Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

On February 10, 2023, we completed our corporate reorganization (the “Reorganization”) into an umbrella partnership REIT (“UPREIT”). Substantially all of our business is conducted through Healthpeak OP, LLC (“Healthpeak OP”). We are the managing member of Healthpeak OP and do not have material assets or liabilities, other than through our investment in Healthpeak OP.

All references in this report to “Healthpeak,” the “Company,” “we,” “us,” or “our” mean Healthpeak Properties, Inc., 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, in Part II, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, 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;
risks associated with the Mergers (as defined below), including our ability to consummate the Mergers on the proposed terms or on the anticipated timeline, or at all, potential loss or disruption of current and prospective commercial relationships due to the uncertainties about the Mergers, potential uncertainty experienced by our current and prospective employees about their future roles with the combined company following the Mergers, the occurrence of any event, change or other circumstances that could give rise to the termination of the Mergers, any unanticipated expenditures or difficulties related to the Mergers, and the outcome of legal proceedings instituted against us, our Board of Directors, and others related to the Mergers;
our ability to integrate the operations of the Company and Physicians Realty Trust (“Physicians Realty”) successfully and realize the anticipated synergies and other benefits of the Mergers or do so within the anticipated time frame;
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 industries in which we operate;
significant regulation, funding requirements, and uncertainty faced by our lab tenants;
the ability of the hospitals on whose campuses our outpatient medical buildings are located and their affiliated healthcare systems to remain competitive or financially viable;
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;
required regulatory approvals to transfer our senior housing properties;
compliance with the Americans with Disabilities Act and fire, safety, and other regulations;
laws or regulations prohibiting eviction of our tenants;
the requirements of, or changes to, governmental reimbursement programs such as Medicare or Medicaid;
legislation to address federal government operations and administrative decisions affecting the Centers for Medicare and Medicaid Services;
our participation in the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) Provider Relief Fund and other Covid-related stimulus and relief programs;
our ability to maintain our qualification as a real estate investment trust (“REIT”);
changes to U.S. federal income tax laws, and potential deferred and contingent tax liabilities from corporate acquisitions;
calculating non-REIT tax earnings and profits distributions;
ownership limits in our charter that restrict ownership in our stock; and
provisions of Maryland law and our charter that could prevent a transaction that may otherwise be in the interest of our stockholders.

Except as required by law, we do not undertake, and hereby disclaim, any obligation to update any forward-looking statements, which speak only as of the date on which they are made.

Overview

The information set forth in this Item 2 is intended to provide readers with an understanding of our financial condition, changes in financial condition and results of operations. We will discuss and provide our analysis in the following order:

Executive Summary
Market Trends and Uncertainties
Overview of Transactions
Dividends
Results of Operations
Liquidity and Capital Resources
Non-GAAP Financial Measures Reconciliations
Critical Accounting Estimates

Executive Summary

Healthpeak Properties, Inc. is a Standard & Poor’s (“S&P”) 500 company that acquires, develops, owns, leases, and manages healthcare real estate across the United States (“U.S.”). Our company was originally founded in 1985. As noted above, we completed our Reorganization on February 10, 2023, and following that date, we hold substantially all of our assets and conduct our operations through the operating subsidiary, Healthpeak OP, LLC, a consolidated subsidiary of which we are the managing member. We are a Maryland corporation and qualify as a self-administered REIT. Our corporate headquarters are located in Denver, Colorado, and we have additional offices in California, Tennessee, and Massachusetts.

Our strategy is to invest in a diversified portfolio of high-quality healthcare properties across our three core asset classes of lab, outpatient medical, and continuing care retirement community (“CCRC”) real estate. Under the lab and outpatient medical segments, we invest through the acquisition, development, and management of lab buildings, outpatient medical buildings, and hospitals. Under the CCRC segment, our properties are operated through RIDEA structures. We have other non-reportable segments that are comprised primarily of loans receivable, an interest in an unconsolidated joint venture that owns 19 senior housing assets (our “SWF SH JV”), and marketable debt securities. These non-reportable segments have been presented on an aggregate basis herein.

At September 30, 2023, our portfolio of investments, including properties in our unconsolidated joint ventures, consisted of interests in 475 properties. The following table summarizes information for our reportable and other non-reportable segments for the three months ended September 30, 2023 (dollars in thousands):


Segment	Total Portfolio Adjusted NOI(1)		Percentage of Total Portfolio Adjusted NOI		Number of Properties
Lab	$	157,295	51.5	%	146
Outpatient medical	113,960		37.3	%	295
CCRC	29,035		9.5	%	15
Other non-reportable	5,106		1.7	%	19
	$	305,396	100	%	475

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(1)See “Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for additional information regarding Adjusted NOI and see Note 13 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).

For a description of our significant activities during 2023, see “Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview of Transactions” in this report.

In 2020, we concluded that the dispositions of our senior housing triple-net and senior housing operating property (“SHOP”) portfolios represented a strategic shift that had a major effect on our operations and financial results. Therefore, the results of senior housing triple-net and SHOP assets are classified as discontinued operations in all periods presented herein. See Note 4 to the Consolidated Financial Statements for further information regarding discontinued operations.

Business Strategy

We invest in and manage our real estate portfolio for the long-term to maximize benefit to our stockholders and support the growth of our dividends. Our strategy consists of four core elements:

(i)Our real estate: Our portfolio is grounded in high-quality properties in desirable locations. We focus on three purposely selected private pay asset classes—lab, outpatient medical, and continuing care retirement community—to provide stability through inevitable market cycles.

(ii)Our financials: We maintain a strong investment-grade balance sheet with ample liquidity as well as long-term fixed-rate debt financing with staggered maturities to reduce our exposure to interest rate volatility and refinancing risk.

(iii)Our partnerships: We work with leading pharmaceutical and biotechnology companies, healthcare companies, operators, and service providers and are responsive to their space and capital needs. We provide high-quality property management services to encourage tenants to renew, expand, and relocate into our properties, which drives increased occupancy, rental rates, and property values.

(iv)Our platform: We have a people-first culture that we believe attracts, develops, and retains top talent. We continually strive to create and maintain an industry-leading platform, with systems and tools that allow us to effectively and efficiently manage our assets and investment activity.

Market Trends and Uncertainties

Our operating results have been and will continue to be impacted by global and national economic and market conditions generally and by the local economic conditions where our properties are located.

Rising interest rates, high inflation, supply chain disruptions, ongoing geopolitical tensions, and increased volatility in public and private equity and fixed income markets have led to increased costs and limited the availability of capital. Our tenants and operators have also experienced increased costs, liquidity constraints, and financing difficulties due to the foregoing macroeconomic and market conditions, which could cause them to be unable or unwilling to make payments or perform their obligations when due. In addition, increased interest rates have affected our borrowing costs and the fair value of our fixed rate instruments.

We have also been affected by significant inflation in construction costs over the past couple of years, which, together with rising costs of capital, have negatively affected the expected yields on our development and redevelopment projects. In addition, labor shortages and global supply chain disruptions, including procurement delays and long lead times on certain materials, have adversely impacted and could continue to adversely impact the scheduled completion and/or costs of these projects.

We continuously monitor the effects of domestic and global events, including but not limited to inflation, labor shortages, supply chain matters, rising interest rates, and distress in the financial markets on our operations and financial position, as well as on the operations and financial position of our tenants, operators, and borrowers, to ensure that we remain responsive and adaptable to the dynamic changes in our operating environment.

See Part I, Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and Part II, Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2023 for additional discussion of the risks posed by macroeconomic conditions, as well as the uncertainties we and our tenants, operators, and borrowers may face as a result.

Overview of Transactions

As of February 10, 2023, we are structured as an UPREIT. This structure provides prospective sellers an alternative for disposing of property that has appreciated in value in a tax-deferred manner to Healthpeak OP and aligns our corporate structure with other publicly traded U.S. real estate investment trusts. Following the Reorganization, Healthpeak OP is the borrower under, and we are the guarantor of, all of the unsecured debt, which includes the Revolving Facility, Term Loan Facilities (each as defined below), commercial paper program, and senior unsecured notes. Our guarantee of the senior unsecured notes is full and unconditional and applicable to existing and future senior unsecured notes. The Reorganization did not have a material impact on our financial position, consolidated financial statements, outstanding debt securities, material debt facilities, or business operations.

On October 29, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Alpine Sub, LLC, one of our wholly owned subsidiaries, Alpine OP Sub, LLC, a wholly owned subsidiary of Healthpeak OP, Physicians Realty, and Physicians Realty L.P. (the “Physicians Partnership”), pursuant to which, among other things, and through a series of transactions, (i) each outstanding common share of Physicians Realty (other than Physicians Realty common shares to be canceled in accordance with the Merger Agreement), will be converted into the right to receive 0.674 shares of our common stock, and (ii) each outstanding common unit of the Physicians Partnership will be converted into common units in the successor entity to the Physicians Partnership equal to the same exchange ratio. Following the transactions contemplated in the Merger Agreement, the successor entities to Physicians Realty and the Physicians Partnership will be direct and indirect subsidiaries of Healthpeak OP, respectively. Consummation of the transactions contemplated by the Merger Agreement are subject to the satisfaction or waiver of customary closing conditions, including the approval of our stockholders and the shareholders of Physicians Realty.

Real Estate Transactions

In January 2023, we sold two lab buildings in Durham, North Carolina for $113 million.

*•*In January 2023, we acquired a lab land parcel in Cambridge, Massachusetts for $9 million.

In March 2023, we sold two outpatient medical buildings for $32 million.
In April 2023, we acquired the remaining 80% interest in one of the outpatient medical buildings in the Ventures IV unconsolidated joint venture for $4 million.

Development Activities

During the nine months ended September 30, 2023, the following projects were placed in service: (i) one lab development project with total costs of $171 million, (ii) a portion of one lab redevelopment project with total costs of $43 million, (iii) a portion of one lab development project with total costs of $32 million, (iv) three outpatient medical redevelopment projects with aggregate costs of $25 million, (v) one lab redevelopment building held in one of our unconsolidated South San Francisco JVs of which our share of total project costs was $15 million, (vi) one lab redevelopment project with total costs of $14 million, and (vii) one CCRC redevelopment project with total costs of $7 million.

Financing Activities

In January 2023, we completed a public offering of $400 million aggregate principal amount of 5.25% senior unsecured notes due 2032.
In May 2023, we completed a public offering of $350 million aggregate principal amount of 5.25% senior unsecured notes due 2032, which constituted an additional issuance of, and are treated as a single series with, the $400 million of senior unsecured notes due 2032 issued in January 2023.

Other Activities

In February 2023, we received a partial principal repayment of $102 million on one secured loan with an original maturity of January 2023. The remaining $48 million outstanding was refinanced with us, extending the maturity date to January 2024 and converting the fixed interest rate on the loan to a variable rate based on SOFR (as defined below) plus a margin.

*•*In February 2023, we received full repayment of the outstanding balance of one $35 million secured loan.

In April 2023, we received full repayment of the outstanding balance of one $14 million secured loan.
In May 2023, we received full repayment of two outstanding secured loans with an aggregate balance of $12 million.
In October 2023, we received full repayment of the outstanding balance of one $21 million secured loan.

Dividends

The following table summarizes our common stock cash dividends declared in 2023:


Declaration Date	Record Date	Amount Per Share		Dividend Payment Date
February 1	February 9	$	0.30	February 23
April 27	May 8	0.30		May 19
July 27	August 7	0.30		August 18
October 29	November 7	0.30		November 20

Results of Operations

We evaluate our business and allocate resources among our reportable business segments: (i) lab, (ii) outpatient medical, and (iii) CCRC. Under the lab and outpatient medical segments, we invest through the acquisition, development, and management of lab buildings, outpatient medical buildings, and hospitals. Our CCRCs are operated through RIDEA structures. We have other non-reportable segments that are comprised primarily of: (i) an interest in our unconsolidated SWF SH JV, (ii) loans receivable, and (iii) marketable debt securities. These non-reportable segments have been presented on an aggregate basis herein. We evaluate performance based upon property adjusted net operating income (“Adjusted NOI” or “Cash NOI”) in each segment. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 2 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the U.S. Securities and Exchange Commission (“SEC”), as updated by Note 2 to the Consolidated Financial Statements herein.

Non-GAAP Financial Measures

Net Operating Income

NOI and Adjusted NOI are non-U.S. generally accepted accounting principles (“GAAP”) supplemental financial measures used to evaluate the operating performance of real estate. NOI is defined as real estate revenues (inclusive of rental and related revenues, resident fees and services, income from direct financing leases, and government grant income and exclusive of interest income), less property level operating expenses; NOI excludes all other financial statement amounts included in net income (loss) as presented in Note 13 to the Consolidated Financial Statements. Adjusted NOI is calculated as NOI after eliminating the effects of straight-line rents, DFL non-cash interest, amortization of market lease intangibles, termination fees, actuarial reserves for insurance claims that have been incurred but not reported, and the impact of deferred community fee income and expense. NOI and Adjusted NOI are calculated as NOI and Adjusted NOI from consolidated properties, plus our share of NOI and Adjusted NOI from unconsolidated joint ventures (calculated by applying our actual ownership percentage for the period), less noncontrolling interests’ share of NOI and Adjusted NOI from consolidated joint ventures (calculated by applying our actual ownership percentage for the period). Management utilizes its share of NOI and Adjusted NOI in assessing its performance as we have various joint ventures that contribute to its performance. We do not control our unconsolidated joint ventures, and our share of amounts from unconsolidated joint ventures do not represent our legal claim to such items. Our share of NOI and Adjusted NOI should not be considered a substitute for, and should only be considered together with and as a supplement to, our financial information presented in accordance with GAAP.

Adjusted NOI is oftentimes referred to as “Cash NOI.” Management believes NOI and Adjusted NOI are important supplemental measures because they provide relevant and useful information by reflecting only income and operating expense items that are incurred at the property level and present them on an unlevered basis. We use NOI and Adjusted NOI to make decisions about resource allocations, to assess and compare property level performance, and to evaluate our Same-Store (“SS”) performance, as described below. We believe that net income (loss) is the most directly comparable GAAP measure to NOI and Adjusted NOI. NOI and Adjusted NOI should not be viewed as alternative measures of operating performance to net income (loss) as defined by GAAP since they do not reflect various excluded items. Further, our definitions of NOI and Adjusted NOI may not be comparable to the definitions used by other REITs or real estate companies, as they may use different methodologies for calculating NOI and Adjusted NOI. For a reconciliation of NOI and Adjusted NOI to net income (loss) by segment, refer to Note 13 to the Consolidated Financial Statements.

Operating expenses generally relate to leased outpatient medical and lab buildings, as well as CCRC facilities. We generally recover all or a portion of our leased outpatient medical and lab property expenses through tenant recoveries. We present expenses as operating or general and administrative based on the underlying nature of the expense.

Same-Store

Same-Store NOI and Adjusted (Cash) NOI information allows us to evaluate the performance of our property portfolio under a consistent population by eliminating changes in the composition of our portfolio of properties, excluding properties within the other non-reportable segments. We include properties from our consolidated portfolio, as well as properties owned by our unconsolidated joint ventures in Same-Store NOI and Adjusted NOI (see NOI definition above for further discussion regarding our use of pro-rata share information and its limitations). Same-Store NOI and Adjusted NOI exclude government grant income under the CARES Act. Same-Store Adjusted NOI also excludes amortization of deferred revenue from tenant-funded improvements and certain non-property specific operating expenses that are allocated to each operating segment on a consolidated basis.

Properties are included in Same-Store once they are stabilized for the full period in both comparison periods. Newly acquired operating assets are generally considered stabilized at the earlier of lease-up (typically when the tenant(s) control(s) the physical use of at least 80% of the space and rental payments have commenced) or 12 months from the acquisition date. Newly completed developments and redevelopments are considered stabilized at the earlier of lease-up or 24 months from the date the property is placed in service. Properties that experience a change in reporting structure are considered stabilized after 12 months in operations under a consistent reporting structure. A property is removed from Same-Store when it is classified as held for sale, sold, placed into redevelopment, experiences a casualty event that significantly impacts operations, a change in reporting structure or operator transition has been agreed to, or a significant tenant relocates from a Same-Store property to a non Same-Store property and that change results in a corresponding increase in revenue. We do not report Same-Store metrics for our other non-reportable segments. For a reconciliation of Same-Store to total portfolio Adjusted NOI and other relevant disclosures by segment, refer to our Segment Analysis below.

Funds From Operations (“FFO”)

FFO encompasses Nareit FFO and FFO as Adjusted, each of which is described in detail below. We believe FFO applicable to common shares, diluted FFO applicable to common shares, and diluted FFO per common share are important supplemental non-GAAP measures of operating performance for a REIT. Because the historical cost accounting convention used for real estate assets utilizes straight-line depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen and fallen with market conditions, presentations of operating results for a REIT that use historical cost accounting for depreciation could be less informative. The term FFO was designed by the REIT industry to address this issue.

Nareit FFO. FFO, as defined by the National Association of Real Estate Investment Trusts (“Nareit”), is net income (loss) applicable to common shares (computed in accordance with GAAP), excluding gains or losses from sales of depreciable property, including any current and deferred taxes directly associated with sales of depreciable property, impairments of, or related to, depreciable real estate, plus real estate and other real estate-related depreciation and amortization, and adjustments to compute our share of Nareit FFO and FFO as Adjusted (see below) from joint ventures. Adjustments for joint ventures are calculated to reflect our pro rata share of both our consolidated and unconsolidated joint ventures. We reflect our share of Nareit FFO for unconsolidated joint ventures by applying our actual ownership percentage for the period to the applicable reconciling items on an entity by entity basis. For consolidated joint ventures in which we do not own 100%, we reflect our share of the equity by adjusting our Nareit FFO to remove the third party ownership share of the applicable reconciling items based on actual ownership percentage for the applicable periods. Our pro rata share information is prepared on a basis consistent with the comparable consolidated amounts, is intended to reflect our proportionate economic interest in the operating results of properties in our portfolio and is calculated by applying our actual ownership percentage for the period. We do not control the unconsolidated joint ventures, and the pro rata presentations of reconciling items included in Nareit FFO do not represent our legal claim to such items. The joint venture members or partners are entitled to profit or loss allocations and distributions of cash flows according to the joint venture agreements, which provide for such allocations generally according to their invested capital.

The presentation of pro rata information has limitations, which include, but are not limited to, the following: (i) the amounts shown on the individual line items were derived by applying our overall economic ownership interest percentage determined when applying the equity method of accounting and do not necessarily represent our legal claim to the assets and liabilities, or the revenues and expenses and (ii) other companies in our industry may calculate their pro rata interest differently, limiting the usefulness as a comparative measure. Because of these limitations, the pro rata financial information should not be considered independently or as a substitute for our financial statements as reported under GAAP. We compensate for these limitations by relying primarily on our GAAP financial statements, using the pro rata financial information as a supplement.

Nareit FFO does not represent cash generated from operating activities in accordance with GAAP, is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to net income (loss). We compute Nareit FFO in accordance with the current Nareit definition; however, other REITs may report Nareit FFO differently or have a different interpretation of the current Nareit definition from ours.

FFO as Adjusted. In addition, we present Nareit FFO on an adjusted basis before the impact of non-comparable items including, but not limited to, transaction-related items, other impairments (recoveries) and other losses (gains), restructuring and severance-related charges, prepayment costs (benefits) associated with early retirement or payment of debt, litigation costs (recoveries), casualty-related charges (recoveries), deferred tax asset valuation allowances, and changes in tax legislation (“FFO as Adjusted”). These adjustments are net of tax, when applicable. Transaction-related items include transaction expenses and gains/charges incurred as a result of mergers and acquisitions and lease amendment or termination activities. Prepayment costs (benefits) associated with early retirement of debt include the write-off of unamortized deferred financing fees, or additional costs, expenses, discounts, make-whole payments, penalties or premiums incurred as a result of early retirement or payment of debt. Other impairments (recoveries) and other losses (gains) include interest income associated with early and partial repayments of loans receivable and other losses or gains associated with non-depreciable assets including goodwill, DFLs, undeveloped land parcels, and loans receivable. Management believes that FFO as Adjusted provides a meaningful supplemental measurement of our FFO run-rate and is frequently used by analysts, investors, and other interested parties in the evaluation of our performance as a REIT. At the same time that Nareit created and defined its FFO measure for the REIT industry, it also recognized that “management of each of its member companies has the responsibility and authority to publish financial information that it regards as useful to the financial community.” We believe stockholders, potential investors, and financial analysts who review our operating performance are best served by an FFO run-rate earnings measure that includes certain other adjustments to net income (loss), in addition to adjustments made to arrive at the Nareit defined measure of FFO. FFO as Adjusted is used by management in analyzing our business and the performance of our properties and we believe it is important that stockholders, potential investors, and financial analysts understand this measure used by management. We use FFO as Adjusted to: (i) evaluate our performance in comparison with expected results and results of previous periods, relative to resource allocation decisions, (ii) evaluate the performance of our management, (iii) budget and forecast future results to assist in the allocation of resources, (iv) assess our performance as compared with similar real estate companies and the industry in general, and (v) evaluate how a specific potential investment will impact our future results. Other REITs or real estate companies may use different methodologies for calculating an adjusted FFO measure, and accordingly, our FFO as Adjusted may not be comparable to those reported by other REITs. For a reconciliation of net income (loss) to Nareit FFO and FFO as Adjusted and other relevant disclosure, refer to “Non-GAAP Financial Measures Reconciliations” below.

Adjusted FFO (“AFFO”). AFFO is defined as FFO as Adjusted after excluding the impact of the following: (i) stock-based compensation amortization expense, (ii) amortization of deferred financing costs, net, (iii) straight-line rents, (iv) deferred income taxes, (v) amortization of above (below) market lease intangibles, net, and (vi) other AFFO adjustments, which include: (a) non-cash interest related to DFLs and lease incentive amortization (reduction of straight-line rents), (b) actuarial reserves for insurance claims that have been incurred but not reported, and (c) amortization of deferred revenues, excluding amounts amortized into rental income that are associated with tenant funded improvements owned/recognized by us and up-front cash payments made by tenants to reduce their contractual rents. Also, AFFO is computed after deducting recurring capital expenditures, including second generation leasing costs and second generation tenant and capital improvements, and includes adjustments to compute our share of AFFO from our unconsolidated joint ventures. More specifically, recurring capital expenditures, including second generation leasing costs and second generation tenant and capital improvements (“AFFO capital expenditures”) excludes our share from unconsolidated joint ventures (reported in “other AFFO adjustments”). Adjustments for joint ventures are calculated to reflect our pro rata share of both our consolidated and unconsolidated joint ventures. We reflect our share of AFFO for unconsolidated joint ventures by applying our actual ownership percentage for the period to the applicable reconciling items on an entity by entity basis. We reflect our share for consolidated joint ventures in which we do not own 100% of the equity by adjusting our AFFO to remove the third party ownership share of the applicable reconciling items based on actual ownership percentage for the applicable periods (reported in “other AFFO adjustments”). See FFO for further disclosure regarding our use of pro rata share information and its limitations. We believe AFFO is an alternative run-rate earnings measure that improves the understanding of our operating results among investors and makes comparisons with: (i) expected results, (ii) results of previous periods, and (iii) results among REITs more meaningful. AFFO does not represent cash generated from operating activities determined in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs as it excludes the following items which generally flow through our cash flows from operating activities: (i) adjustments for changes in working capital or the actual timing of the payment of income or expense items that are accrued in the period, (ii) transaction-related costs, (iii) litigation settlement expenses, and (iv) restructuring and severance-related charges. Furthermore, AFFO is adjusted for recurring capital expenditures, which are generally not considered when determining cash flows from operations or liquidity. Other REITs or real estate companies may use different methodologies for calculating AFFO, and accordingly, our AFFO may not be comparable to those reported by other REITs. Management believes AFFO provides a meaningful supplemental measure of our performance and is frequently used by analysts, investors, and other interested parties in the evaluation of our performance as a REIT, and by presenting AFFO, we are assisting these parties in their evaluation. AFFO is a non-GAAP supplemental financial measure and should not be considered as an alternative to net income (loss) determined in accordance with GAAP and should only be considered together with and as a supplement to our financial information prepared in accordance with GAAP. For a reconciliation of net income (loss) to AFFO and other relevant disclosures, refer to “Non-GAAP Financial Measures Reconciliations” below.

Comparison of the Three and Nine Months Ended September 30, 2023 to the Three and Nine Months Ended September 30, 2022

Overview

Three Months Ended September 30, 2023 and 2022*(1)*

The following table summarizes results for the three months ended September 30, 2023 and 2022 (in thousands):


	Three Months Ended September 30,
	2023		2022		Change

Net income (loss) applicable to common shares	$	64,048	$	353,366	$	(289,318)
Nareit FFO	250,226		225,074		25,152
FFO as Adjusted	249,306		233,166		16,140
AFFO	217,305		193,314		23,991

_______________________________________

(1)For the reconciliation of non-GAAP financial measures, see “Non-GAAP Financial Measures Reconciliations” below.

Net income (loss) applicable to common shares decreased primarily as a result of the following:

*•*a gain upon change of control related to the sale of a 30% interest and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022;

an increase in depreciation, primarily as a result of development and redevelopment projects placed in service during 2022 and 2023;
an increase in interest expense, primarily as a result of: (i) senior unsecured notes issued during the first half of 2023, (ii) borrowings under the Term Loan Facilities, which were drawn during the fourth quarter of 2022, and (iii) higher interest rates on the commercial paper program, partially offset by lower borrowings on the commercial paper program; and
an increase in income tax expense primarily as a result of an increase in operating income associated with our CCRCs.

The decrease in net income (loss) applicable to common shares was partially offset by:

*•*an increase in NOI generated from our lab and outpatient medical segments related to: (i) development and redevelopment projects placed in service during 2022 and 2023, (ii) new leasing activity during 2022 and 2023 (including the impact to straight-line rents), and (iii) 2022 acquisitions of real estate;

a decrease in casualty-related charges from a hurricane during the third quarter of 2022;
a decrease in loan loss reserves primarily as a result of principal repayments on seller financing; and

*•*an increase in equity income from unconsolidated joint ventures.

Nareit FFO increased primarily as a result of the aforementioned events impacting net income (loss) applicable to common shares, except for the following, which are excluded from Nareit FFO:

gain upon change of control; and
depreciation and amortization expense.

FFO as Adjusted increased primarily as a result of the aforementioned events impacting Nareit FFO, except for the following, which are excluded from FFO as Adjusted:

casualty-related charges; and
loan loss reserves.

AFFO increased primarily as a result of the aforementioned events impacting FFO as Adjusted, except for the impact of straight-line rents, which is excluded from AFFO.

Nine Months Ended September 30, 2023 and 2022*(1)*

The following table summarizes results for the nine months ended September 30, 2023 and 2022 (in thousands):


	Nine Months Ended September 30,
	2023		2022		Change

Net income (loss) applicable to common shares	$	233,497	$	491,398	$	(257,901)
Nareit FFO	723,737		704,658		19,079
FFO as Adjusted	728,045		704,460		23,585
AFFO	645,813		590,938		54,875

_______________________________________

(1)For the reconciliation of non-GAAP financial measures, see “Non-GAAP Financial Measures Reconciliations” below.

Net income (loss) applicable to common shares decreased primarily as a result of the following:

an increase in depreciation, primarily as a result of development and redevelopment projects placed in service during 2022 and 2023;
an increase in interest expense, primarily as a result of: (i) senior unsecured notes issued during the first half of 2023, (ii) borrowings under the Term Loan Facilities, which were drawn during the fourth quarter of 2022, and (iii) higher interest rates on the commercial paper program, partially offset by lower borrowings on the commercial paper program;
a gain on sale associated with the disposition of a hospital under a direct financing lease (“DFL”) during the first quarter of 2022;

*•*a decrease in government grant income received under the CARES Act in 2023;

an increase in income tax expense primarily as a result of an increase in operating income associated with our CCRCs; and

*•*an increase in transaction costs, primarily as a result of expenses incurred in connection with our reorganization to an UPREIT structure in 2023.

The decrease in net income (loss) applicable to common shares was partially offset by:

*•*an increase in gains on sale of depreciable real estate related to lab and outpatient medical building sales during 2023 as compared to 2022;

an increase in NOI generated from our lab and outpatient medical segments related to: (i) development and redevelopment projects placed in service during 2022 and 2023, (ii) new leasing activity during 2022 and 2023 (including the impact to straight-line rents), and (iii) 2022 acquisitions of real estate;

*•*a decrease in depreciation related to the deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022;

*•*a decrease in other expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building, which were incurred in the first quarter of 2022;

a decrease in casualty-related charges from a hurricane during the third quarter of 2022;
an increase in equity income from unconsolidated joint ventures; and
a decrease in loan loss reserves primarily as a result of principal repayments on seller financing.

Nareit FFO increased primarily as a result of the aforementioned events impacting net income (loss) applicable to common shares, except for the following, which are excluded from Nareit FFO:

gain upon change of control;
gain on sales of depreciable real estate; and
depreciation and amortization expense.

FFO as Adjusted increased primarily as a result of the aforementioned events impacting Nareit FFO, except for the following, which are excluded from FFO as Adjusted:

gain on sale of a hospital under a DFL;
expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building;
casualty-related charges;
loan loss reserves; and
transaction costs.

AFFO increased primarily as a result of the aforementioned events impacting FFO as Adjusted, except for the impact of straight-line rents, which is excluded from AFFO. The increase in AFFO was partially offset by lower AFFO capital expenditures during the period.

Segment Analysis

The following tables provide selected operating information for our Same-Store and total property portfolio for each of our reportable segments. For the three months ended September 30, 2023, our Same-Store consists of 416 properties representing properties acquired or placed in service and stabilized on or prior to July 1, 2022 and that remained in operations under a consistent reporting structure through September 30, 2023. For the nine months ended September 30, 2023, our Same-Store consists of 406 properties representing properties acquired or placed in service and stabilized on or prior to January 1, 2022 and that remained in operations under a consistent reporting structure through September 30, 2023. Our total property portfolio consisted of 475 and 480 properties at September 30, 2023 and 2022, respectively. Included in our total property portfolio at each of September 30, 2023 and 2022 are 19 senior housing assets in our SWF SH JV.

Lab

The following table summarizes results at and for the three months ended September 30, 2023 and 2022 (dollars and square feet in thousands, except per square foot data):


	SS									Total Portfolio
	Three Months Ended September 30,									Three Months Ended September 30,
	2023			2022			Change			2023			2022			Change
Rental and related revenues	$	177,974		$	178,587		$	(613)		$	226,059		$	207,795		$	18,264
Healthpeak’s share of unconsolidated joint venture total revenues	1,623			1,429			194			2,425			2,938			(513)
Noncontrolling interests’ share of consolidated joint venture total revenues	(33)			(33)			—			(154)			(55)			(99)
Operating expenses	(50,298)			(47,041)			(3,257)			(60,268)			(55,162)			(5,106)
Healthpeak’s share of unconsolidated joint venture operating expenses	(573)			(495)			(78)			(958)			(777)			(181)
Noncontrolling interests’ share of consolidated joint venture operating expenses	11			10			1			33			21			12

Adjustments to NOI(1)	(5,231)			(12,947)			7,716			(9,842)			(15,221)			5,379
Adjusted NOI	$	123,473		$	119,510		$	3,963		157,295			139,539			17,756
Less: non-SS Adjusted NOI										(33,822)			(20,029)			(13,793)
SS Adjusted NOI										$	123,473		$	119,510		$	3,963
Adjusted NOI % change							3.3		%
Property count(2)	122			122						146			149
End of period occupancy(3)	97.2		%	98.8		%				97.5		%	99.0		%
Average occupancy(3)	97.3		%	98.6		%				97.5		%	98.8		%
Average occupied square feet	9,283			9,381						10,574			10,708
Average annual total revenues per occupied square foot(4)	$	76		$	71					$	83		$	74
Average annual base rent per occupied square foot(5)	$	57		$	54					$	64		$	56

_______________________________________

(1)Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for the definitions of NOI and Adjusted NOI. See Note 13 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).

(2)From our third quarter 2022 presentation of Same-Store, we added: (i) five stabilized acquisitions, (ii) three stabilized redevelopments placed in service, and (iii) two stabilized developments placed in service, and we removed: (i) four buildings that were placed into redevelopment, (ii) one asset that was placed into land held for development, and (iii) one building that experienced a significant tenant relocation.

(3)Refer to “Non-GAAP Financial Measures” above for the definition of Same-Store. Total Portfolio occupancy excludes any of the following: (i) developments, (ii) significant redevelopments, (iii) newly completed properties under lease-up, and (iv) properties held for sale.

(4)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and deferred revenues).

(5)Base rent does not include tenant recoveries, additional rents in excess of floors, and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and deferred revenues).

Same-Store Adjusted NOI increased primarily as a result of the following:

annual rent escalations; and
new leasing activity; partially offset by
higher operating expenses.

Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned impacts to Same-Store and the following Non-Same-Store impacts:

increased NOI from developments and redevelopments placed in service in 2022 and 2023; partially offset by
decreased NOI from our 2022 and 2023 dispositions.

The following table summarizes results at and for the nine months ended September 30, 2023 and 2022 (dollars and square feet in thousands, except per square foot data):


	SS									Total Portfolio(1)
	Nine Months Ended September 30,									Nine Months Ended September 30,
	2023			2022			Change			2023			2022			Change
Rental and related revenues	$	506,415		$	494,606		$	11,809		$	654,829		$	609,620		$	45,209
Healthpeak’s share of unconsolidated joint venture total revenues	5,066			7,003			(1,937)			6,519			5,637			882
Noncontrolling interests’ share of consolidated joint venture total revenues	(99)			(97)			(2)			(449)			(174)			(275)
Operating expenses	(139,864)			(124,274)			(15,590)			(172,666)			(152,796)			(19,870)
Healthpeak’s share of unconsolidated joint venture operating expenses	(2,025)			(1,621)			(404)			(2,987)			(1,744)			(1,243)
Noncontrolling interests’ share of consolidated joint venture operating expenses	34			31			3			108			59			49

Adjustments to NOI(2)	(15,813)			(36,641)			20,828			(25,618)			(50,977)			25,359
Adjusted NOI	$	353,714		$	339,007		$	14,707		459,736			409,625			50,111
Less: non-SS Adjusted NOI										(106,022)			(70,618)			(35,404)
SS Adjusted NOI										$	353,714		$	339,007		$	14,707
Adjusted NOI % change							4.3		%
Property count(3)	119			119						146			149
End of period occupancy(4)	97.1		%	98.8		%				97.5		%	99.0		%
Average occupancy(4)	97.8		%	98.5		%				98.1		%	98.6		%
Average occupied square feet	9,015			9,037						10,538			10,666
Average annual total revenues per occupied square foot(5)	$	74		$	69					$	81		$	71
Average annual base rent per occupied square foot(6)	$	56		$	52					$	62		$	55

_______________________________________

(1)Total Portfolio includes results of operations from disposed properties through the disposition date.

(2)Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for the definitions of NOI and Adjusted NOI. See Note 13 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).

(3)From our third quarter 2022 presentation of Same-Store, we added: (i) five stabilized acquisitions, (ii) two stabilized buildings that previously experienced a significant tenant relocation, (iii) two stabilized redevelopments placed in service, and (iv) one stabilized development placed in service, and we removed: (i) four buildings that were placed into redevelopment and (ii) one building that experienced a significant tenant relocation.

(4)Refer to “Non-GAAP Financial Measures” above for the definition of Same-Store. Total Portfolio occupancy excludes any of the following: (i) developments, (ii) significant redevelopments, (iii) newly completed properties under lease-up, and (iv) properties held for sale.

(5)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and deferred revenues).

(6)Base rent does not include tenant recoveries, additional rents in excess of floors, and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and deferred revenues).

Same-Store Adjusted NOI increased primarily as a result of the following:

annual rent escalations; and
new leasing activity; partially offset by
higher operating expenses.

Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned impacts to Same-Store and the following Non-Same-Store impacts:

increased NOI from developments and redevelopments placed in service in 2022 and 2023; partially offset by
decreased NOI from our 2022 and 2023 dispositions.

Outpatient Medical

The following table summarizes results at and for the three months ended September 30, 2023 and 2022 (dollars and square feet in thousands, except per square foot data):


	SS									Total Portfolio(1)
	Three Months Ended September 30,									Three Months Ended September 30,
	2023			2022			Change			2023			2022			Change
Rental and related revenues	$	175,559		$	169,696		$	5,863		$	191,016		$	184,506		$	6,510

Healthpeak’s share of unconsolidated joint venture total revenues	720			703			17			746			756			(10)
Noncontrolling interests’ share of consolidated joint venture total revenues	(8,565)			(8,401)			(164)			(8,735)			(8,968)			233
Operating expenses	(60,028)			(57,146)			(2,882)			(67,693)			(64,782)			(2,911)
Healthpeak’s share of unconsolidated joint venture operating expenses	(301)			(305)			4			(301)			(313)			12
Noncontrolling interests’ share of consolidated joint venture operating expenses	2,469			2,355			114			2,474			2,558			(84)

Adjustments to NOI(2)	(3,244)			(3,772)			528			(3,547)			(4,079)			532
Adjusted NOI	$	106,610		$	103,130		$	3,480		113,960			109,678			4,282
Less: non-SS Adjusted NOI										(7,350)			(6,548)			(802)
SS Adjusted NOI										$	106,610		$	103,130		$	3,480
Adjusted NOI % change							3.4		%
Property count(3)	279			279						295			297
End of period occupancy(4)	91.3		%	91.4		%				90.1		%	90.0		%
Average occupancy(4)	91.3		%	91.3		%				90.1		%	89.9		%
Average occupied square feet	20,510			20,493						21,507			21,624
Average annual total revenues per occupied square foot(5)	$	35		$	33					$	36		$	34
Average annual base rent per occupied square foot(6)	$	28		$	27					$	29		$	27

___________________________________

(1)Total Portfolio includes results of operations from disposed properties through the disposition date.

(3)From our third quarter 2022 presentation of Same-Store, we added: (i) 13 stabilized acquisitions, (ii) 4 stabilized developments placed in service, (iii) 1 stabilized redevelopment placed in service, and (iv) 3 redevelopments that were placed on hold, and we removed: (i) 2 assets that were sold, (ii) 1 asset that was classified as held for sale, and (iii) 1 asset that was placed into redevelopment.

(5)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest, and deferred revenues).

Same-Store Adjusted NOI increased primarily as a result of the following:

mark-to-market lease renewals; and
annual rent escalations; partially offset by
higher operating expenses.

Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store and the following Non-Same-Store impacts:

increased occupancy in former redevelopment and development properties that have been placed in service; partially offset by
decreased NOI from our 2022 and 2023 dispositions.

The following table summarizes results at and for the nine months ended September 30, 2023 and 2022 (dollars and square feet in thousands, except per square foot data):


	SS									Total Portfolio(1)
	Nine Months Ended September 30,									Nine Months Ended September 30,
	2023			2022			Change			2023			2022			Change
Rental and related revenues	$	508,594		$	490,527		$	18,067		$	564,644		$	539,910		$	24,734
Income from direct financing leases	—			—			—			—			1,168			(1,168)
Healthpeak’s share of unconsolidated joint venture total revenues	2,133			2,110			23			2,245			2,249			(4)
Noncontrolling interests’ share of consolidated joint venture total revenues	(25,524)			(25,040)			(484)			(26,364)			(26,732)			368
Operating expenses	(172,052)			(163,588)			(8,464)			(197,442)			(189,274)			(8,168)
Healthpeak’s share of unconsolidated joint venture operating expenses	(888)			(891)			3			(895)			(912)			17
Noncontrolling interests’ share of consolidated joint venture operating expenses	7,294			7,294			—			7,477			7,886			(409)

Adjustments to NOI(2)	(9,244)			(9,678)			434			(11,373)			(10,574)			(799)
Adjusted NOI	$	310,313		$	300,734		$	9,579		338,292			323,721			14,571
Less: non-SS Adjusted NOI										(27,979)			(22,987)			(4,992)
SS Adjusted NOI										$	310,313		$	300,734		$	9,579
Adjusted NOI % change							3.2		%
Property count(3)	272			272						295			297
End of period occupancy(4)	91.5		%	91.6		%				90.1		%	90.0		%
Average occupancy(4)	91.5		%	91.6		%				90.0		%	89.9		%
Average occupied square feet	20,203			20,231						21,519			21,686
Average annual total revenues per occupied square foot(5)	$	34		$	33					$	35		$	34
Average annual base rent per occupied square foot(6)	$	27		$	27					$	28		$	27

___________________________________

(1)Total Portfolio includes results of operations from disposed properties through the disposition date.

(3)From our third quarter 2022 presentation of Same-Store, we added: (i) 25 stabilized acquisitions, (ii) 3 redevelopments that were placed on hold, and (iii) 2 stabilized developments placed in service, and we removed: (i) 2 assets that were sold, (ii) 1 asset that was classified as held for sale, and (iii) 1 asset that was placed into redevelopment.

(5)Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest, and deferred revenues).

Same-Store Adjusted NOI increased primarily as a result of the following:

mark-to-market lease renewals;
annual rent escalations; and
higher parking income and percentage-based rents; partially offset by
higher operating expenses.

Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store and the following Non-Same-Store impacts:

increased NOI from our 2022 acquisitions;
business interruption proceeds related to a demolished asset; and
increased occupancy in former redevelopment and development properties that have been placed in service; partially offset by
decreased NOI from our 2022 and 2023 dispositions.

Continuing Care Retirement Community

The following table summarizes results at and for the three months ended September 30, 2023 and 2022 (dollars in thousands, except per unit data):


	SS									Total Portfolio
	Three Months Ended September 30,									Three Months Ended September 30,
	2023			2022			Change			2023			2022			Change
Resident fees and services	$	133,603		$	122,142		$	11,461		$	133,808		$	122,142		$	11,666
Government grant income(1)	—			—			—			—			4			(4)




Operating expenses	(104,236)			(99,914)			(4,322)			(104,773)			(100,264)			(4,509)



Adjustments to NOI(2)	—			—			—			—			—			—
Adjusted NOI	$	29,367		$	22,228		$	7,139		29,035			21,882			7,153
Plus (less): non-SS adjustments										332			346			(14)
SS Adjusted NOI										$	29,367		$	22,228		$	7,139
Adjusted NOI % change							32.1		%
Property count(3)	15			15						15			15
Average occupancy(4)	83.9		%	82.0		%				83.9		%	82.0		%
Average occupied units(5)	5,956			5,894						5,965			5,894
Average annual rent per occupied unit	$	89,726		$	82,893					$	89,729		$	82,895

_______________________________________

(1)Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the Consolidated Statements of Operations.

(3)From our third quarter 2022 presentation of Same-Store, no properties were added or removed.

(5)Represents average occupied units as reported by the operators for the three-month period.

Same-Store Adjusted NOI and Total Portfolio Adjusted NOI increased primarily as a result of the following:

increased rates for resident fees;
higher occupancy;
higher business interruption insurance proceeds; partially offset by
higher costs of labor and management fees.

The following table summarizes results at and for the nine months ended September 30, 2023 and 2022 (dollars in thousands, except per unit data):


	SS									Total Portfolio
	Nine Months Ended September 30,									Nine Months Ended September 30,
	2023			2022			Change			2023			2022			Change
Resident fees and services	$	390,686		$	369,062		$	21,624		$	391,076		$	369,062		$	22,014
Government grant income(1)	—			—			—			184			6,765			(6,581)

Healthpeak’s share of unconsolidated joint venture government grant income	—			—			—			—			334			(334)


Operating expenses	(306,123)			(299,146)			(6,977)			(307,551)			(300,429)			(7,122)



Adjustments to NOI(2)	(678)			—			(678)			(679)			—			(679)
Adjusted NOI	$	83,885		$	69,916		$	13,969		83,030			75,732			7,298
Plus (less): non-SS adjustments										855			(5,816)			6,671
SS Adjusted NOI										$	83,885		$	69,916		$	13,969
Adjusted NOI % change							20.0		%
Property count(3)	15			15						15			15
Average occupancy(4)	83.5		%	81.3		%				83.5		%	81.3		%
Average occupied units(5)	5,929			5,928						5,936			5,928
Average annual rent per occupied unit	$	87,859		$	83,010					$	87,883		$	84,606

_______________________________________

(1)Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the Consolidated Statements of Operations.

(3)From our third quarter 2022 presentation of Same-Store, no properties were added or removed.

(5)Represents average occupied units as reported by the operators for the nine-month period.

Same-Store Adjusted NOI increased primarily as a result of the following:

increased rates for resident fees; and
higher occupancy; partially offset by
higher costs of insurance, management fees, utilities, and food; and
lower business interruption insurance proceeds.

Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store, partially offset by decreased government grant income received under the CARES Act.

Other Income and Expense Items

The following table summarizes the results of our other income and expense items for the three and nine months ended September 30, 2023 and 2022 (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023		2022		Change		2023		2022		Change
Interest income	$	5,360	$	5,963	$	(603)	$	16,802	$	16,950	$	(148)
Interest expense	50,510		44,078		6,432		147,547		123,531		24,016
Depreciation and amortization	184,559		173,190		11,369		561,357		531,412		29,945
General and administrative	23,093		24,549		(1,456)		73,576		73,161		415
Transaction costs	36		728		(692)		3,098		1,636		1,462
Impairments and loan loss reserves (recoveries), net	(550)		3,407		(3,957)		(156)		3,678		(3,834)
Gain (loss) on sales of real estate, net	—		(4,149)		4,149		86,463		10,047		76,416

Other income (expense), net	1,481		305,678		(304,197)		4,208		326,855		(322,647)
Income tax benefit (expense)	(787)		3,834		(4,621)		(2,225)		3,775		(6,000)
Equity income (loss) from unconsolidated joint ventures	2,101		(325)		2,426		6,646		2,141		4,505
Income (loss) from discontinued operations	—		(1,298)		1,298		—		2,011		(2,011)
Noncontrolling interests’ share in continuing operations	(4,442)		(4,016)		(426)		(24,297)		(11,701)		(12,596)

Interest income

Interest income decreased for the three and nine months ended September 30, 2023 primarily as a result of principal repayments on loans receivable in 2022 and 2023, partially offset by higher interest rates.

Interest expense

Interest expense increased for the three and nine months ended September 30, 2023 primarily as a result of: (i) senior unsecured notes issued during the first half of 2023, (ii) borrowings under the Term Loan Facilities, which were drawn during the fourth quarter of 2022, and (iii) higher interest rates on the commercial paper program, partially offset by lower borrowings on the commercial paper program.

Depreciation and amortization expense

Depreciation and amortization expense increased for the three and nine months ended September 30, 2023 primarily as a result of development and redevelopment projects placed in service during 2022 and 2023, partially offset by: (i) assets placed into redevelopment in 2023 and (ii) dispositions of real estate in 2022 and 2023. The increase during the nine months ended September 30, 2023 was also partially offset by lower depreciation related to the deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022.

General and administrative expense

General and administrative expenses decreased for the three months ended September 30, 2023 primarily as a result of lower stock-based compensation. General and administrative expenses increased for the nine months ended September 30, 2023 primarily as a result of severance-related charges associated with certain employee departures during 2023, offset by lower stock-based compensation expense.

Transaction costs

Transaction costs increased for the nine months ended September 30, 2023 primarily as a result of expenses incurred in connection with our reorganization to an UPREIT structure in 2023.

Impairments and loan loss reserves (recoveries), net

Impairments and loan loss reserves (recoveries), net decreased for the three and nine months ended September 30, 2023 as a result of a decrease in loan loss reserves under the current expected credit losses model. The decrease in loan loss reserves for the three and nine months ended September 30, 2023 is primarily a result of principal repayments on seller financing, increased interest rates on variable rate loans, and macroeconomic conditions.

Gain (loss) on sales of real estate, net

Gain (loss) on sales of real estate, net increased during the nine months ended September 30, 2023 primarily as a result of: (i) the $60 million gain on sale of two lab buildings in Durham, North Carolina, which were sold in January 2023 and (ii) the $21 million gain on sales of two outpatient medical buildings, which were sold in March 2023, partially offset by: (i) the $4 million gain on sale of one lab building, which was sold during the three months ended March 31, 2022, (ii) the $10 million gain on sales of three outpatient medical buildings and one outpatient medical land parcel, which were sold during the three months ended June 30, 2022, and (iii) the $1 million gain on sales of two outpatient medical buildings, which were sold during the three months ended September 30, 2022. Refer to Note 4 to the Consolidated Financial Statements for additional information regarding dispositions of real estate and the associated gain (loss) on sales recognized.

Other income (expense), net

Other income decreased for the three and nine months ended September 30, 2023 primarily due to a gain upon change of control related to the sale of a 30% interest and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022, partially offset by casualty losses from a hurricane during the third quarter of 2022. For the nine months ended September 30, 2023, other income was further decreased by: (i) a gain on sale associated with the disposition of a hospital under a DFL during the first quarter of 2022 and (ii) a decrease in government grant income received under the CARES Act in 2023. The decrease in other income during the nine months ended September 30, 2023 was partially offset by other expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building, which were incurred in the first quarter of 2022.

Income tax benefit (expense)

Income tax expense increased for the three and nine months ended September 30, 2023 primarily as a result of an increase in operating income associated with our CCRCs.

Equity income (loss) from unconsolidated joint ventures

Equity income from unconsolidated joint ventures increased for the three and nine months ended September 30, 2023 primarily as a result of increased income from the South San Francisco JVs and the SWF SH JV.

Income (loss) from discontinued operations

The change in income (loss) from discontinued operations for the three and nine months ended September 30, 2023 is a result of the completion of dispositions of our senior housing portfolios.

Noncontrolling interests’ share in continuing operations

Noncontrolling interests’ share in continuing operations increased for the nine months ended September 30, 2023 primarily as a result of a gain on sale of an outpatient medical building in a consolidated joint venture that was sold during the second quarter of 2023.

Liquidity and Capital Resources

We anticipate that our cash flow from operations, available cash balances, and cash from our various financing activities will be adequate for the next 12 months and for the foreseeable future for purposes of: (i) funding recurring operating expenses; (ii) meeting debt service requirements; and (iii) satisfying funding of distributions to our stockholders and non-controlling interest members. Distributions are made using a combination of cash flows from operations, funds available under our bank line of credit (the “Revolving Facility”) and commercial paper program, proceeds from the sale of properties, and other sources of cash available to us.

In addition to funding the activities above, our principal liquidity needs for the next 12 months are to:

fund capital expenditures, including tenant improvements and leasing costs; and
fund future acquisition, transactional, and development and redevelopment activities.

Our longer term liquidity needs include the items listed above as well as meeting debt service requirements.

We anticipate satisfying these future needs using one or more of the following:

cash flow from operations;
sale of, or exchange of ownership interests in, properties or other investments;
borrowings under our Revolving Facility and commercial paper program;
issuance of additional debt, including unsecured notes, term loans, and mortgage debt; and/or
issuance of common or preferred stock or its equivalent, including sales of common stock under the ATM Program (as defined below).

Our ability to access the capital markets impacts our cost of capital and ability to refinance maturing indebtedness, as well as our ability to fund future acquisitions and development through the issuance of additional securities or secured debt. Credit ratings impact our ability to access capital and directly impact our cost of capital as well. Our two senior unsecured delayed draw term loans with an aggregate principal amount of $500 million (the “Term Loan Facilities”) and our Revolving Facility accrue interest at the Secured Overnight Financing Rate (“SOFR”) plus a margin that depends on the credit ratings of our senior unsecured long-term debt. We also pay a facility fee on the entire commitment under our Revolving Facility that depends upon our credit ratings. As of October 27, 2023, we had long-term credit ratings of Baa1 from Moody’s and BBB+ from S&P Global, and short-term credit ratings of P-2 from Moody’s and A-2 from S&P Global.

A downgrade in credit ratings by Moody’s and S&P Global may have a negative impact on the interest rates and facility fees for our Revolving Facility and Term Loan Facilities and may negatively impact the pricing of notes issued under our commercial paper program and senior unsecured notes. While a downgrade in our credit ratings would adversely impact our cost of borrowing, we believe we would continue to have access to the unsecured debt markets, and we could also seek to enter into one or more secured debt financings, issue additional securities, including under our ATM Program, or dispose of certain assets to fund future operating costs, capital expenditures, or acquisitions, although no assurances can be made in this regard. Refer to “Market Trends and Uncertainties” above for a more comprehensive discussion of the potential impact of economic and market conditions on our business.

Changes in Material Cash Requirements and Off-Balance Sheet Arrangements

Debt. Our material cash requirements related to debt increased by $167 million to $6.7 billion at September 30, 2023, when compared to December 31, 2022, primarily as a result of the January 2023 and May 2023 issuances of $750 million aggregate principal amount of 5.25% senior unsecured notes due 2032, partially offset by a $572 million decrease in notes outstanding under our commercial paper program. As of September 30, 2023, we had $5.4 billion of senior unsecured notes and $424 million outstanding under our commercial paper program. See Note 9 to the Consolidated Financial Statements for additional information about our debt commitments.

Development and redevelopment commitments. Our material cash requirements related to development and redevelopment projects and Company-owned tenant improvements decreased by $128 million to $124 million at September 30, 2023, when compared to December 31, 2022, primarily as a result of construction spend on and completion of existing projects in the first three quarters of 2023, thereby decreasing the remaining commitment.

Construction loan commitments. Due to the terms of our SHOP seller financing notes receivable, as of September 30, 2023, we are obligated to provide additional loans up to $36 million to fund senior housing redevelopment capital expenditure projects. Our material cash requirements to provide these additional loans decreased by $4 million to $36 million at September 30, 2023, when compared to December 31, 2022. This decrease was the result of funding provided during the third quarter of 2023, thereby decreasing the remaining commitment. See Note 6 to the Consolidated Financial Statements for additional information.

Redeemable noncontrolling interests. Our material cash requirements related to redeemable noncontrolling interests decreased by $57 million to $49 million at September 30, 2023, when compared to December 31, 2022. Certain of our noncontrolling interest holders have the ability to put their equity interests to us upon specified events or after the passage of a predetermined period of time. Each put option is subject to changes in redemption value in the event that the underlying property generates specified returns for us and meets certain promote thresholds pursuant to the respective agreements. As of September 30, 2023, two of the redeemable noncontrolling interests have met the conditions for redemption, but were not yet exercised. See Note 11 to the Consolidated Financial Statements for additional information.

Distribution and Dividend Requirements. There have been no changes to our distribution and dividend requirements during the nine months ended September 30, 2023.

Off-Balance Sheet Arrangements. We own interests in certain unconsolidated joint ventures as described in Note 7 to the Consolidated Financial Statements. Two of these joint ventures have mortgage debt of $88 million, of which our share is $40 million. Except in limited circumstances, our risk of loss is limited to our investment in the joint ventures.

There have been no other material changes, outside of the ordinary course of business, during the nine months ended September 30, 2023 to the material cash requirements or material off-balance sheet arrangements disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022 under “Material Cash Requirements” and “Off-Balance Sheet Arrangements” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Cash Flow Summary

The following summary discussion of our cash flows is based on the Consolidated Statements of Cash Flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.

The following table sets forth changes in cash flows (in thousands):


	Nine Months Ended September 30,
	2023		2022		Change
Net cash provided by (used in) operating activities	$	724,994	$	693,306	$	31,688
Net cash provided by (used in) investing activities	(361,086)		(578,113)		217,027
Net cash provided by (used in) financing activities	(376,815)		(165,517)		(211,298)

Operating Cash Flows

Our cash flows from operations are dependent upon the occupancy levels of our buildings, rental rates on leases, our tenants’ performance on their lease obligations, the level of operating expenses, and other factors. Our net cash provided by operating activities increased $32 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily as a result of: (i) developments and redevelopments placed in service during 2022 and 2023, (ii) annual rent increases, (iii) higher nonrefundable entrance fee collections, and (iv) new leasing and renewal activity. The increase in net cash provided by operating activities was partially offset by: (i) an increase in interest expense and (ii) an increase in property operating expenses.

Investing Cash Flows

Our cash flows from investing activities are generally used to fund acquisitions, developments, and redevelopments of real estate, net of proceeds received from sales of real estate, sales of DFLs, and repayments on loans receivable. Our net cash used in investing activities decreased $217 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily as a result of the following: (i) a reduction in acquisitions of real estate, (ii) an increase in proceeds from the sales of real estate, (iii) an increase in proceeds from principal repayments on loans receivable and marketable debt securities, (iv) a reduction in development and redevelopment of real estate, and (v) an increase in proceeds from insurance recoveries. The decrease in cash used by investing activities was partially offset by: (i) proceeds received in 2022 from the sale of a 30% interest in seven previously consolidated lab buildings in South San Francisco, California and (ii) higher investments in unconsolidated joint ventures related to the funding of redevelopment projects.

Financing Cash Flows

Our cash flows from financing activities are generally impacted by issuances of equity, borrowings and repayments under our bank line of credit and commercial paper program, senior unsecured notes, term loans, and mortgage debt, net of dividends paid to common shareholders. Our net cash used in financing activities increased $211 million for the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022 primarily as a result of the following: (i) net repayments under the commercial paper program and (ii) increased distributions to noncontrolling interests. The increase in net cash used in financing activities was partially offset by: (i) proceeds received from the senior unsecured notes issuances in January 2023 and May 2023 and (ii) a reduction in repurchases of common stock.

Debt

In January 2023 and May 2023, we completed public offerings of $750 million aggregate principal amount of 5.25% senior unsecured notes due 2032.

In February 2023, the Revolving Facility was amended to change the interest rate benchmark from LIBOR to SOFR.

Also in February 2023, the agreements associated with $142 million of variable rate mortgage debt were amended to change the interest rate benchmarks from LIBOR to SOFR, effective March 2023. Concurrently, we modified the related interest rate swap instruments to reflect the change in the interest rate benchmarks from LIBOR to SOFR.

See Note 9 to the Consolidated Financial Statements for additional information about our outstanding debt.

Approximately 94% and 76% of our consolidated debt was fixed rate debt as of September 30, 2023 and 2022, respectively. At September 30, 2023, our fixed rate debt and variable rate debt had weighted average interest rates of 3.70% and 5.65%, respectively. At September 30, 2022, our fixed rate debt and variable rate debt had weighted average interest rates of 3.45% and 3.42%, respectively. As of September 30, 2023, we had $142 million of variable rate mortgage debt and the $500 million Term Loan Facilities swapped to fixed rates through interest rate swap instruments. These interest rate swap instruments are designated as cash flow hedges. For purposes of classification of the amounts above, variable rate debt with a derivative financial instrument designated as a cash flow hedge is reported as fixed rate debt due to us having effectively established a fixed interest rate for the underlying debt instrument. For a more detailed discussion of our interest rate risk, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 3 below.

Supplemental Guarantor Information

Healthpeak OP has issued the senior unsecured notes described in Note 9 to the Consolidated Financial Statements. The obligations of Healthpeak OP to pay principal, premiums, if any, and interest on such senior unsecured notes are guaranteed on a full and unconditional basis by the Company.

Subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the parent guarantee is “full and unconditional”, the subsidiary obligor is a consolidated subsidiary of the parent company, the guaranteed security is debt or debt-like, and consolidated financial statements of the parent company have been filed. Accordingly, separate consolidated financial statements of Healthpeak OP have not been presented.

As permitted under Rule 13-01 of Regulation S-X, we have excluded the summarized financial information for the operating subsidiary because the Company and Healthpeak OP have no material assets, liabilities, or operations other than debt financing activities and their investments in non-guarantor subsidiaries, and management believes such summarized financial information would be repetitive and would not provide incremental value to investors.

Equity

At September 30, 2023, we had 547 million shares of common stock outstanding, equity totaled $7.0 billion, and our equity securities had a market value of $10.2 billion.

At-The-Market Program

In February 2023, in connection with the Reorganization, we terminated our previous at-the-market equity offering program and established a new at-the-market equity offering program (the “ATM Program”) that allows for the sale of shares of common stock having an aggregate gross sales price of up to $1.5 billion. In addition to the issuance and sale of shares of our common stock, we may also enter into one or more forward sales agreements (each, an “ATM forward contract”) with sales agents for the sale of our shares of common stock under our ATM Program.

During the three and nine months ended September 30, 2023, we did not issue any shares of our common stock under any ATM program.

At September 30, 2023, $1.5 billion of our common stock remained available for sale under the ATM Program. Actual future sales of our common stock will depend upon a variety of factors, including but not limited to market conditions, the trading price of our common stock, and our capital needs. We have no obligation to sell any shares under our ATM Program.

See Note 11 to the Consolidated Financial Statements for additional information about our ATM Program.

Noncontrolling Interests

Healthpeak OP. Immediately following the Reorganization, Healthpeak Properties, Inc. was the initial sole member and 100% owner of Healthpeak OP. Subsequent to the Reorganization, certain of our employees (“OP Unitholders”) were issued approximately 2 million noncontrolling, non-managing member units in Healthpeak OP (“OP Units”). When certain conditions are met, the OP Unitholders have the right to require redemption of part or all of their OP Units for cash or shares of our common stock, at our option as managing member of Healthpeak OP. The per unit redemption amount is equal to either one share of our common stock or cash equal to the fair value of a share of common stock at the time of redemption. We classify the OP Units in permanent equity because we may elect, in our sole discretion, to issue shares of our common stock to OP Unitholders who choose to redeem their OP Units rather than using cash. None of the outstanding OP Units met the criteria for redemption as of September 30, 2023.

DownREITs. At September 30, 2023, non-managing members held an aggregate of approximately 5 million units in seven limited liability companies (“DownREITs”) for which we are the managing member. The DownREIT units are exchangeable for an amount of cash approximating the then-current market value of shares of our common stock or, at our option, shares of our common stock (subject to certain adjustments, such as stock splits and reclassifications). At September 30, 2023, the outstanding DownREIT units were convertible into approximately 7 million shares of our common stock.

Share Repurchase Program

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 for a total of $56 million. During the three and nine months ended September 30, 2023, there were no repurchases under the Share Repurchase Program. Therefore, at September 30, 2023, $444 million of our common stock remained available for repurchase under the Share Repurchase Program.

Shelf Registration

In February 2023, the Company and Healthpeak OP jointly filed a prospectus with the SEC as part of a registration statement on Form S-3, using an automatic shelf registration process. This shelf registration statement expires on February 13, 2026 and at or prior to such time, we expect to file a new shelf registration statement. Under the “shelf” process, we may sell any combination of the securities described in the prospectus through one or more offerings. The securities described in the prospectus include future offerings of the Company’s common stock, preferred stock, depositary shares, warrants, debt securities, and guarantees of debt securities issued by Healthpeak OP, and Healthpeak OP’s debt securities and guarantees of debt securities issued by the Company.

Non-GAAP Financial Measures Reconciliations

The following is a reconciliation from net income (loss) applicable to common shares, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Nareit FFO, FFO as Adjusted, and AFFO (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net income (loss) applicable to common shares	$	64,048	$	353,366	$	233,497	$	491,398
Real estate related depreciation and amortization	184,559		173,190		561,357		531,412
Healthpeak’s share of real estate related depreciation and amortization from unconsolidated joint ventures	6,190		8,704		18,076		19,049
Noncontrolling interests’ share of real estate related depreciation and amortization	(4,571)		(4,464)		(14,042)		(14,487)

Loss (gain) on sales of depreciable real estate, net	—		5,280		(86,463)		(11,408)
Healthpeak’s share of loss (gain) on sales of depreciable real estate, net, from unconsolidated joint ventures	—		239		—		89
Noncontrolling interests’ share of gain (loss) on sales of depreciable real estate, net	—		—		11,546		12
Loss (gain) upon change of control, net(1)	—		(311,438)		(234)		(311,438)
Taxes associated with real estate dispositions	—		197		—		31

Nareit FFO applicable to common shares	250,226		225,074		723,737		704,658
Distributions on dilutive convertible units and other	2,340		2,352		7,027		7,055
Diluted Nareit FFO applicable to common shares	$	252,566	$	227,426	$	730,764	$	711,713

Weighted average shares outstanding - diluted Nareit FFO	554,614		546,015		554,535		546,677

Impact of adjustments to Nareit FFO:
Transaction-related items	$	49	$	681	$	2,993	$	1,573
Other impairments (recoveries) and other losses (gains), net(2)	(602)		2,897		557		(5,874)
Restructuring and severance-related charges	—		—		1,368		—



Casualty-related charges (recoveries), net(3)	(367)		4,514		(610)		4,103



Total adjustments	$	(920)	$	8,092	$	4,308	$	(198)

FFO as Adjusted applicable to common shares	$	249,306	$	233,166	$	728,045	$	704,460
Distributions on dilutive convertible units and other	2,341		2,338		7,022		7,055
Diluted FFO as Adjusted applicable to common shares	$	251,647	$	235,504	$	735,067	$	711,515

Weighted average shares outstanding - diluted FFO as Adjusted	554,614		546,015		554,535		546,677

FFO as Adjusted applicable to common shares	$	249,306	$	233,166	$	728,045	$	704,460
Stock-based compensation amortization expense	3,434		4,614		10,966		14,635
Amortization of deferred financing costs	3,054		2,691		8,828		8,069
Straight-line rents(4)	(7,279)		(12,965)		(12,710)		(36,837)
AFFO capital expenditures	(24,031)		(24,358)		(66,264)		(75,103)

Deferred income taxes	(430)		(2,814)		(933)		(3,741)
Amortization of above (below) market lease intangibles, net	(5,626)		(5,876)		(20,267)		(17,528)
Other AFFO adjustments	(1,123)		(1,144)		(1,852)		(3,017)
AFFO applicable to common shares	217,305		193,314		645,813		590,938
Distributions on dilutive convertible units and other	2,340		1,649		7,026		4,945
Diluted AFFO applicable to common shares	$	219,645	$	194,963	$	652,839	$	595,883

Weighted average shares outstanding - diluted AFFO	554,614		544,190		554,535		544,852

Refer to footnotes on the next page.

_______________________________________

(1)The three and nine months ended September 30, 2022 include a gain upon change of control related to the sale of a 30% interest to a sovereign wealth fund and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California. The gain upon change of control is included in other income (expense), net in the Consolidated Statements of Operations.

(2)The nine months ended September 30, 2022 includes the following, which are included in other income (expense), net in the Consolidated Statements of Operations: (i) a $23 million gain on sale of a hospital under a direct financing lease and (ii) $14 million of expenses incurred for tenant relocation and other costs associated with the demolition of an outpatient medical building. The three and nine months ended September 30, 2023 and 2022 include reserves and (recoveries) for expected loan losses recognized in impairments and loan loss reserves (recoveries), net in the Consolidated Statements of Operations.

(3)Casualty-related charges (recoveries), net are recognized in other income (expense), net and equity income (loss) from unconsolidated joint ventures in the Consolidated Statements of Operations.

(4)The nine months ended September 30, 2023 includes a $9 million write-off of straight-line rent receivable associated with Sorrento Therapeutics, Inc., which commenced voluntary reorganization proceedings under Chapter 11 of the U.S. Bankruptcy Code. This activity is reflected as a reduction of rental and related revenues in the Consolidated Statements of Operations.

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires our management to use judgment in the application of critical accounting estimates and assumptions. We base estimates on the best information available to us at the time, our experience and on various other assumptions believed to be reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in a different presentation of our consolidated financial statements. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. A discussion of accounting estimates that we consider critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain is included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” There have been no significant changes to our critical accounting estimates during the three and nine months ended September 30, 2023.

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