HEALTHPEAK PROPERTIES, INC. (DOC) FY 2021 MD&A

ITEM 7.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

The information set forth in this Item 7 is intended to provide readers with an understanding of our financial condition, changes in financial condition and results of operations. This section generally discusses the results of our operations for the year ended December 31, 2021 compared to the year ended December 31, 2020. For a discussion of the year ended December 31, 2020 compared to the year ended December 31, 2019, please refer to Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 filed with the SEC on February 10, 2021.

We will discuss and provide our analysis in the following order:

•Covid Update

•Overview of Transactions

•Dividends

•Results of Operations

•Liquidity and Capital Resources

•Non-GAAP Financial Measure Reconciliations

•Critical Accounting Estimates

•Recent Accounting Pronouncements

Covid Update

Our tenants, operators, and borrowers have experienced significant cost increases as a result of increased health and safety measures, staffing shortages, increased governmental regulation and compliance, vaccine mandates, and other operational changes necessitated either directly or indirectly by the Covid pandemic. We anticipate that many of these expenses will remain at these higher levels even after the pandemic passes, and may reduce margins in the business.

The impact of Covid on the ability of our tenants to pay rent in the future is currently unknown. We have monitored, and will continue to monitor, the credit quality of each of our tenants and write off straight-line rent and accounts receivable, as necessary. In the event we conclude that substantially all of a tenant’s straight-line rent or accounts receivable is not probable of collection in the future, such amounts will be written off, which could have a material impact on our future results of operations.

Senior housing facilities have been disproportionately impacted by Covid and Covid-related fatalities compared to our life science and medical office segments. Within our CCRC properties and the properties in our SWF SH JV, average occupancy declined from 85.6% and 88.7%, respectively, for the year ended December 31, 2019, to 79.1% and 72.7%, respectively, for the year ended December 31, 2021. Although the wide availability of the vaccine has reduced the negative impacts of the pandemic in our CCRC communities and the senior housing facilities owned by our SWF SH JV, we do not yet know the full, long-term economic impact of the Covid pandemic and whether or when occupancy and revenue will return to pre-pandemic levels. The increase in Covid cases caused by recent variants has evidenced the fact that the course of the pandemic is highly uncertain and that unexpected surges or other factors could materially impact recovery from the pandemic, adversely disrupt operations, and/or cause significant reputational harm to us, our tenants, our operators, or our borrowers. Labor costs in particular have increased as a result of higher staffing hours, increased hourly wages and bonuses, greater overtime, and increased usage of contract labor. In addition, the pandemic has resulted in some potentially long-term changes in traditional economic patterns and arrangements, including that (i) seniors may not seek out senior housing at the same level that they did pre-pandemic; (ii) recent legislation that favors delivery of services at home rather than in an institutional setting could negatively impact the segment; (iii) qualified employees may view employment at senior housing facilities less attractively than they did pre-pandemic; (iv) the number of people who have not returned to the workforce could create long-term staffing shortages; (v) changing expectations around the protection required for residents in senior housing facilities may increase costs; (vi) senior housing operators are undertaking numerous adaptations in response to these changes, the success of which adaptations is uncertain; and (vii) the inflationary environment could permanently alter behavior in unpredictable ways.

All development, redevelopment, and tenant improvement projects that were previously delayed have been allowed to restart with infection control protocols in place, although future local, state, or federal orders could cause work to be suspended, and individual projects may be affected by outbreaks.

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We believe we remain well-positioned to navigate economic changes resulting from the pandemic, with approximately $2.2 billion of liquidity available, including $1.81 billion of borrowing capacity under our bank line of credit facility, $313 million of net proceeds expected from the future settlement of shares issued through our ATM forward contracts (as defined below), and approximately $117 million of cash and cash equivalents as of February 7, 2022.

We have taken, and will continue to take, proactive measures to provide for the well-being of our employees. We have implemented systems and processes that have allowed us to work effectively and efficiently in the remote environment. The steps taken to protect our employees and afford them a safe working environment continue to evolve along with authoritative guidance on best practices.

See “Item 1A, Risk Factors” in this report for additional discussion of the risks posed by the Covid pandemic and uncertainties we and our tenants, operators, and borrowers may face as a result.

Overview of Transactions

Real Estate Investment Acquisitions

Westview Medical Plaza

In February 2021, we acquired one MOB in Nashville, Tennessee for $13 million.

Pinnacle at Ridgegate

In April 2021, we acquired one MOB in Denver, Colorado for $38 million.

MOB Portfolio

In April 2021, we acquired 14 MOBs for $371 million (the “MOB Portfolio”) and originated $142 million of secured mortgage debt.

Westside Medical Plaza

In June 2021, we acquired one MOB in Fort Lauderdale, Florida for $16 million.

Wesley Woodlawn

In July 2021, we acquired one MOB in Wichita, Kansas for $50 million.

Atlantic Health

In July 2021, we acquired three MOBs in Morristown, New Jersey for $155 million.

Baylor Centennial

In September 2021, we acquired two MOBs in Dallas, Texas for $60 million.

Concord Avenue Campus

In September 2021, we acquired a life science campus, comprised of three buildings, in Cambridge, Massachusetts for $180 million.

10 Fawcett

In October 2021, we closed a life science acquisition in Cambridge, Massachusetts for $73 million.

Vista Sorrento Phase 1

In October 2021, we closed a life science acquisition in San Diego, California for $20 million.

Swedish Medical

In October 2021, we acquired one MOB in Seattle, Washington for $43 million.

Lakeview Medical Pavilion

In October 2021, we acquired one MOB in New Orleans, Louisiana for $34 million.

Mooney Street Parcels

In October 2021, we closed a life science acquisition in Cambridge, Massachusetts for $123 million.

725 Concord

In October 2021, we acquired one MOB and an adjacent land parcel in Cambridge, Massachusetts for $80 million.

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25 Spinelli

In October 2021, we closed a life science acquisition in Cambridge, Massachusetts for $34 million.

68 Moulton

In October 2021, we closed a life science acquisition in Cambridge, Massachusetts for $18 million.

125 Fawcett and 110 Fawcett

In December 2021, we closed two life science acquisitions in Cambridge, Massachusetts for $45 million.

South San Francisco Land Site

During the year ended December 31, 2021, we acquired approximately 12 acres of land for $128 million. The acquisition site is located in South San Francisco, California, adjacent to two sites currently held by us as land for future development.

67 Smith Place

In January 2022, we closed a life science acquisition in Cambridge, Massachusetts for $72 million.

Vista Sorrento Phase II

In January 2022, we closed a life science acquisition in San Diego, California for $24 million.

Senior Housing Portfolio Sales

•In January 2021, we sold a portfolio of 32 SHOP assets (the “Sunrise Senior Housing Portfolio”) for $664 million and provided the buyer with: (i) financing of $410 million and (ii) a commitment to finance up to $92 million of additional debt for capital expenditures. In June 2021, we received principal repayments of $246 million on the January 2021 financing. As a result of this repayment, the commitment to finance additional debt for capital expenditures was reduced to $56 million, $0.4 million of which had been funded as of December 31, 2021. As of December 31, 2021, this secured loan had an outstanding principal balance of $165 million.

•In January 2021, we sold 24 senior housing assets under a triple-net lease with Brookdale Senior Living Inc. (“Brookdale”) for $510 million.

•In January 2021, we sold a portfolio of 16 SHOP assets for $230 million and provided the buyer with financing of $150 million.

•In February 2021, we sold eight senior housing assets in a triple-net lease with Harbor Retirement Associates for $132 million.

•In April 2021, we sold a portfolio of 12 SHOP assets for $564 million.

•In April 2021, we sold: (i) a portfolio of 10 SHOP assets for $334 million and (ii) 2 mezzanine loans and 2 preferred equity investments for $21 million.

•In April 2021, we sold a portfolio of five SHOP assets for $64 million.

•In May 2021, we sold a portfolio of seven SHOP assets for $113 million.

•In June 2021, upon completion of the license transfer process, we sold two Sunrise senior housing triple-net assets for $80 million.

•In addition to the transactions above, we sold 15 SHOP assets for $169 million and 7 senior housing triple-net assets for $24 million during the year ended December 31, 2021.

•Upon the completion of the foregoing transactions, in September 2021 we successfully completed the disposition of our remaining senior housing triple-net and SHOP properties.

Other Real Estate Transactions

•In April 2021, the SHOP property in the Otay Ranch JV was sold, resulting in our share of proceeds of $32 million.

•In May 2021, the CCRC JV sold the remaining two CCRCs for $38 million, $19 million of which represents our 49% interest.

•In December 2021, we acquired a 38% interest in a life science development joint venture in Needham, Massachusetts for $13 million.

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•In addition to the transactions above, during the year ended December 31, 2021, we sold: (i) 10 MOBs and a portion of 1 MOB land parcel for $68 million and (ii) 1 hospital for $226 million (through the exercise of a purchase option by a tenant).

•In January 2022, we sold one life science facility for $14 million.

Financing Activities

•In January 2021, we repurchased $112 million aggregate principal amount of our 4.25% senior unsecured notes due 2023, $201 million aggregate principal amount of our 4.20% senior unsecured notes due 2024, and $469 million aggregate principal amount of our 3.88% senior unsecured notes due 2024.

•In February 2021, we used optional redemption provisions to redeem the remaining $188 million of our 4.25% senior unsecured notes due 2023, $149 million of our 4.20% senior unsecured notes due 2024, and $331 million of our 3.88% senior unsecured notes due 2024.

•In May 2021, we repurchased $252 million of our 3.40% senior unsecured notes due 2025 and $298 million of our 4.00% senior unsecured notes due 2025.

•In July 2021, we completed our inaugural green bond offering, issuing $450 million aggregate principal amount of 1.35% senior unsecured notes due 2027.

•In July 2021, we repaid the $250 million outstanding balance on our unsecured term loan facility (“2019 Term Loan”).

•In September 2021, we amended and restated our bank line of credit facility to increase total revolving commitments from $2.5 billion to $3.0 billion and extend the maturity date to January 20, 2026. This maturity date may be further extended pursuant to two six-month extension options, subject to certain customary conditions.

•In November 2021, we completed a green bond offering, issuing $500 million aggregate principal amount of 2.125% senior unsecured notes due 2028.

•In 2021, we increased the maximum aggregate face or principal amount that can be outstanding at any one time under our commercial paper program from $1.0 billion to $1.5 billion.

•During the year ended December 31, 2021, we utilized the forward provisions under the ATM Program (as defined below) to allow for the sale of an aggregate of 9.1 million shares of our common stock at an initial weighted average net price of $35.25 per share, after commissions.

Development Activities

•At December 31, 2021, we had three on-campus MOB developments in process with an aggregate total estimated cost of $69 million.

•At December 31, 2021, we had eight life science development projects in process with an aggregate total estimated cost of $1.5 billion.

•During the year ended December 31, 2021, the following projects were placed in service: (i) one life science development project with a total project cost of $151 million at completion, (ii) one life science redevelopment project with a total project cost of $19 million at completion, (iii) two redevelopment assets in our unconsolidated SWF SH JV with our aggregate share of total project costs of $23 million at completion, (iv) one medical office development with a total project cost of $49 million at completion, (v) one medical office development with a total project cost of $5 million at completion, (vi) one medical office redevelopment with a total project cost of $10 million at completion, and (vii) a portion of one life science development with a total project cost of $75 million at completion.

Dividends

Quarterly cash dividends paid during 2021 aggregated to $1.20 per share. On January 27, 2022, our Board of Directors declared a quarterly cash dividend of $0.30 per common share. The dividend will be paid on February 22, 2022 to stockholders of record as of the close of business on February 11, 2022.

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Results of Operations

We evaluate our business and allocate resources among our reportable business segments: (i) life science, (ii) medical office, and (iii) CCRC. Under the life science and medical office segments, we invest through the acquisition and development of life science facilities, MOBs, and hospitals, which generally requires a greater level of property management. Our CCRCs are operated through RIDEA structures. We have other non-reportable segments that are comprised primarily of: (i) an interest in our unconsolidated SWF SH JV and (ii) debt investments. We evaluate performance based upon property adjusted net operating income (“Adjusted NOI” or “Cash NOI”) in each segment. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 2 to the Consolidated Financial Statements.

Non-GAAP Financial Measures

Net Operating Income

NOI and Adjusted NOI are non-U.S. generally accepted accounting principles (“GAAP”) supplemental financial measures used to evaluate the operating performance of real estate. NOI is defined as real estate revenues (inclusive of rental and related revenues, resident fees and services, income from direct financing leases, and government grant income and exclusive of interest income), less property level operating expenses; NOI excludes all other financial statement amounts included in net income (loss) as presented in Note 16 to the Consolidated Financial Statements. Adjusted NOI is calculated as NOI after eliminating the effects of straight-line rents, DFL non-cash interest, amortization of market lease intangibles, termination fees, actuarial reserves for insurance claims that have been incurred but not reported, and the impact of deferred community fee income and expense. NOI and Adjusted NOI include our share of income (loss) generated by unconsolidated joint ventures and exclude noncontrolling interests’ share of income (loss) generated by consolidated joint ventures. Adjusted NOI is oftentimes referred to as “Cash NOI.” Management believes NOI and Adjusted NOI are important supplemental measures because they provide relevant and useful information by reflecting only income and operating expense items that are incurred at the property level and present them on an unlevered basis. We use NOI and Adjusted NOI to make decisions about resource allocations, to assess and compare property level performance, and to evaluate our Same-Store (“SS”) performance, as described below. We believe that net income (loss) is the most directly comparable GAAP measure to NOI and Adjusted NOI. NOI and Adjusted NOI should not be viewed as alternative measures of operating performance to net income (loss) as defined by GAAP since they do not reflect various excluded items. Further, our definitions of NOI and Adjusted NOI may not be comparable to the definitions used by other REITs or real estate companies, as they may use different methodologies for calculating NOI and Adjusted NOI. For a reconciliation of NOI and Adjusted NOI to net income (loss) by segment, refer to Note 16 to the Consolidated Financial Statements.

Operating expenses generally relate to leased medical office and life science properties, as well as CCRC facilities. We generally recover all or a portion of our leased medical office and life science property expenses through tenant recoveries. We present expenses as operating or general and administrative based on the underlying nature of the expense.

Same-Store

Same-Store NOI and Adjusted (Cash) NOI information allows us to evaluate the performance of our property portfolio under a consistent population by eliminating changes in the composition of our consolidated portfolio of properties. Same-Store Adjusted NOI excludes amortization of deferred revenue from tenant-funded improvements and certain non-property specific operating expenses that are allocated to each operating segment on a consolidated basis.

Properties are included in Same-Store once they are stabilized for the full period in both comparison periods. Newly acquired operating assets are generally considered stabilized at the earlier of lease-up (typically when the tenant(s) control(s) the physical use of at least 80% of the space and rental payments have commenced) or 12 months from the acquisition date. Newly completed developments and redevelopments are considered stabilized at the earlier of lease-up or 24 months from the date the property is placed in service. Properties that experience a change in reporting structure are considered stabilized after 12 months in operations under a consistent reporting structure. A property is removed from Same-Store when it is classified as held for sale, sold, placed into redevelopment, experiences a casualty event that significantly impacts operations, a change in reporting structure or operator transition has been agreed to, or a significant tenant relocates from a Same-Store property to a non Same-Store property and that change results in a corresponding increase in revenue. We do not report Same-Store metrics for our other non-reportable segments. For a reconciliation of Same-Store to total portfolio Adjusted NOI and other relevant disclosures by segment, refer to our Segment Analysis below.

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Funds From Operations (“FFO”)

FFO encompasses Nareit FFO and FFO as Adjusted, each of which is described in detail below. We believe FFO applicable to common shares, diluted FFO applicable to common shares, and diluted FFO per common share are important supplemental non-GAAP measures of operating performance for a REIT. Because the historical cost accounting convention used for real estate assets utilizes straight-line depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen and fallen with market conditions, presentations of operating results for a REIT that use historical cost accounting for depreciation could be less informative. The term FFO was designed by the REIT industry to address this issue.

Nareit FFO. FFO, as defined by the National Association of Real Estate Investment Trusts (“Nareit”), is net income (loss) applicable to common shares (computed in accordance with GAAP), excluding gains or losses from sales of depreciable property, including any current and deferred taxes directly associated with sales of depreciable property, impairments of, or related to, depreciable real estate, plus real estate and other real estate-related depreciation and amortization, and adjustments to compute our share of Nareit FFO and FFO as Adjusted (see below) from joint ventures. Adjustments for joint ventures are calculated to reflect our pro-rata share of both our consolidated and unconsolidated joint ventures. We reflect our share of Nareit FFO for unconsolidated joint ventures by applying our actual ownership percentage for the period to the applicable reconciling items on an entity by entity basis. For consolidated joint ventures in which we do not own 100%, we reflect our share of the equity by adjusting our Nareit FFO to remove the third party ownership share of the applicable reconciling items based on actual ownership percentage for the applicable periods. Our pro-rata share information is prepared on a basis consistent with the comparable consolidated amounts, is intended to reflect our proportionate economic interest in the operating results of properties in our portfolio and is calculated by applying our actual ownership percentage for the period. We do not control the unconsolidated joint ventures, and the pro-rata presentations of reconciling items included in Nareit FFO do not represent our legal claim to such items. The joint venture members or partners are entitled to profit or loss allocations and distributions of cash flows according to the joint venture agreements, which provide for such allocations generally according to their invested capital.

The presentation of pro-rata information has limitations, which include, but are not limited to, the following: (i) the amounts shown on the individual line items were derived by applying our overall economic ownership interest percentage determined when applying the equity method of accounting and do not necessarily represent our legal claim to the assets and liabilities, or the revenues and expenses and (ii) other companies in our industry may calculate their pro-rata interest differently, limiting the usefulness as a comparative measure. Because of these limitations, the pro-rata financial information should not be considered independently or as a substitute for our financial statements as reported under GAAP. We compensate for these limitations by relying primarily on our GAAP financial statements, using the pro-rata financial information as a supplement.

Nareit FFO does not represent cash generated from operating activities in accordance with GAAP, is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to net income (loss). We compute Nareit FFO in accordance with the current Nareit definition; however, other REITs may report Nareit FFO differently or have a different interpretation of the current Nareit definition from ours.

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FFO as Adjusted. In addition, we present Nareit FFO on an adjusted basis before the impact of non-comparable items including, but not limited to, transaction-related items, other impairments (recoveries) and other losses (gains), restructuring and severance related charges, prepayment costs (benefits) associated with early retirement or payment of debt, litigation costs (recoveries), casualty-related charges (recoveries), foreign currency remeasurement losses (gains), deferred tax asset valuation allowances, and changes in tax legislation (“FFO as Adjusted”). Transaction-related items include transaction expenses and gains/charges incurred as a result of mergers and acquisitions and lease amendment or termination activities. Prepayment costs (benefits) associated with early retirement of debt include the write-off of unamortized deferred financing fees, or additional costs, expenses, discounts, make-whole payments, penalties or premiums incurred as a result of early retirement or payment of debt. Other impairments (recoveries) and other losses (gains) include interest income associated with early and partial repayments of loans receivable and other losses or gains associated with non-depreciable assets including goodwill, DFLs, undeveloped land parcels, and loans receivable. Management believes that FFO as Adjusted provides a meaningful supplemental measurement of our FFO run-rate and is frequently used by analysts, investors, and other interested parties in the evaluation of our performance as a REIT. At the same time that Nareit created and defined its FFO measure for the REIT industry, it also recognized that “management of each of its member companies has the responsibility and authority to publish financial information that it regards as useful to the financial community.” We believe stockholders, potential investors, and financial analysts who review our operating performance are best served by an FFO run-rate earnings measure that includes certain other adjustments to net income (loss), in addition to adjustments made to arrive at the Nareit defined measure of FFO. FFO as Adjusted is used by management in analyzing our business and the performance of our properties and we believe it is important that stockholders, potential investors, and financial analysts understand this measure used by management. We use FFO as Adjusted to: (i) evaluate our performance in comparison with expected results and results of previous periods, relative to resource allocation decisions, (ii) evaluate the performance of our management, (iii) budget and forecast future results to assist in the allocation of resources, (iv) assess our performance as compared with similar real estate companies and the industry in general, and (v) evaluate how a specific potential investment will impact our future results. Other REITs or real estate companies may use different methodologies for calculating an adjusted FFO measure, and accordingly, our FFO as Adjusted may not be comparable to those reported by other REITs. For a reconciliation of net income (loss) to Nareit FFO and FFO as Adjusted and other relevant disclosure, refer to “Non-GAAP Financial Measures Reconciliations” below.

Adjusted FFO (“AFFO”). AFFO is defined as FFO as Adjusted after excluding the impact of the following: (i) amortization of stock-based compensation, (ii) amortization of deferred financing costs, net, (iii) straight-line rents, (iv) deferred income taxes, and (v) other AFFO adjustments, which include: (a) amortization of acquired market lease intangibles, net, (b) non-cash interest related to DFLs and lease incentive amortization (reduction of straight-line rents), (c) actuarial reserves for insurance claims that have been incurred but not reported, and (d) amortization of deferred revenues, excluding amounts amortized into rental income that are associated with tenant funded improvements owned/recognized by us and up-front cash payments made by tenants to reduce their contractual rents. Also, AFFO is computed after deducting recurring capital expenditures, including second generation leasing costs and second generation tenant and capital improvements, and includes adjustments to compute our share of AFFO from our unconsolidated joint ventures. More specifically, recurring capital expenditures, including second generation leasing costs and second generation tenant and capital improvements ("AFFO capital expenditures") excludes our share from unconsolidated joint ventures (reported in “other AFFO adjustments”). Adjustments for joint ventures are calculated to reflect our pro-rata share of both our consolidated and unconsolidated joint ventures. We reflect our share of AFFO for unconsolidated joint ventures by applying our actual ownership percentage for the period to the applicable reconciling items on an entity by entity basis. We reflect our share for consolidated joint ventures in which we do not own 100% of the equity by adjusting our AFFO to remove the third party ownership share of the applicable reconciling items based on actual ownership percentage for the applicable periods (reported in “other AFFO adjustments”). See FFO for further disclosure regarding our use of pro-rata share information and its limitations. Other REITs or real estate companies may use different methodologies for calculating AFFO, and accordingly, our AFFO may not be comparable to those reported by other REITs. Although our AFFO computation may not be comparable to that of other REITs, management believes AFFO provides a meaningful supplemental measure of our performance and is frequently used by analysts, investors, and other interested parties in the evaluation of our performance as a REIT. We believe AFFO is an alternative run-rate earnings measure that improves the understanding of our operating results among investors and makes comparisons with: (i) expected results, (ii) results of previous periods, and (iii) results among REITs more meaningful. AFFO does not represent cash generated from operating activities determined in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs as it excludes the following items which generally flow through our cash flows from operating activities: (i) adjustments for changes in working capital or the actual timing of the payment of income or expense items that are accrued in the period, (ii) transaction-related costs, (iii) litigation settlement expenses, and (iv) restructuring and severance-related charges. Furthermore, AFFO is adjusted for recurring capital expenditures, which are generally not considered when determining cash flows from operations or liquidity. AFFO is a non-GAAP supplemental financial measure and should not be considered as an alternative to net income (loss) determined in accordance with GAAP. For a reconciliation of net income (loss) to AFFO and other relevant disclosure, refer to “Non-GAAP Financial Measures Reconciliations” below.

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Comparison of the Year Ended December 31, 2021 to the Year Ended December 31, 2020

Overview(1)

2021 and 2020

The following table summarizes results for the years ended December 31, 2021 and 2020 (in thousands):

_______________________________________

(1)For the reconciliation of non-GAAP financial measures, see “Non-GAAP Financial Measure Reconciliations” below.

Net income (loss) applicable to common shares increased primarily as a result of the following:

•an increase in NOI generated from our life science and medical office segments, which related to: (i) 2020 and 2021 acquisitions of real estate, (ii) development and redevelopment projects placed in service during 2020 and 2021, and (iii) new leasing and renewal activity during 2020 and 2021 (including the impact to straight-line rents);

•an increase in income from discontinued operations, primarily due to: (i) decreased impairments of depreciable real estate as a result of fewer assets being impaired under the held for sale model and (ii) decreased depreciation and amortization expense, partially offset by: (i) decreased NOI from dispositions of real estate during 2020 and 2021, (ii) decreased gain on sales of real estate from senior housing dispositions in 2021, and (iii) a goodwill impairment charge related to our senior housing triple-net and SHOP asset sales in 2021;

•an increase in gains on sale of depreciable real estate related to MOB asset sales during 2021;

•a reduction in operating expenses related to our CCRCs primarily as a result of the management termination fee paid to Brookdale in connection with transitioning management of 13 CCRCs to Life Care Services LLC (“LCS”) during the first quarter of 2020;

•an increase in our share of net income from our unconsolidated SWF SH JV;

•a reduction in interest expense, primarily as a result of senior unsecured notes repurchases and redemptions in 2021;

•an increase in interest income, primarily as a result of: (i) seller financing issued in 2020 and 2021 and (ii) the accelerated recognition of a mark-to-market discount resulting from prepayments on loans receivable, partially offset by principal repayments on loans receivable;

•a reduction in impairment charges related to: (i) real estate held for sale and (ii) loan loss reserves, primarily as a result of principal repayments on loans receivable in 2021, loans receivable sales in 2021, and a more positive economic outlook; and

•a reduction in transaction costs, primarily as a result of costs associated with the transition of 13 CCRCs from Brookdale to LCS in the first quarter of 2020.

The increase in net income (loss) applicable to common shares was partially offset by:

•a reduction in other income, net as a result of: (i) a gain upon change of control related to the acquisition of the outstanding equity interest in 13 CCRCs from Brookdale during the first quarter of 2020, (ii) a gain on sale related to the sale of a hospital underlying a DFL during the first quarter of 2020, and (iii) a decline in government grant income received under the CARES Act;

•an increase in loss on debt extinguishments related to our repurchase and redemption of certain outstanding senior notes in the first and second quarters of 2021;

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•an increase in depreciation, primarily as a result of: (i) 2020 and 2021 acquisitions of real estate, (ii) accelerated depreciation related to the change in estimated useful lives on certain of our densification projects in 2021, (iii) development and redevelopment projects placed into service during 2020 and 2021, and (iv) the above-mentioned acquisition of the outstanding equity interest and consolidation of 13 CCRCs from Brookdale during the first quarter of 2020;

•a reduction in NOI related to MOB assets sold during 2020 and 2021; and

•a decrease in income tax benefit, primarily as a result of the tax benefits recognized in the first quarter of 2020 related to the above-mentioned acquisition of the outstanding equity interest in 13 CCRCs from Brookdale and the management termination fee expense paid to Brookdale in connection with transitioning management to LCS, partially offset by the income tax expense recognized during the third quarter of 2020 from the establishment of a deferred tax asset valuation allowance related to deferred tax assets that were no longer expected to be realized as a result of our plan to dispose of our SHOP portfolio.

Nareit FFO decreased primarily as a result of the aforementioned events impacting net income (loss) applicable to common shares, except for the following, which are excluded from Nareit FFO:

•net gain on sales of depreciable real estate;

•the gain upon change of control related to the acquisition of Brookdale’s interest in 13 CCRCs;

•depreciation and amortization expense; and

•impairment charges related to depreciable real estate.

FFO as Adjusted decreased primarily as a result of the aforementioned events impacting Nareit FFO, except for the following, which are excluded from FFO as Adjusted:

•the loss on debt extinguishment;

•the management termination fee paid to Brookdale in connection with our acquisition of their interest in 13 CCRCs;

•net gain on sales of assets underlying DFLs;

•the transaction costs associated with transition of 13 CCRCs from Brookdale to LCS;

•a goodwill impairment charge related to senior housing triple-net and SHOP asset sales;

•loan loss reserves; and

•the accelerated recognition of a mark-to-market discount resulting from prepayments on loans receivable.

AFFO decreased primarily as a result of the aforementioned events impacting FFO as Adjusted, except for the impact of straight-line rents, which is excluded from AFFO. The decrease was further impacted by higher AFFO capital expenditures.

Segment Analysis

The following tables provide selected operating information for our Same-Store and total property portfolio for each of our reportable segments. For the year ended December 31, 2021, our Same-Store consists of 347 properties representing properties acquired or placed in service and stabilized on or prior to January 1, 2020 and that remained in operations under a consistent reporting structure through December 31, 2021. Our total property portfolio consisted of 484 and 457 properties at December 31, 2021 and 2020, respectively.

In conjunction with classifying our senior housing triple-net and SHOP portfolios as discontinued operations as of December 31, 2020, the results of operations related to those portfolios are no longer presented in reportable business segments. Accordingly, results of operations of those portfolios are not included in the reportable business segment analysis below. Refer to Note 5 to the Consolidated Financial Statements for further information regarding discontinued operations.

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Life Science

2021 and 2020

The following table summarizes results at and for the years ended December 31, 2021 and 2020 (dollars and square feet in thousands, except per square foot data):

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(1)Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for definitions of NOI and Adjusted NOI.

(2)From our 2020 presentation of Same-Store, we removed one life science facility that was classified as held for sale and one life science facility that was demolished to prepare for development.

(3)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and deferred revenues).

(4)Base rent does not include tenant recoveries, additional rents in excess of floors and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest, and deferred revenues).

Same-Store Adjusted NOI increased primarily as a result of the following:

•annual rent escalations;

•new leasing activity; and

•mark-to-market lease renewals.

Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned impacts to Same-Store and the following Non-Same-Store impacts:

•an increase in NOI from (i) increased occupancy in developments and redevelopments placed into service in 2020 and 2021 and (ii) acquisitions in 2020 and 2021.

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Medical Office

2021 and 2020

The following table summarizes results at and for the years ended December 31, 2021 and 2020 (dollars and square feet in thousands, except per square foot data):

_______________________________________

(1)Total Portfolio includes results of operations from disposed properties through the disposition date.

(2)Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for definitions of NOI and Adjusted NOI.

(3)From our 2020 presentation of Same-Store, we removed five MOBs that were sold, four MOBs that were classified as held for sale, and five MOBs that were placed into redevelopment.

(4)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and deferred revenues).

(5)Base rent does not include tenant recoveries, additional rents in excess of floors and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest, and deferred revenues).

Same-Store Adjusted NOI increased primarily as a result of the following:

•mark-to-market lease renewals;

•annual rent escalations; and

•higher parking income and percentage-based rents.

Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store and the following Non-Same-Store impacts:

•increased NOI from our 2020 and 2021 acquisitions;

•increased occupancy in former redevelopment and development properties that have been placed into service; partially offset by

•decreased NOI from our 2020 and 2021 dispositions.

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Continuing Care Retirement Community

2021 and 2020

The following table summarizes results at and for the years ended December 31, 2021 and 2020 (dollars in thousands, except per unit data):

_______________________________________

(1)Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the Consolidated Statements of Operations.

(2)Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for definitions of NOI and Adjusted NOI.

(3)Represents average occupied units as reported by the operators for the twelve-month period.

Same-Store Adjusted NOI decreased primarily as a result of the following:

•lower occupancy due to Covid;

•decreased government grant income received under the CARES Act; and

•higher labor costs; partially offset by

•lower Covid-related expenses; and

•increased rates for resident fees.

Total Portfolio Adjusted NOI decreased primarily as a result of the aforementioned decreases to Same-Store, which are also applicable to our properties not yet included in Same-Store.

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Other Income and Expense Items

The following table summarizes results of our other income and expense items for the years ended December 31, 2021 and 2020 (in thousands):

Interest income

Interest income increased for the year ended December 31, 2021 primarily as a result of: (i) seller financing issued in 2020 and 2021 and (ii) the accelerated recognition of a mark-to-market discount resulting from prepayments on loans receivable. The increase was partially offset by principal repayments on loans receivable.

Interest expense

Interest expense decreased for the year ended December 31, 2021 primarily as a result of senior unsecured notes repurchases and redemptions in the first and second quarters of 2021.

Depreciation and amortization expense

Depreciation and amortization expense increased for the year ended December 31, 2021 primarily as a result of: (i) acquisitions of real estate during 2020 and 2021, (ii) accelerated depreciation related to the change in estimated useful lives on certain of our densification projects in 2021, (iii) development and redevelopment projects placed into service during 2020 and 2021, and (iv) the acquisition of Brookdale’s interest in and consolidation of 13 CCRCs during the first quarter of 2020. The increase was partially offset by dispositions of real estate throughout 2020 and 2021.

General and administrative expense

General and administrative expenses increased for the year ended December 31, 2021 primarily as a result of higher compensation costs and increased restructuring and severance related charges.

Transaction costs

Transaction costs decreased for the year ended December 31, 2021 primarily as a result of costs associated with the transition of 13 CCRCs from Brookdale to LCS in January 2020.

Impairments and loan loss reserves (recoveries), net

The impairment charges recognized in each period vary depending on facts and circumstances related to each asset and are impacted by negotiations with potential buyers, current operations of the assets, and other factors.

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Impairments and loan loss reserves (recoveries), net decreased for the year ended December 31, 2021 primarily as a result of: (i) fewer assets impaired under the held for sale impairment model and (ii) a decrease in loan loss reserves under the current expected credit losses model, partially offset by: (i) increased impairment charges related to assets that we intend to demolish for future development projects and (ii) impairment charges on loans sold. The reduction in loan loss reserves during the year ended December 31, 2021 is primarily due to: (i) principal repayments on loans receivable during 2021, (ii) loans receivable sales in 2021, and (iii) a more positive economic outlook. The reduction in loan loss reserves during the year ended December 31, 2021 is partially offset by the loan loss reserve recognized related to new seller financing issued in the first quarter of 2021.

Gain (loss) on sales of real estate, net

Gain on sales of real estate, net increased during the year ended December 31, 2021 primarily as a result of the sale of: (i) 10 MOBs and a portion of 1 MOB land parcel for $68 million and (ii) 1 hospital for $226 million during the year ended December 31, 2021 resulting in total gain on sale of $191 million, compared to the sale of: (i) 11 MOBs for $136 million, (ii) 2 MOB land parcels for $3 million, and (iii) 1 asset from other non-reportable segments for $1 million during the year ended December 31, 2020 resulting in total gain on sale of $90 million.

Gain (loss) on debt extinguishments

Refer to Note 11 to the Consolidated Financial Statements for information regarding senior unsecured note repurchases and redemptions and the associated loss on debt extinguishment recognized.

Other income (expense), net

Other income, net decreased for the year ended December 31, 2021 primarily as a result of: (i) a gain upon change of control related to the acquisition of the outstanding equity interest in 13 CCRCs from Brookdale during the first quarter of 2020, (ii) a gain on sale related to the sale of a hospital underlying a DFL during the first quarter of 2020, and (iii) a decline in government grant income received under the CARES Act.

Income tax benefit (expense)

Income tax benefit decreased for the year ended December 31, 2021 primarily as a result of the tax benefits recognized in the first quarter of 2020 related to the following: (i) the purchase of Brookdale’s interest in 13 of the 15 communities in the CCRC JV, including the management termination fee expense paid to Brookdale in connection with transitioning management of 13 CCRCs to LCS and (ii) the extension of the net operating loss carryback period provided by the CARES Act. The decrease in income tax benefit during the year ended December 31, 2021 was partially offset by the establishment of a deferred tax asset valuation allowance during the third quarter of 2020 related to deferred tax assets that were no longer expected to be realized as a result of our plan to dispose of our SHOP portfolio.

Equity income (loss) from unconsolidated joint ventures

Equity income from unconsolidated joint ventures increased for the year ended December 31, 2021 primarily as a result of a decrease in amortization expense due to fully amortized intangible assets related to our unconsolidated SWF SH JV. The increase in equity income from unconsolidated joint ventures for the year ended December 31, 2021 was partially offset by our share of a gain on sale of one asset in an unconsolidated joint venture during the first quarter of 2020.

Income (loss) from discontinued operations

Income from discontinued operations increased for the year ended December 31, 2021 primarily as a result of: (i) decreased impairments of depreciable real estate as a result of fewer assets being impaired under the held for sale impairment model and (ii) decreased depreciation and amortization expense due to assets being classified as held for sale throughout 2021. The increase in income from discontinued operations during the year ended December 31, 2021 was partially offset by: (i) decreased NOI from dispositions of real estate during 2020 and 2021, (ii) decreased gain on sales of real estate from senior housing dispositions in 2021, and (iii) a goodwill impairment charge related to our senior housing triple-net and SHOP asset sales in 2021.

Noncontrolling interests’ share in continuing operations

Noncontrolling interests’ share in continuing operations increased for the year ended December 31, 2021 primarily as a result of our partner’s share of a gain on sale of one asset in a consolidated joint venture during 2021.

Noncontrolling interests’ share in discontinued operations

Noncontrolling interests’ share in discontinued operations increased for the year ended December 31, 2021 primarily as a result of our partner’s share of gains on sale of senior housing assets in DownREIT (as defined below) partnerships during 2021.

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Liquidity and Capital Resources

We anticipate that our cash flow from operations, available cash balances, and cash from our various financing activities will be adequate for the next 12 months and for the foreseeable future for purposes of: (i) funding recurring operating expenses; (ii) meeting debt service requirements; and (iii) satisfying funding of distributions to our stockholders and non-controlling interest members. Distributions are made using a combination of cash flows from operations, funds available under our bank line of credit and commercial paper program, proceeds from the sale of properties, and other sources of cash available to us.

In addition to funding the activities above, our principal liquidity needs for the next 12 months are to:

•fund capital expenditures, including tenant improvements and leasing costs, and

•fund future acquisition, transactional and development and redevelopment activities.

Our longer term investing liquidity needs include the items listed above as well as meeting debt service requirements.

We anticipate satisfying these future needs using one or more of the following:

•cash flow from operations;

•sale of, or exchange of ownership interests in, properties or other investments;

•borrowings under our bank line of credit and commercial paper program;

•issuance of additional debt, including unsecured notes, term loans, and mortgage debt; and/or

•issuance of common or preferred stock or its equivalent.

Our ability to access the capital markets impacts our cost of capital and ability to refinance maturing indebtedness, as well as our ability to fund future acquisitions and development through the issuance of additional securities or secured debt. Credit ratings impact our ability to access capital and directly impact our cost of capital as well. For example, our bank line of credit accrues interest at a rate per annum equal to LIBOR plus a margin that depends upon our credit ratings for our senior unsecured long-term debt. Our bank line of credit includes customary LIBOR replacement language, including, but not limited to, the use of rates based on the secured overnight financing rate administered by the Federal Reserve Bank of New York. We also pay a facility fee on the entire revolving commitment that depends upon our credit ratings. As of February 7, 2022, we had long-term credit ratings of Baa1 from Moody’s and BBB+ from S&P Global and Fitch, and short-term credit ratings of P-2, A-2, and F2 from Moody’s, S&P Global, and Fitch, respectively.

A downgrade in credit ratings by Moody’s, S&P Global, and Fitch may have a negative impact on the interest rates and facility fees for our bank line of credit and may negatively impact the pricing of notes issued under our commercial paper program and senior unsecured notes. While a downgrade in our credit ratings would adversely impact our cost of borrowing, we believe we would continue to have access to the unsecured debt markets, and we could also seek to enter into one or more secured debt financings, issue additional securities, including under our ATM Program (as defined below), or dispose of certain assets to fund future operating costs, capital expenditures, or acquisitions, although no assurances can be made in this regard. Refer to “Covid Update” above for a more comprehensive discussion of the potential impact of Covid on our business.

Material Cash Requirements

Our material cash requirements include the following contractual and other obligations.

Debt. As of December 31, 2021, we had total debt of $6.2 billion, including borrowings under our bank line of credit and commercial paper program, senior unsecured notes, and mortgage debt. Future interest payments associated with such debt total $1.4 billion, $162 million of which are payable within twelve months. Of our total debt, the total amount payable within twelve months is comprised of $5 million of mortgage debt. Commercial paper borrowings are backstopped by our bank line of credit. As such, we calculate the weighted average remaining term of our commercial paper borrowings using the maturity date of our bank line of credit. See Note 11 to the Consolidated Financial Statements for additional information.

Development and redevelopment commitments. Our development and redevelopment commitments represent construction and other commitments for developments and redevelopments in progress and includes certain allowances for tenant improvements that we have provided as a lessor. As of December 31, 2021, we had $387 million of development and redevelopment commitments, $279 million of which we expect to spend within the next twelve months.

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Lease and other contractual commitments. Our lease and other contractual commitments represent our commitments, as lessor, under signed leases and contracts for operating properties and include allowances for tenant improvements and leasing commissions. These commitments exclude allowances for tenant improvements related to developments and redevelopments in progress for which we have executed an agreement with a general contractor to complete the tenant improvements, which are recognized as development and redevelopment commitments and are discussed further above. As of December 31, 2021, we had total lease and other contractual commitments of $83 million, $74 million of which we expect to spend within the next twelve months.

Construction loan commitments. We have certain loan commitments to fund senior housing redevelopment and capital expenditure projects. As of December 31, 2021, we had $58 million of construction loan commitments, which extend through 2024.

Ground and other operating lease commitments. Our ground and other operating lease commitments represent our commitments as lessee under signed operating leases. As of December 31, 2021, we had total ground and other operating lease commitments of $549 million, $16 million of which are payable within twelve months. See Note 7 to the Consolidated Financial Statements for additional information.

Redeemable noncontrolling interests. Certain of our noncontrolling interest holders have the ability to put their equity interests to us upon specified events or after the passage of a predetermined period of time. Each put option is subject to changes in redemption value in the event that the underlying property generates specified returns for us and meets certain promote thresholds pursuant to the respective agreements. As of December 31, 2021, we had $87 million of redeemable noncontrolling interests, none of which meet the conditions for redemption as of the balance sheet date. See Note 13 to the Consolidated Financial Statements for additional information.

Distribution and Dividend Requirements. Our dividend policy on our common stock is to distribute a percentage of our cash flow to ensure that we meet the dividend requirements of the Code, relative to maintaining our REIT status, while still allowing us to retain cash to fund capital improvements and other investment activities. Under the Code, REITs may be subject to certain federal income and excise taxes on undistributed taxable income. We paid quarterly cash dividends of $0.30 per common share in 2021. Our future common dividends, if and as declared, may vary and will be determined by the Board based upon the circumstances prevailing at the time, including our financial condition.

Off-Balance Sheet Arrangements

We own interests in certain unconsolidated joint ventures as described in Note 9 to the Consolidated Financial Statements. Two of these joint ventures have mortgage debt of $87 million, of which our share is $40 million. Except in limited circumstances, our risk of loss is limited to our investment in the joint venture. We have no other material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.

Inflation

A significant portion of our revenues are derived from leases that generally provide for fixed rental rates, subject to annual escalations. A period of high inflation could result in increases in the Consumer Price Index in excess of our fixed annual escalations. Certain of our leases provide that annual rent is modified based on changes in the Consumer Price Index or other thresholds.

Most of our MOB leases require the tenant to pay a share of property operating costs such as real estate taxes, insurance, and utilities. Substantially all of our life science leases require the tenant or operator to pay all of the property operating costs or reimburse us for all such costs.

Labor costs, interest, costs of construction materials, and other operating costs may increase during periods of inflation. Inflationary increases in expenses will generally be offset, in whole or in part, by the tenant expense reimbursements and contractual rent increases described above.

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Cash Flow Summary

The following summary discussion of our cash flows is based on the Consolidated Statements of Cash Flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.

The following table sets forth changes in cash flows (in thousands):

Operating Cash Flows

Operating cash flow increased $37 million between the years ended December 31, 2021 and 2020 primarily as the result of: (i) 2020 and 2021 acquisitions, (ii) annual rent increases, (iii) new leasing and renewal activity, and (iv) developments and redevelopments placed in service during 2020 and 2021. The increase in operating cash flow is partially offset by a decrease in income related to assets sold during 2020 and 2021. Our cash flow from operations is dependent upon the occupancy levels of our buildings, rental rates on leases, our tenants’ performance on their lease obligations, the level of operating expenses, and other factors.

Investing Cash Flows

The following are significant investing activities for the year ended December 31, 2021:

•received net proceeds of $2.8 billion primarily from (i) sales of real estate assets and (ii) sales and repayments of loans receivable; and

•made investments of $2.2 billion primarily related to the acquisition, development, and redevelopment of real estate.

The following are significant investing activities for the year ended December 31, 2020:

•made investments of $2.5 billion primarily related to the (i) acquisition, development, and redevelopment of real estate and (ii) funding of loan investments; and

•received net proceeds of $1.5 billion primarily from (i) sales of real estate assets (including real estate assets under DFLs) and (ii) sales and repayments of loans receivable.

Financing Cash Flows

The following are significant financing activities for the year ended December 31, 2021:

•made net repayments of $1.6 billion related to our senior unsecured notes (including debt extinguishment costs) and mortgage debt;

•made net borrowings of $1.0 billion primarily under our bank line of credit and commercial paper;

•paid cash dividends on common stock of $650 million; and

•made purchases of and distributions to noncontrolling interests of $93 million.

The following are significant financing activities for the year ended December 31, 2020:

•issued common stock of $1.1 billion;

•paid cash dividends on common stock of $787 million; and

•made net borrowings of $16 million primarily under our bank line of credit, commercial paper, and senior unsecured notes (including debt extinguishment costs).

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Discontinued Operations

Operating, investing, and financing cash flows in our Consolidated Statements of Cash Flows are reported inclusive of both cash flows from continuing operations and cash flows from discontinued operations. Certain significant cash flows from discontinued operations are disclosed in Note 18 to the Consolidated Financial Statements. The absence of future cash flows from discontinued operations is not expected to significantly impact our liquidity, as the proceeds from senior housing triple-net and SHOP dispositions were used to pay down debt and invest in additional real estate in our other business lines. Additionally, we have multiple other sources of liquidity that can be utilized in the future, as needed. Refer to the beginning of the Liquidity and Capital Resources section above for additional information regarding our liquidity.

Debt

In January 2021, we repurchased $112 million aggregate principal amount of our 4.25% senior unsecured notes due 2023, $201 million aggregate principal amount of our 4.20% senior unsecured notes due 2024, and $469 million aggregate principal amount of our 3.88% senior unsecured notes due 2024.

In February 2021, we used optional redemption provisions to redeem the remaining $188 million of our 4.25% senior unsecured notes due 2023, $149 million of our 4.20% senior unsecured notes due 2024, and $331 million of our 3.88% senior unsecured notes due 2024.

In April 2021, in conjunction with the acquisition of the MOB Portfolio, we originated $142 million of secured mortgage debt. Additionally, we executed two interest rate cap agreements on the mortgage debt.

In May 2021, we repurchased $252 million aggregate principal amount of our 3.40% senior unsecured notes due 2025 and $298 million aggregate principal amount of our 4.00% senior unsecured notes due 2025.

In July 2021, we completed our inaugural green bond offering, issuing $450 million aggregate principal amount of 1.35% senior unsecured notes due 2027.

In July 2021, we repaid the $250 million outstanding balance on the 2019 Term Loan.

In September 2021, we amended our bank line of credit facility to increase total revolving commitments from $2.5 billion to $3.0 billion and extended the maturity date to January 20, 2026.

In November 2021, we completed a green bond offering, issuing $500 million aggregate principal amount of 2.125% senior unsecured notes due 2028.

In 2021, we increased the maximum aggregate face or principal amount that can be outstanding at any one time under our commercial paper program from $1.0 billion to $1.5 billion.

See Note 11 to the Consolidated Financial Statements for additional information about our outstanding debt.

Approximately 79% and 94% of our consolidated debt, excluding debt classified as liabilities related to assets held for sale and discontinued operations, net, was fixed rate debt as of December 31, 2021 and 2020, respectively. At December 31, 2021, our fixed rate debt and variable rate debt had weighted average interest rates of 3.40% and 0.59%, respectively. At December 31, 2020, our fixed rate debt and variable rate debt had weighted average interest rates of 3.85% and 0.85%, respectively. We had zero and $36 million of variable rate debt swapped to fixed through interest rate swaps as of December 31, 2021 and 2020, respectively, which is reported in liabilities related to assets held for sale and discontinued operations, net. As of December 31, 2021 and 2020, we had $142 million and zero, respectively, of variable rate debt subject to interest rate cap agreements. For a more detailed discussion of our interest rate risk, see “Item 7A, Quantitative and Qualitative Disclosures About Market Risk” below.

Equity

At December 31, 2021, we had 539 million shares of common stock outstanding, equity totaled $7.1 billion, and our equity securities had a market value of $19.7 billion.

At December 31, 2021, non-managing members held an aggregate of five million units in seven limited liability companies (“DownREITs”) for which we are the managing member. The DownREIT units are exchangeable for an amount of cash approximating the then-current market value of shares of our common stock or, at our option, shares of our common stock (subject to certain adjustments, such as stock splits and reclassifications). At December 31, 2021, the outstanding DownREIT units were convertible into approximately seven million shares of our common stock.

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At-The-Market Program

In February 2020, we established a new at-the-market equity offering program (as amended from time to time, the “ATM Program”). In May 2021, we amended the ATM Program to increase the size of the program from $1.25 billion to $1.5 billion. In addition to the issuance and sale of shares of our common stock, we may also enter into one or more forward sales agreements (each, an “ATM forward contract”) with sales agents for the sale of our shares of common stock under our ATM Program.

During the year ended December 31, 2021, we utilized the forward provisions under the ATM Program to allow for the sale of an aggregate of 9.1 million shares of our common stock at an initial weighted average net price of $35.25 per share, after commissions. As of December 31, 2021, none of the shares were settled, and therefore, all 9.1 million shares remained outstanding under ATM forward contracts.

During the year ended December 31, 2021, we did not issue any shares of our common stock under the ATM Program.

At December 31, 2021, $1.18 billion of our common stock remained available for sale under the ATM Program. Actual future sales of our common stock will depend upon a variety of factors, including but not limited to market conditions, the trading price of our common stock, and our capital needs. We have no obligation to sell any of the remaining shares under our ATM Program.

See Note 13 to the Consolidated Financial Statements for additional information about our ATM Program.

Shelf Registration

In May 2021, we filed a prospectus with the SEC as part of a registration statement on Form S-3, using an automatic shelf registration process. This shelf registration statement expires on May 13, 2024 and at or prior to such time, we expect to file a new shelf registration statement. Under the “shelf” process, we may sell any combination of the securities described in the prospectus through one or more offerings. The securities described in the prospectus include common stock, preferred stock, depositary shares, debt securities and warrants.

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Non-GAAP Financial Measures Reconciliations

Funds From Operations

The following is a reconciliation from net income (loss) applicable to common shares, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Nareit FFO, FFO as Adjusted and AFFO (in thousands, except per share data):

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________________________________

(1)This amount can be reconciled by combining the balances from the corresponding line of the Consolidated Statements of Operations and the detailed financial information for discontinued operations in Note 5 to the Consolidated Financial Statements.

(2)For the year ended December 31, 2020, includes a $170 million gain upon consolidation of 13 CCRCs in which we acquired Brookdale's interest and began consolidating during the first quarter of 2020. For the year ended December 31, 2019, includes a $161 million gain upon deconsolidation of 19 previously consolidated senior housing assets that were contributed into a new unconsolidated senior housing joint venture with a sovereign wealth fund. Gains and losses upon change of control are included in other income (expense), net in the Consolidated Statements of Operations.

(3)For the year ended December 31, 2020, includes the termination fee and transition fee expenses related to terminating the management agreements with Brookdale for 13 CCRCs and transitioning those communities to Life Care Services LLC, partially offset by the tax benefit recognized related to those expenses. The expenses related to terminating management agreements are included in operating expenses in the Consolidated Statements of Operations.

(4)For the year ended December 31, 2021, includes a $29 million goodwill impairment charge in connection with our senior housing triple-net and SHOP asset sales, which are reported in income (loss) from discontinued operations in the Consolidated Statements of Operations. The year ended December 31, 2021 also includes $6 million of accelerated recognition of a mark-to-market discount, less loan fees, resulting from prepayments on loans receivable, which is included in interest income in the Consolidated Statements of Operations. For the year ended December 31, 2020, includes a $42 million gain on sale of a hospital that was in a DFL, which is included in other income (expense), net in the Consolidated Statements of Operations. The remaining activity for the years ended December 31, 2021 and 2020 includes reserves for loan losses and land impairments recognized in impairments and loan loss reserves (recoveries), net in the Consolidated Statements of Operations. For the year ended December 31, 2019, represents the impairment of 13 senior housing triple-net facilities under DFLs recognized as a result of entering into sales agreements.

(5)In conjunction with establishing a plan during the year ended December 31, 2020 to dispose of all of our SHOP assets and classifying such assets as discontinued operations, we concluded it was more likely than not that we would no longer realize the future value of certain deferred tax assets generated by the net operating losses of our taxable REIT subsidiary entities. Accordingly, during the year ended December 31, 2020, we recognized an associated valuation allowance and corresponding income tax expense.

(6)For the year ended December 31, 2020, represents the tax benefit from the CARES Act, which extended the net operating loss carryback period to five years.

(7)In connection with the acquisition of the remaining 51% interest in the CCRC JV in January 2020, we consolidated the 13 communities in the CCRC JV and recorded the assets and liabilities at their acquisition date relative fair values, including the CCRC contract liabilities associated with previously collected non-refundable entrance fees. In conjunction with increasing those CCRC contract liabilities to their fair value, we concluded that we will no longer adjust for the timing difference between non-refundable entrance fees collected and amortized as we believe the amortization of these fees is a meaningful representation of how we satisfy the performance obligations of the fees. As such, upon consolidation of the CCRC assets, we no longer exclude the difference between CCRC entrance fees collected and amortized from the calculation of AFFO. For comparative periods presented, the adjustment continues to represent our 49% share of non-refundable entrance fees collected by the CCRC JV, net of reserves and net of CCRC JV entrance fee amortization.

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires our management to use judgment in the application of critical accounting estimates and assumptions. We base estimates on the best information available to us at the time, our experience and on various other assumptions believed to be reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in a different presentation of our consolidated financial statements. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Below is a discussion of accounting estimates that we consider critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain. For a more detailed discussion of our significant accounting policies, see Note 2 to the Consolidated Financial Statements.

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Real Estate

We make estimates as part of our process for allocating a purchase price to the various identifiable assets and liabilities of an acquisition based upon the relative fair value of each asset or liability. The most significant components of our allocations are typically buildings as-if-vacant, land, and lease intangibles. In the case of allocating fair value to buildings and intangibles, our fair value estimates will affect the amount of depreciation and amortization we record over the estimated useful life of each asset acquired. In the case of allocating fair value to in-place leases, we make our best estimates based on our evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions, and costs to execute similar leases. Our assumptions affect the amount of future revenue and/or depreciation and amortization expense that we will recognize over the remaining useful life for the acquired in-place leases.

Impairment of Long-Lived Assets

We assess the carrying value of our real estate assets and related intangibles (“real estate assets”) when events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability of real estate assets is measured by comparing the carrying amount of the real estate assets to the respective estimated future undiscounted cash flows. The expected future undiscounted cash flows reflect external market factors and are probability-weighted to reflect multiple possible cash-flow scenarios, including selling the assets at various points in the future. Additionally, the estimated future undiscounted cash flows are calculated utilizing the lowest level of identifiable cash flows that are largely independent of the cash flows of other assets and liabilities. In order to review our real estate assets for recoverability, we make assumptions regarding external market conditions (including capitalization rates and growth rates), forecasted cash flows and sales prices, and our intent with respect to holding or disposing of the asset. If our analysis indicates that the carrying value of the real estate assets is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the carrying value exceeds the fair value of the real estate asset.

Determining the fair value of real estate assets, including assets classified as held for sale, involves significant judgment and generally utilizes market capitalization rates, comparable market transactions, estimated per unit or per square foot prices, negotiations with prospective buyers, and forecasted cash flows (lease revenue rates, expense rates, growth rates, etc.). Our ability to accurately predict future operating results and resulting cash flows, and estimate fair values, impacts the timing and recognition of impairments. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our consolidated financial statements.

Recent Accounting Pronouncements

See Note 2 to the Consolidated Financial Statements for the impact of new accounting standards.