Welltower (WELL) to Dissolve Chartwell JV & Acquire 23 Assets
Per Welltower Inc.’s WELL recently released Business Update, the company 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 net operating income (NOI) upside, thus making it a strategic fit.
The healthcare real estate investment trust (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, thus benefiting both entities mutually.
Welltower expects to carry out the incremental investment of CAD$113.3 million at an estimated discount to replacement cost of around 30%. Additionally, the retained assets are expected to stabilize at a 10% yield and generate a low-double-digit unlevered IRR.
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.
In addition, per the update, Welltower noted that its senior housing operating (SHO) portfolio continued to sustain the occupancy momentum witnessed in the third quarter of 2023 through October 2023. This portfolio maintained strong levels of rate growth for October.
The operating platform initiatives and active portfolio management coupled with attractive demand-supply conditions resulted in favorable trends across all regions, aiding the portfolio’s performance.
Also, WELL’s recently transitioned properties continue to yield stronger-than-anticipated results.
The company, going forward with its strategic acquisitions in the high barrier-to-entry urban markets, carried out $3 billion worth of acquisitions in the last month. As of Oct 30, 2023, it had $1 billion of acquisitions under contract.
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.
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, the healthcare REIT maintains a solid balance sheet with ample financial flexibility, which positions it well to capitalize on long-term growth opportunities. As of Oct 30, 2023, WELL had near-term available liquidity of $6.6 billion.
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 week to $3.58.
The company’s shares have gained 4.3% in the quarter-to-date period compared with the industry's 0.4% growth.
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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 month to $7.66.
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 1.5% northward over the past week 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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