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Key Reasons to Add Welltower (WELL) to Your Portfolio Now
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Welltower Inc. (WELL - Free Report) 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 are likely to continue aiding the company ride the growth curve.
Carrying a Zacks Rank #2 (Buy), this Toledo, OH-based healthcare real estate investment trust (REIT) has gained 23.4% in the year-to-date period compared with the industry’s growth of 1.5%.
This June, backed by the continued strength in its seniors housing operating (SHO) portfolio and recent capital activity, Welltower raised its 2023 normalized funds from operations (FFO) per share guidance to $3.43 -$3.56 from $3.39-$3.54 stated earlier. The Zacks Consensus Estimate for the same is currently pegged at $3.48, within the guided range.
Image Source: Zacks Investment Research
What Makes Welltower a Solid Pick?
Favorable SHO Portfolio Dynamics: Amid the recovery in the senior housing industry, Welltower’s SHO portfolio segment is witnessing healthy move-in activity, aiding occupancy levels. Also, better-than-anticipated revenue and expense trends have fueled the segment’s growth. Notably, in the first quarter of 2023, the SHO portfolio’s same-store net operating income (SSNOI) climbed 23.4% year over year.
Moreover, the healthcare expenditure by senior citizens, who constitute a major customer base of healthcare services and incur higher healthcare expenditures than the average population, is projected to rise in the coming years.
Therefore, leveraging the pent-up demand, favorable demographic trend for the senior housing industry and muted new supply in its markets, Welltower’s SHO portfolio is well-poised to prosper. We estimate the SSNOI for this segment to increase 19.7% year over year for 2023.
Portfolio Re-positioning Measures: Welltower’s portfolio restructuring initiatives over the recent years have enabled it to attract top-class operators and improve the quality of its cash flows.
Last December, Welltower entered into a master lease with Integra Health and transitioned its 147-property skilled nursing portfolio initially owned by the company and ProMedica in an 85/15 joint venture (JV).
Additionally, in December 2022 and January 2023, Welltower sold its 15% interest, each, in 54 and 31 skilled nursing assets to Integra for $73 million and $74 million, respectively. These represented the first two tranches of the formation of the 85/15 JV between Welltower and Integra.
This particular restructuring is expected to have a neutral to slightly accretive effect on the company’s cash flow, leverage position and earnings.
Strategic Acquisitions: The company has been bolstering its presence in the high barrier-to-entry urban markets via strategic acquisitions. In first-quarter 2023, it purchased two seniors housing communities for $20 million, while in 2022, WELL carried out acquisitions and loan funding for 77 SHO properties for a pro-rata amount of $2.25 billion.
Also, to capitalize on the favorable secular trends and growing need for value-based care, WELL has carried out strategic acquisitions in its outpatient medical segment. It purchased 29 medical office buildings (MOBs) across multiple transactions for $348 million during the first quarter of 2023.
Capital-Recycling Efforts: WELL’s capital-recycling efforts to finance near-term investment and development opportunities highlight its prudent-capital management practices and bode well for long-term growth. In the first quarter of 2023, the company completed pro-rata gross investments of $785 million, with $529 million of acquisitions and loan funding at a blended initial yield of 7.7% and development funding of $257 million. It opened four development projects with a total pro-rata investment of $57 million during this period.
Balance Sheet Strength: Welltower maintains a healthy balance sheet position with ample liquidity. It had cash and cash equivalents of $1.5 billion and full capacity available under its $4.0 billion line of credit as of May 31, 2023. 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 likely to meet its near-term obligations and fund its development pipeline.
The Zacks Consensus Estimate for Crown Castle’s current-year FFO per share has moved marginally northward over the past month to $7.64.
The consensus mark for Ventas’ 2023 FFO per share has moved slightly upward in the past two months to $2.98.
The consensus estimate for Omega Healthcare’s ongoing year’s FFO per share has been raised nearly 1% over the past month to $2.81.
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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Key Reasons to Add Welltower (WELL) to Your Portfolio Now
Welltower Inc. (WELL - Free Report) 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 are likely to continue aiding the company ride the growth curve.
Carrying a Zacks Rank #2 (Buy), this Toledo, OH-based healthcare real estate investment trust (REIT) has gained 23.4% in the year-to-date period compared with the industry’s growth of 1.5%.
This June, backed by the continued strength in its seniors housing operating (SHO) portfolio and recent capital activity, Welltower raised its 2023 normalized funds from operations (FFO) per share guidance to $3.43 -$3.56 from $3.39-$3.54 stated earlier. The Zacks Consensus Estimate for the same is currently pegged at $3.48, within the guided range.
Image Source: Zacks Investment Research
What Makes Welltower a Solid Pick?
Favorable SHO Portfolio Dynamics: Amid the recovery in the senior housing industry, Welltower’s SHO portfolio segment is witnessing healthy move-in activity, aiding occupancy levels. Also, better-than-anticipated revenue and expense trends have fueled the segment’s growth. Notably, in the first quarter of 2023, the SHO portfolio’s same-store net operating income (SSNOI) climbed 23.4% year over year.
Moreover, the healthcare expenditure by senior citizens, who constitute a major customer base of healthcare services and incur higher healthcare expenditures than the average population, is projected to rise in the coming years.
Therefore, leveraging the pent-up demand, favorable demographic trend for the senior housing industry and muted new supply in its markets, Welltower’s SHO portfolio is well-poised to prosper. We estimate the SSNOI for this segment to increase 19.7% year over year for 2023.
Portfolio Re-positioning Measures: Welltower’s portfolio restructuring initiatives over the recent years have enabled it to attract top-class operators and improve the quality of its cash flows.
Last December, Welltower entered into a master lease with Integra Health and transitioned its 147-property skilled nursing portfolio initially owned by the company and ProMedica in an 85/15 joint venture (JV).
Additionally, in December 2022 and January 2023, Welltower sold its 15% interest, each, in 54 and 31 skilled nursing assets to Integra for $73 million and $74 million, respectively. These represented the first two tranches of the formation of the 85/15 JV between Welltower and Integra.
This particular restructuring is expected to have a neutral to slightly accretive effect on the company’s cash flow, leverage position and earnings.
Strategic Acquisitions: The company has been bolstering its presence in the high barrier-to-entry urban markets via strategic acquisitions. In first-quarter 2023, it purchased two seniors housing communities for $20 million, while in 2022, WELL carried out acquisitions and loan funding for 77 SHO properties for a pro-rata amount of $2.25 billion.
Also, to capitalize on the favorable secular trends and growing need for value-based care, WELL has carried out strategic acquisitions in its outpatient medical segment. It purchased 29 medical office buildings (MOBs) across multiple transactions for $348 million during the first quarter of 2023.
Capital-Recycling Efforts: WELL’s capital-recycling efforts to finance near-term investment and development opportunities highlight its prudent-capital management practices and bode well for long-term growth. In the first quarter of 2023, the company completed pro-rata gross investments of $785 million, with $529 million of acquisitions and loan funding at a blended initial yield of 7.7% and development funding of $257 million. It opened four development projects with a total pro-rata investment of $57 million during this period.
Balance Sheet Strength: Welltower maintains a healthy balance sheet position with ample liquidity. It had cash and cash equivalents of $1.5 billion and full capacity available under its $4.0 billion line of credit as of May 31, 2023. 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 likely 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 Crown Castle Inc. (CCI - Free Report) , Ventas (VTR - Free Report) and Omega Healthcare Investors (OHI - Free Report) , 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 Crown Castle’s current-year FFO per share has moved marginally northward over the past month to $7.64.
The consensus mark for Ventas’ 2023 FFO per share has moved slightly upward in the past two months to $2.98.
The consensus estimate for Omega Healthcare’s ongoing year’s FFO per share has been raised nearly 1% over the past month to $2.81.
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.