Healthpeak Properties Q4 2024 Earnings Report

Healthpeak Properties EPS Results

• Actual EPS: N/A
• Consensus EPS: $0.05
• Beat/Miss: N/A
• One Year Ago EPS: $0.15

Healthpeak Properties Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $691.85 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Healthpeak Properties Announcement Details

• Quarter: Q4 2024
• Date: 2/3/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, February 4, 2025
• Conference Call Time: 10:00AM ET

Healthpeak Properties (NYSE:DOC) is a fully integrated real estate investment trust (REIT) and S&P 500 company. Healthpeak owns, operates, and develops high-quality real estate for healthcare discovery and delivery.

Healthpeak Properties Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning, and welcome to the Hell Peak Properties Inc. 4th Quarter Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

[Operator]

I would now like to turn the conference over to Andrew Johns, Senior Vice President, Investor Relations. Please go ahead.

[Andrew Johns, Senior Vice President, Investor Relations at Healthpeak Properties]

Welcome to Healthpeak's 4th quarter 2024 financial results conference call. Today's conference call contains certain forward looking statements. Although we believe the expectations reflected in any forward looking statements are based on reasonable assumptions, our forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our expectations. A discussion of risks and risk factors is included in our press release and detailed in our filings with the SEC. We do not undertake a duty to update any forward looking statements.

[Andrew Johns, Senior Vice President, Investor Relations at Healthpeak Properties]

Certain non GAAP financial measures will be discussed in this call. In an exhibit to the 8 ks we furnished to the SEC yesterday, we have reconciled all non GAAP financial measures to the most directly comparable GAAP measures in accordance with regulatory requirements. The exhibit is also available on our website athealthpeak.com. I'll now turn the call over to our President and Chief Executive Officer, Scott Berger.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Okay. Thanks, Andrew. And welcome to Healthpeak's Q4 and full year 2024 earnings call. Our CFO, Pete Scott, is here with me for prepared remarks and the senior team is available for Q and A. I would like to thank our entire team for a year of operational excellence, in particular with merger integration, internalization, leasing and senior housing operations.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

I'm confident that in 2024, we built the foundation for future outperformance with our improved capabilities, portfolio and balance sheet. We also continue to grow earnings. Over the past 3 years, we've grown FFO per share by 12% and AFFO per share by 19%. Additional growth is implied in our 2025 guidance. Yesterday, we announced an increase to our dividend.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

The increase was made possible by our earnings growth and is an important part of our total return to shareholders. Beginning in April, we'll pay the dividend on a monthly basis to match the cadence of our monthly rental income. Our FFO payout ratio remains conservative, preserving free cash flow to reinvest into the business. We believe there is significant value and upside in our stock today when we look at our current multiple overlaid with our earnings growth and 6% dividend yield, not to mention the underlying value of our real estate and our proven competitive advantage in both life science and outpatient medical. The merger with Physicians Realty closed less than a year ago and has already proven to be highly successful.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

The merger was accretive to our earnings, balance sheet and platform. It highlighted our ability to execute and to exceed expectations, for example, with merger synergies and the common spirit renewal. We'll build on that momentum in 2025 by continuing to internalize property management across our portfolio, which is both financially and strategically accretive. We also have a significant development pipeline from the health system relationships that came over with JT and his team. In 2024, we closed $1,300,000,000 of asset sales at a compelling cap rate of 6.4%, primarily stabilized outpatient medical buildings where private market values have remained strong.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Because of the asset sales, our balance sheet is currently under levered and we believe 2025 is an opportune time to go on offense. Particularly in life science, we're overbuilding and a lack of liquidity is creating opportunities for us. There's a very small handful of owners in the life science sector with a competitive advantage and Healthpeak is certainly on that list with our scale, track record and capabilities. For the past several years, we had a conservative near term outlook for the sector and chose not to commence any new development or to make any acquisitions. With new deliveries declining by 75% this year, new starts at nearly 0 and many new entrants and lenders feeling distressed, we see this as a great time to put our platform and balance sheet to work.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Private credit has exploded in popularity, but there's a vacuum in my science today and therefore an opportunity for Healthpeak. Our focus is loan investments that provide immediate accretion, more seniority in the capital stack, in an attractive basis and future acquisition rights of buildings in our core submarkets. The $75,000,000 mortgage loan we announced yesterday is a good example of this targeted approach. The building is down the street from our existing 700,000 square foot campus in Torrey Pines, the premier submarket in San Diego. Our loan to cost is 60% with an 8% interest rate plus purchase option.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

In our outpatient medical business, our health system driven strategy generates sustainable internal and external growth. Our capabilities and relationships were built over the past 2 decades and continue to bring us proprietary opportunities. In the Q4, we originated a $36,000,000 development loan with purchase option on a development that's 100% pre leased to McKesson and adjacent to a Baylor Scott and White Hospital in Dallas. Our current pipeline of similar highly pre leased and accretive development projects exceeds $300,000,000 I'd like to make a few comments about our senior housing CCRC portfolio. Over the past several years, we've executed a strategy to structure our entry fees so that less than 20% of those fees are refundable to the resident.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

This is a huge contrast from the typical CCRC where the entry fee is more than 80% refundable to the resident. This strategy around refundability allowed us to keep the entry fee low so that we could target a wider audience. The result has been record sales and record net cash collections. Also from an ownership perspective, these properties are now more comparable to rental senior housing than to a traditional CCRC. From a resident standpoint, the properties remain highly differentiated and attractive with vast indoor and outdoor amenities and large units with full kitchen to attract independent seniors.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

We've periodically received inbound interest from potential buyers for the portfolio, but not at prices we found compelling. Our current expectation is that we'll own the portfolio for this foreseeable future, while retaining complete control and flexibility. Finally, the leadership changes and promotions announced yesterday. We have thorough succession plans and a deep bench for all senior positions. Kelvin Moses has been promoted to the executive team in recognition of his impact across the company since joining in 2018.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Kelvin will be EVP of Investments and Portfolio Management. Tracy Porter has been a key member of our legal team since 2013 and will become EVP and General Counsel on March 1. She's been well trained by Jeff Miller, who I've had the privilege of working with for the past 2 decades as he set the highest bar for teamwork and mentorship. Also, March 1, Mark Thine will report to me as leader of our outpatient medical business. Mark was a co founder of Physicians Realty and has 2 decades of experience in the outpatient sector.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

He takes the range from Tom Klarich, who is one of the founding fathers of the outpatient real estate sector. Tom deserves enormous credit for the role he played in building a leading outpatient platform at Healthpeak over the past 25 years. Both Tom and Jeff have agreed to transition and consulting roles through year end to ensure a smooth handoff. On behalf of our team and Board, I want to sincerely thank Tom and Jeff for their enormous impact and congratulate Tracy, Calvin and Mark for their increased role at the company. They're committed to our We Care core values and are eager to put in the work to build an industry leader together.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Now Pete Scott will cover operating results, guidance and the balance sheet.

[Peter Scott, CFO at Healthpeak Properties]

Thanks, Scott. We ended the year with strong momentum. For the Q4, we reported FFO as adjusted of $0.46 per share, AFFO of $0.40 per share and total portfolio same store growth of 5.4%. For the full year, we reported FFO as adjusted of $1.81 per share, AFFO of $1.60 per share and total portfolio same store growth of 5.4%. We exceeded the midpoint of our original FFO as adjusted guidance by 0.05 dollars Our outperformance was a team effort across the organization and included better results in all three segments, higher merger synergies, accretive share repurchases and the opportunistic early lease renewal with CommonSpirit.

[Peter Scott, CFO at Healthpeak Properties]

Our balance sheet is in rock solid shape with a net debt to EBITDA of 5.2 times, providing us with ample dry powder to go on offense. Let me provide some highlights for each segment. Starting with Outpatient Medical, our year over year same store growth was 3.2%, well above the midpoint of our original outlook. We executed 6,200,000 square feet of leases with a positive 7% rent mark to market on renewals. We ended the year at 92% occupancy and a tenant retention rate of 88%, both metrics are well above industry averages.

[Peter Scott, CFO at Healthpeak Properties]

Turning to lab. Our year over year same store growth was 5%, far exceeding the high end of our original outlook. We executed 2,000,000 square feet of leases with a positive 11% rent mark to market on renewals, highlighted by a positive 30% rent mark to market in the 4th quarter. We far exceeded expectations in our Labs segment, driven by our unique competitive advantages, including our scale, best in class team, high quality portfolio in the right submarkets and the depth of our industry relationships. Finishing with CCRCs.

[Peter Scott, CFO at Healthpeak Properties]

Our year over year same score growth was 20.8%, smashing our original outlook driven by better than expected occupancy gains and entrance fees. Starting in the Q1 of 2025, we will report AFFO on our supplemental inclusive of entrance fee cash collections. We believe this change better reflects the cash flow generation of the business. Turning now to our 2025 guidance. We are forecasting FFO as adjusted to range from $1.81 to $1.87 per share.

[Peter Scott, CFO at Healthpeak Properties]

Let me touch on some of the major items that underlie our guidance. We see total same store growth of 3% to 4%. The components of same store growth are outpatient medical ranging from 2.5% to 3.5% lab ranging from 3% to 4% and CCRCs ranging from 4% to 8%. We have included $500,000,000 of investments in our forecast, including the lab loan in Torrey Pines we closed in January. We have a robust pipeline and are confident we can deploy at least this much capital in 2025.

[Peter Scott, CFO at Healthpeak Properties]

The weighted average yield of these investments is 8% plus. Interest expenses forecast to increase approximately $15,000,000 or $0.02 a share as we refinance maturing bonds, fund investments and capital spend. Our current 10 year new issuance cost is approximately 5.5%. We have forecast capital spend of $600,000,000 which is largely focused on development and redevelopment spend. As we have previously discussed, we see a near term ramp up of redevelopment projects in lab as we reposition older product for lease up, a strategy we've utilized with great success over the years.

[Peter Scott, CFO at Healthpeak Properties]

One important item before turning to Q and A, we have made significant progress capturing upside from the lease up of our marquee development and redevelopment projects. In 2024 and including January 2025, we signed over 370,000 square feet of leases, bringing these projects to over 50% leased, representing approximately half of the $60,000,000 of upside NOI we disclosed. However, there is a timing lag between when a tenant signs a lease and when earnings commence. Our 2025 guidance excludes $0.04 of FFO from signed, but not yet occupied leases. The benefit from these leases will be a tailwind to earnings beginning in late 2025.

[Peter Scott, CFO at Healthpeak Properties]

With that, let's open it up for Q and A.

[Operator]

We will now begin the question and answer session. And the first question comes from Carol Drenth with Bank of America. Please go ahead.

[Analyst]

Hi, good morning. Thanks for taking my question. I was curious if based on last quarter, you made comments on sitting on significant dry powder of $500,000,000 to $1,000,000,000 to fund accretive acquisitions.

[Analyst]

Curious if

[Analyst]

you can go through how this ties to your acquisition guidance, if anything has changed and how you're viewing the landscape's capital deployment?

[Peter Scott, CFO at Healthpeak Properties]

Yes, I can take that. It's Pete here. We typically don't guide to investments within our pipeline. But I think we're far enough along within that pipeline that we felt like we should include some amount of guidance for investments. So we went with $500,000,000 that's kind of at the lower end of what we expect to deploy this year given that we have that balance sheet capacity.

[Peter Scott, CFO at Healthpeak Properties]

In addition, we did disclose the loan in Torrey Pines we did and then Scott talked about the prepared remarks, the loan that we did in Dallas for the McKesson asset, both kind of first mortgage or construction loans at 8%. So we feel pretty darn good about the $500,000,000 it's got a mid year time horizon associated with it within guidance as well. And again, we have more dry powder to do more than that to the extent that our pipeline continues to fill up. And hopefully we have more to disclose over the coming months and there's a lot of industry activity. So we'd expect to provide more clarity on that pipeline as we actually get things across the goal line.

[Analyst]

Thank you. And also when it comes to increased M and A in the Life Science area, how are you seeing that either impact demand or are you seeing a different type of clientele coming in to look for buildings?

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

I mean, M and A has been this is Scott speaking. M and A has been relatively quiet the last 4 years just because of the difficulty or perceived challenges with getting FTC approval. So there's going to be a significant change, it seems likely. Big M and A has been almost completely off the table. There's been some smaller transactions the past 4 years, but we would expect that to pick up.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

There's already been a couple of announcements here in January. But generally, it's a positive thing, whether it's direct because of the tenant credit upgrade or just capital being recycled in the sector, so that investors can monetize an investment in the smaller company and hopefully get a good return and put it back into the sector. So it's been a positive through the years for the sector, and we expect that to continue here in 2025 moving forward.

[Analyst]

Okay. Thank you so much.

[Operator]

Your next question comes from Nicky Lico with Deutsche Bank. Please go ahead.

[Analyst]

Hi. I guess first question is just on lab leasing. I know you got

[Analyst]

a lot

[Analyst]

on executing on the LOIs you talked about previously. Can you just talk a little bit about how the pipeline is shaping up right now? And also specifically, if you could just talk to how to think about leasing progress still to be made at Portside, Directors Place, Vantage and Gateway?

[Peter Scott, CFO at Healthpeak Properties]

Thanks. Yes, I could take that and then Scott Bohns here as well. If you want to add on. We did have a solid year last year in 2024 for lab leasing. We got over 2,000,000 square feet done.

[Peter Scott, CFO at Healthpeak Properties]

We do have over 300,000 square feet under LOI and we've got significant tours, proposals and other activity that goes beyond that as well. So we feel like we have pretty strong momentum. Most of the demand is really a direct result of capital raising, which was up significantly last year for biotech companies. As you think about the $60,000,000 of cash upside, Nick, which I think is an important part of your question. At this point, we've now signed leases for over 50% of that.

[Peter Scott, CFO at Healthpeak Properties]

Again, a lot of that won't actually benefit our earnings until the very end of this year and really be a tailwind as we look towards next year. But there's additional upside for us to capture as we get the balance of that upside leased up. And like I said, we've got strong progress, nothing at this point in time that is at an LOI level where we would disclose it. But again, lots of tours and activity.

[Analyst]

Okay. Thanks. And then, I guess, second question is just maybe for Scott Brinker. Just in terms of where you're at right now on the merger synergies and how much are assumed this year in terms of internalizing management for assets? And how should you think about kind of how far along you are on that whole process and whether there's also some potential upside benefit there that could happen this year similar to I think was a benefit that helped you beat guidance last year?

[Analyst]

Thanks.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Yes. Hey, thanks, Nick. Yes, the merger added between $0.05 $0.07 of earnings last year, 2024 and on a run rate basis as well. And we think there is more to capture. We internalized almost 20,000,000 square feet of real estate.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Last year, it was a big part of the $50,000,000 of synergies. We've got another 8,000,000 or so square feet that we plan to internalize in 2025. And we feel like the run rate total synergies coming out of this year should be more in the 65,000,000 dollars range. So not all of that additional synergy comes through in 2025, but on a run rate basis, it's really strong. I mean, you're talking about $0.10 a share.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

So it's significant.

[Analyst]

Okay. Thanks.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Yes.

[Operator]

Your next question comes from Juan Sanabria with BMO Capital Markets. Please go ahead.

[Juan Sanabria, Managing Director at BMO Capital Markets]

Hi. Good morning. Just on the $500,000,000 of investments anticipated for Plan 4 for 2025. Could you just give us a sense of like what is the breakdown between some of the MLB loans where you announced one with the results as well as kind of the lab more distressed opportunities? And for the stuff that you announced, what's the term or duration of those two loans?

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Yes. They're 3 to 4 year loans for the most part, 1, the ones we announced. I mean, the mix of sectors is fluid. I mean, there's a big pipeline in both. But as you noted, there's the big difference is that in the outpatient business, there's not distress.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

These are really development opportunities. Some will do on balance sheet, some will do through loans with an option to purchase. Each project is unique. In life science, they tend to be more in the distress category. But again, it could be acquisition, could be loans.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

The one we announced in Torrey Pines is at the lower end of the risk spectrum, obviously, with a 60% loan to cost and an even bigger discount to replacement cost. Others are higher LTC and therefore higher return in the pipeline. But it's significant, but until something actually closes, obviously, we won't disclose the particulars.

[Juan Sanabria, Managing Director at BMO Capital Markets]

Great. And then just hoping to get a little bit more of the piece parts behind the lab, same store NOI guidance at 3% to 4%. How should we think about an occupancy through the year and kind of the mark to market of leases that are expiring versus where they are relative to market at this point?

[Peter Scott, CFO at Healthpeak Properties]

Yes. Hey, Juan, it's Pete. I'll give a little color on that. I think the main drivers of lab same store this year will be, call it, the rent mark to market in that 5% to 10% range. And then within the same store pool, you're going to see kind of flattish occupancy.

[Peter Scott, CFO at Healthpeak Properties]

We're at the very high levels of 97%, 98% within the same store pool and I'll touch on that in a second. And then obviously we also have the escalators in the low 3%. So those are really the main drivers to the 3% to 4%. But that's just same store. We're focused on total occupancy and really the upside opportunity for us is taking that total occupancy from the mid to high 80s back to the low 90s.

[Peter Scott, CFO at Healthpeak Properties]

And if you think about what's it going to take to get there, we probably got around 1,300,000 square feet of available space that we could lease up. If we leased all of it tomorrow and it commenced tomorrow, we get back to 100%, that'd be great. But that's not our expectation. I mean, our expectation is to probably lease up about half of that and get back up to that low 90% stabilized occupancy level. And perhaps if the market continues to improve, we could do better than that in the medium or long term.

[Peter Scott, CFO at Healthpeak Properties]

But our near term goal is to get from that mid to high 80s into the low 90s. So there's same store, but then there's really what's going to drive earnings and earnings growth going forward.

[Juan Sanabria, Managing Director at BMO Capital Markets]

Appreciate it. Thank you.

[Operator]

Your next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.

[Austin Wurschmidt, Senior Equity Research Analyst at KeyBanc Capital Markets]

Great. Thanks and good morning everybody. Just want to go back to the same store and maybe just understand a little bit of what's driving you from that 5 plus percent range growth in the 4th quarter down to the mid-three percent range in 2025? What's sort of causing that deceleration? And were there any sort of one time benefits in the Q4 that we should be aware of?

[Peter Scott, CFO at Healthpeak Properties]

Yes. Obviously looking at it quarter to quarter, there's different nuances. Maybe I'll just look at the full year of we finished at 5.4% last year and we're guiding to 3.5% this year. Obviously, there's a little bit of cushion as you set guidance at the beginning of the year and you hope to exceed it as the year progresses. But remember last year we did get pretty significant benefits from internalization.

[Peter Scott, CFO at Healthpeak Properties]

And then also on CCRCs, we finished the year north of 20%. So right now we're guiding 4% to 8% within CCRCs. I'd love to do better than that, right? But I think we're going to come out the gates at that 4% to 8%. What we came out of the gates with last year and significantly exceeded it.

[Peter Scott, CFO at Healthpeak Properties]

And then when you back out the internalization benefit we got through the course of last year with a decent amount of that in lab, we're guiding 3% to 4% in lab this year and 2.5% to 3.5% in outpatient medical, which is pretty consistent growth with what we achieved when you back out some of those one time benefits that we mentioned and then the CCRCs.

[Austin Wurschmidt, Senior Equity Research Analyst at KeyBanc Capital Markets]

Understood. And then just sticking a little bit with lab, pretty attractive mark to market this quarter, but it looks like some of the TIs and LCs were up relative to prior quarters. Can you just talk about how you're kind of expecting that to trend to achieve that 5% to 10% mark to market that you highlighted is assumed in guidance? Thanks.

[Scott R. Bohn, Chief Development Officer and Co-Head of Life Science at Healthpeak Properties]

Yes. Sure. It's Scott Bowen.

[Scott R. Bohn, Chief Development Officer and Co-Head of Life Science at Healthpeak Properties]

I think that 5% to 10%, still how we view the portfolio, this quarter, it was a little bit higher at 30%, but it's going to jump around from quarter to quarter. I think over the course of the year, we were at 3% in the Q1, up over to 30% this quarter. There was one lease in San Diego that drove it a little bit higher. But even if you strip out that lease, we were in the mid teens in the mark to market. So right in line with where we expect it to be this year as well as in 2025.

[Scott R. Bohn, Chief Development Officer and Co-Head of Life Science at Healthpeak Properties]

And then the TIs, there was one lease in San Francisco on a renewal that drove that a little bit higher. And that was a tenant that's been in the portfolio in the space for 10 years. They're a $3,000,000,000 market cap company as their global headquarter building. They had a shift in their business. Their existing space was heavily skewed towards office, pretty light lab.

[Scott R. Bohn, Chief Development Officer and Co-Head of Life Science at Healthpeak Properties]

And then in this renewal, they needed significantly more lab, in that space. And so we were able to put that in for them, do a long term renewable both in San Francisco and San Diego with that tenant. So that's capital that we would spend if they were to vacate and go somewhere else, we'd be spending that capital to get that space to more of a fifty-fifty office lab anyway. So it's great to do it with a high quality tenant in tow. And we're also able to drive a 27% mark to market on that lease in San Francisco as well.

[Scott R. Bohn, Chief Development Officer and Co-Head of Life Science at Healthpeak Properties]

Very helpful. Thanks for the time.

[Andrew Johns, Senior Vice President, Investor Relations at Healthpeak Properties]

Thanks Austin.

[Operator]

Your next question comes from Michael Griffin with Citigroup. Please go ahead.

[Nicholas Joseph, Analyst at Citigroup]

Thanks. It's Nick Joseph here. Just sticking on the lab leasing, are you starting to see bigger space takers looking for space? Or is it still that 20000 to 40000 square foot tenants?

[Scott R. Bohn, Chief Development Officer and Co-Head of Life Science at Healthpeak Properties]

Yes. I would say there's certainly some larger requirements out in the market in each of the 3 core markets. Those deals tend to take a lot longer to actually execute. But we have seen, as I mentioned in the last quarter, that kind of barbell of demand that we spoke about for the past 4 or 5 quarters start to fill in significantly. If you look at our leasing for the Q4, our average lease was in the low 40,000 square feet versus in the low 30s for the 1st 3 quarters of the year.

[Scott R. Bohn, Chief Development Officer and Co-Head of Life Science at Healthpeak Properties]

So we're starting to see those larger deals come into the market.

[Peter Scott, CFO at Healthpeak Properties]

Yes. And Nick, I'm sure you're well aware of this and follow it closely, but the 2 large leases we did last quarter, one at Portside that was over 200,000 square feet and we did one at Vantage, which was over 60,000 square feet. So it's pretty hard to move the needle on the pre leasing the way that we've done that within those larger projects without signing some pretty big deals.

[Nicholas Joseph, Analyst at Citigroup]

Thank you. And then are you seeing traditional office users look at lab space at all?

[Scott R. Bohn, Chief Development Officer and Co-Head of Life Science at Healthpeak Properties]

Not much. I think if you look at the there's a start up today with the office user looking at a sublease in the Seaport in Boston. But typically, our pipeline is more full with lab users versus office.

[Nicholas Joseph, Analyst at Citigroup]

Thank you very much.

[Operator]

Your next question comes from the line of Richard Anderson with Wedbush. Please go ahead.

[Richard Anderson, Managing Director - Equity Research at Wedbush Securities]

Hey, thanks. Good morning. So I wanted to ask a question about the guidance range, 181 to 187. How much of the 181 associated with sort of existing leverage ratios? And how much is the 187 associated with higher leverage ratios on the view that you're talking about going more on offense with your balance sheet.

[Richard Anderson, Managing Director - Equity Research at Wedbush Securities]

I'm just wondering what you're sort of giving up at the higher end of that guidance when you think about specifically the balance sheet and whatever else might go into that the difference between the two ends of those of the guidance range? Thanks.

[Peter Scott, CFO at Healthpeak Properties]

Yes.

[Peter Scott, CFO at Healthpeak Properties]

So, Rich, it's a really good question. I would say the midpoint of our guidance. Yes, yes. No, I appreciate it. By the way, I thought your note was great that you put out short and sweet.

[Peter Scott, CFO at Healthpeak Properties]

But if you look at the midpoint of our guidance, if we put the $500,000,000 of capital to work, now some of it is dependent upon the yield that you get, right, with regards to how you think about net debt to EBITDA. But that would not get us back to 5.5 times from we're at 5.2 right now. So it's probably somewhere in between. I think if we got to the higher end of our guidance range, we'd be assuming getting back to target leverage ratios in the mid-5s. We're going to be very careful though going beyond that.

[Peter Scott, CFO at Healthpeak Properties]

I think with the interest rate volatility right now and other uncertainties, we want to make sure that we maintain our leverage at target levels or slightly below. And then I think the low end of guidance would assume we don't get any investments done. And I'm not saying investment is driving all of that. I'm just kind of giving you some directional thoughts on it because there's other things that would drive whether you hit the high or the low. But leverage at the high end would be kind of getting back to that mid 5.5 times.

[Richard Anderson, Managing Director - Equity Research at Wedbush Securities]

Okay, perfect. And then second question, on the commentary around CCRCs and you've received some inbound interest, but it didn't pan. Wondering, are we getting any closer to a bid ask spread that's at least in the conversation? Or is it still way off in terms of the offers you're getting? I'm wondering if there you mentioned about the low refundable component of your entrance fees.

[Richard Anderson, Managing Director - Equity Research at Wedbush Securities]

I'm wondering if we're getting if you feel a trend approaching that you may actually someday see a sale makes sense just

[Richard Anderson, Managing Director - Equity Research at Wedbush Securities]

based on some of the

[Richard Anderson, Managing Director - Equity Research at Wedbush Securities]

offers that you've heard of in

[Richard Anderson, Managing Director - Equity Research at Wedbush Securities]

the past? That's the basic question. Thanks.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Hey, Rich. It's performing really well and our expectation is that we're going to hold it for the foreseeable future.

[Richard Anderson, Managing Director - Equity Research at Wedbush Securities]

But you can't comment about how the quality of the offers have been coming in? Have they been sort of associating it with a higher value of the business? Or is it sort of staying the same?

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Yes. There's been no conversations recently, Rich.

[Richard Anderson, Managing Director - Equity Research at Wedbush Securities]

Okay. Fair enough. Thank you.

[Operator]

Your next question comes from the line of Michael Carroll with RBC Capital Markets. Please go ahead.

[Michael Carroll, Managing Director & Head of US Real Estate Research at RBC Capital Markets]

Yes, thanks. I wanted to touch on your structured life science investments that you've been pursuing. And I know with life science, the sponsor is pretty important to prospective tenants. So how active, I guess, does DOC plan on being managing these properties where you make loans on? Will the new well, will the new prospective

[Michael Carroll, Managing Director & Head of US Real Estate Research at RBC Capital Markets]

tenant view

[Michael Carroll, Managing Director & Head of US Real Estate Research at RBC Capital Markets]

DOC as an owner and kind of give that building credit for the scale that DOC has to lease up that property?

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Mike, each one is a little unique. The loan we announced in Torrey Pines were completely passive. So I don't know that our involvement brings any credibility or anything else to the table or tenants. It obviously brings capital 60%. But the owner is the one at risk.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Their name is on the building. But our basis is less than $800 a foot in Torrey Pines when rents are, I don't know, dollars 75, dollars 80 So we feel like our downside is pretty attractive. But our expectation is that over time, the building gets leased up, and we have a chance to buy it at a point in the cycle where cost of capital is a lot more attractive in the interim. It's highly accretive even for that really low risk investment. But like I said, a number of the things we're looking at are a little bit higher on the loan to cost or loan to value scale and therefore much higher return.

[Michael Carroll, Managing Director & Head of US Real Estate Research at RBC Capital Markets]

Okay, great, Scott. And then can you give us some details on that purchase option that you guys keep on referring to? Is it that you I guess, when does it become exercisable and is there a set price or cap rate that you could acquire it at?

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Each one is unique. But in all cases, when we're making these loans, the building itself is located in a submarket that we have a presence in and view as strategic and would want to own the asset. So that's been a fundamental part of all these discussions is that we have purchase options. In some cases, they're at market, in some cases, they're promotes or warrants or they're all different, Mike, depending on the circumstances.

[Michael Carroll, Managing Director & Head of US Real Estate Research at RBC Capital Markets]

Okay, great. Thank you.

[Peter Scott, CFO at Healthpeak Properties]

Yes.

[Operator]

Your next question comes from the line of Mike Mueller with JPMorgan. Please go ahead.

[Michael Mueller, Analyst at JPMorgan Chase]

Yes. Hi. I guess, first, apologize if I missed this, but what sort of development starts are you expecting for this year out of outpatient medical?

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Yes. Hey, Mike. We have a significant pipeline. I mean, we could easily start $200,000,000 to $300,000,000 of projects this year, all highly pre leased core markets, strong health systems. So this is a really attractive way to grow our business, brand new assets, long term leases.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

We view it as highly strategic and accretive. So we are prioritizing having capital available to do these investments. We announced 1 here in the Q1 or in Q4, I apologize, with McKesson in Dallas and I would expect to have more to announce as the year progresses. Could easily be 5, 6, 7 projects this year that we would break ground on.

[Michael Mueller, Analyst at JPMorgan Chase]

Got it. Okay. And then I guess for an investment follow-up here. What sort of guidelines or how are you thinking about what the mix of incremental debt investments could be or should be relative to just kind of outright acquisitions?

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Yes. We're looking at both. I think there will be some acquisitions this year. In Life Science, it probably skews more towards loans with an option to purchase just given bid ask spread. I'm not sure that sellers have completely capitulated on price.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

And when we look at the time line and risk to stabilize some of these developments and the returns that would come with it at the required price. In many cases, the loans look awfully compelling just from a risk adjusted

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

standpoint.

[Michael Mueller, Analyst at JPMorgan Chase]

Got it. Okay. Thank you.

[Operator]

Your next question comes from the line of Jim Kammert with Evercore. Please go ahead.

[James Kammert, Managing Director at Evercore ISI]

Thank you. Good morning. Could you just share maybe a little of the rationale regarding a little less granular information on the AFFO guide? Because I think sometimes the straight line and TI and CapEx components of that are kind of helpful. So if you could provide any context of why that may have shifted?

[Peter Scott, CFO at Healthpeak Properties]

Yes. Hey, Jim, it's Pete. I'm glad you brought it up. One, we think it's a simpler story now than it was a few years ago at Healthpeak. And we feel like we put out a pretty clean guide.

[Peter Scott, CFO at Healthpeak Properties]

So perhaps there's a little less information on our guidance page within the SOP. But we do include the same store components in a footnote. I know before they used to be broken out, but we felt like it was taken up a little too much space. And then on the sources and uses table, it's one number as opposed to a range. I mean, frankly, I just think that's simpler to look at versus a range.

[Peter Scott, CFO at Healthpeak Properties]

But to your AFFO question specifically, look we did include it in guidance last year and the rationale for that was we had so many GAAP merger adjustments that you lost track of the synergies within FFO, but you could see it within AFFO. So we did include it last year. We did decide not to include it this year as we were an outlier. And I think if you do a little bit of research around other REITs, you'd see that we were a significant outlier from that perspective. We did also modify the definition.

[Peter Scott, CFO at Healthpeak Properties]

We're including cash and rest as well. But just to demystify the whole thing, under the new definition, we think AFFO will be for 20.25 right around $1.65 at the midpoint. And under the old definition, AFFO would be call it $1.60 within 2025. AFFO growth does differ from FFO growth. Scott mentioned some of the numbers in his prepared remarks.

[Peter Scott, CFO at Healthpeak Properties]

You got lumpier items like recurring CapEx, free rent. Now we've got cash and rest, which we think will be strong, but we are forecasting it to decelerate a little bit just because it was so strong last year. So I just wanted to give you some of the rationale why we did not include it. But like I said, I was happy to give all the numbers and I just gave them. So hopefully that helps demystify it a little bit.

[James Kammert, Managing Director at Evercore ISI]

That's great. And then thank you. And then just maybe housekeeping. Obviously, you had the Milton related charges for the Q4. Is it safe to assume that your insurance policies and whatnot, you feel pretty good that you won't be out of pocket, you'll get that $25,000,000 change back or recover in some fashion?

[Peter Scott, CFO at Healthpeak Properties]

Yes. I mean, unfortunately, that's actually the portion that we are going to have to incur the cost on. But there's probably a little bit of deferred maintenance that we'll do as well as we're replacing roofs within the communities. So hopefully our capital expenditures for those assets will go down in the future with the amount that we're spending. But the insurance market is tough, right?

[Peter Scott, CFO at Healthpeak Properties]

If you ask any other REIT management team out there, they'll tell you it's pretty darn tough. And in states like Florida and California, it's even tougher. You've got pretty high deductibles for these named windstorms. So that's a cost we will eat. Now we did go above the deductible in certain assets, and that will get recovered by insurance, but that's outside of the charge that we took this quarter.

[James Kammert, Managing Director at Evercore ISI]

I appreciate the clarification. I missed that. But then that would be part of your embedded in the whole $600,000,000 of development, redevelopment and CapEx spend? You've kind of got that for the year?

[Andrew Johns, Senior Vice President, Investor Relations at Healthpeak Properties]

Yes.

[James Kammert, Managing Director at Evercore ISI]

Okay. Thank you.

[Peter Scott, CFO at Healthpeak Properties]

Yes, it would be within that as well.

[James Kammert, Managing Director at Evercore ISI]

Appreciate

[James Kammert, Managing Director at Evercore ISI]

your time. Thanks.

[Peter Scott, CFO at Healthpeak Properties]

Yes.

[Operator]

Your next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

Thanks for taking the questions. Maybe just first one, if you can just expand, give us a little bit more color about how you're thinking about these structured investments, either whether they're preferred or more debt. But given sort of where the stock is trading close to a 7.5% cap versus this deal, can you just give us a more flavor on the range of or the type of deals and cap rates? And then just stepping back on that, the funnel, like how big is this opportunity if we look in terms of what you're initially looking at to then whittling down to your $500,000,000

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Yes. Vikram, in all cases, we want to make investments where the asset is attractive to us from an ownership standpoint long term. So a lot of what's been built would not make it into our pipeline. So it has to be in a core submarket. But the opportunity set is significant.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

I mean, Pete said up to $1,000,000,000 This year, a fair amount of that could be in my science. So the stock obviously has bounced around. It's been a volatile environment for everybody over the past 3 months. I mean, the stock is at 22%, 23% and then it's at 20%. So we certainly have the balance sheet capacity to buy back stock if it reaches a certain price, and we would not hesitate to do that.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

We have authorization from the Board if the volatility works against us. But obviously, we're working hard to continue to grow earnings and build a compelling pipeline that we think is strategic and accretive.

[Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.]

Okay. And then just on that topic of just earnings, I think there's perhaps, I guess, questions or confusion around like the earnings power of DOC here. And I'm not asking for 26 guidance. But just based on what you know, what sleeves up the deals you have in the pipeline that are very sure, like how should we think about the cash flow AFFO growth trajectory? Is it like over time, over the next 2, 3 years, is it a low single digit AFFO, is it a mid single, How do we think about what all you're doing today to benefit 26% and 27%?

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

I mean, the last 3 years have been pretty challenging for us given interest rates and life science fundamentals and we grew FFO 12% and AFFO 19%. So when the macro works in our favor, I would expect the growth rate to be even stronger. And we've continued to grow earnings this year and I think a pretty good track record of not just meeting, but exceeding initial expectations. So that is our expectation. The investments obviously are just additional return on top of the same store growth.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

And Pete talked about leasing up the development and redevelopment portfolio is probably the most significant source of internal growth that we have outside of same store.

[Peter Scott, CFO at Healthpeak Properties]

Vic, you do get the award for the 1st person to ask us for 2026 guidance though on the day we put out 2025 guidance.

[Operator]

Okay. So our next question comes from the line of Michael Strylak with Green Street. Michael, please go ahead.

[Michael Stroyeck, Analyst - Equity Research at Green Street Advisors, LLC]

Thanks and good morning. Could you maybe just provide some additional color on the sizable lease that saw that 45% mark to market? Was that in line with the company's expectations when setting guidance earlier in the year? And if not, what's changed in recent months that allowed for such a healthy mark to market?

[Peter Scott, CFO at Healthpeak Properties]

Yes. I'd answer it directly, yes, it was in line with it. If you actually heard me last quarter, I said we're expecting the 4th quarter to be our strongest rent mark to market quarter. And we had a pretty good line of sight that this renewal was going to get done. That said, for the full year, we were a little bit above 10% and we've been trying to say, be careful not to draw too many conclusions over a quarterly number.

[Peter Scott, CFO at Healthpeak Properties]

I think the full year numbers are a better way to look at what we think that the true mark to market is because it can ebb and flow depending upon the size of the lease. But nevertheless, we're happy. We got that big mark to market. And as Scott said, we also got a pretty big one in South San Francisco as well with a really high quality tenant. Yes, it came with more TIs.

[Peter Scott, CFO at Healthpeak Properties]

But as Scott said, we'd have to spend those TIs if the tenant vacated and it's great. We got a renewal out of it. So no downtime.

[Michael Stroyeck, Analyst - Equity Research at Green Street Advisors, LLC]

Got it. That's helpful. And then one other. It looks like 7 properties rolled out of the operating portfolio into the redev bucket this past quarter. Can you just help frame the expected year over year earnings dilution in 2025 from redevelopment activity?

[Peter Scott, CFO at Healthpeak Properties]

Yes. I mean, look, redevelopment and development spend certainly is a little bit of a drag on our earnings this year. I think the 2 biggest drags we have, if you're looking at what's working in our favor versus what is a headwind, one is interest expense, right? And the second is the development and redevelopment drag. But we did foreshadow that redevelopments were going to go up this year as we put out some disclosures in our investor deck late last year.

[Peter Scott, CFO at Healthpeak Properties]

We've had a lot of success on redevelopments and I would just point out as well that it's not like all these redevelopments are 0% leased. Some of them are 100% pre leased at this point in time. And we did add the percent pre leased within those redevs, which is new disclosure this quarter. I know there's a lot of focus on not including AFFO. We did also add some disclosures as well to sort of counterbalance that and we'll continue to update that as we get leases across the goal line.

[Peter Scott, CFO at Healthpeak Properties]

Just point out that we've had great success leasing up the redevelopments, whether it's at Portside or Point Grande or in our outpatient business where

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

we've been doing redevelopments for 10 years. I mean, the financial returns over time has been very compelling. Expect the same out of these.

[Michael Stroyeck, Analyst - Equity Research at Green Street Advisors, LLC]

Great. Thank you.

[Operator]

Your next question comes from the line of Omidyakosanya with Deutsche Bank. Please go ahead.

[Omotayo Okusanya, Managing Director at Deutsche Bank]

Yes. Good morning, everyone. In the 2025 guidance, are there any additional merger related synergies beyond the $50,000,000 that's in that number or not?

[Peter Scott, CFO at Healthpeak Properties]

Yes, there are some. Scott mentioned it before. There's some additional internalizations we expect to get done through the course of this year. They're not all going to get done at the beginning of the year, which is why the run rate at the end of the year is more like $60,000,000 to $65,000,000 versus we finished last year at a run rate of around $50,000,000 I wouldn't expect to pick up all of that in earnings this year, but there certainly is a little bit

[Peter Scott, CFO at Healthpeak Properties]

of a

[Peter Scott, CFO at Healthpeak Properties]

benefit within our guidance this year, maybe up to a penny, benefit for additional merger synergies. But I'd expect as we get to the end of this year that we will have achieved all the direct merger synergies. Obviously, there's more indirect merger synergies that we could benefit from, but we've never really like focused on that that could be increased rent mark to market, increased retention, all the things you would hope to achieve as you're out leasing.

[Omotayo Okusanya, Managing Director at Deutsche Bank]

That's helpful. And then also as we think about 2025, I think in January, you guys talked about the loan repayment that was happening. Anything else like any more loan repayments as you kind of think about the rest of the year that may be a drag on earnings this year, just kind of given some of the high interest rates on some of those loans?

[Peter Scott, CFO at Healthpeak Properties]

The biggest loan we have outstanding right now, obviously that bucket could increase with some of the pipeline of activity that we're looking at. But is the seller financing we did on the large outpatient medical deal. I don't expect that to get repaid this year. At some point, we hope to get repaid. These were legacy senior housing loans that we put in place when we did seller financings years ago when we sold out most of our SHOP assets.

[Peter Scott, CFO at Healthpeak Properties]

There were some tougher assets within that collateral. So I would say even though there was some dilution associated with getting repaid those loans, I could tell you we were all high fiving each other when we finally got that loan repaid. Yes, it came with dilution, but there were certainly some questions through the years as to whether we get repaid at par. So we're quite happy we got that loan repaid at par. I wouldn't expect really any others of significance this year.

[Omotayo Okusanya, Managing Director at Deutsche Bank]

Thank you.

[Operator]

Your next question comes from the line of John Kielikoski with Wells Fargo. John, please go ahead.

[John Kilichowski, Vice President - Equity Research Analyst at Wells Fargo]

Good morning. Thank you. Maybe if we could start high level. This administration has made a lot of moves in the 1st few weeks. It would be helpful if you could remind us of what kind of exposure you have to NIH funding, given it was there was just a temporary hold put on the funding block.

[John Kilichowski, Vice President - Equity Research Analyst at Wells Fargo]

And then maybe beyond that touch on how you're preparing for a potential RFK confirmation today and what

[John Kilichowski, Vice President - Equity Research Analyst at Wells Fargo]

he means for your business?

[Scott R. Bohn, Chief Development Officer and Co-Head of Life Science at Healthpeak Properties]

Yes, it sounds good.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

I mean, NIH funding is up 5%, 6% per year compounded over the last decade. Funding in 2024 was around $50,000,000,000 which just underscores the importance of the sector to the U. S, whether it's health, national security, etcetera. So I wouldn't expect a significant change. Obviously, there's day to day headlines, but, this administration has made it clear they want to focus on innovation.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

You haven't heard that word out of D. C. Much in the last 4 years. So that's a positive for our business and they want to focus on deregulation. And there are too many sectors more regulated than healthcare and biotech in particular.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

So any changes there would certainly be a positive. I mean, it takes 10 to 15 years to get through the drug approval process in the U. S. Right now. Anything that would shorten that timeline would be a massive win for the sector.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

So those are all positives. In terms of the potential impact of RFK, I think we're more focused on who's in charge of CMS, NIH, CDC, FTC, FDA. I mean, the list goes on and on. And a lot of the appointments for those positions are more traditional candidates that I think are quite favorable to the business. So there's plenty of headline risk around RFK Jr.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Hopefully that we think it ends up being upside opportunity for us, because I think the reality is that this administration will be positive for our business.

[John Kilichowski, Vice President - Equity Research Analyst at Wells Fargo]

Got it. And then maybe if we could kind of jump back to your guidance on lab. It sounds like you've seen some stability in street rates here. I'm just curious at what availability rates do you expect to start getting pricing power back even if you kind of adjust for maybe some of that noncompetitive supply?

[Peter Scott, CFO at Healthpeak Properties]

Yes. And maybe I'll take a quick stab at it and Scott Fung can jump in as well. But I think with our portfolio being in the mid- to high 80% occupied or leased, I should say, at this point in time, not necessarily occupied because some of these leases haven't commenced. I mean, we feel like we're starting to gain some more pricing power within the market. Remember, a lot of our deals are done with existing tenants as well and tenants that typically have existing lease term, which gives us some additional pricing power as well.

[Peter Scott, CFO at Healthpeak Properties]

So we've laid out all the competitive advantages that we see in our portfolio and with our platform versus peers out there. Some of the peers compete a lot more with us and some just don't compete and will never compete with us. But we feel like we've got an opportunity to start maybe pushing rates a little bit more within our portfolio. But obviously, we recognize that there's a lot of availability out there. I don't know, Scott Bone, if you want to add anything to that.

[Scott R. Bohn, Chief Development Officer and Co-Head of Life Science at Healthpeak Properties]

Yes. I think the availability in the new supplies out there is the same new supply we've competed against for the last past 18 to 24 months. And we competed very well. I think we've been able to drive economics based. What Pete said is our portfolio scale.

[Scott R. Bohn, Chief Development Officer and Co-Head of Life Science at Healthpeak Properties]

And a lot of our leasing comes from within our own campuses. 83 percent of our ABR comes from campuses that are 400,000 square feet or greater, right? So, we're oftentimes growing those tenants within those campuses, which gives us the ability to push economics, higher than it would be in an otherwise broadly marketed deal.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Hey, John. And then one follow-up on your NIH question. We do not lease any space directly to the NIH. A lot of that funding goes to university based research, which is not really our portfolio. They tend to be early stage basic science that hopefully is successful and gets commercialized 5, 10 years down the line and those tend to be the tenants that we target and enter our portfolio.

[Operator]

All right. Our next question comes from the line of Mason Guo with Baird. Please go ahead.

[Mason Guell, Equity Research Analyst at Baird]

Thanks and good morning everyone. Have you seen any difference in the demand pre and post election? And which markets are standing out either positively or negatively?

[Scott R. Bohn, Chief Development Officer and Co-Head of Life Science at Healthpeak Properties]

Yes. This is Scott. I wouldn't say there's a difference pre and post election. I think that the overall sentiment will improve. A lot of people were kind of kicking the can a little bit to see how the election turned out.

[Scott R. Bohn, Chief Development Officer and Co-Head of Life Science at Healthpeak Properties]

And I think now that you've got that, you've got the appointments taking place, it's just going to continue to allow people kind of line of sight into where we're going here. Was your second question was at least in which market

[Peter Scott, CFO at Healthpeak Properties]

It's more by market. Sorry, excuse me.

[Scott R. Bohn, Chief Development Officer and Co-Head of Life Science at Healthpeak Properties]

Yes, sorry. I'd say by market, Boston, in my view, is probably the slowest today. Thankfully, we don't have a lot of virtually no rollover there in the next 18 to 24 months and very little vacant space. San Diego has been pretty consistent. We've done some nice leasing down there, bringing our gateway development up to 44%, had some large renewals and more renewals in the pipeline down there as well as some new deals we're working on.

[Scott R. Bohn, Chief Development Officer and Co-Head of Life Science at Healthpeak Properties]

So feel good about the activity in San Diego. In San Francisco, again, our portfolio scale allows us to do a lot of deals there that never hit the broader market or the broker sheets. So, we're very happy with the demand in our pipeline in South San Francisco as well.

[Mason Guell, Equity Research Analyst at Baird]

Great. And then on the lab demand, how much of this is being driven by the new tenants versus the expansion of existing tenants?

[Scott R. Bohn, Chief Development Officer and Co-Head of Life Science at Healthpeak Properties]

Yes. So I mean, it's a mix, right? If you look at the leasing we did over the course of the year, about 1,100,000 square feet of that was with tenants who were expanding. And of that, 1,100,000 square feet, about 400,000 square feet of that was expansion space. So when you're looking at tenants expanding in the portfolio, the average for the year, right, was 60% growth out of those tenants.

[Mason Guell, Equity Research Analyst at Baird]

Great. Thank you.

[Operator]

And our final question comes from Ronald Compton with Morgan Stanley. Please go ahead.

[Ron Compton, Director at Morgan Stanley]

Hey, a couple of quick ones. Just looking at sort

[Ron Compton, Director at Morgan Stanley]

of the development, I see some of the initial occupancy dates have been pushed back a little bit and also that at least on the redevelopment projects, it doesn't look like the CapEx of the lease is included for unleased space. Maybe can you just talk a little bit more about that just on the development and the redevelopment front, sort of what's happening on the ground and thoughts on sort of CapEx on the unleased space not being included? Thanks.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Matthew, the CapEx.

[Peter Scott, CFO at Healthpeak Properties]

Yes. I'll take the CapEx one and the timing maybe just quickly too. Yes, it's really TI related as we price out the TI packages and start to understand the various time lines and that's associated. The large lease that we did at Portside is one of the ones that you are referencing and it got pushed back just a little bit, but it's 100% pre say with that tenant, they have an existing lease in place that will offset any of that pushback. They're going to continue to pay us rent on the existing space that they have.

[Peter Scott, CFO at Healthpeak Properties]

So that lease expiration will get pushed out as well. So there's a little bit of a buffer on that. I think on the TI side, not all the projects are the same. So I'd say on the extreme case from a TI perspective, you could be $300 to $3.50 a foot, right? But in other cases, it could be significantly less and I'll call it $100 to $200 a foot.

[Peter Scott, CFO at Healthpeak Properties]

And it's hard to know until you dig in and understand what each individual lease is or the tenant is seeking. So that's why we don't include the TIs necessarily upfront, but I've given you the range of what we think it would be. But in addition and most importantly, any TI we give, we're expecting to get a return on top of that as well. And as we've talked about the 9% to 12% cash on cash returns, we feel like we've done quite well relative to that. In fact, we think we could do closer to the high end on some of these just given the fact that we haven't invested capital in a while, but we feel like we can get a nice rate on that product.

[Scott R. Bohn, Chief Development Officer and Co-Head of Life Science at Healthpeak Properties]

And the pushback on the one of the development deals, that's really just related to a delay in the tenants on the TI side. We're completing the core and shell on time. I mean, we'll collect cash rents based on that and when the rent starts. So it's more of a timing from an FFO and GAAP perspective there.

[Ron Compton, Director at Morgan Stanley]

Great. And then just my last one was just coming back to sort of the lab leasing and sort of the state of the market. I guess the messaging is you're going back on offense and lab. And I guess my question is, is it a call on saying, hey, there's distressed opportunities or really unique opportunities that we can capitalize on? Or is it more of a call on like the market is getting better?

[Ron Compton, Director at Morgan Stanley]

Or does the market not the overall lab market doesn't really need to get better for you guys to be opportunistic? I just I can't tell if you're just more bullish on lab or it's just this is just more opportunistic things that

[Ron Compton, Director at Morgan Stanley]

are coming in your purview?

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Well, we signed more than 2,000,000 square feet of leasing in life science in 2024. It's one of the best years we've ever had. It was a mix of new and renewal. So clearly, we're capturing market share, but we're also seeing significant distress, and we're picking and choosing which projects are most compelling. And there's a lot that would not fit our criteria.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

But we feel like the loans that we're making are compelling in that we have very little downside risk given the seniority in the loan to cost versus replacement cost, etcetera, and compelling returns on day 1 with the right to buy in the future. We do think fundamentals will start to get better. I said in the prepared remarks that new deliveries in 2025 are going to be down 75%. There's essentially no new starts. So we do see the supply picture improving dramatically this year as we look into 'twenty six and 'twenty seven as well.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

And we think demand will improve alongside of that.

[Ron Compton, Director at Morgan Stanley]

Great. Thanks so much.

[Operator]

And we have another question from Jamie Feldman with Wells Fargo. Please go ahead.

[Jamie Feldman, Managing Director, Head of REIT Research at Wells Fargo]

Great. Thanks for taking the follow-up from our team. So I just thinking big picture, market seem to be stabilizing, the debt market seems to be in a much better place than it's been. Blackstone's poking around in office. What's your and Welltower has just started their fund business.

[Jamie Feldman, Managing Director, Head of REIT Research at Wells Fargo]

So what's your appetite? Or as you guys think about it amongst yourselves, what's your appetite to do something much bigger maybe with 3rd party capital, given where we are in the cycle and what could be coming the next 5, 10 years in your businesses?

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Yes. We have a couple of important limited partners in the portfolio today that are big institutions that had appetite to do more. So that's certainly on the table. There's pluses and minuses to joint ventures and LPs. Obviously, it can be a compelling additional source of capital for the right opportunities.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

But it also comes with loss of complete control and flexibility. So you just have to weigh that trade off. But we've used it historically with success for the right circumstances and have those conversations all the time, Jamie. Most of what we're looking at today is more on balance sheet.

[Jamie Feldman, Managing Director, Head of REIT Research at Wells Fargo]

Okay. Thank you.

[Operator]

This concludes our question and answer session. I would like to turn the call I would like to turn the conference back over to Scott Brinker for any closing remarks.

[Scott Brinker, CEO, President & Director at Healthpeak Properties]

Okay. Well, thanks for your time today and congrats to our team on another strong quarter driving earnings growth. Take care.

[Operator]

The conference has now concluded. Thank you for attending today.

Participants

Executives

• Andrew Johns, Senior Vice President, Investor Relations
• Scott Brinker, CEO, President & Director
• Peter Scott, CFO
• Scott R. Bohn, Chief Development Officer and Co-Head of Life Science

Analysts

• Analyst
• Juan Sanabria, Managing Director at BMO Capital Markets
• Austin Wurschmidt, Senior Equity Research Analyst at KeyBanc Capital Markets
• Nicholas Joseph, Analyst at Citigroup
• Richard Anderson, Managing Director - Equity Research at Wedbush Securities
• Michael Carroll, Managing Director & Head of US Real Estate Research at RBC Capital Markets
• Michael Mueller, Analyst at JPMorgan Chase
• James Kammert, Managing Director at Evercore ISI
• Vikram Malhotra, Managing Director at Mizuho Financial Group, Inc.
• Michael Stroyeck, Analyst - Equity Research at Green Street Advisors, LLC
• Omotayo Okusanya, Managing Director at Deutsche Bank
• John Kilichowski, Vice President - Equity Research Analyst at Wells Fargo
• Mason Guell, Equity Research Analyst at Baird
• Ron Compton, Director at Morgan Stanley
• Jamie Feldman, Managing Director, Head of REIT Research at Wells Fargo