1. Financial Industry Group 4/20/2011
HCP Inc. (NYSE: HCP)
Financial Industry Group
4/20/2011

2. Agenda What is a REIT? Overview of HCP Reasons to buy Conclusion
Financial Analysis
Technical Analysis
Reasons to buy
Conclusion

3. What is a REIT?
A Real Estate Investment Trust (REIT) is a corporate structure that invests directly in real estate through properties or mortgages
Advantages of REITs
Diversified, liquid investment in real estate
Avoids corporate tax by distributing 90% of income

4. HCP HCP  a hybrid REIT focused on the healthcare industry
“We acquire, develop, lease, manage and dispose of healthcare real estate, and provide financing to healthcare providers”
Long term leases to established companies
Sector and Geographic Diversification
Some mezzanine loans secured by real estate
Triple Net Lease

5. HCP Portfolio- $14.5 Billion

6. Key Numbers Market Cap: $15.32B Shares Outstanding: 401.51M
FFO/Share: $2.02
Revenue: $1,095B
Beta: 1.29
Debt/Capital: .36
Credit Rating: BBB+, very recently improved

7. REITS and FFO
REIT stocks are often evaluated on their Funds from Operations multiple) instead of the P/E Ratio commonly used for other companies.
The metric takes into account earnings from existing properties but not cash from acquisitions or sales of assets. It measures the cash-generating potential of the REIT's holdings (IE, via rental income from tenants).
FFO is obtained from a company's net income, excluding any gain on real estate sold during the period and excluding any depreciation/amortization.
FFO multiple: (stock price divided by funds from operations per share

8. HCP – Earnings Scorecard

9. Cash is King

10. Revenues
HCP reported total revenues of $341.4 million during the quarter compared with $294.5 million in the year-ago period. 

11. Liquidity - Solvency
HCP's fixed charge coverage was 2.6 times (x) for the trailing 12 months (TTM) ended Dec. 31, 2010 as compared to 2.3x for TTM ended Dec. 31, Additionally, projected fixed charge coverage levels are expected to remain at or above 3.0x beginning in 2011.
HCP's debt maturity schedule is well-laddered, with less than 12% of debt maturing on an annual basis through 2015. 
April 14th: Fitch Upgrades HCP's IDR to 'BBB+'; Outlook Stable
HCP's fixed charge coverage (defined as recurring operating EBITDA less recurring capital expenditures less straight-line rent adjustments, divided by interest expense, capitalized interest and preferred dividends)

12. Technical Analysis- 2 year chart

13. 1 year chart

14. 6 month chart

15. Reasons to Buy

16. Demographics driving the demand
On a per capita basis, the 75-year and older segment of the population spends 76% more on healthcare than the 65 to 74-year-old segment and over 200% more than the population average.

17. Health Care Industry Single largest industry in the U.S. based on GDP
National health expenditures expected to grow by 4.2% in 2011
Average compounded annual growth rate for national health expenditures from 2009 through 2019 is anticipated to be 6.3%

18. Review Strong balance sheet- increasing their Funds from Operation
Increased dividend for 26 consecutive YEARS
Stock in a good position to buy
Add diversity to the portfolio
Demographic/GDP play
Government budget not a huge concern for HCP
Will report Q1 earnings on May 3rd, 2011

19. Buy FULL position for a long term (2 year) play
Conclusion
Buy FULL position for a long term (2 year) play