(Updates with analyst commentary, additional details)
By Nathalie Tadena
HCP Inc. (HCP) fired James Flaherty as its chief executive and
chairman after a decade at the helm of the real-estate investment
trust, pointing to a loss in confidence in his leadership style
amid a slew of executive turnover.
HCP--one of the largest health-care landlords in the U.S. with
investments in senior housing, medical offices and skilled nursing
properties--named Jones Lang LaSalle Inc. (JLL) executive Lauralee
Martin as its new CEO and said its board decided to separate the
chairman and CEO roles to improve its governance. It appointed lead
director Michael McKee, who has been on the board for 26 years, as
non-executive chairman.
"This is not about a new direction or a new strategy, but it's
about leadership," Mr. McKee said of Mr. Flaherty's dismissal on a
conference call with analysts, adding the company is facing no
financial issues and business is strong.
Mr. Flaherty, who will receive a severance payment, couldn't
immediately be reached for comment and hasn't responded to an
emailed query.
Mr. McKee said the board realized it had lost confidence in Mr.
Flaherty's leadership and style over a number of months and said
Ms. Martin, who has been a director for five years, "checked all
the boxes" the board was looking for in a leader, particularly in
regards to her relationship-building skills.
"I build teams that are high quality teams that can perform at a
much higher level because we perform together," Ms. Martin said on
the call.
The board may be hoping her appointment brings more stability to
HCP, which has seen a handful of management changes in recent
years, including four chief financial officers and three general
counsels since Mr. Flaherty became CEO in 2003.
In a somewhat strange twist, both Mr. Flaherty and Ms. Martin
will continue serving on the board, though analysts downplayed the
chance for conflict as Mr. Flaherty's term ends with next year's
annual meeting, which is typically held in April.
And in another sign of a changing of the guard at HCP, the
company also said Kenneth Roath, its chairman emeritus and Mr.
Flaherty's predecessor as CEO, plans to step down from the board.
Mr. McKee noted Mr. Roath, who is 77-years-old, has been signaling
to the board for some time that he was preparing to retire.
Ms. Martin, 62, becomes only HCP's third CEO in its 28 years as
a public company. In contrast to Mr. Flaherty, who led Merrill
Lynch's health-care efforts before joining HCP, Ms. Martin has 35
years of experience in real estate. Before her tenure at commercial
real-estate-services firm Jones Lang LaSalle, where she most
recently served as CEO of its Americas division, Ms. Martin held
posts at Heller Financial Inc. and General Electric Co.'s (GE)
credit arm.
For its part, HCP has logged increased revenue in recent periods
thanks in part to acquisitions and higher resident fees. Ms. Martin
also said HCP's business is strong and the company's "5x5" business
model, in which it invests in five health care property types
through five investment products, will remain the same.
"We felt that this was actually a good time to make a transition
because of the current strength of the company," Mr. McKee added on
the call.
Mr. Flaherty, who was 55 as of the company's March proxy filing,
hasn't told HCP's board of his next plans, Mr. McKee said.
"Jay was a substantial and successful force behind HCP's
considerable growth for more than a decade, and we wish him
continued success," Mr. McKee said in a statement.
Over Mr. Flaherty's 10-year tenure, HCP's stock more than
doubled and its earnings soared to more than $812 million in 2012
from about $122 million in 2003. However, before Thursday, the
stock had declined 25% from its all-time high in May amid a
sector-wide slump tied to fears about rising interest rates. Shares
were down 4.6% to $39.85 in recent trading.
Green Street Advisors analyst Jeff Theiler said Mr. Flaherty was
an "aggressive dealmaker" as CEO, pointing to the $6.1 billion
acquisition of HCR ManorCare's real-estate assets that closed in
2011.
"Lauralee's resume is impressive, but she is unproven in this
new role as CEO of HCP, so for a period of time I think the
uncertainty will weigh on HCP's stock price," Mr. Theiler said.
Meanwhile, RBC Capital Markets downgraded HCP's shares to
underperform from sector perform amid concerns about the abrupt
management shake-up and upcoming transition period. The analysts
said in a note to clients that Mr. Flaherty was considered "a
cornerstone" of the company's current investment strategy and one
of the main reasons it was able to complete some of its highly
accretive investments.
"We believe this was one of the main reasons the company traded
at a premium in the space, and we expect that premium to erode
until investors can better assess the new leadership," they
wrote.
Write to Nathalie Tadena at nathalie.tadena@wsj.com
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