REIT REPORT: HCP makes changes at top, again

Some market observers are bullish on REIT’s outlook as it shores up its portfolio

By John B. Mugford

Changes in the executive leadership team at Irvine, Calif.-based HCP Inc. (NYSE: HCP) have been a way of life at the healthcare-focused real estate investment trust (REIT) for more than a year now. The REIT has also been making efforts to shore up its senior housing operating portfolio (SHOP), which has dragged down its overall performance, by reducing its exposure to struggling Brookdale Senior Living (NYSE; BKD).

Many of the executive leadership changes came in the second half of 2016 and in early 2017. Tom Herzog, formerly the chief financial officer (CFO), took over as CEO in September 2016 after Lauralee Martin had stepped down in mid-2016. Ms. Martin was CEO for three years, succeeding Jay Flaherty III, who was let go in 2013. A number of executive-level departures came in early 2017, including that of President Justin Hutchens.

But the REIT says it making efforts to stabilize its leadership team and its portfolio. It named Peter Scott as the executive VP and CFO earlier in 2017 and then, at the end of August, appointed 18-year company veteran Tom Klaritch as chief operating officer (COO) and Doug Pasquale, once the CEO of Nationwide Health Properties, as the senior advisor to the executive team.

HCP hopes the changes come at the end of a three-year, slow decline of its stock price, which was at about $42 per share in early 2015 but recently fell to less than $30. Even so, a number of stock market observers as well as HCP officers believe the long-term outlook for the REIT is solid and that the stock selloff has subsided.

During HCP’s second quarter (Q2) earnings call with securities analysts on Aug. 1, Mr. Herzog said the company remained on target to meet its full-year funds from operations (FFO) guidance.

He added that medical office buildings (MOBs), life science properties and triplenet leased senior housing facilities, which comprise 83 percent of its holdings, topped FFO expectations but that troubles with SHOP nearly negated those gains.

HCP has been decreasing its exposure to Brookdale. In the past year, the REIT has sold or transferred 67 properties leased by the operator and is “continuing our efforts to identify ways to reduce our Brookdale concentration to 20 percent or less,” Mr. Herzog said.

He added: “Despite the current challenges, we continue to believe HCP is positioned to take advantage of the upcoming demographics that will fuel the senior housing industry for years to come.”

Disclaimer: The author has no financial position in the companies mentioned and this article does not constitute an investment recommendation.

* Implied market cap includes the value of all UPREIT partnership units, assuming they are all part of the REIT’s stock, added to market value of a company’s outstanding common stock, but not including warrants, convertible preferred stock and convertible debentures.

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