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Welltower (HCN) Tops Q3 FFO & Revenue Estimates, Lifts View

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Welltower Inc. reported normalized funds from operations (FFO) per share of $1.08 for third-quarter 2017, beating the Zacks Consensus Estimate of $1.05. However, on a year-over-year basis, the figure declined 6.9% from $1.16.

The company experienced solid seniors housing operating performance in the third quarter.

Further, the company recorded revenues of $1.09 billion, which beat the Zacks Consensus Estimate of $1.04 billion. Also, revenues inched up 1.9% from the year-ago tally.

Welltower Inc. Price, Consensus and EPS Surprise
 

Welltower Inc. Price, Consensus and EPS Surprise | Welltower Inc. Quote

Quarter in Detail

Seniors housing operating same-store net operating income (SSNOI) grew 4.1% year over year. Moreover, same-store revenues per occupied room increased 3.9%.

Welltower accomplished $381 million of pro rata gross investments in the third quarter. This included $304 million in acquisitions/joint ventures, $70 million in development funding, as well as $7 million in loans. Notably, the company completed 95% of these investments with present relationships.

On the other hand, the company accomplished total dispositions of $84 million in the quarter. This comprised loan payoffs of $51 million and property sales of $33 million.

The company exited third-quarter 2017 with $236.2 million of cash and cash equivalents, down from $428.6 million recorded at the end of the prior-year quarter. In addition, as of Sep 30, 2017, the company had $2.6 billion of available borrowing capacity under its primary unsecured credit facility.  Furthermore, it extinguished secured debt of $15 million during the reported quarter.

2017 Outlook

Welltower updated its 2017 normalized FFO per share guidance and expects it to remain in the range of $4.19-$4.25 as against the prior band of $415-$4.25.

Also, the company raised the total SSNOI guidance to 2.5-3% from the prior outlook of 2.25-3%, mainly due to the continued better-than-expected seniors housing operating performance.

Further, in sync with the strategic repositioning of its premier health-care portfolio, the company anticipates 2017 disposition proceeds to be around $2.4 billion.

Our Take

Welltower’s diversified portfolio and strategic investments have the capability to serve as potential growth drivers over the long run. Also, rise in senior citizen spending for healthcare reasons promises scope for growth. Amid these, continued growth in seniors housing operating portfolio bodes well for the company.

However, aggressive disposition of non-core assets puts pressure on Welltower’s bottom-line performance.

Currently, Welltower carries a Zacks Rank #3 (Hold).

The stock has gained 1.6% year to date, underperforming 3.6% growth recorded by the industry it belongs to. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other REITs

Ventas, Inc. (VTR - Free Report) reported third-quarter 2017 normalized FFO of $1.04 per share, in line with the Zacks Consensus Estimate. The figure also came in a penny higher than the year-ago quarter tally. Results reflected improved property performance and accretive investments.

Cousins Properties Incorporated (CUZ - Free Report) reported third-quarter 2017 FFO per share of 15 cents, in line with the Zacks Consensus Estimate. The quarter witnessed considerable improvement in rental property revenues, which aided results to quite an extent. However, elevated expenses were a headwind.

PS Business Parks, Inc.  reported third-quarter 2017 core FFO of $1.54 per share, surpassing the Zacks Consensus Estimate by a penny. Also, the figure came in 7.7% higher than $1.43 recorded in the prior-year quarter. The rise stemmed from higher net operating income (NOI), reduced general and administrative expenses, and savings from lower preferred distributions.

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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