We're Upping Our Price Target for This Silver Tsunami Housing Play
We like the improved company focus, and here is where we’d look to add more shares.
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Coming off this morning’s September-quarter earnings call, we are increasing our price target on shares of senior housing real estate investment trust (REIT) Welltower (WELL) to $205 from $190. As we discussed in our comments earlier this morning, Welltower lifted its forecast for 2025 funds from operations (FFO), and that is one of the reasons behind our revised target.
The other reason is greater clarity on its $23 billion in transaction activity, which included $14 billion in senior housing community acquisitions and $9 billion in dispositions, including the sale of an outpatient medical real estate portfolio and loan repayments. During the earnings call, Welltower management confirmed that the net result of these moves, which includes the addition of more than 46,000 units across 700-plus communities, makes Welltower a more focused play on senior housing.
We like that increased focus, especially with the demographic tailwind and the shortage of senior living capacity. Data from senior housing analytics company NIC MAP find that by 2030, the senior living sector faces a potential shortfall of approximately 595,000 units. We see that driving favorable rent escalation figures, especially as capacity levels continue to rise, leading to further margin improvement and higher FFO per share figures. Given Welltower’s REIT structure, that should also lead to further dividend increases.
As such, our intent is to remain long-term holders of WELL shares. Along with that, we are interested in adding to the Pro Portfolio’s exposure reflecting the total return potential we see over the coming years. Should we see WELL shares pull back and test the 50-day moving average near $171, that would not only be a place where we would consider picking up more shares, it would also give us reason to revisit our current Two rating.
We will continue to monitor capacity figures and additional moves to scale the company’s footprint. Like our comments about capital spending and infrastructure projects in a more favorable interest rate environment, we see the same for Welltower and its footprint expansion plans. As that base expands, so too should its resident fee and services revenue stream, and odds are our price target.
At the time of publication, TheStreet Pro Portfolio was long WELL.
