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Aided by growth in revenues, HCP Inc. (HCP - Analyst Report) – a healthcare real estate investment trust (REIT) – reported fourth quarter 2013 adjusted FFO (funds from operations) per share of 76 cents, 2 cents ahead of the Zacks Consensus Estimate and 4 cents above the prior-year quarter figure.
HCP reported total revenue of $530.3 million during the quarter, reflecting an increase of 5.4% from the year-ago period. Total revenue also exceeded the Zacks Consensus Estimate of $503 million.
For full-year 2013, HCP’s adjusted FFO per share came in at $3.01 on revenues of $2.1 billion. Results were substantially higher than the prior-year FFO per share of $2.78 on revenues of $1.9 billion.
HCP expects FFO to range between $2.96 and $3.02 per share for full-year 2014. This is below the Zacks Consensus Estimate of $3.04 per share for full year 2014. The estimates exclude the impact of any future acquisitions. Further, HCP projects full year same-property portfolio cash NOI growth of 3% – 4%.
Quarter in Detail
During the quarter under review, HCP’s adjusted same-property cash net operating income (NOI) reached $374.1 million, depicting growth of 3.5% year over year.
The company extended leases on three acute care hospitals with Tenet Healthcare Corp. (THC - Analyst Report). Notably, the leases for the properties, which encompassed 656 licensed beds, were extended at current rent levels. They contain Consumer Price Index (CPI)-based escalators, on an annual basis, from 3 to 8 years with purchase options that can be exercised for a fixed price at the end of each term.
Apart from this, HCP established its ties with a genomic diagnostics tenant, CardioDx, at its Redwood City, California life science campus, through the execution of an eight-year, 69,000 sq. ft. new lease deal.
Moreover, HCP financed $57 million for construction and other capital projects mainly in its life science, medical office and senior housing divisions during the reported quarter. On the other hand, the company sold 8 post-acute/skilled nursing facilities for $68 million, a senior housing facility for $18 million as well as two medical office buildings for $6 million.
At the end of the year, HCP had cash and cash equivalents of $300.6 million, up from $247.7 million at the prior-year end. Also, during the reported quarter, HCP raised $800 million of 4.25% senior unsecured notes due 2023.
Recently, HCP announced a 3.8% hike in its quarterly cash dividend rate to 54.5 cents per share. This reflects the company’s 29th consecutive year with a dividend raise. The increased dividend will be paid on Feb 25, 2014 to stockholders of record on Feb 10.
We believe that going forward, HCP is well poised for a strong growth trajectory given its well-balanced, diversified portfolio, opportunistic acquisitions, aging population, rising healthcare expenses and decent balance sheet. The dividend hike also augurs well.
However, for a number of its tenants and operators, one of the key sources of revenues is the governmental healthcare programs such as the federal Medicare program and state Medicaid programs and non-governmental payors. This is a concern as in the recent years governmental payors have reduced payments to healthcare providers due to budgetary pressures. Also, cut-throat competition remains a challenge for this Zacks Rank #3 (Hold) stock.
We now look forward to the results of other healthcare REITs such as Ventas Inc. (VTR - Analyst Report) and Health Care REIT Inc. (HCN - Analyst Report) which are scheduled to report within the next 10 days.
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.