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Shares of Welltower Inc. WELL have gained 18.1% in the year-to-date period against the industry’s decline of 6.8%.

This Toledo, OH-based healthcare real estate investment trust (REIT) owns a well-diversified portfolio of healthcare real estate assets in the key markets of the United States, Canada and the U.K. Its portfolio-restructuring initiatives and capital-recycling activities have aided Welltower in riding the growth curve so far. A healthy balance sheet position will likely support its growth endeavors.

The REIT raised its expectations for 2024 normalized FFO per share to $4.02-$4.15 from $3.94-$4.10 estimated earlier. Analysts, too, seem bullish on the company. The Zacks Consensus Estimate for WELL’s 2024 FFO per share has moved nearly 1% northward over the past two months to $4.12.

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Let us now decipher the factors behind the increase in the stock price.

The senior housing industry is benefiting from an aging population and a rise in healthcare expenditure by this age cohort, which is generally higher than the average population. Given the robust demand for this need-based asset category, coupled with muted new supply, Welltower’s SHO portfolio is witnessing healthy move-in activity, driving occupancy levels.

With a supply-demand imbalance, the portfolio is expected to experience sustained occupancy growth in 2024 and the coming years. Management anticipates the same-store SHO NOI to grow in 2024 at the midpoint of 19.5%, driven by positive revenues and expense trends.

With senior citizens’ healthcare expenditure expected to rise in the coming years and improving operating trends, Welltower’s SHO portfolio is well-prepared for compelling multiyear growth.

There has been a favorable outpatient visits trend compared with in-patient admissions. Banking on this, the company is optimizing its outpatient medical (OM) portfolio, and 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’s strategic portfolio restructuring initiatives over the recent years have enabled it to attract top-class operators and improve the quality of its cash flows. Per the June business update, WELL reached an agreement with Atria Senior Living to transition 89 Holiday by Atria communities to six of Welltower’s existing operating partners, including Arrow, Cogir US, Discovery, QSL, Sagora and StoryPoint.

Encouragingly, this healthcare REIT’s capital-recycling activities to finance near-term investment and development opportunities pave the way for its long-term growth. In the first quarter of 2024, Welltower completed $449.2 million of pro-rata gross investments, including $207.9 million in acquisitions and loan funding and $241.3 million in development funding. During this period, the company completed pro rata property dispositions and loan repayments of $107 million. It expects to fund an additional $660 million of development in 2024 relating to projects underway as of Mar 31, 2024.

Welltower maintains a healthy balance sheet position with ample financial flexibility. It had $6.5 billion of available liquidity as of Mar 31, 2024. It also enjoys investment-grade credit ratings of BBB+ and Baa1 from S&P Global Ratings and Moody’s, respectively, rendering it access to the debt market at favorable terms. With a strong financial footing, the company remains well-positioned to meet its near-term obligations and fund its development pipeline.

However, competition in the senior housing market and tenant concentration in the triple-net portfolio raise concerns. Also, high interest rates add to its woes.

Stocks to Consider

Some better-ranked stocks from the broader REIT sector are Alexandria Real Estate Equities ARE and Americold Realty Trust COLD, 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 ARE’s 2024 FFO per share stands at $9.49, indicating an increase of 5.8% from the year-ago reported figure.

The Zacks Consensus Estimate for COLD’s 2024 FFO per share is pinned at $1.44, suggesting year-over-year growth of 13.4%.

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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