If we want to evaluate the performance of Welltower (HCN) in 2Q17, the most useful multiple is the price-to-FFO (funds from operations) multiple. The price-to-FFO multiple for REITs such as Welltower holds the same significance as the price-to-earnings ratio used for companies operating in other industries.
Peer group price-to-FFO multiple
Welltower’s current price-to-FFO multiple is 17.34x. The company’s higher-than-expected results in 2Q17 coupled with an optimistic outlook for fiscal 2017 must have been responsible for the recent rally in HCN stock.
Welltower has also undertaken several steps to increase its operating efficiency. In addition to expanding its healthcare assets to affluent high-demand cities, it has also successfully used the Internet and data-enabled services to reduce costs. Further, it has disposed of its non-core business in order to focus more on its profitable business.
In terms of price-to-FFO multiple, HCN trades at par with most of its peers. Its close peers HCP (HCP), Healthcare Trust of America (HTA), and Ventas (VTR) carry price-to-FFO multiples of 16.32x, 18.71x, and 16.28x, respectively.
Peer group dividend yield
Welltower. currently offers a next-12-month dividend yield of 4.7%, which is in line with its close competitors. HCP (HCP), Healthcare Trust of America (HTA), and Ventas (VTR) offer dividend yields of 4.7%, 4.0%, and 4.6%, respectively.
Welltower and its peers make up almost 9.0% of the Vanguard REIT ETF (VNQ). VNQ has a wide product portfolio covering industries such as healthcare, self-storage, and residential REITs that cushion investors against headwinds.