HCP Gets Aggressive, Other REITs Stay Benched on Deals

Publicly traded real estate investment trusts (REITs) have sat largely on the dealmaking sidelines these past few quarters, and that’s going to continue for some of these companies—but one prominent player that has recently grabbed headlines could be a notable exception.

2016 will be “a very modest year” in terms of acquisitions for Senior Housing Properties Trust (NYSE: SNH), David Hegarty, the company’s president and COO, said earlier this month during REITWeek 2016, at the Waldorf Astoria New York. REITWeek is the annual investor forum of the National Association of Real Estate Investment Trusts (NAREIT).

“I believe pricing is very expensive right now to be buying product,” Hegarty said. “There’s a significant amount of private equity capital chasing the product, so we’re best to remain on the sidelines and look for internal opportunities.”


Lending weight to Hegarty’s words, private equity did indeed dominate senior housing dealmaking in the first quarter of this year, according to recent figures from CBRE.

As Senior Housing Properties Trust pursues internal growth, rents at the company’s triple-net senior living assets are expected to rise about 1% to 2% this year, Hegarty said. 

Senior Housing Properties Trust’s dispositions in 2016 will be modest as well, he added.


HCP Inc. (NYSE: HCP), meanwhile, does see external possibilities for growth now that it is spinning off its ManorCare portfolio of skilled nursing and assisted living assets, Justin Hutchens, the company’s chief investment officer, told NAREIT.

“One of the benefits of removing post-acute from our portfolio is our improved cost of capital,” Hutchens said. “Removing that puts us in a better position to be competitive to go after private pay assets.”

HCP plans to be 95% private pay, and to pursue senior housing, medical office life science properties, he said.

“We’re excited about the senior housing focus; we think we’ll have a lot of growth opportunity in a fragmented industry,” Hutchens said. 

Oversupply Exaggerations

Oversupply shouldn’t impact the industry too much, as senior housing oversupply concerns are “exaggerated,” Hegarty said.

“[Senior housing] is a local business at the end of the day, so it depends on particular markets around the country,” he explained.

Some senior housing markets are experiencing “a little bit” of oversupply, he acknowledged, adding that for the most part, oversupply concerns are “overblown.” 

Other prominent REIT leaders also have weighed in on oversupply concerns in recent months. Tom DeRosa, CEO of Welltower (NYSE: HCN), also used the word “overblown” to describe supply worries in the industry, in a conference call to discuss the Toledo, Ohio-based REIT’s fourth quarter 2015 earnings.

However, Chicago-based Ventas has struck a more cautious tone with regard to supply, saying that new product had dampened its otherwise strong fourth quarter performance.

Written by Mary Kate Nelson

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