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What's in the Offing for Welltower's (WELL) Q1 Earnings?

Zacks Equity Research

Welltower, Inc. WELL is scheduled to report first-quarter 2019 results on Apr 30, before the opening bell. The company’s results will likely reflect year-over-year (y/y) growth in revenues and funds from operations (FFO) per share.

In the last reported quarter, this Toledo, OH-based healthcare real estate investment trust (REIT) posted a negative surprise of 1.94%. Results reflected healthy same-store net operating income (SSNOI) performance of the company’s seniors housing triple-net, outpatient medical and long-term/post-acute care segments.

Further, Welltower delivered average positive surprise of 0.01%, in the last four quarters, surpassing estimates twice for as many misses. The graph below depicts this surprise history:

Welltower Inc. Price and EPS Surprise

Welltower Inc. Price and EPS Surprise | Welltower Inc. Quote

Let’s see how things have shaped up for this announcement.

Factors at Play

Data from the National Investment Center for Seniors Housing & Care (NIC) indicates that the fundamentals of the seniors housing industry remained soft during the first quarter. In fact, the industry seems to still tide through excess supply as indicated by the y/y drop in occupancy rates.

Specifically, the first-quarter occupancy rate of 88.1% indicates a y/y contraction of 20 basis points (bps) and an expansion of 10 bps on a sequential basis. Also, seniors housing’s average rate of annual asking rent growth was 3%, unchanged from fourth-quarter 2018.

Amid these, rental income from the company’s triple-net leased seniors housing properties is pegged at $189 million, marking a y/y decline.

Nonetheless, the investment thesis related to the silver tsunami is no secret. In fact, going by a presentation, nearly 10,000 baby boomers will turn 65 every day through 2030. As this long-awaited demographic boom is being realized, absorption rate for seniors housing units advanced 30 bps from the prior quarter to 3% as of first-quarter 2019 according to NIC data.

Hence, the company is anticipated to benefit from its efforts to strengthen the seniors housing portfolio. In fact, the Zacks Consensus Estimate for first-quarter revenues from senior housing operating portfolio is pegged at $852 million, underlining 2% sequential growth. Accordingly, net operating income is estimated to witness a 28% sequential rise to $274 million. 

Although robust fundamentals of the medical office building asset class are spurring demand for these properties, supply growth remains elevated. In fact, revenues from medical facilities are projected at $131 million, representing a sequential decline.

Lastly, prior to the first-quarter earnings release, the company has been witnessing downward estimate revisions. As such, the Zacks Consensus Estimate of FFO per share for the quarter has been revised marginally downward to $1.02 over the past month, reflecting analysts’ bearish sentiments. Nonetheless, it represents year-over-year growth of 3.03%.

Earnings Whispers

Here is what our quantitative model predicts:

Welltower has the right combination of two key ingredients — a positive Earnings ESP  and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Welltower Earnings ESP is +0.9%.

Zacks Rank: It currently carries a Zacks Rank of 3.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Other Stocks That Warrant a Look

Alexandria Real Estate Equities, Inc. ARE, scheduled to release earnings on Apr 29, has an Earnings ESP of +0.3% and currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Mack-Cali Realty Corporation CLI, slated to report first-quarter results on May 1, has an Earnings ESP of +1.2% and holds a Zacks Rank of 3.

Duke Realty Corporation DRE, set to release its quarterly numbers on Apr 25, has an Earnings ESP of +3.94% and carries a Zacks Rank of 3.

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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