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

The following table reflects our recent historical trends of concentration risk by NOI for the periods indicated below:


	Three Months Ended
	September 30,	June 30,	March 31,	December 31,	September 30,	June 30,	March 31,
	2022	2022	2022	2021	2021	2021	2021
Property mix:(1)
Seniors Housing Operating	41%	45%	38%	34%	34%	32%	39%
Triple-net	38%	36%	41%	44%	45%	45%	36%
Outpatient Medical	21%	19%	21%	22%	21%	23%	25%

Relationship mix: (1)
ProMedica(2)	11%	10%	11%	11%	11%	12%	12%
Sunrise Senior Living	7%	8%	6%	7%	9%	10%	14%
Cogir Management Corporation	4%	3%	2%	2%	2%	2%	2%
HC-One Group	4%	3%	4%	5%	5%	3%	—%
Atria Senior Living(3)	4%	12%	5%	4%	3%	—%	—%
Remaining relationships	70%	64%	72%	71%	70%	73%	72%

Geographic mix:(1)
California	13%	15%	13%	13%	12%	12%	15%
United Kingdom	10%	9%	11%	13%	14%	13%	10%
Texas	8%	7%	8%	9%	9%	9%	7%
Canada	6%	5%	5%	5%	6%	7%	7%
Florida	5%	6%	5%	5%	4%	5%	1%
Remaining geographic areas	58%	58%	58%	55%	55%	54%	60%

(1) Excludes our share of investments in unconsolidated entities and non-segment/corporate NOI. Entities in which we have a joint venture with a minority partner are shown at 100% of the joint venture amount.
(2) See Note 21 to our unaudited consolidated financial statements for additional information regarding the ProMedica relationship.
(3) Three months ended June 30, 2022 includes $58,621,000 of income recognized upon termination of lease. See Note 3 to our unaudited consolidated financial statements for further details.

Lease Expirations The following table sets forth information regarding lease expirations for certain portions of our portfolio as of September 30, 2022 (dollars in thousands):


	Expiration Year (1)
	2022			2023			2024			2025			2026			2027			2028			2029			2030			2031			Thereafter
Triple-net:
Properties	5			2			4			15			55			2			4			4			28			9			412
Base rent (2)	$	1,319		$	2,582		$	12,110		$	6,612		$	51,683		$	1,182		$	5,246		$	4,001		$	57,377		$	21,120		$	443,897
% of base rent	0.2		%	0.4		%	2.0		%	1.1		%	8.5		%	0.2		%	0.9		%	0.7		%	9.5		%	3.5		%	73.0		%
Units/beds	489			152			692			451			4,102			180			440			219			2,990			896			38,332
% of Units/beds	1.0		%	0.3		%	1.4		%	0.9		%	8.4		%	0.4		%	0.9		%	0.4		%	6.1		%	1.8		%	78.4		%

Outpatient Medical:
Square feet	778,305			1,658,630			1,861,744			1,288,511			1,247,006			1,352,097			1,027,990			1,055,837			1,116,052			1,628,506			4,285,631
Base rent (2)	$	23,311		$	48,702		$	56,954		$	37,738		$	35,545		$	37,477		$	28,169		$	28,770		$	31,125		$	44,023		$	119,506
% of base rent	4.7		%	9.9		%	11.6		%	7.7		%	7.2		%	7.6		%	5.7		%	5.9		%	6.3		%	9.0		%	24.4		%
Leases	218			334			320			239			205			200			133			93			82			64			209
% of Leases	10.4		%	15.9		%	15.3		%	11.4		%	9.8		%	9.5		%	6.3		%	4.4		%	3.9		%	3.1		%	10.0		%

(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.”

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

Corporate Governance

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

Liquidity and Capital Resources

Sources and Uses of Cash

Our primary sources of cash include resident fees and services, rent and interest receipts, borrowings under our unsecured revolving credit facility and commercial paper program, public issuances of debt and equity securities, proceeds from investment dispositions and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (including acquisitions, capital expenditures, construction advances and transaction costs), loan advances, property operating expenses, 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):


	Nine Months Ended				Change
	September 30, 2022		September 30, 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	1,075,322		991,995		83,327		8	%
Cash provided from (used in) investing activities	(3,284,510)		(2,988,472)		(296,038)		(10)	%
Cash provided from (used in) financing activities	2,304,234		338,919		1,965,315		580	%
Effect of foreign currency translation	(16,617)		(840)		(15,777)		(1878)	%
Cash, cash equivalents and restricted cash at end of period	$	425,184	$	362,645	$	62,539	17	%

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 nine months ended September 30, 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):


	Nine Months Ended				Change
	September 30, 2022		September 30, 2021		$		%
New development	$	463,465	$	263,325	$	200,140	76	%
Recurring capital expenditures, tenant improvements and lease commissions	136,453		53,471		82,982		155	%
Renovations, redevelopments and other capital improvements	179,382		112,220		67,162		60	%
Total	$	779,300	$	429,016	$	350,284	82	%

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. The increase in recurring capital expenditures, tenant improvements and lease commissions is due primarily to portfolio growth and increased spending after a contraction during the pandemic.

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

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

In March 2022, we completed the issuance of $550,000,000 senior unsecured notes with a maturity date of June 2032. In April 2022, we closed on an amended $5,200,000,000 unsecured credit facility, increasing our term loan capacity by $500,000,000. As of September 30, 2022, we have total near-term available liquidity of approximately $3.8 billion.

Off-Balance Sheet Arrangements

At September 30, 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 September 30, 2022, we had 21 outstanding letter of credit obligations. Please see Notes 8, 12 and 13 to our unaudited consolidated financial statements for additional information.

Contractual Obligations

The following table summarizes our payment requirements under contractual obligations as of September 30, 2022 (in thousands):


	Payments Due by Period
Contractual Obligations	Total		2022		2023-2024		2025-2026		Thereafter
Unsecured credit facility and commercial paper (1,3)	$	655,000	$	—	$	—	$	655,000	$	—
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)	218,150		—		—		—		218,150
Pounds Sterling senior unsecured notes (2)	1,169,070		—		—		—		1,169,070
U.S. Dollar term credit facility	1,010,000		—		—		10,000		1,000,000
Canadian Dollar term credit facility (2)	181,792		—		—		—		181,792
Secured debt: (1,2)
Consolidated	2,121,321		268,769		812,528		348,231		691,793
Unconsolidated	1,280,628		80,281		326,321		573,364		300,662
Contractual interest obligations: (3)
Unsecured credit facility and commercial paper	84,895		5,660		45,277		33,958		—
Senior unsecured notes and term loans (2)	3,800,590		147,940		934,052		744,156		1,974,442
Consolidated secured debt (2)	279,129		20,845		116,629		65,387		76,268
Unconsolidated secured debt (2)	186,331		13,649		85,751		33,747		53,184
Financing lease liabilities (4)	203,917		1,803		71,634		3,354		127,126
Operating lease liabilities (4)	964,562		4,850		38,282		31,013		890,417
Purchase obligations (5)	2,154,950		410,314		1,519,367		225,269		—

Total contractual obligations	$	22,057,539	$	544,207	$	3,781,993	$	4,448,435	$	13,282,904

(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 the 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 September 30, 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 LLC 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 LLC, warrants and units and Welltower OP LLC’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

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

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 October 31, 2022, 15,000,000 shares of common stock remained available for issuance under the DRIP registration statement. On April 4, 2022, Welltower 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., 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 October 31, 2022, we had $2,571,105,258 of remaining capacity under the ATM Program, which excludes forward sales agreements outstanding for the sale of 17,204,668 shares or approximately $1,420,902,000 with maturity dates in 2023. In addition, we have forward sale agreements for the sale of 759,935 shares or approximately $74,045,000 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 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 of up to 475,327 shares of 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. On July 22, 2022, Welltower Inc. filed with the SEC a prospectus supplement relating to the registration of up to 300,026 shares of common stock of Welltower Inc. that may be issued from time to time if, and to the extent that, certain holders of Class A Common Units (the "OP Units") of Welltower OP tender the OP Units for redemption by Welltower OP, and Welltower Inc. elects to assume the redemption obligations of Welltower OP and to satisfy all or a portion of the redemption consideration by issuing shares of its common stock to the holders instead of or in addition to paying a cash amount.

Supplemental Guarantor Information

Welltower OP has issued the unsecured notes described in Note 11 to our Consolidated Financial Statements. All unsecured notes are fully and unconditionally guaranteed by Welltower, and Welltower OP is 99.742% owned by Welltower as of September 30, 2022. Effective January 4, 2021, the SEC adopted amendments to the financial disclosure requirements applicable to registered debt offerings that include certain credit enhancements. The Company has adopted these new rules, which permits subsidiary issuers of obligations guaranteed by the parent to omit separate financial statements if the consolidated financial statements of the parent company have been filed, the subsidiary obligor is a consolidated subsidiary of the parent company, the guaranteed security is debt or debt-like, and the security is guaranteed fully and unconditionally by the parent. Accordingly, separate consolidated financial statements of Welltower OP have not been presented. Furthermore, Welltower and Welltower OP have no material assets, liabilities, or operations other than financing activities and their investments in non-guarantor subsidiaries. Therefore, we meet the criteria in Rule 13-01 of Regulation S-X to omit the summarized financial information from our disclosures.

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

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					Nine Months Ended						Change
	September 30,			September 30,								September 30,			September 30,
	2022			2021			Amount			%		2022			2021			Amount			%
Net income (loss)	$	(2,653)		$	190,336		$	(192,989)		n/a		$	158,770		$	308,285		$	(149,515)		(48)	%
NICS	(6,767)			179,663			(186,430)			n/a		144,942			277,466			(132,524)			(48)	%
FFO	362,863			345,739			17,124			5	%	1,120,086			881,746			238,340			27	%
EBITDA	493,985			585,552			(91,567)			(16)	%	1,527,315			1,436,017			91,298			6	%
NOI	561,664			510,397			51,267			10	%	1,722,152			1,443,468			278,684			19	%
SSNOI	409,777			384,472			25,305			7	%	1,184,110			1,124,992			59,118			5	%
Per share data (fully diluted):
NICS	$	(0.01)		$	0.42		$	(0.43)		n/a		$	0.32		$	0.65		$	(0.33)		(51)	%
FFO	$	0.78		$	0.80		$	(0.02)		(3)	%	$	2.45		$	2.09		$	0.36		17	%

Interest coverage ratio	3.39		x	4.81		x	(1.42)		x	(30)	%	3.85		x	3.89		x	(0.04)		x	(1)	%
Fixed charge coverage ratio	3.10		x	4.22		x	(1.12)		x	(27)	%	3.47		x	3.43		x	0.04		x	1	%

Seniors Housing Operating

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


	QTD Pool								YTD Pool
	Three Months Ended				Change				Nine Months Ended				Change
	September 30, 2022		September 30, 2021		$		%		September 30, 2022		September 30, 2021		$		%
SSNOI (1)	$	153,694	$	133,144	$	20,550	15.4	%	$	452,624	$	416,700	$	35,924	8.6	%

(1) For the QTD and YTD Pools, amounts relate to 554 and 518 same store properties, respectively. Please see Non-GAAP Financial Measures for additional information and reconciliations.

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

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


	Three Months Ended				Change				Nine Months Ended				Change
	September 30,		September 30,						September 30,		September 30,
	2022		2021		$		%		2022		2021		$		%
Revenues:
Resident fees and services	$	1,068,706	$	835,617	$	233,089	28	%	$	3,073,040	$	2,299,972	$	773,068	34	%
Interest income	2,155		1,135		1,020		90	%	5,255		3,110		2,145		69	%
Other income	1,739		2,767		(1,028)		(37)	%	62,127		5,388		56,739		n/a
Total revenues	1,072,600		839,519		233,081		28	%	3,140,422		2,308,470		831,952		36	%
Property operating expenses	841,914		666,610		175,304		26	%	2,421,141		1,804,939		616,202		34	%
NOI (1)	230,686		172,909		57,777		33	%	719,281		503,531		215,750		43	%
Other expenses:
Depreciation and amortization	235,984		157,176		78,808		50	%	629,955		420,797		209,158		50	%
Interest expense	9,022		9,360		(338)		(4)	%	24,153		31,331		(7,178)		(23)	%
Loss (gain) on extinguishment of debt, net	—		—		—		n/a		385		(1,537)		1,922		125	%
Provision for loan losses, net	198		152		46		30	%	807		222		585		264	%
Impairment of assets	—		—		—		n/a		—		22,317		(22,317)		(100)	%
Other expenses	8,341		5,449		2,892		53	%	45,781		12,617		33,164		263	%
	253,545		172,137		81,408		47	%	701,081		485,747		215,334		44	%
Income (loss) from continuing operations before income taxes and other items	(22,859)		772		(23,631)		n/a		18,200		17,784		416		2	%
Income (loss) from unconsolidated entities	(8,788)		(15,810)		7,022		44	%	(39,239)		(23,514)		(15,725)		(67)	%
Gain (loss) on real estate dispositions, net	1,146		(615)		1,761		286	%	2,623		4,552		(1,929)		(42)	%
Income from continuing operations	(30,501)		(15,653)		(14,848)		(95)	%	(18,416)		(1,178)		(17,238)		n/a
Net income (loss)	(30,501)		(15,653)		(14,848)		(95)	%	(18,416)		(1,178)		(17,238)		n/a
Less: Net income (loss) attributable to noncontrolling interests	(4,896)		(2,178)		(2,718)		(125)	%	(13,128)		367		(13,495)		n/a
Net income (loss) attributable to common stockholders	$	(25,605)	$	(13,475)	$	(12,130)	(90)	%	$	(5,288)	$	(1,545)	$	(3,743)	(242)	%

(1) See Non-GAAP Financial Measures below.

Resident fees and services and property operating expenses increased for the three and nine month periods ended September 30, 2022 compared to the same periods 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 property dispositions.

Our Seniors Housing Operating revenues are dependent on occupancy, which has steadily increased in recent months. As of September 30, 2022, nearly all communities are open for new admissions and allowing visitors, in-person tours and communal dining and activities. Average occupancy is as follows:


	Three Months Ended(1)
	March 31,		June 30,		September 30,		December 31,
2021	72.7	%	73.0	%	74.9	%	76.3	%
2022	76.3	%	77.1	%	78.0	%

(1) Average occupancy includes our minority ownership share related to unconsolidated properties and excludes the minority partners' noncontrolling ownership share related to consolidated properties. Also excludes land parcels and properties under development.

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. Additionally, in conjunction with the lease termination, during the nine months ended September 30, 2022 we recognized $58,621,000 in other income on our Consolidated Statements of Comprehensive Income, from the derecognition of the right of use asset and related lease liability.

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

Property-level operating expenses associated with the COVID-19 pandemic related to our Seniors Housing Operating portfolio totaled $8,134,000 and $28,152,000 for the three and nine ended September 30, 2022, respectively, as compared to $8,842,000 and $53,767,000 during the three and nine months ended September 30, 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. 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. We recognized $5,573,000 and $33,137,000 during the three and nine months ended September 30, 2022, respectively, as compared to $10,965,000 and $78,670,000 during the three and nine ended September 30, 2021, respectively. These grants represent a reduction to property operating expenses in our Consolidated Statements of Comprehensive Income.

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

During the nine months ended September 30, 2021, we recorded impairment charges of $22,317,000 related to two held for use properties in which the carrying values exceeded the estimated fair value. 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 nine months ended September 30, 2022, we completed four conversions representing $182,421,000 or $444,929 per unit. The following is a summary of our Seniors Housing Operating construction projects, excluding expansions, pending as of September 30, 2022 (dollars in thousands):

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


MSA	Units/Beds	Commitment		Balance		Est. Completion(2)
Greater London	82	$	38,969	$	19,613	4Q22
Dallas	193	38,054		30,822		4Q22 - 1Q23
Cleveland	119	14,462		13,527		4Q22
Birmingham, UK	66	13,361		12,683		4Q22
Leicester	60	12,470		11,122		4Q22
New York	72	42,669		27,762		1Q23
Austin	196	39,500		23,911		1Q23 - 2Q23
Austin	188	36,215		27,421		1Q23 - 2Q23
Dallas	57	17,219		8,616		1Q23 - 2Q23
Coventry	76	17,049		12,055		1Q23
Pittsburgh	116	14,684		14,115		1Q23
Meadville, PA	128	13,861		13,861		1Q23
Charlotte	328	91,836		58,550		2Q23 - 3Q23
Barnstable Town, MA	120	31,454		31,454		2Q23
Hartford	128	22,146		22,146		2Q23
Hartford	122	20,747		20,747		2Q23
Boston	167	82,446		28,488		3Q23
Phoenix	199	54,754		11,190		3Q23 - 4Q23
Phoenix	204	53,400		16,903		3Q23 - 4Q23
Tampa	206	52,493		7,664		4Q23 - 1Q24
Houston	130	32,075		6,737		4Q23 - 1Q24
Kansas City	134	21,074		21,074		4Q23
Cincinnati	122	18,206		4,366		4Q23
Naples, FL	188	56,910		9,244		1Q24 - 2Q24
Dallas	52	16,531		3,435		1Q24 - 2Q24
Washington D.C.	302	173,548		63,706		2Q24
Boston	160	148,590		60,701		2Q24
Washington D.C.	124	126,200		38,223		2Q24
Killeen, TX	245	66,265		7,994		3Q24 - 4Q24


	4,284	$	1,367,188	628,130
Austin(1)				5,033
Austin(1)				3,720
Baltimore(1)				9,865
Boise(1)				35,139
Boise(1)				13,000
Boise(1)				5,783
Boston(1)				9,944
Columbus(1)				15,306
Dallas(1)				3,670
Kansas City(1)				13,963
Raleigh(1)				3,684
Toronto(1)				48,440
				$	795,677

(1) Final units/beds, commitment amount and expected conversion date not yet known.
(2) Estimated completion ranges relate to projects to be delivered in phases.

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

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


	Three Months Ended								Nine Months Ended
	September 30, 2022				September 30, 2021				September 30, 2022				September 30, 2021
	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate
Beginning balance	$	1,677,092	3.34	%	$	1,645,290	2.83	%	$	1,599,522	2.81	%	$	1,706,189	3.05	%
Debt transferred	—		—	%	—		—	%	32,478		4.79	%	—		—	%
Debt issued	79,461		4.75	%	2,693		3.75	%	89,804		4.57	%	2,693		3.75	%
Debt assumed	—		—	%	—		—	%	221,159		4.32	%	—		—	%
Debt extinguished	(64,850)		4.67	%	—		—	%	(220,413)		4.35	%	(66,593)		6.01	%


Principal payments	(11,244)		3.38	%	(13,172)		2.93	%	(35,757)		3.11	%	(37,418)		3.00	%
Foreign currency	(65,242)		3.36	%	(22,415)		2.75	%	(71,576)		3.17	%	7,525		2.85	%
Ending balance	$	1,615,217	3.87	%	$	1,612,396	2.83	%	$	1,615,217	3.87	%	$	1,612,396	2.83	%

Monthly averages	$	1,653,740	3.69	%	$	1,622,685	2.82	%	$	1,621,876	3.16	%	$	1,660,377	2.90	%

The majority of our Seniors Housing Operating properties are formed through partnership interests. Income from unconsolidated entities recognized during the nine months ended September 30, 2021 includes a gain 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 nine 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				Nine Months Ended				Change
	September 30, 2022		September 30, 2021		$		%		September 30, 2022		September 30, 2021		$		%
SSNOI (1)	$	149,479	$	146,122	$	3,357	2.3	%	$	426,233	$	408,770	$	17,463	4.3	%

(1) For the QTD and YTD Pools, amounts relate to 562 and 532 same store properties, respectively. Please see Non-GAAP Financial Measures for additional information and reconciliations.

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

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


	Three Months Ended				Change				Nine Months Ended				Change
	September 30,		September 30,						September 30,		September 30,
	2022		2021		$		%		2022		2021		$		%
Revenues:
Rental income	$	191,443	$	200,641	$	(9,198)	(5)	%	$	584,626	$	557,829	$	26,797	5	%
Interest income	35,556		38,257		(2,701)		(7)	%	108,454		86,040		22,414		26	%
Other income	1,820		1,087		733		67	%	5,262		3,539		1,723		49	%
Total revenues	228,819		239,985		(11,166)		(5)	%	698,342		647,408		50,934		8	%
Property operating expenses	11,495		11,664		(169)		(1)	%	34,197		37,132		(2,935)		(8)	%
NOI (1)	217,324		228,321		(10,997)		(5)	%	664,145		610,276		53,869		9	%
Other expenses:
Depreciation and amortization	57,338		54,226		3,112		6	%	160,403		165,299		(4,896)		(3)	%
Interest expense	196		1,548		(1,352)		(87)	%	830		5,134		(4,304)		(84)	%
Loss (gain) on derivatives and financial instruments, net	6,905		(8,078)		14,983		185	%	8,076		(6,503)		14,579		224	%

Provision for loan losses, net	290		(323)		613		190	%	(951)		10,549		(11,500)		(109)	%
Impairment of assets	3,595		1,490		2,105		141	%	3,595		24,222		(20,627)		(85)	%
Other expenses	820		(4,248)		5,068		119	%	12,327		4,845		7,482		154	%
	69,144		44,615		24,529		55	%	184,280		203,546		(19,266)		(9)	%
Income (loss) from continuing operations before income taxes and other items	148,180		183,706		(35,526)		(19)	%	479,865		406,730		73,135		18	%
Income (loss) from unconsolidated entities	3,167		5,038		(1,871)		(37)	%	24,584		14,822		9,762		66	%
Gain (loss) on real estate dispositions, net	674		81,712		(81,038)		(99)	%	18,994		126,463		(107,469)		(85)	%
Income from continuing operations	152,021		270,456		(118,435)		(44)	%	523,443		548,015		(24,572)		(4)	%
Net income	152,021		270,456		(118,435)		(44)	%	523,443		548,015		(24,572)		(4)	%
Less: Net income (loss) attributable to noncontrolling interests	7,675		11,917		(4,242)		(36)	%	21,981		26,722		(4,741)		(18)	%
Net income attributable to common stockholders	$	144,346	$	258,539	$	(114,193)	(44)	%	$	501,462	$	521,293	$	(19,831)	(4)	%

(1) See Non-GAAP Financial Measures below.

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 $486,369,000 and ten properties during the nine months ended September 30, 2022 with a book amount of $89,827,000. Additionally, during the nine months ended September 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 September 30, 2022, we had 12 leases with rental rate increases ranging from 2.50% to 9.12% 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 fluctuates 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 during the nine months ended September 30, 2022 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 nine months ended September 30, 2021, we recognized a provision for loan losses under the current expected credit losses accounting standard, primarily related to the initial recognition of that loan.

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

During the nine months ended September 30, 2022, we recorded impairment charges of $3,595,000 related to two held for use properties. During the nine months ended September 30, 2021, we recorded impairment charges of $24,222,000 related to four held for sale properties and two held for use properties. 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 nine months ended September 30, 2022, there were no Triple-net construction projects completed; however, four projects transitioned out of the Triple-net segment and into the Seniors Housing Operating segment. Additionally, one project transitioned from consolidated to unconsolidated. The following is a summary of our consolidated Triple-net construction projects, excluding expansions, pending as of September 30, 2022 (dollars in thousands):


MSA	Units/Beds	Commitment		Balance		Est. Completion
Raleigh	191	$	154,142	$	105,769	2Q23

During the nine months ended September 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								Nine Months Ended
	September 30, 2022				September 30, 2021				September 30, 2022				September 30, 2021
	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate
Beginning balance	$	39,622	4.39	%	$	122,566	4.91	%	$	72,536	4.57	%	$	123,652	4.91	%




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

Principal payments	(219)		4.37	%	(1,241)		5.16	%	(655)		4.37	%	(3,708)		5.16	%
Foreign currency	—		—	%	(1,034)		5.43	%	—		—	%	347		5.43	%
Ending balance	$	39,403	4.39	%	$	120,291	4.91	%	$	39,403	4.39	%	$	120,291	4.91	%

Monthly averages	$	39,475	4.39	%	$	121,051	4.91	%	$	39,694	4.39	%	$	122,582	4.91	%

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 nine months ended September 30, 2022 is primarily related to the write off of straight-line rent payable balances on an unconsolidated joint venture that was restructured. 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				Nine Months Ended				Change
	September 30, 2022		September 30, 2021		$		%		September 30, 2022		September 30, 2021		$		%
SSNOI (1)	$	106,604	$	105,206	$	1,398	1.3	%	$	305,253	$	299,522	$	5,731	1.9	%

(1) For the QTD and YTD Pools, amounts relate to 354 and 350 same store properties, respectively. Please see Non-GAAP Financial Measures for additional information and reconciliations.

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

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


	Three Months Ended				Change				Nine Months Ended				Change
	September 30,		September 30,						September 30,		September 30,
	2022		2021		$		%		2022		2021		$		%
Revenues:
Rental income	$	170,540	$	157,343	$	13,197	8	%	$	495,158	$	457,721	$	37,437	8	%
Interest income	80		472		(392)		(83)	%	216		8,741		(8,525)		(98)	%
Other income	1,558		1,688		(130)		(8)	%	6,449		8,336		(1,887)		(23)	%
Total revenues	172,178		159,503		12,675		8	%	501,823		474,798		27,025		6	%
Property operating expenses	52,921		48,072		4,849		10	%	153,484		140,430		13,054		9	%
NOI (1)	119,257		111,431		7,826		7	%	348,339		334,368		13,971		4	%
Other expenses:
Depreciation and amortization	60,377		56,352		4,025		7	%	177,724		166,969		10,755		6	%
Interest expense	4,343		4,811		(468)		(10)	%	13,441		12,733		708		6	%
Loss (gain) on extinguishment of debt, net	2		(5)		7		140	%	9		(5)		14		280	%
Provision for loan losses, net	2		(100)		102		102	%	(5)		(3,462)		3,457		100	%
Impairment of assets	761		—		761		n/a		761		2,211		(1,450)		(66)	%
Other expenses	366		640		(274)		(43)	%	1,362		2,450		(1,088)		(44)	%
	65,851		61,698		4,153		7	%	193,292		180,896		12,396		7	%
Income (loss) from continuing operations before income taxes and other items	53,406		49,733		3,673		7	%	155,047		153,472		1,575		1	%
Income (loss) from unconsolidated entities	(1,077)		(5,060)		3,983		79	%	(1,985)		(2,067)		82		4	%
Gain (loss) on real estate dispositions, net	(606)		38,857		(39,463)		(102)	%	(1,001)		92,687		(93,688)		(101)	%
Income from continuing operations	51,723		83,530		(31,807)		(38)	%	152,061		244,092		(92,031)		(38)	%
Net income (loss)	51,723		83,530		(31,807)		(38)	%	152,061		244,092		(92,031)		(38)	%
Less: Net income (loss) attributable to noncontrolling interests	1,636		934		702		75	%	5,276		3,733		1,543		41	%
Net income (loss) attributable to common stockholders	$	50,087	$	82,596	$	(32,509)	(39)	%	$	146,785	$	240,359	$	(93,574)	(39)	%

(1) See Non-GAAP Financial Measures.

Rental income has increased due primarily to acquisitions and construction conversions that occurred during 2021 and the year to date in 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 September 30, 2022, our consolidated outpatient medical portfolio signed 128,773 square feet of new leases and 350,715 square feet of renewals. The weighted-average term of these leases was seven years, with a rate of $40.08 per square foot and tenant improvement and lease commission costs of $25.27 per square foot. Substantially all of these leases contain an annual fixed or contingent escalation rent structure ranging from 1.0% to 5.5%.

The decrease in interest income for the nine months ended September 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 fluctuations in property operating expenses and depreciation and amortization are primarily attributable to acquisitions and construction conversions that occurred during 2021 and year to date in 2022. To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly. During the nine months ended September 30, 2022, we recognized an impairment charge of $761,000 related to one held for use property. During the nine months ended September 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 nine months ended September 30, 2022, there were no Outpatient Medical construction projects completed. The following is a summary of the consolidated Outpatient Medical construction projects, excluding expansions, pending as of September 30, 2022 (dollars in thousands):

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


MSA	Square Feet	Commitment		Balance		Est. Completion
Tyler, TX	85,214	$	35,369	$	28,201	4Q22
Houston	36,500	18,031		14,763		4Q22
Houston	16,835	9,935		2,950		1Q23
Beaumont-Port Arthur, TX	35,831	11,822		2,952		2Q23
Houston	16,830	9,077		1,594		2Q23
	191,210	$	84,234	50,460
Charlotte, NC(1)				32,702
				$	83,162
(1) Final square feet, commitment amount and expected conversion date not yet known.

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


	Three Months Ended								Nine Months Ended
	September 30, 2022				September 30, 2021				September 30, 2022				September 30, 2021
	Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate		Amount		Weighted Average Interest Rate
Beginning balance	$	483,912	3.68	%	$	543,272	3.52	%	$	530,254	3.49	%	$	548,229	3.55	%



Debt extinguished	(14,898)		4.48	%	(3,551)		6.25	%	(55,839)		4.01	%	(3,551)		6.25	%


Principal payments	(2,312)		4.51	%	(2,627)		4.42	%	(7,713)		4.42	%	(7,584)		4.45	%

Ending balance	$	466,702	4.02	%	$	537,094	3.50	%	$	466,702	4.02	%	$	537,094	3.50	%

Monthly averages	$	477,388	4.04	%	$	539,158	3.51	%	$	503,915	3.72	%	$	543,293	3.53	%

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.

Non-Segment/Corporate

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


	Three Months Ended				Change				Nine Months Ended				Change
	September 30,		September 30,						September 30,		September 30,
	2022		2021		$		%		2022		2021		$		%
Revenues:

Other income	$	247	$	790	$	(543)	(69)	%	$	1,497	$	2,175	$	(678)	(31)	%
Total revenues	247		790		(543)		(69)	%	1,497		2,175		(678)		(31)	%
Property operating expenses	5,850		3,054		2,796		92	%	11,110		6,882		4,228		61	%
NOI (1)	(5,603)		(2,264)		(3,339)		(147)	%	(9,613)		(4,707)		(4,906)		(104)	%
Expenses:
Interest expense	126,121		106,803		19,318		18	%	350,704		318,807		31,897		10	%
General and administrative expenses	34,811		32,256		2,555		8	%	109,071		93,618		15,453		17	%
Loss (gain) on extinguishment of debt, net	—		—		—		n/a		199		52,506		(52,307)		(100)	%
Other expenses	5,954		1,734		4,220		243	%	17,246		6,344		10,902		172	%
	166,886		140,793		26,093		19	%	477,220		471,275		5,945		1	%
Loss from continuing operations before income taxes and other items	(172,489)		(143,057)		(29,432)		(21)	%	(486,833)		(475,982)		(10,851)		(2)	%
Income tax benefit (expense)	(3,257)		(4,940)		1,683		34	%	(11,335)		(6,662)		(4,673)		(70)	%

Loss from continuing operations	(175,896)		(147,997)		(27,899)		(19)	%	(498,168)		(482,644)		(15,524)		(3)	%


Net loss attributable to common stockholders	$	(175,896)	$	(147,997)	$	(27,899)	(19)	%	$	(498,168)	$	(482,644)	$	(15,524)	(3)	%

(1) See Non-GAAP Financial Measures.

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

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				Nine Months Ended				Change
	September 30,		September 30,						September 30,		September 30,
	2022		2021		$		%		2022		2021		$		%
Senior unsecured notes	$	112,379	$	100,156	$	12,223	12	%	$	320,048	$	300,292	$	19,756	7	%

Unsecured credit facility and commercial paper program	8,831		1,799		7,032		391	%	15,698		4,736		10,962		231	%
Loan expense	4,911		4,848		63		1	%	14,958		13,779		1,179		9	%
Totals	$	126,121	$	106,803	$	19,318	18	%	$	350,704	$	318,807	$	31,897	10	%

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 nine months ended September 30, 2021 is due primarily to the early extinguishment of $339,128,000 of our 3.75% senior unsecured notes due March 2023 and $334,624,000 of our 3.95% senior unsecured notes due September 2023.

General and administrative expenses as a percentage of consolidated revenues for the nine months ended September 30, 2022 and 2021 were 2.51% and 2.73%, respectively. The provision for income taxes primarily relates to state taxes, foreign taxes and taxes based on income generated by entities that are structured as TRSs. The fluctuation in the provision for income taxes is primarily related to a revaluation of deferred taxes due to a change in the U.K. tax rate and an adjustment to a deferred tax liability due to the recognition of an impairment charge.

Other

Non-GAAP Financial Measures

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

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

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

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

EBITDA is defined as earnings (net income) before interest, taxes, depreciation and amortization. Adjusted EBITDA is defined as EBITDA excluding unconsolidated entities and including adjustments for stock-based compensation expense, provision for loan losses, gains/losses on extinguishment of debt, gains/loss/impairments on properties, gains/losses on derivatives and financial instruments, other 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 measures, as defined by us, may not be comparable to similarly entitled items reported by other real estate investment trusts or other companies.

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

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


	Three Months Ended
	September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,
FFO Reconciliation:	2022		2022		2022		2021		2021		2021		2021
Net income (loss) attributable to common stockholders	$	(6,767)	$	89,785	$	61,925	$	58,672	$	179,663	$	26,257	$	71,546
Depreciation and amortization	353,699		310,295		304,088		284,501		267,754		240,885		244,426
Impairment of assets	4,356		—		—		2,357		1,490		23,692		23,568
Loss (gain) on real estate dispositions, net	(1,064)		3,532		(22,934)		(11,673)		(119,954)		(44,668)		(59,080)
Noncontrolling interests	(14,614)		(13,173)		(14,753)		(13,988)		(11,095)		(16,591)		(12,516)
Unconsolidated entities	27,253		19,150		19,309		19,107		27,881		19,265		19,223
FFO	$	362,863	$	409,589	$	347,635	$	338,976	$	345,739	$	248,840	$	287,167

Average diluted shares outstanding
For net income (loss) purposes	463,366		457,082		449,802		438,719		429,983		419,305		419,079
For FFO purposes	466,950		457,082		449,802		438,719		429,983		419,305		419,079

Per diluted share data:
Net income attributable to common stockholders(1)	$	(0.01)	$	0.20	$	0.14	$	0.13	$	0.42	$	0.06	$	0.17
FFO	$	0.78	$	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.


	Nine Months Ended
	September 30,		September 30,
FFO Reconciliations:	2022		2021
Net income attributable to common stockholders	$	144,942	$	277,466
Depreciation and amortization	968,082		753,065
Impairment of assets	4,356		48,750
Loss (gain) on real estate dispositions, net	(20,466)		(223,702)
Noncontrolling interests	(42,540)		(40,202)
Unconsolidated entities	65,712		66,369
FFO	$	1,120,086	$	881,746

Average diluted common shares outstanding:	457,999		422,835

Per diluted share data:
Net income attributable to common stockholders(1)	$	0.32	$	0.65
FFO	$	2.45	$	2.09

(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
	September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,
NOI Reconciliations:	2022		2022		2022		2021		2021		2021		2021
Net income (loss)	$	(2,653)	$	95,672	$	65,751	$	66,194	$	190,336	$	45,757	$	72,192
Loss (gain) on real estate dispositions, net	(1,064)		3,532		(22,934)		(11,673)		(119,954)		(44,668)		(59,080)
Loss (income) from unconsolidated entities	6,698		7,058		2,884		12,174		15,832		7,976		(13,049)
Income tax expense (benefit)	3,257		3,065		5,013		2,051		4,940		(2,221)		3,943
Other expenses	15,481		35,166		26,069		15,483		3,575		11,687		10,994
Impairment of assets	4,356		—		—		2,357		1,490		23,692		23,568
Provision for loan losses, net	490		165		(804)		(39)		(271)		6,197		1,383
Loss (gain) on extinguishment of debt, net	2		603		(12)		(1,090)		(5)		55,612		(4,643)
Loss (gain) on derivatives and financial instruments, net	6,905		(1,407)		2,578		(830)		(8,078)		(359)		1,934
General and administrative expenses	34,811		36,554		37,706		33,109		32,256		31,436		29,926
Depreciation and amortization	353,699		310,295		304,088		284,501		267,754		240,885		244,426
Interest expense	139,682		127,750		121,696		121,848		122,522		122,341		123,142
Consolidated net operating income (NOI)	$	561,664	$	618,453	$	542,035	$	524,085	$	510,397	$	498,335	$	434,736

NOI by segment:
Seniors Housing Operating	$	230,686	$	281,911	$	206,684	$	180,375	$	172,909	$	160,188	$	170,434
Triple-net	217,324		222,869		223,952		230,846		228,321		226,314		155,641
Outpatient Medical	119,257		115,674		113,408		113,982		111,431		113,577		109,360
Non-segment/corporate	(5,603)		(2,001)		(2,009)		(1,118)		(2,264)		(1,744)		(699)
Total NOI	$	561,664	$	618,453	$	542,035	$	524,085	$	510,397	$	498,335	$	434,736


	Nine Months Ended
	September 30, 2022		September 30, 2021
NOI Reconciliations:
Net income (loss)	$	158,770	$	308,285
Loss (gain) on real estate dispositions, net	(20,466)		(223,702)
Loss (income) from unconsolidated entities	16,640		10,759
Income tax expense (benefit)	11,335		6,662
Other expenses	76,716		26,256
Impairment of assets	4,356		48,750
Provision for loan losses, net	(149)		7,309
Loss (gain) on extinguishment of debt, net	593		50,964
Loss (gain) on derivatives and financial instruments, net	8,076		(6,503)
General and administrative expenses	109,071		93,618
Depreciation and amortization	968,082		753,065
Interest expense	389,128		368,005
Consolidated net operating income (NOI)	$	1,722,152	$	1,443,468

NOI by segment:
Seniors Housing Operating	$	719,281	$	503,531
Triple-net	664,145		610,276
Outpatient Medical	348,339		334,368
Non-segment/corporate	(9,613)		(4,707)
Total NOI	$	1,722,152	$	1,443,468

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	843	569	322	1,734	843	569	322	1,734
Unconsolidated properties	96	39	79	214	96	39	79	214
Total properties	939	608	401	1,948	939	608	401	1,948
Recent acquisitions/development conversions(1)	(200)	(15)	(29)	(244)	(234)	(30)	(33)	(297)
Under development	(48)	—	(7)	(55)	(48)	—	(7)	(55)
Under redevelopment(2)	(4)	(3)	(3)	(10)	(5)	(2)	(3)	(10)
Current held for sale	(2)	(11)	(1)	(14)	(2)	(11)	(1)	(14)
Land parcels, loans and subleases	(16)	(10)	(7)	(33)	(16)	(10)	(7)	(33)
Transitions(3)	(111)	(4)	—	(115)	(112)	(20)	—	(132)
Other(4)	(4)	(3)	—	(7)	(4)	(3)	—	(7)
Same store properties	554	562	354	1,470	518	532	350	1,400

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

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

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				Nine Months Ended
SSNOI Reconciliations:	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021

Seniors Housing Operating:
Consolidated NOI	$	230,686	$	172,909	$	719,281	$	503,531
NOI attributable to unconsolidated investments	14,536		10,548		35,912		33,757
NOI attributable to noncontrolling interests	(15,025)		(15,602)		(106,169)		(53,622)
NOI attributable to non-same store properties	(77,767)		(34,175)		(197,296)		(76,152)
Non-cash NOI attributable to same store properties	(171)		(135)		(551)		11,515
Currency and ownership adjustments (1)	1,435		(401)		1,447		(2,329)
SSNOI at Welltower Share	153,694		133,144		452,624		416,700

Triple-net:
Consolidated NOI	217,324		228,321		664,145		610,276
NOI attributable to unconsolidated investments	8,058		4,891		20,569		14,666
NOI attributable to noncontrolling interests	(10,231)		(13,204)		(31,544)		(35,292)
NOI attributable to non-same store properties	(50,612)		(63,553)		(188,440)		(153,850)
Non-cash NOI attributable to same store properties	(17,581)		(12,652)		(43,562)		(32,873)
Currency and ownership adjustments (1)	2,521		2,319		5,065		5,843
SSNOI at Welltower Share	149,479		146,122		426,233		408,770

Outpatient Medical:
Consolidated NOI	119,257		111,431		348,339		334,368
NOI attributable to unconsolidated investments	4,780		4,604		14,521		14,316
NOI attributable to noncontrolling interests	(5,731)		(4,828)		(16,513)		(13,749)
NOI attributable to non-same store properties	(8,473)		(4,228)		(34,587)		(27,345)
Non-cash NOI attributable to same store properties	(3,421)		(2,626)		(6,601)		(7,396)
Currency and ownership adjustments (1)	192		853		94		(672)
SSNOI at Welltower Share	106,604		105,206		305,253		299,522

SSNOI at Welltower Share:
Seniors Housing Operating	153,694		133,144		452,624		416,700
Triple-net	149,479		146,122		426,233		408,770
Outpatient Medical	106,604		105,206		305,253		299,522
Total	$	409,777	$	384,472	$	1,184,110	$	1,124,992

(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
	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
EBITDA Reconciliations:	2022			2022			2022			2021			2021			2021			2021
Net income (loss)	$	(2,653)		$	95,672		$	65,751		$	66,194		$	190,336		$	45,757		$	72,192
Interest expense	139,682			127,750			121,696			121,848			122,522			122,341			123,142
Income tax expense (benefit)	3,257			3,065			5,013			2,051			4,940			(2,221)			3,943
Depreciation and amortization	353,699			310,295			304,088			284,501			267,754			240,885			244,426
EBITDA	$	493,985		$	536,782		$	496,548		$	474,594		$	585,552		$	406,762		$	443,703

Interest Coverage Ratio:
Interest expense	$	139,682		$	127,750		$	121,696		$	121,848		$	122,522		$	122,341		$	123,142
Non-cash interest expense	(2,882)			(6,606)			(4,109)			(5,082)			(5,461)			(3,972)			(2,991)
Capitalized interest	8,863			6,387			5,479			5,325			4,669			4,862			4,496
Total interest	145,663			127,531			123,066			122,091			121,730			123,231			124,647
EBITDA	$	493,985		$	536,782		$	496,548		$	474,594		$	585,552		$	406,762		$	443,703
Interest coverage ratio	3.39		x	4.21		x	4.03		x	3.89		x	4.81		x	3.30		x	3.56		x

Fixed Charge Coverage Ratio:
Total interest	$	145,663		$	127,531		$	123,066		$	122,091		$	121,730		$	123,231		$	124,647
Secured debt principal payments	13,775			14,382			15,968			16,877			17,040			15,715			15,955

Total fixed charges	159,438			141,913			139,034			138,968			138,770			138,946			140,602
EBITDA	$	493,985		$	536,782		$	496,548		$	474,594		$	585,552		$	406,762		$	443,703
Fixed charge coverage ratio	3.10		x	3.78		x	3.57		x	3.42		x	4.22		x	2.93		x	3.16		x


	Nine Months Ended
	September 30,			September 30,
EBITDA Reconciliations:	2022			2021
Net income (loss)	$	158,770		$	308,285
Interest expense	389,128			368,005
Income tax expense (benefit)	11,335			6,662
Depreciation and amortization	968,082			753,065
EBITDA	$	1,527,315		$	1,436,017

Interest Coverage Ratio:
Interest expense	$	389,128		$	368,005
Non-cash interest expense	(13,597)			(12,424)
Capitalized interest	20,729			14,027
Total interest	396,260			369,608
EBITDA	$	1,527,315		$	1,436,017
Interest coverage ratio	3.85		x	3.89		x

Fixed Charge Coverage Ratio:
Total interest	$	396,260		$	369,608
Secured debt principal payments	44,125			48,710

Total fixed charges	440,385			418,318
EBITDA	$	1,527,315		$	1,436,017
Fixed charge coverage ratio	3.47		x	3.43		x

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

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


	Twelve Months Ended
	September 30,			June 30,			March 31,			December 31,			September 30,			June 30,			March 31,
Adjusted EBITDA Reconciliations:	2022			2022			2022			2021			2021			2021			2021
Net income	$	224,964		$	417,953		$	368,038		$	374,479		$	463,563		$	668,205		$	781,664
Interest expense	510,976			493,816			488,407			489,853			489,178			491,507			495,523
Income tax expense (benefit)	13,386			15,069			9,783			8,713			6,952			4,015			8,469
Depreciation and amortization	1,252,583			1,166,638			1,097,228			1,037,566			995,798			983,576			1,008,062
EBITDA	2,001,909			2,093,476			1,963,456			1,910,611			1,955,491			2,147,303			2,293,718
Loss (income) from unconsolidated entities	28,814			37,948			38,866			22,933			10,501			650			(8,658)
Stock-based compensation expense (1)	22,525			20,945			19,681			17,812			22,248			24,278			26,811
Loss (gain) on extinguishment of debt, net	(497)			(504)			54,505			49,874			64,760			97,769			42,406
Loss (gain) on real estate dispositions, net	(32,139)			(151,029)			(199,229)			(235,375)			(409,166)			(773,516)			(884,711)
Impairment of assets	6,713			3,847			27,539			51,107			58,067			79,890			131,349
Provision for loan losses, net	(188)			(949)			5,083			7,270			90,394			93,522			88,747
Loss (gain) on derivatives and financial instruments, net	7,246			(7,737)			(6,689)			(7,333)			(5,934)			3,539			5,332
Other expenses (1)	92,076			80,114			56,127			40,860			52,960			60,985			68,939
Lease termination and leasehold interest adjustment (2)	(63,454)			(64,094)			(7,697)			760			(640)			—			—
Casualty losses, net of recoveries (3)	7,802			8,472			5,799			5,786			998			—			—
Other impairment (4)	(620)			(620)			—			49,241			49,241			161,639			163,481
Adjusted EBITDA	$	2,070,187		$	2,019,869		$	1,957,441		$	1,913,546		$	1,888,920		$	1,896,059		$	1,927,414

Adjusted Interest Coverage Ratio:
Interest expense	$	510,976		$	493,816		$	488,407		$	489,853		$	489,178		$	491,507		$	495,523
Capitalized interest	26,054			21,860			20,335			19,352			18,265			17,543			17,222
Non-cash interest expense	(18,679)			(21,258)			(18,624)			(17,506)			(14,163)			(12,675)			(10,617)
Total interest	518,351			494,418			490,118			491,699			493,280			496,375			502,128
Adjusted EBITDA	$	2,070,187		$	2,019,869		$	1,957,441		$	1,913,546		$	1,888,920		$	1,896,059		$	1,927,414
Adjusted interest coverage ratio	3.99		x	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	$	518,351		$	494,418		$	490,118		$	491,699		$	493,280		$	496,375		$	502,128
Secured debt principal payments	61,002			64,267			65,600			65,587			64,832			63,668			63,136
Total fixed charges	579,353			558,685			555,718			557,286			558,112			560,043			565,264
Adjusted EBITDA	$	2,070,187		$	2,019,869		$	1,957,441		$	1,913,546		$	1,888,920		$	1,896,059		$	1,927,414
Adjusted fixed charge coverage ratio	3.57		x	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
	September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,
	2022		2022		2022		2021		2021		2021		2021
Book capitalization:
Unsecured credit facility and commercial paper	$	654,715	$	354,000	$	299,968	$	324,935	$	290,996	$	—	$	—
Long-term debt obligations (1)	14,555,643		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	(425,184)		(442,251)		(367,043)		(346,755)		(362,645)		(808,705)		(2,558,822)
Total net debt	14,785,174		14,702,181		14,285,454		13,895,882		13,417,007		12,764,111		12,059,891
Total equity and noncontrolling interests(2)	20,457,650		19,873,913		19,178,026		18,997,873		18,172,111		17,243,208		17,046,932
Book capitalization	$	35,242,824	$	34,576,094	$	33,463,480	$	32,893,755	$	31,589,118	$	30,007,319	$	29,106,823
Net debt to book capitalization ratio	42%		43%		43%		42%		42%		43%		41%

Undepreciated book capitalization:
Total net debt	$	14,785,174	$	14,702,181	$	14,285,454	$	13,895,882	$	13,417,007	$	12,764,111	$	12,059,891
Accumulated depreciation and amortization	7,687,077		7,437,779		7,215,622		6,910,114		6,634,061		6,415,676		6,212,432
Total equity and noncontrolling interests(2)	20,457,650		19,873,913		19,178,026		18,997,873		18,172,111		17,243,208		17,046,932
Undepreciated book capitalization	$	42,929,901	$	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	34%		35%		35%		35%		35%		35%		34%

Market capitalization:
Common shares outstanding	472,517		463,369		453,948		447,239		435,274		422,562		417,520
Period end share price	$	64.32	$	82.35	$	96.14	$	85.77	$	82.40	$	83.10	$	71.63
Common equity market capitalization	$	30,392,293	$	38,158,437	$	43,642,561	$	38,359,689	$	35,866,578	$	35,114,902	$	29,906,958
Total net debt	14,785,174		14,702,181		14,285,454		13,895,882		13,417,007		12,764,111		12,059,891
Noncontrolling interests(2)	1,288,343		1,317,733		1,282,450		1,361,872		1,308,908		1,322,762		1,248,054
Market capitalization	$	46,465,810	$	54,178,351	$	59,210,465	$	53,617,443	$	50,592,493	$	49,201,775	$	43,214,903
Net debt to market capitalization ratio	32%		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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