Welltower Earnings: Senior Housing Continues to Recover as Company Announces $2.3 Billion in Deals

Second-quarter results for no-moat Welltower WELL were relatively in line with our expectations, leading us to reaffirm our $98 fair value estimate. Same-store occupancy for the senior housing portfolio sequentially increased to 80.2%, better than our estimate of 79.9%. Rental rates increased 7.5% year over year, leading to second-quarter same-store revenue growth of 9.9%. Meanwhile, senior housing same-store operating expenses only increased 5.8%, so Welltower reported same-store net operating income growth of 24.2% for the senior housing segment that beat our estimate of 20.8% growth. The company’s triple-net senior housing segment saw 3.1% same-store NOI growth, the medical office portfolio reported 3.2% same-store NOI growth, and the skilled nursing segment grew same-store NOI by 6.1%. Combined, Welltower reported total company same-store NOI growth of 12.7%, which was better than our estimate of 9.2% growth. Normalized funds from operations grew 4.0% year over year to $0.90 per share, in line with our estimate.

Welltower announced it had entered into agreements to acquire or develop $2.3 billion of assets in the second quarter. The company acquired a senior housing property for $145 million, extended a loan to an operating partner for $19 million, and started $250 million in new development projects in the second quarter. Additionally, Welltower agreed to dissolve its joint venture with Revera, with Welltower acquiring Revera’s joint venture interest in 110 senior housing properties while selling Revera its share in 31 properties. The company closed on the U.K. portfolio part of the transaction in the second quarter, closed on the U.S. portfolio in July, and expects to close on the Canadian portfolio by year-end. Welltower is transitioning operations to other senior housing partners, showing that Welltower’s many relationships with top operators provide a strategic advantage in allowing it the flexibility to shift operations with little disruption to the portfolio.