The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and with our Annual Report.
OVERVIEW
We are a REIT that is organized underMaryland law and which owns medical office and life science properties, senior living communities and other healthcare related properties throughoutthe United States . As ofJune 30, 2022 , we wholly owned 378 properties, including eight closed senior living communities, located in 36 states andWashington, D.C. AtJune 30, 2022 , the gross book value of our real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, was$6.9 billion . As ofJune 30, 2022 , we owned an equity interest in each of two unconsolidated joint ventures that own medical office and life science properties located in five states with an aggregate of approximately 2.2 million rentable square feet that was 98% leased with an average (by annualized rental income) remaining lease term of 6.5 years. Our business is focused on healthcare related properties, including medical office and life science properties, senior living communities, wellness centers and other medical and healthcare related properties. We believe that the healthcare sector and many of our tenants, managers and operators provide essential services acrossthe United States . Due to restrictions intended to prevent the spread of the virus that causes COVID-19, certain of our medical office and wellness center tenants, which include physician practices that had discontinued non-essential surgeries and procedures and fitness centers that had been ordered closed by state executive orders, experienced disruptions to their businesses. Our senior living community operators also experienced disruptions, including limitations on in-person tours and new admissions, and experienced challenges in attracting new residents to their communities in addition to experiencing increased expenses due to increased labor costs, including higher health benefits costs, and increased costs and consumption of supplies, including personal protective equipment. We are closely monitoring the impacts of the COVID-19 pandemic and the current inflationary market conditions on all aspects of our business, including, but not limited to, labor availability, wage inflation and cost pressures from supply chain disruptions and commodity price inflation in our SHOP segment. We expect to continue to have elevated labor costs on a per resident basis. TheU.S. Federal Reserve has recently raised interest rates in an effort to combat high inflation, which could result in negative consequences in theU.S. economy, and concerns about a potential recession are becoming more pronounced. It is unclear whether theU.S. economy will be able to withstand such challenges and realize continued sustained growth. A recession could adversely affect our financial condition and that of our managers, operators and tenants, could adversely impact the ability of our managers, tenants or residents to pay the contractual amounts of returns, rents or other obligations due to us, could impair our ability to effectively deploy our capital or realize upon investments on favorable terms and may cause the values of our properties and other investments and of our securities to decline. We could also be affected by any overall weakening of, or disruptions in, the financial markets, including an adverse impact on our ability to raise capital and the cost thereof. We believe that we are well positioned to weather the present disruptions facing the real estate industry and, in particular, the real estate healthcare industry, including senior living. However, it is unclear whether the number of COVID-19 infections will further increase or amplify inthe United States or elsewhere and, if so, what the impact of that would be on human health and safety, the economy, or our managers', operators' and tenants' businesses. It is also uncertain what the impact of changing market and economic conditions would be on our and our managers', operators' and tenants' businesses. As a result of these uncertainties, we are unable to determine what the ultimate impacts will be on our, our tenants', our managers', our operators' and other stakeholders' businesses, operations, financial results and financial position. For further information and risks relating to the COVID-19 pandemic and its aftermath on us and our business, see Part I, Item 1, "Business" and Part I, Item 1A, "Risk Factors" in our Annual Report. 21 -------------------------------------------------------------------------------- Table of Contents PORTFOLIO OVERVIEW
The following tables present an overview of our portfolio (dollars in thousands, except investment per square foot or unit data):
% of Total Gross Book Value Gross Book Investment per % of Number Square Feet or Number of of Real Estate Value of Real Square Foot or Q2 2022 Q2 2022 Q2 2022 NOI % of Q2 2022 As of June 30, 2022 of Properties Units Assets(1) Estate Assets
Unit(2) Revenues Revenues (3) NOI Office Portfolio (4) 104 8,722,866 sq. ft.$ 2,193,695 32.0 % $ 251$ 52,610 16.8 %$ 30,584 65.1 % SHOP 234 25,075 units 4,226,840 61.7 %$ 168,568 250,506 80.0 % 6,466 13.8 % Triple net leased senior living communities 30 2,327 units 252,961 3.7 %$ 108,707 6,114 2.0 % 6,114 13.0 % Wellness centers 10 812,000 sq. ft. 178,110 2.6 % $ 219 3,798 1.2 % 3,798 8.1 % Total 378$ 6,851,606 100.0 %$ 313,028 100.0 %$ 46,962 100.0 % Occupancy As of
and For the Three Months Ended
2022 2021 Office Portfolio (5) 88.1 % 91.0 % SHOP 73.6 % 70.9 % Triple net leased senior living communities (6)(7) 79.8 % 74.3 % Wellness centers (7) 100.0 % 100.0 %
(1)Represents gross book value of real estate assets at cost plus certain acquisition costs, before depreciation and purchase price allocations and less impairment write downs, if any.
(2)Represents gross book value of real estate assets divided by number of
rentable square feet or living units, as applicable, at
(3)We calculate our NOI on a consolidated basis and by reportable segment. Our definition of NOI and our reconciliation of net income (loss) to NOI are included below under the heading "Non-GAAP Financial Measures".
(4)Our medical office and life science property leases include some triple net leases where, in addition to paying fixed rents, the tenants assume the obligation to operate and maintain the properties at their expense, and some net and modified gross leases where we are responsible for the operation and maintenance of the properties and we charge tenants for some or all of the property operating costs. A small percentage of our medical office and life science property leases are full-service leases where we receive fixed rent from our tenants and no reimbursement for our property operating costs. (5)Medical office and life science property occupancy data is as ofJune 30, 2022 and 2021 and includes (i) out of service assets undergoing redevelopment, (ii) space which is leased but is not occupied or is being offered for sublease by tenants and (iii) space being fitted out for occupancy. (6)Excludes data for periods prior to our ownership of certain properties, data for properties sold or classified as held for sale, if any, and data for which there was a transfer of operations during the periods presented.
(7)Operating data for triple net leased senior living communities leased to
third party operators and wellness centers are presented based upon the
operating results provided by our tenants for the three months ended
22 -------------------------------------------------------------------------------- Table of Contents During the three and six months endedJune 30, 2022 , we entered into new and renewal leases at our medical office and life science properties in our Office Portfolio segment as summarized in the following tables (dollars and square feet in thousands, except per square foot amounts):
Three Months Ended
New Leases Renewals Total Square feet leased during the quarter 52 211 263
Weighted average rental rate change (by rentable square feet)
14.9 % 6.8 % 9.1 % Weighted average lease term (years) (1) 5.8 5.4 5.5 Total leasing costs and concession commitments (2)$ 2,986
$ 57.47 $ 11.13 $ 20.28 Total leasing costs and concession commitments per square foot per year (2)$ 9.91 $ 2.07 $ 3.69
Six Months Ended
New Leases Renewals Total Square feet leased during the period 172 292 464
Weighted average rental rate change (by rentable square feet)
15.0 % 4.5 % 8.7 % Weighted average lease term (years) (1) 8.4 4.9 6.4 Total leasing costs and concession commitments (2)$ 14,316 $ 3,558 $ 17,874
Total leasing costs and concession commitments per square foot (2)
$ 83.21 $ 12.18 $ 38.50
Total leasing costs and concession commitments per square foot per year (2)
$ 9.92 $ 2.47 $ 6.02 (1)Weighted based on annualized rental income pursuant to existing leases as ofJune 30, 2022 , including straight line rent adjustments and estimated recurring expense reimbursements, and excluding lease value amortization.
(2)Includes commitments made for leasing expenditures and concessions, such as tenant improvements, leasing commissions, tenant reimbursements and free rent.
Lease Expiration Schedules
As ofJune 30, 2022 , lease expirations at our medical office and life science properties in our Office Portfolio segment are as follows (dollars in thousands): Percent of Cumulative Percent Cumulative Year Number of Tenants Square Feet Leased Total of Total Annualized Rental Income(1) Percent of Total Percent of Total 2022 54 418,778 5.4 % 5.4 % $ 11,660 5.3 % 5.3 % 2023 46 658,901 8.6 % 14.0 % 18,229 8.3 % 13.6 % 2024 72 971,967 12.6 % 26.6 % 26,335 12.0 % 25.6 % 2025 74 713,422 9.3 % 35.9 % 16,923 7.7 % 33.3 % 2026 64 796,376 10.4 % 46.3 % 23,932 10.9 % 44.2 % 2027 57 809,691 10.5 % 56.8 % 19,400 8.8 % 53.0 % 2028 33 874,257 11.4 % 68.2 % 22,809 10.4 % 63.4 % 2029 37 390,787 5.1 % 73.3 % 11,259 5.1 % 68.5 % 2030 18 388,369 5.1 % 78.4 % 7,693 3.5 % 72.0 % 2031 and thereafter 50 1,665,116 21.6 % 100.0 % 60,998 28.0 % 100.0 % Total 505 7,687,664 100.0 % $ 219,238 100.0 % Weighted average remaining lease term (in years) 5.3
5.7
(1)Annualized rental income is based on rents pursuant to existing leases as ofJune 30, 2022 , including straight line rent adjustments and estimated recurring expense reimbursements for certain net and modified gross leases and excluding lease value amortization at certain of our medical office and life science properties. Lease expiration data for our triple net leased senior living communities leased to third party operators and wellness centers has not been provided because there were no changes to the lease expiration schedules from those reported in our Annual Report. 23 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS (dollars and square feet in thousands, unless otherwise noted)
We operate in, and report financial information for, the following two segments: Office Portfolio and SHOP. We aggregate each of these two reporting segments based on their similar operating and economic characteristics. Our Office Portfolio segment consists of medical office properties leased to medical providers and other medical related businesses, as well as life science properties leased to biotech laboratories and other similar tenants. Our SHOP segment consists of managed senior living communities that provide short term and long term residential living and, in some instances, care and other services for residents where we pay fees to managers to operate the communities. We also report "non-segment" operations, consisting of triple net leased senior living communities and wellness centers that are leased to third party operators from which we receive rents, which we do not consider to be sufficiently material to constitute a separate reporting segment, and any other income or expenses that are not attributable to a specific reporting segment.
The following table summarizes the results of operations of each of our segments
for the three and six months ended
Three Months Ended June 30, Six Months Ended June 30, 2022 2021 2022 2021 Revenues: Office Portfolio$ 52,610 $ 92,804 $ 107,607 $ 186,127 SHOP 250,506 243,947 495,954 503,913 Non-Segment 9,912 9,590 20,200 19,025 Total revenues$ 313,028 $ 346,341 $ 623,761 $ 709,065 Net income (loss) attributable to common shareholders: Office Portfolio$ 14,365 $ 52,177 $ 358,056 $ 74,886 SHOP (30,094) (6,679) (65,967) (32,093) Non-Segment (93,654) (79,720) (161,049) (144,520) Net income (loss) attributable to common shareholders$ (109,383) $ (34,222) $ 131,040 $ (101,727)
The following sections analyze and discuss the results of operations of each of our segments for the periods presented.
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Three Months Ended
Unless otherwise indicated, references in this section to changes or comparisons of results, income or expenses refer to comparisons of the results for the three months endedJune 30, 2022 to the three months endedJune 30, 2021 . Our definition of NOI and our reconciliation of net income (loss) to NOI and a description of why we believe NOI is an appropriate supplemental measure are included below under the heading "Non-GAAP Financial Measures."
Three Months Ended
2022 2021 $ Change % Change NOI by segment: Office Portfolio$ 30,584 $ 61,483 $ (30,899) (50.3) % SHOP 6,466 10,636 (4,170) (39.2) % Non-Segment 9,912 9,590 322 3.4 % Total NOI 46,962 81,709 (34,747) (42.5) % Depreciation and amortization 58,261 67,888 (9,627) (14.2) % General and administrative 7,207 9,126 (1,919) (21.0) % Acquisition and certain other transaction related costs 609 12,071 (11,462) (95.0) % (Loss) gain on sale of properties (686) 30,760 (31,446) (102.2) % Losses on equity securities, net (10,157) (3,849) (6,308) 163.9 % Interest and other income 2,266 16,038 (13,772) (85.9) % Interest expense (55,975) (67,657) 11,682 (17.3) % Loss on modification or early extinguishment of debt (29,560) (370) (29,190) nm Loss from continuing operations before income tax benefit (expense) and equity in earnings of investees (113,227) (32,454) (80,773) 248.9 % Income tax benefit (expense) 640 (191) 831 nm Equity in earnings of investees 3,204 - 3,204 nm Net loss (109,383) (32,645) (76,738) 235.1 % Net income attributable to noncontrolling interest - (1,577) 1,577 (100.0) % Net loss attributable to common shareholders$ (109,383) $ (34,222) $ (75,161) 219.6 % nm - not meaningful Office Portfolio: Comparable Properties (1) All Properties As of June 30, As of June 30, 2022 2021 2022 2021 Total buildings 95 95 104 118 Total square feet (2) 8,019 8,020 8,723 10,927 Occupancy (3) 91.2 % 91.8 % 88.1 % 91.0 % (1)Consists of medical office and life science properties that we have owned and which have been in service continuously sinceApril 1, 2021 ; excludes properties classified as held for sale or out of service undergoing redevelopment, if any, and medical office and life science properties owned by unconsolidated joint ventures in each of which we own an equity interest.
(2)Prior periods exclude space remeasurements made subsequent to those periods.
(3)All property occupancy for medical office and life science properties includes (i) out of service assets undergoing redevelopment, (ii) space which is leased but is not occupied or is being offered for sublease by tenants, and (iii) space being fitted out for occupancy. Comparable property occupancy excludes out of service assets undergoing redevelopment and medical office and life science properties owned by unconsolidated joint ventures in each of which we own an equity interest. 25
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