Healthpeak Properties, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Healthpeak is a healthcare-focused REIT with outpatient medical, lab, and continuing care retirement community (CCRC) properties. The quarter includes the Physicians Realty Trust merger, completed March 1, 2024; consequently, reported results include the acquired company’s operations only from the closing date.
Key financial results
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $606.6 million | $525.7 million | +15.4% |
| Net income attributable to Healthpeak | $6.7 million | $119.0 million | Down $112.3 million |
| Net income applicable to common shares | $6.5 million | $117.7 million | Down $111.2 million |
| Basic and diluted EPS | $0.01 | $0.22 | Down $0.21 |
| Operating cash flow | $152.6 million | $173.9 million | Down $21.4 million |
| Nareit FFO | $160.6 million | $228.1 million | Down $67.5 million |
| FFO as Adjusted | $275.3 million | $229.5 million | Up $45.7 million |
| AFFO | $245.4 million | $207.7 million | Up $37.8 million |
Adjusted NOI, a non-GAAP property-level measure, was $333.5 million versus $292.5 million. Merger-combined same-store Adjusted NOI grew 2.6% in outpatient medical, 2.7% in lab, and 26.6% in CCRC. CCRC occupancy increased to 85.2% from 83.1%; outpatient medical same-store occupancy was 92.1% versus 92.0%, while lab was 96.6% versus 98.5%.
Balance sheet, debt, and liquidity
- At March 31, total assets were $20.5 billion, total liabilities $10.9 billion, and total equity $9.5 billion. Cash and cash equivalents were $101.8 million; restricted cash was $55.4 million.
- Debt carrying value was $8.76 billion (approximately $8.91 billion principal). It included $6.55 billion of senior unsecured notes, $1.65 billion of term loans, $382 million of mortgage debt, and $183 million of commercial paper. The revolving facility had no balance outstanding.
- Approximately 97% of consolidated debt was fixed-rate, including variable-rate borrowings fixed through swaps. Weighted average rates were 4.05% on fixed-rate debt and 6.11% on variable-rate debt.
- The company reported $3.0 billion of revolving credit commitments, $250 million of unused incremental term-loan capacity, and $1.5 billion remaining under its ATM equity program. Management expects operating cash flow, available cash, and financing sources to cover needs for the next 12 months and foreseeable future.
- Common dividends paid were $164.2 million; distributions to shareholders and noncontrolling holders exceeded operating cash flow by approximately $19 million. The board declared a further $0.30-per-share quarterly dividend, payable May 17, 2024.
Material changes and unusual items
- The Physicians Realty Trust merger added 299 outpatient medical buildings and issued approximately 162 million Healthpeak shares. The company reported 774 properties at quarter-end, including joint-venture assets. The preliminary purchase price was $2.97 billion, including approximately $47 million of goodwill; purchase accounting remains subject to refinement.
- Merger and transaction costs were $107.2 million, compared with $2.4 million a year earlier. These included advisory, legal, severance, and accelerated stock-compensation costs. Management expects about $5 million of additional legacy Healthpeak severance expense through year-end 2024.
- Net income included a $77.8 million gain upon change of control from selling a 65% interest in two San Diego lab buildings into a joint venture. The transaction generated approximately $128 million of net proceeds. A further $11.6 million of income tax expense related to that sale was reported.
- Q1 2023 included $81.6 million of gains on real estate sales, versus $3.3 million in Q1 2024. Higher merger costs, depreciation, interest expense, and loan-loss reserves also weighed on GAAP earnings. The increase in Adjusted FFO and AFFO reflects, in part, exclusion of merger costs and other specified items.
- Cash used in investing was $97.8 million, including $179.2 million paid in connection with the merger, partly offset by $125.7 million of net Callan Ridge JV proceeds. Development and major improvement spending was $107.1 million.
- Healthpeak repurchased 5.8 million shares for approximately $100 million at an average $17.11 per share. About $344 million remained under its repurchase authorization, which expires in August 2024.
Outlook, commentary, and risks
No quantified full-year earnings or operating guidance is provided in the filing. Management cites inflation, high interest rates, construction and labor costs, and capital-market volatility as pressures on the company and its tenants, operators, and borrowers. It also identifies integration and synergy execution following the merger, lab-sector tenant funding uncertainty, tenant credit and occupancy, development returns, refinancing costs, and access to external capital as risks.
Management states that it was in compliance with debt covenants at March 31. A one-percentage-point increase in rates on remaining variable-rate debt would increase annual interest expense by approximately $3 million, assuming balances were unchanged. As of April 24, credit ratings were Baa1 from Moody’s and BBB+ from S&P. Merger-related lawsuits filed against the company had been voluntarily dismissed by April 2024. Four redeemable noncontrolling interests were bought out in April for $53 million.
Important facts for investors to verify
- How merger integration, cost savings, and the preliminary purchase-price allocation develop; reported Q1 results include only one month of acquired-company operations.
- Whether same-store occupancy and NOI trends persist, particularly the decline in lab occupancy and the drivers of strong CCRC growth.
- Cash available for dividends and capital spending relative to distributions, debt maturities, and the company’s reliance on financing and asset-sale proceeds.
- Borrower credit quality and the increase in loan-loss reserves to $9.3 million, including seller-financed senior housing loans.
- Execution and pricing of announced dispositions, including the April sale of seven lab buildings for $180 million, and the implications for portfolio NOI.