HCP, Inc. HCP announced plans of a tax-free spinoff of its skilled nursing portfolio. Goldman Sachs’ Andrew Rosivach upgraded the rating on the company from Sell to Neutral, while raising the price target from $26 to $36. The analyst commented that the spinoff would result in an increased focus on the value of HCP on a sum-of-the-parts [SOTP] basis.
“After making a series of adjustments to run rate operating income (reducing skilled nursing, increasing senior housing operating) and cap rates to peers (higher for skilled nursing, lower for hospitals), we estimate HCP trades at a modest 8% discount to peers on an SOTP basis,” analyst Andrew Rosivach wrote. He added that the in case the spin does happen, it would highlight this gap.
Valuation
Since being added to the Americas Sell List on September 21, 2015, HCP’s shares have declined by 10 percent, versus a 7 percent gain in the S&P 500 and a 16 percent gain in RMZ over the same period, Rosivach pointed out.
HCP’s shares currently trade at a 10 percent discount to the Healthcare REIT coverage average and at a 30 percent discount to the REIT coverage average.
“We believe the steep discount on this basis [SOTP] will offset challenges in external growth, lease coverage, and tenant concentration,” the analyst wrote.
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