Welltower: Q4 2019 Update, Near 52-Week Low, Two 20%-Plus Trades With Even Lower Breakevens

Summary

• WELL is near its 52-week low, but you can get an even lower breakeven.
• We offer two options-selling trades which offer 24% to 26% annualized yields in a three-month-plus period.
• Earnings, valuations, financials, performance, and price targets also are detailed.
• Looking for a helping hand in the market? Members of Hidden Dividend Stocks Plus get exclusive ideas and guidance to navigate any climate. Get started today »

Have you heard that phrase, "You're not getting any younger" recently? Or maybe you're hearing it more often, if you're in the Boomer generation. The fact is, the US population is definitely not getting any younger - 20% of the US population is projected to be over 65 by 2030 and beyond:

(Source: NY Times)

That's where companies like Welltower (NYSE:WELL) come in. It's a real estate investment trust which owns interests in properties concentrated in major, high-growth markets in the United States, Canada and the United Kingdom, consisting of senior housing and post-acute communities and outpatient medical properties.

WELL's biggest geographic concentration is in the US, which comprises ~41% of its core properties. It also has assets in Canada and the UK. California is its biggest concentration, at 21% of core assets, followed by NY/NJ at 9.3%:

(Source: WELL site)

Segments:

WELL's Seniors Housing Operating properties is its largest segment by far, contributing ~45% of segment NOI in 2019. Its triple net leased properties accounted for ~20% of 2019 NOI, followed by Outpatient Medical, at 15.5%; Long Term/Post-Acute Care, at 11.6%; and Health System, at 7.6%:

(Source: WELL site)

WELL's management has been diversifying and upgrading the company's asset base during the past two years. They deployed $5B in 2019, with a particular emphasis on outpatient facilities, which makes sense, given the push by insurers away from in-hospital stays, due to high costs.

WELL closed or announced more than $3.5 billion of outpatient medical acquisitions in 2019 at a blended year one cash cap rate of 5.6%. These acquisitions will contribute 450 properties and more than 8 million square feet to the company's platform, as it continues to expand through accretive off-market acquisitions. It now owns the biggest commercial platform of medical offices leased in the U.S.

They also acquired a 29-property Class-A medical office building portfolio from Hammes Partners for $787M in November 2019. These facilities, known as MOBs, are often seen as the sweet spot in the Healthcare REIT space due to their increased insulation from regulatory risk.

"For an example of how Welltower is driving the next generation of residential care design, I point you to our building on East 56^th Street and Lexington Avenue opening in late spring. When this building opens, it will be the most technologically advanced residential care facility in the world for seniors suffering with conditions of frailty to memory care." (Source: Q4 '19 earnings call)

Earnings:

WELL had high single-digit growth in revenue and aAdjusted EBITDA in 2019, with 11% FFO growth. Same-store NOI was up a modest 2.19%, while normalized FFO/share rose 3.2%. Although the share count rose by 7.6%, WELL was able to improve its FFO payout ratio by ~3%, with dividends remaining flat.

2020 Guidance:

Management is guiding to a $4.20 to $4.30 FFO range for 2020, which implies FFO growth of ~1% to 3.4% for this year. Net income guidance is for $1229M to $1270M, which would be a growth range of ~flat to 3% growth, vs. 2019's net income of $1232M.

(Source: WELL site)

Valuations:

Nothing jumps out as a big undervaluation for WELL, at current prices. Its trailing price/FFO of 17.31 is a bit lower than the 18.27 sector average, but the other valuations are higher.

Analysts' Price Targets:

However, analysts seem to be more bullish on WELL than the market - its -10.34% price decline over the past month has put WELL 24.6% below the $89.42 average price target.

WELL has underperformed the market, the Real Estate SPDR ETF (XLRE), and the Health Care Select SPDR ETF (XLV), over the past year, quarter, month, and in 2019 so far:

Financials:

On the plus side, WELL's ROA and ROE are better than the sector medians, while its debt/equity is slightly lower.

Debt:

WELL has a net debt/FFO leverage ratio of 8.78X. Its first big debt maturity isn't until 2023, which gives management ample time to refinance. Its debt load currently carries a weighted average interest rate of 3.8%.

(Source: WELL site)

Dividends:

At $71.75, WELL's dividend yield is 4.85%, a bit lower than some of the other healthcare income vehicles we've covered in our recent articles. The five-year dividend growth rate is just 1.82% - they've kept the quarterly payout at $.87 since Q1 2017. The FFO payout ratio is 83.65%. WELL goes ex-dividend and pays in a Feb/May/Aug/Nov schedule.

Options:

Given the intense market volatility and WELL's underperformance, you may be interested in hedging your bet with some near-term option selling trades.

You can see more details for these two trades on our Covered Calls and Cash Secured Puts tables.

If you're mildly bullish, WELL has a June $75.00 call strike, which pays $4.10, over 4X its quarterly dividend. If WELL doesn't rise to or above $75.00 during this term, the static income would be $4.97, for a 6.93% nominal yield in this three-month-plus trade, or 24.31% annualized.

If you're less bullish, but interested in getting paid to wait, this June $70.00 put-selling trade pays $5.20, and gives you a $64.80 breakeven, which is ~ 9% below WELL's 52-week low of $71.18:

All tables by DoubleDividendStocks.com, except where noted otherwise.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in WELL over 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.

Our DoubleDividendStocks.com service has featured options selling for dividend stocks since 2009. It's a separate service from our Seeking Alpha Hidden Dividend Stocks Plus service.