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Welltower: Great Dividend, Risky Price

Apr. 13, 2018 3:32 PM ETWelltower Inc. (WELL)12 Comments
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  • Welltower is a strong healthcare REIT with ties to excellent demographic trends and considerable net operating income expansion.
  • The REIT's investment-grade credit ratings and strong portfolio offer continued support to its dividend. Shares yield ~7%.
  • Rising interest rates may pose trouble for Welltower's equity as investors shift toward vehicles with more promising risk-reward yields.
  • Our fair value estimate implies modest upside to shares on a valuation basis, but investors should watch its technicals very closely at present levels.

Image shown: A long-term chart showing the critical nature of current price levels for Welltower's (NYSE:WELL) equity.

By The Valuentum Team

Shares of Welltower have faced an onslaught of selling pressure during the past few months as income-oriented investors start to worry about the impact that rising interests may have on REIT equity values, particularly as yield-seekers look for higher income-oriented vehicles outside of equities. Though Welltower has not been spared the selling pressure, shares are still holding the line around what we believe to be critical levels on a technical basis. We think paying attention to where Welltower goes next in coming months may be telling of where its share price ends up in coming years.

Welltower used to be called Health Care REIT, and the entity has been at the forefront of seniors housing and health care real estate since the company was founded in 1970. Its portfolio spans the full spectrum of health care real estate, including senior living communities, medical office buildings, inpatient and outpatient medical centers and life science facilities. By enterprise value, Welltower is the largest health-care REIT and trails only Simon Property Group (SPG), Prologis (PLD), and Public Storage (PSA) as the largest publicly-traded real estate company overall. It's in some great company.

Image Source: Welltower, February 2018

Portfolio Composition A Plus

We like Welltower’s portfolio concentration in affluent, high-barrier-to-entry markets and affiliation with market-dominant operators and health systems. Its pipeline across the US, UK and Canada is robust. Major, high growth metro markets in the US, Canada and the UK will continue to provide opportunities. As a percentage of net operating income (NOI), Los Angeles, Boston and New York, for example, are key markets for the REIT, and surveys have indicated that those that currently live in the city tend to want to stay there, with estimates as high as 70%+ of seniors desiring to "age in place." We

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Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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