View
0
Download
0
Category
Preview:
Citation preview
Driving the Future of Health Care Real Estate
Fixed Income Update | 2Q19
Forward Looking Statements
This document contains “forward-looking” statements as that term is defined in the Private Securities Litigation Reform Act of 1995. When
we use 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, we are making forward-looking statements. In particular, these forward-looking statements
include, but are not limited to, those relating our company’s opportunities to acquire, develop or sell properties; our ability to close anticipated
acquisitions, investments or dispositions on currently anticipated terms, or within currently anticipated timeframes; the expected performance
of our operators/tenants and properties; our expected occupancy rates; our ability to declare and to make distributions to stockholders; our
investment and financing opportunities and plans; our continued qualification as a real estate investment trust (“REIT”); our ability to access
capital markets or other sources of funds; and our ability to meet our earnings guidance.
Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that may cause our actual results
to differ materially from our expectations discussed in the forward-looking statements. This may be a result of various factors, including, but
not limited to: the status of the economy; the status of capital markets, including availability and cost of capital; 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; our 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 affecting our properties; our ability to re-lease space at similar rates as vacancies occur; our 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 affecting our properties; changes in rules or practices governing our financial reporting; the movement of U.S. and
foreign currency exchange rates; our ability to maintain its qualification as a REIT; key management personnel recruitment and retention; and
other risks described in our reports filed from time to time with the Securities and Exchange Commission. Finally, we assume no obligation to
update or revise 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.
2
2Q19 Highlights | Financial & Capital Activity
3(1) See Supplemental Measures at the end of this presentation for reconciliations
Closed a $1 billion unsecured term loan during the quarter to bridge the funding of the CNL acquisition
with proceeds from the Benchmark Senior Living transaction. As of July 30, 2019, we had approximately
$340 million of cash and cash equivalents and $1.7 billion of capacity on our unsecured revolving credit
facility, bringing leverage back in-line with 2019 guidance
During the second quarter, we sold 3.7 million shares of
common stock under our ATM and DRIP programs,
through both cash settle and forward sale agreements, at
an initial weighted average price of $80.28 per share,
generating expected gross proceeds of approximately
$295 million
Total portfolio same-store NOI grew 3.1%(1)
Normalized FFO attributable to common
stockholders of $1.05 per diluted share
compared to $1.00 per diluted share in
2018, representing 5% of normalized FFO
growth(1)
2Q19 Highlights | Acquisitions
4
Recycled out of Legacy Assets and Capitalized
Next Generation Real Estate
• Funded $2.9 billion of pro rata gross investments in 1H19
• Closed $2.3 billion of dispositions YTD, including the
Benchmark Senior Living transaction which closed in July
Formed New RIDEA Joint Venture with
Balfour Senior Living
• Premier operator of luxury IL, AL, MC communities
• Acquired six-community portfolio located in the Denver and
Boulder metropolitan statistical areas
• Exclusivity acquisition and development agreement
Expanded Relationships with Key
Operating Partners & Physician Group
Summit Medical Group
• Entered into Agreement to purchase 43-acre, 6-building
medical office campus in Berkeley Heights, NJ
• Is the largest and most comprehensive of five “hubs” in
Summit’s 80 location hub-and-spoke model
Sunrise Senior Living
• Acquired five recently developed, private pay urban infill
seniors housing properties
• Located in dense infill locations within the Washington, D.C,
San Francisco and San Diego metro areas
Discovery
• Expanded relationship through off-market acquisition of three
urban infill seniors housing campuses with the full continuum
of care
• Signed a $1 billion exclusive development agreement
with Discovery
5
Continued Strategic Portfolio Optimization
$0B
$2B
$4B
$6B
$8B
$10B
$12B
$14B
$16B
$18B
$20B
Non-Core Property Dispositions Strategic Acquisitions
Long Term/ Post Acute Care Outpatient Medical Seniors Housing Health Systems
Strategic Portfolio Optimization | Capital Recycling
61. Investment amounts pro rata as of 6/30/2019.
$20B
$9B
$7B
gross investments
since 2014
dispositions
since 2014
invested in
Outpatient Medical
and Health Systems
Capital Recycling 2014 – 2Q19(1)
54%
58%
Continued Portfolio Optimization
71. Based on In-Place NOI. See Supplemental Measures at the end of this presentation for reconciliations.
SENIORS HOUSING
NNN
18%
SENIORS HOUSING
OPERATING
45%
HEALTH
SYSTEMS
7%LONG TERM /
POST ACUTE
9%
OUTPATIENT
MEDICAL
21%
Strategic Acquisitions with Next-Gen Operators into High Quality Urban Seniors Housing
2Q19
Portfolio Mix(1)
Aligning with Premier Care Providers by Financing New Models of Health Care Delivery
8
Primed for Growth
Financial Summary
Common Equity Preferred Stock
Domestic Public Debt Secured DebtIntl Public Debt
Credit Facility Asset Recycling
Diverse and Unparalleled Access to Capital Since 2010
9
1. Gross proceeds
2. Excludes convertibles
3. Gross assets represents total assets plus depreciation as of 6/30/2019.
Capital Raised Since 2010
$31.7BRAISED(1)
DEBT
~47%
COMMON &
PREFERRED
EQUITY
~53%
$2.5Bin DRIP Proceeds
15 offerings totaling
$10.4B avg tenor of 10 years(2)
2 GBP issues totaling USD $1.7Bwith average tenor of 17 years
1 CAD issuance of USD $226MOnly 6.9%
of gross assets(3)
Two issues totaling
$1BSeries I redeemed Feb. 28, 2019
$13.1Bin ATM Proceeds
Received $10.7B proceeds from strategic asset
divestments, resulting in asset concentrations in
high barrier gateway markets$3.0B revolver
$0.7B in term loans (US and Canada)
$3.7B facility
Superior Access to Unsecured Debt Capital
10
WELL 10-Yr Benchmark Spread Over US 10-Yr Treasury Unsecured Debt Maturity Profile(2)
Diversification Across Geographies and Currencies(1)
Amount Outstanding Years to Maturity Coupon
$7.45B 8.6 4.4%
£1.05B 12.3 4.7%
C$300M 1.4 3.4%
Balance sheet anchored by laddered debt maturities across major international currencies
1. Excludes term loans.2. Includes term loans.
125 bps
135 bps
145 bps
155 bps
165 bps
175 bps
Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19
2.7% 2.8%
5.0%
5.3%
3.0%
4.0% 4.0%
4.3%
4.5%
4.9%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
$0.0B
$0.5B
$1.0B
$1.5B
$2.0B
$2.5B
$3.0B
'19 '20 '21 '22 '23 '24 '25 '26 '27 '28 After
Unsecured DebtLines of Credit & Commercial PaperWtd. Avg. Interest Rate (RHS)
Debt Structure and Strong Covenant Compliance
11
1. Data as of 6/30/2019. Represents pro rata principal amounts due and excluding unamortized premiums/discounts or other fair value adjustments as reflected on the balance sheet. Excludes lease liabilities
relating to both finance and operating leases. Balances outstanding on our unsecured commercial paper program reduce the available borrowing capacity of our unsecured revolving credit facility.
2. See, for example, Supplemental Indenture No. 15 dated 2/15/2019, which was filed with the SEC as an exhibit to WELL’s Form 8-K filed on 2/15/2019.
3. For the twelve months ending 6/30/2019. Please see Supplemental Reporting Measures at the end of this presentation for reconciliations.
Ratio 2Q19
Unsecured
Notes
Covenants(2)
Compliance
Secured Indebtedness
to Total Assets 8.07% < 40.0% ✓
Total Indebtedness
to Total Assets 46.03% < 60.0% ✓
Unsecured Debt to
Unencumbered Assets 41.04% <66.7% ✓
Minimum Interest
Coverage Ratio(3)4.02x > 1.5x ✓
Unsecured Notes
Secured Debt
Line of Credit & Commercial Paper
$2,876M
19%$10,712M
69%
$1,870M
12%
Debt Structure 2Q19(1) Unsecured Debt Covenant Compliance
$1.13B(1)
Available
as of 6/30/2019
$3.0B Unsecured Lines of Credit &
Commercial Paper
Improving Seniors Housing Asset-Backed Financing Market
121. Spread is based on 10 Year Fixed Rate Facility. Benchmark for spreads is 10 Yr US Treasuries.
2. Benchmark for spreads is 10 Yr GoC bonds.
Segment Issuer LTV Spread bps(1)
US Seniors Housing GSE 55% - 75% 116 - 130
CAD Seniors Housing(2) CMHC 75% 90 - 110
Skilled Nursing HUD 75% 100 - 120
Indicative Pricing Across WELL Asset Classes GSE Seniors Housing Spreads vs Multifamily
36% Compression in Seniors Housing Spreads
20 bps
25 bps
30 bps
35 bps
40 bps
45 bps
Nov 12 Nov 15 Nov 18Nov 2012 Nov 2015 Nov 2018
Efficient and Effective Corporate Structure
13
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.80%
0.90%
MPW HR CTRE SBRA HCP VTR HTA OHI WELL
HC REIT Avg
G&A as % of Enterprise Value
14
Commitment to Sustainability and Governance
People
15
Accountability
Excellence
Collaboration
Transparency
Workplace
Values
Spotlight on Welltower’s Green Buildings(1)
16
12BREEAM-Certified
Buildings
12LEED-Certified
Buildings
16IREM-Certified
Buildings
78ENERGY STAR®
Certified Buildings(2)
2EPC “A” Score
Buildings
1. Data as of 12/31/2018.
2. Number of buildings with an ENERGY STAR label earned prior to 2019.
One of few seniors housing properties
to target LEED and International
WELL Building certifications
Sunrise East 56th
Targeting BREEAM Excellent rating
to be in the TOP 10%
for building sustainability
The Wandsworth
ENERGY STAR score of 98, signifying
the property’s energy performance is
superior to 98% of similar buildings.
Sunrise of La Jolla
Powered by 100% renewable electricity
NYPHS Stamford MOB
17
Supplemental Financial Measures
Non-GAAP Financial Measures
We believe that revenues, net income and net income attributable to common stockholders (NICS), as defined by U.S. generallyaccepted accounting principles (U.S. GAAP), are the most appropriate earnings measurements. However, we consider Funds FromOperations (FFO), Normalized FFO, Net Operating Income (NOI), In-Place NOI (IPNOI), Same Store NOI (SSNOI), EBITDA andAdjusted EBITDA to be useful supplemental measures of our operating performance. Excluding EBITDA and Adjusted EBITDAthese supplemental measures are disclosed on our pro rata ownership basis.
Pro rata amounts are derived by reducing consolidated amounts for minority partners’ noncontrolling ownership interests andadding our minority ownership share of unconsolidated amounts. We do not control unconsolidated investments. While we considerpro rata disclosures useful, they may not accurately depict the legal and economic implications of our joint venture arrangementsand should be used with caution.
Our supplemental reporting measures and similarly entitled financial measures are widely used by investors, equity and debtanalysts and rating agencies in the valuation, comparison, rating and investment recommendations of companies. Our managementuses these financial measures to facilitate internal and external comparisons to historical operating results and in making operatingdecisions. Additionally, these measures are utilized by the Board of Directors to evaluate management.
None of the supplemental reporting measures represent net income or cash flow provided from operating activities as determined inaccordance with U.S. GAAP and should not be considered as alternative measures of profitability or liquidity. Finally, thesupplemental reporting measures, as defined by us, may not be comparable to similarly entitled items reported by other real estateinvestment trusts or other companies. Multi-period amounts may not equal the sum of the individual quarterly amounts due torounding.
18
NOI, IPNOI and SSNOI
We define NOI as total revenues, including tenant reimbursements, less property operating expenses. Property operating expensesrepresent costs associated with managing, maintaining and servicing tenants for our properties. These expenses include, but are notlimited 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 propertyoperations and transaction costs. These expenses include, but are not limited to, payroll and benefits, professional services, officeexpenses and depreciation of corporate fixed assets.
IPNOI represents NOI excluding interest income, other income and non-IPNOI and adjusted for timing of current quarter portfoliochanges such as acquisitions, development conversions, segment transitions, dispositions and investments held for sale.
SSNOI is used to evaluate the operating performance of our properties using a consistent population which controls for changes in thecomposition of our portfolio. As used herein, same store is generally defined as those revenue-generating properties in the portfolio forthe relevant year-over-year reporting periods. Land parcels, loans and sub-leases as well as any properties acquired,developed/redeveloped (including major refurbishments where 20% or more of units are simultaneously taken out of commission for 30days or more), sold or classified as held for sale during that period are excluded from the same store amounts. Properties undergoingoperator and/or segment transitions (except Seniors Housing Triple-net to Seniors Housing Operating with the same operator) are alsoexcluded from same store amounts. Normalizers include adjustments that in management’s opinion are appropriate in consideringSSNOI, a supplemental, non-GAAP performance measure. None of these adjustments, which may increase or decrease SSNOI, arereflected in our financial statements prepared in accordance with U.S. GAAP. Significant normalizers (defined as any that individuallyexceed 0.50% of SSNOI growth per property type) are separately disclosed and explained in the relevant supplemental reportingpackage.
We believe NOI, IPNOI and SSNOI provide investors relevant and useful information because they measure the operatingperformance of our properties at the property level on an unleveraged basis. We use these metrics to make decisions about resourceallocations and to assess the property level performance of our properties.
19
In-Place NOI Reconciliation(dollars in thousands)
2Q19
Net income (loss) $ 150,040
Loss (gain) on real estate dispositions, net 1,682
Loss (income) from unconsolidated entities 9,049
Income tax expense (benefit) 1,599
Other expenses 21,628
Impairment of assets 9,939
Loss (gain) on derivatives and financial instruments, net 1,913
General and administrative expenses 33,741
Depreciation and amortization 248,052
Interest expense 141,336
Consolidated net operating income 618,979
NOI attributable to unconsolidated investments and noncontrolling interests(1) (21,041)
Pro rata net operating income (NOI) $ 597,938
Adjust:
Interest income $ (17,356 )
Other income (3,153 )
Sold / held for sale (40,759 )
Developments / land 379
Non In-Place NOI(2) (22,548 )
Timing adjustments(3) 12,587
In-Place NOI 527,088
In-Place NOI by property type
Seniors Housing Operating $ 239,826 45.5 %
Seniors Housing Triple-Net 93,942 17.8 %
Outpatient Medical 112,519 21.3 %
Health System 35,800 6.8 %
Long-Term/Post-Acute Care 45,001 8.5 %
Total In-Place NOI $ 527,088 100.0 %
(1) Represents Welltower's combined interests in joint ventures where Welltower is the minority partner and the minority partners' interests when Welltower is the majority partner.
(2) Primarily represents non-cash NOI.
(3) Represents timing adjustments for current quarter acquisitions, construction conversions and segment or operator transitions.
20
(dollars in thousands) Three Months Ended
June 30,
2019 2018 % growth
Net income (loss) $ 150,040 $ 167,273
Loss (gain) on real estate dispositions, net 1,682 (10,755)
Loss (income) from unconsolidated entities 9,049 (1,249)
Income tax expense (benefit) 1,599 3,841
Other expenses 21,628 10,058
Impairment of assets 9,939 4,632
Loss (gain) on extinguishment of debt, net — 299
Loss (gain) on derivatives and financial instruments, net 1,913 (7,460)
General and administrative expenses 33,741 32,831
Depreciation and amortization 248,052 236,275
Interest expense 141,336 121,416
Consolidated NOI 618,979 557,161
NOI attributable to unconsolidated investments(1) 21,518 21,725
NOI attributable to noncontrolling interests(2) (42,559) (30,962)
Pro rata NOI 597,938 547,924
Non-cash NOI attributable to same store properties (8,566) (8,459)
NOI attributable to non-same store properties (174,240) (143,359)
Currency and ownership adjustments(3) 2,100 (2,703)
Other adjustments(4) 488 11,855
Same Store NOI (SSNOI) $ 417,720 $ 405,258 3.1%
Seniors Housing Operating 202,852 196,333 3.3%
Seniors Housing Triple-net 88,230 85,070 3.7%
Outpatient Medical 85,487 83,529 2.3%
Long-Term/Post-Acute Care 41,151 40,326 2.0%
Total SSNOI $ 417,720 $ 405,258 3.1%
(1) Represents Welltower's interests in joint ventures where Welltower is the minority partner.
(2) Represents minority partners' interests in joint ventures where Welltower is the majority partner.
(3) Includes adjustments to reflect consistent property ownership percentages and foreign currency exchange rates for properties in the U.K. and Canada.
(4) Includes other adjustments described in the 2Q19 Supplemental Information package.
SSNOI
21
EBITDA and Adjusted EBITDA
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 (“IRC”) Section 1031 deposits. 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 EBITDA which stands for earnings (net income per income statement) before interest
expense, income taxes, depreciation and amortization. Covenants in our senior unsecured notes and primary credit facility contain
financial ratios based on a definition of EBITDA that is specific to those agreements. Failure to satisfy these covenants could result
in an event of default that could have a material adverse impact on our cost and availability of capital, which could in turn have a
material adverse impact on our consolidated results of operations, liquidity and/or financial condition. Due to the materiality of these
debt agreements and the financial covenants, we have defined Adjusted EBITDA to exclude unconsolidated entities and to include
adjustments for stock-based compensation expense, provision for loan losses, gains/losses on extinguishment of debt,
gains/losses/impairments on properties, gains/losses on derivatives and financial instruments, other expenses, and additional other
income. We believe that EBITDA and Adjusted EBITDA, along with net income and cash flow provided from operating activities, are
important supplemental measures because they provide additional information to assess and evaluate the performance of our
operations. We primarily utilize them to measure our interest coverage ratio, which represents EBITDA and Adjusted EBITDA
divided by total interest.
22
Adjusted Interest Coverage
(dollars in thousands) Twelve Months Ended
June 30,
2019
Net income $ 651,264
Interest expense 568,969
Income tax expense (benefit) 7,066
Depreciation and amortization 977,967
EBITDA 2,205,266
Loss (income) from unconsolidated entities 17,709
Stock-based compensation expense(1) 26,113
Loss (gain) on extinguishment of debt, net 19,810
Loss (gain) on real estate dispositions, net (232,363)
Impairment of assets 92,701
Provision for loan losses 18,690
Loss (gain) on derivatives and financial instruments, net 10,043
Other expenses(1) 126,994
Additional other income (4,027)
Adjusted EBITDA $ 2,280,936
Adjusted Interest Coverage Ratio:
Interest expense $ 568,969
Capitalized interest 9,725
Non-cash interest expense (10,888)
Total interest 567,806
Adjusted EBITDA $ 2,280,936
Adjusted interest coverage ratio 4.02x
(1) Certain severance-related costs are included in stock-based compensation and excluded from other expenses.
23
FFO and Normalized FFO
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 FFO as a supplemental measure of operating performance for REITs that excludes
historical cost depreciation from net income. FFO attributable to common stockholders, as defined by NAREIT, means net income
attributable to common stockholders, computed in accordance with U.S. GAAP, excluding gains (or losses) from sales of real estate
and impairments of depreciable assets, plus real estate depreciation and amortization, and after adjustments for unconsolidated
entities and noncontrolling interests. Normalized FFO attributable to common stockholders represents FFO adjusted for certain
items detailed in the reconciliations.
Normalizing items include adjustments for certain non-recurring or infrequent revenues/expenses that are described in our earnings
press releases for the relevant period ends.
We believe that Normalized FFO attributable to common stockholders is a useful supplemental measure of operating performance
because investors and equity analysts may use this measure to compare our operating performance between periods or to other
REITs or other companies on a consistent basis without having to account for differences caused by unanticipated and/or
incalculable items.
24
FFO Reconciliation(in thousands, except per share information) Three Months Ended
June 30, 2018 June 30, 2019
Net income (loss) attributable to common stockholders $ 154,432 $ 137,762Depreciation and amortization 236,275 248,052
Impairments and losses (gains) on real estate dispositions, net (6,123) 11,621
Noncontrolling interests(1) (17,692) (18,889)
Unconsolidated entities(2) 11,833 11,475
NAREIT FFO attributable to common stockholders 378,725 390,021
Normalizing items:
Loss (gain) on derivatives and financial instruments, net (7,460) 1,913
Loss (gain) on extinguishment of debt, net 299 —
CEO transition costs — —
Nonrecurring income tax benefits 10,058 21,628
Other expenses and transaction costs (10,805) —
Normalizing items attributable to noncontrolling interests and unconsolidated entities, net 1,039 12,575
Normalized FFO attributable to common stockholders $ 371,856 $ 426,137
Average common shares outstanding:
Basic 371,640 404,607
Diluted 373,075 406,673
Net income (loss) attributable to common stockholders per share:
Basic $ 0.42 $ 0.34
Diluted $ 0.41 $ 0.34
NAREIT FFO attributable to common stockholders per share:
Basic $ 1.02 $ 0.96
Diluted $ 1.02 $ 0.96
Normalized FFO attributable to common stockholders per share:
Basic $ 1.00 $ 1.05
Diluted $ 1.00 $ 1.05
(1) Represents noncontrolling interests' share of net FFO adjustments
(2) Represents Welltower's share of net FFO adjustments from unconsolidated entities.
25
Recommended