Morningstar Rating

Stock Research and Analysis

by Todd Lukasik, CFA

Bulls Say

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 

Bears Say

Largest tenant HCR ManorCare (roughly one third of business) has uncomfortable rent coverage metrics. Any 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 

Management

We view HCP's stewardship as Exemplary.
Although the board removed Jay Flaherty in 2013, we expect current CEO Lauralee Martin to stick to the strategy that has been successful for the firm historically, and we were impressed with Martin while she   Read more 

Profile

Recently, HCP had interests in 466 senior housing facilities (with 20 in a RIDEA operating structure), 302 post-acute/skilled nursing facilities, 116 life science properties,  Read more 

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3 Picks in a Richly Valued Market 
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