HCP Earnings Beat, Guides Higher
Real estate investment trust (:REIT) – HCP Inc. (HCP) reported first quarter 2013 adjusted FFO (funds from operations) per share of 74 cents, 2 cents ahead of the Zacks Consensus Estimate of 72 cents and 7 cents above the prior-year quarter figure of 67 cents. The company’s operating results reflect a positive impact of 2 cents per share for gain on sales of marketable securities.
Including non-recurring items, HCP’s FFO stood at 74 cents per share, well ahead of 64 cents reported in the year-ago period.
HCP reported total revenue of $516.3 million during the quarter, reflecting an increase of 13.3% from the year-ago period. However, total revenue fell short of the Zacks Consensus Estimate of $522.0 million.
Adjusted same-property net operating income (:NOI) of the company reached $355.5 million in the quarter, 1.1% ahead of $351.4 million reported in the year-ago period. Excluding one-time items, NOI growth was 2.9% and comprised mainly of a rent payment from Google in the prior-year quarter. As of Mar 31, 2013, HCP had $17.4 billion of its properties under triple-net leases, representing 85% of its owned portfolio.
Investments during 1Q
During the quarter, HCP made investments worth $96 million. This included $38 million to acquire the 4 remaining senior housing facilities from its prior disclosed The Blackstone Group LP (BX) joint venture acquisition and $58 million to finance development and other capital projects, mainly in its life science, medical office and senior housing segments.
During the quarter, HCP placed into service a 70,000 square foot building in Mountain View, Calif. It is 100% leased to LinkedIn.
Liquidity
At the end of the quarter, HCP had cash and cash equivalents of $47.5 million compared with $247.7 million at the prior-quarter end.
Outlook
Encouragingly, HCP has increased its full-year 2013 guidance. The company now expects FFO in the range of $2.94 – $3.00 per share compared to the prior range of $2.92 – $2.98 per share. The estimates exclude the impact of any future acquisitions or dispositions.
Dividend Update
On Apr 25, 2013, HCP announced a quarterly common stock cash dividend of 52.5 cents per share. The dividend will be paid on May 21, 2013 to stockholders of record as of the close of business on May 6. Notably, the company had made a hike of 5% in its quarterly cash dividend rate in January this year.
In Conclusion
We are encouraged with the better-than-expected performance of HCP. This REIT has one of the most diversified portfolios in the healthcare sector and exposure to all types of facilities. Moreover, the Senior Housing portfolio closure during the fourth quarter boosted the company’s portfolio diversification activity.
The healthcare sector provides a steady source of income that insulates the company from short-term market volatility. Yet, a large portion of its revenue originates from a few tenants, which exposes it to concentration risk and undermines its growth potential to some extent.
HCP currently carries a Zacks Rank #3 (Hold). However, other REIT stock that are performing better and deserve a look are Simon Property Group Inc. (SPG) and Acadia Realty Trust (AKR), both carrying a Zacks Rank #2 (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.
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