Analysts Just Upgraded These Three Healthcare REITs

A handful of healthcare REITs have been on the upswing, as recent improvements in occupancy rates and their ability to restructure leases with facility operators have buoyed the share prices of several companies in the subsector. Analysts are taking note of the improvements. Take a look at three healthcare REITs that have received analyst upgrades this week.

Sabra Health Care REIT Inc. SBRA is an Irvine, California-based healthcare REIT that has 426 U.S. properties in its investment portfolio consisting of senior nursing facilities, senior housing, behavioral health and specialty hospitals. Sabra's properties have an eight-year weighted average lease term (WALT). Signature Healthcare is its largest tenant, with a rent concentration of 9%.

Sabra CEO Rick Matros recently told analysts that occupancy gains and easing labor pressures are driving rent coverage higher and Medicaid reimbursements have also been increasing. Sabra Health Care was one of the three best-performing REITs in September, with a gain of 12.61%. Its total return year to date is 19.9%. And analysts are showing renewed interest.

On Oct. 10, Bank of America Securities analyst Joshua Dennerlein upgraded Sabra Health Care REIT from Neutral to Buy. In August, Dennerlein had also raised his view on Sabra Health Care from Underperform to Neutral, while raising the price target from $11 to $14. On Sept. 20, Jefferies Equity Research analyst Jonathan Petersen upgraded Sabra Health Care REIT from Hold to Buy and raised the price target from $11 to $15. 

Omega Healthcare Investors Inc. OHI is a Hunt Valley, Maryland-based triple-net equity healthcare REIT that provides capital to 66 different operators as well as leasing. Omega Healthcare owns 893 senior housing, skilled nursing and assisted living facilities across 42 U.S. states and the United Kingdom, which makes it geographically well-diversified. The operators run the facilities, and Omega Healthcare has no part in the day-to-day management of these properties.

Omega Healthcare has performed well in 2023, with a total return of 28.43%. Although several analysts have initiated coverage or maintained previous ratings, it finally received an upgrade this week.

On Oct. 10, analyst Dennerlein upgraded Omega Healthcare from Neutral to Buy and announced a $36 price target. Dennerlein feels that both Omega Healthcare and Sabra Health Care will benefit from lease restructurings on skilled nursing facilities and a recovery in senior housing.

Healthcare Realty Trust HR is a Nashville, Tennessee-based healthcare REIT with 714 properties totaling 42 million square feet in 35 states. It was established in 1992 with 21 facilities and has evolved into a delivery model in which 72% of its properties are multitenant medical outpatient service buildings on the campus of hospitals or other types of major healthcare facilities.

In 2022, Healthcare Realty merged with Healthcare Trust of America in an $18 billion deal to increase the total portfolio and took on its present name. The top locations of its properties include Dallas, Seattle and Houston.

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Healthcare Realty Trust has underperformed in 2023, with a total return of negative 20.69%, mostly because of difficulty leasing some Healthcare Trust of America assets. Analysts have been more upbeat about Healthcare Realty Trust in recent weeks and shares are up 7.6% since bottoming on Oct. 9.

On Oct. 12, J.P. Morgan analyst Michael Mueller upgraded Healthcare Realty Trust from Neutral to Overweight and announced a $19 price target. Mueller noted that Healthcare Realty Trust should improve its relative valuation in future quarters because of gains in occupancy.

On Oct. 10, Scotiabank analyst Nicholas Yulico maintained a Sector Perform rating, while lowering the price target from $19 to $17. On Oct. 6, BMO Capital Markets maintained a Market Perform rating and lowered the price target from $20 to $17. On Oct. 3, Wedbush Securities analyst Richard Anderson initiated coverage on Healthcare Realty Trust with an Outperform rating and a price target of $17. From its recent closing price of $14.67 that represents a potential gain of 15.88%.

Healthcare Realty Trust has been a major seller of assets since June, having disposed of $318 million worth of properties. On Oct. 5, it reaffirmed its 2023 dispositions guidance of $350 million to $450 million. The intent is to increase its portfolio exposure to higher-growth, multitenant, on-campus medical outpatient buildings. The proceeds from its sales will be used to fund new development obligations and repay floating-rate debt. 

Investors should remember that analysts are only correct about 50% of the time, so it's best to perform your own due diligence and only use analyst ratings as a guide.

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