HEALTHPEAK PROPERTIES, INC. All references in this report to "Healthpeak," the "Company," "we," "us" or
"our" mean
Cautionary Language Regarding Forward-Looking Statements
Statements in this Quarterly Report on Form 10-Q that are not historical factual statements are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements include, among other things, statements regarding our and our officers' intent, belief or expectation as identified by the use of words such as "may," "will," "project," "expect," "believe," "intend," "anticipate," "seek," "target," "forecast," "plan," "potential," "estimate," "could," "would," "should" and other comparable and derivative terms or the negatives thereof. Forward-looking statements reflect our current expectations and views about future events and are subject to risks and uncertainties that could cause actual results, including our future financial condition and results of operations, to differ materially from those expressed or implied by any forward-looking statements. You are urged to carefully review the disclosures we make concerning risks and uncertainties that may affect our business and future financial performance. Forward-looking statements are based on certain assumptions and analysis made in light of our experience and perception of historical trends, current conditions and expected future developments as well as other factors that we believe are appropriate under the circumstances. While forward-looking statements reflect our good faith belief and assumptions we believe to be reasonable based upon current information, we can give no assurance that our expectations or forecasts will be attained. Further, we cannot guarantee the accuracy of any such forward-looking statement contained in this Quarterly Report on Form 10-Q. As more fully set forth under Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 , risks and uncertainties that may cause our actual results to differ materially from the expectations contained in the forward-looking statements include, among other things: •the coronavirus ("Covid") pandemic and health and safety measures intended to reduce its spread, the availability, effectiveness and public usage and acceptance of vaccines, and how quickly and to what extent normal economic and operating conditions can resume within the markets in which we operate;
•the ability of our existing and future tenants, operators, and borrowers to conduct their respective businesses in a manner sufficient to maintain or increase their revenues and manage their expenses in order to generate sufficient income to make rent and loan payments to us and our ability to recover investments made, if applicable, in their operations;
•increased competition, operating costs, and market changes affecting our tenants, operators, and borrowers;
•the financial condition of our tenants, operators, and borrowers, including potential bankruptcies and downturns in their businesses, and their legal and regulatory proceedings; •our concentration of real estate investments in the healthcare property sector, which makes us more vulnerable to a downturn in a specific sector than if we invested in multiple industries and exposes us to the risks inherent in illiquid investments;
•our ability to identify and secure replacement tenants and operators and the potential renovation costs and regulatory approvals associated therewith;
•our property development, redevelopment, and tenant improvement activity risks, including project abandonments, project delays, and lower profits than expected;
•changes within the life science industry;
•high levels of regulation, funding requirements, expense and uncertainty faced by our life science tenants;
•the ability of the hospitals on whose campuses our medical office buildings ("MOBs") are located and their affiliated healthcare systems to remain competitive or financially viable;
•our ability to maintain or expand our hospital and health system client relationships;
•operational risks associated with third party management contracts, including the additional regulation and liabilities of our properties operated through structures permitted by the Housing and Economic Recovery Act of 2008, which includes most of the provisions previously proposed in theREIT Investment Diversification and Empowerment Act of 2007 (commonly referred to as "RIDEA"); 37
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•economic and other conditions that negatively affect geographic areas from which we recognize a greater percentage of our revenue;
•uninsured or underinsured losses, which could result in significant losses and/or performance declines by us or our tenants and operators;
•our investments in joint ventures and unconsolidated entities, including our lack of sole decision making authority and our reliance on our partners' financial condition and continued cooperation;
•our use of fixed rent escalators, contingent rent provisions and/or rent escalators based on the Consumer Price Index;
•competition for suitable healthcare properties to grow our investment portfolio;
•our ability to foreclose on collateral securing our real estate-related loans;
•our ability to make material acquisitions and successfully integrate them;
•the potential impact on us and our tenants, operators, and borrowers from litigation matters, including rising liability and insurance costs;
•an increase in our borrowing costs, including due to higher interest rates;
•the availability of external capital on acceptable terms or at all, including due to rising interest rates, changes in our credit ratings and the value of our common stock, volatility or uncertainty in the capital markets, and other factors;
•cash available for distribution to stockholders and our ability to make dividend distributions at expected levels;
•our ability to manage our indebtedness level and covenants in and changes to the terms of such indebtedness;
•changes in global, national and local economic and other conditions;
•laws or regulations prohibiting eviction of our tenants;
•the failure of our tenants, operators, and borrowers to comply with federal, state and local laws and regulations, including resident health and safety requirements, as well as licensure, certification, and inspection requirements;
•required regulatory approvals to transfer our senior housing properties;
•compliance with the Americans with Disabilities Act and fire, safety and other regulations;
•the requirements of, or changes to, governmental reimbursement programs such as Medicare or Medicaid;
•legislation to address federal government operations and administration
decisions affecting the
•our participation in the Coronavirus Aid, Relief, and Economic Security Act
("CARES Act") Provider Relief Fund and other Covid-related stimulus and relief
programs;
•provisions of
•environmental compliance costs and liabilities associated with our real estate investments;
•our ability to maintain our qualification as a real estate investment trust ("REIT");
•changes to
•calculating non-REIT tax earnings and profits distributions;
•ownership limits in our charter that restrict ownership in our stock;
•the loss or limited availability of our key personnel; and
•our reliance on information technology systems and the potential impact of system failures, disruptions or breaches.
Except as required by law, we do not undertake, and hereby disclaim, any obligation to update any forward-looking statements, which speak only as of the date on which they are made.
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Overview
The information set forth in this Item 2 is intended to provide readers with an understanding of our financial condition, changes in financial condition and results of operations. We will discuss and provide our analysis in the following order: •Executive Summary
•Market Trends and Uncertainties
•Overview of Transactions •Dividends •Results of Operations
•Liquidity and Capital Resources
•Non-GAAP Financial Measures Reconciliations
•Critical Accounting Estimates and Recent Accounting Pronouncements
Executive Summary
Healthpeak Properties, Inc. is aStandard & Poor's ("S&P") 500 company that acquires, develops, owns, leases and manages healthcare real estate acrossthe United States ("U.S."). Our company was originally founded in 1985. We are aMaryland corporation and qualify as a self-administered REIT. Our corporate headquarters are located inDenver, Colorado and we have additional offices inCalifornia ,Tennessee , andMassachusetts . During 2020, we began the process of disposing of our senior housing triple-net and senior housing operating property ("SHOP") portfolios. As ofDecember 31, 2020 , we concluded that the planned dispositions represented a strategic shift that had and will have a major effect on our operations and financial results and, therefore, the assets are classified as discontinued operations in all periods presented herein. InSeptember 2021 , we successfully completed the disposition of both portfolios. See Note 4 to the Consolidated Financial Statements for further information regarding discontinued operations. In conjunction with the disposal of our senior housing triple-net and SHOP portfolios, we focused our strategy on investing in a diversified portfolio of high-quality healthcare properties across our three core asset classes of life science, medical office, and continuing care retirement community ("CCRC") real estate. Under the life science and medical office segments, we invest through the acquisition, development and management of life science facilities, MOBs, and hospitals. Under the CCRC segment, our properties are operated through RIDEA structures. We have other non-reportable segments that are comprised primarily of debt investments and an interest in an unconsolidated joint venture that owns 19 senior housing assets (our "SWF SH JV"). AtJune 30, 2022 , our portfolio of investments, including properties in our unconsolidated joint ventures, consisted of interests in 481 properties. The following table summarizes information for our reportable and other non-reportable segments, excluding discontinued operations, for the three months endedJune 30, 2022 (dollars in thousands): Total Portfolio Percentage of Total Segment Adjusted NOI(1) Portfolio Adjusted NOI Number of Properties Life science $ 137,422 50 % 149 Medical office 107,281 39 % 298 CCRC 23,292 9 % 15 Other non-reportable 4,119 2 % 19 Totals $ 272,114 100 % 481
_______________________________________
(1)Total Portfolio metrics include results of operations from disposed properties through the disposition date. See "Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations-Non-GAAP Financial Measures" for additional information regarding Adjusted NOI and see Note 13 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
For a description of our significant activities during 2022, see "Item 2, Management's Discussion and Analysis of Financial Condition and Results of Operations-Overview of Transactions" in this report.
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We invest in and manage our real estate portfolio for the long-term to maximize benefit to our stockholders and support the growth of our dividends. Our strategy consists of four core elements:
(i)Our real estate: Our portfolio is grounded in high-quality properties in desirable locations. We focus on three purposely selected private pay asset classes-life science, medical office, and continuing care retirement community-to provide stability through inevitable market cycles.
(ii)Our financials: We maintain a strong investment-grade balance sheet with ample liquidity as well as long-term fixed-rate debt financing with staggered maturities to reduce our exposure to interest rate volatility and refinancing risk. (iii)Our partnerships: We work with leading healthcare companies, operators, and service providers and are responsive to their space and capital needs. We provide high-quality property management services to encourage tenants to renew, expand, and relocate into our properties, which drives increased occupancy, rental rates, and property values. (iv)Our platform: We have a people-first culture that we believe attracts, develops and retains top talent. We continually strive to create and maintain an industry-leading platform, with systems and tools that allow us to effectively and efficiently manage our assets and investment activity.
Market Trends and Uncertainties
Our operating results, including our sources and uses of capital, have been and will continue to be impacted by the Covid pandemic, as well as by global and national economic and market conditions generally and by the local economic conditions where our properties are located. We do not yet know the full, long-term economic impact of the Covid pandemic and whether or when occupancy and revenue in our CCRC communities and the senior housing facilities owned by our SWF SH JV will return to pre-pandemic levels. In addition, our tenants, operators, and borrowers have experienced significant cost increases as a result of increased health and safety measures, staffing shortages, increased governmental regulation and compliance, vaccine mandates, and other operational changes necessitated either directly or indirectly by the Covid pandemic, as well as due to current inflationary pressures. Labor costs in particular have increased as a result of higher staffing hours, increased hourly wages and bonuses, greater overtime, and increased usage of contract labor. We anticipate that many of these expenses will remain at these higher levels even after the pandemic passes, and are likely to reduce margins in the business. Further, the Covid pandemic and its ongoing impacts continue to cause disruptions in theU.S. and global economies and capital markets, resulting in volatility, widening credit spreads, and limited liquidity availability. Other factors, such as rising interest rates, high inflation, supply chain disruptions, growing geopolitical tensions, and increased volatility in public equity and fixed income markets have also led to increased costs and limited the availability of capital. To the extent our tenants or operators experience increased costs or financing difficulties due to the foregoing macroeconomic conditions, they may be unable or unwilling to make payments or perform their obligations when due. We have also seen significant inflation in construction costs over the past 12-18 months, which may, together with rising costs of capital, negatively affect the expected yields on our development and redevelopment projects. In addition, labor shortages and global supply chain disruptions, including procurement delays and long lead times on certain materials, have adversely impacted and could continue to adversely impact the scheduled completion and/or costs of these projects. We continuously monitor the effects of domestic and global events, including but not limited to the current and expected impact of the Covid pandemic, inflation, labor shortages, supply chain matters, and rising interest rates, on our operations and financial position, as well as on the operations and financial position of our tenants, operators, and borrowers, to ensure that we remain responsive and adaptable to the dynamic changes in our operating environment. A discussion of potential long-term changes in the industry are more fully set forth under Part II, Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations-Covid Update" in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . See Part I, Item 1A. "Risk Factors" in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 for additional discussion of the risks posed by the Covid pandemic and macroeconomic conditions, as well as the uncertainties we and our tenants, operators, and borrowers may face as a result. 40
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Table of Contents Overview of Transactions67 Smith Place
In
Vista Sorrento Phase II
In
Webster MOB Portfolio
In
In
Other Real Estate Transactions
•During the six months ended
•Also during the six months ended
•During the three months ended
•In
•OnAugust 1, 2022 , we entered into a master equity transaction agreement with a sovereign wealth fund ("SWF Partner") that provides us the opportunity to sell up to 30% interests in certain redevelopment and future development projects owned by us. Concurrently, we executed definitive agreements with the SWF Partner to sell a 30% interest in seven life science assets inSouth San Francisco, California for gross proceeds of$126 million . We and the SWF Partner will share in key decisions related to the planned redevelopment and operation of the assets, resulting in us deconsolidating the previously wholly-owned assets and recognizing our 70% share as an equity method investment.
Financing Activities
•In
Development Activities
•At
•During the six months endedJune 30, 2022 , the following projects were placed in service: (i) three MOB development projects with total costs incurred of$58 million , (ii) one MOB redevelopment project with total costs incurred of$10 million , (iii) three life science development projects with total costs incurred of$269 million , (iv) one life science redevelopment project with total costs incurred of$60 million , and (v) a portion of one life science development project with total costs incurred of$40 million .
Dividends
The following table summarizes our common stock cash dividends declared in 2022:
Amount Dividend
Declaration Date Record Date Per Share Payment Date
January 27 February 11 $ 0.30 February 22
April 28 May 9 0.30 May 20
July 28 August 8 0.30 August 19
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Results of Operations
We evaluate our business and allocate resources among our reportable business
segments: (i) life science, (ii) medical office, and (iii) CCRC. Under the life
science and medical office segments, we invest through the acquisition,
development, and management of life science facilities, MOBs, and hospitals,
which generally requires a greater level of property management. Our CCRCs are
operated through RIDEA structures. We have other non-reportable segments that
are comprised primarily of: (i) an interest in our unconsolidated SWF SH JV and
(ii) debt investments. We evaluate performance based upon property adjusted net
operating income ("Adjusted NOI" or "Cash NOI") in each segment. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies in Note 2 to the Consolidated Financial
Statements in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2021 filed with the U.S. Securities and Exchange Commission
("SEC"), as updated by Note 2 to the Consolidated Financial Statements herein.
Non-GAAP Financial Measures
Net Operating Income
NOI and Adjusted NOI are non-U.S. generally accepted accounting principles ("GAAP") supplemental financial measures used to evaluate the operating performance of real estate. NOI is defined as real estate revenues (inclusive of rental and related revenues, resident fees and services, income from direct financing leases, and government grant income and exclusive of interest income), less property level operating expenses; NOI excludes all other financial statement amounts included in net income (loss) as presented in Note 13 to the Consolidated Financial Statements. Adjusted NOI is calculated as NOI after eliminating the effects of straight-line rents, DFL non-cash interest, amortization of market lease intangibles, termination fees, actuarial reserves for insurance claims that have been incurred but not reported, and the impact of deferred community fee income and expense. NOI and Adjusted NOI include our share of income (loss) generated by unconsolidated joint ventures and exclude noncontrolling interests' share of income (loss) generated by consolidated joint ventures. Adjusted NOI is oftentimes referred to as "Cash NOI." Management believes NOI and Adjusted NOI are important supplemental measures because they provide relevant and useful information by reflecting only income and operating expense items that are incurred at the property level and present them on an unlevered basis. We use NOI and Adjusted NOI to make decisions about resource allocations, to assess and compare property level performance, and to evaluate our Same-Store ("SS") performance, as described below. We believe that net income (loss) is the most directly comparable GAAP measure to NOI and Adjusted NOI. NOI and Adjusted NOI should not be viewed as alternative measures of operating performance to net income (loss) as defined by GAAP since they do not reflect various excluded items. Further, our definitions of NOI and Adjusted NOI may not be comparable to the definitions used by other REITs or real estate companies, as they may use different methodologies for calculating NOI and Adjusted NOI. For a reconciliation of NOI and Adjusted NOI to net income (loss) by segment, refer to Note 13 to the Consolidated Financial Statements. Operating expenses generally relate to leased medical office and life science properties, as well as CCRC facilities. We generally recover all or a portion of our leased medical office and life science property expenses through tenant recoveries. We present expenses as operating or general and administrative based on the underlying nature of the expense.
Same-Store
Same-Store NOI and Adjusted (Cash) NOI information allows us to evaluate the
performance of our property portfolio under a consistent population by
eliminating changes in the composition of our consolidated portfolio of
properties. Same-Store Adjusted NOI excludes amortization of deferred revenue
from tenant-funded improvements and certain non-property specific operating
expenses that are allocated to each operating segment on a consolidated basis.
Properties are included in Same-Store once they are stabilized for the full
period in both comparison periods. Newly acquired operating assets are generally
considered stabilized at the earlier of lease-up (typically when the tenant(s)
control(s) the physical use of at least 80% of the space and rental payments
have commenced) or 12 months from the acquisition date. Newly completed
developments and redevelopments are considered stabilized at the earlier of
lease-up or 24 months from the date the property is placed in service.
Properties that experience a change in reporting structure are considered
stabilized after 12 months in operations under a consistent reporting structure.
A property is removed from Same-Store when it is classified as held for sale,
sold, placed into redevelopment, experiences a casualty event that significantly
impacts operations, a change in reporting structure or operator transition has
been agreed to, or a significant tenant relocates from a Same-Store property to
a non Same-Store property and that change results in a corresponding increase in
revenue. We do not report Same-Store metrics for our other non-reportable
segments. For a reconciliation of Same-Store to total portfolio Adjusted NOI and
other relevant disclosures by segment, refer to our Segment Analysis below.
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Funds From Operations ("FFO")
FFO encompasses Nareit FFO and FFO as Adjusted, each of which is described in detail below. We believe FFO applicable to common shares, diluted FFO applicable to common shares, and diluted FFO per common share are important supplemental non-GAAP measures of operating performance for a REIT. Because the historical cost accounting convention used for real estate assets utilizes straight-line depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen and fallen with market conditions, presentations of operating results for a REIT that use historical cost accounting for depreciation could be less informative. The term FFO was designed by the REIT industry to address this issue. Nareit FFO. FFO, as defined by theNational Association of Real Estate Investment Trusts ("Nareit"), is net income (loss) applicable to common shares (computed in accordance with GAAP), excluding gains or losses from sales of depreciable property, including any current and deferred taxes directly associated with sales of depreciable property, impairments of, or related to, depreciable real estate, plus real estate and other real estate-related depreciation and amortization, and adjustments to compute our share of Nareit FFO and FFO as Adjusted (see below) from joint ventures. Adjustments for joint ventures are calculated to reflect our pro-rata share of both our consolidated and unconsolidated joint ventures. We reflect our share of Nareit FFO for unconsolidated joint ventures by applying our actual ownership percentage for the period to the applicable reconciling items on an entity by entity basis. For consolidated joint ventures in which we do not own 100%, we reflect our share of the equity by adjusting our Nareit FFO to remove the third party ownership share of the applicable reconciling items based on actual ownership percentage for the applicable periods. Our pro-rata share information is prepared on a basis consistent with the comparable consolidated amounts, is intended to reflect our proportionate economic interest in the operating results of properties in our portfolio and is calculated by applying our actual ownership percentage for the period. We do not control the unconsolidated joint ventures, and the pro-rata presentations of reconciling items included in Nareit FFO do not represent our legal claim to such items. The joint venture members or partners are entitled to profit or loss allocations and distributions of cash flows according to the joint venture agreements, which provide for such allocations generally according to their invested capital. The presentation of pro-rata information has limitations, which include, but are not limited to, the following: (i) the amounts shown on the individual line items were derived by applying our overall economic ownership interest percentage determined when applying the equity method of accounting and do not necessarily represent our legal claim to the assets and liabilities, or the revenues and expenses and (ii) other companies in our industry may calculate their pro-rata interest differently, limiting the usefulness as a comparative measure. Because of these limitations, the pro-rata financial information should not be considered independently or as a substitute for our financial statements as reported under GAAP. We compensate for these limitations by relying primarily on our GAAP financial statements, using the pro-rata financial information as a supplement. Nareit FFO does not represent cash generated from operating activities in accordance with GAAP, is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to net income (loss). We compute Nareit FFO in accordance with the current Nareit definition; however, other REITs may report Nareit FFO differently or have a different interpretation of the current Nareit definition from ours. 43
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FFO as Adjusted. In addition, we present Nareit FFO on an adjusted basis before
the impact of non-comparable items including, but not limited to,
transaction-related items, other impairments (recoveries) and other losses
(gains), restructuring and severance related charges, prepayment costs
(benefits) associated with early retirement or payment of debt, litigation costs
(recoveries), casualty-related charges (recoveries), foreign currency
remeasurement losses (gains), deferred tax asset valuation allowances, and
changes in tax legislation ("FFO as Adjusted"). Transaction-related items
include transaction expenses and gains/charges incurred as a result of mergers
and acquisitions and lease amendment or termination activities. Prepayment costs
(benefits) associated with early retirement of debt include the write-off of
unamortized deferred financing fees, or additional costs, expenses, discounts,
make-whole payments, penalties or premiums incurred as a result of early
retirement or payment of debt. Other impairments (recoveries) and other losses
(gains) include interest income associated with early and partial repayments of
loans receivable and other losses or gains associated with non-depreciable
assets including goodwill, DFLs, undeveloped land parcels, and loans receivable.
Management believes that FFO as Adjusted provides a meaningful supplemental
measurement of our FFO run-rate and is frequently used by analysts, investors,
and other interested parties in the evaluation of our performance as a REIT. At
the same time that Nareit created and defined its FFO measure for the REIT
industry, it also recognized that "management of each of its member companies
has the responsibility and authority to publish financial information that it
regards as useful to the financial community." We believe stockholders,
potential investors, and financial analysts who review our operating performance
are best served by an FFO run-rate earnings measure that includes certain other
adjustments to net income (loss), in addition to adjustments made to arrive at
the Nareit defined measure of FFO. FFO as Adjusted is used by management in
analyzing our business and the performance of our properties and we believe it
is important that stockholders, potential investors, and financial analysts
understand this measure used by management. We use FFO as Adjusted to: (i)
evaluate our performance in comparison with expected results and results of
previous periods, relative to resource allocation decisions, (ii) evaluate the
performance of our management, (iii) budget and forecast future results to
assist in the allocation of resources, (iv) assess our performance as compared
with similar real estate companies and the industry in general, and (v) evaluate
how a specific potential investment will impact our future results. Other REITs
or real estate companies may use different methodologies for calculating an
adjusted FFO measure, and accordingly, our FFO as Adjusted may not be comparable
to those reported by other REITs. For a reconciliation of net income (loss) to
Nareit FFO and FFO as Adjusted and other relevant disclosure, refer to "Non-GAAP
Financial Measures Reconciliations" below.
Adjusted FFO ("AFFO"). AFFO is defined as FFO as Adjusted after excluding the
impact of the following: (i) amortization of stock-based compensation, (ii)
amortization of deferred financing costs, net, (iii) straight-line rents, (iv)
deferred income taxes, and (v) other AFFO adjustments, which include: (a)
amortization of acquired market lease intangibles, net, (b) non-cash interest
related to DFLs and lease incentive amortization (reduction of straight-line
rents), (c) actuarial reserves for insurance claims that have been incurred but
not reported, and (d) amortization of deferred revenues, excluding amounts
amortized into rental income that are associated with tenant funded improvements
owned/recognized by us and up-front cash payments made by tenants to reduce
their contractual rents. Also, AFFO is computed after deducting recurring
capital expenditures, including second generation leasing costs and second
generation tenant and capital improvements, and includes adjustments to compute
our share of AFFO from our unconsolidated joint ventures. More specifically,
recurring capital expenditures, including second generation leasing costs and
second generation tenant and capital improvements ("AFFO capital expenditures")
excludes our share from unconsolidated joint ventures (reported in "other AFFO
adjustments"). Adjustments for joint ventures are calculated to reflect our
pro-rata share of both our consolidated and unconsolidated joint ventures. We
reflect our share of AFFO for unconsolidated joint ventures by applying our
actual ownership percentage for the period to the applicable reconciling items
on an entity by entity basis. We reflect our share for consolidated joint
ventures in which we do not own 100% of the equity by adjusting our AFFO to
remove the third party ownership share of the applicable reconciling items based
on actual ownership percentage for the applicable periods (reported in "other
AFFO adjustments"). See FFO for further disclosure regarding our use of pro-rata
share information and its limitations. Other REITs or real estate companies may
use different methodologies for calculating AFFO, and accordingly, our AFFO may
not be comparable to those reported by other REITs. Although our AFFO
computation may not be comparable to that of other REITs, management believes
AFFO provides a meaningful supplemental measure of our performance and is
frequently used by analysts, investors, and other interested parties in the
evaluation of our performance as a REIT. We believe AFFO is an alternative
run-rate earnings measure that improves the understanding of our operating
results among investors and makes comparisons with: (i) expected results, (ii)
results of previous periods, and (iii) results among REITs more meaningful. AFFO
does not represent cash generated from operating activities determined in
accordance with GAAP and is not necessarily indicative of cash available to fund
cash needs as it excludes the following items which generally flow through our
cash flows from operating activities: (i) adjustments for changes in working
capital or the actual timing of the payment of income or expense items that are
accrued in the period, (ii) transaction-related costs, (iii) litigation
settlement expenses, and (iv) restructuring and severance-related charges.
Furthermore, AFFO is adjusted for recurring capital expenditures, which are
generally not considered when determining cash flows from operations or
liquidity. AFFO is a non-GAAP supplemental financial measure and should not be
considered as an alternative to net income (loss) determined in accordance with
GAAP. For a reconciliation of net income (loss) to AFFO and other relevant
disclosure, refer to "Non-GAAP Financial Measures Reconciliations" below.
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Comparison of the Three and Six Months Ended
Overview
Three Months Ended
The following table summarizes results for the three months endedJune 30, 2022 and 2021 (in thousands): Three Months Ended June 30, 2022 2021 Change Net income (loss) applicable to common shares$ 68,057 $ 275,993 $ (207,936) Nareit FFO 236,154 149,671 86,483 FFO as Adjusted 236,478 217,242 19,236 AFFO 195,595 189,038 6,557
Net income (loss) applicable to common shares decreased primarily as a result of the following:
•a decrease in income from discontinued operations, primarily as a result of: (i) a decrease in gain on sales of real estate from dispositions of our senior housing portfolios and (ii) decreased NOI from dispositions of our senior housing portfolios, partially offset by lower impairments of depreciable real estate and goodwill;
•a decrease in gains on sale of depreciable real estate related to the
•a decrease in interest income primarily as a result of principal repayments on and sales of loans receivable in 2021 and 2022;
•an increase in depreciation, primarily as a result of: (i) 2021 and 2022 acquisitions of real estate and (ii) development and redevelopment projects placed in service during 2021 and 2022; and
•an increase in interest expense, primarily as a result of higher interest rates under the commercial paper program.
The decrease in net income (loss) applicable to common shares was partially offset by:
•a decrease in loss on debt extinguishments related to our repurchase and redemption of certain outstanding senior notes in the second quarter of 2021;
•an increase in NOI generated from our life science and medical office segments related to: (i) 2021 and 2022 acquisitions of real estate, (ii) development and redevelopment projects placed in service during 2021 and 2022, and (iii) new leasing activity during 2021 and 2022 (including the impact to straight-line rents); and
•a reduction in loan loss reserves in 2022 primarily due to a lower loans receivable balance.
Nareit FFO increased primarily as a result of the aforementioned events impacting net income (loss) applicable to common shares, except for the following, which are excluded from Nareit FFO:
•gain on sales of depreciable real estate;
•depreciation and amortization expense; and
•impairment charges related to depreciable real estate.
FFO as Adjusted increased primarily as a result of the aforementioned events impacting Nareit FFO, except for the following, which are excluded from FFO as Adjusted:
•loss on debt extinguishment;
•the goodwill impairment charge related to senior housing triple-net asset sales; and
•loan loss reserves.
AFFO increased primarily as a result of the aforementioned events impacting FFO
as Adjusted, except for the impact of straight-line rents, which is excluded
from AFFO. The increase was partially offset by higher AFFO capital expenditures
during the period.
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Six Months Ended
The following table summarizes results for the six months endedJune 30, 2022 and 2021 (in thousands): Six Months Ended June 30, 2022 2021 Change Net income (loss) applicable to common shares$ 137,693 $ 419,336 $ (281,643) Nareit FFO 479,583 189,905 289,678 FFO as Adjusted 471,295 432,635 38,660 AFFO 397,625 373,839 23,786
Net income (loss) applicable to common shares decreased primarily as a result of the following:
•a decrease in income from discontinued operations, primarily as a result of: (i) a decrease in gain on sales of real estate from dispositions of our senior housing portfolios and (ii) decreased NOI from dispositions of our senior housing portfolios, partially offset by lower impairments of depreciable real estate and goodwill;
•a decrease in gains on sale of depreciable real estate related to the
•an increase in depreciation, primarily as a result of: (i) 2021 and 2022 acquisitions of real estate and (ii) development and redevelopment projects placed in service during 2021 and 2022;
•a decrease in interest income primarily as a result of principal repayments on and sales of loans receivable in 2021 and 2022; and
•expenses incurred for tenant relocation and other costs associated with a planned MOB demolition.
The decrease in net income (loss) applicable to common shares was partially offset by:
•a decrease in loss on debt extinguishments related to our repurchase and redemption of certain outstanding senior notes in the first and second quarters of 2021;
•an increase in NOI generated from our life science and medical office segments related to: (i) 2021 and 2022 acquisitions of real estate, (ii) development and redevelopment projects placed in service during 2021 and 2022, and (iii) new leasing activity during 2021 and 2022 (including the impact to straight-line rents);
•a gain on sale of a hospital that was classified as a DFL that was sold in the first quarter of 2022;
•a reduction in interest expense, primarily as a result of senior unsecured notes repurchases and redemptions in the first and second quarters of 2021, partially offset by higher interest rates under the commercial paper program;
•an increase in government grant income received under the CARES Act in 2022; and
•a reduction in loan loss reserves in 2022 primarily due to a lower loans receivable balance.
Nareit FFO increased primarily as a result of the aforementioned events impacting net income (loss) applicable to common shares, except for the following, which are excluded from Nareit FFO:
•net gain on sales of depreciable real estate;
•depreciation and amortization expense;
•impairment charges related to depreciable real estate.
FFO as Adjusted increased primarily as a result of the aforementioned events impacting Nareit FFO, except for the following, which are excluded from FFO as Adjusted:
•loss on debt extinguishment;
•the gain on sale of a hospital that was classified as a DFL;
•the expenses for tenant relocation and other costs associated with a planned MOB demolition;
•the goodwill impairment charge related to senior housing triple-net asset sales; and
•loan loss reserves.
AFFO increased primarily as a result of the aforementioned events impacting FFO
as Adjusted, except for the impact of straight-line rents, which is excluded
from AFFO. The increase was partially offset by higher AFFO capital expenditures
during the period.
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Segment Analysis
The following tables provide selected operating information for our Same-Store and total property portfolio for each of our reportable segments. For the three months endedJune 30, 2022 , our Same-Store consists of 381 properties representing properties acquired or placed in service and stabilized on or prior toApril 1, 2021 and that remained in operations under a consistent reporting structure throughJune 30, 2022 . For the six months endedJune 30, 2022 , our Same-Store consists of 379 properties representing properties acquired or placed in service and stabilized on or prior toJanuary 1, 2021 and that remained in operations under a consistent reporting structure throughJune 30, 2022 . Our total property portfolio consisted of 481 and 473 properties atJune 30, 2022 and 2021, respectively. 47
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Table of Contents Life Science The following table summarizes results at and for the three months endedJune 30, 2022 and 2021 (dollars and square feet in thousands, except per square foot data): SS Total Portfolio Three Months Ended June 30, Three Months Ended June 30, 2022 2021 Change 2022 2021 Change Rental and related revenues$ 158,881 $ 147,204 $ 11,677 $ 207,771 $ 177,527 $ 30,244 Healthpeak's share of unconsolidated joint venture total revenues 1,253 1,412 (159) 1,267 1,412 (145) Noncontrolling interests' share of consolidated joint venture total revenues (25) (24) (1) (62) (75) 13 Operating expenses (37,007) (32,837) (4,170) (49,446) (40,724) (8,722) Healthpeak's share of unconsolidated joint venture operating expenses (483) (427) (56) (483) (428) (55) Noncontrolling interests' share of consolidated joint venture operating expenses 8 7 1 19 21 (2) Adjustments to NOI(1) (12,022) (9,288) (2,734) (21,644) (12,366) (9,278) Adjusted NOI$ 110,605 $ 106,047 $ 4,558 137,422 125,367 12,055 Less: non-SS Adjusted NOI (26,817) (19,320) (7,497) SS Adjusted NOI$ 110,605 $ 106,047 $ 4,558 Adjusted NOI % change 4.3 % Property count(2) 119 119 149 142 End of period occupancy 98.8 % 97.5 % 98.6 % 96.6 % Average occupancy 98.9 % 97.8 % 98.8 % 96.8 % Average occupied square feet 8,742 8,658 10,607 9,971 Average annual total revenues per occupied square foot(3)$ 68 $ 65 $ 71 $ 67 Average annual base rent per occupied square foot(4)$ 53 $ 51 $ 55 $ 53
_______________________________________
(1)Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to "Non-GAAP Financial Measures" above for definitions of NOI and Adjusted NOI. (2)From our second quarter 2021 presentation of Same-Store, we added: (i) five stabilized developments placed in service, (ii) five stabilized acquisitions, (iii) three stabilized redevelopments placed in service, and (iv) one stabilized property that previously experienced a significant tenant relocation, and we removed: (i) three life science facilities that were placed into redevelopment, (ii) one life science facility that was placed into development, (iii) one life science facility that was sold, and (iv) one life science facility that was classified as held for sale. (3)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and deferred revenues). (4)Base rent does not include tenant recoveries, additional rents in excess of floors and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and deferred revenues).
Same-Store Adjusted NOI increased primarily as a result of the following:
•annual rent escalations; •higher occupancy; •new leasing activity; and
•mark-to-market lease renewals.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned impacts to Same-Store and the following Non-Same-Store impacts:
•an increase in NOI from (i) increased occupancy in developments and redevelopments placed in service in 2021 and 2022 and (ii) acquisitions in 2021 and 2022.
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The following table summarizes results at and for the six months endedJune 30, 2022 and 2021 (dollars and square feet in thousands, except per square foot data): SS Total Portfolio(1) Six Months Ended June 30, Six Months Ended June 30, 2022 2021 Change 2022 2021 Change Rental and related revenues$ 309,327 $ 288,403 $ 20,924 $ 401,826 $ 347,461 $ 54,365 Healthpeak's share of unconsolidated joint venture total revenues 2,685 2,749 (64) 2,698 2,749 (51) Noncontrolling interests' share of consolidated joint venture total revenues (51) (49) (2) (119) (140) 21 Operating expenses (72,540) (64,114) (8,426) (97,635) (80,185) (17,450) Healthpeak's share of unconsolidated joint venture operating expenses (966) (853) (113) (966) (853) (113) Noncontrolling interests' share of consolidated joint venture operating expenses 16 14 2 38 41 (3) Adjustments to NOI(2) (20,992) (18,594) (2,398) (35,756) (24,176) (11,580) Adjusted NOI$ 217,479 $ 207,556 $ 9,923 270,086 244,897 25,189 Less: non-SS Adjusted NOI (52,607) (37,341) (15,266) SS Adjusted NOI$ 217,479 $ 207,556 $ 9,923 Adjusted NOI % change 4.8 % Property count(3) 118 118 149 142 End of period occupancy 98.8 % 97.6 % 98.6 % 96.6 % Average occupancy 98.7 % 97.9 % 98.5 % 96.7 % Average occupied square feet 8,674 8,615 10,589 9,890 Average annual total revenues per occupied square foot(4)$ 68 $ 64 $ 70 $ 66 Average annual base rent per occupied square foot(5)$ 53 $ 50 $ 54 $ 52
_______________________________________
(1)Total Portfolio includes results of operations from disposed properties through the disposition date. (2)Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to "Non-GAAP Financial Measures" above for definitions of NOI and Adjusted NOI. (3)From our second quarter 2021 presentation of Same-Store, we added: (i) six stabilized developments placed in service, (ii) five stabilized acquisitions, and (iii) four stabilized redevelopments placed in service, and we removed: (i) three life science facilities that were placed into redevelopment, (ii) one life science facility that was placed into development, (iii) one life science facility that was sold, and (iv) one life science facility that was classified as held for sale. (4)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and deferred revenues). (5)Base rent does not include tenant recoveries, additional rents in excess of floors and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and deferred revenues).
Same-Store Adjusted NOI increased primarily as a result of the following:
•annual rent escalations; •higher occupancy; •new leasing activity; and
•mark-to-market lease renewals.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned impacts to Same-Store and the following Non-Same-Store impacts:
•an increase in NOI from (i) increased occupancy in developments and redevelopments placed in service in 2021 and 2022 and (ii) acquisitions in 2021 and 2022.
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Table of Contents Medical Office The following table summarizes results at and for the three months endedJune 30, 2022 and 2021 (dollars and square feet in thousands, except per square foot data): SS Total Portfolio(1) Three Months Ended June 30, Three Months Ended June 30, 2022 2021 Change 2022 2021 Change Rental and related revenues$ 145,498 $ 138,542 $ 6,956 $ 179,308 $ 163,115 $ 16,193 Income from direct financing leases - - - - 2,180 (2,180) Healthpeak's share of unconsolidated joint venture total revenues 739 687 52 761 710 51 Noncontrolling interests' share of consolidated joint venture total revenues (8,786) (8,483) (303) (8,943) (8,825) (118) Operating expenses (48,781) (45,234) (3,547) (63,321) (54,648) (8,673) Healthpeak's share of unconsolidated joint venture operating expenses (300) (317) 17 (301) (317) 16 Noncontrolling interests' share of consolidated joint venture operating expenses 2,726 2,473 253 2,726 2,552 174 Adjustments to NOI(2) (1,546) (1,952) 406 (2,949) (2,003) (946) Adjusted NOI$ 89,550 $ 85,716 $ 3,834 107,281 102,764 4,517 Less: non-SS Adjusted NOI (17,731) (17,048) (683) SS Adjusted NOI$ 89,550 $ 85,716 $ 3,834 Adjusted NOI % change 4.5 % Property count(3) 247 247 298 297 End of period occupancy 91.5 % 91.4 % 89.9 % 89.9 % Average occupancy 91.6 % 91.3 % 89.9 % 90.0 % Average occupied square feet 18,435 18,372 21,627 20,862 Average annual total revenues per occupied square foot(4)$ 32 $ 31 $ 34 $ 31 Average annual base rent per occupied square foot(5)$ 27 $ 26 $ 27 $ 27
___________________________________
(1)Total Portfolio includes results of operations from disposed properties through the disposition date. (2)Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to "Non-GAAP Financial Measures" above for definitions of NOI and Adjusted NOI. (3)From our second quarter 2021 presentation of Same-Store, we added: (i) 11 stabilized acquisitions and (ii) 3 stabilized redevelopments placed in service, and we removed: (i) 8 MOBs that were placed into redevelopment, (ii) 6 MOBs that were sold, and (iii) 2 MOBs that were classified as held for sale. (4)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest, and deferred revenues). (5)Base rent does not include tenant recoveries, additional rents in excess of floors and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest, and deferred revenues).
Same-Store Adjusted NOI increased primarily as a result of the following:
•mark-to-market lease renewals;
•higher occupancy;
•annual rent escalations; and
•higher parking income and percentage-based rents.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store and the following Non-Same-Store impacts:
•increased NOI from our 2021 and 2022 acquisitions;
•increased occupancy in former redevelopment and development properties that have been placed in service; partially offset by
•decreased NOI from our 2021 and 2022 dispositions.
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The following table summarizes results at and for the six months endedJune 30, 2022 and 2021 (dollars and square feet in thousands, except per square foot data): SS Total Portfolio(1) Six Months Ended June 30, Six Months Ended June 30, 2022 2021 Change 2022 2021 Change
Rental and related revenues
- - - 1,168 4,343 (3,175)
Healthpeak's share of
unconsolidated joint venture
total revenues 1,447 1,380 67 1,493 1,425 68
Noncontrolling interests' share
of consolidated joint venture
total revenues (17,452) (17,069) (383) (17,763) (17,751) (12)
Operating expenses (95,728) (88,610) (7,118) (124,491) (105,769) (18,722)
Healthpeak's share of
unconsolidated joint venture
operating expenses (599) (610) 11 (600) (611) 11
Noncontrolling interests' share
of consolidated joint venture
operating expenses 5,327 4,908 419 5,328 5,056 272
Adjustments to NOI(2) (3,418) (4,417) 999 (6,495) (3,926) (2,569)
Adjusted NOI $ 178,297 $ 171,230 $ 7,067 214,043 203,920 10,123
Less: non-SS Adjusted NOI (35,746) (32,690) (3,056)
SS Adjusted NOI $ 178,297 $ 171,230 $ 7,067
Adjusted NOI % change 4.1 %
Property count(3) 246 246 298 297
End of period occupancy 91.5 % 91.5 % 89.9 % 89.9 %
Average occupancy 91.6 % 91.4 % 90.1 % 90.2 %
Average occupied square feet 18,387 18,343 21,661 20,783
Average annual total revenues per
occupied square foot(4) $ 32 $ 31 $ 33 $ 31
Average annual base rent per
occupied square foot(5) $ 27 $ 26 $ 27 $ 26 _______________________________________
(1)Total Portfolio includes results of operations from disposed properties through the disposition date. (2)Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to "Non-GAAP Financial Measures" above for definitions of NOI and Adjusted NOI. (3)From our second quarter 2021 presentation of Same-Store, we added: (i) 10 stabilized acquisitions and (ii) 3 stabilized redevelopments placed in service, and we removed: (i) 8 MOBs that were placed into redevelopment, (ii) 6 MOBs that were sold, and (iii) 2 MOBs that were classified as held for sale. (4)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest, and deferred revenues). (5)Base rent does not include tenant recoveries, additional rents in excess of floors and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest, and deferred revenues).
Same-Store Adjusted NOI increased primarily as a result of the following:
•mark-to-market lease renewals;
•higher occupancy;
•annual rent escalations; and
•higher parking income and percentage-based rents.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store and the following Non-Same-Store impacts:
•increased NOI from our 2021 and 2022 acquisitions;
•increased occupancy in former redevelopment and development properties that have been placed in service; partially offset by
•decreased NOI from our 2021 and 2022 dispositions.
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Continuing Care Retirement Community
The following table summarizes results at and for the three months ended
SS Total Portfolio
Three Months Ended June 30, Three Months Ended June 30,
2022 2021 Change 2022 2021 Change
Resident fees and services $ 125,360 $ 117,308 $ 8,052 $ 125,360 $ 117,308 $ 8,052
Government grant income(1) 209 87 122 209 87 122
Healthpeak's share of
unconsolidated joint venture
total revenues - - - - 2,415 (2,415)
Operating expenses (101,834) (94,366) (7,468) (102,277) (94,760) (7,517)
Healthpeak's share of
unconsolidated joint venture
operating expenses - - - - (2,208) 2,208
Adjustments to NOI(2) - 1,209 (1,209) - 1,226 (1,226)
Adjusted NOI $ 23,735 $ 24,238 $ (503) 23,292 24,068 (776)
Plus: non-SS adjustments 443 170 273
SS Adjusted NOI $ 23,735 $ 24,238 $ (503)
Adjusted NOI % change (2.1) %
Property count(3) 15 15 15 15
Average occupancy 81.1 % 79.4 % 81.1 % 79.4 %
Average occupied units(4) 5,952 5,906 5,952 6,071
Average annual rent per occupied
unit $ 84,388 $ 79,509 $ 84,388 $ 78,955 _______________________________________
(1)Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the Consolidated Statements of Operations. (2)Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to "Non-GAAP Financial Measures" above for definitions of NOI and Adjusted NOI. (3)From our second quarter 2021 presentation of Same-Store, no properties were added or removed. (4)Represents average occupied units as reported by the operators for the three-month period.
Same-Store Adjusted NOI and Total Portfolio Adjusted NOI decreased primarily as a result of the following:
•higher labor costs; partially offset by
•increased occupancy and rates for resident fees; and
•lower Covid-related expenses
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The following table summarizes results at and for the six months ended
SS Total Portfolio
Six Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
Resident fees and services $ 246,920 $ 233,436 $ 13,484 $ 246,920 $ 233,436 $ 13,484
Government grant income(1) 6,762 1,397 5,365 6,762 1,397 5,365
Healthpeak's share of
unconsolidated joint venture
total revenues - - - - 6,903 (6,903)
Healthpeak's share of
unconsolidated joint venture
government grant income - - - 333 199 134
Operating expenses (199,233) (184,795) (14,438) (200,165) (185,939) (14,226)
Healthpeak's share of
unconsolidated joint venture
operating expenses - - - - (6,953) 6,953
Adjustments to NOI(2) - 1,209 (1,209) - 1,246 (1,246)
Adjusted NOI $ 54,449 $ 51,247 $ 3,202 53,850 50,289 3,561
Plus: non-SS adjustments 599 958 (359)
SS Adjusted NOI $ 54,449 $ 51,247 $ 3,202
Adjusted NOI % change 6.2 %
Property count(3) 15 15 15 15
Average occupancy 81.0 % 79.1 % 81.0 % 79.0 %
Average occupied units(4) 5,946 5,880 5,946 6,124
Average annual rent per occupied
unit $ 85,328 $ 79,875 $ 85,440 $ 79,013 _______________________________________
(1)Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the Consolidated Statements of Operations. (2)Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to "Non-GAAP Financial Measures" above for definitions of NOI and Adjusted NOI. (3)From our second quarter 2021 presentation of Same-Store, we added 13 properties that previously experienced an operator transition. (4)Represents average occupied units as reported by the respective tenants or operators for the six-month period.
SameStore Adjusted NOI and Total Portfolio Adjusted NOI increased primarily as a result of the following:
•increased occupancy and rates for resident fees;
•increased government grant income received under the CARES Act; and
•lower Covid-related expenses; partially offset by
•higher labor costs.
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Other Income and Expense Items
The following table summarizes the results of our other income and expense items
for the three and six months ended
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 Change 2022 2021 Change
Interest income $ 5,493 $ 16,108 $ (10,615) $ 10,987 $ 25,121 $ (14,134)
Interest expense 41,867 38,681 3,186 79,453 85,524 (6,071)
Depreciation and amortization 180,489 171,459 9,030 358,222 328,997 29,225
General and administrative 24,781 24,088 693 48,612 48,990 (378)
Transaction costs 612 619 (7) 908 1,417 (509)
Impairments and loan loss reserves
(recoveries), net 139 931 (792) 271 4,173 (3,902)
Gain (loss) on sales of real estate,
net 10,340 175,238 (164,898) 14,196 175,238 (161,042)
Gain (loss) on debt extinguishments - (60,865) 60,865 - (225,157) 225,157
Other income (expense), net 2,861 1,734 1,127 21,177 3,934 17,243
Income tax benefit (expense) 718 763 (45) (59) 755 (814)
Equity income (loss) from
unconsolidated joint ventures 382 867 (485) 2,466 2,190 276
Income (loss) from discontinued
operations 2,992 113,960 (110,968) 3,309 383,968 (380,659)
Noncontrolling interests' share in
continuing operations (3,955) (3,535) (420) (7,685) (6,841) (844)
Noncontrolling interests' share in
discontinued operations - (2,210) 2,210 - (2,539) 2,539
Interest income
Interest income decreased for the three and six months ended
Interest expense Interest expense increased for the three months endedJune 30, 2022 primarily as a result of higher interest rates under the commercial paper program. Interest expense decreased for the six months endedJune 30, 2022 primarily as a result of senior unsecured notes repurchases and redemptions in the first and second quarters of 2021, partially offset by higher interest rates under the commercial paper program.
Depreciation and amortization expense
Depreciation and amortization expense increased for the three and six months endedJune 30, 2022 primarily as a result of: (i) assets acquired during 2021 and 2022 and (ii) development and redevelopment projects placed in service during 2021 and 2022, partially offset by dispositions of real estate in 2021 and 2022.
Impairments and loan loss reserves (recoveries), net
Impairments and loan loss reserves (recoveries), net decreased for the three and six months endedJune 30, 2022 as a result of a decrease in loan loss reserves under the current expected credit losses model. The reduction in loan loss reserves for the three and six months endedJune 30, 2022 is primarily due to a lower loans receivable balance.
Gain (loss) on sales of real estate, net
Gain (loss) on sales of real estate, net decreased during the three and six months endedJune 30, 2022 primarily due to the$172 million gain on sale ofHoag Hospital inMay 2021 . Refer to Note 4 to the Consolidated Financial Statements for additional information regarding dispositions of real estate and the associated gain (loss) on sales recognized.
Gain (loss) on debt extinguishments
Loss on debt extinguishments decreased for the three and six months ended
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Other income (expense), net
Other income increased for the six months endedJune 30, 2022 primarily as a result of: (i) a gain on sale of a hospital that was classified as a DFL and (ii) an increase in government grant income received under the CARES Act in 2022, partially offset by expenses incurred for tenant relocation and other costs associated with a planned MOB demolition.
Income tax benefit (expense)
Income tax expense increased for the six months endedJune 30, 2022 primarily as a result of the tax impact of an increase in government grant income received under the CARES Act.
Equity income (loss) from unconsolidated joint ventures
Equity income from unconsolidated joint ventures decreased for the three months endedJune 30, 2022 as a result of the sale of the two remaining CCRCs in the CCRC JV inMay 2021 .
Income (loss) from discontinued operations
Income from discontinued operations decreased for the three and six months endedJune 30, 2022 primarily as a result of: (i) decreased gain on sales of real estate from the completion of dispositions of our senior housing portfolios, (ii) decreased NOI following the dispositions of our senior housing portfolios, and (iii) a decline in government grant income received under the CARES Act for the senior housing portfolio. The decrease in income from discontinued operations during the three and six months endedJune 30, 2022 was partially offset by decreased impairment charges on depreciable real estate and goodwill.
Noncontrolling interests' share in continuing operations
Noncontrolling interests' share in continuing operations increased for the three and six months endedJune 30, 2022 primarily as a result of an increase in net income related to our consolidated partnerships.
Noncontrolling interests' share in discontinued operations
Noncontrolling interests' share in discontinued operations decreased for the three and six months endedJune 30, 2022 as a result of the completion of our dispositions of our senior housing portfolios.
Liquidity and Capital Resources
We anticipate that our cash flow from operations, available cash balances, and cash from our various financing activities will be adequate for the next 12 months and for the foreseeable future for purposes of: (i) funding recurring operating expenses; (ii) meeting debt service requirements; and (iii) satisfying funding of distributions to our stockholders and non-controlling interest members. Distributions are made using a combination of cash flows from operations, funds available under our bank line of credit (the "Revolving Facility") and commercial paper program, proceeds from the sale of properties, and other sources of cash available to us.
In addition to funding the activities above, our principal liquidity needs for the next 12 months are to:
•fund capital expenditures, including tenant improvements and leasing costs; and
•fund future acquisition, transactional, and development and redevelopment activities.
Our longer term liquidity needs include the items listed above as well as meeting debt service requirements.
We anticipate satisfying these future needs using one or more of the following:
•cash flow from operations;
•sale of, or exchange of ownership interests in, properties or other investments;
•borrowings under our Revolving Facility and commercial paper program;
•issuance of additional debt, including unsecured notes, term loans, and mortgage debt; and/or
•issuance of common or preferred stock or its equivalent, including the settlement of forward contracts or other sales of common stock under the ATM Program (as defined below).
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Our ability to access the capital markets impacts our cost of capital and ability to refinance maturing indebtedness, as well as our ability to fund future acquisitions and development through the issuance of additional securities or secured debt. Credit ratings impact our ability to access capital and directly impact our cost of capital as well. For example, our Revolving Facility accrues interest at a rate per annum equal to LIBOR plus a margin that depends upon our credit ratings for our senior unsecured long-term debt. Our Revolving Facility includes customary LIBOR replacement language, including, but not limited to, the use of rates based on the secured overnight financing rate administered by theFederal Reserve Bank of New York . We also pay a facility fee on the entire revolving commitment that depends upon our credit ratings. As ofAugust 1, 2022 , we had long-term credit ratings of Baa1 from Moody's and BBB+ from S&P Global and Fitch, and short-term credit ratings of P-2, A-2, and F2 from Moody's, S&P Global, and Fitch, respectively. A downgrade in credit ratings by Moody's, S&P Global, and Fitch may have a negative impact on the interest rates and facility fees for our Revolving Facility and may negatively impact the pricing of notes issued under our commercial paper program and senior unsecured notes. While a downgrade in our credit ratings would adversely impact our cost of borrowing, we believe we would continue to have access to the unsecured debt markets, and we could also seek to enter into one or more secured debt financings, issue additional securities, including under our ATM Program, or dispose of certain assets to fund future operating costs, capital expenditures, or acquisitions, although no assurances can be made in this regard. Refer to "Market Trends and Uncertainties" above for a more comprehensive discussion of the potential impact of Covid as well as economic and market conditions on our business.
Changes in Material Cash Requirements and Off-Balance Sheet Arrangements
Our material cash requirements related to debt increased by$284 million to$6.5 billion atJune 30, 2022 , when compared toDecember 31, 2021 , primarily as a result of issuances of notes under our commercial paper program. As ofJune 30, 2022 , we had$1.45 billion outstanding under our commercial paper program. See Note 9 to the Consolidated Financial Statements for additional information about our debt commitments. Our material cash requirements related to development and redevelopment projects and tenant improvements decreased by$16 million , to$454 million atJune 30, 2022 , when compared toDecember 31, 2021 , primarily as a result of construction spend on existing projects in the first half of 2022 thereby decreasing the remaining commitment. Our material cash requirements to provide additional funding for senior housing redevelopment and capital expenditure projects decreased by$10 million , to$48 million atJune 30, 2022 , when compared toDecember 31, 2021 , primarily as a result of reduced commitments from current year principal repayments on our seller financing. See Note 6 to the Consolidated Financial Statements for additional information. Certain of our noncontrolling interest holders have the ability to put their equity interests to us upon specified events or after the passage of a predetermined period of time. Each put option is subject to changes in redemption value in the event that the underlying property generates specified returns for us and meets certain promote thresholds pursuant to the respective agreements. As ofJune 30, 2022 , we had$116 million of redeemable noncontrolling interests, none of which met the conditions for redemption as of the balance sheet date. See Note 11 to the Consolidated Financial Statements for additional information.
There have been no changes to our distribution and dividend requirements during
the six months ended
We own interests in certain unconsolidated joint ventures as described in Note 7
to the Consolidated Financial Statements. Two of these joint ventures have
mortgage debt of
There have been no other material changes, outside of the ordinary course of business, during the six months endedJune 30, 2022 to the material cash requirements or material off-balance sheet arrangements disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 under "Material Cash Requirements" and "Off-Balance Sheet Arrangements" in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations."
Cash Flow Summary
The following summary discussion of our cash flows is based on the Consolidated
Statements of Cash Flows and is not meant to be an all-inclusive discussion of
the changes in our cash flows for the periods presented below.
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The following table sets forth changes in cash flows (in thousands):
Six Months Ended
2022 2021 Change
Net cash provided by (used in) operating activities
$ 359,594 $ 90,074 Net cash provided by (used in) investing activities (461,136) 1,712,296 (2,173,432)
Net cash provided by (used in) financing activities (72,082)
(2,009,272) 1,937,190 Operating Cash Flows The increase in operating cash flow is primarily the result of an increase in income related to: (i) 2021 and 2022 acquisitions, (ii) annual rent increases, (iii) new leasing and renewal activity, and (iv) developments and redevelopments placed in service during 2021 and 2022. The increase in operating cash flow is partially offset by a decrease in income related to assets sold during 2021 and 2022. Our cash flow from operations is dependent upon the occupancy levels of our buildings, rental rates on leases, our tenants' performance on their lease obligations, the level of operating expenses, and other factors.
Investing Cash Flows
The following are significant investing activities for the six months ended
•made investments of
•received net proceeds of
The following are significant investing activities for the six months ended
•made investments of
•received net proceeds of
Financing Cash Flows
The following are significant financing activities for the six months ended
•made net borrowings of
•paid cash dividends on common stock of
The following are significant financing activities for the six months ended
•made net borrowings of
•made net repayments of
•paid cash dividends on common stock of
Discontinued Operations
Operating, investing, and financing cash flows in our Consolidated Statements of Cash Flows are reported inclusive of both cash flows from continuing operations and cash flows from discontinued operations. Certain significant cash flows from discontinued operations are disclosed in Note 14 to the Consolidated Financial Statements. The absence of future cash flows from discontinued operations is not expected to significantly impact our liquidity, as the proceeds from senior housing triple-net and SHOP dispositions were used to pay down debt and invest in additional real estate in our other business lines. Additionally, we have multiple other sources of liquidity that can be utilized in the future, as needed. Refer to the beginning of the Liquidity and Capital Resources section above for additional information regarding our liquidity.
Debt
In
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See Note 9 to the Consolidated Financial Statements for additional information about our outstanding debt.
Approximately 77% and 78% of our consolidated debt, excluding debt classified as liabilities related to assets held for sale and discontinued operations, net, was fixed rate debt as ofJune 30, 2022 and 2021, respectively. AtJune 30, 2022 , our fixed rate debt and variable rate debt had weighted average interest rates of 3.45% and 1.96%, respectively. AtJune 30, 2021 , our fixed rate debt and variable rate debt had weighted average interest rates of 3.75% and 0.73%, respectively. As ofJune 30, 2022 , we had$142 million of variable rate debt swapped to fixed through interest rate swap instruments, designated as cash flow hedges, and as ofJune 30, 2021 , we had$142 million of variable rate debt subject to interest rate cap instruments. For purposes of classification of the amounts above, variable rate debt with a derivative financial instrument designated as a cash flow hedge is reported as fixed rate debt due to us having effectively established a fixed interest rate for the underlying debt instrument. For a more detailed discussion of our interest rate risk, see "Quantitative and Qualitative Disclosures About Market Risk" in Item 3 below.
Equity
At
AtJune 30, 2022 , non-managing members held an aggregate of five million units in seven limited liability companies ("DownREITs") for which we are the managing member. The DownREIT units are exchangeable for an amount of cash approximating the then-current market value of shares of our common stock or, at our option, shares of our common stock (subject to certain adjustments, such as stock splits and reclassifications). AtJune 30, 2022 , the outstanding DownREIT units were convertible into approximately seven million shares of our common stock.
At-The-Market Program
Our at-the-market equity offering program (as amended from time to time, the "ATM Program") has a capacity of$1.5 billion . In addition to the issuance and sale of shares of our common stock, we may also enter into one or more forward sales agreements (each, an "ATM forward contract") with sales agents for the sale of our shares of common stock under our ATM Program. During the year endedDecember 31, 2021 , we utilized the forward provisions under the ATM Program to allow for the sale of an aggregate of 9.1 million shares of our common stock at an initial weighted average net price of$35.25 per share, after commissions. During the three and six months endedJune 30, 2022 , no shares were settled under ATM forward contracts. Therefore, atJune 30, 2022 , 9.1 million shares remained outstanding under ATM forward contracts. These ATM forward contracts mature in the first quarter of 2023.
During the three and six months ended
AtJune 30, 2022 ,$1.18 billion of our common stock remained available for sale under the ATM Program. Actual future sales of our common stock will depend upon a variety of factors, including but not limited to market conditions, the trading price of our common stock, and our capital needs. We have no obligation to sell any of the remaining shares under our ATM Program.
See Note 11 to the Consolidated Financial Statements for additional information about our ATM Program.
Share Repurchase Program OnAugust 1, 2022 , our Board of Directors approved a share repurchase program under which we may acquire shares of our common stock in the open market up to an aggregate purchase price of$500 million (the "Share Repurchase Program"). Purchases of common stock under the Share Repurchase Program may be exercised at our discretion with the timing and number of shares repurchased depending on a variety of factors, including price, corporate and regulatory requirements, and other corporate liquidity requirements and priorities. The Share Repurchase Program expires inAugust 2024 and may be suspended or terminated at any time without prior notice. There have been no stock repurchases under the Share Repurchase Program through the date on which this Quarterly Report on Form 10-Q was filed. Shelf Registration InMay 2021 , we filed a prospectus with theSEC as part of a registration statement on Form S-3, using an automatic shelf registration process. This shelf registration statement expires onMay 13, 2024 and at or prior to such time, we expect to file a new shelf registration statement. Under the "shelf" process, we may sell any combination of the securities described in the prospectus through one or more offerings. The securities described in the prospectus include common stock, preferred stock, depositary shares, debt securities, and warrants. 58
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Non-GAAP Financial Measures Reconciliations
The following is a reconciliation from net income (loss) applicable to common
shares, the most directly comparable financial measure calculated and presented
in accordance with GAAP, to Nareit FFO, FFO as Adjusted, and AFFO (in thousands,
except per share data):
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Net income (loss) applicable to common shares $ 68,057
180,489 171,459 358,222 328,997
Healthpeak's share of real estate related depreciation and amortization from unconsolidated joint ventures
5,210 2,869 10,345 7,322
Noncontrolling interests' share of real estate related depreciation and amortization
(4,844) (4,923) (9,685) (9,809)
Loss (gain) on sales of depreciable real estate, net(1) (12,903)
(297,476) (16,688) (557,138)
Healthpeak's share of loss (gain) on sales of depreciable real estate, net, from unconsolidated joint ventures
129 (5,866) (150) (5,866)
Noncontrolling interests' share of gain (loss) on sales of depreciable real estate, net
- 2,179 12 2,179
Loss (gain) upon change of control, net - - - (1,042)
Taxes associated with real estate dispositions 16 1,693 (166) 2,183
Impairments (recoveries) of depreciable real estate, net - 3,743 - 3,743
Nareit FFO applicable to common shares 236,154 149,671 479,583 189,905
Distributions on dilutive convertible units and other 2,352 - 4,704 -
Diluted Nareit FFO applicable to common shares $ 238,506 Weighted average shares outstanding - diluted Nareit FFO 547,132
539,193 547,018 539,081
Impact of adjustments to Nareit FFO:
Transaction-related items $ 596
139 1,845 (8,770) 5,087
Restructuring and severance related charges - - - 2,463
Loss (gain) on debt extinguishments - 60,865 - 225,157
Casualty-related charges (recoveries), net (411) 3,596 (411) 4,644
Total adjustments $ 324 $ 67,571 $ (8,288) $ 242,730
FFO as Adjusted applicable to common shares $ 236,478
2,351 2,144 4,719 4,067
Diluted FFO as Adjusted applicable to common shares
Weighted average shares outstanding - diluted FFO as
Adjusted 547,132 546,519 547,018 546,407
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Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
FFO as Adjusted applicable to common shares $ 236,478 $ 217,242 $ 471,295 $ 432,635
Amortization of stock-based compensation 5,300 5,095 10,021 9,459
Amortization of deferred financing costs 2,689 2,121 5,377 4,334
Straight-line rents (12,713) (6,201) (23,872) (15,336)
AFFO capital expenditures (27,906) (22,422) (50,745) (43,132)
Deferred income taxes (1,188) (2,771) (927) (4,493)
Other AFFO adjustments (7,065) (4,026) (13,524) (9,628)
AFFO applicable to common shares 195,595 189,038 397,625 373,839
Distributions on dilutive convertible units and other 1,649 1,541 3,296 2,862
Diluted AFFO applicable to common shares $ 197,244 $
190,579
Weighted average shares outstanding - diluted AFFO 545,307 544,694 545,193 544,582
Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
Diluted earnings per common share $ 0.13 $ 0.51 $ 0.26 $ 0.78
Depreciation and amortization 0.33 0.32 0.66 0.60
Loss (gain) on sales of depreciable real estate, net (0.02) (0.56) (0.03) (1.04)
Loss (gain) upon change of control, net - - - 0.00
Taxes associated with real estate dispositions 0.00 0.00 0.00 0.00
Impairments (recoveries) of depreciable real estate, net - 0.01 - 0.01
Diluted Nareit FFO per common share $ 0.44 $ 0.28 $ 0.89 $ 0.35
Transaction-related items 0.00 0.00 0.00 0.01
Other impairments (recoveries) and other losses (gains), net(2)
0.00 0.00 (0.02) 0.01
Restructuring and severance related charges - - - 0.00
Loss (gain) on debt extinguishments - 0.11 - 0.42
Casualty-related charges (recoveries), net 0.00 0.01 0.00 0.01
Diluted FFO as Adjusted per common share $ 0.44 $ 0.40 $ 0.87 $ 0.80 _______________________________________
(1)This amount can be reconciled by combining the balances from the corresponding line of the Consolidated Statements of Operations and the detailed financial information for discontinued operations in Note 4 to the Consolidated Financial Statements. (2)The six months endedJune 30, 2022 includes the following, which are included in other income (expense), net in the Consolidated Statements of Operations: (i) a$23 million gain on sale of a hospital that was in a direct financing lease and (ii)$14 million of expenses incurred for tenant relocation and other costs associated with a planned MOB demolition. The three and six months endedJune 30, 2021 includes the following: (i) a$7 million goodwill impairment charge in connection with our senior housing triple-net asset sales which is reported in income (loss) from discontinued operations in the Consolidated Statements of Operations and (ii) a$6 million of accelerated recognition of a mark-to-market discount, less loan fees, resulting from prepayments on loans receivable which is included in interest income in the Consolidated Statements of Operations. The remaining activity for the three and six months endedJune 30, 2022 and 2021 includes reserves for loan losses recognized in impairments and loan loss reserves (recoveries), net in the Consolidated Statements of Operations. 60
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Critical Accounting Estimates and Recent Accounting Pronouncements
The preparation of financial statements in conformity withU.S. GAAP requires our management to use judgment in the application of critical accounting estimates and assumptions. We base estimates on the best information available to us at the time, our experience and on various other assumptions believed to be reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in a different presentation of our consolidated financial statements. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. A discussion of accounting estimates that we consider critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain is included in our Annual Report on Form 10-K for the fiscal year endedDecember 31, 2021 in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 2 to the Consolidated Financial Statements. There have been no significant changes to our critical accounting estimates during the three and six months endedJune 30, 2022 .
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