Revenue in 3Q17

Welltower (HCN) reported revenue of 1.09 billion—1.14% higher than the previous year. Rental income fell 13% due to lower occupancy in Canada the United Kingdom. Occupancy rates were lower than expected by 20 basis points or bps. Even though the rate was down in Canada and the United Kingdom, it improved in the United States.

These Drivers Helped Welltower’s 3Q17 Performance

Interest income fell significantly by 20% due to an increase in labor costs. Labor costs remain elevated, up 3.6% in 3Q17 from 4.1% in 2Q17. However, revenue for residential fees and services was up ~12%.

The top contributor was senior housing facilities, which were up 4.4% YoY. With respect to product type, asset living performed better in terms of both revenue and NOI growth.

Regional revenues

Among the three countries it operates in, revenues were up in the United Kingdom and Canada by 10.5% and 4.5%, respectively. The United Kingdom accounts for 9.6% of the revenue, while Canada accounts for 10.5%. The United States accounts for 80% of the total assets, compared Canada and the United Kingdom, which have only 8.7% and 11.3%, respectively.

Southern California, northern California, Toronto, London, Vancouver, and Seattle were the top performers this quarter. The greater New York MSA has performed well and gotten better results for the first time after many quarters. New England, on the other hand, is still on a slow track—though it has improved for the second quarter in a row.

HCN is continuously trying to reduce its expenses through innovation. G&A (general and administrative expenses) were 19% lower in 3Q17, compared to 3Q16 at $29.9 million. The company has reduced its G&A expectation to $130 million from the already lower range of $130 million to $132 million.

HCN has a pretax margin of 11.60% while its peers Ventas (VTR), Healthcare Trust of America (HTA), and HCP (HCP) have margins of 19.12%, 6.98%, and 27.19%, respectively. Welltower makes up almost 2.59% of the Vanguard REIT ETF (VNQ).

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