^{MIZUHO SECURITIES USA INC.  |  US EQUITY RESEARCH}

Summary

We debate what matters most to the healthcare REITs during NAREIT, and used the conference to investigate longer-term theses that have yet to fully materialize. While the group may ebb/flow with interest rates, we focus on four topics: Genesis, Spins, MOBs and management. We reiterate our "rent coverage" thesis, which means Buy ratings on VTR and LTC. We note that, so not to distract from the intent of this report, a few price targets are slightly out of sync with our rating system. We expect to address those issues shortly.

Key Points

Genesis on the Turntable? The two REITs in our coverage universe with the largest exposure to Genesis Healthcare (GEN, not rated) are SBRA (33% of the portfolio) and HCN (13%). One common thread to our conversations last week was at least the contemplation of selling GEN assets privately as a means to reduce or eliminate exposure. Although we have no information about the validity of the concept, nor the timing of such an event if pursued, we do think it is interesting that two smart shops separately arrived at a similar fork in the road. We debate the question if now is the time to sell, i.e., after the GEN problems are well-documented.

SpinCos: We think VTR’s spin-off of CCP in August 2015 was far more investor-friendly than HCP's proposed spin of HCRMC. That said, HCP was in a very difficult (no-win?) spot, and the market may ultimately chalk the spin up as the best of several evils. A lot of unknowns remain for HCP, but the aftermath may be better than the present.

MOBs -- Is "Off" the new "On"? HTA thinks cap rates will continue to trend downward, and characterized the sector as “the next multifamily.” We don’t know if four-handles will be the next paradigm for MOB cap rates, but the comment does provide us a basis from which to measure in the coming years. Among the other takeaways from that meeting is HTA's willingness to have a larger off-campus presence than its most relevant peer.

Management: We discuss the growing bench at HCP, and what the company may do about that (short of a bigger G&A line item.) For example, we briefly debate if the changes at the company are just step one in the reinvention of HCP. Separately, we give a shout out to NHI, where relatively new leadership continues to make its presence known on various inherited issues.

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