HEALTHPEAK PROPERTIES, INC. quarterly report, Q1 FY2021

Healthpeak Properties, Inc. — Q1 2021 Form 10-Q

Reporting period: Three months ended March 31, 2021; unaudited. Healthpeak is a U.S. healthcare REIT. Its continuing portfolio focused on life science, medical office, and continuing care retirement community (CCRC) properties, with 463 properties at quarter-end. The company continued its strategic exit from senior housing triple-net and senior housing operating portfolio (SHOP) properties; those activities are reported as discontinued operations.

Financial performance and position

Metric	Q1 2021	Q1 2020
Total revenue	$455.3 million	$381.1 million
Net income attributable to common shares	$143.3 million	$277.5 million
Diluted EPS	$0.27	$0.54
Net cash from operating activities	$122.7 million	$95.0 million
Adjusted FFO	$215.4 million	$227.0 million
AFFO	$184.8 million	$207.6 million

Revenue increased 19% year over year, while net income attributable to common shares declined 48%. Q1 2021 continuing operations recorded a $120.6 million loss, offset by $270.0 million of income from discontinued operations, including gains on senior housing sales.
Adjusted NOI was $251.4 million versus $231.1 million. Same-store Adjusted NOI rose 8.5% in life science and 2.1% in medical office, but fell 16.5% in CCRC. CCRC same-store occupancy declined to 75.8% from 86.4%, with COVID-related occupancy and cost pressures cited.
Interest expense fell to $46.8 million from $55.7 million, primarily following debt repurchases. A $164.3 million loss on debt extinguishments weighed on continuing results. Depreciation and amortization increased $32.4 million to $157.5 million.
Operating cash flow was $122.7 million. Investing activities provided $767.7 million, principally reflecting property-sale proceeds; financing activities used $924.1 million, including debt repayments and $164.1 million of common dividends. Distributions to shareholders and noncontrolling interests exceeded operating cash flow by about $49 million.
At March 31, cash and cash equivalents were $74.2 million, plus $73.9 million of restricted cash. Debt on the balance sheet was about $5.76 billion excluding debt associated with held-for-sale and discontinued operations; including that debt, total was about $6.04 billion. Senior unsecured notes had a $4.30 billion principal balance. Bank-line and commercial-paper borrowings totaled $1.04 billion, including $928 million of commercial paper.
Net loans receivable increased to $740.1 million from $195.4 million, largely reflecting seller financing of disposed SHOP properties. The company recorded $3.9 million of provisions for expected loan losses in the quarter; the filing rated substantially all loans performing, with $1.9 million on the watch list.

Material changes and transactions

Healthpeak sold multiple senior housing portfolios in January and February, including 32 SHOP assets for $664 million, 24 Brookdale triple-net assets for $510 million, 16 SHOP assets for $230 million, and eight HRA triple-net assets for $132 million. Some sales included substantial seller financing; $559.7 million of seller financing was disclosed as a noncash transaction.
Discontinued-operations income increased to $270.0 million from $135.4 million, mainly reflecting gains on 2021 dispositions. Assets held for sale and discontinued operations declined to $1.37 billion from $2.63 billion at year-end.
Senior unsecured debt repurchases and redemptions totaling $1.45 billion principal were completed in January and February. The related $164.3 million extinguishment loss was recognized in Q1. In April, the company increased its commercial-paper program limit to $1.25 billion; in May it announced tenders for up to $550 million of 2025 notes.
Q1 acquisitions included one Nashville medical office building for $13 million. Subsequent to quarter-end, Healthpeak closed the first $61 million phase of a South San Francisco land purchase and acquired a 14-building medical office portfolio for $371 million, with $142 million of secured mortgage debt.
Development and redevelopment commitments were $315 million at quarter-end. The company also reduced the estimated remaining useful life of certain life science properties from 15 years to 6 years due to planned demolitions, increasing Q1 depreciation by $3 million and reducing EPS by about $0.01.

Outlook, risks, and contingencies

Management expected cash from operations, available cash, and financing sources to cover operating expenses, debt service, and distributions for at least the next 12 months. As of May 3, 2021, it reported approximately $1.85 billion of liquidity, including $1.72 billion of revolver capacity and $133 million of cash and cash equivalents. No specific earnings or revenue guidance was provided in the supplied filing text.
Management stated that medical office activity had returned to near pre-pandemic levels in most markets. It continued to cite uncertainty around COVID-19, senior housing occupancy, staffing and health costs, tenant and borrower credit, leasing and development delays, and the timing and completion of remaining property sales.
Interest-rate sensitivity: a 1 percentage-point change in rates was estimated to change annual interest expense by about $13 million and interest income by about $1 million, assuming balances stayed constant. About 78% of consolidated debt excluding discontinued operations was fixed rate at March 31.
Development, redevelopment, and senior-housing capital expenditure funding commitments, refinancing needs, reliance on access to capital markets, and credit-rating sensitivity remain relevant risks. The company reported compliance with its credit-facility covenants at quarter-end.
Several historical securities and derivative actions were dismissed, generally without prejudice or with prejudice as specified in the filing. The company recorded no loss contingency for stockholder demand matters, stating loss was not probable or estimable. It also disclosed tax indemnification obligations on certain DownREIT properties.
Management reported effective disclosure controls as of March 31 and no material change in internal control over financial reporting during the quarter.

Important facts for investors to verify

How much of the reported discontinued-operations earnings represents realized sale gains versus recurring operating income, and how remaining dispositions affect future results.
The credit quality, collateral, maturities, and repayment performance of seller-financed loans, including the additional $92 million potential commitment for capital expenditures.
Whether CCRC occupancy, operating costs, and NOI recover as pandemic effects ease; compare performance with the reported occupancy declines.
Liquidity and refinancing exposure, particularly short-term commercial paper, upcoming maturities, and the effects of debt tenders or future borrowing costs.
The pace and cost of the $315 million development commitments and whether planned life science demolitions or project delays affect returns.
Coverage of dividends by recurring cash generation: Q1 distributions exceeded operating cash flow by approximately $49 million, while AFFO declined year over year.

Adjusted NOI, Adjusted FFO, and AFFO are non-GAAP measures; definitions and reconciliations are provided in the filing and may not be comparable with similarly named measures at other REITs.