The senior housing market is proving not just attractive to developers but to real estate investment trusts, now on a hot streak after weathering the recession.

In fact, Los Angeles County is home to the nation’s largest health care industry landlord, HCP Inc., which has ridden the demographic wave of America’s aging population by targeting investments in facilities that serve the elderly.

The publicly traded Long Beach REIT began as a small owner of nursing homes and hospitals in the mid-1980s and has grown to a behemoth that soon will own roughly 1,000 properties across five sectors: senior housing, life science, medical office, skilled nursing and hospitals.

Only a modest proportion of HCP’s senior-focused properties are in the county: It owns four senior housing complexes, including a Beverly Hills assisted-living facility, and seven general medical office buildings in the area.

But in its portfolio are facilities run by some of the nation’s most respected independent assisted-living and nursing home operators, such as Emeritus Corp., Sunrise Senior Living, Brookdale Senior Living and Aegis Senior Living.

There’s a reason for the focus: A growing elderly population means that health care real estate generally tends to be less exposed to economic cycles than other types of real estate.

HCP is also credited with being one of the most diverse landlords in its industry, spreading investors’ money among many types of properties that are run by a wide variety of large and efficient operators.

“Investors have come to appreciate a diversified portfolio in this economy,” said Robert Mains, an equity analyst at Morgan Keegan. “HCP largely has accomplished that.”

Investors have rewarded the company’s moves. HCP shares took a hit during the recession but have since more than doubled from a low of $16.08 in March 2009 to $36.22 as of Jan. 18.

As a REIT, the company does not own the companies operating the facilities, only the real estate, including the land and buildings. It acts as a landlord and receives lease payments.

Even so, the company has not completely escaped the economic downturn.

Independent and assisted-living living facilities took a hit during the recession as shrinking investment income left residents less able to afford rent increases. And the housing bust sapped equity that many seniors were counting on to pay assisted-living entrance fees that can be $200,000 or more.

What’s more, nursing homes catering to lower-income patients have long suffered from tight profit margins due to poor government reimburse rates (though an improvement last fall in Medicare reimbursement for patients with multiple medical problems has helped).

Private equity deal

As the economy has recovered, however, the company has returned to aggressively pursuing a strategy to acquire facilities operated by the best companies.

Last month, it capped off a flurry of deal-making with a $6 billion deal to buy more than 300 rehabilitation centers and nursing homes mostly in the Midwest and on the East Coast from HCR ManorCare.

Toledo, Ohio-based ManorCare is owned by Washington, D.C.-based private equity firm Carlyle Group, which was ready to get some cash out of its investment. The deal didn’t happen overnight. HCP had cultivated a relationship with ManorCare by acquiring some of its debt at a discount.

The deal is “consistent with our strategy to forge relationships with best-in-class operators,” said Chief Executive Jay Flaherty, a former investment banker recruited, in a conference call with analysts last month.

Flaherty and other HCP officials did not return calls for this story. However, James Milam, an equity analyst at Sandler O’Neill and Partners, said the deal was indeed vintage Flaherty.

“HCP over the years since Jay took over has focused on large properties … or on properties with large operators such as ManorCare,” he said. “That provides a lot more security in maintaining the profitability of its assets as the economics of health care change over time.”

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