HCP Inc. (HCP) – a healthcare real estate investment trust (REIT) – reported fourth-quarter 2014 adjusted FFO (funds from operations) per share of 79 cents, 2 cents ahead of the Zacks Consensus Estimate and 3 cents up from the year-ago quarter figure. Results benefited from solid growth on the top line.
Specifically, total revenue came in at around $603.5 million, which significantly beat the Zacks Consensus Estimate of $558 million. It also reflected a year-over-year increase of 13.8%. Moreover, same-property portfolio cash net operating income (“NOI”) grew 3.5% year over year.
For full year 2014, HCP reported adjusted FFO per share of $3.04, up 2 cents from the previous year. Total revenue came in at nearly $2.3 billion, up 7.9% year over year.
Behind the Headlines
During the fourth quarter, HCP accomplished $813 million of investment transactions. This included $630 million for its HC-One debt investment, secured by a U.K. care home portfolio as well as $183 million of other investments.
During the quarter, the company executed 1.3 million square feet of leasing in the life science and medical office pportfolios. This comprised 900,000 square feet of renewals and 400,000 square feet of new leases. Life science occupancy came in at 95.2%, denoting an all-time high for this segment and reflecting an uptick of 280 basis points from 2013; while medical office occupancy increased to 90.8% as of Dec 31, 2014.
Liquidity
At year end 2014, HCP had cash and cash equivalents of $183.8 million, down from $300.6 million at the prior-year end.
Outlook
For 2015, HCP expects its FFO as adjusted per share to range between $3.15 and $3.21, reflecting growth of 5%. The Zacks Consensus Estimate of $3.18 per share also comes in the estimated range. For the full year, the company projects same property portfolio cash NOI growth of 2.75–3.75%.
Dividend Update
Recently, HCP announced a hike of 3.7% in its quarterly dividend rate to 56.5 cents from 54.5 cents paid earlier. The company will pay the new dividend on Feb 24, 2015 to shareholders of record as on Feb 9. Based on the increased rate, the annualized dividend comes at $2.26 per share. HCP has been consistent in enhancing its shareholders’ wealth by dividend payouts, and the latest hike marks its 30th consecutive year of dividend increase.
In Conclusion
We believe that in the long run, HCP would benefit from its diversified portfolio, increasing healthcare spending and an aging population. Strategic investments, tie-ups and opportunistic acquisitions would drive decent cash flows. The dividend increase also boosts investors’ confidence on the stock. Yet, cut-throat competition and an anticipated increase in interest rate remain our concerns.
HCP currently has a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider better-ranked stocks like Healthcare Realty Trust Incorporated (HR), Ventas, Inc. (VTR) and Medical Properties Trust Inc. (MPW). All these stocks carry a Zacks Rank #2 (Buy).
Note: FFO, 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.
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