Last year was a busy one for Welltower (NYSE: HCN). The healthcare property owner began a significant portfolio repositioning to strengthen its balance sheet and set it up for future growth. That said, this transition is having a near-term impact on its financial results, which will carry over into 2017.
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Welltower results: The raw numbers
Data source: Welltower.
What happened with Welltower this quarter?
Welltower's underlying portfolio is performing well:
- Welltower's FFO slipped year over year due to a change in its asset mix as well as lower leverage. During the quarter, the company completed $878 million of investments and $1.9 billion of dispositions.
- The company's underlying portfolio performed well, with same-property net operating income growing 2.5% versus the year-ago quarter. Driving that increase was a 4.3% improvement in same-store senior housing operating revenue per occupied room.
- While FFO dipped during the quarter, full-year FFO came in at $4.55 per share, which was up 4% versus 2015 and at the high end of the company's $4.50 to $4.56 per share guidance range.
- Overall, the company completed $3 billion of transactions last year, including acquiring $1.15 billion of senior housing properties on the West Coast while at the same time reducing net debt-to-undepreciated book capitalization from 39.5% to 37.4%.
- The company now has the lowest levered balance sheet in its peer group, which resulted in it receiving credit rating upgrades from Moody's and S&P Global to Baa1 and BBB+, respectively. The company also enhanced its financial flexibility by securing a new lower-priced $3.7 billion credit facility.
Image source: Getty Images.
What management had to say
CEO Tom DeRosa,commented on the results and what lies ahead by saying:
Welltower's focus in recent quarters has been on shoring up its portfolio and balance sheet. The company has jettisoned non-core assets and used that cash to acquire new properties with a brighter future as well as enhancing its financial capacity so it can capture growth opportunities as they arise.
Welltower has a few more loose ends to clean up in 2017. The company currently has $2 billion of asset dispositions in the pipeline, including $1.2 billion that had been expected to close last year, $400 million from its previously disclosed real estate buyback deal with Genesis Healthcare (NYSE: GEN), and another $400 million of loan payoffs and property sales. Because of these and prior asset sales, the company sees FFO slipping in 2017 to a range of $4.15 to $4.25 per share. However, it expects low-single-digit net operating income growth on a same-store level. Further, this guidance does not include any potential acquisitions.
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