Healthpeak Properties, Inc. — 2020 Second-Quarter 10-Q
Reporting period: Three and six months ended June 30, 2020; filed August 5, 2020. Unaudited. Healthpeak is a U.S. healthcare real estate REIT with senior housing, life science, medical office and CCRC investments. Its portfolio included interests in 633 properties at quarter-end.
Financial results and position
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $588.4 million | $491.6 million | $1,173.6 million | $927.7 million |
| Net income (loss) attributable to common shares | $51.1 million | $(14.0) million | $328.8 million | $47.0 million |
| Diluted EPS | $0.09 | $(0.03) | $0.63 | $0.10 |
| NAREIT FFO per diluted share | $0.34 | $0.41 | $0.68 | $0.84 |
| FFO as Adjusted per diluted share | $0.40 | $0.44 | $0.84 | $0.88 |
| AFFO | $191.9 million | $195.1 million | $399.5 million | $386.5 million |
- Q2 revenue increased about 20% year over year, while six-month revenue increased about 27%. Growth reflects, among other factors, CCRC consolidation and acquisitions; comparisons are affected by portfolio changes.
- GAAP earnings included substantial transaction-related and nonrecurring items. For the first half, real estate sale gains were $247.7 million, the gain on the CCRC change of control was $170.0 million, and income tax benefit was $40.4 million. Q2 included $82.9 million of real estate sale gains.
- First-half cash provided by operating activities was $319.8 million, down from $380.6 million. Investing used $535.3 million and financing provided $867.6 million. Cash, cash equivalents and restricted cash were $836.6 million at June 30.
- At June 30, total assets were $16.3 billion, total liabilities $8.6 billion and total equity $7.7 billion. Cash and cash equivalents were $731.0 million; restricted cash was $105.7 million.
- Debt carrying values included $6.0 billion of senior unsecured notes, $487.5 million of mortgage debt and a $249.1 million term loan. No revolving-credit or commercial-paper balance was outstanding at quarter-end. The company reported $6.76 billion of stated debt including debt on assets held for sale.
- Healthpeak issued $600 million of 2.875% senior notes due 2031 and repurchased $250 million of 4.25% notes due 2023, recording a $25.8 million extinguishment loss. In July, it redeemed $300 million of 3.15% notes due 2022 and expected an approximately $18 million extinguishment loss in Q3.
- Common dividends were $0.37 per share in each of the first two quarters; first-half dividends paid were $388.1 million. Distributions to shareholders and noncontrolling interests exceeded operating cash flow by approximately $84 million.
Material changes versus the prior comparable period
- Q2 net income improved from a loss to income, principally reflecting higher real estate sale gains, lower impairment charges and $14 million of CARES Act grant income. These benefits were partly offset by COVID-related senior housing costs and occupancy declines, higher depreciation, increased credit loss provisions and debt-extinguishment costs.
- Despite higher GAAP earnings, Q2 NAREIT FFO and FFO as Adjusted per share fell year over year; first-half FFO per share also declined. GAAP income is not a direct measure of recurring property performance, given the large gains and transaction effects.
- Same-store SHOP Adjusted NOI declined 39% in Q2 and 16% for the first half, with lower occupancy and higher pandemic-related expenses partly offset by CARES Act grants. Average same-store SHOP occupancy was 79.1% in Q2 versus 86.9% a year earlier.
- Same-store life science Adjusted NOI rose 7.3% in Q2 and 5.3% in the first half; same-store medical office Adjusted NOI rose 1.3% and 1.8%, respectively. Senior housing triple-net same-store Adjusted NOI rose 3.2% in Q2 and 3.0% in the first half.
- In January, Healthpeak acquired Brookdale’s 51% interest in 13 CCRCs, paid a $100 million management termination fee and transitioned management to Life Care Services. Brookdale also purchased 18 triple-net properties for $385 million; 24 remaining properties were restructured under a master lease with 2.4% annual rent escalators through 2027.
- Healthpeak settled equity forward contracts for net proceeds of approximately $1.06 billion in the first quarter. Common shares outstanding increased to 538.3 million from 505.2 million at year-end 2019, contributing to per-share dilution.
Outlook, risks and unusual items
- Management said available cash, operating cash flow and financing sources should be adequate for at least the next 12 months to fund operations, debt service and distributions. It reported approximately $2.85 billion of liquidity at July 31, comprising $2.5 billion of revolver capacity and $350 million of cash and equivalents. Management said there were no significant debt maturities until 2023 after the July redemption.
- No specific earnings or operating guidance is provided in the supplied filing text. Management emphasized that COVID-19’s duration and effects are uncertain and results are not necessarily indicative of full-year performance.
- COVID-19 reduced senior housing occupancy and increased staffing, health and safety costs, particularly in SHOP and CCRC, where Healthpeak bears operating expenses. As of July 31, operators reported confirmed resident cases at 111 of 218 senior housing properties; Healthpeak said the information was not independently verified.
- Medical office tenants received approximately $6 million of rent deferrals and life science tenants approximately $1 million through June 30; repayment was required by year-end. Deferrals reduced cash collections but did not change the reported rent revenue recognition pattern.
- Management cited risks including further occupancy and rent-collection pressure, tenant/operator insolvency, credit losses and impairments, construction delays, asset-sale uncertainty, litigation, capital-market access and possible credit-rating deterioration. Moody’s had changed its outlook to negative, according to the risk-factor discussion.
- The filing describes pending securities class-action and derivative litigation related to historical HCR ManorCare disclosures. The company contests the claims; it said potential loss was not probable or estimable and recorded no loss contingency for these matters.
Important facts for investors to verify
- Whether SHOP and CCRC occupancy, resident demand and operating costs recover, and how those trends affect same-store NOI and cash generation.
- Actual collection of deferred rent and performance of tenants, operators and borrowers; the adequacy of credit-loss reserves, which reached $14.1 million for loans receivable at June 30.
- Recurring earnings and dividend coverage using FFO/AFFO and operating cash flow, excluding gains from dispositions, consolidation and other unusual items.
- Debt levels, refinancing costs, covenant compliance, credit ratings and liquidity after the July 2020 note redemption and related extinguishment loss.
- Execution, funding and returns on the $344 million of development and redevelopment commitments, including projects affected by COVID-19 delays.
- Progress and final economics of the Brookdale transactions, planned dispositions and remaining CCRC-related obligations.