Good morning and welcome to the Health Peak Properties, Inc. fourth-quarter conference call. All participants will be in listen-only mode. If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your touchstone phone. To withdraw your question, please press star, then 1. Please note this event is being recorded. I would now like to turn the conference over to Andrew Tons, Senior Vice President, and Pressure Relations. Please go ahead.

Welcome to HealthPeak's fourth quarter 2024 finance results conference call. Today's conference call contains certain forward-looking statements. Although we believe expectations reflected in any forward-looking statements are based on reasonable assumptions, our forward-looking statements are subject to risks and uncertainties that may cause actual results that differ materially from our expectations. A discussion of risk and risk factors is included in our press release and detailed in our filings of the SEC. We do not undertake a duty to update any forward-looking statements. Certain non-GAAP financial measures will be discussed in this call. In an exhibit to the 8K we furnished to the SEC yesterday, we have reconciled all non-GAAP financial measures to most directly comparable GAAP measures in accordance with Reggie requirements. The exhibit is also available on our website at healthpeak.com. I'm now going to call over to our President and Chief Executive Officer, Scott Brinkett.

Okay, thanks, Andrew. Welcome to Healthpeak's fourth quarter and full year 2024 earnings call. Our CFO, Pete Scott, is here with me for prepared remarks, and a senior team is available for Q&A. I would like to thank our entire team for a year of operational excellence, in particular with merger integration, internalization, leasing, and senior housing operations. I'm confident that in 2024, we built the foundation for future outperformance with our improved capabilities, portfolio, and balance sheet. We also continue to grow earnings. Over the past three years, we've grown FFO per share by 12% and AFFO per share by 19%. Additional growth is implied in our 2025 guidance. Yesterday, we announced an increase to our dividend. The increase was made possible by our earnings growth and is an important part of our total return to shareholders. Beginning in April, we'll pay the dividend on a monthly basis to match the cadence of our monthly rental income. Our FSO payout ratio remains conservative, preserving free cash flow to reinvest into the business. We believe there's significant value and upside in our stock today when we look at our current multiple, overlaid with our earnings growth and 6% dividend yield, not to mention the underlying value of our real estate and our proven competitive advantage in both life science and outpatient medical. The merger with Physicians Realty closed less than a year ago, and has already proven to be highly successful. The merger was accretive to our earnings, balance sheet, and platform. It highlighted our ability to execute and to exceed expectations, for example, with merger synergies and a common spirit renewal. We'll build on that momentum in 2025 by continuing to internalize property management across our portfolio, which is both financially and strategically accretive. We also have a significant development pipeline from the health system relationships that came over with JT and his team. In 2024, we closed $1.3 billion of asset sales at a compelling cap rate of 6.4%, primarily stabilized outpatient medical buildings where private market values have remained strong. Because of the asset sales, our balance sheet is currently under levered, and we believe 2025 2025 is an opportune time to go on offense. Particularly in life science, we're overbuilding and a lack of liquidity is creating opportunities for us. There's a very small handful of owners in the life science sector with a competitive advantage, and HealthPeak is certainly on that list with our scale, track record, and capabilities. For the past several years, we had a conservative near-term outlook for the sector and chose not to commence any new development or to make any acquisitions. With new deliveries declining by 75% this year, new starts at nearly zero, and many new entrants and lenders feeling distressed, we see this as a great time to put our platform and balance sheet to work. Private credit has exploded in popularity, but there's a vacuum in my science today, and therefore an opportunity for healthy. Our focus is loan investments that provide immediate accretion, more seniority in a capital stack, an attractive basis, and future acquisition rights of buildings in our core submarkets. The $75 million mortgage loan we announced yesterday is a good example of this targeted approach. The building is down the street from our existing 700,000 square foot campus in Torrey Pines, the premier submarket in San Diego. Our loan the cost is 60% with an 8% interest rate plus purchase option. In our outpatient medical business, our health system-driven strategy generates sustainable internal and external growth. Our capabilities and relationships were built over the past two decades and continue to bring us proprietary opportunities. In the fourth quarter, we originated a $36 million development development loan with purchase option on a development that's 100% pre-leased to McKesson and adjacent to a Baylor Scott and White Hospital in Dallas. Our current pipeline of similar highly pre-leased and accretive development projects exceeds $300 million. I'd like to make a few comments about our senior housing CCRC portfolio. Over the past several years, we've executed a strategy to structure our entry fees so that less than 20 percent of those fees are refundable to the resident. This is a huge contrast from the typical CCRC where the entry fee is more than 80 percent refundable to the resident. This strategy around refundability allowed us to keep the entry fee low so that we could target a wider audience. The result has been record sales and record net cash collections. Also, from an ownership perspective, these properties are now more comparable to rental senior housing than to a traditional CCRC. From a resident standpoint, the properties remain highly differentiated and attractive with vast indoor and outdoor amenities and large units with full kitchen to attract independent seniors. We've periodically received inbound interest from potential buyers for the portfolio, but not at prices we found compelling. Our current expectation is that we'll own the portfolio for the foreseeable future while retaining complete control and flexibility. Finally, the leadership changes and promotions announced yesterday. We have thorough succession plans and a deep bench for all senior positions. Kelvin Moses has been promoted to the executive team in recognition of his impact across the company since joining in 2018. Kelvin will be EVP of Investments and Portfolio Management. Tracy Porter has been a key member of our legal team since 2013 and will become EVP and General Counsel on March 1. She's been well trained by jeff miller who i've had the privilege of working with for the past two decades as he set the highest bar for teamwork and mentorship also march one mark thine will report to me as leader of our outpatient medical business mark was a co-founder of physicians realty and has two decades of experience in the outpatient sector he takes the reins from tom clarich who is one of the founding fathers of the outpatient real estate sector tom deserves enormous credit for the role he played in building a leading outpatient platform at HealthPeak over the past 25 years. Both Tom and Jeff have agreed to transition and consulting roles through year-end to ensure a smooth handoff. On behalf of our team and board, I want to sincerely thank Tom and Jeff for their enormous impact and congratulate Tracy, Calvin, and Mark for their increased role at the company. They're committed to our WeCare core values and are eager to put in the work to build an industry leader together. Now, Pete Scott will cover operating results, guidance, and the balance sheet.

Thanks, Scott. We ended the year with strong momentum. For the fourth quarter, we reported FFOs adjusted of $0.46 per share, AFFO of $0.40 per share, and total portfolio same-store growth of 5.4%. For the full year, we reported FFOs adjusted of $1.81 per share, AFFO of $1.60 per share, and total portfolio same-store growth of 5.4%. We exceeded the midpoint of our original FFOs adjusted guidance by five pennies. Our outperformance was a team effort across the organization and included better results in all three segments, higher merger synergies, accretive share repurchases, and the opportunistic early lease renewal with common spirit. Our balance sheet is in rock-solid shape with a net-debt EBITDA of 5.2 times, providing us with ample dry powder to go on offense. Let me provide some highlights for each segment. Starting with Outpatient Medical, our year-over-year same-store growth was 3.2%, well above the midpoint of our original outlook. We executed 6.2 million square feet of leases with a positive 7% rent mark-to-market on renewals. We ended the year at 92% occupancy and a tenant retention rate of 88%. Both metrics are well above industry averages. Turning to lab, our year-over-year same-store growth was 5%, far exceeding the high end of our original outlook. We executed 2 million square feet of leases with a positive 11% rent mark-to-market on renewals, highlighted by a positive 30% rent mark-to-market in the fourth quarter. We far exceeded expectations in our lab segment, driven by our unique competitive advantages, including our scale, best-in-class team, high-quality portfolio in the right sub-markets, and the depth of our industry relationships. Finishing with CCRCs, our year-over-year same-score growth was 20.8%, smashing our original outlook, driven by better-than-expected occupancy gains and entrance fees. Starting in the first quarter of 2025, we will report AFFO on our supplemental, inclusive of entrance fee cash collection. We believe this change better reflects the cash flow generation of the business. Turning now to our 2025 guidance, we are forecasting FFO is adjusted to range from $1.81 to $1.87 per share. Let me touch on some of the major items that underlie our guidance. We see total same-store growth of 3% to 4%. The components of same-store growth are outpatient medical ranging from 2.5% to 3.5%, lab ranging from 3% to 4%, and CCRCs ranging from 4% to 8%. We have included $500 million of investments in our forecast, including the lab loan in Torrey Pines we closed in January. We have a robust pipeline and are confident we can deploy at least as much capital in 2025. The weighted average yield of these investments is 8% plus. Interest expenses forecast to increase approximately $15 million, or two pennies a share, as we refinance maturing bonds, fund investments, and capital spend. Our current 10-year new issuance cost is approximately 5.5%. We have forecast capital spend of $600 million, which is largely focused on development and redevelopment spend. As we have previously discussed, we see a near-term ramp-up of redevelopment projects in labs as we reposition older products for lease-ups, a strategy we've utilized with great success over the years. One important item before turning to Q&A, we have made significant progress capturing upside from the lease-up of our marquee development and redevelopment projects. In 2024 and including January 2025, we signed over 370,000 square feet of leases, bringing these projects to over 50% leased, representing approximately half of the $60 million of upside NOI we disclosed. However, there is a timing lag between when a tenant signs a lease and when earnings commence. Our 2025 guidance excludes four pennies of FFO from signed but not yet occupied leases. The benefit from these leases will be a tailwind to earnings beginning in late 2025. With that, let's open it up for Q&A.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchstone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 1 so that everyone may have a chance to participate we ask that participants limit their question to one and related follow-up if you have additional questions please recue at this time we will post them entirely to assemble our roster and the first question comes from farrell trinet with bank of america please go ahead hi good morning thanks for taking my question i was curious based on last quarter you made comments on sitting on significant dry powder of 500 million to 1 billion to fund accretive acquisitions.

I'm curious if you can go through how this ties to your acquisition guidance and if anything has changed in how you're viewing the landscape of capital deployment.

Yeah, I can take that. It's Pete here. You know, we typically don't guide to investments within our you know, pipeline, but I think we're far enough along within that pipeline that we felt like we should include some amount of guidance for investment. So we went with 500 million. It's kind of at the lower end of what we expect to deploy this year, given that we have that, you know, balance sheet capacity. In addition, you know, we did disclose the loan in Torrey Pines we did, and then Scott talked about in the prepared remarks, the loan that we did in Dallas for the McKesson asset, both, you know, kind of first mortgage or construction loans at 8%. So we feel pretty darn good about the $500 million. It's got a mid-year time horizon associated with it within guidance as well and again we have more dry powder to do more than that to the extent that you know our pipeline continues to fill up and hopefully we have more to disclose over the coming you know months and there's a lot of industry activities so we'd expect to provide more clarity on that pipeline as we actually get things across the goal line.

Thank you and also when it comes to increased M&A in the life science area. How are you seeing that, either impact, demand, or are you seeing a different type of clientele coming in to look for buildings?

I mean, M&A's been, this is Scott speaking, M&A's been relatively quiet the last four years just because of the difficulty or perceived challenges with getting FTC approval. So there's going to be a significant change, it seems likely. Big M&A has been almost completely off the table. There's been some smaller transactions the past four years, but we would expect that to pick up. There's already been a couple of announcements here in January. But generally, it's a positive thing, whether it's direct because of the tenant credit upgrade or just capital being recycled in the sector so that investors can monetize an investment in a smaller company and hopefully get a good return and put it back into the sector. So it's been a positive through the years for the sector, and we expect that to continue here in 2025 moving forward.

Okay. Thank you so much.

Your next question comes from Nicky Lico with Deutsche Bank. Please go ahead.

Hi. I guess first question is just on lab leasing. I know you got a lot done executing on the LOIs you talked about previously can you just talk a little bit about you know how the pipeline is shaping up um right now and and also specifically if you could just talk to um you know how to think about leasing progress uh still to be made at you know port side director's place vantage and gateway thanks yeah i could take that and scott volunteer as well if you want that on you know we did have a solid year last year in 2024 for lab leasing.

We got over 2 million square feet done. We do have over 300,000 square feet under LOI, and we've got significant tours, proposals, and other activity that goes beyond that as well. So we feel like we have pretty strong momentum. You know, most of the demand is really a direct result of capital raising, which was up significantly last year for biotech companies. As you think about the $60 million of cash upside, Nick, which I think is an important part of your question, you know, at this point, we've now signed leases for over 50% of that. Again, a lot of that won't actually benefit our earnings until the very end of this year and really be a tailwind as we look towards next year. But there's additional upside for us to capture as we get the balance of that upside, you know, leased up. And like I said, we've got, you know, strong progress. Nothing at this point in time that is at an LOI level where we would disclose it. But, again, lots of tourism activity.

Okay, thanks. And then I guess, you know, second question is just, you know, maybe for Scott Brinker, just, you know, in terms of where you're at right now on, you know, the merger synergies, you know, and how much are, you know, assumed this year in terms of, you know, internalizing management for assets and, you know, how you just think about kind of how far along you are on that whole process and whether there's also, you know, some potential upside benefit there that could happen this year, similar to, I think, was, you know, a benefit that helped you beat guidance last year.

Yeah. Hey, thanks, Nick. Like, yeah, the merger added between $0.05 and $0.07 of earnings last year, 2024, and on a run rate basis as well. And we think there is more to capture. We internalized almost 20 million square feet of real estate. Last year, it was a big part of the $50 million of synergies. We've got another $8 million or so square feet that we plan to internalize in 2025. And we feel like the run rate total synergies coming out of this year should be more in the $65 million range, so not all of that. Additional synergy comes through in 2025, but on a run rate basis, it's really strong. I mean, you're talking about $0.10 a share, so it's significant.

Okay, thanks.

Yep.

Your next question comes from Juan Sanabria with BMO Capital Markets. Please go ahead.

Good morning. Just on the $500 million of investments anticipated for Plan 4 for 2025, Could you just give us a sense of what is the breakdown between some of the MLB loans where you announced one with the results as well as kind of the lab more distressed opportunities? And for the stuff that you announced, what's the term or duration of those two loans?

Yeah, they're three- to four-year loans for the most part, Juan, the ones we announced. I mean, the mix of sectors is fluid. I mean, there's a big pipeline in both, but as you noted, the big difference is that in the outpatient business, there's not distress. These are really development opportunities. Some will do on balance sheets, some will do through loans with an option to purchase. Each project is unique. In life science, they tend to be more in the distress category, but again, could be acquisition, could be loans. The one we announced in Torrey Pines is at the lower end of the risk spectrum, obviously, with a 60% loan to cost and an even bigger discount to replacement cost. Others are higher LTC and therefore higher return in the pipeline. But it's significant. But until something actually closes, obviously we won't disclose the particulars.

Great. And then just hoping to get a little bit more of the piece parts behind the Lab Amster, I know I got into three to 4%. How should we think about an occupancy through the year and kind of the mark to market of leases that are expiring versus where they are relative to market at this point?

Yeah. Hey, Juan, it's Pete. I'll give a little color on that. You know, So I think the main drivers of Lab Same Store this year will be called the rent mark to market in that 5% to 10%, you know, range. And then within the Same Store pool, you're going to see kind of flattish occupancy. And we're at the very high levels of, you know, 97%, 98% within the Same Store pool. And I'll touch on that in a second. And then obviously we also have the escalators in the low three. So those are really the main drivers to the 3% to 4%. you know but that's just same store uh we're focused on total occupancy and really the upside opportunity for us is taking that total occupancy from the mid to high 80s back to the you know low 90s right and if you think about what's it going to take to get there we've probably got around a million three square feet of available space that we could lease up um if we leased all of it tomorrow and it commenced tomorrow we get back to 100 that'd be great but that's not our expectation I mean, our expectation is to probably lease up about half of that and get back up to that, you know, low 90 percent stabilized occupancy level. And perhaps if the market continues to improve, we could do better than that in the medium or long term. But, you know, our near term goal is to get from that mid to high 80s into the low 90s. So there's the same store, but then there's really what's going to drive earnings and earnings growth going forward.

I appreciate it. Thank you.

Your next question comes from the line of Austin Ware-Smith with KeyBank Capital Market. Please go ahead.

Great. Thanks, and good morning, everybody. I just want to go back to the same store and maybe just understand a little bit of what's driving you from that 5-plus percent range growth in the fourth quarter down to the mid 3% range in 2025. What's causing that deceleration and were there any sort of one-time benefits in the fourth quarter that we should be aware of?

Yeah, you know, obviously looking at it quarter to quarter, there's different nuances. Maybe I'll just look at the full year of we finished at 5.4% last year and we're guiding to 3.5% this year. Obviously, there's a little bit of cushion as you set guidance at the beginning of the year and you hope to exceed it as the year progresses. But remember, last year we did get pretty significant benefits from internalization. And then also on CCRCs, you know, we finished the year north of 20%. So right now we're guiding 4% to 8% within CCRCs. I'd love to do better than that, right? But I think we're going to come out of the gates at that 4% to 8%, what we came out of the gates with last year and significantly exceeded it. And then when you back out the internalization, you know, benefit we got through the course of last year with a decent amount of that in lab, you know, we're guiding 3% to 4% in lab this year and two and a half to three and a half percent in outpatient medical, which is, you know, pretty consistent growth with what we achieved when you back out some of those, you know, one-time benefits that we mentioned and then the CCRCs.

Understood. And then just sticking a little bit with lab, you know, pretty attractive mark-to-market this quarter, but it looks like some of the, you know, TIs and LCs were up relative to prior quarters.

Can you just talk about how you're kind of expecting, you know, that to trend to achieve that five to ten percent mark to market that you you highlighted is is assumed in guidance thanks yeah sure it's scott bone i think that five to ten percent still how we view the portfolio um you know this quarter it was a little bit higher at thirty percent but it's going to jump around from quarter to quarter i think over the course of the year we were three percent in the first quarter of all there's a thirty percent uh this quarter there was one lease in san diego that that drove it a little bit higher um but even if you strip out that lease um we were in the in the mid-teens on the mark-to-market, so right in line with where we expect it to be this year as well as in 2025. Oh, and the TIs, there was one lease in San Francisco on a renewal that drove that a little bit higher, and that was a tenant that's been in the portfolio in the space for 10 years. They're a $3 billion market cap company. This is their global headquarter building. They had a shift in their business um their existing space was heavily skewed towards office a pretty light lab um and in this renewal they needed significantly more lab um in that space and so we were able to put that in for them uh do a long-term renewal both in san francisco and san diego um with that tenant you know so that's capital that we would spend you know if they were to vacate and go somewhere else we'd be spending that capital get to get that space to you know more of a 50 50 office lab anyway so it's great to do it with a high quality tenant in tow and we're also able to drive a 27 mark to market on that lease in san francisco as well very helpful thanks for the time thanks awesome your next question comes from michael griffin with cd group please go ahead

thanks it's uh nick joseph here uh just sticking on the lab leasing are you sure to see bigger space takers looking for space or is it still that 20 000 to 40 000 square foot tenants Yeah, I would say, you know, there's certainly some larger requirements out in the market in each of the three core markets.

Those deals tend to take a lot longer to actually, you know, execute. But we have seen, as I mentioned the last quarter, that kind of barbell of demand that we spoke about for the past, you know, four or five quarters start to fill in significantly. If you look at our leasing for the fourth quarter, our average lease was in the low 40,000 square feet versus in the low 30s for the first three quarters of the year. So we're starting to see those larger deals come into the market.

Yeah. And, Nick, I'm sure you're well aware of this and follow it closely, but, you know, the two large leases we did last quarter, one at Portside that was over 200,000, you know, square feet, and then we did one at Vantage, which was over 60,000 square feet. So it's pretty hard to move the needle on the pre-leasing the way that we've done that within those larger projects without, you know, signing some pretty big deals.

Thank you. And then are you seeing traditional office users look at lab space at all?

Not much. You know, I think if you look at the, you know, there was a start call today with an office user looking at a sublease in the seaport in Boston. But typically, our pipeline is more full with lab users versus office.

Thank you very much.

Your next question comes from the line of Richard Anderson with Redfish. Please go ahead.

Hey, thanks. So I want to ask a question about the guidance range, 181 to 187. How much is the 181 associated with sort of existing leverage ratios, and how much is the 187 associated with higher leverage ratios on the view that you're talking about going more on offense with your balance sheet? I'm just wondering what you're sort of giving up at the higher end of that guidance when you think about specifically the balance sheet and whatever else might go into that, the difference between the two ends of the guidance range.

Yeah.

So, Rich, it's a really good question. I would say, you know, the midpoint of our guidance. Yeah, yeah. No, I appreciate it. By the way, I thought your note was great that you put out short and sweet. But, you know, if you look at the midpoint of our guidance, if we put the $500 million of capital to work, now, some of it is dependent upon the yield that you get, right, with regards to how you think about net debt, EBITDA. But that would not get us back to, you know, five and a half times from we're at 5.2 right now. So it's probably somewhere in between. I think if we got to the higher end of our guidance range, we'd be assuming getting back to target leverage ratios in the mid fives. We're going to be very careful, though, going beyond that. I think with the interest rate volatility right now and other uncertainties, we want to make sure that we maintain our leverage at target levels or slightly below. And then I think the low end of guidance would assume we don't get any, you know, investments done. And I'm not saying investments is driving all of that. I'm just, you know, kind of giving you some directional thoughts on it because there's other things that would drive whether you hit the high or the low, but, you know, leverage at the high end would be kind of getting back to, you know, that mid 5.5 time.

Okay, perfect. And then second question on the commentary around CCRCs and, you know, You've received some inbound interest, but it didn't pan. I'm wondering, are we getting any closer to a bid-ask spread that's at least in the conversation, or is it still way off in terms of the offers you're getting? I'm wondering if there – you mentioned about the low refundable component of your entrance fees. I'm wondering if we're getting – if you feel a trend approaching that you may actually someday see a sale make sense. just based on some of the offers that you've heard of in the past. That's the basic question. Thanks.

Hey, Rich, it's performing really well, and our expectation is that we're going to hold it for the foreseeable future.

But you can't comment about how the quality of the offers have been coming in? Have they been sort of associating it with a higher value of the business?

It's sort of staying the same. yeah there's been no conversations recently rich okay fair enough thank you your next question comes from the line of michael carroll with rbc capital markets please go ahead yeah thanks i wanted to touch on your structured um life science investments that you've been pursuing and i know with with life science the sponsor is pretty important to prospective tenants So how active, I guess, does DOC plan on being managing these properties where you make loans on, Mo? Will the new prospective tenant view DOC as an owner and kind of give that building credit for the scale that DOC has to lease up that property?

Mike, each one is a little unique. The loan we announced in Torrey Pines were completely passive. uh so i don't know that our involvement brings any credibility or anything else to the table or tenants uh it obviously brings capital 60 percent uh but the owner is is the one at risk uh their name is on the building uh but our basis is less than 800 a foot in torrey pines when rents are i don't know 75 80 so we feel like our our downside is is is pretty attractive but our expectation is that over time the building gets leased up and we have a chance to buy it at a point in the cycle where cost of capital is a lot more attractive in the interim. It's highly accretive even for that really low risk investment. But like I said, a number of the things we're looking at are a little bit higher on the loan to cost or loan to value scale and therefore a much higher return.

Okay, great, Scott.

And then can you give us some details on that purchase option that you guys keep on referring to is it that i guess when does it become exercisable and is there a set price or cap rate that you could acquire it at uh each one is unique uh but in all cases uh when we're making these loans the the building itself is located in a sub market that we have a presence in in view is strategic and would want to own the asset so that's been a fundamental part of all these discussions is that we have purchase options on some cases they're at market in some cases they're promotes or warrants or they're all they're all different mike depending on the circumstances okay great thank you yeah your next question comes from the line of mike muller with jb morgan please go ahead yeah hi uh i guess first apologize if i missed this but what sort of development starts are you expecting for this year out of uh outpatient medical uh yeah hey mike um we have a significant pipeline uh i mean we could easily start two to three hundred million dollars of projects this year all highly pre-leased core markets strong health systems uh so this is a really attractive way to grow our business brand new assets long-term leases uh we view it as highly strategic and accretive um so so we are prioritizing having capital available to do these investments. We announced one here in the first quarter or in the fourth quarter. I apologize with McKesson in Dallas, and I would expect to have more to announce as the year progresses. Could easily be five, six, seven projects this year that we would break ground on.

Got it. Okay. And then I guess for an investment follow-up here, what sort of guidelines or how are you thinking about what the mix of incremental debt investments could be or should be relative to just kind of outright acquisitions?

Yeah, we're looking at both. I think there will be some acquisitions this year. In life science, it probably skews more towards loans with an option to purchase, just given bid-ask spread. I'm not sure that sellers have completely capitulated on price. And when we look at the timeline and risk to stabilize some of these developments and the returns that would come with it at the required price. In many cases, the loans look awfully compelling just from a risk-adjusted standpoint.

Got it. Okay, thank you.

Your next question comes from the line of Jim Camert with Evercore. Please go ahead.

Thank you. Could you just share maybe a little of the rationale regarding a little less granular information on the AFFO guide? because I think sometimes, you know, the straight line and TI and CapEx components of that are kind of helpful. So if you could provide any context of why that may have shifted.

Yeah. Hey, Jim, it's Pete, and I'm glad you brought it up. You know, one, we think it's a simpler story now than it was a few years ago at HealthPeak, and we feel like we put out a pretty clean guide, so perhaps there's a little less information on our guidance page within the SOP. But we do include the same store components in a footnote. I know before they used to be broken out, but we felt like it was taking up a little too much space. And then on the sources and uses table, it's one number as opposed to a range. I mean, frankly, I just think that's simpler to look at versus a range. But to your AFFO question specifically, look, we did include it in guidance last year. And the rationale for that was we had so many gap merger adjustments that you lost track of the synergies within FFO, but you could see it within FFO. So we did include it, you know, last year. We did decide not to include it this year as we were an outlier. And I think if you do a little bit of research around other REITs, you'd see that we were a significant outlier from that perspective. We did also modify, you know, the definition. We're including cash and refs as well. But just to demystify the whole thing, under the new definition, we think AFFO will be for 2025 right around $1.65 at the midpoint. And under the old definition, AFFO would be, call it $1.60 within 2025. You know, AFFO growth does differ from FFO growth. Scott mentioned some of the numbers in his prepared remarks. You know, you got lumpier items like recurring CapEx, free rent. Now we've got cash and refs, which we think will be strong, but we are forecasting it to decelerate a little bit just because it was so strong, you know, last year. So I just wanted to give you some of the rationale why we did not include it. But like I said, I was happy to give all the numbers and I just gave them. So hopefully that helps demystify it a little bit.

That's great. And then thank you. And then just maybe housekeeping. Obviously, you had the Milton-related charges for the fourth quarter. Is it safe to assume that your insurance policies and whatnot, you feel pretty good that you won't be out of pocket, you'll get that $25 million change back or recover in some fashion?

Yeah, I mean, unfortunately, that's actually the portion that we are going to have to incur the cost on. You know, but there's probably a little bit of deferred maintenance that we'll do as well as we're replacing, you know, roofs within the community. So hopefully our capital expenditures for those assets will go down in the future with the amount that we're spending. But, you know, the insurance market's tough, right? If you ask any other REIT management team out there, they'll tell you it's pretty darn tough. And in states like Florida and California, it's even tougher. You've got pretty high deductibles for these named windstorms. So that's a cost we will eat. Now, we did go above the deductible in certain assets, and that will get recovered by insurance. But that's outside of the charge that we took this quarter.

Well, I appreciate the clarification. I missed that. But then that would be part of your, you know, embedded in the whole $600 million of development, redevelopment, and capex spend. You've kind of got that for the year. Yes, it would be worth on that as well. Appreciate your time.

Your next question comes from the line of Fikram Malhotra with Mizuho. Please go ahead.

Thanks for seeing the questions. Maybe just first one, if you can just expand with a little bit more color about how you're thinking about these structured investments, either whether they're preferred or more debt. But given sort of where the stock's trading, you know, close to a seven and a half paid cap versus this deal. Can you just give us a more flavor on the range of, or the type of deals and cap rates? And then just stepping back on that, the funnel, like how big is this opportunity if we look in terms of what you're initially looking at to then whittling down to your 500 million?

Yeah, Vikram, in all cases, we want to make investments where the asset is attractive to us from an ownership standpoint long term. So a lot of what's been built would not make it into our pipeline. So it has to be in a core sub-market. But the opportunity set is significant. I mean, Pete set up to a billion dollars this year. A fair amount of that could be in my science. So the stock obviously has bounced around. It's been a volatile environment for everybody over the past three months uh i mean the stock is at 22 23 and then it's at 20. um so we certainly have uh the balance sheet capacity to buy back stock um if it if it reaches a certain price and we would not hesitate to do that we have authorization from the board um if if the volatility works against us but obviously we're working hard to continue to grow earnings um and build a compelling pipeline that we think is strategic and it greeth Okay.

And then just on that topic of just earnings, I think there's perhaps, you know, I guess questions or confusion around like the earnings power of DOC here. And I'm not asking for 26 guidance, but just based on what you know, what's leased up, the deals you have in the pipeline that are very sure, like how should we think about the cash flow AFF for growth trajectory? Is it like over time, over the next two, three years, is it a low single digit AFFO? Is it a mid single? like this how do we think about what all you're doing today to benefit 26 and 27.

I mean the last three years have been pretty challenging for us given interest rates and life science fundamentals and we grew FFO 12 percent and AFFO 19 percent so when when the macro works in our favor I would expect the growth rate to be even even stronger and we've continued to grow earnings this year and I think a pretty good track record of not just meeting but exceeding initial expectations. So that is our expectation. The investments obviously are just additional return on top of the same store growth. And we talked about leasing up the development, redevelopment portfolio is probably the most significant source of internal growth that we have outside of same store.

Vic, you do get the award for the first person to ask us for 2026 guidance. So on the day we put out 25 guidance.

Okay. So our next question comes from the line of Michael Stroyak with Green Street. Michael, let's go ahead.

Thanks, and good morning. Could you maybe just provide some additional color on the sizable lease that saw that 45% mark-to-market? Was that in line with the company's expectations when setting guidance earlier in the year? And if not, what's changed in recent months that allowed for such a healthy mark-to-market? it?

Yeah, to answer it directly, yes, it was in line with it. If you actually heard me last quarter, I said, we're expecting the fourth quarter to be our strongest rent-to-market quarter. And we had a pretty good line of sight that this renewal was going to get done. That said, for the full year, we were a little bit above 10%. And we've been trying to say, be careful not to draw too many conclusions over a quarterly number. You know, I think the full-year numbers are a better way to look at what we think that the true mark-to-market is, because it can ebb and flow depending upon the size of the lease. But nevertheless, we're happy we got, you know, that big mark-to-market. And as Scott said, we also got a pretty big one in South San Francisco as well with a really high-quality tenant. Yes, it came with more TIs, but as Scott said, we'd have to spend those TIs if the tenant vacated, and it's great. We got a renewal out of it. So no downtime.

Got it. That's helpful. And then one other, it looks like seven properties rolled out of the operating portfolio into the redev bucket this past quarter. Can you just help frame the expected year-over-year earnings dilution in 2025 from redevelopment activity?

Yeah. I mean, look, redevelopment and development spend certainly is a little bit of a drag on our earnings this year. I think the two biggest drags we have, if you're looking at what's working in our favor versus what is a headwind, one is interest expense. The second is the development and redevelopment drag. But we did foreshadow that redevelopments were going to go up this year as we put out some disclosures in our investor deck late last year. We've had a lot of success on redevelopments. And I would just point out as well that it's not like all these redevelopments are 0% lease. Some of them are 100% pre-leased at this point in time. And we did add the percent pre-leased within those redev, which is new disclosure this quarter. I know there's a lot of focus on not including AFFL, we did also add some disclosures as well to sort of counterbalance that. And we'll continue to update that as we get leases across the goal line.

Just point out that we've had great success leasing up the redevelopments, whether it's at Portside or Point Grand or in our outpatient business where we've been doing redevelopments for 10 years. I mean, the financial returns over time have been very compelling. Expect the same out of these.

Great. Thank you. Your next question comes from the line of Omotai Al-Kasanya with Dosha Bank. Please go ahead.

Oh, yes. Good morning, everyone. In the 2025 guidance, are there any additional merger-related synergies beyond the $50 million that's in that number or not?

Yeah, there are some. You know, Scott mentioned it before. There's some additional internalizations we expect to get done through the course of this year. They're not all going to get done the beginning of the year, which is why the run rate at the end of the year is more like $60 to $65 million versus we finished last year at a run rate of around $50. I wouldn't expect to pick up all of that in earnings this year, but there certainly is a little bit of a benefit within our guidance this year, maybe up to a penny benefit for additional merger synergies. But I'd expect as we get to the end of this year that we will have achieved, you know, all the direct merger synergies. Obviously, there's more indirect merger synergies that we could benefit from, but we've never really, like, focused on that. That could be increased rent mark to market, you know, increased retention, all the things you would hope to achieve as you're out leasing.

That's helpful. And then also, as you think about 2025, I think in January, you guys talked about the loan repayment that was happening. Anything else, like any more loan repayments, as you kind of think about the rest of the year, that may be a drag on earnings, which is kind of given some of the high interest rates on some of those loans?

You know, the biggest loan we have outstanding right now, obviously that bucket could increase with some of the pipeline of activity that we're looking at, but is the seller financing we did on the large outpatient medical deal. So I don't expect that to get repaid, you know, this year. At some point, we hope to get repaid. These were legacy senior housing loans that we put in place when we did seller financings years ago, when we sold out of most of our, you know, shop assets. You know, there were some tougher assets within that collateral. So I would say, even though there was some dilution associated with getting repaid those loans, I could tell you, we were all high-fiving each other when we finally got that. loan repaid. Yes, it came with dilution, but there were certainly some questions through the years as to whether we get repaid at par. So we're quite happy we got that loan repaid at par. I wouldn't expect really any others of significance this year.

Thank you.

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

Good morning. Thank you. Maybe if we could start high level, this administration has made a lot of moves in the first few weeks. So it'd be helpful if you could remind us of what kind of exposure you have to NIH funding, given there was just a temporary hold put on the funding block. And it may be beyond that touch on how you're preparing for a potential RFK confirmation today and what he means for your business.

Yeah, sounds good. I mean, NIH funding is up five, 6% per year compounded over the last decade. Funding in 2024 was around $50 billion, dollars, which just underscores the importance of the sector to the U.S., whether it's health, national security, et cetera. So I wouldn't expect a significant change. Obviously, there's day-to-day headlines, but this administration has made it clear they want to focus on innovation. You haven't heard that word out of D.C. much in the last four years, so that's a positive for our business, and they want to focus on deregulation. And there are too many sectors more regulated than healthcare and biotech in particular. So any changes there would certainly be a positive. I mean, it takes 10 to 15 years to get through the drug approval process in the U.S. right now. Anything that would shorten that timeline would be a massive win for the sector. So those are all positives. In terms of the potential impact of RFK, I think we're more focused on, you know, who's in charge of CMS, NIH, CDC, FTC, FDA. I mean, the list goes on and on, and a lot of the appointments for those positions are more traditional candidates that I think are quite favorable to the business. So there's plenty of headline risk around RFK Jr. Hopefully that, we think it ends up being upside opportunity for us, because I think the reality is that this administration will be positive for our business.

Got it. And then maybe if we could kind of jump back to your guidance on lab, it sounds like you've seen some stability in street rates here. I'm just curious at what availability rates do you expect to start getting pricing power back, even if you kind of adjust for maybe some of that non-competitive supply?

Yeah. And maybe I'll take a quick stab at it, and then Scott Fung can jump in as well. But I think with our portfolio, you know, being in the mid to high 80 percent, you know, occupied or leased, I should say, at this point in time, not necessarily occupied because some of these leases haven't commenced. I mean, we feel like we're starting to gain some more pricing power within the market. Remember, a lot of our deals are done with existing, you know, tenants as well, and tenants that typically have existing, you know, lease term, which gives us some additional, you know, pricing power as well. So, you know, we've laid out all the competitive advantages that we see in, you know, our portfolio and with our platform versus, you know, peers out there. Some of the peers compete a lot more with us and some just don't compete and will never compete with us. But we feel like we've got an opportunity to start, you know, maybe pushing rates a little bit more within our portfolio. But obviously, we recognize that there's, you know, a lot of availability out there. I don't know, Scott, if you want to add anything to that.

Yeah, I think the availability and the new supplies out there is the same new supply we've competed against for the past 18 to 24 months. And we've competed very well. I think we've been able to drive economic space. What Pete said is our portfolio scale and you know a lot of our leasing comes from within our own campuses you know 83 percent of our ABR comes from campuses that are 400 square feet or greater right so we're oftentimes growing those tenants within those campuses which gives us the ability to to push economics higher than it would be in an otherwise you know broadly market a deal.

John, I think one follow up on your NIH question. We do not lease any space directly to the NIH. A lot of that funding goes to university-based research, which is not really our portfolio. They tend to be early stage basic science that hopefully is successful and gets commercialized five, ten years down the line, and those tend to be the tenants that we target and enter our portfolio. we are.

All right. Our next question comes from the line of Mason Guelph with Baird. Please go ahead.

Thanks. Good morning, everyone. Have you seen any difference in making demand pre and post election and which markets are standing out either positively or negatively?

Yeah, this is Scott. I wouldn't say there's a difference pre and post election. I think that the overall sentiment will improve. A lot of people were kind of kicking the can a little bit to see how the election turned out. You know, and I think now that you've got that, you've got the appointments taking place, it's just going to continue to allow people kind of light a sight into where we're going here. Your second question was... It's more by market. Sorry, excuse me.

Yeah, sorry.

I would say by market, you know, Boston, in my view, is probably the slowest today. And, you know, thankfully, we don't have a lot of virtually no rollover there in the next 18 to 24 months and very little vacant space um san diego has been pretty consistent um we've done some nice leasing down there bringing our gateway development to 44 percent um had some some large renewals and uh more renewals in the pipeline down there as well as some new deals we're working on so feel good about the activity in san diego in san francisco again uh you know our portfolio scale allows us to do a lot of deals there that you never hit the uh the broader market or the broker sheets um so we're very happy with the demand and in our pipeline in south san francisco as well great and then on the lab demand how much of this is being driven by the new tenants um versus the expansion of existing tenants yeah so i mean it's a mix right uh if you look at the leasing we did over the course of the year um about 1.1 million square feet of that was with tenants who were expanding um you know and of that 1.1 million square feet about 400 000 square feet that was expansion space, you know, so when you're looking at tenants expanding in the portfolio, you know, the average for the year, right, was 60% growth in those tenants.

Great, thank you. And our final question comes from Ronald Comden with Morgan Stanley. Please go ahead.

Hey, a couple quick ones. Just looking at sort of the development, I see some of the initial occupancy dates have been pushed back a little bit, and also that, at least on the redevelopment projects, doesn't look like the capex so the leasing is included for unleased space maybe can you just talk a little bit more about that just just on the development and the redevelopment front um sort of what what's happening on the ground and and and thoughts on sort of capex on the unleased space uh not being included thanks yeah i'll take the capex one the timing maybe just quickly too You know, it's really TI related as we price out the TI packages and start to understand the various, you know, timelines.

And that's associated the large lease that we did at Portside is one of the ones that you are, you know, referencing. And it got pushed back just a little bit, but it's, you know, 100%, you know, pre-leased at this point in time. And it's just a matter of how quickly we think we can actually get the, you know, capital spent. I will say with that tenant, they have an existing lease in place that will offset any of that pushback. They're going to continue to pay us rent on the existing space that they have. So that lease expiration would get pushed out as well. So there's a little bit of a buffer on that. I think on the TI side, not all the projects are the same. So I'd say on the extreme case from a TI perspective, you could be $300 to $350 a foot, right? But in other cases, it could be significantly less and, you know, call it $100 to $200 a foot. You know, and it's hard to know until you dig in and understand what each individual, you know, lease is or the tenant is seeking. So that's why we don't include the TIs necessarily up front, but I've given you the range of what we think it would be. But in addition, and most importantly, any TI we give, we're expecting to get a return on top of that as well. And as we've talked about, you know, the 9% to 12% cash-on-cash returns, you know, we feel like we've done quite well relative to that. In fact, we think we could do, you know, closer to the high end on some of these, just given the fact that, you know, we haven't invested capital in a while, but we feel like we can get a nice rate on that product.

And the pushback on one of the development deals, that's really just related to a delay in the tenants on the TI side, we're completing the core and shell on time, and we'll collect cash rents based on that when the rent starts. So it's more of a timing from an FFO and GAAP perspective there.

Great. And then just my last one was just coming back to sort of the lab leasing and sort of the the state of the market you know i guess that the messaging is you're you're going back on offense and lab and i guess my question is is it is it a call on saying hey there's distressed opportunities or really unique opportunities that that uh we can capitalize on or is it more of a call on like the market is getting better or does the market not you know the overall lab market doesn't really need to get better for you guys to be opportunistic i just i can't tell if you're just more bullish on that or is just this is just more opportunistic uh things are coming in your in your purview well we signed more than two million square feet of leasing in life science

in 2024 it's one of the best years we've ever had it was a mix of new and renewal so clearly we're capturing market share uh uh but we're also seeing significant distress and we're picking and choosing which projects are most compelling. And there's a lot that would not fit our criteria. But we feel like the loans that we're making are compelling in that we have very little downside risk given the seniority and the loan to cost versus replacement cost, et cetera, and compelling returns on day one with the right to buy in the future. We do think fundamentals will start to get better. I said in the prepared remarks that the new deliveries in 2025 are going to be down 75%. There's essentially no new starts. So we do see the supply picture improving dramatically this year as we look into 26 and 27 as well. And we think demand will improve alongside of that. Great.

Thanks so much. And we have another question from Jamie you followed in mind with Wells Fargo. Please go ahead.

Great. Thanks for taking the follow-up from our team. So I just, you know, think in big picture, markets seem to be stabilizing. The debt market seems to be in a much better place than it's been. Blackstone's, you know, poking around in office. You know, what's your, and Welltower has just started their fund business. So, you know, what's your appetite, or as you guys think about it amongst yourselves, what's your appetite to do something much bigger, maybe with third-party capital, you know, given where we are in the cycle and, you know, what could be coming the next, you know, five, 10 years in your businesses?

Yeah, we have a couple of important limited partners in the portfolio today that are big institutions that have appetite to do more. So that's certainly on the table. There's pluses and minuses to joint ventures and LPs. Obviously, it can be a compelling additional source of capital for the right opportunities but it also comes with loss of complete control and flexibility so you just have to weigh that trade off but we've used it historically with success for the right circumstances and have those conversations all the time jamie most of what we're looking at today is is more on balance sheet okay thank you this concludes our question and answer session i would like to turn the call i would like to turn the conference back over to scott prinker for any closing remarks okay well thanks for your time today and congrats to our team on another strong quarter driving earnings growth take care