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Investing.com -- Moody’s Ratings has upgraded the long-term issuer rating of Welltower (NYSE:WELL) Inc. and its subsidiary, Welltower OP LLC, to A3 from Baa1. The rating of HCN Canadian Holdings-1 LP, another Welltower entity, has also been upgraded to A3 from Baa1. The outlook for all entities has been adjusted from positive to stable.
The upgrade comes in response to Welltower’s robust revenue and earnings growth over the past year. The company’s financial policy, which prioritizes organic growth and equity-funded investments, has been a significant factor in its success. This approach has allowed Welltower to increase earnings while maintaining a relatively conservative capital structure.
Welltower’s A3 rating is a reflection of the company’s large scale, high-quality assets and diversified portfolio. The portfolio includes a mix of senior housing operating facilities, senior housing triple-net leased assets, outpatient medical facilities, and long-term/post-acute care facilities. Welltower’s commitment to a conservative capital structure, demonstrated by its use of equity to fund acquisitions, also supports the A3 rating.
Welltower’s performance is expected to remain strong due to demographic trends, such as the aging population, which ensure steady demand for senior housing. The company’s high exposure to the senior housing operating (SHOP) segment, which accounted for 57% of annualized in-place net operating income as of Q4 2024, also supports the A3 rating.
At the end of 2024, Welltower’s net debt/EBITDA was 4.6x, down from 6.1x at the end of 2023. This improvement is largely due to growth from equity-funded acquisitions and strong organic growth, particularly in the SHOP segment. In 2024, Welltower’s SHOP segment saw same-store net operating income growth of 23.9%, driven by improved occupancy, increased revenue per occupied room, and controlled expense management.
Looking ahead, demand for senior housing is expected to remain high due to the aging Baby Boomer generation. Welltower’s growth guidance for 2025 forecasts an increase in same store net operating income of 9% to 13% for the portfolio as a whole, with the SHOP business expected to grow between 15% and 22%.
Despite potential future cost increases due to factors beyond the company’s control, Welltower’s financial metrics are expected to strengthen further. By the end of 2025, Moody’s anticipates Welltower’s net debt to EBITDA to be below 4x, and interest cover above 5x.
Welltower’s liquidity is also strong. As of December 31, 2024, the company had approximately $8.7 billion in liquidity sources, including $3.7 billion in unrestricted cash and full availability under its $5 billion revolving credit facility.
The stable outlook reflects expectations that Welltower will continue to strengthen its financial metrics through earnings growth and a conservative approach to investments. It also suggests that the company will be able to absorb cost increases within its senior housing portfolio while remaining in line with metrics commensurate with its current rating.
Factors that could lead to a future upgrade or downgrade of Welltower’s ratings include sustained strong operating performance, net debt to EBITDA well below 4x, and fixed charge coverage remaining above 5.5x. Conversely, a sustained increase in net debt/EBITDA above 5x, or a reversal in the fundamentals underpinning the expected growth in the SHOP segment, could exert downward pressure on the ratings.
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