Welltower Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; comparisons are to the same 2022 periods unless noted. Welltower is a healthcare real estate investment trust operating in the U.S., Canada and U.K., across Seniors Housing Operating, Triple-net and Outpatient Medical.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Total revenue | $1.662 billion | $1.474 billion | $4.888 billion | $4.342 billion |
| Net income | $134.7 million | Loss of $2.7 million | $269.7 million | $158.8 million |
| Net income attributable to common stockholders | $127.5 million | Loss of $6.8 million | $256.2 million | $144.9 million |
| Diluted earnings per share | $0.24 | Loss of $0.01 | $0.50 | $0.32 |
| FFO, diluted per share | $419.1 million; $0.80 | $362.9 million; $0.78 | $1.271 billion; $2.51 | $1.120 billion; $2.45 |
| Consolidated NOI | $666.7 million | $561.7 million | $1.977 billion | $1.722 billion |
| Operating cash flow | Not separately presented for the quarter | Not separately presented for the quarter | $1.231 billion | $1.075 billion |
- Q3 revenue increased 13%, NOI 19%, FFO 16%, and same-store NOI 13%. Nine-month revenue rose 13%, NOI 15%, FFO 14%, and same-store NOI 10%.
- Q3 Seniors Housing Operating NOI increased 24%; Triple-net NOI increased 4%; Outpatient Medical NOI increased 9%. Seniors Housing average occupancy reached 80.7%, versus 78.0% in Q3 2022.
- Reported earnings included a $71.1 million net gain on real estate dispositions in Q3. Nine-month earnings also reflect $65.5 million of gain from loss of control of a subsidiary, while a $28.7 million impairment of an unconsolidated management-company investment was recorded in Q2.
- Property operating expenses rose 9% in Q3, and interest expense rose 12%. Nine-month impairment charges were $21.1 million, versus $4.4 million in 2022; the loan-loss provision was $7.3 million, compared with a small reversal in 2022.
Balance sheet, cash flow and capital
- At September 30, total assets were $41.65 billion and total liabilities were $17.84 billion. Cash and cash equivalents were $2.58 billion, with another $104.7 million of restricted cash.
- Carrying value of senior unsecured notes was $13.45 billion and secured debt was $2.38 billion. No revolver or commercial paper borrowings were outstanding at quarter end. The company reported $4.0 billion of available revolver capacity and approximately $6.7 billion of total near-term available liquidity.
- Nine-month operating cash flow of $1.23 billion exceeded cash distributions to stockholders of $922 million. Investing activities used $2.56 billion, principally for acquisitions, development, property improvements and loans; financing activities provided $3.31 billion.
- Welltower issued $1.035 billion of 2.75% exchangeable senior notes due 2028. It also raised approximately $3.28 billion gross through ATM common-stock issuances during the first nine months, increasing shares outstanding and contributing to equity growth.
- Quarterly dividends were $0.61 per share, unchanged from 2022. Management stated that liquidity was sufficient for expected cash needs, subject to the availability and cost of external capital. Debt covenants were reported as materially compliant.
Management commentary, outlook and risks
- Management attributed Seniors Housing revenue and expense growth primarily to acquisitions and improved occupancy and rates. Outpatient Medical growth reflected acquisitions and development conversions; Triple-net revenue growth included acquisitions and contractual rent increases.
- No specific earnings or FFO guidance was provided. Management expects to pursue investments and dispositions, and anticipates using equity and debt markets as conditions permit. Results for the nine months are not necessarily indicative of full-year results.
- The Revera joint-venture dissolution involved acquisitions and dispositions across the U.S., U.K. and Canada. The Canadian portion remained subject to customary closing conditions, with completion anticipated around year end. After quarter end, Welltower acquired 12 Canadian Seniors Housing Operating properties for a stated $678 million and assumed $59 million of secured debt.
- At quarter end, construction in progress was $1.34 billion, with approximately $1.48 billion of additional construction funding commitments. The filing also reported $789 million of investments classified as in-substance real estate and $135 million of related further funding commitments.
- Principal risks include operators’ ability to pay rent and service loans, labor and other operating costs, capital-market access and borrowing costs, interest-rate and foreign-exchange changes, lease renewals and occupancy, partner or operator distress, regulatory and reimbursement changes, and the uncertain effect of COVID-19. The company disclosed no material change to its previously reported risk factors.
- Other notable items include $12.6 million of straight-line rent receivables written off during the first nine months and government grant income of $20.1 million, down from $33.1 million in the prior-year period. Grant amounts may be subject to recapture if conditions are not met.
Investor verification points
- Assess how much reported earnings growth came from recurring property operations versus disposition and loss-of-control gains, and compare GAAP results with FFO and same-store NOI.
- Review dilution from ATM stock issuance, the remaining ATM capacity, and the impact of financing costs and debt maturities on per-share performance.
- Track Seniors Housing occupancy, labor and operating costs, operator credit quality, and the performance of the Integra relationship, which represented 8% of nine-month NOI.
- Verify completion, funding and expected returns of the Revera transactions, the post-quarter Canadian acquisition, and the substantial construction and investment commitments.
- Monitor loan credit quality: total loans receivable net of allowance were $1.49 billion, including a $191.8 million credit-loss allowance; the filing identified nine deteriorated loans.