Is Health Care Properties a Buy?

HCP Inc. [Healthcare Properties (HCP) Mar. 2009 The company provides the real estate to the healthcare industry : Revenue NOI Senior Housing ............... 34.1% 40.8% Medical Office Buildings .... 30.2% 20.9% Lab / Pharma Buildi ......... 23.7% 24.0% Skilled Nursing Facilities ... 3.5% 4.2% Hospitals ...................... 8.3% 9.8% ..................................................................................................................................... Joel Bloomer, senior equity analyst at Morningstar, is quoted as follows ("REIT Dividend Cuts Loom," 03/04/09, Wall Street Journal): He said among the 70 REITs Morningstar covers, less than 10 could maintain their dividend."But, even those are likely to cut their dividend to preserve capital." But on Feb.02, 2009 the HCP Board declared and raised the dividend to $0.46 per share. For all of 2007 it was $0.445/Q. or $1.78 and 2008 $0.455/Q.or $1.82. While the increase was minimal, the Board did not reduce it. Since this was done recently it says something about how the Board views HCP's current financial condition. Quote= $15.250/sh. dividend= $1.84 yield= 12.0% as of 03/06/09 HCP estimates its FFO for 2009 at $2.15 to $2.21 ......................................................................................................................... 4Q 2008 Earnings Call Transcript - 02/10/09 HCP Supplemental Information - 12/31/08 (See page five for debt maturities) National Investment Center for the Seniors Housing &Care Industry: [Research & Data... Key Financial Indicators] ......................................................................................................................................... Sunrise Senior Living - SRZ = 13% of HCP revenue x 40.8% NOI = 5.3% NOI Sunrise Senior Living Q.4 2008 Conference Call - 03/02/09 Q1 2008 Sunrise Senior Living Investor Presentation

Disclosure: HCP = long + covered calls + cash covered put

Comments

[Marcap:]

HCP indeed looks like it may have potential.

1. Solid Balance Sheet: CA = $285M vs CL = $225M; TA = $12.03B vs TL = $6.74B

2. Trading at less then book value: Price = $16.08 vs BV = $19.39

3. P/E Ratio: 8.97

4. Div & Yield: $1.84 / 10.10%

I would not however expect to continue receiving a dividend of $1.84, especially given that it is slightly greater than the company's EPS of $1.76. Clearly doing so would not be logical unless there is a significant increase in net income. At current profit levels, a dividend around $0.90 would be much more realistic.

Mar 08 01:31 PM

[Chris B:]

The dividend hike could be a good sign or a cash-burning management mistake, depending on the underlying situation. That's why the dividend itself provides us with little information about future earnings or dividends. I'd be much more interested in hearing about what we can expect out of future earnings and why.

Marcap is right - you can't expect a sustained higher dividend than what the company earns.

The cynic in me presents a scenario where management sees massive losses in the future, which will eventually result in zero dividend, and decided to convert as much of the company's resources into a dividend payment as possible before this event. After all, insiders own 2.24M shares. "A bird in the hand..." they say. After all, what's their reward for holding cash and reducing the magnitude of the loss?

Perhaps my inner cynic is missing a bullish sign and an opportunity to lock in low-risk 10% dividends on my money for decades. However this inner cynic has, over time, saved me more money than I've ever made! Every investor needs one. I'll dig a little deeper on HCP, HCN, HR, and VTR.

Mar 09 12:38 PM

[Dave Shafer:]

Marcap,

When evaluating REITs a more accurate guage of the ability to pay out their dividends, which is required, is the FFO or funds from operations. More sophisticated investors then back out the capital expenses from this number to get a truer look at cash flow.

Mar 09 02:00 PM

[Marcap:]

First of all, this has nothing to do with cash flow.

Secondly, there is no such thing as a dividend being "required" as you have suggested. A dividend may be reduced or eliminated by any company at any time.

And finally, this has nothing to do with the company's "ability" to actually pay the dividend (at this time). Sure they have the ability to pay the $1.84, but it lacks logic to do so, especially when that amount is greater than their net income per share. i.e. If you pay me $1.84 for every $1.76 you earn, please tell me what will eventually happen.

In short, any company which continues to pay a dividend greater than its earnings per share will eventually go out of business. And that is simple mathematics.

On Mar 09 02:00 PM Dave Shafer wrote:

> Marcap,
>
> When evaluating REITs a more accurate guage of the ability to pay
> out their dividends, which is required, is the FFO or funds from
> operations. More sophisticated investors then back out the capital
> expenses from this number to get a truer look at cash flow.

Mar 09 02:53 PM

[barnabas:]

somewhere these EPS figures have gotten skewed. According
to Yahoo Finance, the last 4 quarters' reported earnings numbers were as follows. Mar.08 - $.56, Jun.08 - $.51.
Sep.08 - $.71, Dec.08 - $.48. The FY ends in Dec. so the total was $2.26, not $1.79. For FY'09 they are estimated to show $2.21 and for 2010, $2.30. The technicals on this stock are terrible. Imagine that!

Is the dividend safe? perhaps, but the better question is:
Is the real estate market safe?

Mar 09 03:47 PM

[Marcap:]

Yahoo Finance shows the EPS number to be exactly as I have stated it to be. i.e. $1.79 per share.

finance.yahoo.com/q?s=...;=

Here is the link to their SEC 10-K filing. It also shows EPS to be $1.79.

yahoo.brand.edgar-onli...

BTW, your quarterly numbers are not accurate. Please check them again.

The correct numbers are as follows:

Q1 (Mar 2008) EPS = $0.21
Q2 (Jun 2008) EPS = $0.96
Q3 (Sep 2008) EPS = $0.49
Q4 (Dec 2008) EPS = $0.13

Therefore 2008 EPS = $1.79 (as stated)

On Mar 09 03:47 PM barnabas wrote:

> somewhere these EPS figures have gotten skewed. According
> to Yahoo Finance, the last 4 quarters' reported earnings numbers
> were as follows. Mar.08 - $.56, Jun.08 - $.51.
> Sep.08 - $.71, Dec.08 - $.48. The FY ends in Dec. so the total was
> $2.26, not $1.79. For FY'09 they are estimated to show $2.21 and
> for 2010, $2.30. The technicals on this stock are terrible. Imagine
> that!
>
> Is the dividend safe? perhaps, but the better question is:
> Is the real estate market safe?

Mar 09 05:09 PM

[barnabas:]

Absolutely correct, according to Edgar-online.
Discrepancies in reported earnings are not a good thing for the average investor who is trying to make an accurate assessment of a corporation's vitality. I
was just stating what I observed at this yahoo source:

finance.yahoo.com/q/ae...

Another culprit, MSN lists their quarterly earnings as adding up to $1.81 and then on the same page posts it at $1.82!

moneycentral.msn.com/i...

so, as you can see, none of these vaunted websites are in much of an agreement on the earnings of HCP. I wonder why that is

However, either way, a REIT is required to pay about 90% of it's earnings in the form a dividend and in some
cases may choose to pay out more than 100%. So, it could very well be business as usual.

Mar 10 12:31 PM

[Marcap:]

Barnabas,

Unfortunately what often happens is that when year end statements are prepared, some of the adjustments made actually apply to prior periods (quarters). So while the company may indeed adjust prior quarterly statements, rather than show all the adjustments in Q4, some sites do not update quarterlies already posted, but merely post the year end which of course will include all adjustments. The obvious problem with that is when you add up the 4 quarters, they do not equal year end totals.

This is also a very good argument why one should not rely on a single source for such info, especially when using the info to make an investment decision.

Mar 10 01:01 PM

[William Eic...:]

NOTE: on 04/23/09 the HCP Board of Directors declared the
regular dividend of $0/46/sh...

So now the question becomes: who do you trust...the HCP Board
and management or, the various comments, opinions and claimed
financial holdings (long, short, none) of investors?

Apr 26 02:11 PM