What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-04-29 compared with 2020-10-29 · 72 added, 150 removed, 275 unchanged (45% of the section changed)

Management's Discussion and Analysis of Financial Condition and Results of Operations

General and administrative expenses as a percentage of consolidated revenues for the three months ended March 31, 2021 and 2020 were 2.84% and 2.82% , 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.

Non-GAAP Financial Measures

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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 seven full quarters after acquisition or being placed into service for the QTD Pool and the YTD Pool, respectively.

Acquisitions and development conversions are included in SSNOI five full quarters after acquisition or being placed into service for the QTD Pool.

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 seven 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 seven full quarters post completion of the transition for the QTD Pool and YTD Pool, respectively.

In addition, properties significantly impacted by force majeure, acts of God, or other extraordinary adverse events are excluded from SSNOI until five full quarters or seven full quarters after the properties are placed back into service for the QTD Pool and YTD Pool, respectively.

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 post completion of the redevelopment for the QTD Pool.

Properties undergoing operator transitions and/or segment transitions are also excluded from SSNOI until five full quarters post completion of the transition for the QTD Pool.

In addition, properties significantly impacted by force majeure, acts of God, or other extraordinary adverse events are excluded from SSNOI until five full quarters after the properties are placed back into service for the QTD Pool.

SSNOI excludes non-cash NOI and includes adjustments to present consistent ownership percentages and to translate Canadian properties and UK properties using a consistent exchange rate.

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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

Book capitalization represents the sum of net debt (defined as total long-term debt, excluding operating lease

Management's Discussion and Analysis of Financial Condition and Results of Operations

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.

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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.

Three Months Ended

September 30, June 30, March 31, December 31, September 30, June 30, March 31,

NOI Reconciliations:

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.

March 31, December 31, September 30, June 30, March 31,

FFO Reconciliation:

2021 2020 2020 2020 2020

Net income (loss) $ 394,978 $ 159,216 $ 329,380 $ 240,136 $ 647,932 $ 150,040 $ 292,302

Loss (gain) on real estate dispositions, net (484,304) (155,863) (262,824) (12,064) (570,250) 1,682 (167,409)

Loss (income) from unconsolidated entities 5,981 (1,332) 3,692 (57,420) (3,262) 9,049 9,199

Income tax expense (benefit) 2,003 2,233 5,442 (4,832) 3,968 1,599 2,222

Other expenses 11,544 19,411 6,292 16,042 6,186 21,628 8,756

Impairment of assets 23,313 75,151 27,827 98 18,096 9,939 —

Provision for loan losses 2,857 1,422 7,072 — — — 18,690

Loss (gain) on extinguishment of debt, net 33,004 249 — 2,612 65,824 — 15,719

Loss (gain) on derivatives and financial instruments, net 1,395 1,434 7,651 (5,069) 1,244 1,913 (2,487)

General and administrative expenses 31,003 34,062 35,481 26,507 31,019 33,741 35,282

Net income attributable to common stockholders $ 71,546 $ 163,729 $ 325,585 $ 179,246 $ 310,284

Depreciation and amortization 244,426 242,733 255,532 265,371 274,801

Interest expense 124,851 126,357 142,007 131,648 137,343 141,336 145,232

Consolidated net operating income (NOI) $ 402,157 $ 527,711 $ 576,821 $ 600,302 $ 610,545 $ 618,979 $ 601,438

NOI by segment:

Seniors Housing Operating $ 174,361 $ 178,137 $ 243,257 $ 242,453 $ 254,155 $ 278,212 $ 264,700

Triple-net 108,361 220,056 194,427 226,837 230,685 227,935 233,286

Outpatient Medical 119,976 129,143 138,721 130,498 124,864 112,378 101,295

Non-segment/corporate (541) 375 416 514 841 454 2,157

Total NOI $ 402,157 $ 527,711 $ 576,821 $ 600,302 $ 610,545 $ 618,979 $ 601,438

Impairment of assets 23,568 9,317 23,313 75,151 27,827

Loss (gain) on real estate dispositions, net (59,080) (185,464) (484,304) (155,863) (262,824)

Noncontrolling interests (12,516) (20,579) 48,559 (42,539) (9,409)

Unconsolidated entities 19,223 16,091 16,329 14,231 15,445

FFO $ 287,167 $ 225,827 $ 185,014 $ 335,597 $ 356,124

Average diluted shares outstanding 419,079 418,753 418,987 419,121 412,420

Per diluted share data:

Net income attributable to common stockholders (1)

$ 0.17 $ 0.39 $ 0.77 $ 0.42 $ 0.75

FFO $ 0.69 $ 0.54 $ 0.44 $ 0.80 $ 0.86

(1) Includes adjustment to the numerator for income (loss) attributable to OP unitholders.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Nine Months Ended

September 30, 2020 September 30, 2019

Three Months Ended

March 31, December 31, September 30, June 30, March 31,

NOI Reconciliations:

2021 2020 2020 2020 2020

Net income (loss) $ 72,192 $ 155,278 $ 394,978 $ 159,216 $ 329,380

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Total NOI $ 434,736 $ 501,455 $ 402,157 $ 527,711 $ 576,821

SSNOI Property Reconciliations:

Seniors Housing Operating Triple-net Outpatient Medical Total

Consolidated properties

559 649 290 1,498

Unconsolidated properties

Total properties

649 688 369 1,706

Recent acquisitions/development conversions (1)

(34) (26) (21) (81)

Under development

(28) (5) (3) (36)

Under redevelopment (2)

(11) (1) (2) (14)

Current held for sale

(9) (61) (1) (71)

Land parcels, loans and subleases

(12) (17) (8) (37)

Transitions (3)

(27) (23) — (50)

(2) (2) — (4)

Same store properties

526 553 334 1,413

(1) Acquisitions and development conversions will enter the QTD Pool five full quarters after acquisition or certificate of occupancy, respectively.

(2) Redevelopment properties will enter the QTD Pool five full quarters of operations post redevelopment completion, respectively.

(3) Transitioned properties will enter the QTD Pool five 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.

Management's Discussion and Analysis of Financial Condition and Results of Operations

QTD Pool YTD Pool

Three Months Ended Nine Months Ended

Three Months Ended

SSNOI Reconciliations:

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

March 31, 2021 March 31, 2020

Seniors Housing Operating:

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Non-cash NOI attributable to same store properties

(1,008) (3,880) (2,872) (3,462)

Currency and ownership adjustments (1)

458 1,539 3,807 5,505

SSNOI at Welltower Share 156,791 219,756

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NOI attributable to unconsolidated investments

(1,288) 5,133 8,978 15,399

NOI attributable to noncontrolling interests

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Currency and ownership adjustments (1)

156 1,016 1,099 800

SSNOI at Welltower Share 141,089 147,527

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NOI attributable to unconsolidated investments

2,624 390 6,148 1,007

NOI attributable to noncontrolling interests

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Seniors Housing Operating 156,791 219,756

161,601 220,797 461,268 577,971

175,436 175,185 478,577 494,328

Triple-net 141,089 147,527

Outpatient Medical 97,196 94,208

84,937 84,248 202,783 197,795

Total $ 395,076 $ 461,491

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Management's Discussion and Analysis of Financial Condition and Results of Operations

QTD Pool YTD Pool

SSNOI Property Reconciliations:

Seniors Housing Operating Triple-net Outpatient Medical Total Seniors Housing Operating Triple-net Outpatient Medical Total

Consolidated properties

515 652 321 1,488 515 652 321 1,488

Unconsolidated properties

84 39 49 172 84 39 49 172

Total properties

599 691 370 1,660 599 691 370 1,660

Recent acquisitions/development conversions (1)

(25) (8) (60) (93) (70) (12) (122) (204)

Under development

(25) (5) (2) (32) (25) (5) (2) (32)

Under redevelopment (2)

(10) (1) (2) (13) (11) (1) (2) (14)

Current held for sale

(8) (2) (4) (14) (8) (2) (4) (14)

Land parcels, loans and subleases

(10) (17) (8) (35) (10) (17) (8) (35)

Transitions (3)

(9) (9) — (18) (72) (24) — (96)

— — — — (1) — — (1)

Same store properties

512 649 294 1,455 402 630 232 1,264

(1) Acquisitions and development conversions will enter the QTD Pool and YTD Pool five full quarters and seven 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 seven full quarters of operations post redevelopment completion, respectively.

(3) Transitioned properties will enter the QTD Pool and YTD Pool after five full quarters and seven full quarters of operations with the new operator in place or under the new structure, respectively.

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

September 30, June 30, March 31, December 31, September 30, June 30, March 31,

FFO Reconciliation:

2020 2020 2020 2019 2019 2019 2019

Net income attributable to common stockholders $ 325,585 $ 179,246 $ 310,284 $ 224,324 $ 589,876 $ 137,762 $ 280,470

Depreciation and amortization 255,532 265,371 274,801 262,644 272,445 248,052 243,932

Impairment of assets 23,313 75,151 27,827 98 18,096 9,939 —

Loss (gain) on real estate dispositions, net (484,304) (155,863) (262,824) (12,064) (570,250) 1,682 (167,409)

Noncontrolling interests 48,559 (42,539) (9,409) (14,895) 31,347 (18,889) (17,760)

Unconsolidated entities 16,329 14,231 15,445 16,191 10,864 11,475 19,150

FFO $ 185,014 $ 335,597 $ 356,124 $ 476,298 $ 352,378 $ 390,021 $ 358,383

Average diluted shares outstanding 418,987 419,121 412,420 407,904 406,891 406,673 393,452

Per diluted share data:

Net income attributable to common stockholders (1)

$ 0.77 $ 0.42 $ 0.75 $ 0.55 $ 1.45 $ 0.34 $ 0.71

FFO $ 0.44 $ 0.80 $ 0.86 $ 1.17 $ 0.87 $ 0.96 $ 0.91

(1) Includes adjustment to the numerator for income (loss) attributable to OP unitholders.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Nine Months Ended

September 30, September 30,

FFO Reconciliations:

Net income attributable to common stockholders $ 815,115 $ 1,008,108

Depreciation and amortization 795,704 764,429

Impairment of assets 126,291 28,035

Loss (gain) on real estate dispositions, net (902,991) (735,977)

Noncontrolling interests (3,389) (5,302)

Unconsolidated entities 46,005 41,489

FFO $ 876,735 $ 1,100,782

Average diluted common shares outstanding:

416,860 402,412

Per diluted share data:

Net income attributable to common stockholders (1)

$ 1.94 $ 2.51

$ 2.10 $ 2.74

(1) Includes adjustment to the numerator for income (loss) attributable to OP unitholders.

The tables below reflects the reconciliation of EBITDA to net income, the most directly comparable U.S.

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Three Months Ended

September 30, June 30, March 31, December 31, September 30, June 30, March 31,

March 31, December 31, September 30, June 30, March 31,

EBITDA Reconciliations:

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Interest coverage ratio

6.23 x 4.29 x 5.42 x 4.64 x 7.61 x 3.74 x 4.80 x

Fixed Charge Coverage Ratio:

Total interest $ 124,825 $ 128,984 $ 138,628 $ 135,782 $ 139,503 $ 144,513 $ 142,388

Secured debt principal payments 15,876 15,183 15,526 13,977 13,121 13,684 13,543

Total fixed charges

140,701 144,167 154,154 149,759 152,624 158,197 155,931

EBITDA $ 777,364 $ 553,177 $ 751,630 $ 629,596 $ 1,061,688 $ 541,027 $ 683,688

Fixed charge coverage ratio

5.52 x 3.84 x 4.88 x 4.20 x 6.96 x 3.42 x 4.38 x

Management's Discussion and Analysis of Financial Condition and Results of Operations

Nine Months Ended

September 30, September 30,

EBITDA Reconciliations:

Net income (loss) $ 883,574 $ 1,090,274

Interest expense 393,215 423,911

Income tax expense (benefit) 9,678 7,789

Depreciation and amortization 795,704 764,429

EBITDA $ 2,082,171 $ 2,286,403

Interest Coverage Ratio:

Interest expense $ 393,215 $ 423,911

Non-cash interest expense (14,012) (7,911)

Capitalized interest 13,234 10,404

Total interest

392,437 426,404

EBITDA $ 2,082,171 $ 2,286,403

Interest coverage ratio

5.31 x 5.36 x

3.56 x 4.20 x 6.23 x 4.29 x 5.42 x

Fixed Charge Coverage Ratio:

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Fixed charge coverage ratio

4.74 x 4.90 x

3.16 x 3.72 x 5.52 x 3.84 x 4.88 x

Management's Discussion and Analysis of Financial Condition and Results of Operations

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Twelve Months Ended

September 30, June 30, March 31, December 31, September 30, June 30, March 31,

March 31, December 31, September 30, June 30, March 31,

Adjusted EBITDA Reconciliations:

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163,481 146,508 146,508 34,110 32,268

Additional other income — — — — (4,027) (4,027) (14,832)

Adjusted EBITDA $ 1,927,414 $ 2,048,412 $ 2,151,272 $ 2,245,689 $ 2,334,947

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Adjusted interest coverage ratio

4.07 x 4.14 x 4.18 x 4.14 x 4.06 x 4.02 x 4.05 x

3.84 x 3.97 x 4.07 x 4.14 x 4.18 x

Adjusted Fixed Charge Coverage Ratio:

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Secured debt principal payments 63,136 62,707 60,562 57,807 56,308

Preferred dividends — — — — 11,676 23,352 35,028

Total fixed charges

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Adjusted fixed charge coverage ratio

3.65 x 3.74 x 3.80 x 3.78 x 3.64 x 3.53 x 3.48 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 write-off of straight-line rent receivable deemed uncollectible.

(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.

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Management's Discussion and Analysis of Financial Condition and Results of Operations

September 30, June 30, March 31, December 31, September 30, June 30, March 31,

March 31, December 31, September 30, June 30, March 31,

2021 2020 2020 2020 2020

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Undepreciated book capitalization $ 35,364,921 $ 35,266,416 $ 35,086,389 $ 36,041,515 $ 37,176,670

Net debt to undepreciated book

capitalization ratio

34 % 35 % 37 % 39 % 38 % 41 % 36 %

Net debt to undepreciated book capitalization ratio 34 % 34 % 34 % 35 % 37 %

Market capitalization:

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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 Sheet.

(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 of $381 million at September 30, 2020 and $88 million at June 30, 2020.

September 30, 2020 also includes $112 million of restricted cash related to secured debt that was defeased in September and subsequently extinguished in October 2020.

(3) Includes amounts attributable to both redeemable noncontrolling interests and noncontrolling interests as reflected on our Consolidated Balance Sheet.

(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

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Please refer to Note 2 to the financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020 for further information regarding significant accounting policies that impact us.

There have been no material changes to these policies in 2020, except the adoption of ASC 2016-13.

See Notes 2 and 7 to the unaudited consolidated financial statements for details.

There have been no material changes to these policies in 2021.

Management's Discussion and Analysis of Financial Condition and Results of Operations

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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 of Welltower and its operators/tenants;

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis