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HCP Revamps Portfolio Quality, Lowers Brookdale Concentration

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HCP Inc. (HCP - Free Report) has undertaken strategic portfolio-repositioning measures in a bid to improve the quality of its senior housing portfolio and lower the Brookdale Senior Living Inc. operator concentration. The company, recently, provided an update about such efforts and it seems right on track to achieve its target.

Particularly, HCP has reaped $332 million of proceeds through completion of the disposition of its residual investment in the RIDEA II senior housing joint venture (JV) to an investor group led by Columbia Pacific Advisors, LLC. Notably, this JV owned 49 communities and 46 of them were managed by Brookdale.

Regarding the Brookdale 25 asset sales, the company noted that it has already accomplished the disposition of five communities for $32 million and is under contract to sell another 15 communities for $98 million. Slated to take place in three separate deals, these transactions are likely to be completed by the third quarter of 2018. The remaining five assets are expected to be either sold or transitioned this year too.

Further, with regard to the Master Transactions and Cooperation Agreement (MTCA), HCP announced a deal to sell or transition 68 Brookdale communities in November 2017. Of this, the company has already clinched a deal for the sale of a portfolio of 22 Brookdale-managed senior housing communities, for $428 million, to an institutional investor. Subject to customary closing norms and regulatory license transfer nods, this deal is likely to be completed by the third quarter.

Further, the company opted for transition of management of a portfolio of 24 HCP-owned senior housing communities from Brookdale to Atria Senior Living, Inc., and has already transitioned 18 of those. Another community has been transitioned to existing operating partner — Sonata Senior Living. For the rest 21 Brookdale-managed communities, the company is settling deals to transition to other operators and opting for sale of select assets.

These efforts are expected to benefit HCP’s senior housing portfolio in a number of ways. Specifically, the operator diversification of the portfolio will improve as the company is targeting to lower Brookdale exposure to 16% of overall portfolio income from 34% in fourth-quarter 2016.  The revamped portfolio will have stronger demographics, while the company’s balance sheet is likely to strengthen with the sale proceeds.

In fact, over time, with the diligent measures, the company aims at having more than half of its business comprising specialty office segments of medical office and life science, and lower senior housing concentration to around 40%. The focus on having a diversified private pay portfolio is likely to drive long-term growth.

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

The company’s shares have appreciated 6.9% in the past three months compared with its industry’s growth of 6.7%.

Stocks Worth a Look

A few better-ranked stocks from the same space are Extra Space Storage Inc. (EXR - Free Report) , Lamar Advertising Company (LAMR - Free Report) and Prologis, Inc. (PLD - Free Report) . All three stocks carry a Zacks Rank of 2 (Buy).

Extra Space Storage’s Zacks Consensus Estimate for 2018 funds from operations (FFO) per share has risen 0.4% to $4.62 in a month’s time. Its shares have returned 28.8% over the past year.

Lamar’s FFO per share estimates for the current year increased 1.1% in two months’ time to $5.40. Its shares have gained 2.2% in a year’s time.

Prologis’ FFO per share estimates for 2018 have inched up 0.7% to $2.98 over the past month. Its shares have appreciated 16.4% over the past year.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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