Healthpeak Properties already made a near-complete exit of the seniors housing market after divesting about $4 billion of its seniors housing communities in 2020 and 2021, but the CEO Scott Brinker commented that a full-exit could be on the table with the sale of its remaining 15 CCRCs.
In his opening comment, Mr. Brinker said “Our capital allocation priorities are focused on life science and medical office. So we’ll be opportunistic about our CCRC position.” That prompted a question from Stephen Sakwa from Evercore ISI: “…does that mean that you could potentially exit CCRCs over time if the pricing was right?” To which, Mr. Brinker responded, “Yes, I think you heard exactly correct.” He went on to say that they like the business, they have good real estate, and that it is “performing pretty well.” So, holding onto the assets does not present a problem.
But, the assets are “not a perfect fit for Healthpeak,” and if it makes sense for shareholders, a sale is a possibility. Mr. Brinker later clarified that the comment was not meant to be taken as a negative view of the business and that Healthpeak just “didn’t have the scale,” in the sector. An acquisition of Brookdale Senior Living would certainly give the company scale, and a host of other problems.
The CCRC portfolio is not on the market, but a comment like that can be quite clear to potential buyers. The problem could be pricing, as Mr. Brinker acknowledged that “it’s not a great time to sell anything for cash.” A creative financing solution could be found, or an asset swap, but this isn’t like the SHOP divestment when the assets had to go and some low valuations were accepted.
Mr. Brinker and Mr. Sakwa then had a back-and-forth about cap rates, and whether Healthpeak could sell the CCRCs without taking some dilution with cap rates currently above 8% or 10% for the sector. According to our latest Senior Care Acquisition Report published in March 2022, the average CCRC cap rate did rise from 8.8% in the period from 2018 to 2019 to 9.7% in the period from 2020 to 2021. And the average has stayed within the range of 8.3% to 9.7% since 2014, but we would not be surprised if the average did indeed increase in 2022.
These comments represented just a fraction of the earnings call, and a sale is certainly not guaranteed, especially in these economic times. But our ears inevitably will perk up at any potential senior care M&A moves by a former major owner in the sector.
