HEALTHPEAK PROPERTIES, INC. quarterly report, Q3 FY2022

Healthpeak Properties, Inc. — Q3 2022 Form 10-Q

Reporting period: Three and nine months ended September 30, 2022; unaudited. Healthpeak is a U.S. healthcare REIT focused on life science, medical office, and continuing care retirement community (CCRC) properties. Its portfolio included 480 properties, including interests in unconsolidated joint ventures. Senior housing triple-net and SHOP dispositions were completed in 2021 and are reported as discontinued operations.

Financial and operating performance

Metric	Q3 2022	Q3 2021	Nine months 2022	Nine months 2021
Total revenue	$520.4 million	$481.5 million	$1,536.7 million	$1,413.0 million
Net income applicable to common shares	$353.4 million	$54.4 million	$491.4 million	$473.8 million
Diluted EPS	$0.65	$0.10	$0.91	$0.88
FFO as Adjusted, diluted per share	$0.43	$0.40	$1.30	$1.20
Operating cash flow	Not separately provided for the quarter	$693.3 million	$571.3 million

Q3 revenue rose about 8% year over year, led by rental revenue. Q3 GAAP earnings included a $311.4 million gain from selling a 30% interest in seven South San Francisco life science assets and deconsolidating them. Thus, the sharp increase in quarterly net income and EPS does not solely reflect recurring operations. Diluted FFO as Adjusted per share, a non-GAAP measure, increased to $0.43 from $0.40.

For the first nine months, revenue increased about 9%. GAAP net income applicable to common shares increased modestly, while diluted FFO as Adjusted per share rose to $1.30 from $1.20. Prior-year comparisons include substantial senior housing disposal gains and a $225.8 million debt-extinguishment loss; 2022 includes the South San Francisco gain and a $23 million gain on sale of a hospital previously classified as a direct financing lease.

Q3 total portfolio Adjusted NOI, a non-GAAP measure, was $275.4 million versus $257.3 million. Same-store Adjusted NOI increased 5.4% in life science, 4.9% in medical office, and 4.1% in CCRC. Management cited rent escalations, leasing and occupancy gains, and higher resident rates; CCRC gains were partly offset by higher labor, utility, and maintenance costs. End-period occupancy was 99.0% in the life science total portfolio, 90.0% in medical office, and average CCRC occupancy was 82.0%.

Balance sheet, debt, and liquidity

At September 30, 2022, total assets were $15.66 billion, total liabilities $8.54 billion, and total equity $7.00 billion.
Carrying value of debt was approximately $6.59 billion: $1.59 billion of commercial paper, $4.66 billion of senior unsecured notes, and $348.0 million of mortgage debt. Commercial paper carried a 3.41% weighted-average rate and approximately 42-day original maturities. Senior notes had a 3.39% weighted-average effective rate; mortgage debt had a 4.35% weighted-average effective rate.
Cash and cash equivalents were $112.5 million, with $54.5 million of restricted cash. The $3.0 billion revolving facility had no amount drawn at quarter-end and backstops the commercial paper program. Management reported compliance with debt covenants.
Approximately 76% of consolidated debt was fixed-rate at quarter-end. Management estimated a 100-basis-point increase in rates would raise annual interest expense by approximately $16 million, assuming debt balances otherwise unchanged.
In October 2022, the company drew the full $500 million available under its delayed-draw term loan facilities and used the proceeds to repay commercial paper. The loans were effectively fixed at a 3.76% rate as of October 31, 2022.
Nine-month investing cash flow was negative $578.1 million, principally reflecting $776.0 million for acquisitions and development/redevelopment, partly offset by property-sale and other proceeds. Financing cash flow was negative $165.5 million, including $487.0 million of common dividends and $67.6 million of share repurchases.
The company declared and paid $0.30 per share quarterly dividends. A further $0.30 dividend was declared after quarter-end, payable November 18, 2022.

Changes, outlook, risks, and unusual items

Healthpeak sold a 30% interest in seven South San Francisco life science assets for $126 million, retained a 70% joint venture interest, and recorded the $311.4 million deconsolidation gain. The transaction also created an opportunity to sell interests in certain future development projects to the partner.
Acquisitions included life science properties for $96 million and medical office properties for $69 million. Development and redevelopment commitments were $421 million at quarter-end; management reported five life science and one medical office development projects in process, with estimated costs of approximately $1.03 billion and $33 million, respectively.
Management said operating cash flow, available cash, and financing sources should cover operating needs, debt service, distributions, and planned capital needs for the next 12 months and foreseeable future. This is forward-looking and depends on access to capital, operating performance, and market conditions.
Macroeconomic risks include higher interest rates and inflation, rising construction costs, labor shortages, supply-chain delays, and possible pressure on tenants’ and operators’ ability to meet obligations. Management noted ongoing uncertainty from COVID-related effects, particularly in CCRC and senior housing joint venture operations.
Hurricane-related casualty charges affected Q3 results. Loan-loss reserves increased, which management attributed primarily to macroeconomic conditions. The company also recorded $14 million of tenant relocation and related demolition costs during the first half of 2022.
After quarter-end, the CEO stepped down effective October 6 and the Chief Legal Officer and General Counsel stepped down effective November 1. The company expects approximately $30 million of severance-related charges in Q4 2022.
Development, redevelopment, and tenant-improvement commitments were $421 million; additional seller-financing commitments for senior housing projects were $41 million. Redeemable noncontrolling interests totaled $127.6 million, with none meeting redemption conditions at quarter-end. Certain put options are expected to become exercisable from Q4 2022 through 2024.
Management reported no legal proceedings believed likely to have a material adverse effect. CARES Act grant receipts are subject to compliance conditions and potential recapture; the company stated it believed it had complied and would continue to comply.

Most important facts for investors to verify

How much of reported earnings and future comparisons depend on the South San Francisco deconsolidation gain and other property-sale gains, versus recurring property operations.
Quarterly and year-to-date trends in same-store NOI, occupancy, rent growth, and CCRC operating costs, alongside the company’s non-GAAP reconciliations.
Post-quarter debt levels after the $500 million term-loan draw, commercial paper repayment, borrowing costs, and continued covenant compliance.
Funding and expected returns for the development pipeline amid construction inflation, labor constraints, and supply-chain delays.
Whether cash generation and financing access remain sufficient to fund dividends, development commitments, debt maturities, and the announced repurchase program.
The amount and timing of Q4 severance costs, casualty-related recovery or losses, and any changes in loan-loss reserves or borrower credit quality.