Welltower Inc. (NYSE: WELL) is a healthcare real estate investment trust (REIT) that invests in modern senior housing, post-acute care, and outpatient medical centers. Welltower is unique in this space in that their focus is on innovation within the industry. They invest in operations that focus on keeping patients out of the hospital and reducing their overall healthcare costs.
Welltower has a long history in the senior housing industry, being founded in 1970 with two skilled nursing facilities with a total value of $800,000. Since then, the company has grown consistently over the years to now having total assets of $32.92 billion.
Senior housing in the United States has changed very little since the industry's inception. Traditional senior housing facilities tend to be the place people go when there aren't any other options available. It's rarely something seniors are excited about.
However, when you look at the newer concepts throughout Europe, and the growing trend of senior cohousing, you'll see that there are senior housing facilities available that meet the needs of seniors but even provide an improvement to their lifestyle. Welltower has positioned itself ahead of the curve when it comes to senior housing innovation.
While the COVID-19 pandemic has been a short-term problem for Welltower, it may prove to be beneficial to them in the long term. The pandemic has taken a significant toll on hospitals and has changed the way people are looking at their future healthcare needs.
It's likely that occupancy in the post-acute facilities will increase as people attempt to limit their time in the hospital while outpatient procedures and elective surgeries have already begun moving away from hospitals and into outpatient centers. The fallout from COVID-19 is expected to speed up that trend.
Welltower's post-acute care and outpatient medical centers have been created with the intention to reduce the amount of time people spend in the hospital as well as their overall healthcare costs.
With Welltower's investments in these types of facilities, their operators are expected to have an increase in revenue, and the demand for these facilities will provide plenty of growth opportunities for this REIT.
COVID-19's impact on Welltower's operators
COVID-19 had a major impact on Welltower's operators. Admission bans in place with most of their facilities resulted in a steady decline in occupancy since the beginning of March. The pandemic also caused a significant increase in expenses as many operators had to pay 1.5x - 2.0x salary as hazard pay and an increase in spending for personal protective equipment.
Admission bans have begun easing up, and the decline in occupancy has been slowing down. As of May 29, 2020, 39% of their facilities had admission bans compared to 42% in late April. Welltower has also been successful in collecting 94% of their May rent in their triple-net portfolio. May leasing activity has also returned to pre-COVID-19 levels.
Welltower went into the pandemic as a fairly healthy REIT. Their first-quarter funds from operations (FFO) for 2020 was $660.24 million compared to 581.32 million from the first quarter of 2019. They are also in a strong liquidity position with $4.6 billion available between sale proceeds from dispositions, cash on hand, and approximately $1 billion in gross proceeds from dispositions.
Is now a good time to buy WELL?
Welltower has fared well and continued to grow through several economic downturns over its 50 years. Overall, WELL should manage to escape the current economic crisis without much long-term damage. Things are already starting to get better with their operators, they have plenty of liquidity, and the aging senior population isn't slowing down.
The share price for Welltower took a substantial hit in early March and has struggled to gain much momentum on its way back up. However, I'm not seeing this as a sign of trouble, and it's not a cause for concern. This REIT seems to have settled into a more reasonable, fair price. Welltower had a Pre-COVID-19 P/FFO ratio of 21.925 and is now sitting at 14.26.
While Welltower is still at a significant discount from its year-to-date (YTD) high, I don't think it's time to jump in quite yet. The decline in COVID-19 cases has slowed and even reversed in some areas. There is also growing concern about a second wave.
This brings concern that there may be another uptick in COVID-19 cases in some of Welltower's properties and another decline in occupancy rates. Those concerns, coupled with the market's second plunge, are likely to cause Welltower's price to drop back closer to its 2020 low.
I do believe Welltower will be a good buy, and I don't think anyone should rush out to sell their shares. I just don't think right now is the best time to buy. I would keep a close eye on them and wait to see how things continue to develop with the concerns of a second wave of COVID-19.
I feel pretty confident that Welltower has a growth spurt in its future, so even if you miss the lowest buy-in, there's still plenty of room to make money with this one.
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