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HCP Q4 FFO Beats, Guides Below Estimates

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Aided by growth in revenues, HCP Inc. (HCP - Free 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 - Free 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.

Dividend Update

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.

In Conclusion

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 - Free Report) and Health Care REIT Inc. 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.

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