Release Date: October 25, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Healthpeak Properties Inc (DOC, Financial) increased its guidance for the third time this year, driven by strong performance in leasing, same-store operations, and merger synergies.
• The company reported significant merger synergies, now tracking to be $50 million, which is 25% above initial forecasts.
• Leasing momentum is strong, with over 700,000 square feet of leases signed since July 1, including significant activity in high-priority campuses.
• The outpatient medical business is capturing record re-leasing spreads, with rent escalators moving up to 3% on new leases.
• Healthpeak Properties Inc (DOC) has a strong balance sheet with a net debt to EBITDA of 5.1 times and $3 billion of liquidity, allowing for potential accretive acquisitions.

Negative Points

• The lab market faces challenges with new supply, which could impact leasing demand despite positive trends in funding and IPOs.
• Free rent concessions remain a factor, with typical concessions being about a month of free rent for every year of lease term.
• The company faces potential headwinds from redevelopment needs, with some older buildings requiring significant capital investment.
• Despite strong performance, the CCRCs segment is not considered strategic to the overall platform, lacking synergies with other business areas.
• The life science development pipeline is constrained by high construction costs and current cost of capital, limiting new project starts.

Q & A Highlights

Q: Can you quantify the leasing activity at Gateway, Vantage, and Portside, and how should we think about the NOI commencement and existing tenant base? A: Peter Scott, CFO: We signed around 340,000 square feet of new leases, with an existing tenant footprint of about 100,000 square feet, resulting in a net absorption of 240,000 square feet. Of the $60 million NOI upside, we've executed leases for over $30 million. About one-third of this will impact 2025, with the remainder in 2026 and 2027.

Q: How is the broader lab market performing, and what trends are impacting leasing demand? A: Scott Bohn, Chief Development Officer: The IPO market is improving, with 26 IPOs this year, surpassing 2023. Venture capital fundraising is at a record high, and Big Pharma is investing heavily in biotech due to upcoming patent expirations. This is expected to increase tenant and leasing demand.

Q: What opportunities are you seeing in structured investments, and why choose this over outright building purchases? A: Scott Brinker, CEO: Structured investments provide immediate accretion and allow us to buy time for lease-ups. We are seeing opportunities in key submarkets and prefer structured investments for their seniority in the capital stack. However, we may consider outright purchases if strategic.

Q: Can you elaborate on the merger synergies and whether there is potential for further upside? A: Scott Brinker, CEO: The merger has exceeded expectations, particularly at the property level due to internalization. We have achieved $50 million in synergies, with potential for more as we continue to internalize property management functions.

Q: How is the tenant demand in the lab sector, and what types of tenants are driving this demand? A: Scott Bohn, Chief Development Officer: About 71% of our leasing activity involved existing tenants, with demand coming from a diverse range of life science companies, from Series A startups to large pharmaceutical firms. Tenants are expanding their footprint significantly within our portfolio.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.