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Should Investors Retain Welltower (WELL) Stock for Now?
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Welltower Inc. (WELL - Free Report) is well-poised to benefit from its diversified portfolio in the healthcare real estate industry in the major, high-growth markets of the United States, Canada and the United Kingdom.
The company’s seniors housing operating (SHO) portfolio is set to gain from an aging population and a rise in healthcare spending by this age cohort, which is generally higher than the average population. Further, this trend is expected to continue in the upcoming years in the wake of aging baby boomers, benefiting WELL’s SHO portfolio.
Customers’ prioritization of healthcare expenses over other discretionary purchases makes the healthcare sector relatively immune to the macroeconomic problems faced by the office, retail and apartment companies. This shields WELL against market volatilities.
Welltower banks on capital-recycling activities to finance near-term investment and development opportunities to optimize its portfolio and invest in next-generation assets of health and wellness care delivery.
From the beginning of the year through Aug 8, 2022, it completed $2.5 billion of capital deployment activity, marking 2022 as one of the most active starts to the year for investment activity in the company’s history.
In addition, to enhance its SHO portfolio, Welltower has closed various strategic acquisitions. This has helped it to improve the SHO portfolio operator diversification and expand its geographic footprint in high barrier-to-entry urban markets.
In second-quarter 2022, Welltower completed the acquisition of Calamar’s 25-property seniors housing portfolio for $502 million. With the buyout, it significantly expanded its market leadership with a total of nearly 10,000 units of Total Wellness Housing Platform.
On the balance sheet front, Welltower exited the second quarter with $4.1 billion of near-term liquidity. As of Jun 30, 2022, the company enjoyed investment-grade credit ratings of BBB+ and Baa1 from S&P Global Ratings and Moody’s, respectively, giving it favorable access to the debt market.
Therefore, with a well-laddered debt maturity schedule and enough financial flexibility, Welltower is well-poised to meet its near-term obligations and fund its development pipeline.
However, Welltower’s SHO portfolio is likely to experience a competitive landscape as operators try to fill unoccupied units post the pandemic-led broad-based occupancy erosions. Also, the tenant concentration in the company’s triple-net portfolio is concerning.
Although Welltower’s efforts to dispose of assets or convert properties to RIDEA structures reduce its exposure to troubled operators, it is likely to have a dilutive impact on earnings in the near term.
Also, interest rate hikes are likely to increase borrowing costs, affecting Welltower’s ability to purchase or develop real estate.
Analysts seem bearish about the Zacks Rank #3 (Hold) stock. The Zacks Consensus Estimate for the company’s 2022 funds from operations (FFO) per share does not indicate a favorable outlook for the company as it has been marginally revised downward in the past week to $3.40.
Shares of Welltower have declined 16.2% in the quarter-to-date period compared with the industry’s fall of 3.8%.
The Zacks Consensus Estimate for SBA Communications’ 2022 FFO per share has moved marginally upward in the past week to $12.17.
The Zacks Consensus Estimate for CubeSmart’s current-year FFO per share has moved 2.9% northward in the past two months to $2.50.
The Zacks Consensus Estimate for Xenia Hotels & Resorts’ 2022 FFO per share has moved 3.2% upward in the past month to $1.59.
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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Should Investors Retain Welltower (WELL) Stock for Now?
Welltower Inc. (WELL - Free Report) is well-poised to benefit from its diversified portfolio in the healthcare real estate industry in the major, high-growth markets of the United States, Canada and the United Kingdom.
The company’s seniors housing operating (SHO) portfolio is set to gain from an aging population and a rise in healthcare spending by this age cohort, which is generally higher than the average population. Further, this trend is expected to continue in the upcoming years in the wake of aging baby boomers, benefiting WELL’s SHO portfolio.
Customers’ prioritization of healthcare expenses over other discretionary purchases makes the healthcare sector relatively immune to the macroeconomic problems faced by the office, retail and apartment companies. This shields WELL against market volatilities.
Welltower banks on capital-recycling activities to finance near-term investment and development opportunities to optimize its portfolio and invest in next-generation assets of health and wellness care delivery.
From the beginning of the year through Aug 8, 2022, it completed $2.5 billion of capital deployment activity, marking 2022 as one of the most active starts to the year for investment activity in the company’s history.
In addition, to enhance its SHO portfolio, Welltower has closed various strategic acquisitions. This has helped it to improve the SHO portfolio operator diversification and expand its geographic footprint in high barrier-to-entry urban markets.
In second-quarter 2022, Welltower completed the acquisition of Calamar’s 25-property seniors housing portfolio for $502 million. With the buyout, it significantly expanded its market leadership with a total of nearly 10,000 units of Total Wellness Housing Platform.
On the balance sheet front, Welltower exited the second quarter with $4.1 billion of near-term liquidity. As of Jun 30, 2022, the company enjoyed investment-grade credit ratings of BBB+ and Baa1 from S&P Global Ratings and Moody’s, respectively, giving it favorable access to the debt market.
Therefore, with a well-laddered debt maturity schedule and enough financial flexibility, Welltower is well-poised to meet its near-term obligations and fund its development pipeline.
However, Welltower’s SHO portfolio is likely to experience a competitive landscape as operators try to fill unoccupied units post the pandemic-led broad-based occupancy erosions. Also, the tenant concentration in the company’s triple-net portfolio is concerning.
Although Welltower’s efforts to dispose of assets or convert properties to RIDEA structures reduce its exposure to troubled operators, it is likely to have a dilutive impact on earnings in the near term.
Also, interest rate hikes are likely to increase borrowing costs, affecting Welltower’s ability to purchase or develop real estate.
Analysts seem bearish about the Zacks Rank #3 (Hold) stock. The Zacks Consensus Estimate for the company’s 2022 funds from operations (FFO) per share does not indicate a favorable outlook for the company as it has been marginally revised downward in the past week to $3.40.
Shares of Welltower have declined 16.2% in the quarter-to-date period compared with the industry’s fall of 3.8%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are SBA Communications (SBAC - Free Report) , CubeSmart (CUBE - Free Report) and Xenia Hotels & Resorts (XHR - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for SBA Communications’ 2022 FFO per share has moved marginally upward in the past week to $12.17.
The Zacks Consensus Estimate for CubeSmart’s current-year FFO per share has moved 2.9% northward in the past two months to $2.50.
The Zacks Consensus Estimate for Xenia Hotels & Resorts’ 2022 FFO per share has moved 3.2% upward in the past month to $1.59.
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.