HCP's Near-Term Outlook Is Worse Than You Think

HCP, Inc.HCPHCP's stock rating from Neutral to Sell with a price target lowered from $30 to $25. Of particular concern is the healthcare REIT company's fiscal 2018 funds from operation dilution stemming from ongoing asset sales and a tough housing trend among seniors, Yulico explained. While consensus estimates are assuming a 1-percent year-over-year FFO growth in 2018 the analyst is modeling a 4-percent decline. Yulico attended the NIC Seniors Housing industry conference, which may have contributed to the downgrade for two reasons. First, the analyst is now more cautious on same-store net operating income growth in fiscal 2018, and second, additional Brookdale asset sales will reduce exposure to the "challenged" operator to 27 percent of NOI. The company plans to reduce its Brookdale exposure to below 20 percent of NOI, which could add to further dilution in fiscal 2018.

2018 will prove to be another "difficult" year for HCP, and 2019 will only bring "some relief." As such, a bearish stance on the stock is justified; the market is "underappreciating" the company's exposure to elevated supply, additional asset sales and poor "deteriorating" Brookdale results in the Seniors Housing portfolio. These factors all "detract" from the company's stronger medical office and life science assets.

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