HCP executives provided an update on the real estate investment trust’s relationships with Brookdale Senior Living, Capital Senior Living and other operators, as well as future plans, Wednesday during a presentation at the REITweek Investor Conference in New York by Nareit, a Washington, D.C.-based association for real estate investment trusts and real estate companies.
Brookdale will represent less than 15% of HCP’s senior housing portfolio by the end of this year, HCP President and CEO Thomas Herzog said. Irvine, CA-based HCP has Brookdale properties in its senior housing operating portfolio and under triple-net leases, and Brookdale also operates some continuing care retirement communities in the HCP portfolio, he said.
“We have sold … in the low billions of assets from those [SHOP] pools with Brookdale and have kept the best of the SHOP assets that we have within our portfolio and feel that Brookdale has an opportunity to manage those well,” Herzog said.
HCP also feels “comfortable” with the Brookdale triple-net leased properties and CCRCs, he said.
Capital Senior Living, with two leases, is another primary operator in HCP’s triple-net lease portfolio, HCP Chief Investment Officer Scott Brinker said.
“Most of the rent, which is about $20 million a year, matures next October,” he said, adding that the REIT has been in “active dialogue” with the company about the associated properties.
“I think the likelihood is that they will not renew that lease and that we would end up selling a handful of the buildings that we don’t think are long-term performers,” Brinker said. “And others, we actually like the assets but feel like maybe another operator would be better positioned geographically to manage them. So I think that’s the likely outcome with that. And that accounts around 95% of the triple-net rent, if not more.”
The two other major operators in HCP’s triple-net portfolio, Brinker said, are Aegis Living and Harbor Retirement Associates, both of which he said do a “good job” managing the associated communities.
The Aegis lease matures next year, Brinker said, “but it has strong rent cover, and we expect them to renew the lease, which should be a good outcome, and we’re happy to continue owning those assets.”
The HRA lease has been restructured, he said, “so that we can create a more stable master lease going forward. We’ll end up selling roughly half of the portfolio and holding the other half.”
By cash net operating income, Sunrise Senior Living and Atria Senior Living also have a large presence in the REIT’s overall senior housing portfolio, according to a June investor presentation.
Herzog said that 37% of the net operating income from the REIT’s $20 billion portfolio comes from senior housing, with the balance coming its medical office and life science segments.
“Each of these segments benefits from the explosive growth that’s taking place in the baby boomer population,” he said.
Regarding the senior housing portfolio, the CEO said the REIT recently rebalanced it with $558 million in acquisitions, announced in May, that will be managed by Discovery Senior Living and Oakmont Senior Living.
“You can expect to see us pursue additional senior housing opportunities as we go forward, but our concentration in senior housing will remain in the 35% to 40% range. It should be noted, though, at the same time, that our disposition activities are primarily senior housing-related within the non-core part of that portfolio,” he said. “Importantly, as we think about senior housing, our portfolio will be increasingly weighted toward modern assets and strong markets with some great new operators.”
HCP will continue to focus on private-pay assets across all three real estate segments, Herzog said.
“We don’t like the ‘stroke of the pen’ risk that comes with the government reimbursed-type product,” he said.