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 (OTC: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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