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Here's Why You Should Retain Welltower Stock in Your Portfolio
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Welltower Inc.’s (WELL - Free Report) senior housing operating (SHO) portfolio is well-poised to benefit from an aging population and a rise in healthcare expenditure by senior citizens. Moreover, portfolio restructuring initiatives and capital-recycling efforts augur well. However, competition in the senior housing market and high interest rates pose key concerns.
The REIT, carrying a Zacks Rank #3 (Hold) at present, reported second-quarter 2024 normalized funds from operations (FFO) per share of $1.05, which surpassed the Zacks Consensus Estimate of $1, an improvement of 16.7% year over year. Results reflected a rise in revenues and total portfolio same-store net operating income (SSNOI), driven by SSNOI growth in the SHO portfolio.
The healthcare REIT now expects 2024 normalized FFO per share to be in the range of $4.13-$4.21 compared with $4.05-$4.17 estimated earlier. Analysts seem bullish on the company with the Zacks Consensus Estimate for WELL’s 2024 FFO per share being raised marginally northward over the past week to $4.19.
Over the past three months, shares of the company have gained 19.4% compared with the industry's 16.9% growth.
Image Source: Zacks Investment Research
What’s Aiding Welltower?
The senior citizen population is expected to rise in the coming years. This age cohort constitutes a major customer base of healthcare services and incurs higher healthcare expenditures than the average population, poising Welltower’s SHO portfolio well to capitalize on this positive trend. In 2024, management anticipates the same-store SHO NOI to grow at the midpoint of 19.5%, driven by favorable revenue and expense trends.
Welltower’s strategic portfolio restructuring initiatives over the recent years have benefited it in terms of attracting top-class operators and improving cash flows.
WELL’s capital-recycling efforts highlight its prudent capital management practices and pave the way for long-term growth. From the beginning of 2024 through Sep. 6, 2024, it completed $2.12 billion of pro-rata gross investments, including $1.63 billion in acquisitions and loan funding and $492.7 million in development funding. During this period, the company completed pro rata property dispositions and loan repayments of $685.5 million.
Welltower has a healthy balance sheet position and ample liquidity to meet near-term obligations and fund its development pipeline. As of Sep. 6, 2024, it had $8.7 billion of available liquidity, including $3.7 billion of cash and 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, allowing it to access the debt market at favorable terms.
Welltower remains committed to solid dividend payouts, which are attractive to REIT shareholders. In July 2024, its 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.
What’s Hurting Welltower?
Welltower faces competition from national and local healthcare operators regarding factors such as quality, price and the range of services provided. It also competes for reputation, location and demographics of the population in the surrounding area and the financial condition of its tenants and operators. Such competition is likely to limit the company’s power to adjust pricing and ink deals at attractive rates. Also, tenant concentration in the triple-net portfolio is concerning.
Given a high interest rate environment, Welltower may find it difficult to purchase or develop real estate with borrowed funds as the cost of borrowing will likely be on the higher side. Further, the dividend payout may seem less attractive than the yields on fixed-income and money-market accounts due to the current high interest rates.
The Zacks Consensus Estimate for Cousins Properties’ current-year FFO per share has been raised marginally over the past two months to $2.66.
The Zacks Consensus Estimate for Lamar Advertising’s current-year FFO per share has moved northward marginally over the past month 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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Here's Why You Should Retain Welltower Stock in Your Portfolio
Welltower Inc.’s (WELL - Free Report) senior housing operating (SHO) portfolio is well-poised to benefit from an aging population and a rise in healthcare expenditure by senior citizens. Moreover, portfolio restructuring initiatives and capital-recycling efforts augur well. However, competition in the senior housing market and high interest rates pose key concerns.
The REIT, carrying a Zacks Rank #3 (Hold) at present, reported second-quarter 2024 normalized funds from operations (FFO) per share of $1.05, which surpassed the Zacks Consensus Estimate of $1, an improvement of 16.7% year over year. Results reflected a rise in revenues and total portfolio same-store net operating income (SSNOI), driven by SSNOI growth in the SHO portfolio.
The healthcare REIT now expects 2024 normalized FFO per share to be in the range of $4.13-$4.21 compared with $4.05-$4.17 estimated earlier. Analysts seem bullish on the company with the Zacks Consensus Estimate for WELL’s 2024 FFO per share being raised marginally northward over the past week to $4.19.
Over the past three months, shares of the company have gained 19.4% compared with the industry's 16.9% growth.
Image Source: Zacks Investment Research
What’s Aiding Welltower?
The senior citizen population is expected to rise in the coming years. This age cohort constitutes a major customer base of healthcare services and incurs higher healthcare expenditures than the average population, poising Welltower’s SHO portfolio well to capitalize on this positive trend. In 2024, management anticipates the same-store SHO NOI to grow at the midpoint of 19.5%, driven by favorable revenue and expense trends.
Welltower’s strategic portfolio restructuring initiatives over the recent years have benefited it in terms of attracting top-class operators and improving cash flows.
WELL’s capital-recycling efforts highlight its prudent capital management practices and pave the way for long-term growth. From the beginning of 2024 through Sep. 6, 2024, it completed $2.12 billion of pro-rata gross investments, including $1.63 billion in acquisitions and loan funding and $492.7 million in development funding. During this period, the company completed pro rata property dispositions and loan repayments of $685.5 million.
Welltower has a healthy balance sheet position and ample liquidity to meet near-term obligations and fund its development pipeline. As of Sep. 6, 2024, it had $8.7 billion of available liquidity, including $3.7 billion of cash and 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, allowing it to access the debt market at favorable terms.
Welltower remains committed to solid dividend payouts, which are attractive to REIT shareholders. In July 2024, its 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.
What’s Hurting Welltower?
Welltower faces competition from national and local healthcare operators regarding factors such as quality, price and the range of services provided. It also competes for reputation, location and demographics of the population in the surrounding area and the financial condition of its tenants and operators. Such competition is likely to limit the company’s power to adjust pricing and ink deals at attractive rates. Also, tenant concentration in the triple-net portfolio is concerning.
Given a high interest rate environment, Welltower may find it difficult to purchase or develop real estate with borrowed funds as the cost of borrowing will likely be on the higher side. Further, the dividend payout may seem less attractive than the yields on fixed-income and money-market accounts due to the current high interest rates.
Stocks to Consider
Some better-ranked stocks from the broader REIT sector are Cousins Properties (CUZ - Free Report) and Lamar Advertising (LAMR - Free Report) , 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 two months to $2.66.
The Zacks Consensus Estimate for Lamar Advertising’s current-year FFO per share has moved northward marginally over the past month 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.