Mizuho doubles down on top REIT pick as senior housing growth gains momentum

Mizuho has reaffirmed its top pick in the real estate investment trust sector, citing robust senior housing demand, rising margins, and a growing acquisition pipeline as factors that could fuel double-digit growth through 2027 and beyond. The firm's analysis of Welltower's third-quarter performance, which delivered $1.67 per share in funds from operations (FFO), exceeded expectations, with Mizuho raising its full-year guidance by 10 cents to $6.47-$6.53 per share, slightly outpacing analyst consensus.

Despite elevated interest rates and a challenging economic climate, Mizuho maintains an "outperform" rating and $260 price target for Welltower, emphasizing the company's potential for sustained growth.

Senior housing emerged as the standout differentiator for Welltower, with same-store senior housing operating portfolio (SHOP) occupancy climbing 120 basis points quarter on quarter and 320 basis points year on year, surpassing 90%. Mizuho believes this provides management with ample room to concentrate on raising rental rates and enhancing margins, rather than relying solely on occupancy gains. The firm has also raised its SHOP NOI guidance for the year by 100 basis points at the midpoint.

Investment activity continues to serve as a key growth engine for Welltower. Year-to-date investments have amounted to $21 billion, including $7.7 billion closed or under contract in the fourth quarter. Recent SHOP acquisitions, valued at $2.7 billion, averaged approximately four years in asset vintage and boasted an average occupancy rate of 66%. These strategic acquisitions offer potential for operational enhancements and improved returns as occupancy rebounds.

Welltower is actively expanding its presence in skilled nursing, with $860 million in assets acquired during the quarter. Tightening financing conditions have created opportunities to purchase properties and optimize operations. In addition, $1 billion of post-quarter investments were allocated towards UK expansion, where SHOP occupancy was recorded at 85%.

Mizuho anticipates that Welltower will persist in capital recycling, divesting lower-growth assets to fund higher-growth opportunities. During the quarter, Welltower divested $144 million in SHOP assets, underscoring its commitment to portfolio quality and long-term earnings growth.