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HCP's Q1 FFO Surpasses, Revenues Miss Estimates, NOI Up

Zacks Equity Research

HCP Inc. HCP reported first-quarter 2019 funds from operations (FFO) as adjusted of 44 cents per share, surpassing the Zacks Consensus Estimate of 43 cents. Comparable FFO as adjusted in the prior-year quarter was 48 cents per share.

Results were supported by decent performance of the company’s life-science and medical-office segment. However, decline in rental and related revenues unfavorably impacted top-line growth.

This healthcare real estate investment trust (REIT) generated revenues of $436.1 million, missing the Zacks Consensus Estimate of $442.1 million. Further, the figure comes in lower than the year-ago number of $479.2 million.

Behind the Headlines

HCP witnessed 3% year-over-year rise in the three-month cash SPP net operating income (NOI). There was 6.5% growth in life-science cash NOI, 4.2% rise in the medical office segment and 2.4% advancement in other non-reportable segments. However, these positives were partly offset by a 0.7% decrease in seniors-housing portfolio cash NOI.

During the first quarter, HCP purchased a portfolio of nine recently-built, continuum of care, senior housing communities for $445 million. The portfolio is concentrated primarily in Florida and operated by Discovery Senior Living.

During the March-end quarter, 18 seniors-housing communities, operated by Sunrise Senior Living, were converted from triple-net leases to RIDEA structures.

HCP had cash and cash equivalents of around $120.1 million as of Dec 31, 2019, significantly up from $110.8 million recorded at the end of 2018. Additionally, the company ended the first quarter with $1.7 billion available under its $2-billion credit facility.

Outlook

HCP reiterated its 2019 FFO as adjusted guidance at $1.70-$1.76 per share. The Zacks Consensus Estimate is pegged at $1.74.

Furthermore, the company expects 2019 SPP cash NOI growth for total portfolio to be 1.25-2.75%.

Conclusion

In first-quarter 2019, HCP made diligent efforts to strengthen its balance sheet that enabled the company to receive a credit rating upgrade to Baa1 from Baa2 from Moody's.

Nevertheless, it witnessed a decline in interest income, as well as rental and related revenues, as compared to the prior-year quarter. We identify softness in the seniors housing fundamentals and stiff competition as major hurdles for the company for the days ahead.

HCP, Inc. Price and EPS Surprise
 


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

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

Performance of Other REITs

Cousins Properties Incorporated CUZ reported FFO per share of 20 cents during the January-March quarter, in line with the Zacks Consensus Estimate. The figure came in higher than the prior-year quarter’s reported tally of 15 cents. 

Duke Realty Corporation’s DRE first-quarter 2019 core FFO per share of 33 cents surpassed the Zacks Consensus Estimate of 32 cents. Moreover, the figure came in ahead of the year-ago quarter’s reported tally of 30 cents.

Ventas, Inc. VTR delivered first-quarter normalized FFO of 99 cents, beating the Zacks Consensus Estimate of 96 cents. The reported figure, however, came in lower than the prior year’s $1.05.

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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