Healthpeak Properties, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Business Turning Point: Past 60 days signal turning point with life science leading indicators positive and outpatient medical private market values strengthening. Seized opportunity to grow portfolio by $5B via merger with Physicians Realty Trust, internalizing property management on 39M sq ft with 3M more in sight.
• Technology Initiatives: Advancing AI-enabled real estate platform, focusing on property operations, facilities engineering, and accounting with technology adoption to drive efficiency gains. G&A projected at $90M this year, less than 5 years ago despite inflation and merger.
• CCRC Performance: NOI up over 50% in 6 years, including double-digit growth this year. Sequential occupancy up 70 basis points, expected continued growth in Q4.
• Outpatient Medical: Favorable leasing demand with strong execution, high escalators, and low TIs. Year-to-date leasing volumes robust, occupancy trending up.
• Lab Sector: Improving sentiment with doubling of pipeline since Q1, mix of new and renewal leasing, and positive impact from AI and biotech trends.

Segment Performance

• CCRC: Portfolio delivered strong quarter with cash NOI increasing 9.4% for the quarter. Occupancy up 150 basis points year-over-year. Product offering resonates with consumers and benefits from healthy demographic trends.
• Outpatient Medical: Executed 1.2 million square feet of leases with 3% escalators or above, positive cash re-leasing spreads of 5.4%. Year-to-date leasing volumes totaled 3.2 million square feet, ended quarter with total occupancy up 10 basis points at 91%. New leasing starts highest in combined company's history.
• Lab: Executed 339,000 square feet of leases (45% new) with positive 5% re-leasing spread. Year-to-date leasing volumes 1.1 million square feet, ended quarter with total occupancy 81%. Pipeline doubled to 1.8 million square feet since Q1, with mix of new and renewal leasing more favorable.

Guidance

• Reaffirming FFO as adjusted and same-store expectations within original guidance range. Outperforming in CCRC and outpatient medical at or above high end of initial segment guidance.
• Reduced interest expense and G&A guidance by $10M due to better pricing on senior notes issuances, technology-enabled productivity gains, merger synergies, and higher dispositions. Year-to-date completed $158M of asset sales and loan repayments, with additional $204M under agreement.

Risks

• Potential tenant issues: Occupancy may decline in short term due to expirations and terminations, though confidence in bottoming emerging.
• Regulatory uncertainties: Impact on life science sector from regulatory noise affecting investment and leasing.
• Market volatility: Real estate market lagging recovery, potential impact on property values and leasing activity.

Question and Answer

Q: Just going to the lab leasing pipeline. It sounds like you said it's doubled since the beginning of the year. I was just hoping we could just double-click sort of what's changed? What's the mix of those tenants? And any sort of qualitative trends that you can highlight?

A: Yes. It's a broad mix of tenants. It's Scott, from early stage to clinical stage to commercial stage. So the quantum has doubled, but equally important the mix of new and renewal is much more favorable. Year-to-date, it's been a lot of renewals, which is great. But obviously, it takes new leasing to drive occupancy and a good portion of that pipeline now is new leasing. And that's clearly being driven by the improved sentiment in the sector, improved capital raising. There's been a lot of good data in the sector, and that's being rewarded in the capital markets by the FDA and that virtuous cycle is starting to build, but all starting with great data as the science proves out. So we're encouraged. It's roughly 60 days of activity. Obviously, that needs to continue for that pipeline to turn into execution and then to refill the pipeline. But the trajectory, the momentum is very positive.

Q: In terms of the lab portfolio. I wanted to see if there was any way to get a feel for like where -- if your leased rate is higher than your occupied rates. I know you guys quote that 81% occupancy and lab in the South. You talked about some of the sort of leasing that happened and even in the works is addressing vacancy. So any feel for just like where the lease rate on assets would be versus in-place occupancy?

A: Yes. Nick, this is Kelvin. I would say that our total occupancy today in lab at 81% is largely in line with the occupied rate. We have certain instances where there are tenants that are probably in more space than they need. So the occupancy is a little bit lower physically. But generally speaking, the total occupancy is in line with the physical occupancy.

Q: I guess my first question is kind of, of the $1 billion. How do you view that in terms of how much of that should we expect to be life science versus outpatient medical versus share repurchases? And then I guess on top of that, do you have like a target percentage of how much of the business you would like to be outpatient medical, life science and the CCRC?

A: We do not have fixed allocations, and we're going to be opportunistic. So we're going to protect our balance sheet. Number one, it's a competitive advantage, gives us a lot of flexibility. And these sales will give us even more flexibility, but it could be any of those three that you mentioned in any combination. So no, we're not going to have a fixed allocation of what we're looking at will be opportunistic.