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DOW   33,947.10
QQQ   287.64
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S&P 500   3,998.84
DOW   33,947.10
QQQ   287.64
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Why is Russia reopening dormant copper mines? (Ad)
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S&P 500   3,998.84
DOW   33,947.10
QQQ   287.64
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Why is Russia reopening dormant copper mines? (Ad)
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Healthpeak Properties Q4 2021 Earnings Call Transcript


Listen to Conference Call

Participants

Corporate Executives

  • Andrew Johns
    Head of Financial Planning and Analysis Team
  • Thomas M. Herzog
    Chief Executive Officer
  • Peter A. Scott
    Chief Financial Officer
  • Scott M. Brinker
    President and Chief Investment Officer
  • Thomas M. Klaritch
    - Chief Operating Officer

Analysts

Presentation

Operator

Good morning, and welcome to the Healthpeak Properties, Inc. Fourth Quarter Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Andrew Johns, Vice President, Corporate Finance and Investor Relations. Please go ahead.

Andrew Johns
Head of Financial Planning and Analysis Team at Healthpeak Properties

Welcome to Healthpeak's Fourth Quarter 2021 Financial Results Conference Call. Today's conference call will contain 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. Certain non-GAAP financial measures will be disclosed on this call. And in exhibit to the 8-K we furnished with the SEC yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. The exhibit is also available on our website at healthpeak.com. I will now turn the call over to our Chief Executive Officer, Tom Herzog.

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Thank you, A.J., and good morning, everyone. With me today are Scott Brinker, our President and Chief Investment Officer; and Pete Scott, our Chief Financial Officer. Also here available for the Q&A portion of the call are Tom Klaritch, our Chief Operating Officer; and Troy McHenry, our Chief Legal Officer and General Counsel. Let me start with our 2021 results. 2021 was a productive year for Healthpeak and our business is performing very well. We completed our $4 billion senior housing disposition program and successfully reinvested the proceeds in our core life science and MOB businesses, while also reducing our leverage. Additionally, our operations came in stronger than we had expected at the outset of the year, with full year FFO $0.06 above our initial guidance and a beat on same store of 200 basis points. Next, the strength of our businesses. With our portfolio restructuring now behind us, we are now positioned exclusively in vital growing and high barrier country businesses. Our life science business is benefiting from many exciting scientific advancements, which is driving growth in biotech funding and drug approvals. This has created strong demand for purpose-built life science real estate in the three hot bed markets of San Francisco, Boston and San Diego, where our portfolio and future development opportunities are almost exclusively located. Our MOB business continues to be focused on on-campus properties associated with #1 or #2 hospitals in favorable markets and benefiting from primarily specialist practices. The stable growth business also benefits from our proprietary on-campus development program with HCA. Finally, some remarks on our development program relative to our long-term growth strategy. With consideration to the scarcity and current pricing for well-located, stabilized life science and on-campus MOB properties, our development machine has become a growing part of our growth strategy in addition to accretive acquisitions. During the last five years, we delivered $1.4 billion of life science development at an average yield of 8%, which compares to stabilized cap rates for these Class A assets of 4% or less. Given the huge leasing demand and tight market conditions for high-quality life science products, we continue to see tenants commit to space before steel has even come out of the ground. Our active $1.6 billion life science and MOB pipeline is projected to provide a 7% weighted average yield on cost and a 74% pre-leased. 92% exclude our newly announced Vantage project. And we expect our embedded $10-plus billion shadow development pipeline will be a key driver of our future growth. With that, let me turn it over to Scott.

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.


Questions and Answers

Operator

[Operator Instructions] And the first question comes from Nick Yulico with Scotiabank. Please go ahead.

Nicholas Philip Yulico
Analyst at Scotiabank

Thanks. Good morning, everyone. First question is just as we think about the external growth of the company, a lot of focus on the development pipeline that's underway and some future projects. But if you were to do acquisitions, additional acquisitions this year and guidance, do you think that you would be able to do that in an accretive way? And maybe just give us a -- some thoughts on the ability to buy income-producing real estate right now versus your cost of capital.

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Yes, Nick, it's Tom. I'll start with that one. Of course, it all comes down to our cost of capital, whether we're trading at an NAV, what do our FFO, AFFO yields look like, if we're able to identify off-market transactions that produce some kind of an opportunity that's favorable to us. And so we would hope to continue to have those opportunities as we go through 2022, but that's yet to be seen just based on where stock trades. And -- but certainly, we have a nice pipeline of opportunities at all times because we're constantly working the market, so we'll see what plays out.

Nicholas Philip Yulico
Analyst at Scotiabank

Okay. And then second question is just on the life science rents that you talked about in the last year growing well over double digit, still a very low vacancy in those markets that you're in. So I guess I'm just wondering if you still think that the potential for rent growth over the next year is still over 10% for your markets? And then maybe you could talk a little bit about how cap rates have also trended in your markets since rent growth has been so strong.

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Nick, Scott Brinker here. I'll take those. On cap rates. For Class A space in the three core markets today are probably plus or minus 4%, depending upon the mark-to-market that exists at that building. So it's somewhere in that range, and there's been plenty of trades in that general range in the past quarter or 2, even for minority positions or noncontrolling interests. So if anything, you'd expect a 100% purchase with full control to trade at even lower cap rates. So certainly, pricing is strong. On market rents, over the last decade in the three core markets, the compounded growth rate has been in the 7% range. More recently, it's obviously been higher, double digits, approaching 20% in San Diego and Boston over the past year. That's pretty high. I don't know that we would predict that that's going to continue in 2022. At the same time, when we look at the supply-demand fundamentals as well as our own portfolio, where we're essentially fully leased other than the normal frictional vacancy for downtime to build out TIs, we are expecting that the rent growth will be quite attractive in 2022. So if anything, that mark-to-market across our portfolio, looking forward probably grows rather than declines.

Nicholas Philip Yulico
Analyst at Scotiabank

Okay. Appreciate it, Scott.

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Thanks, Nick.

Operator

The next question comes from Juan Sanabria with BMO. Please go ahead.

Juan Carlos Sanabria
Analyst at BMO Capital

Hi. Good morning. Just hoping we could touch on Alewife in Cambridge. I think you touched on it maybe in the opening commentary, but any update on potential political obstacles there on redeveloping and the time frame to get clarity on what may happen next?

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Yes. Juan, I'll start with that, and then Tom or Scott Bohn may want to comment as well. But in the last three months, we really have assembled a top-notch local team. Architects, engineers, attorneys, public relations. So that team is working effectively. We have started to meet with local stakeholders. And part of it is really just to clear out some of the misperceptions that maybe came across in the various media reports that were published in November, especially around timing of what we had planned as well as ultimately what we expected to develop. I mean, we've always viewed this as a big mixed-use campus that's going to have residential. It's going to have some level of retail. We do think it should have a fair amount of lab. So I think a big part of the initial interactions here with the local stakeholders is just to make sure they know exactly what we had in mind, which, frankly, the -- some of the local papers didn't pick up quite accurately. So that's been a productive dialogue. On the proposed policy order, it's still in the legislative process. That's not something that we control. So we're not spending a whole lot of our time worrying about that. It's ultimately just a mechanism to address rezoning in that area, which is something that we completely agree with. So we have a shared interest in that happening. So we think that's actually, in some ways, a positive. And then maybe the last thing I'd mention or just reiterate is that of the $625 million that we spent, more than half of that just went to core operating real estate that we have no intention of changing the use of many of those buildings. And even the balance, there's really no vacant land in that entire assemblage. Everything is earning some level of a return. So we're not necessarily in a big hurry. We think this is an amazing opportunity with the Cambridge address, the accessibility with Route two in the red line that -- it's a long-term vision that we had in mind. That's what attracted us to this site in the first place. And we continue to have incredible success. In this submarket, we've got one million square feet today. Rents are comfortably in the $100 range for Class A space with no vacancy. So we continue to think that this is an incredible longer-term opportunity. Tom, anything you'd add?

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

That's a pretty good summary. Probably a couple of things. One of the things to keep in mind is the envision Alewife plan that's been out there for decades is something that we are well aware of. We had intended to utilize that document, along with working with neighborhood group, city officials, etc,. going through a process that we expected to take a couple of years, probably two years. And really, the actions that have been taken that they are more in the public media and the actions taken by the city council were to motivate discussions around zoning entitlement, which wasn't something that is going to impact our time line. And the last thing I would mention is, I think we probably said this on our last call, we do have, I think it's a 4.2% yield on our investment during this because we have a lot of operating real estate within these covered land plays. And so that gave us plenty of time to work with the city, with the neighborhood groups, with the planning commissions and put together a plan that we think will be favorable for the community and work well for us. So more to come on that, but that's probably how we would say on this topic at this point.

Juan Carlos Sanabria
Analyst at BMO Capital

Just curious, you gave some details on the developments and incremental FFO contributions that ramps up. But any color on the amount of NOI we should expect to come on in '22 and maybe just the cadence of that, given how large a driver it is for your growth?

Peter A. Scott
Chief Financial Officer at Healthpeak Properties

Yes. Juan, it's Pete. I guess what I would tell you is I would refer to page in our supplemental and going to it right now just to take a look, but there's a pretty detailed schedule there on our development and redevelopment and the cadence of what will actually come in this year. Now I just will point out that it says initial occupancy on there. So that's when the first square footage will come into the operating portfolio. So there might be a little bit of lag on that. And I will also remind you that's when we'll start getting FFO, not necessarily getting cash NOI. There's typically anywhere between three to six months of free rent. So I would look at that initial occupancy on that schedule. It will show you the Boardwalk, Shore Phase 2, Shore Phase three and as well as at the way end of the year, 101 Cambridge Park Drive coming in. And the yields on those, I would say, ended or probably right around in the mid-7s, actually, as we did quite well. It's a little bit different. I'd say that the Boardwalk is probably in the mid-7s. The shore's a little bit less given the basis of that asset, and then 101 Cambridge Park Drive is going to be much higher at this point in time. I won't give the actual number because it's just 88%, but it's a very, very high number. So I would start with that initial occupancy as when we get FFO, and then I would go with about six months after that for when we'll start to get cash NOI. As we said, the combination of all of those is about $0.05 coming into our earnings for the year, and you can look at that on a per share basis to come up with what the accretion is on a gross dollar basis.

Juan Carlos Sanabria
Analyst at BMO Capital

And is the $0.05 relative to the development contribution in 2021 or just additive to the 2021 base? It sounds like...

Peter A. Scott
Chief Financial Officer at Healthpeak Properties

It's additive to base, Juan.

Juan Carlos Sanabria
Analyst at BMO Capital

Okay. Great. Thanks.

Peter A. Scott
Chief Financial Officer at Healthpeak Properties

Thanks, Juan.

Operator

The next question comes from Rich Hill with Morgan Stanley. Please go ahead.

Richard Hill
Analyst at Morgan Stanley

Hey good morning guys. I wanted to spend a little bit of time talking about medical office and the market there. I noted in your guidance that you said any accretive acquisition activity was not in the guide and would be additive. And specifically, medical office is a favorite asset class from private equity. So how are you thinking about continuing to be acquisitive in that asset class and growing that portfolio?

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Rich, it's Scott Brinker here. I'll start. Tom Klaritch may want to comment as well. But what I would focus you on is doing things direct through relationships. I can't think of too many portfolios that we've acquired. In the past couple of years, it tends to be one building at a time through a seller that we know well, oftentimes on a campus that we know well or we're just adding to an existing footprint. If we do a portfolio, our history has been in that it's a highly selected portfolio where we're not just taking anything that's included. We're really curating which assets we want and don't want and doing that in a privately negotiated transaction. So I'd expect more of the same. That doesn't mean that you get assets for free. Obviously, you're still paying a cap rate that's in the range of market value, but it does allow you to be very specific and make sure you get highly strategic assets. It can be structured appropriately and underwritten appropriately that it's not always as easy to do in a broad auction. So I'd say that's how we think about it. Certainly, pricing has gotten more expensive. But as I mentioned in the prepared remarks, we are still seeing some opportunities that look accretive and certainly strategic. So there'll be more in the one at a time category, though, not big portfolios.

Richard Hill
Analyst at Morgan Stanley

Got it. That makes a lot of sense to me. I think what -- if I can spare you for a second, what I think I'm hearing from you is private equity needs, obviously, transformational portfolio deals to make those work. Whereas your targeted approach with existing relationships provides you a real significant competitive advantage, fair?

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Yes. I mean all private equity is different. So it's hard to put it all in the same bucket, but we do think we have a differentiated approach that allows us to grow the business.

Richard Hill
Analyst at Morgan Stanley

Got it. And so on the life sciences business, maybe going back to some of the other prior questions. Can you just vet out a little bit more for us versus 3Q with your two portfolios in Cambridge and then South San Francisco? Are you -- do you feel like you're similarly on track from where you were in 3Q? Or is there anything that would accelerate or maybe decelerate the development of those projects?

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

I can comment, Rich, I want to make sure I got the question though, right? Are you asking about delivery dates for our active development pipeline?

Richard Hill
Analyst at Morgan Stanley

Yes. Yes, I am. I'm sorry for not being clear. I'm talking about delivery dates. And given everything that's happening with inflation, is there any reason to believe that might be pushed out? Do you feel very comfortable with sort of what all of our discussions that occurred in 3Q '21?

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

No. We're in good shape across our portfolio. The entire pipeline is under GMP contracts. So we have pretty low risk on cost escalations. In general, we work with the same group of project managers, GCs and in many cases, subs that are able to lock in, design and order materials pretty far in advance. So that's allowed us to stay on track despite the supply chain environment. The only sort of delays and it's usually been very minor, are more with the various municipalities or cities. But that -- those have ultimately been quite modest and not really impacted anything in a material way. So it looks like 2022 will be largely the same. I don't know, Tom Klaritch, if you have anything to add.

Thomas M. Klaritch
- Chief Operating Officer at Healthpeak Properties

Yes, you're right. We really haven't seen significant delays in any of our projects. There's been some minor delays due to some procurement issues, but typically, they've only been in the kind of 30- to 60-day range. So really not impacting any of the yields on those. And as Scott said, the projects, eight of the 11 projects that are active are 100% committed, bought out and the other three are in the 90% range.

Richard Hill
Analyst at Morgan Stanley

Okay. Great guys. Thank you for the additional color.

Peter A. Scott
Chief Financial Officer at Healthpeak Properties

Thanks Rich.

Operator

The next question comes from Nick Joseph with Citi. Please go ahead.

Nicholas Gregory Joseph
Analyst at Citigroup

Thanks. Maybe staying on MOB cap rates. You've mentioned the 50 basis points of cap rate compression throughout 2021. Do you expect any changes in 2022? I guess I'm thinking about either inflation expectations or interest rate movement that may change cap rates one way or the other, the desirability of the asset class overall?

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

I can take that one, Nick. We had a lot of demand for that space due to, especially for the on-campus or strongly adjacent assets, due to the stability of that asset class and cap rates certainly trended down maybe as much as 50 basis points over the last, call it, six to 12 months. As far as the impact of interest rates, it's always hard to tell. Could an increase in interest rates actually increase your cap rates when you think in terms of the risk-free plus a premium, that's always possible. But at the same time, it's been a desired asset class for a variety of different types of investors. And certainly for the on-campus and strongly adjacent assets, they're hard to come by with high-quality portfolios. We have found it easier to grow in that business through our development program, primarily the HCA development program, where we're spending $75 million to $100 million a year and seeing quite a few additions to that program already with more probably coming during the balance of the year. So that's probably where we see more of our growth. And of course, our yield on those developments is much, much higher. But as far as going out and acquiring assets, it's quite competitive right now and the direction of cap rates is -- it's hard to determine. Nick, did we lose you?

Operator

We did lose him, it looks like, I think his line disconnected. Now we have Jordan Sadler with KeyBanc on the line. Please go ahead.

Jordan Sadler
Analyst at KeyBanc Capital

Thank you, guys. Good morning. I wanted to just clarify, I'm going to touch on investment activity as well, hot topic here. So last year, I think you gave the guide with a range of 0 to $1 billion, 0 to $1.5 billion of acquisitions. I think you hit that high end. This year, you chose to exclude investment activity or acquisitions at least from the guide. Why the change of heart?

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Jordan, last year, we were in the middle of completing $4 billion of senior housing dispositions. We had another $3 billion to go as we started the year, which has been completed. So we had an awful lot of money to put to work, which we did so by a certain amount of deleveraging and then investment in life science and core life science and MOB. There was an awful lot of investment to identify highly strategic assets that fit our portfolio. But yes, we felt the need to guide so that you as analysts and investors would have a feel for what to model. So we did our best to put those numbers out there. Fortunately, we were able to achieve those goals. As we go into 2022, the dynamic is just completely different. We're in a position where a development program, capex, etc,. is fully self-funded. And so we feel good about that. We don't have any debt maturities coming due. So from a cash flow perspective, we are in absolutely great shape. But the question becomes, as we acquire new assets, we have to have appropriately priced capital to do that on an accretive basis. And if we have appropriately priced capital to do it on an accretive basis, of course, you're going to -- you've seen how we operate, you're going to see us be fairly aggressive using our relationships to identify accretive outcomes. But in the event that 2022 produces a year where our cost of capital is not as strong, and transactions would not be accretive, then you'll see us slow it down and really just continue to focus on development. So accordingly, we felt it best not to put guidance in being it's a bit of a guess at the moment. And if we do complete accretive acquisitions, that's just upside to what we've guided to.

Jordan Sadler
Analyst at KeyBanc Capital

Okay. I think I get it. That's fair. Any -- it's not necessarily -- you said it's a -- the dynamic is completely different. It's not necessarily because you have less visibility around or less desire to buy assets here.

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

No, not at all. We -- our preference is to be growing through relationships, accretive transactions whenever we can as long as they're strategic, while we continue to, over time, build out this huge development and densification opportunity that we have that's going to produce long-term outsized growth. But certainly, accretive acquisitions is just additive to all that. So that's something we'll always be focused on when we can.

Jordan Sadler
Analyst at KeyBanc Capital

And just a follow-up to your comment earlier in terms of the development being self-funded. I think you got about $750 million of spend. Can you just walk me through -- I know your leverage is kind of on a pro forma basis, ticked up to 5.3%. Can you talk me through the funding of the $750 million?

Peter A. Scott
Chief Financial Officer at Healthpeak Properties

Jordan, it's Pete here. And as Tom said, 2022 is a self-funded plan as we don't need any additional equity because we didn't include spec acquisitions within guidance. So where is that $750 million coming from? First, we've got retained earnings, that's our AFFO, in excess of the dividend. That's around $150 million. The second piece there is it's probably around $300 million of noncore pruning and seller financing repayments. We expect about $125 million loan repayments this year and then the balance is $175 million of noncore sales. And that does include Frye. I think that's important, that purchase option is included within that $175 million there. And then we've got balance sheet capacity. We've got about $200 million of balance sheet capacity as we're at 5.3% net debt to EBITDA. And then our balance sheet capacity increases as we see EBITDA growing during the course of 2022 as well. And our target is in the mid-5s. So we're at 5.3%. We're not far away from our target. We have a little bit of room to go into the mid-5s. So that's how we see the funding of that $750 million.

Jordan Sadler
Analyst at KeyBanc Capital

Okay. Thanks, guys.

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Thanks, Jordan.

Operator

It looks like we have Nick Joseph from Citi back in our queue. Nick, your line is open if you'd like to continue asking your questions from earlier.

Michael Jason Bilerman
Analyst at Citigroup

Hey, it's Michael Bilerman. I guess, I'm still learning getting the phone. I wanted to come back to Alewife. Just I don't know, Brinker or Herzog, if you want to answer it. As you think about sort of work, live, play in developing a cluster. How are you thinking about the mixed-use components of this project? And is that stuff that you want to go out and build on your own and own on your own? Are you looking for a financial partner, an operating partner, I guess, how are you thinking about the non-life science non-office assets there?

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Michael, I'll answer that. As far as the work, live, play, there would be mixed use for sure. We specialize in life science, MOB and in the smaller part CCRC. So if there's some multifamily housing, for instance, as an example, that's something that we would bring in one of the many potential multifamily folks that I know from my prior life to do something with. Retail, it depends. Oftentimes, we'll do the retail if it's small, if there was something that was larger, we would consider a partner there. So that's yet to be played out though as we lay the game plan out. As far as a partner on the overall project, that's something we could consider as well, but that's a future decision at this point.

Michael Jason Bilerman
Analyst at Citigroup

And then just tapping into the multifamily side, especially given your history, Tom, as you think about those assets, do you want to sell off or contribute the land and sort of take the value creation upfront? Or would you rather sort of maintain an interest in those assets for the long term upside and potential NOI and just continuing to own a piece of it? I'm just trying to understand, just from a capitalization standpoint, as you progress down this development, how we should think about sources and uses and value creation?

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Yes, yes, yes, good question. No, Michael, we would sell the portion of land at value to a multifamily developer, operator and less informal side of the business. So we would be seeking to keep an upside. We'll keep our business clean in that respect where it's invested in health care real estate.

Michael Jason Bilerman
Analyst at Citigroup

Okay. And just finally, just as we stick with Alewife, how should we think about just timing of capital deployment and also just the ongoing yield as buildings are taken out of service and you redevelop? How should we think about the cadence of capital spend and NOI contribution over the next, let's call it, three to five years?

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Yes. There's some of that, that I'm not going to get into at this point for a whole variety of reasons as we're working with City of Cambridge in a variety of different groups. But I would think about it this way. When we took this project on, when we put this assemblage together, we had anticipated that there would be a 2-year period before we actually would commence development on anything that would take a couple of years to work with City of Cambridge, the neighborhood groups, development communities, etc,. to get to a good master plan that made sense. And in the meantime, like I said, we're earning a yield of 4.2% between now and then. So it allows us to be patient. As far as the timing of spend, that depends on the plan that we put together, and there could be all kinds of permutations of how we approach that between now and when we together with Cambridge and Alewife determine what the best course of action is. But one thing I would say is, it's not that this project takes place all in a single year or two or 3. This is a decade-long project where we've got a lot of operating assets that remain operating assets and then we have certain parcels that are covered land plays that we develop one-by-one or maybe a couple at a time dependent on how the project works. But these are the kind of things that we're working forward with the city to determine the best course of action.

Michael Jason Bilerman
Analyst at Citigroup

See you in Florida in a few weeks.

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Yes. Thanks, Michael.

Operator

The next question comes from Rich Anderson with SMBC. Please go ahead.

Richard Charles Anderson
Analyst at SMBC Nikko

So I want to talk more generally about life science and the public markets of the biotech industry have not been kind lately. Our team here pointing to a lot of VC funding as Scott, you mentioned, but then some lackluster performance coming out of the gates as an IPO. I'm wondering if you have any pause with regard to the broader biotech industry when you look at how the public markets have treated that sector over the past year or so? And if there's any concern at all or something that you should be thinking about to not get blindsided by whatever could come from this state of affairs that we are seeing today?

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Rich, I can start with that. Tom may have some comments as well. Yes, certainly, the stock market for biotechs or any industry can be quite volatile, sometimes for reasons outside of any particular company or sector's control. Biotech, a couple of things just from a bigger picture context standpoint, I think that are helpful to keep in mind. I mean, one in 2020, the biotech sector was up about 50% when the S&P was up about 20%, so a pretty massive outperformance. There's maybe some element of reversion to the mean happening. Certainly, in early '22, there has been just an overall market shift, it seems like to safe havens given the potential rise in interest rates. We'll see how that unfolds. It can change pretty quickly, but I'm sure that's had an impact. At various points, there's been uncertainty about what's happening in Washington over the past year, but it's pretty quiet on that front right now. And maybe the last comment is just there was a lack of M&A across the industry in 2021 and M&A outcomes generally can boost stock returns, especially for the biotechs that are in our portfolio. It's not at all uncommon for one of our tenants to be acquired by big pharma, and that obviously generally comes at a pretty big premium, and that just didn't happen much in 2021, but if you listen and talk to the big pharma companies, they all have a lot of cash on our balance sheet and looking for the next breakthrough opportunity that it wouldn't surprise us, especially with valuations down that if M&A might pick up. And actually, maybe one last comment is, it's not like IPOs in the public markets are the only source of capital in this sector. In fact, it's a pretty small component when you think about NIH funding, venture capital funding, partnership funding and then the M&A that we certainly aren't ignoring what's happening in the public markets, but it's not something that we see fundamentally changing the demand that's driving the sector.

Richard Charles Anderson
Analyst at SMBC Nikko

Okay. Good answer. Second question, you're getting the expected rebound at your CCRC portfolio, I think Peter -- Pete said something basis points of potential upside over the next few years, including 200 basis points of occupancy lift assumed for 2022. Is there a scenario where you get this business recovered and you -- if the markets behave in terms of the transaction markets that you ultimately look to sell it and really purify yourself into the life science and medical office world? I know cap rates have tended to be higher for CCRCs, but perhaps a new world order is on the horizon. So I just wanted to comment on your long-term plan with CCRCs assuming the recovery and fundamentals continue.

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Yes, Rich, it's fair question. The -- I tell you what's unique about this business. I know I've mentioned this in the past, but it probably warrants reiterating. It's only 10% of our company, but it's such an unusual product, the residents have an 8- to 10-year stay, younger, healthier seniors, high-quality cash flows, strong baby booth -- baby boomer growth tailwinds, these things sit on these huge infill land parcels, 15 assets is what we have in total on 720 acres. So almost 50 acres on asset with a lot of development capability in some of the embedded land that sit on these parcels. New supply is almost nonexistent. And so -- and we've got this upside. So your point was after we get the upside, might we consider doing something, this asset class trades at a cap rate that's higher than we feel is that is warranted. We feel it's a safer asset class. It's a more consistent stream of earnings. Like I said, it's got almost no new supply that comes up against it because it takes so long to build these things. It's kind of a 7- to 10-year venture to get a new CCRC asset in place and stabilized front to back. And it's hard to find an infill land parcel where it makes sense. So we feel that it's an excellent coupon clipper. And at current cap rates, it's a tremendous yield on a risk-adjusted basis. So we feel, as we sit here today, that, that's going to be a -- just a really nice coupon clipper with some real upside for us. So that's how we're looking at it.

Richard Charles Anderson
Analyst at SMBC Nikko

Okay. Sounds good. Thank you.

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Thanks, Rich.

Operator

The next question comes from Steven Valiquette with Barclays. Please go ahead.

Steven James Valiquette
Analyst at Barclays Bank

Hi. Thanks for that. I know CCRCs are a small part of the company. I had some questions around that. You just answered a couple of them. But the -- as far as the occupancy outlook for '22, are you assuming that's a fairly linear progression we should see that just sequentially improving throughout the year? Or could there be -- could 1Q be down because of some of the things you talked about with labor pressure, not allowing to move-ins, etc? And also just on the rate update of 5%, that's pretty positive. And we've seen a range of anywhere from 5% to 10% across a lot of the other operators. But I just want to confirm from your point of view, do you think that's adequate to cover the labor pressure? And do you see any light at the end of the tunnel as far as when the labor pressure could subside? Or are you assuming for now that this will be kind of a headwind for most of calendar '22?

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Steve, I'll take a shot at that. You might have to remind me if I miss some of it. But on the labor side, it's a challenge, but things are improving. Over the past month, the number of properties that we have that have to limit admissions because they just don't have enough staff has been cut in half. So we went from 10 out of 15 properties about 45 days ago down to five today, and we have very few restrictions around visitation and dining and activities given that the Omicron has really settled down. So that's all been a real positive. That occupancy has started the year really strongly, which is good really across the whole continuum. Maybe that's a segue to your question about occupancy, and it's important to know that most of this portfolio is in Florida, which geographically makes a difference because we do tend to see a lot more activity especially in the independent living side of the business, which is the vast majority of the units in the late third quarter into the fourth quarter. So our entry fee activity is always the highest at the end of the year. And we saw that again in 2021, which provides a tailwind as we start the year on occupancy. But then the entry fees tend to slow down a bit in the first half of the year. And then on the skilled side of the business, that tends to follow what's happening with the health of the senior population and what's happening in hospitals. So the fourth quarter and first quarter tend to be pretty strong for occupancy in the skilled business. That changed this year in the fourth quarter because of staffing, that we had a lot of demand. We just couldn't accept the resident admissions. But as I mentioned, that has started to change pretty dramatically here in the first quarter, so we hope that that continues. And I think you had one other question, if you could remind me?

Steven James Valiquette
Analyst at Barclays Bank

I think that covered it. It was really, I think, just with the 5% rate updates cover the labor costs? And do you expect that labor pressure to subside at any point during the year? Or are you assuming that's going to be a pretty strong headwind for most of the year? I guess that was the other question that I...

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

I mean we're projecting compensation increases in the high single digits this year, just a reality of where the market is. But your question about rates requires some additional context because there's the rate that you're passing through to existing tenants, but then there's what type of discounting is happening for new residents. And one thing that I would point out in our CCRC portfolio is that we have virtually no discounting. So our RevPAR in 2021 was actually up 3.5%. So on top of that, we're pushing through 5% rate increases on January 1. We got virtually no pushback across the portfolio. So those have been implemented without a problem. And that is a pretty big contrast to the -- what we're seeing in our rental senior housing portfolio that we still have with Brookdale. It's 19 assets, so it's not a huge sample size. But that's a case where we're getting more than 5% growth on existing residents, but there's pretty significant discounting happening, which brings the total RevPAR back to kind of low single digits, if not flat in 2021. So in any event, I wanted to give you that additional color because there's more to the story.

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

One last thing I would mention is when we did look at the rate growth, we were fully cognizant of the bump in social security and that rental senior housing was pushing towards higher increases in rates. That is something we did talk about pretty extensively. And one of the things to keep in mind in a CCRC asset is the relationships with the tenants is extremely important. They create the referrals that continue to bring new long-term residents in. And we felt that 5% would be a fair increase in their rates while maintaining those relationships. So that was part of our thinking as well. We could have gone higher. We realized that and chose not to.

Steven James Valiquette
Analyst at Barclays Bank

Got it. Okay. Thanks.

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Yeah. Thanks.

Operator

The next question comes from Michael Carroll with RBC Capital Markets. Please go ahead.

Michael Albert Carroll
Analyst at RBC Capital

I wanted to touch on the land acquisitions in the Life Science portfolio that you guys did in the fourth quarter. I guess, Scott, can you talk or give us an update on the Vista Sorrento project? Was that always the plan to buy that adjacent land parcel? And how many buildings could that site support?

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Yes. It's a 2-building campus today. Yes, our expectation was that we would end up buying both buildings. So we closed on one in the fourth quarter and now the second one in the first quarter. It probably ends up being two buildings, totaling 250,000 square feet. So we've got some short-term leases in place. So Mike Dorris and his team in San Diego, who identified the opportunity and got it executed. We think it's going to be a great addition to our San Diego portfolio, and it probably comes on a quicker time line than maybe some of the other longer-term development projects just given the nature of the entitlements that are in place as well as the short-term leases. So that probably ends up being a 2023 start from where we sit today, but there's obviously some work to do in the interim. But pretty good land basis that we're coming in at, especially relative to where market rates are today, should be a really good outcome for us.

Michael Albert Carroll
Analyst at RBC Capital

And then would you break ground on both buildings at the same time?

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Yes, we'll see. It ends up being 250,000 feet, which given how strong demand is, it'd be pretty simple to assume that we can get that leased up. But part of it is the timing of the entitlement and permit process that it might be that we can start sooner if we go with two buildings that are just right next door to each other, and that might end up making more sense.

Michael Albert Carroll
Analyst at RBC Capital

Okay. And then how should we think about the Needham site? I mean it was a joint venture, it's nine acres. Is that another two buildings at that site too?

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Yes, that one is a longer time frame. We have a special permit entitlement process to go through with both ventures, our local partner. We've had tremendous success with them at our 600,000-plus square foot campus in Alewife. So we're excited to do more with Eric and his team. That probably is a couple of years now to go through that entitlement process. It probably does end up being a pretty big campus with multiple phases. And given the location, it really is that we have a lot of optionality around what it could ultimately be. It might just be pure lab. It might be R&D or manufacturing. It could even be medical office. There's a tremendous amount of newer medical office hospital type development right in that immediate area that -- that could end up being a great fit for us, too. We'll see.

Michael Albert Carroll
Analyst at RBC Capital

Okay. And then you said multiple phases. This is just nine acres, right? So is there more land that you have the option to buy? Or is Healthpeak able to participate in the multiple phases?

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Yes, we would do the whole thing together, but it could end up being several hundred thousand square feet. So I'm not sure we do all of that at one time. But there's a lot that will occur between now and when we make that decision, Michael, that I would say, let us come back to you on the specific plan.

Michael Albert Carroll
Analyst at RBC Capital

Okay. Great. Thank you.

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Thanks, Michael.

Operator

The next question comes from Vikram Malhotra with Mizuho. Please go ahead.

Vikram L. Malhotra
Analyst at Mizuho Securities

Good morning. Thanks so much for taking the questions. Maybe just going back to where MOB cap rates are today, you referenced some of the 50 bp compression and maybe just revisit your thoughts maybe strategically, philosophically monetizing MOBs just given where pricing. It seems like it's hard to envision a scenario where MOB cap rates continue to move down yearly at least in my view. But how about thinking of using those proceeds for maybe more value-add opportunities in life sciences or maybe even a more riskier asset class, not talking to senior housing, but what about hospitals? It's a space you've been -- you've looked at in the past. So just considering -- I wanted to get your thoughts on MOB monetization and just using proceeds for other uses.

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Scott, why don't you start with the MOB cap rates and your view on value, and I'll take the rest.

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Yes. I mean there's the strategic part about having tremendous relationships in a platform that we think has a lot of value as we think about how we could grow that business over time whether it's through acquisitions, when our cost of capital makes sense, as you saw last year or certainly through a development pipeline, which is active really at all times that we think that has a lot of value to shareholders. And it isn't an important part of the Healthpeak value proposition. As far as what could happen with cap rates, we probably could have said the same thing a year ago or three years ago or five years ago, I mean, cap rates have just continued to come down. So could they go any lower? I'm not sure. But I don't think we would ever make a decision based on our view of whether cap rates are going to go down or up. It's a 25 million square foot portfolio that's highly strategic to us. It doesn't come down in just a bet on cap rates.

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Yes. So Vikram, the second part of your question is -- it covers a number of different points. But when we look at our MOB business, we do think that it is well positioned to deliver above average and more consistent returns over time, especially given the nature of the campus being primarily on campus. Also, I think folks know our portfolio pretty well. We have a large number of trophy campuses that were developed and acquired over many years that could absolutely not be replicated today. So quite a valuable portfolio, unique in our HCA relationship with the development capabilities of it, and those come in at very nice returns. So we like that business a lot and think that it acts as a stability in our portfolio that allows us to be more aggressive as we have a pretty sizable life science development program and aspirations around the densification and whatnot. And with the scale that we get with MOBs, it also gives us G&A scale but also a better cost of capital, and we're able to utilize all of our synergies, corporate back office transaction groups that work on both capex functions, leasing, analysis systems, etc, etc,. So it makes a lot of sense to be a part of our business when we look at the components. So the bottom line is -- I guess the other thing you said is would we sell it to invest in something riskier. No. That's not the plan that we have at all. That might fit well into some other REIT's plans based on the strategy that they have, and there are lots of different ways to play this. But in ours -- our business, we intentionally -- it took us almost six years, but we created a business that's got all three vital high barrier to entry in irreplaceable portfolios of real estate with a huge development densification opportunity at the site and a great balance sheet. So that's probably somewhat unique, and it is a strategy that we like and we think it's going to do very, very well over the long term. As far as investing in riskier stuff like hospitals, nothing against hospitals, they have done well in recent years, especially. But they're still subject to EBITDA margins and whatnot. And the triple net nature again, nothing wrong with that. That's the strategy to play, but it's not the one that we took. It's not the one that fits in with the business plan that we have. So we would have zero intention of making that kind of a shift.

Vikram L. Malhotra
Analyst at Mizuho Securities

Fair enough. Just one more on life sciences. I think for a couple of years in a row, your initial guide on a same-store basis has been 4% to 5% and you've seen positive trends and handily beat those ending up 6-plus percent, if I'm not wrong. So just maybe for this year, walk us through sort of what gets you in the range versus maybe trying to getting higher above to that 6% average we've seen in the past few years?

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Vikram, I can start with that, and then Pete may have some comments as well. But when you think about our same-store portfolio and what really drives same-store, there are a couple of primary components. One is the contractual escalator, which is in the low 3s for us. And then the mark-to-market, which we said is in the 25%, 26% range, maybe that's conservative. We didn't assume that we put in a bunch of TIs in those spaces. If we did, we'd obviously get much higher rental rates. So you can't look at that number in isolation. But just assume that that's the number. We've got a 6-year weighted average lease term. So for every lease that matures next year, there's a lease that matures in 12 years. So it takes some time to go through that mark-to-market. But if you just average it out, given the 6-year weighted average lease term, it adds about 200 basis points a year to our same store. But that will fluctuate from year-to-year, important point. And then what are the other variables? Well, one of the things we like about life science is it comes with really big tenants. So we have on average of 55,000 feet per lease, which is great. It's easy to administer and asset manage. The downside is when you end up re-leasing a space. There tends to be a TI build-out and you end up with some downtime, perhaps some free rent if it's a long-term new lease. And that does create some noise in same store. Now those are temporary, obviously, and you make it up the following year, but it would create some noise in any given year. And you do have things like bad debt and recoveries that are going to move around from year-to-year, but that tends to be more minor, but we did get a big benefit in 2021, where we had just 0 bad debt. So that allowed us to beat initial guidance handily.

I mean you're right that for the past three years now, we started with guidance of 4% to 5%. In 2020, we ended up with 6.2%. Full year growth. In 2021, we were at 7.2%, but we also had some upside from occupancy. Today, we're essentially fully leased other than the frictional vacancy. So there's not a ton of upside left from occupancy. Now on occasion, we will proactively terminate a lease. Obviously, that's a negotiation with the tenant. They don't just leave the space. But if there's a meeting of the minds, where we have a growth tenant that wants the space, and we have an existing tenant who maybe doesn't want as much space because of where their business is going, we're able to terminate that lease early. We do that fairly routinely. Actually, it's one of the reasons why we think scale in a local market is important. This becomes a very important part of being a landlord in this business is you do have a lot of velocity of tenants. So being able to move tenants who need growth opportunities within your current portfolio becomes very important. Now when you do that, economically, you get a very beneficial outcome because there's a huge mark-to-market, it's a growing tenant. It's a longer term that economically, it's an easy decision. And yet from a same-store standpoint, you end up getting a distorted result because there's downtime, oftentimes, to build out the space. So what can be a great economic outcome could actually create some short-term decline in same-store. And we always have some of that going through the portfolio. So in any one year, you might have a net negative. The next year, you might have a net positive, but there will be some noise year-to-year because same-store is just not a perfect metric. It's helpful and yet it has a lot of shortcomings that often require a lot of explanation, which is why I went into the great detail because we end up managing our portfolio for the best economic outcome. And sometimes, that ends up with short-term same-store downsides, and then we end up just explaining why we made a certain decision. So Tom, anything you'd add to that?

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Scott, I think you covered it. Actually, one thing, keep in mind, when you look at the entire portfolio, we've got a lot of development that's coming online. 10-year leases typically they come in at market, and then we will have escalators for the next decade. And that's great because we're developing those at high yields. It's very economically favorable, but that also does not produce outsized same-store growth. So that's just another item. But no, Scott, I think everything you said covered it.

Vikram L. Malhotra
Analyst at Mizuho Securities

Just to clarify, what's the bad debt assumption embedded in that life science growth number?

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Pete, do you want to cover that?

Peter A. Scott
Chief Financial Officer at Healthpeak Properties

Yes. It's probably around a 50 basis point amounts around $2 million that we embedded there, and we'll see how we progress during the course of the year, Vikram, on that. So there is a little bit of cushion embedded within that number. But some years we need it, some years we don't. And then we can also utilize that as part of our negotiations on the proactive lease terminations.

Vikram L. Malhotra
Analyst at Mizuho Securities

Great. Thanks so much.

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Thanks, Vikram.

Operator

The next question comes from Steve Sakwa with Evercore ISI. Please go ahead.

Stephen Thomas Sakwa
Analyst at Evercore

Yeah. Thanks. I know the call is getting a little long, so I'll just limit to one here. You guys maybe just talk about the pace of supply in your three key markets that you're seeing. Obviously, we've seen a lot of new developers and landlords coming into the life science space given the given the challenges we're seeing in traditional office. So a, what are you seeing on the new supply front? And any concerns about new supply in your markets today?

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Steve, I'll cover that. I'll just go as quick as I can, market by market, starting in the peninsula, San Francisco Bay Area. The outlook is favorable. It's a simple summary, there's about 700,000 feet being delivered in that market in 2022, maybe another $1.5 million in 2023. So certainly, the active demand today being closer to three million square feet. Now that's a gross number. So some of those tenants weren't up staying where they're at. But we feel like supply and demand is in favor of landlords in South San Francisco for the foreseeable future. In San Diego, there's plus or minus 1.5 million square feet being delivered in 2021, more like $2.5 million in 2023. A lot of that is already pre-leased. You're looking at about 70% pre-leasing in 2021 and all three of our projects are at 100%. And then in Boston, over the next two years, it looks like about 10 million square feet will be delivered. But again, if you look at 2022 deliveries, the pre-leasing is in the 70% range and the active gross demand is in the six million feet range today. So that's a pretty favorable dynamic across the three markets for the next two years. Maybe a couple of other big-picture comments. One is that of the 17 million total square feet that I just talked about being delivered over the next two years in the three core markets. We do include conversions in that number. And actually, they account for about 40% of the total. And it is clear now as we've kind of tried to point to over the past few years that the purpose-built new developments are leasing up quicker. The pre-leasing is much higher on the Class A new development that's coming to market versus the conversion. So not a surprise, but we would expect that to continue. And then the other comment I would make about the 17 million square feet across the three markets is that not only new supply is created equal, so maybe an extension of that first point. So we've tried to go through really building-by-building and identify, is it a direct competitor with our portfolio? Is it a moderate competitor? Or is it just simply not competitive at all. And really, less than half of that 17 million square feet is really directly competitive to our footprint, whether it's our development portfolio or even our operating portfolio. So hopefully, that gives you some context.

Stephen Thomas Sakwa
Analyst at Evercore

Great. I guess just one quick follow-up and then I yield. If you were to start the 23 developments today, which I realize you're not, your yield on cost would be what? I guess I'm just trying to figure out how much costs have gone up versus how much rents have gone up?

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Yes. I'm not sure that we want to comment on returns on projects that are a year from now or more. But I would say that costs are up in the 6% to 10% range year-over-year, whereas rents are up in the 13% to 18% range. So just all else being equal, the return on cost has actually been improving because the market rents have moved so fast.

Stephen Thomas Sakwa
Analyst at Evercore

Thanks. That's it for me.

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Thanks, Steve.

Operator

The next question comes from Daniel Bernstein with Capital One. Please go ahead.

Daniel Marc Bernstein
Analyst at Capital One Securities, Inc.,

Hello. Two quick life science questions, I guess. One, given the rise of inflation and costs, are you -- is there any room to move your leasing structure in life science away from fixed bumps to more inflationary-based bumps? And then secondly, and I know this is preliminary, only a month in the year. So a move in the stock market for one month doesn't mean trend. But if -- have you considered looking at maybe doing some more venture capital in the life science space, similar to what your peer Alexandria does with their venture investments arm?

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Scott, do you want to take the rising inflation and fixed versus CPI?

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Yes, I can take that, Dan. I mean, we're at 99% effectively fixed rate today and not just what the market is. We have a big market share, but I'm not sure it's big enough to move the market to CPI-based escalators. So that's not highly likely to occur and not even something that we're focused on. We do get 3.5% bumps generally in the Bay Area, 3% in San Diego, in Boston. So I don't see that changing. Tom, do you want to take the second one?

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Yes. Dan, what I'm hearing you say is, like Alexandria, would we take some trophy assets, JV them, use the proceeds to go do more development, use that as a funding mechanism? Is that your question?

Daniel Marc Bernstein
Analyst at Capital One Securities, Inc.,

It would be more of direct investments in some of the biotech and pharma companies as a capital provider if needed.

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Got it. Yes, I understand your question now. Yes, the answer is no, we wouldn't do that. We're real estate people, finance people and that's where we're going to focus our efforts.

Daniel Marc Bernstein
Analyst at Capital One Securities, Inc.,

And then one other quick question on the MOB side, HCA and other hospital operators clearly announced higher capex development spending. Just wanted to understand if some of those development projects that you're talking about that might be announced were already in the works? Or is there some incremental increase in development that you can do with HCA based on their higher capex development spend?

Thomas M. Klaritch
- Chief Operating Officer at Healthpeak Properties

Yes. This is Tom, Dan. We -- the ones we talked about so far, they've been -- they've kind of been on their existing campuses. They're not part of those new hospitals that HCA talked about developing in the next year or two in Texas and in Florida. We've already had some discussions with them on those hospitals, and there likely will be a need for some MOBs there. But it's too early to really have any details on that. But overall, there's a big backlog of demand for MOBs on their campuses. So I'd say that's going to be benefiting our development program with them for some time to come.

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

We have four more questions in the queue. We'll take the questions. Please, nobody else add your name to the list because you know the call is going long. I think, Tayo, you're up next.

Operator

Yes. Our final question comes from Tayo Okusanya with Credit Suisse. Please go ahead.

Omotayo Tejamude Okusanya
Analyst at Credit Suisse

Yes, good afternoon. Thanks for squeezing me in at the end. The $750 million of development starts, again, that's elevated from kind of prior years. Just curious if we -- should we expect -- we're expecting any development starts of new projects this year? And specifically, if it could be more life sciences or MOB-oriented?

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Yes, Tayo, I think Pete and I will try to tag team this one. We're not expecting any new starts in 2022, but we do have a number of big projects that are underway with a lot of spending in 2022, including Vantage Phase one that we just started last quarter and then a lot of activity in San Diego with Callan Ridge and Sorrento Gateway and then finishing up 101 Cambridge Park Drive in West Cambridge. So that accounts for the vast majority of the development spend in 2022, and then we would look to have probably three new starts in 2023. Pete, anything to add?

Peter A. Scott
Chief Financial Officer at Healthpeak Properties

No, I think that's right. We will have projects that will come off, tie out this year, and I would actually refer you back to that development schedule. And then as we look towards next year, we certainly have some densification projects that we've talked about already to backfill that. So well, that's something we've talked a lot about over the last couple of quarters. The majority of those or a big chunk of that will really start in 2023. You won't see that in a significant amount in 2022. 2023 and beyond.

Omotayo Tejamude Okusanya
Analyst at Credit Suisse

That's helpful. And then one other quick one. The CCRCs, again, good expense management in fourth quarter, I think everyone was kind of talking about rising labor costs. You've actually even discussed it a little bit on this call. But again, your total labor costs were really well managed in 4Q. Was there anything unusual during the quarter? Because it's not like you had CARES Act funding that went against that number. So I'm just kind of curious what happened in 4Q.

Scott M. Brinker
President and Chief Investment Officer at Healthpeak Properties

Yes, that definitely requires some color because contract labor was actually quite high as was over time, even above our expectations. But we did have a number of vacancies that offset all that additional contract labor. So that was one reason the compensation was actually down. Now obviously, the downside of that is that we needed to limit admission. So we felt the impact of that on revenues. So there's no free lunch, obviously, but we also have just typical seasonality. Remember, our portfolio is mostly in Florida. So the third quarter has much higher utility costs, like much higher than the fourth quarter every year. And then you just also have a lot of vacations and things, so pay time off that you don't see in the fourth quarter. And then we had a little bit of just timing from real estate taxes and bad debt that benefited the fourth quarter as well, Tayo.

Omotayo Tejamude Okusanya
Analyst at Credit Suisse

Okay, great. Thank you.

Operator

We still have time for questions, and a couple of people in our queue. The next up is Mike Mueller from JPMorgan. Please go ahead.

Michael William Mueller
Analyst at JPMorgan

Yeah, hi. Just a quick one here. Pete, what does guidance assume for the line of credit balance and any potential refinancing?

Peter A. Scott
Chief Financial Officer at Healthpeak Properties

Yes, good question there, Mike. From a line of credit perspective, I talked about floating rate debt. That's really the majority of our floating rate debt. So we'll manage that to around plus or minus 15% of our total amount of debt and I would say the balance is probably somewhere between $750 million to $1 billion for the year. And you think about the size of our line of credit, it's $3 billion. So that's essentially utilizing it in the 25% to 30% range.

Michael William Mueller
Analyst at JPMorgan

Got it. Okay. That was it. Thank you

Peter A. Scott
Chief Financial Officer at Healthpeak Properties

Thanks Mike.

Operator

The next question comes from Joshua Dennerlein with Bank of America. Please go ahead.

Joshua Dennerlein
Analyst at Bank of America Securities

Hey guys. I guess I was just curious on the MOB same-store NOI guidance, what gets you to the high low-end of the range?

Thomas M. Klaritch
- Chief Operating Officer at Healthpeak Properties

Josh, this is Tom. Really, the biggest drivers there that affect the range or -- obviously, occupancy is always a driver. We've projected pretty much flat occupancy year-over-year. But then you have -- we're still not up to our pre-COVID levels of income. So that's probably a potential upside there. Now granted, if another variant comes out and we see an increase in cases, that could be to the downside. So the big -- that's probably two of the bigger drivers. And then Medical City is always -- it seems to be a positive, and then we would think that would continue to be the same.

Joshua Dennerlein
Analyst at Bank of America Securities

Awesome. Thank you.

Thomas M. Klaritch
- Chief Operating Officer at Healthpeak Properties

Thanks, Josh

Operator

We have no further questions. So this concludes our question-and-answer session. I'll turn the conference back over to Tom Herzog for any closing remarks.

Thomas M. Herzog
Chief Executive Officer at Healthpeak Properties

Well, thank you, everybody, for joining us and your interest in Healthpeak. And we'll see you all soon, hopefully, at the Citi conference. Bye-bye, everybody.

Operator

[Operator Closing Remarks]

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