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Welltower's (HCN) Rating Upgraded by S&P: Time to Hold?

BKD HCN GEN CCP

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Ushering in good news for its shareholders, Welltower Inc. (HCN - Free Report) recently announced rating upgrade to BBB+ by Standard & Poor's. Specifically, the company’s corporate credit rating has been raised to BBB+ with a stable outlook from BBB with a positive outlook.

This move highlights Welltower's success in repositioning its portfolio, strategic deleveraging moves, credit metrics progress, strength in balance sheet and solid performance of its seniors housing operating portfolio compared to its peers over the past years.

The rating upgrade enhances its creditworthiness in the market and is likely to boost investors’ confidence in the stock. In fact, with this rating upgrade, the company is now rated BBB+ equivalent with all three rating agencies. This is encouraging because such moves give companies an opportunity to enjoy reduced costs on debts and better access to capital.

Last week, this healthcare real estate investment trust (REIT) reported third-quarter 2016 normalized funds from operations (“FFO”) per share of $1.16, surpassing the Zacks Consensus Estimate by a penny. The figure also improved from $1.12 reported in the year-ago quarter. Results benefited from solid average same store net operating income (“NOI”) growth in the trailing four quarters and investments activities.

Welltower also revealed a significant increase in its disposition guidance from $1.3 billion to $4.1 billion of proceeds. The repositioning is aimed at enhancing operating and financial performance, increasing focus on premium private-pay health care real estate and capitalizing on the increased interest of domestic and foreign institutional investors in U.S. health care real estate.

Notably, as of Sep 30, 2016, the company closed $832 million worth of total dispositions.

Around $3.3 billion of disposition proceeds that Welltower expects to execute in fourth-quarter 2016, involves $1.9 billion of long-term/post-acute care, $1.2 billion of seniors housing triple-net, $51 million of seniors housing operating and $150 million of loan payoffs.

Projections for disposition proceeds include around $1.7 billion of Genesis Healthcare, Inc. (GEN - Free Report) properties, slated to be accomplished in three separate deals. Two of the deals representing $1.2 billion are sales to third parties. The other deal is a joint venture between Welltower (25%) and a foreign institutional investor (75%). This includes a blend of Genesis as well as Brookdale Senior Living, Inc. (BKD - Free Report) assets.

Going forward, diversified portfolio and strategic investments are anticipated to serve as growth drivers for Welltower. In addition, a rise in senior citizen spending for healthcare reasons promises strong future prospects. Rating upgrade also augurs well. However, earnings dilutive impact form sale of assets and any hike in interest rate remain concerns.

Welltower currently has a Zacks Rank #3 (Hold). However, investors interested in the REIT industry may consider Care Capital Properties (CCP - Free Report) . With positive estimate revisions for the current year and the stock trading at a significant discount to the industry average, Care Capital Properties remains a preferred pick. It carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Note: All EPS numbers presented in this write-up represent funds from operations (“FFO”) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.


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