Can HCP Ride On Growth Curve With UK Debt Investment?

For HCP Inc. HCP, the third quarter was quite eventful with the company expanding its relationship with Brookdale by creating a new $1.2 billion continuing care retirement communities (“CCRC”) joint venture (“JV”) and amending previous Emeritus leases. Also, in November, HCP announced a $630 million (£395 million) debt investment in a UK care home portfolio.

Concurrent with its third-quarter earnings release, HCP raised its full-year 2014 outlook. After including the benefit from the committed UK debt investment, the company projects 2014 full-year FFO within $3.03 – $3.09 per share, while FFO as adjusted is expected in the range of $2.98 – $3.04 per share. This reflects an uptick from the prior guided range of $3.01 – $3.07 for FFO per share and $2.97 – $3.03 per share for FFO as adjusted.

However, this health care real estate investment trust's (“REIT”) third-quarter 2014 adjusted FFO per share of 75 cents, came a penny short of the Zacks Consensus Estimate and down 4 cents from the year-ago quarter figure. Despite a rise in revenues, the company missed estimates on higher expenses.

Nevertheless, with an increase in the elderly population and consequent proliferation in healthcare expenses, demand for healthcare facilities and senior housing has been on the rise.

Given its well-balanced, diversified portfolio and decent balance sheet, not to mention the strategic acquisitions and tie-ups, HCP remains well poised to capitalize on the promising prospects in this industry. Yet competition and dependence on governmental healthcare programs for a number of its tenants and operators remain our concerns.

Over the last 30 days, the Zacks Consensus Estimate for 2014 remained unchanged at $3.03 per share while that for 2015 edged up 0.6% to $3.18 per share. HCP currently has a Zacks Rank #3 (Hold).

To gain a deeper insight into HCP, you can refer to our updated research report issued on Dec 2, 2014.

Stocks That Warrant a Look

Investors interested in the REIT industry may consider better-ranked stocks like Cousins Properties Inc. CUZ, Prologis, Inc. PLD and Public Storage PSA. All these stocks carry a Zacks Rank #2 (Buy).