Higher Rentals For This REIT
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Organized in 1985, HCP (NYSE: HCP) operates as an equity REIT seeking to own and manage real estate properties in five healthcare segments; senior housing, skilled nursing, life sciences, medical offices, and hospitals. This self-managed company believes in catering to the US healthcare sector and managing investments that are well diversified by geography, operator, tenant, and investment product.
Recent Quarter’s Performance
HCP disclosed solid performance for the fourth quarter of 2012 on higher rentals and related revenues. The company reported an over 2-fold increase in its funds from operations (FFO). Total revenues for the fourth quarter surged 11% from a year ago to $508.5 million. Much of this surge was thanks to an increase in Rental and Related revenues and Interest Income. Rental and Related Income surged 13.5% year over year to $278.1 million, while Interest Income of $12.2 million advanced many folds from a year ago.
During the quarter, cost and expenses of $305.7 million were managed well as they declined 23% compared to the cost and expenses from a year ago. The decline in expenses was supported by the weighed down litigation expense, partially offset by a hike in interest expense and depreciation & amortization expense. As a result, the company posted a net income per common share of $240 million, compared to $62 million at the end of the same quarter of the prior year. The company reported FFO of $0.71 per share, up 92% from the same quarter in 2011.
Acquisition & Mergers
The company indulged in various acquisitions during the fourth quarter that are expected to help both the top line and the bottom line in the coming quarters. HCP entered into a joint venture worth $1.7 billion consisting of 129 housing communities of senior housing. As per the contract, the rent will increase annually by at least 3.7%. Additionally, investments of $141 million were made on other projects. $62 million was used to purchase two MOBs, while $79 million was used to fund development and other capital projects. Two senior housing facilities were sold during the quarter for $111 million total.
The company expects an FFO of $2.92 – $2.98 per share for 2013, representing a growth rate of 6% over the FFO of 2012. The company also expects to post a bottom line within the range of $1.95 - $2.01. Besides, the company increased the quarterly cash dividend 5%, representing its 28th consecutive year with a dividend hike.
Health Care REIT is a real estate investment trust that provides a full spectrum of senior housing and health care real estate, including medical office buildings, hospitals, and facilities for skilled nursing. The company has a competitive advantage of constructing a diversified property portfolio by type, customer, and geographic location. The company has the largest concentration of properties in New Jersey and California, each 10% of the entire real property held by HCN. The company generates stable cash flows predominantly from private pay sources in markets with strong demographics. The stock is offering a dividend yield of 5%, while it has a history of dividend increases. Most recently in February 2013, it increased its dividend 4% to $0.77 per share.
Ventas is another diversified giant in the US healthcare REIT space. The company grew three times in a short period, and has a presence in Canada and the US. The company has a history of dividend increases, currently yielding 3.7%, while it is engaged in a number of acquisitions. The company is scheduled to report its fourth quarter performance on Feb. 15, 2013.
I am bullish on HCP as the company has continued to increase its dividends for the 28th consecutive year and presents potential for capital appreciation. The stock is currently offering a dividend yield of 4.44% and trading at 25.4 times its earnings, compared to 124 times for HCN and 50 times for VTR.
equityfinancials has no position in any stocks mentioned. The Motley Fool recommends Health Care REIT. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!