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Why Is Welltower (WELL) Down 3.8% Since Last Earnings Report?

It has been about a month since the last earnings report for Welltower (WELL). Shares have lost about 3.8% 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 Q1 FFO Tops, SHO Occupancy Up, ’23 View Raised

Welltower’s first-quarter 2023 normalized FFO per share of 85 cents surpassed the Zacks Consensus Estimate of 82 cents. The reported figure improved 3.7% from the prior-year quarter’s actual.

Results reflected better-than-anticipated revenues. The total SSNOI increased year over year, driven by SSNOI growth in the SHO portfolio. The company also raised its guidance for 2023 FFO per share.

Welltower clocked in revenues of $1.56 billion in the quarter, outpacing the Zacks Consensus Estimate of $1.54 billion. The top line increased 11.8% year over year.

Quarter in Detail

The SHO portfolio’s same-store revenues increased almost 10% year over year to $965.2 million, backed by a 240 bps uptick in average occupancy from the year-ago quarter. A 6.8% year-over-year rise in same-store revenue per occupied room was another contributing factor.

In the first quarter, property operating expenses flared up 12.2% to $957.8 million year over year.

The company’s total portfolio SSNOI grew 11% year over year, supported by SSNOI growth in its SHO portfolio of 23.4%.

WELL’s pro-rata gross investments in the first quarter totaled $785 million. This included $529 million in acquisitions and loan funding, and $257 million in development funding. It opened four development projects for a pro-rata investment amount of $57 million. Welltower also completed pro-rata property dispositions and loan payoffs of $92 million in the quarter.

Portfolio Activity

In the quarter, WELL sold a 15% interest in 31 skilled nursing assets to Integra Healthcare Properties for $74 million as part of the earlier announced transition and sale of 147 skilled nursing facilities, originally operated by ProMedica, to Integra. This represented the second tranche of the 85/15 joint venture between Welltower and Integra. The remaining tranches are expected to close later this year.

The company acquired care homes in Northern Ireland, to be operated by Healthcare Ireland under a new triple-net master lease, for $75 million.

WELL also purchased 29 MOBs across multiple transactions for $348 million. The buyout of the MOBs, encompassing 1.3 million rentable square feet, represented an initial yield of 6.9%. This was inclusive of the acquisition of a 174,000 square feet MOB strategically located in Washington, DC, which has 82% occupancy currently and an initial yield of 6.6%.

Balance Sheet Position

As of Mar 31, 2023, WELL had $4.6 billion of near-term available liquidity comprising $0.6 billion of available cash and restricted cash and full capacity under its $4.0 billion line of credit.

2023 Guidance Raised

Welltower now projects 2023 normalized FFO per share of $3.39-$3.54, up from the prior-guided range of $3.35-$3.53.

The company’s full-year guidance now assumes the average blended SSNOI growth of 9-13%, comprising 17-24% growth in Seniors Housing Operating, 1-3% in Seniors Housing Triple-net, 2-3% in Outpatient Medical and 3-4% in Long-Term/Post-Acute Care.

Welltower expects to fund an additional $649 million of development in 2023 relating to projects underway as of Mar 31, 2023.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, Welltower has an average Growth Score of C, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, Welltower has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Welltower belongs to the Zacks REIT and Equity Trust - Other industry. Another stock from the same industry, Vornado (VNO), has gained 0.8% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.

Vornado reported revenues of $445.92 million in the last reported quarter, representing a year-over-year change of +0.9%. EPS of $0.01 for the same period compares with $0.79 a year ago.

Vornado is expected to post earnings of $0.64 per share for the current quarter, representing a year-over-year change of -22.9%. Over the last 30 days, the Zacks Consensus Estimate has changed -4.2%.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #4 (Sell) for Vornado. Also, the stock has a VGM Score of C.

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