WELLTOWER INC. - Quarter Report: 2022 September (Form 10-Q)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)



☑						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022



☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 1-8923

WELLTOWER INC.

(Exact name of registrant as specified in its charter)

Delaware

34-1096634

(State or other jurisdiction
of Incorporation)

(IRS Employer
Identification No.)

4500 Dorr Street

Toledo,

Ohio

43615

(Address of principal executive office)

(Zip Code)

(419) -

247-2800

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)


Securities registered pursuant to Section 12(b) of the Act
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $1.00 par value per share	WELL	New York Stock Exchange
Guarantee of 4.800% Notes due 2028 issued by Welltower OP LLC	WELL/28	New York Stock Exchange
Guarantee of 4.500% Notes due 2034 issued by Welltower OP LLC	WELL/34	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically, if any, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

As of October 31, 2022, Welltower Inc. had 472,521,446 shares of common stock outstanding.

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION		Page

Item 1. Financial Statements (Unaudited)		3

	Consolidated Balance Sheets	3

	Consolidated Statements of Comprehensive Income	4

	Consolidated Statements of Equity	6

	Consolidated Statements of Cash Flows	8

	Notes to Unaudited Consolidated Financial Statements	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		30

Item 3. Quantitative and Qualitative Disclosures About Market Risk		57

Item 4. Controls and Procedures		58

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		59

Item 1A. Risk Factors		59

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		59

Item 5. Other Information		59

Item 6. Exhibits		60

Signatures		61

PART I. FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)


	September 30, 2022 (Unaudited)		December 31, 2021 (Note)
Assets:
Real estate investments:
Real property owned:
Land and land improvements	$	4,156,985	$	3,968,430
Buildings and improvements	33,018,251		31,062,203
Acquired lease intangibles	1,920,803		1,789,628
Real property held for sale, net of accumulated depreciation	175,657		134,097
Construction in progress	1,012,202		651,389
Less accumulated depreciation and amortization	(7,687,077)		(6,910,114)
Net real property owned	32,596,821		30,695,633
Right of use assets, net	323,230		522,796
Real estate loans receivable, net of credit allowance	916,639		1,068,681
Net real estate investments	33,836,690		32,287,110
Other assets:
Investments in unconsolidated entities	1,383,246		1,039,043
Goodwill	68,321		68,321
Cash and cash equivalents	343,446		269,265
Restricted cash	81,738		77,490
Straight-line rent receivable	430,173		365,643
Receivables and other assets	1,270,874		803,453
Total other assets	3,577,798		2,623,215
Total assets	$	37,414,488	$	34,910,325

Liabilities and equity
Liabilities:
Unsecured credit facility and commercial paper	$	654,715	$	324,935
Senior unsecured notes	12,324,601		11,613,758
Secured debt	2,121,628		2,192,261
Lease liabilities	410,415		545,944
Accrued expenses and other liabilities	1,445,479		1,235,554
Total liabilities	16,956,838		15,912,452
Redeemable noncontrolling interests	400,965		401,294
Equity:
Common stock	473,930		448,605
Capital in excess of par value	25,289,432		23,133,641
Treasury stock	(111,772)		(107,750)
Cumulative net income	8,808,678		8,663,736
Cumulative dividends	(15,215,694)		(14,380,915)
Accumulated other comprehensive income (loss)	(75,267)		(121,316)
Total Welltower Inc. stockholders’ equity	19,169,307		17,636,001
Noncontrolling interests	887,378		960,578
Total equity	20,056,685		18,596,579
Total liabilities and equity	$	37,414,488	$	34,910,325

Note: The consolidated balance sheet at December 31, 2021 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands, except per share data)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Revenues:
Resident fees and services	$	1,068,706	$	835,617	$	3,073,040	$	2,299,972
Rental income	361,983		357,984		1,079,784		1,015,550
Interest income	37,791		39,864		113,925		97,891
Other income	5,364		6,332		75,335		19,438
Total revenues	1,473,844		1,239,797		4,342,084		3,432,851

Expenses:
Property operating expenses	912,180		729,400		2,619,932		1,989,383
Depreciation and amortization	353,699		267,754		968,082		753,065
Interest expense	139,682		122,522		389,128		368,005
General and administrative expenses	34,811		32,256		109,071		93,618
Loss (gain) on derivatives and financial instruments, net	6,905		(8,078)		8,076		(6,503)
Loss (gain) on extinguishment of debt, net	2		(5)		593		50,964
Provision for loan losses, net	490		(271)		(149)		7,309
Impairment of assets	4,356		1,490		4,356		48,750
Other expenses	15,481		3,575		76,716		26,256
Total expenses	1,467,606		1,148,643		4,175,805		3,330,847

Income (loss) from continuing operations before income taxes and other items	6,238		91,154		166,279		102,004
Income tax (expense) benefit	(3,257)		(4,940)		(11,335)		(6,662)
Income (loss) from unconsolidated entities	(6,698)		(15,832)		(16,640)		(10,759)
Gain (loss) on real estate dispositions, net	1,064		119,954		20,466		223,702
Income (loss) from continuing operations	(2,653)		190,336		158,770		308,285

Net income (loss)	(2,653)		190,336		158,770		308,285
Less: Net income (loss) attributable to noncontrolling interests(1)	4,114		10,673		13,828		30,819
Net income (loss) attributable to common stockholders	$	(6,767)	$	179,663	$	144,942	$	277,466

Weighted average number of common shares outstanding:
Basic	463,366		428,031		455,074		420,955
Diluted	463,366		429,983		457,999		422,835

Earnings per share:
Basic:
Income (loss) from continuing operations	$	(0.01)	$	0.44	$	0.35	$	0.73
Net income (loss) attributable to common stockholders	$	(0.01)	$	0.42	$	0.32	$	0.66

Diluted:
Income (loss) from continuing operations	$	(0.01)	$	0.44	$	0.35	$	0.73
Net income (loss) attributable to common stockholders(2)	$	(0.01)	$	0.42	$	0.32	$	0.65

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

(1) Includes amounts attributable to redeemable noncontrolling interests.

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2022		2021		2022		2021
Net income (loss)	$	(2,653)	$	190,336	$	158,770	$	308,285

Other comprehensive income (loss):
Foreign currency translation gain (loss)	(372,494)		(112,263)		(746,165)		(55,059)
Derivative and financial instruments designated as hedges gain (loss)	417,567		130,711		753,588		100,866
Total other comprehensive income (loss)	45,073		18,448		7,423		45,807

Total comprehensive income (loss)	42,420		208,784		166,193		354,092
Less: Total comprehensive income (loss) attributable to noncontrolling interests(1)	(20,741)		4,350		(24,798)		31,299
Total comprehensive income (loss) attributable to common stockholders	$	63,161	$	204,434	$	190,991	$	322,793

(1) Includes amounts attributable to redeemable noncontrolling interests.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)


	Nine Months Ended September 30, 2022
	Common Stock		Capital in Excess of Par Value		Treasury Stock		Cumulative Net Income		Cumulative Dividends		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests		Total
Balances at January 1, 2022	$	448,605	$	23,133,641	$	(107,750)	$	8,663,736	$	(14,380,915)	$	(121,316)	$	960,578	$	18,596,579
Comprehensive income:
Net income (loss)							61,925						2,752		64,677
Other comprehensive income (loss)											(17,156)		1,465		(15,691)
Total comprehensive income															48,986
Net change in noncontrolling interests			(63,026)										(128,305)		(191,331)
Amounts related to stock incentive plans, net of forfeitures	166		7,279		(4,768)										2,677
Net proceeds from issuance of common stock	6,605		542,218												548,823
Dividends paid:
Common stock dividends									(273,668)						(273,668)
Balances at March 31, 2022	$	455,376	$	23,620,112	$	(112,518)	$	8,725,661	$	(14,654,583)	$	(138,472)	$	836,490	$	18,732,066
Comprehensive income:
Net income (loss)							89,785						4,409		94,194
Other comprehensive income (loss)											(6,724)		(15,116)		(21,840)
Total comprehensive income															72,354
Net change in noncontrolling interests			(6,760)										118,793		112,033
Adjustment to members' interest from change in ownership in Welltower OP			46,861										(46,861)		—
Amounts related to stock incentive plans, net of forfeitures	20		6,551		827										7,398
Net proceeds from issuance of common stock	9,382		798,277												807,659

Dividends paid:
Common stock dividends									(277,615)						(277,615)
Balances at June 30, 2022	$	464,778	$	24,465,041	$	(111,691)	$	8,815,446	$	(14,932,198)	$	(145,196)	$	897,715	$	19,453,895
Comprehensive income:
Net income (loss)							(6,768)						2,876		(3,892)
Other comprehensive income (loss)											69,929		(23,029)		46,900
Total comprehensive income															43,008
Net change in noncontrolling interests			(2,400)										12,801		10,401
Adjustment to members' interest from change in ownership in Welltower OP			2,779										(2,779)		—
Redemption of OP units	5		201										(206)		—
Amounts related to stock incentive plans, net of forfeitures	3		6,151		(81)										6,073
Net proceeds from issuance of common stock	9,144		817,660												826,804

Dividends paid:
Common stock dividends									(283,496)						(283,496)
Balances at September 30, 2022	$	473,930	$	25,289,432	$	(111,772)	$	8,808,678	$	(15,215,694)	$	(75,267)	$	887,378	$	20,056,685

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)


	Nine Months Ended September 30, 2021
	Common Stock		Capital in Excess of Par Value		Treasury Stock		Cumulative Net Income		Cumulative Dividends		Accumulated Other Comprehensive Income (Loss)		Noncontrolling Interests		Total
Balances at January 1, 2021	$	418,691	$	20,823,145	$	(104,490)	$	8,327,598	$	(13,343,721)	$	(148,504)	$	908,853	$	16,881,572
Comprehensive income:
Net income (loss)							71,546						(177)		71,369
Other comprehensive income (loss)											20,368		3,729		24,097
Total comprehensive income															95,466
Net change in noncontrolling interests			(14,250)										(20,266)		(34,516)
Amounts related to stock incentive plans, net of forfeitures	175		5,393		(2,029)										3,539
Net proceeds from issuance of common stock			(92)												(92)

Dividends paid:
Common stock dividends									(254,952)						(254,952)
Balances at March 31, 2021	$	418,866	$	20,814,196	$	(106,519)	$	8,399,144	$	(13,598,673)	$	(128,136)	$	892,139	$	16,691,017
Comprehensive income:
Net income (loss)							26,257						19,695		45,952
Other comprehensive income (loss)											188		2,919		3,107
Total comprehensive income															49,059
Net change in noncontrolling interests			(17,377)										15,630		(1,747)
Amounts related to stock incentive plans, net of forfeitures	51		4,504		(2,114)										2,441
Net proceeds from issuance of common stock	5,016		360,515												365,531
Dividends paid:
Common stock dividends									(255,472)						(255,472)
Balances at June 30, 2021	$	423,933	$	21,161,838	$	(108,633)	$	8,425,401	$	(13,854,145)	$	(127,948)	$	930,383	$	16,850,829
Comprehensive income:
Net income (loss)							179,663						10,470		190,133
Other comprehensive income (loss)											24,771		(6,196)		18,575
Total comprehensive income															208,708
Net change in noncontrolling interests			(4,013)										(14,944)		(18,957)
Amounts related to stock incentive plans, net of forfeitures	3		4,932		155										5,090
Net proceeds from issuance of common stock	12,704		986,102												998,806
Dividends paid:
Common stock dividends									(261,560)						(261,560)
Balances at September 30, 2021	$	436,640	$	22,148,859	$	(108,478)	$	8,605,064	$	(14,115,705)	$	(103,177)	$	919,713	$	17,782,916

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)


	Nine Months Ended
	September 30,
	2022		2021
Operating activities:
Net income	$	158,770	$	308,285
Adjustments to reconcile net income to net cash provided from (used in) operating activities:
Depreciation and amortization	968,082		753,065
Other amortization expenses	20,643		13,951
Provision for loan losses, net	(149)		7,309
Impairment of assets	4,356		48,750
Stock-based compensation expense	19,456		14,868
Loss (gain) on derivatives and financial instruments, net	8,076		(6,503)
Loss (gain) on extinguishment of debt, net	593		50,964
Loss (income) from unconsolidated entities	16,640		10,759
Rental income less than (in excess of) cash received	(79,571)		(9,607)
Amortization related to above (below) market leases, net	(1,199)		(2,045)
Loss (gain) on real estate dispositions, net	(20,466)		(223,702)
Distributions by unconsolidated entities	8,648		11,783
Increase (decrease) in accrued expenses and other liabilities	96,250		97,924
Decrease (increase) in receivables and other assets	(124,807)		(83,806)
Net cash provided from (used in) operating activities	1,075,322		991,995

Investing activities:
Cash disbursed for acquisitions, net of cash acquired	(2,292,998)		(2,735,206)
Cash disbursed for capital improvements to existing properties	(315,835)		(165,691)
Cash disbursed for construction in progress	(463,465)		(263,325)
Capitalized interest	(20,729)		(14,027)
Investment in loans receivable	(133,179)		(953,006)
Principal collected on loans receivable	172,380		250,415
Other investments, net of payments	(62,625)		(10,885)
Contributions to unconsolidated entities	(390,493)		(278,833)
Distributions by unconsolidated entities	34,256		238,066
Proceeds from (payments on) derivatives	63,747		2,312
Proceeds from sales of real property	124,431		941,708
Net cash provided from (used in) investing activities	(3,284,510)		(2,988,472)

Financing activities:
Net increase (decrease) under unsecured credit facility and commercial paper	329,780		290,996
Net proceeds from issuance of senior unsecured notes	1,040,232		1,208,241
Payments to extinguish senior unsecured notes	—		(1,533,752)
Net proceeds from the issuance of secured debt	89,804		2,693
Payments on secured debt	(320,377)		(118,854)
Net proceeds from the issuance of common stock	2,184,953		1,366,464

Payments for deferred financing costs and prepayment penalties	(4,881)		(72,251)
Contributions by noncontrolling interests(1)	47,503		84,073
Distributions to noncontrolling interests(1)	(221,754)		(108,912)

Cash distributions to stockholders	(833,296)		(770,457)
Other financing activities	(7,730)		(9,322)
Net cash provided from (used in) financing activities	2,304,234		338,919
Effect of foreign currency translation on cash and cash equivalents and restricted cash	(16,617)		(840)
Increase (decrease) in cash, cash equivalents and restricted cash	78,429		(1,658,398)
Cash, cash equivalents and restricted cash at beginning of period	346,755		2,021,043
Cash, cash equivalents and restricted cash at end of period	$	425,184	$	362,645

Supplemental cash flow information:
Interest paid	$	364,345	$	341,134
Income taxes paid (received), net	6,725		1,288

(1) Includes amounts attributable to redeemable noncontrolling interests.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. Business

Welltower Inc., an S&P 500 company headquartered in Toledo, Ohio, is driving the transformation of health care infrastructure. We invest with leading seniors housing operators, post-acute providers and health systems to fund the real estate and infrastructure needed to scale innovative care delivery models and improve people’s wellness and overall health care experience. Welltower Inc., a real estate investment trust (“REIT”), owns interests in properties concentrated in major, high-growth markets in the United States (“U.S.”), Canada and the United Kingdom (“U.K.”), consisting of seniors housing and post-acute communities and outpatient medical properties.

As of May 24, 2022, we are structured as an umbrella partnership REIT under which substantially all of our business is conducted through Welltower OP LLC, the day-to-day management of which is exclusively controlled by Welltower Inc. For additional information on the UPREIT reorganization, please see our Current Reports on Form 8-K filed with the SEC on March 7, 2022, April 1, 2022 and May 25, 2022. Unless stated otherwise or the context otherwise requires, references to "Welltower" mean Welltower Inc. and references to "Welltower OP" mean Welltower OP LLC. References to "we," "us" and "our" mean collectively Welltower, Welltower OP and those entities/subsidiaries owned or controlled by Welltower and/or Welltower OP. Welltower's weighted average ownership in Welltower OP was 99.737% for the three months ended September 30, 2022. As of September 30, 2022, Welltower owned 99.742% of the issued and outstanding units of Welltower OP, with other investors owning the remaining 0.258% of outstanding units. We adjust the noncontrolling members' interest at the end of each period to reflect their interest in the net assets of Welltower OP.

2. Accounting Policies and Related Matters

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (such as normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 2022 are not necessarily an indication of the results that may be expected for the year ending December 31, 2022. For further information, refer to the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Impact of COVID-19 Pandemic

The extent to which the COVID-19 pandemic impacts our operations and those of our operators and tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, the direct and indirect economic effects of the pandemic and containment measures, the impact of new variants, the effectiveness of vaccines and the overall pace of recovery, among others. The COVID-19 pandemic could have material and adverse effects on our financial condition, results of operations and cash flows in the future.

Our Seniors Housing Operating revenues are dependent on occupancy. 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.

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 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.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 months ended September 30, 2021, respectively. These grants represent a reduction to property operating expenses in our Consolidated Statements of Comprehensive Income.

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

New Accounting Standards

•In August 2020, the FASB issued ASU 2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40) Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” This ASU simplifies accounting for convertible instruments and removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception. This ASU also simplifies the diluted earnings per share calculation in certain areas and provides updated disclosure requirements. The ASU is effective for public business entities beginning after December 15, 2021 including interim periods within those fiscal years. The adoption of this standard did not have a significant impact on our consolidated financial statements.

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

3. Real Property Acquisitions and Development

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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


	Nine Months Ended
	September 30, 2022								September 30, 2021
	Seniors Housing Operating		Triple-net		Outpatient Medical		Totals		Seniors Housing Operating		Triple-net		Outpatient Medical		Totals
Land and land improvements	$	199,892	$	—	$	65,688	$	265,580	$	264,706	$	48,099	$	45,350	$	358,155
Buildings and improvements	1,988,999		172		249,660		2,238,831		1,655,067		436,828		227,390		2,319,285
Acquired lease intangibles	109,049		—		33,978		143,027		142,439		—		17,333		159,772
Construction in progress	108,141		—		—		108,141		—		—		—		—

Right of use assets, net	169		—		3,852		4,021		77,455		—		—		77,455
Total net real estate assets	2,406,250		172		353,178		2,759,600		2,139,667		484,927		290,073		2,914,667
Receivables and other assets	10,410		—		460		10,870		6,041		—		3,534		9,575
Total assets acquired (1)	2,416,660		172		353,638		2,770,470		2,145,708		484,927		293,607		2,924,242
Secured debt	(219,067)		—		—		(219,067)		—		—		—		—
Lease liabilities	—		—		(3,852)		(3,852)		(138,126)		—		—		(138,126)
Accrued expenses and other liabilities	(111,373)		—		(1,294)		(112,667)		(20,748)		(8,703)		(266)		(29,717)
Total liabilities acquired	(330,440)		—		(5,146)		(335,586)		(158,874)		(8,703)		(266)		(167,843)
Noncontrolling interests (2)	(115,112)		(4)		(975)		(116,091)		(2,597)		(2,056)		(16,540)		(21,193)
Non-cash acquisition related activity(3)	(25,795)		—		—		(25,795)		—		—		—		—
Cash disbursed for acquisitions	1,945,313		168		347,517		2,292,998		1,984,237		474,168		276,801		2,735,206
Construction in progress additions	343,000		64,091		75,460		482,551		190,672		60,251		29,448		280,371
Less: Capitalized interest	(16,464)		(3,088)		(1,177)		(20,729)		(9,658)		(2,092)		(2,277)		(14,027)
Accruals (4)	(2,809)		—		4,452		1,643		38		—		(3,057)		(3,019)
Cash disbursed for construction in progress	323,727		61,003		78,735		463,465		181,052		58,159		24,114		263,325
Capital improvements to existing properties	232,618		39,526		43,691		315,835		115,115		26,496		24,080		165,691
Total cash invested in real property, net of cash acquired	$	2,501,658	$	100,697	$	469,943	$	3,072,298	$	2,280,404	$	558,823	$	324,995	$	3,164,222

(1) Excludes $6,431,000 and $301,000 of unrestricted and restricted cash acquired during the nine months ended September 30, 2022 and September 30, 2021, respectively.

(2) Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests. For the nine months ended September 30, 2022, 1,227,000 Welltower OP units were issued as a component of funding for certain transactions.

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

(4) Represents non-cash accruals for amounts to be paid in future periods for properties that converted, offset by amounts paid in the current period.

Effective on April 1, 2022, our leasehold interest relating to the master lease with National Health Investors, Inc. ("NHI") for 17 properties assumed in conjunction with the Holiday Retirement acquisition was terminated as a result of the transition or sale of the properties by NHI. The lease termination was part of an agreement to resolve outstanding litigation with NHI. In conjunction with the agreement, a wholly owned subsidiary and the lessee on the master lease agreed to release $6,883,000 of cash to the landlord, which represents the net cash flow generated from the properties since we assumed the leasehold interest. Additionally, in conjunction with the lease termination, during the three months ended June 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.

Construction Activity

The following is a summary of the construction projects that were placed into service and began generating revenues during the periods presented (in thousands):


	Nine Months Ended
	September 30, 2022		September 30, 2021
Development projects:
Seniors Housing Operating	$	182,421	$	58,844
Triple-net	—		22,990
Outpatient Medical	—		116,612


Total construction in progress conversions	$	182,421	$	198,446

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4. Real Estate Intangibles

The following is a summary of our real estate intangibles, excluding those related to ground leases or classified as held for sale, as of the dates indicated (dollars in thousands):


	September 30, 2022		December 31, 2021
Assets:
In place lease intangibles	$	1,801,657	$	1,681,533
Above market tenant leases	56,844		53,964
Lease commissions	62,302		54,131
Gross historical cost	1,920,803		1,789,628
Accumulated amortization	(1,416,849)		(1,286,259)
Net book value	$	503,954	$	503,369

Weighted-average amortization period in years	7.4		5.5

Liabilities:
Below market tenant leases	$	77,071	$	74,909
Accumulated amortization	(50,642)		(45,291)
Net book value	$	26,429	$	29,618

Weighted-average amortization period in years	8.5		8.2

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Rental income related to (above)/below market tenant leases, net	$	358	$	384	$	1,094	$	1,241
Amortization related to in place lease intangibles and lease commissions	(60,176)		(32,872)		(158,364)		(76,083)

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


	Assets		Liabilities
2022	$	48,478	$	2,458
2023	161,778		5,106
2024	85,462		3,554
2025	35,610		2,911
2026	28,159		2,430
Thereafter	144,467		9,970
Total	$	503,954	$	26,429

5. Dispositions, Real Property Held for Sale and Impairment

We periodically sell properties for various reasons, including favorable market conditions, the exercise of tenant purchase options or reduction of concentrations (i.e., property type, relationship or geography). At September 30, 2022, two Seniors Housing Operating, 11 Triple-net and one Outpatient Medical properties with an aggregate real estate balance of $175,657,000 were classified as held for sale. In addition to the real property balances, lease liabilities of $66,890,000 and net other assets and (liabilities) of $1,877,000 are included in the Consolidated Balance Sheets related to the held for sale properties. Expected gross sales proceeds related to the held for sale properties are approximately $236,919,000.

During the nine months ended September 30, 2022, we recorded $4,356,000 of impairment charges related to two Triple-net properties and one Outpatient Medical property classified as held for use in which the carrying value exceeded the estimated fair value. During the nine months ended September 30, 2021, we recorded $19,567,000 of impairment charges related to four Triple-net properties and one Outpatient Medical property classified as held for sale for which the carrying value exceeded the estimated fair value less costs to sell. Additionally, during the nine months ended September 30, 2021, we recorded $29,183,000 of impairment charges related to two Seniors Housing Operating properties and two Triple-net properties that were held for use in which the carrying value exceeded the estimated fair value.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


	Nine Months Ended
	September 30, 2022		September 30, 2021
Real estate dispositions:
Seniors Housing Operating	$	13,470	$	112,837
Triple-net	89,827		439,974
Outpatient Medical	393		159,000
Total dispositions	103,690		711,811
Gain (loss) on real estate dispositions, net	20,466		223,702
Net other assets/(liabilities) disposed	275		6,195
Proceeds from real estate dispositions	$	124,431	$	941,708

Operating results attributable to properties sold or classified as held for sale which do not meet the definition of discontinued operations are not reclassified on our Consolidated Statements of Comprehensive Income. The following represents the activity related to these properties for the periods presented (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues:
Total revenues	$	4,299	$	14,813	$	13,331	$	69,018
Expenses:
Interest expense	867		803		2,545		2,813
Property operating expenses	1,941		2,457		5,946		11,874
Provision for depreciation	218		4,583		233		22,124
Total expenses	3,026		7,843		8,724		36,811
Income (loss) from real estate dispositions, net	$	1,273	$	6,970	$	4,607	$	32,207

6. Leases

We lease land, buildings, office space and certain equipment. Many of our leases include a renewal option to extend the term from one to 25 years or more. Renewal options that we are reasonably certain to exercise are recognized in our right-of-use assets and lease liabilities.

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


		Nine Months Ended
	Classification	September 30, 2022		September 30, 2021
Operating lease cost: (1)
Real estate lease expense	Property operating expenses	$	16,767	$	16,430
Non-real estate investment lease expense	General and administrative expenses	4,174		3,461
Finance lease cost:
Amortization of leased assets	Property operating expenses	4,927		6,120
Interest on lease liabilities	Interest expense	4,584		4,950
Sublease income	Rental income	(8,537)		(5,972)
Total		$	21,915	$	24,989

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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


	Classification	September 30, 2022		December 31, 2021
Right of use assets:
Operating leases - real estate	Right of use assets, net	$	290,133	$	367,068
Finance leases - real estate	Right of use assets, net	33,097		155,728
Real estate right of use assets, net		323,230		522,796
Operating leases - non-real estate investments	Receivables and other assets	8,088		9,627
Finance leases - held for sale (1)	Real property held for sale, net of accumulated depreciation	116,577		—
Total right of use assets, net		$	447,895	$	532,423

Lease liabilities:
Operating leases		$	301,001	$	434,261
Financing leases		109,414		111,683
Total		$	410,415	$	545,944

(1) At September 30, 2022, finance leases at seven properties were classified as held for sale.

Substantially all of our operating leases in which we are the lessor contain escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. During the nine months ended September 30, 2021, we reserved for previously recognized straight-line rent receivable balances of $49,241,000 through rental income, relating to leases for which collection of substantially all contractual lease payments was no longer deemed probable.

Leases in our Triple-net and Outpatient Medical portfolios recognized under ASC 842, "Leases" (ASC 842), typically include some form of operating expense reimbursement by the tenant. For the nine months ended September 30, 2022, we recognized $1,079,784,000 of rental income related to operating leases, of which $145,541,000 was for variable lease payments that primarily represents the reimbursement of operating costs such as common area maintenance expenses, utilities, insurance and real estate taxes. For the nine months ended September 30, 2021, we recognized $1,015,550,000 of rental income related to operating leases, of which $134,632,000 was for variable lease payments.

For the majority of our Seniors Housing Operating segment, revenue from resident fees and services is predominantly service-based, and as such, resident agreements are accounted for under ASC 606, "Revenue from Contracts with Customers." Within that reportable segment, we also recognize revenue from residential seniors apartment leases in accordance with ASC 842. The amount of revenue related to these leases was $304,338,000 and $100,328,000 for the nine months ended September 30, 2022 and 2021, respectively.

7. Loans Receivable

Loans receivable are recorded on our Consolidated Balance Sheets in real estate loans receivable, net of allowance for credit losses, or for non-real estate loans receivable, in receivables and other assets. Real estate loans receivable consists of mortgage loans and other real estate loans which are primarily collateralized by a first, second or third mortgage lien, a leasehold mortgage on, or an assignment of the partnership interest in, the related properties, as well as corporate guarantees and/or personal guarantees. Non-real estate loans are generally corporate loans with no real estate backing. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of the risk of credit loss. Accrued interest receivable was $25,142,000 and $26,659,000 as of September 30, 2022 and December 31, 2021, respectively, and is included in receivables and other assets on the Consolidated Balance Sheets. The following is a summary of our loans receivable (in thousands):


	September 30, 2022		December 31, 2021
Mortgage loans	$	709,120	$	889,556
Other real estate loans	220,484		194,477
Allowance for credit losses on real estate loans receivable	(12,965)		(15,352)
Real estate loans receivable, net of credit allowance	916,639		1,068,681
Non-real estate loans	409,796		375,060
Allowance for credit losses on non-real estate loans receivable	(151,800)		(151,433)
Non-real estate loans receivable, net of credit allowance	257,996		223,627
Total loans receivable, net of credit allowance	$	1,174,635	$	1,292,308

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


	Nine Months Ended
	September 30, 2022		September 30, 2021
Advances on loans receivable	$	133,179	$	953,006
Receipts on loans receivable	(172,380)		(250,415)
Net cash advances (receipts) on loans receivable	$	(39,201)	$	702,591

The allowance for credit losses on loans receivable is maintained at a level believed adequate to absorb potential losses in our loans receivable. The determination of the credit allowance is based on a quarterly evaluation of each of these loans, including general economic conditions and estimated collectability of loan payments. We evaluate the collectability of our loans receivable based on a combination of credit quality indicators, including, but not limited to, payment status, historical loan charge-offs, financial strength of the borrower and guarantors, and nature, extent, and value of the underlying collateral.

A loan is considered to have deteriorated credit quality when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the loan agreement. For those loans we identified as having deteriorated credit quality, we determine the amount of credit loss on an individual basis. Placement on non-accrual status may be required. Consistent with this definition, all loans on non-accrual are deemed to have deteriorated credit quality. To the extent circumstances improve and the risk of collectability is diminished, we will return these loans to income accrual status. While a loan is on non-accrual status, any cash receipts are applied against the outstanding principal balance.

For the remaining loans we assess credit loss on a collective pool basis and use our historical loss experience for similar loans to determine the reserve for credit losses. The following is a summary of our loans by credit loss category (in thousands):


	September 30, 2022
Loan category	Years of Origination	Loan Carrying Value		Allowance for Credit Loss		Net Loan Balance		No. of Loans
Deteriorated loans	2007 - 2018	$	172,265	$	(148,436)	$	23,829	3
Collective loan pool	2007-2017	214,598		(3,012)		211,586		13
Collective loan pool	2018	19,778		(278)		19,500		2
Collective loan pool	2019	22,839		(321)		22,518		4
Collective loan pool	2020	51,954		(729)		51,225		6
Collective loan pool	2021	748,653		(10,456)		738,197		18
Collective loan pool	2022	109,313		(1,533)		107,780		15
Total loans		$	1,339,400	$	(164,765)	$	1,174,635	61

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


	Nine Months Ended
	September 30, 2022		September 30, 2021
Balance at beginning of period	$	166,785	$	224,036

Provision for loan losses, net	(149)		7,309
Loan write-offs	—		(64,075)
Foreign currency translation	(1,871)		(468)
Balance at end of period	$	164,765	$	166,802

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


	Nine Months Ended
	September 30, 2022		September 30, 2021
Balance of deteriorated loans at end of period	$	172,265	$	178,301
Allowance for credit losses	(148,436)		(148,438)
Balance of deteriorated loans not reserved	$	23,829	$	29,863
Interest recognized on deteriorated loans (1)	$	—	$	3,171

(1) Represents cash interest recognized in the period.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. Investments in Unconsolidated Entities

We participate in a number of joint ventures, which generally invest in seniors housing and health care real estate. Our share of the results of operations for these properties has been included in our consolidated results of operations from the date of acquisition by the joint ventures and are reflected in our Consolidated Statements of Comprehensive Income as income or loss from unconsolidated entities. The following is a summary of our investments in unconsolidated entities (dollars in thousands):


	Percentage Ownership (1)	September 30, 2022		December 31, 2021
Seniors Housing Operating	10% to 65%	$	1,082,217	$	830,647
Triple-net	10% to 88%	102,168		44,814
Outpatient Medical	15% to 50%	198,861		163,582
Total		$	1,383,246	$	1,039,043

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

At September 30, 2022, the aggregate unamortized basis difference of our joint venture investments of $132,437,000 is primarily attributable to the difference between the amount for which we purchased our interest in the entity, including transaction costs, and the historical carrying value of the net assets of the joint venture. This difference is being amortized over the remaining useful life of the related properties and included in the reported amount of income from unconsolidated entities.

We have made loans related to 21 properties as of September 30, 2022 for the development and construction of certain properties which are classified as in substance real estate investments and have a carrying value of $593,376,000. We believe that such borrowers typically represent variable interest entities ("VIE" or "VIEs") in accordance with ASC 810, "Consolidation." VIEs are required to be consolidated by their primary beneficiary which is the enterprise that has both: (i) the power to direct the activities of the VIE that most significantly impacts the entity's economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. We have concluded that we are not the primary beneficiary of such borrowers, therefore, the loan arrangements were assessed based on among other factors, the amount and timing of expected residual profits, the estimated fair value of the collateral and the significance of the borrower's equity in the project. Based on these assessments, the arrangements have been classified as in substance real estate investments. We expect to fund an additional $236,458,000 related to these investments.

9. Credit Concentration

We use consolidated net operating income (“NOI”) as our credit concentration metric. See Note 18 for additional information and reconciliation. The following table summarizes certain information about our credit concentration for the nine months ended September 30, 2022, excluding our share of NOI in unconsolidated entities (dollars in thousands):


Concentration by relationship: (1)	Number of Properties	Total NOI		Percent of NOI (2)
ProMedica (3)	205	$	183,506	11%
Atria Senior Living(4)	98	125,933		8%
Sunrise Senior Living	109	116,647		7%
HC-One Group (5)	1	66,547		4%
Cogir Management Corporation	48	56,065		4%
Remaining portfolio	1,273	1,173,454		66%
Totals	1,734	$	1,722,152	100%

(1) ProMedica and HC-One Group are in our Triple-net segment. Sunrise Senior Living, Atria Senior Living, and Cogir Management Corporation are in our Seniors Housing Operating segment.

(2) NOI with our top five relationships comprised 34% of total NOI for the year ended December 31, 2021.

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

(4) Inclusive of $58,621,000 of income recognized upon termination of lease. See Note 3 for further details.

(5) In addition to the one property, HC-One Group is the borrower on a £532,904,000 loan as of September 30, 2022 which is included in NOI.

10. Borrowings Under Credit Facilities and Commercial Paper Program

At September 30, 2022, we had a primary unsecured credit facility with a consortium of 31 banks that included a $4,000,000,000 unsecured revolving credit facility, a $1,000,000,000 unsecured term credit facility and a $250,000,000 Canadian-denominated unsecured term credit facility. The unsecured revolving credit facility is comprised of a $1,000,000,000 tranche that matures on June 4, 2026 (none outstanding at September 30, 2022) and a $3,000,000,000 tranche that matures on June 4, 2025 ($40,000,000 outstanding at September 30, 2022). The term credit facilities mature on July 19, 2026. Each tranche of the revolving facility and term loans may be extended for two successive terms of six months at our option. We have an option, through an accordion feature, to upsize the unsecured revolving credit facility and the $1,000,000,000 unsecured term credit facility by up to an additional $1,250,000,000, in the aggregate, and the $250,000,000 Canadian-denominated unsecured term credit facility by up to an additional $250,000,000. The primary unsecured credit facility also allows us to borrow up to

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

$1,000,000,000 in alternate currencies (none outstanding at September 30, 2022). Borrowings under the unsecured revolving credit facility are subject to interest payable at the applicable margin over SOFR interest rate. Based on our current credit ratings, the loans under the unsecured revolving credit facility currently bear interest at 0.775% over the adjusted SOFR rate. In addition, we pay a facility fee quarterly to each bank based on the bank’s commitment amount. The facility fee depends on our debt ratings and was 0.15% at September 30, 2022.

Under the terms of our commercial paper program, we may issue unsecured commercial paper notes with maturities that vary, but do not exceed 397 days from the date of issue, up to a maximum aggregate face or principal amount outstanding at any time of $1,000,000,000. As of September 30, 2022, there was a balance of $614,715,000 outstanding on the commercial paper program ($615,000,000 in principal outstanding, net of an unamortized discount of $285,000), which reduces the borrowing capacity of the unsecured revolving credit facility. The notes bear interest at various floating rates with a weighted average of 3.43% as of September 30, 2022 and a weighted average maturity of six days as of September 30, 2022.

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Balance outstanding at quarter end	$	655,000		$	291,000		$	655,000		$	291,000
Maximum amount outstanding at any month end	$	1,565,000		$	990,000		$	1,565,000		$	990,000
Average amount outstanding (total of daily
principal balances divided by days in period)	$	1,047,631		$	470,935		$	937,045		$	255,114
Weighted average interest rate (actual interest
expense divided by average borrowings outstanding)	2.76		%	0.21		%	1.58		%	0.42		%

11. Senior Unsecured Notes and Secured Debt

We may repurchase, redeem or refinance senior unsecured notes from time to time, taking advantage of favorable market conditions when available. We may purchase senior notes for cash through open market purchases, privately negotiated transactions, a tender offer or, in some cases, through the early redemption of such securities pursuant to their terms. The senior unsecured notes are redeemable at our option, at any time in whole or from time to time in part, at a redemption price equal to the sum of: (i) the principal amount of the notes (or portion of such notes) being redeemed plus accrued and unpaid interest thereon up to the redemption date and (ii) any “make-whole” amount due under the terms of the notes in connection with early redemptions. Redemptions and repurchases of debt, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. At September 30, 2022, the annual principal payments due on these debt obligations were as follows (in thousands):


	Senior Unsecured Notes (1,2,3)		Secured Debt (1,4)		Totals
2022	$	—	$	268,769	$	268,769
2023	—		494,352		494,352
2024	1,350,000		318,176		1,668,176
2025	1,260,000		224,036		1,484,036
2026	700,000		124,195		824,195
Thereafter (5, 6, 7, 8)	9,169,012		691,793		9,860,805
Totals	$	12,479,012	$	2,121,321	$	14,600,333

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

(2) Annual interest rates range from 2.05% to 6.50%.

(3) All senior unsecured notes with the exception of the $300,000,000 Canadian-denominated 2.95% senior unsecured notes due 2027 have been issued by Welltower OP and are fully and unconditionally guaranteed by Welltower. The $300,000,000 Canadian-denominated 2.95% senior unsecured notes due 2027 have been issued through private placement by a wholly owned subsidiary of Welltower OP and are fully and unconditionally guaranteed by Welltower OP.

(4) Annual interest rates range from 1.25% to 6.67%. Carrying value of the properties securing the debt totaled $4,921,860,000 at September 30, 2022.

(5) Includes a $1,000,000,000 unsecured term loan and a $250,000,000 Canadian-denominated unsecured term loan (approximately $181,792,000 based on the Canadian/U.S. Dollar exchange rate on September 30, 2022). Both term loans mature on July 19, 2026 and may be extended for two successive terms of six months at our option. The loans bear interest at adjusted SOFR plus 0.85% (3.76% at September 30, 2022) and Canadian Dealer Offered Rate plus 0.85% (4.57% at September 30, 2022), respectively.

(6) Includes a $300,000,000 Canadian-denominated 2.95% senior unsecured notes due 2027 (approximately $218,150,000 based on the Canadian/U.S. Dollar exchange rate on September 30, 2022).

(7) Includes a £550,000,000 4.80% senior unsecured notes due 2028 (approximately $612,370,000 based on the Pounds Sterling/U.S. Dollar exchange rate in effect on September 30, 2022).

(8) Includes a £500,000,000 4.50% senior unsecured notes due 2034 (approximately $556,700,000 based on the Pounds Sterling/U.S. Dollar exchange rate in effect on September 30, 2022).

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Welltower, the parent entity that consolidates Welltower OP and all other subsidiaries, fully and unconditionally guarantees to each holder of all series of senior unsecured notes issued by Welltower OP that the principal of and premium, if any, and interest on the notes will be promptly paid in full when due, whether at the applicable maturity date, by acceleration or redemption or otherwise, and interest on the overdue principal of and interest on the notes, if any, if lawful, and all other obligations of Welltower OP to the holders of the notes will be promptly paid in full or performed. Welltower’s guarantees of such notes are its senior unsecured obligation and rank equally with all of Welltower’s other future unsecured senior indebtedness and guarantees from time to time outstanding. Welltower’s guarantees of such notes are effectively subordinated to all liabilities of its subsidiaries and to its secured indebtedness to the extent of the assets securing such indebtedness. Because Welltower conducts substantially all of its business through its subsidiaries, Welltower's ability to make required payments with respect to the guarantees depends on the financial results and condition of its subsidiaries and its ability to receive funds from its subsidiaries, whether by dividends, loans, distributions or other payments.

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


	Nine Months Ended
	September 30, 2022			September 30, 2021
			Weighted Avg.			Weighted Avg.
	Amount		Interest Rate	Amount		Interest Rate
Beginning balance	$	11,707,961	3.67%	$	11,509,533	3.67%
Debt issued	1,050,000		3.08%	1,250,000		2.50%
Debt extinguished	—		—%	(1,533,752)		2.42%

Foreign currency	(278,949)		4.51%	(17,437)		4.37%
Ending balance	$	12,479,012	3.86%	$	11,208,344	3.71%

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


	Nine Months Ended
	September 30, 2022			September 30, 2021
			Weighted Avg.			Weighted Avg.
	Amount		Interest Rate	Amount		Interest Rate
Beginning balance	$	2,202,312	3.03%	$	2,378,073	3.27%

Debt issued	89,804		4.57%	2,693		3.75%
Debt assumed	221,159		4.32%	—		—%
Debt extinguished	(276,252)		4.28%	(70,144)		6.02%


Principal payments	(44,125)		3.36%	(48,710)		3.39%
Foreign currency	(71,577)		3.17%	7,869		2.97%
Ending balance	$	2,121,321	3.91%	$	2,269,781	3.10%

Our debt agreements contain various covenants, restrictions and events of default. Certain agreements require us to maintain certain financial ratios and minimum net worth and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions. As of September 30, 2022, we were in compliance in all material respects with all of the covenants under our debt agreements.

12. Derivative Instruments

We are exposed to, among other risks, the impact of changes in foreign currency exchange rates as a result of our non-U.S. investments and interest rate risk related to our capital structure. Our risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes foreign currency forward contracts, cross currency swap contracts, interest rate swaps, interest rate locks and debt issued in foreign currencies to offset a portion of these risks.

Foreign Currency Forward Contracts Designated as Cash Flow Hedges

For instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is deferred as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods, during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in earnings.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Cash Flow Hedges and Fair Value Hedges of Interest Rate Risk

We enter into interest rate swaps in order to maintain a capital structure containing targeted amounts of fixed and floating-rate debt and manage interest rate risk. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for our fixed-rate payments. These interest rate swap agreements are used to hedge the variable cash flows associated with variable-rate debt.

Interest rate swaps designated as fair value hedges involve the receipt of fixed amounts from a counterparty in exchange for our variable-rate payments. These interest rate swap agreements hedge the exposure to changes in the fair value of fixed-rate debt attributable to changes in the designated benchmark interest rate. For derivative instruments that are designated and qualify as a fair value hedge, the gain or loss on the derivative instrument, as well as the offsetting loss or gain on the hedged item attributable to the hedged risk, are recognized in earnings. We record the gain or loss on the hedged items in interest expense, the same line item as the offsetting loss or gain on the related interest rate swaps. In March 2022, we entered into a $550,000,000 fixed to floating swap in connection with our March senior note issuance. The carrying amount of the notes, exclusive of the hedge, is $545,259,000. The fair value of the swap as of September 30, 2022 was ($59,709,000) and was recorded as a derivative liability with an offset to senior unsecured notes on our Consolidated Balance Sheets.

Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into earnings over the life of the related debt, except where a material amount is deemed to be ineffective, which would be immediately recognized in the Consolidated Statements of Comprehensive Income. Approximately $2,562,000 of losses, which are included in OCI, are expected to be reclassified into earnings in the next 12 months.

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

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

During the nine months ended September 30, 2022 and 2021, we settled certain net investment hedges generating cash proceeds of $61,853,000 and $8,879,000, respectively. The balance of the cumulative translation adjustment will be reclassified to earnings if the hedged investment is sold or substantially liquidated.

Derivative Contracts Undesignated

We use foreign currency exchange contracts to manage existing exposures to foreign currency exchange risk. Gains and losses resulting from the changes in fair value of these instruments are recorded in interest expense on the Consolidated Statements of Comprehensive Income and are substantially offset by net revaluation impacts on foreign currency denominated balance sheet exposures. In addition, we have several interest rate cap contracts related to variable rate secured debt agreements. Gains and losses resulting from the changes in fair values of these instruments are also recorded in interest expense.

Equity Warrants

We received equity warrants through our lending activities, which were accounted for as loan origination fees. The warrants provide us the right to participate in the capital appreciation of the underlying HC-One Group real estate portfolio above a designated price upon liquidation and contain net settlement terms qualifying as derivatives under ASC Topic 815. The warrants are classified within receivables and other assets on our Consolidated Balance Sheets. These warrants are measured at fair value with changes in fair value being recognized within gain (loss) on derivatives and financial instruments in our Consolidated Statements of Comprehensive Income.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following presents the notional amount of derivatives and other financial instruments as of the dates indicated (in thousands):


	September 30, 2022		December 31, 2021
Derivatives designated as net investment hedges:
Denominated in Canadian Dollars	$	1,075,000	$	675,000
Denominated in Pound Sterling	£	1,890,708	£	1,904,708

Financial instruments designated as net investment hedges:
Denominated in Canadian Dollars	$	250,000	$	250,000
Denominated in Pound Sterling	£	1,050,000	£	1,050,000

Interest rate swaps designated as cash flow hedges:
Denominated in U.S Dollars (1)	$	25,000	$	25,000

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

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

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

(1) At September 30, 2022 the maximum maturity date was November 1, 2023.

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


		Three Months Ended September 30,				Nine Months Ended September 30,
Description	Location	2022		2021		2022		2021
Gain (loss) on derivative instruments designated as hedges recognized in income	Interest expense	$	8,236	$	5,849	$	23,262	$	17,416
Gain (loss) on derivative instruments not designated as hedges recognized in income	Interest expense	$	4,215	$	241	$	5,349	$	(1,415)
Gain (loss) on equity warrants recognized in income	Gain (loss) on derivatives and financial instruments	$	(6,083)	$	9,216	$	(6,604)	$	9,216
Gain (loss) on derivative and financial instruments designated as hedges recognized in OCI	OCI	$	417,567	$	130,711	$	753,588	$	100,866

13. Commitments and Contingencies

At September 30, 2022, we had 21 outstanding letter of credit obligations totaling $68,143,000 and expiring between 2022 and 2023. At September 30, 2022, we had outstanding construction in progress of $1,012,202,000 and committed to providing additional funds of approximately $1,860,122,000 to complete construction. Additionally, at September 30, 2022, we had outstanding investments classified as in substance real estate of $593,376,000 and committed to provide additional funds of $236,458,000 (see Note 8 for additional information). Purchase obligations include $58,370,000 of contingent purchase obligations to fund capital improvements. Rents due from the tenants are increased to reflect the additional investment in the property.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

14. Stockholders’ Equity

The following is a summary of our stockholders’ equity capital accounts as of the dates indicated:


	September 30, 2022	December 31, 2021
Preferred Stock, $1.00 par value:
Authorized shares	50,000,000	50,000,000
Issued shares	—	—
Outstanding shares	—	—

Common Stock, $1.00 par value:
Authorized shares	700,000,000	700,000,000
Issued shares	474,312,155	448,998,438
Outstanding shares	472,516,526	447,239,477

Common Stock In April 2022, we entered into an amended and restated equity distribution agreement whereby we can offer and sell up to $3,000,000,000 aggregate amount of our common stock ("ATM Program"). The ATM Program also allows us to enter into forward sale agreements. As of September 30, 2022, we had $2,571,105,000 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.

The following is a summary of our common stock issuances during the nine months ended September 30, 2022 and 2021 (dollars in thousands, except shares and average price amounts):


	Shares Issued	Average Price		Gross Proceeds		Net Proceeds


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

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


2022 Option exercises	2,433	$	67.00	$	163	$	163
2022 ATM Program issuances	25,128,285	88.39		2,221,023		2,184,790
2022 Redemption of OP units	5,498			—		—
2022 Stock incentive plans, net of forfeitures	140,833			—		—
2022 Totals	25,277,049			$	2,221,186	$	2,184,953

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


	Nine Months Ended
	September 30, 2022				September 30, 2021
	Per Share		Amount		Per Share		Amount
Common stock	$	1.83	$	834,779	$	1.83	$	771,984

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


	September 30, 2022		December 31, 2021
Foreign currency translation	$	(1,381,845)	$	(674,306)
Derivative and financial instruments designated as hedges	1,306,578		552,990
Total accumulated other comprehensive income (loss)	$	(75,267)	$	(121,316)

15. Stock Incentive Plans

In March 2022, our Board of Directors approved the 2022 Long-Term Plan ("2022 Plan"), which authorizes up to 10,000,000 shares of common stock to be issued at the discretion of the Compensation Committee of the Board of Directors. Awards granted after March 28, 2022 will be issued out of the 2022 Plan. The awards granted under the 2016 Long-Term Incentive Plan continue to vest and options expire ten years from the date of grant. Our non-employee directors, officers and key employees are eligible to participate in the 2022 Plan. The 2022 Plan allows for the issuance of, among other things, stock options, stock appreciation rights, restricted stock, deferred stock units, performance units and dividend equivalent rights. Vesting periods for options, deferred stock units and restricted shares generally range from three to four years. Options expire ten years from the date of grant. Stock-based compensation expense totaled $6,115,000 and $19,456,000 for the three and nine months ended September 30, 2022, respectively, and $4,535,000 and $14,868,000 for the same periods in 2021.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

16. Earnings Per Share

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator for basic earnings per share - net income (loss) attributable to common stockholders	$	(6,767)	$	179,663	$	144,942	$	277,466


Adjustment for net income (loss) attributable to OP units(1)	(7)		(473)		99		(2,699)
Numerator for diluted earnings per share	$	(6,774)	$	179,190	$	145,041	$	274,767

Denominator for basic earnings per share - weighted average shares	463,366		428,031		455,074		420,955
Effect of dilutive securities:
Employee stock options	7		—		26		—
Non-vested restricted shares	1,238		537		1,127		465
OP units(1)	2,316		1,396		1,749		1,396
Employee stock purchase program	23		19		23		19
Dilutive potential common shares	3,584		1,952		2,925		1,880
Denominator for diluted earnings per share - adjusted weighted average shares	463,366		429,983		457,999		422,835

Basic earnings per share	$	(0.01)	$	0.42	$	0.32	$	0.66
Diluted earnings per share	$	(0.01)	$	0.42	$	0.32	$	0.65

(1) OP units include both Welltower OP units owned by outside investors as well as OP units owned by outside investors in certain consolidated DownREIT subsidiaries.

The diluted earnings per share calculation for the three months ended September 30, 2022 excludes the dilutive effect of all common stock equivalents as they are anti-dilutive due to the net loss attributable to common stockholders. As of September 30, 2022, and September 30, 2021, outstanding forward sales agreements for the sale of 17,964,603 shares and 11,798,154 shares, respectively, were not included in the computation of diluted earnings per share because such forward sales were anti-dilutive for the periods.

17. Disclosure about Fair Value of Financial Instruments

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-level valuation hierarchy exists for disclosures of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Please see Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021 for additional information. The three levels are defined below:

•Level 1 - Quoted prices in active markets for identical assets or liabilities.

•Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

•Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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

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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

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

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


	September 30, 2022				December 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Mortgage loans receivable	$	699,219	$	748,216	$	877,102	$	932,552
Other real estate loans receivable	217,420		217,088		191,579		193,999
Equity securities	136		136		1,608		1,608
Cash and cash equivalents	343,446		343,446		269,265		269,265
Restricted cash	81,738		81,738		77,490		77,490
Non-real estate loans receivable	257,996		251,926		223,627		241,544
Foreign currency forward contracts, interest rate swaps and cross currency swaps	401,428		401,428		7,205		7,205
Equity warrants	28,272		28,272		41,909		41,909

Financial liabilities:
Borrowings under unsecured credit facility and commercial paper program	$	654,715	$	654,715	$	324,935	$	324,935
Senior unsecured notes	12,324,601		11,207,285		11,613,758		13,139,748
Secured debt	2,121,628		2,053,767		2,192,261		2,252,107
Foreign currency forward contracts, interest rate swaps and cross currency swaps	59,709		59,709		39,296		39,296

Redeemable OP unitholder interests	$	95,513	$	95,513	$	153,098	$	153,098

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Items Measured at Fair Value on a Recurring Basis

The market approach is utilized to measure fair value for our financial assets and liabilities reported at fair value on a recurring basis. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The following summarizes items measured at fair value on a recurring basis (in thousands):


	Fair Value Measurements as of September 30, 2022
	Total		Level 1		Level 2		Level 3
Equity securities	$	136	$	136	$	—	$	—
Equity warrants	28,272		—		—		28,272
Foreign currency forward contracts, interest rate swaps and cross currency swaps, net asset (liability) (1)	341,718		—		341,718		—
Totals	$	370,126	$	136	$	341,718	$	28,272

(1) Please see Note 12 for additional information.

The following table summarizes the change in fair value for equity warrants using unobservable Level 3 inputs for the periods presented (in thousands):


	Nine Months Ended
	September 30, 2022		September 30, 2021
Beginning balance	$	41,909	$	—
Warrants acquired	—		32,419
Mark-to-market adjustment	(6,604)		9,216
Foreign currency	(7,033)		(977)
Ending balance	$	28,272	$	40,658

The most significant assumptions utilized in the valuation of the equity warrants are the cash flows of the underlying HC-One Group enterprise, as well as the terminal capitalization rate of 10.5%.

Items Measured at Fair Value on a Nonrecurring Basis

In addition to items that are measured at fair value on a recurring basis, we also have assets and liabilities in our balance sheet that are measured at fair value on a nonrecurring basis that are not included in the tables above. Assets, liabilities and noncontrolling interests that are measured at fair value on a nonrecurring basis include those acquired or assumed. Asset impairments (if applicable, see Note 5 for impairments of real property and Note 7 for impairments of loans receivable) are also measured at fair value on a nonrecurring basis. We have determined that the fair value measurements included in each of these assets and liabilities rely primarily on company-specific inputs and our assumptions about the use of the assets and settlement of liabilities, as observable inputs are not available. As such, we have determined that each of these fair value measurements generally resides within Level 3 of the fair value hierarchy. We estimate the fair value of real estate and related intangibles using the income approach and unobservable data such as net operating income and estimated capitalization and discount rates. We also consider local and national industry market data including comparable sales, and commonly engage an external real estate appraiser to assist us in our estimation of fair value. We estimate the fair value of assets held for sale based on current sales price expectations or, in the absence of such price expectations, Level 3 inputs described above. We estimate the fair value of loans receivable using projected payoff valuations based on the expected future cash flows and/or the estimated fair value of collateral, net of sales costs, if the repayment of the loan is expected to be provided solely by the collateral. We estimate the fair value of secured debt assumed in asset acquisitions using current interest rates at which similar borrowings could be obtained on the transaction date.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

18. Segment Reporting

We invest in seniors housing and health care real estate. We evaluate our business and make resource allocations on our three operating segments: Seniors Housing Operating, Triple-net and Outpatient Medical. Our Seniors Housing Operating properties include assisted living, independent living/continuing care retirement communities, independent supportive living communities (Canada), care homes with and without nursing (U.K.) and combinations thereof that are owned and/or operated through RIDEA structures (see Note 19). In addition, Seniors Housing Operating properties include seniors apartments. Our Triple-net properties include the property types described above as well as long-term/post-acute care facilities. Under the Triple-net segment, we invest in seniors housing and health care real estate through acquisition and financing of primarily single tenant properties. Properties acquired are primarily leased under triple-net leases and we are not involved in the management of the property. Our Outpatient Medical properties are typically leased to multiple tenants and generally require a certain level of property management by us.

We evaluate performance based upon consolidated NOI of each segment. We define NOI as total revenues, including tenant reimbursements, less property operating expenses. We believe NOI provides investors relevant and useful information as it measures the operating performance of our properties at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess the property level performance of our properties.

Non-segment revenue consists mainly of interest income on cash investments recorded in other income. Non-segment assets consist of corporate assets including cash, deferred loan expenses and corporate offices and equipment among others. Non-property specific revenues and expenses are not allocated to individual segments in determining NOI.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2021). The results of operations for all acquisitions described in Note 3 are included in our consolidated results of operations from the acquisition dates and are components of the appropriate segments. All inter-segment transactions are eliminated.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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


Three Months Ended September 30, 2022:	Seniors Housing Operating		Triple-net		Outpatient Medical		Non-segment / Corporate		Total
Resident fees and services	$	1,068,706	$	—	$	—	$	—	$	1,068,706
Rental income	—		191,443		170,540		—		361,983
Interest income	2,155		35,556		80		—		37,791
Other income	1,739		1,820		1,558		247		5,364
Total revenues	1,072,600		228,819		172,178		247		1,473,844

Property operating expenses	841,914		11,495		52,921		5,850		912,180
Consolidated net operating income (loss)	230,686		217,324		119,257		(5,603)		561,664

Depreciation and amortization	235,984		57,338		60,377		—		353,699
Interest expense	9,022		196		4,343		126,121		139,682
General and administrative expenses	—		—		—		34,811		34,811
Loss (gain) on derivatives and financial instruments, net	—		6,905		—		—		6,905
Loss (gain) on extinguishment of debt, net	—		—		2		—		2
Provision for loan losses, net	198		290		2		—		490
Impairment of assets	—		3,595		761		—		4,356
Other expenses	8,341		820		366		5,954		15,481
Income (loss) from continuing operations before income taxes and other items	(22,859)		148,180		53,406		(172,489)		6,238
Income tax (expense) benefit	—		—		—		(3,257)		(3,257)
Income (loss) from unconsolidated entities	(8,788)		3,167		(1,077)		—		(6,698)
Gain (loss) on real estate dispositions, net	1,146		674		(606)		(150)		1,064
Income (loss) from continuing operations	(30,501)		152,021		51,723		(175,896)		(2,653)
Net income (loss)	$	(30,501)	$	152,021	$	51,723	$	(175,896)	$	(2,653)

Total assets	$	21,560,096	$	8,700,199	$	6,569,005	$	585,188	$	37,414,488


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

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

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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


Nine Months Ended September 30, 2022	Seniors Housing Operating		Triple-net		Outpatient Medical		Non-segment / Corporate		Total
Resident fees and services	$	3,073,040	$	—	$	—	$	—	$	3,073,040
Rental income	—		584,626		495,158		—		1,079,784
Interest income	5,255		108,454		216		—		113,925
Other income	62,127		5,262		6,449		1,497		75,335
Total revenues	3,140,422		698,342		501,823		1,497		4,342,084

Property operating expenses	2,421,141		34,197		153,484		11,110		2,619,932
Consolidated net operating income	719,281		664,145		348,339		(9,613)		1,722,152

Depreciation and amortization	629,955		160,403		177,724		—		968,082
Interest expense	24,153		830		13,441		350,704		389,128
General and administrative expenses	—		—		—		109,071		109,071
Loss (gain) on derivatives and financial instruments, net	—		8,076		—		—		8,076
Loss (gain) on extinguishment of debt, net	385		—		9		199		593
Provision for loan losses, net	807		(951)		(5)		—		(149)
Impairment of assets	—		3,595		761		—		4,356
Other expenses	45,781		12,327		1,362		17,246		76,716
Income (loss) from continuing operations before income taxes and other items	18,200		479,865		155,047		(486,833)		166,279
Income tax (expense) benefit	—		—		—		(11,335)		(11,335)
Income (loss) from unconsolidated entities	(39,239)		24,584		(1,985)		—		(16,640)
Gain (loss) on real estate dispositions, net	2,623		18,994		(1,001)		(150)		20,466
Income (loss) from continuing operations	(18,416)		523,443		152,061		(498,318)		158,770
Net income (loss)	$	(18,416)	$	523,443	$	152,061	$	(498,318)	$	158,770


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

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

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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Our portfolio of properties and other investments are located in the United States, the United Kingdom and Canada. Revenues and assets are attributed to the country in which the property is physically located. The following is a summary of geographic information for the periods presented (dollars in thousands):


	Three Months Ended								Nine Months Ended
	September 30, 2022				September 30, 2021				September 30, 2022				September 30, 2021
Revenues:	Amount(1)		%		Amount		%		Amount(1)		%		Amount		%
United States	$	1,276,927	86.6	%	$	990,034	79.9	%	$	3,799,621	87.5	%	$	2,709,354	78.9	%
United Kingdom	95,914		6.5	%	146,308		11.8	%	246,226		5.7	%	405,938		11.8	%
Canada	101,003		6.9	%	103,455		8.3	%	296,237		6.8	%	317,559		9.3	%
Total	$	1,473,844	100.0	%	$	1,239,797	100.0	%	$	4,342,084	100.0	%	$	3,432,851	100.0	%

	As of
	September 30, 2022				December 31, 2021
Assets:	Amount		%		Amount		%
United States	$	31,604,241	84.5	%	$	28,595,703	81.9	%
United Kingdom	3,195,747		8.5	%	3,938,258		11.3	%
Canada	2,614,500		7.0	%	2,376,364		6.8	%
Total	$	37,414,488	100.0	%	$	34,910,325	100.0	%

(1) The United States, United Kingdom and Canada represent 80%, 9%, and 11% of our resident fees and services revenue for the three month periods ended September 30, 2022, respectively, and 79%, 10% and 11% of our resident fees and services revenue for the nine month periods ended September 30, 2022, respectively.

19. Income Taxes and Distributions

We elected to be taxed as a REIT commencing with our first taxable year. To qualify as a REIT for federal income tax purposes, at least 90% of taxable income (excluding 100% of net capital gains) must be distributed to stockholders. REITs that do not distribute a certain amount of taxable income in the current year are also subject to a 4% federal excise tax. The main differences between undistributed net income for federal income tax purposes and financial statement purposes are the recognition of straight-line rent for reporting purposes, basis differences in acquisitions, recording of impairments, differing useful lives and depreciation and amortization methods for real property and the provision for loan losses for reporting purposes versus bad debt expense for tax purposes.

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

Income taxes reflected in the financial statements primarily represents U.S. federal, state and local income taxes as well as non-U.S. income based or withholding taxes on certain investments located in jurisdictions outside the U.S. The provision for income taxes for the nine months ended September 30, 2022 and 2021, was primarily due to operating income or losses, offset by certain discrete items at our TRS entities. In 2014, we established certain wholly-owned direct and indirect subsidiaries in Luxembourg and Jersey and transferred interests in certain foreign investments into this holding company structure. The structure includes a property holding company that is tax resident in the United Kingdom. No material adverse current tax consequences in Luxembourg, Jersey or the United Kingdom resulted from the creation of this holding company structure and most of the subsidiary entities in the structure are treated as disregarded entities of the company for U.S. federal income tax purposes. Subsequent to 2014 we transferred certain subsidiaries to the United Kingdom, while some wholly-owned direct and indirect subsidiaries remain in Luxembourg and Jersey. The company reflects current and deferred tax liabilities for any such withholding taxes incurred from this holding company structure in its consolidated financial statements. Generally, given current statutes of limitations, we are subject to audit by the foreign, federal, state and local taxing authorities under applicable local laws.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

20. Variable Interest Entities

We have entered into joint ventures to own certain seniors housing and outpatient medical assets which are deemed to be VIEs. We have concluded that we are the primary beneficiary of these VIEs based on a combination of operational control of the joint venture and the rights to receive residual returns or the obligation to absorb losses arising from the joint ventures. Except for capital contributions associated with the initial joint venture formations, the joint ventures have been and are expected to be funded from the ongoing operations of the underlying properties. Accordingly, such joint ventures have been consolidated, and the table below summarizes the balance sheets of consolidated VIEs in the aggregate (in thousands):


	September 30, 2022		December 31, 2021
Assets:
Net real estate investments	$	444,485	$	445,776
Cash and cash equivalents	12,186		9,964
Receivables and other assets	8,588		7,617
Total assets (1)	$	465,259	$	463,357

Liabilities and equity:
Secured debt	$	162,072	$	163,519
Lease liabilities	1,329		1,324
Accrued expenses and other liabilities	15,138		12,394
Total equity	286,720		286,120
Total liabilities and equity	$	465,259	$	463,357

(1) Note that assets of the consolidated VIEs can only be used to settle obligations relating to such VIEs. Liabilities of the consolidated VIEs represent claims against the specific assets of the VIEs.

21. Subsequent Events

In November 2022, we entered into definitive agreements to effectuate the transition of 147 skilled nursing facilities currently operated by ProMedica. As part of the agreement between Welltower and ProMedica, ProMedica will surrender its 15% interest in the skilled nursing facilities currently owned by the existing joint venture and provide significant working capital support for the new operators to ensure a smooth transition of patient care and operations. In exchange, we will release ProMedica from its skilled nursing lease obligation. The 58 private-pay assisted living and memory care assets in the ProMedica joint venture will continue to be operated by ProMedica under a lease backed by the existing guaranty. Concurrently, we entered into a definitive agreement to sell the 147 skilled nursing facilities to a newly formed joint venture owned 85% by Welltower and 15% by Integra Health (“Integra”). Welltower and Integra will enter into a master lease agreement for the portfolio with plans to bring in select regional operators across various states that will operate the facilities upon receiving regulatory approvals.

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


			EXECUTIVE SUMMARY

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

			LIQUIDITY AND CAPITAL RESOURCES

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

			RESULTS OF OPERATIONS

			Summary			39
			Seniors Housing Operating			39
			Triple-net			43
			Outpatient Medical			45
			Non-Segment/Corporate			47

			OTHER

			Non-GAAP Financial Measures			48
			Critical Accounting Policies and Estimates			56
			Cautionary Statement Regarding Forward-Looking Statements			57

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

The following discussion and analysis should be read together with the Consolidated Financial Statements and related Notes thereto included in Item 1 of this report. Other important factors are identified in our Annual Report on Form 10-K for the year ended December 31, 2021, including factors identified under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations."

On March 7, 2022, we announced our intent to complete an UPREIT reorganization. In February 2022, the company formerly known as Welltower Inc. ("Old Welltower") formed WELL Merger Holdco Inc. ("New Welltower") as a wholly owned subsidiary, and New Welltower formed WELL Merger Holdco Sub Inc. ("Merger Sub") as a wholly owned subsidiary. On April 1, 2022, Merger Sub merged with and into Old Welltower, with Old Welltower continuing as the surviving corporation and a wholly owned subsidiary of New Welltower (the "Merger"). In connection with the Merger, Old Welltower's name was changed to "Welltower OP Inc.", and New Welltower inherited the name "Welltower Inc." Effective May 24, 2022, Welltower OP Inc. ("Welltower OP") converted from a Delaware corporation into a Delaware limited liability company named Welltower OP LLC (the "LLC Conversion"). Following the LLC Conversion, New Welltower's business continues to be conducted through Welltower OP and New Welltower does not have substantial assets or liabilities, other than through its investment in Welltower OP.

Unless stated otherwise or the context otherwise requires, references to "Welltower" mean Welltower Inc. and references to "Welltower OP" mean Welltower OP LLC. References to "we," "us" and "our" mean collectively Welltower, Welltower OP and those entities/subsidiaries owned or controlled by Welltower and/or Welltower OP.

Executive Summary

Company Overview

Welltower Inc. (NYSE:WELL), an S&P 500 company headquartered in Toledo, Ohio, is driving the transformation of health care infrastructure. The Company invests with leading seniors housing operators, post-acute providers and health systems to fund the real estate and infrastructure needed to scale innovative care delivery models and improve people’s wellness and overall health care experience. Welltower Inc., a real estate investment trust (“REIT”), owns interests in properties concentrated in major, high-growth markets in the United States ("U.S."), Canada and the United Kingdom ("U.K."), consisting of seniors housing and post-acute communities and outpatient medical properties.

Welltower Inc. is the initial member and majority owner of Welltower OP, with an approximate ownership interest of 99.742% as of September 30, 2022. All of our property ownership, development and related business operations are conducted through Welltower OP and Welltower Inc. has no material assets or liabilities other than its investment in Welltower OP. Welltower Inc. issues equity from time to time, the net proceeds of which it is obligated to contribute as additional capital to Welltower OP. All debt including credit facilities, senior notes and secured debt is incurred by Welltower OP, and Welltower Inc. has fully and conditionally guaranteed all existing and future senior unsecured notes.

The following table summarizes our consolidated portfolio for the three months ended September 30, 2022 (dollars in thousands):


			Percentage of		Number of
Type of Property	NOI (1)		NOI		Properties
Seniors Housing Operating	$	230,686	40.7	%	843
Triple-net	217,324		38.3	%	569
Outpatient Medical	119,257		21.0	%	322
Totals	$	567,267	100.0	%	1,734

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

The COVID-19 pandemic has had and may continue to have material and adverse effects on our financial condition, results of operations and cash flows in the future. The extent to which the COVID-19 pandemic impacts our operations and those of our operators and tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the effectiveness of vaccines, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, the overall pace of recovery, among others.

Our Seniors Housing Operating revenues are dependent on occupancy which has increased during the nine months ended September 30, 2022. As of September 30, 2022, nearly all communities are open for new admissions and allowing visitors, in-person tours and communal dining and activities.

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

We have incurred increased operational costs as a result of public health measures and other regulations affecting our properties, as well as additional health and safety measures adopted by us and our operators related to the COVID-19 pandemic, including increases in labor, personal protective equipment and sanitation. We expect total Seniors Housing Operating expenses to remain elevated during the pandemic and potentially beyond as these additional health and safety measures become standard practice.

Our Triple-net operators are experiencing similar trends related to occupancy and operating costs with respect to our Seniors Housing Operating properties. However, long-term/post-acute care facilities are generally experiencing a higher degree of occupancy declines. These factors may continue to impact the ability of our Triple-net operators to make contractual rent payments to us in the future. Many of our Triple-net operators received funds under the Coronavirus Aid Relief, and Economic Security Act (“CARES Act”) Paycheck Protection Program and the Provider Relief Fund.

Business Strategy

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

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

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

For the nine months ended September 30, 2022, resident fees and services and rental income represented 71% and 25%, respectively, of total revenues. Substantially all of our operating leases are designed with escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. Our yield on loans receivable depends upon a number of factors, including the stated interest rate, the average principal amount outstanding during the term of the loan and any interest rate adjustments.

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

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

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

Depending upon market conditions, we believe that new investments will be available in the future with spreads over our cost of capital that will generate appropriate returns to our stockholders. It is also likely that investment dispositions may occur in the future. To the extent that investment dispositions exceed new investments, our revenues and cash flows from operations could be adversely affected. We expect to reinvest the proceeds from any investment dispositions in new investments. To the extent that new investment requirements exceed our available cash on-hand, we expect to borrow under our unsecured revolving credit facility and commercial paper program. At September 30, 2022, we had $343,446,000 of cash and cash equivalents, $81,738,000 of restricted cash and $3,345,000,000 of available borrowing capacity under our unsecured revolving credit facility.

Key Transactions

Capital The following summarizes key capital transactions that occurred during the nine months ended September 30, 2022:

•In March 2022, we completed the issuance of $550,000,000 senior unsecured notes bearing interest at 3.85% with a maturity date of June 2032.

•In April 2022, we entered into an amended and restated ATM Program (as defined below) pursuant to which we may offer and sell up to $3,000,000,000 of common stock from time to time. Since the beginning of the year, we sold 37,905,638 shares of common stock under our current and previous ATM Programs via forward sale agreements. These forward sale agreements are expected to generate gross proceeds of approximately $3,280,798,000, of which 25,128,285 shares have been settled, resulting in $2,221,023,000 of gross proceeds during the nine months ended September 30, 2022.

•In June 2022, we closed on an amended $5,200,000,000 unsecured credit facility with improved pricing across our term loans. The credit facility includes $4,000,000,000 of revolving credit capacity at a borrowing rate of 77.5 basis points over the adjusted SOFR rate, $1,000,000,000 of USD term loan capacity at a borrowing rate of 85.0 basis points over the adjusted SOFR rate and $250,000,000 CAD term loan capacity at 85.0 basis points over CDOR.

•During the nine months ended September 30, 2022, we extinguished $276,252,000 of secured debt at a blended average interest rate of 4.28%.

Investments The following summarizes our property acquisitions and joint venture investments completed during the nine months ended September 30, 2022 (dollars in thousands):


	Properties	Book Amount (1)		Capitalization Rates (2)
Seniors Housing Operating	70	$	2,406,250	4.7	%
Triple-net	—	172		—	%
Outpatient Medical	11	353,178		5.4	%
Totals	81	$	2,759,600	4.8	%

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

Dispositions The following summarizes property dispositions completed during the nine months ended September 30, 2022 (dollars in thousands):


	Properties	Proceeds (1)		Book Amount (2)		Capitalization Rates (3)
Seniors Housing Operating	1	$	13,750	$	13,470	—	%
Triple-net	10	109,917		89,827		6.7	%
Outpatient Medical	—	764		393		—	%
Totals	11	$	124,431	$	103,690	6.4	%

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

Dividends Our Board of Directors declared a cash dividend for the quarter ended September 30, 2022 of $0.61 per share. On November 30, 2022, we will pay our 206th consecutive quarterly cash dividend to stockholders of record on November 18, 2022.

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

Key Performance Indicators, Trends and Uncertainties

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

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

The following table reflects the recent historical trends of our operating performance measures for the periods presented (in thousands):


	Three Months Ended
	September 30,		June 30,		March 31,		December 31,		September 30,		June 30,		March 31,
	2022		2022		2022		2021		2021		2021		2021
Net income (loss)	$	(2,653)	$	95,672	$	65,751	$	66,194	$	190,336	$	45,757	$	72,192
NICS	(6,767)		89,785		61,925		58,672		179,663		26,257		71,546
FFO	362,863		409,589		347,635		338,976		345,739		248,840		287,167
NOI	561,664		618,453		542,035		524,085		510,397		498,335		434,736

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


	Three Months Ended
	September 30,	June 30,	March 31,	December 31,	September 30,	June 30,	March 31,
	2022	2022	2022	2021	2021	2021	2021

Net debt to book capitalization ratio	42%	43%	43%	42%	42%	43%	41%
Net debt to undepreciated book capitalization ratio	34%	35%	35%	35%	35%	35%	34%
Net debt to market capitalization ratio	32%	27%	24%	26%	27%	26%	28%

Interest coverage ratio	3.39x	4.21x	4.03x	3.89x	4.81x	3.30x	3.56x
Fixed charge coverage ratio	3.10x	3.78x	3.57x	3.42x	4.22x	2.93x	3.16x

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

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	%

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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

A change in interest rates will not affect the interest expense associated with our fixed rate debt. Interest rate changes, however, will affect the fair value of our fixed rate debt. Changes in the interest rate environment upon maturity of this fixed rate debt could have an effect on our future cash flows and earnings, depending on whether the debt is replaced with other fixed rate debt, variable rate debt or equity or repaid by the sale of assets. To illustrate the impact of changes in the interest rate markets, we performed a sensitivity analysis on our fixed rate debt instruments after considering the effects of interest rate swaps, whereby we modeled the change in net present values arising from a hypothetical 1% increase in interest rates to determine the instruments’ change in fair value. The following table summarizes the analysis performed as of the dates indicated (in thousands):


	September 30, 2022				December 31, 2021
	Principal		Change in		Principal		Change in
	balance		fair value		balance		fair value
Senior unsecured notes	$	10,737,220	$	(532,456)	$	11,002,297	$	(1,059,031)
Secured debt	1,465,934		(35,322)		1,490,708		(44,222)
Totals	$	12,203,154	$	(567,778)	$	12,493,005	$	(1,103,253)

Our variable rate debt, including our unsecured revolving credit facility and commercial paper program, is reflected at fair value. At September 30, 2022, we had $3,052,179,000 outstanding related to our variable rate debt after considering the effects of interest rate swaps. Assuming no changes in outstanding balances, a 1% increase in interest rates would result in increased annual interest expense of $30,522,000. At December 31, 2021, we had $1,742,268,000 outstanding under our variable rate debt. Assuming no changes in outstanding balances, a 1% increase in interest rates would have resulted in increased annual interest expense of $17,423,000.

We are subject to currency fluctuations that may, from time to time, affect our financial condition and results of operations. Increases or decreases in the value of the Canadian Dollar or British Pounds Sterling relative to the U.S. Dollar impact the amount of net income we earn from our investments in Canada and the United Kingdom. Based solely on our results for the three months ended September 30, 2022, including the impact of existing hedging arrangements, if these exchange rates were to increase or decrease by 10%, our net income from these investments would increase or decrease, as applicable, by less than $7,000,000. We will continue to mitigate these underlying foreign currency exposures with non-U.S. denominated borrowings and gains and losses on derivative contracts. If we increase our international presence through investments in, or acquisitions or development of, seniors housing and health care properties outside the U.S., we may also decide to transact additional business or borrow funds in currencies other than U.S. Dollars, Canadian Dollars or British Pounds Sterling. To illustrate the impact of changes in foreign currency markets, we performed a sensitivity analysis on our derivative portfolio whereby we modeled the change in net present values arising from a hypothetical 1% increase in foreign currency exchange rates to determine the instruments’ change in fair value. The following table summarizes the results of the analysis performed (dollars in thousands):


	September 30, 2022				December 31, 2021
	Carrying		Change in		Carrying		Change in
	Value		fair value		Value		fair value
Foreign currency exchange contracts	$	400,356	$	12,683	$	32,280	$	19,740
Debt designated as hedges	1,350,862		13,509		1,613,164		16,132
Totals	$	1,751,218	$	26,192	$	1,645,444	$	35,872

For additional information regarding fair values of financial instruments, see “Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies” and Notes 12 and 17 to our unaudited consolidated financial statements.

Item 4. Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by us in the reports we file with or submit to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

During the quarter ended September 30, 2022, we implemented new enterprise resource planning and corporate performance management systems. These implementations resulted in considerable changes to our processes and control environment, including modifications to existing applications, interfaces and reports. The new systems were used during the third quarter of 2022, and the new and modified processes and controls implemented were used to prepare our consolidated financial statements for the periods ended September 30, 2022 included in this report. We will continue to monitor our internal control over financial reporting under the new systems, including evaluating the operating effectiveness of related key controls.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, there are various legal proceedings pending against us that arise in the ordinary course of our business. Management does not believe that the resolution of any of these legal proceedings either individually or in the aggregate will have a material adverse effect on our business, results of operations or financial condition. Further, from time to time, we are party to certain legal proceedings for which third parties, such as tenants, operators and/or managers are contractually obligated to indemnify, defend and hold us harmless. In some of these matters, the indemnitors have insurance for the potential damages. In other matters, we are being defended by tenants and other obligated third parties and these indemnitors may not have sufficient insurance, assets, income or resources to satisfy their defense and indemnification obligations to us. The unfavorable resolution of such legal proceedings could, individually or in the aggregate, materially adversely affect the indemnitors’ ability to satisfy their respective obligations to us, which, in turn, could have a material adverse effect on our business, results of operations or financial condition. It is management’s opinion that there are currently no such legal proceedings pending that will, individually or in the aggregate, have such a material adverse effect. Despite management’s view of the ultimate resolution of these legal proceedings, we may have significant legal expenses and costs associated with the defense of such matters. Further, management cannot predict the outcome of these legal proceedings and if management’s expectation regarding such matters is not correct, such proceedings could have a material adverse effect on our business, results of operations or financial condition.

Item 1A. Risk Factors

There have been no material changes from the risk factors identified under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2021.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended September 30, 2022, we acquired shares of our common stock held by employees who tendered shares to satisfy tax withholding obligations upon the vesting of previously issued restricted stock awards. Specifically, the number of shares of common stock acquired from employees and the average prices paid per share for each month in the third quarter ended September 30, 2022 are as shown in the table below.


Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Repurchase Program	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Repurchase Program
July 1, 2022 through July 31, 2022	—	$	—	—	$	—
August 1, 2022 through August 31, 2022	831	89.09		—	—
September 1, 2022 through September 30, 2022	161	72.74		—	—
Totals	992	$	86.44	—	$	—

Item 5. Other Information

None.

Item 6. Exhibits


31.1						Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.
31.2						Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.1						Certification pursuant to 18 U.S.C. Section 1350 by Chief Executive Officer.
32.2						Certification pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer.
101.INS						XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						XBRL Taxonomy Extension Schema Document
101.CAL						XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB						XBRL Taxonomy Extension Label Linkbase Document
101.PRE						XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF						XBRL Taxonomy Extension Definition Linkbase Document
104						The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL

*						Management contract or Compensatory Plan or Arrangement.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the under signed thereunto duly authorized.

WELLTOWER INC.

Date:

November 7, 2022

By:

/s/ SHANKH MITRA

Shankh Mitra,

Chief Executive Officer and Chief Investment Officer
(Principal Executive Officer)

Date:

November 7, 2022

By:

/s/ TIMOTHY G. MCHUGH

Timothy G. McHugh,

Executive Vice President and Chief Financial Officer
(Principal Financial Officer)

Date:

November 7, 2022

By:

/s/ JOSHUA T. FIEWEGER

Joshua T. Fieweger,

Chief Accounting Officer
(Principal Accounting Officer)