Healthpeak Properties, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; filed May 4, 2022. Healthpeak is a U.S. healthcare REIT focused on life science, medical office and continuing care retirement community (CCRC) properties. Its portfolio included 483 properties, including unconsolidated joint venture interests. The company completed its exit from senior housing triple-net and SHOP portfolios in 2021; related results are presented as discontinued operations.
Financial performance and position
- Revenue: $498.4 million, up 9.5% from $455.3 million. Rental and related revenue rose to $370.2 million from $328.0 million; resident fees and services were $121.6 million versus $116.1 million.
- Profit and earnings: Continuing-operations income was $75.0 million, compared with a $120.6 million loss a year earlier. Net income applicable to common shares was $69.6 million, or $0.13 per diluted share, versus $143.3 million, or $0.27, in Q1 2021. The prior-year result included $270.0 million of discontinued-operations income, substantially reflecting gains on senior-housing asset sales, and a $164.3 million debt-extinguishment loss.
- Supplemental operating measures: Adjusted NOI was $274.3 million, up from $251.4 million. FFO as Adjusted was $234.8 million ($0.43 diluted per share), versus $215.4 million ($0.40); AFFO was $202.0 million versus $184.8 million. These are non-GAAP measures and are not substitutes for GAAP results or cash flow.
- Segment trends: Same-store Adjusted NOI increased 5.2% in life science, 3.6% in medical office and 13.7% in CCRC. CCRC results benefited from higher resident rates, increased CARES Act grant income and lower COVID-related expenses, partly offset by higher labor costs.
- Cash flow: Operating cash flow was $194.2 million, compared with $122.7 million. Investing cash flow was a $246.0 million outflow, versus $767.7 million of inflow in Q1 2021, when real estate sale proceeds were substantially higher. Financing cash flow was an $18.5 million outflow, versus a $924.1 million outflow. The company paid $163.4 million in common dividends.
- Assets and liquidity: Total assets were $15.29 billion at March 31, 2022. Cash and cash equivalents were $89.1 million, with restricted cash of $52.1 million. At May 2, management reported approximately $2.12 billion of liquidity, including $1.69 billion of revolver capacity, expected $313 million net proceeds from future ATM forward-contract settlements and approximately $124 million of cash and cash equivalents.
- Debt: Carrying value of bank line/commercial paper, senior unsecured notes and mortgage debt totaled approximately $6.34 billion. Commercial paper outstanding was $1.33 billion, with a 0.93% weighted-average rate and approximately 45-day original maturities; the revolver backs the program. Approximately 77% of consolidated debt was fixed-rate. Management stated it was in compliance with debt covenants at quarter-end.
Material changes and transactions
- Q1 acquisitions totaled approximately $139 million: two life science properties for $96 million and two Houston medical office buildings for $43 million. The company also sold a life science facility for $14 million, recognizing a $4 million gain, and sold its remaining hospital held as a direct financing lease for $68 million, recognizing a $23 million gain.
- Life science and medical office Adjusted NOI growth reflected acquisitions, developments placed in service, new leasing and rent increases. Depreciation and amortization increased by $20.2 million, primarily due to acquisitions and completed development projects.
- Interest expense declined by $9.3 million year over year, mainly following 2021 note repurchases and redemptions. Interest income declined by $3.5 million, primarily from loan repayments and sales.
- The quarterly dividend was $0.30 per share, unchanged from Q1 2021. The board declared another $0.30 dividend for payment in May 2022.
Outlook, risks and unusual items
- Management said operating cash flow, available cash and financing sources should be adequate for operating costs, debt service and distributions over the next 12 months and the foreseeable future. The filing provides no specific full-year earnings or operating guidance.
- COVID-related staffing shortages, wage increases, regulatory requirements and other operating costs continued to pressure tenants and operators. Management warned elevated expenses may persist; senior housing occupancy and revenue recovery remained uncertain. Development schedules and costs may also be affected by labor and supply-chain disruption.
- Q1 included $14 million of tenant relocation and other costs associated with a planned medical office building demolition, recorded in other income (expense), net. CARES Act grants recognized across income statement categories totaled $7.4 million.
- Development, redevelopment and tenant-improvement commitments were $418 million at quarter-end. Additional senior-housing redevelopment and capital-expenditure loan commitments were $49 million. The company had $98 million of redeemable noncontrolling interests; none was redeemable at quarter-end.
- Management reported no material change to previously disclosed risk factors and no legal claims it believed would materially adversely affect the company. Key risks include tenant/operator financial health, healthcare regulation and labor costs, development execution, interest rates, capital-market access, leverage and dividend capacity. A 100-basis-point increase in rates was estimated to raise annual interest expense by approximately $15 million, assuming no other changes.
Most important facts for investors to verify
- How much of the year-over-year growth in Adjusted NOI, FFO as Adjusted and AFFO is recurring, versus acquisitions, development lease-up, grants or other adjustments.
- Whether CCRC occupancy and margins improve as COVID-related costs and labor pressures evolve, and whether grant income recedes.
- The refinancing and interest-rate exposure associated with $1.33 billion of short-term commercial paper and the company’s debt maturities and covenants.
- Actual timing and proceeds from settlement of the 9.1 million shares under ATM forward contracts, and the resulting dilution.
- Progress, remaining costs and leasing at the development pipeline, alongside the $418 million of project commitments and the planned medical office demolition.