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Welltower (HCN) Q1 FFO Beats Estimates: Will Stock Gain? (Revised)

Welltower Inc. HCN, a healthcare real estate investment trust (“REIT”), came up with normalized funds from operations (“FFO”) per share of $1.13, beating the Zacks Consensus Estimate of $1.12. The figure also improved from $1.04 reported in the year-ago quarter. We expect the outperformance to lead to stock movement.

Results were positively impacted by same store cash NOI growth and investments.

The company posted revenues of around $1.05 billion, which beat the Zacks Consensus Estimate of $1.02 billion. Further, it compared favorably with the year-ago number of $894.2 million.

Quarter in Detail

Same store cash NOI grew 3.8% year over year, which was led by 5.5% growth in the seniors housing operating portfolio. Moreover, same store seniors housing operating occupancy increased 60 basis points to 90.7% with revenues per occupied room (REVPOR) growth of 4.2%.

Welltower concluded gross investment of $348 million (pro rata basis) in the quarter under review. This comprised $204 million in acquisitions/joint ventures, $96 million in development funding and $48 million in loans. These entire investments were completed with existing relationships.

Welltower exited the quarter with cash and cash equivalents of $355.9 million, up from $202.3 million in first-quarter 2015. Moreover, as of Mar 31, 2016, the company had $1.9 billion of available borrowing capacity under its primary unsecured credit facility.

2016 Outlook

For 2016, Welltower expects normalized FFO per share in a range of $4.50–$4.60. The company increased its 2016 same store cash NOI growth guidance to 2.75–3.25% from the prior range of 2.5–3.0%. The Zacks Consensus Estimate currently stands at $4.56.

Our Take

Welltower’s results, supported by a notable operating portfolio performance, encourage us. In addition, a rise in senior citizen expenditure for healthcare promises strong prospects for the company. However, an anticipated rise in interest rate and intense competition remain as matters of concern.

Welltower currently carries a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider stocks like CubeSmart CUBE, National Health Investors Inc. NHI and Public Storage PSA. Each of these stocks carries a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

(We are reissuing this article to correct a mistake. The original article, issued earlier today, should no longer be relied upon.)

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