Shares of Welltower WELL have rallied 39.1% year to date, outperforming the industry's growth of 9.9%.
Welltower owns a well-diversified portfolio of healthcare real estate assets in the key markets of the United States, Canada and the U.K. Given an aging population and an expected rise in senior citizens’ healthcare expenditure, Welltower’s senior housing operating (SHO) portfolio and outpatient medical (OM) segment are well-poised to benefit from this positive trend.
Analysts seem positive on this healthcare REIT, currently carrying a Zacks Rank #3 (Hold). The Zacks Consensus Estimate for its 2024 FFO per share has been revised marginally northward to $4.19 over the past month.
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Factors Behind WELL's Price Rise: Will This Trend Last?
The senior citizens’ population is expected to rise in the years ahead. As a result, the national healthcare expenditure by senior citizens, who constitute a major customer base of healthcare services and incur higher healthcare expenditures than the average population, is likely to increase in the upcoming period. Muted new supply has also been a tailwind for this industry. Capitalizing on these positive aspects, WELL’s SHO portfolio is well-prepared for compelling multiyear revenue growth. In 2024, management anticipates the same-store SHO NOI to grow within 19%-23% on the expectations of continued strength in the second half of 2024.
Historically, there has been a favorable outpatient visit trend compared with in-patient admissions. Banking on this, the company is optimizing its OM portfolio, growing relationships with health system partners and deploying capital in strategic acquisitions. Given the favorable secular trends and growing need for value-based care, the company’s efforts to strengthen its OM footprint will boost long-term growth.
Welltower focuses on strategic portfolio optimization and synergistic collaborations with health systems to invest in the next-generation assets of health and wellness care delivery. The company has resorted to capital-recycling activities to finance near-term investment and development opportunities, paving the way for its long-term growth.
Welltower has a healthy balance sheet position and ample liquidity to meet near-term obligations and fund its development pipeline. As of July 26, 2024, it had $8.7 billion of available liquidity, including $3.7 billion of cash & restricted cash and full capacity under its $5 billion line of credit. As of June 30, 2024, the net debt to adjusted EBITDA was 3.68X. Welltower’s debt maturities are well-laddered, with a weighted average maturity of 5.8 years. This provides financial flexibility and allows it to access the debt market at favorable terms.
Solid dividend payouts are arguably the biggest enticements for REIT shareholders, and Welltower remains committed to that. In July 2024, the company’s board of directors announced a 10% hike in its cash dividend to 67 cents per share from 61 cents paid out earlier. Given its solid financial position, the increased dividend is likely to be sustainable in the forthcoming period.
Key Risks for WELL
A competitive landscape in the senior housing market and tenant concentration in its triple-net portfolio are likely to weigh on Welltower. Still, high interest rates add to the company’s concerns.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Cousins Properties CUZ and Lamar Advertising LAMR, 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 Cousins Properties’ current-year FFO per share has been raised marginally over the past week to $2.67.
The Zacks Consensus Estimate for Lamar Advertising’s current-year FFO per share has moved northward marginally over the past two months to $8.09.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO), a widely used metric to gauge the performance of REITs.
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