Welltower (HCN) Debt Rating Upgraded To Baa1: Time To Hold?

Ushering in good news for Welltower Inc. (NYSE:HCN) , Moody's Investors Service, the rating arm of Moody's Corp. (NYSE:MCO) , announced that it has upgraded the company’s senior unsecured debt rating to Baa1 from Baa2 and preferred stock rating to Baa2 from Baa3. Its positive outlook was revised to stable.

Per the rating agency, this move reveals Welltower's efficiency in growing and improving its healthcare real estate portfolio quality and a lower leverage. The stable outlook reflects the rating agency’s anticipation that the healthcare real estate investment trust (REIT) would consistently focus on growth and diversification, with emphasis on private pay assets, modest leverage and a strong liquidity profile.

The rating upgrade enhances its creditworthiness in the market and is likely to boost investors’ confidence in the stock. Specifically, rating upgrades give companies an opportunity to enjoy reduced costs on debts and better access to capital.

Last month, Welltower came up with normalized funds from operations (FFO) per share of $1.13, which beat the Zacks Consensus Estimate of $1.12. The figure also improved from $1.04 reported in the year-ago quarter. Results were positively influenced by same store cash NOI growth and investments.

Moreover, the acquisition of a midtown Manhattan site by Welltower in collaboration with Hines for developing a senior housing and memory care community is encouraging. In fact, a diversified portfolio and strategic investments are expected to serve as growth drivers for Welltower. In addition, a rise in senior citizen spending for healthcare reasons promises a strong future. However, any rise in interest rate and intense competition remain as concerns.

Welltower currently has a Zacks Rank #3 (Hold). However, investors interested in the REIT industry may consider stocks like Mack-Cali Realty Corp. (NYSE:CLI) and PS Business Parks Inc. (NYSE:PSB) . Both these stocks carry a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.


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