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Welltower's (WELL) Liquidity Aids, Seniors Housing Woes Prevail

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As part of its liquidity-enhancing efforts, Welltower Inc. (WELL - Free Report) is disposing of non-core assets. However, with declining occupancy and higher expenses amid the pandemic, the operating environment for seniors housing properties remains challenging.

Notably, the company has been actively selling assets, with $3.3 billion in pro-rata dispositions completed from the beginning of 2020 through Oct 23. This demonstrates a strong demand for its high-quality assets despite the challenges raised by the pandemic, while sale proceeds generated are likely to help to de-lever its balance sheet.

Moreover, Welltower is optimizing its outpatient medical portfolio and growing relationships with strategic health system partners and deploying capital in acquisitions. Given the historically favorable outpatient visit trend compared with in-patient admissions, the company is likely to witness decent occupancy at such properties. Moreover, leveraging on the growing need for value-based care, the company is strengthening its outpatient medical footprint and this will likely boost long-term growth. 

Further, the company has resorted to capital-recycling activities to finance near-term investment and development opportunities. Its pro-rata gross investments in the third quarter totaled $273 million. Moreover, restructuring initiatives have enabled the company to attract top-class operators, while dispositions have improved the quality of its cash flows.

In light of the prolonged weakness in the seniors housing business, while asset dispositions enable the company to reduce exposure to such assets, the dilutive impact on earnings in the near term from such moves cannot be bypassed.

Moreover, the pandemic has affected occupancy, move-ins and move-outs at Welltower’s seniors housing operating assets. Seniors housing operating portfolio (SHOP) occupancy sequentially declined 150 bps in the third quarter to 78.4%. The company expects SHOP occupancy to sequentially decline 75-125 bps in the fourth quarter.

Additionally, while the seniors housing industry was already cut to the bone for expenses, procurement costs of protective equipment supplies and the pandemic-related property level expenses are impacting margins. Notably, SHOP profitability is likely to remain challenged until proven treatment and vaccine are established.

Shares of this Zacks Rank #3 (Hold) company have rallied 25.8% over the past six months compared with the industry’s growth of 6.7%.

 


Stocks to Consider

Innovative Industrial Properties, Inc.’s (IIPR - Free Report) funds from operations (FFO) per share estimates for 2020 have been revised upward by 5.8% to $5.11 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 Rank (Strong Buy) stocks here.

Extra Space Storage Inc.’s (EXR - Free Report) Zacks Consensus Estimate for 2020 FFO per share has moved upmarginally to $5.02 over the past month. The company currently carries a Zacks Rank of 2.

City Office REIT, Inc.’s (CIO - Free Report) Zacks Consensus Estimate for 2020 FFO per share has improved 2.6% to $1.17 in a month’s 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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