Healthpeak Properties, Inc. — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022; this is an annual filing, not a standalone fourth-quarter report. Healthpeak is a U.S. healthcare real estate REIT focused on life science, medical office, and continuing care retirement community (CCRC) properties. It reported interests in 480 properties at year-end, including joint venture properties. Unless stated otherwise, financial amounts below are in millions of dollars.
Financial and operating performance
| Metric | 2022 | 2021 | Change / context |
|---|---|---|---|
| Total revenue | $2,061.2 | $1,896.2 | Higher; rental revenue and resident fees increased. |
| Net income applicable to common shares | $497.8 | $502.3 | Down modestly; 2022 included a large gain from a life science joint venture transaction, while 2021 included substantial disposition gains from discontinued senior housing operations. |
| Diluted earnings per share | $0.92 | $0.93 | Down from $0.93. |
| Net cash provided by operating activities | $900.3 | $795.2 | Up $105.0, principally reflecting acquisitions, rent increases, leasing, and completed projects; partly offset by dispositions and higher expenses. |
| Net cash used in investing activities | $876.3 | Net cash provided of $531.0 | Shifted to cash use, reflecting development spending and fewer asset-sale proceeds and loan repayments. |
| Net cash used in financing activities | $116.5 | $1,288.5 | Lower cash use, including because 2021 included significant debt repayments. |
| Nareit FFO | $895.2 | $604.7 | Higher; FFO is a non-GAAP measure and excludes specified real estate items. |
| FFO as Adjusted | $940.9 | $870.6 | Higher by $70.3. |
| AFFO | $783.7 | $727.9 | Higher by $55.8; this non-GAAP measure deducts recurring capital expenditures, among other adjustments. |
| Total debt at year-end | $6,497.6 | $6,170.0 approximately | Management reported total debt of approximately $6.5 billion; 85% was fixed rate, versus 79% in 2021. |
| Cash and cash equivalents | $72.0 | $158.3 | Restricted cash was an additional $54.8. |
| Total assets / total equity | $15,771.2 / $7,182.6 | $15,257.5 / $7,058.8 | Both increased. |
Property-level performance: Total Portfolio Adjusted NOI, a company-defined non-GAAP measure, was $1,106.3, compared with $1,030.1 in 2021. Life science contributed $552.5 (50% of total), medical office $433.0 (39%), CCRC $103.8 (9%), and other non-reportable segments $16.9 (2%). Same-Store Adjusted NOI increased 5.1% in life science, 4.0% in medical office, and 8.0% in CCRC.
Year-end occupancy was 98.9% for life science, 90.2% for medical office, and 81.6% for CCRC. Life science occupancy and rents improved; medical office occupancy was broadly stable; CCRC occupancy recovered from 79.1% in 2021. Companywide GAAP margin figures are not presented as a principal performance measure in the filing; segment NOI and Adjusted NOI are non-GAAP measures and should not be treated as GAAP profit margins.
Material changes and transactions
- Healthpeak completed the strategic exit from its senior housing triple-net and SHOP portfolios in 2021; those operations are classified as discontinued operations. 2021 results therefore include significant gains from those sales, making year-over-year net income comparisons less representative of ongoing operations.
- In August 2022, Healthpeak sold a 30% interest in seven South San Francisco life science assets to a sovereign wealth fund for $126 million, retained a 70% interest through joint ventures, and recorded a $311 million gain upon change of control and deconsolidation.
- Development and redevelopment spending increased: cash investment in these activities was $861.6 million in 2022 versus $610.6 million in 2021. Healthpeak reported $219 million of year-end commitments, $197 million expected within 12 months.
- Healthpeak drew $500 million under new term loan facilities in October 2022 and settled 9.1 million previously contracted ATM shares, receiving $308 million net. It repurchased $56 million of stock during 2022; $444 million remained authorized under the buyback program at year-end.
- In February 2023, the company announced a planned UPREIT reorganization, expected to take effect February 10, 2023. The filing stated it would not transfer properties or change consolidated assets and liabilities, and would not require stockholder approval.
Debt, liquidity, outlook, and risks
At December 31, 2022, debt included $995.6 million of commercial paper, $496.0 million of term loans, $4,659.5 million of senior unsecured notes, and $346.6 million of mortgage debt. Commercial paper borrowings carried a 4.90% weighted average rate at year-end and were backed by a $3.0 billion revolving facility with no balance outstanding. Management said cash flow from operations, cash balances, and financing sources should be adequate for the next 12 months and foreseeable future to fund operations, debt service, distributions, and planned investment. That assessment depends in part on continuing access to capital markets. The company reported compliance with its credit agreement covenants at year-end.
Management highlighted inflation, rising interest rates, construction-cost increases, labor shortages, supply-chain disruption, and uncertainty about the continuing effects of Covid. It said these conditions raised borrowing and project costs and could impair tenants’ or operators’ ability to meet obligations. The filing did not provide financial guidance for 2023 in the supplied text. The board declared a quarterly dividend of $0.30 per share in February 2023; 2022 dividends totaled $1.20 per share.
- Credit event after year-end: A $150 million secured loan matured in January 2023 without repayment and was in default; the borrower was discussing repayment options and a possible extension. The filing reported a $8.3 million loan-loss reserve at year-end, up from $1.8 million.
- Concentration and operating exposure: California represented 37% of total assets and 31% of revenue; 67% of life science portfolio gross asset value was in California. HCA Healthcare represented 8% of total revenue. CCRC operations use RIDEA structures, leaving Healthpeak exposed to operating costs and liabilities while relying on third-party operators for day-to-day management.
- Other risks: Rate and refinancing risk, tenant and borrower credit quality, life science funding and leasing conditions, healthcare regulation and reimbursement, natural disasters and insurance limits, and real estate development execution. Florida represented 69% of CCRC portfolio gross asset value, exposing that portfolio to hurricane risk.
- Unusual items: 2022 included $33 million of executive severance-related charges, $7 million of Denver headquarters downsizing costs, $14 million of tenant relocation and demolition costs, and approximately $6 million of net casualty charges, primarily related to Hurricane Ian. CARES Act grants recognized in 2022 totaled $7.9 million across continuing, joint venture, and discontinued operations and may be subject to recapture if conditions are not met.
- The company said it was not aware of legal proceedings expected to have a material adverse effect. The auditor issued an unqualified opinion on the financial statements and internal controls; management also concluded disclosure controls and internal control over financial reporting were effective.
Most important facts for investors to verify
- Current status and recovery prospects of the $150 million secured loan that defaulted after year-end, including collateral value and any updated reserve or workout terms.
- Whether occupancy, leasing, and tenant credit trends remain strong in life science and medical office, and whether life science tenants can sustain funding and space demand.
- Development pipeline costs, delivery dates, lease-up, expected yields, and the impact of higher rates and construction costs.
- Debt maturities, commercial paper refinancing and revolving-facility availability, covenant headroom, and the cost of new or refinanced debt.
- Cash available to support the $0.30 quarterly dividend after recurring capital expenditures, debt service, and committed development spending.
- Final implementation and terms of the announced UPREIT reorganization, and any material changes to the $150 million loan or other post-year-end matters.