Brookdale Senior Living and HCP, Inc. were the first to report on fourth quarter earnings, and investors did not like what they heard.
I really don’t know what to say about the news that came out yesterday, other than it had a disastrous impact on the market. Investors were hoping for something positive out of Brookdale Senior Living’s earnings call, but what they got was that a sale of the company was off the table, they may do a stock buyback, and slow growth is what can be expected now. The reaction? The stock plunged by 25% in two hours.
HCP, Inc. announced its fourth quarter results, which included announcing they were writing down their HCR ManorCare investment by $817 million, and that despite the restructuring of the leases last year, the coverage ratio dropped from 1.17x for the first half of the year to 0.97x for the second half. And we presume that is the coverage at the corporate level, so it is even lower at the property level. That is bad, real bad. And, they lowered overall 2016 forecasts.
All of this bad news resulted in the publicly traded senior care companies and healthcare REITs combined dropping by more than $7 billion in value in one morning. People, it’s just not that bad out there.
I am not surprised by the poor performance of these large portfolios. Large companies have a very difficult time managing Senior Living property portfolios. The industry is still far behind in qualified leadership at both the C level as well as the property level. As I am sure you are well aware, these portfolios can not be managed the same way as other real-estate portfolios
What surprises me is the amount of the selloff. The property values and the sheer demand that is coming will overcome even poor management of these large senior living portfolios.
Were the stocks/REIT’s over valued?
Thanks,
Josh Buller
CEO
Cornerstone Senior Living Consulting
619-885-7773
Josh,
I agree that these large portfolios are difficult to manage, and that they are much different than managing other real estate asset classes. The larger they get, the further away senior management is from what is really going on at the property level, and then they get “surprised” when problems occur. The recent selloff was an overreaction on many fronts, and while they may not have been over valued, they certainly represent value in today’s market since property values themselves have remained somewhat stable, at least for now. And you are right, at some point demographics will bail out mistakes, but that is several years away when the boomers start to hit 80. But a lot can happen between now and then.
Steve