HCP Inc. HCP – a healthcare real estate investment trust (“REIT”) – reported second-quarter 2015 adjusted FFO (funds from operations) per share of 79 cents, 3 cents ahead of the Zacks Consensus Estimate and 4 cents up year over year. Results benefited from solid growth in the top line. The company has also raised its outlook for 2015.
Specifically, total revenue came in at around $607.5 million, which significantly beat the Zacks Consensus Estimate of $570 million. The figure also reflected a year-over-year increase of 13.3%. However, same-property portfolio cash net operating income (“NOI”) edged down 0.7% year over year.
Behind the Headlines
During the second quarter, HCP accomplished $1.4 billion of investment transactions. This included a $847-million acquisition of private pay senior housing portfolio in a RIDEA structure with Brookdale, $386 million for 12 on-campus medical office buildings, $55 million of additional financing under its Tandem Health Care mezzanine loan facility, 42 million (£27 million) for acquisition of two U.K. care homes leased to Maria Mallaband, and $46 million of other investments.
During the quarter, the company executed 1.1 million square feet of leasing in its life science and medical office portfolios. This comprised 325,000 square feet of new leases and 726,000 square feet of renewals. Moreover, the company accomplished conversion of £174 million of its £502-million U.K. HC-One debt investment to fee ownership in a 36-care homes portfolio.
Liquidity
HCP exited the second quarter of 2015 with cash and cash equivalents of $115.8 million, down from $183.8 million at year-end 2014. The company issued $750 million of 10-year 4.00% senior unsecured notes during the quarter.
Outlook Raised
For 2015, HCP expects its adjusted FFO per share within $3.14–$3.20, as against the prior projection of $3.09–$3.15. The range comes above the Zacks Consensus Estimate of $3.11.
Dividend Update
On Jul 30, 2015, HCP announced a quarterly cash dividend of 56.5 cents on its common stock. The company will pay the dividend on Aug 25 to shareholders of record as on Aug 10.
In Conclusion
We believe HCP would benefit from its diversified portfolio, increasing healthcare spending and an aging population in the long run. Strategic investments, tie-ups and opportunistic acquisitions would drive decent cash flows. The acquisition of 35 private pay senior housing communities also augurs well. Yet, cut-throat competition and an anticipated increase in interest rate continue to pose challenges before the company.
HCP currently has a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider stocks like Duke Realty Corp. DRE, Healthcare Realty Trust Inc. HR and Prologis, Inc. PLD. 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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