Jefferies Healthcare REIT Summit: Key Investor Takeaways

Jefferies on Thursday published a research report detailing healthcare trends and company specific updates gleaned from its Health Care REIT Summit held Tuesday in NYC.

A total of 11 HCREITs attended the conference, including six currently covered by Jefferies; additionally, Jefferies included a Ventas, Inc. update, due to its recent SNF SpinCo and Ardent Health Services hospital acquisition announcements.

Raised PTs

Jefferies raised its price target on four REITs under coverage:

Health Care REIT, Inc. HCN – $27.3 billion cap, 4.2 percent yield
Medical Properties Trust, Inc. MPW – $2.6 billion cap, 5.8 percent yield
Sabra Health Care REIT Inc SBRA – $1.95 billion cap, 4.75 percent yield
Ventas, Inc. VTR – $24.8 billion cap, 3.1 percent yield

In addition, Omega Healthcare Investors Inc OHI – $7.7 billion cap, 3.6 percent yield – was maintained at a Buy rating, with no change to Jefferies' price target.

Health Care REIT Trends

Acquisition Pipelines: Opportunities appear robust across both, domestically and internationally.

Skilled Nursing: There are large skilled nursing (SNF) portfolios, potentially over $1 billion which could be in play, specifically Holiday Retirement and Brookdale Senior Living.

Organic Growth: Demand vs. supply across all property types (Senior Housing, MOB, SNFs, Life Sciences and Hospitals) all reported as being strong.

Life Sciences Acceleration: Jefferies noted, "Life sciences in particular feels like it is accelerating from an occupancy and rental rate point of view."

Triple-Net Operators: Regarding triple-net operators, Jefferies generally expects "stable to improving rent coverage in senior housing, SNFs and hospitals as the reimbursement outlook for FY16 is likely to be benign."

Medical Properties Trust: Buy, PT Raised To $17

Jefferies new Medical Properties Trust price target is based on its dividend discount model (DDM) and implies a 17.6 percent total return based on a recent close of $15.21 per share.
Medical Properties Trust has a unique strategy focused on acquiring and developing: inpatient rehabilitation hospitals, long-term acute care hospitals, regional acute care hospitals, as well as other single-discipline healthcare facilities.
Medical Properties Trust reported a potential acquisition pipeline of approximately $1 billion, split 50/50 between the U.S. and Europe.

Health Care REIT: Hold, PT Raised To $78

Jefferies new Health Care REIT price target is based on its dividend discount model (DDM) and implies a 3.9 percent total return based on a recent close of $78.24 per share.
Health Care REIT is an S&P 500 company that invests across the full spectrum of seniors housing and healthcare real estate, diversified across 46 states, the U.K. and Canada; additionally, the company provides property management and development services.
Regarding Health Care REIT's acquisition pipeline, management reported "that overseas investment will likely remain focused just on the U.K. for the time being;" however, in contrast to some of the other participants, Health Care REIT still sees accretive deals in the U.S. seniors housing sector.

Omega Healthcare: Buy, Maintain $47 PT

Jefferies Omega Healthcare Investors price target is based on its dividend discount model (DDM) and implies a 22.3 percent total return based on a recent close of $40.20 per share.
Omega is a fully integrated, self-administered HCREIT that invests primarily in Skilled Nursing Facilities (SNFs); notably, Omega Healthcare Investors recently closed on the acquisition of AVIV REIT in a consolidation of the SNF REIT space.
Omega Healthcare Investors primarily sources its deals from its existing SNF tenants and has a pipeline of "smaller and mid-sized deals with cap rates in the 8.5 percent - 9.5 percent range," as well as some senior housing opportunities.

Sabra Health Care: Hold, PT Raised To $33

Jefferies new Sabra Health Care REIT price target is based on its dividend discount model (DDM) and implies a 5.6 percent total return based on a recent close of $32.75 per share.
Sabra's investment portfolio included 160 real estate properties held for investment and leased to operators/tenants under triple-net lease agreements, including: 103 SNF/Transitional care, 55 senior housing and two acute care hospitals.
Sabra is evaluating approximately $1 billion of deals, or three times the normal volume; notably, despite low cap rates, "Most deals still have net investment spreads wider than in 2012 due to the low cost of debt."

Ventas: Hold, PT Raised To $80

Jefferies new Ventas price target is based on the high-end of its sum-of-the-parts (SOTP) valuation of the proposed SNF SpinCo and pro-forma Ventas, including the Ardent Health acquisition. It implies a 9.6 percent total return, based on a recent close of $75.10 per share.
Ventas is an S&P 500 company, operating as a self-managed healthcare REIT with a diverse asset mix, including: senior housing, SNF/Acute facilities, MOBs and hospitals.

A recent Benzinga article, including VTR presentation slides which explain the SpinCo & Ardent acquisition, can be viewed here.

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