Welltower (WELL) Soars 20.7% in 6 Months: 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 20.7% over the past six months against the industry’s fall of 2.2%.
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The senior housing industry has benefited from an aging population and a rise in healthcare expenditure by this age cohort, which is generally higher than the average population. Favorable demand-supply fundamentals and muted new supply have been other positives for this industry. Welltower’s SHO portfolio is likely to have capitalized on these positive aspects, contributing to the increased optimism surrounding its stock.
Recently, backed by the continued strength in this portfolio and robust and accretive capital deployment activity, the company amped up its expectations for its current-year normalized funds from operations (FFO) per share to $3.51-$3.60 from $3.48-$3.59 guided earlier. This implied an increase of 2 cents per share at the midpoint of $3.555.
With senior citizens’ healthcare expenditure expected to rise in the coming years and improving revenue and expense trends, Welltower’s SHO portfolio is well-prepared for compelling multiyear growth. For 2023, we expect a year-over-year increase of 23.1% in the portfolio’s same-store net operating income.
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.
Welltower’s strategic portfolio restructuring initiatives over the recent years have enabled it to attract top-class operators and improve the quality of its cash flows. This August, it partnered with Optima Living, a premier operator of seniors residences, to manage six seniors communities in Western Canada. Given that Optima Living achieved more than 90% occupancy rates at its seniors communities during the pandemic, the move seems prudent and is likely to aid in generating stable cash flows in the upcoming period.
This healthcare REIT’s accretive capital deployment activity over the years has been driving growth across its portfolio. Per its September Business Update, the company’s capital deployment from the beginning of the third quarter of 2023 through Sep 11 aggregated to around $1.3 billion.
Welltower maintains a healthy balance sheet position with ample financial flexibility. It 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, rendering it access to the debt market at favorable terms. With a strong financial footing, this healthcare REIT remains well-positioned 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 SBA Communications SBAC 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 SBA Communications’ current-year FFO per share has moved marginally northward over the past month to $12.90.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been raised 1.6% over the past month to $1.26.
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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