HCP continues to reduce stake in Brookdale as losses mount
HCP Inc. continues to reduce the concentration of Brookdale Senior Living assets in its portfolio, the real estate investment trust said Monday as it released information about its fourth-quarter and full-year 2016 earnings.
Brookdale ‘operating in difficult environment'
Brookdale Senior Living, the largest senior living provider in the United States, released its own fourth-quarter and full-year earnings information on Monday.
The company will detail the news Tuesday on a call with analysts, but for the quarter, Brookdale's net loss increased 54.1% to $268.6 million compared with $174.3 million for the fourth quarter of 2015, and for the year, the net loss decreased 11.7% to $404.6 million compared with $458.2 million for 2015.
The company improved liquidity and cash flow, Brookdale President and CEO Andy Smith said in a press release, adding, however: “We are operating in a difficult environment with intense supply pressure and a competitive labor market.”
Smith said Brookdale expects supply and labor pressures to continue for most of 2017. “We have prioritized our efforts in marketing, pricing, product positioning, community management retention and capital expenditures in markets where we are experiencing or expect heightened competitive pressure,” he said. “We remain focused on creating shareholder value while enriching the lives of the seniors we serve.”
Brookdale currently is the REIT's largest tenant, Michael Dale McKee, executive chairman of HCP's board, told analysts participating in a conference call. The company represents more than one-fourth of HCP's portfolio, HCP President Justin Hutchens said.
In January, HCP completed the previously announced sale of a 40% interest in its RIDEA II senior housing joint venture with Brookdale to Columbia Pacific Advisors as well as the related financing of the venture. The efforts generated $480 million of proceeds, the REIT said, which were used to pay down HCP's revolving credit facility.
During the fourth quarter, HCP transitioned seven of the eight previously announced expiring Brookdale triple-net leases to REIT Investment Diversification and Empowerment Act structures. Four remain with Brookdale, the REIT said, and three were transferred to Sonata Senior Living.
HCP's previously disclosed transaction to sell 64 Brookdale communities to Blackstone for $1.125 billion is scheduled to close by the end of the first quarter, Hutchens said. “In addition, we are making good progress on marketing 25 triple-net leased assets that are non-strategic to both HCP and Brookdale and are on track to complete the sale or transition of these properties by the end of the year,” he added.
The moves, HCP said, improve lease coverage and strengthen the REIT's balance sheet and credit profile.
“With steps we have taken, we have set in motion a substantial reduction in our exposure,” McKee said. “We've announced our intention to continue to reduce our concentration of Brookdale, and that remains a high priority in 2017.”
Answering an analyst's question about whether HCP's strategy will change if Brookdale's ownership changes, McKee said: “I would say that our conversations with Brookdale have been absolutely appropriate from the perspective of two public companies talking to each other. We have a great working relationship day-to-day, lots of transparency operationally and so forth. In terms of their strategic plans, we have no insights other than what we read in the newspaper. And we are not talking to them about anything strategic. We're talking about things that are operational.”
CEO Thomas Herzog added that “Brookdale is a good partner to us and an important partner.”
Health policy effects
HCP's decision last year to exit skilled nursing and focus on seniors housing, medical office buildings and life science assets should minimize the effects of future federal policy changes related to the Affordable Care Act, McKee said.
“Ninety-five percent of our current portfolio's revenue comes from private-pay income streams,” he said. “We see little or no exposure to changes being considered to U.S. health policy with respect to our current portfolio.”
Read about Brookdale's Feb. 14 fourth-quarter 2016 and full-year 2016 earnings call here: