Are you ready to make a mark in the finance world? Welltower Inc. WELL holds a treasure trove of healthcare real estate assets spread across the prime markets of the United States, Canada, and the United Kingdom. Revel in the resurgence of the senior housing industry and the company’s portfolio repositioning endeavors, coupled with a robust balance sheet that continues to fuel its growth trajectory.
Its recent stellar performance during the third quarter of 2023, marked by soaring revenues and outstanding performance of the senior housing operating (SHO) portfolio, underscores its potential. At 92 cents per share, its normalized funds from operations (FFO) exceeded the Zacks Consensus Estimate and surged 9.5% year over year.
Based in Toledo, OH, this healthcare real estate investment trust (REIT) has outshined the industry, marking a 4.6% gain over the past three months, contrary to the industry’s 0.5% downturn.
Analysts, too, echo optimism for this Zacks Rank #2 (Buy) company, with the Zacks Consensus Estimate for WELL’s 2023 FFO per share inching higher to $3.58 over the past week.
Fueling the Momentum: What Makes Welltower an Attractive Bet?
Favorable SHO Portfolio Dynamics: Welltower’s SHO portfolio is set for a thriving future, boosted by the surge in the 80-years-and-above population and an uptick in healthcare spending by this age group. Additionally, the industry’s dwindling construction starts and slower net inventory growth due to the high-interest rate environment are poised to elevate SHO portfolio occupancy levels in the near term.
Moreover, with positive demand-supply fundamentals, expect the portfolio to witness margin expansion in the upcoming period. The third quarter witnessed an impressive year-over-year same-store net operating income (NOI) margin expansion of 330 basis points, fueled by improving revenue and expense trends. Riding on these favorable dynamics, Welltower’s SHO portfolio is positioned for compelling multiyear growth.
Portfolio Repositioning Measures: The strategic restructuring of Welltower’s portfolio in recent years has not only attracted top-tier operators but has also enhanced the quality of its cash flows. As per WELL’s recent Business Update, the dissolution of the existing joint venture (JV) with Chartwell for the 39 assets in Canada is a significant move expected to drive substantial NOI upside by improving operator alignment across the Canadian portfolio.
Following the JV dissolution, several properties will transition to the Cogir Management and the Welltower/Cogir PLR platform, a change anticipated to drive revenue optimization and platform efficiencies, unlocking considerable NOI upside.
Strategic Acquisitions: Welltower continues to bolster its presence in high barrier-to-entry urban markets through strategic acquisitions, with $3 billion worth of acquisitions completed as of Oct 30, 2023, and an additional $1 billion under contract at the same time.
These acquisitions, driven by attractive basis, operational upside, and significant value addition from Welltower’s operating platform, are anticipated to deliver meaningful per-share value for existing shareholders in the coming quarters.
Capital-Recycling Efforts: WELL’s prudent capital management practices, demonstrated through its capital-recycling efforts, not only finance near-term investment and development opportunities but also pave the way for long-term growth. The third quarter witnessed pro-rata gross investments of $1.6 billion, including $1.4 billion in acquisitions and loan funding, along with $270 million in development funding. Furthermore, the company opened seven development projects with a pro-rata investment of $137 million.
Post the third quarter, the company concluded $922 million in acquisitions and loan funding, as well as pro-rata property dispositions and loan payoffs totaling $29 million. These strategic financial maneuvers are expected to power the company’s trajectory ahead.
Balance Sheet Strength: With a robust balance sheet, Welltower boasts $6.6 billion in near-term available liquidity as of Oct 30, 2023. The company’s investment-grade credit ratings of BBB+ and Baa1 from S&P Global Ratings and Moody’s, respectively, underscore its access to the debt market at favorable rates.
Backed by a sound debt maturity schedule and ample financial flexibility, Welltower is primed to fulfill its near-term obligations and fund its development pipeline.
Exploring Other Lucrative Stock Options
Looking beyond Welltower, there are other noteworthy players in the REIT sector that merit attention. These include EastGroup Properties (EGP), Stag Industrial (STAG), and Park Hotels & Resorts (PK), each carrying a Zacks Rank of 2. With promising estimates for the near future, these stocks present compelling opportunities for investors.
The Zacks Consensus Estimate for EastGroup Properties’ 2023 FFO per share has witnessed a marginal uptick over the past week to $7.69. Similarly, Stag Industrial’s ongoing year’s FFO per share has noted a 1.3% increase over the past month to $2.28, while Park Hotels & Resorts’ current-year FFO per share estimate has grown 3.1% in the last month to $1.98.
It’s important to note that earnings details in this article are represented in terms of funds from operations (FFO), a key metric for gauging the performance of REITs.
These breakthrough stock selections, anticipated to surge by over 100% in 2023, present an extraordinary investment opportunity. Most of these stocks are flying under the Wall Street radar, laying the foundation for a rewarding initial investment.
Disclaimer: The sentiments and opinions articulated herein represent the views and opinions of the author and do not necessarily mirror those of Nasdaq, Inc.