headshot - Healthpeak Properies President and Chief Investment Officer Scott Brinker
Healthpeak Properties President CEO Scott Brinker

Denver-based Healthpeak Properties saw a record year of entrance fee sales and cash collection in 2023 for its portfolio of 15 continuing care retirement communities, Chief Financial Officer Pete Scott told investors and analysts Friday on a fourth-quarter and full-year 2023 earnings call.

“These cash collections exceeded the amortized amount included in both [funds from operations] and [adjusted funds from operation] by $40 million,” he said.

The news comes as the real estate investment trust prepares for its merger with Physicians Realty Trust, an all-stock deal that was valued at approximately $21 billion when it was announced in October. Healthpeak President and CEO Scott Brinker said the deal is expected to close March 1, and Scott said that the REIT has a “high degree of confidence” that the transaction will close.

Year-over-year same-store cash adjusted net operating income in the CCRC portfolio for the quarter increased 4.7%, bringing full-year growth to 15.6%, Scott said. Total adjusted NOI for the year for the portfolio was $112.5 million, according to a company filing with the Securities and Exchange Commission.

“We continue to see growth in 2024, with a same-store outlook of 4% to 8%,” Scott said.

Occupancy in the portfolio is at 85%, Brinker said. 

“I would think we could get back into the 90s in that portfolio,” he said. “It’s performing well.”

Brinker said the REIT also expects to see rent rate growth in the portfolio in 2024, “but more in the mid-single digits as opposed to high-single digits, just given the fundamentals in that sector.”

The use of contract labor in the CCRCs has decreased over the past 18 months, he said, adding that there is “very little contract labor in the portfolio today.”

‘Not in a rush’ to sell

On previous earnings calls, Healthpeak executives have talked about potentially selling the CCRC portfolio, but Friday, Brinker said that the REIT is “not in a rush.”

“We’ve got good assets, mostly in Florida. Obviously, [there is] favorable supply/demand in that market, for seniors,” he said. “We’ve got a really good operating partner in LCS. We’ve got a really strong internal team overseeing it. So we’re not in a rush.”

At the same time, however, Brinker added, the CCRC portfolio “really has no strategic overlap with our medical and lab businesses, which are highly complementary — same process and procedure, etc. So at some point, I think we will recycle.”

The REIT would be price-sensitive in any sale, he said.

“We don’t need to do anything. It’s performing fine. We’ve got the team to run it,” Brinker said. “The capital markets have just been too tight and soft to transact on a portfolio of that size, but we’ll see if things start to open up in 2024.”

In the meantime, the CEO said that the REIT will be “looking at all available opportunities to create value” across its entire portfolio.

“We’re looking at a number of things. We’ve been saying that for the last year,” he said. “We were a net seller of real estate in 2023. From where we sit here today, we’ll probably be a net seller in 2024, but we have the ability to be price-sensitive.”

Senior housing exit began in 2020

The REIT first announced that it was considering reducing its holdings in senior housing in 2020, citing a “tough operating environment,” but then-CEO Thomas Herzog said at the time that the CCRC portfolio was “irreplaceable” due to its high barriers to entry, large campus sizes and an eight- to 10-year average length of stay among residents.

As of the end of the second quarter of 2020, according to a company presentation, Healthpeak’s portfolio included 201 non-CCRC senior housing properties (including leased properties and communities in the seniors housing operating portfolio) and 17 CCRCs.

Healthpeak sold its non-CCRC properties (properties limited to independent living, assisted living and/or memory are units) that year and in 2021.

Today, Healthpeak’s portfolio includes 15 CCRCs, in Washington, DC (1), and five states — Alabama (1), Florida (9), Michigan (1), Pennsylvania (2) and Texas (1) — as well as life sciences properties and medical office buildings. Life Care Services operates 13 of the CCRCs, and Sunrise Senior Living operates two of them.

In the fourth quarter of 2023, CCRCs represented 9.4% of the income seen in Healthpeak’s overall portfolio, whereas laboratories represented 50.5% and outpatient medical properties represented 36.6%, according to a supplemental report issued in conjunction with the earnings call. Healthpeak’s portfolio contained 294 medical outpatient properties and 131 labs as of Dec. 31.

Physicians Realty Trust’s portfolio does not contain any senior housing properties, meaning that after the merger, CCRCs will represent an even smaller portion of the combined company.

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