Healthpeak Properties' Q3 2025 Earnings Call: Contradictions in Lab Occupancy Projections and AI's Impact on Leasing

Guidance:

• Reaffirmed FFOs adjusted and same-store expectations within original guidance ranges.
• Reduced interest expense and G&A guidance by $10M due to stronger senior note pricing, tech productivity and merger synergies.
• Expect near-term occupancy declines with a trough before recovery; leasing pipeline strength should drive occupancy and earnings improvement beginning in late 2026.
• Completed $158M of asset sales YTD, $204M additional dispositions under PSA, and pursuing outpatient recaps/transactions that could generate $1B+ of proceeds.

Business Commentary:

• Life Science Leasing Pipeline Growth:
• Healthpeak Properties' life science leasing pipeline doubled from the beginning of the year, reaching 1.8 million square feet.
• The pipeline is approximately half new leases, indicating a shift towards new leasing opportunities.

• The growth is driven by improved leading indicators in the life science sector, including positive data readouts, regulatory approvals, and capital market performance.

• Outpatient Medical Asset Sales:

• The company is exploring the sale of outpatient medical assets, with potential proceeds exceeding $1 billion.
• Sales are focused on non-core markets and health system relationships, with strong buyer demand.

• The strategy aims to recycle funds into higher return lab opportunities and balance sheet management.

• CCRC Portfolio Performance:

• Healthpeak's CCRC portfolio experienced a 9.4% increase in cash NOI for the quarter, with occupancy gains of 150 basis points year-over-year.

• The growth is attributed to pricing power, modest expense growth, and favorable demographic trends supporting long-term growth.

• Technology Initiatives and Efficiency:

• The company is advancing its AI-enabled real estate platform, aiming to streamline operations and enhance property management capabilities.
• Technology adoption efforts are focused on improving property operations, facilities engineering, and accounting through data automation.
• The strategic shift seeks to drive efficiency gains and differentiate the company's property management and leasing platforms.

Sentiment Analysis:

Overall Tone: Positive

• Management: "leading indicators in life science are turning positive"; leasing pipeline doubled since Q1 (to ~1.8M sq ft) and outpatient occupancy/leasing metrics improved (Q3 outpatient occupancy 91%, positive cash releasing spreads). Company reaffirmed guidance and highlighted $1B+ potential disposition proceeds and absorbed cost savings, indicating constructive near-term outlook.

Q&A:

• Question from Ronald Kamdem (Morgan Stanley): You said the lab leasing pipeline doubled since the start of the year — what changed, what is the tenant mix, and what qualitative trends are you seeing?
  Response: Pipeline doubled with a healthier mix—more new leasing (not just renewals) across early-, clinical- and commercial-stage tenants—driven by improved sector sentiment and capital markets, providing positive momentum.

• Question from Ronald Kamdem (Morgan Stanley): On capital recycling — you referenced potentially $1B of outpatient proceeds — what buyers/opportunities do you see and what financial metrics will guide reinvestment?
  Response: Selling non-core outpatient assets into strong institutional demand to generate liquidity; redeployments will be opportunistic into outpatient development (~7%+ yields) and life-science investments targeting materially higher returns, with aim of meaningful accretion depending on use of proceeds.

• Question from Nick Ulikow (Scotiabank): Is your leased rate higher than occupied rates in lab (81% occupancy)—how do leased vs in-place occupancy compare?
  Response: Total lab occupancy (81%) is largely in line with physical occupied rate, though some tenants occupy excess space in select instances.

• Question from Nick Ulikow (Scotiabank): What triggered the impairment for the lab JV this quarter — was it leasing or accounting mechanics?
  Response: A non-cash impairment driven by unconsolidated JV accounting rules because carrying values fell below fair value for a sustained period; it doesn't impact FFO.

• Question from Farrell Granath (Bank of America): How has your tenant watchlist changed since the start of the year — are names dropping off and is tenant access to capital improving?
  Response: Watchlist exposure has come down meaningfully over the last ~60 days and management is more confident tenants can raise capital now as market conditions and sentiment have improved.

• Question from Farrell Granath (Bank of America): Are AI/tech companies increasing lab demand or converting lab stock to office, and how does that affect supply?
  Response: AI-related companies are creating incremental demand — many require mixed wet-lab/office footprints (often ~50/50) — which tightens local supply, particularly in Bay Area markets.

• Question from Austin Wurschmidt (Keybanc Capital Markets): How should we think about near-term earnings impact and timeline from recycling outpatient proceeds into labs or development — will returns be immediate or longer-dated?
  Response: Proceeds (only ~$200M currently under contract) can be immediately accretive depending on deployment; opportunistic life-science deals and outpatient developments are expected to deliver meaningful accretion either near term or over years two–three.

• Question from Austin Wurschmidt (Keybanc Capital Markets): What is the average tenant size in the lab pipeline and are larger space requirements emerging?
  Response: The 30,000+ sq ft 'sweet spot' remains accurate; pipeline activity is concentrated around that scale.

• Question from Seth Bergey (Citi): Of the potential $1B, how much will go to life science vs outpatient vs buybacks; do you target fixed allocations?
  Response: No fixed allocations — capital deployment will be opportunistic across life science, outpatient and buybacks while preserving balance-sheet flexibility.

• Question from Seth Bergey (Citi): What return spreads are you targeting for life science and outpatient investments to justify recycling proceeds?
  Response: Target double-digit unlevered IRRs for opportunistic life-science deals; outpatient developments target ~7%+ yields, creating a meaningful spread versus disposition cap rates.

• Question from John Pawlowski (Wells Fargo): Is increased U.S. pharma commitment and regulatory clarity translating into more lab leasing demand?
  Response: Yes — reduced regulatory uncertainty and positive FDA actions (including tenant fast-tracks) have materially improved sentiment and are supporting increased leasing demand.

• Question from John Pawlowski (Wells Fargo): Can you outline the building blocks for 2026 earnings — occupancy trajectory, pricing power, and G&A savings?
  Response: Two-thirds of portfolio is strong (outpatient and CCRC); occupancy declines in 2025 will flow into 2026, with an expected trough then gradual recovery; further detail will be provided with full 2026 guidance in February.

• Question from Juan Senabria (BMO Capital Markets): How are you thinking about potential dilution if you redeploy outpatient sale proceeds into lab opportunities that may weigh on near-term growth?
  Response: Not managing to near-term EPS smoothing — focus is on value creation and selective, disciplined investing; $1B is small relative to $25B market cap and not expected to produce meaningful dilution if deployed prudently.

• Question from Juan Senabria (BMO Capital Markets): How much further occupancy slippage could occur before recovery and what are the components of that risk?
  Response: Occupancy could trend into the high-70% range at the trough; Q4 has ~300k sq ft expirations (186k going to redevelopment) and some early terminations, after which pipeline conversion should support recovery.

• Question from Rich Anderson (Cantor Fitzgerald): Timeline question — when will life-science bottom, when will distress acquisitions occur, and when will pricing power return?
  Response: Expect this to play out over a 12–24 month window; core submarkets and incumbent landlords should recover sooner, with opportunistic acquisition opportunities appearing through that period.

• Question from Rich Anderson (Cantor Fitzgerald): Who is buying MOB/outpatient assets today — systems, PE, institutions?
  Response: Buyer pool is broad and institutional: health systems, private equity and other large institutional investors, depending on asset and market.

• Question from Michael Carroll (RBC Capital Markets): On the 1.8M sq ft lab pipeline, what stages are deals in (LOI, proposals, tours) and how quickly do signed leases commence?
  Response: LOIs (~300k sq ft) are closest to signing, roughly half the pipeline is in proposal/negotiation; split between new and renewals is about 50/50 and commencement timing varies — second-generation space can commence quickly, redevelopments may take ~12 months.

• Question from Vikram Malhotra (Mizuho): Can you clarify occupancy bottoming dynamics vs sign-but-not-commence leases — how much will signed but not yet commenced deals offset near-term slippage?
  Response: Near-term slippage expected but sign-but-not-commence deals and commencements of available second-gen space can offset some headwinds; Q4 expirations and redevelopment timing are the main drivers of near-term occupancy movement.

• Question from Wesley Golladay (Baird): Do you see larger opportunity sets in outpatient development or opportunistic lab acquisitions?
  Response: Outpatient development is a steadier, recurring pipeline (a few hundred million per year) focused on pre-leased projects; opportunistic lab transactions are less predictable and lumpier but higher-return when available.

• Question from Wesley Golladay (Baird): Any leasing impact yet from the inpatient-only rule change discussions?
  Response: No final rule yet and no material effect to date; market forces were already shifting services to outpatient and CMS action would accelerate but is not required for demand growth.

• Question from Mike Mueller (JPMorgan): If your implied cap from the stock were 100–150 bps lower, would you still monetize outpatient assets today?
  Response: Yes for non-core assets and structured recaps where we retain economic interest; disposals focus on market profile and non-core holdings even if the stock-implied cap rate differs.

• Question from Mike Mueller (JPMorgan): What attributes mark assets you’re selling in outpatient medical?
  Response: Primarily market profile and lack of critical mass or weaker health-system relationships — assets in geographies where we lack scale are prioritized for monetization.

• Question from Michael Mueller (Green Street): Excluding CommonSpirit, have retention rates declined recently or have you pushed pricing harder, hurting retention?
  Response: Retention remains in the 75–85% range; recent high leasing volumes and attractive leasing economics (low TIs, strong spreads) indicate no material deterioration in retention.

• Question from Michael Mueller (Green Street): Any difference in pricing power between health-system tenants and non-health-system tenants?
  Response: Releasing spreads vary more by building quality and use-case than by whether the tenant is a health system; distribution of outcomes reflects asset-level characteristics.

• Question from John Pawlowski (Jefferies): Is the CCRC portfolio a long-term hold or is sale still an option?
  Response: Management is satisfied owning the CCRC portfolio long term — strong operator performance, >50% NOI growth since buyout, and continued multi-year growth support it as a hold.

Contradiction Point 1

Occupancy Trends in Lab Segment

It involves differing perspectives on the expected occupancy bottoming and the impact of new lease executions, which are crucial for understanding the company's financial performance and market conditions.

When do you expect occupancy levels to stabilize and how will this offset losses? - Vikram Malhotra (Mizuho)

2025Q3: Occupancy is expected to trend in the high 70s, providing a base to build back from. We expect to offset some near-term headwinds with new lease executions, although there may be further reductions due to early terminations. - Kelvin Moses(CFO)

How many impacts from tenants' capital raising issues may still weigh on occupancy in the second half of the year? - Farrell Granath (BofA Securities)

2025Q2: While we expect some occupancy profile at the high 70s percent level this year, we are cautious in our outlook given the potential for further weakness in the second half of the year specific to tenant bankruptcies. - Kelvin O. Moses(CFO)

Contradiction Point 2

AI Demand Impact on Lab Leasing

It involves differing views on the impact of AI demand on lab leasing and its effect on competitive supply, which affects the company's strategic positioning and market strategy.

How does AI companies' impact on lab space demand affect your supply outlook? - Farrell Granath (Bank of America)

2025Q3: AI companies, both pure AI and AI-native biotech, are creating demand for lab space. This includes both wet labs and office space. The ability of AI to improve drug research efficiency is seen as a potential positive impact on the business. - Scott Brinker

Is AI leasing demand affecting competitive supply? - Wesley Golladay (Baird)

2025Q2: AI demand is low but impacting vacant space in core markets like San Francisco. AI is less competitive with traditional office spaces. - Scott R. Bohn