Healthpeak Properties, Inc. (DOC) March 3, 2026 Conference Transcript

Welcome to day two of Citi's 2026 Global Property CEO Conference. I'm Seth Berge with Citi Research, and we're pleased to have with us Health Peak Properties and CEO Scott Brinker. This session is for Citi clients only, and disclosure has been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC26 to submit questions. Scott, we'll turn it over to you to introduce your company and team, provide any opening remarks, and tell the audience the top reasons an investor should buy your stock today and then we can get in the Q&A. And just tap the mic so it's red to turn it on.

There you go. So red is on? I mean, what is that all about? Talk about confusing. In any event, now we're live. I'm going to introduce Kelvin Moses, our CFO, and Andrew Johns, our SVP of Investor Relations and Finance. And we've got John Thomas, our vice chairman, in the audience as well. John, you're welcome to come up here if you want. All right, so we continue to take bold, decisive actions across our three business segments to position Health Peak for success. Last year marked the successful completion of our merger, integration with Physicians Realty Trust. Outpatient Medical is now 50% of our portfolio income, and the fundamentals have never been stronger in that business. We delivered $70 million in synergies. Most mergers fail. This one was a remarkable success. And really with the mergers, a launch pad, we successfully internalized property management across nearly our entire life science and outpatient medical portfolio. And our people are now on the ground in our local markets interacting with our tenants on a daily basis. And the result is really operational efficiencies and deeper tenant relationships, so strategically and financially attractive. And then moving to life science, we were early to shut off capital allocation to that sector four years ago when we saw the initial signs of supply and demand going the wrong direction. We kept our balance sheet strong, knowing that acquisition opportunities would emerge from the downturn. Today, with new supply going to zero and demand starting to inflect positively, we do see a window to go on offense and acquire high-quality properties at cheap prices. In January, we acquired a 1.4 million square foot portfolio in South San Francisco that would previously have been untouchable, and now we own 6.5 million square feet across 210 acres in South San Francisco, which is a global epicenter of biotech innovation. So that covers about 90% of our portfolio. The remainder is senior housing, but it's an important 10% that was being ignored inside Healthpeak. So in January, we announced a unique and creative transaction with the planned IPO of Janus Living, which will be a pure play senior housing REIT. All of the investments are in a Rodea structure, which allows the company to capture all of the operational upside from the assets. The IPO will allow our shareholders to capture value immediately through a higher multiple on our senior housing earnings while also participating in the future value creation as the majority owner of Janus Living. And we do have significant expertise and relationships to create value in that business. Okay, the most important part of Health Peak, though, is our culture. It's pretty easy to rally the troops in a bull market when demand exceeds supply. Over the past four years, we faced the exact opposite dynamic in our life science business. At the time, it was by far our largest business segment, and we used the downturn to dramatically streamline what we work on and how we do the work. Technology was a big part of that, but our GNA is essentially flat versus 2019, six years ago, despite massive inflation and doing a $5 billion merger. And yet our team and culture has never been stronger. Our team is phenomenal, And it's really driven by our core values. We use WE CARE as the acronym for those core values. The W is for winning mindset. E is for empowering the team. C is for collaborate and communicate. A for act with integrity. And R, respect the relationship. And then finally, E for excellence and execution. And that really is what drives our performance through the cycles. All right, Q&A.

Great. Great. Maybe to start off, you know, you've obviously had some moving pieces with the announced IPO. What kind of, you know, why is a diversified strategy the right strategy for Health Week? What kind of synergies do you see kind of across medical office, life science, and senior housing?

Well, we're putting Janus Living into its own vehicle so that it's a pure play. So actually, I've said from day one in this seat three and a half years ago that senior housing is good business. There's a lot of demand for it. We do have expertise. But it's a very different business than our outpatient and life science segments. We also didn't have the cost of capital to grow it over the past three years. But with this vehicle and this spin out, we will have a pure play senior housing rate that should have a dedicated cost of capital and business plan to grow it. So we're actually taking the opposite approach from what you just described. But as it relates to our outpatient and life science business, the behind-the-scenes, other than leasing, those businesses run on the exact same platform. The same process and procedure, the same technology. There's tremendous overlap corporately between those two businesses. And I think over the last three years, the benefit of having both inside of our portfolio has allowed us to significantly outperform. our direct peers and today we're taking advantage of a lot of private market enthusiasm in the outpatient business to recycle capital into much higher return opportunities in life science so we're absolutely getting the benefit of it with our corporate efficiency but also capital allocation between those two businesses at least and then what kind of ultimately convinced the board that spinning off, you know, kind of the senior housing and the Janus vehicle would kind of unlock more value than retaining it with the current company? Yeah, you know, there's no guarantee on how Janus Living trades, but the portfolio quality is exceptional. The balance sheet is going to be incredibly strong, essentially no debt when we do the IPO. So it'll be a pure play Rodea rate at a time when sector fundamentals are really strong and investor enthusiasm for the sector is at an all-time high. So we do think it will trade well. The investor meetings to date have solidified that view. So I don't know exactly where it's going to trade in terms of multiple, but it certainly won't trade at 10 times, which is where it's trading inside of HealthBeak. So the margin for error, the cushion, is pretty dramatic with a ton of upside for our shareholders. So we're pretty excited about it.

And then as you think about kind of senior housing in the public space, there's obviously been, you know, some of your peers have started to kind of enter the space. And, you know, as you kind of use this vehicle as a way to kind of grow that business, you know, what do you think will be kind of the differentiators for that platform you know, kind of what markets are you kind of going to look at? What's going to be kind of the strategy in terms of growing that?

Yeah, I mean, there are obviously competitors, but it's a massive market. It's a growing market, given the amount of the aging population. There's plenty of business for us to capture. We have a pretty small denominator, so we have the benefit of being able to do one or to transactions at a time. We don't have to do billions of dollars of portfolios. It's really a different strategy for us that's much more focused, concentrated. But just in general, that business, just investments overall, there's access, and then there's the analysis. In the public markets, it's all about analysis, right? You all have the same access to companies to invest in. But at least in the senior housing business, the access is a huge part of what drives deal flow. and the operators for the most part control that access and if you have strong relationships with certain partners you get proprietary opportunities and I think we've shown that we can do that we built up a 700 million dollar pipeline before we even made an announcement about the transaction we didn't make a single phone call that's just responding to inbounds from groups that want to work with us and that's only accelerated in the last two months since we made the announcement so provided we have a good cost of capital. There's no question that we can grow it very significantly just based on the relationships that the company has. And there'll be plenty of deals to go around for the others as well.

And are those, you know, kind of going to be entrance fee sales or traditional kind of shop? You know, are you looking at certain vintages in terms of how new the buildings are, certain geographies? Just kind of, can you touch on a little bit about that pipeline?

Yeah the portfolio today is majority entry fee which we think is a unique attribute that business has performed through the cycles for a number of years both as a sector and our own portfolio so it's a unique form of senior living but it's got a great track record it's just not as well understood by the public markets because it's a much smaller business and it's mostly nonprofits but the fact is it's got a tremendous track record so we think that's a unique attribute we do have expertise and relationships to grow in that sector when we would like to but most of the growth will be in the rental business just it's a much bigger more liquid marketplace and therefore more opportunity the entire pipeline is in the rental business as is the shadow pipeline but it's a major market focus on day one 70 percent of our assets are in florida in texas and it's big markets orlando So, Tampa, Houston, Denver, et cetera. And the pipeline is similar in terms of big MSAs, high growth markets, Atlanta, Orlando, That's generally the focus.

Right. And then, you know, post-BEN, you know, the Health Peak will kind of remain a major shareholder. How will the management agreement be structured to kind of ensure alignment and avoid kind of conflicts between the two entities?

You want to take that, Kel? hit the button.

I'm happy to take that Scott. So to start we've structured a very thoughtful management agreement that will ensure that Health Peak and Janus Living have separate lines of investment strategy so there'll be no conflicts of interest with respect to investments and there'll be a non-compete between the two entities. We have a deep bench of a team that are focused exclusively on Janus Living that have decades-long relationships in the senior living business and they'll be able to execute on the growth strategy and continue to build on the pipeline opportunities that Scott just mentioned.

And then how do you think about you know remaining a shareholder where you look to kind of monetize that over time and then just kind of if that if you if that does provide you know liquidity you know how do you think about kind of the capital allocation priorities for Healthpeak?

Well, we think Janus Living will trade well, and therefore will issue shares to grow accretively. And that would naturally dilute Healthpeak's percentage So we would just own a smaller piece of a bigger company. That's the expectation. We won't continue to invest. But I also don't see us selling a lot of shares. We'd have a one-year lockup. Thereafter, we'd have flexibility to sell shares. If it was trading great and we had a good use of capital, it'd be an option to utilize, to grow HealthPeak. But it's not our business plan to go liquidate it. We think it's going to trade exceptionally well and increase in value. This is really to create a vehicle to capture value for our shareholders and to create a strong cost of capital to grow creatively. I mean, that's the reason we're doing it, not so that we can go out and liquidate the shares.

And then how do you think about kind of HealthPeak post-spend from like a leverage standpoint? point, will it kind of be leverage neutral, or just where will leverage sit post the transaction?

Yeah, post the transaction, we'll raise capital through the IPO, and the leverage profile of Healthpeak will consolidate Janus Living as well, so it should be a deleveraging transaction for Healthpeak overall.

And then just maybe switching to the life science segment, you know, you recently made the kind of gateway acquisition there. You know, and there's been some different discussion around the overall health of life science, but should you maybe help us understand kind of your, from your vantage point, where does the life science market sit today? You know, is it different among markets? And then what kind of KPIs are you tracking to kind of give you confidence that it's in the process of either bottoming out or starting to recover?

So, I mean, four years ago, we had a bit of a different view on life science in terms of where the fundamentals were headed, and we cut off capital allocation of that business. It turned out to be the right decision. A lot of others in the public and private market kept hitting the accelerator. Unfortunately, it had an impact on where we sit today from a supply standpoint. But the point is, we were correct in our view four years ago on where the trajectory of the business was heading. We think we're correct today as well. You know, it's not a public security that we can buy and sell, you know, with one click. Real estate takes time to transact. We do feel like the leading indicators or the building blocks of recovery are firmly in place. M&A has improved dramatically across the sector in the last six months. The public market valuations and capital raising have also started to improve. A lot of the new supply is moving to alternative uses, which is helping with the overhang. and nothing will get built for a long time just given where construction cost is relative to rents and our leasing pipeline is roughly doubled in the last year so you put all that together that's a lot of positives that suggest the market is either at an inflection point or getting awfully close which gave us confidence to do the gateway acquisition we also like the fact that it's 30 acres and 1.4 million square feet in South San Francisco which we think is the best biotech sub-market in the world. It's either 1 or 1A with Cambridge. And at least in 2025, according to third parties, it had the highest leasing volume of any of the markets. And it also has in 2026 the highest active demand for tenants in the market. And we're the dominant player. It's not even close. So this just adds to our competitive advantage in South San Francisco. So for all those reasons, we felt comfortable with the acquisition. It's also break-even on day one with using proceeds from our outpatient medical sales. And the portfolio is roughly 60% occupied. So there's a lot of upside for us to capture. And any capital we invest would be good news capital for TIs. Like the base buildings are actually in great shape from previous ownership. So we feel like any capital that would need to be spent would be an immediate return on investment because it would be for leasing.

You know, just diving a little bit more kind of the leasing pipeline you know the volumes increasing but how is kind of the the pipeline conversion you know changed over the last quarter or so you know are you seeing that kind of accelerate what's kind of the quality of tenants and then you know are you seeing tenants kind of move within the market or between markets are you seeing net new tenant expansions kind of within that lab leasing pipeline yeah I can start with that one I think important to note this time last year our pipeline was about half of what it is today and the composition has changed as you described it's become more new prospects that are

not existing healthy clients and the opportunity set is focused on new leasing opportunities within our portfolio so that's a positive the size ranges vary from, you know, 30,000 square feet to 100 plus. So there's a good mix of requirements out there in the market. And certain of these tenants are migrating from sub-markets that are not necessarily the most core in a particular region and seeking opportunities to get into core assets and core locations.

And then, you know, as you kind of look to recycle capital out of, you know, the medical office space and then to kind of life science, how are you thinking about kind of your underwriting criteria, you know, aside from the returns? You know, are you looking at building location, quality, you know, tenant funding, you know, just kind of what other attributes are you looking for as you underwrite distressed lab opportunities?

Yeah, I'll clarify that we're also recycling into senior housing because the $700 million pipeline that we announced in January, that's all closed, by the way. That's all complete. And that's done on HealthPeaks balance sheet that then gets contributed to Janus Living. So the billion dollars of acquisition volume that's in our 2026 guidance, almost $700 million of that is actually senior housing. I think just an important thing to point out that selling assets that are probably being valued at 10 times multiple in the public markets and hopefully those would be valued at 20-plus inside Janus Living. So that's actually the majority of how the capital recycling is being utilized, just to clarify. But in terms of life science and the things we're looking for, we were really disciplined even when the cycle was booming, 2018, 19, 2020. You know, we're not in these other markets that are trying to establish themselves as life science hubs, whether Houston, Seattle, et cetera. There's a long list. We have always been focused on the three core markets. That is 100% of our portfolio and will continue to be. And we're quite concentrated even within those core markets. South San Francisco, for an example, versus the East Bay. And that will continue to be our mindset. The depth of demand in those core submarkets is a huge benefit from a real estate standpoint. So we'll remain true to that disciplined mindset, stay in the core markets. and obviously we have a preference for newer more purpose-built real estate and we've got a pretty big uh shadow pipeline of things that we're monitoring um that could become actionable in 2026.

And then um you know going back to the gateway acquisition you know I think you mentioned it's 60 percent uh leased um you know what are you kind of assuming within guidance for this year in terms of the lease up and kind of what is your visibility into kind of the stabilization of that asset yeah as we looked at the gateway opportunity we underwrote stabilized returns that would be in the high single digits and that would get occupancy from that low 60 area up to the high 80s so there's some time that it will take to to generate occupancy but as you think about our pipeline today, we do have some good tour activity and interest in that portfolio. So we're seeing the benefits of our tenant network in that market really drive some initial demand in that portfolio.

And then, you know, the billion dollars of capital recycling, you know, as you clarified, the 700 million was senior housing. You've done some lab kind of how do your kind of return hurdles differ between different asset classes, and how do you think about the opportunity set relative to kind of how you view your cost of capital?

Yeah, we're doing some outpatient medical development as well. Those are great projects. They're essentially pre-leased to credit health systems before we even start construction. Those are in the sevens. Probably a solid 150 basis point cap rate differential versus an acquisition so there's a lot of value creation when we do those projects. There's usually 200 to 300 million of those per year in a pretty active pipeline that we're working on. I think Calvin described the return expectations on the gateway acquisition, kind of high single digits, unlevered.

And as the sector recovers, there's a huge opportunity with rent expansion as well as stabilized cap rates relative to today. uh and then in uh in senior housing the acquisition pipeline is stabilizing in the eight to nine percent range on levering uh return on cost um i guess turning to the outpatient medical business um can you talk about what you know a little bit from your vantage point about the dislocation between the way the public markets kind of view that business and what makes it attractive to the private market, you know, how is, you know, have you kind of recycled capital out of that space? Can you just talk a little bit about, you know, the profiles of some of the buyers of these assets? You know, are they institutional, family office, health care systems, you know, and what kind of do you view as the disconnect between the public and private markets for outpatient I mean, the public market seemed very focused on growth today.

That's not always the case, depends on the cycle, but today growth is king for sure. The outpatient business is more of a consistent, steady growth vehicle. I'll say the fundamentals have never been better in that business. Demand is growing because of the aging population, but also because of consumer preference, because it's more convenient, the payers prefer it because it's cheaper, and the health systems prefer it because it's a higher margin. So all the three players that make decisions all prefer outpatient care, and as a result, the demand in that business continues to grow. And because of the cost of new construction, not much gets built because the required rate of return and therefore the rent is just much, much higher than the in place. So you have a supply-demand mismatch that's in favor of incumbents like us. And as a result, we're getting record retention, releasing spreads, very modest CapEx, and some of the strongest growth we've ever seen in that segment. And we think that will continue moving forward. So we're pretty optimistic about the growth profile and consistency of that business. For the private markets, it certainly fits a profile with a strong cash flow stream that's going to grow consistently through all market cycles. A lot of real estate companies in the last five, ten years on the institutional side have made investments that look good on paper and didn't work out all that well. This is the opposite of that, a 20-plus year track record of consistent NOI growth through all market cycles, and you can lend against it pretty aggressively, and obviously the private side likes to use leverage, and the LTVs are high. The interest rates are pretty low, so it ends up creating a pretty attractive leveraged return as well, and we're taking advantage of that. We're doing some recaps of core assets that we want to maintain ownership and the health system relationship, and we're selling some less core real estate that we don't need to own and getting really great pricing. So it's to our advantage today that the private market is so aggressive, but for good reason. I think they'll get nice, stable, steady returns. Why the public markets don't appreciate it more, I mean, we'll see. It's a pretty chaotic backdrop, geopolitically impacted AI. It's possible that an asset class like outpatient medical will start attracting a lot more attention in the public markets, but, you know, we'll see.

And just maybe on that, you know, you mentioned kind of very limited new construction and strong demand just as the aging population requires more care. You know, how does that kind of change, you know, how you're thinking about lease economics? You know, how are TIs and concessions trending? Are you able to push escalators? Are you pushing face rents? Just how are those kind of dynamics evolving against the strong fundamental backdrop?

We're getting all of the above. So escalators are 3% consistently now. They used to be in the mid-twos. Our releasing spreads have been plus 5% to 6% for the last several years. That's about 2x. the historical level. Retention is still in the 80 plus percent range and very, very modest TIs. Less than 10% of rent for renewals and about 20% of rent for new leasing. So very, very modest TIs. So the leasing economics are very favorable.

And then, you know, just on kind of the asset management, you internalize property management. You know, how has that changed the relationship with health systems? Are you seeing, you know, just better retention on leasing? Are you seeing more off-market kind of development opportunities? Just how is that relationship evolving?

Yeah, so the internalization was a big part of our $70 million in synergies. So all that savings is flowing through our property level NOI. So it was a financial home run. And then strategically, it was important as we get closer to our real estate, it's now our people interacting with our buildings and tenants on a daily basis. We're not dependent on third parties. They were doing a fine job, but now it's the Health Peak team doing it directly, which was important to me strategically. And as we make dramatic improvements in technology, automation, process, procedure, we can now roll those improvements out across our entire portfolio very quickly because it's our people. When we were dependent on third parties, we could not have made those strategic decisions. Whether it's AI, automation, any change in process of procedure, we now have complete control over all of our real estate and can make those improvements quickly and efficiently across our entire platform. So it was a very important strategic decision that we made to internalize. I just wish we had more to do because it was quite financially attractive and we've essentially internalized everything that we can in the portfolio at this point.

And then you spoke to kind of the, the, the private aggressive, the aggressive bid in the private market for outpatient medical. Would you kind of look to exceed that billion dollars of disposition? And, you know, how are you focused on dispositions and, and balancing those with the need to kind of maintain scale and, and clustering and markets?

Yeah, well, I mean, we're the biggest player in that sector almost 40 million square feet so we've got plenty of scale we are pretty concentrated about 70 percent of the portfolios in 15 core markets like phoenix nashville dallas where we really have a strong market presence competitive advantage great demographics and that's the business plan the same is true obviously in life science and we're doing the same in senior housing really so most of what we're selling is in markets outside of those clusters that really doesn't impact our local market competitive advantage.

And then one of the questions we've been asking, you know, each company is just, and that might tie into one of the recent hires you made on the technology side, but, you know, kind of what is your mix of, you know, deciding to internally build kind of AI and technology tools or kind of leverage third-party tools? you know how do you decide which solutions um you kind of build internally versus buy um and then just maybe touch on kind of the higher and kind of where you see the opportunity across the different um you know health care food groups that you kind of have exposure to um to kind of implement those tools and and where the opportunity set is yeah and we're doing all

three um i mean we're buying where it's cheap um and quick to implement so that's already um I mean, we're partnering, we announced something with Palantir, our CIO made a presentation a couple weeks ago where we're doing a very dramatic accounting automation that's going to make our process far faster, more efficient, fewer errors, and that will benefit our health system relationships. That's a lot of the touch points you have with tenants is the accounting. So we're pretty excited about that. It's already being implemented. It will come out in phases over the next couple of quarters, but so far with great success. And then we obviously hired Omkar, who was one of the leaders in Palantir's both real estate and health care groups. I mean, it's just a phenomenal talent, and it was interesting. So we hired him, obviously, to build things internally as well. And it was an interesting comment he made. We had a town hall a week or so ago, and somebody asked Omkar why he joined Healthpeak. Um, and, and, you know, it's always interesting to get that feedback from people early on before they, you know, you just have a different viewpoint when you're first arriving at a And his feedback was for a big company, it's the least bureaucratic point, um, uh, company I've ever seen, which, which I thought was amazing because I hate bureaucracy and we've done everything we can to streamline the company over the past three years. And for him to say that made a big impact on me. I was happy to hear it. And the other thing he said is that for a real estate company, I've never seen one that's so focused on utilizing technology to their advantage. So for us to bring on somebody of his caliber with those two reasons for joining, I thought was a really telling answer that made me pretty excited. And I think the team was equally, you know, inspired by his commentary. I just wish we had more of him. He's going to do an amazing job for us.

And how do you kind of see, you know, one of the questions that came in from the audience is with technology, you know, is AI going to make home health care more of an option for patients? And then just, you know, maybe in answering that question, can you change how you're seeing it implemented across outpatient medical, life science, how you might see it change kind of life science? And then, you know, any use cases that you see within senior housing?

Yeah. There's an element of home health, not home health, telehealth from six years ago in 2020. Obviously, there was a lot of concern about, you know, will everybody just use telehealth instead of go to their physician or outpatient facility? And the fact is, it just grew the pie. We see AI in a similar light. If it takes away some of the lower-acuity, low-revenue work, that's obviously a huge benefit. That's not what's happening inside of our buildings anyway. It's imaging. It's surgery. You still need to see the physician. We view it as expanding the pie for health care. The fact is the demographics are just overwhelming in favor of outpatient medical real estate. it, we think AI is just going to accelerate the need to service that population. And then in terms of assisted living, independent living, memory care, senior housing, certainly the ability to attract residents in how the marketing is done feels like an incredible opportunity as well as pricing once that resident is in the building. And then staffing efficiencies in terms of having the right ratios, adequate staffing, but not too much staffing. Those all feel like opportunities for efficiencies. Down the road, obviously, robotics, et cetera. But it's probably pretty early for that. But it does feel like five, 10 years from now, that's a real opportunity because it's a very labor-intensive business. And then just with the last minute, maybe moving into some of the rapid fire, what will same-sort NOI growth be for healthcare overall in 2027 yeah so there's a lot of components of healthcare and in general we think same store it's a terrible metric it has in theory a usefulness but until everybody defines it consistently I think you're better off not focusing on it personally so we report it because it's expected but we try not to emphasize it so I'm not going to respond beyond that.

Will your property sector have more, fewer, or the same number of public companies a year Well, we're going to say more. And I'll turn it back to you for any closing remarks.

Thanks for your time, Seth. A lot of good questions there. Anyone else in the audience, feel free to grab us after this if you have anything else. Thanks for your time.