B. Riley downgrades Hersha; Stifel reiterates 3 healthcare REITs

Downgrade

B. Riley Securities analyst Bryan Maher downgraded Hersha Hospitality Trust to "neutral" from "buy" following the announcement of the hotel real estate investment trust's proposed $10-per-share sale to KSL Advisors LLC, also known as KSL Capital Partners.

Maher said the private equity buyer will likely retain a majority of the hotel REIT's 23 wholly owned properties and should be able to generate profit on the assets it sells.

"We suspect that most of the Hersha portfolio will fit seamlessly into the KSL portfolio and that only a handful of the hotels will be re-traded," the analyst said.

Maher raised his price target on the stock to $10 per share from $9 per share to reflect the buyout price.

Reiteration

Stifel analysts reiterated their "buy" ratings for healthcare REITs CareTrust REIT Inc., Omega Healthcare Investors Inc. and Sabra Health Care REIT Inc., saying they do not expect much change in operator profitability or business models in the near term from the proposed minimum staffing requirements by the Centers for Medicare and Medicaid Services for skilled nursing facilities.

"This should have little impact on rent coverage," Stephen Manaker, Seth Canetto and Kevin Stein wrote in a Sept. 4 note. The analysts believe that the outcome is better than feared and that the REITs stand to benefit from the proposal, although long-term implications are unclear.

Once finalized and published, the proposal is expected to remove the minimum staffing requirement overhang for the REITs and help drive expansion as stronger tenants move into facilities vacated by weaker operators.

The proposed requirements will have a modest effect on the margin of many REITs that operate skilled nursing facilities "because they are likely already meeting or close to meeting the minimum thresholds," the analysts said.