Current HCP Valuation Already Prices In Spin-Off Benefits, Says UBS

UBS provided its outlook on HCP, Inc. HCP. They continue to think the company's plan to spinoff its skilled nursing assets is a positive for the stock, but think the market already reflects benefit of spin.

According to the analysts, the motivation for the spin is the ability for QCP to accept more equity in HCRMC's OpCo in a tradeoff for a rent cut in the future, which would probably result in QCP shedding its REIT status since it cannot own more than 10 percent of that OpCo as a REIT (HCP already owns 10 percent).

"During the earnings call, management maintained a reserved tone that seemed to support the intent to be listed as a REIT initially while keeping flexibility to change its business model and/or corporate structure to provide the best long-term solution," added the analysts.

UBS reiterated its Neutral rating and raised the price target to $38 from $35. The new price target is based on the sum-of-the-parts valuation with a 17.5x 2017E AFFO multiple on HCP and 5.5x (9 percent dividend yield) for QCP.