What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2020-10-29 compared with 2020-08-06 · 856 added, 170 removed, 1008 unchanged (50% of the section changed)

4 unchanged sentences

(In thousands)

June 30, 2020 (Unaudited) December 31, 2019 (Note)

September 30, 2020 (Unaudited) December 31, 2019 (Note)

Real estate investments:

71 unchanged sentences

(In thousands, except per share data)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

56 unchanged sentences

(In thousands)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

14 unchanged sentences

(In thousands)

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Stock Capital in

37 unchanged sentences

Balances at June 30, 2020 $ 418,343 $ 20,836,545 $ ( 93,799 ) $ 7,838,284 $ ( 12,834,381 ) $ ( 116,856 ) $ 4 $ 888,387 $ 16,936,527

Six Months Ended June 30, 2019

Comprehensive income:

Net income (loss)

325,585 67,650 393,235

Other comprehensive income

( 9,613 ) 7,338 ( 2,275 )

Total comprehensive income 390,960

Net change in noncontrolling interests ( 7,894 ) ( 110,147 ) ( 118,041 )

Amounts related to stock incentive plans, net of forfeitures 18 6,569 ( 223 ) 6,364

Proceeds from issuance of common stock ( 198 ) ( 198 )

Dividends paid:

Common stock dividends

( 254,510 ) ( 254,510 )

Balances at September 30, 2020 $ 418,361 $ 20,835,022 $ ( 94,022 ) $ 8,163,869 $ ( 13,088,891 ) $ ( 126,469 ) $ 4 $ 853,228 $ 16,961,102

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

WELLTOWER INC.

AND SUBSIDIARIES

(In thousands)

Nine Months Ended September 30, 2019

Stock Capital in

35 unchanged sentences

Balances at June 30, 2019 $ — $ 406,014 $ 19,740,145 $ ( 74,042 ) $ 6,539,766 $ ( 11,516,994 ) $ ( 100,622 ) $ 188 $ 975,117 $ 15,969,572

Comprehensive income:

Net income (loss)

589,876 29,948 619,824

Other comprehensive income

( 17,054 ) ( 4,836 ) ( 21,890 )

Total comprehensive income 597,934

Net change in noncontrolling interests 13,038 ( 40,565 ) ( 27,527 )

Amounts related to stock incentive plans, net of forfeitures 4 5,100 ( 4,801 ) ( 176 ) 127

Proceeds from issuance of common stock 480 38,393 38,873

Dividends paid:

Common stock dividends

( 353,250 ) ( 353,250 )

Balances at September 30, 2019 $ — $ 406,498 $ 19,796,676 $ ( 78,843 ) $ 7,129,642 $ ( 11,870,244 ) $ ( 117,676 ) $ 12 $ 959,664 $ 16,225,729

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

2 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities:

5 unchanged sentences

Provision for loan losses

11,351 18,690

Impairment of assets

3 unchanged sentences

Loss (gain) on derivatives and financial instruments, net

9,085 ( 574 )

Loss (gain) on extinguishment of debt, net

33,253 81,543

Loss (income) from unconsolidated entities

7 unchanged sentences

Increase (decrease) in accrued expenses and other liabilities

22,348 55,415

Decrease (increase) in receivables and other assets

13 unchanged sentences

Principal collected on loans receivable

14,345 57,125

Other investments, net of payments

3 unchanged sentences

Distributions by unconsolidated entities

41,884 98,880

Proceeds from (payments on) derivatives

50 unchanged sentences

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 six months ended June 30, 2020 are not necessarily an indication of the results that may be expected for the year ending December 31, 2020.

Operating results for the nine months ended September 30, 2020 are not necessarily an indication of the results that may be expected for the year ending December 31, 2020.

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, 2019.

5 unchanged sentences

Occupancy within our total Seniors Housing Operating portfolio has declined as follows:

February March April May June July

February March April May June July August September

Spot occupancy (1)

1 unchanged sentence

Sequential occupancy change ( 0.8 ) % ( 2.3 ) % ( 1.7 ) % ( 0.9 ) % ( 0.7 ) % ( 0.5 ) % ( 0.3 ) %

(1) Spot occupancy represents approximate month end occupancy for properties in operation as of February 2020, including unconsolidated properties but excluding acquisitions, dispositions and development conversions since the start of the COVID-19 pandemic.

(1) Spot occupancy represents approximate month end occupancy for properties in operation as of February 29, 2020, including unconsolidated properties but excluding acquisitions, dispositions and development conversions since this date.

Increased Seniors Housing Operating expenses are expected to continue until the pandemic subsides.

We experienced incremental operational costs of $ 43,058,000 and $ 50,352,000 for the three and six months ended June 30, 2020, respectively, included in property operating expenses.

These expenses were incurred as a result of the introduction of public health measures and other regulations affecting our properties, as well as additional health and safety measures adopted by us and our operators related to the COVID-19 pandemic, including increases in labor and property cleaning expenses and expenditures related to our efforts to procure PPE and supplies, net of reimbursements.

We experienced incremental operational costs, net of reimbursements, of $ 18,192,000 and $ 68,628,000 for the three and nine months ended September 30, 2020, respectively, included in property operating expenses.

Certain new expenses incurred since the start of the pandemic may continue on an ongoing basis as part of new health and safety protocols.

• Our Triple-net operators are experiencing similar occupancy declines and expense increases, however, long-term/post-acute facilities are generally experiencing a higher degree of occupancy declines.

These factors may impact our Triple-net operator's ability to pay rent and contractual obligations.

Many of our Triple-net operators received funds under the Coronavirus Aid Relief, and Economic Security Act (“CARES Act”) and operators of long-term/post-acute facilities have also received funds under the CARES Act Provider Relief Fund.

Accordingly, collection of Triple-net rent due during the COVID-19 pandemic to date (from March to July) has been consistent with historical collection rates and no significant rent concessions or deferrals have been made.

Various local and state stay at home orders and the temporary closure of certain medical practices as a result may continue to impact our Outpatient Medical tenants' ability to pay rent.

We have either collected or approved short term deferrals for over 99 % of Outpatient Medical rent due in the second quarter, consisting of 87 % cash collections and 12 % of short term deferrals.

In most cases, the

In September, applications were made for Provider Relief Funds related to our Seniors Housing Operating portfolio following the announcement from the Department of Health and Human Services that it expanded the eligibility of the Coronavirus Aid Relief, and Economic Security Act (“CARES Act”) Provider Relief Fund to include assisted living facilities.

Our share of the Phase 2 general distribution is expected to be approximately $ 46 million and we anticipate receiving and recognizing these funds as an offset to property operating expenses in the fourth quarter.

However, we continue to expect total portfolio 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 occupancy declines and expense increases, however, long-term/post-acute care facilities are generally experiencing a higher degree of occupancy declines.

These factors may impact our Triple-net operators' ability to pay rent and contractual obligations.

Many of our Triple-net operators have received

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

deferred rent respresents two months of rent with expected repayment by the end of the year.

Approximately 98 % of Outpatient Medical rent due in July was either collected or aproved for short term deferral, with cash collections accelerating to approximately 95 %.

Short term deferrals of July rent decreased to 3 %, which primarily relates to tenants in local jurisdictions for which relief was mandated.

Furthermore, collections of deferred rent due in June and July under executed deferrals were 96 %.

funds under the CARES Act Paycheck Protection Program.

In addition, operators of long-term/post-acute care facilities have generally received funds from Phase 1 of the Provider Relief Fund and operators of assisted living facilities are generally expecting funds from Phase 2 of the Provider Relief Fund.

Accordingly, collection of Triple-net rent due during the COVID-19 pandemic to date (from March to September) has generally been consistent with historical collection rates and no significant rent concessions or deferrals have been made.

We have either collected or approved short term deferrals for over 99 % of Outpatient Medical rent due in the third quarter, consisting of 97 % cash collections and 2 % of short term deferrals.

In most cases, unless local ordinances mandate otherwise, the deferred rent represents two months of rent with repayment expected by the end of the year.

Furthermore, collections of deferred rent due in the third quarter under executed deferrals was over 99 %.

To the extent that deferred rent is not repaid as expected, or the prolonged impact of the COVID-19 pandemic causes operators or tenants to seek further modifications of their lease agreements, we may recognize reductions in revenue and increases in uncollectible receivables.

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In a Q&A document, the FASB provided entities with COVID-19 related lease concessions an option to either (1) apply the modification framework for these concessions in accordance with ASC 842 as applicable or (2) account for concessions as if they were made under the enforceable rights included in the original agreement as long as total cash flows resulting from the modified contract are substantially the same or less than cash flows in the original contract.

Due to the continuing adverse economic conditions caused by the COVID-19 pandemic, a subset of outpatient medical tenants have requested rent relief, most often in the form of a short-term rent deferral.

Not all tenant requests result in modification of agreements, nor do we intend to forgo our contractual rights under our lease agreements.

We evaluate each tenant's rent relief request on an individual basis.

Generally we expect the majority of rent deferral agreements to result in two months of full or partial rent relief to repaid by the end of the year.

Due to the continuing adverse economic conditions caused by the COVID-19 pandemic, certain tenants and operators have requested rent relief, most often in the form of a short-term rent deferral.

Not all requests result in modification of agreements, nor do we intend to forgo our contractual rights under our lease agreements.

We evaluate each rent relief request on an individual basis.

To date, the majority of rent deferral agreements result in two months of full or partial rent relief to repaid by the end of the year and we generally expect this to continue to be the case unless local ordinances mandate otherwise.

We have elected to apply the accounting relief provided by the FASB to such short-term rent deferrals, and will account for such deferrals as if no change had been made to the original lease contract.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Real Property Acquisitions and Development

5 unchanged sentences

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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended

June 30, 2020 June 30, 2019

Nine Months Ended

September 30, 2020 September 30, 2019

Seniors Housing Operating Triple-net Outpatient

5 unchanged sentences

Construction in progress — — — — 36,174 — — 36,174

Real property held for sale — — — — 17,435 — — 17,435

Right of use assets, net — — — — — — 58,377 58,377

Total net real estate assets 159,049 765 238,705 398,519 1,361,201 139,935 1,674,358 3,175,494

Receivables and other assets 257 — 139 396 6,742 — 419 7,161

16 unchanged sentences

Total cash invested in real property, net of cash acquired $ 352,754 $ 37,188 $ 313,455 $ 703,397 $ 1,606,102 $ 185,529 $ 1,677,663 $ 3,469,294

(1) Excludes $ 580,000 and $ 1,910,000 of unrestricted and restricted cash acquired during the six months ended June 30, 2020 and 2019, respectively.

(1) Excludes $ 580,000 and $ 1,910,000 of unrestricted and restricted cash acquired during the nine months ended September 30, 2020 and 2019, respectively.

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

3 unchanged sentences

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

Six Months Ended

June 30, 2020 June 30, 2019

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended

September 30, 2020 September 30, 2019

Development projects:

8 unchanged sentences

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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

In place lease intangibles $ 1,410,935 $ 1,513,836

10 unchanged sentences

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

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

10 unchanged sentences

Total $ 337,332 $ 39,723

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Dispositions and Assets Held for Sale

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 June 30, 2020, seven Seniors Housing Operating, three Triple-net, and 13 Outpatient Medical properties with an aggregate real estate balance of $ 382,580,000 were classified as held for sale.

At September 30, 2020, eight Seniors Housing Operating, two Triple-net, and 11 Outpatient Medical properties with an aggregate real estate balance of $ 362,886,000 were classified as held for sale.

In addition to the real property balances held for sale, secured debt of $ 12,737,000 and net other assets and (liabilities) of $ 21,063,000 are included in the Consolidated Balance Sheet related to the held for sale properties.

Expected gross sales proceeds related to the held for sale properties is approxi mately $ 501,008,000 .

During the three months ended June 30, 2020, the expected sale of a Seniors Housing Operating portfolio, which had previously met the held for sale criteria, was not completed.

As a result, 11 properties with a carrying value of $ 386,744,000 were reclassified to held for use.

During the three months ended March 31, 2020, we recorded impairment charges of $ 27,827,000 related to certain held for use properties for which the carrying value exceeded the fair values.

During the three months ended June 30, 2020, we entered into and subsequently closed a definitive purchase and sale agreement to sell six Seniors Housing Operating properties.

In conjunction with this transaction, an impairment charge of $ 56,371,000 was recognized.

During the three months ended June 30, 2020, we agreed to terms including pricing for the sale of a portfolio of six Seniors Housing Operating properties previously classified as held for sale resulting in an impairment charge of $ 18,780,000 .

Expected gross sales proceeds related to the held for sale properties is approximately $ 437,116,000 .

During the nine months ended September 30, 2020, we recorded $ 79,905,000 of impairment charges related to 13 Seniors Housing Operating and one Triple-net properties which were disposed of or classified as held for sale for which the carrying value exceeded the estimated fair value less cost to sell.

Additionally, during the nine months ended September 30, 2020, we recorded $ 46,386,000 of impairment charges related to four Seniors Housing Operating and four Triple-net properties that were held for use in which the carrying value exceeded the estimated fair value.

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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended June 30,

Nine Months Ended September 30,

Real estate dispositions:

3 unchanged sentences

Outpatient Medical

1,394,971 482

Total dispositions

6 unchanged sentences

The following represents the activity related to these properties for the periods presented (in thousands):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

14 unchanged sentences

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

Six Months Ended

Classification June 30, 2020 June 30, 2019

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Nine Months Ended

Classification September 30, 2020 September 30, 2019

Operating lease cost:

8 unchanged sentences

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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Classification June 30, 2020 December 31, 2019

Classification September 30, 2020 December 31, 2019

Right of use assets:

11 unchanged sentences

Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period.

During the three months ended March 31, 2020, we wrote off straight-line receivables of $ 32,268,000 in conjunction with the execution of a lease amendment.

Additionally, during the three months ended June 30, 2020, we recorded a reserve of $ 1,842,000 on straight-line receivable balances deemed uncollectible.

During the three and nine month periods ended September 30, 2020, we wrote off straight-line rent receivable balances of $ 112,398,000 and $ 146,508,000 , respectively, relating to leases for which collection of substantially all contractual lease payments was no longer deemed probable.

Included in such amounts was $ 91,025,000 relating to Genesis Healthcare whom noted substantial doubt as to their ability to continue as a going concern in August.

Leases in our Triple-net and Outpatient Medical portfolios typically include some form of operating expense reimbursement by the tenant.

For the six months ended June 30, 2020, we recognized $ 786,265,000 of rental income related to operating leases, of which $ 104,605,000 was for variable lease payments which primarily represents the reimbursement of operating costs such as common area maintenance expenses, utilities, insurance and real estate taxes.

For the six months ended June 30, 2019, we recognized $ 766,670,000 of rental income related to operating leases, of which $ 94,017,000 was for variable lease payments.

For the nine months ended September 30, 2020, we recognized $ 1,061,311,000 of rental income related to operating leases, of which $ 153,217,000 was for variable lease payments which 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, 2019, we recognized $ 1,178,817,000 of rental income related to operating leases, of which $ 147,815,000 was for variable lease payments.

Loans Receivable

3 unchanged sentences

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 $ 10,171,000 and $ 6,897,000 as of June 30, 2020 and December 31, 2019, respectively, and is included in receivables and other assets on the Consolidated Balance Sheets.

Accrued interest receivable was $ 12,039,000 and $ 6,897,000 as of September 30, 2020 and December 31, 2019, 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):

June 30, 2020 December 31, 2019

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 December 31, 2019

Mortgage loans $ 293,351 $ 188,062

6 unchanged sentences

Total loans receivable, net of credit allowance $ 796,855 $ 607,236

During the six months ended June 30, 2020, the real estate collateral associated with one loan was released, therefore, the principal balance of $ 86,411,000 and related allowance for credit losses of $ 42,376,000 was reclassified to a non-real estate loan.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

During the nine months ended September 30, 2020, the real estate collateral associated with one loan was released, therefore, the principal balance of $ 86,411,000 and related allowance for credit losses of $ 42,376,000 was reclassified to non-real estate loans.

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

Six Months Ended

June 30, 2020 June 30, 2019

Nine Months Ended

September 30, 2020 September 30, 2019

Advances on loans receivable:

7 unchanged sentences

Principal payments on loans

14,345 19,439

Net cash receipts on loans receivable

14,345 57,125

Net cash advances (receipts) on loans receivable $ 201,962 $ 33,731

10 unchanged sentences

The following is a summary of our loans by credit loss category (in thousands):

June 30, 2020

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020

Loan category Years of Origination Loan Carrying Value Allowance for Credit Loss Net Loan Balance No.

Deteriorated loans (1)

2007 - 2018 $ 249,314 $ ( 76,695 ) $ 172,619 7

Collective loan pool 2007 - 2015 129,949 ( 1,886 ) 128,063 15

Collective loan pool 2016 124,599 ( 1,612 ) 122,987 4

2016 184,620 ( 1,572 ) 183,048 6

Collective loan pool 2017 124,840 ( 1,074 ) 123,766 7

1 unchanged sentence

Collective loan pool 2019 49,274 ( 684 ) 48,590 7

Collective loan pool 2020 186,460 ( 2,693 ) 183,767 6

Total loans $ 881,750 $ ( 84,895 ) $ 796,855 47

(1) Carrying value is exclusive of deferred gains of $ 62,819,000 recorded in accrued expenses and other liabilities on the Consolidated Balance Sheets.

(1) During the three months ended September 30, 2020, two loans receivable originated in 2016 to Genesis Healthcare with an aggregate carrying value of $ 62,753,000 were transferred to the deteriorated loan pool.

The carrying value is exclusive of deferred gains of $ 62,819,000 recorded in accrued expenses and other liabilities on the Consolidated Balance Sheets.

In March 2019, we recognized a provision for loan losses of $ 18,690,000 to fully reserve for certain Triple-net real estate loans receivable that were no longer deemed collectible.

During the quarter ended June 30, 2019, these loans were written off.

During the six months ended June 30, 2020, we recognized a provision for credit losses of $ 6,898,000 to fully reserve for one Triple-net non-real estate loan receivable and $ 1,303,000 to fully reserve for one Triple-net real estate loan receivable that were no longer deemed collectible.

During the nine months ended September 30, 2020, we recognized a provision for credit losses of $ 6,898,000 to fully reserve for one Triple-net non-real estate loan receivable and $ 1,303,000 to fully reserve for one Triple-net real estate loan receivable that were no longer deemed collectible.

The following is a summary of the allowance for credit losses on loans receivable for the periods presented (in thousands):

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended

June 30, 2020 June 30, 2019

Nine Months Ended

September 30, 2020 September 30, 2019

Balance at beginning of period $ 68,372 $ 68,372

5 unchanged sentences

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

Six Months Ended

June 30, 2020 June 30, 2019

Nine Months Ended

September 30, 2020 September 30, 2019

Balance of deteriorated loans at end of period (1)

4 unchanged sentences

$ 13,847 $ 12,082

(1) Current year amounts include $ 10,716,000 and $ 2,534,000 of loans on non-accrual as of June 30, 2020 and December 31, 2019, respectively.

Prior year amounts include $ 2,534,000 and$ 2,567,000 as of June 30, 2019 and December 31, 2018, respectively.

(1) Current year amounts include $ 10,686,000 and $ 2,534,000 of loans on non-accrual as of September 30, 2020 and December 31, 2019, respectively.

Prior year amounts include $ 2,534,000 and $ 2,567,000 as of September 30, 2019 and December 31, 2018, respectively.

(2) Represents cash interest recognized in the period.

4 unchanged sentences

Percentage Ownership (1)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Seniors Housing Operating 10 % to 65 %

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(1) Excludes ownership of in substance real estate.

At June 30, 2020, the aggregate unamortized basis difference of our joint venture investments of $ 112,486,000 is primarily attributable to the difference between the amount for which we purchase our interest in the entity, including transaction costs, and the historical carrying value of the net assets of the joint venture.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

At September 30, 2020, the aggregate unamortized basis difference of our joint venture investments of $ 113,217,000 is primarily attributable to the difference between the amount for which we purchase 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 totaling $ 250,215,000 related to eight properties as of June 30, 2020 for the development and construction of certain properties which are classified as in substance real estate investments.

We have made loans totaling $ 285,369,000 related to eight properties as of September 30, 2020 for the development and construction of certain properties which are classified as in substance real estate investments.

We believe that such borrowers typically represent variable interest entities ("VIE" or "VIEs") in accordance with ASC 810 Consolidation.

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See Note 18 for additional information and reconciliation.

The following table summarizes certain information about our credit concentration for the six months ended June 30, 2020, excluding our share of NOI in unconsolidated entities (dollars in thousands):

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes certain information about our credit concentration for the nine months ended September 30, 2020, excluding our share of NOI in unconsolidated entities (dollars in thousands):

Concentration by relationship:

3 unchanged sentences

ProMedica 215 159,562 11 %

Genesis Healthcare 52 58,831 5 %

94 81,317 5 %

Avery Healthcare 59 56,192 4 %

Sagora Senior Living 31 50,539 3 %

Remaining portfolio 924 964,127 64 %

1 unchanged sentence

(1) Sunrise Senior Living and Revera are in our Seniors Housing Operating segment.

Genesis Healthcare and ProMedica are in our Triple-net segment.

Avery Healthcare is in both the Triple-net and Seniors Housing Operating segments.

ProMedica is in our Triple-net segment.

Avery Healthcare and Sagora Senior Living are in both the Triple-net and Seniors Housing Operating segments.

(2) NOI with our top five relationships comprised 37 % of total NOI for the year ended December 31, 2019.

1 unchanged sentence

Borrowings Under Credit Facilities and Commercial Paper Program

At June 30, 2020, we had a primary unsecured credit facility with a consortium of 31 banks that includes a $ 3,000,000,000 unsecured revolving credit facility (none outstanding at June 30, 2020), a $ 500,000,000 unsecured term credit facility and a $ 250,000,000 Canadian-denominated unsecured term credit facility.

At September 30, 2020, we had a primary unsecured credit facility with a consortium of 31 banks that includes a $ 3,000,000,000 unsecured revolving credit facility ( none outstanding at September 30, 2020), a $ 500,000,000 unsecured term credit facility and a $ 250,000,000 Canadian-denominated unsecured term credit facility.

We have an option, through an accordion feature, to upsize the unsecured revolving credit facility and the $ 500,000,000 unsecured term credit facility by up to an additional $ 1,000,000,000 , 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 $ 1,000,000,000 in alternate currencies ( none outstanding at June 30, 2020).

The primary unsecured credit facility also allows us to borrow up to $ 1,000,000,000 in alternate currencies ( none outstanding at September 30, 2020).

Borrowings under the unsecured revolving credit facility are subject to interest payable at the applicable margin over LIBOR interest rate.

The applicable margin is based on our debt ratings and was 0.825 % at June 30, 2020.

The applicable margin is based on our debt ratings and was 0.825 % at September 30, 2020.

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 June 30, 2020.

The facility fee depends on our debt ratings and was 0.15 % at September 30, 2020.

The term credit facilities mature on July 19, 2023.

1 unchanged sentence

In January 2019, we established an unsecured commercial paper program.

Under the terms of the 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 o f $ 1,000,000,000 (none outstanding at June 30, 2020).

Under the terms of the 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 ( none outstanding at September 30, 2020).

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 June 30, Six Months Ended June 30,

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

13 unchanged sentences

Redemptions and repurchases of debt, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.

At June 30, 2020, the annual principal payments due on these debt obligations were as follows (in thousands):

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

At September 30, 2020, the annual principal payments due on these debt obligations were as follows (in thousands):

Unsecured Notes (1,2)

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(3) Annual interest rates range from 0.10 % to 12.00 %.

Carrying value of the properties securing the debt totaled $ 5,774,000 at June 30, 2020.

Carrying value of the properties securing the debt totaled $ 5,315,000 ,000 at September 30, 2020.

(4) Includes a $ 860,000,000 unsecured term credit facility.

The loan matures on April 1, 2022 and bears interest at LIBOR plus 1.20 % ( 1.38 % at June 30, 2020).

The loan matures on April 1, 2022 and bears interest at LIBOR plus 1.20 % ( 1.34 % at September 30, 2020).

(5) Includes a $ 250,000,000 Canadian-denominated unsecured term credit facility (approximately $ 187,645,000 based on the Canadian/U.S.

Dollar exchange rate on June 30, 2020).

The loan matures on July 19, 2023 and bears interest at the Canadian Dealer Offered Rate plus 0.9 % ( 1.42 % at June 30, 2020).

Dollar exchange rate on September 30, 2020).

The loan matures on July 19, 2023 and bears interest at the Canadian Dealer Offered Rate plus 0.9 % ( 1.38 % at September 30, 2020).

(6) Includes a $ 500,000,000 unsecured term credit facility.

The loan matures on July 19, 2023 and bears interest at LIBOR plus 0.9 % ( 1.09 % at June 30, 2020).

The loan matures on July 19, 2023 and bears interest at LIBOR plus 0.9 % ( 1.06 % at September 30, 2020).

(7) Includes a $ 300,000,000 Canadian-denominated 2.95 % senior unsecured notes due 2027 (approximately $ 225,175,000 based on the Canadian/U.S.

Dollar exchange rate on June 30, 2020).

Dollar exchange rate on September 30, 2020).

(8) Includes a £ 550,000,000 4.80 % senior unsecured notes due 2028 (approximately $ 710,655,000 based on the Sterling/U.S.

Dollar exchange rate in effect on June 30, 2020).

Dollar exchange rate in effect on September 30, 2020).

(9) Includes a £ 500,000,000 4.50 % senior unsecured notes due 2034 (approximately $ 646,050,000 based on the Sterling/U.S.

Dollar exchange rate in effect on June 30, 2020).

Dollar exchange rate in effect on September 30, 2020).

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

Six Months Ended

June 30, 2020 June 30, 2019

Nine Months Ended

September 30, 2020 September 30, 2019

Weighted Avg.

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Ending balance $ 11,413,277 3.67 % $ 9,817,276 4.12 %

In April, we closed on our previously announced $ 1.0 billion two-year unsecured term loan due April 2022.

The term loan bears interest at a rate of 1-month LIBOR + 1.20 %, based on our credit rating.

On June 30, 2020, we completed the issuance of $ 600 million senior unsecured notes bearing interest at 2.75 % with a maturity date of January 2031.

On July 1, 2020 net proceeds were used to extinguish $ 160,872,000 of our 3.75 % senior unsecured notes due March 2023 and $ 265,376,000 of our 3.95 % senior unsecured notes due September 2023.

We recognized a loss on extinguishment of $ 31,940,000 in July in conjunction with the transaction.

Additionally, on July 2, 2020 we repaid $ 140,000,000 on our unsecured term loan.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Six Months Ended

June 30, 2020 June 30, 2019

Nine Months Ended

September 30, 2020 September 30, 2019

Weighted Avg.

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Ending balance $ 2,469,188 3.16 % $ 2,639,015 3.66 %

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In October of 2020, we extinguished $ 20,790,000 of secured bonds due 2038, $ 17,640,000 of secured bonds due 2040 and $ 73,140,000 of secured bonds due 2041 that were defeased in September of 2020.

We recognized a loss on extinguishment of $ 12,204,000 in conjunction with the transaction.

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 June 30, 2020, we were in compliance with all of the covenants under our debt agreements.

As of September 30, 2020, we were in compliance with all of the covenants under our debt agreements.

Derivative Instruments

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Gains and losses when we settle our interest rate locks are amortized into income over the life of the related debt, except where a material amount is deemed to be ineffective, which would be immediately reclassified to the Consolidated Statements of Comprehensive Income.

Approximately $ 1,557,000 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

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Dollar of the instrument is recorded as a cumulative translation adjustment component of OCI.

During the six months ended June 30, 2020 and 2019, we settled certain net investment hedges generating cash proceeds of $ 3,485,000 and $ 6,716,000 , respectively.

During the nine months ended September 30, 2020 and 2019, we settled certain net investment hedges generating cash proceeds of $ 3,485,000 and $ 6,716,000 , respectively.

The balance of the cumulative translation adjustment will be reclassified to earnings if the hedged investment is sold or substantially liquidated.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Derivative Contracts Undesignated

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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Derivatives designated as net investment hedges:

Denominated in Canadian Dollars $ 650,000 $ 725,000

Denominated in Pounds Sterling £ 1,340,708 £ 1,340,708

Denominated in Pound Sterling £ 1,340,708 £ 1,340,708

Financial instruments designated as net investment hedges:

Denominated in Canadian Dollars $ 250,000 $ 250,000

Denominated in Pounds Sterling £ 1,050,000 £ 1,050,000

Denominated in Pound Sterling £ 1,050,000 £ 1,050,000

Interest rate swaps designated as cash flow hedges:

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

Forward purchase contracts denominated in Pounds Sterling £ — £ ( 125,000 )

Forward sales contracts denominated in Pounds Sterling £ — £ 125,000

(1) At June 30, 2020 the maximum maturity date was July 15, 2021.

Forward purchase contracts denominated in Pound Sterling £ — £ ( 125,000 )

Forward sales contracts denominated in Pound Sterling £ — £ 125,000

(1) At September 30, 2020 the maximum maturity date was July 15, 2021.

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

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

Description Location 2020 2019 2020 2019

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Commitments and Contingencies

At June 30, 2020, we had 8 outstanding letter of credit obligations totaling $ 37,014,000 and expiring between 2020 and 2024.

At June 30, 2020, we had outstanding construction in progress of $ 411,700,000 and were committed to providing additional funds of approximately $ 332,074,000 to complete construction.

Additionally, at June 30, 2020, we had outstanding investments classified as in substance real estate of $ 250,215,000 and were committed to provide additional funds of $ 212,306,000 (see Note 8 for additional information).

Purchase obligations at June 30, 2020 also include $ 19,442,000 of contingent purchase obligations to fund capital improvements.

At September 30, 2020, we had 8 outstanding letter of credit obligations totaling $ 14,200,000 and expiring between 2020 and 2024.

At September 30, 2020, we had outstanding construction in progress of $ 414,833,000 and were committed to providing additional funds of approximately $ 342,232,000 to complete construction.

Additionally, at September 30, 2020, we had outstanding investments classified as in substance real estate of $ 285,369,000 and were committed to provide additional funds of $ 172,169,000 (see Note 8 for additional information).

Purchase obligations at September 30, 2020 also include $ 18,488,000 of contingent purchase obligations to fund capital improvements.

Rents due from the tenant are increased to reflect the additional investment in the property.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Stockholders’ Equity

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

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Preferred Stock:

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Preferred Stock The following is a summary of our preferred stock activity during the periods indicated:

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended

June 30, 2020 June 30, 2019

Nine Months Ended

September 30, 2020 September 30, 2019

Weighted Avg.

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Ending balance — — % — — %

During the six months ended June 30, 2019, we converted all of the outstanding Series I Preferred Stock.

During the nine months ended September 30, 2019, we converted all of the outstanding Series I Preferred Stock.

Each share was converted into 0.8857 shares of common stock.

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The Equity Shelf Program also allows us to enter into forward sale agreements.

During the six months ended June 30, 2020, we physically settled all of our outstanding forward sales agreements for cash proceeds of $ 576,196,000 .

As of June 30, 2020, we h ad $ 499,341,000 of remaining capacity under the Equity Shelf Program.

During the nine months ended September 30, 2020, we physically settled all of our outstanding forward sales agreements for cash proceeds of $ 576,196,000 .

As of September 30, 2020, we h ad $ 499,341,000 of remaining capacity under the Equity Shelf Program.

On May 1, 2020, our Board of Directors authorized a share repurchase program whereby we may repurchase up to $ 1 billion of common stock through December 31, 2021 (the "Repurchase Program").

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We expect to finance any share repurchases under the Repurchase Program using available cash and may use proceeds from borrowings or debt offerings.

During the six months ended June 30, 2020, we repurchased 201,947 shares at an averag e price of $ 37.89 per share.

The following is a summary of our common stock issuances during the six months ended June 30, 2020 and 2019 (dollars in thousands, except shares and average price amounts):

During the nine months ended September 30, 2020, we repurchase d 201,947 shares at an average price of $ 37.89 per share.

The following is a summary of our common stock issuances during the nine months ended September 30, 2020 and 2019 (dollars in thousands, except shares and average price amounts):

Shares Issued Average Price Gross Proceeds Net Proceeds

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2020 Totals 7,250,376 $ 607,189 $ 595,313

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Dividends The decrease in dividends is attributable to the declaration of a reduced cash dividend beginning with the quarter ending March 31, 2020.

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

Six Months Ended

June 30, 2020 June 30, 2019

Nine Months Ended

September 30, 2020 September 30, 2019

Per Share Amount Per Share Amount

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

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Foreign currency translation $ ( 820,555 ) $ ( 719,814 )

1 unchanged sentence

Total accumulated other comprehensive income (loss) $ ( 126,469 ) $ ( 112,157 )

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Stock Incentive Plans

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Options expire ten years from the date of grant.

Stock-based compensation expense totaled $ 7,290,000 and $ 14,373,000 for the three and six months ended June 30, 2020, respectfully, and $ 7,662,000 and $ 15,192,000 for the same periods in 2019.

Stock-based compensation expense totaled $ 6,565,000 and $ 20,938,000 for the three and nine months ended September 30, 2020, respectfully, and $ 5,309,000 and $ 20,501,000 for the same periods in 2019.

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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Effect of dilutive securities:

Employee stock options

Non-vested restricted shares

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The three levels are defined below:

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

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

June 30, 2020 December 31, 2019

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2020 December 31, 2019

Carrying Amount Fair Value Carrying Amount Fair Value

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The following summarizes items measured at fair value on a recurring basis (in thousands):

Fair Value Measurements as of June 30, 2020

Fair Value Measurements as of September 30, 2020

Total Level 1 Level 2 Level 3

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(1) Please see Note 12 for additional information.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Items Measured at Fair Value on a Nonrecurring Basis

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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

Segment Reporting

16 unchanged sentences

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.

There are no intersegment sales or transfers.

All intersegment transactions are eliminated.

WELLTOWER INC.

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

Three Months Ended June 30, 2020:

Three Months Ended September 30, 2020:

Seniors Housing Operating Triple-net Outpatient Medical Non-segment / Corporate Total

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Total assets $ 15,063,405 $ 9,075,910 $ 6,892,502 $ 1,509,780 $ 32,541,597

Three Months Ended June 30, 2019:

Three Months Ended September 30, 2019:

Seniors Housing Operating Triple-net Outpatient Medical Non-segment / Corporate Total

10 unchanged sentences

Loss (gain) on derivatives and financial instruments, net — 1,244 — — 1,244

Loss (gain) on extinguishment of debt, net 1,450 — — 64,374 65,824

Impairment of assets 2,599 12,314 3,183 — 18,096

9 unchanged sentences

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Six Months Ended June 30, 2020 Seniors Housing Operating Triple-net Outpatient Medical Non-segment / Corporate Total

Nine Months Ended September 30, 2020 Seniors Housing Operating Triple-net Outpatient Medical Non-segment / Corporate Total

Resident fees and services $ 2,360,488 $ — $ — $ — $ 2,360,488

19 unchanged sentences

Net income (loss) $ 331,068 $ 343,069 $ 690,072 $ ( 480,635 ) $ 883,574

Six Months Ended June 30, 2019 Seniors Housing Operating Triple-net Outpatient Medical Non-segment / Corporate Total

Nine Months Ended September 30, 2019 Seniors Housing Operating Triple-net Outpatient Medical Non-segment / Corporate Total

Resident fees and services $ 2,616,491 $ — $ — $ — $ 2,616,491

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The following is a summary of geographic information for the periods presented (dollars in thousands):

Three Months Ended Six Months Ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

% Amount % Amount (1)

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Total $ 1,036,874 100.0 % $ 1,266,133 100.0 % $ 3,483,951 100.0 % $ 3,858,484 100.0 %

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Amount % Amount %

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Total $ 32,541,597 100.0 % $ 33,380,751 100.0 %

(1) The United States, United Kingdom and Canada represent 77 %, 10 % and 13 %, respectively, of our resident fees and services revenue stream for the three and six months ended June 30, 2020.

(1) The United States, United Kingdom and Canada represent 76 %, 11 % and 13 %, respectively, of our resident fees and services revenue stream for the three and nine months ended September 30, 2020.

Income Taxes and Distributions

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income based or withholding taxes on certain investments located in jurisdictions outside the U.S.

The provision for income taxes for the six months ended June 30, 2020 and 2019, was primarily due to operating income or losses, offset by certain discrete items at our TRS entities.

The provision for income taxes for the nine months ended September 30, 2020 and 2019, 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.

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NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

On March 27, 2020, the President of the United States signed the Coronavirus Aid Relief, and Economic Security Act (“CARES Act”) into law.

The CARES Act, among its economic stimulus provisions, includes a number of tax provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carrybacks, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

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Accordingly, such joint ventures have been consolidated, and the table below summarizes the balance sheets of consolidated VIEs in the aggregate (in thousands):

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Net real estate investments $ 456,006 $ 960,093

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Cautionary Statement Regarding Forward-Looking Statements 55

Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis is based primarily on the unaudited consolidated financial statements of Welltower Inc.

for the periods presented and should be read together with the notes thereto contained in this Quarterly Report on Form 10-Q.

Other important factors are identified in our Annual Report on Form 10-K for the year ended December 31, 2019, including factors identified under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations" and updated risk factors in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

References herein to “we,” “us,” “our,” or the “Company” refer to Welltower Inc.

and its subsidiaries unless specifically noted otherwise.

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™, a real estate investment trust (“REIT”), owns interests in properties concentrated in major, high-growth markets in the United States (U.S.), Canada and the United Kingdom (U.K.), consisting of seniors housing and post-acute communities and outpatient medical properties.

The following table summarizes our consolidated portfolio for the three months ended September 30, 2020 (dollars in thousands):

Percentage of Number of

Type of Property NOI (1)

NOI Properties

Seniors Housing Operating $ 174,361 43.3 % 515

Triple-net 108,361 26.9 % 652

Outpatient Medical 119,976 29.8 % 321

Totals $ 402,698 100.0 % 1,488

(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 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 and the direct and indirect economic effects of the pandemic and containment measures, among others.

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.

Our Seniors Housing Operating revenues are dependent on occupancy.

While admission bans were lifted across our portfolio during the second quarter and in July, move-out activity continued to outpace move-ins, resulting in occupancy losses throughout the period.

Month-to-date, through October 23, 2020, total SHO portfolio occupancy declined by approximately 30 basis points.

Consequently, we anticipate total SHO portfolio spot occupancy to decline 75 to 125 basis points in the fourth quarter relative to September 30, 2020.

We have incurred increased operational costs as a result of the introduction of public health measures and other regulations affecting our properties, as well as additional health and safety measures adopted by us and our operators related to the COVID-19 pandemic, including increases in labor and property cleaning expenses and expenditures related to our efforts to procure PPE 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.

Our Triple-net operators are experiencing similar occupancy declines and operating costs as described above 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.

Our Outpatient Medical tenants are experiencing temporary medical practice closures or decreases in revenue due to government-imposed restrictions on elective medical procedures, stay at home orders or decisions by patients to delay

Management's Discussion and Analysis of Financial Condition and Results of Operations

treatments which may continue to adversely affect their ability to make contractual rent payments.

These factors have and may continue to cause operators or tenants to seek modifications of such obligations, resulting in reductions in revenue and increases in uncollectible receivables.

We will evaluate each request on a case-by-case basis and determine if a form of rent relief is warranted following an examination of the tenant’s financial health, rent coverage, current operating situation and other factors.

We have either collected or approved short term deferrals for over 99 % of Outpatient Medical rent due in the third quarter, consisting of 97 % cash collections and 2% of short term deferrals.

In most cases, unless local ordinances mandate otherwise, the deferred rent represents two months of rent with expected repayment by the end of the year.

Furthermore, collections of deferred rent due in the third quarter under executed deferrals was over 99%.

As a result of uncertainty regarding the length and severity of the COVID-19 pandemic and the impact of the pandemic on our business and related industries, our investments in and acquisitions of senior housing and health care properties, as well as our ability to transition or sell properties with profitable results, may be limited.

We have a significant development portfolio as of September 30, 2020.

To date we have only experienced minor construction and licensing delays with respect to our development portfolio, but may experience more significant delays in the future.

Such disruptions to acquisition, disposition and development activity may negatively impact our long-term competitive position.

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, 2020, resident fees and services and rental income represented 68% and 30%, 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 and general and administrative

Management's Discussion and Analysis of Financial Condition and Results of Operations

Depending upon the availability and cost of external capital, we believe our liquidity is sufficient to fund these uses of cash.

We also continuously evaluate opportunities to finance future investments.

New investments are generally funded from temporary borrowings under our unsecured revolving credit facility and commercial paper program, internally generated cash and the proceeds from investment dispositions.

Our investments generate cash from NOI and principal payments on loans receivable.

Permanent financing for future investments, which replaces funds drawn under our unsecured revolving credit facility and commercial paper program, has historically been provided through a combination of the issuance of public debt and equity securities and the incurrence or assumption of secured debt.

Depending upon market conditions, we believe that new investments will be available in the future with spreads over our cost of capital that will generate appropriate returns to our stockholders.

It is also likely that investment dispositions may occur in the future.

To the extent that investment dispositions exceed new investments, our revenues and cash flows from operations could be adversely affected.

We expect to reinvest the proceeds from any investment dispositions in new investments.

To the extent that new investment requirements exceed our avai lable cash on-hand, we expect to borrow under our unsecured revolving credit facility and commercial paper program.

At September 30, 2020, we had $1,603,740,000 of cash and cash equivalents, $551,593,000 of restricted cash and $3,000,000,000 of available borrowing capacity under our unsecured revolving credit facility.

Key Transactions

Capital The foll owing summarizes key capital transaction that occurred during the nine months ended September 30, 2020 and subsequent events:

• During the nine months ended September 30, 2020, we extinguished $491,506,000 of secured debt at a blended average interest rate of 2.61%.

• During the nine months ended September 30, 2020, we sold 2,128,000 shares of common stock under our ATM and DRIP programs, via both cash settle and forward sale agreements, generating gross proceeds of approximately $175,484,000.

The sale of these shares and settlement of previously outstanding forward sales resulted in gross proceeds of approximately $607,177,000 which were used to reduce borrowings under our unsecured revolving credit facility.

• In April, we closed on a $1.0 billion two-year unsecured term loan.

The term loan bears interest at a rate of 1-month LIBOR + 1.20%, based on our credit rating.

• On June 30, 2020, we completed the issuance of $600,000,000 senior unsecured notes bearing interest at 2.75% with a maturity date of January 2031.

Net proceeds were used to fund tender offers for $426,248,000 of our 3.75% senior unsecured notes due 2023 and our 3.95% senior unsecured notes due 2023 which settled on July 1, 2020.

The remaining proceeds were used to reduce borrowings under our term loan by $140 million.

Investments The following summarizes our property acquisitions and joint venture investments completed during the nine months ended September 30, 2020 (dollars in thousands):

Properties Investment Amount (1)

Capitalization Rates (2)

Book Amount (3)

Seniors Housing Operating 6 $ 168,725 4.9 % $ 159,049

Triple-net (4)

Outpatient Medical 16 235,387 6.1 % 238,705

Totals 22 $ 404,112 5.6 % $ 398,519

(1) Represents stated pro rata purchase price including cash and any assumed debt but excludes fair value adjustments pursuant to U.S.

(2) Represents annualized contractual or projected net operating income to be received in cash divided by investment amounts.

(3) Represents amounts recorded in net real estate investments including fair value adjustments pursuant to U.S.

See Note 3 to our unaudited consolidated financial statements for additional information.

(4) Represents the acquisition of a condo unit at a previously acquired property.

Dispositions The following summarizes property dispositions completed during the nine months ended September 30, 2020 (dollars in thousands):

Management's Discussion and Analysis of Financial Condition and Results of Operations

Properties Proceeds (1)

Capitalization Rates (2)

Book Amount (3)

Seniors Housing Operating 25 $ 1,099,585 5.0 % $ 1,093,477

Triple-net 6 78,439 6.5 % 33,445

Outpatient Medical 82 1,863,719 5.6 % 1,394,971

Totals 113 $ 3,041,743 5.4 % $ 2,521,893

(1) Represents pro rata proceeds received upon disposition including any seller financing.

(2) Represents annualized contractual income that was being received in cash at date of disposition divided by disposition proceeds.

(3) Represents carrying value of net real estate assets at time of disposition.

See Note 5 to our unaudited consolidated financial statements for additional information.

Dividends Our Board of Directors declared a cash dividend for the quarter ended September 30, 2020 of $0.61 per share.

On November 19, 2020, we will pay our 198 th consecutive quarterly cash dividend to stockholders of record on November 10, 2020.

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.

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,

2020 2020 2020 2019 2019 2019 2019

Net income (loss) $ 394,978 $ 159,216 $ 329,380 $ 240,136 $ 647,932 $ 150,040 $ 292,302

NICS 325,585 179,246 310,284 224,324 589,876 137,762 280,470

FFO 185,014 335,597 356,124 476,298 352,378 390,021 358,383

NOI 402,157 527,711 576,821 600,302 610,545 618,979 601,438

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 Internal Revenue Code section 1031 deposits.

The coverage ratios indicate our ability to service interest and fixed charges (interest, secured debt principal amortization and preferred dividends).

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,

2020 2020 2020 2019 2019 2019 2019

Net debt to book capitalization ratio 41% 43% 44% 46% 45% 48% 43%

Net debt to undepreciated book capitalization ratio 34% 35% 37% 39% 38% 41% 36%

Net debt to market capitalization ratio 33% 36% 40% 30% 26% 30% 28%

Interest coverage ratio 6.23x 4.29x 5.42x 4.64x 7.61x 3.74x 4.80x

Fixed charge coverage ratio 5.52x 3.84x 4.88x 4.20x 6.96x 3.42x 4.38x

Management's Discussion and Analysis of Financial Condition and Results of Operations

Concentration Risk We evaluate our concentration risk in terms of NOI by property mix, relationship mix and geographic mix.

Concentration risk is a valuable measure in understanding what portion of our NOI could be at risk if certain sectors were to experience downturns.

Property mix measures the portion of our NOI that relates to our various property types.

Relationship mix measures the portion of our NOI that relates to our current top five relationships.

Geographic mix measures the portion of our NOI that relates to our current top five states (or international equivalents).

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

Three Months Ended

September 30, June 30, March 31, December 31, September 30, June 30, March 31,

2020 2020 2020 2019 2019 2019 2019

Property mix:

Seniors Housing Operating 43% 34% 42% 40% 42% 45% 44%

Triple-net 27% 42% 34% 38% 38% 37% 39%

Outpatient Medical 30% 24% 24% 22% 20% 18% 17%

Relationship mix:

Sunrise Senior Living (2)

15% 10% 14% 14% 14% 14% 15%

ProMedica 13% 10% 9% 9% 9% 9% 9%

6% 5% 6% 6% 6% 6% 6%

Avery Healthcare 5% 3% 3% 3% 3% 3% 3%

Sagora Senior Living 4% 3% 3% 3% 3% 3% 3%

Remaining relationships 57% 69% 65% 65% 65% 65% 64%

Geographic mix:

California 17% 14% 15% 13% 14% 13% 13%

United Kingdom 12% 8% 9% 9% 8% 8% 9%

Texas 12% 10% 7% 9% 8% 8% 8%

Canada 8% 6% 7% 7% 7% 7% 7%

Florida 6% 5% 6% 6% 5% 5% 5%

Remaining geographic areas 45% 57% 56% 56% 58% 59% 58%

(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) Revera owns a controlling interest in Sunrise Senior Living.

Lease Expirations The following table sets forth information regarding lease expirations for certain portions of our portfolio as of September 30, 2020 (dollars in thousands):

Expiration Year (1)

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 Thereafter

Properties 26 7 10 2 4 28 72 18 15 15 440

Base rent (2)

$ 26,447 $ 12,550 $ 7,881 $ 840 $ 11,262 $ 25,687 $ 87,128 $ 35,574 $ 22,557 $ 31,309 $ 506,445

% of base rent 3.4 % 1.6 % 1.0 % 0.1 % 1.5 % 3.3 % 11.3 % 4.6 % 2.9 % 4.1 % 66.2 %

Units/beds 1,987 1,316 1,102 1,337 692 1,759 5,451 2,350 1,633 1,429 45,984

% of Units/beds 3.1 % 2.0 % 1.7 % 2.1 % 1.1 % 2.7 % 8.4 % 3.6 % 2.5 % 2.2 % 70.6 %

Outpatient Medical:

Square feet 550,600 1,413,849 1,935,563 2,028,635 2,084,623 1,223,469 1,113,705 1,057,247 940,345 784,443 5,386,478

Base rent (2)

$ 14,992 $ 42,122 $ 54,741 $ 55,591 $ 62,579 $ 33,639 $ 30,609 $ 27,399 $ 24,754 $ 21,626 $ 113,948

% of base rent 3.1 % 8.7 % 11.4 % 11.5 % 13.0 % 7.0 % 6.4 % 5.7 % 5.1 % 4.5 % 23.6 %

Leases 137 360 387 413 342 250 163 141 121 83 212

% of Leases 5.3 % 13.8 % 14.8 % 15.8 % 13.1 % 9.6 % 6.2 % 5.4 % 4.6 % 3.2 % 8.2 %

(1) Excludes 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's Discussion and Analysis of Financial Condition and Results of Operations

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, 2019, under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 for updated risk factors.

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

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, 2020 September 30, 2019 $ %

Cash, cash equivalents and restricted cash at beginning of period $ 385,765 $ 316,129 $ 69,636 22 %

Cash provided from (used in) operating activities 1,109,584 1,209,900 (100,316) -8 %

Cash provided from (used in) investing activities 2,329,745 (1,058,325) 3,388,070 320 %

Cash provided from (used in) financing activities (1,666,195) (132,533) (1,533,662) -1,157 %

Effect of foreign currency translation (3,566) (4,436) 870 20 %

Cash, cash equivalents and restricted cash at end of period $ 2,155,333 $ 330,735 $ 1,824,598 552 %

Operating Activities The changes in net cash provided from operating activities are primarily attributable to declines in revenue and increases in property operating expenses, as well as the impact of short-term rent deferrals granted as a result of the COVID-19 pandemic in 2020.

Please see “Results of Operations” for discussion of net income fluctuations.

For the nine months ended September 30, 2020 and 2019 , 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” and Notes 3 and 5 of our unaudited consolidated financial statements.

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, 2020 September 30, 2019 $

New development $ 126,699 $ 258,113 $ (131,414)

Recurring capital expenditures, tenant improvements and lease commissions 61,047 86,488 (25,441)

Renovations, redevelopments and other capital improvements 122,277 119,925 2,352

Total $ 310,023 $ 464,526 $ (154,503)

Management's Discussion and Analysis of Financial Condition and Results of Operations

The change in new development is primarily due to the number and size of construction projects on-going during the relevant periods.

Renovations, redevelopments and other capital improvements include expenditures to maximize property value, increase net operating income, maintain a market-competitive position and/or achieve property stabilization.

Financing Activities The changes in net cash provided from/used in financing activities are primarily attributable to changes related to our long-term debt arrangements, the issuances of common stock and dividend payments which are summarized above in "Key Transactions".

Please refer to Notes 10, 11 and 14 of our unaudited consolidated financial statements for additional information.

On April 1, 2020, in response to uncertain financial market conditions arising from the COVID-19 pandemic, we undertook steps to strengthen our balance sheet and to enhance our liquidity by entering into a $1.0 billion two-year unsecured term loan.

Additionally, on June 30, 2020, we completed the issuance of $600 million senior unsecured notes with a maturity date of January 2031.

Net proceeds were used to fund tender offers for $426 million of our 3.75% senior unsecured notes due 2023 and our 3.95% senior unsecured notes due 2023, which settled on July 1, 2020.

The remaining proceeds were used to reduce borrowings under the term loan by $140 million.

As of September 30, 2020, we have total near-term available liquidity of approximately $4.6 billion.

However, we are unable to accurately predict the full impact that the pandemic will have on our results from operations, financial condition, liquidity and cash flows due to numerous factors discussed in Part II Item 1A.

Risk Factors in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.

Off-Balance Sheet Arrangements

At September 30, 2020, we had investments in unconsolidated entities with our ownership generally ranging from 10% to 65%.

We use financial derivative instruments to hedge interest rate and foreign currency exchange rate exposure.

At September 30, 2020, we had 8 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, 2020 (in thousands):

Payments Due by Period

Contractual Obligations Total 2020 2021-2022 2023-2024 Thereafter

Unsecured credit facility and commercial paper (1,2)

$ — $ — $ — $ — $ —

Senior unsecured notes and term credit facilities:

Dollar senior unsecured notes 8,273,752 — — 2,023,752 6,250,000

Canadian Dollar senior unsecured notes (3)

225,175 — — — 225,175

Pounds Sterling senior unsecured notes (3)

1,356,705 — — — 1,356,705

Dollar term credit facility 1,370,000 — 870,000 500,000 —

Canadian Dollar term credit facility (3)

187,645 — — 187,645 —

Secured debt:

Consolidated 2,469,188 75,915 882,864 507,935 1,002,474

Unconsolidated 952,930 20,915 87,265 132,023 712,727

Contractual interest obligations:

Unsecured credit facility and commercial paper — — — — —

Senior unsecured notes and term loans (3)

3,954,897 123,819 829,951 745,026 2,256,101

Consolidated secured debt (3)

340,237 19,445 128,546 75,153 117,093

Unconsolidated secured debt (3)

194,536 7,987 60,686 54,609 71,254

Financing lease liabilities (5)

200,179 2,972 17,195 70,880 109,132

Operating lease liabilities (5)

1,032,932 5,305 40,848 38,607 948,172

Purchase obligations (6)

532,889 143,987 303,629 72,868 12,405

Total contractual obligations $ 21,091,065 $ 400,345 $ 3,220,984 $ 4,408,498 $ 13,061,238

(1) Relates to our unsecured credit facility and commercial paper with an aggregate commitment of $3,000,000,000.

See Note 10 to our unaudited consolidated financial statements for additional information.

(2) Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet.

(3) Based on foreign currency exchange rates in effect as of balance sheet date.

(4) Based on variable interest rates in effect as of balance sheet date.

(5) See Note 6 to our unaudited consolidated financial statements for additional information.

(6) See Note 13 to our unaudited consolidated financial statements for additional information.

Management's Discussion and Analysis of Financial Condition and Results of Operations

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, 2020, we were in compliance with all of 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 May 17, 2018, we filed with the Securities and Exchange Commission (1) an open-ended automatic or “universal” shelf registration statement covering an indeterminate amount of future offerings of debt securities, common stock, preferred stock, depositary shares, warrants and units and (2) a registration statement in connection with our enhanced dividend reinvestment plan (“DRIP”) under which we may issue up to 15,000,000 shares of common stock.

As o f October 23, 2020, 2,541,750 shares of common stock remained available for issuance under the DRIP registration statement.

On February 25, 2019, we entered into separate amended and restated equity distribution agreements with each of Barclays Capital Inc., Citigroup Global Markets Inc., Credit Agricole Securities (USA) Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co.

Morgan Securities LLC, KeyBanc Capital Markets Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co.

LLC, MUFG Securities Americas Inc., RBC Capital Markets, LLC, UBS Securities LLC and Wells Fargo Securities, LLC relating to the offer and sale from time to time of up to $1,500,000,000 aggregate amount of our common stock (“Equity Shelf Program”).

The Equity Shelf Program also allows us to enter into forward sale agreements.

As of October 23, 2020, we had $499,341,000 of remaining capacity under the Equity Shelf Program and there were no outstanding forward sales agreements.

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.

Results of Operations

Our primary sources of revenue include resident fees and services, rent and interest income.

Our primary expenses include property operating expenses, depreciation and amortization, interest expense, general and administrative expenses and other expenses.

We evaluate our business and make resource allocations on our three business segments:

Seniors Housing Operating, Triple-net and Outpatient Medical.

The primary performance measures for our properties are NOI and same store NOI ("SSNOI"), and other supplemental measures include FFO and EBITDA, which are further discussed below.

Please see Non-GAAP Financial Measures for additional information and reconciliations.

The following is a summary of our results of operations (dollars in thousands, except per share amounts):

Three Months Ended Change Nine Months Ended Change

September 30, September 30, September 30, September 30,

2020 2019 Amount % 2020 2019 Amount %

Net income $ 394,978 $ 647,932 $ (252,954) -39 % $ 883,574 $ 1,090,274 $ (206,700) -19 %

NICS 325,585 589,876 (264,291) -45 % 815,115 1,008,108 (192,993) -19 %

FFO 185,014 352,378 (167,364) -47 % 876,735 1,100,782 (224,047) -20 %

EBITDA 777,364 1,061,688 (284,324) -27 % 2,082,171 2,286,403 (204,232) -9 %

NOI 402,157 610,545 (208,388) -34 % 1,506,689 1,830,962 (324,273) -18 %

SSNOI 421,974 480,230 (58,256) -12 % 1,142,628 1,270,094 (127,466) -10 %

Per share data (fully diluted):

NICS $ 0.77 $ 1.45 $ (0.68) -47 % $ 1.94 $ 2.51 $ (0.55) -22 %

FFO $ 0.44 $ 0.87 $ (0.43) -49 % $ 2.10 $ 2.74 $ (0.64) -23 %

Interest coverage ratio 6.23 x 7.61 x (1.38) x -18 % 5.31 x 5.36 x (0.05) x -1 %

Fixed charge coverage ratio 5.52 x 6.96 x (1.44) x -21 % 4.74 x 4.90 x (0.16) x -3 %

Management's Discussion and Analysis of Financial Condition and Results of Operations

Seniors Housing Operating

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

QTD Pool YTD Pool

Three Months Ended Change Nine Months Ended Change

September 30, 2020 September 30, 2019 $ % September 30, 2020 September 30, 2019 $ %

$ 161,601 $ 220,797 $ (59,196) -26.8 % $ 461,268 $ 577,971 $ (116,703) -20.2 %

(1) For the three and nine months ended September 30, 2020 and 2019, amounts relate to 512 and 402 same store properties, respectively.

Please see Non-GAAP Financial Measures for additional information and reconciliations.

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

Three Months Ended Change Nine Months Ended Change

September 30, September 30, September 30, September 30,

2020 2019 $ % 2020 2019 $ %

Resident fees and services

$ 740,956 $ 834,121 $ (93,165) -11 % $ 2,360,488 $ 2,616,491 $ (256,003) -10 %

Interest income

113 — 113 n/a 305 — 305 n/a

996 1,375 (379) -28 % 6,050 6,920 (870) -13 %

Total revenues

742,065 835,496 (93,431) -11 % 2,366,843 2,623,411 (256,568) -10 %

Property operating expenses 567,704 581,341 (13,637) -2 % 1,771,088 1,826,344 (55,256) -3 %

174,361 254,155 (79,794) -31 % 595,755 797,067 (201,312) -25 %

Other expenses:

Depreciation and amortization

133,224 148,126 (14,902) -10 % 419,161 416,252 2,909 1 %

Interest expense

12,728 16,356 (3,628) -22 % 43,191 52,179 (8,988) -17 %

Loss (gain) on extinguishment of debt, net

— 1,450 (1,450) -100 % (492) 1,450 (1,942) -134 %

Provision for loan losses 86 — 86 n/a 86 — 86 n/a

Impairment of assets

12,778 2,599 10,179 392 % 91,424 2,599 88,825 3,418 %

Other expenses

6,488 4,274 2,214 52 % 13,463 19,077 (5,614) -29 %

165,304 172,805 (7,501) -4 % 566,833 491,557 75,276 15 %

Income (loss) from continuing operations before income taxes and other items 9,057 81,350 (72,293) -89 % 28,922 305,510 (276,588) -91 %

Income (loss) from unconsolidated entities (7,678) (3,859) (3,819) -99 % (25,489) (37,892) 12,403 33 %

Gain (loss) on real estate dispositions, net 313,319 519,203 (205,884) n/a 327,635 518,493 (190,858) n/a

Income from continuing operations 314,698 596,694 (281,996) -47 % 331,068 786,111 (455,043) -58 %

Net income (loss) 314,698 596,694 (281,996) -47 % 331,068 786,111 (455,043) -58 %

Net income (loss) attributable to noncontrolling interests 60,642 46,849 13,793 n/a 32,554 50,826 (18,272) n/a

Net income (loss) attributable to common stockholders $ 254,056 $ 549,845 $ (295,789) -54 % $ 298,514 $ 735,285 $ (436,771) -59 %

(1) See Non-GAAP Financial Measures below.

Decreases in resident fees and services and property operating expenses are primarily a result of dispositions and decreases in occupancy across the portfolio due to the COVID-19 pandemic.

Occupancy within our Seniors Housing Operating portfolio has declined as follows:

February March April May June July August September

Spot occupancy (1)

85.6 % 84.8 % 82.5 % 80.8 % 79.9 % 79.2 % 78.7 % 78.4 %

Sequential occupancy change (0.8) % (2.3) % (1.7) % (0.9) % (0.7) % (0.5) % (0.3) %

In addition, we have experienced increased operational costs, net of reimbursements, of $18,192,000 and $68,327,000 during the three and nine months ended September 30, 2020, respectively, included in property operating expenses as a result of the introduction of public health measures and other regulations affecting our properties, as well as additional health and safety measures adopted by us and our operators related to the COVID-19 pandemic, including increases in labor and property cleaning expenses and expenditures related to our efforts to procure PPE and supplies, net of reimbursements.

Management's Discussion and Analysis of Financial Condition and Results of Operations

The fluctuations in depreciation and amortization are due to acquisitions and dispositions and variations in amortization of short-lived intangible assets.

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, 2020, we recorded impairment charges of $91,424,000 related to 13 held for sale or sold properties and four held for use properties.

During the nine months ended September 30, 2019, we recorded impairment charges of $2,599,000 related to four held for use properties.

Transaction costs related to asset acquisitions are capitalized as a component of the purchase price.

Changes in the gain on sales of properties are related to the volume and timing of property sales and the sales prices.

During the three months ended September 30, 2020, we recognized a gain on real estate disposition of $313 million related to an 11 property U.S.

During the three months ended September 30, 2019 we recognized a gain on real estate disposition of $520 million related to the Benchmark portfolio.

The fluctuation in other expenses is primarily due to the timing of noncapitalizable transaction costs associated with acquisitions and operator transitions.

During the nine months ended September 30, 2020, we completed three Seniors Housing Operating construction projects representing $93,188,000 or $300,606 per unit.

The following is a summary of our Seniors Housing Operating construction projects, excluding expansions, pending as of September 30, 2020 (dollars in thousands):

Location Units Commitment Balance Est.

Potomac, MD 120 $ 56,720 $ 45,938 4Q20

Beckenham, UK 100 60,858 36,990 3Q21

Barnet, UK 100 66,543 35,200 4Q21

Hendon, UK 102 72,099 41,585 1Q22

422 $ 256,220 159,713

Toronto, ON Project in planning stage 44,402

Brookline, MA Project in planning stage 21,987

Washington, DC Project in planning stage 22,437

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 following is a summary of our Seniors Housing Operating segment property secured debt principal activity (dollars in thousands):

Three Months Ended Nine Months Ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate

Beginning balance $ 1,779,625 2.91 % $ 2,018,180 3.80 % $ 2,115,037 3.54 % $ 1,810,587 3.87 %

Debt issued — — % 22,885 3.95 % 44,921 2.58 % 318,854 3.51 %

Debt assumed — — % — — % — — % 42,000 4.62 %

Debt extinguished — — % (42,131) 4.15 % (306,238) 2.90 % (193,604) 4.37 %

Debt transferred — — % (12,072) 3.89 % — — % (12,072) 3.89 %

Principal payments (12,249) 3.15 % (10,556) 3.49 % (36,025) 3.25 % (32,987) 3.38 %

Foreign currency 22,609 2.94 % (12,614) 3.34 % (27,710) 3.15 % 30,914 3.21 %

Ending balance $ 1,789,985 2.91 % $ 1,963,692 3.58 % $ 1,789,985 2.91 % $ 1,963,692 3.58 %

Monthly averages $ 1,794,932 2.91 % $ 1,980,216 3.67 % $ 1,971,507 3.21 % $ 1,955,651 3.76 %

The majority of our Seniors Housing Operating properties are formed through partnership interests.

Losses from unconsolidated entities are largely attributable to depreciation and amortization of short-lived intangible assets related to certain investments in unconsolidated joint ventures, as well as the disposal of an investment in an unconsolidated entity during the nine months ended September 30, 2019.

Net income attributable to noncontrolling interests represents our partners’ share of net income (loss) related to joint ventures.

The increase during the three months ended September 30, 2020 and 2019, relates primarily to our partner's share of the gains recognized on the sale of the 11 property U.S.

portfolio and the sale of the Benchmark portfolio, respectively.

During the nine month period ended September 30, 2020, these gains in partners' share of gains on dispositions are partially offset by our partners' share of impairment charges recognized.

Management's Discussion and Analysis of Financial Condition and Results of Operations

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, 2020 September 30, 2019 $ % September 30, 2020 September 30, 2019 $ %

$ 175,436 $ 175,185 $ 251 0.1 % $ 478,577 $ 494,328 $ (15,751) -3.2 %

(1) For the three and nine months ended September 30, 2020 and 2019, amounts relate to 649 and 630 same store properties, respectively.

Please see Non-GAAP Financial Measures for additional information and reconciliations.

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

Three Months Ended Change Nine Months Ended Change

September 30, September 30, September 30, September 30,

2020 2019 $ % 2020 2019 $ %

Rental income

$ 103,938 $ 227,499 $ (123,561) -54 % $ 512,815 $ 681,893 $ (169,078) -25 %

Interest income

15,877 15,279 598 4 % 46,068 47,343 (1,275) -3 %

1,113 1,829 (716) -39 % 3,393 4,370 (977) -22 %

Total revenues

120,928 244,607 (123,679) -51 % 562,276 733,606 (171,330) -23 %

Property operating expenses 12,567 13,922 (1,355) -10 % 39,432 41,700 (2,268) -5 %

108,361 230,685 (122,324) -53 % 522,844 691,906 (169,062) -24 %

Other expenses:

Depreciation and amortization

58,157 57,147 1,010 2 % 173,989 174,551 (562) — %

Interest expense

2,070 3,076 (1,006) -33 % 7,668 9,741 (2,073) -21 %

Loss (gain) on derivatives and financial instruments, net

1,395 1,244 151 12 % 10,480 670 9,810 n/a

Provision for loan losses

372 — 372 n/a 8,895 18,690 (9,795) -52 %

Impairment of assets

10,535 12,314 (1,779) -14 % 34,867 11,374 23,493 n/a

Other expenses

2,805 (2,496) 5,301 212 % 6,818 6,093 725 12 %

75,334 71,285 4,049 6 % 242,717 221,119 21,598 10 %

Income (loss) from continuing operations before income taxes and other items 33,027 159,400 (126,373) -79 % 280,127 470,787 (190,660) -40 %

Income (loss) from unconsolidated entities (423) 5,276 (5,699) -108 % 11,776 17,512 (5,736) -33 %

Gain (loss) on real estate dispositions, net (619) 51,529 (52,148) -101 % 51,166 217,973 (166,807) -77 %

Income from continuing operations 31,985 216,205 (184,220) -85 % 343,069 706,272 (363,203) -51 %

Net income 31,985 216,205 (184,220) -85 % 343,069 706,272 (363,203) -51 %

Net income (loss) attributable to noncontrolling interests 8,597 9,096 (499) -5 % 36,275 27,422 8,853 32 %

Net income attributable to common stockholders $ 23,388 $ 207,109 $ (183,721) -89 % $ 306,794 $ 678,850 $ (372,056) -55 %

(1) See Non-GAAP Financial Measures below.

The decrease in rental income is primarily attributable to the write off of straight-line rent receivables balances of $112,398,000 and $146,508,000 during the three and nine month periods ended September 30, 2020, respectively, relating to leases for which collection of substantially all contractual lease payments was no longer deemed probable.

Included in such amounts was $91,025,000 relating to Genesis Healthcare whom noted substantial doubt as to their ability to continue as a going concern in August.

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, 2020, we had 17 leases with rental rate increases ranging from 0.10% to 0.66% in our Triple-net portfolio.

Our Triple-net operators are experiencing similar impacts on occupancy and operating costs due to the COVID-19 pandemic as described above with respect to our Seniors Housing Operating properties.

However, long-term/post-acute facilities are generally experiencing a higher degree of occupancy declines which may 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.

In addition, operators of long-term/post-acute facilities have generally received funds from Phase 1 of the Provider Relief Fund and operators of assisted living facilities are generally expecting funds from Phase 2 of the Provider Relief Fund.

Accordingly, collection of rent due during the

Management's Discussion and Analysis of Financial Condition and Results of Operations

COVID-19 pandemic to date (from March to September) have generally been consistent with historical collection rates and no significant rent concessions or deferrals have been made to date.

Depreciation and amortization fluctuates as a result of the acquisitions, dispositions and transitions of triple-net properties.

To the extent we acquire or dispose of additional properties in the future, our provision for depreciation and amortization will change accordingly.

In March 2019, we recognized a provision for loan losses of $18,690,000 to fully reserve for certain real estate loans receivable that were no longer deemed collectible.

During the nine months ended September 30, 2020, we recognized a provision for loan losses of $8,201,000 to fully reserve for one real estate loan receivable and one non-real estate loan receivable that were no longer deemed collectible.

During the nine months ended September 30, 2020, we recorded impairment charges of $34,867,000 related to one held for sale and four held for use properties.

During the nine months ended September 30, 2019, we recorded impairment charges of $11,374,000 related to two properties.

Changes in the gain on sales of properties are related to the volume and timing of property sales and the sales prices.

Transaction costs related to asset acquisitions are capitalized as a component of purchase price.

The fluctuation in other expenses is primarily due to noncapitalizable transaction costs from acquisitions and segment transitions.

During the nine months ended September 30, 2020, we completed two Triple-net construction project representing $59,201,000 or $224,246 per unit.

The following is a summary of Triple-net construction projects, excluding expansions, pending as of September 30, 2020 (dollars in thousands):

Location Units/Beds Commitment Balance Est.

Thousand Oaks, CA 82 $ 24,870 $ 18,157 4Q20

Droitwich, UK 70 16,364 14,339 4Q20

Redhill, UK 76 20,544 11,118 2Q21

Leicester, UK 60 14,472 4,491 1Q22

Wombourne, UK 66 15,505 4,062 2Q22

354 $ 91,755 $ 52,167

The fluctuation in loss (gain) on derivatives and financial instruments, net is primarily attributable to the mark-to-market adjustment recorded on our Genesis Healthcare available-for-sale investment.

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, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate

Beginning balance $ 289,321 3.27 % $ 287,952 3.63 % $ 306,038 3.60 % $ 288,386 3.63 %

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

Debt transferred — — % 12,072 3.89 % — — % 12,072 3.89 %

Principal payments (1,101) 5.16 % (1,037) 5.17 % (3,203) 5.16 % (2,945) 5.22 %

Foreign currency 11,341 2.35 % (5,986) 2.95 % (3,274) 3.53 % (4,512) 3.23 %

Ending balance $ 122,686 4.91 % $ 293,001 3.64 % $ 122,686 4.91 % $ 293,001 3.64 %

0.0355003165979432

Monthly averages $ 164,836 4.19 % $ 291,300 3.64 % $ 242,312 3.69 % $ 291,475 3.63 %

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 decrease in income from unconsolidated entities during the three months ended September 30, 2020 is primarily related to the write-off of Genesis Healthcare straight-line rent receivable balances at unconsolidated entities.

Net income attributable to noncontrolling interests represents our partners’ share of net income relating to those partnerships where we are the controlling partner.

The increase during the nine months ended September 30, 2020, relates primarily to our partner's share of gains on disposal of properties.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Outpatient Medical

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

QTD Pool YTD Pool

Three Months Ended Change Nine Months Ended Change

September 30, 2020 September 30, 2019 $ % September 30, 2020 September 30, 2019 $ %

$ 84,937 $ 84,248 $ 689 0.8 % $ 202,783 $ 197,795 $ 4,988 2.5 %

(1) For the three and nine months ended September 30, 2020 and 2019, amounts relate to 294 and 232 same store properties, respectively.

Please see Non-GAAP Financial Measures for additional information and reconciliations.

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

Three Months Ended Change Nine Months Ended Change

September 30, September 30, September 30, September 30,

2020 2019 $ % 2020 2019 $ %

Rental income $ 171,108 $ 184,648 $ (13,540) -7 % $ 548,496 $ 496,924 $ 51,572 10 %

Interest income 760 358 402 112 % 1,687 769 918 119 %

Other income 836 183 653 357 % 2,681 322 2,359 733 %

Total revenues 172,704 185,189 (12,485) -7 % 552,864 498,015 54,849 11 %

Property operating expenses 52,728 60,325 (7,597) -13 % 165,024 159,478 5,546 3 %

119,976 124,864 (4,888) -4 % 387,840 338,537 49,303 15 %

Other expenses:

Depreciation and amortization 64,151 67,172 (3,021) -4 % 202,554 173,626 28,928 17 %

Interest expense 4,287 3,363 924 27 % 13,421 10,097 3,324 33 %

Loss (gain) on extinguishment of debt, net — — — n/a 741 — 741 n/a

Provision for loan losses 2,399 — 2,399 n/a 2,370 — 2,370 n/a

Impairment of assets — 3,183 (3,183) -100 % — 14,062 (14,062) -100 %

Other expenses 781 524 257 49 % 8,244 1,274 6,970 547 %

71,618 74,242 (2,624) -4 % 227,330 199,059 28,271 14 %

Income (loss) from continuing operations before income taxes and other items

48,358 50,622 (2,264) -4 % 160,510 139,478 21,032 15 %

Income (loss) from unconsolidated entities 2,120 1,845 275 15 % 5,372 5,394 (22) — %

Gain (loss) on real estate dispositions, net 171,604 (482) 172,086 n/a 524,190 (489) 524,679 n/a

Income from continuing operations 222,082 51,985 170,097 327 % 690,072 144,383 545,689 378 %

Net income (loss) 222,082 51,985 170,097 327 % 690,072 144,383 545,689 378 %

Net income (loss) attributable to noncontrolling interests 154 2,111 (1,957) -93 % (370) 3,918 (4,288) -109 %

Net income (loss) attributable to common stockholders $ 221,928 $ 49,874 $ 172,054 345 % $ 690,442 $ 140,465 $ 549,977 392 %

(1) See Non-GAAP Financial Measures.

Rental income has decreased for the three month period ending September 30, 2020 due primarily to significant dispositions that have closed during second and third quarters of the current year.

The increase in rental income for the nine months ended September 30, 2020 is primarily attributable to acquisitions of new properties and the conversion of newly constructed outpatient medical properties, particularly the $1.25 billion CNL Healthcare Properties portfolio acquisition that closed in May 2019, partially offset by 2020 dispositions.

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, 2020, our consolidated outpatient medical portfolio signed 146,538 square feet of new leases and 411,113 square feet of renewals.

The weighted-average term of these leases was six years, with a rate of $32.71 per square foot and tenant improvement and lease commission costs of $18.01 per square foot.

Substantially all of these leases contain an annual fixed or contingent escalation rent structure ranging from 1.5% to 3.5%.

In addition, our Outpatient Medical tenants are experiencing temporary medical practice closures or decreases in revenue due to government imposed restrictions on elective medical procedures or decisions by patients to delay treatments which may adversely effect their ability to make contractual rent payments.

We have either collected or approved

Management's Discussion and Analysis of Financial Condition and Results of Operations

short term deferrals for over 99 % of rent due in the third quarter, consisting of 97% cash collections and 2% of short term deferrals.

In most cases, unless local ordinances mandate otherwise, the deferred rent represents two months of rent with expected repayment by the end of the year.

Furthermore, collections of deferred rent due in the third quarter under executed deferrals was over 99%.

The fluctuation in property operating expenses and depreciation and amortization are primarily attributable to acquisitions and construction conversions of outpatient medical facilities, offset by dispositions.

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, 2019, we recognized impairment charges $14,062,000 related to three held for sale properties as the carrying values exceeded the estimated fair values less costs to sell.

Changes in gains/losses on sales of properties are related to volume of property sales and the sales prices.

The increase in other expense during the nine months ended September 30, 2020 is primarily due to noncapitalizable transaction costs from acquisitions no longer expected to be consummated.

During the nine months ended September 30, 2020, we completed three Outpatient Medical construction projects representing $ 43,493,000 or $306 per square foot.

The following is a summary of the Outpatient Medical construction projects, excluding expansions, pending as of September 30, 2020 (dollars in thousands):

Location Square Feet Commitment Balance Est.

Brooklyn, NY 140,955 $ 105,306 $ 99,616 1Q21

Kalamazoo, MI 40,607 14,267 946 3Q21

181,562 $ 119,573 $ 100,562

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, 2020 September 30, 2019 September 30, 2020 September 30, 2019

Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate

Beginning balance $ 559,043 3.59 % $ 383,850 4.22 % $ 572,267 3.97 % $ 386,738 4.20 %

Debt extinguished — — % — — % (8,393) 4.40 % — — %

Principal payments (2,526) 4.62 % (1,528) 4.97 % (7,357) 4.63 % (4,416) 5.03 %

Ending balance $ 556,517 3.58 % $ 382,322 4.09 % $ 556,517 3.58 % $ 382,322 4.09 %

Monthly averages $ 557,773 3.58 % $ 383,084 4.17 % $ 565,331 3.77 % $ 384,590 4.21 %

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.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Non-Segment/Corporate

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

Three Months Ended Change Nine Months Ended Change

September 30, September 30, September 30, September 30,

2020 2019 $ % 2020 2019 $ %

$ 1,177 $ 841 $ 336 40 % $ 1,968 $ 3,452 $ (1,484) -43 %

Total revenue

1,177 841 336 40 % 1,968 3,452 (1,484) -43 %

Property operating expenses 1,718 — 1,718 n/a 1,718 — 1,718 n/a

(541) 841 (1,382) -164 % 250 3,452 (3,202) -93 %

Interest expense

105,766 114,548 (8,782) -8 % 328,935 351,894 (22,959) -7 %

General and administrative expenses

31,003 31,019 (16) — % 100,546 100,042 504 1 %

Loss (gain) on extinguishment of debt, net

33,004 64,374 (31,370) -49 % 33,004 80,093 (47,089) -59 %

Other expenses

1,470 3,884 (2,414) -62 % 8,722 10,126 (1,404) -14 %

171,243 213,825 (42,582) -20 % 471,207 542,155 (70,948) -13 %

Loss from continuing operations before

income taxes and other items (171,784) (212,984) 41,200 19 % (470,957) (538,703) 67,746 13 %

Income tax (expense) benefit (2,003) (3,968) 1,965 50 % (9,678) (7,789) (1,889) -24 %

Loss from continuing operations (173,787) (216,952) 43,165 20 % (480,635) (546,492) 65,857 12 %

Net loss attributable to common stockholders $ (173,787) $ (216,952) $ 43,165 20 % $ (480,635) $ (546,492) $ 65,857 12 %

(1) See Non-GAAP Financial Measures.

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

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

Three Months Ended Change Nine Months Ended Change

September 30, September 30, September 30, September 30,

2020 2019 $ % 2020 2019 $ %

Senior unsecured notes $ 100,354 $ 100,356 $ (2) — % $ 302,029 $ 307,587 $ (5,558) -2 %

Unsecured credit facility and commercial paper program 1,156 10,300 (9,144) -89 % 14,140 32,978 (18,838) -57 %

Loan expense 4,256 3,892 364 9 % 12,766 11,329 1,437 13 %

Totals $ 105,766 $ 114,548 $ (8,782) -8 % $ 328,935 $ 351,894 $ (22,959) -7 %

The change in interest expense on senior unsecured notes is due to the net effect of issuances and extinguishments, as well as the movement in foreign exchange rates and related hedge activity.

Please refer to Note 11 for additional information.

The change in interest expense on our unsecured revolving credit facility and commercial paper program is due primarily to the net effect and timing of draws, paydowns and variable interest rate changes.

Please refer to Note 10 for additional information regarding our unsecured revolving credit facility and commercial paper program.

The loss on extinguishment recognized during the nine months ended September 30, 2020 is due primarily to the early extinguishment of $160,872,000 of our 3.75% senior unsecured notes due March 2023 and $265,376,000 of our 3.95% senior unsecured notes due September 2023.

The loss on extinguishment recognized during the nine months ended September 30, 2019 is due primarily to the early extinguishment of the $600,000,000 of 4.125% senior unsecured notes due 2019 and the $450,000,000 of 6.125% senior unsecured notes due 2020 in March 2019, and the early extinguishment of the $450,000,000 of 4.95% senior unsecured notes due 2021 and $600,000,000 of 5.25% senior unsecured notes due 2022 in September 2019.

General and administrative expenses as a percentage of consolidated revenues for the three months ended September 30, 2020 and 2019 we re 2.99% a nd 2.45%, 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.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements