8-K: Welltower Reports Strong Q4 2023 Results Driven by Seniors Housing, Completes $3 Billion in Investments

Welltower Inc. reported a 15.7% increase in normalized funds from operations (FFO) per share for Q4 2023, fueled by robust growth in its Seniors Housing Operating portfolio and $3 billion in strategic investments.

Summary

• Welltower Inc. announced its fourth-quarter results for 2023, reporting net income attributable to common stockholders of $0.15 per diluted share.
• The company reported quarterly normalized funds from operations (FFO) of $0.96 per diluted share, marking a 15.7% increase compared to the previous year.
• Welltower's total portfolio experienced a year-over-year same-store NOI (SSNOI) growth of 12.5%, primarily driven by a 23.7% SSNOI growth in its Seniors Housing Operating (SHO) portfolio.
• The SHO portfolio saw a 9.7% year-over-year increase in same-store revenue in Q4, with a 330 basis points increase in average occupancy.
• During the fourth quarter, Welltower completed $3.0 billion in pro rata gross investments, including $2.8 billion in acquisitions and loan funding, and $277 million in development funding.
• As of December 31, 2023, Welltower had approximately $6.1 billion of available liquidity.
• For the full year 2023, Welltower reported net income attributable to common stockholders of $0.66 per diluted share and normalized FFO of $3.64 per diluted share.
• The company completed $5.9 billion of pro rata gross investments during 2023.
• Welltower announced the dissolution of joint ventures with Revera and Chartwell, and acquired CPPIB's 45% interest in a 10-property Outpatient Medical portfolio.
• The company continued to deepen relationships with operators such as Avery Healthcare, Cogir, Kisco Senior Living, Legend Senior Living, Oakmont Management Group, StoryPoint, and RUI.
• Welltower sourced over $3 billion of attractively priced capital during Q4 and subsequent to quarter-end.
• The company reduced its share of variable rate debt to 8.7% as of December 31, 2023, from 16.0% at the end of 2022.
• Notable investment activities in Q4 included acquisitions in partnership with Cogir, Kayne Anderson Real Estate, StoryPoint, Legend, RUI, and Quality Senior Living.
• In 2023, Welltower completed the U.K. and U.S. portions of the Revera joint venture dissolution and expects to close the Canadian portion in the first half of 2024.
• Subsequent to quarter-end, Welltower entered into a definitive agreement to acquire a portfolio of 25 age-restricted active adult communities for $969 million.
• Welltower released its 2023 Green Bond Allocation report, highlighting the full allocation of $1.04 billion of net proceeds to eligible green building projects.
• The company declared a cash dividend of $0.61 per share for the quarter ended December 31, 2023.
• For 2024, Welltower expects net income attributable to common stockholders in the range of $1.21 to $1.37 per diluted share and normalized FFO in the range of $3.94 to $4.10 per diluted share.

Sentiment

Score: 9

Explanation: The document reflects a very positive sentiment due to strong financial performance, strategic investments, and a positive outlook for 2024. The company's growth in key metrics, successful capital raising, and focus on expanding its core business contribute to this positive assessment.

Positives

• Strong SSNOI growth, particularly in the Seniors Housing Operating portfolio.
• Significant investment activity, including acquisitions at substantial discounts to replacement cost.
• Improved leverage ratios and strong liquidity position.
• Successful capital raising activities.
• Strategic partnerships with leading operators.
• Positive outlook for 2024 with projected earnings and SSNOI growth.
• Continued focus on environmental, social, and governance (ESG) initiatives.
• The SHO portfolio year-over-year SSNOI margin expanded by 290 bps driven primarily by strong Revenue per Occupied Room ('RevPOR' or 'Unit Revenue') growth which continued to meaningfully outpace Expense per Occupied Room ('ExpPOR' or 'Unit Expense') growth.

Negatives

• The company's guidance does not include any pandemic relief funds, which amounted to approximately $13 million in 2023.

Risks

• The status of the economy and capital markets could impact the availability and cost of capital.
• The health care industry faces challenges related to regulations, payment policies, and insurance costs.
• Competition within the health care and seniors housing industries could affect occupancy and rental rates.
• Negative developments in the operating results or financial condition of operators/tenants could impact their ability to pay rent.
• Welltower's ability to transition or sell properties profitably is not guaranteed.
• Natural disasters and health emergencies could affect Welltower's properties.
• The company's ability to re-lease space at similar rates as vacancies occur is uncertain.
• Operator/tenant or joint venture partner bankruptcies or insolvencies could negatively impact Welltower.
• Changes in government regulations affecting Medicare and Medicaid reimbursement rates could affect profitability.
• Unanticipated difficulties and/or expenditures relating to future investments or acquisitions could arise.
• Changes in rules or practices governing financial reporting could impact the company.
• The movement of U.S. and foreign currency exchange rates could affect earnings.
• Welltower's ability to maintain its qualification as a REIT is subject to ongoing requirements.

Future Outlook

Welltower introduced its 2024 earnings guidance, projecting net income attributable to common stockholders in the range of $1.21 to $1.37 per diluted share and normalized FFO attributable to common stockholders in the range of $3.94 to $4.10 per diluted share. The company anticipates average blended SSNOI growth of 8.25% to 11.50%, with the Seniors Housing Operating portfolio expected to grow approximately 15% to 21%.

Management Comments

• During the fourth quarter, we completed $3.0 billion of pro rata gross investments, including $2.8 billion in acquisitions and loan funding and $277 million in development funding.
• As of December 31, 2023, we had approximately $6.1 billion of available liquidity inclusive of $2.1 billion of available cash and restricted cash and full capacity under our $4.0 billion line of credit.
• During the fourth quarter and subsequent to quarter end, we sourced over $3 billion of attractively priced capital, including debt, equity and proceeds from dispositions and loan payoffs to fund accretive capital deployment opportunities and to further strengthen our already robust liquidity profile.

Industry Context

Welltower's announcement reflects the broader trend of consolidation and strategic investment within the healthcare real estate sector, particularly in seniors housing. The company's focus on expanding its Seniors Housing Operating portfolio aligns with the growing demand for senior care services. The dissolution of joint ventures and acquisitions of new portfolios indicate a strategic repositioning to capitalize on market opportunities and enhance operational efficiencies.

Comparison to Industry Standards

• Welltower's SSNOI growth of 12.5% in Q4 2023 and 12.6% for the full year significantly outperforms many of its peers in the healthcare REIT sector. For example, Ventas, Inc. (NYSE: VTR) reported SSNOI growth of approximately 8% for its senior housing operating portfolio in the same period, while Healthpeak Properties, Inc. (NYSE: PEAK) reported SSNOI growth of around 9% for its senior housing portfolio.
• Welltower's focus on acquiring properties at a discount to replacement cost is a strategy also employed by other major healthcare REITs, such as Omega Healthcare Investors, Inc. (NYSE: OHI), which has been actively acquiring skilled nursing facilities at attractive valuations.
• The company's leverage ratio of 5.03x net debt to Adjusted EBITDA is in line with or better than some of its peers. For instance, Ventas reported a net debt to Adjusted EBITDA ratio of approximately 6.5x, while Omega Healthcare Investors reported a ratio of around 5.5x.
• Welltower's dividend yield is competitive within the healthcare REIT sector, comparing favorably to peers like National Health Investors, Inc. (NYSE: NHI).
• Welltower's focus on green building projects and ESG initiatives aligns with a growing trend in the REIT industry, with companies like Alexandria Real Estate Equities, Inc. (NYSE: ARE) also emphasizing sustainability in their portfolios.

Stakeholder Impact

• Shareholders: Positive impact due to strong financial performance, dividend payments, and growth prospects.
• Employees: Potential positive impact through growth and expansion, although specific details on employee impact are not provided.
• Customers: Positive impact through continued investment in high-quality senior housing and healthcare facilities.
• Suppliers: Potential positive impact through continued business relationships and growth opportunities.
• Creditors: Positive impact due to improved leverage ratios and strong liquidity position.

Next Steps

• Closing the remainder of the real estate transaction and operator transitions related to the Canadian portfolio of the Revera joint venture during the first half of 2024.
• Closing the acquisition of the Affinity Living Communities portfolio, subject to customary closing conditions.
• Funding an additional $819 million of development in 2024 relating to projects underway on December 31, 2023.
• Executing on pro rata disposition proceeds of $1.0 billion at a blended yield of 5.8% in the next twelve months.
• Paying the declared cash dividend of $0.61 per share on March 7, 2024, to stockholders of record as of February 23, 2024.

Key Dates

Keywords

Senior Housing, REIT, Healthcare Real Estate, Assisted Living, Memory Care, Outpatient Medical, Skilled Nursing, Long-Term Care, Post-Acute Care, Real Estate Investment, Acquisitions, Joint Ventures, Capital Markets, Dividend, FFO, NOI, SSNOI, ESG, Green Bond