Welltower's Strong Q4 2025 Results Showcase Operational Momentum but Fail to Alleviate Overvaluation Fears

What happened

Welltower reported fourth-quarter 2025 normalized FFO per share of $1.45, a 28.3% year-over-year increase, driven by seniors housing operating (SHO) same-store NOI growth of 20.4%. Organic revenue growth of 9.6% stemmed from 400 basis points of occupancy gain and 4.7% higher revenue per occupied room, with margins expanding 270 basis points, highlighting continued operational efficiency. The company completed $13.9 billion in pro rata gross investments, including U.K. acquisitions, and $7.5 billion in dispositions, accelerating its pivot to a pure-play seniors housing model. Despite these strong metrics, the stock's valuation at approximately 131x GAAP EPS and 50x EV/EBITDA prices in perfection, leaving no margin of safety for any growth slowdown. Integration risks from over 700 communities and potential affordability constraints in high-end markets could undermine future performance as occupancy approaches more normalized levels.

Implication

The sustained high SHO SSNOI growth of 20.4% validates Welltower's operational edge, but with occupancy gains likely to slow, growth may normalize to 10-12%, compressing premium multiples. Active capital recycling through $13.9 billion in investments and $7.5 billion in dispositions shows execution capability, yet the scale increases integration complexity and execution risk for over 700 communities. At current valuations near $187, any miss on growth or rise in leverage could trigger a sharp re-rating, potentially driving shares toward the bear case target of $140. Key monitors include SHO SSNOI growth staying above 20% and net debt/EBITDA remaining below 4.0x; breaches would signal thesis deterioration and justify a trim. Given the crowded long narrative and limited upside, prudent investors should consider trimming above $205 and awaiting a more attractive entry near $155 to balance demographic tailwinds with valuation risks.

Thesis delta

The Q4 2025 results confirm Welltower's ability to deliver exceptional SHO growth and execute on its capital strategy, aligning with the bull scenario assumptions. However, the overarching thesis of overvaluation and integration risks remains unchanged, reinforcing the POTENTIAL SELL rating with a trim target of $205. No fundamental shift is warranted unless future quarters show sustained growth above 15% with stable leverage below 3.5x.