Welcome to day two of Citi's 2026 Global Property CEO Conference. I'm Seth Bergey with Citi Research, and we're pleased to have with us Healthpeak Properties and CEO Scott Brinker. This session is for Citi clients only, and disclosure's been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC26 to submit questions. Scott, we'll turn it over to you to introduce your company and team, provide any opening remarks, and tell the audience the top reasons an investor should buy your stock today, and then we can get into Q&A.
Okay.
Just tap the mic till it's red to turn it on.
Okay. Yeah. Well, let me know when it's on. Thanks for having us.
Just hit the...
Let me introduce Kelvin Moses, our CFO.
Yeah.
Andrew Johns.
There we go.
Red is on? I mean, what is that all about? Talk about confusing. In any event, now we're live. I'm gonna introduce Kelvin Moses, our CFO, and Andrew Johns, our SVP of Investor Relations and Finance. We've got John Thomas, our Vice Chairman, in the audience as well. John, you're welcome to come up here if you want. All right. We continue to take bold, decisive actions across our three business segments to position Healthpeak for success. Last year marked the successful completion of our merger integration with Physicians Realty Trust. Outpatient medical is now 50% of our portfolio income, the fundamentals have never been stronger in that business. We delivered $70 million in synergies. Most mergers fail. This one was a remarkable success.
Really, with the merger as a launchpad, we successfully internalized property management across nearly our entire life science and outpatient medical portfolio. Our people are now on the ground in our local markets interacting with our tenants on a daily basis, the result is really operational efficiencies and deeper tenant relationships. Strategically and financially attractive. Moving to life science, we were early to shut off capital allocation to that sector 4 years ago, when we saw the initial signs of supply and demand going the wrong direction. We kept our balance sheet strong, knowing that acquisition opportunities would emerge from the downturn. Today, with new supply going to zero and demand starting to inflect positively, we do see a window to go on offense and acquire high-quality properties at cheap prices.
In January, we acquired a 1.4 million sq ft portfolio in South San Francisco that would previously have been untouchable. Now we own 6.5 million sq ft across 210 acres in South San Francisco, which is a global epicenter of biotech innovation. That covers about 90% of our portfolio. The remainder is senior housing, it's an important 10% that was being ignored inside Healthpeak. In January, we announced a unique and creative transaction with the planned IPO of Janus Living, which will be a pure play senior housing REIT. All of the investments are in a RIDEA structure, which allows the company to capture all of the operational upside from the assets.
The IPO will allow our shareholders to capture value immediately through a higher multiple on our senior housing earnings, while also participating in the future value creation, as the majority owner of Janus Living. We do have significant expertise and relationships to create value in that business. Okay, the most important part of Healthpeak, though, is our culture. It's pretty easy to rally the troops in a bull market when demand exceeds supply. Over the past four years, we faced the exact opposite dynamic in our life science business. At the time, it was by far our largest business segment, and we used the downturn to dramatically streamline what we work on and how we do the work. Technology was a big part of that.
Our G&A is essentially flat versus 2019, 6 years ago, despite massive inflation and doing a $5 billion merger. And yet our team and culture has never been stronger. Our team is phenomenal. And it's really driven by our core values. We use WE CARE as the acronym for those core values. The W is for winning mindset. E is for empowering the team. C is for collaborate and communicate. A for act with integrity. R, respect the relationship. Finally, E for excellence in execution. That really is what drives our performance through the cycles. All right. Q&A.
All right. Great. Maybe to start off, you know, you've obviously had some moving pieces with the announced IPO. You know, why is a diversified strategy the right strategy for Healthpeak? What kind of synergies do you see kind of across medical office, life science, and senior housing?
We're putting Janus Living into its own vehicle so that it's a pure play. I've said from day one in this seat 3 and a half years ago that senior housing is good business. There's a lot of demand for it. We do have expertise. It's a very different business than our outpatient and life science segments. We also didn't have the cost of capital to grow it over the past 3 years. With this vehicle, in this spin-out, we will have a pure play senior housing REIT that should have a dedicated cost of capital and business plan to grow it. We're actually taking the opposite approach from what you just described.
As it relates to our outpatient and life science business, the behind-the-scenes, other than leasing, those businesses run on the exact same platform, the same process and procedure, the same technology. There's tremendous overlap corporately between those two businesses. I think over the last three years, the benefit of having both inside of our portfolio has allowed us to significantly outperform our direct peers. Today, we're taking advantage of a lot of private market enthusiasm in the outpatient business to recycle capital into much higher return opportunities in life science. We're absolutely getting the benefit of it with our corporate efficiency, but also capital allocation between those two businesses at least.
What kind of ultimately convinced the board that spinning off, you know, kind of the senior housing and the Janus vehicle would kind of unlock more value than retaining it with the current company?
You know, there's no guarantee on how Janus Living trades, but the portfolio quality is exceptional. The balance sheet is gonna be incredibly strong, essentially no debt when we do the IPO. It'll be a pure play RIDEA REIT at a time when sector fundamentals are really strong and investor enthusiasm for the sector is at an all-time high. We do think it will trade well. The investor meetings to date have solidified that view. I don't know exactly where it's gonna trade in terms of multiple, but it certainly won't trade at 10 times, which is where it's trading inside of Healthpeak. The margin for error, the cushion is pretty dramatic with a ton of upside for our shareholders. We're pretty excited about it.
As you think about kind of, senior housing and the public space, there's obviously been, you know, some of your peers have started to kind of enter the space. You know, as you kind of use this vehicle as a way to kind of grow that business, you know, what do you think will be kind of the differentiators for that platform? You know, kind of what markets are you kind of gonna look at? What's gonna be kind of the strategy, in terms of growing that?
I mean, there are obviously competitors, but it's a massive market. It's a growing market, given the amount of the aging population. There's plenty of business for us to capture. We have a pretty small denominator, we have the benefit of being able to do one or two transactions at a time. We don't have to do billions of dollars of portfolios. It's a really a different strategy for us that's much more focused, concentrated. Just in general, that business, just investments overall, you know, there's access, and then there's the analysis. You know, in the public markets, it's all about analysis, right? You all have the same access to companies to invest in.
At least in the senior housing business, the access is a huge part of what drives deal flow, and the operators, for the most part, control that access. If you have strong relationships with certain partners, you get proprietary opportunities, and I think we've shown that we can do that. We built up a $700 million pipeline before we even made an announcement about the transaction. We didn't make a single phone call. That's just responding to inbounds from groups that want to work with us, and that's only accelerated in the last two months since we made the announcement. Provided we have a good cost of capital, there's no question that we can grow it very significantly just based on the relationships that the company has, and there'll be plenty of deals to go around for the others as well.
Are those, you know, kind of gonna be entrance fee sales or traditional kind of shop? You know, are you, are you looking at certain vintages in terms of how new the buildings are, certain geographies? Just kind of can you touch on a little bit about that pipeline?
The portfolio today is majority entry fee, which we think is a unique attribute, that business has performed through the cycles, for a number of years, both as a sector and our own portfolio. It's a unique form of senior living, but it's got a great track record. It's just not as well understood by the public markets because it's a much smaller business, and it's mostly nonprofits. The fact is it's got a tremendous track record. We think that's a unique attribute. We do have expertise and relationships to grow in that sector when we would like to, but most of the growth will be in the rental business. Just it's a much bigger, more liquid marketplace and therefore more opportunity. The entire pipeline is in the rental business, as is the shadow pipeline.
It's a major market focus. On day one, 70% of our assets are in Florida and Texas, and it's big markets, Orlando, Tampa, Houston, Denver, et cetera. The pipeline is similar in terms of big MSAs, high growth markets, Atlanta, Orlando, et cetera. That's generally the focus.
Great. You know, post Ben, Healthpeak will kind of remain a major shareholder. How will the management agreement be structured to kind of ensure alignment and avoid kind of conflicts between the two entities?
You wanna take that, Kelvin?
Yeah.
Hit the button.
I'm happy to take that, Scott. To start, we've structured a very thoughtful management agreement that'll ensure that Healthpeak and Janus Living have separate lines of investment strategy. There'll be no conflicts of interest with respect to investments, and there'll be a non-compete between the two entities. We have a deep bench of team that are focused exclusively on Janus Living that have decades-long relationships in the senior living business, and they'll be able to execute on the growth strategy and continue to build on the pipeline opportunities that Scott just mentioned.
How do you think about, you know, remaining a shareholder? Will you look to kind of monetize that over time? Just kind of if that, if that does provide, you know, liquidity, you know, how do you think about kind of the capital allocation priorities for Healthpeak?
Well, we think Janus Living will trade well and therefore will issue shares to grow accretively, and that would naturally dilute Healthpeak's percentage ownership. We would just own a smaller piece of a bigger company. That's the expectation. We won't continue to invest. I also don't see us selling a lot of shares. We'd have a 1-year lockup. Thereafter, we'd have flexibility to sell shares. If it was trading great and we had a good use of capital, it'd be an option to utilize to grow Healthpeak. It's not our business plan to go liquidate it. We think it's gonna trade exceptionally well and increase in value. This is really to create a vehicle to capture value for our shareholders and to create a strong cost of capital to grow accretively.
I mean, that's the reason we're doing it, not so that we can go out and liquidate the shares.
How do you think about kind of Healthpeak post-spin from like a leverage standpoint? Will it kind of be leverage neutral or just where will leverage sit post the transaction?
Post the transaction, we'll raise capital through the IPO, and the leverage profile of Healthpeak will consolidate Janus Living as well. It should be a de-leveraging transaction for Healthpeak overall.
Just maybe switching to the life sciences segment. You know, you recently made the kind of Gateway acquisition there. You know, and there's been some different discussion around the overall health of life sciences, but could you maybe help us understand from your vantage point, where does the life sciences market sit today? You know, is it different among markets? What kind of KPIs are you tracking to kind of give you confidence that it's in the process of either bottoming out or starting to recover?
I mean, four years ago, we had a bit of a different view on life science in terms of where the fundamentals were headed, and we cut off capital allocation to that business. It turned out to be the right decision. A lot of others in the public and private market kept hitting the accelerator. Unfortunately, it had an impact on where we sit today from a supply standpoint. The point is we were correct in our view four years ago on where the trajectory of the business was heading. We think we're correct today as well. You know, it's not a public security that we can buy and sell, you know, with one click. Real estate takes time to transact. We do feel like the leading indicators or the building blocks of recovery are firmly in place.
M&A has improved dramatically across the sector in the last 6 months. The public market valuations and capital raising have also started to improve. A lot of the new supply is moving to alternative uses, which is helping with the overhang. Nothing will get built for a long time, just given where construction cost is relative to rents. Our leasing pipeline is roughly doubled in the last year. You put all that together, that's a lot of positives that suggest the market is either at an inflection point or getting awfully close, which gave us confidence to do the Gateway acquisition. We also like the fact that it's 30 acres and 1.4 million sq ft in South San Francisco, which we think is the best biotech submarket in the world. It's either 1 or 1A with Cambridge.
At least in 2025, according to third parties, it had the highest leasing volume of any of the markets. It also has in 2026 the highest active demand for tenants in the market, and we're the dominant player. It's not even close. This just adds to our competitive advantage in South San Francisco. For all those reasons, we felt comfortable with the acquisition. It's also break even on day one, with using proceeds from our outpatient medical sales, and the portfolio is roughly 60% occupied. There's a lot of upside for us to capture. Any capital we invest would be good news capital for TIs. The base buildings are actually in great shape from previous ownership.
We feel like any capital that would need to be spent would be an immediate return on investment because it would be for leasing.
You know, just diving a little bit more into kind of the leasing pipeline. You know, the volume's increasing, but how is kind of the pipeline conversion, you know, changed over the last quarter or so? You know, are you seeing that kind of accelerate? What's kind of the quality of tenants? Then, you know, are you seeing tenants kind of move within the market or between markets? Are you seeing net new tenant expansions kind of within that lab leasing pipeline?
I can start with that one. I think important to note, this time last year, our pipeline was about half of what it is today. The composition has changed, as you described. It's become more new prospects that are not existing Healthpeak clients. The opportunity set is focused on new leasing opportunities within our portfolio, so that's a positive. The size ranges vary from, you know, 30,000 sq ft to 100+, so there's a good mix of requirements out there in the market. Certain of these tenants are migrating from submarkets that are not necessarily the most core in a particular region and seeking opportunities to get into core assets in core locations.
You know, as you kind of look to recycle capital out of, you know, the medical office space and then to kind of life science, how are you thinking about kind of your underwriting criteria, as, you know, aside from the returns? You know, are you, are you looking at building location, quality, you know, tenant funding, you know, just kind of what other attributes are you looking for as you underwrite distressed lab opportunities?
Yeah. I wanna clarify that we're also recycling into senior housing because the $700 million pipeline that we announced in January, that's all closed by the way. That's all complete. That's done on Healthpeak's balance sheet that then gets contributed to Janus Living. The $1 billion of acquisition volume that's in our 2026 guidance, almost $700 million of that is actually senior housing. I think just an important thing to point out that, you know, selling assets that are probably being valued at 10x multiple in the public markets, and hopefully those would be valued at 20+ inside Janus Living. That's actually the majority of how the capital recycling is being utilized, just to clarify.
In terms of life science and the things we're looking for, we were really disciplined even when the cycle was booming, 2018, 2019, 2020. You know, we're not in these other markets that are trying to establish themselves as life science hubs, whether, you know, Houston, Seattle, et cetera. There's a long list. We have always been focused on the 3 core markets. That is 100% of our portfolio and will continue to be. We're quite concentrated even within those core markets. South San Francisco, for an example, versus the East Bay. That will continue to be our mindset. The depth of demand in those core submarkets is a huge benefit from a real estate standpoint. We'll remain true to that disciplined mindset, stay in the core markets.
Obviously, we have a preference for newer, more purpose-built real estate, and we've got a pretty big shadow pipeline of things that we're monitoring that could become actionable in 2026.
You know, going back to the Gateway acquisition, you know, I think you mentioned it's 60% leased. You know, what are you kind of assuming within guidance for this year in terms of the lease up and kind of what is your visibility into kind of the stabilization of that asset?
I'll take that, Kelvin.
Yeah. As we looked at the Gateway opportunity, we underwrote stabilized returns that would be in the high single digits, and that would get occupancy from that low 60% area up to the high 80s. There's some time that it'll take to generate occupancy. As you think about our pipeline today, we do have some good tour activity, and interest in that portfolio. We're seeing the benefits of our tenant network in that market really drive some initial demand in that portfolio.
You know, the $1 billion of capital recycling, you know, as you clarified, the $700 million was senior housing. You've done some lab. Kind of how do your kind of return hurdles differ between different asset classes? How do you think about the opportunity set relative to kind of how you view your cost of capital?
Yeah. We're doing some outpatient medical development as well. Those are great projects. They're essentially pre-leased to credit health systems before we even start construction. Those are in the 7s. probably a solid 150 basis point cap rate differential versus an acquisition. There's a lot of value creation when we do those projects. There's usually $200 million-$300 million of those per year in a pretty active pipeline that we're working on. I think Kelvin described the return expectations on the Gateway acquisition, kind of high single digits, unlevered. As the sector recovers, there's a huge opportunity with rent expansion as well as stabilized cap rates relative to today. In senior housing, the acquisition pipeline is stabilizing in the 8%-9% range, unlevered, return on cost.
I guess turning to the outpatient medical business, can you talk about what, you know, a little bit from your vantage point about the dislocation between the way the public markets kind of view that business and what makes it attractive to the private market? You know, how is, you know, have you kind of recycled capital out of that space? Can you just talk a little bit about, you know, the profiles of some of the buyers of these assets? You know, are they institutional, family office, healthcare systems? You know, and what kind of do you view as the disconnect between the public and private markets for outpatient medical?
I mean, the public markets seem very focused on growth today. That's not always the case. Depends on the cycle. Today, growth is king for sure. The outpatient business is more of a consistent, steady growth vehicle. I'll say the fundamentals have never been better in that business. Demand is growing because of the aging population, but also because of consumer preference, because it's more convenient. The payers prefer it because it's cheaper, and the health systems prefer it because it's a higher margin. You know, all the three players that make decisions all prefer outpatient care, and as a result, the demand in that business continues to grow.
Because of the cost of new construction, not much gets built because the required rate of return, and therefore the rent, is just much, much higher than the in-place. You have a supply-demand mismatch that's in favor of incumbents like us. As a result, we're getting record retention, releasing spreads, very modest CapEx, and some of the strongest growth we've ever seen in that segment, and we think that will continue moving forward. We're pretty optimistic about the growth profile and consistency of that business. For the private markets, it certainly fits a profile with a strong cash flow stream that's gonna grow consistently through all market cycles. A lot of real estate companies in the last 5, 10 years on the institutional side have made investments that looked good on paper and didn't work out all that well.
This is the opposite of that. A 20-plus year track record of consistent NOI growth through all market cycles. You can lend against it pretty aggressively. Obviously the private side likes to use leverage, and the Loan-to-Value are high. The interest rates are pretty low, it ends up creating a pretty attractive leveraged return as well, and we're taking advantage of that. We're doing some Recapitalizations of core assets that we want to maintain ownership and the health system relationship, and we're selling some less core real estate that we don't need to own and getting really great pricing. It's to our advantage today that the private market is so aggressive. For good reason. I think they'll get nice, stable, steady returns. Why the public markets don't appreciate it more, I mean, we'll see.
It's a pretty chaotic backdrop, geopolitically impacted AI. It's possible that an asset class like outpatient medical will start attracting a lot more attention in the public markets, but, you know, we'll see.
Just maybe on that, you know, you mentioned kind of very limited new construction, and strong demand just as the aging population requires more care. You know, how does that kinda change, you know, how you're thinking about lease economics? You know, how are TIs and concessions trending? Are you able to push escalators? Are you pushing face rents? Just how are those kind of dynamics evolving against the strong fundamental backdrop?
We're getting all of the above. Escalators are 3% consistently now. They used to be in the mid-2s. Our re-leasing spreads have been +5%-6% for the last several years. That's about 2x the historical r-level. Retention is still in the 80%+ range and very, very modest TIs. Less than 10% of rent for renewals and about 20% of rent for new leasing. Very, very modest TIs. The leasing economics are very favorable.
You know, just on kind of the asset management, you internalize property management. You know, how has that changed your relationship with health systems? Are you seeing, you know, you know, just better retention on leasing? Are you seeing more off-market kind of development opportunities?
Yeah.
Just how is that relationship evolving?
Yeah. The internalization was a big part of our $70 million in synergies. All that savings is flowing through our property level NOI. It was a financial home run. Strategically, it was important as we get closer to our real estate, it's now our people interacting with our buildings and tenants on a daily basis. We're not dependent on third parties. They were doing a fine job, but now it's the Healthpeak team doing it directly, which was important to me strategically. As we make dramatic improvements in technology, automation, process, procedure, we can now roll those improvements out across our entire portfolio very quickly because it's our people. When we were dependent on third parties, we could not have made those strategic decisions.
Whether it's AI, automation, any change in process or procedure, we now have complete control over all of our real estate and can make those improvements, quickly and efficiently across our entire platform. It was a very important strategic decision that we made to internalize. I just wish we had more to do because it was quite financially attractive, and we've essentially internalized everything that we can in the portfolio at this point.
You spoke to kind of the aggressive bid in the private market for outpatient medical. Would you kind of look to exceed that $1 billion of disposition? You know, how are you focused on dispositions and balancing those with the need to kind of maintain scale and clustering and markets?
Yeah. Well, I mean, we're the biggest player in that sector, almost 40 million sq ft, so we've got plenty of scale. We are pretty concentrated. About 70% of the portfolio is in 15 core markets like Phoenix, Nashville, Dallas, where we really have a strong market presence, competitive advantage, great demographics, and that's the business plan. The same is true obviously in life science, and we're doing the same in senior housing, really. Most of what we're selling is in markets outside of those clusters that really doesn't impact our local market competitive advantage.
One of the questions we've been asking, you know, each company is just, and it might tie into one of the recent hires you made, on the technology side. You know, kind of what is your mix of, you know, deciding to internally build kind of AI and technology tools, or kind of leverage third-party tools? You know, how do you decide which solutions, you kind of build internally versus buy? Just maybe touch on kind of the hire and kind of where you see the opportunity across the different, you know, healthcare food groups that you kind of have exposure to kind of implement those tools and where the opportunity set is.
Yeah. We're doing all three. I mean, we're buying where it's cheap, and quick to implement. That's already in process. I mean, we're partnering. We announced something with Palantir. Our CIO made a presentation a couple weeks ago where we're doing a very dramatic accounting automation that's gonna make our process far faster, more efficient, fewer errors, and that will benefit our health system relationships. That's a lot of the touch points you have with tenants is the accounting. We're pretty excited about that. It's already being implemented. It'll come out in phases over the next couple of quarters, but so far with great success. We obviously hired Omkar, who was one of the leaders in Palantir's both real estate and healthcare groups.
I mean, just a phenomenal talent. It was interesting. We hired him obviously to build things internally as well. It was an interesting comment he made. We had a town hall a week or so ago, somebody asked Omkar, you know, why he joined Healthpeak. You know, it's always interesting to get that feedback from people early on before they, you know. You just have a different viewpoint when you're first arriving at a company. His feedback was, "For a big company, it's the least bureaucratic point, company I've ever seen," which I thought was amazing because I hate bureaucracy. We've done everything we can to streamline the company over the past three years. For him to say that made a big impact on me. I was happy to hear it.
The other thing he said is that, "For a real estate company, I've never seen one that's so focused on utilizing technology to their advantage." For us to bring on somebody of his caliber with those two reasons for joining, I thought was a really telling answer that made me pretty excited. I think the team was equally in, you know, inspired by his commentary. I just wish we had more of him. He's gonna do an amazing job for us.
How do you kind of see? You know, one of the questions that came in from the audience is what technology, you know, is AI gonna make home healthcare more of an option for patients? Then just, you know, maybe in answering that question, can you change how you're seeing it implemented across, outpatient medical, life science, how you might see it change kind of life science and then, you know, any use cases that you see within senior housing?
Yeah. There's an element of not home health, telehealth from 6 years ago in 2020. Obviously, there was a lot of concern about, you know, will everybody just use telehealth instead of go to their physician or outpatient facility? The fact is, it just grew the pie. We see AI in a similar light. If it takes away some of the lower acuity, low revenue work, that's obviously a huge benefit. That's not what's happening inside of our buildings anyway. It's imaging, it's surgery. You still need to see the physician. We view it as expanding the pie for healthcare. The fact is the demographics are just overwhelming in favor of outpatient medical real estate. We think AI is just gonna accelerate the need to service that population.
In terms of assisted living, independent living, memory care, senior housing, certainly the ability to attract residents and how the marketing is done feels like an incredible opportunity as well as pricing once that resident is in the building. Staffing efficiencies in terms of having the right ratios, adequate staffing, but not too much staffing. Those all feel like opportunities for efficiencies. Down the road obviously, robotics, et cetera, but it's probably pretty early for that. It does feel like five, 10 years from now, that's a real opportunity because it's a very labor-intensive business.
Just with the last minute, maybe moving into some of the rapid fire. What will Same-Store NOI growth be for healthcare overall in 2027?
Yeah. There's a lot of components of healthcare. In general, we think Same-Store it's a terrible metric. It has in theory a usefulness, but until everybody defines it consistently, I think you're better off not focusing on it personally. We report it because it's expected, but we try not to emphasize it. I'm not gonna respond beyond that.
Okay. Will your property sector have more, fewer or the same number of public companies a year from now?
Well, we're gonna say more.
Okay. I'll turn it back to you, for any closing remarks.
Thanks for your time, Seth. A lot of good questions there. Anyone else in the audience, feel free to grab us after this if you have anything else. Thanks for your time.
Great. Thank you.