Recent Buy – Welltower (WELL)

For the second month in a row, I added a REIT to my portfolio. As discussed in my latest Portfolio Overview, it was still one of the sectors I wanted to increase my exposure to.

The company I decided to go for this time is called Welltower. Even though, I already had two companies from REITs sector in my portfolio, this one is quite different. I had REITs in Industrial and Retail industries. Welltower adds a company from Healthcare facilities industry.

Company Overview

Shortly about the company from Morningstar:

Welltower owns a diversified healthcare portfolio of over 1,700 in-place properties spread across the senior housing, medical office, and skilled nursing/post-acute care sectors. The portfolio includes over 100 properties in both Canada and the United Kingdom as the company looks for additional investment opportunities in countries with mature healthcare systems that operate similarly to that of the United States.

REITs operating in healthcare industry, particularly with senior housing, have been hit especially hard by Covid-19. Occupancy rates will probably fall, as seniors would like to avoid places of close quarters with other people, if possible. Restrictions to visiting have also played a role. Furthermore, it is affecting costs of healthcare REITs as well, as they need to spend more on disinfecting stuff and other expenses, related to higher hygiene standards. That’s why share price of related REITs fell a lot since March. Welltower’s stock was down by ~60% at one point, but it pushed up from the bottom already:

I didn’t try to catch the bottom, as the situation was too uncertain and you really can’t know if it’s the bottom yet. I was also waiting to see how much they are going to cut their dividend, as it seemed unrealistic to keep it at the same level. So company reduced their dividend by ~30% at the beginning of May but the yield seemed still attractive. After comparing it to competitors, I decided to initiate a position last week.

Let’s run through company’s numbers at the purchase price (on the 28th May):

• Price – $51.77;
• FFO Payout Ratio (forward) – 64.67%;
• Net Debt/EBITDA – 6.18;
• EBITDA/Net Interest Expenses – 4.14;
• Net Interest Expenses/Net Operating Income – 45.46%;
• Debt/Total Real Estate Assets – 49.75%;
• Dividend Yield – 4.71%;
• Average 4-yr yield – 5.38%.

Most of the ratios are going to change in this volatile environment, so I don’t think we should rely on them too much. However, I think the company can maintain their dividend. Even though the yield is lower than their 4-yr average, it’s pretty decent, especially keeping in mind the recent dividend cut.

Purchase Summary

On the 28th of May, I bought 20 shares of Welltower for €51.77/share for a total of $1042.40 (including commissions):

This purchase adds $41.48 to my net forward annual dividend income.

I now have 3 REITs in my portfolio and all of them are from different industries. It brings the sector closer to the 15% desired allocation in my portfolio but I still have some room.

What have you been buying lately? Do you have Welltower in your portfolio? Do you try to stay clear from this industry now? I would love to read your comments!