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, 2023, principal 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, construction and labor costs, and unemployment;
risks associated with the Merger (as defined below), including, but not limited to, our ability to integrate the operations of the Company and Physicians Realty Trust successfully and realize the anticipated synergies and other benefits of the Merger or do so within the anticipated time frame;
changes within the industries in which we operate;
significant regulation, funding requirements, and uncertainty faced by our lab tenants;
factors adversely affecting our tenants’, operators’, or borrowers’ ability to meet their financial and other contractual obligations to us;
the insolvency or bankruptcy of one or more of our major tenants, operators, or borrowers;
our concentration of real estate investments in the healthcare property sector, which makes us more vulnerable to a downturn in that 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 risks, including project abandonments, project delays, and lower profits than expected;
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 use of joint ventures may limit our returns on and our flexibility with jointly owned investments;
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;
any requirement that we recognize reserves, allowances, credit losses, or impairment charges;
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;
our ability to satisfy environmental, social, and governance (“ESG”) and sustainability commitments and requirements, as well as stakeholder expectations;
epidemics, pandemics, or other infectious diseases, including the coronavirus disease (“Covid”), and health and safety measures intended to reduce their spread;
human capital risks, including the loss or limited availability of our key personnel;
our reliance on information technology systems and any material failure, inadequacy, interruption, or security failure of that technology;
volatility, disruption, or uncertainty in the financial markets;
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, bank failures or other events affecting financial institutions, and other factors;
our ability to manage our indebtedness level and covenants in and changes to the terms of such indebtedness;
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”);
our taxable REIT subsidiaries being subject to corporate level tax;
tax imposed on any net income from “prohibited transactions”;
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;
provisions of Maryland law and our charter that could prevent a transaction that may otherwise be in the interest of our stockholders;
conflicts of interest between the interests of our stockholders and the interests of holders of Healthpeak OP common units;
provisions in the operating agreement of Healthpeak OP and other agreements that may delay or prevent unsolicited acquisitions and other transactions; and
our status as a holding company of Healthpeak OP.

Important Information Regarding Our Disclosure to Investors

We may use our website (www.healthpeak.com) and our LinkedIn account (https://www.linkedin.com/company/healthpeak) to communicate with our investors and disclose company information. The information disclosed through those channels may be considered to be material, so investors should monitor them in addition to our press releases, U.S. Securities and Exchange Commission (“SEC”) filings, and public conference calls and webcasts. The contents of our website or social media channels referenced herein are not incorporated by reference into this Quarterly Report on Form 10-Q.

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
Company Highlights
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 owns, operates, and develops high-quality real estate focused on healthcare discovery and delivery in the United States (“U.S.”). Our company was originally founded in 1985. 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. We are headquartered in Denver, Colorado, with additional corporate offices in California, Tennessee, Wisconsin, and Massachusetts and property management offices in several locations throughout the U.S.

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

The Merger

On March 1, 2024 (the “Closing Date”), pursuant to the Agreement and Plan of Merger dated October 29, 2023 (the “Merger Agreement”), by and among us, DOC DR Holdco, LLC (formerly known as Alpine Sub, LLC), one of our wholly owned subsidiaries (“DOC DR Holdco”), DOC DR, LLC (formerly known as Alpine OP Sub, LLC), a wholly owned subsidiary of Healthpeak OP (“DOC DR OP Sub”), Physicians Realty Trust, Physicians Realty L.P. (the “Physicians Partnership”): (i) Physicians Realty Trust merged with and into DOC DR Holdco (the “Company Merger”), with DOC DR Holdco surviving as our wholly owned subsidiary (the “Company Surviving Entity”); (ii) immediately following the effectiveness of the Company Merger, we contributed all of the outstanding equity interests in the Company Surviving Entity to Healthpeak OP (the “Contribution”); and (iii) immediately following the Contribution, Physicians Partnership merged with and into DOC DR OP Sub (the “Partnership Merger” and, together with the Company Merger, the “Merger”), with DOC DR OP Sub surviving as a subsidiary of Healthpeak OP. Subsequent to the Closing Date, the “Combined Company” means Healthpeak and its subsidiaries.

On the Closing Date, each outstanding common share of Physicians Realty Trust (other than Physicians Realty Trust common shares that were canceled in accordance with the Merger Agreement) were converted into the right to receive 0.674 (the “Exchange Ratio”) shares of our common stock, and each outstanding common unit of the Physicians Partnership was converted into common units in the successor entity to the Physicians Partnership equal to the Exchange Ratio.

As a result of the Merger, we acquired 299 outpatient medical buildings. See Note 3 to the Consolidated Financial Statements for additional information.

At June 30, 2024, our portfolio of investments, including properties in our unconsolidated joint ventures, consisted of interests in 758 properties. The following table summarizes information for our reportable and other non-reportable segments for the three months ended June 30, 2024 (dollars in thousands):


Segment	Net Income (Loss)		Total Portfolio Adjusted NOI(1)		Number of Properties
Outpatient medical	$	108,586	$	208,090	585
Lab	138,830		147,070		139
CCRC	(160)		33,683		15
Other non-reportable	8,195		5,814		19

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(1)Total Portfolio metrics include results of operations from disposed properties through the disposition date. 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 14 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 2024, see “Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Company Highlights” in this report.

Business Strategy

Our strategy is to invest in and manage real estate focused on healthcare discovery and delivery. We manage our real estate portfolio for the long-term to maximize risk-adjusted returns and support the growth of our dividends. Our strategy consists of four core elements:

(i)Our real estate: Our portfolio consists of high-quality properties in desirable locations. Our portfolio is focused on outpatient medical and lab buildings, favorable sectors that benefit from the universal desire for improved health. We have built scale and fostered deep industry relationships, two unique factors that provide us with a competitive advantage.

(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, biotechnology, and medical device companies, as well as healthcare delivery systems, specialty physician groups, and other healthcare service providers, to meet their real estate 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.

Increased interest rates, persistent inflation, 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. In addition, increased interest rates could adversely impact our borrowing costs, the fair value of our fixed rate instruments, and real estate values generally, including our real estate.

To the extent our tenants and operators have also experienced increased costs, liquidity constraints, and financing difficulties due to the foregoing macroeconomic and market conditions, they may be unable or unwilling to make payments or perform their obligations when due.

We have also been affected by inflation in construction costs over the past few years, which, together with rising costs of capital, have adversely affected the expected yields on our development and redevelopment projects. While there have been signs that cost pressures are moderating, there can be no assurance that this will continue to be the case.

We continuously monitor the effects of domestic and global events, including but not limited to inflation, increased interest rates, and challenges 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 enable us to 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, 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.

Company Highlights

On March 1, 2024, we completed the Merger with Physicians Realty Trust, which resulted in the acquisition of 299 outpatient medical buildings.

Real Estate Transactions

In January 2024, we sold a 65% interest in two lab buildings in San Diego, California (the “Callan Ridge JV”) to a third-party for net proceeds of $128 million.
In March 2024, we sold two outpatient medical buildings for $29 million.
In April 2024, we exercised our option to buy out four redeemable noncontrolling interests, made aggregate cash payments for the total redemption value of $53 million to the related noncontrolling interest holders, and acquired the redeemable noncontrolling interests associated with these entities.
In April 2024, we sold a portfolio of seven lab buildings for $180 million.
During the three months ended June 30, 2024, we sold 11 outpatient medical buildings for $179 million.
In July 2024, we completed negotiations and subsequently closed the sale of a portfolio of 59 outpatient medical buildings for $674 million and provided the buyer with a mortgage loan secured by the real estate sold for $405 million.

Development and Redevelopment Activities

*•*During the six months ended June 30, 2024, the following projects were placed in service: (i) a portion of one lab development project with total project costs of $29 million, (ii) one outpatient medical development project held in a consolidated joint venture of which our share of total project costs was $22 million, (iii) one lab redevelopment project with total project costs of $14 million, (iv) a portion of one lab redevelopment project with total project costs of $13 million, and (v) a portion of one lab redevelopment building held in one of our unconsolidated South San Francisco JVs of which our share of total project costs was $9 million.

Financing Activities

In March 2024, we executed a $750 million five year unsecured term loan (the “2029 Term Loan”) incurred as an incremental facility under the term loan agreement. In January 2024, we entered into forward-starting interest rate swap instruments on the 2029 Term Loan which are designated as cash flow hedges and establish a blended fixed effective interest rate of 4.66%.
During the six months ended June 30, 2024, we repurchased 9.4 million shares of our common stock under our 2022 Share Repurchase Program (as defined below) at a weighted average price of $17.83 per share for a total of $168 million.

Other Activities

*•*During the six months ended June 30, 2024, we refinanced one of our existing seller financing loans receivable, extended the maturity date to August 2027, and received aggregate partial principal repayments of $74 million.

In July, we executed an early lease renewal for approximately 2 million square feet leased by CommonSpirit Health, which is subject to a master agreement, which extends the weighted average lease term of existing leases from July 2027 to December 2035, amends the contractual rents to current market rates, and increases the annual contractual lease escalations from 2.5% to 3.0%.

Dividends

The following table summarizes our common stock cash dividends declared in 2024:


Declaration Date	Record Date	Amount Per Share		Dividend Payment Date
January 31	February 14	$	0.30	February 26
April 24	May 6	0.30		May 17
July 24	August 5	0.30		August 16

Results of Operations

We evaluate our business and allocate resources among our reportable business segments: (i) outpatient medical, (ii) lab, and (iii) CCRC. Under the outpatient medical and lab segments, we own, operate, and develop outpatient medical buildings, hospitals, and lab buildings. 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 and (ii) loans receivable. 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, 2023 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

Adjusted Net Operating Income

Adjusted NOI is a non-U.S. generally accepted accounting principles (“GAAP”) supplemental financial measure used to evaluate the operating performance of real estate. Adjusted NOI is defined as real estate revenues (inclusive of rental and related revenues, resident fees and services, and government grant income and exclusive of interest income), less property level operating expenses; Adjusted NOI excludes all other financial statement amounts included in net income (loss) as presented in Note 14 to the Consolidated Financial Statements. Adjusted NOI eliminates the effects of straight-line rents, 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. Adjusted NOI is calculated as Adjusted NOI from consolidated properties, plus our share of Adjusted NOI from unconsolidated joint ventures (calculated by applying our actual ownership percentage for the period), less noncontrolling interests’ share of Adjusted NOI from consolidated joint ventures (calculated by applying our actual ownership percentage for the period). We utilize our share of Adjusted NOI in assessing our performance as we have various joint ventures that contribute to our 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 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 Adjusted NOI is an important supplemental measure because it provides 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 Adjusted NOI to make decisions about resource allocations, to assess and compare property level performance, and to evaluate our Merger-Combined Same-Store (“Merger-Combined SS”) performance, as described below. We believe that net income (loss) is the most directly comparable GAAP measure to Adjusted NOI. Adjusted NOI should not be viewed as an alternative measure of operating performance to net income (loss) as defined by GAAP since it does not reflect various excluded items. Further, our definition of 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 Adjusted NOI. For a reconciliation of Adjusted NOI to net income (loss) by segment, refer to Note 14 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, which are recognized within rental and related revenues.

Merger-Combined Same-Store Adjusted NOI

Merger-Combined Same-Store Adjusted NOI includes legacy Physicians Realty Trust properties that met the same-store criteria as if they were owned by the Company for the full analysis period. This information allows our investors, analysts, and 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 Adjusted NOI (see Adjusted NOI definitions above for further discussion regarding our use of pro-rata share information and its limitations). Merger-Combined Same-Store Adjusted NOI excludes government grant income under the CARES Act, 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 Merger-Combined Same-Store once they are fully operating for the entirety of the comparative periods presented. A property is removed from Merger-Combined Same-Store when it is classified as held for sale, sold, placed into redevelopment, experiences a casualty event that significantly impacts operations, or a significant tenant relocates from a Merger-Combined Same-Store property to a Merger-Combined non Same-Store property and that change results in a corresponding increase in revenue. We do not report Merger-Combined Same-Store metrics for our other non-reportable segments.

Management believes that continued reporting of the same-store portfolio for only pre-merger Healthpeak Properties, Inc. offers minimal value to investors who are seeking to understand the operating performance and growth potential of the Combined Company. The Company was provided access to the underlying financial statements of legacy Physicians Realty Trust (which financial statements have been audited or, in the case of interim periods, reviewed) and other detailed information about each property, such as the acquisition date. Based on this available information, the Company was able to consistently apply its same-store definition across the combined portfolio. As a result of the Merger, approximately 98% of the combined portfolio is represented in the Merger-Combined Same-Store presentation for the outpatient medical segment.

For a reconciliation of Merger-Combined Same-Store to total portfolio Adjusted NOI and other relevant disclosures by segment, refer to our Segment Analysis below.

Nareit FFO. Funds from Operations (“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-related depreciation and amortization, and adjustments to compute our share of Nareit FFO 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.

We believe Nareit FFO applicable to common shares and diluted FFO applicable to common shares 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 Nareit FFO was designed by the REIT industry to address this issue.

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. For a reconciliation of net income (loss) to Nareit FFO and other relevant disclosures, refer to “Non-GAAP Financial Measures Reconciliations” below.

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 and merger-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, and are reflective of our share from our 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 FFO as Adjusted 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 FFO as Adjusted to remove the third-party ownership share of the applicable reconciling items based on actual ownership percentage for the applicable periods. See “Nareit FFO” above for further disclosures regarding our use of pro rata share information and its limitations. Transaction and merger-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, 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 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 and debt discounts (premiums), (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) 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 (“AFFO capital expenditures”). All adjustments are reflective of our pro rata share of both our consolidated and unconsolidated joint ventures (reported in “other AFFO adjustments”). 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. See “Nareit FFO” above for further disclosures 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 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 Six Months Ended June 30, 2024 to the Three and Six Months Ended June 30, 2023

Overview

The following table summarizes results for the three months ended June 30, 2024 and 2023(1) (in thousands):


	Three Months Ended June 30,
	2024		2023		Change

Net income (loss) applicable to common shares	$	145,833	$	51,750	$	94,083
Nareit FFO	314,027		245,412		68,615
FFO as Adjusted	315,639		249,202		66,437
AFFO	272,365		220,855		51,510

_______________________________________

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

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

an increase in gain on sales of depreciable real estate related to lab and outpatient medical building dispositions during 2024 as compared to 2023;
an increase in Adjusted NOI generated from our lab and outpatient medical segments related to: (i) assets acquired as part of the Merger, (ii) development and redevelopment projects placed in service during 2023 and 2024, and (iii) new leasing activity during 2023 and 2024 (including the impact to straight-line rents); and
a decrease in loan loss reserves primarily as a result of principal repayments on loans receivable during the second quarter of 2024.

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

*•*an increase in depreciation, primarily as a result of: (i) assets acquired as part of the Merger and (ii) development and redevelopment projects placed in service during 2023 and 2024;

*•*an increase in interest expense, primarily as a result of: (i) debt assumed as part of the Merger, including $1.25 billion aggregate principal amount of senior unsecured notes, $400 million aggregate principal amount of the 2028 Term Loan, and $128 million aggregate principal amount of mortgage debt, (ii) senior unsecured notes issued in May 2023, and (iii) borrowings under the 2029 Term Loan, which closed in March 2024; and

an increase in transaction and merger-related costs, primarily as a result of costs incurred in connection with the Merger.

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 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:

transaction and merger-related items; 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, and higher AFFO capital expenditures during the period.

The following table summarizes results for the six months ended June 30, 2024 and 2023**(1)** (in thousands):


	Six Months Ended June 30,
	2024		2023		Change

Net income (loss) applicable to common shares	$	152,309	$	169,449	$	(17,140)
Nareit FFO	474,625		473,513		1,112
FFO as Adjusted	590,919		478,741		112,178
AFFO	517,800		428,509		89,291

_______________________________________

(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: (i) assets acquired as part of the Merger and (ii) development and redevelopment projects placed in service during 2023 and 2024;

an increase in transaction and merger-related costs, primarily as a result of costs incurred in connection with the Merger;

*•*an increase in interest expense, primarily as a result of: (i) debt assumed as part of the Merger, including $1.25 billion aggregate principal amount of senior unsecured notes, $400 million aggregate principal amount of the 2028 Term Loan, and $128 million aggregate principal amount of mortgage debt, (ii) senior unsecured notes issued in January and May 2023, and (iii) borrowings under the 2029 Term Loan, which closed in March 2024;

an increase in income tax expense primarily as a result of an income tax expense incurred in connection with the sale of a 65% interest in two lab buildings in San Diego, California to a third-party in January 2024; and
an increase in loan loss reserves primarily as a result of reserves recognized on loans receivable acquired as part of the Merger.

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

an increase in Adjusted NOI generated from our lab and outpatient medical segments related to: (i) assets acquired as part of the Merger, (ii) development and redevelopment projects placed in service during 2023 and 2024, and (iii) new leasing activity during 2023 and 2024 (including the impact to straight-line rents);
a gain upon change of control related to the sale of a 65% interest in two lab buildings in San Diego, California to a third-party in January 2024; and
an increase in gain on sales of depreciable real estate related to lab and outpatient medical building dispositions during 2024 as compared to 2023.

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:

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

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:

transaction and merger-related items; and
loan loss reserves.

Segment Analysis

The following tables provide selected operating information for our Merger-Combined Same-Store and total property portfolio for each of our reportable segments. For the three months ended June 30, 2024, our Merger-Combined Same-Store consists of 696 properties representing properties fully operating on or prior to April 1, 2023 and that remained in operation through June 30, 2024. For the six months ended June 30, 2024, our Merger-Combined Same-Store consists of 696 properties representing properties fully operating on or prior to January 1, 2023 and that remained in operation through June 30, 2024. Legacy Physicians Realty Trust properties that met the definition of Merger-Combined Same-Store are included in both periods presented as if they were owned by the Company for the full analysis period. See “Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for additional information. Our total property portfolio consisted of 758 and 475 properties at June 30, 2024 and 2023, respectively. Included in our total property portfolio at each of June 30, 2024 and 2023 are 19 senior housing assets in our SWF SH JV.

Outpatient Medical

The following table summarizes results at and for the three months ended June 30, 2024 and 2023 (dollars and square feet in thousands, except per square foot data):


	Merger-Combined SS(1)									Total Portfolio(2)
	Three Months Ended June 30,									Three Months Ended June 30,
	2024			2023			Change			2024			2023			Change
Rental and related revenues	$	318,320		$	303,077		$	15,243		$	332,515		$	186,661		$	145,854

Healthpeak’s share of unconsolidated joint venture total revenues	6,477			6,109			368			6,903			754			6,149
Noncontrolling interests’ share of consolidated joint venture total revenues	(9,009)			(8,817)			(192)			(9,341)			(8,665)			(676)
Operating expenses	(105,015)			(102,072)			(2,943)			(111,702)			(65,350)			(46,352)
Healthpeak’s share of unconsolidated joint venture operating expenses	(2,373)			(2,186)			(187)			(2,464)			(288)			(2,176)
Noncontrolling interests’ share of consolidated joint venture operating expenses	2,566			2,485			81			2,609			2,409			200

Adjustments to NOI(3)	(10,369)			(3,944)			(6,425)			(10,430)			(4,008)			(6,422)
Adjusted NOI	$	200,597		$	194,652		$	5,945		208,090			111,513			96,577
Pre-Merger legacy Physicians Realty Trust Adjusted NOI(4)										—			90,116			(90,116)
Less: Merger-Combined Non-SS Adjusted NOI										(7,493)			(6,977)			(516)
Merger-Combined SS Adjusted NOI										$	200,597		$	194,652		$	5,945
Adjusted NOI % change							3.1		%
Property count(5)	569			569						585			295
End of period occupancy(6)	92.2		%	92.0		%				92.1		%	90.1		%
Average occupancy(6)	92.1		%	92.0		%				92.0		%	90.1		%
Average occupied square feet	35,963			35,960						36,778			21,464
Average annual total revenues per occupied square foot(7)	$	35		$	35					$	36		$	35
Average annual base rent per occupied square foot(8)	$	27		$	27					$	28		$	28

___________________________________

(1)Merger-Combined Same-Store includes legacy Physicians Realty Trust properties that met the definition of Merger-Combined Same-Store as if they were owned by the Company for the full analysis period. Refer to “Non-GAAP Financial Measures” above for the definition of Merger-Combined Same-Store.

(2)Total Portfolio includes results of operations from disposed properties through the disposition date. 2024 Total Portfolio includes results of operations for legacy Healthpeak prior to the Closing Date and results of operations for the Combined Company after the Closing Date.

(3)Represents adjustments we make to calculate Adjusted NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for the definition of Adjusted NOI. See Note 14 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).

(4)Represents Adjusted NOI for legacy Physicians Realty Trust properties prior to the Closing Date.

(5)From our second quarter 2023 presentation of Same-Store, we added: (i) 290 properties acquired as part of the Merger, (ii) 7 stabilized developments placed in service, (iii) 4 stabilized redevelopments placed in service, and (iv) 1 stabilized acquisition, and we removed 10 assets that were sold.

(6)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.

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

(8)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).

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

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

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

increased Adjusted NOI from the outpatient medical buildings acquired as part of the Merger;
increased occupancy in former redevelopment and development properties that have been placed into service; partially offset by
decreased Adjusted NOI from our 2023 and 2024 dispositions.

The following table summarizes results at and for the six months ended June 30, 2024 and 2023 (dollars and square feet in thousands, except per square foot data):


	Merger-Combined SS(1)									Total Portfolio(2)
	Six Months Ended June 30,									Six Months Ended June 30,
	2024			2023			Change			2024			2023			Change
Rental and related revenues	$	628,529		$	604,802		$	23,727		$	570,787		$	373,628		$	197,159

Healthpeak’s share of unconsolidated joint venture total revenues	12,769			11,966			803			9,642			1,498			8,144
Noncontrolling interests’ share of consolidated joint venture total revenues	(17,932)			(17,602)			(330)			(18,217)			(17,628)			(589)
Operating expenses	(207,589)			(203,027)			(4,562)			(192,970)			(129,749)			(63,221)
Healthpeak’s share of unconsolidated joint venture operating expenses	(4,764)			(4,401)			(363)			(3,547)			(595)			(2,952)
Noncontrolling interests’ share of consolidated joint venture operating expenses	5,092			5,024			68			5,039			5,004			35

Adjustments to NOI(3)	(16,465)			(7,782)			(8,683)			(16,556)			(7,825)			(8,731)
Adjusted NOI	$	399,640		$	388,980		$	10,660		354,178			224,333			129,845
Pre-Merger legacy Physicians Realty Trust Adjusted NOI(4)										61,398			179,632			(118,234)
Less: Merger-Combined Non-SS Adjusted NOI										(15,936)			(14,985)			(951)
Merger-Combined SS Adjusted NOI										$	399,640		$	388,980		$	10,660
Adjusted NOI % change							2.7		%
Property count(5)	569			569						585			295
End of period occupancy(6)	92.2		%	92.0		%				92.1		%	90.1		%
Average occupancy(6)	92.1		%	92.0		%				92.0		%	90.0		%
Average occupied square feet	35,967			35,937						36,852			21,487
Average annual total revenues per occupied square foot(7)	$	35		$	35					$	36		$	35
Average annual base rent per occupied square foot(8)	$	28		$	26					$	29		$	28

_______________________________________

(4)Represents Adjusted NOI for legacy Physicians Realty Trust properties prior to the Closing Date.

(5)From our second quarter 2023 presentation of Same-Store, we added: (i) 290 properties acquired as part of the Merger, (ii) 8 stabilized developments placed in service, (iii) 5 stabilized redevelopments placed in service, and (iv) 4 stabilized acquisitions, and we removed 10 assets that were sold.

(6)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.

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

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

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

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

increased Adjusted NOI from the outpatient medical buildings acquired as part of the Merger;
increased occupancy in former redevelopment and development properties that have been placed into service; partially offset by
business interruption proceeds received in 2023 related to a demolished asset; and
decreased Adjusted NOI from our 2023 and 2024 dispositions.

Lab

The following table summarizes results at and for the three months ended June 30, 2024 and 2023 (dollars and square feet in thousands, except per square foot data):


	Merger-Combined SS									Total Portfolio(1)
	Three Months Ended June 30,									Three Months Ended June 30,
	2024			2023			Change			2024			2023			Change
Rental and related revenues	$	178,098		$	182,271		$	(4,173)		$	214,266		$	223,306		$	(9,040)

Healthpeak’s share of unconsolidated joint venture total revenues	764			816			(52)			4,301			1,928			2,373
Noncontrolling interests’ share of consolidated joint venture total revenues	—			—			—			(33)			(151)			118
Operating expenses	(48,848)			(47,024)			(1,824)			(56,656)			(54,832)			(1,824)
Healthpeak’s share of unconsolidated joint venture operating expenses	(465)			(403)			(62)			(1,528)			(848)			(680)
Noncontrolling interests’ share of consolidated joint venture operating expenses	—			—			—			9			35			(26)

Adjustments to NOI(2)	(6,670)			(16,351)			9,681			(13,289)			(14,943)			1,654
Adjusted NOI	$	122,879		$	119,309		$	3,570		147,070			154,495			(7,425)
Less: Merger-Combined Non-SS Adjusted NOI										(24,191)			(35,186)			10,995
Merger-Combined SS Adjusted NOI										$	122,879		$	119,309		$	3,570
Adjusted NOI % change							3.0		%
Property count(3)	112			112						139			146
End of period occupancy(4)	95.3		%	97.2		%				95.4		%	97.7		%
Average occupancy(4)	95.3		%	97.7		%				95.4		%	98.1		%
Average occupied square feet	8,314			8,527						9,403			10,585
Average annual total revenues per occupied square foot(5)	$	83		$	79					$	88		$	80
Average annual base rent per occupied square foot(6)	$	62		$	59					$	68		$	62

_______________________________________

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

(2)Represents adjustments we make to calculate Adjusted NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for the definition of Adjusted NOI. See Note 14 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).

(3)From our second quarter 2023 presentation of Same-Store, we added: (i) five stabilized developments placed in service, (ii) two stabilized redevelopments placed in service, and (iii) two buildings that previously experienced a significant tenant relocation, and we removed: (i) nine buildings that were placed into redevelopment, (ii) seven assets that were sold, and (iii) two buildings that experienced a significant tenant relocation.

(4)Refer to “Non-GAAP Financial Measures” above for the definition of Merger-Combined 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).

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

annual rent escalations; partially offset by
higher operating expenses; and
lower occupancy.

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

decreased Adjusted NOI from our 2023 and 2024 dispositions; and
decreased Adjusted NOI from buildings placed into development and redevelopment in 2023 and 2024.

The following table summarizes results at and for the six months ended June 30, 2024 and 2023 (dollars and square feet in thousands, except per square foot data):


	Merger-Combined SS									Total Portfolio(1)
	Six Months Ended June 30,									Six Months Ended June 30,
	2024			2023			Change			2024			2023			Change
Rental and related revenues	$	361,225		$	359,448		$	1,777		$	438,027		$	428,770		$	9,257
Healthpeak’s share of unconsolidated joint venture total revenues	1,706			1,837			(131)			9,162			4,093			5,069
Noncontrolling interests’ share of consolidated joint venture total revenues	—			—			—			(196)			(294)			98
Operating expenses	(97,589)			(96,917)			(672)			(113,496)			(112,397)			(1,099)
Healthpeak’s share of unconsolidated joint venture operating expenses	(930)			(1,069)			139			(2,852)			(2,030)			(822)
Noncontrolling interests’ share of consolidated joint venture operating expenses	—			—			—			52			75			(23)

Adjustments to NOI(2)	(20,920)			(26,565)			5,645			(34,724)			(15,776)			(18,948)
Adjusted NOI	$	243,492		$	236,734		$	6,758		295,973			302,441			(6,468)
Less: Merger-Combined Non-SS Adjusted NOI										(52,481)			(65,707)			13,226
Merger-Combined SS Adjusted NOI										$	243,492		$	236,734		$	6,758
Adjusted NOI % change							2.9		%
Property count(3)	112			112						139			146
End of period occupancy(4)	95.3		%	97.2		%				95.4		%	97.7		%
Average occupancy(4)	95.8		%	98.0		%				96.0		%	98.4		%
Average occupied square feet	8,359			8,552						9,821			10,520
Average annual total revenues per occupied square foot(5)	$	82		$	79					$	85		$	80
Average annual base rent per occupied square foot(6)	$	61		$	59					$	65		$	61

_______________________________________

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

(3)From our second quarter 2023 presentation of Same-Store, we added: (i) six stabilized developments placed in service, (ii) two stabilized redevelopments placed in service, and (iii) two buildings that previously experienced a significant tenant relocation, and we removed: (i) eight buildings that were placed into redevelopment, (ii) seven assets that were sold, and (iii) two buildings that experienced a significant tenant relocation.

(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).

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

annual rent escalations; partially offset by
higher operating expenses; and
lower occupancy.

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

decreased Adjusted NOI from our 2023 and 2024 dispositions; and
decreased Adjusted NOI from buildings placed into development and redevelopment in 2023 and 2024.

Continuing Care Retirement Community

The following table summarizes results at and for the three months ended June 30, 2024 and 2023 (dollars in thousands, except per unit data):


	Merger-Combined SS									Total Portfolio
	Three Months Ended June 30,									Three Months Ended June 30,
	2024			2023			Change			2024			2023			Change
Resident fees and services	$	140,584		$	129,999		$	10,585		$	140,891		$	130,184		$	10,707
Government grant income(1)	—			—			—			—			47			(47)




Operating expenses	(105,030)			(101,210)			(3,820)			(105,469)			(101,655)			(3,814)



Adjustments to NOI(2)	(1,737)			(728)			(1,009)			(1,739)			(728)			(1,011)
Adjusted NOI	$	33,817		$	28,061		$	5,756		33,683			27,848			5,835
Plus (less): Merger-Combined Non-SS adjustments										134			213			(79)
Merger-Combined SS Adjusted NOI										$	33,817		$	28,061		$	5,756
Adjusted NOI % change							20.5		%
Property count(3)	15			15						15			15
Average occupancy(4)	85.4		%	83.4		%				85.4		%	83.4		%
Average occupied units(5)	6,037			5,925						6,049			5,929
Average annual rent per occupied unit	$	93,148		$	87,763					$	93,166		$	87,860

_______________________________________

(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 second quarter 2023 presentation of Merger-Combined Same-Store, no properties were added or removed.

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

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

increased rates for resident fees; and
higher occupancy; partially offset by
higher costs of labor, management fees, and real estate taxes.

The following table summarizes results at and for the six months ended June 30, 2024 and 2023 (dollars in thousands, except per unit data):


	Merger-Combined SS									Total Portfolio
	Six Months Ended June 30,									Six Months Ended June 30,
	2024			2023			Change			2024			2023			Change
Resident fees and services	$	279,062		$	257,084		$	21,978		$	279,667		$	257,268		$	22,399
Government grant income(1)	—			—			—			—			184			(184)




Operating expenses	(210,025)			(201,888)			(8,137)			(211,090)			(202,779)			(8,311)



Adjustments to NOI(2)	(1,737)			(678)			(1,059)			(1,739)			(678)			(1,061)
Adjusted NOI	$	67,300		$	54,518		$	12,782		66,838			53,995			12,843
Plus (less): Merger-Combined Non-SS adjustments										462			523			(61)
Merger-Combined SS Adjusted NOI										$	67,300		$	54,518		$	12,782
Adjusted NOI % change							23.4		%
Property count(3)	15			15						15			15
Average occupancy(4)	85.3		%	83.3		%				85.3		%	83.3		%
Average occupied units(5)	6,034			5,916						6,046			5,920
Average annual rent per occupied unit	$	92,497		$	86,911					$	92,513		$	86,976

_______________________________________

(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 second quarter 2023 presentation of Same-Store, no properties were added or removed.

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

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

increased rates for resident fees; and
higher occupancy; partially offset by
higher costs of labor, management fees, and real estate taxes.

Other Income and Expense Items

The following table summarizes the results of our other income and expense items for the three and six months ended June 30, 2024 and 2023 (in thousands):


	Three Months Ended June 30,						Six Months Ended June 30,
	2024		2023		Change		2024		2023		Change
Interest income and other	$	7,832	$	5,279	$	2,553	$	13,583	$	11,442	$	2,141
Interest expense	74,910		49,074		25,836		135,817		97,037		38,780
Depreciation and amortization	283,498		197,573		85,925		502,717		376,798		125,919
General and administrative	26,718		25,936		782		50,017		50,483		(466)
Transaction and merger-related costs	7,759		637		7,122		114,979		3,062		111,917
Impairments and loan loss reserves (recoveries), net	(553)		2,607		(3,160)		10,905		394		10,511
Gain (loss) on sales of real estate, net	122,044		4,885		117,159		125,299		86,463		38,836

Other income (expense), net	4,004		1,955		2,049		82,520		2,727		79,793
Income tax benefit (expense)	(2,728)		(1,136)		(1,592)		(16,426)		(1,438)		(14,988)
Equity income (loss) from unconsolidated joint ventures	51		2,729		(2,678)		2,427		4,545		(2,118)

Noncontrolling interests’ share in earnings	(6,669)		(4,300)		(2,369)		(11,170)		(19,855)		8,685

Interest income and other

Interest income and other increased for the three and six months ended June 30, 2024 primarily as a result of mezzanine and secured loans receivable acquired as part of the Merger, partially offset by principal repayments on loans receivable in 2023 and 2024.

Interest expense

Interest expense increased for the three and six months ended June 30, 2024 primarily as a result of: (i) debt assumed as part of the Merger, including $1.25 billion aggregate principal amount of senior unsecured notes, $400 million aggregate principal amount of the 2028 Term Loan, and $128 million aggregate principal amount of mortgage debt, (ii) senior unsecured notes issued in January and May 2023, and (iii) borrowings under the 2029 Term Loan, which closed in March 2024, partially offset by lower borrowings on the commercial paper program.

Depreciation and amortization

Depreciation and amortization expense increased for the three and six months ended June 30, 2024 primarily as a result of: (i) assets acquired as part of the Merger and (ii) development and redevelopment projects placed in service during 2023 and 2024, partially offset by: (i) assets placed into development and redevelopment in 2023 and 2024 and (ii) dispositions of real estate in 2023 and 2024.

Transaction and merger-related costs

Transaction and merger-related costs increased for the three and six months ended June 30, 2024 primarily as a result of advisory, legal, accounting, tax, post-combination severance and stock compensation expense, and other costs of combining operations with Physicians Realty Trust that were incurred in connection with the Merger. The increase in transaction and merger-related costs during the six months ended June 30, 2024 was partially offset by 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 months ended June 30, 2024 as a result of a decrease in loan loss reserves under the current expected credit losses model, which is primarily a result of macroeconomic conditions. Impairments and loan loss reserves (recoveries), net increased for the six months ended June 30, 2024 as a result of an increase in loan loss reserves under the current expected credit losses model, which is primarily a result of: (i) reserves recognized on secured loans and mezzanine loans receivable acquired as part of the Merger and (ii) reserves recognized on seller financing loans refinanced during the first quarter of 2024, partially offset by principal repayments on loans receivable.

Gain (loss) on sales of real estate, net

Gain (loss) on sales of real estate, net increased during the three and six months ended June 30, 2024 as a result of: (i) the $3 million gain on sales of two outpatient medical buildings which were sold during the three months ended March 31, 2024, (ii) the $55 million gain on sales of seven lab buildings which were sold during the three months ended June 30, 2024, and (iii) the $67 million gain on sales of 11 outpatient medical buildings which were sold during the three months ended June 30, 2024, as compared to: (i) the $60 million gain on sales of two lab buildings in Durham, North Carolina, which were sold during the three months ended March 31, 2023 and (ii) the $21 million gain on sales of two outpatient medical buildings, which were sold during the three months ended March 31, 2023. Refer to Note 5 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 increased for the six months ended June 30, 2024 due to a gain upon change of control related to the sale of a 65% interest in two lab buildings in San Diego, California to a third-party in January 2024. The increase in other income for the three and six months ended June 30, 2024 also includes casualty-related recoveries from proceeds received for water damage at an outpatient medical building.

Income tax benefit (expense)

Income tax expense increased for the three and six months ended June 30, 2024 primarily as a result of an increase in operating income associated with our CCRCs. Income tax expense further increased for the six months ended June 30, 2024 as a result of income tax expense incurred in connection with the sale of a 65% interest in two lab buildings in San Diego, California to a third-party in January 2024.

Equity income (loss) from unconsolidated joint ventures

Equity income from unconsolidated joint ventures decreased for the three and six months ended June 30, 2024 primarily as a result of losses on unconsolidated joint ventures acquired as part of the Merger. The decrease in equity income from unconsolidated joint ventures during the six months ended June 30, 2024 was partially offset by increased income from the South San Francisco JVs.

Noncontrolling interests’ share in earnings

Noncontrolling interests’ share in earnings increased for the three months ended June 30, 2024 primarily as a result of increased income from consolidated joint ventures acquired as part of the Merger. Noncontrolling interests’ share in earnings decreased for the six months ended June 30, 2024 primarily as a result of a gain on sale of an outpatient medical building in a consolidated joint venture in the first quarter of 2023.

Liquidity and Capital Resources

We anticipate that our cash flows 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 flows 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 2029 Term Loan, our two senior unsecured delayed draw term loans with an aggregate principal amount of $500 million (the “2027 Term Loans”), our 2028 Term Loan, 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 July 24, 2024, 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 or S&P Global may have a negative impact on (i) the interest rates of our Revolving Facility, 2027 Term Loans, 2028 Term Loan, and 2029 Term Loan, (ii) facility fees for our Revolving Facility, and (iii) 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 $1.7 billion to $8.6 billion at June 30, 2024, when compared to December 31, 2023, primarily as a result of: (i) $1.25 billion aggregate principal of senior unsecured notes assumed as part of the Merger; (ii) borrowings under the 2029 Term Loan with an aggregate principal balance of $750 million which was executed on March 1, 2024; (iii) the 2028 Term Loan with an aggregate principal balance of $400 million which was assumed as part of the Merger; and (iv) $128 million aggregate principal of mortgage debt assumed as part of the Merger, partially offset by a $695 million decrease in notes outstanding under our commercial paper program. See Note 10 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 $10 million to $169 million at June 30, 2024, when compared to December 31, 2023, primarily as a result of additional construction spend on projects in development and redevelopment during the first half of 2024, thereby decreasing the remaining commitment, partially offset by: (i) additional commitments on projects placed into development and redevelopment during the period and (ii) commitments related to development projects acquired as part of the Merger.

Construction loan commitments. Our material cash requirements to provide additional loans for redevelopment and capital expenditure projects increased by $40 million to $69 million at June 30, 2024, when compared to December 31, 2023. This increase was the result of outstanding commitments on secured loans acquired as part of the Merger, partially offset by a reduction in remaining commitments on seller financing that was refinanced in 2024. See Note 7 to the Consolidated Financial Statements for additional information.

Redeemable noncontrolling interests. Our material cash requirements related to redeemable noncontrolling interests decreased by $47 million to $1 million at June 30, 2024, when compared to December 31, 2023. This decrease was primarily due to the exercise of our option to buy out four redeemable noncontrolling interests in April 2024, partially offset by the redeemable noncontrolling interest we assumed as part of the Merger. See Note 12 to the Consolidated Financial Statements for additional information.

Distribution and Dividend Requirements. Our dividend policy on our common stock is to distribute a percentage of our cash flow to ensure that we meet the dividend requirements of the Code, relative to maintaining our REIT status, while still allowing us to retain cash to fund capital improvements and other investment activities. Under the Code, REITs may be subject to certain federal income and excise taxes on undistributed taxable income. During the six months ended June 30, 2024, in connection with the Merger, Physicians Partnership merged with and into DOC DR OP Sub with DOC DR OP Sub surviving as the Partnership Surviving Entity. As of June 30, 2024, approximately 6 million DownREIT units of the Partnership Surviving Entity were outstanding (6 million shares of Healthpeak common stock are issuable upon conversion). Each DownREIT unitholder will receive quarterly cash distributions per unit equal to dividends paid per share on our common stock. Additionally, in connection with the Merger, we issued 162 million shares of our common stock on March 1, 2024. We will pay our stockholders quarterly cash dividends per common share. See Note 3 to the Consolidated Financial Statements for additional information. There have been no other changes to our distribution and dividend requirements during the six months ended June 30, 2024.

Off-Balance Sheet Arrangements. We own interests in certain unconsolidated joint ventures as described in Note 8 to the Consolidated Financial Statements. Four of these joint ventures have mortgage debt of $867 million, of which our share is $189 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 six months ended June 30, 2024 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, 2023 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):


	Six Months Ended June 30,
	2024		2023		Change
Net cash provided by (used in) operating activities	$	468,764	$	471,737	$	(2,973)
Net cash provided by (used in) investing activities	89,746		(138,669)		228,415
Net cash provided by (used in) financing activities	(568,238)		(299,377)		(268,861)

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 decreased $3 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily as a result of: (i) an increase in merger-related costs and (ii) an increase in interest expense. The decrease in net cash provided by operating activities was partially offset by: (i) an increase in Adjusted NOI from properties acquired as part of the Merger, (ii) developments and redevelopments placed in service during 2023 and 2024, (iii) annual rent increases, and (iv) new leasing and renewal activity.

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 and repayments on loans receivable. Our net cash provided by investing activities increased $228 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily as a result of the following: (i) an increase in proceeds from sales of real estate, (ii) proceeds received from the Callan Ridge JV transaction, (iii) a reduction in cash used for development and redevelopment of real estate, and (iv) a reduction in cash used for acquisitions of real estate. The increase in cash provided by investing activities was partially offset by: (i) cash paid in connection with the Merger and (ii) a decrease in proceeds from principal repayments on loans receivable and marketable debt securities.

Financing Cash Flows

Our cash flows from financing activities are generally impacted by issuances and/or repurchases 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 $269 million for the six months ended June 30, 2024 compared to the six months ended June 30, 2023 primarily as a result of the following: (i) repurchases of common stock under our 2022 Share Repurchase Program, (ii) an increase in dividends paid on common stock, and (iii) cash used to buy out four redeemable noncontrolling interests in April 2024. The increase in cash used in financing activities was partially offset by lower distributions to other noncontrolling interests in 2024.

Debt

On March 1, 2024, concurrently with the consummation of the Merger, we assumed the following debt instruments: (i) $1.25 billion aggregate principal of senior unsecured notes, (ii) the $400 million 2028 Term Loan, and (iii) $128 million aggregate principal of mortgage debt. Additionally, on March 1, 2024, concurrently with the consummation of the Merger, we executed the $750 million 2029 Term Loan, which is an incremental facility under our existing term loan agreement.

In January 2024, we entered into forward-starting interest rate swap instruments that are designated as cash flow hedges that effectively establish a fixed interest rate for the 2029 Term Loan at a blended effective interest rate of 4.66%. Additionally, on March 1, 2024, concurrently with the consummation of the Merger, we acquired: (i) three interest rate swap instruments that are designated as cash flow hedges that effectively establish a fixed interest rate for the 2028 Term Loan at a blended effective interest rate of 4.44% and (ii) one interest rate swap instrument on $36 million of variable rate mortgage debt that is designated as a cash flow hedge.

See Note 10 to the Consolidated Financial Statements for additional information about our outstanding debt.

Approximately 99% and 95% of our consolidated debt was fixed rate debt as of June 30, 2024 and 2023, respectively. At June 30, 2024, our fixed rate debt and variable rate debt had weighted average effective interest rates of 4.05% and 7.02%, respectively. At June 30, 2023, our fixed rate debt and variable rate debt had weighted average effective interest rates of 3.70% and 5.49%, respectively. As of June 30, 2024, we had the following swapped to fixed rates through interest rate swap instruments: (i) the $750 million 2029 Term Loan, (ii) the $500 million 2027 Term Loans, (iii) the $400 million 2028 Term Loan, and (iv) $178 million of variable rate mortgage debt. 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 issued by Healthpeak prior to the consummation of the Merger as described in Note 10 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, DOC DR Holdco, and DOC DR OP Sub. Additionally, DOC DR OP Sub is the issuer, as successor to the Physicians Partnership upon the Merger, of the senior unsecured notes issued by the Physicians Partnership prior to, and assumed by Healthpeak as part of, the Merger as described in Note 10 to the Consolidated Financial Statements. The obligations of DOC DR OP Sub to pay principal, premiums, if any, and interest on such senior unsecured notes are guaranteed on a full and unconditional basis by the Company, Healthpeak OP, and DOC DR Holdco.

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, DOC DR Holdco, and DOC DR OP Sub have not been presented.

As permitted under Rule 13-01 of Regulation S-X, we have excluded the summarized financial information for the Company, Healthpeak OP, DOC DR Holdco, and DOC DR OP because the Company, Healthpeak OP, DOC DR Holdco, and DOC DR OP have no material assets, liabilities, or operations other than the debt financing activities described in the first paragraph of Note 10 to the Consolidated Financial Statements 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 June 30, 2024, we had 700 million shares of common stock outstanding, equity totaled $9.4 billion, and our equity securities had a market value of $14.0 billion.

The Merger

Pursuant to the terms set forth in the Merger Agreement, on the Closing Date, each outstanding share of Physicians Realty Trust (other than Physicians Realty Trust common shares that were canceled in accordance with the Merger Agreement) automatically converted into the right to receive 0.674 shares of our common stock. Based on the number of outstanding Physicians Realty Trust common shares as of the Closing Date, we issued 162 million shares of our common stock. Refer to Note 3 to the Consolidated Financial Statements for additional information regarding the Merger.

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. The ATM Program was amended in March 2024 to contemplate the sale of the remaining shares of common stock pursuant to the Company’s Registration Statement on Form S-3 filed with the SEC on February 8, 2024. 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 six months ended June 30, 2024, we did not issue any shares of our common stock under any ATM program.

At June 30, 2024, $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 12 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”) have been issued noncontrolling, non-managing member units in Healthpeak OP (“OP Units”). During the three months ended March 31, 2024, OP Unitholders were issued approximately 2 million 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. As of June 30, 2024, there were approximately 3 million OP Units outstanding and 65 thousand had met the criteria for redemption.

DownREITs. During the six months ended June 30, 2024, in connection with the Merger, Physicians Partnership merged with and into DOC DR OP Sub with DOC DR OP Sub surviving as the Partnership Surviving Entity. As of June 30, 2024, approximately 6 million DownREIT units in the Partnership Surviving Entity were outstanding (6 million shares of Healthpeak common stock are issuable upon conversion). Refer to Note 3 to the Consolidated Financial Statements for additional information regarding the Merger.

At June 30, 2024, non-managing members held an aggregate of approximately 11 million units in eight limited liability companies for which we hold controlling interests and/or 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 June 30, 2024, the outstanding DownREIT units were convertible into approximately 14 million shares of our common stock.

Share Repurchase Programs

On August 1, 2022, our Board of Directors approved a share repurchase program, under which we could acquire shares of our common stock in the open market up to an aggregate purchase price of $500 million (the “2022 Share Repurchase Program”). Purchases of common stock under the 2022 Share Repurchase Program could 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. During the three months ended June 30, 2024, we repurchased 3.6 million shares of our common stock at a weighted average price of $19.00 per share for a total of $68 million. During the six months ended June 30, 2024, we repurchased 9.4 million shares of our common stock at a weighted average price of $17.83 per share for a total of $168 million. At June 30, 2024, $276 million of our common stock remained available for repurchase under the 2022 Share Repurchase Program.

In July 2024 we repurchased an additional 1 million shares of our common stock under the 2022 Share Repurchase Program at a weighted average price of $19.42 per share for a total of $20 million.

On July 24, 2024, our Board of Directors approved a new share repurchase program (the “2024 Share Repurchase Program”) to supersede and replace the 2022 Share Repurchase Program. Upon adoption of the 2024 Share Repurchase Program, no further share repurchases may be made pursuant to the 2022 Share Repurchase Program. Under the 2024 Share Repurchase Program, we may acquire shares of our common stock in the open market or other similar purchase techniques (including in compliance with the safe harbor provisions of Rule 10b-18 under the Exchange Act or pursuant to one or more plans adopted under Rule 10b5-1 promulgated under the Exchange Act), up to an aggregate purchase price of $500 million. Purchases of common stock under the 2024 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 2024 Share Repurchase Program expires in July 2026 and may be suspended or terminated at any time without prior notice. No shares have been repurchased under the 2024 Share Repurchase Program.

Shelf Registration

On February 8, 2024, 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 8, 2027 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: (i) the Company’s common stock, preferred stock, depositary shares, warrants, debt securities, and guarantees by the Company of debt securities issued by Healthpeak OP and/or by the Company’s existing and future subsidiaries, and (ii) Healthpeak OP’s debt securities and guarantees by Healthpeak OP of debt securities issued by the Company and/or by Healthpeak OP’s existing and future subsidiaries.

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 June 30,				Six Months Ended June 30,
	2024		2023		2024		2023
Net income (loss) applicable to common shares	$	145,833	$	51,750	$	152,309	$	169,449
Real estate related depreciation and amortization	283,498		197,573		502,717		376,798
Healthpeak’s share of real estate related depreciation and amortization from unconsolidated joint ventures	11,621		5,893		20,393		11,887
Noncontrolling interests’ share of real estate related depreciation and amortization	(4,732)		(4,685)		(9,174)		(9,470)

Loss (gain) on sales of depreciable real estate, net	(122,044)		(4,885)		(125,299)		(86,463)

Noncontrolling interests’ share of gain (loss) on sales of depreciable real estate, net	—		—		—		11,546
Loss (gain) upon change of control, net(1)	(198)		(234)		(77,978)		(234)
Taxes associated with real estate dispositions(2)	49		—		11,657		—

Nareit FFO applicable to common shares	314,027		245,412		474,625		473,513
Distributions on dilutive convertible units and other	4,583		2,342		5,281		4,687
Diluted Nareit FFO applicable to common shares	$	318,610	$	247,754	$	479,906	$	478,200



Impact of adjustments to Nareit FFO:
Transaction and merger-related items(3)	$	3,369	$	581	$	106,198	$	2,944
Other impairments (recoveries) and other losses (gains), net(4)	(553)		2,432		11,300		1,159
Restructuring and severance-related charges	—		1,368		—		1,368



Casualty-related charges (recoveries), net(5)	(1,204)		(591)		(1,204)		(243)



Total adjustments	$	1,612	$	3,790	$	116,294	$	5,228

FFO as Adjusted applicable to common shares	$	315,639	$	249,202	$	590,919	$	478,741
Distributions on dilutive convertible units and other	4,581		2,338		6,960		4,680
Diluted FFO as Adjusted applicable to common shares	$	320,220	$	251,540	$	597,879	$	483,421



FFO as Adjusted applicable to common shares	$	315,639	$	249,202	$	590,919	$	478,741
Stock-based compensation amortization expense	4,814		4,245		8,180		7,532
Amortization of deferred financing costs and debt discounts (premiums)	7,317		2,954		11,840		5,774
Straight-line rents(6)	(10,453)		(4,683)		(22,545)		(5,431)
AFFO capital expenditures	(35,718)		(19,444)		(53,235)		(42,233)

Deferred income taxes	1,021		(242)		1,745		(503)
Amortization of above (below) market lease intangibles, net	(8,086)		(8,838)		(15,437)		(14,641)
Other AFFO adjustments	(2,169)		(2,339)		(3,667)		(730)
AFFO applicable to common shares	272,365		220,855		517,800		428,509
Distributions on dilutive convertible units and other	4,582		2,342		6,799		4,686
Diluted AFFO applicable to common shares	$	276,947	$	223,197	$	524,599	$	433,195

Refer to footnotes on the next page.

_______________________________________

(1)The six months ended June 30, 2024 includes a gain upon change of control related to the sale of a 65% interest in two lab buildings in San Diego, California. The gain upon change of control is included in other income (expense), net in the Consolidated Statements of Operations.

(2)The six months ended June 30, 2024 includes non-cash income tax expense related to the sale of a 65% interest in two lab buildings in San Diego, California.

(3)The three and six months ended June 30, 2024 includes costs related to the Merger, which are primarily comprised of advisory, legal, accounting, tax, post-combination severance and stock compensation expense, and other costs of combining operations with Physicians Realty Trust that were incurred during the period. These costs were partially offset by termination fee income of $4 million and $9 million for the three and six months ended June 30, 2024, respectively, associated with Graphite Bio, Inc., which later merged with LENZ Therapeutics, Inc. in March 2024, for which the lease terms were modified to accelerate expiration of the lease to December 2024. Termination fee income is included in rental and related revenues on the Consolidated Statements of Operations.

(4)The three and six months ended June 30, 2024 and 2023 includes reserves and (recoveries) for expected loan losses recognized in impairments and loan loss reserves (recoveries), net in the Consolidated Statements of Operations.

(5)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.

(6)The six months ended June 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 could affect our financial position or results of operations. 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, 2023 in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.” During the six months ended June 30, 2024, we included a new critical accounting estimate as described below:

Valuation of Real Estate – Business Combinations

For a real estate acquisition accounted for as business combinations, we allocate the acquisition consideration (excluding acquisition costs) to the assets acquired, liabilities assumed, and noncontrolling interests at fair value as of the acquisition date. Any excess of the consideration transferred relative to the fair value of the net assets acquired is accounted for as goodwill. Acquisition costs related to business combinations are expensed as incurred.

We make estimates as part of our process for allocating acquisition consideration to the various identifiable assets and liabilities based upon the relative fair value of each asset or liability. The most significant components of our allocations are typically buildings as-if-vacant, land, and lease intangibles. In the case of allocating fair value to buildings and intangibles, our fair value estimates will affect the amount of depreciation and amortization we record over the estimated useful life of each asset acquired. In the case of allocating fair value to in-place leases, we make our best estimates based on our evaluation of the specific characteristics of each tenant’s lease. Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions, and costs to execute similar leases. Our assumptions affect the amount of future revenue and/or depreciation and amortization expense that we will recognize over the remaining useful life for the acquired in-place leases.

Our fair value estimates for loans receivable and debt consider market-based information, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or liability (i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data correlation or other means (market corroborated inputs). Our fair value estimates for joint ventures consider ownership interests, subordination characteristics, redemption values, discounts for lack of control (as applicable), and hypothetical liquidation waterfalls.

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