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HCP Raises Capital via Senior Notes Issuance to Pay Off Debt

Zacks Equity Research

In order to pay off its debts, HCP, Inc. (HCP) is raising capital through senior notes issuance. In particular, the company priced 3.875% senior unsecured notes worth $800 million at 99.630% of the principal amount. The notes, due 2024, have a yield-to-maturity of 3.920%. Notably, owing to investors’ demand, the size of this senior unsecured notes offering was increased.

HCP expects to reap net proceeds (after expenses) of about $789.7 million from this senior unsecured notes offering. This amount along with its cash on hand will be used for repaying $300 million outstanding (as of Aug 6, 2014) under the company’s revolving credit line. The remaining proceeds will be utilized for other corporate needs such as financing its formerly announced joint venture deal with Brookdale Senior Living Inc. (BKD).

A consortium of reputed financial institutions such as – Merrill Lynch, Pierce, Fenner & Smith Inc. of Bank of America Corp. (BAC) and Morgan Stanley & Co. LLC of Morgan Stanley (MS) – is assisting HCP as joint book-running managers. This offering is slated to complete on Aug 14, upon fulfillment of customary closing conditions.

For HCP, the aforementioned notes offering is a strategic fit as it will lower debt and consequently the interest expenses. Also, the increased financial flexibility will enable HCP to pursue its portfolio enhancement activity that will strengthen its top line.

Last week, HCP reported second-quarter 2014 adjusted FFO (funds from operations) per share of 75 cents, in line with the Zacks Consensus Estimate and up 4.2% from 72 cents reported in the year-ago quarter. The results were aided by growth in revenues.

Encouragingly, this healthcare real estate investment trust (:REIT) raised its 2014 FFO outlook to the range of $3.01 – $3.07 per share from the prior projection of $2.96 – $3.02. At the end of the quarter, HCP had cash and cash equivalents of $54.1 million, as against $300.6 million at the prior-year end.

HCP currently carries a Zacks Rank #3 (Hold).

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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