On Jun 7, 2013, we restated our long-term recommendation on
healthcare real estate investment trust (REIT) -
) - at Neutral. The decision is based on the company's improved
core operations and successful execution of strategic
repositioning initiatives in first-quarter 2013. However, the
company's reliance on a few tenants for revenue generation are
HCP posted better-than-expected results for first-quarter
2013, with adjusted FFO (funds from operations) of 74 cents per
share, 2.8% ahead of the Zacks Consensus Estimate of 72 cents and
10.4% above the prior-year quarter figure of 67 cents per share.
The performance was aided by gains from accretive acquisitions
done in the later part of 2012. Encouragingly, HCP increased its
full-year 2013 guidance as well.
This REIT has one of the largest and most diversified
portfolios in the healthcare sector with exposure to all types of
facilities. Its diverse product mix facilitates the exploration
of opportunities available in various areas, based on individual
market dynamics. This has led to a decent increase in HCP's
revenues in recent years.
However, as a large portion of the company's revenues
originates from a few operators and tenants, it has substantial
concentration risks. During first-quarter 2013, roughly 48% of
the total revenues were generated through leasing or financial
deals with the following companies - HCR ManorCare (31%),
Emeritus (7%), Sunrise (5%), and Brookdale (5%). Additionally,
HCP's acquisition spree involves significant upfront costs. These
remain a drag as new properties usually take time to generate
Following the release of first-quarter 2013 results, over the
last 30 days, the Zacks Consensus Estimate for 2013 remained
stable at $2.98 per share. Also, for 2014, it remained constant
at $3.14 per share. The stock now carries a Zacks Rank #3
Other Stocks to Consider
REITs that are performing better and are worth a look include
National Health Investors, Inc.
Omega Healthcare Investors Inc.
Extra Space Storage Inc.
). All these stocks carry a Zacks Rank #2 (Buy).
Note: FFO, a widely accepted and reported measure of the
performance of REITs is derived by adding depreciation,
amortization and other non-cash expenses to net income.
EXTRA SPACE STG (EXR): Free Stock Analysis
HCP INC (HCP): Free Stock Analysis Report
NATL HEALTH INV (NHI): Free Stock Analysis
OMEGA HLTHCARE (OHI): Free Stock Analysis
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