Is a Beat in the Cards for Welltower (WELL) in Q3 Earnings?
Welltower, Inc. WELL is slated to report third-quarter 2023 earnings on Oct 30, after market close. The quarterly results are likely to reflect year-over-year revenue growth and funds from operations (FFO) per share.
In the last reported quarter, this Toledo, OH-based healthcare real estate investment trust (REIT) witnessed normalized FFO per share of 90 cents, beating the Zacks Consensus Estimate by 4.65%. The results reflected better-than-anticipated revenues. The total same-store net operating income (SSNOI) increased year over year, driven by SSNOI growth in the seniors housing operating (SHO) portfolio.
Over the preceding four quarters, Welltower’s FFO per share beat the Zacks Consensus Estimate on three occasions and met once, the average beat being 2.38%. The graph below depicts this surprise history:
Welltower Inc. Price and EPS Surprise
Welltower Inc. price-eps-surprise | Welltower Inc. Quote
Factors at Play
Welltower owns a diversified portfolio in the healthcare real estate industry in the major, high-growth markets of the United States, Canada and the United Kingdom.
During the third quarter, the company’s SHO portfolio is likely to have continued to benefit from an aging U.S. population and a rise in healthcare expenditure by this age cohort, which is generally higher than the average population.
In addition, diminishing new supply and improved affordability are expected to have provided a favorable operating environment for the SHO portfolio.
Per the company’s September Business Update, strengthening seniors housing fundamentals during the peak leasing season drove continued momentum in the SHO portfolio. The asset management initiatives coupled with favorable demand-supply conditions resulted in healthy occupancy trends across all geographies, while the progress made on full-time employee hiring led to a moderation in expense growth.
Given this backdrop, we expect the SHO portfolio to have witnessed robust NOI growth during the third quarter. We estimate quarterly SSNOI to increase 28.1% year over year.
Also, WELL’s recently transitioned properties to Oakmont and Avery in the United States and the United Kingdom, respectively, have yielded stronger-than-anticipated results. This is likely to have benefited its quarterly performance.
Further, Welltower’s long-term leases with its healthcare management companies or operators are anticipated to have led to stable revenue generation, boosting its top line.
The company’s operator diversification efforts across its portfolio seem encouraging with respect to improving the quality of its cash flows. In August 2023, Welltower partnered with Optima Living, a premier operator of seniors residences, to manage six seniors communities in Western Canada.
The Zacks Consensus Estimate for third-quarter resident fees and services is pegged at $1.19 billion, indicating an increase of 2.6% from the prior quarter’s reported number of $1.16 billion and 11.3% from the year-ago quarter’s $1.07 billion. We estimate resident fees and services at $1.15 billion, suggesting year-over-year growth of 7.4% in the quarter.
The consensus mark for quarterly rental income stands at $382.9 million, implying a 5.8% rise year over year. Our estimate indicates a 6.7% increase year over year.
The Zacks Consensus Estimate for quarterly total revenues is pegged at $1.64 billion, suggesting a rise of 11.5% from the prior-year period’s reported number.
Additionally, WELL’s accretive capital deployment activity has been driving growth across its portfolio. Per the September Business Update, the company’s capital deployment from the beginning of the third quarter of 2023 through Sep 11 aggregated around $1.3 billion. The transactions were carried out across the company’s seniors housing, wellness housing, outpatient medical and skilled nursing property types.
The company’s activities during the quarter were adequate to garner analysts’ confidence. The Zacks Consensus Estimate for third-quarter FFO per share has been revised 1.1% upward to 89 cents over the past two months. Moreover, the figure suggests an increase of almost 6% from the year-ago reported number.
Q3 Developments
Per Welltower’s September Business Update, the company raised its earnings guidance for 2023, backed by the continued strength in its SHO portfolio and robust and accretive capital deployment activity.
For the current year, it now expects normalized FFO per share in the range of $3.51-$3.60, up from $3.48-$3.59 guided earlier. This implies an increase of 2 cents per share at the midpoint of $3.555.
WELL also noted that its capital deployment opportunities are expanding, with deal flow accelerating across all regions, property types, and up and down the capital stack.
Earning Whispers
Our proven model predicts a surprise in terms of FFO per share for Welltower this season. The combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — increases the odds of a beat. That is just the case here.
Earnings ESP: Welltower has an Earnings ESP of +0.75%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: WELL currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Other Stocks That Warrant a Look
Here are some stocks that are worth considering from the REIT sector, as our model shows that these, too, have the right combination of elements to deliver a surprise this reporting cycle:
Healthpeak Properties PEAK is slated to report quarterly numbers on Oct 30. PEAK has an Earnings ESP of +0.88% and carries a Zacks Rank #3 presently.
Ventas VTR is scheduled to report quarterly numbers on Nov 2. VTR has an Earnings ESP of +0.08% and a Zacks Rank of 3 currently.
SBA Communications SBAC is slated to report quarterly numbers on Nov 2. SBAC has an Earnings ESP of +0.27% and carries a Zacks Rank #3 presently.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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