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HCP’s Cautious View for Its Senior Housing Portfolio in 2018

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Feb. 28 2018, Published 8:15 a.m. ET

Portfolio overview

HCP Inc. (HCP) has a diversified senior housing portfolio, which has a balanced mix of triple net and SHOP (senior housing operating portfolio). HCP has ~283 senior housing properties and 34,000 units. 

The company’s NNN (triple net) generates ~56.0% of the cash NOI (net operating income), and the SHOP segment generates the remaining 44.0%.

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Senior housing NNN portfolio

HCP’s senior housing NNN portfolio generated revenues of $249.3 million in 2017 in comparison to $274.0 million in 2016. This was a decrease of ~10.0%. 

Its NOI also decreased from $287.0 million in 2016 to $272.0 million in 2017. The Same Property Portfolio segment’s NOI decreased primarily because of the terminations from its Brookdale transactions in 4Q17.

On the other hand, its adjusted NOI increased primarily due to the annual rent escalations and higher cash rent received from a portfolio of leased assets.

SHOP segment

HCP’s SHOP portfolio saw an increase in its residential fees and services of $3.8 million and a considerable increase in operating expenses of $37.0 million. The increase in operating expenses was due to its management fee terminations from Brookdale in 4Q17.

HCP’s NOI fell by $33.0 million in comparison to 2016 when it stood at $114.0 million. The Same Property Portfolio segment’s NOI increased from $113.0 million in 2016 to $114.0 million in 2017. This was due to increased rates for resident fees and services, which were partially offset by expense growth and a decline in occupancy rates.

Outlook for 2018

HCP has a cautious view of its SHOP segment in 2018 due to new supply headwinds, wage growth pressures, and the harshest flu season in recent years. Operator transition can also cause temporary disruptions.

Among its peers, HTA is a strong player in the MOB segment. Ventas (VTR) and Welltower (HCN) operate in the MOB, hospitals, senior housing, and skilled nursing segments. Investors looking for exposure to the healthcare real estate sector can invest in REIT ETFs. HCP holds ~1.2% in the Vanguard REIT ETF (VNQ).

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