Welltower Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This is an annual filing, not a standalone fourth-quarter report; quarterly results are not fully summarized here. Welltower is a healthcare and seniors housing REIT operating across the United States, Canada and the United Kingdom, with Seniors Housing Operating, Triple-net and Outpatient Medical segments.
Financial and operating performance
Amounts below are in U.S. dollars; financial statement amounts are rounded to the nearest million unless otherwise noted.
| Metric | 2021 | 2020 |
|---|---|---|
| Total revenue | $4,742 million | $4,606 million |
| Net income | $374 million | $1,039 million |
| Net income attributable to common stockholders | $336 million; diluted EPS $0.78 | $979 million; diluted EPS $2.33 |
| FFO attributable to common stockholders | $1,221 million; $2.86 per diluted share | $1,103 million; $2.64 per diluted share |
| Adjusted EBITDA | $1,914 million | $2,048 million |
| Consolidated NOI | $1,968 million | $2,008 million |
| Cash from operating activities | $1,275 million | $1,365 million |
- Revenue rose 3%, while net income fell 64% and diluted EPS fell 67%. The comparison is affected by substantially lower real estate disposition gains in 2021: $235 million versus $1,088 million in 2020.
- FFO per diluted share increased 8%. Management presents FFO, NOI and Adjusted EBITDA as supplemental, non-GAAP measures; they are not substitutes for GAAP earnings or cash flow.
- Segment NOI: Seniors Housing Operating $684 million, down 9%; Triple-net $841 million, up 12%; Outpatient Medical $448 million, down 11%. Same-store NOI at Welltower’s share declined 16.7% for Seniors Housing Operating, was down 0.2% for Triple-net, and rose 2.9% for Outpatient Medical.
- Total assets were $34.9 billion. Cash and cash equivalents were $269 million, with an additional $77 million of restricted cash. Net debt was $13.9 billion; net debt to book capitalization was 42.2%, compared with 40.8% in 2020. Adjusted interest coverage was 3.89x and fixed-charge coverage 3.43x.
- Operating cash flow exceeded cash distributions to stockholders. Cash distributions were $1,036 million in 2021; the common dividend was $2.44 per share for the year, versus $2.70 in 2020. The board declared $0.61 per share for the quarter ended December 31, 2021.
Material changes and notable transactions
- Acquired 85 Holiday Retirement seniors housing properties in July for approximately $1.58 billion. Total real estate acquisitions and development were approximately $4.81 billion; disposition proceeds were $1.07 billion.
- Issued $1.75 billion of senior unsecured notes during 2021, with stated coupons of 2.05% to 2.80% and maturities from 2029 to 2032. Repaid 2023 notes and term loans and established a new $4.7 billion unsecured credit facility.
- Issued 29.7 million shares through its ATM program, generating approximately $2.35 billion in net proceeds. Shares outstanding increased to approximately 447.2 million from 417.4 million.
- Advanced approximately £540 million in senior loans to Safanad affiliates in connection with HC-One, and received equity warrants. The loans carry a five-year term and are secured by HC-One shares and assets.
- Continued its exit from Genesis Healthcare: 25 of 42 properties covered by sale agreements had closed by year-end, ten were held for sale, and seven were expected to be sold in 2023. Net Genesis loan carrying value was $154 million; the company also retained other Genesis-related interests and exposures.
Outlook, risks and unusual items
- The filing provides no specific earnings, FFO, occupancy or investment guidance for 2022. Management described seniors housing occupancy as recovering but still below pre-pandemic levels and expected elevated operating costs to persist during the pandemic and potentially beyond.
- Seniors Housing Operating spot occupancy reached 77.7% at year-end, up from 72.6% at the March 2021 pandemic low, but below the 85.8% level reported before the pandemic. Labor expense, staffing shortages, COVID-19 variants and associated health and safety costs remain risks.
- Triple-net rent collections were approximately 94% of rent due in 2021; the company reported no significant rent deferrals or concessions. Outpatient Medical collections were described as virtually complete. Further operator or tenant distress could still reduce rent, increase reserves or require lease changes.
- Recognized $103 million of government grant income in 2021, primarily related to pandemic expenses and lost revenue, compared with $35 million in 2020. Additional Phase 4 Provider Relief Fund support was expected in 2022, but receipt was not assured.
- Other material risks include dependence on major operators and tenants (including Sunrise and ProMedica), reimbursement and regulatory changes, lease and loan defaults, joint-venture partner risks, construction costs and commitments, access to capital, interest and currency movements, and REIT qualification. The company had $1.21 billion of additional construction funding commitments and $87 million of additional commitments for in-substance real estate investments.
- Management reported compliance in all material respects with debt covenants. The independent auditor issued unqualified opinions on the financial statements and internal controls; impairment testing and valuation of acquisitions were identified as critical audit matters.
Investor verification priorities
- Track occupancy recovery and labor costs by segment and geography, and distinguish reported occupancy from same-store performance.
- Assess the sustainability of rent collections and contractual payments, particularly for Sunrise, ProMedica, HC-One and remaining Genesis exposures.
- Reconcile GAAP earnings with FFO and Adjusted EBITDA, especially the effects of disposition gains, credit-loss provisions, impairments and straight-line rent reserves.
- Review debt maturities, variable-rate exposure, available credit capacity, share issuance and dilution, and the funding needs for construction commitments.
- Confirm actual receipt and accounting treatment of expected government support and monitor dividend coverage using operating cash flow as well as REIT taxable-income requirements.