Healthpeak Bullish on CCRCs But Negotiating Potential Senior Housing Sales

Healthpeak Properties (NYSE: PEAK) offered its strongest indication to date that it is looking to trim from its senior housing operating portfolio (SHOP) and triple-net senior housing segments in order to maintain its status as a blue-chip real estate investment trust.

Leadership has entertained inquiries in recent weeks from private equity firms interested in buying some of those assets, and Healthpeak will sell those properties if the values are satisfactory, CEO Tom Herzog said during a presentation Wednesday at the Bank of America Securities 2020 Global Real Estate Virtual Conference.

Healthpeak President and Chief Investment Officer Scott Brinker did not offer details on how many properties the REIT is entertaining for sale, and Healthpeak had no further comment to Senior Housing News.


Brinker did note, however, that it has a smaller number of SHOP and triple-net assets than its peers, and communities range in quality from newly built core product to buildings in need of significant capital expenditures.

“It’s a diverse portfolio. They will end up having a diverse group of buyers, but exactly how it plays out is to be determined,” he said during the presentation.

If talks fall through, Healthpeak is ready and willing to ride out the pandemic and position its SHOP and triple-net properties for success, once a vaccine is released and distributed, Herzog added. But market fundamentals will make it hard to generate accretive value.


Barriers to new development have decreased sizably in recent years. Smaller developers and operators are building up new communities, creating CapExissues for Healthpeak’s older properties.

Herzog also believes that there will be more federal oversight of senior housing as a result of the CARES Act stimulus, which will have a notable effect on private-pay assisted living.

“I’m not saying it’s not going to be a good business long-term, because there will be a social need for it,” he said. “I just don’t know if it’s a good step for a REIT in today’s environment than it used to be.”

There is one type of senior housing property that the REIT wants to keep in the portfolio: Healthpeak’s collection of continuing care retirement communities (CCRCs) is not open for negotiations. Leadership believes the market fundamentals and barriers to entry for these communities are too solid to pass up. The average length of stay for a resident is eight-to-ten years. The model is supported by non-refundable entrance fees, which contributes to lower attrition rates. Campuses are set on an average of 50 acres of land — all relatively immune to new supply.

“In the last 10 years, we have had exactly zero new entrants of supply within a 10-mile radius suite radius into our immediate markets,” Herzog said.

If the potential senior housing sales move forward, Healthpeak would redeploy the proceeds into its robust development $1 billion pipeline of life science and medical office buildings, as well as repay additional debt to improve liquidity and maintain its credit rating.

Any disposition of SHOP or triple-net properties would further weight Healthpeak’s blended portfolio toward life science and medical office — real estate product classes which have proven resilient during Covid-19. Herzog noted that the REIT collected 99% of rents from tenants in these service lines in July and August, and is on pace to match that in September.

Meanwhile, capital is pouring into the space as investors recognize the strengths of the product type, seeking recession-resistant investments.

A majority of Healthpeak’s medical office segment — 84% — is located on health system campuses, and 97% is affiliated with leading health systems.

And telemedicine may contribute to future demand in the product, Executive Vice President and Chief Development and Operating Officer Tom Klaritch said.

“They’re likely to add more nurse practitioners and physician assistants that are lower cost to [health systems], and they’ll need space for those people,” he said.

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