HCP, Inc. (HCP), the largest medical real estate investment trust (REIT) in the U.S., reported first quarter 2011 FFO (funds from operations) of $149.7 million or 40 cents per share, compared with $158.7 million or 54 cents in the year-earlier quarter.
Funds from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
Excluding non-recurring items, FFO for the reported quarter was $182.0 million or 56 cents per share compared to $146.8 million or 50 cents in the year-ago quarter. The first quarter 2011 recurring FFO exceeded the Zacks Consensus Estimate by 10 cents.
HCP reported total revenues of $331.7 million during the quarter compared with $294.8 million in the year-ago period. Total revenues for the reported quarter were well ahead of the Zacks Consensus Estimate of $326.0 million.
During the quarter, HCP acquired a 65% interest in a joint venture that owns 25 senior housing facilities, becoming the sole owner of the portfolio.
In addition, HCP made additional investments worth $121 million, which included the acquisition of 4 life science facilities totaling 200,000 rentable square feet for approximately $67 million; acquisition of a medical office building spanning 132,000 rentable square feet for approximately $32 million; and funding of construction and other capital projects worth $22 million, primarily in the life science and medical office segments.
Subsequent to the quarter-end, HCP acquired the real estate assets of HCR ManorCare Inc., a leading privately owned provider of skilled nursing facilities, for $6.1 billion. Spanning across 30 states, the properties are primarily concentrated in Ohio, Pennsylvania, Florida, Illinois and Michigan. With the deal, HCP will gain ownership interests in 334 post-acute, skilled nursing and assisted living facilities, located in some of the premium markets of the country typified by high barriers to entry.
HCR ManorCare will continue to operate the healthcare facilities in accordance with the long-term triple-net master lease agreement, under which the lessee pays rent as well as taxes, insurance and maintenance expenses of the property. The triple-net lease will generate a rent of $472.5 million in the first year and will increase by 3.5% per year after each of the first five years and by 3% for the remaining portion of the fixed term.
Subsequent to the quarter-end, HCP also purchased a 20-acre land parcel situated at the gateway of South San Francisco for $65 million. At the same time, HCP received $330.4 million from the early repayment of debt investments in Genesis HealthCare, a leading skilled nursing and assisted living facilities provider.
During the reported quarter, HCP raised approximately $3.7 billion from equity and debt issuance. These included $2.4 billion of senior unsecured notes, which comprised $400 million of 2.70% notes due 2014; $500 million of 3.75% notes due 2016; $1.2 billion of 5.375% notes due 2021; and $300 million of 6.75% notes due 2041.
The notes have a weighted average maturity of 10.3 years and a weighted average yield of 4.83%. The net proceeds from the offering were $2.37 billion. During the quarter, HCP also completed an equity offering of 34.5 million shares for proceeds of $1.3 billion.
HCP entered into a new $1.5 billion unsecured revolving credit facility during the quarter, which replaced the existing facility that was scheduled to mature in August 2011. The new credit facility has a four-year term with a one-year extension option.
HCP maintained its quarterly cash dividend at 48 cents per share, which equates to an annualized distribution rate of $1.92 for 2011, compared to $1.86 for 2010 – an increase of 3.2%. At quarter-end, the company had cash and cash equivalents of $1.0 billion and total debt of $4.6 billion. For full year 2011, HCP expects FFO before non-recurring items in the range of $2.62 to $2.68 per share.
We maintain our Neutral rating on HCP, which currently has a Zacks #3 Rank that translates into a short-term Hold rating, indicating that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank for Nationwide Health Properties Inc. (NHP), one of the competitors of HCP.
HCP INC (HCP): Free Stock Analysis Report
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