What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-07-30 compared with 2021-04-29 · 439 added, 26 removed, 321 unchanged (59% of the section changed)

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

General and administrative expenses as a percentage of consolidated revenues for the three months ended March 31, 2021 and 2020 were 2.84% and 2.82% , respectively.

On May 4, 2021, we filed with the Securities and Exchange Commission (the “SEC”) (1) an open-ended automatic or “universal” shelf registration statement on Form S-3 covering an indeterminate amount of future offerings of debt securities, common stock, preferred stock, depositary shares, warrants and units to replace our existing “universal” shelf registration statement filed with the SEC on May 17, 2018, and (2) a registration statement in connection with our enhanced dividend reinve stment plan (“DRIP”) under which we may issue up to 15,000,000 shares of common stock to replace our existing DRIP registration statement on Form S-3 filed with the SEC on May 17, 2018.

As of July 23, 2021, 15,000,000 shares of common stock remained available for issuance under the DRIP registration statement.

On May 4, 2021, we entered into (i) an equity distribution agreement (the “EDA”) with each of Robert W.

Incorporated, Barclays Capital Inc., BMO Capital Markets Corp., BN Y Mellon Capital Markets, LLC, BofA Securities, Inc., BOK Financial Securities, Inc., Citigroup Global Markets Inc., Comerica Securities, Inc., Credit Agricole Securities (USA) Inc., Deutsche Bank Securities Inc., Fifth Third Securities, Inc., Goldman Sachs & Co.

LLC, Jefferies LLC, J.P.

Morgan Securities LLC, KeyBanc Capital Markets Inc., Loop Capital Markets LLC, Mizuho Securities USA LLC, Morgan Stanley & Co.

LLC, MUFG Securities Americas Inc., Raymond James & Associates, Inc., RBC Capital Markets, LLC, Scotia Capital (USA) Inc., SMBC Nikko Securities America, Inc., Stifel, Nicolaus & Company, Incorporated, TD Securities (USA) LLC, Truist Securities, Inc., UBS Securities LLC and Wells Fargo Securities, LLC relating to the offer and sale from time to time of up to $2,000,000,000 aggregate amount of our common stock and (ii) separate master forward sale confirmations with each of Bank of America, N.A., Bank of Montreal, The Bank of New York Mellon, Barclays Bank PLC, Citibank, N.A., Crédit Agricole Corporate and Investment Bank, Deutsche Bank AG, London Branch, Goldman Sachs & Co.

LLC, Jefferies LLC, JPMorgan Chase Bank, National Association, KeyBanc Capital Markets Inc., Mizuho Markets Americas LLC, Morgan Stanley & Co.

LLC, MUFG Securities EMEA plc, Raymond James & Associates, Inc., Royal Bank of Canada, The Bank of Nova Scotia, The Toronto-Dominion Bank, Truist Bank, UBS AG, London Branch and Wells Fargo Bank, National Association (together with the EDA, the “ATM Program”), replacing the ATM Program entered into on February 25, 2019.

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

As of July 23, 2021, we had $1,905,854,000 of remaining capacity unde r the ATM Program, which excludes forward sales agreements outstanding for the sale of 17,295,369 shares or approximately $1,389,830,000 with maturity dates in 2022.

We expect to physically settle the forward sales for cash proceeds.

Depending upon market conditions, we anticipate issuing securities under our registration statements to invest in additional properties and to repay borrowings under our unsecured revolving credit facility and commercial paper program.

In connection with the filing of the new “universal” shelf registration statement, the Company also filed with the SEC two prospectus supplements that will continue offerings that were previously covered by prospectus supplements and the accompanying prospectus to the prior registration statement relating to:

(i) the registration and possible issuance of up to 620,731 shares of the Company’s common stock (the “DownREIT Shares”), that may be issued from time to time if, and to the extent that, certain holders of Class A units (the “DownREIT Units”) of HCN G&L DownREIT, LLC, a Delaware limited liability company (the “DownREIT”), tender such DownREIT Units for redemption by the DownREIT, and HCN DownREIT Member, LLC, a majority-owned indirect subsidiary of the Company (including its permitted successors and assigns, the “Managing Member”), or a designated affiliate of the Managing Member, elects to assume the redemption obligations of the DownREIT and to satisfy all or a portion of the redemption consideration by issuing DownREIT Shares to the holders instead of or in addition to paying a cash amount;

and (ii) the registration and possible issuance of up to 475,327 shares common stock (the “DownREIT II Shares”), that may be issued from time to time if, and to the extent that, certain holders of Class A units (the “DownREIT II Units,” and collectively with the DownREIT Units, the “Units”) of HCN G&L DownREIT II LLC, a Delaware limited liability company (the “DownREIT II”), tender such DownREIT II Units for redemption by the DownREIT II, and the Managing Member, or a designated affiliate of the Managing Member, elects to assume the redemption obligations of the DownREIT II and to satisfy all or a portion of the redemption consideration by issuing DownREIT II Shares to the holders instead of or in addition to paying a cash amount.

Results of Operations

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

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

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

Seniors Housing Operating, Triple-net and Outpatient Medical.

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

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

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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended Change Six Months Ended Change

June 30, June 30, June 30, June 30,

2021 2020 Amount % 2021 2020 Amount %

Net income $ 45,757 $ 159,216 $ (113,459) (71) % $ 117,949 $ 488,596 $ (370,647) (76) %

NICS 26,257 179,246 (152,989) (85) % 97,803 489,530 (391,727) (80) %

FFO 248,840 335,597 (86,757) (26) % 536,007 691,721 (155,714) (23) %

EBITDA 406,762 553,177 (146,415) (26) % 850,465 1,304,807 (454,342) (35) %

NOI 498,335 527,711 (29,376) (6) % 933,071 1,104,532 (171,461) (16) %

SSNOI 391,695 410,232 (18,537) (5) % 778,551 861,613 (83,062) (10) %

Per share data (fully diluted):

NICS $ 0.06 $ 0.42 $ (0.36) (86) % $ 0.23 $ 1.17 $ (0.95) (81) %

FFO $ 0.59 $ 0.80 $ (0.21) (26) % $ 1.28 $ 1.66 $ (0.38) (23) %

Interest coverage ratio 3.30 x 4.29 x (0.99) x (23) % 3.43 x 4.88 x (1.45) x (30) %

Fixed charge coverage ratio 2.93 x 3.84 x (0.91) x (24) % 3.04 x 4.37 x (1.33) x (30) %

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 Six Months Ended Change

June 30, 2021 June 30, 2020 $ % June 30, 2021 June 30, 2020 $ %

$ 147,557 $ 170,005 $ (22,448) (13.2) % $ 303,978 $ 388,474 $ (84,496) (21.8) %

(1) For the QTD and YTD Pools, amounts relate to 528 and 519 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 Six Months Ended Change

June 30, June 30, June 30, June 30,

2021 2020 $ % 2021 2020 $ %

Resident fees and services $ 740,891 $ 769,560 $ (28,669) (4) % $ 1,464,355 $ 1,619,532 $ (155,177) (10) %

Interest income 856 88 768 873 % 1,975 192 1,783 929 %

Other income 802 4,002 (3,200) (80) % 2,621 5,054 (2,433) (48) %

Total revenues 742,549 773,650 (31,101) (4) % 1,468,951 1,624,778 (155,827) (10) %

Property operating expenses 582,361 595,513 (13,152) (2) % 1,138,329 1,203,384 (65,055) (5) %

160,188 178,137 (17,949) (10) % 330,622 421,394 (90,772) (22) %

Other expenses:

Depreciation and amortization 131,035 139,163 (8,128) (6) % 263,621 285,937 (22,316) (8) %

Interest expense 10,553 14,029 (3,476) (25) % 21,971 30,463 (8,492) (28) %

Loss (gain) on extinguishment of debt, net 3,106 (492) 3,598 731 % (1,537) (492) (1,045) (212) %

Provision for loan losses (181) — (181) n/a 70 — 70 n/a

Impairment of assets 17,713 75,151 (57,438) (76) % 22,317 78,646 (56,329) (72) %

Other expenses 3,709 5,251 (1,542) (29) % 7,168 8,240 (1,072) (13) %

165,935 233,102 (67,167) (29) % 313,610 402,794 (89,184) (22) %

Income (loss) from continuing operations before income taxes and other items (5,747) (54,965) 49,218 90 % 17,012 18,600 (1,588) (9) %

Income (loss) from unconsolidated entities (12,938) (6,787) (6,151) (91) % (7,704) (17,811) 10,107 57 %

Gain (loss) on real estate dispositions, net (28) 14,465 (14,493) (100) % 5,167 14,316 (9,149) (64) %

Income from continuing operations (18,713) (47,287) 28,574 60 % 14,475 15,105 (630) (4) %

Net income (loss) (18,713) (47,287) 28,574 60 % 14,475 15,105 (630) (4) %

Net income (loss) attributable to noncontrolling interests 7,469 (26,156) 33,625 129 % 2,545 (28,088) 30,633 109 %

Net income (loss) attributable to common stockholders $ (26,182) $ (21,131) $ (5,051) (24) % $ 11,930 $ 43,193 $ (31,263) (72) %

(1) See Non-GAAP Financial Measures below.

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

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

Spot occupancy has declined since the beginning of the pandemic, reaching a low of 72.3% on March 12, 2021 before beginning to recover resulting in occupancy of 74.6% as of June 30, 2021.

Spot occupancy rates through June 30, 2021 are as follows:

December 2020 January 2021 February 2021 March 2021 April 2021 May 2021 June 2021

Spot occupancy (1)

74.7 % 73.3 % 72.5 % 72.6 % 73.2 % 73.6 % 74.6 %

Sequential occupancy change (2)

(1.4) % (0.8) % 0.1 % 0.5 % 0.5 % 0.9 %

(1) Spot occupancy represents approximate month end occupancy at our share for 592 properties in operation as of December 31, 2020, including unconsolidated properties but excluding acquisitions, dispositions and development conversions since this date.

(2) Sequential occupancy changes are based on actual spot occupancy and may not recalculate due to rounding.

On a month-to-date basis, as of July 23, 2021, Seniors Housing Operating occupancy has increased approximately 40 basis points.

Occupancy continued to strengthen in the U.S.

with gains of approximately 60 basis points and 30 basis points, respectively while occupancy in Canada remained flat over the same period.

Property-level operating expenses associated with the COVID-19 pandemic relating to our Seniors Housing Operating portfolio, net of reimbursements including Provider Relief Funds and similar programs in the U.K.

and Canada, resulted in a net benefit of approximately $1,535,000 and $22,792,000 during the three and six months ended June 30, 2021, respectively, as compared to a net expense of $40,127,000 and $47,421,000 during the three and six months ended June 30, 2020, respectively.

These costs included higher labor expenses, coupled with expenditures related to procurement of personal protective equipment and other supplies, net of any reimbursements.

In 2020 applications were made for amounts under Phase 2 and Phase 3 of the Provider Relief Fund related to our Seniors Housing Operating portfolio.

During the six months ended June 30, 2021, we received total Provider Relief Funds of approximately $40,976,000, which was recognized as a reduction to COVID-19 costs within property operating expenses.

The fluctuations in depreciation and amortization are due to acquisitions, dispositions and transitions.

To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly.

During the six months ended June 30, 2021, we recorded impairment charges of $22,317,000 related to two held for use properties in which the carrying values exceeded the estimated fair value.

During the six months ended June 30, 2020, we recorded impairment charges of $78,646,000 related to 12 held for sale properties and one held for use property.

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.

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

During the six months ended June 30, 2021, we completed one Seniors Housing Operating construction project representing $58,844,000 or 490,367 per unit.

The following is a summary of our Seniors Housing Operating construction projects, excluding expansions, pending as of June 30, 2021 (dollars in thousands):

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

Location Units Commitment Balance Est.

Hendon, UK 102 $ 76,623 $ 60,773 4Q21

Barnet, UK 100 71,515 51,621 4Q21

Beckenham, UK 100 65,026 55,712 4Q21

Georgetown, TX 188 36,215 5,401 2Q22

New Rochelle, NY 72 42,669 8,846 3Q22

Pflugerville, TX 196 39,500 4,944 3Q22

Sachse, TX 188 38,054 5,806 3Q22

Princeton, NJ 80 29,780 21,670 3Q22

Berea, OH 120 14,934 4,221 4Q22

Painesville, OH 119 14,462 3,563 4Q22

Beaver, PA 116 14,184 3,563 4Q22

1,381 $ 442,962 226,120

Toronto, ON Project in planning stage 49,343

Brookline, MA Project in planning stage 26,845

Washington, DC Project in planning stage 26,295

Columbus, OH Project in planning stage 12,162

Raleigh, NC Project in planning stage 3,441

Brookhaven, GA Project in planning stage 7,808

Interest expense represents secured debt interest expense which fluctuates based on the net effect and timing of assumptions, segment transitions, fluctuations in foreign currency rates, extinguishments and principal amortizations.

The fluctuations in loss (gain) on extinguishment of debt is primarily attributable to the volume of extinguishments and terms of the related secured debt.

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

Three Months Ended Six Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

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

Beginning balance $ 1,667,278 2.89 % $ 2,044,926 3.56 % $ 1,706,189 3.05 % $ 2,115,037 3.54 %

Debt issued — — % — — % — — % 44,921 2.58 %

Debt extinguished (24,660) 3.31 % (290,198) 2.81 % (66,593) 6.01 % (306,238) 2.90 %

Principal payments (11,986) 3.06 % (11,603) 3.17 % (24,246) 3.11 % (23,776) 3.18 %

Foreign currency 14,658 2.74 % 36,500 3.01 % 29,940 2.77 % (50,319) 3.19 %

Ending balance $ 1,645,290 2.83 % $ 1,779,625 2.91 % $ 1,645,290 2.83 % $ 1,779,625 2.91 %

Monthly averages $ 1,670,234 2.86 % $ 2,009,523 3.17 % $ 1,679,223 2.94 % $ 2,044,995 3.33 %

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

Income from unconsolidated entities recognized during the six months ended June 30, 2021 includes a gain on sale recognized from the sale of a home health business owned by one of our unconsolidated entities, offset by losses from unconsolidated entities largely attributable to depreciation and amortization of short-lived intangible assets related to certain investments in unconsolidated joint ventures.

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

The decrease during the three and six month periods ended June 30, 2020 relates primarily to our partners' share of impairment charges recognized, offset by our partners' share of gains on real estate dispositions.

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

QTD Pool YTD Pool

Three Months Ended Change Six Months Ended Change

June 30, 2021 June 30, 2020 $ % June 30, 2021 June 30, 2020 $ %

$ 144,369 $ 142,383 $ 1,986 1.4 % $ 283,068 $ 287,755 $ (4,687) (1.6) %

(1) For the QTD and YTD Pools, amounts relate to 549 and 549 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):

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

Three Months Ended Change Six Months Ended Change

June 30, June 30, June 30, June 30,

2021 2020 $ % 2021 2020 $ %

Rental income $ 204,725 $ 217,492 $ (12,767) (6) % $ 357,188 $ 408,877 $ (51,689) (13) %

Interest income 32,861 15,520 17,341 112 % 47,783 30,191 17,592 58 %

Other income 1,355 607 748 123 % 2,452 2,280 172 8 %

Total revenues 238,941 233,619 5,322 2 % 407,423 441,348 (33,925) (8) %

Property operating expenses 12,627 13,563 (936) (7) % 25,468 26,865 (1,397) (5) %

226,314 220,056 6,258 3 % 381,955 414,483 (32,528) (8) %

Other expenses:

Depreciation and amortization 54,406 58,138 (3,732) (6) % 111,073 115,832 (4,759) (4) %

Interest expense 1,704 2,746 (1,042) (38) % 3,586 5,598 (2,012) (36) %

Loss (gain) on derivatives and financial instruments, net (359) 1,434 (1,793) (125) % 1,575 9,085 (7,510) (83) %

Provision for loan losses 10,019 1,451 8,568 590 % 10,872 8,523 2,349 28 %

Impairment of assets 3,768 — 3,768 n/a 22,732 24,332 (1,600) (7) %

Other expenses 4,110 3,500 610 17 % 9,093 4,013 5,080 127 %

73,648 67,269 6,379 9 % 158,931 167,383 (8,452) (5) %

Income (loss) from continuing operations before income taxes and other items 152,666 152,787 (121) — % 223,024 247,100 (24,076) (10) %

Income (loss) from unconsolidated entities 4,877 6,403 (1,526) (24) % 9,784 12,199 (2,415) (20) %

Gain (loss) on real estate dispositions, net 42,709 2,148 40,561 n/a 44,751 51,785 (7,034) (14) %

Income from continuing operations 200,252 161,338 38,914 24 % 277,559 311,084 (33,525) (11) %

Net income 200,252 161,338 38,914 24 % 277,559 311,084 (33,525) (11) %

Net income (loss) attributable to noncontrolling interests 11,405 9,103 2,302 25 % 14,805 27,678 (12,873) (47) %

Net income attributable to common stockholders $ 188,847 $ 152,235 $ 36,612 24 % $ 262,754 $ 283,406 $ (20,652) (7) %

(1) See Non-GAAP Financial Measures below.

Continued decreases in rental income are primarily attributable to an increased number of leases on a cash basis of recognition due to substantially all contractual lease payments no longer deemed to be probable.

Additionally, we recorded reserves for straight-line rent receivables balances of $49,241,000 and $34,110,000 during the six month periods ended June 30, 2021 and 2020, respectively.

Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index and/or changes in the gross operating revenues of the tenant’s properties.

These escalators are not fixed, so no straight-line rent is recorded;

however, rental income is recorded based on the contractual cash rental payments due for the period.

If gross operating revenues at our facilities and/or the Consumer Price Index do not increase, a portion of our revenues may not continue to increase.

For the three months ended June 30, 2021, we had 15 leases with rental rate increases ranging from 0.98% to 11.31% 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 have received funds from Phase 2 and Phase 3 of the Provider Relief Fund.

During the six months ended June 30, 2021, we collected approximately 95% of rent due from operators under Triple-net lease agreements (primarily seniors housing and post-acute care facilities).

No significant rent deferrals or rent concessions have been made.

We evaluate leases individually and recognize rent on a cash basis if collectibility of substantially all contractual rent payments is not probable.

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.

During the six months ended June 30, 2021, we recognized a provision for loan losses under the current expected credit losses accounting standard, primarily related to the initial recognition of the £540 million of senior loan financing to affiliates of Safanad as part of the recapitalization of its investment in HC-One Group during the second quarter.

The increase in interest income for the three and six month periods ended June 30, 2021 is due to the increased loan receivable balance driven primarily by the £540 million of senior loan financing to affiliates of Safanad.

Additionally, during March 2020, we recognized a provision for loan losses of $6,898,000 to fully reserve for a non-real estate loans receivable that was no longer deemed collectible.

During the six months ended June 30, 2021, we recorded impairment charges of $22,732,000 related to three held for sale properties and two held for use properties.

During the six months ended June 30, 2020, we recorded impairment charges of $24,332,000 related to one held for use property.

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

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

of purchase price.

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

During the six months ended June 30, 2021, we completed one Triple-net construction project representing $22,990,000 or $280,366 per unit.

The following is a summary of Triple-net construction projects, excluding expansions, pending as of June 30, 2021 (dollars in thousands):

Location Units/Beds Commitment Balance Est.

Redhill, UK 76 $ 21,952 $ 16,710 3Q21

Leicester, UK 60 15,463 7,457 1Q22

London, UK 82 44,546 22,974 2Q22

Wombourne, UK 66 16,567 7,838 2Q22

Rugby, UK 76 21,141 5,545 4Q22

Raleigh, NC 191 154,256 26,300 2Q23

551 $ 273,925 $ 86,824

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 Six Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

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

Beginning balance $ 123,139 4.91 % $ 289,739 3.55 % $ 123,652 4.91 % $ 306,038 3.60 %

Principal payments (1,246) 5.16 % (1,042) 5.16 % (2,467) 5.16 % (2,102) 5.16 %

Foreign currency 673 5.43 % 624 4.12 % 1,381 5.43 % (14,615) 2.90 %

Ending balance $ 122,566 4.91 % $ 289,321 3.27 % $ 122,566 4.91 % $ 289,321 3.27 %

Monthly averages $ 123,570 4.92 % $ 286,599 3.36 % $ 123,348 4.92 % $ 293,300 3.47 %

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.

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

The decrease during the six months ended June 30, 2021, relates primarily to our partner's share of a gain on sale of certain properties in the prior year.

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 Six Months Ended Change

June 30, 2021 June 30, 2020 $ % June 30, 2021 June 30, 2020 $ %

$ 99,769 $ 97,844 $ 1,925 2.0 % $ 191,505 $ 185,384 $ 6,121 3.3 %

(1) For the QTD and YTD Pools, amounts relate to 350 and 333 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):

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

Three Months Ended Change Six Months Ended Change

June 30, June 30, June 30, June 30,

2021 2020 $ % 2021 2020 $ %

Rental income $ 149,998 $ 178,813 $ (28,815) (16) % $ 300,378 $ 377,388 $ (77,010) (20) %

Interest income 4,731 461 4,270 926 % 8,269 927 7,342 792 %

Other income 4,343 1,557 2,786 179 % 6,648 1,845 4,803 260 %

Total revenues 159,072 180,831 (21,759) (12) % 315,295 380,160 (64,865) (17) %

Property operating expenses 45,495 51,688 (6,193) (12) % 92,358 112,296 (19,938) (18) %

113,577 129,143 (15,566) (12) % 222,937 267,864 (44,927) (17) %

Other expenses:

Depreciation and amortization 55,444 68,070 (12,626) (19) % 110,617 138,403 (27,786) (20) %

Interest expense 3,907 4,326 (419) (10) % 7,922 9,134 (1,212) (13) %

Loss (gain) on extinguishment of debt, net — 741 (741) (100) % — 741 (741) (100) %

Provision for loan losses (3,641) (29) (3,612) n/a (3,362) (29) (3,333) n/a

Impairment of assets 2,211 — 2,211 n/a 2,211 — 2,211 n/a

Other expenses 1,098 6,456 (5,358) (83) % 1,810 7,463 (5,653) (76) %

59,019 79,564 (20,545) (26) % 119,198 155,712 (36,514) (23) %

Income (loss) from continuing operations before income taxes and other items 54,558 49,579 4,979 10 % 103,739 112,152 (8,413) (8) %

Income (loss) from unconsolidated entities 85 1,716 (1,631) (95) % 2,993 3,252 (259) (8) %

Gain (loss) on real estate dispositions, net 1,987 139,250 (137,263) (99) % 53,830 352,586 (298,756) (85) %

Income from continuing operations 56,630 190,545 (133,915) (70) % 160,562 467,990 (307,428) (66) %

Net income (loss) 56,630 190,545 (133,915) (70) % 160,562 467,990 (307,428) (66) %

Net income (loss) attributable to noncontrolling interests 629 (2,977) 3,606 121 % 2,799 (524) 3,323 634 %

Net income (loss) attributable to common stockholders $ 56,001 $ 193,522 $ (137,521) (71) % $ 157,763 $ 468,514 $ (310,751) (66) %

(1) See Non-GAAP Financial Measures.

Rental income has decreased due primarily to significant dispositions that have closed during 2020.

Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index.

These escalators are not fixed, so no straight-line rent is recorded;

however, rental income is recorded based on the contractual cash rental payments due for the period.

If the Consumer Price Index does not increase, a portion of our revenues may not continue to increase.

Our leases could renew above or below current rental rates, resulting in an increase or decrease in rental income.

For the three months ended June 30, 2021, our consolidated outpatient medical portfolio signed 117,954 square feet of new leases and 286,868 square feet of renewals.

The weighted-average term of these leases was seven years, with a rate of $42.42 per square foot and tenant improvement and lease commission costs of $23.02 per square foot.

Substantially all of these leases contain an annual fixed or contingent escalation rent structure ranging from 1.0% to 4.0%.

We have collected virtually all rent due through the six months ended June 30, 2021, with uncollected amounts primarily attributable to local jurisdictions with COVID-19 related ordinances providing temporary rent relief to tenants.

We evaluate leases individually and recognize rent on a cash basis if collectibility of substantially all contractual rent payments is not probable.

The increase in interest income for the three and six months ended June 30, 2021 is due primarily to a $178,207,000 first mortgage loan initiated in August 2020 which was subsequently repaid in full in June of 2021.

The fluctuation in property operating expenses and depreciation and amortization are primarily attributable to the significant dispositions that occurred in 2020.

To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly.

During the three months ended June 30, 2021, we recognized an impairment charge of $2,211,000 related to one held for sale property.

Changes in gains/losses on sales of properties are related to volume 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 recognized during the three months ended June 30, 2020 from acquisitions no longer expected to be consummated.

During the six months ended June 30, 2021, we completed one Outpatient Medical construction project representing $ 101,867,000 or $722 per square foot.

The following is a summary of the Outpatient Medical construction projects, excluding expansions, pending as of June 30, 2021 (dollars in thousands):

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

Location Square Feet Commitment Balance Est.

Kalamazoo, MI 40,607 $ 14,267 $ 9,709 3Q21

College Station, TX 25,200 9,025 2,189 1Q22

Norman, OK 47,082 21,707 745 3Q22

Tyler, TX 85,214 35,369 3,722 4Q22

198,103 $ 80,368 $ 16,365

Total interest expense represents secured debt interest expense.

The change in secured debt interest expense is primarily due to the net effect and timing of assumptions, extinguishments and principal amortizations.

The following is a summary of our outpatient medical secured debt principal activity (dollars in thousands):

Three Months Ended Six Months Ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

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

Beginning balance $ 545,755 3.54 % $ 569,974 3.94 % $ 548,229 3.55 % $ 572,267 3.97 %

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

Principal payments (2,483) 4.47 % (2,538) 4.61 % (4,957) 4.47 % (4,831) 4.63 %

Ending balance $ 543,272 3.52 % $ 559,043 3.59 % $ 543,272 3.52 % $ 559,043 3.59 %

Monthly averages $ 544,109 3.53 % $ 566,608 3.75 % $ 545,361 3.54 % $ 568,751 3.85 %

A portion of our Outpatient Medical properties were formed through partnerships.

Income or loss from unconsolidated entities represents our share of net income or losses from partnerships where we are the noncontrolling partner.

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

Non-Segment/Corporate

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

Three Months Ended Change Six Months Ended Change

June 30, June 30, June 30, June 30,

2021 2020 $ % 2021 2020 $ %

$ 430 $ 375 $ 55 15 % $ 1,385 $ 791 $ 594 75 %

Total revenue

430 375 55 15 % 1,385 791 594 75 %

Property operating expenses 2,174 — 2,174 n/a 3,828 — 3,828 n/a

(1,744) 375 (2,119) (565) % (2,443) 791 (3,234) (409) %

Interest expense

106,177 105,256 921 1 % 212,004 223,169 (11,165) (5) %

General and administrative expenses

31,436 34,062 (2,626) (8) % 61,362 69,543 (8,181) (12) %

Loss (gain) on extinguishment of debt, net

52,506 — 52,506 n/a 52,506 — 52,506 n/a

Other expenses

2,770 4,204 (1,434) (34) % 4,610 5,987 (1,377) (23) %

192,889 143,522 49,367 34 % 330,482 298,699 31,783 11 %

Loss from continuing operations before income taxes and other items (194,633) (143,147) (51,486) (36) % (332,925) (297,908) (35,017) (12) %

Income tax (expense) benefit 2,221 (2,233) 4,454 199 % (1,722) (7,675) 5,953 78 %

Loss from continuing operations (192,412) (145,380) (47,032) (32) % (334,647) (305,583) (29,064) (10) %

Net loss attributable to common stockholders $ (192,412) $ (145,380) $ (47,032) (32) % $ (334,647) $ (305,583) $ (29,064) (10) %

(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 for the periods presented (dollars in thousands):

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

Three Months Ended Change Six Months Ended Change

June 30, June 30, June 30, June 30,

2021 2020 $ % 2021 2020 $ %

Senior unsecured notes $ 99,923 $ 98,141 $ 1,782 2 % $ 200,136 $ 201,675 $ (1,539) (1) %

Unsecured credit facility and commercial paper program 1,940 2,816 (876) (31) % 3,120 12,984 (9,864) (76) %

Loan expense 4,314 4,299 15 — % 8,748 8,510 238 3 %

Totals $ 106,177 $ 105,256 $ 921 1 % $ 212,004 $ 223,169 $ (11,165) (5) %

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

General and administrative expenses as a percentage of consolidated revenues for the three months ended June 30, 2021 and 2020 were 2.76% and 2.87%, respectively.

The provision for income taxes primarily relates to state taxes, foreign taxes and taxes based on income generated by entities that are structured as TRSs.

The fluctuation in the provision for income taxes is primarily related to a revaluation of deferred taxes due to a change in the U.K.

tax rate and an adjustment to a deferred tax liability due to the recognition of an impairment charge.

Non-GAAP Financial Measures

19 unchanged sentences

As used herein, same store is generally defined as those revenue-generating properties in the portfolio for the relevant year-over-year reporting periods.

Acquisitions and development conversions are included in SSNOI five full quarters after acquisition or being placed into service for the QTD Pool.

Acquisitions and development conversions are included in SSNOI five full quarters or six full quarter after acquisition or being placed into service for the QTD Pool and YTD Pool, respectively.

Land parcels, loans and sub-leases, as well as any properties sold or classified as held for sale during the respective periods are excluded from SSNOI.

Redeveloped properties (including major refurbishments of a Seniors Housing Operating property where 20% or more of units are simultaneously taken out of commission for 30 days or more or Outpatient Medical properties undergoing a change in intended use) are excluded from SSNOI until five full quarters post completion of the redevelopment for the QTD Pool.

Properties undergoing operator transitions and/or segment transitions are also excluded from SSNOI until five full quarters post completion of the transition for the QTD Pool.

In addition, properties significantly impacted by force majeure, acts of God, or other extraordinary adverse events are excluded from SSNOI until five full quarters after the properties are placed back into service for the QTD Pool.

SSNOI excludes non-cash NOI and includes adjustments to present consistent ownership percentages and to translate Canadian properties and UK properties using a consistent exchange rate.

Redeveloped properties (including major refurbishments of a Seniors Housing Operating property where 20% or more of units are simultaneously taken out of commission for 30 days or more or Outpatient Medical properties undergoing a change in intended use) are excluded from SSNOI until five full quarters or six full quarters post completion of the redevelopment for the QTD Pool and YTD Pool, respectively.

Properties undergoing operator transitions and/or segment transitions are also excluded from SSNOI until five full quarters or six full quarters post completion of the transition for the QTD Pool and YTD Pool, respectively.

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

properties significantly impacted by force majeure, acts of God, or other extraordinary adverse events are excluded from SSNOI until five full quarters or six full quarters after the properties are placed back into service for the QTD Pool and YTD Pool, respectively.

SSNOI excludes non-cash NOI and includes adjustments to present consistent ownership percentages and to translate Canadian properties and U.K.

properties using a consistent exchange rate.

We believe NOI and SSNOI provide investors relevant and useful information because they measure the operating performance of our properties at the property level on an unleveraged basis.

7 unchanged sentences

Our leverage ratios are defined as the proportion of net debt to total capitalization and include book capitalization, undepreciated book capitalization and market capitalization.

Book capitalization represents the sum of net debt (defined as total long-term debt, excluding operating lease

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

liabilities, less cash and cash equivalents and any IRC Section 1031 deposits), total equity and redeemable noncontrolling interests.

Book capitalization represents the sum of net debt (defined as total long-term debt, excluding operating lease liabilities, less cash and cash equivalents and any IRC Section 1031 deposits), total equity and redeemable noncontrolling interests.

Undepreciated book capitalization represents book capitalization adjusted for accumulated depreciation and amortization.

10 unchanged sentences

Amounts are in thousands except for per share data.

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

Three Months Ended

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

FFO Reconciliation:

14 unchanged sentences

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

Six Months Ended

June 30, June 30,

FFO Reconciliations:

Net income attributable to common stockholders $ 97,803 $ 489,530

Depreciation and amortization 485,311 540,172

Impairment of assets 47,260 102,978

Loss (gain) on real estate dispositions, net (103,748) (418,687)

Noncontrolling interests (29,107) (51,948)

Unconsolidated entities 38,488 29,676

FFO $ 536,007 $ 691,721

Average diluted common shares outstanding:

419,205 415,775

Per diluted share data:

Net income attributable to common stockholders (1)

$ 0.23 $ 1.17

FFO $ 1.28 $ 1.66

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

Three Months Ended

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

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

NOI Reconciliations:

19 unchanged sentences

Total NOI $ 498,335 $ 434,736 $ 501,455 $ 402,157 $ 527,711 $ 576,821

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

Six Months Ended

June 30, 2021 June 30, 2020

NOI Reconciliations:

Net income (loss) $ 117,949 $ 488,596

Loss (gain) on real estate dispositions, net (103,748) (418,687)

Loss (income) from unconsolidated entities (5,073) 2,360

Income tax expense (benefit) 1,722 7,675

Other expenses 22,681 25,703

Impairment of assets 47,260 102,978

Provision for loan losses 7,580 8,494

Loss (gain) on extinguishment of debt, net 50,969 249

Loss (gain) on derivatives and financial instruments, net 1,575 9,085

General and administrative expenses 61,362 69,543

Depreciation and amortization 485,311 540,172

Interest expense 245,483 268,364

Consolidated net operating income (NOI) $ 933,071 $ 1,104,532

NOI by segment:

Seniors Housing Operating $ 330,622 $ 421,394

Triple-net 381,955 414,483

Outpatient Medical 222,937 267,864

Non-segment/corporate (2,443) 791

Total NOI $ 933,071 $ 1,104,532

QTD Pool YTD Pool

SSNOI Property Reconciliations:

Seniors Housing Operating Triple-net Outpatient Medical Total

Seniors Housing Operating Triple-net Outpatient Medical Total Seniors Housing Operating Triple-net Outpatient Medical Total

Consolidated properties

1 unchanged sentence

Unconsolidated properties

91 39 79 209 91 39 79 209

Total properties

15 unchanged sentences

528 549 350 1,427 519 549 333 1,401

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

(2) Redevelopment properties will enter the QTD Pool five full quarters of operations post redevelopment completion, respectively.

(3) Transitioned properties will enter the QTD Pool five full quarters of operations with the new operator in place or under the new structure, respectively.

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

(2) Redevelopment properties will enter the QTD Pool and YTD Pool after five full quarters and six full quarters of operations post redevelopment completion, respectively.

(3) Transitioned properties will enter the QTD Pool and YTD Pool after five full quarters and six full quarters of operations with the new operator in place or under the new structure, respectively.

(4) Represents properties that are either closed or being closed.

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

Three Months Ended

QTD Pool YTD Pool

Three Months Ended Six Months Ended

SSNOI Reconciliations:

March 31, 2021 March 31, 2020

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Seniors Housing Operating:

8 unchanged sentences

Non-cash NOI attributable to same store properties

12,338 (957) 11,516 (1,835)

Currency and ownership adjustments (1)

(1,127) 3,894 (1,034) 7,659

SSNOI at Welltower Share 147,557 170,005 303,978 388,474

2 unchanged sentences

NOI attributable to unconsolidated investments

4,887 5,133 9,775 10,266

NOI attributable to noncontrolling interests

5 unchanged sentences

Currency and ownership adjustments (1)

(313) 2,003 (524) 3,049

SSNOI at Welltower Share 144,369 142,383 283,068 287,755

3 unchanged sentences

NOI attributable to unconsolidated investments

4,988 2,461 9,712 3,524

NOI attributable to noncontrolling interests

12 unchanged sentences

Total $ 391,695 $ 410,232 $ 778,551 $ 861,613

(1) Includes adjustments to reflect consistent property ownership percentages, to translate Canadian properties at a USD/CAD rate of 1.2658 and to translate UK properties at a GBP/USD rate of 1.38.

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

(1) Includes adjustments to reflect consistent property ownership percentages, to translate Canadian properties at a USD/CAD rate of 1.2658 and to translate U.K.

properties at a GBP/USD rate of 1.38.

The tables below reflects the reconciliation of EBITDA to net income, the most directly comparable U.S.

1 unchanged sentence

Dollars are in thousands.

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

Three Months Ended

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

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

EBITDA Reconciliations:

13 unchanged sentences

Interest coverage ratio

3.56 x 4.20 x 6.23 x 4.29 x 5.42 x

3.30 x 3.56 x 4.20 x 6.23 x 4.29 x 5.42 x

Fixed Charge Coverage Ratio:

5 unchanged sentences

Fixed charge coverage ratio

3.16 x 3.72 x 5.52 x 3.84 x 4.88 x

2.93 x 3.16 x 3.72 x 5.52 x 3.84 x 4.88 x

Six Months Ended

June 30, June 30,

EBITDA Reconciliations:

Net income (loss) $ 117,949 $ 488,596

Interest expense 245,483 268,364

Income tax expense (benefit) 1,722 7,675

Depreciation and amortization 485,311 540,172

EBITDA $ 850,465 $ 1,304,807

Interest Coverage Ratio:

Interest expense $ 245,483 $ 268,364

Non-cash interest expense (6,963) (10,039)

Capitalized interest 9,358 9,287

Total interest 247,878 267,612

EBITDA $ 850,465 $ 1,304,807

Interest coverage ratio 3.43 x 4.88 x

Fixed Charge Coverage Ratio:

Total interest $ 247,878 $ 267,612

Secured debt principal payments 31,670 30,709

Total fixed charges 279,548 298,321

EBITDA $ 850,465 $ 1,304,807

Fixed charge coverage ratio 3.04 x 4.37 x

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

3 unchanged sentences

Twelve Months Ended

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

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

Adjusted EBITDA Reconciliations:

26 unchanged sentences

Adjusted interest coverage ratio

3.84 x 3.97 x 4.07 x 4.14 x 4.18 x

3.82 x 3.84 x 3.97 x 4.07 x 4.14 x 4.18 x

Adjusted Fixed Charge Coverage Ratio:

5 unchanged sentences

Adjusted fixed charge coverage ratio

3.41 x 3.54 x 3.65 x 3.74 x 3.80 x

3.39 x 3.41 x 3.54 x 3.65 x 3.74 x 3.80 x

(1) Certain severance-related costs are included in stock-based compensation and excluded from other expenses.

8 unchanged sentences

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

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

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

2021 2021 2020 2020 2020 2020

96 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis