Care Capital Properties Explores Investments Outside of Skilled Nursing

The skilled nursing sector came under pressure in 2016, pushing Care Capital Properties (NYSE: CCP) to give a major tenant some short-term rent relief. And the “pure play” skilled nursing real estate investment trust may be expanding its scope, looking to add new asset classes to its portfolio.

The difficult labor market, decreasing lengths of stay, increasing regulatory pressures and challenging professional liability environments in some states were to blame for the difficulties in 2016, Ray Lewis, CEO of Care Capital Properties, said during the company’s fourth quarter earnings call Tuesday morning.

In response to the industry pressures, the company granted Signature HealthCARE, its second largest tenant, $2 million in short term rent relief in December 2016.

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“Although the timeline is uncertain, CCP expects to recapture this rent after Signature a) addresses its own payroll in a tight labor market, and b) sees its Kentucky portfolio improve with liability relief,” Mizuho analyst Richard Anderson wrote in a note on the earnings results.

On the positive side however, certain Care Capital Properties operators are taking steps to fight the headwinds.

“Some of our operators have moved aggressively to address the industry’s dynamic changes,” Lewis said. “They’ve adopted to the tight labor market by increasing training, enhancing retention efforts and introducing flexible staffing models.”

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The company is also staying positive around talk of potential regulatory rollbacks under the Trump administration. However, the exact nature of what regulatory relief could look like remains uncertain, Anderson noted.

“We were positively surprised that management isn’t expecting additional downdraft during 2017—beyond the rollover impact from what is already addressed,” he wrote. “However, we are generally cautious on the regulated world of US healthcare REITs, and we will monitor how Trump’s deregulation mindset manifests itself in the post-acute space in which CCP traffics.”

Branching Out?

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Another sign that there may be fire coming with the skilled nursing smoke, Care Capital Properties is exploring the idea of tapping into “complementary sectors,” Lewis said. However, he did not say that CCP is doing so specifically due to the headwinds hitting skilled nursing.

“We’re looking at a lot of stuff right now. Our skilled nursing pipeline is pretty full but there’s a lot of other sectors adjacent to skilled nursing that we’re looking at,” he explained.

Some of these sectors could include behavioral psychology, geriatric psychology, juvenile psychology and addiction. 

“Those sectors are in highly fragmented industries,” Lewis added. “We tend to see a little better margins and more favorable political tailwinds in those types of assets. We think those types of assets are pretty interesting, and you may see us dip into them in the future.”

Even though Care Capital Properties revealed a $100 million pipeline for 2017, they have most certainly slowed down following the company’s spin-off from Ventas Inc. (NYSE: VTR) in 2015. At that time the company was pursing a $900 million pipeline.

Following its fourth quarter earnings call, the company’s share price increased, finishing the trading day on Tuesday up 1.62%, at $26.29.

Written by Alana Stramowski

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