Welltower (NYSE: WELL) changed its stock ticker from HCN to WELL effective Feb. 28, but things haven't been going well for its investors. After a gloomy 2017, Welltower has failed to provide investors any respite so far this year and continued its losing streak into February, shedding 12.5% during the month, according to data provided by S&P Global Market Intelligence.
While rising interest rates have put pressure on real estate investment trusts (REITs), muted fourth-quarter numbers and guidance for 2018 from Welltower last month further added to investors' concerns.
Welltower's funds from operations (FFO) -- a key metric to gauge a REIT's performance -- slipped 5.3% year over year during the fourth quarter as the company continued to sell assets, in line with a major restructuring program that management initiated a couple of years ago.
In fiscal 2017, Welltower completed property sales and loan payoffs worth nearly $1.5 billion. Lower rental income and asset impairments hurt the company's bottom line, and it turned in $4.21 per share in normalized FFO for the year compared with $4.55 per share in 2016.
With another $1.3 billion in asset sales lined up for 2018, Welltower expects to generate FFO ranging between $3.95 and $4.05 per share this year. Not surprisingly, investors were disappointed, and the stock price headed lower.
While lower cash flows don't bode well for a company, investors should know that Welltower is using the bulk of proceeds from asset sales to deleverage, which should pay off in the long run.
Also, one of Welltower's tenants, Genesis Healthcare, which is facing a severe liquidity crunch, recently secured fresh financing commitments. While an amended loan structure will mean lower interest income for Welltower, management is confident that its decision to stick with Genesis through the challenges to remain in the post-acute sector was in the right direction.
There are two other points worth noting: Welltower's same-store net operating income grew 2.7% in 2017 and is expected to rise 1%-2% in 2018, and its outlook for 2018 doesn't include any potential acquisition. Going by the company's acquisitions in 2017, I don't expect 2018 to be a dry year, which could mean better numbers for the company as the year progresses.
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