Healthpeak Properties, Inc. — 2020 Form 10-K Summary
Business context and reporting period
Healthpeak is a U.S. healthcare REIT. This annual report covers the fiscal year ended December 31, 2020. The company’s continuing reportable segments are life science, medical office, and continuing care retirement communities (CCRCs). During 2020, it began disposing of its senior housing triple-net and senior housing operating (SHOP) portfolios, which are presented as discontinued operations for all periods shown; comparisons therefore reflect both portfolio changes and accounting presentation.
At year-end, the continuing portfolio included interests in 457 properties, including joint ventures. Adjusted NOI was concentrated in life science (44%), medical office (42%), and CCRC (12%).
Key financial metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $1.645 billion | $1.240 billion |
| Income from continuing operations | $160.5 million | $175.5 million |
| Net income applicable to common shares | $411.1 million | $44.0 million |
| Operating cash flow | $758.4 million | $846.1 million |
| NAREIT FFO | $693.4 million; $1.30 diluted/share | $780.3 million; $1.59 diluted/share |
| FFO as Adjusted | $874.2 million; $1.64 diluted/share | $864.4 million; $1.76 diluted/share |
| AFFO | $772.7 million | $745.8 million |
| Total assets / total equity | $15.92 billion / $7.34 billion | $14.03 billion / $6.67 billion |
| Debt obligations | $6.30 billion | $6.00 billion |
| Cash and cash equivalents at year-end | $44.2 million | $80.4 million |
Revenue growth primarily reflects the acquisition and consolidation of 13 CCRCs from Brookdale, not simply same-property growth. The increase in net income primarily reflects gains on real estate sales and a change-of-control gain on the CCRC acquisition, as well as CARES Act grants; continuing-operations income declined. Adjusted FFO per diluted share fell about 7%, while total Adjusted FFO rose modestly. These FFO and NOI measures are non-GAAP and are not substitutes for GAAP earnings or operating cash flow.
Continuing-portfolio Adjusted NOI was $936.1 million: life science $411.3 million, medical office $390.2 million, CCRC $113.4 million, and other $21.2 million. Same-store Adjusted NOI increased 6.2% in life science and 2.1% in medical office. Average occupancy was 96% in life science and 91% in medical office. SHOP and CCRC occupancy, both affected by the pandemic, declined year over year to 75.3% and 81.4%, respectively, from 83.2% and 85.6%.
Approximately 94% of consolidated debt was fixed-rate, with weighted-average rates of 3.85% on fixed-rate debt and 0.85% on variable-rate debt. The company reported $2.51 billion of available liquidity as of February 8, 2021, including $2.26 billion of revolver capacity and $259 million of cash and cash equivalents. In 2020, dividends were $1.48 per share; distributions exceeded operating cash flow by approximately $66 million. A quarterly dividend of $0.30 per share was declared for payment in March 2021.
Material changes and unusual items
- Healthpeak acquired Brookdale’s 51% interest in 13 CCRCs for a transaction based on a $1.06 billion valuation, paid a $100 million management termination fee, and transitioned management to Life Care Services. The transaction generated a reported $170 million gain upon change of control.
- Life science acquisitions included The Post for $320 million and Cambridge Discovery Park assets for $610 million, plus a 49% interest in another campus property for $54 million. The company also acquired seven medical office buildings for $169 million.
- The company continued senior housing portfolio exits. It sold multiple portfolios in 2020 and completed additional sales in January and February 2021. Several sales included seller financing, including $410 million on a January 2021 SHOP portfolio sale.
- In June 2020, Healthpeak issued $600 million of 2.88% senior notes due 2031, then repurchased $250 million of 4.25% notes due 2023 and redeemed $300 million of 3.15% notes due 2022. It also issued common shares, raising approximately $1.07 billion in 2020.
- Real estate impairments included approximately $210 million on assets classified as held for sale and $15 million for a life science facility planned for demolition. The company recorded $42.9 million of continuing-operations impairment and loan-loss charges; loan-loss reserves were $10.3 million at year-end.
- CARES Act grants totaled $32.9 million in 2020 across continuing operations, joint ventures, and discontinued operations. The company recorded a $33 million deferred-tax-asset valuation allowance related to its planned SHOP disposition.
Outlook, risks, and contingencies
Management stated that operating cash flow, cash balances, and financing sources should be adequate for at least the next 12 months to fund recurring expenses, debt service, and distributions. No specific 2021 earnings or FFO guidance is provided in the supplied filing text. Healthpeak expected to continue senior housing dispositions during 2021 and said proceeds were expected to support debt repayment and investment in other business lines.
COVID-19 remained a principal uncertainty. Senior housing faced lower occupancy, increased staffing and protective-equipment costs, potential litigation, and continued pressure on resident demand. Medical office practices experienced disrupted procedures earlier in 2020, while the company reported operations at or near pre-pandemic levels in most markets by the filing date. Construction and leasing could remain delayed, and planned transactions could be delayed or fail to close. Management also cited tenant and operator credit risk, healthcare regulation and reimbursement, life science funding and leasing conditions, California concentration and natural-disaster exposure, capital-market and credit-rating risk, and potential REIT qualification risks.
The company reported Moody’s Baa1 and S&P/Fitch BBB+ long-term ratings as of February 8, 2021; Moody’s outlook had been changed from stable to negative in March 2020. The filing describes pending derivative litigation and other legal matters but states that no loss contingency was recorded where loss was not considered probable or estimable. The auditor gave an unqualified opinion on the financial statements and internal controls; impairment valuation was identified as a critical audit matter.
Important facts for investors to verify
- Progress, final proceeds, and any seller-financing exposure from the remaining senior housing dispositions, including required license transfers.
- Whether senior housing occupancy and operating costs recover, particularly at CCRC properties operated under RIDEA structures where Healthpeak bears operating risks.
- Liquidity, debt maturities, credit ratings, and the company’s plan for using disposition proceeds; compare the reported $6.30 billion debt with debt classified in assets held for sale and discontinued operations.
- The sustainability of the $1.48 annual dividend relative to operating cash flow, AFFO, capital spending, and the company’s reliance on external capital.
- Assumptions behind held-for-sale impairments, loan-loss reserves, and CARES Act grant eligibility and compliance, as these involve estimates or potential repayment and enforcement risk.