A Wachovia analyst said Friday he expects a variety of issues to keep the stocks of health care real estate investment trusts at their current levels over the next year.
Christopher Haley began coverage of HCP Inc., Nationwide Health Properties Inc. and Medical Properties Trust Inc. with "Market Perform" ratings. He rated Senior Housing Properties Trust "Underperform," due to concerns about its cash flow growth and tenant concentration, and the strategy of its parent company, REIT Management & Research LLC.
Haley set the neutral rating on HCP because of the stock's high price and because HCP still has some significant work to do in reducing its debt. But he said the company has made smart moves in shifting its focus toward the kind of low-risk assets that institutional investors prefer: HCP focused on medical office buildings before its peers, and is now increasing its holdings of life sciences properties, he said.
He added that HCP has reduced its Medicare exposure and is moving away from skilled nursing facilities and hospitals.
HCP stock lost a penny to $34.89 in afternoon trading.
Nationwide Health is also moving toward medical offices, as it is planning to buy up to 18 buildings from Pacific Medical Buildings LLC. But Haley said the company doesn't have the cash to make many other purchases, which could limit its growth.
Nationwide Health Properties shares slipped 36 cents to $35.14.
Haley said Medical Properties Trust Inc. is focusing on inpatient facilities, where admissions have generally declined as the U.S. economy weakened. He said its peers are focusing more on outpatient facilities, and the value of its assets may decrease if investor demand decreases.
He wrote the company's properties have a high tenant concentration, as does Senior Housing Properties, and it is hard to assess the credit quality of the tenants.
The analyst said Senior Housing has slower cash growth than its peers, because REIT Management & Research receives fees based on the size of the company's assets rather than Senior Housing Properties' cash flows.
The company operates independent and assisted living facilities for seniors, but in May, it paid $565 million to buy 48 medical office, clinic and biotechnology lab buildings. Haley thinks that could distract Senior Housing from its core businesses.
Those offices were bought from another REIT Management company, HRP Properties Trust, and Haley believes such transactions can raise conflict-of-interest concerns.
Medical Properties stock gained 11 cents to $10.72, while Senior Housing Properties shares lost 15 cents to $20.39.
While Haley did not apply a rating to Ventas Inc., he said Ventas has the strongest cash flow growth in the sector. Shares of the Chicago company rose $1.63, or 3.9 percent, to $43.31.
Terms & Conditions
RSS Headlines
Fool UK