HCP Beats Q1 FFO And Revenue Estimates, Reiterates Outlook

HCP Inc. (NYSE:HCP) reported first-quarter 2018 funds from operations (FFO) as adjusted of 48 cents per share, beating the Zacks Consensus Estimate of 46 cents. Comparable FFO as adjusted in the prior-year quarter was 51 cents per share.

Results reflected better-than-expected revenue numbers for the reported quarter.

This healthcare real estate investment trust (REIT) generated revenues of $479.2 million, surpassing the Zacks Consensus Estimate of $458.8 million. However, the figure compared unfavorably with the year-ago number of $492.2 million.

Behind the Headlines

HCP experienced 0.2% year-over-year decline in the three-month cash SPP NOI. Though there was growth of 0.4% in life-science cash NOI, 0.5% increase in senior-housing triple-net and 1.6% rise in the Medical office portfolio, the positives were offset by 6.4% decrease in senior-housing operating portfolio (SHOP) cash NOI.

During the quarter under review, HCP completed the sale of six assets, totaling $275 million to Brookdale Senior Living.

In March, the management of 24 senior-housing communities, owned by HCP, were being transitioned to Atria Senior Living. 13 have already been transitioned and others, which await a few regulatory approvals, are expected to be transitioned by the second quarter.

HCP closed the prior-announced $112 million sale of Tandem mezzanine loan investment that resulted in an impairment recovery of $3 million.

HCP had cash and cash equivalents of around $86 million as of Mar 31, 2018, up from $55.3 million recorded at the end of 2017. Further, the company ended the reported quarter with $1.0 billion of liquidity from a combination of cash and availability under its $2.0 billion credit facility. It has no major senior notes or secured debt maturities until 2019.

Outlook

HCP reiterated 2018 FFO as adjusted guidance range, which it expects to be $1.77-$1.83 per share. The Zacks Consensus Estimate is pegged at $1.81.

Further, the company reaffirmed the 2018 SPP cash NOI growth guidance of 0.25-1.75%.

Conclusion

HCP is poised to benefit from its diversified portfolio, rise in healthcare spending and an aging population, over the long run. Strategic divestitures, efforts to lower the Brookdale portfolio concentration and a focus on deleveraging augur well for long-term growth. In March, in sync with its strategic efforts, the company announced the shift in its operator for 24 senior living communities owned by them, from Brookdale to Atria Senior Living.

Nevertheless, the softness in the seniors’ housing fundamentals amid new supply is anticipated to thwart the company’s pricing power. Further, the hike in interest rate and stiff competition remain concerns for the company.

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

HCP, Inc. Price, Consensus and EPS Surprise

We are now looking forward to the earnings releases of EPR Properties (NYSE:EPR) , Jones Lang LaSalle Inc. (NYSE:JLL) and Realty Income Corp. (NYSE:O) . All of these are scheduled to report their numbers on May 8.

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

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