The 'Not-Big-Three' Healthcare REITs Just Got More Interesting

Mizuho Securities analyst Richard Anderson recently took a close look at the three senior housing/skilled nursing healthcare REITs under the firm’s coverage: LTC Properties Inc LTC, National Health Investors Inc NHI and Sabra Health Care REIT Inc SBRA.

According to Anderson, once markets stabilize a bit from the recent volatility, the stage could be set for consolidation in the healthcare REIT world.

Quick Take

Anderson sees Sabra as the REIT with the most upside from current levels. He noted the REIT’s valuation discount and experienced management as two key advantages.

In the past, National Health Investors was perceived to be the “darling” of the bunch, but Anderson believes that the departure of CEO Justin Hutchens has opened the door for a new gold standard.

Related Link: To Healthcare, With Leverage

He now sees LTC as the REIT with the “pristine” balance sheet and the consistent record of performance and smart acquisitions. However, while Anderson deems LTC as the most stable of the three names, he noted that its valuation premium limits its upside from current levels.

Consolidation Coming?

Anderson believes that the table may be set for consolidation among the three REITs mentioned above and the three REITs not covered by Mizuho: Care Capital Properties Inc CCP, Omega Healthcare Investors Inc OHI and Senior Housing Properties Trust SNH.

He sees the recent merger of Omega and Aviv and the spinoff of Care Capital creating a very crowded environment in the senior housing REIT space.

“This comment is not intended to make specific M&A predictions, but it seems to us that six relevant REITs in the senior housing/skilled space is possibly one or two too many,” he explained.

Outlook

In the report, Mizuho upgrades Sabra from Neutral to Buy with a $29 price target. The firm has a Neutral rating and $44 target for LTC and a Neutral rating and $59 target for National Health Investors.

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