What's in the Offing for Welltower's (WELL) Q3 Earnings?

Welltower (NYSE:WELL), Inc. WELL is scheduled to report third-quarter 2021 results on Nov 4, after market close. While the quarterly revenues are expected to reflect year-over-year growth, the funds from operations (FFO) per share might display a decline.

In the last reported quarter, this Toledo, OH-based healthcare real estate investment trust (REIT) delivered a surprise of 2.6% with respect to the normalized FFO per share.

Over the preceding four quarters, Welltower beat the Zacks Consensus Estimate on all occasions, the average surprise being 5.52%. The graph below depicts this surprise history:

Welltower Inc. Price and EPS Surprise

Welltower Inc. Price and EPS Surprise

Welltower Inc. price-eps-surprise | Welltower Inc. Quote

Let’s see how things have shaped up prior to the third-quarter earnings release.

Factors at Play

Going by its business update, Welltower seniors housing operating (“SHO”) portfolio is seeing a recovery in occupancy. The SHO portfolio spot occupancy ended at 76.1% as of Sep 3, 2021. This marks an approximate occupancy gain of 380 basis points (bps) since the pandemic-induced low on Mar 12, 2021. Quarter to date through Sep 3, the spot occupancy has already expanded 150 bps, compared with the initial guidance of around a 190-basis point gain for the third quarter.

Since the beginning of the third quarter through Sep 3, the company’s U.S. and U.K. SHO portfolios witnessed spot occupancy gain of 180 bps and 190 bps, respectively. In addition, the Canada SHO portfolio saw spot occupancy gain of 70 bps during the same time.

The rapid distribution of the COVID-19 vaccinations aided this performance, with move-in activity being solid through the quarter under review. Further, Welltower is expected to have received a total of $1.3 billion in pro rata disposition proceeds and loan payoffs through Sep 3.

Welltower was also active on the investment and balance-sheet front in third-quarter 2021. The company announced the closing of $1.8 billion of pro rata gross investments since its prior business update issued on Jul 29.

The Zacks Consensus Estimate for the third-quarter resident fees and services is pegged at $767 million, indicating a 3.5% increase from the $741 million reported in the prior quarter. The consensus estimate for quarterly revenues from the SHO portfolio is pinned at $759 million, calling for a 4.3% increase, quarter over quarter. Revenues from the Seniors Housing Triple Net portfolio are expected to be $205 million, up 47.5%.

Total revenues for the third quarter are pegged at $1.17 billion, suggesting a rise of 12.7% from the prior-year reported number.

During the third quarter, the company closed the acquisition of an 86-property seniors housing portfolio for $1.58 billion. This move will likely be immediately accretive to its normalized FFO per diluted share.

The company’s activities during the quarter were inadequate to gain analyst confidence. Prior to the third-quarter earnings release, the Zacks Consensus Estimate for the third-quarter FFO per share has remained unchanged at 80 cents over the past month. Further, it calls for a decline of 4.8% from the year-earlier reported figure.

The company projects third-quarter 2021 normalized FFO per share of 78-83 cents, while occupancy is expected to sequentially advance 190 bps.

What Our Quantitative Model Says:

Welltower does not have the right combination of the two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an FFO beat.

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

Welltower currently carries a Zacks Rank of 3 and has an Earnings ESP of -2.50%.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report surprises this quarter:

Life Storage (NYSE:LSI) LSI, slated to release earnings numbers on Nov 2, has an Earnings ESP of +0.21% and carries a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Apple Hospitality REIT (NYSE:APLE) APLE, slated to release third-quarter earnings on Nov 4, has an Earnings ESP of +26.67% and sports a Zacks Rank of 1, at present.

CubeSmart CUBE, set to report quarterly numbers on Nov 4, has an Earnings ESP of +2.86% and carries a Zacks Rank of 2, at present.

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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