Welltower Inc. — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing, not a standalone fourth-quarter report. Welltower is a healthcare real estate REIT with seniors housing operating, triple-net and outpatient medical properties in the U.S., Canada and the U.K. In 2022 it completed an UPREIT reorganization; substantially all operations and debt are conducted through Welltower OP LLC.
Financial and operating highlights
| Metric | 2022 | 2021 | Change |
|---|---|---|---|
| Total revenue | $5.861 billion | $4.742 billion | +24% |
| Net income | $160.6 million | $374.5 million | -57% |
| Net income attributable to common stockholders | $141.2 million; $0.30 diluted per share | $336.1 million; $0.78 diluted per share | -58% in income |
| FFO attributable to common stockholders | $1.478 billion; $3.18 per diluted share | $1.221 billion; $2.86 per diluted share | +21% in total; +11% per share |
| Consolidated NOI | $2.302 billion | $1.968 billion | +17% |
| Cash from operating activities | $1.329 billion | $1.275 billion | +4% |
Revenue growth reflected seniors housing recovery and portfolio expansion. Net income fell despite stronger FFO and NOI, principally because 2021 included substantially larger real estate disposition gains ($235.4 million versus $16.0 million in 2022); depreciation and amortization also increased to $1.310 billion from $1.038 billion. FFO, NOI and coverage measures are non-GAAP supplemental measures, not substitutes for GAAP earnings or cash flow.
Segment NOI was $953.4 million for Seniors Housing Operating (+39%), $887.0 million for Triple-net (+5%) and $472.8 million for Outpatient Medical (+5%). Same-store NOI at Welltower’s share grew 11.3% for seniors housing, 5.1% for triple-net and 2.1% for outpatient medical for the year. Seniors housing average occupancy rose to 78.3% in fourth-quarter 2022 from 76.3% in fourth-quarter 2021; outpatient medical occupancy was 95.2% at year-end versus 95.4%.
Cash, debt and liquidity
- Cash and cash equivalents were $631.7 million and restricted cash was $90.6 million at year-end, or $722.3 million combined.
- Net debt was $13.939 billion. Reported debt included $12.437 billion of senior unsecured notes and $2.111 billion of secured debt; there were no year-end borrowings under the unsecured credit facility or commercial paper program.
- Net debt to book capitalization was 39.5% (42.2% in 2021); net debt to market capitalization was 29.5% (25.9%). Interest coverage was 3.73x and fixed-charge coverage 3.37x, both lower than in 2021.
- The company reported approximately $4.7 billion of near-term available liquidity, including $4.0 billion of available revolving credit capacity. Operating cash flow exceeded cash distributions to stockholders.
- Cash used in investing activities was $3.704 billion; financing activities provided $2.761 billion. Real estate acquisitions and construction spending were significant uses of cash. The company reported $23.776 billion in total contractual obligations, including debt principal, interest, leases and purchase obligations.
Material changes, transactions and unusual items
- Welltower acquired 94 properties or interests reported at approximately $2.939 billion and disposed of 16 properties for approximately $199.5 million in 2022. Capital spending on development, recurring improvements, renovations and related items totaled $1.108 billion.
- In December, ProMedica relinquished its 15% interest in 147 skilled nursing facilities in exchange for lease modifications that relieved it of lease obligations on those properties. Welltower and Integra formed an arrangement for the portfolio; Integra purchased 15% interests in 54 facilities in December and 31 more in January 2023, with additional purchases expected during 2023. The filing identifies execution, operator-transition and joint-venture risks.
- Welltower issued $550 million of 3.85% senior notes due 2032 and amended its unsecured credit facility. It also issued common stock through ATM and forward-sale arrangements, reporting $3.668 billion of net proceeds in 2022; year-end common shares outstanding rose to approximately 490.5 million from 447.2 million.
- The Board declared a quarterly dividend of $0.61 per share for the quarter ended December 31, 2022. The 2022 annual dividend was $2.44 per share, unchanged from 2021.
- A lease termination associated with the Holiday Retirement/NHI portfolio generated $58.6 million of reported other income in 2022. The company also recognized $38.6 million of government grant income as a reduction to property operating expenses, down from $97.9 million in 2021.
Outlook, commentary and principal risks
The filing does not provide clear quantitative earnings or operating guidance. Management said seniors housing occupancy had improved, nearly all communities were open to new admissions and visitors, and operating expenses were expected to remain elevated as added health and safety measures became standard. Management also noted that long-term/post-acute operators had generally experienced greater occupancy declines, which could pressure rent payments. No assurance was given that occupancy, reimbursement or operator payment levels would be maintained.
Key risks include labor shortages and wage inflation; operator or tenant financial distress and concentration, including Sunrise and ProMedica exposure; Medicare and Medicaid reimbursement, staffing and regulatory changes; renewed effects from COVID-19 or other widespread illness; higher interest rates and refinancing or capital-market access; development costs and delays; foreign exchange exposure; and cybersecurity, privacy, litigation, insurance and climate-related risks. Welltower also relies on distributions from Welltower OP to fund parent-company obligations and shareholder dividends. Management reported compliance in all material respects with debt covenants. The company reported effective disclosure controls and internal control over financial reporting; its auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether occupancy gains and same-store NOI growth continue, and whether labor and other operating costs moderate.
- Whether triple-net operators can meet rent obligations, particularly following the ProMedica restructuring and Integra transition.
- Debt maturities, refinancing costs, variable-rate exposure and liquidity after committed development spending and distributions.
- The sustainability of FFO growth per share given equity issuance, and the Board’s future dividend decisions.
- The assumptions behind property impairment assessments, loan-loss allowances and acquisition valuations; the audit identified real estate impairment and acquisition valuation as critical audit matters.
- Progress on construction commitments: approximately $1.883 billion remained committed for consolidated developments at year-end, with additional funding commitments for in-substance real estate investments.