Health Care REIT (NYSE: HCN) continues to be bullish on its position in the senior living investor marketplace, having added a series of new properties to its portfolio as well as new acquisitions with existing operating partners during the first half of 2015.
The health care real estate giant also expanded its reach into medical office buildings through a $449 million portfolio acquisition and joint venture partnership with The Canada Pension Plan Investment Board, known as CPP, the company announced in conjunction with its quarterly earnings performance Tuesday.
The anticipated success of both the new medical office portfolio acquisition, located in the Beverly Hills market of Los Angeles, as well as ongoing investments in the senior housing sector are dependent upon strong partnerships, company executives said during the second quarter earnings call with investors. And Health Care REIT says it is ready for the changing landscape ahead.
“HCN is part of a solution to a big problem,” said CEO Tom DeRosa. “Heath care delivery is faced with a mandate to drive costs down and create better outcomes. As they say, easier said than done. This mandate cannot be met unless we can drive patients from acute care hospitals into lower acuity settings.”
Under the new 45%/55% CPP joint venture, the joint venture will initially own a 50.5% stake in the portfolio and the seller will retain the remaining ownership. It is anticipated that the joint venture’s stake will increase to 100% if and when the seller converts its partnership units into HCN stock or cash.
On the senior living front, HCN reported performance it says was achieved in light of difficult operating factors including a flu season that led to occupancy declines, particularly in the United Kingdom.
The company reported normalized FFO of $1.09 per diluted share during the quarter, as well as a tally of $3.8 billion in investments to date in 2015; $627 million of which were completed during the second quarter.
Same store cash NOI was 5.2% during the quarter, despite the operating challenges, said Chief Investment Officer Scott Brinker.
“Given the hangover of issues posed by weather and flu from [the first quarter], 5.2% same-store NOI growth from our U.S. senior housing portfolio and 3.2% same-store cash NOI growth from the entire portfolio was noteworthy,” he said, also pointing to new acquisitions with existing operating partners including Brandywine, Avery, Senior Star, Legend, Cascade, Mainstreet and Genesis.
Specific to senior housing properties, Brinker also noted market differentiation that is beginning to benefit Health Care REIT specifically—a factor that didn’t exist in recent years and decades.
“People are starting to understand that performance over time and asset quality does matter,” he said. “It does matter where you’re located… and do you have the best operating partner. And that’s the piece I don’t think again people fully understand but they are starting to. So now that we are entering this period where it may be operations are a bit more challenged, it’s a bit choppy, I think the quality of our real-estate will increasingly stand out and differentiate itself.”
Written by Elizabeth Ecker