Healthpeak Properties, Inc.

Good morning and welcome to the HealthPeak Properties, Inc. third quarter conference call. All participants will be in 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. To withdraw your question, please press star then one. 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 HealthBeak's third quarter 2024 financial results conference call. Today's conference call contains 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 uncertainty that may cause actual results to differ materially from our expectations. A discusser of risk and risk factors is included in our press release and detail in our filings with the SEC. We do not undertake a duty to update these forward-looking statements. Certain non-GAAP financial measures will be discussed on this call. In an exhibit to the 8K we furnished to the SEC yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with the IG. The exhibit is also available on our website at healthpeak.com. I'll now turn the call over to our President and Chief Executive Officer, Scott Brinker.

Thanks, Andrew, and welcome to HealthPeak's third quarter earnings call. Joining me today for prepared remarks is our CFO, Pete Scott, and the senior team is available for Q&A. Congrats to the entire HealthPeak team for another quarter of excellence in execution. Our high-quality portfolio and platform continue to drive earnings growth. Last evening, we increased guidance for the third time this year, driven by our performance in leasing, same-store operations, and merger synergies. We still see significant value and upside in our stock when we look at where our multiple sits versus the earnings growth we have produced and expect to continue producing. We're also paying a 5 plus percent dividend with a conservative payout ratio that leaves nearly $300 million of annual free cash flow to reinvest in the business. Let me provide some color on the four levers across our platform that should drive future earnings growth. First is the merger we closed on March 1st. Year one synergies are now tracking to be $50 million, which is 25% above our initial forecast, and we have additional synergies to capture in the next year or two. Most of that outperformance is driven by internalization, which has proven to be a great move both financially and strategically as it's brought us closer to our real estate, one of the strategic goals I communicated when I took this position two years ago. Because of the internalization, our 50 million square foot portfolio is increasingly being operated with the same process, procedure, and technology, allowing us to better capitalize on our scale. Our GNA is now 25% more efficient as a result of the merger. Also, our balance sheet improved with the merger and has never been stronger. The second area of earnings growth is leasing momentum in our lab business. Since July 1, we've signed more than 700,000 square feet of leases with positive 10% cash releasing spreads in the third quarter. That activity includes more than 300,000 feet of new leasing at our high priority campuses, Vantage, Portside, and Directors Gateway. South San Francisco continues to be our strongest market with activity in a range of suite sizes and price points. We're uniquely positioned to capture demand with our market leading footprint and relationships. Just one example is the life science tenant who signed a lease at Portside last week. That same company has now grown with us four times since entering the portfolio six years ago, each time within walking distance in the same sub-market and with a gradual improvement in building quality to the Class A space they will soon occupy. A couple broader comments on life science. We're seeing gradual but clearly positive momentum on all the key metrics. Employment in the sector increased year over year and is up 4% in the past 18 months. There were seven IPOs in September, and 2024 is on pace to be more than 50% above last year's total. R&D spending from Big Pharma is on pace for another record year, as those companies have no choice but to continually search for innovative new products to backfill their patent expirations. Venture capital fundraising is on pace for an all-time high in 2024. Also, fundraising is significantly higher than cash deployment, meaning there's a growing stockpile of capital to invest in a new company formation. One of our tenants in South San Francisco recently became the first billion-dollar Series A capital raise in the sector. The co-founder was recently awarded the Nobel Prize in Chemistry, which is one of the few accomplishments more remarkable than a billion-dollar Series A. The third area of earnings growth is our outpatient medical business. Industry fundamentals are favorable as demand exceeds supply. Our high quality portfolio is capturing record releasing spreads and we're routinely moving the rent escalator up to 3% on new leases. Across the sector, demand is growing as health systems and consumers prioritize cost effective and convenient outpatient care. Equally important, new supply will remain low because of the cost of new construction. And finally, a few comments on capital allocation, which is the fourth driver of future earnings growth. First, we like the portfolio we own today, so any future dispositions would be small numbers or opportunistic. Our balance sheet is currently under levered, so we can fund our current pipeline with debt. While several companies went big when life science was at a peak, our last development start was three years ago in 2021. and that project is now 70% leased. With the market starting to recover and new starts going to nearly zero, we see a compelling window to begin allocating capital to life sciences again, primarily through structured investments that provide immediate accretion and more seniority in the capital stack. We're also building a pipeline of new outpatient development projects, highly pre-leased to leading health systems with yields that are accretive to earnings. That opportunity set could easily get to a couple hundred million dollars per year. Most recently, we commenced a $37 million project that's 100% pre-leased to HCA. In summary, we've grown earnings per share by mid-double digits the last three years, and we have four levers to accelerate that growth moving forward. And now Pete Scott will cover operating results, guidance, and the balance sheet.