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Welltower (WELL) to Report Q2 Earnings: What's in the Cards?

Welltower, Inc. WELL is slated to report second-quarter earnings on Aug 9, after market close. WELL’s quarterly results will likely highlight year-over-year 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) witnessed normalized FFO per share of 82 cents, in line with the Zacks Consensus Estimate. The seniors housing operating (SHO) portfolio average same-store occupancy witnessed a recovery during the quarter.

Over the preceding four quarters, Welltower’s FFO per share beat the Zacks Consensus Estimate on two occasions and met the same in two, the average surprise being 1.27%. 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’s SHO portfolio has been experiencing an improvement in move-in activity with manageable move-outs over the past few quarters. The widespread vaccination drives at assisted living and memory care facilities in the United States and the U.K. have reduced total resident case counts. As a result, Welltower’s communities have started to accept new residents.

The SHO portfolio has witnessed a sizeable recovery, with average occupancy levels outpacing the pre-pandemic averages. This trend is likely to have continued through the second quarter. Per the July business update, the SHO portfolio spot occupancy expanded nearly 130 basis points (bps) during the second quarter, with a gain of roughly 50 bps during the last two weeks of June.

While WELL’s U.K. SHO portfolio registered occupancy gains of roughly 410 bps during the quarter, its U.S. SHO portfolio reported the same at around 120 bps. In addition, the Canada SHO portfolio saw an occupancy gain of approximately 110 bps, with early-quarter momentum slowing down in June due to a rise in COVID-19 cases.

The above-mentioned factors, coupled with the increased healthcare expenditure by the rapidly growing senior citizen population, are anticipated to have largely aided WELL’s SHO portfolio performance during the to-be-reported quarter.

The Zacks Consensus Estimate for the second-quarter resident fees and services is pegged at $1.02 billion, indicating a 2.2% increase from the previous quarter’s $994 million. The consensus estimate for quarterly rental income stands at $356.2 million, implying a marginal rise from the prior-year quarter’s actuals.

Welltower is expected to not only have benefited from growth in revenue per occupied room, which modestly exceeded expectations, but also from robust pricing power with strong recognized renewal rate increases and improving street rates during the quarter.

Total revenues for the second quarter are pegged at $1.42 billion, suggesting a rise of 24.7% from the prior-year period’s reported number.

Furthermore, Welltower has been focusing on strategic portfolio optimization and synergistic collaborations with health systems to invest in the next-generation assets of health and wellness care delivery. It also undertakes capital-recycling activities to finance near-term investment and development opportunities.

Per its June business update, WELL had announced or completed nearly $750 million of new capital deployment since the release of its first-quarter earnings. Moreover, from the beginning of the year through Jun 6, 2022, it announced or completed $2.8 billion of capital deployment.

In May, Welltower announced the expansion of its strategic partnership with Oakmont Management Group. It agreed to purchase seven senior living communities, subject to customary closing norms, which Oakmont will operate under an aligned RIDEA 3.0 contract.

In June, concurrent with its business update, WELL announced the agreement with Calamar to purchase a 25-property senior apartment portfolio for $502 million. The transaction is likely to be funded by cash, the assumption of debt and UPREIT operating partnership units. Upon completion of the deal, WELL will significantly expand its market leadership with a total of nearly 10,000 units of Total Wellness Housing Platform.

However, the commencement of the transition of 12 SHO properties, comprising 2,010 units, on the West Coast to three best-in-class existing WELL operating partners, that include Oakmont, Kisco, and Cogir, is likely to have led to higher expenses during the quarter. Further, a sequential decline in agency labor expenses in April and May was offset by higher expenses in June due to a rise in COVID-19 cases of staff members at certain properties. This might have acted as a deterrent for the quarter to be reported.

The Zacks Consensus Estimate for the second-quarter FFO per share has moved downward by a penny to 85 cents over the past week. However, it implies an increase of 7.6% from the year-ago quarter’s reported figure.

Earning Whispers

Our proven model does not conclusively predict 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 an FFO beat. However, that’s not the case here.

Earnings ESP: Welltower has an Earnings ESP of -0.34%. 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 of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other REITs

Healthpeak Properties, Inc. PEAK reported second-quarter 2022 FFO as adjusted per share of 44 cents, surpassing the Zacks Consensus Estimate by a whisker. The reported figure was up 10% from the year-ago quarter’s 40 cents.

PEAK’s performance was backed by solid top-line growth. However, weakness in the continuing care retirement communities portfolio was witnessed during the quarter.

Ventas, Inc. VTR reported second-quarter 2022 normalized FFO per share of 72 cents, in line with the Zacks Consensus Estimate. The figure was a cent lower than the prior-year quarter’s tally.

VTR’s results reflect growth in occupancy and improvement in pricing power for the senior housing operating portfolio. Additionally, the office portfolio witnessed growth in same-store net operating income while there was weakness in the triple-net leased portfolio.

Mid-America Apartment Communities, Inc. MAA, commonly referred to as MAA, reported second-quarter 2022 core FFO per share of $2.02, surpassing the Zacks Consensus Estimate of $2.00. The reported number improved 19.5% year over year.

This residential REIT’s quarterly results were driven by an increase in the average effective rent per unit for the same-store portfolio. MAA also increased its outlook for core FFO growth for the year.

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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