Kai Hsiao to Depart HCP, Kendall Young Named Senior Managing Director

Kai Hsiao, who joined HCP Inc. in May 2016 as executive vice president of senior housing properties, will leave the company within the next few months “to return to his operating roots,” CEO Thomas Herzog announced Tuesday during an earnings call highlighting first-quarter results.

Hsiao’s departure from the healthcare real estate investment trust (NYSE: HCP) comes on the heels of last month’s announcement by the company that Justin Hutchens will be vacating his role as president of HCP in June to become CEO of HC-One, a care home operator based in the United Kingdom.

Hutchens was named president of Irvine, Calif.-based HCP in January of this year. He previously served as executive vice president and chief investment officer of HCP from May 2016 to December 2016.

“Justin and Kai, with their long and deep experience in senior housing, did important work in building out our senior housing operational infrastructure, which will benefit the company for years to come,” said Herzog.

Hsiao has “graciously offered to help the team with the transition,” added Herzog.

Hsiao told Seniors Housing Business he is sorting through his options, but that wherever he lands, he hopes to maintain his working relationship with HCP, “just in a different capacity.”

Meanwhile, Kendall Young has assumed the position of senior managing director of HCP’s senior housing platform. “Kendall has over 30 years of real estate industry experience, including the past seven years at HCP leading our senior housing investment activity,” said Herzog during the earnings call.

Elevating Young will provide stability within HCP’s senior housing team, said Herzog, because his broad skill set encompasses deal origination and asset management across a spectrum of real estate equity and debt investments.

Young was responsible for asset management of global real estate portfolios at his two previous employers, Strategic Value Partners and Merrill Lynch. And he also spent 13 years at GE Real Estate, where he was responsible for both transactions and asset management.

HCP also recently hired Paul Boethel as senior vice president of senior housing asset management, said Herzog. Boethel has a wide breadth of seniors housing experience, ranging from operations to investments to financial planning and analysis.

Boethel spent a significant portion of his career working within seniors housing companies owned by or affiliated with Fortress Investment Group, including Brookdale Senior Living, Holiday Retirement Corp. and New Senior Investment Group.

“While at Holiday, Paul worked directly with Kai, which has allowed us to fill this important role with a known talent,” said Herzog. “Paul will report to Kendall, and together they make a very complementary team, fully equipped to successfully lead our senior housing business.”

With Hutchens’ departure imminent, the company has engaged Russell Reynolds Associates to conduct an executive search for a chief investment officer.

“The search is well underway and we’re prioritizing candidates with strong familiarity in the private pay healthcare real estate space,” said Herzog. “We’re pleased with the caliber of potential candidates we’re seeing.”

Confronting headwinds

The last two years have been a tumultuous period for healthcare REITs in general, marked by lower government reimbursement rates in the skilled nursing sector and stock prices that fell precipitously in the fall of 2016, but have since recovered somewhat.

Facing those headwinds, HCP last fall completed the spinoff of its HCR ManorCare portfolio of skilled nursing and assisted living assets, as well as certain other assets into Quality Care Properties (NYSE: QCP), a separate REIT.

It’s no surprise that HCP jumped at the chance to recruit Hsiao as executive vice president of senior housing properties last May. The REIT has made it clear in investor presentations that it focuses on operating partners with high-growth potential in the seniors housing space, all the while trying to limit its exposure to any one single operator.

Case in point: In March, HCP completed the sale of a portfolio of 64 assets leased to Brookdale Senior Living on a triple-net basis to affiliates of Blackstone Real Estate Partners VIII for $1.1 billion. That reduced the concentration of Brookdale-operated properties in HCP’s portfolio from approximately 35 percent to 27 percent, according to the company.

A pointed question

During the Q&A portion of the conference call, Citi’s Michael Bilerman, a REIT analyst, asked the HCP management team what reassurances it could give investors that the most recent new hires will stay for the long term given the short tenures of Hutchens and Hsiao.

“I've been here as of yesterday one year and we have gone through a hell of a lot,” said Michael McKee, HCP’s executive chairman. “I think that the recovery of this company, the turnaround of this company, the repositioning of this company is well known and well documented, and these things have to shake themselves out over time. We are building a new team. You don't build a world champion just in six months or in three decisions or four decisions. You do it a step at a time.”

By the numbers

As of March 31, HCP’s seniors housing portfolio of owned properties included 209 facilities with triple-net leases in place and another 153 assets operating as part of a RIDEA structure. (RIDEA stands for the REIT Investment Diversification and Empowerment Act. The structure enables HCP to capture income growth through occupancy increases and overall operational improvement and efficiencies.)

Also included in HCP’s portfolio as of Dec. 31 were 120 life science buildings and 239 medical office properties, plus 80 properties classified as “other” and mostly located in the United Kingdom.

The grand total: 801 assets. Additionally, the company had about 10 life science or medical office properties in the development pipeline.

For the first quarter of 2017, HCP reported net income of $460.37 million, up from $115.76 million during the same period a year ago.

The company’s adjusted funds from operations of 51 cents per share in the first quarter were in line with expectations. The company’s total portfolio delivered same-store cash NOI growth of 4 percent in the first quarter, with growth across all of its core lines of business.

HCP’s stock price closed at $31.26 per share on Tuesday, down from $34.35 a year ago.

— Matt Valley

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