UBS Cuts Price Target on HCP, Inc. (HCP) as HCR ManorCare (HCRMC) Faces Difficulties
UBS maintained a Buy rating on HCP (NYSE: HCP), and cut the price target to $31.00 (from $41.00). UBS estimates a 30% rent cut would improve coverage fixed charge coverage to 1.4x-1.5x at HRCMC, versus the ~1.1x in guidance for 2016. The higher coverage would provide a cushion against any future decline in EBITDAR at HCRMC.
Analyst Nick Yulico commented, "We are cutting our 2016/17 AFFO estimates by ~12% as we now model a 30% rent cut at the company's largest operator, HCR ManorCare (HCRMC), which is facing difficult skilled nursing industry trends. While HCP has not yet committed to a rent cut (and may explore asset sales to improve the credit quality of the lease), we think a rent cut is the simplest approach to restoring confidence in management and helping sentiment on stock (which declined 17% today on disappointing HCRMC guidance)."
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Shares of HCP closed at $28.33 yesterday.