Favorable industry tailwinds, including a growing and aging population and regulatory changes that are set to expand the pool of potential participants in the health-care system, should drive incremental demand for health-care real estate and fuel inflation-plus cash flow and dividend growth at HCP.
HCP's leases generally provide a degree of inflation protection, with built-in rent escalators and tenants' responsibility to pay all or a share of property operating costs.
Health-care real estate is one of the property sectors least susceptible to the economic cycle. Read more
Largest tenant HCR ManorCare (roughly one quarter of business) has uncomfortable rent coverage metrics. Any further rent forgiveness would hurt HCP's cash flows.
If market rents fail to increase at the inflation-plus escalation rates generally embedded in HCP's leases, tenants will push for lower rents upon lease expiration.
In the current low-rate environment, investors may have bid up prices of other sources of yield, such as REITs. There is risk that capital will flow out of REITs should interest rates rise in the future, pressuring asset values. Read more
We are downgrading our stewardship rating for HCP to Standard from Exemplary. While we still like HCP's current strategy and think it has a solid management team, recent events suggest that an Exemplary rating is no longer appropriate. Its recent rent Read more
Recently, HCP had interests in 458 senior housing facilities (with 70 in a RIDEA operating structure), 301 post-acute/skilled nursing facilities, 111 life science properties, Read more