HCP Q1 FFO a Penny Ahead, Guides In Line - Analyst Blog

Aided by growth in revenues, HCP Inc. HCP – a healthcare real estate investment trust (REIT) – reported first quarter 2014 adjusted FFO (funds from operations) per share of 75 cents, a penny ahead of both the Zacks Consensus Estimate as well as the year-ago quarter figure.

Total revenue came in at nearly $530.0 million during the quarter, reflecting an increase of 3.7% from the year-ago period. Total revenue also exceeded the Zacks Consensus Estimate of $513 million. The company's adjusted same-property cash net operating income (NOI) reached $399.7 million, depicting growth of 4.2% year over year.

Notable Portfolio Activity

During the reported quarter, HCP invested $32 million for a medical office building (MOB), bought an 85% stake in a $51 million senior housing community development project as well as financed 53 million for construction and other capital projects. On the other hand, the company sold 2 skilled nursing facilities for $22 million and a hospital for $17 million.

Notably, through May 2014, the company accomplished $162 million of additional investment deals and executed new leases aggregating 187,000 square feet of space, including a number of life science and medical office leases.

Liquidity

At the end of the quarter, HCP had cash and cash equivalents of $49.7 million, as against $300.6 million at the prior-year end. During the quarter, the company raised $350 million of 4.2% senior unsecured notes due 2024. Moreover, it amended its revolving credit facility and increased its capacity to $2 billion (from $1.5 billion) as well as improved pricing and extended its term.

CCRC JV and Lease Amendment with Brookdale

Recently, Brookdale Senior Living Inc. BKD and HCP extended their ties through the creation of a $1.2 billion continuing care retirement communities (CCRC) Joint Venture. HCP and Brookdale will own 49% and 51%, respectively, of this JV.

Moreover, the companies have decided to amend leases on 202 HCP-owned senior housing communities. These communities are presently operated by Emeritus Corp. ESC. The closures of the deals are subject to accomplishment of the pending merger between Brookdale and Emeritus.

Outlook

HCP expects FFO to range between $2.96 and $3.02 per share for full-year 2014. The Zacks Consensus Estimate of $3.02 per share for full-year 2014 matches the top end of the company's guided range. The estimates exclude the impact of any future acquisitions or the disclosed CCRC JV and lease amendment with Brookdale.

Dividend Update

Recently, HCP announced a quarterly cash dividend of 54.5 cents per share. The dividend will be paid on May 27, 2014 to stockholders of record on May 12.

In Conclusion

Improving fundamentals in the healthcare REIT market, a well-balanced, diversified portfolio, opportunistic acquisitions and strategic tie ups place HCP on the growth trajectory. However, cut-throat competition remains a challenge for this Zacks Rank #3 (Hold) stock.

We now look forward to the results of other REIT – Health Care REIT, Inc. HCN – which is scheduled to report on May 8, before the closing bell.

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.