Healthpeak’s $4 Billion Senior Housing Exit In Reach, CCRC Expansions Upcoming

Healthpeak Properties’ (NYSE: PEAK) exit from rental senior housing is essentially complete.

The Denver-based health care real estate investment trust (REIT) announced the sale of $230 million from its senior housing operating portfolio (SHOP) and triple-net leased communities since May 4, CEO Tom Herzog said Wednesday during the company’s Q2 2021 earnings call.

Additionally, Healthpeak’s remaining SHOP and triple-net communities are all under contract.

Healthpeak is wasting no time redeploying excess proceeds from these sales back into its medical office and life science segments, paying off short-term debt and strengthening its balance sheet, and targeting acquisitions that will complement its real estate segments, including its portfolio of continuing care retirement communities (CCRC).

The REIT reported $277.5 million in net income in the second quarter, compared to $51.1 million for the same period last year. Funds from operations (FFO) were $0.28 per share, and total blended portfolio NOI growth was 1.2%.

The REIT’s leaders also updated 2021 guidance. Funds from operations (FFO) was increased to a range between $1.55 to $1.61 per share, an increase of one penny at the midpoint of 2021. Same-store NOI growth, meanwhile, was revised to a range from 2.25% to 3.75% – a 50 basis points increase at the midpoint.

The senior housing dispositions include:

• A $145 million sale of 11 SHOP properties, totaling 1,087 units
• An $85 million sale of three triple-net properties, totaling 317 units

The REIT has completed $3.8 billion of its $4 billion target, RBC Capital Markets Director Michael Carroll wrote in a note to investors.

Additionally, Healthpeak sold its stake in two CCRCs owned in a joint venture with, and managed by, Brookdale Senior Living (NYSE: BKD), for $19 million, and made another $19 million in loan repayments.

The company continues to evaluate the status of its sovereign wealth partner, and is working together to fund a mutually beneficial solution to its shared senior housing investment.

CCRCs repay CARES Act funds, occupancy up

Healthpeak’s CCRC performance lagged behind its medical office and life science segments in the second quarter. Same-store growth decreased 23.2% year over year, and 18.9% year to date, which President and Chief Investment Officer Scott Brinker attributed to repayment of CARES Act relief funds.

“Absent these one-time payments, same store (CCRC) growth was 23% this quarter,” he said.

Other signs of improvement in the segment include a 90 basis point increase in occupancy, and $24 million in entry fee cash receipts – the highest levels since 2019. Leading indicators, meanwhile, are in line with 2019 levels, and the occupancy rate across Healthpeak’s CCRCs is 80%.

“We have significant upside to capture at least 500 basis points 9of occupancy) on the low end,” Brinker said.

Healthpeak did not adjust its CCRC guidance, determining it is too early to do so due to a combination of uncertainty surrounding the Covid-19 delta variant, and continued labor expense pressures, President and CFO Pete Scott said.

The company did, however, reduce its guidance for CARES Act grants from $9 million to $6 million, representing the total amount in grants received year to date.

“Any additional CARES Act funding we could potentially receive for the balance of the year would be upside to guidance,” he said.

Healthpeak has long emphasized the growth potential of its CCRC portfolio through targeted acquisitions and expansions on existing campuses. Earlier this year, it identified at least 100 acres on five campuses ripe for expansion, and completed initial planning and underwriting to determine courses of action.

Herzog noted that Healthpeak is moving forward with expansions on a couple campuses where market research indicates strong demand – and waiting lists – for independent living.

What the REIT will not do is leverage its scale to grow for the sake of growth. Vetting acquisition opportunities as they arise to determine whether they are good fits gives the company wiggle room, in case there are multiple candidates targeting a property.

“It’s a lot easier to move the needle with growth when you’ve got a smaller company, than if you [have larger scale],” Herzog said.

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