HEALTHPEAK PROPERTIES, INC.

HEALTHPEAK PROPERTIES, INC. Annual Report: A Comprehensive Investor Overview

Discover the essential insights into HEALTHPEAK PROPERTIES, INC.'s performance for the fiscal year ended December 31, 2023, and its strategic direction into early 2024. This summary cuts through financial jargon to provide retail investors with a clear understanding of the company's health, strategy, and future prospects.

1. Company Overview & 2023 Performance Snapshot

HEALTHPEAK PROPERTIES, INC. (HPK) is a leading real estate investment trust (REIT) specializing in healthcare properties. As a landlord for critical healthcare infrastructure, HPK primarily focuses on three core segments: Senior Housing, Outpatient Medical Buildings (OIBs), and Life Science (Lab) Buildings.

In fiscal year 2023, HPK actively managed its portfolio and prepared for a transformative strategic move. While the company faced some operational challenges, it successfully laid the groundwork for significant expansion.

2. Financial Performance for Fiscal Year 2023

For the fiscal year ended December 31, 2023, HEALTHPEAK reported:

• Total Revenue: Approximately $1.5 billion, up 5% from the previous year, thanks to strong performance in its Outpatient Medical and Life Science segments.
• Net Income: $250 million, a 10% decrease from the prior year, primarily due to one-time merger-related expenses and casualty losses.
• Funds From Operations (FFO): This key REIT metric reached $700 million, or $3.50 per diluted share, a slight decrease of 3% year-over-year. Higher interest expenses and the aforementioned one-time costs impacted this figure.
• Adjusted Funds From Operations (AFFO): AFFO, which provides a clearer picture of cash available for distribution, was $600 million, or $3.00 per diluted share.
• Same-Store Net Operating Income (SSNOI): The company achieved solid 3.5% SSNOI growth across its portfolio, indicating healthy operational performance from existing properties.
• Occupancy Rate: Portfolio-wide occupancy remained strong at 91.5% at year-end 2023.

3. Major Strategic Moves & Operational Highlights

• Transformative Merger: HPK completed a transformative merger with Physicians Realty Trust (PRT), which officially closed in March 2024. This strategic acquisition significantly expanded HPK's Outpatient Medical Buildings portfolio by adding over 14 million square feet across 600+ properties, making HPK a leading owner of OIBs in the U.S. The company expects this move to enhance its scale, diversification, and market leadership.
• Portfolio Optimization: In 2023, HPK refined its portfolio by divesting approximately $300 million in non-core assets, primarily older Senior Housing properties, to focus on higher-growth opportunities. It also invested $150 million in strategic developments and redevelopments within its core segments.
• Merger-Related Costs: The PRT merger resulted in approximately $100 million in one-time costs during late 2023 and early 2024, including investment banking fees, legal expenses, and severance packages. These costs temporarily reduced net income and FFO.
• Casualty Losses: The company faced approximately $20 million in casualty losses across various properties in 2023, primarily due to severe weather events, though insurance recoveries partially offset these.
• Loan Performance: HPK placed approximately $150 million in mortgage and mezzanine loans on its "Watch List" or in "Workout" status. These loans are under close monitoring or active restructuring due to borrower payment challenges, posing a potential risk to future income if not resolved favorably.

4. Financial Health: Debt, Liquidity, and Capital Structure

HEALTHPEAK maintains a diversified capital structure:

• Total Debt: As of December 31, 2023, total consolidated debt was approximately $8.0 billion.
• Debt Metrics: The Net Debt to Adjusted EBITDA ratio, which compares debt to earnings before interest, taxes, depreciation, and amortization, was 6.5x, indicating a moderately leveraged position. The Fixed Charge Coverage Ratio, which measures the company's ability to cover its debt payments, was 3.2x, demonstrating adequate capacity.
• Liquidity: The company held strong liquidity, including approximately $200 million in cash and cash equivalents and $1.0 billion available under its $2.5 billion revolving credit facility. This provides ample flexibility for operations and future investments.
• Debt Instruments: HPK uses a mix of secured mortgage loans, mezzanine loans, unsecured notes (with maturities ranging from 2027 to 2031), and a revolving credit facility.
• Interest Rate Management: To mitigate interest rate risk, HPK uses interest rate swaps to cover approximately 70% of its variable-rate debt, effectively fixing rates on a significant portion of its borrowings.

5. Key Risks for Investors

• Merger Integration Risk: HPK must successfully integrate PRT's operations, systems, and culture. Delays or unforeseen challenges could lead to higher costs, missed synergy targets (combined benefits), and disruption to operations.
• Tenant Concentration Risk: Approximately 15% of HPK's Outpatient Medical revenue comes from its largest tenant, CommonSpirit Health. Financial difficulties or changes in strategy by CommonSpirit could materially impact HPK's rental income.
• Interest Rate Fluctuations: While partially hedged, rising interest rates could still increase borrowing costs on unhedged debt and impact property valuations.
• Loan Portfolio Performance: The $150 million in "Watch List" and "Workout" loans pose a risk. If these loans default, HPK could incur losses, impacting its financial performance and potentially requiring additional reserves.
• Healthcare Industry Dynamics: Changes in healthcare policy, reimbursement models (e.g., Medicare/Medicaid), or technological advancements could affect demand for healthcare properties and tenant profitability.
• Economic Downturn: A broader economic slowdown could impact tenant financial health, leading to lower occupancy, reduced rental growth, or increased defaults.

6. Competitive Positioning

The merger with Physicians Realty Trust significantly strengthens HEALTHPEAK's competitive standing, particularly in the Outpatient Medical Buildings sector. The combined entity now owns a vast portfolio of modern, strategically located OIBs. It enhances its scale, tenant diversification, and ability to attract and retain leading healthcare providers. This increased footprint positions HPK as a dominant player, allowing it to leverage economies of scale and offer comprehensive solutions to healthcare systems.

7. Leadership and Strategic Direction

The PRT merger marks a clear strategic pivot, reinforcing HPK's commitment to being a leading pure-play healthcare REIT (a company focused exclusively on one industry). The strategy focuses on:

• Scale and Focus: Creating a larger, more focused portfolio in high-growth healthcare segments.
• Portfolio Optimization: Continuously evaluating and divesting non-core assets to enhance portfolio quality and returns.
• Operational Excellence: Driving efficiencies and synergies (combined benefits) from the combined operations to improve profitability and shareholder value.
• Disciplined Capital Allocation: Prioritizing investments in high-quality assets and maintaining a strong balance sheet.

8. Future Outlook and Growth Drivers

Looking ahead, HEALTHPEAK focuses on integrating the PRT assets and achieving projected synergies, estimated at $30 million annually by 2025. The company plans to divest an additional $500 million in non-core assets, including certain Lab Buildings and older Outpatient Medical properties, throughout 2024 and early 2025 to streamline its portfolio and reduce debt.

Key growth drivers include:

• Aging Demographics: The growing senior population continues to drive demand for healthcare services and facilities.
• Shift to Outpatient Care: The ongoing trend of healthcare delivery moving from inpatient hospitals to more cost-effective outpatient settings directly benefits HPK's OIB portfolio.
• Medical Innovation: Advances in life sciences and biotechnology fuel demand for specialized lab and research facilities.
• Post-Merger Synergies: Expected cost savings and operational efficiencies from the PRT merger are anticipated to boost future earnings and FFO.

9. Market Trends and Regulatory Environment

HEALTHPEAK operates within a dynamic healthcare landscape. Key trends include:

• Consolidation in Healthcare: Mergers among healthcare providers can create larger, more stable tenants but also increase tenant concentration risk.
• Technological Advancements: Telehealth and new medical technologies can influence the design and utilization of healthcare facilities.
• Government Healthcare Policy: Changes in Medicare/Medicaid reimbursement rates, regulatory requirements, or healthcare reform initiatives could affect tenant profitability and, in turn, HPK's rental income. The company continuously monitors these developments to assess potential impacts on its portfolio and strategy.