Welltower (WELL) Sees 2023 Normalized FFO at Upper Guided Range
Welltower Inc. WELL expects its 2023 normalized funds from operations (FFO) at the high end of its previously issued guidance range of $3.59-$3.63 per share. This indicates that the company might exceed the Zacks Consensus Estimate for the same, which is currently pegged at $3.61.
With respect to its Seniors Housing Operating (“SHO”) portfolio, the company expects to achieve full-year 2023 same-store year-over-year revenue growth in line with the prior issued guidance of 9.8%. The company attributed its asset management initiatives and additional improvement in demand/supply conditions to lead to favorable trends across all geographies.
While giving its update, WELL noted that the year-over-year occupancy growth in the fourth quarter of 2023 “meaningfully outperformed historical seasonality” and marked the strongest quarterly growth of the year. However, as disclosed earlier, revenue per occupied room growth slowed from the third quarter of 2023, which was due to the base-year impact of a one-time pull forward of a large operator’s in-place rent increases to the fourth quarter of 2022. In 2024, the operator is anticipated to return to its customary pattern of January in-place rent increases.
Welltower also said that its same-store expenses per occupied room growth continued to decelerate in the fourth quarter as labor market conditions continued to normalize, while broader inflationary pressures continued to subside. Consequently, WELL expects its year-over-year same-store net operating income growth to come in at around the midpoint of its prior guidance issued guidance of 23-26%.
Welltower completed pro rata gross investments of $2.8 billion in the fourth quarter and $4.8 billion during the full year 2023. The healthcare REIT noted that the second half of 2023 marked one of the most active periods of capital deployment in WELL’s history.
The company had raised $1.7 billion of proceeds through an equity offering announced in November 2023, including the full exercise of the green shoe. The company also noted that its announced acquisition activity is to be fully equity-funded through cash on hand, with adequate cash on hand to meet its 2024 debt maturities.
However, as a result of a delay in asset disposition timing from the fourth quarter of 2023 to early 2024, the healthcare REIT experienced a lower-than-expected gain in sales during the period. Along with this, some expenses associated with transaction activity in the fourth quarter are likely to affect its 2023 net income attributable to common stockholders, which the company now expects to be below its prior issued guidance of 91-95 cents per share.
Welltower is poised to benefit from its diversified portfolio of healthcare real estate assets in the key markets of the United States, Canada and the United Kingdom. An aging population and a rise in senior citizens’ healthcare expenditure are likely to aid the SHO portfolio’s growth. The outpatient medical segment is expected to benefit from favorable outpatient visit trends.
Welltower’s restructuring initiatives to enhance operator quality will improve its cash flows. Encouraging capital-recycling efforts bode well for growth. However, competition in the senior housing market and high interest rates raise concerns.
Shares of this Zacks Rank #3 (Hold) company have rallied 7.6% in the past six months, outperforming the industry’s increase of 1.1%.
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Stocks to Consider
Some better-ranked stocks from the REIT sector are OUTFRONT Media Inc. OUT and STAG Industrial, Inc. STAG. While OUTFRONT Media sports a Zacks Rank #1 (Strong Buy), STAG Industrial carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for OUTFRONT Media’s 2023 funds from operations (FFO) per share has moved 1.9% northward over the past three months to $1.63.
The Zacks Consensus Estimate for STAG Industrial’s 2023 FFO per share has moved marginally upward in the past three months to $2.28 and indicates an estimated increase of 3.2% year over year.
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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