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Raymond James issues slew of real estate ratings changes for 2019

Upgrades

Robert W. Baird analyst Drew Babin upgraded HCP Inc. to "outperform" and raised its price target to $32 per share from $29 per share. The healthcare real estate investment trust's recent disposition activities leave it with funding to make accretive acquisitions, and its relative exposure to less volatile life-science and medical office properties has not been fully valued, the analyst said.


Robert W. Baird analyst Michael Bellisario upgraded Chesapeake Lodging Trust to "outperform," arguing that the lodging REIT is poised for strong growth in 2019 thanks to upside from its San Francisco properties and limited renovation disruptions. The company's fourth-quarter 2018 earnings stand to benefit from a partial reversal of an accrual of Chicago property taxes, Bellisario said.


In keeping with raising the weighting of the free-standing retail sector to "overweight" from "market weight," a team of Raymond James analysts upgraded net-lease retail REIT Agree Realty Corp. to "strong buy" from "outperform" with a $68.00-per-share price target and raised its peer, National Retail Properties Inc., to "outperform" from "market perform," putting a $53.00-per-share price target on the stock. The team likes both REITs' cost of capital and expects continued strong performance from their sector through 2019.


The Raymond James team raised the weighting of the healthcare sector to "overweight" from "market weight," and in the process upgraded CareTrust REIT Inc. and Healthcare Realty Trust Inc. CareTrust was moved to "strong buy" from "outperform" with a $21.00-per-share price target, and Healthcare Realty was upgraded to "market perform" from "underperform" with no price target. CareTrust shares stand to benefit from a recent pullback in shares and a healthy acquisition pipeline, while Healthcare Realty's ratings change is based more on a defensive posturing toward REITs in general and the team's constructive view on the healthcare REIT sector.


Raymond James also upgraded Ryman Hospitality Properties Inc. to "outperform" from "market perform" and gave it a $78.00-per-share price target. While the upgrade goes against the team's overall sentiment on the hospitality sector, they said, the conference- and event-focused REIT's group-heavy clientele gives it the longest booking window in the industry, providing a solid defensive position in volatile times.


Easterly Government Properties Inc., which focuses on office properties leased to government tenants, was upgraded to "outperform" from "market perform" and given an $18.00-per-share price target by the Raymond James analysts. The company's longer-term leases to government entities should garner a second look from investors looking for a defensive play in a potential recessionary environment, the team said.


Raymond James upgraded Mid-America Apartment Communities Inc. to "outperform" from "market perform" and placed a $105.00-per-share price target on the stock. The team expressed renewed optimism thanks to its analysis of the multifamily REIT's largest markets, which stand to see a material easing of new competitive supply.

Downgrades

Despite "miserable" performance in 2018 that left it with a cheap valuation, the Raymond James team nevertheless cut Brandywine Realty Trust's rating to "market perform" from "outperform" and removed its $17.00-per-share price target. While company management has done a decent job repositioning the portfolio out of slower-growth and suburban markets, it was unable to attract buy-in from the Street and deliver shareholder value, the Raymond James team said.


The Raymond James analysts also lowered their ratings on DiamondRock Hospitality Co. and Hersha Hospitality Trust, two members of the lodging sector, which saw its weighting cut to "underweight" from "market weight." DiamondRock was downgraded to "market perform" from "outperform" and had its $11.50-per-share price target removed, while Hersha was moved to "underperform" from "market perform." The team cited macroeconomic headwinds for the lodging industry in making their ratings changes.

The team also downgraded Hyatt Hotels Corp. due to its defensive stance to the broader markets and expectations for a slowing economy. The team moved the hotel operator to "market perform" from "outperform" and removed its $80.00-per-share price target.


The Raymond James analysts downgraded First Industrial Realty Trust Inc. on macro concerns as well, arguing that industrial REIT outperformance in recent years leaves them cautious about the stock. Specifically, First Industrial was cut to "market perform" from "outperform" and had its $34.50-per-share price target removed.


Raymond James downgraded PotlatchDeltic Corp. to "market perform" from "outperform" and removed its $48.00-per-share price target, noting that the timber REIT is the most exposed to lumber prices among its peers. Despite a drop in the company's share price over concerns about residential construction and U.S.-China trade relations, the analysts still believe investors should be selective in investing in timber REITs.