Healthpeak Properties(PEAK) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Healthpeak Properties' unaudited consolidated financial statements for Q2 and H1 2022, encompassing balance sheets, income statements, and cash flows Consolidated Balance Sheets Total assets increased slightly to $15.32 billion while total liabilities rose to $8.36 billion, leading to a decrease in total equity to $6.84 billion Consolidated Balance Sheet Summary (in thousands) | Balance Sheet Item | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $15,318,203 | $15,257,519 | | Net Real Estate | $12,873,628 | $12,667,429 | | Cash and Cash Equivalents | $73,013 | $158,287 | | Total Liabilities | $8,361,938 | $8,111,415 | | Bank Line of Credit and Commercial Paper | $1,448,569 | $1,165,975 | | Senior Unsecured Notes | $4,655,852 | $4,651,933 | | Total Equity | $6,840,388 | $7,058,760 | Consolidated Statements of Operations Q2 2022 total revenues increased to $517.9 million, but net income attributable to Healthpeak significantly decreased to $68.3 million due to lower real estate sale gains Q2 2022 vs Q2 2021 Performance (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Total Revenues | $517,932 | $476,238 | | Net Income (loss) | $72,293 | $282,025 | | Net Income (loss) attributable to Healthpeak | $68,338 | $276,280 | | Diluted EPS | $0.13 | $0.51 | Six Months 2022 vs 2021 Performance (in thousands, except per share data) | Metric | H1 2022 | H1 2021 | | :--- | :--- | :--- | | Total Revenues | $1,016,304 | $931,514 | | Net Income (loss) | $147,636 | $431,448 | | Net Income (loss) attributable to Healthpeak | $139,951 | $422,068 | | Diluted EPS | $0.26 | $0.78 | Consolidated Statements of Cash Flows Net cash from operating activities increased to $449.7 million, while investing activities shifted to a $461.1 million use, and financing activities decreased to a $72.1 million use Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $449,668 | $359,594 | | Net Cash from Investing Activities | $(461,136) | $1,712,296 | | Net Cash from Financing Activities | $(72,082) | $(2,009,272) | | Net (Decrease) Increase in Cash | $(83,550) | $62,618 | Notes to the Consolidated Financial Statements These notes detail Healthpeak's accounting policies, business segments (life science, medical office, CCRC), significant real estate transactions, debt structure, and equity programs - Healthpeak is a REIT focused on U.S. healthcare real estate across life science, medical office, and CCRC segments[16] - The company completed the disposition of its senior housing portfolios in September 2021, classifying them as discontinued operations[25][46] - In H1 2022, the company acquired $165 million in life science and medical office properties and sold properties for $109 million, including its last direct financing lease hospital[28][29][30][34][59] - As of June 30, 2022, $1.45 billion was outstanding under the Commercial Paper Program and $4.7 billion in senior unsecured notes, with all debt covenants in compliance[93][95][92] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, strategic focus on life science, medical office, and CCRC properties, market trends, and non-GAAP measures like FFO and Adjusted NOI Executive Summary and Strategy Healthpeak, an S&P 500 REIT, focuses on life science, medical office, and CCRC properties, leveraging a strong balance sheet and strategic partnerships after exiting senior housing - The company completed its strategic shift to focus on life science, medical office, and CCRC asset classes after disposing of senior housing portfolios[177][178] Portfolio Mix by Adjusted NOI (Q2 2022) | Segment | Adjusted NOI ($ thousands) | % of Total | Number of Properties | | :--- | :--- | :--- | :--- | | Life science | $137,422 | 50% | 149 | | Medical office | $107,281 | 39% | 298 | | CCRC | $23,292 | 9% | 15 | | Other non-reportable | $4,119 | 2% | 19 | | Totals | $272,114 | 100% | 481 | Results of Operations Q2 2022 net income decreased to $68.1 million due to lower asset sale gains, while FFO as Adjusted increased to $236.5 million, reflecting stronger core operational performance Q2 Performance Summary (in thousands) | Metric | Q2 2022 | Q2 2021 | Change | | :--- | :--- | :--- | :--- | | Net income applicable to common shares | $68,057 | $275,993 | $(207,936) | | Nareit FFO | $236,154 | $149,671 | $86,483 | | FFO as Adjusted | $236,478 | $217,242 | $19,236 | | AFFO | $195,595 | $189,038 | $6,557 | H1 Performance Summary (in thousands) | Metric | H1 2022 | H1 2021 | Change | | :--- | :--- | :--- | :--- | | Net income applicable to common shares | $137,693 | $419,336 | $(281,643) | | Nareit FFO | $479,583 | $189,905 | $289,678 | | FFO as Adjusted | $471,295 | $432,635 | $38,660 | | AFFO | $397,625 | $373,839 | $23,786 | Segment Analysis In Q2 2022, Life Science and Medical Office segments showed positive Same-Store Adjusted NOI growth, while CCRC's Adjusted NOI decreased due to higher labor costs - Life Science: Q2 Same-Store Adjusted NOI grew 4.3% year-over-year, driven by rent escalations, higher occupancy (98.8%), and new leasing[216][218][219] - Medical Office: Q2 Same-Store Adjusted NOI increased 4.5% year-over-year, attributed to mark-to-market lease renewals, higher occupancy, and annual rent escalations[225][228] - CCRC: Q2 Same-Store Adjusted NOI decreased 2.1% year-over-year, as higher labor costs offset increased occupancy (81.1%) and resident fees[233][234][235] Liquidity and Capital Resources The company maintains strong liquidity through operating cash flow and financing activities, with $6.5 billion in debt requirements and a new $500 million share repurchase program - The company maintains strong liquidity through operating cash flow, its Revolving Facility, commercial paper program, and ATM program[252][253] - Material cash requirements for debt increased by $284 million to $6.5 billion since year-end 2021, primarily due to increased commercial paper borrowings[256] - A new $500 million share repurchase program was approved on August 1, 2022, expiring in August 2024[274] - As of June 30, 2022, 9.1 million shares remained outstanding under ATM forward contracts, with $1.18 billion of capacity remaining under the ATM program[271][272] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuations on variable rate debt, managed with derivatives, with a 1% rate increase impacting annual interest expense by $15 million - The company's main market risk is interest rate fluctuations on its variable rate debt, including the commercial paper program and certain mortgage debt[282][284][285] - A 1% increase in interest rates would increase annual interest expense by approximately $15 million on variable rate debt and decrease fixed-rate debt fair value by about $242 million[285] - The company uses interest rate swaps to mitigate risk; as of June 30, 2022, $142 million of variable rate debt was swapped to a fixed rate[284] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - The Principal Executive Officer and Principal Financial Officer concluded that the company's disclosure controls and procedures were effective as of June 30, 2022[288] - No material changes were made to the internal control over financial reporting during Q2 2022[289] PART II. OTHER INFORMATION Item 1A. Risk Factors No material changes to the risk factors previously disclosed in the company's 2021 Annual Report on Form 10-K were identified - There are no material changes to the risk factors from the company's 2021 Annual Report on Form 10-K[292] Item 5. Other Information The Board of Directors updated the Executive Severance Plan and Executive Change in Control Severance Plan on July 28, 2022, revising termination definitions and severance multiples - The Executive Severance Plan was updated to include termination for "good reason" by a Named Executive Officer as a qualifying event for severance[297] - The Executive Change in Control Severance Plan was updated to increase severance multiples for the President and Chief Investment Officer (to 2.75x) and for the CFO, COO, and CLO (to 2.5x)[300]