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HCP Inc.’s Expanding Medical Office Portfolio

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Portfolio overview

HCP’s (HCP) medical office portfolio contains 254 properties that cover ~18.0 million square feet. The average retention rate for the last five years has been ~80.0%. Of this total, 82.0% are on campus and 94.0% are affiliated. Plus, 90.0% of its properties are consistently occupied.

The largest tenant for the medical office portfolio is Hospital Corporation of America, which helps generate 17.0% of the total segment’s revenues and 6.0% of the total revenues.

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2017 performance

During 2017, HCP’s medical office portfolio captured growth of 26.0% from 2016. It generates ~25.0% of the total revenues and has been a consistent performer. It has grown 21.0% from 2015 to 2016.

Rental revenues for HCP increased ~3.0% from $392.0 million in 2016 to $400.0 million in 2017. Operating expenses also increased by ~$4.0 million.

The reason for the increase in its net operating income and adjusted net operating income is primarily due to mark to market lease renewals, new leasing activity, and annual rent escalations. In 2017, HCP executed leases on 2.9 million square feet of space and achieved a retention rate of 83.1%.

HCP is focused on this portfolio and believes that it could benefit from the demographic trends and could be immune from government reimbursements.

The EBITDA[1. earnings before interest, tax, depreciation, and amortization] margins for HCP and its peers are as follows:

  • HCP, Inc. (HCP): 50.0%
  • Healthcare Trust of America (HTA): ~61.0%
  • Ventas (VTR): ~54.6%
  • Welltower (HCN): ~49.1%

Investors looking for exposure to the healthcare real estate sector can invest in REIT ETFs. HCP holds ~1.2% in the Vanguard REIT ETF (VNQ).

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