Health care real estate investment trusts have underperformed the broader REIT sector year-to-date. While Raymond James continuesto have an Underweight sector recommendation, the firm recommends select stocks in the space.
The analyst has a $60 price target for Welltower and $22 for Sabra Health. (See Hughes' track record here.)
'Margin of Safety' For Welltower Investors
Welltower shares are trading at a discount to Raymond James' net asset value estimate, Hughes said in a Monday note. The 2019 consensus estimates for the REIT are likely to be upwardly revised, he said.
Those two factors offer an attractive "margin of safety" for investors, Hughes said. The analyst projects that sentiment toward the company's QCP/ProMedica transaction will turn more positive once the merits of the deal are better understood.
Raymond James said it is now confident about Welltower's outperformance relative to peers, growing profitability and shareholder value.
Sabra Preferred Over Omega Healthcare
Sabra's attractiveness relative to its peer Omega Healthcare Investors Inc (NYSE: OHI) on every metric — such as earnings, NAV and dividend yield — informed Hughes' decision, he said.
Sabra has lower exposure to operators with lower EBITDAR coverage, the analyst said.
Sabra, with its exposure to skilled nursing facilities, will benefit from demographic shifts that could serve to increase occupancy and EBITDAR coverage, according to Raymond James.
Brookdale Sale Delay To Hurt HCP
HCP's transactions with Brookdale Senior Living that were announced in November could be delayed from mid-2018 to later in the year, Hughes said.
The delay, though not impacting 2019 estimates, will be perceived negatively, the analyst said.
HCP, with the lowest exposure to senior housing and highest exposure to medical offices and life sciences, has the most attractive asset mix, but the stock's risk-reward profile has become balanced, according to Raymond James.
Healthcare Trust of America Dented By MOB Outlook
The diminished external growth outlook within the medical office building space has eliminated a key driver of earnings and NAV growth for Healthcare Trust of America, Hughes said.
Though this factor is also relevant to Physicians Realty Trust (NYSE: DOC), that REIT scores over Healthcare Trust of America due to its slightly more attractive valuation and smaller size, making it an ideal foil for a takeout, the analyst said.
The Price Action
The health care REITs ended Monday's trading session as follows:
- Welltower shares were up 1.6 percent at $55.18.
- Sabra shares were up 2.35 percent at $19.58.
- HCP shares were up 0.48 percent at $23.13.
- Healthcare Trust of America was up 0.94 percent at $24.61.
REIT ETFs Aren't Done Even As Rates Rise
Latest Ratings for WELL
|May 2018||Raymond James||Upgrades||Market Perform||Outperform|
|May 2018||BMO Capital||Upgrades||Underperform||Market Perform|
|Apr 2018||Hilliard Lyons||Upgrades||Underperform||Neutral|
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