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HCP: Waiting Until FFO Is Fo'Sure

Arturo Neto, CFA profile picture
Arturo Neto, CFA


  • HCP has made progress reducing its Brookdale portfolio and has begun the process of selling its UK assets.
  • Despite an increase in 2017 guidance, FFO is still expected to be flat to down next year.
  • Even with a 5%+ yield, we believe there is more downside risk to the stock and prefer to wait for better visibility.

HCP (HCP) is the 3rd largest Healthcare REIT with $23B Enterprise value and $15B Market Cap. It maintains a diversified portfolio across 3 core segments: Medical Office (23%), Life Science (23%), and Senior Housing (44%). HCP effectively de-risked its portfolio by spinning off the SNF business in late 2015. This move eliminated direct SNF exposure and allowed the company to focus on its 3 core segments characterized by high-quality assets and a 95% private-pay clientele.

Source: Company Presentation

HCP owns 799 properties in the top markets per segment: NIC-99 for Senior Housing, Top-50 MSAs for Medical Office, and 2 of the Top 3 Life Science Markets.

HCP Strategy

The main idea is to pursue development or redevelopment in the core segments and to remove non-core assets, such as by exiting the residual UK portfolio and progressing activities on the previously announced Brookdale 25.

HCP outlines crucial actions for each of the 3 core segments.

For Senior Housing, reduction of reliance on Brookdale takes precedence. The aim is to reduce Brookdale concentration to <20% through sales or transitions and foster relationships with 10-12 other operators. The sale of interest in the Brookdale portfolio in Jan 2017 and the disposition of 64 Brookdale assets in Mar 2017 contribute to this end. Amid these transactions, HCP also looks to zero in on select development opportunities in top markets, as well as capitalize on redevelopment opportunities.

For Medical Office, the imperative is to remain disciplined as pricing expectations continue to rise, while growing relationships with top hospitals and health systems and pursuing on-campus opportunities and select off-campus assets (i.e. those with strong hospitals and health systems). Currently, the company has ties with 83% On-Campus and 95% Affiliated institutions, by which it has enjoyed an 80% retention rate for the last 5 years.

For Life

This article was written by

Arturo Neto, CFA profile picture
I have been involved in financial services for almost 30 years. When I first started focusing on financial planning and money management it was out of a first-hand experience watching friends and family having to work well past retirement age because they hadn't saved or invested enough. Eventually I landed in a family office worth hundreds of millions of dollars where I was able to see 'how the other half lived' so to speak. I now operate a wealth advisory firm and publish articles on Seeking Alpha for DIY investors that prefer to manage their own money. As publisher of The Income Strategist, a premium subscription service on SA, my goal is to guide investors on how best to generate income from their investments. The service includes several income portfolios with different strategies that members can use independently or in combination. As part of the service, I also collaborate with other SA authors to provide broader and deeper coverage of investing. In addition to being a Chartered Financial Analyst, I am also a Certified Private Wealth Advisor and have an MBA from the Darden Graduate School of Business at the University of Virginia. I also hold a Master of Science in Finance and Bachelors in Finance from Florida International University. Having lived in Miami almost my entire life, my family and I relocated to Nashville, Tennessee in May 2018 in the pursuit of a better lifestyle and southern hospitality. If you're ever in the area, please do reach out. I'm happy to be teaming up with the following expert analyst contributors:1. Dilantha De Silva2. The Belgian Dentist

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (5)

MazatlanMike profile picture
What does SHOP stand for?
ta (technical support) has double bottom, by pure luck have never been red on this position. long and staying that way.
HCP was good for so long that I am going to stick with them. Hope I am right....
Me too, I think things are improving and we will soon see dividend increases again.
Arturo Neto, CFA profile picture
G.Blair, I have no doubt they will turn things around and grow FFO. Good luck.
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