Last year was a busy one for Welltower (NYSE:WELL). 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.

Welltower results: The raw numbers


Q4 2016

Q4 2015

Year-Over-Year Change

Funds from operations

$401.5 million

$402.4 million


FFO per share




FFO payout ratio



5 percentage points

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.
Outpatient sign over a Hospital Outpatient Services entrance.

Image source: Getty Images.

What management had to say

CEO Tom DeRosa, commented on the results and what lies ahead by saying:

Welltower delivered 2016 results at the top end of our guidance and ended the year with another strong quarter. We are pleased to be guiding similar 2%-3% same store growth in our best in class total portfolio for 2017. We begin the year with the lowest levered balance sheet in our peer group, 93% of revenues from private pay sources, and a corporate reorganization that includes a projected $30 million reduction in G&A from a year ago. Welltower's premium healthcare real estate and dynamic operating platform is uniquely positioned to capture significant efficiencies and growth opportunities as healthcare delivery transitions from a fee-for-service to a value based model.

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.

Looking forward

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.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Moody's. The Motley Fool recommends Welltower. The Motley Fool has a disclosure policy.