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

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

Welcome to Healthpeak's First Quarter 2025 Financial Results Conference Call. Today's conference call contain certain forward-looking statements, although we believe 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 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 discussed on this call. In an exhibit to the 8-K we furnished to the SEC yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G. The exhibit is also available at our website at healthpeak.com. I'll now turn the call over to our President, Chief Executive Officer, Scott Brinker.

Okay. Thanks, Andrew, and welcome to Healthpeak's first quarter earnings call. Very excited to introduce Kelvin Moses as our new CFO. He'll be an outstanding partner for me and the senior team. When I took this role in October of '22, I talked about getting Healthpeak closer to our real estate, immersing ourselves in the underlying business of our tenants to drive better capital allocation decisions. The merger with physicians accelerated our transformation and Kelvin's promotion moves us further in that direction. His well-rounded experience includes health care, operations, portfolio management, transactions and development. Kelvin has been with Healthpeak for 7 years and excelled at every role we've given him. As I reflect on what the role of the CFO should be at Healthpeak, we have the luxury of outstanding in-place leadership in accounting, finance, capital markets and Investor Relations. This allows Kelvin to be more of a strategic and operational CFO, and we expect a seamless transition. Our existing strategy around leverage and the balance sheet will not change. Today, our executive team is 45 years old on average with an average tenure of 10 years at Healthpeak. Every one of us was internally promoted to our current position. This points to a strong culture, deep bench and thoughtful succession planning. Thank you to our entire team for another quarter of excellence in execution, one of the WE CARE core values that define our culture. Execution is important in any environment, but particularly in this backdrop. This team has worked diligently to meet or exceed expectations, including earnings, leasing and merger synergies. Kelvin will cover guidance in more detail, but I want to comment that maintaining guidance against this market backdrop is a testament to our diversified high-quality portfolio. Strong results in outpatient medical and senior housing are offsetting weakness in our lab business caused by actions and comments from Washington that impacted biotech capital raising, and I'll come back to this topic. We produced another strong quarter in outpatient medical, our largest business segment. Across the outpatient sector, demand is outpacing new supply, a trend we expect will remain in our favor due to the high cost of new construction. Our decision to internalize property management has been an overwhelming success strategically and financially. We completed an additional 4.5 million square feet since January 1 with additional markets in the pipeline. Outpatient medical is one of the very few sectors in all of real estate with positive NOI growth every year for the past 2 decades. We expect that portfolio to outperform other sectors if the economy slows down, and we foresee de minimis impact from tariffs. Our senior housing portfolio had another strong quarter of occupancy and rental rate growth, driving positive 16% same-store growth. With occupancy at 86%, we still have plenty of upside to capture, and I'm very happy with the strategic and tactical decisions we've made to grow NOI in these properties. Moving to our lab business, which represents approximately 35% of our income. There's been a barrage of headlines, so consider these thoughts to be an alternative perspective. No doubt, it's a bumpy road right now, but we do see some themes emerging that could be positive for our lab business over time. Most important is our government's focus on China, which has been making a big push to challenge America's leadership position in the biopharma sector. Our view is that policymakers in a bipartisan way have correctly identified U.S.-based biopharma as being paramount to our national security and economic prosperity. We see very little chance that an America-first agenda leaves behind the biopharma sector. For too long, innovation from the U.S. has subsidized medicines around the world and other countries have captured too much control of the supply chain. Washington's willingness to address these risks and inequities has the potential to be very positive for life science real estate demand here in the U.S. This includes the push to onshore biomanufacturing and would logically include R&D as well. There appears to be support in Washington to address the profitability and complexity of PBMs and to eliminate the so-called pill penalty in the Inflation Reduction Act, which would extend market exclusivity for small molecule drugs by 4 years. Both changes would improve biopharma return on investment and therefore, demand for lab space. A functional FDA is critical to the U.S. maintaining its leadership position in the sector. Today, it takes at least 10 years and $1 billion to bring a drug to market in the U.S. It's in our national interest to look for ways to make that process more efficient. The recent job cuts at the FDA captured headlines, but did not impact the scientists or the reviewers. It is early, but the feedback to date from our tenants suggest normal response times from the FDA with only isolated delays. Final drug approvals have continued at the FDA since the inauguration. New applications have been approved as well, including last week for one of our tenants to start Phase I trials for gene-edited liver transplant. There's also discussion at the FDA of using technology to replace expensive vivarium work and a new conditional approval, which could shorten the time line for costly Phase III trials. The point is there's some early evidence that the FDA is looking to encourage innovation and create faster time lines. Last point I'll make on this topic is that consumers also vote in elections and consumer demand for innovative diagnostics and therapeutics is not going away. In fact, demand is projected to accelerate to 8% per year through 2030. We expect voters to push their elected representatives to support medical innovation. Specific to our portfolio, we continue to focus on capturing market share with our high-quality portfolio. We've signed 450,000 square feet of leases year-to-date, and our pipeline is the largest it's been since last summer. It would not surprise us to see some tenants delay final leasing decisions given the environment, but we see this as demand getting pushed back, not eliminated. Finally, we have even more confidence today that new supply in the sector will essentially go to 0 for many years to come. This is obviously a great foundation for a recovery in our lab business. I want to comment on recent capital allocation by this team, which puts our balance sheet and liquidity in an enviable position. First, we were early to shut down capital allocation to life science, and we have not started a new development since 2021. Second, we executed the merger with Physicians Realty Trust, which increased our allocation to the stable and attractive outpatient medical business to just over 50%, while generating earnings accretion, improving our balance sheet and creating the best platform in the outpatient sector. Finally, we sold $1.4 billion of stabilized assets at a very attractive 6.3% cap rate and used the proceeds to fully fund our development pipeline, buy back almost $300 million of stock at an implied 8% cap rate and bring leverage down to the low 5s. We also reduced floating rate debt from 20% to almost 0. That brings us to today. Our life science loan pipeline is active, and we continue to see opportunity to position Healthpeak for the inevitable recovery. We still believe the best time to invest is when others are not. But as market uncertainty has increased, we've stepped back to reassess the appropriate risk-adjusted returns, which may be different than 3 to 6 months ago when certain transactions were negotiated. We chose to maintain our $500 million investment guidance this year, but we've now included stock buybacks in that line item to reflect our optionality. In any event, we intend to maintain leverage within our targeted range in the mid-5s. I'm happy to turn the call to Kelvin.

Thank you, Scott, for the warm introduction. I'm grateful to have the opportunity to grow within Healthpeak's leadership. In this role, I'm excited to continue to help shape our business strategy and influence the outcomes that drive our operating results. The complement of my real estate and transactions mindset, alongside of this outstanding team, will allow us to continue to focus on disciplined capital allocation decisions that will deliver long-term value to our shareholders. Before we get started with the first quarter results, I wanted to share a brief update on our master plan development project in West Cambridge. Having spent the last 5 years working closely in the Boston market to help build our lab portfolio, including our land assemblies and entitlement efforts for our Cambridge Point master plan. On behalf of the team, I'm pleased to announce that we've selected Hines to join us as the development partner to advance the residential component of the project. Hines brings a depth of expertise in place making, multifamily construction and mixed-use development, which will allow us to commence this project once we are fully entitled late next year. We are extremely pleased with this outcome and the partnership with Hines advances our vision to establish a mixed-use destination of scale and validates this generational opportunity that will be delivered over the next decade plus. Now turning to the first quarter financial and operating results. We reported FFO as adjusted of $0.46 per share, AFFO of $0.43 per share and total portfolio same-store growth of 7%. Moving to segment performance. In Outpatient Medical, we reported first quarter same-store growth of 5%, driven by strong tenant retention, a positive rent mark-to-market of 4.1% and the benefit from our continued internalization efforts. During the quarter, we executed nearly 1 million square feet of leases including 265,000 square feet of new leasing, which is followed up by a strong and active pipeline as we head into the second quarter. Fundamentals for the outpatient business have never been stronger and our team is working hard to translate this favorable backdrop into higher occupancy, stronger rent mark-to-market and ultimately cash flow growth. Turning to Lab. We reported same-store growth of 7.7%, which includes the positive impact from the expiration of free rent on 2 large leases in South San Francisco and a full quarter benefit of internalization. For the balance of the year, we expect quarterly same-store growth to decelerate as the benefits of internalization and free rent normalize. Despite the challenging market backdrop, we continue to see strong demand for space within our portfolio. And year-to-date through April, we've signed 443,000 square feet of leases and have entered into LOIs on an additional 400,000 square feet. And finally, CCRCs. We reported same-store growth of 15.9%, driven by rate growth of approximately 6% and a 100 basis point increase in occupancy. Shifting to the balance sheet. In February, we issued $500 million of unsecured notes at a rate of 5.38%. That is 102 basis points spread over the 10-year, and this was also the tightest 10-year spread in the history of Healthpeak. We ended the first quarter at 5.2x net debt to EBITDA and $2.8 billion of available liquidity, which further positions our balance sheet for long-term success. Ending with guidance. We are maintaining our FFO as adjusted guidance in the range of $1.81 per share to $1.87 per share. We are also maintaining our blended portfolio same-store growth in the range of 3% to 4%, which reflects the strong performance during this first quarter. The strength of this diversified portfolio reinforces our ability to maintain guidance and allows us to direct our business strategy towards initiatives that will provide the greatest long-term value to the company. With that, operator, please open the line for Q&A.

[Operator Instructions] The first question comes from Farrell Granath with Bank of America.

Congratulations, Kelvin, on the new position. My question is about -- you've made comments about weakness in life science, and I appreciate all the comments that you made on the policy front. So I'm curious kind of in a broader sense, what would change you to a more positive expectation and performance perhaps in the back half of 2025, if there's any news or updates to be expected?

Yes. I'll start with that. Scott Bohn probably has some comments as well. But I think important that we do have a diversified portfolio, just to start with, 65% is in industries with really strong fundamentals and across the entire portfolio, but life science, in particular, very high-quality assets and platform where I think we've been outperforming the market at large, and I think that will continue. Obviously, there's a lot of instability and uncertainty in certain sectors right now, if not most sectors. Biopharma is one of them, whether it's tariffs or capital raising or regulatory uncertainty. We think that does start to calm down over the balance of the year. Obviously, certain things they've already backed away from pressure from Congress or just the American Public. And I do think that will benefit the sector and add some stability. But first 90 days or 120 days of this quarter, we're not ideal from a capital raising standpoint. That's not new information in terms of what's happened with IPOs or venture capital or secondary funding. So we still see a lot of upside. Certainly, the patent cliffs, the big pharma needs to fill that is not going away. And biotech is the likely spot for them to look, there was a deal announced yesterday just as in example. So there are things that we can point to that we see as potential inflection points, but the first 120 days was not ideal from a capital raising standpoint.

And also, I guess, then on -- you made comments about potential pushouts of releasing in the life science. I was hoping if you could potentially quantify that with your current pipeline, if that is what you're seeing, are these getting pushed out by single quarters or longer-term decision-making?

Yes. I mean we signed 250,000 feet plus of leases in the first quarter, continued momentum into April, really strong LOI pipeline. And as I mentioned, there's a pipeline beyond that, doers, prospects, proposals that is the largest it's been since last summer. So we actually feel pretty good about the leasing that we're doing. And we do have 400 or 500 basis points of leases that have been signed that are just not yet occupied and paying rent. But obviously, those leases will commence in the coming quarters. So there's clearly some positives. So we feel good about that. Bohn, you should comment.

Farrell, it's Scott Bohn. I mean the thing I would add too is that the tenants that are in our LOI pipeline or our active demand pipeline, those are tenants that typically have raised capital or already have well-capitalized balance sheets and aren't the groups who need to raise capital in the next 6 months. So groups who are executing on their business plan and can play through kind of some of this noise here.

Your next question comes from the line of John Kilichowski with Wells Fargo.

I guess first question would be on the guide, the $500 million of investments. Were the share repurchases driven by the relative attractiveness of the stock? Or is that more due to the difficulty of underwriting lab here?

It's more the attractiveness of the stock. We have the luxury of a strong balance sheet that gives us optionality and flexibility. We bought back stock year-to-date almost $100 million at a roughly 10% FFO yield for a really high-quality portfolio. So that was the driver.

Okay. And I guess on -- in terms of underwriting lab in an environment like this, how has it changed for you in terms of what you need to see maybe pre and post Liberation Day?

Yes, it's more just time lines for leasing. I don't know that rental rates are changing in any material way. It's just if we underwrote a 2-year lease-up 6 months ago, that might be a longer lease-up today. There's just uncertainty. It may end up being less. I think the headlines today change daily, if not hourly. But from where we sit today, we would be smart to underwrite a longer lease-up than we would have 6 months ago.

Yes. I would also add that it's less about kind of Liberation Day and the tariffs than it is about the -- just the uncertainty and instability of the NIH funding and the FDA more so than tariffs, the biotechs are looking at.

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

Scott Brinker, just going back to your comments about weakness in the lab business. I guess, can you just provide an update about the health of the tenant base and more specifically, the watch list and whether there's any signs of credit concerns emerging at this point?

Yes. We had a significant improvement in rent collections and bad debt in 2024 relative to '23 on top of really strong leasing volumes. But at any point in time, a number of our tenants are in the market actively raising capital, and that it's just been a lot more difficult for the last 3 to 4 months. So there's a number that are still in process of trying to raise money, unclear if they'll make it or not. A lot depends on whether some of this regulatory uncertainty and market chaos stabilizes. In which case, I think, a good number of them will end up raising money. And if not, obviously, a number of them will not. So we still feel like the guidance range that we've reaffirmed by the way. So there's no change in guidance or same-store captures the potential upside and downside scenarios from where we sit today.

That's helpful. And then just maybe pivoting to your comment about risk-adjusted returns and potentially moved here versus 3 to 6 months ago. I mean, how many of the parties that you're speaking with are in need of a solution in the near term and could be price takers where you think maybe you can still get a deal done, particularly on sort of the loan investments that you've spoken to?

Yes. I think it's too early to speculate on that, Austin. We'll have more clarity in the coming weeks and months, but I hesitate to try to give precise feedback on a question like that. I appreciate the question itself, but we're just too early in that process.

Your next question comes from the line of Ronald Kamdem with Morgan Stanley.

Just going back to sort of the guidance and just a little bit more details because presumably, a lot of the deceleration is coming from the lab side, right, because the MOBs and CCRC seems pretty stable, as you mentioned. Just is it all sort of free rent deceleration? Just what's the color on sort of the decel on the lab side would be more helpful.

Well, yes, Ron, even in the outpatient and senior housing sector, our first quarter results were significantly ahead of the initial year guidance for those segments. So there could be some deceleration in all 3 segments. But I think you're right, the bigger drop is more likely to be in life science. We did have free rent that was supporting our first quarter result, the benefit of internalization, which will no longer have that year-over-year benefit in life science. So that will have an impact as well. And then just the uncertainty that I mentioned earlier around the funding environment.

Great. And just my follow-up would be, are any -- when you think about sort of your 3 markets, San Diego, Boston, San Francisco, is there one that's better positioned, worse positioned from all these sort of funding environments and cuts so forth? Just trying to figure out what the ranking looks like in your minds.

Yes. Ron, it's Scott Bohn. I think Boston overall, relative to market size continues to be the slowest. We're fortunate to have several growth tenants there driving the demand within our portfolio and very little roll or vacant space there. So we're in good shape in Boston, all things equal. But I would say from a demand perspective, it's probably the slowest. San Diego has been pretty consistent over the past 12 to 18 months. And then San Francisco, we clearly see the most demand there. And part of that is due to our portfolio and our scale. I mean we do a lot of deals that don't hit the active broker sheets. So that's the order I would rank them say.

Your next question comes from the line of Seth Bergey with Citi.

Can you give some more color on the 2Q lab leasing activity to date? Is that from the development pipeline? And kind of what does the rents look like for that space?

Yes. For the 2Q numbers, I mean, I don't think we're going to get into the quantum of the LOIs. Most of the LOIs are in the operating portfolio. But the pipeline, as Scott mentioned, is strong as it's been since last summer. And there are certainly deals in that pipeline that do fall into that dev and readout bucket. But I don't think we're ready to get into the details of those deals just yet because it will matter when their execution versus pipeline.

Okay. Great. And then just for the follow-up for the $500 million of investment activity, how are you kind of thinking about capital allocation in terms of development or external growth versus buybacks today?

They will be flexible. It depends what happens with the stock price. It depends what happens with some of these opportunities we've been pursuing and what the potential new terms would look like. So hard to speculate. We've got optionality.

Your next question comes from the line of Rich Anderson with Wedbush.

Kelvin, congrats on the move up. Looking forward to working with you. Scott, you mentioned a lot about sort of the slowdown in leasing in life science, understood given all the chaos, which is the right word to use. Specific though, to sort of the [ marquee ] leasing that we've talked about in the past, Portside, Vantage, Directors Place. $60 million of NOI there potential. You've made some good progress getting through a lot of that, maybe half of it is sort of locked up for future revenue recognition. But do you think that now if getting to $60 million was a 3-year event to actually realize that cash, do you think it's significantly pushed back now based on what's happening? Or do you think you're still on track with those 3 specific opportunities?

Rich, I think it just depends. I mean if the next 9 months look like the last 3 months, it might take a little bit longer, but we've seen that the market can shift pretty quickly based on one press release or comment. So it's hard to predict what the future holds. We do see, as I said in the prepared remarks, a lot of themes emerging that could be very helpful, but stability would be the most important thing in the near term for us to answer your question on specific lease-up time lines.

Okay. Fair enough. And then follow-up is you talked about kind of reassessing required returns on your life science loan program. If memory serves, you were getting an 8-ish type number on that. The buyback was an 8% implied. So what's the appropriate premium to doing buybacks? Is it 100 basis points in your mind? Or is it more or less? I mean, or is that sort of a TBD number that you're sort of addressing as you monitor the market?

Yes. I mean the 8% you mentioned was a really low loan-to-value first mortgage in Torrey Pines kind of premier submarket. Most of the life science investments that we had been pursuing were more distressed situations that the returns were substantially higher than 8%. I mean, way into the double digits. So it's a different investment profile than buying back our own stock.

Okay. And so that double digit isn't enough for you at this point. Is that a fair statement?

Yes, that's why we stepped back. We're reassessing that pipeline. It's not going away, but we have stepped back to reassess.

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

Maybe just first one on life sciences specifically. Can you kind of talk about the components of same-store specifically occupancy, how you see that trending for the balance of the year? And if there's some pressure, then how much of that is known versus sort of just a placeholder for the uncertainty that you referenced?

Yes. Vikram, we don't guide to occupancy, never have, and we're certainly not going to start to in an environment like this. It's possible that occupancy comes down a bit. I mentioned the offsets. We signed a ton of leases that will become rent-paying spaces in the next couple of quarters. We continue to sign leases here in the first quarter into April, got a bunch of LOIs. The offset is we obviously have $600,000 of maturities this year, and we give really good clarity in the supplemental about what's happening with each of those, whether they're going into redevelopment, under LOI, being negotiated or likely going vacant. So there's pretty good clarity there. And the uncertainty element is what happens with the regulatory policy and bad debt. And that's just too hard to speculate on in an environment like this. But most important is diversified portfolio. Our earnings guidance hasn't changed. Our same-store guidance hasn't changed. And those are the numbers that we're focused on are the aggregate company-wide metrics.

Okay. But just to clarify, so while the overall same-store has not changed and the guide hasn't changed, I'm assuming you -- the MOB side is doing better like you referenced. So that's probably gone up and the same-store NOI for life sciences has gone down or decel. Is that fair?

From where we sit today, that's most likely. But again, there's quite a bit of uncertainty to be too precise in life science in particular. But the outpatient business is doing very well. Great portfolio platform, good fundamentals. So we do feel good about that sector.

Okay. And then just the last thing, just to clarify. So the watch list sort of you referenced, I'm assuming that's a review you've done over the last 30, 60 days given this uncertainty. Can you kind of frame it for us a little bit, like compared to sort of 2 years ago when we were coming out of all this uncertainty during COVID, too many companies had formed. Like how does the watch list compare today to that uncertainty maybe 2, 3 years ago?

Vik, this is Kelvin. We have a very robust tenant credit monitoring platform. And I'd say that where we sit today, the composition of our watch list hasn't changed materially. So I don't think there's anything that we can speculate on right now. We still kind of need to wait and see, but the composition hasn't changed materially.

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

I just wanted to quickly follow up on the life science side. I know, Scott, you kind of mentioned in the call that there's a lot of tenants or maybe a few tenants that are trying to raise capital. And if they can't, then that could be a problem. I guess, first, how many are we talking about here? And what happens if they can't raise capital? Is it just kind of a general mixture of some could be bought out and others might default on their lease? I mean what's the type of scenarios we should think about related to your earlier comments?

Yes, there are subtenants in some of the spaces. So each one is unique, but I won't speculate on the number. I just continue to say the guidance range that we reaffirmed captures the potential outcomes of what we foresee based on the very detailed credit monitoring that we do and Kelvin referenced it. It's qualitative, it's quantitative, kind of looking at it from every angle and obviously, spending a lot of time with the companies that we think do need to raise capital to continue.

Okay. And then I guess, congrats, Kelvin. And maybe can you talk a little bit about the Hines agreement that was announced? I know that their plan is to build apartments on the site. But how should we think about the benefits and the cash flow that could come from DAC related to this? I mean is it related to like selling the land in the beginning and then you get some upside? Or will this not really kind of hit your P&L until these buildings are completed? I guess how should we think about the amount and the time line of that?

Yes. So I'd look at it as a phased takedown. The agreement we have with Hines is a for valuation on the land as they get ready to take down sites over time, including the first one that would take place within 6 to 12 months of entitlements late next year. We would be able to recapture those proceeds. So it will be over time.

Your next question comes from the line of Juan Sanabria with BMO Capital Markets.

This is Robin Haneland on for Juan. Just curious if you can provide a bit more detail on the watch list profiles. Are these tenants in any particular sectors? And is there any size you can share on the aggregate watch list pool as far as the total portfolio?

Juan, this is Kelvin. I don't think we have granular detail to share again. I think the watch list composition is consistent with what it's looked like in the past. But we continue to monitor actively. And as we get further along in the year, we'll have more color.

Got it. We talked a lot about the stepping back in investments. But I imagine banks are also sidelined at this point. Just curious if you can elaborate what do you want to see to fill the void in lending? And then on the purchase agreements tied to your loans, how willing are sellers to provide that as part of the deals?

Well, we have purchase options on everything we've done to date, and we'd have options on everything that we would do in the future. I mean that's just fundamental to the strategy here would be a pathway to ownership on buildings that we want to own. What would need to change, probably better security, potentially higher rate come to mind is things that are on our mind as we reassess the life science pipeline.

Your next question comes from the line of Wes Golladay with Baird.

Do you expect to see any distressed opportunities from the Tier 1 locations for lab if this goes on for another year?

Well, the answer is yes. I mean that's been the pipeline. Those are the things we're pursuing. So we do see significant opportunity coming out of this. I mean we've outperformed the sector the last couple of years and capital allocation decisions made in the past 2 to 3 years have positioned us well to take advantage of the distress. So we still see that opportunity. It's just a matter of when is the right time to invest and what are the right terms, and that's what we're reassessing. But the answer to your question is yes, absolutely.

Okay. And then when you look at your outpatient medical developments, do you have a higher hurdle for that? And do you expect any impact from the tariffs on the development costs in a material way?

You want to comment on tariffs?

Sure, Wes. I can start with the tariffs. I mean I think what we're seeing in the tariffs, if the tariffs are in place today continue, we'd probably see -- estimate a 2% to 6% increase in costs. But I think what's important on our active developments on the OM and lab side, we're 100% under GMP contracts and over 85% of our redevs are under GMP. So that accounts for the building core and shell and the ongoing TIs. So we see little to no risk of cost increases to our active portfolio. But going forward, again, it's a little bit of a murky crystal ball, but probably in the 2% to 6% range, but we're also working very closely with our suppliers and GCs to ensure we drive those costs down as much as we possibly can.

Okay. And do you have a higher hurdle rate for future projects? At some point, you may want to maintain the relationships you have, but then also your costs may go up. So how do you manage that?

Yes. I mean, certainly, in a volatile environment, we have to be thoughtful and flexible on capital deployment and what's the appropriate risk-adjusted return. So that's why you saw us scale back the amount of the $500 million of investments that's going towards acquisitions or loans and increase the buyback. So the answer is yes, we're flexible, and we adjust and allocate capital where we see the best risk-adjusted return.

Your next question comes from the line of John Pawlowski with Green Street.

Kelvin, could you spend a few minutes talking through the West Cambridge development? I don't have a good sense of what the total construction cost might be over time, what percentage of it is going to come through Healthpeak's balance sheet time line. So would love an update on kind of the bigger master plan and the capital cost and the time to deploy the capital.

Yes. So I might start with we're not yet fully entitled on the project. We're working through the entitlements now, and we expect to be entitled at the end of 2026. The Hines partnership has been our focus really to accelerate the project, catalyze the project with residential, which is the highest in demand right now. So we don't have any construction cost exposure to the residential component. Hines will be responsible for all of those expenses. And down the line, as the market improves, we'll evaluate when it's appropriate to get started and pursue the lab component. So we're really focused on Hines right now. We're happy to have them as a partner and being able to get started on the project.

I guess I worry a little bit about the dynamic that while you're waiting to start lab in practice, you're going to be committed to this deal. And so you're effectively committing to a big check today. So I guess maybe any comments there would help given where your stock is trading and just the total capital cost. How high of odds are there that you're going to start these lab developments in West Cambridge?

I might point you back to the investments we've made in West Cambridge specifically. Half of our $600-plus million has been -- is developable sites. The other half is actually leased today. So we have credit tenants occupying buildings that are paying us rent. So I don't think we have pressure per se to move quickly. But again, Hines is prepared to get started within 6 to 12 months on the residential component. And the economics there are actually beneficial. It's a for value on the land, and we get a share of the upside. So I think we're going to actually be able to pull in some economics from the Hines transaction.

Yes, John, they're independent. I mean the multifamily and the lab are independent projects, and we're not allocating any capital to the multifamily at that time. So I just want to make sure you're clear on our capital commitment and the deal structure.

And your next question comes from the line of Jim Kammert with Evercore.

Maybe a qualitative probe potentially on the development and redevelopment prospects. Would you say that the number of tenants you're having discussions with and their aggregate space needs is really kind of held together? It's just -- we can all appreciate that the decision-making has been on pause, but just trying to get a better sense of what that kind of looks like as an aggregate pool that your number of conversations and so on?

Yes. Jim, it's Scott again. I would say, go back to my comment I made earlier, the pipeline that we have today, both in the LOI pipeline and the active pipeline, these are tenants that are well capitalized. They've already raised funds. They aren't looking to raise money in the next 3 to 6 months. So they've got their business plan and are looking to take either additional space, whether they're renewing in place or moving. Typically, if they're moving, they're looking to take additional space.

Okay. And then so a derivative to that question, you haven't seen to your knowledge, tenants that you're speaking with jump ship and go somewhere else for $10 cheaper rent. It's just not a price issue. It's really a total capital and visibility of their business issue, making the decision to lease or not?

Yes, I think that's accurate. And I think that's why you continue to see the incumbent landlords win an outsized share of the deal, right? I mean I think these are mission-critical facilities, and they're going to make a decision for the long term and want to know who their landlord is going to be for the duration of the lease. And that's one of the reasons we've outperformed the broader market.

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

First also, I want to pass on congrats to Kelvin. And for the 2 questions, first, it looks like ad rents may have helped your MOB growth this quarter, both sequentially and year-over-year. Was that the case? And if so, how much? And for the second question, what do you see as full occupancy for the CCRCs?

Yes, Mike, this is Mark Theine. I'll take the first one on the Medical City ad rent. We had a great start to the year there ahead of budget, as you mentioned, and ahead of schedule. It's a total of about $1 million in the quarter, which is about 50 basis point impact on our same-store for the year-over-year and sequential.

And Mike, your senior housing question, we're at roughly 86% today. There are a couple of properties that bring that average down. But there's upside. It's probably in the 300 to 400 basis point range would be a rough estimate just based on trajectory. The lead volume continues to be strong. So definitely some upside to capture.

Your next question comes from the line of Omotayo Okusanya with Deutsche Bank.

Kelvin, first of all, congratulations. I look forward to working with you. So my first question is just around, Scott, I mean, you've kind of given a very candid picture of life sciences, which I appreciate. But I take a look at your leasing volumes, and it sounds like things actually accelerating in 2Q relative to 1Q. I mean, how should we be -- and this kind of sounds very much like last year as well, right, where the backdrop was tough, but your leasing actually got better over the course of the year. Is that the same idea this year? Or are you really kind of cautioning that maybe we may not have that same kind of tempo this year?

First quarter is always a little weak. That was the case last year, and we're less than 200,000 feet, and we signed, I don't know, 800,000 feet in 2Q. So there was definitely an increase. And we have a good pipeline. I mean we keep saying that. So yes, I mean, the leasing pipeline is strong, whether it's what's signed in April, the LOIs and what comes behind that, as we've said a couple of times now, it's as strong as it's been since the summer. But we've also said it wouldn't surprise us if some of those lease executions get pushed back. That's just the reality of the market environment that we're in. There's a huge amount of uncertainty. And we are giving a candid view. We still love the sector. We have a great market position, high-quality real estate. But if you're expecting massive earnings growth and turnaround in 2Q, I mean, that's going to be tougher. I mean I don't think that should be a surprise if you look at what's happened to biopharma capital raising in the start to the year.

Fair enough. And then also for the new leases in the quarter, the weighted average lease term was like 58 months or so. That number is usually almost double that. Anything unique there in regards to mix or just terms changing, people wanting shorter leases because of the uncertainty?

No, -- it's Scott Bohn, I think the new leases were on average about 5 years, which is not too far off where we were, I think, for full year 2024. And as we've talked about -- when we talk about mark-to-markets and other things in the life science portfolio, our deals tend to be pretty chunky. So looking at it on a quarter-by-quarter basis isn't necessarily the right way. I think you got to look at the full year or the trailing 12 months. So I don't think there's anything specific in that quarter that is [ tailwind ].

That's helpful. Okay. Then one more for me, if you don't mind. The redevelopment bucket for other redevelopment, that amount increased this quarter. Now you have 15 projects versus 12 last quarter. Could you talk a little bit about kind of what the additional projects were? What's being moved into redev? Is it like a building you have a tenant moved out and now moving into redev? Just kind of trying to understand some of the movement there.

Yes. We added 3 projects to that bucket this quarter, 2 lab buildings and 1 [indiscernible] building. All of them were 100% pre-leased, just some pretty large CIs as well as base building work needed on those buildings. It's about 130,000 feet and about $40 million total in those. And the bulk of those, I think, are Q4 starts for the lease, those being for the next few quarters.

And the current tenants have already moved out of those buildings?

Correct.

And your next question comes from the line of Rich Anderson with Wedbush.

When you think about maintaining guidance and perhaps ramping up buybacks and ramping down your life science loan business, is the net forced downward, but yet you're able to maintain guidance? Or would that be something -- would the combination of those 2 observations actually help you to sustain -- maintain guidance? I'm just curious how the math works in your mind.

Yes. I mean it depends, obviously, what price for buying back the stock and which investments either proceed or not. Some have higher returns than others. There's also the impact on leverage, and we did make the comment. In any event, we don't expect to take our leverage above 5.5x. And buybacks obviously are not helpful for leverage, whereas investments could potentially be high enough yielding that they would be beneficial to leverage. So there is an impact, but I'll come back to regardless of how we use the $500 million, and that could include just sitting on the cash and keeping leverage lower, we still feel like our guidance range captures the potential endpoints.

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

Thanks for your time today. I look forward to seeing you in May, if not June, at the various events. Thanks, everyone.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.