Item 1. Financial Statements

213K characters. Original on sec.gov · Markdown

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)


	September 30, 2021 (Unaudited)		December 31, 2020 (Note)
Assets:
Real estate investments:
Real property owned:
Land and land improvements	$	3,698,858	$	3,440,650
Buildings and improvements	29,775,951		28,024,971
Acquired lease intangibles	1,653,415		1,500,030
Real property held for sale, net of accumulated depreciation	251,152		216,613
Construction in progress	562,487		487,742
Less accumulated depreciation and amortization	(6,634,061)		(6,104,297)
Net real property owned	29,307,802		27,565,709
Right of use assets, net	526,614		465,866
Real estate loans receivable, net of credit allowance	1,115,645		443,372
Net real estate investments	30,950,061		28,474,947
Other assets:
Investments in unconsolidated entities	977,955		946,234
Goodwill	68,321		68,321
Cash and cash equivalents	303,982		1,545,046
Restricted cash	58,663		475,997
Straight-line rent receivable	346,159		344,066
Receivables and other assets	774,884		629,031
Total other assets	2,529,964		4,008,695
Total assets	$	33,480,025	$	32,483,642

Liabilities and equity
Liabilities:
Unsecured credit facility and commercial paper	$	290,996	$	—
Senior unsecured notes	11,116,067		11,420,790
Secured debt	2,262,345		2,377,930
Lease liabilities	544,547		418,266
Accrued expenses and other liabilities	1,093,959		1,041,594
Total liabilities	15,307,914		15,258,580
Redeemable noncontrolling interests	389,195		343,490
Equity:
Common stock	436,640		418,691
Capital in excess of par value	22,148,859		20,823,145
Treasury stock	(108,478)		(104,490)
Cumulative net income	8,605,064		8,327,598
Cumulative dividends	(14,115,705)		(13,343,721)
Accumulated other comprehensive income (loss)	(103,177)		(148,504)
Total Welltower Inc. stockholders’ equity	16,863,203		15,972,719
Noncontrolling interests	919,713		908,853
Total equity	17,782,916		16,881,572
Total liabilities and equity	$	33,480,025	$	32,483,642

Note: The consolidated balance sheet at December 31, 2020 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Revenues:
Resident fees and services	$	835,617	$	740,956	$	2,299,972	$	2,360,488
Rental income	357,984		275,046		1,015,550		1,061,311
Interest income	39,864		16,750		97,891		48,060
Other income	6,332		4,122		19,438		14,092
Total revenues	1,239,797		1,036,874		3,432,851		3,483,951

Expenses:
Property operating expenses	729,400		634,717		1,989,383		1,977,262
Depreciation and amortization	267,754		255,532		753,065		795,704
Interest expense	122,522		124,851		368,005		393,215
General and administrative expenses	32,256		31,003		93,618		100,546
Loss (gain) on derivatives and financial instruments, net	(8,078)		1,395		(6,503)		10,480
Loss (gain) on extinguishment of debt, net	(5)		33,004		50,964		33,253
Provision for loan losses, net	(271)		2,857		7,309		11,351
Impairment of assets	1,490		23,313		48,750		126,291
Other expenses	3,575		11,544		26,256		37,247
Total expenses	1,148,643		1,118,216		3,330,847		3,485,349

Income (loss) from continuing operations before income taxes and other items	91,154		(81,342)		102,004		(1,398)
Income tax (expense) benefit	(4,940)		(2,003)		(6,662)		(9,678)
Income (loss) from unconsolidated entities	(15,832)		(5,981)		(10,759)		(8,341)
Gain (loss) on real estate dispositions, net	119,954		484,304		223,702		902,991
Income (loss) from continuing operations	190,336		394,978		308,285		883,574

Net income	190,336		394,978		308,285		883,574
Less: Net income (loss) attributable to noncontrolling interests(1)	10,673		69,393		30,819		68,459
Net income (loss) attributable to common stockholders	$	179,663	$	325,585	$	277,466	$	815,115

Average number of common shares outstanding:
Basic	428,031		417,027		420,955		414,822
Diluted	429,983		418,987		422,835		416,860

Earnings per share:
Basic:
Income (loss) from continuing operations	$	0.44	$	0.95	$	0.73	$	2.13
Net income (loss) attributable to common stockholders	$	0.42	$	0.78	$	0.66	$	1.96

Diluted:
Income (loss) from continuing operations	$	0.44	$	0.94	$	0.73	$	2.12
Net income (loss) attributable to common stockholders(2)	$	0.42	$	0.77	$	0.65	$	1.94

Dividends declared and paid per common share	$	0.61	$	0.61	$	1.83	$	2.09

(1) Includes amounts attributable to redeemable noncontrolling interests.

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2021		2020		2021		2020
Net income	$	190,336	$	394,978	$	308,285	$	883,574

Other comprehensive income (loss):
Foreign currency translation gain (loss)	(112,263)		143,353		(55,059)		(109,209)
Derivative and financial instruments designated as hedges gain (loss)	130,711		(145,512)		100,866		86,429
Total other comprehensive income (loss)	18,448		(2,159)		45,807		(22,780)

Total comprehensive income (loss)	208,784		392,819		354,092		860,794
Less: Total comprehensive income (loss) attributable to noncontrolling interests(1)	4,350		76,847		31,299		59,991
Total comprehensive income (loss) attributable to common stockholders	$	204,434	$	315,972	$	322,793	$	800,803

(1) Includes amounts attributable to redeemable noncontrolling interests.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)


	Nine Months Ended September 30, 2021
	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 January 1, 2021	$	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)							71,546						(177)		71,369
Other comprehensive income (loss)											20,368		3,729		24,097
Total comprehensive income															95,466
Net change in noncontrolling interests			(14,250)										(20,266)		(34,516)
Amounts related to stock incentive plans, net of forfeitures	175		5,393		(2,029)										3,539
Net proceeds from issuance of common stock			(92)												(92)
Dividends paid:
Common stock dividends									(254,952)						(254,952)
Balances at March 31, 2021	$	418,866	$	20,814,196	$	(106,519)	$	8,399,144	$	(13,598,673)	$	(128,136)	$	892,139	$	16,691,017
Comprehensive income:
Net income (loss)							26,257						19,695		45,952
Other comprehensive income (loss)											188		2,919		3,107
Total comprehensive income															49,059
Net change in noncontrolling interests			(17,377)										15,630		(1,747)
Amounts related to stock incentive plans, net of forfeitures	51		4,504		(2,114)										2,441
Net proceeds from issuance of common stock	5,016		360,515												365,531

Dividends paid:
Common stock dividends									(255,472)						(255,472)
Balances at June 30, 2021	$	423,933	$	21,161,838	$	(108,633)	$	8,425,401	$	(13,854,145)	$	(127,948)	$	930,383	$	16,850,829
Comprehensive income:
Net income (loss)							179,663						10,470		190,133
Other comprehensive income (loss)											24,771		(6,196)		18,575
Total comprehensive income															208,708
Net change in noncontrolling interests			(4,013)										(14,944)		(18,957)
Amounts related to stock incentive plans, net of forfeitures	3		4,932		155										5,090
Net proceeds from issuance of common stock	12,704		986,102												998,806

Dividends paid:
Common stock dividends									(261,560)						(261,560)
Balances at September 30, 2021	$	436,640	$	22,148,859	$	(108,478)	$	8,605,064	$	(14,115,705)	$	(103,177)	$	919,713	$	17,782,916

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)


	Nine Months Ended September 30, 2020
	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 January 1, 2020	$	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)							310,284						18,988		329,272
Other comprehensive income (loss)											15,944		(21,955)		(6,011)
Total comprehensive income															323,261
Net change in noncontrolling interests			37,625										(29,662)		7,963
Amounts related to stock incentive plans, net of forfeitures	246		6,608		(8,020)										(1,166)
Net proceeds from issuance of common stock	6,975		583,890												590,865

Dividends paid:
Common stock dividends									(356,001)						(356,001)
Balances at March 31, 2020	$	418,226	$	20,818,242	$	(86,975)	$	7,659,038	$	(12,579,535)	$	(96,213)	$	933,554	$	17,066,337
Comprehensive income:
Net income (loss)							179,246						18,659		197,905
Other comprehensive income (loss)											(20,643)		6,298		(14,345)
Total comprehensive income															183,560
Net change in noncontrolling interests			7,299										(70,124)		(62,825)
Amounts related to stock incentive plans, net of forfeitures	28		7,404		832										8,264
Net proceeds from issuance of common stock	89		3,604												3,693
Repurchase of common stock					(7,656)										(7,656)
Dividends paid:
Common stock dividends									(254,846)						(254,846)
Balances at June 30, 2020	$	418,343	$	20,836,549	$	(93,799)	$	7,838,284	$	(12,834,381)	$	(116,856)	$	888,387	$	16,936,527
Comprehensive income:
Net income (loss)							325,585						67,650		393,235
Other comprehensive income (loss)											(9,613)		7,338		(2,275)
Total comprehensive income															390,960
Net change in noncontrolling interests			(7,894)										(110,147)		(118,041)
Amounts related to stock incentive plans, net of forfeitures	18		6,569		(223)										6,364
Net proceeds from issuance of common stock			(198)												(198)
Dividends paid:
Common stock dividends									(254,510)						(254,510)
Balances at September 30, 2020	$	418,361	$	20,835,026	$	(94,022)	$	8,163,869	$	(13,088,891)	$	(126,469)	$	853,228	$	16,961,102

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)


	Nine Months Ended
	September 30,
	2021		2020
Operating activities:
Net income	$	308,285	$	883,574
Adjustments to reconcile net income to net cash provided from (used in) operating activities:
Depreciation and amortization	753,065		795,704
Other amortization expenses	13,951		9,613
Provision for loan losses	7,309		11,351
Impairment of assets	48,750		126,291
Stock-based compensation expense	14,868		20,938
Loss (gain) on derivatives and financial instruments, net	(6,503)		10,480
Loss (gain) on extinguishment of debt, net	50,964		33,253
Loss (income) from unconsolidated entities	10,759		8,341
Rental income less than (in excess of) cash received	(9,607)		66,874
Amortization related to above (below) market leases, net	(2,045)		(1,373)
Loss (gain) on real estate dispositions, net	(223,702)		(902,991)
Distributions by unconsolidated entities	11,783		7,835
Increase (decrease) in accrued expenses and other liabilities	97,924		40,443
Decrease (increase) in receivables and other assets	(83,806)		(749)
Net cash provided from (used in) operating activities	991,995		1,109,584

Investing activities:
Cash disbursed for acquisitions, net of cash acquired	(2,735,206)		(393,374)
Cash disbursed for capital improvements to existing properties	(165,691)		(183,324)
Cash disbursed for construction in progress	(263,325)		(126,699)
Capitalized interest	(14,027)		(13,234)
Investment in loans receivable	(953,006)		(216,307)
Principal collected on loans receivable	250,415		14,345
Other investments, net of payments	(10,885)		(2,145)
Contributions to unconsolidated entities	(278,833)		(301,031)
Distributions by unconsolidated entities	238,066		41,884
Proceeds from (payments on) derivatives	2,312		(13,319)
Proceeds from sales of real property	941,708		3,522,949
Net cash provided from (used in) investing activities	(2,988,472)		2,329,745

Financing activities:
Net increase (decrease) under unsecured credit facility and commercial paper	290,996		(1,587,597)
Net proceeds from issuance of senior unsecured notes	1,208,241		1,588,549
Payments to extinguish senior unsecured notes	(1,533,752)		(566,248)
Net proceeds from the issuance of secured debt	2,693		44,921
Payments on secured debt	(118,854)		(538,091)
Net proceeds from the issuance of common stock	1,366,464		595,313
Repurchase of common stock	—		(7,656)
Payments for deferred financing costs and prepayment penalties	(72,251)		(35,925)
Contributions by noncontrolling interests(1)	84,073		14,267
Distributions to noncontrolling interests(1)	(108,912)		(298,369)

Cash distributions to stockholders	(770,457)		(864,115)
Other financing activities	(9,322)		(11,244)
Net cash provided from (used in) financing activities	338,919		(1,666,195)
Effect of foreign currency translation on cash and cash equivalents and restricted cash	(840)		(3,566)
Increase (decrease) in cash, cash equivalents and restricted cash	(1,658,398)		1,769,568
Cash, cash equivalents and restricted cash at beginning of period	2,021,043		385,765
Cash, cash equivalents and restricted cash at end of period	$	362,645	$	2,155,333

Supplemental cash flow information:
Interest paid	$	341,134	$	362,130
Income taxes paid (received), net	1,288		(485)

(1) Includes amounts attributable to redeemable noncontrolling interests.

WELLTOWER INC.

NOTES TO UNAUDITED 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

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (such as normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2021 are not necessarily an indication of the results that may be expected for the year ending December 31, 2021. For further information, refer to the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.

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 96% of communities open for new admissions and nearly all communities allowing visitors, in-person tours and communal dining and activities. 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 since mid-January across the portfolio. As of September 30, 2021, occupancy has increased approximately 440 bps to 76.7% since the pandemic-low of 72.3% on March 12, 2021. Monthly spot occupancy rates through September 30, 2021 are as follows:


	December 2020		January 2021		February 2021		March 2021		April 2021		May 2021		June 2021		July 2021		August 2021		September 2021
Spot occupancy (1)	74.8	%	73.4	%	72.5	%	72.7	%	73.2	%	73.7	%	74.6	%	75.2	%	75.9	%	76.7	%
Sequential occupancy change(2)			(1.4)	%	(0.8)	%	0.1	%	0.5	%	0.5	%	0.9	%	0.6	%	0.8	%	0.8	%

(1) Spot occupancy represents approximate month end occupancy at our share for 591 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 quarter ended September 30, 2021, the U.S. and U.K. portfolios reported spot occupancy gains of approximately 260 bps and 300 bps, respectively. Canada reported a spot occupancy gain of approximately 70 bps.

Property-level operating expenses associated with the COVID-19 pandemic relating to our Seniors Housing Operating portfolio, net of reimbursements including Provider Relief Funds and similar programs in the U.K. and Canada, resulted in a net benefit of approximately $2,092,000 and $24,883,000 for the three and nine months ended September 30, 2021, respectively, as compared to a net expense of $18,193,000 and $65,614,000 during the three and nine months ended September 30, 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, net of reimbursements. Certain new expenses incurred since the start of the pandemic may continue on an ongoing basis as part of new health and safety protocols.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In 2020 applications were made for amounts under Phase 2 and Phase 3 of the Provider Relief Fund related to our Seniors Housing Operating portfolio. During the nine months ended September 30, 2021, we received total Provider Relief Funds of approximately $40,975,000, which was recognized as a reduction to COVID-19 costs within property operating expenses.

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 Coronavirus Aid Relief and Economic Security Act (“CARES Act”) Paycheck Protection Program. In addition, operators of long-term/post-acute care facilities have generally received funds from Phase 1 of the Provider Relief Fund and operators of assisted living facilities have generally received funds from Phases 2 and 3 of the Provider Relief Fund.

During the nine months ended September 30, 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 collectability 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 nine months ended September 30, 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 collectability 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. We are currently evaluating the guidance and the impact it may have 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.

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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Nine Months Ended
	September 30, 2021								September 30, 2020
	Seniors Housing Operating		Triple-net		Outpatient Medical		Totals		Seniors Housing Operating		Triple-net		Outpatient Medical		Totals
Land and land improvements	$	264,706	$	48,099	$	45,350	$	358,155	$	15,758	$	—	$	43,252	$	59,010
Buildings and improvements	1,655,067		436,828		227,390		2,319,285		132,481		765		171,630		304,876
Acquired lease intangibles	142,439		—		17,333		159,772		10,810		—		23,823		34,633


Right of use assets, net	77,455		—		—		77,455		—		—		—		—
Total net real estate assets	2,139,667		484,927		290,073		2,914,667		159,049		765		238,705		398,519
Receivables and other assets	6,041		—		3,534		9,575		257		—		139		396
Total assets acquired (1)	2,145,708		484,927		293,607		2,924,242		159,306		765		238,844		398,915

Lease liabilities	(138,126)		—		—		(138,126)		—		—		—		—
Accrued expenses and other liabilities	(20,748)		(8,703)		(266)		(29,717)		(671)		—		(2,043)		(2,714)
Total liabilities acquired	(158,874)		(8,703)		(266)		(167,843)		(671)		—		(2,043)		(2,714)
Noncontrolling interests (2)	(2,597)		(2,056)		(16,540)		(21,193)		(2,827)		—		—		(2,827)

Cash disbursed for acquisitions	1,984,237		474,168		276,801		2,735,206		155,808		765		236,801		393,374
Construction in progress additions	190,672		60,251		29,448		280,371		75,617		33,021		33,593		142,231
Less: Capitalized interest	(9,658)		(2,092)		(2,277)		(14,027)		(7,760)		(2,569)		(2,905)		(13,234)
Accruals (3)	38		—		(3,057)		(3,019)		(1,376)		—		(922)		(2,298)
Cash disbursed for construction in progress	181,052		58,159		24,114		263,325		66,481		30,452		29,766		126,699
Capital improvements to existing properties	115,115		26,496		24,080		165,691		130,465		5,971		46,888		183,324
Total cash invested in real property, net of cash acquired	$	2,280,404	$	558,823	$	324,995	$	3,164,222	$	352,754	$	37,188	$	313,455	$	703,397

(1) Excludes $301,000 and $580,000 of unrestricted and restricted cash acquired during the nine months ended September 30, 2021 and September 30, 2020, respectively.

(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.

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. 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. No rent will be paid in excess of net cash flow related to the remaining leasehold properties.

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):


	Nine Months Ended
	September 30, 2021		September 30, 2020
Development projects:
Seniors Housing Operating	$	58,844	$	93,188
Triple-net	22,990		59,201
Outpatient Medical	116,612		43,493
Total development projects	198,446		195,882
Expansion projects	—		48,600
Total construction in progress conversions	$	198,446	$	244,482

WELLTOWER INC.

NOTES TO UNAUDITED 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):


	September 30, 2021		December 31, 2020
Assets:
In place lease intangibles	$	1,549,294	$	1,406,705
Above market tenant leases	54,542		52,621
Lease commissions	49,579		40,704
Gross historical cost	1,653,415		1,500,030
Accumulated amortization	(1,249,032)		(1,177,513)
Net book value	$	404,383	$	322,517

Weighted-average amortization period in years	8.3		10.5

Liabilities:
Below market tenant leases	$	75,083	$	77,851
Accumulated amortization	(43,484)		(40,871)
Net book value	$	31,599	$	36,980

Weighted-average amortization period in years	8.4		8.3

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Rental income related to (above)/below market tenant leases, net	$	384	$	327	$	1,241	$	1,252
Amortization related to in place lease intangibles and lease commissions	(32,872)		(28,948)		(76,083)		(98,241)

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


	Assets		Liabilities
2021	$	36,111	$	1,962
2022	112,533		7,311
2023	70,483		5,179
2024	33,451		3,053
2025	23,099		2,524
Thereafter	128,706		11,570
Total	$	404,383	$	31,599

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 (i.e., property type, relationship or geography). At September 30, 2021, two Seniors Housing Operating, 20 Triple-net, and two Outpatient Medical properties with an aggregate real estate balance of $251,152,000 were classified as held for sale. In addition to the real property balances held for sale, net other assets and (liabilities) of $18,081,000 are included in the Consolidated Balance Sheets related to the held for sale properties. Expected gross sales proceeds related to the held for sale properties is approximately $293,526,000.

During the nine months ended September 30, 2021, we recorded $19,567,000 of impairment charges related to four Triple-net properties and one Outpatient Medical property classified as held for sale for which the carrying value exceeded the estimated fair value less cost to sell. Additionally, during the nine months ended September 30, 2021, we recorded $29,183,000 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 exceeded the estimated fair value. During the nine months ended September 30, 2020, we recorded $79,905,000 of impairment charges related to 13 Seniors Housing Operating properties and one Triple-net property classified as held for sale for which the carrying value exceeded the estimated fair value less cost to sell. Additionally, during the nine months ended September 30, 2020, we recorded $46,386,000 of impairment charges related to four Seniors Housing Operating properties and four Triple-net properties that were held for use in which the carrying value exceeded the estimated fair value.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


	Nine Months Ended September 30,
	2021		2020
Real estate dispositions:
Seniors Housing Operating	$	112,837	$	1,093,477
Triple-net	439,974		33,445
Outpatient Medical	159,000		1,394,971
Total dispositions	711,811		2,521,893
Gain (loss) on real estate dispositions, net	223,702		902,991
Net other assets/(liabilities) disposed	6,195		98,065
Proceeds from real estate dispositions	$	941,708	$	3,522,949

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):


	Three Months Ended September 30,					Nine Months Ended September 30,
	2021		2020			2021		2020
Revenues:
Total revenues	$	7,103	$	7,471	(1)	$	58,302	$	262,951
Expenses:
Interest expense	32		1,737			1,471		10,039
Property operating expenses	925		33,330			7,942		150,501
Provision for depreciation	440		18,085			8,665		72,877
Total expenses	1,397		53,152			18,078		233,417
Income (loss) from real estate dispositions, net	$	5,706	$	(45,681)		$	40,224	$	29,534

(1) During the three months ended September 30, 2020, we reserved for straight-line rent receivable balances on properties operated by Genesis Healthcare. See also Note 9 for additional information.

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.

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


		Nine Months Ended
	Classification	September 30, 2021		September 30, 2020
Operating lease cost: (1)
Real estate lease expense	Property operating expenses	$	16,430	$	17,397
Non-real estate investment lease expense	General and administrative expenses	3,461		3,673
Finance lease cost:
Amortization of leased assets	Property operating expenses	6,120		6,229
Interest on lease liabilities	Interest expense	4,950		4,693
Sublease income	Rental income	(5,972)		(3,130)
Total		$	24,989	$	28,862

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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Supplemental balance sheet information related to leases is as follows (in thousands):


	Classification	September 30, 2021		December 31, 2020
Right of use assets:
Operating leases - real estate	Right of use assets, net	$	371,034	$	310,017
Finance leases - real estate	Right of use assets, net	155,580		155,849
Real estate right of use assets, net		526,614		465,866
Operating leases - non-real estate investments	Receivables and other assets	6,686		9,624
Total right of use assets, net		$	533,300	$	475,490

Lease liabilities:
Operating leases		$	434,303	$	311,164
Financing leases		110,244		107,102
Total		$	544,547	$	418,266

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 nine months ended September 30, 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 was $91,025,000 related to Genesis Healthcare, 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. For the nine months ended September 30, 2021, we recognized $1,015,550,000 of rental income related to operating leases, of which $134,632,000 was for 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 nine months ended September 30, 2020, we recognized $1,061,311,000 of rental income related to operating leases, of which $153,217,000 was for variable lease payments.

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. 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 of the partnership 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. Accrued interest receivable was $26,361,000 and $15,615,000 as of September 30, 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):


	September 30, 2021		December 31, 2020
Mortgage loans	$	957,114	$	299,430
Other real estate loans	174,078		152,739
Allowance for credit losses on real estate loans receivable	(15,547)		(8,797)
Real estate loans receivable, net of credit allowance	1,115,645		443,372
Non-real estate loans	362,077		455,508
Allowance for credit losses on non-real estate loans receivable	(151,255)		(215,239)
Non-real estate loans receivable, net of credit allowance	210,822		240,269
Total loans receivable, net of credit allowance	$	1,326,467	$	683,641

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


	Nine Months Ended
	September 30, 2021		September 30, 2020
Advances on loans receivable:
Investments in new loans	$	935,594	$	194,942
Draws on existing loans	17,412		21,365
Net cash advances on loans receivable	953,006		216,307

Receipts on loans receivable:
Loan payoffs	179,827		—
Principal payments on loans	70,588		14,345
Net cash receipts on loans receivable	250,415		14,345
Net cash advances (receipts) on loans receivable	$	702,591	$	201,962

During the quarter ended June 30, 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 property 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 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 each of these 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 are deemed to have deteriorated credit quality. To the extent circumstances improve and the risk of collectability is diminished, we will 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. The following is a summary of our loans by credit loss category (in thousands):


	September 30, 2021
Loan category	Years of Origination	Loan Carrying Value		Allowance for Credit Loss		Net Loan Balance		No. of Loans
Deteriorated loans	2007 - 2018	$	178,301	$	(148,438)	$	29,863	3
Collective loan pool	2007-2016	201,939		(3,061)		198,878		17
Collective loan pool	2017	125,661		(1,127)		124,534		7
Collective loan pool	2018	23,263		(346)		22,917		2
Collective loan pool	2019	22,047		(334)		21,713		4
Collective loan pool	2020	46,335		(703)		45,632		6
Collective loan pool	2021	895,723		(12,793)		882,930		17
Total loans		$	1,493,269	$	(166,802)	$	1,326,467	56

In March 2020, we recognized a provision for loan losses of $6,898,000 to fully reserve for one Triple-net non-real estate loan receivable that was no longer deemed collectible. Aside from this specific reserve, the remainder of the provision for loan losses relates to the application of the historical loss experience on the collective loan pools. The following is a summary of the allowance for credit losses on loans receivable for the periods presented (in thousands):

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Nine Months Ended
	September 30, 2021		September 30, 2020
Balance at beginning of period	$	224,036	$	68,372
Adoption of ASU 2016-13	—		5,212
Provision for loan losses	7,309		11,351
Loan write-offs (1)	(64,075)		—
Foreign currency translation	(468)		(40)
Balance at end of period	$	166,802	$	84,895

(1) Includes $64,075,000 related to the Genesis Healthcare lease terminations for the nine months ended September 30, 2021. See Note 9 for further details.

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


	Nine Months Ended
	September 30, 2021		September 30, 2020
Balance of deteriorated loans at end of period (1)	$	178,301	$	249,314
Allowance for credit losses	(148,438)		(76,695)
Balance of deteriorated loans not reserved	$	29,863	$	172,619
Interest recognized on deteriorated loans (2)	$	3,171	$	13,847

(1) Current year amounts include $2,157,000 and $3,623,000 of loans on non-accrual as of September 30, 2021 and December 31, 2020, respectively. Prior year amounts include $10,686,000 and $2,534,000 as of September 30, 2020 and December 31, 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)	September 30, 2021		December 31, 2020
Seniors Housing Operating	10% to 65%	$	771,337	$	653,057
Triple-net	10% to 25%	46,466		5,629
Outpatient Medical	15% to 50%	160,152		287,548
Total		$	977,955	$	946,234

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

At September 30, 2021, the aggregate unamortized basis difference of our joint venture investments of $118,012,000 is primarily attributable to the difference between the amount for which we purchase 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.

As of September 30, 2021, we have made loans totaling $273,654,000 related to eight properties for the development and construction of certain properties which are classified as in substance real estate investments. We believe that such borrowers typically represent variable interest entities ("VIE" or "VIEs") in accordance with ASC 810 Consolidation. VIEs are required to be consolidated by their primary beneficiary ("PB") 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 PB 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 $16,667,000 related to these investments.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 nine months ended September 30, 2021, excluding our share of NOI in unconsolidated entities (dollars in thousands):


Concentration by relationship: (1)	Number of Properties	Total NOI		Percent of NOI (2)
ProMedica	205	$	168,832	12%
Sunrise Senior Living (3)	155	157,256		11%
Revera (3)	85	71,139		5%
Avery Healthcare	61	62,325		5%
Belmont Village	21	45,475		4%
Remaining portfolio	1,079	938,441		63%
Totals	1,606	$	1,443,468	100%

(1) ProMedica is in our Triple-net segment. Sunrise Senior Living, Revera and Belmont Village are in our Seniors Housing Operating 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 ended December 31, 2020.

(3) Revera owns a controlling interest in Sunrise Senior Living.

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

In April 2021, 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.
As of September 30, 2021, operations have transitioned for 39 of the remaining properties, with three additional properties expected to transition before year end.
We have entered into definitive agreements to sell 35 Genesis properties for $496 million to a joint venture with Aurora Health Network and Peace Capital. As of September 30, 2021, we have closed on the sale of 21 of these properties for proceeds of $331 million and the remaining 14 are classified as held for sale.
We currently lease seven properties which we previously subleased to Genesis. We have entered into a forward sales agreement with Aurora Health Network that is intended to close simultaneously with the purchase option exercise in April 2023. We have transitioned the operations of these properties into a new lease agreement with a regional operator during the quarter ended June 30, 2021.
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 September 30, 2021, our total carrying value of Genesis loans receivable, net of allowances for credit losses, was $149,574,000.

10. Borrowings Under Credit Facilities and Commercial Paper Program

At September 30, 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 September 30, 2021) and a $3,000,000,000 tranche that matures on June 4, 2025 ($51,000,000 outstanding at September 30, 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 September 30, 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 September 30, 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 September 30, 2021.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 September 30, 2021, there was a balance of $239,996,000 outstanding on the commercial paper program ($240,000,000 in principal outstanding net of an unamortized discount of $4,000), which reduces the borrowing capacity of the unsecured revolving credit facility. The notes bear interest at various floating rates with a weighted average of 0.19% as of September 30, 2021 and a weighted average maturity of four days as of September 30, 2021.

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Balance outstanding at quarter end	$	291,000		$	—		$	291,000		$	—
Maximum amount outstanding at any month end	$	990,000		$	—		$	990,000		$	2,100,000
Average amount outstanding (total of daily
principal balances divided by days in period)	$	470,935		$	—		$	255,114		$	663,895
Weighted average interest rate (actual interest
expense divided by average borrowings outstanding)	0.21		%	—		%	0.42		%	2.09		%

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 September 30, 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
2021	$	—	$	211,978	$	211,978
2022	—		481,702		481,702
2023 (4, 5)	697,270		504,855		1,202,125
2024	1,350,000		183,192		1,533,192
2025	1,260,000		178,544		1,438,544
Thereafter (6, 7, 8)	7,901,074		709,510		8,610,584
Totals	$	11,208,344	$	2,269,781	$	13,478,125

(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 Sheet.

(2) Annual interest rates range from 0.78% to 6.50%.

(3) Annual interest rates range from 0.02% to 7.93%. Carrying value of the properties securing the debt totaled $5,261,000,000 at September 30, 2021.

(4) Includes a $250,000,000 Canadian-denominated unsecured term credit facility (approximately $197,270,000 based on the Canadian/U.S. Dollar exchange rate on September 30, 2021). The loan matures on July 19, 2023 and bears interest at the Canadian Dealer Offered Rate plus 0.90% (1.33% at September 30, 2021).

(5) Includes a $500,000,000 unsecured term credit facility. The loan matures on July 19, 2023 and bears interest at LIBOR plus 0.90% (0.98% at September 30, 2021).

(6) Includes a $300,000,000 Canadian-denominated 2.95% senior unsecured notes due 2027 (approximately $236,724,000 based on the Canadian/U.S. Dollar exchange rate on September 30, 2021).

(7) Includes a £550,000,000 4.80% senior unsecured notes due 2028 (approximately $740,850,000 based on the Sterling/U.S. Dollar exchange rate in effect on September 30, 2021).

(8) Includes a £500,000,000 4.50% senior unsecured notes due 2034 (approximately $673,500,000 based on the Sterling/U.S. Dollar exchange rate in effect on September 30, 2021).

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


	Nine Months Ended
	September 30, 2021			September 30, 2020
			Weighted Avg.			Weighted Avg.
	Amount		Interest Rate	Amount		Interest Rate
Beginning balance	$	11,509,533	3.67%	$	10,427,562	4.03%
Debt issued	1,250,000		2.50%	1,600,000		1.89%
Debt extinguished	(1,533,752)		2.42%	(566,248)		3.26%

Foreign currency	(17,437)		4.37%	(48,037)		4.14%
Ending balance	$	11,208,344	3.71%	$	11,413,277	3.67%

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


	Nine Months Ended
	September 30, 2021			September 30, 2020
			Weighted Avg.			Weighted Avg.
	Amount		Interest Rate	Amount		Interest Rate
Beginning balance	$	2,378,073	3.27%	$	2,993,342	3.63%

Debt issued	2,693		3.75%	44,921		2.58%

Debt extinguished	(70,144)		6.02%	(491,506)		2.61%


Principal payments	(48,710)		3.39%	(46,585)		3.60%
Foreign currency	7,869		2.97%	(30,984)		3.19%
Ending balance	$	2,269,781	3.10%	$	2,469,188	3.16%

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 September 30, 2021, we were in compliance in all material respects with 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.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 nine months ended September 30, 2021 and 2020, we settled certain net investment hedges generating cash proceeds of $8,879,000 and $3,485,000, 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 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):


	September 30, 2021		December 31, 2020
Derivatives designated as net investment hedges:
Denominated in Canadian Dollars	$	625,000	$	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
Forward purchase contracts denominated in Pound Sterling	£	(37,408)	£	—

(1) At September 30, 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):


		Three Months Ended September 30,				Nine Months Ended September 30,
Description	Location	2021		2020		2021		2020
Gain (loss) on derivative instruments designated as hedges recognized in income	Interest expense	$	5,849	$	5,724	$	17,416	$	16,475
Gain (loss) on derivative instruments not designated as hedges recognized in income	Interest expense	$	241	$	(1,159)	$	(1,415)	$	(3,207)
Gain (loss) on equity warrants recognized in income	Gain (loss) on derivatives and financial instruments	$	9,216	$	—	$	9,216	$	—
Gain (loss) on derivative and financial instruments designated as hedges recognized in OCI	OCI	$	130,711	$	(145,512)	$	100,866	$	86,429

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13. Commitments and Contingencies

At September 30, 2021, we had 13 outstanding letter of credit obligations totaling $28,366,000 and expiring between 2021 and 2022. At September 30, 2021, we had outstanding construction in progress of $562,487,000 and were committed to providing additional funds of approximately $1,072,343,000 to complete construction. Additionally, at September 30, 2021, we had outstanding investments classified as in substance real estate of $273,654,000 and were committed to provide additional funds of $16,667,000 (see Note 8 for additional information). Purchase obligations include $101,284,000 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:


	September 30, 2021	December 31, 2020
Preferred Stock:
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	437,049,822	419,124,469
Outstanding shares	435,273,885	417,400,602

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 September 30, 2021, we had $2,491,418,000 of remaining capacity under the ATM Program, which excludes forward sales agreements outstanding for the sale of 11,798,154 shares with maturity dates in 2022 which we expect to physically settle for cash proceeds of $993,881,000.

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. We did not repurchase any shares of our common stock during the nine months ended September 30, 2021.

The following is a summary of our common stock issuances during the nine months ended September 30, 2021 and 2020 (dollars in thousands, except shares and average price amounts):


	Shares Issued	Average Price		Gross Proceeds		Net Proceeds
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	185,994			—		—
2020 Totals	7,250,376			$	607,189	$	595,313



2021 ATM Program issuances	17,720,008	77.91		1,380,519		1,366,464

2021 Stock incentive plans, net of forfeitures	153,275			—		—
2021 Totals	17,873,283			$	1,380,519	$	1,366,464

Dividends The decrease in dividends is attributable to the declaration of a reduced cash dividend beginning with the quarter ending March 31, 2020. The following is a summary of our dividend payments (in thousands, except per share amounts):


	Nine Months Ended
	September 30, 2021				September 30, 2020
	Per Share		Amount		Per Share		Amount
Common stock	$	1.83	$	771,984	$	2.09	$	865,357

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


	September 30, 2021		December 31, 2020
Foreign currency translation	$	(677,331)	$	(621,792)
Derivative and financial instruments designated as hedges	574,154		473,288

Total accumulated other comprehensive income (loss)	$	(103,177)	$	(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 four years. Options expire ten years from the date of grant. Stock-based compensation expense totaled $4,535,000 and $14,868,000 for the three and nine months ended September 30, 2021, respectfully, and $6,565,000 and $20,938,000 for the same periods in 2020.

16. Earnings Per Share

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Numerator for basic earnings per share - net income (loss) attributable to common stockholders	$	179,663	$	325,585	$	277,466	$	815,115


Adjustment for net income (loss) attributable to OP units	(473)		(1,716)		(2,699)		(4,470)
Numerator for diluted earnings per share	$	179,190	$	323,869	$	274,767	$	810,645

Denominator for basic earnings per share - weighted average shares	428,031		417,027		420,955		414,822
Effect of dilutive securities:

Non-vested restricted shares	537		542		465		620
Redeemable OP units	1,396		1,396		1,396		1,396
Employee stock purchase program	19		22		19		22
Dilutive potential common shares	1,952		1,960		1,880		2,038
Denominator for diluted earnings per share - adjusted weighted average shares	429,983		418,987		422,835		416,860

Basic earnings per share	$	0.42	$	0.78	$	0.66	$	1.96
Diluted earnings per share	$	0.42	$	0.77	$	0.65	$	1.94

As of September 30, 2021, forward sales agreements outstanding for the sale of 11,798,154 shares of common stock were not included in the computation of diluted earnings per share because such forward sales were anti-dilutive to the three and nine month periods ended September 30, 2021.

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. Please see Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 for additional information. The three levels are defined below:

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


	September 30, 2021				December 31, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Mortgage loans receivable	$	941,357	$	967,813	$	293,752	$	297,207
Other real estate loans receivable	174,288		174,088		149,620		152,211
Equity securities	1,922		1,922		4,636		4,636
Cash and cash equivalents	303,982		303,982		1,545,046		1,545,046
Restricted cash	58,663		58,663		475,997		475,997
Non-real estate loans receivable	210,822		212,054		240,269		255,724
Foreign currency forward contracts, interest rate swaps and cross currency swaps	19,637		19,637		4,668		4,668
Equity warrants	40,658		40,658		—		—

Financial liabilities:
Borrowings under unsecured credit facility and commercial paper program	$	290,996	$	290,996	$	—	$	—
Senior unsecured notes	11,116,067		12,485,436		11,420,790		13,093,926
Secured debt	2,262,345		2,325,322		2,377,930		2,451,782
Foreign currency forward contracts, interest rate swaps and cross currency swaps	27,731		27,731		118,054		118,054

Redeemable OP unitholder interests	$	147,083	$	147,083	$	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 September 30, 2021
	Total		Level 1		Level 2		Level 3
Equity securities	$	1,922	$	1,922	$	—	$	—
Equity warrants	40,658		—		—		40,658
Foreign currency forward contracts, interest rate swaps and cross currency swaps, net asset (liability) (1)	(8,094)		—		(8,094)		—
Totals	$	34,486	$	1,922	$	(8,094)	$	40,658

(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 nine months ended September 30, 2021 (in thousands):


	Nine Months Ended
	September 30, 2021
Beginning balance	$	—
Warrants acquired	32,419
Mark-to-market adjustment	9,216
Foreign currency	(977)
Ending balance	$	40,658

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 11%.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020). 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.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Summary information for the reportable segments (which excludes unconsolidated entities) is as follows (in thousands):


Three Months Ended September 30, 2021:	Seniors Housing Operating		Triple-net		Outpatient Medical		Non-segment / Corporate		Total
Resident fees and services	$	835,617	$	—	$	—	$	—	$	835,617
Rental income	—		200,641		157,343		—		357,984
Interest income	1,135		38,257		472		—		39,864
Other income	2,767		1,087		1,688		790		6,332
Total revenues	839,519		239,985		159,503		790		1,239,797

Property operating expenses	666,610		11,664		48,072		3,054		729,400
Consolidated net operating income	172,909		228,321		111,431		(2,264)		510,397

Depreciation and amortization	157,176		54,226		56,352		—		267,754
Interest expense	9,360		1,548		4,811		106,803		122,522
General and administrative expenses	—		—		—		32,256		32,256
Loss (gain) on derivatives and financial instruments, net	—		(8,078)		—		—		(8,078)
Loss (gain) on extinguishment of debt, net	—		—		(5)		—		(5)
Provision for loan losses, net	152		(323)		(100)		—		(271)
Impairment of assets	—		1,490		—		—		1,490
Other expenses	5,449		(4,248)		640		1,734		3,575
Income (loss) from continuing operations before income taxes and other items	772		183,706		49,733		(143,057)		91,154
Income tax (expense) benefit	—		—		—		(4,940)		(4,940)
Income (loss) from unconsolidated entities	(15,810)		5,038		(5,060)		—		(15,832)
Gain (loss) on real estate dispositions, net	(615)		81,712		38,857		—		119,954
Income (loss) from continuing operations	(15,653)		270,456		83,530		(147,997)		190,336
Net income (loss)	$	(15,653)	$	270,456	$	83,530	$	(147,997)	$	190,336

Total assets	$	17,741,955	$	9,317,352	$	6,247,215	$	173,503	$	33,480,025


Three Months Ended September 30, 2020:	Seniors Housing Operating		Triple-net		Outpatient Medical		Non-segment / Corporate		Total
Resident fees and services	$	740,956	$	—	$	—	$	—	$	740,956
Rental income	—		103,938		171,108		—		275,046
Interest income	113		15,877		760		—		16,750
Other income	996		1,113		836		1,177		4,122
Total revenues	742,065		120,928		172,704		1,177		1,036,874

Property operating expenses	567,704		12,567		52,728		1,718		634,717
Consolidated net operating income	174,361		108,361		119,976		(541)		402,157

Depreciation and amortization	133,224		58,157		64,151		—		255,532
Interest expense	12,728		2,070		4,287		105,766		124,851
General and administrative expenses	—		—		—		31,003		31,003
Loss (gain) on derivatives and financial instruments, net	—		1,395		—		—		1,395
Loss (gain) on extinguishment of debt, net	—		—		—		33,004		33,004
Provision for loan losses, net	86		372		2,399		—		2,857
Impairment of assets	12,778		10,535		—		—		23,313
Other expenses	6,488		2,805		781		1,470		11,544
Income (loss) from continuing operations before income taxes and other items	9,057		33,027		48,358		(171,784)		(81,342)
Income tax (expense) benefit	—		—		—		(2,003)		(2,003)
Income (loss) from unconsolidated entities	(7,678)		(423)		2,120		—		(5,981)
Gain (loss) on real estate dispositions, net	313,319		(619)		171,604		—		484,304
Income (loss) from continuing operations	314,698		31,985		222,082		(173,787)		394,978
Net income (loss)	$	314,698	$	31,985	$	222,082	$	(173,787)	$	394,978

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Nine Months Ended September 30, 2021	Seniors Housing Operating		Triple-net		Outpatient Medical		Non-segment / Corporate		Total
Resident fees and services	$	2,299,972	$	—	$	—	$	—	$	2,299,972
Rental income	—		557,829		457,721		—		1,015,550
Interest income	3,110		86,040		8,741		—		97,891
Other income	5,388		3,539		8,336		2,175		19,438
Total revenues	2,308,470		647,408		474,798		2,175		3,432,851

Property operating expenses	1,804,939		37,132		140,430		6,882		1,989,383
Consolidated net operating income	503,531		610,276		334,368		(4,707)		1,443,468

Depreciation and amortization	420,797		165,299		166,969		—		753,065
Interest expense	31,331		5,134		12,733		318,807		368,005
General and administrative expenses	—		—		—		93,618		93,618
Loss (gain) on derivatives and financial instruments, net	—		(6,503)		—		—		(6,503)
Loss (gain) on extinguishment of debt, net	(1,537)		—		(5)		52,506		50,964
Provision for loan losses, net	222		10,549		(3,462)		—		7,309
Impairment of assets	22,317		24,222		2,211		—		48,750
Other expenses	12,617		4,845		2,450		6,344		26,256
Income (loss) from continuing operations before income taxes and other items	17,784		406,730		153,472		(475,982)		102,004
Income tax (expense) benefit	—		—		—		(6,662)		(6,662)
Income (loss) from unconsolidated entities	(23,514)		14,822		(2,067)		—		(10,759)
Gain (loss) on real estate dispositions, net	4,552		126,463		92,687		—		223,702
Income (loss) from continuing operations	(1,178)		548,015		244,092		(482,644)		308,285
Net income (loss)	$	(1,178)	$	548,015	$	244,092	$	(482,644)	$	308,285


Nine Months Ended September 30, 2020	Seniors Housing Operating			Triple-net			Outpatient Medical			Non-segment / Corporate		Total
Resident fees and services	$	2,360,488		$	—		$	—		$	—	$	2,360,488
Rental income	—			512,815			548,496			—		1,061,311
Interest income	305			46,068			1,687			—		48,060
Other income	6,050			3,393			2,681			1,968		14,092
Total revenues	2,366,843			562,276			552,864			1,968		3,483,951

Property operating expenses	1,771,088			39,432			165,024			1,718		1,977,262
Consolidated net operating income	595,755			522,844			387,840			250		1,506,689

Depreciation and amortization	419,161			173,989			202,554			—		795,704
Interest expense	43,191			7,668			13,421			328,935		393,215
General and administrative expenses	—			—			—			100,546		100,546
Loss (gain) on derivatives and financial instruments, net	—			10,480			—			—		10,480
Loss (gain) on extinguishment of debt, net	(492)			—			741			33,004		33,253
Provision for loan losses, net	86		18.69	8,895		—	2,370		18.69	—		11,351
Impairment of assets	91,424			34,867			—			—		126,291
Other expenses	13,463			6,818			8,244			8,722		37,247
Income (loss) from continuing operations before income taxes and other items	28,922			280,127			160,510			(470,957)		(1,398)
Income tax (expense) benefit	—			—			—			(9,678)		(9,678)
Income (loss) from unconsolidated entities	(25,489)			11,776			5,372			—		(8,341)
Gain (loss) on real estate dispositions, net	327,635			51,166			524,190			—		902,991
Income (loss) from continuing operations	331,068			343,069			690,072			(480,635)		883,574
Net income (loss)	$	331,068		$	343,069		$	690,072		$	(480,635)	$	883,574

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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):


	Three Months Ended								Nine Months Ended
	September 30, 2021				September 30, 2020				September 30, 2021				September 30, 2020
Revenues:	Amount(1)		%		Amount		%		Amount(1)		%		Amount		%
United States	$	990,034	79.9	%	$	819,057	79.0	%	$	2,709,354	78.9	%	$	2,820,609	81.0	%
United Kingdom	146,308		11.8	%	110,281		10.6	%	405,938		11.8	%	337,601		9.7	%
Canada	103,455		8.3	%	107,536		10.4	%	317,559		9.3	%	325,741		9.3	%
Total	$	1,239,797	100.0	%	$	1,036,874	100.0	%	$	3,432,851	100.0	%	$	3,483,951	100.0	%

	As of
	September 30, 2021				December 31, 2020
Assets:	Amount		%		Amount		%
United States	$	27,132,959	81.0	%	$	26,658,659	82.1	%
United Kingdom	3,978,661		11.9	%	3,352,549		10.3	%
Canada	2,368,405		7.1	%	2,472,434		7.6	%
Total	$	33,480,025	100.0	%	$	32,483,642	100.0	%

(1) The United States, United Kingdom and Canada represent 74%, 13% and 13% of our resident fees and services revenue for the three and nine month periods ended September 30, 2021, respectively.

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.

Under the provisions of the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”), for taxable years beginning after July 30, 2008, a REIT may lease “qualified health care properties” on an arm’s-length basis to a taxable REIT subsidiary (“TRS”) if the property is operated on behalf of such TRS by a person who qualifies as an “eligible independent contractor”. Generally, the rent received from the TRS will meet the related party rent exception and will be treated as “rents from real property”. A “qualified health care property” includes real property and any personal property that is, or is necessary or incidental to the use of, a hospital, nursing facility, assisted living facility, congregate care facility, qualified continuing care facility, or other licensed facility which extends medical or nursing or ancillary services to patients. We have entered into various joint ventures that were structured under RIDEA. Resident level rents and related operating expenses for these facilities are reported in the unaudited consolidated financial statements and are subject to federal and state income taxes as the operations of such facilities are included in TRS entities. Certain net operating loss carryforwards could be utilized to offset taxable income in future years.

Income taxes reflected in the financial statements primarily represents U.S. federal, state and local income taxes as well as non-U.S. income based or withholding taxes on certain investments located in jurisdictions outside the U.S. The provision for income taxes for the nine months ended September 30, 2021 and 2020, was primarily due to operating income or losses, offset by certain discrete items at our TRS entities. In 2014, we established certain wholly-owned direct and indirect subsidiaries in Luxembourg and Jersey and transferred interests in certain foreign investments into this holding company structure. The structure includes a property holding company that is tax resident in the United Kingdom. No material adverse current tax consequences in Luxembourg, Jersey or the United Kingdom resulted from the creation of this holding company structure and most of the subsidiary entities in the structure are treated as disregarded entities of the company for U.S. federal income tax purposes. Subsequent to 2014 we transferred certain subsidiaries to the United Kingdom, while some wholly-owned direct and indirect subsidiaries remain in Luxembourg and Jersey. The company reflects current and deferred tax liabilities for any such withholding taxes incurred from this holding company structure in its consolidated financial statements. Generally, given current statutes of limitations, we are subject to audit by the foreign, federal, state and local taxing authorities under applicable local laws.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The CARES Act, among its economic stimulus provisions, includes a number of tax provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carrybacks, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. Certain of these provisions may impact the provision for taxes in our consolidated financial statements, including in particular the provision allowing for the carryback of net operating losses which would be applicable to our TRSs. We have made a reasonable estimate of the tax impact to us of the CARES Act in our consolidated financial statements, and while we do not believe that there will be further material impacts to the consolidated financial statements related to the CARES Act tax provisions, we will continue to evaluate the impact of the CARES Act and any guidance provided by the U.S. Treasury and the IRS on our consolidated financial statements. It is possible our estimates could differ materially from the actual tax impact to us of the CARES Act.

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):


	September 30, 2021		December 31, 2020
Assets:
Net real estate investments	$	451,723	$	454,333
Cash and cash equivalents	15,067		15,547
Receivables and other assets	7,999		11,171
Total assets (1)	$	474,789	$	481,051

Liabilities and equity:
Secured debt	$	164,010	$	165,671
Lease liabilities	3,648		1,325
Accrued expenses and other liabilities	12,939		14,997
Total equity	294,192		299,058
Total liabilities and equity	$	474,789	$	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.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


			EXECUTIVE SUMMARY

			Company Overview			31
			Business Strategy			32
			Key Transactions			33
			Key Performance Indicators, Trends and Uncertainties			34
			Corporate Governance			36

			LIQUIDITY AND CAPITAL RESOURCES

			Sources and Uses of Cash			36
			Off-Balance Sheet Arrangements			37
			Contractual Obligations			37
			Capital Structure			37

			RESULTS OF OPERATIONS

			Summary			38
			Seniors Housing Operating			39
			Triple-net			41
			Outpatient Medical			43
			Non-Segment/Corporate			45

			OTHER

			Non-GAAP Financial Measures			46
			Critical Accounting Policies			53
			Cautionary Statement Regarding Forward-Looking Statements			54

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is based primarily on the unaudited consolidated financial statements of Welltower Inc. for the periods presented and should be read together with the notes thereto contained in this Quarterly Report on Form 10-Q. Other important factors are identified in our Annual Report on Form 10-K for the year ended December 31, 2020, including factors identified under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations". References herein to “we,” “us,” “our,” or the “Company” refer to Welltower Inc. and its subsidiaries unless specifically noted otherwise.

Executive Summary

Company Overview

Welltower Inc. (NYSE:WELL), 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.

The following table summarizes our consolidated portfolio for the three months ended September 30, 2021 (dollars in thousands):


			Percentage of		Number of
Type of Property	NOI (1)		NOI		Properties
Seniors Housing Operating	$	172,909	33.8	%	690
Triple-net	228,321		44.5	%	619
Outpatient Medical	111,431		21.7	%	297
Totals	$	512,661	100.0	%	1,606

(1) Represents consolidated NOI and excludes our share of investments in unconsolidated entities. Entities in which we have a joint venture with a minority partner are shown at 100% of the joint venture amount. See Non-GAAP Financial Measures for additional information and reconciliation.

The COVID-19 pandemic has had and may continue to have material and adverse effects on our financial condition, results of operations and cash flows in the future. 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 effectiveness of vaccines, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, the overall pace of recovery, among others.

We have incurred increased operational costs 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, personal protective equipment and sanitation. We expect total Seniors Housing Operating expenses to remain elevated during the pandemic and potentially beyond as these additional health and safety measures become standard practice.

Our Triple-net operators are experiencing similar trends related to occupancy and operating costs as described above with respect to our Seniors Housing Operating properties. However, 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 Coronavirus Aid Relief, and Economic Security Act (“CARES Act”) Paycheck Protection Program. In addition, operators of long-term/post-acute care facilities have generally received funds from Phase 1 of the Provider Relief Fund and operators of assisted living facilities have generally received funds from Phase 2 and Phase 3 of the Provider Relief Fund.

During the nine months ended September 30, 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 during the nine months ended September 30, 2021. We evaluate leases individually and recognize rent on a cash basis if collectability 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.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Business Strategy

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

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

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

For the nine months ended September 30, 2021, resident fees and services and rental income represented 67% and 30%, respectively, of total revenues. Substantially all of our operating leases are designed with escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. Our yield on loans receivable depends upon a number of factors, including the stated interest rate, the average principal amount outstanding during the term of the loan and any interest rate adjustments.

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

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

Depending upon market conditions, we believe that new investments will be available in the future with spreads over our cost of capital that will generate appropriate returns to our stockholders. It is also likely that investment dispositions may occur in the future. To the extent that investment dispositions exceed new investments, our revenues and cash flows from operations could be adversely affected. We expect to reinvest the proceeds from any investment dispositions in new investments. To the extent that new investment requirements exceed our available cash on-hand, we expect to borrow under our unsecured revolving credit facility and commercial paper program. At September 30, 2021, we had $303,982,000 of cash and cash equivalents, $58,663,000 of restricted cash and $3,709,000,000 of available borrowing capacity under our unsecured revolving credit facility.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Key Transactions

Capital The following summarizes key capital transactions that occurred during the nine months ended September 30, 2021:

In March 2021, we completed the issuance of $750,000,000 senior unsecured notes bearing interest at 2.80% with a maturity date of June 2031.
In April 2021, we repaid our $339,128,000 of our 3.75% senior unsecured notes due March 2023, $334,624,000 of our 3.95% senior unsecured notes due September 2023, and $15,000,000 of our term loan due April 2022.

*•*In June 2021, we closed on a new $4,700,000,000 unsecured credit facility with improved pricing across our line of credit and terminated the existing unsecured credit facility. The credit facility includes $4,000,000,000 of revolving credit capacity at a borrowing rate of 77.5 basis points over LIBOR, $500,000,000 of USD term loan capacity at a borrowing rate of 90.0 basis points over LIBOR and $250,000,000 CAD term loan capacity at 90.0 basis points over CDOR.

In June 2021, we repaid the remaining $845,000,000 of our term loan due April 2022.
In June 2021, we completed the issuance of $500,000,000 senior unsecured notes bearing interest at 2.05% with a maturity date of January 2029.
In July 2021, we entered into an amended and restated ATM Program (as defined below) pursuant to which we may offer and sell up to $2,500,000,000 of common stock from time to time. Since the beginning of the year, we sold 29,518,162 shares of common stock under our current and previous ATM Programs via forward sale agreements which are expected to generate gross proceeds of approximately $2,374,401,000, of which 17,720,008 shares have been settled resulting in $1,380,519,000 of gross proceeds during the nine months ended September 30, 2021.
During the nine months ended September 30, 2021, we extinguished $70,144,000 of secured debt at a blended average interest rate of 6.02%.

Investments The following summarizes our property acquisitions and joint venture investments completed during the nine months ended September 30, 2021 (dollars in thousands):


	Properties	Book Amount (1)		Capitalization Rates (2)
Seniors Housing Operating	132	$	2,139,667	5.4	%
Triple-net	22	484,927		6.3	%
Outpatient Medical	10	290,073		5.5	%
Totals	164	$	2,914,667	5.6	%

(1) Represents amounts recorded in net real estate investments including fair value adjustments pursuant to U.S. GAAP. See Note 3 to our unaudited consolidated financial statements for additional information.
(2) Represents annualized contractual or projected net operating income to be received in cash divided by investment amounts.

Dispositions The following summarizes property dispositions completed during the nine months ended September 30, 2021 (dollars in thousands):


	Properties	Proceeds (1)		Book Amount (2)		Capitalization Rates (3)
Seniors Housing Operating	12	$	118,590	$	112,837	4.8	%
Triple-net	46	569,664		439,974		7.5	%
Outpatient Medical	10	253,454		159,000		5.0	%
Totals	68	$	941,708	$	711,811	6.5	%

(1) Represents net proceeds received upon disposition, including any seller financing.
(2) Represents carrying value of net real estate assets at time of disposition. See Note 5 to our unaudited consolidated financial statements for additional information.
(3) Represents annualized contractual income that was being received in cash at date of disposition divided by stated purchase price.

Dividends Our Board of Directors declared a cash dividend for the quarter ended September 30, 2021 of $0.61 per share. On November 23, 2021, we will pay our 202nd consecutive quarterly cash dividend to stockholders of record on November 16, 2021.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Key Performance Indicators, Trends and Uncertainties

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

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


	Three Months Ended
	September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,
	2021		2021		2021		2020		2020		2020		2020
Net income (loss)	$	190,336	$	45,757	$	72,192	$	155,278	$	394,978	$	159,216	$	329,380
NICS	179,663		26,257		71,546		163,729		325,585		179,246		310,284
FFO	345,739		248,840		287,167		225,827		185,014		335,597		356,124
NOI	510,397		498,335		434,736		501,455		402,157		527,711		576,821

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


	Three Months Ended
	September 30,	June 30,	March 31,	December 31,	September 30,	June 30,	March 31,
	2021	2021	2021	2020	2020	2020	2020

Net debt to book capitalization ratio	43%	43%	42%	41%	41%	43%	44%
Net debt to undepreciated book capitalization ratio	35%	35%	34%	34%	34%	35%	37%
Net debt to market capitalization ratio	27%	26%	28%	30%	33%	36%	40%

Interest coverage ratio	4.81x	3.30x	3.56x	4.20x	6.23x	4.29x	5.42x
Fixed charge coverage ratio	4.22x	2.93x	3.16x	3.72x	5.52x	3.84x	4.88x

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

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations


	Three Months Ended
	September 30,	June 30,	March 31,	December 31,	September 30,	June 30,	March 31,
	2021	2021	2021	2020	2020	2020	2020
Property mix:(1)
Seniors Housing Operating	34%	32%	39%	32%	43%	34%	42%
Triple-net	45%	45%	36%	45%	27%	42%	34%
Outpatient Medical	21%	23%	25%	23%	30%	24%	24%

Relationship mix: (1, 2)
ProMedica	11%	12%	12%	11%	13%	10%	9%
Sunrise Senior Living (3)	9%	10%	14%	12%	15%	10%	14%
Revera (3)	5%	5%	5%	4%	6%	5%	6%
Avery Healthcare	4%	4%	5%	4%	5%	3%	3%
Belmont Village	3%	4%	2%	2%	3%	3%	3%
Remaining relationships	68%	65%	62%	67%	58%	69%	65%

Geographic mix:(1)
United Kingdom	14%	13%	10%	11%	12%	8%	9%
California	12%	12%	15%	12%	17%	14%	15%
Texas	9%	9%	7%	10%	12%	10%	7%
Canada	6%	7%	7%	5%	8%	6%	7%
New Jersey	5%	5%	7%	7%	(5)%	7%	8%
Remaining geographic areas	54%	54%	54%	55%	56%	55%	54%

(1) Excludes our share of investments in unconsolidated entities and non-segment/corporate NOI. Entities in which we have a joint venture with a minority partner are shown at 100% of the joint venture amount.
(2) During the quarter ended June 30, 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. NOI related to this investment for the quarter ended September 30, 2021 was 5%.
(3) Revera owns a controlling interest in Sunrise Senior Living.

Lease Expirations The following table sets forth information regarding lease expirations for certain portions of our portfolio as of September 30, 2021 (dollars in thousands):


	Expiration Year (1)
	2021			2022			2023			2024			2025			2026			2027			2028			2029			2030			Thereafter
Triple-net:
Properties	55			36			2			14			28			48			17			14			15			12			356
Base rent (2)	$	7,903		$	2,913		$	2,482		$	11,431		$	6,147		$	71,469		$	32,526		$	16,953		$	32,248		$	42,651		$	380,526
% of base rent	1.3		%	0.5		%	0.4		%	1.9		%	1.0		%	11.8		%	5.4		%	2.8		%	5.3		%	7.0		%	62.6		%
Units/beds	4,422			4,260			173			1,372			2,911			4,919			2,047			1,053			1,129			1,438			36,664
% of Units/beds	7.3		%	7.1		%	0.3		%	2.3		%	4.8		%	8.1		%	3.4		%	1.7		%	1.9		%	2.4		%	60.7		%

Outpatient Medical:
Square feet	777,444			1,923,922			2,031,094			2,489,076			1,335,888			1,711,598			1,209,061			1,100,135			1,010,734			1,666,832			5,602,883
Base rent (2)	$	22,724		$	55,467		$	56,329		$	74,928		$	36,998		$	46,928		$	31,962		$	29,909		$	27,547		$	43,544		$	122,274
% of base rent	4.1		%	10.1		%	10.3		%	13.7		%	6.7		%	8.6		%	5.8		%	5.5		%	5.0		%	7.9		%	22.3		%
Leases	136			428			442			424			276			285			184			148			136			116			243
% of Leases	4.8		%	15.2		%	15.7		%	15.0		%	9.8		%	10.1		%	6.5		%	5.3		%	4.8		%	4.1		%	8.7		%

(1) Excludes investments in unconsolidated entities, developments, land parcels, loans receivable and sub-leases. Investments classified as held for sale are included in the current year.
(2) The most recent monthly cash base rent annualized. Base rent does not include tenant recoveries or amortization of above and below market lease intangibles or other non-cash income.

We evaluate our key performance indicators in conjunction with current expectations to determine if historical trends are indicative of future results. Our expected results may not be achieved and actual results may differ materially from our expectations. Factors that may cause actual results to differ from expected results are described in more detail in “Cautionary Statement Regarding Forward-Looking Statements” and other sections of this Quarterly Report on Form 10-Q. Management regularly monitors economic and other factors to develop strategic and tactical plans designed to improve performance and maximize our competitive position. Our ability to achieve our financial objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging economic and company-specific trends. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2020, under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Corporate Governance

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

Liquidity and Capital Resources

Sources and Uses of Cash

Our primary sources of cash include resident fees and services, rent and interest receipts, borrowings under our unsecured revolving credit facility and commercial paper program, public issuances of debt and equity securities, proceeds from investment dispositions and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (including acquisitions, capital expenditures, construction advances and transaction costs), loan advances, property operating expenses and general and administrative expenses. These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows and are discussed in further detail below. The following is a summary of our sources and uses of cash flows for the periods presented (dollars in thousands):


	Nine Months Ended				Change
	September 30, 2021		September 30, 2020		$		%
Cash, cash equivalents and restricted cash at beginning of period	$	2,021,043	$	385,765	$	1,635,278	424	%
Cash provided from (used in) operating activities	991,995		1,109,584		(117,589)		(11)	%
Cash provided from (used in) investing activities	(2,988,472)		2,329,745		(5,318,217)		(228)	%
Cash provided from (used in) financing activities	338,919		(1,666,195)		2,005,114		120	%
Effect of foreign currency translation	(840)		(3,566)		2,726		76	%
Cash, cash equivalents and restricted cash at end of period	$	362,645	$	2,155,333	$	(1,792,688)	(83)	%

Operating Activities The changes in net cash provided from operating activities are primarily attributable to declines in revenue as a result of decreased occupancy at our Seniors Housing Operating properties, straight-line receivable reserves related to Triple-net leases during the nine months ended September 30, 2021 and dispositions. Please see “Results of Operations” for discussion of net income fluctuations. For the nine months ended September 30, 2021 and 2020, cash flows provided from operations exceeded cash distributions to stockholders.

Investing Activities The changes in net cash provided from/used in investing activities are primarily attributable to net changes in real property investments and dispositions, loans receivable and investments in unconsolidated entities, which are summarized above in “Key Transactions” and Notes 3 and 5 of our unaudited consolidated financial statements. The following is a summary of cash used in non-acquisition capital improvement activities for the periods presented (dollars in thousands):


	Nine Months Ended				Change
	September 30, 2021		September 30, 2020		$
New development	$	263,325	$	126,699	$	136,626
Recurring capital expenditures, tenant improvements and lease commissions	53,471		61,047		(7,576)
Renovations, redevelopments and other capital improvements	112,220		122,277		(10,057)
Total	$	429,016	$	310,023	$	118,993

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

Financing Activities The changes in net cash provided from/used in financing activities are primarily attributable to changes related to our long-term debt arrangements, the issuances of common stock and dividend payments which are summarized above in "Key Transactions". Please refer to Notes 10, 11 and 14 of our unaudited consolidated financial statements for additional information.

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

In March 2021, we completed the issuance of $750,000,000 senior unsecured notes with a maturity date of June 2031. In June 2021, we completed the issuance of $500,000,000 senior unsecured notes with a maturity date of January 2029. Net proceeds from these debt issuances were used to redeem the remaining $339,128,000 of our 3.75% senior unsecured notes due 2023, $334,624,000 of our 3.95% senior unsecured notes due 2023, and $860,000,000 remaining on our term loan due April 2022. In June 2021, we closed on a new $4,700,000,000 unsecured credit facility. The credit facility includes $4,000,000,000 of revolving credit capacity. As of September 30, 2021, we have total near-term available liquidity of approximately $4.0 billion. However, we are unable to accurately predict the full impact that the pandemic will have on our results from operations, financial condition, liquidity and cash flows due to numerous factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2020, including factors identified under the heading “Risk Factors".

Off-Balance Sheet Arrangements

At September 30, 2021, we had investments in unconsolidated entities with our ownership generally ranging from 10% to 65%. We use financial derivative instruments to hedge interest rate and foreign currency exchange rate exposure. At September 30, 2021, we had 13 outstanding letter of credit obligations. Please see Notes 8, 12 and 13 to our unaudited consolidated financial statements for additional information.

Contractual Obligations

The following table summarizes our payment requirements under contractual obligations as of September 30, 2021 (in thousands):


	Payments Due by Period
Contractual Obligations	Total		2021		2022-2023		2024-2025		Thereafter
Unsecured credit facility and commercial paper (1,2)	$	291,000	$	240,000	$	—	$	—	$	51,000
Senior unsecured notes and term credit facilities: (1)
U.S. Dollar senior unsecured notes	8,850,000		—		—		2,600,000		6,250,000
Canadian Dollar senior unsecured notes (2)	236,724		—		—		—		236,724
Pounds Sterling senior unsecured notes (2)	1,414,350		—		—		—		1,414,350
U.S. Dollar term credit facility	510,000		—		500,000		10,000		—
Canadian Dollar term credit facility (2)	197,270		—		197,270		—		—
Secured debt: (1,2)
Consolidated	2,269,781		211,978		986,557		361,736		709,510
Unconsolidated	1,204,775		37,622		254,876		633,778		278,499
Contractual interest obligations: (3)
Unsecured credit facility and commercial paper	7,756		422		3,315		3,315		704
Senior unsecured notes and term loans (2)	3,804,876		133,915		831,409		712,190		2,127,362
Consolidated secured debt (2)	257,041		17,305		99,855		57,554		82,327
Unconsolidated secured debt (2)	189,468		9,990		72,687		45,504		61,287
Financing lease liabilities (4)	208,905		3,828		77,946		3,255		123,876
Operating lease liabilities (4)	1,405,385		16,018		91,491		89,495		1,208,381
Purchase obligations (5)	1,190,293		200,892		840,308		134,346		14,747

Total contractual obligations	$	22,037,624	$	871,970	$	3,955,714	$	4,651,173	$	12,558,767

(1) Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet.
(2) Based on foreign currency exchange rates in effect as of balance sheet date.
(3) Based on variable interest rates in effect as of balance sheet date.
(4) See Note 6 to our unaudited consolidated financial statements for additional information.
(5) See Note 13 to our unaudited consolidated financial statements for additional information.

Capital Structure

Please refer to “Credit Strength” above for a discussion of our leverage and coverage ratio trends. Our debt agreements contain various covenants, restrictions and events of default. Certain agreements require us to maintain financial ratios and minimum net worth and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions. As of September 30, 2021, we were in compliance in all material respects with the covenants under our debt agreements. None of our debt agreements contain provisions for acceleration which could be triggered by our debt ratings. However, under our primary unsecured credit facility, the ratings on our senior unsecured notes are used to determine the fees and interest charged. We plan to manage the company to maintain compliance with our debt covenants and with a capital structure consistent with our current profile. Any downgrades in terms of ratings or outlook by any or all of the rating agencies could have a material adverse impact on our cost and availability of capital, which could have a material adverse impact on our consolidated results of operations, liquidity and/or financial condition.

Previous: Cover and table of contents · Next: Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations