Why BofA Is Upgrading Health Care REITs

Health care REITs are expected to recover in 2021, driven by improving earnings growth, according to BofA Securities.

The Healthcare REITs Analyst: Joshua Dennerlein upgraded the health care segment within REITs to Equal Weight.

The Upgrades Among Healthcare REITs: Omega Healthcare Investors Inc OHI upgraded from Underperform to Buy. Price target raised from $32 to $40.

Ventas, Inc. VTR upgraded from Underperform to Buy. Price target raised from $46 to $55.

Welltower Inc WELL upgraded from Underperform to Neutral. Price target raised from $60 to $67.

The Health Care REITs Thesis: Health care REIT earnings are likely to have neared a bottom, given the recent COVID-19 vaccine developments and conversations at the National Association of Real Estate Investment Trusts, Dennerlein said in an upgrade note.

Ventas seems to be the best-positioned for 2021 among the big three health care REITs, the analyst said, adding that it was set for “the eventual turn in senior housing as it will face the least amount of capital recycling earnings drag in 2021.

“Government support should keep rent collections high,” benefiting Omega Healthcare Investors, he said.

While the company’s operators “remain flush with cash from COVID relief measures,” the vaccine should boost fundamentals, and the transaction market “is beginning to thaw opening up the possibility for external growth in 2021,” Dennerlein said. 

Welltower could benefit from senior housing operations beginning to “stabilize and recover in 2021” and “the opportunistic deals they are seeing in the market,” which should lead to significant long-term value creation, according to BofA.