Back to top

Image: Bigstock

Welltower (WELL) Bolsters '23 View on Solid Senior Housing Trend

Read MoreHide Full Article

Underpinning the continued strength in its seniors housing operating (SHO) portfolio in the wake of the pandemic and recent capital activity, Welltower Inc. (WELL - Free Report) recently raised its earnings guidance for 2023.

Given the fact that the demand for senior housing is need-based, WELL’s SHO portfolio has been witnessing sustained rate growth and an improvement in occupancy levels over the recent quarters. This has fueled revenue growth for this segment.

The company also noted that improvements in full-time employee hiring trends and lower agency usage have reduced compensation expense growth. Consequently, positive revenues and expense trends continue to drive the company’s SHO portfolio’s better-than-expected performance.

Amid this backdrop, Welltower raised its expectations for 2023 normalized funds from operations (FFO) per share to $3.43 -$3.56 from $3.39 -$3.54 stated earlier. This implies an increase of 3 cents per share at the midpoint of $3.495. The Zacks Consensus Estimate for the same is currently pegged at $3.47 per share, well within the guided range.

The net income attributable to common stockholders per share for the current year is now anticipated to be in the range of 61-74 cents, revised upward from 57-72 cents guided earlier.

In the first quarter of 2023, WELL reported a normalized FFO per share of 85 cents, improving 3.7% from the prior-year quarter’s actuals. The company’s SHO portfolio’s same-store revenues increased almost 10% year over year, backed by a 240-basis point uptick in average occupancy from the year-ago quarter. Also, same-store revenue per occupied room improved 6.8%, contributing to the rise.

Consequently, the SHO portfolio recorded same-store net operating income (SSNOI) growth of 23.4% year over year in the quarter, aiding total portfolio SSNOI growth of 11%.

Per the company’s June Business Update, this May 2023, WELL issued five-year $1.035 billion convertible senior unsecured notes carrying a coupon of 2.75% and a conversion premium of 25% (representing a conversion share price of $95.41). It plans to deploy the proceeds to address its upcoming unsecured debt maturities and fund accretive external growth opportunities.

Further, Welltower’s efforts to enhance its balance sheet strength and fortify its liquidity profile poise it well to capitalize on long-term growth opportunities. Its cash and cash equivalents aggregated $1.5 billion as of May 31, 2023, with additional expected proceeds from asset sales of $200 million. It also has full capacity available under its $4 billion line of credit as of the same date.

Notably, WELL’s pro-rata gross investments in the first quarter of 2023 totaled $785 million. This included $529 million in acquisitions and loan funding and $257 million in development funding. It also opened four development projects for a pro-rata investment amount of $57 million.

With an accelerating 80 years and above population and a rise in healthcare spending by this age cohort, Welltower’s SHO portfolio remains well-poised to prosper in the upcoming period. Also, a decline in construction starts and slower net inventory growth are expected to boost occupancy levels.

Nonetheless, intense competition from other industry players in the healthcare services sector and a high-interest rate environment are key concerns for the company.

Shares of this Zacks Rank #3 (Hold) company have gained 11 % in the quarter-to-date period against the industry's decline of 3.1%.

Zacks Investment Research
Image Source: Zacks Investment Research

Stocks to Consider

Some better-ranked stocks from the REIT sector are Rexford Industrial Realty (REXR - Free Report) , Stag Industrial (STAG - Free Report) and Innovative Industrial Properties (IIPR - Free Report) . Each of these companies presently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Rexford Industrial’s current-year FFO per share has moved 1.4% northward over the past two months to $2.19.

The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share has been raised marginally upward over the past month to $2.25.

The Zacks Consensus Estimate for Innovative Industrial Properties’ 2023 FFO per share has moved 3.6% upward in the past month to $8.66.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

Published in