HCP Inc.’s (NYSE: HCP) repositioning has been a bumpy one over the course of the past 18 months. Chief Executive Tom Herzog said during its fourth-quarter and full-year earnings call in February that last year was pivotal for the company and that it plans to focus this year on completing repositioning initiatives it started in 2016.
“Our portfolio is focused on medical office, senior housing and life science,” he said, noting that the segments aren’t impacted by government reimbursement and are in line with the Irvine-based healthcare-focused real estate investment trust’s strategy to grow private-pay healthcare.
“We do not intend to move back up the risk curve with new investments in mezzanine debt, [skilled nursing facilities], international investments or investments in new hospitals.”
Shares of the company trade at about $22 each for a $10.4 billion market cap.
Brookdale, Mezzanine
HCP has been negatively impacted by senior housing operator Brookdale Senior Living (NYSE: BKD), whose revenue and occupancy declined after it bought Seattle, Wash.-based senior housing operator Emeritus Corp. in 2014. Brookdale’s stock price fell from $38 per share in March 2015 to $11.80 about a year later, and is now $6.60.
HCP recently announced it will transition management on a portfolio of 24 senior housing communities, from Brookdale to Louisville, Ky.-based Atria Senior Living, changes scheduled to be complete by September.
Last year, it significantly reduced its Brookdale concentration, including selling 64 Brookdale-operated properties to Blackstone Group in New York.
The Brentwood, Tenn.-based senior housing operator started managing some of HCP’s properties in 2008, and in 2014 the two formed a $1.2 billion, 14-community strategic joint venture, Brookdale owning 51%, HCP 49%.
HCP said it plans to sell its remaining investments in the venture to Columbia Pacific Advisors in Seattle.
It has an additional 60 Brookdale assets, which it said it will either transition or sell.
The REIT also sold the last of its mezzanine loan investment last month to Fundamental Advisors LP for $112 million.
Life Science
The repositioned HCP portfolio is specialty office-focused. The segment includes medical offices and life science buildings, which represent 26% and 19% of total revenue last year, respectively, according to Securities and Exchange Commission filings.
Its life science properties, comprised of laboratory and office space primarily for biotechnology, medical device and pharmaceutical companies, are mostly in San Diego and in south San Francisco, where it’s the largest life science landlord, according to filings.
It owns multitenant life science development The Cove, which will have seven buildings when completed. The first two phases—four buildings totaling 477,000 square feet—are 100% leased.
It began construction on Sierra Point in February, a 600,000-square-foot multibuilding campus. The first phase consists of two buildings totaling 215,000 square feet and is scheduled to be complete next year.
The REIT entered Boston’s hypercompetitive life science market in December with the purchase of the Hayden Research Campus for $228 million from King Street Properties in Cambridge, Mass., and the Carlyle Group in New York. The 400,000-square-foot, two-building campus was 66% leased at closing, including major life science tenants, such as Shire US Inc., a subsidiary of Shire PLC, and Merck, Sharp & Dohme, a subsidiary of Merck & Co. Inc.
New Slate
Executive Chairman Mike McKee stepped down from his role on March 1, also retiring from the board.
Herzog said that with Chief Investment Officer Scott Brinker coming on board in January, it has rounded out its executive team and is positioned to execute on “what is a very good plan.”
Brinker was most recently executive vice president and chief investment officer at Toledo, Ohio-based senior housing REIT Welltower Inc.
