Welltower Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparative figures are for Q1 2022 unless noted. Welltower is a healthcare real estate investment trust with seniors housing, triple-net and outpatient medical properties in the U.S., U.K. and Canada.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Total revenue | $1.561 billion | $1.396 billion; up 12% |
| Net income | $28.6 million | $65.8 million; down 56% |
| Net income attributable to common stockholders | $25.7 million; $0.05 diluted EPS | $61.9 million; $0.14 diluted EPS |
| FFO, a non-GAAP measure | $386.1 million; $0.78 per diluted share | $347.6 million; $0.77 per diluted share |
| Consolidated NOI, a non-GAAP measure | $603.0 million | $542.0 million; up 11% |
| Operating cash flow | $376.1 million | $324.5 million |
| Cash, cash equivalents and restricted cash | $638.8 million at quarter-end | $722.3 million at year-end 2022 |
| Debt and liquidity | $12.486 billion senior unsecured notes and $2.475 billion secured debt on the balance sheet; no revolver or commercial paper borrowings at quarter-end | $4.0 billion available revolving credit capacity; management reported approximately $4.6 billion of total near-term available liquidity |
| Dividends | $0.61 per share declared and paid | $0.61 per share |
Consolidated NOI was approximately 38.6% of revenue, compared with 38.8% in Q1 2022. This is a simple ratio of the company’s non-GAAP NOI to GAAP revenue, not a company-reported GAAP margin. Net income was affected by higher interest expense, impairment charges and much lower gains on property dispositions than in the prior-year quarter.
Material changes versus Q1 2022
- Resident fees and services increased 14% to $1.132 billion, while rental income increased 8% to $384.1 million. Management attributed growth principally to acquisitions and development conversions, as well as improved seniors housing occupancy and rate growth.
- Average seniors housing occupancy rose to 79.0%, from 76.3% in Q1 2022 and 78.3% in Q4 2022.
- Same-store NOI at Welltower’s share increased 9% overall. Seniors Housing Operating same-store NOI rose 19.3%; Triple-net rose 0.8%; and Outpatient Medical rose 1.9%.
- Interest expense increased 19% to $144.4 million. The company reported a 3.44x interest coverage ratio, down from 4.03x, and a 3.13x fixed-charge coverage ratio, down from 3.57x.
- Investing cash outflow was $932.8 million, including $402.7 million for acquisitions and $226.2 million for construction in progress. Financing cash inflow was $470.5 million, including $411.0 million of net common-stock issuance proceeds and $362.9 million of secured debt proceeds.
Outlook, risks and unusual items
- The filing provides no specific earnings or FFO guidance. Management said liquidity was sufficient for expected uses, subject to the availability and cost of external capital, and expected to fund investments through operating cash, available credit, securities issuance and dispositions as appropriate.
- Welltower recorded $12.6 million of impairment charges, primarily on seniors housing properties held for sale. It reported $0.7 million of net gains on real estate dispositions, compared with $22.9 million in Q1 2022.
- At March 31, 13 properties were classified as held for sale, with approximately $292.6 million of expected gross proceeds. The quarter included $4.1 million of government grant income, recorded as a reduction in property operating expenses; grant amounts may be subject to recapture if conditions are not met.
- Construction in progress was $1.121 billion, with approximately $2.058 billion of additional committed funding to complete construction. The company also expected to fund another $140.6 million for investments classified as in-substance real estate.
- Key risks cited include operator or tenant financial weakness and inability to pay rent or repay loans; senior housing operating costs and occupancy; interest rates and refinancing costs; capital-market access; foreign exchange movements; regulatory and reimbursement changes; and the uncertain effects of COVID-19. Debt covenants were reported in material compliance. Management reported effective disclosure controls and no material change in internal control over financial reporting.
- Welltower issued 5.6 million shares through its ATM program for $411.0 million net proceeds during the quarter. Net debt to book capitalization was 40%, versus 39% at year-end 2022. These financing and leverage changes are relevant when assessing growth and per-share results.
Important facts for investors to verify
- Whether occupancy, resident rates and labor and operating costs continue to support seniors housing NOI growth.
- The collectability and collateral support of loans receivable: the reported allowance for credit losses was $184.3 million, including $167.5 million against deteriorated loans.
- How the company funds construction commitments, scheduled debt maturities and future acquisitions, and the impact of financing costs or additional equity issuance.
- Whether held-for-sale transactions close near expected proceeds and whether further impairments or disposition gains affect reported earnings.
- Progress on operator transitions and concentration exposure, including Integra Healthcare Properties at 9% of consolidated NOI and the disclosed HC-One loan exposure.