Welltower: A Five Star Buy Among Healthcare REITs

11/04/2019 5:00 am EST

Focus: REITS

Kenneth Leon

Global Director of Industry & Equity Research, CFRA Research

Welltower (WELL) carries our highest 5-STARS rating, or Strong Buy; healthcare REITS are attractive for investors seeking defensive quality, higher dividend yielding securities, observes analyst Kenneth Leon in CFRA Research's The Outlook.

Our recommendation is supported by a strong management team to execute on growth, a proven track record to enhance the real estate portfolio for higher returns on investment and a quality company with near a 4.0% dividend yield.

WELL is a leading health care REIT with property investments in senior housing, long-term and post-acute care facilities, assisted-living and medical office buildings. At year-end 2018, WELL owned 1,621 properties in its portfolio.

To better diversify the risk from any one facility, a large percentage of WELL's leased properties are subject to master leases. These triple-net leases generally cover multiple facilities under one lease and have a fixed term of 12 to 15 years and contain one or more five- to 15-year renewal options.

Convenient care is another trend that WELL is focused on targeting, with new facilities closer to patients in satellite locations; WELL is also looking to invest capital in new areas, such as building memory care facilities in urban markets.

Health care REITs like WELL remain attractive, in our view. Compared to other REIT property types, health care REITs are less cyclical, in our view, and more recession resistant as demand for health services is viewed to be less elastic and growing with an aging U.S. population.

Our 12-month target price of $100 is based on 23.2x our 2020 FFO estimate, higher than the health care REIT average of 16.0x, given WELL's senior housing and post-acute facilities in mostly coastal markets that have higher per-capita demographics. We find the near 4.0% yield appealing and secure with ample cash flow.

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