Earnings Call Snippets: Storm Impact, Sequestration, and Sweet Spots

Each quarter, senior living companies and the entities that invest in them release earnings reports and hold calls with analysts. At the end of each earnings call, executives will generally field questions from analysts to provide further insight or color into portfolio performance or acquisition strategy.

Here are a collection of “snippets” from calls held by Ventas, HCP, Brookdale Senior Living, and Senior Housing Properties Trust.

HCP Inc. (NYSE:HCP)

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On Hurricane Sandy’s impact on senior housing properties owned by HCP

Jay Flaherty, HCP Chairman & CEO: Let me start by expressing our concern for all those impacted by Hurricane Sandy, especially those seniors residing in our communities. We have had our emergency team in place since last Wednesday, coordinating response and assistance with our operators and tenants. At this point, we have a multitude of communities experiencing leaks and minor flooding and several properties operating on backup generator power. Hardest hit were 2 Sunrise communities in Brooklyn, one of which was evacuated yesterday, and the other where the residents have been moved to the second floor due to flooding. All of the residents are okay.

[W]e have significant insurance coverage [and] most if not all of those properties (there are some MOBs, by the way, that have some minor flooding) are triple net structures. But again, that’s — we’re not even thinking about that. We’re making sure that the residents, that the very dear residents in these senior housing communities are safe and protected. And to the extent we’ve had to evacuate them, making sure that they’re in an equally safe and protected and caring community.

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Brookdale Senior Living

On Hurricane Sandy impact:

Bill Sheriff, CEO: Let me begin by commenting on Hurricane Sandy. We had 52 communities in the path of the storm that were affected, numerous communities lost power and for an extended period of time. Our asset management team did a great job of preparing for the storm including have stage backup generators for nearly every community in Sandy’s path. 11 communities did operate using onsite or backup generators for a long power outage.

As of last night only three remained on generators. We did evacuate one community, the Hallmark Battery Park it did not flood or did it ever lose power and by Tuesday evening (inaudible) were returning for families in those locations were we took them for safety. We did have storm damage in some of our communities by nothing major.

Ventas Inc. (NYSE:VTR)

On owning Sunrise-operated properties now that rival REIT HCN has bought out the chain:

Debbie Cafaro, Ventas Chairman & CEO: We’ve got great assets, they’re performing extremely well, they’re in great markets. And we have excellent contracts that provide alignment and have protective — significant protective rights in them. And so the situation at Sunrise continues to evolve. And I think, that’s what — we feel happy with our assets and the performance of those assets.

On having protective rights with those management contracts upon change of control of Sunrise:

Debbie Cafaro: We have contracts that are — that again, give us good alignment and give us various protective rights under different circumstances.

On the upcoming sequestration and cuts to Medicare affecting earnings:

Ray Lewis, Ventas President: With respect to the operators that we’re talking to and what they’re seeing going forward, I think, a lot of the operators have identified ways to mitigate the cuts and to adjust their operations to maintain profitability. So I think the operators are looking at the forward environment and saying, this is an environment we can operate in and that’s sort of what we’re hearing right now.

We look at our portfolio and underwrite management fees and CapEx, [and] we’re still very comfortable that the properties are profitable for the operators.  

On portfolio performance by market size, in terms of turnover and acuity of care:

Debbie Cafaro: Larger markets have been outperforming. And they came out really strong and continued to be strong. I think what we’re seeing now, and you can see it in the supplemental is that the smaller markets are actually doing quite well now. And you’ll see that all the regions are also doing well. we are seeing the smaller MSAs start to catch up, and the larger MSAs where we own most of our senior housing operating portfolio really have led the way with great growth last year and great growth again this year that’s continuing.

Senior Housing Properties Trust (NYSE:SNH) 

On SNH’s portfolio-size sweet spot:

Analyst: You mentioned that you’re seeing smaller deals in the acquisition pipeline. Should I surmise that there aren’t larger deals out there? Where do you see the bigger portfolios?

David Hegarty, SNH President & COO: No, there are a handful of large portfolios out there and they do command a significant premium for being large portfolios. It just doesn’t benefit us to pursue a portfolio of that size if it’s going to be so competitive. So we figure that it is best to stick with our smaller portfolios. Certainly, even $100 million to $300 million portfolio we still feel that we can compete on.

But it seems our most effective and sweetest spot is we’re still able to pick up one-off properties that say $15 million to $25 million, $30 million and still achieve around eight, 8.25 to 8.5 cap rate on those type of transactions. So those we’re pursuing more often.

On pricing expectations and if they’ve changed following the HCN/Sunrise deal:

David Hegarty: Only on the major transactions. …There are a lot of smaller operators or regional operators who think they should get that premium pricing. But I think once they start testing the market and so on, they realize that that’s not real. I think we still win a number of transactions but don’t really get close to the ask. But the large portfolios, anything, say $500 million and up, is going to be chased after in low cap rates and getting that premium pricing.

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