HCP Defends Position as Strong Senior Housing investor

From investing in a new senior housing sub-sector to exploring opportunities abroad, HCP logged a solid first quarter and thumbed its nose at industry speculation that REITs’ value has been diminished through the planned Brookdale-Emeritus merger.

Perhaps the highlight of the quarter was HCP’s agreement with Brookdale Senior Living to form a new, $1.2 billion CCRC joint venture. The senior living operator saw the venture as a way to capitalize its acquisition of Emeritus, according to HCP CEO Lauralee Martin. 

There’s been industry speculation that REITs would become a less valuable capital source to strong operators following the announced merger of Brookdale and Emeritus, Martin said during the first quarter earnings call. 


“Our announced transaction validates that HCP remains a very valuable source of capital to Brookdale and a key component in their business strategy,” she said. 

CCRCs are attractive to consumers seeking long-term security and continuity regarding housing and healthcare, said Martin. At the same time, the sector “represents an attractive entry point for HCP as CCRCs continue to benefit from housing market recovery.”

HCP likes the CCRC asset class, she continued, because of its high barriers to competitive entry and premium yield. The venture is an opportunity to work with Brookdale to consolidate the space, chief investment officer Paul Gallagher added. 


The joint venture agreement included the elimination of purchase options on 49 Emeritus communities that Brookdale was considering exercising, in exchange for “modest” future rent reductions via lease amendments. Retaining ownership allows HCP to keep the cash-flow from its existing assets, Martin said. 

During the quarter ended March 31, HCP reported net income applicable to common shares of more than $258 million, up 12% from the same period in 2013.

Funds from operations (FFO) applicable to common shares increased to $343.1 million and $0.75 per share from $339.5 million and $0.74 per share. 

HCP made $162 million of investments in the first quarter and also committed $51 million to construct a new 180-unit senior housing community in suburban Chicago. Occupancy in HCP’s senior housing portfolio climbed 10 basis points from the prior quarter and prior year to 86.8%. 

The Long Beach, Calif.-based REIT is also open to debt investments and asset management abroad. While HCP doesn’t comment on market rumors or transactions, Martin said, the REIT is “very active” in the marketplace. 

“We like both domestic and international [opportunities],” she said. “We’re very comfortable in the UK and on the continent in developed markets like France and Germany. We understand the reimbursement [system] and like the stability of the reimbursements in those markets.”

Access HCP’s first quarter 2014 earnings report. 

Written by Alyssa Gerace

Companies featured in this article:

, ,