The Wall tower Real estate fund is ready to recover after a challenging year
Real estate owner Welltower Inc. (WELL) faced several problems during the coronavirus pandemic, which led to a reduction in dividends in 2020. However, now the company is ready for recovery and intends to make the most of the favorable market conditions. Welltower is one of the most significant real estate funds (REITs) that specializes in residential homes for the elderly.
During the pandemic, such institutions were mainly closed. Health experts recommended that older people, as a more vulnerable group, observe self-isolation and not be in a large crowd. Currently, the situation has changed, and the nursing homes owned by Welltower are working again. The occupancy rate of residential homes for the elderly reached a minimum in February 2021 and has continued to grow since then.
It should note that the company receives about two-thirds of its net operating income from housing for the elderly. The demand for staying in such institutions will grow as the U.S. population ages in the coming years.
According to forecasts, by 2040, this figure will grow to 22%. At the same time, the number of new facilities will develop slowly due to construction restrictions.
The start of construction in the third quarter of 2021 was 71% lower than it was at its peak in 2017. As a result, demand to exceed supply in the nursing home sector by 2030. a positive trend for companies like Welltower, which own housing for the elderly. However, most of Welltower’s business is related to accommodation for the elderly, its portfolio geographically.
For example, the company owns facilities in the USA, Canada, and the U.K. New York combined account for more than 5% of rents and 147 properties in the U.S. The rest of the 1,720 sites are in about 40 states. And although care for the elderly is an essential factor here, the remaining third of Welltower’s portfolio falls on office real estate and medical facilities, which to some extent compensates for the ups and downs in the field of housing for the elderly.
Recall that in 2020, Welltower to reduce dividends by 30% due to the high costs of maintaining and maintaining real estate during the downtime of the first wave and the need to ensure their uninterrupted operation. Nevertheless, Welltower’s dividends for the third quarter amounted to $0.61 per share (a dividend yield of 2.9%), and the payout ratio to free cash flow was reasonable – at the level of 76%.
Suggests that the dividends are pretty safe at the moment and may even. Thus, Welltower operates in favorable conditions, has a diversified portfolio of real estate.
