The rating affirmation was backed by HCP's large and diversified portfolio and its commitment on maintaining a strong credit profile even while growing its size. The company also enjoys strong liquidity position with sufficient line capacity and manageable debt maturities.
However, the rating agency noted that high tenant concentration, weak lease coverage at its largest tenant, HCR ManorCare, and cutthroat competition in the acquisition market are the challenges ahead of the company.
Nevertheless, the rating agency believes that the lease coverage on the HCR ManorCare portfolio will improve from the current levels. Also, HCP is expected to continue maintaining its solid financial and liquidity position as it pursues growth. All these are reflected in the company's stable outlook.
We believe that this rating affirmation is a positive for this healthcare real estate investment trust (REIT) as it establishes the company's creditworthiness in the market and bolsters investor confidence in the stock. This, in turn, improves the company's financial flexibility and offers means to pursue growth strategies.
Irvine, CA-based HCP reported third-quarter 2015 adjusted funds from operations ("FFO") per share of 79 cents, beating the Zacks Consensus Estimate by a penny. Results benefited from solid top-line growth.
Going forward, we expect HCP to benefit from its diversified portfolio, increasing healthcare spending and an aging population. Strategic investments, tie-ups and opportunistic acquisitions would drive decent cash flows. Yet, cut-throat competition and tenant concentration continue to remain as concerns for the company.
HCP currently carries a Zacks Rank #3 (Hold).
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.