- 23 августа 2017, 17:05
- Zacks Investment Research
Irvine, CA-based healthcare REIT — HCP Inc. HCP — 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.
As part of such efforts, during first-quarter 2017, HCP sold $1.8 billion of non-core assets. This included the completion of the sale of 64 triple-net assets leased to Brookdale for $1.125 billion, and the RIDEA II transaction for $480 million net. Using proceeds from the Brookdale transactions and other dispositions, the company repaid $1.1 billion of debt during the first quarter. This also helped the company lower its Brookdale concentration.
In addition, in sync with the company’s strategy to exit mezzanine debt investments, in late June, the company’s HC-One loan was repaid in full. Further, on Jul 31, HCP entered into a definitive agreement to sell its Tandem debt investment for $197 million. Importantly, Tandem indicates the company’s residual, highly leveraged mezzanine debt investment and its last pure skilled nursing facilities (SNFs) exposure.
Notably, amid healthcare reforms, though senior housing, medical-office buildings and hospitals have been able to reap solid top-line growth in recent years, SNFs are becoming more susceptible to top-line pressure due to the change in medical billing procedure. Moreover, such moves strengthen the company’s balance sheet. The company also has no major debt maturities until 2019.
In addition, early in August, HCP reported second-quarter 2017 funds from operations (“FFO”) as adjusted of 48 cents per share, beating the Zacks Consensus Estimate of 47 cents. Results reflected growth in three-month same-property portfolio cash net operating income (NOI).
This healthcare REIT is poised to gain from its diverse and high-quality portfolio, amid rising healthcare spending and an aging population. HCP has exposure to all types of facilities. The diverse product mix of the company enables it to explore the opportunities available in various areas, based on individual market dynamics.
However, intense competition, rising supply and hike in interest rate remain concerns. In fact, softness in the senior housing fundamentals is likely to continue in the upcoming quarters amid rise in new supply in the market. This is expected to adversely affect the company’s pricing power and occupancy level.
Furthermore, though the company opted for huge asset dispositions and remains on track with its deleveraging plan, it cannot bypass the dilutive impact on earnings from sale of assets.
Year to date, shares of HCP have declined 2.6%, underperforming 2.9% growth recorded by the industry it belongs to. However, this Zacks Rank #3 (Hold) company’s estimates for FFO per share for third-quarter 2017 remained unchanged over the past seven days.
Stocks to Consider
A few better-ranked stocks in the REIT space include Communications Sales & Leasing, Inc. UNIT, InfraREIT Inc. HIFR and PS Business Parks Inc. PSB, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
While Communications Sales & Leasing and PS Business Parks have expected long-term growth rates of 7.5% and 5%, respectively, the expected long-term growth rate for InfraREIT is currently pegged at around 8.0%.
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