Healthpeak Properties, Inc.

Good morning and welcome to the HealthPeak Properties first quarter conference call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists 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 in your touchtone phone. To withdraw your question, please press star then two. Please note that this event is being recorded. I'd like to turn the call over to Mr. Andrew John Senior, Vice President, Investor Relations. Please go ahead, sir.

Welcome to HealthPeaks' first quarter 2022 financial results conference call. Today's conference call will contain certain forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from expectations. A discussion of risk and risk factors is included in our press release and detailed in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. Certain non-GAAP financial measures will be discussed on this call. In an exhibit to the 8K we furnished with the SEC yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with the Reg G requirements. The exhibit is also available on our website at healthpeak.com. I'll now turn the call over to our Chief Executive Officer, Tom Herzog.

Thanks, AJ, 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 the call are Tom Clerch, our Chief Operating Officer, and Troy McHenry, our Chief Legal Officer and General Counsel. First, a few highlights from the quarter. Our operating results were ahead of our initial expectations. We delivered 500,000 square feet of new development, including Three new 100% leased Class A life science buildings represented an investment of $262 million, along with three HCA on-campus MOBs represented an investment of $68 million. Leasing momentum remains strong across our life science and MOB businesses, and CCRC entry fees had another strong quarter with cash sales volumes up 42% year over year. We continue to advance a number of growth initiatives, including future developments, densifications, and entitlements in our three core life science markets and in our HCA development pipeline. As for our current competitive positioning, starting with our life science business, we're focused almost exclusively on large campuses in Class A markets and submarkets, providing us with depth and competitive advantage versus new life science entrants and owners of conversion of one-off buildings. While life science new supply has increased and public biotech markets have been choppy, occupancy and absorption within our portfolio has remained strong and rate has continued to grow. NIH funding is at an all-time high and venture capital continues to support biotech growth. We believe new technologies and scientific advancements will continue to drive strong long-term demand for purpose-built life science space. Today we estimate the mark-to-market opportunity within our life science portfolio is roughly 25% supporting our organic rent growth over time. Our MOBs are very well positioned and located primarily on campus with number one or number two hospitals in their respective markets with high concentrations of specialist physicians. New competition of on-campus properties is constrained as each project requires an imitation from a hospital or healthcare system. The majority of our MOB growth is currently through our HCA development program. CCRCs are benefiting from strong demand and supportive housing values. With almost no new competition as CCRCs require 8 to 10 years from pre-development through stabilization. And our portfolio's replacement cost would be at least three times our cost basis. Additionally, the yield for irreplaceable CCRC portfolio is incredibly strong on a risk-adjusted basis. turning to the impact of higher inflation on our development program. We estimate that construction costs are up 10% to 20% over the last year, depending on the type of building, location, and other factors, and land is up significantly more than that. Fortunately, we have GMAX contracts in place on our entire $1.3 billion of active development projects. This pipeline is fully funded within our plan and is already 71% pre-lease. and we are seeing very strong interest in the remaining available space. With the rapid rise in land values, the value of our sizable land and densification opportunities has increased significantly. As a reminder, we have roughly $11 billion of embedded future development opportunities over the next 10 to 15 years. Going forward, we would expect higher land and construction costs to dampen new supply as certain life science projects being contemplated by new entrants will no longer pencil. But we'll see how that plays out. Turning to our balance sheet. Our current net debt to EBITDA is 5.1 times, and we have $2 billion of liquidity. We have no bond maturities until 2025, and our floating rate debt is at 17%, in line with our long-term target of about 15%. Although higher short-term rates will weigh a bit on our near-term earnings, we believe our percentage of fixed floating debt provides appropriate match funding to our portfolio and also lower average cost through the cycles. Given we are well below our net debt to EBITDA target of mid to high fives, we have plenty of dry powder. Finally, board changes we announced yesterday. Last week, Kathy Sandstrom was appointed by the board as independent vice chair. and chair of the Nominating and Corporate Governance Committee. In Kathy's new role as vice chair, she'll work closely with Brian Cartwright, our chairman, on various board matters. And in her role as chairman of Nominating and Corporate Governance Committee, Kathy will assist in planning for future board leadership roles and succession. As many of you know, Kathy spent two decades at Heitman, ultimately running a number of domestic and international businesses, in addition to leadership of the REIT investment team. With that, let me turn it to Scott.