Morgan Stanley Review Healthcare REITs, Initiates On Three Stocks

• Shares of Healthcare Realty Trust Inc HR, Physicians Realty Trust DOC and Healthcare Trust Of America Inc HTA have been treading north over the past three months.
• Morgan Stanley’s Vikram Malhotra initiated coverage of all three companies in the Medical Office Building [MOB] space.
• Contractual-driven growth names are preferable to external growth stories, and companies having the highest asset quality are likely to be rewarded, Malhotra stated.

Analyst Vikram Malhotra expects more defensive MOB REITs to continue outperforming Healthcare peers into 2016. He added, “Within MOBs, we prefer contractual-driven growth names to external growth stories and see companies with the highest asset quality being rewarded.”

Healthcare Realty

The analyst initiated coverage of the company with an Overweight rating, citing contractual growth and superior asset quality. He noted that the company has the most robust overall demographics within the group, with “high marks in population and household income.”

Moreover, the company has exposure to large hospitals with strong occupancy.

Physicians Realty

Malhotra initiated coverage of the company with an Underweight rating, citing slowing growth in a tough acquisition environment and greater risk to estimates.

He said that the company’s assets are close to hospitals with “very strong market share and high private payer mix.” Moreover, the company’s portfolio has the lowest top 5 tenant concentration of about 17 percent, as well as a long remaining lease term of around 9 years.

The Morgan Stanley report added, however, that Physicians Realty has lower demographics than peers. “Only 50% on-campus and that portion is exposed to hospitals with lower margins, less growth and that are part of smaller systems. Versus peers, less of the portfolio is leased directly to a hospital and average building size is lower.”

Healthcare Trust of America

Malhotra initiated coverage of the company with an Equal-Weight rating. He said that the company had high on campus presence and direct leases with hospitals. It also ranks well on several demographic factors such as top metro exposure.

The analyst added, however, “Screens lower than peers on hospital metrics such as market share and system size. Smaller average building size.”