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Welltower (WELL) Down 9.2% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Welltower (WELL). Shares have lost about 9.2% in that time frame, underperforming the S&P 500.

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

Welltower Q4 FFO & Revenues Beat, SHO Occupancy Rises

Welltower’s fourth-quarter 2022 normalized FFO per share of 83 cents surpassed the Zacks Consensus Estimate by a penny. The reported figure was in line with the prior-year quarter’s actual.

Results reflected better-than-anticipated revenues. The total same-store NOI increased year over year, driven by same-store NOI growth in the SHO portfolio. The company issued its guidance for 2023.

WELL clocked in revenues of $1.52 billion in the quarter, outpacing the Zacks Consensus Estimate of $1.50 billion. The top line increased almost 16% year over year.

For 2022, the company reported a normalized FFO per share of $3.55, up from the prior year’s $3.21. Moreover, the reported figure surpassed the Zacks Consensus Estimate of $3.35. The total revenues of $5.86 billion improved 23.6% year over year and beat the consensus mark of $5.81 billion.

Concurrent with the fourth-quarter earnings release, Welltower and a family-owned and Virginia-based senior living community management company, Retirement Unlimited Inc. (“RUI”), announced a robust programmatic partnership in the senior living space. As part of the first installment in RUI's new luxury brand of Elancé communities, it revealed the community's new name, Elancé at Alexandria. The partnership between WELL and RUI is expected to grow to more than 20 communities in the near term, spanning multiple states throughout the East Coast.

Quarter in Detail

The SHO portfolio’s same-store revenues increased 10.3% year over year to $811.6 million, backed by a 200 bps uptick in average same-store occupancy from the year-ago quarter. A 7.5% year-over-year rise in same-store REVPOR, which reached an all-time high, was another contributing factor.

In the fourth quarter, property operating expenses flared up 19.6% to $938.8 million year over year.

The company’s total portfolio same-store NOI (SSNOI) grew 12.9% year over year, supported by SSNOI growth in its SHO portfolio of 28.1%.

WELL’s pro-rata gross investments in the fourth quarter totaled $412 million. This included $223 million in acquisitions and loan funding, and $188 million in development funding. It opened 10 development projects for pro-rata investment amount of $277 million. Welltower also completed pro-rata property dispositions and loan payoffs of $159 million in the quarter.

Portfolio Activity

In the quarter, WELL entered definitive agreements to effectuate the sale and transition of 147 skilled nursing facilities operated by ProMedica. In December 2022, ProMedica surrendered its 15% interest in the 85/15 JV with Welltower. ProMedica was released of all its lease obligations related to the properties.

As a result, Integra Health entered master leases with Welltower for the entirety of the nursing portfolio and will take responsibility for the financial aspect of all assets, including assets, wherein it has not yet acquired an ownership stake.

In the same month, Welltower sold 15% interest in 54 skilled nursing assets to Integra for around $73 million. In January 2023, the company sold 15% interest in 31 skilled nursing assets to Integra for nearly $74 million. These represent the first two tranches in the formation of an 85/15 JV between Welltower and Integra. The remaining tranches are expected to be completed over the next 12 months.

Balance Sheet Position

Along with available borrowings under its line of credit, cash and cash equivalents, and restricted cash, as of Dec 31, 2022, WELL had $4.7 billion of near-term available liquidity and no material senior unsecured note maturities until 2024.

In the quarter, WELL settled 18 million shares of its common stock sold under its at-the-market (ATM) program through forward sale agreements. This generated gross proceeds of $1.5 million.

2023 Guidance

Welltower issued its guidance for 2023.

The company projects a current-year normalized FFO per share of $3.35-$3.53.

WELL’s full-year guidance assumes the average blended same-store NOI growth of 8-13%, comprising 15-24% growth in Seniors Housing Operating, 1.3% in Seniors Housing Triple-net, 2-3% in Outpatient Medical and 2-3% in Long-Term/Post-Acute Care.

Welltower expects to fund $689 million of development in 2023 relating to projects underway as of Dec 31, 2022.

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How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, Welltower has a subpar Growth Score of D, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile 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 this revision 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.

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