LONG BEACH, CA—HCP Inc. had a weak first quarter with slow investment activity, according to the first quarter reports from RBC Capital Management. Although RBC Capital is maintaining HCP's “underperform” rating, it raised target per share price to $40 due to confidence from HCP's recent joint venture with Brookdale, which is valued at $1.2 billion and is expected to close in the second half of the year.
During the first quarter, HCP had a net of $80 million in investments and $60 million in development expenditures. The joint venture with Brookdale will require an additional $334 million in cash; however, the joint venture will generate 23% NOI. Initially, the joint venture will only have $0.02 per share while Brookdale will cancel several purchase options and HCP will amend its Emeritus leases. According to RBC Capital, this will not affect AFFO.
Although HCP had a slow investment quarter, the REIT holds a strong financial position. RBC estimates that it has over $2 billion of “dry powder,” while the REIT reported a debt-to-total-undepreciated-book-capitalization ratio of 38.6%. For these reasons and the joint venture, RBC is increasing its FFO estimate to $3.02, an increase of $0.02, per share for 2014 and $3.14 per share for 2015.
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