Key Reasons to Add Welltower (WELL) to Your Portfolio Now
Welltower Inc. WELL owns a well-diversified portfolio of healthcare real estate assets in the 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 are likely to continue aiding the company to ride the growth curve.
Recently, the company reported solid third-quarter 2023 results on higher revenues and robust senior housing operating (SHO) portfolio performance. Normalized funds from operations (FFO) per share of 92 cents surpassed the Zacks Consensus Estimate for the same of 89 cents and climbed 9.5% year over year.
This Toledo, OH-based healthcare real estate investment trust (REIT) has gained 4.6% in the past three months against the industry’s 0.5% decline.
Analysts seem bullish on this Zacks Rank #2 (Buy) company. The Zacks Consensus Estimate for WELL’s 2023 FFO per share has moved marginally northward over the past week to $3.58.
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What Makes Welltower a Solid Pick?
Favorable SHO Portfolio Dynamics: Welltower’s SHO portfolio remains well-poised to prosper given the acceleration in 80 years and above population and a rise in healthcare spending by this age cohort.
Also, given the high-interest rate environment, the industry is experiencing a decline in construction starts and slower net inventory growth, which are likely to boost occupancy levels for the SHO portfolio in the near term.
Further, with favorable demand-supply fundamentals, the portfolio is likely to experience margin expansion in the upcoming period. Improving revenue and expense trends during the third quarter led to a year-over-year same-store net operating income (NOI) margin expansion of 330 basis points. Capitalizing on these positive aspects, Welltower’s SHO portfolio is well-prepared for compelling multiyear growth.
Portfolio Repositioning Measures: Welltower’s portfolio restructuring initiatives over the recent years have enabled it to attract top-class operators and improve the quality of its cash flows.
Per WELL’s recently released Business Update, it has entered into a definitive agreement to dissolve the existing joint venture (JV) with Chartwell for the 39 assets in Canada. The move is expected to improve operator alignment across the Canadian portfolio and drive meaningful NOI upside.
The healthcare REIT will acquire the remaining interests in 23 high-quality senior housing properties from Chartwell and other JV partners while simultaneously exiting 16 properties by selling its interest to Chartwell.
Post the JV dissolution, expected to close in the first half of 2024, some properties will be transitioned to the Cogir Management while the remaining properties will be transitioned to the Welltower/Cogir PLR platform. The enhanced operational alignment and scale are expected to drive revenue optimization and platform efficiencies, thus unlocking significant NOI upside.
Strategic Acquisitions: The company continues to boost its presence in the high barrier-to-entry urban markets via strategic acquisitions. It has carried out $3 billion worth of acquisitions as of Oct 30, 2023, and had $1 billion of acquisitions under contract as of the same date.
Given the attractive basis, operational upside, and significant and irreplicable value addition from Welltower’s operating platform, these acquisitions are expected to boost meaningful per-share value for existing shareholders in the forthcoming quarters.
Capital-Recycling Efforts: WELL’s capital-recycling efforts to finance near-term investment and development opportunities highlight its prudent capital management practices and pave the way for long-term growth.
In the third quarter, the company completed pro-rata gross investments of $1.6 billion. This included $1.4 billion in acquisitions and loan funding and $270 million in development funding. It opened seven development projects for a pro-rata investment amount of $137 million. Welltower also completed pro-rata property dispositions and loan payoffs of $325 million in the quarter.
Subsequent to the third quarter end, it closed on $922 million in acquisitions and loan funding, and pro-rata property dispositions and loan payoffs of $29 million.
Balance Sheet Strength: Welltower maintains a healthy balance sheet position and had $6.6 billion of near-term available liquidity as of Oct 30, 2023. The company enjoys investment-grade credit ratings of BBB+ and Baa1 from S&P Global Ratings and Moody’s, respectively, rendering it access to the debt market at favorable rates.
Therefore, with a well-laddered debt maturity schedule and enough financial flexibility, Welltower is likely to meet its near-term obligations and fund its development pipeline.
Other Stocks to Consider
Some other top-ranked stocks from the REIT sector are EastGroup Properties EGP, Stag Industrial STAG and Park Hotels & Resorts PK, each carrying a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for EastGroup Properties’ 2023 FFO per share has moved marginally upward in the past week to $7.69.
The consensus estimate for Stag Industrial’s ongoing year’s FFO per share has been raised 1.3% over the past month to $2.28.
The Zacks Consensus Estimate for Park Hotels & Resorts’ current-year FFO per share has moved 3.1% northward over the past month to $1.98.
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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