Here's Why You Should Add Welltower (WELL) to Your Portfolio
Welltower Inc. WELL owns a well-diversified portfolio of healthcare real estate assets in major, high-growth markets of the United States, Canada and the United Kingdom. The rebound in the senior housing industry, portfolio-repositioning efforts and a healthy balance sheet position the company well for growth. However, competition and high interest rates make us apprehensive.
The company’s seniors housing operating (SHO) portfolio segment is witnessing occupancy gains on the back of healthy move-in activity in the wake of the pandemic. Notably, in the second quarter of 2023, the SHO portfolio average same-store occupancy expanded 190 basis points (bps) year over year.
With senior citizens’ healthcare expenditure expected to rise in the coming years and favorable demand-supply fundamentals in its markets, Welltower’s SHO portfolio remains well-poised to prosper. Per the company's July Business Update, management anticipates year-over-year occupancy growth of 230 bps for the SHO portfolio in 2023.
Welltower usually leases its healthcare facilities under "triple net" leases, where the tenant pays all taxes, insurance and maintenance for the properties in addition to rent. Also, its long-term tie-ups with experienced healthcare management companies or operators insulate it from short-term market swings. These factors are likely to aid in generating stable revenues.
Restructuring initiatives over the recent years have enabled the company to attract top-class operators, while its dispositions have helped improve the quality of its cash flows.
In the second quarter of 2023, WELL entered into definitive agreements to dissolve its existing joint venture with Revera across the United States, the United Kingdom and Canada during the April-June quarter. Through this, it will acquire the remaining interests in 110 properties from Revera. WELL will simultaneously divest interests in 31 properties to Revera.
Its capital-recycling efforts to finance near-term investment and development opportunities highlight its prudent capital management practices and bode well for long-term growth. Also, a robust balance sheet position, with available liquidity of $6.7 billion as of Jul 28, 2023, and a well-laddered debt maturity schedule support its growth endeavors.
Analysts seem bullish on this Zacks Rank #2 (Buy) company. The Zacks Consensus Estimate for its current-year funds from operations (FFO) per share has been raised marginally over the past month to $3.53.
The company’s shares have gained 11.4% in the past three months compared with the industry’s growth of 3%.
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Nonetheless, Welltower faces competition from national and local healthcare operators, which limits its power to significantly raise its top line and ink deals at attractive rates. Also, tenant concentration in the company’s triple-net portfolio is concerning.
High interest rates are likely to increase borrowing costs, affecting the company’s ability to purchase or develop real estate.
Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are SBA Communications SBAC, Americold Realty Trust COLD and Omega Healthcare Investors OHI, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for SBA Communications’ current-year FFO per share has moved marginally northward over the past week to $12.88.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been raised 2.5% upward over the past month to $1.24.
The Zacks Consensus Estimate for Omega Healthcare’s ongoing year’s FFO per share has been raised marginally upward over the past month to $2.83.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Welltower Inc. (WELL) : Free Stock Analysis Report
