Item 8. Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Welltower Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Welltower Inc. and subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and financial statement schedules listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 16, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Impairment of Real Property

Description of the Matter At December 31, 2021, the Company’s net real property owned was approximately $30.7 billion. As discussed in Note 2 to the consolidated financial statements, the Company reviews its real property quarterly on a property-by-property basis to determine if facts and circumstances suggest that the real property may be impaired. If the undiscounted cash flows indicate that the real property will not be recoverable, the carrying value of the real property is reduced to its estimated fair value and an impairment charge is recognized for the difference between the carrying value and the fair value.

Auditing the Company’s process to evaluate real property owned for impairment was complex due to the high degree of subjectivity in determining whether indicators of impairment were present for certain properties, and in determining the future undiscounted cash flows and estimated fair values, if necessary, of properties where indicators of impairment were determined to be present. In particular, the undiscounted cash flows and fair value estimates were sensitive to significant assumptions, including future rental revenues and operating expenses, capitalization rates, and anticipated hold period, which are affected by expectations about future market or economic conditions.

HowWeAddressed the
Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process to evaluate real property owned for impairment. This included testing controls over the Company’s review of impairment indicators by property and management's review and approval of the significant assumptions described above.

To test the Company's evaluation of real property for impairment, we performed audit procedures that included, among others, assessing the methodologies used by management, evaluating the significant assumptions discussed above and testing the completeness and accuracy of the underlying data used by the Company in its analyses. We compared the significant assumptions used by management to current industry and economic trends and evaluated whether changes to the Company’s business and other relevant factors would affect the significant assumptions. In addition, we assessed the historical accuracy of the Company’s estimates and performed sensitivity analyses of the significant assumptions to evaluate the changes in the undiscounted future cash flows and estimated fair values of the property that would result from changes in the significant assumptions.

Real Estate Acquisitions

Description of the Matter During the year ended December 31, 2021, the Company completed approximately $4.1 billion of real estate acquisitions. As disclosed in Note 3 of the consolidated financial statements, the total purchase price for all properties acquired has been allocated to the related real estate acquired (tangible assets and identifiable intangible assets and liabilities) based upon their relative fair values.

Auditing the fair values allocated by management to the real estate acquired was complex because the fair value estimates were sensitive to significant assumptions, including comparable land sales, capitalization rates, discount rates, market rental rates and property operating data, which can be impacted by expectations about future market or economic conditions.

HowWeAddressed the
Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s process to account for real estate acquisitions, including controls over the Company’s review of the significant assumptions discussed above.

To test the fair values allocated to the real estate acquired, we performed audit procedures that included, among others, assessing the methodologies used by management and evaluating the significant assumptions used by the Company discussed above. We compared certain of management’s assumptions to external market data for similar properties and tested the clerical accuracy of the valuation models. We involved our valuation specialist in our evaluation of the significant assumptions used by the Company and the review of the valuation models.

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 1970.

Toledo, Ohio

February 16, 2022

CONSOLIDATED BALANCE SHEETS

WELLTOWER INC. AND SUBSIDIARIES

(in thousands)

						December 31, 2021						December 31, 2020
Assets
Real estate investments:
Real property owned:
Land and land improvements						$	3,968,430					$	3,440,650
Buildings and improvements						31,062,203						28,024,971
Acquired lease intangibles						1,789,628						1,500,030
Real property held for sale, net of accumulated depreciation						134,097						216,613
Construction in progress						651,389						487,742
Less accumulated depreciation and amortization						(6,910,114)						(6,104,297)
Net real property owned						30,695,633						27,565,709
Right of use assets, net						522,796						465,866
Real estate loans receivable, net of credit allowance						1,068,681						443,372
Net real estate investments						32,287,110						28,474,947
Other assets:
Investments in unconsolidated entities						1,039,043						946,234
Goodwill						68,321						68,321
Cash and cash equivalents						269,265						1,545,046
Restricted cash						77,490						475,997
Straight-line rent receivable						365,643						344,066
Receivables and other assets						803,453						629,031
Total other assets						2,623,215						4,008,695
Total assets						$	34,910,325					$	32,483,642
Liabilities and equity
Liabilities:
Unsecured credit facility and commercial paper						$	324,935					$	—
Senior unsecured notes						11,613,758						11,420,790
Secured debt						2,192,261						2,377,930
Lease liabilities						545,944						418,266
Accrued expenses and other liabilities						1,235,554						1,041,594
Total liabilities						15,912,452						15,258,580
Redeemable noncontrolling interests						401,294						343,490
Equity:
Common stock						448,605						418,691
Capital in excess of par value						23,133,641						20,823,145
Treasury stock						(107,750)						(104,490)
Cumulative net income						8,663,736						8,327,598
Cumulative dividends						(14,380,915)						(13,343,721)
Accumulated other comprehensive income (loss)						(121,316)						(148,504)
Total Welltower Inc. stockholders’ equity						17,636,001						15,972,719
Noncontrolling interests						960,578						908,853
Total equity						18,596,579						16,881,572
Total liabilities and equity						$	34,910,325					$	32,483,642

See accompanying notes

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

WELLTOWER INC. AND SUBSIDIARIES

(In thousands, except per share data)

						Year Ended December 31,
						2021						2020						2019
Revenues:
Resident fees and services						$	3,197,223					$	3,074,022					$	3,448,175
Rental income						1,374,695						1,443,360						1,588,400
Interest income						137,563						69,156						63,830
Other income						32,634						19,429						20,901
Total revenues						4,742,115						4,605,967						5,121,306
Expenses:
Property operating expenses						2,774,562						2,597,823						2,690,042
Depreciation and amortization						1,037,566						1,038,437						1,027,073
Interest expense						489,853						514,388						555,559
General and administrative expenses						126,727						128,394						126,549
Loss (gain) on derivatives and financial instruments, net						(7,333)						11,049						(4,399)
Loss (gain) on extinguishment of debt, net						49,874						47,049						84,155
Provision for loan losses						7,270						94,436						18,690
Impairment of assets						51,107						135,608						28,133
Other expenses						41,739						70,335						52,612
Total expenses						4,571,365						4,637,519						4,578,414
Income (loss) from continuing operations before income taxes and other items						170,750						(31,552)						542,892
Income tax (expense) benefit						(8,713)						(9,968)						(2,957)
Income (loss) from unconsolidated entities						(22,933)						(8,083)						42,434
Gain (loss) on real estate dispositions, net						235,375						1,088,455						748,041
Income (loss) from continuing operations						374,479						1,038,852						1,330,410
Net income						374,479						1,038,852						1,330,410
Less: Net income (loss) attributable to noncontrolling interests(1)						38,341						60,008						97,978
Net income (loss) attributable to common stockholders						$	336,138					$	978,844					$	1,232,432
Weighted average number of common shares outstanding:
Basic						424,976						415,451						401,845
Diluted						426,841						417,387						403,808
Earnings per share:
Basic:
Income (loss) from continuing operations						$	0.88					$	2.50					$	3.31
Net income (loss) attributable to common stockholders						$	0.79					$	2.36					$	3.07
Diluted:
Income (loss) from continuing operations						$	0.88					$	2.49					$	3.29
Net income (loss) attributable to common stockholders(2)						$	0.78					$	2.33					$	3.05

(1) Includes amounts attributable to redeemable noncontrolling interests

(2) Includes adjustment to the numerator for income (loss) attributable to OP unitholders.

See accompanying notes

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)

						Year Ended December 31,
						2021						2020						2019
Net income						$	374,479					$	1,038,852					$	1,330,410
Other comprehensive income (loss):
Unrecognized actuarial gain (loss)						—						—						540
Foreign currency translation gain (loss)						(52,826)						103,612						161,915
Derivative and financial instruments designated as hedges gain (loss)						79,702						(134,369)						(131,120)
Total other comprehensive income (loss)						26,876						(30,757)						31,335
Total comprehensive income (loss)						401,355						1,008,095						1,361,745
Less: Total comprehensive income (loss) attributable to noncontrolling interests(1)						38,029						65,598						111,701
Total comprehensive income (loss) attributable to common stockholders						$	363,326					$	942,497					$	1,250,044

(1) Includes amounts attributable to redeemable noncontrolling interests.

See accompanying notes

CONSOLIDATED STATEMENTS OF EQUITY

WELLTOWER INC. AND SUBSIDIARIES

(in thousands)						Preferred Stock						Common Stock						Capital in Excess of Par Value						Treasury Stock						Cumulative Net Income						Cumulative Dividends						Accumulated Other Comprehensive Income (Loss)						Noncontrolling Interests						Total
Balances at December 31, 2018						$	718,498					$	384,465					$	18,424,662					$	(68,499)					$	6,121,534					$	(10,818,557)					$	(129,769)					$	954,265					$	15,586,599
Comprehensive income:
Net income (loss)																														1,232,432																		67,365						1,299,797
Other comprehensive income (loss)																																										17,612						13,440						31,052
Total comprehensive income																																																						1,330,849
Net change in noncontrolling interests																		3,583																														(68,887)						(65,304)
Amounts related to stock incentive plans, net of forfeitures												162						25,163						(10,456)																														14,869
Net proceeds from issuance of common stock												13,666						1,030,925																																				1,044,591
Conversion of preferred stock						(718,498)						12,712						705,786																																				—
Dividends paid:
Common stock dividends																																				(1,404,977)																		(1,404,977)
Balances at December 31, 2019						—						411,005						20,190,119						(78,955)						7,353,966						(12,223,534)						(112,157)						966,183						16,506,627
Cumulative change in accounting principle (Note 2)																														(5,212)																								(5,212)
Balances at January 1, 2020 (as adjusted for change in accounting principle)						—						411,005						20,190,119						(78,955)						7,348,754						(12,223,534)						(112,157)						966,183						16,501,415
Comprehensive income:
Net income (loss)																														978,844																		98,910						1,077,754
Other comprehensive income (loss)																																										(36,347)						5,493						(30,854)
Total comprehensive income																																																						1,046,900
Net change in noncontrolling interests																		18,158																														(161,733)						(143,575)
Amounts related to stock incentive plans, net of forfeitures												622						27,666						(17,879)																														10,409
Net proceeds from issuance of common stock												7,064						587,202																																				594,266
Conversion of preferred stock																								(7,656)																														(7,656)
Dividends paid:
Common stock dividends																																				(1,120,187)																		(1,120,187)
Balances at December 31, 2020						—						418,691						20,823,145						(104,490)						8,327,598						(13,343,721)						(148,504)						908,853						16,881,572
Comprehensive income:
Net income (loss)																														336,138																		36,795						372,933
Other comprehensive income (loss)																																										27,188						(366)						26,822
Total comprehensive income																																																						399,755
Net change in noncontrolling interests																		(23,743)																														15,296						(8,447)
Amounts related to stock incentive plans, net of forfeitures												246						18,087						(3,260)																														15,073
Net proceeds from issuance of common stock												29,668						2,316,152																																				2,345,820
Dividends paid:
Common stock dividends																																				(1,037,194)																		(1,037,194)
Balances at December 31, 2021						$	—					$	448,605					$	23,133,641					$	(107,750)					$	8,663,736					$	(14,380,915)					$	(121,316)					$	960,578					$	18,596,579

See accompanying notes

CONSOLIDATED STATEMENTS OF CASH FLOWS

WELLTOWER INC. AND SUBSIDIARIES

(in thousands)

						Year Ended December 31,
						2021						2020						2019
Operating activities:
Net income						$	374,479					$	1,038,852					$	1,330,410
Adjustments to reconcile net income to net cash provided from (used in) operating
activities:
Depreciation and amortization						1,037,566						1,038,437						1,027,073
Other amortization expenses						19,148						13,213						16,827
Provision for loan losses						7,270						94,436						18,690
Impairment of assets						51,107						135,608						28,133
Stock-based compensation expense						17,812						28,318						25,047
Loss (gain) on derivatives and financial instruments, net						(7,333)						11,049						(4,399)
Loss (gain) on extinguishment of debt, net						49,874						47,049						84,155
Loss (income) from unconsolidated entities						22,933						8,083						(42,434)
Rental income less than (in excess of) cash received						(30,820)						60,254						(106,331)
Amortization related to above (below) market leases, net						(3,536)						(1,870)						(676)
Loss (gain) on real estate dispositions, net						(235,375)						(1,088,455)						(748,041)
Distributions by unconsolidated entities						16,763						11,601						—
Increase (decrease) in accrued expenses and other liabilities						77,554						22,764						(29,068)
Decrease (increase) in receivables and other assets						(122,117)						(54,583)						(63,418)
Net cash provided from (used in) operating activities						1,275,325						1,364,756						1,535,968
Investing activities:
Cash disbursed for acquisitions, net of cash acquired						(4,084,174)						(903,756)						(3,959,683)
Cash disbursed for capital improvements to existing properties						(282,588)						(244,989)						(328,824)
Cash disbursed for construction in progress						(417,963)						(201,336)						(323,488)
Capitalized interest						(19,352)						(17,472)						(15,272)
Investment in loans receivable						(997,449)						(247,543)						(119,699)
Principal collected on loans receivable						343,260						31,548						127,706
Other investments, net of payments						(26,595)						7,726						(8,282)
Contributions to unconsolidated entities						(396,020)						(411,154)						(279,631)
Distributions by unconsolidated entities						286,772						48,195						216,231
Proceeds from (payments on) derivatives						7,519						(13,319)						(8,499)
Proceeds from sales of real property						1,070,322						4,300,028						2,650,650
Net cash provided from (used in) investing activities						(4,516,268)						2,347,928						(2,048,791)
Financing activities:
Net increase (decrease) under unsecured credit facility and commercial paper						324,935						(1,587,597)						440,597
Proceeds from issuance of senior unsecured notes						1,703,626						1,588,549						3,974,559
Payments to extinguish senior unsecured notes						(1,533,752)						(566,248)						(3,335,290)
Net proceeds from the issuance of secured debt						23,569						62,055						343,696
Payments on secured debt						(197,618)						(694,995)						(284,433)
Net proceeds from the issuance of common stock						2,348,201						595,313						1,056,125
Repurchase of common stock						—						(7,656)						—
Payments for deferred financing costs and prepayment penalties						(73,735)						(39,087)						(84,142)
Contributions by noncontrolling interests(1)						156,318						44,023						55,365
Distributions to noncontrolling interests(1)						(138,756)						(333,489)						(172,940)
Cash distributions to stockholders						(1,035,906)						(1,119,232)						(1,400,712)
Other financing activities						(9,218)						(22,494)						(15,675)
Net cash provided from (used in) financing activities						1,567,664						(2,080,858)						577,150
Effect of foreign currency translation on cash and cash equivalents and restricted cash						(1,009)						3,451						5,310
Increase (decrease) in cash, cash equivalents and restricted cash						(1,674,288)						1,635,277						69,637
Cash, cash equivalents and restricted cash at beginning of period						2,021,043						385,766						316,129
Cash, cash equivalents and restricted cash at end of period						$	346,755					$	2,021,043					$	385,766
Supplemental cash flow information:
Interest paid						$	492,742					$	508,454					$	574,536
Income taxes paid (received)						(4,812)						13,671						14,338

(1) Includes amounts attributable to redeemable noncontrolling interests.

See accompanying notes.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business

Welltower Inc., (the "Company") an S&P 500 company headquartered in Toledo, Ohio, is driving the transformation of health care infrastructure. The Company invests with leading seniors housing operators, post-acute providers and health systems to fund the real estate and infrastructure needed to scale innovative care delivery models and improve people’s wellness and overall health care experience. Welltower™, a real estate investment trust (“REIT”), owns interests in properties concentrated in major, high-growth markets in the United States (“U.S.”), Canada and the United Kingdom (“U.K.”), consisting of seniors housing and post-acute communities and outpatient medical properties.

2. Accounting Policies and Related Matters

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of our wholly-owned subsidiaries and joint venture (“JV”) entities that we control, through voting rights or other means. All material intercompany transactions and balances have been eliminated in consolidation. At inception of JV transactions, we identify entities for which control is achieved through means other than voting rights (“variable interest entities” or “VIEs”) and determine which business enterprise is the primary beneficiary of its operations. A VIE is broadly defined as an entity where either (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 consolidate investments in VIEs when we are determined to be the primary beneficiary. Accounting Standards Codification Topic 810, Consolidations (“ASC 810”), requires enterprises to perform a qualitative approach to determining whether or not a VIE will need to be consolidated. This evaluation is based on an enterprise’s ability to direct and influence the activities of a VIE that most significantly impact that entity’s economic performance. For investments in JVs, U.S. GAAP may preclude consolidation by the sole general partner in certain circumstances based on the type of rights held by the limited partner(s). We assess the limited partners’ rights and their impact on our consolidation conclusions, and we reassess if there is a change to the terms or in the exercisability of the rights of the limited partners, the sole general partner increases or decreases its ownership of limited partnership interests, or there is an increase or decrease in the number of outstanding limited partnership interests. We similarly evaluate the rights of managing members of limited liability companies.

Revenue Recognition

For our Triple-net and Outpatient Medical segments, a significant source of our revenue is generated through leasing arrangements. 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. Leases in our Outpatient Medical portfolio typically include some form of operating expense reimbursement by the tenant. Certain payments made to operators are treated as lease incentives and amortized as a reduction of revenue over the lease term.

For our Seniors Housing Operating segment, revenue from resident fees and services is predominantly service-based, and generally is recognized monthly as services are provided. Agreements with residents generally have varying terms and are cancellable by the resident with 30 days’ notice. Management contracts are present in some of our joint venture agreements to provide asset and property management, leasing, marketing and other services.

Our Seniors Housing Operating segment contains continuing care retirement communities which operate as entrance fee communities. The entrance fee communities offer different contracts which vary in terms of how much of the entrance fee is considered to be refundable upon move-out, temporarily refundable until a period of time has passed, or nonrefundable. Refundable entrance fees are recorded as a payable within the accrued expenses and other liabilities line item of our Consolidated Balance Sheets. Nonrefundable entrance fees are recorded as deferred revenue within the same line item and are recognized into revenue over the estimated remaining stay of the resident. We use a third party actuarial expert to determine the estimated remaining stay of each resident based on demographic data.

Interest income on loans is recognized as earned based upon the principal amount outstanding, subject to an evaluation of collectability risk.

We recognize gains on the disposition of real estate when the recognition criteria have been met, generally at the time the risks and rewards and title have transferred and we no longer have substantial continuing involvement with the real estate sold. We recognize losses from disposition of real estate when known.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents

Cash and cash equivalents consist of all highly liquid investments with an original maturity of three months or less.

Restricted Cash

Restricted cash primarily consists of amounts held by lenders to provide future payments for real estate taxes, insurance, tenant and capital improvements, amounts held in escrow relating to transactions we are entitled to receive over a period of time as outlined in the escrow agreement and net proceeds from property sales that were executed as tax-deferred dispositions under Internal Revenue Code (“IRC”) Section 1031.

Deferred Loan Expenses

Deferred loan expenses are costs incurred by us in connection with the issuance, assumption and amendments of debt arrangements. Deferred loan expenses related to debt instruments, excluding the primary unsecured credit facility, are recorded as a reduction of the related debt liability. Deferred loan expenses related to the primary unsecured credit facility are included in other assets. We amortize these costs over the term of the debt using the straight-line method, which approximates the effective interest method.

Investments in Unconsolidated Entities

Investments in entities that we do not consolidate but have the ability to exercise significant influence over operating and financial policies are reported under the equity method of accounting. Under the equity method, our share of the investee’s earnings or losses is included in our consolidated results of operations. The initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the entity interest inclusive of transaction costs. To the extent that our cost basis is different from the basis reflected at the entity level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in our share of equity in earnings of the entity. We evaluate our equity method investments for impairment based upon a comparison of the estimated fair value of the equity method investment to its carrying value. When we determine a decline in the estimated fair value of such an investment below its carrying value is other-than-temporary, an impairment is recorded.

Equity Securities

Equity securities are measured at fair value with gains and losses recognized in loss (gain) on derivatives and financial instruments, net in the Consolidated Statements of Comprehensive Income.

Redeemable Noncontrolling Interests

Certain noncontrolling interests are redeemable at fair value. Accordingly, we record the carrying amount of the noncontrolling interests at the greater of (i) the initial carrying amount, increased or decreased for the noncontrolling interest’s share of net income or loss and its share of other comprehensive income or loss, and dividends or (ii) the redemption value. If the interests are redeemable in the future, we accrete the carrying value to the redemption value over the period until expected redemption, currently a weighted-average period of approximately five years. In accordance with ASC 810, the redeemable noncontrolling interests are classified outside of permanent equity, as a mezzanine item, on the balance sheet. At December 31, 2021, the current redemption value of redeemable noncontrolling interests exceeded the carrying value of $401,294,000 by $40,212,000.

We entered into certain DownREIT partnerships which give a real estate seller the ability to exchange its property on a tax deferred basis for equity membership interests (“OP units”). The OP units may be redeemed any time following the first anniversary of the date of issuance at the election of the holders for one share of our common stock per unit or, at our option, cash.

Real Property Owned

Real estate acquisitions are generally classified as asset acquisitions for which we record 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 primarily consist of land, buildings and improvements.

Identifiable intangible assets and liabilities consist primarily of the above or below market component of in-place leases and the value associated with the presence of in-place leases. The value allocable to the above or below market component of the acquired in-place lease is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease. The amounts allocated to above market leases are included in acquired lease intangibles and below market leases are included in other liabilities on the balance sheet and are amortized to rental income over the remaining terms of the respective leases or lease-up period.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The total amount of other intangible assets acquired is further allocated to in-place lease values and customer relationship values for in-place tenants based on management’s evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant. Characteristics considered by management in allocating these values include the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals, among other factors. The total amount of other intangible assets acquired is further allocated to in-place lease values for in-place residents with such value representing (i) value associated with lost revenue related to tenant reimbursable operating costs that would be incurred in an assumed re-leasing period, and (ii) value associated with lost rental revenue from existing leases during an assumed re-leasing period. This intangible asset is amortized over the remaining life of the lease or the assumed re-leasing period.

Real property developed by us is recorded at cost, including the capitalization of construction period interest. These properties are depreciated on a straight-line basis over their estimated useful lives which range from 15 to 40 years for buildings and 5 to 15 years for improvements. We consider costs incurred in conjunction with re-leasing properties, including tenant improvements and lease commissions, to represent the acquisition of productive assets and, accordingly, such costs are reflected as investment activities in our Consolidated Statement of Cash Flows.

The net book value of long-lived assets is reviewed quarterly on a property by property basis to determine if facts and circumstances suggest that the assets may be impaired or that the depreciable life may need to be changed. We consider external factors relating to each asset and the existence of a master lease which may link the cash flows of an individual asset to a larger portfolio of assets leased to the same tenant. If these factors and the projected undiscounted cash flows of the assets over the remaining depreciation period indicate that the assets will not be recoverable, the carrying value is reduced to the estimated fair market value. In addition, we are exposed to the risks inherent in concentrating investments in real estate, and in particular, the seniors housing and health care industries. A downturn in the real estate industry could adversely affect the value of our properties and our ability to sell properties for a price or on terms acceptable to us. Additionally, properties that meet the held for sale criteria are recorded at the lesser of fair value less costs to sell or the carrying value.

Expenditures for repairs and maintenance are expensed as incurred.

Capitalization of Construction Period Interest

We capitalize interest costs associated with funds used for the construction of properties owned by us. The amount capitalized is based upon the balance outstanding during the construction period using the rate of interest which approximates our company-wide cost of financing. Our interest expense reflected in the Consolidated Statements of Comprehensive Income has been reduced by the amounts capitalized.

Loans Receivable

Loans receivable are recorded on our Consolidated Balance Sheets in real estate loans receivable, net of credit allowance, or for non-real estate loans receivable, in receivables and other assets. Real estate loans receivable consists of mortgage loans and other real estate loans which are primarily collateralized by a first, second or third mortgage lien, a leasehold mortgage on, or an assignment or pledge of the membership interest in, the related properties, corporate guarantees and/or personal guarantees. Non-real estate loans are generally corporate loans with no real estate backing. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of the risk of credit loss.

In Substance Real Estate Investments

We provide loans to third parties for the acquisition, development and construction of real estate. Under these arrangements, it is possible that we will participate in the expected residual profits of the project through the sale, refinancing or acquisition of the property. We evaluate the characteristics of each arrangement, including its risks and rewards, to determine whether they are more similar to those associated with a loan or an investment in real estate. Arrangements with characteristics implying loan classification are presented as real estate loans receivable and result in the recognition of interest income. Arrangements with characteristics implying real estate joint ventures are treated as in substance real estate investments and presented as investments in unconsolidated entities and are accounted for using the equity method. The classification of each arrangement as either a real estate loan receivable or investment in unconsolidated entity involves judgment and relies on various factors, including market conditions, amount and timing of expected residual profits, credit enhancements in the form of guarantees, estimated fair value of the collateral, and significance of borrower equity in the project, among others. The classification of such arrangements is performed at inception, and periodically reassessed when significant changes occur in the circumstances or conditions described above.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Allowance for Credit Losses on Loans Receivable

The allowance for credit losses on loans receivable 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. We evaluate the collectability of our loans receivable based on a combination of credit quality indicators, 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 status 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.

Goodwill

Goodwill is tested annually for impairment and is tested for impairment more frequently if events and circumstances indicate that the asset might be impaired. An impairment loss is recognized to the extent that the carrying amount, including goodwill, exceeds the reporting unit’s fair value and the implied fair value of goodwill is less than the carrying amount of that goodwill. We have not had any goodwill impairments.

Fair Value of Derivative Instruments

Derivatives are recorded at fair value on the balance sheet as assets or liabilities. The valuation of derivative instruments requires us to make estimates and judgments that affect the fair value of the instruments. Fair values of our derivatives are estimated by pricing models that consider the forward yield curves and discount rates. The fair value of our forward exchange contracts are estimated by pricing models that consider foreign currency spot rates, forward trade rates and discount rates. Such amounts and the recognition of such amounts are subject to estimates that may change in the future. See Note 12 for additional information.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following (in thousands):

						Year Ended December 31,
						2021						2020
Accounts payable						$	174,799					$	101,592
Accrued interest						111,157						112,202
Other accrued expenses						238,931						193,631
Unearned revenues						307,316						115,411
Taxes payable						117,013						99,916
Other liabilities						286,338						418,842
Total						$	1,235,554					$	1,041,594

Federal Income Tax

We have elected to be treated as a REIT under the applicable provisions of the IRC, commencing with our first taxable year, and made no provision for U.S. federal income tax purposes prior to our acquisition of our taxable REIT subsidiaries (“TRSs”). As a result of these as well as subsequent acquisitions, we now record income tax expense or benefit with respect to certain of our entities that are taxed as TRSs under provisions similar to those applicable to regular corporations and not under the REIT provisions. We account for deferred income taxes using the asset and liability method and recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been included in our consolidated financial statements or tax returns. Under this method, we determine deferred tax assets and liabilities based on the differences between the financial reporting and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Any increase or decrease in the deferred tax liability that results from a change in circumstances, and that causes a change in our judgment about expected future tax consequences of events, is included in the tax provision when such changes occur. Deferred income taxes also reflect the impact of operating loss and tax credit carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. Any increase or decrease in the valuation allowance that results from a change in circumstances, and that causes a change in our judgment about the realizability of the related deferred tax asset, is included in the tax provision when such changes occur. See Note 19 for additional information.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Foreign Currency

Certain of our subsidiaries’ functional currencies are the local currencies of their respective countries. We translate the results of operations of our foreign subsidiaries into U.S. Dollars using average rates of exchange in effect during the period, and we translate balance sheet accounts using exchange rates in effect at the end of the period. We record resulting currency translation adjustments in accumulated other comprehensive income, a component of stockholders’ equity, on our Consolidated Balance Sheets.

Earnings Per Share

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted-average number of shares outstanding for the period adjusted for non-vested shares of restricted stock. The computation of diluted earnings per share is similar to basic earnings per share, except that the number of shares is increased to include the number of additional common shares that would have been outstanding if the potentially dilutive common shares had been issued. Additionally, net income (loss) allocated to OP units (discussed above) has been included in the numerator and redeemable common stock related to the OP units have been included in the denominator for the purpose of computing diluted earnings per share.

Reclassifications

Certain amounts in prior years have been reclassified to conform to current year presentation.

Impact of COVID-19 Pandemic

The extent to which the COVID-19 pandemic impacts our operations and those of our operators and tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, the direct and indirect economic effects of the pandemic and containment measures, the impact of new variants, the effectiveness of vaccines, the overall pace of recovery, among others. The COVID-19 pandemic could have material and adverse effects on our financial condition, results of operations and cash flows in the future.

Our Seniors Housing Operating revenues are dependent on occupancy. Spot occupancy has steadily increased in recent months, with 94% (unaudited) of communities open for new admissions and nearly all communities allowing visitors, in-person tours and communal dining and activities as of December 31, 2021. Rapid distribution and a high acceptance rate of COVID-19 vaccinations by residents within assisted living and memory care facilities in the U.S. and U.K. have resulted in a significant decrease in total resident case counts across the portfolio from peak levels in mid-January 2021, however, resident case counts have increased in December 2021 as a result of highly transmissible variants. As of December 31, 2021, occupancy has increased approximately 510 basis points ("bps") to 77.7% since the pandemic-low of 72.6% on March 12, 2021 (unaudited). Quarterly spot occupancy rates through December 31, 2021 are as follows (unaudited):

						December 31, 2020						March 31, 2021						June 30, 2021						September 30, 2021						December 31, 2021
Spot occupancy (1)						74.9		%				72.9		%				74.8		%				76.9		%				77.7		%
Sequential occupancy change (2)												(1.9)		%				1.9		%				2.1		%				0.7		%

(1) Spot occupancy represents approximate month end occupancy at our share for 546 properties in operation as of December 31, 2020, including unconsolidated properties but excluding acquisitions, executed dispositions, development conversions since this date as well as one property closed for redevelopment.

(2) Sequential occupancy changes are based on actual spot occupancy and may not recalculate due to rounding.

During the year ended December 31, 2021, the U.S. and U.K. portfolios reported spot occupancy gains of approximately 490 bps and 80 bps, respectively. Canada reported a spot occupancy gain of approximately 290 bps (unaudited).

On March 27, 2020, the federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide financial aid to individuals, businesses, and state and local governments. During the twelve months ended December 31, 2021 and 2020, we received government grants under the CARES Act primarily to cover increased expenses and lost revenue during the COVID-19 pandemic, as well as under similar programs in the U.K. and Canada. Grant income is recognized when there is reasonable assurance that the grant will be received and the Company will comply with all conditions attached to the grant. Additionally, grants are recognized over the periods in which the Company recognizes the increased expenses and lost revenue the grants are intended to defray. For the years ended December 31, 2021 and 2020 we recognized $97,933,000 and $31,927,000, respectively, of government grant income as a reduction to property operating expenses in our Consolidated Statements of Comprehensive Income. Additionally, for the years ended December 31, 2021 and 2020, we recognized $4,642,000 and $3,014,000, respectively, of government grant income in other income in our Consolidated Statements of Comprehensive Income. The amount of qualifying expenditures and lost revenue exceeded grant income recognized and we believe we have complied and will continue to comply with all grant conditions.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property-level operating expenses associated with the COVID-19 pandemic relating to our Seniors Housing Operating portfolio totaled $63,681,000 and $110,719,000 for the years ended December 31, 2021 and 2020, respectively. 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 personal protective equipment ("PPE") and supplies. Certain new expenses incurred since the start of the pandemic may continue on an ongoing basis as part of new health and safety protocols.

Our Triple-net operators have experienced similar occupancy declines and operating costs as described above with respect to our Seniors Housing Operating properties. Additionally, long-term/post-acute care facilities are generally experiencing a higher degree of occupancy declines. These factors may continue to 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 and Provider Relief Fund.

During the year ended December 31, 2021, we collected approximately 94% of rent due from operators under Triple-net lease agreements (primarily seniors housing and post-acute care facilities). No significant rent deferrals or rent concessions have been made. We evaluate leases individually and recognize rent on a cash basis if collectibility of substantially all contractual rent payments is not probable. To the extent 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.

During the year ended December 31, 2021, we have collected virtually all rent due from tenants in our Outpatient Medical portfolio, with uncollected amounts primarily attributable to local jurisdictions with COVID-19 related ordinances providing temporary rent relief to tenants. We evaluate leases individually and recognize rent on a cash basis if collectibility of substantially all contractual rent payments is not probable.

New Accounting Standards

• In August 2020, the FASB issued ASU 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. This ASU simplifies accounting for convertible instruments and removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception. This ASU also simplifies the diluted earnings per share calculation in certain areas and provides updated disclosure requirements. The ASU is effective for public business entities beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The adoption of this standard will not have a significant impact on our consolidated financial statements.

• In March 2020, the FASB issued an amendment to the reference rate reform standard which provides the option for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on contract modifications and hedge accounting. An example of such reform is the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. Entities that make this optional expedient election would not have to remeasure the contracts at the modification date or reassess the accounting treatment if certain criteria are met and would continue applying hedge accounting for relationships affected by reference rate reform. The new standard was effective for us upon issuance and elections can be made through December 31, 2022. We are currently evaluating our options with regards to existing contracts and hedging relationships and the impact of adopting this update on our consolidated financial statements.

3. Real Property Acquisitions and Development

The total purchase price for all properties acquired has been allocated to the tangible 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. The results of operations for these acquisitions have been included in our consolidated results of operations since the date of acquisition and are a component of the appropriate segments. Transaction costs primarily represent costs incurred with acquisitions, including due diligence costs, fees for legal and valuation services, termination of pre-existing relationships computed based on the fair value of the assets acquired, lease termination fees and other acquisition-related costs. Transaction costs related to asset acquisitions are capitalized as a component of purchase price and all other non-capitalizable costs are reflected in other expenses on our Consolidated Statements of Comprehensive Income.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of our real property investment activity by segment for the periods presented (in thousands):

						Year Ended December 31, 2021
						Seniors Housing Operating						Triple-net						Outpatient Medical						Total
Land and land improvements						$	449,335					$	88,839					$	64,843					$	603,017
Buildings and improvements						2,347,609						809,328						313,864						3,470,801
Acquired lease intangibles						264,589						—						24,751						289,340
Right of use assets, net						77,455						—						—						77,455
Total net real estate assets						3,138,988						898,167						403,458						4,440,613
Receivables and other assets						6,096						411						3,534						10,041
Total assets acquired(1)						3,145,084						898,578						406,992						4,450,654
Lease liabilities						(138,126)						—						—						(138,126)
Accrued expenses and other liabilities						(191,454)						(8,703)						(266)						(200,423)
Total liabilities acquired						(329,580)						(8,703)						(266)						(338,549)
Noncontrolling interests(2)						(4,942)						(6,449)						(16,540)						(27,931)
Cash disbursed for acquisitions						2,810,562						883,426						390,186						4,084,174
Construction in progress additions						322,050						77,412						42,464						441,926
Less: Capitalized interest						(13,834)						(3,078)						(2,440)						(19,352)
Accruals(3)						35						—						(4,646)						(4,611)
Cash disbursed for construction in progress						308,251						74,334						35,378						417,963
Capital improvements to existing properties						197,829						37,345						47,414						282,588
Total cash invested in real property, net of cash acquired						$	3,316,642					$	995,105					$	472,978					$	4,784,725

(1) Excludes $4,201,000 of unrestricted and restricted cash acquired.

(2) Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests.

(3) Represents non-cash accruals for amounts to be paid in future periods for properties that converted, off-set by amounts paid in the current period.

						Year Ended December 31, 2020
						Seniors Housing Operating						Triple-net						Outpatient Medical						Total
Land and land improvements						$	55,000					$	16,876					$	45,590					$	117,466
Buildings and improvements						527,189						73,855						179,004						780,048
Acquired lease intangibles						28,668						—						24,718						53,386
Total net real estate assets						610,857						90,731						249,312						950,900
Receivables and other assets						746						—						268						1,014
Total assets acquired(1)						611,603						90,731						249,580						951,914
Accrued expenses and other liabilities						(1,650)						—						(962)						(2,612)
Total liabilities acquired						(1,650)						—						(962)						(2,612)
Noncontrolling interests(2)						(45,546)						—						—						(45,546)
Cash disbursed for acquisitions						564,407						90,731						248,618						903,756
Construction in progress additions						134,945						45,256						39,833						220,034
Less: Capitalized interest						(10,389)						(3,209)						(3,874)						(17,472)
Accruals (3)						(1,226)						—						—						(1,226)
Cash disbursed for construction in progress						123,330						42,047						35,959						201,336
Capital improvements to existing properties						107,379						76,625						60,985						244,989
Total cash invested in real property, net of cash acquired						$	795,116					$	209,403					$	345,562					$	1,350,081

(1) Excludes $580,000 of unrestricted and restricted cash acquired.

(2) Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests.

(3) Represents non-cash accruals for amounts to be paid in future periods for properties that converted, off-set by amounts paid in the current period.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

						Year Ended December 31, 2019
						Seniors Housing Operating						Triple-net						Outpatient Medical						Total
Land and land improvements						$	154,470					$	24,097					$	293,933					$	472,500
Buildings and improvements						1,518,748						203,282						1,954,928						3,676,958
Acquired lease intangibles						76,009						—						183,921						259,930
Real property held for sale						17,435						—						—						17,435
Construction in progress						36,174						—						—						36,174
Right of use assets, net						—						—						58,377						58,377
Total net real estate assets						1,802,836						227,379						2,491,159						4,521,374
Receivables and other assets						15,634						—						1,586						17,220
Total assets acquired(1)						1,818,470						227,379						2,492,745						4,538,594
Secured debt						(194,408)						—						(206,754)						(401,162)
Lease liabilities						—						—						(47,740)						(47,740)
Accrued expenses and other liabilities						(12,024)						—						(32,893)						(44,917)
Total liabilities acquired						(206,432)						—						(287,387)						(493,819)
Noncontrolling interests(2)						(67,987)						(4,015)						(1,201)						(73,203)
Non-cash acquisition related activity (3)						(11,889)						—						—						(11,889)
Cash disbursed for acquisitions						1,532,162						223,364						2,204,157						3,959,683
Construction in progress additions						227,018						61,414						60,884						349,316
Less: Capitalized interest						(8,889)						(2,385)						(3,998)						(15,272)
Accruals(4)						—						—						(1,035)						(1,035)
Cash disbursed for construction in progress						218,129						59,029						55,851						333,009
Capital improvements to existing properties						260,413						17,426						50,985						328,824
Total cash invested in real property, net of cash acquired						$	2,010,704					$	299,819					$	2,310,993					$	4,621,516

(1) Excludes $2,090,000 of unrestricted and restricted cash acquired.

(2) Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests.

(3) Relates to the acquisition of assets previously recognized as investments in unconsolidated entities.

(4) Represents non-cash accruals for amounts to be paid in future periods for properties that converted, off-set by amounts paid in the current period.

Holiday Retirement Acquisition

On July 30, 2021, we acquired a portfolio of 85 seniors housing properties owned by Holiday Retirement for $1,576,600,000, which are included in our Seniors Housing Operating segment and in the table above for the year ended December 31, 2021. Atria Senior Living assumed operations of the portfolio following its acquisition of the Holiday Retirement management company pursuant to an incentive-based management agreement. As part of this transaction, a wholly owned subsidiary assumed the leasehold interest in a 26 property portfolio and subsequently purchased eight of the leased properties from the landlord. The lease, identified as an operating lease, expires in 2035 and was recognized as a right of use asset, net of above market lease intangibles, and lease liability.

Construction Activity

The following is a summary of the construction projects that were placed into service and began generating revenues during the periods presented (in thousands):

						Year Ended
						December 31, 2021						December 31, 2020						December 31, 2019
Development projects:
Seniors Housing Operating						$	117,386					$	93,188					$	28,117
Triple-net						22,990						75,149						—
Outpatient Medical						125,179						43,493						21,006
Total development projects						265,555						211,830						49,123
Expansion projects						5,292						48,600						—
Total construction in progress conversions						$	270,847					$	260,430					$	49,123

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Real Estate Intangibles

The following is a summary of our real estate intangibles, excluding those related to ground leases or classified as held for sale, as of the dates indicated (dollars in thousands):

						December 31, 2021						December 31, 2020
Assets:
In place lease intangibles						$	1,681,533					$	1,406,705
Above market tenant leases						53,964						52,621
Lease commissions						54,131						40,704
Gross historical cost						1,789,628						1,500,030
Accumulated amortization						(1,286,259)						(1,177,513)
Net book value						$	503,369					$	322,517
Weighted-average amortization period in years						5.5						10.5
Liabilities:
Below market tenant leases						$	74,909					$	77,851
Accumulated amortization						(45,291)						(40,871)
Net book value						$	29,618					$	36,980
Weighted-average amortization period in years						8.2						8.3

The following is a summary of real estate intangible amortization income (expense) for the periods presented (in thousands):

						Year Ended December 31,
						2021						2020						2019
Rental income related to (above)/below market tenant leases, net						$	1,680					$	1,710					$	508
Amortization related to in place lease intangibles and lease commissions						(115,579)						(121,004)						(135,047)

The future estimated aggregate amortization of intangible assets and liabilities is as follows for the periods presented (in thousands):

						Assets						Liabilities
2022						$	168,534					$	7,374
2023						113,105						5,253
2024						56,699						3,118
2025						22,706						2,588
2026						23,009						2,075
Thereafter						119,316						9,210
Totals						$	503,369					$	29,618

5. Dispositions, Real Property Held for Sale and Impairment

We periodically sell properties for various reasons, including favorable market conditions, the exercise of tenant purchase options or reduction of concentrations (e.g. property type, relationship or geography). At December 31, 2021, two Seniors Housing Operating, 14 Triple-net and one Outpatient Medical properties, with an aggregate net real estate balance of $134,097,000, were classified as held for sale. In addition to the real property balances held for sale, net other assets and (liabilities) of $9,876,000 were included in the Consolidated Balance Sheets related to the held for sale properties. Expected gross sales proceeds related to the held for sale properties are approximately $171,184,000.

During the year ended December 31, 2021, we recorded impairment charges of $19,567,000 related to four Triple-net properties and one Outpatient Medical property, which were disposed of or classified as held for sale for which the carrying value exceeded the fair values, less estimated costs to sell. Additionally, we recorded $31,540,000 of impairment charges related to two Seniors Housing Operating properties and two Triple-net properties that were held for use in which the carrying value exceed the estimated fair value. During the year ended December 31, 2020, we recorded impairment charges of $87,873,000 related to 15 Seniors Housing Operating and one Triple-net properties, which were disposed of or classified as held for sale as the carrying value exceeded the fair values, less estimated costs to sell. Additionally, during the year ended December 31, 2020, we recorded $47,735,000 of impairment charges related to six Seniors Housing Operating and four Triple-net properties that were held for use in which the carrying value exceed the fair value. The following is a summary of our real property disposition activity for the periods presented (in thousands):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

						Year Ended
						December 31, 2021						December 31, 2020						December 31, 2019
Real estate dispositions:
Seniors Housing Operating						$	112,837					$	1,289,769					$	1,232,816
Triple-net						486,369						51,666						667,632
Outpatient Medical						229,660						1,755,864						482
Total dispositions						828,866						3,097,299						1,900,930
Gain (loss) on real estate dispositions, net						235,375						1,088,455						748,041
Net other assets (liabilities) disposed						6,081						114,274						1,679
Proceeds from real estate dispositions						$	1,070,322					$	4,300,028					$	2,650,650

Operating results attributable to properties sold or classified as held for sale which do not meet the definition of discontinued operations, are not reclassified on our Consolidated Statements of Comprehensive Income. The following represents the activity related to these properties for the periods presented (in thousands):

						Year Ended December 31,
						2021						2020						2019
Revenues:
Total revenues						$	63,114					$	303,791					$	827,961
Expenses:
Interest expense						1,479						11,241						23,186
Property operating expenses						8,490						163,800						403,010
Provision for depreciation						8,665						82,330						162,761
Total expenses						18,634						257,371						588,957
Income (loss) from real estate dispositions, net						$	44,480					$	46,420					$	239,004

6. Leases

We lease land, buildings, office space and certain equipment. Many of our leases include a renewal option to extend the term from one to 25 years or more. Renewal options that we are reasonably certain to exercise are recognized in our right-of-use assets and lease liabilities. As most of our leases do not provide a rate implicit in the lease agreement, we generally use our incremental borrowing rate available at lease commencement, underlying collateral for the lease and the ability to borrow against that collateral on a secured basis to determine the present value of lease payments. The incremental borrowing rates were determined using our longer term borrowing rates (actual pricing through 30 years, as well as other longer-term market rates).

We sublease certain real estate to a third party. Our sublease portfolio consists of a finance lease for seven buildings which are subleased to a long-term/ post-acute care operator.

The components of lease expense were as follows for the periods presented (in thousands):

												Year Ended December 31,
						Classification						2021						2020						2019
Operating lease cost: (1)
Real estate lease expense						Property operating expenses						$	22,642					$	23,472					$	25,166
Non-real estate investment lease expense						General and administrative expenses						4,596						4,745						1,654
Finance lease cost:
Amortization of leased assets						Property operating expenses						8,105						8,203						7,795
Interest on lease liabilities						Interest expense						6,574						6,411						4,748
Sublease income						Rental income						(8,687)						(4,173)						(4,173)
Total												$	33,230					$	38,658					$	35,190

(1) Includes short-term leases which are immaterial.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Maturities of lease liabilities as of December 31, 2021 are as follows (in thousands):

						Operating Leases						Finance Leases
2022						$	45,151					$	8,698
2023						45,994						69,774
2024						45,856						1,860
2025						43,612						1,658
2026						43,689						1,696
Thereafter						1,159,048						127,171
Total lease payments						1,383,350						210,857
Less: Imputed interest						(949,089)						(99,174)
Total present value of lease liabilities						$	434,261					$	111,683

Supplemental balance sheet information related to leases was as follows for the periods presented (in thousands, except lease terms and discount rate):

			Classification						December 31, 2021						December 31, 2020
Right of use assets:
Operating leases - real estate			Right of use assets, net						$	367,068					$	310,017
Finance leases - real estate			Right of use assets, net						155,728						155,849
Real estate right of use assets, net									522,796						465,866
Operating leases - non-real estate investments			Receivables and other assets						9,627						9,624
Total right of use assets, net									$	532,423					$	475,490
Lease liabilities:
Operating leases									$	434,261					$	311,164
Finance leases									111,683						107,102
Total lease liabilities									$	545,944					$	418,266
Weighted average remaining lease term (years):
Operating leases									36.6						46.9
Finance leases									19.8						17.7
Weighted average discount rate:
Operating leases									9.72		%				5.02		%
Finance leases									5.06		%				5.16		%

Supplemental cash flow information related to leases was as follows for the periods indicated (in thousands):

									Year Ended December 31,
			Classification						2021						2020						2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases			Decrease (increase) in receivables and other assets						$	9,081					$	9,323					$	6,397
Operating cash flows from operating leases			Increase (decrease) in accrued expenses and other liabilities						(6,008)						(3,918)						(5,489)
Operating cash flows from finance leases			Decrease (increase) in receivables and other assets						8,336						8,263						10,732
Financing cash flows from finance leases			Other financing activities						(3,578)						(3,568)						(3,401)

Substantially all of our operating leases in which we are the lessor contain 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. During the years ended December 31, 2021 and 2020, we reserved for previously recognized straight-line rent receivable balances of $49,241,000 and $146,508,000 through rental income, relating to leases for which collection of substantially all contractual lease payments was no longer deemed probable. Included in the 2020 amount

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

was $91,025,000 related to Genesis Healthcare ("Genesis") whom noted substantial doubt as to their ability to continue as a going concern.

Leases in our Triple-net and Outpatient Medical portfolios typically include some form of operating expense reimbursement by the tenant. Rental income related to operating leases and the corresponding variable lease payments, which primarily represents the reimbursement of operating costs such as common area maintenance expenses, utilities, insurance and real estate taxes for the periods indicated were as follows (in thousands):

						Year Ended December 31,
						2021						2020						2019
Fixed income from operating leases						$	1,193,837					$	1,240,012					$	1,387,836
Variable lease payments						180,858						203,348						200,564

The following table sets forth the future minimum lease payments receivable for leases in effect at December 31, 2021 (excluding properties in our Seniors Housing Operating portfolio and excluding any operating expense reimbursements) (in thousands):

2022						$	1,136,024
2023						1,132,184
2024						1,117,953
2025						1,109,530
2026						1,097,517
Thereafter						6,701,274
Totals						$	12,294,482

7. Loans Receivable

Loans receivable are recorded on our Consolidated Balance Sheets in real estate loans receivable, net of allowance for credit losses, or for non-real estate loans receivable, in receivables and other assets, net of allowance for credit losses.

Accrued interest receivable was $26,659,000 and $15,615,000 as of December 31, 2021 and December 31, 2020, respectively, and is included in receivables and other assets on the Consolidated Balance Sheets. The following is a summary of our loans receivable (in thousands):

						Year Ended December 31,
						2021						2020
Mortgage loans						$	889,556					$	299,430
Other real estate loans						194,477						152,739
Allowance for credit losses on real estate loans receivable						(15,352)						(8,797)
Real estate loans receivable, net of credit allowance						1,068,681						443,372
Non-real estate loans						375,060						455,508
Allowance for credit losses on non-real estate loans receivable						(151,433)						(215,239)
Non-real estate loans receivable, net of credit allowance(1)						223,627						240,269
Total loans receivable, net of credit allowance						$	1,292,308					$	683,641

(1) Included in receivables and other assets on the Consolidated Balance Sheets.

During the year ended December 31, 2020, the real estate collateral associated with one loan was released, therefore, the principal balance of $86,411,000 and related allowance for credit losses of $42,376,000 was reclassified to non-real estate loans.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of our loan activity for the periods presented (in thousands):

						Year Ended
						December 31, 2021						December 31, 2020						December 31, 2019
Advances on loans receivable:
Investments in new loans						$	975,018					$	224,078					$	46,824
Draws on existing loans						22,431						23,465						72,875
Net cash advances on loans receivable						997,449						247,543						119,699
Receipts on loans receivable:
Loan payoffs						266,822						15,677						118,703
Principal payments on loans						76,438						15,871						9,003
Net cash receipts on loans receivable						343,260						31,548						127,706
Net cash advances (receipts) on loans receivable						$	654,189					$	215,995					$	(8,007)

During the year ended December 31, 2021, we provided £540 million (approximately $750,330,000 based on the Sterling/ U.S. Dollar exchange rate as of the date of funding) of senior loan financing and a £30 million delayed facility for working capital and capital expenditures to affiliates of Safanad, a global real estate and private equity firm, as part of the recapitalization of its investment in HC-One Group. The loan has a five-year term and is fully collateralized by the shares and assets of the HC-One Group, including its underlying portfolio of owned assets across the U.K. As part of the transaction, we received equity warrants which provide us the right to participate in the capital appreciation of HC-One Group above a designated price upon liquidation. See Note 12 for additional details.

The following is a summary of our loans by credit loss category (in thousands):

			December 31, 2021
Loan category			Years of Origination			Loan Carrying Value			Allowance for Credit Loss			Net Loan Balance			No. of Loans
Deteriorated loans			2007 - 2018			$	178,369		$	(148,438)		$	29,931		3
Collective loan pool			2007 - 2016			205,380			(3,097)			202,283			17
Collective loan pool			2017			34,397			(519)			33,878			7
Collective loan pool			2018			23,322			(351)			22,971			2
Collective loan pool			2019			22,083			(333)			21,750			4
Collective loan pool			2020			48,712			(734)			47,978			6
Collective loan pool			2021			946,830			(13,313)			933,517			22
Total loans						$	1,459,093		$	(166,785)		$	1,292,308		61

In 2019, we recognized a provision for loan losses of $18,690,000 to fully reserve for and eventually wrote off certain Triple-net real estate loans receivable that were no longer deemed collectible. During the year ended December 31, 2020, we recognized additional provision for loan losses of $88,201,000 as a result of the current collateral estimates for loans with deteriorated credit, primarily relating to our outstanding Genesis loans. As of December 31, 2021, the total allowance for credit losses balance of $166,785,000 is deemed to be sufficient to absorb expected losses relating to our loan portfolio. The following is a summary of the allowance for credit losses on loans receivable for the periods presented (in thousands):

						Year Ended December 31,
						2021						2020						2019
Balance at beginning of year						$	224,036					$	68,372					$	68,372
Adoption of ASU 2016-13						—						5,212						—
Provision for loan losses						7,270						94,436						18,690
Loan write-offs(1)						(64,075)						(7,000)						(18,690)
Foreign currency translation						(446)						197						—
Reclassification of deferred gain as credit loss(2)						—						62,819						—
Balance at end of year						$	166,785					$	224,036					$	68,372
(1) Includes $64,075,000 related to the Genesis lease terminations for the twelve months ended December 31, 2021. See Note 9 for further details.
(2) During the year ended December 31, 2020, two loans receivable originated in 2016 to Genesis with an aggregate carrying value of $62,753,000 were transferred to the deteriorated loan pool. In addition, deferred gains of $62,819,000 previously recorded in accrued expenses and other liabilities were reclassified to the allowance for credit losses.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of our deteriorated loans (in thousands):

						Year Ended December 31,
						2021						2020						2019
Balance of deteriorated loans at end of year(1)						$	178,369					$	242,319					$	188,018
Allowance for credit losses						(148,438)						(212,514)						(68,372)
Balance of deteriorated loans not reserved						$	29,931					$	29,805					$	119,646
Interest recognized on deteriorated loans(2)						$	3,185					$	18,937					$	16,235

(1) Balances include $2,157,000, $3,623,000 and $2,534,000 of loans on non-accrual as of December 31, 2021, 2020 and 2019, respectively.

(2) Represents cash interest recognized in the period.

8. Investments in Unconsolidated Entities

We participate in a number of joint ventures, which generally invest in seniors housing and health care real estate. Our share of the results of operations for these properties has been included in our consolidated results of operations from the date of acquisition by the joint ventures and are reflected in our Consolidated Statements of Comprehensive Income as income or loss from unconsolidated entities. The following is a summary of our investments in unconsolidated entities (dollars in thousands):

						Percentage Ownership(1)						December 31, 2021						December 31, 2020
Seniors Housing Operating						10% to 65%						$	830,647					$	653,057
Triple-net						10% to 25%						44,814						5,629
Outpatient Medical						15% to 50%						163,582						287,548
Total												$	1,039,043					$	946,234

(1) Includes ownership of investments classified as liabilities and excludes ownership of in-substance real estate.

We own 34% of Sunrise Senior Living Management, Inc. ("Sunrise"), who provides comprehensive property management and accounting services with respect to certain of our Seniors Housing Operating properties that Sunrise operates. We pay Sunrise annual management fees pursuant to long-term management agreements. The majority of our management agreements have initial terms expiring in 2028, plus, if applicable, optional renewal periods ranging from an additional 3 to 15 years depending on the property. The management fees payable to Sunrise under the management agreements include a fee based on a percentage of revenues generated by the applicable properties plus, if applicable, positive or negative adjustments based on specified performance targets. For the years ended December 31, 2021, 2020 and 2019, we recognized fees to Sunrise of $37,052,000, $37,569,000 and $41,200,000, respectively, which are reflected within property operating expenses in our Consolidated Statements of Comprehensive Income.

During the year ended December 31, 2019, we sold our interest in a Seniors Housing Operating joint venture and recognized a gain of $38,681,000 in income (loss) from unconsolidated entities in our Consolidated Statements of Comprehensive Income.

At December 31, 2021, the aggregate unamortized basis difference of our joint venture investments of $140,187,000 is primarily attributable to the difference between the amount for which we purchased our interest in the entity, including transaction costs, and the historical carrying value of the net assets of the joint venture. This difference is being amortized over the remaining useful life of the related properties and included in the reported amount of income from unconsolidated entities.

We have made loans related to 12 properties as of December 31, 2021 for the development and construction of certain properties which are classified as in substance real estate investments and have a carrying value of $317,647,000. We believe that such borrowers typically represent VIEs in accordance with ASC 810. VIEs are required to be consolidated by their primary beneficiary which is the enterprise that has both: (i) the power to direct the activities of the VIE that most significantly impacts the entity’s economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. We have concluded that we are not the primary beneficiary of such borrowers, therefore, the loan arrangements were assessed based on among other factors, the amount and timing of expected residual profits, the estimated fair value of the collateral and the significance of the borrower’s equity in the project. Based on these assessments the arrangements have been classified as in substance real estate investments. We expect to fund an additional $86,644,000 related to these investments.

9. Credit Concentration

We use consolidated net operating income (“NOI”) as our credit concentration metric. See Note 18 for additional information and reconciliation. The following table summarizes certain information about our credit concentration for the year ended December 31, 2021, excluding our share of NOI in unconsolidated entities (dollars in thousands):

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

						Number of						Total						Percent of
Concentration by relationship:(1)						Properties						NOI						NOI(2)
ProMedica						205						$	228,052					12%
Sunrise Senior Living(3)						110						195,148						10%
Revera(3)						85						90,015						5%
Avery Healthcare						61						84,552						4%
HC-One Group (4)						1						65,942						3%
Remaining portfolio						1,189						1,303,844						66%
Totals						1,651						$	1,967,553					100%

(1) Sunrise and Revera are in our Seniors Housing Operating segment. ProMedica and HC-One Group are in our Triple-net segment. Avery Healthcare is in both the Triple-net and Seniors Housing Operating segments.

(2) NOI with our top five relationships comprised 36% of total NOI for the year ending December 31, 2020.

(3) Revera owns a controlling interest in Sunrise. For the year ended December 31, 2021, we recognized $1,051,094,000 of revenue from properties managed by Sunrise.

(4) In addition to the one property, HC-One Group is the borrower on a £540,000,000 loan. See Note 7 for further detail.

During the quarter ended March 31, 2021, we entered into definitive agreements to substantially exit our operating relationship with Genesis. The status of these transactions as of December 31, 2021 is as follows:

• We contributed nine Triple-net properties operated by Genesis into an 80/20 joint venture with ProMedica and such properties were added to the existing master lease with ProMedica.

• Operations have transitioned to regional operators for 39 of the remaining 42 properties, with the three remaining properties expected to be transitioned at a later date.

• We entered into definitive agreements to sell the 42 former Genesis properties to either a joint venture with Aurora Health Network, the new operator and us, or to sell outright. We have closed on the sale of 25 of these properties. An additional ten properties are classified as held for sale and the remaining seven properties are expected to close simultaneously with our purchase option exercise in April 2023.

• To effectuate the transition of all 51 properties, we agreed to provide Genesis a lease termination fee of $86 million upon successful transition of all properties, which will be used to immediately repay indebtedness to us. The debt reduction associated with the lease termination fee was previously reserved as an allowance for credit losses on loans receivable.

• Additionally, upon achievement of certain restructuring milestones, we will reduce Genesis' indebtedness by an additional $170 million in exchange for an equity interest in Genesis. Upon conclusion of the aforementioned loan transactions, Genesis will have $167 million of indebtedness to us, exclusive of additional paid in kind interest, which will carry a maturity date of January 1, 2024. As of December 31, 2021, our total carrying value of Genesis loans receivable, net of allowances for credit losses, was $154,476,000.

10. Borrowings Under Credit Facilities and Commercial Paper Program

At December 31, 2021, we had a primary unsecured credit facility with a consortium of 34 banks that included a $4,000,000,000 unsecured revolving credit facility, a $500,000,000 unsecured term credit facility and a $250,000,000 Canadian-denominated unsecured term credit facility. The unsecured revolving credit facility is comprised of a $1,000,000,000 tranche that matures on June 4, 2023 (none outstanding at December 31, 2021) and a $3,000,000,000 tranche that matures on June 4, 2025 (none outstanding at December 31, 2021). Both tranches may be extended for two successive terms of six months at our option. The term credit facilities mature on July 19, 2023. We have an option, through an accordion feature, to upsize the unsecured revolving credit facility and the $500,000,000 unsecured term credit facility by up to an additional $1,250,000,000, in the aggregate, and the $250,000,000 Canadian-denominated unsecured term credit facility by up to an additional $250,000,000. The primary unsecured credit facility also allows us to borrow up to $1,000,000,000 in alternate currencies (none outstanding at December 31, 2021). Borrowings under the unsecured revolving credit facility are subject to interest payable at the applicable margin over LIBOR interest rate. The applicable margin is based on our debt ratings and was 0.775% at December 31, 2021. In addition, we pay a facility fee quarterly to each bank based on the bank’s commitment amount. The facility fee depends on our debt ratings and was 0.15% at December 31, 2021.

In January 2019, we established an unsecured commercial paper program. Under the terms of the program, we may issue unsecured commercial paper notes with maturities that vary, but do not exceed 397 days from the date of issue, up to a maximum aggregate face or principal amount outstanding at any time of $1,000,000,000. As of December 31, 2021, there was a balance of $324,935,000 outstanding on the commercial paper program ($325,000,000 in principal outstanding, net of an unamortized discount of $65,000), which reduces the borrowing capacity of the unsecured revolving credit facility. The notes bear interest at floating rates with a weighted average of 0.41% as of December 31, 2021 and a weighted average maturity of 18 days as of December 31, 2021.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following information relates to aggregate borrowings under the unsecured revolving credit facility and commercial paper program for the periods presented (dollars in thousands):

						Year Ended December 31,
						2021						2020						2019
Balance outstanding at year end						$	325,000					$	—					$	1,588,600
Maximum amount outstanding at any month end						$	994,000					$	2,100,000					$	2,880,000
Average amount outstanding (total of daily principal balances
divided by days in period)						$	384,418					$	497,014					$	1,376,813
Weighted-average interest rate (actual interest expense divided
by average borrowings outstanding)						0.33		%				2.09		%				2.84		%

11. Senior Unsecured Notes and Secured Debt

We may repurchase, redeem or refinance senior unsecured notes from time to time, taking advantage of favorable market conditions when available. We may purchase senior notes for cash through open market purchases, privately negotiated transactions, a tender offer or, in some cases, through the early redemption of such securities pursuant to their terms. The senior unsecured notes are redeemable at our option, at any time in whole or from time to time in part, at a redemption price equal to the sum of (i) the principal amount of the notes (or portion of such notes) being redeemed plus accrued and unpaid interest thereon up to the redemption date and (ii) any “make-whole” amount due under the terms of the notes in connection with early redemptions. Redemptions and repurchases of debt, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions, and other factors. At December 31, 2021, the annual principal payments due on these debt obligations were as follows (in thousands):

						Senior Unsecured Notes(1,2)						Secured Debt (1,3)						Totals
2022						$	—					$	582,884					$	582,884
2023(4,5)						695,664						551,716						1,247,380
2024						1,350,000						181,710						1,531,710
2025						1,260,000						160,427						1,420,427
2026						700,000						107,327						807,327
Thereafter(6,7,8)						7,702,297						618,248						8,320,545
Totals						$	11,707,961					$	2,202,312					$	13,910,273

(1) Amounts represent principal amounts due and do not include unamortized premiums/discounts, debt issuance costs, or other fair value adjustments as reflected on the Consolidated Balance Sheets.

(2) Annual interest rates range from 0.80% to 6.50%.

(3) Annual interest rates range from 0.08% to 6.67%. Carrying value of the properties securing the debt totaled $5,062,000,000 at December 31, 2021.

(4) Includes a $250,000,000 Canadian-denominated unsecured term credit facility (approximately $195,664,000 based on the Canadian/U.S. Dollar exchange rate on December 31, 2021). The loan matures on July 19, 2023 and bears interest at the Canadian Dealer Offered Rate plus 0.9% (1.34% at December 31, 2021).

(5) Includes a $500,000,000 unsecured term credit facility. The loan matures on July 19, 2023 and bears interest at LIBOR plus 0.9% (1.00% at December 31, 2021).

(6) Includes a $300,000,000 Canadian-denominated 2.95% senior unsecured notes due 2027 (approximately $234,797,000 based on the Canadian/U.S. Dollar exchange rate on December 31, 2021).

(7) Includes a £550,000,000 4.80% senior unsecured notes due 2028 (approximately $742,500,000 based on the Pounds Sterling/U.S. Dollar exchange rate in effect on December 31, 2021).

(8) Includes a £500,000,000 4.50% senior unsecured notes due 2034 (approximately $675,000,000 based on the Pounds Sterling/U.S. Dollar exchange rate in effect on December 31, 2021).

The following is a summary of our senior unsecured notes principal activity during the periods presented (dollars in thousands):

						Year Ended
						December 31, 2021												December 31, 2020												December 31, 2019
												Weighted Avg.												Weighted Avg.												Weighted Avg.
						Amount						Interest Rate						Amount						Interest Rate						Amount						Interest Rate
Beginning balance						$	11,509,533					3.67%						$	10,427,562					4.03%						$	9,699,984					4.48%
Debt issued						1,750,000						2.57%						1,600,000						1.89%						3,987,790						3.34%
Debt extinguished						(1,533,752)						2.42%						(566,248)						3.26%						(3,335,290)						4.39%
Foreign currency						(17,820)						4.55%						48,219						4.35%						75,078						4.22%
Ending balance						$	11,707,961					3.67%						$	11,509,533					3.67%						$	10,427,562					4.03%

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following is a summary of our secured debt principal activity for the periods presented (dollars in thousands):

						Year Ended
						December 31, 2021												December 31, 2020												December 31, 2019
												Weighted Avg.												Weighted Avg.												Weighted Avg.
						Amount						Interest Rate						Amount						Interest Rate						Amount						Interest Rate
Beginning balance						$	2,378,073					3.27%						$	2,993,342					3.63%						$	2,485,711					3.90%
Debt issued						23,569						2.83%						62,055						2.55%						343,696						3.11%
Debt assumed						—						—%						—						—%						385,145						4.34%
Debt extinguished						(132,031)						5.86%						(632,288)						2.21%						(230,108)						4.35%
Principal payments						(65,587)						3.40%						(62,707)						3.63%						(54,325)						3.75%
Foreign currency						(1,712)						2.72%						17,671						2.93%						63,223						3.28%
Ending balance						$	2,202,312					3.03%						$	2,378,073					3.27%						$	2,993,342					3.63%

Our debt agreements contain various covenants, restrictions and events of default. Certain agreements require us to maintain certain financial ratios and minimum net worth and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions. As of December 31, 2021, we were in compliance in all material respects with all of the covenants under our debt agreements.

12. Derivative Instruments

We are exposed to, among other risks, the impact of changes in foreign currency exchange rates as a result of our non-U.S. investments and interest rate risk related to our capital structure. Our risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes foreign currency forward contracts, cross currency swap contracts, interest rate swaps, interest rate locks and debt issued in foreign currencies to offset a portion of these risks.

Foreign Currency Forward Contracts Designated as Cash Flow Hedges

For instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is deferred as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods, during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in earnings.

Cash Flow Hedges of Interest Rate Risk

We enter into interest rate swaps in order to maintain a capital structure containing targeted amounts of fixed and floating-rate debt and manage interest rate risk. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for our fixed-rate payments. These interest rate swap agreements were used to hedge the variable cash flows associated with variable-rate debt.

Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt, except where a material amount is deemed to be ineffective, which would be immediately reclassified to the Consolidated Statements of Comprehensive Income. Approximately $2,562,000 of losses, which are included in OCI, are expected to be reclassified into earnings in the next 12 months.

Foreign Currency Forward Contracts and Cross Currency Swap Contracts Designated as Net Investment Hedges

We use foreign currency forward and cross currency forward swap contracts to hedge a portion of the net investment in foreign subsidiaries against fluctuations in foreign exchange rates. For instruments that are designated and qualify as net investment hedges, the variability in the foreign currency to U.S. Dollar of the instrument is recorded as a cumulative translation adjustment component of OCI.

During the years ended December 31, 2021, 2020, and 2019 we settled certain net investment hedges generating cash proceeds of $14,505,000, necessitating cash payments of $1,988,000, and generating cash proceeds of $6,716,000, respectively. The balance of the cumulative translation adjustment will be reclassified to earnings if the hedged investment is sold or substantially liquidated.

Derivative Contracts Undesignated

We use foreign currency exchange contracts to manage existing exposures to foreign currency exchange risk. Gains and losses resulting from the changes in fair value of these instruments are recorded in interest expense on the Consolidated Statements of Comprehensive Income, and are substantially offset by net revaluation impacts on foreign currency denominated

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

balance sheet exposures. In addition, we have several interest rate cap contracts related to variable rate secured debt agreements. Gains and losses resulting from the changes in fair values of these instruments are also recorded in interest expense.

Equity Warrants

We received equity warrants through our lending activities further described in Note 7, which were accounted for as loan origination fees. The warrants provide us the right to participate in the capital appreciation of the underlying company above a designated price upon liquidation and contain net settlement terms qualifying as derivatives under ASC Topic 815. The warrants are classified within receivables and other assets on our Consolidated Balance Sheets. These warrants are measured at fair value with changes in fair value being recognized within gain (loss) on derivatives and financial instruments in our Consolidated Statements of Comprehensive Income.

The following presents the notional amount of derivatives and other financial instruments as of the dates indicated (in thousands):

						December 31, 2021						December 31, 2020
Derivatives designated as net investment hedges:
Denominated in Canadian Dollars						$	675,000					$	625,000
Denominated in Pound Sterling						£	1,904,708					£	1,340,708
Financial instruments designated as net investment hedges:
Denominated in Canadian Dollars						$	250,000					$	250,000
Denominated in Pound Sterling						£	1,050,000					£	1,050,000
Interest rate swaps designated as cash flow hedges:
Denominated in U.S. Dollars(1)						$	25,000					$	450,000
Derivative instruments not designated:
Interest rate caps denominated in U.S. Dollars						$	26,137					$	26,137
Forward sales contracts denominated in Canadian Dollars						$	80,000					$	80,000

(1) At December 31, 2021 the maximum maturity date was November 1, 2023.

The following presents the impact of derivative instruments on the Consolidated Statements of Comprehensive Income for the periods presented (in thousands):

												Year Ended
Description						Location						December 31, 2021						December 31, 2020						December 31, 2019
Gain (loss) on derivative instruments designated as hedges recognized in income						Interest expense						$	23,133					$	22,698					$	26,419
Gain (loss) on derivative instruments not designated as hedges recognized in income						Interest expense						$	(433)					$	(5,982)					$	(2,310)
Gain (loss) on equity warrants recognized in income						Gain (loss) on derivatives and financial instruments, net						$	10,361					$	—					$	—
Gain (loss) on derivative and financial instruments designated as hedges recognized in OCI						OCI						$	79,702					$	(134,369)					$	(131,120)

13. Commitments and Contingencies

At December 31, 2021, we had 15 outstanding letter of credit obligations totaling $34,744,000 and expiring during 2022. At December 31, 2021, we had outstanding construction in progress of $651,389,000 and were committed to providing additional funds of approximately $1,208,913,000 to complete construction. Additionally, at December 31, 2021, we had outstanding investments classified as in substance real estate of $317,647,000 and were committed to provide additional funds of $86,644,000 (see Note 8 for additional information). Purchase obligations include $83,363,000 of contingent purchase obligations to fund capital improvements. Rents due from the tenant are increased to reflect the additional investment in the property.

14. Stockholders’ Equity

The following is a summary of our stockholders’ equity capital accounts as of the dates indicated:

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

						December 31, 2021						December 31, 2020
Preferred Stock, $1.00 par value:
Authorized shares						50,000,000						50,000,000
Issued shares						—						—
Outstanding shares						—						—
Common Stock, $1.00 par value:
Authorized shares						700,000,000						700,000,000
Issued shares						448,998,438						419,124,469
Outstanding shares						447,239,477						417,400,602

Preferred Stock

The following is a summary of our preferred stock activity during the periods presented:

						Year Ended
						December 31, 2021												December 31, 2020												December 31, 2019
												Weighted Avg.												Weighted Avg.												Weighted Avg.
						Shares						Dividend Rate						Shares						Dividend Rate						Shares						Dividend Rate
Beginning balance						—						—%						—						—%						14,369,965						6.50%
Shares converted						—						—%						—						—%						(14,369,965)						6.50%
Ending balance						—						—%						—						—%						—						—%

During the year ended December 31, 2019, we converted all of the outstanding Series I Preferred Stock. Each share was converted into 0.8857 shares of common stock.

Common Stock

In July 2021, we entered into an amended and restated equity distribution agreement whereby we can offer and sell up to $2,500,000,000 aggregate amount of our common stock ("ATM Program"). The ATM Program also allows us to enter into forward sale agreements. As of December 31, 2021, we had $1,876,085,000 of remaining capacity under the ATM Program, which excludes forward sales agreements outstanding for the sale of 5,187,250 shares with maturity dates in 2022 which we expect to physically settle for cash proceeds of $435,172,000.

On May 1, 2020, our Board of Directors authorized a share repurchase program whereby we may repurchase up to $1 billion of common stock through December 31, 2021 (the "Repurchase Program"). Under this authorization, we are not required to purchase shares but may choose to do so in the open market or through private transactions at times and amounts based on our evaluation of market conditions and other factors. We expect to finance any share repurchases under the Repurchase Program using available cash and may use proceeds from borrowings or debt offerings. During the year ended December 31, 2020, we repurchased 201,947 shares at an average price of $37.89 per share. We did not repurchase any shares of our common stock during the year ended December 31, 2021.

The following is a summary of our common stock issuances during the periods indicated (dollars in thousands, except shares and average price amounts):

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

						Shares Issued						Average Price						Gross Proceeds						Net Proceeds
2019 Dividend reinvestment plan issuances						5,798,979						$	77.18					$	447,559					$	443,929
2019 Option exercises						10,736						51.32						551						551
2019 ATM Program issuances						7,855,956						78.15						613,948						611,645
2019 Preferred stock conversions						12,712,452												—						—
2019 Stock incentive plans, net of forfeitures						203,889												—						—
2019 Totals						26,582,012												$	1,062,058					$	1,056,125
2020 Dividend reinvestment plan issuances						264,153						$	72.33					$	19,105					$	19,105
2020 Option exercises						251						47.81						12						12
2020 ATM Program issuances						6,799,978						86.48						588,072						576,196
2020 Stock incentive plans, net of forfeitures						281,552												—						—
2020 Totals						7,345,934												$	607,189					$	595,313
2021 Option exercises						338						$	56.21					$	19					$	19
2021 ATM Program issuances						29,667,348						80.41						2,385,683						2,348,182
2021 Stock incentive plans, net of forfeitures						171,189												—						—
2021 Totals						29,838,875												$	2,385,702					$	2,348,201

Dividends

During the year ended December 31, 2020, we declared a reduced cash dividend beginning with the quarter ended March 31, 2020. Please refer to Note 19 for information related to federal income tax of dividends. The following is a summary of our dividend payments (in thousands, except per share amounts):

						Year Ended
						December 31, 2021												December 31, 2020												December 31, 2019
						Per Share						Amount						Per Share						Amount						Per Share						Amount
Common Stock						$	2.44					$	1,037,194					$	2.70					$	1,120,187					$	3.48					$	1,404,977

Accumulated Other Comprehensive Income

The following is a summary of accumulated other comprehensive income/(loss) for the periods presented (in thousands):

						December 31, 2021						December 31, 2020
Foreign currency translation						$	(674,306)					$	(621,792)
Derivative and financial instruments designated as hedges						552,990						473,288
Total accumulated other comprehensive income (loss)						$	(121,316)					$	(148,504)

15. Stock Incentive Plans

Our 2016 Long-Term Incentive Plan (“2016 Plan”) authorizes up to 10,000,000 shares of common stock to be issued at the discretion of the Compensation Committee of the Board of Directors. Our non-employee directors, officers and key employees are eligible to participate in the 2016 Plan. The 2016 Plan allows for the issuance of, among other things, stock options, stock appreciation rights, restricted stock, deferred stock units, performance units, and dividend equivalent rights. Vesting periods for options, deferred stock units and restricted shares generally range from three to five years. Options expire ten years from the date of grant.

Under our long-term incentive plan, certain restricted stock awards are market, performance and time-based. For market and performance based awards, we will grant a target number of restricted stock units, with the ultimate award determined by the total shareholder return and operating performance metrics, measured in each case over a measurement period of three years. These awards vest after the end of the performance periods. The expected term represents the period from the grant date to the end of the performance period. Compensation expense for these performance grants is measured based on the probability of achievement of certain performance goals and is recognized over the performance period. For the portion of the grant for which the award is determined by the operating performance metrics, the compensation cost is based on the grant date closing price and management’s estimate of corporate achievement of the financial metrics. If the estimated number of performance based restricted stock to be earned changes, an adjustment will be recorded to recognize the accumulated difference between the revised and previous estimates. For the portion of the grant determined by the total shareholder return, management used a Monte Carlo model to assess the fair value and compensation cost. Forfeitures are accounted for as they occur.

The following table summarizes compensation expense recognized for the periods presented (in thousands):

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

						Year Ended December 31,
						2021						2020						2019
Stock options						$	1,088					$	—					$	—
Restricted stock						16,724						28,318						25,047
Total compensation expense						$	17,812					$	28,318					$	25,047

Stock Options

During the year ended December 31, 2021, we granted 311,306 time-based stock options at a weighted average exercise price of $67.17, all of which were outstanding and non-vested at December 31, 2021. The grant date fair value of $14.64 was estimated on the date of grant using the Black-Scholes option pricing model. As of December 31, 2021, there was $3,470,000 of total unrecognized compensation expense related to unvested time-based stock options that is expected to be recognized over a weighted-average period of 3 years. Time-based stock options outstanding at December 31, 2021 have an aggregate intrinsic value of $2,763,000.

During the year ended December 31, 2021, we granted 832,356 performance-based stock options at a weighted average exercise price of $83.44, all of which were outstanding and non-vested at December 31, 2021. The grant date fair value of $20.31 was estimated on the date of grant using the Black-Scholes option pricing model. These options have a performance condition based on a Funds From Operations goal measured over the performance period of January 1, 2022 to December 31, 2024. These awards vest over two years after the end of the performance period, with a portion vesting immediately at the end of the performance period. Compensation expense is measured based on the probability of achievement of the performance goal and is recognized over both the performance period and vesting period. At December 31, 2021, the performance goal is not probable of being achieved.

Restricted Stock

The fair value of the restricted stock is equal to the market price of the Company’s common stock on the date of grant and is amortized over the vesting periods. As of December 31, 2021, there was $22,055,000 of total unrecognized compensation expense related to unvested restricted stock that is expected to be recognized over a weighted-average period of two years. The following table summarizes information about non-vested restricted stock incentive awards as of and for the year ended December 31, 2021:

						Restricted Stock
						Number of Shares (000's)						Weighted-Average Grant Date Fair Value
Non-vested at December 31, 2020						405						$	69.35
Vested						(208)						63.21
Granted						470						71.41
Forfeited or expired						(101)						79.92
Non-vested at December 31, 2021						566						$	76.28

Defined Contribution Plan

We sponsor a 401(k) plan which is available to substantially all U.S. employees. We match a percentage of employee contributions up to 5% of an employee's wages and provide a discretionary profit sharing contribution calculated as a percentage of eligible compensation. We recognized expense of $3,477,000, $3,323,000 and $2,975,000 during the years ended December 31, 2021, 2020 and 2019, respectively, related to this plan.

16. Earnings Per Share

The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

						Year Ended December 31,
						2021						2020						2019
Numerator for basic earnings per share - net income attributable
to common stockholders						$	336,138					$	978,844					$	1,232,432
Adjustment for net income (loss) attributable to OP units						(3,020)						(6,146)						806
Numerator for diluted earnings per share						$	333,118					$	972,698					$	1,233,238
Denominator for basic earnings per share - weighted average shares						424,976						415,451						401,845
Effect of dilutive securities:
Non-vested restricted shares						447						519						835
Redeemable OP units						1,396						1,396						1,112
Employee stock purchase program						22						21						16
Dilutive potential common shares						1,865						1,936						1,963
Denominator for diluted earnings per share - adjusted weighted average shares						426,841						417,387						403,808
Basic earnings per share						$	0.79					$	2.36					$	3.07
Diluted earnings per share						$	0.78					$	2.33					$	3.05

As of December 31, 2021, and December 31, 2019, outstanding forward sales agreements for the sale of 5,187,250 shares and 4,935,804 shares, respectively, were not included in the computation of diluted earnings per share because such forward sales were anti-dilutive for the period. Employee stock options were anti-dilutive for the periods presented.

17. Disclosure about Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-level valuation hierarchy exists for disclosures of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined below:

• Level 1 - Quoted prices in active markets for identical assets or liabilities.

• Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

• Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Mortgage Loans, Other Real Estate Loans and Non-real Estate Loans Receivable — The fair value of mortgage loans, other real estate loans and non-real estate loans receivable is generally estimated by using Level 2 and Level 3 inputs such as discounting the estimated future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.

Cash and Cash Equivalents and Restricted Cash — The carrying amount approximates fair value.

Equity Securities — Equity securities are recorded at their fair value based on Level 1 publicly available trading prices.

Equity Warrants — The fair value of equity warrants is estimated using Level 3 inputs and includes data points such as enterprise value of the underlying HC-One Group real estate portfolio, marketability discount for private company warrants, dividend yield, volatility and risk-free rate. The enterprise value is driven by projected cash flows, weighted average cost of capital and a terminal capitalization rate.

Borrowings Under Primary Unsecured Credit Facility and Commercial Paper Program — The carrying amount of the primary unsecured credit facility and commercial paper program approximates fair value because the borrowings are interest rate adjustable.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Senior Unsecured Notes — The fair value of the senior unsecured notes payable was estimated based on Level 1 publicly available trading prices. The carrying amount of the variable rate senior unsecured notes approximates fair value because they are interest rate adjustable.

Secured Debt — The fair value of fixed rate secured debt is estimated using Level 2 inputs by discounting the estimated future cash flows using the current rates at which similar loans would be made with similar credit ratings and for the same remaining maturities. The carrying amount of variable rate secured debt approximates fair value because the borrowings are interest rate adjustable.

Foreign Currency Forward Contracts, Interest Rate Swaps and Cross Currency Swaps — Foreign currency forward contracts, interest rate swaps and cross currency swaps are recorded in other assets or other liabilities on the balance sheet at fair value that is derived from observable market data, including yield curves and foreign exchange rates.

Redeemable OP Unitholder Interests — Our redeemable OP unitholder interests are recorded on the balance sheet at fair value using Level 2 inputs unless the fair value is below the initial amount, in which case the redeemable OP unitholder interests are recorded at the initial amount adjusted for distributions to the unitholders and income or loss attributable to the unitholders. The fair value is measured using the closing price of our common stock, as units may be redeemed at the election of the holder for cash or, at our option, one share of our common stock per unit, subject to adjustment in certain circumstances.

The carrying amounts and estimated fair values of our financial instruments are as follows (in thousands):

						December 31, 2021												December 31, 2020
						Carrying						Fair						Carrying						Fair
						Amount						Value						Amount						Value
Financial assets:
Mortgage loans receivable						$	877,102					$	932,552					$	293,752					$	297,207
Other real estate loans receivable						191,579						193,999						149,620						152,211
Equity securities						1,608						1,608						4,636						4,636
Cash and cash equivalents						269,265						269,265						1,545,046						1,545,046
Restricted cash						77,490						77,490						475,997						475,997
Non-real estate loans receivable						223,627						241,544						240,269						255,724
Foreign currency forward contracts, interest rate swaps and cross currency swaps						7,205						7,205						4,668						4,668
Equity warrants						41,909						41,909						—						—
Financial liabilities:
Borrowings under unsecured credit facility and commercial paper program						$	324,935					$	324,935					$	—					$	—
Senior unsecured notes						11,613,758						13,139,748						11,420,790						13,093,926
Secured debt						2,192,261						2,252,107						2,377,930						2,451,782
Foreign currency forward contracts, interest rate swaps and cross currency swaps						39,296						39,296						118,054						118,054
Redeemable OP unitholder interests						$	153,098					$	153,098					$	116,240					$	115,346

Items Measured at Fair Value on a Recurring Basis

The market approach is utilized to measure fair value for our financial assets and liabilities reported at fair value on a recurring basis. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The following summarizes items measured at fair value on a recurring basis (in thousands):

						Fair Value Measurements as of December 31, 2021
						Total						Level 1						Level 2						Level 3
Equity securities						$	1,608					$	1,608					$	—					$	—
Equity warrants						41,909						—						—						41,909
Foreign currency forward contracts, interest rate swaps and cross currency swaps, net asset (liability) (1)						(32,091)						—						(32,091)						—
Totals						$	11,426					$	1,608					$	(32,091)					$	41,909

(1) Please see Note 12 for additional information.

The following table summarizes the change in fair value for equity warrants using unobservable Level 3 inputs for the year ended December 31, 2021 (in thousands):

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

						Year Ended
						December 31, 2021
Beginning balance						$	—
Warrants acquired						32,419
Mark-to-market adjustment						10,361
Foreign currency						(871)
Ending balance						$	41,909

The most significant assumptions utilized in the valuation of the equity warrants are the cash flows of the underlying HC-One Group enterprise, as well as the terminal capitalization rate of 9.5%.

Items Measured at Fair Value on a Nonrecurring Basis

In addition to items that are measured at fair value on a recurring basis, we also have assets and liabilities in our balance sheet that are measured at fair value on a nonrecurring basis that are not included in the tables above. Assets, liabilities and noncontrolling interests that are measured at fair value on a nonrecurring basis include those acquired or assumed. Asset impairments (if applicable, see Note 5 for impairments of real property and Note 7 for impairments of loans receivable) are also measured at fair value on a nonrecurring basis. We have determined that the fair value measurements included in each of these assets and liabilities rely primarily on company-specific inputs and our assumptions about the use of the assets and settlement of liabilities, as observable inputs are not available. As such, we have determined that each of these fair value measurements generally resides within Level 3 of the fair value hierarchy. We estimate the fair value of real estate and related intangibles using the income approach and unobservable data such as net operating income and estimated capitalization and discount rates. We also consider local and national industry market data including comparable sales, and commonly engage an external real estate appraiser to assist us in our estimation of fair value. We estimate the fair value of assets held for sale based on current sales price expectations or, in the absence of such price expectations, Level 3 inputs described above. We estimate the fair value of loans receivable using projected payoff valuations based on the expected future cash flows and/or the estimated fair value of collateral, net of sales costs, if the repayment of the loan is expected to be provided solely by the collateral. We estimate the fair value of secured debt assumed in asset acquisitions using current interest rates at which similar borrowings could be obtained on the transaction date.

18. Segment Reporting

We invest in seniors housing and health care real estate. We evaluate our business and make resource allocations on our three operating segments: Seniors Housing Operating, Triple-net and Outpatient Medical. Our Seniors Housing Operating properties include seniors apartments, assisted living, independent living/continuing care retirement communities, independent supportive living communities (Canada), care homes with and without nursing (U.K.) and combinations thereof that are owned and/or operated through RIDEA structures (see Note 19). Our Triple-net properties include the property types described above as well as long-term/post-acute care facilities. Under the Triple-net segment, we invest in seniors housing and health care real estate through acquisition and financing of primarily single tenant properties. Properties acquired are primarily leased under triple-net leases and we are not involved in the management of the property. Our Outpatient Medical properties are typically leased to multiple tenants and generally require a certain level of property management by us.

We evaluate performance based upon consolidated NOI of each segment. We define NOI as total revenues, including tenant reimbursements, less property operating expenses. We believe NOI provides investors relevant and useful information as it measures the operating performance of our properties at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess the property level performance of our properties.

Non-segment revenue consists mainly of interest income on cash investments recorded in other income. Non-segment assets consist of corporate assets including cash, deferred loan expenses and corporate offices and equipment among others. Non-property specific revenues and expenses are not allocated to individual segments in determining NOI.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2). The results of operations for all acquisitions described in Note 3 are included in our consolidated results of operations from the acquisition dates and are components of the appropriate segments. All inter-segment transactions are eliminated.

Summary information for the reportable segments (which excludes unconsolidated entities) during the years ended December 31, 2021, 2020 and 2019 is as follows (in thousands):

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31, 2021:						Seniors Housing Operating						Triple-net						Outpatient Medical						Non-segment / Corporate						Total
Resident fees and services						$	3,197,223					$	—					$	—					$	—					$	3,197,223
Rental income						—						761,441						613,254						—						1,374,695
Interest income						4,231						124,540						8,792						—						137,563
Other income						11,796						4,603						13,243						2,992						32,634
Total revenues						3,213,250						890,584						635,289						2,992						4,742,115
Property operating expenses						2,529,344						49,462						186,939						8,817						2,774,562
Consolidated net operating income (loss)						683,906						841,122						448,350						(5,825)						1,967,553
Depreciation and amortization						593,565						220,699						223,302						—						1,037,566
Interest expense						39,327						6,376						17,506						426,644						489,853
General and administrative expenses						—						—						—						126,727						126,727
Loss (gain) on derivatives and financial instruments, net						—						(7,333)						—						—						(7,333)
Loss (gain) on extinguishment of debt, net						(2,628)						—						(4)						52,506						49,874
Provision for loan losses, net						394						10,339						(3,463)						—						7,270
Impairment of assets						22,317						26,579						2,211						—						51,107
Other expenses						27,132						4,189						2,523						7,895						41,739
Income (loss) from continuing operations before income taxes and other items						3,799						580,273						206,275						(619,597)						170,750
Income tax (expense) benefit						—						—						—						(8,713)						(8,713)
Income (loss) from unconsolidated entities						(39,225)						20,687						(4,395)						—						(22,933)
Gain (loss) on real estate dispositions, net						6,146						135,881						93,348						—						235,375
Income (loss) from continuing operations						(29,280)						736,841						295,228						(628,310)						374,479
Net income (loss)						$	(29,280)					$	736,841					$	295,228					$	(628,310)					$	374,479
Total assets						$	18,851,999					$	9,710,194					$	6,204,064					$	144,068					$	34,910,325

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31, 2020:						Seniors Housing Operating						Triple-net						Outpatient Medical						Non-segment / Corporate						Total
Resident fees and services						$	3,074,022					$	—					$	—					$	—					$	3,074,022
Rental income						—						733,776						709,584						—						1,443,360
Interest income						618						62,625						5,913						—						69,156
Other income						7,223						4,903						4,522						2,781						19,429
Total revenues						3,081,863						801,304						720,019						2,781						4,605,967
Property operating expenses						2,326,311						53,183						214,948						3,381						2,597,823
Consolidated net operating income (loss)						755,552						748,121						505,071						(600)						2,008,144
Depreciation and amortization						544,462						232,604						261,371						—						1,038,437
Interest expense						54,901						9,477						17,579						432,431						514,388
General and administrative expenses						—						—						—						128,394						128,394
Loss (gain) on derivatives and financial instruments, net						—						11,049						—						—						11,049
Loss (gain) on extinguishment of debt, net						12,659						—						1,046						33,344						47,049
Provision for loan losses, net						671						90,563						3,202						—						94,436
Impairment of assets						100,741						34,867						—						—						135,608
Other expenses						14,265						22,923						8,218						24,929						70,335
Income (loss) from continuing operations before income taxes and other items						27,853						346,638						213,655						(619,698)						(31,552)
Income tax (expense) benefit						—						—						—						(9,968)						(9,968)
Income (loss) from unconsolidated entities						(33,857)						18,462						7,312						—						(8,083)
Gain (loss) on real estate dispositions, net						328,249						64,288						695,918						—						1,088,455
Income (loss) from continuing operations						322,245						429,388						916,885						(629,666)						1,038,852
Net income (loss)						$	322,245					$	429,388					$	916,885					$	(629,666)					$	1,038,852
Total assets						$	16,044,153					$	8,547,482					$	6,522,880					$	1,369,127					$	32,483,642

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Year Ended December 31, 2019:						Seniors Housing Operating						Triple-net						Outpatient Medical						Non-segment / Corporate						Total
Resident fees and services						$	3,448,175					$	—					$	—					$	—					$	3,448,175
Rental income						—						903,798						684,602						—						1,588,400
Interest income						36						62,599						1,195						—						63,830
Other income						8,658						6,246						2,031						3,966						20,901
Total revenues						3,456,869						972,643						687,828						3,966						5,121,306
Property operating expenses						2,417,349						53,900						218,793						—						2,690,042
Consolidated net operating income (loss)						1,039,520						918,743						469,035						3,966						2,431,264
Depreciation and amortization						553,189						232,626						241,258						—						1,027,073
Interest expense						67,983						12,892						13,411						461,273						555,559
General and administrative expenses						—						—						—						126,549						126,549
Loss (gain) on derivatives and financial instruments, net						—						(4,399)						—						—						(4,399)
Loss (gain) on extinguishment of debt, net						1,614						—						—						82,541						84,155
Provision for loan losses, net						—						18,690						—						—						18,690
Impairment of assets						2,145						11,926						14,062						—						28,133
Other expenses						26,348						13,771						1,788						10,705						52,612
Income (loss) from continuing operations before income taxes and other items						388,241						633,237						198,516						(677,102)						542,892
Income tax (expense) benefit						—						—						—						(2,957)						(2,957)
Income (loss) from unconsolidated entities						12,388						22,985						7,061						—						42,434
Gain (loss) on real estate dispositions, net						528,747						218,322						972						—						748,041
Income (loss) from continuing operations						929,376						874,544						206,549						(680,059)						1,330,410
Net income (loss)						$	929,376					$	874,544					$	206,549					$	(680,059)					$	1,330,410

Our portfolio of properties and other investments are located in the United States, the United Kingdom and Canada. Revenues and assets are attributed to the country in which the property is physically located. The following is a summary of geographic information for the periods presented (dollars in thousands):

						Year Ended
						December 31, 2021												December 31, 2020												December 31, 2019
Revenues:						Amount(1)						%						Amount						%						Amount						%
United States						$	3,766,707					79.4		%				$	3,720,155					80.8		%				$	4,205,492					82.1		%
United Kingdom						552,650						11.7		%				451,399						9.8		%				452,698						8.8		%
Canada						422,758						8.9		%				434,413						9.4		%				463,116						9.1		%
Total						$	4,742,115					100.0		%				$	4,605,967					100.0		%				$	5,121,306					100.0		%
						As of
						December 31, 2021												December 31, 2020
Assets:						Amount						%						Amount						%
United States						$	28,595,703					81.9		%				$	26,658,659					82.1		%
United Kingdom						3,938,258						11.3		%				3,352,549						10.3		%
Canada						2,376,364						6.8		%				2,472,434						7.6		%
Total						$	34,910,325					100.0		%				$	32,483,642					100.0		%

(1) The United States, United Kingdom and Canada represent 75%, 12% and 13%, respectively, of our resident fees and services revenue for the year ended December 31, 2021.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

19. Income Taxes and Distributions

We elected to be taxed as a REIT commencing with our first taxable year. To qualify as a REIT for federal income tax purposes, at least 90% of taxable income (excluding 100% of net capital gains) must be distributed to stockholders. REITs that do not distribute a certain amount of taxable income in the current year are also subject to a 4% federal excise tax. The main differences between undistributed net income for federal income tax purposes and financial statement purposes are the recognition of straight-line rent for reporting purposes, basis differences in acquisitions, recording of impairments, differing useful lives and depreciation and amortization methods for real property and the provision for loan losses for reporting purposes versus bad debt expense for tax purposes.

Cash distributions paid to common stockholders, for federal income tax purposes, are as follows for the periods presented:

						Year Ended December 31,
						2021						2020						2019
Per share:
Ordinary dividend(1)						$	1.4828					$	1.6389					$	2.6937
Long-term capital gain/(loss)(2)						0.8371						1.0611						0.7863
Return of capital						0.1201						—						—
Totals						$	2.4400					$	2.7000					$	3.4800

(1) For the years ended December 31, 2021, 2020 and 2019, includes Section 199A dividends of $1.4828, $1.6389 and $2.6937 respectively.

(2) For the years ended December 31, 2021, 2020 and 2019, includes Unrecaptured Section 1250 Gains of $0.4523, $0.3458 and $0.2835, respectively.

Our consolidated provision for income tax expense (benefit) is as follows for the periods presented (in thousands):

						Year Ended December 31,
						2021						2020						2019
Current tax expense						$	10,199					$	11,358					$	12,594
Deferred tax benefit						(1,486)						(1,390)						(9,637)
Income tax expense (benefit)						$	8,713					$	9,968					$	2,957

REITs generally are not subject to U.S. federal income taxes on that portion of REIT taxable income or capital gain that is distributed to stockholders. For the tax year ended December 31, 2021, as a result of ownership of investments in Canada and the U.K., we were subject to foreign income taxes under the respective tax laws of these jurisdictions.

The provision for income taxes for the year ended December 31, 2021 primarily relates to state taxes, foreign taxes, and taxes based on income generated by entities that are structured as TRSs. For the tax years ended December 31, 2021, 2020 and 2019, the foreign tax provision/(benefit) amount included in the consolidated provision for income taxes was $6,787,000, $5,777,000 and $(3,892,000), respectively.

A reconciliation of income taxes, which is computed by applying the federal corporate tax rate for the years ended December 31, 2021, 2020 and 2019, to the income tax expense/(benefit) is as follows for the periods presented (in thousands):

						Year Ended December 31,
						2021						2020						2019
Tax at statutory rate on earnings from continuing operations before unconsolidated entities, noncontrolling interests and income taxes						$	80,470					$	220,252					$	280,005
Increase (decrease) in valuation allowance(1)						19,383						85,881						3,465
Tax at statutory rate on earnings not subject to federal income taxes						(117,931)						(300,196)						(311,224)
Foreign permanent depreciation						1,449						1,504						9,260
Other differences						25,342						2,527						21,451
Totals						$	8,713					$	9,968					$	2,957

(1) Excluding purchase price accounting.

Each TRS and foreign entity subject to income taxes is a tax paying component for purposes of classifying deferred tax assets and liabilities. The tax effects of taxable and deductible temporary differences, as well as tax asset/(liability) attributes, are summarized as follows for the periods presented (in thousands):

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

						Year Ended December 31,
						2021						2020						2019
Investments and property, primarily differences in investment basis, depreciation and amortization, the basis of land assets and the treatment of interests and certain costs						$	(32,616)					$	(24,085)					$	(13,064)
Operating loss and interest deduction carryforwards						247,015						196,634						127,525
Expense accruals and other						53,367						72,459						43,056
Valuation allowances						(264,321)						(244,938)						(159,057)
Net deferred tax assets (liabilities)						$	3,445					$	70					$	(1,540)

On the basis of the evaluations performed as required by the codification, valuation allowances totaling $264,321,000 were recorded on U.S. taxable REIT subsidiaries as well as entities in other jurisdictions to limit the deferred tax assets to the amount that we believe is more likely than not realizable. However, the amount of the deferred tax asset considered realizable could be adjusted if (i) estimates of future taxable income during the carryforward period are reduced or increased or (ii) objective negative evidence in the form of cumulative losses is no longer present (and additional weight may be given to subjective evidence such as our projections for growth). The valuation allowance rollforward is summarized as follows for the periods presented (in thousands):

						Year Ended December 31,
						2021						2020						2019
Beginning balance						$	244,938					$	159,057					$	155,592
Expense (benefit)						19,383						85,881						3,465
Ending balance						$	264,321					$	244,938					$	159,057

As a result of certain acquisitions, we are subject to corporate level taxes for any related asset dispositions that may occur during the five-year period immediately after such assets were owned by a C corporation (“built-in gains tax”). The amount of income potentially subject to this special corporate level tax is generally equal to the lesser of (i) the excess of the fair value of the asset over its adjusted tax basis as of the date it became a REIT asset, or (ii) the actual amount of gain. Some but not all gains recognized during this period of time could be offset by available net operating losses and capital loss carryforwards. During the year ended December 31, 2017, we acquired certain additional assets with built-in gains as of the date of acquisition that could be subject to the built-in gains tax if disposed of prior to the expiration of the applicable five-year period. We have not recorded a deferred tax liability as a result of the potential built-in gains tax based on our intentions with respect to such properties and available tax planning strategies.

Given the applicable statute of limitations, we generally are subject to audit by the Internal Revenue Service (“IRS”) for the year ended December 31, 2018 and subsequent years. The statute of limitations may vary in the states in which we own properties or conduct business. We do not expect to be subject to audit by state taxing authorities for any year prior to the year ended December 31, 2017. We are also subject to audit by the Canada Revenue Agency and provincial authorities generally for periods subsequent to May 2017 related to entities acquired or formed in connection with acquisitions, and by the U.K.’s HM Revenue & Customs for periods subsequent to August 2015 related to entities acquired or formed in connection with acquisitions.

At December 31, 2021, we had a net operating loss (“NOL”) carryforward related to the REIT of $340,827,000. In addition, we completed the acquisition of Holiday Retirement, which included NOLs of $382,399,000. Due to our uncertainty regarding the realization of certain deferred tax assets, we have not recorded a deferred tax asset related to NOLs generated by the REIT. These amounts can be used to offset future taxable income (and/or taxable income for prior years if an audit determines that tax is owed), if any. The REIT will be entitled to utilize NOLs and tax credit carryforwards only to the extent that REIT taxable income exceeds our deduction for dividends paid. The NOL carryforwards generated through December 31, 2017 will expire through 2037. Beginning with the tax years after December 31, 2017, the law eliminates the NOL carryback period for REITs, replaces the 20-year NOL carryforward period with an indefinite carryforward period and, with respect to tax years beginning after 2020, limits the use of NOLs to 80% of taxable income.

At December 31, 2021 and 2020, we had an NOL carryforward related to Canadian entities of $316,821,000 and $262,345,000 respectively. These Canadian losses have a 20-year carryforward period. At December 31, 2021 and 2020, we had an NOL carryforward related to U.K. entities of $193,998,000 and $207,085,000 respectively. These U.K. losses do not have a finite carryforward period.

WELLTOWER INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20. Variable Interest Entities

We have entered into joint ventures to own certain seniors housing and outpatient medical assets which are deemed to be VIEs. We have concluded that we are the primary beneficiary of these VIEs based on a combination of operational control of the joint venture and the rights to receive residual returns or the obligation to absorb losses arising from the joint ventures. Except for capital contributions associated with the initial joint venture formations, the joint ventures have been and are expected to be funded from the ongoing operations of the underlying properties. Accordingly, such joint ventures have been consolidated, and the table below summarizes the balance sheets of consolidated VIEs in the aggregate (in thousands):

						December 31, 2021						December 31, 2020
Assets:
Net real estate investments						$	445,776					$	454,333
Cash and cash equivalents						9,964						15,547
Receivables and other assets						7,617						11,171
Total assets(1)						$	463,357					$	481,051
Liabilities and equity:
Secured debt						$	163,519					$	165,671
Lease liabilities						1,324						1,325
Accrued expenses and other liabilities						12,394						14,997
Total equity						286,120						299,058
Total liabilities and equity						$	463,357					$	481,051

(1) Note that assets of the consolidated VIEs can only be used to settle obligations relating to such VIEs. Liabilities of the consolidated VIEs represent claims against the specific assets of the VIEs.