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

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

On May 4, 2021, we filed with the Securities and Exchange Commission (the “SEC”) (1) an open-ended automatic or “universal” shelf registration statement on Form S-3 covering an indeterminate amount of future offerings of debt securities, common stock, preferred stock, depositary shares, warrants and units to replace our existing “universal” shelf registration statement filed with the SEC on May 17, 2018, and (2) a registration statement in connection with our enhanced dividend reinvestment plan (“DRIP”) under which we may issue up to 15,000,000 shares of common stock to replace our existing DRIP registration statement on Form S-3 filed with the SEC on May 17, 2018. As of October 29, 2021, 15,000,000 shares of common stock remained available for issuance under the DRIP registration statement. On July 30, 2021, we entered into (i) an amended and restated equity distribution agreement (the “EDA”) with each of Robert W. Baird & Co. Incorporated, Barclays Capital Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., BNY Mellon Capital Markets, LLC, BofA Securities, Inc., BOK Financial Securities, Inc., Capital One Securities Inc., Citigroup Global Markets Inc., Comerica Securities, Inc., Credit Agricole Securities (USA) Inc., Deutsche Bank Securities Inc., Fifth Third Securities, Inc., Goldman Sachs & Co. LLC, Hancock Whitney Investment Services, Inc., Jefferies LLC, J.P. Morgan Securities LLC, KeyBanc Capital Markets Inc., Loop Capital Markets LLC, Mizuho Securities USA LLC, Morgan Stanley & Co. LLC, MUFG Securities Americas Inc., RBC Capital Markets, LLC, Regions Securities LLC, Scotia Capital (USA) Inc., SMBC Nikko Securities America, Inc., Stifel, Nicolaus & Company, Incorporated, Synovus Securities, Inc., TD Securities (USA) LLC, Truist Securities, Inc. and Wells Fargo Securities, LLC relating to the offer and sale from time to time of up to $2,500,000,000 aggregate amount of our common stock and (ii) separate master forward sale confirmations with each of Bank of America, N.A., Bank of Montreal, The Bank of New York Mellon, Barclays Bank PLC, BNP Paribas, Citibank, N.A., Crédit Agricole Corporate and Investment Bank, Deutsche Bank AG, London Branch, Goldman Sachs & Co. LLC, Jefferies LLC, JPMorgan Chase Bank, National Association, KeyBanc Capital Markets Inc., Mizuho Markets Americas LLC, Morgan Stanley & Co. LLC, MUFG Securities EMEA plc, Royal Bank of Canada, The Bank of Nova Scotia, The Toronto-Dominion Bank, Truist Bank, London Branch and Wells Fargo Bank, National Association (together with the EDA, the “ATM Program”), amending and restating the ATM Program entered into on May 4, 2021 to, among other amendments, increase the total amount of shares of common stock that may be offered and sold under the ATM Program from $2,000,000,000 to $2,500,000,000, which amount excludes shares the Company has previously sold pursuant to the prior program. The ATM Program also allows us to enter into forward sale agreements. As of October 29, 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 or approximately $993,881,000 with maturity dates in 2022. We expect to physically settle the forward sales for cash proceeds. Depending upon market conditions, we anticipate issuing securities under our registration statements to invest in additional properties and to repay borrowings under our unsecured revolving credit facility and commercial paper program.

In connection with the filing of the new “universal” shelf registration statement, the Company also filed with the SEC two prospectus supplements that will continue offerings that were previously covered by prospectus supplements and the accompanying prospectus to the prior registration statement relating to: (i) the registration and possible issuance of up to 620,731 shares of the Company’s common stock (the “DownREIT Shares”), that may be issued from time to time if, and to the extent that, certain holders of Class A units (the “DownREIT Units”) of HCN G&L DownREIT, LLC, a Delaware limited liability company (the “DownREIT”), tender such DownREIT Units for redemption by the DownREIT, and HCN DownREIT Member, LLC, a majority-owned indirect subsidiary of the Company (including its permitted successors and assigns, the “Managing Member”), or a designated affiliate of the Managing Member, elects to assume the redemption obligations of the DownREIT and to satisfy all or a portion of the redemption consideration by issuing DownREIT Shares to the holders instead of or in addition to paying a cash amount; and (ii) the registration and possible issuance of up to 475,327 shares common stock (the “DownREIT II Shares”), that may be issued from time to time if, and to the extent that, certain holders of Class A units (the “DownREIT II Units,” and collectively with the DownREIT Units, the “Units”) of HCN G&L DownREIT II LLC, a Delaware limited liability company (the “DownREIT II”), tender such DownREIT II Units for redemption by the DownREIT II, and the Managing Member, or a designated affiliate of the Managing Member, elects to assume the redemption obligations of the DownREIT II and to satisfy all or a portion of the redemption consideration by issuing DownREIT II Shares to the holders instead of or in addition to paying a cash amount.

Results of Operations

Summary

Our primary sources of revenue include resident fees and services, rent and interest income. Our primary expenses include property operating expenses, depreciation and amortization, interest expense, general and administrative expenses and other expenses. We evaluate our business and make resource allocations on our three business segments: Seniors Housing Operating, Triple-net and Outpatient Medical. The primary performance measures for our properties are NOI and same store NOI ("SSNOI"), and other supplemental measures include FFO and EBITDA, which are further discussed below. Please see Non-GAAP Financial Measures for additional information and reconciliations. The following is a summary of our results of operations (dollars in thousands, except per share amounts):

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	Three Months Ended						Change					Nine Months Ended						Change
	September 30,			September 30,								September 30,			September 30,
	2021			2020			Amount			%		2021			2020			Amount			%
Net income	$	190,336		$	394,978		$	(204,642)		(52)	%	$	308,285		$	883,574		$	(575,289)		(65)	%
NICS	179,663			325,585			(145,922)			(45)	%	277,466			815,115			(537,649)			(66)	%
FFO	345,739			185,014			160,725			87	%	881,746			876,735			5,011			1	%
EBITDA	585,552			777,364			(191,812)			(25)	%	1,436,017			2,082,171			(646,154)			(31)	%
NOI	510,397			402,157			108,240			27	%	1,443,468			1,506,689			(63,221)			(4)	%
SSNOI	387,722			405,100			(17,378)			(4)	%	1,159,875			1,255,386			(95,511)			(8)	%
Per share data (fully diluted):
NICS	$	0.42		$	0.77		$	(0.35)		(45)	%	$	0.65		$	1.94		$	(1.29)		(66)	%
FFO	$	0.80		$	0.44		$	0.36		82	%	$	2.09		$	2.10		$	(0.01)		—	%

Interest coverage ratio	4.81		x	6.23		x	(1.42)		x	(23)	%	3.89		x	5.31		x	(1.42)		x	(27)	%
Fixed charge coverage ratio	4.22		x	5.52		x	(1.30)		x	(24)	%	3.43		x	4.74		x	(1.31)		x	(28)	%

Seniors Housing Operating

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


	QTD Pool								YTD Pool
	Three Months Ended				Change				Nine Months Ended				Change
	September 30, 2021		September 30, 2020		$		%		September 30, 2021		September 30, 2020		$		%
SSNOI (1)	$	144,044	$	166,145	$	(22,101)	(13.3)	%	$	445,953	$	546,853	$	(100,900)	(18.5)	%

(1) For the QTD and YTD Pools, amounts relate to 527 and 515 same store properties, respectively. Please see Non-GAAP Financial Measures for additional information and reconciliations.

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


	Three Months Ended				Change				Nine Months Ended				Change
	September 30,		September 30,						September 30,		September 30,
	2021		2020		$		%		2021		2020		$		%
Revenues:
Resident fees and services	$	835,617	$	740,956	$	94,661	13	%	$	2,299,972	$	2,360,488	$	(60,516)	(3)	%
Interest income	1,135		113		1,022		904	%	3,110		305		2,805		920	%
Other income	2,767		996		1,771		178	%	5,388		6,050		(662)		(11)	%
Total revenues	839,519		742,065		97,454		13	%	2,308,470		2,366,843		(58,373)		(2)	%
Property operating expenses	666,610		567,704		98,906		17	%	1,804,939		1,771,088		33,851		2	%
NOI (1)	172,909		174,361		(1,452)		(1)	%	503,531		595,755		(92,224)		(15)	%
Other expenses:
Depreciation and amortization	157,176		133,224		23,952		18	%	420,797		419,161		1,636		—	%
Interest expense	9,360		12,728		(3,368)		(26)	%	31,331		43,191		(11,860)		(27)	%
Loss (gain) on extinguishment of debt, net	—		—		—		n/a		(1,537)		(492)		(1,045)		(212)	%
Provision for loan losses, net	152		86		66		77	%	222		86		136		158	%
Impairment of assets	—		12,778		(12,778)		(100)	%	22,317		91,424		(69,107)		(76)	%
Other expenses	5,449		6,488		(1,039)		(16)	%	12,617		13,463		(846)		(6)	%
	172,137		165,304		6,833		4	%	485,747		566,833		(81,086)		(14)	%
Income (loss) from continuing operations before income taxes and other items	772		9,057		(8,285)		(91)	%	17,784		28,922		(11,138)		(39)	%

Income (loss) from unconsolidated entities	(15,810)		(7,678)		(8,132)		(106)	%	(23,514)		(25,489)		1,975		8	%
Gain (loss) on real estate dispositions, net	(615)		313,319		(313,934)		(100)	%	4,552		327,635		(323,083)		(99)	%
Income from continuing operations	(15,653)		314,698		(330,351)		(105)	%	(1,178)		331,068		(332,246)		(100)	%
Net income (loss)	(15,653)		314,698		(330,351)		(105)	%	(1,178)		331,068		(332,246)		(100)	%
Less: Net income (loss) attributable to noncontrolling interests	(2,178)		60,642		(62,820)		(104)	%	367		32,554		(32,187)		(99)	%
Net income (loss) attributable to common stockholders	$	(13,475)	$	254,056	$	(267,531)	(105)	%	$	(1,545)	$	298,514	$	(300,059)	(101)	%

(1) See Non-GAAP Financial Measures below.

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

Resident fees and services and property operating expenses increased for the three month period ended September 30, 2021 compared to the same period in the prior year primarily due to acquisitions, including the acquisition of the Holiday Retirement portfolio on July 30, 2021 for a total purchase price of $1.6 billion. These increases were partially offset by decreases in occupancy across the portfolio due to the COVID-19 pandemic and property dispositions. Spot occupancy remains below pre-pandemic levels, reaching a low of 72.3% on March 12, 2021 before making meaningful recovery in recent months resulting in occupancy of 76.7% as of September 30, 2021. 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)	%	0.2	%	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.

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.

The fluctuations in depreciation and amortization are due to acquisitions, dispositions and transitions. To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly.

During the nine months ended September 30, 2021, we recorded impairment charges of $22,317,000 related to two held for use properties in which the carrying values exceeded the estimated fair value. During the nine months ended September 30, 2020, we recorded impairment charges of $91,424,000 related to 13 held for sale properties and four held for use properties. Transaction costs related to asset acquisitions are capitalized as a component of the purchase price. Changes in the gain on sales of properties are related to the volume and timing of property sales and the sales prices. The fluctuation in other expenses is primarily due to the timing of noncapitalizable transaction costs associated with acquisitions and operator transitions.

During the nine months ended September 30, 2021, we completed one Seniors Housing Operating construction project representing $58,844,000 or 490,367 per unit. The following is a summary of our Seniors Housing Operating construction projects, excluding expansions, pending as of September 30, 2021 (dollars in thousands):

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


Location	Units	Commitment		Balance		Est. Completion
Beckenham, UK	100	$	63,444	$	56,657	4Q21
Hendon, UK	102	74,759		64,138		1Q22
Barnet, UK	100	69,775		56,182		1Q22
Georgetown, TX	188	36,215		8,158		2Q22
New Rochelle, NY	72	42,669		11,113		3Q22
Pflugerville, TX	196	39,500		6,344		3Q22
Sachse, TX	193	38,054		7,221		3Q22
Lake Jackson, TX	130	32,020		3,154		3Q22
Princeton, NJ	80	29,780		23,602		3Q22
Berea, OH	120	14,934		8,083		4Q22
Painesville, OH	119	14,462		5,841		4Q22
Beaver, PA	116	14,184		4,754		4Q22
Weymouth, MA	165	77,545		9,125		3Q23
Charlotte, NC	328	96,416		23,696		1Q24
Gaithersburg, MD	302	173,500		20,525		2Q24
	2,311	$	817,257	308,593
Toronto, ON	Project in planning stage			49,828
Brookline, MA	Project in planning stage			28,451
Washington, DC	Project in planning stage			27,363
Columbus, OH	Project in planning stage			12,629
Brookhaven, GA	Project in planning stage			9,385
Raleigh, NC	Project in planning stage			3,476
				$	439,725

Interest expense represents secured debt interest expense which fluctuates based on the net effect and timing of assumptions, segment transitions, fluctuations in foreign currency rates, extinguishments and principal amortizations. The fluctuations in loss (gain) on extinguishment of debt is primarily attributable to the volume of extinguishments and terms of the related secured debt. The following is a summary of our Seniors Housing Operating segment property secured debt principal activity (dollars in thousands):


	Three Months Ended								Nine Months Ended
	September 30, 2021				September 30, 2020				September 30, 2021				September 30, 2020
			Wtd. Avg.				Wtd. Avg.				Wtd. Avg.				Wtd. Avg.
	Amount		Interest Rate		Amount		Interest Rate		Amount		Interest Rate		Amount		Interest Rate
Beginning balance	$	1,645,290	2.83	%	$	1,779,625	2.91	%	$	1,706,189	3.05	%	$	2,115,037	3.54	%

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

Debt extinguished	—		—	%	—		—	%	(66,593)		6.01	%	(306,238)		2.90	%


Principal payments	(13,172)		2.93	%	(12,249)		3.15	%	(37,418)		3.00	%	(36,025)		3.25	%
Foreign currency	(22,415)		2.75	%	22,609		2.94	%	7,525		2.85	%	(27,710)		3.15	%
Ending balance	$	1,612,396	2.83	%	$	1,789,985	2.91	%	$	1,612,396	2.83	%	$	1,789,985	2.91	%

Monthly averages	$	1,622,685	2.82	%	$	1,794,932	2.91	%	$	1,660,377	2.90	%	$	1,971,507	3.21	%

The majority of our Seniors Housing Operating properties are formed through partnership interests. Income from unconsolidated entities recognized during the nine months ended September 30, 2021 includes a gain on sale recognized from the sale of a home health business owned by one of our unconsolidated entities, offset by losses from unconsolidated entities largely attributable to depreciation and amortization of short-lived intangible assets related to certain investments in unconsolidated joint ventures. Net income attributable to noncontrolling interests represents our partners’ share of net income (loss) related to joint ventures. The decrease during the three and nine month periods ended September 30, 2020 relates primarily to our partners' share of gains on real estate dispositions partially offset by impairment charges recognized.

Triple-net

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


	QTD Pool								YTD Pool
	Three Months Ended				Change				Nine Months Ended				Change
	September 30, 2021		September 30, 2020		$		%		September 30, 2021		September 30, 2020		$		%



SSNOI (1)	$	142,690	$	142,697	$	(7)	—	%	$	425,014	$	429,651	$	(4,637)	(1.1)	%

(1) For the QTD and YTD Pools, amounts relate to 548 and 547 same store properties, respectively. Please see Non-GAAP Financial Measures for additional information and reconciliations.

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

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


	Three Months Ended				Change				Nine Months Ended				Change
	September 30,		September 30,						September 30,		September 30,
	2021		2020		$		%		2021		2020		$		%
Revenues:
Rental income	$	200,641	$	103,938	$	96,703	93	%	$	557,829	$	512,815	$	45,014	9	%
Interest income	38,257		15,877		22,380		141	%	86,040		46,068		39,972		87	%
Other income	1,087		1,113		(26)		(2)	%	3,539		3,393		146		4	%
Total revenues	239,985		120,928		119,057		98	%	647,408		562,276		85,132		15	%
Property operating expenses	11,664		12,567		(903)		(7)	%	37,132		39,432		(2,300)		(6)	%
NOI (1)	228,321		108,361		119,960		111	%	610,276		522,844		87,432		17	%
Other expenses:
Depreciation and amortization	54,226		58,157		(3,931)		(7)	%	165,299		173,989		(8,690)		(5)	%
Interest expense	1,548		2,070		(522)		(25)	%	5,134		7,668		(2,534)		(33)	%
Loss (gain) on derivatives and financial instruments, net	(8,078)		1,395		(9,473)		(679)	%	(6,503)		10,480		(16,983)		(162)	%

Provision for loan losses, net	(323)		372		(695)		(187)	%	10,549		8,895		1,654		19	%
Impairment of assets	1,490		10,535		(9,045)		(86)	%	24,222		34,867		(10,645)		(31)	%
Other expenses	(4,248)		2,805		(7,053)		(251)	%	4,845		6,818		(1,973)		(29)	%
	44,615		75,334		(30,719)		(41)	%	203,546		242,717		(39,171)		(16)	%
Income (loss) from continuing operations before income taxes and other items	183,706		33,027		150,679		456	%	406,730		280,127		126,603		45	%

Income (loss) from unconsolidated entities	5,038		(423)		5,461		n/a		14,822		11,776		3,046		26	%
Gain (loss) on real estate dispositions, net	81,712		(619)		82,331		n/a		126,463		51,166		75,297		147	%
Income from continuing operations	270,456		31,985		238,471		746	%	548,015		343,069		204,946		60	%
Net income	270,456		31,985		238,471		746	%	548,015		343,069		204,946		60	%
Less: Net income (loss) attributable to noncontrolling interests	11,917		8,597		3,320		39	%	26,722		36,275		(9,553)		(26)	%
Net income attributable to common stockholders	$	258,539	$	23,388	$	235,151	n/a		$	521,293	$	306,794	$	214,499	70	%

(1) See Non-GAAP Financial Measures below.

Rental income has increased primarily due to the timing of the establishment of reserves for straight-line rent receivable balances relating to leases for which collection of substantially all contractual lease payments is no longer deemed probable. During the three and nine months ended September 30, 2021, we recorded reserves for previously recognized straight-line receivables of $0 and $49,241,000, respectively. During the three and nine month periods ended September 30, 2020, we recorded $112,398,000 and $146,508,000, respectively, which included $91,025,000 related to Genesis Healthcare whom noted substantial doubt as to their ability to continue as a going concern.

Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index and/or changes in the gross operating revenues of the tenant’s properties. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If gross operating revenues at our facilities and/or the Consumer Price Index do not increase, a portion of our revenues may not continue to increase. For the three months ended September 30, 2021, we had 16 leases with rental rate increases ranging from 1.75% to 7.34% in our Triple-net portfolio. Our Triple-net operators are experiencing similar impacts on occupancy and operating costs due to the COVID-19 pandemic as described above with respect to our Seniors Housing Operating properties. However, long-term/post-acute facilities are generally experienced a higher degree of occupancy declines which in some cases impacted the ability of our Triple-net operators to make contractual rent payments to us. However, many of our Triple-net operators received funds under the CARES Act Paycheck Protection Program. In addition, operators of long-term/post-acute facilities have generally received funds from Phase 1 of the Provider Relief Fund and operators of assisted living facilities have 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. We evaluate leases individually and recognize rent on a cash basis if collectability of substantially all contractual rent payments is not probable.

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

During the nine months ended September 30, 2021, we recognized a provision for loan losses under the current expected credit losses accounting standard, primarily related to the initial recognition of the £540 million of senior loan financing to affiliates of Safanad as part of the recapitalization of its investment in HC-One Group during the second quarter. The increase in interest income for the three and nine month periods ended September 30, 2021 is primarily driven by interest recognized on this loan funding. Additionally, during March 2020, we recognized a provision for loan losses of $6,898,000 to fully reserve for a non-real estate loans receivable that was no longer deemed collectible.

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

During the nine months ended September 30, 2021, we recorded impairment charges of $24,222,000 related to four held for sale properties and two held for use properties. During the nine months ended September 30, 2020, we recorded impairment charges of $34,867,000 related to one held for sale and four held for use properties. Changes in the gain on sales of properties are related to the volume and timing of property sales and the sales prices. Transaction costs related to asset acquisitions are capitalized as a component of purchase price. The fluctuation in other expenses is primarily due to noncapitalizable transaction costs from acquisitions and segment transitions.

During the nine months ended September 30, 2021, we completed one Triple-net construction project representing $22,990,000 or $280,366 per unit. The following is a summary of Triple-net construction projects, excluding expansions, pending as of September 30, 2021 (dollars in thousands):


Location	Units/Beds	Commitment		Balance		Est. Completion
Redhill, UK	76	$	21,417	$	17,794	1Q22
London, UK	82	43,462		22,691		2Q22
Wombourne, UK	66	16,164		9,394		2Q22
Leicester, UK	60	15,086		8,296		2Q22
Rugby, UK	76	20,627		6,868		4Q22
Raleigh, NC	191	154,256		35,129		2Q23
	551	$	271,012	$	100,172

During the three months ended September 30, 2021, loss (gain) on derivatives and financial instruments, net is primarily attributable to the mark-to-market of the equity warrants received as part of the Safanad/HC-One transaction that closed in the second quarter. In addition, the mark-to-market adjustment on our Genesis Healthcare available-for-sale investment is reflected in all periods.

Interest expense represents secured debt interest expense and related fees. The change in secured debt interest expense is due to the net effect and timing of assumptions, segment transitions, fluctuations in foreign currency rates, extinguishments and principal amortizations. The following is a summary of our Triple-net secured debt principal activity for the periods presented (dollars in thousands):


	Three Months Ended								Nine Months Ended
	September 30, 2021				September 30, 2020				September 30, 2021				September 30, 2020
			Wtd. Avg.				Wtd. Avg.				Wtd. Avg.				Wtd. Avg.
	Amount		Interest Rate		Amount		Interest Rate		Amount		Interest Rate		Amount		Interest Rate
Beginning balance	$	122,566	4.91	%	$	289,321	3.27	%	$	123,652	4.91	%	$	306,038	3.60	%



Debt extinguished	—		—	%	(176,875)		2.03	%	—		—	%	(176,875)		2.03	%


Principal payments	(1,241)		5.16	%	(1,101)		5.16	%	(3,708)		5.16	%	(3,203)		5.16	%
Foreign currency	(1,034)		5.43	%	11,341		2.35	%	347		5.43	%	(3,274)		3.53	%
Ending balance	$	120,291	4.91	%	$	122,686	4.91	%	$	120,291	4.91	%	$	122,686	4.91	%

Monthly averages	$	121,051	4.91	%	$	164,836	4.19	%	$	122,582	4.91	%	$	242,312	3.69	%

A portion of our Triple-net properties were formed through partnerships. Income or loss from unconsolidated entities represents our share of net income or losses from partnerships where we are the noncontrolling partner. The increase in income from unconsolidated entities during the three months ended September 30, 2021 is primarily related to the reserves established on straight-line receivable balances at unconsolidated Genesis Healthcare entities in the prior year. Net income attributable to noncontrolling interests represents our partners’ share of net income relating to those partnerships where we are the controlling partner. The decrease during the nine months ended September 30, 2021, relates primarily to our partner's share of a gain on sale of certain properties in the prior year.

Outpatient Medical

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


	QTD Pool								YTD Pool
	Three Months Ended				Change				Nine Months Ended				Change
	September 30, 2021		September 30, 2020		$		%		September 30, 2021		September 30, 2020		$		%
SSNOI (1)	$	100,988	$	96,258	$	4,730	4.9	%	$	288,908	$	278,882	$	10,026	3.6	%

(1) For the QTD and YTD Pools, amounts relate to 350 and 331 same store properties, respectively. Please see Non-GAAP Financial Measures for additional information and reconciliations.

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

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


	Three Months Ended				Change				Nine Months Ended				Change
	September 30,		September 30,						September 30,		September 30,
	2021		2020		$		%		2021		2020		$		%
Revenues:
Rental income	$	157,343	$	171,108	$	(13,765)	(8)	%	$	457,721	$	548,496	$	(90,775)	(17)	%
Interest income	472		760		(288)		(38)	%	8,741		1,687		7,054		418	%
Other income	1,688		836		852		102	%	8,336		2,681		5,655		211	%
Total revenues	159,503		172,704		(13,201)		(8)	%	474,798		552,864		(78,066)		(14)	%
Property operating expenses	48,072		52,728		(4,656)		(9)	%	140,430		165,024		(24,594)		(15)	%
NOI (1)	111,431		119,976		(8,545)		(7)	%	334,368		387,840		(53,472)		(14)	%
Other expenses:
Depreciation and amortization	56,352		64,151		(7,799)		(12)	%	166,969		202,554		(35,585)		(18)	%
Interest expense	4,811		4,287		524		12	%	12,733		13,421		(688)		(5)	%
Loss (gain) on extinguishment of debt, net	(5)		—		(5)		n/a		(5)		741		(746)		(101)	%
Provision for loan losses, net	(100)		2,399		(2,499)		(104)	%	(3,462)		2,370		(5,832)		(246)	%
Impairment of assets	—		—		—		n/a		2,211		—		2,211		n/a
Other expenses	640		781		(141)		(18)	%	2,450		8,244		(5,794)		(70)	%
	61,698		71,618		(9,920)		(14)	%	180,896		227,330		(46,434)		(20)	%
Income (loss) from continuing operations before income taxes and other items	49,733		48,358		1,375		3	%	153,472		160,510		(7,038)		(4)	%

Income (loss) from unconsolidated entities	(5,060)		2,120		(7,180)		(339)	%	(2,067)		5,372		(7,439)		(138)	%
Gain (loss) on real estate dispositions, net	38,857		171,604		(132,747)		(77)	%	92,687		524,190		(431,503)		(82)	%
Income from continuing operations	83,530		222,082		(138,552)		(62)	%	244,092		690,072		(445,980)		(65)	%
Net income (loss)	83,530		222,082		(138,552)		(62)	%	244,092		690,072		(445,980)		(65)	%
Less: Net income (loss) attributable to noncontrolling interests	934		154		780		506	%	3,733		(370)		4,103		n/a
Net income (loss) attributable to common stockholders	$	82,596	$	221,928	$	(139,332)	(63)	%	$	240,359	$	690,442	$	(450,083)	(65)	%

(1) See Non-GAAP Financial Measures.

Rental income has decreased due primarily to significant dispositions that closed during 2020. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If the Consumer Price Index does not increase, a portion of our revenues may not continue to increase. Our leases could renew above or below current rental rates, resulting in an increase or decrease in rental income. For the three months ended September 30, 2021, our consolidated outpatient medical portfolio signed 55,028 square feet of new leases and 326,222 square feet of renewals. The weighted-average term of these leases was seven years, with a rate of $42.91 per square foot and tenant improvement and lease commission costs of $22.4 per square foot. Substantially all of these leases contain an annual fixed or contingent escalation rent structure ranging from 1.0% to 3.5%.

We have collected virtually all rent due through the nine months ended September 30, 2021, 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.

The increase in interest income for the nine months ended September 30, 2021 is due primarily to a $178,207,000 first mortgage loan initiated in August 2020 which was subsequently repaid in full in June of 2021, resulting in the reversal of the previously established allowance for credit losses.

The fluctuation in property operating expenses and depreciation and amortization are primarily attributable to the significant dispositions that occurred in 2020. To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly. During the nine months ended September 30, 2021, we recognized an impairment charge of $2,211,000 related to one held for sale property. Changes in gains/losses on sales of properties are related to volume of property sales and the sales prices. Transaction costs related to asset acquisitions are capitalized as a component of purchase price. The fluctuation in other expenses is primarily due to noncapitalizable transaction costs.

During the nine months ended September 30, 2021, we completed two Outpatient Medical construction project representing $116,612,000 or $642 per square foot. The following is a summary of the Outpatient Medical construction projects, excluding expansions, pending as of September 30, 2021 (dollars in thousands):

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


Location	Square Feet	Commitment		Balance		Est. Completion
College Station, TX	25,200	$	9,025	$	5,581	4Q21
Norman, OK	47,082	21,792		2,308		3Q22
Tyler, TX	85,214	35,369		7,837		4Q22
	157,496	$	66,186	$	15,726

Total interest expense represents secured debt interest expense. The change in secured debt interest expense is primarily due to the net effect and timing of assumptions, extinguishments and principal amortizations. The following is a summary of our outpatient medical secured debt principal activity (dollars in thousands):


	Three Months Ended								Nine Months Ended
	September 30, 2021				September 30, 2020				September 30, 2021				September 30, 2020
			Wtd. Avg.				Wtd. Avg.				Wtd. Avg.				Wtd. Avg.
	Amount		Interest Rate		Amount		Interest Rate		Amount		Interest Rate		Amount		Interest Rate
Beginning balance	$	543,272	3.52	%	$	559,043	3.59	%	$	548,229	3.55	%	$	572,267	3.97	%



Debt extinguished	(3,551)		6.25	%	—		—	%	(3,551)		6.25	%	(8,393)		4.40	%


Principal payments	(2,627)		4.42	%	(2,526)		4.62	%	(7,584)		4.45	%	(7,357)		4.63	%

Ending balance	$	537,094	3.50	%	$	556,517	3.58	%	$	537,094	3.50	%	$	556,517	3.58	%

Monthly averages	$	539,158	3.51	%	$	557,773	3.58	%	$	543,293	3.53	%	$	565,331	3.77	%

A portion of our Outpatient Medical properties were formed through partnerships. Income or loss from unconsolidated entities represents our share of net income or losses from partnerships where we are the noncontrolling partner. During the three months ended September 30, 2021, the loss from unconsolidated entities is largely attributable to depreciation and amortization of short-lived intangible assets related to certain investments in unconsolidated joint ventures. Net income attributable to noncontrolling interests represents our partners’ share of net income or loss relating to those partnerships where we are the controlling partner.

Non-Segment/Corporate

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


	Three Months Ended				Change				Nine Months Ended				Change
	September 30,		September 30,						September 30,		September 30,
	2021		2020		$		%		2021		2020		$		%
Revenues:

Other income	$	790	$	1,177	$	(387)	(33)	%	$	2,175	$	1,968	$	207	11	%
Total revenue	790		1,177		(387)		(33)	%	2,175		1,968		207		11	%
Property operating expenses	3,054		1,718		1,336		78	%	6,882		1,718		5,164		301	%
NOI (1)	(2,264)		(541)		(1,723)		(318)	%	(4,707)		250		(4,957)		n/a
Expenses:
Interest expense	106,803		105,766		1,037		1	%	318,807		328,935		(10,128)		(3)	%
General and administrative expenses	32,256		31,003		1,253		4	%	93,618		100,546		(6,928)		(7)	%
Loss (gain) on extinguishment of debt, net	—		33,004		(33,004)		(100)	%	52,506		33,004		19,502		59	%
Other expenses	1,734		1,470		264		18	%	6,344		8,722		(2,378)		(27)	%
	140,793		171,243		(30,450)		(18)	%	471,275		471,207		68		—	%
Loss from continuing operations before income taxes and other items	(143,057)		(171,784)		28,727		17	%	(475,982)		(470,957)		(5,025)		(1)	%
Income tax (expense) benefit	(4,940)		(2,003)		(2,937)		(147)	%	(6,662)		(9,678)		3,016		31	%

Loss from continuing operations	(147,997)		(173,787)		25,790		15	%	(482,644)		(480,635)		(2,009)		—	%


Net loss attributable to common stockholders	$	(147,997)	$	(173,787)	$	25,790	15	%	$	(482,644)	$	(480,635)	$	(2,009)	—	%

(1) See Non-GAAP Financial Measures.

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

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

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


	Three Months Ended				Change				Nine Months Ended				Change
	September 30,		September 30,						September 30,		September 30,
	2021		2020		$		%		2021		2020		$		%
Senior unsecured notes	$	100,156	$	100,354	$	(198)	—	%	$	300,292	$	302,029	$	(1,737)	(1)	%

Unsecured credit facility and commercial paper program	1,799		1,156		643		56	%	4,736		14,140		(9,404)		(67)	%
Loan expense	4,848		4,256		592		14	%	13,779		12,766		1,013		8	%
Totals	$	106,803	$	105,766	$	1,037	1	%	$	318,807	$	328,935	$	(10,128)	(3)	%

The change in interest expense on senior unsecured notes is due to the net effect of issuances and extinguishments, as well as the movement in foreign exchange rates and related hedge activity. Please refer to Note 11 for additional information. The change in interest expense on our unsecured revolving credit facility and commercial paper program is due primarily to the net effect and timing of draws, paydowns and variable interest rate changes. Please refer to Note 10 for additional information regarding our unsecured revolving credit facility and commercial paper program. The loss on extinguishment recognized during the nine months ended September 30, 2021 is due primarily to the early extinguishment of $339,128,000 of our 3.75% senior unsecured notes due March 2023 and $334,624,000 of our 3.95% senior unsecured notes due September 2023. The loss on extinguishment recognized during the nine months ended September 30, 2020 is due primarily to the early extinguishment of $160,872,000 of our 3.75% senior unsecured notes due March 2023 and $265,376,000 of of our 3.95% senior unsecured notes due September 2023.

General and administrative expenses as a percentage of consolidated revenues for the three months ended September 30, 2021 and 2020 were 2.60% and 2.99%, respectively. The provision for income taxes primarily relates to state taxes, foreign taxes and taxes based on income generated by entities that are structured as TRSs. The fluctuation in the provision for income taxes is primarily related to a revaluation of deferred taxes due to a change in the U.K. tax rate and an adjustment to a deferred tax liability due to the recognition of an impairment charge.

Other

Non-GAAP Financial Measures

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

Consolidated net operating income (“NOI”) is used to evaluate the operating performance of our properties. We define NOI as total revenues, including tenant reimbursements, less property operating expenses. Property operating expenses represent costs associated with managing, maintaining and servicing tenants for our properties. These expenses include, but are not limited to, property-related payroll and benefits, property management fees paid to operators, marketing, housekeeping, food service, maintenance, utilities, property taxes and insurance. General and administrative expenses represent costs unrelated to property operations. These expenses include, but are not limited to, payroll and benefits, professional services, office expenses and depreciation of corporate fixed assets. Same store NOI (“SSNOI”) is used to evaluate the operating performance of our properties using a consistent population which controls for changes in the composition of our portfolio. We believe the drivers of property level NOI for both consolidated properties and unconsolidated properties are generally the same and therefore, we evaluate SSNOI based on our ownership interest in each property ("Welltower Share"). To arrive at Welltower's Share, NOI is adjusted by adding our minority ownership share related to unconsolidated properties and by subtracting the minority partners' noncontrolling ownership interests for consolidated properties. We do not control investments in unconsolidated properties and while we consider disclosures at Welltower Share to be useful, they may not accurately depict the legal and economic implications of our joint venture arrangements and should be used with caution. As used herein, same store is generally defined as those revenue-generating properties in the portfolio for the relevant year-over-year reporting periods. Acquisitions and development conversions are included in SSNOI five full quarters or seven full quarter after acquisition or being placed into service for the QTD Pool and YTD Pool, respectively. Land parcels, loans and sub-leases, as well as any properties sold or classified as held for sale during the respective periods are excluded from SSNOI. Redeveloped properties (including major refurbishments of a Seniors Housing Operating property where 20% or more of units are simultaneously taken out of

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

commission for 30 days or more or Outpatient Medical properties undergoing a change in intended use) are excluded from SSNOI until five full quarters or seven full quarters post completion of the redevelopment for the QTD Pool and YTD Pool, respectively. Properties undergoing operator transitions and/or segment transitions are also excluded from SSNOI until five full quarters or seven full quarters post completion of the transition for the QTD Pool and YTD Pool, respectively. In addition, properties significantly impacted by force majeure, acts of God, or other extraordinary adverse events are excluded from SSNOI until five full quarters or seven full quarters after the properties are placed back into service for the QTD Pool and YTD Pool, respectively. SSNOI excludes non-cash NOI and includes adjustments to present consistent ownership percentages and to translate Canadian properties and U.K. properties using a consistent exchange rate. We believe NOI and SSNOI provide investors relevant and useful information because they measure the operating performance of our properties at the property level on an unleveraged basis. We use NOI and SSNOI to make decisions about resource allocations and to assess the property level performance of our properties.

EBITDA is defined as earnings (net income) before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding unconsolidated entities and including adjustments for stock-based compensation expense, provision for loan losses, gains/losses on extinguishment of debt, gains/loss/impairments on properties, gains/losses on derivatives and financial instruments, other expense, other impairment charges and other adjustments deemed appropriate. We believe that EBITDA and Adjusted EBITDA, along with net income, are important supplemental measures because they provide additional information to assess and evaluate the performance of our operations. We primarily use these measures to determine our interest coverage ratio, which represents EBITDA and Adjusted EBITDA divided by total interest, and our fixed charge coverage ratio, which represents EBITDA and Adjusted EBITDA divided by fixed charges. Fixed charges include total interest and secured debt principal amortization. Covenants in our unsecured senior notes and primary credit facility contain financial ratios based on a definition of EBITDA and Adjusted EBITDA that is specific to those agreements. Our leverage ratios are defined as the proportion of net debt to total capitalization and include book capitalization, undepreciated book capitalization and market capitalization. Book capitalization represents the sum of net debt (defined as total long-term debt, excluding operating lease liabilities, less cash and cash equivalents and any IRC Section 1031 deposits), total equity and redeemable noncontrolling interests. Undepreciated book capitalization represents book capitalization adjusted for accumulated depreciation and amortization. Market capitalization represents book capitalization adjusted for the fair market value of our common stock.

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

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

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


	Three Months Ended
	September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,
FFO Reconciliation:	2021		2021		2021		2020		2020		2020		2020
Net income attributable to common stockholders	$	179,663	$	26,257	$	71,546	$	163,729	$	325,585	$	179,246	$	310,284
Depreciation and amortization	267,754		240,885		244,426		242,733		255,532		265,371		274,801
Impairment of assets	1,490		23,692		23,568		9,317		23,313		75,151		27,827
Loss (gain) on real estate dispositions, net	(119,954)		(44,668)		(59,080)		(185,464)		(484,304)		(155,863)		(262,824)
Noncontrolling interests	(11,095)		(16,591)		(12,516)		(20,579)		48,559		(42,539)		(9,409)
Unconsolidated entities	27,881		19,265		19,223		16,091		16,329		14,231		15,445
FFO	$	345,739	$	248,840	$	287,167	$	225,827	$	185,014	$	335,597	$	356,124

Average diluted shares outstanding	429,983		419,305		419,079		418,753		418,987		419,121		412,420

Per diluted share data:
Net income attributable to common stockholders(1)	$	0.42	$	0.06	$	0.17	$	0.39	$	0.77	$	0.42	$	0.75
FFO	$	0.80	$	0.59	$	0.69	$	0.54	$	0.44	$	0.80	$	0.86

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


	Nine Months Ended
	September 30,		September 30,
FFO Reconciliations:	2021		2020
Net income attributable to common stockholders	$	277,466	$	815,115
Depreciation and amortization	753,065		795,704
Impairment of assets	48,750		126,291
Loss (gain) on real estate dispositions, net	(223,702)		(902,991)
Noncontrolling interests	(40,202)		(3,389)
Unconsolidated entities	66,369		46,005
FFO	$	881,746	$	876,735

Average diluted common shares outstanding:	422,835		416,860

Per diluted share data:
Net income attributable to common stockholders(1)	$	0.65	$	1.94
FFO	$	2.09	$	2.10

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

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,
NOI Reconciliations:	2021		2021		2021		2020		2020		2020		2020
Net income (loss)	$	190,336	$	45,757	$	72,192	$	155,278	$	394,978	$	159,216	$	329,380
Loss (gain) on real estate dispositions, net	(119,954)		(44,668)		(59,080)		(185,464)		(484,304)		(155,863)		(262,824)
Loss (income) from unconsolidated entities	15,832		7,976		(13,049)		(258)		5,981		(1,332)		3,692
Income tax expense (benefit)	4,940		(2,221)		3,943		290		2,003		2,233		5,442
Other expenses	3,575		11,687		10,994		33,088		11,544		19,411		6,292
Impairment of assets	1,490		23,692		23,568		9,317		23,313		75,151		27,827
Provision for loan losses, net	(271)		6,197		1,383		83,085		2,857		1,422		7,072
Loss (gain) on extinguishment of debt, net	(5)		55,612		(4,643)		13,796		33,004		249		—
Loss (gain) on derivatives and financial instruments, net	(8,078)		(359)		1,934		569		1,395		1,434		7,651
General and administrative expenses	32,256		31,436		29,926		27,848		31,003		34,062		35,481
Depreciation and amortization	267,754		240,885		244,426		242,733		255,532		265,371		274,801
Interest expense	122,522		122,341		123,142		121,173		124,851		126,357		142,007
Consolidated net operating income (NOI)	$	510,397	$	498,335	$	434,736	$	501,455	$	402,157	$	527,711	$	576,821

NOI by segment:
Seniors Housing Operating	$	172,909	$	160,188	$	170,434	$	159,797	$	174,361	$	178,137	$	243,257
Triple-net	228,321		226,314		155,641		225,277		108,361		220,056		194,427
Outpatient Medical	111,431		113,577		109,360		117,231		119,976		129,143		138,721
Non-segment/corporate	(2,264)		(1,744)		(699)		(850)		(541)		375		416
Total NOI	$	510,397	$	498,335	$	434,736	$	501,455	$	402,157	$	527,711	$	576,821


	Nine Months Ended
	September 30, 2021		September 30, 2020
NOI Reconciliations:
Net income (loss)	$	308,285	$	883,574
Loss (gain) on real estate dispositions, net	(223,702)		(902,991)
Loss (income) from unconsolidated entities	10,759		8,341
Income tax expense (benefit)	6,662		9,678
Other expenses	26,256		37,247
Impairment of assets	48,750		126,291
Provision for loan losses, net	7,309		11,351
Loss (gain) on extinguishment of debt, net	50,964		33,253
Loss (gain) on derivatives and financial instruments, net	(6,503)		10,480
General and administrative expenses	93,618		100,546
Depreciation and amortization	753,065		795,704
Interest expense	368,005		393,215
Consolidated net operating income (NOI)	$	1,443,468	$	1,506,689

NOI by segment:
Seniors Housing Operating	$	503,531	$	595,755
Triple-net	610,276		522,844
Outpatient Medical	334,368		387,840
Non-segment/corporate	(4,707)		250
Total NOI	$	1,443,468	$	1,506,689

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


	QTD Pool				YTD Pool
SSNOI Property Reconciliations:	Seniors Housing Operating	Triple-net	Outpatient Medical	Total	Seniors Housing Operating	Triple-net	Outpatient Medical	Total
Consolidated properties	690	619	297	1,606	690	619	297	1,606
Unconsolidated properties	91	39	79	209	91	39	79	209
Total properties	781	658	376	1,815	781	658	376	1,815
Recent acquisitions/development conversions(1)	(160)	(36)	(13)	(209)	(170)	(37)	(32)	(239)
Under development	(33)	(5)	(3)	(41)	(33)	(5)	(3)	(41)
Under redevelopment(2)	(8)	(1)	(2)	(11)	(10)	(1)	(2)	(13)
Current held for sale	(2)	(20)	(2)	(24)	(2)	(20)	(2)	(24)
Land parcels, loans and subleases	(11)	(21)	(6)	(38)	(11)	(21)	(6)	(38)
Transitions(3)	(38)	(25)	—	(63)	(38)	(25)	—	(63)
Other(4)	(2)	(2)	—	(4)	(2)	(2)	—	(4)
Same store properties	527	548	350	1,425	515	547	331	1,393

(1) Acquisitions and development conversions will enter the QTD Pool and YTD Pool after five full quarters and seven full quarters after acquisition or certificate of occupancy, respectively.

(2) Redevelopment properties will enter the QTD Pool and YTD Pool after five full quarters and seven full quarters of operations post redevelopment completion, respectively.
(3) Transitioned properties will enter the QTD Pool and YTD Pool after five full quarters and seven full quarters of operations with the new operator in place or under the new structure, respectively.
(4) Represents properties that are either closed or being closed.


	QTD Pool				YTD Pool
	Three Months Ended				Nine Months Ended
SSNOI Reconciliations:	September 30, 2021		September 30, 2020		September 30, 2021		September 30, 2020

Seniors Housing Operating:
Consolidated NOI	$	172,909	$	174,361	$	503,531	$	595,755
NOI attributable to unconsolidated investments	10,548		12,323		33,757		40,554
NOI attributable to noncontrolling interests	(15,602)		(11,306)		(48,168)		(40,803)

NOI attributable to non-same store properties	(23,506)		(9,723)		(52,643)		(51,989)
Non-cash NOI attributable to same store properties	(85)		(1,064)		11,332		(2,994)
Currency and ownership adjustments (1)	(220)		1,554		(1,856)		6,330
SSNOI at Welltower Share	144,044		166,145		445,953		546,853

Triple-net:
Consolidated NOI	228,321		108,361		610,276		522,844
NOI attributable to unconsolidated investments	4,891		(1,288)		14,666		8,978
NOI attributable to noncontrolling interests	(13,204)		(14,328)		(35,253)		(43,702)

NOI attributable to non-same store properties	(70,250)		32,109		(187,531)		(56,754)
Non-cash NOI attributable to same store properties	(7,073)		16,160		22,807		(7,075)
Currency and ownership adjustments (1)	5		1,683		49		5,360
SSNOI at Welltower Share	142,690		142,697		425,014		429,651

Outpatient Medical:
Consolidated NOI	111,431		119,976		334,368		387,840
NOI attributable to unconsolidated investments	4,604		3,006		14,316		6,530
NOI attributable to noncontrolling interests	(4,828)		(4,561)		(12,584)		(11,923)

NOI attributable to non-same store properties	(8,623)		(8,521)		(40,300)		(55,880)
Non-cash NOI attributable to same store properties	(1,892)		(3,590)		(5,993)		(9,762)
Currency and ownership adjustments (1)	296		(10,052)		(899)		(37,923)
SSNOI at Welltower Share	100,988		96,258		288,908		278,882

SSNOI at Welltower Share:
Seniors Housing Operating	144,044		166,145		445,953		546,853
Triple-net	142,690		142,697		425,014		429,651
Outpatient Medical	100,988		96,258		288,908		278,882
Total	$	387,722	$	405,100	$	1,159,875	$	1,255,386

(1) Includes adjustments to reflect consistent property ownership percentages, to translate Canadian properties at a USD/CAD rate of 1.2684 and to translate U.K. properties at a GBP/USD rate of 1.38.

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

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


	Three Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
EBITDA Reconciliations:	2021			2021			2021			2020			2020			2020			2020
Net income (loss)	$	190,336		$	45,757		$	72,192		$	155,278		$	394,978		$	159,216		$	329,380
Interest expense	122,522			122,341			123,142			121,173			124,851			126,357			142,007
Income tax expense (benefit)	4,940			(2,221)			3,943			290			2,003			2,233			5,442
Depreciation and amortization	267,754			240,885			244,426			242,733			255,532			265,371			274,801
EBITDA	$	585,552		$	406,762		$	443,703		$	519,474		$	777,364		$	553,177		$	751,630

Interest Coverage Ratio:
Interest expense	$	122,522		$	122,341		$	123,142		$	121,173		$	124,851		$	126,357		$	142,007
Non-cash interest expense	(5,461)			(3,972)			(2,991)			(1,739)			(3,973)			(1,914)			(8,125)
Capitalized interest	4,669			4,862			4,496			4,238			3,947			4,541			4,746
Total interest	121,730			123,231			124,647			123,672			124,825			128,984			138,628
EBITDA	$	585,552		$	406,762		$	443,703		$	519,474		$	777,364		$	553,177		$	751,630
Interest coverage ratio	4.81		x	3.30		x	3.56		x	4.20		x	6.23		x	4.29		x	5.42		x

Fixed Charge Coverage Ratio:
Total interest	$	121,730		$	123,231		$	124,647		$	123,672		$	124,825		$	128,984		$	138,628
Secured debt principal payments	17,040			15,715			15,955			16,122			15,876			15,183			15,526

Total fixed charges	138,770			138,946			140,602			139,794			140,701			144,167			154,154
EBITDA	$	585,552		$	406,762		$	443,703		$	519,474		$	777,364		$	553,177		$	751,630
Fixed charge coverage ratio	4.22		x	2.93		x	3.16		x	3.72		x	5.52		x	3.84		x	4.88		x


	Nine Months Ended
	September 30,			September 30,
EBITDA Reconciliations:	2021			2020
Net income (loss)	$	308,285		$	883,574
Interest expense	368,005			393,215
Income tax expense (benefit)	6,662			9,678
Depreciation and amortization	753,065			795,704
EBITDA	$	1,436,017		$	2,082,171

Interest Coverage Ratio:
Interest expense	$	368,005		$	393,215
Non-cash interest expense	(12,424)			(14,012)
Capitalized interest	14,027			13,234
Total interest	369,608			392,437
EBITDA	$	1,436,017		$	2,082,171
Interest coverage ratio	3.89		x	5.31		x

Fixed Charge Coverage Ratio:
Total interest	$	369,608		$	392,437
Secured debt principal payments	48,710			46,585

Total fixed charges	418,318			439,022
EBITDA	$	1,436,017		$	2,082,171
Fixed charge coverage ratio	3.43		x	4.74		x

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

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


	Twelve Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
Adjusted EBITDA Reconciliations:	2021			2021			2021			2020			2020			2020			2020
Net income	$	463,563		$	668,205		$	781,664		$	1,038,852		$	1,123,710		$	1,376,664		$	1,367,488
Interest expense	489,178			491,507			495,523			514,388			524,863			537,355			552,334
Income tax expense (benefit)	6,952			4,015			8,469			9,968			4,846			6,811			6,177
Depreciation and amortization	995,798			983,576			1,008,062			1,038,437			1,058,348			1,075,261			1,057,942
EBITDA	1,955,491			2,147,303			2,293,718			2,601,645			2,711,767			2,996,091			2,983,941
Loss (income) from unconsolidated entities	10,501			650			(8,658)			8,083			(49,079)			(58,322)			(47,941)
Stock-based compensation expense (1)	22,248			24,278			26,811			28,318			25,485			24,229			24,601
Loss (gain) on extinguishment of debt, net	64,760			97,769			42,406			47,049			35,865			68,685			68,436
Loss (gain) on real estate dispositions, net	(409,166)			(773,516)			(884,711)			(1,088,455)			(915,055)			(1,001,001)			(843,456)
Impairment of assets	58,067			79,890			131,349			135,608			126,389			121,172			55,960
Provision for loan losses, net	90,394			93,522			88,747			94,436			11,351			8,494			7,072
Loss (gain) on derivatives and financial instruments, net	(5,934)			3,539			5,332			11,049			5,411			5,260			5,739
Other expenses (1)	52,960			60,985			68,939			64,171			52,630			46,971			48,327
Leasehold interest adjustment (2)	(640)			—			—			—			—			—			—
Casualty losses, net of recoveries (3)	998			—			—			—			—			—			—
Other impairment (4)	49,241			161,639			163,481			146,508			146,508			34,110			32,268
Adjusted EBITDA	$	1,888,920		$	1,896,059		$	1,927,414		$	2,048,412		$	2,151,272		$	2,245,689		$	2,334,947

Adjusted Interest Coverage Ratio:
Interest expense	$	489,178		$	491,507		$	495,523		$	514,388		$	524,863		$	537,355		$	552,334
Capitalized interest	18,265			17,543			17,222			17,472			18,102			18,303			17,691
Non-cash interest expense	(14,163)			(12,675)			(10,617)			(15,751)			(14,746)			(12,761)			(11,599)
Total interest	493,280			496,375			502,128			516,109			528,219			542,897			558,426
Adjusted EBITDA	$	1,888,920		$	1,896,059		$	1,927,414		$	2,048,412		$	2,151,272		$	2,245,689		$	2,334,947
Adjusted interest coverage ratio	3.83		x	3.82		x	3.84		x	3.97		x	4.07		x	4.14		x	4.18		x

Adjusted Fixed Charge Coverage Ratio:
Total interest	$	493,280		$	496,375		$	502,128		$	516,109		$	528,219		$	542,897		$	558,426
Secured debt principal payments	64,832			63,668			63,136			62,707			60,562			57,807			56,308

Total fixed charges	558,112			560,043			565,264			578,816			588,781			600,704			614,734
Adjusted EBITDA	$	1,888,920		$	1,896,059		$	1,927,414		$	2,048,412		$	2,151,272		$	2,245,689		$	2,334,947
Adjusted fixed charge coverage ratio	3.38		x	3.39		x	3.41		x	3.54		x	3.65		x	3.74		x	3.80		x

(1) Certain severance-related costs are included in stock-based compensation and excluded from other expenses.
(2) Represents $13,214,000 of revenues and $12,574,000 of property operating expenses associated with a leasehold portfolio interest relating to 26 properties assumed by a wholly-owned affiliate in conjunction with the Holiday Retirement transaction. Subsequent to the initial transaction, we purchased eight of the leased properties and one of the properties was sold by the landlord and removed from the lease. No rent will be paid in excess of net cash flow relating to the leasehold properties and therefore, the net impact has been excluded from Adjusted EBITDA.
(3) Represents casualty losses net of any insurance recoveries.
(4) Represents reserve for straight-line rent receivable balances relating to leases placed on cash recognition.

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

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


	As of
	September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,
	2021		2021		2021		2020		2020		2020		2020
Book capitalization:
Unsecured credit facility and commercial paper	$	290,996	$	—	$	—	$	—	$	—	$	—	$	844,985
Long-term debt obligations (1)	13,488,656		13,572,816		14,618,713		13,905,822		13,889,030		14,543,485		13,228,433
Cash and cash equivalents (2)	(307,385)		(763,921)		(2,513,156)		(1,968,765)		(2,096,571)		(1,766,819)		(303,423)
Total net debt	13,472,267		12,808,895		12,105,557		11,937,057		11,792,459		12,776,666		13,769,995
Total equity and noncontrolling interests(3)	18,172,111		17,243,208		17,046,932		17,225,062		17,291,155		17,263,672		17,495,696
Book capitalization	$	31,644,378	$	30,052,103	$	29,152,489	$	29,162,119	$	29,083,614	$	30,040,338	$	31,265,691
Net debt to book capitalization ratio	43%		43%		42%		41%		41%		43%		44%

Undepreciated book capitalization:
Total net debt	$	13,472,267	$	12,808,895	$	12,105,557	$	11,937,057	$	11,792,459	$	12,776,666	$	13,769,995
Accumulated depreciation and amortization	6,634,061		6,415,676		6,212,432		6,104,297		6,002,775		6,001,177		5,910,979
Total equity and noncontrolling interests(3)	18,172,111		17,243,208		17,046,932		17,225,062		17,291,155		17,263,672		17,495,696
Undepreciated book capitalization	$	38,278,439	$	36,467,779	$	35,364,921	$	35,266,416	$	35,086,389	$	36,041,515	$	37,176,670
Net debt to undepreciated book capitalization ratio	35%		35%		34%		34%		34%		35%		37%

Market capitalization:
Common shares outstanding	435,274		422,562		417,520		417,401		417,305		417,302		417,391
Period end share price	$	82.40	$	83.10	$	71.63	$	64.62	$	55.09	$	51.75	$	45.78
Common equity market capitalization	$	35,866,578	$	35,114,902	$	29,906,958	$	26,972,453	$	22,989,332	$	21,595,379	$	19,108,160
Total net debt	13,472,267		12,808,895		12,105,557		11,937,057		11,792,459		12,776,666		13,769,995
Noncontrolling interests(3)	1,308,908		1,322,762		1,248,054		1,252,343		1,183,281		1,215,532		1,362,913
Market capitalization	$	50,647,753	$	49,246,559	$	43,260,569	$	40,161,853	$	35,965,072	$	35,587,577	$	34,241,068
Net debt to market capitalization ratio	27%		26%		28%		30%		33%		36%		40%

(1) Amounts include senior unsecured notes, secured debt and lease liabilities related to financing leases, as reflected on our Consolidated Balance Sheets. Operating lease liabilities related to the ASC 842 adoption are excluded.
(2) Inclusive of IRC Section 1031 deposits, if any.
(3) Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests as reflected on our Consolidated Balance Sheets.

Critical Accounting Policies

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

the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and
the impact of the estimates and assumptions on financial condition or operating performance is material.

Management has discussed the development and selection of its critical accounting policies with the Audit Committee of the Board of Directors. Management believes the current assumptions and other considerations used to estimate amounts reflected in our unaudited consolidated financial statements are appropriate and are not reasonably likely to change in the future. However, since these estimates require assumptions to be made that were uncertain at the time the estimate was made, they bear the risk of change. If actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our unaudited consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations, liquidity and/or financial condition. Please refer to Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 for further information regarding significant accounting policies that impact us. There have been no material changes to these policies in 2021.

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

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. When Welltower uses words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “project,” “pro forma,” “estimate” or similar expressions that do not relate solely to historical matters, Welltower is making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause Welltower’s actual results to differ materially from Welltower’s expectations discussed in the forward-looking statements. This may be a result of various factors, including, but not limited to: the duration and scope of the COVID-19 pandemic; uncertainty regarding the implementation and impact of the CARES Act and future stimulus or other COVID-19 relief legislation; the impact of the COVID-19 pandemic on occupancy rates and on the operations of Welltower and its operators/tenants; actions governments take in response to the COVID-19 pandemic, including the introduction of public health measures and other regulations affecting Welltower’s properties and the operations of Welltower and its operators/tenants; the effects of health and safety measures adopted by Welltower and its operators/tenants related to the COVID-19 pandemic; increased operational costs as a result of health and safety measures related to COVID-19; the impact of the COVID-19 pandemic on the business and financial condition of operators/tenants and their ability to make payments to Welltower; disruptions to Welltower's property acquisition and disposition activity due to economic uncertainty caused by COVID-19; general economic uncertainty in key markets as a result of the COVID-19 pandemic and a worsening of global economic conditions or low levels of economic growth; the status of capital markets, including availability and cost of capital; uncertainty from the expected discontinuance of LIBOR and the transition to any other interest rate benchmark; issues facing the health care industry, including compliance with, and changes to, regulations and payment policies, responding to government investigations and punitive settlements and operators’/tenants’ difficulty in cost effectively obtaining and maintaining adequate liability and other insurance; changes in financing terms; competition within the health care and seniors housing industries; negative developments in the operating results or financial condition of operators/tenants, including, but not limited to, their ability to pay rent and repay loans; Welltower’s ability to transition or sell properties with profitable results; the failure to make new investments or acquisitions as and when anticipated; natural disasters and other acts of God affecting Welltower’s properties; Welltower’s ability to re-lease space at similar rates as vacancies occur; Welltower’s ability to timely reinvest sale proceeds at similar rates to assets sold; operator/tenant or joint venture partner bankruptcies or insolvencies; the cooperation of joint venture partners; government regulations affecting Medicare and Medicaid reimbursement rates and operational requirements; liability or contract claims by or against operators/tenants; unanticipated difficulties and/or expenditures relating to future investments or acquisitions; environmental laws affecting Welltower’s properties; changes in rules or practices governing Welltower’s financial reporting; the movement of U.S. and foreign currency exchange rates; Welltower’s ability to maintain Welltower’s qualification as a REIT; key management personnel recruitment and retention; and other risks described in Welltower’s reports filed from time to time with the SEC. Other important factors are identified in the Company’s 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.” Finally, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, or to update the reasons why actual results could differ from those projected in any forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates and foreign currency exchange rates. We seek to mitigate the underlying foreign currency exposures with gains and losses on derivative contracts hedging these exposures. We seek to mitigate the effects of fluctuations in interest rates by matching the terms of new investments with new long-term fixed rate borrowings to the extent possible. We may or may not elect to use financial derivative instruments to hedge interest rate exposure. These decisions are principally based on our policy to match our variable rate investments with comparable borrowings, but are also based on the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. This section is presented to provide a discussion of the risks associated with potential fluctuations in interest rates and foreign currency exchange rates.

We historically borrow on our unsecured revolving credit facility and commercial paper program to acquire, construct or make loans relating to health care and seniors housing properties. Then, as market conditions dictate, we will issue equity or long-term fixed rate debt to repay the borrowings under our unsecured revolving credit facility and commercial paper program. We are subject to risks associated with debt financing, including the risk that existing indebtedness may not be refinanced or that the terms of refinancing may not be as favorable as the terms of current indebtedness. The majority of our borrowings were completed under indentures or contractual agreements that limit the amount of indebtedness we may incur. Accordingly, in the event that we are unable to raise additional equity or borrow money because of these limitations, our ability to acquire additional properties may be limited.

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