Last year was a busy one for Welltower (HCN 1.86%). 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
|
Metric |
Q4 2016 |
Q4 2015 |
Year-Over-Year Change |
|---|---|---|---|
|
Funds from operations |
$401.5 million |
$402.4 million |
(0.2%) |
|
FFO per share |
$1.10 |
$1.13 |
(2.7%) |
|
FFO payout ratio |
78% |
73% |
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.
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 (GEN +0.00%), 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.
