Senior Housing Continues to Drive Welltower Inc.'s Earnings

By Markets Fool.com

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Welltower's(NYSE: HCN) senior housing portfolio continues to drive results. During the second-quarter, the company benefited from higher occupancy, which drove solid same-store net operating income (SSNOI) growth. That portfolio is poised to grow after the company announced the acquisition of 19 senior housing communities in California.

Welltower results: The raw numbers

Metric

Q2 2016 Actuals

Q2 2015 Actuals

Growth (YOY)

Funds from operations

$414.4 million

$383.7 million

8%

FFO/share

$1.15

$1.09

6%

FFO payout ratio

75%

76%

N/A

YOY = year over year. Data source: Welltower.

What happened with Welltower this quarter?

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Senior housing continues to pay big dividends at Welltower:

  • Welltower delivered solid FFO growth thanks to a 4% increase in SSNOI at its senior housing properties, driving 3.3% total property SSNOI growth.
  • One of the big drivers of the SSNOI growth in its senior housing portfolio was a 100 basis point increase in occupancy, which averaged 90.3% during the quarter.
  • Welltower continues to bolster its portfolio of healthcare properties. During the quarter it completed $356 million of investments, including $234 million in acquisitions and joint ventures, $104 million of development funding, and $9 million in loans.
  • The company also completed $227 million of dispositions, including $94 million of loan payoffs and asset sales totaling $113 million. In addition to that, the company plans to boost its full-year asset disposition guidance to $1.3 billion, which is up from its prior plan for $1 billion.
  • The reason the company is ramping up dispositions is to provide it with capital to fund a $1.15 billion senior housing portfolio that it is acquiring.

What management had to say

CEO Tom DeRosa,commenting on the company's results, said:

Our exceptional healthcare real estate and operators continued to outperform across the portfolio this quarter. Our seniors housing operating business generated 4% same store NOI growth, further substantiating our strategic focus on premium properties in top metro markets with high barriers to entry.

As DeRosa notes, the company's senior housing business continues to drive its performance. That's why the company has focused on growing its senior housing portfolio, which will get a big boost after it announced the acquisitionof a 19 community portfolio in California. Occupancy across the properties is 87% in Northern California and 82% in Southern California, compared to 94% and 90.6% across the company's existing portfolio in those respective regions. As part of the transaction, Welltower plans to transition the management of this portfolio to three of its current operating partners, which it believes will enhance their already solid operating performance and create "significant value for our shareholders" according to DeRosa.

Looking forward

Despite the additional portfolio reshuffling, Welltower is maintaining its full-year guidance. That forecast has SSCNOI growth in the range of 2.75% to 3.25% with FFO in a range of $4.50 to $4.60 per share, which is up 3% to 5% from last year.

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Matt DiLallo has no position in any stocks mentioned. The Motley Fool recommends Welltower. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.