Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

Long Ideas

Is Welltower Making money from Senior Housing?

Welltower Inc. (NYSE: WELL) could be the perfect real-estate stock for the 21st Century.

To explain, Welltower (WELL) owns and manages senior housing and post-acute care (rehabilitation centers). Welltower’s senior housing includes nursing or care homes, assisted living communities, and memory care communities for people with dementia.*

Welltower owns 86 senior-housing communities in 31 American states. Theoretically, Welltower could be a lucrative company because management claims its average tenant pays a rent of $2,775 a month.*

Welltower’s business could explode

Welltower’s business could explode because Statista estimates people over 65 could comprise 22% of the US population by 2050. Statista estimates that 16.5% of the US population was over 65. in 2019.

If Statista’s estimate is correct, there could be 56.277 million Americans over 65. To explain, Worldometer estimates the US population was around 333 million in 2021, and 16.9% of 333 is 56.277 million.

In addition, Braintest estimates that five million Americans are living with age-related dementia. Hence there are five million potential customers for Welltower’s memory care facilities. To explain, a memory care facility cares for people with dementia.

Welltower’s Revenues Shrink

On the other hand, I think Welltower’s financial numbers disapprove this thesis.

Stockrow estimates that Welltower’s revenues shrank by 16.4% in the quarter ending on 31 March 2021. In addition, Welltower (WELL) experienced five straight quarters of revenue shrinkage during the pandemic year.

Consequently, Welltower’s quarterly revenues shrank from $1.256 billion on 31 March 2020 to $1.05 billion on 31 March 2021. Similarly, Welltower’s quarterly operating income fell from $253.18 million on 31 March 2020 to $148.01 million a year later.

In addition, Welltower’s quarterly gross profit fell from $569.75 million on 31 March 2020 to $433.35 million on 31 March 2021. Furthermore, Welltower’s quarterly operating cash flow fell from $410.67 million on 31 March 2020 to $336.10 million on 31 March 2021.

Does Welltower Make Money?

In contrast, Welltower’s quarterly ending cash flow rose from $393.07 million on 31 March 2020 to $2.559 billion a year later. Importantly, I do not think Welltower borrowed that money. To explain, Welltower (NYSE: WELL) did not report heavy borrowing the pandemic. However, Welltower reported a quarterly financing cash flow of $366.83 million on 31 March 2021.

Notably, Welltower’s total debt grew from $14.786 billion on 31 March 2020 to $15.226 billion on 31 March 2021. Thus, Welltower finished the pandemic year with more debt and less revenue and income.

However, Welltower finished the first pandemic year with more cash. It reported $2.559 billion in cash and short-term investments on 31 March 2021. The cash and short-term investments were $393 million on 31 March 2020.

What Value Does Welltower Have?

Welltower (WELL) maintained its value during the COVID-19 pandemic despite falling revenues. Welltower’s total assets went from $32.393 billion on 31 March 2020 to $32.393 billion on 31 March 2021.

I think Welltower maintains its value. However, Welltower is in a business that COVID-19 severely damaged.

For example, around 8% of Americans in long-term care facilities died of COVID-19, the COVID-19 Tracking Project estimates. The Project claims nearly one in 12 long-term care home residents and almost one in 10 nursing home residents died of COVID-19 between March 2020 and March 2021.

Predictably, many people did not want to go near care homes during the pandemic. The news media drove the hysteria with many stories about people dying in nursing homes.

Will COVID-19 Kill Welltower?

One person who drove the story was New York State Governor Andrew Cuomo (D-New York City). USA Today estimates that 13,000 people died of COVID-19 in Empire State nursing homes. Cuomo made the situation worse by publicly falsifying the death statistics igniting a destructive political scandal.

I do not think Cuomo has any connections to Welltower. Yet news stories about Cuomo’s activities scare people away from nursing homes. Senior citizens do not want to go to nursing homes and die of COVID-19, while others do not want to send loved ones there.

I think it could take years for the assisted living business to recover from Coronavirus. Yet I think the business will recover because many families cannot care for relatives with dementia at home.

Another problem for Welltower is that millions of Americans stayed home because of Coronavius. Additionally, many of those people began working from home. Therefore, millions of Americans are in a better position to care for elderly relatives at home. That will hurt Welltower’s assisted living business but could help its at-home care operations.

Is Welltower a Good Stock?

One person who has faith in Welltower (WELL) is Mr. Market. Mr. Market paid $52.31 for Welltower on 7 July 2020 and $84.87 for Welltower on 7 July 2021. Thus, Welltower’s share price grew by $32.56 in a year.

In addition, Welltower pays an attractive dividend. It paid a quarterly dividend of 61₵ on 20 May 2021. Welltower paid a 61₵ for the last year. In total, Welltower offered a $2.44 LTM dividend and a 2.87% dividend yield on 7 July 2021.

I consider Welltower a good dividend stock with strong growth potential. However, Mr. Market overvalues Welltower. I advise investors to watch Welltower but not buy because I think Mr. Market overprices it.