Q1 Earnings Highlights: Health Care REIT on Growing Post-Acute Care Platform

Healthcare real estate investment trust Health Care REIT (NYSE:HCN) recently released its first quarter earnings report and held an earnings call discussing the quarter; highlights include a focus on its partnership with Genesis HealthCare; increasing value through private pay portfolios; and growing a post-acute platform. 

Back in February 2011, Health Care REIT acquired most of short-term and post-acute rehabilitation and skilled nursing provider Genesis HealthCare’s real estate assets. The REIT finances development of new Genesis facilities, and currently has 150 Genesis-operated facilities in 11 states, with an investment balance of $2.5 billion. 

Genesis tops HCN’s list of “Top Ten Customers,” which also includes Merrill Gardens, Benchmark Senior Living, Brookdale Senior Living, and Belmont Village, LP.

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On driving revenue through private pay: “We have $2.2 billion worth of firepower and right now, the incredible ability to raise capital,” said George Chapman, TKTKT. “We are still very much dedicated to the post-acute platform and to certain operators within the SNF portfolio. But strictly within the Medicaid-oriented SNFs, we think we can drive a higher company value by having more dedicated to the key components of the future healthcare delivery systems such as post-acute but, in particular, driving more value through private pay, whether it be MOBs or perhaps more importantly, through our private senior housing.”

On growing HCN’s post-acute care platform: Chapman says the REIT has no plans to buy a “whole lot” of skilled nursing; rather, it wants to help Genesis’s George Hager and his team grow his post-acute platform.

“We really believe that post-acute is going to be a critical part of the healthcare delivery system, and post-acute can be defined in a lot of ways,” he said, going on to list inpatient rehabilitation facilities and long-term acute care facilities, along with post-acute care facilities like the Genesis portfolio. 

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The general “skilled nursing facility” category is moving toward more specialty units within existing facilities, or moving to stand-alone or post-acute, Chapman continued, adding that his company is “very supportive of that.” 

“We actually just see healthcare as rolling out in an entirely different way with much more preventative care, much more post-acute care, sometimes within the hospital system itself or through affiliations with it,” he said. “So we clearly think healthcare is changing and will continue to change in that direction.”

But exactly how it’s done remains to be seen, he added. 

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On acquisitions and pricing: In the last 10 quarters, HCN has averaged new investments of $1 billion, and 40% of those have come from existing partners, Chapman said. He views the pricing [for recent MOB acquisitions] as having been “totally appropriate.”

“We think that cap rates can come down into the 6s for some of the remaining really good MOB platforms, which generally are close to the 7, 7.5, as our generally senior housing assets, again, with the best packages coming down into the 6s on occasion.”

The REIT is “generally not” seeing any acquisition opportunities in the entrance fee senior living space, and isn’t really looking for turnaround opportunities. 

“We’ve decided to orient much more toward the rental model,” Chapman said. “And there are conceivably some that are arguably undermanaged by non-profits. It could be purchased but it’s not going to be Health Care REIT that does it.”

On senior housing development: “We see development as a great opportunity in general. If you really look, most of our development would be focused on private pay, seniors housing, rental model, rolling into a master lease with an existing operator,” said Chapman. “The development projects there are a nice supplement to our acquisition-based growth. And I would say we’d probably have the potential to do something in the magnitude [of] maybe $300 million to $400 million to $500 million of starts per year. But I think we want to keep it pretty focused on existing relationships, high-quality assets and definitely keep it more toward the 5% to 8% range of the total portfolio.”

HCN’s senior housing RIDEA portfolio saw occupancy increase 80 basis points, with revenues increasing 5.1% in the quarter due to normal annual increases and finance services, according to Chapman.

View the earnings call transcript here

Written by Alyssa Gerace

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