Industry Pulse: July 2011

NEW YORK – Demand for healthcare facilities is approaching a point where it will outstrip supply, according to Jay Flaherty, chairman, president and CEO of Long Beach, Calif.-based HCP Inc. (NYSE: HCP), a large healthcare real estate investment trust (REIT). In a REIT.com video interview at “REITWeek 2011: NAREIT’s Investor Forum” at the Waldorf Astoria in New York, Flaherty discussed the latest developments with his company and the healthcare real estate sector in general. He said the aging baby boomers will continue to drive demand in the space in the long term. “There’s virtually nothing that would stop that demand driver – not for this year, not for the next decade, not for the next several decades,” Flaherty said. “At some point, there’s not enough supply to absorb that demand.” Within HCP’s five property types of medical office buildings (MOBs), hospitals, life science facilities, senior housing and post-acute properties, the company is seeing more opportunities in the senior housing and post-acute sub-sectors, according to Mr. Flaherty. He also noted that HCP currently has development or redevelopment efforts going on in every sub-sector except hospitals. HCP is gearing up for the day when demand increases substantially, he said. “If you add all these up, they’re very fine development and redevelopment opportunities, but they’re not of a scale in the aggregate that is really going to move the needle for our company,” he said. “To a certain extent, we’re doing this as a little bit of an experiment. They will have very fine returns on the dollars invested by our shareholders, but we’re really looking to fine tune what our actual strategy will be over the next couple years.” While most observers believe that the REITs are dominating the healthcare real estate sector, Mr. Flaherty said that the share of healthcare properties in the United States owned by REITs is actually quite small. Instead, private equity funds and not-for-profit healthcare institutions own the majority, he said. As these owners seek out liquidity and partners, it should help drive transaction activity in the sector, he said. Mr. Flaherty also discussed the impact of REITs’ inclusion in the S&P indexes. “If you think about some of the investors in the publicly traded REITs today that weren’t investors 10 years ago, they are high-quality, blue-chip college endowments, pension funds – investors that have very long-dated time horizons that demand transparency and liquidity but want to have attractive returns.” HCP, an S&P 500 company, invests primarily in real estate serving the healthcare industry in the United States. HCP has been a publicly traded NYSE listed company since 1985. Its portfolio of properties is distributed among distinct sectors of the healthcare industry, including senior housing, life science, medical office, post-acute/skilled nursing and hospital.
NORTH TEXAS – No one has said where it could be located, nor whether the project will indeed take place, but the Dallas-Fort Worth Metroplex is buzzing with the news that three large healthcare companies are exploring the possibility of developing a new $40 million to $50 million proton treatment facility in North Texas. To date, only nine such facilities existing in the country, even though several others are in the planning stages. The discussions are taking place among Baylor Health Enterprises, an affiliate of Dallas-based Baylor Health Care System, The Woodlands, Texas-based US Oncology Inc., a division of San Francisco-based McKesson Corp. (NYSE: MCK), and Garland, Texas-based Texas Oncology. Officials with those companies say building a proton treatment facility would enhance the region’s cancer care options and attract patients from throughout the country and the world. Proton therapy provides highly targeted radiation treatment that proponents say is effective in treating certain pediatric and adult cancers. The treatment uses a precise beam of proton radiation that many cancer care providers say does not damage healthy tissues surrounding a targeted tumor or cancerous area. Officials with the three companies say they would like to open a new facility within three years. “We are excited about the prospect of bringing a proton therapy program to North Texas to enable access to clinical trials and collaboration with other leading centers that offer proton therapy around the world,” said Dr. Stephen Paulson, chairman and president of Texas Oncology, in a written statement. “Such a facility would give us another important treatment option for cancer patients in the Dallas-Fort Worth Metroplex and would serve patients from well beyond the area.” The new proton treatment facility would be a complement to Baylor’s new outpatient cancer center on its main campus in Dallas, according to officials. Baylor is also building a new inpatient cancer hospital at the campus. “With the newly opened Baylor Charles A. Sammons Cancer Center and the region’s first dedicated cancer hospital opening in 2013, the proton therapy center is yet another example of Baylor’s desire to be a leader in providing North Texans with advanced cancer care and treatment options,” said John McWhorter, the president of Baylor University Medical Center. Baylor is one of the largest not-for-profit healthcare networks in the Southwest, with 26 owned or affiliated hospitals, 23 ambulatory surgical centers, 50 outpatient locations, four senior centers and 156 HealthTexas physician clinics. Officials note that the building that would house the proton beam equipment would be much smaller than “first-generation” proton facilities, some of which occupied the space of an entire football field. Officials note that there are about 1.5 million new cancer patients each year. (For more on the growing number of proton beam therapy centers, please see “Proton beam centers taking off” on Page 12 of the September 2010 edition of Healthcare Real Estate Insights™.)