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How Welltower Maintained a Strong Balance Sheet in 2Q17

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2Q17 performance

During the second quarter of 2017, Welltower (HCN) posted robust top-line and bottom-line results. Although they fell slightly year-over-year, they exceeded management’s expectations as well as analysts’ estimates. The results came on the back of a strong demand for the company’s healthcare facilities and prudent cost-control initiatives. REITs such as Welltower depend on debt for their working capital. So proper leverage of their balance sheets is extremely important in order for these companies to function properly.

Wellstone’s debt-to-equity stood at 0.81x for 2Q17. That was lower than the industry mean of 1.07x. In 1Q17, the company had a debt-to-equity ratio that was lower than the industry mean of 0.82x.

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Strong liquid position

Wellstone ended the second quarter with cash and cash equivalents of $442.0 million. It also had a borrowing capacity of an aggregate of $2.6 billion under its revolving credit facilities and a current liquidity of $3.0 billion.

Welltower’s net debt-to-undepreciated book capitalization fell 80 basis points sequentially to 35.0%, while its net debt-to-enterprise value fell 160 basis points to 27.2%.

Financing activities to improve leverage of balance sheet

During 2Q17, Welltower repaid $182.0 million of debt. It also made use of the disposition proceeds from the sale of its non-core assets to reduce its line of credit borrowing by $137.0 million and extinguish $182.0 million of secured debt.

These financing activities helped the company reduce its weighted average interest cost as well as provide it with a longer term for payments. Welltower was successful in bringing its year-to-date retired debt and preferred securities to ~$1.3 billion during the quarter. The cost of debt was lowered to less than 3.0% of principal.

Welltower’s total debt-to-equity ratio was 83.5%. HCP’s (HCP) debt-to-equity ratio was 165.6%, and Healthcare Trust of America’s (HTA) was 104.8%. Ventas (VTR) has a total debt-to-total equity ratio of 104.4%.

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