HCP, Inc. (HCP), the largest medical real estate investment trust (REIT) in the U.S., has recently updated its guidance for full year 2011. The company presently expects fiscal 2011 FFO (fund from operations) before non-recurring items in the range of $2.62 to $2.68 per share, significantly up from the previous range of $2.58 to $2.64. Fund from operations, 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 FFO guidance was increased by 4 cents in both the upper and lower limits to better mirror the effect of a combined positive impact of 6 cents per share from the early repayment of debt and a benefit of 2 cents from other items, partially offset by a negative impact of 4 cents resulting from a loan being placed on non-accrual status.
At the same time, HCP obtained a new $1.5 billion unsecured revolving credit facility that replaced its existing credit facility scheduled to mature in August 2011. The new credit facility also offers the company a right to increase the borrowing capacity by a maximum of $500 million.
HCP follows a conservative approach to financial management by actively managing its debt-to-equity levels and maintaining multiple sources of liquidity like the revolving credit facility, access to capital markets and secured debt providers, and divesture of assets. The financial flexibility enables the company to take advantage of potential investment opportunities that in turn bolsters top-line growth.
HCP is the leading medical REIT in the U.S. with one of the largest and most diversified portfolios in the healthcare sector with exposure to all types of facilities. The product diversity of the company 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.
We maintain our ‘Neutral’ rating on HCP, which currently has a Zacks #3 Rank that translates into a short-term ‘Hold’ rating, indicating that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank for Nationwide Health Properties Inc. (NHP), one of the competitors of HCP.
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