HCP is a healthcare REIT with a leadership positions in multiple segments of healthcare real estate. Company owns more than 1200 properties of which most are: senior housing (39%), post-acute/skilled (24%), life science (14%), medical offices (14%) and others. Company is expanding into U.K.

Company is heavily exposed on tenants. When tenants have problems then there is an obvious risk for HCP. That was a case lately, when company took some impairment on ManorCare – one of the biggest clients in post-acute/skilled segment. Although in short term it is obviously a bad news in long term I believe in business model.

Society is getting older and if someone is to build real estate for healthcare services it is better to rent it (cheaper). I also assume that REIT with such long history of raising dividends is a good quality and short term problems will go away.

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Outlook is weaker than expected, but after share price decline valuations seems acceptable.

 

As it comes to financials (estimates):

Market cap ~ $15B

Net debt ~$11B (quite a lot)

Payout ratio ~85%

Beta = 0.4

Dividend yield 7%

 

Estimated valuation ratios:

EV/EBITDA = 14.9

P/FFO =11.6

 

HCP is one of The Dividend Aristocrats paying increasing dividends since 1986 year. Currently dividend yield is around 7.0% – one of the highest yields among Dividend Aristocrats. This high yield is caused by weak Q4 results (+ impairment) and very weak share price performance. Historically company was paying around 5%.

 

Drawdown risk analysis:

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Last days were very volatile for HCP shareholders. After weak 2016 guidance and impairments share price plunged to around $26. HCP is a high quality REIT and such drawdown is the best occasion to accumulate Dividend Aristocrats! I wish I knew company earlier… Now it is hard for me to buy as company is trading at $32, more than 20%+ from the bottom. Maybe it is still a good opportunity, but I think I will wait for prices with 2 at the beginning, let’s say $28 (around 40% drawdown).

 

Summing up, I wish I knew HCP earlier. Currently it might be still a great opportunity to buy with very high dividend yield and stable business model.

 

Disclosure HCP – no position