NHP Adopts Defensive Pose for 2009

NEWPORT BEACH, CA-Nationwide Health Properties, a REIT that is coming off of a good year that included major acquisitions, sees 2009 as a time to turn away from acquisitions and to conserve capital–for now. That was part of the message from the company’s president and CEO, Douglas Pasquale, during a conference call in which the healthcare REIT reported growth in FFO for the fourth quarter and the full year in 2008.

Last year, NHP completed nearly $600 million of investments. In his remarks during the conference call, Pasquale commented that “Our plan for 2009 is largely defensive in nature, given that we expect asset prices will remain under pressure, risk aversion will dominate investor sentiment and capital will generally remain scarce and expensive.” In addition, Pasquale commented, “Until we are convinced that we can reliably replenish deployed capital, we have reoriented ourselves from an acquisitive growth oriented mindset to one of conserving capital and maximizing liquidity.”

NHP reported diluted FFO of $64 million and 60 cents per share for the fourth quarter, up from $55 million and 56 cents a share in the fourth quarter of 2007. Its full-year FFO totaled $236 million and $2.29 per share, up from $203 million and $2.12 per share.

Pasquale noted that NHP accomplished the positive financial results “despite significant market headwinds in 2008,” pointing out that “NHP’s performance was among the best in the entire REIT universe.”The company continued its diversification strategy by investing in more than $300 million of medical office buildings, including the launch of a medical office building program with Pacific Medical Buildings. The program included co-ownership of PMB’s property management business and an exclusive development pipeline arrangement and the acquisition of 12 medical office buildings for about $265 million.

NHP has the option to acquire more medical office buildings from PMB, but it has no plans to do so in the immediate future. “Absent a dramatically favorable change in the capital markets, we are not obligated and do not expect to acquire any of the other MOB’s originally contemplated by our agreement with PMB,” Pasquale said. Instead the REIT has turned its attention to “addressing any resulting, near term liquidity concerns that PMB may have so that we can jointly maximize our property management and development opportunities going forward,” the NHP chief said.

In 2008, all three of NHP’s primary asset classes–senior housing, long-term care, and medical office buildings–weathered the economic storm relatively well, Pasquale pointed out. “However, on the immediate horizon, we see more challenges than actionable opportunities,” he said. The company’s plan for now is to intensify its focus on the performance of its existing assets.

NHP expects senior housing performance to be flat or deteriorate somewhat if unemployment continues to rise, while medical office buildings remain one of the best-protected asset classes due to the expanding demand for healthcare from an aging population as well as tenant stability. Regarding the third asset class, long-term care, Pasquale noted that long-term care operators will benefit some from the new economic stimulus bill, which provides for about $90 billion to be channeled through various state Medicaid programs. “This should help long-term care operators as states that were previously looking to cut various Medicaid programs will now receive some much needed relief,” he said.