Welltower (NYSE:WELL) Inc. delivered robust operating results for Q3 2023, driven by exceptional revenue growth in its Senior Housing portfolio and a record-high same-store margin expansion. The company's focus on enhancing the customer and employee experience, coupled with its pursuit of investment opportunities and digital transformation initiatives, underscored its optimistic outlook for future growth.
Key takeaways from the earnings call:
- Welltower reported strong revenue and expense growth, resulting in a substantial margin expansion of 330 basis points.
- The company saw the highest occupancy growth in two years, with unit revenue growing by nearly 7%.
- Welltower's Senior Housing Operating portfolio achieved 26.1% NOI growth, marking the fourth consecutive quarter of 20%+ growth.
- The company has a pipeline of $2.3 billion in deals and is actively pursuing investment opportunities.
- Welltower reported net income attributable to common stockholders of $0.24 per diluted share and normalized funds from operations of $0.92 per diluted share.
- The company closed $1.4 billion of acquisitions and loans in the quarter and raised gross proceeds of $1.9 billion.
- Welltower is planning for the brand launch of Project Transformer, a transaction with Cogir that is expected to significantly boost earnings and cash flow growth.
In Q3 2023, Welltower reported strong revenue growth across all three regions: the U.S. (9.6%), Canada (9.7%), and the U.K. (12.9%). The company also noted that management transitions were performing above expectations, with a focus on improving the customer and employee experience.
Welltower's financials were solid, with net income attributable to common stockholders of $0.24 per diluted share and normalized funds from operations of $0.92 per diluted share, representing a 10.4% year-over-year growth. The total portfolio same-store NOI grew by 14.1% year-over-year.
The company highlighted three important items: the conversion of 11 properties from triple-net to RIDEA structure with partner StoryPoint, the merger of Kisco and Balfour, and the progress on Project Transformer with Cogir. These transactions are expected to be significantly accretive to the company's earnings and cash flow growth in the future.
During the earnings call, CEO Shankh Mitra stated that the company is not interested in making significant investments in the medical office sector due to uncertainty about long-term inflation. Instead, the focus is on senior living with low double-digit unlevered IRR.
Mitra also discussed the company's investment pipeline, stating that over 80% of the pipeline consists of senior housing opportunities, mostly in the U.S. The company recently closed a large transaction in Canada, and stabilized yields in senior living are currently targeted at around 8%, with opportunities ranging from 6% to 8%.
CFO Nikhil Chaudhri reported positive performance in the transition of Integra assets, with the transitioned buildings generating $127 million of EBITDARM in the second quarter, resulting in a cash flow swing of $215 million over 6 months. However, Chaudhri noted that there is still a long way to go before reaching stabilization.
Welltower (NYSE:WELL) remains focused on elevating the customer and employee experience and generating higher earnings per share, while continuing its strategy of small, one-asset at a time transactions. The company expects an accelerating earnings and cash flow trajectory for 2024 and 2025.
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