In the opening paragraph of Healthpeak Properties, Inc.'s Fourth Quarter Conference Call, the operator introduces the event and hands over to Andrew Johns, Senior Vice President of Investor Relations. Andrew provides an overview, noting that the call will discuss forward-looking statements that carry risks and uncertainties, with details available in their SEC filings. He mentions that non-GAAP financial measures will be addressed, with reconciliations provided in an exhibit on their website. Andrew then introduces Scott Brinker, the company's President and CEO, who expresses gratitude for the team's operational achievements in 2024, particularly in merger integration and senior housing operations, and states confidence in the company's future prospects.

The company has achieved significant earnings growth, with FFO per share increasing by 12% and AFFO per share by 19% over the past three years. This growth supports a recent dividend increase, now paid monthly, reinforcing its conservative AFFO payout strategy and highlighting the stock's value potential, given its 6% dividend yield and strong real estate assets. Following a successful merger with Physicians Realty, which enhanced earnings and demonstrated execution capability, the company plans to internalize property management in 2025 to benefit strategically and financially. It also closed $1.3 billion in asset sales in 2024, strengthening its balance sheet. Looking forward, the company sees 2025 as a strategic opportunity, especially in life sciences, due to current liquidity shortages.

The paragraph discusses Healthpeak's strategic approach in the life science sector, emphasizing its competitive advantage and conservative outlook in recent years. With the decline in new development and distressed market conditions, Healthpeak sees an opportunity to leverage its platform for loan investments, emphasizing accretion, seniority, and acquisition rights. The company highlighted a $75 million loan for a building in San Diego, demonstrating its targeted investment strategy. In the outpatient medical sector, Healthpeak's health system-driven approach leads to growth and opportunities, as exemplified by a $36 million loan for a preleased development in Dallas. The company's pipeline for similar projects exceeds $300 million. Additionally, Healthpeak's senior housing strategy has minimized refundable entry fees to residents in its CCRC portfolio.

The paragraph highlights a strategic shift in a company's approach to their Continuing Care Retirement Communities (CCRCs), focusing on offering low-entry fees with lower refundability, making them more akin to rental senior housing. This strategy has led to record sales and cash flow, although the properties have drawn interest from buyers, they are not for sale currently. The company emphasizes its strong succession planning with recent leadership promotions: Kelvin Moses to Executive VP of Investments and Portfolio Management, Tracy Porter to EVP and General Counsel, and Mark Theine leading the outpatient medical business. These changes are part of a broader effort to maintain flexibility and control over their portfolio.

Tom and Jeff have transitioned to consulting roles to ensure a smooth transition until the year's end, and the team thanks them for their contributions. Tracy, Kelvin, and Mark have been congratulated for taking on more significant roles aligned with the company's core values. Pete Scott reports strong year-end financial outcomes, exceeding expectations with adjusted FFO of $1.81 per share and AFFO of $1.60 per share. The company achieved impressive same-store growth, higher merger synergies, and successful lease renewals. The balance sheet is robust, with a net debt to EBITDA of 5.2 times. The Outpatient Medical segment saw year-over-year growth of 3.2%, and the Lab segment grew by 5%, both exceeding expectations.

The paragraph discusses the company's strong performance, particularly in its lab segment, which has seen a 20.8% year-over-year same-store growth due to competitive advantages like scale, team quality, and market positioning. Starting in Q1 2025, the company will report AFFO to better reflect cash flow. For 2025, the company forecasts adjusted FFO of $1.81 to $1.87 per share with same-store growth expected between 3% and 4%, driven by outpatient medical, labs, and CCRCs. A planned $500 million investment with an 8% yield is included, alongside a $600 million capital spend focused on development and redevelopment. The company anticipates a $15 million increase in interest expenses due to refinancing and investments. Overall, there is significant progress in leasing marquee development and redevelopment projects.

In the paragraph, the speaker provides an update on leasing activity and financial guidance. Over 370,000 square feet of leases have been signed, filling more than 50% of their projects and representing around half of the projected $60 million NOI upside, but earnings will be delayed. The 2025 guidance excludes potential earnings from leases that are signed but not yet occupied, with benefits expected in late 2025. During the Q&A session, an analyst inquires about the company's plans for using its substantial financial resources, ranging from $500 million to $1 billion, for acquisitions. Peter Scott responds, indicating they have included $500 million in investment guidance, reflecting confidence in their pipeline and balance sheet capacity, mentioning recent loans in Torrey Pines and Dallas with an expected midyear deployment. He notes that they have capacity for additional investments if opportunities arise as industry activity continues.

The paragraph discusses the outlook on mergers and acquisitions (M&A) in the life sciences sector and its effects on demand and client types for buildings. Scott Brinker notes that M&A activity has been quiet in recent years due to challenges with FTC approval, but a significant change is likely, with some smaller transactions occurring. He expects M&A activity to increase, which he views positively for the sector through tenant credit upgrades and capital recycling. Additionally, the conversation shifts to lab leasing, where Nick Yulico from Deutsche Bank inquires about the current pipeline and leasing progress at specific sites. Scott Brinker mentions a successful 2024 with over 2 million square feet leased and indicates that Scott Bohn can provide further details.

The paragraph discusses the company's current progress and outlook regarding leasing and merger synergies. They have over 300,000 square feet under letters of intent (LOI) and are seeing strong momentum in leasing activities, primarily fueled by increased capital raising in the biotech sector. Half of a projected $60 million cash upside has been realized, with benefits expected to materialize next year. Nick Yulico inquires about merger synergies, to which Scott Brinker responds that the merger increased earnings by $0.05 to $0.07 last year. The company internalized nearly 20 million square feet, contributing significantly to $50 million in synergies, with plans to internalize an additional 8 million square feet by 2025. They project run rate synergies to increase to $65 million, though not all benefits will reflect in 2025.

The paragraph discusses a Q&A session involving investments and financial strategies for 2025. Scott Brinker addresses questions about a $500 million investment plan, detailing that investments include three to four-year loans with varying sector mixes. In the outpatient business, investments are development opportunities, whereas life sciences involve more distressed assets. Juan Sanabria seeks further details on lab same-store NOI projections, to which Peter Scott responds that the primary driver will be a 5% to 10% rent mark-to-market adjustment.

The paragraph discusses the current and projected occupancy levels within a store pool, highlighting that the current same-store occupancy is at a high level of 97%-98%. The focus is on increasing total occupancy from the mid-to-high 80s to the low 90s, with around 1.3 million square feet of available space to lease. The expectation is to lease about half of that space to achieve a low 90% stabilized occupancy. In the medium to long term, there is potential for further improvement if the market conditions improve. The discussion then shifts to the concern raised by Austin Wurschmidt about the deceleration of growth from over 5% in the fourth quarter to mid-3% in 2025, asking if any one-time factors caused the previous high growth. Scott Brinker responds, indicating that growth figures can vary quarterly and offers a comparison between the 5.4% growth finished last year and the 3.5% growth guided for this year.

The paragraph discusses the financial guidance and performance expectations for the year, highlighting a 4% to 8% growth target for CCRCs, compared to over 20% achieved last year. It also indicates a 3% to 4% growth target in labs and 2.5% to 3.5% in outpatient medical, excluding previous one-time benefits. Austin Wurschmidt inquires about the higher mark-to-market gains in the lab sector this quarter and the increase in tenant improvements (TIs) and leasing costs (LCs). Scott Bohn explains the quarterly variations, mentioning a significant lease in San Diego and one in San Francisco that influenced the numbers. Despite an uptick to 30% this quarter, the overall growth aligns with the expected 5% to 10% mark-to-market target for this year and 2025.

The paragraph discusses a shift in a tenant's space requirements at their global headquarters, moving from a predominantly office space to incorporating more lab space. This change led to long-term lease renewals in San Francisco and San Diego. The discussion highlights the opportunity to accommodate this shift without losing capital, as improvements would have been necessary regardless. Additionally, a mark-to-market increase of 27% on the San Francisco lease was achieved. In a conversation with Nick Joseph from Citigroup, it's noted that there is a trend towards larger space requirements in the lab leasing market, with an increase in average lease size seen in recent quarters and two significant leases completed last quarter.

The paragraph is a discussion between analysts and executives about projected financial guidance and the impact of leverage ratios on it. An executive, Peter Scott, explains that with the current leverage ratio of 5.2 times net debt-to-EBITDA, using $500 million in capital wouldn't raise the ratio back to 5.5 times, which is considered a target. The company's guidance range is between 181 to 187, with the midpoint indicating careful capital use without exceeding optimal leverage ratios. Richard Anderson, an analyst, appreciates the provided detail, noting the nuanced difference between the lower and higher ends of the guidance. The company plans to be cautious in managing its leverage if trying to reach the upper end of guidance.

The paragraph is a conversation between Richard Anderson and Scott Brinker regarding their investment strategy amidst current interest rate volatility and uncertainties. They aim to maintain leverage at target levels and discuss the potential impact of investments on meeting financial guidance. Anderson inquires about inbound interest in Continuing Care Retirement Communities (CCRCs) and whether there's a narrowing bid-ask spread that could lead to a sale; however, Brinker states that the community is performing well and will be held for the foreseeable future, with no recent conversations about offers. The operator then introduces the next question from Michael Carroll regarding structured Life Science investments, emphasizing the importance of the sponsor for prospective tenants.

In the paragraph, Scott Brinker discusses the approach of DOC towards managing properties where they have made loans. He mentions that each loan situation is unique and highlights the example of a loan in Torrey Pines, where DOC's involvement is passive, providing capital but not significantly affecting tenant perception. He explains that their investment risk is low due to a solid financial basis and mentions the potential for future acquisition of the property under favorable capital conditions. Additionally, Brinker elaborates on purchase options associated with these loans, noting they vary but are strategically centered in areas where DOC already has a presence, with options sometimes being at market value or involving different financial instruments. Michael Carroll and Mike Mueller from JPMorgan are also part of the conversation, asking questions about these arrangements.

The paragraph features a discussion between Scott Brinker and Mike Mueller about the company's plans for development and investment in outpatient medical projects. Brinker indicates a significant pipeline with potential starts of $200 million to $300 million worth of projects, all highly preleased in core markets. These developments are seen as strategic, with long-term leases and strong health systems involved. Brinker emphasizes the company's focus on having capital available for these investments, including a project with McKesson in Dallas. Regarding investments, Brinker mentions evaluating both acquisitions and incremental debt investments, leaning towards loans with options to purchase due to pricing challenges. Mike Mueller then asks for more detail on AFFO guidelines, and Brinker responds about the benefits of less granular information, noting specific components like straight line, TI, and CapEx that are sometimes helpful for understanding the AFFO guide.

Peter Scott addresses a question from Jim about changes in Healthpeak's financial reporting. He explains that they simplified their guidance by providing a single number instead of a range to make it easier to understand, and they included same-store components in a footnote rather than breaking them out separately. Regarding Adjusted Funds From Operations (AFFO), Scott mentions that they previously included it in their guidance due to numerous merger adjustments but chose not to include it this year to align with industry practices. They modified the AFFO definition to include cash and other items, projecting $1.65 at the midpoint for 2025 under the new definition, slightly higher than under the old one. He also touches on differences in AFFO and FFO growth, noting lumpier items like recurring CapEx and free rent, with expectations for AFFO growth to decelerate after a strong previous year.

The paragraph consists of a discussion involving Peter Scott, Jim Kammert, and an operator. They touch upon the financial implications of insurance-related costs following the Milton-related charges in the fourth quarter. Peter Scott clarifies that a portion of costs, specifically related to high deductibles in the insurance market, particularly in challenging states like Florida and California, will need to be incurred without insurance recovery. However, insurance coverage will assist when costs exceed deductibles. These expenses are within a broader $600 million budget for development, redevelopment, and capital expenditures for the year. The paragraph concludes with a transition to questions from Vikram Malhotra, who seeks more information on structured investments and recent deals in the context of the market and cap rates.

In the discussion, Scott Brinker addresses the investment strategy focused on long-term asset ownership in core submarkets, noting that many developments don't make it to their pipeline. Despite stock volatility, they are prepared to buy back stock if necessary, leveraging their balance sheet. They aim to grow earnings and build a strategic pipeline, with significant opportunities in Life Science. In response to Vikram Malhotra's inquiry about earnings, Brinker highlights that despite challenges over the last three years, including interest rates and Life Science fundamentals, they achieved FFO growth of 12% and AFFO growth of 19%. He anticipates stronger growth if macroeconomic conditions improve.

The paragraph discusses the company's financial performance and leasing activity. The company has a history of exceeding expectations, and its investments contribute to growth alongside same-store improvements. A significant source of internal growth is from leasing up its development and redevelopment portfolio. Peter Scott acknowledges a question about 2026 guidance and confirms that the 45% mark-to-market on a substantial lease was in line with expectations set earlier in the year. He highlights that while quarterly numbers can vary, the annual figures give a more accurate picture of performance. The company is pleased with the mark-to-market achievements, including a successful lease renewal in South San Francisco with a high-quality tenant, avoiding downtime despite higher tenant improvement costs.

The paragraph discusses the impact of redevelopment and development activities on earnings, particularly focusing on the year-over-year earnings dilution expected in 2025. Peter Scott notes that redevelopment has been a drag on earnings due to increased expenses and interest, but emphasizes the success in leasing these redeveloped properties, with some projects being 100% pre-leased. New disclosures about pre-leased percentages have been added. Scott is optimistic about the long-term financial returns of these redevelopments. Additionally, in response to a question from Omotayo Okusanya, Scott confirms that there are additional merger-related synergies expected beyond the $50 million already accounted for in the 2025 guidance.

The paragraph discusses the financial outlook and strategy of a company, detailing expected merger synergies and loan repayments. The company anticipates achieving a higher revenue run rate by year-end due to direct merger synergies, offering a minor earnings benefit. Indirect synergies, like increased rent and retention, may provide additional benefits. In response to a question about loan repayments affecting earnings due to high-interest rates, Peter Scott mentions the company's significant outstanding loan tied to a past outpatient medical deal, which is not expected to be repaid this year, despite hopes for future repayment. The loans, tied to legacy senior housing assets, posed challenges and caused dilution upon repayment, but ultimately, their repayment was viewed positively.

The paragraph features a discussion about NIH funding and its significance, noting it has grown by 5-6% annually over the past decade, reaching around $50 billion in 2024. It highlights the importance of this funding for health and national security, with the current administration emphasizing innovation and deregulation, which could positively impact the health care and biotech sectors by potentially shortening the lengthy drug approval process. The potential impact of RFK Jr. is also mentioned, but the focus remains on traditional appointments to key positions such as CMS, NIH, CDC, FTC, and FDA, which are seen as favorable for the business despite any headline risks associated with RFK Jr.

The paragraph discusses the outlook on pricing power and occupancy rates for a business managed by John Kilichowski, Peter Scott, and Scott Bohn. Currently, their portfolio is 80-90% leased, providing opportunities to increase pricing, especially with existing tenants. They note that the competition has remained consistent over the past 18-24 months, and their competitive edge lies in their scale and internal leasing within their own campuses. Despite significant availability in the market, they believe they can successfully push rates gradually by capitalizing on their portfolio's competitive advantages.

Scott Brinker explains that their leasing strategy focuses on growing tenants within specific campuses, allowing them to leverage better economics compared to broadly marketed deals. He mentions that they do not lease space directly to the NIH, as their portfolio targets later-stage research that is closer to commercialization. In response to Mason Guell's questions, Brinker notes no significant change in demand pre and post-election but anticipates improved sentiment now that elections are resolved. He provides a market update, highlighting that Boston is currently slow, but they have minimal exposure there in terms of rollover and vacancies. In contrast, San Diego shows healthy leasing activity, and San Francisco benefits from their portfolio scale allowing off-market deals.

The paragraph is a discussion between Mason Guell, Scott Bohn, Ronald Kamdem, and Peter Scott about the demand and expansion in the leasing pipeline, specifically in San Francisco. Scott Bohn highlights that of the 1.1 million square feet leased during the year, 400,000 square feet were from tenants expanding, with an average growth rate of 60% for these tenants. Ronald Kamdem inquires about delays in occupancy dates and the exclusion of CapEx for unleased space in redevelopment projects. Peter Scott responds by attributing delays to tenant improvement (TI) adjustments and confirms that despite delays, spaces like Portside are 100% pre-leased. He mentions that existing leases will continue to offset any delays, ensuring ongoing rent payments.

The paragraph discusses the variability in tenant improvement (TI) costs for projects, which can range from $100 to $350 per square foot, depending on the specifics of the lease and tenant requirements. It also mentions expectations for returns on these investments, with anticipated cash-on-cash returns of 9% to 12%. Additionally, there is a delay in one development deal due to tenant-related issues, affecting the timing of financial reporting. Finally, the discussion shifts to lab leasing, with questions about whether the approach is driven by market improvements or opportunistic opportunities, indicating a potential positive outlook on lab investments.

Scott Brinker discusses their successful leasing activity in the Life Science sector for 2024, noting it as one of their best years, with over 2 million square feet leased through new and renewal agreements. Despite market distress, they strategically select compelling projects with minimal downside risk and potential future purchase opportunities. Brinker anticipates improved fundamentals, projecting a 75% decline in new deliveries by 2025, alongside a lack of new starts. He foresees an improved supply and demand balance by 2026 and 2027. Jamie Feldman then inquires about their appetite for larger ventures with third-party capital, considering market stabilization and future potential. Peter Scott acknowledges the possibility, mentioning the involvement of significant institutional limited partners open to more opportunities.

The paragraph discusses the use of an additional source of capital, noting that while it can be beneficial for the right opportunities, it also entails a loss of control and flexibility. The speaker mentions that this approach has been used successfully in the past under suitable circumstances. However, the current focus is more on utilizing the balance sheet. The conversation wraps up with Scott Brinker thanking everyone for their time, congratulating the team on a strong quarter, and ending the conference.

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