Welltower Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Welltower is a REIT investing in seniors housing, post-acute and outpatient medical properties in the U.S., Canada and the U.K. Unless stated otherwise, dollar amounts below are in U.S. dollars.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $1.860 billion | $1.561 billion | +19% |
| Net income | $131.6 million | $28.6 million | +360% |
| Net income attributable to common stockholders | $127.1 million | $25.7 million | +395% |
| Diluted EPS | $0.22 | $0.05 | Up $0.17 |
| FFO, a non-GAAP measure | $556.7 million; $0.96 per diluted share | $386.1 million; $0.78 per diluted share | FFO +44%; per share +23% |
| Consolidated NOI, a non-GAAP measure | $762.8 million | $603.0 million | +27% |
| Same-store NOI at Welltower’s share, non-GAAP | $537.6 million | $478.0 million | +12% |
| Cash from operating activities | $406.8 million | $376.1 million | +8% |
Reported consolidated NOI was about 41% of revenue, compared with about 39% a year earlier; this is a calculated ratio, not a GAAP margin. Average seniors housing occupancy was 82.5%, versus 79.0% in Q1 2023 and 82.2% in Q4 2023. Same-store NOI growth was strongest in Seniors Housing Operating (+24.4%); Triple-net rose 3.5% and Outpatient Medical rose 2.0%.
At March 31, cash and cash equivalents were $2.388 billion, restricted cash was $89.8 million, and reported available revolving-credit capacity was $4.0 billion. No revolving-credit or commercial-paper balance was outstanding. Carrying value of senior unsecured notes was $12.172 billion and secured debt was $2.033 billion. Reported net debt was $11.807 billion; net debt to book capitalization was 29%, down from 40% a year earlier. Interest coverage was 4.29x versus 3.44x.
Investing cash outflow was $580.9 million and financing cash inflow was $578.6 million. Cash, cash equivalents and restricted cash ended the quarter at $2.478 billion. Financing included $2.416 billion of net common-stock proceeds and repayment of $1.350 billion of senior unsecured notes. The common dividend was $0.61 per share, unchanged year over year.
Material changes and notable items
- Revenue growth reflected higher resident fees and services, rental income, and interest income. Management attributed seniors housing growth in part to acquisitions and improved occupancy and rates; rental income also benefited from acquisitions, rent increases and construction conversions.
- Welltower issued 26.6 million shares under its ATM programs in Q1, generating approximately $2.416 billion in net proceeds. Weighted-average basic shares increased to 574.0 million from 492.1 million a year earlier.
- Property impairment charges increased to $43.3 million from $12.6 million, all reported in the Seniors Housing Operating segment. The filing describes charges on properties sold, held for sale and held for use.
- Welltower recorded a $9.4 million reduction to rental income after writing off straight-line rent receivables where collection was no longer considered probable.
- Operating cash flow included a $59.6 million payment on termination of an interest-rate swap. In January, the company terminated a swap and entered a forward-starting swap effective June 2025.
- On April 1, 2024, after quarter-end, Welltower closed the Canadian portion of its Revera joint-venture dissolution, acquiring Revera’s interests in 71 properties and selling its interests in 14 properties.
Outlook, risks and commitments
The filing does not provide a clear numerical full-year 2024 earnings or FFO guidance value. Management stated that it believes liquidity is sufficient for expected uses, subject to the availability and cost of external capital, and expects to fund future investments through cash, dispositions, debt and equity issuances as appropriate.
- In February 2024, Welltower agreed to acquire 25 Seniors Housing Operating properties for $969 million, expected to close in Q2 2024, subject to customary conditions and lender consent. Funding is expected to include cash and assumption of $523 million of secured debt.
- At quarter-end, construction in progress was $1.342 billion, with approximately $859.5 million of additional funding commitments. The company also had $208.6 million of remaining commitments related to in-substance real estate investments.
- Six loans were classified as deteriorated-credit loans; total loan-loss allowances were $194.3 million. Certain Genesis HealthCare debt with a $197.0 million carrying value was modified to extend maturity to June 28, 2024.
- Held-for-sale properties had a $422.2 million real estate carrying balance; expected gross proceeds were approximately $611.5 million, including non-cash consideration related to Canadian Revera properties.
- Key disclosed risks include operator or tenant financial weakness and payment default, the cost and availability of capital, interest and foreign-exchange rate changes, lease renewals and re-leasing, regulation and reimbursement changes, and the ability to complete and integrate acquisitions or reinvest disposition proceeds. Management reported compliance in all material respects with debt covenants.
Management reported effective disclosure controls and no material changes to internal control over financial reporting during the quarter. It reported no material changes to the risk factors in the 2023 Form 10-K. Ordinary-course legal proceedings were not believed likely to have a material adverse effect, although outcomes and indemnitors’ ability to perform cannot be assured.
Important facts for investors to verify
- Whether the Affinity acquisition closes on expected terms and timing, including the assumed debt and funding mix.
- Post-quarter details and financial effects of the April 1 Revera transaction, including the properties acquired and disposed of and related non-cash consideration.
- Further ATM share issuance, remaining program capacity and the effect of equity issuance on per-share results and ownership dilution.
- Repayment or other resolution of the $197.0 million Genesis indebtedness by its extended June 28, 2024 maturity.
- Actual sale proceeds and realized gains or losses for held-for-sale properties, and whether additional impairments or rent-collection issues arise.
- Progress on construction and investment commitments, upcoming debt maturities, and the cost and availability of capital.