Rental Rate Growth Drives Welltower’s Overall Growth in Q4

Fourth-quarter results for no-moat Welltower WELL were mixed relative to our expectations, though we didn’t see anything in the quarter that would materially change our $97 fair value estimate. Same-store occupancy for the senior housing portfolio rose only 20 basis points sequentially, far below our estimate of a 130-basis-point increase, to 79.1% in the fourth quarter, though that is up 200 basis points year over year. However, senior housing rental rates grew 7.5% year over year, the largest single-quarter increase in the company’s history. As a result, senior housing same-store revenue grew 10.3%, beating our 9.4% estimate. Meanwhile, operating expenses grew 6.0%, below our estimate of 7.2%, leading to same-store net operating income growth of 28.1% that beat our estimate of 19.0%. The triple-net senior housing portfolio saw same-store NOI growth of 4.3%, and the medical office segment saw same-store NOI growth of 2.1%; both were relatively in line with our expectations. As a result, total company same-store NOI growth of 12.9% came in well ahead of our 9.1% estimate. Normalized funds from operations came in at $0.83 per share in the fourth quarter, slightly below our $0.86 estimate as the company issued more shares than we anticipated in the quarter.

Management’s guidance for 2023 is mostly in line with our outlook. Senior housing same-store NOI is expected to grow between 15% and 24%, which puts our 26.3% estimate above the high end of the current guidance range. However, once we adjust our estimates for the higher-than-anticipated growth in the fourth quarter, we anticipate our 2023 forecast will fall within management’s guidance. Senior housing triple-net same-store NOI growth of 1%-3% and medical office same-store NOI growth of 2%-3% are both near our estimates, which puts our 11.4% same-store NOI growth estimate for the total company in 2023 within management’s guidance of 8%-13%.