Peter A. Scott
Chief Financial Officer at Healthpeak Properties
Thanks, Tom. I'll provide a life science update followed by medical office and CCRC. Life science demand fundamentals remain strong, particularly in the top three core markets, which dominate the fundraising. Venture capital funding in 2021 was up 50% from the prior year and IPOs were up 25%. There's a direct relationship between a biotech company raising money and their need for more space. Meanwhile, the number of new biologics approved by the FDA last year was 2 times the 10-year average, which provides further incentive for more investment in this sector. We're well positioned to capitalize on the strong fundamentals and to compete with new supply with an average age of just 14 years, large amenitized campuses in leading submarkets and a large base of existing tenants. Our annual cash NOI for life science now exceeds $625 million, including development leases that have been signed but not yet commenced. Across the operating portfolio, we estimate our current mark-to-market opportunity at more than 25% to be realized over time given our 6-year weighted average lease maturity. Note that our re-leasing spreads will fluctuate from quarter-to-quarter depending upon which leases expire. The operating portfolio is fully leased other than normal frictional vacancy and our active development pipeline is highly pre-leased. We expect to deliver approximately $700 million of life science development in 2022, essentially on time and on budget despite the supply chain environment. An additional $800 million we'll deliver in 2023, and all of those projects are under guaranteed max contracts, reducing our risk of cost escalations. Against that backdrop, we're advancing entitlements on land we already own and control in the leading life science markets.
We expect our next development starts will likely occur in 2023 with Pointe Grand Phase one in South San Francisco, the post expansion in Latham and Vista Sorrento, in San Diego, likely aggregating to more than 700,000 square feet. Here's some color on each of our three core markets. In South San Francisco, our Nexus project is now fully pre-leased more than a year before completion at a 7.5% return on cost versus our original underwritten yield of 6.5%. Site work is underway at Vantage Phase 1, which we expect to deliver in the second half of 2023, and we're seeing strong tenant interest. Rents for Class A lab space are now in the mid-80s and up about 13% in the past year. Supply and demand remained in favor of landlords and our #1 market share in the leading submarket in the Bay Area places us in a favorable position. We have the ability to roughly double our footprint in the submarket over the next decade or so from our land bank and densification opportunities. In San Diego, we secured the next phase of our growth with a covered land play acquisition directly adjacent to a property we acquired last quarter. The total acquisition price on the two buildings was $44 million and was done off-market through our relationship. The 10-acre assemblage sits between two existing Healthpeak campuses in Sorrento Mesa with excellent visibility and the flexibility from Interstate 805. We intend to demolish the existing buildings upon expiration of the short-term leases and develop about 250,000 square feet of lab. Rents for Class A lab space in San Diego are now in the low 70s to low 80s depending on the submarket, up about 18% in the past year. The near-term supply pipeline is highly pre-leased and our three projects are at 100% pre-leased. Moving to Boston. Through a partnership with both Fitch and Harrison Street, we acquired a 37.5% interest in a 9-acre parcel in Needham just off the entry exit ramp to Route 128. Our share of the land purchase was $22 million. After going through the entitlement process, we expect to build a large amenitized campus that will be well positioned to capture lab, R&D or medical office tenants given its accessibility and surrounding land uses. We've now closed on all of our acquisitions, totaling 36 acres in Cambridge, a combination of core operating assets and future development parcels.
Similar to any project in our high barrier markets, we expect to have significant interaction with the city and local stakeholders during the planning and entitlement process for the development parcels. In the interim, the properties are generating good income, which helps bridge us to the value creation opportunity at the development parcels. Final comment on Boston is that lab rents are up about 18% in the past year, and the near-term supply pipeline is highly pre-leased. Moving to life science operating results. our experienced team leased 2.8 million square feet in 2021, which was 2.5 times our internal budget. We capitalized on strong demand across all three of our core markets, driven by renewals, expansions and pre-leasing at our new developments. Existing tenants accounted for 77% of our lease activity in 2021, which continues to be a competitive advantage versus owners who lack scale. Looking forward to the first quarter, we've already signed leases or letters of intent on more than 400,000 square feet. Same-store NOI growth in the fourth quarter was 5.4%, bringing full year growth to 7.2%, which is above the high end of our most recent guidance. The results were driven by escalators, leasing activity, mark-to-market and strong collections. Turning to medical office. Our operating team, on-campus locations and concentration in high-growth markets is driving performance at the high end of this sector. Leasing activity continues to outperform our expectations, including 3.1 million square feet of lease executions in 2021.
Retention remained strong at 80%, which eliminates downtime and reduces TIs for those spaces. Mark-to-market on renewals was 4.9%, driven by activity in Nashville and Seattle, two markets where we've been growing our footprint through local relationships. Same-store cash NOI growth in the fourth quarter was 3.6%, driven by leasing activity, Medical City Dallas Aderant and a rebound in parking income. We're also benefiting from our green investments to reduce carbon footprint and operating costs. Full year same-store growth was 3.1%, above the high end of our most recent guidance. We completed $834 million of MOB acquisitions in 2021, our highest volume in the past 15 years. The acquisitions were done entirely off-market through relationships. The blended stabilized cap rate was 5.5%. Our timing was fortunate as the vast majority were negotiated prior to the decline in MOB cap rates, which we estimate to be approximately 50 basis points. Despite the hot market, we're still seeing some unique opportunities driven by our relationships at pricing that is accretive. Our relationship-based development program with HCA is very active and we expect to announce several new projects throughout the year. HCA's tremendous success and growth provides a tailwind to our MOB portfolio and platform that is unique across the sector. Finishing with CCRCs. Year-over-year, same-store NOI was essentially flat for the quarter and up 16% sequentially, both excluding CARES Act funding, though I'd note that 4Q is always a good quarter for sequential growth. Entry fee sales have good momentum. December was our best month of sales since 2019. We have strong pricing power on entry fees and rental rates supported by the housing market with little or no discounting. Entry fee cash receipts continue to exceed amortization by $6 million in the quarter and by $12 million for the year. Those cash receipts will support future earnings growth as the entry fees are amortized over the resident's length of stay. On the other hand, staffing is a challenge. The cost of labor has shifted higher and vacant positions are a problem across the health care sector.
Roughly 2/3 of our communities had to limit admissions in the fourth quarter due to staffing shortages. Fortunately, we've seen signs of improvement in the past month, which has allowed us to start the year with good momentum on occupancy. Net of all those factors, we see $20 million to $40 million of NOI upside to be recaptured in the CCRC portfolio over the next few years. Most of that upside comes from occupancy where we still have at least 500 basis points to recapture. I'll turn it to Pete. Thanks, Scott. Starting with our financial results. We finished the year on a strong note. For the fourth quarter, we reported FFO as adjusted of $0.41 per share and total portfolio same-store growth of 2.7%. Excluding the onetime CARES Act grants received in the fourth quarter of 2020, our pro forma portfolio same-store growth was 4%. Our same-store results continue to reflect strong industry fundamentals for both our life science and medical office business segments. Last item under financial results. For the fourth quarter, our Board declared a dividend of $0.30 per share. Turning to our balance sheet. In November, we issued $500 million of 2.125% green bonds due in 2028. This was our second green bond issuance during 2021 and reflects the priority and effort this team places on ESG. Pro forma, the settlement of approximately $300 million of equity forwards, Fourth quarter net debt to adjusted EBITDA was 5.3 times, and floating rate debt was approximately 17%, which is in line with our general target of 15%. Turning now to our 2022 guidance. Before I get into the details, I did want to spend a moment on some of the assumptions underlying our guidance. First, we have not assumed any speculative acquisition activity. Any accretive acquisition activity that could occur throughout the remainder of the year would be additive to our guidance range. Second, the midpoint of our guidance assumes $750 million of development densification and redevelopment spend, a $275 million increase from 2021. While this additional funding results in incremental drag on current earnings, we believe developments, including Vantage, Callan Ridge and 101 Cambridge Park Drive, along with our other pipeline projects will create significant value and drive long-term earnings growth. Third, our CCRC guidance incorporates the current COVID operating environment based on what we know today. Should headwinds from new variants emerge, or if we return to a normalized operating environment faster than expected, we will update our guidance accordingly. With that as a backdrop, our 2022 guidance is as follows: FFO as adjusted ranging from $1.68 per share to $1.74 per share. Blended same-store NOI growth ranging from 3.25% to 4.75%. The major components of our same-store guidance are as follows: in life sciences, which is 49% of the pool, we expect same-store growth to range from 4% to 5%, driven by annual contractual rent steps in the low 3s and the earning benefit from new leasing activity. Medical office, which is 39% of the pool, we expect same-store growth to range from 1.75% to 2.75%, driven by contractual rent escalators and offset in part by above-average expense increases driven by insurance, taxes and salaries for property-level employees. In CCRCs, which is 12% of the pool and now includes all 15 assets for the full year. We expect same-store growth to range from 8% to 12%, inclusive of CARES Act grant and 3% to 7%, excluding CARES Act grant. Total revenue growth is driven by an approximate 200 basis point increase in average total occupancy and a 5% increase in average daily rent for our independent, assisted and memory care units. However, this revenue was offset somewhat by outsized compensation costs due to a challenging labor market. Please refer to Page 41 of our supplemental for additional detail on the assumptions underlying our guidance. Let me finish now with a quick recap of our FFO as adjusted earnings roll forward to assist with modeling. While there are lots of puts and takes, the midpoint of our 2022 FFO as adjusted guidance assumes $0.10 of growth compared to 2021. Starting with the positives. We see $0.06 of positive impact primarily from our blended same-store NOI growth assumption of 4%. We see $0.05 of positive impact from developments coming online, including the Shore Phases two and 3, Boardwalk, 75 Hayden and our HCA Medical Office deliveries. We see approximately $0.025 of positive impact from the full year benefit of redeploying senior housing sales proceeds. Moving now to some of the offsets. We have $0.02 of incremental drag from development, densification and redevelopment, $0.01 from the tenant purchase option at Frye Regional Medical Center; and finally, a $0.01 headwind from higher interest rates. With that, operator, let's open the line for Q&A.