Welltower Earnings: Senior Housing’s Recovery Drives Another Quarter of High Same-Store NOI Growth

Welltower WELL reported first-quarter results that were slightly better than we anticipated, leading us to reaffirm our $98 fair value estimate for the no-moat company. Same-store occupancy for the senior housing portfolio only improved 10 basis points sequentially to 79.4%, though that is relatively in line with our estimate of a 20-basis-point sequential improvement. Rental rates improved 6.8% year over year, leading to same-store revenue growth of 10.0% in the first quarter. Same-store expenses only grew 6.7%, leading to operating margins improving 240 basis points to 22.4% and same-store net operating income growth of 23.4% that was slightly better than our estimate of 21.3% growth. The triple-net senior housing portfolio only saw same-store NOI grow 0.6% in the first quarter, below our estimate of 2.4%, though same-store NOI for the medical office portfolio grew 1.6%, in line with our estimate, and the skilled nursing segment grew 4.2%, above our estimate of 2.5% growth. Combined, same-store NOI for the whole company grew 11.0% in the first quarter, above our 8.8% estimate. As a result, normalized funds from operations came in at $0.85 per share, a penny better than our $0.84 estimate for the first quarter.

Welltower announced the acquisition of $529 million of new properties in the quarter, which is slightly above our estimate of $425 million in acquisitions per quarter. However, we will note that Welltower achieved an impressive initial yield on its investments this quarter. Included in the acquisitions this quarter are 29 medical office buildings for $348 million at a 6.9% initial yield, which is materially above the 6.0% cap rates estimate for the acquisition of new medical office properties. We believe that these are mostly high-quality assets being acquired, so if Welltower can continue to acquire quality assets at high cap rates then the company should be able to create value through external growth despite higher interest rates.