HCP Enhances Credit Facility - Analyst Blog

Healthcare real estate investment trust (REIT) – HCP Inc. HCP – disclosed the enhancement of its credit facility by $500 million to $2.0 billion. The amendment to its unsecured revolving credit facility has also helped it to benefit from favorable pricing and term extension. We believe this will provide the company added financial flexibility.

In particular, the move led to a lowering of funded interest cost by 17.5 basis points and the maturity date has been extended to Mar 31, 2018. The company will now bear interest annually at LIBOR plus 92.5 basis points and a facility fee of 15.0 basis points for this facility, based on the company's current credit ratings.

Nevertheless, the other terms were substantially unaltered. These include options like a one-year extension at the company's discretion as well as increase of commitments by up to $500 million, depending on customary conditions.

We believe that the increased financial flexibility will enable HCP to pursue its portfolio enhancement activity that will strengthen its top line. Notably, in February, aided by growth in revenues, HCP reported fourth-quarter 2013 adjusted FFO per share of 76 cents, 2 cents ahead of the Zacks Consensus Estimate and 4 cents above the prior-year quarter figure. At year-end 2013, HCP had cash and cash equivalents of $300.6 million, up from $247.7 million at the prior-year end.

Going forward, we believe that HCP is well poised for a strong growth trajectory given its well-balanced, diversified portfolio and opportunistic acquisitions. Moreover, aging population and rising healthcare expenses offer significant growth opportunities to this healthcare REIT and to support this, the company has a decent balance sheet with investment grade credit ratings.  

HCP currently has a Zacks Rank #3 (Hold). Investors interested in the REIT industry may consider stocks like Cousins Properties Inc. CUZ, Public Storage PSA and STAG Industrial, Inc. STAG. All these stocks carry a Zacks Rank #2 (Buy).

Note: Funds from operations, a widely accepted and reported measure of REITs performance, are derived by adding depreciation, amortization and other non-cash expenses to net income.