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HCP Beats Q2 FFO, Reaffirms View, Deleveraging on Track

HCP Inc. HCP – a healthcare real estate investment trust (“REIT”) – reported second-quarter 2017 funds from operations (“FFO”) as adjusted of 48 cents per share, beating the Zacks Consensus Estimate of 47 cents.

Results reflect growth in three-month same-property portfolio (SPP) cash net operating income (NOI). However, the figure compared unfavorably with the year-ago quarter FFO as adjusted (excluding Quality Care Properties, Inc. contribution) of 53 cents per share.

Moreover, the company posted revenues of $458.9 million, which missed the Zacks Consensus Estimate of $481.2 million. The figure also came also below the year-ago revenue tally of $538.3 million.

Nevertheless, the company also remains on track with its deleveraging plan and aims for net debt to adjusted EBITDA in the low-to-mid six-time range and a financial leverage in the 43–44% band by the end of 2017.

HCP, Inc. Price, Consensus and EPS Surprise
 

HCP, Inc. Price, Consensus and EPS Surprise | HCP, Inc. Quote

Note: The EPS numbers presented in the above chart represent funds from operations (“FFO”) per share.

Behind the Headlines

HCP attained year-over-year three-month cash SPP NOI growth of 2.1%. Results were supported by solid senior housing triple-net, life science and medical office portfolio performances.

Notably, during the second quarter and through Aug 1, 2017, HCP announced $75 million of acquisitions. On the other hand, the company generated $399 million of proceeds from dispositions and loan repayments through Aug 1. At quarter end, HCP’s development pipeline totaled $640 million, while redevelopment pipeline aggregated $109 million.

Further, on Jul 31, HCP entered into a definitive agreement to sell its Tandem debt investment for $197 million.

Additionally, using proceeds from the Brookdale 64 disposition, the company repaid $131 million on its credit facility and $250 million of senior notes upon maturity.

HCP exited second-quarter 2017 with cash and cash equivalents of around $392.0 million, up from $94.7 million at the end of 2016. It ended the quarter with $2.3 billion of liquidity from a combination of cash and availability under its $2.0 billion credit facility.

2017 Outlook

HCP reaffirmed its full-year 2017 FFO as adjusted and SPP cash NOI guidance ranges. The company expects full-year 2017 FFO as adjusted per share in the $1.89–$1.95 band. The Zacks Consensus Estimate for the same is currently pegged at $1.94.

The company anticipates 2017 SPP cash NOI growth in the band of 2.5–3.5%.

Conclusion

We believe that HCP is well poised to benefit from its diversified portfolio, rise in healthcare spending and an aging population, over the long run. Strategic divestitures and focus on deleveraging also augur well for long-term growth. However, rise in interest rate and cut-throat competition remain major concerns. Also, dilutive impact on earnings from sale of assets is unavoidable.

HCP currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We are now looking forward to the earnings releases of GGP Inc. GGP, Mack-Cali Realty Corporation CLI and Healthcare Realty Trust Incorporated HR, all of which are expected to report quarterly figures this week.

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.

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