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

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


	Three Months Ended								Six Months Ended
	June 30, 2022				June 30, 2021				June 30, 2022				June 30, 2021
	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount		Interest Rate		Amount		Interest Rate
Beginning balance	$	1,554,473	2.83	%	$	1,667,278	2.89	%	$	1,599,522	2.81	%	$	1,706,189	3.05	%
Debt transferred	—		—	%	—		—	%	32,478		4.79	%	—		—	%
Debt issued	4,959		3.40	%	—		—	%	10,344		3.23	%	—		—	%
Debt assumed	221,159		4.32	%	—		—	%	221,159		4.32	%	—		—	%
Debt extinguished	(60,916)		4.26	%	(24,660)		3.31	%	(155,563)		4.23	%	(66,593)		6.01	%


Principal payments	(11,515)		3.11	%	(11,986)		3.06	%	(24,513)		3.03	%	(24,246)		3.11	%
Foreign currency	(31,068)		3.01	%	14,658		2.74	%	(6,335)		2.97	%	29,940		2.77	%
Ending balance	$	1,677,092	3.34	%	$	1,645,290	2.83	%	$	1,677,092	3.34	%	$	1,645,290	2.83	%

Monthly averages	$	1,605,163	2.92	%	$	1,670,234	2.86	%	$	1,605,943	2.88	%	$	1,679,223	2.94	%

The majority of our Seniors Housing Operating properties are formed through partnership interests. Income from unconsolidated entities recognized during the six months ended June 30, 2021 includes a gain recognized from the sale of a home health business owned by one of our unconsolidated entities. Net income attributable to noncontrolling interests represents our partners’ share of net income (loss) related to joint ventures. The fluctuation during the three and six month periods relates primarily to our partners' share of reserves for previously recognized straight-line receivables.

Triple-net

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


	QTD Pool								YTD Pool
	Three Months Ended				Change				Six Months Ended				Change
	June 30, 2022		June 30, 2021		$		%		June 30, 2022		June 30, 2021		$		%
SSNOI (1)	$	149,684	$	139,974	$	9,710	6.9	%	$	286,624	$	275,904	$	10,720	3.9	%

(1) For the QTD and YTD Pools, amounts relate to 558 and 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 Triple-net segment (dollars in thousands):


	Three Months Ended				Change				Six Months Ended				Change
	June 30,		June 30,						June 30,		June 30,
	2022		2021		$		%		2022		2021		$		%
Revenues:
Rental income	$	197,182	$	204,725	$	(7,543)	(4)	%	$	393,183	$	357,188	$	35,995	10	%
Interest income	35,392		32,861		2,531		8	%	72,898		47,783		25,115		53	%
Other income	1,786		1,355		431		32	%	3,442		2,452		990		40	%
Total revenues	234,360		238,941		(4,581)		(2)	%	469,523		407,423		62,100		15	%
Property operating expenses	11,491		12,627		(1,136)		(9)	%	22,702		25,468		(2,766)		(11)	%
NOI (1)	222,869		226,314		(3,445)		(2)	%	446,821		381,955		64,866		17	%
Other expenses:
Depreciation and amortization	49,561		54,406		(4,845)		(9)	%	103,065		111,073		(8,008)		(7)	%
Interest expense	320		1,704		(1,384)		(81)	%	634		3,586		(2,952)		(82)	%
Loss (gain) on derivatives and financial instruments, net	(1,407)		(359)		(1,048)		(292)	%	1,171		1,575		(404)		(26)	%

Provision for loan losses, net	(176)		10,019		(10,195)		(102)	%	(1,241)		10,872		(12,113)		(111)	%
Impairment of assets	—		3,768		(3,768)		(100)	%	—		22,732		(22,732)		(100)	%
Other expenses	463		4,110		(3,647)		(89)	%	11,507		9,093		2,414		27	%
	48,761		73,648		(24,887)		(34)	%	115,136		158,931		(43,795)		(28)	%
Income (loss) from continuing operations before income taxes and other items	174,108		152,666		21,442		14	%	331,685		223,024		108,661		49	%
Income (loss) from unconsolidated entities	5,874		4,877		997		20	%	21,417		9,784		11,633		119	%
Gain (loss) on real estate dispositions, net	(2,129)		42,709		(44,838)		(105)	%	18,320		44,751		(26,431)		(59)	%
Income from continuing operations	177,853		200,252		(22,399)		(11)	%	371,422		277,559		93,863		34	%
Net income	177,853		200,252		(22,399)		(11)	%	371,422		277,559		93,863		34	%
Less: Net income (loss) attributable to noncontrolling interests	7,241		11,405		(4,164)		(37)	%	14,306		14,805		(499)		(3)	%
Net income attributable to common stockholders	$	170,612	$	188,847	$	(18,235)	(10)	%	$	357,116	$	262,754	$	94,362	36	%

(1) See Non-GAAP Financial Measures below.

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

Rental income has decreased primarily due to property dispositions during 2021 and 2022, including 51 properties during the year ended December 31, 2021 with a book amount of $486 million and nine properties during the six months ended June 30, 2022 with a book amount of $71 million. Additionally, during the six months ended June 30, 2021, we recorded reserves of previously recognized straight-line receivables of $49,241,000.

Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index and/or changes in the gross operating revenues of the tenant’s properties. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If gross operating revenues at our facilities and/or the Consumer Price Index do not increase, a portion of our revenues may not continue to increase. For the three months ended June 30, 2022, we had 12 leases with rental rate increases ranging from 2.00% to 33.39% in our Triple-net portfolio. Our Triple-net operators are experiencing similar impacts on occupancy and operating costs due to the COVID-19 pandemic to our Seniors Housing Operating properties. Long-term/post-acute facilities have generally experienced a higher degree of occupancy declines which in some cases impacted the ability of our Triple-net operators to make contractual rent payments to us. However, many of our Triple-net operators received funds under the CARES Act Paycheck Protection Program and the Provider Relief Fund.

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

The increase to interest income is primarily driven by interest recognized on senior loan financings of £540,000,000 made to affiliates of Safanad as part of the recapitalization of its investment in HC-One Group during the second quarter 2021. Additionally during the six months ended June 30, 2021, we recognized a provision for loan losses under the current expected credit losses accounting standard, primarily related to the initial recognition of that loan.

During the six months ended June 30, 2021, we recorded impairment charges of $22,732,000 related to three held for sale properties and two held for use properties. Transaction costs related to asset acquisitions are capitalized as a component of purchase price. The fluctuation in other expenses is primarily due to noncapitalizable transaction costs from acquisitions and segment transitions. Changes in the gain on sales of properties are related to the volume and timing of property sales and the sales prices.

During the six months ended June 30, 2022, there were no Triple-net projects completed; however, four projects transitioned out of the Triple-net segment and into the Seniors Housing Operating segment. The following is a summary of our consolidated Triple-net construction projects, excluding expansions, pending as of June 30, 2022 (dollars in thousands):


Location	Units/Beds	Commitment		Balance		Est. Completion
Redhill, UK	76	$	19,338	$	17,759	3Q22
Raleigh, NC	191	154,142		87,027		2Q23



	267	$	173,480	$	104,786

During the six months ended June 30, 2022, loss (gain) on derivatives and financial instruments, net is primarily attributable to the mark-to-market of the equity warrants received as part of the Safanad/HC-One transaction that closed in the second quarter of 2021. In addition, the mark-to-market adjustment on our Genesis Healthcare available-for-sale investment is reflected in all periods.

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


	Three Months Ended								Six Months Ended
	June 30, 2022				June 30, 2021				June 30, 2022				June 30, 2021
	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount		Interest Rate		Amount		Interest Rate
Beginning balance	$	39,837	4.39	%	$	123,139	4.91	%	$	72,536	4.57	%	$	123,652	4.91	%




Debt transferred	—		—	%	—		—	%	(32,478)		4.79	%	—		—	%

Principal payments	(215)		4.37	%	(1,246)		5.16	%	(436)		4.37	%	(2,467)		5.16	%
Foreign currency	—		—	%	673		5.43	%	—		—	%	1,381		5.43	%
Ending balance	$	39,622	4.39	%	$	122,566	4.91	%	$	39,622	4.39	%	$	122,566	4.91	%

Monthly averages	$	39,693	4.39	%	$	123,570	4.92	%	$	39,804	4.39	%	$	123,348	4.92	%

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

A portion of our Triple-net properties were formed through partnerships. Income or loss from unconsolidated entities represents our share of net income or losses from partnerships where we are the noncontrolling partner. The increase in income from unconsolidated entities during the six months ended June 30, 2022 is primarily related to the write off of straight-line rent payable balances on an unconsolidated joint venture that was restructured during the quarter. Net income attributable to noncontrolling interests represents our partners’ share of net income relating to those partnerships where we are the controlling partner.

Outpatient Medical

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


	QTD Pool								YTD Pool
	Three Months Ended				Change				Six Months Ended				Change
	June 30, 2022		June 30, 2021		$		%		June 30, 2022		June 30, 2021		$		%
SSNOI (1)	$	102,110	$	99,720	$	2,390	2.4	%	$	204,859	$	198,910	$	5,949	3.0	%

(1) For the QTD and YTD Pools, amounts relate to 351 and 350 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 Outpatient Medical segment for the periods presented (dollars in thousands):


	Three Months Ended				Change				Six Months Ended				Change
	June 30,		June 30,						June 30,		June 30,
	2022		2021		$		%		2022		2021		$		%
Revenues:
Rental income	$	164,229	$	149,998	$	14,231	9	%	$	324,618	$	300,378	$	24,240	8	%
Interest income	65		4,731		(4,666)		(99)	%	136		8,269		(8,133)		(98)	%
Other income	2,028		4,343		(2,315)		(53)	%	4,891		6,648		(1,757)		(26)	%
Total revenues	166,322		159,072		7,250		5	%	329,645		315,295		14,350		5	%
Property operating expenses	50,648		45,495		5,153		11	%	100,563		92,358		8,205		9	%
NOI (1)	115,674		113,577		2,097		2	%	229,082		222,937		6,145		3	%
Other expenses:
Depreciation and amortization	59,556		55,444		4,112		7	%	117,347		110,617		6,730		6	%
Interest expense	4,531		3,907		624		16	%	9,098		7,922		1,176		15	%
Loss (gain) on extinguishment of debt, net	4		—		4		n/a		7		—		7		n/a
Provision for loan losses, net	(1)		(3,641)		3,640		100	%	(7)		(3,362)		3,355		100	%
Impairment of assets	—		2,211		(2,211)		(100)	%	—		2,211		(2,211)		(100)	%
Other expenses	207		1,098		(891)		(81)	%	996		1,810		(814)		(45)	%
	64,297		59,019		5,278		9	%	127,441		119,198		8,243		7	%
Income (loss) from continuing operations before income taxes and other items	51,377		54,558		(3,181)		(6)	%	101,641		103,739		(2,098)		(2)	%
Income (loss) from unconsolidated entities	(263)		85		(348)		(409)	%	(908)		2,993		(3,901)		(130)	%
Gain (loss) on real estate dispositions, net	(179)		1,987		(2,166)		(109)	%	(395)		53,830		(54,225)		(101)	%
Income from continuing operations	50,935		56,630		(5,695)		(10)	%	100,338		160,562		(60,224)		(38)	%
Net income (loss)	50,935		56,630		(5,695)		(10)	%	100,338		160,562		(60,224)		(38)	%
Less: Net income (loss) attributable to noncontrolling interests	1,498		629		869		138	%	3,640		2,799		841		30	%
Net income (loss) attributable to common stockholders	$	49,437	$	56,001	$	(6,564)	(12)	%	$	96,698	$	157,763	$	(61,065)	(39)	%

(1) See Non-GAAP Financial Measures.

Rental income has increased due primarily to acquisitions and construction conversions that occurred during 2021 and the first half of 2022. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If the Consumer Price Index does not increase, a portion of our revenues may not continue to increase. Our leases could renew above or below current rental rates, resulting in an increase or decrease in rental income. For the three months ended June 30, 2022, our consolidated outpatient medical portfolio signed 108,076 square feet of new leases and 395,653 square feet of renewals. The weighted-average term of these leases was eight years, with a rate of $46.32 per square foot and tenant improvement and lease commission costs of $20.42 per square foot. Substantially all of these leases contain an annual fixed or contingent escalation rent structure ranging from 1.0% to 4.0%.

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

The decrease in interest income for the three and six months ended June 30, 2022 is due primarily to a $178,207,000 first mortgage loan initiated in August 2020, which was subsequently repaid in full in June of 2021, resulting in the reversal of the previously established allowance for credit losses.

The fluctuation in property operating expenses and depreciation and amortization are primarily attributable to acquisitions and construction conversions that occurred during 2021 and the first half of 2022. To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly. During the six months ended June 30, 2021, we recognized an impairment charge of $2,211,000 related to one held for sale property. Transaction costs related to asset acquisitions are capitalized as a component of purchase price. The fluctuation in other expenses is primarily due to noncapitalizable transaction costs. Changes in gains/losses on sales of properties are related to volume of property sales and the sales prices.

During the six months ended June 30, 2022, there were no Outpatient Medical projects completed. The following is a summary of the consolidated Outpatient Medical construction projects, excluding expansions, pending as of June 30, 2022 (dollars in thousands):


Location	Square Feet	Commitment		Balance		Est. Completion
Tyler, TX	85,214	$	35,369	$	24,621	4Q22
Stafford, TX	36,788	18,031		10,549		4Q22
League City, TX	16,835	9,935		1,493		1Q23
Beaumont, TX	35,831	11,822		1,256		2Q23
Total	174,668	$	75,157	$	37,919

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


	Three Months Ended								Six Months Ended
	June 30, 2022				June 30, 2021				June 30, 2022				June 30, 2021
	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount		Interest Rate		Amount		Interest Rate
Beginning balance	$	521,331	3.51	%	$	545,755	3.54	%	$	530,254	3.49	%	$	548,229	3.55	%



Debt extinguished	(34,767)		3.79	%	—		—	%	(40,941)		3.84	%	—		—	%


Principal payments	(2,652)		4.37	%	(2,483)		4.47	%	(5,401)		4.39	%	(4,957)		4.47	%

Ending balance	$	483,912	3.68	%	$	543,272	3.52	%	$	483,912	3.68	%	$	543,272	3.52	%

Monthly averages	$	507,966	3.64	%	$	544,109	3.53	%	$	517,179	3.57	%	$	545,361	3.54	%

A portion of our Outpatient Medical properties were formed through partnerships. Income or loss from unconsolidated entities represents our share of net income or losses from partnerships where we are the noncontrolling partner. Net income attributable to noncontrolling interests represents our partners’ share of net income or loss relating to those partnerships where we are the controlling partner.

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

Non-Segment/Corporate

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


	Three Months Ended				Change				Six Months Ended				Change
	June 30,		June 30,						June 30,		June 30,
	2022		2021		$		%		2022		2021		$		%
Revenues:

Other income	$	644	$	430	$	214	50	%	$	1,250	$	1,385	$	(135)	(10)	%
Total revenues	644		430		214		50	%	1,250		1,385		(135)		(10)	%
Property operating expenses	2,645		2,174		471		22	%	5,260		3,828		1,432		37	%
NOI (1)	(2,001)		(1,744)		(257)		(15)	%	(4,010)		(2,443)		(1,567)		(64)	%
Expenses:
Interest expense	115,418		106,177		9,241		9	%	224,583		212,004		12,579		6	%
General and administrative expenses	36,554		31,436		5,118		16	%	74,260		61,362		12,898		21	%
Loss (gain) on extinguishment of debt, net	199		52,506		(52,307)		(100)	%	199		52,506		(52,307)		(100)	%
Other expenses	5,247		2,770		2,477		89	%	11,292		4,610		6,682		145	%
	157,418		192,889		(35,471)		(18)	%	310,334		330,482		(20,148)		(6)	%
Loss from continuing operations before income taxes and other items	(159,419)		(194,633)		35,214		18	%	(314,344)		(332,925)		18,581		6	%
Income tax benefit (expense)	(3,065)		2,221		(5,286)		(238)	%	(8,078)		(1,722)		(6,356)		(369)	%

Loss from continuing operations	(162,484)		(192,412)		29,928		16	%	(322,422)		(334,647)		12,225		4	%


Net loss attributable to common stockholders	$	(162,484)	$	(192,412)	$	29,928	16	%	$	(322,422)	$	(334,647)	$	12,225	4	%

(1) See Non-GAAP Financial Measures.

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

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


	Three Months Ended				Change				Six Months Ended				Change
	June 30,		June 30,						June 30,		June 30,
	2022		2021		$		%		2022		2021		$		%
Senior unsecured notes	$	106,431	$	99,923	$	6,508	7	%	$	207,670	$	200,136	$	7,534	4	%

Unsecured credit facility and commercial paper program	4,088		1,940		2,148		111	%	6,866		3,120		3,746		120	%
Loan expense	4,899		4,314		585		14	%	10,047		8,748		1,299		15	%
Totals	$	115,418	$	106,177	$	9,241	9	%	$	224,583	$	212,004	$	12,579	6	%

The change in interest expense on senior unsecured notes is due to the net effect of issuances and extinguishments, as well as the movement in foreign exchange rates and related hedge activity. Please refer to Note 11 for additional information. The change in interest expense on our unsecured revolving credit facility and commercial paper program is due primarily to the net effect and timing of draws, paydowns and variable interest rate changes. Please refer to Note 10 for additional information regarding our unsecured revolving credit facility and commercial paper program. Loan expenses represent the amortization of costs incurred in connection with senior unsecured notes issuances. The loss on extinguishment recognized during the six months ended June 20, 2021 is due primarily to the early extinguishment of $339,128,000 of our 3.75% senior unsecured notes due March 2023 and $334,624,000 of our 3.95% senior unsecured notes due September 2023.

General and administrative expenses as a percentage of consolidated revenues for the six months ended June 30, 2022 and 2021 were 2.59% and 2.80%, respectively. The provision for income taxes primarily relates to state taxes, foreign taxes and taxes based on income generated by entities that are structured as TRSs. The fluctuation in the provision for income taxes is primarily related to a revaluation of deferred taxes due to a change in the U.K. tax rate and an adjustment to a deferred tax liability due to the recognition of an impairment charge.

Other

Non-GAAP Financial Measures

We believe that net income and net income attributable to common stockholders (“NICS”), as defined by U.S. GAAP, are the most appropriate earnings measurements. However, we consider FFO, NOI, SSNOI, EBITDA and Adjusted EBITDA to be useful supplemental measures of our operating performance. Historical cost accounting for real estate assets in accordance with U.S. GAAP implicitly assumes that the value of real estate assets diminishes predictably over time as evidenced by the provision for depreciation. However, since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered presentations of operating results for real estate companies that use historical

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

cost accounting to be insufficient. In response, the National Association of Real Estate Investment Trusts (“NAREIT”) created funds from operations attributable to common stockholders (“FFO”) as a supplemental measure of operating performance for REITs that excludes historical cost depreciation from net income. FFO, as defined by NAREIT, means NICS, computed in accordance with U.S. GAAP, excluding gains (or losses) from sales of real estate and impairment of depreciable assets, plus depreciation and amortization, and after adjustments for unconsolidated entities and noncontrolling interests.

Consolidated net operating income (“NOI”) is used to evaluate the operating performance of our properties. We define NOI as total revenues, including tenant reimbursements, less property operating expenses. Property operating expenses represent costs associated with managing, maintaining and servicing tenants for our properties. These expenses include, but are not limited to, property-related payroll and benefits, property management fees paid to operators, marketing, housekeeping, food service, maintenance, utilities, property taxes and insurance. General and administrative expenses represent costs unrelated to property operations. These expenses include, but are not limited to, payroll and benefits, professional services, office expenses and depreciation of corporate fixed assets. Same store NOI (“SSNOI”) is used to evaluate the operating performance of our properties using a consistent population which controls for changes in the composition of our portfolio. We believe the drivers of property level NOI for both consolidated properties and unconsolidated properties are generally the same and therefore, we evaluate SSNOI based on our ownership interest in each property ("Welltower Share"). To arrive at Welltower's Share, NOI is adjusted by adding our minority ownership share related to unconsolidated properties and by subtracting the minority partners' noncontrolling ownership interests for consolidated properties. We do not control investments in unconsolidated properties and while we consider disclosures at Welltower Share to be useful, they may not accurately depict the legal and economic implications of our joint venture arrangements and should be used with caution. As used herein, same store is generally defined as those revenue-generating properties in the portfolio for the relevant year-over-year reporting periods. Acquisitions and development conversions are included in SSNOI five full quarters or six full quarter after acquisition or being placed into service for the QTD Pool and YTD Pool, respectively. Land parcels, loans and sub-leases, as well as any properties sold or classified as held for sale during the respective periods are excluded from SSNOI. Redeveloped properties (including major refurbishments of a Seniors Housing Operating property where 20% or more of units are simultaneously taken out of commission for 30 days or more or Outpatient Medical properties undergoing a change in intended use) are excluded from SSNOI until five full quarters or six full quarters post completion of the redevelopment for the QTD Pool and YTD Pool, respectively. Properties undergoing operator transitions and/or segment transitions are also excluded from SSNOI until five full quarters or six full quarters post completion of the transition for the QTD Pool and YTD Pool, respectively. In addition, properties significantly impacted by force majeure, acts of God, or other extraordinary adverse events are excluded from SSNOI until five full quarters or six full quarters after the properties are placed back into service for the QTD Pool and YTD Pool, respectively. SSNOI excludes non-cash NOI and includes adjustments to present consistent ownership percentages and to translate Canadian properties and U.K. properties using a consistent exchange rate. We believe NOI and SSNOI provide investors relevant and useful information because they measure the operating performance of our properties at the property level on an unleveraged basis. We use NOI and SSNOI to make decisions about resource allocations and to assess the property level performance of our properties.

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

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

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

measures, as defined by us, may not be comparable to similarly entitled items reported by other real estate investment trusts or other companies.

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


	Three Months Ended
	June 30,		March 31,		December 31,		September 30,		June 30,		March 31,
FFO Reconciliation:	2022		2022		2021		2021		2021		2021
Net income attributable to common stockholders	$	89,785	$	61,925	$	58,672	$	179,663	$	26,257	$	71,546
Depreciation and amortization	310,295		304,088		284,501		267,754		240,885		244,426
Impairment of assets	—		—		2,357		1,490		23,692		23,568
Loss (gain) on real estate dispositions, net	3,532		(22,934)		(11,673)		(119,954)		(44,668)		(59,080)
Noncontrolling interests	(13,173)		(14,753)		(13,988)		(11,095)		(16,591)		(12,516)
Unconsolidated entities	19,150		19,309		19,107		27,881		19,265		19,223
FFO	$	409,589	$	347,635	$	338,976	$	345,739	$	248,840	$	287,167

Average diluted shares outstanding	457,082		449,802		438,719		429,983		419,305		419,079

Per diluted share data:
Net income attributable to common stockholders(1)	$	0.20	$	0.14	$	0.13	$	0.42	$	0.06	$	0.17
FFO	$	0.90	$	0.77	$	0.77	$	0.80	$	0.59	$	0.69

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


	Six Months Ended
	June 30,		June 30,
FFO Reconciliations:	2022		2021
Net income attributable to common stockholders	$	151,710	$	97,803
Depreciation and amortization	614,383		485,311
Impairment of assets	—		47,260
Loss (gain) on real estate dispositions, net	(19,402)		(103,748)
Noncontrolling interests	(27,926)		(29,107)
Unconsolidated entities	38,459		38,488
FFO	$	757,224	$	536,007

Average diluted common shares outstanding:	453,455		419,205

Per diluted share data:
Net income attributable to common stockholders(1)	$	0.33	$	0.23
FFO	$	1.67	$	1.28

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

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

The table below reflects the reconciliation of consolidated NOI to net income, the most directly comparable U.S. GAAP measure, for the periods presented. Dollar amounts are in thousands.


	Three Months Ended
	June 30,		March 31,		December 31,		September 30,		June 30,		March 31,
NOI Reconciliations:	2022		2022		2021		2021		2021		2021
Net income (loss)	$	95,672	$	65,751	$	66,194	$	190,336	$	45,757	$	72,192
Loss (gain) on real estate dispositions, net	3,532		(22,934)		(11,673)		(119,954)		(44,668)		(59,080)
Loss (income) from unconsolidated entities	7,058		2,884		12,174		15,832		7,976		(13,049)
Income tax expense (benefit)	3,065		5,013		2,051		4,940		(2,221)		3,943
Other expenses	35,166		26,069		15,483		3,575		11,687		10,994
Impairment of assets	—		—		2,357		1,490		23,692		23,568
Provision for loan losses, net	165		(804)		(39)		(271)		6,197		1,383
Loss (gain) on extinguishment of debt, net	603		(12)		(1,090)		(5)		55,612		(4,643)
Loss (gain) on derivatives and financial instruments, net	(1,407)		2,578		(830)		(8,078)		(359)		1,934
General and administrative expenses	36,554		37,706		33,109		32,256		31,436		29,926
Depreciation and amortization	310,295		304,088		284,501		267,754		240,885		244,426
Interest expense	127,750		121,696		121,848		122,522		122,341		123,142
Consolidated net operating income (NOI)	$	618,453	$	542,035	$	524,085	$	510,397	$	498,335	$	434,736

NOI by segment:
Seniors Housing Operating	$	281,911	$	206,684	$	180,375	$	172,909	$	160,188	$	170,434
Triple-net	222,869		223,952		230,846		228,321		226,314		155,641
Outpatient Medical	115,674		113,408		113,982		111,431		113,577		109,360
Non-segment/corporate	(2,001)		(2,009)		(1,118)		(2,264)		(1,744)		(699)
Total NOI	$	618,453	$	542,035	$	524,085	$	510,397	$	498,335	$	434,736


	Six Months Ended
	June 30, 2022		June 30, 2021
NOI Reconciliations:
Net income (loss)	$	161,423	$	117,949
Loss (gain) on real estate dispositions, net	(19,402)		(103,748)
Loss (income) from unconsolidated entities	9,942		(5,073)
Income tax expense (benefit)	8,078		1,722
Other expenses	61,235		22,681
Impairment of assets	—		47,260
Provision for loan losses, net	(639)		7,580
Loss (gain) on extinguishment of debt, net	591		50,969
Loss (gain) on derivatives and financial instruments, net	1,171		1,575
General and administrative expenses	74,260		61,362
Depreciation and amortization	614,383		485,311
Interest expense	249,446		245,483
Consolidated net operating income (NOI)	$	1,160,488	$	933,071

NOI by segment:
Seniors Housing Operating	$	488,595	$	330,622
Triple-net	446,821		381,955
Outpatient Medical	229,082		222,937
Non-segment/corporate	(4,010)		(2,443)
Total NOI	$	1,160,488	$	933,071

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

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


	QTD Pool				YTD Pool
SSNOI Property Reconciliations:	Seniors Housing Operating	Triple-net	Outpatient Medical	Total	Seniors Housing Operating	Triple-net	Outpatient Medical	Total
Consolidated properties	822	571	318	1,711	822	571	318	1,711
Unconsolidated properties	82	39	79	200	82	39	79	200
Total properties	904	610	397	1,911	904	610	397	1,911
Recent acquisitions/development conversions(1)	(203)	(19)	(30)	(252)	(204)	(30)	(31)	(265)
Under development	(49)	(1)	(6)	(56)	(49)	(1)	(6)	(56)
Under redevelopment(2)	(4)	(4)	(3)	(11)	(4)	(3)	(3)	(10)
Current held for sale	(2)	(11)	(1)	(14)	(2)	(11)	(1)	(14)
Land parcels, loans and subleases	(13)	(10)	(6)	(29)	(13)	(10)	(6)	(29)
Transitions(3)	(99)	(4)	—	(103)	(99)	(20)	—	(119)
Other(4)	(2)	(3)	—	(5)	(2)	(3)	—	(5)
Same store properties	532	558	351	1,441	531	532	350	1,413

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

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

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

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


	QTD Pool				YTD Pool
	Three Months Ended				Six Months Ended
SSNOI Reconciliations:	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021

Seniors Housing Operating:
Consolidated NOI	$	281,911	$	160,188	$	488,595	$	330,622
NOI attributable to unconsolidated investments	11,947		11,289		21,536		23,199
NOI attributable to noncontrolling interests	(70,074)		(27,726)		(88,826)		(38,020)

NOI attributable to non-same store properties	(55,167)		(13,661)		(107,168)		(33,252)
Non-cash NOI attributable to same store properties	(204)		12,268		(278)		11,403
Currency and ownership adjustments (1)	335		(1,638)		282		(2,362)
SSNOI at Welltower Share	168,748		140,720		314,141		291,590

Triple-net:
Consolidated NOI	222,869		226,314		446,821		381,955
NOI attributable to unconsolidated investments	6,788		4,889		12,511		9,779
NOI attributable to noncontrolling interests	(10,207)		(14,053)		(21,407)		(22,081)

NOI attributable to non-same store properties	(51,229)		(65,070)		(125,535)		(77,770)
Non-cash NOI attributable to same store properties	(19,956)		(14,001)		(28,506)		(20,594)
Currency and ownership adjustments (1)	1,419		1,895		2,740		4,615
SSNOI at Welltower Share	149,684		139,974		286,624		275,904

Outpatient Medical:
Consolidated NOI	115,674		113,577		229,082		222,937
NOI attributable to unconsolidated investments	4,910		4,988		9,740		9,712
NOI attributable to noncontrolling interests	(5,541)		(4,235)		(10,557)		(9,188)

NOI attributable to non-same store properties	(10,407)		(11,865)		(18,918)		(18,022)
Non-cash NOI attributable to same store properties	(2,468)		(2,744)		(4,548)		(5,441)
Currency and ownership adjustments (1)	(58)		(1)		60		(1,088)
SSNOI at Welltower Share	102,110		99,720		204,859		198,910

SSNOI at Welltower Share:
Seniors Housing Operating	168,748		140,720		314,141		291,590
Triple-net	149,684		139,974		286,624		275,904
Outpatient Medical	102,110		99,720		204,859		198,910
Total	$	420,542	$	380,414	$	805,624	$	766,404

(1) Includes adjustments to reflect consistent property ownership percentages, to translate Canadian properties at a USD/CAD rate of 1.2738 and to translate U.K. properties at a GBP/USD rate of 1.3501.

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

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


	Three Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
EBITDA Reconciliations:	2022			2022			2021			2021			2021			2021
Net income (loss)	$	95,672		$	65,751		$	66,194		$	190,336		$	45,757		$	72,192
Interest expense	127,750			121,696			121,848			122,522			122,341			123,142
Income tax expense (benefit)	3,065			5,013			2,051			4,940			(2,221)			3,943
Depreciation and amortization	310,295			304,088			284,501			267,754			240,885			244,426
EBITDA	$	536,782		$	496,548		$	474,594		$	585,552		$	406,762		$	443,703

Interest Coverage Ratio:
Interest expense	$	127,750		$	121,696		$	121,848		$	122,522		$	122,341		$	123,142
Non-cash interest expense	(6,606)			(4,109)			(5,082)			(5,461)			(3,972)			(2,991)
Capitalized interest	6,387			5,479			5,325			4,669			4,862			4,496
Total interest	127,531			123,066			122,091			121,730			123,231			124,647
EBITDA	$	536,782		$	496,548		$	474,594		$	585,552		$	406,762		$	443,703
Interest coverage ratio	4.21		x	4.03		x	3.89		x	4.81		x	3.30		x	3.56		x

Fixed Charge Coverage Ratio:
Total interest	$	127,531		$	123,066		$	122,091		$	121,730		$	123,231		$	124,647
Secured debt principal payments	14,382			15,968			16,877			17,040			15,715			15,955

Total fixed charges	141,913			139,034			138,968			138,770			138,946			140,602
EBITDA	$	536,782		$	496,548		$	474,594		$	585,552		$	406,762		$	443,703
Fixed charge coverage ratio	3.78		x	3.57		x	3.42		x	4.22		x	2.93		x	3.16		x


	Six Months Ended
	June 30,			June 30,
EBITDA Reconciliations:	2022			2021
Net income (loss)	$	161,423		$	117,949
Interest expense	249,446			245,483
Income tax expense (benefit)	8,078			1,722
Depreciation and amortization	614,383			485,311
EBITDA	$	1,033,330		$	850,465

Interest Coverage Ratio:
Interest expense	$	249,446		$	245,483
Non-cash interest expense	(10,715)			(6,963)
Capitalized interest	11,866			9,358
Total interest	250,597			247,878
EBITDA	$	1,033,330		$	850,465
Interest coverage ratio	4.12		x	3.43		x

Fixed Charge Coverage Ratio:
Total interest	$	250,597		$	247,878
Secured debt principal payments	30,350			31,670

Total fixed charges	280,947			279,548
EBITDA	$	1,033,330		$	850,465
Fixed charge coverage ratio	3.68		x	3.04		x

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

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


	Twelve Months Ended
	June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
Adjusted EBITDA Reconciliations:	2022			2022			2021			2021			2021			2021
Net income	$	417,953		$	368,038		$	374,479		$	463,563		$	668,205		$	781,664
Interest expense	493,816			488,407			489,853			489,178			491,507			495,523
Income tax expense (benefit)	15,069			9,783			8,713			6,952			4,015			8,469
Depreciation and amortization	1,166,638			1,097,228			1,037,566			995,798			983,576			1,008,062
EBITDA	2,093,476			1,963,456			1,910,611			1,955,491			2,147,303			2,293,718
Loss (income) from unconsolidated entities	37,948			38,866			22,933			10,501			650			(8,658)
Stock-based compensation expense (1)	20,945			19,681			17,812			22,248			24,278			26,811
Loss (gain) on extinguishment of debt, net	(504)			54,505			49,874			64,760			97,769			42,406
Loss (gain) on real estate dispositions, net	(151,029)			(199,229)			(235,375)			(409,166)			(773,516)			(884,711)
Impairment of assets	3,847			27,539			51,107			58,067			79,890			131,349
Provision for loan losses, net	(949)			5,083			7,270			90,394			93,522			88,747
Loss (gain) on derivatives and financial instruments, net	(7,737)			(6,689)			(7,333)			(5,934)			3,539			5,332
Other expenses (1)	80,114			56,127			40,860			52,960			60,985			68,939
Lease termination and leasehold interest adjustment (2)	(64,094)			(7,697)			760			(640)			—			—
Casualty losses, net of recoveries (3)	8,472			5,799			5,786			998			—			—
Other impairment (4)	(620)			—			49,241			49,241			161,639			163,481
Adjusted EBITDA	$	2,019,869		$	1,957,441		$	1,913,546		$	1,888,920		$	1,896,059		$	1,927,414

Adjusted Interest Coverage Ratio:
Interest expense	$	493,816		$	488,407		$	489,853		$	489,178		$	491,507		$	495,523
Capitalized interest	21,860			20,335			19,352			18,265			17,543			17,222
Non-cash interest expense	(21,258)			(18,624)			(17,506)			(14,163)			(12,675)			(10,617)
Total interest	494,418			490,118			491,699			493,280			496,375			502,128
Adjusted EBITDA	$	2,019,869		$	1,957,441		$	1,913,546		$	1,888,920		$	1,896,059		$	1,927,414
Adjusted interest coverage ratio	4.09		x	3.99		x	3.89		x	3.83		x	3.82		x	3.84		x

Adjusted Fixed Charge Coverage Ratio:
Total interest	$	494,418		$	490,118		$	491,699		$	493,280		$	496,375		$	502,128
Secured debt principal payments	64,267			65,600			65,587			64,832			63,668			63,136
Total fixed charges	558,685			555,718			557,286			558,112			560,043			565,264
Adjusted EBITDA	$	2,019,869		$	1,957,441		$	1,913,546		$	1,888,920		$	1,896,059		$	1,927,414
Adjusted fixed charge coverage ratio	3.62		x	3.52		x	3.43		x	3.38		x	3.39		x	3.41		x

(1) Certain severance-related costs are included in stock-based compensation and excluded from other expenses.
(2) Represents revenues and property operating expenses associated with a leasehold portfolio interest relating to 26 properties assumed by a wholly-owned affiliate in conjunction with the Holiday Retirement transaction. Subsequent to the initial transaction, we purchased eight of the leased properties and one of the properties was sold by the landlord and removed from the lease. No rent was paid in excess of net cash flow relating to the leasehold properties and therefore, the net impact has been excluded from Adjusted EBITDA. Additionally, in conjunction with the lease termination, during the three months ended June 30, 2022 we recognized $58,621,000 in other income from the derecognition of the right of use asset and related lease liability which has also been excluded from Adjusted EBITDA.
(3) Represents casualty losses net of any insurance recoveries.
(4) Represents changes in the reserve for straight-line rent receivable balances relating to leases placed on cash recognition.

Our leverage ratios include book capitalization, undepreciated book capitalization and market capitalization. Book capitalization represents the sum of net debt (defined as total long-term debt less cash and cash equivalents and restricted cash), total equity and redeemable noncontrolling interests. Undepreciated book capitalization represents book capitalization adjusted for accumulated depreciation and amortization. Market capitalization represents book capitalization adjusted for the fair market value of our common stock. Our leverage ratios are defined as the proportion of net debt to total capitalization.

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

The table below reflects the reconciliation of our leverage ratios to our balance sheets for the periods presented. Amounts are in thousands, except share price.


	As of
	June 30,		March 31,		December 31,		September 30,		June 30,		March 31,
	2022		2022		2021		2021		2021		2021
Book capitalization:
Unsecured credit facility and commercial paper	$	354,000	$	299,968	$	324,935	$	290,996	$	—	$	—
Long-term debt obligations (1)	14,790,432		14,352,529		13,917,702		13,488,656		13,572,816		14,618,713
Cash and cash equivalents and restricted cash	(442,251)		(367,043)		(346,755)		(362,645)		(808,705)		(2,558,822)
Total net debt	14,702,181		14,285,454		13,895,882		13,417,007		12,764,111		12,059,891
Total equity and noncontrolling interests(2)	19,873,913		19,178,026		18,997,873		18,172,111		17,243,208		17,046,932
Book capitalization	$	34,576,094	$	33,463,480	$	32,893,755	$	31,589,118	$	30,007,319	$	29,106,823
Net debt to book capitalization ratio	43%		43%		42%		42%		43%		41%

Undepreciated book capitalization:
Total net debt	$	14,702,181	$	14,285,454	$	13,895,882	$	13,417,007	$	12,764,111	$	12,059,891
Accumulated depreciation and amortization	7,437,779		7,215,622		6,910,114		6,634,061		6,415,676		6,212,432
Total equity and noncontrolling interests(2)	19,873,913		19,178,026		18,997,873		18,172,111		17,243,208		17,046,932
Undepreciated book capitalization	$	42,013,873	$	40,679,102	$	39,803,869	$	38,223,179	$	36,422,995	$	35,319,255
Net debt to undepreciated book capitalization ratio	35%		35%		35%		35%		35%		34%

Market capitalization:
Common shares outstanding	463,369		453,948		447,239		435,274		422,562		417,520
Period end share price	$	82.35	$	96.14	$	85.77	$	82.40	$	83.10	$	71.63
Common equity market capitalization	$	38,158,437	$	43,642,561	$	38,359,689	$	35,866,578	$	35,114,902	$	29,906,958
Total net debt	14,702,181		14,285,454		13,895,882		13,417,007		12,764,111		12,059,891
Noncontrolling interests(2)	1,317,733		1,282,450		1,361,872		1,308,908		1,322,762		1,248,054
Market capitalization	$	54,178,351	$	59,210,465	$	53,617,443	$	50,592,493	$	49,201,775	$	43,214,903
Net debt to market capitalization ratio	27%		24%		26%		27%		26%		28%

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

Critical Accounting Policies and Estimates

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

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

Management has discussed the development and selection of its critical accounting policies and estimates with the Audit Committee of the Board of Directors. Management believes the current assumptions and other considerations used to estimate amounts reflected in our unaudited consolidated financial statements are appropriate and are not reasonably likely to change in the future. However, since these estimates require assumptions to be made that were uncertain at the time the estimate was made, they bear the risk of change. If actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our unaudited consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations, liquidity and/or financial condition. Please refer to Note 2 to our financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 for further information on significant accounting policies that impact us. There have been no material changes to these policies in 2022.

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

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. When Welltower uses words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “project,” “pro forma,” “estimate” or similar expressions that do not relate solely to historical matters, Welltower is making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause Welltower’s actual results to differ materially from Welltower’s expectations discussed in the forward-looking statements. This may be a result of various factors, including, but not limited to: the duration and scope of the COVID-19 pandemic; uncertainty regarding the implementation and impact of the CARES Act and future stimulus or other COVID-19 relief legislation; the impact of the COVID-19 pandemic on occupancy rates and on the operations of Welltower and its operators/tenants; actions governments take in response to the COVID-19 pandemic, including the introduction of public health measures and other regulations affecting Welltower’s properties and the operations of Welltower and its operators/tenants; the effects of health and safety measures adopted by Welltower and its operators/tenants related to the COVID-19 pandemic; increased operational costs as a result of health and safety measures related to COVID-19; the impact of the COVID-19 pandemic on the business and financial condition of operators/tenants and their ability to make payments to Welltower; disruptions to Welltower's property acquisition and disposition activity due to economic uncertainty caused by COVID-19; general economic uncertainty in key markets as a result of the COVID-19 pandemic and a worsening of global economic conditions or low levels of economic growth; the status of capital markets, including availability and cost of capital; uncertainty from the expected discontinuance of LIBOR and the transition to any other interest rate benchmark; issues facing the health care industry, including compliance with, and changes to, regulations and payment policies, responding to government investigations and punitive settlements and operators’/tenants’ difficulty in cost effectively obtaining and maintaining adequate liability and other insurance; changes in financing terms; competition within the health care and seniors housing industries; negative developments in the operating results or financial condition of operators/tenants, including, but not limited to, their ability to pay rent and repay loans; Welltower’s ability to transition or sell properties with profitable results; the failure to make new investments or acquisitions as and when anticipated; natural disasters and other acts of God affecting Welltower’s properties; Welltower’s ability to re-lease space at similar rates as vacancies occur; Welltower’s ability to timely reinvest sale proceeds at similar rates to assets sold; operator/tenant or joint venture partner bankruptcies or insolvencies; the cooperation of joint venture partners; government regulations affecting Medicare and Medicaid reimbursement rates and operational requirements; liability or contract claims by or against operators/tenants; unanticipated difficulties and/or expenditures relating to future investments or acquisitions; environmental laws affecting Welltower’s properties; changes in rules or practices governing Welltower’s financial reporting; the movement of U.S. and foreign currency exchange rates; Welltower’s ability to maintain Welltower’s qualification as a REIT; key management personnel recruitment and retention; and other risks described in Welltower’s reports filed from time to time with the SEC. Other important factors are identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, including factors identified under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Finally, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, or to update the reasons why actual results could differ from those projected in any forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

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

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