Healthpeak Properties, Inc.

presentation, there will be an opportunity to ask questions. To ask a question, may press star then one on your touchstone phone. To withdraw your question, please press star then one. Please note this event is being recorded. I would like to turn the conference over to Andrew Johns, Senior Vice President in Fast Relations. Please go ahead.

Welcome to Healthpeaks first quarter 2025 Finance Results Conference Call. Today's conference call is to answer 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 risk and uncertainties that may cause actual results to differ materially from our expectations. A discussion of risk and risk factors included in our press release and detailed in our file into 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 an exhibit to the 8K reference to the SEC yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable to the non-GAAP financial measures in accordance with the ResG. The exhibit is also available on our website at healthpeaks.com. I will now turn the call over to our President, Chief Executive Officer Scott Britten.

Okay. Thanks, Andrew. And welcome to Healthpeaks first quarter earnings call. Very excited to introduce Calvin 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 Calvin's promotion moves us further in that direction. His well-rounded experience includes healthcare, operations, portfolio management, transactions and development. Calvin has been with Healthpeak for seven years and excelled at every role we've given him. As I reflected 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 Calvin to be more of a strategic and operational CFO and we expect a seamless transition. Our existing strategy around leverage in 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 WeCare 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. Calvin 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 two 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 retro 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 US 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 US 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 US. This includes the push to onshore biomanufacturing, and with that, we can 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 four years. Both changes would improve biopharma return on investment and therefore demand for lab space. A functional FDA is critical to the US 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 US. 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 today from our tenants suggests 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 timeline for costly Phase III trials. The point is, there's some early evidence that the FDA is looking to encourage innovation and create faster timelines. 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've even more confidence today that new supply in the sector will essentially go to zero for many years to come. This is obviously a great foundation for 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. 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 .3% cap rate, and use 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 fives. We also reduced loading rate debt from 20% to almost zero. 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 stepped back to reassess the appropriate risk adjusted returns, which may be different than three to six 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 target range in the mid fives. 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 discipline, 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. I've spent the last five years working closely in the Boston market to help build our lab portfolio, including our land assemblage and entitlement efforts for our Cambridge Point master plan. On behalf of the team, I'm pleased to announce that we've selected Heinz to join as the development partner to advance the residential component of the project. Heinz brings a depth of expertise in placemaking, 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 Heinz advances our vision to establish a mixed use destination of scale and validate this generational opportunity that will be delivered over the next decade plus. Now turning to the first quarter financial and operating results. We reported FFOs adjusted at 46 cents per share, AFFO of 43 cents per share, and total portfolio of 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 the last. We reported same store growth of 7.7%, which includes the positive impact from the expiration of free rent on two 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. In 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 100 basis point increase in occupancy. Shifting to the balance sheet. In February, we issued 500 million of unsecured notes at a rate of five and three eighths. That is 102 basis points spread over the 10 year. And this was also the tightest 10 year spread in the history of health feed. We had the first quarter at 5.2 times net debt to EVEDA and 2.8 billion of available liquidity, which further positions our balance sheet for long term success. Ending with guidance. We are maintaining our FFOs adjusted guidance in the range of $1.81 per share to $1.87 per share. We're also maintaining our blended portfolio same store growth in the range of three 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.

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speaker phone, please pick up your handset if you're pressing the keys. To withdraw your question, please press star then one. So that everyone may have a chance to participate, we ask that participants to limit your questions to one and related follow up. If you have additional questions, please recue. At this time, we will pause momentarily to assemble our roster. The first question comes from Farrell Granite with Bank of America. Farrell, please go ahead.

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

Yeah, Farrell, nice to hear from you this morning. I'll start with that. Scott Bowen 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 in 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. It's not most sectors. Biofarm 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, from pressure from Congress or just the American public. I do think that will benefit the sector and add some stability, but the first 90 days or 120 days of this quarter were 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. We still see a lot of upside. Certainly, the patent cliffs, the big pharma needs to fill. That is not going away. BioTech is the likely spot for them to look. There was a deal announced yesterday just as an example. 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. Thank

you. Also, I guess, Ben, you made comments about potential pushouts of releasing in the lifeline. Something if you could potentially quantify that with your current pipeline, if that is what you're seeing or things getting pushed out by single quarters or longer term decision making.

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

Hey, Farrell, it's Scott Bowen. The thing I'm going to add to you is the tenants that are in our LLY 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 six months, so groups who are executing on their business plan and can play through some of this noise here.

Okay, thank you. Appreciate it.

Your next question comes from the line of John Filikowski with Wells Fargo. John, please go ahead.

Good morning. Thank you. 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 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% FFOU for a really high quality portfolio, so that was the driver.

Okay, and I guess 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?

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

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

it. Thank you. Your next question comes from the line of Austin Wersmith with K-Bank Capital Markets. Austin, please go ahead.

Thanks. Good morning, everybody. 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 dependent base and more specifically the watch list and whether there's any signs of credit concerns emerging at this point?

Yeah, 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 to the last three to four 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 three to six 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?

Yeah, I think it's too early to speculate on that often. We'll have more clarity in the coming weeks and months, but I don't 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. Understood. Thanks for

the time. Your next question comes from the line of Ronald Camden with Morgan Stanley. Ronald, please go ahead.

Hey, just going back to sort of the guidance and just a little bit more details because presumably, a lot of the deceleration coming from the lab side, right? Because the MOVs and DCRC 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? Thanks. Well, yeah, 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 three 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 you think about sort of your three markets, you know, San Diego, Boston, San Francisco, is there one that's better positioned, worse positioned from all these sort of funding environments and cut so forth, just trying to figure out what the ranking looks like in your mind? Thanks.

Yeah, Ron and Scott, I think Boston overall relative to the market side continues to be the slowest. We're fortunate to have several growth tenants there driving the demand within our portfolio and very little role 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's been pretty consistent over the past 12 to 18 months. And in San Francisco, we clearly see the most demand there. And part of that is due to our portfolio and our scale. We do a lot of deals that don't hit the active broker sheets. So that's the order I would rank them set.

Thanks so much.

Your next question comes from the line of Seth Berge with CD. Seth, please go ahead.

Hi, thanks. Can you give some more color on the 2Q leasing activity today? Is that from the development pipeline and kind of what does the ring look like for that space?

Yeah, for the 2Q numbers, 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 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 know if we're ready to get into the details of those deals just yet because it'll matter when they're execution.

Versus pipeline. Okay, great. And then just to the follow up for the 500 million of investments activity. How are you kind of thinking about capital allocation in terms of, you know, development or external growth versus buybacks today?

They will be flexible. Depends what happens with the stock price 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 we've got optionality. Thanks.

Your next question comes from the line of Rich Anderson with Redbush. Rich, please go ahead.

Thanks. Good morning, Kelvin. Congrats on the move up. Looking forward to working with you. Scott, you know, you mentioned a lot about sort of the slowdown, the leasing in life science, you know, 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 port side vantage directors place 60 million of NOI there potential you 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 you know, getting to 60 million was a three 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 three specific opportunities?

Which I think it just depends. I mean, if the next nine months look like the last three 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 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 Lisa timelines.

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

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

Okay, and so that that double digit isn't enough for you at this point? Is it? Is that a fair statement?

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

fair enough. Okay, thanks everyone.

Your next question comes from the line of Vikram Malhotra with Missouho Vikram. Please go ahead.

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

Yeah, I mean, we don't guide to occupancy. Never have and certainly not going to start to 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 LLIs. 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 LLI being negotiated or likely going vacant. So there's pretty good clarity there in the uncertainty element is what happens with regulatory policy and in 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 the aggregate company wide metrics.

OK, just to clarify, so well, the overall same store has not changed and the guide hasn't changed. I'm assuming you, you know the MOB side is doing better like you referenced, so that that's probably gone up and the same store and why for life sciences has gone down or diesel. 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 would you feel good about that sector?

OK, and then just the last thing just to clarify, so the watchlist sort of you referenced. I'm assuming that's a review you've done over the last 3060 days given this uncertainty. Can you kind of frame it for us a little bit like you know, compared to sort of two years ago when we were coming out of all this uncertainty during COVID, too many companies had formed. Like how does the watchlist compare today to that uncertainty maybe two, three years ago?

Hey, this is Calvin. We have a very robust tenant credit monitoring platform, and I'd say that where we sit today, the composition of our watchlist 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.

Thank you.

Your next question comes from the line of Michael Carroll with RBC Capital Markets. Michael, please go ahead.

Yeah, thanks. 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?

Yeah, there's subtenants in some of the spaces, so each one is unique, but I won't speculate on the number. I just continue to say that the guidance range we've 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 from every angle, and obviously spending a lot of time with the companies that we think do need to raise capital to continue.

Good. Okay. And then I guess congrats, Kelvin, and maybe can you talk a little bit about the Heinz agreement that was announced? I know that their plan is to build apartments on this site, but how should we think about the benefits and the cash flow that could come from DOC related to this? I mean, is 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 timeline of that?

Yeah, so I look at it as a phase take down. The agreement we have with Heinz is a four evaluation on the land, and as they get ready to take down sites over time, including the first one that would take place within six to 12 months of entitlement plate next year, we would be able to recapture those proceeds. So it'll be over time. Okay, great. Thank you.

Your next question comes from the line of Juan Sanabria with BMO Capital Markets. Juan, please go ahead.

Hey, this is Robin Heinz, and I'm Juan. I'm just curious if you could provide a bit more detail on the watch list profiles or 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?

Hey, 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 you stepping back in investments, but I imagine banks are also sidelined at this point. I'm just curious if you can elaborate. What do you want to see to still avoid in lending? And then on the purchase agreements tied to your loans, how willing are sellers to provide that as part of the deal?

Well, we have purchase options on everything we've done today, 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 we need to change, probably better security, potentially higher rate come to mind as things that are on our mind as we reassess the life science pipeline.

Thank you.

Your next question comes from the line of West Coladay with Beard. Wes, please go ahead.

Good morning, everyone. Do you expect to see any distress opportunities from the tier one 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 last couple of years and kept all the allocation decisions made in the past two to three years at position as 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 on the terrorists on the development costs in a material way?

Do you want to comment on

that? Yes. Sure, Wes. I can start with the terrorists. I mean, I think what we're seeing in the terrorists, if the terrorists that are in place today continue, we'd probably see an estimated 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% on our GMP contracts and over 85% of our B-Devs are under GMP. So that accounts for the building core shell and any 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 relationship you have, but then also your costs may go up. So how do you manage that?

Yeah, 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. We see the best risk adjusted return.

Okay, thank you. Your next question comes from the line of John Polowski with Green Street. John, please go ahead.

Thanks for the time. Calvin, could you spend a few minutes talking through the West Cambridge development? I don't have a good sense of what the total construction costs might be over time. What percentage of it's going to come through HealthPeaks balance sheet timeline? So we'd love an update on kind of a bigger master plan and the capital costs and the time to deploy the capital.

Yeah, 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. You know, the focus is really to accelerate the project, catalyze the project with residential, which is the highest in demand right now. So, you know, we don't have any construction cost exposure to the residential component. Heinz 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 Heinz 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 about that 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 commas there would help, given your stocks trading and 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 investments we've made in West Cambridge specifically. Half of our $600-plus million has been 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, Heinz is prepared to get started within 6-12 months on the residential component. And the economics there are actually beneficial. It's a four 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 Heinz transaction. Okay, thank you.

Yeah, 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 Kamert with EveryCore. Jim, please go ahead.

Hi, good morning. Thank you. 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 kind of get a better sense of what that kind of looks like as an aggregate pool, that's your number of conversations and so on.

Yeah, Jim, it's Scott again. I would say go back to my comment I made earlier is the pipeline that we have today, both in the LOI pipeline and the XMN pipeline. These are tenants that are well capitalized, they've already raised funds, they aren't looking to raise money in the next three to six months. So they've got their business plan and are looking to take either additional space, whether they're renewing in moving, typically if they're moving, they're looking to take additional space.

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

Yeah, I think that's accurate. And I think that's why you can see the incumbent landlords when an outside 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 you know, it's one of the reasons we've outperformed the broader market.

Good.

Thank you. Your next question comes from the line of Mike Mueller with JP Morgan. Mike, please go ahead.

Yeah, hi. First, also want to pass on a congrats to Kelvin. And for the two questions, first, it looks like ad rents may have helped your MOP 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 CCRC?

Yeah, Mike, this is Mark Thine. I'll take the first one on the medical city ad rent. We had a great start to the year there. I had a budget, as you mentioned, and I had a schedule. It's a total of about a million dollars in the quarter, which is about 50 basis, 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 three 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.

Got it.

Thank you.

Your next question comes from the line of Amatayo Okosanya with Deutsche Bank. Amatayo, please go ahead.

Hi. Good morning, everyone. Kelvin, first of all, congratulations. I look forward to working with you, Bra. Um, so my first question is this round, Scott, you're 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 into Q relative to 1Q. I mean, how should we be kind of sounds very much like last year as well, right? Where the backdrop was tough, but 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.

No, fair enough. And then also for the new leases in the quarter, the weighted average lease term was like 58 months or that number is usually almost double that. Anything unique there in regards to NAICS or just terms changing, people wanting shorter leases because of the uncertainty? No, A

-Type was just shocked on. I think the new leases were on average about five 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 -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. You've got to look at the full year or trailing 12 months. So I don't think there's anything specific in that quarter that is telling. Yeah, that's helpful.

But one more for me, if you don't mind, the redevelopment bucket for other redevelopment, that amount increased this quarter. Now you have 16 projects versus 12 last quarter. Can you talk a little bit about what the additional projects were, what's being moved into redev? Is it like a building you have that's kind of moved out and now moving into redev, just trying to understand some of the movement there?

Yeah, we added three projects to that bucket this quarter. Two lab buildings and one O-line building. All of them were 100% pre-lease, just some pretty large CIs as well as building work needed on those buildings. It's about 130,000 feet and about $40 million total in those. The bulk of those, I think, are Q4 starts for the lease, those being for the next few quarters.

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

Right.

Okay.

Helpful. Thank you. And your next question comes from the line up Rich Anderson with Redbush. Rich, please go ahead.

Thanks for the quick follow up. 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 two observations actually help you to sustain, maintain guidance? I'm just curious how the math works in your mind. Thanks.

Yeah, I mean, it depends obviously what price for buying back the stock and which investments either proceed or not. Some have higher returns. 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 five and a half times. 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.

Okay, great. Thanks very much.

Yeah. 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.