UPDATE: Citigroup Initiates Health Care REIT at Neutral on Premium Valuation

In a report published Friday, Citigroup analyst Emmanuel Korchman initiated coverage on Health Care REIT HCN with a Neutral rating and $69.00 price target.

In the report, Citigroup noted, “We are initiating coverage of Health Care REIT (HCN) with a Neutral rating and Underweight position in our REIT model portfolio. Citi now has coverage of all large cap REITs, with total coverage of 70 REITs comprising ~85% of the NAREIT equity index. We have been underweight the healthcare REIT sector for some time driven in part by elevated valuations both on an absolute basis, and relative to REITs. While the recent underperformance has narrowed the gap, we do not find current valuations overly compelling. As we detail herein, the “Big 3” healthcare REITs (HCN, HCP & VTR) share a number of traits with diversified portfolios across the healthcare spectrum, partnerships with key healthcare operators¸ strong acquisition appetites and solid management teams. While sharing similar traits, we are starting HCN with an underweight position in our REIT model portfolio driven in part by its more aggressive acquisition history and rich pricing, a higher dividend payout ratio, higher leverage, and higher cash flow multiple and prefer VTR which we expect to have more steady external growth. Target price at $69.”

Health Care REIT closed on Thursday at $67.91.