Updated Research Report on HCP - Analyst Blog

On Jun 2, 2014, we issued an updated research report on the healthcare real estate investment trust (REIT) – HCP Inc. HCP.

Early this month, aided by growth in revenues, HCP reported first-quarter 2014 adjusted FFO (funds from operations) per share of 75 cents, a penny ahead of both the Zacks Consensus Estimate as well as the year-ago quarter figure.

Improving fundamentals in the healthcare REIT market, a well-balanced, diversified portfolio, decent balance sheet, opportunistic acquisitions and strategic tie ups place HCP on the growth trajectory.

In April, Brookdale Senior Living Inc. BKD and HCP extended their ties through the creation of a $1.2 billion continuing care retirement communities (CCRC) Joint Venture. HCP and Brookdale will own 49% and 51%, respectively, of this JV.

Moreover, the companies have decided to amend leases on 202 HCP-owned senior housing communities. These communities are presently operated by Emeritus Corp. ESC. The closures of the deals are subject to accomplishment of the pending merger between Brookdale and Emeritus. We believe that this CCRC partnership with Brookdale offers HCP a solid platform for growth.

However, cut-throat competition and dependency on governmental healthcare programs for a number of its tenants and operators remain headwinds. This is because in the recent years governmental payors have reduced payments to healthcare providers due to budgetary pressures.

Over the last 30 days, the Zacks Consensus Estimate for full-year 2014 moved down a cent to $3.01 per share, while the same for 2015 climbed up by a cent to $3.13. HCP currently carries a Zacks Rank #3 (Hold).

Stocks That Warrant a Look

Investors interested in the REIT sector may also consider Terreno Realty Corp. TRNO that sports a Zacks Rank #1 (Strong Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.