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Is it Wise to Hold on to Welltower (WELL) Stock for Now?
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Welltower Inc.’s (WELL - Free Report) diversified portfolio in the healthcare real estate industry in the major, high-growth markets of the United States, Canada and the United Kingdom positions it well for growth.
The company’s seniors housing operating (SHO) portfolio is poised to benefit from an aging population and a rise in healthcare spending by this age cohort, which is generally higher than the average population.
Moreover, it has been witnessing occupancy gains post the pandemic. In third-quarter 2022, the SHO portfolio’s same-store revenue increased 10.8% year over year to $707.8 million, backed by a 390 basis points uptick in average same-store occupancy from the year-ago quarter.
Further, to enhance its SHO portfolio, Welltower has carried out various strategic acquisitions and recycled capital on the back of dispositions. This has helped it to improve the SHO portfolio operator diversification and expand its geographic footprint in high barrier-to-entry urban markets.
Welltower’s restructuring initiatives over the recent years have enabled it to attract top-class operators, while its dispositions have helped improve the quality of its cash flows. Also, these efforts have added to its balance sheet strength, poising it well to capitalize on growth opportunities.
In December 2022, Welltower and Integra Health entered into a master lease for the entirety of the 147-property skilled nursing portfolio originally owned by Welltower and ProMedica in an 85/15 joint venture (JV). The move was part of Welltower’s efforts to transition the nursing portfolio.
As a result, ProMedica surrendered its 15% interest in the 85/15 JV and was released of all its lease obligations for the entire portfolio.
Simultaneously, Welltower sold 15% interest in 54 skilled nursing assets to Integra for around $73 million. This represented the initial tranche of the earlier announced 85/15 JV between the two entities.
On the balance sheet front, Welltower had $5.6 billion of total near-term liquidity as of Nov 7, 2022. Also, the company enjoys investment-grade credit ratings of BBB+ and Baa1 from S&P Global Ratings and Moody’s, respectively, rendering 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.
The Zacks Rank #3 (Hold) stock has gained 17.3% in the past three months compared with the industry’s growth of 10.3%.
Image Source: Zacks Investment Research
However, Welltower faces stiff competition from national and local healthcare operators, which limits its power to significantly raise its top line and ink deals at attractive rates. Also, the tenant concentration in the company’s triple-net portfolio is concerning.
Although WELL’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, rising interest rates are likely to increase borrowing costs, affecting the company’s ability to purchase or develop real estate.
Image: Shutterstock
Is it Wise to Hold on to Welltower (WELL) Stock for Now?
Welltower Inc.’s (WELL - Free Report) diversified portfolio in the healthcare real estate industry in the major, high-growth markets of the United States, Canada and the United Kingdom positions it well for growth.
The company’s seniors housing operating (SHO) portfolio is poised to benefit from an aging population and a rise in healthcare spending by this age cohort, which is generally higher than the average population.
Moreover, it has been witnessing occupancy gains post the pandemic. In third-quarter 2022, the SHO portfolio’s same-store revenue increased 10.8% year over year to $707.8 million, backed by a 390 basis points uptick in average same-store occupancy from the year-ago quarter.
Further, to enhance its SHO portfolio, Welltower has carried out various strategic acquisitions and recycled capital on the back of dispositions. This has helped it to improve the SHO portfolio operator diversification and expand its geographic footprint in high barrier-to-entry urban markets.
Welltower’s restructuring initiatives over the recent years have enabled it to attract top-class operators, while its dispositions have helped improve the quality of its cash flows. Also, these efforts have added to its balance sheet strength, poising it well to capitalize on growth opportunities.
In December 2022, Welltower and Integra Health entered into a master lease for the entirety of the 147-property skilled nursing portfolio originally owned by Welltower and ProMedica in an 85/15 joint venture (JV). The move was part of Welltower’s efforts to transition the nursing portfolio.
As a result, ProMedica surrendered its 15% interest in the 85/15 JV and was released of all its lease obligations for the entire portfolio.
Simultaneously, Welltower sold 15% interest in 54 skilled nursing assets to Integra for around $73 million. This represented the initial tranche of the earlier announced 85/15 JV between the two entities.
On the balance sheet front, Welltower had $5.6 billion of total near-term liquidity as of Nov 7, 2022. Also, the company enjoys investment-grade credit ratings of BBB+ and Baa1 from S&P Global Ratings and Moody’s, respectively, rendering 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.
The Zacks Rank #3 (Hold) stock has gained 17.3% in the past three months compared with the industry’s growth of 10.3%.
Image Source: Zacks Investment Research
However, Welltower faces stiff competition from national and local healthcare operators, which limits its power to significantly raise its top line and ink deals at attractive rates. Also, the tenant concentration in the company’s triple-net portfolio is concerning.
Although WELL’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, rising interest rates are likely to increase borrowing costs, affecting the company’s ability to purchase or develop real estate.
Stocks to Consider
Some better-ranked stocks from the REIT sector are VICI Properties (VICI - Free Report) , Alexandria Real Estate Equities (ARE - Free Report) and Stag Industrial (STAG - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for VICI Properties’ current-year FFO per share is pegged at $1.92.
The Zacks Consensus Estimate for Alexandria Real Estate’s 2022 FFO per share stands at $8.41.
The Zacks Consensus Estimate for Stag Industrial’s 2022 FFO per share is pegged at $2.21.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.