We have updated our research report on HCP, Inc. HCP on May 28, 2015.
This Irvine, CA-based retail real estate investment trust (“REIT”) reported first-quarter 2015 adjusted funds from operations (“FFO”) per share of 79 cents, a penny ahead of the Zacks Consensus Estimate and 4 cents above the year-ago quarter figure. Results benefited from solid growth in top line.
Nevertheless, in 2014, HCP had generated around 40% of its revenues from leasing or financial arrangements with two companies: HCR ManorCare, Inc. or HCRMC (26%) and Brookdale (14%). This dependency on a limited number of operators and tenants for major portion of revenues puts the company at risk, as the inability or failure on part of these tenants or operators to meet their obligations would adversely impact HCP’s cash flow.
Further, in terms of geography, HCP had generated 35% of its revenues in 2014 from properties located in California (23%) and Texas (12%). This exposes the REIT to risks associated with economic as well as other conditions of these geographies. Moreover, the cut-throat competition in markets makes it all the more challenging for the company to improve its revenues as well as identify and successfully capitalize on acquisition opportunities that meet its objectives.
Nevertheless, HCP boasts a well-balanced portfolio in the healthcare sector with exposure to all types of facilities. The company enjoys a diverse product-mix that enables it to explore opportunities in various areas, based on individual market dynamics.
HCP has established successful business relationships with a number of experienced healthcare management companies or operators. We believe that backed by solid fundamentals, strong same property performance and accretive acquisitions with solid, risk-adjusted returns, the company will be able to ride on growth trajectory in the future.
Over the past 7 days, the Zacks Consensus Estimate for the stock has remained unchanged at $3.12 for 2015 and $3.24 for 2016.
Currently, HCP carries a Zacks Rank #4 (Sell).
Key Picks from the Sector
Investors interested in the REIT industry may consider stocks like Hudson Pacific Properties, Inc. HPP, Strategic Hotels & Resorts, Inc. BEE and Arbor Realty Trust Inc. ABR. All these stocks sport a Zacks Rank #1 (Strong Buy).
Note: FFO, a widely accepted and reported measure of the performance of REITs, is derived by adding depreciation, amortization and other non-cash expenses to net income.
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