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

Good afternoon, everybody, and welcome to our panel on ESG and the COVID recovery. I'm Ed Nekritz, the Chief Legal Officer and General Counsel of Prologis, and I'm honored to be co-moderating this panel with Cathy Creswell, Director of Investor Relations at Vornado. Cathy and I had the pleasure of co-chairing the NAREIT ESG task force earlier this year right before Covid hit, where a diverse group of executives work together in order to help NAREIT assess how to help constituent companies advance their ESG initiatives and work together to figure out where NAREIT was best suited to take a leadership role. A heavy focus was on further understanding the social responsibility component of ESG, which is often the most difficult to measure. And you will hear more about that during today's panel. I'd like to welcome our distinguished panelists. Mack Abbot, who runs investment stewardship at BlackRock; Carolyn Carter Singh, Brixmor's EVP and Chief Talent Officer And the co-Chair of NAREIT's new Social Responsibility Council; Troy McHenry, EVP, CLO, General Counsel and Secretary, that's a lot of titles, of Healthpeak and the Chair of NAREIT's new Corporate Governance Counsel; and Ben Myers, Vice President of Sustainability of Boston Properties and the Chair of NAREIT's Real Estate Sustainability Council. So with that, as Chris Cuomo would say, "Let's get after it."

So let me start with Carolyn. Carolyn, in terms of COVID, what initiatives have you taken regarding health and safety responses to COVID-19?

Okay. Thanks, Ed. So at present, our offices are closed. We do have 2 offices open on a voluntary basis, and we learned a lot in getting those offices opened. So I can speak to what we did there. we first addressed ventilation. We have our HVAC systems to allow maximum fresh air in, and we are now less reliant, let's say, the recirculated air. We updated our filters to MERV 13, which is, of course, the best practice, and we implemented other practices such as running the HVAC system early. So that when employees arrive, it's already at its most efficient and most healthy level. We made floor plan changes, social distancing everyone. We limited our amenities and our offices, and we added complexity in high-traffic areas. There are signage for traffic flow. There are PPE stations, and there are also DIY cleaning stations that enhance the cleaning and sanitizing we've put in place. As it relates to training for this, everyone is trained before they come back to the office. They learned about our mask policy, and they signed and commit to being part of that mask policy. In addition to that, we have an app for the 5 daily health questions that everyone has asked. So we've really gotten back in the flow of those offices. I want to switch, though, to health and wellness and say that, early on, we assess our benefits program, and we talked to our employees and said, "what does everyone need?" In addition to putting in place quickly some contests to keep people moving, we realized the stress and the issue of mental health. So almost immediately, we added a very accessible mental health benefit that allows employees to speak, text or be online at any time 24/7 and get the talk they may like to have. That is free or it's a cost of one co-pay for a whole week of talk as much as you may need. We think this is critical. We also looked for ways to support our employee parents, recognizing the toll that having children at home and schooling at home, what might take on them and their job. We encourage them to flex their hours or extreme-flex their hours, do what they needed to do and not feel guilty about it. We also coached our managers to say, recognize we need to be flexible now to get the most from our team. So we just look for ways to ease what is clearly a stress for a lot of people these days. One of the things we learned, one of the biggest stresses is finding space between the work week and the weekend. And the lines are blurred when everything you're doing is coming from the same space that you're in all the time. So we're attempting to draw brighter lines between the end of the work week and the beginning of the weekend by doing 2 things that we think are a little bit unique and the team has responded well to. One is that we closed the office for a day. We make a long weekend. And what happens is that's more like a holiday, right? Not as many e-mails, not as many calls, different from saying use your PTO. So we've closed our offices for a day here and there. Everyone's off, and they're present in their lives. We think this is a stress buster, if you will. The last thing I'd say is that we now do meditations on Friday afternoon. Sounds a little new age-y, but what happens is there's a focus on clearly defining the end of the work week and the new part of life. I will tell you that we don't have everyone taking advantage of a mental health benefit. We don't -- everybody doing meditation. It's not for everyone. But the way we look at it today is if we have 25 people who take advantage of anything like that, we're going to keep doing it because it's serving a purpose in the health and wellness area.

A lot of good things. Thanks. Ben, anything to add from Boston Properties' perspective?

Yes, sure thing. First, sign me up for meditation Fridays. I'm all in. It sounds like a great plan. So we all became epidemiologists these last 8 months or so. And I think we recognized that we weren't infectious disease experts early on, but we had to become healthy building experts. So we hired Dr. Joe Allen of the Harvard School of Public Health, and I led our health security task force. We produced a plan. It's 26 pages with our protocols. It's online on our website, bxp.com. You can go there, and you can read a fairly comprehensive set of measures that we implemented across our entire portfolio because we understood that uniformity was incredibly important. Our offices have remained open through the pandemic. We have a lot of essential employees that are working out of those buildings, and we want to lease. The space is open for tenants that are still -- some of them using their office space, although very few at the moment. So some of the key areas of our plan included cleaning and disinfection, so setting a standard operating procedure with different levels of cleaning and disinfection and the EPA N list disinfectants and working with our janitorial service providers on training and safety measures to make sure that our janitorial services providers remain safe. We have seen a high degree of infectious disease in that community, especially. And then physical distancing, which was a big piece, and it involves a lot of signage, over 30,000 signs deployed across our portfolio to encourage queuing distances, to encourage reduced occupancy of elevator cabs and amenity spaces and bathrooms, everywhere you can imagine there's a sign. And the signage is very consistently integrated into our properties. The most important area was alluded to already is air and water quality, so looking at ventilation, filtration, testing and monitoring. And those are the 3 areas. So ventilation, filtration, testing and monitoring and developing prescriptive standards at each of our buildings. We're doing a lot of one-on-one tenant engagement in the moment, and they want to know what are we doing to assure air quality to their space. So making sure our level of filtration was stepped up to MERV 13 level or higher, making sure we had very clear graphs showing the ventilation air delivered to the space per occupant. So we knew CFM per occupant being delivered with variable occupancy, showing how far above the ASHRAE 62.1 level we were ventilating all of our office spaces and handing over that data, being very transparent about the air we were delivering and in what quantity. So that's been a big area for us. And I think the area of expansion now is monitoring, using more technology to monitor our quality, and that's an evolving space and room for opportunity there. On the next section of our plan was about screening and PPE, so requiring masks and enforcing masks, which has become less of an issue as mask policies in local jurisdictions have become stronger. But at first, it was how can we enforce people to wear face covers. We weren't sure in many of our jurisdictions. And then screening, determining where and when to do temperature screening, which we're still doing today. And then finally, the last section was communications, so just making sure we had clear lines of communications with our employees and with our tenants, our service providers, visitors, contractors that all of our contracts that we were signing with service providers were very clear on a COVID -- the COVID rider that went along with all of those agreements. A lot of work went into implementation. I think at the center of that work was our Sustainability Committee. So the operational infrastructure of sustainability really helped us execute on our health security implementation, and I think that's a lesson learned for the company that if you -- operational excellence and sustainability translates well to health security. And we also -- we'll talk a little bit more about how we're working across functions as a result, but it opened up a lot of doors to our executive team and our HR team that, frankly, weren't as open before, and now we were very close friends through this process. So it's -- for that reason, I've really enjoyed the work. And then there's more work to do. So...

So great. Thanks for that. Sounds like some things that have happened during COVID will certainly be part of your day-to-day operation once we get back to a new normal. Troy, let me move to you now a little bit more on the governance side. Can you talk about how COVID-19 has prompted you, your colleagues, the management and the Board to address your crisis planning? And then if you could also talk about how the pandemic has impacted the relationship or the dealings between the management team and the Board.

Yes. Happy to take that, Ed. I would say that the pandemic, if anything, have resulted in increased communication between all those different groups, and I think, that that's not anything surprising that anyone else has experienced. One of the things that over the past few years for events that were kind of unique to our company, we had actually given a considerable amount of time to developing and adopting crisis management protocols. But I think what we found is that, not that an actual crisis can be serendipitous, but it did give us an opportunity to actually put in place the protocols and test them out and see if it was actually beneficial [Technical Difficulty] Am I going off?

I think we've...

I haven't had video...

You're back. Go ahead.

Okay. I'd say that at the onset, as it was just a growing threat and we weren't even certain if it would ultimately impact things, we thought that why don't we go ahead and start testing some of these work at home if this whatever occur. And so at first, we just had set these up at drills. And then given the speed at which the pandemic came on, we actually used the drills to just shift right into a complete work from home. I mean it's interesting to hear that some of the other panelists and the other companies have been working. We've just chosen to work from home in terms of the efficiency that we've had from that perspective. And as you can imagine, we did the typical Zooms, your Teams, your Skypes, Internet features, making sure that each of our employees kind of had those different components. But I think the -- probably the biggest thing that we found during the communication or during the process was getting the communication with the Board. And so our CEO at the very beginning, as I'm certain a lot of CEOs did, have almost daily touch point with our Chairman. And then what we did is we had set up a lot of interim Board meetings. And we didn't have necessarily big agendas, but there were more of touch points that kind of let you know what we were doing at our properties, how are collections going, how we were handling moratoriums, dealing with rent evictions, how are we dealing with employees and having those different components. So we actually found that, that was very useful. And then I would say, consistent with that in terms of our actual employee base, we're -- I think we're unique. We have about 200 employees. So as you can imagine, it's a pretty close-knit group. And so being able to kind of share information that was developing so rapidly was really important to us. And we literally had weekly virtual town hall meetings with our employees for the first 3 months just to provide real updates on what was going on with the business. And then I think a key integral factor of that was actually having a Q&A component, and the Q&A was wide open. We said no question was off-limits. Employees were able to submit their questions anonymously, and we answer them real time. And you can imagine they were everything from transparency, to what was going on with the company, with the [Audio Gap] those things that all employees would face. When would we go back? Could I go back? How would we handle childcare [Audio Gap] was actually very critical. And then with that, too, we had real-time surveys. Because there have been so frequently, we want to make sure that we're actually engaging. And what we found from employees is that -- we asked them about the length of time and the frequency. And until the feedback started changing, then we went to -- from weekly until -- to monthly, and monthly is our cadence. But like I said, it's mostly been, as you can imagine, a lot of the virtual tools that we've been implementing.

Great. Thank you for that. Mack, let me turn to you. And from your perspective, as a major investor in a lot of our companies, how are organizations like BlackRock and some of your brethren going to think about the companies that you're investing in and how they've adapted to or will be adapting to COVID?

Great question. And first off, I can tell you that our team has a unique perspective given our sector focus. So it was really clear to me in April, May during the real sort of depths of market turmoil, also just figuring out how we can continue to operationally manage our own business that REITs were doing a fantastic job communicating with their investors. And so it's something I can tell you when we look at all the sectors in which our firm has invested, REITs occasionally aren't given recognition for the good work that's being done. So thank you. It was great to be able to get out in front of a handful of portfolio managers and say, "We know what's going on with our companies." We're getting clear, timely communication. So I do think this was a more existential crisis to our sector than others. What do we do? How do we serve our stakeholders and shareholders? How does this company continue as a going concern as a reflection? I mean, Troy, I'm sure you had a million of these, but there were more Board meetings in the last 2 quarters than in the previous few years. So I think all secretaries of the Board probably deserve an extra recognition at the end of the fiscal year. But as far as we think about our companies, we're looking forward to exploring a few items, and I think we'll come back to this later. But corporate strategy and capital allocation is really top of mind given the distress that's happening. Human capital management, any lessons learned regarding workforce management, how you're restaffing, bringing people back, it is very business model-dependent, but we still learn, right? I'm learning today hearing from some of you and then a continued focus on compensation that promotes long-termism. TSRs were not great over the last year; REIT, large, but I think there's been a tremendous amount of work that's been done. So I think we'll have some interesting conversations with Compensation Committees around what's appropriate, how do we recognize the work that was done and how to incentivize management teams going forward.

Thank you for that, Mack. We're going to go right now back to Ben, first, and he mentioned this in his last response. But Ben, could you talk about the cross-disciplinary engagement and how that may have increased in the ESG space during this pandemic and during COVID?

Sure. I mean during COVID, we had the murder of George Floyd, which, I think, combined with the BLM movement, accelerated the focus of many of our companies on issues of diversity, equity and inclusion. And we see this reflected NAREIT's work in this area. And it's absolutely inspired, I think, in our organization, a doubling down of our focus on social metrics and KPIs, where our sustainability group had been driving for transparency and advocating for transparency. We were essentially pushing this forward, and now we have a lot more partners and teammates across the organization also trying to do more disclosure on human capital, integrating more programs into our company, succession planning, community engagement to encourage more access for women and minority-owned businesses on our projects. And so some of these initiatives have really taken off. And they're -- I'm not having to worry about oversight because we have lots of other people working on them, which is fantastic. So I feel like there's a lot more focus and effort on improving, not only our disclosures and transparency on social performance indicators, but also creating real, impactful outcomes in our communities and among our employees. So that, I think, is an important development. I'll also just say that, I've touch base with HR a few points a year to talk through GRESB or whatever it was that we were working on at the moment in terms of employee metrics. And now it's frequent. With COVID, we are talking about diagnostic testing and how we should approach diagnostic testing as a company. That's a very HR-ish issue, but it extends to health security. And that's now more of a sustainability focus, an operational focus for us because it is a health security protocol. And part of that Swiss cheese model that's been so -- such a focus of the media's attention, where no one health security protocol creates a perfectly safe environment. But you stack all these porous Swiss cheese slices in a row, and you get a solid wall of defense. So looking at the shared responsibility and the landlord responsibility to create a solid defense against the spread of COVID-19, we think that the testing and more employee engagement is necessary. So a lot more work with HR. Also, for obvious reasons, a lot more work with legal, particularly on issues of contact tracing, HIPAA and privacy issues and also contracts amendments and how we're going forward with new lease deals and some of the requests we're seeing in those new lease negotiations.

And I think you also mentioned previously that you're more exposed to the Board and keeping them up-to-date on all of these issues as well.

Yes. Whoever is responsible for convening the Board absolutely does need that recognition, I agree. I've been in front of the Board twice this year, once on climate resilience and once on health security. And it's just the overlap has never become more apparent, and I think it's all about operating our businesses while -- in response to the science, right? And on the one hand with the pandemic, we're responding to the science around infectious disease transmission in built environments. And if you haven't read it, Dr. Joe Allen and John Macomber have a book called Healthy Buildings. That's very good, summarizing the issue. And then climate resilience. What is the future of climate change? And what sort of changes should we expect? And how can we anticipate those changes and integrate them into our investment decision making? So I'm leading our initiatives in both those spaces, and I see some similarities there in terms of emerging science and responding to the science as a business.

Thank you. Carolyn, I'd like to ask you as well, looking at Brixmor and how you looked at the cross-disciplinary and worked with different people within your organization and outside of it. Carolyn, we...

Got it.

You're there now.

We practiced this, and I messed it up. Sorry, everyone. What Ben said, I very much agree with. There's -- his experience is my experience. And what has really -- what I'd underscore is the link between human resources talent and operation sustainability. We have spent days, weeks, weekends, nights figuring out so much this year together because they're just integrated, right, whether it was should we open up one of our offices. And remember, most of our employees are in offices. While we own 400 shopping centers, most of us work in offices, and we visit the properties a lot. So we're all remote. We spent a lot of time figuring out how do we get back in together. That's just one of the examples. What we've done, though, when I look back at the way we used to approach ESG, it was kind of siloed. I worked on the social, and somebody else was working on G and on E. It is -- we take a much more proactive approach now. I meet monthly with our Head of Sustainability, and we go through what our goals are, how we're doing, should we make any changes to it. We meet quarterly with everyone involved at the highest levels with the E, the S and the G, and we talk about risks and opportunities. We're just much more proactive about it. And it -- I think one of the best parts is we always allow time for brainstorming. What else should we or could we be doing? There's the stuff that's sort of on our plates right now and we're dealing with it, but what have we not thought about. And those 2 meetings, the small S meeting and the larger ESG meeting have been really fruitful for us.

It sounds like from both of you that, and I think this is true with many companies, having this cross-disciplinary is something that you want to continue after this. It's really helped open everyone's eyes to what everyone else is doing in the organization, so it's actually been probably a benefit of what's been going on. And looking at social as an area of ESG, in 2020, we're seeing an increase in the number of REITs reporting on workforce metrics. So Carolyn, I'd like to start with you and ask, how are you seeing workforce development and social responsibility goals evolving given both the pandemic and the focus on racial justice this year?

Great. So right now, we do publish and we have published workforce development goals around training the team and culture, diversity, et cetera. The same goes for employee engagement with each other and in our communities. We also set goals around ensuring our managers are focused on providing important feedback to develop the team. This year, for the first time in our corporate responsibility report, we have enhanced our transparency. We now have a picture of the composition of the Brixmor team from a race, ethnicity, age, gender and other social performance indicators. All of those are included, so we put them out there. To us, showing this data is the first step and now figuring out what the goals will be. But first, we're saying here is who we are. Something that's obvious when you look at our data, and I'm sure we're not alone in this, is that we need to increase diversity. We've got work to do around it. So one thing that I'd like to share with everyone today is that while we don't have goals yet, I think we will. And with or without them, we know we need to focus on increasing diversity. So it's -- there's a lot to be done there. One of the things we're doing is a new partnership with a company called Jopwell. And Jopwell is an online community for Black, Latinx and Native Americans. It's also a job seeker's site. To be a member there, you have to be pursuing a 4-year degree or have a 4-year degree. So Brixmor championed with some of our peer companies. Right now, Jopwell is focused on tech and finance jobs. There are 7 companies now banding together to work with Jopwell to present evening events on what occurs on real estate like. We're going to educate and excite people, we hope, to look at jobs on real estate. So with or -- it's factors like that, one that we're going to have to continue to explore and we're hoping will be fruitful. It's going to take a while, though.

Thank you. And again, real estate, in some ways, does need to continue to work on that road. And it's great to see Brixmor starting out on that. Troy, I'd like to turn it to you now to ask the same question about what Healthpeak is looking at after this year and how it may have changed any of your goals toward this with both the COVID and the racial equity issues that have come up.

Yes. And I've -- well, I'd like to believe that diversity and inclusion have always been a focus area for us. Following the social unrest that we experienced, it was something that we realized that we needed to do more, and so we published a statement of support on our website [Technical Difficulty]

You're running in and out. We're having trouble hearing you, Troy.

Did I go out again?

Yes.

All right.

We just got the...

Hopefully, I'm back.

Your website. If that...

Yes. No. I've been -- of all days to have issues. But what I was saying is we created an initiative called We Stand Together initiative, and it focuses on racial diversity, awareness and education throughout our organization. And it is a cross-functional team of employees at all departments and at all levels, and we do meet regularly to try to figure out what's the best thing that we can do. One thing when we were thinking about this is that we do want to embrace diversity, and we do want to improve on that, but we also don't want to disenfranchise one group over the other. And so in developing our program, we want to make sure promotions, advancement, everything is still based on merit. And we feel that we do have a competitive environment. We like that. And we do think that the best team will win. We just want to make sure that it's a best team that's pulled from a diverse pool. And so with that, with our program, we've been focusing around 3 major principles, and that's education, outreach and action. And we thought about, in addition to those, like should we donate money to some of these [Technical Difficulty]

It went out again for a little bit. You were talking about starting to -- you thought -- what you were thinking about donating money and so trying to get you back where you were...

Sorry about that. In addition to the 3 principles, we thought about donating money. And we -- and although we -- that wasn't one area we focused on just because we didn't feel that we could have any measurable success with that. And so for education, we thought that this would be just an absolutely critical component to the success. I think that when we found with the gender, the issues of racial unconscious bias, these topics can be very uncomfortable [Technical Difficulty]

In and out again. So you're talking about the -- these could be very uncomfortable discussions.

Yes. This is all my great material that keeps getting cut up. Just kidding.

I know. I know. So...

Sorry. Yes. No. Just -- and the education is key, and we just -- it's going to come in the form of leadership training. We're actually training the trainers to kind of focus under different scenarios. It will involve dynamic speakers that will come in. And then when we get back to the office, we plan to have a leadership seminar. We did this for gender diversity for all the women, and it actually was a rave success. And so we want to kind of model that same program. Also, too, on the outreach, we do and have started reaching out to colleges and universities and looks to develop our own internship program. And in addition to that, we want to have programs where we're actually educating students about Healthpeak, about REITs, in general, about all the opportunities that exist to make sure that we're in the sights for their continued advancement. And then I think one thing that's actually really important, too, is just because we recognize it's going to take a long time for this to actually develop is that we're taking a harder look at our recruiting practices. We plan to make sure that for every open position that we have, we actively recruit, not only racially diverse candidates, but gender diversity as well, just to make sure that there's an equality of opportunity when we're looking to bring on new employees. And then I think the last component that I mentioned is just the action piece, and that's something that is really meaningful because we do want to take a look back6:20 AM and say, "Hey, we [Audio Gap] And with that, that's the [Audio Gap] or talk about [Audio Gap] not necessarily having anything formal for that. But when you think about it, a lot of times, fear can be a reason for an action like, "Gosh, I don't know necessarily what to do." And so that's what we're trying to break down within our own company to try to figure out and have people reach out, be sponsors, look to uplift, not only the racial, not only the diverse candidates that we have or diverse employees that we have, but also gender as well. And so that's -- and with -- along the lines with this measurable success, I know a couple of people have talked about on the ESG reporting and [Audio Gap] statistics that are getting reported. There's going to be a lot more pressure on companies to put out, not only information on the C-suite and Boards. I think it's going to go in terms of company-wide, where you're seeing different leadership. And I think that's the right answer. Because at that point, then it is really transparent in terms of what companies are doing. And then as you see the year-over-year success, then you can kind of -- can see our company giving lip service to the words are they actually taking meaningful steps towards progress.

Yes. I think from -- both you and Carolyn did a great job describing how exciting it is right now to be starting this because you're setting the goals and you're getting things just really set in place to be able to look at this going backwards and see -- and measure your success. We did have another question on social. I think you both covered parts of this, but I am going to ask Carolyn. Do you have anything else that you would like to specifically talk about regarding COVID and the focus on racial justice this year and how it affected employee engagement and community outreach efforts?