3 Things You Didn't Know About Welltower

By Matthew Frankel Markets Fool.com

Welltower (NYSE: HCN) is the largest healthcare-focused REIT in the market, with about 1,400 properties at the start of 2017. Most investors who follow the company know that it focuses on senior housing properties, and that it has a fantastic track record of delivering market-beating performance and dividend growth. However, here are three things you may not already know about Welltower.

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Rental income isn't Welltower's largest revenue source

Most real estate investment trusts earn the bulk of their money from renting out their properties. And while this is certainly a big part of Welltower's business, it isn't the company's largest revenue source.

Welltower is a major owner/operator of senior housing properties in the U.S., U.K., and Canada. Image source: Getty Images.

Instead, nearly 60% of Welltower's revenue comes from fees and services collected from its properties' operations:

Source

2016 Revenue (thousands)

% of Total

Resident fees and services

$2,504,731

58.5%

Rental income

$1,648,815

38.5%

Interest income

$97,963

2.3%

Other income

$29,651

0.7%

Total revenue

$4,281,160

100%

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Data source: Welltower 2016 Income Statement.

Instead of simply buying real estate and leasing it for income, Welltower's business model is a little different. Specifically, some of its properties are leased, but in a large portion of the senior housing portfolio, the company provides real estate capital to some of the biggest and best healthcare operators in the business, and the ventures are structured as partnerships.

Welltower's properties are newer and better-located than the competition

Part of Welltower's competitive advantage is maintaining a portfolio of healthcare real estate that's newer than properties offered by peers, as well as located in more attractive areas.

For example, Welltower's average post-acute/long-term care facility is 20 years old, while the average property owned by other healthcare REITs is 36 years old. The same is true for Welltower's senior housing portfolio -- the company's average senior housing property is 15 years old, three years newer than the competition.

Furthermore, Welltower's senior housing is located in more affluent markets than peers. The median household income and home price where a Welltower-owned senior housing property is located are $81,062 and $482,461, respectively. This represents 50% higher income and 118% higher real estate values.

As a result, Welltower's properties bring in more revenue and are consistently higher-occupied. Welltower's senior housing facilities generate $23,447 in net operating income per unit, compared to just $15,090 for peers. Welltower's average outpatient medical facility is 95% occupied, significantly higher than its peer group's 92% occupancy rate.

Demand is growing in Welltower's markets

Welltower's business has grown tremendously over the past 45 years or so, but there's good reason to believe there could be several additional strong decades ahead.

Specifically, the populations in Welltower's core markets -- the U.S., U.K, and Canada -- are aging rapidly. In the U.S., the senior citizen (65 and up) population is expected to roughly double by 2050, and older age groups are growing even more rapidly.

Image source: Welltower Investor Presentation.

In the two international markets, similar trends are expected. In the U.K., the 75-and-older population is growing five times as fast as the overall population, with growth in this age group of 3.8 million people expected over the next 20 years. Canada is aging even faster, with the 75-and-older group growing seven times as fast as the rest of the population.

A good time to invest in healthcare real estate

The bottom line is that now is a great time to invest in healthcare real estate, ahead of the expected demand growth. Welltower is the largest player in the industry, and in addition to its size, its portfolio gives the company some pretty strong competitive advantages.

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Matthew Frankel owns shares of Welltower. The Motley Fool recommends Welltower. The Motley Fool has a disclosure policy.