2nd UPDATE: HCP 3Q FFO Hurt By Ventas; Sees Operator Deals

NEW YORK -(Dow Jones)- Health care real estate investment trust HCP Inc.(HCP) sees plenty of deal-making ahead for some of its tenants in the coming year.

The largest health care REIT by market capitalization said the re-opening of the capital markets along with the expected near-term passage of health care reform has set in motion an "unprecedented volume" of strategic and capital market activity for the operators and tenants in its portfolio.

"I expect the deal activity in the first six months of 2010 to exceed the aggregate level [of deal making] for the past 36 months [of the period ending] December 31, 2009," said chief executive Jay Flaherty III, on the company's third-quarter earnings conference call.

HCP, like other REITs, farms out the management of its buildings to operators such as Sunrise Senior Living Inc (SRZ). Deal-making and the financial health of operators is notable to landlord REITs like HCP, which often have management contracts with several operators of varying sizes and capital structures.

The financial viability and operational performance of one such operator- Sunrise-has been closely watched. To that end, HCP has reduced its exposure to Sunrise and said its Sunrise-managed assets were a drag on its portfolio's performance in the third quarter.

HCP has outstanding litigation with Sunrise as it is seeking to terminate the management agreements on 64 properties.

The Long Beach, Calif., company also said its is on the look-out for acquisition opportunities especially in the areas of senior housing, skilled nursing and life-sciences properties.

Before the market opened Tuesday, HCP said third-quarter funds from operations fell short of Wall Street's expectations, hurt in part by impairments and charges from its litigation with a major competitor.

HCP also sliced its 2009 funds from operations view.

HCP said funds from operations fell to $32.2 million from $174.3 million, a year earlier. On a per-share basis, FFO fell to 11 cents from 70 cents. Adjusted FFO was 52 cents per share for the quarter.

Analysts, on average, expected FFO, a key industry figures of performance, of 53 cents a share, according to Thomson Reuters.

In September, a Kentucky federal court ordered HCP to pay about $102 million in damages to Ventas Inc. (VTR), resolving a dispute stemming from a 2007 takeover battle.

HCP said it plans to appeal the ruling.

For 2009, the REIT said it expects adjusted FFO of $2.10 to $2.16 a share. HCP had previously expected adjusted FFO of $2.15 to $2.21 a share.

In addition, the company cut its FFO view to $1.65 to $1.71 a share. HCP had previously expected 2009 FFO of $2.13 to $2.19 a share.

HCP shares recently were down about 1% at $29.60.

-By Veronica Dagher, Dow Jones Newswires; 212 416-2261; veronica.dagher@ dowjones.com

  (END) Dow Jones Newswires
  11-03-091401ET
  Copyright (c) 2009 Dow Jones & Company, Inc.