In a note dated June 26, MLV & Co. analyst Paul Morgan initiated coverage on the Healthcare REIT Sector with a neutral view due to the balance of "attractive investment opportunities" and risks from a "rising interest rate environment."
Within the sector, Morgan says small-cap REITs are poised to outperform peers through value adding acquisitions and development.
Morgan started coverage of the following stocks.
Physicians Realty Trust (NYSE: DOC) - Buy, $16 PT
Morgan noted that since the company's IPO, it has invested $344 million in acquisitions of outpatient medical offices over the past 12 months and expects another $200 million during the second half of 2014.
He believes this, along with positive demand trends, will drive a "sustainable, strong pace of external growth" over the next few years.
LTC Properties (NYSE: LTC) - Buy, $42 PT
Morgan noted the company is focused on diversifying its portfolio over the senior care property segment with an emphasis on memory care facilities.
As the number of Alzheimer's cases is expected to grow by 40 percent over the next decade, Morgan has a favorable view of the company's plan to seek growth both organically through its current tenant operators and from new operator programs.
Sabra Health Care REIT (NASDAQ: SBRA) - Buy, $31 PT
Morgan wrote, "One $60M off-market investment by Sabra offers the same bang-per-buck as a $1B merger does for the sector's big three."
As Morgan sees "clear synergies" across the senior care landscape and emerging negatives from a diluted focus, he view Sabra's 87 percent senior care mix and "strong" SNF background as an "advantage worth preserving."
AVIV REIT (NYSE: AVIV) - Hold, $30 PT
"The downside of Aviv's focused strategy in the skilled nursing sector is that the company is more exposed than many peers to negative news on the government reimbursement front," said Morgan.
He added that the company is exposed to risk from long-term interest rates rising due to its long-term triple-net leases.
BioMed Realty Trust (NYSE: BMR) - Hold, $23 PT
Morgan noted that BioMed shares have post "excellent performance" year-to-date but feels the current valuation adequately reflects the near-term positives.
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