Healthpeak's Q3 2025 Earnings Call: Contradictions Emerge on Lab Leasing, Capital Recycling, and Share Repurchase Strategies

Guidance:

• Reaffirming FFO as adjusted and same-store guidance within original ranges.
• Reduced interest expense and G&A guidance by $10 million combined.
• Expect occupancy to decline near term and potentially trend into the high-70% range before bottoming.
• Leasing pipeline has doubled; conversion expected to contribute to occupancy and earnings beginning late 2026 and thereafter.
• Pursuing potential outpatient dispositions of $1B+ (≈$200M under contract); some closings possible Q4 or early 2026.
• Maintain liquidity ($2.7B) and conservative leverage (5.3x net debt/adjusted EBITDA).

Business Commentary:

* Life Science Leasing Pipeline Growth: - Healthpeak Properties reported that their life science leasing pipeline has doubled since the beginning of the year, reaching 1.8 million square feet. - This growth is attributed to improved sentiment in the sector, with a broad mix of tenants from early to clinical stages, driven by positive data, FDA approvals, and increased capital market interest.

• Outpatient Medical Asset Sales:
• The company aims to recycle outpatient medical proceeds of up to $1 billion, with $200 million already under contract.

• This strategic move is due to strong demand for assets in noncore markets and a favorable regulatory environment, with proceeds earmarked for higher-return lab opportunities.

• Technology Initiatives and Operational Efficiency:

• Healthpeak Properties is advancing its technology plan, focusing on leveraging AI for internal property management and reducing manual work.

• The automation initiatives are expected to enhance data architecture, connectivity, and efficiency across operations, supported by a partnership with a leading enterprise technology firm.

• Financial Performance and Guidance:

• The company reported FFO as adjusted of $0.46 per share and AFFO of $0.42 per share for Q3, with a same-store growth of 3.8% year-to-date.
• The strong performance in CCRC and outpatient medical was driven by favorable fundamentals, leading to a reaffirmation of financial guidance and expectations for continued growth.

Sentiment Analysis:

Overall Tone: Positive

• Management: "leading indicators in life science are turning positive" and the CEO said the past 60 days "signal a turning point." CFO: results "in line with our forecast" and guidance was reaffirmed while interest and G&A guidance were reduced, indicating confidence in operations and near-term cost control.

Q&A:

• Question from Ronald Kamdem (Morgan Stanley): Can you double-click on the lab leasing pipeline that doubled since the beginning of the year—what's changed, tenant mix, qualitative trends?
  Response: Pipeline doubled with a broad mix from early-stage to commercial tenants; importantly a larger share is new leasing (not just renewals), driven by improved sector sentiment and capital markets activity.

• Question from Ronald Kamdem (Morgan Stanley): On the $1 billion capital recycling from outpatient medical—who are the buyers and what will you reinvest in?
  Response: Targeting institutional buyers for noncore/outlier outpatient assets (≈$130M under contract); proceeds to be opportunistically recycled into higher-return outpatient development and life-science investments or other accretive uses to increase liquidity.

• Question from Nicholas Yulico (Scotiabank): Is your leased rate higher than physical occupied rate in lab—are they aligned?
  Response: Total lab occupancy at 81% is largely in line with physical occupancy, though some tenants occupy more space than they need.

• Question from Nicholas Yulico (Scotiabank): What triggered the impairment for the lab JV this quarter—was it leasing performance?
  Response: Impairment was an accounting (non-cash) decision under unconsolidated JV rules because carrying values fell below fair value for a sustained period; it doesn't impact FFO.

• Question from Farrell Granath (BofA): How does your risk/watch list compare to the start of the year—are names dropping off and are tenants adding capital?
  Response: Exposure on the watch list has come down meaningfully over the last ~60 days as tenant access to capital has improved; the quantum of at-risk tenants is directionally lower.

• Question from Farrell Granath (BofA): Is AI-related demand affecting lab supply and conversions—are AI companies driving new lab needs or conversions from office?
  Response: AI-native biotech and tech companies are a positive incremental demand driver (often requiring ~50/50 wet lab–office mixes), helping absorb vacant development and improve supply-demand dynamics.

• Question from Austin Wurschmidt (KeyBanc): How should we think about near-term earnings impact and timeline from recycling outpatient proceeds into life-science or development—what returns/opportunistic investments are you considering?
  Response: Only ~$200M of the referenced $1B is under contract; depending on use of proceeds the moves can be immediately accretive or accretive over a multi-year horizon as proceeds are redeployed into outpatient development and opportunistic life-science deals with higher return targets.

• Question from Austin Wurschmidt (KeyBanc): What's the average tenant size in the lab pipeline and are larger requirements appearing?
  Response: The ~30,000 sq ft sweet spot still holds for the pipeline; activity is consistent around that size though larger, chunky projects exist for opportunistic lab plays.

• Question from Seth Bergey (Citi): Of the $1 billion, how much will go to life science vs outpatient vs buybacks; do you have target allocations?
  Response: No fixed allocations—capital deployment will be opportunistic across life science, outpatient development, share repurchases, and balance-sheet preservation based on relative returns.

• Question from Seth Bergey (Citi): What accretion/return spreads are you targeting when recycling outpatient proceeds into life science or other investments?
  Response: Targeting double-digit unlevered IRRs for life-science opportunistic investments and ~7%+ yields on outpatient developments, creating a meaningful spread versus disposition cap rates.

• Question from William John Kilichowski (Wells Fargo): Are policy shifts and pharma reshoring translating into lab leasing demand?
  Response: Yes—improving regulatory clarity and positive FDA/newsflow have improved sentiment and tenant activity, including priority reviews and acquisitions that support demand.

• Question from William John Kilichowski (Wells Fargo): Can you outline building blocks for 2026 earnings—occupancy trajectory and potential G&A savings from AI initiatives?
  Response: Full 2026 guidance will be provided in Feb; near-term life-science occupancy declines will depress 2026 earnings, while outpatient and CCRC remain strong and technology-driven G&A savings are reducing costs this year.

• Question from Juan Sanabria (BMO): How will you balance potential dilution from reinvesting MOB proceeds into lab (near-term earnings drag) versus buybacks—will you manage earnings?
  Response: Priority is value creation not managing headline earnings; investments will be judged on basis, submarket and returns, and $1B is modest vs a $25B enterprise so material dilution is not expected.

• Question from Juan Sanabria (BMO): How big could occupancy slippage be before recovery—what's risk to trough?
  Response: Expect some occupancy decline over the next couple quarters with occupancy potentially trending into the high-70% range before inflection; retention assumptions around 75–85% inform that view.

• Question from Richard Anderson (Cantor Fitzgerald): Timing — when will life-science bottom, distressed purchasing occur, and when will pricing power return?
  Response: Management views this as a 12–24 month cycle: bottoming and opportunistic buying will play out over that period with core submarkets recovering earlier and pricing power returning as demand and capital markets normalize.

• Question from Richard Anderson (Cantor Fitzgerald): Who is the buyer pool for outpatient dispositions—health systems, private equity, others?
  Response: Buyer pool is broad and includes health systems, private equity and other large institutional buyers depending on asset/profile.

• Question from Michael Carroll (RBC): Within the 1.8M sq ft lab pipeline, how close are deals to being signed and what are the stages?
  Response: LOIs total ~300k sq ft and are closest to execution; roughly half the pipeline is in proposal/negotiation stages and the balance in tours/inquiries—weighted toward mid-to-late stages.

• Question from Michael Carroll (RBC): Once signed, timing to commencement and split between new leases and renewals?
  Response: Split is roughly 50/50 new vs renewals; renewals and second-gen spaces can commence quickly while new/development leases may take up to ~12 months depending on work scope.

• Question from Vikram Malhotra (Mizuho): How do signed-but-not-commenced leases offset near-term occupancy slippage in the same-store pool?
  Response: Q4 expirations ≈300k sq ft with ~186k sq ft slated for redevelopment—redevelopment commencements and existing signed deals will offset some near-term headwinds but some vacancies and early terminations may still reduce occupancy before recovery.

• Question from Vikram Malhotra (Mizuho): How does M&A (e.g., tenant being acquired) typically impact space needs?
  Response: It varies—about half of M&A outcomes preserve or expand real estate needs and the other half can result in downsizing; each transaction is handled case-by-case.

• Question from Wesley Golladay (Baird): Which opportunity set is bigger—outpatient development or opportunistic lab properties?
  Response: Outpatient development is steadier and recurring (a couple hundred million per year, pre-leased), while opportunistic lab acquisitions are lumpier and more opportunistic/’chunky.’

• Question from Wesley Golladay (Baird): Any uptick in leasing from potential inpatient-only rule changes?
  Response: No material leasing impact yet—the comment period closed but market forces are already shifting care to outpatient regardless of final CMS action.

• Question from Michael Stroyeck (Green Street): If you back out CommonSpirit, what have recent outpatient retention rates been and has pushing pricing hurt retention?
  Response: Retention excluding CommonSpirit remains in the 75–85% range and overall leasing economics (escalators, renewal spreads, low TI) remain strong, not reflecting a meaningful retention decline from pricing.

• Question from Michael Stroyeck (Green Street): Is pricing power different between health system and non–health system tenants?
  Response: Re-leasing spreads vary widely and are driven more by building quality and submarket than by whether tenants are health systems.

• Question from Jonathan Petersen (Jefferies): Any update on CCRC portfolio—are you considering selling it or holding long term?
  Response: Management prefers to hold the CCRC portfolio; performance has been strong (NOI up, occupancy gains) and they intend to own it for the foreseeable future.

Contradiction Point 1

Lab Leasing Pipeline and Demand

It involves differences in the assessment of the lab leasing pipeline and demand, which are crucial for understanding the company's growth prospects and financial performance.

What is the status of the lab leasing pipeline? What tenant mix and qualitative trends are in the pipeline? - Ronald Kamdem (Morgan Stanley)

2025Q3: The lab leasing pipeline has doubled since the beginning of the year, with a mix of early-stage, clinical-stage, and commercial-stage tenants. The quantum has doubled, with a growing portion being new leases. - Scott Brinker(CEO)

What progress has been made on lab leasing and developments like Portside? - Nick Yulico (Deutsche Bank)

2024Q4: We completed over 2 million square feet of leasing in 2024. We have strong momentum with significant tours and proposals. - Scott Brinker(CEO)

Contradiction Point 2

Capital Recycling and Investment Strategy

It entails changes in the company's approach to capital recycling and investment strategies, which are critical for evaluating its financial positioning and growth prospects.

Could you clarify capital recycling, outpatient medical sales, and the buy-side financial metrics? - Ronald Kamdem (Morgan Stanley)

2025Q3: We are looking to sell some assets to recycle capital and invest in life science opportunities. Pricing is strong, and the opportunity is significant. - Scott Brinker(CEO)

Given last quarter’s comments about significant dry powder for acquisitions, can you explain how this relates to your acquisition guidance? - Unidentified Analyst (Bank of America)

2024Q4: We usually don't guide on investments within our pipeline. We have a balance sheet capacity for up to $1 billion but feel $500 million is the lower end. - Peter Scott(CFO)

Contradiction Point 3

Life Science Leasing Activity and Sentiment

It involves differing perspectives on the leasing activity and sentiment within the Life Science segment, which directly impacts revenue expectations and investor perceptions of the company's performance.

What is the status of the lab lease pipeline, including tenant mix and qualitative trends? - Ronald Kamdem (Morgan Stanley)

2025Q3: The lab leasing pipeline has doubled since the beginning of the year, with a mix of early-stage, clinical-stage, and commercial-stage tenants. The quantum has doubled, with a growing portion being new leases. The positive sentiment in the sector is driven by improved capital raising, good data, and FDA approvals. - Scott Brinker(CEO)

What factors could improve the Life Science segment's outlook, and are there any leasing delays? - Farrell Granath (Bank of America Merrill Lynch)

2025Q1: Leasing trends have continued to be steady as we've previously discussed. Our pipeline of signed leases remains strong. We've seen some recent leasing activity, as well as some deal activity that haven't yet closed or are in the LOI and tour stages. - Scott Brinker(CEO)

Contradiction Point 4

Outpatient Medical Sales and Capital Recycling

It involves the company's strategy for capital recycling and the potential impact on financial performance, which is important for investor understanding.

Given the strong outpatient medical business, what profit margins or returns do you expect? - Seth Bergey (CitiGroup)

2025Q3: We're looking for double-digit unlevered IRRs for life science distressed opportunities and 7-plus percent yields for outpatient development, which offers compelling financial metrics. - Scott Brinker(CEO)

How is the company currently allocating capital from the balance sheet? - Nick Yulico (Scotiabank)

2025Q2: Demand for outpatient medical remains strong in the private market. - Scott M. Brinker(CEO)

Contradiction Point 5

Capital Allocation and Share Repurchases

It involves the company's strategy regarding capital allocation and share repurchases, which are crucial for investors to understand the company's financial management and priorities.

How should we view the $1 billion capital allocation across life science, outpatient medical, and share repurchases? - Seth Bergey (CitiGroup)

2025Q3: We won't have fixed allocations; we'll be opportunistic in our capital deployment. It could involve any of the three areas, with balance sheet preservation being a priority. - Scott Brinker(CEO)

Why are you prioritizing share repurchases over life science investments? How has the underwriting process for life science investments changed? - John Kilichowski (Wells Fargo)

2025Q1: We believe the current stock price creates an attractive opportunity to return capital to shareholders. And as we've said previously, we will first focus on this before considering new investments in the life sciences. - Scott Brinker(CEO)