HCP Inc. (HCP - Analyst Report), the largest medical real estate investment trust (REIT) in the U.S., has recently announced a secondary offering of 9 million common shares. The company will also grant the underwriters an option to purchase an additional 1.35 million shares to cover any over-allotments.
HCP anticipates raising approximately $295.5 million of proceeds from the equity offer. The company intends to utilize the proceeds to redeem all the outstanding shares of its 7.25% ‘Series E Cumulative Redeemable Preferred Stock’ and 7.10% ‘Series F Cumulative Redeemable Preferred Stock’ before accrued and unpaid dividends. Citigroup Global Markets Inc., the brokerage and securities arm of Citigroup Inc. (C - Analyst Report) is acting as the sole book-running manager for the offering.
HCP has one of the most diversified portfolios in the health care sector with exposure to all types of facilities. The product diversity of HCP allows it to capitalize on opportunities in different markets based on individual market dynamics, and provides a hard-to-replicate competitive advantage over its peers.
HCP does not run the healthcare business at its facilities. Rather, it has established business relationships with a number of experienced healthcare management companies or operators who lease these properties on a long-term basis — generally 10 to 15 years. This insulates the company from short-term market swings, and provides a steady source of income.
In addition, healthcare is relatively immune to the economic problems faced by office, retail and apartment companies. Consumers will continue to spend on healthcare while cutting out discretionary purchases. The healthcare industry is the single largest industry in the U.S., based on Gross Domestic Product (GDP), and offers stability to the company amidst the volatility in the market.
We maintain our ‘Neutral’ recommendation on HCP, which presently has a Zacks #3 Rank that translates into a short-term 'Hold' recommendation and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months.