Good morning, and welcome to the Healthpeak Properties, Inc. Fourth Quarter Conference Call. Please note that 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 Healthpeak's Fourth Quarter 2023 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, forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from expectations. Discussion of risks 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. And in an exhibit to the 8-K we furnished to the SEC yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. The exhibit is also available on our website at healthpeak.com. I'll now turn the call over to our President, Chief Executive Officer, Scott Brinker.

Thanks, Andrew. Good morning, and welcome to Healthpeak's Fourth Quarter Earnings Call. Joining me today for prepared remarks is Pete Scott, our CFO. Joining for Q&A is John Thomas, the CEO of Physicians Realty Trust and our senior team. I want to start by thanking our entire team for their contributions in 2023. Public market volatility notwithstanding, your collaboration and winning mindset allowed us to produce record leasing volumes in 2 of our 3 business segments and to exceed our initial same-store and earnings guidance by 130 basis points and $0.05 per share, respectively. Last evening, we reported a strong fourth quarter, both operationally and financially. For the fiscal year, we grew same-store NOI by 4.8% and AFFO per share by 5.5%, driving our dividend payout ratio below 80%. The balance sheet remains in great shape with 5.2x net debt to EBITDA at year-end. We expect to close the strategic combination with Physicians Realty Trust on March 1. Since the announcement in late October, the 2 teams have been working side by side on culture, best practices, tenant relationships, technology and every other area that will determine the success of the merger. We have the highest level of confidence that this combination will augment our platform capabilities, relationships, balance sheet and earnings. Just last week, we internalized property management in 3 markets with up to 6 additional markets expected to go in-house by midyear. We've had near 100% success, bringing the existing third-party staff onto our team. Those employees, on average, have worked in these buildings for 7 years, minimizing execution risk. As for synergies, we're confident we'll achieve the targets we outlined in late October, and they are contributing several cents per share to our earnings in 2024. Pete will expand upon the synergies and outlook in a few minutes. I want to share some thoughts on the operating environment for the 2 largest segments, starting with Outpatient Medical, where the sector is benefiting from demand exceeding supply. We have 2 decades of operating history in the sector and in 2023, we were at or near all-time highs for leasing volume, retention, renewal spreads and same-store growth. Looking forward to 2024, our same-store outlook includes the DOC portfolio and is 75 basis points above our 5-year history for initial guidance. We expect to benefit from sector fundamentals that have never been stronger, high-quality assets and operations and internalization. Most importantly, we believe we're combining the 2 best outpatient platforms in the country to create an even bigger and better company to drive internal and external growth for the next decade plus. Today, more than 65% of the tenants in the combined portfolio are health systems. When they make leasing decisions, it’s often driven by relationships and no one is better positioned than the combined company. It’s a very different leasing dynamic than other real estate sectors that deal with tens of thousands of very small tenants. Relationships are absolutely critical in our sector and the senior team of the combined company has more than 200 years of experience in the sector, creating an unrivaled relationship network. Our next generation coming behind them is learning from the best and bringing energy to continue innovating as the sector evolves. Let me turn to our lab business. The fundamental drivers of long-term growth are solidly intact with both drug approvals and new drug applications at or near all-time highs. That means R&D funding is paying dividends, creating a virtuous cycle. Big Pharma is ramping up partnership deals and M&A to replace looming patent expirations and companies with good data have ready access to capital. At the same time, venture capital deployment and the IPO market remains soft and boards are deferring leasing decisions when possible. Those dynamics will eventually turn in our favor, and we’ll be well positioned to capitalize. We can also comfortably underwrite a massive reduction in new deliveries starting in 2025. Fortunately, even during the market exuberance for life science, we stuck to our strategy. As a result, we're highly concentrated in 5 of the best submarkets in the country where we have significant scale and deep relationships to capture leasing demand. Moreover, 85% of our rent is from campuses with 400,000 feet or more, which allows us to offer a wide range of price points and space plans to accommodate expansions, all of which are important to tenants. Year-to-date, we signed 58,000 feet of leases with another 115,000 feet under LOI plus active discussions across our portfolio, so it's an encouraging start to the year. Cyclical slowdowns create opportunities on the other side, and we're preparing accordingly. In the past few months, we received approvals or entitlements that expand our land bank to more than 4 million square feet in 2 of the most important life science submarkets in the country. We're well positioned when new development begins to pencil. On a related point, we were pleased to close on the sale of a 65% interest at our Callan Ridge development for a 5.3% cap rate with rents essentially at market on a long-term lease. The sale was driven by favorable pricing, not a desire to reduce our lab exposure. We're actively evaluating capital recycling opportunities across the combined $20-plus billion portfolio, including outright sales and JV recaps. Any such proceeds would likely be used to fund a growing pipeline of relationship-driven opportunities across our core segments that we could always consider stock buybacks or debt repayment depending on relative returns. I'll close by saying that the macro backdrop has been casting a shadow over the underlying strength of the company. We can't control that shadow but we're more confident than ever about what lies behind it, in particular, platform, portfolio and balance sheet. I'll turn it to Pete.

Thanks, Scott. Starting with our financial results. We finished the year on a strong note. For the fourth quarter, we reported FFO as adjusted of $0.46 per share and total portfolio same-store growth of 3.6%. For the full year, we reported FFO as adjusted of $1.78 per share and total portfolio same-store growth of 4.8%. And our balance sheet is in great shape as we finished the year with 5.2x net debt to EBITDA. Let me provide a little more color on segment performance. In lab, same-store growth for the quarter was 2.7%, bringing our full year growth to 3.7%, in line with the midpoint of our guidance range. During the year, we signed 985,000 square feet of leases with positive cash re-leasing spreads on renewals of 23%. The majority of these lease transactions were signed with existing relationships, and we were also successful in capturing incremental demand from new tenants. Occupancy in our operating portfolio ended the year at 97%. Turning to Outpatient Medical. We had a strong finish to the year with 4.3% same-store growth, bringing full year growth to 3.4%, in line with the midpoint of our guidance range. Occupancy ended the year at 91% and our tenant retention was approximately 80%. Both metrics are reflective of our leading portfolio and platform. Finishing with CCRCs, same-store growth for the quarter increased 5%, bringing full year growth to 15.6%. 2023 was a record year of entrance fee sales and cash collection. These cash collections exceeded the amortized amount included in both FFO and AFFO by $40 million. Two quick items on our financial results before shifting gears to our 2024 outlook. For the fourth quarter, our Board declared a dividend of $0.30 per share. The dividend payment is forecast to remain the same post closing of the merger, which should provide us with incremental retained earnings in 2024. You probably also noticed that DOC filed an 8-K earlier this week with preliminary fourth quarter and full year 2023 results. They expect to complete their 10-K and other financial reporting on their normal timeline in the next few weeks. Turning now to our combined outlook for 2024. Given our high degree of confidence the merger will close, coupled with the heavy lifting done by our respective teams to successfully integrate our forecasting, we are in a position to provide investors with an initial view of our combined 2024 outlook. However, critical items, including finalizing the GAAP merger adjustments will not occur until after the closing date. So we will make any necessary updates to our outlook and finalize guidance most likely in conjunction with our first quarter earnings. With all that said, our initial outlook for 2024 is as follows: FFO as adjusted ranging from $1.73 to $1.79 per share, which includes merger-related benefits of approximately $0.02 to $0.03. AFFO ranging from $1.50 to $1.56 per share which includes merger-related benefits of approximately $0.05. Total same-store growth ranging from positive 2.25% to positive 3.75%. Let me touch on some of the major items that underlie our outlook. First, based on the March 1 closing date, our outlook is for 2 months stand-alone Healthpeak and 10 months combined Healthpeak and DOC. The result of this is a weighted average share count of approximately 690 million for full year 2024, assuming no additional equity issuances. Second, we have identified sources for all of our capital needs and have no remaining funding requirement in 2024. We upsized our 5-year term loan to $750 million and recently swapped the entire amount to a fixed rate of 4.5%. Last month, we closed on our well-received Callan Ridge joint venture, generating $130 million of proceeds and eliminating $22 million of future TI spend. We have $250 million of projected retained earnings given our well-covered dividend, and we expect some seller financing debt repayments. These proceeds will be used to fund our development and redevelopment pipeline, repay $210 million of DOC's private placement notes and fund all of our transaction costs. Third, G&A is expected to range from $95 million to $105 million, which compares to stand-alone Peak at approximately $95 million for full year 2023. All in, our G&A is only increasing by approximately $5 million at the midpoint despite inflation and our asset base increasing by $5 billion. Fourth, our current FFO outlook includes a negative $0.03 mark-to-market on the $1.9 billion of DOC debt that we will assume. Notably, we do not add back this headwind to FFO as adjusted. Fifth, perhaps conservatively, we do not include any benefit from the Graphite Bio termination fee in our FFO as adjusted. Fixed item, the components of same-store growth are as follows: We see outpatient medical ranging from positive 2.5% to positive 3.5%. Fundamentals in outpatient medical continue to improve versus historical norms, including higher tenant retention, increased rent mark-to-market and increased escalators. Our outpatient medical same-store NOI for 2024 is approximately $825 million or 60% of the overall pool. We have included the DOC portfolio in our same-store pool for 2024, given the size and strategic nature of the merger. Turning to lab. We see same-store growth ranging from positive 1.5% to positive 3%. Lab growth is driven by contractual rent escalators, positive rent mark-to-market and the benefit of increased NOI from internalizing operations in San Francisco and San Diego. Not surprising, we do have some offsets, including a modest decline in occupancy relative to 2023 and timing of free rent, which naturally fluctuates year-to-year and is a headwind, particularly in the first quarter. Finishing with CCRCs, we continue to see growth in 2024 with a same-store outlook of positive 4% to positive 8%. I thought it would be helpful to finish with a high-level bridge of the major drivers in our outlook. Our outlook includes $40 million of synergies from the merger, noting that a portion of these synergies are operational and flowing through NOI. We see approximately $30 million of year-over-year earnings benefit from same-store growth. And we see a positive $15 million benefit from development earnings, largely Vantage and Nexus plus the benefit from the Callan Ridge joint venture. So there are certainly a lot of tangible positive trends. But we are facing some headwinds. Interest expense is forecast to increase $35 million due to a combination of rising interest rates as well as the aforementioned debt mark-to-market. There is an approximate $10 million earnings roll down due to some one-time security deposits received in our lab business in 2023 that are not forecast in 2024 plus dilution from potential seller financing debt repayment, which, although dilutive does provide capital to recycle into our core businesses. We have $40 million of a temporary decline in NOI at 2 marquee campuses that I wanted to spend a moment on. First, there is $30 million of year-over-year decline in NOI from the well-disclosed Amgen expiration at Oyster Point. The 323,000 of combined square footage across 3 assets is being put into redevelopment as we upgrade these assets to Class A product and multi-tenant buildings. We are rebranding the campus Portside at Oyster Point and substantially upgrading the amenity package and infrastructure in order to integrate the buildings more with our neighborhood community, creating a nearly 2 million square foot contiguous mega campus with leading life science tenants. We have backfilled 101,000 square feet of the expirations already with our client lease, although we don't expect that lease to commence until the third quarter as we complete work to the base building and their suite. Second, after months of uncertainty, we have clarity on the Sorrento Therapeutics situation, although the lease rejections do result in a negative $10 million NOI impact in 2024. We have placed the 168,000 square foot Directors Place assets into redevelopment and are actively touring tenants through the buildings. There is a nice mark-to-market upside opportunity on this campus as we retenant the buildings, but the downtime is a headwind in 2024. In addition to the headwinds discussed already, we have included about $10 million in conservatism in our outlook for various items, including potential further capital recycling activities, proactive lease terminations and bad debt. In conclusion, while there are lots of puts and takes to our outlook, let me try and sum it up succinctly. Core operations are performing in line to perhaps better than expectation. Lab is not growing at the same rate as the last 10 years. Nothing grows to the sky in perpetuity, but we do like our market positioning and firmly believe we will outperform as sentiment and fundamentals improve. On the other side of the spectrum, Outpatient Medical is growing at a higher rate than historical averages as demand is outstripping supply—a key thesis in our merger with DOC combined with the improved capabilities and significant synergies. We have managed the balance sheet conservatively but like all REITs, we are not immune to rising rates nor can we avoid the required merger-related debt mark-to-market. And as we have consistently pointed out, we have 2 large marquee campuses undergoing significant repositioning. We have forecast the capital spend for these redevelopments in our 2024 plan, but none of the earnings upside. We are confident in our ability to recoup the lost NOI, but our base case assumption is lease commencements won't start at these projects until 2025 and beyond. If we can outperform that time line, then we will have further upside to our outlook. With that, let's open it up to Q&A.

Our first question comes from Nick Yulico with Scotiabank.

I guess first question is just relating to the guidance. I appreciate all the info you gave us on the DOC impact plus some of the other year-over-year items. But is there any way to kind of think about what just legacy Peak FFO or AFFO growth would be year-over-year? Just putting aside sort of all the merger impacts, maybe just on like a percentage basis or pennies impact?

Yes. Nick, it's Pete here. Maybe I'll just start with AFFO. We did provide AFFO this year because of all the GAAP merger-related items, and we don't necessarily want to get mired into discussion on all of those on this call. But if you look at AFFO this year versus where we were last year, our outlook is effectively flat, but that does include the benefit of the synergies. If you try and back those out, you'd say our AFFO would be down year-over-year. That's actually a correct statement. And if you go back to the merger proxy, the S-4 we put out, you'd actually see that in our forecast as well. And that's really primarily because of the temporary lost NOI at the 2 large campuses I mentioned in the prepared remarks. So if it were not for this merger, our AFFO would actually be down year-over-year, but certainly, with the benefits of this merger, the accretion we've articulated being about $0.05 per share, we're able to keep our AFFO flat year-over-year.

Okay. That's helpful. I guess second question is just in terms of the lab business, if you can give maybe a little bit more feel for the leasing that you talked about that's in the pipeline right now. Kind of how the - if any of that relates to San Diego plus how we should think about, I guess, the composition of what leasing would look like going forward from a maybe mark-to-market standpoint because I know that was impacted in the fourth quarter?

Good question, Nick. I'm not surprised that you're asking it. We did disclose that we've signed year-to-date about 175,000 square feet of leases and LOIs. The first week of January is quite slow. So that's probably a pretty good 4-week number. If you annualize that, it's still trending in a positive direction as you compare it to a year ago where leasing was. I'll turn it actually to Scott Bohn to give a little bit more color on the composition of those leases and LOIs.

Yes, this is Scott. Regarding the letters of intent, we have a variety of deals and not just one significant transaction across all markets. As we discussed in previous quarters, the demand has largely shifted toward the sub 30,000 square foot range, which is where the majority of our current deals are. We're quite satisfied with the financial outcomes we're seeing from these. Last year, the mark-to-market on our portfolio was around 20%. Today, it's probably around 5% to 10%, but this can fluctuate considerably based on tenant improvement capital and other lease factors. As a result, it's difficult to pinpoint a precise figure due to the variations in the leases, but overall, I'd estimate it's in the 5% to 10% range.

Your next question will come from the line of Juan Sanabria with BMO Capital Markets.

Just a question on dispositions. You talked about potential for more assets to come on the market. So just curious, if you could give a little bit more flavor for the types of assets that you may look to sell. Would they be kind of core, long-leased assets, stabilized or maybe more noncore assets? Just kind of curious on what may be being floated out there at this point in time.

Juan, it’s Scott. I mean, obviously, we're not happy with where the stock is trading. There's a pretty big disconnect between what the private market would value our assets at and what the public markets would. So we're certainly looking at all available opportunities to create value. So I would say it's a pretty wide-ranging menu of things that we're considering. If it's core assets like we did in San Diego a couple of weeks ago, it would be more likely than not kind of a recap where we maintain an ownership stake. We don't have a whole lot of true noncore assets, but we have less core assets that we could consider selling, those may come at slightly higher cap rates than the print we had a couple of weeks ago in San Diego. That was obviously an A+ type asset in the campus. But we're looking at a number of things. We've been saying that for the last year. We were a net seller of real estate in 2023. From where we sit here today, we'll probably be a net seller in 2024. But we have the ability to be price-sensitive. The balance sheet is in great shape, sources and uses are spoken for, so we'd be price sensitive on anything that we do.

Great. Could you please discuss the expected growth cadence for lab same-store growth? You mentioned there might be a temporary drag in the first quarter related to free rent. I'm interested in understanding the anticipated growth for fiscal year '24.

Sure, Juan. From an FFO perspective, I think there isn't much variability when looking at the four quarters this year. I want to highlight that some of the larger leases starting in the first quarter for lab, like the Voyager deal in Boston that began this month, and the RevMed deal, included three months of free rent. We also have the MGM deal that just started as they took over one of the Amgen buildings. While I wouldn’t say there is a significant amount of additional free rent beyond what is typical, all these leases are considerable and began earlier this year. This will slightly impact the first and second quarter same-store numbers compared to the overall guidance, which is why I wanted to mention it. Some years, free rent helps; other years, it doesn't. This year, it presents a bit of a challenge for our numbers. However, these are long-term leases with high-quality tenants. So, I want to indicate that the same-store performance for lab will be somewhat weaker in the first half of the year compared to the second half.

Your next question comes from the line of Michael Griffin with Citi.

I wanted to ask on the development pipeline. I noticed some of those projects were pushed out a couple of quarters relative to last quarter. Curious if you could give any color on why that's the case? Are there any worries about demand for those projects?

Yes. Greg, it's Pete. I can certainly start with that. I’ll hit on the biggest ones. Vantage, we actually delivered a portion of that late last year. And then the initial occupancy is for what's remaining, and we do have another lease with Astellas that's expected to start later this year. So that's really the reason why that got pushed back a little bit. It’s because we delivered a portion of that. On Gateway, we have certainly talked about that at length over the last 6 to 9 months with the Sorrento situation. I mean realistically, the way we look at it, even if we signed a lease today, between space planning and actually doing some of the work to do the specific TI build-out, I mean you're talking about 6 to 9 months before a lease can even commence. We don't have a lease signed at this point in time. So as a result, we did push that out a little bit. We're certainly touring tenants through the building and the facility. It's a really great looking, high-quality campus, A+ right there overlooking the 805. But as we look out, based upon how long it takes leases to get signed, that has actually slowed a little bit. We decided that it made sense to push that out just a couple of quarters. I don't know, Scott Bohn if there's anything you'd want to add to that.

No, it's good, Pete.

Great. Thanks. And then I just wanted to touch again on the synergies from the merger. You talked about realizing about $40 million to $60 million of that. It seems like the merger is going on pace or maybe even better than expected. Curious if you could see any additional upside kind of on top of that $60 million or if that's sort of the kind of highest level of synergies that you could see.

Yes. Griff, I'll take that. It's Scott. In October, we talked about $40 million of year 1 run rate synergies, and we've got a full $40 million in our 2024 guidance. So I would say, we are ahead of expectations in year 1. So hopefully, we can exceed that number as well. In terms of year 2, we'll see. The internalization so far is going well, 3 markets down, 6 more in the queue, so we're taking them one at a time just to make sure that it goes well, reducing execution risk. But if we're satisfied with the results, we could certainly continue to internalize more and more markets going forward and that would be a big part of achieving the high end, if not above the high end of that synergy range.

Your next question comes from the line of Rich Anderson with Wedbush.

So regarding Amgen and Sorrento, I think the next time we'll see that reflected in the numbers is 2026, but please correct me if I'm mistaken. Is there any other option that might be quicker? It seems like Sorrento is a bit more prepared to proceed based on your comments. I'm just curious about the realistic timeline to see them return to cash-paying assets.

Yes. I think, Rich, as you quoted 2 years, that's really more of a same-store figure. I would say from a lease-out perspective, as you pointed out, the 2 campuses, Sorrento, the scope of work is less significant on that than the scope of work on the port side project that we've rebranded. So I would say that we can finish the scope of work on Sorrento, and that's the Directors Place campus a lot quicker, and we'll actually finish the work on the Portside campus. So I would see NOI probably earlier from that campus if I were to give you some guidance between the 2 than I would from the Portside campus. Although that said, you do have to bear in mind that we will actually commence that lease, the 101,000 square foot lease at Portside with client later this year. So we have backfilled some of that. We have not backfilled at this point any of the Sorrento campus, but we're certainly touring tenants through it.

Can I add something to that? From my seat, like our lab business, even 2 years ago, we were essentially at 98%, 99% occupancy, essentially nothing in redevelopment and a completely pre-leased development pipeline. From where we sit today, we've got some upside in occupancy on the operating portfolio. Scott and Mike are working on. We've got a pretty big redevelopment bucket that has a lot of NOI upside and then a fair amount of development that hasn't been leased yet. So just on Amgen, Sorrento and Vantage alone, you're talking about $50 million, $60 million of NOI upside. I don't know if that's 25% or 26%, but we do think it's achievable. Those are all Class A assets. There's a cost of capital, so maybe subtract a little bit of that upside from an earnings standpoint, but it's substantial. So our lab business 2 years ago was kind of at full utilization, for lack of a better word. And today, there's a fair amount of upside for us to go recapture.

Okay. Yes, fair. Scott. The second question, shifting over to medical office buildings, you are guiding to 3% same-store which would combine with DOC. Your major pure play peer Healthcare Realty sees a pathway to increasing same-store figures over the next few years through occupancy improvements. I'm curious if you have a strategy where 3% is your starting point, but do you anticipate more growth from medical office now that it represents the majority of your portfolio? Do you see additional growth potential beyond that 3%, which has been the traditional growth level for medical office over the past few years? I'm interested in your perspective on where this is headed.

Yes. I mean, it's really been a 2% to 3% growth business for the last decade. We do see that accelerating. It's not going to 10%, but we do think it's going to improve for the forward 5 to 10 years versus the previous 5 to 10 years, just given supply demand, construction cost and therefore, our ability to push rents. So our guidance this year is at the very high end, actually well above the high end of any guidance we've given in that segment historically. We have a pretty good track record of beating our same-store guidance and our earnings guidance. So you can assume that hopefully, there's some upside to the number that we gave. But it's a combination of occupancy. Obviously, we were up 40 basis points quarter-over-quarter, I think like 60 basis points year-over-year. All-time high re-leasing spreads, all-time high retention. So yes, we do think that there is some upside to the historical outpatient medical growth rate.

How do you condition tenants to be okay with higher rents, right, because they've lived with this world and you got to be careful about sort of screwing up the system, so to speak. Is it there for the taking, you think? Or do you sort of have to sort of thread that needle?

Yes. And I'll ask John and Tom to comment as well. They're both here today.

Yes. If you look at the rents, we've benefited from new developments because the market rents for those are usually about 20% higher than the existing rates. This provides us some room for growth. Additionally, looking back 20 years, our tenancy was composed of 25% hospital leases and 75% third-party physicians. Today, that has shifted to 65% hospital leases. This gives us a greater ability to raise rents when working with institutional clients. John, do you have anything to add?

Yes. No, I agree with that, Tom. And I think we've seen 6 straight quarters of well above that in renewal spreads. Conditioning your comment about conditioning tenants, the options, as Tom said, historically, was to go to a new building, but the rents now are 20% higher than the new building. So it's just much more, I guess, negotiating leverage. And if you're raising the rents 5% to 10%, that's better than the 20%, and that's the conditioning. And then inflation increases, that’s more important, I think, than the renewal spread right now, we're starting to get across the board annual increases that are fixed of 3% to 4% to 5%, people don't want to do inflationary CPI increases. So that just adds to that continuous stream. So it's more and more of the portfolio roles, more and more of the rents are going up 3%, 4%, 5% on renewal spreads and then you're adding a 3% to 4% annual increase. So the next 10 years, as Scott said, is very optimistic.

Your next question comes from the line of Wes Golladay with Baird.

Can you comment on what's going on with the pushout of collecting on the seller financing, if it was pushed out a few months?

Yes. The seller financing, I mean, we actually did quite well off of providing that on our senior housing sales, which were 3, 4 years ago. So it's a business that we actually like if we provide the right LTV to the counterparty. With these loans, we've gotten repaid a lot over the last few years. I mean the balance was, I think, $600 million, $700 million. It was pretty high, down now to about $175 million. And our guidance for this year, call it, outlook, we had 0 to $100 million getting repaid. So $50 million at the midpoint, could be a little bit higher than that. And obviously, that's probably more front of the year weighted as well. I think our expectation is if it gets repaid, it will get repaid in the very near term, if not, it would get extended, which obviously, if it gets extended versus repaid, then there's an earnings benefit to that. But again, the expectation given where the LTVs of those are is that as the counterparty sell assets, we'd expect to get those loans repaid and probably more towards the front end of the year.

Okay. And then I guess, can you comment on maybe how the conversations are going on leasing lab space? I think you had a new lease just under 200,000 square feet in the fourth quarter. It looks like some good activity in the first half in January. And maybe there's a little bit of a lag effect, but there's been some M&A in this space. There's the biotech in that that's had nice balance. Any noticeable change in your conversations?

Yes, this is Scott Bohn. From a demand perspective, we are aligned with pre-COVID levels across all three portfolios. Boards remain cautious about taking on new space and expansions. However, some groups that have been waiting are now actively exploring space plans as they approach funding, with both private and public capital markets starting to open up. I believe we're off to a strong start for the year, and we are optimistic about how the pipeline is developing. The underlying fundamentals are strong indicators of future demand.

Your next question comes from the line of Jim Kammert with Evercore.

The Q&A is kind of built on some of this, but could you provide a little bit more detail regarding the $700 million to $800 million of development or redevelopment and CapEx guidance that you provided because I ask you kind of reconcile to a known development and redevelopments and what remains to be spent. And even if that were all spent in '24, I think that's roughly half of kind of a $700 million kind of target. So is this other activity at Vantage, Sorrento? If you could just help kind of what are the major components of that in terms of that total spend for '24, please?

Yes. Happy to take that, Jim. I mean obviously, on the development side, we still have to finish out the Vantage project, which is pretty significant. We've also got some new HCA developments that are kicking off. I mean that's a great program for us, and we'd like to continue to recycle capital and keep that program going and the yields are starting to increase on that, which is great. I'd say what has gone up pretty significantly year-over-year as you look at 2023 versus 2024 is the larger redevelopment bucket. I mean we're still redeveloping our Point Grand campus. We've got another asset given the Astellas development behind space there as they took on the lease at Vantage. So we've got another large building there. Plus we'll have the Portside buildings go as well as Sorrento. So I'd say that the biggest components of that are finishing out the current development pipeline as well as the redevelopment ticking up. And that was always our expectation was that we would have to redevelop the specialty portside when those leases expired. I mean Amgen was on that campus for 20 years and really, we had to put 0 CapEx into that over that period of time. So we did really, really well on that investment. But 20 years later, there’s some capital that has to go into that. Those are really the biggest drivers of that spend this year.

Yes, there’s no new starts in lab in that forecast. There are a couple of new starts in outpatient medical. Some are from legacy Healthpeak, and others from legacy DOC just commitments that were made in some cases, 2 years ago. Any new commitments, though on development, it’s because the yields are attractive, 7%, 8%, highly pre-leased. So we continue to find those very attractive and would recycle capital so that we can go ahead and move forward with those.

Great. So basically, as this unfolds, the lease opportunity becomes more apparent, that's when those shift to become more explicit redevelopment or CIP activities, is what you're saying?

Yes. Correct.

That's fine. And secondly, if I could. You mentioned, I think, Scott Brinker, that you're looking at all capital alternatives. What are the latest thoughts on the CCRC portfolio? Is that still a potential? Or is there still room to grow on the NOI and FFO contribution? Or is that nearing maturity that might be a capital event for you?

Yes, we're at 85% occupancy today. I would think we could get back into the 90s. In that portfolio, it's performing well. We've got good assets, mostly in Florida, obviously, favorable supply/demand in that market for seniors, and we've got a really good operating partner in LCS. We've got a really strong internal team overseeing it. So we're not in a rush. At the same time, it really has no strategic overlap with our medical and lab businesses, which are highly complementary, same process and procedure, et cetera. So at some point, I think we will recycle. But to my comment earlier, we would be price-sensitive. We don't need to do anything. It's performing fine. We've got the team to run it, but the capital markets have just been too tight and soft to transact on a portfolio of that size, but we'll see if things start to open up in 2024.

Your next question comes from the line of Joshua Dennerlein with Bank of America.

I appreciate the details regarding the guidance. I have a quick question about that. If I heard correctly, you are including DOC in your same-store medical office NOI outlook. If DOC is excluded from the 2024 same-store pool, what would the same-store MOB NOI growth look like?

Yes, hard to say. We are getting the benefit of the internalization in the peak portfolio that we obviously would not have done absent the merger, so it's come hard to parse the 2 numbers. But I think we said historically, DOC has lower in-place escalators than Healthpeak, but that's converging over time as they sign new leases with, as John said, 3% or better escalators. So I'm guessing it'd be a little bit lower but not materially. I think they said numerous times, their growth rate in 2023 was impacted by some unique asset-specific events and proactive termination. So I would expect our growth rate to mirror or closely mirror the Healthpeak growth rate going forward.

Okay. Okay. That's helpful. And then maybe 1 different kind of question. Just you mentioned the stock price, you're not happy with it. Just kind of curious for your appetite for stock buybacks here.

Yes. We did buy back some stock, albeit at a higher price 1 year, 1.5 years ago. And I would say that the response from the Street was pretty unenthusiastic to that. That said, we do put an authorization every quarter for stock issuance or buyback with our Board. And we're not at a level, I think, today, where we buy back stock, but certainly, it's something that we're paying attention to. We're certainly a long ways away from a level where we even consider issuing equity, which is why we're talking more about capital recycling. So we have a buyback program in place. We don't need to file one. We still have $400-plus million of buyback we could do, but we're not going to look to lever up if we ever bought back shares, we would look to do something through capital recycling. But I think I'd probably just leave it at that, Josh.

Your next question comes from the line of Mike Mueller with JPMorgan.

I know there are some moving parts with properties that are going into redevelopment. But can you give us a little more color, unless I missed it, in terms of the lab same-store NOI, what's embedded in there for occupancy and spreads for '24 compared to what you did, especially when the spread tightened in '23.

Yes. Mike, it's Pete. I'll handle that. So obviously, our outlook is 1.5% to 3% positive. What are the positive drivers within that? I mean, obviously, you've got rent escalators, which tend to be on average in the low 3s. We've got some positive mark-to-market embedded in there on lease renewals that we do get done. And then as we’ve said, there's a little bit of internalization benefit as well. So I think if we just stop right there, we'd probably be 5% plus from a same-store growth perspective, which actually would kind of mirror what's happened over the last 10 years. That said, there are some offsets, which I think are pretty well known. We've got average occupancy will probably be in the low 96% area. So you compare that to where we were last year. That's probably a 100-plus basis points decline, so a modest decline, but nevertheless a headwind. The free rent that I mentioned, some years, it's up; some years, it's down. It's up this year, but it certainly is a little bit of a headwind as well. And then as we always do, we have a little bit of bad debt cushion in order to provide ourselves with a little bit of flexibility depending upon what goes on within our tenant portfolio, that certainly improved pretty significantly year-over-year, but we still do include a little bit there. So when you take all the positives and you take all the headwinds, it kind of blends out to that 1.5% to 3%. I know it's not what it was for the last 10 years, but our stock price is also not where it was a couple of years ago as well. So it's certainly been factored into, I think, our valuation at this point in time.

Sure. As a follow-up, could you discuss the positive spreads? Do you anticipate that the spreads will be more in line with what you indicated for the fourth quarter of 2024 or for the full year of 2023?

No, the fourth quarter number was an anomaly. There may be specific areas within the portfolio that could show a negative renewal rate mark-to-market, but that was an exception. I believe that for 10-year-old tenants who wanted to remain in the space with investment-grade credit, there was no downtime and no tenant improvements needed. That was a distinctive case, and I wouldn't anticipate many like that.

Your next question comes from the line of Vikram Malhotra with Mizuho.

Just maybe first on CCRCs. I know you mentioned at some point, you might look to divest. But I was a bit surprised just I thought the growth would be higher, at least I was anticipating it and just looking at the outlook. I thought there would be a more sort of robust outlook. So maybe if you can just compare and contrast or just give a sense of if you're seeing something different from your earlier expectations?

Yes. Well, we still see some occupancy growth in 2024. Rental rates will grow, but more in the mid-single digits as opposed to high single digits just given the fundamentals in that sector. Then obviously, we've had a huge benefit from contract labor coming down over the past 18 months. We're largely through that benefit. We have very little contract labor in the portfolio today. So you just lose a lot of that benefit in same store. So I mean, that's what's happening at the property level. And then obviously, our accounting for this asset class has an impact as well. Most of the income in this portfolio comes from the prepaid rents on the nonrefundable entry fee. That's usually more than 75% of the total NOI, and we just have this GAAP accounting method that we amortize all the entry fees. And we're leaving roughly $40 million of earnings on the table relative to the cash NOI that's actually being generated. So unfortunately, our reporting for CCRCs does not really reflect the underlying performance of that asset class, but chalk that up to GAAP accounting, unfortunately.

Okay. That makes sense. And then you mentioned sort of relationships or key in MOBs and you've got a great HCA program. I'm just wondering 2 subparts to that. One, is there likelihood of the HCA program expanding, becoming bigger or other types of properties within HCA. And then second, just is there a pathway for similar programs with larger health systems?

The answer is yes across the board. I mean there's a massive opportunity to help these big health systems grow their outpatient network. I might ask John to comment specifically.

Yes, Vikram, I think you know we have been working with Northside in Atlanta, and we have a project that is about to reach completion, along with more opportunities on the Northside regularly. We have a strong relationship with another organization, and we also have upcoming development opportunities there, so stay tuned. Those are just a couple of excellent examples in really promising markets.

Your next question will go from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Scott, you mentioned the estimated mark-to-market on lab space is between 5% and 10%. I'm interested in how that relates to the lease expirations you have scheduled over the next few years. Additionally, could you provide insights on the differences in requirements between larger and smaller spaces? You mentioned there is some strength in the smaller segment, so any details would be appreciated.

Yes, sure. On the mark-to-market, I think it's slightly lower in the very near term just with the Amgen leases rolling. It's kind of weighed down a little bit, those were relatively high rent that grew over that 20-year period that Pete mentioned. And then on the tenant demand side and leasing, we've talked about over the past several quarters. I mean, if you look across all 3 markets, the after demand probably somewhere between 60% to 75% of that is sub 30,000 square feet. So it's been really the strike zone for deals over the past 6 to 9 months.

But even as we get into sort of '25 and '26, I mean, do you expect that still to be pretty muted? Or is there any opportunities? I know you guys have flagged in the past, I think '25 was going to be a little bit of a more attractive year. Like does that then reaccelerate still as we get into next year? Or has the gradual moderation in market rents sort of wiped away some of that upside?

It's more of the former. '23 and '24 were more modest because of Amgen and it starts to pick up a lot more materially in '25 and thereafter. But keeping in mind, Scott's bigger picture comment that it is down year-over-year from what we would have said a year ago just because of market fundamentals. But this should be the low point on the mark-to-market, and then we'll gather some momentum into '25 and beyond.

That's helpful. And then you guys gave a little bit of color around sort of the thoughts around synergies. But I guess I'm just curious how much of that $40 million do you think kind of hits right out of the gate when the deal closes? And what is sort of that go-get for the balance of the year? How would you kind of break down the cadence of that? And then thinking about maybe what could end up getting pull forward even or even upside beyond maybe the high end of that? Just curious the latest thoughts.

Yes, Austin, this is Pete. I keep hoping one of these days we'll review our financials and see all positive indicators, but that wasn't the case this quarter. Maybe it will be next quarter. Regarding the synergy, we mentioned that most of the $40 million is related to G&A savings, and we anticipate achieving nearly all of that by the time we close. Some of those G&A savings involve discussions with our employees, and DOC needs to handle similar conversations on their end. Those discussions have taken place; they are never easy, but I expect the majority of the savings to materialize quickly. As for the internalization, most of that pertains to the three markets we have already internalized. Those are tangible, but the benefits will be realized quarterly as we gain NOI throughout the year. We are confident we will meet all those targets, which is why we included it in our $40 million estimate for just 10 months instead of a full year, enabling us to achieve those figures a bit sooner. Regarding the additional $20 million, I believe those figures are more relevant for 2025, primarily focused on internalization but with a small portion potentially related to G&A. At this point, we feel assured that we can meet those goals, but again, those will be 2025 figures and will carry through to subsequent years.

Yes. No, that's great. Green thumbs on the answer. Appreciate the detail.

Our final question will come from the line of John Pawlowski with Green Street.

I was hoping you can provide just a very rough range of disposition volume that you would look to close on this year if your public market valuation is still depressed.

I mean, it could be 0 if the market is tighter, it could be a couple of billion dollars if the market opens up. I mean, we’ll see, John, we're having all sorts of discussions, but we have them. We've been saying that for a couple of quarters in a row of earnings call. So we'll just have to see how the market plays out. But there's a lot of active discussions across the portfolio today.

I understand that the market isn't fully liquid at the moment, but there's a significant discrepancy between your stock's trading price and the potential deals available. Not every transaction will occur at a low 5% cap rate, but even if the rates are higher, it appears to be a compelling opportunity to reduce the valuation gap between public and private companies. Could you share how actively you are exploring sales in the life science and healthcare sectors right now?

Yes. I don't really have a different answer than what I gave in active discussions across the portfolio. I mean it could be a very material number if the markets open up.

Yes. I think the other thing I would add, John, is obviously, we don't have any acquisitions dialed into our forecast as well. And then on top of that, we did actually bake in, and hopefully, this was something that everyone got from our prepared remarks is that we have baked in potential dilution from if we wanted to sell noncore assets then likely use of proceeds immediately would be to repay debt. And that's got a dilutive impact to it. That's not to say that we're going to look to further deleverage. We'd like to recycle that capital over time into our core business segments, but we have dialed in some flexibility within our forecast to allow us to recycle capital.

This concludes our question-and-answer session. I'd like to turn the conference back over to Scott Brinker for any closing remarks.

Yes, I want to thank everybody for their interest. The team here is completely focused, hard at work on beating our earnings guidance again. I think we delivered really strong AFFO growth this year at more than 5%, we grew FFO more than 7% the year before that, and we expect to continue that. So in any of that, I appreciate you tuning in today, and call with any questions. Thanks, everyone.

The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.