Health Care Properties Deliver Despite Downturn

HCP raised $900 million in the third quarter alone from a combination of a $481 million stock offering, $116 million from property sales and $312 million in refinancings. Flaherty pointed out that the Long Beach-based REIT enjoys a "low level of secured debt" and that the "crown jewels" among its properties—including its Genentech and the Amgen campuses—are "completely unencumbered by secured debt." In that respect, HCP stands in contrast to the many property owners whose balance sheets are encumbered by burdensome levels of debt.

One reason for HCP's low level of debt is that the company has been using the $2.4 billion it has raised this year to pay down debt and secure favorable terms on new debt, Flaherty explained in the conference call. Mark Wallace, the company's CFO and treasurer, detailed how HCP has applied the $2.4 billion it has raised this year to pay down its line of credit, retire $300 million of other debt that matured in September and reduce the outstanding balance on its bridge loan. The company now has sufficient funding to pay its debt obligations until the third quarter of 2011.

HCP is "glad to be in the healthcare space," especially during an economic downturn, Flaherty said. He noted that during economic downturns, sales of prescription drugs and medical devices tend to hold up better than nonessential goods. The country's aging population and the ongoing need for healthcare in general bode well for the medical office sector, which represents 21% of HCP's portfolio, Flaherty added.

"We are now 15 months into a severe economic downturn, the magnitude of which is only beginning to be understood," the HCP chairman said. "Our crystal ball is no better than anyone else's," he said, but the company believes it is positioned to perform well because of the ongoing demand for the types of properties it owns and operates.

At a time when general office occupancy levels are declining for many companies, occupancy rose by 1% during the latest quarter in HCP's life sciences portfolio, where it has executed more than 400,000 square feet of new leases. Wallace pointed out that the life sciences portfolio has limited lease expirations over the next two years and that HCP is already signing renewals with tenants whose leases don't expire until 2010.

HCP, which generated $175.1 million in FFO for the third quarter versus $109 million in last year's third quarter, owns 704 properties in five segments within the healthcare industry. Medical office and life sciences properties account for more than half of the 704 properties, with the rest distributed among senior housing, hospital and skilled nursing facilities.