Michael Warren/E+ via Getty Images Welltower Inc. ( WELL ) is the largest (by market capitalization) healthcare real estate investment trust (REIT), based in the United States. This REIT’s portfolio primarily consists of properties involved in the business of seniors housing & post-acute communities and outpatient medical units. It owns properties in major high-growth markets in the United States, Canada, and the United Kingdom. 93.47 percent of this REIT is held by institutions, whereas only 0.15 percent is held by insiders. ETFs with WELL 96 ETFs hold Welltower Inc.’s stock in their portfolio. 18 out of those ETFs invested more than 1 percent of their respective funds in Welltower Inc. iShares Cohen & Steers REIT ( ICF ) has invested 4.11 percent of its total portfolio in Welltower Inc. However, one very interesting thing to note is that none of the healthcare ETFs have invested a higher percentage of its portfolio in Welltower Inc. ETFs holding WELL Welltower Inc. is the largest healthcare REIT with a market capitalization of $37.71 billion. Over the past 5 years, it has been the best stable major healthcare REIT (market capitalization of more than $5 billion). It has recorded an average price growth of more than 20 percent in the past 5 years. Baring Medical Properties Trust ( MPW ), all its peers have recorded negative growth during the same period. MPW, although recorded an astonishing 55.54 percent growth during the same period, has been very much volatile. WELL chart Welltower Inc.’s average revenue growth (2.07 percent) and dividend growth (-10.39 percent) over the past 5 years have been very unimpressive. However, except MPW, none of its peers have performed well either. The pandemic scenario has hit these sectors hard because all the companies engaged in the business of providing care to seniors, and specialized nursing have struggled. Medical office and research facility-centered landlords, however, have benefitted, which is reflected in the financials and return of MPW, one of the world’s largest owners of hospitals. The P/E multiple of WELL is more than 108, which looks absurd. However, as I have often said, P/E doesn’t fit as valuation criteria for Real estate business. Rather, Price to Book is a good metric to judge REITs. Price to Book of 2.14 is among industry standards and theoretically seems perfect, as it denotes that the current level of assets can generate twice the income (discounted to present value) over its lifetime. Key stats However, Price to Cash flow and EV/EBIDTA are highest among its peers. Both these multiples are close to 30. This means that the investors have been very optimistic that Welltower Inc. will be able to generate much higher operating income and cash flow in the long run. However, despite this bullish trend, the stock seems to be overvalued. The REIT also needs to improve its dividend yield. The current yield of 2.36 percent and 4-year average yield of 4.49 percent surely will fail to attract income-seeking investors. Payout ratio of 312.82 percent also denotes that the firm is paying out dividends out of its capital. Dividend history However, Welltower had been a steady and strong dividend payer till the first quarter of 2020. As it was strongly hit by the pandemic, it impacted its income and dividend payments too. As a result, it had to cut down its dividend by 30 percent. Going by its track record, investors won’t be wrong to assume a steady dividend payment, once the REIT recovers from pandemic-related slump. Perhaps, this explains the high level of investors’ confidence.
A 5-year beta of less than 1 also speaks favorable of this stock, although the peers have a relatively lower beta. Along with it, the higher price multiples seem to be a very positive sign to me, since Welltower has been hurt badly by the pandemic as the lease occupancy fell drastically. Despite that, this REIT has strong liquidity, and ample financial flexibility to keep investing in its properties and in acquisitions. Being the largest player, it has the ability to finance acquisitions and continue to grow further. Welltower is also well positioned to access the capital markets for financing such growth. And, in case it fails to finance its growth or raise further capital, still this REIT is strong enough to overcome poor economic situations or market conditions.
Welltower has focused itself on several services towards senior citizens. Welltower not only offers these services but also owns such facilities. “Thanks to the aging of the baby boom generation, there’s going to […]
source Welltower: Banking On Strong Future Growth Drivers And Financial Capabilities
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