Item 1. Financial Statements

214K characters. Original on sec.gov · Markdown

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)


	March 31, 2022 (Unaudited)		December 31, 2021 (Note)
Assets:
Real estate investments:
Real property owned:
Land and land improvements	$	4,030,150	$	3,968,430
Buildings and improvements	31,724,328		31,062,203
Acquired lease intangibles	1,844,780		1,789,628
Real property held for sale, net of accumulated depreciation	199,490		134,097
Construction in progress	717,657		651,389
Less accumulated depreciation and amortization	(7,215,622)		(6,910,114)
Net real property owned	31,300,783		30,695,633
Right of use assets, net	404,689		522,796
Real estate loans receivable, net of credit allowance	1,003,136		1,068,681
Net real estate investments	32,708,608		32,287,110
Other assets:
Investments in unconsolidated entities	1,138,526		1,039,043
Goodwill	68,321		68,321
Cash and cash equivalents	301,089		269,265
Restricted cash	65,954		77,490
Straight-line rent receivable	385,639		365,643
Receivables and other assets	804,316		803,453
Total other assets	2,763,845		2,623,215
Total assets	$	35,472,453	$	34,910,325

Liabilities and equity
Liabilities:
Unsecured credit facility and commercial paper	$	299,968	$	324,935
Senior unsecured notes	12,136,760		11,613,758
Secured debt	2,104,945		2,192,261
Lease liabilities	548,999		545,944
Accrued expenses and other liabilities	1,203,755		1,235,554
Total liabilities	16,294,427		15,912,452
Redeemable noncontrolling interests	445,960		401,294
Equity:
Common stock	455,376		448,605
Capital in excess of par value	23,620,112		23,133,641
Treasury stock	(112,518)		(107,750)
Cumulative net income	8,725,661		8,663,736
Cumulative dividends	(14,654,583)		(14,380,915)
Accumulated other comprehensive income (loss)	(138,472)		(121,316)
Total Welltower Inc. stockholders’ equity	17,895,576		17,636,001
Noncontrolling interests	836,490		960,578
Total equity	18,732,066		18,596,579
Total liabilities and equity	$	35,472,453	$	34,910,325

Note: The consolidated balance sheet at December 31, 2021 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
	March 31,
	2022		2021
Revenues:
Resident fees and services	$	994,335	$	723,464
Rental income	356,390		302,843
Interest income	38,994		19,579
Other income	5,985		6,176
Total revenues	1,395,704		1,052,062

Expenses:
Property operating expenses	853,669		617,326
Depreciation and amortization	304,088		244,426
Interest expense	121,696		123,142
General and administrative expenses	37,706		29,926
Loss (gain) on derivatives and financial instruments, net	2,578		1,934
Loss (gain) on extinguishment of debt, net	(12)		(4,643)
Provision for loan losses, net	(804)		1,383
Impairment of assets	—		23,568
Other expenses	26,069		10,994
Total expenses	1,344,990		1,048,056

Income (loss) from continuing operations before income taxes and other items	50,714		4,006
Income tax (expense) benefit	(5,013)		(3,943)
Income (loss) from unconsolidated entities	(2,884)		13,049
Gain (loss) on real estate dispositions, net	22,934		59,080
Income (loss) from continuing operations	65,751		72,192

Net income	65,751		72,192
Less: Net income (loss) attributable to noncontrolling interests(1)	3,826		646
Net income (loss) attributable to common stockholders	$	61,925	$	71,546

Weighted average number of common shares outstanding:
Basic	447,379		417,241
Diluted	449,802		419,079

Earnings per share:
Basic:
Income (loss) from continuing operations	$	0.15	$	0.17
Net income (loss) attributable to common stockholders	$	0.14	$	0.17

Diluted:
Income (loss) from continuing operations	$	0.15	$	0.17
Net income (loss) attributable to common stockholders(2)	$	0.14	$	0.17

Dividends declared and paid per common share	$	0.61	$	0.61

(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
	March 31,
	2022		2021
Net income	$	65,751	$	72,192

Other comprehensive income (loss):
Foreign currency translation gain (loss)	(66,948)		44,210
Derivative and financial instruments designated as hedges gain (loss)	51,940		(20,037)
Total other comprehensive income (loss)	(15,008)		24,173

Total comprehensive income (loss)	50,743		96,365
Less: Total comprehensive income (loss) attributable to noncontrolling interests(1)	5,974		4,451
Total comprehensive income (loss) attributable to common stockholders	$	44,769	$	91,914

(1) Includes amounts attributable to redeemable noncontrolling interests.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)


	Three Months Ended March 31, 2022
	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, 2022	$	448,605	$	23,133,641	$	(107,750)	$	8,663,736	$	(14,380,915)	$	(121,316)	$	960,578	$	18,596,579
Comprehensive income:
Net income (loss)							61,925						2,752		64,677
Other comprehensive income (loss)											(17,156)		1,465		(15,691)
Total comprehensive income															48,986
Net change in noncontrolling interests			(63,026)										(128,305)		(191,331)
Amounts related to stock incentive plans, net of forfeitures	166		7,279		(4,768)										2,677
Net proceeds from issuance of common stock	6,605		542,218												548,823
Dividends paid:
Common stock dividends									(273,668)						(273,668)
Balances at March 31, 2022	$	455,376	$	23,620,112	$	(112,518)	$	8,725,661	$	(14,654,583)	$	(138,472)	$	836,490	$	18,732,066


	Three Months Ended March 31, 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

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)


	Three Months Ended
	March 31,
	2022		2021
Operating activities:
Net income	$	65,751	$	72,192
Adjustments to reconcile net income to net cash provided from (used in) operating activities:
Depreciation and amortization	304,088		244,426
Other amortization expenses	5,592		4,197
Provision for loan losses	(804)		1,383
Impairment of assets	—		23,568
Stock-based compensation expense	7,445		5,576
Loss (gain) on derivatives and financial instruments, net	2,578		1,934
Loss (gain) on extinguishment of debt, net	(12)		(4,643)
Loss (income) from unconsolidated entities	2,884		(13,049)
Rental income less than (in excess of) cash received	(22,215)		30,563
Amortization related to above (below) market leases, net	(419)		(460)
Loss (gain) on real estate dispositions, net	(22,934)		(59,080)
Distributions by unconsolidated entities	6,982		3,036
Increase (decrease) in accrued expenses and other liabilities	(23,416)		(4,406)
Decrease (increase) in receivables and other assets	(1,000)		(1,579)
Net cash provided from (used in) operating activities	324,520		303,658

Investing activities:
Cash disbursed for acquisitions, net of cash acquired	(601,410)		(203,107)
Cash disbursed for capital improvements to existing properties	(90,229)		(28,780)
Cash disbursed for construction in progress	(138,141)		(73,605)
Capitalized interest	(5,479)		(4,496)
Investment in loans receivable	(39,201)		(43,148)
Principal collected on loans receivable	89,207		2,852
Other investments, net of payments	2,401		664
Contributions to unconsolidated entities	(115,249)		(94,095)
Distributions by unconsolidated entities	5,882		36,934
Proceeds from (payments on) derivatives	10,104		(6,567)
Proceeds from sales of real property	73,568		274,208
Net cash provided from (used in) investing activities	(808,547)		(139,140)

Financing activities:
Net increase (decrease) under unsecured credit facility and commercial paper	(24,967)		—
Net proceeds from issuance of senior unsecured notes	545,082		713,907

Net proceeds from the issuance of secured debt	5,385		—
Payments on secured debt	(116,789)		(57,888)
Net proceeds from the issuance of common stock	549,346		—

Payments for deferred financing costs and prepayment penalties	(69)		(1,221)
Contributions by noncontrolling interests(1)	4,101		5,073
Distributions to noncontrolling interests(1)	(177,979)		(30,117)

Cash distributions to stockholders	(273,045)		(254,915)
Other financing activities	(5,960)		(2,936)
Net cash provided from (used in) financing activities	505,105		371,903
Effect of foreign currency translation on cash and cash equivalents and restricted cash	(790)		1,358
Increase (decrease) in cash, cash equivalents and restricted cash	20,288		537,779
Cash, cash equivalents and restricted cash at beginning of period	346,755		2,021,043
Cash, cash equivalents and restricted cash at end of period	$	367,043	$	2,558,822

Supplemental cash flow information:
Interest paid	$	123,012	$	135,947
Income taxes paid (received), net	631		(852)

(1) Includes amounts attributable to redeemable noncontrolling interests.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Business

Welltower Inc., an S&P 500 company headquartered in Toledo, Ohio, is driving the transformation of health care infrastructure. We invest 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.

On March 7, 2022, we announced our intent to complete an UPREIT reorganization. In February 2022, the company formerly known as Welltower Inc. ("Old Welltower") formed WELL Merger Holdco Inc. ("New Welltower") as a wholly owned subsidiary, and New Welltower formed WELL Merger Holdco Sub Inc. ("Merger Sub") as a wholly owned subsidiary. On April 1, 2022, Merger Sub merged with and into Old Welltower, with Old Welltower continuing as the surviving corporation and a wholly owned subsidiary of New Welltower (the "Merger"). In connection with the Merger, Old Welltower's name was changed to "Welltower OP Inc.", and New Welltower inherited the name "Welltower Inc." This Quarterly Report on Form 10-Q pertains to the business and results of Old Welltower for its quarter ended March 31, 2022. Forward-looking references to dates and periods occurring after April 1, 2022 are references to Welltower Inc. (New Welltower). We have elected to co-file this report to ensure continuity of information to investors. For additional information on the UPREIT reorganization, please see our Current Reports on Form 8-K filed with the SEC on March 7, 2022 and April 1, 2022.

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 three months ended March 31, 2022 are not necessarily an indication of the results that may be expected for the year ending December 31, 2022. 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, 2021.

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, which has steadily increased in recent months. As of March 31, 2022, nearly all communities are open for new admissions and allowing visitors, in-person tours and communal dining and activities. Average occupancy increased from 73.0% to 77.5% for the three months ended March 31, 2022 and 2021, respectively. Occupancy metrics represent occupancy at our share for 543 properties in operation as of December 31, 2020, including unconsolidated properties but excluding acquisitions, executed dispositions, development conversions and four closed properties.

Property-level operating expenses associated with the COVID-19 pandemic related to our Seniors Housing Operating portfolio totaled $11,003,000 and $27,976,000 for the three months ended March 31, 2022 and 2021, respectively. These expenses were incurred as a result 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 and supplies, net of reimbursements. 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.

In 2021 and 2022, we received government grants under the CARES Act primarily to cover increased expenses and lost revenue during the COVID-19 pandemic, as well as under similar programs in the U.K. and Canada. For the three months ended March 31, 2022 and 2021, we recognized $5,760,000 and $49,180,000, respectively, of government grant income as a reduction to property operating expenses in our Consolidated Statements of Comprehensive Income.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Our Triple-net operators have experienced similar occupancy declines and operating costs as our Seniors Housing Operating properties. Additionally, long-term/post-acute care facilities are generally experiencing a higher degree of occupancy declines. These factors may continue to impact the ability of our Triple-net operators to make contractual rent payments to us in the future. Many of our Triple-net operators received funds under the CARES Act Paycheck Protection Program and Provider Relief Fund.

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

3. Real Property Acquisitions and Development

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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


	Three Months Ended
	March 31, 2022								March 31, 2021
	Seniors Housing Operating		Triple-net		Outpatient Medical		Totals		Seniors Housing Operating		Triple-net		Outpatient Medical		Totals
Land and land improvements	$	43,897	$	—	$	240	$	44,137	$	1,240	$	24,154	$	2,273	$	27,667
Buildings and improvements	402,342		171		131,412		533,925		3,491		170,362		10,570		184,423
Acquired lease intangibles	31,366		—		16,978		48,344		339		—		1,439		1,778


Right of use assets, net	—		—		3,852		3,852		—		—		—		—
Total net real estate assets	477,605		171		152,482		630,258		5,070		194,516		14,282		213,868
Receivables and other assets	1,630		—		—		1,630		34		—		—		34
Total assets acquired	479,235		171		152,482		631,888		5,104		194,516		14,282		213,902

Lease liabilities	—		—		(3,852)		(3,852)		—		—		—		—
Accrued expenses and other liabilities	(4,154)		—		—		(4,154)		—		(8,703)		(36)		(8,739)
Total liabilities acquired	(4,154)		—		(3,852)		(8,006)		—		(8,703)		(36)		(8,739)
Noncontrolling interests (1)	(20,348)		(4)		—		(20,352)		—		(2,056)		—		(2,056)
Non-cash acquisition related activity(2)	(2,120)		—		—		(2,120)		—		—		—		—
Cash disbursed for acquisitions	452,613		167		148,630		601,410		5,104		183,757		14,246		203,107
Construction in progress additions	113,407		20,756		9,642		143,805		38,373		31,809		7,601		77,783
Less: Capitalized interest	(4,179)		(1,089)		(211)		(5,479)		(2,980)		(524)		(992)		(4,496)
Accruals (3)	(1,963)		—		1,778		(185)		7		—		311		318
Cash disbursed for construction in progress	107,265		19,667		11,209		138,141		35,400		31,285		6,920		73,605
Capital improvements to existing properties	68,612		8,294		13,323		90,229		(3,159)		25,295		6,644		28,780
Total cash invested in real property, net of cash acquired	$	628,490	$	28,128	$	173,162	$	829,780	$	37,345	$	240,337	$	27,810	$	305,492

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

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

(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.

Effective on April 1, 2022, our leasehold interest relating to the master lease with National Health Investors, Inc. (“NHI”) for 17 properties assumed in conjunction with the Holiday Retirement acquisition was terminated as a result of the transition or sale of the properties by NHI. The lease termination was part of an agreement to resolve outstanding litigation with NHI. In conjunction with the agreement, a wholly owned subsidiary and the lessee on the master lease agreed to release $6,883,000 of cash to the landlord, which represents the net cash flow generated from the properties since we assumed the leasehold interest. As of March 31, 2022, a right of use asset of $77,080,000 and a related lease liability of $135,701,000 were recorded on the Consolidated Balance Sheet.

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):


	Three Months Ended
	March 31, 2022		March 31, 2021
Development projects:
Seniors Housing Operating	$	73,458	$	—
Triple-net	—		22,990



Total construction in progress conversions	$	73,458	$	22,990

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):


	March 31, 2022		December 31, 2021
Assets:
In place lease intangibles	$	1,732,980	$	1,681,533
Above market tenant leases	53,988		53,964
Lease commissions	57,812		54,131
Gross historical cost	1,844,780		1,789,628
Accumulated amortization	(1,338,046)		(1,286,259)
Net book value	$	506,734	$	503,369

Weighted-average amortization period in years	7.2		5.5

Liabilities:
Below market tenant leases	$	74,910	$	74,909
Accumulated amortization	(47,174)		(45,291)
Net book value	$	27,736	$	29,618

Weighted-average amortization period in years	8.3		8.2

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


	Three Months Ended March 31,
	2022		2021
Rental income related to (above)/below market tenant leases, net	$	385	$	425
Amortization related to in place lease intangibles and lease commissions	(47,994)		(22,779)

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


	Assets		Liabilities
2022	$	138,363	$	5,482
2023	132,163		5,262
2024	63,179		3,117
2025	26,311		2,588
2026	22,718		2,077
Thereafter	124,000		9,210
Total	$	506,734	$	27,736

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 March 31, 2022, three Seniors Housing Operating, 11 Triple-net, and one Outpatient Medical properties with an aggregate real estate balance of $199,490,000 were classified as held for sale. In addition to the real property balances held for sale, lease liabilities of $66,893,000 and net other assets and (liabilities) of $2,462,000 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 $273,165,000.

During the three months ended March 31, 2021, we recorded $12,098,000 of impairment charges related to 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 three months ended March 31, 2021, we recorded $11,470,000 of impairment charges related to one Seniors Housing Operating property and two 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):


	Three Months Ended March 31,
	2022		2021
Real estate dispositions:
Seniors Housing Operating	$	—	$	74,326
Triple-net	52,661		—
Outpatient Medical	—		137,890
Total dispositions	52,661		212,216
Gain (loss) on real estate dispositions, net	22,934		59,080
Net other assets/(liabilities) disposed	(2,027)		2,912
Proceeds from real estate dispositions	$	73,568	$	274,208

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 March 31,
	2022		2021
Revenues:
Total revenues	$	4,958	$	30,414
Expenses:
Interest expense	871		1,115
Property operating expenses	1,971		3,576
Provision for depreciation	13		6,368
Total expenses	2,855		11,059
Income (loss) from real estate dispositions, net	$	2,103	$	19,355

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 periods presented (in thousands):


		Three Months Ended
	Classification	March 31, 2022		March 31, 2021
Operating lease cost: (1)
Real estate lease expense	Property operating expenses	$	5,816	$	5,358
Non-real estate investment lease expense	General and administrative expenses	978		1,185
Finance lease cost:
Amortization of leased assets	Property operating expenses	1,156		2,035
Interest on lease liabilities	Interest expense	1,618		1,663
Sublease income	Rental income	(2,715)		(1,043)
Total		$	6,853	$	9,198

(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	March 31, 2022		December 31, 2021
Right of use assets:
Operating leases - real estate	Right of use assets, net	$	370,740	$	367,068
Finance leases - real estate	Right of use assets, net	33,949		155,728
Real estate right of use assets, net		404,689		522,796
Operating leases - non-real estate investments	Receivables and other assets	9,430		9,627
Finance leases - held for sale (1)	Real property held for sale, net of accumulated depreciation	119,733		—
Total right of use assets, net		$	533,852	$	532,423

Lease liabilities:
Operating leases		$	438,175	$	434,261
Financing leases		110,824		111,683
Total		$	548,999	$	545,944

(1) At March 31, 2022 finance leases at seven properties were classified as held for sale.

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 three months ended March 31, 2021, we reserved for previously recognized straight-line rent receivable balances of $49,241,000 through rental income relating to leases for which collection of substantially all contractual lease payments was no longer deemed probable.

Leases in our Triple-net and Outpatient Medical portfolios typically include some form of operating expense reimbursement by the tenant. For the three months ended March 31, 2022, we recognized $356,390,000 of rental income related to operating leases, of which $48,074,000 was for variable lease payments that primarily represents the reimbursement of operating costs such as common area maintenance expenses, utilities, insurance and real estate taxes. For the three months ended March 31, 2021, we recognized $302,843,000 of rental income related to operating leases, of which $46,026,000 was for variable lease payments.

For the majority of our Seniors Housing Operating segment, revenue from resident fees and services is predominantly service-based, and as such, resident agreements are accounted for under ASU 2014-09, "Revenue from Contracts with Customers" (ASC 606). Within that reportable segment, we also recognize revenue from residential seniors apartment leases in accordance with ASC 842, "Leases." The amount of revenue related to these leases was $94,827,000 and $15,771,000 for the three months ended March 31, 2022 and March 31, 2021, respectively.

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. 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 $26,215,000 and $26,659,000 as of March 31, 2022 and December 31, 2021, 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):


	March 31, 2022		December 31, 2021
Mortgage loans	$	833,070	$	889,556
Other real estate loans	184,223		194,477
Allowance for credit losses on real estate loans receivable	(14,157)		(15,352)
Real estate loans receivable, net of credit allowance	1,003,136		1,068,681
Non-real estate loans	390,559		375,060
Allowance for credit losses on non-real estate loans receivable	(151,536)		(151,433)
Non-real estate loans receivable, net of credit allowance	239,023		223,627
Total loans receivable, net of credit allowance	$	1,242,159	$	1,292,308

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


	Three Months Ended
	March 31, 2022		March 31, 2021
Advances on loans receivable	$	39,201	$	43,148
Receipts on loans receivable	(89,207)		(2,852)
Net cash advances (receipts) on loans receivable	$	(50,006)	$	40,296

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):


	March 31, 2022
Loan category	Years of Origination	Loan Carrying Value		Allowance for Credit Loss		Net Loan Balance		No. of Loans
Deteriorated loans	2007 - 2018	$	174,841	$	(148,438)	$	26,403	3
Collective loan pool	2007-2017	209,774		(2,982)		206,792		15
Collective loan pool	2018	22,800		(325)		22,475		2
Collective loan pool	2019	22,084		(315)		21,769		4
Collective loan pool	2020	50,563		(721)		49,842		6
Collective loan pool	2021	894,186		(12,433)		881,753		20
Collective loan pool	2022	33,604		(479)		33,125		5
Total loans		$	1,407,852	$	(165,693)	$	1,242,159	55

The total allowance for credit losses balance is deemed sufficient to absorb expected losses relating to our loan portfolio. The following is a summary of the allowance for credit losses on loans receivable for the periods presented (in thousands):


	Three Months Ended
	March 31, 2022		March 31, 2021
Balance at beginning of period	$	166,785	$	224,036
Provision for loan losses	(804)		1,383
Loan write-offs	—		(1,322)
Foreign currency translation	(288)		49
Balance at end of period	$	165,693	$	224,146

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


	Three Months Ended
	March 31, 2022		March 31, 2021
Balance of deteriorated loans at end of period (1)	$	174,841	$	241,012
Allowance for credit losses	(148,438)		(211,191)
Balance of deteriorated loans not reserved	$	26,403	$	29,821
Interest recognized on deteriorated loans (2)	$	—	$	3,079

(1) Current year amounts include $2,157,000 and $2,157,000 of loans on non-accrual as of March 31, 2022 and December 31, 2021, respectively. Prior year amounts include $2,250,000 and $3,623,000 as of March 31, 2021 and December 31, 2020, respectively.

(2) Represents cash interest recognized in the period.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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)	March 31, 2022		December 31, 2021
Seniors Housing Operating	10% to 65%	$	897,769	$	830,647
Triple-net	10% to 88%	68,643		44,814
Outpatient Medical	15% to 50%	172,114		163,582
Total		$	1,138,526	$	1,039,043

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

At March 31, 2022, the aggregate unamortized basis difference of our joint venture investments of $147,598,000 is primarily attributable to the difference between the amount for which we purchased our interest in the entity, including transaction costs, and the historical carrying value of the net assets of the joint venture. This difference is being amortized over the remaining useful life of the related properties and included in the reported amount of income from unconsolidated entities.

We have made loans related to 16 properties as of March 31, 2022 for the development and construction of certain properties which are classified as in substance real estate investments and have a carrying value of $371,061,000. 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 which is the enterprise that has both: (i) the power to direct the activities of the VIE that most significantly impacts the entity's economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. We have concluded that we are not the primary beneficiary of such borrowers, therefore, the loan arrangements were assessed based on among other factors, the amount and timing of expected residual profits, the estimated fair value of the collateral and the significance of the borrower's equity in the project. Based on these assessments, the arrangements have been classified as in substance real estate investments. We expect to fund an additional $184,926,000 related to these investments.

9. Credit Concentration

We use consolidated net operating income (“NOI”) as our credit concentration metric. See Note 18 for additional information and reconciliation. The following table summarizes certain information about our credit concentration for the three months ended March 31, 2022, 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 (3)	205	$	61,084	11%
Sunrise Senior Living	110	30,467		6%
Atria Senior Living	96	28,745		5%
HC-One Group (4)	1	23,872		4%
Avery Healthcare	61	19,901		4%
Remaining portfolio	1,190	377,966		70%
Totals	1,663	$	542,035	100%

(1) ProMedica and HC-One Group are in our Triple-net segment. Sunrise Senior Living and Atria Senior Living 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 34% of total NOI for the year ended December 31, 2021.

(3) During the quarter ended March 31, 2022, we purchased an additional 5% ownership interest in the consolidated ProMedica joint ventures for $137,437,000.

(4) In addition to the one property, HC-One Group is the borrower on a £540,000,000 loan.

10. Borrowings Under Credit Facilities and Commercial Paper Program

At March 31, 2022, 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 March 31, 2022) and a $3,000,000,000 tranche that matures on June 4, 2025 ($110,000,000 outstanding at March 31, 2022). 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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

unsecured credit facility also allows us to borrow up to $1,000,000,000 in alternate currencies (none outstanding at March 31, 2022). Borrowings under the unsecured revolving credit facility are subject to interest payable at the applicable margin over LIBOR interest rate (1.23% at March 31, 2022). The applicable margin is based on our debt ratings and was 0.775% at March 31, 2022. 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 March 31, 2022. Effective with the Merger on April 1, 2022, Old Welltower remains the borrower under the credit facility and New Welltower will guarantee Old Welltower's obligations under the agreement.

Under the terms of our commercial paper 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 March 31, 2022, there was a balance of $189,968,000 outstanding on the commercial paper program ($190,000,000 in principal outstanding, net of an unamortized discount of $32,000), which reduces the borrowing capacity of the unsecured revolving credit facility. The notes bear interest at various floating rates with a weighted average of 0.94% as of March 31, 2022 and a weighted average maturity of seven days as of March 31, 2022.

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 March 31,
	2022			2021
Balance outstanding at quarter end	$	300,000		$	—
Maximum amount outstanding at any month end	$	995,660		$	—
Average amount outstanding (total of daily
principal balances divided by days in period)	$	961,463		$	—
Weighted average interest rate (actual interest
expense divided by average borrowings outstanding)	0.53		%	—		%

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 March 31, 2022, the annual principal payments due on these debt obligations were as follows (in thousands):


	Senior Unsecured Notes (1,2)		Secured Debt (1,3)		Totals
2022	$	—	$	575,737	$	575,737
2023 (4, 5)	700,288		448,580		1,148,868
2024	1,350,000		184,770		1,534,770
2025	1,260,000		167,506		1,427,506
2026	700,000		109,782		809,782
Thereafter (6, 7, 8)	8,221,307		629,266		8,850,573
Totals	$	12,231,595	$	2,115,641	$	14,347,236

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

(2) Annual interest rates range from 0.93% to 6.50%.

(3) Annual interest rates range from 0.32% to 6.67%. Carrying value of the properties securing the debt totaled $4,882,090,000 at March 31, 2022.

(4) Includes a $250,000,000 Canadian-denominated unsecured term credit facility (approximately $200,288,000 based on the Canadian/U.S. Dollar exchange rate on March 31, 2022). The loan matures on July 19, 2023 and bears interest at the Canadian Dealer Offered Rate plus 0.90% (1.83% at March 31, 2022).

(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% (1.36% at March 31, 2022).

(6) Includes a $300,000,000 Canadian-denominated 2.95% senior unsecured notes due 2027 (approximately $240,347,000 based on the Canadian/U.S. Dollar exchange rate on March 31, 2022).

(7) Includes a £550,000,000 4.80% senior unsecured notes due 2028 (approximately $723,360,000 based on the Pounds Sterling/U.S. Dollar exchange rate in effect on March 31, 2022).

(8) Includes a £500,000,000 4.50% senior unsecured notes due 2034 (approximately $657,600,000 based on the Pounds Sterling/U.S. Dollar exchange rate in effect on March 31, 2022).

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):


	Three Months Ended
	March 31, 2022			March 31, 2021
			Weighted Avg.			Weighted Avg.
	Amount		Interest Rate	Amount		Interest Rate
Beginning balance	$	11,707,961	3.67%	$	11,509,533	3.67%
Debt issued	550,000		3.85%	750,000		2.80%


Foreign currency	(26,366)		4.14%	20,059		3.90%
Ending balance	$	12,231,595	3.69%	$	12,279,592	3.62%

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


	Three Months Ended
	March 31, 2022			March 31, 2021
			Weighted Avg.			Weighted Avg.
	Amount		Interest Rate	Amount		Interest Rate
Beginning balance	$	2,202,312	3.03%	$	2,378,073	3.27%

Debt issued	5,385		3.08%	—		—%

Debt extinguished	(100,821)		4.21%	(41,933)		7.60%


Principal payments	(15,968)		3.19%	(15,955)		3.59%
Foreign currency	24,733		2.73%	15,987		2.92%
Ending balance	$	2,115,641	3.02%	$	2,336,172	3.14%

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 March 31, 2022, we were in compliance in all material respects with the covenants under our debt agreements.

In connection with the Merger on April 1, 2022, senior unsecured notes will continue to be obligations of Old Welltower and New Welltower has fully and unconditionally guaranteed all existing and future senior unsecured notes.

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 and Fair Value 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 are used to hedge the variable cash flows associated with variable-rate debt.

Interest rate swaps designated as fair value hedges involve the receipt of fixed amounts from a counterparty in exchange for our variable-rate payments. These interest rate swap agreements hedge the exposure to changes in the fair value of fixed-rate debt attributable to changes in the designated benchmark interest rate. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in earnings. We record the gain or loss on the hedged items in interest expense, the same line item as the offsetting loss or gain on the related interest rate swaps. During the quarter ended March 31, 2022, we entered into a $550,000,000 fixed to floating swap in connection with our March senior note issuance. The carrying amount of

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

the notes, exclusive of the hedge, is $545,082,000. The fair value of the swap as of March 31, 2022 was $1,413,000 and was recorded as a derivative asset with an offset to senior unsecured notes on our Consolidated Balance Sheet.

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 earnings over the life of the related debt, except where a material amount is deemed to be ineffective, which would be immediately recognized in the Consolidated Statements of Comprehensive Income. Approximately $2,562,000 of losses, which are included in OCI, are expected to be reclassified into earnings in the next 12 months.

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

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

During the three months ended March 31, 2022, we settled certain net investment hedges generating cash proceeds of $10,169,000. 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, which were accounted for as loan origination fees. The warrants provide us the right to participate in the capital appreciation of the underlying HC-One Group real estate portfolio 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):


	March 31, 2022		December 31, 2021
Derivatives designated as net investment hedges:
Denominated in Canadian Dollars	$	1,075,000	$	675,000
Denominated in Pound Sterling	£	1,890,708	£	1,904,708

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	$	25,000

Interest rate swaps designated as fair value hedges:
Denominated in U.S Dollars	$	550,000	$	—

Derivative instruments not designated:
Interest rate caps denominated in U.S. Dollars	$	26,137	$	26,137

Forward sales contracts denominated in Canadian Dollars	$	80,000	$	80,000

(1) At March 31, 2022 the maximum maturity date was November 1, 2023.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


		Three Months Ended March 31,
Description	Location	2022		2021
Gain (loss) on derivative instruments designated as hedges recognized in income	Interest expense	$	5,984	$	6,024
Gain (loss) on derivative instruments not designated as hedges recognized in income	Interest expense	$	(693)	$	(719)
Gain (loss) on equity warrants recognized in income	Gain (loss) on derivatives and financial instruments	$	(2,423)	$	—
Gain (loss) on derivative and financial instruments designated as hedges recognized in OCI	OCI	$	51,940	$	(20,037)

13. Commitments and Contingencies

At March 31, 2022, we had 17 outstanding letter of credit obligations totaling $39,594,000 and expiring between 2022 and 2023. At March 31, 2022, we had outstanding construction in progress of $717,657,000 and were committed to providing additional funds of approximately $1,573,677,000 to complete construction. Additionally, at March 31, 2022, we had outstanding investments classified as in substance real estate of $371,061,000 and were committed to provide additional funds of $184,926,000 (see Note 8 for additional information). Purchase obligations include $86,601,000 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:


	March 31, 2022	December 31, 2021
Preferred Stock, $1.00 par value:
Authorized shares	50,000,000	50,000,000
Issued shares	—	—
Outstanding shares	—	—

Common Stock, $1.00 par value:
Authorized shares	700,000,000	700,000,000
Issued shares	455,763,781	448,998,438
Outstanding shares	453,948,046	447,239,477

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 March 31, 2022, we had $1,317,295,000 of remaining capacity under the ATM Program, which excludes forward sales agreements outstanding for the sale of 14,297,958 shares with maturity dates in 2023, which we expect to physically settle for cash proceeds of $1,253,955,000.

The following is a summary of our common stock issuances during the three months ended March 31, 2022 and 2021 (dollars in thousands, except shares and average price amounts):


	Shares Issued	Average Price		Gross Proceeds		Net Proceeds




2021 Stock incentive plans, net of forfeitures	119,818			$	—	$	—



2022 ATM Program issuances	6,605,191	$	84.60	$	558,790	$	549,326
2022 Option exercises	299	66.89		20		20

2022 Stock incentive plans, net of forfeitures	103,079			—		—
2022 Totals	6,708,569			$	558,810	$	549,346

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Dividends

The following is a summary of our dividend payments (in thousands, except per share amounts):


	Three Months Ended
	March 31, 2022				March 31, 2021
	Per Share		Amount		Per Share		Amount
Common stock	$	0.61	$	273,668	$	0.61	$	254,952

Accumulated Other Comprehensive Income

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


	March 31, 2022		December 31, 2021
Foreign currency translation	$	(743,402)	$	(674,306)
Derivative and financial instruments designated as hedges	604,930		552,990

Total accumulated other comprehensive income (loss)	$	(138,472)	$	(121,316)

15. Stock Incentive Plans

In March 2022, our Board of Directors approved the 2022 Long-Term Incentive Plan (“2022 Plan”), which 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. Awards granted after March 28, 2022 will be issued out of the 2022 Plan. The awards granted under the 2016 Long-Term Incentive Plan continue to vest and options expire ten years from the date of grant. Our non-employee directors, officers and key employees are eligible to participate in the 2022 Plan. The 2022 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 $7,445,000 and $5,576,000 for the three months ended March 31, 2022 and 2021, respectfully.

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 March 31,
	2022		2021
Numerator for basic earnings per share - net income (loss) attributable to common stockholders	$	61,925	$	71,546


Adjustment for net income (loss) attributable to OP units	(145)		(1,353)
Numerator for diluted earnings per share	$	61,780	$	70,193

Denominator for basic earnings per share - weighted average shares	447,379		417,241
Effect of dilutive securities:
Employee stock options	31		—
Non-vested restricted shares	974		421
Redeemable OP units	1,396		1,396
Employee stock purchase program	22		21
Dilutive potential common shares	2,423		1,838
Denominator for diluted earnings per share - adjusted weighted average shares	449,802		419,079

Basic earnings per share	$	0.14	$	0.17
Diluted earnings per share	$	0.14	$	0.17

As of March 31, 2022, and March 31, 2021, outstanding forward sales agreements for the sale of 14,297,958 shares and 2,214,760 shares, respectively, were not included in the computation of diluted earnings per share because such forward sales were anti-dilutive for the periods.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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, 2021 for additional information. The three levels are defined below:

Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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

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

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

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

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

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

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

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

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

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

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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


	March 31, 2022				December 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Mortgage loans receivable	$	821,509	$	909,533	$	877,102	$	932,552
Other real estate loans receivable	181,627		183,784		191,579		193,999
Equity securities	1,455		1,455		1,608		1,608
Cash and cash equivalents	301,089		301,089		269,265		269,265
Restricted cash	65,954		65,954		77,490		77,490
Non-real estate loans receivable	239,023		245,928		223,627		241,544
Foreign currency forward contracts, interest rate swaps and cross currency swaps	9,179		9,179		7,205		7,205
Equity warrants	38,416		38,416		41,909		41,909

Financial liabilities:
Borrowings under unsecured credit facility and commercial paper program	$	299,968	$	299,968	$	324,935	$	324,935
Senior unsecured notes	12,136,760		12,458,423		11,613,758		13,139,748
Secured debt	2,104,945		2,108,622		2,192,261		2,252,107
Foreign currency forward contracts, interest rate swaps and cross currency swaps	30,580		30,580		39,296		39,296

Redeemable OP unitholder interests	$	171,609	$	171,609	$	153,098	$	153,098

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 March 31, 2022
	Total		Level 1		Level 2		Level 3
Equity securities	$	1,455	$	1,455	$	—	$	—
Equity warrants	38,416		—		—		38,416
Foreign currency forward contracts, interest rate swaps and cross currency swaps, net asset (liability) (1)	(21,401)		—		(21,401)		—
Totals	$	18,470	$	1,455	$	(21,401)	$	38,416

(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 periods presented (in thousands):


	Three Months Ended
	March 31, 2022		March 31, 2021
Beginning balance	$	41,909	$	—

Mark-to-market adjustment	(2,425)		—
Foreign currency	(1,068)		—
Ending balance	$	38,416	$	—

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

Items Measured at Fair Value on a Nonrecurring Basis

In addition to items that are measured at fair value on a recurring basis, we also have assets and liabilities in our balance sheet that are measured at fair value on a nonrecurring basis that are not included in the tables above. Assets, liabilities and noncontrolling interests that are measured at fair value on a nonrecurring basis include those acquired or assumed. Asset impairments (if applicable, see Note 5 for impairments of real property and Note 7 for impairments of loans receivable) are also measured at fair value on a nonrecurring basis. We have determined that the fair value measurements included in each of these assets and liabilities rely primarily on company-specific inputs and our assumptions about the use of the assets and settlement of liabilities, as observable inputs are not available. As such, we have determined that each of these fair value measurements

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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, 2021). 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 March 31, 2022:	Seniors Housing Operating		Triple-net		Outpatient Medical		Non-segment / Corporate		Total
Resident fees and services	$	994,335	$	—	$	—	$	—	$	994,335
Rental income	—		196,001		160,389		—		356,390
Interest income	1,417		37,506		71		—		38,994
Other income	860		1,656		2,863		606		5,985
Total revenues	996,612		235,163		163,323		606		1,395,704

Property operating expenses	789,928		11,211		49,915		2,615		853,669
Consolidated net operating income (loss)	206,684		223,952		113,408		(2,009)		542,035

Depreciation and amortization	192,793		53,504		57,791		—		304,088
Interest expense	7,650		314		4,567		109,165		121,696
General and administrative expenses	—		—		—		37,706		37,706
Loss (gain) on derivatives and financial instruments, net	—		2,578		—		—		2,578
Loss (gain) on extinguishment of debt, net	(15)		—		3		—		(12)
Provision for loan losses, net	267		(1,065)		(6)		—		(804)

Other expenses	8,191		11,044		789		6,045		26,069
Income (loss) from continuing operations before income taxes and other items	(2,202)		157,577		50,264		(154,925)		50,714
Income tax (expense) benefit	—		—		—		(5,013)		(5,013)
Income (loss) from unconsolidated entities	(17,782)		15,543		(645)		—		(2,884)
Gain (loss) on real estate dispositions, net	2,701		20,449		(216)		—		22,934
Income (loss) from continuing operations	(17,283)		193,569		49,403		(159,938)		65,751
Net income (loss)	$	(17,283)	$	193,569	$	49,403	$	(159,938)	$	65,751

Total assets	$	19,986,904	$	8,986,422	$	6,333,821	$	165,306	$	35,472,453


Three Months Ended March 31, 2021:	Seniors Housing Operating		Triple-net		Outpatient Medical		Non-segment / Corporate		Total
Resident fees and services	$	723,464	$	—	$	—	$	—	$	723,464
Rental income	—		152,463		150,380		—		302,843
Interest income	1,119		14,922		3,538		—		19,579
Other income	1,819		1,097		2,305		955		6,176
Total revenues	726,402		168,482		156,223		955		1,052,062

Property operating expenses	555,968		12,841		46,863		1,654		617,326
Consolidated net operating income (loss)	170,434		155,641		109,360		(699)		434,736

Depreciation and amortization	132,586		56,667		55,173		—		244,426
Interest expense	11,418		1,882		4,015		105,827		123,142
General and administrative expenses	—		—		—		29,926		29,926
Loss (gain) on derivatives and financial instruments, net	—		1,934		—		—		1,934
Loss (gain) on extinguishment of debt, net	(4,643)		—		—		—		(4,643)
Provision for loan losses, net	251		853		279		—		1,383
Impairment of assets	4,604		18,964		—		—		23,568
Other expenses	3,459		4,983		712		1,840		10,994
Income (loss) from continuing operations before income taxes and other items	22,759		70,358		49,181		(138,292)		4,006
Income tax (expense) benefit	—		—		—		(3,943)		(3,943)
Income (loss) from unconsolidated entities	5,234		4,907		2,908		—		13,049
Gain (loss) on real estate dispositions, net	5,195		2,042		51,843		—		59,080
Income (loss) from continuing operations	33,188		77,307		103,932		(142,235)		72,192
Net income (loss)	$	33,188	$	77,307	$	103,932	$	(142,235)	$	72,192

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
	March 31, 2022				March 31, 2021
Revenues:	Amount(1)		%		Amount		%
United States	$	1,139,016	81.6	%	$	825,648	78.5	%
United Kingdom	144,491		10.4	%	118,874		11.3	%
Canada	112,197		8.0	%	107,540		10.2	%
Total	$	1,395,704	100.0	%	$	1,052,062	100.0	%

	As of
	March 31, 2022				December 31, 2021
Assets:	Amount		%		Amount		%
United States	$	28,821,624	81.2	%	$	28,595,703	81.9	%
United Kingdom	3,822,998		10.8	%	3,938,258		11.3	%
Canada	2,827,831		8.0	%	2,376,364		6.8	%
Total	$	35,472,453	100.0	%	$	34,910,325	100.0	%

(1) The United States, United Kingdom and Canada represent 79%, 10% and 11% of our resident fees and services revenue for the three month period ended March 31, 2022.

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 three months ended March 31, 2022 and 2021, 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

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):


	March 31, 2022		December 31, 2021
Assets:
Net real estate investments	$	445,561	$	445,776
Cash and cash equivalents	11,489		9,964
Receivables and other assets	8,100		7,617
Total assets (1)	$	465,150	$	463,357

Liabilities and equity:
Secured debt	$	163,021	$	163,519
Lease liabilities	1,324		1,324
Accrued expenses and other liabilities	13,067		12,394
Total equity	287,738		286,120
Total liabilities and equity	$	465,150	$	463,357

(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			30
			Business Strategy			31
			Key Transactions			32
			Key Performance Indicators, Trends and Uncertainties			32
			Corporate Governance			34

			LIQUIDITY AND CAPITAL RESOURCES

			Sources and Uses of Cash			34
			Off-Balance Sheet Arrangements			35
			Contractual Obligations			36
			Capital Structure			36

			RESULTS OF OPERATIONS

			Summary			37
			Seniors Housing Operating			38
			Triple-net			40
			Outpatient Medical			42
			Non-Segment/Corporate			43

			OTHER

			Non-GAAP Financial Measures			44
			Critical Accounting Policies			50
			Cautionary Statement Regarding Forward-Looking Statements			51

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, 2021, including factors identified under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations."

On March 7, 2022, we announced our intent to complete an UPREIT reorganization. In February 2022, the company formerly known as Welltower Inc. ("Old Welltower") formed WELL Merger Holdco Inc. ("New Welltower") as a wholly owned subsidiary, and New Welltower formed WELL Merger Holdco Sub Inc. ("Merger Sub") as a wholly owned subsidiary. On April 1, 2022, Merger Sub merged with and into Old Welltower, with Old Welltower continuing as the surviving corporation and a wholly owned subsidiary of New Welltower (the "Merger"). In connection with the Merger, Old Welltower's name was changed to "Welltower OP Inc.", and New Welltower inherited the name "Welltower Inc." This Quarterly Report on Form 10-Q pertains to the business and results of Old Welltower for its quarter ended March 31, 2022. We have elected to co-file this report to ensure continuity of information to investors.

Unless the context requires otherwise, references herein to "the Company", "we", "us" and "our" refer to Welltower OP Inc. (Old Welltower) through March 31, 2022. Forward-looking references to dates and periods occurring after April 1, 2022 are references to Welltower Inc. (New Welltower).

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. As noted above, effective April 1, 2022, Welltower OP Inc. became a wholly owned subsidiary of Welltower Inc. 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 March 31, 2022 (dollars in thousands):


			Percentage of		Number of
Type of Property	NOI (1)		NOI		Properties
Seniors Housing Operating	$	206,684	38.0	%	774
Triple-net	223,952		41.2	%	578
Outpatient Medical	113,408		20.8	%	311
Totals	$	544,044	100.0	%	1,663

(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 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 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 and the Provider Relief Fund.

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 three months ended March 31, 2022, resident fees and services and rental income represented 71% and 26%, 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, general and administrative expenses and other 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 March 31, 2022, we had $301,089,000 of cash and cash equivalents, $65,954,000 of restricted cash and $3,700,000,000 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 three months ended March 31, 2022:

In March 2022, we completed the issuance of $550,000,000 senior unsecured notes bearing interest at 3.85% with a maturity date of June 2032.
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. During the three months ended March 31, 2022, we settled 6,605,191 shares of common stock that were sold under our ATM Program via forward sale agreements resulting in $558,790,000 of gross proceeds.
During the three months ended March 31, 2022, we extinguished $100,821,000 of secured debt at a blended average interest rate of 4.21%.

Investments The following summarizes our property acquisitions and joint venture investments completed during the three months ended March 31, 2022 (dollars in thousands):


	Properties	Book Amount (1)		Capitalization Rates (2)
Seniors Housing Operating	10	$	477,605	3.8	%
Triple-net	—	171		—	%
Outpatient Medical	4	152,482		5.5	%
Totals	14	$	630,258	4.2	%

(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 three months ended March 31, 2022 (dollars in thousands):


	Properties	Proceeds (1)		Book Amount (2)		Capitalization Rates (3)

Triple-net	7	$	73,568	$	52,661	7.4	%



(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 March 31, 2022 of $0.61 per share. On May 31, 2022, we will pay our 204th consecutive quarterly cash dividend to stockholders of record on May 24, 2022.

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
	March 31,		December 31,		September 30,		June 30,		March 31,
	2022		2021		2021		2021		2021
Net income (loss)	$	65,751	$	66,194	$	190,336	$	45,757	$	72,192
NICS	61,925		58,672		179,663		26,257		71,546
FFO	347,635		338,976		345,739		248,840		287,167
NOI	542,035		524,085		510,397		498,335		434,736

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

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 restricted cash. 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
	March 31,	December 31,	September 30,	June 30,	March 31,
	2022	2021	2021	2021	2021

Net debt to book capitalization ratio	43%	42%	42%	43%	41%
Net debt to undepreciated book capitalization ratio	35%	35%	35%	35%	34%
Net debt to market capitalization ratio	24%	26%	27%	26%	28%

Interest coverage ratio	4.03x	3.89x	4.81x	3.30x	3.56x
Fixed charge coverage ratio	3.57x	3.42x	4.22x	2.93x	3.16x

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:


	Three Months Ended
	March 31,	December 31,	September 30,	June 30,	March 31,
	2022	2021	2021	2021	2021
Property mix:(1)
Seniors Housing Operating	38%	34%	34%	32%	39%
Triple-net	41%	44%	45%	45%	36%
Outpatient Medical	21%	22%	21%	23%	25%

Relationship mix: (1)
ProMedica	11%	11%	11%	12%	12%
Sunrise Senior Living	6%	7%	9%	10%	14%
Atria Senior Living	5%	4%	3%	—%	—%
HC-One Group	4%	5%	5%	3%	—%
Avery Healthcare	4%	4%	4%	4%	5%
Remaining relationships	70%	69%	68%	71%	69%

Geographic mix:(1)
California	13%	13%	12%	12%	15%
United Kingdom	11%	13%	14%	13%	10%
Texas	8%	9%	9%	9%	7%
New Jersey	5%	5%	5%	5%	7%
Canada	5%	5%	6%	7%	7%
Remaining geographic areas	58%	55%	54%	54%	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.

Lease Expirations The following table sets forth information regarding lease expirations for certain portions of our portfolio as of March 31, 2022 (dollars in thousands):

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


	Expiration Year (1)
	2022			2023			2024			2025			2026			2027			2028			2029			2030			2031			Thereafter
Triple-net:
Properties	22			2			4			27			66			4			14			4			21			9			390
Base rent (2)	$	4,194		$	840		$	12,110		$	6,612		$	68,008		$	15,191		$	19,383		$	3,972		$	43,322		$	21,203		$	430,445
% of base rent	0.7		%	0.1		%	1.9		%	1.1		%	10.9		%	2.4		%	3.1		%	0.6		%	6.9		%	3.4		%	68.9		%
Units/beds	3,285			222			692			1,725			5,016			633			1,474			219			2,279			896			39,542
% of Units/beds	5.9		%	0.4		%	1.2		%	3.1		%	9.0		%	1.1		%	2.6		%	0.4		%	4.1		%	1.6		%	70.6		%

Outpatient Medical:
Square feet	1,376,952			1,709,614			1,922,175			1,070,893			1,390,852			1,252,589			949,513			790,651			1,492,484			1,399,206			4,358,806
Base rent (2)	$	41,025		$	48,971		$	59,039		$	30,385		$	38,274		$	33,066		$	25,750		$	22,763		$	38,835		$	38,270		$	94,228
% of base rent	8.7		%	10.4		%	12.5		%	6.5		%	8.1		%	7.0		%	5.5		%	4.8		%	8.3		%	8.1		%	20.1		%
Leases	312			363			355			233			258			204			133			90			104			79			185
% of Leases	13.5		%	15.7		%	15.3		%	10.1		%	11.1		%	8.8		%	5.7		%	3.9		%	4.5		%	3.4		%	8.0		%

(1) Excludes our share of 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, 2021, under the headings “Business,” “Risk Factors” and “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, general and administrative expenses and other 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):


	Three Months Ended				Change
	March 31, 2022		March 31, 2021		$		%
Cash, cash equivalents and restricted cash at beginning of period	$	346,755	$	2,021,043	$	(1,674,288)	(83)	%
Cash provided from (used in) operating activities	324,520		303,658		20,862		7	%
Cash provided from (used in) investing activities	(808,547)		(139,140)		(669,407)		(481)	%
Cash provided from (used in) financing activities	505,105		371,903		133,202		36	%
Effect of foreign currency translation	(790)		1,358		(2,148)		(158)	%
Cash, cash equivalents and restricted cash at end of period	$	367,043	$	2,558,822	$	(2,191,779)	(86)	%

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

Operating Activities The changes in net cash provided from operating activities was immaterial. Please see “Results of Operations” for discussion of net income fluctuations. For the three months ended March 31, 2022 and 2021, 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." Please refer to Notes 3 and 5 of our unaudited consolidated financial statements for additional information. The following is a summary of cash used in non-acquisition capital improvement activities for the periods presented (dollars in thousands):


	Three Months Ended				Change
	March 31, 2022		March 31, 2021		$
New development	$	138,141	$	73,605	$	64,536
Recurring capital expenditures, tenant improvements and lease commissions	32,835		10,754		22,081
Renovations, redevelopments and other capital improvements	57,394		18,026		39,368
Total	$	228,370	$	102,385	$	125,985

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.

In March 2022, we completed the issuance of $550,000,000 senior unsecured notes with a maturity date of June 2032. As of March 31, 2022, we have total near-term available liquidity of approximately $4.1 billion.

Off-Balance Sheet Arrangements

At March 31, 2022, we had investments in unconsolidated entities with our ownership generally ranging from 10% to 88%. We use financial derivative instruments to hedge interest rate and foreign currency exchange rate exposure. At March 31, 2022, we had 17 outstanding letter of credit obligations. Please see Notes 8, 12 and 13 to our unaudited consolidated financial statements for additional information.

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

Contractual Obligations

The following table summarizes our payment requirements under contractual obligations as of March 31, 2022 (in thousands):


	Payments Due by Period
Contractual Obligations	Total		2022		2023-2024		2025-2026		Thereafter
Unsecured credit facility and commercial paper (1,3)	$	300,000	$	—	$	—	$	300,000	$	—
Senior unsecured notes and term credit facilities: (1)
U.S. Dollar senior unsecured notes	9,900,000		—		1,350,000		1,950,000		6,600,000
Canadian Dollar senior unsecured notes (2)	240,347		—		—		—		240,347
Pounds Sterling senior unsecured notes (2)	1,380,960		—		—		—		1,380,960
U.S. Dollar term credit facility	510,000		—		500,000		10,000		—
Canadian Dollar term credit facility (2)	200,288		—		200,288		—		—
Secured debt: (1,2)
Consolidated	2,115,641		575,737		633,350		277,288		629,266
Unconsolidated	1,266,905		146,558		302,886		552,529		264,932
Contractual interest obligations: (3)
Unsecured credit facility and commercial paper	12,821		2,263		6,033		4,525		—
Senior unsecured notes and term loans (2)	3,797,590		326,226		841,203		666,489		1,963,672
Consolidated secured debt (2)	212,912		45,628		75,365		43,926		47,993
Unconsolidated secured debt (2)	176,900		31,013		66,623		26,522		52,742
Financing lease liabilities (4)	208,588		6,429		71,634		3,354		127,171
Operating lease liabilities (4)	1,375,702		30,777		87,980		87,324		1,169,621
Purchase obligations (5)	1,845,205		914,297		883,699		47,202		7

Total contractual obligations	$	23,543,859	$	2,078,928	$	5,019,061	$	3,969,159	$	12,476,711

(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 the 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 March 31, 2022, 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.

On April 1, 2022, Welltower Inc. and Welltower OP Inc. jointly filed with the Securities and Exchange Commission (the “SEC”) an open-ended automatic or “universal” shelf registration statement on Form S-3 covering an indeterminate amount of future offerings of Welltower Inc.’s debt securities, common stock, preferred stock, depositary shares, guarantees of debt securities issued by Welltower OP Inc., warrants and units and Welltower OP Inc.’s debt securities and guarantees of debt securities issued by Welltower Inc. to replace Old Welltower’s existing “universal” shelf registration statement filed with the SEC on May 4, 2021. On April 1, 2022, Welltower Inc. also filed with the SEC a registration statement in connection with its enhanced dividend reinvestment plan (“DRIP”) under which it may issue up to 15,000,000 shares of common stock to replace Old Welltower’s existing DRIP registration statement on Form S-3 filed with the SEC on May 4, 2021. As of April 29, 2022, 15,000,000 shares of common stock remained available for issuance under the DRIP registration statement. On April 4, 2022, Welltower Inc. and Welltower OP Inc. entered into (i) a second amended and restated equity distribution agreement (the “EDA”) with (i) 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, Jefferies LLC, JMP Securities 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.,

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

SMBC Nikko Securities America, Inc., Synovus Securities, Inc., TD Securities (USA) LLC, Truist Securities, Inc. and Wells Fargo Securities, LLC as sales agents and forward sellers and (ii) the forward purchasers named therein relating to issuances, offers and sales from time to time of up to $3,000,000,000 aggregate amount of common stock of Welltower Inc. (together with the existing master forward sale confirmations relating thereto, the “ATM Program”), amending and restating the ATM Program entered into on July 30, 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 $2,500,000,000 to $3,000,000,000, which amount excludes shares Old Welltower had previously sold pursuant to the prior program. The ATM Program also allows Welltower Inc. to enter into forward sale agreements. As of April 29, 2022, we had $3,000,000,000 of remaining capacity under the ATM Program, which excludes forward sales agreements outstanding for the sale of 4,662,141 shares or approximately $450,291,000 with maturity dates in 2023. In addition, we have forward sale agreements for the sale of 14,847,242 shares or approximately $1,307,384,000 with maturity dates in 2023 under the July 30, 2021 ATM Program. 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, Welltower Inc. also filed with the SEC two prospectus supplements that will continue offerings that were previously covered by Old Welltower’s 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 common stock of Welltower Inc. (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 Welltower Inc. (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 of Welltower Inc. (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 Funds From Operations ("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):


	Three Months Ended						Change
	March 31,			March 31,
	2022			2021			Amount			%
Net income	$	65,751		$	72,192		$	(6,441)		(9)	%
NICS	61,925			71,546			(9,621)			(13)	%
FFO	347,635			287,167			60,468			21	%
EBITDA	496,548			443,703			52,845			12	%
NOI	542,035			434,736			107,299			25	%
SSNOI	391,228			388,964			2,264			1	%
Per share data (fully diluted):
NICS	$	0.14		$	0.17		$	(0.03)		(18)	%
FFO	$	0.77		$	0.69		$	0.08		12	%

Interest coverage ratio	4.03		x	3.56		x	0.47		x	13	%
Fixed charge coverage ratio	3.57		x	3.16		x	0.41		x	13	%

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

Seniors Housing Operating

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


	QTD Pool
	Three Months Ended				Change
	March 31, 2022		March 31, 2021		$		%
SSNOI (1)	$	143,572	$	151,610	$	(8,038)	(5.3)	%

(1) For the QTD Pool, amounts relate to 532 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
	March 31,		March 31,
	2022		2021		$		%
Revenues:
Resident fees and services	$	994,335	$	723,464	$	270,871	37	%
Interest income	1,417		1,119		298		27	%
Other income	860		1,819		(959)		(53)	%
Total revenues	996,612		726,402		270,210		37	%
Property operating expenses	789,928		555,968		233,960		42	%
NOI (1)	206,684		170,434		36,250		21	%
Other expenses:
Depreciation and amortization	192,793		132,586		60,207		45	%
Interest expense	7,650		11,418		(3,768)		(33)	%
Loss (gain) on extinguishment of debt, net	(15)		(4,643)		4,628		100	%
Provision for loan losses, net	267		251		16		6	%
Impairment of assets	—		4,604		(4,604)		(100)	%
Other expenses	8,191		3,459		4,732		137	%
	208,886		147,675		61,211		41	%
Income (loss) from continuing operations before income taxes and other items	(2,202)		22,759		(24,961)		(110)	%
Income (loss) from unconsolidated entities	(17,782)		5,234		(23,016)		(440)	%
Gain (loss) on real estate dispositions, net	2,701		5,195		(2,494)		(48)	%
Income from continuing operations	(17,283)		33,188		(50,471)		(152)	%
Net income (loss)	(17,283)		33,188		(50,471)		(152)	%
Less: Net income (loss) attributable to noncontrolling interests	(5,381)		(4,924)		(457)		(9)	%
Net income (loss) attributable to common stockholders	$	(11,902)	$	38,112	$	(50,014)	(131)	%

(1) See Non-GAAP Financial Measures below.

Resident fees and services and property operating expenses increased for the three month period ended March 31, 2022 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. The increases were partially offset by decreases due to property dispositions.

Property-level operating expenses associated with the COVID-19 pandemic relating to our Seniors Housing Operating portfolio totaled $11,003,000 and $27,976,000 for the three months ended March 31, 2022 and 2021, 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 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.

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

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 three months ended March 31, 2021, we recorded impairment charges of $4,604,000 related to one held for use property in which the carrying value exceeded the estimated fair value. Transaction costs related to asset acquisitions are capitalized as a component of the purchase price. The fluctuation in other expenses is primarily due to the timing of noncapitalizable transaction costs associated with acquisitions and operator transitions. Changes in the gain on sales of properties are related to the volume and timing of property sales and the sales prices.

During the three months ended March 31, 2022, we completed one Seniors Housing Operating construction project representing $73,458,000 or $720,176 per unit. The following is a summary of our Seniors Housing Operating construction projects, excluding expansions, pending as of March 31, 2022 (dollars in thousands):


Location	Units/Beds	Commitment		Balance		Est. Completion
Barnet, UK	100	$	68,127	$	61,496	2Q22
Sachse, TX	193	38,054		18,639		3Q22
Princeton, NJ	80	29,780		27,932		3Q22
Berea, OH	120	14,934		12,483		3Q22
Painesville, OH	119	14,462		10,702		3Q22
Beaver, PA	116	14,184		9,813		3Q22
New Rochelle, NY	72	42,669		18,184		4Q22
Pflugerville, TX	196	39,500		15,542		4Q22
Georgetown, TX	188	36,215		18,897		4Q22
Denton, TX	65	20,194		7,293		4Q22
Brookline, MA	159	145,990		38,683		2Q23
Lake Jackson, TX	130	32,020		4,378		2Q23
Charlotte, NC	328	96,416		37,707		3Q23
White Marsh, MD	188	78,610		8,535		3Q23
Weymouth, MA	165	77,545		15,999		3Q23
Glendale, AZ	204	54,250		8,518		3Q23
Miami Twp, OH	122	18,206		2,179		4Q23
Gaithersburg, MD	302	173,548		32,770		2Q24
Leander, TX	72	26,761		3,705		2Q24
Temple, TX	245	65,569		5,574		4Q24
Kyle, TX	225	62,700		4,616		1Q25
	3,389	$	1,149,734	363,645
Boise, ID(1)				33,639
Boise, ID(1)				12,326
Brookhaven, GA(1)				10,943
Columbus, OH(1)				14,067
Kansas City, MO(1)				12,404
Raleigh, NC(1)				3,544
Toronto, ON(1)				51,600
Washington, DC(1)				32,554
Wellesley, MA(1)				9,500
				$	544,222

(1) Final units/beds, commitment amount and expected conversion date not yet known.

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