Good morning, and welcome to the Healthpeak Properties, Inc. third quarter conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Andrew Johns, Senior Vice President, Investor Relations. Please go ahead.
Welcome to Healthpeak's Third Quarter 2022 Financial Results Conference Call. Today's conference call will contain certain forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our expectations. A discussion of risks and risk factors is included in our press release in detail in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. Certain non-GAAP financial measures will be discussed on the call. In an exhibit to the 8-K we furnished to the SEC yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with the regulatory requirements. The exhibit is also available on our website at healthpeak.com.
I will now turn the call over to our President and Chief Executive Officer, Scott Brinker.
Okay, thanks, Andrew. Good morning and welcome to Healthpeak's 3rd quarter earnings call. Joining me today for prepared remarks are Pete Scott, our Chief Financial Officer, and Scott Bohn, our Chief Development Officer. The senior team will be available for Q&A. First, on behalf of the company, I want to thank Tom for his significant contributions over the past six years to position the company for future success. The challenges we faced were significant, and we needed every bit of his energy and attention to detail. I also want to thank the board for this opportunity and my teammates for their strong support. I could not have picked a better market backdrop as tough conditions bring a unique opportunity to be your best. Financial results in the 3rd quarter were very solid. We increased full-year guidance for both earnings and same-store. Pete will provide the details.
Let's talk about the future of Healthpeak. 10 years from now, I want to look back and say that I was part of an entrepreneurial and collegial team with an intense focus on value creation activities and the related earnings growth. We'll be a real estate company at heart, immersed in the underlying businesses that support our portfolio, and I want us to enjoy the journey. I believe that mindset will produce strong returns for shareholders and be a rewarding experience for our team, and both are important to me. As for our strategy, this team was side by side on all the key decisions the past several years, so don't expect any major changes. We'll focus on life science and medical office, where we have the scale and expertise to maximize value creation while minimizing risk. These are both high-margin businesses that are aligned with the modern economy.
Our real estate is and will be dedicated to human health, a highly valued asset, now more than ever. Life science in the U.S. is a unique public-private partnership that leads the world in biotech innovation. With more than $200 billion per year spent on drug research and accelerating science, we expect a long-term virtuous cycle that will support demand for our buildings. Meanwhile, the need for cost-effective and convenient healthcare will drive demand for our MOBs, especially as the population ages. There's strong continuity from our talented team, and we enjoy working together. The board's succession plan was thoughtful and disciplined and has now been implemented. Pete Scott is excited to continue as CFO and will have an even bigger role going forward as we streamline our approach to investor relations and the capital markets. We'll continue the transparent communication that you've come to expect from us.
Tom Klaritch has been running medical office for two decades and will continue to do so. There's no one in the MOB sector more knowledgeable than Tom. Scott Bohn and Mike Dorris have been running their portfolios for over a decade and will continue to do so as co-heads of life science. They know every square inch of their local markets and have the support of the local tenant base. Scott Bohn is also taking on the role of Chief Development Officer, having established a strong track record for creativity and execution in that important value driver of our business. Adam Mabry has been a critical member of our transaction team the past five years as we sold, acquired, and developed more than $15 billion of real estate. I'm excited to see him grow as our CIO.
Jeff Miller stepped into the general counsel role, having served in that function for a decade of success at HCP. Our critical support functions like accounting, finance, tax, and HR will continue with existing leadership, which includes tenured members of the executive team such as Lisa Alonso and Shawn Johnston. We've built out best-in-class process and procedure the past six years. We play in niche real estate sectors where operational expertise drives value, so that will remain a vital part of our strategy. The business segments will continue to report to me. This has worked well the past three years and allows me to remain tightly connected to what we're seeing on the ground. In fact, I plan to spend even more of my own time out in the market, understanding trends, and assessing opportunities. We'll remain committed to a strong investment-grade balance sheet and prioritize liquidity.
Pete and the team have turned that into a competitive advantage, and we'll carry that forward. We do expect near-term G&A savings given the streamlined management team. Moving to capital allocation. Very purposefully, we were not aggressive on acquisitions or new development starts the past 18 months. In particular, we grew life science from 15% of our NOI in 2016 to 50% today through strategic acquisitions and highly accretive development. Well before real estate values peaked. As a result, the balance sheet is in great shape, and our funding commitments are manageable. We have no need to issue diluted equity or to sell assets at the wrong time in the cycle. In fact, we're in a position to be opportunistic when the capital markets start to reopen, which is the best time to go on offense.
To that end, we're advancing entitlements across all three of our life science markets. We expect to have the next wave of development ready to commence in the 2nd half of 2023, though any decision to proceed will depend on market conditions at the time. Both life science and medical office benefit from having scale in a local market, and we have deep relationships to source opportunities. We can't always control the timing, so my view is that we need a flexible funding plan. Our preference is to raise public equity at accretive prices and own assets 100%. That approach isn't always available. At the same time, there are large and more consistent private capital flows, including sovereigns and pension funds, looking to partner with premier operators like Healthpeak.
We'll be dynamic in our capital planning and consider third-party capital when appropriate, but always with the goal of benefiting Healthpeak shareholders. We also expect to have a little bit bigger box to play in going forward, but still within our two core segments. An example is in medical office, where we benefited from our on-campus concentration. That being said, we appreciate the convenience provided by certain off-campus buildings. We'll be less dogmatic in our approach and open-minded to off-campus assets, provided their strong health system affiliation. We also see the potential for additional synergies between the two segments, as some of our health system partners are doing medical R&D in their local market. Turning to the CCRC portfolio. You might recall that in 2019, we dramatically reduced our Brookdale concentration when we traded triple net senior housing for their 51% interest in the CCRCs.
That trade gave us full strategic control of the portfolio and a strong operating partner in LCS. Our capital allocation priorities are focused on life science and medical office, so we'll be opportunistic about our CCRC position. In the interim, that business has favorable supply and demand fundamentals, and we own high-quality assets concentrated in Florida, an attractive destination for seniors. To wrap up, I've been fortunate to learn under CEOs with unique skill sets, one for creative growth and another for operational excellence. My goal is to carry forward the best of both and create a company with best-in-class internal and external growth. Turn it to Pete to cover financial results and the balance sheet.
Thanks, Scott. Starting with our financial results. For the 3rd quarter, we reported FFO as adjusted of $0.43 per share and total portfolio same-store growth of 5.1%. Despite a more challenging economic backdrop, our segments continue to deliver excellent operating results. In life sciences, same-store growth was a very solid 5.4%, and we finished the quarter with an occupancy rate of 99%. Our cash mark to market on renewals was a positive 30%. Our tenant retention rate remained strong at 64%, and rent collection exceeded 99%. Scott Bohn will expand on our life science results and industry fundamentals in a bit. Turning to medical office, we had another fantastic quarter with same-store growth of 4.9%. We finished with total occupancy of 90%, a sequential increase of 10 basis points.
Also, during the 3rd quarter, we commenced 1.3 million sq ft of leases, including approximately 250,000 sq ft of new leases. This was by far the strongest quarter of leasing we have experienced year to date. As you would expect, given our on-campus focus, our tenant retention rate remains very high at 82%. Our same-store results did benefit from a very strong quarter at Medical City, Dallas. This trophy campus contributes over 7% of our medical office same-store NOI, and it is a combination of base rent and percent rent. The percent rent can be lumpy and more challenging to forecast. In the 3rd quarter, revenues at the hospital exceeded our forecast, which contributed to the segment outperformance. Finishing with CCRCs, same-store growth for the 3rd quarter increased 4.1%.
Our results were driven by a 110 basis points increase in occupancy at our IL, AL, and memory care units. This is the strongest quarter of occupancy gains in our IL, AL, and memory care units since COVID. Cash and rent receipts for the 3rd quarter were $24 million, once again outpacing our accrued rent amortization of $20 million. While top-line revenue trends are encouraging, expense pressures remain a challenge, including labor, food, and insurance. We did have $900,000 of one-time legacy insurance settlement in September, which negatively impacted our results this quarter. In addition, while labor challenges are easing from the highs experienced earlier this year, it remains elevated relative to historical levels. Last item under financial results. For the 3rd quarter, our board declared a dividend of $0.30 per share. Quick update on the impact of Hurricane Ian.
Thankfully, and most importantly, there was no loss of life or major injuries to our residents or staff at any of our assets. We did experience some modest property damage. We have insurance coverage on all of our impacted properties and expect the maximum exposure to Healthpeak to be approximately $5 million when factoring in deductibles, which per our policy has been added back to FFO as adjusted this quarter. We do anticipate temporarily lower occupancy and rent sales at the CCRC properties impacted by the hurricane. We have factored this into our revised guidance for the segment, which I will cover in a bit. Turning to our balance sheet. The capital markets have clearly turned more volatile over the course of 2022. The good news is our balance sheet continues to be a competitive advantage. A couple of key statistics.
We ended the 3rd quarter with a net debt to EBITDA of 5.3 x, below our target range of 5.5x-6 x. We have no bonds maturing until 2025, which substantially reduces capital markets risk. We have $2.4 billion of liquidity, which provides us with ample runway to complete our active development and redevelopment pipeline. A few important balance sheet assumptions. First, two days ago, we drew down the full $500 million of delayed draw term loans. As a reminder, we swapped these term loans to a fixed 3.5% interest rate through initial maturities. Second, we anticipate settling the remaining approximate $310 million of equity forwards at year-end. The blended gross issuance price of these equity forwards was $35.60 per share.
The net proceeds from these two transactions will be used to substantially reduce our floating rate debt balances. Turning now to our 2022 guidance. We are increasing the midpoint of our FFO's adjusted guidance by $0.02 - $1.73, and we have tightened the guidance range to $1.72-$1.74. Additionally, we are increasing the midpoint of our blended same-store guidance by 75 basis points, and we have tightened the guidance range to 4.5%-5.5%. The major components driving the increase in our guidance are as follows. We increased the midpoint of our medical office same-store guidance by 100 basis points. We increased the midpoint of our life science same-store guidance by 50 basis points. We reduced the midpoint of our CCRC same-store guidance by 200 basis points.
We see about a half penny benefit to FFO in 2022 from G&A savings related to our management transition. Please refer to page 38 of our supplemental for additional details on our guidance. With that, let me turn the call over to Scott Bohn.
Thanks, Pete. I'll start with an update on our life science portfolio. We had a great quarter on the leasing front, with over 500,000 sq ft of leases executed across the portfolio, with 87% coming in the form of new leases versus renewals. This included a 155,000 sq ft lease at Vantage Phase one and a 120,000 sq ft lease at Oyster Point. Additionally, we executed a 55,000 sq ft full building lease at one of our Pointe Grand redevelopment buildings. The Oyster Point lease is with an existing subtenant that will go direct following Amgen's lease expiration at the end of 2023. The Vantage lease was with an existing tenant which tripled in size.
The Pointe Grand lease was with an existing tenant growing from a 12,000 sq ft space we put them in less than one year ago. These deals again highlight the benefit and competitive advantage of our local scale and ability to provide pathways to growth for these fast-growing life science companies. It's important to note that we have very few lease maturities in the portfolio through year-end 2024. Our Boston and San Diego portfolios are especially well positioned from a lease rollover perspective. In Boston, we only have one 22,000 sq ft space rolling within that window. In San Diego, we have executed our leases or LOIs for over 50% of our 2023 expirations and have minimal lease rollover in 2024.
In South San Francisco, we've been successful in backfilling the Amgen leases as they come back to us and are off to a great start at our Pointe Grand redevelopment with the previously mentioned lease execution and strong activity on other spaces. While we do have some leasing to do in South San Francisco, we view that market as the most favorable from a supply and demand perspective, so we are confident in our ability to execute. Additionally, we continue to capture significant growth from tenants within our portfolio. Of the 1.2 million sq ft of leasing done this year, 91% has been with our existing tenant base. In South San Francisco alone, of the two million square feet of new development space we have leased in recent years, nearly 80% has been with existing portfolio tenants.
Our mark-to-market opportunity across the life science portfolio remains quite favorable at 26%, and our tenant credit profile continues to be resilient, with over 99% net collections for the quarter, in line with historical averages. This quarter, our tenant credit profile was strengthened further as a result of the high credit leases we completed at Vantage and some large M&A deals. In South San Francisco, Global Blood Therapeutics, which started as a 76,000 sq ft tenant at The Cove and later grew to take a full 165,000 sq ft building, was acquired by Pfizer for $5.4 billion. In San Diego, Turning Point Therapeutics, which executed a lease for a 185,000 sq ft at our Callan Ridge development, which is set to deliver in mid-2023, was acquired for $4.1 billion by Bristol Myers Squibb.
Now looking at rent growth, demand, and new supply. In South San Francisco, we've seen rental rates up in the mid-single-digit year- to- date, with approximately two million square feet of active demand. San Diego market rents are up low- to mid-single-digit for the year, and active demand is one million square feet. Market rents are up mid-single-digit in Boston, with active demand of approximately 2.2 million square feet. While the demand numbers have come off their record highs of the past few years, they are in line when comparing to pre-pandemic levels, and the markets remain strong with low-single-digit vacancy rates. Even more so when the markets tighten, Healthpeak and the other incumbent life science landlords will continue to capture outsized percentages of the leasing activity due to having scale and tenant relationships that new entrants are unable to match.
On the supply side, we're seeing ground-up and conversion projects being delayed or put on hold as a result of higher development costs, and potentially more impactful, the significant interest rate increases that have made many levered projects economically infeasible. As we discussed, our team tracks every ongoing and proposed project within our clusters, and the competitive supply we're tracking over the next three plus years is lower today than it was six months ago. Next, I'll touch on the life science funding environment. We've seen a number of tenants raise capital via secondary equity offerings, debt offerings, and private placements. We've also seen our tenants enter into partnerships or license agreements with pharma, as well as some large M&A transactions, as I mentioned earlier. VC funding during the 3rd quarter has already surpassed 2018 and 2019 full year levels and is on pace to match full year 2020.
Public biopharma R&D spending through the 1st half of the year was $77 billion, which is 8% higher than the 1st half of last year and is on pace to challenge 2021 as the highest R&D spending year ever. Now turning to development. Our $1 billion active life science developments are 81% pre-leased and continue to progress on time and on budget with a blended yield of approximately 7.5%. Once stabilized, we expect an incremental $75 million of cash NOI from these projects. All developments are fully bought out under GMP, effectively locking in our yields. In South San Francisco, the general plan was passed by the city council in October. The new general plan includes the ability to develop higher densities in certain parts of the city, including our Vantage land.
With the revised zoning, we expect to entitle the balance of our Vantage project for upwards of 1.3 million square feet, which, coupled with our 343,000 sq ft phase one that is currently under construction, will bring the total project to nearly 1.7 million square feet upon completion, allowing us to build on our number one market share in South San Francisco. Lastly, an update on construction costs. The extreme pricing volatility that the market has seen recently is beginning to calm. We're seeing above average price increases on some materials, but overall escalations have come back down to the low teens year-over-year, well below the 20% year-over-year numbers we discussed in prior quarters. Looking forward, we expect to see cost increases to be more in the 6%-8% range over the next twelve months.
We continue to see long and at times unpredictable lead times for items like generators and mechanical equipment, but our teams have done an excellent job procuring these long lead materials early and managing supply chain challenges to ensure our projects are being delivered on time and on budget. To wrap up, while the overall economic backdrop has caused demand to return to more normalized levels, our life science portfolio remains extremely well positioned to post strong internal growth given our minimal near-term maturities, continued focus on the core markets, and strong mark-to-market opportunities across the portfolio. With that, operator, let's open up the line for Q&A.
Thank you. We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. So that everyone may have a chance to participate, we ask that participants limit their questions to one and a related follow-up. If you have additional questions, please re-queue. At this time, we will pause momentarily to assemble our roster. Our first question will come from Austin Wurschmidt with KeyBanc Capital Markets. Please go ahead.
Hey, good morning, everybody. Wanted to kick off with questions on life science. You guys talked about the demand pipelines, you know, remaining strong, but certainly coming in a bit. At the same time, you've seen projects on the supply front put on hold. I'm just curious how you see that balance sort of shaking out and what it could mean for market rents over the next few years.
Sure, Austin. Scott Bohn. I can take that one. So I think from a demand perspective, as I noted, this demand's obviously off the record highs, but back in line with historical. You know, when you take a look at each market individually, and I think Boston's probably come down the most, off the highs over the past few years.
Our portfolio out there is, you know, 100% leased, one space, 22,000 sq ft and no other maturities in the next two years. You know, we feel really good about that market. San Francisco, the supply-demand ratio, our balance here is really strong, and it's quite favorable versus the other two markets. In San Diego, we've seen demand come down quite a bit from the peak, about 2.8 million square feet down to one million square foot. You know, a million of those square feet were two large deals that got executed earlier this year. Looking at demand, we feel pretty solid about where things are, you know, compared to historical levels again. With respect to the supply, we are seeing projects getting put on hold.
You know, as I mentioned in the prepared remarks, the i nterest rates are certainly having an impact on levered projects, making them infeasible. People are, you know, some of the new entrants are putting projects on hold as well. We think that over the next 18 months to 24 months, some of the supply we were previously forecasting will decline. Overall, we think that, you know, our portfolio with very minimal rollover and 99% leased across the portfolio will perform very well in those markets. What was the last question you asked there on the market rents? Sorry.
Correct. Just how does that sort of stack up and what's your thought, you know, in terms of how the supply-demand backdrop sets up for market rent growth? Maybe just add onto that if you've seen any increase in sublease space coming onto the market more recently.
Yeah. From market rent perspective, I mean, all three markets have been in the low- to mid-single digits year-over-year to date, depending on submarkets, you know. We're still seeing rent growth there. You know, some of that is coming from some additional capital coming in from landlords as far as TIs go. You know, some of these tenants, especially the smaller ones, are looking to outlay less cash in the initial deal. You know, there's some additional capital allocation from the landlords, which is driving up rents as well. But we, you know, we're still in a 1% vacant market, you know, effectively across the board. You know, Boston's a little bit higher, but a lot of that is some of the fringe space out in the outer bands of the market.
You know, very little space to lease. We think that market rent will continue to grow, albeit not at the, you know, the torrid pace of 2021, 2020, you know, when they were in the upper teens%, you know, kind of back to more normalized levels in the mid- to high-single digits% over time. From a sublease perspective, we have seen that pick up across all three markets, and I think there's been more sublease space come on the market in Boston versus San Francisco and San Diego. You know, again, we feel really well positioned there with very little rollover, virtually no rollover through 2024, very minimal impact to us.
A lot of the sublease space as well that we've seen come on the market has been, you know, partial space. So it, you know, it has been less tenants coming out with putting their full space on the market, sublease market for the full term. More, you know, for as an example, if somebody has 100,000 sq ft, maybe they're subleasing 25,000 sq ft for two to three years, and that's really a cash preservation and extending the cash runways versus them, you know, bowing out of the market or going under. So I think it hasn't been greatly impactful for us. Again, you know, I think that with our 99% leased, we can ride out any sublease space that comes to market in the near term.
That's helpful detail. Then just last one for me is, I'm just curious, you know, where you're seeing, you know, to the extent trades are taking place, life science cap rates today, and then how you're thinking about the appropriate risk premium for development, and the attractiveness of the pipeline that you've got today versus kind of where your cost of capital is, you know, currently.
Yeah. Hey, Austin. Scott Brinker here. I'll take the acquisition cap rate question. That's a hard one to answer today. I think life science, just in general, it's hard to be too precise because each deal is so unique, whether it's the different submarket, the tenant profile, the quality of the building. But even more important, the mark-to-market can just have a dramatic impact. There are buildings that trade with near 100% mark- to- market, right? Versus a building that maybe a lease was just signed. You know, we always like to look more from an IRR perspective, that or look at, you know, the price per paid per foot versus the current market rents just to understand kind of what the stabilized yield might look like.
We kind of try to approach it from a number of different angles. That reported cap rate can be pretty misleading in life science unless you have a you know, full understanding of all those dynamics. In all the conversations that we have with all the investors in that space, whether it's REITs, pension funds, private equity, you know, the list goes on and on. Obviously, we have an ongoing dialogue with most of them. It does feel like unlevered IRRs, no surprise, have increased. I'd say at least 100 basis points in the last six months. I don't know that anybody today is super active just given the chaos in the capital markets. Obviously, that won't last forever.
There's still interest in the space and for sure the higher quality submarkets and buildings with good tenants have been less impacted than maybe more the fringe products. That's our view on cap rates. On return on cost for development, you know, our current pipeline of $1 billion is like a 7.5%. It's pretty well locked in given our GMP contracts and pre-leasing. Harder to comment on what future returns look like, at least for us. You know, each project is unique. We are making good progress on entitlements across all three of our core markets, but realistically, we won't have permitting done on any of them until the 2nd half of 2023, is kind of the expected timeline.
Until we know exactly how much we can build and get better pricing, and we'll see what market rents look like, you know, nine to 12 months from now, we'll have a better sense of what our next round of development would look like from a return perspective. You know, at that time, we'll just have to decide if the premium versus our cost of capital and versus acquisition cap rates is sufficient. It's a little early for us to comment on development returns.
Understood. Thanks for all the detail.
Yeah.
Our next question will come from Steve Sakwa with Evercore ISI. Please go ahead.
Yeah, thanks. Good morning. Scott, you made a comment I just wanted to make sure I understood. When you talked about CCRCs in your opening comment, you said you'd be opportunistic with this position. I just wanted to make sure, does that mean that you could potentially exit CCRCs over time if the pricing was right, or did I sort of misread into what you were saying?
Yeah, I think you heard exactly correct. We like that business. It's performing pretty well. We have good real estate. We have a really good operating partner, and we've got a good internal team to manage it. We're happy to hold it. At the same time, we realize it's not a perfect fit for Healthpeak. If at any point there was an opportunity that made sense for our shareholders, then, you know, our view is we'd have to be open-minded about that. You know, it's not on the market for sale, but it is something that we'll continue to evaluate. Obviously, today isn't a great time to sell anything for cash.
That point is not lost on us obviously, but, you know, we ended up exiting the shop business with $4 billion of sales in 2020 and 2021, and some of those were done for cash, but a lot of those were done in a more creative way, whether it's asset swaps or otherwise. You know, I think the broader point is that you're gonna see us be more open-minded and creative about how to utilize the assets that we have and hopefully create a story in a business plan that investors can really get excited about. Does that help, Steve?
Yeah. I do. I mean, I guess it would be probably challenging to sell that and redeploy it without taking some dilution. Even if you could put it into development at 7.5%, I would suspect that I believe those cap rates have kind of been north of 8%, maybe pushing 10%.
Yeah. I mean, it's hard to say. You know, we feel like we got an unusually strong return when we bought those assets in 2019, but even then, it wasn't done for cash. It was really an asset swap for triple net assets. They don't trade often, so it's hard to say for sure where cap rates are, but there's quite a bit of upside in that portfolio as well. You know, it's unclear what kind of cap rate that business would sell for if we decided to sell it. Yeah, I don't want you to overinterpret the comment. It was more that we would be opportunistic and open-minded if there was ever a good opportunity to exit and redeploy.
I realize, you know, you spent a bunch of time talking about the next wave of entitlements and, you know, not really being able to start anything before the 2nd half. Can you maybe just sort of frame out for us kind of where the priorities are in terms of getting entitlements for the next round of developments? You know, which markets, which projects, and maybe some of the challenges that you're trying to overcome in getting entitlements in some of the bigger, more near-term projects.
Yeah, that sounds good. I might let Scott go and run through that as our Chief Development Officer, and then I can add in where needed. Scott?
Sure. Hey, Steve. From the entitlement perspective, we have entitlements going on in all three core markets. Obviously in Boston, we're working on our Alewife project there. You know, the city council put together a working group with various stakeholders, which we participate on. We're going through that process in hopes of presenting collectively, being the working group, revised zoning of a proposal to the city council early in 2023. That process is going very well out there. In the Bay Area, we're working on a couple different entitlements, but our Towers project in Brisbane as well as our Vantage project that I mentioned earlier there.
With the revised general plan that got approved by the city council, we have much more clarity into what we think we'll be able to achieve at that project. You know, the hopes of entitlement there are 1st half of 2023, and all that's going very well as well. We have one project that we're entitling down in San Diego as well.
Great. Thanks. That's it for me.
Our next question will come from Juan Sanabria with BMO Capital Markets. Please go ahead.
Hi. Good morning. Thanks for the time. I just wanted to maybe prod a little bit more on the comment you made, Scott, at the beginning about an intersection between life science and MOBs, and how big that market opportunity could be and if you'd look or entertain university-based opportunities?
Yeah, thanks for the question, Juan. You know, I would say the three core markets have the greatest depth of demand by far. We have the relationships and the scale to have a competitive advantage, so that's our near-term priority for sure, and we've got a big land bank with entitlements progressing. At the same time, you know, it's not lost on us that R&D is an enormous business. We've talked about $200 billion a year of R&D. Could be more. It's hard to be precise on that number, but it's significant obviously. You know, the big three markets are our priority, but we would at least be open-minded to considering ways that we could create more synergies between our two office businesses.
We have had, even in the past quarter, a couple of our health system partners reach out because they're doing R&D on their campus. Not as much with the for-profit systems, but a lot of the not-for-profit systems, especially the big, more academic medical center types. We have a long-standing business plan and MOBs that we're always partnering with the number one or number two local health system, and a lot of them tend to have some level of clinical trials, et cetera, that are happening, and they're doing a lot of the research on their own. We do view that as an opportunity down the road. I'm not sure if we'll end up doing it or not.
In today's capital markets, it's not like we're out, you know, making a bunch of new commitments. It is an opportunity that we see going forward that would utilize the skill sets from both of our two core businesses in a unique way. As it relates to the university R&D, certainly the NIH funding at $50 billion a year, a lot of that is going to the universities, and that's proven to be a very successful business. It's not exactly the same as what we do in the three core markets in marketing to biotech and pharma, but it capitalizes on the same underlying capital flows into medical research that it's certainly an interesting business that's done very well. Yeah, I mean, that one is interesting too.
Great. Just, I don't know if you would have this, but do you have any sense of in your life science or biotech exposure, the rough split between the companies that have marketed versus non-marketed drugs?
If I understand your question correctly, I might ask Scott Bohn to comment as well. If you're asking how many are in clinical trials versus have a product on the market, is that what you're asking?
Correct. Thank you. Much more eloquent.
Yeah. I believe it's around 60% have a product on the market, but Scott Bohn may correct me.
Yeah
percentage with that are in kind of preclinical trials is quite low, less than 5%. Bohn, do you know offhand?
Yeah, that's right. About 60% of our tenants have revenues, so about 40% are pre-revenue, which is what you'd, you know, typically deem as not having a product in the market. Only about, as you mentioned, 5% of our tenants are exclusively preclinical.
Yeah.
Thank you, guys.
Thanks, Juan.
Our next question will come from Richard Anderson with SMBC. Please go ahead. Pardon me, Rich. Your line might be muted.
My apologies. Can you hear me now?
Yes.
Okay, great. Congrats to everyone positively impacted by the recent changes there, and looking forward to the future. Scott, you mentioned at the outset, you know, no major changes. Perhaps the operative word there is major. You talked about being more open-minded and perhaps opportunistic on CCRCs. My question, my first question is, on, you know, a lot of your assets tied up in long-term projects, that, you know, span 10, 15 years to see full build-out. I'm not sure if those types of investments, while very interesting, align themselves as well with, you know, the immediate gratification mentality of the stock market. You did say, well, at some point our balance sheet becomes a competitive advantage and that you might go on offense.
Do you see yourselves, when you say go on offense, is it more development through this entitlement effort you were talking about? Or do you think it could be more real-time sort of immediate cash flow type of opportunities that you know sometimes the stock market you know prefers? Not that you should let the tail wag the dog, but I'm just curious how you feel about that?
Yeah, hopefully it's a combination of both. I mean, we have an attractive pipeline in both MOB and life science for development, but as you mentioned, some of them are long lead time projects. We do like the campus model. It's been quite successful for us, but we usually do it in phases so that you're not waiting 10 years for at least the initial accretion, right? You might have to wait 10 years for the final accretion, but it's incremental. But acquisitions, you know, when the market was pricing life science, you know, at 4% plus or minus and MOBs at 5%, you know, it's harder to envision a scenario where you're making a lot of money for shareholders in that kind of an environment. You didn't see us be very active on the acquisition front.
You know, things have changed. It's unclear what the next six to 12 months are gonna look like. It does feel like those companies with strong balance sheets and access to capital probably will have opportunities over the next year that maybe didn't exist in 2020 and 2021. We'll see. I mean, it's hard to predict, but it feels like there's at least a pretty good opportunity or chance that we will see an environment like that, and we'd love to be able to create more immediate accretion utilizing our scale and operational expertise. You know, we're certainly trying to prepare ourselves if those situations do become available, Rich.
Okay, fair enough. The second question is on senior housing more generally. You know, we went through a process that we get the point that, you know, perhaps Brookdale is in your wheelhouse if anything does happen there. You know, what in your mind has changed with senior housing over the past five or seven years since, you know, your former shop where, you know, that was kind of the focal point? Do you feel like something about the business has changed in a way that doesn't fit well into a REIT model?
Is it just that it doesn't fit well into the Healthpeak model, that you don't think there's anything, you know, perhaps wrong or incrementally wrong with the business, but it's just, it just doesn't fit with Healthpeak? Is that a fair way to say it?
Yeah, that's a complicated question. You know, you talked about the tail wagging the dog in the capital markets, and that's probably a fair analogy. We felt like we had a really strong portfolio and competitive advantage in life science and medical office. That's still true, by the way. In senior housing, we didn't have the scale, we didn't have the portfolio. We were trying to build out the team, but it takes time. You know, you don't do that overnight. You don't even do that in the course of a year. That takes a lot of time. We were in the process of doing that, and we ultimately chose to go down a different path. Certainly, we did see that the industry was gonna have a more difficult time during COVID.
I mean, as it turns out, it's probably been an even more difficult time than we ever would've expected. You know, it just COVID lasted a long time. As it turns out, we feel like we got. You know, at the time, we thought we got good pricing. As it turns out, maybe we got really good pricing on that exit. You know, there's plenty of ways for investors to play in senior housing and some really good companies, and you know, that led into our thinking as well. You know, I wouldn't read into so much that we had some you know, negative view on the business. It was really just, do we have a story that is marketable to investors.
I mean, that's ultimately what we're trying to do here, is create a stock price that rewards our shareholders, and we just didn't feel like senior housing was gonna help us do that.
Okay. Fair enough. Thanks very much.
Our next question will come from Michael Griffin with Citi. Please go ahead.
Great. Thanks. Maybe going back to life science for a second. Bohn, I'm curious, in the conversations that you're having with both current and prospective tenants, have you noticed any changes in sort of what they're asking for maybe in terms of spatial needs, in terms of concessions on TIs or anything like that? Any additional color there would be great.
Sure. Hey, Michael, it's Scott Bohn. I would say if anything, as I mentioned, you know, they were more looking for larger TIs, frankly, and coming out of pocket less, and allocating less of their capital towards real estate, just from a capital improvement perspective. You know, I think that they are willing to pay a higher rent day one, and having us put in the cash. I think we look at that as we're protecting ourselves, you know, on that capital by making sure those improvements are highly reusable in the space and also requiring higher letters of credit and security deposits and being even more stringent on our underwriting of their financials and drug development pipeline there.
I mean, I think that would be the biggest change. You know, I think people are pushing for shorter terms, but we haven't seen, you know, us having to give that to date yet. It's mainly in the TI.
Why do you think it is that people would be pushing for shorter terms?
Just capital. Just, you know, bring up a smaller headline number when you're talking about a full lease package, you know, to the boards.
Gotcha. That's helpful. I'm curious, on the Pointe Grand redev, I mean, you describe it as an A+ location and it's great opportunity. You know, I understand you have relationships with your JV capital partners, but just if there's the upside that it seems like there is in an opportunity like this, I guess why does it make sense for this to be joint ventured versus wholly owned?
Yeah, I mean, there is good upside in that project, but we felt like the price that was paid ultimately, you know, we were able to capture a good portion of that upside. You know, even at the time, which was three months or four months ago, the project was being underwritten to mid- to high-fives stabilized return. It could be three to four years from now. It's a great project, and it's one that the sovereign wealth partner will be happy to own for a long time alongside of us. But we did feel like we got adequate value for the 30% that we gave up.
You know, they are paying fees and potentially promotes along the way, in addition to that kind of preferred position in the waterfall for Healthpeak that, when you add it all together, we felt like that was a solid move. It does help us offset some of the redevelopment capital that we'll need to spend as well. It's a trade-off, right? There's no free lunch. We did potentially give up some upside, but for all the factors I mentioned, we felt like it was a good trade and a fantastic partner that we think could be helpful looking forward for Healthpeak as well.
You know, it's always easier to grow an existing relationship than it is to establish a new one, and that's a partner that we have a lot of confidence in and, you know, want by our side as we move this company forward.
All right. That's it for me. Thanks for the time.
Our next question will come from Steven Valiquette with Barclays. Please go ahead.
Thanks. Let me offer my congrats to both the Scotts on the new roles and titles. I guess for us, a couple things. You know, there was some pretty interesting data coming out of the life science office industry trade conference a few weeks ago, specifically related to the future supply-demand dynamics for life science across the big three markets. The punchline seemed like there was a lot of construction across the markets, but it's in lockstep with demand, so there was no real expectation of a, you know, a negative supply-demand imbalance anytime soon. I think you probably share that view, but I guess the first question, I just wanna confirm that you know share that view for life science across the three major markets as far as construction and supply-demand correlation?
Really the second question on a related topic here, just in your own forced ranking of the big three life science markets, it sounded like you still rank South San Francisco as the best market of the three for Healthpeak currently. I guess just to simplify the message, can you just reinforce for everyone what the single most critical positive variable is, in San Francisco for Healthpeak that's maybe just not quite as strong in the other two markets? Thanks.
Yeah. Hey, Steve, it's Scott Brinker. I'll start with it, and then I'll probably ask Scott Bohn to comment as well. As it relates to the three markets and comparing them, I mean, they're all strong, low single digit. You can see a lot of the development pipeline is pre-leased. You know, I would say that the purpose-built products, especially if it's being delivered by the incumbents that have the relationship and relationships and local scale, you know, I feel good with those, including our pipeline. I think some of the more fringe products, some of the redevelopment or office conversions, maybe new entrants, you know, those I'm not as sure about. We'll see. You know, it wouldn't surprise us if overall market occupancy declined a little bit in the coming years, just given how much supply is coming online.
As it relates to the specific supply-demand dynamic across the three markets, we do feel the most comfortable with South San Francisco. There's just less new supply coming into that market relative to the others. It also helps that, you know, we have number one market share, and Scott Bohn mentioned it, 80% of our development has been leased out by existing tenants. That's a huge advantage. That plays a role in why, of the three markets we feel the best about South San Francisco, today.
Maybe more broadly, to get to the first question that you asked, I thought it might be helpful just to kind of lay out how we've been thinking about supply and demand and life science investment over the past, really 18-24 months, which was, things were almost too good to be true. The rental rate growth, the amount of capital coming into the business, we were a huge beneficiary of that as one of the largest players in the business, and we certainly capitalized on that with huge rate growth and 99% market occupancy and basically pre-leasing all of our development pipeline. You know, no business grows to the sky.
Having experienced the sector in my past where, you know, maybe it was underappreciated by investors for a period of time, and then the incumbent started to make a lot of money in that business, and a huge wave of new supply comes, right? All the new investors like the returns, they like the supply-demand fundamentals, and all of a sudden, you know, the business can go upside down. For us, we were never worried about the demand side. We didn't think it would stay at the 2020, 2021 levels forever, but we do think that demand is gonna be solid in that business for decades to come. We were always more concerned with the supply.
Even though we liked our competitive advantage as a large incumbent, it was something that we were mindful of, and the impact it might have on occupancy and rental rates. We've been pretty defensive in allocating capital to that business over at least the last 12 months, really with no acquisitions, no new development starts. That at the end of the day, we actually feel better about the outlook for that business two to three years from now today than we might have at the market peak, you know, call it late 2021, right? Where everybody's raising new money, debt capital is super easy, everybody's building. At some point, you know, supply just outweighs demand, and we saw that as a potential threat.
Today, you see a lot of projects being delayed, probably canceled, returns might not make sense, debt financing is hard to get, that we actually feel like the supply-demand fundamentals looking out two to three years today might be in a better spot than we would've been able to say objectively nine to 12 months ago. We actually feel like we're in a good spot. With essentially very little lease maturities over the next two years across our three markets, we don't have a whole lot of exposure if the market slows down a bit. We'll be in a position to have our next wave of development ready to deliver, call it 2024, 2025 and thereafter, when hopefully fundamentals are in a favorable spot. Some maybe broader thoughts on how we're approaching the marketplace.
All right. Yeah, appreciate that. Thanks.
Our next question will come from Nicholas Yulico with Scotiabank. Please go ahead.
Thanks. Just wanted to follow up on South San Francisco and see if, you know, if there's any activity you're able to talk about at Vantage or Pointe Grand, you know, additional to the 3rd quarter activity you got done in terms of, you know, letters of intent or any other sort of far along leasing discussions for your, you know, development and redevelopment there?
Hey, Nick, it's Scott Bohn. I can take that one. You know, I think that there's certainly activity at the Pointe Grand campus as well as the second building Vantage. You know, nothing far enough along we would be willing to announce it today. But you know, definitely there's some big larger requirements in the market looking for new space as well as you know, a lot of activity in that 25 sq ft to 1,000 sq ft range that kind of fits really well within our Pointe Grand redevelopment assets. Nothing really to announce today fully, but you know, good activity, I would say, across the board there.
Okay, great. Thanks. I guess a question for Pete. I just wanna make sure, you know, in terms of the balance, you made a lot of steps to reduce floating rate debt exposure. You do still have about $500 million left on the existing development pipeline. Is the plan there basically? I understand you have some free cash flow after the dividend, but is the plan there basically to just fund that on the line of credit, you know, over the next year? I mean, is there anything else we should be thinking about from a sort of capital You know, inflow to the portfolio. You know, I know you have the Vantage next development joint venture, which could close next year. I don't know if there's a dollar number you can talk about, you know, about capital coming into the portfolio, from that. Thanks.
Hey, Nick, it's Pete. You know, when you think about our balance sheet and floating rate debt exposure, you know, we will always have some floating rate debt exposure just purely as the result of the development and redevelopment spend that we have. You know, when projects deliver, that is when we will look to put more permanent debt financing in place. If you think about our floating rate debt exposure, I'll just use gross numbers for a second. You know, we were at around $1.5 billion at the end of this quarter. We did close on those term loans, which we've swapped to a fixed rate, a very attractive fixed rate. Then we also have those equity forwards. So that will take our line balance down all the way to around $700 million just from the impact of those two.
You know, we certainly have the liquidity to fund the balance of our spend from a development and redevelopment perspective without really what I would say, levering up from a net debt to EBITDA perspective, because we don't have actually that NOI in our numbers right now from the projects coming online. It doesn't actually lever us up from a net debt perspective, but certainly it would take our floating rate debt up, and that's something that we are paying a lot of attention to. We're comfortable at the levels currently, but if we had to fund everything on the line, I think the levels would go to a number that frankly, we just don't think is a good run rate and comfortable number for us, creates more earnings volatility going forward.
At some point, we would certainly look to find other sources of capital that could include doing a bond deal, or that could include additional asset sales. You know, we've got a flexible funding strategy is the way we're thinking about it. I'm repeating some of, you know, Scott Brinker's words in his prepared remarks, but I think we have a good strategy as to how we're approaching it. We think our balance sheet's in great shape, and our, you know, projects right now are fully funded. It's just the sources of that may, you know, change based upon market conditions over the next year or so.
You know, that's helpful, Pete. I guess, just in terms of the Vantage next JV, I mean, is there any, you know, capital inflow to think about on that for early next year?
Yeah.
You know, is there an upfront payment that's likely?
There is an upfront payment. It's you know a little less than you know $150 million on that one that when we close on that transaction monies would flow in. There is a source there. We also have another asset in health for sale. We haven't spent a lot of time talking about that, but you know we will selectively look to you know monetize non-core assets. We've talked about this in the past. We do have one asset in health for sale, not a whole lot more to expand on that. You know that would certainly minimize the needs from a bond perspective or additional sources.
All right. Thanks. Appreciate it.
Our next question will come from Michael Carroll with RBC Capital Markets. Please go ahead.
Yeah, thanks. Just Pete, just on that asset that's held for sale, it does look like that you reduced the expected sale proceeds on that by about $10 million. Can you talk a little bit what's going on there? Is that just the overall market that has reduced that value?
Yeah. I wouldn't read much more into it other than that. Mike, you know, we're just factoring in that, you know, cap rates have likely gone up since that asset went on the market for sale, and so we've taken it down just a little bit, but there's not a whole lot more to add on that.
Okay. That makes sense. I guess can you guys talk a little bit about your next development starts? I know you did a pretty good job of highlighting some of the entitlements. I mean, should we assume that Vantage Phase 2 and Phase 3, once those entitlements get given in the beginning of the year and that JV closes, I mean, will you break ground on those sites, or do you have a little bit more leeway where you can see where the market kinda falls before you start pursuing those two actual projects?
Yeah. Hey, Michael, it's Scott Brinker. Vantage is. When you talk about phase II and phase III, those are separate phases, and they're both big. I mean, Scott mentioned 1.3 million square feet now in total. Call phase II and phase III roughly equal in the 600,000 sq ft-700,000 sq ft range. That's a lot of product to put in the market. We would do that over time, not all at once. Whether or not we would choose to proceed, we probably would be ready with permits by the second half of 2023 if all goes according to plan. It's just to my point earlier, it's just too early to comment on whether or not we would actually pull the trigger. Now we'll prepare ourselves, right?
We'll keep doing the pre-development work, the construction drawings, the bidding, so that we're in a position to go forward if we choose to do so. That's a decision that we'll be able to make in the second half of 2023 based on cost of capital and acquisition cap rates and all the other things that are relevant to that decision, including supply and demand.
Okay, great. Thanks.
Yeah.
Our next question will come from Ronald Kamdem with Morgan Stanley. Please go ahead.
Hey, a couple quick ones. Congrats on the leadership changes. Just going through, I think the 8-K had said there was like a severance of $25 million-$30 million potentially being recognized. Can you just comment more on what that is and what's going on there? Then sort of broader comments on with this sort of new leadership, is there any other changes or is everything sort of all done, all set in place? Thanks.
Hey, Ronald, it's Pete here. You know that approximate $25 million-$30 million we previously disclosed, that was as a result of the leadership transition that we announced a couple weeks ago. It's not in our numbers this quarter since that happened in early October, so you should expect to see that as we get towards, you know, the 4th quarter numbers that'll be in those. With regards to any other, you know, leadership transition, you know, items that you asked about, you know, we did promote Jeff Miller to our general counsel role.
As we think about, you know, the 4th quarter number that we'd previously disclosed, $25 million-$30 million, it will be approximately $30 million, and you'll see that in our Q4, and that will incorporate both our General Counsel's departure as well as our CEO's departure.
Got it. The charge will come through essentially in 4 Q, is sort of your point?
Correct. You'll see that.
Okay.
In the 4th quarter.
Okay. Helpful. If I could take a quick one on the life sciences business. You know, as we're thinking about sort of organic growth, going forward, you know, you sort of talked about, look, the guidance for this year is 5%. You have sort of the MOB at 4%. Is there anything specific unique to this year, or should we think about just the long-term growth rate for those businesses as being at sort of those pretty high levels, if that makes sense?
Yeah. Maybe I'll start with that, Scott Brinker here, and let others comment. Medical office is more straightforward. This year was an exception, a positive exception, but an exception. I think the normalized run rate in that business is probably more in the 2.5%-3% range, and then it will vary year by year, depending upon lease roll and mark-to-market. Now that's above the industry average, but it's not a business that grows at +4% forever, right? I mean, I guess if inflation stays at 8%, I might change my opinion, but I'm assuming that inflation comes back at some point to more normalized levels, and at that point, MOBs are probably more in a, you know, 2.5%-3% same-store growth. Life science is more complicated.
The average escalator in our portfolio is in the low 3%s, and it's mostly fixed escalators with triple net leases. You know, that's your baseline growth rate. Then when you look at our mark-to-market across the entire portfolio, it's around 26% positive, but it varies by year. One thing that we're likely to do at the upcoming NAREIT meeting is give more clarity and disclosure around the mark-to-market opportunity by year. Because in 2022, 2023 and 2024, we just don't have much maturing in terms of leases. The impact of the mark-to-market for us is just lower, and then it should pick up in the years thereafter. If you were to just straight line that mark-to-market opportunity, it's in the range of 200 basis points a year on average.
Not all of that will flow through same store because some of it will be captured via redevelopment. Just to give you a, you know, rough estimate of the normalized growth rate for that business, that's probably a pretty decent estimate to start with our contractual escalator in the low 3%s and then add in the mark-to-market over time. Then in any given year, you're gonna have some things that could move that number up or down, whether it's bad debt, free rent that we give to tenants that, you know, it's a negative one year and then it's a positive the next year. All those things can make a difference.
Obviously, that assumes that we keep occupancy at the very high level that it is today, to produce that kind of a same-store number.
Super helpful. Thanks so much.
Yeah.
Our next question will come from Joshua Dennerlein with Bank of America. Please go ahead.
Yeah. Hey, everyone. Scott, I wanted to explore your comment you had in your opening remarks on earnings growth as a priority. I guess, how are you thinking about balancing long-term and near-term growth? I think one of the kind of concerns I've heard from investors on Healthpeak is just most of the growth is longer dated with your development pipeline. Just, yeah, it'd be great to kind of hear your thoughts around this.
Yeah. Well, we've got to find the right balance. I tried to say, and hopefully I did say that, you know, there's gonna be an intense focus on value creation activities and the related earnings growth. It really is both. Certainly as a real estate investor, you know, there has to be a long-term mindset, at least part of the mindset, but it's not lost on us that as a public REIT, there's also a near-term mandate. Having done this 20 years, you know, public healthcare REIT, you know, I've seen what works and what doesn't. I feel like we need to find the right balance. I mean, certainly if you're not making the right long-term real estate decisions, eventually it catches up with you.
We do need to keep the long term in mind. In our two core businesses, life science in particular, most of the value creation opportunity is naturally through development and redevelopment, which takes some time, at least in most markets, right, where cap rates are super low. It's not lost on us that to get that value creation for investors, we've also got to create the near-term earnings growth. There is gonna be a balance. You know, it's a balance that sometimes is relatively straightforward and other times it's more complicated.
That Pointe Grand redevelopment is a, you know, pretty good example of that, the long-term value creation there. The question was asked earlier, and they're probably right, if you're not publicly traded, maybe you hold on to that entire development. As a publicly traded REIT that's also trying to create earnings growth for investors today, selling off the 30% stake allowed us to create an earnings outcome that was far preferable to the alternative of owning it 100%. Each project is unique, but our mindset is gonna be finding a way to balance both, the long-term value creation as well as the short-term earnings impact.
Okay. I appreciate that color.
Yeah.
I noticed where it looks like on page 20 or so on the developments page, it looks like Vantage Phase I, the total cost to complete went up by $45 million. What was driving that?
Sure. This is Scott Bohn. That's related to the amenities building facility that we're building there. When we got more clarity with the general plan being completed, we upsized the size of that amenities building and increased the scope to be able to service the full 1.7 million square feet in totality of that project.
Okay. That's not reflected in the square footage. Is that?
Correct.
Okay. Is that revenue generating or just kind of an addition?
Yeah. The tenants will pay their pro rata rent based on their square footage based on the overall campus build out. There will be a return on that.
Okay. It sounds like the cost went up, but maybe the return profile is the same. Is that a fair way to?
Correct.
All right. Awesome. Thanks, everyone.
Our next question will come from Dave Rodgers with Baird. Please go ahead.
Yeah. Hi, everyone. Scott Brinker. I wanted to ask about the MOBs and your opening comment about doing more off campus. I wanted clarity on whether that was a function of where you saw the intersection of life science and MOB happening, if that's a function of perhaps just doing more development off campus. What kinda changed in the mindset, and if you had said it earlier, I missed it.
No, I'm happy to take that. I might ask Tom Klaritch to comment as well. If you look at the inventory of medical office real estate around the country, about 30% of it is on campus. 30%, it's a pretty small number. If you look at the new supply that gets built every year, it's also about 30% on campus. Given a choice, our preference is to own on-campus real estate, especially if it's a leading health system. Our view is to ignore the 70% of the market, that's probably a bit too much. There are certainly some really good opportunities within that very large, off-campus market, provided you've got the strong health system affiliation.
You know, we're all healthcare consumers as well, and it's not lost on us that a lot of times when we need healthcare, we end up going to an off-campus setting. You know, it's more convenient, which is helpful sometimes. We're gonna find a better balance. We still love on-campus real estate. I'm glad that we're at 81%. It's helped us produce the best same-store growth in the peer group for quite a while now, and we hope that continues. We will at least be open-minded to select off-campus MOBs going forward, whether we're acquiring them or developing them. Klaritch, is there anything you'd add to that?
Yeah. I mean, I've always liked certain off-campus properties. It really depends on the profile of the building. You want some higher acuity hospital outpatient departments in those buildings. That tends to drive a lot of services. You know, if a patient can go to the off-campus facility and get a lot of the same services they can get on campus, it's as Scott said, it's just a lot more convenient. We like that type of project. Certainly, our core has always been on campus, so you know, we would continue to grow there. There are a lot of nice off-campus projects that we would love to be involved in.
Great. That's helpful. Maybe just a follow-up for me on stock buyback, just with the change in leadership. Scott, your view on stock buyback. You did a little bit in the quarter, it wasn't aggressive. I don't know, Pete or Scott, any thoughts on kinda where that might go in the future?
Yeah.
I'll let Pete cover that.
I think it's pretty straightforward. You know, we prefer to preserve our cash right now for future opportunities, and we're gonna prioritize funding our active development pipeline and reducing our floating rate debt. You know, we think that's more important than the minimal accretion we could get from any type of buyback.
Great. Thanks, guys.
Our next question will come from Vikram Malhotra with Mizuho. Please go ahead.
Thanks for taking the question. Just maybe first one on life sciences specifically. I think at June NAREIT, you talked about your watch list sort of being 4%-5% within the life science bucket, and then I think last quarter that came down. Can you just update us where does your watch list stand, and what are the risks maybe by market?
Hey, Vikram . Scott Bohn. You know, we're currently, you know, still remaining sub 5% of our portfolio on the watch list. You know, in those spaces, about a 38% mark- to- market. You know, the size hasn't really changed since last quarter. It's still generally in line with historical levels. You know, over the course of the quarter, we had a few tenants come off the watch list following M&A or funding events, and some others come on mainly due to timing in their funding cycles, which is a normal part of the business. You know, I think that, you know, when we look at our watch list, we're looking at cash balances, you know, groups who are announcing layoffs or that's coupled with low cash balances. You know, those are general criteria. There's o ther factors were impacting on or that are impacting our analysis.
We do a company-specific assessment on top of that general screening. You know, short story is not a lot of change in the overall headline number on that watchlist. I don't have the breakdown by market in front of me, but I can get that to you.
Okay, great. Revisiting some of the questions in one, I guess, maybe be more specific comments. Scott, in terms of you mentioned a couple of times, you know, some of the changes you'd like to get investors more excited. I'm wondering sort of how you balance that, those growth aspects with maybe more risk. For example, in medical office, tilting more towards off-campus even a little bit, your own data has shown, you know, off-campus has lower growth and lower retention. You know, if you can just balance kind of how do you achieve, you know, maybe more growth versus quality, and if you can break that up between sort of near term and long term.
Yeah, I mean, A, we would do it when capital markets make sense. You know, don't misinterpret any comments that were made to suggest we're gonna go out and, you know, issue stock at $22 and buy a bunch of assets. That's not the plan, right? The economics need to make sense. Let me just make that clear. The second point is we do have relationships and operating expertise that allow us to reduce risk relative to what other investors may underwrite. So that to me is the key, is we need to utilize the platform to our advantage and offset or underwrite risk in a different way than the general marketplace is able to do. Hopefully that answers your question.
It does. Just a last one. I'm just trying to think about where eventually, whether it's three years, five years or longer term, just where you anticipate this mix of on and off-campus to trend. You know, some of your peers are at 50/50, others are more like, you know, 80/20. Just, you know, as a high level view today, where do you think that mix ends up between on and off?
I mean, it's still heavily weighted towards on-campus. I mean, we're at 25 million square eeft, 81% on campus, and another 6% or 7% that's directly adjacent to campus. So that's a pretty high level. We'd have to do an awful lot of development and acquisitions to materially move that number. So I would expect us to still be substantially on campus moving forward. Again, we still think that is the right model. It's just with 70% of the inventory being off-campus, there are almost certainly select properties in that huge bucket that would make sense to own long term, and it would have favorable growth profiles to match on-campus real estate.
Great. Thank you.
Our next question will come from John Pawlowski with Green Street. Please go ahead.
Hey, thank you for keeping the call going. Just one question maybe for Tom Klaritch. There's a few health systems that you partner with in the MOB business on page 31 that we're concerned about just the financial solvency. Could you just help us understand if a major health system goes bankrupt and an adjacent hospital needs to get re-tendered, what type of occupancy impact would be reasonable to see in your medical office portfolio?
Yeah, John. You know, if you look. Our strategy has always been to partner or be affiliated with the top one or two hospital in the market. Typically, they're owned by some of the great systems out there. But when we underwrite a transaction, we're underwriting the health of the hospital more than the health of the system. Obviously, if we get a guarantee from the system, that's great, and we certainly look at that, and we monitor them. But we wanna make sure the actual hospital we're affiliated with has good market share, good margins, they're profitable. It doesn't really matter who owns them in the long run. Those hospitals are gonna continue to operate, maybe under a different health system, but they'll continue to perform well. I really wouldn't anticipate any drops in occupancy for any of those changes.
Does that hold in the near term? Could we see a two to three year period if we get a Community Health Systems go dark? Do you see a near-term impact in occupancy?
No, not at all. In Community Health Systems, we monitor those buildings we bought four or five years ago under that master lease program. Every six months, we get financial statements on them. Those hospitals, they did when we bought them, and they continue to perform at the high end of any of the CHS hospitals. Their margins are sometimes two to three times higher than the corporate averages. So those hospitals will just continue to operate. There's needs in those communities and you know, we wouldn't anticipate any near-term drop or long-term drop in the operations of those facilities if there was a change in ownership.
Yeah, John, just one final point on that because it's an important one is that the.. You use CHS, so I'll use that example as well, but they have a lot of corporate debt. That's their issue. Their issue is not the profitability of these specific hospitals. I have to imagine that in any bankruptcy, right? I have no insight whatsoever as to whether that's in the future or not. I'm just using it because that was your example. I would have to imagine that whoever owns CHS now or in the future would be doing everything they can to hold on to these hospitals because they're highly profitable. Okay? The hospitals are not their problem. It's the corporate level debt. We have no exposure to that.
Okay, understood. Thanks for the time.
Our next question will come from Ni kita Bely with J.P. Morgan. Please go ahead.
Hey, guys. Good morning. Do you have any other significant percentage rent structures in the portfolio outside of Medical City Dallas? I believe that's right. You talk about the 80%-81% pre-leasing on developments. What about the pre-leasing stats for your redevelopment pipeline, like roughly $200 million or so?
Hey, Vikram, this is Tom Klaritch. I'll take the percent rent question. We have one or two very small percent rent leases out there other than Medical City, but Medical City makes us probably 98%, 99% of our percent rents. You know, they're kind of odd structures to have in a medical office building. Scott, do you wanna take the other question? Scott Bohn, you wanna take the pre-leasing on the redevelopment portfolio question?
Sure. On the redev, you know, on the life science side, certainly we're not going into those pre-leased. You know, we've had some leasing success at Pointe Grand that I mentioned. You know, we got one of the full buildings done. We've got some really good activity on the other buildings that we're working on. You know, and then the MOB side, I don't know, TK, if you wanna talk about any of those on the redev as far as pre-leasing goes.
The pre-leasing on the projects has always been in kind of that 40%-60% range. We continue to see that. If you look at the project we just put into the program this quarter it's 53% pre-leased, and there's always some discussions and potential LOIs behind that. Right now, if you look at the total HCA program, it's 68% pre-leased, and probably another 8% under LOI or in active discussions.
Yeah, just a little more to follow on a couple more of those, you know, in South San Francisco, we've got a couple redos, one at our Oyster Point campus and one at the Towers, where we're doing some conversions there. You know, The Oyster Point one's 100% pre-leased. The Towers, two of the three floors there are pre-leased. In Boston at Hayden, that is 100% pre-leased as well.
Our next question will come from Omotayo Okusanya with Credit Suisse. Please go ahead.
Hi, yes. Good morning out there. Thanks for keeping the call going. Two quick ones from me. On the MOB side, just a lot of really tough news coming out of the hospital space in general. Just curious if that is impacting kind of future demand for MOB development, whether that's impacting ability to kind of push rent. Just kinda curious what you're starting to hear from the hospital systems, given the very tough fundamentals they're having right now.
Yeah, you know, I can speak to our development pipeline. We're in discussions with HCA about quite a few projects. Obviously, we, you know, we're monitoring costs and potential returns on those before we commit to anything. There hasn't been really any impact to us from a leasing standpoint. Our leasing for the year, actually the past couple of years, is significantly above where we expected it to be. If you look at some of the issues, like I'll take HCA as an example this quarter. You know, their actual lower admissions really wasn't the result of core operations. If you look back to 3Q 2021, there was actually a surge in COVID admissions last year because of the Delta variant.
Obviously, luckily, that didn't continue this year, and where 13% of their admissions last year were the result of COVID cases, this year was only 5%. If you basically take that out, their core admissions were up 6.9%. I think as we move forward, we're gonna see continued strong results out of many of our health systems. You can see that with the CHS results, they actually were higher than anticipated, and their stock is up about 50% since they announced late last week.
That's helpful. Then just on the life sciences side again, I mean, I think again, good commentary out of you guys. It sounds like you are, you remain optimistic, you know, about the overall space, but just curious how I overlay that versus pre-leasing in the development pipeline didn't really grow quarter-over-quarter. I don't know whether it's just a soft quarter in particular, and you expect things to kind of improve over time. Just any kind of comment you can provide around that.
Hey, Tayo. It's Scott Bohn. Yeah, I mean, I think that, you know, we've maintained our 81% pre-leasing. If you look at the list of developments, right, I mean, there's only one development that has any space available. You know, it was just a matter of not getting lease on that one building. There's not a big sample size of available spaces within the development portfolio.
Great. Thank you.
This concludes our question and answer session. I would like to turn the conference back over to Scott Brinker for any closing remarks. Mr. Brinker, your line might be muted.
I think Scott's line might have been muted, but this is Pete. I think we'll say that concludes our call for today. We actually really look forward to seeing all of you at NAREIT in the next couple weeks and at our property tour and meetings after that. Thanks very much. Look forward to seeing you there. Bye.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.