Business context and reporting period
Healthpeak Properties, Inc. filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2022. The healthcare REIT invests in life science, medical office, and continuing care retirement community (CCRC) properties. Its portfolio included interests in 481 properties at quarter-end. Senior housing triple-net and operating property dispositions were completed in September 2021 and are presented as discontinued operations.
Financial performance and position
Amounts below are in millions except per-share data.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $517.9 | $476.2 | $1,016.3 | $931.5 |
| Net income attributable to common shares | $68.1 | $276.0 | $137.7 | $419.3 |
| Diluted EPS | $0.13 | $0.51 | $0.26 | $0.78 |
| FFO as Adjusted | $236.5 | $217.2 | $471.3 | $432.6 |
| AFFO | $195.6 | $189.0 | $397.6 | $373.8 |
- Revenue increased about 9% year over year in both the quarter and first half. Q2 Adjusted NOI was $272.1 million, versus $257.0 million; same-store Adjusted NOI rose 4.3% in life science and 4.5% in medical office, while CCRC same-store Adjusted NOI declined 2.1%.
- Q2 net income fell substantially against 2021, which included large real estate sale gains, notably the Hoag Hospital sale, and senior-housing disposition income. Q2 2022 included $10.3 million of real estate sale gains and $3.0 million from discontinued operations. Six-month 2022 results also included a $23 million gain on sale of a hospital classified as a direct financing lease.
- Six-month operating cash flow was $449.7 million, versus $359.6 million. Investing activities used $461.1 million, versus $1.71 billion provided in 2021, when asset-sale proceeds were much higher. Financing activities used $72.1 million. Cash, cash equivalents, and restricted cash declined $83.6 million to $135.9 million; unrestricted cash was $73.0 million.
- Total debt carrying value was approximately $6.45 billion: $1.45 billion of commercial paper, $4.66 billion of senior notes, and $349 million of mortgage debt. About 77% of consolidated debt was fixed rate. Commercial paper carried a 1.95% weighted average rate at quarter-end and had original maturities of about 45 days. The $3.0 billion revolving facility had no borrowings outstanding; it backstops commercial paper.
- Total assets were $15.32 billion, total liabilities $8.36 billion, and total equity $6.84 billion. The company declared and paid a $0.30-per-share quarterly dividend. Development, redevelopment, and tenant-improvement commitments were $454 million.
Material changes, outlook, and risks
- Life science and medical office operating growth reflected rent escalations, leasing and renewals, acquisitions, and completed development projects. CCRC results were pressured by higher labor costs; occupancy and resident rates improved, and Covid-related expenses declined.
- Management stated that operating cash flow, available cash, and financing sources should be adequate for the next 12 months and foreseeable future, including operating costs, debt service, dividends, and planned investment. The filing provides no specific earnings or FFO guidance.
- Management cited inflation, rising interest rates, labor shortages, supply-chain delays, and higher construction costs as risks to tenants, operators, financing costs, and development yields. Covid-related uncertainty and elevated CCRC and senior-housing operating costs also remain concerns. A 1-percentage-point rise in variable borrowing rates was estimated to increase annual interest expense by about $15 million, assuming balances remained unchanged.
- Six-month CARES Act grant income was $7.6 million; grants are subject to recapture if conditions are not met. The filing reported no 2022 real estate impairment charges and no known legal claims expected to have a material adverse effect. A planned MOB demolition generated $14 million of tenant-relocation and related costs in the first half.
- After quarter-end, Healthpeak agreed to sell a 30% interest in seven South San Francisco life science assets to a sovereign wealth fund for $126 million, with joint decision-making and deconsolidation of the assets. The commercial-paper program limit increased to $2.0 billion, and the board authorized a share-repurchase program of up to $500 million; no repurchases had occurred by filing. A $0.30 dividend was declared for payment in August.
Important facts for investors to verify
- Assess recurring performance using Adjusted NOI, FFO as Adjusted, and AFFO alongside GAAP earnings; 2021 comparisons contain substantial disposition-related gains and debt-extinguishment losses.
- Monitor short-term commercial-paper refinancing exposure, changing interest rates, debt maturities, and the company’s access to capital markets.
- Track CCRC labor costs, occupancy, and operating margins, as well as inflation and construction delays affecting development commitments and expected returns.
- Review the terms, proceeds, and accounting effects of the South San Francisco joint-venture transaction, and the potential use of the new repurchase authorization and ATM equity capacity.
- Confirm dividend coverage against operating cash flow and recurring capital needs; the filing cautions that non-GAAP measures are not substitutes for cash flow or GAAP results.