Healthpeak Properties, Inc. — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Healthpeak is a U.S. healthcare real estate REIT. Its continuing reportable segments are life science, medical office, and continuing care retirement communities (CCRCs).
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $481.5 million | $423.6 million | $1,413.0 million | $1,213.2 million |
| Income from continuing operations | $61.3 million | Loss of $27.8 million | $108.8 million | $179.7 million |
| Net income applicable to common shares | $54.4 million | Loss of $63.8 million | $473.8 million | $265.0 million |
| Diluted EPS | $0.10 | Loss of $0.12 | $0.88 | $0.50 |
| Nareit FFO | $194.9 million | $164.6 million | $384.9 million | $518.5 million |
| FFO as Adjusted | $217.5 million | $213.5 million | $650.2 million | $655.3 million |
| AFFO | $179.7 million | $183.8 million | $553.6 million | $583.3 million |
Q3 revenue increased about 14% year over year. Total portfolio Adjusted NOI was $257.3 million, up from $227.8 million. Same-store Adjusted NOI grew 6.8% in life science and 2.9% in medical office, but declined 9.0% in CCRC. Q3 CCRC occupancy was 79.5%; medical office occupancy was 91.9% on a same-store basis.
Nine-month GAAP net income included substantial gains from property sales, mainly in discontinued senior housing operations. The company reported $384.6 million of discontinued-operations income for the period, including disposition gains. Accordingly, the higher GAAP earnings do not indicate a comparable increase in recurring operating earnings; nine-month FFO and AFFO were lower year over year.
Cash flow, debt, and liquidity
- For the first nine months, operating cash flow was $571.3 million, investing cash flow was positive $1.204 billion, and financing cash flow was negative $1.688 billion. Investing inflows primarily reflected real estate sales and loan repayments; financing outflows included debt repayments and $488.1 million of common dividends.
- At September 30, cash and cash equivalents were $201.1 million and restricted cash was $53.7 million. Total assets were $14.744 billion and total equity was $7.219 billion.
- Reported debt carrying values totaled approximately $5.538 billion: $1.024 billion of commercial paper, $4.158 billion of senior notes, and $356.6 million of mortgage debt. The $250 million term loan was repaid in July. Approximately 79% of consolidated debt was fixed rate; weighted-average rates were 3.52% on fixed-rate debt and 0.52% on variable-rate debt.
- The company repurchased or redeemed senior notes during 2021, issued $450 million of 1.35% green notes due 2027, and increased its revolving credit commitments to $3.0 billion, extending maturity to January 2026. Commercial paper had a 0.22% weighted-average rate and approximately one-month original maturities.
- Management reported approximately $2.1 billion of liquidity as of November 1, 2021, including $1.65 billion of revolver borrowing capacity, approximately $124 million of cash, and an estimated $319 million of proceeds from future settlement of ATM forward shares. The company said it expected cash flows, cash balances, and financing sources to meet needs for at least 12 months.
Material changes, outlook, and risks
- Healthpeak completed the disposition of its remaining senior housing triple-net and SHOP properties in September 2021, a strategic shift that reduced exposure to senior housing and left life science, medical office, and CCRC as its core reporting segments. At quarter-end, the continuing portfolio included interests in 480 properties.
- Acquisitions and development continued, including a $180 million life science campus acquisition in Cambridge. At September 30, development commitments were $395 million; projects in process included seven life science developments with estimated total costs of about $1.2 billion and five medical office developments estimated at $122 million.
- Management cited strong life science and medical office same-store performance, supported by rent escalations, leasing, and renewals. CCRC results remained pressured by lower occupancy, reduced government grants, and higher labor costs, partly offset by increased resident rates and lower COVID-related expenses.
- COVID-19 impacts remain uncertain. Management warned that staffing shortages, wage increases, regulation, and other operating costs may persist and pressure tenant and operator margins; future rent collectibility and the timing of occupancy recovery are uncertain.
- Unusual items included $225.8 million of nine-month losses on debt extinguishments; $408.7 million of gains on sales of real estate in discontinued operations; and $29 million of goodwill impairment related to the exited senior housing portfolios. Revised useful-life estimates for certain life science properties increased depreciation by $22 million over nine months, reducing EPS by about $0.04.
- The company declared a $0.30-per-share quarterly dividend, also announced after quarter-end for payment in November. It had 9.1 million shares outstanding under ATM forward contracts at quarter-end, which may result in future share issuance and dilution.
- Management stated that it was in compliance with debt covenants. The filing reported no known legal proceedings expected to have a material adverse effect and no material changes to previously disclosed risk factors.
Key facts for investors to verify
- Recurring earnings and cash available for dividends, distinguishing continuing operations and FFO/AFFO from disposition-related gains.
- CCRC occupancy, labor-cost trends, resident fee growth, and exposure to any renewed COVID-related disruption.
- Commercial paper refinancing and liquidity, including actual revolver availability and ATM forward settlement or share dilution.
- Execution, cost, and leasing progress on the development pipeline and the $395 million of commitments.
- Whether senior housing seller-financing loans and remaining funding commitments perform as expected.