Health Care REIT: No Predictability in Entry-Fee CCRCs

While some of the largest senior housing investors have been ramping up interest in entry-fee continuing care retirement communities (CCRCs), for Health Care REIT (NYSE: HCN), growing that sector of its portfolio is of minimal concern, according to several of the company’s top executives during an earnings call this week.

Whereas other investors have increased their CCRC exposure—notably competitor HCP’s (NYSE: HCP) $1.2 billion joint venture with Brookdale Senior Living (NYSE: BKD) to own and operate 14 entry-fee CCRCs and develop others—Health Care REIT has remained quiet in that sector.

Only eight properties in Health Care REIT’s portfolio are entrance-fee CCRCs, representing a $390 million investment balance. But the meager share of the $32 billion enterprise’s portfolio has little to do with poor performance and more to do with predictability.


Overall, the average occupancy for its entry-fee properties is about 86%, with the entry-fee components of those properties ranging over 80% and the rental part somewhere in the low 90s, said Scott Estes, chief financial officer for Health Care REIT.

“I think they’re doing fine. We just have chosen not to make additional investments in that portfolio,” he told analysts.

These facilities represent less than 2% of the Toledo-based REIT’s income today, said Chief Investment Officer Scott Brinker. And though the company has been involved in that particular business of senior living for over a decade, it has little interest in expanding that segment of its portfolio.


“We’ve just found that the cash flows are too volatile,” Brinker said. “I’m not saying we would sell this portfolio that we have. It’s performing well, but that’s not an industry that we’re looking to expand in. We like the consistency of our results, and it’s very difficult in that business to generate any level of predictability.”

This sentiment differs starkly from the company’s bullish outlook on the post-acute market, an attitude that could largely be attributed to its $950 million acquisition of HealthLease Properties REIT during the quarter.

The deal, which was announced in August, included 53 senior housing and health care properties owned by HealthLease, along with entering into a partnership with Mainstreet, a Carmel, Indiana-based developer of senior housing and post-acute care facilities in the U.S.

In addition to acquiring 17 Mainstreet properties as part of the transaction, the agreement also gives Health Care REIT the opportunity to acquire $1.4 billion of Mainstreet’s NextGeneration Medical Resort pipeline.

“We have an option to buy those assets once they’re built,” Brinker said. “So we’re not putting in the $1.4 billion of capital. They built it, and then we have the option to buy it when it’s complete. And that’s the case with a pretty large number of our development projects right now.”

Including the Mainstreet pipeline, Health Care REIT’s potential pipeline of new development projects is in the range of $1 billion a year, Brinker added.

“But again, most of those are set up where we have the option to buy, not an obligation.”

Written by Jason Oliva

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