The paragraph is a transcript from Healthpeak Properties, Inc.'s third quarter conference call. The call, introduced by Operator and Andrew Johns, Senior VP of Investor Relations, involves discussing forward-looking statements, acknowledging associated risks, and utilizing non-GAAP financial measures. These measures are reconciled in an exhibit available online. The President and CEO, Scott Brinker, takes over, commending the team's performance and announcing an increase in financial guidance due to strong leasing, operations, and merger synergies. Peter Scott, the CFO, and the senior team are also present for questions.

The company sees substantial value and potential growth in its stock, driven by strong earnings growth and a 5% dividend with a conservative payout ratio, leaving significant free cash flow for reinvestment. Key growth drivers include a merger completed on March 1st, resulting in $50 million in first-year synergies and increased operational efficiency. The company has also improved its balance sheet. Additionally, there is strong leasing momentum in its lab business, with over 700,000 square feet of leases signed since July 1, including significant new leases at high-priority campuses, particularly in South San Francisco.

The company has seen significant growth over the last six years, improving its building quality and reaching Class A space. The life science sector is experiencing positive trends, with employment rising, an increase in IPOs, and record R&D spending from Big Pharma. Venture capital fundraising is set to reach an all-time high in 2024, leading to a surplus of investable capital. A tenant in South San Francisco achieved a milestone with a $1 billion Series A raise, led by a Nobel Prize-winning co-founder. In the outpatient medical business, demand surpasses supply, leading to record re-leasing spreads and increased rent escalations. The sector benefits from a growing focus on cost-effective outpatient care, while new construction remains limited. For capital allocation, the company plans minimal or opportunistic disposals, favoring its current portfolio.

The company has an under-levered balance sheet, enabling it to fund its current pipeline through debt. Unlike other companies, its last development started in 2021 is now 70% leased. With markets recovering and fewer new projects starting, the company sees opportunities in structured investments and pre-leased outpatient projects, like a $37 million project fully leased to HCA. It has achieved mid-double-digit earnings per share growth over the past three years and plans to continue this growth. Pete Scott reports strong third-quarter results with an FFO of $0.45 per share, AFFO of $0.41 per share, and 4.1% same-store growth. The lab segment shows strong leasing activity, a 30-basis point increase in occupancy to 95.9%, a 10% cash rent mark-to-market, 83% tenant retention, and 2.8% same-store growth.

Healthpeak has experienced strong performance and growth year-to-date, with a same-store growth of 3.3% and significant achievements in outpatient medical leasing, achieving their strongest rent mark-to-market in 60 quarters and higher tenant retention. The company also saw impressive same-store growth of 20% in CCRCs, driven by occupancy and rate growth. Financially, Healthpeak maintains a stable position with a net debt-to-EBITDA of 5.1, $3 billion in liquidity, and significant potential for acquisitions. Their recurring CapEx is modest, retaining $250 million to $300 million in earnings annually. Due to these positive developments, Healthpeak is raising its financial guidance for the third time this year, increasing its FFO and AFFO guidance by $0.01.

The paragraph discusses the company's financial and operational updates, including increased same-store guidance and expected merger synergies of $50 million in 2024. The midpoint of FFO and AFFO guidance has been raised by $0.04 each, and same-store guidance has increased by 100 basis points. Additionally, an investor presentation focusing on competitive positioning and growth drivers will be published in early November. During a Q&A session, Nick Yulico from Scotiabank inquires about leasing activities at Gateway, Vantage, and Portside. Peter Scott responds, noting a net absorption of 240,000 square feet due to new lease deals totaling 340,000 square feet minus an existing tenant footprint of 100,000 square feet. Further details on lease commencements were included in the earnings release.

The paragraph discusses the financial progress and trends in the leasing market for a certain development. Of the expected $60 million NOI (Net Operating Income) upside, the company has secured leases for over $30 million, with income expected to begin reflecting in 2025 and continuing into 2026 and 2027. This amount does not account for potential negative offsets from tenants vacating current spaces. Additionally, there's an observed increase in funding and leasing demand in the lab market, driven by recent IPO activity and strong venture capital fundraising, despite a traditionally slow IPO market. Pharmaceutical companies are also engaging in mergers and acquisitions as they face significant revenue losses due to patent expirations by 2030.

The paragraph discusses a conversation between Joshua Dennerlein from Bank of America and Scott Brinker about their strategy for deploying capital in the biotech sector. Scott explains that while they may consider buying buildings outright due to their strong balance sheet and competitive advantages, they are also exploring structured investments. These investments could provide flexibility and buy time for leasing up buildings in key submarkets, as well as offer immediate returns and long-term growth potential. The sector is improving, but not rapidly, so structured investments could be beneficial for gradual growth and leasing success.

The paragraph covers a financial discussion following a merger, highlighting improved synergies and profit margins. Scott Brinker mentions that although the 2025 guidance will be provided in early February, the merger has positively impacted the company both culturally and financially. Property-level earnings are highlighted as a major contributor to the $50 million and $10 million improvements seen in 2024. Joshua Dennerlein thanks the speakers before Austin Wurschmidt from KeyBanc Capital Markets asks about leasing trends and potential disruptions related to tenant relocations and lease expirations in 2025. Peter Scott briefly responds to Austin's inquiry.

The paragraph discusses a company's strategic approach to managing its 2025 lease expirations. They highlight that almost 40% of their expiring leases, totaling less than 800,000 square feet, are either under letters of intent (LOIs) or in advanced discussions, emphasizing tenant upsizing rather than vacating. Key points include that most of the space is leased through 2025, the current high in-place rents suggest favorable future market conditions, and the spaces are in desirable locations like South San Francisco and Torrey Pines. The company included detailed disclosures to aid forecasting and expressed confidence in re-leasing prospects. Additionally, Austin Wurschmidt and Scott Brinker discuss the company's structured investment opportunities, focusing on capital allocation and targeted returns, with an openness to potentially owning deals or exploring broader investment options.

The paragraph discusses a discussion between Austin Wurschmidt and Scott Brinker regarding their strategic approach to business projects and their financial capacity for future developments. Scott Brinker mentions that they prefer sub-markets they are currently in and that maintaining scale is advantageous. They have a balance sheet capacity of over $500 million, which could increase, and they also have an attractive outpatient development pipeline to consider. The financial returns of these projects would be accretive, but risk profiles would affect return rates. Subsequently, Vikram Malhotra's proxy, George Young, inquires about leasing activity. Scott Bohn responds, noting that 71% of leasing comes from existing tenants, with demand being driven by a diverse range of tenants in the life science industry, including both emerging and established companies.

The paragraph discusses a conversation between several individuals about the growth and dynamics within a real estate portfolio. Scott Brinker explains that tenants are expanding their square footage significantly, leading to increased net absorption in the portfolio. Peter Scott comments on tenant improvement (TI) packages, noting that while some deals have elevated TIs around $300 per square foot, the average for new and renewal deals is significantly lower. Additionally, Juan Sanabria asks about potential merger synergies, suggesting that there might be upside beyond the initially targeted $60 million if internal property management continues to outperform, but Scott Brinker indicates that more guidance on this will be provided in 2025.

The paragraph discusses the performance and strategic considerations regarding a Continuing Care Retirement Community (CCRC) business owned by the speaker's company. It highlights the CCRC's strong performance over the past 15 years, consistently outpacing rental senior housing and maintaining growth even during market overbuilding. Despite its success, the CCRC doesn't align strategically with the company's core focus on life sciences and outpatient medical sectors. While the market conditions aren't currently favorable for selling, the company is open to divesting when the timing and price are right. Meanwhile, the focus remains on growing Net Operating Income (NOI). The paragraph concludes with a shift to a new topic introduced by a question from another participant about improvements in rent and occupancy in their lab spaces.

In the paragraph, Peter Scott discusses the company's occupancy levels and expectations for the next 12 to 18 months. Currently, the fully diluted occupancy rate is around 85% and has increased slightly due to new leasing activity. The goal is to reach a low 90% stabilized occupancy, acknowledging that returning to 100% could take a long time. Additionally, he addresses rent mark-to-market opportunities, anticipating it to be closer to a 10% increase, especially with a strong fourth quarter expected. Scott Brinker adds that the company's operating portfolio and overall portfolio are in different stages, with some major redevelopment and leasing projects underway.

The paragraph discusses the performance and expectations for a real estate portfolio. The overall portfolio is operating at 85% occupancy, driving earnings, while the operating portfolio is higher at 95% due to lower frictional vacancy in life science properties compared to outpatient medical. In outpatient medical, lease executions increased by 10% last quarter, with a significant contribution from a CommonSpirit deal. Excluding this, growth was 3%-4%, and the trend is expected to continue with lease escalators pushing from 2.5% to 3%. The fundamentals in outpatient medical are strong, aiming to maintain occupancy around 92%-93%.

Rich Anderson of Wedbush asks Scott Brinker about the internalization process at Healthpeak, specifically what roles are being internalized and if any further efficiencies might be expected in the future. Scott explains that internalization involves bringing onsite property managers and property-level accountants in-house from third-party teams, focusing on minimizing execution risk with successful transitions. While leasing is sometimes handled internally, especially for big renewals, Healthpeak still relies on third-party brokers for market exposure, particularly in the life science sector.

The conversation between Rich Anderson and Scott Brinker revolves around Anderson's inquiry about the company's approach to internalizing the brokerage function and their development strategy. Brinker explains they are handling big renewals internally for outpatient medical but not beyond that. Anderson inquires about the $900 million development underway and its proportion to the company's enterprise value, asking for comfort levels regarding development size relative to the company, given market fluctuations. Brinker responds that their development threshold is usually around 5% of the total balance sheet. He highlights the difference between outpatient and life science developments, noting outpatient projects typically have lower risk due to shorter timelines and higher pre-leasing rates. Brinker concludes by saying their balance sheet is currently strong. Anderson notes that life science no longer dominates their development pipeline.

The paragraph discusses a conversation between Rich Anderson, Michael Griffin, and Peter Scott about Healthpeak's development strategy and a specific lease deal in South San Francisco. Scott Brinker of Healthpeak suggests that while medical office development has a risk profile, their near-term focus is on the outpatient business due to the exciting opportunities it presents. Michael Griffin asks about the Portside lease and whether it was marketed broadly or handled internally. Peter Scott explains that the deal was not marketed and highlights Healthpeak's strong relationship with the tenant, who is committed to staying with them. He emphasizes Healthpeak's competitive advantage in the lab market due to their strong brand and presence in prime locations.

The paragraph discusses the leasing demand dynamics in the real estate market, with Scott Bohn noting a trend towards smaller sub-30,000-square-foot deals, but also an increase in larger deals over 35,000 square feet. Michael Griffin asks about Medical Office Buildings (MOBs), noting a strong renewal quarter and questioning if the favorable market conditions allow for higher rents through increased cash-releasing spreads or larger lease escalators. Tom Klaritch responds that they've been successful with 3% lease escalators, aiming for 3.25%, and that recent mark-to-market adjustments are in the 3% to 5% range.

The paragraph discusses changes and strategies at DOC, focusing on leadership adjustments and investment activities. Michael Carroll inquires about DOC's intentions with recent leadership additions, particularly in Boston. Scott Brinker responds that these changes are a combination of internal promotions to reward strong performance and strategic hires to bolster the company's position, especially in the Boston market. He highlights the new hire's significance due to her expertise in Boston, where DOC recently bought out a joint venture partner. Brinker indicates an intention to grow in Boston, seeing opportunities despite market stress.

The paragraph involves a discussion about the timelines and challenges related to lease commencements and a lab portfolio development pipeline. Scott Brinker explains that most renewals will commence immediately, but larger leases like Portside will take longer, possibly mid-2025 or later. Derrick Metzler asks about the lab development pipeline in light of positive leasing trends. Brinker responds, stating that they have control over nearly 5 million square feet of potential life science development in core submarkets and are considering the challenges related to occupancy in existing properties and cost of capital when deciding on new projects.

The paragraph discusses the current economic challenges for starting new life science developments due to high construction costs, rental rates, and cost of capital. The company feels positive about its existing portfolio and is not planning new developments until costs decrease and conditions improve. Meanwhile, they are preparing by going through the entitlement process and creating construction drawings to cater to tenant growth when conditions are favorable. They are also exploring market distress opportunities for cost-effective growth. Despite potential new supply challenges, their portfolio has remained strong, and overall market conditions appear to be improving.

The paragraph discusses the current and future state of the market in which Healthpeak operates. The speaker acknowledges that growth may be slower than desired but highlights positive market share capture and an improving fundraising environment, particularly in venture capital. They note a significant reduction in supply compared to a year ago and anticipate further declines, eventually leading to zero. This market condition benefits landlords like Healthpeak over the next three to five years. The discussion also touches on the pharmaceutical industry's dynamics, emphasizing the continuous need for innovative drugs developed by biotechs and expressing confidence in the industry's long-term outlook. Derrick Metzler appreciates the response, and the operator introduces the next question from Wes Golladay, who asks about the timing of recovery concerning landlords with the financial means for tenant improvements.

The paragraph discusses leasing challenges in different real estate sub-markets. Scott Brinker explains that projects in core sub-markets will lease faster, benefiting large incumbent landlords who can gain market share. In contrast, those who developed in new sub-markets without existing tenant relationships are struggling and may continue to do so. Some planned projects for life science have stalled or remain vacant, partly due to market overestimations followed by a period of underappreciation in the life sciences sector. Scott also hints at opportunities amid these challenges. Wes Golladay asks about changes in the tenant watch list for outpatient medical and lab spaces since the start of the year, but Scott does not yet respond.

The paragraph involves a conversation between John Pawlowski from Green Street and Peter Scott regarding real estate leases. Scott mentions that, typically, for every year of a lease term, about one month of free rent is offered, which is consistent with previous statements and applies especially to larger new developments. This trend has stabilized over the past year after increasing from previous years. Pawlowski inquires about the expected growth in net operating income (NOI) for labs, noting a sequential decline in a recent quarter, potentially due to free rent concessions. Scott acknowledges that free rent can impact quarterly results, implying it has contributed to the sluggish NOI growth rebound in the second half of the year.

The paragraph discusses the positive performance of a business in terms of its same-store growth, which has exceeded initial expectations, reaching 3.1% year-to-date compared to the anticipated 1.5% to 3%. Scott Brinker mentions that while same-store NOI is a lagging and sometimes misleading indicator, other key metrics like releasing spreads, occupancy, and the watch list are trending positively, driving earnings. Peter Scott notes that occupancy increased from Q2 to Q3, a positive trend despite some impact from free rent. There is a discussion about leasing plans for 2025, specifically regarding 320,000 square feet, with questions about capital expenditure and expected yields, but specific financial details are not provided.

The paragraph discusses a strategy for upgrading older buildings within a real estate portfolio, particularly those used by biotech tenants. The speaker highlights that rather than viewing the age and upcoming lease expirations as challenges, they see them as opportunities to invest in and improve these properties. They express confidence in re-leasing these core market buildings with some capital investment, noting the buildings' advantageous positions. The conversation also touches on ongoing assessments for redevelopment within their 50 million square foot portfolio, with a focus on evaluating and prioritizing potential projects over the next few years.

The paragraph features a conversation during an earnings call discussing outpatient medical development. Scott Brinker explains that their projects are primarily 70% or more pre-leased, often seeing complete build-to-suit opportunities, such as a recent project with HCA. They target yields of over 7% given current capital costs and could expand their pipeline if they reduced return thresholds. However, many health systems want to expand outpatient services, with rental rates influencing which projects proceed. The paragraph ends with brief closing remarks thanking the team and audience.

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