WELLTOWER INC.
Company Overview 29
Business Strategy 30
Key Transactions 31
Key Performance Indicators, Trends and Uncertainties 31
Corporate Governance 34
LIQUIDITY AND CAPITAL RESOURCES
Sources and Uses of Cash 34
Off-Balance Sheet Arrangements 35
Contractual Obligations 35
Capital Structure 35
RESULTS OF OPERATIONS
Summary 36
Seniors Housing Operating 37
Triple-net 39
Outpatient Medical 41
Non-Segment/Corporate 43
OTHER
Non-GAAP Financial Measures 44
Critical Accounting Policies 51
Cautionary Statement Regarding Forward-Looking Statements 52
28-------------------------------------------------------------------------------- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis is based primarily on the unaudited consolidated financial statements ofWelltower Inc. for the periods presented and should be read together with the notes thereto contained in this Quarterly Report on Form 10-Q. Other important factors are identified in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , including factors identified under the headings "Business," "Risk Factors," and "Management's Discussion and Analysis of Financial Condition and Results of Operations". References herein to "we," "us," "our," or the "Company" refer toWelltower Inc. and its subsidiaries unless specifically noted otherwise. Executive Summary Company OverviewWelltower Inc. (NYSE:WELL), an S&P 500 company headquartered inToledo, Ohio , is driving the transformation of health care infrastructure. The Company invests with leading seniors housing operators, post-acute providers and health systems to fund the real estate and infrastructure needed to scale innovative care delivery models and improve people's wellness and overall health care experience. Welltower™, a real estate investment trust ("REIT"), owns interests in properties concentrated in major, high-growth markets inthe United States (U.S. ),Canada and theUnited Kingdom (U.K. ), consisting of seniors housing and post-acute communities and outpatient medical properties. The following table summarizes our consolidated portfolio for the three months endedJune 30, 2021 (dollars in thousands): Percentage of Number of Type of Property NOI (1) NOI Properties Seniors Housing Operating$ 160,188 32.0 % 581 Triple-net 226,314 45.3 % 643 Outpatient Medical 113,577 22.7 % 292 Totals$ 500,079 100.0 % 1,516
(1) Represents consolidated NOI and excludes our share of investments in unconsolidated entities. Entities in which we have a joint venture with a minority partner are shown at 100% of the joint venture amount. See Non-GAAP Financial Measures for additional information and reconciliation.
The COVID-19 pandemic has had and may continue to have material and adverse effects on our financial condition, results of operations and cash flows in the future. The extent to which the COVID-19 pandemic impacts our operations and those of our operators and tenants will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the scope, severity and duration of the pandemic, the effectiveness of vaccines, the actions taken to contain the pandemic or mitigate its impact and the direct and indirect economic effects of the pandemic and containment measures, the overall pace of recovery, among others. Our Seniors Housing Operating revenues are dependent on occupancy. Spot occupancy has declined since the beginning of the pandemic, reaching a low of 72.3% onMarch 12, 2021 . Virtually all communities are now accepting new residents, resulting in an increase in move-in activity and occupancy rates of 230 basis points since the low point to 74.6% as ofJune 30, 2021 . Additionally, rapid distribution and a high acceptance rate of COVID-19 vaccinations by residents within assisted living and memory care facilities in theU.S. andU.K. has resulted in a significant decrease in total resident case counts across the portfolio. We have incurred increased operational costs as a result of the introduction of public health measures and other regulations affecting our properties, as well as additional health and safety measures adopted by us and our operators related to the COVID-19 pandemic, including increases in labor, personal protective equipment and sanitation. We expect total Seniors Housing Operating expenses to remain elevated during the pandemic and potentially beyond as these additional health and safety measures become standard practice. Our Triple-net operators are experiencing similar trends related to occupancy and operating costs as described above with respect to ourSeniors Housing Operating properties. However, long-term/post-acute care facilities are generally experiencing a higher degree of occupancy declines. These factors may continue to impact the ability of our Triple-net operators to make contractual rent payments to us in the future. Many of our Triple-net operators received funds under the Coronavirus Aid Relief, and Economic Security Act ("CARES Act") Paycheck Protection Program. In addition, operators of long-term/post-acute care facilities have generally received funds from Phase 1 of theProvider Relief Fund and operators of assisted living facilities have generally received funds from Phase 2 and Phase 3 of theProvider Relief Fund . During the six months endedJune 30, 2021 , we collected approximately 95% of rent due from operators under Triple-net lease agreements (primarily seniors housing and post-acute care facilities). No significant rent deferrals or rent concessions have been made during the six months endedJune 30, 2021 . We evaluate leases individually and recognize rent on a cash basis if collectibility of substantially all contractual rent payments is not probable. To the extent the prolonged impact of the COVID-19 pandemic causes operators or tenants to seek further modifications of their lease agreements, we may recognize reductions in revenue and increases in uncollectible receivables. 29 -------------------------------------------------------------------------------- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Business Strategy Our primary objectives are to protect stockholder capital and enhance stockholder value. We seek to pay consistent cash dividends to stockholders and create opportunities to increase dividend payments to stockholders as a result of annual increases in NOI and portfolio growth. To meet these objectives, we invest across the full spectrum of seniors housing and health care real estate and diversify our investment portfolio by property type, relationship and geographic location. Substantially all of our revenues are derived from operating lease rentals, resident fees and services and interest earned on outstanding loans receivable. These items represent our primary sources of liquidity to fund distributions and depend upon the continued ability of our obligors to make contractual rent and interest payments to us and the profitability of our operating properties. To the extent that our obligors/partners experience operating difficulties and become unable to generate sufficient cash to make payments or operating distributions to us, there could be a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. To mitigate this risk, we monitor our investments through a variety of methods determined by the type of property. Our asset management process for seniors housing properties generally includes review of monthly financial statements and other operating data for each property, review of obligor/partner creditworthiness, property inspections and review of covenant compliance relating to licensure, real estate taxes, letters of credit and other collateral. Our internal property management division manages and monitors the outpatient medical portfolio with a comprehensive process including review of tenant relations, lease expirations, the mix of health service providers, hospital/health system relationships, property performance, capital improvement needs and market conditions among other things. We evaluate the operating environment in each property's market to determine the likely trend in operating performance of the facility. When we identify unacceptable trends, we seek to mitigate, eliminate or transfer the risk. Through these efforts, we generally aim to intervene at an early stage to address any negative trends, and in so doing, support both the collectability of revenue and the value of our investment. In addition to our asset management and research efforts, we also aim to structure our relevant investments to mitigate payment risk. Operating leases and loans are normally credit enhanced by guarantees and/or letters of credit. In addition, operating leases are typically structured as master leases and loans are generally cross-defaulted and cross-collateralized with other real estate loans, operating leases or agreements between us and the obligor and its affiliates. For the six months endedJune 30, 2021 , resident fees and services and rental income represented 67% and 30%, respectively, of total revenues. Substantially all of our operating leases are designed with escalating rent structures. Leases with fixed annual rental escalators are generally recognized on a straight-line basis over the initial lease period, subject to a collectability assessment. Rental income related to leases with contingent rental escalators is generally recorded based on the contractual cash rental payments due for the period. Our yield on loans receivable depends upon a number of factors, including the stated interest rate, the average principal amount outstanding during the term of the loan and any interest rate adjustments. Our primary sources of cash include resident fees and services, rent and interest receipts, borrowings under our unsecured revolving credit facility and commercial paper program, public issuances of debt and equity securities, proceeds from investment dispositions and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (including acquisitions, capital expenditures, construction advances and transaction costs), loan advances, property operating expenses and general and administrative expenses. Depending upon the availability and cost of external capital, we believe our liquidity is sufficient to fund these uses of cash. We also continuously evaluate opportunities to finance future investments. New investments are generally funded from temporary borrowings under our unsecured revolving credit facility and commercial paper program, internally generated cash and the proceeds from investment dispositions. Our investments generate cash from NOI and principal payments on loans receivable. Permanent financing for future investments, which replaces funds drawn under our unsecured revolving credit facility and commercial paper program, has historically been provided through a combination of the issuance of public debt and equity securities and the incurrence or assumption of secured debt. Depending upon market conditions, we believe that new investments will be available in the future with spreads over our cost of capital that will generate appropriate returns to our stockholders. It is also likely that investment dispositions may occur in the future. To the extent that investment dispositions exceed new investments, our revenues and cash flows from operations could be adversely affected. We expect to reinvest the proceeds from any investment dispositions in new investments. To the extent that new investment requirements exceed our available cash on-hand, we expect to borrow under our unsecured revolving credit facility and commercial paper program. AtJune 30, 2021 , we had$513,602,000 of cash and cash equivalents,$295,102,000 of restricted cash and$4,000,000,000 of available borrowing capacity under our unsecured revolving credit facility. 30 -------------------------------------------------------------------------------- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Key Transactions Capital The following summarizes key capital transactions that occurred during the six months endedJune 30, 2021 and subsequent events: •InMarch 2021 , we completed the issuance of$750,000,000 senior unsecured notes bearing interest at 2.80% with a maturity date ofJune 2031 . •InApril 2021 , we repaid our$339,128,000 of our 3.75% senior unsecured notes dueMarch 2023 ,$334,624,000 of our 3.95% senior unsecured notes dueSeptember 2023 , and$15,000,000 of our term loan dueApril 2022 . •InMay 2021 , we entered into an amended and restated ATM Program (as defined below) pursuant to which we may offer and sell up to$2,000,000,000 of common stock from time to time. Since the beginning of the year, we sold 22,311,042 shares of common stock under our current and previous ATM Programs via forward sale agreements which are expected to generate gross proceeds of approximately$1,761,767,000 , of which 5,015,673 shares have been settled resulting in$371,937,000 of gross proceeds during the six months endedJune 30, 2021 . •InJune 2021 , we closed on a new$4,700,000,000 unsecured credit facility with improved pricing across our line of credit and terminated the existing unsecured credit facility. The credit facility includes$4,000,000,000 of revolving credit capacity at a borrowing rate of 77.5 basis points over LIBOR,$500,000,000 of USD term loan capacity at a borrowing rate of 90.0 basis points over LIBOR and$250,000,000 CAD term loan capacity at 90.0 basis points over CDOR. •InJune 2021 , we repaid the remaining$845,000,000 of our term loan dueApril 2022 . •InJune 2021 , we completed the issuance of$500,000,000 senior unsecured notes bearing interest at 2.05% with a maturity date ofJanuary 2029 . •During the six months endedJune 30, 2021 , we extinguished$66,593,000 of secured debt at a blended average interest rate of 6.01%. Investments The following summarizes our property acquisitions and joint venture investments completed during the six months endedJune 30, 2021 (dollars in thousands): Properties Book Amount (1) Capitalization Rates (2) Seniors Housing Operating 27$ 204,106 0.8 % Triple-net 14 299,059 6.2 % Outpatient Medical 3 188,746 5.7 % Totals 44$ 691,911 4.5 %
(1) Represents amounts recorded in net real estate investments including fair value adjustments pursuant to
Dispositions The following summarizes property dispositions completed during the
six months ended
Properties Proceeds (1) Book Amount (2) Capitalization Rates (3)
Seniors Housing Operating 12 $ 118,590 $ 112,809 4.6 %
Triple-net 11 133,704 88,367 7.2 %
Outpatient Medical 10 194,386 137,890 5.2 %
Totals 33 $ 446,680 $ 339,066 5.7 %
(1) Represents net proceeds received upon disposition, including any seller financing.
(2) Represents carrying value of net real estate assets at time of disposition. See Note 5 to our unaudited consolidated financial statements
for additional information.
(3) Represents annualized contractual income that was being received in cash at date of disposition divided by stated purchase price.
Dividends Our Board of Directors declared a cash dividend for the quarter ended
31
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Key Performance Indicators, Trends and Uncertainties
We utilize several key performance indicators to evaluate the various aspects of
our business. These indicators are discussed below and relate to operating
performance, credit strength and concentration risk. Management uses these key
performance indicators to facilitate internal and external comparisons to our
historical operating results, in making operating decisions and for budget
planning purposes.
Operating Performance We believe that net income and net income attributable to
common stockholders ("NICS") per the Consolidated Statements of Comprehensive
Income are the most appropriate earnings measures. Other useful supplemental
measures of our operating performance include funds from operations attributable
to common stockholders ("FFO") and consolidated net operating income ("NOI");
however, these supplemental measures are not defined by U.S. generally accepted
accounting principles ("U.S. GAAP"). Please refer to the section entitled
"Non-GAAP Financial Measures" for further discussion and reconciliations. These
earnings measures are widely used by investors and analysts in the valuation,
comparison and investment recommendations of companies. The following table
reflects the recent historical trends of our operating performance measures for
the periods presented (in thousands):
Three Months Ended
June 30, March 31, December 31, September 30, June 30, March 31,
2021 2021 2020 2020 2020 2020
Net income (loss) $ 45,757 $ 72,192 $ 155,278 $ 394,978 $ 159,216 $ 329,380
NICS 26,257 71,546 163,729 325,585 179,246 310,284
FFO 248,840 287,167 225,827 185,014 335,597 356,124
NOI 498,335 434,736 501,455 402,157 527,711 576,821
Credit Strength We measure our credit strength both in terms of leverage ratios
and coverage ratios. The leverage ratios indicate how much of our balance sheet
capitalization is related to long-term debt, net of cash and Internal Revenue
Code Section 1031 deposits. The coverage ratios indicate our ability to service
interest and fixed charges (interest and secured debt principal amortization).
We expect to maintain capitalization ratios and coverage ratios sufficient to
maintain a capital structure consistent with our current profile. The coverage
ratios are based on earnings before interest, taxes, depreciation and
amortization ("EBITDA"). Please refer to the section entitled "Non-GAAP
Financial Measures" for further discussion and reconciliation of these measures.
Leverage ratios and coverage ratios are widely used by investors, analysts and
rating agencies in the valuation, comparison, investment recommendations and
rating of companies. The following table reflects the recent historical trends
for our credit strength measures for the periods presented:
Three Months Ended
June 30, March 31, December 31, September 30, June 30, March 31,
2021 2021 2020 2020 2020 2020
Net debt to book capitalization ratio 43% 42% 41% 41% 43% 44%
Net debt to undepreciated book
capitalization ratio 35% 34% 34% 34% 35% 37%
Net debt to market capitalization ratio 26% 28% 30% 33% 36% 40%
Interest coverage ratio 3.30x 3.56x 4.20x 6.23x 4.29x 5.42x
Fixed charge coverage ratio 2.93x 3.16x 3.72x 5.52x 3.84x 4.88x
Concentration Risk We evaluate our concentration risk in terms of NOI by
property mix, relationship mix and geographic mix. Concentration risk is a
valuable measure in understanding what portion of our NOI could be at risk if
certain sectors were to experience downturns. Property mix measures the portion
of our NOI that relates to our various property types. Relationship mix measures
the portion of our NOI that relates to our current top five relationships.
Geographic mix measures the portion of our NOI that relates to our current top
five states (or international equivalents). The following table reflects our
recent historical trends of concentration risk by NOI for the periods indicated
below:
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended
June 30, March 31, December 31, September 30, June 30, March 31,
2021 2021 2020 2020 2020 2020
Property mix:(1)
Seniors Housing Operating 32% 39% 32% 43% 34% 42%
Triple-net 45% 36% 45% 27% 42% 34%
Outpatient Medical 23% 25% 23% 30% 24% 24%
Relationship mix: (1)
ProMedica 12% 12% 11% 13% 10% 9%
Sunrise Senior Living (2) 10% 14% 12% 15% 10% 14%
Revera (2) 5% 5% 4% 6% 5% 6%
Avery Healthcare 4% 5% 4% 5% 3% 3%
Genesis Healthcare (3) 2% 6% 6% (16)% 6% 5%
Remaining relationships 67% 58% 63% 77% 66% 63%
Geographic mix:(1)
United Kingdom 13% 10% 11% 12% 8% 9%
California 12% 15% 12% 17% 14% 15%
Texas 9% 7% 10% 12% 10% 7%
Canada 7% 7% 5% 8% 6% 7%
Pennsylvania 5% 6% 6% 4% 6% 6%
Remaining geographic areas 54% 55% 56% 47% 56% 56%
(1) Excludes our share of investments in unconsolidated entities and non-segment/corporate NOI. Entities in which we have a joint
venture with a minority partner are shown at 100% of the joint venture amount.
(2) Revera owns a controlling interest in Sunrise Senior Living.
(3) During the three months ended
Lease Expirations The following table sets forth information regarding lease expirations for certain portions of our portfolio as ofJune 30, 2021 (dollars in thousands): Expiration Year (1) 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Thereafter Triple-net: Properties 79 35 3 4 28 66 18 14 14 23 399 Base rent (2)$ 19,970 $ 2,913 $ 2,482 $ 11,431 $ 6,147 $ 70,400 $ 32,044 $ 16,839 $ 31,393 $ 42,221 $ 379,642 % of base rent 3.2 % 0.5 % 0.4 % 1.9 % 1.0 % 11.4 % 5.2 % 2.7 % 5.1 % 6.9 % 61.7 % Units/beds 10,033 3,001 304 777 1,759 5,216 2,350 1,474 1,214 2,439 40,309 % of Units/beds 14.6 % 4.4 % 0.4 % 1.1 % 2.6 % 7.6 % 3.4 % 2.1 % 1.8 % 3.5 % 58.5 % Outpatient Medical: Square feet 716,895 1,632,054 1,750,297 1,986,690 993,235 1,423,668 1,011,592 947,862 727,697 1,423,987 4,415,518 Base rent (2)$ 21,867 $ 48,606 $ 49,071 $ 60,206 $ 28,076 $ 36,667 $ 26,413 $ 25,172 $ 20,538 $ 35,919 $ 102,903 % of base rent 4.8 % 10.7 % 10.8 % 13.2 % 6.2 % 8.1 % 5.8 % 5.5 % 4.5 % 7.9 % 22.5 % Leases 189 351 362 327 210 241 134 122 74 97 163 % of Leases 8.3 % 15.5 % 15.9 % 14.4 % 9.3 % 10.6 % 5.9 % 5.4 % 3.3 % 4.3 % 7.1 %
(1) Excludes investments in unconsolidated entities, developments, land parcels, loans receivable and sub-leases. Investments classified as held for sale are included in the current year. (2) The most recent monthly cash base rent annualized. Base rent does not include tenant recoveries or amortization of above and below market lease intangibles or other non-cash income.
We evaluate our key performance indicators in conjunction with current expectations to determine if historical trends are indicative of future results. Our expected results may not be achieved and actual results may differ materially from our expectations. Factors that may cause actual results to differ from expected results are described in more detail in "Cautionary Statement Regarding Forward-Looking Statements" and other sections of this Quarterly Report on Form 10-Q. Management regularly monitors economic and other factors to develop strategic and tactical plans designed to improve performance and maximize our competitive position. Our ability to achieve our financial objectives is dependent upon our ability to effectively execute these plans and to appropriately respond to emerging economic and company-specific trends. Please refer to our Annual Report on Form 10-K for the year endedDecember 31, 2020 , under the headings "Business," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations". 33 -------------------------------------------------------------------------------- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Corporate Governance Maintaining investor confidence and trust is important in today's business environment. Our Board of Directors and management are strongly committed to policies and procedures that reflect the highest level of ethical business practices. Our corporate governance guidelines provide the framework for our business operations and emphasize our commitment to increase stockholder value while meeting all applicable legal requirements. These guidelines meet the listing standards adopted by theNew York Stock Exchange and are available on the Internet at www.welltower.com/investors/governance. The information on our website is not incorporated by reference in this Quarterly Report on Form 10-Q, and our web address is included as an inactive textual reference only. Liquidity and Capital Resources Sources and Uses of Cash Our primary sources of cash include resident fees and services, rent and interest receipts, borrowings under our unsecured revolving credit facility and commercial paper program, public issuances of debt and equity securities, proceeds from investment dispositions and principal payments on loans receivable. Our primary uses of cash include dividend distributions, debt service payments (including principal and interest), real property investments (including acquisitions, capital expenditures, construction advances and transaction costs), loan advances, property operating expenses and general and administrative expenses. These sources and uses of cash are reflected in our Consolidated Statements of Cash Flows and are discussed in further detail below. The following is a summary of our sources and uses of cash flows for the periods presented (dollars in thousands): Six Months Ended Change June 30, 2021 June 30, 2020 $ % Cash, cash equivalents and restricted cash at beginning of period$ 2,021,043 $ 385,766 $ 1,635,277 424 % Cash provided from (used in) operating activities 638,913 811,616 (172,703) (21) % Cash provided from (used in) investing activities (1,205,134) 1,142,180 (2,347,314) (206) % Cash provided from (used in) financing activities (648,114) (504,309) (143,805) (29) % Effect of foreign currency translation 1,996 (9,010) 11,006 122 % Cash, cash equivalents and restricted cash at end of period$ 808,704 $ 1,826,243 $ (1,017,539) (56) % Operating Activities The changes in net cash provided from operating activities are primarily attributable to declines in revenue as a result of decreased occupancy at our Seniors Housing Operating properties, straight-line receivable reserves related to Triple-net leases during the six months endedJune 30, 2021 and dispositions. Please see "Results of Operations" for discussion of net income fluctuations. For the six months endedJune 30, 2021 and 2020, cash flows provided from operations exceeded cash distributions to stockholders. Investing Activities The changes in net cash provided from/used in investing activities are primarily attributable to net changes in real property investments and dispositions, loans receivable and investments in unconsolidated entities, which are summarized above in "Key Transactions" and Notes 3 and 5 of our unaudited consolidated financial statements. The following is a summary of cash used in non-acquisition capital improvement activities for the periods presented (dollars in thousands): Six Months Ended Change June 30, 2021 June 30, 2020 $ New development $
144,344
30,171 40,939 (10,768)
Renovations, redevelopments and other capital
improvements 64,312 81,164 (16,852)
Total $ 238,827 $ 215,134 $ 23,693
The change in new development is primarily due to the number and size of
construction projects on-going during the relevant periods. Renovations,
redevelopments and other capital improvements include expenditures to maximize
property value, increase net operating income, maintain a market-competitive
position and/or achieve property stabilization.
Financing Activities The changes in net cash provided from/used in financing
activities are primarily attributable to changes related to our long-term debt
arrangements, the issuances of common stock and dividend payments which are
summarized above in "Key Transactions". Please refer to Notes 10, 11 and 14 of
our unaudited consolidated financial statements for additional information.
34
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
In March 2021 , we completed the issuance of $750,000,000 senior unsecured notes
with a maturity date of June 2031 . In June 2021 , we completed the issuance of
$500,000,000 senior unsecured notes with a maturity date of January 2029 . Net
proceeds from these debt issuances were used to redeem the remaining
$339,128,000 of our 3.75% senior unsecured notes due 2023, $334,624,000 of our
3.95% senior unsecured notes due 2023, and $860,000,000 remaining on our term
loan due April 2022 . In June 2021 , we closed on a new $4,700,000,000 unsecured
credit facility. The credit facility includes $4,000,000,000 of revolving credit
capacity. As of June 30, 2021 , we have total near-term available liquidity of
approximately $4.5 billion . However, we are unable to accurately predict the
full impact that the pandemic will have on our results from operations,
financial condition, liquidity and cash flows due to numerous factors discussed
in our Annual Report on Form 10-K for the year ended December 31, 2020 ,
including factors identified under the heading "Risk Factors".
Off-Balance Sheet Arrangements
At June 30, 2021 , we had investments in unconsolidated entities with our
ownership generally ranging from 10% to 65%. We use financial derivative
instruments to hedge interest rate and foreign currency exchange rate exposure.
At June 30, 2021 , we had 12 outstanding letter of credit obligations. Please see
Notes 8, 12 and 13 to our unaudited consolidated financial statements for
additional information.
Contractual Obligations
The following table summarizes our payment requirements under contractual
obligations as of June 30, 2021 (in thousands):
Payments Due by Period
Contractual Obligations Total 2021 2022-2023 2024-2025 Thereafter
Senior unsecured notes and term credit
facilities: (1)
U.S. Dollar senior unsecured notes $ 8,850,000 $
- $ -
241,830 - - - 241,830
Pounds Sterling senior unsecured notes (2) 1,449,630 - - - 1,449,630
U.S. Dollar term credit facility 510,000 - 510,000 - -
Canadian Dollar term credit facility (2) 201,525 - 201,525 - -
Secured debt: (1,2)
Consolidated 2,311,128 253,459 976,108 366,767 714,794
Unconsolidated 1,197,017 46,642 249,822 620,367 280,186Contractual interest obligations: (3)
Senior unsecured notes and term loans (2) 3,924,830 237,112 835,267 715,398 2,137,053 Consolidated secured debt (2) 274,323 35,063 99,998 57,753 81,509 Unconsolidated secured debt (2) 197,962 19,757 71,900 45,170 61,135 Financing lease liabilities (4) 193,412 6,610 77,915 2,864 106,023 Operating lease liabilities (4) 981,865 14,986 37,540 33,341 895,998 Purchase obligations (5,6) 2,474,851 1,889,654 514,797 53,528 16,872 Total contractual obligations$ 22,808,373 $
2,503,283
(1) Amounts represent principal amounts due and do not reflect unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet. (2) Based on foreign currency exchange rates in effect as of balance sheet date. (3) Based on variable interest rates in effect as of balance sheet date. (4) See Note 6 to our unaudited consolidated financial statements for additional information. (5) See Note 13 to our unaudited consolidated financial statements for additional information. (6) Purchase obligations atJune 30, 2021 , include$1,576,800,000 representing a definitive agreement to acquire 86 seniors housing properties from Holiday Retirement, expected to close during the third quarter. Capital Structure Please refer to "Credit Strength" above for a discussion of our leverage and coverage ratio trends. Our debt agreements contain various covenants, restrictions and events of default. Certain agreements require us to maintain financial ratios and minimum net worth and impose certain limits on our ability to incur indebtedness, create liens and make investments or acquisitions. As ofJune 30, 2021 , we were in compliance in all material respects with the covenants under our debt agreements. None of our debt agreements contain provisions for acceleration which could be triggered by our debt ratings. However, under our primary unsecured credit facility, the ratings on our senior unsecured notes are used to determine the fees and interest charged. We plan to manage the company to maintain compliance with our debt covenants and with a capital structure consistent with our current profile. Any downgrades in terms of ratings or outlook by any or all of the rating agencies could have a material adverse impact on our cost and availability of capital, which could have a material adverse impact on our consolidated results of operations, liquidity and/or financial condition. 35 -------------------------------------------------------------------------------- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations OnMay 4, 2021 , we filed with theSecurities and Exchange Commission (the "SEC") (1) an open-ended automatic or "universal" shelf registration statement on Form S-3 covering an indeterminate amount of future offerings of debt securities, common stock, preferred stock, depositary shares, warrants and units to replace our existing "universal" shelf registration statement filed with theSEC onMay 17, 2018 , and (2) a registration statement in connection with our enhanced dividend reinvestment plan ("DRIP") under which we may issue up to 15,000,000 shares of common stock to replace our existing DRIP registration statement on Form S-3 filed with theSEC onMay 17, 2018 . As ofJuly 23, 2021 , 15,000,000 shares of common stock remained available for issuance under the DRIP registration statement. OnMay 4, 2021 , we entered into (i) an equity distribution agreement (the "EDA") with each ofRobert W. Baird & Co. Incorporated ,Barclays Capital Inc. ,BMO Capital Markets Corp. ,BNY Mellon Capital Markets, LLC ,BofA Securities, Inc. ,BOK Financial Securities, Inc. ,Citigroup Global Markets Inc. ,Comerica Securities, Inc. ,Credit Agricole Securities (USA) Inc. ,Deutsche Bank Securities Inc. ,Fifth Third Securities, Inc. ,Goldman Sachs & Co. LLC ,Jefferies LLC ,J.P. Morgan Securities LLC ,KeyBanc Capital Markets Inc. ,Loop Capital Markets LLC ,Mizuho Securities USA LLC ,Morgan Stanley & Co. LLC ,MUFG Securities Americas Inc. ,Raymond James & Associates, Inc. ,RBC Capital Markets, LLC ,Scotia Capital (USA) Inc. ,SMBC Nikko Securities America, Inc. ,Stifel, Nicolaus & Company, Incorporated ,TD Securities (USA) LLC ,Truist Securities, Inc. ,UBS Securities LLC andWells Fargo Securities, LLC relating to the offer and sale from time to time of up to$2,000,000,000 aggregate amount of our common stock and (ii) separate master forward sale confirmations with each ofBank of America, N.A ., Bank of Montreal,The Bank of New York Mellon , Barclays Bank PLC,Citibank, N.A ., CréditAgricole Corporate and Investment Bank , Deutsche Bank AG,London Branch,Goldman Sachs & Co. LLC ,Jefferies LLC ,JPMorgan Chase Bank, National Association ,KeyBanc Capital Markets Inc. ,Mizuho Markets Americas LLC ,Morgan Stanley & Co. LLC ,MUFG Securities EMEA plc ,Raymond James & Associates, Inc. , Royal Bank of Canada, The Bank of Nova Scotia, The Toronto-Dominion Bank,Truist Bank , UBS AG,London Branch andWells Fargo Bank, National Association (together with the EDA, the "ATM Program"), replacing the ATM Program entered into onFebruary 25, 2019 . The ATM Program also allows us to enter into forward sale agreements. As ofJuly 23, 2021 , we had$1,905,854,000 of remaining capacity under the ATM Program, which excludes forward sales agreements outstanding for the sale of 17,295,369 shares or approximately$1,389,830,000 with maturity dates in 2022. We expect to physically settle the forward sales for cash proceeds. Depending upon market conditions, we anticipate issuing securities under our registration statements to invest in additional properties and to repay borrowings under our unsecured revolving credit facility and commercial paper program. In connection with the filing of the new "universal" shelf registration statement, the Company also filed with theSEC two prospectus supplements that will continue offerings that were previously covered by prospectus supplements and the accompanying prospectus to the prior registration statement relating to: (i) the registration and possible issuance of up to 620,731 shares of the Company's common stock (the "DownREIT Shares"), that may be issued from time to time if, and to the extent that, certain holders of Class A units (the "DownREIT Units") ofHCN G&L DownREIT, LLC , aDelaware limited liability company (the "DownREIT"), tender such DownREIT Units for redemption by the DownREIT, andHCN DownREIT Member, LLC , a majority-owned indirect subsidiary of the Company (including its permitted successors and assigns, the "Managing Member"), or a designated affiliate of the Managing Member, elects to assume the redemption obligations of the DownREIT and to satisfy all or a portion of the redemption consideration by issuing DownREIT Shares to the holders instead of or in addition to paying a cash amount; and (ii) the registration and possible issuance of up to 475,327 shares common stock (the "DownREIT II Shares"), that may be issued from time to time if, and to the extent that, certain holders of Class A units (the "DownREIT II Units," and collectively with the DownREIT Units, the "Units") ofHCN G&L DownREIT II LLC , aDelaware limited liability company (the "DownREIT II"), tender such DownREIT II Units for redemption by the DownREIT II, and the Managing Member, or a designated affiliate of the Managing Member, elects to assume the redemption obligations of the DownREIT II and to satisfy all or a portion of the redemption consideration by issuing DownREIT II Shares to the holders instead of or in addition to paying a cash amount. Results of Operations Summary Our primary sources of revenue include resident fees and services, rent and interest income. Our primary expenses include property operating expenses, depreciation and amortization, interest expense, general and administrative expenses and other expenses. We evaluate our business and make resource allocations on our three business segments: Seniors Housing Operating, Triple-net and Outpatient Medical. The primary performance measures for our properties are NOI and same store NOI ("SSNOI"), and other supplemental measures include FFO and EBITDA, which are further discussed below. Please see Non-GAAP Financial Measures for additional information and reconciliations. The following is a summary of our results of operations (dollars in thousands, except per share amounts): 36 -------------------------------------------------------------------------------- WELLTOWER INC. NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS Three Months Ended Change Six Months Ended Change June 30, June 30, June 30, June 30, 2021 2020 Amount % 2021 2020 Amount % Net income$ 45,757 $ 159,216 $ (113,459) (71) %$ 117,949 $ 488,596 $ (370,647) (76) % NICS 26,257 179,246 (152,989) (85) % 97,803 489,530 (391,727) (80) % FFO 248,840 335,597 (86,757) (26) % 536,007 691,721 (155,714) (23) % EBITDA 406,762 553,177 (146,415) (26) % 850,465 1,304,807 (454,342) (35) % NOI 498,335 527,711 (29,376) (6) % 933,071 1,104,532 (171,461) (16) % SSNOI 391,695 410,232 (18,537) (5) % 778,551 861,613 (83,062) (10) % Per share data (fully diluted): NICS$ 0.06 $ 0.42 $ (0.36) (86) %$ 0.23 $ 1.17 $ (0.95) (81) % FFO$ 0.59 $ 0.80 $ (0.21) (26) %$ 1.28 $ 1.66 $ (0.38) (23) % Interest coverage ratio 3.30 x 4.29 x (0.99) x (23) % 3.43 x 4.88 x (1.45) x (30) % Fixed charge coverage ratio 2.93 x 3.84 x (0.91) x (24) % 3.04 x 4.37 x (1.33) x (30) % Seniors Housing Operating The following is a summary of our SSNOI atWelltower's Share for the Seniors Housing Operating segment (dollars in thousands): QTD Pool YTD Pool Three Months Ended Change Six Months Ended Change June 30, 2021 June 30, 2020 $ % June 30, 2021 June 30, 2020 $ % SSNOI (1)$ 147,557 $ 170,005 $ (22,448) (13.2) %$ 303,978 $ 388,474
(1) For the QTD and YTD Pools, amounts relate to 528 and 519 same store properties, respectively. Please see Non-GAAP Financial Measures for additional information and reconciliations. The following is a summary of our results of operations for theSeniors Housing Operating segment (dollars in thousands): Three Months Ended Change Six Months Ended Change June 30, June 30, June 30, June 30, 2021 2020 $ % 2021 2020 $ % Revenues: Resident fees and services$ 740,891 $ 769,560 $ (28,669) (4) %$ 1,464,355 $ 1,619,532 $ (155,177) (10) % Interest income 856 88 768 873 % 1,975 192 1,783 929 % Other income 802 4,002 (3,200) (80) % 2,621 5,054 (2,433) (48) % Total revenues 742,549 773,650 (31,101) (4) % 1,468,951 1,624,778 (155,827) (10) % Property operating expenses 582,361 595,513 (13,152) (2) % 1,138,329 1,203,384 (65,055) (5) % NOI (1) 160,188 178,137 (17,949) (10) % 330,622 421,394 (90,772) (22) % Other expenses: Depreciation and amortization 131,035 139,163 (8,128) (6) % 263,621 285,937 (22,316) (8) % Interest expense 10,553 14,029 (3,476) (25) % 21,971 30,463 (8,492) (28) % Loss (gain) on extinguishment of debt, net 3,106 (492) 3,598 731 % (1,537) (492) (1,045) (212) % Provision for loan losses (181) - (181) n/a 70 - 70 n/a Impairment of assets 17,713 75,151 (57,438) (76) % 22,317 78,646 (56,329) (72) % Other expenses 3,709 5,251 (1,542) (29) % 7,168 8,240 (1,072) (13) % 165,935 233,102 (67,167) (29) % 313,610 402,794 (89,184) (22) % Income (loss) from continuing operations before income taxes and other items (5,747) (54,965) 49,218 90 % 17,012 18,600 (1,588) (9) % Income (loss) from unconsolidated entities (12,938) (6,787) (6,151) (91) % (7,704) (17,811) 10,107 57 % Gain (loss) on real estate dispositions, net (28) 14,465 (14,493) (100) % 5,167 14,316 (9,149) (64) % Income from continuing operations (18,713) (47,287) 28,574 60 % 14,475 15,105 (630) (4) % Net income (loss) (18,713) (47,287) 28,574 60 % 14,475 15,105 (630) (4) % Less: Net income (loss) attributable to noncontrolling interests 7,469 (26,156) 33,625 129 % 2,545 (28,088) 30,633 109 % Net income (loss) attributable to common stockholders$ (26,182) $ (21,131) $ (5,051) (24) %$ 11,930 $ 43,193 $ (31,263) (72) %
(1) See Non-GAAP Financial Measures below.
37
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Decreases in resident fees and services and property operating expenses are
primarily a result of decreases in occupancy across the portfolio due to the
COVID-19 pandemic and property dispositions. Spot occupancy has declined since
the beginning of the pandemic, reaching a low of 72.3% on March 12, 2021 before
beginning to recover resulting in occupancy of 74.6% as of June 30, 2021 . Spot
occupancy rates through June 30, 2021 are as follows:
December 2020 January 2021 February 2021 March 2021 April 2021 May 2021 June 2021
Spot occupancy (1) 74.7 % 73.3 % 72.5 % 72.6 % 73.2 % 73.6 % 74.6 %
Sequential occupancy
change(2) (1.4) % (0.8) % 0.1 % 0.5 % 0.5 % 0.9 %
(1) Spot occupancy represents approximate month end occupancy at our share for
592 properties in operation as of December 31, 2020 , including unconsolidated
properties but excluding acquisitions, dispositions and development conversions
since this date.
(2) Sequential occupancy changes are based on actual spot occupancy and may not
recalculate due to rounding.
On a month-to-date basis, as of July 23, 2021 , Seniors Housing Operating
occupancy has increased approximately 40 basis points. Occupancy continued to
strengthen in the U.S. and U.K. with gains of approximately 60 basis points and
30 basis points, respectively while occupancy in Canada remained flat over the
same period.
Property-level operating expenses associated with the COVID-19 pandemic relating
to our Seniors Housing Operating portfolio, net of reimbursements including
Provider Relief Funds and similar programs in the U.K. and Canada , resulted in a
net benefit of approximately $1,535,000 and $22,792,000 during the three and six
months ended June 30, 2021 , respectively, as compared to a net expense of
$40,127,000 and $47,421,000 during the three and six months ended June 30, 2020 ,
respectively. These costs included higher labor expenses, coupled with
expenditures related to procurement of personal protective equipment and other
supplies, net of any reimbursements.
In 2020 applications were made for amounts under Phase 2 and Phase 3 of the
Provider Relief Fund related to our Seniors Housing Operating portfolio. During
the six months ended June 30, 2021 , we received total Provider Relief Funds of
approximately $40,976,000 , which was recognized as a reduction to COVID-19 costs
within property operating expenses.
The fluctuations in depreciation and amortization are due to acquisitions,
dispositions and transitions. To the extent that we acquire or dispose of
additional properties in the future, these amounts will change accordingly.
During the six months ended June 30, 2021 , we recorded impairment charges of
$22,317,000 related to two held for use properties in which the carrying values
exceeded the estimated fair value. During the six months ended June 30, 2020 , we
recorded impairment charges of $78,646,000 related to 12 held for sale
properties and one held for use property. Transaction costs related to asset
acquisitions are capitalized as a component of the purchase price. Changes in
the gain on sales of properties are related to the volume and timing of property
sales and the sales prices. The fluctuation in other expenses is primarily due
to the timing of noncapitalizable transaction costs associated with acquisitions
and operator transitions.
During the six months ended June 30, 2021 , we completed one Seniors Housing
Operating construction project representing $58,844,000 or 490,367 per unit. The
following is a summary of our Seniors Housing Operating construction projects,
excluding expansions, pending as of June 30, 2021 (dollars in thousands):
38
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Location Units Commitment Balance Est. Completion
Hendon, UK 102 $ 76,623 $ 60,773 4Q21
Barnet, UK 100 71,515 51,621 4Q21
Beckenham, UK 100 65,026 55,712 4Q21
Georgetown, TX 188 36,215 5,401 2Q22
New Rochelle, NY 72 42,669 8,846 3Q22
Pflugerville, TX 196 39,500 4,944 3Q22
Sachse, TX 188 38,054 5,806 3Q22
Princeton, NJ 80 29,780 21,670 3Q22
Berea, OH 120 14,934 4,221 4Q22
Painesville, OH 119 14,462 3,563 4Q22
Beaver, PA 116 14,184 3,563 4Q22
1,381 $ 442,962 226,120
Toronto, ON Project in planning stage 49,343
Brookline, MA Project in planning stage 26,845
Washington, DC Project in planning stage 26,295
Columbus, OH Project in planning stage 12,162
Raleigh, NC Project in planning stage 3,441
Brookhaven, GA Project in planning stage 7,808
$ 352,014
Interest expense represents secured debt interest expense which fluctuates based
on the net effect and timing of assumptions, segment transitions, fluctuations
in foreign currency rates, extinguishments and principal amortizations. The
fluctuations in loss (gain) on extinguishment of debt is primarily attributable
to the volume of extinguishments and terms of the related secured debt. The
following is a summary of our Seniors Housing Operating segment property secured
debt principal activity (dollars in thousands):
Three Months Ended Six Months Ended
June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020
Wtd. Avg. Wtd. Avg. Wtd. Avg. Wtd. Avg.
Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate
Beginning balance $ 1,667,278 2.89 % $ 2,044,926 3.56 % $ 1,706,189 3.05 % $ 2,115,037 3.54 %
Debt issued - - % - - % - - % 44,921 2.58 %
Debt extinguished (24,660) 3.31 % (290,198) 2.81 % (66,593) 6.01 % (306,238) 2.90 %
Principal payments (11,986) 3.06 % (11,603) 3.17 % (24,246) 3.11 % (23,776) 3.18 %
Foreign currency 14,658 2.74 % 36,500 3.01 % 29,940 2.77 % (50,319) 3.19 %
Ending balance $ 1,645,290 2.83 % $ 1,779,625 2.91 % $ 1,645,290 2.83 % $ 1,779,625 2.91 %
Monthly averages $ 1,670,234 2.86 % $ 2,009,523 3.17 % $ 1,679,223 2.94 % $ 2,044,995 3.33 %
The majority of our Seniors Housing Operating properties are formed through
partnership interests. Income from unconsolidated entities recognized during the
six months ended June 30, 2021 includes a gain on sale recognized from the sale
of a home health business owned by one of our unconsolidated entities, offset by
losses from unconsolidated entities largely attributable to depreciation and
amortization of short-lived intangible assets related to certain investments in
unconsolidated joint ventures. Net income attributable to noncontrolling
interests represents our partners' share of net income (loss) related to joint
ventures. The decrease during the three and six month periods ended June 30,
2020 relates primarily to our partners' share of impairment charges recognized,
offset by our partners' share of gains on real estate dispositions.
Triple-net
The following is a summary of our SSNOI at Welltower's Share for the Triple-net
segment (dollars in thousands):
QTD Pool YTD Pool
Three Months Ended Change Six Months Ended Change
June 30, 2021 June 30, 2020 $ % June 30, 2021 June 30, 2020 $ %
SSNOI (1) $ 144,369 $ 142,383 $ 1,986 1.4 % $ 283,068 $ 287,755 $ (4,687) (1.6) %
(1) For the QTD and YTD Pools, amounts relate to 549 and 549 same store
properties, respectively. Please see Non-GAAP Financial Measures for additional
information and reconciliations.
The following is a summary of our results of operations for the Triple-net
segment (dollars in thousands):
39--------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended Change Six Months Ended Change
June 30, June 30, June 30, June 30,
2021 2020 $ % 2021 2020 $ %
Revenues:
Rental income $ 204,725 $ 217,492 $ (12,767) (6) % $ 357,188 $ 408,877 $ (51,689) (13) %
Interest income 32,861 15,520 17,341 112 % 47,783 30,191 17,592 58 %
Other income 1,355 607 748 123 % 2,452 2,280 172 8 %
Total revenues 238,941 233,619 5,322 2 % 407,423 441,348 (33,925) (8) %
Property operating expenses 12,627 13,563 (936) (7) % 25,468 26,865 (1,397) (5) %
NOI (1) 226,314 220,056 6,258 3 % 381,955 414,483 (32,528) (8) %
Other expenses:
Depreciation and amortization 54,406 58,138 (3,732) (6) % 111,073 115,832 (4,759) (4) %
Interest expense 1,704 2,746 (1,042) (38) % 3,586 5,598 (2,012) (36) %
Loss (gain) on derivatives and
financial instruments, net (359) 1,434 (1,793) (125) % 1,575 9,085 (7,510) (83) %
Provision for loan losses 10,019 1,451 8,568 590 % 10,872 8,523 2,349 28 %
Impairment of assets 3,768 - 3,768 n/a 22,732 24,332 (1,600) (7) %
Other expenses 4,110 3,500 610 17 % 9,093 4,013 5,080 127 %
73,648 67,269 6,379 9 % 158,931 167,383 (8,452) (5) %
Income (loss) from continuing
operations before income taxes and
other items 152,666 152,787 (121) - % 223,024 247,100 (24,076) (10) %
Income (loss) from unconsolidated entities 4,877 6,403 (1,526) (24) % 9,784 12,199 (2,415) (20) % Gain (loss) on real estate dispositions, net 42,709 2,148 40,561 n/a 44,751 51,785 (7,034) (14) % Income from continuing operations 200,252 161,338 38,914 24 % 277,559 311,084 (33,525) (11) % Net income 200,252 161,338 38,914 24 % 277,559 311,084 (33,525) (11) % Less: Net income (loss) attributable to noncontrolling interests 11,405 9,103 2,302 25 % 14,805 27,678 (12,873) (47) % Net income attributable to common stockholders$ 188,847 $ 152,235 $ 36,612 24 %$ 262,754 $ 283,406 $ (20,652) (7) %
(1) See Non-GAAP Financial Measures below.
Continued decreases in rental income are primarily attributable to an increased number of leases on a cash basis of recognition due to substantially all contractual lease payments no longer deemed to be probable. Additionally, we recorded reserves for straight-line rent receivables balances of$49,241,000 and$34,110,000 during the six month periods endedJune 30, 2021 and 2020, respectively. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index and/or changes in the gross operating revenues of the tenant's properties. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If gross operating revenues at our facilities and/or the Consumer Price Index do not increase, a portion of our revenues may not continue to increase. For the three months endedJune 30, 2021 , we had 15 leases with rental rate increases ranging from 0.98% to 11.31% in our Triple-net portfolio. Our Triple-net operators are experiencing similar impacts on occupancy and operating costs due to the COVID-19 pandemic as described above with respect to our Seniors Housing Operating properties. However, long-term/post-acute facilities are generally experiencing a higher degree of occupancy declines which may impact the ability of our Triple-net operators to make contractual rent payments to us in the future. Many of our Triple-net operators received funds under the CARES Act Paycheck Protection Program. In addition, operators of long-term/post-acute facilities have generally received funds from Phase 1 of theProvider Relief Fund and operators of assisted living facilities have received funds from Phase 2 and Phase 3 of theProvider Relief Fund . During the six months endedJune 30, 2021 , we collected approximately 95% of rent due from operators under Triple-net lease agreements (primarily seniors housing and post-acute care facilities). No significant rent deferrals or rent concessions have been made. We evaluate leases individually and recognize rent on a cash basis if collectibility of substantially all contractual rent payments is not probable. Depreciation and amortization fluctuates as a result of the acquisitions, dispositions and transitions of triple-net properties. To the extent we acquire or dispose of additional properties in the future, our provision for depreciation and amortization will change accordingly. During the six months endedJune 30, 2021 , we recognized a provision for loan losses under the current expected credit losses accounting standard, primarily related to the initial recognition of the £540 million of senior loan financing to affiliates of Safanad as part of the recapitalization of its investment inHC-One Group during the second quarter. The increase in interest income for the three and six month periods endedJune 30, 2021 is due to the increased loan receivable balance driven primarily by the £540 million of senior loan financing to affiliates of Safanad. Additionally, duringMarch 2020 , we recognized a provision for loan losses of$6,898,000 to fully reserve for a non-real estate loans receivable that was no longer deemed collectible. During the six months endedJune 30, 2021 , we recorded impairment charges of$22,732,000 related to three held for sale properties and two held for use properties. During the six months endedJune 30, 2020 , we recorded impairment charges of$24,332,000 related to one held for use property. Changes in the gain on sales of properties are related to the volume and timing of property sales and the sales prices. Transaction costs related to asset acquisitions are capitalized as a component 40 -------------------------------------------------------------------------------- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations of purchase price. The fluctuation in other expenses is primarily due to noncapitalizable transaction costs from acquisitions and segment transitions. During the six months endedJune 30, 2021 , we completed one Triple-net construction project representing$22,990,000 or$280,366 per unit. The following is a summary of Triple-net construction projects, excluding expansions, pending as ofJune 30, 2021 (dollars in thousands): Location Units/Beds Commitment Balance Est. Completion Redhill, UK 76$ 21,952 $ 16,710 3Q21 Leicester, UK 60 15,463 7,457 1Q22 London, UK 82 44,546 22,974 2Q22 Wombourne, UK 66 16,567 7,838 2Q22 Rugby, UK 76 21,141 5,545 4Q22 Raleigh, NC 191 154,256 26,300 2Q23 551$ 273,925 $ 86,824 Loss (gain) on derivatives and financial instruments, net is primarily attributable to the mark-to-market adjustment recorded on our Genesis Healthcare available for sale investment. Interest expense represents secured debt interest expense and related fees. The change in secured debt interest expense is due to the net effect and timing of assumptions, segment transitions, fluctuations in foreign currency rates, extinguishments and principal amortizations. The following is a summary of our Triple-net secured debt principal activity for the periods presented (dollars in thousands): Three Months Ended Six Months Ended June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 Wtd. Avg. Wtd. Avg. Wtd. Avg. Wtd. Avg. Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate Beginning balance$ 123,139 4.91 %$ 289,739 3.55 %$ 123,652 4.91 %$ 306,038 3.60 % Principal payments (1,246) 5.16 % (1,042) 5.16 % (2,467) 5.16 % (2,102) 5.16 % Foreign currency 673 5.43 % 624 4.12 % 1,381 5.43 % (14,615) 2.90 % Ending balance$ 122,566 4.91 %$ 289,321 3.27 %$ 122,566 4.91 %$ 289,321 3.27 % Monthly averages$ 123,570 4.92 %$ 286,599 3.36 %$ 123,348 4.92 %$ 293,300 3.47 % A portion of our Triple-net properties were formed through partnerships. Income or loss from unconsolidated entities represents our share of net income or losses from partnerships where we are the noncontrolling partner. Net income attributable to noncontrolling interests represents our partners' share of net income relating to those partnerships where we are the controlling partner. The decrease during the six months endedJune 30, 2021 , relates primarily to our partner's share of a gain on sale of certain properties in the prior year. Outpatient Medical The following is a summary of our SSNOI at Welltower Share for the Outpatient Medical segment (dollars in thousands): QTD Pool YTD Pool Three Months Ended Change Six Months Ended Change June 30, 2021 June 30, 2020 $ % June 30, 2021 June 30, 2020 $ % SSNOI (1)$ 99,769 $ 97,844 $ 1,925 2.0 %$ 191,505 $ 185,384 $ 6,121 3.3 % (1) For the QTD and YTD Pools, amounts relate to 350 and 333 same store properties, respectively. Please see Non-GAAP Financial Measures for additional information and reconciliations. The following is a summary of our results of operations for the Outpatient Medical segment for the periods presented (dollars in thousands): 41
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended Change Six Months Ended Change
June 30, June 30, June 30, June 30,
2021 2020 $ % 2021 2020 $ %
Revenues:
Rental income $ 149,998 $ 178,813 $ (28,815) (16) % $ 300,378 $ 377,388 $ (77,010) (20) %
Interest income 4,731 461 4,270 926 % 8,269 927 7,342 792 %
Other income 4,343 1,557 2,786 179 % 6,648 1,845 4,803 260 %
Total revenues 159,072 180,831 (21,759) (12) % 315,295 380,160 (64,865) (17) %
Property operating expenses 45,495 51,688 (6,193) (12) % 92,358 112,296 (19,938) (18) %
NOI (1) 113,577 129,143 (15,566) (12) % 222,937 267,864 (44,927) (17) %
Other expenses:
Depreciation and amortization 55,444 68,070 (12,626) (19) % 110,617 138,403 (27,786) (20) %
Interest expense 3,907 4,326 (419) (10) % 7,922 9,134 (1,212) (13) %
Loss (gain) on extinguishment of
debt, net - 741 (741) (100) % - 741 (741) (100) %
Provision for loan losses (3,641) (29) (3,612) n/a (3,362) (29) (3,333) n/a
Impairment of assets 2,211 - 2,211 n/a 2,211 - 2,211 n/a
Other expenses 1,098 6,456 (5,358) (83) % 1,810 7,463 (5,653) (76) %
59,019 79,564 (20,545) (26) % 119,198 155,712 (36,514) (23) %
Income (loss) from continuing
operations before income taxes and
other items 54,558 49,579 4,979 10 % 103,739 112,152 (8,413) (8) %
Income (loss) from unconsolidated
entities 85 1,716 (1,631) (95) % 2,993 3,252 (259) (8) %
Gain (loss) on real estate
dispositions, net 1,987 139,250 (137,263) (99) % 53,830 352,586 (298,756) (85) %
Income from continuing operations 56,630 190,545 (133,915) (70) % 160,562 467,990 (307,428) (66) %
Net income (loss) 56,630 190,545 (133,915) (70) % 160,562 467,990 (307,428) (66) %
Less: Net income (loss) attributable
to noncontrolling interests 629 (2,977) 3,606 121 % 2,799 (524) 3,323 634 %
Net income (loss) attributable to
common stockholders $ 56,001 $ 193,522 $ (137,521) (71) % $ 157,763 $ 468,514 $ (310,751) (66) %
(1) See Non-GAAP Financial Measures.
Rental income has decreased due primarily to significant dispositions that have closed during 2020. Certain of our leases contain annual rental escalators that are contingent upon changes in the Consumer Price Index. These escalators are not fixed, so no straight-line rent is recorded; however, rental income is recorded based on the contractual cash rental payments due for the period. If the Consumer Price Index does not increase, a portion of our revenues may not continue to increase. Our leases could renew above or below current rental rates, resulting in an increase or decrease in rental income. For the three months endedJune 30, 2021 , our consolidated outpatient medical portfolio signed 117,954 square feet of new leases and 286,868 square feet of renewals. The weighted-average term of these leases was seven years, with a rate of$42.42 per square foot and tenant improvement and lease commission costs of$23.02 per square foot. Substantially all of these leases contain an annual fixed or contingent escalation rent structure ranging from 1.0% to 4.0%. We have collected virtually all rent due through the six months endedJune 30, 2021 , with uncollected amounts primarily attributable to local jurisdictions with COVID-19 related ordinances providing temporary rent relief to tenants. We evaluate leases individually and recognize rent on a cash basis if collectibility of substantially all contractual rent payments is not probable. The increase in interest income for the three and six months endedJune 30, 2021 is due primarily to a$178,207,000 first mortgage loan initiated inAugust 2020 which was subsequently repaid in full in June of 2021. The fluctuation in property operating expenses and depreciation and amortization are primarily attributable to the significant dispositions that occurred in 2020. To the extent that we acquire or dispose of additional properties in the future, these amounts will change accordingly. During the three months endedJune 30, 2021 , we recognized an impairment charge of$2,211,000 related to one held for sale property. Changes in gains/losses on sales of properties are related to volume of property sales and the sales prices. Transaction costs related to asset acquisitions are capitalized as a component of purchase price. The fluctuation in other expenses is primarily due to noncapitalizable transaction costs recognized during the three months endedJune 30, 2020 from acquisitions no longer expected to be consummated. During the six months endedJune 30, 2021 , we completed one Outpatient Medical construction project representing$101,867,000 or$722 per square foot. The following is a summary of the Outpatient Medical construction projects, excluding expansions, pending as ofJune 30, 2021 (dollars in thousands): 42 -------------------------------------------------------------------------------- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Location Square Feet Commitment Balance Est. Completion Kalamazoo, MI 40,607$ 14,267 $ 9,709 3Q21 College Station, TX 25,200 9,025 2,189 1Q22 Norman, OK 47,082 21,707 745 3Q22 Tyler, TX 85,214 35,369 3,722 4Q22 198,103$ 80,368 $ 16,365 Total interest expense represents secured debt interest expense. The change in secured debt interest expense is primarily due to the net effect and timing of assumptions, extinguishments and principal amortizations. The following is a summary of our outpatient medical secured debt principal activity (dollars in thousands): Three Months Ended Six Months Ended June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020 Wtd. Avg. Wtd. Avg. Wtd. Avg. Wtd. Avg. Amount Interest Rate Amount Interest Rate Amount Interest Rate Amount Interest Rate Beginning balance$ 545,755 3.54 %$ 569,974 3.94 %$ 548,229 3.55 %$ 572,267 3.97 % Debt extinguished - - % (8,393) 4.40 % - - % (8,393) 4.40 % Principal payments (2,483) 4.47 % (2,538) 4.61 % (4,957) 4.47 % (4,831) 4.63 % Ending balance$ 543,272 3.52 %$ 559,043 3.59 %$ 543,272 3.52 %$ 559,043 3.59 % Monthly averages$ 544,109 3.53 %$ 566,608 3.75 %$ 545,361 3.54 %$ 568,751 3.85 % A portion of our Outpatient Medical properties were formed through partnerships. Income or loss from unconsolidated entities represents our share of net income or losses from partnerships where we are the noncontrolling partner. Net income attributable to noncontrolling interests represents our partners' share of net income or loss relating to those partnerships where we are the controlling partner. Non-Segment/Corporate The following is a summary of our results of operations for the Non-Segment/Corporate activities for the periods presented (dollars in thousands): Three Months Ended Change Six Months Ended Change June 30, June 30, June 30, June 30, 2021 2020 $ % 2021 2020 $ % Revenues: Other income$ 430 $ 375 $ 55 15 %$ 1,385 $ 791 $ 594 75 % Total revenue 430 375 55 15 % 1,385 791 594 75 % Property operating expenses 2,174 - 2,174 n/a 3,828 - 3,828 n/a NOI (1) (1,744) 375 (2,119) (565) % (2,443) 791 (3,234) (409) % Expenses: Interest expense 106,177 105,256 921 1 % 212,004 223,169 (11,165) (5) % General and administrative expenses 31,436 34,062 (2,626) (8) % 61,362 69,543 (8,181) (12) % Loss (gain) on extinguishment of debt, net 52,506 - 52,506 n/a 52,506 - 52,506 n/a Other expenses 2,770 4,204 (1,434) (34) % 4,610 5,987 (1,377) (23) % 192,889 143,522 49,367 34 % 330,482 298,699 31,783 11 % Loss from continuing operations before income taxes and other items (194,633) (143,147) (51,486) (36) % (332,925) (297,908) (35,017) (12) % Income tax (expense) benefit 2,221 (2,233) 4,454 199 % (1,722) (7,675) 5,953 78 % Loss from continuing operations (192,412) (145,380) (47,032) (32) % (334,647) (305,583) (29,064) (10) % Net loss attributable to common stockholders$ (192,412) $ (145,380) $ (47,032) (32) %$ (334,647) $ (305,583) $ (29,064) (10) %
(1) See Non-GAAP Financial Measures.
Property operating expenses represent insurance costs related to our captive insurance company formed as ofJuly 1, 2020 which acts as a direct insurer of property level insurance coverage for our portfolio. The following is a summary of our Non-Segment/Corporate interest expense for the periods presented (dollars in thousands): 43
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended Change Six Months Ended Change
June 30, June 30, June 30, June 30,
2021 2020 $ % 2021 2020 $ %
Senior unsecured notes $ 99,923 $ 98,141 $ 1,782 2 % $ 200,136 $ 201,675 $ (1,539) (1) %
Unsecured credit facility and
commercial paper program 1,940 2,816 (876) (31) % 3,120 12,984 (9,864) (76) %
Loan expense 4,314 4,299 15 - % 8,748 8,510 238 3 %
Totals $ 106,177 $ 105,256 $ 921 1 % $ 212,004 $ 223,169 $ (11,165) (5) %
The change in interest expense on senior unsecured notes is due to the net
effect of issuances and extinguishments, as well as the movement in foreign
exchange rates and related hedge activity. Please refer to Note 11 for
additional information. The change in interest expense on our unsecured
revolving credit facility and commercial paper program is due primarily to the
net effect and timing of draws, paydowns and variable interest rate
changes. Please refer to Note 10 for additional information regarding our
unsecured revolving credit facility and commercial paper program. The loss on
extinguishment recognized during the six months ended June 30, 2021 is due
primarily to the early extinguishment of $339,128,000 of our 3.75% senior
unsecured notes due March 2023 and $334,624,000 of our 3.95% senior unsecured
notes due September 2023 .
General and administrative expenses as a percentage of consolidated revenues for
the three months ended June 30, 2021 and 2020 were 2.76% and 2.87%,
respectively. The provision for income taxes primarily relates to state taxes,
foreign taxes and taxes based on income generated by entities that are
structured as TRSs. The fluctuation in the provision for income taxes is
primarily related to a revaluation of deferred taxes due to a change in the U.K.
tax rate and an adjustment to a deferred tax liability due to the recognition of
an impairment charge.
Other
Non-GAAP Financial Measures
We believe that net income and net income attributable to common stockholders
("NICS"), as defined by U.S. GAAP, are the most appropriate earnings
measurements. However, we consider FFO, NOI, SSNOI, EBITDA and Adjusted EBITDA
to be useful supplemental measures of our operating performance. Historical cost
accounting for real estate assets in accordance with U.S. GAAP implicitly
assumes that the value of real estate assets diminishes predictably over time as
evidenced by the provision for depreciation. However, since real estate values
have historically risen or fallen with market conditions, many industry
investors and analysts have considered presentations of operating results for
real estate companies that use historical cost accounting to be insufficient. In
response, the National Association of Real Estate Investment Trusts ("NAREIT")
created funds from operations attributable to common stockholders ("FFO") as a
supplemental measure of operating performance for REITs that excludes historical
cost depreciation from net income. FFO, as defined by NAREIT, means NICS,
computed in accordance with U.S. GAAP, excluding gains (or losses) from sales of
real estate and impairment of depreciable assets, plus depreciation and
amortization, and after adjustments for unconsolidated entities and
noncontrolling interests.
Consolidated net operating income ("NOI") is used to evaluate the operating
performance of our properties. We define NOI as total revenues, including tenant
reimbursements, less property operating expenses. Property operating expenses
represent costs associated with managing, maintaining and servicing tenants for
our properties. These expenses include, but are not limited to, property-related
payroll and benefits, property management fees paid to operators, marketing,
housekeeping, food service, maintenance, utilities, property taxes and
insurance. General and administrative expenses represent costs unrelated to
property operations. These expenses include, but are not limited to, payroll and
benefits, professional services, office expenses and depreciation of corporate
fixed assets. Same store NOI ("SSNOI") is used to evaluate the operating
performance of our properties using a consistent population which controls for
changes in the composition of our portfolio. We believe the drivers of property
level NOI for both consolidated properties and unconsolidated properties are
generally the same and therefore, we evaluate SSNOI based on our ownership
interest in each property ("Welltower Share"). To arrive at Welltower's Share,
NOI is adjusted by adding our minority ownership share related to unconsolidated
properties and by subtracting the minority partners' noncontrolling ownership
interests for consolidated properties. We do not control investments in
unconsolidated properties and while we consider disclosures at Welltower Share
to be useful, they may not accurately depict the legal and economic implications
of our joint venture arrangements and should be used with caution. As used
herein, same store is generally defined as those revenue-generating properties
in the portfolio for the relevant year-over-year reporting periods. Acquisitions
and development conversions are included in SSNOI five full quarters or six full
quarter after acquisition or being placed into service for the QTD Pool and YTD
Pool , respectively. Land parcels, loans and sub-leases, as well as any
properties sold or classified as held for sale during the respective periods are
excluded from SSNOI. Redeveloped properties (including major refurbishments of a
Seniors Housing Operating property where 20% or more of units are simultaneously
taken out of commission for 30 days or more or Outpatient Medical properties
undergoing a change in intended use) are excluded from SSNOI until five full
quarters or six full quarters post completion of the redevelopment for the QTD
Pool and YTD Pool , respectively. Properties undergoing operator transitions
and/or segment transitions are also excluded from SSNOI until five full quarters
or six full quarters post completion of the transition for the QTD Pool and YTD
Pool , respectively. In addition,
44
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
properties significantly impacted by force majeure, acts of God, or other
extraordinary adverse events are excluded from SSNOI until five full quarters or
six full quarters after the properties are placed back into service for the QTD
Pool and YTD Pool , respectively. SSNOI excludes non-cash NOI and includes
adjustments to present consistent ownership percentages and to translate
Canadian properties and U.K. properties using a consistent exchange rate. We
believe NOI and SSNOI provide investors relevant and useful information because
they measure the operating performance of our properties at the property level
on an unleveraged basis. We use NOI and SSNOI to make decisions about resource
allocations and to assess the property level performance of our properties.
EBITDA is defined as earnings (net income) before interest, taxes, depreciation
and amortization. Adjusted EBITDA is defined as EBITDA excluding unconsolidated
entities and including adjustments for stock-based compensation expense,
provision for loan losses, gains/losses on extinguishment of debt,
gains/loss/impairments on properties, gains/losses on derivatives and financial
instruments, other expense, additional other income and other impairment
charges. We believe that EBITDA and Adjusted EBITDA, along with net income, are
important supplemental measures because they provide additional information to
assess and evaluate the performance of our operations. We primarily use these
measures to determine our interest coverage ratio, which represents EBITDA and
Adjusted EBITDA divided by total interest, and our fixed charge coverage ratio,
which represents EBITDA and Adjusted EBITDA divided by fixed charges. Fixed
charges include total interest and secured debt principal amortization.
Covenants in our unsecured senior notes and primary credit facility contain
financial ratios based on a definition of EBITDA and Adjusted EBITDA that is
specific to those agreements. Our leverage ratios are defined as the proportion
of net debt to total capitalization and include book capitalization,
undepreciated book capitalization and market capitalization. Book capitalization
represents the sum of net debt (defined as total long-term debt, excluding
operating lease liabilities, less cash and cash equivalents and any IRC Section
1031 deposits), total equity and redeemable noncontrolling interests.
Undepreciated book capitalization represents book capitalization adjusted for
accumulated depreciation and amortization. Market capitalization represents book
capitalization adjusted for the fair market value of our common stock.
Our supplemental reporting measures and similarly entitled financial measures
are widely used by investors, equity and debt analysts and rating agencies in
the valuation, comparison, rating and investment recommendations of companies.
Management uses these financial measures to facilitate internal and external
comparisons to our historical operating results and in making operating
decisions. Additionally, these measures are utilized by the Board of Directors
to evaluate management. None of our supplemental measures represent net income
or cash flow provided from operating activities as determined in accordance with
U.S. GAAP and should not be considered as alternative measures of profitability
or liquidity. Finally, the supplemental measures, as defined by us, may not be
comparable to similarly entitled items reported by other real estate investment
trusts or other companies.
The table below reflects the reconciliation of FFO to NICS, the most directly
comparable U.S. GAAP measure, for the periods presented. Noncontrolling interest
and unconsolidated entity amounts represent adjustments to reflect our share of
depreciation and amortization, gains/loss on real estate dispositions and
impairment of assets. Amounts are in thousands except for per share data.
Three Months Ended
June 30, March 31, December 31, September 30, June 30, March 31,
FFO Reconciliation: 2021 2021 2020 2020 2020 2020
Net income attributable to common
stockholders $ 26,257 $
71,546
$ 310,284 Depreciation and amortization 240,885 244,426 242,733 255,532 265,371 274,801 Impairment of assets 23,692 23,568 9,317 23,313 75,151 27,827 Loss (gain) on real estate dispositions, net (44,668) (59,080) (185,464) (484,304) (155,863)
(262,824)
Noncontrolling interests (16,591) (12,516) (20,579) 48,559 (42,539)
(9,409)
Unconsolidated entities 19,265 19,223 16,091 16,329 14,231 15,445 FFO$ 248,840 $ 287,167 $ 225,827 $ 185,014 $ 335,597 $ 356,124 Average diluted shares outstanding 419,305 419,079 418,753 418,987 419,121
412,420
Per diluted share data: Net income attributable to common stockholders(1)$ 0.06 $ 0.17 $ 0.39 $ 0.77$ 0.42 $ 0.75 FFO$ 0.59 $ 0.69 $ 0.54 $ 0.44$ 0.80 $ 0.86
(1) Includes adjustment to the numerator for income (loss) attributable to OP unitholders.
45--------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Six Months Ended
June 30, June 30,
FFO Reconciliations: 2021 2020
Net income attributable to common stockholders $ 97,803 $ 489,530
Depreciation and amortization 485,311 540,172
Impairment of assets 47,260 102,978
Loss (gain) on real estate dispositions, net (103,748) (418,687)
Noncontrolling interests (29,107) (51,948)
Unconsolidated entities 38,488 29,676
FFO $
536,007
Average diluted common shares outstanding: 419,205 415,775 Per diluted share data: Net income attributable to common stockholders(1)$ 0.23 $ 1.17 FFO $
1.28
(1) Includes adjustment to the numerator for income (loss) attributable to OP unitholders.
Three Months Ended
June 30, March 31, December 31, September 30, June30, March 31, NOI Reconciliations: 2021 2021 2020 2020 2020 2020 Net income (loss)$ 45,757
(44,668) (59,080) (185,464) (484,304) (155,863) (262,824)
Loss (income) from unconsolidated entities 7,976 (13,049) (258) 5,981 (1,332) 3,692
Income tax expense (benefit) (2,221) 3,943 290 2,003 2,233 5,442
Other expenses 11,687 10,994 33,088 11,544 19,411 6,292
Impairment of assets 23,692 23,568 9,317 23,313 75,151 27,827
Provision for loan losses 6,197 1,383 83,085 2,857 1,422 7,072
Loss (gain) on extinguishment of debt, net 55,612 (4,643) 13,796 33,004 249 -
Loss (gain) on derivatives and financial
instruments, net (359) 1,934 569 1,395 1,434 7,651
General and administrative expenses 31,436 29,926 27,848 31,003 34,062 35,481
Depreciation and amortization 240,885 244,426 242,733 255,532 265,371 274,801
Interest expense 122,341 123,142 121,173 124,851 126,357 142,007
Consolidated net operating income (NOI) $ 498,335 NOI by segment: Seniors Housing Operating$ 160,188 $ 170,434 $ 159,797 $ 174,361 $ 178,137 $ 243,257 Triple-net 226,314 155,641 225,277 108,361 220,056 194,427 Outpatient Medical 113,577 109,360 117,231 119,976 129,143 138,721 Non-segment/corporate (1,744) (699) (850) (541) 375 416 Total NOI$ 498,335 $ 434,736 $ 501,455 $ 402,157 $ 527,711 $ 576,821 46
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Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Six Months Ended
June 30, 2021 June 30, 2020
NOI Reconciliations:
Net income (loss) $ 117,949 $ 488,596
Loss (gain) on real estate dispositions, net (103,748) (418,687)
Loss (income) from unconsolidated entities (5,073) 2,360
Income tax expense (benefit) 1,722 7,675
Other expenses 22,681 25,703
Impairment of assets 47,260 102,978
Provision for loan losses 7,580 8,494
Loss (gain) on extinguishment of debt, net 50,969 249
Loss (gain) on derivatives and financial instruments, net 1,575 9,085
General and administrative expenses 61,362 69,543
Depreciation and amortization 485,311 540,172
Interest expense 245,483 268,364
Consolidated net operating income (NOI) $ 933,071 $ 1,104,532
NOI by segment:
Seniors Housing Operating $ 330,622 $ 421,394
Triple-net 381,955 414,483
Outpatient Medical 222,937 267,864
Non-segment/corporate (2,443) 791
Total NOI $ 933,071 $ 1,104,532
QTD Pool YTD Pool
Seniors Housing Seniors Housing
SSNOI Property Reconciliations: Operating Triple-net Outpatient Medical Total Operating Triple-net Outpatient Medical Total
Consolidated properties 581 643 292 1,516 581 643 292 1,516
Unconsolidated properties 91 39 79 209 91 39 79 209
Total properties 672 682 371 1,725 672 682 371 1,725
Recent acquisitions/development conversions(1) (56) (29) (7) (92) (64) (29) (24) (117)
Under development (30) (5) (4) (39) (30) (5) (4) (39)
Under redevelopment(2) (10) (1) (2) (13) (11) (1) (2) (14)
Current held for sale (8) (54) (2) (64) (8) (54) (2) (64)
Land parcels, loans and subleases (11) (19) (6) (36) (11) (19) (6) (36)
Transitions(3) (27) (23) - (50) (27) (23) - (50)
Other(4) (2) (2) - (4) (2) (2) - (4)
Same store properties 528 549 350 1,427 519 549 333 1,401
(1) Acquisitions and development conversions will enter the QTD Pool and YTD Pool after five full quarters and six full quarters after acquisition or certificate of occupancy, respectively.
(2) Redevelopment properties will enter the QTD Pool and YTD Pool after five full quarters and six full quarters of operations post redevelopment completion, respectively.
(3) Transitioned properties will enter the QTD Pool and YTD Pool after five full quarters and six full quarters of operations with the new operator in place or under the new structure, respectively.
(4) Represents properties that are either closed or being closed.
47--------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
QTD Pool YTD Pool
Three Months Ended Six Months Ended
SSNOI Reconciliations: June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020
Seniors Housing Operating:
Consolidated NOI $ 160,188
11,305 13,277 23,209 28,231
NOI attributable to noncontrolling interests (27,742) (11,870) (35,787) (30,623)
NOI attributable to non-same store properties (7,405) (12,476) (24,548) (36,352)
Non-cash NOI attributable to same store
properties 12,338 (957) 11,516 (1,835)
Currency and ownership adjustments (1) (1,127) 3,894 (1,034) 7,659
SSNOI at Welltower Share 147,557 170,005 303,978 388,474
Triple-net:
Consolidated NOI 226,314 220,056 381,955 414,483
NOI attributable to unconsolidated investments 4,887 5,133 9,775 10,266
NOI attributable to noncontrolling interests (14,051) (14,613) (22,040) (29,395)
NOI attributable to non-same store properties (64,857) (58,367) (115,541) (87,080)
Non-cash NOI attributable to same store
properties (7,611) (11,829) 29,443 (23,568)
Currency and ownership adjustments (1) (313) 2,003 (524) 3,049
SSNOI at Welltower Share 144,369 142,383 283,068 287,755
Outpatient Medical:
Consolidated NOI 113,577 129,143 222,937 267,864
NOI attributable to unconsolidated investments 4,988 2,461 9,712 3,524
NOI attributable to noncontrolling interests (4,235) (3,764) (7,977) (8,366)
NOI attributable to non-same store properties (11,961) (15,841) (27,793) (43,412)
Non-cash NOI attributable to same store
properties (2,533) (3,486) (4,156) (6,336)
Currency and ownership adjustments (1) (67) (10,669) (1,218) (27,890)
SSNOI at Welltower Share 99,769 97,844 191,505 185,384
SSNOI at Welltower Share:
Seniors Housing Operating 147,557 170,005 303,978 388,474
Triple-net 144,369 142,383 283,068 287,755
Outpatient Medical 99,769 97,844 191,505 185,384
Total $ 391,695 $ 410,232 $ 778,551 $ 861,613 (1) Includes adjustments to reflect consistent property ownership percentages, to translate Canadian properties at a USD/CAD rate of 1.2658 and
to translate
The tables below reflects the reconciliation of EBITDA to net income, the most directly comparableU.S. GAAP measure, for the periods presented. Dollars are in thousands. 48
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Three Months Ended
June 30, March 31, December 31, September 30, June 30, March 31,
EBITDA Reconciliations: 2021 2021 2020 2020 2020 2020
Net income (loss) $ 45,757 $ 72,192 $ 155,278 $ 394,978 $ 159,216 $ 329,380
Interest expense 122,341 123,142 121,173 124,851 126,357 142,007
Income tax expense (benefit) (2,221) 3,943 290 2,003 2,233 5,442
Depreciation and amortization 240,885 244,426 242,733 255,532 265,371 274,801
EBITDA $ 406,762 $ 443,703 $ 519,474 $ 777,364 $ 553,177 $ 751,630
Interest Coverage Ratio:
Interest expense $ 122,341 $ 123,142 $ 121,173 $ 124,851 $ 126,357 $ 142,007
Non-cash interest expense (3,972) (2,991) (1,739) (3,973) (1,914) (8,125)
Capitalized interest 4,862 4,496 4,238 3,947 4,541 4,746
Total interest 123,231 124,647 123,672 124,825 128,984 138,628
EBITDA $ 406,762 $ 443,703 $ 519,474 $ 777,364 $ 553,177 $ 751,630
Interest coverage ratio 3.30 x 3.56 x 4.20 x 6.23 x 4.29 x 5.42 x
Fixed Charge Coverage Ratio:
Total interest $ 123,231 $ 124,647 $ 123,672 $ 124,825 $ 128,984 $ 138,628
Secured debt principal payments 15,715 15,955 16,122 15,876 15,183 15,526
Total fixed charges 138,946 140,602 139,794 140,701 144,167 154,154
EBITDA $ 406,762 $ 443,703 $ 519,474 $ 777,364 $ 553,177 $ 751,630
Fixed charge coverage ratio 2.93 x 3.16 x 3.72 x 5.52 x 3.84 x 4.88 x
Six Months Ended
June 30, June 30,
EBITDA Reconciliations: 2021 2020
Net income (loss) $ 117,949 $ 488,596
Interest expense 245,483 268,364
Income tax expense (benefit) 1,722 7,675
Depreciation and amortization 485,311 540,172
EBITDA $ 850,465 $ 1,304,807
Interest Coverage Ratio:
Interest expense $ 245,483 $ 268,364
Non-cash interest expense (6,963) (10,039)
Capitalized interest 9,358 9,287
Total interest 247,878 267,612
EBITDA $ 850,465 $ 1,304,807
Interest coverage ratio 3.43 x 4.88 x
Fixed Charge Coverage Ratio:
Total interest $ 247,878 $ 267,612
Secured debt principal payments 31,670 30,709
Total fixed charges 279,548 298,321
EBITDA $ 850,465 $ 1,304,807
Fixed charge coverage ratio 3.04 x 4.37 x
49-------------------------------------------------------------------------------- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The table below reflects the reconciliation of Adjusted EBITDA to net income, the most directly comparableU.S. GAAP measure, for the periods presented. Dollars are in thousands. Twelve Months Ended June 30, March 31, December 31, September 30, June 30, March 31, Adjusted EBITDA Reconciliations: 2021 2021 2020 2020 2020 2020 Net income$ 668,205
$ 1,367,488 Interest expense 491,507 495,523 514,388 524,863 537,355 552,334 Income tax expense (benefit) 4,015 8,469 9,968 4,846 6,811 6,177 Depreciation and amortization 983,576 1,008,062 1,038,437 1,058,348 1,075,261 1,057,942 EBITDA 2,147,303 2,293,718 2,601,645 2,711,767 2,996,091 2,983,941 Loss (income) from unconsolidated entities 650 (8,658) 8,083 (49,079) (58,322) (47,941) Stock-based compensation expense (1) 24,278 26,811 28,318 25,485 24,229 24,601 Loss (gain) on extinguishment of debt, net 97,769 42,406 47,049 35,865 68,685 68,436 Loss (gain) on real estate dispositions, net (773,516) (884,711) (1,088,455) (915,055) (1,001,001) (843,456) Impairment of assets 79,890 131,349 135,608 126,389 121,172 55,960 Provision for loan losses 93,522 88,747 94,436 11,351 8,494 7,072 Loss (gain) on derivatives and financial instruments, net 3,539 5,332 11,049 5,411 5,260 5,739 Other expenses (1) 60,985 68,939 64,171 52,630 46,971 48,327 Other impairment (2) 161,639 163,481 146,508 146,508 34,110 32,268 Adjusted EBITDA$ 1,896,059
Adjusted Interest Coverage Ratio: Interest expense$ 491,507 $ 495,523 $ 514,388 $ 524,863 $ 537,355 $ 552,334 Capitalized interest 17,543 17,222 17,472 18,102 18,303 17,691 Non-cash interest expense (12,675) (10,617) (15,751) (14,746) (12,761) (11,599) Total interest 496,375 502,128 516,109 528,219 542,897 558,426 Adjusted EBITDA$ 1,896,059
$ 2,334,947 Adjusted interest coverage ratio 3.82 x 3.84 x 3.97 x 4.07 x 4.14 x 4.18 x Adjusted Fixed Charge Coverage Ratio: Total interest$ 496,375
$ 558,426 Secured debt principal payments 63,668 63,136 62,707 60,562 57,807 56,308 Total fixed charges 560,043 565,264 578,816 588,781 600,704 614,734 Adjusted EBITDA$ 1,896,059
$ 2,334,947 Adjusted fixed charge coverage ratio 3.39 x 3.41 x 3.54 x 3.65 x 3.74 x 3.80 x
(1) Certain severance-related costs are included in stock-based compensation and excluded from other expenses. (2) Represents reserve for straight-line rent receivable balances relating to leases placed on cash recognition.
Our leverage ratios include book capitalization, undepreciated book
capitalization and market capitalization. Book capitalization represents the sum
of net debt (defined as total long-term debt less cash and cash equivalents and
any IRC Section 1031 deposits), total equity and redeemable noncontrolling
interests. Undepreciated book capitalization represents book capitalization
adjusted for accumulated depreciation and amortization. Market capitalization
represents book capitalization adjusted for the fair market value of our common
stock. Our leverage ratios are defined as the proportion of net debt to total
capitalization. The table below reflects the reconciliation of our leverage
ratios to our balance sheets for the periods presented. Amounts are in
thousands, except share price.
50--------------------------------------------------------------------------------
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
As of
June 30, March 31, December 31, September 30, June 30, March 31,
2021 2021 2020 2020 2020 2020
Book capitalization:
Unsecured credit facility and commercial
paper $ - $ - $ - $ - $
- $ 844,985
Long-term debt obligations (1) 13,572,816 14,618,713 13,905,822 13,889,030 14,543,485 13,228,433
Cash and cash equivalents (2) (763,921) (2,513,156) (1,968,765) (2,096,571) (1,766,819) (303,423)
Total net debt 12,808,895 12,105,557 11,937,057 11,792,459 12,776,666 13,769,995
Total equity and noncontrolling
interests(3) 17,243,208 17,046,932 17,225,062 17,291,155 17,263,672 17,495,696
Book capitalization $ 30,052,103
43 % 42 % 41 % 41 % 43 % 44 %
Undepreciated book capitalization:
Total net debt $ 12,808,895
6,415,676 6,212,432 6,104,297 6,002,775 6,001,177 5,910,979
Total equity and noncontrolling
interests(3) 17,243,208 17,046,932 17,225,062 17,291,155 17,263,672 17,495,696
Undepreciated book capitalization $ 36,467,779 $ 35,364,921 $ 35,266,416 $ 35,086,389 $ 36,041,515 $ 37,176,670
Net debt to undepreciated book
capitalization ratio 35 % 34 % 34 % 34 % 35 % 37 %
Market capitalization:
Common shares outstanding 422,562 417,520 417,401 417,305 417,302 417,391
Period end share price $ 83.10 $ 35,114,902 $ 29,906,958 $ 26,972,453 $ 22,989,332 $ 21,595,379 $ 19,108,160 Total net debt 12,808,895 12,105,557 11,937,057 11,792,459 12,776,666 13,769,995 Noncontrolling interests(3) 1,322,762 1,248,054 1,252,343 1,183,281 1,215,532 1,362,913 Market capitalization$ 49,246,559
26 % 28 % 30 % 33 % 36 % 40 %
(1) Amounts include senior unsecured notes, secured debt and lease liabilities related to financing leases, as reflected on our Consolidated Balance Sheets. Operating lease liabilities related to the ASC 842 adoption are excluded. (2) Inclusive of IRC Section 1031 deposits, if any. (3) Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests as reflected on our Consolidated Balance Sheets.
Critical Accounting Policies Our unaudited consolidated financial statements are prepared in accordance withU.S. GAAP, which requires us to make estimates and assumptions. Management considers an accounting estimate or assumption critical if: •the nature of the estimates or assumptions is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change; and •the impact of the estimates and assumptions on financial condition or operating performance is material. Management has discussed the development and selection of its critical accounting policies with the Audit Committee of the Board of Directors. Management believes the current assumptions and other considerations used to estimate amounts reflected in our unaudited consolidated financial statements are appropriate and are not reasonably likely to change in the future. However, since these estimates require assumptions to be made that were uncertain at the time the estimate was made, they bear the risk of change. If actual experience differs from the assumptions and other considerations used in estimating amounts reflected in our unaudited consolidated financial statements, the resulting changes could have a material adverse effect on our consolidated results of operations, liquidity and/or financial condition. Please refer to Note 2 to the financial statements included in our Annual Report on Form 10-K for the year endedDecember 31, 2020 for further information regarding significant accounting policies that impact us. There have been no material changes to these policies in 2021. 51 -------------------------------------------------------------------------------- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Cautionary Statement Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q may contain "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. WhenWelltower uses words such as "may," "will," "intend," "should," "believe," "expect," "anticipate," "project," "pro forma," "estimate" or similar expressions that do not relate solely to historical matters,Welltower is making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may causeWelltower's actual results to differ materially fromWelltower's expectations discussed in the forward-looking statements. This may be a result of various factors, including, but not limited to: the duration and scope of the COVID-19 pandemic; uncertainty regarding the implementation and impact of the CARES Act and future stimulus or other COVID-19 relief legislation; the impact of the COVID-19 pandemic on occupancy rates and on the operations ofWelltower and its operators/tenants; actions governments take in response to the COVID-19 pandemic, including the introduction of public health measures and other regulations affectingWelltower's properties and the operations ofWelltower and its operators/tenants; the effects of health and safety measures adopted byWelltower and its operators/tenants related to the COVID-19 pandemic; increased operational costs as a result of health and safety measures related to COVID-19; the impact of the COVID-19 pandemic on the business and financial condition of operators/tenants and their ability to make payments toWelltower ; disruptions toWelltower's property acquisition and disposition activity due to economic uncertainty caused by COVID-19; general economic uncertainty in key markets as a result of the COVID-19 pandemic and a worsening of global economic conditions or low levels of economic growth; the status of capital markets, including availability and cost of capital; uncertainty from the expected discontinuance of LIBOR and the transition to any other interest rate benchmark; issues facing the health care industry, including compliance with, and changes to, regulations and payment policies, responding to government investigations and punitive settlements and operators'/tenants' difficulty in cost effectively obtaining and maintaining adequate liability and other insurance; changes in financing terms; competition within the health care and seniors housing industries; negative developments in the operating results or financial condition of operators/tenants, including, but not limited to, their ability to pay rent and repay loans;Welltower's ability to transition or sell properties with profitable results; the failure to make new investments or acquisitions as and when anticipated; natural disasters and other acts of God affectingWelltower's properties;Welltower's ability to re-lease space at similar rates as vacancies occur;Welltower's ability to timely reinvest sale proceeds at similar rates to assets sold; operator/tenant or joint venture partner bankruptcies or insolvencies; the cooperation of joint venture partners; government regulations affecting Medicare and Medicaid reimbursement rates and operational requirements; liability or contract claims by or against operators/tenants; unanticipated difficulties and/or expenditures relating to future investments or acquisitions; environmental laws affectingWelltower's properties; changes in rules or practices governingWelltower's financial reporting; the movement ofU.S. and foreign currency exchange rates;Welltower's ability to maintainWelltower's qualification as a REIT; key management personnel recruitment and retention; and other risks described inWelltower's reports filed from time to time with theSEC . Other important factors are identified in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 , including factors identified under the headings "Business," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." Finally, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether because of new information, future events or otherwise, or to update the reasons why actual results could differ from those projected in any forward-looking statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates and foreign currency exchange rates. We seek to mitigate the underlying foreign currency exposures with gains and losses on derivative contracts hedging these exposures. We seek to mitigate the effects of fluctuations in interest rates by matching the terms of new investments with new long-term fixed rate borrowings to the extent possible. We may or may not elect to use financial derivative instruments to hedge interest rate exposure. These decisions are principally based on our policy to match our variable rate investments with comparable borrowings, but are also based on the general trend in interest rates at the applicable dates and our perception of the future volatility of interest rates. This section is presented to provide a discussion of the risks associated with potential fluctuations in interest rates and foreign currency exchange rates. We historically borrow on our unsecured revolving credit facility and commercial paper program to acquire, construct or make loans relating to health care and seniors housing properties. Then, as market conditions dictate, we will issue equity or long-term fixed rate debt to repay the borrowings under our unsecured revolving credit facility and commercial paper program. We are subject to risks associated with debt financing, including the risk that existing indebtedness may not be refinanced or that the terms of refinancing may not be as favorable as the terms of current indebtedness. The majority of our borrowings were completed under indentures or contractual agreements that limit the amount of indebtedness we may incur. Accordingly, in the event that we are unable to raise additional equity or borrow money because of these limitations, our ability to acquire additional properties may be limited. 52
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