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Health Care: Welltower Reports 8% Increase In Third Quarter

The following excerpt is from the company's SEC filing.

Normalized FFO to a Record $1.12 Per Diluted Share

$4.1 Billion in 2015 Investments with Best-in-Class Partners

Increased 2015 FFO Guidance and 2016 Dividend on Strong Performance and Outlook

Welltower Inc. (NYSE:HCN

) today announced operating results for the

quarter ended September 30, 2015.

“This has been a milestone quarter. We changed our name to Welltower to reflect the new realities and opportunities in health care, and our strong financial performance gave us the confidence to increase our guidance and next year’s dividend,” said Tom DeRosa, CEO of Welltower. “This quarter’s operating results underscore our continued momentum as we invest with leading seniors housing and post-acute operators and health systems to fund the real estate infrastructure needed to grow their platforms. We will invest over $4 billion for the year in high-quality assets, primarily in major metro markets.

We have a strong balance sheet, low leverage and a robust pipeline of opportunities focused on innovative care models. We believe we have a tremendous opportunity to transform health care infrastructure and drive value for our shareholders

As previously announced on September 30, 2015, Health Care REIT, Inc. changed its name to Welltower Inc. Welltower is a brand that emphasizes wellness and positions the company as an essential partner in the transformation of health care infrastructure. Welltower’s common and preferred stock continue to trade on the New York Stock Exchange under the ticker symbol “HCN.”

Earnings Results

For the quarter, we generated record-high normalized FFO and FAD per share of $1.12 and $0.99, respectively, representing 8% and 9% increases from the third quarter of 2014. Third quarter results were positively impacted by year-to-date average total same store cash NOI growth of 3.1%, high-quality gross investments of $3.3 billion and a reduction in net debt to undepreciated book capitalization ratio to 37%.

Dividend Growth

The Board of Directors declared a cash dividend for the quarter ended September 30, 2015 of $0.825 per share, as compared to $0.795 per share for the same period in 2014, which represents a 3.8% increase. On November 20, 2015, we will pay our 178

consecutive quarterly cash dividend. The Board of Directors also approved a new 2016 quarterly cash dividend rate of $0.86 per share ($3.44 per share annually), which represents a 4.2% increase, commencing with the February 2016 dividend payment. The declaration and payment of quarterly dividends remains subject to review by and approval of the Board of Directors.

Capital Activity

On September 30, 2015, we had $292 million of cash and cash equivalents and $2.0 billion of available borrowing capacity under our primary unsecured credit facility. During the third quarter, we issued approximately 1.2 million shares of common stock at an average price of $66.43 per share to generate approximately $77.7 million in proceeds under our dividend reinvestment program. In October 2015, we issued approximately 0.7 million shares of common stock at an average price of $69.23 per share to generate approximately $47.5 million in proceeds under our equity shelf program. Also in October 2015, we completed a public offering of $500 million in a re-opening of our 4.0% senior unsecured notes due June 1, 2025. The notes were priced at 97.75% of their face amount to yield 4.287%.

Outlook for 2015

We are updating our 2015 earnings guidance to increase normalized FFO and now expect to report in a range of $4.32 to $4.37 per diluted share from the previous range of $4.25 to $4.35 per diluted share, representing a 5%-6% increase. We are also narrowing our normalized FAD guidance to a range of $3.84 to $3.89 per diluted share from the previous range of $3.83 to $3.93 per diluted share, also representing a 5%-6% increase. Our guidance is based on the following updated assumptions:

3Q15 Earnings Release

October 30, 2015

Same Store Cash NOI

: We continue to expect blended SSCNOI growth of approximately 3.0%-3.5%.


: 2015 earnings guidance includes only those acquisitions which have been completed or announced, comprised of acquisitions completed in the first nine months of the year, the Revera and Genesis investments discussed below, and investments associated with the Mainstreet partnership.


: We anticipate funding additional development of $73 million in 2015 relating to projects underway on September 30, 2015. We expect development conversions of approximately $19 million in the remainder of 2015. These investments are currently expected to generate yields of approximately 9%.


: We now expect 2015 dispositions of approximately $1.1 billion of pro rata proceeds at an average yield on proceeds of 6% as compared to the prior expectation of $1 billion of proceeds at 7%.

Cap-ex, Tenant Improvements, Lease Commissions

: We are increasing our estimate of cap-ex, tenant improvements and lease commissions to approximately $60 million from $50 million primarily as a result of the timing of certain seniors housing operating portfolio cap-ex projects.

Net income attributable to common stockholders guidance has been narrowed to a range of $2.52 to $2.57 per diluted share from the previous range of $2.47 to $2.57 per diluted share primarily due to third quarter normalizing items and gains. Our guidance does not include any additional 2015 investments, dispositions or capital transactions beyond what we have announced, nor any transaction costs, impairments, unanticipated additions to the loan loss reserve or other additional normalizing items. Please see the exhibits for a reconciliation of the outlook for net income available to common stockholders to normalized FFO and FAD. We will provide additional detail regarding our 2015 outlook and assumptions on the third quarter 2015 conference call.

Investment Activity

We completed $474 million of pro rata gross investments for the quarter including $361 million in acquisitions/JVs, $69 million in development funding and $44 million in loans. Approximately 62% of these investments were completed with existing relationships. The $361 million acquisitions/JVs have a blended yield of 6.8% and were comprised of nine different transactions. The $69 million in development funding is expected to yield 8.3% upon completion and the $44 million of loans were made at a blended rate of 8.8%. In addition to the new investment activity during the quarter, we placed into service one development property project totaling $13 million at a yield of 7.2%. The investments are consistent with our strategy of investing in modern, high quality properties in major metropolitan markets with favorable supply/demand.

Notable Investments with Existing Operating Partners

Sunrise Senior Living

We expanded our relationship with Sunrise by acquiring three private pay seniors housing properties with a total of 149 units located in the Seattle MSA for $58 million. The purchase price represents a projected stabilized cap rate in the high 6’s. Sunrise will manage the properties under an incentive-based management contract.

Since closing our initial $243 million acquisition in 2012, we have completed $4.5 billion of follow-on pro rata investments with Sunrise

Genesis Healthcare


with Genesis by acquiring a 120-bed long-term/post-acute care property and an adjacent 71-unit assisted living property in New Jersey for $15 million. The properties were added to the Genesis master lease which has a corporate guarantee and expires in 2032. The initial lease yield is 9.0% with 3.0% annual escalators. The acquisitions will have an accretive impact on the master lease payment coverage ratio.

Since closing our initial $2.4 billion acquisition/leaseback in 2011, and including the fourth quarter investment discussed below, we have completed $931 million of follow-on pro rata investments with Genesis

Sagora Senior Living

We expanded our relationship with Sagora by acquiring

a 78-unit private pay seniors housing property in the Dallas MSA for $21 million. The property opened in 2012 and was added to an existing Sagora master lease which has a corporate guarantee and expires in 2031. The initial lease yield is 6.0% and will escalate annually by the greater of 3.0% or CPI. Since closing our initial $9 million acquisition/leaseback in 2010, we have completed $332 million of follow-on pro rata investments with Sagora


We expanded our relationships with Mainstreet and Symphony by acquiring a 130-bed post-acute property located in the Chicago MSA for $27 million. The property was acquired from Mainstreet pursuant to the 17-property pipeline announced in August 2014. The property is leased to Symphony under a 15-year...