					3.70%						$	1,915,663					3.74%

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

The majority of our Seniors Housing Operating properties are formed through partnership interests. Losses from unconsolidated entities during the year ended December 31, 2020 are largely attributable to depreciation and amortization of short-lived intangible assets related to certain investments in unconsolidated joint ventures. The gains from unconsolidated entities during the year ended December 31, 2019 are largely due to a gain on the disposition of an unconsolidated entity. Net income attributable to noncontrolling interests represents our partners’ share of net income (loss) related to joint ventures. The increase during the years ended December 31, 2020 and 2019 relates primarily to our partner's share of the gains recognized on the sale of the 11 property U.S. portfolio and the Benchmark Senior Living portfolio, respectively.

Triple-net

The following is a summary of our SSNOI at Welltower's Share for the Triple-net segment (dollars in thousands):

						QTD Pool																								YTD Pool
						Three Months Ended												Change												Year Ended												Change
						December 31, 2020						December 31, 2019						$						%						December 31, 2020						December 31, 2019						$						%
SSNOI(1)						$	168,697					$	170,052					$	(1,355)					-0.8		%				$	628,972					$	624,877					$	4,095					0.7		%

(1) Relates to 632 properties for the QTD Pool and 608 properties for the YTD Pool. Please see Non-GAAP Financial Measures for additional information and reconciliations.

The following is a summary of our results of operations for the Triple-net 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,
									2020						2019						$						%						2018						$						%						$						%
Revenues:
			Rental income						$	733,776					$	903,798					$	(170,022)					-19		%				$	828,865					$	74,933					9		%				$	(95,089)					-11		%
			Interest income						62,625						62,599						26						—		%				54,926						7,673						14		%				7,699						14		%
			Other income						4,903						6,246						(1,343)						-22		%				17,173						(10,927)						-64		%				(12,270)						-71		%
			Total revenues						801,304						972,643						(171,339)						-18		%				900,964						71,679						8		%				(99,660)						-11		%
			Property operating expenses						53,183						53,900						(717)						-1		%				915						52,985						5,791						52,268						5,712
			NOI(1)						748,121						918,743						(170,622)						-19		%				900,049						18,694						2		%				(151,928)						-17		%
Other expenses:
			Depreciation and amortization						232,604						232,626						(22)						—		%				235,480						(2,854)						-1		%				(2,876)						-1		%
			Interest expense						9,477						12,892						(3,415)						-26		%				14,225						(1,333)						-9		%				(4,748)						-33		%
			Loss (gain) on derivatives and financial instruments, net						11,049						(4,399)						15,448						351		%				(4,016)						(383)						-10		%				15,065						375		%
			Loss (gain) on extinguishment of debt, net						—						—						—						n/a						(32)						32						100		%				32						100		%
			Provision for loan losses						90,563						18,690						71,873						385						—						18,690						n/a						90,563						n/a
			Impairment of assets						34,867						11,926						22,941						192		%				107,980						(96,054)						-89		%				(73,113)						-68		%
			Other expenses						22,923						13,771						9,152						66		%				90,975						(77,204)						-85		%				(68,052)						-75		%
									401,483						285,506						115,977						41		%				444,612						(159,106)						-36		%				(43,129)						-10		%
Income from continuing operations before income taxes and other items									346,638						633,237						(286,599)						-45		%				455,437						177,800						39		%				(108,799)						-24		%
Income (loss) from unconsolidated entities									18,462						22,985						(4,523)						-20		%				21,938						1,047						5		%				(3,476)						-16		%
Gain (loss) on real estate dispositions, net									64,288						218,322						(154,034)						-71		%				196,589						21,733						11		%				(132,301)						-67		%
Income from continuing operations									429,388						874,544						(445,156)						-51		%				673,964						200,580						30		%				(244,576)						-36		%
Net income									429,388						874,544						(445,156)						-51		%				673,964						200,580						30		%				(244,576)						-36		%
Less: Net income attributable to noncontrolling interests									39,985						36,271						3,714						10		%				19,306						16,965						88		%				20,679						107		%
Net income attributable to common stockholders									$	389,403					$	838,273					$	(448,870)					-54		%				$	654,658					$	183,615					28		%				$	(265,255)					-41		%

(1) See Non-GAAP Financial Measures below.

The decrease in rental income is primarily attributable to the write-off of straight-line rent receivable balances of $146,508,000 during the year ended December 31, 2020, relating to leases for which collection of substantially all contractual lease payments was no longer deemed probable. Included in such amounts was $91,025,000 relating to Genesis Healthcare whom noted substantial doubt as to their ability to continue as a going concern in August. 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. For the three months ended

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

December 31, 2020, we had 18 leases with rental rate increasers ranging from 0.07% to 0.34% in our Triple-net portfolio. Our Triple-net operators are experiencing similar impacts on occupancy and operating costs due to the COVID-19 pandemic as described above with respect to our Seniors Housing Operating properties. However, long-term/post-acute facilities are generally experiencing a higher degree of occupancy declines which may impact the ability of our Triple-net operators to make contractual rent payments to us in the future. Many of our Triple-net operators received funds under the CARES Act Paycheck Protection Program. In addition, operators of long-term/post-acute facilities have generally received funds from Phase 1 of the Provider Relief Fund and operators of assisted living facilities have or are expected to receive funds from Phase 2 of the Provider Relief Fund. Accordingly, collection of rent due during the COVID-19 pandemic to date (March through December) has generally been consistent with historical collection rates and no significant rent concessions or deferrals have been made.

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

During the year ended December 31, 2020, we recognized a provision for loan losses of $90,563,000, of which $80,873,000 represents additional reserves as a result of the current collateral estimate related to the Genesis Healthcare outstanding loans. During the year ended December 31, 2019, we recognized a provision for loan losses of $18,690,000 to fully reserve for certain real estate loans receivable that were no longer deemed collectible. During the year ended December 31, 2020, we recorded impairment charges of $34,867,000 related to one held for sale and four held for use properties. During the year ended December 31, 2019, we recorded impairment charges of $11,374,000 related to two properties. Changes in the gain on sales of properties are related to the volume and timing of property sales and the sales prices. The fluctuation in other expense is primarily due to noncapitalizable transaction costs from acquisitions and segment transitions.

During the year ended December 31, 2020, we completed three Triple-net construction projects representing $75,149,000 or $224,997 per unit. The following is a summary of our consolidated Triple-net construction projects, excluding expansions, pending as of December 31, 2020 (dollars in thousands):

Location						Units/Beds						Commitment						Balance						Est. Completion
Thousand Oaks, CA						82						$	25,391					$	21,408					1Q21
Redhill, UK						76						21,723						11,869						2Q21
Leicester, UK						60						15,301						5,566						1Q22
Wombourne, UK						66						16,394						5,537						2Q22
Raleigh, NC						191						154,256						14,339						2Q23
Total						475						$	233,065					$	58,719

Loss (gain) on derivatives and financial instruments, net is primarily attributable to the mark-to-market adjustments recorded on our Genesis Healthcare available-for-sale investment. 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 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, 2020												December 31, 2019												December 31, 2018
												Weighted Avg.												Weighted Avg.												Weighted Avg.
						Amount						Interest Rate						Amount						Interest Rate						Amount						Interest Rate
Beginning balance						$	306,038					3.60%						$	288,386					3.63%						$	347,474					3.55%
Debt transferred in						—						—%						12,072						3.89%						—						—%
Debt extinguished						(176,875)						2.03%						—						—%						(4,107)						4.94%
Debt transferred out						—						—%						—						—%						(35,830)						3.84%
Principal payments						(4,376)						5.16%						(4,017)						5.21%						(3,982)						5.38%
Foreign currency						(1,135)						2.97%						9,597						2.99%						(15,169)						3.44%
Ending balance						$	123,652					4.91%						$	306,038					3.60%						$	288,386					3.63%
Monthly averages						$	215,796					3.85%						$	294,080					3.63%						$	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. The decrease in income from unconsolidated entities during the year ended December 31, 2020 is primarily related to the write-off of Genesis Healthcare straight-line rent receivable balances at unconsolidated entities. 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

Outpatient Medical

The following is a summary of our SSNOI at Welltower Share for the Outpatient Medical segment (dollars in thousands):

						QTD Pool																								YTD Pool
						Three Months Ended												Change												Year Ended												Change
						December 31, 2020						December 31, 2019						$						%						December 31, 2020						December 31, 2019						$						%
SSNOI(1)						$	84,985					$	84,144					$	841					1.0		%				$	252,512					$	246,789					$	5,723					2.3		%

(1) Relates to 303 properties for the QTD Pool and 231 properties for the YTD Pool. Please see Non-GAAP Financial Measures for additional information and reconciliations.

The following is a summary of our results of operations 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,
									2020						2019						$						%						2018						$						%						$						%
Revenues:
			Rental income						$	709,584					$	684,602					$	24,982					4		%				$	551,557					$	133,045					24		%				$	158,027					29		%
			Interest income						5,913						1,195						4,718						395		%				310						885						285		%				5,603						n/a
			Other income						4,522						2,031						2,491						123		%				4,939						(2,908)						-59		%				(417)						-8		%
			Total revenues						720,019						687,828						32,191						5		%				556,806						131,022						24		%				163,213						29		%
Property operating expenses									214,948						218,793						(3,845)						-2		%				176,670						42,123						24		%				38,278						22		%
			NOI(1)						505,071						469,035						36,036						8		%				380,136						88,899						23		%				124,935						33		%
Other expenses:
			Depreciation and amortization						261,371						241,258						20,113						8		%				185,530						55,728						30		%				75,841						41		%
			Interest expense						17,579						13,411						4,168						31		%				7,051						6,360						90		%				10,528						149		%
			Loss (gain) on extinguishment of debt, net						1,046						—						1,046						n/a						11,928						(11,928)						-100		%				(10,882)						-91		%
			Provision for loan losses.						3,202						—						3,202						n/a						—						—						n/a						3,202						n/a
			Impairment of assets						—						14,062						(14,062)						-100		%				—						14,062						n/a						—						n/a
			Other expenses						8,218						1,788						6,430						360		%				7,570						(5,782)						-76		%				648						9		%
									291,416						270,519						20,897						8		%				212,079						58,440						28		%				79,337						37		%
Income from continuing operations before income taxes and other item									213,655						198,516						15,139						8		%				168,057						30,459						18		%				45,598						27		%
Income (loss) from unconsolidated entities									7,312						7,061						251						4		%				5,563						1,498						27		%				1,749						31		%
Gain (loss) on real estate dispositions, net									695,918						972						694,946						n/a						221,231						(220,259)						-100		%				474,687						215		%
Income from continuing operations									916,885						206,549						710,336						344		%				394,851						(188,302)						-48		%				522,034						132		%
Net income (loss)									916,885						206,549						710,336						344		%				394,851						(188,302)						-48		%				522,034						132		%
Less: Net income (loss) attributable to noncontrolling interests									(278)						5,194						(5,472)						-105		%				6,150						(956)						-16		%				(6,428)						-105		%
Net income (loss) attributable to common stockholders									$	917,163					$	201,355					$	715,808					355		%				$	388,701					$	(187,346)					-48		%				$	528,462					136		%

(1) See Non-GAAP Financial Measures below.

Increases in rental income are primarily attributable to the acquisitions of new properties and the conversion of newly constructed outpatient medical properties, particularly the $1.25 billion CNL Healthcare Properties portfolio acquisition that closed in May 2019, partially offset by 2020 dispositions. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index. 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 Consumer Price Index does not increase, a portion of our revenues may not continue to increase. Our leases could renew above or below current rental rates, resulting in an increase or decrease in rental income. For the three months ended December 31, 2020, our consolidated outpatient medical portfolio signed 133,859 square feet of new leases and 282,719 square feet of renewals. The weighted-average term of these leases was six years, with a rate of $26.55 per square foot and tenant improvement and lease commission costs of $15.23 per square foot. Substantially all of these leases contain an annual fixed or contingent escalation rent structure ranging from 2.0% to 3.5%.

In addition, our Outpatient Medical tenants are experiencing temporary medical practice closures or decreases in revenue due to government imposed restrictions on elective medical procedures or decisions by patients to delay treatments which may adversely affect their ability to make contractual rent payments. Outpatient Medical rent collections through March were generally consistent with pre COVID-19 levels. During the second quarter we executed short term rent deferrals with certain Outpatient Medical tenants which in most cases were required to be repaid by year end. Since then we have collected approximately 99% of Outpatient Medical rent due in the second half of the year, with uncollected amounts primarily attributable to local jurisdictions with COVID-19 related ordinances providing temporary rent relief to tenants. Furthermore,

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

collections of deferred rent due under executed deferrals was over 99%. To the extent that deferred rent is not repaid as expected, or the prolonged impact of the COVID-19 pandemic causes operators or tenants to seek further modifications of their lease agreements, we may recognize reductions in revenue and increases in uncollectible receivables.

The fluctuation in property operating expenses and depreciation and amortization are primarily attributable to acquisitions and construction conversions of 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 the year ended December 31, 2019, we recognized impairment charges of $14,062,000 related to three 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. The increase in other expense during the year ended December 31, 2020 is primarily due to noncapitalizable transaction costs from acquisitions no longer expected to be consummated.

During the year ended December 31, 2020, we completed three Outpatient Medical construction projects representing $43,493,000 or $306 per square foot. The following is a summary of our consolidated Outpatient Medical construction projects pending as of December 31, 2020 (dollars in thousands):

Location						Square Feet						Commitment						Balance						Est. Completion
Brooklyn, NY						140,955						$	105,306					$	104,148					2Q21
Kalamazoo, MI						40,607						14,267						2,654						3Q21
Total						181,562						$	119,573					$	106,802

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 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, 2020												December 31, 2019												December 31, 2018
												Weighted Avg.												Weighted Avg.												Weighted Avg.
						Amount						Interest Rate						Amount						Interest Rate						Amount						Interest Rate
Beginning balance						$	572,267					3.97%						$	386,738					4.20%						$	279,951					4.72%
Debt assumed						—						—%						202,084						4.12%						171,275						3.99%
Debt extinguished						(14,205)						5.34%						(10,244)						5.75%						(61,291)						7.43%
Principal payments						(9,833)						4.60%						(6,311)						4.97%						(3,197)						5.91%
Ending balance						$	548,229					3.55%						$	572,267					3.97%						$	386,738					4.20%
Monthly averages						$	562,017					3.72%						$	397,756					4.15%						$	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.

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

Non-Segment/Corporate

The following is a summary of our results of operations for the Non-Segment/Corporate activities (dollars in thousands) for the periods presented:

									Year Ended												One Year Change												Year Ended						One Year Change												Two Year Change
									December 31,						December 31,																		December 31,
									2020						2019						$						%						2018						$						%						$						%
Revenues:
			Other income						$	2,781					$	3,966					$	(1,185)					-30		%				$	2,275					$	1,691					74		%				$	506					22		%
			Total revenues						2,781						3,966						(1,185)						-30		%				2,275						1,691						74		%				506						22		%
Property operating expenses									3,381						—						3,381						n/a						—						—						n/a						3,381						n/a
			NOI(1)						(600)						3,966						(4,566)						-115		%				2,275						1,691						74		%				(2,875)						-126		%
Other expenses:
			Interest expense						432,431						461,273						(28,842)						-6		%				436,256						25,017						6		%				(3,825)						-1		%
			General and administrative expenses						128,394						126,549						1,845						1		%				126,383						166						0		%				2,011						2		%
			Loss (gain) on extinguishments of debt, net						33,344						82,541						(49,197)						-60		%				4,091						78,450						1,918		%				29,253						715		%
			Other expenses						24,929						10,705						14,224						133		%				7,729						2,976						39		%				17,200						223		%
			Total expenses						619,098						681,068						(61,970)						-9		%				574,459						106,609						19		%				44,639						8		%
Loss from continuing operations before income taxes and other items									(619,698)						(677,102)						57,404						8		%				(572,184)						(104,918)						-18		%				(47,514)						-8		%
Gain (loss) on real estate dispositions, net									—						—						—						n/a						—						—						n/a						—						n/a
Income tax benefit (expense)									(9,968)						(2,957)						(7,011)						-237		%				(8,674)						5,717						66		%				(1,294)						-15		%
Loss from continuing operations									(629,666)						(680,059)						50,393						7		%				(580,858)						(99,201)						-17		%				(48,808)						-8		%
Preferred stock dividends									—						—						—						n/a						46,704						(46,704)						-100		%				(46,704)						-100		%
Net loss attributable to common stockholders									$	(629,666)					$	(680,059)					$	50,393					7		%				$	(627,562)					$	(52,497)					-8		%				$	(2,104)					0		%

(1) See Non-GAAP Financial Measures below.

Property operating expenses represent insurance costs related to our captive insurance company formed as of July 1, 2020, which acts as a direct insurer of property level insurance coverage for our portfolio.

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,
						2020						2019						$						%						2018						$						%						$						%
Senior unsecured notes						$	400,014					$	402,133					$	(2,119)					-1		%				$	387,955					$	14,178					4		%				$	12,059					3		%
Secured debt						—						—						—						n/a						115						(115)						-100		%				(115)						-100		%
Unsecured credit facility and commercial paper program						15,313						43,861						(28,548)						-65		%				34,626						9,235						27		%				(19,313)						-56		%
Loan expense						17,104						15,279						1,825						12		%				13,560						1,719						13		%				3,544						26		%
Totals						$	432,431					$	461,273					$	(28,842)					-6		%				$	436,256					$	25,017					6		%				$	(3,825)					-1		%

The change in interest expense on senior unsecured notes is due to the net effect of issuances and extinguishments, as well as the movement in foreign exchange rates and related hedge activity. Please refer to Note 11 to consolidated financial statements for additional information. The change in interest expense on our unsecured credit facility and commercial paper program is due primarily to the net effect and timing of draws, paydowns and variable interest rate changes. Please refer to Note 10 of our consolidated financial statements for additional information regarding our unsecured revolving credit facility and commercial paper program. Loan expenses represent the amortization of costs incurred in connection with senior unsecured notes issuances. The loss on extinguishment recognized during the year ended December 31, 2020 is due primarily to the early extinguishment of $160,872,000 of our 3.75% senior unsecured notes due March 2023 and $265,376,000 of our 3.95% senior unsecured notes due September 2023. The loss on extinguishment recognized in 2019 is due primarily to the early extinguishment of the $600,000,000 of 4.125% senior unsecured notes due 2019 and the $450,000,000 of 6.125% senior unsecured notes due 2020 in March 2019, the early extinguishment of the $450,000,000 of 4.95% senior unsecured notes due 2021 and the $600,000,000 of 5.25% senior unsecured notes due 2022 in September 2019 and the early redemption of the $300 million Canadian-denominated 3.35% senior unsecured notes due 2020 in December 2019.

General and administrative expenses as a percentage of consolidated revenues for the years ended December 31, 2020, 2019 and 2018 were 2.79%, 2.47% and 2.69%, respectively. Other expenses for all years include severance-related costs associated with the departure of certain executive officers and key employees.

Income tax expense primarily relates to state taxes, foreign taxes and taxes based on income generated by entities that are structured as TRSs.

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

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 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. We believe the drivers of property level NOI for both consolidated properties and unconsolidated properties are generally the same and therefore, we evaluate SSNOI based on our ownership interest in each property ("Welltower Share"). To arrive at Welltower's Share, NOI is adjusted by adding our minority ownership share related to unconsolidated properties and by subtracting the minority partners' noncontrolling ownership interests for consolidated properties. We do not control investments in unconsolidated properties and while we consider disclosures at Welltower Share to be useful, they may not accurately depict the legal and economic implications of our joint venture arrangements and should be used with caution. As used herein, same store is generally defined as those revenue-generating properties in the portfolio for the relevant year-over-year reporting periods. Acquisitions and development conversions are included in SSNOI five full quarters or eight full quarters after acquisition or being placed into service for the QTD Pool and the YTD Pool, respectively. Land parcels, loans and sub-leases, as well as any properties sold or classified as held for sale during the respective periods are excluded from SSNOI. Redeveloped properties (including major refurbishments of a Seniors Housing Operating property where 20% or more of units are simultaneously taken out of commission for 30 days or more or Outpatient Medical properties undergoing a change in intended use) are excluded from SSNOI until five full quarters or eight full quarters post completion of the redevelopment for the QTD Pool and YTD Pool, respectively. Properties undergoing operator transitions and/or segment transitions are also excluded from SSNOI until five full quarters or eight full quarters post completion of the transition for the QTD Pool and YTD Pool, respectively. In addition, properties significantly impacted by force majeure, acts of God, or other extraordinary adverse events are excluded from SSNOI until five full quarters or eight full quarters after the properties are placed back into service for the QTD Pool and YTD Pool, respectively. SSNOI excludes non-cash NOI and includes adjustments to present consistent ownership percentages and to translate Canadian properties and U.K. properties using a consistent exchange rate. 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 is defined as earnings (net income) before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding unconsolidated entities and including adjustments for stock-based compensation expense, provision for loan losses, gains/losses on extinguishment of debt, gains/loss/impairments on properties, gains/losses on derivatives and financial instruments, other expense, additional other income and other impairment charges. We believe that EBITDA and Adjusted EBITDA, along with net income, are important supplemental measures because they provide additional information to assess and evaluate the performance of our operations. We primarily use these measures to determine our interest coverage ratio, which represents EBITDA and Adjusted EBITDA divided by total interest, and our fixed charge coverage ratio, which represents EBITDA and Adjusted EBITDA divided by fixed charges. Fixed charges include total interest, secured debt principal amortization, and preferred dividends. Covenants in our unsecured senior notes and primary credit facility contain financial ratios based on a definition of EBITDA and Adjusted EBITDA that is specific to those agreements. Our leverage ratios are defined as the proportion of net debt to total capitalization and include book capitalization, undepreciated book capitalization and market capitalization. Book capitalization represents the sum of net debt (defined as total long-term debt, excluding operating lease liabilities, 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

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

depreciation and amortization. Market capitalization represents book capitalization adjusted for the fair market value of our common stock.

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/losses on real estate dispositions and impairments of assets. Amounts are in thousands except for per share data.

						Year Ended December 31,
FFO Reconciliation:						2020						2019						2018
Net income attributable to common stockholders						$	978,844					$	1,232,432					$	758,250
Depreciation and amortization						1,038,437						1,027,073						950,459
Impairment of assets						135,608						28,133						115,579
Loss (gain) on real estate dispositions, net						(1,088,455)						(748,041)						(415,575)
Noncontrolling interests						(23,968)						(20,197)						(69,193)
Unconsolidated entities						62,096						57,680						52,663
Funds from operations attributable to common stockholders						$	1,102,562					$	1,577,080					$	1,392,183
Average diluted shares outstanding:						417,387						403,808						375,250
Per diluted share data:
Net income attributable to common stockholders(1)						$	2.33					$	3.05					$	2.02
Funds from operations attributable to common stockholders						$	2.64					$	3.91					$	3.71
(1) Includes adjustment to the numerator for income (loss) attributable to OP unitholders.

The following tables reflect the reconciliation of NOI 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:						2020						2019						2018
Net income						$	1,038,852					$	1,330,410					$	829,750
Loss (gain) on real estate dispositions, net						(1,088,455)						(748,041)						(415,575)
Loss (income) from unconsolidated entities						8,083						(42,434)						641
Income tax expense (benefit)						9,968						2,957						8,674
Other expenses						70,335						52,612						112,898
Impairment of assets						135,608						28,133						115,579
Provision for loan losses						94,436						18,690						—
Loss (gain) on extinguishment of debt, net						47,049						84,155						16,097
Loss (gain) on derivatives and financial instruments, net						11,049						(4,399)						(4,016)
General and administrative expenses						128,394						126,549						126,383
Depreciation and amortization						1,038,437						1,027,073						950,459
Interest expense						514,388						555,559						526,592
Consolidated net operating income (NOI)						$	2,008,144					$	2,431,264					$	2,267,482
NOI by segment:
Seniors Housing Operating						$	755,552					$	1,039,520					$	985,022
Triple-net						748,121						918,743						900,049
Outpatient Medical						505,071						469,035						380,136
Non-segment/corporate						(600)						3,966						2,275
Total NOI						$	2,008,144					$	2,431,264					$	2,267,482

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

Quarterly NOI by Segment:
(in thousands)									Three Months Ended																																																Year Ended
									March 31,												June 30,												September 30,												December 31,												December 31,
									2020						2019						2020						2019						2020						2019						2020						2019						2020						2019
Seniors Housing Operating:
Total revenues									$	851,128					$	872,386					$	773,650					$	915,529					$	742,065					$	835,496					$	715,020					$	833,458					$	3,081,863					$	3,456,869
Property operating expenses									607,871						607,686						595,513						637,317						567,704						581,341						555,223						591,005						2,326,311						2,417,349
NOI									$	243,257					$	264,700					$	178,137					$	278,212					$	174,361					$	254,155					$	159,797					$	242,453					$	755,552					$	1,039,520
Triple-net:
Total revenues									$	207,729					$	248,241					$	233,619					$	240,758					$	120,928					$	244,607					$	239,028					$	239,037					$	801,304					$	972,643
Property operating expenses									13,302						14,955						13,563						12,823						12,567						13,922						13,751						12,200						53,183						53,900
NOI									$	194,427					$	233,286					$	220,056					$	227,935					$	108,361					$	230,685					$	225,277					$	226,837					$	748,121					$	918,743
Outpatient Medical:
Total revenues									$	199,329					$	149,461					$	180,831					$	163,365					$	172,704					$	185,189					$	167,155					$	189,813					$	720,019					$	687,828
Property operating expenses									60,608						48,166						51,688						50,987						52,728						60,325						49,924						59,315						214,948						218,793
NOI									$	138,721					$	101,295					$	129,143					$	112,378					$	119,976					$	124,864					$	117,231					$	130,498					$	505,071					$	469,035
Corporate:
Total revenues									$	416					$	2,157					$	375					$	454					$	1,177					$	841					$	813					$	514					$	2,781					$	3,966
Property operating expenses									—						—						—						—						1,718						—						1,663						—						3,381						—
NOI									$	416					$	2,157					$	375					$	454					$	(541)					$	841					$	(850)					$	514					$	(600)					$	3,966

The following is a reconciliation of the properties included in our QTD Pool and YTD Pool for SSNOI:

						QTD Pool																								YTD Pool
SSNOI Property Reconciliations:						Seniors Housing Operating						Triple-net						Outpatient Medical						Total						Seniors Housing Operating						Triple-net						Outpatient Medical						Total
Consolidated properties						556						641						296						1,493						556						641						296						1,493
Unconsolidated properties						90						39						72						201						90						39						72						201
Total properties						646						680						368						1,694						646						680						368						1,694
Recent acquisitions/development conversions(1)						(46)						(18)						(51)						(115)						(93)						(24)						(123)						(240)
Under development						(27)						(4)						(2)						(33)						(27)						(4)						(2)						(33)
Under redevelopment(2)						(10)						(1)						(2)						(13)						(11)						(1)						(2)						(14)
Current held for sale						(10)						(1)						(2)						(13)						(10)						(1)						(2)						(13)
Loans, land parcels and subleases						(11)						(18)						(8)						(37)						(11)						(18)						(8)						(37)
Transitions(3)						(27)						(6)						—						(33)						(93)						(24)						—						(117)
Other(4)						(1)						—						—						(1)						(2)						—						—						(2)
Same store properties						514						632						303						1,449						399						608						231						1,238
(1) Acquisitions and development conversions will enter the QTD Pool and YTD Pool five full quarters and eight full quarters after acquisition or certificate of occupancy, respectively.
(2) Redevelopment properties will enter the QTD Pool and YTD Pool after five full quarters and eight full quarters of operations post redevelopment completion, respectively.
(3) Transitioned properties will enter the QTD Pool and YTD Pool after five full quarters and eight full quarters of operations with the new operator in place or under the new structure, respectively.
(4) Includes one closed property in the QTD pool and one closed property and one flooded property in the YTD pool.

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

The following is a reconciliation of our consolidated NOI to same store NOI for the periods presented for the respective pools. Dollar amounts are in thousands.

						QTD Pool												YTD Pool
						Three Months Ended												Twelve Months Ended
SSNOI Reconciliations:						December 31, 2020						December 31, 2019						December 31, 2020						December 31, 2019
Seniors Housing Operating:
Consolidated NOI						$	159,797					$	242,453					$	755,552					$	1,039,520
NOI attributable to unconsolidated investments						13,182						16,491						53,736						65,387
NOI attributable to noncontrolling interests						(9,405)						(19,436)						(51,334)						(81,426)
Non-cash NOI attributable to same store properties						(349)						(842)						(3,239)						(4,295)
NOI attributable to non-same store properties						(8,291)						(23,254)						(166,567)						(261,002)
Currency and ownership adjustments (1)						(561)						754						2,985						6,144
SSNOI at Welltower Share						154,373						216,166						591,133						764,328
Triple-net:
Consolidated NOI						225,277						226,837						$	748,121					$	918,743
NOI attributable to unconsolidated investments						4,818						5,133						13,797						20,532
NOI attributable to noncontrolling interests						(14,563)						(14,751)						(58,288)						(58,462)
Non-cash NOI attributable to same store properties						(12,313)						(15,224)						80,630						(58,846)
NOI attributable to non-same store properties						(34,236)						(32,080)						(155,566)						(197,487)
Currency and ownership adjustments (1)						(286)						137						278						397
SSNOI at Welltower Share						168,697						170,052						628,972						624,877
Outpatient Medical:
Consolidated NOI						117,231						130,498						505,071						469,035
NOI attributable to unconsolidated investments						3,481						541						9,629						1,930
NOI attributable to noncontrolling interests						(4,264)						(6,853)						(16,565)						(27,637)
Non-cash NOI attributable to same store properties						(1,542)						(2,915)						(1,094)						(2,807)
NOI attributable to non-same store properties						(24,050)						(19,674)						(204,525)						(129,723)
Currency and ownership adjustments (1)						(5,871)						(17,453)						(40,004)						(64,009)
SSNOI at Welltower Share						84,985						84,144						252,512						246,789
SSNOI at Welltower Share:
Seniors Housing Operating						154,373						216,166						591,133						764,328
Triple-net						168,697						170,052						628,972						624,877
Outpatient Medical						84,985						84,144						252,512						246,789
Total						$	408,055					$	470,362					$	1,472,617					$	1,635,994

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:						2020						2019						2018
Net income (loss)						$	1,038,852					$	1,330,410					$	829,750
Interest expense						514,388						555,559						526,592
Income tax expense (benefit)						9,968						2,957						8,674
Depreciation and amortization						1,038,437						1,027,073						950,459
EBITDA						2,601,645						2,915,999						2,315,475
Loss (income) from unconsolidated entities						8,083						(42,434)						641
Stock-based compensation expense(1)						28,318						25,047						27,646
Loss (gain) on extinguishment of debt, net						47,049						84,155						16,097
Loss (gain) on real estate dispositions, net						(1,088,455)						(748,041)						(415,575)
Impairment of assets						135,608						28,133						115,579
Provision for loan losses						94,436						18,690						—
Loss (gain) on derivatives and financial instruments, net						11,049						(4,399)						(4,016)
Other expenses(1)						64,171						51,052						111,990
Other impairment						146,508						—						—
Additional other income						—						—						(14,832)
Adjusted EBITDA						$	2,048,412					$	2,328,202					$	2,153,005
Adjusted Interest Coverage Ratio:
Interest expense						$	514,388					$	555,559					$	526,592
Capitalized interest						17,472						15,272						7,905
Non-cash interest expense						(15,751)						(8,645)						(10,860)
Total interest						516,109						562,186						523,637
Adjusted EBITDA						$	2,048,412					$	2,328,202					$	2,153,005
Adjusted interest coverage ratio						3.97x						4.14x						4.11x
Adjusted Fixed Charge Coverage Ratio:
Total interest						$	516,109					$	562,186					$	523,637
Secured debt principal payments						62,707						54,325						56,288
Preferred dividends						—						—						46,704
Total fixed charges						578,816						616,511						626,629
Adjusted EBITDA						$	2,048,412					$	2,328,202					$	2,153,005
Adjusted fixed charge coverage ratio						3.54x						3.78x						3.44x

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

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

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.

												Year Ended December 31,
												2020						2019						2018
Book capitalization:
Unsecured credit facility and commercial paper												$	—					$	1,587,597					$	1,147,000
Long-term debt obligations(1)												13,905,822						13,436,365						12,150,144
Cash and cash equivalents(2)												(1,968,765)						(284,917)						(215,376)
Total net debt												11,937,057						14,739,045						13,081,768
Total equity and noncontrolling interests(3)												17,225,062						16,982,504						16,010,645
Book capitalization												$	29,162,119					$	31,721,549					$	29,092,413
						Net debt to book capitalization ratio						40.9		%				46.5		%				45.0		%
Undepreciated book capitalization:
Total net debt												$	11,937,057					$	14,739,045					$	13,081,768
Accumulated depreciation and amortization												6,104,297						5,715,459						5,499,958
Total equity and noncontrolling interests(3)												17,225,062						16,982,504						16,010,645
Undepreciated book capitalization												$	35,266,416					$	37,437,008					$	34,592,371
						Net debt to undepreciated book capitalization ratio						33.8		%				39.4		%				37.8		%
Market capitalization:
Common shares outstanding												417,401						410,257						383,675
Period end share price												$	64.62					$	81.78					$	69.41
Common equity market capitalization												$	26,972,453					$	33,550,817					$	26,630,882
Total net debt												11,937,057						14,739,045						13,081,768
Noncontrolling interests(3)												1,252,343						1,442,060						1,378,311
Preferred stock												—						—						718,498
Market capitalization:												$	40,161,853					$	49,731,922					$	41,809,459
						Net debt to market capitalization ratio						29.7		%				29.6		%				31.3		%

(1) Amounts include senior unsecured notes, secured debt and lease liabilities related to financing leases, as reflected on our Consolidated Balance Sheets. Operating lease liabilities related to the ASC 842 adoption are excluded.

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

(3) Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests as reflected on our Consolidated Balance Sheets.

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 an accounting estimate or assumption 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. 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
Impairment of Real Property Assessing impairment of real property involves subjectivity in determining if indicators of impairment are present and in estimating the future undiscounted cash flows or estimated fair value of an asset. In estimating the undiscounted cash flows or fair value, key assumptions that would be made are the estimation of future rental revenues, operating expenses, capitalization rates and the ability and intent to hold the respective asset, all of which are affected by our expectations of future market or economic conditions. These estimates can have a significant impact on the undiscounted cash flows or estimated fair value of an asset.			Quarterly, we evaluate our real estate investments on a property by property basis to determine if there are indicators of impairment. These indicators may include expected operational performance, the tenant's ability 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, an undiscounted cash flow analysis will be prepared and the results of such analysis will be compared to the current net book value to determine if an impairment charge is necessary. This analysis requires us to use judgment in determining whether indicators of impairment exist and to estimate the expected future undiscounted cash flows or estimated fair values of the property. Properties that meet the held for sale criteria are recorded at the lesser of the fair value less costs to sell or carrying value.
Real Estate Acquisitions We believe that substantially all of our real estate acquisitions are considered asset acquisitions for which we record the related real estate acquired (tangible assets and identifiable intangible assets and liabilities) at cost on a relative fair value basis. Liabilities assumed and any associated noncontrolling interests are reflected at fair value. Tangible assets consist primarily of land, building and improvements. Identifiable intangible assets and liabilities primarily consist 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 respect to that tenant.			The allocation of the purchase price to the related real estate acquired (tangible assets and intangible assets and liabilities) involves subjectivity as such allocations are based on a relative fair value analysis. In determining the fair values that drive such analysis, we estimate the fair value of each component of the real estate acquired which generally includes land, buildings and improvements, the above or below market component of in-place leases and the value of in-place leases. Significant assumptions used to determine such fair values include comparable land sales, capitalization rates, discount rates, market rental rates and property operating data, all of which can be impacted by expectations about future market or economic conditions. Our estimates of the values of these components affect the amount of depreciation and amortization we record over the estimated useful life of the property or the term of the lease.
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.

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

Nature of Critical Accounting Estimate			Assumptions/Approach Used
Allowance for Credit Losses on Loans Receivable The allowance for credit losses is maintained at a level believed adequate to absorb potential losses in our loans receivable. The determination of the credit allowance is based on a quarterly evaluation of all outstanding loans, including general economic conditions and estimated collectability of loan payments.			The determination of the allowance for credit losses 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, payment status, historical loan charge-offs, financial strength of the borrower and guarantors, and nature, extent and value of the underlying collateral. A loan is considered to have deteriorated credit quality 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 loan agreement. For those loans we identified as having deteriorated credit quality, we determine the amount of credit loss on an individual basis. Placement on non-accrual status may be required. Consistent with this definition, all loans on non-accrual are deemed to have deteriorated credit quality. To the extent circumstances improve and the risk of collectability is diminished, we may return these loans to income accrual status. While a loan is on non-accrual status, any cash receipts are applied against the outstanding principal balance. For the remaining loans, we assess credit loss on a collective pool basis and use our historical loss experience for similar loans to determine the reserve for credit losses.