0000765880us-gaap:OperatingSegmentsMemberpeak:MedicalOfficeMemberpeak:Louisville738KYMember2020-12-310000765880peak:A1044HoustonTXMemberpeak:OutpatientMedicalMemberus-gaap:OperatingSegmentsMember2023-12-31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.1934 |
For the fiscal year ended December 31, 20202023
or
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☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-08895
Healthpeak Properties, Inc.
(Exact name of registrant as specified in its charter)
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Maryland | | 33-0091377 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
50504600 South Syracuse Street, Suite 800500
Denver, CO 80237
(Address of principal executive offices) (Zip Code)
(949) 407-0700(720) 428-5050
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, $1.00 par value | PEAK | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,filer,” “smaller reporting company,” and "emerging“emerging growth company"company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer | ☒ | Accelerated filer | ☐ |
Non-accelerated filer | ☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management'smanagement’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined byin Rule 12b-2 of the Act.) Yes ☐ No ☒
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $12.5$9.2 billion.
As of February 8, 2021,7, 2024, there were 538,686,262547,172,983 shares of the registrant'sregistrant’s $1.00 par value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the registrant’s 20212024 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission no later than 120 days after December 31, 2023, have been incorporated by reference into Part III of this Report.
Healthpeak Properties, Inc.
Form 10-K
For the Fiscal Year Ended December 31, 20202023
Table of Contents
On February 10, 2023, we completed our corporate reorganization (the “Reorganization”) into an umbrella partnership REIT (“UPREIT”). Substantially all of our business is conducted through Healthpeak OP, LLC (“Healthpeak OP”). We are the managing member of Healthpeak OP and do not have material assets or liabilities, other than through our investment in Healthpeak OP.
All references in this report to “Healthpeak,” the “Company,” “we,” “us”“us,” or “our” mean Healthpeak Properties, Inc., together with its consolidated subsidiaries. Unless the context suggests otherwise, references to “Healthpeak Properties, Inc.” mean the parent company without its subsidiaries.
Cautionary Language Regarding Forward-Looking Statements
Statements in this Annual Report on Form 10-K 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 in this Annual Report on Form 10-K include statements regarding the proposed transactions involving Healthpeak and Physicians Realty Trust (as discussed in further detail in this report), including but not limited to, statements about the anticipated benefits of the proposed transactions involving Healthpeak and Physicians Realty Trust, as well as statements regarding future financial and operating results, plans, objectives, expectations, and intentions. 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, including those made below under “Summary Risk Factors” and in “Item 1A, Risk Factors” in this report.
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 Annual Report. 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.
Risk Factors Summary
Investors should consider the risks and uncertainties described below that may affect our business and future financial performance. These and other risks and uncertainties are more fully described in “Item 1A, Risk Factors” in this report. Additional risks not presently known to us or that we currently deem immaterial may also affect us. If any of these risks occur, our business, financial condition or results of operations could be materially and adversely affected.
As more fully set forth under “Item 1A, Risk Factors” in this report, principal risks and uncertainties that may affect our business, financial condition, or results of operations include:
•macroeconomic trends, including inflation, interest rates, construction and labor costs, and unemployment;
•risks associated with the COVID-19 pandemicMergers (as defined below), including, but not limited to, our ability to consummate the Mergers on the proposed terms or on the anticipated timeline, or at all; potential loss or disruption of current and prospective commercial relationships due to the uncertainties about the Mergers; and the outcome of legal proceedings instituted against us, our Board of Directors, and others related to the Mergers;
•our ability to integrate the operations of the Company and Physicians Realty Trust successfully and realize the anticipated synergies and other benefits of the Mergers or do so within the anticipated time frame;
•changes within the industries in which we operate;
•significant regulation, funding requirements, and uncertainty faced by our lab tenants;
•factors adversely affecting our tenants’, operators’, or borrowers’ ability to meet their financial and other contractual obligations to us;
•the insolvency or bankruptcy of one or more of our major tenants, operators, or borrowers;
•our concentration of real estate investments in the healthcare property sector, which makes us more vulnerable to a downturn in that specific sector than if we invested across multiple sectors;
•the illiquidity of real estate investments;
•our ability to identify and secure new or replacement tenants and operators;
•our property development, redevelopment, and tenant improvement risks, including project abandonments, project delays, and lower profits than expected;
•the ability of the hospitals on whose campuses our outpatient medical buildings are located and their affiliated healthcare systems to remain competitive or financially viable;
•our ability to develop, maintain, or expand hospital and health and safety measures intended to reduce its spread;system client relationships;
•operational risks associated with third party management contracts, including the additional regulation and liabilities of our RIDEA lease structures;
•properties operated through structures permitted by the abilityHousing and Economic Recovery Act 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;
•2008, which includes most of 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 investmentsprovisions previously proposed in the healthcare property sector, which makes us vulnerableREIT Investment Diversification and Empowerment Act of 2007 (commonly referred to a downturn in a specific sector than if we invested in multiple industries;
•our ability to identify replacement tenants and operators and the potential renovation costs and regulatory approvals associated therewith;
•our property development and redevelopment activity risks, including costs above original estimates, project delays and lower occupancy rates and rents 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 MOBs are located and their affiliated healthcare systems to remain competitive or financially viable;
•our ability to maintain our or expand our hospital and health system client relationships;as “RIDEA”);
•economic conditions, natural disasters, weather, and other conditions that negatively affect geographic areas from whichwhere we recognize a greater percentage of our revenue;have concentrated investments;
•uninsured or underinsured losses, which could result in significant losses and/or performance declines by us or our tenants and operators;
•our investments inuse of joint ventures and unconsolidated entities, includingmay limit our lack of sole decision making authorityreturns on and our reliance on our partners’ financial condition and continued cooperation;flexibility with jointly owned investments;
•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 make material acquisitionsforeclose or exercise rights on collateral securing our real estate-related loans;
•any requirement that we recognize reserves, allowances, credit losses, or impairment charges;
•investment of substantial resources and time in transactions that are not consummated;
•our ability to successfully integrate them;or operate acquisitions;
•the potential impact on us and our tenants, operators, and borrowers from litigation matters, including rising liability and insurance costs;
•our ability to foreclose on collateral securingenvironmental compliance costs and liabilities associated with our real estate-related loans;estate investments;
•laws or regulations prohibiting eviction of our tenants;environmental, social, and governance (“ESG”) and sustainability commitments and requirements, as well as stakeholder expectations;
•epidemics, pandemics, or other infectious diseases, including the failure of our tenantscoronavirus disease (“Covid”), and operators to comply with federal, state and local laws and regulations, including resident health and safety requirement, as well as licensure, certification and inspection requirements;measures intended to reduce their spread;
•required regulatory approvals to transferhuman capital risks, including the loss or limited availability of our healthcare properties;
•compliance with the Americans with Disabilities Act and fire, safety and other health 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 Centers for Medicare and Medicaid Services;key personnel;
•our participation in the CARES Act Provider Relief Programreliance on information technology systems and other COVID-19 related stimulus and relief programs;any material failure, inadequacy, interruption, or security failure of that technology;
•volatility, disruption, or uncertainty in the capital markets, the availability and cost of capital as impacted byfinancial markets;
•increased borrowing costs, including due to rising interest rates, changes in our credit ratings, and the value of our common stock, and other conditions that may adversely impact our ability to fund our obligations or consummate transactions, or reduce the earnings from potential transactions;rates;
•cash available for distribution to stockholders and our ability to make dividend distributions at expected levels;
•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, bank failures or other events affecting financial institutions, and other factors;
•our ability to manage our indebtedness level and covenants in and changes to the terms of such indebtedness;
•changes in global, nationalthe failure of our tenants, operators, and borrowers to comply with federal, state, and local economiclaws and other conditions;regulations, including resident health and safety requirements, as well as licensure, certification, and inspection requirements;
•provisions of Maryland law andrequired regulatory approvals to transfer our charter that could prevent a transaction that may otherwise be in the interest of our stockholders;senior housing properties;
•environmental compliance costswith the Americans with Disabilities Act and liabilities associated withfire, safety, and other regulations;
•laws or regulations prohibiting eviction of our real-estate investments;tenants;
•the requirements of, or changes to, governmental reimbursement programs such as Medicare or Medicaid;
•legislation to address federal government operations and administrative decisions affecting the Centers for Medicare and Medicaid Services;
•our participation in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) Provider Relief Fund and other Covid-related stimulus and relief programs;
•our ability to maintain our qualification as a real estate investment trust (“REIT”);
•our taxable REIT subsidiaries being subject to corporate level tax;
•tax imposed on any net income from “prohibited transactions”;
•changes to U.S. federal income tax laws, and potential deferred and contingent tax liabilities from corporate acquisitions;
•calculating non-REIT tax earnings and profits;profits distributions;
•ownership limits in our charter that restrict ownership in our stock;
•provisions of Maryland law and our reliance on information technology systems andcharter that could prevent a transaction that may otherwise be in the potential impactinterest of system failures, disruptions or breaches;our stockholders;
•unfavorable litigation resolutionconflicts of interest between the interests of our stockholders and the interests of holders of Healthpeak OP common units;
•provisions in the operating agreement of Healthpeak OP and other agreements that may delay or disputes;prevent unsolicited acquisitions and other transactions; and
•the loss or limited availabilityour status as a holding company of Healthpeak OP.
Important Information Regarding Our Disclosure to Investors
We may use our website (www.healthpeak.com) and our LinkedIn account (https://www.linkedin.com/company/healthpeak) to communicate with our investors and disclose company information. The information disclosed through those channels may be considered to be material, so investors should monitor them in addition to our press releases, SEC filings, and public conference calls and webcasts. The contents of our key personnel.
Except as requiredwebsite or social media channels referenced herein are not incorporated by law, we do not undertake, and hereby disclaim, any obligation to update any forward-looking statements, which speak only as of the datereference into this Annual Report on which they are made.
COVID-19 Infection Information
Information related to the number of our senior housing facilities with confirmed resident COVID-19 cases was provided to us by our operators, but has not been independently verified by us. We have no reason to believe that this information is inaccurate in any material respect, but cannot assure you it is accurate.Form 10-K.
PART I
ITEM 1. Business
General Overview
Healthpeak Properties, Inc. is a Standard & Poor’s (“S&P”) 500 company that acquires, develops, owns, leases, and manages healthcare real estate across the United States (“U.S.”). Our company was originally founded in 1985. As noted above, we completed our Reorganization on February 10, 2023, and following that date, we hold substantially all of our assets and conduct our operations through the operating subsidiary, Healthpeak OP, LLC, a consolidated subsidiary of which we are the managing member. We are a Maryland corporation and qualify as a self-administered REIT. In November 2020, we moved ourOur corporate headquarters from Irvine, CAare located in Denver, Colorado, and we have additional offices in California, Tennessee, and Massachusetts.
Our strategy is to Denver, CO. With propertiesinvest in nearly every state, the new headquarters provides a favorable mix of affordability and a centralized geographic location. Our Irvine, CAmanage real estate focused on healthcare discovery and Franklin, TN offices will continue to operate.
During 2020, we began the process of disposing of our senior housing triple-net portfolio and senior housing operating portfolio (“SHOP”).delivery. We have successfully disposed of a significant portion of both portfolios and will continue that process during 2021. Refer to a discussion of recent and upcoming dispositions in “Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations—2020 Transaction Overview” for the current status of transactions. As of December 31, 2020, we concluded the planned dispositions represented a strategic shift and therefore, the assets are classified as discontinued operations in all periods presented herein and prior periods have been recast to conform to the current period presentation. See Note 5 to the Consolidated Financial Statements for further information regarding discontinued operations.
In conjunction with the planned 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,lab, outpatient medical, office, and continuing care retirement community (“CCRC”) real estate. Under the life sciencelab and outpatient medical office segments, we invest through the acquisition, development, and management of life sciencelab buildings, outpatient medical office buildings, (“MOBs”), and hospitals. Under the CCRC segment, our properties are operated through RIDEA structures (see below for a description of RIDEA structures).structures. We have other non-reportable segments that are comprised primarily of interestsloans receivable and an interest in an unconsolidated joint venture that owns 19 senior housing joint venture and debt investments.assets (our “SWF SH JV”). These non-reportable segments have been presented on an aggregate basis herein.
At December 31, 2020,2023, our portfolio of investments, including properties in our unconsolidated joint ventures, and excluding investments classified as discontinued operations, consisted of interests in 457477 properties. The following table summarizes information for our reportable and other non-reportable segments excluding discontinued operations, for the year ended December 31, 20202023 (dollars in thousands):
| Segment | Segment | | Total Portfolio Adjusted NOI(1)(2) | | Percentage of Total Portfolio Adjusted NOI(1) | | Number of Properties | Segment | | Total Portfolio Adjusted NOI(1) | | Percentage of Total Portfolio Adjusted NOI(1) | | Number of Properties |
Life science | | $ | 411,302 | | | 44 | % | | 140 | |
Medical office | | 390,174 | | | 42 | % | | 281 | |
Lab | |
Outpatient medical | |
CCRC | CCRC | | 113,423 | | | 12 | % | | 17 | |
Other non-reportable | Other non-reportable | | 21,170 | | | 2 | % | | 19 | |
Totals | | $ | 936,069 | | | 100 | % | | 457 | |
| | $ | |
(1)Total Portfolio metrics include results of operations from disposed properties through the disposition date. See “Item 7, Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Non-GAAP Financial Measures” for additional information regarding Adjusted NOI and see Note 1615 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(2) For the year ended December 31, 2020, Adjusted NOI for our senior housing triple-net and SHOP portfolios was $99 million and $105 million,respectively. Operating results for these portfolios are reported as discontinued operations for all periods presented herein.
For a description of our significant activities during 2020,2023, see “Item 7, Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations—2020 Transaction Overview”Company Highlights” in this report.
In 2020, we concluded that the dispositions of our senior housing triple-net and senior housing operating property (“SHOP”) portfolios represented a strategic shift that had a major effect on our operations and financial results. Therefore, the results of senior housing triple-net and SHOP assets are classified as discontinued operations in all periods presented herein. See Note 4 to the Consolidated Financial Statements for further information regarding discontinued operations.
The Merger Agreement
On October 29, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Physicians Realty Trust, Physicians Realty L.P. (the “Physicians Partnership”), and certain of our subsidiaries, pursuant to which, among other things, and through a series of transactions (the “Mergers”), (i) each outstanding common share of Physicians Realty Trust (other than Physicians Realty Trust common shares to be canceled in accordance with the Merger Agreement) will be automatically converted into the right to receive 0.674 (the “Exchange Ratio”) shares of our common stock, and (ii) each outstanding common unit of the Physicians Partnership will be automatically converted into and become common units in the successor entity to the Physicians Partnership equal to the Exchange Ratio. Following the transactions contemplated in the Merger Agreement, the successor entities to Physicians Realty Trust and the Physicians Partnership will be direct and indirect subsidiaries of Healthpeak OP, respectively. In connection with the Mergers, we filed a Registration Statement on Form S-4 with the U.S. Securities and Exchange Commission (“SEC”) on December 15, 2023, as amended on January 9, 2024, and a definitive joint proxy statement/prospectus for the Company and Physicians Realty Trust on January 11, 2024 in connection with our respective special meetings of stockholders and shareholders, as applicable, which will be held on February 21, 2024.Consummation of the Mergers are subject to the satisfaction or waiver of customary closing conditions, including the approval of our stockholders and the shareholders of Physicians Realty Trust. We expect the Mergers to close on March 1, 2024. If the Mergers are not consummated by July 31, 2024 (unless extended under certain circumstances), either we or Physicians Realty Trust may terminate the Merger Agreement.
Business Strategy
WeOur strategy is to invest in and manage real estate focused on healthcare discovery and delivery. We manage our real estate portfolio for the long-term to maximize benefit to our stockholdersrisk-adjusted returns and support the growth of our dividends. Our strategy consists of four core elements:
(i)Our real estate: Our portfolio is grounded inconsists of high-quality properties in desirable locations. Our portfolio is focused on lab and outpatient medical buildings, favorable sectors that benefit from the universal desire for improved health. We focus on three purposely selected private pay asset classes, life science, medical office,have built scale and continuing care retirement community, tofostered deep industry relationships, two unique factors that provide stability through inevitable market cycles.us with a competitive advantage.
(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-rateinterest rate volatility and refinancing risk.
(iii)Our partnerships: We work with leading pharmaceutical, biotechnology, and medical device companies, as well as healthcare companies, operators,delivery systems, specialty physician groups, and other healthcare service providers, and are responsive to meet their space and capitalreal estate 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.
Internal Growth Strategies
We believe our real estate portfolio holds the potential for increased future cash flows as it is well-maintained and in desirable locations. Our strategy for maximizing the benefits from these opportunities is to: (i) work with new or existing tenants and operators to address their space and capital needs and (ii) provide high-quality property management services in order to motivate tenants to renew, expand, or relocate into our properties.
We expect to continue our internal growth as a result of our ability to:
•Build and maintain long-term leasing and management relationships with quality tenants and operators.tenants. In choosing locations for our properties, we focus on the physical environment, adjacency to established businesses (e.g., hospital systems)systems or life science submarkets) and educational centers, proximity to sources of business growth, and other local demographic factors.
•Replace tenants and operators at the best available market terms and lowest possible transaction costs. We believe we are well-positioned to attract new tenants and operators and achieve attractive rental rates and operating cash flow as a result of the location, design, and maintenance of our properties, together with our reputation for high-quality building services, and responsiveness to tenants, and our ability to offer space alternatives within our portfolio.
•Extend and modify terms of existing leases prior to expiration. We selectively structure lease extensions, early renewals, or modifications, which reduce the cost associated with lease downtime, or the re-investment risk resulting from the exercise of tenants’ purchase options, while securing the tenancy and relationship of our high qualityhigh-quality tenants and operators on a long-term basis.
Investment Strategies
The discovery and delivery of healthcare services requires real estate and, as a result, tenants and operators depend on our real estate, in part, to maintain and grow their businesses. We believe the healthcare real estate market provides investment opportunities due to the: (i) compelling long-term demographics driving the demand for healthcare services; (ii) specialized nature of healthcare real estate investing; and (iii) ongoing consolidation of the fragmented healthcare real estate sector.
While we emphasize healthcare real estate ownership, we may also provide real estate secured financing to, or invest in equity or debt securities of, healthcare operators or other entities engaged in healthcare real estate ownership. We may also acquire all or substantially all of the securities or assets of other REITs, operating companies, or similar entities where such investments would be consistent with our investment strategies. We may co-invest alongside institutional or development investors through partnerships or limited liability companies.
We monitor but do not limit, our investments based on the percentage of our total assets that may be invested in any one property type, investment vehicle, or geographic location, the number of properties that may be leased to a single tenant or operator, or loans that may be made to a single borrower. In allocating capital, we target opportunities with the most attractive risk/reward profile for our portfolio as a whole. We may take additional measures to mitigate risk, including diversifying our investments (by sector, geography, tenant, or operator)and tenant), structuring transactions as master leases, requiring tenant or operator insurance and indemnifications, and/or obtaining credit enhancements in the form of guarantees, letters of credit, or security deposits.
We believe we are well-positioned to achieve external growth through acquisitions, financing,development, and development.redevelopment. Other factors that contribute to our competitive position include:
•our reputation gained through over 30 yearsdecades of successful operations and the strength of our existing portfolio of properties;
•our relationships with leading pharmaceutical and biotechnology tenants, healthcare operators and systems, investment banks and other market intermediaries, corporations, private equity firms, not-for-profit organizations, and public institutionscompanies seeking to monetize existing assets or develop new facilities;
•our relationships with institutional buyers and sellers of high-quality healthcare real estate;
•our track record and reputation for executing acquisitions responsively and efficiently, which provides confidence to domestic and foreign institutions and private investors who seek to sell healthcare real estate in our market areas;
•our relationships with nationally recognized financial institutions that provide capital to the healthcare and real estate industries; and
•our control of land sites (including assets under contract with radius restrictions).held for future development.
Financing Strategies
Our REIT qualification requires us to distribute at least 90% of our REIT taxable income (excluding net capital gains); therefore, we do not retain a significant amount of earnings. As a result, we regularly access the public equity and debt markets to raise the funds necessary to finance acquisitions and debt investments, develop and redevelop properties, and refinance maturing debt.
We may finance acquisitions and other investments primarily through the following vehicles:in a variety of ways, including:
•cash flow from operations;
•sale or exchange of ownership interests in properties or other investments;
•borrowings under our credit facility or commercial paper program;
•issuance of additional debt, including unsecured notes, term loans, and mortgage debt; and/or
•issuance of common stock or preferred stock or its equivalent.
We maintain a disciplined investment-grade balance sheet by actively managing our debt to equity levels and maintaining access to multiple sources of liquidity. Our debt obligations are primarily long-term fixed rate with staggered maturities.
We finance our investments based on our evaluation of available sources of funding. For short-term purposes, we may utilize our revolving line of credit facility or commercial paper program, arrange for other short-term borrowings from banks or other sources, or issue equity securities pursuant to our at-the-market equity offering program. We arrange for longer-term financing by offering debt and equity, securities, placing mortgage debt, and obtaining capital from institutional lenders and joint venture partners.
In addition, capital recycling through dispositions and redeployment through acquisitions, developments, and redevelopments is an important facet of our investment and financing strategies. We routinely have multiple transactions involving both individual properties and portfolios under consideration that are in varying stages of evaluation, underwriting, negotiation, and due diligence review, some of which, if consummated or completed, may have a material effect on our liquidity, results of operations, and financial condition.
Segments
Life scienceLab
Our life sciencelab properties, which contain laboratory and office space, are leased primarily to biotechnology, medical device and pharmaceutical companies, scientific research institutions, government agencies, and other organizations involved in the life science industry. While these properties have certain characteristics similar to commercial office buildings, they generally accommodate heavier floor loads and contain more advanced electrical, mechanical, heating, ventilating, and air conditioning systems. The facilities generally have specialty equipment including emergency generators, fume hoods, lab bench tops, and related amenities. In addition to improvements funded by us as the landlord, many instances, life scienceof our lab tenants make significant investments to improve their leased space in addition to landlord improvements, to accommodate biology, chemistry, or medical device research initiatives.
Life scienceLab properties are primarily configured in business park or campus settings and include multiple buildings. The business park and campus settings allow us the opportunity to provide flexible, contiguous/adjacent expansion to accommodate the growth of existing tenants. Our properties are located in well-established geographical markets known for scientific research and drug discovery, including San Francisco (51%(50%) and San Diego (24%(23%), California, and Boston, Massachusetts (21%(25%) (based on availabletotal square feet). At December 31, 2020, 91%2023,90% of our life sciencelab properties were triple-net leased (based on leased square feet).
The following table provides information about our life sciencemost significant lab tenant concentration for the year ended December 31, 2020:2023:
| Tenants | Tenants | | Percentage of Segment Revenues | | Percentage of Total Revenues | Tenants | | Percentage of Segment Revenues | | Percentage of Total Revenues |
Amgen, Inc. | Amgen, Inc. | | 10 | % | | 3 | % | Amgen, Inc. | | 6 | % | | 2 | % |
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Outpatient Medical office
Our Medical Officeoutpatient medical segment includes Medical officeoutpatient medical buildings (“MOBs”) and hospitals. MOBsOutpatient medical buildings typically contain physicians’ offices and examination rooms, and may also include pharmacies, hospital ancillary service space, and outpatient services such as diagnostic centers, rehabilitation clinics, and day-surgery operating rooms. While these facilities are similarhave certain similarities to commercial office buildings, they require additional plumbing, electrical, and mechanical systems to accommodate multiple exam rooms that may require sinks in every room and specialspecialized equipment such as x-ray machines. In addition, MOBsmachines and MRIs. Outpatient medical buildings are often built to accommodate higher structural loads for certainsuch specialized equipment and may contain vaults or other specializedunique construction. Our MOBsoutpatient medical buildings are typically multi-tenant properties leased to healthcare providers (hospitals and physician practices), with approximately 84%87% of our MOBsoutpatient medical buildings located on or adjacent to hospital campuses and 97%98% affiliated with hospital systems as of December 31, 2023 (based on availabletotal square feet). Occasionally, we invest in MOBsoutpatient medical buildings located on hospital campuses subject to ground leases. At December 31, 2020,2023, approximately 61%65% of our MOBsoutpatient medical buildings were nettriple-net leased (based on leased square feet) with the remaining leased under gross or modified gross leases.
The following table provides information about our most significant outpatient medical office tenant concentration for the year ended December 31, 2020:2023:
| Tenant | Tenant | | Percentage of Segment Revenues | | Percentage of Total Revenues | Tenant | | Percentage of Segment Revenues | | Percentage of Total Revenues |
HCA Healthcare, Inc. (HCA) | HCA Healthcare, Inc. (HCA) | | 22 | % | | 8 | % | HCA Healthcare, Inc. (HCA) | | 23 | % | | 8 | % |
Our outpatient medical office segment also includes interests in 10 ninehospitals. Services provided by our tenants and operators in hospitals are paid for by private sources, third-party payors (e.g., insurance and HMOs), or through Medicare and Medicaid programs. Our hospital property types include acute care, long-term acute care, and specialty and rehabilitation hospitals. All of our hospitals are triple-net leased.
Continuing care retirement community, or CCRC
CCRCs are retirement communities that include independent living, assisted living, memory care, and skilled nursing units to provide a continuum of care in an integrated campus. Our CCRCs are owned through RIDEA structures, which is permitted by the Housing and Economic Recovery Act of 2008, and includes most of the provisions previously proposed in the REIT Investment Diversification and Empowerment Act of 2007 (commonly referred to as “RIDEA”).2007. The services provided by our third-party manager-operators under a RIDEA structure at our properties are primarily paid for by the residents directly or through private insurance and are less reliant on government reimbursement programs such as Medicare and Medicaid.
A RIDEA structure allows us, through a taxable REIT subsidiary (“TRS”), to receive cash flow from the operations of a healthcare facility in compliance with REIT tax requirements. The criteria for operating a healthcare facility through a RIDEA structure require us to lease the facility to an affiliate TRS under a triple-net lease, and for such affiliate TRS to engage an independent qualifying management company (also known as an eligible independent contractor or third-party operator) to manage and operate the day-to-day business of the facility in exchange for a management fee. As a result, under a RIDEA structure, we are required to rely on a third-party operator to hire and train all facility employees, enter into third-party contracts for the benefit of the facility, including resident/patient agreements, comply with laws, including but not limited to healthcare laws, and provide resident care. We are substantially limited in our ability to control or influence day-to-day operations under a RIDEA structure, and thus rely on the third-party operator to manage and operate the business.
Through our TRS entities, we bear all operational risks and liabilities associated with the operation of these properties, with limited exceptions, such as a third-party operator’s gross negligence or willful misconduct. These operational risks and liabilities include those relating to any employment matters of our operator, compliance with healthcare and other laws, and liabilities relating to personal injury-tort matters, resident-patient quality of care claims, and any governmental reimbursement matters, even though we have limited ability to control or influence our third-party operators’ management of these risks.
The management agreements we have in RIDEA structures related to CCRCs have original terms ranging from 10 to 15 years, with mutual renewal options. There are base management fees and incentive management fees payable to our third-party operators if operating results of the RIDEA properties exceed pre-established thresholds. Conversely, there are also provisions in the management agreements that reduce management fees payable to our third-party operators if operating results do not meet certain pre-established thresholds.
CCRCs are different from other housing and care options for seniors because they typically provide written agreements or long-term contracts between residents and the communities (frequently lasting the term of the resident’s lifetime), which offer a continuum of housing, services, and healthcare on one campus or site. CCRCs are appealing as they allow residents to “age in place” and typically require the individual to beis independent and in relatively good health upon entry.
As third-party operators manage our RIDEA properties in exchange for the receipt of a management fee, we are not directly exposed to the credit risk of these operators in the same manner or to the same extent as a triple-net tenant.
Other non-reportable segment
At December 31, 2020,2023, we had the following investments in our other non-reportable segments: (i) an interest in anour unconsolidated joint venture with a sovereign wealth fund that owns 19 senior housing assets (which we refer to as our SWF SH JV) and (ii) debt investments, and (iii) two preferred equity investments.loans receivable.
The properties in our unconsolidated senior housing joint ventureSWF SH JV are owned through RIDEA structures and include independent living facilities and assisted living facilities, which cater to different segments of the elderly population based upon their personal needs. These facilities are often in apartment-like buildings with private residences ranging from single rooms to large apartments.
Competition
Investing in real estate serving the healthcare industry is highly competitive. We face competition from other REITs, investment companies, pension funds, private equity investors, sovereign funds, healthcare operators, lenders, developers, and other institutional investors, some of whom may have greater flexibility (e.g., non-REIT competitors), greater resources, and lower costs of capital than we do. Increased competition makesand resulting capitalization rate compression, as well as the impacts of inflation and higher interest rates, make it more challenging for us to identify and successfully capitalize on opportunities that meet our objectives. Our ability to compete may also be impacted by global, national, and local economic trends, availability of investment alternatives, availability and cost of capital, construction and renovation costs, existing laws and regulations, new legislation, and population trends.
Income from our investments depends on our tenants’ and operators’ ability to compete with other companies on multiple levels, including: (i) the quality of care provided, (ii) reputation, (iii) success of product or drug development, (iv) price, (v) the range of services offered, (vi) the physical appearance of a facility, (v) price and range of services offered, (vi)property, (vii) alternatives for healthcare delivery, (vii)(viii) the supply of competing properties, (viii)(ix) physicians, (ix)(x) staff, (x)(xi) referral sources, (xi)(xii) location, (xii)(xiii) the size and demographics of the population in surrounding areas, and (xiii)(xiv) the financial condition of our tenants and operators. For a discussion of the risks associated with competitive conditions affecting our business, see “Item 1A, Risk Factors” in this report.
Government Regulation, Licensing, and Enforcement
Overview
Our healthcare facility operators (which include our TRS entities when we use a RIDEA structure) and tenants are typically subject to extensive and complex federal, state, and local healthcare laws and regulations relating to quality of care, licensure and certificate of need, resident rights (including abuse and neglect), consumer protection, government reimbursement, fraud and abuse practices, and similar laws governing the operation of healthcare facilities, and wefacilities. We expect the healthcare industry, in general, will continue to face increased regulation and pressure in the areas of fraud, waste and abuse, cost control, healthcare management, and provision of services, among others. Federal, state, and local officials are increasingly focusing their efforts on enforcement of these laws and regulations. In addition, our operators are subject to a variety of laws, regulations, and executive orders, including those relating to operators’ response to Covid and other infectious diseases, which can vary based on the provider type and jurisdiction, complicating compliance efforts. These regulations are wide ranging and can subject our tenants and operators to civil, criminal, and administrative sanctions.sanctions, including enhanced or additional penalties, sanctions, and other adverse actions that may arise under new regulations adopted in response to Covid. Affected tenants and operators may find it increasingly difficult to comply with this complex and evolving regulatory environment because of a relative lack of guidance in many areas as certain of our healthcare properties are subject to oversight from several government agencies, and the laws may vary from one jurisdiction to another. Changes in laws, regulations, reimbursement enforcement activity, and regulatory non-compliance by our tenants and operators can all have a significant effect on their operations and financial condition, which in turn may adversely impact us, as detailed below and set forth under “Item 1A, Risk Factors” in this report.
The following is a discussion of certain laws and regulations generally applicable to our operators, and in certain cases, to us.
Fraud and Abuse Enforcement
There are various extremely complex U.S. federal and state laws and regulations governing healthcare providers’ referrals, relationships and arrangements and prohibiting fraudulent and abusive practices by such providers. These laws include: (i) U.S. federal and state false claims acts, which, among other things, prohibit providers from filing false claims or making false statements to receive payment from Medicare, Medicaid, or other U.S. federal or state healthcare programs; (ii) U.S. federal and state anti-kickback and fee-splitting statutes, including the Medicare and Medicaid anti-kickback statute, which prohibit or restrict the payment or receipt of remuneration to induce referrals or recommendations of healthcare items or services; (iii) U.S. federal and state physician self-referral laws (commonly referred to as the “Stark Law”), which generally prohibit referrals by physicians to entities with which the physician or an immediate family member has a financial relationship; and (iv) the federal Civil Monetary Penalties Law, which prohibits, among other things, the knowing presentation of a false or fraudulent claim for certain healthcare services. Violations of U.S. healthcare fraud and abuse laws carry civil, criminal, and administrative sanctions, including punitive sanctions, monetary penalties, imprisonment, denial of Medicare and Medicaid reimbursement, payment suspensions, and potential exclusion from Medicare, Medicaid, or other federal or state healthcare programs. These laws are enforced by a variety of federal, state, and local agencies and in the U.S. can also be enforced by private litigants through, among other things, federal and state false claims acts, which allow private litigants to bring qui tam or “whistleblower” actions. Many of ourOur tenants and operators that participate in government reimbursement programs are subject to these laws and may become the subject of governmental enforcement actions or whistleblower actions if they fail to comply with applicable laws. Additionally, the licensed operators of our U.S. long-term care facilities that participate in government reimbursement programs are required to have compliance and ethics programs that meet the requirements of federal laws and regulations relating to the Social Security Act. Consistent withWhere we have used a RIDEA such responsibilitiesstructure, we are delegateddependent on management companies to fulfill our operating partnerscompliance obligations, and we have developed a program to periodically monitor compliance with such obligations.
Laws and Regulations Governing Privacy and Security
There are various U.S. federal and state privacy laws and regulations, including the privacy and security rules contained in the Health Insurance Portability and Accountability Act of 1996 (commonly referred to as “HIPAA”), whichthat provide for the privacy and security of personal health information. An increasing focus of the U. S. Federal Trade Commission’s (“FTC’s”) consumer protection regulation is the impact of technological change on protection of consumer privacy. The FTC, as well as state attorneys general, have taken enforcement action against companies that do not abide by their representations to consumers regarding electronic security and privacy. To the extent we or our affiliated operating entities are a covered entity or business associate under HIPAA and the Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”), compliance with those requirements would require us to, among other things, conduct a risk analysis, implement a risk management plan, implement policies and procedures, and conduct employee training. In most cases, we are dependent on our tenants and management companies to fulfill our compliance obligations, and we have developed a program to periodically monitor compliance with such obligations. Because of the far reaching nature of these laws, there can be no assurance we would not be required to alter one or more of our systems and data security procedures to be in compliance with these laws. Our failure to protect health information could subject us to civil or criminal liability and adverse publicity, and could harm our business and impair our ability to attract new customers and residents. We may be required to notify individuals, as well as government agencies and the media, if we experience a data breach.
Reimbursement
Sources of revenue for some of our tenants and operators include, among others, governmental healthcare programs, such as the federal Medicare programs and state Medicaid programs, and non-governmental third-party payors, such as insurance carriers and HMOs. Our tenants and operators who participate in governmental healthcare programs are subject to government reviews, audits, and investigations to verify compliance with these programs and applicable laws and regulations. As federal and state governments focus on healthcare reform initiatives, and as the federal government and many states face significant current and future budget deficits, efforts to reduce costs by these payors will likely continue, which may result in reduced or slower growth in reimbursement for certain services provided by some of our tenants and operators. Governmental healthcare programs are highly regulated and are subject to frequent and substantial legislative, regulatory, and interpretive changes, which could adversely affect reimbursement rates and the method and timing of payment under these programs. Additionally, new and evolving payor and provider programs in the U.S., including but not limited to Medicare Advantage, Dual Eligible, Accountable Care Organizations, Post-Acute Care Payment Models, SNF Value-Based Purchasing Programs, and Bundled Payments could adversely impact our tenants’ and operators’ liquidity, financial condition, or results of operations.
real property lessors upon initial enrollment and revalidation. In addition, the nursing facilities are required to timely report any changes, including in connection with any change of ownership. The Centers for Medicare and Medicaid Services (“CMS”) defines the new disclosable parties to include members of the facility’s governing body, persons, or entities who are an officer, director, member, partner, trustee, or managing employee of the facility, persons, or entities that exercise operational, financial, or managerial control, lease or sublease real property to the facility, own a direct or indirect interest of five percent or greater of the real property, or provide management or administrative services to the facility. Additionally, facilities will be required to disclose whether any entity on the enrollment form is a private equity company or REIT. CMS will make the information publicly available. This new disclosure requirement involves reporting extensive information and may complicate our healthcare facility operators’ efforts to comply with Medicare and Medicaid requirements. Failure to comply with the new disclosure requirements could negatively affect our healthcare facility operators’ participation in Medicare and state Medicaid programs. Healthcare Licensure and Certificate of Need
Certain healthcare facilities in our portfolio are subject to extensive national, federal, state, and local licensure, certification, and inspection laws and regulations. A healthcare facility’s failure to comply with these laws and regulations could result in a revocation, suspension, restriction, or non-renewal of the facility’s license and loss of a certificate of need, which could adversely affect the facility’s operations and ability to bill for items and services provided at the facility. In addition, various licenses and permits are required to handle controlled substances (including narcotics), operate pharmacies, handle radioactive materials, and operate equipment. Many states in the U.S. require certain healthcare providers to obtain a certificate of need, which requires prior approval for the construction, expansion, or closure of certain healthcare facilities. The approval process related to state certificate of need laws may impact the ability of some of our tenants and operators to expand or change their businesses.
Product Approvals
While our life sciencelab tenants include some well-established companies, other tenants are less established and, in some cases, may not yet have a product approved by the Food and Drug Administration, or other regulatory authorities, for commercial sale. Creating a new pharmaceutical product or medical device requires substantial investments of time and capital, in part because of the extensive regulation of the healthcare industry. It also entails considerable risk of failure in demonstrating that the product is safe and effective and in gaining regulatory approval and market acceptance.
Senior Housing Entrance Fee Communities
Certain of our senior housing facilities, primarily ourOur CCRCs are operated as entrance fee communities. Generally, an entrance fee is an upfront fee or consideration paid by a resident, a portion of which may be refundable, in exchange for some form of long-term benefit, typically consisting of a right to receive certain personal or health care services. Some ofIn certain states (including the ones in which we operate) entrance fee communities are subject to significant state regulatory oversight, including, for example, oversight of each facility’s financial condition, establishment and monitoring of reserve requirements and other financial restrictions, the right of residents to cancel their contracts within a specified period of time, the right of residents to receive a refund of their entrance fees, lien rights in favor of the residents, restrictions on change of ownership, and similar matters.
Americans with Disabilities Act (“ADA”)
Our properties must comply with the ADA and any similar state or local laws to the extent that such properties are “public accommodations” as defined in those statutes. The ADA may require removal of barriers to access by persons with disabilities in certain public areas of our properties where such removal is readily achievable. To date, we have not received any notices of noncompliance with the ADA that have caused us to incur substantial capital expenditures to address ADA concerns. Should barriers to access by persons with disabilities be discovered at any of our properties, we may be directly or indirectly responsible for additional costs that may be required to make facilities ADA-compliant. Noncompliance with the ADA could result in the imposition of fines or an award of damages to private litigants. The obligation to make readily achievable accommodations pursuant to the ADA is an ongoing one, and we continue to assess our properties and make modifications as appropriate in this respect.
Environmental Matters
A wide variety of federal, state, and local environmental and occupational health and safety laws and regulations affect healthcare facility operations. These complex federal and state statutes, and their enforcement, involve a myriad of regulations, many of which involve strict liability on the part of the potential offender. Some of these federal and state statutes may directly impact us. Under various federal, state, and local environmental laws, ordinances, and regulations, an owner of real property or a secured lender, such as us, may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposed of in connection with such property, as well as other potential costs relating to hazardous or toxic substances (including government fines and damages for injuries to persons and adjacent property). The cost of any required remediation, removal, fines, or personal or property damages, and any related liability therefore could exceed or impair the value of the property and/or the assets. In addition, the presence of such substances, or the failure to properly dispose of or remediate such substances, may adversely affect the value of such property and the owner’s ability to sell or rent such property or to borrow using such property as collateral, which, in turn, could reduce our earnings. For a description of the risks associated with environmental matters, see “Item 1A, Risk Factors” in this report.
Insurance
We obtain various types of insurance to mitigate the impact of property, business interruption, liability, flood, windstorm, earthquake, fire, environmental, and terrorism-related losses. We attempt to obtain appropriate policy terms, conditions, limits, and deductibles considering the relative risk of loss, the cost of such coverage, and current industry practice. There are, however, certain types of extraordinary losses, such as those due to acts of war or other events, that may be either uninsurable or not economically insurable. In addition, we have a large number of properties that are exposed to earthquake, flood, and windstorm occurrences, which carry higher deductibles.
We maintain property insurance for all of our properties. Tenants under triple-net leases are required to provide primary property, business interruption, and liability insurance. We maintain separate general and professional liability insurance for our SHOPCCRCs and CCRC facilities.the senior housing facilities owned by our SWF SH JV. Additionally, our corporate general liability insurance program also extends coverage for all of our properties beyond the aforementioned. We periodically review whether we or our RIDEA operators will bear responsibility for maintaining the required insurance coverage for the applicable SHOPCCRCs and CCRC properties,senior housing facilities owned by our SWF SH JV, but the costs of such insurance are facility expenses paid from the revenues of those properties, regardless of who maintains the insurance.
We also maintain directors and officers liability insurance, which provides protection for claims against our directors and officers arising from their responsibilities as directors and officers. Such insurance also extends to us in certain situations.
Sustainability
We believe that environmental, social and governance (“ESG”)ESG initiatives are a vital part of corporate responsibility, which supports our primary goal of increasing stockholder value through profitable growth. We continue to advance our commitment to sustainability, with a focus on achieving goals in each of the ESG dimensions. Our Board of Directors oversees ESG matters, with the Nominating and Corporate Governance Committee overseeing sustainability and corporate governance matters, the Audit Committee overseeing risk management, and the Compensation and Human Capital Committee overseeing human capital management. We use an integrated approach to ESG throughout our business to identify risks and opportunities, capture efficiencies and cost savings, and report on the issues most relevant to stakeholders.
Environment:Our environmental management programs strive to make our buildings more sustainable and capture cost efficiencies that ultimately benefit our investors, employees, tenants, operators, employees,business partners, and other stakeholders, while reducing our carbon footprint and providing a positive impact on the communities in which we operate. We regularly assess the risks and financial impacts to our business posed by climate change, including transition risks, physical climate risks, potential business disruption, and regulatory requirements. Our Compensationrequirements, and Human Capital Committeework with our property managers, operators, and tenants to implement projects to mitigate these risks and impacts. For a description of the Board oversees all human capitalrisks associated with climate risk matters, including culture, diversity, inclusion, talent acquisition and development, compensation and succession planning, discussed below undersee “Item 1A, Risk Factors” in this report.
Social: See “—Human Capital Matters.” In addition, our social responsibility committee leads our local philanthropic and volunteer activities.Matters” below.
Governance: Our transparent corporate governance initiatives incorporate sustainability as a critical component in achieving our business objectives and properly managing risks.
Our numerousrecent ESG recognitionshighlights include:
•Reported a reduction of 4.2% in2020include: Scope 1 and Scope 2 greenhouse gas emissions (“GHG”) in 2022 compared to 2021 on a like-for-like comparative basis (as defined below)
•Received Nareit’s Leader4 LEED certifications and 132 new ENERGY STAR certifications obtained in the Light award for the ninth time, recognizing our top ESG performance among REITs2023
•Nominated for Best Proxy Statement (large cap companies) by IR Magazine and Corporate SecretaryNamed an ENERGY STAR Partner of the Year in recognition of2023, marking our leading proxy disclosure practicesthird time receiving the award
•Received a Green Star rating from the Global Real Estate Sustainability Benchmark (GRESB)(“GRESB”) for the ninthtwelfth consecutive year, recognizing top ESG performance in our sector
•Named to CDP’s Leadership band for our climate disclosure for the eleventh consecutive year, most recently with a score of “A-” in 2023
•Named to Newsweek’s America’s Most Responsible Companies list for the fifth consecutive year
•Named a constituent in the FTSE4Good Index for the ninthtwelfth consecutive year
•Named to CDP’s Leadership band for our climate disclosurea constituent in the S&P Global Dow Jones Sustainability World Index for the eighth consecutive year
•Listed infourth time and S&P Global’sGlobal North America Dow Jones Sustainability Index for the eighth consecutive year, recognizing top ESG performance in our sector
•Named to the Sustainability Yearbook for the sixtheleventh consecutive year
•Named to the Bloomberg Gender-Equality IndexS&P Global Sustainability Yearbook for the secondninth consecutive year
•Named Winner for Best Proxy Statement (Mid Cap), and Finalist for Best ESG Reporting (Small to Corporate Responsibility Magazine’s 100Mid Cap) by IR Magazine and Governance Intelligence
•Included in Fortune’s Best Corporate CitizensWorkplaces in Real Estate list for the second consecutive year
•Named to Newsweek’s America’s Most Responsible Companies listUnder our “like-for-like” methodology, direct and indirect GHG emissions are compared on a year-over-year rolling basis using Scope 1 and Scope 2 GHG emissions for the secondproperties that we have owned for two full consecutive calendar years, excluding non-stabilized developments and redevelopments in each year
•Received a rating of “Prime” by ISS ESG Corporate Rating for our excellencethe calculation. Base data utilized in ESG performancethe calculation of Scope 1 and disclosure within our industryScope 2 GHG emissions is obtained from third-party invoices or estimates.
For additional information regarding our ESG initiatives, methodologies, and our approach to climate change, please visit our website at www.healthpeak.com/ESG.
Human Capital Matters
Our employees represent our greatest asset, and as of December 31, 2020,2023, we had 217 193full-time employees. Our Board of Directors, through its Compensation and Human Capital Committee, retains direct oversight of all human capital management, including corporate culture, diversity, inclusion, talent acquisition, retention, employee satisfaction, engagement, and succession planning. We report on human capital matters at each regularly scheduled Board of Directors meeting and periodically throughout the year. The most significant human capital measures or objectives that we focus on in managing our business and our related human capital initiatives include the following:
•Workforce DiversityDiversity:: We believe we are a stronger organization when our workforce represents a diversity of ideas and experiences. We value and embrace such diversity in our employee recruiting, hiring, and development practices. Our workforce was made up of 47%48% female employees and38% 37% racially or ethnically diverse employees as of December 31, 2020. In 2020, we launched our We Stand Together initiative, which is focused on enhancing racial diversity through education, awareness, and outreach throughout our company and communities.2023.
•Inclusion and BelongingBelonging:: We promote a work environment that emphasizes respect, fairness, inclusion, and dignity. We are committed to providing equal opportunity and fair treatment to all individuals based on merit, without discrimination based on race, color, religion, national origin, citizenship, marital status, gender (including pregnancy), gender identity, gender expression, sexual orientation, age, disability, veteran status, or other characteristics protected by law. We do not tolerate discrimination or harassment. All employees are required to attend a biennial training on unconscious bias.
•Engagement: High employee engagement and satisfaction are both critical to attracting and retaining top talent and benefit our business in many ways. We conduct an annuala regular employee engagement survey through an independent third party, measuring our progress on important employee issues and identifying opportunities for growth and improvement. Employee satisfaction increased for the fifth consecutive year in 2020. We also conducted 17company-wide employee town halls in 2020 to provide employees with real-time updates on the business in light of the COVID-19 pandemic.
•Training and Development: We conduct annual employee training on our Code of Business Conduct and Ethics, as well as bi-annualannual training on harassment prevention or unconscious bias and harassment prevention.bias. We also provide training and development to all employees, focusing on career development, professional development, and REIT essentials.
•Compensation and BenefitsBenefits:: We aim to ensure merit-based, equitable compensation practices to attract, retain, and recognize talent. We provide competitive compensation and benefit packages to our employees.
•Health, Safety, and WellnessWellness:: The health, safety, and wellness of our employees are vital to our success. We are committed to protecting the well-being and safety of employees through special training and other measures. In 2020, in light of the COVID-19 pandemic,We maintain a hybrid work model, which we shifted to a remote work environment ahead of mandatory stay-at-home ordersbelieve maximizes company-wide productivity, and providedprovide employees with resources, including virtual tools and ergonomic equipment, to maximize work-from-home efficiency.
•Community PartnershipPartnership:: Our Social Responsibility Committee is responsible for oversight of our charitable and volunteer activities. We partner with organizations that share our desire to support research, education, and other activities related to healthcare, senior communities, and disaster relief.healthcare.
For additional information on human capital matters, please see our most recent proxy statement or ESG report, each of which is available on our website at www.healthpeak.com.
Available Information
Our website address is www.healthpeak.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available on our website, free of charge, as soon as reasonably practicable after we electronically file such materials with, or furnish them to, the U.S. Securities and Exchange Commission (“SEC”).SEC. Additionally, the SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us, at www.sec.gov. References to our website throughout this Annual Report on Form 10-K are provided for convenience only and the content on our website does not constitute a part of this Annual Report on Form 10-K.
ITEM 1A. Risk Factors
The section below discusses the most significant risk factors that may materially adversely affect our business, results of operations, and financial condition. Additional risks not presently known to us or that we currently deem immaterial may also adversely affect our business.
As set forth below, we believe that the risks we face generally fall into the following categories:
•risks related to our business and operations;
•risks related to the regulatory environment;
•risks related to our capital structure and market conditions;
•risks related to other events;the regulatory environment;
•risks related to tax, including REIT-related risks;risks, and related to our jurisdiction of incorporation and our structure as an UPREIT;
•risks relating to the Mergers;
•risks relating to the Combined Company following the Mergers;
•risks relating to the status of Physicians Realty Trust as a REIT; and
•general risks.risks relating to an investment in the Combined Company’s common stock following the Mergers and the transactions contemplated by the Merger Agreement.
Risks Related to Our Business and Operations
The COVID-19 pandemicWe may be negatively impacted by macroeconomic trends, including rising inflation and healthinterest rates, increased construction and safety measures intended to reduce its spreadlabor costs, and historically low unemployment.
Many of our costs, including labor costs, construction costs, utilities, and other operating and administrative costs, have adversely affected,been, and may continue to be, affected by inflation and price volatility. These macroeconomic trends have been, and may continue to be, exacerbated by responses to the Covid pandemic, supply chain disruptions, the conflicts between Russia and Ukraine and in the Middle East, federal government deficits, and other international and domestic events impacting the macroeconomic environment.
In addition, interest rates rose substantially in 2022 and 2023 and may continue to rise and remain elevated for the foreseeable future. U.S. government policies implemented to address inflation, including actions by the Federal Reserve System’s Federal Open Market Committee (the “FOMC”) to increase short-term interest rates, have led to increases in interest rates in the credit markets and other impacts on the macroeconomic environment. The FOMC may continue to raise the federal funds rate or maintain a higher federal funds rate for a longer period of time, either of which would likely lead to higher short-term interest rates and the possibility of lower asset values, slowing economic growth and increasing the possibility of a recession. Increased interest rates have caused, and may continue to cause, unfavorable financing terms and increased interest costs for variable rate debt and new debt. Further, actions by the FMOC to decrease short-term interest rates could lead to inflationary pressures. We may not be able to offset additional costs caused by inflation, increased interest rates, or other macroeconomic trends by passing them through, or increasing the rates we charge, to tenants and residents. These increased costs may hinder our ability to execute on accretive acquisitions or otherwise adversely affect our business, results of operations, and financial condition. Increased interest rates could also negatively impact consumer spending and our tenants’, operators’, and borrowers’ businesses and future demand for our properties.
Global health concernsFurthermore, rising labor costs and efforts to reduce the spread of COVID-19 resulted in travel bans, quarantines, “shelter-in-place” and similar orders restricting the activities of individuals outside of their homes, as well as business limitations and shutdowns of businesses deemed “non-essential.” Although some of these restrictionspersonnel shortages have been lifted or scaled back, ongoing resurgences of COVID-19 infections, including new strains, have resulted in the re-imposition of certain restrictionsincreased, and may lead to other restrictions being re-implemented to reduce the spread of COVID-19. In many cases, these measures have limited and continue to limitincrease, the abilitycost of our, tenants, operatorsor our tenants’, operators’, and borrowers to conduct their normal businesses operations and comply with their rent and other financial obligations to us and, because these restrictionsborrowers’, workforce. Competitive pressures, including historically low unemployment, may remain in place for a significant amount of time,require that we expect they will continue to place a substantial strain on the business operations of many of our tenants, operators and borrowers.
Senior housing facilities have been disproportionately impacted by COVID and COVID-related fatalities. Within our SHOP and CCRC properties, average occupancy declined from 83.2% and 85.6%, respectively, for the year ended December 31, 2019, to 75.3% and81.4%, respectively, for the year ended December 31, 2020 and we expect occupancy rates will continue to decline for at least the duration of the COVID-19 pandemic due to a reduction in, or in some cases prohibitions on, new tenant move-ins due to “shelter-in-place” and local health department orders, stricter move-in criteria, lower inquiry volumes, and reduced in-person tours, as well as incidences of COVID-19 outbreaks at our facilities or the perception that outbreaks may occur. Outbreaks, which directly affect our residents and the employees at our senior housing facilities, have and could continue to materially and adversely disrupt operations. These outbreaks could cause significant reputational harm to us and our operators and could adversely affect demand for senior housing for an extended period. Our senior housing property operators are also facing material cost increases as a result of higher staffing hours and compensation, as well as increased usage and inventory of critical medical supplies and personal protective equipment. At our SHOP and CCRC facilities, we bear these material cost increases. The pandemic has also delayed the deployment of capital improvements and expenditures, which could adversely impact operations at our senior housing facilities.
We temporarily suspended development and redevelopment projects in the greater San Francisco and Boston areas as a result of the “shelter-in-place” orders and local, state and federal directives. Our operators also temporarily suspended development and redevelopment across our senior housing portfolio for the same reasons around the end of the first quarter of 2020, except for certain life safety and essential projects. Although these development and redevelopment projects restarted with infection control protocols in place, future local, state or federal orders could cause us to re-suspend the work. Furthermore, construction workers are following applicable guidelines, including appropriate social distancing, limitations on large group gatherings in close proximity, and increased sanitation efforts, which has slowed the pace of construction. These protective actions do not, however, eliminate the risk that outbreaks caused or spread by such activities may occur and impact our tenants, operators and residents. In addition, our planned dispositions may not occur within the expected time or at all because of buyer terminations or withdrawals related to the pandemic, capital constraints or other factors relating to the pandemic.
Within our medical office portfolio, many physician practices temporarily discontinued outpatient procedures and nonessential surgeries in 2020 due to health and safety measures, which negatively impacted their cash flows. During the second quarter of 2020, we implemented a deferred rent program primarily for May and June 2020 that was limited to certain non-health system and non-hospital tenants in good standing, which resulted in reduced cash flow in the periods in which such deferrals were granted, but increased our cash flow in the period in which such deferrals were repaid. We may also implement deferred rent programs for future periods. In 2020, we experienced a slowdown in new leasing during the government-mandated shutdown. We expect that overall leasing activity will be negatively impacted through the duration of the COVID-19 pandemic.
Within our life science portfolio, we may experience a decline in new leasing activity due to the COVID-19 pandemic. In addition, as a result of governmental restrictions on business activities, particularly in the greater San Francisco and Boston areas, we temporarily suspended development, redevelopment and tenant improvement projects at many of our life science properties around the end of the first quarter of 2020. Although we were able to restart these projects, future governmental restrictions may re-suspend them or suspend others. We are also experiencing time delays with our development, redevelopment, and tenant improvement projects due to the implementation of health and safety protocols related to social distancing and proper hygiene and sanitization.
The COVID-19 pandemic subjects our business and the businesses of our tenants and operators to various risks and uncertainties that have significantly adversely affected and could materially adversely affect our business, results of operations and financial condition for at least the pendency of the COVID-19 pandemic and possibly longer, including the following:
•rent deferrals or delays in rent commencement for tenants may result in a significant decrease in our cash receipts during the period of the deferrals;
•material cost increases at our SHOP and CCRC facilities, for which we are responsible;
•non-payment of contractual obligations by our tenants or operators, and any limitations on our ability to enforce our lease agreements or management agreements with our tenants or operators, as applicable, as a result of any federal, state or local restrictions on tenant evictions for failure to make contractual rent payments, which may result in higher reserves for bad debt;
•our tenants, operators, or borrowers becoming insolventenhance pay and benefits packages to compete effectively for such personnel. To the extent we or initiating bankruptcyour tenants, operators, or similar proceedings,borrowers cannot hire a sufficient number of qualified personnel, we or they may need to utilize high-cost alternatives to meet labor needs, including contract and overtime labor, or our business may operate below capacity, which would adverselymay affect our ability to collect rent or interest payments from such tenants or borrowers, as applicable,effectively manage risk and result in increased costs to us, as well as decreased revenues;pursue potential revenue and growth opportunities.
•the complete or partial closures of, or other operational issues at, one or more ofAdditionally, changing technologies and cultural trends could negatively impact future demand for our properties, resulting from government action or directives, which may intensify the risk of rent deferrals or non-payment of contractual obligations by our tenants or operators;
•any possession taken of our properties, in whole or in part, by governmental authorities for public purposes in eminent domain proceedings or any government mandate or action that requires the use of our properties for the care and treatment of patients suffering from COVID-19;
•the likelihood that we will amend existing lease agreements and existing rental terms, with our tenants, and management agreements and existing fee structures, with our RIDEA operators, particularly in our senior housing portfolio, which would have an adverse effect on our revenues and results of operations;
•increased costs or delays that may result if we determine to reposition or transition any of our currently-leased properties to another tenant or operator, which could adversely impact our revenues and results of operations;
•the impact on our results of operations and financial condition resulting from (i) suspensions or delays in development and redevelopment activities and tenant improvement projects, including due to local, state and federal orders or guidelines, delays or increased costs caused by slow-downs in construction as a result of implementing social distancing and other health and safety protocols, or delays or increased costs caused by a shortage of construction materials or labor, as well as potential postponement of rent commencement dates due to delays in tenant improvement projects, and (ii) a decrease in acquisitions and dispositions of properties compared to historical levels;
•reduced valuations for properties in our portfolio that we wish to sell, and potential delayed transaction timing due to government delays or government mandated COVID-related access restrictions;
•the need to provide seller financing in order to dispose of certain properties in our portfolio at acceptable prices;
•the impact on our tenants or operators, particularly in our senior housing portfolio, of lawsuits related to COVID-19 outbreaks that have occurred or may occur at our properties and the potential that insurance coverage may not be sufficient to cover any potential losses;
•material increases in our insurance costs and larger deductibles or the inability to obtain insurance at economically reasonable rates;
•significant expenses likely to be incurred in connection with our pursuit of creditor rights resulting from operator and tenant defaults and insolvency;
•a potential downgrade of our issuer and long-term credit rating following the change in our outlook from “stable” to “negative” by Moody’s, which could increase our cost of capital and any future debt financing;
•refusal or failure by one or more of our lenders under our credit facility to fund their financing commitments to us as a result of lender liquidity and/or viability challenges, which financing commitments we may not be able to replace on favorable terms, or at all;
•the likelihood that conditions related to the COVID-19 pandemic may require us to recognize additional impairments of long-lived assets or credit losses related to loans receivable;
•the impact on our business if our executive officers, management team or a significant percentage of our employees are unable to continue to work because of illness caused by COVID-19, as well as the significant time and attention devoted by our management team to monitor the COVID-19 pandemic and seek to mitigate its effect on our business;
•the impact of negative or adverse publicity associated with COVID outbreaks at our senior housing communities, the cost of responding to such adverse publicity and the potential for heightened regulatory scrutiny caused by it;
•the deterioration of state and local economic conditions and job losses, particularly in San Francisco, San Diego and Boston, which may decrease demand for and occupancy levels at our life science properties and cause our rental rates and property values to be negatively impacted; and
•the potential for shifts in consumer and business behaviors that fundamentally and adversely affect demand for properties in our portfolio.
The impact of the COVID-19 pandemic on our SHOP and CCRC properties managed in RIDEA structures has had and may continue to have a more significant impact on our results of operations on a relative basis because we receive cash flow from the operations of the property (as compared to only receiving contractual rent from a third-party tenant-operator under a triple-net lease structure), and we also bear all operational risks and liabilities associated with the operation of those properties, other than those arising out of certain actions by our operator, such as gross negligence or willful misconduct. Accordingly, impacts from the COVID-19 pandemic directly affecting our SHOP and CCRC properties, including lower net operating income caused by decreased revenues that may result from declines in occupancy or otherwise, and increased expenses, has had and is expected to continue to have a more direct and immediate impact on our results of operations than such an impact affecting one of our triple-net leased properties in our senior housing portfolio. For example, increased operating expenses at our SHOP and CCRC properties, including due to labor shortages, as well as increased screening and protective measures intended to prevent an outbreak and/or slow the spread of a COVID-19 outbreak, has adversely affected and is expected to continue to adversely affect the cash flow from operations we receive from the affected properties. In addition, our RIDEA operators who are adversely affected by the COVID-19 pandemic may request revisions to their management agreements and existing fee structures in order to reduce the amount of cash from operations that flows directly to us. Because we bear all operational risks and liabilities related to our SHOP and CCRC properties, other than those arising out of certain actions by our operator, such as gross negligence or willful misconduct, we may be directly adversely impacted by potential lawsuits related to COVID-19 outbreaks that have occurred or may occur at those properties, and our insurance coverage may not be sufficient to cover any potential losses. The same factors may also affect our triple net lease tenants and may limit their ability to pay the contractual rent when due.
Additionally, the COVID-19 pandemic could increase the magnitude of many of the other risks described herein and elsewhere in this Annual Report may have other adverse effects on our operations that we are not currently able to predict. The COVID-19 pandemic has also resulted in significant volatility in the local, national and global financial markets, and we may be unable to obtain any required financing on favorable terms or on a timely basis or at all.
The extent of the impact of the COVID-19 pandemic on our business and financial results will depend on future developments, including the duration, severity and spread of the pandemic, ongoing resurgences of COVID-19 in most states, health and safety actions taken to contain 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, each of which are highly uncertain at this time and outside of our control. Even after the COVID-19 pandemic subsides, we may continue to experience adverse impacts to our business and financial results as a result of its national and global economic impact. The continued adverse impact of the COVID-19 pandemic on our business, results of operations and financial condition could be material.
We assume operational risks with respect to our SHOP properties managed in RIDEA structures that could have a material adverse effect on our business, results of operations, and financial condition.
Life scienceindustry changes could have a material adverse effect on our business, results of operations, and financial condition.
If economic, financial, regulatory, or industry conditions continue to adversely affect the ownerlife science industry, we may be unable to lease or re-lease our lab properties in a timely manner or at profitable rates or with favorable terms. In addition, because lab property infrastructure improvements are typically significantly more costly than improvements to other property types due to their highly specialized nature, and lab tenants typically require greater lease square footage relative to outpatient medical tenants, repositioning efforts would have a disproportionate adverse effect on our lab segment performance. Further, our lab investments could face decreased demand from biotech and life science companies relative to supply, and life science industry consolidation could reduce the rentable square footage requirements of a property under a RIDEA structure, our TRS isclient tenants and prospective client tenants, which may adversely impact our revenues from lease payments. Finally, our lab investments could also be adversely affected if the life science industry migrates from the U.S. to other countries or to areas outside of our primary lab markets in the greater South San Francisco, San Diego, and Boston areas.
Our lab tenants face significant regulation, funding requirements, and uncertainty.
Our lab tenants face substantial requirements for, and risks related to, the research, development, clinical testing, manufacture, and commercialization of their products and technologies, including:
•significant funding requirements, including for rent payments due to us;
•federal, state, and foreign regulatory approvals that may be costly or difficult to obtain, may take several years and be subject to delay, may not be obtained at all, require validation through clinical trials that may face delays or difficulties, or ultimately responsible for all operationalbe unsuccessful;
•product and technology efficacy risks;
•acceptance risks among doctors and patients;
•significant regulatory and liability risks, including the possible later discovery of safety concerns and other liabilitiesdefects and potential loss of approvals, competition from new products, and the expiration of patent protection;
•healthcare reforms and reimbursement policies of government or private healthcare payors, including pricing controls for prescription drug prices;
•intellectual property other than those arising out of certain actions by our operator, such as gross negligence or willful misconduct. Operationaland technology risks include,under patent, copyright, and our resulting revenues therefore depend on, among other things: (i) occupancy rates; (ii) the entrance feestrade secret laws; and rental rates charged to residents; (iii) Medicare and Medicaid reimbursement rates, to the extent applicable; (iv) our operators’ reputations and
•economic conditions restricting growth opportunities.
Our lab tenants’ ability to attractraise capital depends on the actual or perceived viability of their products and retain residents; (v)technologies, their financial and operating condition and outlook, and the overall financial, banking, and economic environment. If venture capital firms, private investors, the public markets, companies in the life science industry, the government, or other sources of funding are difficult to obtain or unavailable to support our tenants’ activities, including as a result of general economic conditions andor adverse market factorsconditions that negatively impact seniors which may be exacerbated by the COVID-19 pandemic, including the ongoing economic downturn and high unemployment rates; (vi) competition from other senior housing providers; (vii) compliance with federal, state, local and industry-regulated licensure, certification and inspection laws, regulations and standards; (viii) litigation involving our properties or residents/patients, including but not limited to litigation related to COVID-19; (ix) the availability and cost of general and professional liability insurance coverage or increases in insurance policy deductibles; and (x) thetenants’ ability to control operating expenses,raise capital, our tenants’ business would be adversely affected or could fail. If our lab tenants’ businesses are adversely affected, they may fail to make their rent payments to us, which have increased and may continue to increase due to the COVID-19 pandemic. Although the RIDEA structure gives us certain oversight approval rights (e.g., budgets, material contracts, etc.) and the right to review operational and financial reporting information, our operators are ultimately in control of the day-to-day business of the property. As a result, we have limited rights to direct or influence the business or operations of our properties in the SHOP segment and we depend on our operators to operate these properties in a manner that complies with applicable law, minimizes legal risk and maximizes the value of our investment. Failure by our operators to adequately manage these risks could have a material adverse effect on our business, results of operations, and financial condition.
We are required under RIDEA to rely on our operators to oversee and direct these aspects of the properties’ operations to ensure compliance with applicable laws and regulations. If one or more of our healthcare properties fails to comply with applicable laws and regulations, our TRS would be responsible (except in limited circumstances, such as the gross negligence or willful misconduct of our operators, where we would have a contractual claim against them), which could subject our TRS to penalties including loss or suspension of licenses, certification or accreditation, exclusion from government healthcare programs (i.e., Medicare, Medicaid), administrative sanctions and civil monetary penalties. Some states also reserve the right to sanction affiliates of a licensee when they take administrative action against the licensee. Additionally, when we receive individually identifiable health information relating to residents of our healthcare properties, we are subject to federal and state data privacy and security laws and rules, and could be subject to liability in the event of an audit, complaint, cybersecurity attack or data breach. Furthermore, our TRS has exposure to professional liability claims that could arise out of resident claims, such as quality of care, and the associated litigation costs.
Rents received from the TRS in a RIDEA structure are treated as qualifying rents from real property for REIT tax purposes only if (i) they are paid pursuant to a lease of a “qualified healthcare property” and (ii) the operator qualifies as an “eligible independent contractor,” as defined in the Internal Revenue Code of 1986, as amended (the “Code”). If either of these requirements is not satisfied, then the rents will not be qualifying rents.
Decreases in our tenants’, operators’, or borrowers’ revenues, or increases in their expenses, or other factors adversely affecting their ability to borrow money, could affect their ability to meet their financial and other contractual obligations to us, and could result in amendments to these obligations that have a material adverse effect on our results of operations and financial condition.
We have limited control over the success or failure of our tenants’, operators’ and borrowers’ businesses, regardless of whether our relationship is structured as a triple-net lease, a RIDEA lease or as a lender to our tenants. Any of our triple-net tenants or operators under a RIDEA structure may experience a downturn in their business that materially weakens their financial condition. For example, our triple-net tenants and operators under a RIDEA structure have experienced a significant downturn in their businesses due to the COVID-19 pandemic, including as a result of interruptions in their operations, lost revenues, increased costs, financing difficulties and labor shortages.As a result, they may be unable or unwilling to make payments or perform their obligations when due. Although we generally have arrangements and other agreements that give us the right under specified circumstances to terminate a lease, evict a tenant or terminate our operator, or demand immediate repayment of outstanding loan amounts or other obligations to us, we may not be able to enforce such rights or we may determine not to do so if we believe that enforcement of our rights would be more detrimental to our business than seeking alternative approaches.
Our senior housing tenants and our SHOP segment under a RIDEA structure primarily depend on private sources for their revenues and the ability of their patients and residents to pay fees. Costs associated with independent and assisted living services are not generally reimbursable under governmental reimbursement programs such as Medicare and Medicaid. Accordingly, our tenants and operators of our SHOP segments depend on attracting seniors with appropriate levels of income and assets, which may be affected by many factors, including: (i) prevailing economic and market trends, including the ongoing economic downturn and high unemployment rates; (ii) consumer confidence; (iii) demographics; (iv) property condition and safety; (v) public perception about such properties; and (vi) social and environmental factors. Consequently, if our tenants or operators on our behalf fail to effectively conduct their operations, or to maintain and improve our properties, it could adversely affect our business reputation as the owner of the properties, as well as the business reputation of our tenants or operators and their ability to attract and retain patients and residents in our properties, which could have a materially adverse effect on our and our tenant’s or operator’s business, results of operations and financial condition. Further, if widespread default or nonpayment of outstanding obligations from a large number of tenants or operators occurs at a time when terminating such agreement or replacing such tenants or operators may be extremely difficult or impossible, including as a result of the COVID-19 pandemic, we may elect instead to amend such agreements with such tenants or operators. However, such amendment may be on terms that are less favorable to us than the original agreement and may have a material adverse effect on our results of operations and financial condition.
Our senior housing tenants and our SHOP segment under a RIDEA structure also rely on reimbursements from governmental programs for a portion of the revenues from certain properties. Changes in reimbursement policies and other governmental regulation, such as potential changes to the Patient Protection and Affordable Care Act, along with the Health Care and Education Reconciliation Act of 2010 (the “Affordable Care Act”), that may result from actions by Congress or executive orders, may result in reductions in our tenants’ revenues or in our revenues from our RIDEA structures, operations and cash flows and affect our tenants’ ability to meet their obligations to us or our financial performance through a RIDEA structure. In addition, failure to comply with reimbursement regulations or other laws applicable to healthcare providers could result in penalties, fines, litigation costs, lost revenue or other consequences, which could adversely impact our tenants’ ability to make contractual rent payments to us under a triple-net lease or our cash flows from operations under a RIDEA structure.
Revenues of our senior housing tenants and our SHOP segment under a RIDEA structure are also dependent on a number of other factors, including licensed bed capacity, occupancy, the healthcare needs of residents, the rate of reimbursement, the income and assets of seniors in the regions in which we own properties, and social and environmental factors. For example, due to generally increased vulnerability to illness, COVID-19 has resulted in, and another epidemic or pandemic, a severe flu season or any other widespread illness could result in, early move-outs or delayed move-ins during quarantine periods or during periods when actual or perceived risks of such illnesses are heightened, which have, and could continue to reduce our operators’ revenues. Additionally, new and evolving payor and provider programs in the United States, including but not limited to Medicare Advantage, Dual Eligible, Accountable Care Organizations, Bundled Payments and other value-based reimbursement arrangements, have resulted in reduced reimbursement rates, average length of stay and average daily census, particularly for higher acuity patients. If our tenants fail to maintain revenues sufficient to meet their financial obligations to us or if our operators under a RIDEA structure underperform, our business, results of operations and financial condition would be materially adversely affected.
Our tenants and operators have, and may continue to seek to, offset losses by obtaining funds under the recently adopted Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) or other similar legislative initiatives at the state and local level. Receipt of these funds is subject to a detailed application and approval process and in some cases, entails operating restrictions. It is indeterminable when or if these government funds will ultimately be received by our tenants and operators or whether these funds may materially offset the cash flow disruptions experienced by them. If they are unable to obtain these funds within a reasonable time period or at all, or the conditions precedent to receiving these funds are overly burdensome or not feasible, it may substantially affect their ability to make payments or perform their obligations when due to us.
Increased competition, operating costs and market changes may affect the ability of some of our tenants, operators and borrowers to meet their financial and other contractual obligations to us.
Occupancy levels at, and rental income from, our outpatient medical and senior housing properties are dependentdepend on our ability and the ability of our tenants, operators, and borrowers to compete with other tenants and operators on a number of different levels, includingrespect to (i) the quality of care provided, (ii) reputation, (iii) price, (iv) the range of services offered, (v) the physical appearance of a property, price, the range of services offered,(vi) family preference, alternatives for healthcare delivery, the supply of competing properties, physicians, staff,(vii) referral sources, location, and the size and demographics of the population in the surrounding area. (viii) location.
In addition, our outpatient medical and senior housing tenants, operators, and borrowers compete with certain companies that have superior resources and attributes and/or provide similar healthcare services or alternatives such as home health agencies, telemedicine, life care at home, community-based service programs, retirement communities, and convalescent centers.
Furthermore, these tenants, operators, and borrowers face a competitive labor market. A shortage of care givers or other trained personnel, union activities (including strikes, labor slowdowns, or contract negotiations), wage laws, or general inflationary pressures on wages may require our tenants, operators, and borrowers face an increasingly competitive labor market, which has been compoundedto enhance pay and benefits packages, or to use more expensive contract personnel, and they may be unable to offset these added costs by increasing the COVID-19 pandemic.rates charged to residents or patients. An inability to attract and retain trainedqualified personnel, including personnel possessing the expertise needed to operate in the life science, outpatient medical, and senior housing sectors, could negatively impact the ability of our tenants, operators, and borrowers to meet their obligations to us. A shortage
Our tenants, operators, and borrowers could also compete with numerousbe adversely impacted by a bank failure or other companies providing similar healthcare servicesevent affecting financial institutions, including through disruptions in access to bank deposits or alternatives such as home health agencies, life care at home, community-based service programs, retirement communities and convalescent centers. This competition, over-development in some markets in which we invest, COVID-19 outbreaks, or the negative public perception that such outbreak may occur, has caused the occupancy rateborrowing capacity, including access to letters of unstabilized buildings to slow or decline, and the monthly rate that some unstabilized properties were able to obtain for their services to decrease. Our tenants, operators and borrowers may be unable to achieve and maintain occupancy and rate levels, and to manage their expenses, in a way that will enable them to meet all of their obligations to us. Further, many competing companies may have resources and attributes that are superior to thosecredit from certain of our tenants operatorsrelating to lease obligations, and borrowers, which may also allow themany resulting adverse effects to better withstand the impact of COVID-19our tenants’, operators’, or other competitive pressures.Our tenants, operators and borrowers may encounter increased competition thatborrowers’ liquidity or financial performance could limit their ability to maintain or attract residents and employees, or expand their businesses or to manage their expenses, which could materially adversely affect their ability to meet their financial and other contractual obligations to us.
Although we generally have the right under specified circumstances to terminate a lease, evict a tenant or terminate an operator, demand immediate repayment of outstanding loan amounts or other obligations to us, potentially decreasingor draw on a letter of credit, we may be unable to enforce these rights or we may determine not to do so if we believe that doing so would be more detrimental than alternative approaches. If widespread default or nonpayment of outstanding obligations from our revenues, impairing our assets and/or increasing collection and dispute costs.
Financial deterioration, insolvency or bankruptcy of one or more of our major tenants, operators, or borrowers occurs at a time when terminating our agreements with them and replacing them would be difficult or impossible, we could elect instead to amend our agreements on materially less favorable terms to us. The failure of our tenants, operators, or borrowers to meet their financial and other contractual obligations to us could have a material adverse effect on our business, results of operations, and financial condition.
We may be negatively impacted by the insolvency or bankruptcy of one or more of our major tenants, operators, or borrowers.
A downturn in any of our tenants’, operators’, or borrowers’ businesses including ongoing downturns due to the COVID-19 pandemic, has led, and could continue toin the future lead, to voluntary or involuntary bankruptcy or similar insolvency proceedings, including but not limited to assignment for the benefit of creditors, liquidation, or winding-up. Bankruptcy and insolvency laws afford certain rights to a defaulting tenant, operator, or borrower that has filed for bankruptcy or reorganization that has, and in the future may, render certain of our remedies unenforceable or, at the least, delay our ability to pursue such remedies and realize any related recoveries.
A debtor has the right to assume, or to assume and assign to a third party, or to reject its executory contracts and unexpired leases in a bankruptcy proceeding. IfWe have been subject to rejection of our leases in the past and may experience such rejection in the future. When a debtor were to rejectrejects its leases with us, obligations under such rejected leases would cease. The claim against the rejecting debtor would befor remaining rental payments due under the lease is an unsecured claim which would be limited by the statutory cap set forth in the U.S. Bankruptcy Code. This statutory cap may be substantially less than the remaining rent actually owed under the lease. In addition, a debtor may also assert in bankruptcy proceedings that certain leases should be re-characterized as financing agreements, which could result in our being deemed a lender instead of a landlord. A lender’s rights and remedies, as compared to a landlord’s, generally are materially less favorable, and our rights as a lender may be subordinatedsubject to other creditors’ rights.lower priority for payment under the U.S. Bankruptcy Code.
Furthermore, the automatic stay provisions of the U.S. Bankruptcy Code would preclude us from enforcing our remedies unless we first obtain relief from the court having jurisdiction over the bankruptcy case. This would effectively limitlimits or delaydelays our ability to collect unpaid rent or interest payments, and we may ultimately not receive any payment at all. In addition, we would likelyhave been, and may again be, required to fund certain expenses and obligations (e.g., real estate taxes, insurance, debt costs, and maintenance expenses) to preserve the value of our properties, avoid the imposition of liens on our properties, or transition our properties to a new tenant or operator. Additionally, we lease many of our properties to healthcare providers who provide long-term custodial care to the elderly. Evicting operators for failure to pay rent while the property is occupied typically involves specific procedural or regulatory requirements and may not be successful. Even if eviction is possible, we may determine not to do so due to reputational or other risks. Bankruptcy or insolvency proceedings typically also result in increased costs to the operator, significant management distraction and performance declines.
If we are unable to transition affected properties, they would likely experience prolonged operational disruption, leading to lower occupancy rates and further depressed revenues. Publicity about the operator’s financial condition and insolvency proceeds may also negatively impact their and our reputations, decreasing customer demand and revenues. Any or all of these risks could have a material adverse effect on our revenues, results of operations, and cash flows. These risks wouldcould be magnified where we lease multiple properties to a single operator under a master lease, as an operator failure or default under a master lease would expose us to these risks across multiple properties.
We depend on real estate investments, particularly in the healthcare property sector, making our profitabilityus more vulnerable to a downturn or slowdown in that specific sector than if we were investing inacross multiple industries.sectors.
We concentrate our investments in the healthcare property sector. A downturn or slowdown in the healthcare propertythis sector such as the ongoing COVID-19 downturn, has had and may continue towould have a greater adverse impact on our business than if we had investments inacross multiple industriessectors, and could negatively impact the ability of our tenants, operators, and borrowers to meet their obligations to us, as well as the ability to maintain historical rental and occupancy rates, which wouldcould have a material adverse effect on our business, financial condition and results of operations.operations, and financial condition. In addition, such downturns have had and could continue to have a material adverse effect on the value of our properties and our ability to sell properties at prices or on terms acceptable or favorable to us.
In addition, we are exposed
The illiquidity of our real estate investments may prevent us from timely responding to the risks inherent in concentrating our investments in real estate. economic or investment performance changes.
Our real estate investments arecan be relatively illiquid due to: (i) restrictions on our ability to sell properties under applicable REIT tax laws;laws, (ii) other tax-related considerations;considerations, (iii) regulatory hurdles;hurdles, and (iv) market conditions. As a result, we may be unable to recognize full value for any property that we seek to sell for liquidity reasons.sell. Our inability to timely respond to economic or investment performance changes could have a material adverse effect on our financial condition andbusiness, results of operations.operations, and financial condition.
We may have difficulty identifyingIdentifying and securing new or replacement tenants or operators can be time consuming and we may be required to incur substantial renovation or tenant improvement costs to make our properties suitable for them.costly.
Our tenants may not renew existing leases, and our operators may not renew their management agreements beyond their current terms. If we or our tenants or operators terminate or do not renew the leases or management agreements for our properties, we would attempt to reposition those properties with another tenant or operator. These difficulties may be exacerbated by the COVID-19 pandemic, as new operators or tenants may not be willing to take on the increased exposure, especially while active cases are occurring. Healthcare properties are typicallycan be highly customized, and the improvements generally required to conform a property to healthcare use are costly, and at timessometimes tenant-specific, and are typicallymay be subject to regulatory requirements. A new or replacement tenant or operator may require different features in a property, depending on that tenant’s or operator’s particular business. In addition, infrastructure improvements for life sciencelab properties typically are significantly more costlyexpensive than improvements to other property types due to the highly specialized nature of the properties and the greater lease square footage often required by life sciencelab tenants. Therefore, if a current tenant or operator is unable to pay rent and/or vacates a property, we may incur substantial expenditures to modify a lab property and experience delays before we are able to secure anothera new or replacement tenant or operator or to accommodate multiple tenants or operators, which may have a material adverse effect on our business, results of operations, and financial condition.
Additionally,In addition, we may fail to identify suitable replacements or enter into leases, management agreements, or other arrangements with new tenants or operators on a timely basis or on terms as favorable to us as our current leases, if at all. Furthermore, during transition periods to new tenants or operators, we anticipate that the attention of existing tenants or operators will be diverted from the performance of the properties and there may also be increased errors and delays as a result of the transition, which would cause the financial and operational performance at these properties to decline. Following a decline in performance, we may not be able to rehabilitate the property to previous performance levels, which would adversely impact our results of operations. We also may be required to fund certain expenses and obligations, such as real estate taxes, debt costs, insurance costs, and maintenance expenses, to preserve the value of, and avoid the imposition of liens on, our properties while they are being repositioned. In addition, we may incur certain obligations and liabilities, including obligations to indemnify the replacement tenant or operator,operator. Identifying and securing new or replacement tenants or operators can be time consuming and costly, which could have a material adverse effect on our business, results of operations, and financial condition.
Property development, redevelopment, and redevelopmenttenant improvement risks can render a project less profitable or unprofitable and under certain circumstances,delay or prevent completion of developmentits undertaking or redevelopment activities once undertaken.completion.
Large-scale, ground-up, healthcareOur property development, presents additional risks for us, including risks that:redevelopment, and tenant improvement projects could be canceled, abandoned, delayed or, if completed, fail to perform in accordance with expectations due to, among other things:
•athe inability to obtain financing on favorable terms or at all, or the lack of liquidity we deem necessary or appropriate for the project;
•legal and regulatory hurdles, including moratoriums on development opportunity may be abandoned after expending significant resources resulting in and redevelopment activities;
•the loss of deposits or failure to recover expenses already incurred;obtain, or costs associated with obtaining, necessary zoning, entitlements, and permits;
•cost increases; and
•other factors over which we have limited or no control, including: (i) changes in market and economic conditions; (ii) natural disasters and other catastrophic events or physical climate risks, such as wildfires, earthquakes, and wind storms; (iii) pandemics or other health crises; (iv) labor conditions, including a labor shortage or work stoppage; (v) shortages of construction materials; (vi) environmental conditions; or (vii) civil unrest and acts of war or terrorism.
Project costs may materially exceed original estimates due to, among other things:
•increased interest rates;
•increased costs for materials, transportation, environmental remediation, labor, or other inputs, including those caused by a shortage of construction materials or labor;
•negligent construction or construction defects;
•damage, vandalism, or accidents; and
•increased operating costs, including insurance premiums, utilities, real estate taxes, and costs of complying with changes in government regulations or increases in tariffs.
Delays in project completion also delay the commencement of related rental payments, including increases in rental payments following tenant improvement projects, and may provide tenants the right to terminate leases or cause us to incur additional costs, including through rent abatement.
Demand for a project may decrease prior to a project’s completion, and resulting lease-up rates, rental rates, lease commencement dates, and occupancy levels may fail to meet expectations. Tenants that have pre-leased at a project may file for bankruptcy or become insolvent, or elect to terminate their lease prior to delivery if they are acquired or for other reasons.
•the development and construction costs ofFinally, a project exceed original estimates due to increased interest rates, higher costs relating to materials, transportation, labor, leasing, negligent construction or constructionmay have defects damage, vandalism or accidents, among others, and increased costs asthat we do not discover through the inspection processes, including latent defects not discovered until after we put a result of COVID-19 related delays and/or pressure on supply chains, which could make the completion of the development project less profitable;property in service.
•the project may not be completed on schedule as a result of a variety of factors that are beyond our control, including natural disasters and other catastrophic events, health crises or other pandemics such as the COVID-19 pandemic and related restrictions on development and redevelopment activities, labor conditions, material shortages, regulatory hurdles, including the ability to obtain necessary zoning or land use permits, civil unrest and acts of war or terrorism, which result in increases in construction costs and debt service expenses or provide tenants or operators with the right to terminate pre-construction leases; and
•demand for the new project may decrease prior to completion, due to competition or otherwise, and occupancy rates and rents at a newly completed property may not meet expected levels and could be insufficient to make the property profitable.
Any of theThe foregoing risks could result in not achieving our expected returnanticipated returns on investment and have a material adverse effect on our business, results of operations and financial condition.
Changes within the life science industry may adversely impact our revenues and results of operations.
Our life science investments could be adversely affected if the life science industry is impacted by an economic, financial, or banking crisis, a health crisis, such as the COVID-19 pandemic, or if the life science industry migrates from the U.S. to other countries or to areas outside of primary life science markets in South San Francisco, California, San Diego, California, and greater Boston, Massachusetts. Our ability to negotiate contractual rent escalations on future leases and to achieve increases in rental rates will depend upon market conditions and the demand for life science properties at the time the leases are negotiated and the increases are proposed. If economic, financial or industry conditions adversely affect our life science tenants, we may not be able to lease or re-lease our properties in a timely manner or at favorable rates, which would negatively impact our revenues and results of operations. Because infrastructure improvements for life science properties typically are significantly more costly than improvements to other property types due to the highly specialized nature of the properties, and life science tenants typically require greater lease square footage relative to medical office tenants, repositioning efforts would have a disproportionate adverse effect on our life science segment performance.
Future mergers or consolidations of life science entities could reduce the amount of rentable square footage requirements of our client tenants and prospective client tenants, which may adversely impact our revenues from lease payments and results of operations.
Our tenants in the life science industry face high levels of regulation, funding requirements, expense and uncertainty.
Life science tenants, particularly those involved in developing and marketing pharmaceutical products, are subject to certain risks, including the following:
•significant funding for the research, development, clinical testing, manufacture and commercialization of their products and technologies, as well as to fund their obligations, including rent payments due to us, and our tenants’ ability to raise capital depends on the viability of their products and technologies, their financial and operating condition and outlook, and the overall financial, banking and economic environment. If venture capital firms, private investors, the public markets, companies in the life science industry, the government or other sources of funding are difficult to obtain or unavailable to support our tenants’ activities, including as a result of general economic conditions, adverse market conditions or government shutdowns that limit our tenants’ ability to raise capital, such as those resulting from the current COVID-19 pandemic, a tenant’s business would be adversely affected or fail;
•the research, development, clinical testing, manufacture and marketing of some of our tenants’ products require federal, state and foreign regulatory approvals which may be costly or difficult to obtain, may take several years and be subject to delay, including delays brought on by the COVID-19 pandemic, may not be obtained at all, require validation through clinical trials that may face delays or difficulties resulting from the COVID-19 pandemic or otherwise, require the use of substantial resources, and may often be unpredictable;
•even after regulatory approval and market acceptance, the product may still present significant regulatory and liability risks, including, among others, the possible later discovery of safety concerns and other defects and potential loss of approvals, competition from new products and the expiration of patent protection for the product;
•our tenants with marketable products may be adversely affected by healthcare reform and the reimbursement policies of government or private healthcare payors;
•our tenants with marketable products may be unable to successfully manufacture their drugs economically;
•our tenants depend on the commercial success of certain products, which may be reliant on the efficacy of the product, as well as acceptance among doctors and patients; negative publicity or negative results or safety signals from the clinical trials of competitors may reduce demand or prompt regulatory actions; and
•our tenants may be unable to adapt to the rapid technological advances in the industry and to adequately protect their intellectual property under patent, copyright or trade secret laws and defend against third-party claims of intellectual property violations.
If our tenants’ businesses are adversely affected, they may fail to make their rent payments to us, which could have a material adverse effect on our business, results of operations, and financial condition.
The hospitals on whose campuses our MOBsoutpatient medical buildings are located and their affiliated healthcare systems could fail to remain competitive or financially viable, which could adversely impact their ability to attract physicians and physician groups to our MOBsoutpatient medical buildings and our other properties that serve the healthcare industry.
The viability of hospitals depends on factors such as: (i) the quality and mix of healthcare services provided;provided, (ii) competition for patients and physicians;physicians, (iii) demographic trends in the surrounding community;community, (iv) market position; andposition, (v) growth potential, and (vi) changes to the reimbursement system, as well as the ability of the affiliated healthcare systems to provide economies of scale and access to capital. In addition, most hospitals are experiencing a significant reduction in revenuecould be negatively affected by widespread cancellations of elective procedures due to decreased volumes as well as increased costs as they provide care capacity for potential COVID-19 patients.health and safety measures or otherwise. If a hospital whose campus is located near one of our MOBsoutpatient medical buildings is unable to meet its financial obligations, and if an affiliated healthcare system is unable to support that hospital or goes bankrupt, the hospital may not be ableunable to successfully compete successfully or could be forced to close or relocate, which could adversely impact its ability to attract physicians and other healthcare-related users. Because we rely on our proximity to, and affiliations with, these hospitals to create tenant demand for space in our MOBs,outpatient medical buildings, their inability to remain competitive or financially viable, or to attract physicians and physician groups, could adversely affect our MOBoutpatient medical building operations and have a material adverse effect on us.
In addition, changes to or replacement of the Affordable Care Act and related regulations could result in significant changes to the scope of insurance coverage and reimbursement policies, which could put negative pressure on the operations and revenues of our MOBs.
We may be unable to develop, maintain, or expand our existing and future hospital and health system client relationships.
We invest significant time in developing, maintaining, and expanding relationships with both new and existinghospital and health system clients. If we fail to maintain these relationships, including through a lack of responsiveness, failure to adapt to the current market, or employment of individuals with inadequate experience, our reputation and relationships will be harmed and we may lose business to competitors, which could have a material adverse effect on us.
We assume operational risks with respect to our senior housing properties managed in RIDEA structures that could have a material adverse effect on our business, results of operations, and financial condition.
Although the RIDEA structure gives us certain oversight approval rights (e.g., budgets and material contracts) and the right to review operational and financial reporting information, our operators are ultimately in control of the day-to-day business of the property. As a result, we have limited rights to direct or influence the business or operations of our CCRCs and in the properties owned by our SWF SH JV, all of which are under RIDEA structures, and we depend on our operators to operate these properties in a manner that complies with applicable law, minimizes legal risk, and maximizes the value of our investment.
Under a RIDEA structure, our TRS is ultimately responsible for all operational risks and other liabilities of the properties, other than those arising out of certain actions by our operator, such as gross negligence or willful misconduct. Operational risks include, and our resulting revenues therefore depend on, among other things: (i) occupancy rates; (ii) the entrance fees and rental rates charged to residents; (iii) the requirements of, or changes to, governmental reimbursement programs such as Medicare or Medicaid, to the extent applicable, including changes to reimbursement rates; (iv) our operators’ reputations and ability to attract and retain residents; (v) general economic conditions and market factors that impact seniors, including general inflationary pressures; (vi) competition from other senior housing providers; (vii) compliance with federal, state, local, and industry-regulated licensure, certification and inspection laws, regulations and standards; (viii) litigation involving our properties or residents/patients; (ix) the availability and cost of general and professional liability insurance coverage or increases in insurance policy deductibles; and (x) the ability to control operating expenses.
Operators of our CCRCs and the SWF SH JV properties primarily depend on private sources for their revenues and the ability of their patients and residents to pay fees. Costs associated with independent and assisted living services are not generally reimbursable under governmental reimbursement programs such as Medicare and Medicaid. Accordingly, our operators of these properties depend on attracting seniors with appropriate levels of income and assets, which may be affected by many factors, including: (i) prevailing economic and market trends, including general inflationary pressures; (ii) consumer confidence; (iii) demographics; (iv) property condition and safety; (v) public perception about such properties; and (vi) social and environmental factors.
In addition, epidemics, pandemics, and severe flu seasons or any other widespread illness could result in early move-outs or delayed move-ins during quarantine periods or during periods when actual or perceived risks of such illnesses are heightened, and have reduced, and could continue to reduce, our operators’ revenues.
If our operators fail to effectively conduct operations on our behalf, or to maintain and improve our properties, it could adversely affect our business reputation as the owner of the properties, as well as the business reputation of our operators and their ability to attract and retain patients and residents in our properties, which could have a material adverse effect on our and our operators’ business, results of operations, and financial condition.
Economic conditions, natural disasters, weather, and other events or conditions that negatively affect geographic areas from which a greater percentage of our revenue is recognizedwhere we have concentrated investments could have a material adverse effect on our business, results of operations, and financial condition.
We are subject to increased exposure to adverse conditions affecting California,the geographies in which our properties are located, including: (i) downturns in local economies and increases in unemployment rates; (ii) changes in local real estate conditions, including increases in real estate taxes;taxes and property insurance premiums; (iii) increased competition; (iv) decreased demand; (v) changes in state-specific legislation;state and local legislation, including changes affecting business or property taxes; (vi) local climate events and natural disasters and other catastrophic events, such as health pandemics, (including the COVID-19 pandemic in California and the resulting state-wide shutdown), earthquakes, hurricanes, windstorms, flooding, wildfires, and mudslides.mudslides and other physical climate risks, including water stress and heat stress; and (vii) failures of regional banks. These risks could significantly disrupt our businesses in the region, harm our ability to compete effectively, result in increased costs or construction delays, and divert management attention, any or all of which could have a material adverse effect on our business, results of operations, and financial condition.
In addition, if significant changes in the climate occurchanges in areas where we own property thiscould result in extreme weather and changes in precipitation, temperature, and other weather patterns, all of which could result in physical damage to or a decrease in demand for properties located in these areas or affected by these conditions.conditions or delays in construction. Moreover, an increase in volatility and difficulty predicting adverse weather events, such as freeze events in warmer climates in recent years, as well as increased hurricane intensity, may result in additional losses. Intensifying natural disasters including climate change and extreme weather events, coupled with the current economic climate have directly affected the availability of insurance, premiums, deductibles, and capacity that insurers are willing to underwrite. As a result, we may determine to self-insure more of our exposures, absorb more below deductible losses, and look for alternative means of risk transfer in order to avoid spiraling insurance costs. These events also have indirect effects on our business by increasing the costs of energy, maintenance, and snow removal at our properties. If changes in the climate have material effects, such as property destruction, or occur for extended periods, this could have a material adverse effect on business, results of operations, and financial condition. In addition, changes in federal, state and local legislation and regulation on climate change could require increased capital expenditures to improve the energy efficiency of our existing properties and could also cause increased costs for our new developments without a corresponding increase in revenue.
Uninsured or underinsured losses could result in a significant loss of capital invested in a property, lower than expected future revenues, and unanticipated expense.
Our insurance coverage does not include damages from business interruptions, loss of revenue or earnings or any related effects caused by health pandemics, including the COVID-19 pandemic. We anticipate incurring significant out-of-pocket costs associated with legal proceedings or other claims from residents and patients at our properties that relate to the COVID-19 pandemic.
Generally, insurance coverage for health pandemics has not previously been readily available and, if and when it does become available, may not be on commercially reasonable terms. Further, even if such coverage is available on commercially reasonable terms, we cannot assure you that we would receive insurance proceeds that will compensate us fully for our liabilities, costs and expenses in the event ofa health pandemic. In addition, aA large number of our properties are located in areas exposed to earthquake, windstorm, floodearthquakes, hurricanes, windstorms, flooding, water stress, heat stress, and other common natural disasters.disasters and physical climate risks. In particular, (i) a significant portion of our life sciencelab development projects and approximately70% 67% of our life sciencelab portfolio (based on gross asset value as of December 31, 2020)2023) was concentrated in California, which is known to be subject to earthquakes, wildfires, and other natural disasters.disasters, and (ii) approximately 69% of our CCRC portfolio (based on gross asset value as of December 31, 2023) was concentrated in Florida, which is known to be subject to hurricanes. While we purchasemaintain insurance coverage for earthquake, fire, windstorm, floodearthquakes, fires, hurricanes, windstorms, floods, and other natural disasters and physical climate risks, we may be unable to purchase the limits and terms we desire on a commercially reasonable basis. In addition, there arebasis due to increased insurance costs or the unavailability of insurance for certain exposures for which we do not purchase insurance because we do not believe it is economically feasible to do so or there is no viable insurance market.in other regions. We maintain additional earthquake insurance for our properties that are located in the vicinity of active earthquake zones in amounts and with deductibles we believe are commercially reasonable. Because of our significant concentration in the seismically active regions of South San Francisco, California, and San Diego, California, a damagingan earthquake in these areas could significantly impact multiple properties, which may amount todamage a significant portion of our life sciencelab portfolio. Similarly, a hurricane in Florida could damage a significant portion of our CCRC portfolio. As a result, aggregate deductible amounts may be material, and our insurance coverage may be materially insufficient to cover our losses, either oflosses. Furthermore, there are certain exposures for which would adversely affect our business, financial condition, results of operations and cash flows.we do not purchase insurance because we do not believe it is economically feasible to do so or there is no viable insurance market.
If one of our properties experiences a loss that is uninsured or that exceeds policy coverage limits, we could lose our investment in the damaged property as well as the anticipated future cash flows from such property. If the damaged property is subject to recourse indebtedness, we could continue to be liable for the indebtedness even if the property is irreparably damaged. In addition, even if damage to our properties is covered by insurance, a disruption of business caused by a casualty event may result in loss of revenues for us. Any business interruption insurance may not fully compensate the lender or us for such loss of revenue. Our SHOP Operatorsinsurance coverage does not include damages as a result of a pandemic (such as Covid), including business interruption, loss of revenue or earnings, or any related effects (e.g., increased costs related to personal protective equipment, sanitization/sterilization of surfaces and equipment, and additional staffing). Insurance coverage for pandemics is not generally available; if it does become available again, it may not be on commercially reasonable terms and we may be unable to receive insurance proceeds that would compensate us fully for our liabilities, costs, and expenses in the event of a pandemic.
Our CCRC and senior housing operators also face various forms of class-action lawsuits from time to time, such as wage and hour and consumer rights actions, which generally are not covered by insurance. These class actions could result in significant defense costs, as well as settlements or verdicts that materially decrease anticipated revenues from a property and can result in the loss of a portion or all of our invested capital. We may also incur significant out-of-pocket costs associated with legal proceedings or other claims from residents and patients at our properties. Any of the foregoing risks could have a material adverse effect on our business, results of operations, and financial condition.
In addition, the rise in outsized jury verdicts and/or intensifying natural disasters could threaten policy limits and/or sublimits, which may result in the exhaustion of available insurance coverage for the remainder of the policy year. These events could also have a material adverse effect on our business, results of operations, and financial condition.
Our use of joint ventures may limit our returns on and our flexibility with jointly owned investments.
We have and may continueFrom time to time, we develop, acquire, and/or acquirerecapitalize properties in joint ventures with other persons or entities when circumstances warrant the use of these structures. Our participation in joint ventures is subject to risks that may not be present with other methods of ownership, including:
•our joint venture partners could have investment and financing goals that are inconsistent with our objectives, including the timing, terms, and strategies for any investments, and what levels of debt to incur or carry;
•because we lack sole decision-making authority, we could experience an impasse onimpasses or disputes relating to certain decisions, because we do not have sole decision-making authority,including those related to budget approvals, entitlements, construction and development, acquisitions, sales of assets, debt financing, execution of lease agreements, and vendor approvals, which could result in delayed decisions and missed opportunities and could require us to expend additional resources on resolving such impasses or potential disputes, including litigation or arbitration;arbitration to resolve;
•our joint venture partners may have competing interests in our markets that could create conflicts of interest;interest in our markets;
•our ability to transfer our interest in a joint venture to a third party may be restricted and restricted;
•the market for our interest may be limited and/or valued lower than fair market value;
•our joint venture partners may be structured differently than us for tax purposes, and this could create conflicts of interest and risks to our REIT status; andstatus or could restrict the ways in which we are able to exit investments;
•our joint venture partners might become insolvent, fail to fund their share of required capital contributions or fail to fulfill their obligations as a joint venture partner, which may require us to infuse our own capital into the venture on behalf of the partner despite other competing uses for such capital.capital;
With respect to •our joint ventures,venture agreements may contain anti-competitive restrictions that impact certain of our non-joint venture assets and require us to manage the non-joint venture assets in a manner we may be limited in otherwise would not;
•our ability to control or influence operations, and in our ability to exit or transfer our interest in the joint venture agreements may in certain circumstances grant our partners a right of first refusal to a third party. As a result,acquire certain of our non-joint venture assets;
•our joint venture agreements may give our partners management rights that allow them to make operational or other decisions with which we disagree or that we would manage differently; and
•our joint venture agreements may notimpose limitations or caps on the property management fees that we otherwise would have been entitled to receive full value for our ownership interest if we tried to sell it to a third party. the underlying property were wholly owned.
In addition, in some instances, we and/or our joint venture partner will have the right to cause us to sell our interest, or acquire our partner’stheir interest, at a time when we otherwise would not have initiated such a transaction. Our ability to acquire our partner’s interest will be limited if we do not havelack sufficient cash, available borrowing capacity or other capital resources. This wouldcould require us to sell our interest in the joint venture when we wouldmight otherwise prefer to retain it. Any of the foregoing risks could have a material adverse effect on our business, results of operations, and financial condition.
We have now, and may have in the future,Rent escalators or contingent rent provisions and/or rent escalators based on the Consumer Price Index, whichin our leases could hinder our profitability and growth.
We derive a significant portion of our revenues from leasing properties pursuant to leases that generally provide for fixed rental rates, subject to annual escalations. If inflation exceeds our annual escalations, as it often recently has, our growth and profitability may be limited.
Under certain leases, a portion of the tenant’s rental payment to us is based on the property’s revenues (i.e., contingent rent). If as a result of weak economic conditions or other factors that may be outside of our control, the property’stenant’s revenue at a rental property with contingent rent declines, our rental revenues would decrease and our resultsdecrease.
Additionally, some of our leases provide that annual rent is modified based on changes in the Consumer Price Index or other thresholds (i.e., contingent rent escalators). If the Consumer Price Index does not increase or other applicable thresholds are not met, rental rates may not increase as anticipated or at all, which could have a material adverse effect onhinder our results of operations.profitability and growth. Furthermore, if strong economic conditions result in significant increases in the Consumer Price Index, but the escalations under our leases with contingent rent escalators are capped or the increase in the Consumer Price Index exceeds our tenants’ ability to pay, our growth and profitability also may be limited.
Competition may make it difficult to identify and purchase, or develop, suitable healthcare properties to grow our investment portfolio, to finance acquisitions on favorable terms, or to retain or attract tenants and operators.
We face significant competition from other REITs, investment companies, private equity and hedge fund investors, sovereign funds, healthcare operators, lenders, developers, and other institutional investors, some of whom may have greater resources and lower costs of capital than we do. Increased competition makesand resulting capitalization rate compression make it more challenging for us to identify and successfully capitalize on opportunities that meet our business goals and could improve the bargaining power of property owners seeking to sell, thereby impeding our investment, acquisition, and development activities. Similarly, our properties face competition for tenants and operators from other properties in the same market, which may affect our ability to attract and retain tenants and operators, or may reduce the rents we are able to charge. If we cannotThe failure to capitalize on our development pipeline, identify and purchase a sufficient quantity of healthcare properties at favorable prices, finance acquisitions on commercially favorable terms, or attract and retain profitable tenants and operators,could have a material adverse effect on our business, results of operations, and financial conditioncondition.
We may be materially adversely affected.unable to successfully foreclose or exercise rights on the collateral securing our real estate-related loans and, even if we are successful in our foreclosure or realization efforts, we may be unable to successfully operate, occupy, or reposition the underlying real estate.
From timeIf a borrower defaults under one of our mortgages, we may look to timeforeclose on the loan or take additional actions, including acquiring title to the collateral via statutory or judicial foreclosure or commencing collection litigation. We may determine that substantial improvements or repairs to the property are necessary in order to maximize the property’s investment potential. In some cases, because our collateral consists of the equity interests in an entity that directly or indirectly owns the applicable real property or interests in other operating properties, we may not have made,full recourse with respect to assets of that entity, or that entity may have incurred unexpected liabilities, either of which would preclude us from fully recovering our investment. Borrowers may contest enforcement of foreclosure or other remedies, seek bankruptcy protection against our exercise of enforcement or other remedies, and/or bring claims for lender liability in response to actions to enforce mortgage obligations. Because many of the properties securing our mortgage loans are licensed senior housing health care facilities, we would also need to navigate and comply with various healthcare regulatory matters in a variety of states in connection with any foreclosure effort. Foreclosure or collections-related costs, high loan-to-value ratios, healthcare regulatory issues or consents, or declines in the value of the property, may prevent us from realizing an amount equal to our mortgage balance upon foreclosure or conclusion of litigation, and we may seekbe required to make, onerecord a valuation allowance for such losses. Even if we are able to successfully foreclose on the collateral securing our real estate-related loans, we may acquire properties for which we may be unable to expeditiously secure tenants or more material acquisitions,operators, if at all, or that are burdened with healthcare regulatory compliance issues that need to be addressed, or we may acquire equity interests that we are unable to immediately resell or otherwise liquidate due to limitations under the securities laws, either of which would adversely affect our ability to fully recover our investment. Alternatively, we may involvedetermine to sell a distressed loan for less than full value, in which event we may incur a loss on the expenditureinvestment.
We may be required to recognize reserves, allowances, credit losses, or impairment charges.
Declines in the value of significant funds.our properties or other assets or loan collateral, financial deterioration of our tenants, borrowers, or other obligors, or other factors may result in the recognition of reserves, allowances, credit losses, or impairment charges. Our determination of such reserves, allowances, or credit losses relies on estimates regarding the fair value of any loan collateral, which is a complex and subjective process. In addition, we evaluate our assets for impairments based on various triggers, including market conditions, our current intentions with respect to holding or disposing of the assets and the expected future undiscounted cash flows from the assets. Impairments, reserves, allowances, and credit losses are based on estimates and assumptions that are inherently uncertain, may increase or decrease in the future, and may not represent or reflect the ultimate value of, or loss that we ultimately realize with respect to, the relevant assets. Any such impairment, reserve, allowance, or credit loss, or any change in any of the foregoing, could have an adverse impact on our results of operations and financial condition.
We may invest substantial resources and time in transactions that are not consummated.
We regularly review potential transactions in order to maximize stockholder value. Our review process may require significant management attention, and a potential transaction could be abandoned or rejected by us or the other parties involved after we expend significant resources and time. In addition, future acquisitions may requireFor additional information on risks related to the issuanceconsummation of securities, the incurrence of debt, assumption of contingent liabilities or incurrence of significant expenditures, each of which could materially adversely impact our business, financial condition or results of operations. In addition,Mergers, see “—Risks Relating to the financing required for acquisitionsMergers” below.
We may not be available on commercially favorable terms or at all.
If we are unableable to successfully integrate ouror operate acquisitions, our business, results of operations and financial conditionor may be materially adversely affected.incur unanticipated liabilities.
Successful integration of acquired companies depends primarily on our ability to consolidate operations, systems, procedures, properties, and personnel, and to eliminate redundancies and reduce costs. We may encounter difficulties in these integrations. Potential difficulties associated with acquisitions include: (i) our ability to effectively monitor and manage our expanded portfolio of properties; (ii) the loss of key employees; (iii) the disruption of our ongoing business or that of the acquired entity; (iv) possible inconsistencies in standards, controls, procedures, and policies; and (v) the assumption of unexpected liabilities and claims, including:
•liabilities relating to the cleanup or remediation of undisclosed environmental conditions;
•unasserted claims of vendors, residents, patients, or other persons dealing with the seller;
•liabilities, claims, and litigation, whether or not incurred in the ordinary course of business, relating to periods prior to our acquisition;
•claims for indemnification by general partners, directors, officers, and others indemnified by the seller;
•claims for return of government reimbursement payments; and
•liabilities for taxes relating to periods prior to our acquisition.
In addition, acquired companies and their properties may fail to perform as expected, including inwith respect ofto estimated cost savings. Inaccurate assumptions regarding future rental or occupancy rates could result in overly optimistic estimates of future revenues. Similarly, we may underestimate future operating expenses or the costs necessary to bring properties up to standards established for their intended use or for property improvements.
If we have difficulties with any of these areas, or if we later discover additional liabilities or experience unforeseen costs relating to our acquired companies, we may not achieve the anticipated economic benefits from our acquisitions, and this may have a material adverse effect on our business, results of operations, and financial condition.
Our tenants, operatorsWe may be affected by unfavorable resolution of litigation or disputes and borrowers face litigation and may experience rising liability and insurance costs.costs as a result thereof or other market factors.
Our tenants, operators, property managers, and borrowers are from time to time parties to litigation, including, related tofor example, disputes regarding the quality of care at healthcare properties. The effect of litigation may materially increase the costs incurred by our tenants, operators, property managers, and borrowers, for monitoringincluding costs to monitor and reportingreport quality of care compliance, which under a RIDEA structure would be borne by us.compliance. In addition, theirthe cost of professional liability, medical malpractice, property, business interruption, general liability, and insurance policies that may provide partial coverage for COVID-19 and other environmental or infectious disease outbreaks, epidemics and pandemics can be significant and may increase or not be available at a reasonable cost or at all. Cost increases could cause our tenants and borrowers to be unable to make their lease or mortgage payments or fail to purchase the appropriate liability and malpractice insurance, or cause our borrowers to be unable to meet their obligations to us, potentially decreasing our revenues and increasing our collection and litigation costs. Cost increases could also lead our operators and property managers to increase the fees they charge, which could have a material adverse effect on our business, results of operations, and financial condition.
Furthermore, with respect to our senior housingCCRC properties and the properties in our SWF SH JV, all of which are operated in RIDEA structures, we generally directly bear the costs of any such increases in litigation, monitoring, reporting, and insurance due to our direct exposure to the cash flows of such properties.
In addition, as a result of our ownership of healthcare properties, we may be named as a defendant in lawsuits arising from the alleged actions of our tenants or operators. With respect to our triple-net leases, our tenants generally have agreed to indemnify us for various claims, litigation and liabilities in connection with their leasing and operation of our triple-net leased properties.
With respect to our RIDEA structured properties, we We are responsible for these claims, litigation, and liabilities, with limited indemnification rights against our operatoroperators, which are typically based on the gross negligence or willful misconduct by the operator. Although our leases provide us with certain information rights with respect to our tenants, one or more of our tenants may be or become party to pending litigation or investigation toof which we are unaware or in which we do not have a right to participate or evaluate. In such cases, we would be unable to determine the potential impact of such litigation or investigation on our tenants or our business or results. Moreover, negative publicity of any of our operators’, property managers’, or tenants’ litigation, other legal proceedings or investigations may also negatively impact their and our reputation, resulting in lower customer demand and revenues, which could have a material adverse effect on our financial condition, results of operations, and cash flow.flows.
We may also be named as defendants in lawsuits arising out of our alleged actions or the alleged actions of our tenants, operators, or property managers for which such tenants, operators, or property managers may have agreed to indemnify us. Unfavorable resolution of any such litigation or negative publicity as a result of such litigation could have a material adverse effect on our business, results of operations, and financial condition. Regardless of the outcome, litigation or other legal proceedings may result in substantial costs, disruption of our normal business operations, and the diversion of management attention. We may be unable to successfully forecloseprevail in, or achieve a favorable settlement of, any pending or future legal action against us.
Even when a tenant or operator is obligated to indemnify us for liability incurred as a result of a lawsuit pursuant to the terms of its agreement with us, the tenant may fail to satisfy those obligations and, in such event, we would have to incur the costs that should have been covered by the tenant, operator, or property manager and to determine whether to expend additional resources to seek the contractually owed indemnity from that tenant, operator, or property manager, including potentially through litigation or arbitration. In some instances, we may decide not to enforce our indemnification rights if we believe that enforcement of such rights would be more detrimental to our business than alternative approaches. Regardless, such an event would divert management attention and may result in a disruption to our normal business operations, any or all of which could have an adverse effect on the collateral securingour business, results of operations, and financial condition.
Environmental compliance costs and liabilities associated with our real estate-related loans,investments may be substantial and even ifmay materially impair the value of those investments.
Federal, state and local laws, ordinances, and regulations may require us, as a current or previous owner of real estate, to investigate and clean up certain hazardous or toxic substances released at a property. We may be held liable to a governmental entity or to third parties for injury or property damage and for investigation and cleanup costs incurred in connection with the contamination. The costs of cleanup and remediation could be substantial. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and the costs it incurs in connection with the contamination, and/or impose fines and penalties on the property owner with respect to such contamination.
Although we are successfulcurrently carry environmental insurance on our properties in an amount that we believe is commercially reasonable and generally require our foreclosure efforts,tenants and operators to indemnify us for environmental liabilities they cause, such liabilities could exceed the amount of our insurance, the financial ability of the tenant or operator to indemnify us, or the value of the contaminated property. As the owner of a site, we may also be unableheld liable to successfully operate, occupythird parties for damages and injuries resulting from environmental contamination emanating from the site. We may also experience environmental costs and liabilities arising from conditions not known to us or repositiondisrupted during development. The cost of defending against these claims, complying with environmental regulatory requirements, conducting remediation of any contaminated property, or paying personal injury or other claims or fines could be substantial and could have a material adverse effect on our business, results of operations, and financial condition. In addition, the underlying real estate, whichpresence of contamination or the failure to remediate contamination may materially adversely affect our ability to recoveruse, develop, sell, or lease the property or to borrow using the property as collateral.
ESG and sustainability commitments and requirements, as well as stakeholder expectations, may impose additional costs and expose us to new risks.
Investors, tenants, business partners and other stakeholders, as well as regulators and other groups, are increasingly focusing on ESG and sustainability commitments and performance. Some investors may use ESG factors to guide their investment strategies and, in some cases, may choose not to invest in us if our investments.ESG commitment and performance do not satisfy their criteria. Similarly, some business partners or tenants may use ESG factors to guide their business decisions and choose not to do business with us if they believe our ESG or sustainability policies are inadequate. Third-party providers of ESG ratings have increased in number, resulting in varied and, in some cases, inconsistent standards. In addition, the criteria by which companies’ ESG and sustainability practices are assessed are evolving, which could result in greater expectations for us to undertake costly initiatives to satisfy such new criteria. We have established corporate goals to reduce greenhouse gas emissions, energy, water and waste in our operations, and various regions in which we own properties are establishing building performance standards. Our reputation may be adversely affected if we do not meet our announced goals or these external standards. If we fail to satisfy the expectations of investors, tenants, business partners or other stakeholders, or our announced goals and other initiatives are not executed as planned, our reputation and financial results could be adversely affected, and our revenues, results of operations and ability to grow our business may be negatively impacted. In addition, we may incur significant costs in attempting to comply with ESG policies or third party expectations or demands.
If a tenantIn addition, changes in federal, state, and local legislation and regulation relating to climate change could require (i) increased capital expenditures to improve the energy efficiency or operator defaults under oneresiliency of our mortgagesexisting properties and increase the costs of new developments and (ii) increased compliance costs for us and our tenants, in each case without a corresponding increase in revenue. In addition, our reputation may be adversely affected if we do not meet stakeholder expectations to mitigate climate risk in a transition to a low-carbon economy.
We may be impacted by epidemics, pandemics, or mezzanine loans,other infectious diseases, including Covid, and health and safety measures intended to reduce their spread.
Epidemics, pandemics, or other infectious diseases, including future outbreaks of Covid and its variants, as well as both future widespread and localized outbreaks of infectious diseases and other health concerns, and the health and safety measures taken to reduce the spread or lessen the impact, could cause a material disruption to our industry or deteriorate the economy as a whole. The impacts of such events could be severe and far-reaching, and may impact our operations in several ways, including: (i) tenants could experience deteriorating financial condition and be unable or unwilling to pay rent on time and in full; (ii) we may have to forecloserestructure tenants' obligations and may not be able to do so on terms that are favorable to us; (iii) inquiries and tours at our properties could decrease; (iv) move-ins, new tenanting efforts, and re-letting efforts could slow or stop altogether; (v) move-outs and potential early termination of leases thereunder could increase; (vi) operating expenses, including the costs of certain essential services or supplies, including payments to third-party contractors, service providers, and employees essential to ensure continuity in our building operations, may increase; (vii) procedures normally conducted on our properties may be disrupted, adversely affecting the economic viability of our tenants; and (viii) costs of development, including expenditures for materials utilized in construction and labor essential to complete existing developments in progress, may increase substantially.
Human capital risks, including the loss or limited availability of our key personnel, could disrupt or impair our operations.
We face rising labor costs and increased competition for talent. Insufficient employee development, inadequate succession planning or an inability to successfully implement a hybrid work model could negatively impact our business and operations. We also depend on the loanefforts of our executive officers for the success of our business. Although they are covered by our Executive Severance Plan and Change in Control Plan, which provide many of the benefits typically found in executive employment agreements, none of our executive officers have employment agreements with us. The loss or take additional actions,limited availability of the services of any of our executive officers, or our inability to recruit and retain qualified personnel, could, at least temporarily, disrupt, or impair our operations.
We rely on information technology in our operations, and any material failure, inadequacy, interruption, or security failure of that technology could harm our business.
We rely on information technology networks, enterprise applications, and other information systems to process, transmit, and store electronic information, and to manage or support a variety of business processes, including butfinancial transactions and records, to maintain personal identifying information and tenant and lease data, and to operate building management systems. We utilize software and cloud-based technology from third-party service providers, on whom our information systems depend. We rely on commercially available systems, software, tools, and monitoring to provide security for the processing, transmission, and storage of confidential tenant and customer data, including individually identifiable information relating to financial accounts, as well as building access, security, and operations. Although we have taken steps to protect the security of our information systems, with multiple layers of controls around the data maintained in those systems, it is possible that our safety and security measures will not limited to acquiring title toprevent the collateral via statutorysystems’ improper functioning or judicial foreclosuredamage, or commencing collection litigation. We may determine that substantial improvementsthe improper access of systems or repairs todisclosure of personally identifiable information such as in the property are necessary in order to maximize the property’s investment potential. In some cases,event of cyber-attacks or other cybersecurity incidents.
Furthermore, because our collateral consistsoperators as well as other third-party service providers with whom we and they do business (including vendors, software creators and cloud solution and cybersecurity providers) also rely on the Internet, information technology networks, enterprise applications, systems, and software, some of our data may be vulnerable to cybersecurity incidents or cybersecurity threats involving our operators and third parties with whom we or they do business. We do not control the equity interestscybersecurity systems and protocols put in an entity that directlyplace by our operators or indirectly owns the applicable real property or interests in other operating properties, we may not have full recourse with respect to assets of that entity, or that entitythird parties, and such parties may have incurred unexpected liabilitieslimited indemnification obligations to us, which would precludecould cause us from fully recovering our investment. Tenants, operators or borrowers may contest enforcement of foreclosure or other remedies, seek bankruptcy protection against our exercise of enforcement or other remedies and/or bring claims for lender liability in response to actions to enforce mortgage obligations. Foreclosure or collections related costs, high loan-to-value ratios or declines in the value of the property may prevent us from realizing an amount equal to our mortgage or mezzanine loan balance upon foreclosure or conclusion of litigation, and we may be required to recordnegatively impacted as a valuation allowance for such losses. Even if we are able to successfully foreclose on the collateral securing our real estate-related loans, we may inherit properties for which we may be unable to expeditiously secure tenants or operators, if at all, or we may acquire equity interests that we are unable to immediately resell or otherwise liquidate due to limitations under the securities laws, either of which would adversely affect our ability to fully recover our investment.result.
Cybersecurity incidents and cybersecurity threats affecting our or our operators’ or other third party providers’ information systems, including those caused by physical or electronic break-ins, computer viruses, malware, worms, attacks by hackers or foreign governments, ransomware attacks, disruptions from unauthorized access and tampering, including through social engineering such as phishing or vishing attacks, coordinated denial-of-service attacks, and similar breaches, could result in, among other things: (i) system disruptions; (ii) shutdowns; (iii) unauthorized access to or disclosure of confidential information, including as a result of impersonation of authorized users or manipulated communications; (iv) misappropriation of our or our business partners’ proprietary or confidential information; (v) breach of our legal, regulatory, or contractual obligations; (vi) inability to access or rely upon critical business records or systems; or (vii) other delays in our operations. In some cases, it may be difficult to anticipate or immediately detect such cybersecurity threats and cybersecurity incidents and the damage they cause. The risk of cybersecurity incidents and cybersecurity threats has generally increased as the number, intensity, and sophistication of attacks and intrusions affecting companies generally have increased, and we have seen a significant increase in cyber phishing attacks. The risk of security breaches has also increased under our hybrid work model. We may be required to expend significant financial resources to detect, protect against or remediate such cybersecurity incidents or cybersecurity threats. In addition, our technology infrastructure and information systems are vulnerable to damage or interruption from natural disasters, power loss, and telecommunications failures. Any failure to adequately train employees or to maintain proper function, security, and availability of our and our operators’ information systems and the data maintained in those systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties, harm our business relationships, or increase our security and insurance costs, which could have a material adverse effect on our business, financial condition, and results of operations.
Our tenants and borrowers may also from time to time experience cybersecurity incidents or cybersecurity threats that compromise, damage or disrupt their information systems or result in the loss or misuse of confidential information, intellectual property or sensitive or personal information. Any resulting financial impact to our tenants or borrowers, including liability claims or regulatory penalties, increased security and insurance costs as well as business impacts resulting from any damage to their reputation or harm to their business relationships, could negatively impact the ability of our tenants and borrowers to meet their financial and other contractual obligations to us, which could have a material adverse effect on our business, financial condition and results of operations.
Risks Related to Our Capital Structure and Market Conditions
Volatility, disruption, or uncertainty in the financial markets may impair our ability to raise capital, obtain new financing or refinance existing obligations, and fund acquisition and development activities.
Increased or prolonged market disruption, volatility, or uncertainty could have a material adverse effect on our ability to raise capital, obtain new financing or refinance our existing obligations as they mature, and fund acquisition and development activities. Our lenders and other financial institutions could also require us to agree to more restrictive covenants, grant liens on our assets as collateral, and/or accept other terms that are not commercially beneficial to us in order to obtain financing. One or more of our lenders under our credit facility could refuse or fail to fund their financing commitment to us as a result of lender liquidity and/or viability challenges, which financing commitments we may not be able to replace on favorable terms, or at all. In addition, the failure of a bank, or events involving limited liquidity, defaults, non-performance or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, or concerns or rumors about such events, could lead to disruptions in access to our bank deposits, our inability to access our bank deposits in excess of the Federal Deposit Insurance Corporation (FDIC) limits, or otherwise adversely impact our liquidity and financial performance, and our tenants, operators, and borrowers could be similarly adversely affected. Market volatility could also lead to significant uncertainty in the valuation of our investments and those of our joint ventures, which may result in a substantial decrease in the value of our properties and those of our joint ventures. As a result, we may be unable to recover the carrying amount of such investments and the associated goodwill, if any, which may require us to recognize impairment charges in earnings.
Increased borrowing costs could materially adversely impact our ability to refinance existing debt, sell properties, and conduct investment activities.
We currently have and may incur additional debt obligations that have variable interest rates and related payments that vary with the movement of certain indices. During inflationary periods, interest rates have historically increased. For example, in response to recent inflationary conditions, actions taken by the FOMC have led to rising interest rates, which may continue to rise and remain elevated for the foreseeable future. Increases in interest rates result in increased interest costs for our variable rate debt and our new debt, which adversely affects our cost of capital and makes the financing of any acquisition and development activity more costly. In addition, increased interest rates have lowered, and could continue to lower, the amount third parties are willing to pay for our properties, thereby negatively impacting our ability to reposition our portfolio promptly in response to changes in economic or other conditions.
Rising borrowing costs could limit our ability to refinance existing debt when it matures, or cause us to pay higher interest rates upon refinancing and increased interest expense on refinanced indebtedness.
We manage a portion of our exposure to interest rate risk by accessing debt with staggered maturities and through the use of derivative instruments, primarily interest rate cap and swap agreements. These agreements involve risk, including that counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes, that the amount of income we earn from hedging transactions may be limited by federal tax provisions governing REITs, and that these arrangements may cause us to incur higher debt service costs than would otherwise be the case. Failure to hedge effectively against interest rate risk could adversely affect our results of operations and financial condition.
Additionally, increased borrowing costs and attendant negative impacts on our business can reduce the amount investors are willing to pay for our common stock. Because REIT stocks are often perceived as high-yield investments, investors may perceive less relative benefit to owning REIT stocks as borrowing costs increase.
Cash available for distribution to stockholders may be insufficient to make dividend distributions at expected levels and are made at the discretion of our Board of Directors.
Decreases in cash available for distributions may result in us being unable to make dividend distributions at expected levels. Our failure to make distributions commensurate with market expectations would likely result in a decrease in the market price of our common stock. Further, all distributions are made at the discretion of our Board of Directors in accordance with Maryland law and depend on: (i) our earnings; (ii) our financial condition; (iii) debt and equity capital available to us; (iv) our expectations for future capital requirements and operating performance; (v) covenants in our financial or other contractual arrangements, including those in our credit facility agreement; (vi) maintenance of our REIT qualification; and (vii) other factors as our Board of Directors may deem relevant from time to time.
If access to external capital is unavailable on acceptable terms or at all, it could have a material adverse effect on our ability to meet commitments as they become due or make investments necessary to grow our business.
We periodically rely on external sources of capital (including debt and equity financing) to fulfill our capital requirements. The availability of external capital sources depends upon several factors, some of which we have little or no control over, including:
•general availability of capital, including less favorable terms, rising interest rates, and increased borrowing costs;
•the market price of the shares of our equity securities and the credit ratings of our debt and any preferred securities we may issue;
•the market’s perception of our growth potential and our current and potential future earnings and cash distributions;
•our degree of financial leverage and operational flexibility;
•the financial integrity of our lenders, which might impair their ability to meet their commitments to us or their willingness to make additional loans to us, and our inability to replace the financing commitment of any such lender on favorable terms, or at all;
•bank failures or other events affecting financial institutions, which could adversely affect our or our tenants’, operators’, and borrowers’ liquidity and financial performance;
•the stability of the market value of our properties;
•the financial performance and general market perception of our tenants and operators;
•changes in the credit ratings on U.S. government debt securities or default or delay in payment by the U.S. of its obligations;
•issues facing the healthcare industry, including healthcare reform and changes in government reimbursement policies; and
•the performance of the national and global economies generally, including any economic downturn and volatility in the financial markets.
If access to capital is unavailable on acceptable terms or at all, it could have a material adverse impact on our ability to fund operations, repay or refinance our debt obligations, fund dividend payments, acquire properties, and make the investments in development and redevelopment activities, as well as capital expenditures, needed to grow our business.
Our level of indebtedness may increase and materially adversely affect our future operations.
Our outstanding indebtedness as of December 31, 2023 was approximately $6.9 billion. We may incur additional indebtedness, which may be substantial. Any significant additional indebtedness would likely negatively affect the credit ratings of our debt and require us to dedicate a growing portion of our cash flow to interest and principal payments. Greater demands on our cash resources may reduce funds available to us to pay dividends, conduct development activities, make capital expenditures and acquisitions, or carry out other aspects of our business strategy. Increased indebtedness can also make us more vulnerable to general adverse economic and industry conditions and create competitive disadvantages for us compared to other companies with comparatively lower debt levels. Increased future debt service obligations may limit our operational flexibility, including our ability to finance or refinance our properties, contribute properties to joint ventures, or sell properties as needed. In addition, any changes to benchmark rates, or uncertainty as to the nature of such potential changes, may increase the cost of our variable rate debt or cost of funds, adversely affect the trading market for our securities, have an unpredictable impact on the financial markets or otherwise affect our financial condition and results of operations.
Covenants in our debt instruments limit our operational flexibility, and breaches of these covenants could result in adverse actions by our creditors.
The terms of our current secured and unsecured debt instruments require us to comply with a number of customary financial and other covenants, such as maintaining leverage ratios, minimum tangible net worth requirements, REIT status, and certain levels of debt service coverage. Our ability to incur additional debt and to conduct business in general is subject to compliance with these covenants, which limits our operational flexibility. For example, mortgages on our properties contain customary covenants such as those that limit or restrict our ability, without the consent of the lender, to further encumber or sell the applicable properties, or to replace the applicable tenant or operator. Breaches of certain covenants may result in defaults under the mortgages on our properties and cross-defaults under certain of our other indebtedness, even if we satisfy our payment obligations to the respective obligee. Covenants that limit our operational flexibility, as well as defaults resulting from the breach of any of these covenants, could have a material adverse effect on our business, results of operations, and financial condition.
The market price and trading volume of our common stock may be volatile.
The market price of our common stock has been, and may in the future be, highly volatile and subject to wide fluctuations. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. The stock market has experienced extreme price and volume fluctuations that have affected the market price of many companies in industries similar or related to ours and that have been unrelated to these companies’ operating performances. If the market price of our common stock declines significantly, you may be unable to resell your shares at a gain. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:
•actual or anticipated variations in our quarterly operating results, guidance, or distributions;
•changes in market valuations of similar companies;
•adverse market reaction to any increased indebtedness we may incur in the future;
•issuance of additional equity securities;
•actions by institutional stockholders;
•the publication of research reports and articles (or false or misleading information) about us, our tenants, the real estate industry, or the industries in which our tenants operate;
•speculation in the press or investment community and investor sentiment regarding commercial real estate generally, our industry sectors or other real estate sectors, the industries in which our tenants operate, and the regions in which our properties are located;
•short selling of our common stock or related derivative securities; and
•general market and economic conditions.
Adverse changes in our credit ratings could impair our ability to obtain additional debt and equity financing on favorable terms.
Our credit ratings affect the amount and type of capital, as well as the terms of any financing we may obtain. The credit ratings of our senior unsecured debt are based on, among other things, our operating performance, liquidity and leverage ratios, geographic and tenant concentration, and pending or future changes in the regulatory framework applicable to our operators and our industry. If we are unable to maintain our current credit ratings, we would likely incur higher borrowing costs, which would make it more difficult or expensive to obtain additional financing or refinance existing obligations and commitments. An adverse change in our outlook may ultimately lead to a downgrade in our credit ratings, which would trigger additional borrowing costs or other potentially negative consequences under our current credit facilities and debt instruments. Also, if our credit ratings are downgraded, or general market conditions were to ascribe higher risk to our ratings, our industry, or us, our access to capital and the cost of any future debt financing will be further negatively impacted. In addition, the terms of future debt agreements could include more restrictive covenants, or require incremental collateral, which may further restrict our business operations or be unavailable due to our covenant restrictions then in effect. There is no guarantee that debt or equity financings will be available in the future to fund future acquisitions, developments, or general operating expenses, or that such financing will be available on terms consistent with our historical agreements or expectations.
Risks Related to the Regulatory EnvironmentOur Capital Structure and Market Conditions
LawsVolatility, disruption, or regulations prohibiting eviction ofuncertainty in the financial markets may impair our tenants, even on a temporary basis,ability to raise capital, obtain new financing or refinance existing obligations, and fund acquisition and development activities.
Increased or prolonged market disruption, volatility, or uncertainty could have a material adverse effect on our revenues ifability to raise capital, obtain new financing or refinance our tenantsexisting obligations as they mature, and fund acquisition and development activities. Our lenders and other financial institutions could also require us to agree to more restrictive covenants, grant liens on our assets as collateral, and/or accept other terms that are not commercially beneficial to us in order to obtain financing. One or more of our lenders under our credit facility could refuse or fail to makefund their contractual rent paymentsfinancing commitment to us.
Various federal, state and local governments have enacted, and may continue to enact, laws regulations and moratoriums or take other actions which could limit our ability to evict tenants until such laws, regulations or moratoriums are reversed or lifted. In particular, many state and local governments have implemented eviction moratoriumsus as a result of the COVID-19 pandemiclender liquidity and/or viability challenges, which generally apply to both residential and commercial tenants. Although many of these moratoriums are expected to be temporary in nature, they may be extended for a significant period of time until the COVID-19 pandemic subsides. Although we generally have arrangements and other agreements that give us the right under specified circumstances to terminate a lease or evict a tenant for nonpayment of contractual rent, such laws, regulations and moratoriums will generally prohibit our ability to begin eviction proceedings even where no rent or only partial rent is being paid for so long as such law, regulation or moratorium remains in effect. Further, under current laws and regulations, eviction proceedings for delinquent tenants are already costly and time-consuming, and, if there are existing backlogs or backlogs develop in courts due to higher than normal eviction proceedings, whether or not due to an increase in eviction proceedings after the COVID-19 pandemic,financing commitments we may incur significant costs and it may takenot be able to replace on favorable terms, or at all. In addition, the failure of a significant amountbank, or events involving limited liquidity, defaults, non-performance or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, or concerns or rumors about such events, could lead to disruptions in access to our bank deposits, our inability to access our bank deposits in excess of time to ultimately evict any tenant who is not meeting their contractual rent obligations. If we are restricted, delayedthe Federal Deposit Insurance Corporation (FDIC) limits, or prohibited from evicting tenants for failing to make contractual rent payments,otherwise adversely impact our business, results of operationsliquidity and financial condition may be materially adversely impacted.
Tenantsperformance, and operators that fail to comply with federal, state, local and international laws and regulations, including resident health and safety requirements, as well as licensure, certification and inspection requirements, may cease to operate or be unable to meet their financial and other contractual obligations to us.
Ourour tenants, operators, and borrowers are subjectcould be similarly adversely affected. Market volatility could also lead to or impacted by extensive, frequently changing federal, statesignificant uncertainty in the valuation of our investments and localthose of our joint ventures, which may result in a substantial decrease in the value of our properties and laws and regulations. See “Item 1-Business-Government Regulation, Licensing and Enforcement-Healthcare Licensure and Certificatethose of Need” forour joint ventures. As a discussionresult, we may be unable to recover the carrying amount of such lawsinvestments and regulations. Our tenants’, operators’ or borrowers’ failure to comply withthe associated goodwill, if any, of these laws, regulations or requirements could result in: (i) loss of accreditation, denial of reimbursement; (ii) imposition of fines, suspension or decertification from government healthcare programs; (iii) civil liability; and (iv) in certain instances, criminal penalties, loss of license or closure of the property and/or the incurrence of considerable costs arising from an investigation or regulatory action, which may have an adverse effect on properties that we own and leaserequire us to a third party tenant, that we own and operate through a RIDEA structure or on which we hold a mortgage, and therefore mayrecognize impairment charges in earnings.
Increased borrowing costs could materially adversely impact us.our ability to refinance existing debt, sell properties, and conduct investment activities.
Required regulatory approvals can delay or prohibit transfersWe currently have and may incur additional debt obligations that have variable interest rates and related payments that vary with the movement of certain indices. During inflationary periods, interest rates have historically increased. For example, in response to recent inflationary conditions, actions taken by the FOMC have led to rising interest rates, which may continue to rise and remain elevated for the foreseeable future. Increases in interest rates result in increased interest costs for our healthcare properties.
Transfersvariable rate debt and our new debt, which adversely affects our cost of healthcare properties to successor tenants or operators are typically subject to regulatory approvals or ratifications, including, but not limited to, change of ownership approvalscapital and Medicare and Medicaid provider agreements that are not required for transfers of other types of commercial operations and other types of real estate. The replacementmakes the financing of any tenantacquisition and development activity more costly. In addition, increased interest rates have lowered, and could continue to lower, the amount third parties are willing to pay for our properties, thereby negatively impacting our ability to reposition our portfolio promptly in response to changes in economic or operator could be delayed by the regulatory approval process of any federal, state or local government agency necessary for the transfer of the property or the replacement of the operator licensed to manage the property, during which time the property may experience performance declines. The COVID-19 pandemic may materially delay necessary approvals, thereby lengthening the period of performance deterioration. If we are unable to find a suitable replacement tenant or operator upon favorable terms, or at all, we may take possession of a property, which could expose us to successor liability, require us to indemnify subsequent operators to whom we transfer the operating rights and licenses, or require us to spend substantial time and funds to preserve the value of the property and adapt the property to other uses, all of which could have a material adverse effect of our business, results of operations and financial condition.conditions.
Compliance with the Americans with Disabilities Act and fire, safety and other regulations may requireRising borrowing costs could limit our ability to refinance existing debt when it matures, or cause us to make expenditures that adversely affect our cash flows.pay higher interest rates upon refinancing and increased interest expense on refinanced indebtedness.
Our properties must comply with applicable ADA and any similar state and local laws. This may require removal of barriers to access by persons with disabilities in public areasWe manage a portion of our properties. Noncompliance could resultexposure to interest rate risk by accessing debt with staggered maturities and through the use of derivative instruments, primarily interest rate cap and swap agreements. These agreements involve risk, including that counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes, that the incurrenceamount of additionalincome we earn from hedging transactions may be limited by federal tax provisions governing REITs, and that these arrangements may cause us to incur higher debt service costs associated with bringingthan would otherwise be the properties into compliance, the imposition of fines or an award of damagescase. Failure to private litigants in individual lawsuits or as part of a class action. While the tenants to whom we lease our properties are obligated to comply with the ADA and similar state and local provisions, and typically under tenant leases are obligated to cover costs associated with compliance, if required changes involve greater expenditures than anticipated, or if the changes must be made on a more accelerated basis than anticipated, the ability of these tenants to cover costs could be adversely affected. As a result, we could be required to expend funds to comply with the provisions of the ADA and similar state and local laws on behalf of tenants, whichhedge effectively against interest rate risk could adversely affect our results of operations and financial condition.
Additionally, with respectincreased borrowing costs and attendant negative impacts on our business can reduce the amount investors are willing to pay for our SHOP properties under RIDEA structures, wecommon stock. Because REIT stocks are ultimately responsibleoften perceived as high-yield investments, investors may perceive less relative benefit to owning REIT stocks as borrowing costs increase.
Cash available for such litigation and compliance costs.
In addition, we are requireddistribution to operate our properties in compliance with fire and safety regulations, building codes and other land use regulations. New and revised regulations and codesstockholders may be adopted by governmental agenciesinsufficient to make dividend distributions at expected levels and bodiesare made at the discretion of our Board of Directors.
Decreases in cash available for distributions may result in us being unable to make dividend distributions at expected levels. Our failure to make distributions commensurate with market expectations would likely result in a decrease in the market price of our common stock. Further, all distributions are made at the discretion of our Board of Directors in accordance with Maryland law and become applicabledepend on: (i) our earnings; (ii) our financial condition; (iii) debt and equity capital available to us; (iv) our properties. For example, new safety lawsexpectations for senior housing properties were adopted following the particularly damaging 2018 hurricane season. Compliance could require substantialfuture capital expenditures,requirements and operating performance; (v) covenants in our financial or other contractual arrangements, including those in our credit facility agreement; (vi) maintenance of our REIT qualification; and (vii) other factors as our Board of Directors may restrict our abilitydeem relevant from time to renovate our properties. These expenditures and restrictionstime.
If access to external capital is unavailable on acceptable terms or at all, it could have a material adverse effect on our financial conditionability to meet commitments as they become due or make investments necessary to grow our business.
We periodically rely on external sources of capital (including debt and equity financing) to fulfill our capital requirements. The availability of external capital sources depends upon several factors, some of which we have little or no control over, including:
•general availability of capital, including less favorable terms, rising interest rates, and increased borrowing costs;
•the market price of the shares of our equity securities and the credit ratings of our debt and any preferred securities we may issue;
•the market’s perception of our growth potential and our current and potential future earnings and cash flows.distributions;
The requirements•our degree of or changes to, governmental reimbursement programs such as Medicare or Medicaid, may adversely affectfinancial leverage and operational flexibility;
•the financial integrity of our tenants’, operators’ and borrowers’lenders, which might impair their ability to meet their commitments to us or their willingness to make additional loans to us, and our inability to replace the financing commitment of any such lender on favorable terms, or at all;
•bank failures or other events affecting financial institutions, which could adversely affect our or our tenants’, operators’, and other contractual obligations to us.borrowers’ liquidity and financial performance;
Certain•the stability of the market value of our properties;
•the financial performance and general market perception of our tenants operators and borrowers are affected, directly or indirectly, by a complex set of federal, state and local laws and regulations pertaining to governmental reimbursement programs, including the recently enacted CARES Act and other similar relief legislation enacted as a result of the COVID-19 pandemic. These laws and regulations are subject to frequent and substantial changes that are sometimes applied retroactively. See “Item 1-Business-Government Regulation, Licensing and Enforcement.” For example, to the extent that our tenants, operators or borrowers receive a significant portion of their revenues from governmental payors, primarily Medicare and Medicaid, they are generally subject to, among other things:
•statutory and regulatory changes;operators;
•retroactive rate adjustments;changes in the credit ratings on U.S. government debt securities or default or delay in payment by the U.S. of its obligations;
•recovery of program overpayments or set-offs;
•federal, stateissues facing the healthcare industry, including healthcare reform and local litigation and enforcement actions;
•administrative proceedings;
•policy interpretations;
•payment or other delays by fiscal intermediaries or carriers;
•changes in government funding restrictions (at a program level or with respect to specific properties);
•reduced reimbursement rates under managed care contracts;
•interruption or delays in payments due to any ongoing governmental investigations and audits at such properties;policies; and
•reputational harmthe performance of publicly disclosed enforcement actions, auditsthe national and global economies generally, including any economic downturn and volatility in the financial markets.
If access to capital is unavailable on acceptable terms or investigations relatedat all, it could have a material adverse impact on our ability to billingfund operations, repay or refinance our debt obligations, fund dividend payments, acquire properties, and reimbursements.
The failuremake the investments in development and redevelopment activities, as well as capital expenditures, needed to comply with the extensive laws, regulations and other requirements applicable to their business and the operation ofgrow our properties could result in, among other challenges: (i) becoming ineligible to receive reimbursement from governmental reimbursement programs, including under the CARES Act; (ii) becoming subject to prepayment reviews or claims for overpayments; (iii) bans on admissions of new patients or residents; (iv) civil or criminal penalties; and (v) significant operational changes, including requirements to increase staffing or the scope of care given to residents. These laws and regulations are enforced by a variety of federal, state and local agencies and can also be enforced by private litigants through, among other things, federal and state false claims acts, which allow private litigants to bring qui tam or “whistleblower” actions.business.
Our level of indebtedness may increase and materially adversely affect our future operations.
Our outstanding indebtedness as of December 31, 2023 was approximately $6.9 billion. We are unablemay incur additional indebtedness, which may be substantial. Any significant additional indebtedness would likely negatively affect the credit ratings of our debt and require us to predictdedicate a growing portion of our cash flow to interest and principal payments. Greater demands on our cash resources may reduce funds available to us to pay dividends, conduct development activities, make capital expenditures and acquisitions, or carry out other aspects of our business strategy. Increased indebtedness can also make us more vulnerable to general adverse economic and industry conditions and create competitive disadvantages for us compared to other companies with comparatively lower debt levels. Increased future debt service obligations may limit our operational flexibility, including our ability to finance or refinance our properties, contribute properties to joint ventures, or sell properties as needed. In addition, any changes to benchmark rates, or interpretationsuncertainty as to the nature of federal, statesuch potential changes, may increase the cost of our variable rate debt or cost of funds, adversely affect the trading market for our securities, have an unpredictable impact on the financial markets or otherwise affect our financial condition and local statutesresults of operations.
Covenants in our debt instruments limit our operational flexibility, and regulations, includingbreaches of these covenants could result in adverse actions by our creditors.
The terms of our current secured and unsecured debt instruments require us to comply with a number of customary financial and other covenants, such as maintaining leverage ratios, minimum tangible net worth requirements, REIT status, and certain levels of debt service coverage. Our ability to incur additional debt and to conduct business in general is subject to compliance with these covenants, which limits our operational flexibility. For example, mortgages on our properties contain customary covenants such as those that limit or restrict our ability, without the Medicareconsent of the lender, to further encumber or sell the applicable properties, or to replace the applicable tenant or operator. Breaches of certain covenants may result in defaults under the mortgages on our properties and Medicaid statutes and regulations, orcross-defaults under certain of our other indebtedness, even if we satisfy our payment obligations to the intensityrespective obligee. Covenants that limit our operational flexibility, as well as defaults resulting from the breach of enforcement efforts with respect to such statutes and regulations. Any changes in the regulatory framework or the intensity or extentany of governmental or private enforcement actionsthese covenants, could have a material adverse effect on our tenantsbusiness, results of operations, and operators.financial condition.
Sometimes, governmental payors freeze or reduce paymentsThe market price and trading volume of our common stock may be volatile.
The market price of our common stock has been, and may in the future be, highly volatile and subject to healthcare providers, or provide annual reimbursement rate increases that are smaller than expected, due to budgetary and other pressures.wide fluctuations. In addition, the federal government periodically makes changestrading volume in our common stock may fluctuate and cause significant price variations to occur. The stock market has experienced extreme price and volume fluctuations that have affected the statutesmarket price of many companies in industries similar or related to ours and regulations relatingthat have been unrelated to Medicare and Medicaid reimbursement thatthese companies’ operating performances. If the market price of our common stock declines significantly, you may impact state reimbursement programs, particularly Medicaid reimbursement and managed care payments.be unable to resell your shares at a gain. We cannot make any assessment as toassure you that the ultimate timing or the effect that any future changes may have on our tenants’, operators’ and borrowers’ costs of doing business and on the amount of reimbursement by government and other third-party payors. The failure of anymarket price of our tenants, operatorscommon stock will not fluctuate or borrowers to comply with these laws and regulations, and significant limits on the scope of services reimbursed, reductions in reimbursement rates and fees, or increases in provider or similar types of taxes, could materially adversely affect their ability to meet their financial and contractual obligations to us.
Furthermore, executive orders and legislation may amend the Affordable Care Act and related regulations in whole or in part. We also anticipate that Congress, state legislatures, and third-party payors may continue to review and assess alternative healthcare delivery and payment systems and may propose and adopt legislation or policy changes or implementations effecting additional fundamental changes in the healthcare system. For example, the Department of Health and Human Services has focused on tying Medicare payments to quality or value through alternative payment models, which generally aim to make providers attentive to the total costs of treatments. Medicare no longer reimburses hospitals for care related to certain preventable adverse events and imposes payment reductions on hospitals for preventable readmissions. These punitive approaches could be expanded to additional types of providersdecline significantly in the future. Additionally,Some of the patient driven payment model utilized by the Centers for Medicare and Medicaid Services to calculate reimbursement rates for patients in skilled nursing propertiesfactors that could result in decreases in payments to our operators and tenants or increase our operators’ and tenants’ costs. If any such changes significantly and adversely affect our tenants’ profitability, they could in turn negatively affect our tenants’ ability and willingness to comply with the terms of their leases with us and/share price or renew their leases with us upon expiration, which could impact our business, prospects, financial condition or results of operations.
Legislation to address federal government operations and administration decisions affecting the Centers for Medicare and Medicaid Services could have a material adverse effect on our tenants’, operators’ and borrowers’ liquidity, financial condition or results of operations.
Congressional consideration of legislation pertaining to the federal debt ceiling, the Affordable Care Act, tax reform and entitlement programs, including reimbursement rates for physicians, could have a material adverse effect on our tenants’, operators’ and borrowers’ liquidity, financial condition or results of operations. In particular, reduced funding for entitlement programs such as Medicare and Medicaid would result in fluctuations in the price or trading volume of our common stock include:
•actual or anticipated variations in our quarterly operating results, guidance, or distributions;
•changes in market valuations of similar companies;
•adverse market reaction to any increased costsindebtedness we may incur in the future;
•issuance of additional equity securities;
•actions by institutional stockholders;
•the publication of research reports and fees for programs such as Medicare Advantage Plans and additional reductions in reimbursements to providers. Amendments the Affordable Care Act in wholearticles (or false or in part and decisions by the Centers for Medicare and Medicaid Services could impact the delivery of services and benefits under Medicare, Medicaid or Medicare Advantage Plans and could affectmisleading information) about us, our tenants, the real estate industry, or the industries in which our tenants operate;
•speculation in the press or investment community and operatorsinvestor sentiment regarding commercial real estate generally, our industry sectors or other real estate sectors, the industries in which our tenants operate, and the mannerregions in which theyour properties are reimbursed by such programs. Any such material adverse effect onlocated;
•short selling of our tenants, operatorscommon stock or borrowers could adversely affect their ability to satisfy their obligations to usrelated derivative securities; and could have a material adverse effect on us.
Our participation in the CARES Act Provider Relief Program•general market and other COVID-19-related stimulus and relief programs could subject us to disruptive government and financial audits and investigations, regulatory enforcement actions, civil litigation, and other claims, penalties, and liabilities.
Under the CARES Act and subsequent relief legislation, Congress has allocated more than $178 billion to eligible hospitals, physicians, and other health care providers through the Public Health and Social Services Emergency Fund (the “Provider Relief Fund” or “PRF”). The U.S. Department of Health and Human Services (“HHS”) has distributed PRF grants through various general and targeted distributions, including certain distributions that were paid automatically to providers, and others that required providers submit requested data or applications. We and our senior housing operators have received funds from several PRF distributions, both via automatic payments and also as a result of applications we submitted for PRF funds.economic conditions.
PRF funds are intended to reimburse eligible providers for unreimbursed health care-related expenses and lost revenues attributable to COVID-19 and must be used only to prevent, prepare for or respond to COVID-19. PRF funds received under certain targeted distributions, including the Nursing Home Infection Control Distribution, are further limited to specific uses. Additionally, the PRF program imposes certain, distribution-specific eligibility criteria and requires recipients comply with various terms and conditions. HHS has stated that compliance with PRF program terms and conditions is material to HHS’s decision to disburse PRF payments to recipients. PRF program terms and conditions include limitations and requirements governing use of PRF funds, implementation of controls, retention of records relating to PRF funds, audit and reporting to governmental authorities, and other PRF program requirements. PRF regulatory guidance regarding eligibility, use of funds, audit, reporting, and other PRF terms and conditions continues to evolve and there is a high degree of uncertainty surrounding interpretation and implementation, particularly among more complex corporate, transactional and contractual relationships, including RIDEA structures and for organizations with multiple recipient subsidiaries. In addition to other, various risks related toAdverse changes in our PRF program participation, in light of the evolving laws and guidance related to PRF, there can be no assurance that PRF guidance will not change in ways that adversely impacts the PRF funding we receive,credit ratings could impair our ability to retain PRF funding,obtain additional debt and equity financing on favorable terms.
Our credit ratings affect the amount and type of capital, as well as the terms of any financing we may obtain. The credit ratings of our senior unsecured debt are based on, among other things, our operating performance, liquidity and leverage ratios, geographic and tenant concentration, and pending or our eligibility to participatefuture changes in the PRF program.
Changing PRF program requirements could reduce the amount of PRF funds we initially receive or could render us orregulatory framework applicable to our operators ineligible for future or previously received PRF funds. PRF reporting obligations and monitoring and compliance efforts could impose substantial costs, become overly burdensome and require significant attention from leadership, disrupting our business and impeding our operations. Further, our operators may not consistently account for PRF and other relief funds, which may adversely impact consistency in our reporting, including among operators and across reporting periods. Ultimately, as PRF program requirements continue to evolve, we may determine that we are unable to comply with certain terms and conditions, or that we are no longer eligible for some or all of the PRF payments we or our operators previously received.industry. If we are unable to fully comply with applicable PRF termsmaintain our current credit ratings, we would likely incur higher borrowing costs, which would make it more difficult or expensive to obtain additional financing or refinance existing obligations and commitments. An adverse change in our outlook may ultimately lead to a downgrade in our credit ratings, which would trigger additional borrowing costs or other potentially negative consequences under our current credit facilities and debt instruments. Also, if our credit ratings are downgraded, or general market conditions we may be requiredwere to return some or all PRF funds received and may be subject to further enforcement action.
Dueascribe higher risk to our ratings, our industry, or us, our access to capital and the cost of any future debt financing will be further negatively impacted. In addition, the terms of future debt agreements could include more restrictive covenants, or require incremental collateral, which may further restrict our operators’ participationbusiness operations or be unavailable due to our covenant restrictions then in effect. There is no guarantee that debt or equity financings will be available in the PRF program, we may be subjectfuture to government and other audits and investigations related to our receipt and use of PRF funds. These audits and investigations also may impose substantial costs and disruptions. If the government determines that we failed to comply PRF terms and conditionsfund future acquisitions, developments, or related interpretative guidance, applicable grant requirements,general operating expenses, or that such financing will be available on terms consistent with our PRF applications and submissions were defective, PRF funds that wehistorical agreements or our operators have received may be subject to recoupment or further enforcement action. This could occur even if our interpretation of PRF program requirements was reasonable under the present or then-existing PRF guidance. Government audits and investigations also could result in other regulatory penalties or enforcement actions, including actions under the False Claims Act (“FCA”), which prohibits false claims for payments to, or improper retention of overpayments from, the government. FCA litigation could be asserted directly by the federal government, or on its behalf, by private litigants as “whistleblowers.” Even if not meritorious, FCA litigation could impose significant costs and result in reputational damage and a disruption of our business.expectations.
Risks Related to Our Capital Structure and Market Conditions
An increaseVolatility, disruption, or uncertainty in the financial markets may impair our ability to raise capital, obtain new financing or refinance existing obligations, and fund acquisition and development activities.
Increased or prolonged market disruption, volatility, or uncertainty could have a material adverse effect on our ability to raise capital, obtain new financing or refinance our existing obligations as they mature, and fund acquisition and development activities. Our lenders and other financial institutions could also require us to agree to more restrictive covenants, grant liens on our assets as collateral, and/or accept other terms that are not commercially beneficial to us in order to obtain financing. One or more of our lenders under our credit facility could refuse or fail to fund their financing commitment to us as a result of lender liquidity and/or viability challenges, which financing commitments we may not be able to replace on favorable terms, or at all. In addition, the failure of a bank, or events involving limited liquidity, defaults, non-performance or other adverse conditions in the financial or credit markets impacting financial institutions at which we maintain balances, or concerns or rumors about such events, could lead to disruptions in access to our bank deposits, our inability to access our bank deposits in excess of the Federal Deposit Insurance Corporation (FDIC) limits, or otherwise adversely impact our liquidity and financial performance, and our tenants, operators, and borrowers could be similarly adversely affected. Market volatility could also lead to significant uncertainty in the valuation of our investments and those of our joint ventures, which may result in a substantial decrease in the value of our properties and those of our joint ventures. As a result, we may be unable to recover the carrying amount of such investments and the associated goodwill, if any, which may require us to recognize impairment charges in earnings.
Increased borrowing costs could materially adversely impact our ability to refinance existing debt, sell properties, and conduct acquisition, investment activities.
We currently have and development activities, and could cause our stock price to decline.
An increase in our borrowing costs reduces the amount investors are willing to pay for our common stock. Because REIT stocks are often perceived as high-yield investments, investors may perceive less relative benefit to owning REIT stocks as borrowing costs increase.
Additionally, we have existingincur additional debt obligations that arehave variable rate obligations with interest rates and related payments that vary with the movement of certain indices. IfDuring inflationary periods, interest rates increase, so would ourhave historically increased. For example, in response to recent inflationary conditions, actions taken by the FOMC have led to rising interest rates, which may continue to rise and remain elevated for the foreseeable future. Increases in interest rates result in increased interest costs for anyour variable rate debt and forour new debt. This increaseddebt, which adversely affects our cost would makeof capital and makes the financing of any acquisition and development activity more costly. In addition, an increase inincreased interest rates have lowered, and could decreasecontinue to lower, the amount third parties are willing to pay for our properties, thereby limitingnegatively impacting our ability to reposition our portfolio promptly in response to changes in economic or other conditions.
Rising borrowing costs could limit our ability to refinance existing debt when it matures, or cause us to pay higher interest rates upon refinancing and increaseincreased interest expense on refinanced indebtedness. If our prevailing borrowing costs are higher than the interest rates of our senior notes at their maturity, we will incur additional interest expense upon any replacement debt.
We manage a portion of our exposure to interest rate risk by accessing debt with staggered maturities and through the use of derivative instruments, primarily interest rate cap and swap agreements. SwapThese agreements involve risk, including that counterparties may fail to honor their obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes, that the amount of income we earn from hedging transactions may be limited by federal tax provisions governing REITs, and that these arrangements may cause us to payincur higher interest rates on our debt obligationsservice costs than would otherwise be the case. Failure to hedge effectively against interest rate risk could adversely affect our results of operations and financial condition.
Additionally, increased borrowing costs and attendant negative impacts on our business can reduce the amount investors are willing to pay for our common stock. Because REIT stocks are often perceived as high-yield investments, investors may perceive less relative benefit to owning REIT stocks as borrowing costs increase.
Cash available for distribution to stockholders may be insufficient to make dividend distributions at expected levels and are made at the discretion of our Board of Directors.
Decreases in cash available for distributions including decreases related to the COVID-19 pandemic or resulting from dispositions, may result in us being unable to make dividend distributions at expected levels. Our failure to make distributions commensurate with market expectations would likely result in a decrease in the market price of our common stock. Further, all distributions are made at the discretion of our Board of Directors in accordance with Maryland law and depend on: (i) our earnings; (ii) our financial condition; (iii) debt and equity capital available to us; (iv) our expectations for future capital requirements and operating performance; (v) restrictive covenants in our financial or other contractual arrangements, including those in our credit facility agreement; (vi) maintenance of our REIT qualification; (vii) restrictions under Maryland law; and (viii)(vii) other factors as our Board of Directors may deem relevant from time to time.
If access to external capital is unavailable on acceptable terms or at all, it could have a material adverse effect on our ability to meet commitments as they become due or make future investments necessary to grow our business.
We be unable to fund all future capital needs, including capital expenditures, debt maturities and other commitments, from cash retained from operations and dispositions. If we are unable to obtain enough internal capital, we may need toperiodically rely on external sources of capital (including debt and equity financing) to fulfill our capital requirements, whichrequirements. The availability of external capital sources depends upon a number ofseveral factors, some of which we have little or no control over, including but not limited to:including:
•general availability of capital, including less favorable terms, rising interest rates, and increased borrowing costs;
•the market price of the shares of our equity securities and the credit ratings of our debt and any preferred securities we may issue;
•the market’s perception of our growth potential and our current and potential future earnings and cash distributions;
•our degree of financial leverage and operational flexibility;
•the financial integrity of our lenders, which might impair their ability to meet their commitments to us or their willingness to make additional loans to us, and our inability to replace the financing commitment of any such lender on favorable terms, or at all;
•bank failures or other events affecting financial institutions, which could adversely affect our or our tenants’, operators’, and borrowers’ liquidity and financial performance;
•the stability of the market value of our properties;
•the financial performance and general market perception of our tenants and operators;
•changes in the credit ratings on U.S. government debt securities or default or delay in payment by the United StatesU.S. of its obligations;
•issues facing the healthcare industry, including but not limited to, healthcare reform and changes in government reimbursement policies and the unique challenges posed by the COVID-19 pandemic;policies; and
•the performance of the national and global economies generally, including the ongoingany economic downturn and volatility in the financial markets as a result of the COVID-19 pandemic.markets.
If access to capital is unavailable on acceptable terms or at all, it could have a material adverse impact on our ability to fund operations, repay or refinance our debt obligations, fund dividend payments, acquire properties, and make the investments in development and redevelopment activities, as well anas capital expenditures, needed to grow our business.
Our level of indebtedness may increase and materially adversely affect our future operations.
Our outstanding indebtedness as of December 31, 20202023 was approximately $6.30$6.9 billion. We may incur additional indebtedness, which may be substantial. Any significant additional indebtedness would likely negatively affect the credit ratings of our debt and require us to dedicate a substantialgrowing portion of our cash flow to interest and principal payments. Greater demands on our cash resources may reduce funds available to us to pay dividends, conduct development activities, make capital expenditures and acquisitions, or carry out other aspects of our business strategy. Increased indebtedness can also make us more vulnerable to general adverse economic and industry conditions and create competitive disadvantages for us compared to other companies with comparatively lower debt levels. Increased future debt service obligations may limit our operational flexibility, including our ability to finance or refinance our properties, contribute properties to joint ventures, or sell properties as needed. In addition, any changes to benchmark rates, or uncertainty as to the nature of such potential changes, may increase the cost of our variable rate debt or cost of funds, adversely affect the trading market for our securities, have an unpredictable impact on the financial markets or otherwise affect our financial condition and results of operations.
Covenants in our debt instruments limit our operational flexibility, and breaches of these covenants could materially adversely affectresult in adverse actions by our business, results of operations and financial condition.creditors.
The terms of our current secured and unsecured debt instruments require us to comply with a number of customary financial and other covenants, such as maintaining leverage ratios, minimum tangible net worth requirements, REIT status, and certain levels of debt service coverage. Our continued ability to incur additional debt and to conduct business in general is subject to compliance with these covenants, which limits our operational flexibility. For example, mortgages on our properties contain customary covenants such as those that limit or restrict our ability, without the consent of the lender, to further encumber or sell the applicable properties, or to replace the applicable tenant or operator. Breaches of certain covenants may result in defaults under the mortgages on our properties and cross-defaults under certain of our other indebtedness, even if we satisfy our payment obligations to the respective obligee.Covenants that limit our operational flexibility, as well as defaults resulting from the breach of any of these covenants, could materially adversely affecthave a material adverse effect on our business, results of operations, and financial condition.
Volatility, disruption or uncertaintyThe market price and trading volume of our common stock may be volatile.
The market price of our common stock has been, and may in the financial marketsfuture be, highly volatile and subject to wide fluctuations. In addition, the trading volume in our common stock may fluctuate and cause significant price variations to occur. The stock market has experienced extreme price and volume fluctuations that have affected the market price of many companies in industries similar or related to ours and that have been unrelated to these companies’ operating performances. If the market price of our common stock declines significantly, you may be unable to resell your shares at a gain. We cannot assure you that the market price of our common stock will not fluctuate or decline significantly in the future. Some of the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our common stock include:
•actual or anticipated variations in our quarterly operating results, guidance, or distributions;
•changes in market valuations of similar companies;
•adverse market reaction to any increased indebtedness we may incur in the future;
•issuance of additional equity securities;
•actions by institutional stockholders;
•the publication of research reports and articles (or false or misleading information) about us, our tenants, the real estate industry, or the industries in which our tenants operate;
•speculation in the press or investment community and investor sentiment regarding commercial real estate generally, our industry sectors or other real estate sectors, the industries in which our tenants operate, and the regions in which our properties are located;
•short selling of our common stock or related derivative securities; and
•general market and economic conditions.
Adverse changes in our credit ratings could impair our ability to raiseobtain additional debt and equity financing on favorable terms.
Our credit ratings affect the amount and type of capital, as well as the terms of any financing we may obtain. The credit ratings of our senior unsecured debt are based on, among other things, our operating performance, liquidity and leverage ratios, geographic and tenant concentration, and pending or future changes in the regulatory framework applicable to our operators and our industry. If we are unable to maintain our current credit ratings, we would likely incur higher borrowing costs, which would make it more difficult or expensive to obtain newadditional financing or refinance existing obligations and commitments. An adverse change in our outlook may ultimately lead to a downgrade in our credit ratings, which would trigger additional borrowing costs or other potentially negative consequences under our current credit facilities and debt instruments. Also, if our credit ratings are downgraded, or general market conditions were to ascribe higher risk to our ratings, our industry, or us, our access to capital and the cost of any future debt financing will be further negatively impacted. In addition, the terms of future debt agreements could include more restrictive covenants, or require incremental collateral, which may further restrict our business operations or be unavailable due to our covenant restrictions then in effect. There is no guarantee that debt or equity financings will be available in the future to fund real estatefuture acquisitions, developments, or general operating expenses, or that such financing will be available on terms consistent with our historical agreements or expectations.
Risks Related to the Regulatory Environment
Tenants, operators, and development activities.borrowers that fail to comply with federal, state, local, and international laws and regulations, including resident health and safety requirements, as well as licensure, certification, and inspection requirements, may cease to operate or be unable to meet their financial and other contractual obligations to us.
IncreasedOur tenants, operators, and borrowers across our segments are subject to or prolonged market disruption, volatilityimpacted by extensive, frequently changing federal, state, and local laws and regulations. See “Item 1, Business—Government Regulation, Licensing and Enforcement—Healthcare Licensure and Certificate of Need” for a discussion of certain of these laws and regulations. Unannounced surveys, inspections, or uncertainty,audits occur frequently, including disruption caused byfollowing a regulator’s receipt of a complaint about a facility, and these surveys, inspections, and audits can result in deficiencies and further adverse action. Our tenants’, operators’, or borrowers’ failure to comply with any of the COVID-19 pandemic,laws, regulations, or requirements applicable to them could result in: (i) loss of accreditation; (ii) denial of reimbursement; (iii) imposition of fines; (iv) suspension or decertification from government healthcare programs; (v) civil liability; and (vi) in certain instances, suspension, or denial of admissions, criminal penalties, loss of license, or closure of the property and/or the incurrence of considerable costs arising from an investigation or regulatory action, which may have an adverse effect on properties that we own and lease to a third party tenant in our lab and outpatient medical segments, that we own and operate through a RIDEA structure in our CCRC segment or our SWF SH JV, or on which we hold a mortgage, and therefore may materially adversely impact us.
Furthermore, we are required under RIDEA to rely on our operators to oversee and direct these aspects of the properties’ operations to ensure compliance with applicable laws and regulations. If one or more of our healthcare properties fails to comply with applicable laws and regulations, our TRS would be responsible (except in limited circumstances, such as the gross negligence or willful misconduct of our operators, where we would have a contractual claim against them), which could subject our TRS to penalties including loss or suspension of licenses, certification or accreditation, exclusion from government healthcare programs (i.e., Medicare, Medicaid), administrative sanctions, and civil monetary penalties. Some states also reserve the right to sanction affiliates of a licensee when they take administrative action against the licensee, and require a licensee to report all healthcare-related administrative actions that have been brought against any of the licensee’s affiliates, even in other states. Additionally, when we receive individually identifiable health information relating to residents of our healthcare properties, we are subject to federal and state data privacy and security laws and rules, and could be subject to liability in the event of an audit, complaint, cybersecurity incident, or data breach. Furthermore, our TRS has exposure to professional liability claims that could arise out of resident claims, such as quality of care, and the associated litigation costs.
Required regulatory approvals can delay or prohibit transfers of our senior housing properties.
Transfers of senior housing properties, including in connection with the foreclosure of a real-estate secured loan, to successor owners or operators are typically subject to regulatory approvals or ratifications, including change of ownership approvals for licensure and Medicare / Medicaid (if applicable) that are not required for transfers of other types of commercial operations and other types of real estate. The sale of, or replacement of any operator at, our senior housing facilities, or the foreclosure of a loan secured by senior housing real estate, could be delayed by the regulatory approval process of any federal, state, or local government agency necessary for the transfer of the property or the replacement of the operator licensed to manage the property, during which time the property may experience performance declines. We may also elect to use an interim licensing structure to facilitate such transfers, which structure expedites the transfer by allowing a third party to operate under our license until the required regulatory approvals are obtained, but could subject us to fines or penalties if the third party fails to comply with applicable laws and regulations and fails to indemnify us for such fines or penalties pursuant to the terms of its agreement with us.
Compliance with the Americans with Disabilities Act and fire, safety, and other regulations may require us to make expenditures that adversely affect our cash flows.
Our properties must comply with applicable ADA and any similar state and local laws. These laws may require removal of barriers to access by persons with disabilities in public areas of our properties. Noncompliance could result in the incurrence of additional costs associated with bringing the properties into compliance, the imposition of fines or an award of damages to private litigants in individual lawsuits or as part of a class action. We could also be required to expend funds to comply with the provisions of the ADA and similar state and local laws on behalf of tenants, which could adversely affect our results of operations and financial condition.
In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and other land use regulations. New and revised regulations and codes may be adopted by governmental agencies and bodies and become applicable to our properties. For example, new safety laws for senior housing properties were adopted following the particularly damaging 2018 hurricane season. Compliance could require substantial capital expenditures, both for significant upgrades and for tenant relocations that may be necessary depending on the scope and duration of upgrades, and may restrict our ability to raise capital, obtain new financingrenovate our properties. These expenditures and restrictions could have a material adverse effect on our financial condition and cash flows.
Laws or refinanceregulations prohibiting eviction of our existing obligations as they maturetenants, even on a temporary basis, could have a material adverse effect on our revenues if our tenants fail to make their contractual rent payments to us.
Various federal, state, and fund real estatelocal governments previously enacted, and development activities. For example,may again enact, laws, regulations, and moratoriums or take other actions that could limit our ability to evict tenants until such laws, regulations, or moratoriums are reversed or lifted. In particular, several state and local governments implemented eviction moratoriums as a result of the potentialCovid pandemic that applied to both residential and commercial tenants. Although these moratoriums have generally terminated or perceived impactexpired, federal, state, and local governments could enact moratoriums under similar circumstances in the future. While we generally have arrangements and other agreements that give us the right under specified circumstances to terminate a lease or evict a tenant for nonpayment of the pandemiccontractual rent, such laws, regulations, and moratoriums may restrict our ability to begin eviction proceedings even where no rent or only partial rent is being paid. Further, under current laws and regulations, eviction proceedings for delinquent tenants are already costly and time-consuming, and, if there are existing backlogs or backlogs develop in courts due to higher than normal eviction proceedings, we may incur significant costs and it may take a significant amount of time to ultimately evict any tenant who is not meeting their contractual rent obligations. If we are restricted, delayed, or prohibited from evicting tenants for failing to make contractual rent payments, it may have a material adverse effect on our business, lendersresults of operations, and financial condition.
The requirements of, or changes to, governmental reimbursement programs such as Medicare or Medicaid may adversely affect our tenants’, operators’, and borrowers’ ability to meet their financial and other financial institutions could require uscontractual obligations to agree to more restrictive covenants, grant liens on our assets as collateral and/or accept other terms that are not commercially beneficial to us in order to obtain financing. One or moreus.
Certain of our lenders undertenants, operators, and borrowers, as well as our credit facility could refuseowned assets in the CCRC segment and SWF SH JV, are affected, directly or failindirectly, by a complex set of federal, state, and local laws and regulations pertaining to fund their financing commitment to usgovernmental reimbursement programs, including the CARES Act and other similar relief legislation enacted as a result of lender liquidity and/the Covid pandemic. These laws and regulations are subject to frequent and substantial changes that are sometimes applied retroactively. See “Item 1, Business—Government Regulation, Licensing and Enforcement.” For example, to the extent that our tenants, operators, or viability challenges, which financing commitments we may not be ableborrowers, or assets owned in our CCRC segment or through the SFW SH JV, receive a significant portion of their revenues from governmental payors, primarily Medicare and Medicaid, they are generally subject to, replace on favorableamong other things:
•statutory and regulatory changes, including changes that impact state reimbursement programs, particularly Medicaid reimbursement and managed care payments;
•retroactive rate adjustments and recoupment efforts;
•recovery of program overpayments or set-offs;
•federal, state, and local litigation and enforcement actions, including those relating to Covid and the failure to satisfy the terms and conditions of financial relief;
•administrative proceedings;
•policy interpretations;
•payment or other delays by fiscal intermediaries or carriers;
•government funding restrictions (at a program level or with respect to specific properties);
•reduced reimbursement rates under managed care contracts;
•changes in reimbursement rates, methods, or timing under governmental reimbursement programs, including changes that impact state reimbursement programs, particularly Medicaid reimbursement and managed care payments;
•interruption or delays in payments due to any ongoing governmental investigations and audits at all. Market volatility could also leadsuch properties or due to significant uncertainty ina partial or total federal or state government shutdown for a prolonged period of time; and
•reputational harm of publicly disclosed enforcement actions, audits, or investigations related to billing and reimbursements.
We are unable to predict future changes to or interpretations of, or the valuationintensity of our investmentsenforcement efforts with respect to, these laws and regulations, including those of our joint ventures, which may result in a substantial decrease inthat pertain to the valueMedicare and Medicaid programs. The failure to comply with the extensive laws, regulations, and other requirements applicable to their business and the operation of our properties could result in, among other challenges: (i) becoming ineligible to receive reimbursement from governmental reimbursement programs or being compelled to repay amounts received, including under the CARES Act; (ii) becoming subject to prepayment reviews or claims for overpayments; (iii) bans on admissions of new patients or residents; (iv) civil or criminal penalties; and those(v) significant operational changes, including requirements to increase staffing or the scope of care given to residents. These laws and regulations are enforced by a variety of federal, state, and local agencies and can also be enforced by private litigants through, among other things, federal and state false claims acts, which allow private litigants to bring qui tam or “whistleblower” actions. Any changes in the regulatory framework or the intensity or extent of governmental or private enforcement actions could have a material adverse effect on our joint ventures. Astenants, operators, borrowers, and/or assets.
The status of the Patient Protection and Affordable Care Act, along with the Health Care and Education Reconciliation Act of 2010 (collectively, the “Affordable Care Act”) and related regulations may be subject to change, and other health reform measures could be implemented as a result weof political, legislative, regulatory, and administrative developments and judicial proceedings, including those with far reaching implications and effecting fundamental changes in the healthcare system. Federal and state authorities may continue to implement new or modified reimbursement methodologies that may negatively impact health care property operations. There can be unableno assurance that adequate reimbursements will be available for services provided by our operators and tenants. Additionally, the patient driven payment model utilized by the Centers for Medicare and Medicaid Services to recovercalculate reimbursement rates for patients in skilled nursing properties (which is among the carryingunit types in our CCRCs) could result in decreases in payments to our operators and tenants or increase our operators’ and tenants’ costs. We cannot make any assessment as to the ultimate timing or the effect that any future changes may have on our tenants’, operators’, and borrowers’ costs of doing business, or the cost of doing business for or the assets owned in our CCRC segment or through the SFW SH JV, and on the amount of reimbursement by government and other third-party payors. Any significant limits on the scope of services reimbursed, reductions in reimbursement rates and fees, or increases in provider or similar types of taxes, could materially adversely affect their ability to meet their financial and contractual obligations to us.
We could be negatively impacted by legislation to address federal government operations and administrative decisions affecting the Centers for Medicare and Medicaid Services.
Congressional consideration of legislation pertaining to the federal debt ceiling, the Affordable Care Act, tax reform, and entitlement programs, including reimbursement rates for physicians, could have a material adverse effect on our tenants’, operators’, and borrowers’ liquidity, financial condition, or results of operations. In particular, reduced funding for entitlement programs such investmentsas Medicare and Medicaid would result in increased costs and fees for programs such as Medicare Advantage Plans and additional reductions in reimbursements to providers. Amendments to the Affordable Care Act in whole or in part and decisions by the Centers for Medicare and Medicaid Services could impact the delivery of services and benefits under Medicare, Medicaid, or Medicare Advantage Plans and could affect our tenants and operators and the associated goodwill, if any,manner in which may require us to recognize impairment charges in earnings.
Risks Related to Other Events
Wethey are subject to certain provisions of Maryland law and our charter relating to business combinations which may prevent a transaction that may otherwise be in the interest of our stockholders.
The Maryland Business Combination Act (the “MBCA”) provides that unless exempted, a Maryland corporation may not engage in business combinations, including a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities with an “interested stockholder” or an affiliate of an interested stockholder for five years after the most recent date on which the interested stockholder became an interested stockholder, and thereafter unless specified criteria are met. An interested stockholder is generally a person owning or controlling, directly or indirectly, 10% or morereimbursed by such programs. Any shutdown of the voting power of the outstanding voting stock of a Maryland corporation. Unlessfederal government that delays or disrupts payments or any other material adverse effect on payments to our Board of Directors takes actiontenants, operators, or borrowers could adversely affect their ability to exempt us from the MBCA, it will be applicablesatisfy their obligations to business combinations between us and other persons. In addition to the restrictionscould have a material adverse effect on business combinations contained in the MBCA, our charter also requires that, except in certain circumstances, “business combinations,” including a merger or consolidation, and certain asset transfers and issuances of securities, with a “related person,” including a beneficial owner of 10% or more of our outstanding voting stock, be approved by the affirmative vote of the holders of at least 90% of our outstanding voting stock. These restrictions on business combinations may delay, defer or prevent a change of control or other transaction even if such transaction involves a premium price for our common stock or our stockholders believe that such transaction is otherwise in their best interests.us.
EnvironmentalOur participation in the CARES Act Provider Relief Fund and other Covid-related stimulus and relief programs could subject us or our operators to disruptive government and financial audits, enforcement actions, and recovery activity.
Under the CARES Act and subsequent Covid relief legislation, Congress allocated more than $178 billion to eligible health care providers through the Public Health and Social Services Emergency Fund (the “Provider Relief Fund” or “PRF”). The U.S. Department of Health and Human Services (“HHS”) distributed PRF awards through various general and targeted distributions. We and our senior housing operators (including operators of senior housing facilities that we have subsequently disposed of) received relief funds through several distributions.
PRF funds are intended to reimburse eligible providers for unreimbursed health care-related expenses and lost revenues attributable to Covid and must be used only to prevent, prepare for, or respond to Covid. PRF funds received under certain targeted distributions are further limited to specific uses. Additionally, the PRF program imposes certain distribution-specific eligibility criteria and requires recipients to comply with various terms and conditions. PRF program terms and conditions include limitations and requirements governing use of PRF funds, implementation of controls, retention of records, audit and reporting to governmental authorities, and other PRF program requirements. Failure to comply with program requirements may result in payment recovery or other enforcement actions. HHS interpretation of applicable terms and requirements has evolved over time, and may continue to evolve. The interpretation and implementation of PRF requirements and related guidance remains uncertain, and there can be no assurance that we or our operators are or will remain in compliance costswith all PRF and liabilities associated withCovid relief program requirements and interpretative guidance. PRF guidance or interpretations could change in ways that adversely impact the PRF funding we or our real estate-related investmentsoperators received, recognized, or are able to retain. We also may be substantial and may materially impair the value of those investments.
Federal, state and local laws, ordinances and regulations may require us, as a currentsubject to or previous owner of real estate,incur costs related to investigate and clean up certain hazardous or toxic substances or petroleum released at a property. We may be held liable to a governmental entity or to third parties for property damage and for investigation and cleanup costs incurred by the third parties in connection with the contamination. The costs of cleanup and remediation could be substantial. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and the costs it incurs in connection with the contamination.
Although we currently carry environmental insurance on our properties in an amount that we believe is commercially reasonable and generally require our tenants and operators to indemnify us for environmental liabilities they cause, such liabilities could exceed the amount of our insurance, the financial ability of the tenant or operator to indemnify us or the value of the contaminated property. As the owner of a site, we may also be held liable to third parties for damages and injuries resulting from environmental contamination emanating from the site. We may also experience environmental liabilities arising from conditions not known to us. The cost of defending against these claims, complying with environmental regulatory requirements, conducting remediation of any contaminated property, or paying personal injury or other claims or fines could be substantial and could have a materially adverse effect on our business, results of operationsPRF compliance activities, reporting, and financial condition. In addition, the presenceaudits, as well as government oversight and enforcement, including post-payment recovery and recoupment and government investigations, audits, enforcement activity, and penalties. Our current and former operators may similarly be impacted. Differences in operators’ PRF policies and protocols may adversely impact availability of contamination or the failure to remediate contamination may materially adversely affectdata and our ability to use, sell or lease the property or to borrow using the property as collateral.related reports and financial audits.
Risks Related to Tax, includingIncluding REIT-Related Risks, and Related to Our Jurisdiction of Incorporation and Our Structure as an UPREIT
Loss of our tax status as a REIT would substantially reduce our available funds and would have materially adverse consequences for us and the value of our common stock.
Qualification as a REIT involves the application of numerous highly technical and complex provisions of the Internal Revenue Code of 1986, as amended (the “Code”), for which there are limited judicial and administrative interpretations, as well as the determination of various factual matters and circumstances not entirely within our control. We intend to continue to operate in a manner that enables us to qualify as a REIT. However, our qualification and taxation as a REIT depend upon our ability to meet the various qualification tests imposed under the Code, through actual annual operating results, asset diversification, distribution levels, and diversity of stock ownership, the various qualification tests imposed under the Code.ownership.
For example, to qualify as a REIT, at least 95% of our gross income in any year must be derived from qualifying sources, and we must make distributions to our stockholders aggregating annually to at least 90% of our REIT taxable income, excluding net capital gains. Rents we receive from a TRS in a RIDEA structure are treated as qualifying rents from real property for REIT tax purposes only if (i) they are paid pursuant to a lease of a “qualified healthcare property,”property” and (ii) the operator qualifies as an “eligible independent contractor,” as each term is defined in the Code. If either of these requirements is not satisfied, then the rents we receive from the TRS will not be qualifying rents.rents and we may not satisfy the REIT gross income requirements. Furthermore, new legislation, regulations, administrative interpretations, or court decisions could change the tax laws or interpretations of the tax laws regarding qualification as a REIT, or the federal income tax consequences of that qualification, in a manner that is materially adverse to our stockholders. Accordingly, there is no assurancewe cannot assure you that we have operated or will continue to operate in a manner so as to qualify or remain qualified as a REIT.
If we lose our REIT status, we will face serious tax consequences that will substantially reduce the funds available to make payments of principal and interest on the debt securities we issue and to make distributions to stockholders. If we fail to qualify as a REIT:
•we will not be allowed a deduction for distributions to stockholders in computing our taxable income;
•we will be subject to corporate-level income tax on our taxable income at regular corporate rates;
•we will be subject to increased state and local income taxes; and
•unless we are entitled to relief under relevant statutory provisions, we will be disqualified from taxation as a REIT for the four taxable years following the year during which we fail to qualify as a REIT.
As a result of all these factors, our failure to qualify as a REIT could also impair our ability to expand our business and raise capital and could materially adversely affect the value of our common stock.
Our taxable REIT subsidiaries (TRSs) may be subject to corporate level tax.
Certain of our subsidiaries have elected or will elect with us to be treated as TRSs. Other than some activities relating to lodging and health care facilities, a TRS may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT that the parent REIT could not provide directly. TRSs are taxed as regular C corporations, and are thus generally required to pay regular corporate income tax, and potentially the alternative minimum tax, on their earnings. Any taxes paid by our TRSs will reduce the amounts that our TRSs could otherwise distribute to us.
The tax imposed on any net income from “prohibited transactions” may limit our ability to engage in transactions which would be treated as sales for federal income tax purposes.
We will be required to pay a 100% tax on any net income from prohibited transactions. Prohibited transactions are, in general, sales or other taxable dispositions of property, other than foreclosure property, held as inventory or primarily for sale to customers in the ordinary course of business. A sale will not be considered a prohibited transaction, however, if it meets certain safe harbor requirements. Although we do not intend to hold any properties that would be characterized as held for sale to customers in the ordinary course of our business (other than through a TRS), such characterization is a factual determination and no guarantee can be given that the U.S. Internal Revenue Service (the “IRS”) would agree with our characterization of our properties or that we will always be able to take advantage of available safe harbors.
Further changes to U.S. federal income tax laws could materially and adversely affect us and our stockholders.
The present federal income tax treatment of REITs and various transactional structures that we utilize may be modified, possibly with retroactive effect, by legislative, judicial, or administrative action at any time, which could affect the federal income tax treatment of an investment in us. The federal income tax rules dealing with U.S. federal income taxation and REITs are constantly under review by persons involved in the legislative process, the U.S. Internal Revenue Service (the “IRS”)IRS, and the U.S. Treasury Department, which results in statutory changes as well as frequent revisions to regulations and interpretations. We cannot predict how changes in the tax laws might affect our investors or us. Revisions in federal tax laws and interpretations thereof could significantly and negatively affect our ability to qualify as a REIT, as well as the tax considerations relevant to an investment in us, or could cause us to change our investments and commitments.
Potential deferred and contingent tax liabilities from corporate acquisitions could limit or delay future property sales.
If, during the five-year period beginning on the date we acquire certain assets or companies in certain tax deferred transactions, we recognize a gain on the disposition of any property acquired, then, to the extent of the excess of (i) the fair market value of such property as of the acquisition date, over (ii) our adjusted income tax basis in such property as of that date, we will be required to pay a corporate-level federal income tax on this gain at the highest regular corporate rate. There can be no assurance that these triggering dispositions will not occur, and these requirementsThese potential tax effects could limit or delay future property sales. In addition, the IRS may assert liabilities against us for corporate income taxes of certain entities we acquire for taxable years prior to the time that we acquire certain companies,such entities, in which case we will owe these taxes plus interest and penalties, if any.
There are uncertainties relating to the calculation of non-REIT tax earnings and profits (“E&P”) in certain acquisitions, which may require us to distribute E&P.
In order to remain qualified as a REIT, we are required to distribute to our stockholders all of the accumulated non-REIT E&P of certain companiesC corporations that we acquire, prior to the close of the first taxable year in which the acquisition occurs. Failure to make such E&P distributions wouldcould result in our disqualification as a REIT. The determination of the amount to be distributed in such E&P distributions is a complex factual and legal determination. We may have less than complete information at the time we undertake our analysis, or we may interpret the applicable law differently from the IRS. We currently believe that we have satisfied the requirements relating to such E&P distributions. There are, however, substantial uncertainties relating to the determination of E&P, including the possibility that the IRS could successfully assert that the taxable income of the companies acquired should be increased, which wouldcould increase our non-REIT E&P. Thus, we might fail to satisfy the requirement that we distribute all of our non-REIT E&P by the close of the first taxable year in which the acquisition occurs. Moreover, althoughAlthough there are procedures available to cure a failure to distribute all of our E&P, we cannot now determine whether we will be able to take advantage of these procedures or the economic impact on us of doing so.
Tax protection agreements may limit our ability to sell or otherwise dispose of certain properties and may require us to maintain certain debt levels that otherwise would not be required to operate our business.
We acquired in the past and in the future may acquire properties or portfolios of properties through tax deferred contribution transactions in exchange for units in our DownREITs or Healthpeak OP. In connection with these transactions, our DownREITs have entered and, with Healthpeak OP, may in the future enter into tax protection agreements that enable contributing partners to defer the recognition of taxable gain resulting from the sale or other disposition of the contributed properties. Tax protection agreements may make it economically prohibitive to sell any properties that are subject to such agreements even though it may otherwise be in our stockholders’ best interests to do so. In addition, under these agreements, we may be required to maintain a minimum level of indebtedness throughout the term of the agreements regardless of whether such debt levels are otherwise required to operate our business. Physicians Realty Trust and the Physicians Partnership have also entered into similar tax protection arrangements with certain third parties and, as a result of the Mergers, we would inherit the obligations under such arrangements.
Our charter contains ownership limits with respect to our common stock and other classes of capital stock.
Our charter contains restrictions on the ownership and transfer of our common stock and preferred stock that are intended to assist us in preserving our qualification as a REIT. Under our charter, subject to certain exceptions, no person or entity may own, actually or constructively, more than 9.8% (by value or by number of shares, whichever is more restrictive) of the outstanding shares of our common stock or any class or series of our preferred stock.
Additionally, our charter has a 9.9% ownership limitation on the direct or indirect ownership of our voting shares, which may include common stock or other classes of capital stock. Our Board of Directors, in its sole discretion, may exempt a proposed transferee from either ownership limit. The ownership limits may delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or might otherwise be in the best interests of our stockholders.
General Risk Factors
Adverse changesMaryland law and our charter relating to business combinations that may prevent a transaction that may otherwise be in our credit ratings could impair our ability to obtain additional debt and equity financing on favorable terms, if at all, and negatively impact the market priceinterest of our securities, includingstockholders.
We are subject to the Maryland Business Combination Act (the “MBCA”), which provides that unless exempted, a Maryland corporation may not engage in certain business combinations with an “interested stockholder” or an affiliate of an interested stockholder for five years after the most recent date on which the interested stockholder became an interested stockholder, and thereafter unless specified criteria are met. In addition to the restrictions on business combinations contained in the MBCA, our charter also requires that, except in certain circumstances, “business combinations” with a “related person” must be approved by the affirmative vote of the holders of at least 90% of our outstanding voting stock. These restrictions on business combinations may delay, defer, or prevent a change of control or other transaction even if such transaction involves a premium price for our common stock.stock or our stockholders believe that such transaction is otherwise in their best interests.
Our credit ratings affectConflicts of interest may exist or could arise in the amount and type of capital, as well asfuture between the terms of any financing we may obtain. The credit ratingsinterests of our senior unsecured debt are based on, among other things,stockholders and the interests of holders of Healthpeak OP common units, which may impede business decisions that could benefit our operating performance, liquidity and leverage ratios, overall financial position, levelstockholders.
Conflicts of indebtedness and pendinginterest may exist or future changescould arise in the regulatory framework applicable to our operators and our industry. If we are unable to maintain our current credit ratings, we would likely incur higher borrowing costs, which would make it more difficult or expensive to obtain additional financing or refinance existing obligations and commitments. Asfuture as a result of the potential impact ofrelationships between us and our affiliates, on the COVID-19 pandemic, in March 2020, Moody’s changed its outlookone hand, and Healthpeak OP or any member thereof, on our long-term issuerthe other. Our directors and senior unsecured debt ratings from “stable” to “negative.” Such change in outlook may ultimately lead to a downgrade in our credit ratings, which would trigger additional borrowing costs or other potentially negative consequences under our current credit facilities and debt instruments. Also, if our credit ratings are downgraded, or general market conditions were to ascribe higher riskofficers have duties to our ratings,company under Maryland law in connection with their management of our industry, or us, our accesscompany. At the same time, we, as the managing member of Healthpeak OP, have certain fiduciary duties and obligations to capitalHealthpeak OP and its members under Maryland law and the costoperating agreement of any future debt financing will be further negatively impacted. In addition,Healthpeak OP in connection with the termsmanagement of future debt agreements could include more restrictive covenants, or require incremental collateral, whichHealthpeak OP. Our fiduciary duties and obligations as the managing member of Healthpeak OP may further restrictcome into conflict with the duties of our business operations or be unavailable duedirectors and officers to our covenant restrictions then in effect. There is no guaranteecompany.
Under Maryland law, a managing member of a Maryland limited liability company has fiduciary duties of loyalty and care to the limited liability company and its members and must discharge its duties and exercise its rights as managing member under the operating agreement or Maryland law consistent with the obligation of good faith and fair dealing. The operating agreement provides that, debtto the maximum extent permitted under the Maryland Limited Liability Company Act, the only duties that the managing member owes to Healthpeak OP, any member, or equity financings will be availableany other person, fiduciary or otherwise, are to perform its contractual obligations as expressly set forth in the future to fund future acquisitions or general operating expenses, oragreement consistently with the implied contractual covenant of good faith and fair dealing. The operating agreement further provides that, such financing will be available on terms consistent with our historical agreements or expectations.
We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that technology could harm our business.
We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, and to maintain personal identifying information and tenant and lease data. We purchase some of our information technology from vendors, on whom our systems depend. We rely on commercially available systems, software, tools and monitoring to provide security for the processing, transmission and storage of confidential tenant and customer data, including individually identifiable information relating to financial accounts. Although we have taken steps to protect the security of our information systems and the data maintained in those systems, it is possible that our safety and security measures will not prevent the systems’ improper functioning or damage, or the improper access or disclosure of personally identifiable information such as in the event of cyber-attacks. The riska conflict between the interests of security breaches has generally increasedHealthpeak OP or any member, on the one hand, and the separate interests of our company or our stockholders, on the other hand, we, in our capacity as the number, intensitymanaging member of Healthpeak OP, may give priority to the separate interests of our company or our stockholders (including with respect to tax consequences to members, assignees, or our stockholders), and, sophisticationin the event of attacks and intrusions have increased, and we have seensuch a significant increaseconflict, any action or failure to act on our part or on the part of our directors or officers that gives priority to the separate interests of our company or our stockholders that does not result in cyber phishing attacks since the onseta violation of the COVID-19 pandemic. The riskcontract rights of security breaches has also increased with our increased dependence on the Internet while our employees work remotely due to shelter-in-place orders and our health and safety policies. In addition,members of Healthpeak OP under its operating agreement does not violate the pace and unpredictabilityduty of cyber threats generally quickly renders long-term implementation plans designed to address cybersecurity risks obsolete.Furthermore, because our operators also rely on the internet, information technology networks, systems and software,loyalty or any other duty that we, may be exposed to cyber-attacks on our operators.
Security breaches of our or our operators’ networks and systems, including those caused by physical or electronic break-ins, computer viruses, malware, worms, attacks by hackers or foreign governments, disruptions from unauthorized access and tampering, including through social engineering such as phishing attacks, coordinated denial-of-service attacks and similar breaches, could result in, among other things, system disruptions, shutdowns, unauthorized access to or disclosure of confidential information, misappropriation of our or our business partners’ proprietary or confidential information, breach of our legal, regulatory or contractual obligations, inability to access or rely upon critical business records or systems or other delays in our operations. In some cases, it may be difficultcapacity as the managing member of Healthpeak OP, owe to anticipate or immediately detect such incidentsHealthpeak OP and the damage they cause. We may be required to expend significant financial resources to protect against or to remediate such security breaches. In addition, our technology infrastructure and information systems are vulnerable to damage or interruption from natural disasters, power loss and telecommunications failures. Any failure to maintain proper function, security and availability of our and our operators’ information systems and the data maintained in those systems could interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties, harm our business relationships or increase our security and insurance costs, which could have a material adverse effect on our business, financial condition and results of operations.its members.
UnfavorableAdditionally, the operating agreement provides that we generally will not be liable to Healthpeak OP or any member for any action or omission taken in our capacity as managing member, for the debts or liabilities of Healthpeak OP or for the obligations of Healthpeak OP under the operating agreement, except for liability for our fraud, willful misconduct, or gross negligence, pursuant to any express indemnity we may give to Healthpeak OP, or in connection with a redemption. Healthpeak OP generally must indemnify us, our directors and officers, officers of Healthpeak OP, and our designees from and against any and all claims that relate to the operations of Healthpeak OP, unless (i) an act or omission of the person was material to the matter giving rise to the action and either was committed in bad faith or was the result of active and deliberate dishonesty, (ii) in the case of a criminal proceeding, the indemnified person had reasonable cause to believe that the act or omission was unlawful, or (iii) the person actually received an improper personal benefit in money, property, or services. Healthpeak OP must also pay or reimburse the reasonable expenses of any such person in advance of a final disposition of the proceeding upon its receipt of a written affirmation of the person’s good faith belief that the standard of conduct necessary for indemnification has been met and a written undertaking to repay any amounts paid or advanced if it is ultimately determined that the person did not meet the standard of conduct for indemnification. Healthpeak OP is not required to indemnify or advance funds to any person with respect to any action initiated by the person seeking indemnification without our approval (except for any proceeding brought to enforce such person’s right to indemnification under the operating agreement) or in respect of any proceeding in which the person is found to be liable to Healthpeak OP if the proceeding was one by or in the right of Healthpeak OP.
No reported decision of a Maryland appellate court has interpreted provisions similar to the provisions of the operating agreement of Healthpeak OP that modify and reduce our fiduciary duties or obligations as the managing member or reduce or eliminate our liability to Healthpeak OP and its members, and we have not obtained an opinion of counsel as to the enforceability of the provisions set forth in the operating agreement that purport to modify or reduce the fiduciary duties and obligations that would be in effect were it not for the operating agreement.
Certain provisions in the operating agreement of Healthpeak OP or other agreements may delay or prevent unsolicited acquisitions of us or certain other transactions.
Provisions of the operating agreement of Healthpeak OP may delay or make more difficult unsolicited acquisitions of us or changes of our control. These provisions could discourage third parties from making proposals involving an unsolicited acquisition of us or change of our control, although some of our stockholders or members of Healthpeak OP might consider such proposals, if made, desirable. These provisions include, among others:
•redemption rights of qualifying parties;
•a requirement that we may not be removed as the managing member of Healthpeak OP without our consent;
•transfer restrictions on common units;
•our ability, as managing member, in some cases, to amend the operating agreement and to cause Healthpeak OP to issue additional membership interests with terms that could delay, defer, or prevent a merger or other change of control of us or Healthpeak OP without the consent of our stockholders or the members of Healthpeak OP; and
•the right of the non-managing members of Healthpeak OP to consent to certain transfers of our managing membership interest (whether by sale, disposition, statutory merger or consolidation, liquidation, or otherwise).
Our charter and bylaws, the operating agreement of Healthpeak OP, and Maryland law also contain other provisions that may delay, defer, or prevent a transaction or a change of control that might involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interest.
In addition, provisions of certain agreements with our partners may delay or make more difficult certain other transactions, including involving issuances of common units.
We are a holding company with no direct operations and, as such, we will rely on funds received from Healthpeak OP to pay liabilities, and the interests of our stockholders will be structurally subordinated to all liabilities and obligations of Healthpeak OP and its subsidiaries.
We are a holding company and conduct substantially all of our operations through Healthpeak OP. We do not have, apart from an interest in Healthpeak OP, any independent operations. As a result, we rely on distributions from Healthpeak OP to continue to pay any dividends we might declare on shares of our common stock. We also rely on distributions from Healthpeak OP to meet any of our obligations, including any tax liability on taxable income allocated to us from Healthpeak OP. In addition, because we are a holding company, stockholder claims will be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of Healthpeak OP and its subsidiaries. Therefore, in the event of our bankruptcy, liquidation, or reorganization, our assets and those of Healthpeak OP and its subsidiaries will be available to satisfy the claims of our stockholders only after all of our and Healthpeak OP’s and its subsidiaries’ liabilities and obligations have been paid in full.
Risks Relating to the Mergers
An adverse outcome in any litigation resolution or disputesother legal proceedings relating to the Merger Agreement, or the transactions contemplated thereby, could have a material adverse impact on our business and our ability to consummate the transactions contemplated by the Merger Agreement.
On October 29, 2023, the Company and Physicians Realty Trust entered into the Merger Agreement with DOC DR Holdco, LLC (formerly known as Alpine Sub, LLC), a Maryland limited liability company and a wholly owned subsidiary of the Company (“DOC DR Holdco”), DOC DR, LLC (formerly known as Alpine OP Sub, LLC), a Maryland limited liability company and a wholly owned subsidiary of Healthpeak OP (“DOC DR OP Sub”), and Physicians Realty L.P. (the “Physicians Partnership”). The Merger Agreement provides for (a) the merger of Physicians Realty Trust with and into DOC DR Holdco (the “Company Merger”), with DOC DR Holdco surviving as a wholly owned subsidiary of the Company (the “Company Surviving Entity”); (b) immediately following the effectiveness of the Company Merger, the contribution by the Company to Healthpeak OP, a Maryland limited liability company, of all of the outstanding equity interests in the Company Surviving Entity (the “Contribution”); and (c) immediately following the Contribution, the merger of the Physicians Partnership with and into DOC DR OP Sub (the “Partnership Merger”), with DOC DR OP Sub surviving as a wholly owned subsidiary of Healthpeak OP (the “Partnership Surviving Entity”).
Transactions like the Mergers are frequently the subject of litigation or other legal proceedings, including actions alleging that either our Board of Directors or Physicians Realty Trust’s board of trustees, as applicable, breached its respective duties to its stockholders or shareholders, respectively, or other equity holders by entering into the Merger Agreement; by failing to obtain a greater value in the transaction for the Company’s stockholders or Physicians Realty Trust’s shareholders or other equity holders; by failing to make adequate disclosures; or by otherwise failing to fulfill their fiduciary duties or statutory obligations. As discussed in Note 11 to the Consolidated Financial Statements, three purported stockholders of the Company and four purported shareholders of Physicians Realty Trust have filed (and additional shareholders or stockholders, as applicable, of Physicians Realty Trust and/or the Company may file) complaints relating to the Mergers, and Physicians Realty Trust has received correspondence from multiple purported shareholders of Physicians Realty Trust relating to the Mergers. With respect to such litigation, and if additional litigation or other legal proceedings are brought against us or against our Board of Directors in connection with the Merger Agreement, or the transactions contemplated thereby, we will defend against it, but we might not be successful in doing so. An adverse outcome in such matters, as well as the costs, time, and effort of a defense, even if successful, could have a material adverse effect on our financial condition.
From timeability to time, we are involved in legal proceedings, lawsuits and other claims. We may also be named as defendants in lawsuits arising out of our alleged actionsconsummate the Mergers or the alleged actions of our tenants and operators for which such tenants and operators have agreed to indemnify us. Furthermore, we anticipate a material increase in legal proceedings, lawsuits and other claims related to the COVID-19 pandemic. Unfavorable resolution of any such litigation may have a material adverse effect on our business, results of operations, andor financial condition. Regardlessposition, including through the delay of the outcome, litigationMergers with consequent direct and indirect costs, the possible diversion of either company’s resources, or other legal proceedingsthe distraction of key personnel.
The Exchange Ratio is fixed and will not be adjusted in the event of any change in the stock or share prices, respectively, of either us or Physicians Realty Trust.
As a result of the Mergers, and through a series of transactions, (i) each outstanding common share of Physicians Realty Trust (other than Physicians Realty Trust common shares to be canceled in accordance with the Merger Agreement) will be converted into the right to receive 0.674 shares of Company common stock (the “Merger Consideration”), without interest, plus cash in lieu of consideration for fractional shares, but subject to any withholding required under applicable tax laws, and (ii) each Partnership OP Unit (as defined in the Merger Agreement) will be converted into common units in the Partnership Surviving Entity equal to the 0.674 Exchange Ratio. The Exchange Ratio will not be adjusted for changes in the market prices of either shares of our common stock or Physicians Realty Trust’s common shares. Changes in the market price of Physicians Realty Trust common shares prior to the effective time of the Mergers will affect the market value of the Merger Consideration that Physicians Realty Trust shareholders will receive on the closing date of the Mergers. Share price changes may result from a variety of factors (many of which are beyond our or Physicians Realty Trust’s control), including the following factors:
•market reaction to the prospects of Healthpeak and its subsidiaries after the Company Merger (the “Combined Company”);
•changes in substantial costs, disruptionthe respective businesses, operations, assets, liabilities, and prospects of the Company and Physicians Realty Trust;
•changes in market assessments of the business, operations, financial position, and prospects of any of the Company, Physicians Realty Trust, or the Combined Company;
•market assessments of the likelihood that the Mergers will be completed;
•interest rates, general market and economic conditions, and other factors generally affecting the market prices of our normal businesscommon stock and Physicians Realty Trust’s common shares;
•federal, state and local legislation, governmental regulation, and legal developments in the businesses in which we and Physicians Realty Trust operate; and
•other factors beyond the control of the Company and Physicians Realty Trust, including those described or referred to in this “Risk Factors” section.
The market price of Company common stock at the closing of the Mergers may vary from its price on the date the Merger Agreement was executed, on the date of the joint proxy statement/prospectus, and on the date of our special meeting. As a result, the market value of the Merger Consideration represented by the Exchange Ratio will also vary.
If the market price of shares of Company common stock increases between the date the Merger Agreement was signed or the date of the special meeting and the closing of the Mergers, Physicians Realty Trust’s shareholders will receive shares of Company common stock that have a market value upon completion of the Company Merger that is greater than the market value of such shares calculated pursuant to the Exchange Ratio on the date the Merger Agreement was signed or on the date of the special meeting, respectively. Alternatively, if the market price of shares of Company common stock declines between the date the Merger Agreement was signed or the date of the special meeting and the closing of the Mergers, including for any of the reasons described above, Physicians Realty Trust’s shareholders will receive shares of Company common stock that have a market value upon completion of the Company Merger that is less than the market value of such shares calculated pursuant to the Exchange Ratio on the date the Merger Agreement was signed or on the date of the special meeting, respectively.
Our stockholders will be significantly diluted by the Mergers.
The Mergers will significantly dilute the ownership position of our stockholders. Upon completion of the Mergers, based on the number of shares of Company common stock and Physicians Realty Trust common shares outstanding as of December 31, 2023, it is estimated that legacy Company common stockholders will own approximately 77% of the common stock of the Combined Company, and legacy Physicians Realty Trust common shareholders will own approximately 23% of the common stock of the Combined Company. Additionally, because the Company will be issuing shares of Company common stock to certain holders of Partnership OP Unit in the Partnership Merger, each outstanding share of Company common stock after the completion of the Mergers will represent a smaller percentage of the voting power of the Company than if such shares of common stock had not been issued in the Partnership Merger. The Company may also issue additional shares of common stock or preferred stock in the future, which would create further dilution. Consequently, our stockholders, as a general matter, will have less influence over the management and policies of the Combined Company after the effective time of the Mergers than they currently exercise over the management and policies of the Company.
Risks Relating to the Combined Company Following the Mergers
The Combined Company expects to incur substantial expenses related to the Mergers.
The Combined Company expects to incur substantial expenses in connection with completing the Mergers and integrating the operations and systems of the diversionCompany with those of management attention. WePhysicians Realty Trust. While the Company has assumed that a certain level of expenses would be incurred, there are a number of factors beyond its control that could affect the total amount or the timing of the Combined Company’s expenses relating to the completion of the Mergers and the integration of the Combined Company’s operations. Many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. As a result, the expenses associated with the Mergers could, particularly in the near term, reduce the savings that the Combined Company expects to achieve from the elimination of duplicative expenses and the realization of economies of scale and cost savings related to the integration of the operations of the Company and Physicians Realty Trust following the completion of the Mergers.
Following the Mergers, the Combined Company may be unable to prevailintegrate the operations of the Company and Physicians Realty Trust successfully and realize the anticipated synergies and other benefits of the Mergers or do so within the anticipated time frame.
The Mergers involve the combination of two companies that currently operate as independent public companies and their respective operating partnerships. The Combined Company is expected to benefit from the elimination of duplicative costs associated with supporting a public company platform and the leveraging of state-of-the-art technology and systems. However, the Combined Company will be required to devote significant management attention and resources to integrating the operations of the Company and Physicians Realty Trust. Potential difficulties the Combined Company may encounter in the integration process include the following:
•the inability to successfully combine the operations of the Company and Physicians Realty Trust, including the integration of employees, customer records and maintaining cybersecurity protections, in a manner that permits the Combined Company to achieve the cost savings anticipated to result from the Mergers, which would result in the anticipated benefits of the Mergers not being realized in the time frame currently anticipated or at all;
•the inability to dispose of assets or operations that the Combined Company desires to dispose of;
•the complexities associated with managing the combined businesses out of different locations and integrating personnel from the two companies;
•the failure to retain key employees of either of the two companies;
•potential unknown liabilities and unforeseen increased expenses, delays, or regulatory conditions associated with the Mergers; and
•performance shortfalls as a result of the diversion of management’s attention caused by completing the Mergers and integrating the companies’ operations.
For all these reasons, it is possible that the integration process could result in the distraction of the Combined Company’s management, the disruption of the Combined Company’s ongoing business, or inconsistencies in the Combined Company’s operations, services, standards, controls, procedures, and policies, any of which could adversely affect the ability of the Combined Company to maintain relationships with tenants, property managers, and employees or to achieve the anticipated benefits of the Mergers, or could otherwise adversely affect the business and financial results of the Combined Company.
Following the Mergers and the transactions contemplated by the Merger Agreement, the Combined Company may be unable to retain key employees.
The success of the Combined Company will depend in part upon its ability to retain key Company and Physicians Realty Trust employees. Key employees may depart either before or after the Mergers because of issues relating to the uncertainty and difficulty of integration or separation, a favorable settlementdesire not to remain with the Combined Company following the Mergers, or due to compensation arrangements that differ from Physicians Realty Trust employees’ current compensation arrangements with Physicians Realty Trust. Accordingly, no assurance can be given that the Company, Physicians Realty Trust or, following the Mergers and the transactions contemplated by the Merger Agreement, the Combined Company will be able to retain key employees to the same extent as in the past.
The Mergers will result in changes to the board of directors of the Combined Company that may affect the strategy of the Combined Company as compared to that of the Company and Physicians Realty Trust individually.
Following the Mergers, the composition of the board of directors of the Combined Company will change from the current boards of the Company and Physicians Realty Trust individually. Pursuant to the Merger Agreement, at the date and time the Company Merger becomes effective (the “Company Merger Effective Time”), John T. Thomas, Physicians Realty Trust’s President and Chief Executive Officer, will be appointed to, and become the Vice Chair of, the Combined Company’s board of directors and will have an active role in the Combined Company’s strategy, relationships and business development. In addition, at the Company Merger Effective Time, Governor Tommy G. Thompson, Physicians Realty Trust’s Chair of the board of trustees, and Pamela J. Kessler, Ava E. Lias-Booker and Richard A. Weiss will also be appointed to the Combined Company’s board of directors. Following the consummation of the Mergers, pursuant to an amendment to our Bylaws, our Board of Directors is expected to be increased to 13 members, with Katherine M. Sandstrom continuing as the Chair of our Board of Directors and all then-current directors of our Board of Directors continuing as members. The senior management team of the Combined Company will be comprised primarily of the current senior management team of the Company.
This new composition of the board of directors, together with the management team, of the Combined Company may affect the business strategy and operating decisions of the Combined Company upon the completion of the Mergers.
The future results of the Combined Company will suffer if the Combined Company does not effectively manage its operations following the Mergers and the transactions contemplated by the Merger Agreement.
Following the Mergers, the Combined Company may continue to expand or materially alter its operations through additional acquisitions, development opportunities, dispositions, joint ventures, and other strategic or tactical transactions, some of which involve complex challenges. The future success of the Combined Company will depend, in part, upon the ability of the Combined Company to manage its expansion opportunities and operational changes, which pose substantial challenges for the Combined Company to execute in an efficient and timely manner, to successfully monitor its operations, costs, regulatory compliance and service quality, and to maintain other necessary internal controls. No assurance can be given that the Combined Company’s expansion, acquisition, disposition, or operational opportunities will be successful, or that it will realize its expected operating efficiencies, cost savings, revenue enhancements, synergies, or other benefits.
The trading price of shares of the Combined Company common stock following the Mergers may be affected by factors different from those affecting the price of shares of our common stock before the Mergers.
The results of operations of the Combined Company, as well as the trading price of the Combined Company common stock, after the Mergers may be affected by factors different from those currently affecting our results of operations or the trading prices of our common stock. These different factors include:
•a greater number of shares of the Combined Company common stock outstanding, as compared to the number of shares of our common stock currently outstanding;
•different stockholders in the Combined Company;
•the Combined Company managing a different portfolio of assets, including owning new assets and/or a different mix or concentration of assets; and
•the Combined Company’s combined debt profile and capitalization.
Accordingly, the historical trading prices and financial results of the Company and Physicians Realty Trust may not be indicative of these matters for the Combined Company after the Mergers.
Counterparties to certain significant agreements with Physicians Realty Trust may exercise contractual rights under such agreements in connection with the Mergers, including in certain cases the right to acquire properties owned by Physicians Realty Trust.
Physicians Realty Trust is party to certain agreements that give the counterparty certain rights following a change of control or similar event, including in some cases the right to terminate the agreement. Under some such agreements, the Mergers may constitute a change of control or cause certain other triggering events and therefore the counterparty may exercise certain rights under its agreement with Physicians Realty Trust upon the closing of the Mergers, which may include termination rights, consent or notice obligations, fees or penalties, pre-payment obligations, and/or rights of first refusal, or similar arrangements pursuant to debt arrangements, leases, management and servicing contracts, and other arrangements. Specifically, Physicians Realty Trust is party to certain ground leases with certain hospitals, health systems or other ground lessors, whereby such hospitals, health systems or other ground lessors could exercise purchase rights and rights of first offer and first refusal with respect to sales of the property subject to such ground leases. Any such counterparty may request modifications of its agreement as a condition to granting a waiver or consent under its agreement, it may exercise or seek to exercise its rights triggered by such event, including to terminate or seek to terminate its agreement with Physicians Realty Trust as a result of such change of control (if permitted to do so by the applicable agreement). There is no assurance that such counterparties will grant their consent to the Mergers under such agreements, that such counterparties will elect not to exercise their rights under such agreements, including termination rights where available, that the exercise of any pending or future legal action against us.
The loss or limited availability of our key personnel could disrupt our operations and havesuch rights will not result in a material adverse effect, or that any modifications of such agreements will not result in a material adverse effect.
The Combined Company’s anticipated level of indebtedness will increase upon completion of the Mergers and may increase the related risks Healthpeak currently faces.
Upon completion of the Mergers, the Combined Company intends to assume and/or refinance certain indebtedness of Physicians Realty Trust and the Physicians Partnership and, assuming that occurs, the Combined Company’s consolidated indebtedness will increase substantially and it will be subject to increased risks associated with debt financing, including an increased risk that the Combined Company’s cash flow could be insufficient to meet required payments on its debt securities or other indebtedness or to pay dividends on its common stock or any preferred stock it may issue.
The Combined Company’s increased indebtedness could have important consequences to holders of its common stock and its debt securities including:
•increasing the Combined Company’s vulnerability to general adverse economic and industry conditions;
•limiting the Combined Company’s ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements;
•requiring the use of a substantial portion of the Combined Company’s cash flow from operations for the payment of principal and interest on its indebtedness, thereby reducing its ability to use its cash flow to fund working capital, acquisitions, capital expenditures, and general corporate requirements;
•limiting the Combined Company’s flexibility in planning for, or reacting to, changes in its business and its industry; and
•putting the Combined Company at a disadvantage compared to its competitors with less indebtedness.
If the Combined Company defaults under a debt instrument, it will be in default under any other debt instrument that has cross-default provisions, the holders of all such indebtedness may be entitled to demand its immediate repayment and, in the case of secured indebtedness, the Combined Company may lose any property securing that indebtedness.
Risks Relating to the Status of Physicians Realty Trust as a REIT
We may incur adverse tax consequences if Physicians Realty Trust has failed to qualify as a REIT for U.S. federal income tax purposes.
The closing of the Mergers is conditioned on the receipt by the Company of an opinion of Physicians Realty Trust’s counsel to the effect that, commencing with Physicians Realty Trust’s taxable year ended December 31, 2015 and through the Company Merger Effective Time, Physicians Realty Trust has been organized and has operated in conformity with the requirements for qualification and taxation as a REIT under the Code. The foregoing REIT opinion, however, is limited to the factual representations provided by Physicians Realty Trust to its counsel and the assumptions set forth therein, and is not a guarantee that Physicians Realty Trust has, in fact, qualified as a REIT. Moreover, such opinion is not binding on the IRS, and neither the Company nor Physicians Realty Trust has requested or plans to request a ruling from the IRS that Physicians Realty Trust qualifies as a REIT. Qualification as a REIT involves the application of highly technical and complex Code provisions for which there are only limited judicial and administrative interpretations. The complexity of these provisions and of the applicable regulations (as in effect from time to time) of the U.S. Department of the Treasury under the Code is greater in the case of a REIT, like Physicians Realty Trust, that holds assets through a partnership.
If Physicians Realty Trust is determined to have lost its REIT status for a taxable year ending on or before the Company Merger, Physicians Realty Trust would be subject to adverse tax consequences similar to those described above in “Risks Related to Tax, Including REIT-Related Risks, and Related to Our Jurisdiction of Incorporation and Our Structure as an UPREIT—Loss of our business, results of operations, financial condition,tax status as a REIT would substantially reduce our available funds and would have materially adverse consequences for us and the value of our common stock” with respect to the failure of the Company to maintain its REIT status. This could substantially reduce the Combined Company’s cash available for distribution, including cash available to pay dividends to its stockholders, because, assuming that the Combined Company otherwise maintains its REIT qualification:
•the Combined Company generally would be subject to corporate level federal income tax with respect to the built-in gain on each asset of Physicians Realty Trust existing at the time of the Company Merger if the Combined Company were to dispose of Physicians Realty Trust assets during the five-year period following the Company Merger, and may also be subject to corporate level state income tax on such built-in gains if the assets are disposed of during the applicable period prescribed by state law;
•the Combined Company would succeed to any earnings and profits accumulated by Physicians Realty Trust for taxable periods that it did not qualify as a REIT, and the Combined Company would have to pay a special dividend and/or employ applicable deficiency dividend procedures (including interest payments to the IRS) to eliminate such earnings and profits (or if the Combined Company does not timely distribute those earnings and profits, the Combined Company could fail to qualify as a REIT); and
•if Physicians Realty Trust incurred any unpaid tax liabilities prior to the Company Merger, those tax liabilities would be transferred to the Combined Company as a result of the Company Merger.
If there is an adjustment to Physicians Realty Trust’s taxable income or dividends paid deductions, the Combined Company could elect to use the deficiency dividend procedure in order to maintain Physicians Realty Trust’s REIT status. That deficiency dividend procedure could require the Combined Company to make significant distributions to its stockholders and to pay significant interest to the IRS.
As a result of all these factors, Physicians Realty Trust’s failure to qualify as a REIT could impair the Combined Company’s ability to expand its business and raise capital, and would materially adversely affect the value of its capital stock.
We dependRisks Relating to an Investment in the Combined Company’s Common Stock following the Mergers and the Transactions Contemplated by the Merger Agreement
The market price of shares of the Combined Company common stock may decline as a result of the Mergers and the transactions contemplated by the Merger Agreement.
The market price of shares of the Combined Company common stock may decline as a result of the Mergers and the transactions contemplated by the Merger Agreement if, among other things, the Combined Company does not achieve the perceived benefits of the Mergers as rapidly or to the extent anticipated by financial or industry analysts, or the effect of the Mergers on the efforts of our executive officers for the success of our business. Although they are covered by our Executive Severance Plan and Change in Control Plan, which provide many of the benefits typically found in executive employment agreements, none of our executive officers have employment agreements with us. Any outbreak of COVID-19 or other epidemic among our executive management, senior leaders or other personnel could inhibit our ability to conduct our business, as well as our ability to recruit, attract and retain skilled employees. The loss or limited availability of the services of any of our executive officers, or our inability to recruit and retain qualified personnel, could, at least temporarily, have a material adverse effect on our business,Combined Company’s results of operations andor financial condition is not consistent with the expectations of financial or industry analysts or stockholders more generally.
In addition, upon consummation of the Mergers and the valuetransactions contemplated by the Merger Agreement, Company stockholders and Physicians Realty Trust shareholders will own interests in the Combined Company, which will operate an expanded business with a different mix of ourproperties, risks and liabilities. Current stockholders of the Company and shareholders of Physicians Realty Trust may not wish to continue to invest in the Combined Company, or may wish to dispose of some or all of their shares of the Combined Company common stock. If, following the Company Merger Effective Time or while the Mergers are pending, large amounts of the Combined Company common stock or Company common stock, as applicable, are sold, the market price of the Combined Company common stock or Company common stock, as applicable, could decline, perhaps substantially.
ITEM 1B. Unresolved Staff Comments
None.
ITEM 1C. Cybersecurity
Cybersecurity Risk Management and Strategy
In our business operations, we use information technology, enterprise applications, communications tools, cloud network solutions, and related systems to manage our operations, including to manage our building systems, tenant and vendor relationships, accounting and recordkeeping, and communications, among other aspects of our business.
We have developed and implemented a cybersecurity risk management program intended to protect our properties, confidential and proprietary data, and information technology and systems, from cybersecurity threats, including unauthorized access or attack. We leverage the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework as a guide to help us identify, assess, and manage cybersecurity risks relevant to the business. This does not imply that we meet any particular technical standards, specifications, or requirements.
Our processes for assessing, identifying, and managing risks from cybersecurity threats, including operational risks, financial reporting risks, reputational risks, personal data theft, fraud, and other potential risks, are integrated into our overall enterprise risk management process, and share common methodologies, reporting channels, and governance processes that apply across the enterprise risk management process to other legal, compliance, strategic, operational, and financial risk areas.
Our cybersecurity risk management program includes the following:
•a multidisciplinary team comprised of personnel from information technology (“IT”), internal audit, accounting, and legal, as well as third-party cybersecurity experts principally responsible for directing (i) our cybersecurity risk assessment processes, (ii) our security processes, and (iii) our response to cybersecurity incidents;
•risk assessments designed to help identify material cybersecurity risks to our critical systems, information, services, and our broader enterprise IT environment;
•internal and third-party security tools to monitor our systems, identify cybersecurity risks, and test our IT environment;
•the use of third-party cybersecurity experts, where appropriate, to assess, test or otherwise assist with aspects of our security processes;
•a cybersecurity incident response plan and business continuity plan;
•cybersecurity training for employees and key business partners with access to our systems;
•a third-party cybersecurity risk management process for service providers and vendors who access our systems;
•requiring employees, as well as third parties who have access to our systems, to treat confidential and private information and data with care, including performing controls relating to such data; and
•cybersecurity risk insurance.
We also seek to engage reputable service providers that maintain cybersecurity programs or controls.
We have not identified risks from known cybersecurity threats within the prior fiscal year, including as a result of any prior cybersecurity incident, that have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition. Please refer to “Item 1A, Risk Factors” in this report for additional information about certain ongoing risks related to our information technology that, if realized, are reasonably likely to materially affect us, including our operations, business strategy, results of operations, or financial condition.
Cybersecurity Governance
Cybersecurity is an important part of our overall risk management processes and an area of focus for our Board of Directors and management.
The Board, in coordination with the Audit Committee, oversees the Company’s enterprise risk management process, including the management of material risks arising from cybersecurity threats. The Audit Committee regularly receives updates from management and third-party cybersecurity experts about major cybersecurity risks, their potential impact on our business operations, and management’s processes to identify, monitor, and mitigate such risks, including, as relevant, the results of assessments or audits of our processes. The Audit Committee periodically provides updates on these matters to the Board of Directors.
Our enterprise risk team consists of cross-functional professionals who collaborate with subject matter specialists, as necessary, including an independent third-party expert we have retained to functionally serve as a virtual chief information security officer (“CISO”), to identify and assess material risks from cybersecurity threats, their severity, and potential mitigation steps. The CISO is primarily responsible for leading our cybersecurity risk assessment and management processes. This expert has experience having served as the chief information security officer for an international commercial real estate services company and currently serves as chief executive officer of a cybersecurity firm focused on commercial real estate. He is supported by an internal cross-functional management team of IT and internal audit personnel who regularly review and assess cybersecurity initiatives, including our incident response plan, as well as cybersecurity compliance, training and risk management efforts.
ITEM 2. Properties
We are organizedOur strategy is to invest in income-producing healthcare-related facilities.and manage real estate focused on healthcare discovery and delivery. In evaluating potential investments, we consider a multitude of factors, including:
•location, construction quality, age, condition, and design of the property;
•geographic area, proximity to other healthcare facilities, type of property, and demographic profile, including new competitive supply;
•whether the expected risk-adjusted return exceeds the incremental cost of capital;
•whether the rent or operating income provides a competitive market return to our investors;
•duration, rental rates, tenant and operator quality, and other attributes of in-place leases, including master lease structures and coverage;
•current and anticipated cash flow and its adequacy to meet our operational needs;
•availability of security such as letters of credit, security deposits, and guarantees;
•potential for capital appreciation;
•expertise and reputation of the tenant or operator;
•occupancy and demand for similar healthcare facilities in the same or nearby communities;
•availability of qualified operators or property managers and whether we can manage the property;
•potential for environmentally sustainable and/or resilient features of the property;
•potential alternative uses of the facilities;
•the regulatory and reimbursement environment in which the properties operate;
•tax laws related to REITs;
•prospects for liquidity through financing or refinancing; and
•our access to and cost of capital.
Property and Direct Financing Lease Investments
The following table summarizes our consolidated property and direct financing lease ("DFL") investments excluding investments classified as discontinued operations, as of and for the year ended December 31, 20202023 (square feet and dollars in thousands):
| Facility Location | Facility Location | | Number of Facilities | | Capacity | | Gross Asset Value(1) | | Real Estate Revenues(2) | | Operating Expenses | Facility Location | | Number of Facilities | | Capacity(1) | | Gross Asset Value(2) | | Real Estate Revenues(3) | | Operating Expenses(4) |
Life science: | | | | (Sq. Ft.) | | | | | | |
Lab: | |
California | |
California | |
California | California | | 118 | | | 7,536 | | | $ | 4,840,637 | | | $ | 454,506 | | | $ | (106,100) | |
Massachusetts | Massachusetts | | 14 | | | 1,960 | | | 1,986,911 | | | 95,104 | | | (26,901) | |
Other (2 States) | | 7 | | | 476 | | | 136,120 | | | 19,686 | | | (5,004) | |
Total life science | | 139 | | | 9,972 | | | $ | 6,963,668 | | | $ | 569,296 | | | $ | (138,005) | |
Medical office(3): | | | | (Sq. Ft.) | | | | | | |
Other (1 State) | |
Total lab | |
Outpatient medical: | |
Texas | Texas | | 71 | | | 7,596 | | | $ | 1,353,419 | | | $ | 189,120 | | | $ | (64,811) | |
Texas | |
Texas | |
Pennsylvania | |
Colorado | |
California | California | | 16 | | | 1,174 | | | 309,778 | | | 52,809 | | | (13,623) | |
Pennsylvania | | 4 | | | 1,278 | | | 354,889 | | | 31,396 | | | (14,064) | |
South Carolina | South Carolina | | 18 | | | 1,103 | | | 339,265 | | | 25,990 | | | (5,315) | |
Colorado | | 18 | | | 1,315 | | | 288,488 | | | 41,179 | | | (15,377) | |
Florida | Florida | | 25 | | | 1,398 | | | 275,240 | | | 35,231 | | | (12,419) | |
Other (27 States) | | 126 | | | 8,769 | | | 1,850,004 | | | 246,673 | | | (78,399) | |
Total medical office | | 278 | | | 22,633 | | | $ | 4,771,083 | | | $ | 622,398 | | | $ | (204,008) | |
Other (29 States) | |
Total outpatient medical | |
CCRC: | CCRC: | | | | (Units) | | | | | | |
Florida | |
Florida | |
Florida | Florida | | 9 | | | 5,135 | | | $ | 1,261,321 | | | $ | 291,397 | | | $ | (301,849) | |
Other (5 States) | Other (5 States) | | 6 | | | 2,302 | | | 577,527 | | | 161,295 | | | (138,679) | |
| Total CCRC | Total CCRC | | 15 | | | 7,437 | | | $ | 1,838,848 | | | $ | 452,692 | | | $ | (440,528) | |
Other─non-reportable(4): | | | | | | | | | | |
Arizona | | — | | — | | $ | — | | | $ | 134 | | | $ | — | |
Total other non-reportable segments | | — | | | — | | | $ | — | | | $ | 134 | | | $ | — | |
| Total properties in continuing operations | | 432 | | | $ | 13,573,599 | | | $ | 1,644,520 | | | $ | (782,541) | |
| Total CCRC | |
| Total CCRC | |
| Total properties | |
| Total properties | |
| Total properties | |
(1)Excludes capacity associated with developments.
(2)Represents gross real estate and the carrying value of DFLs. Gross real estate representswhich includes the carrying amount of real estate after adding back accumulated depreciation and amortization. Excludes gross real estate of $123 million related to two lab buildings and one outpatient medical office assetsbuilding classified as held for sale of $133 million.sale.
(2)(3)Represents the combined amount of rental and related revenues, resident fees and services, income from DFLs, and government grant income.
(3)Includes one leased property that is classified as a DFL.
(4)Represents real estate revenues generated from a real estate asset that was sold in July 2020.Excludes operating expenses related to corporate non-segment assets (see Note 15 to the Consolidated Financial Statements).
The following table summarizes our consolidated property investments classified as discontinued operations as of and for the year ended December 31, 2020 (square feet and dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Facility Location | | Number of Facilities | | Capacity | | Gross Asset Value(1) | | Real Estate Revenues(2) | | Operating Expenses |
Senior housing triple-net—real estate: | | | | (Units) | | | | | | |
Florida | | 8 | | | 1,063 | | | $ | 172,890 | | | $ | 21,289 | | | $ | — | |
Texas | | 6 | | | 767 | | | 142,693 | | | 13,890 | | | — | |
New York | | 2 | | | 201 | | | 76,333 | | | 2,513 | | | — | |
Oregon | | 6 | | | 447 | | | 73,839 | | | 7,068 | | | (157) | |
Washington | | 4 | | | 274 | | | 42,874 | | | 11,882 | | | (4) | |
Other (10 States) | | 15 | | | 1,218 | | | 131,519 | | | 42,448 | | | (1,746) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Total senior housing triple-net | | 41 | | | 3,970 | | | $ | 640,148 | | | $ | 99,090 | | | $ | (1,907) | |
SHOP: | | | | (Units) | | | | | | |
California | | 15 | | | 1,391 | | | $ | 658,523 | | | $ | 128,620 | | | $ | (100,201) | |
Florida | | 15 | | | 1,996 | | | 392,379 | | | 117,569 | | | (110,790) | |
Virginia | | 9 | | | 865 | | | 206,958 | | | 41,985 | | | (35,889) | |
Texas | | 15 | | | 1,685 | | | 199,018 | | | 53,126 | | | (41,036) | |
New Jersey | | 5 | | | 562 | | | 182,408 | | | 58,896 | | | (49,551) | |
Maryland | | 9 | | | 846 | | | 166,213 | | | 49,079 | | | (44,745) | |
Other (14 States) | | 29 | | | 2,896 | | | 484,919 | | | 186,141 | | | (166,107) | |
Total SHOP | | 97 | | | 10,241 | | | $ | 2,290,418 | | | $ | 635,416 | | | $ | (548,319) | |
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Total properties in discontinued operations | | 138 | | | | | $ | 2,930,566 | | | $ | 734,506 | | | $ | (550,226) | |
(1)Represents gross real estate and the carrying value of DFLs. Gross real estate represents the carrying amount of real estate after adding back accumulated depreciation and amortization.
(2)Represents the combined amount of rental and related revenues, resident fees and services, income from DFLs, and government grant income.
Occupancy and Annual Rent Trends
The following table summarizes occupancy and average annual rent trends for our consolidated property and DFL investments held under a direct financing lease (“DFL”) for the years ended December 31 (average occupied square feet in thousands):
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| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| | | | | | | | | |
Continuing operations: | | | | | | | | | |
Life science: | | | | | | | | | |
Average occupancy percentage | 96 | % | | 97 | % | | 95 | % | | 96 | % | | 98 | % |
Average annual rent per square foot(1) | $ | 63 | | | $ | 57 | | | $ | 54 | | | $ | 52 | | | $ | 48 | |
Average occupied square feet | 8,714 | | | 7,288 | | | 7,078 | | | 6,841 | | | 7,332 | |
Medical office: | | | | | | | | | |
Average occupancy percentage | 91 | % | | 93 | % | | 93 | % | | 92 | % | | 93 | % |
Average annual rent per square foot(1) | $ | 30 | | | $ | 30 | | | $ | 29 | | | $ | 29 | | | $ | 28 | |
Average occupied square feet | 20,225 | | | 20,512 | | | 20,102 | | | 19,431 | | | 18,729 | |
CCRC: | | | | | | | | | |
Average occupancy percentage | 81 | % | | 87 | % | | — | % | | — | % | | — | % |
Average annual rent per unit(1) | $ | 65,672 | | | $ | 62,856 | | | $ | — | | | $ | — | | | $ | — | |
Average capacity (available units) | 6,893 | | | 40 | | | — | | | — | | | — | |
Other non-reportable segments: | | | | | | | | | |
Average annual rent per unit (1) | $ | — | | | $ | 39,517 | | | $ | 44,091 | | | $ | 45,961 | | | $ | 40,757 | |
Average capacity (available units) | — | | | 4,178 | | | 4,304 | | | 4,308 | | | 4,316 | |
Average annual rent per unit - U.K.(1) | — | | | — | | | — | | | 9,097 | | | 9,200 | |
Average capacity (available units) - U.K. | — | | | — | | | — | | | 3,188 | | | 3,190 | |
Average annual rent per bed - SNF(1) | — | | | — | | | 10,504 | | | 10,298 | | | 10,803 | |
Average capacity (available beds) - SNF | — | | | — | | | 120 | | | 120 | | | 426 | |
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Discontinued operations: | | | | | | | | | |
Senior housing triple-net: | | | | | | | | | |
Average annual rent per unit(1) | $ | 17,042 | | | $ | 17,198 | | | $ | 16,187 | | | $ | 15,097 | | | $ | 14,467 | |
Average capacity (available units) | 5,910 | | | 10,551 | | | 15,859 | | | 20,481 | | | 27,089 | |
SHOP: | | | | | | | | | |
Average occupancy percentage | 75 | % | | 80 | % | | 80 | % | | 84 | % | | 86 | % |
Average annual rent per unit(1) | $ | 53,255 | | | $ | 50,196 | | | $ | 40,786 | | | $ | 40,070 | | | $ | 43,533 | |
Average capacity (available units) | 11,940 | | | 11,635 | | | 9,823 | | | 9,505 | | | 13,079 | |
| | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | 2021 | | | | |
| | | | | | | | | |
| | | | | | | | | |
Lab: | | | | | | | | | |
Average occupancy percentage | 98 | % | | 98 | % | | 97 | % | | | | |
Average annual rent per square foot(1) | $ | 82 | | | $ | 71 | | | $ | 66 | | | | | |
Average occupied square feet | 10,334 | | | 10,610 | | | 10,143 | | | | | |
Outpatient medical(2): | | | | | | | | | |
Average occupancy percentage | 90 | % | | 90 | % | | 90 | % | | | | |
Average annual rent per square foot(1) | $ | 35 | | | $ | 33 | | | $ | 31 | | | | | |
Average occupied square feet | 21,337 | | | 21,472 | | | 21,046 | | | | | |
CCRC: | | | | | | | | | |
Average occupancy percentage | 84 | % | | 82 | % | | 79 | % | | | | |
Average annual rent per occupied unit(3) | $ | 88,524 | | | $ | 84,664 | | | $ | 80,391 | | | | | |
Average occupied units | 5,960 | | | 5,926 | | | 5,881 | | | | | |
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(1)Average annual rent is presentedPresented as a ratio of the sumrevenues comprised of rental and related revenues resident fees and services, income from DFLs and government grant income divided by the average capacity or average occupied square feet ofand annualized for acquisitions for the facilities.year in which they occurred. Average annual rent for leased properties (including DFLs) excludes termination fees and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and DFL non-cash interest,interest).
(2)During the first quarter of 2022, we sold our remaining hospital under a DFL.
(3)Presented as a ratio of revenues comprised of resident fees and services and government grant income divided by average occupied units of the facilities. Average annual rent excludes termination fees and non-cash revenue adjustments (i.e., the impact of deferred community fee income).
Tenant Lease Expirations
The following table shows tenant lease expirations including those related to DFLs, for the next 10 years and thereafter at our consolidated properties, assuming that none of the tenants exercise any of their renewal or purchase options, unless otherwise noted below, and excludes properties in our CCRC segment and assets held for sale and discontinued operations as of and for the year ended December 31, 20202023 (dollars and square feet in thousands):
| | | Expiration Year | | | | Expiration Year |
Segment | | Segment | | Total | | 2024(1) | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | 2030 | | 2031 | | 2032 | | 2033 | | Thereafter |
| | Expiration Year |
Segment | | Total | | 2021(1) | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | 2030 | | Thereafter |
Continuing operations: | | | | | | | | | | | | | | | | | | | | | | | | |
Life science: | |
Lab: | |
Lab: | |
Lab: | |
Square feet | |
Square feet | |
Square feet | Square feet | | 9,600 | | | 468 | | | 762 | | | 780 | | | 436 | | | 1,321 | | | 612 | | | 1,081 | | | 502 | | | 1,287 | | | 1,260 | | | 1,091 | |
Base rent(2) | Base rent(2) | | $ | 475,353 | | | $ | 27,302 | | | $ | 33,405 | | | $ | 47,999 | | | $ | 27,360 | | | $ | 57,615 | | | $ | 26,818 | | | $ | 51,569 | | | $ | 24,513 | | | $ | 68,160 | | | $ | 76,576 | | | $ | 34,036 | |
% of segment base rent | % of segment base rent | | 100 | | | 6 | | | 7 | | | 10 | | | 6 | | | 12 | | | 6 | | | 11 | | | 5 | | | 14 | | | 16 | | | 7 | |
Medical office: | |
Outpatient medical: | |
Square feet | |
Square feet | |
Square feet | Square feet | | 20,025 | | | 2,834 | | | 2,661 | | | 1,920 | | | 2,147 | | | 4,327 | | | 821 | | | 762 | | | 1,672 | | | 628 | | | 1,012 | | | 1,241 | |
Base rent(2) | Base rent(2) | | $ | 492,508 | | | $ | 77,019 | | | $ | 72,599 | | | $ | 51,712 | | | $ | 59,524 | | | $ | 86,889 | | | $ | 20,008 | | | $ | 19,388 | | | $ | 36,532 | | | $ | 15,378 | | | $ | 24,118 | | | $ | 29,341 | |
% of segment base rent | % of segment base rent | | 100 | | | 16 | | | 15 | | | 10 | | | 12 | | | 18 | | | 4 | | | 4 | | | 7 | | | 3 | | | 5 | | | 6 | |
Total: | Total: | |
Base rent(2) | Base rent(2) | | $ | 967,861 | | | $ | 104,321 | | | $ | 106,004 | | | $ | 99,711 | | | $ | 86,884 | | | $ | 144,504 | | | $ | 46,826 | | | $ | 70,957 | | | $ | 61,045 | | | $ | 83,538 | | | $ | 100,694 | | | $ | 63,377 | |
Base rent(2) | |
Base rent(2) | |
% of total base rent | % of total base rent | | 100 | | 11 | | | 11 | | | 10 | | | 9 | | | 15 | | | 5 | | | 7 | | | 6 | | | 9 | | | 10 | | | 7 | |
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(1)Includes month-to-month leases.
(2)The most recent month’s (or subsequent month’s, if acquired in the most recent month) base rent, including additional rent floors, and cash income from DFLs, annualized for 12 months. 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).
See the “Tenant Purchase Options” section
ITEM 3. Legal Proceedings
See the “Legal Proceedings” section of Note 1211 to the Consolidated Financial Statements for information regarding legal proceedings, which information is incorporated by reference in this Item 3.
ITEM 4. Mine Safety Disclosures
None.
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the New York Stock Exchange under the symbol “PEAK.”
At January 29, 2021,As of February 5, 2024, we had 7,949 6,797stockholders of record, and there were 168,319283,417 beneficial holders of our common stock.
Dividends (Distributions)
It has been our policy to declare quarterly dividends to common stockholders so as to comply with applicable provisions of the Code governing REITs. All distributions are made at the discretion of our Board of Directors in accordance with Maryland law. Distributions with respect to our common stock can be characterized for federal income tax purposes as ordinary dividends, capital gains, nondividend distributions, or a combination thereof. The following table shows the characterization of our annual common stock distributions per share:
| | Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
Ordinary dividends(1) | Ordinary dividends(1) | $ | 0.7139 | | | $ | 0.7633 | | | $ | 0.9578 | |
Capital gains(2) | 0.5298 | | | 0.2714 | | | 0.5222 | |
Capital gains(2)(3) | |
Nondividend distributions | Nondividend distributions | 0.2363 | | | 0.4453 | | | — | |
| $ | 1.4800 | | | $ | 1.4800 | | | $ | 1.4800 | |
| $ | |
______________________________________(1)For the year ended December 31, 20202023,the amount includes $0.882312 of ordinary dividends qualified as business income for purposes of Code Section 199A and $0.027380 of qualified dividend income for purposes of Code Section 1(h)(11). For the year ended December 31, 2022, all $0.7139$0.872948 of ordinary dividends qualified as business income for purposes of Code Section 199A. For the year ended December 31, 2019 all $0.76332021, the amount includes $0.137064 of ordinary dividends qualified as business income for purposes of Code Section 199A. For the year ended December 31, 2018 the amount includes $0.9414 of qualified business income for purposes of Code Section 199A and $0.0164$0.015272 of qualified dividend income for purposes of Code Section 1(h)(11).
(2)For the years ended December 31, 2023, 2022, and 2021, the amount includes $0.036256, $0.017760, and $0.379960, respectively, of unrecaptured Code Section 1250 gain. Pursuant to Treasury Regulation §1.1061-6(c)Section 1.1061-6(c), we are disclosing additional information related to the capital gain dividends for purposes of Section 1061 of the Internal RevenueCode. Code (IRC). IRC Section 1061 is generally applicable to direct and indirect holders of “applicable partnership interests.” TheFor the year ended December 31, 2023, the “One Year Amounts” and “Three Year Amounts” required to be disclosed are botheach zero, with respect to the 2020 distributions, since all capital gains relate to IRCCode Section 1231 gains. For the year ended December 31, 2022, the “One Year Amounts” and “Three Year Amounts” are each 89.6708% of the total capital gain distributions and the remaining capital gain distributions are attributable to Code Section 1231 gains, which are not subject to Code Section 1061. For the year ended December 31, 2021, the “One Year Amounts” and “Three Year Amounts” are each zero, since all capital gains relate to Code Section 1231 gains.
(3)For the years ended December 31, 2023, 2022, and 2021, 100%, 10.3292%, and 100%, respectively, of the capital gain distributions represent gains from dispositions of U.S. real property interests pursuant to Code Section 897 for foreign shareholders.
On February 9, 2021,January 31, 2024, we announced that our Board of Directors declared a quarterly common stock cash dividend of $0.30 per share. The common stock dividend will be paid on March 5, 2021February 26, 2024 to stockholders of record as of the close of business on February 22, 2021.14, 2024.
Issuer Purchases of Equity Securities
The following table below sets forth the information with respect to purchases of our common stock made by or on our behalf during the quarterthree months ended December 31, 2020.2023.
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Period Covered | | Total Number of Shares Purchased(1) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs |
October 1-31, 2020 | | 5,267 | | | $ | 28.50 | | | — | | | — | |
November 1-30, 2020 | | 3,535 | | | 28.52 | | | — | | | — | |
December 1-31, 2020 | | 179 | | | 28.86 | | | — | | | — | |
Total | | 8,981 | | | $ | 28.52 | | | — | | | — | |
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Period Covered | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs(1) |
October 1-31, 2023 | | — | | | $ | — | | | — | | | $ | 444,018,701 | |
November 1-30, 2023 | | — | | | — | | | — | | | 444,018,701 | |
December 1-31, 2023 | | — | | | — | | | — | | | 444,018,701 | |
| | — | | | $ | — | | | — | | | $ | 444,018,701 | |
(1)Represents restrictedOn August 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 in August 2024 and may be suspended or terminated at any time without prior notice. During the year ended December 31, 2022, we repurchased 2.1 million shares of our common stock at a weighted average price of $27.16 per share. During the year ended December 31, 2023, there were no repurchases; therefore, at December 31, 2023, $444 millionof our common stock remained available for repurchase under the Share Repurchase Program. Amounts do not include the shares of our common stock withheld under our equity incentive plans to offset tax withholding obligations that occur upon vesting of restricted shares. The value of the shares withheld is based on the closing price of our common stock on the last trading day prior to the date the relevant transaction occurred.as discussed in footnote 1.
Performance Graph
The graph and table below compare the cumulative total return of Healthpeak, the S&P 500 Index, and the Equity REIT Index of NAREIT,Nareit, from January 1, 20162019 to December 31, 2020.2023. Total cumulative return is based on a $100 investment in Healthpeak common stock and in each of the indices at the close of trading on December 31, 20152018 and assumes quarterly reinvestment of dividends before consideration of income taxes. Stockholder returns over the indicated periods should not be considered indicative of future stock prices or stockholder returns.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG S&P 500, EQUITY REITS AND HEALTHPEAK PROPERTIES, INC.
RATE OF RETURN TREND COMPARISON
JANUARY 1, 2016–2019–DECEMBER 31, 20202023
(JANUARY 1, 20162019 = $100)
Performance Graph Total Stockholder Return
| | December 31, |
| 2016 | | 2017 | | 2018 | | 2019 | | 2020 |
FTSE NAREIT Equity REIT Index | $ | 108.63 | | | $ | 118.05 | | | $ | 113.28 | | | $ | 145.75 | | | $ | 138.28 | |
| December 31, | | | December 31, |
| 2019 | | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
FTSE Nareit Equity REIT Index | |
S&P 500 | S&P 500 | 111.95 | | | 136.38 | | | 130.39 | | | 171.44 | | | 202.96 | |
Healthpeak Properties, Inc. | Healthpeak Properties, Inc. | 90.63 | | | 83.61 | | | 95.05 | | | 122.72 | | | 113.31 | |
ITEM 6. Selected Financial Data[Reserved]
Set forth below is our selected financial data as of and for each of the years in the five-year period ended December 31 (dollars in thousands, except per share data):
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| Year Ended December 31, |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
Statement of operations data: | | | | | | | | | |
Total revenues | $ | 1,644,875 | | | $ | 1,240,339 | | | $ | 1,191,320 | | | $ | 1,174,275 | | | $ | 1,160,152 | |
Income (loss) from continuing operations | 160,507 | | | 175,469 | | | 837,218 | | | (56,199) | | | 4,276 | |
Income (loss) from discontinued operations | 267,746 | | | (115,408) | | | 236,256 | | | 478,833 | | | 635,650 | |
Net income (loss) applicable to common shares | 411,147 | | | 43,987 | | | 1,058,424 | | | 413,013 | | | 626,549 | |
Basic earnings per common share: | | | | | | | | | |
Continuing operations | 0.27 | | | 0.33 | | | 1.75 | | | (0.15) | | | (0.02) | |
Discontinued operations | 0.50 | | | (0.24) | | | 0.50 | | | 1.03 | | | 1.36 | |
Net income (loss) applicable to common shares | 0.77 | | | 0.09 | | | 2.25 | | | 0.88 | | | 1.34 | |
Diluted earnings per common share: | | | | | | | | | |
Continuing operations | 0.27 | | | 0.33 | | | 1.74 | | | (0.15) | | | (0.02) | |
Discontinued operations | 0.50 | | | (0.24) | | | 0.50 | | | 1.03 | | | 1.36 | |
Net income (loss) applicable to common shares | 0.77 | | | 0.09 | | | 2.24 | | | 0.88 | | | 1.34 | |
Balance sheet data: | | | | | | | | | |
Total assets | 15,920,089 | | | 14,032,891 | | | 12,718,553 | | | 14,088,461 | | | 15,759,265 | |
Debt obligations(1) | 6,297,979 | | | 6,002,252 | | | 5,352,424 | | | 7,656,944 | | | 8,667,637 | |
Total equity | 7,344,572 | | | 6,667,474 | | | 6,512,591 | | | 5,594,938 | | | 5,941,308 | |
Other data: | | | | | | | | | |
Dividends paid | 787,072 | | | 720,123 | | | 696,913 | | | 694,955 | | | 979,542 | |
Dividends paid per common share(2) | 1.480 | | | 1.480 | | | 1.480 | | | 1.480 | | | 2.095 | |
Funds from operations (“NAREIT FFO”)(3) | 693,367 | | | 780,307 | | | 780,189 | | | 661,113 | | | 1,119,153 | |
Diluted NAREIT FFO per common share(3) | 1.30 | | | 1.59 | | | 1.66 | | | 1.41 | | | 2.39 | |
FFO as Adjusted(3) | 874,188 | | | 864,352 | | | 857,233 | | | 918,402 | | | 1,282,390 | |
Diluted FFO as Adjusted per common share(3) | 1.64 | | | 1.76 | | | 1.82 | | | 1.95 | | | 2.74 | |
Adjusted FFO (“AFFO”)(3) | 772,705 | | | 745,820 | | | 746,397 | | | 803,720 | | | 1,215,696 | |
(1)Includes bank line of credit, commercial paper, term loans, senior unsecured notes, and mortgage debt. Excludes mortgage debt on assets held for sale and discontinued operations.
(2)Represents cash dividends. Additionally, in October 2016 we issued $6.17 per common share of stock dividends related to the spin-off of Quality Care Properties, Inc.
(3)For a more detailed discussion and reconciliation of NAREIT FFO, FFO as Adjusted and AFFO, see "Results of Operations" and “Non-GAAP Financial Measure Reconciliations” in Item 7 of this report.
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information set forth in this Item 7 is intended to provide readers with an understanding of our financial condition, changes in financial condition, and results of operations. This section generally discusses the results of our operations for the year ended December 31, 2023 compared to the year ended December 31, 2022. For a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 8, 2023.
We will discuss and provide our analysis in the following order:
•COVID-19 UpdateMarket Trends and Uncertainties
•2020 Transaction OverviewCompany Highlights
•Dividends
•Results of Operations
•Liquidity and Capital Resources
•Contractual Obligations
•Off-Balance Sheet Arrangements
•Inflation
•Non-GAAP Financial MeasureMeasures Reconciliations
•Critical Accounting PoliciesEstimates
•Recent Accounting Pronouncements
COVID-19 UpdateMarket Trends and Uncertainties
Beginning in late 2019, a novel strain of Coronavirus (“COVID-19”) beganOur operating results have been and will continue to spread throughout the world, including the United States, ultimately being declared a pandemicbe impacted by global and national economic and market conditions generally and by the World Health Organization. Global health concernslocal economic conditions where our properties are located.
Rising interest rates, high inflation, supply chain disruptions, ongoing geopolitical tensions, and increased effortsvolatility in public and private equity and fixed income markets have led to reduceincreased costs and limited the spreadavailability of capital. In addition, increased interest rates have negatively affected our borrowing costs, the COVID-19 pandemicfair value of our fixed rate instruments. and real estate values generally, including our real estate.
Our tenants and operators have prompted federal, state,also experienced increased costs, liquidity constraints, and local governmentsfinancing difficulties due to restrict normal daily activities,the foregoing macroeconomic and market conditions, which could cause them to be unable or unwilling to make payments or perform their obligations when due.
We have resultedalso been affected by significant inflation in travel bans, quarantines, school closings, “shelter-in-place” orders requiring individualsconstruction costs over the past few years, which, together with rising costs of capital, have negatively affected the expected yields on our development and redevelopment projects.
We continuously monitor the effects of domestic and global events, including but not limited to remaininflation, labor shortages, supply chain matters, rising interest rates, and challenges in their homes other than to conduct essential services or activities,the financial markets, on our operations and financial position, as well as business limitationson the operations and shutdowns, which resulted in closurefinancial position of many businesses deemed to be non-essential. Although some of these restrictions have since been lifted or scaled back, certain restrictions remain in place and any future surges of COVID-19 may lead to other restrictions being re-implemented in response to efforts to reduce the spread. In addition, our tenants, operators, and borrowers, are facing significant cost increases as a resultto ensure that we remain responsive and adaptable to the dynamic changes in our operating environment.
See “Item 1A, Risk Factors” in this report for additional discussion of increased health and safety measures, including increased staffing demands for patient care and sanitation,the risks posed by macroeconomic conditions, as well as increased usagethe uncertainties we and inventory of critical medical supplies and personal protective equipment. These health and safety measures, which may remain in place for a significant amount of time or be re-imposed from time to time, continue to place a substantial strain on the business operations of many of our tenants, operators, and borrowers.
Senior Housing
Within our SHOP and CCRC properties, occupancy rates have declined since the onset of the pandemic, a trend that may continue during the pandemic and for some period thereafter as a result of a reduction in, or in some cases prohibitions on, new tenant move-ins due to stricter move-in criteria, lower inquiry volumes, and reduced in-person tours, as well as incidences of COVID-19 outbreaks at our facilities or the perception that outbreaks may occur. Outbreaks, which directly affect our residents and the employees at our senior housing facilities, have and could continue to materially and adversely disrupt operations, as well as cause significant reputational harm to us, our operators, and our tenants. As of February 8, 2021, we had current confirmed resident COVID-19 cases at 85 of our 95 senior housing properties, since the beginning of the pandemic. Our senior housing property operators are also experiencing significant cost increases as a result of higher staffing hours and compensation, the implementation of increased health and safety measures and protocols, and increased usage and inventory of critical medical supplies and personal protective equipment. At our SHOP and CCRC facilities, we bear these significant cost increases.
We and/or our operators temporarily suspended redevelopment across our senior housing portfolio due to “shelter-in-place” orders and local, state, and federal directives, except for certain life safety and essential projects. Although some of these projects have been allowed to restart with infection control protocols in place, future local, state, or federal orders could cause us to re-suspend the work. Other projects remain suspended and we do not know when we will be able to restart construction. In locations where construction continues, construction workers are following applicable guidelines, including appropriate social distancing, limitations on large group gatherings in close proximity, and increased sanitation efforts, which has slowed the pace of construction. These protective actions do not, however, eliminate the risk that outbreaks caused or spread by such activities may occur and impact our tenants, operators and residents. In addition, our planned dispositions may not occur within the expected time or at all because of buyer terminations or withdrawals related to the pandemic, capital constraints, inability to tour properties, or other factors relating to the pandemic.
The ultimate impact of the pandemic on senior housing generally and the public perception of senior housing as a desirable residential setting depend on a number of factors that are unknown at this time, including, but not limited to: (i) the course and severity of the pandemic; (ii) responses of public and private health authorities; and (iii) the timing, distribution, and health effects of vaccines and other treatments.
Medical Office Portfolio
Within our medical office portfolio, many physician practices and affiliated hospitals initially delayed or discontinued nonessential surgeries and procedures due to “shelter-in-place” orders and other health and safety measures, which negatively impacted their cash flows during part of 2020. These restrictions have now been lifted in the majority of our markets and operations are at or near pre-pandemic levels. However, we expect that planned move-outs will be delayed during the COVID-19 pandemic, which is expected to slightly increase short-term retention in this portfolio.
We implemented a deferred rent program during the second and third quarters of 2020 that was limited to certain non-health system and non-hospital tenants in good standing, which reduced our cash collections during those months, although we required that the deferred rent be repaid ratably by the end of 2020. Under this program, we agreed to defer approximately $6 million of rent through December 31, 2020, substantially all of which had been collected as of December 31, 2020. We may also implement a deferred rent program for future periods.
Life Science Portfolio
Within our life science portfolio, we have numerous tenants that are working tirelessly to address critical research and testing needs in the fight against COVID-19. We are focused on providing our tenants with the necessary space to complete their critical work and are in continuous contact with our tenants regarding how we can help them meet their needs. Through December 31, 2020, we had provided approximately $1 million of rent deferrals to our life science tenants, all of which was required to be repaid by the end of 2020. As of December 31, 2020, all of the deferred rent had been collected.
However, within our life science portfolio, we may experience a decline in leasing activity at certain points during the COVID-19 pandemic. As a result of governmental restrictions on business activities in the greater San Francisco and Boston areas, we temporarily suspended development, redevelopment, and tenant improvement projects at many of our life science properties, resulting in delayed deliveries and project completions. Though we have been able to continue or re-start these projects, we remain subject to future governmental restrictions that may again suspend these projects. Even when these projects continue, we have been experiencing losses in efficiency as a result of the implementation of health and safety protocols related to social distancing and proper hygiene and sanitization.
Liquidity
We believe that we are well positioned to manage the short-term and long-term impacts of the COVID-19 pandemic and the measures to slow its spread while working closely with our tenants, operators, and borrowers may face as they navigate the pandemic. We had approximately $2.51 billion of liquidity available, including $2.26 billion borrowing capacity under our bank line of credit facility and $259 million of cash and cash equivalents, asa result.
Company Highlights
As of February 8, 2021. While10, 2023, we are structured as an UPREIT. This structure provides prospective sellers an alternative for disposing of property that has appreciated in value in a future downgrade intax-deferred manner to Healthpeak OP and aligns our credit ratings would adversely impact our costcorporate structure with other publicly traded U.S. real estate investment trusts. Following the Reorganization, Healthpeak OP is the borrower under, and we are the guarantor of, borrowing, we believe we continue to have access toall of the unsecured debt, markets. We could also seek to enter into one or more secured debt financings, issue additional securities, including under our 2020 ATM Program (aswhich includes the Revolving Facility, Term Loan Facilities (each as defined below), or disposecommercial paper program, and senior unsecured notes. Our guarantee of certain additional assetsthe senior unsecured notes is full and unconditional and applicable to fundexisting and future operating costs, capital expenditures, or acquisitions, although no assurances can be made in this regard.
Future Rent Collections
senior unsecured notes. The impact of COVID-19 on the ability of our tenants to pay rent in the future is currently unknown. We have, and will continue to monitor the credit quality of each of our tenants and write-off straight-line rent and accounts receivable, as necessary. In the event we conclude that substantially all of a tenant’s straight-line rent or accounts receivable isReorganization did not probable of collection in the future, such amounts will be written off, which could have a material impact on our future results offinancial position, consolidated financial statements, outstanding debt securities, material debt facilities, or business operations.
Employee Update
We have taken, and will continue to take, proactive measures to provide for the well-being of our workforce. We have maximized our systems infrastructure as well as virtual and remote working technologies for our employees, including our executive team, to ensure productivity and connectivity internally, as well as with key third-party relationships.
The extent of the impact of the COVID-19 pandemic on our business and financial results will depend on future developments, including the duration, severity, and spread of COVID-19, health and safety actions taken to contain its spread, any new surges of COVID-19, the severity of outbreak of new strains of COVID-19, the timing and distribution of vaccines and other treatments, and how quickly and to what extent normal economic and operating conditions can resume within the markets in which we operate, each of which are highly uncertain at this time and outside of our control.
2020 Transaction Overview
South San Francisco Land Site Acquisition
In October 2020, we executed a definitive agreement to acquire approximately 12 acres of land for $128 million. The acquisition site is located in South San Francisco, CA, adjacent to two sites currently held by us as land for future development. We made a $10 million nonrefundable deposit upon completing due diligence in November 2020 and expect to close the transaction in 2021.
Cambridge Discovery Park Acquisition
In December 2020, we acquired three life science facilities in Cambridge, Massachusetts for $610 million and a 49% unconsolidated joint venture interest in a fourth property on the same campus for $54 million.
Midwest MOB Acquisition
In October 2020, we acquired a portfolio of seven MOBs located in Indiana, Missouri, and Illinois, for $169 million.
Scottsdale Gateway Acquisition
In July 2020, we acquired one MOB in Scottsdale, Arizona, for $27 million.
The Post Acquisition
In April 2020, we acquired a life science campus in Waltham, Massachusetts for $320 million.
Master Transaction and Cooperation Agreement with Brookdale
In January 2020, Healthpeak and Brookdale Senior Living Inc. (“Brookdale”) completed certain of the transactions governed by the previously announced Master Transactions and Cooperation Agreement (the “2019 MTCA”), which includes a series of transactions related to the previously jointly owned 15-campus CCRC portfolio (the “CCRC JV”) and the portfolio of senior housing properties that were triple-net leased to Brookdale. Specifically, the following transactions were completed on January 31, 2020:
•We acquired Brookdale’s 51% interest in 13 of the 15 communities in the CCRC JV based on a valuation of $1.06 billion (the “CCRC Acquisition”) and transitioned management (under new management agreements) of those 13 communities to Life Care Services LLC (“LCS”);
•We paid Brookdale $100 million to terminate the previous management agreements related to those 13 communities;
•Brookdale acquired 18 of the triple-net lease properties (the “Brookdale Acquisition Assets”) from us for cash proceeds of $385 million;
•The remaining 24 triple-net lease properties, which were subsequently sold in January 2021 (see Senior Housing Portfolio Sales below), were restructured into a single master lease with 2.4% annual rent escalators and a maturity date of December 31, 2027 (the “2019 Amended Master Lease”);
•A portion of annual rent (amount in excess of 6.5% of sales proceeds) related to 14 of the 18 Brookdale Acquisition Assets was reallocated to the remaining properties under the 2019 Amended Master Lease; and
•On October 29, 2023, we entered into a Merger Agreement with Physicians Realty Trust, the Physicians Partnership, and certain of our subsidiaries, pursuant to which, among other things, and through a series of transactions (the “Mergers”), (i) each outstanding common share of Physicians Realty Trust (other than Physicians Realty Trust common shares to be canceled in accordance with the Merger Agreement) will be converted into the right to receive 0.674 (the “Exchange Ratio”) shares of our common stock, and (ii) each outstanding common unit of the Physicians Partnership will be converted into common units in the successor entity to the Physicians Partnership equal to the Exchange Ratio. In connection with the Mergers, we filed a Registration Statement on Form S-4 with the SEC on December 15, 2023, as amended on January 9, 2024, and a definitive joint proxy statement/prospectus for the Company and Physicians Realty Trust on January 11, 2024 in connection with our respective special meetings of stockholders and shareholders, as applicable, which will be held on February 21, 2024. We expect the Mergers to closeBrookdale paid down $20 millionon March 1, 2024. Following the transactions contemplated in the Merger Agreement, the successor entities to Physicians Realty Trust and the Physicians Partnership will be direct and indirect subsidiaries of future rent underHealthpeak OP, respectively. Consummation of the 2019 Amended Master Lease.Mergers are subject to the satisfaction or waiver of customary closing conditions, including the approval of our stockholders and the shareholders of Physicians Realty Trust.
Senior Housing Portfolio SalesReal Estate Transactions
•In December 2020, January 2023, we sold two lab buildings in Durham, North Carolina for $113 million.
•In January 2023, we acquired a portfolio of ten senior housing triple-net assetslab land parcel in Cambridge, Massachusetts for $358$9 million.
•In November 2020,March 2023, we entered into definitive agreements to sell a portfolio of 13 SHOP assetssold two outpatient medical buildings for $334 million. We sold 12 of the assets for $312 million in December 2020 and provided the buyer with financing of $6132 million on four of the assets sold. We expect to sell the final asset during the first half of 2021, upon completion of the license transfer process..
•In October 2020,April 2023, we entered into a definitive agreement to sell seven SHOP assets for $115 million. We received a $3 million nonrefundable deposit and expect to closeacquired the transaction during the first half of 2021.
•In November 2020, we entered into a definitive agreement to sell 32 SHOP and 2 senior housing triple-net assets for $744 million. We received a $35 million nonrefundable deposit upon completion of due diligenceremaining 80% interest in December 2020, sold the 32 SHOP assets in January 2021 for $664 million, and provided the buyer with financing of $410 million. The two senior housing triple-net assets are expected to sell during the first half of 2021, upon completionone of the license transfer process.
•In January 2021, we sold 24 senior housing assets under a triple-net lease with Brookdaleoutpatient medical buildings in the Ventures IV unconsolidated joint venture for $510$4 million.
•In January 2021,2024, we sold a portfolio65% interest in two lab buildings in San Diego, California to a third-party for net proceeds of 16 SHOP assets for $230 million and provided the buyer with financing of $150 million.
•In February 2021, we sold eight senior housing assets in a triple-net lease with Harbor Retirement Associates for $132$128 million.
Other Real Estate Transactions
•In addition to the sales discussed above, during the year ended December 31, 2020, we soldthe following: (i) 23SHOP assets for $190 million, (ii) 21 senior housing triple-net assets for $428 million (inclusive of the 18 facilities sold to Brookdale under the 2019 MTCA), (iii) 11 MOBs for $136 million (inclusive of the exercise of a purchase option by one of our tenants to acquire 3 MOBs), (iv) two MOB land parcels for $3 million,Development and 1 asset from other non-reportable segments for $1 million.
•In February 2020, we sold a hospital under a DFL for $82 million.
•In December 2020, we acquired one hospital in Dallas, Texas for $34 million.Redevelopment Activities
•During the yearended December 31, 2020, we converted:2023, the following projects were placed in service: (i) 13 senior housing triple-net assetsportions of two lab development projects with Capital Senior Living Corporation (“CSL”) toaggregate costs of $233 million, (ii) one lab development project with total costs of $171 million, (iii) a RIDEA structure,portion of one lab redevelopment project with CSL remaining as the manager, (ii) 1 senior housing triple-net assettotal costs of $43 million, (iv) four outpatient medical redevelopment projects with CSL toaggregate costs of $42 million, (v) a RIDEA structureportion of one lab redevelopment building held in one of our unconsolidated South San Francisco JVs of which our share of total project costs was $32 million, (vi) one lab redevelopment building held in one of our unconsolidated South San Francisco JVs of which our share of total project costs was $15 million, (vii) one lab redevelopment project with Discovery Senior Living, LLC as the operator, (iii) 2 senior housing triple-net assetstotal costs of $14 million, and (viii) one CCRC redevelopment project with HRA Senior Living (“HRA”) to a RIDEA structure, with HRA remaining as the manager, and (iv) 1 senior housing triple-net asset with Brookdale to a RIDEA structure.total costs of $7 million.
Financing Activities
•During the year ended December 31, 2020, we utilized the forward provisions under the at-the-market equity offering program established in February 2019 (the “2019 ATM Program”) to allow for the sale of up to an aggregate of 2.0 million shares of our common stock at an initial weighted average net price of $35.23 per share, after commissions.
•During the year ended December 31, 2020, we settled all 32.5 million shares previously outstanding under (i) ATM forward contracts and (ii) a 2019 forward equity sales agreement at a weighted average net price of $32.73 per share, after commissions, resulting in net proceeds of $1.06 billion.
•In June 2020,January 2023, we completed a public offering of $600$400 million aggregate principal amount of 2.88%5.25% senior unsecured notes due in 2031 (the “2031 Notes”).2032.
•In June 2020, usingMay 2023, we completed a portionpublic offering of the net proceeds from the 2031 Notes offering, we repurchased $250$350 million aggregate principal amount of our 4.25%5.25% senior unsecured notes due 2032, which constituted an additional issuance of, and are treated as a single series with, the $400 million of senior unsecured notes due 2032 issued in January 2023.
•In July 2020, using an additional portionDecember 2023, a mortgage loan secured by one CCRC with a principal balance of the net proceeds from the 2031 Notes offering, we redeemed all $300$85 million aggregate principal amount of our 3.15% senior unsecured notes due in 2022.matured and was repaid.
•During We have secured commitments for a $750 million five-year unsecured term loan (the “2024 Term Loan”), to be incurred as an incremental facility under our existing term loan agreement. In January 2024, we entered into forward-starting interest rate swap instruments that are designated as cash flow hedges that will effectively establish a fixed interest rate forthe first quarter2024 Term Loan at a blended contractual rate of 2021,4.5%.
Other Activities
•In February 2023, we repurchased $112received a partial principal repayment of $102 million on one secured loan.
•In February 2023, we received full repayment of the outstanding balance of one $35 million secured loan.
•In April 2023, we received full repayment of the outstanding balance of one $14 million secured loan.
•In May 2023, we received full repayment of two outstanding secured loans with an aggregate principal amountbalance of our 4.25% senior unsecured notes due in$12 million.
•In October 2023, $201we received full repayment of the outstanding balance of one $21 million aggregate principal amount of our 4.20% senior unsecured notes due in 2024, and $469 million aggregate principal amount of our 3.88% senior unsecured notes due in 2024.secured loan.
Development Activities
•As part of the development program with HCA Healthcare Inc., at December 31, 2020, we had four MOB developments, all of which are on-campus, under contract with an aggregate total estimated cost of $117 million.
•At December 31, 2020, we had five life science development projects in process with an aggregate total estimated cost of $855 million.
Dividends
Quarterly cash dividends paid during 20202023 aggregated to $1.48$1.20 per share. On February 9, 2021,January 31, 2024, our Board of Directors declared a quarterly cash dividend of $0.30 per common share. The dividend will be paid on March 5, 2021February 26, 2024 to stockholders of record as of the close of business on February 22, 2021.14, 2024.
Results of Operations
We evaluate our business and allocate resources among our reportable business segments: (i) life science,lab, (ii) outpatient medical, office, and (iii) CCRC. Under the life sciencelab and outpatient medical office segments, we invest through the acquisition, development, and developmentmanagement of life science facilities, MOBs,lab buildings, outpatient medical buildings, and hospitals, which generally require a greater level of property management.hospitals. Our CCRCs are operated through RIDEA structures. We have other non-reportable segments that are comprised primarily of interestsof: (i) an interest in our unconsolidated SWF SH JV and (ii) loans receivable. These non-reportable segments have been presented on an unconsolidated senior housing joint venture and debt investments.aggregate basis herein. 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 (seein Note 2 to the Consolidated Financial Statements).
In conjunction with classifying our senior housing triple-net and SHOP portfolios as discontinued operations as of December 31, 2020, the results of operations related to those portfolios are no longer presented in reportable business segments. Accordingly, results of operations of those portfolios are not included in the reportable business segment analysis below. Refer to Note 5 to the Consolidated Financial Statements for further information regarding discontinued operations.Statements.
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 (which exclude transition costs);expenses; NOI excludes all other financial statement amounts included in net income (loss) as presented in Note 1615 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 includeare calculated as NOI and Adjusted NOI from consolidated properties, plus our share of income (loss) generatedNOI and Adjusted NOI from unconsolidated joint ventures (calculated by applying our actual ownership percentage for the period), less noncontrolling interests’ share of NOI and Adjusted NOI from consolidated joint ventures (calculated by applying our actual ownership percentage for the period). Management utilizes its share of NOI and Adjusted NOI in assessing its performance as we have various joint ventures that contribute to its performance. We do not control our unconsolidated joint ventures, and exclude noncontrolling interests’our share of income (loss) generated by consolidatedamounts from unconsolidated joint ventures. ventures do not represent our legal claim to such items. Our share of NOI and Adjusted NOI should not be considered a substitute for, and should only be considered together with and as a supplement to, our financial information presented in accordance with GAAP.
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 1615 to the Consolidated Financial Statements.
Operating expenses generally relate to leased outpatient medical office and life science properties,lab buildings, as well as SHOP and CCRC facilities. We generally recover all or a portion of our leased outpatient medical office and life sciencelab 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 portfolio of properties, excluding properties within the other non-reportable segments. We include properties from our consolidated portfolio, as well as properties owned by our unconsolidated joint ventures in Same-Store NOI and Adjusted NOI (see NOI definition above for further discussion regarding our use of properties.pro-rata share information and its limitations). Same-Store NOI and Adjusted NOI exclude government grant income under the CARES Act. Same-Store Adjusted NOI also 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)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, such as a conversion from a triple-net lease to a RIDEA 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.
Funds From Operations ("FFO"(“FFO”)
FFO encompasses NAREITNareit 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.
NAREITNareit FFO. FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”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 NAREITNareit FFO and FFO as Adjusted (see below) from joint ventures. Adjustments for joint ventures are calculated to reflect our pro-ratapro rata share of both our consolidated and unconsolidated joint ventures. We reflect our share of NAREITNareit 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 NAREITNareit FFO to remove the third party ownership share of the applicable reconciling items based on actual ownership percentage for the applicable periods. Our pro-ratapro 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-ratapro rata presentations of reconciling items included in NAREITNareit 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-ratapro 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-ratapro rata interest differently, limiting the usefulness as a comparative measure. Because of these limitations, the pro-ratapro 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-ratapro rata financial information as a supplement.
NAREITNareit 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 NAREITNareit FFO in accordance with the current NAREITNareit definition; however, other REITs may report NAREITNareit FFO differently or have a different interpretation of the current NAREITNareit definition from ours.
FFO as Adjusted. In addition, we present NAREITNareit FFO on an adjusted basis before the impact of non-comparable items including, but not limited to, transaction-relatedtransaction and merger-related items, other impairments (recoveries) of non-depreciable assets,and other losses (gains) from the sale of non-depreciable assets,, restructuring and severance relatedseverance-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-relatedThese adjustments are net of tax, when applicable. Transaction and merger-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 NAREITNareit 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 NAREITNareit 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 NAREITNareit 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) stock-based compensation amortization of deferred compensation expense, (ii) amortization of deferred financing costs, net, (iii) straight-line rents, (iv) deferred income taxes, (v) amortization of acquiredabove (below) market lease intangibles, net, and (vi) other AFFO adjustments, which include: (a) non-cash interest related to DFLs and lease incentive amortization (reduction of straight-line rents), (vii)(b) actuarial reserves for insurance claims that have been incurred but not reported, and (viii)(c) 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: (i)AFFO is computed after deducting recurring capital expenditures, including second generation leasing costs and second generation tenant and capital improvements, and (ii) includes lease restructure payments and adjustments to compute our share of AFFO from our unconsolidated joint ventures. Certain prior period amounts in the “Non-GAAP Financial Measures Reconciliation” below for AFFO have been reclassified to conform to the current period presentation. More specifically, recurring capital expenditures, including second generation leasing costs and second generation tenant and capital improvements ("(“AFFO capital expenditures"expenditures”) excludes our share from unconsolidated joint ventures (reported in “other AFFO adjustments”). Adjustments for joint ventures are calculated to reflect our pro-ratapro 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-ratapro 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 expenses, and (v) actual cash receipts from interest income recognized on loans receivable (in contrast to our AFFO adjustment to exclude non-cash interest and depreciation related to our investments in direct financing leases).charges. Furthermore, AFFO is adjusted for recurring capital expenditures, which are generally not considered when determining cash flows from operations or liquidity. 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. 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, and by presenting AFFO, we are assisting these parties in their evaluation. 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 and should only be considered together with and as a supplement to our financial information prepared in accordance with GAAP. For a reconciliation of net income (loss) to AFFO and other relevant disclosure,disclosures, refer to “Non-GAAP Financial Measures Reconciliations” below.
Comparison of the Year Ended December 31, 20202023 to the Year Ended December 31, 2019 and the Year Ended December 31, 2019 to the Year Ended December 31, 20182022
Overview(1)
20202023 and 20192022(1)
The following table summarizes results for the years ended December 31, 20202023 and 2019 (dollars in2022 (in thousands):
| | Year Ended December 31, | | | |
| 2020 | | 2019 | | | Change |
| | Year Ended December 31, | |
| | Year Ended December 31, | |
| | Year Ended December 31, | |
| | 2023 | | | | 2023 | | 2022 | | | | | | Change |
Net income (loss) applicable to common shares | Net income (loss) applicable to common shares | | $ | 411,147 | | | $ | 43,987 | | | | $ | 367,160 | |
NAREIT FFO | | 693,367 | | | 780,307 | | | | (86,940) | |
Nareit FFO | |
FFO as Adjusted | FFO as Adjusted | | 874,188 | | | 864,352 | | | | 9,836 | |
AFFO | AFFO | | 772,705 | | | 745,820 | | | | 26,885 | |
(1)For the reconciliation of non-GAAP financial measures, see “Non-GAAP Financial Measure Reconciliations” below.
Net income (loss) applicable to common shares (“net income (loss)”) increaseddecreased primarily as a result of the following:
•an increase in other income, net as a result of: (i) a gain upon change of control related to the acquisitionsale of a 30% interest and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the outstanding equity intereststhird quarter of 2022;
•an increase in 13 CCRCs from Brookdaledepreciation, primarily as a result of development and redevelopment projects placed in service during 2022 and 2023;
•an increase in interest expense, primarily as a result of: (i) senior unsecured notes issued during the first half of 2023, (ii) borrowings under the Term Loan Facilities, which were drawn during the fourth quarter of 2020, (ii) 2022, and (iii) higher interest rates on the commercial paper program, partially offset by lower borrowings on the commercial paper program;
•a gain on sale related toassociated with the saledisposition of a hospital underlyingunder a DFL during the first quarter of 2020,2022;
•an increase in transaction and (iii)merger-related costs, primarily as a result of costs related to the Mergers, which are primarily comprised of legal, accounting, tax, and other costs that were incurred during the fourth quarter of 2023; and
•a decrease in government grant income received under the Coronavirus Aid, ReliefCARES Act in 2023.
The decrease in net income (loss) applicable to common shares was partially offset by:
•an increase in NOI generated from our lab and Economic Security Act (“CARES Act”)outpatient medical segments related to: (i) development and redevelopment projects placed in service during 2020;2022 and 2023, (ii) new leasing activity during 2022 and 2023 (including the impact to straight-line rents), and (iii) 2022 acquisitions of real estate;
•an increase in net gaingains on salessale of depreciable real estate related to lab and outpatient medical building sales during 2020;
•an increase in interest income, primarily2023 as a result of new loans and additional funding of existing loans;compared to 2022;
•a decrease in loss on debt extinguishments;general and administrative expenses, primarily as a result of: (i) severance-related charges associated with the departures of our former Chief Executive Officer and our former Chief Legal Officer and General Counsel in the fourth quarter of 2022 and (ii) charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado in the fourth quarter of 2022;
•a decrease in depreciation related to the deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022;
•a decrease in other expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building, which were incurred in the first quarter of 2022;
•an increase in income tax benefit primarily as a result of (i) the above-mentioned acquisition of Brookdale’s interest in 13 CCRCs and related management termination fee expense paid to Brookdalea $14 million tax benefit recognized in connection with transitioning management to LCS during the first quarterreversal of 2020 and (ii) the extension of the net operating loss carryback provided by the CARES Act, partially offset by additional income tax expense due to a deferred tax asset valuation allowance;allowance during the fourth quarter of 2023;
•a decrease in loan loss reserves primarily as a result of principal repayments on seller financing;
•an increase in equity income from unconsolidated joint ventures; and
•NOI generated from: (i) 2019 and 2020 acquisitions of real estate, (ii) development and redevelopment projects placeda decrease in service during 2019 and 2020, and (iii) new leasing activity in 2019 and 2020 (including the impact to straight-line rents).
The increase in net income (loss) was partially offset by:
•casualty-related charges from a reduction in income related to assets sold during 2019 and 2020;
•additional expense due to the management termination fee paid to Brookdale in connection with transitioning management of 13 CCRCs to LCShurricane during the firstthird quarter of 2020;
•additional expenses and decreased occupancy in our SHOP and CCRC assets related to COVID-19;
•a reduction in equity income (loss) from unconsolidated joint ventures during 2020 primarily due to our share of net losses from an unconsolidated joint venture owning 19 senior housing assets that was formed in December 2019;
•increased depreciation and amortization expense as a result of: (i) assets acquired during 2019 and 2020, (ii) the acquisition of Brookdale’s interest in and consolidation of 13 CCRCs during the first quarter of 2020, and (iii) development and redevelopment projects placed into service during 2019 and 2020, partially offset by dispositions of real estate throughout 2019 and 2020; and
•increased credit losses related to loans receivable as a result of: (i) adopting the current expected credit losses model required under Accounting Standards Update (“ASU”) No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), (ii) new loans funded during 2020, and (iii) the impact of COVID-19 on expected credit losses.2022.
NAREITNareit FFO decreasedincreased primarily as a result of the aforementioned events impacting net income (loss), applicable to common shares, except for the following, which are excluded from NAREITNareit FFO:
•net gain upon change of control;
•gain on sales of depreciable real estate;
•the gain upon change of control related to the acquisition of Brookdale’s interest in 13 CCRCs; and
•depreciation and amortization expense.
FFO as Adjusted increased primarily as a result of the aforementioned events impacting NAREITNareit FFO, except for the following, which are excluded from FFO as Adjusted:
•deferred tax asset valuation allowance;severance-related charges;
•net gain on salessale of assets underlying DFLs and non-depreciable assets, such as land;a hospital under a DFL;
•lossesreversal of a valuation allowance on debt extinguishment;deferred tax assets;
•expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building;
•loan loss reserves;
•transaction and merger-related costs;
•casualty-related charges; and
•the increasecharges incurred in credit losses.
AFFO increased primarily as a resultconnection with the downsizing of the aforementioned events impacting FFO as Adjusted, except for the impact of straight-line rents and the increaseour corporate headquarters in deferred tax benefit, which are excluded from AFFO.
2019 and 2018
The following table summarizes results for the years ended December 31, 2019 and 2018 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, | | | | |
| | 2019 | | 2018 | | | | | | Change |
Net income (loss) applicable to common shares | | $ | 43,987 | | | $ | 1,058,424 | | | | | | | $ | (1,014,437) | |
NAREIT FFO | | 780,307 | | | 780,189 | | | | | | | 118 | |
FFO as Adjusted | | 864,352 | | | 857,233 | | | | | | | 7,119 | |
AFFO | | 745,820 | | | 746,397 | | | | | | | (577) | |
Net income (loss) applicable to common shares (“net income (loss)”) decreased primarily as a result of the following:
•a reduction in NOI as a result of asset sales during 2018 and 2019;Denver, Colorado.
•a larger net gain on sales of real estate during 2018 compared to 2019, primarily related to the sale of our Shoreline Technology Center life science campus in November 2018;
•increased depreciation and amortization expense as a result of: (i) assets acquired during 2018 and 2019, (ii) development and redevelopment projects placed into service during 2018 and 2019, and (iii) the conversion of 14 senior housing triple-net assets from a DFL to a RIDEA structure in 2019, partially offset by decreased depreciation and amortization from asset sales during 2018 and 2019;
•an increase in loss on debt extinguishments, resulting from redemptions and repurchases of senior unsecured notes in 2019; and
•increased impairment charges on real estate assets recognized during 2019 compared to 2018.
The decrease in net income (loss) was partially offset by:
•increased NOI from: (i) annual rent escalations, (ii) 2018 and 2019 acquisitions, and (iii) development and redevelopment projects placed in service during 2018 and 2019;
•a reduction in interest expense as a result of debt repayments during 2018 and 2019; and
•an increase in other income, primarily resulting from: (i) a gain upon change of control of 19 SHOP assets in 2019, and (ii) a loss on consolidation of seven care homes in the U.K. during the first quarter of 2018, partially offset by a gain upon change of control related to the acquisition of the outstanding equity interests in three life science joint ventures in November 2018.
NAREIT FFO increased primarily as a result of the aforementioned events impacting net income (loss), except for the following, which are excluded from NAREIT FFO:
•gains on sales of real estate, including related tax impacts;
•depreciation and amortization expense;
•impairments charges on real estate assets; and
•gains and losses upon change of control.
FFO as Adjusted increased primarily as a result of the aforementioned events impacting NAREIT FFO, except for losses on debt extinguishment, which are excluded from FFO as Adjusted.
AFFO decreasedincreased 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 decrease in AFFO was also partially due to increased and higherAFFO capital expenditures during 2019.the period.
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 year ended December 31, 2020,2023, our Same-Store consists of 341403 properties representing properties acquired or placed in service and stabilized on or prior to January 1, 20192022 and that remained in operations under a consistent reporting structure through December 31, 2020. For the year ended December 31, 2019, our Same-Store consisted of 334 properties acquired or placed in service and stabilized on or prior to January 1, 2018 and that remained in operations under a consistent reporting structure through December 31, 2019.2023. Our total property portfolio consisted of 457, 453,477 and 516480 properties at December 31, 2020, 2019,2023 and 2018,2022, respectively. Included in our total property portfolio at each of December 31, 2023 and 2022 are 19 senior housing assets in our SWF SH JV.
Life ScienceLab
2020 and 2019
The following table summarizes results at and for the years ended December 31, 20202023 and 20192022 (dollars and square feet in thousands, except per square foot data):
| | SS | | | SS | | Total Portfolio(1) |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Rental and related revenues | |
| | SS | | Total Portfolio(1) |
Healthpeak’s share of unconsolidated joint venture total revenues | |
Healthpeak’s share of unconsolidated joint venture total revenues | |
Healthpeak’s share of unconsolidated joint venture total revenues | |
| | 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Rental and related revenues | $ | 342,486 | | | $ | 329,024 | | | $ | 13,462 | | | $ | 569,296 | | | $ | 440,784 | | | $ | 128,512 | |
Healthpeak’s share of unconsolidated joint venture total revenues | — | | | — | | | — | | | 448 | | | — | | | 448 | |
Noncontrolling interests' share of consolidated joint venture total revenues | (146) | | | (140) | | | (6) | | | (239) | | | (187) | | | (52) | |
Noncontrolling interests’ share of consolidated joint venture total revenues | |
Noncontrolling interests’ share of consolidated joint venture total revenues | |
Noncontrolling interests’ share of consolidated joint venture total revenues | |
Operating expenses | Operating expenses | (81,364) | | | (79,186) | | | (2,178) | | | (138,005) | | | (107,472) | | | (30,533) | |
Healthpeak's share of unconsolidated joint venture operating expenses | — | | | — | | | — | | | (137) | | | — | | | (137) | |
Noncontrolling interests' share of consolidated joint venture operating expenses | 48 | | | 45 | | | 3 | | | 72 | | | 59 | | | 13 | |
Healthpeak’s share of unconsolidated joint venture operating expenses | |
Noncontrolling interests’ share of consolidated joint venture operating expenses | |
| Adjustments to NOI(2) | |
Adjustments to NOI(2) | |
Adjustments to NOI(2) | Adjustments to NOI(2) | (1,758) | | | (5,568) | | | 3,810 | | | (20,133) | | | (22,103) | | | 1,970 | |
Adjusted NOI | Adjusted NOI | $ | 259,266 | | | $ | 244,175 | | | $ | 15,091 | | | 411,302 | | | 311,081 | | | 100,221 | |
Less: non-SS Adjusted NOI | Less: non-SS Adjusted NOI | | | | | | | (152,036) | | | (66,906) | | | (85,130) | |
SS Adjusted NOI | SS Adjusted NOI | | $ | 259,266 | | | $ | 244,175 | | | $ | 15,091 | |
Adjusted NOI % change | Adjusted NOI % change | | 6.2 | % | | | | | | |
Property count(3) | Property count(3) | 95 | | | 95 | | | | | 140 | | | 134 | | |
End of period occupancy | 96.8 | % | | 95.5 | % | | 96.3 | % | | 96.0 | % | |
Average occupancy | 96.4 | % | | 96.2 | % | | 96.0 | % | | 96.7 | % | |
Property count(3) | |
Property count(3) | |
End of period occupancy(4) | |
End of period occupancy(4) | |
End of period occupancy(4) | |
Average occupancy(4) | |
Average occupancy(4) | |
Average occupancy(4) | |
Average occupied square feet | Average occupied square feet | 5,825 | | | 5,819 | | | 8,724 | | | 7,288 | | |
Average annual total revenues per occupied square foot | $ | 58 | | | $ | 56 | | | $ | 63 | | | $ | 57 | | |
Average annual base rent per occupied square foot(4) | $ | 47 | | | $ | 44 | | | $ | 50 | | | $ | 45 | | |
Average occupied square feet | |
Average occupied square feet | |
Average annual total revenues per occupied square foot(5) | |
Average annual total revenues per occupied square foot(5) | |
Average annual total revenues per occupied square foot(5) | |
Average annual base rent per occupied square foot(6) | |
Average annual base rent per occupied square foot(6) | |
Average annual base rent per occupied square foot(6) | |
(1)Total Portfolio includes results of operations from disposed properties through the disposition date.
(2)Represents adjustments to NOI in accordance with the Company’sour definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(3)From our 20192022 presentation of Same-Store, we removedadded: (i) five stabilized acquisitions, (ii) three stabilized buildings that previously experienced a significant tenant relocation, (iii) two stabilized redevelopments placed in service, and (iv) one life science facilitystabilized development placed in service, and we removed: (i) six buildings that were placed into redevelopment, (ii) one asset that was placed in redevelopmentinto land held for development, and (iii) one life science facility related tobuilding that experienced a significant tenant relocationrelocation.
(4)Refer to “Non-GAAP Financial Measures” above for the definition of Same-Store. Total Portfolio occupancy excludes any of the following: (i) developments, (ii) significant redevelopments, (iii) newly completed properties under lease-up, and (iv) properties held for sale.
(5)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)(6)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:
•annual rent escalations; and
•new leasing activity; partially offset by
•lower occupancy; and
•mark-to-market lease renewals.higher operating expenses.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned impacts to Same-Store and the following Non-Same-Store impacts:
•increased NOI from (i) increased occupancy in developments and redevelopments placed intoin service in 20192022 and 2020 and (ii) acquisitions in 2019 and 2020;2023; partially offset by
•decreased NOI from the placement of facilities into redevelopment in 2019our 2022 and 2020.2023 dispositions.
2019 and 2018Outpatient Medical
The following table summarizes results at and for the years ended December 31, 20192023 and 20182022 (dollars and square feet in thousands, except per square foot data):
| | SS | | | SS | | Total Portfolio(1) |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Rental and related revenues | |
Income from direct financing leases | |
Healthpeak’s share of unconsolidated joint venture total revenues | |
Noncontrolling interests’ share of consolidated joint venture total revenues | |
Operating expenses | |
Healthpeak’s share of unconsolidated joint venture operating expenses | |
Noncontrolling interests’ share of consolidated joint venture operating expenses | |
| | SS | | Total Portfolio(1) |
| 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Rental and related revenues | $ | 293,400 | | | $ | 276,996 | | | $ | 16,404 | | | $ | 440,784 | | | $ | 395,064 | | | $ | 45,720 | |
Healthpeak’s share of unconsolidated joint venture total revenues | — | | | — | | | — | | | — | | | 4,328 | | | (4,328) | |
Noncontrolling interests' share of consolidated joint venture total revenues | (77) | | | (79) | | | 2 | | | (187) | | | (117) | | | (70) | |
Operating expenses | (69,422) | | | (65,017) | | | (4,405) | | | (107,472) | | | (91,742) | | | (15,730) | |
Healthpeak's share of unconsolidated joint venture operating expenses | — | | | — | | | — | | | — | | | (1,131) | | | 1,131 | |
Noncontrolling interests' share of consolidated joint venture operating expenses | 20 | | | 22 | | | (2) | | | 59 | | | 44 | | | 15 | |
| Adjustments to NOI(2) | |
Adjustments to NOI(2) | |
Adjustments to NOI(2) | Adjustments to NOI(2) | (1,944) | | | (2,829) | | | 885 | | | (22,103) | | | (9,718) | | | (12,385) | |
Adjusted NOI | Adjusted NOI | $ | 221,977 | | | $ | 209,093 | | | $ | 12,884 | | | 311,081 | | | 296,728 | | | 14,353 | |
Less: non-SS Adjusted NOI | Less: non-SS Adjusted NOI | | | | | | | (89,104) | | | (87,635) | | | (1,469) | |
SS Adjusted NOI | SS Adjusted NOI | | $ | 221,977 | | | $ | 209,093 | | | $ | 12,884 | |
Adjusted NOI % change | Adjusted NOI % change | | 6.2 | % | | | | | | |
Property count(3) | Property count(3) | 93 | | | 93 | | | | | 134 | | | 124 | | |
Property count(3) | |
Property count(3) | |
End of period occupancy(4) | |
End of period occupancy(4) | |
End of period occupancy(4) | End of period occupancy(4) | 96.6 | % | | 96.1 | % | | 96.0 | % | | 96.6 | % | |
Average occupancy(4) | Average occupancy(4) | 96.2 | % | | 94.9 | % | | 96.7 | % | | 95.1 | % | |
Average occupancy(4) | |
Average occupancy(4) | |
Average occupied square feet | |
Average occupied square feet | |
Average occupied square feet | Average occupied square feet | 5,415 | | | 5,345 | | | 7,288 | | | 7,194 | | |
Average annual total revenues per occupied square foot(5) | Average annual total revenues per occupied square foot(5) | $ | 54 | | | $ | 51 | | | $ | 57 | | | $ | 55 | | |
Average annual total revenues per occupied square foot(5) | |
Average annual total revenues per occupied square foot(5) | |
Average annual base rent per occupied square foot(4)(6) | Average annual base rent per occupied square foot(4)(6) | $ | 43 | | | $ | 41 | | | $ | 45 | | | $ | 44 | | |
Average annual base rent per occupied square foot(4)(6) | |
Average annual base rent per occupied square foot(4)(6) | |
(1)Total Portfolio includes results of operations from disposed properties through the disposition date.
(2)Represents adjustments to NOI in accordance with the Company’sour definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(3)From our 20182022 presentation of Same-Store, we removed one life science facilityadded: (i) 25 stabilized acquisitions and (ii) 2 stabilized developments placed in service, and we removed: (i) 2 assets that were sold and (ii) 1 asset that was sold, two life science facilities that were placed into redevelopment, and one life science facility related to a casualty event.classified as held for sale.
(4)Base rentRefer to “Non-GAAP Financial Measures” above for the definition of Same-Store. Total Portfolio occupancy excludes any of the following: (i) developments, (ii) significant redevelopments, (iii) newly completed properties under lease-up, and (iv) properties held for sale.
(5)Average annual total revenues 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:
•new leasing activity;
•mark-to-market lease renewals;
•increased occupancy; and
•annual rent escalations.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store and the following Non-Same-Store impacts:
•NOI from (i) increased occupancy in developments and redevelopments placed into service in 2018 and 2019 and (ii) acquisitions in 2019; partially offset by
•decreased NOI from facilities sold in 2018 and 2019 and the placement of facilities into redevelopment in 2019.
Medical Office
2020 and 2019
The following table summarizes results at and for the years ended December 31, 2020 and 2019 (dollars and square feet in thousands, except per square foot data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SS | | Total Portfolio(1) |
| 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Rental and related revenues | $ | 533,842 | | | $ | 527,192 | | | $ | 6,650 | | | $ | 612,678 | | | $ | 604,505 | | | $ | 8,173 | |
Income from direct financing leases | 8,575 | | | 8,387 | | | 188 | | | 9,720 | | | 16,666 | | | (6,946) | |
Healthpeak’s share of unconsolidated joint venture total revenues | 2,683 | | | 2,720 | | | (37) | | | 2,772 | | | 2,810 | | | (38) | |
Noncontrolling interests' share of consolidated joint venture total revenues | (34,098) | | | (33,460) | | | (638) | | | (34,597) | | | (33,998) | | | (599) | |
Operating expenses | (175,325) | | | (175,192) | | | (133) | | | (204,008) | | | (201,620) | | | (2,388) | |
Healthpeak's share of unconsolidated joint venture operating expenses | (1,128) | | | (1,107) | | | (21) | | | (1,129) | | | (1,107) | | | (22) | |
Noncontrolling interests' share of consolidated joint venture operating expenses | 10,281 | | | 10,045 | | | 236 | | | 10,282 | | | 10,109 | | | 173 | |
| | | | | | | | | | | |
Adjustments to NOI(2) | (5,861) | | | (6,564) | | | 703 | | | (5,544) | | | (4,602) | | | (942) | |
Adjusted NOI | $ | 338,969 | | | $ | 332,021 | | | $ | 6,948 | | | 390,174 | | | 392,763 | | | (2,589) | |
Less: non-SS Adjusted NOI | | | | | | | (51,205) | | | (60,742) | | | 9,537 | |
SS Adjusted NOI | | | | | | | $ | 338,969 | | | $ | 332,021 | | | $ | 6,948 | |
Adjusted NOI % change | | | | | 2.1 | % | | | | | | |
Property count(3) | 246 | | | 246 | | | | | 281 | | | 281 | | | |
End of period occupancy | 92.5 | % | | 92.9 | % | | | | 90.4 | % | | 92.3 | % | | |
Average occupancy | 92.5 | % | | 92.6 | % | | | | 91.3 | % | | 92.3 | % | | |
Average occupied square feet | 18,488 | | | 18,506 | | | | | 20,448 | | | 20,736 | | | |
Average annual total revenues per occupied square foot | $ | 29 | | | $ | 29 | | | | | $ | 30 | | | $ | 30 | | | |
Average annual base rent per occupied square foot(4) | $ | 25 | | | $ | 25 | | | | | $ | 26 | | | $ | 26 | | | |
(1)Total Portfolio includes results of operations from disposed properties through the disposition date.
(2)Represents adjustments to NOI in accordance with the Company’s definition of Adjusted NOI. Refer to “Non-GAAP Measures” above for definitions of NOI and Adjusted NOI.
(3)From our 2019 presentation of Same-Store, we removed 10 MOBs that were sold, 6 MOBs that were classified as held for sale, and3 MOBs that were placed into redevelopment.
(4)(6)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; and
•annual rent escalations; partially offset by
•lower parking income.
Total Portfolio Adjusted NOI decreased primarily as a result of MOB sales during 2019 and 2020, partially offset by the aforementioned increases to Same-Store and the following Non-Same-Store impacts:
•NOI from our 2019 and 2020 acquisitions; and
•increased occupancy in former redevelopment and development properties that have been placed into service.
2019 and 2018
The following table summarizes results at and for the years ended December 31, 2019 and 2018 (dollars and square feet in thousands, except per square foot data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SS | | Total Portfolio(1) |
| 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Rental and related revenues | $ | 510,623 | | | $ | 499,227 | | | $ | 11,396 | | | $ | 604,505 | | | $ | 580,050 | | | $ | 24,455 | |
Income from direct financing leases | 16,665 | | | 16,349 | | | 316 | | | 16,666 | | | 16,349 | | | 317 | |
Healthpeak’s share of unconsolidated joint venture total revenues | 2,720 | | | 2,606 | | | 114 | | | 2,810 | | | 2,695 | | | 115 | |
Noncontrolling interests' share of consolidated joint venture total revenues | (18,140) | | | (17,689) | | | (451) | | | (33,998) | | | (18,042) | | | (15,956) | |
Operating expenses | (162,996) | | | (159,772) | | | (3,224) | | | (201,620) | | | (195,362) | | | (6,258) | |
Healthpeak's share of unconsolidated joint venture operating expenses | (1,107) | | | (1,052) | | | (55) | | | (1,107) | | | (1,053) | | | (54) | |
Noncontrolling interests' share of consolidated joint venture operating expenses | 5,288 | | | 5,288 | | | — | | | 10,109 | | | 4,591 | | | 5,518 | |
| | | | | | | | | | | |
Adjustments to NOI(2) | (3,641) | | | (5,232) | | | 1,591 | | | (4,602) | | | (5,953) | | | 1,351 | |
Adjusted NOI | $ | 349,412 | | | $ | 339,725 | | | $ | 9,687 | | | 392,763 | | | 383,275 | | | 9,488 | |
Less: non-SS Adjusted NOI | | | | | | | (43,351) | | | (43,550) | | | 199 | |
SS Adjusted NOI | | | | | | | $ | 349,412 | | | $ | 339,725 | | | $ | 9,687 | |
Adjusted NOI % change | | | | | 2.9 | % | | | | | | |
Property count(3) | 241 | | | 241 | | | | | 281 | | | 283 | | | |
End of period occupancy | 93.2 | % | | 93.5 | % | | | | 92.3 | % | | 92.7 | % | | |
Average occupancy | 93.2 | % | | 93.4 | % | | | | 92.3 | % | | 92.6 | % | | |
Average occupied square feet | 18,016 | | | 18,014 | | | | | 20,736 | | | 20,329 | | | |
Average annual total revenues per occupied square foot | $ | 29 | | | $ | 29 | | | | | $ | 30 | | | $ | 29 | | | |
Average annual base rent per occupied square foot(4) | $ | 25 | | | $ | 25 | | | | | $ | 26 | | | $ | 25 | | | |
(1)Total Portfolio includes results of operations from disposed properties through the disposition date.
(2)Represents adjustments to NOI in accordance with the Company’s definition of Adjusted NOI. Refer to “Non-GAAP Measures” above for definitions of NOI and Adjusted NOI.
(3)From our 2018 presentation of Same-Store, we removed eight MOBs that were sold, three MOBs that were placed into redevelopment, and two MOBs that were classified as held for sale.
(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, DFL non-cash interest, and deferred revenues).
Same-Store Adjusted NOI increased primarily as a result of the following:
•mark-to-market lease renewals; and
•annual rent escalations.higher operating expenses.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store and the following Non-Same-Store impacts:
•2018 and 2019increased NOI from our 2022 acquisitions;
•business interruption proceeds related to a demolished asset; and
•increased occupancy in former redevelopment and development and redevelopment properties that have been placed intoin service; partially offset by
•dispositions during 2018decreased NOI from our 2022 and 2019.2023 dispositions.
Continuing Care Retirement Community
2020 and 2019
The following table summarizes results at and for the years ended December 31, 20202023 and 20192022 (dollars in thousands, except per unit data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SS(1) | | Total Portfolio(2) |
| 2020 | | 2019 | | Change | | 2020 | | 2019 | | Change |
Resident fees and services | $ | — | | | $ | — | | | $ | — | | | $ | 436,494 | | | $ | 3,010 | | | $ | 433,484 | |
Government grant income(3) | — | | | — | | | — | | | 16,198 | | | — | | | 16,198 | |
Healthpeak’s share of unconsolidated joint venture total revenues | — | | | — | | | — | | | 35,392 | | | 211,377 | | | (175,985) | |
Healthpeak's share of unconsolidated joint venture government grant income | — | | | — | | | — | | | 920 | | | — | | | 920 | |
Operating expenses | — | | | — | | | — | | | (440,528) | | | (2,215) | | | (438,313) | |
Healthpeak's share of unconsolidated joint venture operating expenses | — | | | — | | | — | | | (32,125) | | | (170,473) | | | 138,348 | |
| | | | | | | | | | | |
Adjustments to NOI(4) | — | | | — | | | — | | | 97,072 | | | 16,985 | | | 80,087 | |
Adjusted NOI | $ | — | | | $ | — | | | $ | — | | | 113,423 | | | 58,684 | | | 54,739 | |
Less: non-SS Adjusted NOI | | | | | | | (113,423) | | | (58,684) | | | (54,739) | |
SS Adjusted NOI | | | | | | | $ | — | | | $ | — | | | $ | — | |
Adjusted NOI % change | | | | | — | % | | | | | | |
Property count | — | | | — | | | | | 17 | | | 17 | | | |
Average occupancy | — | % | | — | % | | | | 81.4 | % | | 85.6 | % | | |
Average capacity (units)(5) | — | | | — | | | | | 8,323 | | | 7,310 | | | |
Average annual rent per unit | $ | — | | | $ | — | | | | | $ | 63,252 | | | $ | 64,337 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SS | | Total Portfolio |
| Year Ended December 31, | | Year Ended December 31, |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Resident fees and services | $ | 526,769 | | | $ | 494,935 | | | $ | 31,834 | | | $ | 527,417 | | | $ | 494,935 | | | $ | 32,482 | |
Government grant income(1) | — | | | — | | | — | | | 184 | | | 6,765 | | | (6,581) | |
| | | | | | | | | | | |
Healthpeak’s share of unconsolidated joint venture government grant income | — | | | — | | | — | | | — | | | 380 | | | (380) | |
Operating expenses | (411,539) | | | (398,915) | | | (12,624) | | | (413,472) | | | (400,539) | | | (12,933) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Adjustments to NOI(2) | (1,618) | | | 2,300 | | | (3,918) | | | (1,618) | | | 2,300 | | | (3,918) | |
Adjusted NOI | $ | 113,612 | | | $ | 98,320 | | | $ | 15,292 | | | 112,511 | | | 103,841 | | | 8,670 | |
Plus (less): non-SS adjustments | | | | | | | 1,101 | | | (5,521) | | | 6,622 | |
SS Adjusted NOI | | | | | | | $ | 113,612 | | | $ | 98,320 | | | $ | 15,292 | |
Adjusted NOI % change | | | | | 15.6 | % | | | | | | |
Property count(3) | 15 | | | 15 | | | | | 15 | | | 15 | | | |
Average occupancy(4) | 83.8 | % | | 81.6 | % | | | | 83.9 | % | | 81.6 | % | | |
Average occupied units(5) | 5,952 | | | 5,926 | | | | | 5,960 | | | 5,926 | | | |
Average annual rent per occupied unit | $ | 88,503 | | | $ | 83,519 | | | | | $ | 88,524 | | | $ | 84,725 | | | |
(1)All CCRC properties are excluded from the Same-Store population as they experienced a change in reporting structure, underwent an operator transition during the periods presented, or are classified as held for sale. As such, no Same-Store results are presented in the table above.
(2)Total Portfolio includes results of operations from disposed properties and properties that transferred segments through the disposition or transfer date.
(3)Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the consolidated statementsConsolidated Statements of operations.Operations.
(4)(2)Represents adjustments to NOI in accordance with the Company’sour definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(3)From our 2022 presentation of Same-Store, no properties were added or removed.
(4)Refer to “Non-GAAP Financial Measures” above for the definition of Same-Store. Total Portfolio occupancy excludes any of the following: (i) developments, (ii) significant redevelopments, (iii) newly completed properties under lease-up, and (iv) properties held for sale.
(5)Represents average capacityoccupied units as reported by the respective tenants or operators for the 12-monthtwelve-month period.
Same-Store Adjusted NOI increased primarily as a result of the following:
•increased rates for resident fees; and
•higher occupancy; partially offset by
•higher costs of labor, management fees, insurance, real estate taxes, utilities, and food; and
•lower business interruption insurance proceeds.
Total Portfolio Adjusted NOI increased primarily as a result of the following:
•aforementioned increases to Same-Store, partially offset by decreased government grant income received under the acquisition of the remaining 51% interest in 13 communities previously held in a joint venture during the first quarter of 2020; and
•the transfer of two CCRC properties that converted from triple-net leases to RIDEA structures during the fourth quarter of 2019.
CARES Act.
2019 and 2018
The following table summarizes results at and for the years ended December 31, 2019 and 2018 (dollars in thousands, except per unit data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SS | | Total Portfolio(1) |
| 2019 | | 2018 | | Change | | 2019 | | 2018 | | Change |
Resident fees and services | $ | — | | | $ | — | | | $ | — | | | $ | 3,010 | | | $ | — | | | $ | 3,010 | |
| | | | | | | | | | | |
Healthpeak’s share of unconsolidated joint venture total revenues | — | | | — | | | — | | | 211,377 | | | 206,221 | | | 5,156 | |
| | | | | | | | | | | |
Operating expenses | — | | | — | | | — | | | (2,215) | | | — | | | (2,215) | |
Healthpeak's share of unconsolidated joint venture operating expenses | — | | | — | | | — | | | (170,473) | | | (166,414) | | | (4,059) | |
| | | | | | | | | | | |
Adjustments to NOI(3) | — | | | — | | | — | | | 16,985 | | | 15,504 | | | 1,481 | |
Adjusted NOI | $ | — | | | $ | — | | | $ | — | | | 58,684 | | | 55,311 | | | 3,373 | |
Less: non-SS Adjusted NOI | | | | | | | (58,684) | | | (55,311) | | | (3,373) | |
SS Adjusted NOI | | | | | | | $ | — | | | $ | — | | | $ | — | |
Adjusted NOI % change | | | | | — | % | | | | | | |
Property count | — | | | — | | | | | 17 | | | 15 | | | |
Average occupancy | — | % | | — | % | | | | 85.6 | % | | 85.8 | % | | |
Average capacity (units)(4) | — | | | — | | | | | 7,310 | | | 7,263 | | | |
Average annual rent per unit | $ | — | | | $ | — | | | | | $ | 64,337 | | | $ | 62,531 | | | |
(1)All CCRC properties are excluded from the Same-Store population as they experienced a change in reporting structure, underwent an operator transition during the periods presented, or are classified as held for sale. As such, no Same-Store results are presented in the table above.
(2)Total Portfolio includes results of operations from disposed properties and properties that transferred segments through the disposition or transfer date.
(3)Represents adjustments to NOI in accordance with the Company’s definition of Adjusted NOI. Refer to “Non-GAAP Measures” above for definitions of NOI and Adjusted NOI.
(4)Represents average capacity as reported by the respective tenants or operators for the 12-month period.
Total Portfolio Adjusted NOI increased as a result of the transfer of two CCRC properties that converted from triple-net leases to RIDEA structures during the fourth quarter of 2019 and an increase in our share of Total Portfolio Adjusted NOI from the CCRC JV.
Other Income and Expense Items
The following table summarizes the results of our other income and expense items for the years ended December 31, 2020, 20192023 and 20182022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | | 2020 vs. | | 2019 vs. |
| 2020 | | 2019 | | 2018 | | 2019 | | 2018 |
Interest income | $ | 16,553 | | | $ | 9,844 | | | $ | 10,406 | | | $ | 6,709 | | | $ | (562) | |
Interest expense | 218,336 | | | 217,612 | | | 261,280 | | | 724 | | | (43,668) | |
Depreciation and amortization | 553,949 | | | 435,191 | | | 404,681 | | | 118,758 | | | 30,510 | |
General and administrative | 93,237 | | | 92,966 | | | 96,702 | | | 271 | | | (3,736) | |
Transaction costs | 18,342 | | | 1,963 | | | 1,137 | | | 16,379 | | | 826 | |
Impairments and loan loss reserves (recoveries), net | 42,909 | | | 17,708 | | | 10,917 | | | 25,201 | | | 6,791 | |
Gain (loss) on sales of real estate, net | 90,350 | | | (40) | | | 831,368 | | | 90,390 | | | (831,408) | |
Loss on debt extinguishments | (42,912) | | | (58,364) | | | (44,162) | | | 15,452 | | | (14,202) | |
Other income (expense), net | 234,684 | | | 165,069 | | | 13,425 | | | 69,615 | | | 151,644 | |
Income tax benefit (expense) | 9,423 | | | 5,479 | | | 4,396 | | | 3,944 | | | 1,083 | |
Equity income (loss) from unconsolidated joint ventures | (66,599) | | | (6,330) | | | (5,755) | | | (60,269) | | | (575) | |
Income (loss) from discontinued operations | 267,746 | | | (115,408) | | | 236,256 | | | 383,154 | | | (351,664) | |
Noncontrolling interests’ share in continuing operations | (14,394) | | | (14,558) | | | (12,294) | | | 164 | | | (2,264) | |
Noncontrolling interests’ share in discontinued operations | (296) | | | 27 | | | (87) | | | (323) | | | 114 | |
Interest income | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | Change |
Interest income | $ | 21,781 | | | $ | 23,300 | | | $ | (1,519) | |
Interest expense | 200,331 | | | 172,944 | | | 27,387 | |
Depreciation and amortization | 749,901 | | | 710,569 | | | 39,332 | |
General and administrative | 95,132 | | | 131,033 | | | (35,901) | |
Transaction and merger-related costs | 17,515 | | | 4,853 | | | 12,662 | |
Impairments and loan loss reserves (recoveries), net | (5,601) | | | 7,004 | | | (12,605) | |
Gain (loss) on sales of real estate, net | 86,463 | | | 9,078 | | | 77,385 | |
| | | | | |
Other income (expense), net | 6,808 | | | 326,268 | | | (319,460) | |
Income tax benefit (expense) | 9,617 | | | 4,425 | | | 5,192 | |
Equity income (loss) from unconsolidated joint ventures | 10,204 | | | 1,985 | | | 8,219 | |
Income (loss) from discontinued operations | — | | | 2,884 | | | (2,884) | |
Noncontrolling interests’ share in continuing operations | (28,748) | | | (15,975) | | | (12,773) | |
| | | | | |
Interest income
Interest income decreased for the year ended December 31, 2023 primarily as a result of principal repayments on loans receivable in 2022 and 2023, partially offset by higher interest rates.
Interest expense
Interest expense increased for the year ended December 31, 20202023 primarily as a result of new loans and additional funding of existing loans.
Interest expense
Interest expense decreased for the year ended December 31, 2019 primarily as a result of senior unsecured notes repurchases and redemptions during 2018 and 2019, partially offset byof: (i) senior unsecured notes issued during 2019.the first half of 2023, (ii) borrowings under the Term Loan Facilities, which were drawn during the fourth quarter of 2022, and (iii) higher interest rates on the commercial paper program, partially offset by lower borrowings on the commercial paper program.
Depreciation and amortization expense
Depreciation and amortization expense increased for the year ended December 31, 20202023 primarily as a result of: (i) the acquisition of Brookdale’s interest in and consolidation of 13 CCRCs during the first quarter of 2020, (ii) assets acquired during 2019 and 2020, and (iii) development and redevelopment projects placed intoin service during 20192022 and 2020. The increase was2023, partially offset byby: (i) assets placed into redevelopment in 2023, (ii) dispositions of real estate throughout 2019in 2022 and 2020.
Depreciation2023, and amortization expense increased for(iii) lower depreciation related to the year ended December 31, 2019 primarily as a resultdeconsolidation of (i) assets acquiredseven previously consolidated lab buildings in South San Francisco, California during 2018 and 2019 and (ii) development and redevelopment projects placed into service during 2018 and 2019, partially offset by dispositionsthe third quarter of real estate throughout 2018 and 2019.2022.
General and administrative expense
General and administrative expenses decreased for the year ended December 31, 20192023 primarily as a result of decreased severance and relatedof: (i) severance-related charges driven byassociated with the departuredepartures of our former Chief Executive ChairmanOfficer and our former Chief Legal Officer and General Counsel in March 2018, partially offset by higher compensation coststhe fourth quarter of 2022 and (ii) charges incurred in 2019.connection with the downsizing of our corporate headquarters in Denver, Colorado in the fourth quarter of 2022.
Transaction and merger-related costs
Transaction and merger-related costs increased for the year ended December 31, 20202023 primarily as a result of costs associated withrelated to the transitionMergers, which are primarily comprised of 13 CCRCs from Brookdalelegal, accounting, tax, and other costs that were incurred during the fourth quarter of 2023 (see Note 1 to LCS in January 2020.the Consolidated Financial Statements).
Impairments and loan loss reserves (recoveries), net
The impairment charges recognized in each period vary depending on facts and circumstances related to each asset and are impacted by negotiations with potential buyers, current operations of the assets, and other factors.
Impairments and loan loss reserves (recoveries), net increaseddecreased for the year ended December 31, 2020 primarily2023 as a result of: (i) an increase related to buildings we intend to demolish and (ii) an increaseof a decrease in credit lossesloan loss reserves under the current expected credit losses model (which we began usingmodel. The change in conjunction with our adoption of ASU 2016-13 on January 1, 2020).
Impairments and loan loss reserves (recoveries), net increased for the year ended December 31, 2019 as2023 is primarily a result of: (i) principal repayments on seller financing, (ii) increased interest rates on variable rate loans, and (iii) macroeconomic conditions.
Gain (loss) on sales of real estate, net
DuringGain on sales of real estate, net increased during the year ended December 31, 2020, we sold:2023 primarily as a result of: (i) 11 MOBs, (ii) 2 MOB land parcels, and (iii) 1 facility from the other non-reportable segment, resulting in total$60 million gain on sales of $90 million.
Duringtwo lab buildings in Durham, North Carolina, which were sold during the yearthree months ended DecemberMarch 31, 2019, we sold: (i) our remaining 49% interest in our U.K. joint venture,2023 and (ii) 11 MOBs, (iii) 1 life science asset, (iv) 1 undeveloped life science land parcel, and (v) 1 facility from other non-reportable segments, resulting in no material gain or loss on sale.
During the year ended December 31, 2018, we sold: (i) a 51% interest in substantially all the U.K. assets previously owned by the Company, (ii) 16 life science assets, and (iii) 4 MOBs, resulting in total$21 million gain on sales of $831 million.
Losstwo outpatient medical buildings, which were sold during the three months ended March 31, 2023, partially offset by: (i) the $4 million gain on debt extinguishments
sale of one lab building, which was sold during the three months ended March 31, 2022, (ii) the $10 million gain on sales of three outpatient medical buildings and one outpatient medical land parcel, which were sold during the three months ended June 30, 2022, and (iii) the $1 million gain on sales of two outpatient medical buildings, which were sold during the three months ended September 30, 2022.Refer to Note 114 to the Consolidated Financial Statements for additional information regarding unsecured note repurchases, repayments, and redemptionsdispositions of real estate and the associated lossgain (loss) on debt extinguishmentssales recognized.
Other income (expense), net
Other income, (expense), net increaseddecreased for the year ended December 31, 20202023 primarily as a result of: (i) a gain upon change of control related to the acquisitionsale of the outstanding equitya 30% interest and deconsolidation of seven previously consolidated lab buildings in 13 CCRCs from BrookdaleSouth San Francisco, California during the firstthird quarter of 2020;2022, (ii) a gain on sale related toassociated with the saledisposition of a hospital underlyingunder a DFL during the first quarter of 2020;2022, and (iii) a decrease in government grant income received under the CARES Act during 2020.in 2023. The increase was partially offset by a gain upon change of control recognizeddecrease in 2019 related to a senior housing joint venture with a sovereign wealth fund (see Note 4 to the Consolidated Financial Statements).
Otherother income, (expense), net increased forduring the year ended December 31, 2019 primarily as a result of (i) a gain upon change of control recognized in 2019 related to a senior housing joint venture with a sovereign wealth fund and (ii) a loss upon change of control of seven U.K. care homes in March 2018 (see Note 19 to the Consolidated Financial Statements). The increase in other income (expense), net2023 was partially offset byby: (i) other expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building, which were incurred in the first quarter of 2022 and (ii) casualty losses from a gain upon changehurricane in the third quarter of control related to the acquisition of the outstanding equity interests in three life science joint ventures in November 2018.2022.
Income tax benefit (expense)
Income tax benefit increased for the year ended December 31, 20202023 primarily as a result of thea $14 million tax benefits related to the purchase of Brookdale’s interest in 13 of the 15 communities in the CCRC JV, including the management termination fee expense paid to Brookdalebenefit recognized in connection with transitioning managementthe reversal of 13 CCRCs to LCS, and the extension of the net operating loss carryback period provided by the CARES Act, partially offset by a deferred tax asset valuation allowance and correspondingduring the fourth quarter of 2023 (see Note 16 to the Consolidated Financial Statements), partially offset by an increase in operating income tax expense recognized in 2020.associated with our CCRCs.
Equity income (loss) from unconsolidated joint ventures
Equity income from unconsolidated joint ventures decreasedincreased for the year ended December 31, 20202023 primarily as a result of our share of net losses from an unconsolidated joint venture owning 19 SHOP assets that was formed in December 2019, partially offset by no longer recognizing the operating results of 13 CCRCs in equity income (loss) from unconsolidated joint ventures as we acquired Brookdale’s interest and now consolidate those facilities. The decrease is further offset by our share of a gain on sale of one asset in an unconsolidated joint venture during the first quarter of 2020.
Equityincreased income from unconsolidated joint ventures decreased for the year ended December 31, 2019 primarily as a result of an impairment charge recognized related to one asset classified as held-for-sale in the CCRC JV (see Note 9 to the Consolidated Financial Statements)South San Francisco JVs and the sale of our equity method investment in RIDEA II in June 2018, partially offset by additional equity income from our previously-held investment in the U.K.SWF SH JV.
Income (loss) from discontinued operations
Income from discontinued operations decreased for the year ended December 31, 2023 a result of the completion of dispositions of our senior housing portfolios.
Noncontrolling interests’ share in continuing operations
Noncontrolling interests’ share in continuing operations increased for the year ended December 31, 20202023 primarily as a result of: (i) increasedof a gain on salessale of real estate from the disposal of multiple senior housing portfolios during 2019 and 2020; (ii) decreased depreciation and amortization expense due to assets being disposed of or classified as held for sale throughout 2019 and 2020 and assets that were fully depreciatedan outpatient medical building in 2019 and 2020; (iii) government grant income received under the CARES Act during 2020; and (iv) NOI from acquisitions during 2019. The increase in income (loss) from discontinued operations was partially offset by: (i) decreased NOI from dispositions of real estate during 2019 and 2020 and (ii) increased expenses and decreased occupancy related to COVID-19.
Income (loss) from discontinued operations decreased for the year ended December 31, 2019 primarily as a result of: (i) decreased gain on sales of real estate; (ii) increased impairment charges due to additional asset being classified as held for sale in 2019; (iii) increased depreciation and amortization expense due to acquisitions of real estate during 2018 and 2019; (iv) decreased NOI from dispositions of real estate during 2018 and 2019. The decrease in income (loss) from discontinued operations was partially offset by: (i) increased other income (expense), net from a gain upon change of control related to consolidating a senior housingconsolidated joint venture in 2019 and (ii) additional NOI from acquisitionsthat was sold during 2018 and 2019.the second quarter of 2023.
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 at least the next 12 months and for the foreseeable future for purposes of: (i) costs incurred to consummate the Mergers and the other transactions contemplated in the Merger Agreement; (ii) funding recurring operating expenses; (ii)(iii) meeting debt service requirements; and (iii)(iv) satisfying ourfunding of distributions to our stockholders and non-controlling interest members. During the year ended December 31, 2020, distributions to common shareholders and noncontrolling interest holders exceeded cash flows from operations by approximately $66 million. Distributions wereare 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.
OurIn addition to funding the activities above, our principal investing liquidity needs for the next 12 months are to:
•fund capital expenditures, including tenant improvements and leasing costscosts; 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 investing 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 bank line of creditRevolving 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.equivalent, including sales of common stock under the ATM Program (as defined below).
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 two senior unsecured delayed draw term loans with an aggregate principal amount of $500 million (the “Term Loan Facilities”) and our bank line of credit and term loanRevolving Facility accrue interest at a rate per annum equal to LIBORthe Secured Overnight Financing Rate (“SOFR”) plus a margin that depends uponon the credit ratings of our senior unsecured long termlong-term debt. We also pay a facility fee on the entire revolving commitment under our Revolving Facility that depends upon our credit ratings. As of February 8, 2021,7, 2024, 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 from Moody’s and A-2 and F2 from Moody's, S&P Global, and Fitch, respectively.Global.
A downgrade in credit ratings by Moody’s or S&P Global and Fitch may have a negative impact on the interest rates of our Revolving Facility and Term Loan Facilities and facility fees for our bank lineRevolving Facility, and may negatively impact the pricing of creditnotes issued under our commercial paper program and term loan.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 2020 ATM Program, (as defined below), 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 “COVID-19 Update”“Market Trends and Uncertainties” above for a more comprehensive discussion of the potential impact of COVID-19economic and market conditions on our business.
Material Cash Requirements
Our material cash requirements include the below contractual and other obligations.
Debt. As of December 31, 2023, we had total debt of $6.9 billion, including borrowings under our Revolving Facility and commercial paper program, senior unsecured notes, term loans, and mortgage debt. Of our total debt, the total amount payable within twelve months is comprised of $7 million of mortgage debt. Future interest payments associated with borrowings under our Revolving Facility, senior unsecured notes, term loans, and mortgage debt total $1.4 billion, $220 million of which are payable within twelve months. Future interest payments associated with commercial paper borrowings payable within the next twelve months total $21 million, assuming no change in interest rates and borrowings remain outstanding for the next twelve months. Commercial paper borrowings are backstopped by our Revolving Facility. As such, we calculate the weighted average remaining term of our commercial paper borrowings using the maturity date of our Revolving Facility. Additionally, we have secured commitments for the 2024 Term Loan, to be incurred as an incremental facility under our existing term loan agreement. In January 2024, we entered into forward-starting interest rate swap instruments that are designated as cash flow hedges that will effectively establish a fixed interest rate for the 2024 Term Loan at a blended contractual rate of 4.5%. See Note 10 to the Consolidated Financial Statements for additional information about our debt commitments.
Development and redevelopment commitments. Our development and redevelopment commitments represent construction and other commitments for development and redevelopment projects in progress and includes certain allowances for Company-owned tenant improvements that we have provided as a lessor. As of December 31, 2023, we had $152 million of development and redevelopment commitments, $135 million of which we expect to spend within the next twelve months.
Lease and other contractual commitments. Our lease and other contractual commitments represent our commitments, as lessor, under signed leases and contracts for operating properties and include allowances for Company-owned tenant improvements and leasing commissions. These commitments exclude allowances for Company-owned tenant improvements related to developments and redevelopments in progress for which we have executed an agreement with a general contractor to complete the tenant improvements, which are recognized as development and redevelopment commitments and are discussed further above. As of December 31, 2023, we had total lease and other contractual commitments of $28 million, $26 million of which we expect to spend within the next twelve months.
Construction loan commitments. Due to the terms of our SHOP seller financing notes receivable, as of December 31, 2023, we are obligated to provide additional loans up to $29 millionto fund senior housing redevelopment capital expenditure projects, which extend through 2024. See Note 7 to the Consolidated Financial Statements for additional information.
Ground and other operating lease commitments. Our ground and other operating lease commitments represent our commitments as lessee under signed operating leases. As of December 31, 2023, we had total ground and other operating lease commitments of $542 million, $17 million of which are payable within twelve months. See Note 6 to the Consolidated Financial Statements for additional information.
Redeemable noncontrolling interests.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 of December 31, 2023, three of the redeemable noncontrolling interests have met the conditions for redemption, but were not yet exercised. As of December 31, 2023, the redemption value of our redeemable noncontrolling interests was $49 million. See Note 12 to the Consolidated Financial Statements for additional information.
Success-Based Fees. We have engaged service providers, including investment banks and advisors, to help us negotiate the terms of the Mergers and to advise us on other merger-related matters. In connection with these services, we expect to be required to pay success-based fees to the extent that certain conditions, including the closing of the Mergers, are met. As of December 31, 2023, we expect to incur approximately $22 million of such success fees upon closing of the Mergers during the first quarter of 2024. As closing of the Mergers has not occurred, no such amounts have been paid or accrued through December 31, 2023. See Note 1 to the Consolidated Financial Statements for additional information.
Distribution and Dividend Requirements. Our dividend policy on our common stock is to distribute a percentage of our cash flow to ensure that we meet the dividend requirements of the Code, relative to maintaining our REIT status, while still allowing us to retain cash to fund capital improvements and other investment activities. Under the Code, REITs may be subject to certain federal income and excise taxes on undistributed taxable income. We paid quarterly cash dividends of $0.30 per common share in 2023. Our future common dividends, if and as declared, may vary and will be determined by the Board based upon the circumstances prevailing at the time, including our financial condition.
Off-Balance Sheet Arrangements
We own interests in certain unconsolidated joint ventures as described in Note 8 to the Consolidated Financial Statements. Two of these joint ventures have aggregate mortgage debt of $88 million, of which our share is $40 million. Except in limited circumstances, our risk of loss is limited to our investment in the applicable joint venture. We have no other material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.
Inflation
A significant portion of our revenues are derived from leases that generally provide for fixed rental rates, subject to annual escalations. A period of high inflation could result in increases in the Consumer Price Index in excess of our fixed annual escalations. Certain of our leases provide that annual rent is modified based on changes in the Consumer Price Index or other thresholds.
Most of our outpatient medical leases require the tenant to pay a share of property operating costs such as real estate taxes, insurance, and utilities. Substantially all of our lab leases require the tenant or operator to pay all of the property operating costs or reimburse us for all such costs.
Labor costs, costs of construction materials, interest, utilities, and other operating costs may increase during periods of inflation. Inflationary increases in expenses will generally be offset, in whole or in part, by the tenant expense reimbursements and contractual rent increases described above.
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.
The following table sets forth changes in cash flows (in thousands):
| | Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | Change |
Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | $ | 758,431 | | | $ | 846,073 | | | $ | 848,709 | |
Net cash provided by (used in) investing activities | Net cash provided by (used in) investing activities | (1,007,700) | | | (1,448,778) | | | 1,829,279 | |
Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | 246,450 | | | 647,271 | | | (2,620,536) | |
Operating Cash Flows
Operating cash flow decreased $88 million between the years ended December 31, 2020 and 2019 primarily as the result of: (i) the termination fee paid to Brookdale in connection with the CCRC Acquisition; (ii) assets sold during 2019 and 2020, and (iii) additional expenses and decreased occupancy in our SHOP and CCRC assets related to COVID-19. The decrease in operating cash flow is partially offset by: (i) 2019 and 2020 acquisitions, (ii) annual rent increases, (iii) new leasing activity; (iv) developments and redevelopments placed in service during 2019 and 2020, and (v) increased interest received from new loan investments.
Operating cash flow decreased $3 million between the years ended December 31, 2019 and 2018 primarily as the result of: (i) dispositions during 2018 and 2019 and (ii) occupancy declines and higher labor costs within our SHOP assets. The decrease in operating cash flow is partially offset by: (i) 2018 and 2019 acquisitions, (ii) annual rent increases, (iii) developments and redevelopments placed in service during 2018 and 2019, and (iv) decreased interest paid as a result of debt repayments during 2018 and 2019.
Our cash flowflows from operations isare 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 Our net cash provided by operating activities increased $56 million for the year ended December 31, 2020:2023 compared to the year ended December 31, 2022 primarily as a result of: (i) developments and redevelopments placed in service during 2022 and 2023, (ii) annual rent increases, (iii) higher nonrefundable entrance fee collections, and (iv) new leasing and renewal activity. The increase in net cash provided by operating activities was partially offset by: (i) an increase in interest expense and (ii) an increase in property operating expenses.
•Investing Cash Flows
Our cash flows from investing activities are generally used to fund acquisitions, developments, and redevelopments of real estate, net of proceeds received net proceeds of $1.5 billion primarily from (i) sales of real estate, assets (includingsales of DFLs, and repayments on loans receivable. Our net cash used in investing activities decreased $300 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of the following: (i) a reduction in acquisitions of real estate, assets under DFLs) and (ii) sales and repayments of loans receivable; and
•made investments of $2.5 billionprimarily related to the (i) acquisition,a reduction in development and redevelopment of real estate, and (ii) funding of loan investments.
The following are significant investing activities for(iii) an increase in proceeds from the year ended December 31, 2019:
•received net proceeds of$976 millionprimarily from: (i) sales of real estate, assets (including real estate assets under DFLs), (ii) the sale of our investment(iv) an increase in the U.K. JV,proceeds from principal repayments on loans receivable and (iii)marketable debt securities, and (v) an increase in proceeds from insurance recoveries. The decrease in cash used in investing activities was partially offset by: (i) proceeds received in 2022 from the sale of a 46.5%30% interest in 19seven previously consolidated SHOP assets;lab buildings in South San Francisco, California and
•made (ii) higher investments of $2.4 billion primarilyin unconsolidated joint ventures related to the (i) acquisition, development, and redevelopment of real estate and (ii) funding of loan investments.redevelopment projects.
The following are significant investing activities for the year ended December 31, 2018:
•received net proceeds of $2.9 billion primarily from: (i) sales of real estate assets, (ii) the sale of RIDEA II, (iii) the sale of the Tandem Mezzanine Loan, and (iv) the U.K. JV transaction; and
•made investments of $1.1 billion primarily for the acquisition and development of real estate.
Financing Cash FlowsOff-Balance Sheet Arrangements
The following are significant financing activities for the year ended December 31, 2020:•made net borrowings of $16 million primarily under our bank line of credit, commercial paper, and senior unsecured notes (including debt extinguishment costs);
•paid cash dividends on common stock of $787 million; and
•issued common stock of $1.1 billion.
The following are significant financing activities for the year ended December 31, 2019:
•made net borrowings of $573 million primarily under our bank line of credit, commercial paper, term loan, and senior unsecured notes (including debt extinguishment costs);
•paid cash dividends on common stock of $720 million; and
•issued common stock of $796 million.
The following are significant financing activities for the year ended December 31, 2018:
•repaid $2.4 billion of debt under our: (i) bank line of credit, (ii) term loan, (iii) senior unsecured notes (including debt extinguishment costs) and (iv) mortgage debt;
•paid cash dividends on common stock of $697 million;
•paid $83 million for distributions to and purchases of noncontrollingWe own interests primarily related to our acquisition of Brookdale’s noncontrolling interest in RIDEA I;
•raised net proceeds of $218 million from the issuances of common stock, primarily from our at-the-market equity program; and
•received proceeds of $300 million for issuances of noncontrolling interests.
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 disclosedcertain unconsolidated joint ventures as described in Note 188 to the Consolidated Financial Statements. The absenceTwo of future cash flows from discontinued operationsthese joint ventures have aggregate mortgage debt of $88 million, of which our share is not expected$40 million. Except in limited circumstances, our risk of loss is limited to significantly impactour investment in the applicable joint venture. We have no other material off-balance sheet arrangements that we expect would materially affect our liquidity asand capital resources.
Inflation
A significant portion of our revenues are derived from leases that generally provide for fixed rental rates, subject to annual escalations. A period of high inflation could result in increases in the proceeds from senior housing triple-net and SHOP dispositions are expected to be usedConsumer Price Index in excess of our fixed annual escalations. Certain of our leases provide that annual rent is modified based on changes in the Consumer Price Index or other thresholds.
Most of our outpatient medical leases require the tenant to pay down debt and invest in additionala share of property operating costs such as 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 Liquiditytaxes, insurance, and Capital Resources section above for additional information regarding our liquidity.
Debt
Senior Unsecured Notes
In June 2020, we completed a public offering of $600 million in aggregate principal amountutilities. Substantially all of our 2031 Notes.
In June 2020, using a portionlab leases require the tenant or operator to pay all of the net proceeds fromproperty operating costs or reimburse us for all such costs.
Labor costs, costs of construction materials, interest, utilities, and other operating costs may increase during periods of inflation. Inflationary increases in expenses will generally be offset, in whole or in part, by the 2031 Notes offering, we repurchased $250 million aggregate principal amount of our 4.25% senior unsecured notes due in 2023.
In July 2020, using an additional portion of the net proceeds from the 2031 Notes offering, we redeemed all $300 million of our 3.15% senior unsecured notes due in 2022.
From January 1, 2021 to February 8, 2021, we repurchased $112 million aggregate principal amount of our 4.25% senior unsecured notes due in 2023, $201 million aggregate principal amount of our 4.20% senior unsecured notes due in 2024,tenant expense reimbursements and $469 million aggregate principal amount of our 3.88% senior unsecured notes due in 2024.
See Note 11 to the Consolidated Financial Statements for additional information about our outstanding debt.
Approximately 94%, 94%, and 99% of our consolidated debt, excluding debt classified as liabilities related to assets held for sale and discontinued operations, net, was fixed rate debt as of December 31, 2020, 2019 and 2018, respectively. At December 31, 2020, our fixed rate debt and variable rate debt had weighted average interest rates of 3.85% and 0.85%, respectively. At December 31, 2019, our fixed rate debt and variable rate debt had weighted average interest rates of 3.94% and 2.58%, respectively. At December 31, 2018, our fixed rate debt and variable rate debt had weighted average interest rates of 4.04% and 2.12%, respectively. We had $36 million, $42 million and $43 million of variable rate debt swapped to fixed through interest rate swaps as of December 31, 2020, 2019 and 2018, respectively, which is reported in liabilities related to assets held for sale and discontinued operations, net. For a more detailed discussion of our interest rate risk, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 3 below.contractual rent increases described above.
EquityCash Flow Summary
At December 31, 2020, we had 538 million shares of common stock outstanding, equity totaled $7.3 billion, and our equity securities had a market value of $16.5 billion.
At December 31, 2020, 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 sharesfollowing summary discussion of our common stock or, atcash 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 option, sharescash flows for the periods presented below.
The following table sets forth changes in cash flows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | Change |
Net cash provided by (used in) operating activities | $ | 956,242 | | | $ | 900,261 | | | $ | 55,981 | |
Net cash provided by (used in) investing activities | (576,754) | | | (876,343) | | | 299,589 | |
Net cash provided by (used in) financing activities | (337,299) | | | (116,532) | | | (220,767) | |
Operating Cash Flows
Our cash flows from operations are dependent upon the occupancy levels of our common stock (subject to certain adjustments, such as stock splitsbuildings, rental rates on leases, our tenants’ performance on their lease obligations, the level of operating expenses, and reclassifications). At December 31, 2020, the outstanding DownREIT units were convertible into approximately sevenother factors. Our net cash provided by operating activities increased $56 million shares of our common stock.
At-The-Market Program
In February 2020, we terminated our previous at-the-market equity offering program and concurrently established a new at-the-market equity offering program (the “2020 ATM Program”). In addition to the issuance and sale of shares of our common stock, we may also enter into one or more forward sales agreements with sales agents for the sale of our shares of common stock under our 2020 ATM Program.
During the year ended December 31, 2020, the Company settled all 16.8 million shares previously outstanding under ATM forward contracts at a weighted average net price of $31.38 per share, after commissions, resulting in net proceeds of $528 million.
At December 31, 2020, approximately $1.25 billion of our common stock remained available for sale under the 2020 ATM Program. Actual future sales of our common stock will depend upon a variety of factors, including but not limited2023 compared 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 2020 ATM Program.
Other than in connection with settlement of ATM forward contracts described above, during the year ended December 31, 2020, we did not issue any shares2022 primarily as a result of: (i) developments and redevelopments placed in service during 2022 and 2023, (ii) annual rent increases, (iii) higher nonrefundable entrance fee collections, and (iv) new leasing and renewal activity. The increase in net cash provided by operating activities was partially offset by: (i) an increase in interest expense and (ii) an increase in property operating expenses.
Investing Cash Flows
Our cash flows from investing activities are generally used to fund acquisitions, developments, and redevelopments of our common stock under our 2020 ATM Program.
See Note 13real estate, net of proceeds received from sales of real estate, sales of DFLs, and repayments on loans receivable. Our net cash used in investing activities decreased $300 million for the year ended December 31, 2023 compared to the Consolidated Financial Statements for additional information about our 2020 ATM Program and our previous at-the-market equity offering program.
Shelf Registration
In May 2018, we filedyear ended December 31, 2022 primarily as a prospectus with the SEC as part of a registration statement on Form S-3, using an automatic shelf registration process. This shelf registration statement expires in May 2021 and at or prior to such time, we expect to file a new shelf registration statement. Under the “shelf” process, we may sell any combinationresult of the securities describedfollowing: (i) a reduction in acquisitions of real estate, (ii) a reduction in development and redevelopment of real estate, (iii) an increase in proceeds from the prospectus through one or more offerings. The securities describedsales of real estate, (iv) an increase in the prospectus include common stock, preferred stock, depositary shares,proceeds from principal repayments on loans receivable and marketable debt securities, and warrants.
Contractual Obligations
The following table summarizes our material contractual payment obligationsa 30% interest in seven previously consolidated lab buildings in South San Francisco, California and commitments, excluding obligations and commitments(ii) higher investments in unconsolidated joint ventures related to assets classified as discontinued operations, at December 31, 2020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total(1) | | 2021 | | 2022-2023 | | 2024-2025 | | More than Five Years |
Bank line of credit | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Commercial paper | 129,590 | | | 129,590 | | | — | | | — | | | — | |
Term loan | 250,000 | | | — | | | — | | | 250,000 | | | — | |
Senior unsecured notes | 5,750,000 | | | — | | | 300,000 | | | 2,500,000 | | | 2,950,000 | |
Mortgage debt(2) | 216,780 | | | 13,015 | | | 94,717 | | | 6,259 | | | 102,789 | |
| | | | | | | | | |
Construction loan commitments(3) | 11,137 | | | 11,137 | | | — | | | — | | | — | |
Lease and other contractual commitments(4) | 109,126 | | | 94,124 | | | 15,002 | | | — | | | — | |
Development commitments(5) | 196,749 | | | 180,846 | | | 15,247 | | | 656 | | | — | |
Ground and other operating leases | 536,223 | | | 11,349 | | | 23,196 | | | 19,622 | | | 482,056 | |
| | | | | | | | | |
Interest(6) | 1,649,566 | | | 233,954 | | | 457,063 | | | 332,007 | | | 626,542 | |
Total | $ | 8,849,171 | | | $ | 674,015 | | | $ | 905,225 | | | $ | 3,108,544 | | | $ | 4,161,387 | |
(1)Excludes $4 millionthe funding of development commitments, $4 million of ground and other operating leases, and $111 million of interest related to assets classified as discontinued operations. See Note 5 to the Consolidated Financial Statements for further information regarding discontinued operations.
(2)Excludes mortgage debt on assets held for sale and discontinued operations of $319 million and mortgage debt from unconsolidated joint ventures.
(3)Represents loan commitments to finance development and redevelopment projects.
(4)Represents our commitments, as lessor, under signed leases and contracts for operating properties and includes allowances for tenant improvements and leasing commissions. Excludes allowances for tenant improvements related to developments in progress for which we have executed an agreement with a general contractor to complete the tenant improvements (recognized in the "Development commitments" line).
(5)Represents construction and other commitments for developments in progress and includes allowances for tenant improvements of $28 million that we have provided as a lessor.
(6)Interest on variable-rate debt is calculated using rates in effect at December 31, 2020.
Off-Balance Sheet Arrangements
We own interests in certain unconsolidated joint ventures as described in Note 98 to the Consolidated Financial Statements. Two of these joint ventures have aggregate mortgage debt of $88 million, of which our share is $40 million. Except in limited circumstances, our risk of loss is limited to our investment in the applicable joint venture and any outstanding loans receivable.venture. We have no other material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources except those described above under “Contractual Obligations”.
resources.
Inflation
A significant portion of our revenues are derived from leases oftenthat generally provide for either fixed rental rates, subject to annual escalations. A period of high inflation could result in increases in base rents or indexed escalators,the Consumer Price Index in excess of our fixed annual escalations. Certain of our leases provide that annual rent is modified based on changes in the Consumer Price Index or other measures, and/or additional rent based on increases in the tenants’ operating revenues. thresholds.
Most of our MOBoutpatient medical leases require the tenant to pay a share of property operating costs such as real estate taxes, insurance, and utilities. Substantially all of our senior housing triple-net, life science, and remaining otherlab leases require the tenant or operator to pay all of the property operating costs or reimburse us for all such costs. We believe that inflationary
Labor costs, costs of construction materials, interest, utilities, and other operating costs may increase during periods of inflation. Inflationary increases in expenses will generally be offset, in whole or in part, by the tenant or operator expense reimbursements and contractual rent increases described above.
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.
The following table sets forth changes in cash flows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | Change |
Net cash provided by (used in) operating activities | $ | 956,242 | | | $ | 900,261 | | | $ | 55,981 | |
Net cash provided by (used in) investing activities | (576,754) | | | (876,343) | | | 299,589 | |
Net cash provided by (used in) financing activities | (337,299) | | | (116,532) | | | (220,767) | |
Operating Cash Flows
Our cash flows from operations are 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. Our net cash provided by operating activities increased $56 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of: (i) developments and redevelopments placed in service during 2022 and 2023, (ii) annual rent increases, (iii) higher nonrefundable entrance fee collections, and (iv) new leasing and renewal activity. The increase in net cash provided by operating activities was partially offset by: (i) an increase in interest expense and (ii) an increase in property operating expenses.
Investing Cash Flows
Our cash flows from investing activities are generally used to fund acquisitions, developments, and redevelopments of real estate, net of proceeds received from sales of real estate, sales of DFLs, and repayments on loans receivable. Our net cash used in investing activities decreased $300 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of the following: (i) a reduction in acquisitions of real estate, (ii) a reduction in development and redevelopment of real estate, (iii) an increase in proceeds from the sales of real estate, (iv) an increase in proceeds from principal repayments on loans receivable and marketable debt securities, and (v) an increase in proceeds from insurance recoveries. The decrease in cash used in investing activities was partially offset by: (i) proceeds received in 2022 from the sale of a 30% interest in seven previously consolidated lab buildings in South San Francisco, California and (ii) higher investments in unconsolidated joint ventures related to the funding of redevelopment projects.
Financing Cash Flows
Our cash flows from financing activities are generally impacted by issuances of equity, borrowings and repayments under our bank line of credit and commercial paper program, senior unsecured notes, term loans, and mortgage debt, net of dividends paid to common shareholders. Our net cash used in financing activities increased $221 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of the following: (i) issuance of the the Term Loan Facilities in 2022, (ii) settlement of contracts under our ATM Program in 2022, (iii) higher net repayments under the commercial paper program, (iv) higher repayments of mortgage debt, and (v) increased distributions to noncontrolling interests. The increase in net cash used in financing activities was partially offset by: (i) proceeds received from the senior unsecured notes issuances in January 2023 and May 2023 and (ii) a reduction in repurchases of common stock.
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 17 to the Consolidated Financial Statements.
Debt
In January 2023 and May 2023, we completed public offerings of $750 million aggregate principal amount of 5.25% senior unsecured notes due 2032.
In February 2023, the Revolving Facility was amended to change the interest rate benchmark from LIBOR to SOFR.
Also in February 2023, the agreements associated with $142 million of variable rate mortgage debt were amended to change the interest rate benchmarks from LIBOR to SOFR, effective March 2023. Concurrently, we modified the related interest rate swap instruments to reflect the change in the interest rate benchmarks from LIBOR to SOFR.
We have secured commitments for the 2024 Term Loan, to be incurred as an incremental facility under our existing term loan agreement. In January 2024, we entered into forward-starting interest rate swap instruments that are designated as cash flow hedges that will effectively establish a fixed interest rate for the 2024 Term Loan at a blended contractual rate of 4.5%.
In addition to the 2024 Term Loan, we anticipate that our principal indebtedness will increase due to debt assumed in connection with the Mergers.
See Note 10 to the Consolidated Financial Statements for additional information about our outstanding debt.
Approximately 90% and 85% of our consolidated debt was fixed rate debt as of December 31, 2023 and 2022, respectively. At December 31, 2023, our fixed rate debt and variable rate debt had weighted average interest rates of 3.70% and 5.72%, respectively. At December 31, 2022, our fixed rate debt and variable rate debt had weighted average interest rates of 3.46% and 4.91%, respectively. As of December 31, 2023, we had $142 million of variable rate mortgage debt and the $500 million Term Loan Facilities swapped to fixed rates through interest rate swap instruments. These interest rate swap instruments are designated as cash flow hedges. 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 “Item 7A, Quantitative and Qualitative Disclosures About Market Risk” below.
Supplemental Guarantor Information
Healthpeak OP has issued the senior unsecured notes described in Note 10 to the Consolidated Financial Statements. The obligations of Healthpeak OP to pay principal, premiums, if any, and interest on such senior unsecured notes are guaranteed on a full and unconditional basis by the Company.
Subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the parent guarantee is “full and unconditional”, the subsidiary obligor is a consolidated subsidiary of the parent company, the guaranteed security is debt or debt-like, and consolidated financial statements of the parent company have been filed. Accordingly, separate consolidated financial statements of Healthpeak OP have not been presented.
As permitted under Rule 13-01 of Regulation S-X, we have excluded the summarized financial information for the operating subsidiary because the Company and Healthpeak OP have no material assets, liabilities, or operations other than debt financing activities and their investments in non-guarantor subsidiaries, and management believes such summarized financial information would be repetitive and would not provide incremental value to investors.
Equity
At December 31, 2023, we had 547 million shares of common stock outstanding, equity totaled $6.9 billion, and our equity securities had a market value of $11.0 billion.
The Merger Agreement
Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, each outstanding share of Physicians Realty Trust will be converted into the right to receive 0.674 shares of our common stock when the Mergers are consummated. Based on the number of outstanding Physicians Realty Trust common shares as of January 8, 2024 (the record date for the special meetings of stockholders), we expect to issue approximately 163 million shares of our common stock when the Mergers are consummated.
At-The-Market Program
In February 2023, in connection with the Reorganization, we terminated our previous at-the-market equity offering program and established a new at-the-market equity offering program (the “ATM Program”) that allows for the sale of shares of common stock having an aggregate gross sales price of up to $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 ended December 31, 2023, we did not issue any shares of our common stock under any ATM program.
At December 31, 2023, $1.5 billionof 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 shares under our ATM Program.
See Note 12 to the Consolidated Financial Statements for additional information about our ATM Program.
Noncontrolling Interests
Healthpeak OP. Immediately following the Reorganization, Healthpeak Properties, Inc. was the initial sole member and 100% owner of Healthpeak OP. Subsequent to the Reorganization, certain of our employees (“OP Unitholders”) were issued approximately 2 million noncontrolling, non-managing member units in Healthpeak OP (“OP Units”), all of which were LTIP Units (see Note 14 to the Consolidated Financial Statements). When certain conditions are met, the OP Unitholders have the right to require redemption of part or all of their OP Units for cash or shares of our common stock, at our option as managing member of Healthpeak OP. The per unit redemption amount is equal to either one share of our common stock or cash equal to the fair value of a share of common stock at the time of redemption. We classify the OP Units in permanent equity because we may elect, in our sole discretion, to issue shares of our common stock to OP Unitholders who choose to redeem their OP Units rather than using cash. None of the outstanding OP Units met the criteria for redemption as of December 31, 2023.
DownREITs. At December 31, 2023, non-managing members held an aggregate of approximately 5 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). At December 31, 2023, the outstanding DownREIT units were convertible into approximately 7 million shares of our common stock.
Share Repurchase Program
On August 1, 2022, our Board of Directors approved the 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. 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 in August 2024 and may be suspended or terminated at any time without prior notice. During the year ended December 31, 2022, we repurchased 2.1 million shares of our common stock at a weighted average price of $27.16 per share for a total of $56 million. During the year ended December 31, 2023, there were no repurchases under the Share Repurchase Program. Therefore, at December 31, 2023, $444 million of our common stock remained available for repurchase under the Share Repurchase Program.
Shelf Registration
In February 2024, the Company and Healthpeak OP jointly filed a prospectus with the SEC as part of a registration statement on Form S-3, using an automatic shelf registration process. This shelf registration statement expires on February 8, 2027 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 future offerings of (i) the Company’s common stock, preferred stock, depositary shares, warrants, debt securities, and guarantees by the Company of debt securities issued by Healthpeak OP and/or by the Company’s existing and future subsidiaries, and (ii) Healthpeak OP’s debt securities and guarantees by Healthpeak OP of debt securities issued by the Company and/or by Healthpeak OP’s existing and future subsidiaries.
Non-GAAP Financial MeasureMeasures Reconciliations
Funds From Operations
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 NAREITNareit FFO, FFO as Adjusted, and AFFO (in thousands, except per share data)thousands):
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| Year Ended December 31, |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | | | |
Net income (loss) applicable to common shares | $ | 411,147 | | | $ | 43,987 | | | $ | 1,058,424 | | | $ | 413,013 | | | $ | 626,549 | | | | | |
Real estate related depreciation and amortization | 697,143 | | | 659,989 | | | 549,499 | | | 534,726 | | | 572,998 | | | | | |
Healthpeak's share of real estate related depreciation and amortization from unconsolidated joint ventures | 105,090 | | | 60,303 | | | 63,967 | | | 60,058 | | | 49,043 | | | | | |
Noncontrolling interests' share of real estate related depreciation and amortization | (19,906) | | | (20,054) | | | (11,795) | | | (15,069) | | | (21,001) | | | | | |
Other real estate-related depreciation and amortization | 2,766 | | | 6,155 | | | 6,977 | | | 9,364 | | | 11,919 | | | | | |
Loss (gain) on sales of depreciable real estate, net | (550,494) | | | (22,900) | | | (925,985) | | | (356,641) | | | (164,698) | | | | | |
Healthpeak's share of loss (gain) on sales of depreciable real estate, net, from unconsolidated joint ventures | (9,248) | | | (2,118) | | | — | | | (1,430) | | | (16,332) | | | | | |
Noncontrolling interests' share of gain (loss) on sales of depreciable real estate, net | (3) | | | 335 | | | — | | | — | | | 224 | | | | | |
Loss (gain) upon change of control, net(1) | (159,973) | | | (166,707) | | | (9,154) | | | — | | | — | | | | | |
Taxes associated with real estate dispositions(2) | (7,785) | | | — | | | 3,913 | | | (5,498) | | | 60,451 | | | | | |
Impairments (recoveries) of depreciable real estate, net | 224,630 | | | 221,317 | | | 44,343 | | | 22,590 | | | — | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
NAREIT FFO applicable to common shares | 693,367 | | | 780,307 | | | 780,189 | | | 661,113 | | | 1,119,153 | | | | | |
Distributions on dilutive convertible units and other | 6,662 | | | 6,592 | | | — | | | — | | | 8,732 | | | | | |
Diluted NAREIT FFO applicable to common shares | $ | 700,029 | | | $ | 786,899 | | | $ | 780,189 | | | $ | 661,113 | | | $ | 1,127,885 | | | | | |
Weighted average shares outstanding - diluted NAREIT FFO | 536,562 | | | 494,335 | | | 470,719 | | | 468,935 | | | 471,566 | | | | | |
| | | | | | | | | | | | | |
Impact of adjustments to NAREIT FFO: | | | | | | | | | | | | | |
Transaction-related items(3) | $ | 128,619 | | | $ | 15,347 | | | $ | 11,029 | | | $ | 62,576 | | | $ | 96,586 | | | | | |
Other impairments (recoveries) and other losses (gains), net(4) | (22,046) | | | 10,147 | | | 7,619 | | | 92,900 | | | — | | | | | |
Restructuring and severance related charges(5) | 2,911 | | | 5,063 | | | 13,906 | | | 5,000 | | | 16,965 | | | | | |
Loss on debt extinguishments | 42,912 | | | 58,364 | | | 44,162 | | | 54,227 | | | 46,020 | | | | | |
Litigation costs (recoveries) | 232 | | | (520) | | | 363 | | | 15,637 | | | 3,081 | | | | | |
Casualty-related charges (recoveries), net | 469 | | | (4,106) | | | — | | | 10,964 | | | — | | | | | |
Foreign currency remeasurement losses (gains) | 153 | | | (250) | | | (35) | | | (1,043) | | | 585 | | | | | |
Valuation allowance on deferred tax assets(6) | 31,161 | | | — | | | — | | | — | | | — | | | | | |
Tax rate legislation impact(7) | (3,590) | | | — | | | — | | | 17,028 | | | — | | | | | |
Total adjustments | $ | 180,821 | | | $ | 84,045 | | | $ | 77,044 | | | $ | 257,289 | | | $ | 163,237 | | | | | |
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FFO as Adjusted applicable to common shares | $ | 874,188 | | | $ | 864,352 | | | $ | 857,233 | | | $ | 918,402 | | | $ | 1,282,390 | | | | | |
Distributions on dilutive convertible units and other | 6,490 | | | 6,396 | | | (198) | | | 6,657 | | | 12,849 | | | | | |
Diluted FFO as Adjusted applicable to common shares | $ | 880,678 | | | $ | 870,748 | | | $ | 857,035 | | | $ | 925,059 | | | $ | 1,295,239 | | | | | |
Weighted average shares outstanding - diluted FFO as Adjusted | 536,562 | | | 494,335 | | | 470,719 | | | 473,620 | | | 473,340 | | | | | |
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FFO as Adjusted applicable to common shares | $ | 874,188 | | | $ | 864,352 | | | $ | 857,233 | | | $ | 918,402 | | | $ | 1,282,390 | | | | | |
Amortization of deferred compensation | 17,368 | | | 14,790 | | | 14,714 | | | 13,510 | | | 15,581 | | | | | |
Amortization of deferred financing costs | 10,157 | | | 10,863 | | | 12,612 | | | 14,569 | | | 20,014 | | | | | |
Straight-line rents | (29,316) | | | (28,451) | | | (23,138) | | | (23,933) | | | (27,560) | | | | | |
| | | | | | | | | | | | | |
AFFO capital expenditures | (93,579) | | | (108,844) | | | (106,193) | | | (113,471) | | | (88,953) | | | | | |
Lease restructure payments | 1,321 | | | 1,153 | | | 1,195 | | | 1,470 | | | 16,604 | | | | | |
CCRC entrance fees(8) | — | | | 18,856 | | | 17,880 | | | 21,385 | | | 21,287 | | | | | |
Deferred income taxes | (15,647) | | | (18,972) | | | (18,744) | | | (15,490) | | | (13,692) | | | | | |
Other AFFO adjustments(9) | 8,213 | | | (7,927) | | | (9,162) | | | (12,722) | | | (9,975) | | | | | |
AFFO applicable to common shares | 772,705 | | | 745,820 | | | 746,397 | | | 803,720 | | | 1,215,696 | | | | | |
Distributions on dilutive convertible units and other | 6,662 | | | 6,591 | | | — | | | — | | | 13,088 | | | | | |
Diluted AFFO applicable to common shares | $ | 779,367 | | | $ | 752,411 | | | $ | 746,397 | | | $ | 803,720 | | | $ | 1,228,784 | | | | | |
Weighted average shares outstanding - diluted AFFO | 536,562 | | | 494,335 | | | 470,719 | | | 468,935 | | | 473,340 | | | | | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Net income (loss) applicable to common shares | $ | 304,284 | | | $ | 497,792 | | | $ | 502,271 | |
Real estate related depreciation and amortization | 749,901 | | | 710,569 | | | 684,286 | |
Healthpeak’s share of real estate related depreciation and amortization from unconsolidated joint ventures | 24,800 | | | 27,691 | | | 17,085 | |
Noncontrolling interests’ share of real estate related depreciation and amortization | (18,654) | | | (19,201) | | | (19,367) | |
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Loss (gain) on sales of depreciable real estate, net(1) | (86,463) | | | (10,422) | | | (605,311) | |
Healthpeak’s share of loss (gain) on sales of depreciable real estate, net, from unconsolidated joint ventures | — | | | 134 | | | (6,737) | |
Noncontrolling interests’ share of gain (loss) on sales of depreciable real estate, net | 11,546 | | | 12 | | | 5,555 | |
Loss (gain) upon change of control, net(2) | (234) | | | (311,438) | | | (1,042) | |
Taxes associated with real estate dispositions | — | | | 29 | | | 2,666 | |
Impairments (recoveries) of depreciable real estate, net | — | | | — | | | 25,320 | |
| | | | | |
| | | | | |
Nareit FFO applicable to common shares | 985,180 | | | 895,166 | | | 604,726 | |
Distributions on dilutive convertible units and other | 9,394 | | | 9,407 | | | 6,162 | |
Diluted Nareit FFO applicable to common shares | $ | 994,574 | | | $ | 904,573 | | | $ | 610,888 | |
| | | | | |
| | | | | |
Impact of adjustments to Nareit FFO: | | | | | |
Transaction and merger-related items(3) | $ | 13,835 | | | $ | 4,788 | | | $ | 7,044 | |
Other impairments (recoveries) and other losses (gains), net(4) | (3,850) | | | 3,829 | | | 24,238 | |
Restructuring and severance-related charges(5) | 1,368 | | | 32,749 | | | 3,610 | |
Loss (gain) on debt extinguishments | — | | | — | | | 225,824 | |
| | | | | |
Casualty-related charges (recoveries), net(6) | (4,033) | | | 4,401 | | | 5,203 | |
| | | | | |
Recognition (reversal) of valuation allowance on deferred tax assets(7) | (14,194) | | | — | | | — | |
| | | | | |
Total adjustments | $ | (6,874) | | | $ | 45,767 | | | $ | 265,919 | |
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FFO as Adjusted applicable to common shares | $ | 978,306 | | | $ | 940,933 | | | $ | 870,645 | |
Distributions on dilutive convertible units and other | 9,402 | | | 9,326 | | | 8,577 | |
Diluted FFO as Adjusted applicable to common shares | $ | 987,708 | | | $ | 950,259 | | | $ | 879,222 | |
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| | | | | |
FFO as Adjusted applicable to common shares | $ | 978,306 | | | $ | 940,933 | | | $ | 870,645 | |
Stock-based compensation amortization expense | 14,480 | | | 16,537 | | | 18,202 | |
Amortization of deferred financing costs | 11,916 | | | 10,881 | | | 9,216 | |
Straight-line rents(8) | (14,387) | | | (49,183) | | | (31,188) | |
| | | | | |
AFFO capital expenditures | (113,596) | | | (108,510) | | | (111,480) | |
| | | | | |
| | | | | |
Deferred income taxes | (816) | | | (4,096) | | | (8,015) | |
Amortization of above (below) market lease intangibles, net | (25,791) | | | (23,380) | | | (17,978) | |
Other AFFO adjustments | (9,335) | | | 520 | | | (1,532) | |
AFFO applicable to common shares | 840,777 | | | 783,702 | | | 727,870 | |
Distributions on dilutive convertible units and other | 6,581 | | | 6,594 | | | 6,164 | |
Diluted AFFO applicable to common shares | $ | 847,358 | | | $ | 790,296 | | | $ | 734,034 | |
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Refer to footnotes on the next page.
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| Year Ended December 31, |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | | | | |
Diluted earnings per common share | $ | 0.77 | | | $ | 0.09 | | | $ | 2.24 | | | $ | 0.88 | | | $ | 1.34 | | | | | |
Depreciation and amortization | 1.47 | | | 1.43 | | | 1.30 | | | 1.25 | | | 1.30 | | | | | |
Loss (gain) on sales of depreciable real estate, net | (1.05) | | | (0.04) | | | (1.96) | | | (0.76) | | | (0.38) | | | | | |
Loss (gain) upon change of control, net(1) | (0.30) | | | (0.34) | | | (0.02) | | | — | | | — | | | | | |
Taxes associated with real estate dispositions(2) | (0.01) | | | — | | | 0.01 | | | (0.01) | | | 0.13 | | | | | |
Impairments (recoveries) of depreciable real estate, net | 0.42 | | | 0.45 | | | 0.09 | | | 0.05 | | | — | | | | | |
Diluted NAREIT FFO per common share | $ | 1.30 | | | $ | 1.59 | | | $ | 1.66 | | | $ | 1.41 | | | $ | 2.39 | | | | | |
Transaction-related items(3) | 0.24 | | | 0.03 | | | 0.02 | | | 0.13 | | | 0.20 | | | | | |
Other impairments (recoveries) and other losses (gains), net(4) | (0.04) | | | 0.02 | | | 0.02 | | | 0.20 | | | — | | | | | |
Restructuring and severance related charges(5) | 0.01 | | | 0.01 | | | 0.03 | | | 0.01 | | | 0.04 | | | | | |
Loss on debt extinguishments | 0.08 | | | 0.12 | | | 0.09 | | | 0.11 | | | 0.10 | | | | | |
Litigation costs (recoveries) | — | | | — | | | — | | | 0.03 | | | 0.01 | | | | | |
Casualty-related charges (recoveries), net | — | | | (0.01) | | | — | | | 0.02 | | | — | | | | | |
| | | | | | | | | | | | | |
Valuation allowance on deferred tax assets(6) | 0.06 | | | — | | | — | | | — | | | — | | | | | |
Tax rate legislation impact(7) | (0.01) | | | — | | | — | | | 0.04 | | | — | | | | | |
Diluted FFO as Adjusted per common share | $ | 1.64 | | | $ | 1.76 | | | $ | 1.82 | | | $ | 1.95 | | | $ | 2.74 | | | | | |
(1)ForThis 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 year ended December 31, 2020,2022 includes a $170 million gain upon consolidationchange of 13 CCRCscontrol related to the sale of a 30% interest to a sovereign wealth fund and deconsolidation of seven previously consolidated lab buildings in which we acquired Brookdale's interest and began consolidating duringSouth San Francisco, California. The gain upon change of control is included in other income (expense), net in the first quarterConsolidated Statements of 2020. For theOperations.
(3)The year ended December 31, 2019,2023 includes a $161 million gain upon deconsolidationcosts related to the Mergers, which are primarily comprised of 19 previously consolidated SHOP assetslegal, accounting, tax, and other costs that were contributed into a new unconsolidated senior housing joint ventureincurred prior to year-end, partially offset by termination fee income associated with a sovereign wealth fund. ForGraphite Bio, Inc., for which the lease terms have been modified to accelerate expiration of the lease to December 2024. Termination fee income is included in rental and related revenues on the Consolidated Statements of Operations.
(4)The year ended December 31, 2018, represents2022 includes the gain upon consolidation related tofollowing: (i) $7 million of charges incurred in connection with the acquisitiondownsizing of our partner's interestscorporate headquarters in four previously unconsolidated life science assets, partially offset byDenver, Colorado, which are included in general and administrative expenses in the loss upon consolidationConsolidated Statements of seven U.K. care homes. GainsOperations, (ii) $14 million of expenses incurred for tenant relocation and losses upon changeother costs associated with the demolition of controlan outpatient medical building, which are included in other income (expense), net in the consolidated statementsConsolidated Statements of operations.
(2)For the year ended December 31, 2016, represents income tax expense associated with the state built-in gain tax payable upon the disposition of specific real estate assets, of which $49Operations, and (iii) a $23 million relates to the HCR ManorCare, Inc. ("HCRMC") real estate portfolio that we spun-off in 2016.
(3)For the year ended December 31, 2020, includes the termination fee and transition fee expenses related to terminating the management agreements with Brookdale for 13 CCRCs and transitioning those communities to LCS, partially offset by the tax benefit related to those expenses. The expenses related to terminating management agreements are included in operating expenses in the consolidated statements of operations. For the year ended December 31, 2017, includes $55 million of net non-cash charges related to the right to terminate certain triple-net leases and management agreements in conjunction with the 2017 Brookdale Transactions. For the year ended December 31, 2016, primarily relates to the spin-off of Quality Care Properties, Inc.
(4)For the year ended December 31, 2020, includes reserves for loan losses under the current expected credit losses accounting standard in accordance with Accounting Standards Codification 326, Financial Instruments – Credit Losses ("ASC 326"). The year ended December 31, 2020 also includes a gain on sale of a hospital that was inunder a DFL, andwhich is included in other income (expense), net in the impairmentConsolidated Statements of an undeveloped MOB land parcel, which was sold during the third quarter. For theOperations. The year ended December 31, 2019, represents2021 includes the following: (i) a $29 million goodwill impairment of 13charge in connection with our senior housing triple-net facilities under DFLsand SHOP asset sales, which is reported in income (loss) from discontinued operations in the Consolidated Statements of Operations and (ii) $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 years ended December 31, 2023, 2022, and 2021 include reserves and (recoveries) for expected loan losses recognized as a resultin impairments and loan loss reserves (recoveries), net in the Consolidated Statements of entering into sales agreements. For theOperations.
(5)The year ended December 31, 2018, primarily relates2022 includes $32 million of severance-related charges associated with the departures of our former Chief Executive Officer and former Chief Legal Officer and General Counsel in the fourth quarter of 2022. These expenses are included in general and administrative expenses in the Consolidated Statements of Operations.
(6)Casualty-related charges (recoveries), net are recognized in other income (expense), net and equity income (loss) from unconsolidated joint ventures in the Consolidated Statements of Operations.
(7)In conjunction with classifying the assets related to the impairment of an undeveloped life science land parcel classifiedCallan Ridge JV (see Note 8 to the Consolidated Financial Statements) as held for sale partially offset by an impairment recovery upon the saleas of a mezzanine loan investment in March 2018. For the year ended December 31, 2017, relates to $144 million of impairments on our Tandem Mezzanine Loan, net of a $51 million impairment recovery upon the sale of a senior notes investment.
(5)For the year ended December 31, 2018, primarily relates to the departure of our former Executive Chairman and corporate restructuring activities. For the year ended December 31, 2017, primarily relates to the departure of our former Chief Accounting Officer. For the year ended December 31, 2016, primarily relates to the departure of our former President and Chief Executive Officer.
(6)For the year ended December 31, 2020, represents the valuation allowance and corresponding income tax expense related to deferred tax assets2023, we concluded it was more likely than not that are no longer expected to be realized as a result of our plan to dispose of our SHOP portfolio. We determined we were unlikely to hold the assets long enough towould realize the future value of certain deferred tax assets generated by the net operating losses of our taxable REIT subsidiaries.
(7)For Accordingly, during the year ended December 31, 2020, represents2023, we recognized the reversal of a portion of the associated valuation allowance and recognized a corresponding income tax benefit frombenefit. See Note 16 to the CARES Act, which extended the net operating loss carryback period to five years. For theConsolidated Financial Statements for additional information.
(8)The year ended December 31, 2017, represents2023 includes a $9 million write-off of straight-line rent receivable associated with Sorrento Therapeutics, Inc., which commenced voluntary reorganization proceedings under Chapter 11 of the remeasurement of deferred tax assets and liabilitiesU.S. Bankruptcy Code. This activity is reflected as a resultreduction of the Tax Cutsrental and Jobs Act that was signed into legislation on December 22, 2017.
(8)In connection with the acquisition of the remaining 51% interestrelated revenues in the CCRC JV in January 2020, we consolidated the 13 communities in the CCRC JV and recorded the assets and liabilities at their acquisition date relative fair values, including the CCRC contract liabilities associated with previously collected non-refundable entrance fees. In conjunction with increasing those CCRC contract liabilities to their fair value, we concluded that we will no longer adjust for the timing difference between non-refundable entrance fees collected and amortized as we believe the amortizationConsolidated Statements of these fees is a meaningful representation of how we satisfy the performance obligations of the fees. As such, upon consolidation of the CCRC assets, we no longer exclude the difference between CCRC entrance fees collected and amortized from the calculation of AFFO. For comparative periods presented, the adjustment continues to represent our 49% share of non-refundable entrance fees collected by the CCRC JV, net of reserves and net of CCRC JV entrance fee amortization.Operations.
(9)Primarily includes our share of AFFO capital expenditures from unconsolidated joint ventures, partially offset by noncontrolling interests' share of AFFO capital expenditures from consolidated joint ventures. For the year ended December 31, 2020, includes an increase to insurance claims that have been incurred but not yet reported on the 13 CCRCs in which we acquired Brookdale's interest and began consolidating during the first quarter of 2020 and senior housing triple-net assets that transitioned to RIDEA structures during the year.
Critical Accounting PoliciesEstimates
The preparation of financial statements in conformity with U.S. GAAP requires our management to use judgment in the application of critical accounting policies, including making 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 could affect the reported amountsour financial position or results 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.operations. 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. For a more detailed discussion of our significant accounting policies, see Note 2 to the Consolidated Financial Statements. Below is a discussion of accounting policiesestimates that we consider critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain. For a more detailed discussion of our significant accounting policies, including those related to critical accounting estimates further discussed below, see Note 2 to the Consolidated Financial Statements.
PrinciplesImpairment of ConsolidationLong-Lived Assets
We assess the carrying value of our real estate assets and related intangibles (“real estate assets”) when events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability of real estate assets is measured by comparing the carrying amount of the real estate assets to the respective estimated future undiscounted cash flows. The expected future undiscounted cash flows reflect external market factors, and based on the specific facts and circumstances, may be probability-weighted to reflect multiple possible cash-flow scenarios, including selling the assets at various points in the future. Additionally, the estimated future undiscounted cash flows are calculated utilizing the lowest level of identifiable cash flows that are largely independent of the cash flows of other assets and liabilities. In order to review our real estate assets for recoverability, we make assumptions regarding external market conditions (including capitalization rates and growth rates), forecasted cash flows and sales prices, and our intent with respect to holding or disposing of the asset. If our analysis indicates that the carrying value of the real estate assets is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the carrying value exceeds the fair value of the real estate assets.
Determining the fair value of real estate assets, including assets classified as held for sale, involves significant judgment and generally utilizes market capitalization rates, comparable market transactions, estimated per unit or per square foot prices, negotiations with prospective buyers, and forecasted cash flows (primarily lease revenue rates, expense rates, and growth rates). Our ability to accurately predict future operating results and resulting cash flows, and estimate fair values, impacts the timing and recognition of impairments. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for the impact of new accounting standards.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, primarily from the potential loss arising from adverse changes in interest rates. We use derivative and other financial instruments in the normal course of business to mitigate interest rate risk. We do not use derivative financial instruments for speculative or trading purposes. Derivatives are recorded on the Consolidated Balance Sheets at fair value (see Note 21 to the Consolidated Financial Statements).
To illustrate the effect of movements in the interest rate markets, we performed a market sensitivity analysis on our hedging instruments. We applied various basis point spreads to the underlying interest rate curves of our derivative portfolio in order to determine the change in fair value. At December 31, 2023, a one percentage point increase or decrease in the underlying interest rate curve would result in a corresponding increase or decrease in the fair value of the derivative instruments by up to $18 million.
Interest Rate Risk
At December 31, 2023, our exposure to interest rate risk was primarily on our variable rate debt. At December 31, 2023, $142 million of our variable rate mortgage debt and our $500 million Term Loan Facilities were swapped to fixed rates through interest rate swap instruments. The interest rate swap instruments are designated as cash flow hedges, with the objective of managing the exposure to interest rate risk by converting the interest rates on our variable rate debt to fixed interest rates. At December 31, 2023, both the fair value and carrying value of the interest rate swap instruments were $21 million.
Our remaining variable rate debt at December 31, 2023 was comprised of borrowings under our commercial paper program and certain of our mortgage debt. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt and assets until their maturity or earlier prepayment and refinancing. If interest rates have risen at the time we seek to refinance our fixed rate debt, whether at maturity or otherwise, our future earnings and cash flows could be adversely affected by additional borrowing costs. Conversely, lower interest rates at the time of refinancing may reduce our overall borrowing costs. Interest rate changes will affect the fair value of our fixed rate instruments. At December 31, 2023, a one percentage point increase in interest rates would decrease the fair value of our fixed rate debt by approximately $255 million and a one percentage point decrease in interest rates would increase the fair value of our fixed rate debt by approximately $272 million. These changes would not materially impact earnings or cash flows. Conversely, changes in interest rates on variable rate debt would change our future earnings and cash flows, but not materially impact the fair value of those instruments. Assuming a one percentage point increase in the interest rates related to our variable rate debt, and assuming no other changes in the outstanding balance at December 31, 2023, our annual interest expense would increase by approximately $7 million. Lastly, assuming a one percentage point decrease in the interest rates related to our variable rate loans receivable, and assuming no other changes in the outstanding balance at December 31, 2023, our annual interest income would decrease by approximately $2 million.
ITEM 8. Financial Statements and Supplementary Data
Healthpeak Properties, Inc.
Index to the Consolidated Financial Statements
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Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) | | |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Healthpeak Properties, Inc.
Opinion on the Financial Statements
We have audited the accompanying Consolidated Balance Sheets of Healthpeak Properties, Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related Consolidated Statements of Operations, Comprehensive Income (Loss), Equity and Redeemable Noncontrolling Interests, and Cash Flows, for each of the three years in the period ended December 31, 2023, and the related Notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 9, 2024, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairments — Real Estate — Refer to Notes 2 and 5 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of impairment of real estate involves an assessment of the carrying value of real estate assets and related intangibles (“real estate assets”) when events or changes in circumstances indicate that the carrying value may not be recoverable.
Auditing the Company’s process to evaluate real estate assets for impairment was complex due to the subjectivity in determining whether impairment indicators were present. Additionally, for real estate assets where indicators of impairment were determined to be present, the determination of the future undiscounted cash flows involved significant judgment. In particular, the undiscounted cash flows were forecasted based on significant assumptions such as lease-up periods, lease revenue rates, operating expenses, and revenue and expense growth rates, and included judgments around the intended hold period and terminal capitalization rates.
Given the Company’s evaluation of impairment indicators, forecasted cash flows and sales prices of a long-lived asset requires management to make significant estimates and assumptions related to market capitalization rates, market prices per unit, and/or forecasted cash flows, performing audit procedures required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to real estate asset impairment included the following, among others:
•We tested the effectiveness of controls over impairment of real estate assets, including those over identifying impairment indicators and the determination of forecasted undiscounted cash flows and sales prices for real estate assets.
•We performed an independent search for impairment indicators through the evaluation of several factors including an analysis of industry and market data, a comparison of real estate asset implied capitalization rates to market capitalization rates, and trends in financial performance.
•For real estate assets where indicators of impairment were determined to be present, we subjected a sample of undiscounted cash flow models to testing by (1) evaluating the source information used by management, (2) testing the mathematical accuracy of the undiscounted cash flow models, (3) evaluating management’s intended hold period, and (4) performing an independent recoverability test based on market data.
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/s/ DELOITTE & TOUCHE LLP | |
Costa Mesa, California
February 9, 2024
We have served as the Company’s auditor since 2010.
Healthpeak Properties, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
ASSETS | | | |
Real estate: | | | |
Buildings and improvements | $ | 13,329,464 | | | $ | 12,784,078 | |
Development costs and construction in progress | 643,217 | | | 760,355 | |
Land and improvements | 2,647,633 | | | 2,667,188 | |
Accumulated depreciation and amortization | (3,591,951) | | | (3,188,138) | |
Net real estate | 13,028,363 | | | 13,023,483 | |
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Loans receivable, net of reserves of $2,830 and $8,280 | 218,450 | | | 374,832 | |
Investments in and advances to unconsolidated joint ventures | 782,853 | | | 706,677 | |
Accounts receivable, net of allowance of $2,282 and $2,399 | 55,820 | | | 53,436 | |
Cash and cash equivalents | 117,635 | | | 72,032 | |
Restricted cash | 51,388 | | | 54,802 | |
Intangible assets, net | 314,156 | | | 418,061 | |
Assets held for sale, net | 117,986 | | | 49,866 | |
Right-of-use asset, net | 240,155 | | | 237,318 | |
Other assets, net | 772,044 | | | 780,722 | |
Total assets | $ | 15,698,850 | | | $ | 15,771,229 | |
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LIABILITIES AND EQUITY | | | |
Bank line of credit and commercial paper | $ | 720,000 | | | $ | 995,606 | |
Term loans | 496,824 | | | 495,957 | |
Senior unsecured notes | 5,403,378 | | | 4,659,451 | |
Mortgage debt | 256,097 | | | 346,599 | |
Intangible liabilities, net | 127,380 | | | 156,193 | |
Liabilities related to assets held for sale, net | 729 | | | 4,070 | |
Lease liability | 206,743 | | | 208,515 | |
Accounts payable, accrued liabilities, and other liabilities | 657,196 | | | 772,485 | |
Deferred revenue | 905,633 | | | 844,076 | |
Total liabilities | 8,773,980 | | | 8,482,952 | |
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Commitments and contingencies (Note 11) | | | |
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Redeemable noncontrolling interests | 48,828 | | | 105,679 | |
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Common stock, $1.00 par value: 750,000,000 shares authorized; 547,156,311 and 546,641,973 shares issued and outstanding | 547,156 | | | 546,642 | |
Additional paid-in capital | 10,405,780 | | | 10,349,614 | |
Cumulative dividends in excess of earnings | (4,621,861) | | | (4,269,689) | |
Accumulated other comprehensive income (loss) | 19,371 | | | 28,134 | |
Total stockholders’ equity | 6,350,446 | | | 6,654,701 | |
Joint venture partners | 310,998 | | | 327,721 | |
Non-managing member unitholders | 214,598 | | | 200,176 | |
Total noncontrolling interests | 525,596 | | | 527,897 | |
Total equity | 6,876,042 | | | 7,182,598 | |
Total liabilities and equity | $ | 15,698,850 | | | $ | 15,771,229 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
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| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Revenues: | | | | | |
Rental and related revenues | $ | 1,631,805 | | | $ | 1,541,775 | | | $ | 1,378,384 | |
Resident fees and services | 527,417 | | | 494,935 | | | 471,325 | |
Interest income | 21,781 | | | 23,300 | | | 37,773 | |
Income from direct financing leases | — | | | 1,168 | | | 8,702 | |
Total revenues | 2,181,003 | | | 2,061,178 | | | 1,896,184 | |
Costs and expenses: | | | | | |
Interest expense | 200,331 | | | 172,944 | | | 157,980 | |
Depreciation and amortization | 749,901 | | | 710,569 | | | 684,286 | |
Operating | 902,060 | | | 862,991 | | | 773,279 | |
General and administrative | 95,132 | | | 131,033 | | | 98,303 | |
Transaction and merger-related costs | 17,515 | | | 4,853 | | | 1,841 | |
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Impairments and loan loss reserves (recoveries), net | (5,601) | | | 7,004 | | | 23,160 | |
Total costs and expenses | 1,959,338 | | | 1,889,394 | | | 1,738,849 | |
Other income (expense): | | | | | |
Gain (loss) on sales of real estate, net | 86,463 | | | 9,078 | | | 190,590 | |
Gain (loss) on debt extinguishments | — | | | — | | | (225,824) | |
Other income (expense), net | 6,808 | | | 326,268 | | | 6,266 | |
Total other income (expense), net | 93,271 | | | 335,346 | | | (28,968) | |
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | 314,936 | | | 507,130 | | | 128,367 | |
Income tax benefit (expense) | 9,617 | | | 4,425 | | | 3,261 | |
Equity income (loss) from unconsolidated joint ventures | 10,204 | | | 1,985 | | | 6,100 | |
Income (loss) from continuing operations | 334,757 | | | 513,540 | | | 137,728 | |
Income (loss) from discontinued operations | — | | | 2,884 | | | 388,202 | |
Net income (loss) | 334,757 | | | 516,424 | | | 525,930 | |
Noncontrolling interests’ share in continuing operations | (28,748) | | | (15,975) | | | (17,851) | |
Noncontrolling interests’ share in discontinued operations | — | | | — | | | (2,539) | |
Net income (loss) attributable to Healthpeak Properties, Inc. | 306,009 | | | 500,449 | | | 505,540 | |
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Participating securities’ share in earnings | (1,725) | | | (2,657) | | | (3,269) | |
Net income (loss) applicable to common shares | $ | 304,284 | | | $ | 497,792 | | | $ | 502,271 | |
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Basic earnings (loss) per common share: | | | | | |
Continuing operations | $ | 0.56 | | | $ | 0.92 | | | $ | 0.22 | |
Discontinued operations | — | | | 0.00 | | | 0.71 | |
Net income (loss) applicable to common shares | $ | 0.56 | | | $ | 0.92 | | | $ | 0.93 | |
Diluted earnings (loss) per common share: | | | | | |
Continuing operations | $ | 0.56 | | | $ | 0.92 | | | $ | 0.22 | |
Discontinued operations | — | | | 0.00 | | | 0.71 | |
Net income (loss) applicable to common shares | $ | 0.56 | | | $ | 0.92 | | | $ | 0.93 | |
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Weighted average shares outstanding: | | | | | |
Basic | 547,006 | | | 538,809 | | | 538,930 | |
Diluted | 547,275 | | | 539,147 | | | 539,241 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
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| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Net income (loss) | $ | 334,757 | | | $ | 516,424 | | | $ | 525,930 | |
Other comprehensive income (loss): | | | | | |
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Net unrealized gains (losses) on derivatives | (8,900) | | | 30,145 | | | 332 | |
Change in Supplemental Executive Retirement Plan obligation and other | 137 | | | 1,136 | | | 457 | |
Reclassification adjustment realized in net income (loss) | — | | | — | | | (251) | |
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Total other comprehensive income (loss) | (8,763) | | | 31,281 | | | 538 | |
Total comprehensive income (loss) | 325,994 | | | 547,705 | | | 526,468 | |
Total comprehensive (income) loss attributable to noncontrolling interests’ share in continuing operations | (28,748) | | | (15,975) | | | (17,851) | |
Total comprehensive (income) loss attributable to noncontrolling interests’ share in discontinued operations | — | | | — | | | (2,539) | |
Total comprehensive income (loss) attributable to Healthpeak Properties, Inc. | $ | 297,246 | | | $ | 531,730 | | | $ | 506,078 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
(In thousands, except per share data)
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| Common Stock | | | | | | | | | | | | | | |
| Shares | | Amount | | Additional Paid-In Capital | | Cumulative Dividends In Excess Of Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Total Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
December 31, 2020 | 538,405 | | | $ | 538,405 | | | $ | 10,175,235 | | | $ | (3,976,232) | | | $ | (3,685) | | | $ | 6,733,723 | | | $ | 556,227 | | | $ | 7,289,950 | | | $ | 57,396 | |
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Net income (loss) | — | | | — | | | — | | | 505,540 | | | — | | | 505,540 | | | 20,346 | | | 525,886 | | | 44 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 538 | | | 538 | | | — | | | 538 | | | — | |
Issuance of common stock, net | 1,005 | | | 1,005 | | | 740 | | | — | | | — | | | 1,745 | | | — | | | 1,745 | | | — | |
Conversion of DownREIT units to common stock | 8 | | | 8 | | | 193 | | | — | | | — | | | 201 | | | (201) | | | — | | | — | |
Repurchase of common stock | (418) | | | (418) | | | (12,423) | | | — | | | — | | | (12,841) | | | — | | | (12,841) | | | — | |
Exercise of stock options | 97 | | | 97 | | | 3,194 | | | — | | | — | | | 3,291 | | | — | | | 3,291 | | | — | |
Stock-based compensation | — | | | — | | | 22,851 | | | — | | | — | | | 22,851 | | | — | | | 22,851 | | | — | |
Common dividends ($1.20 per share) | — | | | — | | | — | | | (650,082) | | | — | | | (650,082) | | | — | | | (650,082) | | | — | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (33,017) | | | (33,017) | | | (162) | |
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Purchase of noncontrolling interests | — | | | — | | | (5) | | | — | | | — | | | (5) | | | (65) | | | (70) | | | (60,065) | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 640 | |
Adjustments to redemption value of redeemable noncontrolling interests | — | | | — | | | (89,491) | | | — | | | — | | | (89,491) | | | — | | | (89,491) | | | 89,491 | |
December 31, 2021 | 539,097 | | | $ | 539,097 | | | $ | 10,100,294 | | | $ | (4,120,774) | | | $ | (3,147) | | | $ | 6,515,470 | | | $ | 543,290 | | | $ | 7,058,760 | | | $ | 87,344 | |
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Net income (loss) | — | | | — | | | — | | | 500,449 | | | — | | | 500,449 | | | 15,876 | | | 516,325 | | | 99 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 31,281 | | | 31,281 | | | — | | | 31,281 | | | — | |
Issuance of common stock, net | 9,936 | | | 9,936 | | | 299,481 | | | — | | | — | | | 309,417 | | | — | | | 309,417 | | | — | |
Conversion of DownREIT units to common stock | 27 | | | 27 | | | 853 | | | — | | | — | | | 880 | | | (880) | | | — | | | — | |
Repurchase of common stock | (2,418) | | | (2,418) | | | (65,420) | | | — | | | — | | | (67,838) | | | — | | | (67,838) | | | — | |
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Stock-based compensation | — | | | — | | | 31,412 | | | — | | | — | | | 31,412 | | | — | | | 31,412 | | | — | |
Common dividends ($1.20 per share) | — | | | — | | | — | | | (649,364) | | | — | | | (649,364) | | | — | | | (649,364) | | | — | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (30,389) | | | (30,389) | | | (160) | |
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Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,390 | |
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Adjustments to redemption value of redeemable noncontrolling interests | — | | | — | | | (17,006) | | | — | | | — | | | (17,006) | | | — | | | (17,006) | | | 17,006 | |
December 31, 2022 | 546,642 | | | $ | 546,642 | | | $ | 10,349,614 | | | $ | (4,269,689) | | | $ | 28,134 | | | $ | 6,654,701 | | | $ | 527,897 | | | $ | 7,182,598 | | | $ | 105,679 | |
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Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS (CONTINUED)
(In thousands, except per share data)
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| Common Stock | | | | | | | | | | | | | | |
| Shares | | Amount | | Additional Paid-In Capital | | Cumulative Dividends In Excess Of Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Total Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
December 31, 2022 | 546,642 | | | $ | 546,642 | | | $ | 10,349,614 | | | $ | (4,269,689) | | | $ | 28,134 | | | $ | 6,654,701 | | | $ | 527,897 | | | $ | 7,182,598 | | | $ | 105,679 | |
Net income (loss) | — | | | — | | | — | | | 306,009 | | | — | | | 306,009 | | | 28,111 | | | 334,120 | | | 637 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (8,763) | | | (8,763) | | | — | | | (8,763) | | | — | |
Issuance of common stock, net | 683 | | | 683 | | | 755 | | | — | | | — | | | 1,438 | | | — | | | 1,438 | | | — | |
Conversion of DownREIT units to common stock | 72 | | | 72 | | | 1,200 | | | — | | | — | | | 1,272 | | | (1,272) | | | — | | | — | |
Repurchase of common stock | (241) | | | (241) | | | (6,283) | | | — | | | — | | | (6,524) | | | — | | | (6,524) | | | — | |
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Stock-based compensation | — | | | — | | | 2,966 | | | — | | | — | | | 2,966 | | | 15,693 | | | 18,659 | | | — | |
Common dividends ($1.20 per share) | — | | | — | | | — | | | (658,181) | | | — | | | (658,181) | | | — | | | (658,181) | | | — | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (44,848) | | | (44,848) | | | (276) | |
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Purchase of noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (158) | | | (158) | | | — | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | 173 | | | 173 | | | 316 | |
Adjustments to redemption value of redeemable noncontrolling interests | — | | | — | | | 57,528 | | | — | | | — | | | 57,528 | | | — | | | 57,528 | | | (57,528) | |
December 31, 2023 | 547,156 | | | $ | 547,156 | | | $ | 10,405,780 | | | $ | (4,621,861) | | | $ | 19,371 | | | $ | 6,350,446 | | | $ | 525,596 | | | $ | 6,876,042 | | | $ | 48,828 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | |
| 2023 | | 2022 | | 2021 | |
Cash flows from operating activities: | | | | | | |
Net income (loss) | $ | 334,757 | | | $ | 516,424 | | | $ | 525,930 | | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | |
Depreciation and amortization of real estate, in-place lease, and other intangibles | 749,901 | | | 710,569 | | | 684,286 | | |
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Stock-based compensation amortization expense | 14,480 | | | 26,456 | | | 18,202 | | |
Amortization of deferred financing costs | 11,916 | | | 10,881 | | | 9,216 | | |
Straight-line rents | (14,387) | | | (49,183) | | | (31,188) | | |
Amortization of nonrefundable entrance fees and above (below) market lease intangibles | (108,988) | | | (102,747) | | | (94,362) | | |
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Equity loss (income) from unconsolidated joint ventures | (10,204) | | | (2,049) | | | (11,235) | | |
Distributions of earnings from unconsolidated joint ventures | 910 | | | 943 | | | 4,976 | | |
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Loss (gain) on sale of real estate under direct financing leases | — | | | (22,693) | | | — | | |
Deferred income tax expense (benefit) | (14,605) | | | (6,001) | | | (5,792) | | |
Impairments and loan loss reserves (recoveries), net | (5,601) | | | 7,004 | | | 55,896 | | |
Loss (gain) on debt extinguishments | — | | | — | | | 225,824 | | |
Loss (gain) on sales of real estate, net | (86,463) | | | (10,422) | | | (605,311) | | |
Loss (gain) upon change of control, net | (234) | | | (311,438) | | | (1,042) | | |
Casualty-related loss (recoveries), net | (3,085) | | | 7,168 | | | 1,632 | | |
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Other non-cash items | 4,900 | | | 6,489 | | | (8,178) | | |
Changes in: | | | | | | |
Decrease (increase) in accounts receivable and other assets, net | (21,566) | | | (17,433) | | | 18,626 | | |
Increase (decrease) in accounts payable, accrued liabilities, and deferred revenue | 104,511 | | | 136,293 | | | 7,768 | | |
Net cash provided by (used in) operating activities | 956,242 | | | 900,261 | | | 795,248 | | |
Cash flows from investing activities: | | | | | | |
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Acquisitions of real estate | (15,847) | | | (178,133) | | | (1,483,026) | | |
Development, redevelopment, and other major improvements of real estate | (731,206) | | | (861,636) | | | (610,555) | | |
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Leasing costs, tenant improvements, and recurring capital expenditures | (113,596) | | | (108,510) | | | (111,480) | | |
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Proceeds from sales of real estate, net | 141,651 | | | 47,885 | | | 2,399,120 | | |
Proceeds from the South San Francisco JVs transaction, net | — | | | 125,985 | | | — | | |
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Investments in unconsolidated joint ventures | (88,391) | | | (21,143) | | | (25,260) | | |
Distributions in excess of earnings from unconsolidated joint ventures | 20,640 | | | 12,518 | | | 37,640 | | |
Proceeds from insurance recovery | 24,980 | | | 1,450 | | | — | | |
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Proceeds from sales/principal repayments on loans receivable, direct financing leases, and marketable debt securities | 204,865 | | | 115,988 | | | 342,420 | | |
Investments in loans receivable and other | (19,850) | | | (10,747) | | | (17,827) | | |
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Net cash provided by (used in) investing activities | (576,754) | | | (876,343) | | | 531,032 | | |
Cash flows from financing activities: | | | | | | |
Borrowings under bank line of credit and commercial paper | 10,344,705 | | | 15,882,153 | | | 16,821,450 | | |
Repayments under bank line of credit and commercial paper | (10,620,311) | | | (16,052,522) | | | (15,785,065) | | |
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Issuances and borrowings of term loans, senior unsecured notes, and mortgage debt | 743,778 | | | 500,000 | | | 1,088,537 | | |
Repayments and repurchases of term loans, senior unsecured notes, and mortgage debt | (90,089) | | | (5,048) | | | (2,425,936) | | |
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Payments for debt extinguishment and deferred financing costs | (7,322) | | | (4,171) | | | (236,942) | | |
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Issuance of common stock and exercise of options, net of offering costs | 278 | | | 308,100 | | | 5,036 | | |
Repurchase of common stock | (6,524) | | | (67,838) | | | (12,841) | | |
Dividends paid on common stock | (657,021) | | | (648,047) | | | (650,082) | | |
Distributions to and purchase of noncontrolling interests | (45,282) | | | (30,549) | | | (93,314) | | |
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Contributions from and issuance of noncontrolling interests | 489 | | | 1,390 | | | 640 | | |
Net cash provided by (used in) financing activities | (337,299) | | | (116,532) | | | (1,288,517) | | |
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Net increase (decrease) in cash, cash equivalents, and restricted cash | 42,189 | | | (92,614) | | | 37,763 | | |
Cash, cash equivalents, and restricted cash, beginning of year | 126,834 | | | 219,448 | | | 181,685 | | |
Cash, cash equivalents, and restricted cash, end of year | $ | 169,023 | | | $ | 126,834 | | | $ | 219,448 | | |
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See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Business
Overview
Healthpeak Properties, Inc., a Standard & Poor’s 500 company, is a Maryland corporation that is organized to qualify as a real estate investment trust (“REIT”) that, together with its consolidated entities (collectively, “Healthpeak” or the “Company”), invests primarily in real estate serving the healthcare industry in the United States (“U.S.”). Healthpeak® acquires, develops, owns, leases, and manages healthcare real estate. The Company’s diverse portfolio is comprised of investments in the following reportable healthcare segments: (i) lab; (ii) outpatient medical; and (iii) continuing care retirement community (“CCRC”).
The Company’s corporate headquarters are in Denver, Colorado, and it has additional offices in California, Tennessee, and Massachusetts.
UPREIT Reorganization
On February 10, 2023, the Company completed its corporate reorganization (the “Reorganization”) into an umbrella partnership REIT (“UPREIT”). Substantially all of the Company’s business is conducted through Healthpeak OP, LLC (“Healthpeak OP”). The Company is the managing member of Healthpeak OP and does not have material assets or liabilities, other than through its investment in Healthpeak OP. For additional information on the UPREIT reorganization, see the Company’s Current Report on Form 8-K12B filed with the U.S. Securities and Exchange Commission (“SEC”) on February 10, 2023.
The Merger Agreement
On October 29, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Physicians Realty Trust, Physicians Realty L.P. (the “Physicians Partnership”), and certain of the Company’s subsidiaries, pursuant to which, among other things, and through a series of transactions (the “Mergers”), (i) each outstanding common share of Physicians Realty Trust (other than Physicians Realty Trust common shares to be canceled in accordance with the Merger Agreement) will be converted into the right to receive 0.674 (the “Exchange Ratio”) shares of Company common stock, and (ii) each outstanding common unit of the Physicians Partnership will be converted into common units in the successor entity to the Physicians Partnership equal to the Exchange Ratio. Following the transactions contemplated in the Merger Agreement, the successor entities to Physicians Realty Trust and the Physicians Partnership will be subsidiaries of Healthpeak OP.
The Merger Agreement contains customary representations, warranties, and covenants, as well as certain termination rights for the Company and Physicians Realty Trust, in each case, as more fully described in the Merger Agreement.
During the year ended December 31, 2023, the Company incurred approximately$11 million of merger-related costs, which primarily related to advisory, legal, accounting, and other costs. These merger-related costs are included in transaction and merger-related costs on the Consolidated Statements of Operations.
In addition, the Company has engaged service providers, including investment banks and advisors, to help the Company negotiate the terms of the transactions contemplated by the Merger Agreement and to advise the Company on other merger-related matters. In connection with these services, the Company expects to be required to pay success-based fees to the extent that certain conditions, including the closing of the transactions contemplated by the Merger Agreement, are met. As of December 31, 2023, the Company expects to incur approximately$22 million of such success fees. As closing of the transactions contemplated by the Merger Agreement has not occurred, no such amounts have been paid or accrued through December 31, 2023.
In connection with the Mergers, the Company filed a Registration Statement on Form S-4 with the SEC on December 15, 2023 (the “Initial Filing”), as amended on January 9, 2024, and a definitive joint proxy statement/prospectus for the Company and Physicians Realty Trust on January 11, 2024 in connection with their respective special meetings of stockholders and shareholders, as applicable, which will be held on February 21, 2024. Consummation of the Mergers are subject to the satisfaction or waiver of customary closing conditions, including the approval of the Company’s stockholders and the shareholders of Physicians Realty Trust. The parties expect the Mergers to close on March 1, 2024. If the Mergers are not consummated by July 31, 2024 (unless extended under certain circumstances), either the Company or Physicians Realty Trust may terminate the Merger Agreement.
NOTE 2. Summary of Significant Accounting Policies
Use of Estimates
Management is required to make estimates and assumptions in the preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from management’s estimates.
Basis of Presentation
The consolidated financial statements include the accounts of Healthpeak Properties, Inc., ourits wholly-owned subsidiaries, and joint ventures (“JVs”), and variable interest entities (“VIEs”) that we control,it controls through voting rights or other means. WeIntercompany transactions and balances have been eliminated upon consolidation.
The Company is required to continually evaluate its VIE relationships and consolidate investments in VIEsthese entities when we are the primary beneficiary of the VIE. A variable interest holderit is considereddetermined to be the primary beneficiary of atheir operations. A VIE if it has the power to direct the activities that most significantly impact the entity’s economic performance and has the obligation to absorb losses of, or the right to receive benefits from, theis broadly defined as an entity that could potentially be significant to the VIE.
We make judgments about which entities are VIEs based on an assessment of whether:where either: (i) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support, (ii) substantially all of an entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights, or (iii) the equity investors as a group lack any of the following: (a) the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of an entity, or (c) the right to receive the expected residual returns of an entity. Criterion (iii) above is generally applied to limited partnerships and similarly structured entities by assessing whether a simple majority of the limited partners hold substantive rights to participate in the significant decisions of the entity or have the ability to remove the decision maker or liquidate the entity without cause. If neither of those criteria are met, the entity is a VIE.
We continually assess whether events have occurred that require us to reconsider the initial determinationThe designation of whether an entity as a VIE is a VIE. Suchreassessed upon certain events, include,including, but are not limited to: (i) a change to the contractual arrangements of the entity or in the ability of a party to exercise its participation or kick-out rights, (ii) a change to the capitalization structure of the entity, or (iii) acquisitions or sales of interests that constitute a change in control. When
A variable interest holder is considered to be the primary beneficiary of a reconsideration event occurs, we reassess whetherVIE if it has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company qualitatively assesses whether it is a VIE.
We also make judgments with respect to our level of influence or control over an entity and whether we are (or areis not) the primary beneficiary of a VIE. Consideration of various factors includes,include, but is not limited to:
•to, which activities most significantly impact the entity’s economic performance and ourthe ability to direct those activities;
•ouractivities, its form of ownership interest;
•ourinterest, its representation on the entity’sVIE’s governing body;
•body, the size and seniority of our investment;
•our ability to manage our ownership interest relative to other interest holders; and
•ourits investment, its ability and the rights of other investors to participate in policy making decisions, its ability to manage its ownership interest relative to the other interest holders, and its ability to replace the VIE manager and/or liquidate the entity, if applicable.entity.
Our abilityFor its investments in joint ventures that are not considered to correctly assess our influence orbe VIEs, the Company evaluates the type of ownership rights held by the limited partner(s) that may preclude consolidation by the majority interest holder. The assessment of limited partners’ rights and their impact on the control over an entity when determining the primary beneficiary of a VIE affects the presentation of these entities in our consolidated financial statements. When we perform a reassessment of the primary beneficiary at a date other thanjoint venture should be made at inception of the VIE, our assumptions may be differentjoint venture and may result in the identification of a different primary beneficiary.continually reassessed.
If we determine that we are the primary beneficiary of a VIE, our consolidated financial statements include the operating results of the VIE rather than the results of our variable interest in the VIE. We require VIEs to provide us timely financial information and review the internal controls of VIEs to determine if we can rely on the financial information it provides. If a VIE has deficiencies in its internal controls over financial reporting, or does not provide us with timely financial information, it may adversely impact the quality and/or timing of our financial reporting and our internal controls over financial reporting.
Revenue RecognitionReal Estate
Revenues(3) | | |
| Operating Expenses(4) |
Lab: | | | | (Sq. Ft.) | | | | | | |
California | | 115 | | | 8,094 | | | $ | 5,869,665 | | | $ | 629,657 | | | $ | (157,795) | |
Massachusetts | | 19 | | | 2,613 | | | 2,795,913 | | | 240,029 | | | (70,259) | |
Other (1 State) | | 4 | | | 240 | | | 54,236 | | | 8,640 | | | (1,576) | |
Total lab | | 138 | | | 10,947 | | | $ | 8,719,814 | | | $ | 878,326 | | | $ | (229,630) | |
Outpatient medical: | | | | (Sq. Ft.) | | | | | | |
Texas | | 75 | | | 7,638 | | | $ | 1,549,757 | | | $ | 220,805 | | | $ | (75,159) | |
Pennsylvania | | 4 | | | 1,270 | | | 367,434 | | | 34,321 | | | (15,603) | |
Colorado | | 19 | | | 1,311 | | | 362,822 | | | 47,697 | | | (18,366) | |
California | | 15 | | | 862 | | | 355,026 | | | 40,057 | | | (17,206) | |
South Carolina | | 18 | | | 1,105 | | | 340,073 | | | 27,851 | | | (5,315) | |
Florida | | 25 | | | 1,438 | | | 309,246 | | | 41,609 | | | (14,994) | |
Other (29 States) | | 139 | | | 9,977 | | | 2,586,334 | | | 341,139 | | | (116,489) | |
Total outpatient medical | | 295 | | | 23,601 | | | $ | 5,870,692 | | | $ | 753,479 | | | $ | (263,132) | |
CCRC: | | | | (Units) | | | | | | |
Florida | | 9 | | | 4,783 | | | $ | 1,398,609 | | | $ | 343,971 | | | $ | (275,781) | |
Other (5 States) | | 6 | | | 2,314 | | | 631,199 | | | 183,630 | | | (137,691) | |
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Total CCRC | | 15 | | | 7,097 | | | $ | 2,029,808 | | | $ | 527,601 | | | $ | (413,472) | |
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Total properties | | 448 | | | | | $ | 16,620,314 | | | $ | 2,159,406 | | | $ | (906,234) | |
(1)Excludes capacity associated with developments.
(2)Represents gross real estate which includes the carrying amount of real estate after adding back accumulated depreciation and amortization. Excludes gross real estate of $123 million related to two lab buildings and one outpatient medical building classified as held for sale.
(3)Represents the combined amount of rental and related revenues, resident fees and services, and government grant income.
(4)Excludes operating expenses related to corporate non-segment assets (see Note 15 to the Consolidated Financial Statements).
Occupancy and Annual Rent Trends
The following table summarizes occupancy and average annual rent trends for our consolidated property and investments held under a direct financing lease (“DFL”) for the years ended December 31 (average occupied square feet in thousands):
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| 2023 | | 2022 | | 2021 | | | | |
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Lab: | | | | | | | | | |
Average occupancy percentage | 98 | % | | 98 | % | | 97 | % | | | | |
Average annual rent per square foot(1) | $ | 82 | | | $ | 71 | | | $ | 66 | | | | | |
Average occupied square feet | 10,334 | | | 10,610 | | | 10,143 | | | | | |
Outpatient medical(2): | | | | | | | | | |
Average occupancy percentage | 90 | % | | 90 | % | | 90 | % | | | | |
Average annual rent per square foot(1) | $ | 35 | | | $ | 33 | | | $ | 31 | | | | | |
Average occupied square feet | 21,337 | | | 21,472 | | | 21,046 | | | | | |
CCRC: | | | | | | | | | |
Average occupancy percentage | 84 | % | | 82 | % | | 79 | % | | | | |
Average annual rent per occupied unit(3) | $ | 88,524 | | | $ | 84,664 | | | $ | 80,391 | | | | | |
Average occupied units | 5,960 | | | 5,926 | | | 5,881 | | | | | |
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(1)Presented as a ratio of revenues comprised of rental and related revenues and income from DFLs divided by average occupied square feet and annualized for acquisitions for the year in which they occurred. Average annual rent excludes termination fees and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and DFL non-cash interest).
(2)During the first quarter of 2022, we sold our remaining hospital under a DFL.
(3)Presented as a ratio of revenues comprised of resident fees and services and government grant income divided by average occupied units of the facilities. Average annual rent excludes termination fees and non-cash revenue adjustments (i.e., the impact of deferred community fee income).
Tenant Lease Expirations
The following table shows tenant lease expirations for the next 10 years and thereafter at our consolidated properties, assuming that none of the tenants exercise any of their renewal or purchase options, and excludes properties in our CCRC segment and assets held for sale as of December 31, 2023 (dollars and square feet in thousands):
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| | Expiration Year |
Segment | | Total | | 2024(1) | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | 2030 | | 2031 | | 2032 | | 2033 | | Thereafter |
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Lab: | | | | | | | | | | | | | | | | | | | | | | | | |
Square feet | | 10,303 | | | 537 | | | 1,065 | | | 618 | | | 1,407 | | | 681 | | | 806 | | | 1,334 | | | 1,393 | | | 866 | | | 531 | | | 1,065 | |
Base rent(2) | | $ | 608,770 | | | $ | 36,709 | | | $ | 50,557 | | | $ | 30,694 | | | $ | 66,918 | | | $ | 36,728 | | | $ | 50,104 | | | $ | 94,051 | | | $ | 84,727 | | | $ | 55,504 | | | $ | 36,642 | | | $ | 66,136 | |
% of segment base rent | | 100 | | | 6 | | | 8 | | | 5 | | | 11 | | | 6 | | | 8 | | | 16 | | | 14 | | | 9 | | | 6 | | | 11 | |
Outpatient medical: | | | | | | | | | | | | | | | | | | | | | | | | |
Square feet | | 21,414 | | | 2,848 | | | 2,830 | | | 2,049 | | | 1,870 | | | 2,539 | | | 1,419 | | | 1,310 | | | 1,637 | | | 1,357 | | | 918 | | | 2,637 | |
Base rent(2) | | $ | 546,589 | | | $ | 85,359 | | | $ | 68,994 | | | $ | 57,376 | | | $ | 51,438 | | | $ | 56,996 | | | $ | 38,197 | | | $ | 36,069 | | | $ | 40,803 | | | $ | 28,096 | | | $ | 27,376 | | | $ | 55,885 | |
% of segment base rent | | 100 | | | 16 | | | 13 | | | 11 | | | 9 | | | 10 | | | 7 | | | 7 | | | 7 | | | 5 | | | 5 | | | 10 | |
Total: | | | | | | | | | | | | | | | | | | | | | | | | |
Base rent(2) | | $ | 1,155,359 | | | $ | 122,068 | | | $ | 119,551 | | | $ | 88,070 | | | $ | 118,356 | | | $ | 93,724 | | | $ | 88,301 | | | $ | 130,120 | | | $ | 125,530 | | | $ | 83,600 | | | $ | 64,018 | | | $ | 122,021 | |
% of total base rent | | 100 | | 11 | | | 10 | | | 8 | | | 10 | | | 8 | | | 8 | | | 11 | | | 11 | | | 7 | | | 5 | | | 11 | |
(1)Includes month-to-month leases.
(2)The most recent month’s (or subsequent month’s, if acquired in the most recent month) base rent, including additional rent floors, annualized for 12 months. 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).
ITEM 3. Legal Proceedings
See the “Legal Proceedings” section of Note 11 to the Consolidated Financial Statements for information regarding legal proceedings, which information is incorporated by reference in this Item 3.
ITEM 4. Mine Safety Disclosures
None.
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the New York Stock Exchange under the symbol “PEAK.”
As of February 5, 2024, we had6,797stockholders of record, and there were 283,417 beneficial holders of our common stock.
Dividends (Distributions)
It has been our policy to declare quarterly dividends to common stockholders so as to comply with applicable provisions of the Code governing REITs. All distributions are made at the discretion of our Board of Directors in accordance with Maryland law. Distributions with respect to our common stock can be characterized for federal income tax purposes as ordinary dividends, capital gains, nondividend distributions, or a combination thereof. The following table shows the characterization of our annual common stock distributions per share:
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| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Ordinary dividends(1) | $ | 0.909692 | | | $ | 0.872948 | | | $ | 0.152336 | |
Capital gains(2)(3) | 0.116992 | | | 0.183208 | | | 0.379960 | |
Nondividend distributions | 0.173316 | | | 0.143844 | | | 0.667704 | |
| $ | 1.200000 | | | $ | 1.200000 | | | $ | 1.200000 | |
______________________________________(1)For the year ended December 31, 2023,the amount includes $0.882312 of ordinary dividends qualified as business income for purposes of Code Section 199A and $0.027380 of qualified dividend income for purposes of Code Section 1(h)(11). For the year ended December 31, 2022, all $0.872948 of ordinary dividends qualified as business income for purposes of Code Section 199A. For the year ended December 31, 2021, the amount includes $0.137064 of ordinary dividends qualified as business income for purposes of Code Section 199A and $0.015272 of qualified dividend income for purposes of Code Section 1(h)(11).
(2)For the years ended December 31, 2023, 2022, and 2021, the amount includes $0.036256, $0.017760, and $0.379960, respectively, of unrecaptured Code Section 1250 gain. Pursuant to Treasury Regulation Section 1.1061-6(c), we are disclosing additional information related to the capital gain dividends for purposes of Section 1061 of the Code. Code Section 1061 is generally applicable to direct and indirect holders of “applicable partnership interests.” For the year ended December 31, 2023, the “One Year Amounts” and “Three Year Amounts” are each zero, since all capital gains relate to Code Section 1231 gains. For the year ended December 31, 2022, the “One Year Amounts” and “Three Year Amounts” are each 89.6708% of the total capital gain distributions and the remaining capital gain distributions are attributable to Code Section 1231 gains, which are not subject to Code Section 1061. For the year ended December 31, 2021, the “One Year Amounts” and “Three Year Amounts” are each zero, since all capital gains relate to Code Section 1231 gains.
(3)For the years ended December 31, 2023, 2022, and 2021, 100%, 10.3292%, and 100%, respectively, of the capital gain distributions represent gains from dispositions of U.S. real property interests pursuant to Code Section 897 for foreign shareholders.
On January 31, 2024, we announced that our Board of Directors declared a quarterly common stock cash dividend of $0.30 per share. The common stock dividend will be paid on February 26, 2024 to stockholders of record as of the close of business on February 14, 2024.
Issuer Purchases of Equity Securities
The following table sets forth information with respect to purchases of our common stock made by or on our behalf during the three months ended December 31, 2023.
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Period Covered | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the inception of a new lease arrangement, including new leases that arise from amendments, we assess the terms and conditions to determine the proper lease classification. For leases entered into prior to January 1, 2019, the lease arrangement was classified as an operating lease if none of the following criteria were met: (i) transferPlans or Programs(1) |
October 1-31, 2023 | | — | | | $ | — | | | — | | | $ | 444,018,701 | |
November 1-30, 2023 | | — | | | — | | | — | | | 444,018,701 | |
December 1-31, 2023 | | — | | | — | | | — | | | 444,018,701 | |
| | — | | | $ | — | | | — | | | $ | 444,018,701 | |
(1)On August 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 in August 2024 and may be suspended or terminated at any time without prior notice. During the year ended December 31, 2022, we repurchased 2.1 million shares of our common stock at a weighted average price of $27.16 per share. During the year ended December 31, 2023, there were no repurchases; therefore, at December 31, 2023, $444 millionof our common stock remained available for repurchase under the Share Repurchase Program. Amounts do not include the shares of our common stock withheld under our equity incentive plans to offset tax withholding obligations as discussed in footnote 1.
Performance Graph
The graph and table below compare the cumulative total return of Healthpeak, the S&P 500 Index, and the Equity REIT Index of Nareit, from January 1, 2019 to December 31, 2023. Total cumulative return is based on a $100 investment in Healthpeak common stock and in each of the indices at the close of trading on December 31, 2018 and assumes quarterly reinvestment of dividends before consideration of income taxes. Stockholder returns over the indicated periods should not be considered indicative of future stock prices or stockholder returns.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG S&P 500, EQUITY REITS AND HEALTHPEAK PROPERTIES, INC.
RATE OF RETURN TREND COMPARISON
JANUARY 1, 2019–DECEMBER 31, 2023
(JANUARY 1, 2019 = $100)
Performance Graph Total Stockholder Return
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| December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
FTSE Nareit Equity REIT Index | $ | 128.66 | | | $ | 122.07 | | | $ | 172.49 | | | $ | 129.45 | | | $ | 144.16 | |
S&P 500 | 131.47 | | | 155.65 | | | 200.29 | | | 163.98 | | | 207.04 | |
Healthpeak Properties, Inc. | 129.11 | | | 119.21 | | | 147.52 | | | 106.94 | | | 89.40 | |
ITEM 6. [Reserved]
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information set forth in this Item 7 is intended to provide readers with an understanding of our financial condition, changes in financial condition, and results of operations. This section generally discusses the results of our operations for the year ended December 31, 2023 compared to the year ended December 31, 2022. For a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 8, 2023.
We will discuss and provide our analysis in the following order:
•Market Trends and Uncertainties
•Company Highlights
•Dividends
•Results of Operations
•Liquidity and Capital Resources
•Non-GAAP Financial Measures Reconciliations
•Critical Accounting Estimates
•Recent Accounting Pronouncements
Market Trends and Uncertainties
Our operating results have been and will continue to be impacted by global and national economic and market conditions generally and by the local economic conditions where our properties are located.
Rising interest rates, high inflation, supply chain disruptions, ongoing geopolitical tensions, and increased volatility in public and private equity and fixed income markets have led to increased costs and limited the availability of capital. In addition, increased interest rates have negatively affected our borrowing costs, the fair value of our fixed rate instruments. and real estate values generally, including our real estate.
Our tenants and operators have also experienced increased costs, liquidity constraints, and financing difficulties due to the foregoing macroeconomic and market conditions, which could cause them to be unable or unwilling to make payments or perform their obligations when due.
We have also been affected by significant inflation in construction costs over the past few years, which, together with rising costs of capital, have negatively affected the expected yields on our development and redevelopment projects.
We continuously monitor the effects of domestic and global events, including but not limited to inflation, labor shortages, supply chain matters, rising interest rates, and challenges in the financial markets, 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.
See “Item 1A, Risk Factors” in this report for additional discussion of the risks posed by macroeconomic conditions, as well as the uncertainties we and our tenants, operators, and borrowers may face as a result.
Company Highlights
As of February 10, 2023, we are structured as an UPREIT. This structure provides prospective sellers an alternative for disposing of property that has appreciated in value in a tax-deferred manner to Healthpeak OP and aligns our corporate structure with other publicly traded U.S. real estate investment trusts. Following the Reorganization, Healthpeak OP is the borrower under, and we are the guarantor of, all of the unsecured debt, which includes the Revolving Facility, Term Loan Facilities (each as defined below), commercial paper program, and senior unsecured notes. Our guarantee of the senior unsecured notes is full and unconditional and applicable to existing and future senior unsecured notes. The Reorganization did not have a material impact on our financial position, consolidated financial statements, outstanding debt securities, material debt facilities, or business operations.
On October 29, 2023, we entered into a Merger Agreement with Physicians Realty Trust, the Physicians Partnership, and certain of our subsidiaries, pursuant to which, among other things, and through a series of transactions (the “Mergers”), (i) each outstanding common share of Physicians Realty Trust (other than Physicians Realty Trust common shares to be canceled in accordance with the Merger Agreement) will be converted into the right to receive 0.674 (the “Exchange Ratio”) shares of our common stock, and (ii) each outstanding common unit of the Physicians Partnership will be converted into common units in the successor entity to the Physicians Partnership equal to the Exchange Ratio. In connection with the Mergers, we filed a Registration Statement on Form S-4 with the SEC on December 15, 2023, as amended on January 9, 2024, and a definitive joint proxy statement/prospectus for the Company and Physicians Realty Trust on January 11, 2024 in connection with our respective special meetings of stockholders and shareholders, as applicable, which will be held on February 21, 2024. We expect the Mergers to closeon March 1, 2024. Following the transactions contemplated in the Merger Agreement, the successor entities to Physicians Realty Trust and the Physicians Partnership will be direct and indirect subsidiaries of Healthpeak OP, respectively. Consummation of the Mergers are subject to the satisfaction or waiver of customary closing conditions, including the approval of our stockholders and the shareholders of Physicians Realty Trust.
Real Estate Transactions
•In January 2023, we sold two lab buildings in Durham, North Carolina for $113 million.
•In January 2023, we acquired a lab land parcel in Cambridge, Massachusetts for $9 million.
•In March 2023, we sold two outpatient medical buildings for $32 million.
•In April 2023, we acquired the remaining 80% interest in one of the outpatient medical buildings in the Ventures IV unconsolidated joint venture for $4 million.
•In January 2024, we sold a 65% interest in two lab buildings in San Diego, California to a third-party for net proceeds of $128 million.
Development and Redevelopment Activities
•During the yearended December 31, 2023, the following projects were placed in service: (i) portions of two lab development projects with aggregate costs of $233 million, (ii) one lab development project with total costs of $171 million, (iii) a portion of one lab redevelopment project with total costs of $43 million, (iv) four outpatient medical redevelopment projects with aggregate costs of $42 million, (v) a portion of one lab redevelopment building held in one of our unconsolidated South San Francisco JVs of which our share of total project costs was $32 million, (vi) one lab redevelopment building held in one of our unconsolidated South San Francisco JVs of which our share of total project costs was $15 million, (vii) one lab redevelopment project with total costs of $14 million, and (viii) one CCRC redevelopment project with total costs of $7 million.
Financing Activities
•In January 2023, we completed a public offering of $400 million aggregate principal amount of 5.25% senior unsecured notes due 2032.
•In May 2023, we completed a public offering of $350 million aggregate principal amount of 5.25% senior unsecured notes due 2032, which constituted an additional issuance of, and are treated as a single series with, the $400 million of senior unsecured notes due 2032 issued in January 2023.
•In December 2023, a mortgage loan secured by one CCRC with a principal balance of $85 millionmatured and was repaid.
•We have secured commitments for a $750 million five-year unsecured term loan (the “2024 Term Loan”), to be incurred as an incremental facility under our existing term loan agreement. In January 2024, we entered into forward-starting interest rate swap instruments that are designated as cash flow hedges that will effectively establish a fixed interest rate forthe 2024 Term Loan at a blended contractual rate of 4.5%.
Other Activities
•In February 2023, we received a partial principal repayment of $102 million on one secured loan.
•In February 2023, we received full repayment of the outstanding balance of one $35 million secured loan.
•In April 2023, we received full repayment of the outstanding balance of one $14 million secured loan.
•In May 2023, we received full repayment of two outstanding secured loans with an aggregate balance of $12 million.
•In October 2023, we received full repayment of the outstanding balance of one $21 million secured loan.
Dividends
Quarterly cash dividends paid during 2023 aggregated to $1.20 per share. On January 31, 2024, our Board of Directors declared a quarterly cash dividend of $0.30 per common share. The dividend will be paid on February 26, 2024 to stockholders of record as of the close of business on February 14, 2024.
Results of Operations
We evaluate our business and allocate resources among our reportable business segments: (i) lab, (ii) outpatient medical, and (iii) CCRC. Under the lab and outpatient medical segments, we invest through the acquisition, development, and management of lab buildings, outpatient medical buildings, and hospitals. 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) loans receivable. These non-reportable segments have been presented on an aggregate basis herein. 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.
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 15 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 are calculated as NOI and Adjusted NOI from consolidated properties, plus our share of NOI and Adjusted NOI from unconsolidated joint ventures (calculated by applying our actual ownership percentage for the period), less noncontrolling interests’ share of NOI and Adjusted NOI from consolidated joint ventures (calculated by applying our actual ownership percentage for the period). Management utilizes its share of NOI and Adjusted NOI in assessing its performance as we have various joint ventures that contribute to its performance. We do not control our unconsolidated joint ventures, and our share of amounts from unconsolidated joint ventures do not represent our legal claim to such items. Our share of NOI and Adjusted NOI should not be considered a substitute for, and should only be considered together with and as a supplement to, our financial information presented in accordance with GAAP.
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 15 to the Consolidated Financial Statements.
Operating expenses generally relate to leased outpatient medical and lab buildings, as well as CCRC facilities. We generally recover all or a portion of our leased outpatient medical and lab 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 portfolio of properties, excluding properties within the other non-reportable segments. We include properties from our consolidated portfolio, as well as properties owned by our unconsolidated joint ventures in Same-Store NOI and Adjusted NOI (see NOI definition above for further discussion regarding our use of pro-rata share information and its limitations). Same-Store NOI and Adjusted NOI exclude government grant income under the CARES Act. Same-Store Adjusted NOI also 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.
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 the National 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.
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 and merger-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), deferred tax asset valuation allowances, and changes in tax legislation (“FFO as Adjusted”). These adjustments are net of tax, when applicable. Transaction and merger-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) stock-based compensation amortization expense, (ii) amortization of deferred financing costs, net, (iii) straight-line rents, (iv) deferred income taxes, (v) amortization of above (below) market lease intangibles, net, and (vi) other AFFO adjustments, which include: (a) non-cash interest related to DFLs and lease incentive amortization (reduction of straight-line rents), (b) actuarial reserves for insurance claims that have been incurred but not reported, and (c) 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. 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. 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. 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, and by presenting AFFO, we are assisting these parties in their evaluation. 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 and should only be considered together with and as a supplement to our financial information prepared in accordance with GAAP. For a reconciliation of net income (loss) to AFFO and other relevant disclosures, refer to “Non-GAAP Financial Measures Reconciliations” below.
Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022
Overview
2023 and 2022(1)
The following table summarizes results for the years ended December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2023 | | 2022 | | | | | | Change |
Net income (loss) applicable to common shares | | $ | 304,284 | | | $ | 497,792 | | | | | | | $ | (193,508) | |
Nareit FFO | | 985,180 | | | 895,166 | | | | | | | 90,014 | |
FFO as Adjusted | | 978,306 | | | 940,933 | | | | | | | 37,373 | |
AFFO | | 840,777 | | | 783,702 | | | | | | | 57,075 | |
(1)For the reconciliation of non-GAAP financial measures, see “Non-GAAP Financial Measure Reconciliations” below.
Net income (loss) applicable to common shares decreased primarily as a result of the following:
•a gain upon change of control related to the sale of a 30% interest and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022;
•an increase in depreciation, primarily as a result of development and redevelopment projects placed in service during 2022 and 2023;
•an increase in interest expense, primarily as a result of: (i) senior unsecured notes issued during the first half of 2023, (ii) borrowings under the Term Loan Facilities, which were drawn during the fourth quarter of 2022, and (iii) higher interest rates on the commercial paper program, partially offset by lower borrowings on the commercial paper program;
•a gain on sale associated with the disposition of a hospital under a DFL during the first quarter of 2022;
•an increase in transaction and merger-related costs, primarily as a result of costs related to the Mergers, which are primarily comprised of legal, accounting, tax, and other costs that were incurred during the fourth quarter of 2023; and
•a decrease in government grant income received under the CARES Act in 2023.
The decrease in net income (loss) applicable to common shares was partially offset by:
•an increase in NOI generated from our lab and outpatient medical segments related to: (i) development and redevelopment projects placed in service during 2022 and 2023, (ii) new leasing activity during 2022 and 2023 (including the impact to straight-line rents), and (iii) 2022 acquisitions of real estate;
•an increase in gains on sale of depreciable real estate related to lab and outpatient medical building sales during 2023 as compared to 2022;
•a decrease in general and administrative expenses, primarily as a result of: (i) severance-related charges associated with the departures of our former Chief Executive Officer and our former Chief Legal Officer and General Counsel in the fourth quarter of 2022 and (ii) charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado in the fourth quarter of 2022;
•a decrease in depreciation related to the deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022;
•a decrease in other expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building, which were incurred in the first quarter of 2022;
•an increase in income tax benefit primarily as a result of a $14 million tax benefit recognized in connection with the reversal of a deferred tax asset valuation allowance during the fourth quarter of 2023;
•a decrease in loan loss reserves primarily as a result of principal repayments on seller financing;
•an increase in equity income from unconsolidated joint ventures; and
•a decrease in casualty-related charges from a hurricane during the third quarter of 2022.
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 upon change of control;
•gain on sales of depreciable real estate; and
•depreciation and amortization expense.
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:
•severance-related charges;
•gain on sale of a hospital under a DFL;
•reversal of a valuation allowance on deferred tax assets;
•expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building;
•loan loss reserves;
•transaction and merger-related costs;
•casualty-related charges; and
•the charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado.
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 and higherAFFO capital expenditures during the period.
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 year ended December 31, 2023, our Same-Store consists of 403 properties representing properties acquired or placed in service and stabilized on or prior to January 1, 2022 and that remained in operations through December 31, 2023. Our total property portfolio consisted of 477 and 480 properties at December 31, 2023 and 2022, respectively. Included in our total property portfolio at each of December 31, 2023 and 2022 are 19 senior housing assets in our SWF SH JV.
Lab
The following table summarizes results at and for the years ended December 31, 2023 and 2022 (dollars and square feet in thousands, except per square foot data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SS | | Total Portfolio(1) |
| Year Ended December 31, | | Year Ended December 31, |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Rental and related revenues | $ | 663,859 | | | $ | 649,238 | | | $ | 14,621 | | | $ | 878,326 | | | $ | 817,573 | | | $ | 60,753 | |
| | | | | | | | | | | |
Healthpeak’s share of unconsolidated joint venture total revenues | 6,589 | | | 9,613 | | | (3,024) | | | 9,924 | | | 9,921 | | | 3 | |
| | | | | | | | | | | |
Noncontrolling interests’ share of consolidated joint venture total revenues | (133) | | | (129) | | | (4) | | | (619) | | | (268) | | | (351) | |
Operating expenses | (182,602) | | | (166,433) | | | (16,169) | | | (229,630) | | | (209,143) | | | (20,487) | |
Healthpeak’s share of unconsolidated joint venture operating expenses | (2,651) | | | (2,305) | | | (346) | | | (4,092) | | | (2,883) | | | (1,209) | |
Noncontrolling interests’ share of consolidated joint venture operating expenses | 46 | | | 43 | | | 3 | | | 156 | | | 87 | | | 69 | |
| | | | | | | | | | | |
Adjustments to NOI(2) | (23,979) | | | (45,496) | | | 21,517 | | | (36,524) | | | (62,754) | | | 26,230 | |
Adjusted NOI | $ | 461,129 | | | $ | 444,531 | | | $ | 16,598 | | | 617,541 | | | 552,533 | | | 65,008 | |
Less: non-SS Adjusted NOI | | | | | | | (156,412) | | | (108,002) | | | (48,410) | |
SS Adjusted NOI | | | | | | | $ | 461,129 | | | $ | 444,531 | | | $ | 16,598 | |
Adjusted NOI % change | | | | | 3.7 | % | | | | | | |
Property count(3) | 116 | | | 116 | | | | | 146 | | | 149 | | | |
End of period occupancy(4) | 96.5 | % | | 98.7 | % | | | | 96.9 | % | | 98.9 | % | | |
Average occupancy(4) | 97.5 | % | | 98.5 | % | | | | 97.8 | % | | 98.7 | % | | |
Average occupied square feet | 8,786 | | | 8,856 | | | | | 10,524 | | | 10,727 | | | |
Average annual total revenues per occupied square foot(5) | $ | 74 | | | $ | 69 | | | | | $ | 81 | | | $ | 72 | | | |
Average annual base rent per occupied square foot(6) | $ | 56 | | | $ | 53 | | | | | $ | 63 | | | $ | 55 | | | |
(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 the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(3)From our 2022 presentation of Same-Store, we added: (i) five stabilized acquisitions, (ii) three stabilized buildings that previously experienced a significant tenant relocation, (iii) two stabilized redevelopments placed in service, and (iv) one stabilized development placed in service, and we removed: (i) six buildings that were placed into redevelopment, (ii) one asset that was placed into land held for development, and (iii) one building that experienced a significant tenant relocation.
(4)Refer to “Non-GAAP Financial Measures” above for the definition of Same-Store. Total Portfolio occupancy excludes any of the following: (i) developments, (ii) significant redevelopments, (iii) newly completed properties under lease-up, and (iv) properties held for sale.
(5)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and deferred revenues).
(6)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; and
•new leasing activity; partially offset by
•lower occupancy; and
•higher operating expenses.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned impacts to Same-Store and the following Non-Same-Store impacts:
•increased NOI from developments and redevelopments placed in service in 2022 and 2023; partially offset by
•decreased NOI from our 2022 and 2023 dispositions.
Outpatient Medical
The following table summarizes results at and for the years ended December 31, 2023 and 2022 (dollars and square feet in thousands, except per square foot data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SS | | Total Portfolio(1) |
| Year Ended December 31, | | Year Ended December 31, |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Rental and related revenues | $ | 678,967 | | | $ | 656,588 | | | $ | 22,379 | | | $ | 753,479 | | | $ | 724,202 | | | $ | 29,277 | |
Income from direct financing leases | — | | | — | | | — | | | — | | | 1,168 | | | (1,168) | |
Healthpeak’s share of unconsolidated joint venture total revenues | 2,893 | | | 2,795 | | | 98 | | | 3,033 | | | 2,999 | | | 34 | |
Noncontrolling interests’ share of consolidated joint venture total revenues | (34,053) | | | (33,429) | | | (624) | | | (35,073) | | | (35,717) | | | 644 | |
Operating expenses | (229,310) | | | (218,716) | | | (10,594) | | | (263,132) | | | (253,309) | | | (9,823) | |
Healthpeak’s share of unconsolidated joint venture operating expenses | (1,183) | | | (1,147) | | | (36) | | | (1,189) | | | (1,178) | | | (11) | |
Noncontrolling interests’ share of consolidated joint venture operating expenses | 9,738 | | | 9,492 | | | 246 | | | 9,921 | | | 10,317 | | | (396) | |
| | | | | | | | | | | |
Adjustments to NOI(2) | (11,685) | | | (13,763) | | | 2,078 | | | (14,314) | | | (15,513) | | | 1,199 | |
Adjusted NOI | $ | 415,367 | | | $ | 401,820 | | | $ | 13,547 | | | 452,725 | | | 432,969 | | | 19,756 | |
Less: non-SS Adjusted NOI | | | | | | | (37,358) | | | (31,149) | | | (6,209) | |
SS Adjusted NOI | | | | | | | $ | 415,367 | | | $ | 401,820 | | | $ | 13,547 | |
Adjusted NOI % change | | | | | 3.4 | % | | | | | | |
Property count(3) | 272 | | | 272 | | | | | 297 | | | 297 | | | |
End of period occupancy(4) | 91.9 | % | | 91.7 | % | | | | 90.7 | % | | 90.2 | % | | |
Average occupancy(4) | 91.5 | % | | 91.6 | % | | | | 90.1 | % | | 89.9 | % | | |
Average occupied square feet | 20,218 | | | 20,233 | | | | | 21,531 | | | 21,685 | | | |
Average annual total revenues per occupied square foot(5) | $ | 34 | | | $ | 33 | | | | | $ | 35 | | | $ | 34 | | | |
Average annual base rent per occupied square foot(6) | $ | 28 | | | $ | 27 | | | | | $ | 29 | | | $ | 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 the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(3)From our 2022 presentation of Same-Store, we added: (i) 25 stabilized acquisitions and (ii) 2 stabilized developments placed in service, and we removed: (i) 2 assets that were sold and (ii) 1 asset that was classified as held for sale.
(4)Refer to “Non-GAAP Financial Measures” above for the definition of Same-Store. Total Portfolio occupancy excludes any of the following: (i) developments, (ii) significant redevelopments, (iii) newly completed properties under lease-up, and (iv) properties held for sale.
(5)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).
(6)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; and
•annual rent escalations; partially offset by
•higher operating expenses.
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 2022 acquisitions;
•business interruption proceeds related to a demolished asset; and
•increased occupancy in former redevelopment and development properties that have been placed in service; partially offset by
•decreased NOI from our 2022 and 2023 dispositions.
Continuing Care Retirement Community
The following table summarizes results at and for the years ended December 31, 2023 and 2022 (dollars in thousands, except per unit data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SS | | Total Portfolio |
| Year Ended December 31, | | Year Ended December 31, |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Resident fees and services | $ | 526,769 | | | $ | 494,935 | | | $ | 31,834 | | | $ | 527,417 | | | $ | 494,935 | | | $ | 32,482 | |
Government grant income(1) | — | | | — | | | — | | | 184 | | | 6,765 | | | (6,581) | |
| | | | | | | | | | | |
Healthpeak’s share of unconsolidated joint venture government grant income | — | | | — | | | — | | | — | | | 380 | | | (380) | |
Operating expenses | (411,539) | | | (398,915) | | | (12,624) | | | (413,472) | | | (400,539) | | | (12,933) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Adjustments to NOI(2) | (1,618) | | | 2,300 | | | (3,918) | | | (1,618) | | | 2,300 | | | (3,918) | |
Adjusted NOI | $ | 113,612 | | | $ | 98,320 | | | $ | 15,292 | | | 112,511 | | | 103,841 | | | 8,670 | |
Plus (less): non-SS adjustments | | | | | | | 1,101 | | | (5,521) | | | 6,622 | |
SS Adjusted NOI | | | | | | | $ | 113,612 | | | $ | 98,320 | | | $ | 15,292 | |
Adjusted NOI % change | | | | | 15.6 | % | | | | | | |
Property count(3) | 15 | | | 15 | | | | | 15 | | | 15 | | | |
Average occupancy(4) | 83.8 | % | | 81.6 | % | | | | 83.9 | % | | 81.6 | % | | |
Average occupied units(5) | 5,952 | | | 5,926 | | | | | 5,960 | | | 5,926 | | | |
Average annual rent per occupied unit | $ | 88,503 | | | $ | 83,519 | | | | | $ | 88,524 | | | $ | 84,725 | | | |
(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 the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(3)From our 2022 presentation of Same-Store, no properties were added or removed.
(4)Refer to “Non-GAAP Financial Measures” above for the definition of Same-Store. Total Portfolio occupancy excludes any of the following: (i) developments, (ii) significant redevelopments, (iii) newly completed properties under lease-up, and (iv) properties held for sale.
(5)Represents average occupied units as reported by the operators for the twelve-month period.
Same-Store Adjusted NOI increased primarily as a result of the following:
•increased rates for resident fees; and
•higher occupancy; partially offset by
•higher costs of labor, management fees, insurance, real estate taxes, utilities, and food; and
•lower business interruption insurance proceeds.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store, partially offset by decreased government grant income received under the CARES Act.
Other Income and Expense Items
The following table summarizes the results of our other income and expense items for the years ended December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | Change |
Interest income | $ | 21,781 | | | $ | 23,300 | | | $ | (1,519) | |
Interest expense | 200,331 | | | 172,944 | | | 27,387 | |
Depreciation and amortization | 749,901 | | | 710,569 | | | 39,332 | |
General and administrative | 95,132 | | | 131,033 | | | (35,901) | |
Transaction and merger-related costs | 17,515 | | | 4,853 | | | 12,662 | |
Impairments and loan loss reserves (recoveries), net | (5,601) | | | 7,004 | | | (12,605) | |
Gain (loss) on sales of real estate, net | 86,463 | | | 9,078 | | | 77,385 | |
| | | | | |
Other income (expense), net | 6,808 | | | 326,268 | | | (319,460) | |
Income tax benefit (expense) | 9,617 | | | 4,425 | | | 5,192 | |
Equity income (loss) from unconsolidated joint ventures | 10,204 | | | 1,985 | | | 8,219 | |
Income (loss) from discontinued operations | — | | | 2,884 | | | (2,884) | |
Noncontrolling interests’ share in continuing operations | (28,748) | | | (15,975) | | | (12,773) | |
| | | | | |
Interest income
Interest income decreased for the year ended December 31, 2023 primarily as a result of principal repayments on loans receivable in 2022 and 2023, partially offset by higher interest rates.
Interest expense
Interest expense increased for the year ended December 31, 2023 primarily as a result of: (i) senior unsecured notes issued during the first half of 2023, (ii) borrowings under the Term Loan Facilities, which were drawn during the fourth quarter of 2022, and (iii) higher interest rates on the commercial paper program, partially offset by lower borrowings on the commercial paper program.
Depreciation and amortization
Depreciation and amortization expense increased for the year ended December 31, 2023 primarily as a result of development and redevelopment projects placed in service during 2022 and 2023, partially offset by: (i) assets placed into redevelopment in 2023, (ii) dispositions of real estate in 2022 and 2023, and (iii) lower depreciation related to the deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022.
General and administrative
General and administrative expenses decreased for the year ended December 31, 2023 primarily as a result of: (i) severance-related charges associated with the departures of our former Chief Executive Officer and our former Chief Legal Officer and General Counsel in the fourth quarter of 2022 and (ii) charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado in the fourth quarter of 2022.
Transaction and merger-related costs
Transaction and merger-related costs increased for the year ended December 31, 2023 primarily as a result of costs related to the Mergers, which are primarily comprised of legal, accounting, tax, and other costs that were incurred during the fourth quarter of 2023 (see Note 1 to the Consolidated Financial Statements).
Impairments and loan loss reserves (recoveries), net
Impairments and loan loss reserves (recoveries), net decreased for the year ended December 31, 2023 as a result of a decrease in loan loss reserves under the current expected credit losses model. The change in loan loss reserves for the year ended December 31, 2023 is primarily a result of: (i) principal repayments on seller financing, (ii) increased interest rates on variable rate loans, and (iii) macroeconomic conditions.
Gain (loss) on sales of real estate, net
Gain on sales of real estate, net increased during the year ended December 31, 2023 primarily as a result of: (i) the $60 million gain on sales of two lab buildings in Durham, North Carolina, which were sold during the three months ended March 31, 2023 and (ii) the $21 million gain on sales of two outpatient medical buildings, which were sold during the three months ended March 31, 2023, partially offset by: (i) the $4 million gain on sale of one lab building, which was sold during the three months ended March 31, 2022, (ii) the $10 million gain on sales of three outpatient medical buildings and one outpatient medical land parcel, which were sold during the three months ended June 30, 2022, and (iii) the $1 million gain on sales of two outpatient medical buildings, which were sold during the three months ended September 30, 2022.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.
Other income (expense), net
Other income, net decreased for the year ended December 31, 2023 primarily as a result of: (i) a gain upon change of control related to the sale of a 30% interest and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022, (ii) a gain on sale associated with the disposition of a hospital under a DFL during the first quarter of 2022, and (iii) a decrease in government grant income received under the CARES Act in 2023. The decrease in other income, net during the year ended December 31, 2023 was partially offset by: (i) other expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building, which were incurred in the first quarter of 2022 and (ii) casualty losses from a hurricane in the third quarter of 2022.
Income tax benefit (expense)
Income tax benefit increased for the year ended December 31, 2023 primarily as a result of a $14 million tax benefit recognized in connection with the reversal of a deferred tax asset valuation allowance during the fourth quarter of 2023 (see Note 16 to the Consolidated Financial Statements), partially offset by an increase in operating income associated with our CCRCs.
Equity income (loss) from unconsolidated joint ventures
Equity income from unconsolidated joint ventures increased for the year ended December 31, 2023 primarily as a result of increased income from the South San Francisco JVs and the SWF SH JV.
Income (loss) from discontinued operations
Income from discontinued operations decreased for the year ended December 31, 2023 a result of the completion of dispositions of our senior housing portfolios.
Noncontrolling interests’ share in continuing operations
Noncontrolling interests’ share in continuing operations increased for the year ended December 31, 2023 primarily as a result of a gain on sale of an outpatient medical building in a consolidated joint venture that was sold during the second quarter of 2023.
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) costs incurred to consummate the Mergers and the other transactions contemplated in the Merger Agreement; (ii) funding recurring operating expenses; (iii) meeting debt service requirements; and (iv) 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 sales of common stock under the ATM Program (as defined below).
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. Our two senior unsecured delayed draw term loans with an aggregate principal amount of $500 million (the “Term Loan Facilities”) and our Revolving Facility accrue interest at the Secured Overnight Financing Rate (“SOFR”) plus a margin that depends on the credit ratings of our senior unsecured long-term debt. We also pay a facility fee on the entire commitment under our Revolving Facility that depends upon our credit ratings. As of February 7, 2024, we had long-term credit ratings of Baa1 from Moody’s and BBB+ from S&P Global, and short-term credit ratings of P-2 from Moody’s and A-2 from S&P Global.
A downgrade in credit ratings by Moody’s or S&P Global may have a negative impact on the interest rates of our Revolving Facility and Term Loan Facilities 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 economic and market conditions on our business.
Material Cash Requirements
Our material cash requirements include the below contractual and other obligations.
Debt. As of December 31, 2023, we had total debt of $6.9 billion, including borrowings under our Revolving Facility and commercial paper program, senior unsecured notes, term loans, and mortgage debt. Of our total debt, the total amount payable within twelve months is comprised of $7 million of mortgage debt. Future interest payments associated with borrowings under our Revolving Facility, senior unsecured notes, term loans, and mortgage debt total $1.4 billion, $220 million of which are payable within twelve months. Future interest payments associated with commercial paper borrowings payable within the next twelve months total $21 million, assuming no change in interest rates and borrowings remain outstanding for the next twelve months. Commercial paper borrowings are backstopped by our Revolving Facility. As such, we calculate the weighted average remaining term of our commercial paper borrowings using the maturity date of our Revolving Facility. Additionally, we have secured commitments for the 2024 Term Loan, to be incurred as an incremental facility under our existing term loan agreement. In January 2024, we entered into forward-starting interest rate swap instruments that are designated as cash flow hedges that will effectively establish a fixed interest rate for the 2024 Term Loan at a blended contractual rate of 4.5%. See Note 10 to the Consolidated Financial Statements for additional information about our debt commitments.
Development and redevelopment commitments. Our development and redevelopment commitments represent construction and other commitments for development and redevelopment projects in progress and includes certain allowances for Company-owned tenant improvements that we have provided as a lessor. As of December 31, 2023, we had $152 million of development and redevelopment commitments, $135 million of which we expect to spend within the next twelve months.
Lease and other contractual commitments. Our lease and other contractual commitments represent our commitments, as lessor, under signed leases and contracts for operating properties and include allowances for Company-owned tenant improvements and leasing commissions. These commitments exclude allowances for Company-owned tenant improvements related to developments and redevelopments in progress for which we have executed an agreement with a general contractor to complete the tenant improvements, which are recognized as development and redevelopment commitments and are discussed further above. As of December 31, 2023, we had total lease and other contractual commitments of $28 million, $26 million of which we expect to spend within the next twelve months.
Construction loan commitments. Due to the terms of our SHOP seller financing notes receivable, as of December 31, 2023, we are obligated to provide additional loans up to $29 millionto fund senior housing redevelopment capital expenditure projects, which extend through 2024. See Note 7 to the Consolidated Financial Statements for additional information.
Ground and other operating lease commitments. Our ground and other operating lease commitments represent our commitments as lessee under signed operating leases. As of December 31, 2023, we had total ground and other operating lease commitments of $542 million, $17 million of which are payable within twelve months. See Note 6 to the Consolidated Financial Statements for additional information.
Redeemable noncontrolling interests.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 of December 31, 2023, three of the redeemable noncontrolling interests have met the conditions for redemption, but were not yet exercised. As of December 31, 2023, the redemption value of our redeemable noncontrolling interests was $49 million. See Note 12 to the Consolidated Financial Statements for additional information.
Success-Based Fees. We have engaged service providers, including investment banks and advisors, to help us negotiate the terms of the Mergers and to advise us on other merger-related matters. In connection with these services, we expect to be required to pay success-based fees to the extent that certain conditions, including the closing of the Mergers, are met. As of December 31, 2023, we expect to incur approximately $22 million of such success fees upon closing of the Mergers during the first quarter of 2024. As closing of the Mergers has not occurred, no such amounts have been paid or accrued through December 31, 2023. See Note 1 to the Consolidated Financial Statements for additional information.
Distribution and Dividend Requirements. Our dividend policy on our common stock is to distribute a percentage of our cash flow to ensure that we meet the dividend requirements of the Code, relative to maintaining our REIT status, while still allowing us to retain cash to fund capital improvements and other investment activities. Under the Code, REITs may be subject to certain federal income and excise taxes on undistributed taxable income. We paid quarterly cash dividends of $0.30 per common share in 2023. Our future common dividends, if and as declared, may vary and will be determined by the Board based upon the circumstances prevailing at the time, including our financial condition.
Off-Balance Sheet Arrangements
We own interests in certain unconsolidated joint ventures as described in Note 8 to the Consolidated Financial Statements. Two of these joint ventures have aggregate mortgage debt of $88 million, of which our share is $40 million. Except in limited circumstances, our risk of loss is limited to our investment in the applicable joint venture. We have no other material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.
Inflation
A significant portion of our revenues are derived from leases that generally provide for fixed rental rates, subject to annual escalations. A period of high inflation could result in increases in the Consumer Price Index in excess of our fixed annual escalations. Certain of our leases provide that annual rent is modified based on changes in the Consumer Price Index or other thresholds.
Most of our outpatient medical leases require the tenant to pay a share of property operating costs such as real estate taxes, insurance, and utilities. Substantially all of our lab leases require the tenant or operator to pay all of the property operating costs or reimburse us for all such costs.
Labor costs, costs of construction materials, interest, utilities, and other operating costs may increase during periods of inflation. Inflationary increases in expenses will generally be offset, in whole or in part, by the tenant expense reimbursements and contractual rent increases described above.
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.
The following table sets forth changes in cash flows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | Change |
Net cash provided by (used in) operating activities | $ | 956,242 | | | $ | 900,261 | | | $ | 55,981 | |
Net cash provided by (used in) investing activities | (576,754) | | | (876,343) | | | 299,589 | |
Net cash provided by (used in) financing activities | (337,299) | | | (116,532) | | | (220,767) | |
Operating Cash Flows
Our cash flows from operations are 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. Our net cash provided by operating activities increased $56 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of: (i) developments and redevelopments placed in service during 2022 and 2023, (ii) annual rent increases, (iii) higher nonrefundable entrance fee collections, and (iv) new leasing and renewal activity. The increase in net cash provided by operating activities was partially offset by: (i) an increase in interest expense and (ii) an increase in property operating expenses.
Investing Cash Flows
Our cash flows from investing activities are generally used to fund acquisitions, developments, and redevelopments of real estate, net of proceeds received from sales of real estate, sales of DFLs, and repayments on loans receivable. Our net cash used in investing activities decreased $300 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of the following: (i) a reduction in acquisitions of real estate, (ii) a reduction in development and redevelopment of real estate, (iii) an increase in proceeds from the sales of real estate, (iv) an increase in proceeds from principal repayments on loans receivable and marketable debt securities, and (v) an increase in proceeds from insurance recoveries. The decrease in cash used in investing activities was partially offset by: (i) proceeds received in 2022 from the sale of a 30% interest in seven previously consolidated lab buildings in South San Francisco, California and (ii) higher investments in unconsolidated joint ventures related to the funding of redevelopment projects.
Financing Cash Flows
Our cash flows from financing activities are generally impacted by issuances of equity, borrowings and repayments under our bank line of credit and commercial paper program, senior unsecured notes, term loans, and mortgage debt, net of dividends paid to common shareholders. Our net cash used in financing activities increased $221 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of the following: (i) issuance of the the Term Loan Facilities in 2022, (ii) settlement of contracts under our ATM Program in 2022, (iii) higher net repayments under the commercial paper program, (iv) higher repayments of mortgage debt, and (v) increased distributions to noncontrolling interests. The increase in net cash used in financing activities was partially offset by: (i) proceeds received from the senior unsecured notes issuances in January 2023 and May 2023 and (ii) a reduction in repurchases of common stock.
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 17 to the Consolidated Financial Statements.
Debt
In January 2023 and May 2023, we completed public offerings of $750 million aggregate principal amount of 5.25% senior unsecured notes due 2032.
In February 2023, the Revolving Facility was amended to change the interest rate benchmark from LIBOR to SOFR.
Also in February 2023, the agreements associated with $142 million of variable rate mortgage debt were amended to change the interest rate benchmarks from LIBOR to SOFR, effective March 2023. Concurrently, we modified the related interest rate swap instruments to reflect the change in the interest rate benchmarks from LIBOR to SOFR.
We have secured commitments for the 2024 Term Loan, to be incurred as an incremental facility under our existing term loan agreement. In January 2024, we entered into forward-starting interest rate swap instruments that are designated as cash flow hedges that will effectively establish a fixed interest rate for the 2024 Term Loan at a blended contractual rate of 4.5%.
In addition to the 2024 Term Loan, we anticipate that our principal indebtedness will increase due to debt assumed in connection with the Mergers.
See Note 10 to the Consolidated Financial Statements for additional information about our outstanding debt.
Approximately 90% and 85% of our consolidated debt was fixed rate debt as of December 31, 2023 and 2022, respectively. At December 31, 2023, our fixed rate debt and variable rate debt had weighted average interest rates of 3.70% and 5.72%, respectively. At December 31, 2022, our fixed rate debt and variable rate debt had weighted average interest rates of 3.46% and 4.91%, respectively. As of December 31, 2023, we had $142 million of variable rate mortgage debt and the $500 million Term Loan Facilities swapped to fixed rates through interest rate swap instruments. These interest rate swap instruments are designated as cash flow hedges. 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 “Item 7A, Quantitative and Qualitative Disclosures About Market Risk” below.
Supplemental Guarantor Information
Healthpeak OP has issued the senior unsecured notes described in Note 10 to the Consolidated Financial Statements. The obligations of Healthpeak OP to pay principal, premiums, if any, and interest on such senior unsecured notes are guaranteed on a full and unconditional basis by the Company.
Subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the parent guarantee is “full and unconditional”, the subsidiary obligor is a consolidated subsidiary of the parent company, the guaranteed security is debt or debt-like, and consolidated financial statements of the parent company have been filed. Accordingly, separate consolidated financial statements of Healthpeak OP have not been presented.
As permitted under Rule 13-01 of Regulation S-X, we have excluded the summarized financial information for the operating subsidiary because the Company and Healthpeak OP have no material assets, liabilities, or operations other than debt financing activities and their investments in non-guarantor subsidiaries, and management believes such summarized financial information would be repetitive and would not provide incremental value to investors.
Equity
At December 31, 2023, we had 547 million shares of common stock outstanding, equity totaled $6.9 billion, and our equity securities had a market value of $11.0 billion.
The Merger Agreement
Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, each outstanding share of Physicians Realty Trust will be converted into the right to receive 0.674 shares of our common stock when the Mergers are consummated. Based on the number of outstanding Physicians Realty Trust common shares as of January 8, 2024 (the record date for the special meetings of stockholders), we expect to issue approximately 163 million shares of our common stock when the Mergers are consummated.
At-The-Market Program
In February 2023, in connection with the Reorganization, we terminated our previous at-the-market equity offering program and established a new at-the-market equity offering program (the “ATM Program”) that allows for the sale of shares of common stock having an aggregate gross sales price of up to $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 ended December 31, 2023, we did not issue any shares of our common stock under any ATM program.
At December 31, 2023, $1.5 billionof 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 shares under our ATM Program.
See Note 12 to the Consolidated Financial Statements for additional information about our ATM Program.
Noncontrolling Interests
Healthpeak OP. Immediately following the Reorganization, Healthpeak Properties, Inc. was the initial sole member and 100% owner of Healthpeak OP. Subsequent to the Reorganization, certain of our employees (“OP Unitholders”) were issued approximately 2 million noncontrolling, non-managing member units in Healthpeak OP (“OP Units”), all of which were LTIP Units (see Note 14 to the Consolidated Financial Statements). When certain conditions are met, the OP Unitholders have the right to require redemption of part or all of their OP Units for cash or shares of our common stock, at our option as managing member of Healthpeak OP. The per unit redemption amount is equal to either one share of our common stock or cash equal to the fair value of a share of common stock at the time of redemption. We classify the OP Units in permanent equity because we may elect, in our sole discretion, to issue shares of our common stock to OP Unitholders who choose to redeem their OP Units rather than using cash. None of the outstanding OP Units met the criteria for redemption as of December 31, 2023.
DownREITs. At December 31, 2023, non-managing members held an aggregate of approximately 5 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). At December 31, 2023, the outstanding DownREIT units were convertible into approximately 7 million shares of our common stock.
Share Repurchase Program
On August 1, 2022, our Board of Directors approved the 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. 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 in August 2024 and may be suspended or terminated at any time without prior notice. During the year ended December 31, 2022, we repurchased 2.1 million shares of our common stock at a weighted average price of $27.16 per share for a total of $56 million. During the year ended December 31, 2023, there were no repurchases under the Share Repurchase Program. Therefore, at December 31, 2023, $444 million of our common stock remained available for repurchase under the Share Repurchase Program.
Shelf Registration
In February 2024, the Company and Healthpeak OP jointly filed a prospectus with the SEC as part of a registration statement on Form S-3, using an automatic shelf registration process. This shelf registration statement expires on February 8, 2027 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 future offerings of (i) the Company’s common stock, preferred stock, depositary shares, warrants, debt securities, and guarantees by the Company of debt securities issued by Healthpeak OP and/or by the Company’s existing and future subsidiaries, and (ii) Healthpeak OP’s debt securities and guarantees by Healthpeak OP of debt securities issued by the Company and/or by Healthpeak OP’s existing and future subsidiaries.
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):
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| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Net income (loss) applicable to common shares | $ | 304,284 | | | $ | 497,792 | | | $ | 502,271 | |
Real estate related depreciation and amortization | 749,901 | | | 710,569 | | | 684,286 | |
Healthpeak’s share of real estate related depreciation and amortization from unconsolidated joint ventures | 24,800 | | | 27,691 | | | 17,085 | |
Noncontrolling interests’ share of real estate related depreciation and amortization | (18,654) | | | (19,201) | | | (19,367) | |
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Loss (gain) on sales of depreciable real estate, net(1) | (86,463) | | | (10,422) | | | (605,311) | |
Healthpeak’s share of loss (gain) on sales of depreciable real estate, net, from unconsolidated joint ventures | — | | | 134 | | | (6,737) | |
Noncontrolling interests’ share of gain (loss) on sales of depreciable real estate, net | 11,546 | | | 12 | | | 5,555 | |
Loss (gain) upon change of control, net(2) | (234) | | | (311,438) | | | (1,042) | |
Taxes associated with real estate dispositions | — | | | 29 | | | 2,666 | |
Impairments (recoveries) of depreciable real estate, net | — | | | — | | | 25,320 | |
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Nareit FFO applicable to common shares | 985,180 | | | 895,166 | | | 604,726 | |
Distributions on dilutive convertible units and other | 9,394 | | | 9,407 | | | 6,162 | |
Diluted Nareit FFO applicable to common shares | $ | 994,574 | | | $ | 904,573 | | | $ | 610,888 | |
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Impact of adjustments to Nareit FFO: | | | | | |
Transaction and merger-related items(3) | $ | 13,835 | | | $ | 4,788 | | | $ | 7,044 | |
Other impairments (recoveries) and other losses (gains), net(4) | (3,850) | | | 3,829 | | | 24,238 | |
Restructuring and severance-related charges(5) | 1,368 | | | 32,749 | | | 3,610 | |
Loss (gain) on debt extinguishments | — | | | — | | | 225,824 | |
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Casualty-related charges (recoveries), net(6) | (4,033) | | | 4,401 | | | 5,203 | |
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Recognition (reversal) of valuation allowance on deferred tax assets(7) | (14,194) | | | — | | | — | |
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Total adjustments | $ | (6,874) | | | $ | 45,767 | | | $ | 265,919 | |
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FFO as Adjusted applicable to common shares | $ | 978,306 | | | $ | 940,933 | | | $ | 870,645 | |
Distributions on dilutive convertible units and other | 9,402 | | | 9,326 | | | 8,577 | |
Diluted FFO as Adjusted applicable to common shares | $ | 987,708 | | | $ | 950,259 | | | $ | 879,222 | |
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FFO as Adjusted applicable to common shares | $ | 978,306 | | | $ | 940,933 | | | $ | 870,645 | |
Stock-based compensation amortization expense | 14,480 | | | 16,537 | | | 18,202 | |
Amortization of deferred financing costs | 11,916 | | | 10,881 | | | 9,216 | |
Straight-line rents(8) | (14,387) | | | (49,183) | | | (31,188) | |
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AFFO capital expenditures | (113,596) | | | (108,510) | | | (111,480) | |
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Deferred income taxes | (816) | | | (4,096) | | | (8,015) | |
Amortization of above (below) market lease intangibles, net | (25,791) | | | (23,380) | | | (17,978) | |
Other AFFO adjustments | (9,335) | | | 520 | | | (1,532) | |
AFFO applicable to common shares | 840,777 | | | 783,702 | | | 727,870 | |
Distributions on dilutive convertible units and other | 6,581 | | | 6,594 | | | 6,164 | |
Diluted AFFO applicable to common shares | $ | 847,358 | | | $ | 790,296 | | | $ | 734,034 | |
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Refer to footnotes on the next page.
(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 year ended December 31, 2022 includes a gain upon change of control related to the sale of a 30% interest to a sovereign wealth fund and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California. The gain upon change of control is included in other income (expense), net in the Consolidated Statements of Operations.
(3)The year ended December 31, 2023 includes costs related to the Mergers, which are primarily comprised of legal, accounting, tax, and other costs that were incurred prior to year-end, partially offset by termination fee income associated with Graphite Bio, Inc., for which the lease terms have been modified to accelerate expiration of the lease to December 2024. Termination fee income is included in rental and related revenues on the Consolidated Statements of Operations.
(4)The year ended December 31, 2022 includes the following: (i) $7 million of charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado, which are included in general and administrative expenses in the Consolidated Statements of Operations, (ii) $14 million of expenses incurred for tenant relocation and other costs associated with the demolition of an outpatient medical building, which are included in other income (expense), net in the Consolidated Statements of Operations, and (iii) a $23 million gain on sale of a hospital under a DFL, which is included in other income (expense), net in the Consolidated Statements of Operations. The year ended December 31, 2021 includes the following: (i) a $29 million goodwill impairment charge in connection with our senior housing triple-net and SHOP asset sales, which is reported in income (loss) from discontinued operations in the Consolidated Statements of Operations and (ii) $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 years ended December 31, 2023, 2022, and 2021 include reserves and (recoveries) for expected loan losses recognized in impairments and loan loss reserves (recoveries), net in the Consolidated Statements of Operations.
(5)The year ended December 31, 2022 includes $32 million of severance-related charges associated with the departures of our former Chief Executive Officer and former Chief Legal Officer and General Counsel in the fourth quarter of 2022. These expenses are included in general and administrative expenses in the Consolidated Statements of Operations.
(6)Casualty-related charges (recoveries), net are recognized in other income (expense), net and equity income (loss) from unconsolidated joint ventures in the Consolidated Statements of Operations.
(7)In conjunction with classifying the assets related to the Callan Ridge JV (see Note 8 to the Consolidated Financial Statements) as held for sale as of December 31, 2023, we concluded it was more likely than not that we would realize the future value of certain deferred tax assets generated by the net operating losses of taxable REIT subsidiaries. Accordingly, during the year ended December 31, 2023, we recognized the reversal of a portion of the associated valuation allowance and recognized a corresponding income tax benefit. See Note 16 to the Consolidated Financial Statements for additional information.
(8)The year ended December 31, 2023 includes a $9 million write-off of straight-line rent receivable associated with Sorrento Therapeutics, Inc., which commenced voluntary reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code. This activity is reflected as a reduction of rental and related revenues in the Consolidated Statements of Operations.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.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 could affect our financial position or results of operations. 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. Below is 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. For a more detailed discussion of our significant accounting policies, including those related to critical accounting estimates further discussed below, see Note 2 to the Consolidated Financial Statements.
Impairment of Long-Lived Assets
We assess the carrying value of our real estate assets and related intangibles (“real estate assets”) when events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability of real estate assets is measured by comparing the carrying amount of the real estate assets to the respective estimated future undiscounted cash flows. The expected future undiscounted cash flows reflect external market factors, and based on the specific facts and circumstances, may be probability-weighted to reflect multiple possible cash-flow scenarios, including selling the assets at various points in the future. Additionally, the estimated future undiscounted cash flows are calculated utilizing the lowest level of identifiable cash flows that are largely independent of the cash flows of other assets and liabilities. In order to review our real estate assets for recoverability, we make assumptions regarding external market conditions (including capitalization rates and growth rates), forecasted cash flows and sales prices, and our intent with respect to holding or disposing of the asset. If our analysis indicates that the carrying value of the real estate assets is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the carrying value exceeds the fair value of the real estate assets.
Determining the fair value of real estate assets, including assets classified as held for sale, involves significant judgment and generally utilizes market capitalization rates, comparable market transactions, estimated per unit or per square foot prices, negotiations with prospective buyers, and forecasted cash flows (primarily lease revenue rates, expense rates, and growth rates). Our ability to accurately predict future operating results and resulting cash flows, and estimate fair values, impacts the timing and recognition of impairments. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for the impact of new accounting standards.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, primarily from the potential loss arising from adverse changes in interest rates. We use derivative and other financial instruments in the normal course of business to mitigate interest rate risk. We do not use derivative financial instruments for speculative or trading purposes. Derivatives are recorded on the Consolidated Balance Sheets at fair value (see Note 21 to the Consolidated Financial Statements).
To illustrate the effect of movements in the interest rate markets, we performed a market sensitivity analysis on our hedging instruments. We applied various basis point spreads to the underlying interest rate curves of our derivative portfolio in order to determine the change in fair value. At December 31, 2023, a one percentage point increase or decrease in the underlying interest rate curve would result in a corresponding increase or decrease in the fair value of the derivative instruments by up to $18 million.
Interest Rate Risk
At December 31, 2023, our exposure to interest rate risk was primarily on our variable rate debt. At December 31, 2023, $142 million of our variable rate mortgage debt and our $500 million Term Loan Facilities were swapped to fixed rates through interest rate swap instruments. The interest rate swap instruments are designated as cash flow hedges, with the objective of managing the exposure to interest rate risk by converting the interest rates on our variable rate debt to fixed interest rates. At December 31, 2023, both the fair value and carrying value of the interest rate swap instruments were $21 million.
Our remaining variable rate debt at December 31, 2023 was comprised of borrowings under our commercial paper program and certain of our mortgage debt. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt and assets until their maturity or earlier prepayment and refinancing. If interest rates have risen at the time we seek to refinance our fixed rate debt, whether at maturity or otherwise, our future earnings and cash flows could be adversely affected by additional borrowing costs. Conversely, lower interest rates at the time of refinancing may reduce our overall borrowing costs. Interest rate changes will affect the fair value of our fixed rate instruments. At December 31, 2023, a one percentage point increase in interest rates would decrease the fair value of our fixed rate debt by approximately $255 million and a one percentage point decrease in interest rates would increase the fair value of our fixed rate debt by approximately $272 million. These changes would not materially impact earnings or cash flows. Conversely, changes in interest rates on variable rate debt would change our future earnings and cash flows, but not materially impact the fair value of those instruments. Assuming a one percentage point increase in the interest rates related to our variable rate debt, and assuming no other changes in the outstanding balance at December 31, 2023, our annual interest expense would increase by approximately $7 million. Lastly, assuming a one percentage point decrease in the interest rates related to our variable rate loans receivable, and assuming no other changes in the outstanding balance at December 31, 2023, our annual interest income would decrease by approximately $2 million.
ITEM 8. Financial Statements and Supplementary Data
Healthpeak Properties, Inc.
Index to the Consolidated Financial Statements
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Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) | |
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Healthpeak Properties, Inc.
Opinion on the Financial Statements
We have audited the accompanying Consolidated Balance Sheets of Healthpeak Properties, Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related Consolidated Statements of Operations, Comprehensive Income (Loss), Equity and Redeemable Noncontrolling Interests, and Cash Flows, for each of the three years in the period ended December 31, 2023, and the related Notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 9, 2024, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairments — Real Estate — Refer to Notes 2 and 5 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of impairment of real estate involves an assessment of the carrying value of real estate assets and related intangibles (“real estate assets”) when events or changes in circumstances indicate that the carrying value may not be recoverable.
Auditing the Company’s process to evaluate real estate assets for impairment was complex due to the subjectivity in determining whether impairment indicators were present. Additionally, for real estate assets where indicators of impairment were determined to be present, the determination of the future undiscounted cash flows involved significant judgment. In particular, the undiscounted cash flows were forecasted based on significant assumptions such as lease-up periods, lease revenue rates, operating expenses, and revenue and expense growth rates, and included judgments around the intended hold period and terminal capitalization rates.
Given the Company’s evaluation of impairment indicators, forecasted cash flows and sales prices of a long-lived asset requires management to make significant estimates and assumptions related to market capitalization rates, market prices per unit, and/or forecasted cash flows, performing audit procedures required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to real estate asset impairment included the following, among others:
•We tested the effectiveness of controls over impairment of real estate assets, including those over identifying impairment indicators and the determination of forecasted undiscounted cash flows and sales prices for real estate assets.
•We performed an independent search for impairment indicators through the evaluation of several factors including an analysis of industry and market data, a comparison of real estate asset implied capitalization rates to market capitalization rates, and trends in financial performance.
•For real estate assets where indicators of impairment were determined to be present, we subjected a sample of undiscounted cash flow models to testing by (1) evaluating the source information used by management, (2) testing the mathematical accuracy of the undiscounted cash flow models, (3) evaluating management’s intended hold period, and (4) performing an independent recoverability test based on market data.
Concurrent with our adoption of Accounting Standards Update ("ASU") No. 2016-02, Leases (“ASU 2016-02”) on January 1, 2019, we began classifying a lease entered into subsequent to adoption as an operating lease if none of the following criteria are met: (i) transfer of ownership to the lessee by the end of the lease term, (ii) lessee has a purchase option during or at the end of the lease term that it is reasonably certain to exercise, (iii) the lease term is for the major part of the remaining economic life of the underlying asset, (iv) the present value of future minimum lease payments is equal to substantially all of the fair value of the underlying asset, or (v) the underlying asset is of such a specialized nature that it is expected to have no alternative use to us at the end of the lease term. | | | | | |
/s/ DELOITTE & TOUCHE LLP | |
Costa Mesa, California
February 9, 2024
We have served as the Company’s auditor since 2010.
Healthpeak Properties, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
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| December 31, |
| 2023 | | 2022 |
ASSETS | | | |
Real estate: | | | |
Buildings and improvements | $ | 13,329,464 | | | $ | 12,784,078 | |
Development costs and construction in progress | 643,217 | | | 760,355 | |
Land and improvements | 2,647,633 | | | 2,667,188 | |
Accumulated depreciation and amortization | (3,591,951) | | | (3,188,138) | |
Net real estate | 13,028,363 | | | 13,023,483 | |
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Loans receivable, net of reserves of $2,830 and $8,280 | 218,450 | | | 374,832 | |
Investments in and advances to unconsolidated joint ventures | 782,853 | | | 706,677 | |
Accounts receivable, net of allowance of $2,282 and $2,399 | 55,820 | | | 53,436 | |
Cash and cash equivalents | 117,635 | | | 72,032 | |
Restricted cash | 51,388 | | | 54,802 | |
Intangible assets, net | 314,156 | | | 418,061 | |
Assets held for sale, net | 117,986 | | | 49,866 | |
Right-of-use asset, net | 240,155 | | | 237,318 | |
Other assets, net | 772,044 | | | 780,722 | |
Total assets | $ | 15,698,850 | | | $ | 15,771,229 | |
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LIABILITIES AND EQUITY | | | |
Bank line of credit and commercial paper | $ | 720,000 | | | $ | 995,606 | |
Term loans | 496,824 | | | 495,957 | |
Senior unsecured notes | 5,403,378 | | | 4,659,451 | |
Mortgage debt | 256,097 | | | 346,599 | |
Intangible liabilities, net | 127,380 | | | 156,193 | |
Liabilities related to assets held for sale, net | 729 | | | 4,070 | |
Lease liability | 206,743 | | | 208,515 | |
Accounts payable, accrued liabilities, and other liabilities | 657,196 | | | 772,485 | |
Deferred revenue | 905,633 | | | 844,076 | |
Total liabilities | 8,773,980 | | | 8,482,952 | |
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Commitments and contingencies (Note 11) | | | |
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Redeemable noncontrolling interests | 48,828 | | | 105,679 | |
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Common stock, $1.00 par value: 750,000,000 shares authorized; 547,156,311 and 546,641,973 shares issued and outstanding | 547,156 | | | 546,642 | |
Additional paid-in capital | 10,405,780 | | | 10,349,614 | |
Cumulative dividends in excess of earnings | (4,621,861) | | | (4,269,689) | |
Accumulated other comprehensive income (loss) | 19,371 | | | 28,134 | |
Total stockholders’ equity | 6,350,446 | | | 6,654,701 | |
Joint venture partners | 310,998 | | | 327,721 | |
Non-managing member unitholders | 214,598 | | | 200,176 | |
Total noncontrolling interests | 525,596 | | | 527,897 | |
Total equity | 6,876,042 | | | 7,182,598 | |
Total liabilities and equity | $ | 15,698,850 | | | $ | 15,771,229 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
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| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Revenues: | | | | | |
Rental and related revenues | $ | 1,631,805 | | | $ | 1,541,775 | | | $ | 1,378,384 | |
Resident fees and services | 527,417 | | | 494,935 | | | 471,325 | |
Interest income | 21,781 | | | 23,300 | | | 37,773 | |
Income from direct financing leases | — | | | 1,168 | | | 8,702 | |
Total revenues | 2,181,003 | | | 2,061,178 | | | 1,896,184 | |
Costs and expenses: | | | | | |
Interest expense | 200,331 | | | 172,944 | | | 157,980 | |
Depreciation and amortization | 749,901 | | | 710,569 | | | 684,286 | |
Operating | 902,060 | | | 862,991 | | | 773,279 | |
General and administrative | 95,132 | | | 131,033 | | | 98,303 | |
Transaction and merger-related costs | 17,515 | | | 4,853 | | | 1,841 | |
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Impairments and loan loss reserves (recoveries), net | (5,601) | | | 7,004 | | | 23,160 | |
Total costs and expenses | 1,959,338 | | | 1,889,394 | | | 1,738,849 | |
Other income (expense): | | | | | |
Gain (loss) on sales of real estate, net | 86,463 | | | 9,078 | | | 190,590 | |
Gain (loss) on debt extinguishments | — | | | — | | | (225,824) | |
Other income (expense), net | 6,808 | | | 326,268 | | | 6,266 | |
Total other income (expense), net | 93,271 | | | 335,346 | | | (28,968) | |
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | 314,936 | | | 507,130 | | | 128,367 | |
Income tax benefit (expense) | 9,617 | | | 4,425 | | | 3,261 | |
Equity income (loss) from unconsolidated joint ventures | 10,204 | | | 1,985 | | | 6,100 | |
Income (loss) from continuing operations | 334,757 | | | 513,540 | | | 137,728 | |
Income (loss) from discontinued operations | — | | | 2,884 | | | 388,202 | |
Net income (loss) | 334,757 | | | 516,424 | | | 525,930 | |
Noncontrolling interests’ share in continuing operations | (28,748) | | | (15,975) | | | (17,851) | |
Noncontrolling interests’ share in discontinued operations | — | | | — | | | (2,539) | |
Net income (loss) attributable to Healthpeak Properties, Inc. | 306,009 | | | 500,449 | | | 505,540 | |
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Participating securities’ share in earnings | (1,725) | | | (2,657) | | | (3,269) | |
Net income (loss) applicable to common shares | $ | 304,284 | | | $ | 497,792 | | | $ | 502,271 | |
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Basic earnings (loss) per common share: | | | | | |
Continuing operations | $ | 0.56 | | | $ | 0.92 | | | $ | 0.22 | |
Discontinued operations | — | | | 0.00 | | | 0.71 | |
Net income (loss) applicable to common shares | $ | 0.56 | | | $ | 0.92 | | | $ | 0.93 | |
Diluted earnings (loss) per common share: | | | | | |
Continuing operations | $ | 0.56 | | | $ | 0.92 | | | $ | 0.22 | |
Discontinued operations | — | | | 0.00 | | | 0.71 | |
Net income (loss) applicable to common shares | $ | 0.56 | | | $ | 0.92 | | | $ | 0.93 | |
| | | | | |
| | | | | |
| | | | | |
Weighted average shares outstanding: | | | | | |
Basic | 547,006 | | | 538,809 | | | 538,930 | |
Diluted | 547,275 | | | 539,147 | | | 539,241 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Net income (loss) | $ | 334,757 | | | $ | 516,424 | | | $ | 525,930 | |
Other comprehensive income (loss): | | | | | |
| | | | | |
| | | | | |
Net unrealized gains (losses) on derivatives | (8,900) | | | 30,145 | | | 332 | |
Change in Supplemental Executive Retirement Plan obligation and other | 137 | | | 1,136 | | | 457 | |
Reclassification adjustment realized in net income (loss) | — | | | — | | | (251) | |
| | | | | |
Total other comprehensive income (loss) | (8,763) | | | 31,281 | | | 538 | |
Total comprehensive income (loss) | 325,994 | | | 547,705 | | | 526,468 | |
Total comprehensive (income) loss attributable to noncontrolling interests’ share in continuing operations | (28,748) | | | (15,975) | | | (17,851) | |
Total comprehensive (income) loss attributable to noncontrolling interests’ share in discontinued operations | — | | | — | | | (2,539) | |
Total comprehensive income (loss) attributable to Healthpeak Properties, Inc. | $ | 297,246 | | | $ | 531,730 | | | $ | 506,078 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | | | | | | | | | |
| Shares | | Amount | | Additional Paid-In Capital | | Cumulative Dividends In Excess Of Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Total Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
December 31, 2020 | 538,405 | | | $ | 538,405 | | | $ | 10,175,235 | | | $ | (3,976,232) | | | $ | (3,685) | | | $ | 6,733,723 | | | $ | 556,227 | | | $ | 7,289,950 | | | $ | 57,396 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | — | | | 505,540 | | | — | | | 505,540 | | | 20,346 | | | 525,886 | | | 44 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 538 | | | 538 | | | — | | | 538 | | | — | |
Issuance of common stock, net | 1,005 | | | 1,005 | | | 740 | | | — | | | — | | | 1,745 | | | — | | | 1,745 | | | — | |
Conversion of DownREIT units to common stock | 8 | | | 8 | | | 193 | | | — | | | — | | | 201 | | | (201) | | | — | | | — | |
Repurchase of common stock | (418) | | | (418) | | | (12,423) | | | — | | | — | | | (12,841) | | | — | | | (12,841) | | | — | |
Exercise of stock options | 97 | | | 97 | | | 3,194 | | | — | | | — | | | 3,291 | | | — | | | 3,291 | | | — | |
Stock-based compensation | — | | | — | | | 22,851 | | | — | | | — | | | 22,851 | | | — | | | 22,851 | | | — | |
Common dividends ($1.20 per share) | — | | | — | | | — | | | (650,082) | | | — | | | (650,082) | | | — | | | (650,082) | | | — | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (33,017) | | | (33,017) | | | (162) | |
| | | | | | | | | | | | | | | | | |
Purchase of noncontrolling interests | — | | | — | | | (5) | | | — | | | — | | | (5) | | | (65) | | | (70) | | | (60,065) | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 640 | |
Adjustments to redemption value of redeemable noncontrolling interests | — | | | — | | | (89,491) | | | — | | | — | | | (89,491) | | | — | | | (89,491) | | | 89,491 | |
December 31, 2021 | 539,097 | | | $ | 539,097 | | | $ | 10,100,294 | | | $ | (4,120,774) | | | $ | (3,147) | | | $ | 6,515,470 | | | $ | 543,290 | | | $ | 7,058,760 | | | $ | 87,344 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | — | | | 500,449 | | | — | | | 500,449 | | | 15,876 | | | 516,325 | | | 99 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 31,281 | | | 31,281 | | | — | | | 31,281 | | | — | |
Issuance of common stock, net | 9,936 | | | 9,936 | | | 299,481 | | | — | | | — | | | 309,417 | | | — | | | 309,417 | | | — | |
Conversion of DownREIT units to common stock | 27 | | | 27 | | | 853 | | | — | | | — | | | 880 | | | (880) | | | — | | | — | |
Repurchase of common stock | (2,418) | | | (2,418) | | | (65,420) | | | — | | | — | | | (67,838) | | | — | | | (67,838) | | | — | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 31,412 | | | — | | | — | | | 31,412 | | | — | | | 31,412 | | | — | |
Common dividends ($1.20 per share) | — | | | — | | | — | | | (649,364) | | | — | | | (649,364) | | | — | | | (649,364) | | | — | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (30,389) | | | (30,389) | | | (160) | |
| | | | | | | | | | | | | | | | | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,390 | |
| | | | | | | | | | | | | | | | | |
Adjustments to redemption value of redeemable noncontrolling interests | — | | | — | | | (17,006) | | | — | | | — | | | (17,006) | | | — | | | (17,006) | | | 17,006 | |
December 31, 2022 | 546,642 | | | $ | 546,642 | | | $ | 10,349,614 | | | $ | (4,269,689) | | | $ | 28,134 | | | $ | 6,654,701 | | | $ | 527,897 | | | $ | 7,182,598 | | | $ | 105,679 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS (CONTINUED)
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | | | | | | | | | |
| Shares | | Amount | | Additional Paid-In Capital | | Cumulative Dividends In Excess Of Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Total Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
December 31, 2022 | 546,642 | | | $ | 546,642 | | | $ | 10,349,614 | | | $ | (4,269,689) | | | $ | 28,134 | | | $ | 6,654,701 | | | $ | 527,897 | | | $ | 7,182,598 | | | $ | 105,679 | |
Net income (loss) | — | | | — | | | — | | | 306,009 | | | — | | | 306,009 | | | 28,111 | | | 334,120 | | | 637 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (8,763) | | | (8,763) | | | — | | | (8,763) | | | — | |
Issuance of common stock, net | 683 | | | 683 | | | 755 | | | — | | | — | | | 1,438 | | | — | | | 1,438 | | | — | |
Conversion of DownREIT units to common stock | 72 | | | 72 | | | 1,200 | | | — | | | — | | | 1,272 | | | (1,272) | | | — | | | — | |
Repurchase of common stock | (241) | | | (241) | | | (6,283) | | | — | | | — | | | (6,524) | | | — | | | (6,524) | | | — | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 2,966 | | | — | | | — | | | 2,966 | | | 15,693 | | | 18,659 | | | — | |
Common dividends ($1.20 per share) | — | | | — | | | — | | | (658,181) | | | — | | | (658,181) | | | — | | | (658,181) | | | — | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (44,848) | | | (44,848) | | | (276) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Purchase of noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (158) | | | (158) | | | — | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | 173 | | | 173 | | | 316 | |
Adjustments to redemption value of redeemable noncontrolling interests | — | | | — | | | 57,528 | | | — | | | — | | | 57,528 | | | — | | | 57,528 | | | (57,528) | |
December 31, 2023 | 547,156 | | | $ | 547,156 | | | $ | 10,405,780 | | | $ | (4,621,861) | | | $ | 19,371 | | | $ | 6,350,446 | | | $ | 525,596 | | | $ | 6,876,042 | | | $ | 48,828 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | |
| 2023 | | 2022 | | 2021 | |
Cash flows from operating activities: | | | | | | |
Net income (loss) | $ | 334,757 | | | $ | 516,424 | | | $ | 525,930 | | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | |
Depreciation and amortization of real estate, in-place lease, and other intangibles | 749,901 | | | 710,569 | | | 684,286 | | |
| | | | | | |
| | | | | | |
Stock-based compensation amortization expense | 14,480 | | | 26,456 | | | 18,202 | | |
Amortization of deferred financing costs | 11,916 | | | 10,881 | | | 9,216 | | |
Straight-line rents | (14,387) | | | (49,183) | | | (31,188) | | |
Amortization of nonrefundable entrance fees and above (below) market lease intangibles | (108,988) | | | (102,747) | | | (94,362) | | |
| | | | | | |
| | | | | | |
| | | | | | |
Equity loss (income) from unconsolidated joint ventures | (10,204) | | | (2,049) | | | (11,235) | | |
Distributions of earnings from unconsolidated joint ventures | 910 | | | 943 | | | 4,976 | | |
| | | | | | |
Loss (gain) on sale of real estate under direct financing leases | — | | | (22,693) | | | — | | |
Deferred income tax expense (benefit) | (14,605) | | | (6,001) | | | (5,792) | | |
Impairments and loan loss reserves (recoveries), net | (5,601) | | | 7,004 | | | 55,896 | | |
Loss (gain) on debt extinguishments | — | | | — | | | 225,824 | | |
Loss (gain) on sales of real estate, net | (86,463) | | | (10,422) | | | (605,311) | | |
Loss (gain) upon change of control, net | (234) | | | (311,438) | | | (1,042) | | |
Casualty-related loss (recoveries), net | (3,085) | | | 7,168 | | | 1,632 | | |
| | | | | | |
Other non-cash items | 4,900 | | | 6,489 | | | (8,178) | | |
Changes in: | | | | | | |
Decrease (increase) in accounts receivable and other assets, net | (21,566) | | | (17,433) | | | 18,626 | | |
Increase (decrease) in accounts payable, accrued liabilities, and deferred revenue | 104,511 | | | 136,293 | | | 7,768 | | |
Net cash provided by (used in) operating activities | 956,242 | | | 900,261 | | | 795,248 | | |
Cash flows from investing activities: | | | | | | |
| | | | | | |
| | | | | | |
Acquisitions of real estate | (15,847) | | | (178,133) | | | (1,483,026) | | |
Development, redevelopment, and other major improvements of real estate | (731,206) | | | (861,636) | | | (610,555) | | |
| | | | | | |
| | | | | | |
Leasing costs, tenant improvements, and recurring capital expenditures | (113,596) | | | (108,510) | | | (111,480) | | |
| | | | | | |
| | | | | | |
Proceeds from sales of real estate, net | 141,651 | | | 47,885 | | | 2,399,120 | | |
Proceeds from the South San Francisco JVs transaction, net | — | | | 125,985 | | | — | | |
| | | | | | |
Investments in unconsolidated joint ventures | (88,391) | | | (21,143) | | | (25,260) | | |
Distributions in excess of earnings from unconsolidated joint ventures | 20,640 | | | 12,518 | | | 37,640 | | |
Proceeds from insurance recovery | 24,980 | | | 1,450 | | | — | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Proceeds from sales/principal repayments on loans receivable, direct financing leases, and marketable debt securities | 204,865 | | | 115,988 | | | 342,420 | | |
Investments in loans receivable and other | (19,850) | | | (10,747) | | | (17,827) | | |
| | | | | | |
| | | | | | |
Net cash provided by (used in) investing activities | (576,754) | | | (876,343) | | | 531,032 | | |
Cash flows from financing activities: | | | | | | |
Borrowings under bank line of credit and commercial paper | 10,344,705 | | | 15,882,153 | | | 16,821,450 | | |
Repayments under bank line of credit and commercial paper | (10,620,311) | | | (16,052,522) | | | (15,785,065) | | |
| | | | | | |
| | | | | | |
Issuances and borrowings of term loans, senior unsecured notes, and mortgage debt | 743,778 | | | 500,000 | | | 1,088,537 | | |
Repayments and repurchases of term loans, senior unsecured notes, and mortgage debt | (90,089) | | | (5,048) | | | (2,425,936) | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Payments for debt extinguishment and deferred financing costs | (7,322) | | | (4,171) | | | (236,942) | | |
| | | | | | |
Issuance of common stock and exercise of options, net of offering costs | 278 | | | 308,100 | | | 5,036 | | |
Repurchase of common stock | (6,524) | | | (67,838) | | | (12,841) | | |
Dividends paid on common stock | (657,021) | | | (648,047) | | | (650,082) | | |
Distributions to and purchase of noncontrolling interests | (45,282) | | | (30,549) | | | (93,314) | | |
| | | | | | |
Contributions from and issuance of noncontrolling interests | 489 | | | 1,390 | | | 640 | | |
Net cash provided by (used in) financing activities | (337,299) | | | (116,532) | | | (1,288,517) | | |
| | | | | | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 42,189 | | | (92,614) | | | 37,763 | | |
Cash, cash equivalents, and restricted cash, beginning of year | 126,834 | | | 219,448 | | | 181,685 | | |
Cash, cash equivalents, and restricted cash, end of year | $ | 169,023 | | | $ | 126,834 | | | $ | 219,448 | | |
| | | | | | |
| | | | | | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Business
If the assumptions utilized in the above classification assessments were different, our lease classification for accounting purposes may have been different; thus the timing and amount of our revenue recognized would have been impacted, which may be material to our consolidated financial statements.Overview
Healthpeak Properties, Inc., a Standard & Poor’s 500 company, is a Maryland corporation that is organized to qualify as a real estate investment trust (“REIT”) that, together with its consolidated entities (collectively, “Healthpeak” or the “Company”), invests primarily in real estate serving the healthcare industry in the United States (“U.S.”). Healthpeak® acquires, develops, owns, leases, and manages healthcare real estate. The Company’s diverse portfolio is comprised of investments in the following reportable healthcare segments: (i) lab; (ii) outpatient medical; and (iii) continuing care retirement community (“CCRC”).
The Company’s corporate headquarters are in Denver, Colorado, and it has additional offices in California, Tennessee, and Massachusetts.
UPREIT Reorganization
On February 10, 2023, the Company completed its corporate reorganization (the “Reorganization”) into an umbrella partnership REIT (“UPREIT”). Substantially all of the Company’s business is conducted through Healthpeak OP, LLC (“Healthpeak OP”). The Company is the managing member of Healthpeak OP and does not have material assets or liabilities, other than through its investment in Healthpeak OP. For additional information on the UPREIT reorganization, see the Company’s Current Report on Form 8-K12B filed with the U.S. Securities and Exchange Commission (“SEC”) on February 10, 2023.
The Merger Agreement
On October 29, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Physicians Realty Trust, Physicians Realty L.P. (the “Physicians Partnership”), and certain of the Company’s subsidiaries, pursuant to which, among other things, and through a series of transactions (the “Mergers”), (i) each outstanding common share of Physicians Realty Trust (other than Physicians Realty Trust common shares to be canceled in accordance with the Merger Agreement) will be converted into the right to receive 0.674 (the “Exchange Ratio”) shares of Company common stock, and (ii) each outstanding common unit of the Physicians Partnership will be converted into common units in the successor entity to the Physicians Partnership equal to the Exchange Ratio. Following the transactions contemplated in the Merger Agreement, the successor entities to Physicians Realty Trust and the Physicians Partnership will be subsidiaries of Healthpeak OP.
The Merger Agreement contains customary representations, warranties, and covenants, as well as certain termination rights for the Company and Physicians Realty Trust, in each case, as more fully described in the Merger Agreement.
During the year ended December 31, 2023, the Company incurred approximately$11 million of merger-related costs, which primarily related to advisory, legal, accounting, and other costs. These merger-related costs are included in transaction and merger-related costs on the Consolidated Statements of Operations.
In addition, the Company has engaged service providers, including investment banks and advisors, to help the Company negotiate the terms of the transactions contemplated by the Merger Agreement and to advise the Company on other merger-related matters. In connection with these services, the Company expects to be required to pay success-based fees to the extent that certain conditions, including the closing of the transactions contemplated by the Merger Agreement, are met. As of December 31, 2023, the Company expects to incur approximately$22 million of such success fees. As closing of the transactions contemplated by the Merger Agreement has not occurred, no such amounts have been paid or accrued through December 31, 2023.
In connection with the Mergers, the Company filed a Registration Statement on Form S-4 with the SEC on December 15, 2023 (the “Initial Filing”), as amended on January 9, 2024, and a definitive joint proxy statement/prospectus for the Company and Physicians Realty Trust on January 11, 2024 in connection with their respective special meetings of stockholders and shareholders, as applicable, which will be held on February 21, 2024. Consummation of the Mergers are subject to the satisfaction or waiver of customary closing conditions, including the approval of the Company’s stockholders and the shareholders of Physicians Realty Trust. The parties expect the Mergers to close on March 1, 2024. If the Mergers are not consummated by July 31, 2024 (unless extended under certain circumstances), either the Company or Physicians Realty Trust may terminate the Merger Agreement.
NOTE 2. Summary of Significant Accounting Policies
Rental and Related Revenues
We recognize rental revenue for operating leases on a straight-line basis over the lease term when collectibility of all minimum lease payments is probable and the tenant has taken possession or controls the physical use of a leased asset. If the lease provides for tenant improvements, we determine whether the tenant improvements are owned by the tenant or us. When we are the owner of the tenant improvements, the tenant is not considered to have taken physical possession or have control of the leased asset until the tenant improvements are substantially complete. When the tenant is the owner of the tenant improvements, any tenant improvement allowance funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. The determination of ownership of a tenant improvement is subject to significant judgment. If our assessment of the owner of the tenant improvements was different, the timing and amount of our revenue recognized would be impacted.
Certain leases provide for additional rents that are contingent upon a percentage of the facility’s revenue in excess of specified base amounts or other thresholds. Such revenue is recognized when actual results reported by the tenant, or estimates of tenant results, exceed the base amount or other thresholds. The recognition of additional rents requires us to make estimates of amounts owed and, to a certain extent, is dependent on the accuracy of the facility results reported to us. Our estimates may differ from actual results, which could be material to our consolidated financial statements.
Resident Fees and Services
Resident fee revenue is recorded when services are rendered and includes resident room and care charges, community fees and other resident charges. Residency agreements are generally for a term of 30 days to one year, with resident fees billed monthly, in advance. Revenue for certain care related services is recognized as services are provided and is billed monthly in arrears.
Certain of our CCRCs are operated as entrance fee communities, which typically require a resident to pay an upfront entrance fee that includes both a refundable portion and non-refundable portion. When we receive a nonrefundable entrance fee, it is recognized as deferred revenue and amortized into revenue over the estimated stay of the resident.
Use of Estimates
Management is required to make estimates and assumptions in the preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from management’s estimates.
Basis of Presentation
The consolidated financial statements include the accounts of Healthpeak Properties, Inc., its wholly-owned subsidiaries, joint ventures (“JVs”), and variable interest entities (“VIEs”) that it controls through voting rights or other means. Intercompany transactions and balances have been eliminated upon consolidation.
The Company is required to continually evaluate its VIE relationships and consolidate these entities when it is determined to be the primary beneficiary of their operations. A VIE is broadly defined as an entity where either: (i) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support, (ii) substantially all of an entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights, or (iii) the equity investors as a group lack any of the following: (a) the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of an entity, or (c) the right to receive the expected residual returns of an entity. Criterion (iii) above is generally applied to limited partnerships and similarly structured entities by assessing whether a simple majority of the limited partners hold substantive rights to participate in the significant decisions of the entity or have the ability to remove the decision maker or liquidate the entity without cause. If neither of those criteria are met, the entity is a VIE.
The designation of an entity as a VIE is reassessed upon certain events, including, but not limited to: (i) a change to the contractual arrangements of the entity or in the ability of a party to exercise its participation or kick-out rights, (ii) a change to the capitalization structure of the entity, or (iii) acquisitions or sales of interests that constitute a change in control.
A variable interest holder is considered to be the primary beneficiary of a VIE if it has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE. Consideration of various factors include, but is not limited to, which activities most significantly impact the entity’s economic performance and the ability to direct those activities, its form of ownership interest, its representation on the VIE’s governing body, the size and seniority of its investment, its ability and the rights of other investors to participate in policy making decisions, its ability to manage its ownership interest relative to the other interest holders, and its ability to replace the VIE manager and/or liquidate the entity.
For its investments in joint ventures that are not considered to be VIEs, the Company evaluates the type of ownership rights held by the limited partner(s) that may preclude consolidation by the majority interest holder. The assessment of limited partners’ rights and their impact on the control of a joint venture should be made at inception of the joint venture and continually reassessed.
Credit Losses
We continuously assess the collectibility of operating lease straight-line rent receivables. If it is no longer probable that substantially all future minimum lease payments will be received, the straight-line rent receivable balance is written off and recognized as a decrease in revenue in that period. We monitor the liquidity and creditworthiness of our tenants and operators on a continuous basis. This evaluation considers industry and economic conditions, property performance, credit enhancements, and other factors. We exercise judgment in this assessment and consider payment history and current credit status in developing these estimates. These estimates may differ from actual results, which could be material to our consolidated financial statements.
Loans receivable and DFLs (collectively, “finance receivables”), are reviewed and assigned an internal rating of Performing, Watch List, or Workout. Finance receivables that are deemed Performing meet all present contractual obligations, and collection and timing of all amounts owed is reasonably assured. Watch List finance receivables are defined as finance receivables that do not meet the definition of Performing or Workout. Workout finance receivables are defined as finance receivables in which we have determined, based on current information and events, that: (i) it is probable we will be unable to collect all amounts due according to the contractual terms of the agreement, (ii) the tenant, operator, or borrower is delinquent on making payments under the contractual terms of the agreement, and (iii) we have commenced action or anticipate pursuing action in the near term to seek recovery of our investment.
Finance receivables are placed on nonaccrual status when management determines that the collectibility of contractual amounts is not reasonably assured (the asset will have an internal rating of either Watch List or Workout). Further, we perform a credit analysis to support the tenant’s, operator’s, borrower’s, and/or guarantor’s repayment capacity and the underlying collateral values. We use the cash basis method of accounting for finance receivables placed on nonaccrual status unless one of the following conditions exist whereby we utilize the cost recovery method of accounting: (i) if we determine that it is probable that we will only recover the recorded investment in the finance receivable, net of associated allowances or charge-offs (if any) or (ii) we cannot reasonably estimate the amount of an impaired finance receivable. For cash basis method of accounting we apply payments received, excluding principal paydowns, to interest income so long as that amount does not exceed the amount that would have been earned under the original contractual terms. For cost recovery method of accounting any payment received is applied to reduce the recorded investment. Generally, we return a finance receivable to accrual status when all delinquent payments become current under the terms of the loan or lease agreements and collectibility of the remaining contractual loan or lease payments is reasonably assured.
Prior to the adoption of ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) on January 1, 2020, allowances were established for finance receivables on an individual basis utilizing an estimate of probable losses, if they were determined to be impaired. Finance Receivables were impaired when it was deemed probable that we would be unable to collect all amounts due in accordance with the contractual terms of the loan or lease. An allowance was based upon our assessment of the lessee’s or borrower’s overall financial condition, economic resources, payment record, the prospects for support from any financially responsible guarantors and, if appropriate, the net realizable value of any collateral. These estimates considered all available evidence, including the expected future cash flows discounted at the finance receivable’s effective interest rate, fair value of collateral, general economic conditions and trends, historical and industry loss experience, and other relevant factors, as appropriate. If a finance receivable was deemed partially or wholly uncollectible, the uncollectible balance was charged off against the allowance in the period in which the uncollectible determination has been made.
Subsequent to adopting ASU 2016-13 on January 1, 2020, we began using a loss model that relies on future expected credit losses, rather than incurred losses, as was required under historical U.S. GAAP. Under the new model, we are required to recognize future credit losses expected to be incurred over the life of a finance receivable at inception of that instrument. The model emphasizes historical experience and future market expectations to determine a loss to be recognized at inception. However, the model continues to be applied on an individual basis and rely on counter-party specific information to ensure the most accurate estimate is recognized.
Real Estate
Revenues(3) | | |
| Operating Expenses(4) |
Lab: | | | | (Sq. Ft.) | | | | | | |
California | | 115 | | | 8,094 | | | $ | 5,869,665 | | | $ | 629,657 | | | $ | (157,795) | |
Massachusetts | | 19 | | | 2,613 | | | 2,795,913 | | | 240,029 | | | (70,259) | |
Other (1 State) | | 4 | | | 240 | | | 54,236 | | | 8,640 | | | (1,576) | |
Total lab | | 138 | | | 10,947 | | | $ | 8,719,814 | | | $ | 878,326 | | | $ | (229,630) | |
Outpatient medical: | | | | (Sq. Ft.) | | | | | | |
Texas | | 75 | | | 7,638 | | | $ | 1,549,757 | | | $ | 220,805 | | | $ | (75,159) | |
Pennsylvania | | 4 | | | 1,270 | | | 367,434 | | | 34,321 | | | (15,603) | |
Colorado | | 19 | | | 1,311 | | | 362,822 | | | 47,697 | | | (18,366) | |
California | | 15 | | | 862 | | | 355,026 | | | 40,057 | | | (17,206) | |
South Carolina | | 18 | | | 1,105 | | | 340,073 | | | 27,851 | | | (5,315) | |
Florida | | 25 | | | 1,438 | | | 309,246 | | | 41,609 | | | (14,994) | |
Other (29 States) | | 139 | | | 9,977 | | | 2,586,334 | | | 341,139 | | | (116,489) | |
Total outpatient medical | | 295 | | | 23,601 | | | $ | 5,870,692 | | | $ | 753,479 | | | $ | (263,132) | |
CCRC: | | | | (Units) | | | | | | |
Florida | | 9 | | | 4,783 | | | $ | 1,398,609 | | | $ | 343,971 | | | $ | (275,781) | |
Other (5 States) | | 6 | | | 2,314 | | | 631,199 | | | 183,630 | | | (137,691) | |
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Total CCRC | | 15 | | | 7,097 | | | $ | 2,029,808 | | | $ | 527,601 | | | $ | (413,472) | |
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Total properties | | 448 | | | | | $ | 16,620,314 | | | $ | 2,159,406 | | | $ | (906,234) | |
(1)Excludes capacity associated with developments.
(2)Represents gross real estate which includes the carrying amount of real estate after adding back accumulated depreciation and amortization. Excludes gross real estate of $123 million related to two lab buildings and one outpatient medical building classified as held for sale.
(3)Represents the combined amount of rental and related revenues, resident fees and services, and government grant income.
(4)Excludes operating expenses related to corporate non-segment assets (see Note 15 to the Consolidated Financial Statements).
Occupancy and Annual Rent Trends
The following table summarizes occupancy and average annual rent trends for our consolidated property and investments held under a direct financing lease (“DFL”) for the years ended December 31 (average occupied square feet in thousands):
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| 2023 | | 2022 | | 2021 | | | | |
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Lab: | | | | | | | | | |
Average occupancy percentage | 98 | % | | 98 | % | | 97 | % | | | | |
Average annual rent per square foot(1) | $ | 82 | | | $ | 71 | | | $ | 66 | | | | | |
Average occupied square feet | 10,334 | | | 10,610 | | | 10,143 | | | | | |
Outpatient medical(2): | | | | | | | | | |
Average occupancy percentage | 90 | % | | 90 | % | | 90 | % | | | | |
Average annual rent per square foot(1) | $ | 35 | | | $ | 33 | | | $ | 31 | | | | | |
Average occupied square feet | 21,337 | | | 21,472 | | | 21,046 | | | | | |
CCRC: | | | | | | | | | |
Average occupancy percentage | 84 | % | | 82 | % | | 79 | % | | | | |
Average annual rent per occupied unit(3) | $ | 88,524 | | | $ | 84,664 | | | $ | 80,391 | | | | | |
Average occupied units | 5,960 | | | 5,926 | | | 5,881 | | | | | |
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(1)Presented as a ratio of revenues comprised of rental and related revenues and income from DFLs divided by average occupied square feet and annualized for acquisitions for the year in which they occurred. Average annual rent excludes termination fees and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and DFL non-cash interest).
(2)During the first quarter of 2022, we sold our remaining hospital under a DFL.
(3)Presented as a ratio of revenues comprised of resident fees and services and government grant income divided by average occupied units of the facilities. Average annual rent excludes termination fees and non-cash revenue adjustments (i.e., the impact of deferred community fee income).
Tenant Lease Expirations
The following table shows tenant lease expirations for the next 10 years and thereafter at our consolidated properties, assuming that none of the tenants exercise any of their renewal or purchase options, and excludes properties in our CCRC segment and assets held for sale as of December 31, 2023 (dollars and square feet in thousands):
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| | Expiration Year |
Segment | | Total | | 2024(1) | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | 2030 | | 2031 | | 2032 | | 2033 | | Thereafter |
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Lab: | | | | | | | | | | | | | | | | | | | | | | | | |
Square feet | | 10,303 | | | 537 | | | 1,065 | | | 618 | | | 1,407 | | | 681 | | | 806 | | | 1,334 | | | 1,393 | | | 866 | | | 531 | | | 1,065 | |
Base rent(2) | | $ | 608,770 | | | $ | 36,709 | | | $ | 50,557 | | | $ | 30,694 | | | $ | 66,918 | | | $ | 36,728 | | | $ | 50,104 | | | $ | 94,051 | | | $ | 84,727 | | | $ | 55,504 | | | $ | 36,642 | | | $ | 66,136 | |
% of segment base rent | | 100 | | | 6 | | | 8 | | | 5 | | | 11 | | | 6 | | | 8 | | | 16 | | | 14 | | | 9 | | | 6 | | | 11 | |
Outpatient medical: | | | | | | | | | | | | | | | | | | | | | | | | |
Square feet | | 21,414 | | | 2,848 | | | 2,830 | | | 2,049 | | | 1,870 | | | 2,539 | | | 1,419 | | | 1,310 | | | 1,637 | | | 1,357 | | | 918 | | | 2,637 | |
Base rent(2) | | $ | 546,589 | | | $ | 85,359 | | | $ | 68,994 | | | $ | 57,376 | | | $ | 51,438 | | | $ | 56,996 | | | $ | 38,197 | | | $ | 36,069 | | | $ | 40,803 | | | $ | 28,096 | | | $ | 27,376 | | | $ | 55,885 | |
% of segment base rent | | 100 | | | 16 | | | 13 | | | 11 | | | 9 | | | 10 | | | 7 | | | 7 | | | 7 | | | 5 | | | 5 | | | 10 | |
Total: | | | | | | | | | | | | | | | | | | | | | | | | |
Base rent(2) | | $ | 1,155,359 | | | $ | 122,068 | | | $ | 119,551 | | | $ | 88,070 | | | $ | 118,356 | | | $ | 93,724 | | | $ | 88,301 | | | $ | 130,120 | | | $ | 125,530 | | | $ | 83,600 | | | $ | 64,018 | | | $ | 122,021 | |
% of total base rent | | 100 | | 11 | | | 10 | | | 8 | | | 10 | | | 8 | | | 8 | | | 11 | | | 11 | | | 7 | | | 5 | | | 11 | |
(1)Includes month-to-month leases.
(2)The most recent month’s (or subsequent month’s, if acquired in the most recent month) base rent, including additional rent floors, annualized for 12 months. 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).
ITEM 3. Legal Proceedings
See the “Legal Proceedings” section of Note 11 to the Consolidated Financial Statements for information regarding legal proceedings, which information is incorporated by reference in this Item 3.
ITEM 4. Mine Safety Disclosures
None.
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the New York Stock Exchange under the symbol “PEAK.”
As of February 5, 2024, we had6,797stockholders of record, and there were 283,417 beneficial holders of our common stock.
Dividends (Distributions)
It has been our policy to declare quarterly dividends to common stockholders so as to comply with applicable provisions of the Code governing REITs. All distributions are made at the discretion of our Board of Directors in accordance with Maryland law. Distributions with respect to our common stock can be characterized for federal income tax purposes as ordinary dividends, capital gains, nondividend distributions, or a combination thereof. The following table shows the characterization of our annual common stock distributions per share:
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| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Ordinary dividends(1) | $ | 0.909692 | | | $ | 0.872948 | | | $ | 0.152336 | |
Capital gains(2)(3) | 0.116992 | | | 0.183208 | | | 0.379960 | |
Nondividend distributions | 0.173316 | | | 0.143844 | | | 0.667704 | |
| $ | 1.200000 | | | $ | 1.200000 | | | $ | 1.200000 | |
______________________________________(1)For the year ended December 31, 2023,the amount includes $0.882312 of ordinary dividends qualified as business income for purposes of Code Section 199A and $0.027380 of qualified dividend income for purposes of Code Section 1(h)(11). For the year ended December 31, 2022, all $0.872948 of ordinary dividends qualified as business income for purposes of Code Section 199A. For the year ended December 31, 2021, the amount includes $0.137064 of ordinary dividends qualified as business income for purposes of Code Section 199A and $0.015272 of qualified dividend income for purposes of Code Section 1(h)(11).
(2)For the years ended December 31, 2023, 2022, and 2021, the amount includes $0.036256, $0.017760, and $0.379960, respectively, of unrecaptured Code Section 1250 gain. Pursuant to Treasury Regulation Section 1.1061-6(c), we are disclosing additional information related to the capital gain dividends for purposes of Section 1061 of the Code. Code Section 1061 is generally applicable to direct and indirect holders of “applicable partnership interests.” For the year ended December 31, 2023, the “One Year Amounts” and “Three Year Amounts” are each zero, since all capital gains relate to Code Section 1231 gains. For the year ended December 31, 2022, the “One Year Amounts” and “Three Year Amounts” are each 89.6708% of the total capital gain distributions and the remaining capital gain distributions are attributable to Code Section 1231 gains, which are not subject to Code Section 1061. For the year ended December 31, 2021, the “One Year Amounts” and “Three Year Amounts” are each zero, since all capital gains relate to Code Section 1231 gains.
(3)For the years ended December 31, 2023, 2022, and 2021, 100%, 10.3292%, and 100%, respectively, of the capital gain distributions represent gains from dispositions of U.S. real property interests pursuant to Code Section 897 for foreign shareholders.
On January 31, 2024, we announced that our Board of Directors declared a quarterly common stock cash dividend of $0.30 per share. The common stock dividend will be paid on February 26, 2024 to stockholders of record as of the close of business on February 14, 2024.
Issuer Purchases of Equity Securities
The following table sets forth information with respect to purchases of our common stock made by or on our behalf during the three months ended December 31, 2023.
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Period Covered | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as part Part of our process for allocating a purchase price to Publicly Announced Plans or Programs(1) | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the various identifiable assets and liabilities of an acquisition based upon the relative fair value of each assetPlans or liability. The most significant components of our allocations are typically buildings as-if-vacant, land, and in-place leases. In the case of allocating fair value to buildings and intangibles, our fair value estimates will affect the amount of depreciation and amortization we record over the estimated useful life of each asset acquired. In the case of allocating fair value to in-place leases, we make our best estimates based on our evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions, and costs to execute similar leases. Our assumptions affect the amount of future revenue and/or depreciation and amortization expense that we will recognize over the remaining useful life for the acquired in-place leases.Programs(1) |
October 1-31, 2023 | | — | | | $ | — | | | — | | | $ | 444,018,701 | |
November 1-30, 2023 | | — | | | — | | | — | | | 444,018,701 | |
December 1-31, 2023 | | — | | | — | | | — | | | 444,018,701 | |
| | — | | | $ | — | | | — | | | $ | 444,018,701 | |
(1)On August 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 in August 2024 and may be suspended or terminated at any time without prior notice. During the year ended December 31, 2022, we repurchased 2.1 million shares of our common stock at a weighted average price of $27.16 per share. During the year ended December 31, 2023, there were no repurchases; therefore, at December 31, 2023, $444 millionof our common stock remained available for repurchase under the Share Repurchase Program. Amounts do not include the shares of our common stock withheld under our equity incentive plans to offset tax withholding obligations as discussed in footnote 1.
Performance Graph
Certain of our acquisitions involve the assumption of contract liabilities. We typically estimate the fair value of contract liabilities by applying a reasonable profit margin to the total discounted estimated future costs associated with servicing the contract. We consider a variety of market and contract-specific conditions when making assumptions that impact the estimated fair value of the contract liability.The graph and table below compare the cumulative total return of Healthpeak, the S&P 500 Index, and the Equity REIT Index of Nareit, from January 1, 2019 to December 31, 2023. Total cumulative return is based on a $100 investment in Healthpeak common stock and in each of the indices at the close of trading on December 31, 2018 and assumes quarterly reinvestment of dividends before consideration of income taxes. Stockholder returns over the indicated periods should not be considered indicative of future stock prices or stockholder returns.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG S&P 500, EQUITY REITS AND HEALTHPEAK PROPERTIES, INC.
RATE OF RETURN TREND COMPARISON
JANUARY 1, 2019–DECEMBER 31, 2023
(JANUARY 1, 2019 = $100)
Performance Graph Total Stockholder Return
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| December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
FTSE Nareit Equity REIT Index | $ | 128.66 | | | $ | 122.07 | | | $ | 172.49 | | | $ | 129.45 | | | $ | 144.16 | |
S&P 500 | 131.47 | | | 155.65 | | | 200.29 | | | 163.98 | | | 207.04 | |
Healthpeak Properties, Inc. | 129.11 | | | 119.21 | | | 147.52 | | | 106.94 | | | 89.40 | |
ITEM 6. [Reserved]
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information set forth in this Item 7 is intended to provide readers with an understanding of our financial condition, changes in financial condition, and results of operations. This section generally discusses the results of our operations for the year ended December 31, 2023 compared to the year ended December 31, 2022. For a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 8, 2023.
We will discuss and provide our analysis in the following order:
•Market Trends and Uncertainties
•Company Highlights
•Dividends
•Results of Operations
•Liquidity and Capital Resources
•Non-GAAP Financial Measures Reconciliations
•Critical Accounting Estimates
•Recent Accounting Pronouncements
Market Trends and Uncertainties
Our operating results have been and will continue to be impacted by global and national economic and market conditions generally and by the local economic conditions where our properties are located.
Rising interest rates, high inflation, supply chain disruptions, ongoing geopolitical tensions, and increased volatility in public and private equity and fixed income markets have led to increased costs and limited the availability of capital. In addition, increased interest rates have negatively affected our borrowing costs, the fair value of our fixed rate instruments. and real estate values generally, including our real estate.
Our tenants and operators have also experienced increased costs, liquidity constraints, and financing difficulties due to the foregoing macroeconomic and market conditions, which could cause them to be unable or unwilling to make payments or perform their obligations when due.
We have also been affected by significant inflation in construction costs over the past few years, which, together with rising costs of capital, have negatively affected the expected yields on our development and redevelopment projects.
We continuously monitor the effects of domestic and global events, including but not limited to inflation, labor shortages, supply chain matters, rising interest rates, and challenges in the financial markets, 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.
See “Item 1A, Risk Factors” in this report for additional discussion of the risks posed by macroeconomic conditions, as well as the uncertainties we and our tenants, operators, and borrowers may face as a result.
Company Highlights
As of February 10, 2023, we are structured as an UPREIT. This structure provides prospective sellers an alternative for disposing of property that has appreciated in value in a tax-deferred manner to Healthpeak OP and aligns our corporate structure with other publicly traded U.S. real estate investment trusts. Following the Reorganization, Healthpeak OP is the borrower under, and we are the guarantor of, all of the unsecured debt, which includes the Revolving Facility, Term Loan Facilities (each as defined below), commercial paper program, and senior unsecured notes. Our guarantee of the senior unsecured notes is full and unconditional and applicable to existing and future senior unsecured notes. The Reorganization did not have a material impact on our financial position, consolidated financial statements, outstanding debt securities, material debt facilities, or business operations.
On October 29, 2023, we entered into a Merger Agreement with Physicians Realty Trust, the Physicians Partnership, and certain of our subsidiaries, pursuant to which, among other things, and through a series of transactions (the “Mergers”), (i) each outstanding common share of Physicians Realty Trust (other than Physicians Realty Trust common shares to be canceled in accordance with the Merger Agreement) will be converted into the right to receive 0.674 (the “Exchange Ratio”) shares of our common stock, and (ii) each outstanding common unit of the Physicians Partnership will be converted into common units in the successor entity to the Physicians Partnership equal to the Exchange Ratio. In connection with the Mergers, we filed a Registration Statement on Form S-4 with the SEC on December 15, 2023, as amended on January 9, 2024, and a definitive joint proxy statement/prospectus for the Company and Physicians Realty Trust on January 11, 2024 in connection with our respective special meetings of stockholders and shareholders, as applicable, which will be held on February 21, 2024. We expect the Mergers to closeon March 1, 2024. Following the transactions contemplated in the Merger Agreement, the successor entities to Physicians Realty Trust and the Physicians Partnership will be direct and indirect subsidiaries of Healthpeak OP, respectively. Consummation of the Mergers are subject to the satisfaction or waiver of customary closing conditions, including the approval of our stockholders and the shareholders of Physicians Realty Trust.
Real Estate Transactions
•In January 2023, we sold two lab buildings in Durham, North Carolina for $113 million.
•In January 2023, we acquired a lab land parcel in Cambridge, Massachusetts for $9 million.
•In March 2023, we sold two outpatient medical buildings for $32 million.
•In April 2023, we acquired the remaining 80% interest in one of the outpatient medical buildings in the Ventures IV unconsolidated joint venture for $4 million.
•In January 2024, we sold a 65% interest in two lab buildings in San Diego, California to a third-party for net proceeds of $128 million.
Development and Redevelopment Activities
•During the yearended December 31, 2023, the following projects were placed in service: (i) portions of two lab development projects with aggregate costs of $233 million, (ii) one lab development project with total costs of $171 million, (iii) a portion of one lab redevelopment project with total costs of $43 million, (iv) four outpatient medical redevelopment projects with aggregate costs of $42 million, (v) a portion of one lab redevelopment building held in one of our unconsolidated South San Francisco JVs of which our share of total project costs was $32 million, (vi) one lab redevelopment building held in one of our unconsolidated South San Francisco JVs of which our share of total project costs was $15 million, (vii) one lab redevelopment project with total costs of $14 million, and (viii) one CCRC redevelopment project with total costs of $7 million.
Financing Activities
•In January 2023, we completed a public offering of $400 million aggregate principal amount of 5.25% senior unsecured notes due 2032.
•In May 2023, we completed a public offering of $350 million aggregate principal amount of 5.25% senior unsecured notes due 2032, which constituted an additional issuance of, and are treated as a single series with, the $400 million of senior unsecured notes due 2032 issued in January 2023.
•In December 2023, a mortgage loan secured by one CCRC with a principal balance of $85 millionmatured and was repaid.
•We have secured commitments for a $750 million five-year unsecured term loan (the “2024 Term Loan”), to be incurred as an incremental facility under our existing term loan agreement. In January 2024, we entered into forward-starting interest rate swap instruments that are designated as cash flow hedges that will effectively establish a fixed interest rate forthe 2024 Term Loan at a blended contractual rate of 4.5%.
Other Activities
•In February 2023, we received a partial principal repayment of $102 million on one secured loan.
•In February 2023, we received full repayment of the outstanding balance of one $35 million secured loan.
•In April 2023, we received full repayment of the outstanding balance of one $14 million secured loan.
•In May 2023, we received full repayment of two outstanding secured loans with an aggregate balance of $12 million.
•In October 2023, we received full repayment of the outstanding balance of one $21 million secured loan.
Dividends
Quarterly cash dividends paid during 2023 aggregated to $1.20 per share. On January 31, 2024, our Board of Directors declared a quarterly cash dividend of $0.30 per common share. The dividend will be paid on February 26, 2024 to stockholders of record as of the close of business on February 14, 2024.
Results of Operations
We evaluate our business and allocate resources among our reportable business segments: (i) lab, (ii) outpatient medical, and (iii) CCRC. Under the lab and outpatient medical segments, we invest through the acquisition, development, and management of lab buildings, outpatient medical buildings, and hospitals. 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) loans receivable. These non-reportable segments have been presented on an aggregate basis herein. 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.
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 15 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 are calculated as NOI and Adjusted NOI from consolidated properties, plus our share of NOI and Adjusted NOI from unconsolidated joint ventures (calculated by applying our actual ownership percentage for the period), less noncontrolling interests’ share of NOI and Adjusted NOI from consolidated joint ventures (calculated by applying our actual ownership percentage for the period). Management utilizes its share of NOI and Adjusted NOI in assessing its performance as we have various joint ventures that contribute to its performance. We do not control our unconsolidated joint ventures, and our share of amounts from unconsolidated joint ventures do not represent our legal claim to such items. Our share of NOI and Adjusted NOI should not be considered a substitute for, and should only be considered together with and as a supplement to, our financial information presented in accordance with GAAP.
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 15 to the Consolidated Financial Statements.
Operating expenses generally relate to leased outpatient medical and lab buildings, as well as CCRC facilities. We generally recover all or a portion of our leased outpatient medical and lab 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 portfolio of properties, excluding properties within the other non-reportable segments. We include properties from our consolidated portfolio, as well as properties owned by our unconsolidated joint ventures in Same-Store NOI and Adjusted NOI (see NOI definition above for further discussion regarding our use of pro-rata share information and its limitations). Same-Store NOI and Adjusted NOI exclude government grant income under the CARES Act. Same-Store Adjusted NOI also 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.
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 the National 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.
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 and merger-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), deferred tax asset valuation allowances, and changes in tax legislation (“FFO as Adjusted”). These adjustments are net of tax, when applicable. Transaction and merger-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) stock-based compensation amortization expense, (ii) amortization of deferred financing costs, net, (iii) straight-line rents, (iv) deferred income taxes, (v) amortization of above (below) market lease intangibles, net, and (vi) other AFFO adjustments, which include: (a) non-cash interest related to DFLs and lease incentive amortization (reduction of straight-line rents), (b) actuarial reserves for insurance claims that have been incurred but not reported, and (c) 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. 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. 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. 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, and by presenting AFFO, we are assisting these parties in their evaluation. 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 and should only be considered together with and as a supplement to our financial information prepared in accordance with GAAP. For a reconciliation of net income (loss) to AFFO and other relevant disclosures, refer to “Non-GAAP Financial Measures Reconciliations” below.
Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022
Overview
A variety of costs are incurred in the development and leasing of properties. After determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project is substantially complete and capitalization must cease involves a degree of judgment. The costs of land and buildings under development include specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property, development costs, construction costs, interest costs, real estate taxes, and other costs incurred during the period of development. We consider a construction project to be considered substantially complete and available for occupancy and cease capitalization of costs upon the completion of the related tenant improvements.2023 and 2022(1)
The following table summarizes results for the years ended December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2023 | | 2022 | | | | | | Change |
Net income (loss) applicable to common shares | | $ | 304,284 | | | $ | 497,792 | | | | | | | $ | (193,508) | |
Nareit FFO | | 985,180 | | | 895,166 | | | | | | | 90,014 | |
FFO as Adjusted | | 978,306 | | | 940,933 | | | | | | | 37,373 | |
AFFO | | 840,777 | | | 783,702 | | | | | | | 57,075 | |
(1)For the reconciliation of non-GAAP financial measures, see “Non-GAAP Financial Measure Reconciliations” below.
Net income (loss) applicable to common shares decreased primarily as a result of the following:
•a gain upon change of control related to the sale of a 30% interest and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022;
•an increase in depreciation, primarily as a result of development and redevelopment projects placed in service during 2022 and 2023;
•an increase in interest expense, primarily as a result of: (i) senior unsecured notes issued during the first half of 2023, (ii) borrowings under the Term Loan Facilities, which were drawn during the fourth quarter of 2022, and (iii) higher interest rates on the commercial paper program, partially offset by lower borrowings on the commercial paper program;
•a gain on sale associated with the disposition of a hospital under a DFL during the first quarter of 2022;
•an increase in transaction and merger-related costs, primarily as a result of costs related to the Mergers, which are primarily comprised of legal, accounting, tax, and other costs that were incurred during the fourth quarter of 2023; and
•a decrease in government grant income received under the CARES Act in 2023.
The decrease in net income (loss) applicable to common shares was partially offset by:
•an increase in NOI generated from our lab and outpatient medical segments related to: (i) development and redevelopment projects placed in service during 2022 and 2023, (ii) new leasing activity during 2022 and 2023 (including the impact to straight-line rents), and (iii) 2022 acquisitions of real estate;
•an increase in gains on sale of depreciable real estate related to lab and outpatient medical building sales during 2023 as compared to 2022;
•a decrease in general and administrative expenses, primarily as a result of: (i) severance-related charges associated with the departures of our former Chief Executive Officer and our former Chief Legal Officer and General Counsel in the fourth quarter of 2022 and (ii) charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado in the fourth quarter of 2022;
•a decrease in depreciation related to the deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022;
•a decrease in other expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building, which were incurred in the first quarter of 2022;
•an increase in income tax benefit primarily as a result of a $14 million tax benefit recognized in connection with the reversal of a deferred tax asset valuation allowance during the fourth quarter of 2023;
•a decrease in loan loss reserves primarily as a result of principal repayments on seller financing;
•an increase in equity income from unconsolidated joint ventures; and
•a decrease in casualty-related charges from a hurricane during the third quarter of 2022.
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 upon change of control;
•gain on sales of depreciable real estate; and
•depreciation and amortization expense.
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:
•severance-related charges;
•gain on sale of a hospital under a DFL;
•reversal of a valuation allowance on deferred tax assets;
•expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building;
•loan loss reserves;
•transaction and merger-related costs;
•casualty-related charges; and
•the charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado.
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 and higherAFFO capital expenditures during the period.
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 year ended December 31, 2023, our Same-Store consists of 403 properties representing properties acquired or placed in service and stabilized on or prior to January 1, 2022 and that remained in operations through December 31, 2023. Our total property portfolio consisted of 477 and 480 properties at December 31, 2023 and 2022, respectively. Included in our total property portfolio at each of December 31, 2023 and 2022 are 19 senior housing assets in our SWF SH JV.
Lab
The following table summarizes results at and for the years ended December 31, 2023 and 2022 (dollars and square feet in thousands, except per square foot data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SS | | Total Portfolio(1) |
| Year Ended December 31, | | Year Ended December 31, |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Rental and related revenues | $ | 663,859 | | | $ | 649,238 | | | $ | 14,621 | | | $ | 878,326 | | | $ | 817,573 | | | $ | 60,753 | |
| | | | | | | | | | | |
Healthpeak’s share of unconsolidated joint venture total revenues | 6,589 | | | 9,613 | | | (3,024) | | | 9,924 | | | 9,921 | | | 3 | |
| | | | | | | | | | | |
Noncontrolling interests’ share of consolidated joint venture total revenues | (133) | | | (129) | | | (4) | | | (619) | | | (268) | | | (351) | |
Operating expenses | (182,602) | | | (166,433) | | | (16,169) | | | (229,630) | | | (209,143) | | | (20,487) | |
Healthpeak’s share of unconsolidated joint venture operating expenses | (2,651) | | | (2,305) | | | (346) | | | (4,092) | | | (2,883) | | | (1,209) | |
Noncontrolling interests’ share of consolidated joint venture operating expenses | 46 | | | 43 | | | 3 | | | 156 | | | 87 | | | 69 | |
| | | | | | | | | | | |
Adjustments to NOI(2) | (23,979) | | | (45,496) | | | 21,517 | | | (36,524) | | | (62,754) | | | 26,230 | |
Adjusted NOI | $ | 461,129 | | | $ | 444,531 | | | $ | 16,598 | | | 617,541 | | | 552,533 | | | 65,008 | |
Less: non-SS Adjusted NOI | | | | | | | (156,412) | | | (108,002) | | | (48,410) | |
SS Adjusted NOI | | | | | | | $ | 461,129 | | | $ | 444,531 | | | $ | 16,598 | |
Adjusted NOI % change | | | | | 3.7 | % | | | | | | |
Property count(3) | 116 | | | 116 | | | | | 146 | | | 149 | | | |
End of period occupancy(4) | 96.5 | % | | 98.7 | % | | | | 96.9 | % | | 98.9 | % | | |
Average occupancy(4) | 97.5 | % | | 98.5 | % | | | | 97.8 | % | | 98.7 | % | | |
Average occupied square feet | 8,786 | | | 8,856 | | | | | 10,524 | | | 10,727 | | | |
Average annual total revenues per occupied square foot(5) | $ | 74 | | | $ | 69 | | | | | $ | 81 | | | $ | 72 | | | |
Average annual base rent per occupied square foot(6) | $ | 56 | | | $ | 53 | | | | | $ | 63 | | | $ | 55 | | | |
(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 the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(3)From our 2022 presentation of Same-Store, we added: (i) five stabilized acquisitions, (ii) three stabilized buildings that previously experienced a significant tenant relocation, (iii) two stabilized redevelopments placed in service, and (iv) one stabilized development placed in service, and we removed: (i) six buildings that were placed into redevelopment, (ii) one asset that was placed into land held for development, and (iii) one building that experienced a significant tenant relocation.
(4)Refer to “Non-GAAP Financial Measures” above for the definition of Same-Store. Total Portfolio occupancy excludes any of the following: (i) developments, (ii) significant redevelopments, (iii) newly completed properties under lease-up, and (iv) properties held for sale.
(5)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and deferred revenues).
(6)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; and
•new leasing activity; partially offset by
•lower occupancy; and
•higher operating expenses.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned impacts to Same-Store and the following Non-Same-Store impacts:
•increased NOI from developments and redevelopments placed in service in 2022 and 2023; partially offset by
•decreased NOI from our 2022 and 2023 dispositions.
Outpatient Medical
The following table summarizes results at and for the years ended December 31, 2023 and 2022 (dollars and square feet in thousands, except per square foot data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SS | | Total Portfolio(1) |
| Year Ended December 31, | | Year Ended December 31, |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Rental and related revenues | $ | 678,967 | | | $ | 656,588 | | | $ | 22,379 | | | $ | 753,479 | | | $ | 724,202 | | | $ | 29,277 | |
Income from direct financing leases | — | | | — | | | — | | | — | | | 1,168 | | | (1,168) | |
Healthpeak’s share of unconsolidated joint venture total revenues | 2,893 | | | 2,795 | | | 98 | | | 3,033 | | | 2,999 | | | 34 | |
Noncontrolling interests’ share of consolidated joint venture total revenues | (34,053) | | | (33,429) | | | (624) | | | (35,073) | | | (35,717) | | | 644 | |
Operating expenses | (229,310) | | | (218,716) | | | (10,594) | | | (263,132) | | | (253,309) | | | (9,823) | |
Healthpeak’s share of unconsolidated joint venture operating expenses | (1,183) | | | (1,147) | | | (36) | | | (1,189) | | | (1,178) | | | (11) | |
Noncontrolling interests’ share of consolidated joint venture operating expenses | 9,738 | | | 9,492 | | | 246 | | | 9,921 | | | 10,317 | | | (396) | |
| | | | | | | | | | | |
Adjustments to NOI(2) | (11,685) | | | (13,763) | | | 2,078 | | | (14,314) | | | (15,513) | | | 1,199 | |
Adjusted NOI | $ | 415,367 | | | $ | 401,820 | | | $ | 13,547 | | | 452,725 | | | 432,969 | | | 19,756 | |
Less: non-SS Adjusted NOI | | | | | | | (37,358) | | | (31,149) | | | (6,209) | |
SS Adjusted NOI | | | | | | | $ | 415,367 | | | $ | 401,820 | | | $ | 13,547 | |
Adjusted NOI % change | | | | | 3.4 | % | | | | | | |
Property count(3) | 272 | | | 272 | | | | | 297 | | | 297 | | | |
End of period occupancy(4) | 91.9 | % | | 91.7 | % | | | | 90.7 | % | | 90.2 | % | | |
Average occupancy(4) | 91.5 | % | | 91.6 | % | | | | 90.1 | % | | 89.9 | % | | |
Average occupied square feet | 20,218 | | | 20,233 | | | | | 21,531 | | | 21,685 | | | |
Average annual total revenues per occupied square foot(5) | $ | 34 | | | $ | 33 | | | | | $ | 35 | | | $ | 34 | | | |
Average annual base rent per occupied square foot(6) | $ | 28 | | | $ | 27 | | | | | $ | 29 | | | $ | 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 the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(3)From our 2022 presentation of Same-Store, we added: (i) 25 stabilized acquisitions and (ii) 2 stabilized developments placed in service, and we removed: (i) 2 assets that were sold and (ii) 1 asset that was classified as held for sale.
(4)Refer to “Non-GAAP Financial Measures” above for the definition of Same-Store. Total Portfolio occupancy excludes any of the following: (i) developments, (ii) significant redevelopments, (iii) newly completed properties under lease-up, and (iv) properties held for sale.
(5)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).
(6)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; and
•annual rent escalations; partially offset by
•higher operating expenses.
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 2022 acquisitions;
•business interruption proceeds related to a demolished asset; and
•increased occupancy in former redevelopment and development properties that have been placed in service; partially offset by
•decreased NOI from our 2022 and 2023 dispositions.
Continuing Care Retirement Community
The following table summarizes results at and for the years ended December 31, 2023 and 2022 (dollars in thousands, except per unit data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SS | | Total Portfolio |
| Year Ended December 31, | | Year Ended December 31, |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Resident fees and services | $ | 526,769 | | | $ | 494,935 | | | $ | 31,834 | | | $ | 527,417 | | | $ | 494,935 | | | $ | 32,482 | |
Government grant income(1) | — | | | — | | | — | | | 184 | | | 6,765 | | | (6,581) | |
| | | | | | | | | | | |
Healthpeak’s share of unconsolidated joint venture government grant income | — | | | — | | | — | | | — | | | 380 | | | (380) | |
Operating expenses | (411,539) | | | (398,915) | | | (12,624) | | | (413,472) | | | (400,539) | | | (12,933) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Adjustments to NOI(2) | (1,618) | | | 2,300 | | | (3,918) | | | (1,618) | | | 2,300 | | | (3,918) | |
Adjusted NOI | $ | 113,612 | | | $ | 98,320 | | | $ | 15,292 | | | 112,511 | | | 103,841 | | | 8,670 | |
Plus (less): non-SS adjustments | | | | | | | 1,101 | | | (5,521) | | | 6,622 | |
SS Adjusted NOI | | | | | | | $ | 113,612 | | | $ | 98,320 | | | $ | 15,292 | |
Adjusted NOI % change | | | | | 15.6 | % | | | | | | |
Property count(3) | 15 | | | 15 | | | | | 15 | | | 15 | | | |
Average occupancy(4) | 83.8 | % | | 81.6 | % | | | | 83.9 | % | | 81.6 | % | | |
Average occupied units(5) | 5,952 | | | 5,926 | | | | | 5,960 | | | 5,926 | | | |
Average annual rent per occupied unit | $ | 88,503 | | | $ | 83,519 | | | | | $ | 88,524 | | | $ | 84,725 | | | |
(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 the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(3)From our 2022 presentation of Same-Store, no properties were added or removed.
(4)Refer to “Non-GAAP Financial Measures” above for the definition of Same-Store. Total Portfolio occupancy excludes any of the following: (i) developments, (ii) significant redevelopments, (iii) newly completed properties under lease-up, and (iv) properties held for sale.
(5)Represents average occupied units as reported by the operators for the twelve-month period.
Same-Store Adjusted NOI increased primarily as a result of the following:
•increased rates for resident fees; and
•higher occupancy; partially offset by
•higher costs of labor, management fees, insurance, real estate taxes, utilities, and food; and
•lower business interruption insurance proceeds.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store, partially offset by decreased government grant income received under the CARES Act.
Other Income and Expense Items
The following table summarizes the results of our other income and expense items for the years ended December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | Change |
Interest income | $ | 21,781 | | | $ | 23,300 | | | $ | (1,519) | |
Interest expense | 200,331 | | | 172,944 | | | 27,387 | |
Depreciation and amortization | 749,901 | | | 710,569 | | | 39,332 | |
General and administrative | 95,132 | | | 131,033 | | | (35,901) | |
Transaction and merger-related costs | 17,515 | | | 4,853 | | | 12,662 | |
Impairments and loan loss reserves (recoveries), net | (5,601) | | | 7,004 | | | (12,605) | |
Gain (loss) on sales of real estate, net | 86,463 | | | 9,078 | | | 77,385 | |
| | | | | |
Other income (expense), net | 6,808 | | | 326,268 | | | (319,460) | |
Income tax benefit (expense) | 9,617 | | | 4,425 | | | 5,192 | |
Equity income (loss) from unconsolidated joint ventures | 10,204 | | | 1,985 | | | 8,219 | |
Income (loss) from discontinued operations | — | | | 2,884 | | | (2,884) | |
Noncontrolling interests’ share in continuing operations | (28,748) | | | (15,975) | | | (12,773) | |
| | | | | |
Interest income
Interest income decreased for the year ended December 31, 2023 primarily as a result of principal repayments on loans receivable in 2022 and 2023, partially offset by higher interest rates.
Interest expense
Interest expense increased for the year ended December 31, 2023 primarily as a result of: (i) senior unsecured notes issued during the first half of 2023, (ii) borrowings under the Term Loan Facilities, which were drawn during the fourth quarter of 2022, and (iii) higher interest rates on the commercial paper program, partially offset by lower borrowings on the commercial paper program.
Depreciation and amortization
Depreciation and amortization expense increased for the year ended December 31, 2023 primarily as a result of development and redevelopment projects placed in service during 2022 and 2023, partially offset by: (i) assets placed into redevelopment in 2023, (ii) dispositions of real estate in 2022 and 2023, and (iii) lower depreciation related to the deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022.
General and administrative
General and administrative expenses decreased for the year ended December 31, 2023 primarily as a result of: (i) severance-related charges associated with the departures of our former Chief Executive Officer and our former Chief Legal Officer and General Counsel in the fourth quarter of 2022 and (ii) charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado in the fourth quarter of 2022.
Transaction and merger-related costs
Transaction and merger-related costs increased for the year ended December 31, 2023 primarily as a result of costs related to the Mergers, which are primarily comprised of legal, accounting, tax, and other costs that were incurred during the fourth quarter of 2023 (see Note 1 to the Consolidated Financial Statements).
Impairments and loan loss reserves (recoveries), net
Impairments and loan loss reserves (recoveries), net decreased for the year ended December 31, 2023 as a result of a decrease in loan loss reserves under the current expected credit losses model. The change in loan loss reserves for the year ended December 31, 2023 is primarily a result of: (i) principal repayments on seller financing, (ii) increased interest rates on variable rate loans, and (iii) macroeconomic conditions.
Gain (loss) on sales of real estate, net
Gain on sales of real estate, net increased during the year ended December 31, 2023 primarily as a result of: (i) the $60 million gain on sales of two lab buildings in Durham, North Carolina, which were sold during the three months ended March 31, 2023 and (ii) the $21 million gain on sales of two outpatient medical buildings, which were sold during the three months ended March 31, 2023, partially offset by: (i) the $4 million gain on sale of one lab building, which was sold during the three months ended March 31, 2022, (ii) the $10 million gain on sales of three outpatient medical buildings and one outpatient medical land parcel, which were sold during the three months ended June 30, 2022, and (iii) the $1 million gain on sales of two outpatient medical buildings, which were sold during the three months ended September 30, 2022.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.
Other income (expense), net
Other income, net decreased for the year ended December 31, 2023 primarily as a result of: (i) a gain upon change of control related to the sale of a 30% interest and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022, (ii) a gain on sale associated with the disposition of a hospital under a DFL during the first quarter of 2022, and (iii) a decrease in government grant income received under the CARES Act in 2023. The decrease in other income, net during the year ended December 31, 2023 was partially offset by: (i) other expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building, which were incurred in the first quarter of 2022 and (ii) casualty losses from a hurricane in the third quarter of 2022.
Income tax benefit (expense)
Income tax benefit increased for the year ended December 31, 2023 primarily as a result of a $14 million tax benefit recognized in connection with the reversal of a deferred tax asset valuation allowance during the fourth quarter of 2023 (see Note 16 to the Consolidated Financial Statements), partially offset by an increase in operating income associated with our CCRCs.
Equity income (loss) from unconsolidated joint ventures
Equity income from unconsolidated joint ventures increased for the year ended December 31, 2023 primarily as a result of increased income from the South San Francisco JVs and the SWF SH JV.
Income (loss) from discontinued operations
Income from discontinued operations decreased for the year ended December 31, 2023 a result of the completion of dispositions of our senior housing portfolios.
Noncontrolling interests’ share in continuing operations
Noncontrolling interests’ share in continuing operations increased for the year ended December 31, 2023 primarily as a result of a gain on sale of an outpatient medical building in a consolidated joint venture that was sold during the second quarter of 2023.
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) costs incurred to consummate the Mergers and the other transactions contemplated in the Merger Agreement; (ii) funding recurring operating expenses; (iii) meeting debt service requirements; and (iv) 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 sales of common stock under the ATM Program (as defined below).
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. Our two senior unsecured delayed draw term loans with an aggregate principal amount of $500 million (the “Term Loan Facilities”) and our Revolving Facility accrue interest at the Secured Overnight Financing Rate (“SOFR”) plus a margin that depends on the credit ratings of our senior unsecured long-term debt. We also pay a facility fee on the entire commitment under our Revolving Facility that depends upon our credit ratings. As of February 7, 2024, we had long-term credit ratings of Baa1 from Moody’s and BBB+ from S&P Global, and short-term credit ratings of P-2 from Moody’s and A-2 from S&P Global.
A downgrade in credit ratings by Moody’s or S&P Global may have a negative impact on the interest rates of our Revolving Facility and Term Loan Facilities 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 economic and market conditions on our business.
Material Cash Requirements
Our material cash requirements include the below contractual and other obligations.
Debt. As of December 31, 2023, we had total debt of $6.9 billion, including borrowings under our Revolving Facility and commercial paper program, senior unsecured notes, term loans, and mortgage debt. Of our total debt, the total amount payable within twelve months is comprised of $7 million of mortgage debt. Future interest payments associated with borrowings under our Revolving Facility, senior unsecured notes, term loans, and mortgage debt total $1.4 billion, $220 million of which are payable within twelve months. Future interest payments associated with commercial paper borrowings payable within the next twelve months total $21 million, assuming no change in interest rates and borrowings remain outstanding for the next twelve months. Commercial paper borrowings are backstopped by our Revolving Facility. As such, we calculate the weighted average remaining term of our commercial paper borrowings using the maturity date of our Revolving Facility. Additionally, we have secured commitments for the 2024 Term Loan, to be incurred as an incremental facility under our existing term loan agreement. In January 2024, we entered into forward-starting interest rate swap instruments that are designated as cash flow hedges that will effectively establish a fixed interest rate for the 2024 Term Loan at a blended contractual rate of 4.5%. See Note 10 to the Consolidated Financial Statements for additional information about our debt commitments.
Development and redevelopment commitments. Our development and redevelopment commitments represent construction and other commitments for development and redevelopment projects in progress and includes certain allowances for Company-owned tenant improvements that we have provided as a lessor. As of December 31, 2023, we had $152 million of development and redevelopment commitments, $135 million of which we expect to spend within the next twelve months.
Lease and other contractual commitments. Our lease and other contractual commitments represent our commitments, as lessor, under signed leases and contracts for operating properties and include allowances for Company-owned tenant improvements and leasing commissions. These commitments exclude allowances for Company-owned tenant improvements related to developments and redevelopments in progress for which we have executed an agreement with a general contractor to complete the tenant improvements, which are recognized as development and redevelopment commitments and are discussed further above. As of December 31, 2023, we had total lease and other contractual commitments of $28 million, $26 million of which we expect to spend within the next twelve months.
Construction loan commitments. Due to the terms of our SHOP seller financing notes receivable, as of December 31, 2023, we are obligated to provide additional loans up to $29 millionto fund senior housing redevelopment capital expenditure projects, which extend through 2024. See Note 7 to the Consolidated Financial Statements for additional information.
Ground and other operating lease commitments. Our ground and other operating lease commitments represent our commitments as lessee under signed operating leases. As of December 31, 2023, we had total ground and other operating lease commitments of $542 million, $17 million of which are payable within twelve months. See Note 6 to the Consolidated Financial Statements for additional information.
Redeemable noncontrolling interests.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 of December 31, 2023, three of the redeemable noncontrolling interests have met the conditions for redemption, but were not yet exercised. As of December 31, 2023, the redemption value of our redeemable noncontrolling interests was $49 million. See Note 12 to the Consolidated Financial Statements for additional information.
Success-Based Fees. We have engaged service providers, including investment banks and advisors, to help us negotiate the terms of the Mergers and to advise us on other merger-related matters. In connection with these services, we expect to be required to pay success-based fees to the extent that certain conditions, including the closing of the Mergers, are met. As of December 31, 2023, we expect to incur approximately $22 million of such success fees upon closing of the Mergers during the first quarter of 2024. As closing of the Mergers has not occurred, no such amounts have been paid or accrued through December 31, 2023. See Note 1 to the Consolidated Financial Statements for additional information.
Distribution and Dividend Requirements. Our dividend policy on our common stock is to distribute a percentage of our cash flow to ensure that we meet the dividend requirements of the Code, relative to maintaining our REIT status, while still allowing us to retain cash to fund capital improvements and other investment activities. Under the Code, REITs may be subject to certain federal income and excise taxes on undistributed taxable income. We paid quarterly cash dividends of $0.30 per common share in 2023. Our future common dividends, if and as declared, may vary and will be determined by the Board based upon the circumstances prevailing at the time, including our financial condition.
Off-Balance Sheet Arrangements
We own interests in certain unconsolidated joint ventures as described in Note 8 to the Consolidated Financial Statements. Two of these joint ventures have aggregate mortgage debt of $88 million, of which our share is $40 million. Except in limited circumstances, our risk of loss is limited to our investment in the applicable joint venture. We have no other material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.
Inflation
A significant portion of our revenues are derived from leases that generally provide for fixed rental rates, subject to annual escalations. A period of high inflation could result in increases in the Consumer Price Index in excess of our fixed annual escalations. Certain of our leases provide that annual rent is modified based on changes in the Consumer Price Index or other thresholds.
Most of our outpatient medical leases require the tenant to pay a share of property operating costs such as real estate taxes, insurance, and utilities. Substantially all of our lab leases require the tenant or operator to pay all of the property operating costs or reimburse us for all such costs.
Labor costs, costs of construction materials, interest, utilities, and other operating costs may increase during periods of inflation. Inflationary increases in expenses will generally be offset, in whole or in part, by the tenant expense reimbursements and contractual rent increases described above.
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.
The following table sets forth changes in cash flows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | Change |
Net cash provided by (used in) operating activities | $ | 956,242 | | | $ | 900,261 | | | $ | 55,981 | |
Net cash provided by (used in) investing activities | (576,754) | | | (876,343) | | | 299,589 | |
Net cash provided by (used in) financing activities | (337,299) | | | (116,532) | | | (220,767) | |
Operating Cash Flows
Our cash flows from operations are 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. Our net cash provided by operating activities increased $56 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of: (i) developments and redevelopments placed in service during 2022 and 2023, (ii) annual rent increases, (iii) higher nonrefundable entrance fee collections, and (iv) new leasing and renewal activity. The increase in net cash provided by operating activities was partially offset by: (i) an increase in interest expense and (ii) an increase in property operating expenses.
Investing Cash Flows
Our cash flows from investing activities are generally used to fund acquisitions, developments, and redevelopments of real estate, net of proceeds received from sales of real estate, sales of DFLs, and repayments on loans receivable. Our net cash used in investing activities decreased $300 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of the following: (i) a reduction in acquisitions of real estate, (ii) a reduction in development and redevelopment of real estate, (iii) an increase in proceeds from the sales of real estate, (iv) an increase in proceeds from principal repayments on loans receivable and marketable debt securities, and (v) an increase in proceeds from insurance recoveries. The decrease in cash used in investing activities was partially offset by: (i) proceeds received in 2022 from the sale of a 30% interest in seven previously consolidated lab buildings in South San Francisco, California and (ii) higher investments in unconsolidated joint ventures related to the funding of redevelopment projects.
Financing Cash Flows
Our cash flows from financing activities are generally impacted by issuances of equity, borrowings and repayments under our bank line of credit and commercial paper program, senior unsecured notes, term loans, and mortgage debt, net of dividends paid to common shareholders. Our net cash used in financing activities increased $221 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of the following: (i) issuance of the the Term Loan Facilities in 2022, (ii) settlement of contracts under our ATM Program in 2022, (iii) higher net repayments under the commercial paper program, (iv) higher repayments of mortgage debt, and (v) increased distributions to noncontrolling interests. The increase in net cash used in financing activities was partially offset by: (i) proceeds received from the senior unsecured notes issuances in January 2023 and May 2023 and (ii) a reduction in repurchases of common stock.
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 17 to the Consolidated Financial Statements. Debt
We classify a real estate property as held for sale when: (i) management has approved the disposal, (ii) the property is available for sale in its present condition, (iii) an active program to locate a buyer has been initiated, (iv) it is probable that the property will be disposed of within one year, (v) the property is being marketed at a reasonable price relative to its fair value, and (vi) it is unlikely that the disposal plan will significantly change or be withdrawn. If an asset is classified as held for sale, it is reported at the lower of its carrying value or fair value less costs to sell and no longer depreciated.In January 2023 and May 2023, we completed public offerings of $750 million aggregate principal amount of 5.25% senior unsecured notes due 2032.
In February 2023, the Revolving Facility was amended to change the interest rate benchmark from LIBOR to SOFR.
Also in February 2023, the agreements associated with $142 million of variable rate mortgage debt were amended to change the interest rate benchmarks from LIBOR to SOFR, effective March 2023. Concurrently, we modified the related interest rate swap instruments to reflect the change in the interest rate benchmarks from LIBOR to SOFR.
We have secured commitments for the 2024 Term Loan, to be incurred as an incremental facility under our existing term loan agreement. In January 2024, we entered into forward-starting interest rate swap instruments that are designated as cash flow hedges that will effectively establish a fixed interest rate for the 2024 Term Loan at a blended contractual rate of 4.5%.
In addition to the 2024 Term Loan, we anticipate that our principal indebtedness will increase due to debt assumed in connection with the Mergers.
See Note 10 to the Consolidated Financial Statements for additional information about our outstanding debt.
Approximately 90% and 85% of our consolidated debt was fixed rate debt as of December 31, 2023 and 2022, respectively. At December 31, 2023, our fixed rate debt and variable rate debt had weighted average interest rates of 3.70% and 5.72%, respectively. At December 31, 2022, our fixed rate debt and variable rate debt had weighted average interest rates of 3.46% and 4.91%, respectively. As of December 31, 2023, we had $142 million of variable rate mortgage debt and the $500 million Term Loan Facilities swapped to fixed rates through interest rate swap instruments. These interest rate swap instruments are designated as cash flow hedges. 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 “Item 7A, Quantitative and Qualitative Disclosures About Market Risk” below.
Supplemental Guarantor Information
We classify a loan receivable as held for sale when we no longer have the intent and ability to hold the loan receivable for the foreseeable future or until maturity. If a loan receivable is classified as held for sale, it is reported at the lower of amortized cost or fair value.Healthpeak OP has issued the senior unsecured notes described in Note 10 to the Consolidated Financial Statements. The obligations of Healthpeak OP to pay principal, premiums, if any, and interest on such senior unsecured notes are guaranteed on a full and unconditional basis by the Company.
Subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the parent guarantee is “full and unconditional”, the subsidiary obligor is a consolidated subsidiary of the parent company, the guaranteed security is debt or debt-like, and consolidated financial statements of the parent company have been filed. Accordingly, separate consolidated financial statements of Healthpeak OP have not been presented.
As permitted under Rule 13-01 of Regulation S-X, we have excluded the summarized financial information for the operating subsidiary because the Company and Healthpeak OP have no material assets, liabilities, or operations other than debt financing activities and their investments in non-guarantor subsidiaries, and management believes such summarized financial information would be repetitive and would not provide incremental value to investors.
Equity
A discontinued operation represents: (i) a component of an entity or group of components that has been disposed of or is classified as held for sale in a single transaction and represents a strategic shift that has or will have a major effect on our operations and financial results or (ii) an acquired business that is classified as held for sale on the date of acquisition. Examples of a strategic shift may include disposing of: (i) a separate major line of business, (ii) a separate major geographic area of operations, or (iii) other major parts of the Company.At December 31, 2023, we had 547 million shares of common stock outstanding, equity totaled $6.9 billion, and our equity securities had a market value of $11.0 billion.
The Merger Agreement
Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, each outstanding share of Physicians Realty Trust will be converted into the right to receive 0.674 shares of our common stock when the Mergers are consummated. Based on the number of outstanding Physicians Realty Trust common shares as of January 8, 2024 (the record date for the special meetings of stockholders), we expect to issue approximately 163 million shares of our common stock when the Mergers are consummated.
At-The-Market Program
In February 2023, in connection with the Reorganization, we terminated our previous at-the-market equity offering program and established a new at-the-market equity offering program (the “ATM Program”) that allows for the sale of shares of common stock having an aggregate gross sales price of up to $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 ended December 31, 2023, we did not issue any shares of our common stock under any ATM program.
At December 31, 2023, $1.5 billionof 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 shares under our ATM Program.
See Note 12 to the Consolidated Financial Statements for additional information about our ATM Program.
Noncontrolling Interests
Healthpeak OP. Immediately following the Reorganization, Healthpeak Properties, Inc. was the initial sole member and 100% owner of Healthpeak OP. Subsequent to the Reorganization, certain of our employees (“OP Unitholders”) were issued approximately 2 million noncontrolling, non-managing member units in Healthpeak OP (“OP Units”), all of which were LTIP Units (see Note 14 to the Consolidated Financial Statements). When certain conditions are met, the OP Unitholders have the right to require redemption of part or all of their OP Units for cash or shares of our common stock, at our option as managing member of Healthpeak OP. The per unit redemption amount is equal to either one share of our common stock or cash equal to the fair value of a share of common stock at the time of redemption. We classify the OP Units in permanent equity because we may elect, in our sole discretion, to issue shares of our common stock to OP Unitholders who choose to redeem their OP Units rather than using cash. None of the outstanding OP Units met the criteria for redemption as of December 31, 2023.
DownREITs. At December 31, 2023, non-managing members held an aggregate of approximately 5 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). At December 31, 2023, the outstanding DownREIT units were convertible into approximately 7 million shares of our common stock.
Share Repurchase Program
On August 1, 2022, our Board of Directors approved the 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. 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 in August 2024 and may be suspended or terminated at any time without prior notice. During the year ended December 31, 2022, we repurchased 2.1 million shares of our common stock at a weighted average price of $27.16 per share for a total of $56 million. During the year ended December 31, 2023, there were no repurchases under the Share Repurchase Program. Therefore, at December 31, 2023, $444 million of our common stock remained available for repurchase under the Share Repurchase Program.
Shelf Registration
Impairment of Long-Lived AssetsWe assess the carrying value of our real estate assets and related intangibles (“real estate assets”) when events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability of real estate assets is measured by comparing the carrying amount of the real estate assets to the respective estimated future undiscounted cash flows. The expected future undiscounted cash flows reflect external market factors and are probability-weighted to reflect multiple possible cash-flow scenarios, including selling the assets at various points in the future. Additionally, the estimated future undiscounted cash flows are calculated utilizing the lowest level of identifiable cash flows that are largely independent of the cash flows of other assets and liabilities. In order to review our real estate assets for recoverability, we make assumptions regarding external market conditions (including capitalization rates and growth rates), forecasted cash flows and sales prices, and our intent with respect to holding or disposing of the asset. If our analysis indicates that the carrying value of the real estate assets is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the carrying value exceeds the fair value of the real estate asset.
70In February 2024, the Company and Healthpeak OP jointly filed a prospectus with the SEC as part of a registration statement on Form S-3, using an automatic shelf registration process. This shelf registration statement expires on February 8, 2027 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 future offerings of (i) the Company’s common stock, preferred stock, depositary shares, warrants, debt securities, and guarantees by the Company of debt securities issued by Healthpeak OP and/or by the Company’s existing and future subsidiaries, and (ii) Healthpeak OP’s debt securities and guarantees by Healthpeak OP of debt securities issued by the Company and/or by Healthpeak OP’s existing and future subsidiaries.
Determining the fair value of real estate assets, including assets classified as held-for-sale, involves significant judgment and generally utilizes market capitalization rates, comparable market transactions, estimated per-unit or per square foot prices, negotiations with prospective buyers, and forecasted cash flows (lease revenue rates, expense rates, growth rates, etc.). Our ability to accurately predict future operating results and resulting cash flows, and estimate fair values, impacts the timing and recognition of impairments. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our consolidated financial statements.
Investments in Unconsolidated Joint Ventures
The initial carrying value of investments in unconsolidated joint ventures is based on the amount paid to purchase the joint venture interest, the fair value of assets contributed to the joint venture, or the fair value of the assets prior to the sale of interests in the joint venture. We evaluate our equity method investments for impairment by first reviewing for indicators of impairment based on the performance of the underlying real estate assets held by the joint venture. If an equity-method investment shows indicators of impairment, we compare the fair value of the investment to the carrying value. If we determine there is a decline in the fair value of our investment in an unconsolidated joint venture below its carrying value and it is other-than-temporary, an impairment charge is recorded. The determination of the fair value of investments in unconsolidated joint ventures and as to whether a deficiency in fair value is other-than-temporary involves significant judgment. Our estimates consider all available evidence including, as appropriate, the present value of the expected future cash flows, discounted at market rates, general economic conditions and trends, severity and duration of a fair value deficiency, and other relevant factors. Capitalization rates, discount rates, and credit spreads utilized in our valuation models are based on rates we believe to be within a reasonable range of current market rates for the respective investments. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our consolidated financial statements.
Income Taxes
As part of the process of preparing our consolidated financial statements, significant management judgment is required to evaluate our compliance with REIT requirements. Our determinations are based on interpretation of tax laws and our conclusions may have an impact on the income tax expense recognized. Adjustments to income tax expense may be required as a result of: (i) audits conducted by federal, state, and local tax authorities, (ii) our ability to qualify as a REIT, (iii) the potential for built-in gain recognition, and (iv) changes in tax laws. Adjustments required in any given period are included within the income tax provision.
We are required to evaluate our deferred tax assets for realizability and recognize a valuation allowance, which is recorded against its deferred tax assets, if it is more likely than not that the deferred tax assets will not be realized. We consider all available evidence in its determination of whether a valuation allowance for deferred tax assets is required.
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):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Net income (loss) applicable to common shares | $ | 304,284 | | | $ | 497,792 | | | $ | 502,271 | |
Real estate related depreciation and amortization | 749,901 | | | 710,569 | | | 684,286 | |
Healthpeak’s share of real estate related depreciation and amortization from unconsolidated joint ventures | 24,800 | | | 27,691 | | | 17,085 | |
Noncontrolling interests’ share of real estate related depreciation and amortization | (18,654) | | | (19,201) | | | (19,367) | |
| | | | | |
Loss (gain) on sales of depreciable real estate, net(1) | (86,463) | | | (10,422) | | | (605,311) | |
Healthpeak’s share of loss (gain) on sales of depreciable real estate, net, from unconsolidated joint ventures | — | | | 134 | | | (6,737) | |
Noncontrolling interests’ share of gain (loss) on sales of depreciable real estate, net | 11,546 | | | 12 | | | 5,555 | |
Loss (gain) upon change of control, net(2) | (234) | | | (311,438) | | | (1,042) | |
Taxes associated with real estate dispositions | — | | | 29 | | | 2,666 | |
Impairments (recoveries) of depreciable real estate, net | — | | | — | | | 25,320 | |
| | | | | |
| | | | | |
Nareit FFO applicable to common shares | 985,180 | | | 895,166 | | | 604,726 | |
Distributions on dilutive convertible units and other | 9,394 | | | 9,407 | | | 6,162 | |
Diluted Nareit FFO applicable to common shares | $ | 994,574 | | | $ | 904,573 | | | $ | 610,888 | |
| | | | | |
| | | | | |
Impact of adjustments to Nareit FFO: | | | | | |
Transaction and merger-related items(3) | $ | 13,835 | | | $ | 4,788 | | | $ | 7,044 | |
Other impairments (recoveries) and other losses (gains), net(4) | (3,850) | | | 3,829 | | | 24,238 | |
Restructuring and severance-related charges(5) | 1,368 | | | 32,749 | | | 3,610 | |
Loss (gain) on debt extinguishments | — | | | — | | | 225,824 | |
| | | | | |
Casualty-related charges (recoveries), net(6) | (4,033) | | | 4,401 | | | 5,203 | |
| | | | | |
Recognition (reversal) of valuation allowance on deferred tax assets(7) | (14,194) | | | — | | | — | |
| | | | | |
Total adjustments | $ | (6,874) | | | $ | 45,767 | | | $ | 265,919 | |
| | | | | |
FFO as Adjusted applicable to common shares | $ | 978,306 | | | $ | 940,933 | | | $ | 870,645 | |
Distributions on dilutive convertible units and other | 9,402 | | | 9,326 | | | 8,577 | |
Diluted FFO as Adjusted applicable to common shares | $ | 987,708 | | | $ | 950,259 | | | $ | 879,222 | |
| | | | | |
| | | | | |
FFO as Adjusted applicable to common shares | $ | 978,306 | | | $ | 940,933 | | | $ | 870,645 | |
Stock-based compensation amortization expense | 14,480 | | | 16,537 | | | 18,202 | |
Amortization of deferred financing costs | 11,916 | | | 10,881 | | | 9,216 | |
Straight-line rents(8) | (14,387) | | | (49,183) | | | (31,188) | |
| | | | | |
AFFO capital expenditures | (113,596) | | | (108,510) | | | (111,480) | |
| | | | | |
| | | | | |
Deferred income taxes | (816) | | | (4,096) | | | (8,015) | |
Amortization of above (below) market lease intangibles, net | (25,791) | | | (23,380) | | | (17,978) | |
Other AFFO adjustments | (9,335) | | | 520 | | | (1,532) | |
AFFO applicable to common shares | 840,777 | | | 783,702 | | | 727,870 | |
Distributions on dilutive convertible units and other | 6,581 | | | 6,594 | | | 6,164 | |
Diluted AFFO applicable to common shares | $ | 847,358 | | | $ | 790,296 | | | $ | 734,034 | |
| | | | | |
Refer to footnotes on the next page.
(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 year ended December 31, 2022 includes a gain upon change of control related to the sale of a 30% interest to a sovereign wealth fund and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California. The gain upon change of control is included in other income (expense), net in the Consolidated Statements of Operations.
(3)The year ended December 31, 2023 includes costs related to the Mergers, which are primarily comprised of legal, accounting, tax, and other costs that were incurred prior to year-end, partially offset by termination fee income associated with Graphite Bio, Inc., for which the lease terms have been modified to accelerate expiration of the lease to December 2024. Termination fee income is included in rental and related revenues on the Consolidated Statements of Operations.
(4)The year ended December 31, 2022 includes the following: (i) $7 million of charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado, which are included in general and administrative expenses in the Consolidated Statements of Operations, (ii) $14 million of expenses incurred for tenant relocation and other costs associated with the demolition of an outpatient medical building, which are included in other income (expense), net in the Consolidated Statements of Operations, and (iii) a $23 million gain on sale of a hospital under a DFL, which is included in other income (expense), net in the Consolidated Statements of Operations. The year ended December 31, 2021 includes the following: (i) a $29 million goodwill impairment charge in connection with our senior housing triple-net and SHOP asset sales, which is reported in income (loss) from discontinued operations in the Consolidated Statements of Operations and (ii) $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 years ended December 31, 2023, 2022, and 2021 include reserves and (recoveries) for expected loan losses recognized in impairments and loan loss reserves (recoveries), net in the Consolidated Statements of Operations.
(5)The year ended December 31, 2022 includes $32 million of severance-related charges associated with the departures of our former Chief Executive Officer and former Chief Legal Officer and General Counsel in the fourth quarter of 2022. These expenses are included in general and administrative expenses in the Consolidated Statements of Operations.
(6)Casualty-related charges (recoveries), net are recognized in other income (expense), net and equity income (loss) from unconsolidated joint ventures in the Consolidated Statements of Operations.
(7)In conjunction with classifying the assets related to the Callan Ridge JV (see Note 8 to the Consolidated Financial Statements) as held for sale as of December 31, 2023, we concluded it was more likely than not that we would realize the future value of certain deferred tax assets generated by the net operating losses of taxable REIT subsidiaries. Accordingly, during the year ended December 31, 2023, we recognized the reversal of a portion of the associated valuation allowance and recognized a corresponding income tax benefit. See Note 16 to the Consolidated Financial Statements for additional information.
(8)The year ended December 31, 2023 includes a $9 million write-off of straight-line rent receivable associated with Sorrento Therapeutics, Inc., which commenced voluntary reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code. This activity is reflected as a reduction of rental and related revenues in the Consolidated Statements of Operations.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.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 could affect our financial position or results of operations. 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. Below is 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. For a more detailed discussion of our significant accounting policies, including those related to critical accounting estimates further discussed below, see Note 2 to the Consolidated Financial Statements.
Impairment of Long-Lived Assets
We assess the carrying value of our real estate assets and related intangibles (“real estate assets”) when events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability of real estate assets is measured by comparing the carrying amount of the real estate assets to the respective estimated future undiscounted cash flows. The expected future undiscounted cash flows reflect external market factors, and based on the specific facts and circumstances, may be probability-weighted to reflect multiple possible cash-flow scenarios, including selling the assets at various points in the future. Additionally, the estimated future undiscounted cash flows are calculated utilizing the lowest level of identifiable cash flows that are largely independent of the cash flows of other assets and liabilities. In order to review our real estate assets for recoverability, we make assumptions regarding external market conditions (including capitalization rates and growth rates), forecasted cash flows and sales prices, and our intent with respect to holding or disposing of the asset. If our analysis indicates that the carrying value of the real estate assets is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the carrying value exceeds the fair value of the real estate assets.
Determining the fair value of real estate assets, including assets classified as held for sale, involves significant judgment and generally utilizes market capitalization rates, comparable market transactions, estimated per unit or per square foot prices, negotiations with prospective buyers, and forecasted cash flows (primarily lease revenue rates, expense rates, and growth rates). Our ability to accurately predict future operating results and resulting cash flows, and estimate fair values, impacts the timing and recognition of impairments. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for the impact of new accounting standards.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, includingprimarily from the potential loss arising from adverse changes in interest rates. We use derivative and other financial instruments in the normal course of business to mitigate interest rate risk. We do not use derivative financial instruments for speculative or trading purposes. Derivatives are recorded on the consolidated balance sheetsConsolidated Balance Sheets at fair value (see Note 2221 to the Consolidated Financial Statements).
To illustrate the effect of movements in the interest rate markets, we performed a market sensitivity analysis on our hedging instruments. We applied various basis point spreads to the underlying interest rate curves of theour derivative portfolio in order to determine the change in fair value. AssumingAt December 31, 2023, a one percentage point changeincrease or decrease in the underlying interest rate curve would result in a corresponding increase or decrease in the estimated change in fair value of each of the underlying derivative instruments would not be material.by up to $18 million.
Interest Rate Risk
At December 31, 2020,2023, our exposure to interest rate risk iswas primarily on our variable rate debt. At December 31, 2020, $362023, $142 million of our variable-ratevariable rate mortgage debt was hedged byand our $500 million Term Loan Facilities were swapped to fixed rates through interest rate swap transactions.instruments. The interest rate swapsswap instruments are designated as cash flow hedges, with the objective of managing the exposure to interest rate risk by converting the interest rates on our variable-ratevariable rate debt to fixed interest rates. At December 31, 2023, both the fair value and carrying value of the interest rate swap instruments were $21 million.
borrowings under our commercial paper program and certain of our mortgage debt. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt and assets until their maturity or earlier prepayment and refinancing. If interest rates have risen at the time we seek to refinance our fixed rate debt, whether at maturity or otherwise, our future earnings and cash flows could be adversely affected by additional borrowing costs. Conversely, lower interest rates at the time of refinancing may reduce our overall borrowing costs. However, interestInterest rate changes will affect the fair value of our fixed rate instruments. At December 31, 2020,2023, a one percentage point increase or decrease in interest rates would changedecrease the fair value of our fixed rate debt by approximately $369$255 million and $401 million, respectively, and would not materially impact earnings or cash flows. Additionally, a one percentage point increase or decrease in interest rates would changeincrease the fair value of our fixed rate debt investments by approximately $2 million and$272 million. These changes would not materially impact earnings or cash flows. Conversely, changes in interest rates on variable rate debt and investments would change our future earnings and cash flows, but not materially impact the fair value of those instruments. Assuming a one percentage point changeincrease in the interest raterates related to our variable-ratevariable rate debt, and variable-rate investments, and assuming no other changes in the outstanding balance at December 31, 2020,2023, our annual interest expense and interest income would increase by approximately $3 million and $1 million, respectively.
Market Risk
We have investments in marketable debt securities classified as held-to-maturity because we have the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are recorded at amortized cost and adjusted for the amortization of premiums and discounts through maturity. We consider$7 million. Lastly, assuming a variety of factors in evaluating an other-than-temporary decline in value, such as: the length of time and the extent to which the market value has been less than our current adjusted carrying value, the issuer’s financial condition, capital strength and near-term prospects, any recent events specific to that issuer and economic conditions of its industry, and our investment horizon in relationship to an anticipated near-term recoveryone percentage point decrease in the market value, if any. Atinterest rates related to our variable rate loans receivable, and assuming no other changes in the outstanding balance at December 31, 2020, both the fair value and carrying value of marketable debt securities was $202023, our annual interest income would decrease by approximately $2 million.
ITEM 8. Financial Statements and Supplementary Data
Healthpeak Properties, Inc.
Index to the Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Healthpeak Properties, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheetsConsolidated Balance Sheets of Healthpeak Properties, Inc. and subsidiaries.subsidiaries (the "Company"“Company”) as of December 31, 20202023 and 2019,2022, the related consolidated statementsConsolidated Statements of operations, comprehensive income (loss)Operations, Comprehensive Income (Loss), equity,Equity and cash flows,Redeemable Noncontrolling Interests, and Cash Flows, for each of the three years in the period ended December 31, 2020,2023, and the related notesNotes and the schedules listed in the Index at Item 15 (collectively referred to as the "financial statements"“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20202023 and 2019,2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020,2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sCompany’s internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 10, 2021,9, 2024, expressed an unqualified opinion on the Company'sCompany’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company'sCompany’s management. Our responsibility is to express an opinion on the Company'sCompany’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit MattersMatter
The critical audit mattersmatter communicated below are mattersis a matter arising from the current-period audit of the financial statements that werewas communicated or required to be communicated to the audit committee and that (1) relaterelates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit mattersmatter below, providing a separate opinionsopinion on the critical audit mattersmatter or on the accounts or disclosures to which they relate.it relates.
Impairments –— Real Estate — Refer to Notes 2 and 65 to the consolidated financial statements
Critical Audit Matter Description
The Company’s evaluation of impairment of real estate involves an assessment of the carrying value of real estate assets and related intangibles (“real estate assets”) when events or changes in circumstances indicate that the carrying value may not be recoverable. If a
Auditing the Company’s process to evaluate real estate asset is classified as heldassets for sale, individually or as part of a disposal group,impairment was complex due to the long-lived asset or disposal group shall be measured at the lower of its carrying value or fair value less costs to sell. If asubjectivity in determining whether impairment indicators were present. Additionally, for real estate asset is held for use and its carrying value is not recoverable,assets where indicators of impairment were determined to be present, the real estate asset shall be measured at the lower of its carrying value or fair value.
The determination of the fair value of real estate assets involvesfuture undiscounted cash flows involved significant judgment. The fair value ofIn particular, the impaired assets wasundiscounted cash flows were forecasted based on forecasted sales prices of the long-lived asset or disposal group, which are considered to be Level 3 measurements within the fair value hierarchy. Disposal groups were determined based on management’s intent,significant assumptions such as of the measurement date, to sell two or more real estate assets as a portfolio. Forecasted sales prices were determined using an income approach and/or a market approach (comparable sales model), which rely on certain assumptions by the Company, including: (i) market capitalization rates, (ii) market prices per unit, and (iii) forecasted cash flow streams (lease-uplease-up periods, lease revenue rates, operating expenses, and revenue and expense rates, growth rates, etc.). There are inherent uncertainties in these assumptions.
and included judgments around the intended hold period and terminal capitalization rates. Given the Company’s evaluation of theimpairment indicators, forecasted cash flows and sales priceprices of a long livedlong-lived asset or disposal group requires management to make significant estimates and assumptions related to market capitalization rates, market prices per unit, andand/or forecasted cash flow streams,flows, performing audit procedures to evaluate the reasonableness of management’s forecasted sales price required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasted sales price for certain real estate assets or disposal groupsasset impairment included the following, among others:
•We tested the effectiveness of controls over impairment of real estate assets, including those over identifying impairment indicators and the determination of forecasted undiscounted cash flows and sales priceprices for real estate assets.
•We evaluatedperformed an independent search for impairment indicators through the forecasted sales prices forevaluation of several factors including an analysis of industry and market data, a comparison of real estate asset implied capitalization rates to market capitalization rates, and trends in financial performance.
•For real estate assets where indicators of impairment were determined to be present, we subjected a sample of real estate assets, which may have included estimates of market capitalization rates, market prices per unit, and/or forecastedundiscounted cash flow streams used in the determination of fair value for each selected real estate assetmodels to testing by (1) evaluating the source information and assumptions used by management, and (2) testing the mathematical accuracy of the discountedundiscounted cash flow or direct capitalization model.
•We performed a retrospective review of impairment charges and real estate assets that were classified as held for sale to evaluate the changing facts and circumstances that led to the timing and recognition of impairment and/or change in classification during themodels, (3) evaluating management’s intended hold period, and how such facts compared to the facts that were considered in previous periods.(4) performing an independent recoverability test based on market data.
| | | | | |
/s/ DELOITTE & TOUCHE LLP | |
Costa Mesa, California
February 10, 20219, 2024
We have served as the Company'sCompany’s auditor since 2010.
Healthpeak Properties, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| | December 31, |
| 2020 | | 2019 |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
ASSETS | ASSETS | | | |
Real estate: | Real estate: | |
Real estate: | |
Real estate: | |
Buildings and improvements | |
Buildings and improvements | |
Buildings and improvements | Buildings and improvements | $ | 11,048,433 | | | $ | 8,112,193 | |
Development costs and construction in progress | Development costs and construction in progress | 613,182 | | | 654,792 | |
Land | 1,867,278 | | | 1,605,599 | |
Land and improvements | |
Accumulated depreciation and amortization | Accumulated depreciation and amortization | (2,409,135) | | | (2,141,960) | |
Net real estate | Net real estate | 11,119,758 | | | 8,230,624 | |
Net investment in direct financing leases | 44,706 | | | 84,604 | |
Loans receivable, net of reserves of $10,280 and $0 | 195,375 | | | 190,579 | |
| Loans receivable, net of reserves of $2,830 and $8,280 | |
Loans receivable, net of reserves of $2,830 and $8,280 | |
Loans receivable, net of reserves of $2,830 and $8,280 | |
Investments in and advances to unconsolidated joint ventures | Investments in and advances to unconsolidated joint ventures | 402,871 | | | 774,381 | |
Accounts receivable, net of allowance of $3,994 and $387 | 42,269 | | | 44,842 | |
Accounts receivable, net of allowance of $2,282 and $2,399 | |
Cash and cash equivalents | Cash and cash equivalents | 44,226 | | | 80,398 | |
Restricted cash | Restricted cash | 67,206 | | | 13,385 | |
Intangible assets, net | Intangible assets, net | 519,917 | | | 260,204 | |
Assets held for sale and discontinued operations, net | 2,626,306 | | | 3,648,265 | |
| Assets held for sale, net | |
Right-of-use asset, net | Right-of-use asset, net | 192,349 | | | 167,316 | |
Other assets, net | Other assets, net | 665,106 | | | 538,293 | |
Total assets | Total assets | $ | 15,920,089 | | | $ | 14,032,891 | |
| LIABILITIES AND EQUITY | |
LIABILITIES AND EQUITY | |
LIABILITIES AND EQUITY | LIABILITIES AND EQUITY | | | |
Bank line of credit and commercial paper | Bank line of credit and commercial paper | $ | 129,590 | | | $ | 93,000 | |
Term loan | 249,182 | | | 248,942 | |
| Bank line of credit and commercial paper | |
Bank line of credit and commercial paper | |
Term loans | |
Senior unsecured notes | Senior unsecured notes | 5,697,586 | | | 5,647,993 | |
Mortgage debt | Mortgage debt | 221,621 | | | 12,317 | |
| Intangible liabilities, net | Intangible liabilities, net | 144,199 | | | 74,991 | |
Liabilities related to assets held for sale and discontinued operations, net | 415,737 | | | 403,688 | |
Liabilities related to assets held for sale, net | |
Lease liability | Lease liability | 179,895 | | | 152,400 | |
Accounts payable, accrued liabilities, and other liabilities | Accounts payable, accrued liabilities, and other liabilities | 763,391 | | | 457,532 | |
Deferred revenue | Deferred revenue | 774,316 | | | 274,554 | |
Total liabilities | Total liabilities | 8,575,517 | | | 7,365,417 | |
Commitments and contingencies | 0 | | 0 |
| Common stock, $1.00 par value: 750,000,000 shares authorized; 538,405,393 and 505,221,643 shares issued and outstanding | 538,405 | | | 505,222 | |
Commitments and contingencies (Note 11) | |
Commitments and contingencies (Note 11) | |
Commitments and contingencies (Note 11) | | | | |
| Redeemable noncontrolling interests | |
Redeemable noncontrolling interests | |
Redeemable noncontrolling interests | |
| Common stock, $1.00 par value: 750,000,000 shares authorized; 547,156,311 and 546,641,973 shares issued and outstanding | |
| Common stock, $1.00 par value: 750,000,000 shares authorized; 547,156,311 and 546,641,973 shares issued and outstanding | |
| Common stock, $1.00 par value: 750,000,000 shares authorized; 547,156,311 and 546,641,973 shares issued and outstanding | |
Additional paid-in capital | Additional paid-in capital | 10,229,857 | | | 9,183,892 | |
Cumulative dividends in excess of earnings | Cumulative dividends in excess of earnings | (3,976,232) | | | (3,601,199) | |
Accumulated other comprehensive income (loss) | Accumulated other comprehensive income (loss) | (3,685) | | | (2,857) | |
Total stockholders' equity | 6,788,345 | | | 6,085,058 | |
Total stockholders’ equity | |
Joint venture partners | Joint venture partners | 357,069 | | | 378,061 | |
Non-managing member unitholders | Non-managing member unitholders | 199,158 | | | 204,355 | |
Total noncontrolling interests | Total noncontrolling interests | 556,227 | | | 582,416 | |
Total equity | Total equity | 7,344,572 | | | 6,667,474 | |
Total liabilities and equity | Total liabilities and equity | $ | 15,920,089 | | | $ | 14,032,891 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| | Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
Revenues: | Revenues: | | | | | |
Rental and related revenues | Rental and related revenues | $ | 1,182,108 | | | $ | 1,069,502 | | | $ | 1,020,348 | |
Rental and related revenues | |
Rental and related revenues | |
Resident fees and services | Resident fees and services | 436,494 | | | 144,327 | | | 144,217 | |
Interest income | |
Income from direct financing leases | Income from direct financing leases | 9,720 | | | 16,666 | | | 16,349 | |
Interest income | 16,553 | | | 9,844 | | | 10,406 | |
Total revenues | Total revenues | 1,644,875 | | | 1,240,339 | | | 1,191,320 | |
Costs and expenses: | Costs and expenses: | | | | | |
Interest expense | |
Interest expense | |
Interest expense | Interest expense | 218,336 | | | 217,612 | | | 261,280 | |
Depreciation and amortization | Depreciation and amortization | 553,949 | | | 435,191 | | | 404,681 | |
Operating | Operating | 782,541 | | | 405,244 | | | 378,657 | |
General and administrative | General and administrative | 93,237 | | | 92,966 | | | 96,702 | |
Transaction costs | 18,342 | | | 1,963 | | | 1,137 | |
Transaction and merger-related costs | |
| Impairments and loan loss reserves (recoveries), net | |
Impairments and loan loss reserves (recoveries), net | |
Impairments and loan loss reserves (recoveries), net | Impairments and loan loss reserves (recoveries), net | 42,909 | | | 17,708 | | | 10,917 | |
Total costs and expenses | Total costs and expenses | 1,709,314 | | | 1,170,684 | | | 1,153,374 | |
Other income (expense): | Other income (expense): | | | | | | Other income (expense): | | | |
Gain (loss) on sales of real estate, net | Gain (loss) on sales of real estate, net | 90,350 | | | (40) | | | 831,368 | |
Loss on debt extinguishments | (42,912) | | | (58,364) | | | (44,162) | |
Gain (loss) on debt extinguishments | |
Other income (expense), net | Other income (expense), net | 234,684 | | | 165,069 | | | 13,425 | |
Total other income (expense), net | Total other income (expense), net | 282,122 | | | 106,665 | | | 800,631 | |
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | 217,683 | | | 176,320 | | | 838,577 | |
Income tax benefit (expense) | Income tax benefit (expense) | 9,423 | | | 5,479 | | | 4,396 | |
Equity income (loss) from unconsolidated joint ventures | Equity income (loss) from unconsolidated joint ventures | (66,599) | | | (6,330) | | | (5,755) | |
| Income (loss) from continuing operations | Income (loss) from continuing operations | 160,507 | | | 175,469 | | | 837,218 | |
| Income (loss) from discontinued operations | Income (loss) from discontinued operations | 267,746 | | | (115,408) | | | 236,256 | |
Net income (loss) | Net income (loss) | 428,253 | | | 60,061 | | | 1,073,474 | |
Noncontrolling interests' share in continuing operations | (14,394) | | | (14,558) | | | (12,294) | |
Noncontrolling interests' share in discontinued operations | (296) | | | 27 | | | (87) | |
Noncontrolling interests’ share in continuing operations | |
Noncontrolling interests’ share in discontinued operations | |
Net income (loss) attributable to Healthpeak Properties, Inc. | Net income (loss) attributable to Healthpeak Properties, Inc. | 413,563 | | | 45,530 | | | 1,061,093 | |
| Participating securities' share in earnings | (2,416) | | | (1,543) | | | (2,669) | |
| Participating securities’ share in earnings | |
Participating securities’ share in earnings | |
Participating securities’ share in earnings | |
Net income (loss) applicable to common shares | Net income (loss) applicable to common shares | $ | 411,147 | | | $ | 43,987 | | | $ | 1,058,424 | |
| Basic earnings (loss) per common share: | Basic earnings (loss) per common share: | |
Basic earnings (loss) per common share: | |
Basic earnings (loss) per common share: | |
Continuing operations | |
Continuing operations | |
Continuing operations | Continuing operations | $ | 0.27 | | | $ | 0.33 | | | $ | 1.75 | |
Discontinued operations | Discontinued operations | 0.50 | | | (0.24) | | | 0.50 | |
Net income (loss) applicable to common shares | Net income (loss) applicable to common shares | $ | 0.77 | | | $ | 0.09 | | | $ | 2.25 | |
Diluted earnings (loss) per common share: | Diluted earnings (loss) per common share: | | | | | |
Continuing operations | |
Continuing operations | |
Continuing operations | Continuing operations | $ | 0.27 | | | $ | 0.33 | | | $ | 1.74 | |
Discontinued operations | Discontinued operations | 0.50 | | | (0.24) | | | 0.50 | |
Net income (loss) applicable to common shares | Net income (loss) applicable to common shares | $ | 0.77 | | | $ | 0.09 | | | $ | 2.24 | |
| Weighted average shares outstanding: | Weighted average shares outstanding: | | | | | |
| Weighted average shares outstanding: | |
| Weighted average shares outstanding: | |
Basic | |
Basic | |
Basic | Basic | 530,555 | | | 486,255 | | | 470,551 | |
Diluted | Diluted | 531,056 | | | 489,335 | | | 475,387 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
| | Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
Net income (loss) | Net income (loss) | $ | 428,253 | | | $ | 60,061 | | | $ | 1,073,474 | |
Other comprehensive income (loss): | Other comprehensive income (loss): | |
| Net unrealized gains (losses) on derivatives | Net unrealized gains (losses) on derivatives | (583) | | | 758 | | | 6,025 | |
| Net unrealized gains (losses) on derivatives | |
| Net unrealized gains (losses) on derivatives | |
Change in Supplemental Executive Retirement Plan obligation and other | |
Reclassification adjustment realized in net income (loss) | Reclassification adjustment realized in net income (loss) | 13 | | | 1,023 | | | 18,088 | |
Change in Supplemental Executive Retirement Plan obligation and other | (258) | | | (590) | | | 561 | |
Foreign currency translation adjustment | 0 | | | 660 | | | (5,358) | |
| Total other comprehensive income (loss) | |
Total other comprehensive income (loss) | |
Total other comprehensive income (loss) | Total other comprehensive income (loss) | (828) | | | 1,851 | | | 19,316 | |
Total comprehensive income (loss) | Total comprehensive income (loss) | 427,425 | | | 61,912 | | | 1,092,790 | |
Total comprehensive (income) loss attributable to noncontrolling interests' share in continuing operations | (14,394) | | | (14,558) | | | (12,294) | |
Total comprehensive (income) loss attributable to noncontrolling interests' share in discontinued operations | (296) | | | 27 | | | (87) | |
Total comprehensive (income) loss attributable to noncontrolling interests’ share in continuing operations | |
Total comprehensive (income) loss attributable to noncontrolling interests’ share in discontinued operations | |
Total comprehensive income (loss) attributable to Healthpeak Properties, Inc. | Total comprehensive income (loss) attributable to Healthpeak Properties, Inc. | $ | 412,735 | | | $ | 47,381 | | | $ | 1,080,409 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | | | | | | | | | |
| Shares | | Amount | | Additional Paid-In Capital | | Cumulative Dividends In Excess Of Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Total Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
December 31, 2020 | 538,405 | | | $ | 538,405 | | | $ | 10,175,235 | | | $ | (3,976,232) | | | $ | (3,685) | | | $ | 6,733,723 | | | $ | 556,227 | | | $ | 7,289,950 | | | $ | 57,396 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | — | | | 505,540 | | | — | | | 505,540 | | | 20,346 | | | 525,886 | | | 44 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 538 | | | 538 | | | — | | | 538 | | | — | |
Issuance of common stock, net | 1,005 | | | 1,005 | | | 740 | | | — | | | — | | | 1,745 | | | — | | | 1,745 | | | — | |
Conversion of DownREIT units to common stock | 8 | | | 8 | | | 193 | | | — | | | — | | | 201 | | | (201) | | | — | | | — | |
Repurchase of common stock | (418) | | | (418) | | | (12,423) | | | — | | | — | | | (12,841) | | | — | | | (12,841) | | | — | |
Exercise of stock options | 97 | | | 97 | | | 3,194 | | | — | | | — | | | 3,291 | | | — | | | 3,291 | | | — | |
Stock-based compensation | — | | | — | | | 22,851 | | | — | | | — | | | 22,851 | | | — | | | 22,851 | | | — | |
Common dividends ($1.20 per share) | — | | | — | | | — | | | (650,082) | | | — | | | (650,082) | | | — | | | (650,082) | | | — | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (33,017) | | | (33,017) | | | (162) | |
| | | | | | | | | | | | | | | | | |
Purchase of noncontrolling interests | — | | | — | | | (5) | | | — | | | — | | | (5) | | | (65) | | | (70) | | | (60,065) | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 640 | |
Adjustments to redemption value of redeemable noncontrolling interests | — | | | — | | | (89,491) | | | — | | | — | | | (89,491) | | | — | | | (89,491) | | | 89,491 | |
December 31, 2021 | 539,097 | | | $ | 539,097 | | | $ | 10,100,294 | | | $ | (4,120,774) | | | $ | (3,147) | | | $ | 6,515,470 | | | $ | 543,290 | | | $ | 7,058,760 | | | $ | 87,344 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | — | | | 500,449 | | | — | | | 500,449 | | | 15,876 | | | 516,325 | | | 99 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 31,281 | | | 31,281 | | | — | | | 31,281 | | | — | |
Issuance of common stock, net | 9,936 | | | 9,936 | | | 299,481 | | | — | | | — | | | 309,417 | | | — | | | 309,417 | | | — | |
Conversion of DownREIT units to common stock | 27 | | | 27 | | | 853 | | | — | | | — | | | 880 | | | (880) | | | — | | | — | |
Repurchase of common stock | (2,418) | | | (2,418) | | | (65,420) | | | — | | | — | | | (67,838) | | | — | | | (67,838) | | | — | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 31,412 | | | — | | | — | | | 31,412 | | | — | | | 31,412 | | | — | |
Common dividends ($1.20 per share) | — | | | — | | | — | | | (649,364) | | | — | | | (649,364) | | | — | | | (649,364) | | | — | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (30,389) | | | (30,389) | | | (160) | |
| | | | | | | | | | | | | | | | | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,390 | |
| | | | | | | | | | | | | | | | | |
Adjustments to redemption value of redeemable noncontrolling interests | — | | | — | | | (17,006) | | | — | | | — | | | (17,006) | | | — | | | (17,006) | | | 17,006 | |
December 31, 2022 | 546,642 | | | $ | 546,642 | | | $ | 10,349,614 | | | $ | (4,269,689) | | | $ | 28,134 | | | $ | 6,654,701 | | | $ | 527,897 | | | $ | 7,182,598 | | | $ | 105,679 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS (CONTINUED)
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | | | | | | | | | |
| Shares | | Amount | | Additional Paid-In Capital | | Cumulative Dividends In Excess Of Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Total Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
December 31, 2022 | 546,642 | | | $ | 546,642 | | | $ | 10,349,614 | | | $ | (4,269,689) | | | $ | 28,134 | | | $ | 6,654,701 | | | $ | 527,897 | | | $ | 7,182,598 | | | $ | 105,679 | |
Net income (loss) | — | | | — | | | — | | | 306,009 | | | — | | | 306,009 | | | 28,111 | | | 334,120 | | | 637 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (8,763) | | | (8,763) | | | — | | | (8,763) | | | — | |
Issuance of common stock, net | 683 | | | 683 | | | 755 | | | — | | | — | | | 1,438 | | | — | | | 1,438 | | | — | |
Conversion of DownREIT units to common stock | 72 | | | 72 | | | 1,200 | | | — | | | — | | | 1,272 | | | (1,272) | | | — | | | — | |
Repurchase of common stock | (241) | | | (241) | | | (6,283) | | | — | | | — | | | (6,524) | | | — | | | (6,524) | | | — | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 2,966 | | | — | | | — | | | 2,966 | | | 15,693 | | | 18,659 | | | — | |
Common dividends ($1.20 per share) | — | | | — | | | — | | | (658,181) | | | — | | | (658,181) | | | — | | | (658,181) | | | — | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (44,848) | | | (44,848) | | | (276) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Purchase of noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (158) | | | (158) | | | — | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | 173 | | | 173 | | | 316 | |
Adjustments to redemption value of redeemable noncontrolling interests | — | | | — | | | 57,528 | | | — | | | — | | | 57,528 | | | — | | | 57,528 | | | (57,528) | |
December 31, 2023 | 547,156 | | | $ | 547,156 | | | $ | 10,405,780 | | | $ | (4,621,861) | | | $ | 19,371 | | | $ | 6,350,446 | | | $ | 525,596 | | | $ | 6,876,042 | | | $ | 48,828 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | | | | | | | |
| Shares | | Amount | | Additional Paid-In Capital | | Cumulative Dividends In Excess Of Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Noncontrolling Interests | | Total Equity |
December 31, 2017 | 469,436 | | | $ | 469,436 | | | $ | 8,226,113 | | | $ | (3,370,520) | | | $ | (24,024) | | | $ | 5,301,005 | | | $ | 293,933 | | | $ | 5,594,938 | |
Impact of adoption of ASU No. 2017-05(1) | — | | | — | | | — | | | 79,144 | | | — | | | 79,144 | | | — | | | 79,144 | |
January 1, 2018 | 469,436 | | | $ | 469,436 | | | $ | 8,226,113 | | | $ | (3,291,376) | | | $ | (24,024) | | | $ | 5,380,149 | | | $ | 293,933 | | | $ | 5,674,082 | |
Net income (loss) | — | | | — | | | — | | | 1,061,093 | | | — | | | 1,061,093 | | | 12,381 | | | 1,073,474 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 19,316 | | | 19,316 | | | — | | | 19,316 | |
Issuance of common stock, net | 8,078 | | | 8,078 | | | 207,101 | | | — | | | — | | | 215,179 | | | — | | | 215,179 | |
Conversion of DownREIT units to common stock | 3 | | | 3 | | | 133 | | | — | | | — | | | 136 | | | (136) | | | 0 | |
Repurchase of common stock | (141) | | | (141) | | | (3,291) | | | — | | | — | | | (3,432) | | | — | | | (3,432) | |
Exercise of stock options | 120 | | | 120 | | | 2,357 | | | — | | | — | | | 2,477 | | | — | | | 2,477 | |
Amortization of deferred compensation | — | | | — | | | 16,563 | | | — | | | — | | | 16,563 | | | — | | | 16,563 | |
Common dividends ($1.48 per share) | — | | | — | | | — | | | (696,913) | | | — | | | (696,913) | | | — | | | (696,913) | |
| | | | | | | | | | | | | | | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (18,415) | | | (18,415) | |
Issuances of noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | 299,666 | | | 299,666 | |
| | | | | | | | | | | | | | | |
Purchase of noncontrolling interests | — | | | — | | | (50,129) | | | — | | | — | | | (50,129) | | | (19,277) | | | (69,406) | |
| | | | | | | | | | | | | | | |
December 31, 2018 | 477,496 | | | $ | 477,496 | | | $ | 8,398,847 | | | $ | (2,927,196) | | | $ | (4,708) | | | $ | 5,944,439 | | | $ | 568,152 | | | $ | 6,512,591 | |
Impact of adoption of ASU No. 2016-02(2) | — | | | — | | | — | | | 590 | | | — | | | 590 | | | — | | | 590 | |
January 1, 2019 | 477,496 | | | $ | 477,496 | | | $ | 8,398,847 | | | $ | (2,926,606) | | | $ | (4,708) | | | $ | 5,945,029 | | | $ | 568,152 | | | $ | 6,513,181 | |
Net income (loss) | — | | | — | | | — | | | 45,530 | | | — | | | 45,530 | | | 14,531 | | | 60,061 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 1,851 | | | 1,851 | | | — | | | 1,851 | |
Issuance of common stock, net | 27,523 | | | 27,523 | | | 763,525 | | | — | | | — | | | 791,048 | | | — | | | 791,048 | |
Conversion of DownREIT units to common stock | 213 | | | 213 | | | 4,932 | | | — | | | — | | | 5,145 | | | (5,145) | | | 0 | |
Repurchase of common stock | (162) | | | (162) | | | (4,881) | | | — | | | — | | | (5,043) | | | — | | | (5,043) | |
Exercise of stock options | 152 | | | 152 | | | 4,386 | | | — | | | — | | | 4,538 | | | — | | | 4,538 | |
Amortization of deferred compensation | — | | | — | | | 18,162 | | | — | | | — | | | 18,162 | | | — | | | 18,162 | |
Common dividends ($1.48 per share) | — | | | — | | | — | | | (720,123) | | | — | | | (720,123) | | | — | | | (720,123) | |
| | | | | | | | | | | | | | | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (28,301) | | | (28,301) | |
Issuances of noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | 33,318 | | | 33,318 | |
| | | | | | | | | | | | | | | |
Purchase of noncontrolling interests | — | | | — | | | (1,079) | | | — | | | — | | | (1,079) | | | (139) | | | (1,218) | |
| | | | | | | | | | | | | | | |
December 31, 2019 | 505,222 | | | $ | 505,222 | | | $ | 9,183,892 | | | $ | (3,601,199) | | | $ | (2,857) | | | $ | 6,085,058 | | | $ | 582,416 | | | $ | 6,667,474 | |
Impact of adoption of ASU No. 2016-13(3) | — | | | — | | | — | | | (1,524) | | | — | | | (1,524) | | | — | | | (1,524) | |
January 1, 2020 | 505,222 | | | $ | 505,222 | | | $ | 9,183,892 | | | $ | (3,602,723) | | | $ | (2,857) | | | $ | 6,083,534 | | | $ | 582,416 | | | $ | 6,665,950 | |
Net income (loss) | — | | | — | | | — | | | 413,563 | | | — | | | 413,563 | | | 14,690 | | | 428,253 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (828) | | | (828) | | | — | | | (828) | |
Issuance of common stock, net | 33,307 | | | 33,307 | | | 1,033,764 | | | — | | | — | | | 1,067,071 | | | — | | | 1,067,071 | |
Conversion of DownREIT units to common stock | 120 | | | 120 | | | 3,957 | | | — | | | — | | | 4,077 | | | (4,077) | | | 0 | |
Repurchase of common stock | (298) | | | (298) | | | (10,231) | | | — | | | — | | | (10,529) | | | — | | | (10,529) | |
Exercise of stock options | 54 | | | 54 | | | 1,752 | | | — | | | — | | | 1,806 | | | — | | | 1,806 | |
Amortization of deferred compensation | — | | | — | | | 20,534 | | | — | | | — | | | 20,534 | | | — | | | 20,534 | |
Common dividends ($1.48 per share) | — | | | — | | | — | | | (787,072) | | | — | | | (787,072) | | | — | | | (787,072) | |
| | | | | | | | | | | | | | | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (36,994) | | | (36,994) | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Purchase of noncontrolling interests | — | | | — | | | (3,811) | | | — | | | — | | | (3,811) | | | 192 | | | (3,619) | |
| | | | | | | | | | | | | | | |
December 31, 2020 | 538,405 | | | $ | 538,405 | | | $ | 10,229,857 | | | $ | (3,976,232) | | | $ | (3,685) | | | $ | 6,788,345 | | | $ | 556,227 | | | $ | 7,344,572 | |
(1)On January 1, 2018, the Company adopted Accounting Standards Update (“ASU”) No. 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”), and recognized the cumulative-effect of adoption to beginning retained earnings. Refer to Note 2 for a detailed impact of adoption.
(2)On January 1, 2019, the Company adopted a series of ASUs related to accounting for leases, and recognized the cumulative-effect of adoption to beginning retained earnings. Refer to Note 2 for a detailed impact of adoption.
(3)On January 1, 2020, the Company adopted a series of ASUs related to accounting for credit losses and recognized the cumulative-effect of adoption to beginning retained earnings. Refer to Note 2 for a detailed impact of adoption.
See accompanying Notes to Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | Year Ended December 31, | |
| Year Ended December 31, | |
| Year Ended December 31, | |
| 2023 | |
| 2023 | |
| 2023 | |
Cash flows from operating activities: | |
Cash flows from operating activities: | |
Cash flows from operating activities: | |
Net income (loss) | |
Net income (loss) | |
Net income (loss) | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |
Depreciation and amortization of real estate, in-place lease, and other intangibles | |
Depreciation and amortization of real estate, in-place lease, and other intangibles | |
Depreciation and amortization of real estate, in-place lease, and other intangibles | |
| Stock-based compensation amortization expense | |
| Stock-based compensation amortization expense | |
| Stock-based compensation amortization expense | |
Amortization of deferred financing costs | |
Amortization of deferred financing costs | |
Amortization of deferred financing costs | |
Straight-line rents | |
Straight-line rents | |
Straight-line rents | |
Amortization of nonrefundable entrance fees and above (below) market lease intangibles | |
Amortization of nonrefundable entrance fees and above (below) market lease intangibles | |
Amortization of nonrefundable entrance fees and above (below) market lease intangibles | |
| | | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
Cash flows from operating activities: | | | | | |
Net income (loss) | $ | 428,253 | | | $ | 60,061 | | | $ | 1,073,474 | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |
Depreciation and amortization of real estate, in-place lease and other intangibles | 697,143 | | | 659,989 | | | 549,499 | |
Equity loss (income) from unconsolidated joint ventures | |
| Amortization of deferred compensation | 17,368 | | | 18,162 | | | 16,563 | |
Amortization of deferred financing costs | 10,157 | | | 10,863 | | | 12,612 | |
Straight-line rents | (24,532) | | | (22,479) | | | (23,138) | |
Amortization of nonrefundable entrance fees and above/below market lease intangibles | (81,914) | | | 0 | | | 0 | |
| Equity loss (income) from unconsolidated joint ventures | |
| Equity loss (income) from unconsolidated joint ventures | Equity loss (income) from unconsolidated joint ventures | 67,787 | | | 8,625 | | | 2,594 | |
Distributions of earnings from unconsolidated joint ventures | Distributions of earnings from unconsolidated joint ventures | 12,294 | | | 20,114 | | | 22,467 | |
Distributions of earnings from unconsolidated joint ventures | |
Distributions of earnings from unconsolidated joint ventures | |
| Loss (gain) on sale of real estate under direct financing leases | |
| Loss (gain) on sale of real estate under direct financing leases | |
| Loss (gain) on sale of real estate under direct financing leases | Loss (gain) on sale of real estate under direct financing leases | (41,670) | | | 0 | | | 0 | |
Deferred income tax expense (benefit) | Deferred income tax expense (benefit) | (14,573) | | | (18,253) | | | (18,525) | |
Deferred income tax expense (benefit) | |
Deferred income tax expense (benefit) | |
Impairments and loan loss reserves (recoveries), net | Impairments and loan loss reserves (recoveries), net | 244,253 | | | 225,937 | | | 55,260 | |
Loss on debt extinguishments | 42,912 | | | 58,364 | | | 44,162 | |
Impairments and loan loss reserves (recoveries), net | |
Impairments and loan loss reserves (recoveries), net | |
Loss (gain) on debt extinguishments | |
Loss (gain) on debt extinguishments | |
Loss (gain) on debt extinguishments | |
Loss (gain) on sales of real estate, net | |
Loss (gain) on sales of real estate, net | |
Loss (gain) on sales of real estate, net | Loss (gain) on sales of real estate, net | (550,494) | | | (22,900) | | | (925,985) | |
Loss (gain) upon change of control, net | Loss (gain) upon change of control, net | (159,973) | | | (168,023) | | | (9,154) | |
Loss (gain) upon change of control, net | |
Loss (gain) upon change of control, net | |
Casualty-related loss (recoveries), net | |
Casualty-related loss (recoveries), net | |
Casualty-related loss (recoveries), net | Casualty-related loss (recoveries), net | 469 | | | (3,706) | | | 0 | |
| Other non-cash items | Other non-cash items | 2,175 | | | (2,569) | | | 2,569 | |
| Other non-cash items | |
| Other non-cash items | |
Changes in: | |
Changes in: | |
Changes in: | Changes in: | |
Decrease (increase) in accounts receivable and other assets, net | Decrease (increase) in accounts receivable and other assets, net | 15,281 | | | (49,771) | | | 5,686 | |
Decrease (increase) in accounts receivable and other assets, net | |
Decrease (increase) in accounts receivable and other assets, net | |
Increase (decrease) in accounts payable, accrued liabilities, and deferred revenue | |
Increase (decrease) in accounts payable, accrued liabilities, and deferred revenue | |
Increase (decrease) in accounts payable, accrued liabilities, and deferred revenue | Increase (decrease) in accounts payable, accrued liabilities, and deferred revenue | 93,495 | | | 71,659 | | | 40,625 | |
Net cash provided by (used in) operating activities | Net cash provided by (used in) operating activities | 758,431 | | | 846,073 | | | 848,709 | |
Net cash provided by (used in) operating activities | |
Net cash provided by (used in) operating activities | |
Cash flows from investing activities: | |
Cash flows from investing activities: | |
Cash flows from investing activities: | Cash flows from investing activities: | | | | | |
| Acquisitions of real estate | Acquisitions of real estate | (1,170,651) | | | (1,604,285) | | | (426,080) | |
| Acquisitions of real estate | |
| Acquisitions of real estate | |
Development, redevelopment, and other major improvements of real estate | |
Development, redevelopment, and other major improvements of real estate | |
Development, redevelopment, and other major improvements of real estate | Development, redevelopment, and other major improvements of real estate | (791,566) | | | (626,904) | | | (503,643) | |
| Leasing costs, tenant improvements, and recurring capital expenditures | Leasing costs, tenant improvements, and recurring capital expenditures | (94,121) | | | (108,844) | | | (106,193) | |
| Leasing costs, tenant improvements, and recurring capital expenditures | |
| Leasing costs, tenant improvements, and recurring capital expenditures | |
| Proceeds from sales of real estate, net | Proceeds from sales of real estate, net | 1,304,375 | | | 230,455 | | | 2,044,477 | |
Acquisition of CCRC Portfolio | (394,177) | | | 0 | | | 0 | |
Contributions to unconsolidated joint ventures | (39,118) | | | (14,956) | | | (12,203) | |
| Proceeds from sales of real estate, net | |
| Proceeds from sales of real estate, net | |
Proceeds from the South San Francisco JVs transaction, net | |
Proceeds from the South San Francisco JVs transaction, net | |
Proceeds from the South San Francisco JVs transaction, net | |
| Investments in unconsolidated joint ventures | |
| Investments in unconsolidated joint ventures | |
| Investments in unconsolidated joint ventures | |
Distributions in excess of earnings from unconsolidated joint ventures | |
Distributions in excess of earnings from unconsolidated joint ventures | |
Distributions in excess of earnings from unconsolidated joint ventures | Distributions in excess of earnings from unconsolidated joint ventures | 18,555 | | | 27,072 | | | 26,472 | |
Proceeds from insurance recovery | Proceeds from insurance recovery | 1,802 | | | 9,359 | | | 0 | |
Proceeds from the RIDEA II transaction, net | 0 | | | 0 | | | 335,709 | |
Proceeds from the U.K. JV transaction, net | 0 | | | 89,868 | | | 393,997 | |
Proceeds from the Sovereign Wealth Fund Senior Housing JV transaction, net | 0 | | | 354,774 | | | 0 | |
Proceeds from insurance recovery | |
Proceeds from insurance recovery | |
| Proceeds from sales/principal repayments on debt investments and direct financing leases | 202,763 | | | 274,150 | | | 148,024 | |
Investments in loans receivable, direct financing leases, and other | (45,562) | | | (79,467) | | | (71,281) | |
| Proceeds from sales/principal repayments on loans receivable, direct financing leases, and marketable debt securities | |
| Proceeds from sales/principal repayments on loans receivable, direct financing leases, and marketable debt securities | |
| Proceeds from sales/principal repayments on loans receivable, direct financing leases, and marketable debt securities | |
Investments in loans receivable and other | |
Investments in loans receivable and other | |
Investments in loans receivable and other | |
| Net cash provided by (used in) investing activities | |
| Net cash provided by (used in) investing activities | |
| Net cash provided by (used in) investing activities | Net cash provided by (used in) investing activities | (1,007,700) | | | (1,448,778) | | | 1,829,279 | |
Cash flows from financing activities: | Cash flows from financing activities: | | | | | |
Cash flows from financing activities: | |
Cash flows from financing activities: | |
Borrowings under bank line of credit and commercial paper | Borrowings under bank line of credit and commercial paper | 4,742,600 | | | 7,607,788 | | | 1,823,000 | |
Borrowings under bank line of credit and commercial paper | |
Borrowings under bank line of credit and commercial paper | |
Repayments under bank line of credit and commercial paper | |
Repayments under bank line of credit and commercial paper | |
Repayments under bank line of credit and commercial paper | Repayments under bank line of credit and commercial paper | (4,706,010) | | | (7,597,047) | | | (2,755,668) | |
| Issuance and borrowings of debt, excluding bank line of credit and commercial paper | 594,750 | | | 2,047,069 | | | 223,587 | |
Repayments and repurchase of debt, excluding bank line of credit and commercial paper | (568,343) | | | (1,654,142) | | | (1,604,026) | |
Borrowings under term loan | 0 | | | 250,000 | | | 0 | |
Issuances and borrowings of term loans, senior unsecured notes, and mortgage debt | |
| Issuances and borrowings of term loans, senior unsecured notes, and mortgage debt | |
| Issuances and borrowings of term loans, senior unsecured notes, and mortgage debt | |
Repayments and repurchases of term loans, senior unsecured notes, and mortgage debt | |
Repayments and repurchases of term loans, senior unsecured notes, and mortgage debt | |
Repayments and repurchases of term loans, senior unsecured notes, and mortgage debt | |
| | Payments for debt extinguishment and deferred financing costs | Payments for debt extinguishment and deferred financing costs | (47,210) | | | (80,616) | | | (41,552) | |
| Issuance of common stock and exercise of options | 1,068,877 | | | 795,586 | | | 217,656 | |
| Payments for debt extinguishment and deferred financing costs | |
| Payments for debt extinguishment and deferred financing costs | |
| Issuance of common stock and exercise of options, net of offering costs | |
| Issuance of common stock and exercise of options, net of offering costs | |
| Issuance of common stock and exercise of options, net of offering costs | |
Repurchase of common stock | |
Repurchase of common stock | |
Repurchase of common stock | Repurchase of common stock | (10,529) | | | (5,043) | | | (3,432) | |
Dividends paid on common stock | Dividends paid on common stock | (787,072) | | | (720,123) | | | (696,913) | |
Issuance of noncontrolling interests | 0 | | | 33,318 | | | 299,666 | |
Dividends paid on common stock | |
Dividends paid on common stock | |
Distributions to and purchase of noncontrolling interests | |
Distributions to and purchase of noncontrolling interests | |
Distributions to and purchase of noncontrolling interests | |
| Distributions to and purchase of noncontrolling interests | (40,613) | | | (29,519) | | | (82,854) | |
Contributions from and issuance of noncontrolling interests | |
| Contributions from and issuance of noncontrolling interests | |
| Contributions from and issuance of noncontrolling interests | |
Net cash provided by (used in) financing activities | Net cash provided by (used in) financing activities | 246,450 | | | 647,271 | | | (2,620,536) | |
Effect of foreign exchanges on cash, cash equivalents and restricted cash | (153) | | | 245 | | | 191 | |
Net increase (decrease) in cash, cash equivalents and restricted cash | (2,972) | | | 44,811 | | | 57,643 | |
Cash, cash equivalents and restricted cash, beginning of year | 184,657 | | | 139,846 | | | 82,203 | |
Cash, cash equivalents and restricted cash, end of year | $ | 181,685 | | | $ | 184,657 | | | $ | 139,846 | |
Less: cash, cash equivalents and restricted cash of discontinued operations | (70,253) | | | (90,874) | | | (78,701) | |
Cash, cash equivalents and restricted cash of continuing operations, end of year | $ | 111,432 | | | $ | 93,783 | | | $ | 61,145 | |
Net cash provided by (used in) financing activities | |
Net cash provided by (used in) financing activities | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | |
Cash, cash equivalents, and restricted cash, beginning of year | |
Cash, cash equivalents, and restricted cash, beginning of year | |
Cash, cash equivalents, and restricted cash, beginning of year | |
Cash, cash equivalents, and restricted cash, end of year | |
Cash, cash equivalents, and restricted cash, end of year | |
Cash, cash equivalents, and restricted cash, end of year | |
|
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Business
Overview
Healthpeak Properties, Inc., a Standard & Poor’s 500 company, is a Maryland corporation that is organized to qualify as a real estate investment trust (“REIT”) which,that, together with its consolidated entities (collectively, “Healthpeak” or the “Company”), invests primarily in real estate serving the healthcare industry in the United States (“U.S.”). HealthpeakTMHealthpeak® acquires, develops, owns, leases, owns, and manages healthcare real estate. The Company’s diverse portfolio is comprised of investments in the following reportable healthcare segments: (i) life science;lab; (ii) medical office;outpatient medical; and (iii) continuing care retirement community (“CCRC”).
New Corporate HeadquartersThe Company’s corporate headquarters are in Denver, Colorado, and it has additional offices in California, Tennessee, and Massachusetts.
In November 2020,UPREIT Reorganization
On February 10, 2023, the Company established a newcompleted its corporate headquartersreorganization (the “Reorganization”) into an umbrella partnership REIT (“UPREIT”). Substantially all of the Company’s business is conducted through Healthpeak OP, LLC (“Healthpeak OP”). The Company is the managing member of Healthpeak OP and does not have material assets or liabilities, other than through its investment in Denver, CO. With properties in nearly every state,Healthpeak OP. For additional information on the new headquarters provides a favorable mix of affordabilityUPREIT reorganization, see the Company’s Current Report on Form 8-K12B filed with the U.S. Securities and a centralized geographic location. Exchange Commission (“SEC”) on February 10, 2023.
The Company’s Irvine, CA and Franklin, TN offices will continue to operate.Merger Agreement
Senior Housing Triple-Net and Senior Housing Operating Portfolio Dispositions
During 2020,On October 29, 2023, the Company establishedentered into an Agreement and began executingPlan of Merger (the “Merger Agreement”) with Physicians Realty Trust, Physicians Realty L.P. (the “Physicians Partnership”), and certain of the Company’s subsidiaries, pursuant to which, among other things, and through a planseries of transactions (the “Mergers”), (i) each outstanding common share of Physicians Realty Trust (other than Physicians Realty Trust common shares to disposebe canceled in accordance with the Merger Agreement) will be converted into the right to receive 0.674 (the “Exchange Ratio”) shares of its senior housing triple-netCompany common stock, and Senior Housing Operating (“SHOP”) properties. (ii) each outstanding common unit of the Physicians Partnership will be converted into common units in the successor entity to the Physicians Partnership equal to the Exchange Ratio. Following the transactions contemplated in the Merger Agreement, the successor entities to Physicians Realty Trust and the Physicians Partnership will be subsidiaries of Healthpeak OP.
The heldMerger Agreement contains customary representations, warranties, and covenants, as well as certain termination rights for sale criteria for all such assets were met either on or beforethe Company and Physicians Realty Trust, in each case, as more fully described in the Merger Agreement.
During the year ended December 31, 2020.2023, the Company incurred approximately$11 million of merger-related costs, which primarily related to advisory, legal, accounting, and other costs. These merger-related costs are included in transaction and merger-related costs on the Consolidated Statements of Operations.
In addition, the Company has engaged service providers, including investment banks and advisors, to help the Company negotiate the terms of the transactions contemplated by the Merger Agreement and to advise the Company on other merger-related matters. In connection with these services, the Company expects to be required to pay success-based fees to the extent that certain conditions, including the closing of the transactions contemplated by the Merger Agreement, are met. As of December 31, 2020,2023, the Company concludedexpects to incur approximately$22 million of such success fees. As closing of the planned dispositions represented a strategic shift and therefore, the assets are classified as discontinued operations in all periods presented herein. See Note 5 for further information.
COVID-19 Update
In March 2020, the World Health Organization declared the outbreak causedtransactions contemplated by the coronavirus (“COVID-19”Merger Agreement has not occurred, no such amounts have been paid or accrued through December 31, 2023.
In connection with the Mergers, the Company filed a Registration Statement on Form S-4 with the SEC on December 15, 2023 (the “Initial Filing”), as amended on January 9, 2024, and a definitive joint proxy statement/prospectus for the Company and Physicians Realty Trust on January 11, 2024 in connection with their respective special meetings of stockholders and shareholders, as applicable, which will be held on February 21, 2024. Consummation of the Mergers are subject to be a global pandemic. While COVID-19 continues to evolve daily and its ultimate outcome is uncertain, it has caused significant disruption to individuals, governments, financial markets, and businesses,the satisfaction or waiver of customary closing conditions, including the Company. Global health concerns and increased efforts to reduce the spread of the COVID-19 pandemic prompted federal, state, and local governments to restrict normal daily activities, and resulted in travel bans, quarantines, school closings, “shelter-in-place” orders requiring individuals to remain in their homes other than to conduct essential services or activities, as well as business limitations and shutdowns, which resulted in closure of many businesses deemed to be non-essential. Although some of these restrictions have since been lifted or scaled back, certain restrictions remain in place or have been re-imposed and any future surges of COVID-19 may lead to other restrictions being re-implemented in response to efforts to reduce the spread. In addition, the Company’s tenants, operators and borrowers are facing significant cost increases as a result of increased health and safety measures, including increased staffing demands for patient care and sanitation, as well as increased usage and inventory of critical medical supplies and personal protective equipment. These health and safety measures, which may remain in place for a significant amount of time or be re-imposed from time to time, continue to place a substantial strain on the business operations of manyapproval of the Company’s tenants, operators,stockholders and borrowers.the shareholders of Physicians Realty Trust. The parties expect the Mergers to close on March 1, 2024. If the Mergers are not consummated by July 31, 2024 (unless extended under certain circumstances), either the Company evaluatedor Physicians Realty Trust may terminate the impactsMerger Agreement.
NOTE 2. Summary of Significant Accounting Policies
Use of Estimates
Management is required to make estimates and assumptions in the preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from management’s estimates.
Principles of ConsolidationPresentation
The consolidated financial statements include the accounts of Healthpeak Properties, Inc., its wholly-owned subsidiaries, and joint ventures (“JVs”), and variable interest entities (“VIEs”) that it controls through voting rights or other means. Intercompany transactions and balances have been eliminated upon consolidation.
The Company is required to continually evaluate its variable interest entity (“VIE”)VIE relationships and consolidate these entities when it is determined to be the primary beneficiary of their operations. A VIE is broadly defined as an entity where either: (i) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support, (ii) substantially all of an entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights, or (iii) the equity investors as a group lack any of the following: (a) the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of an entity, or (c) the right to receive the expected residual returns of an entity. Criterion (iii) above is generally applied to limited partnerships and similarly structured entities by assessing whether a simple majority of the limited partners hold substantive rights to participate in the significant decisions of the entity or have the ability to remove the decision maker or liquidate the entity without cause. If neither of those criteria are met, the entity is a VIE.
The designation of an entity as a VIE is reassessed upon certain events, including, but not limited to: (i) a change to the contractual arrangements of the entity or in the ability of a party to exercise its participation or kick-out rights, (ii) a change to the capitalization structure of the entity, or (iii) acquisitions or sales of interests that constitute a change in control.
A variable interest holder is considered to be the primary beneficiary of a VIE if it has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE. Consideration of various factors include, but is not limited to, which activities most significantly impact the entity’s economic performance and the ability to direct those activities, its form of ownership interest, its representation on the VIE’s governing body, the size and seniority of its investment, its ability and the rights of other investors to participate in policy making decisions, its ability to manage its ownership interest relative to the other interest holders, and its ability to replace the VIE manager and/or liquidate the entity.
For its investments in joint ventures that are not considered to be VIEs, the Company evaluates the type of ownership rights held by the limited partner(s) that may preclude consolidation by the majority interest holder. The assessment of limited partners’ rights and their impact on the control of a joint venture should be made at inception of the joint venture and continually reassessed.
Revenue RecognitionReal Estate
Lease ClassificationRevenues(3)
| Operating At Expenses(4)
| Lab: | | | | (Sq. Ft.) | | | | | | |
California | | 115 | | | 8,094 | | | $ | 5,869,665 | | | $ | 629,657 | | | $ | (157,795) | |
Massachusetts | | 19 | | | 2,613 | | | 2,795,913 | | | 240,029 | | | (70,259) | |
Other (1 State) | | 4 | | | 240 | | | 54,236 | | | 8,640 | | | (1,576) | |
Total lab | | 138 | | | 10,947 | | | $ | 8,719,814 | | | $ | 878,326 | | | $ | (229,630) | |
Outpatient medical: | | | | (Sq. Ft.) | | | | | | |
Texas | | 75 | | | 7,638 | | | $ | 1,549,757 | | | $ | 220,805 | | | $ | (75,159) | |
Pennsylvania | | 4 | | | 1,270 | | | 367,434 | | | 34,321 | | | (15,603) | |
Colorado | | 19 | | | 1,311 | | | 362,822 | | | 47,697 | | | (18,366) | |
California | | 15 | | | 862 | | | 355,026 | | | 40,057 | | | (17,206) | |
South Carolina | | 18 | | | 1,105 | | | 340,073 | | | 27,851 | | | (5,315) | |
Florida | | 25 | | | 1,438 | | | 309,246 | | | 41,609 | | | (14,994) | |
Other (29 States) | | 139 | | | 9,977 | | | 2,586,334 | | | 341,139 | | | (116,489) | |
Total outpatient medical | | 295 | | | 23,601 | | | $ | 5,870,692 | | | $ | 753,479 | | | $ | (263,132) | |
CCRC: | | | | (Units) | | | | | | |
Florida | | 9 | | | 4,783 | | | $ | 1,398,609 | | | $ | 343,971 | | | $ | (275,781) | |
Other (5 States) | | 6 | | | 2,314 | | | 631,199 | | | 183,630 | | | (137,691) | |
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Total CCRC | | 15 | | | 7,097 | | | $ | 2,029,808 | | | $ | 527,601 | | | $ | (413,472) | |
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Total properties | | 448 | | | | | $ | 16,620,314 | | | $ | 2,159,406 | | | $ | (906,234) | |
(1)Excludes capacity associated with developments.
(2)Represents gross real estate which includes the carrying amount of real estate after adding back accumulated depreciation and amortization. Excludes gross real estate of $123 million related to two lab buildings and one outpatient medical building classified as held for sale.
(3)Represents the combined amount of rental and related revenues, resident fees and services, and government grant income.
(4)Excludes operating expenses related to corporate non-segment assets (see Note 15 to the Consolidated Financial Statements).
Occupancy and Annual Rent Trends
The following table summarizes occupancy and average annual rent trends for our consolidated property and investments held under a direct financing lease (“DFL”) for the years ended December 31 (average occupied square feet in thousands):
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| 2023 | | 2022 | | 2021 | | | | |
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Lab: | | | | | | | | | |
Average occupancy percentage | 98 | % | | 98 | % | | 97 | % | | | | |
Average annual rent per square foot(1) | $ | 82 | | | $ | 71 | | | $ | 66 | | | | | |
Average occupied square feet | 10,334 | | | 10,610 | | | 10,143 | | | | | |
Outpatient medical(2): | | | | | | | | | |
Average occupancy percentage | 90 | % | | 90 | % | | 90 | % | | | | |
Average annual rent per square foot(1) | $ | 35 | | | $ | 33 | | | $ | 31 | | | | | |
Average occupied square feet | 21,337 | | | 21,472 | | | 21,046 | | | | | |
CCRC: | | | | | | | | | |
Average occupancy percentage | 84 | % | | 82 | % | | 79 | % | | | | |
Average annual rent per occupied unit(3) | $ | 88,524 | | | $ | 84,664 | | | $ | 80,391 | | | | | |
Average occupied units | 5,960 | | | 5,926 | | | 5,881 | | | | | |
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(1)Presented as a ratio of revenues comprised of rental and related revenues and income from DFLs divided by average occupied square feet and annualized for acquisitions for the year in which they occurred. Average annual rent excludes termination fees and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and DFL non-cash interest).
(2)During the first quarter of 2022, we sold our remaining hospital under a DFL.
(3)Presented as a ratio of revenues comprised of resident fees and services and government grant income divided by average occupied units of the facilities. Average annual rent excludes termination fees and non-cash revenue adjustments (i.e., the impact of deferred community fee income).
Tenant Lease Expirations
The following table shows tenant lease expirations for the next 10 years and thereafter at our consolidated properties, assuming that none of the tenants exercise any of their renewal or purchase options, and excludes properties in our CCRC segment and assets held for sale as of December 31, 2023 (dollars and square feet in thousands):
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| | Expiration Year |
Segment | | Total | | 2024(1) | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | 2030 | | 2031 | | 2032 | | 2033 | | Thereafter |
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Lab: | | | | | | | | | | | | | | | | | | | | | | | | |
Square feet | | 10,303 | | | 537 | | | 1,065 | | | 618 | | | 1,407 | | | 681 | | | 806 | | | 1,334 | | | 1,393 | | | 866 | | | 531 | | | 1,065 | |
Base rent(2) | | $ | 608,770 | | | $ | 36,709 | | | $ | 50,557 | | | $ | 30,694 | | | $ | 66,918 | | | $ | 36,728 | | | $ | 50,104 | | | $ | 94,051 | | | $ | 84,727 | | | $ | 55,504 | | | $ | 36,642 | | | $ | 66,136 | |
% of segment base rent | | 100 | | | 6 | | | 8 | | | 5 | | | 11 | | | 6 | | | 8 | | | 16 | | | 14 | | | 9 | | | 6 | | | 11 | |
Outpatient medical: | | | | | | | | | | | | | | | | | | | | | | | | |
Square feet | | 21,414 | | | 2,848 | | | 2,830 | | | 2,049 | | | 1,870 | | | 2,539 | | | 1,419 | | | 1,310 | | | 1,637 | | | 1,357 | | | 918 | | | 2,637 | |
Base rent(2) | | $ | 546,589 | | | $ | 85,359 | | | $ | 68,994 | | | $ | 57,376 | | | $ | 51,438 | | | $ | 56,996 | | | $ | 38,197 | | | $ | 36,069 | | | $ | 40,803 | | | $ | 28,096 | | | $ | 27,376 | | | $ | 55,885 | |
% of segment base rent | | 100 | | | 16 | | | 13 | | | 11 | | | 9 | | | 10 | | | 7 | | | 7 | | | 7 | | | 5 | | | 5 | | | 10 | |
Total: | | | | | | | | | | | | | | | | | | | | | | | | |
Base rent(2) | | $ | 1,155,359 | | | $ | 122,068 | | | $ | 119,551 | | | $ | 88,070 | | | $ | 118,356 | | | $ | 93,724 | | | $ | 88,301 | | | $ | 130,120 | | | $ | 125,530 | | | $ | 83,600 | | | $ | 64,018 | | | $ | 122,021 | |
% of total base rent | | 100 | | 11 | | | 10 | | | 8 | | | 10 | | | 8 | | | 8 | | | 11 | | | 11 | | | 7 | | | 5 | | | 11 | |
(1)Includes month-to-month leases.
(2)The most recent month’s (or subsequent month’s, if acquired in the most recent month) base rent, including additional rent floors, annualized for 12 months. 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).
ITEM 3. Legal Proceedings
See the “Legal Proceedings” section of Note 11 to the Consolidated Financial Statements for information regarding legal proceedings, which information is incorporated by reference in this Item 3.
ITEM 4. Mine Safety Disclosures
None.
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the New York Stock Exchange under the symbol “PEAK.”
As of February 5, 2024, we had6,797stockholders of record, and there were 283,417 beneficial holders of our common stock.
Dividends (Distributions)
It has been our policy to declare quarterly dividends to common stockholders so as to comply with applicable provisions of the Code governing REITs. All distributions are made at the discretion of our Board of Directors in accordance with Maryland law. Distributions with respect to our common stock can be characterized for federal income tax purposes as ordinary dividends, capital gains, nondividend distributions, or a combination thereof. The following table shows the characterization of our annual common stock distributions per share:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Ordinary dividends(1) | $ | 0.909692 | | | $ | 0.872948 | | | $ | 0.152336 | |
Capital gains(2)(3) | 0.116992 | | | 0.183208 | | | 0.379960 | |
Nondividend distributions | 0.173316 | | | 0.143844 | | | 0.667704 | |
| $ | 1.200000 | | | $ | 1.200000 | | | $ | 1.200000 | |
______________________________________(1)For the year ended December 31, 2023,the amount includes $0.882312 of ordinary dividends qualified as business income for purposes of Code Section 199A and $0.027380 of qualified dividend income for purposes of Code Section 1(h)(11). For the year ended December 31, 2022, all $0.872948 of ordinary dividends qualified as business income for purposes of Code Section 199A. For the year ended December 31, 2021, the amount includes $0.137064 of ordinary dividends qualified as business income for purposes of Code Section 199A and $0.015272 of qualified dividend income for purposes of Code Section 1(h)(11).
(2)For the years ended December 31, 2023, 2022, and 2021, the amount includes $0.036256, $0.017760, and $0.379960, respectively, of unrecaptured Code Section 1250 gain. Pursuant to Treasury Regulation Section 1.1061-6(c), we are disclosing additional information related to the capital gain dividends for purposes of Section 1061 of the Code. Code Section 1061 is generally applicable to direct and indirect holders of “applicable partnership interests.” For the year ended December 31, 2023, the “One Year Amounts” and “Three Year Amounts” are each zero, since all capital gains relate to Code Section 1231 gains. For the year ended December 31, 2022, the “One Year Amounts” and “Three Year Amounts” are each 89.6708% of the total capital gain distributions and the remaining capital gain distributions are attributable to Code Section 1231 gains, which are not subject to Code Section 1061. For the year ended December 31, 2021, the “One Year Amounts” and “Three Year Amounts” are each zero, since all capital gains relate to Code Section 1231 gains.
(3)For the years ended December 31, 2023, 2022, and 2021, 100%, 10.3292%, and 100%, respectively, of the capital gain distributions represent gains from dispositions of U.S. real property interests pursuant to Code Section 897 for foreign shareholders.
On January 31, 2024, we announced that our Board of Directors declared a quarterly common stock cash dividend of $0.30 per share. The common stock dividend will be paid on February 26, 2024 to stockholders of record as of the close of business on February 14, 2024.
Issuer Purchases of Equity Securities
The following table sets forth information with respect to purchases of our common stock made by or on our behalf during the three months ended December 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period Covered | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the inception of a new lease arrangement, including new leases that arise from amendments, the Company assesses the terms and conditions to determine the proper lease classification. For leases entered into prior to January 1, 2019, a lease arrangement was classified as an operating lease if none of the following criteria were met: (i) transferPlans or Programs(1) |
October 1-31, 2023 | | — | | | $ | — | | | — | | | $ | 444,018,701 | |
November 1-30, 2023 | | — | | | — | | | — | | | 444,018,701 | |
December 1-31, 2023 | | — | | | — | | | — | | | 444,018,701 | |
| | — | | | $ | — | | | — | | | $ | 444,018,701 | |
(1)On August 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 in August 2024 and may be suspended or terminated at any time without prior notice. During the year ended December 31, 2022, we repurchased 2.1 million shares of our common stock at a weighted average price of $27.16 per share. During the year ended December 31, 2023, there were no repurchases; therefore, at December 31, 2023, $444 millionof our common stock remained available for repurchase under the Share Repurchase Program. Amounts do not include the shares of our common stock withheld under our equity incentive plans to offset tax withholding obligations as discussed in footnote 1.
Performance Graph
The graph and table below compare the cumulative total return of Healthpeak, the S&P 500 Index, and the Equity REIT Index of Nareit, from January 1, 2019 to December 31, 2023. Total cumulative return is based on a $100 investment in Healthpeak common stock and in each of the indices at the close of trading on December 31, 2018 and assumes quarterly reinvestment of dividends before consideration of income taxes. Stockholder returns over the indicated periods should not be considered indicative of future stock prices or stockholder returns.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG S&P 500, EQUITY REITS AND HEALTHPEAK PROPERTIES, INC.
RATE OF RETURN TREND COMPARISON
JANUARY 1, 2019–DECEMBER 31, 2023
(JANUARY 1, 2019 = $100)
Performance Graph Total Stockholder Return
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
FTSE Nareit Equity REIT Index | $ | 128.66 | | | $ | 122.07 | | | $ | 172.49 | | | $ | 129.45 | | | $ | 144.16 | |
S&P 500 | 131.47 | | | 155.65 | | | 200.29 | | | 163.98 | | | 207.04 | |
Healthpeak Properties, Inc. | 129.11 | | | 119.21 | | | 147.52 | | | 106.94 | | | 89.40 | |
ITEM 6. [Reserved]
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information set forth in this Item 7 is intended to provide readers with an understanding of our financial condition, changes in financial condition, and results of operations. This section generally discusses the results of our operations for the year ended December 31, 2023 compared to the year ended December 31, 2022. For a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 8, 2023.
We will discuss and provide our analysis in the following order:
•Market Trends and Uncertainties
•Company Highlights
•Dividends
•Results of Operations
•Liquidity and Capital Resources
•Non-GAAP Financial Measures Reconciliations
•Critical Accounting Estimates
•Recent Accounting Pronouncements
Market Trends and Uncertainties
Our operating results have been and will continue to be impacted by global and national economic and market conditions generally and by the local economic conditions where our properties are located.
Rising interest rates, high inflation, supply chain disruptions, ongoing geopolitical tensions, and increased volatility in public and private equity and fixed income markets have led to increased costs and limited the availability of capital. In addition, increased interest rates have negatively affected our borrowing costs, the fair value of our fixed rate instruments. and real estate values generally, including our real estate.
Our tenants and operators have also experienced increased costs, liquidity constraints, and financing difficulties due to the foregoing macroeconomic and market conditions, which could cause them to be unable or unwilling to make payments or perform their obligations when due.
We have also been affected by significant inflation in construction costs over the past few years, which, together with rising costs of capital, have negatively affected the expected yields on our development and redevelopment projects.
We continuously monitor the effects of domestic and global events, including but not limited to inflation, labor shortages, supply chain matters, rising interest rates, and challenges in the financial markets, 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.
See “Item 1A, Risk Factors” in this report for additional discussion of the risks posed by macroeconomic conditions, as well as the uncertainties we and our tenants, operators, and borrowers may face as a result.
Company Highlights
As of February 10, 2023, we are structured as an UPREIT. This structure provides prospective sellers an alternative for disposing of property that has appreciated in value in a tax-deferred manner to Healthpeak OP and aligns our corporate structure with other publicly traded U.S. real estate investment trusts. Following the Reorganization, Healthpeak OP is the borrower under, and we are the guarantor of, all of the unsecured debt, which includes the Revolving Facility, Term Loan Facilities (each as defined below), commercial paper program, and senior unsecured notes. Our guarantee of the senior unsecured notes is full and unconditional and applicable to existing and future senior unsecured notes. The Reorganization did not have a material impact on our financial position, consolidated financial statements, outstanding debt securities, material debt facilities, or business operations.
On October 29, 2023, we entered into a Merger Agreement with Physicians Realty Trust, the Physicians Partnership, and certain of our subsidiaries, pursuant to which, among other things, and through a series of transactions (the “Mergers”), (i) each outstanding common share of Physicians Realty Trust (other than Physicians Realty Trust common shares to be canceled in accordance with the Merger Agreement) will be converted into the right to receive 0.674 (the “Exchange Ratio”) shares of our common stock, and (ii) each outstanding common unit of the Physicians Partnership will be converted into common units in the successor entity to the Physicians Partnership equal to the Exchange Ratio. In connection with the Mergers, we filed a Registration Statement on Form S-4 with the SEC on December 15, 2023, as amended on January 9, 2024, and a definitive joint proxy statement/prospectus for the Company and Physicians Realty Trust on January 11, 2024 in connection with our respective special meetings of stockholders and shareholders, as applicable, which will be held on February 21, 2024. We expect the Mergers to closeon March 1, 2024. Following the transactions contemplated in the Merger Agreement, the successor entities to Physicians Realty Trust and the Physicians Partnership will be direct and indirect subsidiaries of Healthpeak OP, respectively. Consummation of the Mergers are subject to the satisfaction or waiver of customary closing conditions, including the approval of our stockholders and the shareholders of Physicians Realty Trust.
Real Estate Transactions
•In January 2023, we sold two lab buildings in Durham, North Carolina for $113 million.
•In January 2023, we acquired a lab land parcel in Cambridge, Massachusetts for $9 million.
•In March 2023, we sold two outpatient medical buildings for $32 million.
•In April 2023, we acquired the remaining 80% interest in one of the outpatient medical buildings in the Ventures IV unconsolidated joint venture for $4 million.
•In January 2024, we sold a 65% interest in two lab buildings in San Diego, California to a third-party for net proceeds of $128 million.
Development and Redevelopment Activities
•During the yearended December 31, 2023, the following projects were placed in service: (i) portions of two lab development projects with aggregate costs of $233 million, (ii) one lab development project with total costs of $171 million, (iii) a portion of one lab redevelopment project with total costs of $43 million, (iv) four outpatient medical redevelopment projects with aggregate costs of $42 million, (v) a portion of one lab redevelopment building held in one of our unconsolidated South San Francisco JVs of which our share of total project costs was $32 million, (vi) one lab redevelopment building held in one of our unconsolidated South San Francisco JVs of which our share of total project costs was $15 million, (vii) one lab redevelopment project with total costs of $14 million, and (viii) one CCRC redevelopment project with total costs of $7 million.
Financing Activities
•In January 2023, we completed a public offering of $400 million aggregate principal amount of 5.25% senior unsecured notes due 2032.
•In May 2023, we completed a public offering of $350 million aggregate principal amount of 5.25% senior unsecured notes due 2032, which constituted an additional issuance of, and are treated as a single series with, the $400 million of senior unsecured notes due 2032 issued in January 2023.
•In December 2023, a mortgage loan secured by one CCRC with a principal balance of $85 millionmatured and was repaid.
•We have secured commitments for a $750 million five-year unsecured term loan (the “2024 Term Loan”), to be incurred as an incremental facility under our existing term loan agreement. In January 2024, we entered into forward-starting interest rate swap instruments that are designated as cash flow hedges that will effectively establish a fixed interest rate forthe 2024 Term Loan at a blended contractual rate of 4.5%.
Other Activities
•In February 2023, we received a partial principal repayment of $102 million on one secured loan.
•In February 2023, we received full repayment of the outstanding balance of one $35 million secured loan.
•In April 2023, we received full repayment of the outstanding balance of one $14 million secured loan.
•In May 2023, we received full repayment of two outstanding secured loans with an aggregate balance of $12 million.
•In October 2023, we received full repayment of the outstanding balance of one $21 million secured loan.
Dividends
Quarterly cash dividends paid during 2023 aggregated to $1.20 per share. On January 31, 2024, our Board of Directors declared a quarterly cash dividend of $0.30 per common share. The dividend will be paid on February 26, 2024 to stockholders of record as of the close of business on February 14, 2024.
Results of Operations
We evaluate our business and allocate resources among our reportable business segments: (i) lab, (ii) outpatient medical, and (iii) CCRC. Under the lab and outpatient medical segments, we invest through the acquisition, development, and management of lab buildings, outpatient medical buildings, and hospitals. 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) loans receivable. These non-reportable segments have been presented on an aggregate basis herein. 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.
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 15 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 are calculated as NOI and Adjusted NOI from consolidated properties, plus our share of NOI and Adjusted NOI from unconsolidated joint ventures (calculated by applying our actual ownership percentage for the period), less noncontrolling interests’ share of NOI and Adjusted NOI from consolidated joint ventures (calculated by applying our actual ownership percentage for the period). Management utilizes its share of NOI and Adjusted NOI in assessing its performance as we have various joint ventures that contribute to its performance. We do not control our unconsolidated joint ventures, and our share of amounts from unconsolidated joint ventures do not represent our legal claim to such items. Our share of NOI and Adjusted NOI should not be considered a substitute for, and should only be considered together with and as a supplement to, our financial information presented in accordance with GAAP.
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 15 to the Consolidated Financial Statements.
Operating expenses generally relate to leased outpatient medical and lab buildings, as well as CCRC facilities. We generally recover all or a portion of our leased outpatient medical and lab 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 portfolio of properties, excluding properties within the other non-reportable segments. We include properties from our consolidated portfolio, as well as properties owned by our unconsolidated joint ventures in Same-Store NOI and Adjusted NOI (see NOI definition above for further discussion regarding our use of pro-rata share information and its limitations). Same-Store NOI and Adjusted NOI exclude government grant income under the CARES Act. Same-Store Adjusted NOI also 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.
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 the National 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.
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 and merger-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), deferred tax asset valuation allowances, and changes in tax legislation (“FFO as Adjusted”). These adjustments are net of tax, when applicable. Transaction and merger-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) stock-based compensation amortization expense, (ii) amortization of deferred financing costs, net, (iii) straight-line rents, (iv) deferred income taxes, (v) amortization of above (below) market lease intangibles, net, and (vi) other AFFO adjustments, which include: (a) non-cash interest related to DFLs and lease incentive amortization (reduction of straight-line rents), (b) actuarial reserves for insurance claims that have been incurred but not reported, and (c) 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. 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. 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. 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, and by presenting AFFO, we are assisting these parties in their evaluation. 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 and should only be considered together with and as a supplement to our financial information prepared in accordance with GAAP. For a reconciliation of net income (loss) to AFFO and other relevant disclosures, refer to “Non-GAAP Financial Measures Reconciliations” below.
Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022
Overview
2023 and 2022(1)
The following table summarizes results for the years ended December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2023 | | 2022 | | | | | | Change |
Net income (loss) applicable to common shares | | $ | 304,284 | | | $ | 497,792 | | | | | | | $ | (193,508) | |
Nareit FFO | | 985,180 | | | 895,166 | | | | | | | 90,014 | |
FFO as Adjusted | | 978,306 | | | 940,933 | | | | | | | 37,373 | |
AFFO | | 840,777 | | | 783,702 | | | | | | | 57,075 | |
(1)For the reconciliation of non-GAAP financial measures, see “Non-GAAP Financial Measure Reconciliations” below.
Net income (loss) applicable to common shares decreased primarily as a result of the following:
•a gain upon change of control related to the sale of a 30% interest and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022;
•an increase in depreciation, primarily as a result of development and redevelopment projects placed in service during 2022 and 2023;
•an increase in interest expense, primarily as a result of: (i) senior unsecured notes issued during the first half of 2023, (ii) borrowings under the Term Loan Facilities, which were drawn during the fourth quarter of 2022, and (iii) higher interest rates on the commercial paper program, partially offset by lower borrowings on the commercial paper program;
•a gain on sale associated with the disposition of a hospital under a DFL during the first quarter of 2022;
•an increase in transaction and merger-related costs, primarily as a result of costs related to the Mergers, which are primarily comprised of legal, accounting, tax, and other costs that were incurred during the fourth quarter of 2023; and
•a decrease in government grant income received under the CARES Act in 2023.
The decrease in net income (loss) applicable to common shares was partially offset by:
•an increase in NOI generated from our lab and outpatient medical segments related to: (i) development and redevelopment projects placed in service during 2022 and 2023, (ii) new leasing activity during 2022 and 2023 (including the impact to straight-line rents), and (iii) 2022 acquisitions of real estate;
•an increase in gains on sale of depreciable real estate related to lab and outpatient medical building sales during 2023 as compared to 2022;
•a decrease in general and administrative expenses, primarily as a result of: (i) severance-related charges associated with the departures of our former Chief Executive Officer and our former Chief Legal Officer and General Counsel in the fourth quarter of 2022 and (ii) charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado in the fourth quarter of 2022;
•a decrease in depreciation related to the deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022;
•a decrease in other expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building, which were incurred in the first quarter of 2022;
•an increase in income tax benefit primarily as a result of a $14 million tax benefit recognized in connection with the reversal of a deferred tax asset valuation allowance during the fourth quarter of 2023;
•a decrease in loan loss reserves primarily as a result of principal repayments on seller financing;
•an increase in equity income from unconsolidated joint ventures; and
•a decrease in casualty-related charges from a hurricane during the third quarter of 2022.
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 upon change of control;
•gain on sales of depreciable real estate; and
•depreciation and amortization expense.
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:
•severance-related charges;
•gain on sale of a hospital under a DFL;
•reversal of a valuation allowance on deferred tax assets;
•expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building;
•loan loss reserves;
•transaction and merger-related costs;
•casualty-related charges; and
•the charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado.
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 and higherAFFO capital expenditures during the period.
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 year ended December 31, 2023, our Same-Store consists of 403 properties representing properties acquired or placed in service and stabilized on or prior to January 1, 2022 and that remained in operations through December 31, 2023. Our total property portfolio consisted of 477 and 480 properties at December 31, 2023 and 2022, respectively. Included in our total property portfolio at each of December 31, 2023 and 2022 are 19 senior housing assets in our SWF SH JV.
Lab
The following table summarizes results at and for the years ended December 31, 2023 and 2022 (dollars and square feet in thousands, except per square foot data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SS | | Total Portfolio(1) |
| Year Ended December 31, | | Year Ended December 31, |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Rental and related revenues | $ | 663,859 | | | $ | 649,238 | | | $ | 14,621 | | | $ | 878,326 | | | $ | 817,573 | | | $ | 60,753 | |
| | | | | | | | | | | |
Healthpeak’s share of unconsolidated joint venture total revenues | 6,589 | | | 9,613 | | | (3,024) | | | 9,924 | | | 9,921 | | | 3 | |
| | | | | | | | | | | |
Noncontrolling interests’ share of consolidated joint venture total revenues | (133) | | | (129) | | | (4) | | | (619) | | | (268) | | | (351) | |
Operating expenses | (182,602) | | | (166,433) | | | (16,169) | | | (229,630) | | | (209,143) | | | (20,487) | |
Healthpeak’s share of unconsolidated joint venture operating expenses | (2,651) | | | (2,305) | | | (346) | | | (4,092) | | | (2,883) | | | (1,209) | |
Noncontrolling interests’ share of consolidated joint venture operating expenses | 46 | | | 43 | | | 3 | | | 156 | | | 87 | | | 69 | |
| | | | | | | | | | | |
Adjustments to NOI(2) | (23,979) | | | (45,496) | | | 21,517 | | | (36,524) | | | (62,754) | | | 26,230 | |
Adjusted NOI | $ | 461,129 | | | $ | 444,531 | | | $ | 16,598 | | | 617,541 | | | 552,533 | | | 65,008 | |
Less: non-SS Adjusted NOI | | | | | | | (156,412) | | | (108,002) | | | (48,410) | |
SS Adjusted NOI | | | | | | | $ | 461,129 | | | $ | 444,531 | | | $ | 16,598 | |
Adjusted NOI % change | | | | | 3.7 | % | | | | | | |
Property count(3) | 116 | | | 116 | | | | | 146 | | | 149 | | | |
End of period occupancy(4) | 96.5 | % | | 98.7 | % | | | | 96.9 | % | | 98.9 | % | | |
Average occupancy(4) | 97.5 | % | | 98.5 | % | | | | 97.8 | % | | 98.7 | % | | |
Average occupied square feet | 8,786 | | | 8,856 | | | | | 10,524 | | | 10,727 | | | |
Average annual total revenues per occupied square foot(5) | $ | 74 | | | $ | 69 | | | | | $ | 81 | | | $ | 72 | | | |
Average annual base rent per occupied square foot(6) | $ | 56 | | | $ | 53 | | | | | $ | 63 | | | $ | 55 | | | |
(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 the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(3)From our 2022 presentation of Same-Store, we added: (i) five stabilized acquisitions, (ii) three stabilized buildings that previously experienced a significant tenant relocation, (iii) two stabilized redevelopments placed in service, and (iv) one stabilized development placed in service, and we removed: (i) six buildings that were placed into redevelopment, (ii) one asset that was placed into land held for development, and (iii) one building that experienced a significant tenant relocation.
(4)Refer to “Non-GAAP Financial Measures” above for the definition of Same-Store. Total Portfolio occupancy excludes any of the following: (i) developments, (ii) significant redevelopments, (iii) newly completed properties under lease-up, and (iv) properties held for sale.
(5)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and deferred revenues).
(6)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; and
•new leasing activity; partially offset by
•lower occupancy; and
•higher operating expenses.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned impacts to Same-Store and the following Non-Same-Store impacts:
•increased NOI from developments and redevelopments placed in service in 2022 and 2023; partially offset by
•decreased NOI from our 2022 and 2023 dispositions.
Outpatient Medical
The following table summarizes results at and for the years ended December 31, 2023 and 2022 (dollars and square feet in thousands, except per square foot data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SS | | Total Portfolio(1) |
| Year Ended December 31, | | Year Ended December 31, |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Rental and related revenues | $ | 678,967 | | | $ | 656,588 | | | $ | 22,379 | | | $ | 753,479 | | | $ | 724,202 | | | $ | 29,277 | |
Income from direct financing leases | — | | | — | | | — | | | — | | | 1,168 | | | (1,168) | |
Healthpeak’s share of unconsolidated joint venture total revenues | 2,893 | | | 2,795 | | | 98 | | | 3,033 | | | 2,999 | | | 34 | |
Noncontrolling interests’ share of consolidated joint venture total revenues | (34,053) | | | (33,429) | | | (624) | | | (35,073) | | | (35,717) | | | 644 | |
Operating expenses | (229,310) | | | (218,716) | | | (10,594) | | | (263,132) | | | (253,309) | | | (9,823) | |
Healthpeak’s share of unconsolidated joint venture operating expenses | (1,183) | | | (1,147) | | | (36) | | | (1,189) | | | (1,178) | | | (11) | |
Noncontrolling interests’ share of consolidated joint venture operating expenses | 9,738 | | | 9,492 | | | 246 | | | 9,921 | | | 10,317 | | | (396) | |
| | | | | | | | | | | |
Adjustments to NOI(2) | (11,685) | | | (13,763) | | | 2,078 | | | (14,314) | | | (15,513) | | | 1,199 | |
Adjusted NOI | $ | 415,367 | | | $ | 401,820 | | | $ | 13,547 | | | 452,725 | | | 432,969 | | | 19,756 | |
Less: non-SS Adjusted NOI | | | | | | | (37,358) | | | (31,149) | | | (6,209) | |
SS Adjusted NOI | | | | | | | $ | 415,367 | | | $ | 401,820 | | | $ | 13,547 | |
Adjusted NOI % change | | | | | 3.4 | % | | | | | | |
Property count(3) | 272 | | | 272 | | | | | 297 | | | 297 | | | |
End of period occupancy(4) | 91.9 | % | | 91.7 | % | | | | 90.7 | % | | 90.2 | % | | |
Average occupancy(4) | 91.5 | % | | 91.6 | % | | | | 90.1 | % | | 89.9 | % | | |
Average occupied square feet | 20,218 | | | 20,233 | | | | | 21,531 | | | 21,685 | | | |
Average annual total revenues per occupied square foot(5) | $ | 34 | | | $ | 33 | | | | | $ | 35 | | | $ | 34 | | | |
Average annual base rent per occupied square foot(6) | $ | 28 | | | $ | 27 | | | | | $ | 29 | | | $ | 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 the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(3)From our 2022 presentation of Same-Store, we added: (i) 25 stabilized acquisitions and (ii) 2 stabilized developments placed in service, and we removed: (i) 2 assets that were sold and (ii) 1 asset that was classified as held for sale.
(4)Refer to “Non-GAAP Financial Measures” above for the definition of Same-Store. Total Portfolio occupancy excludes any of the following: (i) developments, (ii) significant redevelopments, (iii) newly completed properties under lease-up, and (iv) properties held for sale.
(5)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).
(6)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; and
•annual rent escalations; partially offset by
•higher operating expenses.
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 2022 acquisitions;
•business interruption proceeds related to a demolished asset; and
•increased occupancy in former redevelopment and development properties that have been placed in service; partially offset by
•decreased NOI from our 2022 and 2023 dispositions.
Continuing Care Retirement Community
The following table summarizes results at and for the years ended December 31, 2023 and 2022 (dollars in thousands, except per unit data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SS | | Total Portfolio |
| Year Ended December 31, | | Year Ended December 31, |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Resident fees and services | $ | 526,769 | | | $ | 494,935 | | | $ | 31,834 | | | $ | 527,417 | | | $ | 494,935 | | | $ | 32,482 | |
Government grant income(1) | — | | | — | | | — | | | 184 | | | 6,765 | | | (6,581) | |
| | | | | | | | | | | |
Healthpeak’s share of unconsolidated joint venture government grant income | — | | | — | | | — | | | — | | | 380 | | | (380) | |
Operating expenses | (411,539) | | | (398,915) | | | (12,624) | | | (413,472) | | | (400,539) | | | (12,933) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Adjustments to NOI(2) | (1,618) | | | 2,300 | | | (3,918) | | | (1,618) | | | 2,300 | | | (3,918) | |
Adjusted NOI | $ | 113,612 | | | $ | 98,320 | | | $ | 15,292 | | | 112,511 | | | 103,841 | | | 8,670 | |
Plus (less): non-SS adjustments | | | | | | | 1,101 | | | (5,521) | | | 6,622 | |
SS Adjusted NOI | | | | | | | $ | 113,612 | | | $ | 98,320 | | | $ | 15,292 | |
Adjusted NOI % change | | | | | 15.6 | % | | | | | | |
Property count(3) | 15 | | | 15 | | | | | 15 | | | 15 | | | |
Average occupancy(4) | 83.8 | % | | 81.6 | % | | | | 83.9 | % | | 81.6 | % | | |
Average occupied units(5) | 5,952 | | | 5,926 | | | | | 5,960 | | | 5,926 | | | |
Average annual rent per occupied unit | $ | 88,503 | | | $ | 83,519 | | | | | $ | 88,524 | | | $ | 84,725 | | | |
(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 the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(3)From our 2022 presentation of Same-Store, no properties were added or removed.
(4)Refer to “Non-GAAP Financial Measures” above for the definition of Same-Store. Total Portfolio occupancy excludes any of the following: (i) developments, (ii) significant redevelopments, (iii) newly completed properties under lease-up, and (iv) properties held for sale.
(5)Represents average occupied units as reported by the operators for the twelve-month period.
Same-Store Adjusted NOI increased primarily as a result of the following:
•increased rates for resident fees; and
•higher occupancy; partially offset by
•higher costs of labor, management fees, insurance, real estate taxes, utilities, and food; and
•lower business interruption insurance proceeds.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store, partially offset by decreased government grant income received under the CARES Act.
Other Income and Expense Items
The following table summarizes the results of our other income and expense items for the years ended December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | Change |
Interest income | $ | 21,781 | | | $ | 23,300 | | | $ | (1,519) | |
Interest expense | 200,331 | | | 172,944 | | | 27,387 | |
Depreciation and amortization | 749,901 | | | 710,569 | | | 39,332 | |
General and administrative | 95,132 | | | 131,033 | | | (35,901) | |
Transaction and merger-related costs | 17,515 | | | 4,853 | | | 12,662 | |
Impairments and loan loss reserves (recoveries), net | (5,601) | | | 7,004 | | | (12,605) | |
Gain (loss) on sales of real estate, net | 86,463 | | | 9,078 | | | 77,385 | |
| | | | | |
Other income (expense), net | 6,808 | | | 326,268 | | | (319,460) | |
Income tax benefit (expense) | 9,617 | | | 4,425 | | | 5,192 | |
Equity income (loss) from unconsolidated joint ventures | 10,204 | | | 1,985 | | | 8,219 | |
Income (loss) from discontinued operations | — | | | 2,884 | | | (2,884) | |
Noncontrolling interests’ share in continuing operations | (28,748) | | | (15,975) | | | (12,773) | |
| | | | | |
Interest income
Interest income decreased for the year ended December 31, 2023 primarily as a result of principal repayments on loans receivable in 2022 and 2023, partially offset by higher interest rates.
Interest expense
Interest expense increased for the year ended December 31, 2023 primarily as a result of: (i) senior unsecured notes issued during the first half of 2023, (ii) borrowings under the Term Loan Facilities, which were drawn during the fourth quarter of 2022, and (iii) higher interest rates on the commercial paper program, partially offset by lower borrowings on the commercial paper program.
Depreciation and amortization
Depreciation and amortization expense increased for the year ended December 31, 2023 primarily as a result of development and redevelopment projects placed in service during 2022 and 2023, partially offset by: (i) assets placed into redevelopment in 2023, (ii) dispositions of real estate in 2022 and 2023, and (iii) lower depreciation related to the deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022.
General and administrative
General and administrative expenses decreased for the year ended December 31, 2023 primarily as a result of: (i) severance-related charges associated with the departures of our former Chief Executive Officer and our former Chief Legal Officer and General Counsel in the fourth quarter of 2022 and (ii) charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado in the fourth quarter of 2022.
Transaction and merger-related costs
Transaction and merger-related costs increased for the year ended December 31, 2023 primarily as a result of costs related to the Mergers, which are primarily comprised of legal, accounting, tax, and other costs that were incurred during the fourth quarter of 2023 (see Note 1 to the Consolidated Financial Statements).
Impairments and loan loss reserves (recoveries), net
Impairments and loan loss reserves (recoveries), net decreased for the year ended December 31, 2023 as a result of a decrease in loan loss reserves under the current expected credit losses model. The change in loan loss reserves for the year ended December 31, 2023 is primarily a result of: (i) principal repayments on seller financing, (ii) increased interest rates on variable rate loans, and (iii) macroeconomic conditions.
Gain (loss) on sales of real estate, net
Gain on sales of real estate, net increased during the year ended December 31, 2023 primarily as a result of: (i) the $60 million gain on sales of two lab buildings in Durham, North Carolina, which were sold during the three months ended March 31, 2023 and (ii) the $21 million gain on sales of two outpatient medical buildings, which were sold during the three months ended March 31, 2023, partially offset by: (i) the $4 million gain on sale of one lab building, which was sold during the three months ended March 31, 2022, (ii) the $10 million gain on sales of three outpatient medical buildings and one outpatient medical land parcel, which were sold during the three months ended June 30, 2022, and (iii) the $1 million gain on sales of two outpatient medical buildings, which were sold during the three months ended September 30, 2022.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.
Other income (expense), net
Other income, net decreased for the year ended December 31, 2023 primarily as a result of: (i) a gain upon change of control related to the sale of a 30% interest and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022, (ii) a gain on sale associated with the disposition of a hospital under a DFL during the first quarter of 2022, and (iii) a decrease in government grant income received under the CARES Act in 2023. The decrease in other income, net during the year ended December 31, 2023 was partially offset by: (i) other expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building, which were incurred in the first quarter of 2022 and (ii) casualty losses from a hurricane in the third quarter of 2022.
Income tax benefit (expense)
Income tax benefit increased for the year ended December 31, 2023 primarily as a result of a $14 million tax benefit recognized in connection with the reversal of a deferred tax asset valuation allowance during the fourth quarter of 2023 (see Note 16 to the Consolidated Financial Statements), partially offset by an increase in operating income associated with our CCRCs.
Equity income (loss) from unconsolidated joint ventures
Equity income from unconsolidated joint ventures increased for the year ended December 31, 2023 primarily as a result of increased income from the South San Francisco JVs and the SWF SH JV.
Income (loss) from discontinued operations
Income from discontinued operations decreased for the year ended December 31, 2023 a result of the completion of dispositions of our senior housing portfolios.
Noncontrolling interests’ share in continuing operations
Noncontrolling interests’ share in continuing operations increased for the year ended December 31, 2023 primarily as a result of a gain on sale of an outpatient medical building in a consolidated joint venture that was sold during the second quarter of 2023.
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) costs incurred to consummate the Mergers and the other transactions contemplated in the Merger Agreement; (ii) funding recurring operating expenses; (iii) meeting debt service requirements; and (iv) 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 sales of common stock under the ATM Program (as defined below).
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. Our two senior unsecured delayed draw term loans with an aggregate principal amount of $500 million (the “Term Loan Facilities”) and our Revolving Facility accrue interest at the Secured Overnight Financing Rate (“SOFR”) plus a margin that depends on the credit ratings of our senior unsecured long-term debt. We also pay a facility fee on the entire commitment under our Revolving Facility that depends upon our credit ratings. As of February 7, 2024, we had long-term credit ratings of Baa1 from Moody’s and BBB+ from S&P Global, and short-term credit ratings of P-2 from Moody’s and A-2 from S&P Global.
A downgrade in credit ratings by Moody’s or S&P Global may have a negative impact on the interest rates of our Revolving Facility and Term Loan Facilities 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 economic and market conditions on our business.
Material Cash Requirements
Our material cash requirements include the below contractual and other obligations.
Debt. As of December 31, 2023, we had total debt of $6.9 billion, including borrowings under our Revolving Facility and commercial paper program, senior unsecured notes, term loans, and mortgage debt. Of our total debt, the total amount payable within twelve months is comprised of $7 million of mortgage debt. Future interest payments associated with borrowings under our Revolving Facility, senior unsecured notes, term loans, and mortgage debt total $1.4 billion, $220 million of which are payable within twelve months. Future interest payments associated with commercial paper borrowings payable within the next twelve months total $21 million, assuming no change in interest rates and borrowings remain outstanding for the next twelve months. Commercial paper borrowings are backstopped by our Revolving Facility. As such, we calculate the weighted average remaining term of our commercial paper borrowings using the maturity date of our Revolving Facility. Additionally, we have secured commitments for the 2024 Term Loan, to be incurred as an incremental facility under our existing term loan agreement. In January 2024, we entered into forward-starting interest rate swap instruments that are designated as cash flow hedges that will effectively establish a fixed interest rate for the 2024 Term Loan at a blended contractual rate of 4.5%. See Note 10 to the Consolidated Financial Statements for additional information about our debt commitments.
Development and redevelopment commitments. Our development and redevelopment commitments represent construction and other commitments for development and redevelopment projects in progress and includes certain allowances for Company-owned tenant improvements that we have provided as a lessor. As of December 31, 2023, we had $152 million of development and redevelopment commitments, $135 million of which we expect to spend within the next twelve months.
Lease and other contractual commitments. Our lease and other contractual commitments represent our commitments, as lessor, under signed leases and contracts for operating properties and include allowances for Company-owned tenant improvements and leasing commissions. These commitments exclude allowances for Company-owned tenant improvements related to developments and redevelopments in progress for which we have executed an agreement with a general contractor to complete the tenant improvements, which are recognized as development and redevelopment commitments and are discussed further above. As of December 31, 2023, we had total lease and other contractual commitments of $28 million, $26 million of which we expect to spend within the next twelve months.
Construction loan commitments. Due to the terms of our SHOP seller financing notes receivable, as of December 31, 2023, we are obligated to provide additional loans up to $29 millionto fund senior housing redevelopment capital expenditure projects, which extend through 2024. See Note 7 to the Consolidated Financial Statements for additional information.
Ground and other operating lease commitments. Our ground and other operating lease commitments represent our commitments as lessee under signed operating leases. As of December 31, 2023, we had total ground and other operating lease commitments of $542 million, $17 million of which are payable within twelve months. See Note 6 to the Consolidated Financial Statements for additional information.
Redeemable noncontrolling interests.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 of December 31, 2023, three of the redeemable noncontrolling interests have met the conditions for redemption, but were not yet exercised. As of December 31, 2023, the redemption value of our redeemable noncontrolling interests was $49 million. See Note 12 to the Consolidated Financial Statements for additional information.
Success-Based Fees. We have engaged service providers, including investment banks and advisors, to help us negotiate the terms of the Mergers and to advise us on other merger-related matters. In connection with these services, we expect to be required to pay success-based fees to the extent that certain conditions, including the closing of the Mergers, are met. As of December 31, 2023, we expect to incur approximately $22 million of such success fees upon closing of the Mergers during the first quarter of 2024. As closing of the Mergers has not occurred, no such amounts have been paid or accrued through December 31, 2023. See Note 1 to the Consolidated Financial Statements for additional information.
Distribution and Dividend Requirements. Our dividend policy on our common stock is to distribute a percentage of our cash flow to ensure that we meet the dividend requirements of the Code, relative to maintaining our REIT status, while still allowing us to retain cash to fund capital improvements and other investment activities. Under the Code, REITs may be subject to certain federal income and excise taxes on undistributed taxable income. We paid quarterly cash dividends of $0.30 per common share in 2023. Our future common dividends, if and as declared, may vary and will be determined by the Board based upon the circumstances prevailing at the time, including our financial condition.
Off-Balance Sheet Arrangements
We own interests in certain unconsolidated joint ventures as described in Note 8 to the Consolidated Financial Statements. Two of these joint ventures have aggregate mortgage debt of $88 million, of which our share is $40 million. Except in limited circumstances, our risk of loss is limited to our investment in the applicable joint venture. We have no other material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.
Inflation
A significant portion of our revenues are derived from leases that generally provide for fixed rental rates, subject to annual escalations. A period of high inflation could result in increases in the Consumer Price Index in excess of our fixed annual escalations. Certain of our leases provide that annual rent is modified based on changes in the Consumer Price Index or other thresholds.
Most of our outpatient medical leases require the tenant to pay a share of property operating costs such as real estate taxes, insurance, and utilities. Substantially all of our lab leases require the tenant or operator to pay all of the property operating costs or reimburse us for all such costs.
Labor costs, costs of construction materials, interest, utilities, and other operating costs may increase during periods of inflation. Inflationary increases in expenses will generally be offset, in whole or in part, by the tenant expense reimbursements and contractual rent increases described above.
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.
The following table sets forth changes in cash flows (in thousands):
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| Year Ended December 31, |
| 2023 | | 2022 | | Change |
Net cash provided by (used in) operating activities | $ | 956,242 | | | $ | 900,261 | | | $ | 55,981 | |
Net cash provided by (used in) investing activities | (576,754) | | | (876,343) | | | 299,589 | |
Net cash provided by (used in) financing activities | (337,299) | | | (116,532) | | | (220,767) | |
Operating Cash Flows
Our cash flows from operations are 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. Our net cash provided by operating activities increased $56 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of: (i) developments and redevelopments placed in service during 2022 and 2023, (ii) annual rent increases, (iii) higher nonrefundable entrance fee collections, and (iv) new leasing and renewal activity. The increase in net cash provided by operating activities was partially offset by: (i) an increase in interest expense and (ii) an increase in property operating expenses.
Investing Cash Flows
Our cash flows from investing activities are generally used to fund acquisitions, developments, and redevelopments of real estate, net of proceeds received from sales of real estate, sales of DFLs, and repayments on loans receivable. Our net cash used in investing activities decreased $300 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of the following: (i) a reduction in acquisitions of real estate, (ii) a reduction in development and redevelopment of real estate, (iii) an increase in proceeds from the sales of real estate, (iv) an increase in proceeds from principal repayments on loans receivable and marketable debt securities, and (v) an increase in proceeds from insurance recoveries. The decrease in cash used in investing activities was partially offset by: (i) proceeds received in 2022 from the sale of a 30% interest in seven previously consolidated lab buildings in South San Francisco, California and (ii) higher investments in unconsolidated joint ventures related to the funding of redevelopment projects.
Financing Cash Flows
Our cash flows from financing activities are generally impacted by issuances of equity, borrowings and repayments under our bank line of credit and commercial paper program, senior unsecured notes, term loans, and mortgage debt, net of dividends paid to common shareholders. Our net cash used in financing activities increased $221 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of the following: (i) issuance of the the Term Loan Facilities in 2022, (ii) settlement of contracts under our ATM Program in 2022, (iii) higher net repayments under the commercial paper program, (iv) higher repayments of mortgage debt, and (v) increased distributions to noncontrolling interests. The increase in net cash used in financing activities was partially offset by: (i) proceeds received from the senior unsecured notes issuances in January 2023 and May 2023 and (ii) a reduction in repurchases of common stock.
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 17 to the Consolidated Financial Statements.
Debt
In January 2023 and May 2023, we completed public offerings of $750 million aggregate principal amount of 5.25% senior unsecured notes due 2032.
In February 2023, the Revolving Facility was amended to change the interest rate benchmark from LIBOR to SOFR.
Also in February 2023, the agreements associated with $142 million of variable rate mortgage debt were amended to change the interest rate benchmarks from LIBOR to SOFR, effective March 2023. Concurrently, we modified the related interest rate swap instruments to reflect the change in the interest rate benchmarks from LIBOR to SOFR.
We have secured commitments for the 2024 Term Loan, to be incurred as an incremental facility under our existing term loan agreement. In January 2024, we entered into forward-starting interest rate swap instruments that are designated as cash flow hedges that will effectively establish a fixed interest rate for the 2024 Term Loan at a blended contractual rate of 4.5%.
In addition to the 2024 Term Loan, we anticipate that our principal indebtedness will increase due to debt assumed in connection with the Mergers.
See Note 10 to the Consolidated Financial Statements for additional information about our outstanding debt.
Approximately 90% and 85% of our consolidated debt was fixed rate debt as of December 31, 2023 and 2022, respectively. At December 31, 2023, our fixed rate debt and variable rate debt had weighted average interest rates of 3.70% and 5.72%, respectively. At December 31, 2022, our fixed rate debt and variable rate debt had weighted average interest rates of 3.46% and 4.91%, respectively. As of December 31, 2023, we had $142 million of variable rate mortgage debt and the $500 million Term Loan Facilities swapped to fixed rates through interest rate swap instruments. These interest rate swap instruments are designated as cash flow hedges. 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 “Item 7A, Quantitative and Qualitative Disclosures About Market Risk” below.
Supplemental Guarantor Information
Healthpeak OP has issued the senior unsecured notes described in Note 10 to the Consolidated Financial Statements. The obligations of Healthpeak OP to pay principal, premiums, if any, and interest on such senior unsecured notes are guaranteed on a full and unconditional basis by the Company.
Subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the parent guarantee is “full and unconditional”, the subsidiary obligor is a consolidated subsidiary of the parent company, the guaranteed security is debt or debt-like, and consolidated financial statements of the parent company have been filed. Accordingly, separate consolidated financial statements of Healthpeak OP have not been presented.
As permitted under Rule 13-01 of Regulation S-X, we have excluded the summarized financial information for the operating subsidiary because the Company and Healthpeak OP have no material assets, liabilities, or operations other than debt financing activities and their investments in non-guarantor subsidiaries, and management believes such summarized financial information would be repetitive and would not provide incremental value to investors.
Equity
At December 31, 2023, we had 547 million shares of common stock outstanding, equity totaled $6.9 billion, and our equity securities had a market value of $11.0 billion.
The Merger Agreement
Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, each outstanding share of Physicians Realty Trust will be converted into the right to receive 0.674 shares of our common stock when the Mergers are consummated. Based on the number of outstanding Physicians Realty Trust common shares as of January 8, 2024 (the record date for the special meetings of stockholders), we expect to issue approximately 163 million shares of our common stock when the Mergers are consummated.
At-The-Market Program
In February 2023, in connection with the Reorganization, we terminated our previous at-the-market equity offering program and established a new at-the-market equity offering program (the “ATM Program”) that allows for the sale of shares of common stock having an aggregate gross sales price of up to $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 ended December 31, 2023, we did not issue any shares of our common stock under any ATM program.
At December 31, 2023, $1.5 billionof 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 shares under our ATM Program.
See Note 12 to the Consolidated Financial Statements for additional information about our ATM Program.
Noncontrolling Interests
Healthpeak OP. Immediately following the Reorganization, Healthpeak Properties, Inc. was the initial sole member and 100% owner of Healthpeak OP. Subsequent to the Reorganization, certain of our employees (“OP Unitholders”) were issued approximately 2 million noncontrolling, non-managing member units in Healthpeak OP (“OP Units”), all of which were LTIP Units (see Note 14 to the Consolidated Financial Statements). When certain conditions are met, the OP Unitholders have the right to require redemption of part or all of their OP Units for cash or shares of our common stock, at our option as managing member of Healthpeak OP. The per unit redemption amount is equal to either one share of our common stock or cash equal to the fair value of a share of common stock at the time of redemption. We classify the OP Units in permanent equity because we may elect, in our sole discretion, to issue shares of our common stock to OP Unitholders who choose to redeem their OP Units rather than using cash. None of the outstanding OP Units met the criteria for redemption as of December 31, 2023.
DownREITs. At December 31, 2023, non-managing members held an aggregate of approximately 5 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). At December 31, 2023, the outstanding DownREIT units were convertible into approximately 7 million shares of our common stock.
Share Repurchase Program
On August 1, 2022, our Board of Directors approved the 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. 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 in August 2024 and may be suspended or terminated at any time without prior notice. During the year ended December 31, 2022, we repurchased 2.1 million shares of our common stock at a weighted average price of $27.16 per share for a total of $56 million. During the year ended December 31, 2023, there were no repurchases under the Share Repurchase Program. Therefore, at December 31, 2023, $444 million of our common stock remained available for repurchase under the Share Repurchase Program.
Shelf Registration
In February 2024, the Company and Healthpeak OP jointly filed a prospectus with the SEC as part of a registration statement on Form S-3, using an automatic shelf registration process. This shelf registration statement expires on February 8, 2027 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 future offerings of (i) the Company’s common stock, preferred stock, depositary shares, warrants, debt securities, and guarantees by the Company of debt securities issued by Healthpeak OP and/or by the Company’s existing and future subsidiaries, and (ii) Healthpeak OP’s debt securities and guarantees by Healthpeak OP of debt securities issued by the Company and/or by Healthpeak OP’s existing and future subsidiaries.
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):
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| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Net income (loss) applicable to common shares | $ | 304,284 | | | $ | 497,792 | | | $ | 502,271 | |
Real estate related depreciation and amortization | 749,901 | | | 710,569 | | | 684,286 | |
Healthpeak’s share of real estate related depreciation and amortization from unconsolidated joint ventures | 24,800 | | | 27,691 | | | 17,085 | |
Noncontrolling interests’ share of real estate related depreciation and amortization | (18,654) | | | (19,201) | | | (19,367) | |
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Loss (gain) on sales of depreciable real estate, net(1) | (86,463) | | | (10,422) | | | (605,311) | |
Healthpeak’s share of loss (gain) on sales of depreciable real estate, net, from unconsolidated joint ventures | — | | | 134 | | | (6,737) | |
Noncontrolling interests’ share of gain (loss) on sales of depreciable real estate, net | 11,546 | | | 12 | | | 5,555 | |
Loss (gain) upon change of control, net(2) | (234) | | | (311,438) | | | (1,042) | |
Taxes associated with real estate dispositions | — | | | 29 | | | 2,666 | |
Impairments (recoveries) of depreciable real estate, net | — | | | — | | | 25,320 | |
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Nareit FFO applicable to common shares | 985,180 | | | 895,166 | | | 604,726 | |
Distributions on dilutive convertible units and other | 9,394 | | | 9,407 | | | 6,162 | |
Diluted Nareit FFO applicable to common shares | $ | 994,574 | | | $ | 904,573 | | | $ | 610,888 | |
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Impact of adjustments to Nareit FFO: | | | | | |
Transaction and merger-related items(3) | $ | 13,835 | | | $ | 4,788 | | | $ | 7,044 | |
Other impairments (recoveries) and other losses (gains), net(4) | (3,850) | | | 3,829 | | | 24,238 | |
Restructuring and severance-related charges(5) | 1,368 | | | 32,749 | | | 3,610 | |
Loss (gain) on debt extinguishments | — | | | — | | | 225,824 | |
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Casualty-related charges (recoveries), net(6) | (4,033) | | | 4,401 | | | 5,203 | |
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Recognition (reversal) of valuation allowance on deferred tax assets(7) | (14,194) | | | — | | | — | |
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Total adjustments | $ | (6,874) | | | $ | 45,767 | | | $ | 265,919 | |
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FFO as Adjusted applicable to common shares | $ | 978,306 | | | $ | 940,933 | | | $ | 870,645 | |
Distributions on dilutive convertible units and other | 9,402 | | | 9,326 | | | 8,577 | |
Diluted FFO as Adjusted applicable to common shares | $ | 987,708 | | | $ | 950,259 | | | $ | 879,222 | |
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FFO as Adjusted applicable to common shares | $ | 978,306 | | | $ | 940,933 | | | $ | 870,645 | |
Stock-based compensation amortization expense | 14,480 | | | 16,537 | | | 18,202 | |
Amortization of deferred financing costs | 11,916 | | | 10,881 | | | 9,216 | |
Straight-line rents(8) | (14,387) | | | (49,183) | | | (31,188) | |
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AFFO capital expenditures | (113,596) | | | (108,510) | | | (111,480) | |
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Deferred income taxes | (816) | | | (4,096) | | | (8,015) | |
Amortization of above (below) market lease intangibles, net | (25,791) | | | (23,380) | | | (17,978) | |
Other AFFO adjustments | (9,335) | | | 520 | | | (1,532) | |
AFFO applicable to common shares | 840,777 | | | 783,702 | | | 727,870 | |
Distributions on dilutive convertible units and other | 6,581 | | | 6,594 | | | 6,164 | |
Diluted AFFO applicable to common shares | $ | 847,358 | | | $ | 790,296 | | | $ | 734,034 | |
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Refer to footnotes on the next page.
(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 year ended December 31, 2022 includes a gain upon change of control related to the sale of a 30% interest to a sovereign wealth fund and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California. The gain upon change of control is included in other income (expense), net in the Consolidated Statements of Operations.
(3)The year ended December 31, 2023 includes costs related to the Mergers, which are primarily comprised of legal, accounting, tax, and other costs that were incurred prior to year-end, partially offset by termination fee income associated with Graphite Bio, Inc., for which the lease terms have been modified to accelerate expiration of the lease to December 2024. Termination fee income is included in rental and related revenues on the Consolidated Statements of Operations.
(4)The year ended December 31, 2022 includes the following: (i) $7 million of charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado, which are included in general and administrative expenses in the Consolidated Statements of Operations, (ii) $14 million of expenses incurred for tenant relocation and other costs associated with the demolition of an outpatient medical building, which are included in other income (expense), net in the Consolidated Statements of Operations, and (iii) a $23 million gain on sale of a hospital under a DFL, which is included in other income (expense), net in the Consolidated Statements of Operations. The year ended December 31, 2021 includes the following: (i) a $29 million goodwill impairment charge in connection with our senior housing triple-net and SHOP asset sales, which is reported in income (loss) from discontinued operations in the Consolidated Statements of Operations and (ii) $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 years ended December 31, 2023, 2022, and 2021 include reserves and (recoveries) for expected loan losses recognized in impairments and loan loss reserves (recoveries), net in the Consolidated Statements of Operations.
(5)The year ended December 31, 2022 includes $32 million of severance-related charges associated with the departures of our former Chief Executive Officer and former Chief Legal Officer and General Counsel in the fourth quarter of 2022. These expenses are included in general and administrative expenses in the Consolidated Statements of Operations.
(6)Casualty-related charges (recoveries), net are recognized in other income (expense), net and equity income (loss) from unconsolidated joint ventures in the Consolidated Statements of Operations.
(7)In conjunction with classifying the assets related to the Callan Ridge JV (see Note 8 to the Consolidated Financial Statements) as held for sale as of December 31, 2023, we concluded it was more likely than not that we would realize the future value of certain deferred tax assets generated by the net operating losses of taxable REIT subsidiaries. Accordingly, during the year ended December 31, 2023, we recognized the reversal of a portion of the associated valuation allowance and recognized a corresponding income tax benefit. See Note 16 to the Consolidated Financial Statements for additional information.
(8)The year ended December 31, 2023 includes a $9 million write-off of straight-line rent receivable associated with Sorrento Therapeutics, Inc., which commenced voluntary reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code. This activity is reflected as a reduction of rental and related revenues in the Consolidated Statements of Operations.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.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 could affect our financial position or results of operations. 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. Below is 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. For a more detailed discussion of our significant accounting policies, including those related to critical accounting estimates further discussed below, see Note 2 to the Consolidated Financial Statements.
Impairment of Long-Lived Assets
We assess the carrying value of our real estate assets and related intangibles (“real estate assets”) when events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability of real estate assets is measured by comparing the carrying amount of the real estate assets to the respective estimated future undiscounted cash flows. The expected future undiscounted cash flows reflect external market factors, and based on the specific facts and circumstances, may be probability-weighted to reflect multiple possible cash-flow scenarios, including selling the assets at various points in the future. Additionally, the estimated future undiscounted cash flows are calculated utilizing the lowest level of identifiable cash flows that are largely independent of the cash flows of other assets and liabilities. In order to review our real estate assets for recoverability, we make assumptions regarding external market conditions (including capitalization rates and growth rates), forecasted cash flows and sales prices, and our intent with respect to holding or disposing of the asset. If our analysis indicates that the carrying value of the real estate assets is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the carrying value exceeds the fair value of the real estate assets.
Determining the fair value of real estate assets, including assets classified as held for sale, involves significant judgment and generally utilizes market capitalization rates, comparable market transactions, estimated per unit or per square foot prices, negotiations with prospective buyers, and forecasted cash flows (primarily lease revenue rates, expense rates, and growth rates). Our ability to accurately predict future operating results and resulting cash flows, and estimate fair values, impacts the timing and recognition of impairments. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for the impact of new accounting standards.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, primarily from the potential loss arising from adverse changes in interest rates. We use derivative and other financial instruments in the normal course of business to mitigate interest rate risk. We do not use derivative financial instruments for speculative or trading purposes. Derivatives are recorded on the Consolidated Balance Sheets at fair value (see Note 21 to the Consolidated Financial Statements).
To illustrate the effect of movements in the interest rate markets, we performed a market sensitivity analysis on our hedging instruments. We applied various basis point spreads to the underlying interest rate curves of our derivative portfolio in order to determine the change in fair value. At December 31, 2023, a one percentage point increase or decrease in the underlying interest rate curve would result in a corresponding increase or decrease in the fair value of the derivative instruments by up to $18 million.
Interest Rate Risk
At December 31, 2023, our exposure to interest rate risk was primarily on our variable rate debt. At December 31, 2023, $142 million of our variable rate mortgage debt and our $500 million Term Loan Facilities were swapped to fixed rates through interest rate swap instruments. The interest rate swap instruments are designated as cash flow hedges, with the objective of managing the exposure to interest rate risk by converting the interest rates on our variable rate debt to fixed interest rates. At December 31, 2023, both the fair value and carrying value of the interest rate swap instruments were $21 million.
Our remaining variable rate debt at December 31, 2023 was comprised of borrowings under our commercial paper program and certain of our mortgage debt. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt and assets until their maturity or earlier prepayment and refinancing. If interest rates have risen at the time we seek to refinance our fixed rate debt, whether at maturity or otherwise, our future earnings and cash flows could be adversely affected by additional borrowing costs. Conversely, lower interest rates at the time of refinancing may reduce our overall borrowing costs. Interest rate changes will affect the fair value of our fixed rate instruments. At December 31, 2023, a one percentage point increase in interest rates would decrease the fair value of our fixed rate debt by approximately $255 million and a one percentage point decrease in interest rates would increase the fair value of our fixed rate debt by approximately $272 million. These changes would not materially impact earnings or cash flows. Conversely, changes in interest rates on variable rate debt would change our future earnings and cash flows, but not materially impact the fair value of those instruments. Assuming a one percentage point increase in the interest rates related to our variable rate debt, and assuming no other changes in the outstanding balance at December 31, 2023, our annual interest expense would increase by approximately $7 million. Lastly, assuming a one percentage point decrease in the interest rates related to our variable rate loans receivable, and assuming no other changes in the outstanding balance at December 31, 2023, our annual interest income would decrease by approximately $2 million.
ITEM 8. Financial Statements and Supplementary Data
Healthpeak Properties, Inc.
Index to the Consolidated Financial Statements
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Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) | |
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| Concurrent with the Company's adoption of Accounting Standards Update ("ASU") No. 2016-02, 78Leases (“ASU 2016-02”) on January 1, 2019, the Company began classifying a lease entered into subsequent to adoption as an operating lease if none of the following criteria are met: (i) transfer of ownership to the lessee by the end of the lease term, (ii) lessee has a purchase option during or at the end of the lease term that it is reasonably certain to exercise, (iii) the lease term is for the major part of the remaining economic life of the underlying asset, (iv) the present value of future minimum lease payments is equal to substantially all of the fair value of the underlying asset, or (v) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the Company at the end of the lease term. |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Healthpeak Properties, Inc.
Opinion on the Financial Statements
We have audited the accompanying Consolidated Balance Sheets of Healthpeak Properties, Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related Consolidated Statements of Operations, Comprehensive Income (Loss), Equity and Redeemable Noncontrolling Interests, and Cash Flows, for each of the three years in the period ended December 31, 2023, and the related Notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 9, 2024, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairments — Real Estate — Refer to Notes 2 and 5 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of impairment of real estate involves an assessment of the carrying value of real estate assets and related intangibles (“real estate assets”) when events or changes in circumstances indicate that the carrying value may not be recoverable.
Auditing the Company’s process to evaluate real estate assets for impairment was complex due to the subjectivity in determining whether impairment indicators were present. Additionally, for real estate assets where indicators of impairment were determined to be present, the determination of the future undiscounted cash flows involved significant judgment. In particular, the undiscounted cash flows were forecasted based on significant assumptions such as lease-up periods, lease revenue rates, operating expenses, and revenue and expense growth rates, and included judgments around the intended hold period and terminal capitalization rates.
Given the Company’s evaluation of impairment indicators, forecasted cash flows and sales prices of a long-lived asset requires management to make significant estimates and assumptions related to market capitalization rates, market prices per unit, and/or forecasted cash flows, performing audit procedures required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to real estate asset impairment included the following, among others:
•We tested the effectiveness of controls over impairment of real estate assets, including those over identifying impairment indicators and the determination of forecasted undiscounted cash flows and sales prices for real estate assets.
•We performed an independent search for impairment indicators through the evaluation of several factors including an analysis of industry and market data, a comparison of real estate asset implied capitalization rates to market capitalization rates, and trends in financial performance.
•For real estate assets where indicators of impairment were determined to be present, we subjected a sample of undiscounted cash flow models to testing by (1) evaluating the source information used by management, (2) testing the mathematical accuracy of the undiscounted cash flow models, (3) evaluating management’s intended hold period, and (4) performing an independent recoverability test based on market data.
| | | | | |
/s/ DELOITTE & TOUCHE LLP | |
Costa Mesa, California
February 9, 2024
We have served as the Company’s auditor since 2010.
Healthpeak Properties, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
ASSETS | | | |
Real estate: | | | |
Buildings and improvements | $ | 13,329,464 | | | $ | 12,784,078 | |
Development costs and construction in progress | 643,217 | | | 760,355 | |
Land and improvements | 2,647,633 | | | 2,667,188 | |
Accumulated depreciation and amortization | (3,591,951) | | | (3,188,138) | |
Net real estate | 13,028,363 | | | 13,023,483 | |
| | | |
Loans receivable, net of reserves of $2,830 and $8,280 | 218,450 | | | 374,832 | |
Investments in and advances to unconsolidated joint ventures | 782,853 | | | 706,677 | |
Accounts receivable, net of allowance of $2,282 and $2,399 | 55,820 | | | 53,436 | |
Cash and cash equivalents | 117,635 | | | 72,032 | |
Restricted cash | 51,388 | | | 54,802 | |
Intangible assets, net | 314,156 | | | 418,061 | |
Assets held for sale, net | 117,986 | | | 49,866 | |
Right-of-use asset, net | 240,155 | | | 237,318 | |
Other assets, net | 772,044 | | | 780,722 | |
Total assets | $ | 15,698,850 | | | $ | 15,771,229 | |
| | | |
LIABILITIES AND EQUITY | | | |
Bank line of credit and commercial paper | $ | 720,000 | | | $ | 995,606 | |
Term loans | 496,824 | | | 495,957 | |
Senior unsecured notes | 5,403,378 | | | 4,659,451 | |
Mortgage debt | 256,097 | | | 346,599 | |
Intangible liabilities, net | 127,380 | | | 156,193 | |
Liabilities related to assets held for sale, net | 729 | | | 4,070 | |
Lease liability | 206,743 | | | 208,515 | |
Accounts payable, accrued liabilities, and other liabilities | 657,196 | | | 772,485 | |
Deferred revenue | 905,633 | | | 844,076 | |
Total liabilities | 8,773,980 | | | 8,482,952 | |
| | | |
Commitments and contingencies (Note 11) | | | |
| | | |
Redeemable noncontrolling interests | 48,828 | | | 105,679 | |
| | | |
| | | |
Common stock, $1.00 par value: 750,000,000 shares authorized; 547,156,311 and 546,641,973 shares issued and outstanding | 547,156 | | | 546,642 | |
Additional paid-in capital | 10,405,780 | | | 10,349,614 | |
Cumulative dividends in excess of earnings | (4,621,861) | | | (4,269,689) | |
Accumulated other comprehensive income (loss) | 19,371 | | | 28,134 | |
Total stockholders’ equity | 6,350,446 | | | 6,654,701 | |
Joint venture partners | 310,998 | | | 327,721 | |
Non-managing member unitholders | 214,598 | | | 200,176 | |
Total noncontrolling interests | 525,596 | | | 527,897 | |
Total equity | 6,876,042 | | | 7,182,598 | |
Total liabilities and equity | $ | 15,698,850 | | | $ | 15,771,229 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Revenues: | | | | | |
Rental and related revenues | $ | 1,631,805 | | | $ | 1,541,775 | | | $ | 1,378,384 | |
Resident fees and services | 527,417 | | | 494,935 | | | 471,325 | |
Interest income | 21,781 | | | 23,300 | | | 37,773 | |
Income from direct financing leases | — | | | 1,168 | | | 8,702 | |
Total revenues | 2,181,003 | | | 2,061,178 | | | 1,896,184 | |
Costs and expenses: | | | | | |
Interest expense | 200,331 | | | 172,944 | | | 157,980 | |
Depreciation and amortization | 749,901 | | | 710,569 | | | 684,286 | |
Operating | 902,060 | | | 862,991 | | | 773,279 | |
General and administrative | 95,132 | | | 131,033 | | | 98,303 | |
Transaction and merger-related costs | 17,515 | | | 4,853 | | | 1,841 | |
| | | | | |
Impairments and loan loss reserves (recoveries), net | (5,601) | | | 7,004 | | | 23,160 | |
Total costs and expenses | 1,959,338 | | | 1,889,394 | | | 1,738,849 | |
Other income (expense): | | | | | |
Gain (loss) on sales of real estate, net | 86,463 | | | 9,078 | | | 190,590 | |
Gain (loss) on debt extinguishments | — | | | — | | | (225,824) | |
Other income (expense), net | 6,808 | | | 326,268 | | | 6,266 | |
Total other income (expense), net | 93,271 | | | 335,346 | | | (28,968) | |
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | 314,936 | | | 507,130 | | | 128,367 | |
Income tax benefit (expense) | 9,617 | | | 4,425 | | | 3,261 | |
Equity income (loss) from unconsolidated joint ventures | 10,204 | | | 1,985 | | | 6,100 | |
Income (loss) from continuing operations | 334,757 | | | 513,540 | | | 137,728 | |
Income (loss) from discontinued operations | — | | | 2,884 | | | 388,202 | |
Net income (loss) | 334,757 | | | 516,424 | | | 525,930 | |
Noncontrolling interests’ share in continuing operations | (28,748) | | | (15,975) | | | (17,851) | |
Noncontrolling interests’ share in discontinued operations | — | | | — | | | (2,539) | |
Net income (loss) attributable to Healthpeak Properties, Inc. | 306,009 | | | 500,449 | | | 505,540 | |
| | | | | |
Participating securities’ share in earnings | (1,725) | | | (2,657) | | | (3,269) | |
Net income (loss) applicable to common shares | $ | 304,284 | | | $ | 497,792 | | | $ | 502,271 | |
| | | | | |
Basic earnings (loss) per common share: | | | | | |
Continuing operations | $ | 0.56 | | | $ | 0.92 | | | $ | 0.22 | |
Discontinued operations | — | | | 0.00 | | | 0.71 | |
Net income (loss) applicable to common shares | $ | 0.56 | | | $ | 0.92 | | | $ | 0.93 | |
Diluted earnings (loss) per common share: | | | | | |
Continuing operations | $ | 0.56 | | | $ | 0.92 | | | $ | 0.22 | |
Discontinued operations | — | | | 0.00 | | | 0.71 | |
Net income (loss) applicable to common shares | $ | 0.56 | | | $ | 0.92 | | | $ | 0.93 | |
| | | | | |
| | | | | |
| | | | | |
Weighted average shares outstanding: | | | | | |
Basic | 547,006 | | | 538,809 | | | 538,930 | |
Diluted | 547,275 | | | 539,147 | | | 539,241 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Net income (loss) | $ | 334,757 | | | $ | 516,424 | | | $ | 525,930 | |
Other comprehensive income (loss): | | | | | |
| | | | | |
| | | | | |
Net unrealized gains (losses) on derivatives | (8,900) | | | 30,145 | | | 332 | |
Change in Supplemental Executive Retirement Plan obligation and other | 137 | | | 1,136 | | | 457 | |
Reclassification adjustment realized in net income (loss) | — | | | — | | | (251) | |
| | | | | |
Total other comprehensive income (loss) | (8,763) | | | 31,281 | | | 538 | |
Total comprehensive income (loss) | 325,994 | | | 547,705 | | | 526,468 | |
Total comprehensive (income) loss attributable to noncontrolling interests’ share in continuing operations | (28,748) | | | (15,975) | | | (17,851) | |
Total comprehensive (income) loss attributable to noncontrolling interests’ share in discontinued operations | — | | | — | | | (2,539) | |
Total comprehensive income (loss) attributable to Healthpeak Properties, Inc. | $ | 297,246 | | | $ | 531,730 | | | $ | 506,078 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | | | | | | | | | |
| Shares | | Amount | | Additional Paid-In Capital | | Cumulative Dividends In Excess Of Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Total Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
December 31, 2020 | 538,405 | | | $ | 538,405 | | | $ | 10,175,235 | | | $ | (3,976,232) | | | $ | (3,685) | | | $ | 6,733,723 | | | $ | 556,227 | | | $ | 7,289,950 | | | $ | 57,396 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | — | | | 505,540 | | | — | | | 505,540 | | | 20,346 | | | 525,886 | | | 44 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 538 | | | 538 | | | — | | | 538 | | | — | |
Issuance of common stock, net | 1,005 | | | 1,005 | | | 740 | | | — | | | — | | | 1,745 | | | — | | | 1,745 | | | — | |
Conversion of DownREIT units to common stock | 8 | | | 8 | | | 193 | | | — | | | — | | | 201 | | | (201) | | | — | | | — | |
Repurchase of common stock | (418) | | | (418) | | | (12,423) | | | — | | | — | | | (12,841) | | | — | | | (12,841) | | | — | |
Exercise of stock options | 97 | | | 97 | | | 3,194 | | | — | | | — | | | 3,291 | | | — | | | 3,291 | | | — | |
Stock-based compensation | — | | | — | | | 22,851 | | | — | | | — | | | 22,851 | | | — | | | 22,851 | | | — | |
Common dividends ($1.20 per share) | — | | | — | | | — | | | (650,082) | | | — | | | (650,082) | | | — | | | (650,082) | | | — | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (33,017) | | | (33,017) | | | (162) | |
| | | | | | | | | | | | | | | | | |
Purchase of noncontrolling interests | — | | | — | | | (5) | | | — | | | — | | | (5) | | | (65) | | | (70) | | | (60,065) | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 640 | |
Adjustments to redemption value of redeemable noncontrolling interests | — | | | — | | | (89,491) | | | — | | | — | | | (89,491) | | | — | | | (89,491) | | | 89,491 | |
December 31, 2021 | 539,097 | | | $ | 539,097 | | | $ | 10,100,294 | | | $ | (4,120,774) | | | $ | (3,147) | | | $ | 6,515,470 | | | $ | 543,290 | | | $ | 7,058,760 | | | $ | 87,344 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | — | | | 500,449 | | | — | | | 500,449 | | | 15,876 | | | 516,325 | | | 99 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 31,281 | | | 31,281 | | | — | | | 31,281 | | | — | |
Issuance of common stock, net | 9,936 | | | 9,936 | | | 299,481 | | | — | | | — | | | 309,417 | | | — | | | 309,417 | | | — | |
Conversion of DownREIT units to common stock | 27 | | | 27 | | | 853 | | | — | | | — | | | 880 | | | (880) | | | — | | | — | |
Repurchase of common stock | (2,418) | | | (2,418) | | | (65,420) | | | — | | | — | | | (67,838) | | | — | | | (67,838) | | | — | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 31,412 | | | — | | | — | | | 31,412 | | | — | | | 31,412 | | | — | |
Common dividends ($1.20 per share) | — | | | — | | | — | | | (649,364) | | | — | | | (649,364) | | | — | | | (649,364) | | | — | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (30,389) | | | (30,389) | | | (160) | |
| | | | | | | | | | | | | | | | | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,390 | |
| | | | | | | | | | | | | | | | | |
Adjustments to redemption value of redeemable noncontrolling interests | — | | | — | | | (17,006) | | | — | | | — | | | (17,006) | | | — | | | (17,006) | | | 17,006 | |
December 31, 2022 | 546,642 | | | $ | 546,642 | | | $ | 10,349,614 | | | $ | (4,269,689) | | | $ | 28,134 | | | $ | 6,654,701 | | | $ | 527,897 | | | $ | 7,182,598 | | | $ | 105,679 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS (CONTINUED)
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | | | | | | | | | |
| Shares | | Amount | | Additional Paid-In Capital | | Cumulative Dividends In Excess Of Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Total Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
December 31, 2022 | 546,642 | | | $ | 546,642 | | | $ | 10,349,614 | | | $ | (4,269,689) | | | $ | 28,134 | | | $ | 6,654,701 | | | $ | 527,897 | | | $ | 7,182,598 | | | $ | 105,679 | |
Net income (loss) | — | | | — | | | — | | | 306,009 | | | — | | | 306,009 | | | 28,111 | | | 334,120 | | | 637 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (8,763) | | | (8,763) | | | — | | | (8,763) | | | — | |
Issuance of common stock, net | 683 | | | 683 | | | 755 | | | — | | | — | | | 1,438 | | | — | | | 1,438 | | | — | |
Conversion of DownREIT units to common stock | 72 | | | 72 | | | 1,200 | | | — | | | — | | | 1,272 | | | (1,272) | | | — | | | — | |
Repurchase of common stock | (241) | | | (241) | | | (6,283) | | | — | | | — | | | (6,524) | | | — | | | (6,524) | | | — | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 2,966 | | | — | | | — | | | 2,966 | | | 15,693 | | | 18,659 | | | — | |
Common dividends ($1.20 per share) | — | | | — | | | — | | | (658,181) | | | — | | | (658,181) | | | — | | | (658,181) | | | — | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (44,848) | | | (44,848) | | | (276) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Purchase of noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (158) | | | (158) | | | — | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | 173 | | | 173 | | | 316 | |
Adjustments to redemption value of redeemable noncontrolling interests | — | | | — | | | 57,528 | | | — | | | — | | | 57,528 | | | — | | | 57,528 | | | (57,528) | |
December 31, 2023 | 547,156 | | | $ | 547,156 | | | $ | 10,405,780 | | | $ | (4,621,861) | | | $ | 19,371 | | | $ | 6,350,446 | | | $ | 525,596 | | | $ | 6,876,042 | | | $ | 48,828 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | |
| 2023 | | 2022 | | 2021 | |
Cash flows from operating activities: | | | | | | |
Net income (loss) | $ | 334,757 | | | $ | 516,424 | | | $ | 525,930 | | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | |
Depreciation and amortization of real estate, in-place lease, and other intangibles | 749,901 | | | 710,569 | | | 684,286 | | |
| | | | | | |
| | | | | | |
Stock-based compensation amortization expense | 14,480 | | | 26,456 | | | 18,202 | | |
Amortization of deferred financing costs | 11,916 | | | 10,881 | | | 9,216 | | |
Straight-line rents | (14,387) | | | (49,183) | | | (31,188) | | |
Amortization of nonrefundable entrance fees and above (below) market lease intangibles | (108,988) | | | (102,747) | | | (94,362) | | |
| | | | | | |
| | | | | | |
| | | | | | |
Equity loss (income) from unconsolidated joint ventures | (10,204) | | | (2,049) | | | (11,235) | | |
Distributions of earnings from unconsolidated joint ventures | 910 | | | 943 | | | 4,976 | | |
| | | | | | |
Loss (gain) on sale of real estate under direct financing leases | — | | | (22,693) | | | — | | |
Deferred income tax expense (benefit) | (14,605) | | | (6,001) | | | (5,792) | | |
Impairments and loan loss reserves (recoveries), net | (5,601) | | | 7,004 | | | 55,896 | | |
Loss (gain) on debt extinguishments | — | | | — | | | 225,824 | | |
Loss (gain) on sales of real estate, net | (86,463) | | | (10,422) | | | (605,311) | | |
Loss (gain) upon change of control, net | (234) | | | (311,438) | | | (1,042) | | |
Casualty-related loss (recoveries), net | (3,085) | | | 7,168 | | | 1,632 | | |
| | | | | | |
Other non-cash items | 4,900 | | | 6,489 | | | (8,178) | | |
Changes in: | | | | | | |
Decrease (increase) in accounts receivable and other assets, net | (21,566) | | | (17,433) | | | 18,626 | | |
Increase (decrease) in accounts payable, accrued liabilities, and deferred revenue | 104,511 | | | 136,293 | | | 7,768 | | |
Net cash provided by (used in) operating activities | 956,242 | | | 900,261 | | | 795,248 | | |
Cash flows from investing activities: | | | | | | |
| | | | | | |
| | | | | | |
Acquisitions of real estate | (15,847) | | | (178,133) | | | (1,483,026) | | |
Development, redevelopment, and other major improvements of real estate | (731,206) | | | (861,636) | | | (610,555) | | |
| | | | | | |
| | | | | | |
Leasing costs, tenant improvements, and recurring capital expenditures | (113,596) | | | (108,510) | | | (111,480) | | |
| | | | | | |
| | | | | | |
Proceeds from sales of real estate, net | 141,651 | | | 47,885 | | | 2,399,120 | | |
Proceeds from the South San Francisco JVs transaction, net | — | | | 125,985 | | | — | | |
| | | | | | |
Investments in unconsolidated joint ventures | (88,391) | | | (21,143) | | | (25,260) | | |
Distributions in excess of earnings from unconsolidated joint ventures | 20,640 | | | 12,518 | | | 37,640 | | |
Proceeds from insurance recovery | 24,980 | | | 1,450 | | | — | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Proceeds from sales/principal repayments on loans receivable, direct financing leases, and marketable debt securities | 204,865 | | | 115,988 | | | 342,420 | | |
Investments in loans receivable and other | (19,850) | | | (10,747) | | | (17,827) | | |
| | | | | | |
| | | | | | |
Net cash provided by (used in) investing activities | (576,754) | | | (876,343) | | | 531,032 | | |
Cash flows from financing activities: | | | | | | |
Borrowings under bank line of credit and commercial paper | 10,344,705 | | | 15,882,153 | | | 16,821,450 | | |
Repayments under bank line of credit and commercial paper | (10,620,311) | | | (16,052,522) | | | (15,785,065) | | |
| | | | | | |
| | | | | | |
Issuances and borrowings of term loans, senior unsecured notes, and mortgage debt | 743,778 | | | 500,000 | | | 1,088,537 | | |
Repayments and repurchases of term loans, senior unsecured notes, and mortgage debt | (90,089) | | | (5,048) | | | (2,425,936) | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Payments for debt extinguishment and deferred financing costs | (7,322) | | | (4,171) | | | (236,942) | | |
| | | | | | |
Issuance of common stock and exercise of options, net of offering costs | 278 | | | 308,100 | | | 5,036 | | |
Repurchase of common stock | (6,524) | | | (67,838) | | | (12,841) | | |
Dividends paid on common stock | (657,021) | | | (648,047) | | | (650,082) | | |
Distributions to and purchase of noncontrolling interests | (45,282) | | | (30,549) | | | (93,314) | | |
| | | | | | |
Contributions from and issuance of noncontrolling interests | 489 | | | 1,390 | | | 640 | | |
Net cash provided by (used in) financing activities | (337,299) | | | (116,532) | | | (1,288,517) | | |
| | | | | | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 42,189 | | | (92,614) | | | 37,763 | | |
Cash, cash equivalents, and restricted cash, beginning of year | 126,834 | | | 219,448 | | | 181,685 | | |
Cash, cash equivalents, and restricted cash, end of year | $ | 169,023 | | | $ | 126,834 | | | $ | 219,448 | | |
| | | | | | |
| | | | | | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Business
Overview
Healthpeak Properties, Inc., a Standard & Poor’s 500 company, is a Maryland corporation that is organized to qualify as a real estate investment trust (“REIT”) that, together with its consolidated entities (collectively, “Healthpeak” or the “Company”), invests primarily in real estate serving the healthcare industry in the United States (“U.S.”). Healthpeak® acquires, develops, owns, leases, and manages healthcare real estate. The Company’s diverse portfolio is comprised of investments in the following reportable healthcare segments: (i) lab; (ii) outpatient medical; and (iii) continuing care retirement community (“CCRC”).
The Company’s corporate headquarters are in Denver, Colorado, and it has additional offices in California, Tennessee, and Massachusetts.
UPREIT Reorganization
On February 10, 2023, the Company completed its corporate reorganization (the “Reorganization”) into an umbrella partnership REIT (“UPREIT”). Substantially all of the Company’s business is conducted through Healthpeak OP, LLC (“Healthpeak OP”). The Company is the managing member of Healthpeak OP and does not have material assets or liabilities, other than through its investment in Healthpeak OP. For additional information on the UPREIT reorganization, see the Company’s Current Report on Form 8-K12B filed with the U.S. Securities and Exchange Commission (“SEC”) on February 10, 2023.
The Merger Agreement
On October 29, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Physicians Realty Trust, Physicians Realty L.P. (the “Physicians Partnership”), and certain of the Company’s subsidiaries, pursuant to which, among other things, and through a series of transactions (the “Mergers”), (i) each outstanding common share of Physicians Realty Trust (other than Physicians Realty Trust common shares to be canceled in accordance with the Merger Agreement) will be converted into the right to receive 0.674 (the “Exchange Ratio”) shares of Company common stock, and (ii) each outstanding common unit of the Physicians Partnership will be converted into common units in the successor entity to the Physicians Partnership equal to the Exchange Ratio. Following the transactions contemplated in the Merger Agreement, the successor entities to Physicians Realty Trust and the Physicians Partnership will be subsidiaries of Healthpeak OP.
The Merger Agreement contains customary representations, warranties, and covenants, as well as certain termination rights for the Company and Physicians Realty Trust, in each case, as more fully described in the Merger Agreement.
During the year ended December 31, 2023, the Company incurred approximately$11 million of merger-related costs, which primarily related to advisory, legal, accounting, and other costs. These merger-related costs are included in transaction and merger-related costs on the Consolidated Statements of Operations.
In addition, the Company has engaged service providers, including investment banks and advisors, to help the Company negotiate the terms of the transactions contemplated by the Merger Agreement and to advise the Company on other merger-related matters. In connection with these services, the Company expects to be required to pay success-based fees to the extent that certain conditions, including the closing of the transactions contemplated by the Merger Agreement, are met. As of December 31, 2023, the Company expects to incur approximately$22 million of such success fees. As closing of the transactions contemplated by the Merger Agreement has not occurred, no such amounts have been paid or accrued through December 31, 2023.
In connection with the Mergers, the Company filed a Registration Statement on Form S-4 with the SEC on December 15, 2023 (the “Initial Filing”), as amended on January 9, 2024, and a definitive joint proxy statement/prospectus for the Company and Physicians Realty Trust on January 11, 2024 in connection with their respective special meetings of stockholders and shareholders, as applicable, which will be held on February 21, 2024. Consummation of the Mergers are subject to the satisfaction or waiver of customary closing conditions, including the approval of the Company’s stockholders and the shareholders of Physicians Realty Trust. The parties expect the Mergers to close on March 1, 2024. If the Mergers are not consummated by July 31, 2024 (unless extended under certain circumstances), either the Company or Physicians Realty Trust may terminate the Merger Agreement.
NOTE 2. Summary of Significant Accounting Policies
Use of Estimates
Management is required to make estimates and assumptions in the preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from management’s estimates.
Basis of Presentation
The consolidated financial statements include the accounts of Healthpeak Properties, Inc., its wholly-owned subsidiaries, joint ventures (“JVs”), and variable interest entities (“VIEs”) that it controls through voting rights or other means. Intercompany transactions and balances have been eliminated upon consolidation.
The Company is required to continually evaluate its VIE relationships and consolidate these entities when it is determined to be the primary beneficiary of their operations. A VIE is broadly defined as an entity where either: (i) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support, (ii) substantially all of an entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights, or (iii) the equity investors as a group lack any of the following: (a) the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of an entity, or (c) the right to receive the expected residual returns of an entity. Criterion (iii) above is generally applied to limited partnerships and similarly structured entities by assessing whether a simple majority of the limited partners hold substantive rights to participate in the significant decisions of the entity or have the ability to remove the decision maker or liquidate the entity without cause. If neither of those criteria are met, the entity is a VIE.
The designation of an entity as a VIE is reassessed upon certain events, including, but not limited to: (i) a change to the contractual arrangements of the entity or in the ability of a party to exercise its participation or kick-out rights, (ii) a change to the capitalization structure of the entity, or (iii) acquisitions or sales of interests that constitute a change in control.
A variable interest holder is considered to be the primary beneficiary of a VIE if it has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE. Consideration of various factors include, but is not limited to, which activities most significantly impact the entity’s economic performance and the ability to direct those activities, its form of ownership interest, its representation on the VIE’s governing body, the size and seniority of its investment, its ability and the rights of other investors to participate in policy making decisions, its ability to manage its ownership interest relative to the other interest holders, and its ability to replace the VIE manager and/or liquidate the entity.
For its investments in joint ventures that are not considered to be VIEs, the Company evaluates the type of ownership rights held by the limited partner(s) that may preclude consolidation by the majority interest holder. The assessment of limited partners’ rights and their impact on the control of a joint venture should be made at inception of the joint venture and continually reassessed.
Rental and Related Revenues
The Company commences recognition of rental revenue for operating lease arrangements when the tenant has taken possession or controls the physical use of a leased asset. The tenant is not considered to have taken physical possession or have control of the leased asset until the Company-owned tenant improvements are substantially complete. If a lease arrangement provides for tenant improvements, the Company determines whether the tenant improvements are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, any tenant improvements funded by the tenant are treated as lease payments which are deferred and amortized into income over the lease term. When the tenant is the owner of the tenant improvements, any tenant improvement allowance that is funded by the Company is treated as a lease incentive and amortized as a reduction of revenue over the lease term. Ownership of tenant improvements is determined based on various factors including, but not limited to, the following criteria:
•lease stipulations of how and on what a tenant improvement allowance may be spent;
•which party to the arrangement retains legal title to the tenant improvements upon lease expiration;
•whether the tenant improvements are unique to the tenant or general purpose in nature;
•if the tenant improvements are expected to have significant residual value at the end of the lease term;
•the responsible party for construction cost overruns; and
•which party constructs or directs the construction of the improvements.
Certain leases provide for additional rents that are contingent upon a percentage of the facility’s revenue in excess of specified base amounts or other thresholds. Such revenue is recognized when actual results reported by the tenant or estimates of tenant results, exceed the base amount or other thresholds, and only after any contingency has been removed (when the related thresholds are achieved). This may result in the recognition of rental revenue in periods subsequent to when such payments are received.
Tenant recoveries subject to operating leases generally relate to the reimbursement of real estate taxes, insurance, and repair and maintenance expense, and are recognized as both revenue (in rental and related revenues) and expense (in operating expenses) in the period the expense is incurred as the Company is the party paying the service provider.
For operating leases with minimum scheduled rent increases, the Company recognizes income on a straight line basis over the lease term when collectibility of future minimum lease payments is probable. Recognizing rental income on a straight line basis results in a difference in the timing of revenue amounts from what is contractually due from tenants. If the Company determines that collectibility of future minimum lease payments is not probable, the straight-line rent receivable balance is written off and recognized as a decrease in revenue in that period and future revenue recognition is limited to amounts contractually owed and paid.
Resident Fees and Services
Resident fee revenue is recorded when services are rendered and includes resident room and care charges, community fees and other resident charges. Residency agreements for SHOP and continuing care retirement community ("CCRC") facilities are generally for a term of 30 days to one year, with resident fees billed monthly, in advance. Revenue for certain care related services is recognized as services are provided and is billed monthly in arrears.
Certain of the Company's CCRCs are operated as entrance fee communities, which typically require a resident to pay an upfront entrance fee that includes both a refundable portion and non-refundable portion. When the Company receives a nonrefundable entrance fee, it is recorded in deferred revenue in the consolidated balance sheets and amortized into revenue over the estimated stay of the resident. The Company utilizes third-party actuarial experts in its determination of the estimated stay of residents. At December 31, 2020 and 2019, unamortized nonrefundable entrance fee liabilities were $484 million and $68 million, respectively.
Income from Direct Financing Leases
The Company utilizes the direct finance method of accounting to record DFL income. For a lease accounted for as a DFL, the net investment in the DFL represents receivables for the sum of future minimum lease payments and the estimated residual value of the leased property, less the unamortized unearned income. Unearned income is deferred and amortized to income over the lease term to provide a constant yield when collectibility of the lease payments is reasonably assured.
Interest Income
Loans receivable are classified as held-for-investment based on management’s intent and ability to hold the loans for the foreseeable future or to maturity. Loans held-for-investment are carried at amortized cost and reduced by a valuation allowance for estimated credit losses, as necessary. The Company recognizes interest income on loans, including the amortization of discounts and premiums, loan fees paid and received, using the interest method. The interest method is applied on a loan-by-loan basis when collectibility of the future payments is reasonably assured. Premiums and discounts are recognized as yield adjustments over the term of the related loans.
Gain (loss) on sales of real estate, net
The Company recognizes a gain (loss) on sale of real estate when the criteria for an asset to be derecognized are met, which include when: (i) a contract exists, (ii) the buyer obtains control of the asset, and (iii) it is probable that the Company will receive substantially all of the consideration to which it is entitled. These criteria are generally satisfied at the time of sale.
Government Grant Income
On March 27, 2020, the federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide financial aid to individuals, businesses, and state and local governments.During the year ended December 31, 2020, the Company received government grants under the CARES Act primarily to cover increased expenses and lost revenue during the COVID-19 pandemic. Grant income is recognized when there is reasonable assurance that the grant will be received and the Company will comply with all conditions attached to the grant. Additionally, grants are recognized over the periods in which the Company recognizes the increased expenses and lost revenue the grants are intended to defray. As of December 31, 2020, the amount of qualifying expenditures and lost revenue exceeded grant income recognized and the Company had complied or will continue to comply with all grant conditions.
The following table summarizes information related to government grant income:
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Government grant income recorded in other income (expense), net | | | | | $ | 16,198 | | | $ | 0 | | | $ | 0 | |
Government grant income recorded in equity income (loss) from unconsolidated joint ventures | | | | | 1,279 | | | 0 | | | 0 | |
Government grant income recorded in income (loss) from discontinued operations | | | | | 15,436 | | | 0 | | | 0 | |
Total government grants received | | | | | $ | 32,913 | | | $ | 0 | | | $ | 0 | |
From January 1, 2021 through February 8, 2021, the Company received $3 million in government grants under the CARES Act, which will be recognized during the first quarter of 2021.
Credit Losses
The Company evaluates the liquidity and creditworthiness of its tenants, operators, and borrowers on a monthly and quarterly basis. The Company’s evaluation considers industry and economic conditions, individual and portfolio property performance, credit enhancements, liquidity, and other factors. The Company’s tenants, operators, and borrowers furnish property, portfolio, and guarantor/operator-level financial statements, among other information, on a monthly or quarterly basis; the Company utilizes this financial information to calculate the lease or debt service coverages that it uses as a primary credit quality indicator. Lease and debt service coverage information is evaluated together with other property, portfolio, and operator performance information, including revenue, expense, net operating income, occupancy, rental rate, reimbursement trends, capital expenditures, and EBITDA (defined as earnings before interest, tax, and depreciation and amortization), along with other liquidity measures. The Company evaluates, on a monthly basis or immediately upon a significant change in circumstance, its tenants’, operators’, and borrowers’ ability to service their obligations with the Company.
If it is no longer probable that substantially all future minimum lease payments under operating leases will be received, the straight-line rent receivable balance is written off and recognized as a decrease in revenue in that period.
In connection with the Company’s quarterly review process or upon the occurrence of a significant event, loans receivable and DFLs (collectively, “finance receivables”), are reviewed and assigned an internal rating of Performing, Watch List, or Workout. Finance receivables that are deemed Performing meet all present contractual obligations, and collection and timing, of all amounts owed is reasonably assured. Watch List finance receivables are defined as finance receivables that do not meet the definition of Performing or Workout. Workout finance receivables are defined as finance receivables in which the Company has determined, based on current information and events, that: (i) it is probable it will be unable to collect all amounts due according to the contractual terms of the agreement, (ii) the tenant, operator, or borrower is delinquent on making payments under the contractual terms of the agreement, and (iii) the Company has commenced action or anticipates pursuing action in the near term to seek recovery of its investment.
Finance receivables are placed on nonaccrual status when management determines that the collectibility of contractual amounts is not reasonably assured (the asset will have an internal rating of either Watch List or Workout). Further, the Company performs a credit analysis to support the tenant’s, operator’s, borrower’s, and/or guarantor’s repayment capacity and the underlying collateral values. The Company uses the cash basis method of accounting for finance receivables placed on nonaccrual status unless one of the following conditions exist whereby it utilizes the cost recovery method of accounting if: (i) the Company determines that it is probable that it will only recover the recorded investment in the finance receivable, net of associated allowances or charge-offs (if any), or (ii) the Company cannot reasonably estimate the amount of an impaired finance receivable. For cash basis method of accounting, the Company applies payments received, excluding principal paydowns, to interest income so long as that amount does not exceed the amount that would have been earned under the original contractual terms. For cost recovery method of accounting, any payment received is applied to reduce the recorded investment. Generally, the Company returns a finance receivable to accrual status when all delinquent payments become current under the terms of the loan or lease agreements and collectibility of the remaining contractual loan or lease payments is reasonably assured.
Prior to the adoption of ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) on January 1, 2020, allowances were established for finance receivables on an individual basis utilizing an estimate of probable losses, if they were determined to be impaired. Finance receivables were impaired when it was deemed probable that the Company would be unable to collect all amounts due in accordance with the contractual terms of the finance receivable. An allowance was based upon the Company’s assessment of the borrower’s overall financial condition, economic resources, payment record, the prospects for support from any financially responsible guarantors and, if appropriate, the net realizable value of any collateral. These estimates considered all available evidence, including the expected future cash flows discounted at the finance receivable’s effective interest rate, fair value of collateral, general economic conditions and trends, historical and industry loss experience, and other relevant factors, as appropriate. If a finance receivable was deemed partially or wholly uncollectible, the uncollectible balance was charged off against the allowance in the period in which the uncollectible determination was made.
Subsequent to adopting ASU 2016-13 on January 1, 2020, the Company began using a loss model that relies on future expected credit losses, rather than incurred losses, as was required under historical U.S. GAAP. Under the new model, the Company is required to recognize future credit losses expected to be incurred over the life of a finance receivable at inception of that instrument. The model emphasizes historical experience and future market expectations to determine a loss to be recognized at inception. However, the model continues to be applied on an individual basis and to rely on counter-party specific information to ensure the most accurate estimate is recognized.
Real Estate
The Company’s real estate acquisitions are generally classified as asset acquisitions for which the Company records identifiable assets acquired, liabilities assumed, and any associated noncontrolling interests at cost on a relative fair value basis. In addition, for such asset acquisitions, no goodwill is recognized, third party transaction costs are capitalized and any associated contingent consideration is generally recorded when the amount of consideration is reasonably estimable and probable of being paid.Revenues(3)
| Operating The Company assesses fair value based on available market information, such as capitalization and discount rates, comparable sale transactions, and relevant per square foot or unit cost information. A real estate asset’s fair value may be determined utilizing cash flow projections that incorporate such market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, as well as market and economic conditions. The fair value of tangible assets of an acquired property is based on the value of the property as if it is vacant.Expenses(4)
| Lab: | | | | (Sq. Ft.) | | | | | | |
California | | 115 | | | 8,094 | | | $ | 5,869,665 | | | $ | 629,657 | | | $ | (157,795) | |
Massachusetts | | 19 | | | 2,613 | | | 2,795,913 | | | 240,029 | | | (70,259) | |
Other (1 State) | | 4 | | | 240 | | | 54,236 | | | 8,640 | | | (1,576) | |
Total lab | | 138 | | | 10,947 | | | $ | 8,719,814 | | | $ | 878,326 | | | $ | (229,630) | |
Outpatient medical: | | | | (Sq. Ft.) | | | | | | |
Texas | | 75 | | | 7,638 | | | $ | 1,549,757 | | | $ | 220,805 | | | $ | (75,159) | |
Pennsylvania | | 4 | | | 1,270 | | | 367,434 | | | 34,321 | | | (15,603) | |
Colorado | | 19 | | | 1,311 | | | 362,822 | | | 47,697 | | | (18,366) | |
California | | 15 | | | 862 | | | 355,026 | | | 40,057 | | | (17,206) | |
South Carolina | | 18 | | | 1,105 | | | 340,073 | | | 27,851 | | | (5,315) | |
Florida | | 25 | | | 1,438 | | | 309,246 | | | 41,609 | | | (14,994) | |
Other (29 States) | | 139 | | | 9,977 | | | 2,586,334 | | | 341,139 | | | (116,489) | |
Total outpatient medical | | 295 | | | 23,601 | | | $ | 5,870,692 | | | $ | 753,479 | | | $ | (263,132) | |
CCRC: | | | | (Units) | | | | | | |
Florida | | 9 | | | 4,783 | | | $ | 1,398,609 | | | $ | 343,971 | | | $ | (275,781) | |
Other (5 States) | | 6 | | | 2,314 | | | 631,199 | | | 183,630 | | | (137,691) | |
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Total CCRC | | 15 | | | 7,097 | | | $ | 2,029,808 | | | $ | 527,601 | | | $ | (413,472) | |
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Total properties | | 448 | | | | | $ | 16,620,314 | | | $ | 2,159,406 | | | $ | (906,234) | |
(1)Excludes capacity associated with developments.
(2)Represents gross real estate which includes the carrying amount of real estate after adding back accumulated depreciation and amortization. Excludes gross real estate of $123 million related to two lab buildings and one outpatient medical building classified as held for sale.
(3)Represents the combined amount of rental and related revenues, resident fees and services, and government grant income.
(4)Excludes operating expenses related to corporate non-segment assets (see Note 15 to the Consolidated Financial Statements).
Occupancy and Annual Rent Trends
The following table summarizes occupancy and average annual rent trends for our consolidated property and investments held under a direct financing lease (“DFL”) for the years ended December 31 (average occupied square feet in thousands):
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| 2023 | | 2022 | | 2021 | | | | |
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Lab: | | | | | | | | | |
Average occupancy percentage | 98 | % | | 98 | % | | 97 | % | | | | |
Average annual rent per square foot(1) | $ | 82 | | | $ | 71 | | | $ | 66 | | | | | |
Average occupied square feet | 10,334 | | | 10,610 | | | 10,143 | | | | | |
Outpatient medical(2): | | | | | | | | | |
Average occupancy percentage | 90 | % | | 90 | % | | 90 | % | | | | |
Average annual rent per square foot(1) | $ | 35 | | | $ | 33 | | | $ | 31 | | | | | |
Average occupied square feet | 21,337 | | | 21,472 | | | 21,046 | | | | | |
CCRC: | | | | | | | | | |
Average occupancy percentage | 84 | % | | 82 | % | | 79 | % | | | | |
Average annual rent per occupied unit(3) | $ | 88,524 | | | $ | 84,664 | | | $ | 80,391 | | | | | |
Average occupied units | 5,960 | | | 5,926 | | | 5,881 | | | | | |
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(1)Presented as a ratio of revenues comprised of rental and related revenues and income from DFLs divided by average occupied square feet and annualized for acquisitions for the year in which they occurred. Average annual rent excludes termination fees and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and DFL non-cash interest).
(2)During the first quarter of 2022, we sold our remaining hospital under a DFL.
(3)Presented as a ratio of revenues comprised of resident fees and services and government grant income divided by average occupied units of the facilities. Average annual rent excludes termination fees and non-cash revenue adjustments (i.e., the impact of deferred community fee income).
Tenant Lease Expirations
The following table shows tenant lease expirations for the next 10 years and thereafter at our consolidated properties, assuming that none of the tenants exercise any of their renewal or purchase options, and excludes properties in our CCRC segment and assets held for sale as of December 31, 2023 (dollars and square feet in thousands):
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| | Expiration Year |
Segment | | Total | | 2024(1) | | 2025 | | 2026 | | 2027 | | 2028 | | 2029 | | 2030 | | 2031 | | 2032 | | 2033 | | Thereafter |
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Lab: | | | | | | | | | | | | | | | | | | | | | | | | |
Square feet | | 10,303 | | | 537 | | | 1,065 | | | 618 | | | 1,407 | | | 681 | | | 806 | | | 1,334 | | | 1,393 | | | 866 | | | 531 | | | 1,065 | |
Base rent(2) | | $ | 608,770 | | | $ | 36,709 | | | $ | 50,557 | | | $ | 30,694 | | | $ | 66,918 | | | $ | 36,728 | | | $ | 50,104 | | | $ | 94,051 | | | $ | 84,727 | | | $ | 55,504 | | | $ | 36,642 | | | $ | 66,136 | |
% of segment base rent | | 100 | | | 6 | | | 8 | | | 5 | | | 11 | | | 6 | | | 8 | | | 16 | | | 14 | | | 9 | | | 6 | | | 11 | |
Outpatient medical: | | | | | | | | | | | | | | | | | | | | | | | | |
Square feet | | 21,414 | | | 2,848 | | | 2,830 | | | 2,049 | | | 1,870 | | | 2,539 | | | 1,419 | | | 1,310 | | | 1,637 | | | 1,357 | | | 918 | | | 2,637 | |
Base rent(2) | | $ | 546,589 | | | $ | 85,359 | | | $ | 68,994 | | | $ | 57,376 | | | $ | 51,438 | | | $ | 56,996 | | | $ | 38,197 | | | $ | 36,069 | | | $ | 40,803 | | | $ | 28,096 | | | $ | 27,376 | | | $ | 55,885 | |
% of segment base rent | | 100 | | | 16 | | | 13 | | | 11 | | | 9 | | | 10 | | | 7 | | | 7 | | | 7 | | | 5 | | | 5 | | | 10 | |
Total: | | | | | | | | | | | | | | | | | | | | | | | | |
Base rent(2) | | $ | 1,155,359 | | | $ | 122,068 | | | $ | 119,551 | | | $ | 88,070 | | | $ | 118,356 | | | $ | 93,724 | | | $ | 88,301 | | | $ | 130,120 | | | $ | 125,530 | | | $ | 83,600 | | | $ | 64,018 | | | $ | 122,021 | |
% of total base rent | | 100 | | 11 | | | 10 | | | 8 | | | 10 | | | 8 | | | 8 | | | 11 | | | 11 | | | 7 | | | 5 | | | 11 | |
(1)Includes month-to-month leases.
(2)The most recent month’s (or subsequent month’s, if acquired in the most recent month) base rent, including additional rent floors, annualized for 12 months. 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).
ITEM 3. Legal Proceedings
See the “Legal Proceedings” section of Note 11 to the Consolidated Financial Statements for information regarding legal proceedings, which information is incorporated by reference in this Item 3.
ITEM 4. Mine Safety Disclosures
None.
PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the New York Stock Exchange under the symbol “PEAK.”
As of February 5, 2024, we had6,797stockholders of record, and there were 283,417 beneficial holders of our common stock.
Dividends (Distributions)
It has been our policy to declare quarterly dividends to common stockholders so as to comply with applicable provisions of the Code governing REITs. All distributions are made at the discretion of our Board of Directors in accordance with Maryland law. Distributions with respect to our common stock can be characterized for federal income tax purposes as ordinary dividends, capital gains, nondividend distributions, or a combination thereof. The following table shows the characterization of our annual common stock distributions per share:
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| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Ordinary dividends(1) | $ | 0.909692 | | | $ | 0.872948 | | | $ | 0.152336 | |
Capital gains(2)(3) | 0.116992 | | | 0.183208 | | | 0.379960 | |
Nondividend distributions | 0.173316 | | | 0.143844 | | | 0.667704 | |
| $ | 1.200000 | | | $ | 1.200000 | | | $ | 1.200000 | |
______________________________________(1)For the year ended December 31, 2023,the amount includes $0.882312 of ordinary dividends qualified as business income for purposes of Code Section 199A and $0.027380 of qualified dividend income for purposes of Code Section 1(h)(11). For the year ended December 31, 2022, all $0.872948 of ordinary dividends qualified as business income for purposes of Code Section 199A. For the year ended December 31, 2021, the amount includes $0.137064 of ordinary dividends qualified as business income for purposes of Code Section 199A and $0.015272 of qualified dividend income for purposes of Code Section 1(h)(11).
(2)For the years ended December 31, 2023, 2022, and 2021, the amount includes $0.036256, $0.017760, and $0.379960, respectively, of unrecaptured Code Section 1250 gain. Pursuant to Treasury Regulation Section 1.1061-6(c), we are disclosing additional information related to the capital gain dividends for purposes of Section 1061 of the Code. Code Section 1061 is generally applicable to direct and indirect holders of “applicable partnership interests.” For the year ended December 31, 2023, the “One Year Amounts” and “Three Year Amounts” are each zero, since all capital gains relate to Code Section 1231 gains. For the year ended December 31, 2022, the “One Year Amounts” and “Three Year Amounts” are each 89.6708% of the total capital gain distributions and the remaining capital gain distributions are attributable to Code Section 1231 gains, which are not subject to Code Section 1061. For the year ended December 31, 2021, the “One Year Amounts” and “Three Year Amounts” are each zero, since all capital gains relate to Code Section 1231 gains.
(3)For the years ended December 31, 2023, 2022, and 2021, 100%, 10.3292%, and 100%, respectively, of the capital gain distributions represent gains from dispositions of U.S. real property interests pursuant to Code Section 897 for foreign shareholders.
On January 31, 2024, we announced that our Board of Directors declared a quarterly common stock cash dividend of $0.30 per share. The common stock dividend will be paid on February 26, 2024 to stockholders of record as of the close of business on February 14, 2024.
Issuer Purchases of Equity Securities
The following table sets forth information with respect to purchases of our common stock made by or on our behalf during the three months ended December 31, 2023.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period Covered | | Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | | Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs(1) |
October 1-31, 2023 | | — | | | $ | — | | | — | | | $ | 444,018,701 | |
November 1-30, 2023 | | — | | | — | | | — | | | 444,018,701 | |
December 1-31, 2023 | | — | | | — | | | — | | | 444,018,701 | |
| | — | | | $ | — | | | — | | | $ | 444,018,701 | |
(1)On August 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 in August 2024 and may be suspended or terminated at any time without prior notice. During the year ended December 31, 2022, we repurchased 2.1 million shares of our common stock at a weighted average price of $27.16 per share. During the year ended December 31, 2023, there were no repurchases; therefore, at December 31, 2023, $444 millionof our common stock remained available for repurchase under the Share Repurchase Program. Amounts do not include the shares of our common stock withheld under our equity incentive plans to offset tax withholding obligations as discussed in footnote 1.
Performance Graph
The graph and table below compare the cumulative total return of Healthpeak, the S&P 500 Index, and the Equity REIT Index of Nareit, from January 1, 2019 to December 31, 2023. Total cumulative return is based on a $100 investment in Healthpeak common stock and in each of the indices at the close of trading on December 31, 2018 and assumes quarterly reinvestment of dividends before consideration of income taxes. Stockholder returns over the indicated periods should not be considered indicative of future stock prices or stockholder returns.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG S&P 500, EQUITY REITS AND HEALTHPEAK PROPERTIES, INC.
RATE OF RETURN TREND COMPARISON
JANUARY 1, 2019–DECEMBER 31, 2023
(JANUARY 1, 2019 = $100)
Performance Graph Total Stockholder Return
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, |
| 2019 | | 2020 | | 2021 | | 2022 | | 2023 |
FTSE Nareit Equity REIT Index | $ | 128.66 | | | $ | 122.07 | | | $ | 172.49 | | | $ | 129.45 | | | $ | 144.16 | |
S&P 500 | 131.47 | | | 155.65 | | | 200.29 | | | 163.98 | | | 207.04 | |
Healthpeak Properties, Inc. | 129.11 | | | 119.21 | | | 147.52 | | | 106.94 | | | 89.40 | |
ITEM 6. [Reserved]
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information set forth in this Item 7 is intended to provide readers with an understanding of our financial condition, changes in financial condition, and results of operations. This section generally discusses the results of our operations for the year ended December 31, 2023 compared to the year ended December 31, 2022. For a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 8, 2023.
We will discuss and provide our analysis in the following order:
•Market Trends and Uncertainties
•Company Highlights
•Dividends
•Results of Operations
•Liquidity and Capital Resources
•Non-GAAP Financial Measures Reconciliations
•Critical Accounting Estimates
•Recent Accounting Pronouncements
Market Trends and Uncertainties
Our operating results have been and will continue to be impacted by global and national economic and market conditions generally and by the local economic conditions where our properties are located.
Rising interest rates, high inflation, supply chain disruptions, ongoing geopolitical tensions, and increased volatility in public and private equity and fixed income markets have led to increased costs and limited the availability of capital. In addition, increased interest rates have negatively affected our borrowing costs, the fair value of our fixed rate instruments. and real estate values generally, including our real estate.
Our tenants and operators have also experienced increased costs, liquidity constraints, and financing difficulties due to the foregoing macroeconomic and market conditions, which could cause them to be unable or unwilling to make payments or perform their obligations when due.
We have also been affected by significant inflation in construction costs over the past few years, which, together with rising costs of capital, have negatively affected the expected yields on our development and redevelopment projects.
We continuously monitor the effects of domestic and global events, including but not limited to inflation, labor shortages, supply chain matters, rising interest rates, and challenges in the financial markets, 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.
See “Item 1A, Risk Factors” in this report for additional discussion of the risks posed by macroeconomic conditions, as well as the uncertainties we and our tenants, operators, and borrowers may face as a result.
Company Highlights
As of February 10, 2023, we are structured as an UPREIT. This structure provides prospective sellers an alternative for disposing of property that has appreciated in value in a tax-deferred manner to Healthpeak OP and aligns our corporate structure with other publicly traded U.S. real estate investment trusts. Following the Reorganization, Healthpeak OP is the borrower under, and we are the guarantor of, all of the unsecured debt, which includes the Revolving Facility, Term Loan Facilities (each as defined below), commercial paper program, and senior unsecured notes. Our guarantee of the senior unsecured notes is full and unconditional and applicable to existing and future senior unsecured notes. The Reorganization did not have a material impact on our financial position, consolidated financial statements, outstanding debt securities, material debt facilities, or business operations.
On October 29, 2023, we entered into a Merger Agreement with Physicians Realty Trust, the Physicians Partnership, and certain of our subsidiaries, pursuant to which, among other things, and through a series of transactions (the “Mergers”), (i) each outstanding common share of Physicians Realty Trust (other than Physicians Realty Trust common shares to be canceled in accordance with the Merger Agreement) will be converted into the right to receive 0.674 (the “Exchange Ratio”) shares of our common stock, and (ii) each outstanding common unit of the Physicians Partnership will be converted into common units in the successor entity to the Physicians Partnership equal to the Exchange Ratio. In connection with the Mergers, we filed a Registration Statement on Form S-4 with the SEC on December 15, 2023, as amended on January 9, 2024, and a definitive joint proxy statement/prospectus for the Company and Physicians Realty Trust on January 11, 2024 in connection with our respective special meetings of stockholders and shareholders, as applicable, which will be held on February 21, 2024. We expect the Mergers to closeon March 1, 2024. Following the transactions contemplated in the Merger Agreement, the successor entities to Physicians Realty Trust and the Physicians Partnership will be direct and indirect subsidiaries of Healthpeak OP, respectively. Consummation of the Mergers are subject to the satisfaction or waiver of customary closing conditions, including the approval of our stockholders and the shareholders of Physicians Realty Trust.
Real Estate Transactions
•In January 2023, we sold two lab buildings in Durham, North Carolina for $113 million.
•In January 2023, we acquired a lab land parcel in Cambridge, Massachusetts for $9 million.
•In March 2023, we sold two outpatient medical buildings for $32 million.
•In April 2023, we acquired the remaining 80% interest in one of the outpatient medical buildings in the Ventures IV unconsolidated joint venture for $4 million.
•In January 2024, we sold a 65% interest in two lab buildings in San Diego, California to a third-party for net proceeds of $128 million.
Development and Redevelopment Activities
•During the yearended December 31, 2023, the following projects were placed in service: (i) portions of two lab development projects with aggregate costs of $233 million, (ii) one lab development project with total costs of $171 million, (iii) a portion of one lab redevelopment project with total costs of $43 million, (iv) four outpatient medical redevelopment projects with aggregate costs of $42 million, (v) a portion of one lab redevelopment building held in one of our unconsolidated South San Francisco JVs of which our share of total project costs was $32 million, (vi) one lab redevelopment building held in one of our unconsolidated South San Francisco JVs of which our share of total project costs was $15 million, (vii) one lab redevelopment project with total costs of $14 million, and (viii) one CCRC redevelopment project with total costs of $7 million.
Financing Activities
•In January 2023, we completed a public offering of $400 million aggregate principal amount of 5.25% senior unsecured notes due 2032.
•In May 2023, we completed a public offering of $350 million aggregate principal amount of 5.25% senior unsecured notes due 2032, which constituted an additional issuance of, and are treated as a single series with, the $400 million of senior unsecured notes due 2032 issued in January 2023.
•In December 2023, a mortgage loan secured by one CCRC with a principal balance of $85 millionmatured and was repaid.
•We have secured commitments for a $750 million five-year unsecured term loan (the “2024 Term Loan”), to be incurred as an incremental facility under our existing term loan agreement. In January 2024, we entered into forward-starting interest rate swap instruments that are designated as cash flow hedges that will effectively establish a fixed interest rate forthe 2024 Term Loan at a blended contractual rate of 4.5%.
Other Activities
•In February 2023, we received a partial principal repayment of $102 million on one secured loan.
•In February 2023, we received full repayment of the outstanding balance of one $35 million secured loan.
•In April 2023, we received full repayment of the outstanding balance of one $14 million secured loan.
•In May 2023, we received full repayment of two outstanding secured loans with an aggregate balance of $12 million.
•In October 2023, we received full repayment of the outstanding balance of one $21 million secured loan.
Dividends
Quarterly cash dividends paid during 2023 aggregated to $1.20 per share. On January 31, 2024, our Board of Directors declared a quarterly cash dividend of $0.30 per common share. The dividend will be paid on February 26, 2024 to stockholders of record as of the close of business on February 14, 2024.
Results of Operations
We evaluate our business and allocate resources among our reportable business segments: (i) lab, (ii) outpatient medical, and (iii) CCRC. Under the lab and outpatient medical segments, we invest through the acquisition, development, and management of lab buildings, outpatient medical buildings, and hospitals. 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) loans receivable. These non-reportable segments have been presented on an aggregate basis herein. 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.
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 15 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 are calculated as NOI and Adjusted NOI from consolidated properties, plus our share of NOI and Adjusted NOI from unconsolidated joint ventures (calculated by applying our actual ownership percentage for the period), less noncontrolling interests’ share of NOI and Adjusted NOI from consolidated joint ventures (calculated by applying our actual ownership percentage for the period). Management utilizes its share of NOI and Adjusted NOI in assessing its performance as we have various joint ventures that contribute to its performance. We do not control our unconsolidated joint ventures, and our share of amounts from unconsolidated joint ventures do not represent our legal claim to such items. Our share of NOI and Adjusted NOI should not be considered a substitute for, and should only be considered together with and as a supplement to, our financial information presented in accordance with GAAP.
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 15 to the Consolidated Financial Statements.
Operating expenses generally relate to leased outpatient medical and lab buildings, as well as CCRC facilities. We generally recover all or a portion of our leased outpatient medical and lab 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 portfolio of properties, excluding properties within the other non-reportable segments. We include properties from our consolidated portfolio, as well as properties owned by our unconsolidated joint ventures in Same-Store NOI and Adjusted NOI (see NOI definition above for further discussion regarding our use of pro-rata share information and its limitations). Same-Store NOI and Adjusted NOI exclude government grant income under the CARES Act. Same-Store Adjusted NOI also 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.
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 the National 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.
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 and merger-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), deferred tax asset valuation allowances, and changes in tax legislation (“FFO as Adjusted”). These adjustments are net of tax, when applicable. Transaction and merger-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) stock-based compensation amortization expense, (ii) amortization of deferred financing costs, net, (iii) straight-line rents, (iv) deferred income taxes, (v) amortization of above (below) market lease intangibles, net, and (vi) other AFFO adjustments, which include: (a) non-cash interest related to DFLs and lease incentive amortization (reduction of straight-line rents), (b) actuarial reserves for insurance claims that have been incurred but not reported, and (c) 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. 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. 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. 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, and by presenting AFFO, we are assisting these parties in their evaluation. 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 and should only be considered together with and as a supplement to our financial information prepared in accordance with GAAP. For a reconciliation of net income (loss) to AFFO and other relevant disclosures, refer to “Non-GAAP Financial Measures Reconciliations” below.
Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022
Overview
2023 and 2022(1)
The following table summarizes results for the years ended December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2023 | | 2022 | | | | | | Change |
Net income (loss) applicable to common shares | | $ | 304,284 | | | $ | 497,792 | | | | | | | $ | (193,508) | |
Nareit FFO | | 985,180 | | | 895,166 | | | | | | | 90,014 | |
FFO as Adjusted | | 978,306 | | | 940,933 | | | | | | | 37,373 | |
AFFO | | 840,777 | | | 783,702 | | | | | | | 57,075 | |
(1)For the reconciliation of non-GAAP financial measures, see “Non-GAAP Financial Measure Reconciliations” below.
Net income (loss) applicable to common shares decreased primarily as a result of the following:
•a gain upon change of control related to the sale of a 30% interest and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022;
•an increase in depreciation, primarily as a result of development and redevelopment projects placed in service during 2022 and 2023;
•an increase in interest expense, primarily as a result of: (i) senior unsecured notes issued during the first half of 2023, (ii) borrowings under the Term Loan Facilities, which were drawn during the fourth quarter of 2022, and (iii) higher interest rates on the commercial paper program, partially offset by lower borrowings on the commercial paper program;
•a gain on sale associated with the disposition of a hospital under a DFL during the first quarter of 2022;
•an increase in transaction and merger-related costs, primarily as a result of costs related to the Mergers, which are primarily comprised of legal, accounting, tax, and other costs that were incurred during the fourth quarter of 2023; and
•a decrease in government grant income received under the CARES Act in 2023.
The decrease in net income (loss) applicable to common shares was partially offset by:
•an increase in NOI generated from our lab and outpatient medical segments related to: (i) development and redevelopment projects placed in service during 2022 and 2023, (ii) new leasing activity during 2022 and 2023 (including the impact to straight-line rents), and (iii) 2022 acquisitions of real estate;
•an increase in gains on sale of depreciable real estate related to lab and outpatient medical building sales during 2023 as compared to 2022;
•a decrease in general and administrative expenses, primarily as a result of: (i) severance-related charges associated with the departures of our former Chief Executive Officer and our former Chief Legal Officer and General Counsel in the fourth quarter of 2022 and (ii) charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado in the fourth quarter of 2022;
•a decrease in depreciation related to the deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022;
•a decrease in other expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building, which were incurred in the first quarter of 2022;
•an increase in income tax benefit primarily as a result of a $14 million tax benefit recognized in connection with the reversal of a deferred tax asset valuation allowance during the fourth quarter of 2023;
•a decrease in loan loss reserves primarily as a result of principal repayments on seller financing;
•an increase in equity income from unconsolidated joint ventures; and
•a decrease in casualty-related charges from a hurricane during the third quarter of 2022.
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 upon change of control;
•gain on sales of depreciable real estate; and
•depreciation and amortization expense.
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:
•severance-related charges;
•gain on sale of a hospital under a DFL;
•reversal of a valuation allowance on deferred tax assets;
•expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building;
•loan loss reserves;
•transaction and merger-related costs;
•casualty-related charges; and
•the charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado.
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 and higherAFFO capital expenditures during the period.
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 year ended December 31, 2023, our Same-Store consists of 403 properties representing properties acquired or placed in service and stabilized on or prior to January 1, 2022 and that remained in operations through December 31, 2023. Our total property portfolio consisted of 477 and 480 properties at December 31, 2023 and 2022, respectively. Included in our total property portfolio at each of December 31, 2023 and 2022 are 19 senior housing assets in our SWF SH JV.
Lab
The following table summarizes results at and for the years ended December 31, 2023 and 2022 (dollars and square feet in thousands, except per square foot data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SS | | Total Portfolio(1) |
| Year Ended December 31, | | Year Ended December 31, |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Rental and related revenues | $ | 663,859 | | | $ | 649,238 | | | $ | 14,621 | | | $ | 878,326 | | | $ | 817,573 | | | $ | 60,753 | |
| | | | | | | | | | | |
Healthpeak’s share of unconsolidated joint venture total revenues | 6,589 | | | 9,613 | | | (3,024) | | | 9,924 | | | 9,921 | | | 3 | |
| | | | | | | | | | | |
Noncontrolling interests’ share of consolidated joint venture total revenues | (133) | | | (129) | | | (4) | | | (619) | | | (268) | | | (351) | |
Operating expenses | (182,602) | | | (166,433) | | | (16,169) | | | (229,630) | | | (209,143) | | | (20,487) | |
Healthpeak’s share of unconsolidated joint venture operating expenses | (2,651) | | | (2,305) | | | (346) | | | (4,092) | | | (2,883) | | | (1,209) | |
Noncontrolling interests’ share of consolidated joint venture operating expenses | 46 | | | 43 | | | 3 | | | 156 | | | 87 | | | 69 | |
| | | | | | | | | | | |
Adjustments to NOI(2) | (23,979) | | | (45,496) | | | 21,517 | | | (36,524) | | | (62,754) | | | 26,230 | |
Adjusted NOI | $ | 461,129 | | | $ | 444,531 | | | $ | 16,598 | | | 617,541 | | | 552,533 | | | 65,008 | |
Less: non-SS Adjusted NOI | | | | | | | (156,412) | | | (108,002) | | | (48,410) | |
SS Adjusted NOI | | | | | | | $ | 461,129 | | | $ | 444,531 | | | $ | 16,598 | |
Adjusted NOI % change | | | | | 3.7 | % | | | | | | |
Property count(3) | 116 | | | 116 | | | | | 146 | | | 149 | | | |
End of period occupancy(4) | 96.5 | % | | 98.7 | % | | | | 96.9 | % | | 98.9 | % | | |
Average occupancy(4) | 97.5 | % | | 98.5 | % | | | | 97.8 | % | | 98.7 | % | | |
Average occupied square feet | 8,786 | | | 8,856 | | | | | 10,524 | | | 10,727 | | | |
Average annual total revenues per occupied square foot(5) | $ | 74 | | | $ | 69 | | | | | $ | 81 | | | $ | 72 | | | |
Average annual base rent per occupied square foot(6) | $ | 56 | | | $ | 53 | | | | | $ | 63 | | | $ | 55 | | | |
(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 the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(3)From our 2022 presentation of Same-Store, we added: (i) five stabilized acquisitions, (ii) three stabilized buildings that previously experienced a significant tenant relocation, (iii) two stabilized redevelopments placed in service, and (iv) one stabilized development placed in service, and we removed: (i) six buildings that were placed into redevelopment, (ii) one asset that was placed into land held for development, and (iii) one building that experienced a significant tenant relocation.
(4)Refer to “Non-GAAP Financial Measures” above for the definition of Same-Store. Total Portfolio occupancy excludes any of the following: (i) developments, (ii) significant redevelopments, (iii) newly completed properties under lease-up, and (iv) properties held for sale.
(5)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and deferred revenues).
(6)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; and
•new leasing activity; partially offset by
•lower occupancy; and
•higher operating expenses.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned impacts to Same-Store and the following Non-Same-Store impacts:
•increased NOI from developments and redevelopments placed in service in 2022 and 2023; partially offset by
•decreased NOI from our 2022 and 2023 dispositions.
Outpatient Medical
The following table summarizes results at and for the years ended December 31, 2023 and 2022 (dollars and square feet in thousands, except per square foot data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SS | | Total Portfolio(1) |
| Year Ended December 31, | | Year Ended December 31, |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Rental and related revenues | $ | 678,967 | | | $ | 656,588 | | | $ | 22,379 | | | $ | 753,479 | | | $ | 724,202 | | | $ | 29,277 | |
Income from direct financing leases | — | | | — | | | — | | | — | | | 1,168 | | | (1,168) | |
Healthpeak’s share of unconsolidated joint venture total revenues | 2,893 | | | 2,795 | | | 98 | | | 3,033 | | | 2,999 | | | 34 | |
Noncontrolling interests’ share of consolidated joint venture total revenues | (34,053) | | | (33,429) | | | (624) | | | (35,073) | | | (35,717) | | | 644 | |
Operating expenses | (229,310) | | | (218,716) | | | (10,594) | | | (263,132) | | | (253,309) | | | (9,823) | |
Healthpeak’s share of unconsolidated joint venture operating expenses | (1,183) | | | (1,147) | | | (36) | | | (1,189) | | | (1,178) | | | (11) | |
Noncontrolling interests’ share of consolidated joint venture operating expenses | 9,738 | | | 9,492 | | | 246 | | | 9,921 | | | 10,317 | | | (396) | |
| | | | | | | | | | | |
Adjustments to NOI(2) | (11,685) | | | (13,763) | | | 2,078 | | | (14,314) | | | (15,513) | | | 1,199 | |
Adjusted NOI | $ | 415,367 | | | $ | 401,820 | | | $ | 13,547 | | | 452,725 | | | 432,969 | | | 19,756 | |
Less: non-SS Adjusted NOI | | | | | | | (37,358) | | | (31,149) | | | (6,209) | |
SS Adjusted NOI | | | | | | | $ | 415,367 | | | $ | 401,820 | | | $ | 13,547 | |
Adjusted NOI % change | | | | | 3.4 | % | | | | | | |
Property count(3) | 272 | | | 272 | | | | | 297 | | | 297 | | | |
End of period occupancy(4) | 91.9 | % | | 91.7 | % | | | | 90.7 | % | | 90.2 | % | | |
Average occupancy(4) | 91.5 | % | | 91.6 | % | | | | 90.1 | % | | 89.9 | % | | |
Average occupied square feet | 20,218 | | | 20,233 | | | | | 21,531 | | | 21,685 | | | |
Average annual total revenues per occupied square foot(5) | $ | 34 | | | $ | 33 | | | | | $ | 35 | | | $ | 34 | | | |
Average annual base rent per occupied square foot(6) | $ | 28 | | | $ | 27 | | | | | $ | 29 | | | $ | 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 the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(3)From our 2022 presentation of Same-Store, we added: (i) 25 stabilized acquisitions and (ii) 2 stabilized developments placed in service, and we removed: (i) 2 assets that were sold and (ii) 1 asset that was classified as held for sale.
(4)Refer to “Non-GAAP Financial Measures” above for the definition of Same-Store. Total Portfolio occupancy excludes any of the following: (i) developments, (ii) significant redevelopments, (iii) newly completed properties under lease-up, and (iv) properties held for sale.
(5)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).
(6)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; and
•annual rent escalations; partially offset by
•higher operating expenses.
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 2022 acquisitions;
•business interruption proceeds related to a demolished asset; and
•increased occupancy in former redevelopment and development properties that have been placed in service; partially offset by
•decreased NOI from our 2022 and 2023 dispositions.
Continuing Care Retirement Community
The following table summarizes results at and for the years ended December 31, 2023 and 2022 (dollars in thousands, except per unit data):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| SS | | Total Portfolio |
| Year Ended December 31, | | Year Ended December 31, |
| 2023 | | 2022 | | Change | | 2023 | | 2022 | | Change |
Resident fees and services | $ | 526,769 | | | $ | 494,935 | | | $ | 31,834 | | | $ | 527,417 | | | $ | 494,935 | | | $ | 32,482 | |
Government grant income(1) | — | | | — | | | — | | | 184 | | | 6,765 | | | (6,581) | |
| | | | | | | | | | | |
Healthpeak’s share of unconsolidated joint venture government grant income | — | | | — | | | — | | | — | | | 380 | | | (380) | |
Operating expenses | (411,539) | | | (398,915) | | | (12,624) | | | (413,472) | | | (400,539) | | | (12,933) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Adjustments to NOI(2) | (1,618) | | | 2,300 | | | (3,918) | | | (1,618) | | | 2,300 | | | (3,918) | |
Adjusted NOI | $ | 113,612 | | | $ | 98,320 | | | $ | 15,292 | | | 112,511 | | | 103,841 | | | 8,670 | |
Plus (less): non-SS adjustments | | | | | | | 1,101 | | | (5,521) | | | 6,622 | |
SS Adjusted NOI | | | | | | | $ | 113,612 | | | $ | 98,320 | | | $ | 15,292 | |
Adjusted NOI % change | | | | | 15.6 | % | | | | | | |
Property count(3) | 15 | | | 15 | | | | | 15 | | | 15 | | | |
Average occupancy(4) | 83.8 | % | | 81.6 | % | | | | 83.9 | % | | 81.6 | % | | |
Average occupied units(5) | 5,952 | | | 5,926 | | | | | 5,960 | | | 5,926 | | | |
Average annual rent per occupied unit | $ | 88,503 | | | $ | 83,519 | | | | | $ | 88,524 | | | $ | 84,725 | | | |
(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 the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(3)From our 2022 presentation of Same-Store, no properties were added or removed.
(4)Refer to “Non-GAAP Financial Measures” above for the definition of Same-Store. Total Portfolio occupancy excludes any of the following: (i) developments, (ii) significant redevelopments, (iii) newly completed properties under lease-up, and (iv) properties held for sale.
(5)Represents average occupied units as reported by the operators for the twelve-month period.
Same-Store Adjusted NOI increased primarily as a result of the following:
•increased rates for resident fees; and
•higher occupancy; partially offset by
•higher costs of labor, management fees, insurance, real estate taxes, utilities, and food; and
•lower business interruption insurance proceeds.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store, partially offset by decreased government grant income received under the CARES Act.
Other Income and Expense Items
The following table summarizes the results of our other income and expense items for the years ended December 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | Change |
Interest income | $ | 21,781 | | | $ | 23,300 | | | $ | (1,519) | |
Interest expense | 200,331 | | | 172,944 | | | 27,387 | |
Depreciation and amortization | 749,901 | | | 710,569 | | | 39,332 | |
General and administrative | 95,132 | | | 131,033 | | | (35,901) | |
Transaction and merger-related costs | 17,515 | | | 4,853 | | | 12,662 | |
Impairments and loan loss reserves (recoveries), net | (5,601) | | | 7,004 | | | (12,605) | |
Gain (loss) on sales of real estate, net | 86,463 | | | 9,078 | | | 77,385 | |
| | | | | |
Other income (expense), net | 6,808 | | | 326,268 | | | (319,460) | |
Income tax benefit (expense) | 9,617 | | | 4,425 | | | 5,192 | |
Equity income (loss) from unconsolidated joint ventures | 10,204 | | | 1,985 | | | 8,219 | |
Income (loss) from discontinued operations | — | | | 2,884 | | | (2,884) | |
Noncontrolling interests’ share in continuing operations | (28,748) | | | (15,975) | | | (12,773) | |
| | | | | |
Interest income
Interest income decreased for the year ended December 31, 2023 primarily as a result of principal repayments on loans receivable in 2022 and 2023, partially offset by higher interest rates.
Interest expense
Interest expense increased for the year ended December 31, 2023 primarily as a result of: (i) senior unsecured notes issued during the first half of 2023, (ii) borrowings under the Term Loan Facilities, which were drawn during the fourth quarter of 2022, and (iii) higher interest rates on the commercial paper program, partially offset by lower borrowings on the commercial paper program.
Depreciation and amortization
Depreciation and amortization expense increased for the year ended December 31, 2023 primarily as a result of development and redevelopment projects placed in service during 2022 and 2023, partially offset by: (i) assets placed into redevelopment in 2023, (ii) dispositions of real estate in 2022 and 2023, and (iii) lower depreciation related to the deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022.
General and administrative
General and administrative expenses decreased for the year ended December 31, 2023 primarily as a result of: (i) severance-related charges associated with the departures of our former Chief Executive Officer and our former Chief Legal Officer and General Counsel in the fourth quarter of 2022 and (ii) charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado in the fourth quarter of 2022.
Transaction and merger-related costs
Transaction and merger-related costs increased for the year ended December 31, 2023 primarily as a result of costs related to the Mergers, which are primarily comprised of legal, accounting, tax, and other costs that were incurred during the fourth quarter of 2023 (see Note 1 to the Consolidated Financial Statements).
Impairments and loan loss reserves (recoveries), net
Impairments and loan loss reserves (recoveries), net decreased for the year ended December 31, 2023 as a result of a decrease in loan loss reserves under the current expected credit losses model. The change in loan loss reserves for the year ended December 31, 2023 is primarily a result of: (i) principal repayments on seller financing, (ii) increased interest rates on variable rate loans, and (iii) macroeconomic conditions.
Gain (loss) on sales of real estate, net
Gain on sales of real estate, net increased during the year ended December 31, 2023 primarily as a result of: (i) the $60 million gain on sales of two lab buildings in Durham, North Carolina, which were sold during the three months ended March 31, 2023 and (ii) the $21 million gain on sales of two outpatient medical buildings, which were sold during the three months ended March 31, 2023, partially offset by: (i) the $4 million gain on sale of one lab building, which was sold during the three months ended March 31, 2022, (ii) the $10 million gain on sales of three outpatient medical buildings and one outpatient medical land parcel, which were sold during the three months ended June 30, 2022, and (iii) the $1 million gain on sales of two outpatient medical buildings, which were sold during the three months ended September 30, 2022.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.
Other income (expense), net
Other income, net decreased for the year ended December 31, 2023 primarily as a result of: (i) a gain upon change of control related to the sale of a 30% interest and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022, (ii) a gain on sale associated with the disposition of a hospital under a DFL during the first quarter of 2022, and (iii) a decrease in government grant income received under the CARES Act in 2023. The decrease in other income, net during the year ended December 31, 2023 was partially offset by: (i) other expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building, which were incurred in the first quarter of 2022 and (ii) casualty losses from a hurricane in the third quarter of 2022.
Income tax benefit (expense)
Income tax benefit increased for the year ended December 31, 2023 primarily as a result of a $14 million tax benefit recognized in connection with the reversal of a deferred tax asset valuation allowance during the fourth quarter of 2023 (see Note 16 to the Consolidated Financial Statements), partially offset by an increase in operating income associated with our CCRCs.
Equity income (loss) from unconsolidated joint ventures
Equity income from unconsolidated joint ventures increased for the year ended December 31, 2023 primarily as a result of increased income from the South San Francisco JVs and the SWF SH JV.
Income (loss) from discontinued operations
Income from discontinued operations decreased for the year ended December 31, 2023 a result of the completion of dispositions of our senior housing portfolios.
Noncontrolling interests’ share in continuing operations
Noncontrolling interests’ share in continuing operations increased for the year ended December 31, 2023 primarily as a result of a gain on sale of an outpatient medical building in a consolidated joint venture that was sold during the second quarter of 2023.
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) costs incurred to consummate the Mergers and the other transactions contemplated in the Merger Agreement; (ii) funding recurring operating expenses; (iii) meeting debt service requirements; and (iv) 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 sales of common stock under the ATM Program (as defined below).
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. Our two senior unsecured delayed draw term loans with an aggregate principal amount of $500 million (the “Term Loan Facilities”) and our Revolving Facility accrue interest at the Secured Overnight Financing Rate (“SOFR”) plus a margin that depends on the credit ratings of our senior unsecured long-term debt. We also pay a facility fee on the entire commitment under our Revolving Facility that depends upon our credit ratings. As of February 7, 2024, we had long-term credit ratings of Baa1 from Moody’s and BBB+ from S&P Global, and short-term credit ratings of P-2 from Moody’s and A-2 from S&P Global.
A downgrade in credit ratings by Moody’s or S&P Global may have a negative impact on the interest rates of our Revolving Facility and Term Loan Facilities 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 economic and market conditions on our business.
Material Cash Requirements
Our material cash requirements include the below contractual and other obligations.
Debt. As of December 31, 2023, we had total debt of $6.9 billion, including borrowings under our Revolving Facility and commercial paper program, senior unsecured notes, term loans, and mortgage debt. Of our total debt, the total amount payable within twelve months is comprised of $7 million of mortgage debt. Future interest payments associated with borrowings under our Revolving Facility, senior unsecured notes, term loans, and mortgage debt total $1.4 billion, $220 million of which are payable within twelve months. Future interest payments associated with commercial paper borrowings payable within the next twelve months total $21 million, assuming no change in interest rates and borrowings remain outstanding for the next twelve months. Commercial paper borrowings are backstopped by our Revolving Facility. As such, we calculate the weighted average remaining term of our commercial paper borrowings using the maturity date of our Revolving Facility. Additionally, we have secured commitments for the 2024 Term Loan, to be incurred as an incremental facility under our existing term loan agreement. In January 2024, we entered into forward-starting interest rate swap instruments that are designated as cash flow hedges that will effectively establish a fixed interest rate for the 2024 Term Loan at a blended contractual rate of 4.5%. See Note 10 to the Consolidated Financial Statements for additional information about our debt commitments.
Development and redevelopment commitments. Our development and redevelopment commitments represent construction and other commitments for development and redevelopment projects in progress and includes certain allowances for Company-owned tenant improvements that we have provided as a lessor. As of December 31, 2023, we had $152 million of development and redevelopment commitments, $135 million of which we expect to spend within the next twelve months.
Lease and other contractual commitments. Our lease and other contractual commitments represent our commitments, as lessor, under signed leases and contracts for operating properties and include allowances for Company-owned tenant improvements and leasing commissions. These commitments exclude allowances for Company-owned tenant improvements related to developments and redevelopments in progress for which we have executed an agreement with a general contractor to complete the tenant improvements, which are recognized as development and redevelopment commitments and are discussed further above. As of December 31, 2023, we had total lease and other contractual commitments of $28 million, $26 million of which we expect to spend within the next twelve months.
Construction loan commitments. Due to the terms of our SHOP seller financing notes receivable, as of December 31, 2023, we are obligated to provide additional loans up to $29 millionto fund senior housing redevelopment capital expenditure projects, which extend through 2024. See Note 7 to the Consolidated Financial Statements for additional information.
Ground and other operating lease commitments. Our ground and other operating lease commitments represent our commitments as lessee under signed operating leases. As of December 31, 2023, we had total ground and other operating lease commitments of $542 million, $17 million of which are payable within twelve months. See Note 6 to the Consolidated Financial Statements for additional information.
Redeemable noncontrolling interests.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 of December 31, 2023, three of the redeemable noncontrolling interests have met the conditions for redemption, but were not yet exercised. As of December 31, 2023, the redemption value of our redeemable noncontrolling interests was $49 million. See Note 12 to the Consolidated Financial Statements for additional information.
Success-Based Fees. We have engaged service providers, including investment banks and advisors, to help us negotiate the terms of the Mergers and to advise us on other merger-related matters. In connection with these services, we expect to be required to pay success-based fees to the extent that certain conditions, including the closing of the Mergers, are met. As of December 31, 2023, we expect to incur approximately $22 million of such success fees upon closing of the Mergers during the first quarter of 2024. As closing of the Mergers has not occurred, no such amounts have been paid or accrued through December 31, 2023. See Note 1 to the Consolidated Financial Statements for additional information.
Distribution and Dividend Requirements. Our dividend policy on our common stock is to distribute a percentage of our cash flow to ensure that we meet the dividend requirements of the Code, relative to maintaining our REIT status, while still allowing us to retain cash to fund capital improvements and other investment activities. Under the Code, REITs may be subject to certain federal income and excise taxes on undistributed taxable income. We paid quarterly cash dividends of $0.30 per common share in 2023. Our future common dividends, if and as declared, may vary and will be determined by the Board based upon the circumstances prevailing at the time, including our financial condition.
Off-Balance Sheet Arrangements
We own interests in certain unconsolidated joint ventures as described in Note 8 to the Consolidated Financial Statements. Two of these joint ventures have aggregate mortgage debt of $88 million, of which our share is $40 million. Except in limited circumstances, our risk of loss is limited to our investment in the applicable joint venture. We have no other material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.
Inflation
A significant portion of our revenues are derived from leases that generally provide for fixed rental rates, subject to annual escalations. A period of high inflation could result in increases in the Consumer Price Index in excess of our fixed annual escalations. Certain of our leases provide that annual rent is modified based on changes in the Consumer Price Index or other thresholds.
Most of our outpatient medical leases require the tenant to pay a share of property operating costs such as real estate taxes, insurance, and utilities. Substantially all of our lab leases require the tenant or operator to pay all of the property operating costs or reimburse us for all such costs.
Labor costs, costs of construction materials, interest, utilities, and other operating costs may increase during periods of inflation. Inflationary increases in expenses will generally be offset, in whole or in part, by the tenant expense reimbursements and contractual rent increases described above.
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.
The following table sets forth changes in cash flows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | Change |
Net cash provided by (used in) operating activities | $ | 956,242 | | | $ | 900,261 | | | $ | 55,981 | |
Net cash provided by (used in) investing activities | (576,754) | | | (876,343) | | | 299,589 | |
Net cash provided by (used in) financing activities | (337,299) | | | (116,532) | | | (220,767) | |
Operating Cash Flows
Our cash flows from operations are 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. Our net cash provided by operating activities increased $56 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of: (i) developments and redevelopments placed in service during 2022 and 2023, (ii) annual rent increases, (iii) higher nonrefundable entrance fee collections, and (iv) new leasing and renewal activity. The increase in net cash provided by operating activities was partially offset by: (i) an increase in interest expense and (ii) an increase in property operating expenses.
Investing Cash Flows
Our cash flows from investing activities are generally used to fund acquisitions, developments, and redevelopments of real estate, net of proceeds received from sales of real estate, sales of DFLs, and repayments on loans receivable. Our net cash used in investing activities decreased $300 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of the following: (i) a reduction in acquisitions of real estate, (ii) a reduction in development and redevelopment of real estate, (iii) an increase in proceeds from the sales of real estate, (iv) an increase in proceeds from principal repayments on loans receivable and marketable debt securities, and (v) an increase in proceeds from insurance recoveries. The decrease in cash used in investing activities was partially offset by: (i) proceeds received in 2022 from the sale of a 30% interest in seven previously consolidated lab buildings in South San Francisco, California and (ii) higher investments in unconsolidated joint ventures related to the funding of redevelopment projects.
Financing Cash Flows
Our cash flows from financing activities are generally impacted by issuances of equity, borrowings and repayments under our bank line of credit and commercial paper program, senior unsecured notes, term loans, and mortgage debt, net of dividends paid to common shareholders. Our net cash used in financing activities increased $221 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of the following: (i) issuance of the the Term Loan Facilities in 2022, (ii) settlement of contracts under our ATM Program in 2022, (iii) higher net repayments under the commercial paper program, (iv) higher repayments of mortgage debt, and (v) increased distributions to noncontrolling interests. The increase in net cash used in financing activities was partially offset by: (i) proceeds received from the senior unsecured notes issuances in January 2023 and May 2023 and (ii) a reduction in repurchases of common stock.
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 17 to the Consolidated Financial Statements.
Debt
In January 2023 and May 2023, we completed public offerings of $750 million aggregate principal amount of 5.25% senior unsecured notes due 2032.
In February 2023, the Revolving Facility was amended to change the interest rate benchmark from LIBOR to SOFR.
Also in February 2023, the agreements associated with $142 million of variable rate mortgage debt were amended to change the interest rate benchmarks from LIBOR to SOFR, effective March 2023. Concurrently, we modified the related interest rate swap instruments to reflect the change in the interest rate benchmarks from LIBOR to SOFR.
We have secured commitments for the 2024 Term Loan, to be incurred as an incremental facility under our existing term loan agreement. In January 2024, we entered into forward-starting interest rate swap instruments that are designated as cash flow hedges that will effectively establish a fixed interest rate for the 2024 Term Loan at a blended contractual rate of 4.5%.
In addition to the 2024 Term Loan, we anticipate that our principal indebtedness will increase due to debt assumed in connection with the Mergers.
See Note 10 to the Consolidated Financial Statements for additional information about our outstanding debt.
Approximately 90% and 85% of our consolidated debt was fixed rate debt as of December 31, 2023 and 2022, respectively. At December 31, 2023, our fixed rate debt and variable rate debt had weighted average interest rates of 3.70% and 5.72%, respectively. At December 31, 2022, our fixed rate debt and variable rate debt had weighted average interest rates of 3.46% and 4.91%, respectively. As of December 31, 2023, we had $142 million of variable rate mortgage debt and the $500 million Term Loan Facilities swapped to fixed rates through interest rate swap instruments. These interest rate swap instruments are designated as cash flow hedges. 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 “Item 7A, Quantitative and Qualitative Disclosures About Market Risk” below.
Supplemental Guarantor Information
Healthpeak OP has issued the senior unsecured notes described in Note 10 to the Consolidated Financial Statements. The obligations of Healthpeak OP to pay principal, premiums, if any, and interest on such senior unsecured notes are guaranteed on a full and unconditional basis by the Company.
Subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the parent guarantee is “full and unconditional”, the subsidiary obligor is a consolidated subsidiary of the parent company, the guaranteed security is debt or debt-like, and consolidated financial statements of the parent company have been filed. Accordingly, separate consolidated financial statements of Healthpeak OP have not been presented.
As permitted under Rule 13-01 of Regulation S-X, we have excluded the summarized financial information for the operating subsidiary because the Company and Healthpeak OP have no material assets, liabilities, or operations other than debt financing activities and their investments in non-guarantor subsidiaries, and management believes such summarized financial information would be repetitive and would not provide incremental value to investors.
Equity
At December 31, 2023, we had 547 million shares of common stock outstanding, equity totaled $6.9 billion, and our equity securities had a market value of $11.0 billion.
The Merger Agreement
Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, each outstanding share of Physicians Realty Trust will be converted into the right to receive 0.674 shares of our common stock when the Mergers are consummated. Based on the number of outstanding Physicians Realty Trust common shares as of January 8, 2024 (the record date for the special meetings of stockholders), we expect to issue approximately 163 million shares of our common stock when the Mergers are consummated.
At-The-Market Program
In February 2023, in connection with the Reorganization, we terminated our previous at-the-market equity offering program and established a new at-the-market equity offering program (the “ATM Program”) that allows for the sale of shares of common stock having an aggregate gross sales price of up to $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 ended December 31, 2023, we did not issue any shares of our common stock under any ATM program.
At December 31, 2023, $1.5 billionof 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 shares under our ATM Program.
See Note 12 to the Consolidated Financial Statements for additional information about our ATM Program.
Noncontrolling Interests
Healthpeak OP. Immediately following the Reorganization, Healthpeak Properties, Inc. was the initial sole member and 100% owner of Healthpeak OP. Subsequent to the Reorganization, certain of our employees (“OP Unitholders”) were issued approximately 2 million noncontrolling, non-managing member units in Healthpeak OP (“OP Units”), all of which were LTIP Units (see Note 14 to the Consolidated Financial Statements). When certain conditions are met, the OP Unitholders have the right to require redemption of part or all of their OP Units for cash or shares of our common stock, at our option as managing member of Healthpeak OP. The per unit redemption amount is equal to either one share of our common stock or cash equal to the fair value of a share of common stock at the time of redemption. We classify the OP Units in permanent equity because we may elect, in our sole discretion, to issue shares of our common stock to OP Unitholders who choose to redeem their OP Units rather than using cash. None of the outstanding OP Units met the criteria for redemption as of December 31, 2023.
DownREITs. At December 31, 2023, non-managing members held an aggregate of approximately 5 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). At December 31, 2023, the outstanding DownREIT units were convertible into approximately 7 million shares of our common stock.
Share Repurchase Program
On August 1, 2022, our Board of Directors approved the 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. 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 in August 2024 and may be suspended or terminated at any time without prior notice. During the year ended December 31, 2022, we repurchased 2.1 million shares of our common stock at a weighted average price of $27.16 per share for a total of $56 million. During the year ended December 31, 2023, there were no repurchases under the Share Repurchase Program. Therefore, at December 31, 2023, $444 million of our common stock remained available for repurchase under the Share Repurchase Program.
Shelf Registration
In February 2024, the Company and Healthpeak OP jointly filed a prospectus with the SEC as part of a registration statement on Form S-3, using an automatic shelf registration process. This shelf registration statement expires on February 8, 2027 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 future offerings of (i) the Company’s common stock, preferred stock, depositary shares, warrants, debt securities, and guarantees by the Company of debt securities issued by Healthpeak OP and/or by the Company’s existing and future subsidiaries, and (ii) Healthpeak OP’s debt securities and guarantees by Healthpeak OP of debt securities issued by the Company and/or by Healthpeak OP’s existing and future subsidiaries.
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):
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| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Net income (loss) applicable to common shares | $ | 304,284 | | | $ | 497,792 | | | $ | 502,271 | |
Real estate related depreciation and amortization | 749,901 | | | 710,569 | | | 684,286 | |
Healthpeak’s share of real estate related depreciation and amortization from unconsolidated joint ventures | 24,800 | | | 27,691 | | | 17,085 | |
Noncontrolling interests’ share of real estate related depreciation and amortization | (18,654) | | | (19,201) | | | (19,367) | |
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Loss (gain) on sales of depreciable real estate, net(1) | (86,463) | | | (10,422) | | | (605,311) | |
Healthpeak’s share of loss (gain) on sales of depreciable real estate, net, from unconsolidated joint ventures | — | | | 134 | | | (6,737) | |
Noncontrolling interests’ share of gain (loss) on sales of depreciable real estate, net | 11,546 | | | 12 | | | 5,555 | |
Loss (gain) upon change of control, net(2) | (234) | | | (311,438) | | | (1,042) | |
Taxes associated with real estate dispositions | — | | | 29 | | | 2,666 | |
Impairments (recoveries) of depreciable real estate, net | — | | | — | | | 25,320 | |
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Nareit FFO applicable to common shares | 985,180 | | | 895,166 | | | 604,726 | |
Distributions on dilutive convertible units and other | 9,394 | | | 9,407 | | | 6,162 | |
Diluted Nareit FFO applicable to common shares | $ | 994,574 | | | $ | 904,573 | | | $ | 610,888 | |
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Impact of adjustments to Nareit FFO: | | | | | |
Transaction and merger-related items(3) | $ | 13,835 | | | $ | 4,788 | | | $ | 7,044 | |
Other impairments (recoveries) and other losses (gains), net(4) | (3,850) | | | 3,829 | | | 24,238 | |
Restructuring and severance-related charges(5) | 1,368 | | | 32,749 | | | 3,610 | |
Loss (gain) on debt extinguishments | — | | | — | | | 225,824 | |
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Casualty-related charges (recoveries), net(6) | (4,033) | | | 4,401 | | | 5,203 | |
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Recognition (reversal) of valuation allowance on deferred tax assets(7) | (14,194) | | | — | | | — | |
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Total adjustments | $ | (6,874) | | | $ | 45,767 | | | $ | 265,919 | |
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FFO as Adjusted applicable to common shares | $ | 978,306 | | | $ | 940,933 | | | $ | 870,645 | |
Distributions on dilutive convertible units and other | 9,402 | | | 9,326 | | | 8,577 | |
Diluted FFO as Adjusted applicable to common shares | $ | 987,708 | | | $ | 950,259 | | | $ | 879,222 | |
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FFO as Adjusted applicable to common shares | $ | 978,306 | | | $ | 940,933 | | | $ | 870,645 | |
Stock-based compensation amortization expense | 14,480 | | | 16,537 | | | 18,202 | |
Amortization of deferred financing costs | 11,916 | | | 10,881 | | | 9,216 | |
Straight-line rents(8) | (14,387) | | | (49,183) | | | (31,188) | |
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AFFO capital expenditures | (113,596) | | | (108,510) | | | (111,480) | |
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Deferred income taxes | (816) | | | (4,096) | | | (8,015) | |
Amortization of above (below) market lease intangibles, net | (25,791) | | | (23,380) | | | (17,978) | |
Other AFFO adjustments | (9,335) | | | 520 | | | (1,532) | |
AFFO applicable to common shares | 840,777 | | | 783,702 | | | 727,870 | |
Distributions on dilutive convertible units and other | 6,581 | | | 6,594 | | | 6,164 | |
Diluted AFFO applicable to common shares | $ | 847,358 | | | $ | 790,296 | | | $ | 734,034 | |
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Refer to footnotes on the next page.
(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 year ended December 31, 2022 includes a gain upon change of control related to the sale of a 30% interest to a sovereign wealth fund and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California. The gain upon change of control is included in other income (expense), net in the Consolidated Statements of Operations.
(3)The year ended December 31, 2023 includes costs related to the Mergers, which are primarily comprised of legal, accounting, tax, and other costs that were incurred prior to year-end, partially offset by termination fee income associated with Graphite Bio, Inc., for which the lease terms have been modified to accelerate expiration of the lease to December 2024. Termination fee income is included in rental and related revenues on the Consolidated Statements of Operations.
(4)The year ended December 31, 2022 includes the following: (i) $7 million of charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado, which are included in general and administrative expenses in the Consolidated Statements of Operations, (ii) $14 million of expenses incurred for tenant relocation and other costs associated with the demolition of an outpatient medical building, which are included in other income (expense), net in the Consolidated Statements of Operations, and (iii) a $23 million gain on sale of a hospital under a DFL, which is included in other income (expense), net in the Consolidated Statements of Operations. The year ended December 31, 2021 includes the following: (i) a $29 million goodwill impairment charge in connection with our senior housing triple-net and SHOP asset sales, which is reported in income (loss) from discontinued operations in the Consolidated Statements of Operations and (ii) $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 years ended December 31, 2023, 2022, and 2021 include reserves and (recoveries) for expected loan losses recognized in impairments and loan loss reserves (recoveries), net in the Consolidated Statements of Operations.
(5)The year ended December 31, 2022 includes $32 million of severance-related charges associated with the departures of our former Chief Executive Officer and former Chief Legal Officer and General Counsel in the fourth quarter of 2022. These expenses are included in general and administrative expenses in the Consolidated Statements of Operations.
(6)Casualty-related charges (recoveries), net are recognized in other income (expense), net and equity income (loss) from unconsolidated joint ventures in the Consolidated Statements of Operations.
(7)In conjunction with classifying the assets related to the Callan Ridge JV (see Note 8 to the Consolidated Financial Statements) as held for sale as of December 31, 2023, we concluded it was more likely than not that we would realize the future value of certain deferred tax assets generated by the net operating losses of taxable REIT subsidiaries. Accordingly, during the year ended December 31, 2023, we recognized the reversal of a portion of the associated valuation allowance and recognized a corresponding income tax benefit. See Note 16 to the Consolidated Financial Statements for additional information.
(8)The year ended December 31, 2023 includes a $9 million write-off of straight-line rent receivable associated with Sorrento Therapeutics, Inc., which commenced voluntary reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code. This activity is reflected as a reduction of rental and related revenues in the Consolidated Statements of Operations.
Critical Accounting Estimates
The preparation of financial statements in conformity with U.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 could affect our financial position or results of operations. 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. Below is 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. For a more detailed discussion of our significant accounting policies, including those related to critical accounting estimates further discussed below, see Note 2 to the Consolidated Financial Statements.
Impairment of Long-Lived Assets
We assess the carrying value of our real estate assets and related intangibles (“real estate assets”) when events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability of real estate assets is measured by comparing the carrying amount of the real estate assets to the respective estimated future undiscounted cash flows. The expected future undiscounted cash flows reflect external market factors, and based on the specific facts and circumstances, may be probability-weighted to reflect multiple possible cash-flow scenarios, including selling the assets at various points in the future. Additionally, the estimated future undiscounted cash flows are calculated utilizing the lowest level of identifiable cash flows that are largely independent of the cash flows of other assets and liabilities. In order to review our real estate assets for recoverability, we make assumptions regarding external market conditions (including capitalization rates and growth rates), forecasted cash flows and sales prices, and our intent with respect to holding or disposing of the asset. If our analysis indicates that the carrying value of the real estate assets is not recoverable on an undiscounted cash flow basis, we recognize an impairment charge for the amount by which the carrying value exceeds the fair value of the real estate assets.
Determining the fair value of real estate assets, including assets classified as held for sale, involves significant judgment and generally utilizes market capitalization rates, comparable market transactions, estimated per unit or per square foot prices, negotiations with prospective buyers, and forecasted cash flows (primarily lease revenue rates, expense rates, and growth rates). Our ability to accurately predict future operating results and resulting cash flows, and estimate fair values, impacts the timing and recognition of impairments. While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for the impact of new accounting standards.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to various market risks, primarily from the potential loss arising from adverse changes in interest rates. We use derivative and other financial instruments in the normal course of business to mitigate interest rate risk. We do not use derivative financial instruments for speculative or trading purposes. Derivatives are recorded on the Consolidated Balance Sheets at fair value (see Note 21 to the Consolidated Financial Statements).
To illustrate the effect of movements in the interest rate markets, we performed a market sensitivity analysis on our hedging instruments. We applied various basis point spreads to the underlying interest rate curves of our derivative portfolio in order to determine the change in fair value. At December 31, 2023, a one percentage point increase or decrease in the underlying interest rate curve would result in a corresponding increase or decrease in the fair value of the derivative instruments by up to $18 million.
Interest Rate Risk
At December 31, 2023, our exposure to interest rate risk was primarily on our variable rate debt. At December 31, 2023, $142 million of our variable rate mortgage debt and our $500 million Term Loan Facilities were swapped to fixed rates through interest rate swap instruments. The interest rate swap instruments are designated as cash flow hedges, with the objective of managing the exposure to interest rate risk by converting the interest rates on our variable rate debt to fixed interest rates. At December 31, 2023, both the fair value and carrying value of the interest rate swap instruments were $21 million.
Our remaining variable rate debt at December 31, 2023 was comprised of borrowings under our commercial paper program and certain of our mortgage debt. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt and assets until their maturity or earlier prepayment and refinancing. If interest rates have risen at the time we seek to refinance our fixed rate debt, whether at maturity or otherwise, our future earnings and cash flows could be adversely affected by additional borrowing costs. Conversely, lower interest rates at the time of refinancing may reduce our overall borrowing costs. Interest rate changes will affect the fair value of our fixed rate instruments. At December 31, 2023, a one percentage point increase in interest rates would decrease the fair value of our fixed rate debt by approximately $255 million and a one percentage point decrease in interest rates would increase the fair value of our fixed rate debt by approximately $272 million. These changes would not materially impact earnings or cash flows. Conversely, changes in interest rates on variable rate debt would change our future earnings and cash flows, but not materially impact the fair value of those instruments. Assuming a one percentage point increase in the interest rates related to our variable rate debt, and assuming no other changes in the outstanding balance at December 31, 2023, our annual interest expense would increase by approximately $7 million. Lastly, assuming a one percentage point decrease in the interest rates related to our variable rate loans receivable, and assuming no other changes in the outstanding balance at December 31, 2023, our annual interest income would decrease by approximately $2 million.
ITEM 8. Financial Statements and Supplementary Data
Healthpeak Properties, Inc.
Index to the Consolidated Financial Statements
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Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) | |
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Certain of the Company's acquisitions involve the assumption of contract liabilities. The Company typically estimates the fair value of contract liabilities by applying a reasonable profit margin to the total discounted estimated future costs associated with servicing the contract. A variety of market and contract-specific conditions are considered when making assumptions that impact the estimated fair value of the contract liability.
The Company capitalizes direct construction and development costs, including predevelopment costs, interest, property taxes, insurance, and other costs directly related and essential to the development or construction of a real estate asset. The Company capitalizes construction and development costs while substantive activities are ongoing to prepare an asset for its intended use. The Company considers a construction project as substantially complete and held available for occupancy upon the completion of Company-owned tenant improvements, but no later than one year from cessation of significant construction activity. Costs incurred after a project is substantially complete and ready for its intended use, or after development activities have ceased, are expensed as incurred. For redevelopment of existing operating properties, the Company capitalizes the cost for the construction and improvement incurred in connection with the redevelopment.
Costs previously capitalized related to abandoned developments/redevelopments are charged to earnings. Expenditures for repairs and maintenance are expensed as incurred. The Company considers costs incurred in conjunction with re-leasing properties, including tenant improvements and lease commissions, to represent the acquisition of productive assets and such costs are reflected as investing activities in the Company’s consolidated statement of cash flows.
The Company computes depreciation on properties using the straight-line method over the assets’ estimated useful lives. Depreciation is discontinued when a property is identified as held for sale. Buildings and improvements are depreciated over useful lives ranging up to 60 years. Above and below market lease intangibles are amortized to revenue over the remaining noncancellable lease terms and renewal periods that are reasonably certain to be exercised, if any. In-place lease intangibles are amortized to expense over the remaining noncancellable lease term and renewal periods that are reasonably certain to be exercised, if any.
Concurrent with the Company's adoption of ASU 2016-02 on January 1, 2019, the Company elected to recognize expense associated with short-term leases (those with a noncancellable lease term of 12 months or less) under which the Company is the lessee on a straight-line basis and not recognize those leases on its consolidated balance sheets.
For leases other than short-term operating leases under which the Company is the lessee, such as ground leases and corporate office leases, the Company recognizes a right-of-use asset and related lease liability on its consolidated balance sheet at inception of the lease. The lease liability is calculated as the sum of: (i) the present value of minimum lease payments at lease commencement (discounted using the Company's secured incremental borrowing rate) and (ii) the present value of amounts probable of being paid under any residual value guarantees. The right-of-use asset is calculated as the lease liability, adjusted for the following: (i) any lease payments made to the lessor at or before the commencement date, minus any lease incentives received and (ii) any initial direct costs incurred by the Company.
Impairment of Long-Lived Assets and Goodwill
The Company assesses the carrying value of real estate assets and related intangibles (“real estate assets”) when events or changes in circumstances indicate that the carrying value may not be recoverable. The Company tests its real estate assets for impairment by comparing the sum of the expected future undiscounted cash flows to the carrying value of the real estate assets. The expected future undiscounted cash flows reflect external market factors and are probability-weighted to reflect multiple possible cash-flow scenarios, including selling the assets at various points in the future. Further, the analysis considers the impact, if any, of master lease agreements on cash flows, which are calculated utilizing the lowest level of identifiable cash flows that are largely independent of the cash flows of other assets and liabilities. If the carrying value exceeds the expected future undiscounted cash flows, an impairment loss will be recognized to the extent that the carrying value of the real estate assets exceeds their fair value.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Healthpeak Properties, Inc.
Opinion on the Financial Statements
We have audited the accompanying Consolidated Balance Sheets of Healthpeak Properties, Inc. and subsidiaries (the “Company”) as of December 31, 2023 and 2022, the related Consolidated Statements of Operations, Comprehensive Income (Loss), Equity and Redeemable Noncontrolling Interests, and Cash Flows, for each of the three years in the period ended December 31, 2023, and the related Notes and the schedules listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 9, 2024, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Impairments — Real Estate — Refer to Notes 2 and 5 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of impairment of real estate involves an assessment of the carrying value of real estate assets and related intangibles (“real estate assets”) when events or changes in circumstances indicate that the carrying value may not be recoverable.
Auditing the Company’s process to evaluate real estate assets for impairment was complex due to the subjectivity in determining whether impairment indicators were present. Additionally, for real estate assets where indicators of impairment were determined to be present, the determination of the future undiscounted cash flows involved significant judgment. In particular, the undiscounted cash flows were forecasted based on significant assumptions such as lease-up periods, lease revenue rates, operating expenses, and revenue and expense growth rates, and included judgments around the intended hold period and terminal capitalization rates.
Given the Company’s evaluation of impairment indicators, forecasted cash flows and sales prices of a long-lived asset requires management to make significant estimates and assumptions related to market capitalization rates, market prices per unit, and/or forecasted cash flows, performing audit procedures required a high degree of auditor judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to real estate asset impairment included the following, among others:
•We tested the effectiveness of controls over impairment of real estate assets, including those over identifying impairment indicators and the determination of forecasted undiscounted cash flows and sales prices for real estate assets.
•We performed an independent search for impairment indicators through the evaluation of several factors including an analysis of industry and market data, a comparison of real estate asset implied capitalization rates to market capitalization rates, and trends in financial performance.
•For real estate assets where indicators of impairment were determined to be present, we subjected a sample of undiscounted cash flow models to testing by (1) evaluating the source information used by management, (2) testing the mathematical accuracy of the undiscounted cash flow models, (3) evaluating management’s intended hold period, and (4) performing an independent recoverability test based on market data.
Determining the fair value of real estate assets, including assets classified as held-for-sale, involves significant judgment and generally utilizes market capitalization rates, comparable market transactions, estimated per unit or per square foot prices, negotiations with prospective buyers, and forecasted cash flows (lease revenue rates, expense rates, growth rates, etc. | | | | | |
/s/ DELOITTE & TOUCHE LLP | |
Costa Mesa, California
February 9, 2024
We have served as the Company’s auditor since 2010.
Healthpeak Properties, Inc.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
ASSETS | | | |
Real estate: | | | |
Buildings and improvements | $ | 13,329,464 | | | $ | 12,784,078 | |
Development costs and construction in progress | 643,217 | | | 760,355 | |
Land and improvements | 2,647,633 | | | 2,667,188 | |
Accumulated depreciation and amortization | (3,591,951) | | | (3,188,138) | |
Net real estate | 13,028,363 | | | 13,023,483 | |
| | | |
Loans receivable, net of reserves of $2,830 and $8,280 | 218,450 | | | 374,832 | |
Investments in and advances to unconsolidated joint ventures | 782,853 | | | 706,677 | |
Accounts receivable, net of allowance of $2,282 and $2,399 | 55,820 | | | 53,436 | |
Cash and cash equivalents | 117,635 | | | 72,032 | |
Restricted cash | 51,388 | | | 54,802 | |
Intangible assets, net | 314,156 | | | 418,061 | |
Assets held for sale, net | 117,986 | | | 49,866 | |
Right-of-use asset, net | 240,155 | | | 237,318 | |
Other assets, net | 772,044 | | | 780,722 | |
Total assets | $ | 15,698,850 | | | $ | 15,771,229 | |
| | | |
LIABILITIES AND EQUITY | | | |
Bank line of credit and commercial paper | $ | 720,000 | | | $ | 995,606 | |
Term loans | 496,824 | | | 495,957 | |
Senior unsecured notes | 5,403,378 | | | 4,659,451 | |
Mortgage debt | 256,097 | | | 346,599 | |
Intangible liabilities, net | 127,380 | | | 156,193 | |
Liabilities related to assets held for sale, net | 729 | | | 4,070 | |
Lease liability | 206,743 | | | 208,515 | |
Accounts payable, accrued liabilities, and other liabilities | 657,196 | | | 772,485 | |
Deferred revenue | 905,633 | | | 844,076 | |
Total liabilities | 8,773,980 | | | 8,482,952 | |
| | | |
Commitments and contingencies (Note 11) | | | |
| | | |
Redeemable noncontrolling interests | 48,828 | | | 105,679 | |
| | | |
| | | |
Common stock, $1.00 par value: 750,000,000 shares authorized; 547,156,311 and 546,641,973 shares issued and outstanding | 547,156 | | | 546,642 | |
Additional paid-in capital | 10,405,780 | | | 10,349,614 | |
Cumulative dividends in excess of earnings | (4,621,861) | | | (4,269,689) | |
Accumulated other comprehensive income (loss) | 19,371 | | | 28,134 | |
Total stockholders’ equity | 6,350,446 | | | 6,654,701 | |
Joint venture partners | 310,998 | | | 327,721 | |
Non-managing member unitholders | 214,598 | | | 200,176 | |
Total noncontrolling interests | 525,596 | | | 527,897 | |
Total equity | 6,876,042 | | | 7,182,598 | |
Total liabilities and equity | $ | 15,698,850 | | | $ | 15,771,229 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Revenues: | | | | | |
Rental and related revenues | $ | 1,631,805 | | | $ | 1,541,775 | | | $ | 1,378,384 | |
Resident fees and services | 527,417 | | | 494,935 | | | 471,325 | |
Interest income | 21,781 | | | 23,300 | | | 37,773 | |
Income from direct financing leases | — | | | 1,168 | | | 8,702 | |
Total revenues | 2,181,003 | | | 2,061,178 | | | 1,896,184 | |
Costs and expenses: | | | | | |
Interest expense | 200,331 | | | 172,944 | | | 157,980 | |
Depreciation and amortization | 749,901 | | | 710,569 | | | 684,286 | |
Operating | 902,060 | | | 862,991 | | | 773,279 | |
General and administrative | 95,132 | | | 131,033 | | | 98,303 | |
Transaction and merger-related costs | 17,515 | | | 4,853 | | | 1,841 | |
| | | | | |
Impairments and loan loss reserves (recoveries), net | (5,601) | | | 7,004 | | | 23,160 | |
Total costs and expenses | 1,959,338 | | | 1,889,394 | | | 1,738,849 | |
Other income (expense): | | | | | |
Gain (loss) on sales of real estate, net | 86,463 | | | 9,078 | | | 190,590 | |
Gain (loss) on debt extinguishments | — | | | — | | | (225,824) | |
Other income (expense), net | 6,808 | | | 326,268 | | | 6,266 | |
Total other income (expense), net | 93,271 | | | 335,346 | | | (28,968) | |
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | 314,936 | | | 507,130 | | | 128,367 | |
Income tax benefit (expense) | 9,617 | | | 4,425 | | | 3,261 | |
Equity income (loss) from unconsolidated joint ventures | 10,204 | | | 1,985 | | | 6,100 | |
Income (loss) from continuing operations | 334,757 | | | 513,540 | | | 137,728 | |
Income (loss) from discontinued operations | — | | | 2,884 | | | 388,202 | |
Net income (loss) | 334,757 | | | 516,424 | | | 525,930 | |
Noncontrolling interests’ share in continuing operations | (28,748) | | | (15,975) | | | (17,851) | |
Noncontrolling interests’ share in discontinued operations | — | | | — | | | (2,539) | |
Net income (loss) attributable to Healthpeak Properties, Inc. | 306,009 | | | 500,449 | | | 505,540 | |
| | | | | |
Participating securities’ share in earnings | (1,725) | | | (2,657) | | | (3,269) | |
Net income (loss) applicable to common shares | $ | 304,284 | | | $ | 497,792 | | | $ | 502,271 | |
| | | | | |
Basic earnings (loss) per common share: | | | | | |
Continuing operations | $ | 0.56 | | | $ | 0.92 | | | $ | 0.22 | |
Discontinued operations | — | | | 0.00 | | | 0.71 | |
Net income (loss) applicable to common shares | $ | 0.56 | | | $ | 0.92 | | | $ | 0.93 | |
Diluted earnings (loss) per common share: | | | | | |
Continuing operations | $ | 0.56 | | | $ | 0.92 | | | $ | 0.22 | |
Discontinued operations | — | | | 0.00 | | | 0.71 | |
Net income (loss) applicable to common shares | $ | 0.56 | | | $ | 0.92 | | | $ | 0.93 | |
| | | | | |
| | | | | |
| | | | | |
Weighted average shares outstanding: | | | | | |
Basic | 547,006 | | | 538,809 | | | 538,930 | |
Diluted | 547,275 | | | 539,147 | | | 539,241 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Net income (loss) | $ | 334,757 | | | $ | 516,424 | | | $ | 525,930 | |
Other comprehensive income (loss): | | | | | |
| | | | | |
| | | | | |
Net unrealized gains (losses) on derivatives | (8,900) | | | 30,145 | | | 332 | |
Change in Supplemental Executive Retirement Plan obligation and other | 137 | | | 1,136 | | | 457 | |
Reclassification adjustment realized in net income (loss) | — | | | — | | | (251) | |
| | | | | |
Total other comprehensive income (loss) | (8,763) | | | 31,281 | | | 538 | |
Total comprehensive income (loss) | 325,994 | | | 547,705 | | | 526,468 | |
Total comprehensive (income) loss attributable to noncontrolling interests’ share in continuing operations | (28,748) | | | (15,975) | | | (17,851) | |
Total comprehensive (income) loss attributable to noncontrolling interests’ share in discontinued operations | — | | | — | | | (2,539) | |
Total comprehensive income (loss) attributable to Healthpeak Properties, Inc. | $ | 297,246 | | | $ | 531,730 | | | $ | 506,078 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | | | | | | | | | |
| Shares | | Amount | | Additional Paid-In Capital | | Cumulative Dividends In Excess Of Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Total Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
December 31, 2020 | 538,405 | | | $ | 538,405 | | | $ | 10,175,235 | | | $ | (3,976,232) | | | $ | (3,685) | | | $ | 6,733,723 | | | $ | 556,227 | | | $ | 7,289,950 | | | $ | 57,396 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | — | | | 505,540 | | | — | | | 505,540 | | | 20,346 | | | 525,886 | | | 44 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 538 | | | 538 | | | — | | | 538 | | | — | |
Issuance of common stock, net | 1,005 | | | 1,005 | | | 740 | | | — | | | — | | | 1,745 | | | — | | | 1,745 | | | — | |
Conversion of DownREIT units to common stock | 8 | | | 8 | | | 193 | | | — | | | — | | | 201 | | | (201) | | | — | | | — | |
Repurchase of common stock | (418) | | | (418) | | | (12,423) | | | — | | | — | | | (12,841) | | | — | | | (12,841) | | | — | |
Exercise of stock options | 97 | | | 97 | | | 3,194 | | | — | | | — | | | 3,291 | | | — | | | 3,291 | | | — | |
Stock-based compensation | — | | | — | | | 22,851 | | | — | | | — | | | 22,851 | | | — | | | 22,851 | | | — | |
Common dividends ($1.20 per share) | — | | | — | | | — | | | (650,082) | | | — | | | (650,082) | | | — | | | (650,082) | | | — | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (33,017) | | | (33,017) | | | (162) | |
| | | | | | | | | | | | | | | | | |
Purchase of noncontrolling interests | — | | | — | | | (5) | | | — | | | — | | | (5) | | | (65) | | | (70) | | | (60,065) | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 640 | |
Adjustments to redemption value of redeemable noncontrolling interests | — | | | — | | | (89,491) | | | — | | | — | | | (89,491) | | | — | | | (89,491) | | | 89,491 | |
December 31, 2021 | 539,097 | | | $ | 539,097 | | | $ | 10,100,294 | | | $ | (4,120,774) | | | $ | (3,147) | | | $ | 6,515,470 | | | $ | 543,290 | | | $ | 7,058,760 | | | $ | 87,344 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Net income (loss) | — | | | — | | | — | | | 500,449 | | | — | | | 500,449 | | | 15,876 | | | 516,325 | | | 99 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 31,281 | | | 31,281 | | | — | | | 31,281 | | | — | |
Issuance of common stock, net | 9,936 | | | 9,936 | | | 299,481 | | | — | | | — | | | 309,417 | | | — | | | 309,417 | | | — | |
Conversion of DownREIT units to common stock | 27 | | | 27 | | | 853 | | | — | | | — | | | 880 | | | (880) | | | — | | | — | |
Repurchase of common stock | (2,418) | | | (2,418) | | | (65,420) | | | — | | | — | | | (67,838) | | | — | | | (67,838) | | | — | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 31,412 | | | — | | | — | | | 31,412 | | | — | | | 31,412 | | | — | |
Common dividends ($1.20 per share) | — | | | — | | | — | | | (649,364) | | | — | | | (649,364) | | | — | | | (649,364) | | | — | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (30,389) | | | (30,389) | | | (160) | |
| | | | | | | | | | | | | | | | | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | 1,390 | |
| | | | | | | | | | | | | | | | | |
Adjustments to redemption value of redeemable noncontrolling interests | — | | | — | | | (17,006) | | | — | | | — | | | (17,006) | | | — | | | (17,006) | | | 17,006 | |
December 31, 2022 | 546,642 | | | $ | 546,642 | | | $ | 10,349,614 | | | $ | (4,269,689) | | | $ | 28,134 | | | $ | 6,654,701 | | | $ | 527,897 | | | $ | 7,182,598 | | | $ | 105,679 | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF EQUITY AND REDEEMABLE NONCONTROLLING INTERESTS (CONTINUED)
(In thousands, except per share data)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | | | | | | | | | | | | | |
| Shares | | Amount | | Additional Paid-In Capital | | Cumulative Dividends In Excess Of Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Stockholders’ Equity | | Total Noncontrolling Interests | | Total Equity | | Redeemable Noncontrolling Interests |
December 31, 2022 | 546,642 | | | $ | 546,642 | | | $ | 10,349,614 | | | $ | (4,269,689) | | | $ | 28,134 | | | $ | 6,654,701 | | | $ | 527,897 | | | $ | 7,182,598 | | | $ | 105,679 | |
Net income (loss) | — | | | — | | | — | | | 306,009 | | | — | | | 306,009 | | | 28,111 | | | 334,120 | | | 637 | |
Other comprehensive income (loss) | — | | | — | | | — | | | — | | | (8,763) | | | (8,763) | | | — | | | (8,763) | | | — | |
Issuance of common stock, net | 683 | | | 683 | | | 755 | | | — | | | — | | | 1,438 | | | — | | | 1,438 | | | — | |
Conversion of DownREIT units to common stock | 72 | | | 72 | | | 1,200 | | | — | | | — | | | 1,272 | | | (1,272) | | | — | | | — | |
Repurchase of common stock | (241) | | | (241) | | | (6,283) | | | — | | | — | | | (6,524) | | | — | | | (6,524) | | | — | |
| | | | | | | | | | | | | | | | | |
Stock-based compensation | — | | | — | | | 2,966 | | | — | | | — | | | 2,966 | | | 15,693 | | | 18,659 | | | — | |
Common dividends ($1.20 per share) | — | | | — | | | — | | | (658,181) | | | — | | | (658,181) | | | — | | | (658,181) | | | — | |
Distributions to noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (44,848) | | | (44,848) | | | (276) | |
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
Purchase of noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | (158) | | | (158) | | | — | |
Contributions from noncontrolling interests | — | | | — | | | — | | | — | | | — | | | — | | | 173 | | | 173 | | | 316 | |
Adjustments to redemption value of redeemable noncontrolling interests | — | | | — | | | 57,528 | | | — | | | — | | | 57,528 | | | — | | | 57,528 | | | (57,528) | |
December 31, 2023 | 547,156 | | | $ | 547,156 | | | $ | 10,405,780 | | | $ | (4,621,861) | | | $ | 19,371 | | | $ | 6,350,446 | | | $ | 525,596 | | | $ | 6,876,042 | | | $ | 48,828 | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | | | | | | | | |
| Year Ended December 31, | |
| 2023 | | 2022 | | 2021 | |
Cash flows from operating activities: | | | | | | |
Net income (loss) | $ | 334,757 | | | $ | 516,424 | | | $ | 525,930 | | |
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | |
Depreciation and amortization of real estate, in-place lease, and other intangibles | 749,901 | | | 710,569 | | | 684,286 | | |
| | | | | | |
| | | | | | |
Stock-based compensation amortization expense | 14,480 | | | 26,456 | | | 18,202 | | |
Amortization of deferred financing costs | 11,916 | | | 10,881 | | | 9,216 | | |
Straight-line rents | (14,387) | | | (49,183) | | | (31,188) | | |
Amortization of nonrefundable entrance fees and above (below) market lease intangibles | (108,988) | | | (102,747) | | | (94,362) | | |
| | | | | | |
| | | | | | |
| | | | | | |
Equity loss (income) from unconsolidated joint ventures | (10,204) | | | (2,049) | | | (11,235) | | |
Distributions of earnings from unconsolidated joint ventures | 910 | | | 943 | | | 4,976 | | |
| | | | | | |
Loss (gain) on sale of real estate under direct financing leases | — | | | (22,693) | | | — | | |
Deferred income tax expense (benefit) | (14,605) | | | (6,001) | | | (5,792) | | |
Impairments and loan loss reserves (recoveries), net | (5,601) | | | 7,004 | | | 55,896 | | |
Loss (gain) on debt extinguishments | — | | | — | | | 225,824 | | |
Loss (gain) on sales of real estate, net | (86,463) | | | (10,422) | | | (605,311) | | |
Loss (gain) upon change of control, net | (234) | | | (311,438) | | | (1,042) | | |
Casualty-related loss (recoveries), net | (3,085) | | | 7,168 | | | 1,632 | | |
| | | | | | |
Other non-cash items | 4,900 | | | 6,489 | | | (8,178) | | |
Changes in: | | | | | | |
Decrease (increase) in accounts receivable and other assets, net | (21,566) | | | (17,433) | | | 18,626 | | |
Increase (decrease) in accounts payable, accrued liabilities, and deferred revenue | 104,511 | | | 136,293 | | | 7,768 | | |
Net cash provided by (used in) operating activities | 956,242 | | | 900,261 | | | 795,248 | | |
Cash flows from investing activities: | | | | | | |
| | | | | | |
| | | | | | |
Acquisitions of real estate | (15,847) | | | (178,133) | | | (1,483,026) | | |
Development, redevelopment, and other major improvements of real estate | (731,206) | | | (861,636) | | | (610,555) | | |
| | | | | | |
| | | | | | |
Leasing costs, tenant improvements, and recurring capital expenditures | (113,596) | | | (108,510) | | | (111,480) | | |
| | | | | | |
| | | | | | |
Proceeds from sales of real estate, net | 141,651 | | | 47,885 | | | 2,399,120 | | |
Proceeds from the South San Francisco JVs transaction, net | — | | | 125,985 | | | — | | |
| | | | | | |
Investments in unconsolidated joint ventures | (88,391) | | | (21,143) | | | (25,260) | | |
Distributions in excess of earnings from unconsolidated joint ventures | 20,640 | | | 12,518 | | | 37,640 | | |
Proceeds from insurance recovery | 24,980 | | | 1,450 | | | — | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Proceeds from sales/principal repayments on loans receivable, direct financing leases, and marketable debt securities | 204,865 | | | 115,988 | | | 342,420 | | |
Investments in loans receivable and other | (19,850) | | | (10,747) | | | (17,827) | | |
| | | | | | |
| | | | | | |
Net cash provided by (used in) investing activities | (576,754) | | | (876,343) | | | 531,032 | | |
Cash flows from financing activities: | | | | | | |
Borrowings under bank line of credit and commercial paper | 10,344,705 | | | 15,882,153 | | | 16,821,450 | | |
Repayments under bank line of credit and commercial paper | (10,620,311) | | | (16,052,522) | | | (15,785,065) | | |
| | | | | | |
| | | | | | |
Issuances and borrowings of term loans, senior unsecured notes, and mortgage debt | 743,778 | | | 500,000 | | | 1,088,537 | | |
Repayments and repurchases of term loans, senior unsecured notes, and mortgage debt | (90,089) | | | (5,048) | | | (2,425,936) | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Payments for debt extinguishment and deferred financing costs | (7,322) | | | (4,171) | | | (236,942) | | |
| | | | | | |
Issuance of common stock and exercise of options, net of offering costs | 278 | | | 308,100 | | | 5,036 | | |
Repurchase of common stock | (6,524) | | | (67,838) | | | (12,841) | | |
Dividends paid on common stock | (657,021) | | | (648,047) | | | (650,082) | | |
Distributions to and purchase of noncontrolling interests | (45,282) | | | (30,549) | | | (93,314) | | |
| | | | | | |
Contributions from and issuance of noncontrolling interests | 489 | | | 1,390 | | | 640 | | |
Net cash provided by (used in) financing activities | (337,299) | | | (116,532) | | | (1,288,517) | | |
| | | | | | |
Net increase (decrease) in cash, cash equivalents, and restricted cash | 42,189 | | | (92,614) | | | 37,763 | | |
Cash, cash equivalents, and restricted cash, beginning of year | 126,834 | | | 219,448 | | | 181,685 | | |
Cash, cash equivalents, and restricted cash, end of year | $ | 169,023 | | | $ | 126,834 | | | $ | 219,448 | | |
| | | | | | |
| | | | | | |
See accompanying Notes to the Consolidated Financial Statements.
Healthpeak Properties, Inc.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. Business
Overview
Healthpeak Properties, Inc., a Standard & Poor’s 500 company, is a Maryland corporation that is organized to qualify as a real estate investment trust (“REIT”) that, together with its consolidated entities (collectively, “Healthpeak” or the “Company”), invests primarily in real estate serving the healthcare industry in the United States (“U.S.”). Healthpeak® acquires, develops, owns, leases, and manages healthcare real estate. The Company’s diverse portfolio is comprised of investments in the following reportable healthcare segments: (i) lab; (ii) outpatient medical; and (iii) continuing care retirement community (“CCRC”).
The Company’s corporate headquarters are in Denver, Colorado, and it has additional offices in California, Tennessee, and Massachusetts.
UPREIT Reorganization
On February 10, 2023, the Company completed its corporate reorganization (the “Reorganization”) into an umbrella partnership REIT (“UPREIT”). Substantially all of the Company’s business is conducted through Healthpeak OP, LLC (“Healthpeak OP”). The Company is the managing member of Healthpeak OP and does not have material assets or liabilities, other than through its investment in Healthpeak OP. For additional information on the UPREIT reorganization, see the Company’s Current Report on Form 8-K12B filed with the U.S. Securities and Exchange Commission (“SEC”) on February 10, 2023.
The Merger Agreement
On October 29, 2023, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Physicians Realty Trust, Physicians Realty L.P. (the “Physicians Partnership”), and certain of the Company’s subsidiaries, pursuant to which, among other things, and through a series of transactions (the “Mergers”), (i) each outstanding common share of Physicians Realty Trust (other than Physicians Realty Trust common shares to be canceled in accordance with the Merger Agreement) will be converted into the right to receive 0.674 (the “Exchange Ratio”) shares of Company common stock, and (ii) each outstanding common unit of the Physicians Partnership will be converted into common units in the successor entity to the Physicians Partnership equal to the Exchange Ratio. Following the transactions contemplated in the Merger Agreement, the successor entities to Physicians Realty Trust and the Physicians Partnership will be subsidiaries of Healthpeak OP.
The Merger Agreement contains customary representations, warranties, and covenants, as well as certain termination rights for the Company and Physicians Realty Trust, in each case, as more fully described in the Merger Agreement.
During the year ended December 31, 2023, the Company incurred approximately$11 million of merger-related costs, which primarily related to advisory, legal, accounting, and other costs. These merger-related costs are included in transaction and merger-related costs on the Consolidated Statements of Operations.
In addition, the Company has engaged service providers, including investment banks and advisors, to help the Company negotiate the terms of the transactions contemplated by the Merger Agreement and to advise the Company on other merger-related matters. In connection with these services, the Company expects to be required to pay success-based fees to the extent that certain conditions, including the closing of the transactions contemplated by the Merger Agreement, are met. As of December 31, 2023, the Company expects to incur approximately$22 million of such success fees. As closing of the transactions contemplated by the Merger Agreement has not occurred, no such amounts have been paid or accrued through December 31, 2023.
In connection with the Mergers, the Company filed a Registration Statement on Form S-4 with the SEC on December 15, 2023 (the “Initial Filing”), as amended on January 9, 2024, and a definitive joint proxy statement/prospectus for the Company and Physicians Realty Trust on January 11, 2024 in connection with their respective special meetings of stockholders and shareholders, as applicable, which will be held on February 21, 2024. Consummation of the Mergers are subject to the satisfaction or waiver of customary closing conditions, including the approval of the Company’s stockholders and the shareholders of Physicians Realty Trust. The parties expect the Mergers to close on March 1, 2024. If the Mergers are not consummated by July 31, 2024 (unless extended under certain circumstances), either the Company or Physicians Realty Trust may terminate the Merger Agreement.
NOTE 2. Summary of Significant Accounting Policies
Use of Estimates
Management is required to make estimates and assumptions in the preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”). These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from management’s estimates.
Basis of Presentation
The consolidated financial statements include the accounts of Healthpeak Properties, Inc., its wholly-owned subsidiaries, joint ventures (“JVs”), and variable interest entities (“VIEs”) that it controls through voting rights or other means. Intercompany transactions and balances have been eliminated upon consolidation.
The Company is required to continually evaluate its VIE relationships and consolidate these entities when it is determined to be the primary beneficiary of their operations. A VIE is broadly defined as an entity where either: (i) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support, (ii) substantially all of an entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights, or (iii) the equity investors as a group lack any of the following: (a) the power through voting or similar rights to direct the activities of an entity that most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of an entity, or (c) the right to receive the expected residual returns of an entity. Criterion (iii) above is generally applied to limited partnerships and similarly structured entities by assessing whether a simple majority of the limited partners hold substantive rights to participate in the significant decisions of the entity or have the ability to remove the decision maker or liquidate the entity without cause. If neither of those criteria are met, the entity is a VIE.
The designation of an entity as a VIE is reassessed upon certain events, including, but not limited to: (i) a change to the contractual arrangements of the entity or in the ability of a party to exercise its participation or kick-out rights, (ii) a change to the capitalization structure of the entity, or (iii) acquisitions or sales of interests that constitute a change in control.
A variable interest holder is considered to be the primary beneficiary of a VIE if it has the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and has the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE. The Company qualitatively assesses whether it is (or is not) the primary beneficiary of a VIE. Consideration of various factors include, but is not limited to, which activities most significantly impact the entity’s economic performance and the ability to direct those activities, its form of ownership interest, its representation on the VIE’s governing body, the size and seniority of its investment, its ability and the rights of other investors to participate in policy making decisions, its ability to manage its ownership interest relative to the other interest holders, and its ability to replace the VIE manager and/or liquidate the entity.
For its investments in joint ventures that are not considered to be VIEs, the Company evaluates the type of ownership rights held by the limited partner(s) that may preclude consolidation by the majority interest holder. The assessment of limited partners’ rights and their impact on the control of a joint venture should be made at inception of the joint venture and continually reassessed.
Revenue Recognition
Lease Classification
The Company classifies a lease as an operating lease if none of the following criteria are met: (i) transfer of ownership to the lessee by the end of the lease term, (ii) lessee has a purchase option during or at the end of the lease term that it is reasonably certain to exercise, (iii) the lease term is for the major part of the remaining economic life of the underlying asset, (iv) the present value of future minimum lease payments is equal to substantially all of the fair value of the underlying asset, or (v) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the Company at the end of the lease term.
Rental and Related Revenues
The Company recognizes rental revenue from its lab and outpatient medical buildings in accordance with Accounting Standards Codification (“ASC”) 842, Leases (“ASC 842”). The Company commences recognition of rental revenue for operating lease arrangements when the tenant has taken possession or controls the physical use of a leased asset. The tenant is not considered to have taken physical possession or have control of the leased asset until the Company-owned tenant improvements are substantially complete. If a lease arrangement provides for tenant improvements, the Company determines whether the tenant improvements are owned by the tenant or the Company. When the Company is the owner of the tenant improvements, any tenant improvements funded by the tenant are treated as lease payments which are deferred and amortized into income over the lease term. When the tenant is the owner of the tenant improvements, any tenant improvement allowance that is funded by the Company is treated as a lease incentive and amortized as a reduction of revenue over the lease term.
Ownership of tenant improvements is determined based on various factors including, but not limited to, the following criteria:
•lease stipulations of how and on what a tenant improvement allowance may be spent;
•which party to the arrangement retains legal title to the tenant improvements upon lease expiration;
•whether the tenant improvements are unique to the tenant or general purpose in nature;
•if the tenant improvements are expected to have significant residual value at the end of the lease term;
•the responsible party for construction cost overruns; and
•which party constructs or directs the construction of the improvements.
Certain leases provide for additional rents that are contingent upon a percentage of the building’s revenue in excess of specified base amounts or other thresholds. Such revenue is recognized when actual results reported by the tenant or estimates of tenant results, exceed the base amount or other thresholds, and only after any contingency has been removed (when the related thresholds are achieved). This may result in the recognition of rental revenue in periods subsequent to when such payments are received.
Tenant recoveries subject to operating leases generally relate to the reimbursement of real estate taxes, insurance, and repair and maintenance expense, and are recognized as both revenue (in rental and related revenues) and expense (in operating expenses) in the period the expense is incurred as the Company is the party paying the service provider. Rental and related revenues from other variable payments are recognized when the associated contingencies are removed. In accordance with ASC 842, the Company accounts for lease and nonlease components as a single lease component for the purpose of revenue recognition and disclosure.
For operating leases with minimum scheduled rent increases, the Company recognizes income on a straight-line basis over the lease term when collectibility of future minimum lease payments is probable. Recognizing rental income on a straight-line basis results in a difference in the timing of revenue amounts from what is contractually due from tenants. If the Company determines that collectibility of future minimum lease payments is not probable, the accounts receivable and straight-line rent receivable balance is written off and recognized as a decrease in revenue in that period and future revenue recognition is limited to amounts contractually owed and paid. The Company does not resume recognition of income on a straight-line basis unless it determines that collectibility of future payments related to these leases is probable. For the Company’s portfolio of operating leases that are deemed probable of collection but exhibit a certain level of collectibility risk, the Company may also recognize an incremental allowance as a reduction to revenue.
The Company’s operating leases generally contain options to extend lease terms at prevailing market rates at the time of expiration. Certain operating leases contain early termination options that require advance notice and payment of a penalty, which in most cases is substantial enough to be deemed economically disadvantageous by a tenant to exercise.
Resident Fees and Services
The Company recognizes resident fee and service revenue from its Senior Housing Operating Property (“SHOP”) portfolios and CCRC properties in accordance with ASC 606, Revenue from Contracts with Customers. Resident fee revenue is recorded when services are rendered and includes resident room and care charges, community fees, and other resident charges. Residency agreements for SHOP and CCRC facilities are generally for a term of 30 days to one year, with resident fees billed monthly, in advance. Revenue for certain care related services is recognized as services are provided and is billed monthly in arrears.
The Company’s CCRCs are operated as entrance fee communities, which typically require a resident to pay an upfront entrance fee that includes both a refundable portion and non-refundable portion. When the Company receives a nonrefundable entrance fee, it is recorded in deferred revenue in the Consolidated Balance Sheets and amortized into revenue over the estimated stay of the resident. The Company utilizes third-party actuarial experts in its determination of the estimated stay of residents.
Income from Direct Financing Leases
The Company utilizes the direct finance method of accounting to record direct financing lease (“DFL”) income. For a lease accounted for as a DFL, the net investment in the DFL represents receivables for the sum of future minimum lease payments and the estimated residual value of the leased property, less the unamortized unearned income. Unearned income is deferred and amortized to income over the lease term to provide a constant yield when collectibility of the lease payments is reasonably assured. During the first quarter of 2022, the Company sold its remaining hospital under a DFL.
Interest Income
Loans receivable are classified as held-for-investment based on management’s intent and ability to hold the loans for the foreseeable future or to maturity. Loans held-for-investment are carried at amortized cost and reduced by a valuation allowance for estimated credit losses, as necessary. When collectibility of the future payments is reasonably assured, the Company utilizes the interest method on a loan-by-loan basis to recognize interest income on its loans, which includes the amortization of discounts and premiums as well as loan fees paid and received.
Gain (loss) on sales of real estate, net
The Company recognizes a gain (loss) on sale of real estate when the criteria for an asset to be derecognized are met, which include when: (i) a contract exists, (ii) the buyer obtains control of the asset, and (iii) it is probable that the Company will receive substantially all of the consideration to which it is entitled. These criteria are generally satisfied at the time of sale.
Government Grant Income
On March 27, 2020, the federal government enacted the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) to provide financial aid to individuals, businesses, and state and local governments.During the years ended December 31, 2023, 2022, and 2021, the Company received government grants under the CARES Act primarily to cover increased expenses and lost revenues during the coronavirus pandemic. Grant income is recognized to the extent that qualifying expenses and lost revenues exceed grants received and the Company will comply with all conditions attached to the grant. As of December 31, 2023, the amount of qualifying expenditures and lost revenues exceeded grant income recognized and the Company believes it has complied and will continue to comply with all grant conditions. In the event of non-compliance, all such amounts received are subject to recapture.
The following table summarizes information related to government grant income received and recognized by the Company (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, | |
| | | | | 2023 | | 2022 | | 2021 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Government grant income recorded in other income (expense), net | | | | | $ | 184 | | | $ | 6,765 | | | $ | 1,412 | | |
Government grant income recorded in equity income (loss) from unconsolidated joint ventures | | | | | 229 | | | 878 | | | 1,749 | | |
Government grant income recorded in income (loss) from discontinued operations | | | | | — | | | 217 | | | 3,669 | | |
Total government grants received | | | | | $ | 413 | | | $ | 7,860 | | | $ | 6,830 | | |
Credit Losses
The Company evaluates the liquidity and creditworthiness of its occupants, operators, and borrowers on a monthly and quarterly basis to determine whether any updates to the future expected losses recognized upon inception are necessary. The Company’s evaluation considers payment history and current credit status, industry conditions, current economic conditions, forecasted economic conditions, individual and portfolio property performance, credit enhancements, liquidity, and other factors. Future economic conditions are based primarily on near-term economic forecasts from the Federal Reserve and reasonable assumptions for long-term economic trends. The determination of loan losses also considers concentration of credit risk associated with the senior housing industry to which its loans receivable relate. The Company’s occupants, operators, and borrowers furnish property, portfolio, and guarantor/operator-level financial statements, among other information, on a monthly or quarterly basis; the Company utilizes this financial information to calculate the lease or debt service coverages in its assessment of internal ratings that it uses as a primary credit quality indicator. Lease and debt service coverage information is evaluated together with other property, portfolio, and operator performance information, including revenue, expense, net operating income, occupancy, rental rate, reimbursement trends, capital expenditures, and EBITDA (defined as earnings before interest, tax, and depreciation and amortization), along with other liquidity measures. The Company evaluates, on a monthly basis or immediately upon a significant change in circumstance, its occupants’, operators’, and borrowers’ ability to service their obligations with the Company.
In connection with the Company’s quarterly review process or upon the occurrence of a significant event, loans receivable and DFLs (collectively, “finance receivables”), are reviewed and assigned an internal rating of Performing, Watch List, or Workout. Finance receivables that are deemed Performing meet all present contractual obligations, and collection and timing, of all amounts owed is reasonably assured. Watch List finance receivables are defined as finance receivables that do not meet the definition of Performing or Workout. Workout finance receivables are defined as finance receivables in which the Company has determined, based on current information and events, that: (i) it is probable it will be unable to collect all amounts due according to the contractual terms of the agreement, (ii) the tenant, operator, or borrower is delinquent on making payments under the contractual terms of the agreement, and (iii) the Company has commenced action or anticipates pursuing action in the near term to seek recovery of its investment.
Finance receivables are placed on nonaccrual status when management determines that the collectibility of contractual amounts is not reasonably assured (the asset will have an internal rating of either Watch List or Workout). Further, the Company performs a credit analysis to support the tenant’s, operator’s, borrower’s, and/or guarantor’s repayment capacity and the underlying collateral values. The Company uses the cash basis method of accounting for finance receivables placed on nonaccrual status unless one of the following conditions exist whereby it utilizes the cost recovery method of accounting if: (i) the Company determines that it is probable that it will only recover the recorded investment in the finance receivable, net of associated allowances or charge-offs (if any), or (ii) the Company cannot reasonably estimate the amount of an impaired finance receivable. For cash basis method of accounting, the Company applies payments received, excluding principal paydowns, to interest income so long as that amount does not exceed the amount that would have been earned under the original contractual terms. For cost recovery method of accounting, any payment received is applied to reduce the recorded investment. Generally, the Company returns a finance receivable to accrual status when all delinquent payments become current under the terms of the loan or lease agreements and collectibility of the remaining contractual loan or lease payments is reasonably assured.
At inception of a finance receivable, the Company recognizes an allowance for credit losses expected to be incurred over the life of the instrument. The model utilized by the Company to determine such losses emphasizes historical experience and future market expectations to determine a loss to be recognized at inception. However, the model is applied on an individual basis and relies on counter-party specific information to ensure the most accurate estimate is recognized. The Company also performs a quarterly review process (or upon the occurrence of a significant event) to evaluate its borrowers’ creditworthiness and liquidity to determine the amount of credit losses to recognize during the period. If a finance receivable is deemed partially or wholly uncollectible, the uncollectible balance is deducted from the allowance in the period in which such determination is made. Credit loss expenses and recoveries are recorded in impairments and loan loss reserves (recoveries), net.
Real Estate
The Company’s real estate acquisitions are generally classified as asset acquisitions for which the Company records identifiable assets acquired, liabilities assumed, and any associated noncontrolling interests at cost on a relative fair value basis. In addition, for such asset acquisitions, no goodwill is recognized, third party transaction costs are capitalized and any associated contingent consideration is generally recorded when the amount of consideration is reasonably estimable and probable of being paid.
The Company assesses fair value based on available market information, such as capitalization and discount rates, comparable sale transactions, and relevant per square foot or unit cost information. A real estate asset’s fair value may be determined utilizing cash flow projections that incorporate such market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, as well as market and economic conditions. The fair value of tangible assets of an acquired property is based on the value of the property as if it is vacant.
The Company recognizes acquired “above and below market” leases at their relative fair value (for asset acquisitions) using discount rates which reflect the risks associated with the leases acquired. The fair value is based on the present value of the difference between (i) the contractual amounts paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each in-place lease, measured over a period equal to the remaining term of the lease for above market leases and the initial term plus the extended term for any leases with renewal options that are reasonably certain to be exercised. Other intangible assets acquired include amounts for in-place lease values that are based on an evaluation of the specific characteristics of each property and the acquired tenant lease(s). Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions, and costs to execute similar leases. In estimating carrying costs, the Company includes estimates of lost rents at market rates during the hypothetical expected lease-up periods, which are dependent on local market conditions and expected trends. In estimating costs to execute similar leases, the Company considers leasing commissions, legal, and other related costs.
Certain of the Company's acquisitions involve the assumption of contract liabilities. The Company typically estimates the fair value of contract liabilities by applying a reasonable profit margin to the total discounted estimated future costs associated with servicing the contract. A variety of market and contract-specific conditions are considered when making assumptions that impact the estimated fair value of the contract liability.
The Company capitalizes direct construction and development costs, including predevelopment costs, interest, property taxes, insurance, and other costs directly related and essential to the development or construction of a real estate asset. The Company capitalizes construction and development costs while substantive activities are ongoing to prepare an asset for its intended use. During the holding or development period, certain real estate assets generate incidental income that is not associated with the future profit or return from the intended use of the property. Such income is recognized as a reduction of the associated project costs. The Company considers a construction project as substantially complete and held available for occupancy upon the completion of Company-owned tenant improvements, but no later than one year from cessation of significant construction activity. Costs incurred after a project is substantially complete and ready for its intended use, or after development activities have ceased, are expensed as incurred. For redevelopment of existing operating properties, the Company capitalizes the cost for the construction and improvement incurred in connection with the redevelopment.
Costs previously capitalized related to abandoned developments/redevelopments are charged to earnings. Expenditures for repairs and maintenance are expensed as incurred. The Company considers costs incurred in conjunction with re-leasing properties, including tenant improvements and lease commissions, to represent the acquisition of productive assets and such costs are reflected as investing activities in the Company’s Consolidated Statements of Cash Flows.
Initial direct costs incurred in connection with successful property leasing are capitalized as deferred leasing costs and classified as investing activities in the Consolidated Statements of Cash Flows. Initial direct costs include only those costs that are incremental to the arrangement and would not have been incurred if the lease had not been obtained. Initial direct costs consist of leasing commissions paid to external third party brokers and lease incentives. Initial direct costs are included in other assets, net in the Consolidated Balance Sheets and amortized in depreciation and amortization in the Consolidated Statements of Operations using the straight-line method over the lease term.
The Company computes depreciation on properties using the straight-line method over the assets’ estimated useful lives. These useful lives are reassessed following changes in the remaining period that the asset is expected to be held and used, and depreciation is discontinued when a property meets the criteria to be classified as held for sale. Buildings and improvements are depreciated over useful lives ranging up to approximately 50 years. Above and below market lease intangibles are amortized to revenue over the remaining noncancellable lease terms and renewal periods that are reasonably certain to be exercised, if any. In-place lease intangibles are amortized to expense over the remaining noncancellable lease term and renewal periods that are reasonably certain to be exercised, if any.
Lessee Accounting
For leases greater than 12 months for which the Company is the lessee, such as ground leases and corporate office leases, the Company recognizes a right-of-use asset and related lease liability on the Consolidated Balance Sheets at inception of the lease. The lease liability is calculated as the sum of: (i) the present value of minimum lease payments at lease commencement (discounted using the Company's secured incremental borrowing rate) and (ii) the present value of amounts probable of being paid under any residual value guarantees. Certain of the Company’s lease agreements have options to extend or terminate the contract terms upon meeting certain criteria. The lease term utilized in the calculation of the lease liability includes these options if they are considered reasonably certain of exercise. The right-of-use asset is calculated as the lease liability, adjusted for the following: (i) any lease payments made to the lessor at or before the commencement date, minus any lease incentives received and (ii) any initial direct costs incurred by the Company. Lease expense related to corporate assets is included in general and administrative expenses and lease expense related to ground leases is included within operating expenses in the Company’s Consolidated Statements of Operations.
For leases with a noncancellable lease term of 12 months or less for which the Company is the lessee, the Company recognizes expenses on a straight-line basis and does not recognize such leases on the Consolidated Balance Sheets.
Impairment of Long-Lived Assets and Goodwill
The Company assesses the carrying value of real estate assets and related intangibles (“real estate assets”) when events or changes in circumstances indicate that the carrying value may not be recoverable. The Company tests its real estate assets for impairment by comparing the sum of the expected future undiscounted cash flows to the carrying value of the real estate assets. The expected future undiscounted cash flows reflect external market factors and the expected use and eventual disposition of the asset, and based on the specific facts and circumstances, may be probability-weighted to reflect multiple possible cash-flow scenarios, including selling the assets at various points in the future. Further, the analysis considers the impact, if any, of master lease agreements on cash flows, which are calculated utilizing the lowest level of identifiable cash flows that are largely independent of the cash flows of other assets and liabilities. If the carrying value exceeds the expected future undiscounted cash flows, an impairment loss will be recognized to the extent that the carrying value of the real estate assets exceeds their fair value.
Determining the fair value of real estate assets, including assets classified as held-for-sale, involves significant judgment and generally utilizes market capitalization rates, comparable market transactions, estimated per unit or per square foot prices, negotiations with prospective buyers, and forecasted cash flows (primarily lease revenue rates, expense rates, and growth rates).
When testing goodwill for impairment, if the Company concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying value, the Company recognizes an impairment loss for the amount by which the carrying value, including goodwill, exceeds the reporting unit’s fair value.
Assets Held for Sale and Discontinued Operations
The Company classifies a real estate property as held for sale when: (i) management has approved the disposal, (ii) the property is available for sale in its present condition, (iii) an active program to locate a buyer has been initiated, (iv) it is probable that the property will be disposed of within one year, (v) the property is being marketed at a reasonable price relative to its fair value, and (vi) it is unlikely that the disposal plan will significantly change or be withdrawn. If a real estate property is classified as held for sale, it is reported at the lower of its carrying value or fair value less costs to sell and no longer depreciated.
The Company classifies a loan receivable as held for sale when management no longer has the intent and ability to hold the loan receivable for the foreseeable future or until maturity. If a loan receivable is classified as held for sale, it is reported at the lower of amortized cost or fair value.
A discontinued operation represents: (i) a component of the Company or group of components that has been disposed of or is classified as held for sale in a single transaction and represents a strategic shift that has or will have a major effect on the Company’s operations and financial results or (ii) an acquired business that is classified as held for sale on the date of acquisition. Examples of a strategic shift may include disposing of: (i) a separate major line of business, (ii) a separate major geographic area of operations, or (iii) other major parts of the Company.
Senior Housing Triple-Net and Senior Housing Operating Portfolio Dispositions
In 2020, the Company concluded that the dispositions of its senior housing triple-net and SHOP portfolios represented a strategic shift that had a major effect on its operations and financial results. Therefore, the results of senior housing triple-net and SHOP assets are classified as discontinued operations in all periods presented herein. In September 2021, the Company successfully completed the disposition of the remaining senior housing triple-net and SHOP properties. See Note 4 for further information.
Investments in Unconsolidated Joint Ventures
Investments in entities the Company does not consolidate, but over which the Company has the ability to exercise significant influence over operating and financial policies, are reported under the equity method of accounting. Under the equity method of accounting, the Company’s share of the investee’s earnings or losses is included in equity income (loss) from unconsolidated joint ventures within the Company’s consolidated statementsConsolidated Statements of operations.Operations.
The initial carrying value of investments in unconsolidated joint ventures is based on the amount paid to purchase the joint venture interest, the fair value of assets contributed to the joint venture, or the fair value of the assets prior to the sale of interests in the joint venture. To the extent that the Company’s cost basis is different from the basis reflected at the joint venture level, the basis difference is generally amortized over the lives of the related assets and liabilities, and such amortization is included in the Company’s share of equity in earnings of the joint venture. TheIf an equity method investment shows indicators of impairment, the Company evaluates its equity method investments for impairment based on a comparison of the fair value of the equity method investment to its carrying value. When the Company determines a decline in fair value below carrying value of an investment in an unconsolidated joint venture is other-than-temporary, an impairment is recorded. The Company recognizes gains on the sale of interests in joint ventures to the extent the economic substance of the transaction is a sale.
The Company’s fair values of its equity method investments are determined based on discounted cash flow models that include all estimated cash inflows and outflows over a specified holding period and, where applicable, any estimated debt premiums or discounts. Capitalization rates, discount rates, and credit spreads utilized in these valuation models are based on assumptions that the Company believes to be within a reasonable range of current market rates for the respective investments.
Share-BasedStock-Based Compensation
Compensation expense for share-based awards granted to employees with graded vesting schedules is generally recognized on a straight-line basis over the vesting period. Forfeitures of share-based awards are recognized as they occur.
Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of cash on hand and short-term investments with original maturities of three months or less when purchased. Restricted cash primarily consists of amounts held by mortgage lenders to provide for: (i) real estate tax expenditures, (ii) tenant improvements, and (iii) capital expenditures, as well as security deposits and net proceeds from property sales that were executed as tax-deferred dispositions.
credit risk related to amounts in excess of such coverage. Derivatives and Hedging
During its normal course of business, the Company uses certain types of derivative instruments for the purpose of managing interest rate and foreign currency risk. To qualify for hedge accounting, derivative instruments used for risk management purposes must effectively reduce the risk exposure that they are designed to hedge. In addition, at inception of a qualifying cash flow hedging relationship, the underlying transaction or transactions, must be, and are expected to remain, probable of occurring in accordance with the Company’s related assertions.
The Company recognizes all derivative instruments, including embedded derivatives that are required to be bifurcated, as assets or liabilities to the consolidated balance sheetsConsolidated Balance Sheets at fair value. Changes in fair value of derivative instruments that are not designated in hedging relationships or that do not meet the criteria of hedge accounting are recognized in earnings.other income (expense), net. For derivative instruments designated in qualifying cash flow hedging relationships, changes in fair value related to the effective portion of the derivative instruments are recognized in accumulated other comprehensive income (loss), whereas changes in fair value ofrelated to the ineffective portion arewould be recognized in earnings.
If it is determined that a derivative instrument ceases to be highly effective as a hedge, or that it is probable the underlying forecasted transaction will not occur, the Company discontinues its cash flow hedge accounting prospectively and records the appropriate adjustment to earnings based on the current fair value of the derivative instrument. For net investment hedge accounting, upon sale or liquidation
Income Taxes
Healthpeak Properties, Inc. has elected REIT status and believes it has always operated so as to continue to qualify as a REIT under Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, Healthpeak Properties, Inc. will generally not be subject to U.S. federal income tax, provided that it continues to qualify as a REIT and makes distributions to stockholders equal to or in excess of its taxable income. In addition, the Company has formed several consolidated subsidiaries that have elected REIT status. Healthpeak Properties, Inc. and its consolidated REIT subsidiaries are each subject to the REIT qualification requirements under the Code. If any REIT fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates and may be ineligible to qualify as a REIT for four subsequent tax years.
Healthpeak Properties, Inc. and its consolidated REIT subsidiaries are subject to state and local and/or foreign income taxes in some jurisdictions. In certain circumstances each REIT may also be subject to federal excise taxes on undistributed income. In addition, certain activities that the Company undertakes may be conducted by entities that have elected to be treated as taxable REIT subsidiaries (“TRSs”). TRSs are subject to federal, state, and local income taxes. The Company recognizes tax penalties relating to unrecognized tax benefits as additional income tax expense. Interest relating to unrecognized tax benefits is recognized as interest expense.
The Company is required to evaluate its deferred tax assets for realizability and recognize a valuation allowance, which is recorded against its deferred tax assets, if it is more likely than not that the deferred tax assets will not be realized. The Company considers all available evidence in its determination of whether a valuation allowance for deferred tax assets is required.
Advertising Costs
All advertising costs are expensed as incurred and reported within operating expenses.expenses on the Consolidated Statements of Operations. During the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021, total advertising expense was $18$8 million, $13$8 million, and $9$11 million, respectively ($12 million, $13(zero, $0.1 million, and $9$3 million, respectively, of which is reported in income (loss) from discontinued operations)operations on the Consolidated Statements of Operations).
Capital Raising Issuance Costs
Costs incurred in connection with the issuance of common shares are recorded as a reduction of additional paid-in capital. Debt issuance costs related to debt instruments, excluding line of credit arrangements and commercial paper, are deferred, recorded as a reduction of the related debt liability, and amortized to interest expense over the remaining term of the related debt liability utilizing the effective interest method. Debt issuance costs related to line of credit arrangements and commercial paper are deferred, included in other assets, and amortized to interest expense on a straight-line basis over the remaining term of the related line of credit arrangement. Commercial paper are unsecured short-term debt securities with varying maturities. A line of credit serves as a liquidity backstop for repayment of commercial paper borrowings.
Penalties incurred to extinguish debt and any remaining unamortized debt issuance costs, discounts, and premiums are recognized as income or expense in the consolidated statementsConsolidated Statements of operationsOperations at the time of extinguishment.
Segment Reporting
The Company’s reportable segments, based on how it evaluates its business and allocates resources, are as follows: (i) life science,lab, (ii) outpatient medical, office, and (iii) CCRC.
In conjunction with establishing and beginning execution of a plan to dispose of the Company’s senior housing triple-net and SHOP portfolios during 2020, both of these previously reportable segments are now classified as discontinued operations in all periods presented herein. See Notes 1 and 5 for further information.
In December 2020, as a result of a change in how operating results are reported to the Company's chief operating decision makers (“CODMs”) for the purpose of evaluating performance and allocating resources, the Company’s hospitals were reclassified from other non-reportable segments to the medical office segment and the Company’s one remaining unconsolidated investment in a senior housing joint venture was reclassified from the SHOP segment to other non-reportable segments.
Additionally, in January 2020, primarily as a result of: (i) consolidating 13 of 15 CCRCs previously held by a CCRC joint venture (see discussion of the Brookdale 2019 Master Transaction and Cooperation Agreement in Note 3) and (ii) deconsolidating 19 SHOP assets into a new joint venture in December 2019, the Company's CODMs began reviewing operating results of CCRCs on a stand-alone basis and financial information for each respective segment inclusive of the Company’s share of unconsolidated joint ventures and exclusive of noncontrolling interests’ share of consolidated joint ventures. Therefore, during the first quarter of 2020, the Company began reporting CCRCs as a separate segment and segment measures inclusive of the Company’s share of unconsolidated joint ventures and exclusive of noncontrolling interests’ share of consolidated joint ventures.
All prior period segment information has been recast to conform to the current period presentation.
Noncontrolling Interests
Arrangements with noncontrolling interest holders are assessed for appropriate balance sheet classification based on the redemption and other rights held by the noncontrolling interest holder. Net income (loss) attributable to a noncontrolling interest is included in net income (loss) on the consolidated statementsConsolidated Statements of operationsOperations and, upon a gain or loss of control, the interest purchased or sold, and any interest retained, is recorded at fair value with any gain or loss recognized in earnings. The Company accounts for purchases or sales of equity interests that do not result in a change in control as equity transactions.
Redeemable Noncontrolling Interests
Certain of the Company’s noncontrolling interest holders have the ability to put their equity interests to the Company upon specified events or after the passage of a predetermined period of time. Each put option is payable in cash and subject to increases in redemption value in the event that the underlying property generates specified returns and meets certain promote thresholds pursuant to the respective agreements. Accordingly, the Company records redeemable noncontrolling interests outside of permanent equity and presents the redeemable noncontrolling interests at the greater of their carrying amount or redemption value at the end of each reporting period.
Healthpeak OP
Immediately following the Reorganization, Healthpeak Properties, Inc. was the initial sole member and 100% owner of Healthpeak OP. Subsequent to the Reorganization, certain employees of the Company (“OP Unitholders”) were issued noncontrolling, non-managing member units in Healthpeak OP (“OP Units”). When certain conditions are met, the OP Unitholders have the right to require redemption of part or all of their OP Units for cash or shares of the Company’s common stock, at the Company’s option as managing member of Healthpeak OP. The per unit redemption amount is equal to either one share of the Company’s common stock or cash equal to the fair value of a share of common stock at the time of redemption. The Company classifies the OP Units in permanent equity because it may elect, in its sole discretion, to issue shares of its common stock to OP Unitholders who choose to redeem their OP Units rather than using cash.
DownREITs
The Company consolidates non-managing member limited liability companies (“DownREITs”) because it exercises control, and the noncontrolling interests in these entities are carried at cost. The non-managing member limited liability company (“LLC”) units (“DownREIT units”) are exchangeable for an amount of cash approximating the then-current market value of shares of the Company’s common stock or, at the Company’s option, shares of the Company’s common stock (subject to certain adjustments, such as stock splits and reclassifications). Upon exchange of DownREIT units for the Company’s common stock, the carrying amount of the DownREIT units is reclassified to stockholders’ equity.
Foreign Currency Translation and Transactions
Assets and liabilities denominated in foreign currencies that are translated into U.S. dollars use exchange rates in effect at the end of the period, and revenues and expenses denominated in foreign currencies that are translated into U.S. dollars use average rates of exchange in effect during the related period. Gains or losses resulting from translation are included in accumulated other comprehensive income (loss). Gains or losses resulting from foreign currency transactions are translated into U.S. dollars at the rates of exchange prevailing at the dates of the transactions. The effects of transaction gains or losses are included in other income (expense), net in the consolidated statements of operations.
Fair Value Measurement
The Company measures and discloses the fair value of nonfinancial and financial assets and liabilities utilizing a hierarchy of valuation techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. This hierarchy requires the use of observable market data when available. These inputs have created the following fair value hierarchy:
•Level 1—quoted prices for identical instruments in active markets;
•Level 2—quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
•Level 3—fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
The Company measures fair value using a set of standardized procedures that are outlined herein for all assets and liabilities that are required to be measured at fair value. When available, the Company utilizes quoted market prices to determine fair value and classifies such items in Level 1. In instances where a market price is available, but the instrument is in an inactive or over-the-counter market, the Company consistently applies the dealer (market maker) pricing estimate and classifies the asset or liability in Level 2.
If quoted market prices or inputs are not available, fair value measurements are based on valuation models that utilize current market or independently sourced market inputs, such as interest rates, option volatilities, credit spreads, and/or market capitalization rates. Items valued using such internally-generated valuation techniques are classified according to the lowest level input that is significant to the fair value measurement. As a result, the asset or liability could be classified in either Level 2 or Level 3 even though there may be some significant inputs that are readily observable. Internal fair value models and techniques used by the Company include discounted cash flow models. The Company also considers its counterparty’s and own credit risk for derivative instruments and other liabilities measured at fair value. The Company has elected the mid-market pricing expedient when determining fair value.
Earnings per Share
Basic earnings per common share is computed by dividing net income (loss) applicable to common shares by the weighted average number of shares of common stock outstanding during the period. The Company accounts for unvested share-based payment awards that contain non-forfeitable dividend rights or dividend equivalents (whether paid or unpaid) as participating securities, which are included in the computation of earnings per share pursuant to the two-class method. Diluted earnings per common share is calculated by including the effect of dilutive securities, such as the impact of forward equity sales agreements using the treasury stock method and common shares issuable from the assumed conversion of DownREIT units, stock options, certain performance restricted stock units, and unvested restricted stock units.
Recent Accounting Pronouncements
Adopted
Revenue Recognition. Between May 2014 and February 2017, the Financial Accounting Standards Board (“FASB”) issued four ASUs changing the requirements for recognizing and reporting revenue (together, herein referred to as the “Revenue ASUs”): (i) ASU No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), (ii) ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net) (“ASU 2016-08”), (iii) ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients (“ASU 2016-12”), and (iv) ASU No. 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets (“ASU 2017-05”). ASU 2014-09 provides guidance for revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2016-08 is intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. ASU 2016-12 provides practical expedients and improvements on the previously narrow scope of ASU 2014-09. ASU 2017-05 clarifies the scope of the FASB’s guidance on nonfinancial asset derecognition and aligns the accounting for partial sales of nonfinancial assets and in-substance nonfinancial assets with the guidance in ASU 2014-09. The Company adopted the Revenue ASUs effective January 1, 2018 and utilized a modified retrospective adoption approach, resulting in a cumulative-effect adjustment to equity of $79 million as of January 1, 2018. Under the Revenue ASUs, the Company also elected to utilize a practical expedient which allowed the Company to only reassess contracts that were not completed as of the adoption date, rather than all historical contracts.
AsRecent Accounting Pronouncements
Adopted
Government Assistance. In November 2021, the timing and recognitionFinancial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-10, Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance (“ASU 2021-10”), which increased the transparency of government assistance including the disclosure of the majoritytypes of assistance, an entity’s accounting for assistance, and the effect of the Company's revenue is the same whether accounted for under the Revenue ASUs or lease accounting guidance (see discussion below), the impact of the Revenue ASUs, upon and subsequent to adoption, is generally limited to the following:
•Prior to theassistance on an entity’s financial statements. The adoption of ASU 2021-10 on January 1, 2022 did not have a material impact on the RevenueCompany’s consolidated financial position, results of operations, cash flows, or disclosures.
Reference Rate Reform. From March 2020 to December 2022, the FASB issued a series of ASUs the Company recognized a gain on sale of real estate using the full accrual method when collectibility of the sales price was reasonably assured, the Company was not obligated to perform additional activitiesthat provide optional expedients that may be considered significant,elected through December 31, 2024 to ease the initial investment frompotential burden in accounting for, or recognizing the buyer was sufficient, and other profit recognition criteria had been satisfied.effects of, reference rate reform on financial reporting. The Company deferred all or a portion of a gain on sale of real estate if the requirements for gain recognitionamendments in these ASUs were not met at the time of sale. Subsequent to adopting the Revenue ASUs on January 1, 2018, the Company began recognizing a gain on sale of real estateeffective immediately upon transferring control of the asset to the purchaser, which is generally satisfied at the time of sale. In conjunction with its adoption of the Revenue ASUs, the Company reassessed its historical partial sale of real estate transactions to determine which transactions, if any, were not completed contracts (i.e., the transaction did not qualify for sale treatment under previous guidance). The Company concluded that it had one such material transaction, its partial sale of RIDEA II inissuance. During the first quarter of 2017 (which was not a completed sale under historical guidance as2023, the Company amended certain of its variable rate mortgage debt and the Company's adoption date duerelated interest rate swap agreements to a minor obligationchange the interest rate benchmark from the London Interbank Offered Rate (“LIBOR”) to the Secured Overnight Financing Rate (“SOFR”) and accordingly, the Company elected to apply certain practical expedients provided by these ASUs related to cash flow hedges. These expedients and the interest sold). In accordance witheffects of reference rate reform have not had a material impact on the Revenue ASUs, the Company recorded its retained 40% equity investment at fair value asCompany’s consolidated financial position, results of the sale date. As a result, the Company recorded an adjustment to equity as of January 1, 2018 (under the modified retrospective transition approach) representing a step-up in the fair value of its equity investment in RIDEA II of $107 million (to a carrying value of $121 million as of January 1, 2018) and a $30 millionimpairment charge to decrease the carrying value to the sales price of the investment (see Note 5). The Company completed the sale of its equity investment in June 2018 and no longer holds an economic interest in RIDEA II.operations, cash flows, or disclosures.
•The Company generally expects that the Revenue ASUs will result in certain transactions qualifying as sales of real estate at an earlier date than under historical accounting guidance.Not Yet Adopted
Leases.Segment Reporting. In February 2016,November 2023, the FASB issued ASU No. 2016-02,2023-07, LeasesSegment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“(“ASU 2016-02”2023-07”)., to improve reportable segment disclosure requirements so that investors can better understand an entity’s overall performance and assess potential future cash flows. The amendments in ASU 2016-02 (codified under Accounting Standards Codification (“ASC”) 842, Leases) amends the previous accounting for leases2023-07 include, but are not limited to: (i) require lesseesdisclosure of, on an annual basis, significant segment expenses that are regularly provided to put most leasesthe chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss; (ii) disclosure of, on their balance sheets (notan annual and interim basis, an amount for other segment items by reportable segment and a description of its composition (the other segment items category is the difference between segment revenue less the significant expenses disclosed and each reported measure of segment profit or loss); (iii) disclosure of, on an interim basis, all currently required for short-term leases with lease termsannual disclosures about a reportable segment’s profit (loss) and assets; (iv) clarification that if the CODM uses more than one measure of 12 monthsa segment’s profit or less), but continue recognizing expenses on their income statementsloss in a manner similarassessing segment performance and deciding how to requirements under prior accounting guidance, (ii) eliminate real estate specific lease provisions, and (iii) modify the classification criteria and accounting for sales-type leases for lessors. Additionally, ASU 2016-02 provides a practical expedient, which the Company elected, that allowsallocate resources, an entity may report one or more of those additional measures of segment profit; and (v) disclosure of the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to not reassessallocate resources. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is evaluating the following upon adoption (must be elected as a group): (i) whether an expired or existing contract contains a lease arrangement, (ii) lease classification related to expired or existing lease arrangements, or (iii) whether costs incurred on expired or existing leases qualify as initial direct costs.
As a result of adoptingimpact ASU 2016-02 on January 1, 2019 using the modified retrospective transition approach, the Company recognized a cumulative-effect adjustment to equity of $1 million as of January 1, 2019. Under ASU 2016-02, the Company began capitalizing fewer costs related to the drafting and negotiation of its lease agreements. Additionally, the Company began recognizing all of its significant operating leases for which it is the lessee, including corporate office leases, equipment leases, and ground leases,2023-07 will have on its consolidated balance sheets as a lease liability and corresponding right-of-use asset. As such, the Company recognized a lease liability of $153 million and right-of-use asset of $166 million on January 1, 2019. The aggregate lease liability was calculated as the present value of minimum lease payments, discounted using a rate that approximated the Company's secured incremental borrowing rate at the time of adoption, adjusted for the noncancelable term of each lease. The right-of-use asset was calculated as the aggregate lease liability, adjusted for the existing accrued straight-line rent liability balance of $20 million and net unamortized above/below market ground lease intangible assets of $33 million.disclosures.
Under ASU 2016-02, a practical expedient was offered to lessees to make a policy election, which the Company elected, to not separate lease and nonlease components, but rather account for the combined components as a single lease component under ASC 842. Income Taxes. In July 2018,December 2023, the FASB issued ASU No. 2018-11,2023-09, Leases - TargetedIncome Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2018-11”2023-09”), which provides lessors withto provide disaggregated information about a similar option to electreporting entity’s effective tax rate reconciliation as well as information on income taxes paid. One of the amendments in ASU 2023-09 includes disclosure of, on an annual basis, a practical expedient allowing them to not separate leasetabular rate reconciliation (using both percentages and nonlease components in a contract for the purposereporting currency amounts) of revenue recognition and disclosure. This practical expedient is limited to circumstances in which: (i) the timing and patternreported income tax expense (or benefit) from continuing operations, to (ii) the product of transfer are the same for the nonlease componentincome (or loss) from continuing operations before income taxes and the related lease component and (ii) the lease component, if accounted for separately, would be classified as an operating lease. This practical expedient causes an entity to assess whether a contract is predominantly lease or service based and recognize the entire contract under the relevant accounting guidance (i.e., predominantly lease-based would be accounted for under ASU 2016-02 and predominantly service-based would be accounted for under the Revenue ASUs). The Company elected this practical expedient as well and, as a result, beginning January 1, 2019, the Company recognizes revenue from its senior housing triple-net, medical office, and life science properties under ASC 842 and revenue from its SHOP and CCRC properties under the Revenue ASUs (codified under ASC 606, Revenue from Contracts with Customers).
In December 2018, the FASB issued ASU No. 2018-20, Narrow Scope Improvements for Lessors (“ASU 2018-20”), which requires that a lessor: (i) exclude certain lessor costs paid directly by a lessee to third parties on behalfapplicable statutory federal income tax rate of the lessor from a lessor's measurementjurisdiction of variable lease revenue and associated expense (i.e., no gross up of revenue and expensedomicile using specific categories, including separate disclosure for these costs,) and (ii) include lessor costsany reconciling items within certain categories that are paid by the lessor and reimbursed by the lessee in the measurementequal to or greater than a specified quantitative threshold of variable lease revenue and the associated expense (i.e., gross up revenue and expense for these costs). This is consistent with the Company’s historical presentation and did not require a change on January 1, 2019.
Credit Losses. In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”)5%. ASU 2016-13 is intended2023-09 also requires disclosure of, on an annual basis, the year to improve financial reportingdate amount of income taxes paid (net of refunds received) disaggregated by requiring timelier recognitionfederal, state, and foreign jurisdictions, including additional disaggregated information on income taxes paid (net of credit losses on loans and other financial instruments held by financial institutions and other organizations.refunds received) to an individual jurisdiction equal to or greater than 5% of total income taxes paid (net of refunds received). The amendments in ASU 2016-13 eliminate the “probable” initial threshold2023-09 are effective for recognition of credit losses in previous accounting guidance and, instead, reflect an entity’s current estimate of all expected credit losses over the life of the financial instrument. Historically, when credit losses were measured under previous accounting guidance, an entity generally only considered past events and current conditions in measuring the incurred loss.annual periods beginning after December 15, 2024. The amendments in ASU 2016-13 broaden the information that an entity must consider in developing its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates more timely information in the estimate of expected credit loss.
As a result of adopting ASU 2016-13 on January 1, 2020 using the modified retrospective transition approach, the Company recognized a cumulative-effect adjustment to equity of $2 million as of January 1, 2020. Under ASU 2016-13, the Company began using a loss model that relies on future expected credit losses, rather than incurred losses, as was required under historical GAAP. Under the new model, the Company is required to recognize future credit losses expected to be incurred overevaluating the life ofimpact ASU 2023-09 will have on its finance receivables, including loans receivable, direct financing leases (“DFLs”), and certain accounts receivable, at inception of those instruments. The model emphasizes historical experience and future market expectations to determine a loss to be recognized at inception. However, the model continues to be applied on an individual basis and rely on counter-party specific information to ensure the most accurate estimate is recognized. The Company will reassess its reserves on finance receivables at each balance sheet date to determine if an adjustment to the previous reserve is necessary.
Accounting for Lease Concessions Related to COVID-19.disclosures. In April 2020, the FASB staff issued a question-and-answer document (the “Lease Modification Q&A”) focused on the application of lease accounting guidance to lease concessions provided as a result of COVID-19. Under ASC 842, the Company would have to determine, on a lease-by-lease basis, if a lease concession was the result of a new arrangement reached with the tenant (treated within the lease modification accounting framework) or if a lease concession was under the enforceable rights and obligations within the existing lease agreement (precluded from applying the lease modification accounting framework). The Lease Modification Q&A allows the Company, if certain criteria have been met, to bypass the lease-by-lease analysis, and instead elect to either apply the lease modification accounting framework or not, with such election applied consistently to leases with similar characteristics and similar circumstances. During the year ended December 31, 2020, the Company provided rent deferrals (to be repaid before the end of 2020) to certain tenants in its life science and medical office segments that were impacted by COVID-19 (discussed in further detail in Note 7). As it relates to these deferrals, the Company elected to not assess them on a lease-by-lease basis and to continue recognizing rent revenue on a straight-line basis.
While the Company’s election for rent deferrals will be applied consistently to future deferrals of a similar nature, if the Company grants future lease concessions of a different type (such as rent abatements), it will make an election related to those concessions at that time.
NOTE 3. Master Transactions and Cooperation Agreement with BrookdaleReal Estate
2019 Master Transactions and Cooperation Agreement with Brookdale2023 Real Estate Investment Acquisitions
60 Loomis Land Parcel
In October 2019,January 2023, the Company and Brookdale Senior Living Inc. (“Brookdale”) entered intoacquired a Master Transactions and Cooperation Agreement (the “2019 MTCA”), which includes a series of transactions related to its previously jointly owned 15-campus CCRC portfolio (the “CCRC JV”) and the portfolio of senior housing properties Brookdale triple-net leased fromlab land parcel in Cambridge, Massachusetts for $9 million.
Wylie Outpatient Medical Building
In April 2023, the Company which, atacquired the time, included 43 properties.
In connectionremaining 80% interest in one of the outpatient medical buildings in the Ventures IV unconsolidated joint venture for $4 million (see Note 8). Concurrent with the 2019 MTCA, the Company and Brookdale, and certain of their respective subsidiaries, closed the following transactions related to the CCRC JV on January 31, 2020:
•The Company, which owned a 49% interest in the CCRC JV, purchased Brookdale’s 51% interest in 13 of the 15 communities in the CCRC JV based on a valuation of $1.06 billion (the “CCRC Acquisition”);
•The management agreements related to the CCRC Acquisition communities were terminated and management transitioned (under new management agreements) from Brookdale to Life Care Services LLC (“LCS”); and
•The Company paid a $100 million management termination fee to Brookdale.
In addition, pursuant to the 2019 MTCA, the Company and Brookdale closed the following transactions related to properties Brookdale triple-net leased from the Company on January 31, 2020:
•Brookdale acquired 18 of the properties from the Company (the “Brookdale Acquisition Assets”) for cash proceeds of $385 million;
•The remaining 24 properties (excludes 1 property to be transitioned or sold to a third party, as discussed below) were restructured into a single master lease with 2.4% annual rent escalators and a maturity date of December 31, 2027 (the “2019 Amended Master Lease”);
•A portion of annual rent (amount in excess of 6.5% of sales proceeds) related to 14 of the 18 Brookdale Acquisition Assets was reallocated to the remaining properties under the 2019 Amended Master Lease; and
•Brookdale paid down $20 million of future rent under the 2019 Amended Master Lease.
As agreed to by the Company and Brookdale under the 2019 MTCA, in December 2020, the Company terminated the triple-net lease related to 1 property and converted it to a RIDEA structure. The 24 assets under the 2019 Amended Master Lease were sold in January 2021 (see Note 5).
Additionally, under the 2019 MTCA, the Company and Brookdale agreed to the following transactions which have not yet been completed:
•The CCRC JV will sell the remaining 2 CCRCs, which are being marketed for sale to third parties;
•The Company will provide up to $35 million of capital investment in the 2019 Amended Master Lease properties over a five-year term, which will increase rent by 7% of the amount spent, per annum. As of December 31, 2020, the Company had funded $5 million of this capital investment. Upon selling the 24 assets under the 2019 Amended Master Lease in January 2021, the remaining capital investment obligation was transferred to the buyer.
As a result of the above transactions, on January 31, 2020,acquisition, the Company began consolidating the 13 CCRCs in which it acquired Brookdale’s interest. Accordingly, the Company derecognized its investment in the CCRC JV of $323 millionbuilding and recognized a gain upon change of control of $170 million, which is included in other income (expense), net. In connection with consolidating the 13 CCRCs during the first quarter of 2020, the Company recognized real estate and intangible assets of $1.8 billion, refundable entrance fee liabilities of $308 million, contractual liabilities associated with previously collected non-refundable entrance fees of $436 million, debt assumed of $215 million, other net assets of $48 million, and cash paid of $396 million.
Upon sale of the 18 senior housing triple-net assets to Brookdale, the Company recognized an aggregate gain on sales of real estate of $164 million, which is recorded within income (loss) from discontinued operations.
Fair Value Measurement Techniques and Quantitative Information
At January 31, 2020, the Company performed a fair value assessment of each of the 2019 MTCA components that provided measurable economic benefit or detriment to the Company. Each fair value calculation was based on an income or market approach and relied on historical and forecasted net operating income, actuarial assumptions about the expected resident length of stay, and market data, including, but not limited to, discount rates ranging from 10% to 12%, annual rent escalators ranging from 2% to 3%, and real estate capitalization rates ranging from 7% to 9%. All assumptions were considered to be Level 3 measurements within the fair value hierarchy.
2017 MTCA with Brookdale
In November 2017, the Company and Brookdale entered into a Master Transactions and Cooperation Agreement (the “2017 MTCA”) to provide the Company with the ability to significantly reduce its concentration of assets leased to and/or managed by Brookdale. In connection with the overall transaction pursuant to the 2017 MTCA, the Company and Brookdale, and certain of their respective subsidiaries, agreed to the following:
•The Company, which owned 90% of the interests in its RIDEA I and RIDEA III joint ventures with Brookdale at the time the 2017 MTCA was executed, agreed to purchase Brookdale’s 10% noncontrolling interest in each joint venture. At the time the 2017 MTCA was executed, these joint ventures collectively owned and operated 58 independent living, assisted living, memory care, and/or skilled nursing facilities (the “RIDEA Facilities”). The Company completed its acquisitions of the RIDEA III noncontrolling interest for $32 million in December 2017 and the RIDEA I noncontrolling interest for $63 million in March 2018;
•The Company received the right to sell, or transition to other operators, 32 of the 78 total assets under an Amended and Restated Master Lease and Security Agreement (the “2017 Amended Master Lease”) with Brookdale and 36 of the RIDEA Facilities (and terminate related management agreements with an affiliate of Brookdale without penalty), certain of which were sold during 2018 and 2019;
•The Company provided an aggregate $5 million annual reduction in rent on 3 assets, effective January 1, 2018; and
•Brookdale agreed to purchase 2 of the assets under the 2017 Amended Master Lease for $35 million and 4 of the RIDEA Facilities for $240 million, all of which were sold in 2018.
During 2018, the Company terminated the previous management agreements or leases with Brookdale on 37 assets contemplated under the 2017 MTCA and completed the transition of 20 SHOP assets and 17 senior housing triple-net assets to other managers.
NOTE 4. Real Estate Transactions
2020 Real Estate Investments
The Post Acquisition
In April 2020, the Company acquired a life science campus in Waltham, Massachusetts for $320 million.
Scottsdale Gateway Acquisition
In July 2020, the Company acquired 1 medical office building (“MOB”) in Scottsdale, Arizona for $27 million.
Midwest MOB Portfolio Acquisition
In October 2020, the Company acquired a portfolio of 7 MOBs located in Indiana, Missouri, and Illinois for $169 million.
Cambridge Discovery Park Acquisition
In December 2020, the Company acquired 3 life science facilities in Cambridge, Massachusetts for $610 million and a 49% unconsolidated joint venture interest in a fourth property on the same campus for $54 million. If the fourth property is sold in a taxable transaction, the Company is generally obligated to indemnify its joint venture partner for its federal and state income taxes associated with the gain that existed at the time of the contribution to the joint venture.
South San Francisco Land Site Acquisition
In October 2020, the Company executed a definitive agreement to acquire approximately 12 acres of land for $128 million. The acquisition site is located in South San Francisco, California, adjacent to 2 sites currently held by the Company as land for future development. The Company made a $10 million nonrefundable deposit upon completing due diligence in November 2020 and expects to close the transaction in 2021.
Waldwick JV Interest Purchase
In October 2020, the Company acquired the remaining 15% equity interest of a senior housing joint venture structure (which owned 1 senior housing facility), in which the Company previously held an unconsolidated equity investment, for $4 million. Subsequent to acquisition, the Company owned 100% of the equity, began consolidating the facility, and recognized a gain upon change of control of $6 million, which is recorded in other income (expense), net within income (loss) from discontinued operations. In December 2020, the Company sold the property as part of the Atria SHOP Portfolio disposition discussed in Note 5.
MBK JV Dissolution
In November 2020, as part of the dissolution of a senior housing joint venture, the Company was distributed 1 property, 1 land parcel, and $11 million in cash.Upon consolidating the property and land parcel at the time of distribution, the Company recognized a loss upon change of control of $16 million, which is recorded in other income (expense), net within income (loss) from discontinued operations. The property is classified as held-for-sale as of December 31, 2020.
In conjunction with the distribution of the property, the Company assumed $36 million of secured mortgage debt which was recorded at its fair value through asset acquisition accounting.
Other Real Estate Acquisitions
In December 2020, the Company acquired 1 hospital in Dallas, Texas for $34 million.
2019 Real Estate Investments
Cambridge Acquisition
During the first quarter of 2019, the Company acquired a life science facility for $71 million and development rights at an adjacent undeveloped land parcel for consideration of up to $27 million. The existing facility and land parcel are located in Cambridge, Massachusetts.
Discovery Portfolio Acquisition
In April 2019, the Company acquired a portfolio of 9 senior housing properties for $445 million. The properties are located across Florida, Georgia, and Texas and are operated by Discovery Senior Living, LLC.
Oakmont Portfolio Acquisitions
In May 2019, the Company acquired 3 senior housing communities in California for $113 million and in July 2019, the Company acquired an additional 5 senior housing communities for $284 million. Both portfolios were acquired from and continue to be operated by Oakmont Senior Living LLC (“Oakmont”). Each portfolio was contributed to a DownREIT joint venture in which the sellers received non-controlling interests in lieu of cash for a portion of the sales price. The Company consolidates each DownREIT joint venture.
As part of the May and July 2019 Oakmont transactions, the Company assumed $50 million and $112 million, respectively, of secured mortgage debt, both of which were recorded at their relative fair values through asset acquisition accounting.
Sierra Point Towers Acquisition
In June 2019, the Company acquired 2 life science buildings in South San Francisco, California adjacent to the Company’s The Shore at Sierra Point development, for $245 million.
Vintage Park JV Interest Purchase
In June 2019, the Company acquired the outstanding equity interests of a senior housing joint venture structure (which owned 1 senior housing facility), in which the Company previously held an unconsolidated equity investment, for $24 million. Subsequent to acquisition, the Company owned 100% of the equity. Upon consolidating the facility at acquisition, the Company derecognized the existing investment in the joint venture structure, marked the real estate to fair value (using a relative fair value allocation), and recognized a gain upon change of control of $12 million, net of a tax impact of $1 million. The gain upon change of control is recognized within other income (expense), net and the tax impact is recognized within income tax benefit (expense).
Hartwell Innovation Campus Acquisition
In July 2019, the Company acquired a life science campus in the suburban Boston submarket of Lexington, Massachusetts, for $228 million. The campus is comprised of 4 buildings.
West Cambridge Acquisition
In December 2019, the Company acquired 1 life science building, adjacent to the Company’s existing properties in Cambridge, Massachusetts, for $333 million.
Sovereign Wealth Fund Senior Housing Joint Venture
In December 2019, the Company formed a new joint venture (the “SWF SH JV”) with a sovereign wealth fund that owns 19 SHOP assets operated by Brookdale. The Company owns 53.5% of the SWF SH JV and contributed all 19 assets with a fair value of $790 million. The SWF SH JV partner owns the other 46.5% and purchased its interest for $367 million. Upon formation of the SWF SH JV, the Company recognized its retained equity method investment at fair value, deconsolidated the 19 SHOP assets, and recognized a gain upon change of control of $161$0.2 million, which is recorded in other income (expense), net.
2022 Real Estate Investment Acquisitions
During the year ended December 31, 2019,67 Smith Place
In January 2022, the Company acquired 1 MOBclosed a lab acquisition in KansasCambridge, Massachusetts for $15 million, 1 MOB$72 million.
Vista Sorrento Phase II
In January 2022, the Company closed a lab acquisition in Texas for $9 million, and 1 life science building in the Sorrento Mesa submarket of San Diego, California for $24 million.
Webster Outpatient Medical Portfolio
In March 2022, the Company acquired a portfolio of two outpatient medical buildings in Houston, Texas for $43 million.
Northwest Medical Plaza
In May 2022, the Company acquired one outpatient medical building in Bentonville, Arkansas for $26 million.
Concord Avenue Land Parcels
In December 2022, the Company closed a lab acquisition in Cambridge, Massachusetts for $18 million.
2021 Real Estate Investment Acquisitions
In 2021, the Company closed the following lab acquisitions: (i) eight acquisitions in Cambridge, Massachusetts for $498 million, (ii) one acquisition in San Diego, California for $20 million, and (iii) 12 acres of land for $128 million in South San Francisco, California.
Also during 2021, the Company closed the following outpatient medical acquisitions: (i) one outpatient medical building in Nashville, Tennessee for $13 million, (ii) one outpatient medical building in Denver, Colorado for $38 million, (iii) a portfolio of 14 outpatient medical buildings for $371 million (the “Outpatient Medical Building Portfolio”), (iv) one outpatient medical building in Fort Lauderdale, Florida for $16 million, (v) one outpatient medical building in Wichita, Kansas for $50 million, (vi) three outpatient medical buildings in Morristown, New Jersey for $155 million, (vii) two outpatient medical buildings in Dallas, Texas for $60 million, (viii) one outpatient medical building in Seattle, Washington for $43 million, (ix) one outpatient medical building in New Orleans, Louisiana for $34 million, and (x) one outpatient medical building in Cambridge, Massachusetts for $55 million. In conjunction with the acquisition of the Outpatient Medical Building Portfolio, the Company originated $142 million of secured mortgage debt (see Note 10).
Development Activities
Construction, Tenant, and Other Capital Improvements
The following table summarizes the Company’s expenditures for construction, tenant improvements, and other capital improvements for its consolidated property investments, excluding expenditures related to properties classified as discontinued operations (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
Segment | | 2020 | | 2019 | | 2018 |
Life science | | $ | 573,999 | | | $ | 499,956 | | | $ | 396,431 | |
Medical office | | 173,672 | | | 146,466 | | | 146,087 | |
CCRC | | 41,224 | | | 0 | | | 0 | |
Other | | 0 | | | 30,852 | | | 18,357 | |
| | $ | 788,895 | | | $ | 677,274 | | | $ | 560,875 | |
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
Segment | | 2023 | | 2022 | | 2021 |
Lab | | $ | 428,961 | | | $ | 658,542 | | | $ | 472,301 | |
Outpatient medical | | 236,135 | | | 237,761 | | | 230,227 | |
CCRC | | 109,465 | | | 65,691 | | | 57,192 | |
| | | | | | |
| | $ | 774,561 | | | $ | 961,994 | | | $ | 759,720 | |
NOTE 5.4. Dispositions of Real Estate and Discontinued Operations
20202023 Dispositions of Real Estate
Aegis NNN Portfolio
In December 2020,During the three months ended March 31, 2023, the Company sold 10 senior housing triple-net assets (the “Aegis NNN Portfolio”)two lab buildings in Durham, North Carolina, which were classified as held for $358sale as of December 31, 2022, for $113 million, resulting in total gain on sales of $228 million, which is recognized in income (loss) from discontinued operations.
Atria SHOP Portfolio
In November 2020,$60 million. Also during the Company entered into definitive agreements to sell a portfolio of 13 SHOP assets (the “Atria SHOP Portfolio”) for $334 million. In December 2020,three months ended March 31, 2023, the Company sold 12 of those assetstwo outpatient medical buildings for $312$32 million, resulting in total gain on sales of $39$21 million.
2022 Dispositions of Real Estate
During the three months ended March 31, 2022, the Company sold one lab building in Salt Lake City, Utah for $14 million, which is recognizedresulting in income (loss) from discontinued operations. Thea gain on sale of $4 million.
During the three months ended June 30, 2022, the Company providedsold three outpatient medical buildings and one outpatient medical land parcel for $27 million, resulting in total gain on sales of $10 million.
During the buyer with financingthree months ended September 30, 2022, the Company sold two outpatient medical buildings for $9 million, resulting in total gain on sales of $61 million 1 million.on 4
2021 Dispositions of the assets sold (see Note 8). The final asset is expected to be sold during the first half of 2021, upon completion of the license transfer process.Real Estate
Sunrise Senior Housing Portfolio
In November 2020,January 2021, the Company entered intosold a definitive agreement to sellportfolio of 32 SHOP assets (the “Sunrise Senior Housing Portfolio”) for $664 million, resulting in an immaterial loss on sale, which is recognized in income (loss) from discontinued operations, and 2provided the buyer with: (i) financing of $410 million and (ii) a commitment to finance up to $92 million of additional debt for capital expenditures (see Note 7). Upon completion of the license transfer process in June 2021, the Company sold the two remaining Sunrise senior housing triple-net assets for $744$80 million, (the “Sunrise Senior Housing Portfolio”). The Company receivedresulting in a $35gain on sale of $22 million, nonrefundable deposit upon completion of due diligencewhich is recognized in December 2020, sold the 32 SHOP assets in January 2021 for $664 million, and provided the buyer with financing of income (loss) from discontinued operations.$410 million (see Note 8). The 2 remaining senior housing triple-net assets are expected to be sold during the first half of 2021, upon completion of the license transfer process.
SLC SHOP Portfolio
In October 2020, the Company entered into a definitive agreement to sell 7 SHOP assets for $115 million. The Company received a $3 million nonrefundable deposit and expects to close the transaction during the first half of 2021.
Brookdale Triple-Net Portfolio
In January 2021, the Company sold 24 senior housing assets in a triple-net lease with Brookdale for $510 million.million, resulting in total gain on sale of $169 million, which is recognized in income (loss) from discontinued operations.
Additional SHOP Portfolio
In January 2021, the Company sold a portfolio of 16 SHOP assets for $230 million, andresulting in total gain on sale of $59 million, which is recognized in income (loss) from discontinued operations. The Company provided the buyer with financing of $150$150 million (see Note 8)7).
HRA Triple-Net Portfolio
In February 2021, the Company sold 8eight senior housing assets in a triple-net lease with Harbor Retirement Associates for $132 million.million, resulting in total gain on sale of $33 million, which is recognized in income (loss) from discontinued operations.
2020 Other DispositionsOakmont SHOP Portfolio
In addition to the sales discussed above, during the year ended December 31, 2020,April 2021, the Company sold the following: (i)23a portfolio of 12 SHOP assets for $190$564 million. In conjunction with the sale, mortgage debt held on two properties with a carrying value of $64 million (ii) 21 senior housing triple-netwas repaid and the remaining mortgage debt held on four properties with a carrying value of $107 million was assumed by the buyer. The transaction resulted in total gain on sale of $80 million, which is recognized in income (loss) from discontinued operations.
Discovery SHOP Portfolio
In April 2021, the Company sold a portfolio of 10 SHOP assets for $428$334 million, (inclusiveresulting in total gain on sale of $9 million, which is recognized in income (loss) from discontinued operations. Also included in this transaction was the sale of two mezzanine loans and two preferred equity investments for $21 million, resulting in no gain or loss on sale of the 18 facilitiesinvestments (collectively, the “Discovery SHOP Portfolio”).
Sonata SHOP Portfolio
In April 2021, the Company sold to Brookdale undera portfolio of five SHOP assets for $64 million, resulting in total gain on sale of $3 million, which is recognized in income (loss) from discontinued operations.
SLC SHOP Portfolio
In May 2021, the 2019 MTCA - see Note 3)Company sold seven SHOP assets for $113 million and repaid $70 million of mortgage debt that was held on six of the assets, resulting in total gain on sale of $1 million, which is recognized in income (loss) from discontinued operations.
Hoag Hospital
, (iii) 11 MOBs forIn May 2021, the Company sold one $136hospital for $226 million(inclusive of through the exercise of a purchase option by a tenant, to acquire 3 MOBs in San Diego, California), (iv) 2 MOB land parcels for $3 million, and (v) 1asset from other non-reportable segments for $1 million, resulting in total gain on salessale of $283 million ($193 millionof which is reported in income (loss) from discontinued operations).$172 million.
20192021 Other Dispositions of Real Estate
DuringIn addition to the portfolio and individual sales discussed above, during the year ended December 31, 2019, 2021, the Company sold the following: (i) 1815 SHOP assets for $181$169 million, (ii) 27 senior housing triple-net assets for $26$24 million, and (iii) 11 MOBs for $28 million, (vi)10 outpatient medical buildings and a portion of 1 life science asset for $7 million, (v) 1 undeveloped life scienceoutpatient medical land parcel for $35 million, and (vi) 1 facility from the other non-reportable segment for $15$68 million, resulting in total gain on sales of $30$58 million ($2339 millionof which is reportedrecognized in income (loss) from discontinued operations). In conjunction with one of the SHOP asset sales, mortgage debt held on the property with a carrying value of $36 million was assumed by the buyer.
2018 DispositionsHeld for Sale and Discontinued Operations
As of December 31, 2023, two lab buildingsand one outpatient medical building were classified as held for sale, with a carrying value of $118 million, primarily comprised of net real estate assets. As of December 31, 2023, liabilities related to the assets held for sale were $1 million. In January 2024, we sold a 65% interest in these two lab buildings (see Note 8). As of December 31, 2022, two lab buildings were classified as held for sale, with an aggregate carrying value of $50 million, primarily comprised of net real estate assets of $44 million. As of December 31, 2022, liabilities related to these assets held for sale were $4 million. These two lab buildings were sold during the three months ended March 31, 2023, as discussed above.
In 2020, the Company concluded that the dispositions of its senior housing triple-net and SHOP portfolios represented a strategic shift that had a major effect on its operations and financial results. Therefore, the results of senior housing triple-net and SHOP assets are classified as discontinued operations in all periods presented herein. In September 2021, the Company successfully completed the disposition of the remaining senior housing triple-net and SHOP properties.
At each of December 31, 2023 and 2022, the total assets and total liabilities classified as discontinued operations were zero.
The results of discontinued operations during the years ended December 31, 2023, 2022, and 2021 are presented below (in thousands) and are included in the consolidated results of operations for the years ended December 31, 2023, 2022, and 2021:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Revenues: | | | | | |
Rental and related revenues | $ | — | | | $ | — | | | $ | 7,535 | |
Resident fees and services | — | | | 7,489 | | | 114,936 | |
| | | | | |
Total revenues | — | | | 7,489 | | | 122,471 | |
Costs and expenses: | | | | | |
Interest expense | — | | | — | | | 3,900 | |
| | | | | |
Operating | — | | | 6,452 | | | 122,571 | |
Transaction and merger-related costs | — | | | — | | | 76 | |
Impairments and loan loss reserves (recoveries), net | — | | | — | | | 32,736 | |
Total costs and expenses | — | | | 6,452 | | | 159,283 | |
Other income (expense): | | | | | |
Gain (loss) on sales of real estate, net | — | | | 1,344 | | | 414,721 | |
Other income (expense), net | — | | | 169 | | | 4,189 | |
Total other income (expense), net | — | | | 1,513 | | | 418,910 | |
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | — | | | 2,550 | | | 382,098 | |
Income tax benefit (expense) | — | | | 270 | | | 969 | |
Equity income (loss) from unconsolidated joint ventures | — | | | 64 | | | 5,135 | |
| | | | | |
Income (loss) from discontinued operations | $ | — | | | $ | 2,884 | | | $ | 388,202 | |
NOTE 5. Impairments of Real Estate
Shoreline Technology CenterIn November 2018,2023 and 2022
During the years ended December 31, 2023 and 2022, the Company sold its Shoreline Technology Center life science campus locateddid not recognize any impairment charges.
2021
During the year ended December 31, 2021, the Company recognized an aggregate impairment charge of $22 million, which is reported in Mountain View, Californiaimpairments and loan loss reserves (recoveries), net, related to: (i) three outpatient medical buildings that met the held for $1.0 billionsale criteria during the year and (ii) one outpatient medical building held for use; the aggregate fair value of these four outpatient medical buildings was $14 million as of the related impairment assessment dates. For the three outpatient medical buildings that met the held for sale criteria during the year, the Company recognized an impairment charge of $5 million to write down the properties’ aggregate carrying value to their aggregate fair value, less estimated costs to sell. For the outpatient medical building held for use, the Company recognized a gain on sale of $726 million.
Brookdale MTCA Dispositions
As discussed$17 million impairment charge in Note 3, during the fourth quarter of 2018,2021 due to the demolition of the outpatient medical building for a future development project.
Additionally, during the year ended December 31, 2021, the Company sold 19 assets (11 senior housing triple-net assets and 8recognized an impairment charge of $4 million related to one SHOP assets) to a third-party for $377 million and recognized a gain on sale of $40 million,asset, which is reported in income (loss) from discontinued operations. Refer to Note 3 for further detail onFollowing a reduction in the Brookdale transactions.
RIDEA II Sale Transaction
In January 2017,expected sales price of the SHOP asset occurring in the second quarter of 2021, the Company completed the contribution of its ownership interest in RIDEA II to an unconsolidated joint venture owned by Healthpeak and an investor group led by Columbia Pacific Advisors, LLC (“CPA”) (the “Healthpeak/CPA JV”). Also in January 2017, RIDEA II was recapitalized with $602 million of debt, of which $360 million was provided by a third-party and $242 million was provided by the Company. In return for both transaction elements, the Company received combined proceeds of $480 million from the Healthpeak/CPA JV and $242 million in loans receivable and retained an approximately 40% ownership interest in RIDEA II. This transaction resulted in the Company deconsolidating the net assets of RIDEA II and recognizing a net gain on sale of $99 million. Refer to Note 2 for the impact of adopting the Revenue ASUs on January 1, 2018 to the Company’s partial sale of RIDEA II in the first quarter of 2017.
In June 2018, the Company sold its remaining 40% ownership interest in RIDEA II to an investor group led by CPA for $91 million. Additionally, CPA refinanced the Company’s $242 million of loans receivable from RIDEA II, resulting in total proceeds of $332 million. The Company no longer holds an economic interest in RIDEA II.
U.K. Portfolio
In June 2018, the Company entered into a joint venture with an institutional investor (the “U.K. JV”) through which the Company sold a 51% interest in substantially all United Kingdom (“U.K.”) assets previously owned by the Company (the “U.K. Portfolio”) based on a total value of £382 million ($507 million). The Company retained a 49% noncontrolling interest in the U.K. JV and received gross proceeds of $402 million, including proceeds from the refinancing of the Company’s previously held intercompany loans. Upon closing the U.K. JV, the Company deconsolidated the U.K. Portfolio, recognized its retained noncontrolling interest investment at fair value ($105 million) and recognized a gain on sale of $11 million, net of $17 million of cumulative foreign currency translation reclassified from other comprehensive income recorded in gain (loss) on sales of real estate, net (see Note 22 for the reclassification impact of the Company’s hedge of its net investment in the U.K.).The U.K. JV provides numerous mechanisms by which the joint venture partner can acquire the Company’s remaining interest in the U.K. JV. The fair value of the Company’s retained noncontrolling interest investment was based on Level 2 measurements within the fair value hierarchy. Additionally, in August 2018, the Company sold its remaining £11 million U.K. development loan at par. In December 2019, the Company sold its remaining 49% interest in the U.K. JV (see Note 9).
2018 Other Dispositions
Additionally, during the year ended December 31, 2018, the Company sold the following: (i) 4 life science assets for $269 million, (ii) 1 undeveloped land parcel for $3 million, (iii) 2 senior housing triple-net assets for $35 million, (iv) 23 SHOP facilities for $394 million, and (v) 4 MOBs for $25 million, resulting in total gain on sales of $141 million ($55 million of which is reported in income (loss) from discontinued operations).
Held for Sale and Discontinued Operations
At December 31, 2020, 41 senior housing triple-net facilities, 6 MOBs, 97 SHOP facilities, and 1 SHOP joint venture were classified as held for sale and/or discontinued operations.
At December 31, 2019, 90 senior housing triple-net facilities (inclusive of 18 facilities sold to Brookdale under the 2019 MTCA - see Note 3), 115 SHOP facilities, 2 MOBs, and 4 SHOP joint ventures were classified as held for sale and/or discontinued operations.
During 2020, the Company established and began executing a plan to dispose of all the assets in its senior housing triple-net and SHOP portfolios. The held for sale criteria for all such assets were met either on or before December 31, 2020 and the Company concluded the dispositions met the requirements to be classified as discontinued operations.
The following summarizes the assets and liabilities classified as discontinued operations at December 31, 2020 and 2019, which are included in assets held for sale and discontinued operations, net and liabilities related to assets held for sale and discontinued operations, net, respectively, on the consolidated balance sheets (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
ASSETS | | | |
Real estate: | | | |
Buildings and improvements | $ | 2,553,254 | | | $ | 3,626,665 | |
Development costs and construction in progress | 21,509 | | | 38,728 | |
Land | 355,803 | | | 467,956 | |
Accumulated depreciation and amortization | (615,708) | | | (861,557) | |
Net real estate | 2,314,858 | | | 3,271,792 | |
| | | |
Investments in and advances to unconsolidated joint ventures | 5,842 | | | 51,134 | |
Accounts receivable, net of allowance of $5,873 and $4,178 | 20,500 | | | 14,575 | |
Cash and cash equivalents | 53,085 | | | 63,834 | |
Restricted cash | 17,168 | | | 27,040 | |
Intangible assets, net | 24,541 | | | 82,071 | |
Right-of-use asset, net | 4,109 | | | 5,701 | |
Other assets, net(1) | 103,965 | | | 125,502 | |
Total assets of discontinued operations, net | 2,544,068 | | | 3,641,649 | |
Total medical office assets held for sale, net(2) | 82,238 | | | 6,616 | |
Assets held for sale and discontinued operations, net | $ | 2,626,306 | | | $ | 3,648,265 | |
LIABILITIES | | | |
Mortgage debt | 318,876 | | | 296,879 | |
| | | |
Lease liability | 3,189 | | | 4,871 | |
Accounts payable, accrued liabilities, and other liabilities | 79,411 | | | 83,392 | |
Deferred revenue | 11,442 | | | 18,520 | |
Total liabilities of discontinued operations, net | 412,918 | | | 403,662 | |
Total liabilities related to medical office assets held for sale, net | 2,819 | | | 26 | |
Liabilities related to assets held for sale and discontinued operations, net | $ | 415,737 | | | $ | 403,688 | |
(1)Includes goodwill of $29 million and $30 million as of December 31, 2020 and 2019, respectively.
(2)Primarily comprised of 6 MOBs with net real estate assets of $73 million and 2 MOBs with net real estate assets of $7 million as of December 31, 2020 and 2019, respectively.
The results of discontinued operations through December 31, 2020, or the disposal date of each asset or portfolio of assets if they have been sold, are included in the consolidated results for the years ended December 31, 2020, 2019, and 2018. Summarized financial information for discontinued operations for the years ended December 31, 2020, 2019, and 2018 is as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
Revenues: | | | | | |
Rental and related revenues | $ | 97,877 | | | $ | 152,576 | | | $ | 216,887 | |
Resident fees and services | 621,253 | | | 583,653 | | | 400,557 | |
Income from direct financing leases | 0 | | | 20,815 | | | 37,926 | |
Total revenues | 719,130 | | | 757,044 | | | 655,370 | |
Costs and expenses: | | | | | |
Interest expense | 10,538 | | | 8,007 | | | 5,062 | |
Depreciation and amortization | 143,194 | | | 224,798 | | | 144,819 | |
Operating | 550,226 | | | 474,126 | | | 326,381 | |
Transaction costs | 20,426 | | | 6,780 | | | 9,635 | |
Impairments and loan loss reserves (recoveries), net | 201,344 | | | 208,229 | | | 44,343 | |
Total costs and expenses | 925,728 | | | 921,940 | | | 530,240 | |
Other income (expense): | | | | | |
Gain (loss) on sales of real estate, net | 460,144 | | | 22,940 | | | 94,618 | |
Other income (expense), net | 5,475 | | | 17,060 | | | (110) | |
Total other income (expense), net | 465,619 | | | 40,000 | | | 94,508 | |
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | 259,021 | | | (124,896) | | | 219,638 | |
Income tax benefit (expense) | 9,913 | | | 11,783 | | | 13,459 | |
Equity income (loss) from unconsolidated joint ventures | (1,188) | | | (2,295) | | | 3,159 | |
| | | | | |
Income (loss) from discontinued operations | $ | 267,746 | | | $ | (115,408) | | | $ | 236,256 | |
NOTE 6. Impairments
Real Estate
During the year ended December 31, 2020, the Company recognized an aggregate impairment charge of $210 million ($201 million of which is reported in income (loss) from discontinued operations) related to 42 SHOP assets, 5 senior housing triple-net assets, 5 MOBs, and 1 undeveloped MOB land parcel as a result of being classified as held for sale and wrote down their aggregateits carrying value of $960$20 million to their aggregateits fair value, less estimated costs to sell, of $750$16 million. Additionally, during the year ended December 31, 2020, the Company recognized an impairment charge of $15 million related to 1 life science facility that it intends to demolish for a future development project.
The fair valuevalues of the impaired assets waswere based on forecasted sales prices and market comparable data, which are considered to be Level 3 measurements within the fair value hierarchy. Forecasted sales prices wereThese fair values are typically determined using an income approach and/or a market approach (comparable sales model), which rely on certain assumptions by management, including: (i) market capitalization rates, (ii) comparable market transactions, (iii) estimated prices per unit, (iv) negotiations with prospective buyers, and (v) forecasted cash flow streams (lease(primarily lease revenue rates, expense rates, and growth rates, etc.)rates). There are inherent uncertainties in making these assumptions. For the Company’s impairment calculations during and as of the year ended December 31, 2020,2021, the Company’s fair value estimates primarily relied on a market approach, which utilized comparable market transactions and utilized prices pernegotiations with prospective buyers.
Goodwill Impairment
When testing goodwill for impairment, if the Company concludes that it is more likely than not that the fair value of a reporting unit ranging from $13,000 to $300,000,is less than its carrying value, the Company recognizes an impairment charge for the amount by which the carrying value, including goodwill, exceeds the reporting unit’s fair value.
In connection with a weighted average price per unitthe disposition of $164,000. When utilizing the income approach, assumptions include, but are not limited to, terminal capitalization rates ranging from 5.5% to 7.5%Company’s remaining senior housing triple-net and discount rates ranging from 8.0% to 9.5%.
DuringSHOP assets, the Company performed impairment assessments during the year ended December 31, 2019,2021. As a result of these assessments, the Company recognized an aggregatea $29 million goodwill impairment charge of $194 million ($189 millionof which is reported in income (loss) from discontinued operations) related to 8operations, comprised of the following: (i) a $7 million goodwill impairment charge recognized during the second quarter of 2021, as the fair value of the remaining senior housing triple-net assets 27 SHOP assets, 3 MOBs, and 1 other non-reportable asset as a result of being classified as held for sale and wrote down their aggregate(based on forecasted sales prices) was less than the carrying value of $416the assets, including the related goodwill as of the assessment date and (ii) a $22 million goodwill impairment charge recognized during the third quarter of 2021 to their aggregate fair value, less estimated costsreduce the associated goodwill balance to sell,zero following the sale of $223 million. the remaining assets within the reporting units associated with the senior housing triple-net and SHOP portfolios.
During the yearyears ended December 31, 2019,2023, 2022, and 2021, the Company also recognized an impairment charge of $4 million related to 1 MOB that it intends to demolish for a future development project.
The fair value of the impaired assets within each of the Company’s other reporting units was basedgreater than the respective carrying value of the assets and related goodwill, and as a result, no impairment charges were recognized with respect to the other reporting units.
These fair value estimates primarily relied on a market approach, utilizing comparable market transactions, forecasted sales prices, whichand negotiations with prospective buyers. These estimates are considered to be Level 3 measurements within the fair value hierarchy. Forhierarchy, and are subject to inherent uncertainties.
Casualty-Related Charges
During the Company’s impairment calculations duringyears ended December 31, 2023, 2022, and as2021, the Company recognized $(3) million, $6 million, and $5 million, respectively, of net casualty-related charges (recoveries). During the year ended December 31, 2019, the Company estimated the fair value of each asset using either (i) market capitalization rates ranging from 4.97%2023, such recoveries were primarily attributable to 8.27%, with a weighted average rate of 6.22% or (ii) prices per unit ranging from $24,000 to $125,000, with a weighted average price of $73,000.
Additionally, duringproceeds received for water damage at an outpatient medical building. During the year ended December 31, 2019, the Company determined the carrying value2022, such charges were primarily attributable to damages as a result of 2 MOBs and 1 SHOP asset that were candidates for potential future sale were no longer recoverable due to the Company’s shortened intended hold period under the held-for-use impairment model. Accordingly, the Company wrote-down the carrying amount of these 3 assets to their respective fair value, which resulted in an aggregate impairment charge of $18 million ($9 millionHurricane Ian. of which is reported in income (loss) from discontinued operations). The fair value of the assets are considered to be Level 2 measurements within the fair value hierarchy.
During the year ended December 31, 2018, in conjunction with classifying the assets as held for sale, the Company determined that 17 underperforming SHOP assets and 1 undeveloped life science land parcel2021, such charges were impaired. Additionally, the Company determined that 3 additional underperforming SHOP assets that were candidates for potential future sale were impaired under the held-for-use impairment model. Accordingly, the Company recognized total impairment charges of $52 million ($44 millionof which is reported in income (loss) from discontinued operations), during the year ended December 31, 2018primarily due to write-down the carrying valuefire damage at one of the assets to their respective fair values (less estimated costs to sell for assets classified as held for sale). The fair value ofproperties in the assets was based on contracted or forecasted sales pricesSWF SH JV and expected future cash flows, whichwinter storm Uri. Casualty-related charges are considered to be Level 2 measurements within the fair value hierarchy.
Casualty-Related
During the year ended December 31, 2019, the Company recognized a$5 millioncasualty-related gain, net of deferred tax impacts, as a result of insurance proceeds received for property damage and other associated costs related to hurricanes in 2017. Of the total $5 million, $2 million is recorded in other income (expense), net and $3 million is recorded inequity income (loss) from discontinued operations.unconsolidated joint ventures in the Consolidated Statements of Operations. Also during the years ended December 31, 2023, 2022, and 2021, the Company collected business interruption proceeds of $4 million, $3 million, and zero, respectively, which are recognized in rental and related revenues and resident fees and services on the Consolidated Statements of Operations.
Other Losses
During the year ended December 31, 2022, the Company recognized $14 million of expenses within other income (expense), net on the Consolidated Statements of Operations for tenant relocation and other costs associated with the demolition of an outpatient medical building.
See Note 7 for information on the impairment charge related to the write-down of a DFL portfolio to its fair value. See Note 8 for information related to the Company'sCompany’s reserve for loan losses.
See Note 9 for information on the impairment charge related to an asset classified as held-for-sale within the CCRC JV.Table of ContentsNOTE 7.6. Leases
Lease Income
The following table summarizes the Company’s lease income, excluding discontinued operations (in thousands):
| | | Year Ended December 31, | | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 | | 2023 | | 2022 | | 2021 |
Fixed income from operating leases | Fixed income from operating leases | $ | 943,638 | | | $ | 853,545 | | | $ | 829,774 | |
Variable income from operating leases | Variable income from operating leases | 238,470 | | | 215,957 | | | 190,574 | |
Interest income from direct financing leases | Interest income from direct financing leases | 9,720 | | | 16,666 | | | 16,349 | |
Direct Financing Leases
Net investment in DFLs consists of the following (dollars in thousands):
| | | | | | | | | | | |
| December 31, |
| 2020 | | 2019 |
Present value of minimum lease payments receivable | $ | 9,804 | | | $ | 19,138 | |
Present value of estimated residual value | 44,706 | | | 84,604 | |
Less deferred selling profits | (9,804) | | | (19,138) | |
| | | |
| | | |
Net investment in direct financing leases | $ | 44,706 | | | $ | 84,604 | |
Properties subject to direct financing leases | 1 | | | 2 | |
Direct Financing Lease Internal Ratings
The following table summarizes the Company’s internal ratings for DFLs at December 31, 2020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Internal Ratings |
Segment | | Carrying Amount | | Percentage of DFL Portfolio | | Performing DFLs | | Watch List DFLs | | Workout DFLs |
| | | | | | | | | | |
Medical office | | $ | 44,706 | | | 100 | | $ | 44,706 | | | 0 | | | 0 | |
| | $ | 44,706 | | | 100 | | $ | 44,706 | | | $ | 0 | | | $ | 0 | |
20202022 Direct Financing Lease Sale
During the first quarter of 2020,2022, the Company sold aits remaining hospital under a DFL for $82$68 million and recognized a gain on sale of $42$23 million, which is included in other income (expense), net.
2019 Direct Financing Lease Conversion
During the first quarter of 2019, the Company converted a DFL portfolio of 14 senior housing triple-net properties, previously on “Watch List” status, to a RIDEA structure, requiring the Company to recognize net assets equal to the lower of the net assets’ fair value or the carrying value of the net investment in the DFL. As a result, the Company derecognized the $351 millioncarrying value of the net investment in DFL related to the 14 properties and recognized a combination of net real estate ($331 million) and net intangibles assets ($20 million) for the same aggregate amount, with no gain or loss recognized. As a result of the transaction, the 14 properties were transferred from the senior housing triple-net segment to the SHOP segment during the first quarter of 2019.
2019 Direct Financing Lease Sale
During the second quarter of 2019, the Company entered into agreements to sell 13 senior housing facilities under DFLs (the “DFL Sale Portfolio”) for $274 million. Upon entering into the agreements, the Company recognized an allowance for DFL losses and related impairment charge of $10 million (recognized in income (loss) from discontinued operations) to write-down the carrying value of the DFL Sale Portfolio to its fair value. The fair value of the DFL Sale Portfolio was based upon the agreed upon sale price, less estimated costs to sell, which was considered to be a Level 2 measurement within the fair value hierarchy. In conjunction with the entering into agreements to sell the DFL Sale Portfolio, the Company placed the portfolio on nonaccrual status and began recognizing income equal to the amount of cash received.
The Company completed the sale of the DFL Sale Portfolio in September 2019.
For the DFL Sale Portfolio, during the years ended December 31, 2019 and 2018, income from DFLs was $17 million and $24 million (recognized in income (loss) from discontinued operations), respectively, and cash payments received were $16 million and $20 million, respectively.
Direct Financing Lease Receivable Maturities
The following table summarizes future minimum lease payments contractually due under DFLs Therefore, at December 31, 2020 (in thousands):
| | | | | | | | |
Year | | Amount |
2021 | | $ | 8,601 | |
2022 | | 1,203 | |
2023 | | 0 | |
2024 | | 0 | |
2025 | | 0 | |
Thereafter | | 0 | |
Undiscounted minimum lease payments receivable | | 9,804 | |
Less: imputed interest | | 0 | |
Present value of minimum lease payments receivable | | $ | 9,804 | |
Residual Value Risk
Quarterly,2023 and 2022, the Company reviews the estimated unguaranteed residual value of assets under DFLs to determine if there have been any material changes compared to the prior quarter. As needed, the Company and/or the related tenants will invest necessary funds to maintain the residual value of each asset.had no leases classified as a DFL.
Operating Leases
Future Minimum Rents
The following table summarizes future minimum lease payments to be received excluding future minimum lease payments from assets classified as discontinued operations, from tenants under non-cancelable operating leases as of December 31, 20202023 (in thousands):
| | | | | | | | |
Year | | Amount(1) |
2021 | | $ | 969,519 | |
2022 | | 929,437 | |
2023 | | 869,628 | |
2024 | | 774,641 | |
2025 | | 669,289 | |
Thereafter | | 2,431,032 | |
| | $ | 6,643,546 | |
(1)Excludes future minimum lease payments from assets classified as discontinued operations. | | | | | | | | |
Year | | Amount |
2024 | | $ | 1,135,628 | |
2025 | | 1,063,147 | |
2026 | | 975,246 | |
2027 | | 888,223 | |
2028 | | 788,742 | |
Thereafter | | 2,818,655 | |
| | $ | 7,669,641 | |
Tenant Purchase Options
Certain leases including DFLs, contain purchase options whereby the tenant may elect to acquire the underlying real estate. Annualized base rent from leases subject to purchase options, summarized by the year the purchase options are exercisable excluding leases related to assets classified as discontinued operations, are as follows (dollars in thousands):
| Year | Year | | Annualized Base Rent(1)(2) | | Number of Properties | Year | | Annualized Base Rent(1) | | Number of Properties |
2021 | | $ | 29,394 | | | 12 | |
2022 | | 11,187 | | | 3 | |
2023 | | 0 | | | 0 | |
2024 | 2024 | | 3,190 | | | 1 | |
2025 | 2025 | | 9,065 | | | 13 | |
2026 | |
2027 | |
2028 | |
Thereafter | Thereafter | | 5,815 | | | 2 | |
| | | $ | 58,651 | | | 31 | |
(1)Represents the most recent month’s base rent including additional rent floors and cash income from DFLs annualized for 12 months. 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).
(2)Excludes tenant purchase options related to assets classified as discontinued operations.Table of ContentsDuring the fourth quarter of 2019, 1 of the Company's tenants exercised its option to acquire from the Company an acute care hospital and adjacent land parcel located in Irvine, California for $226 million. The sale is scheduled to close during the first half of 2021. The annualized base rent associated with the assets covered by this purchase option is included in the table above for 2021.
Lease Costs
The following tables provide information regarding the Company’s leases to which it is the lessee, such as corporate offices and ground leases, excluding lease costs related to assets classified as discontinued operations (dollars in thousands):
| | Year Ended December 31, |
| | Year Ended December 31, | | | | Year Ended December 31, |
Lease Expense Information: | Lease Expense Information: | | 2020 | | 2019 | | 2018 | Lease Expense Information: | | 2023 | | 2022 | | 2021 |
| Total lease expense(1) | | $ | 13,601 | | | $ | 11,852 | | | $ | 10,569 | |
Total lease expense | |
| Total lease expense | |
| Total lease expense | |
| | | | | | | | | | | | | | |
Weighted Average Lease Term and Discount Rate: | | December 31, 2023 | | December 31, 2022 |
Weighted average remaining lease term (years): | | | | |
Operating leases(1) | | 51 | | 51 |
| | | | |
Weighted average discount rate: | | | | |
Operating leases | | 4.23 | % | | 4.20 | % |
(1)Lease expense relatedAs of both December 31, 2023 and 2022, the weighted average remaining lease term including the Company’s options to corporate assets is included in general and administrative expenses and lease expense related to groundextend its operating leases is included within operating expenses in the Company’s consolidated statements of operations.67 years.
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
Supplemental Cash Flow Information: | | 2020 | | 2019 | | 2018 |
Cash paid for amounts included in the measurement of lease liability: | | | | | | |
Operating cash flows for operating leases | | $ | 9,940 | | | $ | 8,158 | | | $ | 7,326 | |
| | | | | | |
Right-of-use asset obtained in exchange for new lease liability: | | | | | | |
Operating leases | | $ | 32,208 | | | $ | 5,733 | | | $ | 0 | |
| | | | | | | | | | | | | | |
Weighted Average Lease Term and Discount Rate: | | December 31, 2020 | | December 31, 2019 |
Weighted average remaining lease term (years): | | | | |
Operating leases | | 57 | | 51 |
| | | | |
Weighted average discount rate: | | | | |
Operating leases | | 4.26 | % | | 4.36 | % |
The following table summarizes future minimum lease payments under non-cancelable ground and other operating leases included in the Company’s lease liability excluding future minimum lease payments related to assets classified as held for sale or discontinued operations, as of December 31, 20202023 (in thousands):
| | | | | | | | |
Year | | Amount(1) |
2021 | | $ | 11,106 | |
2022 | | 11,262 | |
2023 | | 11,445 | |
2024 | | 10,246 | |
2025 | | 8,886 | |
Thereafter | | 469,453 | |
Undiscounted minimum lease payments included in the lease liability | | 522,398 | |
Less: imputed interest | | (342,503) | |
Present value of lease liability | | $ | 179,895 | |
(1)Excludes future minimum lease payments under non-cancelable ground and other operating leases from assets classified as discontinued operations. | | | | | | | | |
Year | | Amount |
2024 | | $ | 16,950 | |
2025 | | 12,399 | |
2026 | | 12,326 | |
2027 | | 12,321 | |
2028 | | 12,351 | |
Thereafter | | 475,584 | |
Undiscounted minimum lease payments included in the lease liability | | 541,931 | |
Less: imputed interest | | (335,188) | |
Present value of lease liability | | $ | 206,743 | |
Depreciation Expense
While the Company leases the majority of its property, plant, and equipment to various tenants under operating leases, and DFLs, in certain situations, the Company owns and operates certain property, plant, and equipment for general corporate purposes. Corporate assets are recorded within other assets, net within the Company’s consolidated balance sheetsConsolidated Balance Sheets and depreciation expense for those assets is recorded in general and administrative expenses in the Company’s consolidated statementsConsolidated Statements of operations.Operations. Included within other assets, net as of both December 31, 20202023 and December 31, 20192022 is $6$10 million and $4 million, respectively, of accumulated depreciation related to corporate assets. Included within general and administrative expenses for the years ended December 31, 2020, 2019,2023, 2022, and 20182021 is $2$3 million, $2$3 million, and $4$2 million, respectively, of depreciation expense related to corporate assets.
COVID-19 Rent DeferralsDenver Corporate Headquarters
During the second and third quarters of 2020,year ended December 31, 2022, the Company agreed to defer rent from certain tenantsrecognized $7 million of charges in the medical office segment,connection with the requirement that all deferred rent be repaid bydownsizing of the endCompany’s corporate headquarters in Denver, Colorado which are included in general and administrative expenses on the Consolidated Statements of 2020. Under this program, through December 31, 2020, approximately $6 million of rent was deferred for the medical office segment, substantially all of which had been collected as of December 31, 2020.
Additionally, through December 31, 2020, the Company granted approximately $1 million of rent deferrals to certain tenants in the life science segment, all of which had been collected as of December 31, 2020.
The rent deferrals granted do not impact the pattern of revenue recognition or amount of revenue recognized (refer to Note 2 for additional information).Operations.
Tenant Updates
During the first quarter of 2023, the Company wrote off $9 million of straight-line rent receivable associated with four in-place operating leases with Sorrento Therapeutics, Inc. (“Sorrento”), which commenced voluntary reorganization proceedings (the “Filing”) under Chapter 11 of the U.S. Bankruptcy Code during the period. This write-off was recognized as a reduction in rental and related revenues on the Consolidated Statements of Operations. Subsequent to the write-off, revenue related to this tenant is recognized on a cash basis. Sorrento also had a single development lease with the Company, but had not taken occupancy at the time of the Filing. Subsequent to the Filing, the U.S. Bankruptcy Court approved Sorrento’s rejection of the development lease and three of the four operating leases, resulting in termination of these four leases during the year ended December 31, 2023. The Company filed proofs of claim for related damages during the year, $4 million of which was received by the Company by drawing on Sorrento’s related letters of credit and security deposits. These cash proceeds were recognized as rental revenue and lease termination fee income, which is included in rental and related revenues on the Consolidated Statements of Operations. Given the nature of bankruptcy proceedings, the probability, timing, or amount of the additional proceeds, if any, that the Company may ultimately receive in connection with the Company’s claims related to the rejected leases is uncertain. Accordingly, the Company has not recorded any estimated recoveries associated with these claims as of December 31, 2023.
On October 26, 2023, the Company amended its lease with Graphite Bio, Inc. (“Graphite Bio”) at one of its lab buildings in South San Francisco, California. Under the terms of the amended lease agreement, Graphite Bio’s lease expiration date was accelerated from April 2033 to December 2024 in exchange for an upfront cash payment of $37 million, comprised of a $21 million termination fee and $16 million prepayment of Graphite Bio's contractual rent through the amended term. The $37 million will be recognized as rental and related revenues on the Consolidated Statements of Operations on a straight-line basis through the amended term of the lease.
NOTE 8.7. Loans Receivable
The following table summarizes the Company’s loans receivable (in thousands):
| | | | | | | | | | | | | | | | | | | | | |
| | | | | December 31, |
| | | | | 2020 | | | | | | 2019 |
Secured mortgage loans(1) | | | | | $ | 161,530 | | | | | | | $ | 161,964 | |
Mezzanine and other | | | | | 44,347 | | | | | | | 27,752 | |
Unamortized discounts, fees, and costs | | | | | (222) | | | | | | | 863 | |
Reserve for loan losses | | | | | (10,280) | | | | | | | 0 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Loans receivable, net | | | | | $ | 195,375 | | | | | | | $ | 190,579 | |
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
Secured loans(1) | $ | 178,678 | | | $ | 350,837 | |
CCRC resident loans | 42,733 | | | 33,083 | |
Unamortized discounts and fees | (131) | | | (808) | |
Reserve for loan losses | (2,830) | | | (8,280) | |
| | | |
| | | |
Loans receivable, net | $ | 218,450 | | | $ | 374,832 | |
(1)At December 31, 2020,2023 and 2022, the Company had $11$29 millionand $40 million, respectively, remaining of commitments to fund $81additional loans for senior housing redevelopment and capital expenditure projects.
During the years ended December 31, 2023, 2022, and 2021, the Company recognized $22 million, $22 million, and $36 million, respectively, of interest income related to loans secured by real estate.
Sunrise Senior Housing Portfolio Seller Financing
In conjunction with the sale of 32 SHOP facilities for $664 million in January 2021 (see Note4), the Company provided the buyer with initial financing of $410 million. The remainder of the sales price was received in cash at the time of sale. Additionally, the Company agreed to provide up to $92 million of senior housing developmentadditional financing for capital expenditures (up to 65% of the estimated cost of capital expenditures). The initial and redevelopment projects.additional financing is secured by the buyer’s equity ownership in each property. In June 2023, the interest rate on this secured loan was converted from a variable rate based on LIBOR to a variable rate based on Term SOFR (plus a 10 basis point adjustment related to SOFR transition).
In June 2021, February 2022, July 2022, and December 2022, the Company received principal repayments of $246 million, $8 million, $27 million, and $10 million, respectively, in conjunction with the disposition of the underlying collateral. In connection with these principal repayments, the additional financing available was reduced to $40 million, of which $11 million had been funded as of December 31, 2023. At December 31, 2019,2023 and 2022, this secured loan had an outstanding principal balance of $131 millionand $120 million, respectively.
In February 2024, the loan reached its maturity. The Company provided a short-term extension to the borrower, and the Company and the borrower are currently negotiating long-term refinance and extension terms.
Other Seller Financing
In conjunction with the sale of 16 additional SHOP facilities for $230 million in January 2021 (see Note 4), the Company provided the buyer with financing of $150 million. The remainder of the sales price was received in cash at the time of sale. The financing is secured by the buyer’s equity ownership in each property. Upon maturity in January 2023, the borrower did not make the required principal repayment. In February 2023, the borrower made a partial principal repayment of $102 million and the remaining balance owed was refinanced with the Company. In connection with the refinance, the maturity date of the loan was extended to January 2024 and the interest rate on the loan was increased to a variable rate based on Term SOFR (plus an 11 basis point adjustment related to SOFR transition) plus 6.0% for the first six months of the extended term, increasing to 7.0% for the last six months of the extended term. The Company also received a $1 million extension fee in connection with the refinance, which is recognized in interest income over the remaining term of the loan. At December 31, 2023 and 2022, this secured loan had $25an outstanding principal balance of $48 millionand $150 million, respectively.
In January 2024, the loan was refinanced with the Company. In connection with the refinance, the maturity date of the loan was extended to January 2025. The interest rate on the loan will remain as Term SOFR (plus an 11 basis point adjustment related to SOFR transition) plus 7.0% but is now subject to a fixed floor of 12%. The Company also received a $1 million extension fee in connection with the refinance, which is recognized in interest income over the remaining term of commitmentsthe loan.
2023 Other Loans Receivable Transactions
In February 2023, the Company received full repayment of the outstanding balance of one $35 million secured loan.
In April 2023, the Company received full repayment of the outstanding balance of one $14 million secured loan.
In May 2023, the Company received full repayment of two outstanding secured loans with an aggregate balance of $12 million.
Also in May 2023, the interest rate on one secured loan with an outstanding balance of $21 million was converted from a variable rate based on LIBOR to fund $174a variable rate based on Term SOFR (plus a 10 basis point adjustment related to SOFR transition). In October 2023, the Company received full repayment of the outstanding balance of this $21 million secured loan.
2022 Other Loans Receivable Transactions
In May 2022, the Company received full repayment of the outstanding balance of one $2 million secured loan.
In November 2022, the Company received full repayment of the outstanding balance of one $1 million mezzanine loan.
In December 2022, the Company extended the maturity dates of four secured loans with an aggregate outstanding balance of $61 million, originally scheduled to mature in December 2022, by one year to December 2023. In connection with the extensions, the interest rates on the loans were increased to a variable rate based on Term SOFR (plus an 11 basis point adjustment related to SOFR transition) with a floor of 8.5% for the first six months of the extended term, increasing to a floor of 10.5% for the last six months of the extended term. All four of these secured loans were repaid during 2023 as discussed above.
2021 Other Loans Receivable Transactions
The Company classifies a loan receivable as held for sale when management no longer has the intent or ability to hold the loan receivable for the foreseeable future or until maturity. If a loan receivable is classified as held for sale, previously recorded reserves for loan losses are reversed and the loan is reported at the lower of amortized cost or fair value. During the second quarter of 2021, two loans receivable with a total amortized cost of $64 million were classified as held for sale. Upon the transfer of these two loans to held for sale, the carrying value was decreased by $11 million to an estimated fair value of $53 million, $8 million of senior housing developmentwhich was previously recognized as a reserve for loan losses. As a result, a $3 million net loss was recognized in impairments and redevelopment projects.loan loss reserves (recoveries), net during the year ended December 31, 2021. In September 2021, the Company sold one of the loans receivable previously classified as held for sale for its carrying value of $2 million. In November 2021, the Company sold the other loan receivable previously classified as held for sale for its carrying value of $51 million.
These fair value estimates were made for each individual loan classified as held for sale and primarily relied on a market approach, utilizing comparable market transactions, forecasted sales prices, and negotiations with prospective buyers. These estimates are considered to be a Level 3 measurement within the fair value hierarchy, and are subject to inherent uncertainties.
Additionally, in April 2021, the Company sold two mezzanine loans as part of the Discovery SHOP Portfolio disposition (see Note4), resulting in no gain or loss on sale of the mezzanine loans.
2020In May 2021, the Company received a $10 million principal repayment related to one of its secured loans. In September 2021, the Company received repayment of the remaining $15 million balance.
In July 2021, the Company received full repayment of the outstanding balance of an $8 million secured loan.
CCRC Resident Loans Receivable Transactions
For certain residents that qualify, CCRCs may offer to lend residents the necessary funds to satisfy the entrance fee requirements so that they are able to move into a community while still continuing the process of selling their previous home. The loans are due upon sale of the resident’s previous residence. Upon completing the CCRC Acquisition (see Note 3) in January 2020,home. At December 31, 2023 and 2022, the Company began consolidating 13 CCRCs, which held approximately $30$43 millionand $33 million, respectively, of such notes receivable from various community residents at the time of acquisition. At December 31, 2020, the Company held $23 millionof such receivables, which are included in mezzanine and other in the table above.receivable.
In November 2020, the Company sold 1 mezzanine loan with a $10 million principal balance for $8 million, resulting in a $2 millionloss.
In December 2020, the Company sold 1 secured mortgage loan with a $115 million principal balance for $109 million, resulting in a $6 million loss.
SHOP Seller Financing
In December 2020, in conjunction with the sale of 4 SHOP facilities in the Atria SHOP Portfolio for $94 million (see Note 5), the Company provided the buyer with financing of $61 million. The remainder of the sales price was received in cash at the time of sale. The financing is secured by the buyer's equity ownership in the 4 properties.
In conjunction with the sale of 32 SHOP facilities in the Sunrise Senior Housing Portfolio for $664 million in January 2021 (see Note 5), the Company provided the buyer with financing of $410 million. The remainder of the sales price was received in cash at the time of sale. The financing is secured by the buyer's equity ownership in each property.
In conjunction with the sale of 16 additional SHOP facilities for $230 million in January 2021 (see Note 5), the Company provided the buyer with financing of $150 million. The remainder of the sales price was received in cash at the time of sale. The financing is secured by the buyer's equity ownership in each property.
In December 2019, the Company sold 2 SHOP facilities in Florida for $56 million and provided the buyer with initial financing of $45 million. The remainder of the sales price was received in cash at the time of sale. Additionally, the Company agreed to provide up to $10 million of redevelopment funding (80% of the estimated cost of redevelopment), $7 million of which has been funded as of December 31, 2020. The initial and redevelopment financings are secured by the buyer's equity ownership in the property.
Loans Receivable Internal Ratings
In connection withRefer to Note 2 for a discussion of the Company’s quarterly review process or upon the occurrence of a significant event,over its loans receivable are reviewed and assigned anthe related internal rating of Performing, Watch List, or Workout. Loans that are deemed Performing meet all present contractual obligations, and collection and timing of all amounts owed is reasonably assured. Watch List Loans are defined as loans that do not meet the definition of Performing or Workout. Workout Loans are defined as loans in which the Company has determined, based on current information and events, that: (i) it is probable it will be unable to collect all amounts due according to the contractual terms of the agreement, (ii) the borrower is delinquent on making payments under the contractual terms of the agreement, and (iii) the Company has commenced action or anticipates pursuing action in the near term to seek recovery of its investment.
ratings process. The following table summarizes, by year of origination, the Company’s internal ratings for loans receivables,receivable, net of unamortized discounts, fees, and reserves for loan losses, as of December 31, 2020 (dollars in2023 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment Type | | Year of Origination | | Total |
| 2020 | | 2019 | | 2018 | | 2017 | | 2016 | |
Secured mortgage loans | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | |
Performing loans | | $ | 95,800 | | | $ | 61,772 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 157,572 | |
Watch list loans | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Workout loans | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total secured mortgage loans | | $ | 95,800 | | | $ | 61,772 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 157,572 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Mezzanine and other | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | |
Performing loans | | $ | 23,263 | | | $ | 12,252 | | | $ | 0 | | | $ | 0 | | | $ | 0 | | | $ | 35,515 | |
Watch list loans | | 0 | | | 0 | | | 0 | | | 0 | | | 2,288 | | | 2,288 | |
Workout loans | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | |
Total mezzanine and other | | $ | 23,263 | | | $ | 12,252 | | | $ | 0 | | | $ | 0 | | | $ | 2,288 | | | $ | 37,803 | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Real Estate Secured Loans
The following table summarizes the Company’s loans receivable secured by real estate at December 31, 2020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Final Maturity Date | | Number of Loans | | Payment Terms | | Principal Amount(1) | | Carrying Amount |
2021 | | 1 | | Monthly interest-only payments, accrues interest at 7.5% and secured by a senior housing facility under development in Texas | | $ | 2,250 | | | $ | 2,250 | |
2021 | | 1 | | Monthly interest-only payments, accrues interest at 7.5% and secured by a senior housing facility under development in Florida | | 8,289 | | | 8,289 | |
2021 | | 4 | | Monthly interest-only payments, accrues interest at 3.5% and secured by senior housing facilities in Florida and California | | 61,018 | | | 57,861 | |
2022 | | 1 | | Monthly interest-only payments, accrues interest at 5.5% and secured by equity interests in 11 senior housing facilities in California | | 25,000 | | | 24,462 | |
2026 | | 1 | | Monthly interest-only payments, accrues interest at the greater of 2% or LIBOR, plus 4.25% and secured by a senior housing facility under development in Florida | | 51,716 | | | 51,233 | |
2026 | | 1 | | Monthly interest-only payments, accrues interest at the greater of 2% or LIBOR, plus 4.25% and secured by a senior housing facility under development in California | | 13,257 | | | 13,477 | |
| | 9 | | | | $ | 161,530 | | | $ | 157,572 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Investment Type | | Year of Origination | | Total |
| 2023 | | 2022 | | 2021(1) | | 2020 | | 2019 | | Prior | |
Secured loans | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | |
Performing loans | | $ | — | | | $ | — | | | $ | 175,717 | | | $ | — | | | $ | — | | | $ | — | | | $ | 175,717 | |
Watch list loans | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Workout loans | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total secured loans | | $ | — | | | $ | — | | | $ | 175,717 | | | $ | — | | | $ | — | | | $ | — | | | $ | 175,717 | |
Current period gross write-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Current period recoveries | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Current period net write-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
CCRC resident loans | | | | | | | | | | | | | | |
Risk rating: | | | | | | | | | | | | | | |
Performing loans | | $ | 42,132 | | | $ | 601 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 42,733 | |
Watch list loans | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Workout loans | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Total CCRC resident loans | | $ | 42,132 | | | $ | 601 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 42,733 | |
Current period gross write-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Current period recoveries | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
Current period net write-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
(1)Represents future contractual principal payments to be receivedAdditional financing funded on loans receivable secured by real estate.
During the years ended December 31, 2020, 2019, and 2018,Sunrise Senior Housing Portfolio Seller Financing (as discussed above) is included in the Company recognized $13 million, $6 million, and $5 million, respectively,year of interest income related to loans secured by real estate.
Reserve for Loan Losses
The Company evaluatesorigination of the liquidity and creditworthiness of its borrowers on a quarterly basis. The Company’s evaluation considers industry and economic conditions, individual and portfolio property performance, credit enhancements, liquidity, and other factors. The Company’s borrowers furnish property, portfolio, and guarantor/operator-level financial statements, among other information, on a monthly or quarterly basis, which the Company utilizes to calculate the debt service coverages used in its assessment of internal ratings, which is a primary credit quality indicator. Debt service coverage information is evaluated together with other property, portfolio, and operator performance information, including revenue, expense, net operating income, occupancy, rental rates, capital expenditures, and EBITDA (defined as earnings before interest, tax, and depreciation and amortization), along with other liquidity measures.initial financing.
In itsReserve for Loan Losses
Refer to Note 2 for a discussion of the Company’s assessment of current expected credit losses for loans receivable and unfunded loan commitments, the Company utilizes past payment history of its borrowers, current economic conditions, and forecasted economic conditions through the maturity date of each loan to estimate a probability of default and a resulting loss for each loan receivable. Future economic conditions are based primarily on near-term economic forecasts from the Federal Reserve and reasonable assumptions for long-term economic trends.
commitments. The following table summarizes the Company’s reserve for loan losses at December 31, 2020 (in thousands):
| | | | | | | | | | | | | | | | | |
| December 31, 2020 |
| Secured Mortgage Loans | | Mezzanine and Other | | Total |
Reserve for loan losses, December 31, 2019 | $ | 0 | | | $ | 0 | | | $ | 0 | |
Cumulative-effect of adopting of ASU 2016-13 to beginning retained earnings | 513 | | | 907 | | | 1,420 | |
Provision for expected loan losses | 2,639 | | | 6,221 | | | 8,860 | |
| | | | | |
| | | | | |
Reserve for loan losses, December 31, 2020 | $ | 3,152 | | | $ | 7,128 | | | $ | 10,280 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 |
| Secured Loans | | Other(1) | | Total | | Secured Loans | | Other(1) | | Total |
Reserve for loan losses, beginning of period | $ | 8,280 | | | $ | — | | | $ | 8,280 | | | $ | 1,804 | | | $ | 9 | | | $ | 1,813 | |
| | | | | | | | | | | |
Provision for expected loan losses | 2,088 | | | — | | | 2,088 | | | 6,527 | | | 7 | | | 6,534 | |
Expected loan losses (recoveries) related to loans sold or repaid | (7,538) | | | — | | | (7,538) | | | (51) | | | (16) | | | (67) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Reserve for loan losses, end of period | $ | 2,830 | | | $ | — | | | $ | 2,830 | | | $ | 8,280 | | | $ | — | | | $ | 8,280 | |
(1)Includes CCRC resident loans and other loan activity.
Additionally, at December 31, 2020,2023 and 2022, a liability of $1$0.7 million and $0.8 million, respectively, related to expected credit losses for unfunded loan commitments was included in accounts payable, accrued liabilities, and other liabilities.
Credit loss expenses and recoveries are recorded in impairments and loan loss reserves (recoveries), net. During the year ended December 31, 2020, the net credit loss expense was $18 million. The change in the provisionreserve for expected loan losses during the year ended December 31, 20202023 is primarily due to the currentto: (i) principal repayments on seller financing, (ii) increased interest rates on variable rate loans, and anticipated economic impact of COVID-19.(iii) macroeconomic conditions.
Other Secured Loans
Tandem Health Care Loan
From July 2012 through May 2015, the Company funded, in aggregate, $257 million under a collateralized mezzanine loan facility (the “Mezzanine Loan”) to certain affiliates of Tandem Health Care (together with is affiliates, “Tandem”).
In March 2018, the Company sold the Mezzanine Loan to a third party for approximately $112 million, which resulted in an impairment recovery, net of transaction costs and fees, of $3 million included in other income (expense), net. The Company holds no further economic interest in the operations of Tandem.
U.K. Bridge Loan
In 2016, the Company provided a £105 million ($131 million at closing) bridge loan (the “U.K. Bridge Loan”) to Maria Mallaband Care Group Ltd. ("MMCG") to fund the acquisition of a portfolio of 7 care homes in the U.K. Under the U.K. Bridge Loan, the Company retained a three-year call option to acquire those 7 care homes at a future date for £105 million, subject to certain conditions precedent being met. In March 2018, upon resolution of all conditions precedent, the Company began the process of exercising its call option to acquire the 7 care homes and concluded that it should consolidate the real estate. As a result, the Company derecognized the outstanding loan receivable of £105 million and recognized a £29 million ($41 million) loss on consolidation. Refer to Note 19 for further discussion regarding impact of consolidating the 7 care homes during the first quarter of 2018.
In June 2018, the Company completed the process of exercising the above-mentioned call option. The 7 care homes acquired through the call option were included in the U.K. JV transaction (see Note 5).
NOTE 9.8. Investments in and Advances to Unconsolidated Joint Ventures
The Company owns interests in the following entities that are accounted for under the equity method excluding investments classified as discontinued operations (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | Carrying Amount |
| | | | | | | December 31, |
Entity(1)(2) | | Segment | | Property Count(3) | Ownership %(3) | | 2020 | | 2019 |
SWF SH JV(4) | | Other | | 19 | 54 | | $ | 357,581 | | | $ | 428,258 | |
Life Science JV(5) | | LS | | 1 | 49 | | 24,879 | | | 0 | |
Medical Office JVs(6) | | MOB | | 3 | 20 - 67 | | 9,673 | | | 9,845 | |
Other JVs(7) | | Other | | 0 | 41 - 47 | | 9,157 | | | 10,372 | |
CCRC JV(8) | | CCRC | | 2 | 49 | | 1,581 | | | 325,830 | |
Advances to unconsolidated joint ventures, net | | | | | | | 0 | | | 76 | |
| | | | | | | $ | 402,871 | | | $ | 774,381 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Carrying Amount |
| | | | | | | | December 31, |
Entity(1) | | Segment | | Property Count(2) | | Ownership %(2) | | 2023 | | 2022 |
South San Francisco JVs(3) | | Lab | | 7 | | 70 | | $ | 393,374 | | | $ | 309,969 | |
SWF SH JV | | Other | | 19 | | 54 | | 332,693 | | | 345,978 | |
Lab JV | | Lab | | 1 | | 49 | | 31,761 | | | 26,601 | |
Needham Land Parcel JV(4) | | Lab | | — | | 38 | | 17,084 | | | 15,391 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Outpatient Medical JVs(5) | | Outpatient medical | | 2 | | 20 - 67 | | 7,941 | | | 8,738 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | $ | 782,853 | | | $ | 706,677 | |
_______________________________________(1)These entities are not consolidated because the Company does not control, through voting rights or other means, the joint ventures.
(2)The property count, ownership percentage, and carrying amount at December 31, 2020 excludes the Otay Ranch JV, which is classified as discontinued operations and has an aggregate carrying value of $6 million at December 31, 2020. The carrying amount at December 31, 2019 excludes the Otay Ranch JV, Waldwick JV, MBK JV, and MBK Development JV, which are classified as discontinued operations and had an aggregate carrying value of $51 million at December 31, 2019. The Otay Ranch JV (90% ownership percentage) is the only 1 of these joint ventures that remains outstanding at December 31, 2020.
(3)Property countcounts and ownership percentagepercentages are as of December 31, 2020.2023.
(3)Includes seven unconsolidated lab joint ventures in South San Francisco, California in which the Company holds a 70% ownership percentage in each joint venture. These joint ventures have been aggregated herein due to similarity of the investments and operations. See “South San Francisco JVs” below for further information.
(4)InLand held for development is excluded from the property count as of December 2019, the Company formed the SWF SH JV with a sovereign wealth fund (see Note 4).31, 2023.
(5)In December 2020,Includestwo unconsolidated outpatient medical joint ventures in which the Company acquired a joint venture interest in a life science facility in Cambridge, Massachusetts (see Note 4).
(6)Includes 3 unconsolidated medical office joint ventures (and the Company’sholds an ownership percentage):percentage as follows: (i) Ventures IV (20%); and (ii) Ventures III (30%); and (iii) Suburban Properties, LLC (67%).
(7)Unconsolidated other As of December 31, 2022, these joint ventures (and the Company’s ownership percentage) include: (i) Discovery Naples JV (41%) and (ii) Discovery Sarasota JV (47%). The Discovery Naples JV and Discovery Sarasota JV are joint ventures that are developing senior housing facilities and the Company’s investments in those joint ventures are preferred equity investments earningheld a 10% per annum fixed-rate return.total of three properties. In January 2020,April 2023, the Company sold itsacquired the remaining 80% interest in one of the remaining K&Ytwo properties in the Ventures IV unconsolidated joint venture for $12 million. At December 31, 2019, the K&Y$4 million (see Note 3). These joint venture includes an ownership percentage of 80% and 1 unconsolidated joint venture. In October 2019, the Company sold its interest in 1ventures have been aggregated herein due to similarity of the K&Y joint ventures for $4 million.
(8)See Note 3 for a discussion of the 2019 MTCA with Brookdale, including the acquisition of Brookdale’s interest in 13 of the 15 communities in the CCRC JV in January 2020.investments and operations.
At December 31, 20202023 and 2019,2022, the aggregate unamortized basis difference of the Company'sCompany’s investments in unconsolidated joint ventures of $33$49 million and $(63)41 million, respectively, is primarily attributable to the difference between the amount for which the Company purchased its interest in the entityLab JV and the historical carrying value of the net assets of the entity.Lab JV and capitalized interest related to the redevelopment activities at the South San Francisco JVs. The difference is beingdifferences are amortized over the remaining useful lifelives of the related assets and isare included in equity income (loss) from unconsolidated joint ventures.
CCRC JV. In January 2020, the Company, which owned a 49% interest in the CCRC JV, purchased Brookdale’s 51% interest in and began consolidating 13 of the 15 communities in the CCRC JV. Refer to Note 3 for a detailed discussion of the 2019 MTCA with Brookdale. During 2019, the CCRC JV recognized an impairment charge of $12 million. Accordingly, the Company recognized its 49% share of the impairment charge ($6 million) through equity income (loss) from unconsolidated joint ventures during the year ended December 31, 2019.
U.K. JV. In December 2019, the Company sold its remaining 49% interest in the U.K. JV for proceeds of £70 million ($91 million) and recognized a loss on sale of $7 million (based on exchange rates at the time the transaction was completed), including $1 million of loss in accumulated other comprehensive income (loss) that was reclassified to gain (loss) on sales of real estate. As of December 31, 2019, the Company no longer owned real estate in the U.K.
South San Francisco JVs
On August 1, 2022, the Company sold a 30% interest in seven lab buildings in South San Francisco, California to a sovereign wealth fund (“SWF Partner”) for cash of $126 million. Following this transaction, the Company and the SWF Partner share in key decisions of the assets through their voting rights, resulting in the Company deconsolidating the assets, recognizing its retained 70% investment in the South San Francisco joint ventures (the “South San Francisco JVs”) at fair value, and accounting for its investment using the equity method. The fair values of the Company’s retained investment were based on a market approach, utilizing an agreed-upon contractual sales price, which is considered to be a Level 3 measurement within the fair value hierarchy. During the year ended December 31, 2022, the Company recognized a gain upon change of control of $311 million, which is recorded in other income (expense), net.
The Company is entitled to a preferred return, a promote, and certain fees in exchange for development and asset management services provided to the South San Francisco JVs when certain conditions are met.
Callan Ridge JV
In December 2023, the Company entered into definitive agreements with a third party to sell a 65% interest in two lab buildings in San Diego, California. The Company received an $8 million nonrefundable deposit upon completion of due diligence in December 2023. As of December 31, 2023, these two lab buildings had a carrying value of $110 million and were classified as held for sale (see Note 4). In January 2024, the transaction closed and the Company received net proceeds of $128 million in connection with the sale of the 65% interest.
NOTE 10.9. Intangibles
Intangible assets primarily consist of lease-up intangibles and above market tenant lease intangibles. The following table summarizes the Company’s intangible lease assets (dollars in thousands):
| | | | December 31, | | | December 31, |
Intangible lease assets | Intangible lease assets | | 2020 | | 2019 | Intangible lease assets | | 2023 | | 2022(1) |
| Gross intangible lease assets | Gross intangible lease assets | | $ | 761,328 | | | $ | 426,967 | |
| Gross intangible lease assets | |
| Gross intangible lease assets | |
Accumulated depreciation and amortization | Accumulated depreciation and amortization | | (241,411) | | | (166,763) | |
Intangible assets, net(1) | | $ | 519,917 | | | $ | 260,204 | |
Intangible assets, net | |
| Weighted average remaining amortization period in years | Weighted average remaining amortization period in years | | 5 | | 5 |
Weighted average remaining amortization period in years | |
Weighted average remaining amortization period in years | | | 5 |
(1)Excludes intangible assets reported in assets held for sale and discontinued operations, net of $25 million and $82 million as of December 31, 2020 and December 31, 2019, respectively.$2 million.
Intangible liabilities consist of below market lease intangibles. The following table summarizes the Company’s intangible lease liabilities (dollars in thousands):
| | | | December 31, | | | December 31, |
Intangible lease liabilities | Intangible lease liabilities | | 2020 | | 2019 | Intangible lease liabilities | | 2023 | | 2022 |
| Gross intangible lease liabilities | Gross intangible lease liabilities | | $ | 194,565 | | | $ | 113,213 | |
| Gross intangible lease liabilities | |
| Gross intangible lease liabilities | |
Accumulated depreciation and amortization | Accumulated depreciation and amortization | | (50,366) | | | (38,222) | |
Intangible liabilities, net | Intangible liabilities, net | | $ | 144,199 | | | $ | 74,991 | |
| Weighted average remaining amortization period in years | Weighted average remaining amortization period in years | | 8 | | 7 |
Weighted average remaining amortization period in years | |
Weighted average remaining amortization period in years | | | 7 |
The following table sets forth amortization related to intangible assets, net and intangible liabilities, net (in thousands):
| | Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| | Year Ended December 31, | | | | Year Ended December 31, |
| | 2023 | | | | 2023 | | 2022 | | 2021 |
Depreciation and amortization expense related to amortization of lease-up intangibles(1) | Depreciation and amortization expense related to amortization of lease-up intangibles(1) | | $ | 89,301 | | | $ | 46,828 | | | $ | 43,933 | |
Rental and related revenues related to amortization of net below market lease liabilities(1) | Rental and related revenues related to amortization of net below market lease liabilities(1) | | 11,717 | | | 6,319 | | | 5,341 | |
|
(1)Excludes amortization related to assets classified as discontinued operations.
During the year ended December 31, 2020,2023, in conjunction with the Company’s acquisition of real estate, the Company acquired $0.5 million of intangible assets with a weighted average amortization period at acquisition of 5 years.
During the year ended December 31, 2022, in conjunction with the Company’s acquisitions of real estate, (including the consolidation of 13 CCRCs in which the Company acquired Brookdale’s interest as part of the 2019 Brookdale MTCA - see Note 3), the Company acquired intangible assets of $352$7 million and intangible liabilities of $83$6 million. The intangible assets and intangible liabilities acquired havehad a weighted average amortization period at acquisition of 7 years and 911 years, respectively.
On January 1, 2019, in conjunction with the adoption of ASU 2016-02 (see Note 2), the Company reclassified $39 million of intangible assets, net and $6 million of intangible liabilities, net related to above and below market ground leases to right-of-use asset, net.
The following table summarizes the estimated annual amortization for each of the five succeeding fiscal years and thereafter excluding assets classified as discontinued operations (in thousands):
| | | Rental and Related Revenues(1)(3) | | Depreciation and Amortization(2)(3) | | Rental and Related Revenues | | Depreciation and Amortization |
2021 | $ | 18,093 | | | $ | 96,094 | |
2022 | 17,841 | | | 89,217 | |
2023 | 17,119 | | | 85,484 | |
2024 | 2024 | 16,159 | | | 82,647 | |
2025 | 2025 | 15,370 | | | 72,373 | |
2026 | |
2027 | |
2028 | |
Thereafter | Thereafter | 50,514 | | | 84,999 | |
| | $ | 135,096 | | | $ | 510,814 | |
(1)The amortization of net below market lease intangibles is recorded as an increase to rental and related revenues.Goodwill
(2)At each of December 31, 2023 and 2022, the Company’s goodwill balance was $18 millionThe amortization of lease-up intangiblesand is recordedrecognized in other assets, net on the Consolidated Balance Sheets. See Note 15 for goodwill attributable to depreciation and amortization expense.
(3)Excludes estimated annual amortizationthe Company’s reportable segments. During the year ended December 31, 2021, the Company recognized a $29 million goodwill impairment charge, recognized within income (loss) from assets classified as discontinued operations.operations (see Note 5).
NOTE 11.10. Debt
Subsequent to the Reorganization, Healthpeak OP, the Company’s consolidated operating subsidiary, is the borrower under, and the Company is the guarantor of, all of the unsecured debt discussed below, which includes the Revolving Facility, Term Loan Facilities, Commercial Paper Program (each as defined below), and senior unsecured notes. The Company’s guarantee of the senior unsecured notes is full and unconditional and applicable to existing and future senior unsecured notes.
Bank Line of Credit and Term Loans
On May 23, 2019, the Company executed a $2.5 billion unsecured revolving line of credit facility, (the “Revolving Facility”), which matures onwith a maturity date of May 23, 2023 and contains 2 six monthtwo six-month extension options, subject to certain customary conditions. In September 2021, the Company executed an amended and restated unsecured revolving line of credit (the “Revolving Facility”) to increase total revolving commitments from $2.5 billion to $3.0 billion and extend the maturity date to January 20, 2026. This maturity date may be further extended pursuant to two six-month extension options, subject to certain customary conditions. Borrowings under the Revolving Facility accrue interest at LIBORthe applicable interest rate benchmark plus a margin that depends on the credit ratings of the Company'sCompany’s senior unsecured long-term debt. On February 10, 2023, the Company executed an amendment to the Revolving Facility to convert the interest rate benchmark from LIBOR to SOFR. The Company also pays a facility fee on the entire revolving commitment that depends on its credit ratings. Additionally, the Revolving Facility includes a sustainability-linked pricing component whereby the applicable margin may be reduced by up to 0.025% based on the Company’s achievement of specified sustainability-linked metrics, subject to certain conditions. Based on thosethe Company’s credit ratings at December 31, 2020,2023, and inclusive of achievement of a sustainability-linked metric, the margin on the Revolving Facility was 0.83%0.85% and the facility fee was0.15%.
In May 2019, the Company also entered into a $250 million unsecured term loan facility, which the Company fully drew down during the second quarter of 2019 (the “2019 Term Loan” and, together with the The Revolving Facility the “Facilities”). The 2019 Term Loan matures on May 23, 2024. Based on credit ratings for the Company’s senior unsecured long-term debt at December 31, 2020, the 2019 Term Loan accrues interest at a rate of LIBOR plus 0.90%, with a weighted average effective interest rate of 1.14%.
The Facilities includeincludes a feature that allows the Company to increase the borrowing capacity by an aggregate amount of up to $750 million, subject to securing additional commitments. At each of December 31, 2023 and 2022, the Company had no balance outstanding under the Revolving Facility.
On August 22, 2022, the Company executed a term loan agreement (the “Term Loan Agreement”) that provided for two senior unsecured delayed draw term loans in an aggregate principal amount of up to $500 million (the “Term Loan Facilities”). The Term Loan Facilities were available to be drawn from time to time during a 180-day period after closing, subject to customary borrowing conditions, and the Company drew the entirety of the $500 million under the Term Loan Facilities in October 2022. $250 million of the Term Loan Facilities has an initial stated maturity of 4.5 years, which may be extended for a one-year period subject to certain customary conditions. The other $250 million of the Term Loan Facilities has a stated maturity of 5 years with no option to extend. At each of December 31, 2023 and 2022, the Company had $500 million outstanding under the Term Loan Facilities.
Loans outstanding under the Term Loan Facilities accrue interest at TermSOFR plus a margin that depends on the credit ratings of the Company’s senior unsecured long-term debt. The Term Loan Agreement also containincludes a sustainability-linked pricing component whereby the applicable margin under the Term Loan Facilities may be reduced by 0.01% based on the Company’s achievement of specified sustainability-linked metrics. Based on the Company’s credit ratings as of December 31, 2023, and inclusive of achievement of a sustainability-linked metric, the margin on the Term Loan Facilities was 0.94%. The Term Loan Agreement includes a feature that allows the Company to increase the borrowing capacity by an aggregate amount of up to an additional $500 million, subject to securing additional commitments.
In August 2022, the Company entered into two forward-starting interest rate swap instruments that are designated as cash flow hedges (see Note 21). The Term Loan Facilities associated with these interest rate swap instruments are reported as fixed rate debt due to the Company having effectively established a fixed interest rate for the underlying debt instruments. Based on the Company’s credit ratings as of December 31, 2023, the Term Loan Facilities had a blended fixed effective interest rate of 3.76%, inclusive of the impact of these interest rate swap instruments and amortization of the related debt issuance costs.
The Revolving Facility and Term Loan Facilities are subject to certain financial restrictions and other customary requirements, including financial covenants and cross-default provisions to other indebtedness. Among other things, these covenants, using terms defined in the agreements:applicable agreement: (i) limit the ratio of Enterprise Total Indebtedness to Enterprise Gross Asset Value to 60%; (ii) limit the ratio of Enterprise Secured Debt to Enterprise Gross Asset Value to 40%; (iii) limit the ratio of Enterprise Unsecured Debt to Enterprise Unencumbered Asset Value to 60%; (iv) require a minimum Fixed Charge Coverage ratio of 1.5 times; and (v) require a minimum Consolidated Tangible Net Worth of $7.0$7.7 billion. At December 31, 2020, theThe Company believes it was in compliance with each of these restrictions and requirementscovenants at December 31, 2023.
The Company has secured commitments for a $750 million five-year unsecured term loan (the “2024 Term Loan”), to be incurred as an incremental facility under the Term Loan Agreement. In January 2024, the Company entered into forward-starting interest rate swap instruments that are designated as cash flow hedges (see Note 21) that will effectively establish a fixed interest rate for the 2024 Term Loan at a blended contractual rate of the Facilities.4.5%.
Commercial Paper Program
In September 2019, the Company established an unsecured commercial paper program (the “Commercial Paper Program”). Under the terms of the Commercial Paper Program, the Company may issue, from time to time, short-term unsecured short-term debt securitiesnotes with varying maturities. Amounts available under the Commercial Paper Program may be borrowed, repaid, and re-borrowed from time to time, withtime. At each of December 31, 2023 and 2022, the maximum aggregate face or principal amount that could be outstanding at any one time not exceeding $1.0was $2.0 billion. Amounts borrowed under the Commercial Paper Program will be sold on terms that are customary for the U.S. commercial paper market and will be at least equal in right of payment with all of the Company’s other unsecured and unsubordinated indebtedness. The Company intends to useuses its Revolving Facility as a liquidity backstop for the repayment of short-term unsecured short term debt securitiesnotes issued under the Commercial Paper Program. At December 31, 2020,2023, the Company had $130$720 million of notes outstanding under the Commercial Paper Program, with original maturities of one monthapproximately 37 days and a weighted average interest rate of 0.30%5.70%. At December 31, 2019,2022, the Company had $93$996 million of notes outstanding under the Commercial Paper Program, with original maturities of one monthapproximately two months and a weighted average interest rate of 2.04%4.90%.
Senior Unsecured Notes
At December 31, 2020,2023 and 2022, the Company had senior unsecured notes outstanding with an aggregate principal balance of $5.75 billion.$5.5 billion and $4.7 billion, respectively. The senior unsecured notes contain certain covenants including limitations on debt, maintenance of unencumbered assets, cross-acceleration provisions, and other customary terms. The Company believes it was in compliance with these covenants at December 31, 2020.2023.
The following table summarizes the Company’s senior unsecured notes issuances for the periods presentedyears ended December 31, 2023, 2022, and 2021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
Issue Date | | Amount | | Coupon Rate | | Maturity Date |
Year ended December 31, 2020: | | | | | | |
June 23, 2020 | | $ | 600,000 | | | 2.88 | % | | 2031 |
Year ended December 31, 2019: | | | | | | |
November 21, 2019 | | $ | 750,000 | | | 3.00 | % | | 2030 |
July 5, 2019 | | $ | 650,000 | | | 3.25 | % | | 2026 |
July 5, 2019 | | $ | 650,000 | | | 3.50 | % | | 2029 |
| | | | | | | | | | | | | | | | | | | | |
Issue Date | | Amount | | Coupon Rate | | Maturity Year |
Year ended December 31, 2023: | | | | | | |
January 17, 2023 | | $ | 400,000 | | | 5.25 | % | | 2032 |
May 10, 2023(1) | | 350,000 | | | 5.25 | % | | 2032 |
Year ended December 31, 2021: | | | | | | |
November 24, 2021(2) | | 500,000 | | | 2.13 | % | | 2028 |
July 12, 2021(2) | | 450,000 | | | 1.35 | % | | 2027 |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
_______________________________________There were 0(1)In May 2023, the Company issued $350 million of 5.25% senior unsecured notes issuances fordue 2032, which constituted an additional issuance of, and are treated as a single series with, the year$400 million of senior unsecured notes due 2032 issued in January 2023.
(2)In 2021, the Company completed two green bond offerings. The net proceeds from both green bonds have been allocated to eligible green projects, and the Company may choose to re-allocate net proceeds from such offerings to one or more other eligible green projects.
During the years ended December 31, 2018.2023 and 2022, there were no repurchases or redemptions of senior unsecured notes.
The following table summarizes the Company’s senior unsecured notes payoffsrepurchases and repurchasesredemptions for the periods presentedyear ended December 31, 2021 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | |
Payoff Date | | Amount | | Coupon Rate | | Maturity Date |
Year ended December 31, 2020: | | | | | | |
July 9, 2020(1) | | $ | 300,000 | | | 3.15 | % | | 2022 |
June 24, 2020(2) | | $ | 250,000 | | | 4.25 | % | | 2023 |
Year ended December 31, 2019: | | | | | | |
November 21, 2019(3) | | $ | 350,000 | | | 4.00 | % | | 2022 |
July 22, 2019(4) | | $ | 800,000 | | | 2.63 | % | | 2020 |
July 8, 2019(4) | | $ | 250,000 | | | 4.00 | % | | 2022 |
July 8, 2019(4) | | $ | 250,000 | | | 4.25 | % | | 2023 |
Year ended December 31, 2018: | | | | | | |
November 8, 2018 | | $ | 450,000 | | | 3.75 | % | | 2019 |
July 16, 2018(5) | | $ | 700,000 | | | 5.38 | % | | 2021 |
| | | | | | | | | | | | | | | | | | | | |
Payoff Date(1) | | Amount | | Coupon Rate | | Maturity Year |
May 19, 2021 | | $ | 251,806 | | | 3.40 | % | | 2025 |
May 19, 2021 | | 298,194 | | | 4.00 | % | | 2025 |
February 26, 2021 | | 188,000 | | | 4.25 | % | | 2023 |
February 26, 2021 | | 149,000 | | | 4.20 | % | | 2024 |
February 26, 2021 | | 331,000 | | | 3.88 | % | | 2024 |
January 28, 2021 | | 112,000 | | | 4.25 | % | | 2023 |
January 28, 2021 | | 201,000 | | | 4.20 | % | | 2024 |
January 28, 2021 | | 469,000 | | | 3.88 | % | | 2024 |
| | | | | | |
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| | | | | | |
| | | | | | |
_______________________________________(1)Upon completing the redemptionAs a result of the 3.15%repurchases and redemptions of these senior unsecured notes, due in 2022, the Company recognized an $18 million loss on debt extinguishment.
(2)Upon repurchasing a portion of the 4.25% senior unsecured notes due in 2023, the Company recognized a $26 million loss on debt extinguishment.
(3)Upon repurchasing the 4.00% senior unsecured notes due in 2022, the Company recognized a $22 million loss on debt extinguishment.
(4)Upon completing the redemption of the 2.63% senior unsecured notes due in 2020 and repurchasing a portion of the 4.25% senior unsecured notes due in 2023 and the 4.00% senior unsecured notes due in 2022, the Company recognized a $35 million loss on debt extinguishment.
(5)Upon repurchasing the 5.38% senior unsecured notes due in 2021, the Company recognized a $44 million loss on debt extinguishment.
From January 1, 2021 through February 8, 2021, the Company repurchased $112 million aggregate principal amount of its 4.25% senior unsecured notes due in 2023, $201 million aggregate principal amount of its 4.20% senior unsecured notes due in 2024, and $469 million aggregate principal amount of its 3.88% senior unsecured notes due in 2024. Upon completing that repayment, the Company will recognize a $90$225 million loss on debt extinguishment during the first quarter ofyear ended December 31, 2021.
Mortgage Debt
At December 31, 20202023 and 2019,2022, the Company had $217$255 million and $12$345 million, respectively, in aggregate principal of mortgage debt outstanding (excludingoutstanding. At December 31, 2023, this mortgage debt on assets held for sale and discontinued operations), which iswas secured by 615outpatient medical buildings and 4 healthcare facilities, respectively,2 CCRCs, with an aggregate carrying value of $517 million and $38 million, respectively.
During the year ended$587 million.At December 31, 2020, 2019, and 2018 the Company made aggregate principal repayments of2022, this mortgage debt was secured by 15 outpatient medical buildings and 3 CCRCs, with an aggregate carrying value of $18 million, $4 million, and $5 million, respectively.
Mortgage debt generally requires monthly principal and interest payments, is collateralized by real estate assets, and is generally non-recourse. Mortgage debt typically restricts the transfer of the encumbered assets, prohibits additional liens, restricts prepayment, requires payment of real estate taxes, requires maintenance of the assets in good condition, requires insurance on the assets, and includes conditions to obtain lender consent to enter into or terminate material leases.leases, requires insurance on the assets, requires payment of real estate taxes, restricts transfer of the encumbered assets and repayment of the loan, and prohibits additional liens. Some of the mortgage debt may require tenants or operators to maintain compliance with the applicable leases or operating agreements of such real estate assets.
In November 2020, upon consolidating 1 property as part of a joint venture dissolution,During the years ended December 31, 2023, 2022, and 2021, the Company assumed $36 millionmade aggregate principal repayments of secured mortgage debt (classified as liabilities related toof $90 million, $5 million, and $9 million, respectively (excluding mortgage debt on assets held for sale and discontinued operations, net) maturingoperations). Included in 2025 and havingthe $90 millionof aggregate principal repayments of mortgage debt for the year endedDecember 31, 2023 was an $85 millionfull principal repayment of mortgage debt secured by one CCRC that matured in December 2023.
The Company has $142 million of mortgage debt secured by a weighted averagedportfolio of 13 outpatient medical buildings that matures in May 2026 (see Note 3). In April 2022, the Company terminated its existing interest rate ofcap instruments associated with this variable rate mortgage debt and entered into two interest rate swap instruments that are designated as cash flow hedges 3.87%(see Note 4).
and mature in May 2026. In May 2019, upon acquiring 3 senior housing assetsFebruary 2023, the agreements associated with this variable rate mortgage debt were amended to change the interest rate benchmarks from Oakmont,LIBOR to SOFR, effective March 2023. Concurrently, the Company assumed $50 million of securedmodified the related interest rate swap instruments to reflect the change in the interest rate benchmarks from LIBOR to SOFR (see Note 21). The variable rate mortgage debt (classified as liabilities related to assets held for sale and discontinued operations, net) maturing in 2028 and having a weighted averageassociated with these interest rate of 4.83%. In July 2019, upon acquiring 5 additional senior housing assets from Oakmont,swap instruments is reported as fixed rate debt due to the Company assumed an additional $112 million of secured mortgage debt with maturity dates ranging from 2027 to 2033 andhaving effectively established a weighted averagefixed interest rate of 4.89% (see Note 4).for the underlying debt instrument.
Debt Maturities
The following table summarizes the Company’s stated debt maturities and scheduled principal repayments at December 31, 2020 (in2023 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Senior Unsecured Notes(1) | | Mortgage Debt(2) | | |
Year | | Bank Line of Credit | | Commercial Paper | | Term Loan | | Amount | | Interest Rate | | Amount | | Interest Rate | | Total |
2021 | | $ | 0 | | | $ | 129,590 | | | $ | 0 | | | $ | 0 | | | 0 | % | | $ | 13,015 | | | 5.26 | % | | $ | 142,605 | |
2022 | | 0 | | | 0 | | | 0 | | | 0 | | | 0 | % | | 4,843 | | | 0 | % | | 4,843 | |
2023 | | 0 | | | 0 | | | 0 | | | 300,000 | | | 4.37 | % | | 89,874 | | | 3.80 | % | | 389,874 | |
2024 | | 0 | | | 0 | | | 250,000 | | | 1,150,000 | | | 4.17 | % | | 3,050 | | | 0 | % | | 1,403,050 | |
2025 | | 0 | | | 0 | | | 0 | | | 1,350,000 | | | 3.93 | % | | 3,209 | | | 0 | % | | 1,353,209 | |
Thereafter | | 0 | | | 0 | | | 0 | | | 2,950,000 | | | 3.67 | % | | 102,789 | | | 3.57 | % | | 3,052,789 | |
| | 0 | | | 129,590 | | | 250,000 | | | 5,750,000 | | | | | 216,780 | | | | | 6,346,370 | |
(Discounts), premium and debt costs, net | | 0 | | | 0 | | | (818) | | | (52,414) | | | | | 4,841 | | | | | (48,391) | |
| | 0 | | | 129,590 | | | 249,182 | | | 5,697,586 | | | | | 221,621 | | | | | 6,297,979 | |
Debt on assets held for sale and discontinued operations(3) | | 0 | | | 0 | | | 0 | | | 0 | | | | | 318,876 | | | | | 318,876 | |
| | $ | 0 | | | $ | 129,590 | | | $ | 249,182 | | | $ | 5,697,586 | | | | | $ | 540,497 | | | | | $ | 6,616,855 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | Senior Unsecured Notes(2) | | Mortgage Debt(3) | | |
Year | | Bank Line of Credit | | Commercial Paper(1) | | Term Loans | | Amount | | Interest Rate | | Amount | | Interest Rate | | Total |
2024 | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | — | % | | $ | 7,024 | | | 6.90 | % | | $ | 7,024 | |
2025 | | — | | | — | | | — | | | 800,000 | | | 3.92 | % | | 3,209 | | | 3.82 | % | | 803,209 | |
2026 | | — | | | 720,000 | | | — | | | 650,000 | | | 3.40 | % | | 244,523 | | | 4.44 | % | | 1,614,523 | |
2027 | | — | | | — | | | 500,000 | | | 450,000 | | | 1.54 | % | | 366 | | | 5.91 | % | | 950,366 | |
2028 | | — | | | — | | | — | | | 500,000 | | | 2.35 | % | | — | | | — | % | | 500,000 | |
Thereafter | | — | | | — | | | — | | | 3,050,000 | | | 4.18 | % | | — | | | — | % | | 3,050,000 | |
| | — | | | 720,000 | | | 500,000 | | | 5,450,000 | | | | | 255,122 | | | | | 6,925,122 | |
Premiums, (discounts), and debt issuance costs, net | | — | | | — | | | (3,176) | | | (46,622) | | | | | 975 | | | | | (48,823) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | $ | — | | | $ | 720,000 | | | $ | 496,824 | | | $ | 5,403,378 | | | | | $ | 256,097 | | | | | $ | 6,876,299 | |
(1)Commercial Paper Program borrowings are backstopped by the Revolving Facility. As such, the Company calculates the weighted average remaining term of its Commercial Paper Program borrowings using the maturity date of the Revolving Facility.
(2)Effective interest rates on the senior unsecured notes range from 3.08%1.54% to 6.87% with a weighted average effective interest rate of 3.86%3.66% and a weighted average maturity of 76 years.
(2)(3)Excluding mortgage debt on assets classified as held for sale and discontinued operations, effectiveEffective interest rates on the mortgage debt range from 3.42%3.44% to 5.91%9.26% with a weighted average effective interest rate of 3.73%4.50% and a weighted average maturity of 53 years.
(3)Represents mortgage debt on assets held for sale and discontinued operations with These interest rates include the impact of 1.34% to 5.13% that mature between 2025 and 2044.designated interest rate swap instruments, which effectively fix the interest rate on certain variable rate debt.
NOTE 12.11. Commitments and Contingencies
Legal Proceedings
From time to time, the Company is a party to or has a significant relationship to, legal proceedings, lawsuits and other claims. Except as described below,claims that arise in the ordinary course of the Company’s business. The Company is not aware of any legal proceedings or claims that it believes may have, individually or taken together, a material adverse effect on the Company’s financial condition, results of operations, or cash flows. The Company’s policy is to expense legal costs as they are incurred.
Class Action. On May 9, 2016, a purported stockholder ofSubsequent to December 31, 2023, in connection with the CompanyMergers, three lawsuits have been filed a putative class action complaint, Boynton Beach Firefighters’ Pension Fund v. HCP, Inc., et al., Case No. 3:16-cv-01106-JJH, in the U.S. District Court for the Northern District of Ohio against the Company, certain of its officers, HCR ManorCare, Inc. (“HCRMC”), and certain of its officers, asserting violations of the federal securities laws. The suit asserted claims under sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and alleged that the Company made certain false or misleading statements relating to the value of and risks concerning its investment in HCRMC by allegedly failing to disclose that HCRMC had engaged in billing fraud, as alleged by the U.S. Department of Justice (“DoJ”) in a suit against HCRMC arising from the False Claims Act that the DoJ voluntarily dismissed with prejudice. On November 22, 2019, the Court granted the class action motion to dismiss. On December 20, 2019, Co-Lead Plaintiffs filed a motion to amend the Court's judgment to permit amendment of the complaint, and on November 30, 2020, the Court denied Co-Lead Plantiff’s motion. Co-Lead Plantiffs have not appealed the dismissal and denial of leave to amend their compliant.
Derivative Actions. On June 16, 2016 and July 5, 2016, purported stockholders of the Company filed two derivative actions, Subodh v. HCR ManorCare Inc., et al., Case No. 30-2016-00858497-CU-PT-CXC and Stearns v. HCR ManorCare, Inc., et al., Case No. 30-2016-00861646-CU-MC-CJC, in the Superior Court of California, County of Orange, against certain of the Company’s current and former directors and officers and HCC. The Company is named as a nominal defendant. As both derivative actions contained substantially the same allegations, were consolidated into a single action (the “California derivative action”). The consolidated action alleges that the defendants engaged in various acts of wrongdoing, including, among other things, breaching fiduciary duties by publicly making false or misleading statements of fact regarding HCRMC’s finances and prospects, and failing to maintain adequate internal controls. On April 18, 2017, the Court approved the parties’ stipulation to stay the case pending disposition of the motion to dismiss the class action litigation. As of February 8, 2021, the California derivative action remained outstanding.
On April 10, 2017, a purported stockholder of the Company, filed a derivative action, Weldon v. Martin et al., Case No. 3:17-cv-755, in federal court in the Northern District of Ohio, Western Division, against certainmembers of the Company’s current and former directors and officers and HCRMC. The Company was named as a nominal defendant. The Weldon complaint asserted similar claims to those asserted in the California derivative action. In addition, the complaint asserted a claim under Section 14(a) of the Exchange Act, alleging that the Company made false statements in its 2016 proxy statement by not disclosing that the Company’s performance issues in 2015 were the direct result of alleged billing fraud at HCRMC. On January 5, 2021, the Court dismissed the Weldon case without prejudice.
On July 21, 2017, a purported stockholder of the Company filed another derivative action, Kelley v. HCR ManorCare, Inc., et al., Case No. 8:17-cv-01259, in federal court in the Central District of California, against certain of the Company’s current and former directors and officers and HCRMC. The Company was named as a nominal defendant. The Kelley complaint asserted similar claims to those asserted in Weldon and in the California derivative action. Like Weldon, the Kelley complaint also additionally alleged that the Company made false statements in its 2016 proxy statement, and asserted a claim for a violation of Section 14(a) of the Exchange Act. On November 28, 2017, the federal court in the Central District of California granted Defendants’ motion to transfer the action to the Northern District of Ohio (i.e., the court where the class action and other federal derivative action are pending). On January 5, 2021, the Court dismissed the Kelley case with prejudice.
The Company’s Board of Directors, received letters dated August 17, 2016, April 19, 2017, and, April 20, 2017 from private law firms acting on behalfwith respect to one of clients who are purported stockholders ofsuch lawsuits, Physicians Realty Trust, challenging the Company, each asserting allegations similar to thosedisclosures made in the California derivative actionInitial Filing. No loss contingency has been recorded for these matters discussed above. Each letter demands that the Boardas of Directors take action to assert the Company’s rights. The Board of Directors completed its evaluation and rejected the demand letters in December of 2017. One of the law firms has more recently requested that the Board of Directors reconsider its determination after a ruling on the motion to dismiss in the class action litigation. In February 2021, the Board of Directors reaffirmed its rejection of the demand letters.
31, 2023. The Company believes that the plaintiffs lack standing or the lawsuits and demands are without merit, but cannot predict the outcome of these proceedings or reasonably estimate any potential loss at this time. Accordingly, 0 loss contingency
Additionally, four lawsuits have been filed by purported shareholders of Physicians Realty Trust against Physicians Realty Trust and the members of the Physicians Realty Trust board of trustees challenging the disclosures made in the Initial Filing. The plaintiffs in each action seek, among other things, to enjoin the Mergers and the transactions contemplated by the Merger Agreement and an award of costs and attorneys’ fees. In addition to such lawsuits, Physicians Realty Trust has been recorded for these matters asreceived correspondence from multiple purported shareholders of December 31, 2020, asPhysicians Realty Trust alleging deficiencies regarding the likelihooddisclosures made in the Initial Filing. Additional demands and lawsuits arising out of loss is not considered probablethe Mergers may be made or estimable.filed in the future.
DownREIT LLCsDownREITs and Other Partnerships
In connection with the formation of certain DownREIT LLCs,DownREITs, members may contribute appreciated real estate to a DownREIT LLC in exchange for DownREIT units. These contributions are generally tax-deferred, so that the pre-contribution gain related to the property is not taxed to the member. However, if a contributed property is later sold by the DownREIT, LLC, the unamortized pre-contribution gain that exists at the date of sale is specifically allocated and taxed to the contributing members. In many of the DownREITs, the Company has entered into indemnification agreements with those members who contributed appreciated property into the DownREIT LLC.DownREIT. Under these indemnification agreements, if any of the appreciated real estate contributed by the members is sold by the DownREIT LLC in a taxable transaction within a specified number of years, the Company will reimburse the affected members for the federal and state income taxes associated with the pre-contribution gain that is specially allocated to the affected member under the Internal Revenue Code (“make-whole payments”). These make-whole payments include a tax gross-up provision. These indemnification agreements have expirations terms that range through 2039 on a total of 2429 properties.
Additionally, the Company owns a 49% interest in the Lab JV (see Note 8). If the property in the joint venture is sold in a taxable transaction, the Company is generally obligated to indemnify its joint venture partner for its federal and state income taxes associated with the gain that existed at the time of the contribution to the joint venture.
Commitments
The following table summarizes the Company’s material commitments, excluding debt service obligationspotential success-based fees as a result of the Mergers (see Note 11)1), obligations as the lessee under operating leases (see Note 6), commitments to fund additional loans for senior housing redevelopment and capital expenditure projects (see Note 7), debt service obligations (see Note 10), and commitmentspotential future obligations related to assets classified as discontinued operations,redeemable noncontrolling interests (see Note 12) at December 31, 20202023 (in thousands):
| | | | | |
| Amount |
Construction loanDevelopment and redevelopment commitments(1)
| $ | 11,137151,996 | |
Lease and other contractual commitments(2) | 109,12627,655 | |
| Development commitments(3)
| 196,749 |
| Total$ | 317,012179,651 | |
_______________________________________(1)Represents loanconstruction and other commitments to finance developmentas of December 31, 2023 for developments and redevelopment projects.redevelopments in progress and includes allowances for Company-owned tenant improvements that the Company has provided as a lessor.
(2)Represents the Company'sCompany’s commitments, as lessor, under signed leases and contracts for operating properties as of December 31, 2023 and includes allowances for Company-owned tenant improvements and leasing commissions. Excludes allowances for Company-owned tenant improvements related to developments and redevelopments in progress for which the Company has executed an agreement with a general contractor to complete the tenant improvements (recognized in the “Development and redevelopment commitments” line).
(3)Represents construction and other commitments for developments in progress and includes allowances for tenant improvements of $28 million that the Company has provided as a lessor. Excludes $4 million of commitments related to assets classified as discontinued operations.
Credit Enhancement Guarantee
Prior to December 31, 2020, certain of the Company’s senior housing facilities served as collateral for debt that was owed by a previous owner of the facilities. This indebtedness was guaranteed by the previous owner who has an investment grade credit rating.
In conjunction with certain of the Company’s planned dispositions of SHOP assets, during October 2020, the debt to which the Company’s assets served as collateral was defeased. As part of that defeasance, the Company paid approximately $11 million of the defeasance premium, which was recognized as a transaction cost expense and reported in income (loss) from discontinued operations.
Environmental Costs
Various environmental laws govern certain aspects of the ongoing management and operation of our facilities, including those related to presence of asbestos-containing materials. The presence of, or the failure to manage and/or remediate, such materials may adversely affect the occupancy and performance of the Company'sCompany’s facilities. The Company monitors its properties for the presence of such hazardous or toxic substances and is not aware of any environmental liability with respect to the properties that would have a material adverse effect on the Company’s business, financial condition, or results of operations. The Company carries environmental insurance and believes that the policy terms, conditions, limitations, and deductibles are adequate and appropriate under the circumstances, given the relative risk of loss, the cost of such coverage, and current industry practice.
General Uninsured Losses
The Company obtains various types of insurance to mitigate the impact of property, business interruption, liability, workers’ compensation, flood, windstorm, earthquake, environmental, cyber, and terrorism related losses. The Company attempts to obtain appropriate policy terms, conditions, limits, and deductibles considering the relative risk of loss, the cost of such coverage, and current industry practice. There are, however, certain types of extraordinary losses, such as those due to acts of war or other events that may be either uninsurable or not economically insurable. In addition, the Company has a large number of properties that are exposed to earthquake, flood, and windstorm occurrences for which the related insurances carry high deductibles and have limits.
NOTE 13.12. Equity and Redeemable Noncontrolling Interests
Dividends
On February 9, 2021,January 31, 2024, the Company announced that itsCompany’s Board of Directors declared a quarterly cash dividend of $0.30 per share. The common stock cash dividend will be paid on March 5, 2021February 26, 2024 to stockholders of record as of the close of business on February 22, 2021.14, 2024.
During each of the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021, the Company declared and paid common stock cash dividendsof $1.48 per share.$1.20.
At-The-Market Equity Offering Program
In June 2015,February 2023, in connection with the Reorganization, the Company established anterminated the previous at-the-market equity offering program (“ATM Program”) to sell shares of its common stock(as amended from time to time, through a consortium of banks acting as sales agents or directly to the banks acting as principals. In February 2020, the Company terminated its previous ATM Program (the “2019“2020 ATM Program”) and established a new at-the-market equity offering program (the “2023 ATM Program” and, together with the 2020 ATM Program, (the “2020the “ATM Programs”). The ATM Program”) pursuant to whichPrograms allow for the sale of shares of common stock having an aggregate gross sales price of up to approximately $1.25$1.5 billion may be sold (i) by the Company through a consortium of banks acting as sales agents or directly to the banks acting as principals or (ii) by a consortium of banks acting as forward sellers on behalf of any forward purchasers pursuant to a forward sale agreement.agreement (each, an “ATM forward contract”). The use of aATM forward sale agreementcontracts allows the Company to lock in a share price on the sale of shares at the time the ATM forward sales agreement iscontract becomes effective, but defer receiving the proceeds from the sale of shares until a later date.
ATM forward sale agreementscontracts generally have a one to two year term. At any time during the term, the Company may settle a forward sale by delivery of physical shares of common stock to the forward seller or, at the Company’s election, in cash or net shares. The forward sale price the Company expects to receive upon settlement of outstanding ATM forward contracts will be the initial forward price established upon the effective date, subject to adjustments for: (i) accrued interest, (ii) the forward purchasers’ stock borrowing costs, and (iii) certain fixed price reductions during the term of the ATM forward contract.
At December 31, 2023, $1.5 billion of the Company’s common stock remained available for sale agreement.under the 2023 ATM Program.
ATM Forward Contracts
During the year ended December 31, 2020, the Company did not utilize the forward provisions under the 2020 ATM Program. During the year ended December 31, 2020,2021, the Company utilized the forward provisions under the 20192020 ATM Program to allow for the sale of up to an aggregate of 2.09.1 million shares of its common stock at an initial weighted average net price of $35.23$35.25 per share, after commissions. DuringThe Company did not enter into any forward contracts under the 2020 ATM Program during the year ended December 31, 2019, the Company utilized the forward provisions under the 2019 ATM Program to allow for the sale of up to an aggregate of 20.3 million shares of its common stock at an initial weighted average net price of $31.44 per share, after commissions.
During the three months ended March 31, 2020,2022. In December 2022, the Company settled all 16.89.1 million shares previously outstanding under ATM forward contracts at a weighted average net price of $31.38$34.01 per share, after commissions, resulting in net proceeds of $528$308 million. NaN shares were settled subsequent to March 31, 2020 and therefore, at December 31, 2020, 0 shares remained outstanding under ATM forward contracts. During the year ended December 31, 2019,2023, the Company settled 5.5 million shares at a weighted average net price of $30.91 per share, after commissions, resulting in net proceeds of $171 million.
At December 31, 2020, approximately $1.25 billion ofdid not utilize the Company’s common stock remained available for saleforward provisions under the 2020 ATM Program.Programs.
ATM Direct Issuances
During each of the yearyears ended December 31, 2020, 0 shares2023, 2022, and 2021, there were no direct issuances of common stock were issued under the 2019 ATM Program or 2020 ATM Program. During the year ended December 31, 2019, the Company issued 5.9 million shares of common stock under the 2019 ATM Programs.
Share Repurchase Program
On August 1, 2022, the Company’s Board of Directors approved a share repurchase program under which the Company may acquire shares of its 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 the Company’s 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 in August 2024 and may be suspended or terminated at any time without prior notice. Under Maryland General Corporation Law, outstanding shares of common stock acquired by a corporation become authorized but unissued shares, which may be re-issued. In August 2022, the Company repurchased 2.1 million shares of its common stock at a weighted average net price of $31.84$27.16 per share after commissions, resulting in net proceedsfor a total of $189$56 million. During the year ended December 31, 2018, the Company issued 5.4 million shares of common stock under a previous ATM Program at a weighted average net price of $28.27 per share, after commissions, resulting in net proceeds of $154 million.
Forward Equity Offerings
November 2019 Offering. In November 2019, the Company entered into a forward equity sales agreement (the “2019 forward equity sales agreement”) to sell an aggregate of 15.6 million shares of its common stock (including shares sold through the exercise of underwriters’ options) at an initial net price of $34.46 per share, after underwriting discounts and commissions, which was subject to adjustments for: (i) accrued interest, (ii) the forward purchasers’ stock borrowing costs, and (iii) certain fixed price reductions during the term of the agreement. During the year ended December 31, 2019, 0 shares2023, there were settledno repurchases under the 2019 forward equity sales agreement. During the three months ended March 31, 2020, the Company settled all 15.6 million shares under the 2019 forward equity sales agreement at a weighted average net price of $34.18 per share, resulting in net proceeds of $534 million (total net proceeds of $1.06 billion, when aggregated with the net proceeds from settling ATM forward contracts, as discussed above).Share Repurchase Program. Therefore, at December 31, 2020, 0 shares2023, $444 million of the Company’s common stock remained outstandingavailable for repurchase under the 2019 forward equity sales agreement.Share Repurchase Program.
December 2018 Offering. In December 2018, the Company entered into a forward equity sales agreement (the “2018 forward equity sales agreement”) to sell an aggregate of 15.3 million shares of its common stock (including shares sold through the exercise of underwriters’ options) at an initial net price of $28.60 per share, after underwriting discounts and commissions. The 2018 forward equity sales agreement had a one year term that expired on December 13, 2019 during which time the Company could settle the forward sales agreement by delivery of physical shares of common stock to the forward seller or, at the Company’s election, settle in cash or net shares. During the year ended December 31, 2019, the Company settled all 15.3 million shares under the 2018 forward equity sales agreement at a weighted average net price of $27.66 per share resulting in net proceeds of $422 million. Therefore, at December 31, 2019, 0 shares remained outstanding under the 2018 forward equity sales agreement.
During the year ended December 31, 2018, contemporaneous with the forward equity offering discussed above, the Company completed an offering of 2.0 million shares of common stock at a net price of $28.60 per share, resulting in net proceeds of $57 million.Other Common Stock Activities
The following table summarizes the Company’s other common stock activities (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
Dividend Reinvestment and Stock Purchase Plan | 181 | | | 336 | | | 237 | |
Conversion of DownREIT units | 120 | | | 213 | | | 3 | |
Exercise of stock options | 54 | | | 152 | | | 120 | |
Vesting of restricted stock units | 668 | | | 468 | | | 401 | |
Repurchase of common stock | 298 | | | 162 | | | 141 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Dividend Reinvestment and Stock Purchase Plan | $ | 70 | | | $ | 59 | | | $ | 81 | |
Conversion of DownREIT units | 72 | | | 27 | | | 8 | |
Exercise of stock options | — | | | — | | | 97 | |
Vesting of restricted stock units | 613 | | | 820 | | | 924 | |
Repurchase of common stock | 241 | | | 2,418 | | | 418 | |
Accumulated Other Comprehensive Income (Loss)
The following table summarizes the Company’s accumulated other comprehensive Incomeincome (loss) (in thousands):
| | | December 31, | | December 31, |
| | 2020 | | 2019 | | 2023 | | 2022 |
Cumulative foreign currency translation adjustment(1) | $ | 0 | | | $ | (1,023) | |
| Unrealized gains (losses) on derivatives, net | Unrealized gains (losses) on derivatives, net | (81) | | | 1,314 | |
Supplemental Executive Retirement Plan minimum liability and other | (3,604) | | | (3,148) | |
Unrealized gains (losses) on derivatives, net | |
Unrealized gains (losses) on derivatives, net | |
Supplemental Executive Retirement Plan minimum liability | |
| Total accumulated other comprehensive income (loss) | Total accumulated other comprehensive income (loss) | $ | (3,685) | | | $ | (2,857) | |
Total accumulated other comprehensive income (loss) | |
Total accumulated other comprehensive income (loss) | |
(1)See Notes 5, 9, and 22 forThe Company has a discussiondefined benefit pension plan, known as the Supplemental Executive Retirement Plan, with one plan participant, a former Chief Executive Officer (“CEO”) of the U.K. JV transactions.Company who departed in 2003. Changes to the Supplemental Executive Retirement Plan minimum liability are reflected in other comprehensive income (loss).
Noncontrolling Interests
Redeemable Noncontrolling Interests
Arrangements with noncontrolling interest holders are assessed for appropriate balance sheet classification based on the redemption and other rights held by the noncontrolling interest holder. Certain of the Company’s noncontrolling interest holders have the ability to put their equity interests to the Company upon specified events or after the passage of a predetermined period of time (the “Option Requirements”). Each put option is payable in cash and subject to changes in redemption value in the event that the underlying property generates specified returns for the Company and meets certain promote thresholds pursuant to the respective agreements. Accordingly, the Company records redeemable noncontrolling interests outside of permanent equity and presents the redeemable noncontrolling interests at the greater of their carrying amount or redemption value at the end of each reporting period. In addition to the rights of the redeemable noncontrolling interest holders, once the Option Requirements have been met, the Company has the ability to buy out the interests of the noncontrolling interest holders.
As of December 31, 2023, three of the redeemable noncontrolling interests met the conditions for redemption, but were not yet exercised. The one remaining redeemable noncontrolling interest met the redemption conditions in January 2024. The values of the redeemable noncontrolling interests are subject to change based on the assessment of redemption value at each redemption date.
Healthpeak OP
Immediately following the Reorganization, Healthpeak Properties, Inc. was the initial sole member and 100% owner of Healthpeak OP. Subsequent to the Reorganization, OP Unitholders were issued approximately 2 million OP Units during the year ended December 31, 2023, all of which were LTIP Units (as defined below, see also Note 14). When certain conditions are met, the OP Unitholders have the right to require redemption of part or all of their OP Units for cash or shares of the Company’s common stock, at the Company’s option as managing member of Healthpeak OP. The per unit redemption amount is equal to either one share of the Company’s common stock or cash equal to the fair value of a share of common stock at the time of redemption. The Company classifies the OP Units in permanent equity because it may elect, in its sole discretion, to issue shares of its common stock to OP Unitholders who choose to redeem their OP Units rather than using cash. None of the outstanding OP Units met the criteria for redemption as of December 31, 2023.
DownREITs
The non-managing member units of the Company’s DownREITs are exchangeable for an amount of cash approximating the then-current market value of shares of the Company’s common stock or, at the Company’s option, shares of the Company’s common stock (subject to certain adjustments, such as stock splits and reclassifications). Upon exchange of DownREIT units for the Company’s common stock, the carrying amount of the DownREIT units is reclassified to stockholders’ equity. At December 31, 2020,2023, there were 5000000approximately 5 million DownREIT units (7000000(7 million shares of Healthpeak common stock are issuable upon conversion) outstanding in 7seven DownREIT LLCs, for all of which the Company isacts as the managing member of.member. At December 31, 2020,2023, the carrying and market values of the 50000005 million DownREIT units were $199 million and $221$143 million, respectively. At December 31, 2022, the carrying and market values of the 5 million DownREIT units were $200 million and $183 million, respectively.
See Notes 3, 4, and 5 for transactions involving noncontrolling interests.
NOTE 14.13. Earnings Per Common Share
Basic income (loss) per common share (“EPS”) is computed based on the weighted average number of common shares outstanding. Diluted income (loss) per common share is computed based on the weighted average number of common shares outstanding plus the impact of forward equity sales agreements using the treasury stock method, and common shares issuable from the assumed conversion of DownREIT units, stock options, certain performance restricted stock units, and unvested restricted stock units. Only those instruments having a dilutive impact on the Company’s basic income (loss) per share are included in diluted income (loss) per share during the periods presented.
Restricted stock and certain performanceCertain restricted stock units are considered participating securities, because dividend payments are not forfeited even if the underlying award does not vest, and require use of the two-class method when computing basic and diluted earnings per share.
Refer to Note 1312 for a discussion of the sale of shares under and settlement of forward sales agreements during the periods presented. The Company considered the potential dilution resulting from the forward agreements under its ATM Programs to the calculation of earnings per share. At inception, the agreements do not have an effect on the computation of basic EPS as no shares are delivered until settlement. However, the Company uses the treasury stock method to calculate the dilution, if any, resulting from the forward sales agreements during the period of time prior to settlement. The aggregate effect on the Company’s diluted weighted-average common shares for the year ended December 31, 2020 and 2019 was 0.2 million and 2.8 million weighted-average incremental shares, respectively, from the forward equity sales agreements.
The following table illustrates the computation of basic and diluted earnings per share (in thousands, except per share amounts):
| | Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
Numerator | |
Income (loss) from continuing operations | |
Income (loss) from continuing operations | |
Income (loss) from continuing operations | |
Noncontrolling interests’ share in continuing operations | |
Income (loss) from continuing operations attributable to Healthpeak Properties, Inc. | |
Less: Participating securities’ share in continuing operations | |
Income (loss) from continuing operations applicable to common shares | |
Income (loss) from discontinued operations | |
Noncontrolling interests’ share in discontinued operations | |
Net income (loss) applicable to common shares - basic and diluted | |
| | | Year Ended December 31, |
| | 2020 | | 2019 | | 2018 |
Numerator | | | | | |
Income from continuing operations | $ | 160,507 | | | $ | 175,469 | | | $ | 837,218 | |
Noncontrolling interests' share in continuing operations | (14,394) | | | (14,558) | | | (12,294) | |
Income (loss) from continuing operations attributable to Healthpeak Properties, Inc. | 146,113 | | | 160,911 | | | 824,924 | |
Less: Participating securities' share in continuing operations | (2,416) | | | (1,543) | | | (2,669) | |
Income (loss) from continuing operations applicable to common shares | 143,697 | | | 159,368 | | | 822,255 | |
Income (loss) from discontinued operations | 267,746 | | | (115,408) | | | 236,256 | |
Noncontrolling interests' share in discontinued operations | (296) | | | 27 | | | (87) | |
Net income (loss) applicable to common shares | $ | 411,147 | | | $ | 43,987 | | | $ | 1,058,424 | |
Numerator - Dilutive | | | | | |
Net income (loss) applicable to common shares | $ | 411,147 | | | $ | 43,987 | | | $ | 1,058,424 | |
Add: distributions on dilutive convertible units and other | 0 | | | 0 | | | 6,919 | |
Dilutive net income (loss) available to common shares | $ | 411,147 | | | $ | 43,987 | | | $ | 1,065,343 | |
| Denominator | Denominator | | | | | |
| Denominator | |
| Denominator | |
Basic weighted average shares outstanding | |
Basic weighted average shares outstanding | |
Basic weighted average shares outstanding | Basic weighted average shares outstanding | 530,555 | | | 486,255 | | | 470,551 | |
Dilutive potential common shares - equity awards(1) | Dilutive potential common shares - equity awards(1) | 300 | | | 309 | | | 168 | |
Dilutive potential common shares - forward equity agreements(2) | Dilutive potential common shares - forward equity agreements(2) | 201 | | | 2,771 | | | 0 | |
Dilutive potential common shares - DownREIT conversions | 0 | | | 0 | | | 4,668 | |
| Diluted weighted average common shares | Diluted weighted average common shares | 531,056 | | | 489,335 | | | 475,387 | |
Earnings (loss) per common share | | | | | |
Diluted weighted average common shares | |
Diluted weighted average common shares | |
Basic earnings (loss) per common share | |
Continuing operations | |
Continuing operations | |
Continuing operations | Continuing operations | $ | 0.27 | | | $ | 0.33 | | | $ | 1.75 | |
Discontinued operations | Discontinued operations | 0.50 | | | (0.24) | | | 0.50 | |
Net income (loss) applicable to common shares | Net income (loss) applicable to common shares | $ | 0.77 | | | $ | 0.09 | | | $ | 2.25 | |
Diluted earnings per common share: | | | | | |
Diluted earnings (loss) per common share | |
Continuing operations | |
Continuing operations | |
Continuing operations | Continuing operations | $ | 0.27 | | | $ | 0.33 | | | $ | 1.74 | |
Discontinued operations | Discontinued operations | 0.50 | | | (0.24) | | | 0.50 | |
Net income (loss) applicable to common shares | Net income (loss) applicable to common shares | $ | 0.77 | | | $ | 0.09 | | | $ | 2.24 | |
(1)For all periods presented, represents the dilutive impact of1 million outstanding equity awards (restricted stock units and stock options).
(2)For the year ended December 31, 2020, represents the2023, forward equity sales agreements had no dilutive impact of 32 millionas no shares that were settledoutstanding under ATM forward contracts during the year then ended.year. For the year ended December 31, 2019, represents the dilutive impact of 212022, all 9.1 millionshares that were settled during the year then ended and 30were anti-dilutive. For the year ended December 31, 2021, represents the dilutive impact of 9.1 million shares of common stock under forward sales agreements that hadwere not been settled as of December 31, 2019.during the year then ended.
For each of the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021, all 7 million 7 million, and 2 million shares respectively, issuable upon conversion of DownREIT units were not included because they arewere anti-dilutive.
NOTE 15.14. Compensation Plans
Stock BasedStock-Based Compensation
On May 11, 2006, the Company’s stockholders approved the 2006 Performance Incentive Plan, which was amended and restated in 2009 (“the 2006(the “2006 Plan”). On May 1, 2014, the Company’s stockholders approved the 2014 Performance Incentive Plan, (“which was amended and restated in 2019 and further amended in 2023 (the “2014 Plan”). Following the adoption of the 2014 Plan, no new awards were issued under the 2006 Plan. On April 27, 2023, the Company’s stockholders approved the 2023 Performance Plan (the “2023 Plan”) (collectively, and collectively with the 2006 Plan and the 2014 Plan, the “Plans”). Following the adoption of the 20142023 Plan, 0no new awards willmay be issued under the 20062014 Plan. The Plans provide for the granting of stock-based compensation to officers, employees, and directors, including stock options, restricted stock, and restricted stock units, to officers, employees, and directors in connection with their employment with or services providedrespect to the Company.2014 and 2023 Plans, profits interests in Healthpeak OP (“LTIP Units”). The maximum number of shares reserved for awards under the 20142023 Plan is 3331 million shares, and, as of December 31, 2020, 272023, 31 million of the reserved shares under the 20142023 Plan are available for future awards, of which 1821 million shares may be issued as restricted stock, or restricted stock units.units, or LTIP Units.
Total share-based compensation expense recognizedRestricted Stock Units
Under the Plans, time-based restricted stock units and market-based restricted stock units (collectively, “Restricted Stock Units”) are granted subject to certain restrictions. Conditions of vesting are determined at the time of grant. Restrictions on certain awards generally lapse, as provided in the Plans or in the applicable award agreement, upon retirement, a change in control, or other specified events. The fair market value of Restricted Stock Units is expensed over the period of vesting. Time-based restricted stock units, which vest based solely upon passage of time, generally vest on a graded schedule over a period of three to five years. The fair value of time-based restricted stock units is determined based on the closing market price of the Company’s shares on the grant date. Market-based restricted stock units, which vest dependent upon attainment of total shareholder return (“TSR”) performance that equal or exceed threshold levels as measured against certain peer and industry benchmarks, generally vest in their entirety at the end of a three-year performance period. The number of shares that ultimately vest based on performance can vary from 0% to 200% of target depending on the level of achievement of the performance criteria. The fair value of market-based restricted stock units is determined based on the Monte Carlo valuation model primarily using the following assumptions for awards granted during the years ended December 31, 2020, 2019,2023, 2022, and 20182021, respectively: (i) expected term of 3 years, 3 years, and 3 years (equal to the remaining performance period at the grant date), (ii) historical volatility of 33.0%, 38.9%, and 39.1%, (iii) dividend yield of 4.4%, 3.5%, and 4.0%, (iv) risk-free rate of 4.4%, 1.8%, and 0.2%, and (v) post-vesting restrictions discount of 10.0%, 5.8%, and 12.9%. The total grant date fair value of time-based restricted stock units and market-based restricted stock units granted during the years ended December 31, 2023, 2022, and 2021 was $21$9 million, $18$27 million, and $15$23 million, respectively. The total fair value (at vesting) of time-based restricted stock units and market-based restricted stock units that vested during the years ended December 31, 2023, 2022, and 2021 was $16 million, $27 million, and $29 million, respectively.
Upon vesting of Restricted Stock Units, the participant is required to pay the related tax withholding obligation, as applicable. The Company reduces the number of common stock shares delivered to pay the employee tax withholding obligation. The value of the shares withheld is dependent on the closing market price of the Company’s common stock on the trading date prior to the relevant transaction occurring. During the years ended December 31, 2023, 2022, and 2021, the Company withheld 241,000, 356,000, and 418,000 shares, respectively, to offset tax withholding obligations with respect to the vesting of the Restricted Stock Units.
LTIP Units
During the year ended December 31, 2019 includes2023, approximately 2 million LTIP Units were issued to officers of the Company. These awards are designed to qualify as “profits interests” in Healthpeak OP for federal income tax purposes. Such interests are initially not economically equivalent in value to a $1 million charge recognized in general and administrative expenses primarily resulting from acceleratedshare of common stock until reaching one-for-one parity with the Company’s common stock, subject to any vesting of restricted stock units relatedconditions applicable to the departureaward. When certain conditions are met, LTIP Units are converted to common units, which may then be redeemed for cash or shares of the Company's former Executive Vice President – Senior Housing.Company’s common stock, at the Company’s option as managing member of Healthpeak OP (see also Note 12).
Under the Plans, time-based LTIP Units and market-based LTIP Units (collectively, “LTIP Units”), are granted subject to certain restrictions. Time-based LTIP Units, which vest solely upon passage of time, generally vest over a period of three to six years. The fair value of the time-based LTIP Units is determined based on the closing market price of the Company’s shares on the grant date less a discount for post-vesting restrictions, liquidity risk, and uncertainty of the time-based LTIP Units reaching parity. The market-based LTIP Units are granted at the maximum potential payout, inclusive of expected distributions during the performance period. Market-based LTIP Units, which vest dependent upon attainment of various levels of TSR performance that equal or exceed threshold levels as measured against certain peer and industry benchmarks, generally vest in their entirety at the end of a three-year performance period. The number of market-based LTIP Units that ultimately vest can vary from 0% to 200% of target depending on the level of achievement of the performance criteria, and any difference from the original grant are forfeited. The fair value of market-based LTIP Units granted during the year ended December 31, 2018 includes a $2 million charge recognized in general and administrative expenses primarily resulting from accelerated vesting of2023 is determined based on the Monte Carlo valuation model using the same assumptions as market-based restricted stock units relateddescribed above less a discount for post-vesting restrictions, liquidity risk, and uncertainty of the market-based LTIP Units reaching parity with the value of the Company’s common stock and the vesting terms of the awards. The total grant date fair value of LTIP Units granted during the year ended December 31, 2023 was $29 million. The total fair value (at vesting) of LTIP Units that vested during the year ended December 31, 2023 was $2 million.
Dividends and Distributions
Holders of time-based restricted stock units and time-based LTIP Units are generally entitled to receive dividends and distributions, respectively, equal to the departureamount that would be paid on an equivalent number of shares of common stock. Market-based restricted stock units receive cumulative cash dividends upon vesting for the entirety of the Company's Executive Chairman. Asperformance period based on the level of December 31, 2020, there was $29 millionachievement of future expense relatedthe performance criteria. The market-based LTIP Units receive cash distributions equal to unvested share-based compensation arrangements granted under10% of the quarterly dividends paid on the Company’s incentive plans, which is expected to be recognized over a weighted averagecommon stock during the performance period. Based on the level of achievement of the performance criteria at the end of the performance period, the market-based LTIP Units receive distributions in the form of two years associated with future employee service.additional LTIP Units for amounts ultimately vested during the performance period, less cash distributions already paid.
Stock Options
There have been no grants of stock options since 2014. Stock options outstanding and exercisable were 0.50.2 millionat December 31, 2023 and 0.3 million at December 31, 2020 and 0.6 million at December 31, 2019. Proceeds received from2022. There were no stock options exercised under the Plans for the years ended December 31, 2020, 2019,2023 and 2018 were $2 million, $5 million, and $2 million, respectively. Compensation expense2022. For the year ended December 31, 2021, proceeds received from stock options exercised under the Plans was $3 million. No compensation cost related to stock options was immaterial for all periods presented.
Restricted Stock Awards
Under the Plans, restricted stock awards, including restricted stock units and performance stock units are granted subject to certain restrictions. Conditions of vesting are determined at the time of grant. Restrictions on certain awards generally lapse, as provided in the Plans or in the applicable award agreement, upon retirement, a change in control or other specified events. The fair market value of restricted stock awards, both time vesting and those subject to specific performance criteria, are expensed over the period of vesting. Restricted stock units, which vest based solely upon passage of time generally vest over a period of three to six years. The fair value of restricted stock units is determined based on the closing market price of the Company's shares on the grant date. Performance stock units, which are restricted stock awards that vest dependent upon attainment of various levels of performance that equal or exceed threshold levels, generally vest in their entirety at the end of a three year performance period. The number of shares that ultimately vest can vary from 0% to 200% of target depending on the level of achievement of the performance criteria. The fair value of performance stock units is determined based on the Monte Carlo valuation model. The compensation expense recognized for all restricted stock awards is net of actual forfeitures.
Upon vesting of restricted stock awards, the participant is required to pay the related tax withholding obligation. Participants can generally elect to have the Company reduce the number of common stock shares delivered to pay the employee tax withholding obligation. The value of the shares withheld is dependent on the closing market price of the Company’s common stock on the trading date prior to the relevant transaction occurring. Duringincurred during the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021.
The following table summarizes Restricted Stock Unit and LTIP Unit activity for the Company withheld 298,000, 162,000,year ended December 31, 2023 (units in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |
| Restricted Stock Units | | LTIP Units |
| Number of Units | | Weighted Average Grant Date Fair Value | | Number of Units | | Weighted Average Grant Date Fair Value |
Unvested at January 1, 2023 | 1,709 | | | $ | 33.66 | | | — | | | $ | — | |
Granted | 393 | | | 28.12 | | | 1,970 | | | 14.66 | |
Vested | (613) | | | 37.97 | | | (76) | | | 24.56 | |
Forfeited | (610) | | | 31.16 | | | — | | | — | |
Unvested at December 31, 2023 | 879 | | | $ | 29.91 | | | 1,894 | | | $ | 14.26 | |
Total stock-based compensation cost was $19 million, $32 million, and 141,000 shares,$23 million for the years ended December 31, 2023, 2022, and 2021, respectively, to offset tax withholding obligations with respect towhich was recognized in general and administrative expenses. The year ended December 31, 2022 included $10 million of severance-related charges resulting from a decrease in the vesting of the restricted stock and performance restricted stock unit awards.
Holdersrequisite service period of restricted stock awards, including restricted stock units associated with the Company's former CEO, as further described below. Of the total stock-based compensation cost, $4 million, $4 million, and performance stock units, are generally entitled$3 million was capitalized as part of real estate for the years ended December 31, 2023, 2022, and 2021, respectively. As of December 31, 2023, there was $20 million of future expenses related to receive dividends equalunvested stock-based compensation arrangements granted under the Company’s incentive plans, which is expected to the amount that would be paid on an equivalent numberrecognized over a weighted average period of shares1.5 years associated with future employee service. Compensation cost recognized for all Restricted Stock Units and LTIP Units is net of common stock.actual forfeitures.
The following table summarizes restricted stock award activity, including performance stock units, forDeparture of Executives
On October 6, 2022, the year endedCompany and Thomas M. Herzog mutually agreed that Mr. Herzog would step down from his position as CEO and from the board of directors of the Company, effective immediately. On November 1, 2022, the Company and Troy E. McHenry mutually agreed that Mr. McHenry would step down from his position as Chief Legal Officer and General Counsel, effective immediately. During the fourth quarter of 2022, the Company recognized total severance-related charges of$33 millionin general and administrative expenses on the Consolidated Statements of Operations,$10 millionof which related to a decrease in the requisite service period of Restricted Stock Units as discussed above. These Restricted Stock Units continue to vest in accordance with the original terms of the grants. As of December 31, 2020 (units in thousands):
| | | | | | | | | | | | | | | |
| Restricted Stock Units | | Weighted Average Grant Date Fair Value | | | | |
Unvested at January 1, 2020 | 1,700 | | | $ | 28.56 | | | | | |
Granted | 693 | | | 39.79 | | | | | |
Vested | (668) | | | 31.30 | | | | | |
Forfeited | (42) | | | 31.55 | | | | | |
Unvested at December 31, 2020 | 1,683 | | | 32.02 | | | | | |
At December 31, 2020, the weighted average remaining vesting period of restricted stock2023, and performance based units was two years. The total fair value (at vesting) of restricted stock and performance based units which vested for the years ended December 31, 2020, 2019, and 2018 was $20 million, $142022, $8 million and $10$15 million respectively.of these severance-related charges have not yet been paid and were included in accounts payable, accrued liabilities, and other liabilities on the Consolidated Balance Sheets.
NOTE 16.15. Segment Disclosures
The CompanyCompany’s reportable segments, based on how its CODM evaluates itsthe business and allocates resources, based on its reportable business segments:are as follows: (i) life science,lab, (ii) outpatient medical, office, and (iii) CCRCCCRC.. The Company has non-reportable segments that are comprised primarily of the Company’s interests in an unconsolidated JV that owns 19 senior housing joint ventureassets (the “SWF SH JV”), loans receivable, and marketable debt investments.securities. These marketable debt securities matured on December 31, 2022, and the Company received the related proceeds in January 2023. Non-reportable segments have been presented on an aggregate basis within the Notes to the Consolidated Financial Statements herein. The accounting policies of the segments are the same as those described underin the Company’s Summary of Significant Accounting Policies (see Note 2).
During the firstsecond quarter of 2020, primarily as a2023, the Company changed the name of its “life science” and “medical office” segments to “lab” and “outpatient medical,” respectively. The segment name changes did not result of: (i) acquiring 100% ownership interest in 13 of 15 CCRCs previously held by a CCRC joint venture (see discussion ofany changes to the 2019 MTCA with Brookdale in Note 3) and (ii) deconsolidating 19 SHOP assets into a new joint venture in December 2019, the Company's CODMs began reviewing operating results of CCRCs on a stand-alone basis and financial information for each respective segment inclusivecomposition of the Company’s share of unconsolidated joint venturessegments or information reviewed by its CODM, and exclusive of noncontrolling interests’ sharetherefore, had no impact on consolidated joint ventures. Therefore, during the first quarter of 2020, the Company began reporting CCRCs as a separate segment and began reporting segment measures inclusive of the Company’s sharehistorical results of unconsolidated joint ventures and exclusive of noncontrolling interests’ share of consolidated joint ventures. All prior period segment information has been recast to conform to the current period presentation.
In conjunction with establishing and beginning execution of a plan to dispose of the Company’s senior housing triple-net and SHOP portfolios during 2020, both of these previously reportable segments are now classified as discontinued operations in all periods presented herein. See Note 5 for further information.
In December 2020, as a result of a change in how operating results are reported to the Company's CODMs, the Company’s hospitals were reclassified from other non-reportable segments to the medical office segment and the Company’s 1 remaining unconsolidated investment in a senior housing joint venture was reclassified from the SHOP segment to other non-reportable segments.operations.
The Company evaluates performance based on property Adjusted NOI. 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 (which exclude transition costs);expenses; NOI excludes all other financial statement amounts included in net income (loss). 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 includeare non-GAAP supplemental measures that are calculated as NOI and Adjusted NOI from consolidated properties, plus the Company’s share of income (loss)NOI and Adjusted NOI from unconsolidated joint ventures and exclude(calculated by applying the Company’s actual ownership percentage for the period), less noncontrolling interests’ share of income (loss)NOI and Adjusted NOI from consolidated joint ventures.ventures (calculated by applying the Company’s actual ownership percentage for the period). Management utilizes its share of NOI and Adjusted NOI in assessing its performance as the Company has various joint ventures that contribute to its performance. The Company does not control its unconsolidated joint ventures, and the Company’s share of amounts from unconsolidated joint ventures do not represent the Company’s legal claim to such items. The Company’s share of NOI and Adjusted NOI should not be considered a substitute for, and should only be considered together with and as a supplement to, the Company’s financial information presented in accordance with GAAP. Management believes that Adjusted NOI is an important supplemental measure because it provides relevant and useful information by reflecting only income and operating expense items that are incurred at the property level and presenting it on an unlevered basis. Additionally, management believes 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.
Non-segment assets consist of assets in the Company'sCompany’s other non-reportable segments and corporate non-segment assets. Corporate non-segment assets consist primarily of corporate assets, including cash and cash equivalents, restricted cash, accounts receivable, net, loans receivable, marketable equitydebt securities, other assets, real estate assets held for sale, and discontinued operations, and liabilities related to assets held for sale.
The following tables summarize information for the reportable segments (in thousands):
For the year ended December 31, 2020:2023:
| | Life Science | | Medical Office | | CCRC | | Other Non-reportable | | Corporate Non-segment | | Total |
| | Lab | | | | Lab | | Outpatient Medical | | CCRC | | Other Non-reportable | | Corporate Non-segment | | Total |
Total revenues | Total revenues | | $ | 569,296 | | | $ | 622,398 | | | $ | 436,494 | | | $ | 16,687 | | | $ | 0 | | | $ | 1,644,875 | |
Government grant income(1) | Government grant income(1) | | 0 | | | 0 | | | 16,198 | | | 0 | | | 0 | | | 16,198 | |
Less: Interest income | Less: Interest income | | 0 | | | 0 | | | 0 | | | (16,553) | | | 0 | | | (16,553) | |
Healthpeak's share of unconsolidated joint venture total revenues | | 448 | | | 2,772 | | | 35,392 | | | 74,023 | | | 0 | | | 112,635 | |
Healthpeak's share of unconsolidated joint venture government grant income | | 0 | | | 0 | | | 920 | | | 359 | | | 0 | | | 1,279 | |
Noncontrolling interests' share of consolidated joint venture total revenues | | (239) | | | (34,597) | | | 0 | | | 0 | | | 0 | | | (34,836) | |
Healthpeak’s share of unconsolidated joint venture total revenues | |
Healthpeak’s share of unconsolidated joint venture government grant income | |
Noncontrolling interests’ share of consolidated joint venture total revenues | |
| Operating expenses | Operating expenses | | (138,005) | | | (204,008) | | | (440,528) | | | 0 | | | 0 | | | (782,541) | |
Healthpeak's share of unconsolidated joint venture operating expenses | | (137) | | | (1,129) | | | (32,125) | | | (53,779) | | | 0 | | | (87,170) | |
Noncontrolling interests' share of consolidated joint venture operating expenses | | 72 | | | 10,282 | | | 0 | | | 0 | | | 0 | | | 10,354 | |
Operating expenses | |
Operating expenses | |
Healthpeak’s share of unconsolidated joint venture operating expenses | |
Noncontrolling interests’ share of consolidated joint venture operating expenses | |
| Adjustments to NOI(2) | |
Adjustments to NOI(2) | |
Adjustments to NOI(2) | Adjustments to NOI(2) | | (20,133) | | | (5,544) | | | 97,072 | | | 433 | | | 0 | | | 71,828 | |
Adjusted NOI | Adjusted NOI | | 411,302 | | | 390,174 | | | 113,423 | | | 21,170 | | | 0 | | | 936,069 | |
Plus: Adjustments to NOI(2) | Plus: Adjustments to NOI(2) | | 20,133 | | | 5,544 | | | (97,072) | | | (433) | | | 0 | | | (71,828) | |
Interest income | Interest income | | 0 | | | 0 | | | 0 | | | 16,553 | | | 0 | | | 16,553 | |
Interest expense | Interest expense | | (234) | | | (400) | | | (7,227) | | | 0 | | | (210,475) | | | (218,336) | |
Depreciation and amortization | Depreciation and amortization | | (217,921) | | | (222,165) | | | (113,851) | | | (12) | | | 0 | | | (553,949) | |
General and administrative | General and administrative | | 0 | | | 0 | | | 0 | | | 0 | | | (93,237) | | | (93,237) | |
Transaction costs | | (236) | | | 0 | | | (17,994) | | | (112) | | | 0 | | | (18,342) | |
Impairments and loan loss reserves (recoveries), net | | (14,671) | | | (10,208) | | | 0 | | | (18,030) | | | 0 | | | (42,909) | |
Transaction and merger-related costs | |
Impairments and loan loss reserves, net | |
Gain (loss) on sales of real estate, net | Gain (loss) on sales of real estate, net | | 0 | | | 90,390 | | | 0 | | | (40) | | | 0 | | | 90,350 | |
Loss on debt extinguishments | | 0 | | | 0 | | | 0 | | | 0 | | | (42,912) | | | (42,912) | |
| Other income (expense), net | |
Other income (expense), net | |
Other income (expense), net | Other income (expense), net | | 0 | | | 0 | | | 187,844 | | | 41,707 | | | 5,133 | | | 234,684 | |
Less: Government grant income | Less: Government grant income | | 0 | | | 0 | | | (16,198) | | | 0 | | | 0 | | | (16,198) | |
Less: Healthpeak's share of unconsolidated joint venture NOI | | (311) | | | (1,643) | | | (4,187) | | | (20,603) | | | 0 | | | (26,744) | |
Plus: Noncontrolling interests' share of consolidated joint venture NOI | | 167 | | | 24,315 | | | 0 | | | 0 | | | 0 | | | 24,482 | |
Less: Healthpeak’s share of unconsolidated joint venture NOI | |
Plus: Noncontrolling interests’ share of consolidated joint venture NOI | |
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | | 198,229 | | | 276,007 | | | 44,738 | | | 40,200 | | | (341,491) | | | 217,683 | |
Income tax benefit (expense)(3) | | 0 | | | 0 | | | 0 | | | 0 | | | 9,423 | | | 9,423 | |
Income tax benefit (expense) | |
Equity income (loss) from unconsolidated joint ventures | Equity income (loss) from unconsolidated joint ventures | | (40) | | | 798 | | | (1,547) | | | (65,810) | | | 0 | | | (66,599) | |
| Income (loss) from continuing operations | Income (loss) from continuing operations | | 198,189 | | | 276,805 | | | 43,191 | | | (25,610) | | | (332,068) | | | 160,507 | |
Income (loss) from continuing operations | |
Income (loss) from continuing operations | |
Income (loss) from discontinued operations | Income (loss) from discontinued operations | | 0 | | | 0 | | | 0 | | | 0 | | | 267,746 | | | 267,746 | |
Net income (loss) | Net income (loss) | | $ | 198,189 | | | $ | 276,805 | | | $ | 43,191 | | | $ | (25,610) | | | $ | (64,322) | | | $ | 428,253 | |
(1)Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the Consolidated Statements of Operations (see Note 2).
(2)Represents straight-line rents, DFL non-cash interest, amortization of market lease intangibles, net, actuarial reserves for insurance claims that have been incurred but not reported, deferral of community fees, and termination fees. Includes the Company’s share of income (loss) generated by unconsolidated joint ventures and excludes noncontrolling interests’ share of income (loss) generated by consolidated statementsjoint ventures.
For the year ended December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Lab | | Outpatient Medical | | CCRC | | Other Non-reportable | | Corporate Non-segment | | Total |
Total revenues | | $ | 817,573 | | | $ | 725,370 | | | $ | 494,935 | | | $ | 23,300 | | | $ | — | | | $ | 2,061,178 | |
Government grant income(1) | | — | | | — | | | 6,765 | | | — | | | — | | | 6,765 | |
Less: Interest income | | — | | | — | | | — | | | (23,300) | | | — | | | (23,300) | |
Healthpeak’s share of unconsolidated joint venture total revenues | | 9,921 | | 2,999 | | — | | 73,885 | | — | | 86,805 | |
Healthpeak’s share of unconsolidated joint venture government grant income | | — | | — | | 380 | | 498 | | — | | 878 | |
Noncontrolling interests’ share of consolidated joint venture total revenues | | (268) | | (35,717) | | — | | — | | — | | (35,985) | |
Operating expenses | | (209,143) | | | (253,309) | | | (400,539) | | | — | | | — | | | (862,991) | |
Healthpeak’s share of unconsolidated joint venture operating expenses | | (2,883) | | | (1,178) | | | — | | | (57,632) | | | — | | | (61,693) | |
Noncontrolling interests’ share of consolidated joint venture operating expenses | | 87 | | | 10,317 | | | — | | | — | | | — | | | 10,404 | |
| | | | | | | | | | | | |
Adjustments to NOI(2) | | (62,754) | | | (15,513) | | | 2,300 | | | 169 | | | — | | | (75,798) | |
Adjusted NOI | | 552,533 | | | 432,969 | | | 103,841 | | | 16,920 | | | — | | | 1,106,263 | |
Plus: Adjustments to NOI(2) | | 62,754 | | | 15,513 | | | (2,300) | | | (169) | | | — | | | 75,798 | |
Interest income | | — | | | — | | | — | | | 23,300 | | | — | | | 23,300 | |
Interest expense | | — | | | (6,900) | | | (7,509) | | | — | | | (158,535) | | | (172,944) | |
Depreciation and amortization | | (302,649) | | | (279,546) | | | (128,374) | | | — | | | — | | | (710,569) | |
General and administrative | | — | | | — | | | — | | | — | | | (131,033) | | | (131,033) | |
Transaction and merger-related costs | | (387) | | | (1,255) | | | (725) | | | — | | | (2,486) | | | (4,853) | |
Impairments and loan loss reserves, net | | — | | | — | | | — | | | (7,004) | | | — | | | (7,004) | |
Gain (loss) on sales of real estate, net | | 3,744 | | | 10,659 | | | — | | | (5,325) | | | — | | | 9,078 | |
| | | | | | | | | | | | |
Other income (expense), net | | 311,939 | | | 12,709 | | | (1,380) | | | (13) | | | 3,013 | | | 326,268 | |
Less: Government grant income | | — | | | — | | | (6,765) | | | — | | | — | | | (6,765) | |
Less: Healthpeak’s share of unconsolidated joint venture NOI | | (7,038) | | | (1,821) | | | (380) | | | (16,751) | | | — | | | (25,990) | |
Plus: Noncontrolling interests’ share of consolidated joint venture NOI | | 181 | | | 25,400 | | | — | | | — | | | — | | | 25,581 | |
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | | 621,077 | | | 207,728 | | | (43,592) | | | 10,958 | | | (289,041) | | | 507,130 | |
Income tax benefit (expense) | | — | | — | | — | | — | | 4,425 | | | 4,425 | |
Equity income (loss) from unconsolidated joint ventures | | (972) | | | 852 | | | 539 | | | 1,566 | | | — | | | 1,985 | |
| | | | | | | | | | | | |
Income (loss) from continuing operations | | 620,105 | | | 208,580 | | | (43,053) | | | 12,524 | | | (284,616) | | | 513,540 | |
Income (loss) from discontinued operations | | — | | | — | | | — | | | — | | | 2,884 | | | 2,884 | |
Net income (loss) | | $ | 620,105 | | | $ | 208,580 | | | $ | (43,053) | | | $ | 12,524 | | | $ | (281,732) | | | $ | 516,424 | |
(1)Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the Consolidated Statements of Operations (see Note 2).
(2)Represents straight-line rents, DFL non-cash interest, amortization of market lease intangibles, net, actuarial reserves for insurance claims that have been incurred but not reported, deferral of community fees, and termination fees. Includes the Company’s share of income (loss) generated by unconsolidated joint ventures and excludes noncontrolling interests’ share of income (loss) generated by consolidated joint ventures.
For the year ended December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Lab | | Outpatient Medical | | CCRC | | Other Non-reportable | | Corporate Non-segment | | Total |
Total revenues | | $ | 715,844 | | | $ | 671,242 | | | $ | 471,325 | | | $ | 37,773 | | | $ | — | | | $ | 1,896,184 | |
Government grant income(1) | | — | | | — | | | 1,412 | | | — | | | — | | | 1,412 | |
Less: Interest income | | — | | | — | | | — | | | (37,773) | | | — | | | (37,773) | |
Healthpeak’s share of unconsolidated joint venture total revenues | | 5,757 | | | 2,882 | | | 6,903 | | | 67,835 | | | — | | | 83,377 | |
Healthpeak’s share of unconsolidated joint venture government grant income | | — | | | — | | | 200 | | | 1,549 | | | — | | | 1,749 | |
Noncontrolling interests’ share of consolidated joint venture total revenues | | (292) | | | (35,363) | | | — | | | — | | | — | | | (35,655) | |
Operating expenses | | (169,044) | | | (223,383) | | | (380,865) | | | 13 | | | — | | | (773,279) | |
Healthpeak’s share of unconsolidated joint venture operating expenses | | (1,836) | | | (1,174) | | | (6,639) | | | (51,866) | | | — | | | (61,515) | |
Noncontrolling interests’ share of consolidated joint venture operating expenses | | 87 | | | 10,071 | | | — | | | — | | | — | | | 10,158 | |
| | | | | | | | | | | | |
Adjustments to NOI(2) | | (46,589) | | | (11,118) | | | 3,241 | | | (47) | | | — | | | (54,513) | |
Adjusted NOI | | 503,927 | | | 413,157 | | | 95,577 | | | 17,484 | | | — | | | 1,030,145 | |
Plus: Adjustments to NOI(2) | | 46,589 | | | 11,118 | | | (3,241) | | | 47 | | | — | | | 54,513 | |
Interest income | | — | | | — | | | — | | | 37,773 | | | — | | | 37,773 | |
Interest expense | | (232) | | | (2,837) | | | (7,701) | | | — | | | (147,210) | | | (157,980) | |
Depreciation and amortization | | (303,196) | | | (255,746) | | | (125,344) | | | — | | | — | | | (684,286) | |
General and administrative | | — | | | — | | | — | | | — | | | (98,303) | | | (98,303) | |
Transaction and merger-related costs | | (24) | | | (323) | | | (1,445) | | | (49) | | | — | | | (1,841) | |
Impairments and loan loss reserves, net | | — | | | (21,577) | | | — | | | (1,583) | | | — | | | (23,160) | |
Gain (loss) on sales of real estate, net | | — | | | 190,590 | | | — | | | — | | | — | | | 190,590 | |
Gain (loss) on debt extinguishments | | — | | | — | | | — | | | — | | | (225,824) | | | (225,824) | |
Other income (expense), net | | 55 | | | (2,725) | | | 2,141 | | | 486 | | | 6,309 | | | 6,266 | |
Less: Government grant income | | — | | | — | | | (1,412) | | | — | | | — | | | (1,412) | |
Less: Healthpeak’s share of unconsolidated joint venture NOI | | (3,921) | | | (1,708) | | | (464) | | | (17,518) | | | — | | | (23,611) | |
Plus: Noncontrolling interests’ share of consolidated joint venture NOI | | 205 | | 25,292 | | — | | — | | — | | | 25,497 | |
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | | 243,403 | | | 355,241 | | | (41,889) | | | 36,640 | | | (465,028) | | | 128,367 | |
Income tax benefit (expense) | | — | | | — | | | — | | | — | | | 3,261 | | | 3,261 | |
Equity income (loss) from unconsolidated joint ventures | | 1,118 | | | 794 | | | 1,484 | | | 2,704 | | | — | | | 6,100 | |
| | | | | | | | | | | | |
Income (loss) from continuing operations | | 244,521 | | | 356,035 | | | (40,405) | | | 39,344 | | | (461,767) | | | 137,728 | |
Income (loss) from discontinued operations | | — | | | — | | | — | | | — | | | 388,202 | | | 388,202 | |
Net income (loss) | | $ | 244,521 | | | $ | 356,035 | | | $ | (40,405) | | | $ | 39,344 | | | $ | (73,565) | | | $ | 525,930 | |
(1)Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the Consolidated Statements of Operations (see Note 2).
(2)Represents straight-line rents, DFL non-cash interest, amortization of market lease intangibles, net, actuarial reserves for insurance claims that have been incurred but not reported, deferral of community fees, and termination fees. Includes the Company’s share of income (loss) generated by unconsolidated joint ventures and excludes noncontrolling interests’ share of income (loss) generated by consolidated joint ventures.
(3)Income tax benefit (expense) for the year ended December 31, 2020 includes: (i) a $51 million tax benefit recognized in conjunction with internal restructuring activities, which resulted in the transfer of assets subject to certain deferred tax liabilities from taxable REIT subsidiaries to the REIT in connection with the 2019 MTCA (see Note 3), (ii) a $33 million income tax expense related to the valuation allowance on deferred tax assets that are no longer expected to be realized (see Note 17), and (iii) a $3.7 million net tax benefit recognized due to changes under the CARES Act, which resulted in net operating losses being utilized at a higher income tax rate than previously available.
For the year ended December 31, 2019:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Life Science | | Medical Office | | CCRC | | Other Non-reportable | | Corporate Non-segment | | Total |
Total revenues | | $ | 440,784 | | | $ | 621,171 | | | $ | 3,010 | | | $ | 175,374 | | | $ | 0 | | | $ | 1,240,339 | |
Less: Interest income | | 0 | | | 0 | | | 0 | | | (9,844) | | | 0 | | | (9,844) | |
Healthpeak's share of unconsolidated joint venture total revenues | | 0 | | 2,810 | | 211,377 | | 23,834 | | 0 | | 238,021 | |
Noncontrolling interests' share of consolidated joint venture total revenues | | (187) | | (33,998) | | 0 | | 2,355 | | 0 | | (31,830) | |
Operating expenses | | (107,472) | | | (201,620) | | | (2,215) | | | (93,937) | | | 0 | | | (405,244) | |
Healthpeak's share of unconsolidated joint venture operating expenses | | 0 | | | (1,107) | | | (170,473) | | | (1,996) | | | 0 | | | (173,576) | |
Noncontrolling interests' share of consolidated joint venture operating expenses | | 59 | | | 10,109 | | | 0 | | | (1,536) | | | 0 | | | 8,632 | |
| | | | | | | | | | | | |
Adjustments to NOI(1) | | (22,103) | | | (4,602) | | | 16,985 | | | (5,449) | | | 0 | | | (15,169) | |
Adjusted NOI | | 311,081 | | | 392,763 | | | 58,684 | | | 88,801 | | | 0 | | | 851,329 | |
Plus: Adjustments to NOI(1) | | 22,103 | | | 4,602 | | | (16,985) | | | 5,449 | | | 0 | | | 15,169 | |
Interest income | | 0 | | | 0 | | | 0 | | | 9,844 | | | 0 | | | 9,844 | |
Interest expense | | (277) | | | (434) | | | 0 | | | 0 | | | (216,901) | | | (217,612) | |
Depreciation and amortization | | (168,339) | | | (221,175) | | | 0 | | | (45,677) | | | 0 | | | (435,191) | |
General and administrative | | 0 | | | 0 | | | 0 | | | 0 | | | (92,966) | | | (92,966) | |
Transaction costs | | 0 | | | 0 | | | 0 | | | 0 | | | (1,963) | | | (1,963) | |
Impairments and loan loss reserves (recoveries), net | | 0 | | | (17,332) | | | 0 | | | (376) | | | 0 | | | (17,708) | |
Gain (loss) on sales of real estate, net | | 3,651 | | | 3,139 | | | 0 | | | (6,830) | | | 0 | | | (40) | |
Loss on debt extinguishments | | 0 | | | 0 | | | 0 | | | 0 | | | (58,364) | | | (58,364) | |
Other income (expense), net | | 0 | | | 0 | | | (5,665) | | | 161,886 | | | 8,848 | | | 165,069 | |
Less: Healthpeak's share of unconsolidated joint venture NOI | | 0 | | | (1,703) | | | (40,904) | | | (21,838) | | | 0 | | | (64,445) | |
Plus: Noncontrolling interests' share of consolidated joint venture NOI | | 128 | | | 23,889 | | | 0 | | | (819) | | | 0 | | | 23,198 | |
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | | 168,347 | | | 183,749 | | | (4,870) | | | 190,440 | | | (361,346) | | | 176,320 | |
Income tax benefit (expense) | | 0 | | 0 | | 0 | | 0 | | 5,479 | | | 5,479 | |
Equity income (loss) from unconsolidated joint ventures | | 0 | | | 858 | | | (16,313) | | | 9,125 | | | 0 | | | (6,330) | |
| | | | | | | | | | | | |
Income (loss) from continuing operations | | 168,347 | | | 184,607 | | | (21,183) | | | 199,565 | | | (355,867) | | | 175,469 | |
Income (loss) from discontinued operations | | 0 | | | 0 | | | 0 | | | 0 | | | (115,408) | | | (115,408) | |
Net income (loss) | | $ | 168,347 | | | $ | 184,607 | | | $ | (21,183) | | | $ | 199,565 | | | $ | (471,275) | | | $ | 60,061 | |
(1)Represents straight-line rents, DFL non-cash interest, amortization of market lease intangibles, net, actuarial reserves for insurance claims that have been incurred but not reported, deferral of community fees, and termination fees. Includes the Company’s share of income (loss) generated by unconsolidated joint ventures and excludes noncontrolling interests’ share of income (loss) generated by consolidated joint ventures.
For the year ended December 31, 2018:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Life Science | | Medical Office | | CCRC | | Other Non-reportable | | Corporate Non-segment | | Total |
Total revenues | | $ | 395,064 | | | $ | 596,399 | | | $ | 0 | | | $ | 199,857 | | | $ | 0 | | | $ | 1,191,320 | |
Less: Interest income | | 0 | | | 0 | | | 0 | | | (10,406) | | | 0 | | | (10,406) | |
Healthpeak's share of unconsolidated joint venture total revenues | | 4,328 | | | 2,695 | | | 206,221 | | | 11,812 | | | 0 | | | 225,056 | |
Noncontrolling interests' share of consolidated joint venture total revenues | | (117) | | | (18,042) | | | 0 | | | 3,927 | | | 0 | | | (14,232) | |
Operating expenses | | (91,742) | | | (195,362) | | | 0 | | | (91,553) | | | 0 | | | (378,657) | |
Healthpeak's share of unconsolidated joint venture operating expenses | | (1,131) | | | (1,053) | | | (166,414) | | | (77) | | | 0 | | | (168,675) | |
Noncontrolling interests' share of consolidated joint venture operating expenses | | 44 | | | 4,591 | | | 0 | | | (3,020) | | | 0 | | | 1,615 | |
| | | | | | | | | | | | |
Adjustments to NOI(1) | | (9,718) | | | (5,953) | | | 15,504 | | | (5,458) | | | 0 | | | (5,625) | |
Adjusted NOI | | 296,728 | | | 383,275 | | | 55,311 | | | 105,082 | | | 0 | | | 840,396 | |
Plus: Adjustments to NOI(1) | | 9,718 | | | 5,953 | | | (15,504) | | | 5,458 | | | 0 | | | 5,625 | |
Interest income | | 0 | | | 0 | | | 0 | | | 10,406 | | | 0 | | | 10,406 | |
Interest expense | | (316) | | | (474) | | | 0 | | | 0 | | | (260,490) | | | (261,280) | |
Depreciation and amortization | | (140,480) | | | (206,731) | | | 0 | | | (57,464) | | | (6) | | | (404,681) | |
General and administrative | | 0 | | | 0 | | | 0 | | | 0 | | | (96,702) | | | (96,702) | |
Transaction costs | | 0 | | | 0 | | | 0 | | | 0 | | | (1,137) | | | (1,137) | |
Impairments and loan loss reserves (recoveries), net | | (7,639) | | | (553) | | | 0 | | | (2,725) | | | 0 | | | (10,917) | |
Gain (loss) on sales of real estate, net | | 806,184 | | | 4,428 | | | 0 | | | 20,756 | | | 0 | | | 831,368 | |
Loss on debt extinguishments | | 0 | | | 0 | | | 0 | | | 0 | | | (44,162) | | | (44,162) | |
Other income (expense), net | | 0 | | | 0 | | | 0 | | | 9,604 | | | 3,821 | | | 13,425 | |
Less: Healthpeak's share of unconsolidated joint venture NOI | | (3,197) | | | (1,642) | | | (39,807) | | | (11,735) | | | 0 | | | (56,381) | |
Plus: Noncontrolling interests' share of consolidated joint venture NOI | | 73 | | 13,451 | | 0 | | (907) | | 0 | | | 12,617 | |
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | | 961,071 | | | 197,707 | | | 0 | | | 78,475 | | | (398,676) | | | 838,577 | |
Income tax benefit (expense) | | 0 | | | 0 | | | 0 | | | 0 | | | 4,396 | | | 4,396 | |
Equity income (loss) from unconsolidated joint ventures | | 575 | | | 824 | | | (10,847) | | | 3,693 | | | 0 | | | (5,755) | |
| | | | | | | | | | | | |
Income (loss) from continuing operations | | 961,646 | | | 198,531 | | | (10,847) | | | 82,168 | | | (394,280) | | | 837,218 | |
Income (loss) from discontinued operations | | 0 | | | 0 | | | 0 | | | 0 | | | 236,256 | | | 236,256 | |
Net income (loss) | | $ | 961,646 | | | $ | 198,531 | | | $ | (10,847) | | | $ | 82,168 | | | $ | (158,024) | | | $ | 1,073,474 | |
(1)Represents straight-line rents, DFL non-cash interest, amortization of market lease intangibles, net, actuarial reserves for insurance claims that have been incurred but not reported, deferral of community fees, and termination fees. Includes the Company’s share of income (loss) generated by unconsolidated joint ventures and excludes noncontrolling interests’ share of income (loss) generated by consolidated joint ventures.
The following table summarizes the Company’s revenues by segment (in thousands):
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended |
| | December 31, |
Segments | | 2020 | | 2019 | | 2018 |
Life science | | $ | 569,296 | | | $ | 440,784 | | | $ | 395,064 | |
Medical office | | 622,398 | | | 621,171 | | | 596,399 | |
CCRC | | 436,494 | | | 3,010 | | | 0 | |
Other Non-reportable | | 16,687 | | | 175,374 | | | 199,857 | |
Total revenues | | $ | 1,644,875 | | | $ | 1,240,339 | | | $ | 1,191,320 | |
The following table summarizes the Company’s total assets by segment (in thousands):
| | | | December 31, | | | December 31, |
Segment | Segment | | 2020 | | 2019 | Segment | | 2023 | | 2022 |
Life science | | $ | 7,205,949 | | | $ | 5,688,659 | |
Medical office | | 5,197,777 | | | 5,061,351 | |
Lab | |
Outpatient medical | |
CCRC | CCRC | | 2,179,294 | | | 652,114 | |
Reportable segment assets | Reportable segment assets | | 14,583,020 | | | 11,402,124 | |
Accumulated depreciation and amortization | Accumulated depreciation and amortization | | (2,658,890) | | | (2,316,724) | |
Net reportable segment assets | Net reportable segment assets | | 11,924,130 | | | 9,085,400 | |
Other non-reportable segment assets | Other non-reportable segment assets | | 584,432 | | | 653,746 | |
Assets held for sale and discontinued operations, net | | 2,626,306 | | | 3,648,265 | |
Assets held for sale, net | |
Other non-segment assets | Other non-segment assets | | 785,221 | | | 645,480 | |
Total assets | Total assets | | $ | 15,920,089 | | | $ | 14,032,891 | |
See Notes 3, 4, 5, 6, 7, 8, and 818 for significant transactions impacting the Company'sCompany’s segment assets during the periods presented.
The Company completed the required annual goodwill impairment test during the fourth quarterAt each of 2020, 2019,and 2018, and 0 impairment was recognized.
At December 31, 2019, goodwill of $17 million was allocated as follows: (i) medical office—$13 million2023 and (ii) other—$4 million.
During the year ended December 31, 2020, as a result of reporting CCRCs as a separate segment, the Company reallocated $2 million of goodwill from other non-reportable segments to the CCRC segment. Additionally, during the year ended December 31, 2020, as a result of reporting hospitals in the medical office segment and reporting a senior housing joint venture in other non-reportable segments, the Company reallocated $1 million of goodwill from other non-reportable segments to the medical office segment and $1 million of goodwill from senior housing properties to other non-reportable segments.
At December 31, 2020,2022, goodwill of $18 million was allocated to the Company’s segment assets as follows: (i) $14 million for outpatient medical, office—$14(ii) $2 million (ii) CCRC—$2 million,for CCRC, and (iii) other—$2 million.$2 million for other non-reportable.
NOTE 17.16. Income Taxes
The Company has elected to be taxed as a REIT under the applicable provisions of the Code for every year beginning with the year ended December 31, 1985. The Company has also elected for certain of its subsidiaries to be treated as TRSs (the “TRS entities”), which are subject to federal and state income taxes. All entities other than the TRS entities are collectively referred to as the “REIT” within this Note 17.16. Certain REIT entities are also subject to state local and foreignlocal income taxes.
Distributions with respect to the Company’s common stock can be characterized for federal income tax purposes as ordinary dividends, capital gains, nondividend distributions, or a combination thereof.
The following table shows the characterization of the Company’s annual common stock distributions per share:
| | Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
Ordinary dividends(1) | Ordinary dividends(1) | $ | 0.7139 | | | $ | 0.7633 | | | $ | 0.9578 | |
Capital gains(2) | 0.5298 | | | 0.2714 | | | 0.5222 | |
Capital gains(2)(3) | |
Nondividend distributions | Nondividend distributions | 0.2363 | | | 0.4453 | | | 0 | |
| $ | 1.4800 | | | $ | 1.4800 | | | $ | 1.4800 | |
| $ | |
_______________________________________(1)For the year ended December 31, 20202023,the amount includes $0.882312 of ordinary dividends qualified as business income for purposes of Code Section 199A and $0.027380 of qualified dividend income for purposes of Code Section 1(h)(11). For the year ended December 31, 2022, all $0.7139$0.872948 of ordinary dividends qualified as business income for purposes of Code Section 199A. For the year ended December 31, 2019 all $0.76332021, the amount includes $0.137064 of ordinary dividends qualified as business income for purposes of Code Section 199A. For the year ended December 31, 2018 the amount includes $0.9414 of qualified business income for purposes of Code Section 199A and $0.0164$0.015272 of qualified dividend income for purposes of Code Section 1(h)(11).
(2)For the years ended December 31, 2023, 2022, and 2021, the amount includes $0.036256, $0.017760, and $0.379960, respectively, of unrecaptured Code Section 1250 gain. Pursuant to Treasury Regulation §1.1061-6(c)Section 1.1061-6(c), the Company is disclosing additional information related to the capital gain dividends for purposes of Section 1061 of the Internal RevenueCode. Code (IRC). IRC Section 1061 is generally applicable to direct and indirect holders of “applicable partnership interests.” TheFor the year ended December 31, 2023, the “One Year Amounts” and “Three Year Amounts” required to be disclosed are both 0 with respect to the 2020 distributions,each zero, since all capital gains relate to IRCCode Section 1231 gains. For the year ended December 31, 2022, the “One Year Amounts” and “Three Year Amounts” are each89.6708% of the total capital gain distributions and the remaining capital gain distributions are attributable to Code Section 1231 gains, which are not subject to Code Section 1061. For the year ended December 31, 2021, the “One Year Amounts” and “Three Year Amounts” are each zero, since all capital gains relate to Code Section 1231 gains.
(3)For the years ended December 31, 2023, 2022, and 2021, 100%, 10.3292%, and 100%, respectively, of the capital gain distributions represent gains from dispositions of U.S. real property interests pursuant to Code Section 897 for foreign shareholders.
The Company’s pretax income (loss) from continuing operations was $151 million, $170 million, and $833 million for the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021 was $325 million, $509 million, and $134 million, respectively, of which $80$318 million, $200$527 million, and $852$150 million was attributable to the REIT entities for the years then ended. The TRS entities subject to tax reported income (losses) before income taxes from continuing operations of $71$7 million, $(30)$(18) million, and $(8)$(16) million for the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021, respectively. The REIT’s loss from continuing operations before income taxes from the U.K. prior to deconsolidation in June 2018 was $11 million for the year ended December 31, 2018.
The total income tax expense (benefit)benefit (expense) from continuing operations consists of the following components (in thousands):
| | Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
| Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
Current | Current | | | | | |
Federal | Federal | $ | (9,164) | | | $ | 104 | | | $ | 973 | |
Federal | |
Federal | |
State | State | 1,431 | | | 445 | | | 3,883 | |
Foreign | 0 | | | — | | | 84 | |
| Total current | |
Total current | |
Total current | Total current | $ | (7,733) | | | $ | 549 | | | $ | 4,940 | |
| Deferred | Deferred | |
Deferred | |
Deferred | |
Federal | |
Federal | |
Federal | Federal | $ | (2,849) | | | $ | (5,920) | | | $ | (2,681) | |
State | State | 1,159 | | | (108) | | | (1,776) | |
Foreign | 0 | | | 0 | | | (4,879) | |
| Total deferred | |
Total deferred | |
Total deferred | Total deferred | $ | (1,690) | | | $ | (6,028) | | | $ | (9,336) | |
| Total income tax expense (benefit) from continuing operations | $ | (9,423) | | | $ | (5,479) | | | $ | (4,396) | |
Total income tax benefit (expense) from continuing operations | |
Total income tax benefit (expense) from continuing operations | |
Total income tax benefit (expense) from continuing operations | |
The Company’s income tax benefit from discontinued operations was $10 million, $12zero, $0.3 million, and $13$1 million for the years ended December 31, 2020, 2019,2023, 2022, and 2018,2021, respectively (see Note 5)4).
The following table reconciles income tax expense (benefit)benefit (expense) from continuing operations at statutory rates to actual income tax expense (benefit)benefit (expense) recorded (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
Tax expense (benefit) at U.S. federal statutory income tax rate on income or loss subject to tax | $ | 15,016 | | | $ | (6,169) | | | $ | (7,027) | |
State income tax expense (benefit), net of federal tax | 4,211 | | | (1,830) | | | 1,209 | |
Gross receipts and margin taxes | 980 | | | 1,108 | | | 1,173 | |
Foreign rate differential | 0 | | | 0 | | | 301 | |
Effect of permanent differences | 0 | | | 20 | | | (55) | |
Return to provision adjustments | 707 | | | 54 | | | 258 | |
| | | | | |
Valuation allowance for deferred tax assets | 24,051 | | | 22 | | | (255) | |
Tax rate differential ─ NOL carryback under the CARES Act | (3,732) | | | 0 | | | 0 | |
Change in tax status of TRS | (50,656) | | | 1,316 | | | 0 | |
| | | | | |
Total income tax expense (benefit) from continuing operations | $ | (9,423) | | | $ | (5,479) | | | $ | (4,396) | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Tax benefit (expense) at U.S. federal statutory income tax rate on income or loss subject to tax | $ | (1,404) | | | $ | 3,698 | | | $ | 3,345 | |
State income tax benefit (expense), net of federal tax | (1,035) | | | 911 | | | 706 | |
Gross receipts and margin taxes | (1,647) | | | (956) | | | (989) | |
| | | | | |
| | | | | |
Return to provision adjustments | (90) | | | 1,260 | | | (4) | |
| | | | | |
Change in valuation allowance for deferred tax assets | 13,797 | | | 194 | | | 203 | |
| | | | | |
Change in tax status of TRS | (4) | | | (682) | | | — | |
| | | | | |
Total income tax benefit (expense) from continuing operations | $ | 9,617 | | | $ | 4,425 | | | $ | 3,261 | |
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of the assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table summarizes the significant components of the Company’s deferred tax assets and liabilities from continuing operations (in thousands):
| | December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
Deferred tax assets: | |
Deferred revenue | |
Deferred revenue | |
Deferred revenue | |
| | | December 31, |
| | 2020 | | 2019 | | 2018 |
Gross deferred tax assets: | | | | | |
Investment in unconsolidated joint ventures | $ | 2,333 | | | $ | 40,466 | | | $ | 31,034 | |
Real estate | 3,895 | | | 0 | | | 0 | |
Net operating loss carryforward | |
| Net operating loss carryforward | |
| Net operating loss carryforward | Net operating loss carryforward | 68,444 | | | 33,771 | | | 20,559 | |
Expense accruals | Expense accruals | 15,478 | | | 3,258 | | | 2,424 | |
Deferred revenue | 103,713 | | | 0 | | | 0 | |
Total gross deferred tax assets | 193,863 | | | 77,495 | | | 54,017 | |
Real estate | |
| Other | |
Other | |
Other | |
Total deferred tax assets | |
Valuation allowance | Valuation allowance | (33,519) | | | (4,878) | | | (295) | |
Gross deferred tax assets, net of valuation allowance | $ | 160,344 | | | $ | 72,617 | | | $ | 53,722 | |
Gross deferred tax liabilities: | | | | | |
Deferred tax assets, net of valuation allowance | |
Deferred tax liabilities: | |
Real estate | |
Real estate | |
Real estate | Real estate | $ | 72,059 | | | $ | 0 | | | $ | 0 | |
Other | Other | 1,094 | | | 0 | | | 0 | |
Gross deferred tax liabilities | $ | 73,153 | | | $ | 0 | | | $ | 0 | |
Deferred tax liabilities | |
| Net deferred tax assets | Net deferred tax assets | $ | 87,191 | | | $ | 72,617 | | | $ | 53,722 | |
Net deferred tax assets | |
Net deferred tax assets | |
Net deferred tax assets are included in other assets.assets, net on the Consolidated Balance Sheets.
The Company records a valuation allowance against deferred tax assets in certain jurisdictions when it cannot sustain a conclusion that it is not more likely than not that it can realize the related deferred tax assets during the periods in which these temporary differences become deductible.assets. The deferred tax asset valuation allowance is adequate to reduce the total deferred tax assets to an amount that the Company estimates will “more-likely-than-not” be realized.
In conjunction withAs of December 31, 2021 and 2022, the Company establishingrecorded a plan duringvaluation allowance against certain SHOP deferred tax assets generated by net operating losses of its TRS entities. During the year ended December 31, 2020 to dispose of all of its SHOP assets and classifying such assets as discontinued operations (see Note 5),2023, the Company concluded that it was more likely than not that it would no longer realize the future value of certain deferred tax assets generated by the(primarily net operating lossesloss carryforwards) would be realized. This conclusion was based on recent revisions to estimates of itsfuture taxable income for certain TRS entities.entities in connection with the Callan Ridge JV transaction (see also Notes 4 and 8). Accordingly, the Company recognized areversed its deferred tax asset valuation allowance and correspondingrecognized an income tax expensebenefit of $33$14 million during the year ended December 31, 2020.
December 31, 2023, 2022, and 2021, the Company had a deferred tax asset valuation allowance of $13 million, $26 million, and $36 million, respectively. At December 31, 2020,2023, the Company had a net operating loss (“NOL”) carryforward of $283$216 million related to the TRS entities. This amount can be used to offset future taxable income, if any. If unused, $22$15 million will begin to expire in 2035. The remainder, totaling $261$201 million, may be carried forward indefinitely.
The following table summarizes the Company’s unrecognized tax benefits (in thousands):
| | December 31, |
| 2020 | | 2019 | | 2018 |
| December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
Total unrecognized tax benefits at January 1 | Total unrecognized tax benefits at January 1 | $ | 469 | | | $ | 0 | | | $ | 0 | |
Gross amount of increases for prior years' tax positions | 0 | | | 469 | | | 0 | |
Gross amount of decreases for prior years’ tax positions | |
Total unrecognized tax benefits at December 31 | Total unrecognized tax benefits at December 31 | $ | 469 | | | $ | 469 | | | $ | 0 | |
TheFor the years ended December 31, 2023 and 2022, the Company had no unrecognized tax benefits. For the year ended December 31, 2021, the Company had unrecognized tax benefits of $0.5 million, at December 31, 2020 and 2019, that, if recognized, would reduce the annual effective tax rate. As of December 31, 2020, the Company accrued interest of $70 thousand related to the unrecognized tax benefits.
The Company files numerous U.S. federal, state, and local income and franchise tax returns. With a few exceptions, the Company is no longer subject to U.S. federal, state, or local tax examinations by taxing authorities for years prior to 2017.2020.
For the years ended December 31, 2020, 2019, and 2018 the tax basis
NOTE 18.17. Supplemental Cash Flow Information
The following table provides supplemental cash flow information (in thousands):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
Supplemental cash flow information: | | | | | |
Interest paid, net of capitalized interest | $ | 209,843 | | | $ | 201,784 | | | $ | 275,690 | |
Income taxes paid (refunded) | (786) | | | 1,426 | | | 4,480 | |
Capitalized interest | 27,041 | | | 30,459 | | | 21,056 | |
Supplemental schedule of non-cash investing and financing activities: | | | | | |
Accrued construction costs | 95,293 | | | 126,006 | | | 88,826 | |
| | | | | |
| | | | | |
Retained equity method investment from U.K. JV transaction | 0 | | | 0 | | | 104,922 | |
Derecognition of U.K. Bridge Loan receivable | 0 | | | 0 | | | 147,474 | |
Consolidation of net assets related to U.K. Bridge Loan | 0 | | | 0 | | | 106,457 | |
Vesting of restricted stock units and conversion of non-managing member units into common stock | 4,746 | | | 5,614 | | | 537 | |
Net noncash impact from the consolidation of previously unconsolidated joint ventures | 369,223 | | | 17,850 | | | 68,293 | |
| | | | | |
| | | | | |
Mortgages assumed with real estate acquisitions | 251,280 | | | 172,565 | | | 8,457 | |
Refundable entrance fees assumed with real estate acquisitions | 307,954 | | | 0 | | | 0 | |
Conversion of DFLs to real estate | 0 | | | 350,540 | | | 0 | |
Retained investment in connection with SWF SH JV | 0 | | | 427,328 | | | 0 | |
Seller financing provided on disposition of real estate asset | 73,498 | | | 44,812 | | | 0 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Supplemental cash flow information: | | | | | |
Interest paid, net of capitalized interest | $ | 188,213 | | | $ | 162,115 | | | $ | 173,044 | |
Income taxes paid (refunded) | 1,923 | | | (1,903) | | | 4,521 | |
Capitalized interest | 56,849 | | | 41,046 | | | 24,084 | |
Cash paid for amounts included in the measurement of lease liability for operating leases | 21,488 | | | 12,594 | | | 10,620 | |
Supplemental schedule of non-cash investing and financing activities: | | | | | |
Increase in ROU asset in exchange for new lease liability related to operating leases | 3,951 | | | 9,454 | | | 28,866 | |
Decrease in ROU asset with corresponding change in lease liability related to operating leases | — | | | — | | | 8,410 | |
Accrued construction costs | 105,572 | | | 178,626 | | | 179,995 | |
Net noncash impact from the consolidation of property previously held in an unconsolidated joint venture | 993 | | | — | | | — | |
Retained investment in connection with South San Francisco JVs transaction | — | | | 293,265 | | | — | |
| | | | | |
Seller financing provided on disposition of real estate asset | — | | | — | | | 559,745 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Carrying value of mortgages assumed by buyer in real estate dispositions | — | | | — | | | 143,676 | |
| | | | | |
| | | | | |
| | | | | |
See discussions related to: (i) the impactNote 8 for discussion of the 2019 MTCA with Brookdale onSouth San Francisco JVs transaction.
Operating, investing, and financing cash flows in the Company’s consolidated balance sheetsConsolidated Statements of Cash Flows are reported inclusive of both cash flows from continuing operations and statements of operations in Note 3, (ii) the U.K. JV transaction in Notes 5 and 9, (iii) the U.K. Bridge Loan in Notes 8 and 19, (iv) the conversion of DFLs to real estate in Note 7, and (v) the consolidation of previously unconsolidated joint ventures in Note 4.
cash flows from discontinued operations. The following table summarizes certain cash flow information related to assets classified as discontinued operations (in thousands):
| | Year Ended December 31, | | | Year Ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
Leasing costs, tenant improvements, and recurring capital expenditures | |
Development, redevelopment, and other major improvements of real estate | |
Depreciation and amortization of real estate, in-place lease, and other intangibles | |
| | Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
Depreciation and amortization of real estate, in-place lease, and other intangibles | $ | 143,194 | | | $ | 224,798 | | | $ | 144,819 | |
Development, redevelopment, and other major improvements of real estate | 30,769 | | | 74,919 | | | 62,995 | |
Leasing costs, tenant improvements, and recurring capital expenditures | 12,695 | | | 22,617 | | | 1,705 | |
The following table summarizes cash, cash equivalents, and restricted cash (in thousands):
| | December 31, |
| 2020 | | 2019 |
| | Year Ended December 31, | | | | Year Ended December 31, |
| | 2023 | | | | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 | | 2023 | | 2022 | | 2021 |
| | Continuing operations | | | | Continuing operations | | Discontinued operations | | Total |
Beginning of year: | |
Cash and cash equivalents | |
Cash and cash equivalents | |
Cash and cash equivalents | Cash and cash equivalents | | $ | 44,226 | | | $ | 80,398 | |
Restricted cash | Restricted cash | | 67,206 | | | 13,385 | |
Cash, cash equivalents and restricted cash | | $ | 111,432 | | | $ | 93,783 | |
Cash, cash equivalents, and restricted cash | |
End of year: | |
Cash and cash equivalents | |
Cash and cash equivalents | |
Cash and cash equivalents | |
Restricted cash | |
Cash, cash equivalents, and restricted cash | |
NOTE 19.18. Variable Interest Entities
Operating Subsidiary
Subsequent to the Reorganization, Healthpeak OP is the Company’s operating subsidiary and a limited liability company that has governing provisions that are the functional equivalent of a limited partnership. The Company holds a membership interest in Healthpeak OP, acts as the managing member of Healthpeak OP, and exercises full responsibility, discretion, and control over the day-to-day management of Healthpeak OP. Because the noncontrolling interests in Healthpeak OP do not have substantive liquidation rights, substantive kick-out rights without cause, or substantive participating rights, the Company has determined that Healthpeak OP is a VIE. The Company, as managing member, has the power to direct the core activities of Healthpeak OP that most significantly affect Healthpeak OP’s performance, and through its interest in Healthpeak OP, has both the right to receive benefits from and the obligation to absorb losses of Healthpeak OP. Accordingly, the Company is the primary beneficiary of Healthpeak OP and consolidates Healthpeak OP. As the Company conducts its business and holds its assets and liabilities through Healthpeak OP, the total consolidated assets and liabilities, income (losses), and cash flows of Healthpeak OP represent substantially all of the total consolidated assets and liabilities, income (losses), and cash flows of the Company.
Unconsolidated Variable Interest Entities
At December 31, 2020,2023, the Company had investments in two unconsolidated VIE joint ventures. At December 31, 2022, the Company had investments in: (i) 2 properties leased to a VIE tenant, (ii) 4 twounconsolidated VIE joint ventures (iii)and (ii) marketable debt securities of 1 VIE, and (iv) 1 loan to a VIE borrower.one VIE. The Company determined it is not the primary beneficiary of and therefore does not consolidate these VIEs because it does not have the ability to control the activities that most significantly impact their economic performance. Except for the Company’s equity interest in the unconsolidated joint ventures (CCRC OpCo, development investments,(the LLC Investment and the LLC investmentNeedham Land Parcel JV discussed below), it has no formal involvement in these VIEs beyond its investments.
VIE Tenant. The Company leases 2 properties to 1 tenant that has been identified as a VIE (“VIE tenant”). The VIE tenant is a “thinly capitalized” entity that relies on the operating cash flows generated from the senior housing facilities to pay operating expenses, including the rent obligations under its leases.
CCRC OpCo. The Company holds a 49% ownership interest in CCRC OpCo, a joint venture entity formed in August 2014 that operates senior housing properties in a RIDEA structure and has been identified as a VIE. The equity members of CCRC OpCo “lack power” because they share certain operating rights with Brookdale, as manager of the CCRCs. The assets of CCRC OpCo primarily consist of the CCRCs that it owns and leases, resident fees receivable, notes receivable, and cash and cash equivalents; its obligations primarily consist of operating lease obligations to CCRC PropCo, debt service payments, capital expenditures, accounts payable, and expense accruals. Assets generated by the operations of CCRC OpCo (primarily rents from CCRC residents) of CCRC OpCo may only be used to settle its contractual obligations (primarily from debt service payments, capital expenditures, and rental costs and operating expenses incurred to manage such facilities). Refer to Note 3 for additional discussion related to transactions impacting CCRC OpCo.
LLC Investment. The Company holds a limited partner ownership interest in an unconsolidated LLC (“LLC Investment”) that has been identified as a VIE. The Company’s involvement in the entity is limited to its equity investment as a limited partner and it does not have any substantive participating rights or kick-out rights over the general partner. The assets and liabilities of the entity primarily consist of those associated with itsthree hospitals as well as senior housing real estate. Any assets generated by the entity may only be used to settle its contractual obligations (primarily capital expenditures and debt service payments).
Needham Land Parcel JV. In December 2021, the Company acquired a 38% interest in a lab development joint venture in Needham, Massachusetts for $13 million. Current equity at risk is not sufficient to finance the joint venture’s activities. The assets and liabilities of the entity primarily consist of real estate and development activities.debt service obligations. Any assets generated by the entity may only be used to settle its contractual obligations (primarily development expensescosts and debt service payments).
Development Investments. The Company holds investments (consisting See Note 8 for additional descriptions of mezzanine debt and/or preferred equity) in 2 senior housing development joint ventures. The joint ventures are also capitalized by senior loans from a third partythe nature, purpose, and equity from the third party managing-member, but are considered to be “thinly capitalized” as there is insufficient equity investment at risk.
Debt Securities Investment. TheAt December 31, 2022, the Company holds held $22 millionofcommercial mortgage-backed securities (“CMBS”) issued by Federal Home Loan Mortgage Corporation (commonly referred to as Freddie MAC)Mac) through a special purpose entity that hashad been identified as a VIE because it iswas “thinly capitalized.” The CMBS issued by the VIE arewere backed by mortgage debt obligations on real estate assets.
Seller Financing Loan. The These securities were classified as held-to-maturity because the Company provided seller financing of $10 millionhad the intent and ability to hold the securities until maturity. These securities matured on December 31, 2022, and the Company received the related to its sale of 7 senior housing triple-net facilities. The financing was providedproceeds in the form of a secured five-year mezzanine loan to a “thinly capitalized” borrower created to acquire the facilities.January 2023.
The classification of the related assets and liabilities and the maximum loss exposure as a result of the Company’s involvement with these VIEs at December 31, 20202023 was as follows (in thousands):
| | | | | | | | | | | | | | |
VIE Type | | Asset/LiabilityAsset Type | | Maximum Loss Exposure and Carrying Amount(1) |
| Continuing operations: | | | |
Unconsolidated joint venturesLLC Investment | | Other assets, net | | $ | Loans receivable, net14,985 | |
Needham Land Parcel JV | | Investments in and Investments inadvances to unconsolidated joint ventures | | $17,084 | | 22,113 |
Loan - Seller Financing | | Loans receivable, net | | 2,288 | |
CMBS and LLC investment | | Marketable debt and LLC investment | | 35,453 | |
Discontinued operations: | | | | |
VIE tenant - operating leases(2)
| | Lease intangibles, net and straight-line rent receivables | | $ | 186 | |
(1)The Company’s maximum loss exposure represents the aggregate carrying amount of such investments (including accrued interest).
(2)The Company’s maximum loss exposure may be mitigated by re-leasing the underlying properties to new tenants upon an event of default.investments.
As of December 31, 2020,2023, the Company had not provided, and is not required to provide, financial support through a liquidity arrangement or otherwise, to its unconsolidated VIEs, including under circumstances in which it could be exposed to further losses (e.g., cash shortfalls).
See Notes 3, 4, 5, 6, 7, 8, and 9 for additional descriptions of the nature, purpose, and operating activities of the Company’s unconsolidated VIEs and interests therein.
Consolidated Variable Interest Entities
The Company'sCompany’s consolidated total assets and total liabilities at December 31, 20202023 and December 31, 20192022 include certain assets of VIEs that can only be used to settle the liabilities of the related VIE. The VIE creditors do not have recourse to the Company. Total assets and total liabilities include VIE assets and liabilities as follows (in thousands):
| | | | | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 |
Assets | | | | |
Buildings and improvements | | $ | 2,988,599 | | | $ | 2,498,524 | |
Development costs and construction in progress | | 85,595 | | | 67,244 | |
Land | | 433,574 | | | 410,903 | |
Accumulated depreciation and amortization | | (602,491) | | | (534,339) | |
Net real estate | | 2,905,277 | | | 2,442,332 | |
| | | | |
Accounts receivable, net | | 12,009 | | | 9,508 | |
Cash and cash equivalents | | 16,550 | | | 35,726 | |
Restricted cash | | 7,977 | | | 9,895 | |
Intangible assets, net | | 179,027 | | | 167,022 | |
Assets held for sale and discontinued operations, net | | 704,966 | | | 880,362 | |
Right-of-use asset, net | | 95,407 | | | 92,664 | |
Other assets, net | | 59,063 | | | 48,119 | |
Total assets | | $ | 3,980,276 | | | $ | 3,685,628 | |
Liabilities | | | | |
Mortgage debt | | $ | 39,085 | | | $ | 44,199 | |
| | | | |
Intangible liabilities, net | | 56,467 | | | 39,545 | |
Liabilities related to assets held for sale and discontinued operations, net | | 190,919 | | | 187,544 | |
Lease liability | | 97,605 | | | 90,875 | |
Accounts payable, accrued liabilities, and other liabilities | | 102,391 | | | 112,301 | |
Deferred revenue | | 90,183 | | | 94,538 | |
Total liabilities | | $ | 576,650 | | | $ | 569,002 | |
Total assets and liabilities related to assets held for sale and discontinued operations include VIE assets and liabilities as follows (in thousands):
| | | | | | | | | | | | | | |
| | December 31, |
| | 2020 | | 2019 |
Assets | | | | |
Buildings and improvements | | $ | 639,759 | | | $ | 737,581 | |
Development costs and construction in progress | | 68 | | | 41 | |
Land | | 106,209 | | | 115,673 | |
Accumulated depreciation and amortization | | (57,235) | | | (34,235) | |
Net real estate | | 688,801 | | | 819,060 | |
Accounts receivable, net | | 1,700 | | | 2,478 | |
Cash and cash equivalents | | 6,306 | | | 11,301 | |
Restricted cash | | 3,124 | | | 3,700 | |
Intangible assets, net | | 0 | | | 39,817 | |
Right-of-use asset, net | | 1,391 | | | 0 | |
Other assets, net | | 3,644 | | | 4,006 | |
Total assets | | $ | 704,966 | | | $ | 880,362 | |
Liabilities | | | | |
Mortgage debt | | $ | 176,702 | | | $ | 174,567 | |
| | | | |
Lease liability | | 1,392 | | | 0 | |
Accounts payable, accrued liabilities, and other liabilities | | 11,003 | | | 10,531 | |
Deferred revenue | | 1,822 | | | 2,446 | |
Total liabilities | | $ | 190,919 | | | $ | 187,544 | |
Ventures V, LLC. The Company holds a 51% ownership interest in and is the managing member of a joint venture entity formed in October 2015 that owns and leases MOBsoutpatient medical buildings (“Ventures V”). The Company classifies Ventures V as a VIE due to the non-managing member lacking substantive participation rights in the management of Ventures V or kick-out rights over the managing member. The Company consolidates Ventures V as the primary beneficiary because it has the ability to control the activities that most significantly impact the VIE’s economic performance. The assets of Ventures V primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; its obligations primarily consist of capital expenditures for the properties. Assets generated by Ventures V may only be used to settle its contractual obligations (primarily from capital expenditures).obligations.
Life ScienceLab JVs. The Company holds a 99%98% or greater ownership interest in multiple joint venture entities that own and lease life science assetslab buildings (the "Life Science JVs"“Lab JVs”). The Life ScienceLab JVs are VIEs as the members share in controlcertain decisions of the entities, but substantially all of the activities are performed on behalf of the Company. The Company consolidates the Life ScienceLab JVs as the primary beneficiary because it has the ability to control the activities that most significantly impact these VIEs’ economic performance. The assets of the Life ScienceLab JVs primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; their obligations primarily consist of debt service payments and capital expenditures for the properties. Assets generated by the Life ScienceLab JVs may only be used to settle their contractual obligations (primarily from capital expenditures).obligations. Refer to Note 12 for a discussion of certain put options associated with the Lab JVs.
MSREI MOB JV. The Company holds a 51% ownership interest in, and is the managing member of, a joint venture entity formed in August 2018 that owns and leases MOBsoutpatient medical buildings (the “MSREI JV”). The MSREI JV is a VIE due to the non-managing member lacking substantive participation rights in the management of the joint venture or kick-out rights over the managing member. The Company consolidates the MSREI JV as the primary beneficiary because it has the ability to control the activities that most significantly impact the VIE’s economic performance. The assets of the MSREI JV primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; its obligations primarily consist of capital expenditures for the properties. Assets generated by the MSREI JV may only be used to settle its contractual obligations (primarily from capital expenditures).
Consolidated Lessees. The Company leases 7 senior housing properties to lessee entities under cash flow leases through which the Company receives monthly rent equal to the residual cash flows of the properties. The lessee entities are classified as VIEs as they are "thinly capitalized" entities. The Company consolidates the lessee entities as it has the ability to control the activities that most significantly impact the economic performance of the lessee entities. The lessee entities’ assets primarily consist of leasehold interests in senior housing facilities (operating leases), resident fees receivable, and cash and cash equivalents; its obligations primarily consist of lease payments to the Company and operating expenses of the senior housing facilities (accounts payable and accrued expenses). Assets generated by the senior housing operations (primarily from senior housing resident rents) may only be used to settle contractual obligations (primarily from the rental costs, operating expenses incurred to manage such facility and debt costs).obligations.
DownREITs. The Company holds a controlling ownership interest in and is the managing member of 7seven DownREITs. The Company classifies the DownREITs as VIEs due to the non-managing members lacking substantive participation rights in the management of the DownREITs or kick-out rights over the managing member. The Company consolidates the DownREITs as the primary beneficiary because it has the ability to control the activities that most significantly impact these VIEs’ economic performance. The assets of the DownREITs primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; their obligations primarily consist of debt service payments and capital expenditures for the properties. Assets generated by the DownREITs (primarily from residenttenant rents) may only be used to settle their contractual obligations (primarily from debt service and capital expenditures).
Other Consolidated Real Estate Partnerships. The Company holds a controlling ownership interest in and is the general partner (or managing member) of multiple partnerships that own and lease real estate assets (the “Partnerships”). The Company classifies the Partnerships as VIEs due to the limited partners (non-managing members) lacking substantive participation rights in the management of the Partnerships or kick-out rights over the general partner (managing member). The Company consolidates the Partnerships as the primary beneficiary because it has the ability to control the activities that most significantly impact these VIEs’ economic performance. The assets of the Partnerships primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; their obligations primarily consist of debt service payments and capital expenditures for the properties. Assets generated by the Partnerships (primarily from residenttenant rents) may only be used to settle their contractual obligations (primarily from debt service and capital expenditures).
Exchange Accommodation Titleholder. During the year ended December 31, 2020, the Company acquired 7 MOBs, 1 hospital, and 3 life science facilities (the "acquired properties") using reverse like-kind exchange structures pursuant to Section 1031 of the Code (a "reverse 1031 exchange"). As of December 31, 2020, the Company had not completed the reverse 1031 exchanges and as such, the acquired properties remained in the possession of Exchange Accommodation Titleholders ("EATs"). The EATs are classified as VIEs as they are “thinly capitalized” entities. The Company consolidates the EATs because it has the ability to control the activities that most significantly impact the economic performance of the EATs and is, therefore, the primary beneficiary of the EATs. The properties held by the EATs are reflected as real estate with a carrying value of$813 million as of December 31, 2020. The assets of the EATs primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; their obligations primarily consist of capital expenditures for the properties. Assets generated by the EATs may only be used to settle their contractual obligations (primarily from capital expenditures).
U.K. Bridge Loan. In 2016, the Company provided a £105 million ($131 million at closing) bridge loan to MMCG to fund the acquisition of a portfolio of 7 care homes in the U.K. MMCG created a special purpose entity to acquire the portfolio and funded it entirely using the Company’s bridge loan. As such, the special purpose entity had historically been identified as a VIE because it was “thinly capitalized.” The Company retained a three-year call option to acquire all the shares of the special purpose entity, which it could only exercise upon the occurrence of certain events. During the quarter ended March 31, 2018, the Company concluded that the conditions required to exercise the call option had been met and initiated the call option process to acquire the special purpose entity. In conjunction with initiating the process to legally exercise its call option and the satisfaction of required contingencies, the Company concluded that it was the primary beneficiary of the special purpose entity and therefore, should consolidate the entity. As such, during the quarter ended March 31, 2018, the Company derecognized the previously outstanding loan receivable, recognized the special purpose entity’s assets and liabilities at their respective fair values, and recognized a £29 million ($41 million) loss on consolidation, net of a tax benefit of £2 million ($3 million), to account for the difference between the carrying value of the loan receivable and the fair value of net assets and liabilities assumed. The loss on consolidation was recognized within other income (expense), net and the tax benefit was recognized within income tax benefit (expense). The fair value of net assets and liabilities consolidated during the first quarter of 2018 consisted of £81 million ($114 million) of net real estate, £4 million ($5 million) of intangible assets, and £9 million ($13 million) of net deferred tax liabilities.
In June 2018, the Company completed the exerciseTotal assets and total liabilities include VIE assets and liabilities, excluding those of the above-mentioned call optionHealthpeak OP, as follows (in thousands):
| | | | | | | | | | | | | | |
| | December 31, |
| | 2023 | | 2022 |
Assets | | | | |
Buildings and improvements | | $ | 2,392,375 | | | $ | 2,356,905 | |
Development costs and construction in progress | | 47,481 | | | 58,499 | |
Land and improvements | | 307,166 | | | 324,714 | |
Accumulated depreciation and amortization | | (665,791) | | | (623,244) | |
Net real estate | | 2,081,231 | | | 2,116,874 | |
| | | | |
Accounts receivable, net | | 5,906 | | | 6,893 | |
Cash and cash equivalents | | 18,410 | | | 20,586 | |
Restricted cash | | 613 | | | 354 | |
Intangible assets, net | | 56,975 | | | 73,860 | |
Assets held for sale, net | | — | | | 30,355 | |
Right-of-use asset, net | | 97,575 | | | 99,376 | |
Other assets, net | | 79,248 | | | 73,690 | |
Total assets | | $ | 2,339,958 | | | $ | 2,421,988 | |
Liabilities | | | | |
Mortgage debt | | $ | 144,874 | | | $ | 144,604 | |
| | | | |
Intangible liabilities, net | | 11,884 | | | 15,066 | |
Liabilities related to assets held for sale, net | | — | | | 401 | |
Lease liability | | 99,725 | | | 99,039 | |
Accounts payable, accrued liabilities, and other liabilities | | 54,975 | | | 68,979 | |
Deferred revenue | | 48,316 | | | 39,661 | |
Total liabilities | | $ | 359,774 | | | $ | 367,750 | |
Total assets and formally acquired full ownership of the special purpose entity. As such, the Company reconsidered whether the special purpose entity was a VIE and concluded that it was no longer “thinly capitalized” as the previously outstanding bridge loan convertedtotal liabilities related to equity at risk and, therefore, was no longer a VIE. The real estate assets held by the special purpose entity were contributed to the U.K. JV formed by the Company in June 2018 (see Note 5). In December 2019, the Company sold its remaining interest in the U.K. JV (see Note 9).for sale include VIE assets and liabilities, excluding those of Healthpeak OP, as follows (in thousands):
| | | | | | | | | | | | | | |
| | December 31, |
| | 2023 | | 2022 |
Assets | | | | |
Buildings and improvements | | $ | — | | | $ | 39,934 | |
| | | | |
Land and improvements | | — | | | 1,926 | |
Accumulated depreciation and amortization | | — | | | (15,612) | |
Net real estate | | — | | | 26,248 | |
| | | | |
| | | | |
| | | | |
Intangible assets, net | | — | | | 215 | |
| | | | |
Other assets, net | | — | | | 3,892 | |
Total assets | | $ | — | | | $ | 30,355 | |
Liabilities | | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Deferred revenue | | — | | | 401 | |
Total liabilities | | $ | — | | | $ | 401 | |
NOTE 20.19. Concentration of Credit Risk
Concentrations of credit risk arise when one or more tenants, operators, or obligors related to the Company’s investments are engaged in similar business activities or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. The Company regularly monitors various segments of its portfolio to assess potential concentrations of credit risks.
The following table provides information regarding the Company’s concentrations with respect to certain states; the information provided is presented for the gross assets and revenues that are associated with certain real estate assets as percentages of totalthe Company’s total assets and revenues, excluding assets classified as discontinued operations:
| | | | Percentage of Total Company Assets | | Percentage of Total Company Revenues | | | Percentage of Total Company Assets | | Percentage of Total Company Revenues |
| | | December 31, | | Year Ended December 31, | | | December 31, | | Year Ended December 31, |
State | State | | 2020 | | 2019 | | 2020 | | 2019 | | 2018 | State | | 2023 | | 2022 | | 2023 | | 2022 | | 2021 |
California | California | | 30 | | 31 | | 21 | | 22 | | 22 | California | | 38 | | 37 | | 31 | | 28 |
Florida | Florida | | 10 | | 2 | | 14 | | 2 | | 2 | Florida | | 10 | | 18 | | 17 |
Texas | | Texas | | 10 | | 11 |
Massachusetts | | Massachusetts | | 17 | | 11 | | 10 | | 9 |
|
The following table provides information regardingCompany’s rental revenue is generated from multiple tenants across its diverse portfolio. As of December 31, 2023, the Company’s concentrations with respect to certain states from assets classified as discontinued operations:largest tenant in its outpatient medical and lab segments accounted for 8% and 2%, respectively, of the Company’s total revenues.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Percentage of Total Company Assets | | Percentage of Total Company Revenues |
| | December 31, | | Year Ended December 31, |
State | | 2020 | | 2019 | | 2020 | | 2019 | | 2018 |
California | | 4 | | 6 | | 6 | | 6 | | 4 |
Florida | | 4 | | 6 | | 6 | | 7 | | 7 |
| | | | | | | | | | |
NOTE 21.20. Fair Value Measurements
Financial assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheets are immaterial at December 31, 2020.
The table below summarizes the carrying amounts and fair values of the Company’s financial instruments either recorded or disclosed on a recurring basis (in thousands):
| | | December 31, | | December 31, |
| | 2020(3) | | 2019(3) | | 2023(3) | | 2022(3) |
| | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
Loans receivable, net(2) | Loans receivable, net(2) | $ | 195,375 | | | $ | 201,228 | | | $ | 190,579 | | | $ | 190,579 | |
Marketable debt securities(2) | Marketable debt securities(2) | 20,355 | | | 20,355 | | | 19,756 | | | 19,756 | |
Interest rate swap instruments(2) | |
| Bank line of credit and commercial paper(2) | Bank line of credit and commercial paper(2) | 129,590 | | | 129,590 | | | 93,000 | | | 93,000 | |
Term loan(2) | 249,182 | | | 249,182 | | | 248,942 | | | 248,942 | |
| Bank line of credit and commercial paper(2) | |
| Bank line of credit and commercial paper(2) | |
Term loans(2) | |
Senior unsecured notes(1) | Senior unsecured notes(1) | 5,697,586 | | | 6,517,650 | | | 5,647,993 | | | 6,076,150 | |
Mortgage debt(2)(4) | 221,621 | | | 221,181 | | | 12,317 | | | 12,201 | |
Mortgage debt(2) | |
| Interest-rate swap liabilities(2) | 81 | | | 81 | | | 553 | | | 553 | |
| |
(1)Level 1: Fair value is calculated based on quoted prices in active markets.
(2)Level 2: Fair value is based on (i) for loans receivable, net, interest rate swap instruments, and mortgage debt, standardized pricing models in which significant inputs or value drivers are observable in active markets, respectively, or (ii) for marketable debt securities, quoted prices for similar or identical instruments in active or inactive markets, respectively, or (ii) for loans receivable, net, mortgage debt, and swaps, standardized pricing models in which significant inputs or value drivers are observable in active markets. For bank line of credit, commercial paper, and term loans, the carrying values are a reasonable estimate of fair value because the borrowings are primarily based on market interest rates and the Company’s credit rating.
(3)During the years ended December 31, 20202023 and 2019,2022, there were no material transfers of financial assets or liabilities within the fair value hierarchy.
NOTE 22.21. Derivative Financial Instruments
The following table summarizes the Company’s outstanding swap contracts as of December 31, 2020 (dollars in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Date Entered | | Maturity Date | | Hedge Designation | | Notional | | Pay Rate | | Receive Rate | | Fair Value(1) |
Interest rate: | | | | | | | | | | | | |
August 2020(2) | | August 2025 | | Cash Flow | | $ | 35,627 | | | 0.33% | | USD-SIFMA Municipal Swap Index | | $ | (81) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
_____________________________
(1)Derivative liabilities are recorded in liabilities related to assets held for sale and discontinued operations, net on the consolidated balance sheets.
(2)Represents 2 interest-rate swap contracts, which hedge fluctuations in interest payments on variable-rate secured debt due to overall changes in hedged cash flows.
The Company uses derivative instruments to mitigate the effects of interest rate fluctuations on specific forecasted transactions as well as recognized financial obligations or assets. Utilizing derivative instruments allows the Company to manage the risk of fluctuations in interest rates and their related to the potential impact these changes could have on future earnings and forecasted cash flows. The Company does not use derivative instruments for speculative or trading purposes. AssumingAt December 31, 2023, a one percentage point shiftincrease or decrease in the underlying interest rate curve would result in a corresponding increase or decrease in the estimatedfair value of the derivative instruments by up to $18 million.
In April 2021, the Company executed two interest rate cap instruments on $142 million of variable rate mortgage debt secured by a portfolio of outpatient medical buildings (see Note 10). During the year ended December 31, 2022, the Company recognized a $2 million increase in the fair value of the interest rate cap instruments within other income (expense), net. In April 2022, the Company terminated these interest rate cap instruments and entered into two interest rate swap instruments that are designated as cash flow hedges and mature in May 2026. In February 2023, the Company modified these two interest rate swap instruments to reflect the change in the related variable rate mortgage debt’s interest rate benchmarks from LIBOR to SOFR (see Note 10). The Company applied certain practical expedients provided by the reference rate reform ASUs in connection with the modifications to these cash flow hedges (see Note 2).
In August 2022, the Company entered into two forward-starting interest rate swap instruments on the $500 million aggregate principal amount of the Term Loan Facilities (see Note 10). The interest rate swap instruments are designated as cash flow hedges.
The following table summarizes the Company’s interest rate swap instruments (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Fair Value(2) |
Date Entered | Maturity Date | Hedge Designation | Notional Amount | Pay Rate(1) | Receive Rate(1) | December 31, 2023 | | December 31, 2022 |
| | | | | | | | |
April 2022(3) | May 2026 | Cash flow | $ | 51,100 | | 4.99 % | USD-SOFR w/ -5 Day Lookback + 2.50% | $ | 1,602 | | | $ | 2,300 | |
April 2022(3) | May 2026 | Cash flow | 91,000 | | 4.54 % | USD-SOFR w/ -5 Day Lookback + 2.05% | 2,851 | | | 4,096 | |
August 2022(3) | February 2027 | Cash flow | 250,000 | | 2.60 % | 1 mo. USD-SOFR CME Term | 7,933 | | | 11,299 | |
August 2022(3) | August 2027 | Cash flow | 250,000 | | 2.54 % | 1 mo. USD-SOFR CME Term | 8,973 | | | 12,564 | |
| | | | | | | | |
_____________________________
(1)Pay rates and receive rates are as of December 31, 2023. As of December 31, 2022, the interest rate swap instrument with a $51 million notional amount had a pay rate of 5.08% and a receive rate of 1 mo. USD-LIBOR-BBA + 2.50%. As of December 31, 2022, the interest rate swap instrument with a $91 million notional amount had a pay rate of 4.63% and a receive rate of 1 mo. USD-LIBOR-BBA + 2.05%.
(2)At each of December 31, 2023 and 2022, the interest rate swap instruments were in an asset position. Derivative assets are recorded at fair value in other assets, net on the Consolidated Balance Sheets.
(3)Represents interest rate swap instruments that hedge fluctuations in interest payments on variable rate debt by converting the interest rates to fixed interest rates. The changes in fair value of each of the underlying derivative instruments would not exceed $1 million.
In conjunction with the sale of the Aegis NNN Portfolio (see Note 5)designated derivatives that qualify as cash flow hedges are recorded in December 2020, the Company paid off $6 million of variable rate secured debt and terminated the related interest-rate swap contract.
On June 29, 2018, concurrent with closing the U.K. JV transaction, the Company terminated a cross currency swap contract, which was designated as a hedge of the Company’s net investment in the U.K. As such, upon deconsolidation of the U.K. Portfolio, the Company reclassified the $6 million loss inaccumulated other comprehensive income related to the cross currency swap through gain (loss) on salesthe Consolidated Balance Sheets.
In January 2024, the Company entered into forward-starting interest rate swap instruments that will effectively establish a fixed interest rate on the $750 million aggregate principal amount of real estate, net.
Concurrent with the sale2024 Term Loan at a blended contractual rate of its remaining interest in the U.K. JV in December 20194.5% (see Note 9), the Company paid-off the remainder of its GBP-denominated borrowings under the Revolving Facility and terminated its previously-designated net investment hedge.10). The interest rate swap instruments are designated as cash flow hedges.
NOTE 23.22. Accounts Payable, Accrued Liabilities, and Other Liabilities
The following table summarizes the Company’s accounts payable, accrued liabilities, and other liabilities excluding accounts payable, accrued liabilities, and other liabilities related to assets classified as discontinued operations (in thousands):
| | December 31, | | | December 31, |
| 2023 | | | 2023 | | 2022 |
Refundable entrance fees | |
Accrued construction costs | |
Accrued interest | |
| | December 31, |
| 2020 | | 2019 |
Accrued interest | $ | 78,735 | | | | $ | 69,960 | |
Construction related accrued liabilities | 95,293 | | | 117,048 | |
Refundable entrance fees | 317,444 | | | 0 | |
Other accounts payable and accrued liabilities | |
Other accounts payable and accrued liabilities | |
Other accounts payable and accrued liabilities | Other accounts payable and accrued liabilities | 271,919 | | | 270,524 | |
Accounts payable, accrued liabilities, and other liabilities | Accounts payable, accrued liabilities, and other liabilities | $ | 763,391 | | | $ | 457,532 | |
NOTE 24. Selected Quarterly Financial Data (Unaudited)
The following table summarizes selected quarterly information for the years ended December 31, 2020 and 2019 (in thousands, except per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended 2020 |
| March 31 | | June 30 | | September 30 | | December 31 |
Total revenues | $ | 381,054 | | | $ | 408,559 | | | $ | 423,565 | | | $ | 431,697 | |
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | 128,410 | | | 78,182 | | | 13,957 | | | (2,866) | |
Income (loss) from continuing operations | 147,132 | | | 60,341 | | | (27,762) | | | (19,204) | |
Income (loss) from discontinued operations | 135,408 | | | (5,292) | | | (31,819) | | | 169,449 | |
Net income (loss) | 282,540 | | | 55,049 | | | (59,581) | | | 150,245 | |
Net income (loss) applicable to Healthpeak Properties, Inc. | 279,080 | | | 51,506 | | | (63,417) | | | 146,394 | |
Dividends paid per common share | 0.37 | | | 0.37 | | | 0.37 | | | 0.37 | |
Basic earnings (loss) per common share: | | | | | | | |
Continuing operations | 0.28 | | | 0.10 | | | (0.06) | | | (0.04) | |
Discontinued operations | 0.27 | | | (0.01) | | | (0.06) | | | 0.31 | |
Diluted earnings (loss) per common share: | | | | | | | |
Continuing operations | 0.28 | | | 0.10 | | | (0.06) | | | (0.04) | |
Discontinued operations | 0.26 | | | (0.01) | | | (0.06) | | | 0.31 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended 2019 |
| March 31 | | June 30 | | September 30 | | December 31 |
Total revenues | $ | 293,303 | | | $ | 307,037 | | | $ | 321,079 | | | $ | 318,920 | |
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | 20,345 | | | 25,708 | | | (19,062) | | | 149,329 | |
Income (loss) from continuing operations | 22,517 | | | 24,052 | | | (24,420) | | | 153,320 | |
Income (loss) from discontinued operations | 42,473 | | | (34,032) | | | (17,888) | | | (105,961) | |
Net income (loss) | 64,990 | | | (9,980) | | | (42,308) | | | 47,359 | |
Net income (loss) applicable to Healthpeak Properties, Inc. | 61,470 | | | (13,597) | | | (45,863) | | | 43,520 | |
Dividends paid per common share | 0.37 | | | 0.37 | | | 0.37 | | | 0.37 | |
Basic earnings (loss) per common share: | | | | | | | |
Continuing operations | 0.04 | | | 0.04 | | | (0.06) | | | 0.30 | |
Discontinued operations | 0.09 | | | (0.07) | | | (0.03) | | | (0.21) | |
Diluted earnings (loss) per common share: | | | | | | | |
Continuing operations | 0.04 | | | 0.04 | | | (0.06) | | | 0.30 | |
Discontinued operations | 0.09 | | | (0.07) | | | (0.03) | | | (0.21) | |
NOTE 23. Deferred RevenueThe following table summarizes the Company’s deferred revenue, excluding deferred revenue related to assets classified as held for sale (in thousands):
| | | | | | | | | | | |
| December 31, |
| 2023 | | 2022 |
Nonrefundable entrance fees(1) | $ | 562,026 | | | $ | 518,573 | |
| | | |
Other deferred revenue(2) | 343,607 | | | 325,503 | |
Deferred revenue | $ | 905,633 | | | $ | 844,076 | |
(1)During the years ended December 31, 2023 and 2022, the Company collected nonrefundable entrance fees of $127 million and $101 million, respectively. During the years ended December 31, 2023, 2022, and 2021, the Company recognized amortization of $83 million, $79 million, and $76 million, respectively, which is included within resident fees and services on the Consolidated Statements of Operations.
(2)Other deferred revenue is primarily comprised of prepaid rent, deferred rent, and tenant-funded tenant improvements owned by the Company. During the years ended December 31, 2023, 2022, and 2021, the Company recognized amortization related to other deferred revenue of $68 million, $44 million, and $39 million, respectively, which is included in rental and related revenues on the Consolidated Statements of Operations.
Schedule II: Valuation and Qualifying Accounts
(Dollars inIn thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance Accounts(1) | | | | Additions | | Deductions | | |
Year Ended December 31, | | Balance at Beginning of Year | | Amounts Charged Against Operations, net | | Acquired Properties | | Uncollectible Accounts Written-off | | Dispositions | | Balance at End of Year |
Continuing operations: |
2020 | | $ | 387 | | | $ | 76 | | | $ | 3,531 | | | $ | 0 | | | $ | 0 | | | $ | 3,994 | |
2019(2) | | 146 | | | (146) | | | 387 | | | 0 | | | 0 | | | 387 | |
2018 | | 142,940 | | | 3,366 | | | 0 | | | (1,887) | | | (143,795) | | | 624 | |
Discontinued operations: |
2020 | | $ | 4,178 | | | $ | 1,026 | | | $ | 175 | | | $ | 0 | | | $ | 494 | | | $ | 5,873 | |
2019(2) | | 2,255 | | | 1,695 | | | 928 | | | 0 | | | (700) | | | 4,178 | |
2018 | | 26,434 | | | 739 | | | 0 | | | 0 | | | 0 | | | 27,173 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Allowance Accounts(1) | | | | Additions | | | | | | |
Year Ended December 31, | | Balance at Beginning of Year | | Amounts Charged Against Operations, net | | Acquired Properties | | | | Deductions(2) | | Balance at End of Year |
Continuing operations: |
2023 | | $ | 2,399 | | | $ | — | | | $ | — | | | | | $ | (117) | | | $ | 2,282 | |
2022 | | 1,870 | | | 529 | | | — | | | | | — | | | 2,399 | |
2021 | | 3,994 | | | — | | | — | | | | | (2,124) | | | 1,870 | |
Discontinued operations: |
2023 | | $ | — | | | $ | — | | | $ | — | | | | | $ | — | | | $ | — | |
2022 | | 4,138 | | | — | | | — | | | | | (4,138) | | | — | |
2021 | | 5,873 | | | 46 | | | — | | | | | (1,781) | | | 4,138 | |
(1)Includes allowance for doubtful accounts and straight-line rent reserves.accounts. Excludes reserves for loan losses which are disclosed in Note 87 to the Consolidated Financial Statements.
(2)In conjunction with adopting ASU 2016-02 (see Note 2 toPrimarily includes the Consolidated Financial Statements) on January 1, 2019, the Company wrote-off certain previously reserved tenant receivables (accounts receivablewrite-off of uncollectible accounts, dispositions, and straight-line rent receivable). These amounts are includedother net reductions in the end of year balance for 2018, but removed from the beginning of the year balance for 2019.
reserves.
Schedule III: Real Estate and Accumulated Depreciation
(Dollars in thousands)
| | | | | | | Encumbrances at December 31, 2020 | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at Which Carried As of December 31, 2020 | | Accumulated Depreciation(2) | | Year Acquired/ Constructed | | |
| City | | State | | | Land | | Buildings and Improvements | | Land | | Buildings and Improvements | | Total(1) | |
Continuing operations: | | |
Life science | | |
| | | | | | Encumbrances at December 31, 2023 | |
| | | | | | Encumbrances at December 31, 2023 | |
| | | | | | Encumbrances at December 31, 2023 | |
| | City | |
| | City | |
| | City | |
Lab | |
Lab | |
Lab | |
1483 | |
1483 | |
1483 | 1483 | | Brisbane | | CA | | $ | 0 | | | $ | 8,498 | | | $ | 500 | | | $ | 34,889 | | | $ | 8,498 | | | $ | 35,389 | | | $ | 43,887 | | | $ | 0 | | | 2007 | | |
1484 | 1484 | | Brisbane | | CA | | 0 | | | 11,331 | | | 689 | | | 186,573 | | | 11,331 | | | 187,262 | | | 198,593 | | | 0 | | | 2007 | | |
1484 | |
1484 | |
1485 | |
1485 | |
1485 | 1485 | | Brisbane | | CA | | 0 | | | 11,331 | | | 600 | | | 12,287 | | | 11,331 | | | 12,886 | | | 24,217 | | | 0 | | | 2007 | | |
1486 | 1486 | | Brisbane | | CA | | 0 | | | 11,331 | | | 0 | | | 135,563 | | | 11,331 | | | 135,563 | | | 146,894 | | | (5,144) | | | 2020 | | |
1486 | |
1486 | |
1487 | |
1487 | |
1487 | 1487 | | Brisbane | | CA | | 0 | | | 8,498 | | | 0 | | | 76,313 | | | 8,498 | | | 76,313 | | | 84,811 | | | 0 | | | 2020 | | |
2874 | 2874 | | Brisbane | | CA | | 0 | | | 64,186 | | | 62,318 | | | 7,746 | | | 64,186 | | | 69,954 | | | 134,140 | | | (4,177) | | | 2019 | | |
2874 | |
2874 | |
2875 | 2875 | | Brisbane | | CA | | 0 | | | 58,410 | | | 56,623 | | | 2,320 | | | 58,410 | | | 58,933 | | | 117,343 | | | (4,102) | | | 2019 | | |
2875 | |
2875 | |
3139 | |
3139 | |
3139 | |
3140 | |
3140 | |
3140 | |
3142 | |
3142 | |
3142 | |
1401 | |
1401 | |
1401 | 1401 | | Hayward | | CA | | 0 | | | 900 | | | 7,100 | | | 2,054 | | | 1,244 | | | 7,957 | | | 9,201 | | | (2,652) | | | 2007 | | |
1402 | 1402 | | Hayward | | CA | | 0 | | | 1,500 | | | 6,400 | | | 4,305 | | | 1,719 | | | 6,812 | | | 8,531 | | | (2,151) | | | 2007 | | |
1402 | |
1402 | |
1403 | |
1403 | |
1403 | 1403 | | Hayward | | CA | | 0 | | | 1,900 | | | 7,100 | | | 10,343 | | | 1,900 | | | 15,738 | | | 17,638 | | | (4,208) | | | 2007 | | |
1404 | 1404 | | Hayward | | CA | | 0 | | | 2,200 | | | 17,200 | | | 3,872 | | | 2,200 | | | 21,072 | | | 23,272 | | | (6,281) | | | 2007 | | |
1404 | |
1404 | |
1405 | |
1405 | |
1405 | 1405 | | Hayward | | CA | | 0 | | | 1,000 | | | 3,200 | | | 8,110 | | | 1,000 | | | 3,837 | | | 4,837 | | | (1,093) | | | 2007 | | |
1549 | 1549 | | Hayward | | CA | | 0 | | | 1,006 | | | 4,259 | | | 4,494 | | | 1,055 | | | 6,463 | | | 7,518 | | | (2,909) | | | 2007 | | |
1549 | |
1549 | |
1550 | |
1550 | |
1550 | 1550 | | Hayward | | CA | | 0 | | | 677 | | | 2,761 | | | 5,837 | | | 710 | | | 3,057 | | | 3,767 | | | (1,825) | | | 2007 | | |
1551 | 1551 | | Hayward | | CA | | 0 | | | 661 | | | 1,995 | | | 4,632 | | | 693 | | | 2,408 | | | 3,101 | | | (1,246) | | | 2007 | | |
1551 | |
1551 | |
1552 | |
1552 | |
1552 | 1552 | | Hayward | | CA | | 0 | | | 1,187 | | | 7,139 | | | 2,543 | | | 1,222 | | | 8,539 | | | 9,761 | | | (3,978) | | | 2007 | | |
1553 | 1553 | | Hayward | | CA | | 0 | | | 1,189 | | | 9,465 | | | 7,361 | | | 1,225 | | | 16,229 | | | 17,454 | | | (8,783) | | | 2007 | | |
1553 | |
1553 | |
1554 | |
1554 | |
1554 | 1554 | | Hayward | | CA | | 0 | | | 1,246 | | | 5,179 | | | 3,560 | | | 1,283 | | | 6,942 | | | 8,225 | | | (3,180) | | | 2007 | | |
1555 | 1555 | | Hayward | | CA | | 0 | | | 1,521 | | | 13,546 | | | 6,982 | | | 1,566 | | | 20,423 | | | 21,989 | | | (10,537) | | | 2007 | | |
1555 | |
1555 | |
1556 | |
1556 | |
1556 | 1556 | | Hayward | | CA | | 0 | | | 1,212 | | | 5,120 | | | 4,666 | | | 1,249 | | | 6,797 | | | 8,046 | | | (3,209) | | | 2007 | | |
1424 | 1424 | | La Jolla | | CA | | 0 | | | 9,600 | | | 25,283 | | | 15,758 | | | 9,719 | | | 36,698 | | | 46,417 | | | (10,356) | | | 2007 | | |
1424 | |
1424 | |
1425 | |
1425 | |
1425 | 1425 | | La Jolla | | CA | | 0 | | | 6,200 | | | 19,883 | | | 1,661 | | | 6,276 | | | 21,376 | | | 27,652 | | | (7,245) | | | 2007 | | |
1426 | 1426 | | La Jolla | | CA | | 0 | | | 7,200 | | | 12,412 | | | 14,237 | | | 7,287 | | | 23,209 | | | 30,496 | | | (9,536) | | | 2007 | | |
1426 | |
1426 | |
1427 | |
1427 | |
1427 | 1427 | | La Jolla | | CA | | 0 | | | 8,700 | | | 16,983 | | | 8,261 | | | 8,767 | | | 22,714 | | | 31,481 | | | (9,812) | | | 2007 | | |
1949 | 1949 | | La Jolla | | CA | | 0 | | | 2,686 | | | 11,045 | | | 12,349 | | | 2,686 | | | 22,956 | | | 25,642 | | | (3,873) | | | 2011 | | |
1949 | |
1949 | |
2229 | |
2229 | |
2229 | 2229 | | La Jolla | | CA | | 0 | | | 8,753 | | | 32,528 | | | 10,295 | | | 8,777 | | | 42,351 | | | 51,128 | | | (8,871) | | | 2014 | | |
1470 | 1470 | | Poway | | CA | | 0 | | | 5,826 | | | 12,200 | | | 6,048 | | | 5,826 | | | 12,542 | | | 18,368 | | | (4,146) | | | 2007 | | |
1470 | |
1470 | |
1471 | |
1471 | |
1471 | 1471 | | Poway | | CA | | 0 | | | 5,978 | | | 14,200 | | | 4,253 | | | 5,978 | | | 14,200 | | | 20,178 | | | (4,763) | | | 2007 | | |
1472 | 1472 | | Poway | | CA | | 0 | | | 8,654 | | | 0 | | | 11,906 | | | 8,654 | | | 11,906 | | | 20,560 | | | (2,504) | | | 2007 | | |
1472 | |
1472 | |
1473 | |
1473 | |
1473 | 1473 | | Poway | | CA | | 0 | | | 11,024 | | | 2,405 | | | 26,607 | | | 11,024 | | | 29,013 | | | 40,037 | | | (4,830) | | | 2019 | | |
1474 | 1474 | | Poway | | CA | | 0 | | | 5,051 | | | 0 | | | 19,939 | | | 5,051 | | | 19,939 | | | 24,990 | | | (866) | | | 2019 | | |
1474 | |
1474 | |
1475 | |
1475 | |
1475 | 1475 | | Poway | | CA | | 0 | | | 5,655 | | | 0 | | | 10,302 | | | 5,655 | | | 10,302 | | | 15,957 | | | (64) | | | 2020 | | |
1478 | 1478 | | Poway | | CA | | 0 | | | 6,700 | | | 14,400 | | | 6,145 | | | 6,700 | | | 14,400 | | | 21,100 | | | (4,830) | | | 2007 | | |
1478 | |
1478 | |
1499 | |
1499 | |
1499 | 1499 | | Redwood City | | CA | | 0 | | | 3,400 | | | 5,500 | | | 2,326 | | | 3,407 | | | 6,200 | | | 9,607 | | | (2,819) | | | 2007 | | |
1500 | 1500 | | Redwood City | | CA | | 0 | | | 2,500 | | | 4,100 | | | 1,220 | | | 2,506 | | | 4,558 | | | 7,064 | | | (1,949) | | | 2007 | | |
1500 | |
1500 | |
1501 | |
1501 | |
1501 | 1501 | | Redwood City | | CA | | 0 | | | 3,600 | | | 4,600 | | | 1,783 | | | 3,607 | | | 5,940 | | | 9,547 | | | (2,259) | | | 2007 | | |
1502 | 1502 | | Redwood City | | CA | | 0 | | | 3,100 | | | 5,100 | | | 1,202 | | | 3,107 | | | 5,931 | | | 9,038 | | | (2,464) | | | 2007 | | |
1502 | |
1502 | |
1503 | |
1503 | |
1503 | 1503 | | Redwood City | | CA | | 0 | | | 4,800 | | | 17,300 | | | 4,341 | | | 4,818 | | | 19,908 | | | 24,726 | | | (6,323) | | | 2007 | | |
1504 | 1504 | | Redwood City | | CA | | 0 | | | 5,400 | | | 15,500 | | | 9,393 | | | 5,418 | | | 24,858 | | | 30,276 | | | (7,213) | | | 2007 | | |
1504 | |
1504 | |
1505 | |
1505 | |
1505 | 1505 | | Redwood City | | CA | | 0 | | | 3,000 | | | 3,500 | | | 1,318 | | | 3,006 | | | 4,410 | | | 7,416 | | | (2,033) | | | 2007 | | |
1506 | 1506 | | Redwood City | | CA | | 0 | | | 6,000 | | | 14,300 | | | 14,666 | | | 6,018 | | | 28,323 | | | 34,341 | | | (10,101) | | | 2007 | | |
1506 | |
1506 | |
1507 | |
1507 | |
1507 | 1507 | | Redwood City | | CA | | 0 | | | 1,900 | | | 12,800 | | | 17,586 | | | 1,912 | | | 26,081 | | | 27,993 | | | (7,265) | | | 2007 | | |
1508 | 1508 | | Redwood City | | CA | | 0 | | | 2,700 | | | 11,300 | | | 21,873 | | | 2,712 | | | 27,599 | | | 30,311 | | | (4,771) | | | 2007 | | |
1508 | |
1508 | |
1509 | |
1509 | |
1509 | 1509 | | Redwood City | | CA | | 0 | | | 2,700 | | | 10,900 | | | 10,476 | | | 2,712 | | | 16,114 | | | 18,826 | | | (6,722) | | | 2007 | | |
1510 | 1510 | | Redwood City | | CA | | 0 | | | 2,200 | | | 12,000 | | | 10,584 | | | 2,212 | | | 18,660 | | | 20,872 | | | (5,030) | | | 2007 | | |
1510 | |
1510 | |
1511 | |
1511 | |
1511 | 1511 | | Redwood City | | CA | | 0 | | | 2,600 | | | 9,300 | | | 21,480 | | | 2,612 | | | 30,156 | | | 32,768 | | | (4,430) | | | 2007 | | |
1512 | 1512 | | Redwood City | | CA | | 0 | | | 3,300 | | | 18,000 | | | 12,434 | | | 3,300 | | | 30,406 | | | 33,706 | | | (13,158) | | | 2007 | | |
1512 | |
1512 | |
1513 | |
1513 | |
1513 | 1513 | | Redwood City | | CA | | 0 | | | 3,300 | | | 17,900 | | | 15,663 | | | 3,326 | | | 29,671 | | | 32,997 | | | (11,980) | | | 2007 | | |
678 | 678 | | San Diego | | CA | | 0 | | | 2,603 | | | 11,051 | | | 3,166 | | | 2,603 | | | 14,217 | | | 16,820 | | | (5,740) | | | 2002 | | |
678 | |
678 | |
679 | |
679 | |
679 | 679 | | San Diego | | CA | | 0 | | | 5,269 | | | 23,566 | | | 29,989 | | | 5,669 | | | 49,855 | | | 55,524 | | | (16,747) | | | 2002 | | |
837 | 837 | | San Diego | | CA | | 0 | | | 4,630 | | | 2,028 | | | 9,120 | | | 4,630 | | | 5,213 | | | 9,843 | | | (1,809) | | | 2006 | | |
837 | |
837 | |
838 | |
838 | |
838 | 838 | | San Diego | | CA | | 0 | | | 2,040 | | | 903 | | | 5,253 | | | 2,040 | | | 4,203 | | | 6,243 | | | (982) | | | 2006 | | |
839 | 839 | | San Diego | | CA | | 0 | | | 3,940 | | | 3,184 | | | 6,849 | | | 4,047 | | | 5,499 | | | 9,546 | | | (1,645) | | | 2006 | | |
839 | |
839 | |
840 | |
840 | |
840 | 840 | | San Diego | | CA | | 0 | | | 5,690 | | | 4,579 | | | 789 | | | 5,830 | | | 4,802 | | | 10,632 | | | (2,084) | | | 2006 | | |
1418 | 1418 | | San Diego | | CA | | 0 | | | 11,700 | | | 31,243 | | | 23,331 | | | 11,700 | | | 48,212 | | | 59,912 | | | (9,190) | | | 2007 | | |
1418 | |
1418 | |
1419 | |
1419 | |
1419 | 1419 | | San Diego | | CA | | 0 | | | 2,324 | | | 0 | | | 13,394 | | | 2,324 | | | 13,394 | | | 15,718 | | | 0 | | | 2007 | | |
1420 | 1420 | | San Diego | | CA | | 0 | | | 4,200 | | | 0 | | | 19,143 | | | 4,200 | | | 19,143 | | | 23,343 | | | 0 | | | 2007 | | |
1420 | |
1420 | |
1421 | |
1421 | |
1421 | 1421 | | San Diego | | CA | | 0 | | | 7,000 | | | 33,779 | | | 1,209 | | | 7,000 | | | 34,988 | | | 41,988 | | | (12,176) | | | 2007 | | |
1422 | 1422 | | San Diego | | CA | | 0 | | | 7,179 | | | 3,687 | | | 5,090 | | | 7,336 | | | 8,581 | | | 15,917 | | | (4,194) | | | 2007 | | |
1422 | |
1422 | |
1423 | 1423 | | San Diego | | CA | | 0 | | | 8,400 | | | 33,144 | | | 31,897 | | | 8,400 | | | 65,033 | | | 73,433 | | | (11,140) | | | 2007 | | |
1514 | | San Diego | | CA | | 0 | | | 5,200 | | | 0 | | | 0 | | | 5,200 | | | 0 | | | 5,200 | | | 0 | | | 2007 | | |
1423 | |
1423 | |
| 1558 | |
| 1558 | |
| 1558 | 1558 | | San Diego | | CA | | 0 | | | 7,740 | | | 22,654 | | | 5,742 | | | 7,888 | | | 12,308 | | | 20,196 | | | (9,197) | | | 2007 | | |
1947 | 1947 | | San Diego | | CA | | 0 | | | 2,581 | | | 10,534 | | | 4,231 | | | 2,581 | | | 14,765 | | | 17,346 | | | (5,461) | | | 2011 | | |
1947 | |
1947 | |
1948 | |
1948 | |
1948 | 1948 | | San Diego | | CA | | 0 | | | 5,879 | | | 25,305 | | | 8,843 | | | 5,879 | | | 31,843 | | | 37,722 | | | (8,548) | | | 2011 | | |
2197 | 2197 | | San Diego | | CA | | 0 | | | 7,621 | | | 3,913 | | | 8,711 | | | 7,626 | | | 11,328 | | | 18,954 | | | (4,360) | | | 2007 | | |
2197 | |
2197 | |
2476 | |
2476 | |
2476 | 2476 | | San Diego | | CA | | 0 | | | 7,661 | | | 9,918 | | | 13,740 | | | 7,661 | | | 23,659 | | | 31,320 | | | (221) | | | 2016 | | |
2477 | 2477 | | San Diego | | CA | | 0 | | | 9,207 | | | 14,613 | | | 6,558 | | | 9,207 | | | 21,171 | | | 30,378 | | | (4,054) | | | 2016 | | |
2477 | |
2477 | |
2478 | |
2478 | |
2478 | 2478 | | San Diego | | CA | | 0 | | | 6,000 | | | 0 | | | 2,738 | | | 6,000 | | | 2,738 | | | 8,738 | | | 0 | | | 2016 | | |
2617 | 2617 | | San Diego | | CA | | 0 | | | 2,734 | | | 5,195 | | | 16,693 | | | 2,734 | | | 21,889 | | | 24,623 | | | (1,594) | | | 2017 | | |
2617 | |
2617 | |
2618 | |
2618 | |
2618 | 2618 | | San Diego | | CA | | 0 | | | 4,100 | | | 12,395 | | | 22,736 | | | 4,100 | | | 35,131 | | | 39,231 | | | (3,286) | | | 2017 | | |
2622 | 2622 | | San Diego(3) | | CA | | 0 | | | 0 | | | 0 | | | 17,012 | | | 0 | | | 17,012 | | | 17,012 | | | (359) | | | 2020 | | |
2622 | |
2622 | |
2872 | |
2872 | |
2872 | 2872 | | San Diego | | CA | | 0 | | | 10,120 | | | 38,351 | | | 1,044 | | | 10,120 | | | 39,996 | | | 50,116 | | | (3,835) | | | 2018 | | |
2873 | 2873 | | San Diego | | CA | | 0 | | | 6,052 | | | 14,122 | | | 1,069 | | | 6,052 | | | 15,406 | | | 21,458 | | | (1,405) | | | 2018 | | |
3069 | | San Diego | | CA | | 0 | | | 7,054 | | | 7,794 | | | 13,477 | | | 7,054 | | | 21,035 | | | 28,089 | | | (305) | | | 2019 | | |
1407 | | South San Francisco | | CA | | 0 | | | 7,182 | | | 12,140 | | | 10,608 | | | 7,186 | | | 13,990 | | | 21,176 | | | (4,990) | | | 2007 | | |
2873 | |
2873 | |
| | | | | | | Encumbrances at December 31, 2023 | |
| | | | | | Encumbrances at December 31, 2023 | |
| | | | | | Encumbrances at December 31, 2023 | |
| | City | |
| | City | |
| | City | |
3069 | |
3069 | |
3069 | |
3104 | |
3104 | |
3104 | |
3110 | |
3110 | |
3110 | |
3111 | |
3111 | |
3111 | |
3153 | |
3153 | |
3153 | |
| | | | | | | | Encumbrances at December 31, 2020 | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at Which Carried As of December 31, 2020 | | Accumulated Depreciation(2) | | Year Acquired/ Constructed | | |
| | City | | State | | | Land | | Buildings and Improvements | | Land | | Buildings and Improvements | | Total(1) | |
1408 | | South San Francisco | | CA | | 0 | | | 9,000 | | | 17,800 | | | 1,498 | | | 9,000 | | | 18,275 | | | 27,275 | | | (6,241) | | | 2007 | | |
1409 | | South San Francisco | | CA | | 0 | | | 18,000 | | | 38,043 | | | 4,703 | | | 18,000 | | | 42,746 | | | 60,746 | | | (15,096) | | | 2007 | | |
1410 | |
| 1410 | |
| 1410 | 1410 | | South San Francisco | | CA | | 0 | | | 4,900 | | | 18,100 | | | 12,945 | | | 4,900 | | | 30,956 | | | 35,856 | | | (8,433) | | | 2007 | | |
1411 | 1411 | | South San Francisco | | CA | | 0 | | | 8,000 | | | 27,700 | | | 34,398 | | | 8,000 | | | 62,014 | | | 70,014 | | | (11,551) | | | 2007 | | |
1411 | |
1411 | |
1412 | |
1412 | |
1412 | 1412 | | South San Francisco | | CA | | 0 | | | 10,100 | | | 22,521 | | | 4,128 | | | 10,100 | | | 26,409 | | | 36,509 | | | (8,962) | | | 2007 | | |
1413 | 1413 | | South San Francisco | | CA | | 0 | | | 8,000 | | | 28,299 | | | 8,561 | | | 8,000 | | | 36,860 | | | 44,860 | | | (11,742) | | | 2007 | | |
1414 | | South San Francisco | | CA | | 0 | | | 3,700 | | | 20,800 | | | 2,248 | | | 3,700 | | | 22,845 | | | 26,545 | | | (8,714) | | | 2007 | | |
1413 | |
1413 | |
| 1430 | |
| 1430 | |
| 1430 | 1430 | | South San Francisco | | CA | | 0 | | | 10,700 | | | 23,621 | | | 23,711 | | | 10,700 | | | 44,738 | | | 55,438 | | | (7,870) | | | 2007 | | |
1431 | 1431 | | South San Francisco | | CA | | 0 | | | 7,000 | | | 15,500 | | | 10,057 | | | 7,000 | | | 25,497 | | | 32,497 | | | (6,667) | | | 2007 | | |
1431 | |
1431 | |
1435 | |
1435 | |
1435 | 1435 | | South San Francisco | | CA | | 0 | | | 13,800 | | | 42,500 | | | 37,058 | | | 13,800 | | | 79,558 | | | 93,358 | | | (28,093) | | | 2008 | | |
1436 | 1436 | | South San Francisco | | CA | | 0 | | | 14,500 | | | 45,300 | | | 36,935 | | | 14,500 | | | 82,235 | | | 96,735 | | | (28,489) | | | 2008 | | |
1436 | |
1436 | |
1437 | |
1437 | |
1437 | 1437 | | South San Francisco | | CA | | 0 | | | 9,400 | | | 24,800 | | | 50,146 | | | 9,400 | | | 73,376 | | | 82,776 | | | (26,463) | | | 2008 | | |
1439 | 1439 | | South San Francisco | | CA | | 0 | | | 11,900 | | | 68,848 | | | 444 | | | 11,900 | | | 69,291 | | | 81,191 | | | (23,126) | | | 2007 | | |
1439 | |
1439 | |
1440 | |
1440 | |
1440 | 1440 | | South San Francisco | | CA | | 0 | | | 10,000 | | | 57,954 | | | 400 | | | 10,000 | | | 58,354 | | | 68,354 | | | (19,474) | | | 2007 | | |
1441 | 1441 | | South San Francisco | | CA | | 0 | | | 9,300 | | | 43,549 | | | 8 | | | 9,300 | | | 43,557 | | | 52,857 | | | (14,611) | | | 2007 | | |
1441 | |
1441 | |
1442 | |
1442 | |
1442 | 1442 | | South San Francisco | | CA | | 0 | | | 11,000 | | | 47,289 | | | 91 | | | 11,000 | | | 47,380 | | | 58,380 | | | (15,940) | | | 2007 | | |
1443 | 1443 | | South San Francisco | | CA | | 0 | | | 13,200 | | | 60,932 | | | 2,642 | | | 13,200 | | | 63,574 | | | 76,774 | | | (21,733) | | | 2007 | | |
1443 | |
1443 | |
1444 | |
1444 | |
1444 | 1444 | | South San Francisco | | CA | | 0 | | | 10,500 | | | 33,776 | | | 923 | | | 10,500 | | | 34,699 | | | 45,199 | | | (11,675) | | | 2007 | | |
1445 | 1445 | | South San Francisco | | CA | | 0 | | | 10,600 | | | 34,083 | | | 9 | | | 10,600 | | | 34,092 | | | 44,692 | | | (11,436) | | | 2007 | | |
1445 | |
1445 | |
1458 | |
1458 | |
1458 | 1458 | | South San Francisco | | CA | | 0 | | | 10,900 | | | 20,900 | | | 8,917 | | | 10,909 | | | 21,689 | | | 32,598 | | | (7,305) | | | 2007 | | |
1459 | 1459 | | South San Francisco | | CA | | 0 | | | 3,600 | | | 100 | | | 5,533 | | | 3,600 | | | 5,633 | | | 9,233 | | | (94) | | | 2007 | | |
1460 | | South San Francisco | | CA | | 0 | | | 2,300 | | | 100 | | | 440 | | | 2,300 | | | 539 | | | 2,839 | | | (100) | | | 2007 | | |
1461 | | South San Francisco | | CA | | 0 | | | 3,900 | | | 200 | | | 745 | | | 3,900 | | | 945 | | | 4,845 | | | (200) | | | 2007 | | |
1459 | |
1459 | |
1462 | |
1462 | |
1462 | 1462 | | South San Francisco | | CA | | 0 | | | 7,117 | | | 600 | | | 5,877 | | | 7,117 | | | 4,692 | | | 11,809 | | | (1,286) | | | 2007 | | |
1463 | 1463 | | South San Francisco | | CA | | 0 | | | 10,381 | | | 2,300 | | | 20,929 | | | 10,381 | | | 20,881 | | | 31,262 | | | (5,922) | | | 2007 | | |
1463 | |
1463 | |
1464 | |
1464 | |
1464 | 1464 | | South San Francisco | | CA | | 0 | | | 7,403 | | | 700 | | | 11,638 | | | 7,403 | | | 7,987 | | | 15,390 | | | (2,053) | | | 2007 | | |
1468 | 1468 | | South San Francisco | | CA | | 0 | | | 10,100 | | | 24,013 | | | 15,570 | | | 10,100 | | | 35,828 | | | 45,928 | | | (9,801) | | | 2007 | | |
1468 | |
1468 | |
1480 | 1480 | | South San Francisco | | CA | | 0 | | | 32,210 | | | 3,110 | | | 28,414 | | | 32,210 | | | 31,523 | | | 63,733 | | | 0 | | | 2007 | | |
1480 | |
1480 | |
1528 | |
1528 | |
1528 | |
1559 | |
1559 | |
1559 | 1559 | | South San Francisco | | CA | | 0 | | | 5,666 | | | 5,773 | | | 12,970 | | | 5,695 | | | 18,645 | | | 24,340 | | | (15,958) | | | 2007 | | |
1560 | 1560 | | South San Francisco | | CA | | 0 | | | 1,204 | | | 1,293 | | | 2,888 | | | 1,210 | | | 3,970 | | | 5,180 | | | (1,868) | | | 2007 | | |
1560 | |
1560 | |
1983 | |
1983 | |
1983 | 1983 | | South San Francisco | | CA | | 0 | | | 8,648 | | | 0 | | | 96,095 | | | 8,648 | | | 96,095 | | | 104,743 | | | (20,291) | | | 2016 | | |
1984 | 1984 | | South San Francisco | | CA | | 0 | | | 7,845 | | | 0 | | | 90,445 | | | 7,844 | | | 90,069 | | | 97,913 | | | (16,677) | | | 2017 | | |
1984 | |
1984 | |
1985 | |
1985 | |
1985 | 1985 | | South San Francisco | | CA | | 0 | | | 6,708 | | | 0 | | | 122,721 | | | 6,708 | | | 122,721 | | | 129,429 | | | (19,127) | | | 2017 | | |
1986 | 1986 | | South San Francisco | | CA | | 0 | | | 6,708 | | | 0 | | | 108,425 | | | 6,708 | | | 108,425 | | | 115,133 | | | (13,457) | | | 2018 | | |
1986 | |
1986 | |
1987 | |
1987 | |
1987 | 1987 | | South San Francisco | | CA | | 0 | | | 8,544 | | | 0 | | | 100,645 | | | 8,544 | | | 100,645 | | | 109,189 | | | (8,701) | | | 2019 | | |
1988 | 1988 | | South San Francisco | | CA | | 0 | | | 10,120 | | | 0 | | | 119,965 | | | 10,120 | | | 119,965 | | | 130,085 | | | (10,610) | | | 2019 | | |
1988 | |
1988 | |
1989 | |
1989 | |
1989 | 1989 | | South San Francisco | | CA | | 0 | | | 9,169 | | | 0 | | | 99,636 | | | 9,169 | | | 99,636 | | | 108,805 | | | (3,904) | | | 2020 | | |
2553 | 2553 | | South San Francisco | | CA | | 0 | | | 2,897 | | | 8,691 | | | 4,663 | | | 2,897 | | | 13,354 | | | 16,251 | | | (2,511) | | | 2015 | | |
2553 | |
2553 | |
2554 | |
2554 | |
2554 | 2554 | | South San Francisco | | CA | | 0 | | | 995 | | | 2,754 | | | 2,209 | | | 995 | | | 4,963 | | | 5,958 | | | (1,040) | | | 2015 | | |
2555 | 2555 | | South San Francisco | | CA | | 0 | | | 2,202 | | | 10,776 | | | 895 | | | 2,202 | | | 11,604 | | | 13,806 | | | (1,735) | | | 2015 | | |
2555 | |
2555 | |
2556 | |
2556 | |
2556 | 2556 | | South San Francisco | | CA | | 0 | | | 2,962 | | | 15,108 | | | 1,009 | | | 2,962 | | | 16,117 | | | 19,079 | | | (2,371) | | | 2015 | | |
2557 | 2557 | | South San Francisco | | CA | | 0 | | | 2,453 | | | 13,063 | | | 3,616 | | | 2,453 | | | 16,679 | | | 19,132 | | | (3,187) | | | 2015 | | |
2557 | |
2557 | |
2558 | 2558 | | South San Francisco | | CA | | 0 | | | 1,163 | | | 5,925 | | | 338 | | | 1,163 | | | 6,263 | | | 7,426 | | | (881) | | | 2015 | | |
2614 | | South San Francisco | | CA | | 0 | | | 5,079 | | | 8,584 | | | 1,731 | | | 5,083 | | | 9,662 | | | 14,745 | | | (3,763) | | | 2007 | | |
2615 | | South San Francisco | | CA | | 0 | | | 7,984 | | | 13,495 | | | 3,243 | | | 7,988 | | | 14,809 | | | 22,797 | | | (6,010) | | | 2007 | | |
2616 | | South San Francisco | | CA | | 0 | | | 8,355 | | | 14,121 | | | 2,368 | | | 8,358 | | | 15,057 | | | 23,415 | | | (5,642) | | | 2007 | | |
2558 | |
2558 | |
| 2624 | |
| 2624 | |
| 2624 | 2624 | | South San Francisco | | CA | | 0 | | | 25,502 | | | 42,910 | | | 12,736 | | | 25,502 | | | 55,517 | | | 81,019 | | | (6,378) | | | 2017 | | |
2870 | 2870 | | South San Francisco | | CA | | 0 | | | 23,297 | | | 41,797 | | | 29,221 | | | 23,297 | | | 71,019 | | | 94,316 | | | (4,879) | | | 2018 | | |
2870 | |
2870 | |
2871 | 2871 | | South San Francisco | | CA | | 0 | | | 20,293 | | | 41,262 | | | 21,431 | | | 20,293 | | | 62,693 | | | 82,986 | | | (7,051) | | | 2018 | | |
9999 | | Denton | | TX | | 0 | | | 100 | | | 0 | | | 0 | | | 100 | | | 0 | | | 100 | | | 0 | | | 2016 | | |
2871 | |
2871 | |
3100 | |
3100 | |
3100 | |
3101 | |
3101 | |
3101 | |
3102 | |
3102 | |
3102 | |
3123 | |
3123 | |
3123 | |
2705 | |
2705 | |
2705 | 2705 | | Cambridge | | MA | | 0 | | | 24,389 | | | 128,586 | | | 0 | | | 24,389 | | | 128,586 | | | 152,975 | | | (359) | | | 2020 | | |
2706 | 2706 | | Cambridge | | MA | | 0 | | | 15,381 | | | 148,307 | | | 0 | | | 15,381 | | | 148,307 | | | 163,688 | | | (454) | | | 2020 | | |
2706 | |
2706 | |
2707 | |
2707 | |
2707 | 2707 | | Cambridge | | MA | | 0 | | | 25,664 | | | 230,509 | | | 0 | | | 25,664 | | | 230,509 | | | 256,173 | | | (642) | | | 2020 | | |
2708 | 2708 | | Cambridge | | MA | | 0 | | | 0 | | | 17,764 | | | 0 | | | 0 | | | 17,764 | | | 17,764 | | | (37) | | | 2020 | | |
2708 | |
2708 | |
2709 | |
2709 | |
2709 | 2709 | | Cambridge | | MA | | 0 | | | 0 | | | 15,459 | | | 0 | | | 0 | | | 15,459 | | | 15,459 | | | (32) | | | 2020 | | |
2928 | 2928 | | Cambridge | | MA | | 0 | | | 44,215 | | | 24,120 | | | 0 | | | 44,215 | | | 24,120 | | | 68,335 | | | (2,263) | | | 2019 | | |
2928 | |
2928 | |
2929 | |
2929 | |
2929 | 2929 | | Cambridge | | MA | | 0 | | | 20,517 | | | 0 | | | 18,209 | | | 20,517 | | | 18,209 | | | 38,726 | | | 0 | | | 2019 | | |
3074 | 3074 | | Cambridge | | MA | | 0 | | | 78,762 | | | 252,153 | | | 8,945 | | | 78,762 | | | 261,098 | | | 339,860 | | | (8,142) | | | 2019 | | |
3074 | |
3074 | |
3106 | |
3106 | |
3106 | |
3107 | |
3107 | |
3107 | |
3108 | |
3108 | |
3108 | |
3109 | |
3109 | |
3109 | |
3112 | |
3112 | |
3112 | |
3113 | |
3113 | |
3113 | |
3114 | |
3114 | |
3114 | |
3115 | |
3115 | |
3115 | |
3116 | |
3116 | |
3116 | |
3119 | |
3119 | |
3119 | |
3120 | |
3120 | |
3120 | |
3122 | |
3122 | |
3122 | |
3136 | |
3136 | |
3136 | |
3137 | |
3137 | |
3137 | |
3141 | |
3141 | |
3141 | |
| 3148 | |
| 3148 | |
| 3148 | |
3149 | |
3149 | |
3149 | |
3150 | |
3150 | |
3150 | |
3151 | |
3151 | |
3151 | |
3152 | |
3152 | |
3152 | |
2630 | |
2630 | |
2630 | 2630 | | Lexington | | MA | | 0 | | | 16,411 | | | 49,681 | | | 484 | | | 16,411 | | | 50,165 | | | 66,576 | | | (7,144) | | | 2017 | | |
2631 | 2631 | | Lexington | | MA | | 0 | | | 7,759 | | | 142,081 | | | 22,777 | | | 7,759 | | | 163,137 | | | 170,896 | | | (14,152) | | | 2017 | | |
2631 | |
2631 | |
2632 | 2632 | | Lexington | | MA | | 0 | | | 0 | | | 21,390 | | | 111,746 | | | 0 | | | 133,136 | | | 133,136 | | | (379) | | | 2020 | | |
3070 | | Lexington | | MA | | 0 | | | 14,013 | | | 17,083 | | | 0 | | | 14,013 | | | 17,083 | | | 31,096 | | | (938) | | | 2019 | | |
3071 | | Lexington | | MA | | 0 | | | 14,930 | | | 16,677 | | | 0 | | | 14,930 | | | 16,677 | | | 31,607 | | | (1,190) | | | 2019 | | |
3072 | | Lexington | | MA | | 0 | | | 35,469 | | | 43,903 | | | 0 | | | 35,469 | | | 43,903 | | | 79,372 | | | (2,685) | | | 2019 | | |
3073 | | Lexington | | MA | | 0 | | | 37,050 | | | 44,647 | | | 0 | | | 37,050 | | | 44,647 | | | 81,697 | | | (2,578) | | | 2019 | | |
3093 | | Waltham | | MA | | 0 | | | 47,791 | | | 275,556 | | | 16,204 | | | 47,791 | | | 291,760 | | | 339,551 | | | (6,212) | | | 2020 | | |
2011 | | Durham | | NC | | 3,777 | | | 448 | | | 6,152 | | | 22,643 | | | 448 | | | 23,136 | | | 23,584 | | | (5,112) | | | 2011 | | |
2030 | | Durham | | NC | | 0 | | | 1,920 | | | 5,661 | | | 34,804 | | | 1,920 | | | 40,465 | | | 42,385 | | | (12,823) | | | 2012 | | |
464 | | Salt Lake City | | UT | | 0 | | | 630 | | | 6,921 | | | 2,562 | | | 630 | | | 9,484 | | | 10,114 | | | (4,468) | | | 2001 | | |
465 | | Salt Lake City | | UT | | 0 | | | 125 | | | 6,368 | | | 68 | | | 125 | | | 6,436 | | | 6,561 | | | (2,823) | | | 2001 | | |
466 | | Salt Lake City | | UT | | 0 | | | 0 | | | 14,614 | | | 73 | | | 0 | | | 14,688 | | | 14,688 | | | (5,855) | | | 2001 | | |
799 | | Salt Lake City | | UT | | 0 | | | 0 | | | 14,600 | | | 90 | | | 0 | | | 14,690 | | | 14,690 | | | (5,078) | | | 2005 | | |
1593 | | Salt Lake City | | UT | | 0 | | | 0 | | | 23,998 | | | 0 | | | 0 | | | 23,998 | | | 23,998 | | | (7,575) | | | 2010 | | |
| | | | | | $ | 3,777 | | | $ | 1,321,296 | | | $ | 3,313,951 | | | $ | 2,505,811 | | | $ | 1,323,724 | | | $ | 5,639,944 | | | $ | 6,963,668 | | | $ | (899,069) | | | | | |
2632 | |
2632 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Encumbrances at December 31, 2023 | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition(3) | | Gross Amount at Which Carried As of December 31, 2023 | | Accumulated Depreciation(5) | | Year Constructed(6) | | Year Acquired | |
| | City | | State | | | Land and improvements(1) | | Buildings and Improvements(2) | | | Land and improvements | | Buildings and Improvements | | Total(4) | | | |
3070 | | Lexington | | MA | | — | | | 14,013 | | | 17,083 | | | (269) | | | 14,013 | | | 16,814 | | | 30,827 | | | (2,534) | | | 1974/2012 | | 2019 | |
3071 | | Lexington | | MA | | — | | | 14,930 | | | 16,677 | | | (359) | | | 14,930 | | | 16,318 | | | 31,248 | | | (2,236) | | | 1970/2012 | | 2019 | |
3072 | | Lexington | | MA | | — | | | 34,598 | | | 43,032 | | | (288) | | | 34,598 | | | 42,744 | | | 77,342 | | | (7,547) | | | 1967/2013 | | 2019 | |
3073 | | Lexington | | MA | | — | | | 37,050 | | | 44,647 | | | 144 | | | 37,050 | | | 44,791 | | | 81,841 | | | (8,051) | | | 2017 | | 2019 | |
3093 | | Waltham | | MA | | — | | | 47,792 | | | 275,556 | | | 18,351 | | | 47,792 | | | 293,907 | | | 341,699 | | | (38,172) | | | 2018 | | 2020 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
9999 | | Denton | | TX | | — | | | 100 | | | — | | | — | | | 100 | | | — | | | 100 | | | — | | | — | | 2016 | |
464 | | Salt Lake City | | UT | | — | | | 630 | | | 6,921 | | | 2,563 | | | 630 | | | 9,484 | | | 10,114 | | | (5,812) | | | 1996 | | 2001 | |
465 | | Salt Lake City | | UT | | — | | | 125 | | | 6,368 | | | 68 | | | 125 | | | 6,436 | | | 6,561 | | | (3,267) | | | 1999 | | 2001 | |
466 | | Salt Lake City | | UT | | — | | | — | | | 14,614 | | | (1,401) | | | — | | | 13,213 | | | 13,213 | | | (5,371) | | | 2002 | | 2001 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
1593 | | Salt Lake City | | UT | | — | | | — | | | 23,998 | | | 250 | | | — | | | 24,248 | | | 24,248 | | | (9,774) | | | 2010 | | 2010 | |
| | | | | | $ | — | | | $ | 1,936,228 | | | $ | 3,238,815 | | | $ | 3,654,501 | | | $ | 1,939,357 | | | $ | 6,890,187 | | | $ | 8,829,544 | | | $ | (1,444,864) | | | | | | |
| | | | | | Encumbrances at December 31, 2020 | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at Which Carried As of December 31, 2020 | | Accumulated Depreciation(2) | | Year Acquired/ Constructed | | |
| City | | State | | | Land | | Buildings and Improvements | | Land | | Buildings and Improvements | | Total(1) | |
Medical office | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Encumbrances at December 31, 2023 | |
| | | | | | Encumbrances at December 31, 2023 | |
| | | | | | Encumbrances at December 31, 2023 | |
| | City | |
| | City | |
| | City | |
Outpatient medical | |
Outpatient medical | |
Outpatient medical | |
638 | 638 | | Anchorage | | AK | | $ | 0 | | | $ | 1,456 | | | $ | 10,650 | | | $ | 12,635 | | | $ | 1,456 | | | $ | 22,369 | | | $ | 23,825 | | | $ | (9,319) | | | 2006 | | |
638 | |
638 | |
3026 | |
3026 | |
3026 | |
126 | |
126 | |
126 | 126 | | Sherwood | | AR | | 0 | | | 709 | | | 9,604 | | | 0 | | | 709 | | | 9,599 | | | 10,308 | | | (6,284) | | | 1989 | | |
2572 | 2572 | | Springdale | | AR | | 0 | | | 0 | | | 27,714 | | | 0 | | | 0 | | | 27,714 | | | 27,714 | | | (3,665) | | | 2016 | | |
2572 | |
2572 | |
520 | |
520 | |
520 | 520 | | Chandler | | AZ | | 0 | | | 3,669 | | | 13,503 | | | 7,404 | | | 3,799 | | | 19,499 | | | 23,298 | | | (7,178) | | | 2002 | | |
113 | 113 | | Glendale | | AZ | | 0 | | | 1,565 | | | 7,050 | | | 20 | | | 1,565 | | | 7,225 | | | 8,790 | | | (4,795) | | | 1988 | | |
113 | |
113 | |
2040 | 2040 | | Mesa | | AZ | | 0 | | | 0 | | | 17,314 | | | 1,728 | | | 0 | | | 18,425 | | | 18,425 | | | (3,842) | | | 2012 | | |
| 2040 | |
2040 | |
1066 | |
1066 | |
1066 | 1066 | | Scottsdale | | AZ | | 0 | | | 5,115 | | | 14,064 | | | 5,245 | | | 4,839 | | | 17,731 | | | 22,570 | | | (6,795) | | | 2006 | | |
2021 | 2021 | | Scottsdale | | AZ | | 0 | | | 0 | | | 12,312 | | | 5,116 | | | 0 | | | 16,679 | | | 16,679 | | | (6,441) | | | 2012 | | |
2021 | |
2021 | |
2022 | |
2022 | |
2022 | 2022 | | Scottsdale | | AZ | | 0 | | | 0 | | | 9,179 | | | 2,487 | | | 0 | | | 11,462 | | | 11,462 | | | (5,038) | | | 2012 | | |
2023 | 2023 | | Scottsdale | | AZ | | 0 | | | 0 | | | 6,398 | | | 2,195 | | | 0 | | | 8,336 | | | 8,336 | | | (3,448) | | | 2012 | | |
2023 | |
2023 | |
2024 | |
2024 | |
2024 | 2024 | | Scottsdale | | AZ | | 0 | | | 0 | | | 9,522 | | | 1,048 | | | 32 | | | 10,473 | | | 10,505 | | | (3,929) | | | 2012 | | |
2025 | 2025 | | Scottsdale | | AZ | | 0 | | | 0 | | | 4,102 | | | 2,355 | | | 0 | | | 6,193 | | | 6,193 | | | (2,815) | | | 2012 | | |
2025 | |
2025 | |
2026 | |
2026 | |
2026 | 2026 | | Scottsdale | | AZ | | 0 | | | 0 | | | 3,655 | | | 2,213 | | | 0 | | | 5,614 | | | 5,614 | | | (1,922) | | | 2012 | | |
2027 | 2027 | | Scottsdale | | AZ | | 0 | | | 0 | | | 7,168 | | | 2,960 | | | 0 | | | 9,758 | | | 9,758 | | | (3,647) | | | 2012 | | |
2027 | |
2027 | |
2028 | |
2028 | |
2028 | 2028 | | Scottsdale | | AZ | | 0 | | | 0 | | | 6,659 | | | 4,834 | | | 0 | | | 11,084 | | | 11,084 | | | (3,392) | | | 2012 | | |
2696 | 2696 | | Scottsdale | | AZ | | 0 | | | 10,151 | | | 14,925 | | | 567 | | | 10,151 | | | 15,492 | | | 25,643 | | | (553) | | | 2020 | | |
| 2696 | |
2696 | |
1041 | |
1041 | |
1041 | 1041 | | Brentwood | | CA | | 0 | | | 0 | | | 30,864 | | | 3,135 | | | 310 | | | 32,826 | | | 33,136 | | | (12,367) | | | 2006 | | |
1200 | 1200 | | Encino | | CA | | 0 | | | 6,151 | | | 10,438 | | | 6,933 | | | 6,757 | | | 14,895 | | | 21,652 | | | (6,286) | | | 2006 | | |
1200 | |
1200 | |
1038 | 1038 | | Fresno | | CA | | 0 | | | 3,652 | | | 29,113 | | | 21,935 | | | 3,652 | | | 51,048 | | | 54,700 | | | (19,960) | | | 2006 | | |
423 | | Irvine | | CA | | 0 | | | 18,000 | | | 70,800 | | | 0 | | | 18,001 | | | 70,800 | | | 88,801 | | | (41,643) | | | 1999 | | |
1038 | |
1038 | |
436 | |
436 | |
436 | 436 | | Murrieta | | CA | | 0 | | | 400 | | | 9,266 | | | 5,089 | | | 749 | | | 12,116 | | | 12,865 | | | (7,182) | | | 1999 | | |
239 | 239 | | Poway | | CA | | 0 | | | 2,700 | | | 10,839 | | | 5,485 | | | 3,013 | | | 13,421 | | | 16,434 | | | (8,020) | | | 1997 | | |
239 | |
239 | |
2654 | |
2654 | |
2654 | 2654 | | Riverside | | CA | | 0 | | | 2,758 | | | 9,908 | | | 448 | | | 2,758 | | | 10,319 | | | 13,077 | | | (1,373) | | | 2017 | | |
318 | 318 | | Sacramento | | CA | | 0 | | | 2,860 | | | 37,566 | | | 27,514 | | | 2,911 | | | 63,537 | | | 66,448 | | | (18,888) | | | 1998 | | |
318 | |
318 | |
2404 | 2404 | | Sacramento | | CA | | 0 | | | 1,268 | | | 5,109 | | | 1,067 | | | 1,299 | | | 6,005 | | | 7,304 | | | (1,592) | | | 2015 | | |
| 2404 | |
2404 | |
421 | |
421 | |
421 | 421 | | San Diego | | CA | | 0 | | | 2,910 | | | 19,984 | | | 16,414 | | | 2,964 | | | 35,025 | | | 37,989 | | | (13,073) | | | 1999 | | |
564 | 564 | | San Jose | | CA | | 0 | | | 1,935 | | | 1,728 | | | 3,248 | | | 1,935 | | | 3,255 | | | 5,190 | | | (1,448) | | | 2003 | | |
564 | |
564 | |
565 | |
565 | |
565 | 565 | | San Jose | | CA | | 0 | | | 1,460 | | | 7,672 | | | 1,046 | | | 1,460 | | | 8,207 | | | 9,667 | | | (3,677) | | | 2003 | | |
659 | 659 | | Los Gatos | | CA | | 0 | | | 1,718 | | | 3,124 | | | 693 | | | 1,758 | | | 3,363 | | | 5,121 | | | (1,471) | | | 2000 | | |
659 | |
659 | |
439 | 439 | | Valencia | | CA | | 0 | | | 2,300 | | | 6,967 | | | 4,278 | | | 2,404 | | | 9,029 | | | 11,433 | | | (5,022) | | | 1999 | | |
1211 | | Valencia | | CA | | 0 | | | 1,344 | | | 7,507 | | | 940 | | | 1,384 | | | 6,124 | | | 7,508 | | | (2,878) | | | 2006 | | |
439 | |
439 | |
440 | 440 | | West Hills | | CA | | 0 | | | 2,100 | | | 11,595 | | | 5,355 | | | 2,259 | | | 12,506 | | | 14,765 | | | (7,017) | | | 1999 | | |
440 | |
440 | |
3008 | |
3008 | |
3008 | |
728 | |
728 | |
728 | 728 | | Aurora | | CO | | 0 | | | 0 | | | 8,764 | | | 3,913 | | | 0 | | | 9,480 | | | 9,480 | | | (4,048) | | | 2005 | | |
1196 | 1196 | | Aurora | | CO | | 0 | | | 210 | | | 12,362 | | | 7,836 | | | 210 | | | 19,185 | | | 19,395 | | | (6,296) | | | 2006 | | |
1196 | |
1196 | |
1197 | |
1197 | |
1197 | 1197 | | Aurora | | CO | | 0 | | | 200 | | | 8,414 | | | 6,651 | | | 285 | | | 14,229 | | | 14,514 | | | (5,141) | | | 2006 | | |
127 | 127 | | Colorado Springs | | CO | | 0 | | | 690 | | | 8,338 | | | 0 | | | 690 | | | 8,415 | | | 9,105 | | | (5,502) | | | 1989 | | |
127 | |
127 | |
882 | |
882 | |
882 | 882 | | Colorado Springs | | CO | | 0 | | | 0 | | | 12,933 | | | 11,426 | | | 0 | | | 20,122 | | | 20,122 | | | (7,719) | | | 2006 | | |
1199 | 1199 | | Denver | | CO | | 0 | | | 493 | | | 7,897 | | | 2,705 | | | 622 | | | 9,497 | | | 10,119 | | | (3,959) | | | 2006 | | |
1199 | |
1199 | |
808 | |
808 | |
808 | 808 | | Englewood | | CO | | 0 | | | 0 | | | 8,616 | | | 9,877 | | | 11 | | | 16,236 | | | 16,247 | | | (8,467) | | | 2005 | | |
809 | 809 | | Englewood | | CO | | 0 | | | 0 | | | 8,449 | | | 6,786 | | | 0 | | | 13,041 | | | 13,041 | | | (5,225) | | | 2005 | | |
809 | |
809 | |
810 | |
810 | |
810 | 810 | | Englewood | | CO | | 0 | | | 0 | | | 8,040 | | | 13,800 | | | 0 | | | 19,134 | | | 19,134 | | | (7,689) | | | 2005 | | |
811 | 811 | | Englewood | | CO | | 0 | | | 0 | | | 8,472 | | | 13,212 | | | 0 | | | 19,841 | | | 19,841 | | | (6,893) | | | 2005 | | |
811 | |
811 | |
2658 | |
2658 | |
2658 | 2658 | | Highlands Ranch | | CO | | 0 | | | 1,637 | | | 10,063 | | | 0 | | | 1,637 | | | 10,063 | | | 11,700 | | | (1,161) | | | 2017 | | |
812 | 812 | | Littleton | | CO | | 0 | | | 0 | | | 4,562 | | | 3,236 | | | 257 | | | 6,045 | | | 6,302 | | | (2,645) | | | 2005 | | |
812 | |
812 | |
813 | |
813 | |
813 | 813 | | Littleton | | CO | | 0 | | | 0 | | | 4,926 | | | 2,696 | | | 106 | | | 6,395 | | | 6,501 | | | (2,611) | | | 2005 | | |
570 | 570 | | Lone Tree(3) | | CO | | 0 | | | 0 | | | 0 | | | 21,686 | | | 0 | | | 20,401 | | | 20,401 | | | (8,334) | | | 2003 | | |
570 | |
570 | |
666 | |
666 | |
666 | 666 | | Lone Tree | | CO | | 0 | | | 0 | | | 23,274 | | | 5,098 | | | 17 | | | 25,916 | | | 25,933 | | | (9,728) | | | 2000 | | |
2233 | 2233 | | Lone Tree | | CO | | 0 | | | 0 | | | 6,734 | | | 31,910 | | | 0 | | | 38,533 | | | 38,533 | | | (8,962) | | | 2014 | | |
1076 | | Parker | | CO | | 0 | | | 0 | | | 13,388 | | | 1,534 | | | 8 | | | 14,548 | | | 14,556 | | | (5,657) | | | 2006 | | |
2233 | |
2233 | |
2965 | |
2965 | |
2965 | |
3000 | |
3000 | |
3000 | |
510 | |
510 | |
510 | 510 | | Thornton | | CO | | 0 | | | 236 | | | 10,206 | | | 4,656 | | | 463 | | | 13,101 | | | 13,564 | | | (6,096) | | | 2002 | | |
434 | 434 | | Atlantis | | FL | | 0 | | | 0 | | | 2,027 | | | 512 | | | 5 | | | 2,314 | | | 2,319 | | | (1,328) | | | 1999 | | |
434 | |
434 | |
435 | |
435 | |
435 | 435 | | Atlantis | | FL | | 0 | | | 0 | | | 2,000 | | | 1,206 | | | 0 | | | 2,539 | | | 2,539 | | | (1,440) | | | 1999 | | |
602 | 602 | | Atlantis | | FL | | 0 | | | 455 | | | 2,231 | | | 1,024 | | | 455 | | | 2,828 | | | 3,283 | | | (1,345) | | | 2000 | | |
602 | |
602 | |
2963 | |
2963 | |
2963 | 2963 | | Brooksville(3) | | FL | | 0 | | | 0 | | | 0 | | | 10,300 | | | 0 | | | 10,300 | | | 10,300 | | | (4) | | | 2019 | | |
604 | 604 | | Englewood | | FL | | 0 | | | 170 | | | 1,134 | | | 840 | | | 226 | | | 1,578 | | | 1,804 | | | (567) | | | 2000 | | |
604 | |
604 | |
2962 | |
2962 | |
2962 | 2962 | | Jacksonville(3) | | FL | | 0 | | | 0 | | | 0 | | | 964 | | | 0 | | | 964 | | | 964 | | | 0 | | | 2019 | | |
609 | 609 | | Kissimmee | | FL | | 0 | | | 788 | | | 174 | | | 1,242 | | | 788 | | | 1,250 | | | 2,038 | | | (373) | | | 2000 | | |
609 | |
609 | |
610 | |
610 | |
610 | 610 | | Kissimmee | | FL | | 0 | | | 481 | | | 347 | | | 790 | | | 494 | | | 752 | | | 1,246 | | | (469) | | | 2000 | | |
671 | 671 | | Kissimmee | | FL | | 0 | | | 0 | | | 7,574 | | | 2,690 | | | 0 | | | 8,367 | | | 8,367 | | | (3,495) | | | 2000 | | |
671 | |
671 | |
603 | |
603 | |
603 | 603 | | Lake Worth | | FL | | 0 | | | 1,507 | | | 2,894 | | | 1,807 | | | 1,507 | | | 4,529 | | | 6,036 | | | (2,686) | | | 2000 | | |
612 | 612 | | Margate | | FL | | 0 | | | 1,553 | | | 6,898 | | | 2,527 | | | 1,553 | | | 8,675 | | | 10,228 | | | (3,423) | | | 2000 | | |
612 | |
612 | |
613 | |
613 | |
613 | 613 | | Miami | | FL | | 0 | | | 4,392 | | | 11,841 | | | 13,457 | | | 4,392 | | | 22,161 | | | 26,553 | | | (6,122) | | | 2000 | | |
2202 | 2202 | | Miami | | FL | | 0 | | | 0 | | | 13,123 | | | 10,093 | | | 0 | | | 22,766 | | | 22,766 | | | (5,882) | | | 2014 | | |
2202 | |
2202 | |
2203 | |
2203 | |
2203 | 2203 | | Miami | | FL | | 0 | | | 0 | | | 8,877 | | | 4,126 | | | 0 | | | 12,813 | | | 12,813 | | | (3,562) | | | 2014 | | |
1067 | 1067 | | Milton | | FL | | 0 | | | 0 | | | 8,566 | | | 1,044 | | | 0 | | | 9,533 | | | 9,533 | | | (3,204) | | | 2006 | | |
1067 | |
1067 | |
2577 | |
2577 | |
2577 | 2577 | | Naples | | FL | | 0 | | | 0 | | | 29,186 | | | 1,504 | | | 0 | | | 30,691 | | | 30,691 | | | (3,763) | | | 2016 | | |
2578 | 2578 | | Naples | | FL | | 0 | | | 0 | | | 18,819 | | | 766 | | | 0 | | | 19,585 | | | 19,585 | | | (2,035) | | | 2016 | | |
2578 | |
2578 | |
2964 | |
2964 | |
2964 | 2964 | | Okeechobee(3) | | FL | | 0 | | | 0 | | | 0 | | | 3,483 | | | 0 | | | 3,483 | | | 3,483 | | | 0 | | | 2019 | | |
563 | 563 | | Orlando | | FL | | 0 | | | 2,144 | | | 5,136 | | | 16,334 | | | 12,268 | | | 7,980 | | | 20,248 | | | (4,936) | | | 2003 | | |
563 | |
563 | |
833 | |
833 | |
833 | 833 | | Pace | | FL | | 0 | | | 0 | | | 10,309 | | | 3,938 | | | 54 | | | 11,900 | | | 11,954 | | | (4,131) | | | 2006 | | |
834 | 834 | | Pensacola | | FL | | 0 | | | 0 | | | 11,166 | | | 669 | | | 0 | | | 11,369 | | | 11,369 | | | (3,712) | | | 2006 | | |
834 | |
834 | |
673 | 673 | | Plantation | | FL | | 0 | | | 1,091 | | | 7,176 | | | 2,352 | | | 1,091 | | | 8,915 | | | 10,006 | | | (3,608) | | | 2002 | | |
673 | |
673 | |
674 | |
674 | |
674 | |
2579 | 2579 | | Punta Gorda | | FL | | 0 | | | 0 | | | 9,379 | | | 0 | | | 0 | | | 9,379 | | | 9,379 | | | (1,118) | | | 2016 | | |
2833 | | St. Petersburg | | FL | | 0 | | | 0 | | | 13,754 | | | 14,054 | | | 0 | | | 24,373 | | | 24,373 | | | (8,319) | | | 2006 | | |
2836 | | Tampa | | FL | | 0 | | | 1,967 | | | 6,618 | | | 8,213 | | | 2,709 | | | 10,644 | | | 13,353 | | | (5,996) | | | 2006 | | |
887 | | Atlanta | | GA | | 0 | | | 4,300 | | | 13,690 | | | 0 | | | 4,300 | | | 11,890 | | | 16,190 | | | (8,224) | | | 2007 | | |
1058 | | Blue Ridge | | GA | | 0 | | | 0 | | | 3,231 | | | 260 | | | 0 | | | 3,094 | | | 3,094 | | | (1,262) | | | 2006 | | |
2576 | | Statesboro | | GA | | 0 | | | 0 | | | 10,234 | | | 439 | | | 0 | | | 10,673 | | | 10,673 | | | (1,680) | | | 2016 | | |
2702 | | Bolingbrook | | IL | | 0 | | | 0 | | | 21,237 | | | 0 | | | 0 | | | 21,237 | | | 21,237 | | | (145) | | | 2020 | | |
1065 | | Marion | | IL | | 0 | | | 99 | | | 11,538 | | | 2,192 | | | 100 | | | 13,255 | | | 13,355 | | | (4,673) | | | 2006 | | |
| 2697 | | Indianapolis | | IN | | 0 | | | 0 | | | 61,893 | | | 0 | | | 0 | | | 61,893 | | | 61,893 | | | (313) | | | 2020 | | |
2579 | |
2579 | |
| | | | | | | Encumbrances at December 31, 2023 | |
| | | | | | Encumbrances at December 31, 2023 | |
| | | | | | Encumbrances at December 31, 2023 | |
| | City | |
| | City | |
| | City | |
2833 | |
2833 | |
2833 | |
| | | | | | Encumbrances at December 31, 2020 | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at Which Carried As of December 31, 2020 | | Accumulated Depreciation(2) | | Year Acquired/ Constructed | | |
887 | |
| | City | | State | | Encumbrances at December 31, 2020 | | Land | | Buildings and Improvements | | Costs Capitalized Subsequent to Acquisition | | Land | | Buildings and Improvements | | Total(1) | | Accumulated Depreciation(2) | | Year Acquired/ Constructed | |
887 | |
| 887 | |
3214 | |
3214 | |
3214 | |
2576 | |
2576 | |
2576 | |
3006 | |
3006 | |
3006 | |
2702 | |
2702 | |
2702 | |
3004 | |
3004 | |
3004 | |
3005 | |
3005 | |
3005 | |
1065 | |
1065 | |
1065 | |
2719 | |
2719 | |
2719 | |
2697 | |
2697 | |
2697 | |
2699 | 2699 | | Indianapolis | | IN | | 0 | | | 0 | | | 23,211 | | | 0 | | | 0 | | | 23,211 | | | 23,211 | | | (117) | | | 2020 | | |
2701 | | Indianapolis | | IN | | 0 | | | 478 | | | 1,637 | | | 0 | | | 478 | | | 1,637 | | | 2,115 | | | (18) | | | 2020 | | |
2699 | |
2699 | |
| 2698 | |
| 2698 | |
| 2698 | 2698 | | Mooresville | | IN | | 0 | | | 0 | | | 20,646 | | | 0 | | | 0 | | | 20,646 | | | 20,646 | | | (105) | | | 2020 | | |
1057 | 1057 | | Newburgh | | IN | | 0 | | | 0 | | | 14,019 | | | 5,295 | | | 0 | | | 19,301 | | | 19,301 | | | (7,603) | | | 2006 | | |
1057 | |
1057 | |
2700 | |
2700 | |
2700 | 2700 | | Zionsville | | IN | | 0 | | | 2,969 | | | 7,707 | | | 0 | | | 2,969 | | | 7,707 | | | 10,676 | | | (60) | | | 2020 | | |
2039 | 2039 | | Kansas City | | KS | | 0 | | | 440 | | | 2,173 | | | 17 | | | 448 | | | 2,137 | | | 2,585 | | | (522) | | | 2012 | | |
2039 | |
2039 | |
112 | |
112 | |
112 | 112 | | Overland Park | | KS | | 0 | | | 2,316 | | | 10,681 | | | 24 | | | 2,316 | | | 10,797 | | | 13,113 | | | (7,421) | | | 1988 | | |
2043 | 2043 | | Overland Park | | KS | | 0 | | | 0 | | | 7,668 | | | 1,392 | | | 0 | | | 8,796 | | | 8,796 | | | (2,204) | | | 2012 | | |
2043 | |
2043 | |
3062 | |
3062 | |
3062 | 3062 | | Overland Park | | KS | | 0 | | | 872 | | | 11,813 | | | 197 | | | 978 | | | 11,887 | | | 12,865 | | | (994) | | | 2019 | | |
483 | 483 | | Wichita | | KS | | 0 | | | 530 | | | 3,341 | | | 713 | | | 530 | | | 3,617 | | | 4,147 | | | (1,543) | | | 2001 | | |
483 | |
483 | |
3018 | |
3018 | |
3018 | |
1064 | |
1064 | |
1064 | 1064 | | Lexington | | KY | | 0 | | | 0 | | | 12,726 | | | 2,244 | | | 0 | | | 14,092 | | | 14,092 | | | (5,171) | | | 2006 | | |
735 | 735 | | Louisville | | KY | | 0 | | | 936 | | | 8,426 | | | 18,432 | | | 936 | | | 24,069 | | | 25,005 | | | (11,809) | | | 2005 | | |
735 | |
735 | |
737 | |
737 | |
737 | 737 | | Louisville | | KY | | 0 | | | 835 | | | 27,627 | | | 10,632 | | | 878 | | | 35,531 | | | 36,409 | | | (14,236) | | | 2005 | | |
738 | 738 | | Louisville | | KY | | 0 | | | 780 | | | 8,582 | | | 6,843 | | | 851 | | | 12,736 | | | 13,587 | | | (9,506) | | | 2005 | | |
738 | |
738 | |
739 | |
739 | |
739 | 739 | | Louisville | | KY | | 0 | | | 826 | | | 13,814 | | | 3,079 | | | 832 | | | 15,330 | | | 16,162 | | | (6,054) | | | 2005 | | |
2834 | 2834 | | Louisville | | KY | | 0 | | | 2,983 | | | 13,171 | | | 8,108 | | | 2,991 | | | 19,655 | | | 22,646 | | | (9,483) | | | 2005 | | |
| 2834 | |
2834 | |
1945 | |
1945 | |
1945 | 1945 | | Louisville | | KY | | 0 | | | 3,255 | | | 28,644 | | | 2,010 | | | 3,291 | | | 30,119 | | | 33,410 | | | (10,166) | | | 2010 | | |
1946 | 1946 | | Louisville | | KY | | 0 | | | 430 | | | 6,125 | | | 276 | | | 430 | | | 6,401 | | | 6,831 | | | (2,131) | | | 2010 | | |
1946 | |
1946 | |
2237 | |
2237 | |
2237 | 2237 | | Louisville | | KY | | 0 | | | 1,519 | | | 15,386 | | | 4,010 | | | 1,648 | | | 19,262 | | | 20,910 | | | (5,288) | | | 2014 | | |
2238 | 2238 | | Louisville | | KY | | 0 | | | 1,334 | | | 12,172 | | | 2,411 | | | 1,511 | | | 14,162 | | | 15,673 | | | (4,064) | | | 2014 | | |
2238 | |
2238 | |
2239 | 2239 | | Louisville | | KY | | 0 | | | 1,644 | | | 10,832 | | | 5,865 | | | 2,041 | | | 16,207 | | | 18,248 | | | (5,149) | | | 2014 | | |
1324 | | Haverhill | | MA | | 0 | | | 800 | | | 8,537 | | | 2,386 | | | 870 | | | 7,028 | | | 7,898 | | | (3,130) | | | 2007 | | |
2239 | |
2239 | |
3023 | |
3023 | |
3023 | |
3121 | |
3121 | |
3121 | |
1213 | |
1213 | |
1213 | 1213 | | Ellicott City | | MD | | 0 | | | 1,115 | | | 3,206 | | | 3,563 | | | 1,336 | | | 5,104 | | | 6,440 | | | (2,341) | | | 2006 | | |
1052 | 1052 | | Towson | | MD | | 0 | | | 0 | | | 14,233 | | | 4,619 | | | 0 | | | 13,549 | | | 13,549 | | | (4,645) | | | 2006 | | |
1052 | |
1052 | |
2650 | 2650 | | Biddeford | | ME | | 0 | | | 1,949 | | | 12,244 | | | 0 | | | 1,949 | | | 12,244 | | | 14,193 | | | (1,375) | | | 2017 | | |
2650 | |
2650 | |
3002 | |
3002 | |
3002 | |
3003 | |
3003 | |
3003 | |
3009 | |
3009 | |
3009 | |
240 | |
240 | |
240 | 240 | | Minneapolis | | MN | | 0 | | | 117 | | | 13,213 | | | 5,824 | | | 117 | | | 17,714 | | | 17,831 | | | (9,917) | | | 1997 | | |
300 | 300 | | Minneapolis | | MN | | 0 | | | 160 | | | 10,131 | | | 5,392 | | | 214 | | | 12,898 | | | 13,112 | | | (7,400) | | | 1997 | | |
300 | |
300 | |
2703 | |
2703 | |
2703 | 2703 | | Columbia | | MO | | 0 | | | 4,141 | | | 20,364 | | | 0 | | | 4,141 | | | 20,364 | | | 24,505 | | | (142) | | | 2020 | | |
2032 | 2032 | | Independence | | MO | | 0 | | | 0 | | | 48,025 | | | 2,982 | | | 0 | | | 49,902 | | | 49,902 | | | (9,751) | | | 2012 | | |
2032 | |
2032 | |
2863 | |
2863 | |
2863 | 2863 | | Lee's Summit(3) | | MO | | 0 | | | 0 | | | 0 | | | 15,878 | | | 0 | | | 15,878 | | | 15,878 | | | (372) | | | 2019 | | |
1078 | 1078 | | Flowood | | MS | | 0 | | | 0 | | | 8,413 | | | 1,284 | | | 0 | | | 9,029 | | | 9,029 | | | (3,061) | | | 2006 | | |
1078 | |
1078 | |
1059 | |
1059 | |
1059 | 1059 | | Jackson | | MS | | 0 | | | 0 | | | 8,868 | | | 299 | | | 0 | | | 9,159 | | | 9,159 | | | (3,243) | | | 2006 | | |
1060 | 1060 | | Jackson | | MS | | 0 | | | 0 | | | 7,187 | | | 2,764 | | | 0 | | | 8,872 | | | 8,872 | | | (2,936) | | | 2006 | | |
1060 | |
1060 | |
1068 | |
1068 | |
1068 | 1068 | | Omaha | | NE | | 0 | | | 0 | | | 16,243 | | | 1,725 | | | 33 | | | 17,350 | | | 17,383 | | | (6,551) | | | 2006 | | |
2651 | 2651 | | Charlotte | | NC | | 0 | | | 1,032 | | | 6,196 | | | 130 | | | 1,032 | | | 6,222 | | | 7,254 | | | (582) | | | 2017 | | |
2651 | |
2651 | |
2695 | |
2695 | |
2695 | 2695 | | Charlotte | | NC | | 0 | | | 844 | | | 5,021 | | | 18 | | | 844 | | | 5,001 | | | 5,845 | | | (463) | | | 2017 | | |
2655 | 2655 | | Wilmington | | NC | | 0 | | | 1,341 | | | 17,376 | | | 0 | | | 1,341 | | | 17,376 | | | 18,717 | | | (2,112) | | | 2017 | | |
2655 | |
2655 | |
2656 | |
2656 | |
2656 | 2656 | | Wilmington | | NC | | 0 | | | 2,071 | | | 11,592 | | | 0 | | | 2,071 | | | 11,592 | | | 13,663 | | | (1,288) | | | 2017 | | |
2657 | 2657 | | Shallotte | | NC | | 0 | | | 918 | | | 3,609 | | | 0 | | | 918 | | | 3,609 | | | 4,527 | | | (553) | | | 2017 | | |
2657 | |
2657 | |
2647 | |
2647 | |
2647 | 2647 | | Concord | | NH | | 0 | | | 1,961 | | | 23,516 | | | 240 | | | 1,961 | | | 23,541 | | | 25,502 | | | (2,444) | | | 2017 | | |
2648 | 2648 | | Concord | | NH | | 0 | | | 815 | | | 8,902 | | | 423 | | | 815 | | | 9,325 | | | 10,140 | | | (1,235) | | | 2017 | | |
2648 | |
2648 | |
2649 | 2649 | | Epsom | | NH | | 0 | | | 919 | | | 5,868 | | | 49 | | | 919 | | | 5,910 | | | 6,829 | | | (958) | | | 2017 | | |
2649 | |
2649 | |
3011 | |
3011 | |
3011 | |
3012 | |
3012 | |
3012 | |
3013 | |
3013 | |
3013 | |
3014 | |
3014 | |
3014 | |
| 729 | |
| 729 | |
| 729 | 729 | | Albuquerque | | NM | | 0 | | | 0 | | | 5,380 | | | 896 | | | 0 | | | 5,738 | | | 5,738 | | | (2,105) | | | 2005 | | |
571 | 571 | | Las Vegas(3) | | NV | | 0 | | | 0 | | | 0 | | | 20,823 | | | 0 | | | 18,666 | | | 18,666 | | | (7,656) | | | 2003 | | |
571 | |
571 | |
660 | |
660 | |
660 | 660 | | Las Vegas | | NV | | 0 | | | 1,121 | | | 4,363 | | | 9,852 | | | 1,328 | | | 10,258 | | | 11,586 | | | (3,364) | | | 2000 | | |
661 | 661 | | Las Vegas | | NV | | 0 | | | 2,305 | | | 4,829 | | | 6,276 | | | 2,447 | | | 4,892 | | | 7,339 | | | (4,980) | | | 2000 | | |
661 | |
661 | |
662 | |
662 | |
662 | 662 | | Las Vegas | | NV | | 0 | | | 3,480 | | | 12,305 | | | 6,755 | | | 3,480 | | | 15,180 | | | 18,660 | | | (6,542) | | | 2000 | | |
663 | 663 | | Las Vegas | | NV | | 0 | | | 1,717 | | | 3,597 | | | 12,595 | | | 1,724 | | | 13,621 | | | 15,345 | | | (4,427) | | | 2000 | | |
663 | |
663 | |
664 | |
664 | |
664 | 664 | | Las Vegas | | NV | | 0 | | | 1,172 | | | 0 | | | 633 | | | 1,805 | | | 0 | | | 1,805 | | | (243) | | | 2000 | | |
691 | 691 | | Las Vegas | | NV | | 0 | | | 3,244 | | | 18,339 | | | 8,598 | | | 3,338 | | | 25,273 | | | 28,611 | | | (12,874) | | | 2004 | | |
691 | |
691 | |
2037 | |
2037 | |
2037 | 2037 | | Mesquite | | NV | | 0 | | | 0 | | | 5,559 | | | 942 | | | 34 | | | 6,347 | | | 6,381 | | | (1,398) | | | 2012 | | |
400 | 400 | | Harrison | | OH | | 0 | | | 0 | | | 4,561 | | | 300 | | | 0 | | | 4,861 | | | 4,861 | | | (3,058) | | | 1999 | | |
400 | |
400 | |
1054 | |
1054 | |
1054 | 1054 | | Durant | | OK | | 0 | | | 619 | | | 9,256 | | | 2,415 | | | 659 | | | 11,525 | | | 12,184 | | | (4,084) | | | 2006 | | |
817 | 817 | | Owasso | | OK | | 0 | | | 0 | | | 6,582 | | | 1,703 | | | 0 | | | 5,761 | | | 5,761 | | | (2,097) | | | 2005 | | |
817 | |
817 | |
404 | 404 | | Roseburg | | OR | | 0 | | | 0 | | | 5,707 | | | 763 | | | 0 | | | 5,770 | | | 5,770 | | | (3,396) | | | 1999 | | |
404 | |
404 | |
3010 | |
3010 | |
3010 | |
2570 | 2570 | | Limerick | | PA | | 0 | | | 925 | | | 20,072 | | | 51 | | | 925 | | | 19,953 | | | 20,878 | | | (2,899) | | | 2016 | | |
2234 | | Philadelphia | | PA | | 0 | | | 24,264 | | | 99,904 | | | 45,229 | | | 24,288 | | | 144,972 | | | 169,260 | | | (23,702) | | | 2014 | | |
2403 | | Philadelphia | | PA | | 0 | | | 26,063 | | | 97,646 | | | 31,903 | | | 26,134 | | | 129,479 | | | 155,613 | | | (26,925) | | | 2015 | | |
2571 | | Wilkes-Barre | | PA | | 0 | | | 0 | | | 9,138 | | | 0 | | | 0 | | | 9,138 | | | 9,138 | | | (1,457) | | | 2016 | | |
2694 | | Anderson | | SC | | 0 | | | 405 | | | 1,211 | | | 0 | | | 405 | | | 1,212 | | | 1,617 | | | (50) | | | 2020 | | |
2573 | | Florence | | SC | | 0 | | | 0 | | | 12,090 | | | 91 | | | 0 | | | 12,181 | | | 12,181 | | | (1,546) | | | 2016 | | |
2574 | | Florence | | SC | | 0 | | | 0 | | | 12,190 | | | 88 | | | 0 | | | 12,278 | | | 12,278 | | | (1,556) | | | 2016 | | |
2575 | | Florence | | SC | | 0 | | | 0 | | | 11,243 | | | 56 | | | 0 | | | 11,299 | | | 11,299 | | | (1,755) | | | 2016 | | |
2841 | | Greenville | | SC | | 0 | | | 634 | | | 38,386 | | | 1,008 | | | 647 | | | 39,380 | | | 40,027 | | | (4,502) | | | 2018 | | |
2842 | | Greenville | | SC | | 0 | | | 794 | | | 41,293 | | | 445 | | | 794 | | | 41,737 | | | 42,531 | | | (4,769) | | | 2018 | | |
2843 | | Greenville | | SC | | 0 | | | 626 | | | 22,210 | | | 0 | | | 626 | | | 22,210 | | | 22,836 | | | (2,640) | | | 2018 | | |
2844 | | Greenville | | SC | | 0 | | | 806 | | | 18,889 | | | 377 | | | 806 | | | 19,266 | | | 20,072 | | | (2,370) | | | 2018 | | |
2845 | | Greenville | | SC | | 0 | | | 932 | | | 40,879 | | | 0 | | | 932 | | | 40,879 | | | 41,811 | | | (4,296) | | | 2018 | | |
2846 | | Greenville | | SC | | 0 | | | 896 | | | 38,486 | | | 0 | | | 896 | | | 38,485 | | | 39,381 | | | (4,101) | | | 2018 | | |
2847 | | Greenville | | SC | | 0 | | | 600 | | | 26,472 | | | 1,076 | | | 600 | | | 27,548 | | | 28,148 | | | (3,737) | | | 2018 | | |
2848 | | Greenville | | SC | | 0 | | | 318 | | | 5,816 | | | 0 | | | 318 | | | 5,816 | | | 6,134 | | | (675) | | | 2018 | | |
2849 | | Greenville | | SC | | 0 | | | 319 | | | 5,836 | | | 0 | | | 319 | | | 5,836 | | | 6,155 | | | (751) | | | 2018 | | |
2850 | | Greenville | | SC | | 0 | | | 211 | | | 6,503 | | | 15 | | | 211 | | | 6,518 | | | 6,729 | | | (848) | | | 2018 | | |
2853 | | Greenville | | SC | | 0 | | | 534 | | | 6,430 | | | 180 | | | 534 | | | 6,609 | | | 7,143 | | | (1,355) | | | 2018 | | |
2854 | | Greenville | | SC | | 0 | | | 824 | | | 13,645 | | | 109 | | | 824 | | | 13,755 | | | 14,579 | | | (2,076) | | | 2018 | | |
2851 | | Travelers Rest | | SC | | 0 | | | 498 | | | 1,015 | | | 0 | | | 498 | | | 1,015 | | | 1,513 | | | (381) | | | 2018 | | |
2862 | | Myrtle Beach(3) | | SC | | 0 | | | 0 | | | 0 | | | 24,830 | | | 0 | | | 24,830 | | | 24,830 | | | (1,400) | | | 2018 | | |
2865 | | Brentwood(3) | | TN | | 0 | | | 0 | | | 0 | | | 28,094 | | | 0 | | | 28,094 | | | 28,094 | | | (177) | | | 2019 | | |
624 | | Hendersonville | | TN | | 0 | | | 256 | | | 1,530 | | | 2,822 | | | 256 | | | 3,403 | | | 3,659 | | | (1,523) | | | 2000 | | |
559 | | Hermitage | | TN | | 0 | | | 830 | | | 5,036 | | | 13,187 | | | 851 | | | 16,033 | | | 16,884 | | | (5,090) | | | 2003 | | |
561 | | Hermitage | | TN | | 0 | | | 596 | | | 9,698 | | | 7,868 | | | 596 | | | 15,066 | | | 15,662 | | | (7,303) | | | 2003 | | |
562 | | Hermitage | | TN | | 0 | | | 317 | | | 6,528 | | | 4,265 | | | 317 | | | 8,802 | | | 9,119 | | | (4,064) | | | 2003 | | |
2570 | |
2570 | |
| | | | | | | Encumbrances at December 31, 2023 | |
| | | | | | Encumbrances at December 31, 2023 | |
| | | | | | Encumbrances at December 31, 2023 | |
| | City | |
| | City | |
| | City | |
2234 | |
2234 | |
2234 | |
2403 | |
2403 | |
2403 | |
2571 | |
2571 | |
2571 | |
2694 | |
2694 | |
2694 | |
2573 | |
2573 | |
2573 | |
2574 | |
2574 | |
2574 | |
2575 | |
2575 | |
2575 | |
2841 | |
2841 | |
2841 | |
2842 | |
2842 | |
2842 | |
2843 | |
2843 | |
2843 | |
2844 | |
2844 | |
2844 | |
2845 | |
2845 | |
2845 | |
2846 | |
2846 | |
2846 | |
2847 | |
2847 | |
2847 | |
| | | | | | | Encumbrances at December 31, 2020 | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at Which Carried As of December 31, 2020 | | Accumulated Depreciation(2) | | Year Acquired/ Constructed | | |
2850 | |
| | City | | State | | Encumbrances at December 31, 2020 | | Land | | Buildings and Improvements | | Costs Capitalized Subsequent to Acquisition | | Land | | Buildings and Improvements | | Total(1) | | Accumulated Depreciation(2) | | Year Acquired/ Constructed | |
154 | | Knoxville | | TN | | | 700 | | | 4,559 | | | 730 | | | 8,778 | | | 9,508 | | | | | |
| 2850 | |
| 2850 | |
2853 | |
2853 | |
2853 | |
2854 | |
2854 | |
2854 | |
2848 | |
2848 | |
2848 | |
2849 | |
2849 | |
2849 | |
2851 | |
2851 | |
2851 | |
2862 | |
2862 | |
2862 | |
2865 | |
2865 | |
2865 | |
624 | |
624 | |
624 | |
559 | |
559 | |
559 | |
561 | |
561 | |
561 | |
562 | |
562 | |
562 | |
625 | |
625 | |
625 | 625 | | Nashville | | TN | | 0 | | | 955 | | | 14,289 | | | 6,424 | | | 955 | | | 18,249 | | | 19,204 | | | (7,257) | | | 2000 | | |
626 | 626 | | Nashville | | TN | | 0 | | | 2,050 | | | 5,211 | | | 5,415 | | | 2,055 | | | 8,896 | | | 10,951 | | | (4,145) | | | 2000 | | |
626 | |
626 | |
627 | |
627 | |
627 | 627 | | Nashville | | TN | | 0 | | | 1,007 | | | 181 | | | 1,443 | | | 1,113 | | | 1,241 | | | 2,354 | | | (460) | | | 2000 | | |
628 | 628 | | Nashville | | TN | | 0 | | | 2,980 | | | 7,164 | | | 4,523 | | | 2,980 | | | 10,601 | | | 13,581 | | | (5,071) | | | 2000 | | |
628 | |
628 | |
630 | |
630 | |
630 | 630 | | Nashville | | TN | | 0 | | | 515 | | | 848 | | | 450 | | | 528 | | | 1,057 | | | 1,585 | | | (466) | | | 2000 | | |
631 | 631 | | Nashville | | TN | | 0 | | | 266 | | | 1,305 | | | 2,009 | | | 266 | | | 2,645 | | | 2,911 | | | (1,205) | | | 2000 | | |
631 | |
631 | |
632 | |
632 | |
632 | 632 | | Nashville | | TN | | 0 | | | 827 | | | 7,642 | | | 5,728 | | | 827 | | | 10,856 | | | 11,683 | | | (4,677) | | | 2000 | | |
633 | 633 | | Nashville | | TN | | 0 | | | 5,425 | | | 12,577 | | | 9,010 | | | 5,425 | | | 18,192 | | | 23,617 | | | (7,879) | | | 2000 | | |
633 | |
633 | |
634 | |
634 | |
634 | 634 | | Nashville | | TN | | 0 | | | 3,818 | | | 15,185 | | | 11,751 | | | 3,818 | | | 23,621 | | | 27,439 | | | (11,772) | | | 2000 | | |
636 | 636 | | Nashville | | TN | | 0 | | | 583 | | | 450 | | | 420 | | | 604 | | | 756 | | | 1,360 | | | (347) | | | 2000 | | |
636 | |
636 | |
2967 | 2967 | | Nashville(3) | | TN | | 0 | | | 0 | | | 0 | | | 14,058 | | | 0 | | | 14,058 | | | 14,058 | | | 0 | | | 2019 | | |
2967 | |
2967 | |
2720 | |
2720 | |
2720 | |
2611 | |
2611 | |
2611 | 2611 | | Allen | | TX | | 0 | | | 1,330 | | | 5,960 | | | 778 | | | 1,374 | | | 6,694 | | | 8,068 | | | (999) | | | 2016 | | |
2612 | 2612 | | Allen | | TX | | 0 | | | 1,310 | | | 4,165 | | | 810 | | | 1,310 | | | 4,953 | | | 6,263 | | | (864) | | | 2016 | | |
2612 | |
2612 | |
573 | |
573 | |
573 | 573 | | Arlington | | TX | | 0 | | | 769 | | | 12,355 | | | 5,018 | | | 769 | | | 15,438 | | | 16,207 | | | (7,008) | | | 2003 | | |
2621 | 2621 | | Cedar Park | | TX | | 0 | | | 1,617 | | | 11,640 | | | 308 | | | 1,617 | | | 11,948 | | | 13,565 | | | (1,006) | | | 2017 | | |
2621 | |
2621 | |
576 | |
576 | |
576 | 576 | | Conroe | | TX | | 0 | | | 324 | | | 4,842 | | | 3,990 | | | 324 | | | 7,307 | | | 7,631 | | | (2,922) | | | 2000 | | |
577 | 577 | | Conroe | | TX | | 0 | | | 397 | | | 7,966 | | | 3,868 | | | 397 | | | 10,584 | | | 10,981 | | | (4,221) | | | 2000 | | |
577 | |
577 | |
578 | |
578 | |
578 | 578 | | Conroe | | TX | | 0 | | | 388 | | | 7,975 | | | 4,669 | | | 388 | | | 10,613 | | | 11,001 | | | (4,562) | | | 2006 | | |
579 | 579 | | Conroe | | TX | | 0 | | | 188 | | | 3,618 | | | 1,469 | | | 188 | | | 4,477 | | | 4,665 | | | (1,925) | | | 2000 | | |
579 | |
579 | |
581 | |
581 | |
581 | 581 | | Corpus Christi | | TX | | 0 | | | 717 | | | 8,181 | | | 6,501 | | | 717 | | | 12,086 | | | 12,803 | | | (5,884) | | | 2000 | | |
600 | 600 | | Corpus Christi | | TX | | 0 | | | 328 | | | 3,210 | | | 4,579 | | | 328 | | | 5,733 | | | 6,061 | | | (2,810) | | | 2000 | | |
600 | |
600 | |
601 | |
601 | |
601 | 601 | | Corpus Christi | | TX | | 0 | | | 313 | | | 1,771 | | | 2,127 | | | 325 | | | 3,059 | | | 3,384 | | | (1,505) | | | 2000 | | |
2839 | 2839 | | Cypress(3) | | TX | | 0 | | | 0 | | | 0 | | | 36,830 | | | 11 | | | 36,819 | | | 36,830 | | | (7,977) | | | 2015 | | |
2839 | |
2839 | |
582 | 582 | | Dallas | | TX | | 0 | | | 1,664 | | | 6,785 | | | 5,685 | | | 1,747 | | | 10,251 | | | 11,998 | | | (4,505) | | | 2000 | | |
886 | | Dallas | | TX | | 0 | | | 1,820 | | | 8,508 | | | 26 | | | 1,820 | | | 7,454 | | | 9,274 | | | (2,578) | | | 2007 | | |
582 | |
582 | |
| 1314 | 1314 | | Dallas | | TX | | 0 | | | 15,230 | | | 162,970 | | | 46,250 | | | 24,102 | | | 195,017 | | | 219,119 | | | (73,745) | | | 2006 | | |
| 1314 | |
| 1314 | |
1315 | |
1315 | |
1315 | |
1316 | |
1316 | |
1316 | |
1317 | |
1317 | |
1317 | |
1319 | |
1319 | |
1319 | 1319 | | Dallas | | TX | | 0 | | | 18,840 | | | 155,659 | | | 5,873 | | | 18,840 | | | 161,208 | | | 180,048 | | | (62,128) | | | 2007 | | |
2721 | 2721 | | Dallas | | TX | | 0 | | | 31,707 | | | 2,000 | | | 0 | | | 31,707 | | | 2,000 | | | 33,707 | | | 0 | | | 2020 | | |
| 2721 | |
2721 | |
3007 | |
3007 | |
3007 | |
3020 | |
3020 | |
3020 | |
3021 | |
3021 | |
3021 | |
583 | |
583 | |
583 | 583 | | Fort Worth | | TX | | 0 | | | 898 | | | 4,866 | | | 4,482 | | | 898 | | | 8,086 | | | 8,984 | | | (3,163) | | | 2000 | | |
805 | 805 | | Fort Worth | | TX | | 0 | | | 0 | | | 2,481 | | | 1,785 | | | 45 | | | 3,518 | | | 3,563 | | | (1,987) | | | 2005 | | |
805 | |
805 | |
806 | 806 | | Fort Worth | | TX | | 0 | | | 0 | | | 6,070 | | | 1,934 | | | 5 | | | 7,586 | | | 7,591 | | | (2,747) | | | 2005 | | |
2231 | | Fort Worth | | TX | | 0 | | | 902 | | | 0 | | | 44 | | | 946 | | | 0 | | | 946 | | | (26) | | | 2014 | | |
806 | |
806 | |
| 2619 | |
| 2619 | |
| 2619 | 2619 | | Fort Worth | | TX | | 0 | | | 1,180 | | | 13,432 | | | 47 | | | 1,180 | | | 13,479 | | | 14,659 | | | (1,073) | | | 2017 | | |
2620 | 2620 | | Fort Worth | | TX | | 0 | | | 1,961 | | | 14,155 | | | 177 | | | 1,961 | | | 14,332 | | | 16,293 | | | (1,189) | | | 2017 | | |
2620 | |
2620 | |
| 2982 | |
| 2982 | |
| 2982 | 2982 | | Fort Worth | | TX | | 0 | | | 2,720 | | | 6,225 | | | 3,097 | | | 2,720 | | | 9,316 | | | 12,036 | | | (573) | | | 2019 | | |
1061 | 1061 | | Granbury | | TX | | 0 | | | 0 | | | 6,863 | | | 1,125 | | | 0 | | | 7,848 | | | 7,848 | | | (2,850) | | | 2006 | | |
1061 | |
1061 | |
430 | |
430 | |
430 | 430 | | Houston | | TX | | 0 | | | 1,927 | | | 33,140 | | | 19,966 | | | 2,200 | | | 50,090 | | | 52,290 | | | (25,389) | | | 1999 | | |
446 | 446 | | Houston | | TX | | 0 | | | 2,200 | | | 19,585 | | | 23,004 | | | 2,945 | | | 33,322 | | | 36,267 | | | (22,145) | | | 1999 | | |
446 | |
446 | |
589 | 589 | | Houston | | TX | | 0 | | | 1,676 | | | 12,602 | | | 8,235 | | | 1,706 | | | 17,124 | | | 18,830 | | | (7,357) | | | 2000 | | |
670 | | Houston | | TX | | 0 | | | 257 | | | 2,884 | | | 1,656 | | | 318 | | | 3,404 | | | 3,722 | | | (1,469) | | | 2000 | | |
589 | |
589 | |
| 702 | |
| 702 | |
| 702 | 702 | | Houston | | TX | | 0 | | | 0 | | | 7,414 | | | 3,794 | | | 7 | | | 9,980 | | | 9,987 | | | (4,137) | | | 2004 | | |
1044 | 1044 | | Houston | | TX | | 0 | | | 0 | | | 4,838 | | | 5,260 | | | 1,320 | | | 6,896 | | | 8,216 | | | (2,346) | | | 2006 | | |
1044 | |
1044 | |
2542 | |
2542 | |
2542 | 2542 | | Houston | | TX | | 0 | | | 304 | | | 17,764 | | | 0 | | | 304 | | | 17,764 | | | 18,068 | | | (3,000) | | | 2015 | | |
2543 | 2543 | | Houston | | TX | | 0 | | | 116 | | | 6,555 | | | 0 | | | 116 | | | 6,555 | | | 6,671 | | | (1,308) | | | 2015 | | |
2543 | |
2543 | |
2544 | |
2544 | |
2544 | 2544 | | Houston | | TX | | 0 | | | 312 | | | 12,094 | | | 0 | | | 312 | | | 12,094 | | | 12,406 | | | (2,432) | | | 2015 | | |
2545 | 2545 | | Houston | | TX | | 0 | | | 316 | | | 13,931 | | | 0 | | | 316 | | | 13,931 | | | 14,247 | | | (2,133) | | | 2015 | | |
2546 | | Houston | | TX | | 0 | | | 408 | | | 18,332 | | | 0 | | | 408 | | | 18,332 | | | 18,740 | | | (4,407) | | | 2015 | | |
2547 | | Houston | | TX | | 0 | | | 470 | | | 18,197 | | | 0 | | | 470 | | | 18,197 | | | 18,667 | | | (3,705) | | | 2015 | | |
2548 | | Houston | | TX | | 0 | | | 313 | | | 7,036 | | | 0 | | | 313 | | | 7,036 | | | 7,349 | | | (1,835) | | | 2015 | | |
2549 | | Houston | | TX | | 0 | | | 530 | | | 22,711 | | | 0 | | | 530 | | | 22,711 | | | 23,241 | | | (3,067) | | | 2015 | | |
2966 | | Houston(3) | | TX | | 0 | | | 0 | | | 0 | | | 7,741 | | | 0 | | | 7,741 | | | 7,741 | | | 0 | | | 2020 | | |
590 | | Irving | | TX | | 0 | | | 828 | | | 6,160 | | | 3,911 | | | 828 | | | 9,070 | | | 9,898 | | | (4,215) | | | 2000 | | |
700 | | Irving | | TX | | 0 | | | 0 | | | 8,550 | | | 4,566 | | | 8 | | | 9,672 | | | 9,680 | | | (3,923) | | | 2006 | | |
1207 | | Irving | | TX | | 0 | | | 1,955 | | | 12,793 | | | 2,455 | | | 1,986 | | | 14,537 | | | 16,523 | | | (5,576) | | | 2006 | | |
2840 | | Kingwood | | TX | | 0 | | | 3,035 | | | 28,373 | | | 1,585 | | | 3,422 | | | 29,570 | | | 32,992 | | | (4,569) | | | 2016 | | |
591 | | Lewisville | | TX | | 0 | | | 561 | | | 8,043 | | | 2,470 | | | 561 | | | 9,554 | | | 10,115 | | | (4,343) | | | 2000 | | |
144 | | Longview | | TX | | 0 | | | 102 | | | 7,998 | | | 1,168 | | | 102 | | | 8,716 | | | 8,818 | | | (4,917) | | | 1992 | | |
143 | | Lufkin | | TX | | 0 | | | 338 | | | 2,383 | | | 299 | | | 338 | | | 2,602 | | | 2,940 | | | (1,423) | | | 1992 | | |
568 | | McKinney | | TX | | 0 | | | 541 | | | 6,217 | | | 4,057 | | | 541 | | | 9,067 | | | 9,608 | | | (3,972) | | | 2003 | | |
569 | | McKinney | | TX | | 0 | | | 0 | | | 636 | | | 9,391 | | | 0 | | | 9,123 | | | 9,123 | | | (3,622) | | | 2003 | | |
1079 | | Nassau Bay | | TX | | 0 | | | 0 | | | 8,942 | | | 1,818 | | | 0 | | | 9,842 | | | 9,842 | | | (3,768) | | | 2006 | | |
596 | | N Richland Hills | | TX | | 0 | | | 812 | | | 8,883 | | | 3,656 | | | 812 | | | 11,208 | | | 12,020 | | | (4,816) | | | 2000 | | |
2048 | | North Richland Hills | | TX | | 0 | | | 1,385 | | | 10,213 | | | 2,290 | | | 1,400 | | | 12,204 | | | 13,604 | | | (4,237) | | | 2012 | | |
2835 | | Pearland | | TX | | 0 | | | 0 | | | 4,014 | | | 4,917 | | | 0 | | | 7,450 | | | 7,450 | | | (2,747) | | | 2006 | | |
2838 | | Pearland(3) | | TX | | 0 | | | 0 | | | 0 | | | 19,949 | | | 0 | | | 19,756 | | | 19,756 | | | (3,567) | | | 2014 | | |
447 | | Plano | | TX | | 0 | | | 1,700 | | | 7,810 | | | 6,859 | | | 1,792 | | | 12,884 | | | 14,676 | | | (7,562) | | | 1999 | | |
597 | | Plano | | TX | | 0 | | | 1,210 | | | 9,588 | | | 7,069 | | | 1,225 | | | 14,902 | | | 16,127 | | | (6,131) | | | 2000 | | |
672 | | Plano | | TX | | 0 | | | 1,389 | | | 12,768 | | | 4,365 | | | 1,389 | | | 14,871 | | | 16,260 | | | (5,749) | | | 2002 | | |
1284 | | Plano | | TX | | 0 | | | 2,049 | | | 18,793 | | | 2,465 | | | 2,163 | | | 13,481 | | | 15,644 | | | (7,527) | | | 2006 | | |
| 1384 | | Plano | | TX | | 0 | | | 6,290 | | | 22,686 | | | 5,707 | | | 6,290 | | | 28,203 | | | 34,493 | | | (18,910) | | | 2007 | | |
2653 | | Rockwall | | TX | | 0 | | | 788 | | | 9,020 | | | 0 | | | 788 | | | 9,020 | | | 9,808 | | | (945) | | | 2017 | | |
815 | | San Antonio | | TX | | 0 | | | 0 | | | 9,193 | | | 3,290 | | | 87 | | | 11,352 | | | 11,439 | | | (4,958) | | | 2006 | | |
816 | | San Antonio | | TX | | 2,544 | | | 0 | | | 8,699 | | | 4,165 | | | 175 | | | 11,677 | | | 11,852 | | | (5,190) | | | 2006 | | |
1591 | | San Antonio | | TX | | 0 | | | 0 | | | 7,309 | | | 864 | | | 43 | | | 7,810 | | | 7,853 | | | (2,857) | | | 2010 | | |
2837 | | San Antonio | | TX | | 0 | | | 0 | | | 26,191 | | | 3,315 | | | 0 | | | 28,952 | | | 28,952 | | | (10,009) | | | 2011 | | |
2852 | | Shenandoah(3) | | TX | | 0 | | | 0 | | | 0 | | | 29,870 | | | 0 | | | 29,870 | | | 29,870 | | | (3,953) | | | 2016 | | |
598 | | Sugarland | | TX | | 0 | | | 1,078 | | | 5,158 | | | 3,877 | | | 1,170 | | | 7,408 | | | 8,578 | | | (3,299) | | | 2000 | | |
599 | | Texas City | | TX | | 0 | | | 0 | | | 9,519 | | | 1,128 | | | 0 | | | 10,490 | | | 10,490 | | | (3,925) | | | 2000 | | |
152 | | Victoria | | TX | | 0 | | | 125 | | | 8,977 | | | 519 | | | 125 | | | 9,102 | | | 9,227 | | | (5,200) | | | 1994 | | |
2198 | | Webster | | TX | | 0 | | | 2,220 | | | 9,602 | | | 462 | | | 2,220 | | | 9,744 | | | 11,964 | | | (2,708) | | | 2013 | | |
2550 | | The Woodlands | | TX | | 0 | | | 115 | | | 5,141 | | | 0 | | | 115 | | | 5,141 | | | 5,256 | | | (887) | | | 2015 | | |
2545 | |
2545 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Encumbrances at December 31, 2020 | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at Which Carried As of December 31, 2020 | | Accumulated Depreciation(2) | | Year Acquired/ Constructed | | |
| | City | | State | | | Land | | Buildings and Improvements | | | Land | | Buildings and Improvements | | Total(1) | | | |
2551 | | The Woodlands | | TX | | 0 | | | 296 | | | 18,282 | | | 0 | | | 296 | | | 18,282 | | | 18,578 | | | (2,717) | | | 2015 | | |
2552 | | The Woodlands | | TX | | 0 | | | 374 | | | 25,125 | | | 0 | | | 374 | | | 25,125 | | | 25,499 | | | (3,328) | | | 2015 | | |
1592 | | Bountiful | | UT | | 0 | | | 999 | | | 7,426 | | | 1,195 | | | 1,019 | | | 8,431 | | | 9,450 | | | (2,993) | | | 2010 | | |
169 | | Bountiful | | UT | | 0 | | | 276 | | | 5,237 | | | 2,565 | | | 487 | | | 6,769 | | | 7,256 | | | (3,401) | | | 1995 | | |
346 | | Castle Dale | | UT | | 0 | | | 50 | | | 1,818 | | | 163 | | | 50 | | | 1,918 | | | 1,968 | | | (1,162) | | | 1998 | | |
347 | | Centerville | | UT | | 0 | | | 300 | | | 1,288 | | | 274 | | | 300 | | | 1,392 | | | 1,692 | | | (866) | | | 1999 | | |
2035 | | Draper | | UT | | 4,583 | | | 0 | | | 10,803 | | | 781 | | | 0 | | | 11,447 | | | 11,447 | | | (2,465) | | | 2012 | | |
469 | | Kaysville | | UT | | 0 | | | 530 | | | 4,493 | | | 226 | | | 530 | | | 4,639 | | | 5,169 | | | (2,076) | | | 2001 | | |
456 | | Layton | | UT | | 0 | | | 371 | | | 7,073 | | | 1,540 | | | 389 | | | 8,091 | | | 8,480 | | | (4,604) | | | 2001 | | |
2042 | | Layton | | UT | | 0 | | | 0 | | | 10,975 | | | 963 | | | 27 | | | 11,677 | | | 11,704 | | | (2,334) | | | 2012 | | |
2864 | | Ogden(3) | | UT | | 0 | | | 0 | | | 0 | | | 17,582 | | | 0 | | | 17,582 | | | 17,582 | | | (229) | | | 2019 | | |
357 | | Orem | | UT | | 0 | | | 337 | | | 8,744 | | | 3,364 | | | 306 | | | 9,329 | | | 9,635 | | | (5,364) | | | 1999 | | |
353 | | Salt Lake City | | UT | | 0 | | | 190 | | | 779 | | | 251 | | | 273 | | | 886 | | | 1,159 | | | (582) | | | 1999 | | |
354 | | Salt Lake City | | UT | | 0 | | | 220 | | | 10,732 | | | 3,534 | | | 220 | | | 13,172 | | | 13,392 | | | (7,764) | | | 1999 | | |
355 | | Salt Lake City | | UT | | 0 | | | 180 | | | 14,792 | | | 3,092 | | | 180 | | | 16,799 | | | 16,979 | | | (10,426) | | | 1999 | | |
467 | | Salt Lake City | | UT | | 0 | | | 3,000 | | | 7,541 | | | 3,014 | | | 3,145 | | | 9,854 | | | 12,999 | | | (4,920) | | | 2001 | | |
566 | | Salt Lake City | | UT | | 0 | | | 509 | | | 4,044 | | | 3,925 | | | 509 | | | 7,011 | | | 7,520 | | | (3,196) | | | 2003 | | |
2041 | | Salt Lake City | | UT | | 0 | | | 0 | | | 12,326 | | | 1,000 | | | 0 | | | 13,031 | | | 13,031 | | | (2,578) | | | 2012 | | |
2033 | | Sandy | | UT | | 0 | | | 867 | | | 3,513 | | | 1,861 | | | 1,343 | | | 4,752 | | | 6,095 | | | (2,053) | | | 2012 | | |
482 | | Stansbury | | UT | | 0 | | | 450 | | | 3,201 | | | 1,210 | | | 529 | | | 3,922 | | | 4,451 | | | (1,697) | | | 2001 | | |
351 | | Washington Terrace | | UT | | 0 | | | 0 | | | 4,573 | | | 3,048 | | | 17 | | | 5,818 | | | 5,835 | | | (3,373) | | | 1999 | | |
352 | | Washington Terrace | | UT | | 0 | | | 0 | | | 2,692 | | | 1,774 | | | 15 | | | 3,685 | | | 3,700 | | | (2,160) | | | 1999 | | |
2034 | | West Jordan | | UT | | 0 | | | 0 | | | 12,021 | | | 323 | | | 0 | | | 12,142 | | | 12,142 | | | (2,441) | | | 2012 | | |
2036 | | West Jordan | | UT | | 0 | | | 0 | | | 1,383 | | | 1,654 | | | 0 | | | 2,880 | | | 2,880 | | | (1,176) | | | 2012 | | |
495 | | West Valley City | | UT | | 0 | | | 410 | | | 8,266 | | | 1,002 | | | 410 | | | 8,255 | | | 8,665 | | | (4,363) | | | 2002 | | |
1208 | | Fairfax | | VA | | 0 | | | 8,396 | | | 16,710 | | | 14,570 | | | 8,840 | | | 29,326 | | | 38,166 | | | (13,080) | | | 2006 | | |
2230 | | Fredericksburg | | VA | | 0 | | | 1,101 | | | 8,570 | | | 0 | | | 1,101 | | | 8,570 | | | 9,671 | | | (1,571) | | | 2014 | | |
572 | | Reston | | VA | | 0 | | | 0 | | | 11,902 | | | 1,287 | | | 0 | | | 12,225 | | | 12,225 | | | (5,623) | | | 2003 | | |
448 | | Renton | | WA | | 0 | | | 0 | | | 18,724 | | | 4,967 | | | 0 | | | 21,859 | | | 21,859 | | | (13,233) | | | 1999 | | |
781 | | Seattle | | WA | | 0 | | | 0 | | | 52,703 | | | 18,839 | | | 0 | | | 65,797 | | | 65,797 | | | (30,230) | | | 2004 | | |
782 | | Seattle | | WA | | 0 | | | 0 | | | 24,382 | | | 14,226 | | | 126 | | | 34,266 | | | 34,392 | | | (18,085) | | | 2004 | | |
783 | | Seattle | | WA | | 0 | | | 0 | | | 5,625 | | | 2,113 | | | 183 | | | 6,867 | | | 7,050 | | | (6,234) | | | 2004 | | |
785 | | Seattle | | WA | | 0 | | | 0 | | | 7,293 | | | 6,153 | | | 0 | | | 11,505 | | | 11,505 | | | (7,342) | | | 2004 | | |
1385 | | Seattle | | WA | | 0 | | | 0 | | | 45,027 | | | 11,123 | | | 0 | | | 55,172 | | | 55,172 | | | (21,409) | | | 2007 | | |
2038 | | Evanston | | WY | | 0 | | | 0 | | | 4,601 | | | 1,023 | | | 0 | | | 5,548 | | | 5,548 | | | (1,247) | | | 2012 | | |
| | | | | | $ | 7,127 | | | $ | 370,205 | | | $ | 3,453,072 | | | $ | 1,304,180 | | | $ | 401,228 | | | $ | 4,457,929 | | | $ | 4,859,157 | | | $ | (1,428,797) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Encumbrances at December 31, 2023 | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition(3) | | Gross Amount at Which Carried As of December 31, 2023 | | Accumulated Depreciation(5) | | Year Constructed(6) | | Year Acquired | |
| | City | | State | | | Land and improvements(1) | | Buildings and Improvements(2) | | | Land and improvements | | Buildings and Improvements | | Total(4) | | | |
2546 | | Houston | | TX | | — | | | 408 | | | 18,332 | | | 740 | | | — | | | 19,480 | | | 19,480 | | | (6,233) | | | 1977 | | 2015 | |
2547 | | Houston | | TX | | — | | | 470 | | | 18,197 | | | (250) | | | — | | | 18,417 | | | 18,417 | | | (5,156) | | | 1985 | | 2015 | |
2548 | | Houston | | TX | | — | | | 313 | | | 7,036 | | | (140) | | | — | | | 7,209 | | | 7,209 | | | (2,392) | | | 1979 | | 2015 | |
2549 | | Houston | | TX | | — | | | 530 | | | 22,711 | | | 68 | | | 530 | | | 22,779 | | | 23,309 | | | (4,740) | | | 2006 | | 2015 | |
2966 | | Houston | | TX | | — | | | — | | | — | | | 39,448 | | | — | | | 39,448 | | | 39,448 | | | (2,576) | | | 2022 | | 2020 | |
590 | | Irving | | TX | | — | | | 828 | | | 6,160 | | | 5,455 | | | 828 | | | 11,615 | | | 12,443 | | | (4,835) | | | 1997 | | 2006 | |
700 | | Irving | | TX | | — | | | — | | | 8,550 | | | 3,091 | | | 8 | | | 11,633 | | | 11,641 | | | (5,109) | | | 2004 | | 2006 | |
1207 | | Irving | | TX | | — | | | 1,955 | | | 12,793 | | | 4,699 | | | 2,032 | | | 17,415 | | | 19,447 | | | (6,471) | | | 2001 | | 2006 | |
2840 | | Kingwood | | TX | | — | | | 3,035 | | | 28,373 | | | 464 | | | 3,422 | | | 28,450 | | | 31,872 | | | (6,005) | | | 2003 | | 2016 | |
591 | | Lewisville | | TX | | — | | | 561 | | | 8,043 | | | 1,102 | | | 561 | | | 9,145 | | | 9,706 | | | (4,487) | | | 1976 | | 2006 | |
144 | | Longview | | TX | | — | | | 102 | | | 7,998 | | | 988 | | | 102 | | | 8,986 | | | 9,088 | | | (5,735) | | | 1993 | | 1992 | |
143 | | Lufkin | | TX | | — | | | 338 | | | 2,383 | | | 219 | | | 338 | | | 2,602 | | | 2,940 | | | (1,648) | | | 1993 | | 1992 | |
568 | | McKinney | | TX | | — | | | 541 | | | 6,217 | | | 3,371 | | | 541 | | | 9,588 | | | 10,129 | | | (4,892) | | | 1999 | | 2003 | |
569 | | McKinney | | TX | | — | | | — | | | 636 | | | 8,319 | | | — | | | 8,955 | | | 8,955 | | | (4,506) | | | 2004 | | 2003 | |
3216 | | McKinney | | TX | | — | | | — | | | — | | | 1,415 | | | — | | | 1,415 | | | 1,415 | | | — | | | — | | 2023 | |
596 | | North Richland Hills | | TX | | — | | | 812 | | | 8,883 | | | 4,524 | | | 812 | | | 13,407 | | | 14,219 | | | (5,619) | | | 1999 | | 2006 | |
2048 | | North Richland Hills | | TX | | — | | | 1,385 | | | 10,213 | | | 1,849 | | | 1,400 | | | 12,047 | | | 13,447 | | | (5,367) | | | 2007 | | 2012 | |
2835 | | Pearland | | TX | | — | | | — | | | 4,014 | | | 4,238 | | | 29 | | | 8,223 | | | 8,252 | | | (3,217) | | | 2006 | | 2006 | |
2838 | | Pearland | | TX | | — | | | — | | | — | | | 18,363 | | | — | | | 18,363 | | | 18,363 | | | (5,422) | | | 2015 | | 2014 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
597 | | Plano | | TX | | — | | | 1,210 | | | 9,588 | | | 7,506 | | | 1,225 | | | 17,079 | | | 18,304 | | | (6,930) | | | 1997 | | 2006 | |
672 | | Plano | | TX | | — | | | 1,389 | | | 12,768 | | | 3,922 | | | 1,389 | | | 16,690 | | | 18,079 | | | (6,958) | | | 2004 | | 2006 | |
1384 | | Plano | | TX | | — | | | 6,290 | | | 22,686 | | | 7,966 | | | 6,290 | | | 30,652 | | | 36,942 | | | (24,603) | | | 1997 | | 2007 | |
2653 | | Rockwall | | TX | | — | | | 788 | | | 9,020 | | | 2 | | | 788 | | | 9,022 | | | 9,810 | | | (1,847) | | | 2015 | | 2017 | |
815 | | San Antonio | | TX | | — | | | — | | | 9,193 | | | 3,285 | | | 75 | | | 12,403 | | | 12,478 | | | (5,948) | | | 1997 | | 2006 | |
816 | | San Antonio | | TX | | 1,552 | | | — | | | 8,699 | | | 13,192 | | | 175 | | | 21,716 | | | 21,891 | | | (6,649) | | | 1992/2022 | | 2006 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
2837 | | San Antonio | | TX | | — | | | — | | | 26,191 | | | 4,115 | | | — | | | 30,306 | | | 30,306 | | | (12,352) | | | 2006 | | 2011 | |
2852 | | Shenandoah | | TX | | — | | | — | | | — | | | 29,980 | | | — | | | 29,980 | | | 29,980 | | | (8,235) | | | 2017 | | 2016 | |
598 | | Sugar Land | | TX | | — | | | 1,078 | | | 5,158 | | | 3,261 | | | 1,164 | | | 8,333 | | | 9,497 | | | (3,579) | | | 1982 | | 2006 | |
599 | | Texas City | | TX | | — | | | — | | | 9,519 | | | 1,971 | | | — | | | 11,490 | | | 11,490 | | | (4,972) | | | 2003 | | 2006 | |
152 | | Victoria | | TX | | — | | | 125 | | | 8,977 | | | 535 | | | 125 | | | 9,512 | | | 9,637 | | | (5,842) | | | 1994 | | 1992 | |
2198 | | Webster | | TX | | — | | | 2,220 | | | 9,602 | | | 142 | | | 2,220 | | | 9,744 | | | 11,964 | | | (3,920) | | | 1991 | | 2013 | |
3024 | | Webster | | TX | | — | | | 3,196 | | | 12,911 | | | (28) | | | 3,212 | | | 12,867 | | | 16,079 | | | (892) | | | 2007 | | 2022 | |
3025 | | Webster | | TX | | — | | | 3,209 | | | 23,782 | | | 114 | | | 3,225 | | | 23,880 | | | 27,105 | | | (1,571) | | | 2007 | | 2022 | |
2550 | | The Woodlands | | TX | | — | | | 115 | | | 5,141 | | | (115) | | | — | | | 5,141 | | | 5,141 | | | (1,249) | | | 1984 | | 2015 | |
2551 | | The Woodlands | | TX | | — | | | 296 | | | 18,282 | | | (296) | | | — | | | 18,282 | | | 18,282 | | | (3,885) | | | 1997 | | 2015 | |
2552 | | The Woodlands | | TX | | — | | | 374 | | | 25,125 | | | (374) | | | — | | | 25,125 | | | 25,125 | | | (4,746) | | | 2004 | | 2015 | |
3215 | | Wylie | | TX | | — | | | 874 | | | 4,122 | | | (64) | | | 874 | | | 4,058 | | | 4,932 | | | (180) | | | 2005 | | 2007 | |
1592 | | Bountiful | | UT | | — | | | 999 | | | 7,426 | | | 1,963 | | | 1,019 | | | 9,369 | | | 10,388 | | | (3,953) | | | 2005 | | 2010 | |
169 | | Bountiful | | UT | | — | | | 276 | | | 5,237 | | | 4,602 | | | 599 | | | 9,516 | | | 10,115 | | | (4,262) | | | 1995 | | 1994 | |
2035 | | Draper | | UT | | 3,952 | | | — | | | 10,803 | | | 561 | | | — | | | 11,364 | | | 11,364 | | | (2,826) | | | 2010 | | 2012 | |
469 | | Kaysville | | UT | | — | | | 530 | | | 4,493 | | | 426 | | | 530 | | | 4,919 | | | 5,449 | | | (2,245) | | | 2001 | | 2001 | |
456 | | Layton | | UT | | — | | | 371 | | | 7,073 | | | 2,191 | | | 401 | | | 9,234 | | | 9,635 | | | (5,132) | | | 1998 | | 2001 | |
2042 | | Layton | | UT | | — | | | — | | | 10,975 | | | 1,831 | | | 44 | | | 12,762 | | | 12,806 | | | (3,379) | | | 2006 | | 2012 | |
2864 | | Washington Terrace | | UT | | — | | | — | | | — | | | 19,898 | | | — | | | 19,898 | | | 19,898 | | | (3,091) | | | 2020 | | 2019 | |
357 | | Orem | | UT | | — | | | 337 | | | 8,744 | | | 1,177 | | | 306 | | | 9,952 | | | 10,258 | | | (6,286) | | | 1998 | | 1999 | |
353 | | Salt Lake City | | UT | | — | | | 190 | | | 779 | | | 238 | | | 273 | | | 934 | | | 1,207 | | | (628) | | | 1991 | | 1999 | |
354 | | Salt Lake City | | UT | | — | | | 220 | | | 10,732 | | | 4,186 | | | 220 | | | 14,918 | | | 15,138 | | | (8,926) | | | 1999 | | 1999 | |
355 | | Salt Lake City | | UT | | — | | | 180 | | | 14,792 | | | 5,141 | | | 180 | | | 19,933 | | | 20,113 | | | (11,708) | | | 1993 | | 1999 | |
467 | | Salt Lake City | | UT | | — | | | 3,000 | | | 7,541 | | | 2,459 | | | 3,019 | | | 9,981 | | | 13,000 | | | (5,598) | | | 1998 | | 2001 | |
566 | | Salt Lake City | | UT | | — | | | 509 | | | 4,044 | | | 3,763 | | | 509 | | | 7,807 | | | 8,316 | | | (3,555) | | | 1974 | | 2003 | |
2041 | | Salt Lake City | | UT | | — | | | — | | | 12,326 | | | 877 | | | — | | | 13,203 | | | 13,203 | | | (3,406) | | | 2007 | | 2012 | |
2033 | | Sandy | | UT | | — | | | 867 | | | 3,513 | | | 2,919 | | | 1,356 | | | 5,943 | | | 7,299 | | | (3,380) | | | 1989 | | 2012 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
351 | | Washington Terrace | | UT | | — | | | — | | | 4,573 | | | 1,317 | | | 17 | | | 5,873 | | | 5,890 | | | (3,724) | | | 1989 | | 1999 | |
352 | | Washington Terrace | | UT | | — | | | — | | | 2,692 | | | 641 | | | 15 | | | 3,318 | | | 3,333 | | | (2,231) | | | 1990 | | 1999 | |
2034 | | West Jordan | | UT | | — | | | — | | | 12,021 | | | (177) | | | — | | | 11,844 | | | 11,844 | | | (3,016) | | | 2006 | | 2012 | |
2036 | | West Jordan | | UT | | — | | | — | | | 1,383 | | | 1,328 | | | — | | | 2,711 | | | 2,711 | | | (1,655) | | | 1982 | | 2012 | |
1208 | | Fairfax | | VA | | — | | | 8,396 | | | 16,710 | | | 12,121 | | | 8,781 | | | 28,446 | | | 37,227 | | | (15,291) | | | 1974/2018 | | 2006 | |
2230 | | Fredericksburg | | VA | | — | | | 1,101 | | | 8,570 | | | 156 | | | 1,113 | | | 8,714 | | | 9,827 | | | (2,308) | | | 2008 | | 2014 | |
3001 | | Leesburg | | VA | | 10,217 | | | 3,549 | | | 24,059 | | | 4,826 | | | 3,549 | | | 28,885 | | | 32,434 | | | (3,912) | | | 2010 | | 2021 | |
3015 | | Midlothian | | VA | | 12,688 | | | — | | | 21,442 | | | 10 | | | 59 | | | 21,393 | | | 21,452 | | | (1,653) | | | 2012 | | 2021 | |
3016 | | Midlothian | | VA | | 11,994 | | | — | | | 20,610 | | | (137) | | | 32 | | | 20,441 | | | 20,473 | | | (1,766) | | | 2013 | | 2021 | |
3017 | | Midlothian | | VA | | 13,878 | | | — | | | 22,531 | | | 176 | | | — | | | 22,707 | | | 22,707 | | | (2,846) | | | 2014 | | 2021 | |
572 | | Reston | | VA | | — | | | — | | | 11,902 | | | (864) | | | — | | | 11,038 | | | 11,038 | | | (5,515) | | | 2004 | | 2003 | |
448 | | Renton | | WA | | — | | | — | | | 18,724 | | | 3,750 | | | — | | | 22,474 | | | 22,474 | | | (13,933) | | | 1993 | | 1999 | |
781 | | Seattle | | WA | | — | | | — | | | 52,703 | | | 10,129 | | | — | | | 62,832 | | | 62,832 | | | (31,470) | | | 1994 | | 2004 | |
782 | | Seattle | | WA | | — | | | — | | | 24,382 | | | 22,413 | | | 104 | | | 46,691 | | | 46,795 | | | (16,953) | | | 1990/2022 | | 2004 | |
783 | | Seattle | | WA | | — | | | — | | | 5,625 | | | 1,607 | | | 211 | | | 7,021 | | | 7,232 | | | (6,247) | | | 1984 | | 2004 | |
785 | | Seattle | | WA | | — | | | — | | | 7,293 | | | 1,475 | | | — | | | 8,768 | | | 8,768 | | | (5,205) | | | 1982 | | 2004 | |
1385 | | Seattle | | WA | | — | | | — | | | 45,027 | | | 17,489 | | | — | | | 62,516 | | | 62,516 | | | (26,972) | | | 1986/2019 | | 2007 | |
3022 | | Seattle | | WA | | — | | | 35,624 | | | 4,176 | | | 1 | | | 35,625 | | | 4,176 | | | 39,801 | | | (1,898) | | | 1963/2012 | | 2021 | |
2038 | | Evanston | | WY | | — | | | — | | | 4,601 | | | 1,204 | | | — | | | 5,805 | | | 5,805 | | | (1,953) | | | 2002 | | 2012 | |
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| | | | | | $ | 146,426 | | | $ | 529,287 | | | $ | 3,887,576 | | | $ | 1,467,286 | | | $ | 546,448 | | | $ | 5,337,701 | | | $ | 5,884,149 | | | $ | (1,796,189) | | | | | | |
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| | | | | | Encumbrances at December 31, 2020 | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at Which Carried As of December 31, 2020 | | Accumulated Depreciation(2) | | Year Acquired/ Constructed | | |
| | City | | State | | | Land | | Buildings and Improvements | | | Land | | Buildings and Improvements | | Total(1) | | | |
Continuing care retirement community | | | | | | | | | | | | | | | | | | | | | | |
3089 | | Birmingham | | AL | | $ | 0 | | | $ | 6,218 | | | $ | 32,146 | | | $ | 875 | | | $ | 6,369 | | | $ | 32,870 | | | $ | 39,239 | | | $ | (1,594) | | | 2020 | | |
3090 | | Bradenton | | FL | | 0 | | | 5,496 | | | 95,671 | | | 4,378 | | | 5,766 | | | 99,779 | | | 105,545 | | | (4,488) | | | 2020 | | |
2997 | | Clearwater | | FL | | 72,137 | | | 6,680 | | | 132,521 | | | 3,416 | | | 6,707 | | | 135,910 | | | 142,617 | | | (4,588) | | | 2020 | | |
3086 | | Jacksonville | | FL | | 0 | | | 19,660 | | | 167,860 | | | 4,416 | | | 20,002 | | | 171,935 | | | 191,937 | | | (6,512) | | | 2020 | | |
2996 | | Leesburg | | FL | | 0 | | | 8,941 | | | 65,698 | | | 3,908 | | | 9,556 | | | 68,991 | | | 78,547 | | | (3,046) | | | 2020 | | |
2995 | | Port Charlotte | | FL | | 0 | | | 5,344 | | | 159,612 | | | 2,902 | | | 5,503 | | | 162,354 | | | 167,857 | | | (5,269) | | | 2020 | | |
2998 | | Seminole | | FL | | 47,141 | | | 14,080 | | | 77,485 | | | 2,068 | | | 14,584 | | | 79,049 | | | 93,633 | | | (2,350) | | | 2020 | | |
3085 | | Seminole | | FL | | 0 | | | 13,915 | | | 125,796 | | | 4,428 | | | 14,162 | | | 129,978 | | | 144,140 | | | (5,016) | | | 2020 | | |
3092 | | Sun City Center | | FL | | 91,439 | | | 25,254 | | | 175,535 | | | 4,434 | | | 25,512 | | | 179,711 | | | 205,223 | | | (7,994) | | | 2020 | | |
3087 | | The Villages | | FL | | 0 | | | 7,091 | | | 120,493 | | | 4,238 | | | 7,101 | | | 124,721 | | | 131,822 | | | (4,562) | | | 2020 | | |
3084 | | Holland | | MI | | 0 | | | 1,572 | | | 88,960 | | | 2,435 | | | 1,630 | | | 91,336 | | | 92,966 | | | (3,313) | | | 2020 | | |
2991 | | Coatesville | | PA | | 0 | | | 16,443 | | | 126,243 | | | 3,216 | | | 16,547 | | | 129,357 | | | 145,904 | | | (4,407) | | | 2020 | | |
3080 | | Haverford | | PA | | 0 | | | 16,461 | | | 108,816 | | | 21,643 | | | 16,461 | | | 122,831 | | | 139,292 | | | (44,723) | | | 1989 | | |
3088 | | Spring | | TX | | 0 | | | 3,210 | | | 30,085 | | | 1,085 | | | 3,245 | | | 31,135 | | | 34,380 | | | (1,177) | | | 2020 | | |
3081 | | Ft Belvoir | | VA | | 0 | | | 11,594 | | | 99,528 | | | 19,155 | | | 11,594 | | | 114,152 | | | 125,746 | | | (42,423) | | | 1998 | | |
| | | | | | $ | 210,717 | | | $ | 161,959 | | | $ | 1,606,449 | | | $ | 82,597 | | | $ | 164,739 | | | $ | 1,674,109 | | | $ | 1,838,848 | | | $ | (141,462) | | | | | |
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Total medical office assets held for sale | | | | 0 | | | (22,193) | | | (117,810) | | | (7,870) | | | (22,413) | | | (110,367) | | | (132,780) | | | 60,193 | | | | | |
Total continuing operations, excluding held for sale | | | | $ | 221,621 | | | $ | 1,831,267 | | | $ | 8,255,662 | | | $ | 3,884,718 | | | $ | 1,867,278 | | | $ | 11,661,615 | | | $ | 13,528,893 | | | $ | (2,409,135) | | | | | |
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| | | | | | Encumbrances at December 31, 2023 | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition(3) | | Gross Amount at Which Carried As of December 31, 2023 | | Accumulated Depreciation(5) | | Year Constructed(6) | | Year Acquired | |
| | City | | State | | | Land and improvements(1) | | Buildings and Improvements(2) | | | Land and improvements | | Buildings and Improvements | | Total(4) | | | |
Continuing care retirement community | | | | | | | | | | | | | | | | | | | | | |
3089 | | Birmingham | | AL | | $ | — | | | $ | 6,193 | | | $ | 32,146 | | | $ | 6,411 | | | $ | 6,670 | | | $ | 38,080 | | | $ | 44,750 | | | $ | (7,612) | | | 1991 | | 2020 | |
3090 | | Bradenton | | FL | | — | | | 5,496 | | | 95,671 | | | 27,694 | | | 6,228 | | | 122,633 | | | 128,861 | | | (21,444) | | | 1985 | | 2020 | |
2997 | | Clearwater | | FL | | 66,436 | | | 6,680 | | | 132,521 | | | 20,619 | | | 7,195 | | | 152,625 | | | 159,820 | | | (21,252) | | | 1991 | | 2020 | |
3086 | | Jacksonville | | FL | | — | | | 19,660 | | | 167,860 | | | 22,367 | | | 21,042 | | | 188,845 | | | 209,887 | | | (29,940) | | | 1989 | | 2020 | |
2996 | | Leesburg | | FL | | — | | | 8,941 | | | 65,698 | | | 16,620 | | | 9,779 | | | 81,480 | | | 91,259 | | | (14,936) | | | 1990 | | 2020 | |
2995 | | Port Charlotte | | FL | | — | | | 5,344 | | | 159,612 | | | 16,205 | | | 6,008 | | | 175,153 | | | 181,161 | | | (23,576) | | | 1987 | | 2020 | |
2998 | | Seminole | | FL | | 43,235 | | | 14,080 | | | 77,485 | | | 13,228 | | | 15,030 | | | 89,763 | | | 104,793 | | | (11,367) | | | 1990 | | 2020 | |
3085 | | Seminole | | FL | | — | | | 13,915 | | | 125,796 | | | 16,519 | | | 14,698 | | | 141,532 | | | 156,230 | | | (23,135) | | | 1982 | | 2020 | |
3092 | | Sun City Center | | FL | | — | | | 25,254 | | | 175,535 | | | 21,862 | | | 26,460 | | | 196,191 | | | 222,651 | | | (36,004) | | | 1992 | | 2020 | |
3087 | | The Villages | | FL | | — | | | 7,091 | | | 120,493 | | | 16,363 | | | 7,331 | | | 136,616 | | | 143,947 | | | (21,450) | | | 2009 | | 2020 | |
3084 | | Holland | | MI | | — | | | 1,572 | | | 88,960 | | | 10,401 | | | 1,898 | | | 99,035 | | | 100,933 | | | (15,129) | | | 1991 | | 2020 | |
2991 | | Coatesville | | PA | | — | | | 16,443 | | | 126,243 | | | 17,270 | | | 17,064 | | | 142,892 | | | 159,956 | | | (20,601) | | | 1998 | | 2020 | |
3080 | | Haverford | | PA | | — | | | 16,461 | | | 108,816 | | | 24,097 | | | 16,461 | | | 132,913 | | | 149,374 | | | (52,714) | | | 1989 | | 2006 | |
3088 | | Spring | | TX | | — | | | 3,210 | | | 30,085 | | | 11,821 | | | 3,524 | | | 41,592 | | | 45,116 | | | (5,695) | | | 2008 | | 2020 | |
3081 | | Fort Belvoir | | VA | | — | | | 11,594 | | | 99,528 | | | 19,948 | | | 11,594 | | | 119,476 | | | 131,070 | | | (51,408) | | | 1990 | | 2006 | |
| | | | | | $ | 109,671 | | | $ | 161,934 | | | $ | 1,606,449 | | | $ | 261,425 | | | $ | 170,982 | | | $ | 1,858,826 | | | $ | 2,029,808 | | | $ | (356,263) | | | | | | |
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Total real estate assets held for sale | | — | | | (9,125) | | | (10,213) | | | (103,849) | | | (9,154) | | | (114,033) | | | (123,187) | | | 5,365 | | | | | | |
Total, excluding held for sale | | $ | 256,097 | | | $ | 2,618,324 | | | $ | 8,722,627 | | | $ | 5,279,363 | | | $ | 2,647,633 | | | $ | 13,972,681 | | | $ | 16,620,314 | | | $ | (3,591,951) | | | | | | |
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Table of Contents_______________________________________ | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Encumbrances at December 31, 2020 | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at Which Carried As of December 31, 2020 | | Accumulated Depreciation(2) | | Year Acquired/ Constructed | | |
| | City | | State | | | Land | | Buildings and Improvements | | | Land | | Buildings and Improvements | | Total(1) | | | |
Discontinued operations: | | | | | | | | | | | | | | | | | | | | | | |
Senior housing triple-net | | | | | | | | | | | | | | | | | | | | | | |
1107 | | Huntsville | | AL | | $ | 0 | | | $ | 307 | | | $ | 5,813 | | | $ | 574 | | | $ | 307 | | | $ | 6,027 | | | $ | 6,334 | | | $ | (1,956) | | | 2006 | | |
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518 | | Tucson | | AZ | | 0 | | | 2,350 | | | 24,037 | | | 280 | | | 2,350 | | | 24,318 | | | 26,668 | | | (13,837) | | | 2005 | | |
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226 | | Murrieta | | CA | | 0 | | | 435 | | | 5,729 | | | 36 | | | 435 | | | 5,765 | | | 6,200 | | | (3,586) | | | 1997 | | |
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2467 | | Ft Myers | | FL | | 0 | | | 2,782 | | | 21,827 | | | 0 | | | 2,782 | | | 9,730 | | | 12,512 | | | (3,840) | | | 2016 | | |
1095 | | Gainesville | | FL | | 0 | | | 1,221 | | | 12,226 | | | 300 | | | 1,221 | | | 12,301 | | | 13,522 | | | (4,221) | | | 2006 | | |
490 | | Jacksonville | | FL | | 0 | | | 3,250 | | | 25,936 | | | 7,117 | | | 3,250 | | | 33,053 | | | 36,303 | | | (15,873) | | | 2002 | | |
1096 | | Jacksonville | | FL | | 0 | | | 1,587 | | | 15,616 | | | 359 | | | 1,587 | | | 15,657 | | | 17,244 | | | (5,377) | | | 2006 | | |
1017 | | Palm Harbor | | FL | | 0 | | | 1,462 | | | 16,774 | | | 1,127 | | | 1,462 | | | 17,515 | | | 18,977 | | | (6,089) | | | 2006 | | |
1097 | | Tallahassee | | FL | | 0 | | | 1,331 | | | 19,039 | | | 570 | | | 1,331 | | | 19,265 | | | 20,596 | | | (6,578) | | | 2006 | | |
1605 | | Vero Beach | | FL | | 0 | | | 700 | | | 16,234 | | | 206 | | | 700 | | | 15,691 | | | 16,391 | | | (4,323) | | | 2010 | | |
1257 | | Vero Beach | | FL | | 0 | | | 2,035 | | | 34,993 | | | 1,877 | | | 2,035 | | | 35,310 | | | 37,345 | | | (11,867) | | | 2006 | | |
1162 | | Orland Park | | IL | | 0 | | | 2,623 | | | 23,154 | | | 2,180 | | | 2,623 | | | 24,559 | | | 27,182 | | | (9,204) | | | 2006 | | |
546 | | Cape Elizabeth | | ME | | 0 | | | 630 | | | 3,524 | | | 433 | | | 630 | | | 3,617 | | | 4,247 | | | (1,564) | | | 2003 | | |
545 | | Saco | | ME | | 0 | | | 80 | | | 2,363 | | | 325 | | | 80 | | | 2,518 | | | 2,598 | | | (1,086) | | | 2003 | | |
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734 | | Hillsborough | | NJ | | 0 | | | 1,042 | | | 10,042 | | | 926 | | | 1,042 | | | 10,502 | | | 11,544 | | | (4,262) | | | 2005 | | |
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1252 | | Brooklyn | | NY | | 0 | | | 8,117 | | | 23,627 | | | 1,474 | | | 8,117 | | | 23,774 | | | 31,891 | | | (8,342) | | | 2006 | | |
1256 | | Brooklyn | | NY | | 0 | | | 5,215 | | | 39,052 | | | 1,709 | | | 5,215 | | | 39,227 | | | 44,442 | | | (13,760) | | | 2006 | | |
2089 | | Newberg | | OR | | 0 | | | 1,889 | | | 16,855 | | | 936 | | | 1,889 | | | 17,791 | | | 19,680 | | | (4,230) | | | 2012 | | |
2050 | | Redmond | | OR | | 0 | | | 1,229 | | | 21,921 | | | 980 | | | 1,229 | | | 22,900 | | | 24,129 | | | (4,931) | | | 2012 | | |
2084 | | Roseburg | | OR | | 0 | | | 1,042 | | | 12,090 | | | 287 | | | 1,042 | | | 12,376 | | | 13,418 | | | (3,089) | | | 2012 | | |
2134 | | Scappoose | | OR | | 0 | | | 353 | | | 1,258 | | | 30 | | | 353 | | | 1,288 | | | 1,641 | | | (424) | | | 2012 | | |
2153 | | Scappoose | | OR | | 0 | | | 971 | | | 7,116 | | | 240 | | | 971 | | | 6,888 | | | 7,859 | | | (1,659) | | | 2012 | | |
2088 | | Tualatin | | OR | | 0 | | | 0 | | | 6,326 | | | 786 | | | 0 | | | 7,112 | | | 7,112 | | | (2,325) | | | 2012 | | |
2063 | | Selinsgrove | | PA | | 0 | | | 529 | | | 9,111 | | | 285 | | | 529 | | | 9,396 | | | 9,925 | | | (2,671) | | | 2012 | | |
306 | | Georgetown | | SC | | 0 | | | 239 | | | 3,008 | | | 0 | | | 239 | | | 3,008 | | | 3,247 | | | (1,436) | | | 1998 | | |
305 | | Lancaster | | SC | | 0 | | | 84 | | | 2,982 | | | 0 | | | 84 | | | 2,982 | | | 3,066 | | | (1,340) | | | 1998 | | |
312 | | Rock Hill | | SC | | 0 | | | 203 | | | 2,671 | | | 0 | | | 203 | | | 2,671 | | | 2,874 | | | (1,254) | | | 1998 | | |
1113 | | Rock Hill | | SC | | 0 | | | 695 | | | 4,119 | | | 481 | | | 795 | | | 4,233 | | | 5,028 | | | (1,668) | | | 2006 | | |
313 | | Sumter | | SC | | 0 | | | 196 | | | 2,623 | | | 0 | | | 196 | | | 2,623 | | | 2,819 | | | (1,252) | | | 1998 | | |
2073 | | Kingsport | | TN | | 0 | | | 1,113 | | | 8,625 | | | 397 | | | 1,113 | | | 9,022 | | | 10,135 | | | (2,367) | | | 2012 | | |
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2107 | | Amarillo | | TX | | 0 | | | 1,315 | | | 26,838 | | | 1,034 | | | 1,315 | | | 27,873 | | | 29,188 | | | (6,395) | | | 2012 | | |
511 | | Austin | | TX | | 0 | | | 2,960 | | | 41,645 | | | 391 | | | 2,959 | | | 42,035 | | | 44,994 | | | (23,967) | | | 2002 | | |
2075 | | Bedford | | TX | | 0 | | | 1,204 | | | 26,845 | | | 1,991 | | | 1,204 | | | 28,837 | | | 30,041 | | | (7,133) | | | 2012 | | |
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1106 | | Houston | | TX | | 0 | | | 1,008 | | | 15,333 | | | 258 | | | 1,020 | | | 15,030 | | | 16,050 | | | (5,360) | | | 2006 | | |
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2162 | | Portland | | TX | | 0 | | | 1,233 | | | 14,001 | | | 3,187 | | | 1,233 | | | 17,188 | | | 18,421 | | | (5,497) | | | 2012 | | |
2116 | | Sherman | | TX | | 0 | | | 209 | | | 3,492 | | | 298 | | | 209 | | | 3,790 | | | 3,999 | | | (1,089) | | | 2012 | | |
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225 | | Woodbridge | | VA | | 0 | | | 950 | | | 6,983 | | | 1,895 | | | 950 | | | 8,702 | | | 9,652 | | | (4,731) | | | 1997 | | |
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2096 | | Poulsbo | | WA | | 0 | | | 1,801 | | | 18,068 | | | 278 | | | 1,801 | | | 18,346 | | | 20,147 | | | (4,403) | | | 2012 | | |
2102 | | Richland | | WA | | 0 | | | 249 | | | 5,067 | | | 192 | | | 249 | | | 5,259 | | | 5,508 | | | (1,254) | | | 2012 | | |
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2061 | | Vancouver | | WA | | 0 | | | 513 | | | 4,556 | | | 346 | | | 513 | | | 4,784 | | | 5,297 | | | (1,388) | | | 2012 | | |
2062 | | Vancouver | | WA | | 0 | | | 1,498 | | | 9,997 | | | 427 | | | 1,498 | | | 10,424 | | | 11,922 | | | (2,422) | | | 2012 | | |
| | | | | | $ | 0 | | | $ | 56,650 | | | $ | 571,516 | | | $ | 34,212 | | | $ | 56,761 | | | $ | 583,387 | | | $ | 640,148 | | | $ | (208,050) | | | | | |
(1)Assets with no initial land costs to the Company represent land that the Company leases from a third party (i.e., ground leases).
(2)Assets with no initial buildings and improvements costs to the Company represent development projects in process or completed.
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| | | | | | Encumbrances at December 31, 2020 | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at Which Carried As of December 31, 2020 | | Accumulated Depreciation(2) | | Year Acquired/ Constructed | | |
| | City | | State | | | Land | | Buildings and Improvements | | | Land | | Buildings and Improvements | | Total(1) | | | |
Senior housing operating portfolio | | | | | | | | | | | | | | | | | | | | | | |
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2935 | | Alameda | | CA | | $ | 19,578 | | | $ | 6,225 | | | $ | 20,194 | | | $ | (10) | | | $ | 6,225 | | | $ | 20,184 | | | $ | 26,409 | | | $ | (1,211) | | | 2019 | | |
2911 | | Beverly Hills | | CA | | 0 | | | 9,872 | | | 32,590 | | | 12,464 | | | 9,872 | | | 42,066 | | | 51,938 | | | (15,306) | | | 2019 | | |
2933 | | Chino Hills | | CA | | 0 | | | 3,720 | | | 41,183 | | | 790 | | | 3,720 | | | 40,743 | | | 44,463 | | | (7,595) | | | 1998 | | |
2953 | | Concord | | CA | | 31,332 | | | 5,386 | | | 45,883 | | | 140 | | | 5,386 | | | 46,023 | | | 51,409 | | | (2,409) | | | 2019 | | |
2931 | | Concord | | CA | | 25,000 | | | 6,010 | | | 39,615 | | | 701 | | | 6,010 | | | 39,016 | | | 45,026 | | | (14,851) | | | 1998 | | |
2932 | | Escondido | | CA | | 14,340 | | | 5,090 | | | 24,253 | | | 524 | | | 5,090 | | | 23,877 | | | 28,967 | | | (9,071) | | | 1998 | | |
2937 | | Fair Oaks | | CA | | 33,381 | | | 3,972 | | | 51,073 | | | (94) | | | 3,972 | | | 50,979 | | | 54,951 | | | (3,154) | | | 2019 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
2959 | | Huntington Beach | | CA | | 0 | | | 12,365 | | | 36,517 | | | 36 | | | 12,365 | | | 36,553 | | | 48,918 | | | (2,308) | | | 2019 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
2723 | | Northridge | | CA | | 0 | | | 6,718 | | | 26,309 | | | 2,826 | | | 6,752 | | | 27,898 | | | 34,650 | | | (11,086) | | | 2006 | | |
2934 | | Roseville | | CA | | 0 | | | 3,844 | | | 33,527 | | | 126 | | | 3,844 | | | 33,382 | | | 37,226 | | | (6,987) | | | 2014 | | |
2952 | | San Jose | | CA | | 28,159 | | | 10,658 | | | 34,669 | | | 135 | | | 10,658 | | | 34,804 | | | 45,462 | | | (1,791) | | | 2019 | | |
2951 | | Santa Clarita | | CA | | 33,512 | | | 16,896 | | | 38,559 | | | 154 | | | 16,896 | | | 38,713 | | | 55,609 | | | (2,198) | | | 2019 | | |
3998 | | Santa Rosa | | CA | | 0 | | | 2,871 | | | 0 | | | 0 | | | 2,871 | | | 0 | | | 2,871 | | | 0 | | | 2020 | | |
3999 | | Santa Rosa | | CA | | 37,223 | | | 7,529 | | | 32,772 | | | 0 | | | 7,529 | | | 32,361 | | | 39,890 | | | 0 | | | 2020 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
2958 | | Valencia | | CA | | 25,903 | | | 12,699 | | | 49,996 | | | 9 | | | 12,699 | | | 50,005 | | | 62,704 | | | (3,292) | | | 2019 | | |
2936 | | Whittier | | CA | | 0 | | | 3,355 | | | 24,639 | | | 36 | | | 3,355 | | | 24,675 | | | 28,030 | | | (1,486) | | | 2019 | | |
2603 | | Boca Raton | | FL | | 0 | | | 2,415 | | | 17,923 | | | 2,407 | | | 2,415 | | | 17,437 | | | 19,852 | | | (6,391) | | | 2019 | | |
3064 | | Boca Raton | | FL | | 0 | | | 4,730 | | | 17,532 | | | 5,934 | | | 4,730 | | | 20,230 | | | 24,960 | | | (9,806) | | | 2019 | | |
2602 | | Boynton Beach | | FL | | 0 | | | 1,270 | | | 4,773 | | | 4,448 | | | 1,270 | | | 7,447 | | | 8,717 | | | (2,596) | | | 2019 | | |
3042 | | Bradenton | | FL | | 0 | | | 1,720 | | | 30,799 | | | 167 | | | 1,720 | | | 26,400 | | | 28,120 | | | (1,754) | | | 2019 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
2604 | | Coconut Creek | | FL | | 0 | | | 2,461 | | | 16,006 | | | 3,521 | | | 2,461 | | | 17,370 | | | 19,831 | | | (6,003) | | | 2019 | | |
2601 | | Delray Beach | | FL | | 0 | | | 850 | | | 6,637 | | | 3,588 | | | 850 | | | 9,311 | | | 10,161 | | | (3,493) | | | 2019 | | |
3043 | | Fort Myers | | FL | | 0 | | | 1,806 | | | 37,392 | | | 268 | | | 1,806 | | | 32,141 | | | 33,947 | | | (2,081) | | | 2019 | | |
3044 | | Fort Myers | | FL | | 0 | | | 3,177 | | | 55,693 | | | 191 | | | 3,173 | | | 47,632 | | | 50,805 | | | (3,153) | | | 2019 | | |
2517 | | Ft Lauderdale | | FL | | 0 | | | 2,867 | | | 43,126 | | | 17,295 | | | 2,867 | | | 22,435 | | | 25,302 | | | (9,217) | | | 2019 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
3039 | | Melbourne | | FL | | 0 | | | 2,212 | | | 54,716 | | | 374 | | | 2,212 | | | 47,127 | | | 49,339 | | | (3,194) | | | 2019 | | |
3040 | | Naples | | FL | | 0 | | | 7,444 | | | 33,728 | | | 228 | | | 7,444 | | | 28,148 | | | 35,592 | | | (2,051) | | | 2019 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
3041 | | Palm Beach Gardens | | FL | | 0 | | | 4,249 | | | 33,732 | | | 181 | | | 4,249 | | | 28,562 | | | 32,811 | | | (1,910) | | | 2019 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
2904 | | Tampa | | FL | | 0 | | | 1,994 | | | 24,493 | | | 881 | | | 1,994 | | | 7,414 | | | 9,408 | | | (1,381) | | | 2019 | | |
3045 | | Tampa | | FL | | 0 | | | 1,419 | | | 25,622 | | | 100 | | | 1,419 | | | 21,937 | | | 23,356 | | | (1,497) | | | 2019 | | |
2527 | | Vero Beach | | FL | | 0 | | | 1,048 | | | 17,392 | | | 3,633 | | | 1,048 | | | 19,130 | | | 20,178 | | | (3,600) | | | 2019 | | |
2896 | | Atlanta | | GA | | 0 | | | 3,957 | | | 5,378 | | | 262 | | | 3,957 | | | 5,639 | | | 9,596 | | | (477) | | | 2019 | | |
2914 | | Lilburn | | GA | | 0 | | | 907 | | | 17,340 | | | 654 | | | 907 | | | 17,306 | | | 18,213 | | | (6,048) | | | 2019 | | |
3046 | | Suwanee | | GA | | 0 | | | 3,708 | | | 35,864 | | | 252 | | | 3,708 | | | 30,532 | | | 34,240 | | | (1,994) | | | 2019 | | |
1961 | | Olympia Fields | | IL | | 0 | | | 4,120 | | | 29,400 | | | 5,443 | | | 4,120 | | | 33,580 | | | 37,700 | | | (11,992) | | | 2019 | | |
2903 | | St. Charles | | IL | | 0 | | | 1,000 | | | 22,747 | | | 606 | | | 1,000 | | | 23,353 | | | 24,353 | | | (1,132) | | | 2019 | | |
2906 | | Wheaton | | IL | | 0 | | | 1,599 | | | 13,268 | | | 522 | | | 1,599 | | | 13,790 | | | 15,389 | | | (807) | | | 2019 | | |
2899 | | Prairie Village | | KS | | 0 | | | 2,554 | | | 6,994 | | | 331 | | | 2,554 | | | 2,413 | | | 4,967 | | | (643) | | | 2019 | | |
2787 | | Plymouth | | MA | | 0 | | | 2,434 | | | 9,027 | | | 2,539 | | | 2,438 | | | 10,765 | | | 13,203 | | | (3,341) | | | 2019 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
2894 | | Columbia | | MD | | 0 | | | 1,947 | | | 29,201 | | | 545 | | | 1,947 | | | 29,746 | | | 31,693 | | | (1,345) | | | 2019 | | |
2583 | | Ellicott City | | MD | | 17,983 | | | 3,607 | | | 31,720 | | | 2,003 | | | 3,607 | | | 23,606 | | | 27,213 | | | (4,560) | | | 2019 | | |
2921 | | Frederick | | MD | | 0 | | | 609 | | | 9,158 | | | 1,502 | | | 609 | | | 10,026 | | | 10,635 | | | (3,609) | | | 2019 | | |
2584 | | Hanover | | MD | | 8,373 | | | 4,513 | | | 25,625 | | | 1,646 | | | 4,513 | | | 26,100 | | | 30,613 | | | (3,636) | | | 2019 | | |
2585 | | Laurel | | MD | | 5,431 | | | 3,895 | | | 13,331 | | | 1,668 | | | 3,895 | | | 10,876 | | | 14,771 | | | (2,720) | | | 2019 | | |
2902 | | North Bethesda | | MD | | 0 | | | 3,798 | | | 21,430 | | | 437 | | | 3,798 | | | 21,867 | | | 25,665 | | | (1,219) | | | 2019 | | |
2586 | | Parkville | | MD | | 19,405 | | | 3,854 | | | 29,061 | | | 1,413 | | | 3,854 | | | 9,878 | | | 13,732 | | | (3,375) | | | 2016 | | |
2587 | | Waldorf | | MD | | 7,852 | | | 392 | | | 20,514 | | | 1,044 | | | 392 | | | 6,228 | | | 6,620 | | | (1,983) | | | 2016 | | |
2788 | | Westminster | | MD | | 0 | | | 768 | | | 5,251 | | | 2,309 | | | 768 | | | 4,503 | | | 5,271 | | | (3,177) | | | 2018 | | |
2920 | | Farmington Hills | | MI | | 0 | | | 1,013 | | | 12,119 | | | 1,145 | | | 1,013 | | | 12,463 | | | 13,476 | | | (4,499) | | | 2019 | | |
2900 | | Plymouth Township | | MI | | 0 | | | 1,494 | | | 16,060 | | | 768 | | | 1,494 | | | 16,828 | | | 18,322 | | | (921) | | | 2019 | | |
2908 | | Des Peres | | MO | | 0 | | | 4,361 | | | 20,664 | | | 2,708 | | | 4,361 | | | 21,420 | | | 25,781 | | | (7,481) | | | 2019 | | |
2909 | | Richmond Heights | | MO | | 0 | | | 1,744 | | | 24,232 | | | 1,512 | | | 1,744 | | | 17,891 | | | 19,635 | | | (8,312) | | | 2019 | | |
3130 | | Charlotte | | NC | | 0 | | | 710 | | | 9,559 | | | 0 | | | 710 | | | 9,159 | | | 9,869 | | | (2,997) | | | 2006 | | |
2776 | | Mooresville | | NC | | 0 | | | 2,538 | | | 37,617 | | | 2,598 | | | 2,538 | | | 40,216 | | | 42,754 | | | (9,039) | | | 2019 | | |
2898 | | Greensboro | | NC | | 0 | | | 1,272 | | | 29,249 | | | 586 | | | 1,272 | | | 29,835 | | | 31,107 | | | (1,401) | | | 2019 | | |
2926 | | Raleigh | | NC | | 0 | | | 1,191 | | | 11,532 | | | 1,415 | | | 1,191 | | | 12,297 | | | 13,488 | | | (4,307) | | | 2019 | | |
2901 | | Omaha | | NE | | 0 | | | 2,864 | | | 30,793 | | | 414 | | | 2,864 | | | 31,207 | | | 34,071 | | | (1,587) | | | 2019 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
2912 | | Cresskill | | NJ | | 0 | | | 4,684 | | | 53,927 | | | 2,728 | | | 4,684 | | | 55,445 | | | 60,129 | | | (18,949) | | | 2019 | | |
2897 | | Florham Park | | NJ | | 0 | | | 8,587 | | | 30,666 | | | 1,396 | | | 8,587 | | | 32,062 | | | 40,649 | | | (1,563) | | | 2019 | | |
2915 | | Madison | | NJ | | 0 | | | 3,157 | | | 19,909 | | | 1,180 | | | 3,157 | | | 20,436 | | | 23,593 | | | (6,924) | | | 2019 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
2907 | | Saddle River | | NJ | | 0 | | | 1,784 | | | 15,625 | | | 1,539 | | | 1,784 | | | 16,382 | | | 18,166 | | | (5,601) | | | 2019 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
2905 | | West Orange | | NJ | | 0 | | | 5,231 | | | 33,395 | | | 1,245 | | | 5,231 | | | 34,640 | | | 39,871 | | | (1,627) | | | 2019 | | |
2589 | | Albuquerque | | NM | | 0 | | | 767 | | | 9,324 | | | 1,830 | | | 767 | | | 10,656 | | | 11,423 | | | (4,984) | | | 2019 | | |
2895 | | Dayton | | OH | | 0 | | | 848 | | | 15,095 | | | 289 | | | 848 | | | 15,384 | | | 16,232 | | | (809) | | | 2019 | | |
2893 | | Westlake | | OH | | 0 | | | 1,908 | | | 13,039 | | | 253 | | | 1,908 | | | 13,291 | | | 15,199 | | | (752) | | | 2019 | | |
2789 | | Portland | | OR | | 0 | | | 0 | | | 16,087 | | | 771 | | | 0 | | | 9,587 | | | 9,587 | | | (2,983) | | | 2012 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
1962 | | Warwick | | RI | | 0 | | | 1,050 | | | 17,388 | | | 6,699 | | | 1,050 | | | 8,805 | | | 9,855 | | | (8,092) | | | 2006 | | |
2755 | | Aiken | | SC | | 0 | | | 357 | | | 14,832 | | | 178 | | | 363 | | | 5,858 | | | 6,221 | | | (4,630) | | | 2006 | | |
2756 | | Columbia | | SC | | 0 | | | 408 | | | 7,527 | | | 157 | | | 412 | | | 3,104 | | | 3,516 | | | (2,407) | | | 2006 | | |
3131 | | Greenville | | SC | | 0 | | | 1,090 | | | 12,558 | | | 0 | | | 1,090 | | | 5,323 | | | 6,413 | | | (3,944) | | | 2006 | | |
3132 | | Myrtle Beach | | SC | | 0 | | | 900 | | | 10,913 | | | 5 | | | 900 | | | 4,487 | | | 5,387 | | | (3,438) | | | 2006 | | |
3063 | | Abilene | | TX | | 0 | | | 300 | | | 2,830 | | | 35 | | | 300 | | | 2,388 | | | 2,688 | | | (955) | | | 2019 | | |
2784 | | Arlington | | TX | | 0 | | | 2,494 | | | 12,192 | | | 1,371 | | | 2,540 | | | 12,807 | | | 15,347 | | | (4,347) | | | 2019 | | |
3054 | | Burleson | | TX | | 0 | | | 1,050 | | | 5,242 | | | 42 | | | 1,050 | | | 3,229 | | | 4,279 | | | (1,727) | | | 2019 | | |
3068 | | Cedar Hill | | TX | | 0 | | | 1,070 | | | 11,554 | | | 127 | | | 1,070 | | | 11,231 | | | 12,301 | | | (3,911) | | | 2019 | | |
3135 | | Cedar Hill | | TX | | 0 | | | 440 | | | 7,494 | | | 13 | | | 440 | | | 6,987 | | | 7,427 | | | (2,223) | | | 2007 | | |
2786 | | Friendswood | | TX | | 0 | | | 400 | | | 7,354 | | | 1,222 | | | 400 | | | 8,255 | | | 8,655 | | | (3,215) | | | 2019 | | |
2529 | | Grand Prairie | | TX | | 0 | | | 865 | | | 10,650 | | | 1,737 | | | 865 | | | 12,386 | | | 13,251 | | | (2,783) | | | 2019 | | |
2785 | | Houston | | TX | | 0 | | | 835 | | | 7,195 | | | 1,133 | | | 835 | | | 8,328 | | | 9,163 | | | (4,110) | | | 2019 | | |
(3)Includes adjustments for disposals, casualty events, and costs capitalized subsequent to acquisition, net of incidental income, if applicable.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Encumbrances at December 31, 2020 | | Initial Cost to Company | | Costs Capitalized Subsequent to Acquisition | | Gross Amount at Which Carried As of December 31, 2020 | | Accumulated Depreciation(2) | | Year Acquired/ Constructed | | |
| | City | | State | | | Land | | Buildings and Improvements | | | Land | | Buildings and Improvements | | Total(1) | | | |
3047 | | Lewisville | | TX | | 0 | | | 4,228 | | | 35,818 | | | 982 | | | 4,228 | | | 31,065 | | | 35,293 | | | (2,176) | | | 2019 | | |
3065 | | North Richland Hills | | TX | | 0 | | | 520 | | | 5,117 | | | 79 | | | 520 | | | 3,702 | | | 4,222 | | | (1,694) | | | 2019 | | |
3066 | | North Richland Hills | | TX | | 0 | | | 870 | | | 9,259 | | | 46 | | | 870 | | | 8,864 | | | 9,734 | | | (3,549) | | | 2019 | | |
2510 | | Temple | | TX | | 0 | | | 2,354 | | | 52,859 | | | 2,143 | | | 2,354 | | | 53,799 | | | 56,153 | | | (6,850) | | | 2019 | | |
2400 | | Victoria | | TX | | 0 | | | 1,032 | | | 7,743 | | | 2,109 | | | 1,032 | | | 8,525 | | | 9,557 | | | (2,584) | | | 2019 | | |
2605 | | Victoria | | TX | | 0 | | | 175 | | | 4,290 | | | 4,898 | | | 175 | | | 7,733 | | | 7,908 | | | (4,450) | | | 2019 | | |
3067 | | Waxahachie | | TX | | 0 | | | 390 | | | 3,879 | | | 74 | | | 390 | | | 2,650 | | | 3,040 | | | (1,290) | | | 2019 | | |
2916 | | Arlington | | VA | | 0 | | | 3,833 | | | 7,076 | | | 1,027 | | | 3,833 | | | 3,336 | | | 7,169 | | | (2,743) | | | 2006 | | |
2917 | | Arlington | | VA | | 0 | | | 7,278 | | | 37,407 | | | 4,252 | | | 7,278 | | | 40,266 | | | 47,544 | | | (14,902) | | | 2019 | | |
3133 | | Chesapeake | | VA | | 0 | | | 1,090 | | | 12,444 | | | 0 | | | 1,090 | | | 11,944 | | | 13,034 | | | (4,056) | | | 2006 | | |
2919 | | Falls Church | | VA | | 0 | | | 2,228 | | | 8,887 | | | 1,268 | | | 2,228 | | | 9,430 | | | 11,658 | | | (3,306) | | | 2019 | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
2582 | | Fredericksburg | | VA | | 0 | | | 2,370 | | | 19,725 | | | 555 | | | 2,370 | | | 19,103 | | | 21,473 | | | (2,331) | | | 2019 | | |
2581 | | Leesburg | | VA | | 11,404 | | | 1,340 | | | 17,605 | | | 1,701 | | | 1,340 | | | 18,158 | | | 19,498 | | | (2,595) | | | 2019 | | |
2514 | | Richmond | | VA | | 0 | | | 2,981 | | | 54,203 | | | 7,276 | | | 2,981 | | | 61,479 | | | 64,460 | | | (8,399) | | | 2019 | | |
2777 | | Sterling | | VA | | 0 | | | 1,046 | | | 15,788 | | | 966 | | | 1,046 | | | 5,278 | | | 6,324 | | | (3,246) | | | 2006 | | |
2918 | | Sterling | | VA | | 0 | | | 2,360 | | | 22,932 | | | 1,495 | | | 2,360 | | | 13,438 | | | 15,798 | | | (7,821) | | | 2006 | | |
2913 | | Edmonds | | WA | | 0 | | | 1,418 | | | 16,502 | | | 1,528 | | | 1,418 | | | 17,481 | | | 18,899 | | | (5,745) | | | 2019 | | |
2791 | | Kenmore | | WA | | 0 | | | 3,284 | | | 16,641 | | | 1,456 | | | 3,284 | | | 4,350 | | | 7,634 | | | (3,627) | | | 2018 | | |
2923 | | Mercer Island | | WA | | 0 | | | 4,209 | | | 8,123 | | | 889 | | | 4,209 | | | 4,180 | | | 8,389 | | | (2,846) | | | 2006 | | |
| | | | | | $ | 318,876 | | | $ | 298,952 | | | $ | 2,159,571 | | | $ | 152,069 | | | $ | 299,042 | | | $ | 1,991,376 | | | $ | 2,290,418 | | | $ | (407,658) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total discontinued operations | | | | $ | 318,876 | | | $ | 355,602 | | | $ | 2,731,087 | | | $ | 186,281 | | | $ | 355,803 | | | $ | 2,574,763 | | | $ | 2,930,566 | | | $ | (615,708) | | | | | |
(1)(4)At December 31, 2020,2023, the tax basis of the Company’s net real estate assets is less than the reported amounts by $844 million (unaudited).$900 million.
(2)(5)Buildings and improvements are depreciated over useful lives ranging up to 60approximately 50 years.
(3)(6)Assets with no initial cost to the Company represent development projects in process or completed on land that the Company leases from a third party.Year of original construction/year of last major renovation, if applicable.
A summary of activity for real estate and accumulated depreciation, excluding assets classified as discontinued operations, is as follows (in thousands):
| | Year ended December 31, |
| 2020 | | 2019 | | 2018 |
| Year ended December 31, | | | Year ended December 31, |
| 2023 | | | 2023 | | 2022 | | 2021 |
Real estate: | Real estate: | | | | | |
Balances at beginning of year | |
Balances at beginning of year | |
Balances at beginning of year | Balances at beginning of year | $ | 10,372,584 | | | $ | 9,707,488 | | | $ | 9,460,973 | |
Acquisition of real estate and development and improvements | Acquisition of real estate and development and improvements | 3,460,556 | | | 1,621,739 | | | 1,047,312 | |
Sales and/or transfers to assets held for sale | Sales and/or transfers to assets held for sale | (203,687) | | | (852,480) | | | (386,770) | |
Deconsolidation of real estate | Deconsolidation of real estate | 0 | | | 0 | | | (325,580) | |
| Impairments | Impairments | (23,991) | | | (19,067) | | | (5,609) | |
Impairments | |
Impairments | |
Other(1) | Other(1) | (76,569) | | | (85,096) | | | (82,838) | |
Balances at end of year | Balances at end of year | $ | 13,528,893 | | | $ | 10,372,584 | | | $ | 9,707,488 | |
Accumulated depreciation: | Accumulated depreciation: | | | | | |
Balances at beginning of year | Balances at beginning of year | $ | 2,141,960 | | | $ | 2,054,888 | | | $ | 1,912,628 | |
Balances at beginning of year | |
Balances at beginning of year | |
Depreciation expense | Depreciation expense | 438,735 | | | 365,319 | | | 340,600 | |
Sales and/or transfers to assets held for sale | Sales and/or transfers to assets held for sale | (93,220) | | | (190,877) | | | (82,139) | |
Deconsolidation of real estate | |
| Real estate held for sale | 0 | | | 0 | | | (43,525) | |
Other(1) | |
Other(1) | |
Other(1) | Other(1) | (78,340) | | | (87,370) | | | (72,676) | |
Balances at end of year | Balances at end of year | $ | 2,409,135 | | | $ | 2,141,960 | | | $ | 2,054,888 | |
(1)RepresentsPrimarily represents real estate and accumulated depreciation related to fully depreciated assets foreign exchange translation, or changes in lease classification.and reductions to net real estate due to casualty events.
A summary of activity for real estate and accumulated depreciation for assets classified as discontinued operations is as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2020 | | 2019 | | 2018 |
Real estate: | | | | | |
Balances at beginning of year | $ | 4,133,349 | | | $ | 3,440,706 | | | $ | 4,257,599 | |
Acquisition of real estate and development and improvements | 119,333 | | | 812,827 | | | 46,591 | |
Sales and/or transfers to assets classified as discontinued operations | (1,114,792) | | | (245,291) | | | (814,577) | |
| | | | | |
| | | | | |
Impairments | (198,048) | | | (200,546) | | | (44,120) | |
Other(1) | (9,276) | | | 325,653 | | | (4,787) | |
Balances at end of year | $ | 2,930,566 | | | $ | 4,133,349 | | | $ | 3,440,706 | |
Accumulated depreciation: | | | | | |
Balances at beginning of year | $ | 861,557 | | | $ | 817,931 | | | $ | 863,602 | |
Depreciation expense | 91,726 | | | 122,792 | | | 121,064 | |
Sales and/or transfers to assets classified as discontinued operations | (333,654) | | | (68,391) | | | (161,755) | |
| | | | | |
| | | | | |
Other(1) | (3,921) | | | (10,775) | | | (4,980) | |
Balances at end of year | $ | 615,708 | | | $ | 861,557 | | | $ | 817,931 | |
(1)Represents real estate and accumulated depreciation related to fully depreciated assets, foreign exchange translation, or changes in lease classification. | | | | | | | | | | | | | | | | | |
| Year ended December 31, |
| 2023 | | 2022 | | 2021 |
Real estate: | | | | | |
Balances at beginning of year | $ | — | | | $ | — | | | $ | 2,930,566 | |
Acquisition of real estate and development and improvements | — | | | — | | | 8,238 | |
Sales and/or transfers to assets classified as discontinued operations | — | | | — | | | (2,929,713) | |
| | | | | |
| | | | | |
Impairments | — | | | — | | | (5,315) | |
Other | — | | | — | | | (3,776) | |
Balances at end of year | $ | — | | | $ | — | | | $ | — | |
Accumulated depreciation: | | | | | |
Balances at beginning of year | $ | — | | | $ | — | | | $ | 615,708 | |
| | | | | |
Sales and/or transfers to assets classified as discontinued operations | — | | | — | | | (615,708) | |
| | | | | |
| | | | | |
| | | | | |
Balances at end of year | $ | — | | | $ | — | | | $ | — | |
Schedule IV: Mortgage Loans on Real Estate
(Dollars in thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Location | | Segment | | Interest Rate | | Fixed / Variable | | Maturity Date | | Prior Liens | | Monthly Debt Service | | Face Amount of Mortgages | | Carrying Amount of Mortgages | | Principal Amount Subject to Delinquent Principal or Interest |
First mortgages relating to 1 property located in: |
Texas | | Other | | 7.5 | % | | Fixed | | 04/01/2021 | | $ | 0 | | | $ | 15 | | | $ | 2,250 | | | $ | 2,250 | | | $ | 0 | |
Florida | | Other | | 7.5 | % | | Fixed | | 04/01/2021 | | 0 | | | 54 | | | 8,289 | | | 8,289 | | | 0 | |
Florida | | Other | | > of 2% or Libor + 4.25% | | Variable | | 01/01/2026 | | 0 | | | 276 | | | 51,716 | | | 51,233 | | | 0 | |
California | | Other | | > of 2% or Libor + 4.25% | | Variable | | 05/07/2026 | | 0 | | | 70 | | | 13,257 | | | 13,477 | | | 0 | |
Florida | | Other | | 3.5 | % | | Fixed | | 12/17/2021 | | 0 | | | 23 | | | 7,798 | | | 6,397 | | | 0 | |
Florida | | Other | | 3.5 | % | | Fixed | | 12/17/2021 | | 0 | | | 11 | | | 3,912 | | | 3,137 | | | 0 | |
Florida | | Other | | 3.5 | % | | Fixed | | 12/17/2021 | | 0 | | | 41 | | | 14,208 | | | 13,968 | | | 0 | |
California | | Other | | 3.5 | % | | Fixed | | 12/16/2021 | | 0 | | | 102 | | | 35,100 | | | 34,359 | | | 0 | |
First mortgage relating to 11 properties located in: |
California | | Other | | 5.5 | % | | Fixed | | 04/06/2022 | | 0 | | | 118 | | | 25,000 | | | 24,462 | | | 0 | |
| | | | | | | | | | $ | 0 | | | $ | 710 | | | $ | 161,530 | | | $ | 157,572 | | | $ | 0 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2020 | | 2019 | | 2018 |
Reconciliation of mortgage loans | | | | | |
Balance at beginning of year | $ | 161,964 | | | $ | 42,037 | | | $ | 188,418 | |
Additions: | | | | | |
New mortgage loans | 98,469 | | | 59,552 | | | 0 | |
Draws on existing mortgage loans | 19,182 | | | 60,375 | | | 42,398 | |
Total additions | 117,651 | | | 119,927 | | | 42,398 | |
| | | | | |
Deductions: | | | | | |
Principal repayments and conversions to equity ownership(1) | (113,200) | | | 0 | | | (188,779) | |
Reserve for loan losses(2) | (8,843) | | | 0 | | | 0 | |
Total deductions | (122,043) | | | 0 | | | (188,779) | |
| | | | | |
Balance at end of year | $ | 157,572 | | | $ | 161,964 | | | $ | 42,037 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Location | | Segment | | Interest Rate | | Fixed / Variable | | Maturity Date | | Periodic Payment Terms | | Prior Liens | | | | Face Amount of Mortgages | | Carrying Amount of Mortgages | | Principal Amount Subject to Delinquent Principal or Interest |
First mortgages relating to 10 properties: |
| | | | | | | | | | | | | | | | | | | | |
Multiple | | Other | | 4.0% + (SOFR + 10 bps) | | Variable | | 2/1/2024(1) | | Interest only | | $ | — | | | | | $ | 130,678 | | | $ | 128,027 | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
First mortgages relating to 10 properties: |
Multiple | | Other | | 7.0% + (SOFR + 11 bps) | | Variable | | 1/21/2024(2) | | Interest only | | — | | | | | 48,000 | | | 47,690 | | | — | |
|
| | | | | | | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | $ | — | | | | | $ | 178,678 | | | $ | 175,717 | | | $ | — | |
(1)IncludesIn February 2024, the conversion of loans into equity ownership in real estate.
(2)loan reached its maturity. The year ended 2020 includes current expected credit loss reserves recognized under ASU 2016-13, which was adopted on January 1, 2020Company provided a short-term extension to the borrower, and the Company and the borrower are currently negotiating long-term refinance and extension terms (see Note 27 to the Consolidated Financial Statements)Statements for additional information). The year ended 2020 also includes an immaterial amount related
(2)In January 2024, this loan was refinanced with the Company. In connection with the refinance, the maturity date of the loan was extended to January 2025 (see Note 7 to the cumulative-effect of adoption of ASU 2016-13. Refer to Note 7Consolidated Financial Statements for additional informationinformation).
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2023 | | 2022 | | 2021 |
Reconciliation of mortgage loans | | | | | |
Balance at beginning of year | $ | 341,749 | | | $ | 390,291 | | | $ | 157,572 | |
Additions: | | | | | |
New mortgage loans | — | | | — | | | 310,338 | |
Draws and additions to existing mortgage loans | 11,602 | | | 5,525 | | | 9,370 | |
Total additions | 11,602 | | | 5,525 | | | 319,708 | |
| | | | | |
Deductions: | | | | | |
Principal repayments | (183,084) | | | (47,591) | | | (84,486) | |
Recoveries (reserves) for loan losses(1) | 5,450 | | | (6,476) | | | (2,503) | |
Total deductions | (177,634) | | | (54,067) | | | (86,989) | |
| | | | | |
Balance at end of year | $ | 175,717 | | | $ | 341,749 | | | $ | 390,291 | |
(1)Excludes reserves and recoveries for expected loan losses associated with unfunded loan commitments which are included in accounts payable, accrued liabilities, and other liabilities on the Company’s reserve for loan losses.Consolidated Balance Sheets.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
ITEM 9A. Controls and Procedures
Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Principal Executive Officerprincipal executive officer and Principal Financial Officer,principal financial officer, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officerprincipal executive officer and Principal Financial Officer,principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2020.2023. Based upon that evaluation, our Principal Executive Officerprincipal executive officer and Principal Financial Officerprincipal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2020.2023.
Management’s Annual Report on Internal Control over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Principal Executive Officerprincipal executive officer and Principal Financial Officer,principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control—Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of December 31, 2020.2023.
The effectiveness of our internal control over financial reporting as of December 31, 20202023 has been audited by Deloitte & Touche LLP, anthe independent registered public accounting firm that audited the financial statements included in this Annual Report on Form 10-K, as stated in their report, which is included herein.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 20202023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the Board of Directors of Healthpeak Properties, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Healthpeak Properties, Inc. and subsidiaries (the “Company”) as of December 31, 2020,2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020,2023, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020,2023, of the Company and our report dated February 10, 2021,9, 2024, expressed an unqualified opinion on those financial statements.statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
| | | | | |
/s/ DELOITTE & TOUCHE LLP | |
Costa Mesa, California
February 10, 20219, 2024
ITEM 9B. Other Information
None.Insider Trading Arrangements
During the three months ended December 31, 2023, none of our directors or Section 16 officers adopted, modified, or terminated any Rule 10b5-1 trading arrangement or any non-Rule 10b5-1 trading arrangement.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
Except as provided below, the information required under Item 10 is incorporated herein by reference to our definitive proxy statement to be filed with the SEC within 120 days after the end of our fiscal year ended December 31, 2023 in connection with our 2024 Annual Meeting of Stockholders.
We have adopted a Code of Business Conduct and Ethics that applies to all of our directors and employees, including our Chief Executive Officer and all senior financial officers, including ourprincipal executive officer, principal financial officer, principal accounting officer, and controller. We have also adopted a Vendor Code of Business Conduct and Ethics applicable to our vendors and business partners. Current copies of our Code of Business Conduct and Ethics and Vendor Code of Business Conduct and Ethics are posted on our website at www.healthpeak.com/corporate-responsibility/esg/governance. In addition, waivers from, and amendments to, our Code of Business Conduct and Ethics that apply to our directors and executive officers, including our principal executive officer, principal financial officer, principal accounting officer, or persons performing similar functions, will be timely posted in the Investor RelationsInvestors section of our website at www.healthpeak.com.
We hereby incorporate by reference the information appearing under the captions “Proposal No. 1 Election of Directors,” “Our Executive Officers,” “Board of Directors and Corporate Governance” and in our definitive proxy statement relating to our 2021 Annual Meeting of Stockholders to be held on April 28, 2021.
ITEM 11. Executive Compensation
We hereby incorporateThe information required under Item 11 is incorporated herein by reference the information under the caption “Executive Compensation” into our definitive proxy statement to be filed with the SEC relating towithin 120 days after the end of our 2021fiscal year ended December 31, 2023 in connection with our 2024 Annual Meeting of Stockholders to be held on April 28, 2021.Stockholders.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
We hereby incorporateThe information required under Item 12 is incorporated herein by reference the information under the captions “Security Ownership of Principal Stockholders, Directors and Management” and “Equity Compensation Plan Information” into our definitive proxy statement to be filed with the SEC relating towithin 120 days after the end of our 2021fiscal year ended December 31, 2023 in connection with our 2024 Annual Meeting of Stockholders to be held on April 28, 2021.Stockholders.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
We hereby incorporateThe information required under Item 13 is incorporated herein by reference the information under the caption “Board of Directors and Corporate Governance” into our definitive proxy statement to be filed with the SEC relating towithin 120 days after the end of our 2021fiscal year ended December 31, 2023 in connection with our 2024 Annual Meeting of Stockholders to be held on April 28, 2021.Stockholders.
ITEM 14. Principal AccountingAccountant Fees and Services
We hereby incorporateThe information required under Item 14 is incorporated herein by reference under the caption “Audit and Non-Audit Fees” into our definitive proxy statement to be filed with the SEC relating towithin 120 days after the end of our 2021fiscal year ended December 31, 2023 in connection with our 2024 Annual Meeting of Stockholders to be held on April 28, 2021.Stockholders.
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
(a) 1. Financial Statement SchedulesStatements
The following Consolidated Financial Statements are included in Part II, Item 8-Financial8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Balance Sheets - December 31, 20202023 and 20192022
Consolidated Statements of Operations - for the years ended December 31, 2020, 20192023, 2022, and 20182021
Consolidated Statements of Comprehensive Income (Loss) - for the years ended December 31, 2020, 20192023, 2022, and 20182021
Consolidated Statements of Equity and Redeemable Noncontrolling Interests - for the years ended December 31, 2020, 20192023, 2022, and 20182021
Consolidated Statements of Cash Flows - for the years ended December 31, 2020, 20192023, 2022, and 20182021
Notes to the Consolidated Financial Statements
(a) 2. Financial Statement Schedules
The following Consolidated Financial StatementsStatement Schedules are included in Part II, Item 8-Financial8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K.
Schedule II: Valuation and Qualifying Accounts
Schedule III: Real Estate and Accumulated Depreciation
Schedule IV: Mortgage Loans on Real Estate
(a) 3. Exhibits
| | | | | | | | | | | | | | | | | | | | |
Exhibit | | | | Incorporated by reference herein |
Number | | Description | | Form | | Date Filed |
2.1+ | | | | Current Report on Form 8-K12B | | February 10, 2023 |
2.2+ | | Agreement and Plan of Merger, dated as of October 29, 2023, by and among Healthpeak Properties, Inc., DOC DR Holdco, LLC (formerly Alpine Sub, LLC), DOC DR, LLC (formerly Alpine OP Sub, LLC), Physicians Realty Trust and Physicians Realty L.P. | | Current Report on Form 8-K | | October 30, 2023 |
3.1 | | Articles of Amendment and Restatement of Healthpeak Properties, Inc. (formerly HCP,New Healthpeak, Inc.) dated June 1, 2012, as supplemented by the Articles Supplementary, dated July 31, 2017, and as amended by the Articles of Amendment, dated October 30, 2019.effective February 10, 2023. | | AnnualCurrent Report on Form 10-K (File No. 001-08895)8-K12B | | February 13, 202010, 2023 |
3.2 | | | | Current Report on Form 8-K12B | | February 10, 2023 |
3.3 | | | | Current Report on Form 8-K (File No. 001-08895)8-K12B | | October 30, 2019February 10, 2023 |
4.1 | | | | Registration Statement on Form S‑3/A (Registration No. 333-86654) | | May 21, 2012,2002 |
4.1.1 | | | | Current Report on Form 8‑K (File No. 001‑ 08895) | | November 19, 2012January 24, 2011 |
| 4.1.1 | | | | | | | | | | | | | | | | | | | |
4.1.2 | | Second Supplemental Indenture, dated November 12, 2013,as of February 10, 2023, between Healthpeak OP, LLC, as issuer, Healthpeak Properties, Inc., as guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee. | | Current Report on Form 8‑K (File No. 001‑08895)8-K12B | | November 13, 2013February 10, 2023 |
4.1.24.2 | | Third SupplementalAmended and Restated Indenture, dated as of February 21, 2014, between the Company10, 2023, among Healthpeak OP, LLC, as issuer, Healthpeak Properties, Inc., as guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee.trustee (amending and restating the Indenture, dated November 21, 2012, between Healthpeak and the trustee). | | Current ReportRegistration Statement on Form 8‑K
S-3ASR (FileRegistration No. 001‑08895)333‑269718)
| | February 24, 201413, 2023 |
4.1.34.2.1 | | | | Current Report on Form 8‑K (File No. 001‑08895) | | August 14, 2014 |
4.1.4 | | | | Current Report on Form 8‑K (File No. 001‑08895) | | January 21, 2015 |
4.1.54.2.2 | | | | Current Report on Form 8‑K (File No. 001‑08895) | | May 20, 2015 |
| | | | | | | | | | | | | | | | | | | | |
4.1.64.2.3 | | | | Current Report on Form 8‑K (File No. 001‑08895) | | July 5, 2019 |
4.1.74.2.4 | | | | Current Report on Form 8‑K (File No. 001‑08895) | | November 21, 2019 |
4.1.84.2.5 | | | | Current Report on Form 8-K (File No. 001-08895) | | June 23, 2020 |
4.24.2.6 | | | | Current Report on Form 8-K | | July 12, 2021 |
4.2.7 | | | | Current Report on Form 8-K | | November 24, 2021 |
4.2.8 | | | | Current Report on Form 8-K | | January 17, 2023 |
4.2.9 | | Fourteenth Supplemental Indenture, dated as of February 10, 2023, between Healthpeak OP, LLC, as issuer, Healthpeak Properties, Inc., as guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee. | | Current Report on Form 8-K12B | | February 10, 2023 |
4.2.10 | | Fifteenth Supplemental Indenture, dated as of May 10, 2023, among Healthpeak OP, LLC, as issuer, Healthpeak Properties, Inc., as guarantor, and The Bank of New York Mellon Trust Company, N.A., as trustee. | | Current Report on Form 8-K | | May 10, 2023 |
4.3 | |
| | Current Report on Form 8‑K (File No. 001‑08895)8-K | | January 24, 2011
|
4.3 | | | | Current Report on Form 8‑K (File No. 001‑08895) | | November 13, 2013 |
4.4 | | | | Current Report on Form 8‑K (File No. 001‑08895) | | February 24, 2014 |
4.5 | | | | Current Report on Form 8‑K (File No. 001‑08895) | | August 14, 2014 |
4.6 | | | | Current Report on Form 8‑K (File No. 001‑08895)8-K | | January 21, 2015 |
4.74.5 | | | | Current Report on Form 8‑K (File No. 001‑08895)8-K | | May 20, 2015 |
4.84.6 | | | | Current Report on Form 8‑K (File No. 001‑08895)8-K | | July 5, 2019 |
4.94.7 | | | | Current Report on Form 8‑K (File No. 001‑08895)8-K | | July 5, 2019 |
4.104.8 | | | | Current Report on Form 8‑K (File No. 001‑08895)8-K | | November 21, 2019 |
4.114.9 | | | | Current Report on Form 8-K (File No. 001-08895 | | June 23, 2020 |
4.10 | | | | Current Report on Form 8-K | | July 12, 2021 |
4.11 | | | | Current Report on Form 8-K | | November 24, 2021 |
4.12 | | | | Current Report on Form 8-K | | January 17, 2023 |
4.13 | | | | Current Report on Form 8-K | | May 10, 2023 |
4.14† | | | | | Annual Report on Form 10-K (File No. 001-08895) | | February 13, 2020
10.1 | | | | Quarterly Report on Form 10‑Q (File No. 001‑08895) | | November 3, 2009 |
10.2 | | | | Quarterly Report on Form 10-Q (File No. 001‑08895) | | August 5, 2014 |
10.3 | | | | Quarterly Report on Form 10-Q (File No. 001-08895) | | November 1, 2016 |
10.4 | | | | Quarterly Report on Form 10-Q (File No. 001 08895) | | November 1, 2016 |
10.5 | | | | Annex 2 to HCP’s Proxy Statement (File No. 001‑08895) | | March 10, 2009 |
10.5.1 | | | | Quarterly Report on Form 10‑Q (File No. 001‑08895) | | May 1, 2012 |
10.6 | | | | Annual Report on Form 10-K (File No. 001-08895) | | February 13, 2020 |
10.6.1 | | | | Quarterly Report on Form 10-Q (File No. 001‑08895) | | August 5, 2014 |
10.6.2 | | | | Quarterly Report on Form 10-Q (File No. 001‑08895) | | August 5, 2014 |
10.6.3 | | | | Quarterly Report on Form 10-Q (File No. 001‑08895) | | May 3, 2018 |
10.6.4 | | | | Quarterly Report on Form 10-Q (File No. 001‑08895) | | May 2, 2019 |
10.6.5 | | | | Quarterly Report on Form 10-Q (File No. 001‑08895) | | May 3, 2018 |
| | | | | | | | | | | | | | | | | | | | |
10.6.610.1 | | | | Quarterly Report on Form 10-Q (File No. 001‑08895) | | May 2, 2019 |
10.6.7 | | | | Quarterly Report on Form 10-Q (File No. 001‑08895) | | May 5, 2015 |
10.7 | | | | Annual Report on Form 10‑K, as amended (File No. 001‑08895) | | February 12, 2008 |
10.8 | | | | Registration Statement on Form S‑3 (Registration No. 333‑49746) | | November 13, 2000 |
10.9 | | | | Annual Report on Form 10‑K (File No. 001‑ 08895) | | March 29, 1999 |
10.9.1 | | | | Annual Report on Form 10-K (File No. 001-08895) | | February 13, 2018 |
10.9.2 | | | | Annual Report on Form 10-K (File No. 001-08895) | | February 14, 2019 |
10.10 | | | | Current Report on Form 8‑K (File No. 001‑08895) | | November 9, 2012 |
10.10.1 | | | | Annual Report on Form 10-K (File No. 001-08895) | | February 14, 2019 |
10.11 | | | | Quarterly Report on Form 10‑Q (File No. 001‑ 08895) | | November 12, 2003 |
10.11.1 | | | | Quarterly Report on Form 10‑Q (File No. 001‑08895) | | November 8, 2004 |
10.11.2 | | | | Annual Report on Form 10‑K (File No. 001‑08895) | | March 15, 2005 |
10.11.3 | | | | Quarterly Report on Form 10‑Q (File No. 001‑08895) | | November 1, 2005 |
10.11.4 | | | | Annual Report on Form 10‑K, as amended (File No. 001‑08895) | | February 12, 2008 |
10.11.5 | | | | Annual Report on Form 10-K (File No. 001-08895) | | February 14, 2019 |
10.12 | | | | Current Report on Form 8-K (File No. 001‑08895)8-K12B | | April 20, 2012February 10, 2023 |
10.12.110.2 | | | | AnnualCurrent Report on Form 10-K (File No. 001-08895)8-K12B | | February 14, 201910, 2023 |
10.1310.3 | | | | Quarterly Report on Form 10-Q (File No. 001‑08895) | | August 5, 2014 |
10.13.1 | | | | Annual Report on Form 10-K (File No. 001-08895) | | February 14, 2019 |
| | | | | | | | | | | | | | | | | | | | |
10.14 | | | | Quarterly Report on Form 10-Q (File No. 001‑08895) | | August 1, 2019 |
10.15 | | | | Quarterly Report on Form 10-Q (File No. 001‑08895) | | October 31, 2019 |
10.16 | | Amended and Restated Credit Agreement, dated as of May 23, 2019,September 20, 2021, by and among Healthpeak, as borrower, the lenders referred to therein, and Bank of America, N.A., as administrative agent. | | Current Report on Form 8‑K (File8-K | | September 20, 2021 |
10.3.1 | | | | Current Report on Form 8-K12B | | May 23, 2019February 10, 2023 |
10.4 | | | | Current Report on Form 8-K | | August 22, 2022 |
10.4.1 | | | | Current Report on Form 8-K12B | | February 10, 2023 |
10.5 | | At-the-Market Equity Offering Sales Agreement, dated February 19, 2020,17, 2023, among Healthpeak Properties, Inc., Healthpeak OP, LLC, and the sales agents, forward sellers and forward purchasers referred to therein. | | Current Report on Form 8-K | | February 17, 2023 |
10.6* | | | | Quarterly Report on Form 10‑Q | | November 3, 2009 |
10.7* | | | | Quarterly Report on Form 10-Q | | August 5, 2014 |
10.8* | | | | Quarterly Report on Form 10-Q | | April 28, 2023 |
10.9* | | | | Quarterly Report on Form 10-Q | | April 28, 2023 |
10.10* | | | | Annual Report on Form 10-K | | February 13, 2020 |
10.10.1* | | | | Current Report on Form 8-K12B | | February 10, 2023 |
10.10.2* | | | | Quarterly Report on Form 10-Q | | August 5, 2014 |
10.10.3* | | | | Quarterly Report on Form 10-Q | | May 3, 2018 |
10.10.4* | | | | Quarterly Report on Form 10-Q | | May 4, 2022 |
10.10.5* | | | | Annual Report on Form 10‑K | | February 8, 2023 |
10.10.6* | | | | Quarterly Report on Form 10-Q | | April 28, 2023 |
10.10.7* | | | | Quarterly Report on Form 10-Q | | April 28, 2023 |
| | | | | | | | | | | | | | | | | | | | |
10.10.8* | | | | Quarterly Report on Form 10-Q | | April 28, 2023 |
10.10.9* | | | | Quarterly Report on Form 10-Q | | April 28, 2023 |
10.10.10* | | | | Quarterly Report on Form 10-Q | | April 28, 2023 |
10.10.11* | | | | Quarterly Report on Form 10-Q | | April 28, 2023 |
10.11* | | | | Current Report on Form 8-K (File No. 001-08895) | | April 27, 2023 |
10.11.1* | | | | Quarterly Report on Form 10-Q | | April 28, 2023 |
10.11.2* | | | | Quarterly Report on Form 10-Q | | April 28, 2023 |
10.12* | | | | Annual Report on Form 10‑K, as amended | | February 19, 202012, 2008 |
10.13 | | | | Registration Statement on Form S‑3 (Registration No. 333‑49746) | | November 13, 2000 |
21.121.1† | | | | | | |
22.1† | | | | | | |
23.123.1† | | | | | | |
31.131.1† | | | | | | |
31.231.2† | | | | | | |
32.132.1†† | | | | | | |
32.232.2†† | | | | | | |
97.1† | | | | | | |
101.INS101.INS† | | XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.† | | | | |
101.SCH101.SCH† | | XBRL Taxonomy Extension Schema Document.† | | | | |
101.CAL101.CAL† | | XBRL Taxonomy Extension Calculation Linkbase Document.† | | | | |
101.DEF101.DEF† | | XBRL Taxonomy Extension Definition Linkbase Document.† | | | | |
101.LAB101.LAB† | | XBRL Taxonomy Extension LabelsLabel Linkbase Document.† | | | | |
| | | | | | | | | | | | | | | | | | | | |
101.PRE101.PRE† | | XBRL Taxonomy Extension Presentation Linkbase Document.† | | | | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL document and contained in Exhibit 101). | | | | |
+ Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(b)(2).
* Management Contract or Compensatory Plan or Arrangement.
† Filed herewith.
†† Furnished herewith.
ITEM 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 10, 20219, 2024
| | | | | |
| Healthpeak Properties, Inc. (Registrant) |
| |
| /s/ THOMASSCOTT M. HERZOGBRINKER |
| ThomasScott M. Herzog,Brinker,
President and Chief Executive Officer (Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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Signature | | Title | | Date |
| | | | |
/s/ THOMASSCOTT M. HERZOGBRINKER | | President and Chief Executive Officer, Director | | February 10, 20219, 2024 |
ThomasScott M. HerzogBrinker | | (Principal Executive Officer), Director | | |
| | | | |
/s/ PETER A. SCOTT | | Executive Vice President and Chief Financial Officer | | February 10, 20219, 2024 |
Peter A. Scott | | (Principal Financial Officer) | | |
| | | | |
/s/ SHAWN G. JOHNSTON | | Executive Vice President and Chief Accounting Officer | | February 10, 20219, 2024 |
Shawn G. Johnston | | (Principal Accounting Officer) | | |
| | | | |
/s/ KATHERINE M. SANDSTROM | | Chair of the Board | | February 9, 2024 |
Katherine M. Sandstrom | | | | |
| | | | |
/s/ BRIAN G. CARTWRIGHT | | Director | | Chairman of the Board | February 10, 20219, 2024 |
Brian G. Cartwright | | | | |
| | | | |
/s/ JAMES B. CONNOR | | Director | | February 9, 2024 |
James B. Connor | | | | |
| | | | |
/s/ CHRISTINE N. GARVEY | | Director | | February 10, 20219, 2024 |
Christine N. Garvey | | | | |
| | | | |
/s/ R. KENT GRIFFIN, JR. | | Director | | February 10, 20219, 2024 |
R. Kent Griffin, Jr. | | | | |
| | | | |
/s/ DAVID B. HENRY | | Director | | February 10, 20219, 2024 |
David B. Henry | | | | |
| | | | |
| /s/ LYDIA H. KENNARD | | Director | | February 10, 2021
| Lydia H. Kennard | | | |
| | | | |
/s/ SARA GROOTWASSINK LEWIS | | Director | | February 10, 20219, 2024 |
Sara Grootwassink Lewis | | | | |
| | | | |
| /s/ KATHERINE M. SANDSTROM | | Director | | February 10, 2021
| Katherine M. Sandstrom | | | |
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