HCP is one of the companies I wish I knew earlier than March. As I wrote in my last post (read more): 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!

Well if we look on current share price it is on the level of before weak quidance/impariments/big sell off. So has situation in REIT improved/come back to normality?

During Q1 conference call company raised guidance:

Finally, our increased 2016 guidance. The 2016 guidance updated today represents our performance expectations for our entire HCP portfolio and does not reflect the spin transaction announced this morning. Our guidance does reflect the impact of the RIDEA 2 transaction and our announced investment in capital recycling activities.

With that said, the portfolio continues to perform well and combined with our recent acquisition activity, we are raising guidance and expect HCP’s full year 2016 NAREIT FFO to range from $2.76 to $2.82 per share. Excluding transaction related items, we expect FFO as adjusted to range from $2.77 to $2.83 per share and we are raising our FAD guidance to range between $2.65 and $2.71 per share. We are reaffirming our same-store cash NOI growth forecast of 1.5% to 2.5% and we are projecting the majority 75% of our portfolio from the private pay senior housing, life science, and medical office segments to increase between 2.3% and 3.3% when you exclude HCR ManorCare.

This is deffinitely supporting share price performance, nevertheless I think it is a not a key driver.

The main issue of last several weeks is spinning off its skilled nursing segment to a newly created REIT. This segment was responsible for around 25% of revenues, so it will significantly affect financial results.


We should note, that spin off does not generate net inflow of cash for company (investors will be granted of shares of new entity, company will reduce debt by shifting it to a new REIT, assuming I understand it correctly). This means, that in my opinion dividend in HCP will fall (see payout is above 90% now) and REIT will lose its Dividend Aristocrat status! On the other hand from investor’s perspective there should be no change, as investors will gain dividend from HCP and new entity (hopefully). Nevertheless potential info like: “HCP is losing The Dividend Aristocrat status” will be negatively taken by investors.


Summing up, this deal seems reasonable, nevertheless I think that dividend cut can be adversely taken by investors. Valuation is acceptable, dividend yield is decent, but I see no reason to buy shares before deal will happen (and dividend will be cut). Investable level remains not changed at $28.


Disclosure HCP – no position