Assisted Living Slumps, Independent Living Thrives for HCP

Echoing rival Ventas Inc. (NYSE: VTR), real estate investment trust HCP Inc. (NYSE: HCP) revealed on Monday that it’s feeling the heat from new senior living supply.

New construction is particularly impacting the company’s assisted living portfolio, HCP President Justin Hutchens said during the company’s fourth-quarter 2016 earnings call on Monday. 

The Irvine, California-based health care real estate investment trust (REIT) has had more success with independent living communities than with assisted living communities as of late, Hutchens explained. Specifically, for the past two years, HCP’s independent living communities have “consistently outperformed” assisted living communities in terms of rate growth.


Additionally, 13% of HCP’s assisted living NOI has been effected by new construction, compared with just 2% of the company’s independent living portfolio.

“Long story short, we’re expecting less competitive pressure in independent living, therefore there’s some better performance projected in independent living,” Hutchens said, adding that there’s “definitely some pressure from new supply” in certain markets where HCP owns assisted living properties.

Because independent living and assisted living are currently experiencing widely different trends, REITs should begin providing a more precise explanation of property unit mixes and performance, analysts with Green Street Advisors argued in a recent report. They singled out HCP as one REIT that recently has begun doing so.


Despite the assisted living challenges, overall financial results were positive. The company’s fourth-quarter 2016 revenue of $539.95 million beat analysts’ expectations by $13.08 million, and its fourth-quarter FFO of 59 cents beat analysts’ expectations by 2 cents.

The company’s share price rose 1.71% on Monday, hitting $30.85 by market close.

Narrowing senior housing priorities

Meanwhile, HCP is narrowing the number of senior housing operators it works with and actively “picking priority operators to grow with,” Hutchens said. Communities run by rural, regional senior housing operators and “older assets that don’t pass the smell test” are more likely to be considered non-core assets and divested.

“From a senior housing perspective, if we identify the right assets in the right places that provide proper yields, those are transactions we would do,” Hutchens said, noting that when it comes to senior housing transactions, “it’s been a little quiet.”

HCP is often asked about how a potential repeal or replacement of the Affordable Care Act (ACA) would impact its business, Executive Chairman Michael McKee said during the earnings call.

“From our perspective, we have a sense of validation that the actions we took in 2016 have put us on a solid foundation for the changes that might occur in U.S. health policy,” McKee stated.

HCP sees “little or no exposure” to changes being considered to U.S. health policy with respect to its current portfolio, McKee added.

Written by Mary Kate Nelson

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