Healthpeak Properties, Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. Healthpeak is a healthcare-focused REIT investing in senior housing, life science, medical office and related properties. The portfolio included 626 properties at quarter-end.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $597.7 million | $538.0 million | $1,771.3 million | $1,465.7 million |
| Net income (loss) attributable to common shares | $(63.8) million | $(46.2) million | $265.0 million | $0.8 million |
| Diluted EPS | $(0.12) | $(0.09) | $0.50 | $0.00 |
| NAREIT FFO per diluted share | $0.31 | $0.37 | $0.98 | $1.21 |
| FFO as Adjusted per diluted share | $0.40 | $0.44 | $1.24 | $1.33 |
| Adjusted FFO (AFFO), common shares | $183.8 million | $190.2 million | $583.3 million | $576.8 million |
Amounts are rounded. Q3 total revenue rose about 11%; nine-month revenue rose about 21%. Nine-month GAAP earnings benefited substantially from transaction gains, including the gain on consolidating 13 CCRCs and gains on property sales. Conversely, Q3 included a $31 million deferred-tax valuation allowance, impairments and loan-loss charges, and COVID-related pressure on senior housing operations. FFO and AFFO are non-GAAP measures and are not equivalent to cash flow.
- Cash flow: Operating cash flow was $539.7 million for the nine months, down from $628.6 million. Investing cash outflow was $766.5 million; financing cash inflow was $341.8 million. Cash, cash equivalents and restricted cash totaled $299.5 million at September 30, including $197.1 million unrestricted cash.
- Debt and liquidity: Balance-sheet debt was approximately $6.38 billion, comprising $5.70 billion of senior notes, $249 million of term debt and $435 million of mortgage debt. No revolver or commercial-paper balance was outstanding at quarter-end. About 96% of consolidated debt was fixed-rate, including amounts swapped to fixed. Management reported approximately $2.57 billion of available liquidity as of October 30, 2020, including $2.43 billion of revolver capacity and $140 million cash.
- Dividends: Common dividends declared were $0.37 per share quarterly, or $1.11 per share for the first nine months. Cash distributions to common shareholders and noncontrolling holders exceeded operating cash flow by about $71 million over that period.
Material changes and operating trends
- The January 2020 Brookdale transaction brought 13 CCRCs under Healthpeak’s control; Healthpeak paid a $100 million management termination fee and transitioned management to Life Care Services. Brookdale also purchased 18 triple-net properties for $385 million, while 24 properties were restructured under a master lease with 2.4% annual rent escalators through 2027.
- SHOP same-store Adjusted NOI declined 15.8% in Q3 and 19.0% for the nine months, primarily from lower occupancy and higher operating expenses associated with COVID-19. Q3 SHOP same-store occupancy was 83.4%, compared with 90.5% a year earlier.
- Life science same-store Adjusted NOI increased 5.5% in Q3 and 5.7% for the nine months; medical office same-store Adjusted NOI increased 3.3% and 2.3%, respectively. Senior housing triple-net same-store Adjusted NOI rose 4.4% in Q3 and 3.4% for the nine months.
- Healthpeak sold properties and recognized $247.9 million of net real-estate sale gains for the nine months, compared with $18.7 million in 2019. Nine-month debt-extinguishment losses were $42.9 million.
- Assets held for sale increased to $2.21 billion from $504.4 million at year-end 2019. The balance included senior housing and other properties, loans, and preferred-equity investments. The filing also reports a plan to dispose of a significant portion of the SHOP portfolio.
Outlook, risks and unusual items
- Management stated that operating cash flow, cash balances and financing sources should be adequate for at least the next 12 months. No specific earnings or FFO guidance is provided in the filing.
- COVID-19 risks include senior-housing occupancy declines, outbreaks, increased staffing and safety costs, possible tenant/operator financial stress, weaker rent collections and delayed or canceled transactions and construction. As of October 30, 2020, operators reported confirmed resident cases at 130 of 208 senior-housing properties; Healthpeak said this information was not independently verified.
- During 2020, Healthpeak recognized $87 million of impairments on assets classified as held for sale and a $31 million deferred-tax asset valuation allowance. It recorded $17.3 million of CARES Act grant income for the nine months.
- Development and redevelopment commitments were $398 million at September 30. Planned or subsequent transactions included the October close of a $169 million seven-building medical-office acquisition and announced life-science and land acquisitions; completion and timing of pending transactions remain subject to conditions.
- A shareholder securities class action remains pending on a motion to amend a dismissal judgment; related derivative actions are also disclosed. The company said it believes the claims are without merit and had not recorded a loss contingency because loss was not considered probable or estimable.
Important facts for investors to verify
- Whether SHOP and CCRC occupancy, operating costs and NOI stabilize or deteriorate further, and the effect on tenant/operator rent payments and Healthpeak’s cash flows.
- The composition, expected timing and realized proceeds of the $2.21 billion held-for-sale portfolio and planned SHOP dispositions, including any additional impairments.
- Cash available after dividends, capital spending and development commitments; the sustainability of distributions relative to operating cash flow and AFFO.
- Debt maturities, refinancing costs and access to capital markets; the filing lists substantial note maturities in 2023 and 2024.
- How much reported nine-month GAAP income reflects recurring operations versus Brookdale-related gains, real-estate sales, grants and tax effects; review non-GAAP reconciliations and definitions when comparing results.