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HCP to Buy Life Science Asset, Boost West Cambridge Cluster

Zacks Equity Research

Strengthening its West Cambridge footprint, HCP, Inc. HCP recently executed a binding agreement to acquire a 224,000-square-foot, LEED Gold laboratory building located at 35 CambridgePark Drive for $332.5 million.

The transaction, expected to close around December 2019, will expand HCP’s footprint in the Boston life science market, consisting of three core campuses spanning more than 1.3 million square feet of space.

Specifically, 35 CambridgePark Drive is situated in the Cambridge submarket of Boston, MA, and will be acquired from The Davis Companies and Invesco Real Estate (Invesco). The property is 100% leased to five life science tenants consisting of both emerging biopharmaceutical companies and established large-cap ones. Additionally, the property’s weighted average lease term stands at more than 10 years and it carries weighted average lease escalators of 3%. Understandably, long-lease terms and high-quality tenants will assure steady growth in cash flows for HCP.

Additionally, the Class A life-science building offers more than 10,000 square feet of common amenity space, consisting of a lobby, a fitness center, a full-service restaurant and abundant green space and outdoor seating. Further, with its proximity to the busy MBTA Alewife Red Line station and bus terminal, the transit-oriented property offers easy commuter access. 

Notably, increasing life expectancy of the U.S. population, and biopharma drug development growth opportunities have promoted the institutional life science and medical-market fundamentals. Hence, life science real estate has grabbed a decent share of attention, and management believes that this real estate category will continue to experience unmatched demand. Additionally, management noted that the cluster strategy adopted by HCP, along with the mix of stabilized and development properties in the portfolio will drive growth for the company’s tenants.

Hence, leveraging on the favorable fundamentals, HCP aims to assemble cluster of assets in three premier life-science epicenters — San Diego San Francisco and Boston — through acquisitions, developments and redevelopments.

In fact, the buyout of 35 CambridgePark Drive reiterates HCP’s targeted focus to increase density in West Cambridge, where it has created up to 440,000 square feet of adjoining space across a modern campus. Specifically, in the first quarter, HCP acquired 64,000-square-foot 87 CambridgePark Drive and a development site at 101 CambridgePark Drive.

These efforts are likely to enable HCP to capture scale and satisfy demand of the company’s growing tenants. However, sale of healthcare properties is likely to result in near-term earnings dilution.

Shares of this Zacks Rank #3 (Hold) company have gained 13.8% over the past six months compared with the industry’s rally of 10.9%. 


Stocks to Consider

Investors can consider some better-ranked stocks from the same space like Alexandria Real Estate Equities, Inc. ARE, Extra Space Storage EXR and Equity Commonwealth EQC each carrying a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Alexandria Real Estate’s Zacks Consensus Estimate for 2019 funds from operations (FFO) per share has remained unchanged at $6.98 in the past month.

Extra Space Storage's Zacks Consensus Estimate for the ongoing year’s FFO per share has climbed marginally to $4.86 in a month’s time.

Equity Commonwealth’s FFO per share estimates for the current year has remained unchanged at 74 cents in the past month.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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