Analysts: Healthcare REITs Show A Dichotomy Of Performance

It's never easy to figure out Wall Street, where bad news can be good for stocks or vice versa. Sometimes a stock can be flying high, only to have a well-known analyst spoil the party with a downgrade. The reverse also is true, as was the case this week with some healthcare real estate investment trusts (REITs).

Over the past three trading days, healthcare REITs have been the worst-performing REIT subsector. Six healthcare REITs lost between 4% and 11.5%. Eleven more healthcare REITs are also in the red by a smaller amount.

But a handful of analysts on Sept. 20 reported positive views on some of the better healthcare REITs. Can analysts save some of the underperforming REITs in this subsector from further price declines? Take a look.

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Sabra Health Care REIT Inc. SBRA: Jefferies Group analyst Jonathan Petersen upgraded Sabra Health Care REIT from Hold to Buy and raised the price target from $11 to $15.

Caretrust REIT Inc. CTRE: Jefferies analyst Joe Dickstein initiated coverage on Caretrust REIT with a Buy rating and announced a price target of $23. On Sept. 12, Caretrust REIT was upgraded from Sector Perform to Outperform by RBC Capital Markets analyst Michael Carroll, who said it is uniquely positioned to be more aggressive in deploying capital that will be accretive to earnings.

National Health Investors Inc. NHI: Jefferies analyst Dickstein also initiated coverage on National Health Investors, with a Hold rating and announced a price target of $52.

LTC Properties Inc. LTC: Jefferies analyst Dickstein initiated coverage on a third healthcare REIT, LTC Properties, with a Hold rating and announced a $29 price target.

Welltower Inc. WELL: Raymond James analyst Jonathan Hughes maintained an Outperform rating on Welltower and raised the price target from $90 to $95. Welltower also received a Maintain Buy rating with a price target increase from $86 to $90 from Mizuho analyst Omotayo Okusanya on Sept. 14.

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Last week, Welltower increased its 2023 funds from operations (FFO) guidance from $3.48-$3.59 to $3.51-$3.60. Welltower management cited asset management initiatives and favorable demand/supply conditions that have increased occupancy in its facilities.

Omega Healthcare Investors Inc. OHI: Raymond James analyst Hughes also maintained an Outperform rating on Omega Healthcare and raised the price target from $33 to $36. On Sept. 12, RBC Capital analyst Carroll initiated coverage of Omega Healthcare with a Sector Perform rating and announced a $33 price target.

On Sept. 8, Mizuho analyst Vikram Malhotra upgraded Omega Healthcare from Neutral to Buy and raised the price target from $31 to $35, citing occupancy gains in skilled nursing facilities (SNFs) into next year and lower default risks. Many SNFs are now seeing occupancy levels approaching pre-COVID levels.

In recent months, there has been a dichotomy of performances in the healthcare REIT subsector as stocks like Sabra Health Care, Omega Healthcare and Welltower have been solid performers, but Medical Properties Trust Inc. MPW, Healthcare Realty Trust Inc. HR, Physicians Realty Trust DOC and Ventas Inc. VTR have been big losers.

Medical Properties Trust has been the worst performer, down 32.89% over the past 65 days. Healthcare Realty has lost 14.75%, Physicians Realty is off by 10.49%, and Ventas is off by 4.81%.

Mizuho recently cut its rating on Medical Properties from Buy to Neutral, citing reduced earnings and an extended path of recovery. JP Morgan also downgraded Medical Properties from Neutral to Underweight a month ago.

Ventas received a downgrade from Strong Buy to Outperform this week from Raymond James analyst Hughes and a price target cut from $55 to $53. On Sept. 11, Ventas's shareholders received a letter from hedge fund Land & Buildings Investment Management asking for changes in Ventas's board of directors and suggesting that Land & Buildings may restart a proxy fight if changes are not made.

Over the past 65 days, Sabra Health Care is up by 15.84%, Omega is up 8.67%, and Welltower has risen by 4.9%.

Analysts are taking note of this performance dichotomy and have focused positive ratings on those healthcare REITs that have been outperforming because of recent improvements in occupancy and the ability to restructure leases with their operators. It remains to be seen whether these trends will lift the underperforming tier in the healthcare subsector as well.

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