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Welltower Inc.'s Earnings Rise on New Additions

By Matthew DiLallo – Nov 2, 2016 at 1:00PM

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The healthcare REIT announces a major portfolio repositioning.

Image source: Getty Images.

Welltower's (WELL 0.27%) portfolio of heathcare real estate assets continues to perform well. The REIT delivered another solid quarter of mid-single-digit earnings growth thanks to a combination of same-store net operating income (SSNOI) growth across its portfolio, due in part to higher occupancy, as well as new additions to its holdings. Meanwhile, the company continues to make sure it has the best assets in its portfolio to drive growth going forward, which has resulted in its decision to significantly increase planned assets sales for the year.

Welltower results: The raw numbers


Q3 2016 Actuals

Q3 2015 Actuals

Growth (YOY)

Funds from operations

$420.8 million

$396.5 million






FFO payout ratio




YOY = year over year. Data source: Welltower.

What happened with Welltower this quarter? 

Senior housing continues to drive earnings growth at Welltower:

  • Welltower delivered solid FFO growth thanks to a portfoliowide increase in SSNOI of 2.6% due in part to a 70 basis point increase in same-store senior housing operating occupancy to 90.6%.
  • The other big driver of FFO growth was the $1.4 billion of new additions the company made to its portfolio during the quarter, which includes its $1.15 billion West Coast senior housing portfolio transaction.
  • In addition to that, it once again increased its disposition guidance, this time ratcheting it up to $4.1 billion, which is a jump from $1.3 billion last quarter and its previous plan to sell $1 billion of assets this year.

What management had to say 

CEO Tom DeRosa commented on the quarter by saying:

Once again, our strong quarterly results reflect Welltower's strategy of owning high quality, modern healthcare real estate in high barrier to entry markets, our unique relationship model with the leading senior care providers and health systems, and maintaining a low leverage position. As will be announced today, we have taken a major step toward enhancing our ability to drive long term shareholder value by redeploying capital to high quality, private pay senior care and outpatient medical real estate and further improving our balance sheet to REIT industry leading levels. This will solidify Welltower's position as the premier owner of quality healthcare real estate.

The major development since Welltower's last report is the announcement of a strategic portfolio repositioning, which will see the company sell $3.3 billion of assets during the fourth quarter. The bulk of the asset sales involve properties leased to Genesis Healthcare (GEN -0.99%), with Welltower planning to sell about $1.7 billion in Genesis assets during the current quarter. Among the transactions it is entering into is a joint venture consisting of both Genesis Healthcare and Brookdale Senior Living (NYSE: BKD) properties with a China-based investment management platform and a Chinese insurance company.

The net result of these dispositions, according to the company, will be a significant improvement in four key metrics:

  • A sharp increase in the company's private pay revenue mix, which will improve to 92.4% from 89.4%.
  • A reduction in long-term/post-acute care concentration to 13.5% from 19.9%.
  • An improvement in long-term/post-acute care payment coverage after management fees to 1.45 times from 1.34 times.
  • The continued deleveraging of the balance sheet, which will see undepreciated book capitalization moving to 34.4% from 39.5%.

Looking forward 

Another result of these asset sales is that Welltower is trimming the top end of its guidance range. The company now expects FFO to be in the range of $4.50 to $4.56 per share, which is a slight adjustment from its prior range of $4.50 to $4.60 per share and represents a 3% to 4% increase from last year. Furthermore, the company also announced its intention to increase the quarterly dividend in 2017 to $0.87 per share, which is up 1.2% from the current rate. It also expects to complete additional Genesis Healthcare dispositions in the first half of next year of up to $620 million.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Welltower. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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