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Welltower (WELL) Beats Q3 FFO Estimates, Misses on Revenues

Zacks Equity Research
·4 min read

Welltower Inc. WELL reported normalized funds from operations (FFO) per share of 84 cents in third-quarter 2020, which surpassed the Zacks Consensus Estimate of 81 cents. However, the reported figure compares unfavorably with the year-ago quarter’s figure of $1.05.

The company’s seniors housing operating (SHO) portfolio continued to be affected by the coronavirus pandemic. In fact, a decline in occupancy impeded same-store net operating income (NOI) growth.

Moreover, it generated revenues of $1.04 billion, which missed the Zacks Consensus Estimate of $1.15 billion. The top line also declined 18.1% year over year.

Quarter in Detail

For the third quarter, total same-store NOI edged down 0.7% sequentially to $420.9 million primarily due to the impacts of the pandemic. Specifically, same-store cash NOI for the SHO portfolio, seniors housing triple-net and outpatient medical portfolio declined 1.1%, 0.8% and 1.2%, respectively.

Nonetheless, the same for health systems and long-term/post-acute care properties improved 1.8% and 0.1%, respectively, over the prior quarter.

Portfolio Activity

Welltower's pro-rata gross investments in the third quarter totaled $273 million. This included $177 million in loan funding and $96 million in development funding.

Apart from this, the company completed property dispositions of $1.4 billion.

Balance Sheet Position

It exited the quarter with $1.6 billion of cash and cash equivalents, up from $265.8 million recorded in the prior-year quarter. In addition, as of Sep 30, 2020, it had $3 billion of available borrowing capacity under its unsecured credit facility.

Net debt to adjusted EBITDA ratio was 6.02X as of the September-end quarter.

Dividend Update

On Oct 28, Welltower announced a cash dividend of 61 cents per share for the third quarter. The dividend will be paid out on Nov 19 to stockholders of record as of Nov 10. This marks the company’s 198th consecutive quarterly cash dividend payout.

COVID-19 Update

The company’s seniors housing operating portfolio (SHOP) witnessed spot occupancy declines throughout the third quarter. In fact, total SHOP occupancy declined 150 basis points (bps) sequentially in the third quarter to 78.4%.

This continued in October, with spot occupancy witnessing a sequential decline of 30 bps through Oct 23. In the fourth quarter, occupancy is expected to decline 75-125 bps. Moreover, the company’s total SHOP pro-rata pandemic-related property level expenses were $17 million for the third quarter.

Further, Welltower collected 98% of third-quarter rents from its triple-net lease operators. In its Outpatient Medical ("OM") segment, the company either collected or approved short-term deferrals for more than 99% of third-quarter rents. This consists of 97% cash collections and 2% of short-term deferrals.

Conclusion

Amid the pandemic, the company’s SHO portfolio is experiencing a negative revenue trend. Specifically, low resident move-ins, significant move-outs, and higher operating costs are hindering occupancy, revenues and NOI at the company’s seniors housing assets. In fact, SHO profitability is likely to remain challenged until proven treatment and vaccine are established.

Moreover, as part of its portfolio-repositioning and liquidity-enhancing efforts, Welltower is disposing of its assets. While such measures are strategic fits for the company over the long term, the dilutive impact on earnings in the near term from such asset dispositions cannot be bypassed.

Currently, the company carries a Zacks Rank #5 (Strong Sell).

Welltower Inc. Price, Consensus and EPS Surprise

 

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

Welltower Inc. price-consensus-eps-surprise-chart | Welltower Inc. Quote

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We now look forward to the earnings releases of other REITs like Lexington Realty Trust LXP, National Storage Affiliates Trust NSA and Ventas, Inc. VTR. While Lexington Realty and National Storage Affiliates are slated to report third-quarter earnings on Nov 5, Ventas will release earnings on Nov 6.

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.

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