Healthpeak Properties 10-Q 2023-03-31

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended March 31, 2023

or

For the transition period from to

Commission file number 001-08895

Healthpeak Properties, Inc.

(Exact name of registrant as specified in its charter)

4600 South Syracuse Street, Suite 500

Denver, CO 80237

(Address of principal executive offices) (Zip Code)

(720) 428-5050

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 26, 2023, there were 546,995,686 shares of the registrant’s $1.00 par value common stock outstanding.

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EXPLANATORY NOTE

On February 7, 2023, Healthpeak Properties, Inc. announced its intent to implement a corporate reorganization into a new holding company structure commonly referred to as an umbrella partnership real estate investment trust (“UPREIT” and, such reorganization, the “Reorganization”). Through February 9, 2023, the business of the registrant was conducted by an entity known as Healthpeak Properties, Inc., a Maryland corporation (“Old Healthpeak”). As part of the Reorganization, Old Healthpeak formed New Healthpeak, Inc., a Maryland corporation (“New Healthpeak”), as a wholly owned subsidiary, and New Healthpeak formed Healthpeak Merger Sub, Inc., a Maryland corporation (“Merger Sub”), as a wholly owned subsidiary. On February 10, 2023, Merger Sub merged with and into Old Healthpeak, with Old Healthpeak continuing as the surviving corporation and a wholly owned subsidiary of New Healthpeak (the “Merger”). As a result, New Healthpeak became the publicly traded parent company of Old Healthpeak and Old Healthpeak’s subsidiaries, and New Healthpeak changed its name to Healthpeak Properties, Inc. In connection with the Reorganization and immediately following the Merger, Old Healthpeak converted from a Maryland corporation to a Maryland limited liability company named Healthpeak OP, LLC (“Healthpeak OP”). At the effective time of the Merger, each outstanding share of Old Healthpeak common stock was converted into one equivalent share of New Healthpeak common stock. Following the Reorganization, New Healthpeak’s business is conducted through Healthpeak OP and New Healthpeak does not have substantial assets or liabilities, other than through its investment in Healthpeak OP.

As a result of the Merger, New Healthpeak became the successor issuer to Old Healthpeak pursuant to Rule 12g-3(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and as a result, shares of New Healthpeak common stock were deemed registered under Section 12(b) of the Exchange Act. This Quarterly Report on Form 10-Q pertains to the business and results of operations of Old Healthpeak through February 9, 2023 and of New Healthpeak from and including February 10, 2023, for the quarter ended March 31, 2023, and all data, discussions or references to other periods prior to the effectiveness of the Merger pertain to Old Healthpeak. For additional information on our UPREIT Reorganization, please see our Current Report on Form 8-K12B filed with the Securities and Exchange Commission on February 10, 2023.

Throughout this Quarterly Report on Form 10-Q, unless the context requires otherwise, “Healthpeak,” the “Company,” “we,” “us” and “our” refer to Old Healthpeak through February 9, 2023 and to New Healthpeak from and including February 10, 2023.

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HEALTHPEAK PROPERTIES, INC.

INDEX

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PART I. FINANCIAL INFORMATION

Healthpeak Properties, Inc.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share data)

(Unaudited)

See accompanying Notes to the Unaudited Consolidated Financial Statements.

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Healthpeak Properties, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

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On February 7, 2023, we announced our intent to complete an UPREIT reorganization. As part of the reorganization, the company formerly known as Healthpeak Properties, Inc. (“Old Healthpeak”) formed New Healthpeak, Inc. (“New Healthpeak”) as a wholly owned subsidiary, and New Healthpeak formed Healthpeak Merger Sub, Inc. (“Merger Sub”) as a wholly owned subsidiary. On February 10, 2023, Merger Sub merged with and into Old Healthpeak, with Old Healthpeak continuing as the surviving corporation and a wholly owned subsidiary of New Healthpeak (the “Merger”). In connection with the Merger, New Healthpeak changed its name to Healthpeak Properties, Inc. In connection with the UPREIT reorganization and immediately following the Merger, Old Healthpeak converted from a Maryland corporation to a Maryland limited liability company named Healthpeak OP, LLC (“Healthpeak OP”). This Quarterly Report on Form 10-Q pertains to the business and results of operations of Old Healthpeak through February 9, 2023 and of New Healthpeak from and including February 10, 2023.

Unless the context requires otherwise, all references in this report to “Healthpeak,” the “Company,” “we,” “us” or “our” refer to Old Healthpeak through February 9, 2023 and to New Healthpeak from and including February 10, 2023, in each case together with its consolidated subsidiaries. Unless the context suggests otherwise, references to “Healthpeak Properties, Inc.” mean the parent company without its subsidiaries.

Cautionary Language Regarding Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q that are not historical factual statements are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include, among other things, statements regarding our and our officers’ intent, belief or expectation as identified by the use of words such as “may,” “will,” “project,” “expect,” “believe,” “intend,” “anticipate,” “seek,” “target,” “forecast,” “plan,” “potential,” “estimate,” “could,” “would,” “should” and other comparable and derivative terms or the negatives thereof. Forward-looking statements reflect our current expectations and views about future events and are subject to risks and uncertainties that could cause actual results, including our future financial condition and results of operations, to differ materially from those expressed or implied by any forward-looking statements. You are urged to carefully review the disclosures we make concerning risks and uncertainties that may affect our business and future financial performance.

Forward-looking statements are based on certain assumptions and analysis made in light of our experience and perception of historical trends, current conditions and expected future developments as well as other factors that we believe are appropriate under the circumstances. While forward-looking statements reflect our good faith belief and assumptions we believe to be reasonable based upon current information, we can give no assurance that our expectations or forecasts will be attained. Further, we cannot guarantee the accuracy of any such forward-looking statement contained in this Quarterly Report on Form 10-Q.

As more fully set forth under Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q, risks and uncertainties that may cause our actual results to differ materially from the expectations contained in the forward-looking statements include, among other things:

• macroeconomic trends, including inflation, interest rates, labor costs, and unemployment;

• the ability of our existing and future tenants, operators, and borrowers to conduct their respective businesses in a manner that generates sufficient income to make rent and loan payments to us;

• the financial condition of our tenants, operators, and borrowers, including potential bankruptcies and downturns in their businesses, and their legal and regulatory proceedings;

• our concentration of real estate investments in the healthcare property sector, which makes us more vulnerable to a downturn in a specific sector than if we invested across multiple sectors;

• the illiquidity of real estate investments;

• our ability to identify and secure new or replacement tenants and operators;

• our property development, redevelopment, and tenant improvement activity risks, including project abandonments, project delays, and lower profits than expected;

• changes within the life science industry;

• significant regulation, funding requirements, and uncertainty faced by our life science tenants;

• the ability of the hospitals on whose campuses our medical office buildings (“MOBs”) are located and their affiliated healthcare systems to remain competitive or financially viable;

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• our ability to develop, maintain, or expand hospital and health system client relationships;

• operational risks associated with third party management contracts, including the additional regulation and liabilities of our properties operated through structures permitted by the Housing and Economic Recovery Act of 2008, which includes most of the provisions previously proposed in the REIT Investment Diversification and Empowerment Act of 2007 (commonly referred to as “RIDEA”);

• economic conditions, natural disasters, weather, and other conditions that negatively affect geographic areas where we have concentrated investments;

• uninsured or underinsured losses, which could result in significant losses and/or performance declines by us or our tenants and operators;

• our investments in joint ventures and unconsolidated entities, including our lack of sole decision making authority and our reliance on our partners’ financial condition and continued cooperation;

• our use of fixed rent escalators, contingent rent provisions, and/or rent escalators based on the Consumer Price Index;

• competition for suitable healthcare properties to grow our investment portfolio;

• our ability to foreclose or exercise rights on collateral securing our real estate-related loans;

• investment of substantial resources and time in transactions that are not consummated;

• our ability to successfully integrate or operate acquisitions;

• the potential impact on us and our tenants, operators, and borrowers from litigation matters, including rising liability and insurance costs;

• environmental compliance costs and liabilities associated with our real estate investments;

• epidemics, pandemics, or other infectious diseases, including the coronavirus disease (“Covid”), and health and safety measures intended to reduce their spread;

• the loss or limited availability of our key personnel;

• our reliance on information technology systems and the potential impact of system failures, disruptions, or breaches;

• increased borrowing costs, including due to rising interest rates;

• cash available for distribution to stockholders and our ability to make dividend distributions at expected levels;

• the availability of external capital on acceptable terms or at all, including due to rising interest rates, changes in our credit ratings and the value of our common stock, volatility or uncertainty in the capital markets, and other factors;

• our ability to manage our indebtedness level and covenants in and changes to the terms of such indebtedness;

• bank failures or other events affecting financial institutions;

• the failure of our tenants, operators, and borrowers to comply with federal, state, and local laws and regulations, including resident health and safety requirements, as well as licensure, certification, and inspection requirements;

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We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates. We use derivative and other financial instruments in the normal course of business to mitigate interest rate risk. We do not use derivative financial instruments for speculative or trading purposes. Derivatives are recorded on the Consolidated Balance Sheets at fair value (see Note 17 to the Consolidated Financial Statements).

To illustrate the effect of movements in the interest rate markets, we performed a market sensitivity analysis on our hedging instruments. We applied various basis point spreads to the underlying interest rate curves of our derivative portfolio in order to determine the change in fair value. At March 31, 2023, a one percentage point increase or decrease in the underlying interest rate curve would result in a corresponding increase or decrease in the fair value of the derivative instruments by approximately $22 million.

Interest Rate Risk. At March 31, 2023, our exposure to interest rate risk was primarily on our variable rate debt. At March 31, 2023, $142 million of our variable rate mortgage debt and our $500 million Term Loan Facilities were swapped to fixed through interest rate swap instruments. The interest rate swap instruments are designated as cash flow hedges, with the objective of managing the exposure to interest rate risk by converting the interest rates on our variable rate debt to fixed interest rates. At March 31, 2023, both the fair value and carrying value of the interest rate swap instruments were $21 million.

Our remaining variable rate debt at March 31, 2023 was comprised of borrowings under our commercial paper program and certain of our mortgage debt. Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt and assets until their maturity or earlier prepayment and refinancing. If interest rates have risen at the time we seek to refinance our fixed rate debt, whether at maturity or otherwise, our future earnings and cash flows could be adversely affected by additional borrowing costs. Conversely, lower interest rates at the time of refinancing may reduce our overall borrowing costs. Interest rate changes will affect the fair value of our fixed rate instruments. At March 31, 2023, a one percentage point increase in interest rates would decrease the fair value of our fixed rate debt by approximately $239 million and a one percentage point decrease in interest rates would increase the fair value of our fixed rate debt by approximately $255 million. These changes would not materially impact earnings or cash flows. Conversely, changes in interest rates on variable rate debt would change our future earnings and cash flows, but not materially impact the fair value of those instruments. Assuming a one percentage point increase in the interest rates related to our variable rate debt, and assuming no other changes in the outstanding balance at March 31, 2023, our annual interest expense would increase by approximately $6 million. Lastly, assuming a one percentage point decrease in the interest rates related to our variable rate loans receivable, and assuming no other changes in the outstanding balance at March 31, 2023, our annual interest income would decrease by approximately $2 million.

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Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2023. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of March 31, 2023.

Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Except as described below, there are no material changes to the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Bank failures or other events affecting financial institutions could have a material adverse effect on our and our tenants’ liquidity, results of operations, and financial condition.

The failure of a bank, or events involving limited liquidity, defaults, non-performance, or other adverse conditions in the financial or credit markets impacting financial institutions, or concerns or rumors about such events, may adversely impact us, either directly or through an adverse impact on our tenants, operators, and borrowers. A bank failure or other event affecting financial institutions could lead to disruptions in our or our tenants’, operators’, and borrowers’ access to bank deposits or borrowing capacity, including access to letters of credit from certain of our tenants relating to lease obligations. In addition, our or our tenants’, operators’, and borrowers’ deposits in excess of the Federal Deposit Insurance Corporation (FDIC) limits may not be backstopped by the U.S. government, and banks or financial institutions with which we or our tenants, operators, and borrowers do business may be unable to obtain needed liquidity from other banks, government institutions, or by acquisition in the event of a failure or liquidity crisis. Any adverse effects to our tenants’, operators’, or borrowers’ liquidity or financial performance could affect their ability to meet their financial and other contractual obligations to us, which could have a material adverse effect our business, results of operations, and financial condition.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a)

None.

(b)

None.

(c)

The following table sets forth information with respect to purchases of our common stock made by us or on our behalf during the three months ended March 31, 2023.

_______________________________________

(1)Represents shares of our common stock withheld under our equity incentive plans to offset tax withholding obligations that occur upon vesting of restricted stock units. The value of the shares withheld is based on the closing price of our common stock on the last trading day prior to the date the relevant transaction occurred.

(2)On August 1, 2022, our Board of Directors approved the Share Repurchase Program under which we may acquire shares of our common stock in the open market up to an aggregate purchase price of $500 million. Purchases of common stock under the Share Repurchase Program may be exercised at our discretion with the timing and number of shares repurchased depending on a variety of factors, including price, corporate and regulatory requirements, and other corporate liquidity requirements and priorities. The Share Repurchase Program expires in August 2024 and may be suspended or terminated at any time without prior notice. During the year ended December 31, 2022, we repurchased 2.1 million shares of our common stock at a weighted average price of $27.16 per share. During the first quarter of 2023, there were no repurchases, therefore, at March 31, 2023, $444 million of our common stock remained available for repurchase under the Share Repurchase Program. Amounts do not include the shares of our common stock withheld under our equity incentive plans to offset tax withholding obligations as discussed in footnote 1.

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Adoption of Updates to the Executive Severance Plan and Executive Change in Control Severance Plan

On April 27, 2023, our Board of Directors amended the Healthpeak Properties, Inc. Executive Severance Plan (the “Executive Severance Plan”) and the Healthpeak Properties, Inc. Executive Change in Control Severance Plan (the “CIC Plan”).

The amendments to the Executive Severance Plan and CIC Plan included revising the methodology for calculating severance payments under the plans (including any prorated cash bonus payable under the CIC Plan for the year in which a participant’s termination of employment occurs) in the event of a participant’s qualifying termination of employment to clarify that the annual cash bonus portion of the cash severance formula will be based on the greater of (1) the participant’s target level bonus or (2) the average of the participant’s prior three years’ bonus payments from the Company. In the case of the Executive Severance Plan, a participant’s prorated cash bonus payment in the year of termination will continue to be based on actual performance for the quantitative portion, while the qualitative portion will be determined in the Compensation and Human Capital Committee’s discretion. The CIC Plan was also updated to remove the requirement that the Company execute a release of claims in favor of the participant in connection with a qualifying termination of employment, but a participant must still execute a release of claims in favor of the Company as a condition of any severance benefits under the plan. In addition, revisions were made to the “Good Reason” definition (as defined in the Executive Severance Plan and CIC Plan) and amendment provision of each plan.

The foregoing description of the updates to the Executive Severance Plan and CIC Plan is qualified in its entirety by reference to the Executive Severance Plan and CIC Plan, each as amended and restated April 27, 2023, copies of which are filed as Exhibits 10.15 and 10.16, respectively, to this Quarterly Report on Form 10-Q and incorporated herein by reference.

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+ Certain of the exhibits and schedules to this Exhibit have been omitted in accordance with Regulation S-K Item 601(b)(2).

• Filed herewith.

** Furnished herewith.

† Management Contract or Compensatory Plan or Arrangement.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.