WELLTOWER INC. 10-Q

Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS WELLTOWER INC. AND SUBSIDIARIES (In thousands) September 30, 2020 (Unaudited) December 31, 2019 (Note) Assets: Real estate investments: Real property owned: Land and land improvements $ 3,386,072 $ 3,486,620 Buildings and improvements 27,782,471 29,163,305 Acquired lease intangibles 1,509,053 1,617,051 Real property held for sale, net of accumulated depreciation 362,886 1,253,008 Construction in progress 414,833 507,931 Less accumulated depreciation and amortization ( 6,002,775 ) ( 5,715,459 ) Net real property owned 27,452,540 30,312,456 Right of use assets, net 480,861 536,433 Real estate loans receivable, net of credit allowance 414,706 270,382 Net real estate investments 28,348,107 31,119,271 Other assets: Investments in unconsolidated entities 822,586 583,423 Goodwill 68,321 68,321 Cash and cash equivalents 1,603,740 284,917 Restricted cash 551,593 100,849 Straight-line rent receivable 334,203 466,222 Receivables and other assets 813,047 757,748 Total other assets 4,193,490 2,261,480 Total assets $ 32,541,597 $ 33,380,751 Liabilities and equity Liabilities: Unsecured credit facility and commercial paper $ — $ 1,587,597 Senior unsecured notes 11,321,573 10,336,513 Secured debt 2,459,659 2,990,962 Lease liabilities 427,842 473,693 Accrued expenses and other liabilities 1,041,368 1,009,482 Total liabilities 15,250,442 16,398,247 Redeemable noncontrolling interests 330,053 475,877 Equity: Common stock 418,361 411,005 Capital in excess of par value 20,835,022 20,190,107 Treasury stock ( 94,022 ) ( 78,955 ) Cumulative net income 8,163,869 7,353,966 Cumulative dividends ( 13,088,891 ) ( 12,223,534 ) Accumulated other comprehensive income (loss) ( 126,469 ) ( 112,157 ) Other equity 4 12 Total Welltower Inc. stockholders’ equity 16,107,874 15,540,444 Noncontrolling interests 853,228 966,183 Total equity 16,961,102 16,506,627 Total liabilities and equity $ 32,541,597 $ 33,380,751 Note: The consolidated balance sheet at December 31, 2019 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. 3 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) WELLTOWER INC. AND SUBSIDIARIES (In thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Revenues: Resident fees and services $ 740,956 $ 834,121 $ 2,360,488 $ 2,616,491 Rental income 275,046 412,147 1,061,311 1,178,817 Interest income 16,750 15,637 48,060 48,112 Other income 4,122 4,228 14,092 15,064 Total revenues 1,036,874 1,266,133 3,483,951 3,858,484 Expenses: Property operating expenses 634,717 655,588 1,977,262 2,027,522 Depreciation and amortization 255,532 272,445 795,704 764,429 Interest expense 124,851 137,343 393,215 423,911 General and administrative expenses 31,003 31,019 100,546 100,042 Loss (gain) on derivatives and financial instruments, net 1,395 1,244 10,480 670 Loss (gain) on extinguishment of debt, net 33,004 65,824 33,253 81,543 Provision for loan losses 2,857 — 11,351 18,690 Impairment of assets 23,313 18,096 126,291 28,035 Other expenses 11,544 6,186 37,247 36,570 Total expenses 1,118,216 1,187,745 3,485,349 3,481,412 Income (loss) from continuing operations before income taxes and other items ( 81,342 ) 78,388 ( 1,398 ) 377,072 Income tax (expense) benefit ( 2,003 ) ( 3,968 ) ( 9,678 ) ( 7,789 ) Income (loss) from unconsolidated entities ( 5,981 ) 3,262 ( 8,341 ) ( 14,986 ) Gain (loss) on real estate dispositions, net 484,304 570,250 902,991 735,977 Income (loss) from continuing operations 394,978 647,932 883,574 1,090,274 Net income 394,978 647,932 883,574 1,090,274 Less: Net income (loss) attributable to noncontrolling interests (1) 69,393 58,056 68,459 82,166 Net income (loss) attributable to common stockholders $ 325,585 $ 589,876 $ 815,115 $ 1,008,108 Average number of common shares outstanding: Basic 417,027 405,023 414,822 400,441 Diluted 418,987 406,891 416,860 402,412 Earnings per share: Basic: Income (loss) from continuing operations $ 0.95 $ 1.60 $ 2.13 $ 2.72 Net income (loss) attributable to common stockholders $ 0.78 $ 1.46 $ 1.96 $ 2.52 Diluted: Income (loss) from continuing operations $ 0.94 $ 1.59 $ 2.12 $ 2.71 Net income (loss) attributable to common stockholders (2) $ 0.77 $ 1.45 $ 1.94 $ 2.51 Dividends declared and paid per common share $ 0.61 $ 0.87 $ 2.09 $ 2.61 (1) Includes amounts attributable to redeemable noncontrolling interests. (2) Includes adjustment to the numerator for income (loss) attributable to OP unitholders. 4 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) WELLTOWER INC. AND SUBSIDIARIES (In thousands) Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Net income $ 394,978 $ 647,932 $ 883,574 $ 1,090,274 Other comprehensive income (loss): Foreign currency translation gain (loss) 143,353 ( 100,837 ) ( 109,209 ) ( 76,241 ) Derivative and financial instruments designated as hedges gain (loss) ( 145,512 ) 78,947 86,429 91,672 Total other comprehensive income (loss) ( 2,159 ) ( 21,890 ) ( 22,780 ) 15,431 Total comprehensive income (loss) 392,819 626,042 860,794 1,105,705 Less: Total comprehensive income (loss) attributable to noncontrolling interests (1) 76,847 53,220 59,991 85,504 Total comprehensive income (loss) attributable to common stockholders $ 315,972 $ 572,822 $ 800,803 $ 1,020,201 (1) Includes amounts attributable to redeemable noncontrolling interests. 5 CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED) WELLTOWER INC. AND SUBSIDIARIES (In thousands) Nine Months Ended September 30, 2020 Common Stock Capital in Excess of Par Value Treasury Stock Cumulative Net Income Cumulative Dividends Accumulated Other Comprehensive Income (Loss) Other Equity Noncontrolling Interests Total Balances at January 1, 2020 $ 411,005 $ 20,190,107 $ ( 78,955 ) $ 7,353,966 $ ( 12,223,534 ) $ ( 112,157 ) $ 12 $ 966,183 $ 16,506,627 Cumulative change in accounting principle (Note 2) ( 5,212 ) ( 5,212 ) Balances at January 1, 2020 (as adjusted for change in accounting principle) 411,005 20,190,107 ( 78,955 ) 7,348,754 ( 12,223,534 ) ( 112,157 ) 12 966,183 16,501,415 Comprehensive income: Net income (loss) 310,284 18,988 329,272 Other comprehensive income (loss) 15,944 ( 21,955 ) ( 6,011 ) Total comprehensive income 323,261 Net change in noncontrolling interests 37,625 ( 29,662 ) 7,963 Amounts related to stock incentive plans, net of forfeitures 246 6,608 ( 8,020 ) ( 1,166 ) Net proceeds from issuance of common stock 6,975 583,890 590,865 Dividends paid: Common stock dividends ( 356,001 ) ( 356,001 ) Balances at March 31, 2020 $ 418,226 $ 20,818,230 $ ( 86,975 ) $ 7,659,038 $ ( 12,579,535 ) $ ( 96,213 ) $ 12 $ 933,554 $ 17,066,337 Comprehensive income: Net income (loss) 179,246 18,659 197,905 Other comprehensive income (loss) ( 20,643 ) 6,298 ( 14,345 ) Total comprehensive income 183,560 Net change in noncontrolling interests 7,299 ( 70,124 ) ( 62,825 ) Amounts related to stock incentive plans, net of forfeitures 28 7,412 832 ( 8 ) 8,264 Net proceeds from issuance of common stock 89 3,604 3,693 Repurchase of common stock ( 7,656 ) ( 7,656 ) Dividends paid: Common stock dividends ( 254,846 ) ( 254,846 ) 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 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 6 CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED) WELLTOWER INC. AND SUBSIDIARIES (In thousands) Nine Months Ended September 30, 2019 Preferred Stock Common Stock Capital in Excess of Par Value Treasury Stock Cumulative Net Income Cumulative Dividends Accumulated Other Comprehensive Income (Loss) Other Equity Noncontrolling Interests Total Balances at January 1, 2019 $ 718,498 $ 384,465 $ 18,424,368 $ ( 68,499 ) $ 6,121,534 $ ( 10,818,557 ) $ ( 129,769 ) $ 294 $ 954,265 $ 15,586,599 Comprehensive income: Net income (loss) 280,470 10,785 291,255 Other comprehensive income (loss) ( 14,849 ) 5,787 ( 9,062 ) Total comprehensive income 282,193 Net change in noncontrolling interests ( 8,845 ) ( 1,497 ) ( 10,342 ) Amounts related to stock incentive plans, net of forfeitures 120 7,420 ( 5,993 ) ( 26 ) 1,521 Net proceeds from issuance of common stock 7,212 525,408 532,620 Conversion of preferred stock ( 718,498 ) 12,712 705,786 — Dividends paid: Common stock dividends ( 344,760 ) ( 344,760 ) Balances at March 31, 2019 $ — $ 404,509 $ 19,654,137 $ ( 74,492 ) $ 6,402,004 $ ( 11,163,317 ) $ ( 144,618 ) $ 268 $ 969,340 $ 16,047,831 Comprehensive income: Net income (loss) 137,762 11,349 149,111 Other comprehensive income (loss) 43,996 2,387 46,383 Total comprehensive income 195,494 Net change in noncontrolling interests ( 23,672 ) ( 7,959 ) ( 31,631 ) Amounts related to stock incentive plans, net of forfeitures 18 7,959 450 ( 80 ) 8,347 Net proceeds from issuance of common stock 1,487 101,721 103,208 Dividends paid: Common stock dividends ( 353,677 ) ( 353,677 ) 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 7 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) WELLTOWER INC. AND SUBSIDIARIES (In thousands) Nine Months Ended September 30, 2020 2019 Operating activities: Net income $ 883,574 $ 1,090,274 Adjustments to reconcile net income to net cash provided from (used in) operating activities: Depreciation and amortization 795,704 764,429 Other amortization expenses 9,613 13,474 Provision for loan losses 11,351 18,690 Impairment of assets 126,291 28,035 Stock-based compensation expense 20,938 20,501 Loss (gain) on derivatives and financial instruments, net 10,480 670 Loss (gain) on extinguishment of debt, net 33,253 81,543 Loss (income) from unconsolidated entities 8,341 14,986 Rental income less than (in excess of) cash received 66,874 ( 78,980 ) Amortization related to above (below) market leases, net ( 1,373 ) ( 335 ) Loss (gain) on real estate dispositions, net ( 902,991 ) ( 735,977 ) Distributions by unconsolidated entities 7,835 — Increase (decrease) in accrued expenses and other liabilities 40,443 845 Decrease (increase) in receivables and other assets ( 749 ) ( 8,255 ) Net cash provided from (used in) operating activities 1,109,584 1,209,900 Investing activities: Cash disbursed for acquisitions, net of cash acquired ( 393,374 ) ( 3,004,768 ) Cash disbursed for capital improvements to existing properties ( 183,324 ) ( 206,413 ) Cash disbursed for construction in progress ( 126,699 ) ( 258,113 ) Capitalized interest ( 13,234 ) ( 10,404 ) Investment in loans receivable ( 216,307 ) ( 90,856 ) Principal collected on loans receivable 14,345 57,125 Other investments, net of payments ( 2,145 ) ( 29,788 ) Contributions to unconsolidated entities ( 301,031 ) ( 194,490 ) Distributions by unconsolidated entities 41,884 98,880 Proceeds from (payments on) derivatives ( 13,319 ) ( 20,569 ) Proceeds from sales of real property 3,522,949 2,601,071 Net cash provided from (used in) investing activities 2,329,745 ( 1,058,325 ) Financing activities: Net increase (decrease) under unsecured credit facility and commercial paper ( 1,587,597 ) 187,586 Proceeds from issuance of senior unsecured notes 1,588,549 3,253,516 Payments to extinguish senior unsecured notes ( 566,248 ) ( 3,107,500 ) Net proceeds from the issuance of secured debt 44,921 318,854 Payments on secured debt ( 538,091 ) ( 233,952 ) Net proceeds from the issuance of common stock 595,313 686,105 Repurchase of common stock ( 7,656 ) — Payments for deferred financing costs and prepayment penalties ( 35,925 ) ( 82,249 ) Contributions by noncontrolling interests (1) 14,267 42,988 Distributions to noncontrolling interests (1) ( 298,369 ) ( 138,270 ) Cash distributions to stockholders ( 864,115 ) ( 1,047,968 ) Other financing activities ( 11,244 ) ( 11,643 ) Net cash provided from (used in) financing activities ( 1,666,195 ) ( 132,533 ) Effect of foreign currency translation on cash and cash equivalents and restricted cash ( 3,566 ) ( 4,436 ) Increase (decrease) in cash, cash equivalents and restricted cash 1,769,568 14,606 Cash, cash equivalents and restricted cash at beginning of period 385,765 316,129 Cash, cash equivalents and restricted cash at end of period $ 2,155,333 $ 330,735 Supplemental cash flow information: Interest paid $ 362,130 $ 416,523 Income taxes paid (received), net ( 485 ) 4,784 (1) Includes amounts attributable to redeemable noncontrolling interests. 8 WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 1. Business Welltower Inc. (the "Company"), 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. 2. Accounting Policies and Related Matters Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (such as normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine months ended September 30, 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. Impact of COVID-19 Pandemic The extent to which the COVID-19 pandemic impacts our operations and those of our operators and tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, among others. The COVID-19 pandemic could have material and adverse effects on our financial condition, results of operations and cash flows in the future, including but not limited to, the following: • Our Seniors Housing Operating revenues are dependent on occupancy. Declines in occupancy are expected due to heightened move-in criteria and screening, as well as increased mortality rates among seniors. Occupancy within our total 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 ) % (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, 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. These expenses were incurred as a result of the introduction of public health measures and other regulations affecting our properties, as well as additional health and safety measures adopted by us and our operators related to the COVID-19 pandemic, including increases in labor and property cleaning expenses and expenditures related to our efforts to procure personal protective equipment ("PPE") and supplies, net of reimbursements. Certain new expenses incurred since the start of the pandemic may continue on an ongoing basis as part of new health and safety protocols. 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 9 WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 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. • Assessing properties for potential impairment involves subjectivity in determining if impairment indicators are present and in estimating the future undiscounted cash flows or estimated fair value of the asset. Key assumptions are made in these assessments including the estimation of future rental revenues, occupancy, operating expenses, capitalization rates and the ability and intent to hold the respective asset. All of these assumptions are significantly affected by our expectations of future market or economic conditions and can be highly impacted by the uncertainty of the COVID-19 pandemic. We will continue to evaluate the assumptions used in these analyses, changes to which may result in impairments in future periods. • The determination of the allowance for credit losses is based on our evaluation of collectability of our loans receivable and includes review of factors such as delinquency status, historical loan charge-offs, financial strength of the borrower and guarantors and the value of the underlying collateral. Reduced economic activity severely impacts our borrowers' businesses, financial conditions and liquidity and may hinder their ability to make contractual payments to us, leading to an increase in loans deemed to have deteriorated credit which could result in an increase in the provision for loan losses. New Accounting Standards • On January 1, 2020, we adopted ASU 2016-13, “Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"). This standard requires a new forward-looking “expected loss” model to be used for receivables, held-to-maturity debt, loans, and other instruments. In November 2018, the FASB issued an amendment excluding operating lease receivables accounted for under the new leases standard from the scope of the new credit losses standard. ASU 2016-13 primarily impacts our measurement for credit losses related to our real estate and non-real estate loans receivable. In conjunction with our adoption of ASU 2016-13 , we recorded a $ 5,212,000 increase to our allowance for credit losses on loans receivable (both real estate and non-real estate) with a corresponding adjustment to cumulative net income related to the change in accounting principle. See Note 7 for further details. • At the FASB's April 8, 2020 Board meeting, the staff acknowledged that the economics of lease concessions that result from a global pandemic may not be aligned with the underlying premise of the modification framework in ASC 842, under which the concession would be recognized over the remainder of the lease term. 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, 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. 10 WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 3. Real Property Acquisitions and Development The total purchase price for all properties acquired has been allocated to the tangible and identifiable intangible assets and liabilities at cost on a relative fair value basis. Liabilities assumed and any associated noncontrolling interests are reflected at fair value. The results of operations for these acquisitions have been included in our consolidated results of operations since the date of acquisition and are a component of the appropriate segments. Transaction costs primarily represent costs incurred with acquisitions, including due diligence costs, fees for legal and valuation services, termination of pre-existing relationships computed based on the fair value of the assets acquired, lease termination fees and other acquisition-related costs. Transaction costs related to asset acquisitions are capitalized as a component of purchase price and all other non-capitalizable costs are reflected in other expenses on our Consolidated Statements of Comprehensive Income. The following is a summary of our real property investment activity by segment for the periods presented (in thousands): Nine Months Ended September 30, 2020 September 30, 2019 Seniors Housing Operating Triple-net Outpatient Medical Totals Seniors Housing Operating Triple-net Outpatient Medical Totals Land and land improvements $ 15,758 $ — $ 43,252 $ 59,010 $ 107,945 $ 14,172 $ 187,301 $ 309,418 Buildings and improvements 132,481 765 171,630 304,876 1,138,484 125,763 1,324,371 2,588,618 Acquired lease intangibles 10,810 — 23,823 34,633 61,163 — 104,309 165,472 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 Total assets acquired (1) 159,306 765 238,844 398,915 1,367,943 139,935 1,674,777 3,182,655 Secured debt — — — — ( 43,209 ) — — ( 43,209 ) Lease liabilities — — — — — — ( 47,740 ) ( 47,740 ) Accrued expenses and other liabilities ( 671 ) — ( 2,043 ) ( 2,714 ) ( 9,639 ) ( 100 ) ( 23,483 ) ( 33,222 ) Total liabilities acquired ( 671 ) — ( 2,043 ) ( 2,714 ) ( 52,848 ) ( 100 ) ( 71,223 ) ( 124,171 ) Noncontrolling interests (2) ( 2,827 ) — — ( 2,827 ) ( 39,570 ) ( 1,056 ) ( 1,201 ) ( 41,827 ) Non-cash acquisition related activity (3) — — — — ( 11,889 ) — — ( 11,889 ) Cash disbursed for acquisitions 155,808 765 236,801 393,374 1,263,636 138,779 1,602,353 3,004,768 Construction in progress additions 75,617 33,021 33,593 142,231 188,178 37,978 42,316 268,472 Less: Capitalized interest ( 7,760 ) ( 2,569 ) ( 2,905 ) ( 13,234 ) ( 5,972 ) ( 1,565 ) ( 2,867 ) ( 10,404 ) Accruals (4) ( 1,376 ) — ( 922 ) ( 2,298 ) — — 45 45 Cash disbursed for construction in progress 66,481 30,452 29,766 126,699 182,206 36,413 39,494 258,113 Capital improvements to existing properties 130,465 5,971 46,888 183,324 160,260 10,337 35,816 206,413 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 nine months ended September 30, 2020 and 2019, respectively. (2) Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests. (3) Relates to the acquisition of assets previously recognized as investments in unconsolidated entities. (4) Represents non-cash accruals for amounts to be paid in future periods for properties that converted, off-set by amounts paid in the current period. Construction Activity The following is a summary of the construction projects that were placed into service and began generating revenues during the periods presented (in thousands): 11 WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Nine Months Ended September 30, 2020 September 30, 2019 Development projects: Seniors Housing Operating $ 93,188 $ 28,117 Triple-net 59,201 — Outpatient Medical 43,493 — Total development projects 195,882 28,117 Expansion projects 48,600 — Total construction in progress conversions $ 244,482 $ 28,117 4. Real Estate Intangibles 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): September 30, 2020 December 31, 2019 Assets: In place lease intangibles $ 1,410,935 $ 1,513,836 Above market tenant leases 55,437 59,540 Lease commissions 42,681 43,675 Gross historical cost 1,509,053 1,617,051 Accumulated amortization ( 1,171,721 ) ( 1,181,158 ) Net book value $ 337,332 $ 435,893 Weighted-average amortization period in years 10.9 10.3 Liabilities: Below market tenant leases $ 81,385 $ 99,035 Accumulated amortization ( 41,662 ) ( 49,390 ) Net book value $ 39,723 $ 49,645 Weighted-average amortization period in years 8.3 8.6 The following is a summary of real estate intangible amortization income (expense) for the periods presented (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Rental income related to (above)/below market tenant leases, net $ 327 $ 291 $ 1,252 $ 210 Amortization related to in place lease intangibles and lease commissions ( 28,948 ) ( 48,414 ) ( 98,241 ) ( 101,837 ) The future estimated aggregate amortization of intangible assets and liabilities is as follows for the periods presented (in thousands): Assets Liabilities 2020 $ 23,561 $ 2,146 2021 63,988 8,135 2022 43,080 7,448 2023 34,711 5,228 2024 27,088 3,082 Thereafter 144,904 13,684 Total $ 337,332 $ 39,723 12 WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 5. 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 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 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): Nine Months Ended September 30, 2020 2019 Real estate dispositions: Seniors Housing Operating $ 1,093,477 $ 1,204,084 Triple-net 33,445 660,885 Outpatient Medical 1,394,971 482 Total dispositions 2,521,893 1,865,451 Gain (loss) on real estate dispositions, net 902,991 735,977 Net other assets/liabilities disposed 98,065 ( 357 ) Proceeds from real estate dispositions $ 3,522,949 $ 2,601,071 Operating results attributable to properties sold or classified as held for sale which do not meet the definition of discontinued operations, are not reclassified on our Consolidated Statements of Comprehensive Income. The following represents the activity related to these properties for the periods presented (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Revenues: Total revenues $ 36,820 $ 133,661 $ 207,918 $ 554,744 Expenses: Interest expense 584 4,593 6,579 14,801 Property operating expenses 22,485 68,848 117,069 305,598 Provision for depreciation 5,907 23,627 37,254 94,694 Total expenses 28,976 97,068 160,902 415,093 Income (loss) from real estate dispositions, net $ 7,844 $ 36,593 $ 47,016 $ 139,651 6. Leases We lease land, buildings, office space and certain equipment. Many of our leases include a renewal option to extend the term from one to 25 years or more. Renewal options that we are reasonably certain to exercise are recognized in our right-of-use assets and lease liabilities. The components of lease expense were as follows for the period presented (in thousands): 13 WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Nine Months Ended Classification September 30, 2020 September 30, 2019 Operating lease cost: (1) Real estate lease expense Property operating expenses $ 17,397 $ 18,326 Non-real estate investment lease expense General and administrative expenses 3,673 1,286 Finance lease cost: Amortization of leased assets Property operating expenses 6,229 6,549 Interest on lease liabilities Interest expense 4,693 3,497 Sublease income Rental income ( 3,130 ) ( 3,130 ) Total $ 28,862 $ 26,528 (1) Includes short-term leases which are immaterial. Supplemental balance sheet information related to leases is as follows (in thousands): Classification September 30, 2020 December 31, 2019 Right of use assets: Operating leases - real estate Right of use assets, net $ 323,200 $ 374,217 Finance leases - real estate Right of use assets, net 157,661 162,216 Real estate right of use assets, net 480,861 536,433 Operating leases - non-real estate investments Receivables and other assets 10,328 12,474 Total right of use assets, net $ 491,189 $ 548,907 Lease liabilities: Operating leases $ 320,044 $ 364,803 Financing leases 107,798 108,890 Total $ 427,842 $ 473,693 Substantially all of our operating leases in which we are the lessor contain escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. During the three 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 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. 7. Loans Receivable Loans receivable are recorded on our Consolidated Balance Sheets in real estate loans receivable, net of allowance for credit losses, or for non-real estate loans receivable, in receivables and other assets, net of allowance for credit losses. Real estate loans receivable consists of mortgage loans and other real estate loans which are primarily collateralized by a first, second or third mortgage lien, a leasehold mortgage on, or an assignment of the partnership interest in, the related properties, corporate guarantees and/or personal guarantees. Non-real estate loans are generally corporate loans with no real estate backing. Interest income on loans is recognized as earned based upon the principal amount outstanding subject to an evaluation of the risk of credit loss. Accrued interest receivable was $ 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): 14 WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 December 31, 2019 Mortgage loans $ 293,351 $ 188,062 Other real estate loans 127,988 124,696 Allowance for credit losses on real estate loans receivable ( 6,633 ) ( 42,376 ) Real estate loans receivable, net of credit allowance 414,706 270,382 Non-real estate loans 460,411 362,850 Allowance for credit losses on non-real estate loans receivable ( 78,262 ) ( 25,996 ) Non-real estate loans receivable, net of credit allowance 382,149 336,854 Total loans receivable, net of credit allowance $ 796,855 $ 607,236 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): Nine Months Ended September 30, 2020 September 30, 2019 Advances on loans receivable: Investments in new loans $ 194,942 $ 36,024 Draws on existing loans 21,365 54,832 Net cash advances on loans receivable 216,307 90,856 Receipts on loans receivable: Loan payoffs — 37,686 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 The allowance for credit loss on loans receivable is maintained at a level believed adequate to absorb potential losses in our loans receivable. The determination of the credit allowance is based on a quarterly evaluation of each of these loans, including general economic conditions and estimated collectability of loan payments. We evaluate the collectability of our loans receivable based on a combination of credit quality indicators, including, but not limited to, payment status, historical loan charge-offs, financial strength of the borrower and guarantors, and nature, extent, and value of the underlying collateral. A loan is considered to have deteriorated credit quality when, based on current information and events, it is probable that we will be unable to collect all amounts due as scheduled according to the contractual terms of the loan agreement. For those loans we identified as having deteriorated credit quality we determine the amount of credit loss on an individual basis. Placement on non-accrual status may be required. Consistent with this definition, all loans on non-accrual are deemed to have deteriorated credit quality. To the extent circumstances improve and the risk of collectability is diminished, we will return these loans to income accrual status. While a loan is on non-accrual status, any cash receipts are applied against the outstanding principal balance. For the remaining loans we assess credit loss on a collective pool basis and use our historical loss experience for similar loans to determine the reserve for credit losses. The following is a summary of our loans by credit loss category (in thousands): 15 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. of Loans 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 Collective loan pool 2017 124,840 ( 1,074 ) 123,766 7 Collective loan pool 2018 17,314 ( 251 ) 17,063 1 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) 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 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): Nine Months Ended September 30, 2020 September 30, 2019 Balance at beginning of period $ 68,372 $ 68,372 Adoption of ASU 2016-13 5,212 — Provision for loan losses 11,351 18,690 Loan write-offs — ( 18,690 ) Foreign currency translation ( 40 ) — Balance at end of period $ 84,895 $ 68,372 The following is a summary of our deteriorated loans (in thousands): Nine Months Ended September 30, 2020 September 30, 2019 Balance of deteriorated loans at end of period (1) $ 249,314 $ 188,043 Allowance for credit losses ( 76,695 ) ( 68,372 ) Balance of deteriorated loans not reserved $ 172,619 $ 119,671 Interest recognized on deteriorated loans (2) $ 13,847 $ 12,082 (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. 8. Investments in Unconsolidated Entities We participate in a number of joint ventures, which generally invest in seniors housing and health care real estate. The results of operations for these properties have been included in our consolidated results of operations from the date of acquisition by the joint ventures and are reflected in our Consolidated Statements of Comprehensive Income as income or loss from unconsolidated entities. The following is a summary of our investments in unconsolidated entities (dollars in thousands): Percentage Ownership (1) September 30, 2020 December 31, 2019 Seniors Housing Operating 10 % to 65 % $ 582,378 $ 463,741 Triple-net 10 % to 25 % 160 7,740 Outpatient Medical 15 % to 50 % 240,048 111,942 Total $ 822,586 $ 583,423 (1) Excludes ownership of in substance real estate. 16 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 $ 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. VIEs are required to be consolidated by their primary beneficiary ("PB") which is the enterprise that has both: (i) the power to direct the activities of the VIE that most significantly impacts the entity's economic performance; and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could be significant to the entity. We have concluded that we are not the PB of such borrowers, therefore, the loan arrangements were assessed based on among other factors, the amount and timing of expected residual profits, the estimated fair value of the collateral and the significance of the borrower's equity in the project. Based on these assessments, the arrangements have been classified as in substance real estate investments. We expect to fund an additional $ 172,169,000 related to these investments. 9. Credit Concentration We use consolidated net operating income (“NOI”) as our credit concentration metric. See Note 18 for additional information and reconciliation. The following table summarizes certain information about our credit concentration for the nine months ended September 30, 2020, excluding our share of NOI in unconsolidated entities (dollars in thousands): Concentration by relationship: (1) Number of Properties Total NOI Percent of NOI (2) Sunrise Senior Living (3) 165 $ 194,952 13 % ProMedica 215 159,562 11 % Revera (3) 94 81,317 5 % Avery Healthcare 59 56,192 4 % Sagora Senior Living 31 50,539 3 % Remaining portfolio 924 964,127 64 % Totals 1,488 $ 1,506,689 100 % (1) Sunrise Senior Living and Revera are in our Seniors Housing Operating segment. 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. (3) Revera owns a controlling interest in Sunrise Senior Living. 10. Borrowings Under Credit Facilities and Commercial Paper Program 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 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 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 September 30, 2020. The term credit facilities mature on July 19, 2023. The revolving credit facility is scheduled to mature on July 19, 2022 and can be extended for two successive terms of six months each at our option. 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 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): 17 WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Balance outstanding at quarter end $ — $ 1,335,000 $ — $ 1,335,000 Maximum amount outstanding at any month end $ — $ 1,335,000 $ 2,100,000 $ 2,880,000 Average amount outstanding (total of daily principal balances divided by days in period) $ — $ 1,296,185 $ 663,895 $ 1,299,963 Weighted average interest rate (actual interest expense divided by average borrowings outstanding) — % 2.82 % 2.09 % 3.02 % 11. Senior Unsecured Notes and Secured Debt We may repurchase, redeem or refinance senior unsecured notes from time to time, taking advantage of favorable market conditions when available. We may purchase senior notes for cash through open market purchases, privately negotiated transactions, a tender offer or, in some cases, through the early redemption of such securities pursuant to their terms. The senior unsecured notes are redeemable at our option, at any time in whole or from time to time in part, at a redemption price equal to the sum of: (i) the principal amount of the notes (or portion of such notes) being redeemed plus accrued and unpaid interest thereon up to the redemption date and (ii) any “make-whole” amount due under the terms of the notes in connection with early redemptions. Redemptions and repurchases of debt, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. At September 30, 2020, the annual principal payments due on these debt obligations were as follows (in thousands): Senior Unsecured Notes (1,2) Secured Debt (1,3) Totals 2020 $ — $ 75,915 $ 75,915 2021 — 433,616 433,616 2022 (4) 870,000 449,248 1,319,248 2023 (5,6) 1,361,397 329,650 1,691,047 2024 1,350,000 178,285 1,528,285 Thereafter (7,8,9) 7,831,880 1,002,474 8,834,354 Totals $ 11,413,277 $ 2,469,188 $ 13,882,465 (1) Amounts represent principal amounts due and do not include unamortized premiums/discounts, debt issuance costs, or other fair value adjustments as reflected on the Consolidated Balance Sheet. (2) Annual interest rates range from 0.86 % to 6.50 %. (3) Annual interest rates range from 0.10 % to 12.00 %. 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 % ( 1.34 % 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 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 % ( 1.06 % 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 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 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 September 30, 2020). The following is a summary of our senior unsecured notes principal activity during the periods presented (dollars in thousands): Nine Months Ended September 30, 2020 September 30, 2019 Weighted Avg. Weighted Avg. Amount Interest Rate Amount Interest Rate Beginning balance $ 10,427,562 4.03 % $ 9,699,984 4.48 % Debt issued 1,600,000 1.89 % 3,260,000 3.47 % Debt extinguished ( 566,248 ) 3.26 % ( 3,107,500 ) 4.47 % Foreign currency ( 48,037 ) 4.14 % ( 35,208 ) 4.35 % Ending balance $ 11,413,277 3.67 % $ 9,817,276 4.12 % 18 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): Nine Months Ended September 30, 2020 September 30, 2019 Weighted Avg. Weighted Avg. Amount Interest Rate Amount Interest Rate Beginning balance $ 2,993,342 3.63 % $ 2,485,711 3.90 % Debt issued 44,921 2.58 % 318,854 3.51 % Debt assumed — — % 42,000 4.62 % Debt extinguished ( 491,506 ) 2.61 % ( 193,604 ) 4.37 % Principal payments ( 46,585 ) 3.60 % ( 40,348 ) 3.69 % Foreign currency ( 30,984 ) 3.19 % 26,402 3.20 % Ending balance $ 2,469,188 3.16 % $ 2,639,015 3.66 % 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 September 30, 2020, we were in compliance with all of the covenants under our debt agreements. 12. Derivative Instruments We are exposed to, among other risks, the impact of changes in foreign currency exchange rates as a result of our non-U.S. investments and interest rate risk related to our capital structure. Our risk management program is designed to manage the exposure and volatility arising from these risks, and utilizes foreign currency forward contracts, cross currency swap contracts, interest rate swaps, interest rate locks and debt issued in foreign currencies to offset a portion of these risks. Foreign Currency Forward Contracts Designated as Cash Flow Hedges For instruments that are designated and qualify as a cash flow hedge, the effective portion of the gain or loss on the derivative is deferred as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects earnings. Gains and losses on the derivative representing either hedge ineffectiveness or hedge components excluded from the assessment of effectiveness are recognized in earnings. Cash Flow Hedges of Interest Rate Risk We enter into interest rate swaps in order to maintain a capital structure containing targeted amounts of fixed and floating-rate debt and manage interest rate risk. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for our fixed-rate payments. These interest rate swap agreements were used to hedge the variable cash flows associated with variable-rate debt. Periodically, we enter into and designate interest rate locks to partially hedge the risk of changes in interest payments attributable to increases in the benchmark interest rate during the period leading up to the probable issuance of fixed-rate debt. We designate our interest rate locks as cash flow hedges. Gains and losses when we settle our interest rate locks are amortized into 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 We use foreign currency forward and cross currency forward swap contracts to hedge a portion of the net investment in foreign subsidiaries against fluctuations in foreign exchange rates. For instruments that are designated and qualify as net investment hedges, the variability in the foreign currency to U.S. Dollar of the instrument is recorded as a cumulative translation adjustment component of OCI. During the nine months ended September 30, 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. 19 WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Derivative Contracts Undesignated We use foreign currency exchange contracts to manage existing exposures to foreign currency exchange risk. Gains and losses resulting from the changes in fair value of these instruments are recorded in interest expense on the Consolidated Statements of Comprehensive Income and are substantially offset by net revaluation impacts on foreign currency denominated balance sheet exposures. In addition, we have several interest rate cap contracts related to variable rate secured debt agreements. Gains and losses resulting from the changes in fair values of these instruments are also recorded in interest expense. The following presents the notional amount of derivatives and other financial instruments as of the dates indicated (in thousands): September 30, 2020 December 31, 2019 Derivatives designated as net investment hedges: Denominated in Canadian Dollars $ 650,000 $ 725,000 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 Pound Sterling £ 1,050,000 £ 1,050,000 Interest rate swaps designated as cash flow hedges: Denominated in U.S Dollars (1) $ 450,000 $ 1,188,250 Derivative instruments not designated: Interest rate caps denominated in U.S. Dollars $ 95,086 $ 405,819 Forward sales contracts denominated in Canadian Dollars $ 80,000 $ — 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 September 30, Nine Months Ended September 30, Description Location 2020 2019 2020 2019 Gain (loss) on derivative instruments designated as hedges recognized in income Interest expense $ 5,724 $ 7,478 $ 16,475 $ 19,945 Gain (loss) on derivative instruments not designated as hedges recognized in income Interest expense $ ( 1,159 ) $ 600 $ ( 3,207 ) $ ( 2,065 ) Gain (loss) on derivative and financial instruments designated as hedges recognized in OCI OCI $ ( 145,512 ) $ 78,947 $ 86,429 $ 91,672 13. Commitments and Contingencies 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. 20 WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 14. Stockholders’ Equity The following is a summary of our stockholders’ equity capital accounts as of the dates indicated: September 30, 2020 December 31, 2019 Preferred Stock: Authorized shares 50,000,000 50,000,000 Issued shares — — Outstanding shares — — Common Stock, $ 1.00 par value: Authorized shares 700,000,000 700,000,000 Issued shares 418,877,323 411,550,857 Outstanding shares 417,305,044 410,256,615 Preferred Stock The following is a summary of our preferred stock activity during the periods indicated: Nine Months Ended September 30, 2020 September 30, 2019 Weighted Avg. Weighted Avg. Shares Dividend Rate Shares Dividend Rate Beginning balance — — % 14,369,965 6.50 % Shares converted — — % ( 14,369,965 ) 6.50 % Ending balance — — % — — % 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. Common Stock In February 2019, we entered into an amended and restated equity distribution agreement whereby we can offer and sell 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. 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"). Under this authorization, we are not required to purchase shares but may choose to do so in the open market or through private transactions at times and amounts based on our evaluation of market conditions and other factors. 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 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 2019 Dividend reinvestment plan issuances 4,438,787 $ 75.59 $ 335,535 $ 332,054 2019 Option exercises 10,736 51.32 551 551 2019 Equity shelf program issuances 4,729,045 75.24 355,803 353,500 2019 Preferred stock conversions 12,712,452 — — 2019 Stock incentive plans, net of forfeitures 192,237 — — 2019 Totals 22,083,257 $ 691,889 $ 686,105 2020 Dividend reinvestment plan issuances 264,153 $ 72.33 $ 19,105 $ 19,105 2020 Option exercises 251 47.81 12 12 2020 Equity shelf program issuances 6,799,978 86.48 588,072 576,196 2020 Stock incentive plans, net of forfeitures 185,994 — — 2020 Totals 7,250,376 $ 607,189 $ 595,313 21 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): Nine Months Ended September 30, 2020 September 30, 2019 Per Share Amount Per Share Amount Common stock $ 2.09 $ 865,357 $ 2.61 $ 1,051,687 Accumulated Other Comprehensive Income The following is a summary of accumulated other comprehensive income (loss) for the periods presented (in thousands): September 30, 2020 December 31, 2019 Foreign currency translation $ ( 820,555 ) $ ( 719,814 ) Derivative and financial instruments designated as hedges 694,086 607,657 Total accumulated other comprehensive income (loss) $ ( 126,469 ) $ ( 112,157 ) 15. Stock Incentive Plans Our 2016 Long-Term Incentive Plan (“2016 Plan”) authorizes up to 10,000,000 shares of common stock to be issued at the discretion of the Compensation Committee of the Board of Directors. Our non-employee directors, officers and key employees are eligible to participate in the 2016 Plan. The 2016 Plan allows for the issuance of, among other things, stock options, stock appreciation rights, restricted stock, deferred stock units, performance units and dividend equivalent rights. Vesting periods for options, deferred stock units and restricted shares generally range from three to five years . Options expire ten years from the date of grant. 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. 16. Earnings Per Share The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data): Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 2020 2019 Numerator for basic earnings per share - net income (loss) attributable to common stockholders $ 325,585 $ 589,876 $ 815,115 $ 1,008,108 Adjustment for net income (loss) attributable to OP units ( 1,716 ) 492 ( 4,470 ) 580 Numerator for diluted earnings per share $ 323,869 $ 590,368 $ 810,645 $ 1,008,688 Denominator for basic earnings per share - weighted average shares 417,027 405,023 414,822 400,441 Effect of dilutive securities: Non-vested restricted shares 542 757 620 860 Redeemable OP units 1,396 1,096 1,396 1,096 Employee stock purchase program 22 15 22 15 Dilutive potential common shares 1,960 1,868 2,038 1,971 Denominator for diluted earnings per share - adjusted weighted average shares 418,987 406,891 416,860 402,412 Basic earnings per share $ 0.78 $ 1.46 $ 1.96 $ 2.52 Diluted earnings per share $ 0.77 $ 1.45 $ 1.94 $ 2.51 17. Disclosure about Fair Value of Financial Instruments Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A three-level valuation hierarchy exists for disclosures of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Please see Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019 for additional information. The three levels are defined below: 22 WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS • Level 1 - Quoted prices in active markets for identical assets or liabilities. • Level 2 - Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. Mortgage Loans, Other Real Estate Loans and Non-real Estate Loans Receivable — The fair value of mortgage loans, other real estate loans and non-real estate loans receivable is generally estimated by using Level 2 and Level 3 inputs such as discounting the estimated future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Cash and Cash Equivalents and Restricted Cash — The carrying amount approximates fair value. Equity Securities — Equity securities are recorded at their fair value based on Level 1 publicly available trading prices. Borrowings Under Primary Unsecured Credit Facility and Commercial Paper Program — The carrying amount of the primary unsecured credit facility and commercial paper program approximates fair value because the borrowings are interest rate adjustable. Senior Unsecured Notes — The fair value of the senior unsecured notes payable was estimated based on Level 1 publicly available trading prices. The carrying amount of the variable rate senior unsecured notes approximates fair value because they are interest rate adjustable. Secured Debt — The fair value of fixed rate secured debt is estimated using Level 2 inputs by discounting the estimated future cash flows using the current rates at which similar loans would be made with similar credit ratings and for the same remaining maturities. The carrying amount of variable rate secured debt approximates fair value because the borrowings are interest rate adjustable. Foreign Currency Forward Contracts, Interest Rate Swaps and Cross Currency Swaps — Foreign currency forward contracts, interest rate swaps and cross currency swaps are recorded in other assets or other liabilities on the balance sheet at fair value that is derived from observable market data, including yield curves and foreign exchange rates (all of our derivatives are Level 2). Redeemable OP Unitholder Interests — Our redeemable OP unitholder interests are recorded on the balance sheet at fair value using Level 2 inputs unless the fair value is below the initial amount in which case the redeemable OP unitholder interests are recorded at the initial amount adjusted for distributions to the unitholders and income or loss attributable to the unitholders. The fair value is measured using the closing price of our common stock, as units may be redeemed at the election of the holder for cash or, at our option, one share of our common stock per unit, subject to adjustment in certain circumstances. The carrying amounts and estimated fair values of our financial instruments are as follows (in thousands): 23 WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS September 30, 2020 December 31, 2019 Carrying Amount Fair Value Carrying Amount Fair Value Financial assets: Mortgage loans receivable $ 289,082 $ 295,597 $ 145,686 $ 150,217 Other real estate loans receivable 125,624 129,069 124,696 128,512 Equity securities 5,205 5,205 15,685 15,685 Cash and cash equivalents 1,603,740 1,603,740 284,917 284,917 Restricted cash 551,593 551,593 100,849 100,849 Non-real estate loans receivable 382,149 430,558 336,854 379,239 Foreign currency forward contracts, interest rate swaps and cross currency swaps 81,964 81,964 18,554 18,554 Financial liabilities: Borrowings under unsecured credit facility and commercial paper program $ — $ — $ 1,587,597 $ 1,587,597 Senior unsecured notes 11,321,573 12,603,853 10,336,513 11,400,571 Secured debt 2,459,659 2,541,260 2,990,962 3,041,893 Foreign currency forward contracts, interest rate swaps and cross currency swaps 64,100 64,100 53,601 53,601 Redeemable OP unitholder interests $ 100,513 $ 98,335 $ 121,440 $ 121,440 Items Measured at Fair Value on a Recurring Basis The market approach is utilized to measure fair value for our financial assets and liabilities reported at fair value on a recurring basis. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. The following summarizes items measured at fair value on a recurring basis (in thousands): Fair Value Measurements as of September 30, 2020 Total Level 1 Level 2 Level 3 Equity securities $ 5,205 $ 5,205 $ — $ — Foreign currency forward contracts, interest rate swaps and cross currency swaps, net asset (liability) (1) 17,864 — 17,864 — Totals $ 23,069 $ 5,205 $ 17,864 $ — (1) Please see Note 12 for additional information. Items Measured at Fair Value on a Nonrecurring Basis In addition to items that are measured at fair value on a recurring basis, we also have assets and liabilities in our balance sheet that are measured at fair value on a nonrecurring basis that are not included in the tables above. Assets, liabilities and noncontrolling interests that are measured at fair value on a nonrecurring basis include those acquired or assumed. Asset impairments (if applicable, see Note 5 for impairments of real property and Note 7 for impairments of loans receivable) are also measured at fair value on a nonrecurring basis. We have determined that the fair value measurements included in each of these assets and liabilities rely primarily on company-specific inputs and our assumptions about the use of the assets and settlement of liabilities, as observable inputs are not available. As such, we have determined that each of these fair value measurements generally resides within Level 3 of the fair value hierarchy. We estimate the fair value of real estate and related intangibles using the income approach and unobservable data such as net operating income and estimated capitalization and discount rates. We also consider local and national industry market data including comparable sales, and commonly engage an external real estate appraiser to assist us in our estimation of fair value. We estimate the fair value of assets held for sale based on current sales price expectations or, in the absence of such price expectations, Level 3 inputs described above. We estimate the fair value of loans receivable using projected payoff valuations based on the expected future cash flows and/or the estimated fair value of collateral, net of sales costs, if the repayment of the loan is expected to be provided solely by the collateral. We estimate the fair value of secured debt assumed in asset acquisitions using current interest rates at which similar borrowings could be obtained on the transaction date. 24 WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 18. Segment Reporting We invest in seniors housing and health care real estate. We evaluate our business and make resource allocations on our three operating segments: Seniors Housing Operating, Triple-net and Outpatient Medical. Our Seniors Housing Operating properties include seniors apartments, assisted living, independent living/continuing care retirement communities, independent supportive living communities (Canada), care homes with and without nursing (U.K.) and combinations thereof that are owned and/or operated through RIDEA structures (see Note 19). Our Triple-net properties include the property types described above as well as long-term/post-acute care facilities. Under the Triple-net segment, we invest in seniors housing and health care real estate through acquisition and financing of primarily single tenant properties. Properties acquired are primarily leased under triple-net leases and we are not involved in the management of the property. Our Outpatient Medical properties are typically leased to multiple tenants and generally require a certain level of property management by us. We evaluate performance based upon consolidated NOI of each segment. We define NOI as total revenues, including tenant reimbursements, less property operating expenses. We believe NOI provides investors relevant and useful information as it measures the operating performance of our properties at the property level on an unleveraged basis. We use NOI to make decisions about resource allocations and to assess the property level performance of our properties. Non-segment revenue consists mainly of interest income on certain non-real estate investments and other income. Non-segment assets consist of corporate assets including cash, deferred loan expenses and corporate offices and equipment among others. Non-property specific revenues and expenses are not allocated to individual segments in determining NOI. The accounting policies of the segments are the same as those described in the summary of significant accounting policies (see Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019). The results of operations for all acquisitions described in Note 3 are included in our consolidated results of operations from the acquisition dates and are components of the appropriate segments. All intersegment transactions are eliminated. 25 WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Summary information for the reportable segments (which excludes unconsolidated entities) is as follows (in thousands): Three Months Ended September 30, 2020: Seniors Housing Operating Triple-net Outpatient Medical Non-segment / Corporate Total Resident fees and services $ 740,956 $ — $ — $ — $ 740,956 Rental income — 103,938 171,108 — 275,046 Interest income 113 15,877 760 — 16,750 Other income 996 1,113 836 1,177 4,122 Total revenues 742,065 120,928 172,704 1,177 1,036,874 Property operating expenses 567,704 12,567 52,728 1,718 634,717 Consolidated net operating income 174,361 108,361 119,976 ( 541 ) 402,157 Depreciation and amortization 133,224 58,157 64,151 — 255,532 Interest expense 12,728 2,070 4,287 105,766 124,851 General and administrative expenses — — — 31,003 31,003 Loss (gain) on derivatives and financial instruments, net — 1,395 — — 1,395 Loss (gain) on extinguishment of debt, net — — — 33,004 33,004 Provision for loan losses 86 372 2,399 — 2,857 Impairment of assets 12,778 10,535 — — 23,313 Other expenses 6,488 2,805 781 1,470 11,544 Income (loss) from continuing operations before income taxes and other items 9,057 33,027 48,358 ( 171,784 ) ( 81,342 ) Income tax (expense) benefit — — — ( 2,003 ) ( 2,003 ) Income (loss) from unconsolidated entities ( 7,678 ) ( 423 ) 2,120 — ( 5,981 ) Gain (loss) on real estate dispositions, net 313,319 ( 619 ) 171,604 — 484,304 Income (loss) from continuing operations 314,698 31,985 222,082 ( 173,787 ) 394,978 Net income (loss) $ 314,698 $ 31,985 $ 222,082 $ ( 173,787 ) $ 394,978 Total assets $ 15,063,405 $ 9,075,910 $ 6,892,502 $ 1,509,780 $ 32,541,597 Three Months Ended September 30, 2019: Seniors Housing Operating Triple-net Outpatient Medical Non-segment / Corporate Total Resident fees and services $ 834,121 $ — $ — $ — $ 834,121 Rental income — 227,499 184,648 — 412,147 Interest income — 15,279 358 — 15,637 Other income 1,375 1,829 183 841 4,228 Total revenues 835,496 244,607 185,189 841 1,266,133 Property operating expenses 581,341 13,922 60,325 — 655,588 Consolidated net operating income 254,155 230,685 124,864 841 610,545 Depreciation and amortization 148,126 57,147 67,172 — 272,445 Interest expense 16,356 3,076 3,363 114,548 137,343 General and administrative expenses — — — 31,019 31,019 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 Other expenses 4,274 ( 2,496 ) 524 3,884 6,186 Income (loss) from continuing operations before income taxes and other items 81,350 159,400 50,622 ( 212,984 ) 78,388 Income tax (expense) benefit — — — ( 3,968 ) ( 3,968 ) Income (loss) from unconsolidated entities ( 3,859 ) 5,276 1,845 — 3,262 Gain (loss) on real estate dispositions, net 519,203 51,529 ( 482 ) — 570,250 Income (loss) from continuing operations 596,694 216,205 51,985 ( 216,952 ) 647,932 Net income (loss) $ 596,694 $ 216,205 $ 51,985 $ ( 216,952 ) $ 647,932 26 WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 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 Rental income — 512,815 548,496 — 1,061,311 Interest income 305 46,068 1,687 — 48,060 Other income 6,050 3,393 2,681 1,968 14,092 Total revenues 2,366,843 562,276 552,864 1,968 3,483,951 Property operating expenses 1,771,088 39,432 165,024 1,718 1,977,262 Consolidated net operating income 595,755 522,844 387,840 250 1,506,689 Depreciation and amortization 419,161 173,989 202,554 — 795,704 Interest expense 43,191 7,668 13,421 328,935 393,215 General and administrative expenses — — — 100,546 100,546 Loss (gain) on derivatives and financial instruments, net — 10,480 — — 10,480 Loss (gain) on extinguishment of debt, net ( 492 ) — 741 33,004 33,253 Provision for loan losses 86 8,895 2,370 — 11,351 Impairment of assets 91,424 34,867 — — 126,291 Other expenses 13,463 6,818 8,244 8,722 37,247 Income (loss) from continuing operations before income taxes and other items 28,922 280,127 160,510 ( 470,957 ) ( 1,398 ) Income tax (expense) benefit — — — ( 9,678 ) ( 9,678 ) Income (loss) from unconsolidated entities ( 25,489 ) 11,776 5,372 — ( 8,341 ) Gain (loss) on real estate dispositions, net 327,635 51,166 524,190 — 902,991 Income (loss) from continuing operations 331,068 343,069 690,072 ( 480,635 ) 883,574 Net income (loss) $ 331,068 $ 343,069 $ 690,072 $ ( 480,635 ) $ 883,574 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 Rental income — 681,893 496,924 — 1,178,817 Interest income — 47,343 769 — 48,112 Other income 6,920 4,370 322 3,452 15,064 Total revenues 2,623,411 733,606 498,015 3,452 3,858,484 Property operating expenses 1,826,344 41,700 159,478 — 2,027,522 Consolidated net operating income 797,067 691,906 338,537 3,452 1,830,962 Depreciation and amortization 416,252 174,551 173,626 — 764,429 Interest expense 52,179 9,741 10,097 351,894 423,911 General and administrative expenses — — — 100,042 100,042 Loss (gain) on derivatives and financial instruments, net — 670 — — 670 Loss (gain) on extinguishment of debt, net 1,450 — — 80,093 81,543 Provision for loan losses — 18.69 18,690 — — 18.69 — 18,690 Impairment of assets 2,599 11,374 14,062 — 28,035 Other expenses 19,077 6,093 1,274 10,126 36,570 Income (loss) from continuing operations before income taxes and other items 305,510 470,787 139,478 ( 538,703 ) 377,072 Income tax (expense) benefit — — — ( 7,789 ) ( 7,789 ) Income (loss) from unconsolidated entities ( 37,892 ) 17,512 5,394 — ( 14,986 ) Gain (loss) on real estate dispositions, net 518,493 217,973 ( 489 ) — 735,977 Income (loss) from continuing operations 786,111 706,272 144,383 ( 546,492 ) 1,090,274 Net income (loss) $ 786,111 $ 706,272 $ 144,383 $ ( 546,492 ) $ 1,090,274 27 WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Our portfolio of properties and other investments are located in the United States, the United Kingdom and Canada. Revenues and assets are attributed to the country in which the property is physically located. The following is a summary of geographic information for the periods presented (dollars in thousands): Three Months Ended Nine Months Ended September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019 Revenues: Amount (1) % Amount % Amount (1) % Amount % United States $ 819,057 79.0 % $ 1,039,016 82.1 % $ 2,820,609 81.0 % $ 3,175,059 82.3 % United Kingdom 110,281 10.6 % 110,303 8.7 % 337,601 9.7 % 335,368 8.7 % Canada 107,536 10.4 % 116,814 9.2 % 325,741 9.3 % 348,057 9.0 % Total $ 1,036,874 100.0 % $ 1,266,133 100.0 % $ 3,483,951 100.0 % $ 3,858,484 100.0 % As of September 30, 2020 December 31, 2019 Assets: Amount % Amount % United States $ 26,988,613 83.0 % $ 27,513,911 82.4 % United Kingdom 3,200,439 9.8 % 3,405,388 10.2 % Canada 2,352,545 7.2 % 2,461,452 7.4 % Total $ 32,541,597 100.0 % $ 33,380,751 100.0 % (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. 19. Income Taxes and Distributions We elected to be taxed as a REIT commencing with our first taxable year. To qualify as a REIT for federal income tax purposes, at least 90% of taxable income (excluding 100% of net capital gains) must be distributed to stockholders. REITs that do not distribute a certain amount of taxable income in the current year are also subject to a 4% federal excise tax. The main differences between undistributed net income for federal income tax purposes and financial statement purposes are the recognition of straight-line rent for reporting purposes, basis differences in acquisitions, recording of impairments, differing useful lives and depreciation and amortization methods for real property and the provision for loan losses for reporting purposes versus bad debt expense for tax purposes. Under the provisions of the REIT Investment Diversification and Empowerment Act of 2007 (“RIDEA”), for taxable years beginning after July 30, 2008, a REIT may lease “qualified health care properties” on an arm’s-length basis to a taxable REIT subsidiary (“TRS”) if the property is operated on behalf of such TRS by a person who qualifies as an “eligible independent contractor”. Generally, the rent received from the TRS will meet the related party rent exception and will be treated as “rents from real property”. A “qualified health care property” includes real property and any personal property that is, or is necessary or incidental to the use of, a hospital, nursing facility, assisted living facility, congregate care facility, qualified continuing care facility, or other licensed facility which extends medical or nursing or ancillary services to patients. We have entered into various joint ventures that were structured under RIDEA. Resident level rents and related operating expenses for these facilities are reported in the unaudited consolidated financial statements and are subject to federal and state income taxes as the operations of such facilities are included in TRS entities. Certain net operating loss carryforwards could be utilized to offset taxable income in future years. Income taxes reflected in the financial statements primarily represents U.S. federal, state and local income taxes as well as non-U.S. income based or withholding taxes on certain investments located in jurisdictions outside the U.S. The provision for income taxes for the nine months ended September 30, 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. The structure includes a property holding company that is tax resident in the United Kingdom. No material adverse current tax consequences in Luxembourg, Jersey or the United Kingdom resulted from the creation of this holding company structure and most of the subsidiary entities in the structure are treated as disregarded entities of the company for U.S. federal income tax purposes. Subsequent to 2014 we transferred certain subsidiaries to the United Kingdom, while some wholly-owned direct and indirect subsidiaries remain in Luxembourg and Jersey. The company reflects current and deferred tax liabilities for any such withholding taxes incurred from this holding company structure in its consolidated financial statements. Generally, given current statutes of limitations, we are subject to audit by the foreign, federal, state and local taxing authorities under applicable local laws. 28 WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 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. Certain of these provisions may impact the provision for taxes in our consolidated financial statements, including in particular the provision allowing for the carryback of net operating losses which would be applicable to our TRSs. We have made a reasonable estimate of the tax impact to us of the CARES Act in our consolidated financial statements, and while we do not believe that there will be further material impacts to the consolidated financial statements related to the CARES Act tax provisions, we will continue to evaluate the impact of the CARES Act and any guidance provided by the U.S. Treasury and the IRS on our consolidated financial statements. It is possible our estimates could differ materially from the actual tax impact to us of the CARES Act. 20. Variable Interest Entities We have entered into joint ventures to own certain seniors housing and outpatient medical assets which are deemed to be VIEs. We have concluded that we are the primary beneficiary of these VIEs based on a combination of operational control of the joint venture and the rights to receive residual returns or the obligation to absorb losses arising from the joint ventures. Except for capital contributions associated with the initial joint venture formations, the joint ventures have been and are expected to be funded from the ongoing operations of the underlying properties. Accordingly, such joint ventures have been consolidated, and the table below summarizes the balance sheets of consolidated VIEs in the aggregate (in thousands): September 30, 2020 December 31, 2019 Assets: Net real estate investments $ 456,006 $ 960,093 Cash and cash equivalents 22,958 27,522 Receivables and other assets 13,169 14,586 Total assets (1) $ 492,133 $ 1,002,201 Liabilities and equity: Secured debt $ 166,122 $ 460,117 Lease liabilities 1,325 1,326 Accrued expenses and other liabilities 18,910 22,215 Total equity 305,776 518,543 Total liabilities and equity $ 492,133 $ 1,002,201 (1) Note that assets of the consolidated VIEs can only be used to settle obligations relating to such VIEs. Liabilities of the consolidated VIEs represent claims against the specific assets of the VIEs. 29 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations EXECUTIVE SUMMARY Company Overview 31 Business Strategy 32 Key Transactions 33 Key Performance Indicators, Trends and Uncertainties 34 Corporate Governance 36 LIQUIDITY AND CAPITAL RESOURCES Sources and Uses of Cash 36 Off-Balance Sheet Arrangements 37 Contractual Obligations 37 Capital Structure 38 RESULTS OF OPERATIONS Summary 38 Seniors Housing Operating 39 Triple-net 41 Outpatient Medical 43 Non-Segment/Corporate 45 OTHER Non-GAAP Financial Measures 46 Critical Accounting Policies 54 Cautionary Statement Regarding Forward-Looking Statements 55 30 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis is based primarily on the unaudited consolidated financial statements of Welltower Inc. for the periods presented and should be read together with the notes thereto contained in this Quarterly Report on Form 10-Q. Other important factors are identified in our Annual Report on Form 10-K for the year ended December 31, 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. 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. 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 31 Item 2. 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%. 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. 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 32 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations expenses. Depending upon the availability and cost of external capital, we believe our liquidity is sufficient to fund these uses of cash. We also continuously evaluate opportunities to finance future investments. New investments are generally funded from temporary borrowings under our unsecured revolving credit facility and commercial paper program, internally generated cash and the proceeds from investment dispositions. Our investments generate cash from NOI and principal payments on loans receivable. Permanent financing for future investments, which replaces funds drawn under our unsecured revolving credit facility and commercial paper program, has historically been provided through a combination of the issuance of public debt and equity securities and the incurrence or assumption of secured debt. Depending upon market conditions, we believe that new investments will be available in the future with spreads over our cost of capital that will generate appropriate returns to our stockholders. It is also likely that investment dispositions may occur in the future. To the extent that investment dispositions exceed new investments, our revenues and cash flows from operations could be adversely affected. We expect to reinvest the proceeds from any investment dispositions in new investments. To the extent that new investment requirements exceed our 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) — — — % 765 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. GAAP. (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. GAAP. 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): 33 Item 2. 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. GAAP”). Please refer to the section entitled “Non-GAAP Financial Measures” for further discussion and reconciliations. These earnings measures are widely used by investors and analysts in the valuation, comparison and investment recommendations of companies. The following table reflects the recent historical trends of our operating performance measures for the periods presented (in thousands): Three Months Ended September 30, June 30, March 31, December 31, September 30, June 30, March 31, 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 34 Item 2. 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: (1) 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: (1) Sunrise Senior Living (2) 15% 10% 14% 14% 14% 14% 15% ProMedica 13% 10% 9% 9% 9% 9% 9% Revera (2) 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: (1) 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 Triple-net: 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 35 Item 2. 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 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 expenses. These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows and are discussed in further detail below. The following is a summary of our sources and uses of cash flows for the periods presented (dollars in thousands): Nine Months Ended Change September 30, 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) 36 Item 2. 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: (2) U.S. 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 U.S. Dollar term credit facility 1,370,000 — 870,000 500,000 — Canadian Dollar term credit facility (3) 187,645 — — 187,645 — Secured debt: (2,3) 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: (4) 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. 37 Item 2. 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. LLC, J.P. 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 Summary Our primary sources of revenue include resident fees and services, rent and interest income. Our primary expenses include property operating expenses, depreciation and amortization, interest expense, general and administrative expenses and other expenses. We evaluate our business and make resource allocations on our three business segments: Seniors Housing Operating, Triple-net and Outpatient Medical. The primary performance measures for our properties are NOI and same store NOI ("SSNOI"), and other supplemental measures include 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 % 38 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Seniors Housing Operating The following is a summary of our SSNOI at Welltower's Share for the Seniors Housing Operating segment (dollars in thousands): QTD Pool YTD Pool Three Months Ended Change Nine Months Ended Change September 30, 2020 September 30, 2019 $ % September 30, 2020 September 30, 2019 $ % SSNOI (1) $ 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 $ % Revenues: 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 Other income 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 % NOI (1) 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 % Less: 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) % (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. 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. 39 Item 2. 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. portfolio. 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. Completion 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 $ 248,539 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 Wtd. Avg. Wtd. Avg. Wtd. Avg. Wtd. Avg. 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. 40 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Triple-net The following is a summary of our SSNOI at Welltower's Share for the Triple-net segment (dollars in thousands): QTD Pool YTD Pool Three Months Ended Change Nine Months Ended Change September 30, 2020 September 30, 2019 $ % September 30, 2020 September 30, 2019 $ % SSNOI (1) $ 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 $ % Revenues: 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 % Other income 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 % NOI (1) 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 % Less: 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 41 Item 2. 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. Completion 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 Wtd. Avg. Wtd. Avg. Wtd. Avg. Wtd. Avg. 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. 42 Item 2. 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 $ % SSNOI (1) $ 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 $ % Revenues: 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 % NOI (1) 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 % Less: 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 43 Item 2. 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. Completion 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 Wtd. Ave Wtd. Ave Wtd. Ave Wtd. Ave 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. 44 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Non-Segment/Corporate The following is a summary of our results of operations for the Non-Segment/Corporate activities for the periods presented (dollars in thousands): Three Months Ended Change Nine Months Ended Change September 30, September 30, September 30, September 30, 2020 2019 $ % 2020 2019 $ % Revenues: Other income $ 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 NOI (1) (541) 841 (1,382) -164 % 250 3,452 (3,202) -93 % Expenses: 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. 45