CP Inc.’s recent deal to sell $1.1 billion of senior residential properties is a key step in getting the Irvine-based real estate investment trust back on track for acquisitions.
The transaction—along with the recent spinoff of Quality Care Properties Inc.—is expected to bolster the balance sheet and lower the borrowings cost for Irvine-based HCP. The healthcare focused REIT had been saddled with the poor performance of HCR ManorCare, a post-acute and skilled nursing care provider that accounted for 23% of its revenue before it went to Quality Care Properties in the spin-off last month.
HCP has a market cap of about $14.3 billion; its shares were down 18% for the year as of last week.
The company “has had to compete with their peers with higher leverage and a higher cost of capital, which is a meaningful differentiator” in a sector where acquisitions often account for much of the growth, according to Britton Costa, director of U.S. REITs at Fitch Ratings Inc.
HCP’s borrowing costs had increased in large part due to an annual net rent reduction of $68 million for HCR ManorCare. The renegotiated lease that commenced April 2015 lowered annual revenue from leases by 12% to $473 million.
The spinoff shifted that challenge to Quality Care Properties and reduced HCP’s dependence on Medicare and Medicaid reimbursements, boosting cash flow from private payers from 80% to 95%.
It also, however, increased senior housing sector exposure from 40% to 54%, with Brentwood, Tenn.-based senior residential facility operator Brookdale Senior Living accounting for more than one-third of net operating income.
The $1.1 billion sale—a deal announced late last month with an affiliate of New York-based private equity firm Blackstone Groups—included 64 properties leased to Brookdale. That would bring down senior housing’s share of HCP’s remaining portfolio significantly.
HCP plans to use the proceeds, approximately $160 million, to pay down debt and for general corporate purposes.
The deal with Blackstone Group followed a number of sales that saw HCP unload 11 properties and a portfolio of senior housing that brought a total of $230 million over the nine-month period ended September 30.
The sales have come as HCP has continued to invest in assets, including more than $100 million in senior housing real estate and operations, and $49 million in life-science offices and other properties.
“HCP is thinking about the market and how to best capture value,” Fitch Ratings’ Costa said.
CareTrust Seeks Deals
San Clemente-based CareTrust REIT Inc. is taking a different tack, signaling that it plans to continue to actively pursue opportunities in the skilled nursing and senior living sectors in a third-quarter earnings call.
CareTrust owns and invests in healthcare real estate. It was created in 2014 when Mission Viejo-based nursing home operator Ensign Group Inc. spun off its real estate holdings.
The company, which looks to allocate $125 million for acquisitions, and hopes its deal pipeline to be steady throughout 2017.
“Despite some frothy environment, we are not seeing new supply in secondary and tertiary markets we focus on,” said Mark Lamb, director of investments. He added that the company may be interested in acquiring some of HCP’s non-Medicaid assets.
CareTrust has acquired $151.1 million in real estate assets so far this year, including New Haven Assisted Living LLC, a 30-unit assisted living and memory care facility in San Angelo, Texas, Shaw Mountain at Cascadia, a 98-bed skilled nursing facility in Boise, Idaho, English Meadows Elk’s Home, a 175-unit independent and assisted living campus in Bedford, Virginia, and The Oaks at Petaluma, a 59-bed skilled nursing facility in Petaluma, Calif.
CareTrust has a market cap of about $800 million.
Irvine Bright Spot for Allergan
Allergan PLC’s eyecare and medical aesthetics business in Irvine looks to be a chief driver of revenue growth in the third quarter, when the company notched $3.6 billion in sales.
The eyecare and aesthetics lines are grouped together with neuroscience and urology as the Dublin, Ireland-based company’s U.S. Specialized Therapeutics segment. The segment’s revenue grew by 12%, compared to overall revenue increasing 4% year-over-year, to $1.45 billion.
Eyecare and aesthetics both are based at the company’s Irvine campus. They account for products ranging from Botox to Juvederm, and made up 76% of the U.S. Specialized Therapeutics segment’s sales.
Top performing products included Botox, with a 15% increase in sales; Juvederm and other dermal fillers, up 21%; Restasis eye drops, which had a 13% gain; and Ozurdex, an implant injected into the eye to treat retina blockage, clots or noninfectious inflammation, up 25%.
Bits & Pieces
Irvine-based Harbor MedTech won the LaunchPad competition at OCTANe’s 11th annual Medical Device & Investor Forum. The commercial-stage regenerative medicine company’s first product uses a proprietary tissue regeneration technology to heal chronic skin wounds faster. LaunchPad is OCTANe’s accelerator for startups. … Irvine-based GD Biosciences received the Diamond ABBY Awards at the 17th Innovations in Healthcare Leadership and Abby event on Oct. 26. The company’s PULS Cardiac Test is a diagnostic blood test that identifies people who are at risk of experiencing a heart attack caused by unstable cardiac lesion ruptures. The event is presented by the Santa Ana-based Adaptive Business Leaders Organization. … Placentia-Linda Hospital in Placentia was one of 844 hospitals in the U.S. to receive an A ranking for safety, according to the Leapfrog Group Safety Grades fall release. PLH is part of Dallas-based Tenet Healthcare.
