Business Context and Reporting Period
Welltower Inc. is a healthcare real estate investment trust (REIT) with seniors housing, post-acute and outpatient medical properties in the U.S., Canada and the U.K. This 10-K covers the fiscal year ended December 31, 2020; fourth-quarter figures are noted separately. The portfolio is reported in Seniors Housing Operating, Triple-net and Outpatient Medical segments.
Financial Performance and Position
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Total revenue | $4.606 billion | $5.121 billion | Down 10% |
| Net income | $1.039 billion | $1.330 billion | Down 22% |
| Net income attributable to common stockholders | $978.8 million | $1.232 billion | Down 21% |
| Diluted EPS attributable to common stockholders | $2.33 | $3.05 | Down 24% |
| FFO attributable to common stockholders | $1.103 billion; $2.64 per diluted share | $1.577 billion; $3.91 per diluted share | Down 30% in total; 32% per share |
| Consolidated NOI | $2.008 billion | $2.431 billion | Down 17% |
| Cash from operating activities | $1.365 billion | $1.536 billion | Down 11% |
Net income included $1.088 billion of gains on real estate dispositions. Results also included $135.6 million of asset impairments, $94.4 million of loan-loss provision and $47.0 million of debt-extinguishment losses. FFO, NOI and coverage ratios are non-GAAP measures as defined by the company.
- Fourth quarter: Revenue was $1.122 billion versus $1.263 billion in Q4 2019; common-stockholder net income was $163.7 million, or $0.39 diluted EPS, versus $224.3 million, or $0.55.
- Segment NOI: Seniors Housing Operating $755.6 million, down 27%; Triple-net $748.1 million, down 19%; Outpatient Medical $505.1 million, up 8%.
- Liquidity: Year-end cash and cash equivalents were $1.545 billion, with $476.0 million of restricted cash and $3.0 billion available under the revolving credit facility. The company reported approximately $4.5 billion of near-term available liquidity.
- Debt and leverage: Total debt and lease obligations were $14.217 billion, down from $15.389 billion. Net debt to book capitalization was 40.9%, versus 46.5%; adjusted interest coverage was 3.97x, versus 4.14x. The company reported compliance with debt covenants.
- Cash distributions: Common dividends were $2.70 per share for 2020, compared with $3.48 in 2019. The quarterly dividend was reduced from $0.87 to $0.61 beginning in Q1 2020 and remained $0.61 for Q4.
Material Changes Versus Prior Period
COVID-19 drove lower seniors housing occupancy and higher operating costs, while substantial property sales and reduced acquisitions reshaped the portfolio. Seniors Housing Operating same-store NOI fell 22.7% for the year; Triple-net same-store NOI rose 0.7%, and Outpatient Medical same-store NOI rose 2.3%. Outpatient Medical’s increased reported NOI partly reflects portfolio changes and should be distinguished from same-store performance.
Welltower disposed of 147 properties for reported proceeds of $3.716 billion and completed 54 acquisitions for an investment amount of $910.2 million. Net cash provided by investing activities was $2.348 billion, largely reflecting property-sale proceeds. Operating cash flow remained above cash distributions to stockholders.
Outlook, Commentary, Risks and Unusual Items
- COVID-19 and occupancy: Seniors Housing Operating spot occupancy declined to 76.2% at year-end, and to 74.4% by February 5, 2021. Management warned that occupancy and operator finances could remain under pressure and that health, safety and labor costs may stay elevated. The filing provides no numeric earnings or occupancy guidance.
- Rent collection and relief: The company collected over 98% of rent due in Q4. Outpatient Medical rent collections for the second half of 2020 were approximately 99%, and collections of deferred rent due under executed deferrals exceeded 99%. Future concessions or uncollectible amounts remain possible.
- Genesis exposure: Genesis disclosed substantial doubt about its ability to continue as a going concern. Welltower wrote off $91.0 million of Genesis straight-line rent receivables, shifted to cash-basis rental recognition effective July 1, and recorded $80.9 million of additional loan-loss reserves related to Genesis loans. Genesis was current on its obligations to Welltower at year-end; net loans to Genesis were $136.2 million.
- Other unusual items: Total straight-line rent receivables written off during 2020 were $146.5 million. The company recorded $135.6 million of property impairments. It received approximately $9 million of Provider Relief Funds in Q4, recognized as a reduction in property operating expenses, and reported approximately $34 million received in 2021 to date.
- Concentration and other risks: Sunrise-managed properties generated approximately 25% of total revenue; Sunrise and Revera are related through Revera’s controlling interest in Sunrise. ProMedica accounted for approximately 5% of total revenue. Other risks include ongoing pandemic effects, operator or tenant insolvency, government reimbursement and regulation, labor availability and cost, development commitments, interest rates, foreign exchange and REIT qualification.
- Funding commitments: Welltower had $487.7 million of construction investments outstanding and was committed to provide a further $622.1 million to complete construction; it also expected to fund an additional $120.0 million for in-substance real estate investments.
Most Important Facts for Investors to Verify
- Whether occupancy and operating performance in seniors housing recover, and how quickly added operating costs subside.
- Genesis’s ability to meet lease, loan and other obligations, and the adequacy of Welltower’s related reserves and collateral.
- The sustainability of rent collections, deferred-rent repayments and reported relief-fund support.
- How much earnings and cash generation depend on property dispositions, and whether sale proceeds can be reinvested at attractive returns.
- Liquidity, debt maturities, leverage and covenant headroom, alongside the dividend’s coverage by recurring cash flows.
- Whether property impairments, construction commitments and operator concentrations create additional financial exposure.