54.7 F
Laguna Hills
Monday, Mar 18, 2024
-Advertisement-

OC’s Healthcare REITs Buck Wall Street, See Gains

Orange County’s four largest publicly traded healthcare-focused real estate investment trusts and service providers largely emerged unscathed from October’s Wall Street bloodbath. All ended the month with stock prices that were, if not higher, at least near where they started the month.

Not an insignificant task, given the S&P 500 lost nearly 7% of its value in October, its worst monthly return in seven years.

The local healthcare companies—HCP Inc., The Ensign Group Inc., CareTrust REIT Inc., and Sabra Health Care REIT Inc.—haven’t done too bad this month, either.

Shares of all but Sabra rose, a few significantly, since they gave their latest quarterly earnings reports over the past two weeks.

Acquisitions, dispositions and corporate reinventions are playing big parts in the companies’ recent strategies.

The following highlights notable news emerging from their latest financial results:

HCP

For Irvine-based HCP (NYSE: HCP), the largest REIT in Orange County, with a market value of about $13.4 billion, diversification is paying dividends.

“The last two years have been a whirlwind of activity, during which we have fully restructured the company,” Chief Executive Thomas Herzog said on his company’s Oct. 31 third-quarter earnings call.

HCP has spent that time becoming a diversified private-pay healthcare real estate owner, broadening its reach to include medical office and life sciences buildings.

Its goal is a portfolio evenly divided between senior housing, medical office and life sciences properties, and toward that end it’s significantly cut exposure to one of the largest U.S. senior housing operators, Brookdale Senior Living (NYSE: BKD) of Brentwood, Tenn., reducing concentration of Brookdale-affiliated buildings from 35% to 17% of net operating income, according to Herzog.

It’s also unloaded a few big noncore properties.

HCP announced on the earnings call its disposition of Shoreline Technology Center in Mountain View. The 800,000-square-foot, 12-building Silicon Valley campus is 92% occupied by Google LLC.

The sale to an undisclosed buyer is expected to fetch $1 billion and generate a gain of about $700 million, according to HCP.

On the growth side, HCP has expanded its medical office and life sciences development pipeline, according to Herzog.

It announced last month that it created a program with Nashville, Tenn.-based healthcare facilities operator HCA Healthcare Inc. (NYSE: HCA) to develop on-campus medical office buildings where HCA outpatient departments will anchor a large part of each.

The remaining square footage will be leased to doctors and other ancillary medical services.

The partnership’s first project is a 90,000-square-foot medical office building on the campus of Grand Strand Medical Center in Myrtle Beach, S.C. at a cost of approximately $26 million.

The REIT also formed a $605 million medical office joint venture with Morgan Stanley Real Estate Investing, the former owning 51%.

HCP also has a robust life sciences development pipeline. The REIT is completing the final phase of The Cove and beginning development of The Shore at Sierra Point in San Francisco. The two waterfront campuses will total about 1.6 million square feet of office space when completed.

On top of being the largest life sciences landlord in San Francisco, the REIT reentered Boston a year ago buying the 400,000-square-foot Hayden Research Campus for $228 million.

HCP’s life sciences and medical office segments grew same-store net operating income by 2.6% and 2.3 %, respectively. Growth has been driven by tenant demand and retention, the REIT said.

Senior housing is the weakest of the three segments; the triple-net portfolio generated a same-store NOI increase of 1.6%, but Herzog said it “will be a strong business over time.”

Wall Street seems to like his plan; its shares are up some 16% over the year, and its stock increased nearly 4% since it announced quarterly earnings.

It reported net operating income of $98.9 million for the quarter compared to a loss of $7.8 million a year earlier.

Ensign

Mission Viejo-based Ensign Group (Nasdaq: ENSG) provides healthcare services in the post-acute care sector via transitional and skilled services; assisted and independent living services; and home health and hospice services.

Since the company’s 2014 spinoff of San Clemente-based CareTrust into its own healthcare REIT, it’s focused on the relatively straightforward strategy of buying and improving underperforming assets.

Chief Executive Christopher Christensen said its portfolio has added 10 assets so far this year for a total of 73.

The company announced three acquisitions on the day of its Oct. 31 earnings call: Rock Creek of Ottawa, Kan., a post-acute care retirement campus with 93 skilled nursing beds, 71 assisted-living units and 24 independent living units; and two skilled nursing facilities in Idaho—Creekside Transitional Care and Rehabilitation, a 139-bed skilled nursing and 21-unit assisted-living facility, and Bennett Hills Rehabilitation and Care Center, a 44-bed skilled nursing facility.

Through its assisted- and independent-living portfolio company, Bridgestone Living LLC, Ensign bought the operations of four assisted-living and memory-care communities in Texas totaling 239 units.

Ensign continues to see “attractive growth opportunities in home health and hospice and assisted living, and will opportunistically acquire,” Executive Vice President and Secretary Chad Keetch said.

It’s positioned “to become an attractive real estate portfolio that can capitalize on the growing aging population,” said Christensen, whose company’s market cap is $2.4 billion.

Its shares are up nearly 20% since the earnings call, and its market value has doubled since the year began.

CareTrust

Ensign isn’t the only one shopping.

CareTrust (Nasdaq: CTRE), with a $1.5 billion market cap, said its acquisition pipeline is $125 million to $150 million. It’s already spent approximately $88 million this year, primarily on properties “almost exclusively made up of skilled nursing assets,” said Chief Investment Officer Mark Lamb.

Recent transactions include a 99-bed skilled nursing facility in Aberdeen, S.D., and a 110-bed skilled nursing facility in Fargo, N.D.

It made the deals with an existing operating partner, Salt Lake City-based Eduro Healthcare LLC. CareTrust also bought The Villas at Saratoga, an 85-bed skilled nursing and 37-unit assisted-living campus in Saratoga.

Lamb said the REIT isn’t done with “adding accretive investments in 2018” and will continue to do “what we would characterize as a normal flow of both one-off and smaller portfolio opportunities” next year.

CareTrust said funds from operations grew 23% quarter-over-quarter to $25.8 million; net income was $14.5 million, or 18 cents per share.

Its shares rose more than 10% following its Nov. 5 earnings report.

Sabra

Irvine-based Sabra (Nasdaq: SBRA) is also positioning itself as a buyer next year. The REIT, which operates senior housing and skilled nursing facilities, has a $350 million acquisition pipeline.

The deals are comprised primarily of senior housing sites.

“We’re not seeing much good [skilled nursing] product,” Chief Executive Rick Matros said after his company’s Nov. 6 earnings report, but pointed out that there’s light at the end of the tunnel, such as the positive benefits of the Centers for Medicare and Medicaid Services’ Patient Driven Payment Model reimbursement system, which takes effect next October.

The new system is intended to change the skilled nursing reimbursement system.

“My guess is over the course of next year, particularly with the mom-and-pops, we’ll probably see more products come to market as a number of the smaller providers determine that they don’t have the wherewithal or the desire to go through the transition that is going to be required to go through to be successful post-PDPM,” he said.

Sabra reported revenue of $151.8 million for the quarter, versus the consensus estimate of $159.4 million.

Its shares took a tumble on the news, falling about 4%. Its market value is about $3.9 billion.

Matros attributed the decline to a short-term issue related to Dallas-based operator Senior Care Centers.

The REIT is cutting ties with its largest operator and selling 36 skilled nursing facilities, which Matros noted on last week’s earnings call have weak Medicaid reimbursement and excess beds.

It issued notices to Senior Care of default and lease termination during the third quarter after the operator stopped paying rent—a ploy supposedly intended to give it leverage in a sales negotiation.

Sabra entered into a nonbinding letter of intent in August to sell the skilled nursing facilities and two senior housing communities for $405 million. The REIT said it anticipates the sale to be complete by early next year.

Senior Care is operating the facilities on a month-to-month basis, according to the REIT.

Matros reiterated that the lack of rent from Senior Care is a short-term issue.

“The benefits of divesting Senior Care Centers … we divest on our largest operator. We strengthen our top 10. We get our skilled [nursing] exposure to 55% … and [that gives] us a much more balanced portfolio,” he said.

The REIT reported 82.6% skilled nursing occupancy, outperforming national trends, it said.

Sabra increased its skilled nursing exposure when it bought Care Capital Properties Inc. in Chicago last year, but the deal also gave it scale, more than doubling its market cap.

Want more from the best local business newspaper in the country?

Sign-up for our FREE Daily eNews update to get the latest Orange County news delivered right to your inbox!

Previous article
Next article
-Advertisement-

Featured Articles

-Advertisement-
-Advertisement-
-Advertisement-
-Advertisement-

Related Articles

-Advertisement-
-Advertisement-