Welltower Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Welltower is a healthcare-focused REIT with seniors housing operating, triple-net, and outpatient medical properties in the U.S., U.K., and Canada.
Key financial results
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $1.259 billion | $1.272 billion | Down 1% |
| Net income attributable to common stockholders | $310.3 million | $280.5 million | Up 11% |
| Diluted EPS attributable to common stockholders | $0.75 | $0.71 | Up 6% |
| FFO, a non-GAAP measure | $356.1 million; $0.86 per diluted share | $358.4 million; $0.91 per diluted share | Down 1% in total; down 5% per share |
| Consolidated NOI, a non-GAAP measure | $576.8 million | $601.4 million | Down 4% |
| Cash from operating activities | $411.9 million | $343.9 million | Up 20% |
Reported net income benefited from $262.8 million in net real estate disposition gains, versus $167.4 million a year earlier. Revenue and operating performance were mixed: seniors housing operating SSNOI fell 5.2%, triple-net SSNOI rose 3.2%, and outpatient medical SSNOI rose 2.7%. The filing reports property operating expenses of $681.8 million and depreciation and amortization of $274.8 million. NOI was about 45.8% of revenue, compared with about 47.3% in Q1 2019.
Cash, debt, and liquidity
- At March 31, cash and cash equivalents were $303.4 million; restricted cash was $89.6 million.
- Debt carrying values included $845.0 million under the unsecured credit facility and commercial paper, $10.2 billion of senior unsecured notes, and $2.9 billion of secured debt. The filing reports $13.77 billion of net debt under its leverage calculation.
- Available borrowing capacity under the unsecured revolving facility was $2.155 billion at quarter-end. On April 1, Welltower closed a $1.0 billion, two-year unsecured term loan; management said near-term available liquidity, including that loan, was approximately $3.5 billion.
- Net debt to book capitalization was 44%; interest coverage was 5.42x and fixed-charge coverage was 4.88x. The company reported compliance with its debt covenants.
- Cash from investing activities was $149.7 million, including $801.4 million of real estate sale proceeds and $390.8 million of acquisition outlays. Financing activities used $544.3 million, including $354.7 million of cash distributions to stockholders.
Material changes and unusual items
- Disposition gains supported GAAP earnings, while FFO per share and consolidated NOI declined year over year. Outpatient medical NOI growth reflected acquisitions and completed construction, including the CNL Healthcare Properties portfolio acquired in 2019.
- Triple-net rental income included a $32.3 million write-off of straight-line rent receivables related to an amended lease. The company also recorded $27.8 million of real estate impairments and a $7.1 million loan-loss provision.
- Welltower sold 36 properties for reported proceeds of $708.2 million and acquired 21 properties for an investment amount of $397.9 million during the quarter.
- The filing reports $0.87 per share of common dividends declared and paid during Q1. Separately, the board declared a $0.61-per-share dividend for the quarter ended March 31, payable May 28, 2020, a 30% reduction from the prior $0.87 rate.
- Welltower adopted the expected-credit-loss accounting standard on January 1, 2020, recording a $5.2 million increase to its loan-loss allowance through opening equity.
Outlook, management commentary, and risks
Management said the pandemic’s effects were highly uncertain and could materially adversely affect financial condition, results, and cash flows. Occupancy in seniors housing was relatively steady through March but declined afterward: spot occupancy was 85.8% on February 28, 84.8% on April 3, and 82.7% on May 1. Management cited reduced move-ins, increased mortality, added screening, and higher labor, cleaning, and PPE costs. The company reported rent collections consistent with prior periods through March 31, but warned that operator and tenant finances could weaken and lead to rent relief, lower revenue, or uncollectible receivables. Outpatient medical tenants faced closures or reduced activity from restrictions on elective procedures and delayed care.
A planned sale of an 11-property seniors housing portfolio was not completed in April because of pandemic uncertainty; the properties were expected to move out of held-for-sale classification in Q2. Management reported no significant development delays as of March 31, but warned that acquisitions, dispositions, and construction could be disrupted. The company also cited potential credit-rating, capital-access, foreign-exchange, interest-rate, and dividend risks. It provided no quantitative earnings or FFO guidance in the supplied filing text.
Most important facts for investors to verify
- Whether occupancy declines, elevated operating costs, or tenant and operator distress materially worsen after the reported quarter, and how those trends affect rent collections.
- Whether the $0.61-per-share dividend is maintained and how the board’s ongoing review affects future distributions.
- Whether the planned seniors housing disposition is completed or reclassified, and the impact of property sales on recurring NOI and cash flow.
- Whether loan-loss allowances and property impairment assumptions adequately reflect pandemic-related risks.
- How liquidity, leverage, and covenant headroom evolve, including use of the April term loan and available revolver capacity.
FFO, NOI, SSNOI, and coverage ratios are non-GAAP measures; the filing cautions they are supplemental and may not be comparable to similarly named measures at other companies.