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Friday, North American real estate edition


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Friday, North American real estate edition


Mizuho Securities' Richard Anderson upgraded AvalonBay Communities Inc. to "buy" from "neutral" and raised his per-share price target on the company's stock to $190 from $180.

Anderson said in a Dec. 16 note that he believes now is the time to buy into the company's stock, given its industry-leading balance sheet and management platform, steep discount to net asset value and a reasonable implied cap rate of 5.2%. Despite the company's exposure to the New York and San Francisco markets, the analyst said he sees "a turnaround year for U.S. multifamily given rising interest rates and 'priced-in' same store deceleration."


In the same note, Anderson lowered his investment opinion on Care Capital Properties Inc. to "neutral" from "buy" and reduced his price target on the company's stock to $25 from $26 per share.

The analyst said he sees no catalyst to increase his price target on Care Capital's stock, resulting in the downgrade. Rising rates and uncertainty under the Trump administration could present elevated headwinds for healthcare REITs, and with Care Capital being a pure-play skilled nursing REIT, the company appears to be "in the crosshairs of existing government regulation," Anderson said.

In a separate Dec. 16 note, Mizuho Securities USA Inc.'s Haendel St. Juste and Jieren Huang downgraded Spirit Realty Capital Inc. to "neutral" from "buy," citing reduced growth and greater re-rating potential than initially thought. The analysts put a per-share price target on the company's stock of $10.50.

The analysts said that Spirit Realty currently trades at 94% of their net asset value estimate of $11 per share, which has helped narrow investment spreads and potentially reduced the company's earnings potential for 2017 and 2018.


Jefferies analyst Omotayo Okusanya on Dec. 16 launched coverage on the medical office building sector, which he said represents one of the most attractive asset classes in the overall healthcare REIT sector.

Okusanya said the MOB space is likely to see increasing occupancy and widening net operating income margin and should generate solid same-store NOI growth of 2.5% to 3.0% in 2017. He posited that an aging U.S. population, the shift to outpatient services and hospital system expansions in areas away from main campuses to boost patient volume are fueling demand for MOBs. Compared to other healthcare real estate asset classes, MOBs have reduced exposure to federal reimbursement risk and supply is also not a national concern for the segment, Okusanya said.

The analyst initiated coverage on three pure-play MOB REITs, assigning Healthcare Realty Trust Inc. and Healthcare Trust of America Inc. "buy" ratings and Physicians Realty Trust a "hold" rating.

Thanks to its high exposure to top healthcare systems, on-campus properties and top MSAs in the U.S., Healthcare Realty has the highest quality portfolio among the group and is on tap for a potential dividend increase and stronger-than-expected funds-from-operations-per-share growth in 2017, Okusanya said. He noted, however, that the company's meaningful exposure to MSAs with substantial supply growth is a key concern. His price target on the company's stock is $35 per share.

For Healthcare Trust of America, Okusanya said the company's balanced approach to internal and external growth makes for an attractive play and its limited exposure to markets with meaningful supply concerns should offer solid lease-up opportunities for the company. He cited the company's fairly large exposure to off-campus properties as a primary risk. He put a $33-per-share price target on the company's stock.

Meanwhile, Okusanya views Physicians Realty's 2017 consensus estimate of $1.25 as too high compared to his $1.16 estimate. He noted that the company's portfolio net asset value could see increased risk amid regulatory issues and escalating rates. The analyst added that in terms of exposure to top MSAs, on-campus assets or top healthcare systems, Physicians Realty's portfolio seems to not measure up well against Healthcare Realty and Healthcare Trust. His per-share price target on the stock is $19.50.