Welltower - 10-Q quarterly report FY2019 Q3

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)




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

For the quarterly period ended September 30, 2019




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

For the transition period from to

Commission file number: 1-8923

WELLTOWER INC.

(Exact name of registrant as specified in its charter)



Delaware			34-1096634
(State or other jurisdiction of Incorporation)			(IRS Employer Identification No.)

4500 Dorr Street	Toledo,	Ohio	43615
(Address of principal executive offices)			(Zip Code)

(419)			247-2800
(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)



Securities registered pursuant to Section 12(b) of the Act
Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common stock, $1.00 par value per share	WELL	New York Stock Exchange
4.800% Notes due 2028	WELL28	New York Stock Exchange
4.500% Notes due 2034	WELL34	New York Stock Exchange

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

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

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



Large accelerated filer	þ	Accelerated filer	¨	Non-accelerated filer	¨	Smaller reporting company	☐	Emerging growth company	☐
(Do not check if a smaller reporting company)

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

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

As of October 21, 2019, the registrant had 405,799,597 shares of common stock outstanding.

TABLE OF CONTENTS



	Page
PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Consolidated Balance Sheets	3

Consolidated Statements of Comprehensive Income	4

Consolidated Statements of Equity	6

Consolidated Statements of Cash Flows	8

Notes to Unaudited Consolidated Financial Statements	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3. Quantitative and Qualitative Disclosures About Market Risk	50

Item 4. Controls and Procedures	51

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	52

Item 1A. Risk Factors	52

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	52

Item 5. Other Information	52

Item 6. Exhibits	53

Signatures	53

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)



	September 30, 2019 (Unaudited)			December 31, 2018 (Note)
Assets:
Real estate investments:
Real property owned:
Land and land improvements	$	3,370,841		$	3,205,091
Buildings and improvements	28,798,241			28,019,502
Acquired lease intangibles	1,604,982			1,581,159
Real property held for sale, net of accumulated depreciation	336,649			590,271
Construction in progress	466,286			194,365
Less accumulated depreciation and amortization	(5,769,843		)	(5,499,958		)
Net real property owned	28,807,156			28,090,430
Right of use assets, net	536,689			—
Real estate loans receivable, net of allowance	361,530			330,339
Net real estate investments	29,705,375			28,420,769
Other assets:
Investments in unconsolidated entities	556,854			482,914
Goodwill	68,321			68,321
Cash and cash equivalents	265,788			215,376
Restricted cash	64,947			100,753
Straight-line rent receivable	432,616			367,093
Receivables and other assets	770,054			686,846
Total other assets	2,158,580			1,921,303
Total assets	$	31,863,955		$	30,342,072

Liabilities and equity
Liabilities:
Unsecured credit facility and commercial paper	$	1,334,586		$	1,147,000
Senior unsecured notes	9,730,047			9,603,299
Secured debt	2,623,010			2,476,177
Lease liabilities	454,538			70,668
Accrued expenses and other liabilities	1,025,704			1,034,283
Total liabilities	15,167,885			14,331,427
Redeemable noncontrolling interests	470,341			424,046
Equity:
Preferred stock	—			718,498
Common stock	406,498			384,465
Capital in excess of par value	19,796,676			18,424,368
Treasury stock	(78,843		)	(68,499		)
Cumulative net income	7,129,642			6,121,534
Cumulative dividends	(11,870,244		)	(10,818,557		)
Accumulated other comprehensive income (loss)	(117,676		)	(129,769		)
Other equity	12			294
Total Welltower Inc. stockholders’ equity	15,266,065			14,632,334
Noncontrolling interests	959,664			954,265
Total equity	16,225,729			15,586,599
Total liabilities and equity	$	31,863,955		$	30,342,072

NOTE: The consolidated balance sheet at December 31, 2018 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands, except per share data)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Revenues:
Resident fees and services	$	834,121		$	875,171		$	2,616,491		$	2,374,450
Rental income	412,147			342,887			1,178,817			1,019,857
Interest income	15,637			14,622			48,112			42,732
Other income	4,228			3,699			15,064			22,217
Total revenues	1,266,133			1,236,379			3,858,484			3,459,256

Expenses:
Property operating expenses	655,588			657,157			2,027,522			1,782,373
Depreciation and amortization	272,445			243,149			764,429			707,625
Interest expense	137,343			138,032			423,911			382,223
General and administrative expenses	31,019			28,746			100,042			95,282
Loss (gain) on derivatives and financial instruments, net	1,244			8,991			670			(5,642		)
Loss (gain) on extinguishment of debt, net	65,824			4,038			81,543			16,044
Provision for loan losses	—			—			18,690			—
Impairment of assets	18,096			6,740			28,035			39,557
Other expenses	6,186			88,626			36,570			102,396
Total expenses	1,187,745			1,175,479			3,481,412			3,119,858

Income (loss) from continuing operations before income taxes and other items	78,388			60,900			377,072			339,398
Income tax (expense) benefit	(3,968		)	(1,741		)	(7,789		)	(7,170		)
Income (loss) from unconsolidated entities	3,262			344			(14,986		)	(836		)
Gain (loss) on real estate dispositions, net	570,250			24,723			735,977			373,662
Income (loss) from continuing operations	647,932			84,226			1,090,274			705,054

Net income	647,932			84,226			1,090,274			705,054
Less: Preferred stock dividends	—			11,676			—			35,028
Less: Net income (loss) attributable to noncontrolling interests⁽¹⁾	58,056			8,166			82,166			13,539
Net income (loss) attributable to common stockholders	$	589,876		$	64,384		$	1,008,108		$	656,487

Average number of common shares outstanding:
Basic	405,023			373,023			400,441			372,052
Diluted	406,891			374,487			402,412			373,638

Earnings per share:
Basic:
Income (loss) from continuing operations	$	1.60		$	0.23		$	2.72		$	1.90
Net income (loss) attributable to common stockholders	$	1.46		$	0.17		$	2.52		$	1.76

Diluted:
Income (loss) from continuing operations	$	1.59		$	0.22		$	2.71		$	1.89
Net income (loss) attributable to common stockholders	$	1.45		$	0.17		$	2.51		$	1.76

Dividends declared and paid per common share	$	0.87		$	0.87		$	2.61		$	2.61

⁽¹⁾ Includes amounts attributable to redeemable noncontrolling interests.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Net income	$	647,932		$	84,226		$	1,090,274		$	705,054

Other comprehensive income (loss):
Foreign currency translation gain (loss)	(100,837		)	(15,293		)	(76,241		)	(137,095		)
Derivative instruments gain (loss)	78,947			12,200			91,672			100,205
Total other comprehensive income (loss)	(21,890		)	(3,093		)	15,431			(36,890		)

Total comprehensive income (loss)	626,042			81,133			1,105,705			668,164
Less: Total comprehensive income (loss) attributable to noncontrolling interests⁽¹⁾	53,220			10,933			85,504			3,675
Total comprehensive income (loss) attributable to common stockholders	$	572,822		$	70,200		$	1,020,201		$	664,489

⁽¹⁾ Includes amounts attributable to redeemable noncontrolling interests.

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)



	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 December 31, 2018	$	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																	(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
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																	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
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

CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)



	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 December 31, 2017	$	718,503		$	372,449	$	17,662,681		$	(64,559	)	$	5,316,580	$	(9,471,712	)	$	(111,465	)	$	670		$	502,305		$	14,925,452
Comprehensive income:
Net income (loss)												449,347											5,191			454,538
Other comprehensive income																	20,212						(3,886		)	16,326
Total comprehensive income																										470,864
Net change in noncontrolling interests						(13,157		)															(2,719		)	(15,876		)
Amounts related to stock incentive plans, net of forfeitures				150		11,085			(4,137		)															7,098
Proceeds from issuance of common stock				130		7,060																				7,190
Conversion of preferred stock	(5		)			5																				—
Dividends paid:
Common stock dividends														(323,726		)										(323,726		)
Preferred stock dividends														(11,676		)										(11,676		)
Balances at March 31, 2018	$	718,498		$	372,729	$	17,667,674		$	(68,696	)	$	5,765,927	$	(9,807,114	)	$	(91,253	)	$	670		$	500,891		$	15,059,326
Comprehensive income:
Net income (loss)												166,108											2,355			168,463
Other comprehensive income																	(41,378		)				(8,745		)	(50,123		)
Total comprehensive income																										118,340
Net change in noncontrolling interests						(14,822		)															(35,937		)	(50,759		)
Amounts related to stock incentive plans, net of forfeitures				18		5,801			35											(11		)				5,843
Proceeds from issuance of common stock				54		2,731																				2,785
Dividends paid:
Common stock dividends														(323,372		)										(323,372		)
Preferred stock dividends														(11,676		)										(11,676		)
Balances at June 30, 2018	$	718,498		$	372,801	$	17,661,384		$	(68,661	)	$	5,932,035	$	(10,142,162	)	$	(132,631	)	$	659		$	458,564		$	14,800,487
Comprehensive income:
Net income (loss)												76,060											7,847			83,907
Other comprehensive income																	(5,860		)				2,767			(3,093		)
Total comprehensive income																										80,814
Net change in noncontrolling interests						(6,160		)															492,338			486,178
Amounts related to stock incentive plans, net of forfeitures				4		6,241			(92		)									(170		)				5,983
Proceeds from issuance of common stock				3,548		228,049																				231,597
Dividends paid:
Common stock dividends														(324,182		)										(324,182		)
Preferred stock dividends														(11,676		)										(11,676		)
Balances at September 30, 2018	$	718,498		$	376,353	$	17,889,514		$	(68,753	)	$	6,008,095	$	(10,478,020	)	$	(138,491	)	$	489		$	961,516		$	15,269,201

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

WELLTOWER INC. AND SUBSIDIARIES

(In thousands)



	Nine Months Ended
	September 30,
	2019			2018
Operating activities:
Net income	$	1,090,274		$	705,054
Adjustments to reconcile net income to net cash provided from (used in) operating activities:
Depreciation and amortization	764,429			707,625
Other amortization expenses	13,474			12,110
Provision for loan losses	18,690			—
Impairment of assets	28,035			39,557
Stock-based compensation expense	20,501			22,800
Loss (gain) on derivatives and financial instruments, net	670			(5,642		)
Loss (gain) on extinguishment of debt, net	81,543			16,044
Loss (income) from unconsolidated entities	14,986			836
Rental income less than (in excess of) cash received	(78,980		)	(7,830		)
Amortization related to above (below) market leases, net	(335		)	1,984
Loss (gain) on real estate dispositions, net	(735,977		)	(373,662		)
Distributions by unconsolidated entities	—			21
Increase (decrease) in accrued expenses and other liabilities	845			103,474
Decrease (increase) in receivables and other assets	(8,255		)	(11,223		)
Net cash provided from (used in) operating activities	1,209,900			1,211,148

Investing activities:
Cash disbursed for acquisitions	(3,004,768		)	(3,190,534		)
Cash disbursed for capital improvements to existing properties	(206,413		)	(173,635		)
Cash disbursed for construction in progress	(258,113		)	(88,146		)
Capitalized interest	(10,404		)	(6,357		)
Investment in real estate loans receivable	(82,345		)	(67,136		)
Principal collected on real estate loans receivable	32,130			149,592
Other investments, net of payments	(13,304		)	(49,572		)
Contributions to unconsolidated entities	(194,490		)	(42,697		)
Distributions by unconsolidated entities	98,880			61,253
Proceeds from (payments on) derivatives	(20,569		)	65,438
Proceeds from sales of real property	2,601,071			1,208,501
Net cash provided from (used in) investing activities	(1,058,325		)	(2,133,293		)

Financing activities:
Net increase (decrease) in unsecured credit facility and commercial paper	187,586			593,000
Proceeds from issuance of senior unsecured notes	3,253,516			2,825,898
Payments to extinguish senior unsecured notes	(3,107,500		)	(1,450,000		)
Net proceeds from the issuance of secured debt	318,854			44,606
Payments on secured debt	(233,952		)	(238,867		)
Net proceeds from the issuance of common stock	686,105			242,411
Payments for deferred financing costs and prepayment penalties	(82,249		)	(29,701		)
Contributions by noncontrolling interests⁽¹⁾	42,988			11,238
Distributions to noncontrolling interests⁽¹⁾	(138,270		)	(86,462		)
Cash distributions to stockholders	(1,047,968		)	(1,006,274		)
Other financing activities	(11,643		)	(6,290		)
Net cash provided from (used in) financing activities	(132,533		)	899,559
Effect of foreign currency translation on cash, cash equivalents and restricted cash	(4,436		)	(5,432		)
Increase (decrease) in cash, cash equivalents and restricted cash	14,606			(28,018		)
Cash, cash equivalents and restricted cash at beginning of period	316,129			309,303
Cash, cash equivalents and restricted cash at end of period	$	330,735		$	281,285

Supplemental cash flow information:
Interest paid	$	416,523		$	312,452
Income taxes paid (received), net	4,784			3,195

⁽¹⁾ Includes amounts attributable to redeemable noncontrolling interests.

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, 2019 are not necessarily an indication of the results that may be expected for the year ending December 31, 2019. 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, 2018.

New Accounting Standards

•

We adopted Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842) ("ASC 842") which requires lessees to recognize assets and liabilities on their consolidated balance sheet related to the rights and obligations created by most leases, while continuing to recognize expenses on their consolidated statement of comprehensive income over the lease term. We adopted ASC 842 as of January 1, 2019, using the modified retrospective approach and have elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, permits us to carry forward our prior conclusions for lease classification and initial direct costs on existing leases. We also made an accounting policy election to keep short-term leases less than twelve months off the balance sheet for all classes of underlying assets.

In July 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-11 "Leases (Topic 842): Targeted Improvements" that (1) simplifies transition requirements for both lessees and lessors by adding an option that permits entities to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in its financial statements and (2) allows lessors to elect, as a practical expedient, to not separate lease and non-lease components in a contract, and instead to account for as a single lease component, if certain criteria are met. This practical expedient causes an entity to assess whether a contract is predominantly lease or service-based and recognize the entire contract under the relevant accounting guidance (i.e. predominantly lease-based would be accounted for under ASC 842 and predominantly service-based would be accounted for under ASU 2014-09, "Revenue from Contracts with Customers (ASC 606)"). For the year ended December 31, 2018, we recognized revenue for our Seniors Housing Operating resident agreements in accordance with the provisions of the prior lease guidance, ASC 840, "Leases". Upon adoption of ASC 842, we elected the lessor practical expedient described above and recognized our revenue for our Seniors Housing Operating segment based upon the predominant component, generally the non-lease service component. Therefore, beginning on January 1, 2019, we accounted for the majority of such resident agreements under ASC 606. The timing and pattern of revenue recognition is substantially the same as that prior to adoption.

The FASB also issued ASU 2018-20 "Leases (Topic 842): Narrow Improvements for Lessors", which provides lessors the ability to make an accounting policy election not to evaluate whether certain sales taxes and other similar taxes imposed by a governmental authority on a specific lease revenue-producing transaction are the primary obligation of the lessor as owner of the underlying leased asset. A lessor that makes this election will exclude these taxes from the measurement of lease revenue and the associated expense. Upon adoption of ASC 842, we utilized this practical expedient in instances in which real estate taxes are paid directly by our tenants to taxing authorities. For triple-net leasing arrangements in which the tenant remits payment for real estate taxes to us and we pay the taxing authority, we have included the associated revenue and expense in rental income and property operating expenses on the Consolidated Statements of Comprehensive Income. This reporting had no impact on our net income.

For leases in which the Company is the lessee, primarily consisting of ground leases and various office and equipment leases, we recognized upon adoption a right of use asset of $509,386,000 which included the present value of minimum leases payments, existing above and/or below market lease intangible values and existing straight-line rent liabilities

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

associated with such leases. We also recognized operating lease liabilities of $357,070,000. The standard did not materially impact our Consolidated Statements of Comprehensive Income or our Consolidated Statement of Cash Flows. See Note 6 for additional details.

The following ASU has been issued but not yet adopted:

•

In June 2016, the FASB issued 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 is effective for the Company on January 1, 2020, with early adoption permitted beginning January 1, 2019. We are currently evaluating the impact that the standard will have on our consolidated financial statements.

3. Real Property Acquisitions and Development

The total purchase price for all properties acquired has been allocated to the tangible and identifiable intangible assets, liabilities and noncontrolling interests based upon their relative fair values in accordance with our accounting policies. 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. Certain of our subsidiaries’ functional currencies are the local currencies of their respective countries.

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



	Nine Months Ended
	September 30, 2019												September 30, 2018
	Seniors Housing Operating			Triple-net			Outpatient Medical			Totals			Seniors Housing Operating			Triple-net			Outpatient Medical			Totals
Land and land improvements	$	107,945		$	14,172		$	187,301		$	309,418		$	47,865		$	413,588		$	18,496		$	479,949
Buildings and improvements	1,138,484			125,763			1,324,371			2,588,618			535,436			2,239,422			79,205			2,854,063
Acquired lease intangibles	61,163			—			104,309			165,472			68,084			12,383			11,271			91,738
Construction in progress	36,174			—			—			36,174			—			—			—			—
Real property held for sale	17,435			—			—			17,435			—			396,265			22,032			418,297
Right of use assets, net	—			—			58,377			58,377			—			—			—			—
Receivables and other assets	6,742			—			419			7,161			1,255			1,322			6			2,583
Total assets acquired⁽¹⁾	1,367,943			139,935			1,674,777			3,182,655			652,640			3,062,980			131,010			3,846,630
Secured debt	(43,209		)	—			—			(43,209		)	(89,973		)	—			(14,769		)	(104,742		)
Lease liabilities	—			—			(47,740		)	(47,740		)	—			—			—			—
Accrued expenses and other liabilities	(9,639		)	(100		)	(23,483		)	(33,222		)	(14,686		)	(13,199		)	(910		)	(28,795		)
Total liabilities acquired	(52,848		)	(100		)	(71,223		)	(124,171		)	(104,659		)	(13,199		)	(15,679		)	(133,537		)
Noncontrolling interests⁽²⁾	(39,570		)	(1,056		)	(1,201		)	(41,827		)	(9,818		)	(512,741		)	—			(522,559		)
Non-cash acquisition related activity⁽³⁾	(11,889		)	—			—			(11,889		)	—			—			—			—
Cash disbursed for acquisitions	1,263,636			138,779			1,602,353			3,004,768			538,163			2,537,040			115,331			3,190,534
Construction in progress additions	184,581			37,649			42,316			264,546			28,222			49,619			16,733			94,574
Less: Capitalized interest	(5,972		)	(1,565		)	(2,867		)	(10,404		)	(2,608		)	(1,932		)	(1,817		)	(6,357		)
Foreign currency translation	3,597			329			—			3,926			2,151			180			—			2,331
Accruals⁽⁴⁾	—			—			45			45			—			—			(2,402		)	(2,402		)
Cash disbursed for construction in progress	182,206			36,413			39,494			258,113			27,765			47,867			12,514			88,146
Capital improvements to existing properties	160,260			10,337			35,816			206,413			127,274			6,766			39,595			173,635
Total cash invested in real property, net of cash acquired	$	1,606,102		$	185,529		$	1,677,663		$	3,469,294		$	693,202		$	2,591,673		$	167,440		$	3,452,315

⁽¹⁾ Excludes $1,910,000 and $391,580,000 of unrestricted and restricted cash acquired during the nine months ended September 30, 2019 and 2018, 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.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Construction Activity

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



	Nine Months Ended
	September 30, 2019		September 30, 2018
Development projects:
Seniors Housing Operating	$	28,117	$	86,931
Triple-net	—		90,055
Outpatient Medical	—		11,358
Total development projects	28,117		188,344
Expansion projects	—		8,879
Total construction in progress conversions	$	28,117	$	197,223

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, 2019			December 31, 2018
Assets:
In place lease intangibles	$	1,486,255		$	1,410,725
Above market tenant leases	69,770			63,935
Below market ground leases ⁽¹⁾	—			64,513
Lease commissions	48,957			41,986
Gross historical cost	1,604,982			1,581,159
Accumulated amortization	(1,206,227		)	(1,197,336		)
Net book value	$	398,755		$	383,823

Weighted-average amortization period in years	9.5			16.0

Liabilities:
Below market tenant leases	$	94,581		$	81,676
Above market ground leases ⁽¹⁾	—			8,540
Gross historical cost	94,581			90,216
Accumulated amortization	(47,521		)	(44,266		)
Net book value	$	47,060		$	45,950

Weighted-average amortization period in years	8.2			14.7

⁽¹⁾ Effective on January 1, 2019 with the adoption of ASC 842, above and below market ground lease intangibles are reported within the right of use assets, net line on the Consolidated Balance Sheet.

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



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Rental income related to (above)/below market tenant leases, net	$	291		$	(294	)	$	210		$	(978	)
Amortization related to in place lease intangibles and lease commissions	(48,414		)	(31,455		)	(101,837		)	(97,479		)

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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



	Assets		Liabilities
2019	$	37,833	$	2,390
2020	103,599		8,868
2021	53,156		7,899
2022	36,057		7,163
2023	29,858		5,031
Thereafter	138,252		15,709
Total	$	398,755	$	47,060

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). During three months ended September 30, 2019, we disposed of our Benchmark Senior Living portfolio for a gross sale price of $1.8 billion and a gain on sale of $520 million. Proceeds were used to extinguish the $1 billion unsecured term loan and $24 million of secured debt.

At September 30, 2019, 12 Seniors Housing Operating, eight Triple-net, and five Outpatient Medical properties with an aggregate real estate balance of $336,649,000 were classified as held for sale. In addition, secured debt of $24,338,000 and net other assets and liabilities of $7,608,000 related to the held for sale properties. During the nine months ended September 30, 2019, we recorded net impairment charges of $13,121,000 related to certain held for sale properties for which the carrying value exceeded the fair values, less estimated costs to sell, and $14,914,000 related to five held for use properties for which the carrying value exceeded the sum of the future undiscounted cash flows. The following is a summary of our real property disposition activity for the periods presented (in thousands):



	Nine Months Ended September 30,
	2019			2018
Real estate dispositions:
Seniors Housing Operating	$	1,204,084		$	2,200
Triple-net	660,885			604,480
Outpatient Medical	482			223,069
Total dispositions	1,865,451			829,749
Gain (loss) on real estate dispositions, net	735,977			373,662
Net other assets/liabilities disposed	(357		)	5,090
Proceeds from real estate dispositions	$	2,601,071		$	1,208,501

Dispositions and Assets Held for Sale

Pursuant to our adoption of ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity”, operating results attributable to properties sold subsequent to or classified as held for sale after January 1, 2014 and which do not meet the definition of discontinued operations are no longer 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,
	2019		2018		2019		2018
Revenues:
Total revenues	$	37,431	$	126,386	$	271,119	$	381,440
Expenses:
Interest expense	455		643		1,716		2,144
Property operating expenses	22,576		79,989		172,738		233,858
Provision for depreciation	188		16,556		25,563		55,341
Total expenses	23,219		97,188		200,017		291,343
Income (loss) from real estate dispositions, net	$	14,212	$	29,198	$	71,102	$	90,097

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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. As most of our leases do not provide a rate implicit in the lease agreement, we use our incremental borrowing rate available at lease commencement to determine the present value of lease payments. The incremental borrowing rates were determined using our longer term borrowing rates (actual pricing through 30 years, as well as other longer-term market rates). For leases that commenced prior to January 1, 2019, we used the incremental borrowing rate on December 31, 2018.

We sublease certain real estate to a third party. Our sublease portfolio consists of a finance lease with Genesis HealthCare for seven buildings.

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



	Classification	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease cost: ⁽¹⁾
Real estate lease expense	Property operating expenses	$	3,647		$	18,326
Non-real estate lease expense	General and administrative expenses	516			1,286
Finance lease cost:
Amortization of leased assets	Property operating expenses	2,304			6,549
Interest on lease liabilities	Interest expense	1,328			3,497
Sublease income	Rental income	(1,043		)	(3,130		)
Total		$	6,752		$	26,528

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

Maturities of lease liabilities as of September 30, 2019 are as follows (in thousands):



	Operating Leases			Finance Leases
2019	$	5,040		$	2,511
2020	19,873			9,121
2021	19,781			8,787
2022	18,594			8,161
2023	18,559			69,244
Thereafter	1,107,479			94,590
Total lease payments	1,189,326			192,414
Less: Imputed interest	(845,411		)	(81,791		)
Total present value of lease liabilities	$	343,915		$	110,623

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Supplemental balance sheet information related to leases was as follows as of September 30, 2019 (in thousands, except lease terms and discount rate):



	Classification	September 30, 2019
Right of use assets:
Operating leases - real estate	Right of use assets, net	$	372,831
Finance leases - real estate	Right of use assets, net	163,858
Real estate right of use assets, net		536,689
Operating leases - corporate	Receivables and other assets	4,711
Total right of use assets, net		$	541,400

Lease liabilities:
Operating leases		$	343,915
Financing leases		110,623
Total		$	454,538

Weighted average remaining lease term (years):
Operating leases		48.0
Finance leases		16.3

Weighted average discount rate:
Operating leases		5.19		%
Finance leases		5.17		%

Supplemental cash flow information related to leases was as follows for the date indicated (in thousands):



	Classification	Nine Months Ended September 30, 2019
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	Decrease (increase) in receivables and other assets	$	4,858
Operating cash flows from operating leases	Increase (decrease) in accrued expenses and other liabilities	(4,949		)
Operating cash flows from finance leases	Decrease (increase) in receivables and other assets	8,241
Financing cash flows from finance leases	Other financing activities	(2,487		)

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. Leases in our Outpatient Medical portfolio typically include some form of operating expense reimbursement by the tenant. We recognized $1,178,817,000 of rental and other revenues related to operating leases, of which $147,815,000 was for variable lease payments, for the nine months ended September 30, 2019, which primarily represents the reimbursement of operating costs such as common area maintenance expenses, utilities, insurance and real estate taxes. The following table sets forth the future minimum lease payments receivable for leases in effect at September 30, 2019 (excluding properties in our Seniors Housing Operating partnerships and excluding any operating expense reimbursements) (in thousands):



2019	$	344,158
2020	1,356,086
2021	1,324,256
2022	1,296,077
2023	1,239,804
Thereafter	9,576,700
Totals	$	15,137,081

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

7. Real Estate Loans Receivable

Please see Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018 for discussion of our accounting policies for real estate loans receivable and related interest income.

The following is a summary of our net real estate loans receivable (in thousands):



	September 30, 2019			December 31, 2018
Mortgage loans	$	320,989		$	317,443
Other real estate loans	108,913			81,268
Less allowance for losses on loans receivable	(68,372		)	(68,372		)
Totals	$	361,530		$	330,339

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



	Nine Months Ended
	September 30, 2019							September 30, 2018
		Triple-net		Outpatient Medical		Totals		Seniors Housing Operating		Triple-net			Outpatient Medical		Totals
Advances on real estate loans receivable:
Investments in new loans		$	25,000	$	5,000	$	30,000	$	11,806	$	10,628		$	14,993	$	37,427
Draws on existing loans		33,955		18,390		52,345		—		29,709			—		29,709
Net cash advances on real estate loans		58,955		23,390		82,345		11,806		40,337			14,993		67,136
Receipts on real estate loans receivable:
Loan payoffs		29,020		—		29,020		—		116,161			—		116,161
Principal payments on loans		3,110		—		3,110		—		33,431			—		33,431
Net cash receipts on real estate loans		32,130		—		32,130		—		149,592			—		149,592
Net cash advances (receipts) on real estate loans		$	26,825	$	23,390	$	50,215	$	11,806	$	(109,255	)	$	14,993	$	(82,456	)

In 2016, we restructured real estate loans with Genesis HealthCare and recorded a loan loss charge in the amount of $6,935,000 on one of the loans as the present value of expected future cash flows was less than the carrying value of the loan. In 2017, we recorded an additional loan loss charge of $62,966,000 relating to real estate loans with Genesis HealthCare based on an estimation of expected future cash flows discounted at the effective interest rate of the loans. 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. As of September 30, 2019, the allowance for loan loss balance of $68,372,000 is deemed to be sufficient to absorb expected losses. At September 30, 2019, we had one real estate loan with an outstanding balance of $2,534,000 on non-accrual status.

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



	Nine Months Ended
	September 30, 2019		September 30, 2018
Balance of impaired loans at end of period	$	188,043	$	201,971
Allowance for loan losses	68,372		68,372
Balance of impaired loans not reserved	$	119,671	$	133,599
Average impaired loans for the period	$	194,298	$	230,645
Interest recognized on impaired loans⁽¹⁾	12,082		13,361

⁽¹⁾ Represents cash interest recognized in the period since loans were identified as impaired.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

8. Investments in Unconsolidated Entities

We participate in a number of joint ventures, which generally invest in seniors housing and health care real estate. The results of operations for these entities 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, 2019		December 31, 2018
Seniors Housing Operating	10% to 50%	$	409,522	$	344,982
Triple-net	10% to 49%	8,038		34,284
Outpatient Medical	43% to 50%	139,294		103,648
Total		$	556,854	$	482,914

⁽¹⁾ Excludes ownership of in-substance real estate.

At September 30, 2019, the aggregate unamortized basis difference of our joint venture investments of $102,144,000 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.

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, 2019, excluding our share of NOI in unconsolidated entities (dollars in thousands):



	Number of	Total		Percent of
Concentration by relationship:^(1,4)	Properties	NOI		NOI⁽²⁾
Sunrise Senior Living⁽³⁾	165	$	257,372	14%
ProMedica	218	161,313		9%
Revera⁽³⁾	98	109,953		6%
Genesis HealthCare	54	90,451		5%
Belmont Village	21	59,763		3%
Remaining portfolio	983	1,152,110		63%
Totals	1,539	$	1,830,962	100%

⁽¹⁾ Genesis Healthcare and ProMedica are in our Triple-net segment. Sunrise Senior Living, Revera, and Belmont Village are in our Seniors Housing Operating segment.

⁽²⁾ NOI with our top five relationships comprised 38% of total NOI for the year ended December 31, 2018.

⁽³⁾ Revera owns a controlling interest in Sunrise Senior Living.

⁽⁴⁾ Excludes the Benchmark Senior Living portfolio which was disposed of in July 2019

10. Borrowings Under Credit Facilities and Commercial Paper Program

At September 30, 2019, we had a primary unsecured credit facility with a consortium of 31 banks that includes a $3,000,000,000 unsecured revolving credit facility ($500,000,000 outstanding at September 30, 2019), 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, 2019). Borrowings under the unsecured revolving credit facility are subject to interest payable at the applicable margin over LIBOR interest rate (2.84% at September 30, 2019). The applicable margin is based on our debt ratings and was 0.825% at September 30, 2019. 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, 2019. 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 (the "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. As of September 30,

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

2019, there was a balance of $834,586,000 outstanding on the Commercial Paper Program ($835,000,000 in principal outstanding net of an unamortized discount of $414,000), which reduces the borrowing capacity on the unsecured revolving credit facility. The notes bear interest at various floating rates with a weighted average of 2.32% as of September 30, 2019 and a weighted average maturity of eight days as of September 30, 2019.

The following information relates to aggregate borrowings under the unsecured revolving credit facility and Commercial Paper Program for the periods presented (dollars in thousands):



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2019			2018			2019			2018
Balance outstanding at quarter end	$	1,335,000		$	1,312,000		$	1,335,000		$	1,312,000
Maximum amount outstanding at any month end	$	1,335,000		$	2,148,000		$	2,880,000		$	2,148,000
Average amount outstanding (total of daily
principal balances divided by days in period)	$	1,296,185		$	1,519,000		$	1,299,963		$	819,516
Weighted average interest rate (actual interest
expense divided by average borrowings outstanding)	2.82		%	3.00		%	3.02		%	2.95		%

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 (1) 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 (2) 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, 2019, the annual principal payments due on these debt obligations were as follows (in thousands):



	Senior Unsecured Notes^(1,2)		Secured Debt ^(1,3)		Totals
2019	$	—	$	256,322	$	256,322
2020⁽⁴⁾	226,501		160,897		387,398
2021	—		380,866		380,866
2022	10,000		353,548		363,548
2023^(5,6)	1,788,750		329,449		2,118,199
Thereafter^(7,8)	7,792,025		1,157,933		8,949,958
Totals	$	9,817,276	$	2,639,015	$	12,456,291

⁽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 2.79% to 6.50%.

⁽³⁾ Annual interest rates range from 1.39% to 12.00%. Carrying value of the properties securing the debt totaled $5,922,479,000 at September 30, 2019.

⁽⁴⁾ Includes a $300,000,000 Canadian-denominated 3.35% senior unsecured notes due 2020 (approximately $226,501,000 based on the Canadian/U.S. Dollar exchange rate on September 30, 2019).

⁽⁵⁾ Includes a $250,000,000 Canadian-denominated unsecured term credit facility (approximately $188,750,000 based on the Canadian/U.S. Dollar exchange rate on September 30, 2019). The loan matures on July 19, 2023 and bears interest at the Canadian Dealer Offered Rate plus 0.9% (2.86% at September 30, 2019).

⁽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% (2.96% at September 30, 2019).

⁽⁷⁾ Includes a £550,000,000 4.80% senior unsecured notes due 2028 (approximately $676,775,000 based on the Sterling/U.S. Dollar exchange rate in effect on September 30, 2019).

⁽⁸⁾ Includes a £500,000,000 4.50% senior unsecured notes due 2034 (approximately $615,250,000 based on the Sterling/U.S. Dollar exchange rate in effect on September 30, 2019).

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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



	Nine Months Ended
	September 30, 2019				September 30, 2018
				Weighted Avg.				Weighted Avg.
	Amount			Interest Rate	Amount			Interest Rate
Beginning balance	$	9,699,984		4.48%	$	8,417,447		4.31%
Debt issued	3,260,000			3.47%	2,850,000			4.57%
Debt extinguished	(3,107,500		)	4.47%	(1,450,000		)	3.46%
Foreign currency	(35,208		)	4.35%	(63,751		)	4.30%
Ending balance	$	9,817,276		4.12%	$	9,753,696		4.45%

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



	Nine Months Ended
	September 30, 2019				September 30, 2018
				Weighted Avg.				Weighted Avg.
	Amount			Interest Rate	Amount			Interest Rate
Beginning balance	$	2,485,711		3.90%	$	2,618,408		3.76%
Debt issued	318,854			3.51%	44,606			3.38%
Debt assumed	42,000			4.62%	99,552			4.30%
Debt extinguished	(193,604		)	4.37%	(196,573		)	5.66%
Principal payments	(40,348		)	3.69%	(42,294		)	3.91%
Foreign currency	26,402			3.20%	(43,944		)	3.29%
Ending balance	$	2,639,015		3.66%	$	2,479,755		3.79%

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, 2019, 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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 income.

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, 2019 and 2018, we settled certain net investment hedges generating cash proceeds of $6,716,000 and necessitating cash payments of $70,937,000, respectively. The balance of the cumulative translation adjustment will be reclassified to earnings if the hedged investment is sold or substantially liquidated.

Derivative Contracts Undesignated

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

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



	September 30, 2019			December 31, 2018
Derivatives designated as net investment hedges:
Denominated in Canadian Dollars	$	725,000		$	575,000
Denominated in Pounds Sterling	£	1,340,708		£	890,708

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

Interest rate swaps designated as cash flow hedges:
Denominated in U.S Dollars ⁽¹⁾	$	1,188,250		$	—

Derivative instruments not designated:
Interest rate caps denominated in U.S. Dollars	$	405,819		$	405,819
Forward purchase contracts denominated in Canadian Dollars	$	(200,000	)	$	(325,000	)
Forward sales contracts denominated in Canadian Dollars	$	237,000		$	405,000
Forward purchase contracts denominated in Pounds Sterling	£	(125,000	)	£	(350,000	)
Forward sales contracts denominated in Pounds Sterling	£	125,000		£	350,000

⁽¹⁾ At September 30, 2019 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,
	Location	2019		2018			2019			2018
Gain (loss) on derivative instruments designated as hedges recognized in income	Interest expense	$	7,478	$	4,185		$	19,945		$	8,008

Gain (loss) on derivative instruments not designated as hedges recognized in income	Interest expense	$	600	$	(203	)	$	(2,065	)	$	2,250

Gain (loss) on foreign exchange contracts and term loans designated as net investment hedge recognized in OCI	OCI	$	78,947	$	12,200		$	91,672		$	100,205

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

13. Commitments and Contingencies

At September 30, 2019, we had 14 outstanding letter of credit obligations totaling $50,418,000 and expiring between 2019 and 2024. At September 30, 2019, we had outstanding construction in progress of $466,286,000 and were committed to providing additional funds of approximately $460,810,000 to complete construction. Purchase obligations include contingent purchase obligations totaling $9,157,000. These contingent purchase obligations relate to unfunded capital improvement obligations and contingent obligations on acquisitions. Rents due from the tenant are increased to reflect the additional investment in the property.

14. Stockholders’ Equity

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



	September 30, 2019	December 31, 2018
Preferred Stock:
Authorized shares	50,000,000	50,000,000
Issued shares	—	14,375,000
Outstanding shares	—	14,369,965

Common Stock, $1.00 par value:
Authorized shares	700,000,000	700,000,000
Issued shares	407,058,274	384,849,236
Outstanding shares	405,757,860	383,674,603

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



	Nine Months Ended
	September 30, 2019			September 30, 2018
			Weighted Avg.			Weighted Avg.
	Shares		Dividend Rate	Shares		Dividend Rate
Beginning balance	14,369,965		6.50%	14,370,060		6.50%
Shares converted	(14,369,965	)	6.50%	(95	)	6.50%
Ending balance	—		—%	14,369,965		6.50%

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 separate amended and restated equity distribution agreements 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. As of September 30, 2019, we had $1,333,682,000 of remaining capacity under the Equity Shelf Program, which excludes forward sales agreements outstanding for the sale of 5,152,658 shares with maturity dates in the fourth quarter and 2020. We expect to physically settle the forward sales for cash proceeds.

The following is a summary of our common stock issuances during the nine months ended September 30, 2019 and 2018 (dollars in thousands, except average price amounts):

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



	Shares Issued	Average Price		Gross Proceeds		Net Proceeds
2018 Dividend reinvestment plan issuances	1,755,446	$	64.24	$	112,770	$	112,294
2018 Option exercises	32,120	39.94		1,283		1,283
2018 Equity shelf program issuances	1,944,511	66.72		129,744		128,834
2018 Preferred stock conversions	83			—		—
2018 Stock incentive plans, net of forfeitures	112,868			—		—
2018 Totals	3,845,028			$	243,797	$	242,411

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

Dividends The increase in dividends is primarily attributable to increases in our common shares outstanding, offset by the conversion of the Series I Preferred Stock as described above. The following is a summary of our dividend payments (in thousands, except per share amounts):



	Nine Months Ended
	September 30, 2019				September 30, 2018
	Per Share		Amount		Per Share		Amount
Common Stock	$	2.6100	$	1,051,687	$	2.6100	$	971,280
Series I Preferred Stock	—		—		2.4375		35,028
Totals			$	1,051,687			$	1,006,308

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



	September 30, 2019			December 31, 2018
Foreign currency translation	$	(947,585	)	$	(868,006	)
Derivative instruments	830,449			738,777
Actuarial losses	(540		)	(540		)
Total accumulated other comprehensive loss	$	(117,676	)	$	(129,769	)

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 $5,309,000 and $20,501,000 for the three and nine months ended September 30, 2019, respectfully, and $6,075,000 and $22,800,000 for the same periods in 2018.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

16. Earnings Per Share

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



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2019		2018		2019		2018
Numerator for basic and diluted earnings
per share - net income (loss) attributable
to common stockholders	$	589,876	$	64,384	$	1,008,108	$	656,487

Denominator for basic earnings per
share - weighted average shares	405,023		373,023		400,441		372,052
Effect of dilutive securities:
Employee stock options	—		6		—		12
Non-vested restricted shares	757		348		860		464
Redeemable shares	1,096		1,096		1,096		1,096
Employee stock purchase program	15		14		15		14
Dilutive potential common shares	1,868		1,464		1,971		1,586
Denominator for diluted earnings per
share - adjusted weighted average shares	406,891		374,487		402,412		373,638

Basic earnings per share	$	1.46	$	0.17	$	2.52	$	1.76
Diluted earnings per share	$	1.45	$	0.17	$	2.51	$	1.76

The Series I Cumulative Convertible Perpetual Preferred Stock were excluded from the 2018 calculation as the effect of the conversions were anti-dilutive. As of September 30, 2019, forward sales agreements outstanding for the sale of 5,152,658 shares of common stock were not included in the computation of diluted earnings per share because such forward sales were anti-dilutive for the period.

17. Disclosure about Fair Value of Financial Instruments

U.S. GAAP provides authoritative guidance for measuring and disclosing fair value measurements of assets and liabilities. The guidance defines fair value 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. The guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Please see Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018 for additional information. The guidance describes three levels of inputs that may be used to measure fair value:

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 and Other Real Estate Loans Receivable — The fair value of mortgage loans and other 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.

Unsecured Revolving Credit Facility and Commercial Paper Program — The carrying amount of the unsecured revolving credit facility and Commercial Paper Program approximates fair value because the borrowings are interest rate adjustable.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 unitholder interests are recorded on the balance sheet at fair value using Level 2 inputs. The fair value is measured using the closing price of our common stock, as units may be redeemed at the election of the holder for cash or, at our option, one share of our common stock per unit, subject to adjustment in certain circumstances.

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



	September 30, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Financial assets:
Mortgage loans receivable	$	252,617	$	257,060	$	249,071	$	257,337
Other real estate loans receivable	108,913		109,400		81,268		82,742
Equity securities	10,617		10,617		11,286		11,286
Cash and cash equivalents	265,788		265,788		215,376		215,376
Restricted cash	64,947		64,947		100,753		100,753
Foreign currency forward contracts, interest rate swaps and cross currency swaps	153,179		153,179		94,729		94,729

Financial liabilities:
Unsecured revolving credit facility and commercial paper note program	$	1,334,586	$	1,334,586	$	1,147,000	$	1,147,000
Senior unsecured notes	9,730,047		10,229,289		9,603,299		10,043,797
Secured debt	2,623,010		2,688,384		2,476,177		2,499,130
Foreign currency forward contracts, interest rate swaps and cross currency swaps	59,120		59,120		71,109		71,109

Redeemable OP unitholder interests	$	134,610	$	134,610	$	103,071	$	103,071

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, 2019
	Total		Level 1		Level 2		Level 3
Equity securities	$	10,617	$	10,617	$	—	$	—
Foreign currency forward contracts, interest rate swaps and cross currency swaps, net asset (liability)⁽¹⁾	94,059		—		94,059		—
Redeemable OP unitholder interests	134,610		—		134,610		—
Totals	$	239,286	$	10,617	$	228,669	$	—

⁽¹⁾Please see Note 12 for additional information.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Items Measured at Fair Value on a Nonrecurring Basis

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. As these assets and liabilities are not measured at fair value on a recurring basis, they 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/assumed. Asset impairments (if applicable, see Note 5 for impairments of real property and Note 7 for impairments of real estate 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.

18. Segment Reporting

We invest in seniors housing and health care real estate. We evaluate our business and make resource allocations on our three operating segments: Seniors Housing Operating, Triple-net and Outpatient Medical. Our seniors housing operating properties include assisted living, independent living/continuing care retirement communities, independent supportive living communities (Canada), care homes with and without nursing (U.K.) and combinations thereof that are owned and/or operated through RIDEA structures (see Note 19). 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, 2018). The results of operations for all acquisitions described in Note 3 are included in our consolidated results of operations from the acquisition dates and are components of the appropriate segments. There are no intersegment sales or transfers.

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

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



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	(2,554		)	12			(302		)	(1,124		)	(3,968		)
(Loss) income 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	594,140			216,217			51,683			(214,108		)	647,932
Net income (loss)	$	594,140		$	216,217		$	51,683		$	(214,108	)	$	647,932

Total assets	$	15,095,737		$	9,350,606		$	7,173,763		$	243,849		$	31,863,955



Three Months Ended September 30, 2018:	Seniors Housing Operating			Triple-net		Outpatient Medical			Non-segment / Corporate			Total
Resident fees and services	$	875,171		$	—	$	—		$	—		$	875,171
Rental income	—			203,039		139,848			—			342,887
Interest income	159			14,378		85			—			14,622
Other income	1,175			1,693		136			695			3,699
Total revenues	876,505			219,110		140,069			695			1,236,379

Property operating expenses	610,659			426		46,072			—			657,157
Consolidated net operating income	265,846			218,684		93,997			695			579,222

Depreciation and amortization	136,532			60,383		46,234			—			243,149
Interest expense	17,319			3,500		1,643			115,570			138,032
General and administrative expenses	—			—		—			28,746			28,746
Loss (gain) on derivatives and financial instruments, net	—			8,991		—			—			8,991
Loss (gain) on extinguishment of debt, net	—			—		—			4,038			4,038
Impairment of assets	562			6,178		—			—			6,740
Other expenses	(811		)	87,076		1,055			1,306			88,626
Income (loss) from continuing operations before income taxes and other items	112,244			52,556		45,065			(148,965		)	60,900
Income tax (expense) benefit	211			1,116		239			(3,307		)	(1,741		)
(Loss) income from unconsolidated entities	(6,705		)	5,377		1,672			—			344
Gain (loss) on real estate dispositions, net	(1		)	24,782		(58		)	—			24,723
Income (loss) from continuing operations	105,749			83,831		46,918			(152,272		)	84,226
Net income (loss)	$	105,749		$	83,831	$	46,918		$	(152,272	)	$	84,226

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS



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	—			18,690			—			—			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	(2,798		)	(2,300		)	(1,253		)	(1,438		)	(7,789		)
(Loss) income 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	783,313			703,972			143,130			(540,141		)	1,090,274
Net income (loss)	$	783,313		$	703,972		$	143,130		$	(540,141	)	$	1,090,274



Nine Months Ended September 30, 2018	Seniors Housing Operating			Triple-net			Outpatient Medical			Non-segment / Corporate			Total
Resident fees and services	$	2,374,450		$	—		$	—		$	—		$	2,374,450
Rental income	—			607,831			412,026			—			1,019,857
Interest income	416			42,176			140			—			42,732
Other income	3,973			16,282			401			1,561			22,217
Total revenues	2,378,839			666,289			412,567			1,561			3,459,256

Property operating expenses	1,648,262			583			133,528			—			1,782,373
Consolidated net operating income	730,577			665,706			279,039			1,561			1,676,883

Depreciation and amortization	397,080			171,724			138,821			—			707,625
Interest expense	51,225			10,742			4,975			315,281			382,223
General and administrative expenses	—			—			—			95,282			95,282
Loss (gain) on derivatives and financial instruments, net	—			(5,642		)	—			—			(5,642		)
Loss (gain) on extinguishment of debt, net	110			(32		)	11,928			4,038			16,044
Impairment of assets	5,075			34,482			—			—			39,557
Other expenses	5,168			89,153			3,748			4,327			102,396
Income (loss) from continuing operations before income taxes and other items	271,919			365,279			119,567			(417,367		)	339,398
Income tax (expense) benefit	(2,244		)	(708		)	(567		)	(3,651		)	(7,170		)
(Loss) income from unconsolidated entities	(21,389		)	16,260			4,293			—			(836		)
Gain (loss) on real estate dispositions, net	3			158,938			214,721			—			373,662
Income (loss) from continuing operations	248,289			539,769			338,014			(421,018		)	705,054
Net income (loss)	$	248,289		$	539,769		$	338,014		$	(421,018	)	$	705,054

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, 2019				September 30, 2018				September 30, 2019				September 30, 2018
Revenues:	Amount		%		Amount		%		Amount		%		Amount		%
United States	$	1,039,016	82.1	%	$	1,007,203	81.5	%	$	3,175,059	82.3	%	$	2,766,726	80.0	%
United Kingdom	110,303		8.7	%	111,503		9.0	%	335,368		8.7	%	340,059		9.8	%
Canada	116,814		9.2	%	117,673		9.5	%	348,057		9.0	%	352,471		10.2	%
Total	$	1,266,133	100.0	%	$	1,236,379	100.0	%	$	3,858,484	100.0	%	$	3,459,256	100.0	%

	As of
	September 30, 2019				December 31, 2018
Assets:	Amount		%		Amount		%
United States	$	26,302,481	82.5	%	$	24,884,292	82.0	%
United Kingdom	3,109,553		9.8	%	3,078,994		10.1	%
Canada	2,451,921		7.7	%	2,378,786		7.9	%
Total	$	31,863,955	100.0	%	$	30,342,072	100.0	%

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, 2019 and 2018, 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. The company reflects current and deferred tax liabilities for any such withholding taxes incurred from this holding company structure in its consolidated financial statements. Generally, given current statutes of limitations, we are subject to audit by the foreign, federal, state and local taxing authorities under applicable local laws.

WELLTOWER INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

20. Variable Interest Entities

We have entered into joint ventures to own certain seniors housing and outpatient medical assets which are deemed to be Variable Interest Entities (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, 2019		December 31, 2018
Assets:
Net real estate investments	$	963,338	$	973,813
Cash and cash equivalents	23,881		18,678
Receivables and other assets	16,929		14,600
Total assets⁽¹⁾	$	1,004,148	$	1,007,091

Liabilities and equity:
Secured debt	$	461,480	$	465,433
Lease liabilities	1,326		—
Accrued expenses and other liabilities	22,521		18,229
Total equity	518,821		523,429
Total liabilities and equity	$	1,004,148	$	1,007,091

(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.

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



	EXECUTIVE SUMMARY

	Company Overview	30
	Business Strategy	30
	Key Transactions	31
	Key Performance Indicators, Trends and Uncertainties	32
	Corporate Governance	35

	LIQUIDITY AND CAPITAL RESOURCES

	Sources and Uses of Cash	35
	Off-Balance Sheet Arrangements	35
	Contractual Obligations	35
	Capital Structure	35

	RESULTS OF OPERATIONS

	Summary	36
	Seniors Housing Operating	36
	Triple-net	38
	Outpatient Medical	40
	Non-Segment/Corporate	42

	OTHER

	Non-GAAP Financial Measures	43
	Critical Accounting Policies	49
	Cautionary Statement Regarding Forward-Looking Statements	50

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

The following discussion and analysis are 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, 2018, including factors identified under the headings “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 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, 2019 (dollars in thousands):



			Percentage of		Number of
Type of Property	NOI⁽¹⁾		NOI		Properties
Seniors Housing Operating	$	254,155	41.7	%	524
Triple-net	230,685		37.8	%	657
Outpatient Medical	124,864		20.5	%	358
Totals	$	609,704	100.0	%	1,539

⁽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.

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 guaranties 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, 2019, resident fees and services and rental income represented 68% and 31%, respectively, of total revenues. Substantially all of our operating leases are designed with escalating rent structures. Leases with

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

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 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 available cash on-hand, we expect to borrow under our unsecured revolving credit facility and Commercial Paper Program. At September 30, 2019, we had $265,788,000 of cash and cash equivalents, $64,947,000 of restricted cash and $1,665,000,000 of available borrowing capacity under our unsecured revolving credit facility.

Key Transactions

Capital The following summarizes key capital transaction that occurred during the nine months ended September 30, 2019:


•	In January 2019, we established an unsecured Commercial Paper Program. Under the terms of the program, we may issue, from time to time, unsecured commercial paper with maturities that vary, but do not exceed 397 days from the date of issue, up to a maximum aggregate principal amount outstanding at any time of $1,000,000,000.

•

In February 2019, we completed the issuance of $500,000,000 of 3.625% senior unsecured notes due 2024 and $550,000,000 of 4.125% senior unsecured notes due 2029 for net proceeds of approximately $1,036,964,000. In August 2019, we completed the issuance of $750,000,000 of 3.10% senior unsecured notes due 2030 and a follow-on issuance of $450,000,000 of 3.625% senior unsecured notes due 2024 priced to yield 2.494%, for net proceeds of approximately $1,209,328,000.


•	In February 2019, we elected to effect the mandatory conversion of all of the outstanding 6.50% Series I Cumulative Convertible Perpetual Preferred Stock. Each share of convertible stock was converted into 0.8857 shares of common stock.

•

During the nine months ended September 30, 2019, we extinguished $193,604,000 of secured debt at a blended average interest rate of 4.37%. Additionally, in March 2019 we repaid our $600,000,000 of 4.125% senior unsecured notes due 2019 and $450,000,000 of 6.125% senior unsecured notes due 2020. In September 2019, we repaid our $450,000,000 of 4.95% senior unsecured notes due 2021 and $600,000,000 of 5.25% senior unsecured notes due 2022.


•	In May 2019, we drew on a $1,000,000,000 unsecured term loan facility that matures on May 28, 2020 which was put in place to bridge the acquisition of the CNL Healthcare Properties portfolio. The unsecured term loan facility was subsequently extinguished in July 2019 with proceeds from the disposition of the Benchmark Senior Living portfolio.

•

During the nine months ended September 30, 2019, we entered into amended and restated Equity Shelf Program (as defined below) pursuant to which we may offer and sell up to $1,500,000,000 of common stock from time to time. We sold 14,321,000 shares of common stock under our ATM and DRIP programs, via both cash settle and forward sale agreements, generating expected gross proceeds of approximately $1,134,967,000.

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

Investments The following summarizes our property acquisitions and joint venture investments completed during the nine months ended September 30, 2019 (dollars in thousands):



	Properties	Investment Amount⁽¹⁾		Capitalization Rates⁽²⁾		Book Amount⁽³⁾
Seniors Housing Operating	53	$	1,225,771	5.1	%	$	1,361,201
Triple-net	6	137,935		6.6	%	139,935
Outpatient Medical	75	1,591,807		5.7	%	1,674,358
Totals	134	$	2,955,513	5.5	%	$	3,175,494

⁽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.

Dispositions The following summarizes property dispositions made during the nine months ended September 30, 2019 (dollars in thousands):



	Properties	Proceeds⁽¹⁾		Capitalization Rates⁽²⁾		Book Amount⁽³⁾
Seniors Housing Operating⁽⁴⁾	51	$	1,772,276	5.4	%	$	1,204,084
Triple-net	57	902,731		7.9	%	660,885
Outpatient Medical⁽⁵⁾	—	—		—	%	482
Totals	108	$	2,675,007	6.3	%	$	1,865,451

⁽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.
⁽⁴⁾ Includes the disposition of an unconsolidated real estate investment.
⁽⁵⁾ Reflects the disposition of an excess land parcel.

Dividends Our Board of Directors announced the annual cash dividend of $3.48 per common share ($0.87 per share quarterly), consistent with 2018. The dividend declared for the quarter ended September 30, 2019 represents the 194^th consecutive quarterly dividend payment.

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, concentration risk and credit strength. 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 (and FFO per share amounts) 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, except per share amounts):

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



	Three Months Ended
	March 31,		June 30,		September 30,		December 31,		March 31,		June 30,		September 30,
	2018		2018		2018		2018		2019		2019		2019
Net income (loss)	$	453,555	$	167,273	$	84,226	$	124,696	$	292,302	$	150,040	$	647,932
NICS	437,671		154,432		64,384		101,763		280,470		137,762		589,876
FFO	353,220		378,725		285,272		374,966		358,383		390,021		352,378
NOI	540,500		557,161		579,222		590,599		601,438		618,979		610,545

Per share data (fully diluted):
NICS	$	1.17	$	0.41	$	0.17	$	0.27	$	0.71	$	0.34	$	1.45
FFO	$	0.95	$	1.02	$	0.76	$	0.99	$	0.91	$	0.96	$	0.87

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 ("IRC") 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 reconciliations 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
	March, 31	June 30,	September 30,	December 31,	March 31,	June 30,	September 30,
	2018	2018	2018	2018	2019	2019	2019

Net debt to book capitalization ratio	42%	42%	46%	45%	43%	48%	45%
Net debt to undepreciated book capitalization ratio	35%	36%	39%	38%	36%	41%	38%
Net debt to market capitalization ratio	34%	31%	34%	31%	28%	30%	26%

Interest coverage ratio	6.67x	4.34x	3.38x	3.60x	4.80x	3.74x	7.61x
Fixed charge coverage ratio	5.49x	3.58x	2.85x	3.05x	4.38x	3.42x	6.96x

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:

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



	Three Months Ended
	March 31,	June 30,	September 30,	December 31,	March 31,	June 30,	September 30,
	2018	2018	2018	2018	2019	2019	2019
Property mix:⁽¹⁾
Seniors Housing Operating	42%	43%	46%	43%	44%	45%	42%
Triple-net	41%	40%	38%	40%	39%	37%	38%
Outpatient Medical	17%	17%	16%	17%	17%	18%	20%

Relationship mix:⁽¹⁾
Sunrise Senior Living⁽²⁾	15%	15%	15%	14%	15%	14%	14%
ProMedica	—%	—%	7%	9%	9%	9%	9%
Revera⁽²⁾	7%	7%	7%	6%	6%	6%	6%
Genesis HealthCare	6%	6%	6%	6%	5%	5%	5%
Belmont Village	3%	3%	3%	3%	3%	3%	4%
Remaining relationships	69%	69%	62%	62%	62%	63%	62%

Geographic mix:⁽¹⁾
California	14%	14%	13%	13%	13%	13%	14%
United Kingdom	10%	9%	9%	9%	9%	8%	8%
Texas	8%	8%	7%	8%	8%	8%	8%
New Jersey	8%	7%	7%	7%	7%	7%	7%
Canada	9%	8%	8%	8%	7%	7%	7%
Remaining geographic areas	51%	54%	56%	55%	56%	57%	56%

⁽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, 2019 (dollars in thousands):



	Expiration Year⁽¹⁾
	2019			2020			2021			2022			2023			2024			2025			2026			2027			2028			Thereafter
Triple-net:
Properties	8			—			6			10			2			4			48			94			19			15			430
Base rent⁽²⁾	$	3,470		$	—		$	12,292		$	10,496		$	1,331		$	11,096		$	52,728		$	122,530		$	35,725		$	22,036		$	487,015
% of base rent	0.5		%	—		%	1.6		%	1.4		%	0.2		%	1.5		%	6.9		%	16.1		%	4.7		%	2.9		%	64.2		%
Units/beds	649			—			1,023			1,022			140			692			3,033			7,554			2,401			1,633			44,588
% of Units/beds	1.0		%	—		%	1.6		%	1.6		%	0.2		%	1.1		%	4.8		%	12.0		%	3.8		%	2.6		%	71.3		%

Outpatient Medical:
Square feet	514,534			1,614,257			2,017,333			2,158,069			2,129,097			2,128,846			1,207,793			1,482,284			864,668			932,339			6,141,513
Base rent⁽²⁾	$	11,453		$	44,978		$	56,712		$	58,920		$	57,737		$	62,850		$	31,700		$	38,283		$	21,554		$	23,984		$	133,599
% of base rent	2.1		%	8.3		%	10.5		%	10.9		%	10.7		%	11.6		%	5.9		%	7.1		%	4.0		%	4.4		%	24.5		%
Leases	148			415			417			420			435			337			184			193			120			106			294
% of Leases	4.8		%	13.5		%	13.6		%	13.7		%	14.2		%	11.0		%	6.0		%	6.3		%	3.9		%	3.5		%	9.5		%

(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 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, 2018, under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion of these risk factors.

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

Corporate Governance

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

Liquidity and Capital Resources

Sources and Uses of Cash

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



	Nine Months Ended						Change
	September 30, 2019			September 30, 2018			$			%
Cash, cash equivalents and restricted cash at beginning of period	$	316,129		$	309,303		$	6,826		2	%
Cash provided from (used in) operating activities	1,209,900			1,211,148			(1,248		)	—	%
Cash provided from (used in) investing activities	(1,058,325		)	(2,133,293		)	1,074,968			50	%
Cash provided from (used in) financing activities	(132,533		)	899,559			(1,032,092		)	-115	%
Effect of foreign currency translation	(4,436		)	(5,432		)	996			18	%
Cash, cash equivalents and restricted cash at end of period	$	330,735		$	281,285		$	49,450		18	%

Operating Activities The change in net cash provided from operating activities was immaterial. Please see “Results of Operations” for discussion of net income fluctuations. For the nine months ended September 30, 2019 and 2018, cash flow 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 changes in acquisition and dispositions, 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 (dollars in thousands):



	Nine Months Ended				Change
	September 30, 2019		September 30, 2018		$		%
New development	$	258,113	$	88,146	$	169,967	193	%
Recurring capital expenditures, tenant improvements and lease commissions	86,488		57,384		29,104		51	%
Renovations, redevelopments and other capital improvements	119,925		116,251		3,674		3	%
Total	$	464,526	$	261,781	$	202,745	77	%

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 issuance/redemption of common and preferred 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.

Off-Balance Sheet Arrangements

At September 30, 2019, we had investments in unconsolidated entities with our ownership interests ranging from 10% to 50%. We use financial derivative instruments to hedge interest rate and foreign currency exchange rate exposure. At September 30, 2019, we had 14 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, 2019 (in thousands):



	Payments Due by Period
Contractual Obligations	Total		2019		2020-2021		2022-2023		Thereafter
Unsecured credit facility and commercial paper^(1,2)	$	1,335,000	$	835,000	$	—	$	500,000	$	—
Senior unsecured notes and term credit facilities:⁽²⁾
U.S. Dollar senior unsecured notes	7,600,000		—		—		1,100,000		6,500,000
Canadian Dollar senior unsecured notes⁽³⁾	226,501		—		226,501		—		—
Pounds Sterling senior unsecured notes⁽³⁾	1,292,025		—		—		—		1,292,025
U.S. Dollar term credit facility	510,000		—		—		510,000		—
Canadian Dollar term credit facility⁽³⁾	188,750		—		—		188,750		—
Secured debt:^(2,3)
Consolidated	2,639,015		256,322		541,763		682,997		1,157,933
Unconsolidated	800,225		11,817		75,636		61,013		651,759
Contractual interest obligations:⁽⁴⁾
Unsecured credit facility and commercial paper	54,389		4,012		28,787		21,590		—
Senior unsecured notes and term loans⁽³⁾	4,070,524		124,827		791,836		768,216		2,385,645
Consolidated secured debt⁽³⁾	414,543		23,972		152,966		102,246		135,359
Unconsolidated secured debt⁽³⁾	206,939		7,565		55,418		51,529		92,427
Financing lease liabilities⁽⁵⁾	192,414		2,511		17,908		77,405		94,590
Operating lease liabilities⁽⁵⁾	1,189,326		5,040		39,654		37,153		1,107,479
Purchase obligations⁽⁶⁾	469,967		111,914		310,941		47,112		—
Other long-term liabilities	123		123		—		—		—
Total contractual obligations	$	21,189,741	$	1,383,103	$	2,241,410	$	4,148,011	$	13,417,217

⁽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.

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, 2019, 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, in turn, 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

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

(“DRIP”) under which we may issue up to 15,000,000 shares of common stock. As of October 21, 2019, 4,119,785 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 21, 2019, we had $1,333,682,000 of remaining capacity under the Equity Shelf Program, which excludes forward sales agreements outstanding for the sale of 6,018,906 shares with maturity dates in the fourth quarter and 2020. 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.

Results of Operations

Summary

Our primary sources of revenue include resident fees and services, rent and interest income. Our primary expenses include depreciation and amortization, interest expense, property operating expenses, 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"), which are 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,
	2019			2018			Amount			%		2019			2018			Amount			%
Net income	$	647,932		$	84,226		$	563,706		669	%	$	1,090,274		$	705,054		$	385,220		55	%
NICS	589,876			64,384			525,492			816	%	1,008,108			656,487			351,621			54	%
FFO	352,378			285,272			67,106			24	%	1,100,782			1,017,217			83,565			8	%
EBITDA	1,061,688			467,148			594,540			127	%	2,286,403			1,802,072			484,331			27	%
NOI	610,545			579,222			31,323			5	%	1,830,962			1,676,883			154,079			9	%
SSNOI	440,759			437,628			3,131			0.7	%	1,217,372			1,210,808			6,564			0.5	%
Per share data (fully diluted):
NICS	$	1.45		$	0.17		$	1.28		753	%	$	2.51		$	1.76		$	0.75		43	%
FFO	$	0.87		$	0.76		$	0.11		14	%	$	2.74		$	2.72		$	0.02		1	%

Interest coverage ratio	7.61		x	3.38		x	4.23		x	125	%	5.36		x	4.73		x	0.63		x	13	%
Fixed charge coverage ratio	6.96		x	2.85		x	4.11		x	144	%	4.90		x	3.93		x	0.97		x	25	%

Seniors Housing Operating

The following is a summary of our NOI and SSNOI 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,
	2019			2018			$			%		2019			2018			$			%
NOI	$	254,155		$	265,846		$	(11,691	)	-4.4	%	$	797,067		$	730,577		$	66,490		9.1	%
Non SSNOI attributable to same store properties	(2,897		)	(1,323		)	(1,574		)	-119.0	%	1,061			938			123			13.1	%
NOI attributable to non same store properties⁽¹⁾	(32,688		)	(46,374		)	13,686			29.5	%	(242,615		)	(176,665		)	(65,950		)	-37.3	%
SSNOI⁽²⁾	$	218,570		$	218,149		$	421		0.2	%	$	555,513		$	554,850		$	663		0.1	%

⁽¹⁾ Change primarily related to acquisitions and segment transitions during the relevant periods. See Non-GAAP Financial Measures for discussion of properties excluded from the same store pools and the SSNOI Property Reconciliations for details.

⁽²⁾ For the three and nine month periods ended September 30, 2019 and 2018, amounts relate to 413 and 351 same store properties, respectively. The same store property pools include 39 and 19 properties that have undergone operator transitions within the same segment during the relevant periods for the three and nine month periods ended September 30, 2019 and 2018, respectively. Furthermore, the same store pools exclude 72 unconsolidated properties for both the three and nine month periods ended September 30, 2019 and 2018.

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

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



	Three Months Ended						Change					Nine Months Ended						Change
	September 30,			September 30,								September 30,			September 30,
	2019			2018			$			%		2019			2018			$			%
Revenues:
Resident fees and services	$	834,121		$	875,171		$	(41,050	)	-5	%	$	2,616,491		$	2,374,450		$	242,041		10	%
Interest income	—			159			(159		)	-100	%	—			416			(416		)	-100	%
Other income	1,375			1,175			200			17	%	6,920			3,973			2,947			74	%
Total revenues	835,496			876,505			(41,009		)	-5	%	2,623,411			2,378,839			244,572			10	%
Property operating expenses	581,341			610,659			(29,318		)	-5	%	1,826,344			1,648,262			178,082			11	%
NOI⁽¹⁾	254,155			265,846			(11,691		)	-4	%	797,067			730,577			66,490			9	%
Other expenses:
Depreciation and amortization	148,126			136,532			11,594			8	%	416,252			397,080			19,172			5	%
Interest expense	16,356			17,319			(963		)	-6	%	52,179			51,225			954			2	%
Loss (gain) on extinguishment of debt, net	1,450			—			1,450			n/a		1,450			110			1,340			1,218	%
Impairment of assets	2,599			562			2,037			362	%	2,599			5,075			(2,476		)	-49	%
Other expenses	4,274			(811		)	5,085			627	%	19,077			5,168			13,909			269	%
	172,805			153,602			19,203			13	%	491,557			458,658			32,899			7	%
Income (loss) from continuing operations before income taxes and other items	81,350			112,244			(30,894		)	-28	%	305,510			271,919			33,591			12	%
Income tax benefit (expense)	(2,554		)	211			(2,765		)	-1,310	%	(2,798		)	(2,244		)	(554		)	-25	%
Income (loss) from unconsolidated entities	(3,859		)	(6,705		)	2,846			42	%	(37,892		)	(21,389		)	(16,503		)	-77	%
Gain (loss) on real estate dispositions, net	519,203			(1		)	519,204			n/a		518,493			3			518,490			n/a
Income from continuing operations	594,140			105,749			488,391			462	%	783,313			248,289			535,024			215	%
Net income (loss)	594,140			105,749			488,391			462	%	783,313			248,289			535,024			215	%
Less: Net income (loss) attributable to noncontrolling interests	46,849			405			46,444			11,468	%	50,826			(1,259		)	52,085			4,137	%
Net income (loss) attributable to common stockholders	$	547,291		$	105,344		$	441,947		420	%	$	732,487		$	249,548		$	482,939		194	%

⁽¹⁾ See Non-GAAP Financial Measures.

Fluctuations in resident fees and services and property operating expenses are primarily a result of acquisitions, segment transitions, offset by dispositions, and the movement of U.S. and foreign currency exchange rates. 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 three and nine months ended September 30, 2019 and 2018, we recorded impairment charges on certain held for sale and held for use properties as the carrying values exceeded the estimated fair values. The significant gain on sale of properties during the three months ended September 30, 2019 is related to the sale of the Benchmark Senior Living portfolio. Transaction costs related to asset acquisitions are capitalized as a component of the purchase price. The increase in other expenses is primarily due to additional noncapitalizable transaction costs associated with acquisitions and operator transitions.

During the nine months ended September 30, 2019, we completed two Seniors Housing Operating construction projects representing $28,117,000 or $109,405 per unit. The following is a summary of our Seniors Housing Operating construction projects, excluding expansions, pending as of September 30, 2019 (dollars in thousands):

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



Location	Units	Commitment		Balance		Est. Completion
Wandsworth, UK	97	$	72,538	$	57,955	1Q20
Taylor, PA	113	14,272		10,314		1Q20
Beavercreek, OH	100	12,032		10,487		1Q20
Potomac, MD	120	56,720		17,337		4Q20
Beckenham, UK	100	57,957		27,239		3Q21
	530	$	213,519	123,332
Toronto, ON	Project in planning stage			42,466
Hendon, UK	Project in planning stage			29,519
Barnet, UK	Project in planning stage			25,717
Washington, DC	Project in planning stage			17,361
Brookline, MA	Project in planning stage			16,829
				$	255,224

Interest expense represents secured debt interest expense which fluctuates based on the net effect and timing of assumptions, segment transitions, fluctuations in currency rates, extinguishments and principal amortizations. The following is a summary of our Seniors Housing Operating segment secured debt principal activity (dollars in thousands):



	Three Months Ended										Nine Months Ended
	September 30, 2019					September 30, 2018					September 30, 2019					September 30, 2018
				Wtd. Avg.					Wtd. Avg.					Wtd. Avg.					Wtd. Avg.
	Amount			Interest Rate		Amount			Interest Rate		Amount			Interest Rate		Amount			Interest Rate
Beginning balance	$	2,018,180		3.80	%	$	1,909,415		3.73	%	$	1,810,587		3.87	%	$	1,988,700		3.66	%
Debt issued	22,885			3.95	%	—			—	%	318,854			3.51	%	44,606			3.38	%
Debt assumed	—			—	%	—			—	%	42,000			4.62	%	85,192			4.38	%
Debt extinguished	(42,131		)	4.15	%	—			—	%	(193,604		)	4.37	%	(131,175		)	4.85	%
Debt transferred	(12,072		)	3.89	%	35,830			3.84	%	(12,072		)	3.89	%	35,830			3.84	%
Principal payments	(10,556		)	3.49	%	(11,908		)	3.64	%	(32,987		)	3.38	%	(35,910		)	3.58	%
Foreign currency	(12,614		)	3.34	%	18,204			3.33	%	30,914			3.21	%	(35,702		)	3.54	%
Ending balance	$	1,963,692		3.58	%	$	1,951,541		3.76	%	$	1,963,692		3.58	%	$	1,951,541		3.76	%

Monthly averages	$	1,980,216		3.67	%	$	1,934,652		3.74	%	$	1,955,651		3.76	%	$	1,935,752		3.70	%

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 quarter ended June 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, 2019 relates to our partner's share of the gain recognized on the sale of the Benchmark Senior Living portfolio.

Triple-net

The following is a summary of our NOI and SSNOI for the Triple-net segment (dollars in thousands):



	Three Months Ended						Change					Nine Months Ended						Change
	September 30,			September 30,								September 30,			September 30,
	2019			2018			$			%		2019			2018			$			%
NOI	$	230,685		$	218,684		$	12,001		5.5	%	$	691,906		$	665,706		$	26,200		3.9	%
Non SSNOI attributable to same store properties	(7,270		)	(5,269		)	(2,001		)	-38.0	%	(22,336		)	(19,738		)	(2,598		)	-13.2	%
NOI attributable to non same store properties⁽¹⁾	(92,872		)	(84,468		)	(8,404		)	-9.9	%	(279,290		)	(258,375		)	(20,915		)	-8.1	%
SSNOI⁽²⁾	$	130,543		$	128,947		$	1,596		1.2	%	$	390,280		$	387,593		$	2,687		0.7	%

⁽¹⁾ Change primarily related to acquisitions during the relevant periods. See Non-GAAP Financial Measures for discussion of properties excluded from the same store pools and the SSNOI Property Reconciliations for details.

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

⁽²⁾ For both the three and nine month periods ended September 30, 2019 and 2018, amounts relate to 371 same store properties. The same store property pools include 3 properties that have undergone operator transitions within the same segment during the relevant periods for both the three and nine month periods ended September 30, 2019 and 2018. Furthermore, the same store pools exclude 39 unconsolidated properties for both the three and nine month periods ended September 30, 2019 and 2018.

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,
	2019			2018		$			%		2019			2018			$			%
Revenues:
Rental income	$	227,499		$	203,039	$	24,460		12	%	$	681,893		$	607,831		$	74,062		12	%
Interest income	15,279			14,378		901			6	%	47,343			42,176			5,167			12	%
Other income	1,829			1,693		136			8	%	4,370			16,282			(11,912		)	-73	%
Total revenues	244,607			219,110		25,497			12	%	733,606			666,289			67,317			10	%
Property operating expenses	13,922			426		13,496			3,168	%	41,700			583			41,117			7,053	%
NOI⁽¹⁾	230,685			218,684		12,001			5	%	691,906			665,706			26,200			4	%
Other expenses:
Depreciation and amortization	57,147			60,383		(3,236		)	-5	%	174,551			171,724			2,827			2	%
Interest expense	3,076			3,500		(424		)	-12	%	9,741			10,742			(1,001		)	-9	%
Loss (gain) on derivatives and financial instruments, net	1,244			8,991		(7,747		)	-86	%	670			(5,642		)	6,312			112	%
Loss (gain) on extinguishment of debt, net	—			—		—			n/a		—			(32		)	32			100	%
Provision for loan losses	—			—		—			n/a		18,690			—			18,690			n/a
Impairment of assets	12,314			6,178		6,136			99	%	11,374			34,482			(23,108		)	-67	%
Other expenses	(2,496		)	87,076		(89,572		)	-103	%	6,093			89,153			(83,060		)	-93	%
	71,285			166,128		(94,843		)	-57	%	221,119			300,427			(79,308		)	-26	%
Income from continuing operations before income taxes and other items	159,400			52,556		106,844			203	%	470,787			365,279			105,508			29	%
Income tax (expense) benefit	12			1,116		(1,104		)	-99	%	(2,300		)	(708		)	(1,592		)	-225	%
Income (loss) from unconsolidated entities	5,276			5,377		(101		)	-2	%	17,512			16,260			1,252			8	%
Gain (loss) on real estate dispositions, net	51,529			24,782		26,747			108	%	217,973			158,938			59,035			37	%
Income from continuing operations	216,217			83,831		132,386			158	%	703,972			539,769			164,203			30	%
Net income	216,217			83,831		132,386			158	%	703,972			539,769			164,203			30	%
Less: Net income (loss) attributable to noncontrolling interests	9,096			6,913		2,183			32	%	27,422			10,129			17,293			171	%
Net income attributable to common stockholders	$	207,121		$	76,918	$	130,203		169	%	$	676,550		$	529,640		$	146,910		28	%

⁽¹⁾ See Non-GAAP Financial Measures.

The increase in rental income is primarily attributable to acquisitions including Quality Care Properties Inc. ("QCP") in July 2018, partially offset by the disposition or segment transition of various properties. In addition, we have recorded certain real estate property taxes on a gross basis, with the offset to property operating expenses, as a result of our ASC 842 adoption on January 1, 2019. 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, 2019, we had 18 leases with rental rate increases ranging from 0.10% to 0.82% in our Triple-net portfolio. The decrease in other income for the nine month period ending September 30, 2019 is primarily due to $10,805,000 of net lease termination fees recognized during 2018.

Depreciation and amortization fluctuates as a result of the acquisitions, dispositions and transitions of triple-net properties. To the extent that 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 are no longer deemed collectible. During the three and nine months ended September 30, 2019 and 2018, we recorded impairment charges on certain held for sale and held for use properties as the carrying values exceeded the estimated fair values. 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. In addition, during the three months ended September 30, 2018, we recognized $79,368,000 related to a joint venture transaction, including the conversion of properties from Triple-net to Seniors Housing Operating and termination/restructuring of preexisting relationships.

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

The following is a summary of Triple-net construction projects, excluding expansions, pending as of September 30, 2019 (dollars in thousands):



Location	Units/Beds	Commitment		Balance		Est. Completion
Union, KY	162	$	34,600	$	20,557	1Q20
Westerville, OH	90	22,800		17,049		1Q20
Droitwich, UK	70	15,584		8,787		2Q20
Thousand Oaks, CA	82	24,763		8,199		4Q20
Leicester, UK	60	13,782		3,247		1Q21
	464	$	111,529	$	57,839

Interest expense represents secured debt interest expense and related fees. The change in interest expense is due to 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 fluctuation in loss (gain) on derivatives and financial instruments, net is primarily attributable to the mark-to-market adjustment recorded on the Genesis HealthCare available-for-sale investment. The following is a summary of our Triple-net secured debt principal activity (dollars in thousands):



	Three Months Ended										Nine Months Ended
	September 30, 2019					September 30, 2018					September 30, 2019					September 30, 2018
				Wtd. Avg.					Wtd. Avg.					Wtd. Avg.					Wtd. Avg.
	Amount			Interest Rate		Amount			Interest Rate		Amount			Interest Rate		Amount			Interest Rate
Beginning balance	$	287,952		3.63	%	$	334,033		3.53	%	$	288,386		3.63	%	$	347,474		3.55	%
Debt extinguished	—			—	%	—			—	%	—			—	%	(4,107		)	4.94	%
Debt transferred	12,072			3.89	%	(35,830		)	3.80	%	12,072			3.89	%	(35,830		)	3.84	%
Principal payments	(1,037		)	5.17	%	(962		)	5.26	%	(2,945		)	5.22	%	(3,033		)	5.42	%
Foreign currency	(5,986		)	2.95	%	(979		)	3.51	%	(4,512		)	3.23	%	(8,242		)	3.29	%
Ending balance	$	293,001		3.64	%	$	296,262		3.63	%	$	293,001		3.64	%	$	296,262		3.63	%

Monthly averages	$	291,300		3.64	%	$	309,920		3.53	%	$	291,475		3.63	%	$	331,239		3.48	%

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 interest represents our partners’ share of net income relating to those partnerships where we are the controlling partner. Increases in net income attributable to noncontrolling interest is due primarily to the ProMedica joint venture formed as part of the QCP acquisition.

Outpatient Medical

The following is a summary of our NOI and SSNOI for the Outpatient Medical segment (dollars in thousands):



	Three Months Ended						Change					Nine Months Ended						Change
	September 30,			September 30,								September 30,			September 30,
	2019			2018			$			%		2019			2018			$			%
NOI	$	124,864		$	93,997		$	30,867		32.8	%	$	338,537		$	279,039		$	59,498		21.3	%
Non SSNOI on same store properties	(1,294		)	(1,806		)	512			28.3	%	(4,152		)	(4,517		)	365			8.1	%
NOI attributable to non same store properties⁽¹⁾	(31,924		)	(1,659		)	(30,265		)	-1,824.3	%	(62,806		)	(6,157		)	(56,649		)	-920.1	%
SSNOI⁽²⁾	$	91,646		$	90,532		$	1,114		1.2	%	$	271,579		$	268,365		$	3,214		1.2	%

⁽²⁾ For the three and nine month periods ended September 30, 2019 and 2018, amounts relate to 239 and 235 same store properties, respectively. The same store pools exclude 6 unconsolidated properties for both the three and nine month periods ended September 30, 2019 and 2018.

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

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



	Three Months Ended						Change					Nine Months Ended						Change
	September 30,			September 30,								September 30,			September 30,
	2019			2018			$			%		2019			2018			$			%
Revenues:
Rental income	$	184,648		$	139,848		$	44,800		32	%	$	496,924		$	412,026		$	84,898		21	%
Interest income	358			85			273			321	%	769			140			629			449	%
Other income	183			136			47			35	%	322			401			(79		)	-20	%
Total revenues	185,189			140,069			45,120			32	%	498,015			412,567			85,448			21	%
Property operating expenses	60,325			46,072			14,253			31	%	159,478			133,528			25,950			19	%
NOI⁽¹⁾	124,864			93,997			30,867			33	%	338,537			279,039			59,498			21	%
Other expenses:
Depreciation and amortization	67,172			46,234			20,938			45	%	173,626			138,821			34,805			25	%
Interest expense	3,363			1,643			1,720			105	%	10,097			4,975			5,122			103	%
Loss (gain) on extinguishment of debt, net	—			—			—			n/a		—			11,928			(11,928		)	-100	%
Impairment of assets	3,183			—			3,183			n/a		14,062			—			14,062			n/a
Other expenses	524			1,055			(531		)	-50	%	1,274			3,748			(2,474		)	-66	%
	74,242			48,932			25,310			52	%	199,059			159,472			39,587			25	%
Income (loss) from continuing operations before income taxes and other items	50,622			45,065			5,557			12	%	139,478			119,567			19,911			17	%
Income tax (expense) benefit	(302		)	239			(541		)	-226	%	(1,253		)	(567		)	(686		)	-121	%
Income from unconsolidated entities	1,845			1,672			173			10	%	5,394			4,293			1,101			26	%
Gain (loss) on real estate dispositions, net	(482		)	(58		)	(424		)	-731	%	(489		)	214,721			(215,210		)	-100	%
Income from continuing operations	51,683			46,918			4,765			10	%	143,130			338,014			(194,884		)	-58	%
Net income (loss)	51,683			46,918			4,765			10	%	143,130			338,014			(194,884		)	-58	%
Less: Net income (loss) attributable to noncontrolling interests	2,111			848			1,263			149	%	3,918			4,669			(751		)	-16	%
Net income (loss) attributable to common stockholders	$	49,572		$	46,070		$	3,502		8	%	$	139,212		$	333,345		$	(194,133	)	-58	%

⁽¹⁾ See Non-GAAP Financial Measures.

The increases in rental income and property operating expenses are primarily attributable to acquisitions and development conversions, particularly the $1.25 billion CNL Healthcare Properties portfolio acquisition that closed in May 2019, partially offset by dispositions of outpatient medical properties. 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. Sales of real property would offset revenue increases and, to the extent that they exceed new acquisitions, could result in decreased revenues. 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, 2019, our consolidated outpatient medical portfolio signed 179,206 square feet of new leases and 389,671 square feet of renewals. The weighted-average term of these leases was six years, with a rate of $36.98 per square foot and tenant improvement and lease commission costs of $20.47 per square foot. Substantially all of these leases contain an annual fixed or contingent escalation rent structure ranging from 2.0% to 3.9%.

The fluctuation in depreciation and amortization is primarily due to acquisitions 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. Changes in the gain/loss on sale of properties are related to the volume and timing of property sales and sales prices. During the three and nine months ended September 30, 2019 we recorded impairment charges on certain held for sale outpatient medical properties as the carrying values exceeded the estimated fair value less costs to sell.

The following is a summary of the Outpatient Medical construction projects, excluding expansions, pending as of September 30, 2019 (dollars in thousands):

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



Location	Square Feet	Commitment		Balance		Est. Completion
Houston, TX	73,500	$	23,455	$	16,126	4Q19
Porter, TX	55,000	20,800		12,041		1Q20
Lowell, MA	50,668	8,700		6,559		1Q20
Brooklyn, NY	140,955	105,306		77,097		2Q20
Katy, TX	36,500	12,028		1,077		2Q20
Total	356,623	$	170,289	$	112,900

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 fluctuation in losses/gains on debt extinguishment is primarily attributable to the prepayment penalties paid on certain extinguishments in the first quarter of 2018.

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



	Three Months Ended										Nine Months Ended
	September 30, 2019					September 30, 2018					September 30, 2019					September 30, 2018
				Wtd. Ave					Wtd. Ave					Wtd. Ave					Wtd. Ave
	Amount			Interest Rate		Amount			Interest Rate		Amount			Interest Rate		Amount			Interest Rate
Beginning balance	$	383,850		4.22	%	$	217,007		4.35	%	$	386,738		4.20	%	$	279,951		4.72	%
Debt assumed	—			—	%	14,360			3.80	%	—			—	%	14,360			3.80	%
Debt extinguished	—			—	%	—			—	%	—			—	%	(61,291		)	7.43	%
Principal payments	(1,528		)	4.97	%	(702		)	5.90	%	(4,416		)	5.03	%	(2,355		)	6.02	%
Ending balance	$	382,322		4.09	%	$	230,665		4.19	%	$	382,322		4.09	%	$	230,665		4.19	%

Monthly averages	$	383,084		4.17	%	$	220,246		4.22	%	$	384,590		4.21	%	$	224,943		4.26	%

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 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 (dollars in thousands):



	Three Months Ended						Change					Nine Months Ended						Change
	September 30,			September 30,								September 30,			September 30,
	2019			2018			$			%		2019			2018			$			%
Revenues:
Other income	$	841		$	695		$	146		21	%	$	3,452		$	1,561		$	1,891		121	%
Total revenue	841			695			146			21	%	3,452			1,561			1,891			121	%
Expenses:
Interest expense	114,548			115,570			(1,022		)	-1	%	351,894			315,281			36,613			12	%
General and administrative expenses	31,019			28,746			2,273			8	%	100,042			95,282			4,760			5	%
Loss (gain) on extinguishment of debt, net	64,374			4,038			60,336			1,494	%	80,093			4,038			76,055			1,883	%
Other expenses	3,884			1,306			2,578			197	%	10,126			4,327			5,799			134	%
	213,825			149,660			64,165			43	%	542,155			418,928			123,227			29	%
Loss from continuing operations before income taxes and other items	(212,984		)	(148,965		)	(64,019		)	-43	%	(538,703		)	(417,367		)	(121,336		)	-29	%
Income tax (expense) benefit	(1,124		)	(3,307		)	2,183			66	%	(1,438		)	(3,651		)	2,213			61	%
Loss from continuing operations	(214,108		)	(152,272		)	(61,836		)	-41	%	(540,141		)	(421,018		)	(119,123		)	-28	%
Less: Preferred stock dividends	—			11,676			(11,676		)	-100	%	—			35,028			(35,028		)	-100	%
Net loss attributable to common stockholders	$	(214,108	)	$	(163,948	)	$	(50,160	)	-31	%	$	(540,141	)	$	(456,046	)	$	(84,095	)	-18	%

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

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



	Three Months Ended				Change					Nine Months Ended				Change
	September 30,		September 30,							September 30,		September 30,
	2019		2018		$			%		2019		2018		$			%
Senior unsecured notes	$	100,356	$	99,445	$	911		1	%	$	307,587	$	282,847	$	24,740		9	%
Secured debt	—		26		(26		)	-100	%	—		96		(96		)	-100	%
Unsecured revolving credit facility and commercial paper note program	10,300		12,662		(2,362		)	-19	%	32,978		22,442		10,536			47	%
Loan expense	3,892		3,437		455			13	%	11,329		9,896		1,433			14	%
Totals	$	114,548	$	115,570	$	(1,022	)	-1	%	$	351,894	$	315,281	$	36,613		12	%

The change in interest expense on senior unsecured notes is due to the net effect of issuances and extinguishments, as well as the movement of foreign exchange rates and related hedge activity. Please refer to Note 11 for additional information. The change in interest expense on the 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, 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, 2019 and 2018 were 2.45% and 2.33%, respectively. Other expenses primarily represent severance-related costs associated with the departure of executive officers and other key employees.

The decrease in preferred dividends is due to the conversion of all outstanding Series I Cumulative Convertible Perpetual Preferred Stock during the nine months ended September 30, 2019.

Other

Non-GAAP Financial Measures

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

Consolidated net operating income (“NOI”) is used to evaluate the operating performance of our properties. We define NOI as total revenues, including tenant reimbursements, less property operating expenses. Property operating expenses represent costs associated with managing, maintaining and servicing tenants for our properties. These expenses include, but are not limited to, property-related payroll and benefits, property management fees paid to operators, marketing, housekeeping, food service, maintenance, utilities, property taxes and insurance. General and administrative expenses represent costs unrelated to property operations. These expenses include, but are not limited to, payroll and benefits, professional services, office expenses and depreciation of corporate fixed assets. Same store NOI (“SSNOI”) is used to evaluate the operating performance of our properties using a consistent population which controls for changes in the composition of our portfolio. For the three month periods ended, same store is generally defined as those revenue-generating properties in the portfolio subsequent to July 1, 2018. For the year to date periods ended, same store is generally defined as those revenue-generating properties in the portfolio subsequent to January 1, 2018. Land parcels, loans and sub-leases, as well as any properties acquired, under development, transitioned to a different segment, sold or classified as held for sale during that period are excluded from the same store amounts. Additionally, unconsolidated properties are excluded from the same store amounts. We believe NOI and SSNOI provide investors relevant and useful information because they measure the operating performance of our properties at the property level on an unleveraged basis. We use NOI and SSNOI to make decisions about resource allocations and to assess the property level performance of our properties.

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

EBITDA stands for earnings (net income) before interest, taxes, depreciation and amortization. We believe that EBITDA, along with net income and cash flow provided from operating activities, is an important supplemental measure because it provides additional information to assess and evaluate the performance of our operations. We primarily utilize EBITDA to measure our interest coverage ratio, which represents EBITDA divided by total interest, and our fixed charge coverage ratio, which represents EBITDA divided by fixed charges. Fixed charges include total interest, secured debt principal amortization and preferred dividends. Covenants in our senior unsecured notes contain financial ratios based on a definition of EBITDA that is specific to those agreements. Failure to satisfy these covenants could result in an event of default that could have a material adverse impact on our cost and availability of capital, which could, in turn, have a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. Due to the materiality of these debt agreements and the financial covenants, we have disclosed Adjusted EBITDA, which represents EBITDA as defined above excluding unconsolidated entities and adjusted for items per our covenant. We use Adjusted EBITDA to measure our adjusted fixed charge coverage ratio, which represents Adjusted EBITDA divided by fixed charges on a trailing twelve months basis. Fixed charges include total interest (excluding capitalized interest and non-cash interest expenses), secured debt principal amortization and preferred dividends. Our covenant requires an adjusted fixed charge coverage ratio of at least 1.50 times.

Our supplemental reporting measures and similarly entitled financial measures are widely used by investors, equity and debt analysts and rating agencies in the valuation, comparison, rating and investment recommendations of companies. Management uses these financial measures to facilitate internal and external comparisons to our historical operating results and in making operating decisions. Additionally, these measures are utilized by the Board of Directors to evaluate management. None of our supplemental measures represent net income or cash flow provided from operating activities as determined in accordance with U.S. GAAP and should not be considered as alternative measures of profitability or liquidity. Finally, the supplemental measures, as defined by us, may not be comparable to similarly entitled items reported by other real estate investment trusts or other companies.



	Three Months Ended
	March 31,			June 30,			September 30,			December 31,			March 31,			June 30,		September 30,
NOI Reconciliations:	2018			2018			2018			2018			2019			2019		2019
Net income (loss)	$	453,555		$	167,273		$	84,226		$	124,696		$	292,302		$	150,040	$	647,932
Loss (gain) on real estate dispositions, net	(338,184		)	(10,755		)	(24,723		)	(41,913		)	(167,409		)	1,682		(570,250		)
Loss (income) from unconsolidated entities	2,429			(1,249		)	(344		)	(195		)	9,199			9,049		(3,262		)
Income tax expense (benefit)	1,588			3,841			1,741			1,504			2,222			1,599		3,968
Other expenses	3,712			10,058			88,626			10,502			8,756			21,628		6,186
Impairment of assets	28,185			4,632			6,740			76,022			—			9,939		18,096
Provision for loan losses	—			—			—			—			18,690			—		—
Loss (gain) on extinguishment of debt, net	11,707			299			4,038			53			15,719			—		65,824
Loss (gain) on derivatives and financial instruments, net	(7,173		)	(7,460		)	8,991			1,626			(2,487		)	1,913		1,244
General and administrative expenses	33,705			32,831			28,746			31,101			35,282			33,741		31,019
Depreciation and amortization	228,201			236,275			243,149			242,834			243,932			248,052		272,445
Interest expense	122,775			121,416			138,032			144,369			145,232			141,336		137,343
Consolidated net operating income (NOI)	$	540,500		$	557,161		$	579,222		$	590,599		$	601,438		$	618,979	$	610,545

NOI by segment:
Seniors Housing Operating	$	225,226		$	239,505		$	265,846		$	254,445		$	264,700		$	278,212	$	254,155
Triple-net	222,738			224,284			218,684			234,343			233,286			227,935		230,685
Outpatient Medical	92,168			92,874			93,997			101,097			101,295			112,378		124,864
Non-segment/corporate	368			498			695			714			2,157			454		841
Total NOI	$	540,500		$	557,161		$	579,222		$	590,599		$	601,438		$	618,979	$	610,545

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



	Nine Months Ended
	September 30, 2018			September 30, 2019
NOI Reconciliations:
Net income (loss)	$	705,054		$	1,090,274
Loss (gain) on real estate dispositions, net	(373,662		)	(735,977		)
Loss (income) from unconsolidated entities	836			14,986
Income tax expense (benefit)	7,170			7,789
Other expenses	102,396			36,570
Impairment of assets	39,557			28,035
Provision for loan losses	—			18,690
Loss (gain) on extinguishment of debt, net	16,044			81,543
Loss (gain) on derivatives and financial instruments, net	(5,642		)	670
General and administrative expenses	95,282			100,042
Depreciation and amortization	707,625			764,429
Interest expense	382,223			423,911
Consolidated net operating income (NOI)	$	1,676,883		$	1,830,962

NOI by segment:
Seniors Housing Operating	$	730,577		$	797,067
Triple-net	665,706			691,906
Outpatient Medical	279,039			338,537
Non-segment/corporate	1,561			3,452
Total NOI	$	1,676,883		$	1,830,962



	Three Months Ended						Nine Months Ended
SSNOI Reconciliations:	September 30, 2018			September 30, 2019			September 30, 2018			September 30, 2019
NOI:
Seniors Housing Operating	$	265,846		$	254,155		$	730,577		$	797,067
Triple-net	218,684			230,685			665,706			691,906
Outpatient Medical	93,997			124,864			279,039			338,537
Total	578,527			609,704			1,675,322			1,827,510
Adjustments:
Seniors Housing Operating:
Non SSNOI on same store properties	(1,323		)	(2,897		)	938			1,061
NOI attributable to non same store properties	(46,374		)	(32,688		)	(176,665		)	(242,615		)
Subtotal	(47,697		)	(35,585		)	(175,727		)	(241,554		)
Triple-net:
Non SSNOI on same store properties	(5,269		)	(7,270		)	(19,738		)	(22,336		)
NOI attributable to non same store properties	(84,468		)	(92,872		)	(258,375		)	(279,290		)
Subtotal	(89,737		)	(100,142		)	(278,113		)	(301,626		)
Outpatient Medical:
Non SSNOI on same store properties	(1,806		)	(1,294		)	(4,517		)	(4,152		)
NOI attributable to non same store properties	(1,659		)	(31,924		)	(6,157		)	(62,806		)
Subtotal	(3,465		)	(33,218		)	(10,674		)	(66,958		)
SSNOI:
Seniors Housing Operating	218,149			218,570			554,850			555,513
Triple-net	128,947			130,543			387,593			390,280
Outpatient Medical	90,532			91,646			268,365			271,579
Total	$	437,628		$	440,759		$	1,210,808		$	1,217,372



	Three Months Ended September 30, 2019								Nine Months Ended September 30, 2019
SSNOI Property Reconciliations:	Seniors Housing Operating		Triple-net		Outpatient Medical		Total		Seniors Housing Operating		Triple-net		Outpatient Medical		Total
Total properties	524		657		358		1,539		524		657		358		1,539
Recent acquisitions/development conversions	(52	)	(236	)	(103	)	(391	)	(66	)	(236	)	(107	)	(409	)
Developments	(11	)	(5	)	(5	)	(21	)	(11	)	(5	)	(5	)	(21	)
Held for sale	(12	)	(8	)	(5	)	(25	)	(12	)	(8	)	(5	)	(25	)
Segment transitions	(36	)	(17	)	—		(53	)	(84	)	(17	)	—		(101	)
Other⁽¹⁾	—		(20	)	(6	)	(26	)	—		(20	)	(6	)	(26	)
Same store properties	413		371		239		1,023		351		371		235		957

⁽¹⁾ Includes eight land parcels, eight subleases and ten loans.

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

The tables below reflects the reconciliation of FFO to NICS, the most directly comparable U.S. GAAP measure, for the periods presented. Noncontrolling interest and unconsolidated entity amounts represent adjustments to reflect our share of depreciation and amortization. Amounts are in thousands except for per share data.



	Three Months Ended
		March 31,			June 30,			September 30,			December 31,			March 31,			June 30,			September 30,
FFO Reconciliations:		2018			2018			2018			2018			2019			2019			2019
Net income attributable to common stockholders		$	437,671		$	154,432		$	64,384		$	101,763		$	280,470		$	137,762		$	589,876
Depreciation and amortization		228,201			236,275			243,149			242,834			243,932			248,052			272,445
Impairment of assets		28,185			4,632			6,740			76,022			—			9,939			18,096
Loss (gain) on real estate dispositions, net		(338,184		)	(10,755		)	(24,723		)	(41,913		)	(167,409		)	1,682			(570,250		)
Noncontrolling interests		(16,353		)	(17,692		)	(17,498		)	(17,650		)	(17,760		)	(18,889		)	31,347
Unconsolidated entities		13,700			11,833			13,220			13,910			19,150			11,475			10,864
FFO		$	353,220		$	378,725		$	285,272		$	374,966		$	358,383		$	390,021		$	352,378

Average diluted shares outstanding		373,257			373,075			374,487			380,002			393,452			406,673			406,891

Per diluted share data:
Net income attributable to common stockholders		$	1.17		$	0.41		$	0.17		$	0.27		$	0.71		$	0.34		$	1.45
FFO		$	0.95		$	1.02		$	0.76		$	0.99		$	0.91		$	0.96		$	0.87



	Nine Months Ended
	September 30,			September 30,
FFO Reconciliations:	2018			2019
Net income attributable to common stockholders	$	656,487		$	1,008,108
Depreciation and amortization	707,625			764,429
Impairment of assets	39,557			28,035
Loss (gain) on real estate dispositions, net	(373,662		)	(735,977		)
Noncontrolling interests	(51,543		)	(5,302		)
Unconsolidated entities	38,753			41,489
FFO	$	1,017,217		$	1,100,782

Average diluted common shares outstanding:	373,638			402,412

Per diluted share data:
Net income attributable to common stockholders	$	1.76		$	2.51
FFO	$	2.72		$	2.74

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

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



	Three Months Ended
	March 31,			June 30,			September 30,			December 31,			March 31,			June 30,			September 30,
EBITDA Reconciliations:	2018			2018			2018			2018			2019			2019			2019
Net income (loss)	$	453,555		$	167,273		$	84,226		$	124,696		$	292,302		$	150,040		$	647,932
Interest expense	122,775			121,416			138,032			144,369			145,232			141,336			137,343
Income tax expense (benefit)	1,588			3,841			1,741			1,504			2,222			1,599			3,968
Depreciation and amortization	228,201			236,275			243,149			242,834			243,932			248,052			272,445
EBITDA	$	806,119		$	528,805		$	467,148		$	513,403		$	683,688		$	541,027		$	1,061,688

Interest Coverage Ratio:
Interest expense	$	122,775		$	121,416		$	138,032		$	144,369		$	145,232		$	141,336		$	137,343
Non-cash interest expense	(4,179		)	(1,716		)	(1,658		)	(3,307		)	(5,171		)	(752		)	(1,988		)
Capitalized interest	2,336			2,100			1,921			1,548			2,327			3,929			4,148
Total interest	120,932			121,800			138,295			142,610			142,388			144,513			139,503
EBITDA	$	806,119		$	528,805		$	467,148		$	513,403		$	683,688		$	541,027		$	1,061,688
Interest coverage ratio	6.67		x	4.34		x	3.38		x	3.60		x	4.80		x	3.74		x	7.61		x

Fixed Charge Coverage Ratio:
Total interest	$	120,932		$	121,800		$	138,295		$	142,610		$	142,388		$	144,513		$	139,503
Secured debt principal payments	14,247			14,139			13,908			13,994			13,543			13,684			13,121
Preferred dividends	11,676			11,676			11,676			11,676			—			—			—
Total fixed charges	146,855			147,615			163,879			168,280			155,931			158,197			152,624
EBITDA	$	806,119		$	528,805		$	467,148		$	513,403		$	683,688		$	541,027		$	1,061,688
Fixed charge coverage ratio	5.49		x	3.58		x	2.85		x	3.05		x	4.38		x	3.42		x	6.96		x



	Nine Months Ended
	September 30,			September 30,
EBITDA Reconciliations:	2018			2019
Net income (loss)	$	705,054		$	1,090,274
Interest expense	382,223			423,911
Income tax expense (benefit)	7,170			7,789
Depreciation and amortization	707,625			764,429
EBITDA	$	1,802,072		$	2,286,403

Interest Coverage Ratio:
Interest expense	$	382,223		$	423,911
Non-cash interest expense	(7,553		)	(7,911		)
Capitalized interest	6,357			10,404
Total interest	381,027			426,404
EBITDA	$	1,802,072		$	2,286,403
Interest coverage ratio	4.73		x	5.36		x

Fixed Charge Coverage Ratio:
Total interest	$	381,027		$	426,404
Secured debt principal payments	42,294			40,348
Preferred dividends	35,028			—
Total fixed charges	458,349			466,752
EBITDA	$	1,802,072		$	2,286,403
Fixed charge coverage ratio	3.93		x	4.90		x

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

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



	Twelve Months Ended
	March 31,			June 30,			September 30,			December 31,			March 31,			June 30,			September 30,
Adjusted EBITDA Reconciliations:	2018			2018			2018			2018			2019			2019			2019
Net income	$	656,551		$	620,384		$	615,311		$	829,750		$	668,497		$	651,264		$	1,214,970
Interest expense	488,800			493,986			509,440			526,592			549,049			568,969			568,280
Income tax expense (benefit)	19,471			31,761			32,833			8,674			9,308			7,066			9,293
Depreciation and amortization	921,645			933,072			946,083			950,459			966,190			977,967			1,007,263
EBITDA	2,086,467			2,079,203			2,103,667			2,315,475			2,193,044			2,205,266			2,799,806
Loss (income) from unconsolidated entities	62,448			57,221			60,285			641			7,411			17,709			14,791
Stock-based compensation expense⁽¹⁾	25,753			26,158			25,443			27,646			23,618			26,113			25,347
Loss (gain) on extinguishment of debt, net	17,593			12,377			16,415			16,097			20,109			19,810			81,596
Loss (gain) on real estate dispositions, net	(438,342		)	(406,942		)	(430,043		)	(415,575		)	(244,800		)	(232,363		)	(777,890		)
Impairment of assets	141,637			132,638			139,378			115,579			87,394			92,701			104,057
Provision for loan losses	62,966			62,966			62,966			—			18,690			18,690			18,690
Loss (gain) on derivatives and financial instruments, net	(6,113		)	(14,309		)	(5,642		)	(4,016		)	670			10,043			2,296
Other expenses⁽¹⁾	167,524			171,243			161,655			111,990			117,942			126,994			45,512
Additional other income	—			(10,805		)	(10,805		)	(14,832		)	(14,832		)	(4,027		)	(4,027		)
Adjusted EBITDA	$	2,119,933		$	2,109,750		$	2,123,319		$	2,153,005		$	2,209,246		$	2,280,936		$	2,310,178

Adjusted Fixed Charge Coverage Ratio:
Interest expense	$	488,800		$	493,986		$	509,440		$	526,592		$	549,049		$	568,969		$	568,280
Capitalized interest	11,696			10,437			9,813			7,905			7,896			9,725			11,952
Non-cash interest expense	(12,858		)	(11,628		)	(10,087		)	(10,860		)	(11,852		)	(10,888		)	(11,218		)
Total interest	487,638			492,795			509,166			523,637			545,093			567,806			569,014
Adjusted EBITDA	$	2,119,933		$	2,109,750		$	2,123,319		$	2,153,005		$	2,209,246		$	2,280,936		$	2,310,178
Adjusted interest coverage ratio	4.35		x	4.28		x	4.17		x	4.11		x	4.05		x	4.02		x	4.06		x

Total interest	$	487,638		$	492,795		$	509,166		$	523,637		$	545,093		$	567,806		$	569,014
Secured debt principal payments	62,077			60,258			58,866			56,288			55,584			55,129			54,342
Preferred dividends	46,707			46,704			46,704			46,704			35,028			23,352			11,676
Total fixed charges	596,422			599,757			614,736			626,629			635,705			646,287			635,032
Adjusted EBITDA	$	2,119,933		$	2,109,750		$	2,123,319		$	2,153,005		$	2,209,246		$	2,280,936		$	2,310,178
Adjusted fixed charge coverage ratio	3.55		x	3.52		x	3.45		x	3.44		x	3.48		x	3.53		x	3.64		x

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

Our leverage ratios include book capitalization, undepreciated book capitalization and market capitalization. Book capitalization represents the sum of net debt (defined as total long-term debt less cash and cash equivalents and any IRC Section 1031 deposits), total equity and redeemable noncontrolling interests. Undepreciated book capitalization represents book capitalization adjusted for accumulated depreciation and amortization. Market capitalization represents book capitalization adjusted for the fair market value of our common stock. Our leverage ratios are defined as the proportion of net debt to total capitalization. The table below reflects the reconciliation of our leverage ratios to our balance sheets for the periods presented. Amounts are in thousands, except share price.

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



	As of
	March 31,			June 30,			September 30,			December 31,			March 31,			June 30,			September 30,
	2018			2018			2018			2018			2019			2019			2019
Book capitalization:
Unsecured credit facility and commercial paper	$	865,000		$	540,000		$	1,312,000		$	1,147,000		$	419,293		$	1,869,188		$	1,334,586
Long-term debt obligations⁽¹⁾	10,484,840			10,895,559			12,192,060			12,150,144			12,371,729			13,390,344			12,463,680
Cash & cash equivalents⁽²⁾	(202,824		)	(215,120		)	(191,199		)	(215,376		)	(249,127		)	(268,666		)	(265,788		)
Total net debt	11,147,016			11,220,439			13,312,861			13,081,768			12,541,895			14,990,866			13,532,478
Total equity and noncontrolling interests⁽³⁾	15,448,201			15,198,644			15,670,065			16,010,645			16,498,376			16,452,806			16,696,070
Book capitalization	$	26,595,217		$	26,419,083		$	28,982,926		$	29,092,413		$	29,040,271		$	31,443,672		$	30,228,548
Net debt to book capitalization ratio	42		%	42		%	46		%	45		%	43		%	48		%	45		%

Undepreciated book capitalization:
Total net debt	$	11,147,016		$	11,220,439		$	13,312,861		$	13,081,768		$	12,541,895		$	14,990,866		$	13,532,478
Accumulated depreciation and amortization	4,990,780			5,113,928			5,394,274			5,499,958			5,670,111			5,539,435			5,769,843
Total equity and noncontrolling interests⁽³⁾	15,448,201			15,198,644			15,670,065			16,010,645			16,498,376			16,452,806			16,696,070
Undepreciated book capitalization	$	31,585,997		$	31,533,011		$	34,377,200		$	34,592,371		$	34,710,382		$	36,983,107		$	35,998,391
Net debt to undepreciated book capitalization ratio	35		%	36		%	39		%	38		%	36		%	41		%	38		%

Market capitalization:
Common shares outstanding	371,971			372,030			375,577			383,675			403,740			405,254			405,758
Period end share price	$	54.43		$	62.69		$	64.32		$	69.41		$	77.60		$	81.53		$	90.65
Common equity market capitalization	$	20,246,382		$	23,322,561		$	24,157,113		$	26,630,882		$	31,330,224		$	33,040,359		$	36,781,963
Total net debt	11,147,016			11,220,439			13,312,861			13,081,768			12,541,895			14,990,866			13,532,478
Noncontrolling interests⁽³⁾	889,766			856,721			1,362,380			1,378,311			1,419,885			1,458,351			1,430,005
Preferred stock	718,498			718,498			718,498			718,498			—			—			—
Enterprise value	$	33,001,662		$	36,118,219		$	39,550,852		$	41,809,459		$	45,292,004		$	49,489,576		$	51,744,446
Net debt to market capitalization ratio	34		%	31		%	34		%	31		%	28		%	30		%	26		%

⁽¹⁾ Amounts include senior unsecured notes, secured debt and lease liabilities related to financing leases, as reflected on our Consolidated Balance Sheet. Operating lease liabilities related to the ASC 842 adoption are excluded.
⁽²⁾ Inclusive of IRC Section 1031 deposits, if any.
⁽³⁾ Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests as reflected on our Consolidated Balance Sheet.

Critical Accounting Policies

Our unaudited consolidated financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions. Management considers an accounting estimate or assumption critical if:


•	the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and


•	the impact of the estimates and assumptions on financial condition or operating performance is material.

Management has discussed the development and selection of its critical accounting policies with the Audit Committee of the Board of Directors. Management believes the current assumptions and other considerations used to estimate amounts reflected in our unaudited consolidated financial statements are appropriate and are not reasonably likely to change in the future. However, since these estimates require assumptions to be made that were uncertain at the time the estimate was made, they bear the risk of change. If actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our unaudited consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations, liquidity and/or financial condition. Please refer to Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018 for further information regarding significant accounting policies that impact us. There have been no material changes to these policies in 2019.

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

Cautionary Statement Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q may contain “forward-looking” statements as defined in the Private Securities Litigation Reform Act of 1995. When the Company uses words such as “may,” “will,” “intend,” “should,” “believe,” “expect,” “anticipate,” “project,” “estimate” or similar expressions that do not relate solely to historical matters, it is making forward-looking statements. In particular, these forward-looking statements include, but are not limited to, those relating to the Company’s opportunities to acquire, develop or sell properties; the Company’s ability to close its anticipated acquisitions, investments or dispositions on currently anticipated terms or within currently anticipated timeframes; the expected performance of the Company’s operators/tenants and properties; the Company’s expected occupancy rates; the Company’s ability to declare and to make distributions to shareholders; the Company’s investment and financing opportunities and plans; the Company’s continued qualification as a real estate investment trust (“REIT”); the Company’s ability to access capital markets or other sources of funds; and the Company’s ability to meet its earnings guidance. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause the Company’s actual results to differ materially from the Company’s expectations discussed in the forward-looking statements. This may be a result of various factors, including, but not limited to: the status of the economy; the status of capital markets, including availability and cost of capital; uncertainty from the expected discontinuance of LIBOR and the transition to any other interest rate benchmark; issues facing the health care industry, including compliance with, and changes to, regulations and payment policies, responding to government investigations and punitive settlements and operators’/tenants’ difficulty in cost-effectively obtaining and maintaining adequate liability and other insurance; changes in financing terms; competition within the health care and seniors housing industries; negative developments in the operating results or financial condition of operators/tenants, including, but not limited to, their ability to pay rent and repay loans; the Company’s ability to transition or sell properties with profitable results; the failure to make new investments or acquisitions as and when anticipated; natural disasters and other acts of God affecting the Company’s properties; the Company’s ability to re-lease space at similar rates as vacancies occur; the Company’s ability to timely reinvest sale proceeds at similar rates to assets sold; operator/tenant or joint venture partner bankruptcies or insolvencies; the cooperation of joint venture partners; government regulations affecting Medicare and Medicaid reimbursement rates and operational requirements; liability or contract claims by or against operators/tenants; unanticipated difficulties and/or expenditures relating to future investments or acquisitions; environmental laws affecting the Company’s properties; changes in rules or practices governing the Company’s financial reporting; the movement of U.S. and foreign currency exchange rates; the Company’s ability to maintain its qualification as a REIT; and key management personnel recruitment and retention. Other important factors are identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, including factors identified under the headings “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Finally, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, or to update the reasons why actual results could differ from those projected in any forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates and foreign currency exchange rates. We seek to mitigate the underlying foreign currency exposures with gains and losses on derivative contracts hedging these exposures. We seek to mitigate the effects of fluctuations in interest rates by matching the terms of new investments with new long-term fixed rate borrowings to the extent possible. We may or may not elect to use financial derivative instruments to hedge interest rate exposure. These decisions are principally based on our policy to match our variable rate investments with comparable borrowings, but are also based on the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. This section is presented to provide a discussion of the risks associated with potential fluctuations in interest rates and foreign currency exchange rates.

We historically borrow on our unsecured revolving credit facility and Commercial Paper Program to acquire, construct or make loans relating to health care and seniors housing properties. Then, as market conditions dictate, we will issue equity or long-term fixed rate debt to repay the borrowings under our unsecured revolving credit facility and Commercial Paper Program. We are subject to risks associated with debt financing, including the risk that existing indebtedness may not be refinanced or that the terms of refinancing may not be as favorable as the terms of current indebtedness. The majority of our borrowings were completed under indentures or contractual agreements that limit the amount of indebtedness we may incur. Accordingly, in the event that we are unable to raise additional equity or borrow money because of these limitations, our ability to acquire additional properties may be limited.

A change in interest rates will not affect the interest expense associated with our fixed rate debt. Interest rate changes, however, will affect the fair value of our fixed rate debt. Changes in the interest rate environment upon maturity of this fixed rate debt could have an effect on our future cash flows and earnings, depending on whether the debt is replaced with other fixed rate debt, variable rate debt or equity or repaid by the sale of assets. To illustrate the impact of changes in the interest rate markets, we performed a sensitivity analysis on our fixed rate debt instruments whereby we modeled the change in net present values arising from a

Item 3. Quantitative and Qualitative Disclosures About Market Risk

hypothetical 1% increase in interest rates to determine the instruments’ change in fair value. The following table summarizes the analysis performed as of the dates indicated (in thousands):



	September 30, 2019					December 31, 2018
	Principal		Change in			Principal		Change in
	balance		fair value			balance		fair value
Senior unsecured notes	$	9,118,526	$	(706,397	)	$	9,009,159	$	(548,558	)
Secured debt	1,484,713		(56,110		)	1,639,983		(59,522		)
Totals	$	10,603,239	$	(762,507	)	$	10,649,142	$	(608,080	)

Our variable rate debt, including our unsecured revolving credit facility and Commercial Paper Program, is reflected at fair value. At September 30, 2019, we had $3,188,052,000 outstanding related to our variable rate debt. Assuming no changes in outstanding balances, a 1% increase in interest rates would result in increased annual interest expense of $31,881,000. At December 31, 2018, we had $2,683,553,000 outstanding under our variable rate debt. Assuming no changes in outstanding balances, a 1% increase in interest rates would have resulted in increased annual interest expense of $26,836,000.

We are subject to currency fluctuations that may, from time to time, affect our financial condition and results of operations. Increases or decreases in the value of the Canadian Dollar or Pounds Sterling relative to the U.S. Dollar impact the amount of net income we earn from our investments in Canada and the United Kingdom. Based solely on our results for the three months ended September 30, 2019, including the impact of existing hedging arrangements, if these exchange rates were to increase or decrease by 10%, our net income from these investments would increase or decrease, as applicable, by less than $11,000,000. We will continue to mitigate these underlying foreign currency exposures with non-U.S. denominated borrowings and gains and losses on derivative contracts. If we increase our international presence through investments in, or acquisitions or development of, seniors housing and health care properties outside the U.S., we may also decide to transact additional business or borrow funds in currencies other than U.S. Dollars, Canadian Dollars or Pounds Sterling. To illustrate the impact of changes in foreign currency markets, we performed a sensitivity analysis on our derivative portfolio whereby we modeled the change in net present values arising from a hypothetical 1% increase in foreign currency exchange rates to determine the instruments’ change in fair value. The following table summarizes the results of the analysis performed (dollars in thousands):



	September 30, 2019				December 31, 2018
	Carrying		Change in		Carrying		Change in
	Value		fair value		Value		fair value
Foreign currency forward contracts	$	116,853	$	10,663	$	23,620	$	16,163
Debt designated as hedges	1,480,775		14,808		1,559,159		15,592
Totals	$	1,597,628	$	25,471	$	1,582,779	$	31,755

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

Item 4. Controls and Procedures

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective in providing reasonable assurance that information required to be disclosed by us in the reports we file with or submit to the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. No changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

There have been no material changes from the risk factors identified under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.

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



Issuer Purchases of Equity Securities
Period	Total Number of Shares Purchased⁽¹⁾	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs⁽²⁾	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2019 through July 31, 2019	—	$	—
August 1, 2019 through August 31, 2019	42,138	81.77
September 1, 2019 through September 30, 2019	15,267	88.81
Totals	57,405	$	83.64

⁽¹⁾ During the three months ended September 30, 2019, the company acquired shares of common stock held by employees who tendered owned shares to satisfy tax withholding obligations.

⁽²⁾ No shares were purchased as part of publicly announced plans or programs.

Item 5. Other Information

None.

Item 6. Exhibits



4.1		Supplemental Indenture No. 16, dated as of August 19, 2019 between the Company and The Bank of New York Mellon Trust Company, N.A., as trustee (filed with the SEC as Exhibit 4.3 to the Company's 8-K filed August 19, 2019 and incorporated by reference herein).
10.1		Settlement Agreement by and between John A. Goodey and Welltower Inc. *
10.2		2019 Non-Qualified Deferred Compensation Plan. *
31.1		Rule 13a-14(a)/15d-14(a) Certification of Chairman and Chief Executive Officer.
31.2		Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.
32.1		Certification pursuant to 18 U.S.C. Section 1350 by Chairman and Chief Executive Officer.
32.2		Certification pursuant to 18 U.S.C. Section 1350 by Chief Financial Officer.
101.INS		XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
104		The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, formatted in Inline XBRL

*		Management contract or Compensatory Plan or Arrangement.

SIGNATURES

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



		WELLTOWER INC.
Date:	October 30, 2019	By:	/s/ THOMAS J. DEROSA
		Thomas J. DeRosa,
		Chairman and Chief Executive Officer (Principal Executive Officer)


Date:	October 30, 2019	By:	/s/ TIMOTHY G. MCHUGH
		Timothy G. McHugh,
		Senior Vice President & Chief Financial Officer (Principal Financial Officer)


Date:	October 30, 2019	By:	/s/ JOSHUA T. FIEWEGER
		Joshua T. Fieweger,
		Senior Vice President & Controller (Principal Accounting Officer)

Welltower - 10-Q quarterly report FY2019 Q3

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