Healthpeak Properties, Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. Healthpeak is a healthcare-focused REIT investing in senior housing, continuing care retirement communities (CCRCs), life science and medical office properties. Unless noted, amounts below are in U.S. dollars and millions.
Key financial results
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $585.2 | $436.2 |
| Net income attributable to common shares | $277.5 | $61.0 |
| Diluted EPS | $0.54 | $0.13 |
| NAREIT FFO | $171.5 | $206.0 |
| FFO as Adjusted | $227.0 | $212.0 |
| AFFO | $207.6 | $191.5 |
| Cash from operating activities | $95.0 | $158.6 |
Reported net income and EPS rose sharply, but included significant transaction-related gains: a $170 million gain on consolidating 13 CCRCs and a $165 million net gain on real estate sales. A $42 million gain from selling a hospital under a direct financing lease was also included in other income. NAREIT FFO declined 17%; FFO as Adjusted increased 7% and AFFO increased 8% year over year. Diluted FFO per share was $0.34 versus $0.43; diluted FFO as Adjusted per share was $0.45 versus $0.44.
Adjusted NOI was $294.6 million, up from $278.5 million. Same-store Adjusted NOI increased 2.6% in senior housing triple-net, 3.1% in life science and 2.0% in medical office; SHOP same-store Adjusted NOI declined 3.2%, reflecting COVID-related costs and higher labor costs. CCRC was newly reported as a separate segment, so the reported total portfolio comparison includes significant portfolio and reporting changes.
Balance sheet, liquidity and cash flow
- At March 31, total assets were $16.1 billion, total liabilities $8.3 billion and total equity $7.8 billion.
- Cash and cash equivalents were $783.5 million; restricted cash was $106.6 million. Cash, cash equivalents and restricted cash totaled $890.1 million.
- Reported debt was approximately $6.4 billion, including $5.65 billion of senior unsecured notes, $249 million on the term loan and $490 million of mortgage debt. No revolving credit facility or commercial paper balance was outstanding at quarter-end. Approximately 96% of consolidated debt was fixed rate, including debt hedged with swaps.
- The $2.5 billion revolving facility was undrawn at quarter-end. Management reported approximately $3.0 billion of available liquidity as of April 30, including cash and revolving capacity. Moody’s had revised its outlook on the company’s long-term issuer and senior unsecured ratings to negative; management reported ratings of Baa1 from Moody’s and BBB+ from S&P and Fitch as of May 4.
- Operating cash flow fell to $95.0 million from $158.6 million. Investing cash flow was negative $151.0 million and financing cash flow was positive $761.4 million, principally reflecting $1.1 billion of equity issuance. Cash dividends paid were $188.5 million; distributions to shareholders and noncontrolling holders exceeded operating cash flow by about $102 million.
- The quarterly common dividend was $0.37 per share. The board declared another $0.37 dividend on April 30, payable May 19.
Material changes and significant transactions
- On January 31, Healthpeak acquired Brookdale’s 51% interest in 13 CCRC communities, based on a $1.06 billion valuation, and began consolidating them; management transitioned to Life Care Services. Healthpeak paid Brookdale a $100 million management termination fee. The acquisition added $215 million of assumed debt and $744 million of refundable and nonrefundable entrance-fee liabilities, among other acquired balances.
- Brookdale acquired 18 senior housing triple-net properties for $385 million. The remaining 24 properties were restructured under a master lease with 2.4% annual rent escalators and a December 31, 2027 maturity. Two additional CCRCs are to be marketed for sale; other agreed transitions and capital commitments remained pending.
- Healthpeak sold seven SHOP assets for $36 million and a hospital under a direct financing lease for $82 million. It settled 32.5 million shares under ATM and forward equity arrangements for approximately $1.06 billion net proceeds. Shares outstanding rose to 538.1 million from 505.2 million at year-end 2019.
- Real estate impairments were $31 million, primarily on held-for-sale properties. The company also recorded $7.9 million of expected loan-loss provision, reflecting the new expected-credit-loss standard and anticipated COVID-19 effects; the total reported impairments and loan-loss reserves was $39.1 million.
Outlook, risks and contingencies
- COVID-19: Management said the ultimate operating and financial impact could not be estimated. It expected reduced senior housing occupancy from fewer move-ins and tours, outbreaks, and stricter move-in criteria, alongside higher staffing, medical-supply and safety costs. As of April 30, confirmed resident cases had occurred at 54 of 222 senior housing properties.
- Many physician practices had suspended nonessential procedures, affecting medical office tenants’ cash flows. Healthpeak agreed after quarter-end to defer May and June rent for certain MOB tenants, repayable by year-end; it said it had not agreed to other requested rent relief at the time of filing. Leasing activity was expected to weaken in both medical office and life science, and construction activity had been suspended or delayed in some markets.
- Development and redevelopment commitments were $284 million at quarter-end. The active development and redevelopment pipeline was approximately $1.2 billion, with about $0.7 billion of remaining costs to complete. Management cited project delays, costs, occupancy and leasing uncertainty as risks.
- Management expected operating cash, available cash and financing sources to be adequate for at least the next 12 months. It cautioned that tenant payment ability, credit-rating changes, capital-market access, impairments and the pandemic’s duration and severity could affect results and liquidity. No numerical earnings or FFO guidance was provided in the supplied filing text.
- A securities class action remained pending after dismissal was granted; plaintiffs had moved to amend the judgment. Related derivative actions were also disclosed. Healthpeak said it believed the claims lacked merit; it could not estimate potential loss for the derivative matters and recorded no loss contingency.
Important facts for investors to verify
- Whether the CCRC acquisition’s operating contribution, integration costs and Brookdale-related gains are clearly separated from recurring performance.
- Subsequent rent collections, deferrals or concessions, senior housing occupancy and COVID-related operating costs, including the treatment of deferred MOB rent.
- Progress on planned dispositions, held-for-sale assets and development projects, and any further impairments or credit-loss reserves.
- Liquidity and covenant headroom, credit-rating developments, future financing needs and the sustainability of the $0.37 quarterly dividend.
- Developments in the disclosed litigation and whether any subsequent event changes the assessment of potential exposure.