HCP Beats Q4 FFO Estimates, Boosts Life-Science Portfolio

HCP Inc. (NYSE:HCP) — a healthcare real estate investment trust (REIT) — reported fourth-quarter 2017 funds from operations (FFO) as adjusted of 48 cents per share, beating the Zacks Consensus Estimate of 47 cents. Comparable FFO as adjusted in the prior-year quarter was 53 cents per share.

Results reflect a 1.2% increase in the three-month same-property portfolio (SPP) cash net operating income (NOI).

However, the company generated revenues of $443.3 million, which missed the Zacks Consensus Estimate of $456.2 million. The figure also compared unfavorably with the year-ago number of around $540.0 million.

For full-year 2017, the company reported comparable FFO as adjusted of $1.95 per share, down from $2.04 recorded in the prior year. Full-year revenues also dipped 13.2% year over year to $1.8 billion.

Behind the Headlines

HCP attained year-over-year three-month cash SPP NOI growth of 1.2%. Results were supported by 5.1% increase in life-science cash NOI, 2.6% growth in senior-housing triple-net and 2.1% rise in the Medical office portfolio. However, the positives were much offset by 8.3% decrease in senior-housing operating portfolio (SHOP) cash NOI.

During the fourth quarter, HCP announced $424 million of acquisitions. Notably, the company completed the previously-announced $228 million acquisition of the Hayden Research Campus in the Boston life-science market. It also acquired 11 off-campus medical-office buildings for $151 million. The company started Phase I of Sierra Point, which marks its next key life-science development in the South San Francisco market.

Furthermore, HCP is on track to sell or transition 36 senior housing operating assets and 32 triple-net leased communities, which are currently operated by Brookdale.

HCP had cash and cash equivalents of around $55.3 million as of Dec 31, 2017, down from $94.7 million recorded at the end of 2016. However, the company ended the reported quarter with $1.0 billion of liquidity from a combination of cash and availability under its $2.0-billion credit facility. It has no major senior notes or secured debt maturities until 2019.

Outlook

HCP provided its 2018 FFO as adjusted guidance range and expects it to be in the band of $1.77-$1.83 per share. The Zacks Consensus Estimate is pegged at $1.84.

The company projects 2018 SPP cash NOI growth in the range of 0.25-1.75%.

Conclusion

HCP is poised to benefit from its diversified portfolio, rise in healthcare spending and an aging population over the long run. Strategic divestitures, efforts to lower the Brookdale portfolio concentration and a focus on deleveraging augur well for long-term growth.

Nevertheless, rise in interest rates and cut-throat competition remain major concerns. Also, dilutive impact on earnings in the near term from the sale of assets is unavoidable.

HCP currently has a Zacks Rank #5 (Strong Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We now look forward to the earnings releases of DDR Corp. (NYSE:DDR) , Kimco Realty Corp. (NYSE:KIM) and Digital Realty Trust, Inc. (NYSE:DLR) , all of which are scheduled to report their numbers on Feb 15.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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