HCP Amends and Restates Credit Facility, Boosts Strength

HCP Inc. HCP recently boosted its financial position by closing an amended and restated credit agreement. The move offers greater flexibility to the company as it provides a $2.5-billion unsecured revolving credit facility and a new $250-million unsecured term loan facility.

Specifically, with this move, the size of the unsecured revolving credit facility has been increased to $2.5 billion from $2 billion, while the maturity date of the unsecured revolving credit facility has been extended to May 23, 2023, with two 6-month extension options.

Further, it helped in lowering the borrowing costs. The unsecured revolving credit facility bears interest at a rate per annum equal to LIBOR plus 82.5 basis points as of closing, while the facility fee on the entire revolving commitment is 15 basis points per annum. These are based on the company’s current credit ratings. Also, a sustainability-linked pricing grid is incorporated with the unsecured revolving credit facility. This will lower the borrowing spread when certain benchmarks are achieved each year. In addition, the unsecured term loan facility includes a 90-day delayed-draw feature and was undrawn at closing.

The decrease in borrowing costs is anticipated to reduce the company’s annualized interest expense. The move will improve the company’s cash flow and alleviate its bottom-line pressure as well.

Moreover, the company has the option to enjoy more borrowing capacity, by up to an additional $750 million, for a maximum borrowing of $3.5 billion. This is subject to certain customary conditions.

The amendment, which boosts its financial flexibility and future investment activities, highlights lenders' confidence in the company. Extending maturities provide the company ample scope for deploying capital for long-term growth opportunities and carrying out acquisition initiatives.

Notably, HCP remains on track to execute portfolio-repositioning measures in a bid to improve the quality of the senior housing portfolio and lower operator concentration. Also, investments in the medical office and life science real estate properties are expected to drive long-term growth. Furthermore, the company is making diligent efforts to strengthen its balance sheet. However, the dilutive impact on earnings in the near term from asset disposals is unavoidable. In addition, choppy senior housing fundamentals and elevated supply in some of the company’s markets will hurt HCP’s results in the upcoming quarters.

HCP currently carries a Zacks Rank #3 (Hold). In the past six months, shares of the company have outperformed the industry. While the stock has gained 10.5%, the industry has increased 9.6% during this period.

Stocks to Consider

Some better-ranked stocks from the real-estate space include Duke Realty Corp. DRE, Lamar Advertising Company LAMR and PS Business Parks, Inc. PSB, each carrying a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Duke Realty’s Zacks Consensus Estimate for 2019 funds from operations (FFO) per share moved marginally north to $1.41 in the past week.

Lamar’s FFO per share estimates for the current year remained unchanged at $5.81 over the past week.

PS Business Parks’ Zacks Consensus Estimate for the ongoing year’s FFO per share moved up slightly to $6.61 in the past month.

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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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