Welltower (WELL) Shares Gain 27% YTD: Will the Trend Last?
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 have aided the company to ride the growth curve.
Carrying a Zacks Rank #2 (Buy) currently, this Toledo, OH-based healthcare real estate investment trust’s (REIT) shares have soared 27.0% in the year-to-date period against the industry’s fall of 3.6%.
Recently, WELL reported second-quarter 2023 normalized funds from operations (FFO) per share of 90 cents, surpassing the Zacks Consensus Estimate of 86 cents. The reported figure improved 4.7% from the prior-year quarter.
The company’s results were supported by better-than-anticipated revenues and solid growth in the seniors housing operating (SHO) portfolio. Management also raised its guidance for 2023 normalized FFO per share to $3.48-$3.59 from $3.43-$3.56 projected earlier.
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Let us now decipher the factors behind the rally in the stock price.
The senior housing industry has been benefiting from the continued rise in senior citizens’ healthcare expenditure, which is generally higher than the average population. An influx in move-in activity in the wake of the pandemic has aided occupancy levels in these communities. Muted new supply has been another positive for this industry.
Welltower’s SHO portfolio is likely to have capitalized on these positive trends, contributing to the increased optimism surrounding its stock.
Backed by improving revenue and expense trends, the company’s SHO portfolio recorded same-store net operating income (SSNOI) growth of 24.2% year over year in the second quarter of 2023, driving total portfolio SSNOI growth of 12.7%.
With senior citizens’ healthcare expenditure expected to rise in the coming years and favorable demand-supply fundamentals in its markets, Welltower’s SHO portfolio is well-poised to prosper. We expect SSNOI for this portfolio to rise 23.1% year over year for 2023.
The company’s efforts to improve SHO portfolio operator diversification and expand its geographic footprint in high barrier-to-entry urban markets are likely to have paid off well. During the second quarter, it expanded its relationship with a Brighton, MI-based preeminent senior living operator, StoryPoint, by acquiring an additional community in Ohio for roughly $35 million.
Also, leveraging the favorable outpatient visits trend compared with in-patient admissions, Welltower’s efforts to optimize its outpatient medical portfolio, expand relationships with health system partners and deploy capital in strategic acquisitions seem encouraging.
Portfolio restructuring initiatives over the recent years have enabled WELL to attract top-class operators, while its dispositions helped improve the quality of its cash flows. It 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, the company will acquire the remaining interests in 110 properties from Revera. WELL will simultaneously divest interests in 31 properties to Revera.
The company’s focus on capital recycling has enabled it to finance near-term investment and development opportunities. Notably, in the second quarter of 2023, it carried out pro-rata gross investments of $414 million. This included $164 million in acquisitions and loan funding, and $250 million in development funding. Welltower also concluded pro-rata property dispositions and loan payoffs of $433 million during this period.
On the balance sheet front, Welltower had $6.7 billion of available liquidity as of Jul 28, 2023. It also enjoys investment-grade credit ratings of BBB+ and Baa1 from S&P Global Ratings and Moody’s, respectively, allowing it to access the debt market at favorable terms. With a strong financial footing, the company remains well-poised 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 Iron Mountain IRM, W.P. Carey WPC and Americold Realty Trust COLD, 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 Iron Mountain’s 2023 FFO per share is pegged at $3.96, suggesting year-over-year growth of 4.21%.
The Zacks Consensus Estimate for W.P. Carey’s current-year FFO per share stands at $5.36, implying an increase of 1.32% year over year.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share is pegged at $1.22, indicating 9.91% growth from the prior-year period’s tally.
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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