Healthpeak Properties, Inc. (DOC) Earnings Call Transcript & Summary

Welcome to Day 2 of Citi's 2026 Global Property CEO Conference. I'm Seth Bergey with Citi Research, and we're pleased to have with us Healthpeak Properties and CEO, Scott Brinker. This session is for Citi clients only, and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC26 to submit questions. Scott, we'll turn it over to you to introduce your company and team, provide any opening remarks and tell the audience the top reasons an investor should buy your stock today, and then we can get into Q&A.

In any event, now we're live. I'm going to introduce Kelvin Moses, our CFO; and Andrew Johns, our SVP of Investor Relations and Finance. And we've got John Thomas, our Vice Chairman in the audience as well. John, you're welcome to come up here if you want. All right. So we continue to take bold, decisive actions across our 3 business segments to position Healthpeak for success. Last year marked the successful completion of our merger integration with Physicians Realty Trust. Outpatient medical is now 50% of our portfolio income and the fundamentals, they have never been stronger in that business. We delivered $70 million in synergies. Most mergers fail. This one was a remarkable success. And really with the merger as a launchpad, we successfully internalized property management across nearly our entire life science and outpatient medical portfolio. And our people are now on the ground in our local markets interacting with our tenants on a daily basis, and the result is really operational efficiencies and deeper tenant relationships, so strategically and financially attractive. And then moving to life science. We were early to shut off capital allocation to that sector 4 years ago when we saw the initial signs of supply and demand going the wrong direction. We kept our balance sheet strong, knowing that acquisition opportunities would emerge from the downturn. Today, with new supply going to 0 and demand starting to inflect positively, we do see a window to go on offense and acquire high-quality properties at cheap prices. In January, we acquired a 1.4 million square foot portfolio. In South San Francisco that would previously have been untouchable. And now we own 6.5 million square feet across 210 acres in South San Francisco, which is a global epicenter of biotech innovation. So that covers about 90% of our portfolio. The remainder is senior housing, but it's an important 10% that was being ignored inside Healthpeak. So in January, we announced a unique and creative transaction with the planned IPO of Janus Living, which will be a pure-play senior housing REIT. All of the investments are in a RIDEA structure, which allows the company to capture all of the operational upside from the assets. The IPO will allow our shareholders to capture value immediately through a higher multiple on our senior housing earnings while also participating in the future value creation as the majority owner of Janus Living. And we do have significant expertise and relationships to create value in that business. Okay. The most important part of Healthpeak though is our culture. It's pretty easy to rally the troops in a bull market when demand exceeds supply. Over the past 4 years, we faced the exact opposite dynamic in our Life Science business. At the time, it was by far our largest business segment, and we used the downturn to dramatically streamline what we work on and how we do the work. Technology was a big part of that. But our G&A is essentially flat versus 2019, 6 years ago, despite massive inflation and doing a $5 billion merger. And yet our team and culture has never been stronger. Our team is phenomenal, and it's really driven by our core values. We use WE CARE as the acronym for those core values. The W is for winning mindset, E is for empowering the team. C is for collaborate and communicate. A, for act with integrity. And R for respect the relationship. And then finally, E for excellence in execution. And that really is what drives our performance through the cycles. All right. Q&A.

Great. Maybe to start off, we've obviously had some moving pieces with the announced IPO. What kind of -- why is a diversified strategy the right strategy for Healthpeak? What kind of synergies do you see kind of across medical office, life science and senior housing?

Well, we're putting Janus Living into its own vehicle so that it's a pure play. So actually, I've said from day 1 in the sheet 3.5 years ago that senior housing is a good business. There's a lot of demand for it. We do have expertise, but it's a very different business than our outpatient and Life Science segment. We also didn't have the cost of capital to grow it over the past 3 years. But with this vehicle in the spinout, we will have a pure-play senior housing REIT that should have a dedicated cost of capital and business plan to grow it. So we're actually taking the opposite approach from what you just described. But as our -- as it relates to our outpatient and Life Science business, the behind the scenes other than leasing, those businesses run on the exact same platform, the same process and procedure, the same technology. There's tremendous overlap corporately between those 2 businesses. And I think over the last 3 years, the benefit of having both inside of our portfolio has allowed us to significantly outperform our direct peers. And today, we're taking advantage of a lot of private market enthusiasm in the outpatient business to recycle capital into much higher return opportunities in life science. So we're absolutely getting the benefit of it with our corporate efficiency, but also capital allocation between those 2 businesses at least.

And then what kind of ultimately convinced the Board that spinning off kind of the senior housing and the Janus vehicle would kind of unlock more value than retaining it with the current company?

Yes. There's no guarantee on how Janus Living trades, but the portfolio quality is exceptional. The balance sheet is going to be incredibly strong, essentially no debt when we do the IPO. And it will be a pure-play RIDEA REIT at a time when sector fundamentals are really strong and investor enthusiasm for the sector is at an all-time high. So we do think it will trade well. The investor meetings to date have solidified that view. So I don't know exactly where it's going to trade in terms of a multiple, but it certainly won't trade at 10x, which is where it's trading inside of Healthpeak. So the margin for AI, the cushion is pretty dramatic with a ton of upside for our shareholders. So we're pretty excited about it.

And then as you think about kind of senior housing in the public space, there's obviously been -- some of your peers have started to kind of enter the space. And as you kind of use this vehicle as a way to kind of grow that business, what do you think will be kind of the differentiators for that platform? Kind of what markets are you kind of going to look at? What's going to be kind of the strategy in terms of growing that?

Yes. I mean there are obviously competitors, but it's a massive market. It's a growing market given the amount of the aging population. There's plenty of business for us to capture. We have a pretty small denominator. So we have the benefit of being able to do 1 or 2 transactions at a time. We don't have to do billions of dollars of portfolios. It's really a different strategy for us that's much more focused, concentrated. But just in general, that business, just investments overall, there's access and then there's the analysis. In the public markets, it's all about analysis, right? You have the same access to companies to invest in. But at least in the senior housing business, the access is a huge part of what drives deal flow and the operators, for the most part, control that access. And if you have strong relationships with certain partners, you get proprietary opportunities. And I think we've shown that we can do that. We've built up a $700 million pipeline before we even made an announcement about the transaction. We didn't make a single phone call. That's just responding to inbounds from groups that want to work with us. And that's only accelerated in the last 2 months since we made the announcement. So provided we have a good cost of capital, there's no question that we can grow it very significantly just based on the relationships that the company has. And there'll be plenty of deals to go around for the others as well.

And are those kind of going to be entrance fee sales or traditional kind of shop? Are you looking at certain vintages in terms of how new the buildings are, certain geographies? Just kind of can you touch on a little bit about that pipeline?

Yes. The portfolio today is majority entry fee, which we think is a unique attribute. That business has performed through the cycles for a number of years, both as a sector and our own portfolio. So it's a unique form of senior living, but it's got a great track record. It's just not as well understood by the public markets because it's a much smaller business and it's mostly nonprofits. But the fact is it's got a tremendous track record. So we think that's a unique attribute. We do have expertise and relationships to grow in that sector and we would like to, but most of the growth will be in the rental business, just it's a much bigger, more liquid marketplace and therefore, more opportunity. The entire pipeline is in the rental business as is the shadow pipeline. But it's a major market focus. On day 1, 70% of our assets are in Florida and Texas, and it's big markets, Orlando, Tampa, Houston, Denver, et cetera. And the pipeline is similar in terms of big MSAs, high-growth markets, Atlanta, Orlando, et cetera. That's generally the focus.

Great. And then post spin, your -- Healthpeak will kind of remain a major shareholder. How will the management agreement be structured to kind of ensure alignment and avoid kind of conflicts between the 2 entities?

Would you like to take that, Kelvin?

Yes, I'm happy to take that, Scott. So to start, we've structured a very thoughtful management agreement that will ensure that Healthpeak and Janus Living have separate lines of investment strategy. So there will be no conflicts of interest with respect to investments and there'll be a noncompete between the 2 entities. We have a deep bench of team that are focused exclusively on Janus Living that have decades-long relationships in the senior living business, and they'll be able to execute on the growth strategy and continue to build on the pipeline opportunities that Scott just mentioned.

And then how do you think about remaining the shareholder? Will you look to kind of monetize that over time? And then just kind of if you -- if that does provide liquidity, how do you think about kind of the capital allocation priorities for Healthpeak?

Well, we think Janus Living will trade well, and therefore, we'll issue shares to grow accretively, and that would naturally dilute Healthpeak's percentage ownership. So we just own a smaller piece of a bigger company. That's the expectation. We won't continue to invest, but I also don't see us selling a lot of shares. We have a 1-year lockup thereafter we'd have flexibility to sell shares. It was trading great and we had a good use of capital. It'd be an option to utilize to grow Healthpeak, but it's not our business plan to go liquidate it. We think it's going to trade exceptionally well and increase in value. This is really to create a vehicle to capture value for our shareholders and to create a strong cost of capital to grow accretively. I mean that's the reason we're doing it, not so we can go out and liquidate the shares.

And then how do you think about kind of Healthpeak post spin from like a leverage standpoint? Will it kind of be leverage neutral? Or just where will leverage sit post the transaction?

Yes. Post the transaction, we'll raise capital through the IPO and the leverage profile of Healthpeak will consolidate Janus Living well. So it should be a deleveraging transaction for Healthpeak overall.

And then just maybe switching to the Life Science segment. You recently made the kind of Gateway acquisition there. And there's been some different discussion around the overall health of life science, but can you maybe help us understand kind of your -- from your vantage point, where does the life science market sit today? Is it different among markets? And then what kind of KPIs are you tracking to kind of give you confidence that it's in the process of either bottoming out or starting to recover?

Yes. So I mean, 4 years ago, we had a bit of a different view on life science in terms of where the fundamentals were headed, and we cut off capital allocation to that business. It turned out to be the right decision. A lot of others in the public and private market kept hitting the accelerator. Unfortunately, it had an impact on where we sit today from a supply standpoint. But the point is we were correct in our view 4 years ago on where the trajectory of the business was heading. We think we're correct today as well. It's not a public security that we can buy and sell with one click. Real estate takes time to transact. We do feel like the leading indicators or the building blocks of recovery are firmly in place. M&A has improved dramatically across the sector in the last 6 months. The public market valuations and capital raising have also started to improve. A lot of the new supply is moving to alternative uses, which is helping with the overhang. And nothing will get built for a long time, just given where construction cost is relative to rents. And our leasing pipeline has roughly doubled in the last year. So you put all that together, that's a lot of positives that suggest the market is either at an inflection point or getting awfully close, which gave us confidence to do the Gateway acquisition. We also like the fact that it's 30 acres and 1.4 million square feet in South San Francisco, which we think is the best biotech submarket in the world. It's either 1 or 1A with Cambridge. And at least in 2025, according to third parties, it had the highest leasing volume of any of the markets. And it also has in 2026, the highest active demand for tenants in the market, and we're the dominant player. It's not even close. So this just adds to our competitive advantage in South San Francisco. So for all those reasons, we felt comfortable with the acquisition. It's also breakeven on day 1 with using proceeds from our outpatient medical sales, and the portfolio is roughly 60% occupied. So there's a lot of upside for us to capture. And any capital we invest would be good news capital for TIs, like the base buildings are actually in great shape from previous ownership. So we feel like any capital that would need to be spent would be an immediate return on investment because it would be for leasing.

Just diving a little bit more into kind of the leasing pipeline. The volume is increasing, but how is kind of the pipeline conversion changed over the last quarter or so? Are you seeing that kind of accelerate? What's kind of the quality of tenants? And then are you seeing tenants kind of move within the market or between markets? Are you seeing net new tenant expansions kind of within that lab leasing pipeline?

Yes, I can start with that one. I think important to note, this time last year, our pipeline was about half of what it is today. And the composition has changed, as you described. It's become more new prospects that are not existing Healthpeak clients and the opportunity set is focused on new leasing opportunities within our portfolio. So that's a positive. The size ranges vary from 30,000 square feet to 100 plus. So there's a good mix of requirements out there in the market. And certain of these tenants are migrating from submarkets that are not necessarily the most core in a particular region and seeking opportunities to get into core assets in core locations.

And then as you kind of look to recycle capital out of the medical office space and then to kind of life science, how are you thinking about kind of your underwriting criteria aside from the returns? Are you looking at building location, quality, tenant funding? Just kind of what other attributes are you looking for as you underwrite distressed lab opportunities?

Yes. I will clarify that we're also recycling in the senior housing because the $700 million pipeline that we announced in January, that's all closed, by the way. That's all complete. And that's done on Healthpeak's balance sheet that then gets contributed to Janus Living. So the $1 billion of acquisition volume that's in our 2026 guidance, almost $700 million of that is actually senior housing. I think just an important thing to point out that selling assets that are probably being valued at 10x multiple in the public markets and hopefully, those will be valued at 20-plus inside Janus Living. So that's actually the majority of how the capital recycling is being utilized, just to clarify. But in terms of life science and the things we're looking for, we were really disciplined even when the cycle was booming, 2018, '19, 2020. We're not in these other markets that are trying to establish themselves as life science hubs, whether Houston, Seattle, et cetera, there's a long list. We have always been focused on the 3 core markets. That is 100% of our portfolio and will continue to be. And we're quite concentrated even within those core markets, South San Francisco, for example, versus the East Bay. And that will continue to be our mindset. The depth of demand in those core submarkets is a huge benefit from a real estate standpoint. So we'll remain true to that disciplined mindset, stay in the core markets. And obviously, we have a preference for newer, more purpose-built real estate, and we've got a pretty big shadow pipeline of things that we're monitoring that could become actionable in 2026.

And then going back to the Gateway acquisition, I think you mentioned it's 60% leased. What are you kind of assuming within the guidance for this year in terms of the lease-up? And kind of what is your visibility into kind of the stabilization of that asset?

Yes. As we looked at the gateway opportunity, we underwrote stabilized returns that would be in the high single digits, and that would get occupancy from that low 60% area up to the high 80s. So there's some time that it will take to generate occupancy. But as you think about our pipeline today, we do have some good tour activity and interest in that portfolio. So we're seeing the benefits of our tenant network in that market really drive some initial demand in that portfolio.

And then the $1 billion of capital recycling, as you clarified, the $700 million was senior housing. You've done some lap. Kind of how do your kind of return hurdles differ between different asset classes? And how do you think about the opportunity set relative to kind of how you view your cost of capital?

Yes. We're doing some outpatient medical development as well. Those are great projects. They're essentially pre-leased to credit health systems before we even start construction. Those are in the 7s, probably a solid 150 basis point cap rate differential versus an acquisition. So there's a lot of value creation when we do those projects. There's usually $200 million to $300 million of those per year, a pretty active pipeline that we're working on. I think Kelvin described the return expectations on the Gateway acquisition, kind of high single digits unlevered. And as the sector recovers, there's a huge opportunity with rent expansion as well as stabilized cap rates relative to today. And then in senior housing, the acquisition pipeline is stabilizing in the 8% to 9% range unlevered return on cost.

I guess turning to the outpatient medical business. Can you talk about what -- a little bit from your vantage point about the dislocation between the way the public markets kind of view that business and what makes it attractive to the private market? How have you kind of recycled capital out of that space? Can you just talk a little bit about the profiles of some of the buyers of these assets? Are they institutional, family office, health care systems? And what kind of do you view as the disconnect between the public and private markets for outpatient medical?

I mean the public markets seem very focused on growth today. That's not always the case. It depends on the cycle, but today, growth is king for sure. The outpatient business is more of a consistent, steady growth vehicle. I'll say the fundamentals have never been better in that business. Demand is growing because of the aging population, but also because of consumer preference, because it's more convenient, the payers prefer it because it's cheaper and the health systems prefer it because it's a higher margin. So all the 3 players that make decisions all prefer outpatient care. And as a result, the demand in that business continues to grow. And because of the cost of new construction, not much gets built because the required rate of return, and therefore, the rent is just much, much higher than the in-place. So you have a supply-demand mismatch that's in favor of incumbents like us. And as a result, we're getting record retention, re-leasing spreads, very modest CapEx and some of the strongest growth we've ever seen in that segment, and we think that will continue moving forward. So we're pretty optimistic about the growth profile and consistency of that business. For the private markets, it certainly fits a profile with a strong cash flow stream that's going to grow consistently through all market cycles. A lot of real estate companies in the last 5, 10 years on the institutional side have made investments that look good on paper and didn't work out all that well. This is the opposite of that, a 20-plus year track record of consistent NOI growth through all market cycles. And you can lend against it pretty aggressively. And obviously, the private side likes to use leverage and the LTVs are high. The interest rates are pretty low. So it ends up creating a pretty attractive leveraged return as well, and we're taking advantage of that. We're doing some recaps of core assets that we want to maintain ownership and the health system relationship, and we're selling some less core real estate that we don't need to own and getting really great pricing. So it's to our advantage today that the private market is so aggressive. But for good reason, I think they'll get nice, stable, steady returns. Why the public markets don't appreciate it more? I mean, we'll see. It's a pretty chaotic backdrop, geopolitically impact of AI it's possible that an asset class like outpatient medical will start attracting a lot more attention in the public markets, but we'll see.

And just maybe on that, you mentioned kind of very limited new construction and strong demand just as the aging population requires more care. How does that kind of change how you're thinking about lease economics? How are TIs and concessions trending? Are you able to push escalators? Are you pushing face rents? Just how are those kind of dynamics evolving against the strong fundamental backdrop?

We're getting all the above. So escalators are 3% consistently now. They used to be in the mid-2s. Our re-leasing spreads have been plus 5% to 6% for the last several years. That's about 2x the historical level. Retention is still in the 80-plus percent range and very, very modest TIs, less than 10% of rent for renewals and about 20% of rent for new leasing. So very, very modest TIs. So the leasing economics are very favorable.

And then just on kind of the asset management, you internalized property management. How has that changed your relationship with health systems? Are you seeing just better retention on leasing? Are you seeing more off-market kind of development opportunities? Just how is that relationship evolving?

Yes. So the internalization was a big part of our $70 million in synergies. So all that savings is flowing through our property level NOI. So it was a financial home run. And then strategically, it was important as we get closer to our real estate, it's now our people interacting with our buildings and tenants on a daily basis. We're not dependent on third parties. They were doing a fine job, but now it's the Healthpeak team doing it directly, which was important to me strategically. And as we make dramatic improvements in technology, automation, process procedure, we can now roll that -- those improvements out across our entire portfolio very quickly because it's our people. When we were dependent on third parties, we could not have made those strategic decisions, whether it's AI automation, any change in process and procedure, we now have complete control over all of our real estate and can make those improvements quickly and efficiently across our entire platform. So it was a very important strategic decision that we made to internalize. I just wish we had more to do because it was quite financially attractive, and we've essentially internalized everything that we can in the portfolio at this point.

And then you spoke to kind of the private -- the aggressive bid in the private market for outpatient medical. Would you kind of look to exceed that $1 billion of disposition? And how are you focused on dispositions and balancing those with the need to kind of maintain scale and clustering end markets?

Yes. Well, I mean, we're the biggest player in that sector, almost 40 million square feet. So we've got plenty of scale. We are pretty concentrated. About 70% of the portfolio is in 15 core markets like Phoenix, Nashville, Dallas, where we really have a strong market presence, competitive advantage, great demographics. And that's the business plan. The same is true, obviously, in life science, and we're doing the same in senior housing really. So most of what we're selling is in markets outside of those clusters that really doesn't impact our local market competitive advantage.

And then one of the questions we've been asking each company is just that might tie into one of the recent hires you made on the technology side. But kind of what is your mix of deciding to internally build kind of AI and technology tools or kind of leverage third-party tools? How do you decide which solutions you kind of build internally versus buy? And then just maybe touch on kind of the hire and kind of where you see the opportunity across the different health care food groups that you kind of have exposure to kind of implement those tools and where the opportunity set is?

Yes. And we're doing all 3. I mean we're buying where it's cheap and quick to implement. So that's already in process. I mean we're partnering. We announced something with Palantir. Our CIO made a presentation a couple of weeks ago, where we're doing a very dramatic accounting automation that's going to make our process far faster, more efficient, fewer errors, and that will benefit our health system relationships. That's a lot of the touch points we have with tenants is the accounting. So we're pretty excited about that. It's already being implemented. It will come out in phases over the next couple of quarters, but so far with great success. And then we obviously hired Omkar, who was one of the leaders in Palantir's both real estate and health care groups. I mean he is just a phenomenal talent, and it was interesting. So we hired him obviously, to build things internally as well. And it was an interesting comment he made, we had a town hall a week or so ago and somebody asked Omkar why he joined Healthpeak. And it's always interesting to get that feedback from people early on before they -- you just have a different viewpoint when you're first arriving at a company. And his feedback was, for a big company, it's the least bureaucratic company I've ever seen, which I thought was amazing because I hate bureaucracy, and we've done everything we can to streamline the company over the past 3 years. And for him to say that made a big impact on me. I was happy to hear it. And the other thing he said is that for a real estate company, I've never seen one that's so focused on utilizing technology to their advantage. So for us to bring on somebody of his caliber with those 2 reasons for joining, I thought was a really telling answer that made me pretty excited. And I think the team was equally inspired by his commentary. I just wish we had more of him. He's going to do an amazing job for us.

And how do you kind of see one of the questions that came in from the audience is with technology, is AI going to make home health care more of an option for patients? And then just maybe in answering that question, can you change how you're seeing it implemented across outpatient medical, life science, how you might see it change kind of life science? And then any use cases that you see within senior housing?

Yes. There's an element of home health -- not home health, telehealth from 6 years ago in 2020, obviously, there was a lot of concern about will everybody just use telehealth instead of go to their physician or outpatient facility. And the fact is it just grew the pie. We see AI in a similar light. If it takes away some of the lower acuity, low revenue work, that's obviously a huge benefit. That's not what's happening inside of our buildings anyway. It's imaging, it's surgery. You still need to see the physician. We view it as expanding the pie for health care. The fact is the demographics are just overwhelming in favor of outpatient medical real estate. We think AI is just going to accelerate the need to service that population. And then in terms of assisted living, independent living, memory care, senior housing, certainly, the ability to attract residents and how the marketing is done feels like an incredible opportunity as well as pricing once that resident is in the building. And then staffing efficiencies in terms of having the right ratios, adequate staffing, but not too much staffing. Those all feel like opportunities for efficiencies. Down the road, obviously, robotics, et cetera, but it's probably pretty early for that, but it does feel like 5, 10 years from now, that's a real opportunity because it's a very labor-intensive business.

And then just with the last minute, maybe moving into some of the rapid fire. What will same-store NOI growth be for health care overall in 2027?

Yes. So there's a lot of components of health care. And in general, we think same-store is a terrible metric. It has, in theory, a usefulness. But until everybody defines it consistently, I think you're better off not focusing on it personally. So we report it because it's expected, but we try not to emphasize it. So I'm not going to respond beyond that.

Okay. Will your property sector have more or fewer or the same number of public companies a year from now?

Well, we're going to say more.

Okay. And I'll turn it back to you for any closing remarks.

Thanks for your time, Seth. A lot of good questions there. Anyone else in the audience, feel free to grab us after this if you have anything else. Thanks for your time.

Great. Thank you.