The operator welcomes listeners to the Healthpeak Properties, Inc. Fourth Quarter Conference Call and introduces the speakers. Andrew Johns, Senior Vice President of Investor Relations, provides a disclaimer about forward-looking statements and non-GAAP financial measures. Scott Brinker, President and CEO, thanks the team for their contributions and highlights the company's record leasing volumes and exceeding initial guidance.

The company had a strong fourth quarter and fiscal year, with growth in same-store NOI and AFFO per share. They are expecting to close a strategic combination with Physicians Realty Trust in March and have been working on integrating the two teams. They also internalized property management in three markets and plan to do so in six more by midyear. The company is confident in achieving their synergy targets and expects them to contribute to earnings in 2024. The outpatient medical sector is experiencing high demand and the company expects to benefit from strong sector fundamentals, high-quality assets, and internalization.

The company believes that by combining two top outpatient platforms, they will create a stronger company with potential for growth. The majority of their tenants are health systems, and their experienced senior team has strong relationships in the sector. The lab business is also expected to see long-term growth due to high drug approvals and funding. However, the current market is soft and leasing decisions are being deferred, but the company is well-positioned to capitalize when the market turns. They have stuck to their strategy and have significant scale and relationships in five top submarkets in the country.

The company reports that most of their rent comes from large campuses, allowing for a variety of price points and space plans. They have signed leases and have active discussions for more space. They have expanded their land bank and are well positioned for future development. They recently sold a 65% interest in one of their developments and are evaluating opportunities for capital recycling. The company had a strong financial performance for the fourth quarter and the full year.

The company's balance sheet is strong and they had a successful year in terms of leasing and occupancy. They also saw growth in their outpatient medical and CCRC segments. The company's Board declared a dividend and DOC filed an 8-K with preliminary financial results. The company is now shifting focus to their combined outlook for 2024.

The company is confident that the merger will close successfully and has integrated their forecasting. They are providing an initial outlook for 2024, which includes FFO and AFFO ranges and projected same-store growth. The outlook is based on a weighted average share count and they have identified sources for all their capital needs. They have also upsized their term loan, closed on a joint venture, and have projected retained earnings to fund their development and transaction costs.

The article discusses the expected G&A, FFO, and same-store growth for the company in 2024. G&A is expected to increase by $5 million despite inflation and asset base growth. FFO includes a negative mark-to-market on assumed debt and does not include the Graphite Bio termination fee. Same-store growth is expected to be positive for outpatient medical, lab, and CCRCs. Synergies from the merger are expected to contribute to the outlook.

In 2024, the company expects to see a $30 million increase in earnings from same-store growth and a $15 million benefit from development earn-in. However, there are also some challenges, including a $35 million increase in interest expense and a $10 million decline in earnings from one-time security deposits and dilution from potential debt repayment. Additionally, there is a temporary $40 million decline in NOI at two campuses due to redevelopment projects and lease rejections. The company is actively working to backfill the space and upgrade the buildings to attract new tenants.

The company is expecting a mark-to-market upside opportunity as they retenant their buildings on campus, but there may be some downtime in 2024. They have included $10 million in conservatism in their outlook for various items. The company believes they will outperform as sentiment and fundamentals improve. Outpatient medical is growing faster than historical averages due to demand. The company's balance sheet is managed conservatively, but they are not immune to rising rates or merger-related debt mark-to-market. They have two large campuses undergoing repositioning, which is included in their 2024 plan but not their earnings outlook. If they can outperform their base case assumption, there will be further upside to their outlook. During the Q&A, there was a question about the guidance and the impact of the DOC merger and other year-over-year items.

Pete Scott, speaking on behalf of the company, discusses the projected growth of AFFO and FFO, stating that the outlook is flat but would have been down if not for the merger. He also mentions the leasing pipeline for the lab business, with 175,000 square feet of leases and LOIs signed year-to-date. The first week of January was slow, so this is a promising 4-week number.

The company is seeing positive trends in leasing compared to a year ago, with a focus on smaller leases. The composition of leases and LOIs is diverse, and the company is satisfied with the economics. They have seen a 20% mark-to-market last year and currently estimate it to be in the 5-10% range. The company is considering potential dispositions of assets to create value due to a disconnect between private and public market valuations.

The company is considering selling some of its non-core assets and maintaining ownership stakes in core assets. They were a net seller of real estate in 2023 and will likely continue to be in 2024. The cadence of lab same-store growth may have a temporary drag in the first quarter due to free rent for some larger leases, but overall there is not much variability in FFO across the four quarters.

The company has a significant amount of free rent in their leases, which will have a slight impact on their first and second quarter same-store numbers. However, these are long-term leases with high-quality tenants. The development pipeline has been pushed back a couple of quarters due to the delivery of a portion of the Vantage project and the unresolved situation with Sorrento for the Gateway project. Even if a lease is signed, it will take 6 to 9 months before it can commence.

The company has pushed back the timeline for leasing out their new facility due to delays in signing leases. They are also expecting to see more synergies from the merger than initially anticipated. The Amgen and Sorrento spaces will not be included in the financials until 2026.

Pete Scott and Rich Anderson discuss the timeline for Sorrento and Portside campuses to see an increase in NOI. Scott believes that Sorrento will see an increase in NOI sooner due to the less significant scope of work, but the Portside campus has a 101,000 square foot lease starting later this year. Scott Brinker adds that there is potential for a large increase in NOI with the redevelopment and development projects currently in progress.

Scott Brinker, CEO of a lab business, discusses the potential for growth in their lab business, stating that there is currently a fair amount of upside for them to recapture. He then shifts the conversation to their medical office buildings (MOBs) and outpatient medical services, stating that they have historically seen 2-3% growth, but they anticipate this rate to accelerate in the next 5-10 years due to supply and demand factors. Their current guidance for same-store growth is at the high end, with potential for even more upside. This is due to high occupancy rates, re-leasing spreads, and retention rates.

The speaker discusses how they condition tenants to accept higher rents, which is easier now due to the increase in market rents and the presence of more institutional tenants. They also mention that they have seen six straight quarters of above-average renewal spreads, and that annual increases of 3-5% are becoming more common. This leads to a positive outlook for the next 10 years.

During a conference call, a question was asked about the delay in collecting on seller financing. The company responded by saying that they have done well with this type of financing in the past and have seen a decrease in the balance of these loans. Their guidance for the year is zero to $100 million in repayments, with a possibility of it being higher. They expect these loans to be repaid in the near future or extended, which would benefit their earnings. The company also mentioned that they have seen good activity in leasing lab space and are in line with pre-COVID demand levels across all three portfolios.

The company is seeing more interest in taking on new space and expansions, with strong underlying fundamentals indicating future demand. They have a strong start to the year and a promising pipeline. In terms of development and redevelopment, they still have to finish the Vantage project and have some new HCA developments. The larger redevelopment bucket has increased significantly compared to the previous year.

The speaker discusses the company's assets and plans for future development, including finishing current projects and redeveloping existing properties. They also mention that there are no new lab projects in the forecast, but there are some outpatient medical projects with attractive yields. The speaker also mentions that they are considering all capital options and that the CCRC portfolio is performing well at 85% occupancy.

The company has good assets in Florida and a strong operating partner for its senior living market. It plans to recycle the assets at the right price, but is not in a rush as the market is currently tight. The company is also including DOC in its same-store medical office NOI outlook, but it is hard to determine the exact impact on same-store MOB NOI growth.

During a recent conference call, the company's CFO discussed the stock price and potential for stock buybacks. He mentioned that they had bought back some stock in the past, but the response from investors was not enthusiastic. The company has a buyback program in place, but they are not currently at a level where they would buy back stock. They also have a significant amount of potential buyback funds, but they are more focused on capital recycling. The CFO also provided some details on the same-store NOI, including factors such as rent escalators and positive mark-to-market on lease renewals.

The speaker believes that if they stopped at their current growth rate, they would see a 5% increase in same-store growth, which is consistent with the past 10 years. However, there are some challenges, such as lower occupancy and increased free rent, that are impacting their growth. They also have a cushion for bad debt, which has improved but is still included. Despite these challenges, the speaker believes their current stock price reflects these factors. When asked about positive spreads, the speaker clarifies that the outlier in the fourth quarter of 2024 is not indicative of their overall trend, and they do not expect many negative renewal rates in the future.

The speaker, Scott Brinker, discusses the growth outlook for CCRC rent and explains that the growth will be in the mid-single digits rather than high-single digits due to occupancy and rental rate factors. He also mentions the impact of accounting methods on the reported performance of CCRCs. In regards to MOBs, he discusses the importance of relationships and mentions the potential for expansion of the HCA program and partnerships with other health systems.

Scott Brinker and John Thomas discuss the potential for growth in outpatient networks for health systems. They mention their successful project with Northside in Atlanta and future opportunities with owner help. Scott also mentions a 5-10% estimated mark-to-market on lab leases, which is slightly lower in the near-term due to the Amgen leases rolling. They also note that there is a demand for smaller requirements in leasing, with around 60-75% of deals falling within the sub-30,000 square feet range. Austin Wurschmidt asks about the potential for growth in the coming years, and Scott and John mention that there may be opportunities in 2025 and 2026.

The speaker discusses the potential for growth in the market and the impact of Amgen on future years. They also mention the potential for synergies and expect to achieve the majority of the $40 million in savings at closing.

The company is confident about achieving the $40 million estimate for internalization in 2025, with the possibility of additional G&A savings. The expected disposition volume for the year will depend on the market conditions, with a potential range of zero to a couple billion dollars. The company is actively engaged in discussions regarding potential deals across the portfolio. There is currently a significant gap between the company's stock price and the potential cap rates for deals, but not all deals will necessarily be at a low 5% cap rate.

The speaker discusses the possibility of narrowing the public to private valuation gap and mentions actively looking to sell in the life science and other lease markets. They also mention the potential dilution from selling non-core assets and the use of proceeds to repay debt. The speaker then explains the decision to start two developments with a top partner in HCA, citing high pre-leasing and attractive cash flow returns.

The speaker finds certain uses of capital to be attractive for shareholders and the team is focused on beating their earnings guidance. They have delivered strong AFFO and FFO growth and expect to continue this trend. The call has now concluded.

This summary was generated with AI and may contain some inaccuracies.