Physicians Realty Trust Stock

Good morning, and welcome to the Healthpeak Properties, Inc. Second Quarter 2026 Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Andrew Johns, Senior Vice President, Investor Relations. Please go ahead.

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

I'll now turn the call over to our President and Chief Executive Officer, Scott Brinker.

Thanks, A.J., and welcome to Healthpeak's second quarter earnings call. WE CARE is the acronym we use for our core values with the W representing our winning mindset. That's easy to do when demand exceeds supply and fundamentals are in your favor. Everyone's happy and looks really smart. It's a lot harder to do when supply exceeds demand, but that's exactly when a winning mindset is needed the most. As the life science pendulum finally starts to swing back in our favor, I want to say thank you to the team here who live up to our core values and maintain a winning mindset these past four years. It absolutely paid off, and we're stronger because of it.

The downturn also provided a window to redefine our company and reset the competitive landscape. We were bold and strategic, including a $5 billion merger and $1 billion IPO. Today, we're a bigger and better company because of those decisive actions. Even more important, we added capabilities, including strategic new hires and internalizing property management in much of our renewal leasing.

Now we're in the process of rolling out our agentic operating platform. This modern version of Healthpeak is an on-the-ground operator who generates superior results with our people and platform. We're already seeing a payoff from this strategy. In the past two quarters, two of the largest and most respected real estate investors in the world chose Healthpeak as their operating partner. Neither Blackstone or Brookfield had any meaningful prior exposure to the outpatient medical sector. Both joint ventures allow us to maintain control of strategic buildings and tenant relationships, while providing an alternative source of equity capital. We're excited to grow both of those partnerships in the future.

Our balance sheet is stronger than it's ever been. Leverage is below 5x, and we have flexibility to pursue a number of capital allocation alternatives. We're funding highly pre-leased outpatient development projects sourced directly through our relationships such as the project in Atlanta that we announced last evening. We can also do outpatient acquisitions in our joint ventures with Blackstone and Brookfield, where the deal structures generate additional returns to Healthpeak as the operating partner. We also see a unique opportunity in life science to create value via acquisition. Life science has been a development game for the past decade, but for the next few years, it will be an acquisition game, and we have the platform and balance sheet to capitalize on the opportunity. We can also do stock buybacks if and when the stock price is well below intrinsic value. Today, that's less attractive, but we did buy back $100 million in April at a 10-plus percent FFO yield when the stock was less than $17 per share.

And finally, we could maintain leverage below our 5.5x long-term target given the cost of debt today isn't much lower than the fair market cap rate of our real estate. This is not the right environment to have elevated leverage. With our strong balance sheet, we can afford to be patient and utilize our dry powder when it's most impactful. A few comments on operating results and the underlying environment. The strong fundamentals in outpatient medical that we spoke to with the merger announcement 3 years ago continued to be validated. Last quarter, we had plus 5% cash re-leasing spreads and modest TIs that continue to be materially lower than peers. Total occupancy increased 20 basis points sequentially, and our leasing pipeline suggests that an internal growth in the outpatient portfolio will accelerate in 2027.

In life science, public capital raising last quarter was the highest since 2Q '21. The IPO market is healthy but measured with 13 later-stage companies raising more than $5 billion in proceeds in the first half of the year. This week alone, we could see 5 biotech priced IPOs. M&A has been record-breaking with more than $250 billion of announcements in the last 3 quarters, which recycles capital back into the ecosystem. Most important, the science continues to advance and year-to-date FDA approvals are above the 5-year trend. The building blocks are in place for occupancy in the sector to inflect, led by Healthpeak.

In Senior Housing, we'll provide all the details on the Janus Living call, but happy to report that same-store portfolio had 260 basis points of occupancy growth and 19% NOI growth. We have an active and accretive acquisition pipeline sourced through our deep relationships in the sector, including $1.8 billion closed since January 1. Our Senior Housing portfolio will essentially double in size this year, and the number of operating partners will increase from 2 to more than 10. We're on pace to accomplish a 3-year business plan in 12 months. Janus Living success is also driving earnings growth at Healthpeak, given our unique and creative deal structure that aligns the interest of both companies.

I'll turn it to Kelvin.

Thank you, Scott. We continue to execute our plan and have made tremendous progress year-to-date in our leasing and capital allocation objectives. I'll take a moment on our outpatient medical recapitalization with Brookfield. We're pleased to complete this strategic partnership as the proceeds raised exceed our capital recycling target for the year in a single transaction. With the leadership from our investment's team, we have demonstrated our ability to execute scale transactions and partner with leading institutional investment managers. From a structure perspective, Healthpeak will retain a 51% ownership interest in a 5.6 million square foot outpatient medical portfolio and raise $1 billion of cash proceeds. We will utilize our best-in-class platform and expertise to provide asset management, property management and leasing services maintaining day-to-day control of the real estate and preserving our client relationship. Economically, the transaction represents a trailing cash cap rate of 5.9% and after 7 years, we'll have a finite number of call rights to repurchase the noncontrolling interest at a price sufficient to provide Brookfield a 6.5% unlevered rate of return.

Most importantly, this partnership expands our access to alternative sources of equity capital with a framework we can replicate to pursue growth opportunities across our business. Now turning to the second quarter results. We reported FFO as adjusted of $0.46 per share and net debt-to-EBITDA of 4.7x. Now starting with outpatient medical. We had another strong quarter of leasing as we continue to see demand for our real estate. For the quarter, we executed 1.2 million square feet of leases, including approximately 327,000 square feet of new leasing, bringing our year-to-date total to 2.3 million square feet. We achieved 80% tenant retention and cash re-leasing spreads of 5%, which is in line with our average of 5% over the last 10 quarters and above our pre-Physician Realty merger averages of 2% to 3%. We ended the quarter with total occupancy up 20 basis points sequentially to 90.7%. Since July 1, we have an additional 204,000 square feet of lease execution and approximately 882,000 square feet under LOI.

I'd like to highlight our partnership with Northside in Atlanta as it's proven to be a source of strategic growth for our outpatient portfolio. We have now entered into another development agreement for the ground up construction of a new outpatient medical project to support their expansion in Atlanta, where we have #1 market share. This will be the fifth development project with Northside, totaling approximately 565,000 square feet.

Moving to Lab. We continue to make progress towards net absorption and total occupancy capture through year-end. For the quarter, we executed 381,000 square feet of leases, of which approximately 60% was new leasing and 30% on vacant space. We ended the quarter with total occupancy increasing by 80 basis points sequentially to 78.5%. That is a 140 basis points increase since year-end 2025. And since July, we've entered into approximately 20,000 square feet of leases and have another 480,000 square feet under LOI. As a result of this activity, we anticipate a modest improvement in total occupancy by year-end from where we stand as of June 30. These results reflect our focus on driving leasing volumes at our properties, which I would like to highlight by sharing our progress in Torrey Pines, the premier lab submarket in San Diego. The activity we've seen in Torrey is a testament to our team on the ground and our high-quality portfolio as tenants are seeking core assets and core locations with experienced landlords. This is allowing us to capture an outsized share of the deal volume. When accounting for executed leases and LOIs, our leased percentage in the submarket increases to 97% from approximately 65% at year-end 2025.

[ And ending with Senior Housing. ] Healthpeak's ownership interest in Janus Living is now 74%, which represents approximately $6.5 billion of equity value. For the second quarter, Janus Living delivered total revenue growth of 45%, adjusted EBITDA growth of 34% and ended the period with cash on the balance sheet and no outstanding debt.

Now moving to the balance sheet. We had significant activity during the second quarter into the third quarter against the backdrop of elevated borrowing costs. We have taken prudent steps to manage our debt maturities and maintain flexibility in accessing the capital markets. Through year-end, we now expect to generate $1.9 billion of gross proceeds from capital recycling initiatives, and to date, we have completed $1 billion of acquisitions and buybacks. Through August 4, we have repaid $900 million of debt, including $650 million of senior unsecured notes in July. We ended the second quarter with net debt to adjusted EBITDA of 4.7x and $4.1 billion of available liquidity.

And quickly ending with guidance before we open up for Q&A. We raised our FFO's adjusted guidance range by $0.02 to $1.73 to $1.77 per share. The raise was driven by a 75 basis point increase in total same-store NOI from midpoint which includes a 200 basis points increase in both Lab and Senior Housing and the recognition of the low market interest amortization related to the $400 million seller note repayment.

To recap, we've made significant progress across the business through the first half of the year, and our balance sheet has never been stronger. We have ample capacity available to deploy into new investments as we find opportunities.

And with that, operator, please open the line for questions.

[Operator Instructions] Your first question is from the line of Ronald Kamdem from Morgan Stanley.

I just wanted to add about the Lab portfolio, looked like occupancy picked up as you mentioned sequentially and still expecting sort of improvement in the back half of the year. I guess I'm just curious, as you're sort of putting it all together with the environment with the leasing pipeline, when do you think you'll have line of sight to be able to see sort of same-store inflect to the positive?

Hi, Ron, this is Kelvin. I'll start there. I mean I think what's most important that we've been really focused on is capturing more than our share of the demand in the market and driving net absorption through the portfolio. And we've been able to do that through the first half of the year. We started with 77% occupancy coming into the year and now we're at 78.5% total occupancy, which I think is a testament to the team doing a really phenomenal job on the ground to capture that demand, and it will certainly translate. We improved our same-store guidance for Lab by 200 basis points at the midpoint, and that's certainly trending in the right direction. That's driven by the improvement in occupancy and just the overall health that we're seeing in the sector. So I think it's probably a little too soon to predict exactly which quarter we'll see that inflection, but we're certainly trending in the right direction.

Ron, I just want to add, same-store is less relevant. The real key is total occupancy and moving NOI in that segment higher. That's what generates earnings growth and ultimately share price. So that's all we talk about internally. That's the number we're reporting on. We report same-store because we have to. That's not the number we focus on. The key is we're growing total occupancy, and that's going to grow total NOI and ultimately earnings. So we're making progress already in the first half of this year.

Your next question comes from the line of Juan Sanabria from BMO Capital Markets.

I appreciate how succinct the prepared remarks were. Just on the Lab and the competitive environment for leasing, you obviously have different players out there with different motivations, highly motivated to push up leasing as you guys are. But just curious if anything has changed with regards to the rate environment, free rent, build-out costs, et cetera? And maybe as part of that, if you can comment on any changes in the size of tenants out there, small, medium, large and where the improvements have been?

Hi, Juan, this is Kelvin. I'll start there. What I'd say is the pipeline continues to be fairly robust. We've seen since September 25, strong demand just continue in the portfolio. We've had a 2 million square foot leasing pipeline. And we've been capturing that demand and translating it into executed LOIs and leases. So as of the earnings call, we had 500,000 square feet under LOI, which is within our 2 million square feet of pipeline. And I'd say the characteristics of that pipeline hasn't changed dramatically. It's disproportionately wet lab space. It's biotech tenants that are really attracted to core assets in core locations. So we're certainly a recipient of all of the positive momentum we've seen in the biotech sector. From a rates and concession standpoint, I'd say that the rates continue to be in line generally with our portfolio averages. Free rent has trended to be 1 month per year up to 2 months per year of lease term. And that's been fairly consistent. So it's really -- it's use dependent. It's a condition of the quality of the space, how much capital needs to be invested that's really driving the economics around these deals. And each situation is fairly unique. But most importantly, our portfolio can accommodate a wide variety of uses, and we've seen the benefit of that in our results. We've had fairly low capital deployed to capture that occupancy, just given the quality of our spaces for second-generation leases. And in certain instances where we have redevelopments, CapEx could be more elevated as we have to improve spaces that have been occupied for multiple decades by a single tenant. So I think the pipeline continues to be strong, and the team is doing a phenomenal job converting it.

Juan, this is Scott Bohn. The only thing I'd add on that, too, is the, from a size perspective, we have seen more in that 25,000 to 75,000 square foot range, both in the execution as well as the LOI and pipeline bucket. So I think that size range is normalizing as we see the funding environment continue to improve.

Your next question is from the line of John Kilichowski Wells Fargo.

Scott, in the opening remarks, you talked about the outlook for Lab getting more attractive here. I'm curious, are we getting back into an environment, where the distressed lab opportunity is looking more attractive to you? And what's the opportunity set today there?

Yes. The building blocks for the sector recovery are definitely there, and we're starting to translate that into leasing pipeline and leasing execution and growing occupancy. So things are definitely getting better. Obviously, there was some work that needed to be done with vacancy. So it's not going to happen overnight, but the trajectory is clearly positive. I think the incumbents like Healthpeak are definitely capturing market share. So we're focused on core markets, buildings we want to own long term and particularly situations where we think our platform can bring something to the table and lease up a building that's otherwise not doing very well. So I think we've got the team and the balance sheet and the credibility to do all those things. The pipeline is active. It may end up not doing anything, we'll see. These deals take time to play out. Sometimes they're quite complicated, lenders involved, et cetera. But we're working on a number of situations. We obviously did the one at Gateway over the new year. It's doing phenomenally well. Scott, Natalia and the team are leasing it up, signed something like 125,000 feet of leases or LOIs since that purchase and active discussions on another 200,000 feet or so. So like really making good progress on that at a great basis. So hopefully, it's -- situations like that, that we're focused on core submarket in a situation where we can really add value with our platform and balance sheet and relationships. So we're working on a number of them, but no promises that any of them get done, but I think we'll end up being a consolidator over the next 24 months, which should prove to be a great time to grow the portfolio.

Your next question is from the line of Austin Wurschmidt from KeyBanc Capital Markets.

Kelvin, I think you had said that about 30% of the new leasing in the second quarter was for vacant space. I'm just wondering if you can give us some sense about the difference between leased versus occupied today and kind of how that's trended versus last quarter? And what kind of a commencement schedule looks like across those leases that have been signed and are expected to take occupancy over the next 6 months or so?

Yes. Thanks, Austin, for that question. Without giving very specific guidance in terms of occupancy in the forward quarters, what I can simply say is that we have commencements in the back half of the year that exceed our expirations, and we continue to expect a modest improvement in total occupancy for the lab portfolio. We've talked about the pipeline. It continues to be healthy. And these leases have the potential to commence starting in 2026 that are within our LOI bucket. I wouldn't say it's a substantial share of that 500,000 square feet that we mentioned, but we do have the potential for some of our recent executions to benefit 2026 and into 2027. So we continue to focus on just capturing demand. We're only midway through the year. So there's plenty of time, no pressure on the team here to go out there and further improve the conversion of that pipeline that will drive incremental occupancy into 2027.

Your next question is from the line of Seth Bergey from Citi.

It sounds like the kind of activity in the market has certainly improved, and you're seeing kind of more tenants. I'm just wondering how is that conversion time line kind of changed just given the amount of the available lab space? Are you seeing a pickup between kind of when tenants come to market and getting across that finish line and signing a lease?

Sure, Seth. It's Scott Bohn. I mean, we're still in an environment where folks are a little cautious, right? I mean, there's a little scar tissue out there. So I think people and groups are taking their time and doing the diligence they need to do, which they should in a lease process. So from initial tour to execution, depending on the deal, it could be 3 months, it could be 9 months, right? There's a lot of factors at play, size, organization, things like that, but it's been relatively consistent over the past 12 months.

Your next question is from the line of Connor Mitchell from UBS.

You guys mentioned some CapEx that's required for second-generation leasing or spaces that have been occupied now turning over. Can you just expand on that a bit and maybe how much CapEx we should expect over the near or medium term just based on the known move-outs and the leasing pipeline?

Hi, Connor. This is Kelvin. I'll start there. What I would say is, generally speaking, as you look through the available space in our portfolio, we've done a great job over the year to invest in capital and preparing for these second-generation leases. So we've done a great job keeping capital costs low to obtain the occupancy that we've been able to achieve. So I think on our redevelopment assets, in certain instances, you'll see a more elevated capital need to get spaces that were occupied for multiple decades by a single tenant to be prepared for multi-tenant occupancy or to be modernized for the current user's requirements. So those spaces will require some elevated capital. But generally speaking, with our availabilities, we're looking at pretty modest capital cost across the board to get tenants in. We don't have much space in our portfolio that needs to be built out from shell. I think that's a huge advantage, both from a timing standpoint of getting a tenant to occupancy, but also from a capital spend standpoint. So we're certainly taking advantage of the quality of our space right now to be able to capture the demand.

Yes. If you're looking for numbers too, I'd just say around 10% for renewals, probably 20%, 25% for new leasing. It's probably just a good rule of thumb, some higher, some lower, but just as an average, it's about what it's been over the last decade.

Your next question is from the line of Rich Anderson at Cantor Fitzgerald.

Very nice quarter. Last quarter, you guided to 100 basis point uptick in -- for the year in Life Science, and you've achieved that and then some so far. You have not made a commitment going forward necessarily on what that number will look like. And I can appreciate it's a lumpy business and so on. But is -- I guess, the question is 100 basis points up despite being 150 basis points up for the first half. Is that still in the range of possible, meaning like you could have some volatility in terms of timing of leasing, chunky assets that are coming -- that are expiring so on? Or is 100 basis points up the full year, meaning some giveback in the second half is probably off the table at this point?

Yes, Rich, maybe I'll try to answer that simplistically. When we had articulated the 100 basis points, that was off of year-end 2025, total occupancy at 77%, and we've already exceeded that. And I think for the balance of the year, I mentioned a few times that we have commencements that will exceed our expirations. Every quarter is unique in terms of the timing of when those vacates occur. So there could be some lumpiness, but we've anticipated modest improvement in total occupancy through year-end from here. So we've already captured the 100 basis points that we had articulated previously, and there's still room to capture some incremental occupancy through the balance of the year.

Your next question comes from the line of Rich Hightower at Barclays.

I guess shifting to outpatient for a minute. I noticed that, I guess, cash spreads decelerated a little bit in the second quarter versus the first quarter. So maybe just help us understand a window into that? And where would you estimate sort of the mark-to-market opportunity in outpatient? And I guess, thirdly, are you looking at growing that portfolio, maybe even via the JVs.

Yes. Thanks for the question, Rich. Mark and the team are doing a great job taking advantage of solid fundamentals in that business. So the re-leasing spreads, I don't know they might have been down 20 basis points from last quarter, but they're up like 50% from the last decade at plus 5%. That's a phenomenal result in that business. And even better, we're doing it with very modest TIs. And we're getting 3% escalators on essentially all the leasing that's being done. So the re-leasing spreads only half the story, to couple that with low TIs and really strong escalators, just a phenomenal result. So we're actually really pleased with it.

Your next question comes from the line of Farrell Granath from Bank of America.

Staying on the MOB topic, I was curious if you can expand on your appetite for potentially doing more JVs, especially in this recap structure. And also, if you could just touch on what led you to do this Brookfield transaction, especially keeping the call option on the go forward.

Yes. Adam and the team did a fantastic job with Brookfield. That's a great organization to work with. We've done some things with them over the years. Happy to have them as a partner going forward. They obviously have a huge balance sheet and appetite to grow as does Blackstone. So really two amazing partners to add to our portfolio over the last few quarters. And I would expect us to do more with each. The deal structures are a little different. We're 51% owner with Brookfield. We're a 20% owner with Blackstone. And they each have their own unique things that they're trying to pursue, but the common thread is they're looking to partner with Healthpeak as their GP in this business. We do have a fantastic existing portfolio that we can recap at what we think are strong prices. Obviously, they're getting the returns that they need. But from our perspective, these are strong prices. And with Brookfield, that buyback option, I mean, when this team joined Healthpeak, I don't know, 8 years ago, we inherited contracts that the tenants had a lot of purchase options that were in the money. I think we've created a purchase option here that will be in the money for Healthpeak. After 7 years, obviously, we'll make that decision at the time, but the 6.5% unlevered return with the quality of the portfolio, we think that's certainly achievable. So a great price upfront from our perspective, but also the ability to acquire assets in the future at a strong price, maintain the hospital relationships, control of the decision-making. I mean, it's really a phenomenal outcome. It just puts our balance sheet in the best position it's ever been with leverage below 5x. We're seeing a lot of opportunity across all three business segments that we're excited to take advantage of, but we'll be patient and make sure that when we actually use the dry powder that it's as impactful as possible.

Your next question comes from the line of Michael Carroll at RBC Capital Markets.

I know, Scott, you touched on this throughout the call, but I wanted to circle back on the lab acquisition opportunities what markets are most interesting? And should we think about this as more of a fee simple type acquisition, or are you still interested in the structured finance type deals that you guys done in the past?

Yes. We'll focus on the core markets where we have a competitive advantage, people on the ground that can actually make a difference. We're already capturing more than our fair share of the leasing. So I think that will be a common thread in anything that we do is we can bring our platform to the table and create value in addition to our balance sheet. In terms of deal structure, we did some loans, I don't know, 2 years ago because owners hadn't really capitulated, so the pricing didn't make sense from our perspective. But I think we're getting closer to the point that pricing has come down. Gateway is a good example where fee simple made more sense. So I'd say the majority of what we're looking at today is feasible. But there may be unique situations where we'd still look to a loan structure with an option to buy. But pathway to ownership in any event, we're not here to make loans.

Your next question comes from the line of Michael Stroyeck from Green Street.

Can you maybe just provide some color on which lab markets are seeing the strongest demand today? And maybe related to that, where is pricing power holding up the best across those markets if there is differentiation?

Yes. Maybe I'll start, Michael. Thanks for the question. And I might ask Scott to jump in here as well. But we're certainly seeing the demand the strongest in the Bay Area. No surprise that the biotech ecosystem in that market just continues to thrive. And we're positioning our portfolio to be able to capture that demand. San Diego has also been tremendously productive. We talked about Torrey Pines and what we've seen there. And a good amount of that demand has been homegrown. These are existing clients that have had successful outcomes in their businesses and are seeking more space. That's the story that you like to hear across the sector, and that's happened quite frequently in the Torrey submarket that's driven those outcomes that we talked about getting from high 60s to high 90s, lease percentage is pretty phenomenal in a short amount of time. So great execution from our team, but also just the strength of what we're seeing in that market. Boston is probably the most challenged just given the supply overhang across that marketplace. I think where we're positioned in West Cambridge and Lexington, we have an opportunity to continue to capture demand that's kind of seeking that kind of suburban urban product, and we've done a phenomenal job there. We're also very well leased in that market. So with regards to our available spaces, we've been chasing a subset of the demand. There's other submarkets that are proving to become alternatives outside of biotech in life sciences. So as the supply overhang gets managed, that should probably improve over time. But Scott, I don't know if you'd add anything specifically...

Yes. I think in Boston, one thing I would note is in the second quarter, we saw 80% of the market activity that we saw in all 2025, right? So you're certainly seeing signs of light there. I mean as Kelvin mentioned, there's the biggest supply-demand imbalance there. So a lot to work through, but our relative position there is important to remember, too. I mean, if you look at the Route 128 West market, I mean, overall, it's 30% vacant, but our assets are 11% vacant, right? So it really comes down to what is the quality of your assets within that particular submarket. And your question on pricing power, we talked about it a lot, but our portfolio of scale, especially in markets like Bay Area or Torrey allow us to see a lot of deals that aren't widely marketed, whether those are just relationships we have with tenants within the portfolio or otherwise or the VCs and many of those are groups who are growing within the portfolio. So we tend to have a little bit more pricing power on deals like that than you would on widely marketed deal.

Your next question is from the line of Mike Mueller at JPMorgan.

Scott, you touched on outpatient spreads. Was there anything out of the ordinary driving the weaker lapse rent spread in the quarter? Was it just spreads bouncing around, trying to drive occupancy or something else?

It's just a unique situation. We've had very positive spreads for the last couple of years, plus or minus 5%, 6%, 7%. In most quarters, there's always going to be an outlier quarter, up or down. This was one where it was a little bit down. We had a lease in Boston. The team did a great job renewing at actually really strong terms. It's a 10-year lease, not much TI, but the rent was a little bit lower and ended up being a bit competitive, but the team did a great job winning that deal. So still a great outcome, but it's really just the one big lease that drove that outcome. I think Kelvin spoke earlier to the mark-to-market across the whole portfolio, plus or minus in line. But there are obviously going to be outliers on either side of that depending on specific building or when that lease was signed, nothing to read into this specific quarter though.

We have reached the end of the Q&A session. The conference has now concluded. Thanks for attending today's presentation. You may now disconnect.

Good morning and welcome to the Healthpeak Properties, Inc. First Quarter 2026 Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Andrew Johns, Senior Vice President of Investor Relations. Please go ahead.

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

I'll now turn the call over to our President, Chief Executive Officer, Scott Brinker.

Thanks, Aj and welcome to Healthpeak's first quarter earnings call. Grateful for our team who delivered a first quarter with excellence in execution, one of our WE CARE core values.

In early January, we completed the once-in-a-decade buying opportunity at the Gateway campus in South San Francisco for a small fraction of replacement cost. We're already driving leasing momentum at the campus with 62,000 square feet of signed leases and letters of intent. We also have 113,000 square feet of active proposals and tours at the campus. In March, we completed the IPO of our senior housing business in a unique and creative transaction. The $240 million of current year FFO from that portfolio is now being valued at a multiple that's roughly 20 turns higher than Healthpeak. That differential highlights the growth potential in Janus Living but also the incredible opportunity in Healthpeak at the current stock price.

Despite selling about 18% of the business in the IPO, our exposure to senior housing is essentially unchanged from December 31 because we closed more than $700 million of acquisitions on our balance sheet prior to the IPO. The timing of the acquisitions was very intentional to capture the multiple arbitrage for our shareholders. Janus Living already has the cost of capital to do accretive acquisitions. As the 82% owner of the company, those acquisitions will benefit Healthpeak earnings. As an example, we expect the IPO proceeds to be accretive to Healthpeak by roughly $0.04 per share once fully invested and stabilized. The value of our best-in-class outpatient platform is being rewarded in the private market by world-class institutions.

In March, we closed a joint venture recap with Blackstone on a fully occupied outpatient portfolio at a 6.1% cash cap rate. The transaction raised $170 million in proceeds and we now have a template for future recaps and acquisitions with Blackstone. We're progressing additional transactions that would generate proceeds of $700 million or more at cap rates about 200 basis points inside what's implied in our current stock price. We bought back $100 million of stock in April at a 10-plus percent FFO yield. The buyback was accretive and allowed us to increase our 2026 earnings guidance. Our stock price is clearly mispriced versus intrinsic value, so we'll continue to evaluate leverage-neutral stock buybacks to drive earnings and value accretion. We also paid more than $200 million in dividends to shareholders in the first quarter, which equates to an outrageously high 7.5% annualized dividend yield, especially in light of the solid payout ratio.

Turning to operating results. The strong fundamentals in Outpatient Medical that we spoke to with the merger announcement 3 years ago continue to be validated. Since closing the merger, we signed more than 10 million square feet of renewals at cash re-leasing spreads of positive 5.8%. Last quarter, the spreads were positive 5.4% and once again, with very modest TIs. Half of our renewals were done in-house, saving $5 million in leasing commissions last quarter alone. Our leasing costs continue to be substantially below the peer group, resulting in strong net effective rents, which drives superior cash flow and ultimately earnings growth. We've been successfully getting 3% escalators in the outpatient business on both new leases and renewals for about 5 years now. Over those 5 years, our same-store NOI growth has averaged positive 3.5%, which is 30% higher than the previous 5-year average. So definitely an improvement in that business.

We're advancing a number of strategic and highly pre-leased outpatient developments with our health system partners but not yet far enough along to announce publicly. In Senior Housing, our 1Q results were phenomenal across the board. Entry fees set an all-time high for the first quarter, incredible work by our team and operating partners and we'll provide all the details on the Janus Living call. Turning to life science. M&A activity, biopharma stock prices and capital raising are all trending positively. In fact, April was the most active month for biotech equity issuance since early 2021. Healthpeak total occupancy in life science increased sequentially and we still expect our year-end 2026 total occupancy to increase versus the prior year.

Our leasing pipeline is broad-based from venture-backed biotech to large-cap pharma. Traditional wet lab accounts for the vast majority of the pipeline but we do have flexibility. Our robust well-located buildings allow us to capture alternative users when it makes economic sense. To summarize, senior housing performance was outstanding and we created enormous value with the IPO. Our outpatient portfolio and platform is being rewarded and richly valued in the private market and our lab business has massive upside as the pendulum starts to swing in our favor.

I'll turn it to Kelvin to review our first quarter results and our improved 2026 outlook.

Thank you, Scott. We started the year strong and continue to execute our stated plans to position each business to deliver long-term earnings growth. We are very pleased with the success of the Janus Living IPO, which strengthens our investment management capabilities and expands our reach to a broader base of investors. We are translating this momentum into our operating platform by adding key talent in asset management, investor relations and acquisitions, advancing our technology initiatives and delivering our platform to our senior housing operating partners to achieve excellence in execution across the portfolio. We continue to attract interest from institutional capital across the enterprise, including our recently announced outpatient medical joint venture with Blackstone. These partnerships further validate our platform, relationships and capital allocation philosophy as investors look at Healthpeak as a platform aligned for growth.

Turning to the results for the first quarter. We reported FFO as adjusted of $0.45 per share and net debt-to-EBITDA of 5.4x. In Outpatient Medical, fundamentals continue to show strength and our team is translating this into leasing opportunities with key relationships. During the quarter, we executed nearly 1.1 million square feet of leases, including several large renewals with leading health system partners, including Baylor Scott & White, Norton Health and HCA. Across our leasing activity, we achieved 5.4% cash re-leasing spreads on renewals, 79% tenant retention and ended the quarter at 91% total occupancy. Average annual escalators were 3%, consistent with what we have achieved on average since the Physicians merger. And leasing costs this quarter were modest at just 10% of annual rents, producing strong cash return.

A good example of this execution is the Baylor cancer center in Dallas, where we completed 10-year lease renewals across the entire 458,000 square foot campus during the last 2 quarters. Leasing costs were minimal at just over $1 per square foot per year, reflecting strong second-generation returns that drive earnings growth. And most importantly, this outcome was achieved through direct negotiations with Baylor and McKesson, leveraging decades-long relationships and in-house operating platform that can deliver tangible outcomes for our clients. Finally, we ended the first quarter with a very active leasing pipeline, including 318,000 square feet of leases executed since April and approximately 700,000 square feet under LOI.

Turning to Lab. During the first quarter, we executed 141,000 square feet of leases, 92% of which was new leasing. We also have approximately 355,000 square feet under LOI, of which approximately 80% was new leasing and approximately 75% on currently vacant space. We saw a range of deal sizes in those commitments, including 4 deals greater than 50,000 square feet and South San Francisco continues to see the strongest active demand of each of our markets. We ended the quarter with total occupancy up to 77.7%. And for the balance of the year, we expect to continue to capture occupancy from the benefit of new leasing commencements, which will support occupancy growth of at least 100 basis points versus year-end 2025.

And finally, Senior Housing. We will continue to provide a brief update on senior housing with detailed commentary on the Janus Living earnings call to follow. For the quarter, Janus Living delivered total revenue growth of 35% and adjusted EBITDA growth of 42%. Healthpeak's ownership totaled 81.6% of the outstanding shares of Janus Living, which represents roughly a $5.7 billion market value. Shifting to the balance sheet and guidance. In January, we repaid $103 million of secured mortgages on 2 of our senior housing properties. And in March, we closed on a new senior unsecured delayed draw term loan totaling $400 million, which remains undrawn. We will have through December 2026 to draw down the term loan.

And ending with guidance. Following the IPO, Janus Living is consolidated into Healthpeak's financial statements with a deduction to earnings for the noncontrolling minority interest. We now incur incremental public company costs and temporary earnings drag from the cash proceeds on the balance sheet. These impacts are expected to be offset by the senior housing portfolio outperformance and deployment of $750 million of cash into acquisitions through year-end. As a result, we expect the IPO to be earnings neutral to Healthpeak in 2026 and it will be accretive in 2027 and beyond as the capital deployment into acquisitions flows through to Healthpeak's earnings. In April, we repurchased $100 million of our stock at an implied FFO yield of over 10%. The repurchase is accretive to earnings and supports raising our FFO as adjusted guidance to a range of $1.71 to $1.75 per share.

With that, operator, please open the line for Q&A.

[Operator Instructions] Your first question comes from Nick Yulico with Scotiabank.

Nick, are you there? I'm going to say your perfect record's intact, you're always first, but I'm not sure.

Operator, I'm not sure, maybe he's having a connection problem. Let's go to the next question.

Perfect. Your next question will be from Farrell Granath with Bank of America.

This is Farrell. My question is on your life science portfolio. And when thinking about the commentary, it's seemingly much more positive in how you're thinking about your pipeline and increased interest. And I'm curious how that maybe has influenced or even changed your thinking and timing on opportunistic life science investments going forward? If that has actually moved up the time line or if there is a line of sight of when you think that would be a strategic use of capital?

Well, the one we acquired in late December, early January, Gateway, is doing really well. So that's a positive. That was a unique opportunity. It's our biggest market. We have a dominant footprint there. I think the best team and the best footprint. We dominated there for years and I think that will be even more true with this purchase. And it had a lot of yield in addition to upside. So that was a unique opportunity. I'm glad we did it. We're already getting the benefit of that. I think that will fall into '27 and beyond as well. So congrats to Scott and the team.

We're looking at some other things in our core markets but our threshold is pretty high for using capital. Obviously, we did the buybacks in April. That was a very accretive use of capital. We have a number of transactions underway. Our sources and uses this year was $1 billion of recaps and sales and $1 billion of acquisitions. We've essentially done the $1 billion of acquisitions and buybacks and we have a number of transactions underway. So we need to make sure we get that done before we would consider anything opportunistic in life science. But there's no shortage of opportunity. There's -- that is for sure. I mean, a lot of these private buyers are just totally upside down. At this point, we're mostly having conversations with lenders. So there is opportunity but we're going to be really careful and disciplined about which markets, which buildings and obviously, pricing valuation.

Your next question is from Seth Bergey with Citi.

Just given kind of the pipeline and the leasing activity you've been able to accomplish, how does the kind of Gateway acquisition kind of compare to your initial underwriting expectations? And just given kind of the positive comments on the pipeline, is there anything kind of changing in terms of the lease economics that you're discussing with life science tenants?

Well, we didn't put much lease-up into our Gateway underwriting in year 1. So I'd say we're already ahead of schedule. Certainly, the pipeline is strong and I would have guessed and the rents that we're signing are at or above underwriting. So that's all positive. I don't think there's much contribution to 2026. But definitely, as we look into '27, '28, the upside from that portfolio should start to materialize in our earnings. So the momentum is definitely positive in the Bay Area. I mean San Francisco had a red x on it in real estate 5 years ago, now it's the hottest market in the country and we're certainly getting some benefit of that.

Your next question is from Austin Wurschmidt with KeyBanc Capital Markets.

Kelvin, I believe you said that you expect lab occupancy to increase 100 basis points by the end of the year, year-on-year. Can you just walk through some of the components that's driving that between commencements and known move-outs? And does the team have any visibility into any known move-outs in 2027 at this point?

Yes. Thanks for the question, Austin. We have about 400,000 square feet of expirations in 2026. And behind that, we have just over 0.5 million square feet of commencements that will fully offset those expirations. So we expect net absorption into year-end. We're sitting here in May. So still ample amount of time for the team to try to convert some of our pipeline into occupancy in the fourth quarter as well that may trickle into 2027 but certainly still a window here to try to capture some incremental occupancy by year-end. There is about 50,000 square feet that we expect to exit the portfolio in the second and third quarter. So we do know about the potential vacate of 2 tenants in particular, midyear. But generally speaking, our focus is on total occupancy, driving net absorption throughout the year and seeing occupancy grow and subsequently produce earnings growth. So we're on track for that and the pipeline is certainly giving us promise that we'll be able to achieve net absorption this year.

Your next question is from Ronald Kamdem with Morgan Stanley.

Just wanted to stay on the life science portfolio for a second. I think you talked a little bit about sort of San Francisco and the activity there. Maybe commentary on some of the other markets. And if I could just ask about the 2027 expirations again, in terms of known vacates, just any sort of early color there because it would seem like there's a potential that same-store could be up next year if occupancy is rising this year. So I think we're all just trying to figure that out.

Quickly on '27, it's still early. But as we look through that list and the conversations we're having, I think the renewal rate will be a lot higher in '27 than it has been in '26. So I don't know, plus or minus 50% or better but it's still early. So we'll update throughout the year as we get more clarity. But the leasing pipeline, the signed but not occupied leases is all positive. So we do feel like the trajectory on occupancy is definitely positive.

And if we look at M&A and capital raising, that's extremely positive. It feels like that's always a leading indicator to the pipeline, which obviously leads into the actual leasing. So definitely, the trajectory is as good as it's been in a number of years, which feels good and we're well positioned. We've got the right team and footprint and the credibility and capital as a landlord to win deals. So definitely feeling a lot better about the momentum in that business. In San Diego and then I'll ask Scott Bohn to comment on Boston but we've got activity on virtually every vacancy in the portfolio. It doesn't mean we'll sign all those leases but there's activity. We brought in Denis Sullivan 6 months ago, former CIO and CFO of BioMed. He's just doing a fantastic job. So we've really got a great team on the ground to drive that activity as well.

Scott, do you want to comment on Boston?

Yes. Sure. Boston, I mean, Boston is still working through the biggest supply-demand imbalance of the 3 markets. But you really have to dig into what is competitive to our portfolio and how our portfolio is performing specifically. If you look at West Cambridge where the bulk of our opportunity is, from a space perspective, we've had some great success, a great win with the lease we executed with a large cap pharma in the quarter. There's also been some nice absorption in and around our portfolio in West Cambridge. So we're really happy with what's going on in that particular submarket in Greater Boston. And Claire and team are doing a great job out there capturing the demand that is available. If you look back 6 months versus today, it's markedly different feel in that market from a demand perspective.

Your next question is from Rich Anderson with Cantor Fitzgerald.

Nice quarter, nice set up here. It reminds me of the paired share REIT structure but I know it's not that. So don't get me wrong but very, very unique indeed. So congratulations. I wanted to talk about life science leasing a little bit more detail. Kelvin and Scott, you mentioned up 100 basis points at least by the end of this year versus 2025. I'm wondering if -- what do you think about how that will look? Will that be, I'm guessing not a straight linear line from today till the end of the year but more like an EKG? And I'm just curious how the pace of occupancy will go from here? Do you think you have a step down next quarter or step up? Like I just want to sort of prepare people for what it could look like even if the end game is up 100 basis points.

Yes. Thanks for that, Rich. I'll start. This is Kelvin. I think most importantly, we ended the year at 77% total occupancy. We ended the quarter at 77.7% total occupancy. So already making progress towards the 100 basis point goal of total occupancy improvement this year. Very difficult to give you precision around the quarter-over-quarter cadence of occupancy but just really want to focus you on year-end, given we have net absorption embedded in our portfolio with the execution that Scott and team were able to get completed starting last year that are flowing into this year. The 2 million square foot pipeline is probably worth giving a little bit more context on because there are opportunities to get new prospective tenants into more move-in-ready space. And if we are successful, that could lead to incremental occupancy capture in the fourth quarter, again, into 2027. So no perfect cadence that we can give you from an occupancy standpoint but total occupancy captured by year-end is our focus and the entire organization is working towards that goal.

Your next question is from Michael Goldsmith with UBS.

Just on the guidance, you raised the full year outlook by $0.01. Same-store NOI guidance is flat. Now we expect interest expense to be $20 million higher and G&A to be $5 million higher. So can you just walk through kind of what's driving the $0.01 raise? Is it the first quarter beat? Or maybe said another way, if you annualize your first quarter core FFO of $0.45, you get to a number well higher than your guidance. So can you just kind of walk us through the model and how we should be thinking about the cadence of earnings through the balance of the year?

Yes. No, thank you for asking the question. This is Kelvin again. But I'll give a little bit of context as it's important to get this right. But the Janus Living IPO has certainly proven to be extremely successful for Healthpeak. I think first, the outperformance in the senior housing business fully offsets the impact of the transaction, making the IPO neutral to Healthpeak's earnings in 2026. And then the second point would be, as Scott mentioned in his prepared remarks, we anticipate capturing about $0.04 of accretion on a run rate basis as the cash on balance sheet is deployed and the senior housing acquisitions stabilize and contribute to earnings. So some of that benefit will start to come into 2026, offsetting the IPO dilution and we could generate plus or minus $0.03 of earnings in 2027. So really important to highlight the earnings contribution from Janus Living.

Through the first quarter, we mentioned earlier that we've already invested $1 billion of capital, $714 million in senior housing and we are making progress towards our capital recycling target of $1 billion. So $270 million of proceeds already received. I think we made the right decision to invest the $714 million in senior housing acquisitions in Q1 on balance sheet prior to the IPO and contributing those assets to Janus Living to own the largest share in the platform. And going forward, that will result in earnings growth, as I mentioned before.

But I think the first quarter is a little bit elevated because of those on-balance sheet acquisitions that we made in Q1 but we do anticipate that the subsequent quarters will come down. And if you look at our kind of run rate average based on the midpoint of our guidance, that's about $0.43 per share of FFO, plus or minus $0.01 each quarter. But as we get proceeds back from our recapitalizations and seller financing repayment, that will have an impact on the earnings trajectory in the back half of the year. So a number of moving parts, wanted to make sure we walked through that. But we are certainly pleased with the opportunity to raise guidance $0.01 here and the success of the Janus Living IPO.

And Michael, just one addition, the debt, $650 million of senior notes that we -- we'll have to refinance in June. Those are like 3.5%. So that's an additional headwind in the second half of the year versus the first half, just the final piece of that puzzle.

Your next question is from Michael Carroll with RBC Capital Markets.

Just wanted to see if you guys can provide additional color on the life science setup? I know that the pipeline appears solid and is growing. But how has tenant activity changed? I mean are they making decisions any quicker than before? I think the focus for them previously was really on the prebuilt space but have any larger customers willing to make longer-dated decisions on some of the space that maybe requires longer build-outs yet?

I'll give a few comments on the background -- backdrop and I'll let Scott comment on specific activity. But if you think about the real drivers of supply and demand, M&A, capital raising, new supply, all those things are moving in our favor in a very dramatic way. It's just the downturn is so severe that it's taking some time to climb out of it. It's a long pendulum for this particular cycle but it is swinging in our favor. I mean all of those things really do move the needle on supply and demand over time and that's what drives the business. It's as simple as that.

And we're out competing in the marketplace. There's a few really strong competitors, obviously. But those 2 or 3 groups are capturing the vast, vast majority of the tenant demand. And I think that, that will continue. And in fact, it's an opportunity for us. A lot of the new supply is going to alternative use. We're simply just not leasable in this marketplace. So the backdrop is clearly moving in a positive direction from both supply and demand standpoint.

Scott, do you want to comment on the...

Sure. Michael, I mean there are some larger tenants in the market who would be more apt to take more of a shell type space. But broadly speaking, the bulk of the pipeline and activity is still looking for maybe more move-in ready space or space that takes more minimal TI. Part of that is kind of the speed to getting into space, kind of shortening that decision window post funding. But also that type of transaction is less risky for the tenant, right?

If you're going into a new build of a shell space where it's a full build-out, even if it's a turnkey TI, there's still inherent risk to the tenant. It's just a more complex build for them. So if they have the option today to go into a space that's a very nice second generation space that's well built out, that fits what they need with minor modifications, they're opting to do that. And so I think one thing that is an advantage to our portfolio that we talk about all the time is having a wide variety of spaces at different price points to accommodate all of the demand within the market. We look at the tenant list, the broker sheets and really try to focus on having an option for every tenant on there versus just focusing on a selected group of tenants who are looking for Class A trophy space.

Your next question is from Juan Sanabria with BMO.

This is Robin Haneland sitting in for Juan. I was just curious on the Blackstone JV. What's the opportunity set to grow here going forward? Would you be more interested in additional recaps or acquisitions?

Yes, it could be both. It's a great group to partner with, obviously, extremely knowledgeable, enormous balance sheet with different pockets of capital to do different things. And we've got a great platform for them to participate in what we think is a really compelling business, with stable but growing cash flows and great relationships and footprint to really drive activity. And we would co-invest but as a minority share, we did a 20% interest in this recap, probably fair to say anywhere between 10% and 20% going forward. And we could do recaps and/or acquisitions and we're already looking at a number of things with them.

Your next question is from Michael Stroyeck with Green Street.

Can you provide some thoughts on lab re-leasing spreads? Obviously, there's still plenty of vacancy at the market level, likely will be for some time and your biggest peer is guiding to some pretty ugly re-leasing spreads. So I guess are you concerned that there could still be downward pressure on rents over the near term?

Sure. This is Scott. I mean, I think overall lab rents in our portfolio around $60 a foot, right? And I think that you're going to have some rents that are above that, some rents that are below that. But overall, I think we're generally in line with that. But I think we focus on the total all-in economic package versus the face rent. I think in -- the better read overall, in my opinion, is what we're seeing in demand in the pipeline and those all-in economics that we're capturing across deals over time, they're going to drive both occupancy and earnings.

Your next question is from Wes Golladay with Baird.

You seem to be getting a little bit of traction on the permitting at the mixed-use Alewife project. Can you give us an update on what's going on there and a time line for that project? Has that changed at all?

Yes. No, happy to give an update. In fact, a week ago, we received our preliminary planning Board initial approval. It's not the final approval for the entitlements but certainly a step towards that objective. It's been a long process, as you know, working through the entitlement effort there but a very rewarding project that we now have Hines partnering with us on the multifamily opportunity.

The mixed-use project is plus or minus 5 million square feet, half of which will be multifamily residential that Hines will be leading. So we have the opportunity to complete entitlements this year towards Q4 of 2026 and could see a groundbreaking of a residential building by Hines at some point in 2027 or 12 to 18 months after receiving entitlements. So working towards that objective and certainly making great progress with the city of Cambridge.

Your next question is from Vikram Malhotra with Mizuho.

I guess just maybe, Scott, if I can step back, you're calling for the bottom, you're saying there's more activity. A bunch of your peers are still seeing occupancy falling and maybe pointing out much more challenging, I guess, conditions. So maybe if you could dig in a bit more sort of what are some of the differences, maybe geography, maybe product type and maybe it's the tenant type as well. I'm just sort of trying to square kind of how divergent the trajectory and commentaries have been from your peers on that side.

Yes, Vikram, even when the sector was going bananas in 2020 and 2021, I mean we stayed really disciplined. In terms of what we bought or what we developed, we shut off capital allocation way before anybody else, public or private. It turned out to be the right decision and now we're buying when nobody else can. It's actually a pretty good opportunity. We're already getting great results from that capital allocation decision with the Gateway purchase and potentially more to come. But we've always had a philosophy of concentration as a way to reduce risk. I know that sounds odd, use of diversification to reduce risk. But in life science, it's really the opposite. Concentration in dominating local markets is really the way to go. Creating flexibility and pathways to growth for tenants, really dominating the broker networks just given our footprint. We've got a great team in all 3 markets.

So I think all of that plays a factor. We do like having multiple price points, right? It's not all A+ even though maybe you'd like to be in that office, not everybody wants to or can afford it. So we like to have multiple options at different price points and suite sizes as long as it's in the right submarket. That philosophy, I think, has paid off in terms of how we're approaching the market. But we're not in a lot of these kind of secondary, tertiary markets. I won't name them. But we've really -- you could -- our entire footprint is in 5 submarkets in the entire country. I mean, you could probably tour it in 1 day if you could -- if you could figure out the travel to Boston, which is a long flight. Otherwise, I mean, you literally can see the entire portfolio in 1 day, it's so concentrated. But that's proven to be the right decision. So I think it's all of those things together that are driving our view of the outlook maybe versus some others but I can't obviously speak for them.

Your next question is from Jim Kammert with Evercore.

Is it reasonable to assume that the vacancy in the lab portfolio has, on average, basically the same NOI per square foot contribution or rent per square foot as the occupied portfolio? Just trying to think about that latent earnings potential as it leases up over time.

Yes. Maybe I'll start. Over the last 12 months, we've been able to achieve 5% cash re-leasing spreads on average. This quarter, we did 3.5%. Scott had just mentioned our portfolio average rent per square foot is around $60 triple net. Each market is different. Each lease in each space is different. So we're able to exceed those in-place rates but we also might have some leases that come in a little bit lighter. So what I would suggest is, looking back at our cash re-leasing spreads, which we continue to get in excess of our existing kind of in-place leases, that should contribute to earnings growth over time. Most importantly, it's a total occupancy story. As we gain occupancy, these are spaces that are currently not producing income and there's even a drag associated with those spaces. The occupancy capture is really going to drive earnings. So I think that should be the focus. That's how we look at the earnings opportunity and we have 2.5 million square feet of opportunity in the lab portfolio to really drive earnings growth.

Your next question is from Mike Mueller with JPMorgan.

I apologize for trying to squeak a second one in here but it's a clarification. On the supplemental development and redevelopment page, what does active versus total mean in the capacity and percent lease columns? And then the real question was, with the seemingly better view on lab occupancy, why didn't you update that same-store outlook?

Yes, active redev in development, I mean, a lot of these projects are substantial. So as we lease certain floors or portions of the building and deliver them and the tenant starts to pay rents, we take those particular suites or floors out of the active development pipeline. They're obviously no longer under active development. So that's the differential or explanation between active versus total, Mike.

Kelvin, do you want to take the other?

Yes. And Mike, for your second question, I think over the course of the year, we'll have an opportunity to reevaluate same-store amongst all of the segments. This quarter, the focus was certainly on the senior housing outperformance in the first quarter that really drove the guidance modification for the senior housing segment. But as we make progress over the course of the year, we'll certainly evaluate the updates that will have a total same-store impact. So for this quarter, we thought it was appropriate to provide the update on senior housing.

I want to add, ordinarily, we don't even update the segments, which I think is appropriate here. We felt like we didn't have a choice because Janus Living is now providing its own guidance, obviously, on same-store and it's substantially higher than the original healthy guidance. So we didn't -- we really didn't have a choice but to update the segments. But we really focus on the total portfolio. Same-store is really a terrible metric. They ignore so many things. So it's not how we run our business. Frankly, we'd prefer to just ignore it entirely.

Your next question is from Omotayo Okusanya with Deutsche Bank.

Yes. Solid execution. So congratulations, both DOC and Janus. Post the quarter, there's kind of significant leasing activity both on the MOB and Lab side. Again, curious if we just kind of conceptualize what's happening in terms of that kind of people activity. And also, if you could just talk a little bit about kind of economics, whether it's kind of changed materially in any way versus leasing activity in 1Q and realizing that there may also be some mix changes as well in regards to the April activity versus the 1Q activity?

1Q is just always slow, Tayo. You can go back as many years as you want. It's just always the lowest quarter of the year but the pipeline in both businesses is tremendous. We expect occupancy to grow in both outpatient and life science through year-end. So the trajectory in both businesses is very positive. I wouldn't focus too much on quarter-to-quarter. It's just 1Q is always light on both leasing, execution as well as capital -- CapEx and this year was no different.

Can you talk a little about economics?

Economics, well, yes, look, I'll do one at a time. In outpatient, they continue to be really strong. I mean we're getting 5%, 6% re-leasing spreads on several million square feet of renewals every year. We're pushing 3% escalators almost across the board with very, very modest leasing costs, which is a critical distinction in terms of TI and LC. I mean it's very modest. So the net effectives are really strong in that business. Mark and team have really built a nice pipeline. And we're optimistic about the trajectory in that business. As we were 3 years ago when we announced the merger, it's actually exceeded our high expectations. So that's all good.

And in life science, obviously, I think Scott has given you a lot of color on, the pipeline is building. It's broad-based from biotech to pharma and wet lab and everything in between with continued strong leasing economics. And again, the total focus is not just the face rate but TIs and LCs and all the concessions that come with it. So positive momentum on pipeline and leasing economics in both of the segments, Tayo.

Your last question is from Farrell Granath with Bank of America.

Just coming back in with a secondary question. Just digging in a little bit more on the life science occupancy. I was wondering if you could bridge between the offsetting of the vacancies with your new leasing potential dispositions and also your redevelopment that you saw? What were the benefiting factors from those 3 buckets?

Yes. Farrell, this is Kelvin. I think for the quarter, we saw total occupancy uplift from net absorption. And over the course of the year, as I described earlier on the call, we have the potential of continuing that trajectory to end -- to year-end with total occupancy ahead of where we ended 2025. We sold a 100% leased campus through a contractual purchase option in the first quarter in Salt Lake. So it obviously had an impact on occupancy. We articulated that, I think, on the last quarter call. We don't have the intention of additional dispositions in the lab portfolio right now. But as we get more leasing traction on our development and redevelopment, that will obviously benefit total occupancy. And then we have the same-store operating portfolio that we are focused on driving total occupancy capture there as well. So making progress in all categories but no intention of disposing of life science assets right now.

There are no further questions at this time. The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.

Welcome to Day 2 of Citi's 2026 Global Property CEO Conference. I'm Seth Bergey with Citi Research, and we're pleased to have with us Healthpeak Properties and CEO, Scott Brinker. This session is for Citi clients only, and disclosures have 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 into Q&A.

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 3 business segments to position Healthpeak 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, they 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 merger as a launchpad, 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 4 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 0 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 RIDEA 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 Healthpeak though is our culture. It's pretty easy to rally the troops in a bull market when demand exceeds supply. Over the past 4 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 G&A is essentially flat versus 2019, 6 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 for respect the relationship. And then finally, E for excellence in execution. And that really is what drives our performance through the cycles. All right. Q&A.

Great. Maybe to start off, we've obviously had some moving pieces with the announced IPO. What kind of -- why is a diversified strategy the right strategy for Healthpeak? 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 1 in the sheet 3.5 years ago that senior housing is a 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 segment. We also didn't have the cost of capital to grow it over the past 3 years. But with this vehicle in the spinout, we will have a pure-play senior housing REIT 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 our -- 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 2 businesses. And I think over the last 3 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 2 businesses at least.

And then what kind of ultimately convinced the Board that spinning off kind of the senior housing and the Janus vehicle would kind of unlock more value than retaining it with the current company?

Yes. 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. And it will be a pure-play RIDEA REIT 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 a multiple, but it certainly won't trade at 10x, which is where it's trading inside of Healthpeak. So the margin for AI, 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 -- some of your peers have started to kind of enter the space. And as you kind of use this vehicle as a way to kind of grow that business, what do you think will be kind of the differentiators for that platform? 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?

Yes. 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 1 or 2 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 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've built up a $700 million 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 2 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 kind of going to be entrance fee sales or traditional kind of shop? 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?

Yes. 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 and 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 1, 70% of our assets are in Florida and Texas, and it's big markets, Orlando, Tampa, Houston, Denver, et cetera. And the pipeline is similar in terms of big MSAs, high-growth markets, Atlanta, Orlando, et cetera. That's generally the focus.

Great. And then post spin, your -- Healthpeak 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 2 entities?

Would you like to take that, Kelvin?

Yes, I'm happy to take that, Scott. So to start, we've structured a very thoughtful management agreement that will ensure that Healthpeak and Janus Living have separate lines of investment strategy. So there will be no conflicts of interest with respect to investments and there'll be a noncompete between the 2 entities. We have a deep bench of 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 remaining the shareholder? Will you look to kind of monetize that over time? And then just kind of if you -- if that does provide liquidity, how do you think about kind of the capital allocation priorities for Healthpeak?

Well, we think Janus Living will trade well, and therefore, we'll issue shares to grow accretively, and that would naturally dilute Healthpeak's percentage ownership. So we 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 have a 1-year lockup thereafter we'd have flexibility to sell shares. 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 accretively. I mean that's the reason we're doing it, not so we can go out and liquidate the shares.

And then how do you think about kind of Healthpeak post spin from like a leverage standpoint? Will it kind of be leverage neutral? Or just where will leverage sit post the transaction?

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

And then just maybe switching to the Life Science segment. You recently made the kind of Gateway acquisition there. And there's been some different discussion around the overall health of life science, but can you maybe help us understand kind of your -- from your vantage point, where does the life science market sit today? 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?

Yes. So I mean, 4 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 to 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 4 years ago on where the trajectory of the business was heading.

We think we're correct today as well. It's not a public security that we can buy and sell 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 6 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 has 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 submarket 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 breakeven on day 1 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.

Just diving a little bit more into kind of the leasing pipeline. The volume is increasing, but how is kind of the pipeline conversion changed over the last quarter or so? Are you seeing that kind of accelerate? What's kind of the quality of tenants? And then 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?

Yes, 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 Healthpeak clients and the opportunity set is focused on new leasing opportunities within our portfolio. So that's a positive. The size ranges vary from 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 submarkets that are not necessarily the most core in a particular region and seeking opportunities to get into core assets in core locations.

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

Yes. I will clarify that we're also recycling in the 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 Healthpeak's balance sheet that then gets contributed to Janus Living. So the $1 billion 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 10x multiple in the public markets and hopefully, those will 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. 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 3 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 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 shadow pipeline of things that we're monitoring that could become actionable in 2026.

And then going back to the Gateway acquisition, I think you mentioned it's 60% leased. What are you kind of assuming within the 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?

Yes. 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 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 the $1 billion of capital recycling, as you clarified, the $700 million was senior housing. You've done some lap. 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?

Yes. 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 7s, 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 million to $300 million of those per year, a pretty active pipeline that we're working on.

I think Kelvin 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. And then in senior housing, the acquisition pipeline is stabilizing in the 8% to 9% range unlevered return on cost.

I guess turning to the outpatient medical business. Can you talk about what -- 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? How have you kind of recycled capital out of that space? Can you just talk a little bit about the profiles of some of the buyers of these assets? Are they institutional, family office, health care systems? And what kind of do you view as the disconnect between the public and private markets for outpatient medical?

I mean the public markets seem very focused on growth today. That's not always the case. It 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 3 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, re-leasing 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 5, 10 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 impact of AI it's possible that an asset class like outpatient medical will start attracting a lot more attention in the public markets, but we'll see.

And just maybe on that, you mentioned kind of very limited new construction and strong demand just as the aging population requires more care. How does that kind of change how you're thinking about lease economics? 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 the above. So escalators are 3% consistently now. They used to be in the mid-2s. Our re-leasing 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 just on kind of the asset management, you internalized property management. How has that changed your relationship with health systems? Are you seeing just better retention on leasing? Are you seeing more off-market kind of development opportunities? Just how is that relationship evolving?

Yes. 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 Healthpeak 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 that -- 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 and 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 private -- the aggressive bid in the private market for outpatient medical. Would you kind of look to exceed that $1 billion of disposition? And how are you focused on dispositions and balancing those with the need to kind of maintain scale and clustering end markets?

Yes. 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% of the portfolio is 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 each company is just that might tie into one of the recent hires you made on the technology side. But kind of what is your mix of deciding to internally build kind of AI and technology tools or kind of leverage third-party tools? How do you decide which solutions you kind of build internally versus buy? And then just maybe touch on kind of the hire and kind of where you see the opportunity across the different health care food groups that you kind of have exposure to kind of implement those tools and where the opportunity set is?

Yes. And we're doing all 3. I mean we're buying where it's cheap and quick to implement. So that's already in process. I mean we're partnering. We announced something with Palantir. Our CIO made a presentation a couple of 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 we 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 he is 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.

And it's always interesting to get that feedback from people early on before they -- you just have a different viewpoint when you're first arriving at a company. And his feedback was, for a big company, it's the least bureaucratic company I've ever seen, which I thought was amazing because I hate bureaucracy, and we've done everything we can to streamline the company over the past 3 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 2 reasons for joining, I thought was a really telling answer that made me pretty excited. And I think the team was equally 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 one of the questions that came in from the audience is with technology, is AI going to make home health care more of an option for patients? And then just 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 any use cases that you see within senior housing?

Yes. There's an element of home health -- not home health, telehealth from 6 years ago in 2020, obviously, there was a lot of concern about 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. 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 and 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 5, 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-store NOI growth be for health care overall in 2027?

Yes. So there's a lot of components of health care. And in general, we think same-store is 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.

Okay. Will your property sector have more or fewer or the same number of public companies a year from now?

Well, we're going to say more.

Okay. 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.

Great. Thank you.

Good morning, and welcome to the Healthpeak Properties, Inc. Fourth Quarter 2025 Conference Call. [Operator Instructions]

Please note this event is being recorded. I would now like to turn the conference over to Andrew Johns, Senior Vice President, Investor Relations. You may begin.

Welcome. Today's conference call contains certain forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, these statements are subject to risks and uncertainties that may cause actual results to differ materially from expectations.

A discussion of risks and risk factors is included in our press release and detailed in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. Certain non-GAAP financial measures to be discussed on this call exhibit to the 8-K we furnished to the SEC yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. The exhibit is also available on our website at healthpeak.com.

I'll now turn the call over to our President and Chief Executive Officer, Scott Brink.

Thanks, A.J., and welcome to Healthpeak's Fourth Quarter Earnings Call. Joining me for prepared remarks is our CFO, Kelvin Moses. First and most important, thank you to our entire team for battling through an historic life science environment to finish 2025 with earnings in line with the midpoint of our original guidance range and significant transaction activity that should drive future earnings growth. A couple of comments on our segments.

Outpatient Medical represents just over 50% of our portfolio income. Kelvin will discuss our outstanding operating results in that segment but I want to make some more general comments, including the benefits of the merger with Physicians Realty Trust. That merger created the best platform and portfolio in the outpatient sector and positioned us to quickly and profitably internalize property management across our entire outpatient and life science portfolio. $70-plus million of synergies certainly helped offset the life science environment.

The outpatient sector is benefiting from the ongoing shift in care delivery to lower-cost, more convenient outpatient settings. Policy changes from Washington also support demand, including CMS, allowing more and more surgeries to be done in outpatient settings and new supply continues to be very low given the cost of new construction.

All of the above contributed to the favorable operating environment we spoke to when we announced the merger 2.5 years ago. The private market is now recognizing this as well, which is driving down cap rates. We're taking advantage of that demand by selling fully stabilized, less core outpatient assets at strong prices, including $325 million in the fourth quarter at a low 6% cap rate.

Turning to our lab segment. The operating environment over the past 4 years peaked in intensity in the first half of 2025, which is now fully impacting earnings. But in the last 5 months, we've seen continued improvement in capital raising and M&A. New deliveries will soon go to zero and will remain at zero for several years. Certain life science buildings are pivoting to alternative uses, which helps address the supply overhang.

All of the above points to early signs of an inflection point. Naturally, earnings will lag the underlying recovery because of the time to build a pipeline, sign leases and build off the space before rent commences, but the building blocks of a recovery are in place. Four years ago, we had the opposite view of the trajectory in the sector, and this team chose to cut off capital deployment in Life Science, which at the time was by far our largest business segment.

That decision combined with the merger and related synergies has allowed us to grow the dividend and maintain earnings since 2022 when the downturn began, a significant accomplishment given the severity of the environment we've been up against. As the sector recovers, we now have opportunities to acquire properties that would have been untouchable in the past and to do so on a compelling basis.

While others in the sector are retrenching, we're strengthening our portfolio and platform, including the recent Gateway acquisition and hiring Dennis Sullivan to lead San Diego and Claire Brown to lead Boston. Our team was working hard over the new year. In late December and early January, we closed the outpatient medical sales and recycled that capital into a highly strategic 1.4 million square foot campus in South San Francisco.

We see potential for significant upside as the sector recovers as the campus has more than 500,000 square feet of vacancy in a prime location. We now own and control 210 acres in South San Francisco which is roughly 1/3 of the land in the entire submarket. We own 6.5 million square feet of space at various sizes and price points, so we can provide unmatched solutions to current and future tenants. A recent report from a leading brokerage firm showed that Bay Area led all life science markets in the fourth quarter and full year 2025 in absorption and leasing activity and has the largest volume of current tenant demand. That broker report is consistent with our own leasing activity and pipeline and further supports the acquisition.

Moving to senior housing. Our fourth quarter results were outstanding with 17% same-store growth. We point to 3 factors driving the growth: first, our highly amenitized full continuum campuses that resonate with seniors. Second, our asset management team collaborates with our operating partners to develop and execute property-specific business plans; and third, favorable supply and demand fundamentals. We expect all 3 factors to drive another year of strong growth in 2026.

Okay. I want to comment on the Janus Living announcement from January 7. Our senior housing portfolio has been operating at a very high level but was largely ignored inside healthy given its relative scale. In addition, we have significant expertise and relationships in the sector. to valuable resources that were being underutilized. Over the past several quarters, with a singular focus on generating shareholder value, we worked alongside our board and advisers to review a range of strategic alternatives to the status quo. We chose to pursue the creation of a pure-play senior housing REIT. We believe the planned IPO is a unique and creative way to capture value in the near term through a higher multiple on our senior housing NOI and as a significant shareholder in Genus Living to participate in future value creation from internal and external growth. The transaction can be summarized as follows: Healthpeak intends to contribute its entire senior housing portfolio to Genus Living in exchange for all the shares in the new company. Shares in the new company will be sold to the public in the IPO, which will dilute Healthpeak's ownership. Janus Living will own 100% of its properties in a RIDEA structure. Healthpeak will be the manager for [ Janus ] Living with strong alignment given our ownership interest in the new company. Simply put, our economics will be driven by [ Janus ] Living's operating results and stock price.

Since making the announcement in January, we closed on the purchase of our joint venture partner's 46.5% interest in a 3,400-unit senior housing portfolio for $314 million. We now have full control of those 19 communities. Over the next few months, we expect to transition 11 communities to Pegasus Senior Living and 8 communities to CL Senior Living under highly aligned management contracts. We have long and successful relationships with the principles of each company.

Both Pegasus and CL have successfully underwritten and executed operator transitions, and they have strong track records in these regions. We have $360 million of additional relationship-driven acquisitions in our senior housing pipeline. These are newer vintage assets located in high-growth markets in Orlando and the northern suburbs of Atlanta, both markets that we know very well. We expect the acquisitions will close in the first quarter and be contributed to Janus Lived.

We're excited to add Jonathan Hughes to our team as SVP of Finance and Investor Relations. Jonathan knows the sector well and will lead our efforts with the Street at Janus Living, while Andrew Johns will continue to lead that effort at Healthpeak. In terms of timing, we filed a confidential S-11 with the SEC in December. The SEC process will determine the ultimate timing of the IPO, but our current expectation is to close the offering in the first half of this year.

I'll turn it to Kelvin to review our 2025 results and 2026 outlook.

Thank you, Scott. Before we get into the 2025 financial results, I want to briefly highlight one of our operational initiatives. We continue to make investments in technology, team and process to deliver our investment management capabilities to a broader asset base even more efficiently than we have in the past.

A component of this strategy is the acceleration of corporate automation, which will streamline our internal workflows and deliver a best-in-class experience to our clients. We're excited to welcome [indiscernible] Joshi as our new Head of Enterprise Innovation to lead us through this next chapter of our growth. Onkar previously held leadership roles in both health care and real estate at Palantier.

Now turning to the results. For the fourth quarter, we reported FFO as adjusted of $0.47 per share, AFFO of $0.40 per share and total portfolio same-store cash NOI growth of 3.9%. For the full year, we reported FFO as adjusted of $1.84 per share, AFFO of $1.69 per share and total same-store cash NOI growth of 4%. Starting with outpatient medical. We continue to deliver sector-leading results. And for the year, we executed 4.9 million square feet of leasing, including 1 million square feet of new leasing. This is the first time in company history that we have achieved this record milestone for new leasing.

We also achieved cash re-leasing spreads of 5% on renewals, 79% tenant retention and ended the year at 91% total occupancy. We also ended the year with same-store growth of 3.9%, which was above the high end of our original guidance range. These results reinforce our leadership position in outpatient medical, highlight our focus on deepening relationships with leading health system partners, and demonstrate our ability to capitalize on strong sector fundamentals. Most importantly, this reflects a tremendous team effort and a fantastic outcome for our platform.

Moving to lab. We ended the year with 1.5% same-store growth and total occupancy of 77%, inclusive of our recent gateway portfolio acquisition in South San Francisco, which depressed total occupancy by more than 150 basis points. For the full year, we completed nearly 1.5 million square feet of lease execution, including 562,000 square feet of new leasing and positive 5% cash re-leasing spreads on renewals. Since year-end, we have an additional 100,000 square feet of leasing activity either executed or under LOI. And finally, senior housing. We ended the year with 12.6% same-store growth, which was meaningfully above the high end of our original guidance range and includes 16.7% growth in the fourth quarter.

Our 15 life plan communities that comprise our same-store pool have delivered tremendous results over the last 5 years, and our entire senior housing portfolio is well positioned to take advantage of healthy sector fundamentals. Congratulations to Patrick Chang, our entire senior housing team and operating partners for achieving a record year in entrance fee sales highlighting excellence in execution and underscoring the importance of aligning with the right operating partners that have the expertise to deliver leading results.

Briefly on the balance sheet before moving on to guidance. We ended the year at 5.2x net debt to adjusted EBITDA and $2.4 billion of liquidity. We maintained focus on the strength of our balance sheet and prioritize disciplined capital allocation to pursue strategic investments and fund portfolio growth.

Now turning to 2026 guidance. We are forecasting FFOs adjusted to range from $1.70 to $1.74 per share. Our total same-store NOI growth is forecasted in the range of down 1% to up 1%. This assumes outpatient medical between 2% to 3%, lab down 5% to down 10% and senior housing ranging from 8% to 12%. Our earnings guidance for 2026 reflects the life science environment over the past several years. The reduction in earnings is attributable to the loss of occupancy and lab which, as we have noted, has a lagging impact to earnings.

This equates to $0.12 of earnings from the loss base rent, OpEx and capital to re-lease the space and includes the impact of a $68 million contractual purchase option exercise in Salt Lake City at an 11% cap rate. Strength in our outpatient medical and senior housing segments offset the impact of balance sheet refinancing at higher rates, the receipt of loan proceeds of $150 million in 2025 at an approximately 10% interest rate and drag from redevelopment and development.

The leading indicators supporting each of our businesses gives us a foundation to grow from and an opportunity to capture demand as the life science sector recovers. Touching on sources and uses. We're off to a busy start to the year with transaction activity. So far in 2026, we've completed $464 million of acquisitions, including $314 million buyout of our joint venture partner in our senior housing rental portfolio and the acquisition of the remaining South San Francisco Gateway lab portfolio.

We have an additional $360 million of senior housing investments under LOI or purchase agreement. To fund these transactions, we are well underway on our opportunistic capital recycling plan, including $1 billion or more of asset sales, recapitalizations and loan repayments in 2026. Given the strong private market for outpatient medical, we'll continue to take advantage of that demand as an attractive source of capital.

And finally, we have approximately $1.1 billion of refinancing activity in 2026, including $650 million of senior unsecured notes maturing in July and an additional $440 million of secured mortgages maturing throughout the year, which will either be refinanced or repaid and finally, 2 housekeeping items related to Janus Living before we move into Q&A.

With respect to our previously announced [indiscernible] Living IPO, the impact of the proposed formation and public offering are not reflected in our most recent supplemental materials or in our earnings guidance. We should note that we do not anticipate any meaningful impact on 2026 guidance from the transaction. And one last point on this. While we understand there will likely be many questions about the IPO, we are limited in what we can discuss specifically, and we'll focus our answers to information that we have previously disclosed on the transaction and operational information that we provide in the normal course for our Senior Housing segment.

Operator, with that, you can open the line for Q&A.

[Operator Instructions] And our first question comes from the line of Nick Yulico with Scotiabank.

I guess first question, perhaps for Scott. In terms of the gateway, acquisition. Can you just talk a little bit more about how you saw that as a complement to your existing portfolio in that market? And how are you comfortable taking on more vacancy with the acquisition?

Nick, you're always first on the list, you must calling really earlier. It's all good. It gives us something to -- we not to expect, Nick is always first. Yes, Gateway, No. We're really excited about the Gateway acquisition. We feel like decisions we've made over the past 4 years really positioned us to take advantage of these opportunities.

It's a campus that never would have been available at the peak. I mean this is either the #1 or #1 submarket in the whole country. We've got a huge footprint there already. This is complementary and really just give Scott and [indiscernible] and the team an additional 1.5 million feet of it's really opportunity is the way we're thinking about it, not so much vacancy. And we're using proceeds from our outpatient sales where there's a really deep market, we're getting great prices, fully stabilized assets that have decent growth, but certainly not the type of potential growth that we see at this gateway campus, and we really view it as one enormous campus at this point.

I mean it's 6.5 million square feet, you can park your car [indiscernible] and walks to the whole thing. I mean it's pretty impressive in terms of what we can provide to our current tenants and most important perspective tenants. We really are the market leader in South San Francisco. It had really a phenomenal 4Q in terms of leases signed, a lot of tenants in the market. Doesn't mean that all that vacancy goes away within a year. But the momentum is positive. I love the team that we have on the ground, and we see kind of a breakeven year 1 yield with the opportunity to create some real growth over time at a basis that I think in the 5, 10 years from now, people will look at it and say, "Wow, that's an amazing buy at a time there was really no one else at the table. So yes, we're pretty excited about it, Nick.

Okay. Great. And then the second question is on the lab segment. And I wanted to see if there's any way you can give us a preview of how to think about occupancy sort of total occupancy for [indiscernible], the cadence of that throughout the year? And then also, I think you've built in some cushion for some tenants where there may be a capital raise or not. So there is some contingency on that, if you can just sort of talk about that impact as well.

Yes. Let's assume that the recent improvement in the capital markets and capital raising continues. We saw that commence around Labor Day and '25, and it's continued into the first month of the new year. The conversations we have with bankers, capital markets, desks, venture capitalists are quite positive.

So we are optimistic that, that will continue. We do think total occupancy by year-end '26 should improve from where we ended the year in 2025, just with the caveat that the leases in life science are big. They're chunky the average size is like 60,000 square feet. So it can jump around from quarter-to-quarter. But the pipeline is good. It's weighted more towards new leasing, which is a huge positive, and we don't have a ton of expirations this year.

So it should be a good setup to start growing occupancy again. But again, it obviously depends on the capital markets continue to be cooperative.

Our next question comes from the line of Varel Granat with Bank of America.

I first also just wanted to dive in deeper with the lab leasing. And just thinking about it going forward, I believe you made the commentary around $100,000 of leasing activity under execution or -- can you give us a little bit more background around that $100,000. It seems a little bit lower than potential past LOIs that we've been seeing that you've stated on calls. So are you seeing a slowdown in incoming -- or is it just year-end processes that now need to pick back that heading into '26?

it's Scott Bohn. I can take that one. I mean I think when you look at where we are in the calendar year, you have the holidays towards the end of the year, which are always a little bit slower as you roll right into the JPMorgan conference, which a lot of these companies spent a lot of time preparing for. So it's typically a slower time of the year. We do feel good with the pipeline with where it is today, a little over 1.5 million square feet.

You look at that compared to where we were last year, we're 50% higher starting the year. So our jumping off point going into '26 is much improved from where we were a year ago. I think what's important, too, on the pipeline, as we look at it, the mix of that pipeline continues to shift towards new leasing versus being very heavy on the renewal side 9, 12 months ago.

So we're -- I think it's a good indicator of where demand is broadening.

Okay. Great. And then also on the lab guidance, the negative 5% to negative 10% same-store NOI growth. Can you walk through a few of the underlying assumptions within that range? I understand that a chunk of that is coming from the '25 expirations, but then also looking forward to '26, what elements are in that range that is building?

Yes. Darryl, this is Kelvin. I'll take that one. I think what was probably most important from the fourth quarter results is that the disconnect between the occupancy decline and the NOI that we achieved for the quarter, it's probably important to note as you're looking into 2026 as you think about that 5% to 10% decline to same-store NOI occupancy today is in the high 77% area.

We do have the opportunity over the course of the year to improve that, as Scott and Scott just mentioned. But we're we're likely going to see in the first quarter some incremental impact to NOI and earnings as are the lower occupancy at the end of the year.

So that trajectory is not clear in the Q4 numbers, but will become a little bit more clear in the first quarter as that occupancy starts to set into income.

Next question comes from the line of Austin Wurschmidt with KeyBanc Capital Markets.

Kelvin, I was hoping to better understand the impact that the lab occupancy losses are having on 2026 FFOA and the $0.12 that you highlighted, is that specifically from the expirations that occurred in the fourth quarter of last year and tenants that didn't renew? Or are there additional move-outs in that figure beyond maybe what was captured in the lease expiration schedule.

Yes. So I think it's a combination of things. We walked through the component parts of that $0.12 impact there's the Salt Lake City transaction that we mentioned, that's a component of that is about $0.01 from the $68 million sale at 11% cash cap rate. That's a component, there's also outside of the lab portfolio, our refinancing and borrowing costs were just higher today than our in-place levels.p

So that's another reduction to our 2026 FFO. We also received $150 million of loan proceeds at a 10% interest rate. So that's offsetting the FFO performance in that $0.12 number that we're talking about, specifically with respect to the lab occupancy we did lose about 600 basis points of total occupancy for the year. And for each 100 basis points of total occupancy, that's about $0.01 to $0.015 impact on earnings. So that incorporates the base reduction, the OpEx that we will absorb with respect to the triple nets and then some costs for re-leasing.

So as we get into the first quarter, again, 2026, you're looking at occupancy levels now that are more representative of where earnings are headed. So you'll start to see the income reduction in that first quarter and through the year. But again, when we get to the end of the year, we hope that occupancy will start to take back up again and we'll start to be able to capture earnings and growth from there.

And can you just -- that was helpful, but can you just help me better understand what's driving the lag between, I guess, when the expiration occurs and the financial impact? Are these planned move-outs where they've gone to month to month and you're still collecting rental income or what's driving that delay between what we're seeing, I guess, in the supplemental on the operating metrics and then what actually flows through to the financials.

Yes. I mean part of it is also open, you've got our reported occupancy is just at a point in time. It's just literally December 31. So it can be a little misleading, and I get back to the point I made that our life science leases tend to be pretty big. They're 60,000 feet on average. So you did have a number of lease expirations in 4Q, where we got the rent for most or all of 4Q, but then lost the occupancy. The very last day of the year.

So that's a material component. And then when we have an early termination, we generally do have security deposits, letters of credit. In some cases, there are modest termination fees. All of the above can help cover up for a quarter or 2, the impact of an early termination, but it's really kind of that forward 12 to 18 months with a full impact is realized. And of course, you're now putting capital into the building. So it's really a combination of all those things that explains the lag in -- to the impact in earnings. The same will be true on the way back up, as we sign these and grow occupancy, it will take a little bit of time for that to flow through earnings.

So it does go both ways. Right now, we're on the wrong side of it, obviously, but we feel like the building blocks are there to get on the right side of it as we look towards 2027.

I appreciate the clarification there. And just lastly, I guess, on the 1.5 million square feet, can you characterize the types of tenants looking for space are these large established biotech companies or more smaller kind of early-stage type tenants that may have a greater sensitivity to the capital markets backdrop?

Austin, it's Scott. I mean I can take that. I think if you look at the pipeline, it's a pretty good cross-section of the industry from Series A companies up through established public biopharmas and some of that is new tenancy that would be to our portfolio, some of that tenants renewing some of the best tenants expanding within the portfolio.

So it's a pretty wide range in the pipeline today.

Next question comes from the line of Rich Anderson with Cantor Fitz.

So back to Gateway and Scott, you said in a response to an earlier question, 5 years from now, we'll look back, I don't think you're being scientific in saying that it's going to take 5 years for that, that campus to recover. But when you guys were thinking when you were underwriting this, what was the cadence of the recovery at Gateway specifically? And how do you think that compares generally to Life Science overall? I mean, do you think it moves quicker or slower for whatever reason versus the entirety of the life science continuum?

Yes. So I mean the acquisitions breakeven on day 1, just to be clear, so the upside probably gets captured over the next 2 to 3 years, best guess incrementally? So yes, the 5 years, 10 years, obviously, I'm not -- that wasn't intended to be a comment about the lease-up period.

So I can clarify that if that was somehow misunderstood.

No, no, not at all. I figured that. I just wanted to put it on record and so that -- okay, so -- call it, 2-plus years to sort of recapture some of that vacancy or a lot of that 500,000 square feet of vacancy is that about right? I mean, rough guess right now, who knows.

Yes. I mean it's not going to go to 100%, but yes.

Yes. Got you. Second question for me. different topic for Kelvin. You got the $1.1 billion of refinancing activity for this year at a 4% rate. But then you look at your debt maturity schedule, you got some chunkiness in the aftermath in '27, '28 and '29, mostly at lower rates than the 4%. And I'm wondering, is there a strategy around any of that preemptively for this year? Or do you let that ride out and see what the day brings this time next year for future debt expirations?

Yes. I think just like in years past, Rich, we'll be very opportunistic in access to the market when we see the best pricing opportunity. This year, we'll focus on our maturities that are ahead of us. the in-place rates are fairly attractive relative to the new issue pricing.p

So we'll continue to try to be opportunistic throughout the year, but there's no plan currently to accelerate some of our 2027 maturities into 2026.

Next question comes from the line of Seth Bergey with Citi.

It's Nick Joseph here with Seth. Just on the 2026 expirations for Life Science, what percentage of that do you know is moving out? And where are you in negotiations with the remainder?

I can start to this is Kelvin. So for 2026, we have about 450,000 square feet of expirations, and that will be fully offset by commencements throughout the year. I think we did a great job of pulling forward some of our renewals into 2025 to really pull that number down as we head into 2026 and a substantial majority of our expirations are actually in South San Francisco, our biggest market, where we have the deepest tenant relationships.

So we feel good about being able to capture some of those renewals, but Scott, maybe I'll kick it to you to add some more context.

Yes. I think as Kelvin said, we did address some of the 2026 expirations already in 2025. So some of the ones we're working on later in the year are still TBD still probably a little bit too early to tell on some of those...

That's helpful. And then just as you've been going through the leasing process. Has there been any changes in the pipeline in terms of converting to executed leasing and conversion time lines?

Yes. I think you're still working through a process where it's different than it was in the peak when there was no space available and people are making very quick decisions. People are being Boards and CEOs are being a little bit more cautious in taking the time to make sure that they have the plans fully baked and the economics [indiscernible]. So the duration is still longer than it used to be. But I think what we're seeing today is the credibility of the pipeline is much stronger and so much that we have more confidence in the pipeline will transact versus as you move back to 2 years ago, it was a lot of tire kicking versus deals that we're actually going to turn into the transaction.

Next question comes from the line of Juan Sanabria with BMO Capital Markets.

Just going back to kind of the bridge from fourth quarter to first quarter with regards to the occupancy loss being back-end loaded. Can you comment on like what that NOI bridge like? Was there any -- can you quantify how much onetimers that were in the fourth quarter that are going away? And what like the pro forma NOI is on the lab side, just so we can have a clean runway to start modeling for the full year '26?

Yes. This is Kelvin [indiscernible]. I think maybe I'll start and it's a lot to unpack. But I think starting with total occupancy at around 77%. We came down about 375 basis points sequentially. And from an NOI perspective, that shift in NOI will be a lot more pronounced in the first quarter, as we mentioned.

If you think about our guide between down 5% to down 10% for the segment, that should give you some context for the decline that we'll expect in that first quarter from a same-store NOI perspective. As Scott mentioned, there were a number of other items that don't impact same-store as well that we got the benefit of in 2025 that you won't see in 2026.

So there's incrementally more of an impact with respect to earnings. So if you look at from an earnings perspective, the midpoint of our guidance range at $1.72, if you take that over the 4 quarters it will probably be a little bit higher in the first quarter and the fourth quarter, and it will be a little bit lower in the second and third quarters, plus or minus $0.01 as you think about it. But hopefully, that gives you a little bit of direction in the trajectory that we're expecting.

Okay. Great. And then just a question on seniors housing I know you guys kind of commented that you'd rather not get into specifics. But just curious on the previous Sorell JV how we should think about CapEx for that business? And what kind of deferred CapEx there may be associated with that portfolio with the transitions upcoming? I'm not sure what kind of unit per year spend has been put into those assets. But just curious on how we should think about CapEx for that piece of the portfolio.

Yes. Juan, it's Scott. And it's not that we don't want to talk about it. We just have to focus our comments on Health, just to be clear. So this is totally fair game. These are assets mostly in Houston in Denver.

So big markets, we think they've underperformed, not be capital. There will be some normal transition stuff that we have to put into the buildings, technology, signage, stuff like that, but it's not like there's some massive CapEx plan to revitalize these. We think this is more operational in nature.

So we're glad to have full control of the assets again, and we've already moved decisively after that buy out to align ourselves with 2 groups that we've got a good track record with, and we have high confidence that they're going to turn these around over the next 2 to 3 years.

So there's significant opportunity in these buildings, so we're excited to capture it.

Next question comes from the line of Wesley Golladay with Baird.

Can you unpack the lab watch list? How much has that list changed from a year ago? Obviously, flushed out a lot of the tenants in the last few quarters. And I guess maybe can you quantify the exposure to, call it, higher risk preclinical Phase I companies?

Wes, I'll start. This is Kevin, and then I'll probably ask Scott to jump in as well. But I think if you start looking back at the capital markets activity over the last 4 months, we are certainly encouraged by the volume of activity both from an M&A perspective and equity capital markets perspective. The IPO backlog is building, secondary equity offerings, have been far more prevalent than what we saw for the first 3 quarters of 2025.

M&A activities picking back up again. So there's a good amount of capital recycling again in the biotech sector, which is very important to see and as a result, our watch list has reduced considerably as tenants have raised capital.

So we're encouraged by that. That being said, in our portfolio, we're still monitoring tenants as we always do. It's just a part of this business. And there are some folks that we expected to vacate in the fourth quarter that didn't, that could come out of our portfolio. So we're still keeping our eye on specific names. We could be surprised to the upside as well, where they continue to engage in BD discussions and engage in strategic discussions that could bring capital into their businesses and allow them to continue beyond our expectations.

So I don't know, Scott, if you'd add anything more?

Yes. I think just from an industry perspective, too, which is fueling the capital markets, I mean, you have the interest rate cuts, the 3 cuts last year, the 2 in the fourth quarter were fairly helpful for the industry and from a policy perspective in D.C., they reached MFN deals with 14 companies. Those deals had little to no impact on share prices of those biopharma companies.

So the read through is the general impact on those deals is going to be pretty minimal on biopharma, which is helpful to understand and just get more clarity there. And then you look to the FDA, the FDA approved 52 drugs last year, which is right in line with the 10-year average, a little bit below the 5-year average, but given all the chaos and change there, it provides reassurance to the industry that the agency is still functioning and hitting dates and processing approval.

So we talk to our CEO, as I talked to 30 different CEOs at JPMorgan conference and ask the question to virtually all of them and the response is the feedback they're receiving from the agency is normal and responsive. And the FDA, again, if you the commissioner speaking they're talking about process improvements and streamlining reviews and lowering costs, which are all changes -- helpful changes to the industry, which again isn't directly correlated to the capital markets, but certainly helping the sentiment behind the industry. And to go back to answer the first part of your question, too, less than 10% of our ABR on the lab side is from preclinical.

And then when you look at your leasing pipeline, is that starting to shift more towards some of the redevelopment and development properties?

Yes. We had a good quarter on the Devon Reto side, we executed 121,000 square feet of leases on our redevelopment properties in the quarter. Additionally, we completed 100,000 square feet of TIs and delivery space, both combined Advantage and Gateway in San Diego.

So certainly, we have more credible activity again in ongoing discussions. On those development and redevelopment spaces today than we've had in a while, but nothing far enough to talk about in detail today.

Next question comes from the line of Vikram Malhotra with Mizuho.

I guess just 2 clarifications. So first of all, I guess, Kelvin, can you just confirm or clarify, fourth quarter, I think you had between $0.02 or $0.04 of whether it was termination income or the benefit from the occupancy lag versus the income hit, et cetera. like you mentioned, in terms of security deposits.

So that's like a $0.12, $0.13. But how much of that is actually still flowing into 1Q? Because you mentioned 1Q FFO is likely higher before we -- before we see this -- the full impact just because $0.03 is a lot in the quarter.

So I just want to make sure we understand how much of that $0.02 to $0.04 or $0.03 kind of percolates into 1Q?

Yes. And maybe just to jump to first quarter FFO, it's probably down $0.03 from where we ended the year. So $0.47 is something closer to $0.43. So maybe that helps give a little bit of context. I think the numbers that were benefiting the fourth quarter will naturally come out as we start in the first quarter. But Vik, I think that should give you some context in terms of the trajectory between Q4 to Q1, just to get right to it.

Okay. So there's some security deposit term letters of credit that still benefit you in 1Q and then they fully go away in 2Q onwards? Is that fair?

I think they largely go away in the fourth quarter, but you'll see the benefits that we got in the fourth quarter that were not related to vacates in our portfolio included some free rent burn off. So that benefit is coming in in the first quarter as well.

So there are other natural benefits escalation from leases in 4Q that started to provide some incremental earnings benefit you'll start to see in the first quarter as well. So not just those items that we were talking about around terminations and letters of credit, but that should hopefully give you enough context relative to the year, how the first quarter will start.

Okay. And then just on the life science occupancy build. Just to maybe give us a bit more context, do you mind giving us kind of where occupancy is either portfolio-wide or same-store like leased versus economic today. And then just clarify again, I think you made a comment on exploration. Like what do you actually have baked in for renewal on the expirations in 2026?

What was the first question? Vik, we didn't catch you.

Just the -- like a lease versus -- what's the lease versus occupied or like economic versus lease rate?

So like what you asked leased, which may not be like -- which may have been leased but not commenced. So different -- there's a difference between the two. So I think you had 77-ish total portfolio...

We've got a couple of hundred basis points of leases that have been signed that haven't yet commenced that should start in '27. That probably offsets most of the non-renewals, although Scott already said, we can't have full clarity on the renewals. A lot of them are back-end weighted. So I'll just repeat that. And I'll also repeat what I said earlier is we think total occupancy should increase from year-end '25 to year-end 2026.

That is what is in our guidance.

Okay. And that's the combination of your -- like you hope it's a macro comment. But it's also based on kind of micro where you look at the pipeline today, and you can see a higher conversion rate perhaps than prior. Is that fair like it's not just sort of a macro. You need the macro to stay where it is, but you actually also see specific conversion?

Yes, it's certainly fair to say we're looking at the macro, the submarket, the lease, I mean, from top to bottom, the [indiscernible] putting together our guidance, we're looking at all those components. Yes, that is fair to say.

Next question comes from the line of Mike Mueller with JPMorgan.

What is competing guidance for AFFO CapEx and capitalized interest to 2026? And what's that CapEx split from the segments?

Maybe we'll start in our guidance, we had just over $500 million of CapEx in our plan, and that's a combination of redevelopment capital, the nonrecurring capital development capital. So it incorporates everything. The timing of that spend is naturally throughout the course of the year.

Last year, we had about $600 million. This year, it's come down a decent amount, and we'll be executing on that plan throughout the year. So the amount -- I don't have it specifically in front of me, just for the AFFO component of that, but I think we're going to be lighter on the capital spend this year than we were in 2025.

There's no material change in AFFO CapEx in '26 versus '25, Mike. So if you just look at the supplemental in the disclosure there, that's a good run rate for all 3 business segments.

Got it. Okay. What about capitalized interest?

Yes, cap interest is flat actually. So no change to cap interest.

Next question comes from the line of Omotayo Okusanya with Deutsche Bank.

Yes. I wanted to go back to the gateway transaction? I'm really kind of understand almost a little bit to Rick's question. Trying to understand exactly how you expect that to kind of ramp up over the next few years? And I guess I asked the question in the context of you're kind of buying it at 60% occupied according to media reports and also buying it from kind of 2 other well-known players in the space. So it's like -- just kind of just exactly like what are you seeing versus like they're kind of exiting and you're kind of doubling down. And I'm just trying to understand those dynamics a little bit and ultimately kind of when you look at this investment 3 to 5 years down the road, how do you expect it to be performing?

Yes. Well, I can't necessarily speak for others, I mean, they're in a joint venture. I think they made it public. They're looking to raise money in 2026 to fund various things, development pipelines, et cetera. We're in a much different situation. We're being opportunistic. Balance sheet is in great shape. We don't have the big development pipelines. So we're in a position to opportunistically acquire assets with a lot of upside but also good current yield.

I think that's the right way to think about it. Low 6 is going in. A lot of capital has already been put into these buildings. The future capital that we would need to invest is really good news capital tied to leasing. So that's a positive thing. If we're investing capital into these buildings and means we sign a lease. And we see high single-digit unlevered type return opportunity in this market as it stabilizes.

So that's pretty compelling in comparison to the things that we're selling.

That's actually very helpful context. And if I could just ask 1 more about just like [indiscernible] around Janus. I just -- I mean, all your CCRC assets going to be going into this thing? Or if you just in housing stuff and then the skilled nursing and the memory cares to kind of remain at [indiscernible]?

Yes, Tayo, let me clarify that. So when we complete the IPO, all of our senior housing assets, whether entry fee or rental, would be contributed into Genus Living. So going forward, Healthpeak will not own any senior housing real estate will just have an ownership interest in the stock of Janus Living.

So the memory care and all the other stuff that's part of the CCRC is also going into January.

That's right. Yes, those are campuses that we can't break them up. That's one asset. They can't be broken on.

That's it. All right. And I guess, over time, you'll kind of assume more details about the external management contract and things like that.

That's right. Outside of what has already been made public, Tayo. So if you have a question about what's been made public, I'm happy to address that here.

Next question comes from the line of Jim Kammert with Evercore.

With the gateway transaction behind you, what is the appetite, just generically, you still have some guidance in terms of $1 billion plus or minus of acquisitions in '26. What's your appetite for opportunistic lab now that you've already got gateway under your belt?

Jim, we've got $1 billion of acquisition and stock buyback built into our guidance. We've already closed or under contract to just over $800 million between the gateway transaction and the senior housing opportunities that should close here in the first quarter.

So you're right, there's a little dry powder, not significant. But we do have a pretty large pipeline of asset recycling, whether outright sales, recaps, loan repayments. So there's at least the potential for that $1 billion to grow depending on whether we can recycle capital. We're obviously not looking to issue equity at our current stock price. But if we're more successful in selling assets or recapping assets, we would have additional dry powder to look at opportunistic life science investments. There's a number that we're keeping our eye on. But certainly nothing that is ready to be disclosed or under contract. But fair to say that we'll be very disciplined in which assets in which submarkets we would pursue, that was the case even in the peak, we did not get over the aggressive. We stayed disciplined our entire portfolios in the 3 core markets that will continue. So anything we do, I think, would have a lot of crossover or similarities to what we just did in Gateway. We're in a known submarket a team that can execute and what we feel is a real competitive advantage to drive lease-up.

Fair enough. Understood. And then something we haven't talked about are most of the synergies relating to the physician's realty on the outpatient medical side, are those synergies basically in run rate today or late '25, I guess, I should say? Or should we sort of have some -- maybe a little further margin implications for the outpatient medical across '26.

We've got another $2 million to $3 million of square feet that we could internalize property management over the next 1 to 2 years. So there's still a little bit of opportunity, but it's not material. Most of that $70-plus million of synergies are basically included in our not only fourth quarter 25% run rate but our 2026 guidance as well, Jim.

Next question comes from the line of John Pawlowski with Green Street.

My first question is on the operator transition of the assets held in the sovereign wealth JV. Do you expect occupancy declines in the near term as the new operators take over? And how long do you expect for the properties to reach more of a stabilized market type of occupancy level?

John, Scott here, hopefully, we can get those transitions done by April 1. That's at least the target. Teams are working hard to do that, including the operator. So we appreciate their cooperation. There could be a small decline in occupancy, but I don't think it's material.

We see significant upside, 50% plus NOI growth potential over the next 2 to 3 years, in our view, highly aligned management contracts and operators that have a really good track record with us and in these markets.

So pretty optimistic about the upside. But yes, there could be a quarter or two of transition-related occupancy loss John?

Okay. And then last question maybe for Scott Bohn. I want to better understand the composition of tenants that have other signed leases that are in your pipeline kind of the post Labor Day.

Can you give me like rough ballpark, what proportion of tenants are more of the traditional wet lab users versus other perhaps AI, Romo, quasi traditional office users?

Yes, it's a pretty good mix. We did have some office-related users signed leases in the fourth quarter. We did one GMP manufacturing type space with an existing tenant of ours in a redevelopment project and then several wet lab spaces. So pretty good mix. We also signed one lease with a group who we announced it on social media, but it is actually a drilling manufacturer, we just raised $600 million at -- I think it was a $6 billion market cap.

So a wide variety of uses. And I think that underscores the ability within our buildings to capitalize on the robust infrastructure that is in those buildings. And be able to play cast a wide net in our leasing. And especially in the Bay Area, where we've seen a real convergence office demand increasing AI and AI adjacent, both in office space, but also on the lab front as well.

Maybe a follow-on there. as you see that convergence, what are the implications for the rents those tenants are paying? Are they [indiscernible] all else equal? Are they decently lower than the wet lab user is going to pay?

Yes. I mean, if you're just looking at a straight office space, which we don't have all that much of. I mean, that's obviously going to be a lower rent than a last phase. But each deal is different overall rents and economic -- net effect has ticked down a little bit, but we've seen a little bit more free rent in certain deals in certain markets, but it's all specific.

I mean it spends on the space, ends on the build-out of the space, we have been able to control the TIs quite well. If you look at our second-generation leasing in our renewal leasing number close to zero in our TIs on our new leasing pick down as well.

So I think you got to look at a little bit more than just the face rate on these deals is the total economic package. That's how we think about it.

And our last question comes from the line of Jamie Feldman with Wells Fargo.

I'm pinching for John Kilchewski here. So we appreciate all the guidance and all the moving pieces on '26 for the key line items. As we think about how those move throughout the year, is it safe to assume that '26 is a bottom for FFO or do you think it can still be lower in '27? I know you -- I mean, I'm not really asking to give guidance, but how should we think about like the key line items and how they progress throughout the year and what that means for '27?

Jamie. Yes, so 2/3 of the portfolio is doing really well. Even if we're successful with the IPO, most of those earnings will still flow through Healthpeak's financial statements.

So there really isn't any impact from the IPO there, which is one reason we really like it as an alternative outcome for shareholders. The outpatient fundamentals are very strong. If anything, the growth outlook in '27 looks even more favorable just given the leasing trajectory and occupancy trajectory, and we obviously see Life Science coming down.

I mean we said -- throughout this call, we see occupancy increasing a bit from year-end '25 to the year-end '26. That should be a positive. The variables are obviously what happens with interest rates. As Rich pointed out, we still have some refinancing to do over the coming years. But the building blocks of the actual portfolio sure feel like 26 absolutely would be a bottom.

Okay. Great. That's super helpful. And then just how do you think about doing an equity acquisition like you did versus some of the higher-yielding [ mezz ] or loan-to-own deals you had done in the past at higher yields, like why the transition to put so much capital into that type of investment versus more fixed income type stuff?

Yes. I mean we only need 2 of the loans. Those are just unique situations in San Diego, about a year ago. We do like those in terms of the risk profile versus the return. So if those are opportunities in '26, we continue to look at those. This was just a unique opportunity to buy a campus we absolutely wanted to own from day 1 at a breakeven yield with the ability to capture a bunch of upsides.

So it's just different dynamics. The 2 loans we did, those buildings were essentially empty. So just a very different return profile where we thought the loan with a pathway to ownership was the right structure for those 2 particular deals.

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

Thanks for your time, everyone. Hopefully, we'll see you tomorrow in Florida. Take care.

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

Good morning, and welcome to the Healthpeak Properties, Inc. Third Quarter 2025 Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Andrew Johns, Senior Vice President, Investor Relations. Please go ahead.

Welcome. Today's conference call contains certain forward-looking statements. Although we believe expectations reflected in any forward-looking statements are based on reasonable assumptions. These statements are subject to risks and uncertainties that may cause actual results to differ materially from our expectations. Discussion of risks and risk factors is included in our press release and detailed in our filings with the SEC.

We do not undertake a duty to update any forward-looking statements. Certain non-GAAP financial measures will be discussed on this call. In an exhibit of the 8-K referred to the SEC yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with regulatory requirements. The exhibit is also available on our website at healthpeak.com.

I'll now turn the call over to our President, Chief Executive Officer, Scott Brinker.

Thank you, Andrew, and welcome to Healthpeak's third quarter 2025 earnings call. Joining me for prepared remarks is our CFO, Kelvin Moses. The past 60 days or so signal a turning point in our business. Leading indicators in life science are turning positive and private market values for outpatient medical are strengthening. As a premier scaled owner in both businesses, we see significant value and upside when we look at our stock price today.

Two years ago, against the backdrop of raging inflation, the outpatient sector was out of favor in both the public and private markets. We saw a sector with good fundamentals that we're getting even better and seized an opportunity to grow our portfolio by $5 billion in a strategic merger with Physicians Realty Trust.

In doing so, we established the best portfolio and platform in the outpatient sector. The merger also accelerated the strategic goal I described 3 years ago to get closer to our real estate and our tenants. We've now internalized property management on 39 million square feet with line of sight on another 3 million square feet.

We now own the tenant relationship and the local market knowledge. The internalization also allows us to deploy technology at the property level quickly and at scale. With the addition of JT, Mark and team, we deepened our relationships across the outpatient ecosystem, creating proprietary growth opportunities, including accretive new development projects.

Flash forward to today, as inflation has come down, there's a deep pool of buyers for outpatient medical. It's a great time for us to sell less core real estate and to recap some assets. We're in various stages of negotiation and execution on transactions that have the potential to generate proceeds of $1 billion or more. We see an exciting window to recycle outpatient sale proceeds into higher-return lab opportunities where the leading indicators are starting to turn positive.

Increased M&A less regulatory noise, lower interest rates, positive data readouts, solid FDA approvals and priority reviews and recent biotech outperformance in the stock market. The real estate market will obviously lag, but the building blocks for a recovery in demand are encouraging. Our leasing pipeline today is roughly 2x the pipeline at the start of the year.

We're also seeing some vacant development projects across the sector get absorbed by alternative uses, which will help accelerate a return to more balanced supply and demand. Important to note that purpose-built lab buildings are highly flexible and can support many alternative uses. I'll repeat that our occupancy will decline for the next few months due to expirations and terminations, but we're now gaining more confidence that will be the bottom on occupancy.

At that point, we'll have more than 2 million square feet of available space in good submarkets to lease up and recapture NOI. We recently welcomed Denis Sullivan to our team. He will play a pivotal role in our life science business and investment strategy. Denis spent 14 years at BioMed, including time as CFO and CIO. We have exceptional local market leaders in the Bay Area with Natalia De Michele, with dentists in San Diego and with Claire Brown in Boston, all rolling up to Scott Bowen, our segment leader. We believe we have the footprint, people and balance sheet to capture market share as the sector recovers.

Our CCRC business is performing at a high level. Six years ago, we bought out the 51% interest in the portfolio held by our joint venture partner, and we installed a new operator. Since then, NOI is up more than 50%, including double-digit growth this year. We believe then and now that the entry fee product is very attractive to seniors on fixed incomes, we are looking for a lower monthly rent payment.

The continuum of care we offer is viewed favorably by seniors and their families because it creates peace of mind they won't need to move again in the future. And that's very important at that stage of life. Sequential occupancy in the portfolio was up 70 basis points, and we expect continued growth in the fourth quarter.

I'll wrap up with our technology initiatives, which are already paying off with efficiency gains. Our G&A this year is projected at $90 million, which is less overhead than we had 5 years ago, despite significant inflation across the economy and closing a $5 billion merger. But the cost efficiencies are only part of the story. We intend to create a tech-enabled platform to streamline our operations, differentiate our property management and leasing platforms and expand tenant services to drive new revenue opportunities. We'll have more details to share in the coming quarters.

Let me turn it to Kelvin.

Thank you, Scott. I'll expand a little bit on the technology initiatives that Scott just mentioned. We're advancing our strategic plan to strengthen our capabilities as an AI-enabled real estate owner with a leading investment management platform designed to meet our clients' needs across geographies and asset types.

Operationally, internalizing property management now gives us end-to-end control of our workflows and establishes a consistent foundation to deploy technology across the property. Technology adoption of real estate has historically lagged other industries, and we see advantages to moving now. We're focusing our initial efforts where data and automation can offer more time in the field, and that starts with improving property operations, facilities engineering and accounting. We've partnered with a leading enterprise technology firm to help us drive this shift.

Our automation initiatives are building a stronger foundation for our data architecture that will enhance connectivity across internal systems and reduce manual work. Our approach allows us to make measured investments and preserve long-term flexibility as commercial tools evolve. These fresh perspectives from outside of traditional real estate will also help us innovate faster. We see every part of our business as an opportunity.

Now moving into the third quarter results. Financial and operating performance was in line with our forecast. We reported FFO as adjusted of $0.46 per share, AFFO of $0.42 per share and year-to-date portfolio same-store growth of 3.8%. Starting with CCRC. Our portfolio delivered another strong quarter, driven by continued pricing power modest expense growth and 150 basis points of year-over-year occupancy gains.

Cash NOI increased by 9.4% for the quarter. We remain focused on these key indicators of performance as each flow through to NOI and ultimately, earnings growth for the platform. Our product offering and value proposition continues to resonate with consumers, and we remain well positioned to benefit from healthy demographic trends that support long-term growth.

Moving to outpatient medical. Fundamental supporting leasing demand for outpatient continues to be favorable. During the quarter, we executed 1.2 million square feet of leases achieved 3% escalators or above on executions and positive cash re-leasing spreads of 5.4%, with TIs also below historical averages.

Year-to-date leasing volumes totaled 3.2 million square feet, and we ended the quarter with total occupancy up 10 basis points at 91%.

New leasing comprised of 270,000 square feet with Q3 representing the highest quarter of new leasing starts in the combined company's history. TIs on renewals were only $1.41 per square foot per year and year-to-date leasing commissions were approximately $0.87 per square foot per year. Additionally, we executed another 123,000 square feet of leases in October, and we have another 895,000 square feet under LOI.

We are pleased to recognize our property management team whose sector-leading Kingsley client satisfaction results reinforce the consistent strength of our tenant retention and help ensure efficient operations for our clients.

Thank you to the entire property management team across the organization for their collective efforts. The combination of consistent operating performance, favorable sector fundamentals and deep tenant relationships positions the portfolio for sustained growth and continued excellence in execution.

And turning to Lab. During the quarter, we executed 339,000 square feet of leases, of which 45% were new. And on renewals, we achieved a positive 5% re-leasing spread. Year-to-date leasing volumes totaled 1.1 million square feet, and we ended the quarter with total occupancy of 81%. We continue to see escalators on executed leases between 3% and 3.5%, which supports sustainable long-term growth.

Tenant improvement allowances on renewals declined to $1.30 per square foot per year, while corresponding rents rose to $65 per square foot given space condition. For new leases, TIs averaged approximately $15.73 per square foot per year, which when excluding two development leases was approximately $5.50 per square foot per year.

In October month-to-date, we executed 22,000 square feet of leases and have an additional 291,000 square feet under LOI. Forward-looking indicators of demand continue to improve. Since Q1, the pipeline has doubled to 1.8 million square feet, about half are evaluating our current unleased availabilities.

Each of our core markets is experiencing a similar uptick in demand. We have a healthy mix of discovery stage, clinical stage and commercial face tenants and some incremental demand from tech and AI-based companies. We're encouraged by the strengthening demand profile as we move toward in occupancy bottom and ultimate recovery. The decline in occupancy we experienced in 2025 will flow through to earnings in 2026. Recent leasing, together with the conversion of our active pipeline is expected to contribute to occupancy and earnings starting in late 2026 and thereafter.

Moving on to the balance sheet. In August, we issued $500 million of senior unsecured notes at 4.75%. We achieved a spread of 92 basis points with no new issue concession. This execution represents one of the tightest investment-grade REIT 7-year spreads year-to-date. We ended the third quarter at 5.3x net debt to adjusted EBITDA and $2.7 billion of liquidity. We continue to prioritize balance sheet management and disciplined capital allocation to maintain maximum flexibility to pursue strategic investments and fund portfolio growth.

Now turning to guidance. We are reaffirming our FFO as adjusted and same-store expectations within our original guidance range. We continue to outperform in CCRC in outpatient medical at or above the high end of our initial segment guidance.

In addition, we reduced our interest expense and G&A guidance by a total of $10 million. This reflects better-than-anticipated pricing on our senior notes issuances, technology-enabled productivity gains, and additional synergies related to the merger, as well as timing of certain investments and higher disposition.

Moving to sources and uses. Year-to-date, we've completed $158 million of asset sales and loan repayments. We have an additional $204 million of dispositions under a purchase and sale agreement as we take advantage of a strong private market in outpatients. These transactions could close in the fourth quarter or early 2026.

And with that, operator, we can move into questions.

[Operator Instructions] Your first question comes from Ronald Kamdem with Morgan Stanley.

Just going to the lab leasing pipeline. It sounds like you said it's doubled since the beginning of the year. I was just hoping we could just double-click sort of what's changed? What's the mix of those tenants? And any sort of qualitative trends that you can highlight?

Yes. It's a broad mix of tenants. It's Scott, from early stage to clinical stage to commercial stage. So the quantum has doubled, but equally important the mix of new and renewal is much more favorable. Year-to-date, it's been a lot of renewals, which is great. But obviously, it takes new leasing to drive occupancy and a good portion of that pipeline now is new leasing. And that's clearly being driven by the improved sentiment in the sector, improved capital raising.

There's been a lot of good data in the sector, and that's being rewarded in the capital markets by the FDA and that virtuous cycle is starting to build, but all starting with great data as the science proves out. So we're encouraged. It's roughly 60 days of activity. Obviously, that needs to continue for that pipeline to turn into execution and then to refill the pipeline. But the trajectory, the momentum is very positive.

Great. And then my follow-up is just on thinking about the capital recycling $1 billion out of potentially outpatient medical, just maybe can you talk a little bit more about sort of the buy side in terms of what potential opportunities you think out there, sort of any financial metrics we should be thinking about in terms of what you're going to be going into.

Yes. Outpatient has been a great business for 20 years. It's one of the few subsectors in all of the real estate that's had positive NOI growth every year for 2 decades. Great financial crisis. Whatever is happening in the economy, it doesn't matter. That sector still has positive growth because it's a need-driven business, and there is a tremendous push to move things to an outpatient setting. That isn't changing. So we love the business.

We think we have not only the biggest, but the best platform in the sector, the deepest relationships, which is key given most of the tenants or health systems. So that was one reason we did the merger 2 years ago. We love the outlook for the business. Scale does matter, especially in local markets, which we have. But not all of our portfolio is in concentrated core markets.

We still have a few geographic outliers, and this is a great time in the cycle to take advantage of strong demand for the assets and sell some of those assets that are not as strategic for us, but can still draw great pricing from a pretty deep pool of buyers. It's mostly institutional for the types of assets we own, but it's broad-based and it's a deep pool and I think they're attracted to the strong fundamentals.

And obviously, as inflation and interest rates have come down, that sector looks a lot more attractive. Maybe the growth of the economy is a little bit more questionable today and outpatient starts to look a lot more attractive in that environment. So I think all of those things are driving the demand. We have roughly $130 million undersigned contract at a really strong cap rate. We're working on a lot.

We feel like it's an opportune time to take advantage of that buyer interest, especially in light of where the stock is trading in light of the outpatient development opportunities we have through our relationships and then the potential for opportunities in the Life Science business, but we have a great balance sheet already. We see a lot of advantages to having even more liquidity as we head into 2026, especially if we can get great pricing.

Your next question comes from Nick Yulico with Scotiabank.

In terms of the lab portfolio. I wanted to see if there was any way to get a feel for like where -- if your leased rate is higher than your occupied rates. I know you guys quote that 81% occupancy and lab in the South. You talked about some of the sort of leasing that happened and even in the works is addressing vacancy. So any feel for just like where the lease rate on assets would be versus in-place occupancy?

Yes. Nick, this is Kelvin. I would say that our total occupancy today in lab at 81% is largely in line with the occupied rate. We have certain instances where there are tenants that are probably in more space than they need. So the occupancy is a little bit lower physically. But generally speaking, the total occupancy is in line with the physical occupancy.

Okay. And then just second question is on the impairment for the lab JV. Was that -- what triggered that this quarter and then was it also some sort of decision or functioning of how leasing is actually going for those assets?

Nick, it's Kelvin again. So typically, you'll see companies take impairments like this when they sell assets. These are assets that we have high confidence in, we'll continue to own long term but specifically for the unconsolidated JV accounting rules, there are rather specific requirements that you have to evaluate on a quarterly basis. Simplistically, if you have carrying values that fall below fair values for more than a temporary period of time you're required to take the charge. And this quarter, we determined that, that was the case. Specifically, the impairments, not cash, it doesn't impact FFO, but we thought it was prudent to do so this quarter given all the facts and circumstances around these ventures.

Nick, I would just add, Scott and the team have done a great job leasing up the campus. We're at roughly 60% leased, it's 400,000 feet across seven buildings. The buildings that have been redeveloped are for the most part leased. And there's a couple of buildings that are yet to be redeveloped. We are waiting for leases to burn off and, and that work is now underway, and we're confident we'll be able to lease them up once they open. So it's not a matter of leasing. It's a matter of where the rents, where are the cap rates versus when we did that deal 3.5 years ago and obviously marked up the portfolio to the price that we got when we sold it.

Your next question comes from Farrell Granath with Bank of America.

I was curious if you could outline your kind of risk list and how that compares to the beginning of the year. And specifically, if you can touch on, if tenants have been adding in or are names finally dropping off as you've been seeing a shift in sentiment?

Farrell, this is Kelvin. I'll start. Maybe just to give context to our earlier points, we continue to be encouraged by the pipeline that's been building over the course of the last 60-plus days. And our existing tenant base continues to access the capital markets as it's opened back up, and we're seeing a number of folks that perhaps were a little bit more in focus before that are out of focus today given they're extending their cash runways and they're working towards their next clinical milestone.

So the exposure in our portfolio has come down, I would say, pretty meaningfully over the last 60 days. So we still have tenants that we are actively monitoring. The quantum of that, I don't have an accurate number to give you, but I think, again, it's directionally has come down since the start of the year.

Let me add. There's really two parts to your question that are relevant. There's the size of the watch list. That's part one. Kelvin just addressed that. But the equally important part, in our view, is do those companies have a good chance of raising money? Because there's always going to be tenants in the portfolio that have less than 12 months of cash that we're keeping a close eye on.

And today, we feel a lot more confident that those companies can raise money. The challenge in the first 9 months of the year had been we have this group of companies that needs to raise capital. It's normal course business, and it was just a very, very difficult environment for them to raise it. So that second half of the question, I think, is equally important and that has improved pretty dramatically in the last 60 days, and obviously, we hope that continues.

Great. And I also just wanted to touch on -- I've seen some recent headlines about the influx of demand for the AI companies, especially when it comes to lab spaces and those even converting back to an office. I was curious if you could just add a few comments on how that may impact the supply picture? And do you see stock participating in any of that conversion?

Yes. Well, there's just pure AI tech companies, and certainly, that's helping the supply-demand dynamic in the Bay Area, in particular, but there's also AI-native biotech research, and that's been very much a positive for our portfolio. We've done a fair amount of leasing with companies that would fit that description, particularly in the Bay Area. In the last year, the pipeline includes them as well. And the notion that they only need office space is just not correct.

Generally speaking, the 50-50 type mix of wet lab and office continues to hold for those companies as well. So we view it very positively. They're more likely to raise money. The companies that can attach that to their business profile right now. So we're taking advantage of that, but more generally and longer term, the ability of AI to improve the speed, efficiency, accuracy of drug research is pretty exciting in taking drugs from discovery to IND meaning clinical stage trials in 1 year instead of 5 to 7 years. I mean that has the potential to have enormous positive impact on the business.

Your next question comes from Austin Wurschmidt with KeyBanc Capital Markets.

Good morning, everybody. Scott, I'm just curious, how should we think about the near-term earnings impact from recycling the outpatient medical proceeds from the strategic initiatives and then just that time line around the earnings ramp from reinvesting those proceeds given development does have kind of a little bit of a longer time line to it? And then maybe a sense of what the opportunistic lab investments you're considering today? Is it development? Is it sort of lease-up opportunities versus more stabilized deals?

Yes. And the $1 billion that we've referred to, keep in mind, only $200 million of that is under contract. So hopefully, we move forward with the balance. It's really strong pricing. If that proceeds, keep in mind that pricing is going to be significantly better than our implied stock price.

So I mean it has the potential, depending on use of proceeds to be immediately accretive. We're also looking at opportunities in outpatient development, as well as life science opportunistic investments that we think have the potential to have returns far in excess of the returns we'd be selling at. In terms of those outpatient sales. So one way or another, we're doing this with an expectation that it's going to create pretty meaningful accretion, whether it's day 1 or day 1 in the combination of year 2, 3. But obviously, that is the expectation and intention here.

That's helpful. And then can you just give a little bit more detail around the average size of tenants in the pipeline for lab, the lab leasing pipeline and whether you're seeing sort of any larger space requirements in the market today? I know previously, you had talked about kind of 30-plus thousand square feet was the sweet spot, but anything larger out there today?

Yes. Austin, it's Kelvin. I think that 30,000 square foot marker is still accurate in terms of the pipeline and the opportunities we're seeing. So with the 1.8 million square foot pipeline. There's a lot more activity from new potential clients that are exploring our assets.

Austin, let me give you one additional piece of color on the acquisitions that we're looking at in life science as well as outpatient development. You can't really look at those just in isolation either. When you think about our investment model that's very much focused in both businesses on doing things in scale in local markets. There's really an ecosystem benefit as well.

Like when we do a new development with a health system, that project is accretive, but it also deepens the relationship with that health system and draws or drives additional leasing with that tenant over time. And that's an important part of the consideration for us. That's obviously true in life science, where we've built a 12 million square foot portfolio that's essentially in 5 submarkets. And we want to continue to go deeper in those markets because we think there's great demand and tenant desire to be in those locations. And the more scale we have there, it's proven to have material advantages in terms of winning leasing deals.

What's sort of the average yield on the outpatient medical developments that you're evaluating today?

7-plus percent. Mostly highly produced and compare and contrast that with selling assets that are in 20, 25 years old that 100 basis points or more inside of that. So pretty compelling.

Your next question comes from Seth Bergey with Citi Group.

I guess my first question is kind of, of the $1 billion. How do you view that in terms of how much of that should we expect to be life science versus outpatient medical versus share repurchases? And then I guess on top of that, do you have like a target percentage of how much of the business you would like to be outpatient medical, life science and the CCRC?

We do not have fixed allocations, and we're going to be opportunistic. So we're going to protect our balance sheet. Number one, it's a competitive advantage, gives us a lot of flexibility. And these sales will give us even more flexibility, but it could be any of those three that you mentioned in any combination. So no, we're not going to have a fixed allocation of what we're looking at will be opportunistic.

Okay. And then just my second one, you talked about the strength of the outpatient medical business. what type of spread are you kind of looking for to compensate you just given -- you touched on the early shoots of the life science recovery, but mentioned that real estate is still expected to lag for a little bit. So just any color you can provide on what accretion kind of spread you're looking for there?

Yes. Thanks, Seth. The underwritten returns on any life science distress. Obviously, each project is going to be unique in terms of size as well as the lease-up that needs to occur, but we'd be looking for certainly double-digit unlevered IRRs for those types of projects. So that would be the criteria there. For outpatient, I think I already covered it at 7-plus percent. So a nice spread to not only disposition cap rates, but also acquisition cap rates.

So yes, that's how we're thinking about spreads or relative returns. And obviously, we have to keep in mind the implied cap rate of our stock price as we think about the assets that we're selling relative to buying back stock in an accretive way. So we're really looking at all three of those alternatives and all three of those metrics in terms of relative returns.

Your next question comes from John Kilichowski with Wells Fargo.

Good morning. Maybe if we could start just talking about the Trump administration, we've had -- there's been tariffs on branded therapies, but there's also been a major surge in commitments by multinational pharma companies back in the U.S., especially as it relates to R&D. Can you talk to a lot of that's on the manufacturing side, but are you seeing some of that translate into lab space and then a leasing?

Well, certainly, the regulatory chaos and uncertainty that existed in the first 6 to 8 months of 2025 had a big impact on sentiment in the sector. Obviously, investors making capital commitments are looking for certainty in terms of the environment that they're investing into, and we just didn't have that for the first half of the year.

There's been a lot of positive news coming out of Washington and the FDA in terms of making that process more efficient. Our tenants are taking advantage of that. We've had 10 tenants in the portfolio that have received various forms of fast track or regulatory priority reviews, which is a huge positive coming out of this administration.

But overall, I think you've seen a lot less negative headlines coming from D.C. on the biopharma sector, including some positives. Like the agreements with Pfizer and AstraZeneca, and that's been a big part of the change in sentiment. So yes, it's been very positive.

Got it. And then I know this may be a little early to ask, but I'll give it a shot. I don't know if we can discuss maybe the building blocks for '26 earnings here, especially as you have talked about a potential near-term bottoming in occupancy. Maybe what's realistic for occupancy gains next year, how you're thinking about pricing power? And then maybe on top of that, the addition of -- we've seen some G&A savings this year with your AI platform. What's the opportunity for that to generate even further savings in the next year?

Yes. I mean, obviously, we'll wait until February to give guidance. But I mean the basic building blocks or 2/3 of the portfolio are doing really well with outpatient in CCRC, life science, obviously, the occupancy loss and there's a bit more to come, as we've described, we'll bleed into 2026. That will have an impact. We disclosed some purchase options and seller financing that will have an impact refinancing. I mean those are the basic building blocks. There's no new surprises there. But I'll just reiterate the obvious, but obviously, we'll give full guidance in February of '26.

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

Just wanted to see if you could maybe help investors and how you're thinking about how much dilution you're willing to take and how you're going to try to manage that. I mean, I think maybe there's a little bit of a concern that the MOBs, the $1 billion of dispositions will be plowed largely into lab opportunities that may have great growth long term, but maybe weigh on growth near term. So I guess how are you thinking about balancing some of that potential dilution with buybacks and/or other opportunities? Is it the intention that you're going to try to manage earnings somewhat, so to speak, as a result of that? Or how are you thinking about weighing those pros and cons?

Yes. Well, we're not looking to manage earnings. I heard you say that. That certainly isn't anywhere on the priority list. We're looking to create value. I think when we did the merger 2 years ago, there were concerns, it's turned out to be a huge value creator for the company, not only the synergies, but the recognition of the strength of the outpatient business and the flexibility that, that's providing us right now.

So that has turned out to be a huge positive in terms of the capital allocation around that transaction at a time when that sector was pretty out of favor in the public and private markets. Obviously, that dynamic is flipped very much in our favor 2 years later.

And we see the building blocks of that dynamic changing for the life science business. It wasn't that long ago when certain investors couldn't get enough of the sector is one of the best performing subsectors in all our real estate for 10 years. Obviously, there's been too much supply. We've had some demand issues because of the regulatory environment. We, as we've described, see a lot of that starting to flip in our favor. It's not going to happen overnight, but we do see a window here to come in at a time when nobody else wants to invest. That's usually a pretty good time to do it.

We have the balance sheet to do it, the platform to create value but it might end up being zero. We're very focused on basis and submarket and price and return opportunity, and I can't guarantee that we're going to find anything that meets our thresholds, but I'm optimistic that we will. There's a big opportunity set there, and it's an awfully good time to invest in our view. But again, at the right price and the right submarket.

In terms of dilution, it's a $25 billion denominator. So even $1 billion is not a significant number in comparison to the entire company that I don't expect there to be meaningful dilution in any event, even if we plowed the entire thing in the vacant lab buildings, which is not our plan, by the way.

And then just a second question. For the balance of the year and maybe into the first quarter, you talked about maybe some slippage in occupancy from some known move-outs and maybe some of the watchlist tenants. Is there a way to put any brackets around how big the further slippage could be before that starts to recover? I think you mentioned in the second half of '26 before the earnings start to benefit from some of that occupancy coming back. But just like what's the risk from here to the trough, I guess, and the components there in?

Yes. No, this is Kelvin. I'll start. But again, we continue to be encouraged by the pipeline and the activity that we're seeing, but we recognize that there are still some headwinds within the portfolio that we have to work through we're gaining confidence with these leading indicators and the expirations and nonrenewals that we have for the balance of the year and going into 2026 with our general kind of 75% to 85% retention we'll likely have some occupancy slowdown over the next couple of quarters.

And then from there, we'll be able to pick back up again. Occupancy could trend down somewhere in the high 70s before it starts to pick back up again. So I think we're going to be very mindful of the next few quarters in terms of where that goes, but that will be the inflection point that we believe we can start to grow back.

Your next question comes from the line of Richard Anderson with Cantor Fitzgerald.

So if I could just sort of get pacing or cadence of what you're seeing out of life science. You talked about occupancy bottoming turning on the distressed purchasing engine and then ultimately, pricing power. When do you -- if you had a hazard guess, when do you think those three important points in the life cycle going forward in life science are going to happen? Is the bottoming in early '26 event is the distressed purchasing sort of on top of that and pricing power, maybe 2027 time frame? Is that the way we should all be thinking about it?

Rich, it's Scott here. And some of it is, I'd call opportunistic. It's not all distress, which is, vacant, empty building. There may be some of that. So that's an important distinction though. Some of it is just opportunistic and therefore a different profile than true distress. But it's not going to play out over a 3-month window. I think this is a 12- to 24-month window as the sector finds a bottom and truly starts the recovery.

So it's not like this window is going away. If we do this earnings call in February, we haven't purchased anything yet. That's okay. It's not like the window is going to close next February. It's going to take a little bit of time for the sector to fully recover. I do think the core submarkets are going to come first. I think the big incumbent landlords, and there's only a couple are going to recover faster. Those things, I'm quite confident in.

But maybe just to underscore the point that we made here that the sentiment, that the fundamentals are starting to turn in our favor during this conference call alone, we've had one tenant get acquired by Eli Lilly. That's now public. And we had another tenant report very favorable Phase III data, and I think their stock is up 60% or something.

So to have -- the point is, we continue to get positive surprises after a couple of years of a lot of negative surprises. We've had a very different change in tone over the last 60 days, and that's continued here into the first 30 minutes of our earnings call. So that's great to see.

Excellent. I love real-time stuff. And in terms of selling outpatient medical, I still call it MOBs, but that's me. You're not alone in this movement. We're hearing about others that are potentially going to be selling big chunks of MOBs. What would you call -- how would you characterize the buyer pool in terms of where all this might go? Is it going back in the hands of the systems or private equity? How would you describe your audience there?

All of the above. There are some health systems looking to buy back certain assets. Private equity for sure, it's institutional, high-quality buyers big, sophisticated that are the counterparties at least on the projects we're working on. I can't comment on the others.

Your next question comes from Michael Carroll with RBC Capital Markets.

I want to circle back on the life science leasing pipeline, the 1.8 million square feet. I mean can you talk about the timing of, of where those transactions are within that pipeline? I mean, how close are they to be signed? And when they sign, how long does it take from them to actually commence?

Yes, well, the LOI is obviously closest to assign lease execution, and that's approaching 300,000 feet. So the odds of those getting done are obviously pretty high. The phase behind that are what we call proposals. So we're actively negotiating terms, that's roughly half of the pipeline. So those are pretty far along. And then there's tours where you're starting to talk deal terms, they're looking at the space and space planning and all those things, and that's a pretty material part of the balance, and then there's just the inquiries kind of the early stage stuff. So I'd say it's weighted towards kind of the second half of the process between an inquiry and a signed lease.

And then once they get signed, like how should we think about the commencement timing? I'm assuming, obviously, if it's a new lease or on a development or redevelopment, the commencement is probably, what, 12 months out? And the renewals is pretty immediate. So maybe can you talk about what is the split between new and renewals and the timing of those potential commencements if they do sign?

Yes. Michael, it's Kelvin. The -- I'll start with the last question, but the flip between new and renewal is roughly 50-50, I would say. We actually are seeing an uptick in new potential clients that are entering our pipeline as well, a good positive.

Generally speaking, from a timing standpoint, the second-generation spaces that we have available to lease are actually in quite good condition. So it's really dependent on the space in terms of how long it will take to get a tenant in there and to commence the lease. You'll see in our executions from this quarter that -- we had limited TIs and continued strength in our leasing volumes. And a lot of that had to do with the quality of the space that we had available to lease.

So it's really dependent on the space. We have some spaces that we're getting back that we'll invest capital into and reposition. So some of those could be on that longer 12-month time line that you highlighted, but we could see some commencements happen sooner than that.

Your next question comes from Vikram Malhotra with Mizuho.

I guess -- I guess, Kelvin or Scott, do you mind just sort of stepping back and giving us a little bit more detail or clarity on sort of this whole occupancy bottoming the risk near term into 4Q, but then really how much of the signed but not commenced leases you have to offset some of this? Because I was just really confused, it sounded like you said occupancy and lease is the same. But maybe if you could just break up like leaving aside the development lease up just the core portfolio. How much of a benefit is there from the losses you see versus the signed but not commenced leases?

Yes. And maybe, Vik, just to kind of keep it at the higher level at this point. We do see these leading indicators as favorable signs of the execution opportunities that we have within our portfolio and where occupancy is trending over the next few months or a couple of quarters is somewhere in the high 70s. And that will give us a base to build back from. I think that's important to know. And as we talked about with respect to the pipeline, depending on the quality of the space and the execution time line of the team, we might be able to offset some of those near-term headwinds that we know are coming with some execution. So there's a lot of moving parts there, but I think that's generally good guidance.

Sorry, just to clarify on that, I believe, like, if you just look at the core, the 93.2%, there's some slippage from nonrenewal potential tenant, et cetera, based on kind of our conversation but then there is a benefit from signed but not commenced. So can we -- are you able to just give us a little bit more color on how those two things interact just for the same-store pool?

Yes. So maybe just for the fourth quarter, we have about 300,000 square feet of expirations and you'll notice in the footnote in the supplemental, we're putting 186,000 square feet of that into redevelopment. We'll largely offset the redev component of that with new commencements and then we'll have a portion of the expirations that will vacate. So that's kind of the Q4 component.

Within that, there could be some additional reduction in occupancy as a result of early terminations or proactive downsizing of tenants that we're negotiating space needs and space planning. So hopefully, that gives you a little bit more context.

Yes. I'll follow up. Just the -- occasion, or if you could expand. I mean, I guess, Scott, you mentioned a lot of interesting events during the call in terms of Eli Lilly and fundraising and stuff. But just -- in the process of bottoming, assuming we have more M&A, maybe using the Eli Lilly as an example, like what does that mean for base needs in your mind? Like is the company that's being acquired your tenant? Do they keep the space? Is there a risk of them downsizing or maybe even expanding. Maybe just give us a sense of like what the M&A piece needs for the tenant for your portfolio?

Yes, I just saw the headline. So we haven't talked to the company yet. Each situation is different. There are times when the big pharma is buying a platform and they're looking to use that team and science to build a new business opportunity, and that tends to lead to demand for real space or more space, and there's times when they're just buying a drug, in which case, they probably don't need the space anymore. And we've had, I don't know, 100 M&As in the course of the company's history. And it's about half and half in terms of the impact.

Obviously, it's a credit upgrade either way. That's a fairly long-term lease, if I remember correctly on a campus that's really full, and we've got some growing tenants. So who knows it may end up being a positive in a lot of ways. But I think the important point is that M&A is just such a huge impact on the ecosystem and recycling capital, creating great exits for those existing investors to plow back into new companies. And the M&A year-to-date is something like 3x 2024, and it continues to grow. So that's just a huge benefit to the entire ecosystem that should drive more demand.

Your next question comes from Wes Golladay with Baird.

For the potential acquisition opportunities, do you see a bigger opportunity set for the outpatient medical developments or the opportunistic lab properties?

Yes. Opportunistic lab is exactly that, opportunistic, and those tend to be big projects. So they're chunky. So they can be big numbers or they could be zero. Our outpatient development is pretty normal course business. There's a number of health systems that we're quite close with and development partners that we work with I'd say that's more of a normal course, steady-state business, a couple of hundred million dollars a year that fit our criteria, which basically means pre-leased with good yields and good health systems in core markets. that's going to be less chunky and more just recurring normal course business.

Okay. And then on the last quarter, you talked about the potential change for the inpatient only rule. Are you seeing any uptick in leasing demand or development opportunities from this?

Yes, the comment period closed. We haven't seen the final rule yet. So nothing has happened there in terms of the inpatient-only rule. But I also said at the time that the market forces are moving more of those services to an outpatient setting regardless of what CMS does. The CMS rule would just accelerate that process, but it's happening either way the payers prefer it, the health system usually prefer it.

And certainly, the patients prefer it, which is a pretty important voter in the process. So it's happening either way. It's just a matter of how quickly.

Your next question comes from Mike Mueller with JPMorgan.

I guess this is kind of a hypothetical question. But if your implied cap was 100, 125, 150 basis points lower, do you think you'd still be looking to monetize parts of the outpatient medical portfolio today?

The asset sales, we're getting out of noncore markets or noncore health system relationships at great pricing. Yes, we're also looking at some recaps today of core real estate where we're going to retain a meaningful economic interest, maintain the relationship, maintain the footprint, those we would not do if the stock price was more favorable.

Got it. And I guess my second question, I think you answered part of it. I was going to ask the specific attributes of what you're specifically looking to sell. It sounds like it's -- what age and secondary markets or noncore markets?

It's mostly market profile. When you look at our outpatient footprint, although it's a national portfolio, we've got 10 to 12 markets that comprise 2/3 or more of our footprint. We love those markets. We have great health system relationships. Critical mass in a growing demographic market that we find attractive. We're looking to do more in those areas. Dallas is an example, Denver, Nashville, other examples you see us do development there as well.

So the profile of what we're selling tends to be in markets where we don't have that big critical mass or maybe we don't have the strongest health system relationship. Those tend to be the, the assets that we're looking to monetize and it's a good time in the cycle to do that.

Your next question comes from Michael Stroyeck with Green Street.

I appreciate that the step down in retention and outpatient was largely due to the CommonSpirit leases no longer being included. What have retention rates in recent quarters been if you do back out CommonSpirit. And has there been any sort of decline in retention as the company has pushed pricing maybe a bit harder relative to the sector's history?

Michael, no, we've been in the 75% to 85% range across the portfolio. We did have a couple of big nonrenewals this quarter that we've known were coming for a long time, just legacy Healthpeak assets that we've owned for years and years and years. But the leasing has been really phenomenal. So like step back for a minute and look at the actual leasing volume we've had among our highest quarters in the history of the combined companies and the economics on the leasing are extremely attractive.

We're getting better escalators, renewal spreads that are as strong as we've ever had, very little TI, the term of the leases is long. So same-store investors like it. It's an easy number. It's one number. It's not the most important number. The economics in the cash flow are really driven by the things I just mentioned. And those numbers continue to be very, very favorable. So Mark and the team are really doing a great job on leasing, and we expect that to continue given the fundamentals.

Got it. Understood. Has there been any sort of spread in pricing power between, call it, your health system and nonhealth system tenants?

There's definitely a distribution in terms of re-leasing spreads and some are 10-plus percent. Others are slightly negative. I'd say it's less focused on whether it's a health system or not and more focused on the quality of the building, the uses that are inside that space that tends to drive that dynamic more than whether it's a health system tenant or not.

Your next question comes from Jon Petersen with Jefferies.

Maybe just one for the sake of time here. So since we're talking about selling properties, I know at times in the past, you suggested that the CCRC portfolio might be something that could be sold at some point. So I'm just curious for an update on how you're thinking about that portfolio as a long-term hold on your balance sheet.

Yes. We're happy we own it. We're happy we own 100% of it rather than 49% of it. LCS has done an incredible job. We've got a dedicated team, it's worked side-by-side with them to drive value. They're doing an incredible job.

Obviously, the fundamentals are good. We have to put some money into the buildings that should pay dividends for years to come. Those buildings look great. Residents demand them. So we've never seen growth out of that business like we have over the last 6 years, even including the downturn. Our compounded growth rates around 9%, including the downturn. I'll just repeat that. It's an incredible performance by that portfolio that we think will continue. So yes, we're happy to hold it for the foreseeable future.

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

Thanks for your time today, everybody. Hope you have a great earnings season and hope to see you soon. Take care.

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