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Welltower's (WELL) Liquidity Improves, Occupancy Declines

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Welltower Inc. (WELL - Free Report) has resorted to asset dispositions to bolster near-term liquidity. However, occupancy loss and elevated expenses at its senior housing properties are likely to result in net operating income (NOI) erosions in the near term.

Notably, the company has been active on the disposition front, with $3.1 billion in pro-rata dispositions completed year to date.In fact, following the completion of the recent $1.3-billion disposition of healthcare assets, it bolstered its near-term available liquidity to $5.3 billion as of Oct 5, 2020.

Additionally, Welltower has been deleveraging its balance sheet by retiring debt. Markedly, amid these uncertain times when operational activities have been disrupted, the company’s focus on deleveraging its balance-sheet and enhancing liquidity position will aid to meet near-term obligations and fund its development pipeline.

Further, the national healthcare expenditure is projected to increase in the coming years, with senior citizens incurring higher medical expenses as against the average population. Welltower’s diversified portfolio of healthcare real estate assets is poised to gain from the secular industry tailwind.

Additionally, the company is optimizing its outpatient medical portfolio and growing relationships with health system partners and deploying capital in acquisitions.Given the favorable secular trends and growing need for value-based care, its efforts to strengthen its outpatient medical footprint will boost long-term growth. These properties are also witnessing strong occupancy and tenant retention.

While strength in the outpatient medical segment is likely to propel Weltower’s growth, the challenging operating environment for senior housing is concerning. To limit the spread of the virus to the elderly, who are more susceptible to it, many senior housing facilities were shut down on the onset of the pandemic.

This is having a negative impact on occupancy that can be attributed to the coronavirus outbreak-led move-outs, low move-in and admission bans. Moreover, expenses are rising due to higher labor costs and required protective-equipment supplies. Occupancy declines and elevated expenses are likely to have hindered NOI growth in the near term.

Apart from the coronavirus outbreak-led occupancy woes, the seniors housing market has been reeling with high-supply conditions in certain markets and rising labor costs. This is concerning for Welltower because elevated supply usually curtails landlords’ pricing power and limits growth in occupancy level.

Moreover, asset dispositions are likely to have a dilutive impact on earnings in the near term.

Shares of this Zacks Rank #3 (Hold) have gained 11.9% over the past three months compared with the industry’s growth of 6.2%.


Stocks to Consider

Sabra Healthcare REIT, Inc.’s (SBRA - Free Report) funds from operations (FFO) per share estimates for 2020 have been revised marginally upward to $1.75 over the past month. The company carries a Zacks Rank of 2 (Buy), currently. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Digital Realty Trust, Inc.’s (DLR - Free Report) Zacks Consensus Estimate for 2020 FFO per share has been unrevised at $6.08 over the past month. The company currently carries a Zacks Rank of 2.

Duke Realty Corporation’s (DRE - Free Report) Zacks Consensus Estimate for 2020 FFO per share has remained unchanged at $1.49 in a months’ time. The company has a Zacks Rank of 2, at present.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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