Healthpeak Properties, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Healthpeak is a U.S. healthcare real estate REIT. After completing its senior housing triple-net and senior housing operating property (SHOP) portfolio sales in September 2021, it focused on life science, medical office, and continuing care retirement community (CCRC) properties. Its portfolio, including unconsolidated joint ventures, contained 484 properties at year-end.
Financial performance and position
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue from continuing operations | $1.896 billion | $1.645 billion |
| Net income applicable to common shares | $502.3 million; $0.93 per diluted share | $411.1 million; $0.77 per diluted share |
| Income from continuing operations | $137.7 million | $160.5 million |
| Income from discontinued operations | $388.2 million | $267.7 million |
| Net cash provided by operating activities | $795.2 million | $758.4 million |
| Nareit FFO | $604.7 million; $1.12 per diluted share | $693.4 million; $1.30 per diluted share |
| FFO as Adjusted | $870.6 million; $1.61 per diluted share | $874.2 million; $1.64 per diluted share |
| AFFO | $727.9 million | $772.7 million |
- Continuing-operations revenue growth reflected acquisitions, development deliveries, and leasing. Total Portfolio Adjusted NOI was $1.030 billion: life science $503.9 million, medical office $413.2 million, CCRC $95.6 million, and other $17.5 million. This portfolio measure includes disposed properties through their sale dates.
- Same-Store Adjusted NOI rose 7.2% in life science and 3.1% in medical office, but fell 17.1% in CCRC. Average occupancy was 96.9% in life science, 90.0% in medical office, and 79.1% in CCRC.
- Cash and cash equivalents were $158.3 million at year-end; restricted cash was $53.5 million. Total debt was approximately $6.2 billion and total equity $7.1 billion. About 79% of consolidated debt was fixed-rate, versus 94% in 2020. Fixed- and variable-rate debt weighted-average interest rates were 3.40% and 0.59%, respectively.
- Operating cash flow increased by $36.8 million. Investing activities provided $531.0 million, principally reflecting $2.8 billion in net proceeds from property sales and loan sales or repayments, offset by $2.2 billion of real estate investment. Financing activities used $1.289 billion, including $650.1 million of common dividends and substantial net debt repayments.
- The filing does not present a single consolidated operating-margin figure. NOI, Adjusted NOI, FFO, FFO as Adjusted, and AFFO are non-GAAP measures and should not be treated as substitutes for GAAP earnings or cash flow.
Material changes and notable items
- The senior housing triple-net and SHOP exit was completed in September 2021; results are presented as discontinued operations. Discontinued operations contributed $388.2 million of income, including substantial disposition gains, so reported common-share earnings do not solely reflect ongoing operations.
- Healthpeak acquired medical office and life science assets and land, while selling senior housing assets, 10 MOBs and part of an MOB land parcel, and one hospital. The hospital sale generated a $172 million gain.
- The company issued $450 million of 1.35% green notes due 2027 and $500 million of 2.125% green notes due 2028; repurchased or redeemed several older notes and repaid its $250 million term loan. The resulting 2021 debt-extinguishment loss was $225.8 million.
- Net income increased, but continuing-operations income declined. Nareit FFO decreased 12.8% and AFFO decreased 5.8%; FFO as Adjusted was nearly flat year over year.
- Common dividends were $1.20 per share in 2021, down from $1.48 in 2020. The Board declared a $0.30 quarterly dividend in January 2022.
- A change in estimated useful lives for certain life science properties increased 2021 depreciation expense by $30 million and reduced earnings per share by approximately $0.06. The company also recorded a $29 million goodwill impairment related to the senior housing dispositions.
Outlook, risks, and contingencies
- Management stated it expected operating cash flow, cash balances, and financing sources to cover operating expenses, debt service, dividends, and other needs for the next 12 months and foreseeable future. As of February 7, 2022, it reported approximately $2.2 billion of liquidity, including $1.81 billion of revolver capacity, $313 million of expected net proceeds from unsettled ATM forward contracts, and approximately $117 million of cash.
- No specific earnings or operating guidance is provided in the supplied filing text. Management expected elevated Covid-related health, staffing, compliance, and other costs to persist and potentially pressure margins. CCRC and joint-venture senior housing occupancy remained below 2019 levels.
- Key exposures include pandemic-related occupancy and labor pressures; tenant, operator, and borrower credit risk; healthcare regulation and reimbursement changes; life science tenant funding and industry risks; development costs and delays; and interest rates, refinancing, access to capital, and debt covenants.
- Geographic concentrations include California, representing 34% of total assets and 28% of revenue, and Florida, representing 11% of assets and 17% of revenue. Natural-disaster and insurance risks are notable in California and Florida.
- Year-end commitments included $386.6 million for development and redevelopment, $82.6 million for lease and other contractual commitments, and $57.9 million of construction loan commitments. Future interest payments on debt were $1.4 billion, including $162 million payable within 12 months.
- Management reported no known legal proceedings expected to have a material adverse effect. The financial statement audit and internal-control audit received unqualified opinions; the identified critical audit matter concerned real estate impairment estimates.
Important facts for investors to verify
- How much of 2021 GAAP net income and cash flow came from one-time gains and discontinued senior housing operations, versus recurring continuing operations.
- Whether CCRC occupancy and operating costs recover, and how those trends affect RIDEA cash flows and margins.
- The credit quality, repayment terms, and collateral for seller-financed loans, including the outstanding senior housing loans.
- Development project costs, leasing progress, and expected returns on the eight life science projects with estimated costs of $1.5 billion.
- Debt maturities, commercial paper refinancing arrangements, fixed-versus-floating exposure, and compliance with financial covenants.
- The sustainability of the $0.30 quarterly dividend against recurring cash generation and capital requirements.