Healthpeak Properties, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; comparisons are primarily with FY2022. Healthpeak is a U.S. healthcare real estate REIT with lab, outpatient medical, and continuing care retirement community (CCRC) segments. Its portfolio included interests in 477 properties at year-end. The company completed its UPREIT reorganization in February 2023.
Key financial metrics
| Metric | FY2023 | FY2022 |
|---|---|---|
| Total revenue | $2.181 billion | $2.061 billion |
| Net income attributable to common shares | $304.3 million | $497.8 million |
| Diluted earnings per share | $0.56 | $0.92 |
| Nareit FFO | $985.2 million | $895.2 million |
| FFO as Adjusted | $978.3 million | $940.9 million |
| AFFO | $840.8 million | $783.7 million |
| Cash from operating activities | $956.2 million | $900.3 million |
| Cash, cash equivalents and restricted cash | $169.0 million | $126.8 million |
| Total debt, approximately | $6.9 billion | $6.5 billion |
Portfolio Adjusted NOI was $1.205 billion, up from $1.106 billion. FY2023 Adjusted NOI by segment was $617.5 million for lab, $452.7 million for outpatient medical, $112.5 million for CCRC, and $22.2 million for other non-reportable activities. Same-store Adjusted NOI rose 3.7% in lab, 3.4% in outpatient medical, and 15.6% in CCRC. Reported consolidated net income margins are not presented as a key performance measure in the filing.
At December 31, about 90% of consolidated debt was fixed-rate; weighted average rates were 3.70% for fixed-rate debt and 5.72% for variable-rate debt. The $3.0 billion revolving facility had no balance outstanding; commercial paper borrowings were $720 million. The company reported $6.9 billion in total equity. FY2023 common dividends were $1.20 per share; a $0.30 quarterly dividend was declared for payment in February 2024.
Material changes versus FY2022
- Revenue increased about 6%, while net income applicable to common shares fell to $304.3 million from $497.8 million. The comparison reflects, among other items, a large 2022 gain from deconsolidating South San Francisco lab buildings, higher 2023 interest and depreciation expense, and lower CARES Act grant income.
- FFO, FFO as Adjusted, and AFFO increased year over year, supported by higher property NOI and operating cash flow.
- Interest expense rose to $200.3 million from $172.9 million, mainly due to 2023 note issuances, prior-year term-loan borrowings, and higher commercial-paper rates.
- General and administrative expense declined to $95.1 million from $131.0 million, largely because FY2022 included executive severance and headquarters downsizing costs.
- Investing cash outflow narrowed to $576.8 million from $876.3 million; financing cash outflow increased to $337.3 million from $116.5 million.
- Average occupancy was approximately 98% for lab, 90% for outpatient medical, and 84% for CCRC. CCRC average occupancy improved from 82% to 84%; lab and outpatient medical occupancy was broadly stable.
Outlook, significant events and risks
- Management said operating cash flow, available cash, and financing sources should be adequate for the next 12 months and the foreseeable future to cover operations, debt service, distributions, merger costs, and planned investment needs. The filing provides no specific earnings or operating guidance.
- Healthpeak agreed to acquire Physicians Realty Trust in an all-stock merger at a fixed exchange ratio of 0.674 Healthpeak shares per Physicians Realty share. As of the filing, stockholder approvals and other customary conditions remained outstanding; the companies expected closing on March 1, 2024. Healthpeak estimated legacy Healthpeak holders would own about 77% of the combined company and Physicians Realty holders about 23%. The merger was not yet completed as of the filing.
- Healthpeak expected to issue approximately 163 million shares for the merger and expected consolidated indebtedness to increase substantially through assumed or refinanced Physicians Realty debt; the filing does not state a final combined debt amount. Approximately $22 million of success-based merger fees were expected at closing, in addition to merger costs already incurred.
- Three purported Healthpeak stockholders and four purported Physicians Realty shareholders had filed lawsuits challenging merger disclosures; additional claims were possible. Healthpeak said it believed the claims were without merit but could not estimate potential losses.
- Key risks include elevated interest rates, inflation and construction costs; funding and leasing uncertainty in the life-sciences sector; tenant or operator defaults; healthcare regulation and reimbursement changes; and property concentration and natural-disaster exposure. California represented 38% of company assets and 31% of revenue; Florida represented 10% of assets and 18% of revenue. The filing also highlights earthquake exposure in California and hurricane exposure in Florida.
- CCRCs operate under RIDEA structures: Healthpeak bears significant property-level operating risks while relying on third-party operators for day-to-day management. Lab properties also face tenant funding and product-development risks.
- Unusual items included a $14 million deferred-tax valuation-allowance reversal benefit; a $9 million write-off of Sorrento Therapeutics straight-line rent receivable following its Chapter 11 filing; and a $37 million Graphite Bio lease amendment payment, recognized over the amended lease term. No real estate impairment charges were recorded in 2023.
- The independent auditor gave unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective at year-end.
Important facts for investors to verify
- Merger completion, final assumed debt, share issuance, integration costs, and realization of anticipated synergies.
- Lab leasing, tenant credit and funding conditions, particularly in Healthpeak’s concentrated California and Boston markets.
- Debt refinancing needs and costs, including the planned $750 million 2024 term loan and the increase in borrowing costs on variable-rate debt.
- Collection, refinancing, and collateral outcomes for seller-financing loans; one $131 million loan reached maturity in February 2024 and received a short-term extension, while another loan was refinanced to January 2025.
- CCRC occupancy, operating expenses, operator performance, and exposure to Florida storms and insurance costs.
- Whether operating cash flow continues to cover the dividend, recurring capital needs, and merger-related cash requirements.