HCP Inc. ( “>HCP), the largest medical real estate investment trust (REIT) in the U.S., has recently signed two agreements with Emeritus Corp. ( “>ESC ) , which operates senior assisted living facilities, to lease 27 senior living properties for an undisclosed amount.
The leased properties spanning 13 states include 3,239 units, comprising 2,021 assisted living facilities, 631 memory care, 450 skilled nursing and 137 independent living units. The properties will be initially leased for about 15 years with available lease extension options of 10 years each.
Emeritus is one of the largest and most experienced operators of assisted living facilities across the U.S., providing a residential housing alternative to senior citizens who need assistance for daily living. It provides support to senior residents as they age, with an emphasis on personal care.
HCP has one of the most diversified portfolios in the health care sector with exposure to all types of facilities. The product diversity of HCP allows it to capitalize on opportunities in different markets based on individual market dynamics, and provides a hard-to-replicate competitive advantage over its peers.
Furthermore, HCP does not run the health care business at its facilities. Rather, it has established business relationships with a number of experienced health care management companies or operators who lease these properties on a long-term basis, generally 10 to 15 years. This insulates the company from short-term market swings and provides a steady source of income.
We maintain our Neutral recommendation on HCP, which presently has a Zacks #3 Rank that translates into a short-term ‘Hold’ recommendation and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months.
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