Jefferies Sees Risk To HCP In Potential Lease Rewrite

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HCP, Inc. HCP shares could fall between 5 percent and 10 percent if the healthcare real estate investment trust decides to restructure its HCR ManorCare lease.

HCP last month cut the carrying amount of its 9.4 percent stake in the HCR ManorCare joint venture to an estimated $39 million, from $76.9 million, and announced a related fourth-quarter impairment charge of $36 million, or $0.08 a share.

If a restructuring of the nursing care venture ensues, "the company will be in the penalty box for a while," Jefferies' Omotayo Okusanya said in a research note.

The potential restructuring could result in "rent coverage ratio closer to the industry standard," which would lower HCP earnings by 10 percent to 15 percent, according to the analyst.

That outcome would suggest a potential downside for the company's shares of 5 percent to 10 percent, Okusanya said.

A shift from Medicare to Medicare Advantage has hurt reimbursement rates for the venture, but HCP said last month it expects HCR ManorCare will continue to meet its obligations under its master lease with HCP.

HCP shares are up about 13 percent in the past three months and changed hands recently at $48.70, up 1 percent on the day.

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Posted In: Analyst ColorAnalyst RatingsJefferiesOmotayo Okusanya
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