HCP FFO Up in Q2, Expects “Tidal Wave” of Healthcare Consolidation

HCP Inc. (NYSE:HCP) reported a 4% boost in funds from operation (FFO) to $0.72 for the second quarter ended June 30, 2013 after completing $367 million of investment transactions in the quarter.

The REIT’s FFO increased to $327.7 million up from $293.6 million, or $0.69 per share, in 2012’s second quarter.

Revenue rose 12% to $516.3 million. Net income applicable to common shares was $213 million, or $0.47 per common share, in the second quarter of 2013 compared to last year’s $201.5 million, or $0.48 per common share.

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HCP made $367 million of investments in the second quarter, including acquiring £121 million of debt at a discount for £109 million ($170 million) secured by an interest in a 160-facility portfolio leased and operated by UK-based Barchester Healthcare and funding the $102 million second tranche of HCP’s 2012 mezzanine loan facility to Tandem Health Care, an affiliate of Formation Capital, as part of its recapitalization of a post-acute and skilled nursing portfolio.

Also included in the quarter’s investments was $95 million of acquisitions and funding for capital investments among HCP’s life science, medical office, and senior housing segments.

Looking forward, HCP has raised its guidance for full year 2013 with expectations that FFO applicable to common shares will range between $2.96 and $3.02 per share.

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HCP is expecting higher activity volume in its HCR ManorCare skilled nursing portfolio as the Affordable Care Act kicks in and more people have health insurance.

The REIT’s management spoke toward a pause in acquisitions during its second quarter earnings call with analysts, but CEO Jay Flaherty alluded to future consolidation activity across healthcare service sectors.

“It’s going to be a tidal wave over the next couple years, an absolute tidal wave,” he said in response to an analyst question regarding expectations for activity similar to what’s been seen in the hospital space.

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That creates opportunities for HCP and other healthcare-focused REITs.

“Whether it’s in hospital land, post acute land, or senior housing land, you’re going to continue to see consolidation activity,” Flaherty said. “You’ve got a very fragmented industry that’s quite large, with the ability to realize cost synergies and increase market share in concentrated geographic areas. That’s not going [anywhere]—if anything it’s going to accelerate. I think you’ll continue to see a lot of activity.”

Flaherty stayed mum on acquisition plans for the back half of 2013 and beginning of 2014.

“Stay tuned,” he told an analyst.

View HCP’s second quarter earnings report.

Written by Alyssa Gerace

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