Welltower Earnings: Lower Senior Housing Expense Growth and Higher Investment Activity Drive Beat

Second-quarter results for no-moat Welltower were slightly better than we anticipated, giving us confidence in our $107 fair value estimate. Senior housing same-store occupancy improved 30 basis points sequentially and 280 basis points year over year to 84.9% in the second quarter. Rental rates for the same-store portfolio increased 5.0%, leading to same-store revenue growth of 8.6% that was relatively in line with our estimate of 9.3% growth. However, same-store operating expenses were up only 4.4%, which was below our estimate of 6.4% expense growth, leading to same-store net operating income growth of 21.7% that was slightly ahead of our 18.1% estimate. The rest of the portfolio performed relatively in line with our expectations, as same-store NOI was 4.3% for the triple-net senior housing portfolio, 2.7% for the skilled nursing portfolio, and 2.1% for the medical office portfolio. Combined, total company same-store NOI growth was 11.3% in the quarter, slightly better than our estimate of 9.1% growth. Welltower reported normalized funds from operations of $1.05 per share in the quarter, which was also slightly ahead of our $0.98 estimate.