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Welltower (WELL) Up 2.5% Since Last Earnings Report: Can It Continue?

A month has gone by since the last earnings report for Welltower (WELL). Shares have added about 2.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Welltower due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Welltower Q3 FFO Meets, Revenues Top, Same-Store NOI Up

Welltower third-quarter 2022 normalized FFO per share of 84 cents matched the Zacks Consensus Estimate. The reported figure climbed 5% from the year-ago quarter’s 80 cents.

Results reflected better-than-anticipated revenues. The same-store revenues of the SHO portfolio improved year over year owing to an improvement in SHO portfolio occupancy and average revenues generated per occupied room per month (REVPOR) during the quarter. The total same-store NOI increased year over year.

WELL clocked in revenues of $1.47 billion in the quarter, outpacing the Zacks Consensus Estimate of $1.46 billion. The top line increased 18.9% year over year.

On Nov 7, Welltower announced definitive agreements to effectuate the sale and transition of 147 skilled nursing facilities presently operated by ProMedica. Concurrently, WELL entered into a definitive agreement to sell the 147 skilled nursing facilities through an 85/15 JV between Integra Health and Welltower. As a result, relative to the total current contractual rent from the existing ProMedica Senior Care JV, Welltower's combined cash rent will increase to more than 4%.

Quarter in Detail

SHO portfolio’s same-store revenue increased 10.8% year over year to $707.8 million, backed by a 390 bps uptick in average same-store occupancy from the year-ago quarter. Also, a 5.3% year-over-year rise in same-store REVPOR, which reached an all-time high, was a contributing factor.

In the third quarter, property operating expenses flared up 25.1% to $912.2 million year over year.

Welltower’s share of property-level expenses associated with the pandemic relating to its SHO portfolio was $7 million in the quarter. When considering net of reimbursements, including Provider Relief Funds and similar programs in the United Kingdom and Canada, the same aggregated to a benefit of $0.3 million in the third quarter of 2022 compared with a benefit of $0.4 million in the year-ago period. This had a favorable impact on third-quarter 2022 normalized FFO per share of 1 cent.

WELL’s total portfolio same-store NOI (SSNOI) grew 7.2% year over year, supported by SSNOI growth in its SHO portfolio of 17.6%.

Welltower's pro rata gross investments in the third quarter totaled $1.1 billion. This included $850 million in acquisitions and loan funding and $203 million in development funding. It opened four development projects for a total pro rata investment amount of $79 million. Welltower also completed pro rata property dispositions and loan payoffs of $8 million during the quarter.

Portfolio Activity

In the quarter, WELL acquired three newly constructed rental communities and three stable entrance fee communities in the high barrier-to-entry California markets from Oakmont Management Group for $312 million. The portfolio will be managed by Oakmont under a RIDEA 3.0 management contract.

WELL acquired a medical office building having around 99,000 rentable square feet in La Jolla, CA, for $57 million. The property is currently 89% leased. It also acquired a 54,000 rentable square feet medical office building in Towson, MD, for $15 million. The property is fully leased.

Balance Sheet Position

Along with available borrowings under its line of credit, cash and cash equivalents and restricted cash, as of Sep 30, 2022, WELL had $3.8 billion of near-term available liquidity and no material senior unsecured note maturities until 2024.

During the quarter, WELL settled 9.1 million shares of its common stock sold under its at-the-market (ATM) program through forward sale agreements. This generated gross proceeds of $842 million.

Following the expiration of its previous share repurchase program, Welltower’s board of directors authorized a share repurchase program under which the company may choose to repurchase up to $3 billion of common stock in the open market or through private transactions at times and amounts based on its evaluation of market conditions and other factors.

Guidance

Welltower projects fourth-quarter 2022 normalized FFO per share in the range of 80-85 cents.

WELL’s fourth-quarter guidance assumes the average blended same-store NOI growth of 8.5-10.5%, comprising 18.5-23.5% growth in Seniors Housing Operating, 5-6% in Seniors Housing Triple-net, 1.5-2.5% in Outpatient Medical, 2.75% in Health System and 2.5-3.5% in Long-Term/Post-Acute Care.

Welltower expects to fund roughly $263 million of development for the remainder of 2022 relating to projects underway on Sep 30, 2022.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

At this time, Welltower has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Welltower has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Welltower belongs to the Zacks REIT and Equity Trust - Other industry. Another stock from the same industry, American Tower (AMT), has gained 4.7% over the past month. More than a month has passed since the company reported results for the quarter ended September 2022.

American Tower reported revenues of $2.67 billion in the last reported quarter, representing a year-over-year change of +8.9%. EPS of $1.80 for the same period compares with $2.49 a year ago.

For the current quarter, American Tower is expected to post earnings of $2.22 per share, indicating a change of +1.8% from the year-ago quarter. The Zacks Consensus Estimate has changed -2.8% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for American Tower. Also, the stock has a VGM Score of C.

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