Healthpeak Properties, Inc.

Good day, and welcome to the HealthPeak Properties Incorporated fourth quarter conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Andrew Johns, Vice President, Corporate Finance, and Investor Relations. Please go ahead, sir.

Thank you, and welcome to HealthPeaks' fourth quarter and full year 2020 financial results conference call. Today's conference call will contain certain forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, our forward-looking statements are subject to risks and uncertainties that may cause actual results different materially from our expectations. The discussion of risks and risk factors is included in our press release in detail in our filings with the SEC. Do not undertake a duty to update any forward-looking statements. Certain non-GAAP financial measures will be discussed on this call. In the exhibit at the 8K we filed with the SEC yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. The exhibit is also available on our website at www.healthpeak.com. I will now turn the call over to our Chief Executive Officer, Tom Herzog.

Thank you, Andrew, and good morning, everyone. With me today are Scott Brinker, our President and Chief Investment Officer, and Pete Scott, our Chief Financial Officer. Also here and available for the Q&A portion of our call are Tom Clerch, our Chief Development and Operating Officer, and Trem McHenry, our Chief Legal Officer and General Counsel. With the vaccination gaining more traction every day, it seems we can finally see the light at the end of the tunnel. Yet our intense effort executing through COVID will most certainly continue for a while yet. Despite the enormous challenges of 2020 for HealthPeak, I believe we will exit the pandemic in a stronger place than where we started. More on that shortly, but first let me temporarily digress. Around a year ago, the first confirmed case of COVID-19 was identified in the United States and then spread insidiously across the country. Like so many companies at the time, our executive team and board were busy determining how best to navigate the imminent crisis with consideration to its then uncertain penetration and duration on human beings and on the market. At the time, we identified five priorities. First, to protect the health of our teammates, residents, and tenants without overriding consideration to expense. Second, to guard our balance sheet, liquidity, and credit ratings to ensure we remained rock solid on the other side of the crisis. Third, to communicate frequently and openly with our investors, analysts, and rating agencies as best we could with the facts we had at the time. Fourth, in a post-COVID world, we considered key societal and market trends and determined that all of our classes of real estate would remain vital after the pandemic was resolved. And fifth, we aim to take advantage of any opportunities that might result from disruptions caused by the pandemic. Initially, we thought it possible there may arise distressed buying opportunities, but that never did transpire in our desired asset classes of anchored MOBs and purpose-built life science. And in fact, we saw cap rates compress rather than rise. Fortunately, that positively impacted our gross asset values for these portfolios. Execution on these five priorities turned out to be critical in guiding our path through the fog. And relative to our priority of identifying opportunities created by the crisis, we decided to test the market to determine if it might be feasible to lighten up or even exit our rental senior housing business without undue incremental pollution. That was a half a year ago. So after six months of hard work on this plan, yesterday we announced that during the fourth quarter and year-to-date 2021, we closed on $2.5 billion of shop and triple net sales, with the remaining $1.5 billion under binding and non-binding contracts. In aggregate, this $4 billion of rental senior housing sales is right on top of the estimate we provided in our Q3 earnings call. We're now very far along to a full exit of rental senior housing with some work left to do. Accordingly, we will soon be able to focus our team entirely on growing and operating our biotech-centric life science and our primarily on-campus MLB portfolios, which together will soon represent 85% of our company. And additionally, we continue to hold a relatively smaller portfolio of high-quality and high-yielding CCRCs. And a fundamental tenet to our strategy, we believe all three of these businesses represent irreplaceable, high barrier to entry portfolios that are impossible to replicate and provide a strong growth trajectory based on demographic tailwinds. Additionally, our land bank and densification opportunities aggregate to $7 billion plus, which will keep us busy for around a decade without the need to purchase any additional land. But inevitably, I'm sure we will do that too. In our purpose-built life science business, available land in the three hotbed markets is scarce, and competition from office conversions is typically cost-prohibitive. And even if such conversions are completed, they do not provide the same heavy lab-use ability as purpose-built life science. In addition to our 10 million square feet of operating life science properties, we have another 5-plus million square feet available through our land bank and densification pipelines. which represents $6 billion plus of embedded accretive development spend. The majority of this consists of low-rise properties in the heart of some of the strongest life science locations in San Francisco and San Diego. Some of these assets were developed 25-plus years ago by our pioneering predecessor, Slough Estates. But current market conditions and land use regulations allow for much higher FARs. This represents an enormous gem within our portfolio, and we will unlock this value over time. In our on-campus and affiliated MOB business, we currently own and operate 23 million square feet, and future growth typically requires invitations from hospitals and health systems. Fortunately, we have a number of strong and time-tested relationships that will allow continued future development and acquisition growth, plus we have a number of land bank opportunities. And in CCRCs, we have 15 communities, each with an average of 500 units located on 50-acre parcels of infill land. Such campuses have high barriers to entry, given the typical 8- to 10-year development concept of stabilization period and heavy infrastructure required to operate. And, of course, we do like the high yield produced by this asset class, which I think is quite attractive, given the quality of the cash flows. Our 15 campuses also provide future densification opportunities, aggregating to more than a half a billion dollars. Additionally, from time to time, certain not-for-profit owners, sometimes capital constrained, may choose to exit, and we will be natural buyers if the properties meet our criteria. With consideration to all of this, it is important to note that we believe rental senior housing will continue to be a vital and growing business that serves an important need within the healthcare continuum. But we concluded that for HealthPeak, our more focused portfolio mix will create a strong and unique investment opportunity, and one that cannot be synthetically replicated through investment in pure play read alternatives, given our platform, irreplaceable portfolios, and embedded growth opportunities. Moving on to our dividend. Yesterday, we announced that we have adjusted our dividend in Q1 to 30 cents per share. or $1.20 per share annualized. Our full year 2020 dividend payout ratio came in at 102%, and in Q4 was 106%. But we held off adjusting in prior quarters to wait for sufficient visibility into our future portfolio mix and related cash flows. We estimate the $1.20 per share annualized dividend will represent a 2021 payout ratio in the high 80s to low 90s, but result in a stabilized payout ratio of around 80%, which will be our target going forward. Stabilized earnings will follow the completion of our shop and triple net sales, ultimate reinvestment of our sales proceeds in core life science and MLB assets, and reaching the COVID inflection point for our CCRC operations. The 30 cent quarterly dividend currently represents an approximate 4% yield on our share price. and on a stabilized basis will provide incremental positive cash flow of around $150 million per year for reinvestment into our creative development and densification activities. Finally, before turning the call over to Scott, I would like to inform you that Barbette Rogers will be leaving HealthPeak in late February for investor relations leadership role with a mixed-use REIT in Maryland, which is closer to her extended family on the East Coast. Your contributions have been immense, and your hard work, dedication, and great attitude will be missed by the entire team, and me in particular. Andrew Johns, who most of you know well, will have his responsibilities expanded to include leadership of our investor relations department, in addition to his continued strategic contributions to our FP&A team. With that, let me turn it over to Scott.