Welltower Inc. WELL recently provided an update on the Seniors Housing Triple-Net (SH NNN) portfolio. It also plans to sell the Brookdale Portfolio for $175 million.
The company is reducing SH NNN exposure to secure attractive returns for shareholders and bolster long-term growth prospects.
In the recent update, Welltower noted that it has completed the conversion of five communities that were previously under a triple-net lease with Sagora to a Seniors Housing Operating (RIDEA) structure. Per the second-quarter 2024 earnings release, the company announced 47 conversions of triple-net leased properties to RIDEA structures.
Since the first quarter of 2022, Welltower has successfully transitioned 100 triple-net leased assets into RIDEA structures. This helps the company enhance near-term growth prospects for its SHO portfolio and contributing to the long-term generation of cash flow per share.
Under the NNN segment, WELL’s properties are primarily leased to operators under long-term, triple-net master leases. The company’s triple-net properties offer services including independent living and independent supportive living, assisted living, continuing care retirement communities and care homes with or without nursing, as well as long-term/post-acute care.
Brookdale Portfolio Sales
Additionally, Welltower plans to sell its full interest in five properties that are currently operated under a triple-net lease with Brookdale for $175 million.
The portfolio consists of 686 units with an average age of 25 years, which includes 94 skilled nursing facility units and one property functioning as an independent memory care community.
The sale is advantageous for both Brookdale and Welltower. Although there is a beneficial purchase option established at the time the lease was signed 16 years ago, Welltower is set to realize an unlevered internal rate of return of more than 10% and 2.7 times multiple on its invested capital.
In a separate transaction, a joint venture with a global partner has reached an agreement to sell 11 communities operated by Brookdale. Welltower, having maintained a 25% minority interest in the portfolio after taking out nearly all of its equity in a 2017 transaction, is projected to receive $26 million in net proceeds from this sale.
It is expected that the sales will yield a modest improvement in the TTM coverage metrics associated with WELL’s Brookdale portfolio.
Summing-Up
Welltower is poised to benefit from its diversified portfolio of healthcare real estate assets in the key markets of the United States, Canada and the U.K. An aging population and an expected rise in senior citizens’ healthcare expenditure are likely to aid its Seniors Housing Operating portfolio’s growth. The outpatient medical segment is expected to benefit from favorable outpatient visit trends.
Restructuring initiatives have enabled the company to attract top-class operators, facilitating it to improve the quality of its cash flows.
Over the past six months, shares of this Zacks Rank #3 (Hold) company have gained 40.5%, outperforming the industry’s growth of 17.8%.
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Stocks to Consider
Some better-ranked stocks from the broader REIT sector are SL Green Realty SLG and Alpine Income Property Trust PINE, 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 SL Green’s 2024 FFO per share is pegged at $7.58, which suggests year-over-year growth of 53.4%.
The Zacks Consensus Estimate for Alpine’s full-year FFO per share stands at $1.65, which indicates an increase of 12.2% from the year-ago period.
Note: Anything related to earnings presented in this write-up represents FFO, a widely used metric to gauge the performance of REITs.
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Welltower Inc. (WELL) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
