Q4 2021 Healthpeak Properties Inc Earnings Call
Good morning, and welcome to the healthcare properties incorporated fourth quarter Conference call. All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero.
Speaker 1: Good morning and welcome to the HealthGeek Properties Incorporated fourth 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 todays presentation, there will be an opportunity to ask questions.
Speaker 1: After today's presentation, there will be an opportunity to ask questions.
Speaker 1: To ask a question, you may press star, then one on a touchstone phone. To withdraw yourself from the question queue, press star, then two. Please note this event is being recorded.
I'll ask you a question you May press Star then one on a touchtone phone to withdraw yourself in the question queue Press Star then two.
<unk> note. This event is being recorded.
Speaker 1: I would now like to turn the conference over to Andrew Johns, Vice President, Corporate Finance, and Investor Relations. Please go ahead.
I would now like to turn the conference over to Andrew Johns Vice President Corporate Finance and Investor Relations. Please go ahead.
Welcome to <unk> fourth quarter 2021 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 are forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our expectations.
Speaker 2: Welcome to HealthPeaks fourth quarter 2021 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 and detailed in our filings with the SEC, we do not undertake a duty to update any forward looking statements.
Speaker 2: A discussion of risks and risk factors is included in our press release and detailed in our filings with the ITC. We do not undertake a duty to update any...
Speaker 2: Certain non-GAAP financial measures will be disclosed on this call. In an exhibit to the 8K we furnished with the SEC yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with the red key requirements. The exhibit is also available on our website at healthpeak.com.
Certain non-GAAP financial measures will be disclosed on this call in an exhibit to the 8-K, we furnished with the SEC yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. The.
The exhibit is also available on our website at <unk> Dot com.
Speaker 2: I will now turn the call over to our Chief Executive Officer, Tom Herzog.
I will now turn the call over to our Chief Executive Officer, Tom Herzog.
Thank you Jay and good morning, everyone.
Speaker 3: With me today are Scott Brinker, our President and Chief Investment Officer, and Pete Scott, our Chief Financial Officer.
With me today are Scott Brinker, our President and Chief Investment Officer, and Pete Scott, Our Chief Financial Officer.
Also here and available for the Q&A portion of the call are Tom <unk>, Our Chief operating officer, and <unk> <unk>, our Chief legal officer and General Counsel.
Speaker 3: Also here and available for the Q&A portion of the call are Tom Clerich, our Chief Operating Officer, and Trima Kenry, our Chief Legal Officer and General Counsel. Let me start with our...
Let me start with our 2021 results.
Speaker 3: 2021 was a productive year for health peak and our businesses performing very well. We completed our $4 billion senior housing disposition program and successfully reinvested the proceeds in our core life science and MOB businesses. What is up is a lot of WOMwaterings sharing with us.
121 was a productive year for healthy and our business is performing very well with.
We completed our 4 billion senior housing disposition program and successfully reinvested the proceeds in our core life science and MLB businesses, while also reducing our leverage.
Additionally, our operations came in stronger than we had expected at the outset of the year with full year <unk> <unk> above our initial guidance and a beat on same store or 200 basis points.
Speaker 3: Additionally, our operations came in stronger than we had expected at the outset of the year, with full year FFO, six cents above our initial guidance, and a beat on same store at 200 basis points.
Next the strength of our businesses.
Speaker 3: With our portfolio restructuring now behind us, we are now positioned exclusively in vital, growing, and high barrier to entry business.
With a portfolio of restructuring now behind US we are now positioned to exclusively in vital growing and high barrier to entry businesses.
Our life Science business is benefiting from many exciting scientific advancements, which is driving growth in biotech funding and drug approvals.
Speaker 3: Our life science business is benefiting from many exciting scientific advancements, which is driving growth in biotech funding and drug approval.
This has created strong demand for purpose built life science real estate and the three hotbed markets of San Francisco, Boston, and San Diego, where our portfolio and future development opportunities are almost exclusively located.
Speaker 3: This has created strong demand for purpose-built life science real estate in the three hotbed markets of San Francisco, Boston, and San Diego, where our portfolio and future development opportunities are almost exclusively located in the four hotbed markets of San Francisco,
Speaker 3: Our MOB business continues to be focused on on-campus properties associated with number one or number two hospitals in favorable markets and benefiting from primarily specialist practices.
Our MLP business continues to be focused on on campus properties associated with number one or number two hospitals and favorable markets and benefiting from primarily specialist practices.
The stable growth business also benefits from our proprietary on campus development program with HCA.
Speaker 3: The stable growth business also benefits from our proprietary on-campus development program with a
Speaker 3: Finally, some remarks in our development program relative to our long-term growth strategy.
Finally, some remarks on our development program relative to our long term growth strategy.
With consideration to the scarcity in current pricing for well located stabilized life science and on campus mob properties. Our development machine has become a growing part of our growth strategy. In addition to accretive acquisitions.
Speaker 3: With consideration to the scarcity and current pricing for well-located stabilized life science and on-campus MOB properties, our development machine has become a growing part of our growth strategy in addition to our creative acquisition.
Speaker 3: During the last five years, we delivered $1.4 billion of life science developments at an average yield of 8%, which compares the stabilized cap rates for these Class A assets of 4% or less.
During the last five years, we delivered $1 $4 billion of life Science development at an average yield of 8%, which compares to a stabilized cap rates for these class a assets of 4% or less.
Given the huge leasing demand and tight market conditions for high quality life science product, we continue to see tenants to commit to space before steel has even come out of the ground.
Speaker 3: Given the huge leasing demand and tight market conditions for high quality life science product, we continue to see tenants commit to space before steel as even Commodore Grimm.
Our active one $6 billion life science, and MLP pipeline is projected to provide a 7% weighted average yield on cost and a 74% pre leased 92%, excluding our newly announced vantage project.
Speaker 3: Our active $1.6 billion life science and MOB pipeline is projected to provide a 7% weighted average yield on cost and a 74% pre-leased. 92% excluded are newly announced Vantage products.
And we expect our embedded 10 plus billion Shadow development pipeline will be a key driver of our future growth.
Speaker 3: And we expect our embedded $10-plus billion shadow development pipeline will be a key driver of our future growth. But last, let me turn it over to...
Let me turn it over to Scott.
Speaker 2: Thanks, Tom. I'll provide a life science update followed by medical office and CCRC.
Thanks, Tom I'll provide a life science update followed by medical office and CRC.
Life Science demand fundamentals remained strong, particularly in the top three core markets, which dominate the fundraising.
Speaker 2: Lifesign demand fundamentals remain strong, particularly in the top three core markets which dominate the fundry.
Venture capital funding in 2021 was up 50% from the prior year and Ipos were up 25%.
Speaker 2: Venture Capital Funding in 2021 was up 50% from the prior year and IPOs were up 25.
Speaker 2: There's a direct relationship between a biotech company raising money and their need for more.
There's a direct relationship between a biotech company raising money and their need for more space.
Speaker 2: Meanwhile, the number of new biologics approved by the FDA last year was 2x to 10 year average, which provides further incentive for more investment in the sector.
While the number of new biologics approved by the FDA last year was two ex the 10 year average, which provides further incentive for more investment in the sector.
We're well positioned to capitalize on our strong fundamentals and to compete with new supply with an average age of just 14 years large and monetize campuses and leading submarkets and a large base of existing tenants.
Speaker 2: We're well positioned to capitalize on the strong fundamentals and to compete with new supply with an average age of just 14 years, large and meditized campuses and leading submarkets in a large base of existing tenants.
Our annual cash NOI for life science, now exceeds $625 million, including development leases that have been signed but not yet commenced.
Speaker 2: Our annual cash and a wife or life science now exceeds $625 million, including development leases that have been signed but not yet.
Across the operating portfolio, we estimate our current mark to market opportunity at more than 25% to be realized over time, given our six year weighted average lease maturity.
Speaker 2: Across the operating portfolio, we estimate our current mark to market opportunity at more than 25% to be realized over time given our six year weighted average lease maturity.
Speaker 2: Note that our rebecene spreads will fluctuate from quarter to quarter depending upon which leases expire.
Note that our re leasing spreads will fluctuate from quarter to quarter, depending upon which leases expire.
The operating portfolio was fully leased other than normal frictional vacancy in our active development pipeline is highly pre leased.
Speaker 2: The operating portfolio is fully leased other than normal frictional vacancy and our active development pipeline is highly pre-
Speaker 2: We expected to deliver approximately $700 million of life science development in 2022, essentially on time and on budget, despite the supply chain environment.
We expect to deliver approximately $700 million of life Science development in 2022, essentially on time and on budget, despite the supply chain environment.
An additional $800 million of delivering 2023, and all of those projects are under guaranteed Max contracts, reducing our risk of cost escalations.
Speaker 2: an additional $800 million will deliver in 2023 and all of those projects are under guaranteed max contracts reducing our risk of cost escalation.
Against that backdrop, we are advancing entitlements on land, we already own and control and the leading life science markets. We expect our next development starts will likely occur in 2023 with point Grant phase one in South San Francisco that post expansion in Waltham.
Speaker 2: Against that backdrop, we're advancing entitlements on land we already own and control in the leading life science mark.
Speaker 2: We expect our next development starts will likely occur in 2023 with point-grand phase one in South San Francisco, the post-expansion in Lawtham and Vista Serrano in San Diego, likely aggregating to more than 700,000 square feet. Here's some color.
And Vista Serrano in San Diego likely aggregating to more than 700000 square feet.
Here's some color on each of our three core markets.
Speaker 1: South San Francisco, our Nexus project, is now fully pre-leased more than a year before completion at a 7.5% return on cost versus our original under it and yield of 6.5%.
South San Francisco, our Nexus project is now fully pre leased more than a year before completion at a seven 5% return on cost.
Our original underwritten yield of six 5%.
Speaker 2: Site work is underway at Vantage Phase One, which we expect to deliver in the second half of 2023, and we're seeing strong, tenant...
Site work is underway at vantage phase, one, which we expect to deliver in the second half of 2023, and we're seeing strong tenant interest rent.
Speaker 1: Rents for Class A lab space are now in the mid 80s. Up about 13% in the past.
Rents for class a lab space are now in the mid Eighty's up about 13% in the past year.
Speaker 2: applying demand remains in favor of landlords. And our number one market share in the leading sub market in the Bay Area places us in a favorable position.
Supply and demand remains in favor of landlords and our number one market share in the leading submarkets in the Bay area Places us in a favorable position.
We have the ability to roughly double our footprint in the sub market over the next decade, or so from our land bank and Densification opportunities.
Speaker 1: We have the ability to roughly double our footprint in the sub-market over the next decade or so from our land bank and densification offers.
Speaker 2: San Diego, we secure the next phase of our growth with a covered land play acquisition directly adjacent to a property we acquired last quarter.
In San Diego, we secured the next phase of our growth with a covered land play acquisition directly adjacent to our property we acquired last quarter.
Speaker 2: total acquisition price on the two billions was $44 million and was done off market through our relations.
The total acquisition price on the two buildings was $44 million and it was done off market through our relationship.
The 10 acre assemblage sits between two existing healthcare campuses in Sorrento Mesa with excellent visibility and accessibility from Interstate 85.
Speaker 2: The 10-acre assemblage sits between two existing healthy campuses in Toronto, Mesa, with excellent visibility and a accessibility from Interstate 805.
We intend to demolish the existing buildings upon expiration of the short term leases and develop about 250000 square feet of lab.
Speaker 2: We intended to molest the existing buildings upon expiration of the short-term leases and develop about 250,000 square feet of lab.
Rents for class a lab space in San Diego are now in the low seventies to low eighties, depending on the submarket up about 18% in the past year.
Speaker 2: Rents for Class A lab space and San Diego are now in the low 70s to low 80s, depending on the sub market, up about 18% in the past.
The near term supply pipeline is highly pre leased and our three projects are at 100% pre leased.
Speaker 1: The near-term supply pipeline is highly pre-leased and our three projects are at 100% pre-leased.
Moving to Boston.
Speaker 2: Through a partnership with both inch and Harrison Street, we acquired a 37.5% interest in a 9 acre parcel in Needham, just off the entry, exit ramp to Route 120.
Through a partnership with Bulfinch in Harrison Street, we acquired a 37, 5% interest in a nine acre parcel in Needham just off the entry exit ramp to route 128.
Speaker 2: Our share of the land purchase was $22 million. After going through the entitlement process, we expect to go to large, a meditized campus that will be well positioned to capture lab, R&D, or medical office tenants, given its accessibility and surrounding land.
Our share of the land purchase was $22 million after going through the entitlement process. We expect to go to large monetize campus that will be well positioned to capture lab R&D or medical office tenants given its accessibility and surrounding land uses.
We've now closed on all of our acquisitions totaling 36 acres in Cambridge, a combination of core operating assets and future development parcels similar to any project in our high barrier markets. We expect to have significant interaction with the city and local stakeholders during the planning and entitlement process for the development parcels.
Speaker 2: We've now closed down all of our acquisitions, totaling 36 acres in Cambridge, a combination of core operating assets and future development parcels.
Speaker 2: Similar to any project in our high barrier markets, we expect to have significant interaction with the city and local stakeholders during the planning and entitlement process for the development process.
In the interim the properties are generating good income, which helps bridge us to the value creation opportunity at the development parcels.
Speaker 2: In the interim, the properties are generating good income, which helps bridge us to the value creation opportunity at the development process.
Speaker 2: Final comment on Boston is that lab grants are up about 18% in the past year and the near term supply pipeline is highly pre-
Final comment on Boston is that lab rents are up about 18% in the past year in the near term supply pipeline is highly pre leased.
Moving to life Science operating results our experienced team at least $2 8 million square feet in 2021, which was two five X our internal budget.
Speaker 1: Moving to life science operating results, our experienced team reached 2.8 million square feet in 2021, which was 2.5x, our internal budget.
Speaker 2: Capitalized on strong demand across all three of our core markets driven by renewals, expansions and releasing that are new to the
Capitalized on strong demand across all three of our core markets driven by renewals expansions and pre leasing at our new developments.
Speaker 2: existing tenants accounted for 77% of our lease activity in 2021, which continues to be a competitive advantage versus owners who waxed sales.
Existing tenants accounted for 77% of our lease activity in 2021, which continues to be a competitive advantage versus owners, who lack scale.
Speaker 2: Looking forward to the first quarter, we've already signed leases or letters of intent and more than 400,000 square feet.
Looking forward to the first quarter, we've already signed leases or letters of intent on more than 400000 square feet.
Same store NOI growth in the fourth quarter was five 4%, bringing full year growth to seven 2%, which is above the high end of our most recent guidance.
Speaker 2: Name store NOI growth in the fourth quarter was 5.4% bringing full year growth to 7.2%. Which is above the high end of our most recent guidance.
The results were driven by escalators leasing activity mark to market and strong collections.
Speaker 2: results were driven by escalators, leasing activity, market and strong collections.
Speaker 2: turning the medical office. Our operating team, on campus locations, and concentration and high growth markets, is driving performance at the high end of the set.
Turning to medical office, our operating team on campus locations and concentration in high growth markets is driving performance at the high end of the sector.
Leasing activity continues to outperform our expectations, including $3 1 million square feet of lease executions in 2021.
Speaker 1: Leasing activity continues to outperform our expectations, including 3.1 million square feet of lease executions in 2020.
Speaker 1: The tension remains strong at 80%, which eliminates downtime and reduces PIs for those...
Retention remains strong at 80%, which eliminates downtime and reduces T is for those spaces.
Mark to market on renewals was four 9% driven by activity in Nashville, and Seattle to markets, where we've been growing our footprint through local relationships.
Speaker 2: Marked to market on renewals was 4.9 percent driven by activity in Nashville and Seattle, two markets where we've been growing our footprint through local relations.
Speaker 2: Name store cash and a wide growth in the fourth quarter was 3.6% driven by leasing activity, medical city Dallas, Adren, and a rebound in parking in
Same store cash NOI growth in the fourth quarter was three 6% driven by leasing activity medical city, Dallas AD rent and a rebound in parking income. We're also benefiting from our green investments to reduce carbon footprint and operating cost.
Speaker 2: We're also benefiting from our green investments to reduce carbon footprint and operating costs.
Full year same store growth was three 1% above the high end of our most recent guidance.
Speaker 1: Full year, same store growth was 3.1% above the high end of our most recent guide.
We completed $834 million of MLP acquisitions in 2021, our highest volume in the past 15 years.
Speaker 2: We completed $834 million of MOB acquisitions in 2021, our highest volume in the past 15 years. The acquisitions were done entirely off-market through relationships. The blended.
The acquisitions were done entirely off market through relationships.
The blended stabilized cap rate was five 5%.
Speaker 2: Our timing was fortunate as the vast majority were negotiated prior to the decline in M.O.B. cap rates, which we estimate to be approximately 50 base.
Our timing was fortunate as the vast majority were negotiated prior to the decline in MLB cap rates, which we estimate to be approximately 50 basis points.
Despite the hot market, we're still seeing some unique opportunities driven by our relationships at pricing that is accretive.
Speaker 1: Despite the hot market, we're still seeing some unique opportunities driven by our relationships and pricing that is a-
Our relationship based development program with HCA is very active and we expect to announce several new projects throughout the year.
Speaker 2: Our relationship-based development program with HCA is very active and we expect to announce several new projects throughout the
Speaker 1: HCA's tremendous success and growth provide a tail end to our MOB portfolio and platform that is unique across the sector.
HCA is tremendous success and growth provides a tailwind to our mob portfolio and platform that is unique across the sector.
Finishing with <unk>.
Speaker 1: Year over year same store NOI was essentially flat for the quarter and up 16% sequentially, both excluding CARES Act funding.
Year over year same store NOI was essentially flat for the quarter and up 16% sequentially, both excluding cares Act funding.
Speaker 2: Though I note that 4Q is always a good quarter for sequential growth. Entry fee sales have good momentum. December 1st.
So I'd note that <unk> is always a good quarter for sequential growth.
Entry fee sales have good momentum.
December was our best month of sales since 2019, we have strong pricing power on entry fees and rental rates supported by the housing market with little or no discounting.
Speaker 1: We have strong pricing power on entry fees and rental rates supported by the housing market with little or no disc...
Speaker 2: Entry fee cash receipts continue to exceed amortization by $6 million in the quarter and by $12 million for the year. Those cash receipts will support future earnings growth as the entities are amortized over the residents like to stay.
Entry fee cash receipts continued to exceed amortization by $6 million in the quarter and by $12 million for the year.
Cash receipts will support future earnings growth as the entry fees are amortized over the residents like this today.
On the other hand staffing is a challenge cost of labor shifted higher and vacant positions are a problem across the health care sector.
Speaker 2: On the other hand, staffing is a challenge. The cost of labor is shifted higher and vacant positions or a problem across the healthcare sector.
Speaker 1: Roughly two thirds of our communities had to limit admissions in the fourth quarter due to staffing shorter.
Roughly two thirds of our communities had to limit admissions in the fourth quarter due to staffing shortages. Fortunately, we've seen signs of improvement in the past month, which has allowed us to start the year with good momentum on occupancy.
Speaker 2: Fortunately, we've seen signs of improvement in the past month, which has allowed us to start the year with good momentum on our
Speaker 2: Net of all those factors, we see 20 million to 40 million dollars of NOI upside to be recaptured in the CCRC portfolio over the next few years.
Net of all those factors, we see 20 million to $40 million of NOI upside to be recaptured in the <unk> portfolio over the next few years most of that upside comes from occupancy, where we still have at least 500 basis points to recapture alter.
Speaker 2: Most of that upside comes from occupancy, where we still have at least 500 basis points to recapture. Alternate to people.
I'll turn it to Pete.
Yeah.
Thanks, Scott starting with our financial results. We finished the year on a strong note for the fourth quarter, we reported <unk> as adjusted of 41 per share and total portfolio same store growth of two 7%.
Speaker 1: Thanks Scott, starting with our financial results. We finished the year on a strong note. For the fourth quarter, we reported FFO's adjusted of 41 cents per share in total portfolio same store growth of 2.7%.
Excluding the onetime cares act grants received in the fourth quarter of 2020, our pro forma portfolio same store growth was 4%.
Speaker 1: including the one-time CARES Act grants received in the fourth quarter of 2020. Our pro-former portfolio, Jane Store Growth, was four.
Our same store results continues to reflect strong industry fundamentals for both our life science and medical office business segments.
Speaker 1: Our same-store result continues to reflect strong industry fundamentals for both our life science and medical offices.
Last item under financial results for the fourth quarter, our board declared a dividend of <unk> 30 per share.
Speaker 1: Last item under financial results. For the fourth quarter, our board declared a dividend of 30 cents per share.
Turning to our balance sheet.
Speaker 1: Turning to our balance sheet. In November , we issued $500 million, up 2.125% green bonds due in 2028. This was our second green bond issuance during 2021 and reflects the priority and effort this team places on ES.
In November we issued $500 million up to 125% green bonds due in 2028.
This was our second green bond issuance during 2021 and reflects the priority and efforts <unk> places on ESG.
Pro forma the settlement of approximately $300 million of equity forwards.
Speaker 1: Proform of the settlement of approximately $300 million of equity forwards, fourth quarter net debt to adjust the BEDAD was 5.3 times and floating rate debt was approximately 17%. Which is in line with our general target of 15%.
Fourth quarter net debt to adjusted EBITDA was five three times and floating rate debt was approximately 17%.
Which is in line with our general target of 15%.
Turning now to our 2022 guidance.
Before I get into the detail I did want to spend a moment on some of the assumptions underlying our guidance.
Speaker 1: Before I get into the details, I did want to spend a moment on some of the assumptions underlying our guys.
Speaker 1: First, we have not assumed any speculative acquisition.
First we have not assumed any speculative acquisition activity.
Speaker 1: Any accretive acquisition activity that could occur throughout the remainder of the year would be additive to our guidance.
Any accretive acquisition activity that could occur throughout the remainder of the year would be additive to our guidance range.
Second the midpoint of our guidance assumes $750 million of development, Densification and Redevelopments bad a $275 million increase from 2021.
Speaker 1: Second, the midpoint of our guidance assumes $750 million of development, densification, and redevelopment spend, a $275 million increase from 2020.
While this additional funding results an incremental drag on current earnings.
Speaker 1: While this additional funding results in incremental drag on current earnings, we believe developments including Vantage, Cal and Ridge, and 101 Cambridge Park Drive, along with our other pipeline projects, will create significant value and drive long-term earnings.
We believe developments, including advantage Calin Ridge, one O One Cambridge Park drive along with our other pipeline projects will create significant value and drive long term earnings growth.
Speaker 1: Third, our CCRC guidance incorporates the current COVID operating environment based on what we know today.
Third our <unk> guidance incorporates the current Covid operating environment based on what we know today.
Speaker 1: Should headwinds from new variants emerge, or if we return to a normalized operating environment, faster than expected, we will update our guidance according.
Should headwinds from new variants emerge or if we return to a normalized operating environment faster than expected, we will update our guidance accordingly.
With that as a backdrop, our 2022 guidance is as follows.
Speaker 1: With that as a backdrop, our 2022 guidance is as follows.
Speaker 1: FFO is adjusted ranging from $1.68 per share to $1.74 per share. Lended same store on a wide road ranging from 3.25% to 4.75%.
<unk> as adjusted ranging from $1 68 per share to $1 74 per share.
Same store NOI growth, ranging from 3% to 5% to 475%.
Speaker 1: The major components of our same-store guidance are spolas. In light sciences, which is 49% of the pool, we expect same-store growth to range from 4 to 5%. Driven by annual contractual rent steps in the low threes and the earned benefit from new leasing.
The major components of our same store guidance are as follows.
In life Sciences, which is 49% of the pool, we expect same store growth to range from 4% to 5% driven by annual contractual rent steps in the low threes and the earnings benefit from new leasing activity.
Medical office, which is 39% of the pool, we expect same store growth to range from 175% to 275% driven by contractual rent escalators and offset in part by above average expense increases driven by insurance taxes and salaries for property level employ.
Speaker 1: Medical office, which is 39% of the pool, we expect same-stort growth to range from 1.75% to 2.75.
Speaker 1: driven by contractual rent escalators and offsets in part by about average expense increases driven by insurance, taxes and salaries for property level employees.
<unk>.
And <unk>, which is 12% of the pool and now includes all 15 assets for the full year, we expect same store growth to range from 8% to 12%.
Speaker 1: 12% of the pool and now includes all 15 assets for the full year. We expect same short growth to range from 8% to 12% inclusive of CARES Act grants and 3% to 7% excluding CARES Act.
Lucid of cares Act grant and 3% to 7% excluding cares Act grant.
Speaker 1: Total revenue growth is driven by an approximate 200 basis point
Total revenue growth is driven by an approximate 200 basis point increase in average total occupancy and a 5% increase in average daily rent for our independent assisted and memory care units.
Speaker 1: average total occupancy and a 5% increase in average daily rent for our independent, assisted and memory care.
Speaker 1: However, this revenue is offset someone by outside's confrontation costs due to a challenging labor.
However, this revenue was offset somewhat by outsized compensation cost due to a challenging labor market.
Please refer to page 41 of our supplemental for additional detail on the assumptions underlying our guidance.
Speaker 1: Please refer to page 41 of our supplemental for additional detail on the assumptions underlying our guide.
Speaker 1: Let me finish now with a quick recap of our FFO's adjusted earnings roll forward to assist with model.
Let me finish now with a quick recap of our <unk> as adjusted earnings roll forward to assist with modeling.
While there are lots of puts and takes the midpoint of our 2022 <unk> as adjusted guidance assumes 10 pennies of growth compared to 2021.
Speaker 1: Well, there are lots of puts and takes. The midpoint of our 2022 FFO is a Justice Guidance. Assumes 10 pennies of growth compared to 2021.
Starting with the positives, we see six pennies a positive impact primarily from our blended same store NOI growth assumption of 4%.
Speaker 1: and see six pennies of positive impact, primarily from our blended same-store NOI growth dysfunction of 4%.
Speaker 1: You see five pennies of positive impact from developments coming online, including the Sure Faces 2 and 3, Boardwalk, 75 Hayden, and our HCA Medical Office.
We see five pennies a positive impact from developments coming online, including the shore phases, two and three boardwalk 75, Hayden and our HCA medical office delivery.
We see approximately two and a half panties a positive impact from the full year benefit of redeploying senior housing sale proceeds.
Speaker 1: We see approximately two and a half pennies of positive impact from the full year benefit of redeploying senior housing sale.
Speaker 1: Moving now to some of the offset. We have two pennies of incremental drag from development, destification, and redevelopment.
Moving now to some of the offset we have two pennies of incremental drag from development justification and redevelopment.
Speaker 1: One penny from the tenant purchase option at Fry Regional Medical Center. And finally, a one penny headwind from higher-
One penny from the tenant purchase option at Frye Regional Medical Center, and finally, a one penny headwind from higher interest rates with that operator, let's open the line for Q&A.
Speaker 1: With that operator, let's open the line for Q&A.
Thank you we will now begin the question and answer session.
Speaker 1: Thank you. We will now begin a question and answer session. If you'd like to ask a question, press star then one to join the queue on a touch tone phone. If you're using a speaker phone, please pick up your handset before pressing the key.
If you'd like to ask a question press Star then one to join the queue on a touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
Speaker 4: To withdraw your question, please press star then two. So that everyone may have a chance to participate. We ask that participant limit their questions to one and a related follow-up. If you have additional questions, please recue. At this time, we will pause momentarily to assemble our roster.
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.
And your first question comes from Nick <unk> with Scotiabank. Please go ahead.
Thanks. Good morning, everyone. First question is just as we think about the external growth for the company a lot of focus on the development pipeline that's underway in some future projects, but if you were to do acquisitions additional acquisitions this year in guidance.
Speaker 5: Thanks, good morning everyone. You know, first question is just as we think about the external growth of the company. A lot of focus on the development pipeline that's underway in some future projects.
Do you think that you would be able to do that in an accretive way maybe you just give us.
Speaker 5: Yes, I'm thoughts on the ability to buy income producing real estate right now versus your cost to capital. Next, it's time.
Some thoughts on the ability to buy income producing.
Real estate right now versus your cost of capital.
Yes, Nick it's up it's Tom I'll start with that one.
Speaker 3: Of course, it all comes down to our cost of capital. Whether we're trading at any V, whether we're FFO, EFFO yields look like, if we're able to identify off-market transactions that produce some kind of an opportunity that's favorable to us.
Of course, it all comes down to our cost of capital.
Whether we're trading at NAV.
What are your <unk> yields look like.
If we're able to identify off market transactions that produce some kind of an opportunity that's favorable to us.
Speaker 3: And so we would hope to continue to have those opportunities as we go through 2022, but that's yet to be seen just based on worst doctorates. But certainly we have a nice pipeline of opportunities at all times because we're constantly working the market, so we'll see what plays out.
And so we would hope to continue to have those opportunities as we as we go through 2022, but that's yet to be seen just based on where our stock trades and but certainly we have a nice pipeline of opportunities at all times, because we're constantly work in the market. So we'll see what plays out.
Okay. Thanks, and then second question is just on the life science rents that you talked about in the last year growing.
Speaker 5: Okay, thanks. And then second question is just on the life science rents that you talked about in the last year growing, well over double digit. Still have very little vacancy in those markets that you're in. So I guess I'm just wondering if you still think that the potential for rent growth over the next year is.
Well over double digit.
Still a very little vacancy in those markets that you're in so I guess I'm just.
Wondering if you still think that you know the potential for rent growth over the next year is.
Speaker 5: still over 10% for your markets. And then maybe you could talk a little bit about how cap rates have also, you know, trended in your markets and for end growth is been so strong.
Still over 10% for your markets and then maybe you could talk a little bit about how cap rates have also trended.
In your markets and rent growth has been so strong.
Oh, Hey, Scott Brinker here I'll take those on cap rates.
Speaker 3: I hate to scout rinker here. I'll take those on cap rates.
For class a space in the three core markets today, you, probably plus or minus 4% depending.
Speaker 5: Class A space in the three core markets today, you're probably plus or minus 4%.
Depending upon the mark to market that exists at that building.
Speaker 5: depending upon the market market. It exists at that building. So tell me in that range, and there's been plenty of trades.
So it's somewhere in that range and there's been plenty of trades.
Speaker 5: In that general range in the past, quarter to or two, even for minority positions or non-controlling interests. So if anything, you'd expect a 100% purchase with full control to trade it in the lower cap rates.
In that general range in the past quarter or two even for minority positions. Our noncontrolling interests. So if anything you'd expect a 100% purchased with full control to trade at even lower.
Cap rates. So certainly pricing is strong on market rents you know over the last decade, and the three core markets.
Speaker 5: is strong. Unmarket rents, you know, over the last decade in the three core markets, the compound growth rate has been in the 7% rate.
Compounded growth rate has been in the 7% range.
Speaker 5: More recently, it's obviously been higher. Double digits approaching 20% into an ego embossed it over the past year. That's pretty high. I don't know that we would predict that that's going to continue in 2022. At the same time, when we look at the supply demand, fundamentals, as well as our own portfolio, we're essentially fully leased.
More recently, it's obviously been higher double digits approaching 20%.
Many of you in Boston over the past year, that's pretty high I don't know that we would predict that that's going to continue in.
In 2022 at the same time, when we look at the supply demand fundamentals as well as our own portfolio, where we're essentially fully leased other than that normal frictional vacancy for downtime to build out T is we.
Speaker 5: other than the normal frictional vacancy for downtime to build out TIs. We are expecting that the rent growth will be quite a track.
We are expecting with the rent growth will be quite attractive in 2022, so if anything that mark to market across our portfolio looking forward probably grows.
Speaker 5: Okay, appreciate it Scott. What can I?
Rather than declines.
Okay I appreciate it Scott.
Okay.
The next question comes from one Santa Maria.
With BMO. Please go ahead.
Hi, Good morning, just hoping we could touch on.
Speaker 2: Hi, good morning, just hoping we could touch on ALI's in Cambridge. I think he touched on it maybe in the opening commentary, but any update on potential political obstacles there on redeveloping and the time frame to get clarity on what may happen next.
In.
Cambridge, I think you touched on it maybe in the opening commentary, but any update on potential political obstacles, there redeveloped and the timeframe to get clarity on what May happen next.
Yeah, Hey, Kate.
Speaker 5: Yeah, hey, Kate. One, I'll start with that and then, um, Scott's going me want to come in as well. But in the last three months, we really have assembled top notch local team.
One I'll start with that and then Tom or Scott may want to comment as well, but in the last three months, we really have assembled.
Notch local team.
Architect Engineers attorneys public relations. So that team is working effectively we have started to meet.
Speaker 5: you know, architect, engineers, attorneys, public relations.
Speaker 5: So that team is working effectively. We have started to meet.
Speaker 5: with local stakeholders. And part of is really just to clear out some of the, you know, misperceptions that maybe came across in the various media reports that were published in November , especially around timing of what we had planned as well as ultimately what we expected to develop. We've always viewed this as a...
With local stakeholders and part of it is really just to clear out some of the misperceptions that maybe came across in the various media reports that were published in November .
Especially around timing of what we had planned as well as ultimately what we expect it to develop I mean, we've always viewed this as a.
Big mixed use campus, that's gonna have residential it's going to have some level of retail.
Speaker 5: Big mixed use campus that's going to have residential, it's going to have some level of retail. We do think it should have a fair amount of lab. So I think a big part of the initial interactions here with the local stakeholders, just to make sure they know exactly what we had in mind, which, frankly, that some of the local papers didn't pick out quite accurately. So that's been a productive dialogue. On the proposed policy order, it's still in the legislative process.
We do think it should have a fair amount of lab.
So I think a big part of the initial interactions here with the local stakeholders just to make sure. They know exactly what we had in mind, which frankly to some of the local papers didn't pick up quite accurately so that's been a productive dialogue.
On the proposed policy order you know, it's still in the legislative process.
Speaker 5: That's not something that we control. So we're not spending a whole lot of our time worrying about that. It's ultimately just a mechanism to address rezoning in that area, which is something that we completely agree with. So we have a shared interest in that happening. So we think that's actually in some ways a positive.
That's not something that we control. So we're not spending a whole lot of time worrying about that it's ultimately just a mechanism to address rezoning in that area, which is something that we completely agree with so we have a shared.
Interest in that happening.
So we think that's actually in some ways a positive and then maybe the last thing I'd mentioned I'll, just reiterate instead of the $625 million that we spent.
Speaker 5: And then maybe the last thing I mentioned or just reiterate is that of the $625 million that we spent, more than half of that just went to poor, operating real estate.
More than half of that just went to core operating real estate.
Speaker 5: that we have no intention of changing the use of many of those.
We have no intention of changing the use of many of those buildings and even the balance theres really no vacant land in that entire assemblage everything is earning some level of a return so we're not necessarily in a big hurry.
Speaker 5: buildings and even the balance, there's really no vacant land in that entire assemblage. Everything is earning some level of a return. So we're not necessarily in that big hurry. We think this is an amazing opportunity with the Cambridge address, the accessibility with route 2, in the red line.
This is an amazing opportunity with the Cambridge address the accessibility with route to in the Red line.
You know, it's a long term vision that we had in mind, that's what attracted us to this site in the first place and we continue to have an incredible success in this sub market. We've got 1 million square feet. Today ramps are comfortably in the 100 dollar range for class a space with no vacancy.
Speaker 5: It's a long-term vision that we had in mind. That's what attracted us to this site in the first place. And we continue to have incredible success. In this sub-market, we've got a million square feet today. Rans are comfortably in the $100 range for class A space with no vacancy. So we continue to think that this is an incredible, longer term opportunity.
So we continue to think that this is an incredible longer term opportunity.
Tom anything you'd add.
Speaker 3: That's pretty good summary. Probably a couple of things. One of the things to keep in mind is the envision alewife plan that's been out there for decades is something that we are well aware of. We had intended to utilize that document along with working with neighborhood groups, city officials, et cetera. Going through a process that we expected to take a couple of years, probably two years.
That's a pretty good summary, probably a couple of things one of the things to keep in mind is.
Do you envision alewife plan, that's been out there for for decades.
It is something that we are well aware of we had intended to utilize that document along with working with.
With neighborhood groups city officials et cetera are going through a process that we expect it to take a couple of years, probably two years.
Speaker 3: And really the actions that have been taken, that are more in the public media and the actions taken by the city council were to motivate discussions around zoning entitlement, which wasn't something that is going to impact our timeline. And the last thing I would mention is, I think we probably said this on our last call. We do have, I think it's a 4.2%.
And it really the actions that have been taken that theyre more in the public media.
And actions taken by the city Council where to motivate.
Discussions around zoning and entitlement, which wasn't it wasn't.
Something that is going to impact our timeline.
Last thing I would mention is I think we probably said this on our last call. We do have I think it's a four 2%.
Speaker 3: yield on our investment during this because we have a lot of operating real estate within these covered landplays So that gave us plenty of time to work with the city with the neighborhood groups with the Planning commissions and put together a plan that we think Will be favorable for the community and and work well for us. So more to come on that, but that's probably all roots and
Yield on our investment.
During this because we have a lot of operating real estate within these covered land plays and so that gave us plenty of time to work with the city what the neighborhood groups with the planning commissions and put together a plan that we think.
We will be favorable for the community and then worked well for us so more to come on that but that's probably all we would say on this topic at this point.
So thankful for that thorough answer up just curious you gave some details on the development.
Speaker 2: Thank you for that thorough answer up. Just curious, you get some details on the development and incremental FFO contributions that ramps up it. Any color on the amount of NOI we should expect to come on in 20 to an maybe the cadence of that, given how large of a driver is for your growth.
Kind of incremental <unk> contribution as that ramps up but any color on that.
The amount of NOI, we should expect to come on in <unk>.
<unk>, two and maybe the cadence of that.
Given how large of a driver it is for your growth.
Okay.
Speaker 1: Yeah, I want to pee. I guess what I would tell you is I would ref-
Yeah, Hey wanted to Pete I guess, what I would tell you is.
I would refer to page.
Speaker 1: Excuse me in our supplement. I'm going to it right now just to take a look But there's a pretty detailed schedule on there and our development
Excuse me in our supplemental I'm going to it right now just take a look but there's a pretty detailed schedule in there in our development and redevelopment.
The cadence of.
Speaker 1: what will actually come in this year. Now, I just will point out that it says initial occupancy on there. So that's when the first square footage will come in.
What will actually come in this year now I just will point out that it says initial occupancy on there. So that's one.
Square footage will come into.
Speaker 1: operating portfolio. So there might be a little bit of lag on that and it will also remind you that's when we'll start getting FFO not necessarily.
The.
Operating portfolio, so there might be a little bit of lag on that and I would also remind you. That's when we'll start getting oh not necessarily getting cash NOI. There is typically anywhere between three to six months.
Speaker 1: getting cash and a wide, there's typically anywhere between three to six months of free rent. So I was like that initial occupancy on that schedule. It'll show you the boardwalk, shore phase two, shore phase three, as well as at the way into the year, one-on-one Cambridge Park Drive coming in. And the yields on those, I would say.
Free rent so I would look at that initial occupancy on that schedule that will show you. The boardwalk sure phase two short phase III as well as at the way end of the year, One O One, Cambridge Park drive coming in and the yields on those I would say.
Speaker 1: One did or probably right around, you know, in the mid-7s. Actually, as we did quite well, it's a little bit different, I'd say, that the boardwalk.
<unk> are probably right around.
You know in that mid seven actually as we did quite well so a little bit different I would say that the boardwalk.
It's probably in the mid Sevens assures a little bit less given the basis of that asset and then one on one Cambridge Park drive is going to be much higher at this point in time I won't give the actual number because it's just 88%, but it's a very very high number. So I would start with that initial occupancy as when we get <unk> and then I would go with about.
Speaker 1: probably in the mid-7 the shores a little bit less given the basis of that asset and then one on one Cambridge Park Drive is going to be much higher at this point time. I won't give the actual
Speaker 1: So I would start with that initial occupancy as when we get FFO and then I would go with about six months after that for when we'll start to get cash and a Y. And as we said, the combination of all of those is about five cents coming into our earn.
Six months after that four one will start to get cash NOI as we said the combination of all of those is about five cents.
Coming into our earnings for the year and you can look at that on a per share basis to come up with what the.
Speaker 1: that on a per share basis to come up with what the creation is.
Accretion is on a gross dollar basis.
Thanks, Dan.
Speaker 2: And is the five cents relative to the doubt about the contribution?
Relative to the contribution.
2021 are just additive to the 2021 okay.
Speaker 2: Get rid of the sounds.
It sounds like it's okay, great. Thanks.
Next one.
The next question comes from Rich Hill with Morgan Stanley . Please go ahead.
Speaker 4: The next question comes from Rich Hill with Morgan Stanley . Please go ahead.
Hey, good morning, guys.
Speaker 1: Hey, good morning, guys. I wanted to spend a little bit of time talking about medical office and the market there. I noted in your guidance that you said any accretive acquisition activity was not in the guide and would be additive. And specifically medical office is a favorite asset class from private equity. So how are you thinking about, you know, continuing to be inquisitive in that asset class and growing that portfolio?
I wanted to spend a little bit of time talking about medical office in the market. There I noted in your guidance that you said.
Any accretive acquisition activity was not in the guide it would be additive.
And specifically medical office is a favorite asset class from private equity. So how are you thinking about.
Continuing to be acquisitive in that asset class in growing that portfolio.
Okay.
Yeah.
Speaker 5: Hey, Rich. Good morning. Scott Brinker here. I'll start. Tom Clear to me once a comment as well, but what I would focus you on is is doing
Oh, Hey, rich good morning, its Scott Brinker here I'll start Tom clearance, you may want to comment as well, but.
What I would focus you on is is doing things director relationships I can't think of too many portfolios. We've acquired in the past couple of years. It tends to be one building at a time through a seller that we know well oftentimes on a campus that we know well, where we're just adding to an existing footprint.
Speaker 5: I can't think of too many portfolios that we've acquired. In the past couple of years, it tends to be one building at a time. Through a seller that we know well, oftentimes on a campus, that we know well where we're just adding to an existing footprint. If we do a portfolio.
If we do a portfolio.
Our history has been in that it's a highly selected portfolio, where we're not just taking anything Fitch included we're really curating, which assets, we want and don't want and doing that in a privately negotiated transaction. So I'd expect more of the same you know.
Speaker 5: Our history's been in that it's a highly selected portfolio where we're not just taking anything.
Speaker 5: This included, we're really curating which assets we want and don't want, and doing that in a privately negotiated.
Speaker 5: Transaction so I've expect more of the same you know that doesn't mean that you get Assets for free. Obviously you're still paying a Caprate that's in the range of market value, but it does allow you to be very specific and make sure you get highly strategic assets
That doesn't mean that you get assets for free obviously, youre still paying a cap rate that's in the range of market value, but it does allow you to be very specific and make sure you get highly strategic assets. It can be structured appropriately and underwritten appropriately that yeah, it's not always as easy to do and abroad auctions. So I'd say, that's how we think about it.
Speaker 5: It can be structured appropriately and under it appropriately. It's not always as easy to do in a broad auction. So I'd say that's how we think about it. Certainly pricing has gotten.
Certainly pricing has gotten more expensive.
Speaker 5: more expensive, but as I mentioned in the prepare remarks, we are still seeing some opportunities.
But as I mentioned in the prepared remarks, we are still seeing some opportunities that.
Speaker 5: that look at creatives and certainly strategic. So there'll be more in the one at a time category, though, not big for me.
Look accretive and certainly strategic so.
There'll be more in the one at a time.
Category, though not big portfolios.
Got it that makes a lot of sense to me I think what what if I can.
Speaker 1: Got it. That makes a lot of sense to me. I think what if I can just pair it you for a second, what I think I'm hearing from you is private equity needs obviously transformational portfolio deals to make those work, whereas your targeted approach with existing relationships provides you a real significant competitive advantage. Fair.
Okay. If I can just parent you for a second when I think I'm hearing from you is private equity needs needs, obviously transformational portfolio deals to make those work, whereas your targeted approach with existing relationships provides you a real significant competitive advantage fare.
Yeah.
Speaker 5: Yeah, I mean, all private equity is different. So I tried to put it all in the same bucket, but we do think we have a differentiated approach that allows us to go.
Yes, I mean, all private equity is different so it's hard to put it all in the same bucket, but we do think we have a differentiated approach that allows us to grow the business got.
Speaker 1: got it. And so on the life sciences business, maybe going back to some of the other prior questions, can you just vet out a little bit more for us versus 3Q with your two portfolios in Cambridge and then South San Francisco? Do you feel like you're similarly on track from where you were in 3Q, or is there anything that would accelerate or maybe decelerate the development of those projects?
Got it and.
So.
On the life Sciences business, maybe going back to some of the other prior questions.
Can you just that out a little bit more for us versus <unk> with your two with you too.
Portfolios in Cambridge, and South San Francisco are you or do you feel like Youre. Similarly on track from where you were in <unk> or is there anything that would accelerate or maybe decelerate to develop those projects.
Okay.
I can comment rich I want to make sure I got the question right, you're asking about delivery dates for our active development pipeline, yeah, I am sorry for not being clear I'm actually I'm talking about delivery dates and given everything that's happening with inflation is there any is there any reason to believe that might be pushed out.
Speaker 1: I can comment, Rich. I want to make sure I got the question, though, right? Are you asking about delivery dates for our active development pipeline? Yeah, yeah, I am. I'm sorry for not being clear. I'm talking about delivery dates and given everything that's happening with inflation, is there any is there any reason to believe that might be pushed out? Do you feel very comfortable with sort of what all of our discussions that occurred in 3Q21?
How do you feel very comfortable with.
What all of our discussions that occurred in <unk> 'twenty one.
No. We're in good shape across our portfolio the entire pipeline is under GMP contracts.
Speaker 5: No, we're in good shape across the portfolio. The entire pipeline is under TMP contracts so it's pretty low risk on cost escalations. In general, we work with the same.
They are pretty low risk on cost Escalations in general we work with the same group of project managers Gcs and in many cases subs.
Speaker 5: project managers, GCs, and in many cases, subs that are able to lock in design and order materials pretty far in advance. So that's a lot to stay on track despite the...
Are able to lock in design and order materials pretty far in advance. So that has allowed us to stay on track despite the supply chain.
Speaker 5: The supply chain environment, the only sort of delays, and it's usually then very minor, are more with the various municipalities or cities. But those have ultimately been quite modest and not really impacted anything in material ways. So it looks like 2022 will be largely the same. I don't know, Tom Flair, if you have any, that.
Hayne environment.
The only sort of delays and it's usually been very minor or more with the various municipalities or cities.
But those have ultimately been quite modest and not really impacted anything in material way so it.
It looks like 'twenty 2022 will be largely the same I don't know if Tom clearance, if you have anything to add.
Speaker 5: Yeah, you're right. We really haven't seen significant delays in any of our projects. There's been some, you know, minor delays due to some procurement issues, but you know, typically there've only been in the kind of 30-day range. So really not impacting any of the yield sum.
Yes, Youre right, we really haven't seen significant delays in any of our projects there's been some minor delays due to some.
Procurement issues, but typically there've only been in the kind of 30 day rates, so really not impacting any of the yields on those.
Speaker 5: And as Scott said, the projects, eight of 11 projects that are active are 100% committed, bought out, and the other three are in the 90% range.
Scott said that the project's 88 of the 11 projects interactive are 100%.
Committed bought out and the other three are in the in the 90% range.
Okay, great guys. Thank you for the additional color.
Thanks Rich.
The next question comes from Nick Joseph with Citi. Please go ahead.
Speaker 4: The next question comes from Nick Joseph with City. Please go ahead.
Speaker 2: Thanks. Maybe stay on the MOB cap rate. You've mentioned the 50 basis points of cap rate compression throughout 2021.
Maybe staying on the MLB cap rates you'd mentioned, the 50 basis points of cap rate compression throughout 2021 do.
Do you expect any changes in 2022, I guess I'm thinking about either inflation expectations are interest rate movement that may change cap rates, one way or the other.
Speaker 2: Do you expect any changes in 2022? I guess I'm thinking about either inflation expectations or interest rate movement that may change cap rates one way or the other, the desirability of the asset class overall. Well,
Our ability of the asset class overall.
I can take that one Nick.
We had a lot of demand for that space.
Speaker 3: You know, we had a lot of demand for that space due to, especially for the on campus or strongly adjacent assets, due to the stability of that asset class and evaporates certainly, trended down maybe as much as 50 basis points.
Due to especially for for the on campus or strongly adjacent asset due to the stability of that asset class and and cap rates certainly trended down maybe as much as 50 basis points.
Speaker 3: over the last six to 12 months. As far as the impact of interest rates, it's always hard to tell, could an increase in interest rates actually increase your cap rates when you think in terms of the risk-free plus a premium, that's always possible. But at the same time, it's been a desired asset class for a variety of different types of investors.
Over the last call it six to 12 months.
As far as the impact of interest rates, it's always hard to tell couldn't couldn't increase in interest rates actually increase your cap rate. When you think in terms of the the risk free plus a premium that's always possible, but at the same time, it's been at the desired asset class for a variety of different types of investors.
Speaker 3: and certainly for the on campus and strongly at Jason.
And certainly for the on campus and strongly adjacent.
Speaker 3: assets, their heart to come by with high quality portfolios, we have found it easier to grow in that business to our development program, primarily the HCA development program we will spend in.
Assets.
Hard to come by.
Quality portfolios, we have found it easier to grow in that business through our development program, primarily the HCA development program of what we're spending $75 million to $100 million a year end and see in quite a few additions to that program already with more probably coming during the balance of the year.
Speaker 3: $75 to $100 million a year and see in quite a few additions to that program already with more probably coming during the balance of the year. So that's probably we'll see more of our growth and of course our yield on those developments is much much higher. But as far as going out and acquiring assets it's quite competitive right down the direction of gap rates is hard to determine.
So that's probably where we see more of our growth and of course, our yield on those developments is much much higher but as far as going out and acquiring assets its quite competitive right now in the direction of cap rates, it's just hard to determine.
Nick did we lose you.
We did lose him and it looks like I think his line disconnected.
Speaker 4: We did lose him. It looks like I think his line disconnected. Now we have Jordan Sadler with Keybank. I'm a line. Please go ahead.
Now we have Jordan saddler with Keybanc. Please go ahead.
Okay.
Thank you guys good morning.
Speaker 1: I wanted to just clarify, I'm going to touch on investment activities as well, hot topic here. So last year, I think he gave the guide with a range of zero to a billion, zero to a billion and a half of acquisitions. I think you hit that high end. This year you chose to exclude
I wanted to just clarify im going to touch on that investment activity as well hot topic here. So last year. I think you gave the guide with a range of zero to 1 billion <unk> 2 billion and a half of acquisitions I think you hit that high end.
This year you chose to exclude.
Investment activity or acquisitions at least.
Speaker 1: investment activity or acquisitions at least from the guide. Why the change of heart?
From the guide why why the change of heart.
Jordan last year, we were in the middle of completing $4 billion of senior housing dispositions. We had another $3 billion to go as we started the year, which has been completed.
Speaker 3: Jordan, last year we were in the middle of completing $4 billion of senior housing. Fifth positions, we had another $3 billion to go as we started the year, which has been completed.
Speaker 3: So we had an awful lot of money to put to work, which we did so by a certain amount of the leveraging and then investment in.
So we had an awful lot of money to put to work, which we we did so by a certain amount of deleveraging and then investment in <unk>.
Life Science in core life Science and MLB.
Speaker 3: Life science and core life science and M will be. That was an awful lot of investment to identify, highly strategic assets that fit our portfolio. But yet we felt the need to guide so that you as analysts and investors would have a feel for what to model. So we did our best to put those numbers out there. Fortunately we were able to achieve those goals as we go into 2022, the dynamic is just completely different.
There was an awful lot of investment to identify highly strategic.
Assets that fit our portfolio.
But yes, we felt the need to guide so that you as analysts and investors would have a feel for what to model. So we did our best to put those numbers out there. Fortunately we were able to achieve those goals as we go into 2022. The dynamic is just completely different.
Speaker 3: We're in a position where development, program, CAPX, et cetera is fully self-funded.
We're in a position where development program Capex et cetera.
It's fully self funded.
Speaker 3: And so we feel good about that. We don't have any debt porturities coming due. So from a cash flow perspective, we're an absolute great shape. But the question becomes, as we acquire new assets, we have to have appropriately priced capital to do that on an accretive basis.
And so we feel good about that we.
We don't have any debt maturities coming due.
So from a cash flow perspective, we are an absolute great shape, but the question becomes as we acquire new assets.
We have to have appropriately priced capital to do that on an accretive basis and.
Speaker 3: And if we have appropriately priced capital to do it on a creative basis, of course, you're going to, you've seen how we operate, you're going to see us be fairly aggressive using our relationships to identify a creative outcome.
And if we have appropriately priced capital to do it on an accretive basis of course, you're going to you've seen how we operate youre going to see us be fairly aggressive using our relationships to identify accretive outcomes, but in the event that the 2022 produces a year where.
Speaker 3: But in the event that 2022 produces a year where our cost of capital is not as strong and transactions would not be accreted, then you'll see us slow it down and really just continue to focus on development. So accordingly we've felt the best not to put guidance in, and it's a bit of a guess at the moment. And if we do complete accreted acquisitions, that's just upside to what we've guided.
Our cost of capital is not as strong and transactions would not be accretive then you'll see us slow down and really just continue to focus on development. So accordingly, we felt it best not to put guidance out.
That's a bit of a guess at the moment and if we do complete accretive acquisitions, that's just upside to what we've guided to.
Speaker 1: okay i think i get it that's fair um... any i it's not necessarily you said it's a the dynamics completely different it's not necessarily because uh... you have uh... less visibility around or less desire to to buy assets here
Okay, I think I get it Thats fair.
Any it's not necessarily you said its dynamics are completely different it's not necessarily because you have.
Less visibility around or less desire to.
To buy assets here.
Oh not at all.
Speaker 3: Oh, not at all. You know, our preference is to be growing through relationships, creative transactions whenever we can, as long as they're strategic. While we continue to over time build out this huge development and densification opportunities that we have that's going to produce.
Our preference is to be growing through relationships accretive.
Accretive transactions whenever we can as long as theyre strategic while we continue to over time build out. There's this huge development and densification opportunities that we have that's going to produce.
Speaker 3: long-term, outsized growth, but certainly a creative acquisition is just additive to all that, so that's something we'll always be focused on.
Long term outsized growth, but certainly accretive acquisitions is is a it's just additive to all of that so that's something we'll always be focused on.
When we can.
Just a follow up to your comment earlier in terms of the.
Speaker 6: And just to follow up to your comment earlier, in terms of the development being self-funded, I think you got about $750 million a spend. Can you just walk me through, I know your leverage is kind of on a pro forma basis, ticked up to five three. Can you talk me through the funding of the 750?
<unk> development being self funded.
I think you've got about $750 million of spend.
Can you just walk me through.
I know I know youre leverages kind of on a pro forma basis ticked up to five three.
Can you talk me through the funding of the $7 50.
Yeah, Hey, Jordan it's.
Speaker 5: Yeah, Hey Jordan, it's Pee Gearn, it's Tom Sadd, you know, 2022 is a self-funded plan as we don't need any additional equity because we didn't include tobacco acquisition.
And as Tom said 2022 as a self funded plan is we don't need any additional equity because.
Because we didn't include spec acquisitions within guidance, so, whereas that 750 million coming from first we've got retained earnings at our <unk> in excess of the dividend and that's around $150 million debt the second piece.
Speaker 5: guidance. So where's that 750 million coming from? You know, first we've got retained earnings that their AFFO and excess of the dividend that's around $150 million dollars that the second
<unk>, it's probably around $300 million.
Speaker 1: He says it's probably around $300 million of non-forpruning and seller financing repayments. We expect about $100 million.
Noncore pruning in seller financing repayments, we expect about $125 million of loan repayments. This year and then the balance is 175 million non core sale and that does include Fry I think that's important that purchase options included within that 175 million there.
Speaker 5: $25 million of loan repayments this year and then the balance is $175 million of non-core sales. And that does include fry. I think that's important that purchase option.
Speaker 5: that 175 million there. And then we've got balance sheet capacity. You know, we've got about $200 million of balance sheet capacity as we're at, you know, 5, 3 net debt to EBITDAQ. And then our balance sheet capacity increases as we see EBITDAQ growing during the course of 2022 as well. And our target is in the mid-5. So we're at 5, 3. We're not far away from our target. We have a little bit of room to go into the mid-5. So that's how we see the funding of that.
And then we've got balance sheet capacity.
We've got about $200 million of balance sheet capacity as we're at five <unk> net debt to EBITDA and then our balance sheet capacity increases as we see EBITDA growing.
During the course of 2022 as well and our target is in the mid fives. So we're at five three were not far away from our target we are a little bit of room to go into that mid five so that's how we see the funding of that $750 million.
Yeah.
Okay. Thanks, guys.
Speaker 6: Okay, thanks guys. Thanks Jordan.
Sure.
Speaker 4: It looks like we have Nick Jarsis from City back in our queue. Nick, your line is open if you'd like to continue asking your questions from earlier.
It looks like we have Nick Joseph from Citi back on our Q look your line is open if you'd like to continue asking your questions from earlier.
Speaker 2: Oh, hey, it's Michael Belliman. I guess I'm still learning to use the phone.
Hey, it's Michael Bilerman.
I guess I'm still learning kind of into the phone.
Speaker 6: I wanted to come back to AL-Wife, just a Brinker or Tog. If you want to answer it, you know, if you think about sort of work with play and developing, you know, a cluster.
Hey, I wanted to come back to life.
Brinker Hertzog, if you want to answer it as you think about sort of work live play in developing.
Cluster.
Speaker 6: How are you thinking about the mixed use components of this project? And is that stuff that you want to go out and build on your own and own on your own? Are you looking for a financial partner, a operating partner? I guess how are you thinking about the non-life science, non-office assets there?
Are you thinking about the mixed used component of this project is that stuff that you want to go out and build on your own and one on your own or are you looking for a financial partner.
Operating partner I guess, how are you thinking about the non life science non office assets there.
Yeah, Michael I'll answer that.
Speaker 3: Michael, I'll answer that. As far as the work with play, there would be mixed use for sure. We specialize in life science, MOB, and the smaller part of CCRC.
As far as the work live play.
There would be a mixed use for sure.
We specialize in life science, and we'll be in a smaller part C. CRC.
Speaker 3: So if there's some multi-family housing, for instance, as an example, that's something that we would bring in one of the many.
So if there is some some some multifamily housing.
For instance, as an example, that's something that we would we would bring in.
One of the many.
Speaker 3: I want one of the many potential multi-family folks that I know from my prior life. We do something with retail at the pens. Oftentimes we'll do the retail if it's small, if there was something that was larger, we would consider a partner there. So that's yet to be played out those as we lay the games on out.
One of the many potential multifamily folks that I know from my prior life.
We do something with a retail it depends oftentimes, we'll we'll do the retail if it's small if it if there was something that was larger we would consider a partner there.
So.
That's yet to be played out those as we lay the game plan out as far as the as far as the person around the overall project.
Speaker 3: As far as a partner on the overall project, that's something we could consider as well, but that's a future decision.
That's something we could consider as well, but that's.
That's a future decision at this point.
And then just tapping into the multifamily side, especially given your history.
Speaker 6: And then just tapping into the multifamily side, especially given your history. Tom, as you think about those assets, do you want to sell off or contribute the land and sort of take the value creation up front or would you rather sort of maintain an interest?
As you think about those assets do you want to sell.
Sell off or contribute the land and sort of take the value creation upfront or would you rather sort of maintain an interest in those assets for the long term upside and potential NOI and just continuing to own a piece of it I'm just trying to understand just from a capitalization standpoint as you.
Speaker 6: in those assets for the long-term, upside and federal and all I, and just continuing to own pieces. And I'm trying to understand just from a capitalization standpoint, as you progress down this development to how we should think about sources and uses and value of communication.
Progress down this development, how we should think about sources and uses and value creation.
Speaker 3: Yeah, yeah, good question. No, Michael, we would sell the portion of land at value to a multi-famil-
Yeah, Yeah, Yeah. Good question no Michael we would sell the portion of land add value to a multifamily developer operator and.
Speaker 3: developer, operator, and let them...
And let them.
So we would be seeking to keeping upside, we'll keep our business clean in that respect where we are.
Speaker 3: So we will be seeking to keep an upside. We'll keep our business clean and ever-spec, where we're up.
It's invested in health care real estate.
Okay, and just finally, just if we stick with that.
Speaker 6: Okay, and just finally, just as we stick with the ill life, how should we think about just timing of capital deployment and also just beyond going yield as buildings are taken out of service and you're redeveloped? How should we think about the cadence of capital spend and a lot of contribution over the next, you know, let's call it three to five years.
How should we think about just timing of.
Capital deployment and also just the ongoing yield is still things are taken out of service and you redevelop how should we think about the cadence of capital spend and NOI contribution over the next let's call. It three to five years.
Yes, there's some of that that I'm not going to get into at this point for a whole variety of reasons as we're working with.
Speaker 3: Yeah, there's some of that that I'm not going to get into at this point for a whole variety of reasons as we're working with City of Cambridge and a variety of
City of Cambridge in a variety of different groups.
Speaker 3: But I would think about it this way. When we took this project on, when we put this assemblage together, we had anticipated that there would be a two-year period before we actually would commence development on anything that would take a couple of years to work with city of Cambridge, the neighborhood groups, development communities, et cetera, to get to a good master plan that made sense.
But I would think about it this way when we took this project on we made when we put this assemblage together, we had anticipated that there would be a two year period before we actually would would commence development on anything that would take a couple of years to work with with Citi.
City of Cambridge, the neighborhood groups development communities et cetera to get to a good.
Master plan that made sense and in the meantime, let.
Speaker 3: And in the meantime, like I said, we were earning a yield of 4.2% between now and then. So it allows us to be patient as far as the timing of spend. That depends on the plan that we put together. And there could be all kinds of permutations of how we approach that between now and one week.
Like I said, we will.
Earning a yield of four 2% between now and then so it allows us to be patient.
As far as the timing of spend that depends on the plan that we've put together and.
And they were there there could be all kinds of permutations of how we approach that between now and when we together with Cambridge and alloys.
Speaker 3: Together with Cambridge and ALYS, determine what the best course of action is. But what I would say is, it's not that this project takes place all in a single year or two or three.
Determine what the best course of action is but one thing I would say is.
As part of this project takes place all in a single year or two or three this is a decade long project.
Speaker 3: This is a decade-long project where we've got a lot of operating assets that remain operating assets and then we have certain parcels that are covered land plays that we develop one by one or maybe a couple out of a couple out of time dependent on how the project works. But these are the kind of things we're looking forward with the city to determine the best course of action.
Well, we've got a lot of operating assets that remain operating assets and then we have certain parcels that are covered land plays that we develop one by one or more or maybe a couple out of a couple at a time dependent on how the project works. But these are these are the kinds of things, we'll be looking forward with the city to determine the best course of acts.
<unk>.
Great.
Speaker 2: Great, seems Lord of the Weeks. Yeah, thanks Michael.
Florida few weeks yeah. Thanks, Michael.
Speaker 7: The next question comes from Rich Anderson with SMVC. Please go ahead. Thanks, good morning, everyone. So I want to talk more generally about life science. And the public markets of the biotech industry have not been kindly our team here, pointing to a lot of VC funding, as Scott you mentioned. But then some.
The next question comes from Rich Anderson with <unk>. Please go ahead.
Thanks, Good morning, everyone. So I want to talk more.
Generally about life science.
The public markets. So the biotech industry have not been kind lately.
Our team here.
Pointing to a lot of VC funding is as Scott you mentioned, but then.
Some.
Speaker 7: lackluster performance coming out of the gate says an IPO. I'm wondering if you have any pause with regard to the broader biotech industry when you look at how you know the public markets have treated that sector over the past year or so and if there's any concern at all or something that you should be thinking about to not get blindsided by whatever could come from this state of affairs that we are seeing today. . !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! ... !! !! !! !! !!! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! ?? !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !! !!
Lackluster performance coming out of the gates as an IPO.
I'm wondering if you have any pause with regard to the broader biotech industry. When you look at how.
The public markets have treated that sector over the past year or so and if there's any concern at all.
Something that you should be thinking about to not get blindsided by pipe.
Or could come from this.
Date of affairs that we're seeing today.
Okay.
Hey, rich I can start with that.
They have some comments as.
Speaker 5: Yes, certainly the stock market for biotechs or any industry can be quite volatile. Sometimes the reason is outside of...
As well.
Yes, certainly the stock market for biotech or any industry can be quite volatile sometimes.
Timeshare reasons outside of any particular company or sectors control biotech a couple of things.
Speaker 5: particular company or sectors control. Biotech a couple of things just from a bigger picture.
From a bigger picture context standpoint, I think are helpful. There.
Keep in mind I mean, one in 2020, the biotech sector was up about 50%.
Speaker 8: 2020 the biotech sector was up about 50%.
When the S&P was up about 20% a pretty massive outperformance, there's maybe some element of reversion to the mean happening certainly in early 'twenty. Two there has been just an overall market shift it seems like too safe havens.
Speaker 8: When the S&P was up about 20%, so pretty massive out performance. There's maybe some element of reversion to the mean.
Speaker 8: happening. Certainly in early 22, there has been just an overall market shift that seems like to safe havens, given the potential rise in interest rates. You know, we'll see how that unfolds. It can change pretty quickly, but I'm sure that's had.
Given the potential rise in interest rates, we will see how that unfolds. It can change pretty quickly, but I'm sure. That's had an impact at various points, there's been uncertainty about what's happening in Washington over the past year, but it's pretty quiet on that front right now and maybe the last comment.
Speaker 8: In impact, you know, at various points, there's been uncertainty about what's happening in Washington over the past year. But...
Speaker 8: on that front right now. And maybe the last comment is just, there was a lack of M&A. Across the industry in 2021, and M&A outcomes generally can boost stock returns, especially for the biotech that are in a portfolio. It's not at all uncommon.
Just there was a lack of M&A across the industry in 2021, and M&A outcomes generally can boost stock returns, especially for the biotechs that are in our portfolio. It's not at all uncommon for one of our tenants to be acquired by Big pharma and that obviously generally comes at a pretty big premium.
Speaker 8: for one of our tenants to be acquired by Big Pharma and that obviously generally comes into pre-Big premium and that just didn't happen much in 2021, but if you listen and talk to the Big Pharma companies, they'll have a lot of cash on their balance.
That just didn't happen much in 2021, but if you listen to.
Talk to the big pharma companies. They all have a lot of cash on their balance sheet and looking for the next breakthrough opportunity that it wouldn't surprise us, especially with valuations down this M&A might pick up and actually maybe one last comment is it's not like Ipos and the public markets are the only source of capital in this.
Speaker 8: for the next breakthrough opportunity that it wouldn't surprise us especially with valuations down. That this M&A might pick up.
Speaker 8: And actually maybe one last comment is, it's not like IPOs and the public markets are the only source of capital. In this sector, in fact, it's a pretty small component when you think about NIH funding, venture capital funding, partnership funding, and then the M&A that we certainly aren't ignoring what's happening in the public markets, but it's not something that we see fundamentally changing the demand that's driving the sector.
Sector in fact, it's a pretty small component when you think about NIH funding.
Venture capital funding partnership funding and then the M&A that we certainly arent ignoring what's happening in the public markets, but it's not something that we see fundamentally changing the demand that's driving this sector.
Okay. Good good answer thank you for that second question.
Speaker 7: Okay, good answer. Thank you for that. Second question. You know, you're getting the expected rebound at your CCRC portfolio, I think. Peter said something about 500 basis points of potential upside over the next few years, including 200 basis points of occupancy lift, assumed so for 2022.
Youre getting the.
An expected rebound at your <unk> portfolio I think.
Peter.
About 500 basis points of potential upside over the next few years, including 200 basis points of occupancy lift assume so for 2022.
Is there a.
A scenario, where you get this business recovered and and.
Speaker 7: scenario where you get this business recovered and
Hugh.
Speaker 7: you know, if the markets are, you know, behave in terms of the transaction markets that you ultimately look to sell it and really purify yourself into the life science and medical office world. I know cap rates have tended to be higher for CCRC's but perhaps, you know, a new world order is on the horizon. So I just want to comment on your long-term plan with CCRC's assuming the recovery in four years of mental health.
If the markets.
Our behave in terms of the transaction markets that you ultimately look to sell it and really purify yourself into the life Science and medical office World I know cap rates have tended to be higher for <unk>, but perhaps.
A new world.
Orders on the horizon. So just wanted to comment on your long term plan with <unk>, assuming the recovery in fundamentals continues thanks.
Speaker 3: I wish it's a fair question.
Yeah, Richard it's a.
Fair question.
Speaker 3: The, I'll tell you what's unique about this business. I know I've mentioned this in the past, but it probably warrants reiterating, it's only 10% of our company. But it's such an unusual product. The residents have an 8 to 10 year stay, younger, healthier seniors, high quality cash flows.
I'll tell you what's unique about this business I know I've mentioned this in the past, but it probably warrants reiterating it's only 10% of our company.
But it's such an unusual product.
The residents have an eight to 10 year stay younger healthier seniors high quality cash flows.
Speaker 3: strong baby boob, baby boob or growth tailwinds. These things sit on these huge infill land parcels. 15, 15 assets is what we have in total on 720 acres.
Strong baby boom.
Baby Boomer growth.
Tailwind.
Do you think sit on these huge.
Infill land parcels.
15, 15 assets as well, we havent totaling 720 acres.
So almost 50 acres in asset.
Speaker 3: almost 50 acres and asset with a lot of development capability in some of the embedded land that sit on these parcels new supplies almost nonexistent and So and we've got this upside to your point was after we get the upside might we consider doing something
A lot of development capability and in some of the embedded land.
That sit on these on these these parcels new supply is almost nonexistent.
And so and we've got this upside so your point was after we get the upside might we consider doing something.
Speaker 3: This asset class trades at a cap rate that's higher than we feel that it's warranted. We feel it's a safer asset class. It's a more consistent stream of earnings.
This asset class trade it up at a at a cap rate that's higher than we feel that that is warranted.
We feel it's a safer asset class, it's a more consistent stream of earnings.
Like I said, it's got almost no new supply that comes up against it because it takes so long to build these things it's kind of a seven to 10 year venture to get a new CCR C asset in place and stabilize.
Speaker 3: Like I said, it's got almost no new supply that comes up against it because it takes so long to build these things. It's kind of a seven to ten year venture to get a new CCRC asset in place and stabilize.
Speaker 3: front to back and it's hard to find an intel and parcel that will make sense. We feel that it's an excellent coupon clipper and at current cap rates it's a tremendous yield on a risk adjusted basis. We feel as we sit here today that that's going to be up.
Want to back.
And it's hard to find the infill land parcel that where it makes sense. So we feel that it's an excellent coupon clipper and at current cap rates, it's a tremendous yield on a risk adjusted basis.
We feel as we sit here today that that's going to be up just a really nice coupon clipper with some with some real upside for us. So that's how we're looking at it.
Speaker 3: to really nice coupon clipper with some real upside four. So that's how we're looking at it. So.
Sounds good thank you. Thanks.
Thanks Rich.
The next question comes from Steven Valiquette with Barclays. Please go ahead.
Speaker 4: The next question comes from Stephen Valica with Barclays. Please go ahead.
Hey, Thanks, Good afternoon, guys I know.
Speaker 6: Thanks for the afternoon guys. I know CCRCs are a small part of the company. I had some questions around that. You just answered a couple of them. As far as the occupancy, I'll look for 22.
CCR seeds are a small part of the company I had some questions around that and you just answered a couple of them, but the.
As far as the occupancy outlook for 'twenty two.
Speaker 6: Are you assuming that's a fairly linear progression? Like we should see that just essentially improvement throughout the year, or could one cube be down because of some of the things you talked about with labor pressure, not a life and move in, et cetera.
Are you assuming thats, a fairly linear progression and we should see that just sequentially improving throughout the year or could there be because <unk> be down because of some of the things you talked about with labor pressure.
Not a lies in move ins et cetera.
Speaker 6: And also just on the rate of date of 5%. Yeah, that's pretty positive. You've seen a range of anywhere from, you know, 5 to 10% across a lot of the other operators. But I just want to confirm from your point of view, do you think that's adequate to cover the labor pressure? And do you see any light at the end of the tunnel as far as when the labor pressure could subsider? Are you assuming for now that this will be kind of a headwind for most of calendar 22? Thanks.
And also just on the rate updates of 5% that's pretty positive have you seen a range of anywhere from 5% to 10% across a lot of the other operators, but just want to confirm from your point of view do you think thats adequate to cover the.
You know the labor pressure and do you see any light at the end of the tunnel as far as when the labor pressure subside or are you assuming for now that this will be kind of a headwind for most of calendar 'twenty two.
Yeah.
Steve I'll take a shot at that you might have to remind me if.
Speaker 8: I'll take a shot at that. You might have to remind me. If I miss.
If I Miss some of it on the on the labor side.
Speaker 8: Some of it on the waiver side, you know, it's a challenge, but things are improving over the past month. The number of properties that we have that have to limit admissions, because they just don't have enough staff that's been cut in half. So we went from 10 out of our 15 properties.
It's a challenge, but things are improving.
Over the past month, the number of properties that we have.
Have to limit emissions because they just don't have enough staff has been cut in half. So we went from 10 of our 15 properties.
About 45 days ago down to five today, and we have very few restrictions around visitation in dining and activities.
Speaker 8: about 45 days ago down to five today. And we have very few restrictions around visitation and dining.
Given that the omicron has really settled down so that's all been a real positive that occupancy has started the year really strongly which is good really across the whole continuum.
Speaker 8: given that the Yamakaran is really settled down. So that's all been a real positive. The occupancy has started the year really strongly, which is good really across the whole continuum.
Speaker 8: Maybe that's a segue to your question about occupancy. And it's important to know that most of this portfolios in Florida, which geographically makes a difference because we do tend to see a lot more activity, especially in the independent living side of the business, which is the vast majority of the units.
That's a segue to your question about occupancy and it's important to note that most of this portfolio is in Florida.
Which geographically makes a difference because we do tend to see a lot more activity.
Especially in the independent living side of the business, which is the vast majority of the units in the late third quarter into the fourth quarter. So our entry fee activity is always the highest in at the end of the year and we saw that again in 2021 which provides a tailwind as we start the year on occupancy.
Speaker 8: in the late third quarter, into the fourth quarter. So our entry fee activity is always the highest at the end of the year. And we saw that again in time.
Speaker 8: which provides a tailwind as we start the year on occupancy, but then the entry fees tend to slow down a bit in the first half of the year. And then on the skilled side of the business, that tends to follow what's happening with the health of the senior population and what's happening in hospitals. So the fourth quarter and first quarter tend to be pretty strong for occupancy in the skilled business. That changed this year in the fourth quarter because of staffing that we had a lot of demand. And we just couldn't...
But then the entry fees tend to slow down a bit.
In the first half of the year and then on the skilled side of the business.
That tends to follow what's happening with the health of the senior population and what's happening in hospitals, so the fourth quarter and first quarter tend to be pretty strong for occupancy in the skilled business that changed this year in the fourth quarter because of staffing that we have a lot of demand and we just couldnt except the.
Speaker 8: except the resident admissions, but as I mentioned that has started to change pretty dramatically here in the first quarter, so we hope that that continues. And I think you have one other question if you could remind.
The resonate admissions, but as I mentioned that has started to change pretty dramatically here in the first quarter. So we hope that that continues and I think you had one other question if you could remind me.
I think that covered it was really I think just with the 5% Oh right right updates cover the labor costs and do you expect that labor pressure to subside at any point during the year are you, assuming that's going to be a pretty strong headwind for most of the year I guess that was the other question that I.
Speaker 6: i think that covered it was really i think just would the five percent uh... all right update you know cover the at a labor cost and you expect that labor pressure to subside at any point during the year u.s. him and that's going to be a pretty strong headwind for for most of the year i guess i was the other question that i mean work work projecting compensation increases in the high single digit
I mean, we're projecting compensation increases in the high single digits. This year, just a reality of where the market.
Speaker 8: this year, just a reality of where the market is, but your question about rates requires some additional context because there's the rate that you're passing through to existing tenants, but then there's what type of discounting is happening for new residents. And one thing that I would point out in our CCRC portfolios that we have virtually no discount.
Yes, but your question about rates requires some additional context, because you know there is the rate that you're passing through to existing tenants. But then there is what type of discounting is happening for you.
New residents.
One thing that I would point out in our <unk> portfolios that we have virtually no discounting.
Speaker 8: So our rep for in 2021 was actually up 3.5%.
So our Revpar in 2021 was actually up three 5% so on top of that we're pushing through 5% rate increases on January one we got virtually no pushback.
Speaker 8: So on top of that, we're pushing through 5% rate increases on January 1st. We got virtually no pushback.
Speaker 8: across the portfolio. So those have been implemented without a problem. And that is a pretty big contrast to the what we're seeing in our rental senior housing portfolio that we still have with Brookdale.
Across the portfolio. So those have been implemented without a problem and that is a pretty big contrast to what we're seeing in our rental senior housing portfolio that we still have with brookdale.
Speaker 8: You know, it's 19 assets, so it's not a huge sample size, but you know, that's a case where we're getting more than 5%.
You know its 19 assets, so it's not a huge sample size, but.
That's a case, where we're getting more than 5%.
Speaker 8: growth on existing residents, but there's pretty significant discounting happening, which brings the total rev poor back to kind of low single digits, if not flat in 2021. So in any event, I wanted to give you that additional color because there's more to the story. Okay.
On existing residents, but there's pretty significant discounting happening, which brings the total revpar back to kind of low single digits, if not flat in 2021. So in any of that I wanted to give you that additional color because there's more to the story.
Okay got it okay. That's helpful. Thanks.
Speaker 3: One last thing I would mention is when we did look at the rate growth, we were fully cognizant of the bump in social security and that rental senior housing was pushing toward higher increases in rate.
Hey, one last thing I would mention is when we did look at the rate growth.
We were fully cognizant of the bump in social security and that rental senior housing was pushing towards higher higher increases in rates that is something we did talk about pretty extensively and one of the things to keep in mind in a CCR.
Speaker 3: That is something we did talk about pretty extensively.
Speaker 3: And one of the things to keep in mind in a CCRCS that is the relationships with the tenant is extremely important. They create the referrals.
<unk> is the relationships with the tenants is extremely important they create the referrals that continue to bring new long term residents in and we felt that 5% would be a fair increase in their rates, while maintaining those relationships.
Speaker 3: that continue to bring new long-term residents in. And we felt that 5% would be a fair increase in their rates while maintaining those relationships.
Speaker 3: so that that was part of our thinking as well. We could have gone higher, we realized that, and chose not to. You're not too.
So that was part of our thinking as well we could have gone higher we realize that and chose not to.
Got it okay. Thanks.
Thanks.
The next question comes from Michael Carroll with RBC capital markets. Please go ahead.
Speaker 4: The next question comes from Michael Carroll with RBC Capital Markets. Please go ahead.
Yes, Thanks, I wanted to touch on the land acquisitions in the life Science portfolio that you guys did in the fourth quarter I guess, Scott can you talk or give us an update on the Vista Sorento project was that always the plan to buy that adjacent land parcel.
Speaker 6: yet thanks i wanted to touch on the the land acquisitions the life science portfolio that you guys did in the fourth quarter uh... i guess that can you talk or give us an update on the vista surrender project was that always the plan to buy that adjacent land parcel uh... and how many buildings could that fight support
How many buildings could that site support.
Yes, it's a.
Speaker 8: Yeah, it's a two building campus today, the ER expectation.
It's a two building campus today that our expectation was that we would end up buying bulk buildings.
Speaker 8: that we would end up buying both buildings. So we closed on one and the fourth quarter and now the second.
So we closed on one in the fourth quarter and now the second one in the first quarter. It probably ends up being two buildings totaling 250000 square feet. So we've got some short term leases in place so Mike Dougherty and his team.
Speaker 8: first quarter, it probably ends up being two buildings, totaling 250,000 square feet, so we've got some short-term leases in place.
Speaker 8: San Diego identified the opportunity and got it executed. We think it's going to be a great addition to our San Diego portfolio. And it probably comes on a quicker timeline and maybe some of the other.
In San Diego, who identify the opportunity and got it executed we think it's gonna be a great addition to our San Diego portfolio and it probably comes on a quicker timeline and maybe some of the other longer term development projects just given the nature of the entitlements that are in place as well as the short term leases so that probably ends up being a 2023.
Speaker 8: longer term development projects just given the nature of the entitlements that are in place as well as the short term leases. So that probably ends up being a 2023 start from where we said today, but there's obviously some work to do in the interim. But pretty good land basis that we're coming in at, especially relative to where market rates are today should be really good outcome for us. And then would you break ground on.
Start from where we sit today, but theres, obviously some work to do in the interim.
But pretty good land basis that were coming in at especially relative to where market rates are today should be a really good outcome for us.
Would you break ground on both buildings at the same time.
Speaker 8: Yet we'll see, it ends up being 250,000 feet, which
Yes, we will see it ends up being 250000 feet, which.
Speaker 8: you know, given how strong demand is, it'd be pretty simple to assume that we can get that least up, but part of it is, you know, the time, you know, the entitlement and permit process, but it might be...
Given how strong demand is it would be pretty simple.
To assume that we can get that would be stopped but part of it is the timing of the entitlement and permitting process that it might be that we can start sooner. If we go with two buildings that are just right next door to each other and that might end up making more sense.
Speaker 8: Start sooner if we go with two buildings that are just right next door to each other and that might end up
Speaker 6: Okay, and then how should we think about the need and site? I mean, it was the joint venture. It's when nine acres is that another two buildings at that site too.
Okay, and then how should we think about the Needham site.
Yeah. It was a joint venture with <unk>.
Nine acres is that another two buildings at that side too.
Yeah that one's a longer timeframe.
Speaker 8: Yeah, that one's a longer timeframe. We have a special permit and timing process to go through with both inches of our local partner. We've had tremendous success with them.
We'd have it we have a special permit entitlement process to go through with both inches our local partner, we've had tremendous success with them at.
At our 600 plus thousand square foot campus in AOS. So we're excited to do more with Eric and his team that probably has a couple of years, though to go through that entitlement process.
Speaker 8: at our 600 plus thousand square foot campus in Alois. So we're excited to do more with Eric in his team. That probably is a couple of years though to go through that entitlement process. It probably does end up being a pretty big campus with multiple phases and given the location, it really is a, we have a lot of optionality around what it couldn't ultimately be. It might just be pure lab. It might be R&D or manufacturing. It could even be medical officers.
It probably does end up being a pretty big campus with multiple phases and given the location. It really is that we have a lot of optionality around what it could ultimately be it might just be pure lab it might be R&D.
Our manufacturing it could even be medical office.
Speaker 8: tremendous amount of newer medical office, hospital type development, right in that immediate area that that could end up being a great fit for us.
Tremendous amount of.
Newer medical office Hospital type development right in that immediate area that are that could end up being a great fit for us to see.
Okay, and then you said multiple phases. This is just nine acres right. So is there a more land that you have the option to buy or is held able to participate in the multiple phases.
Speaker 6: Okay, and then you send multiple phases. This is just nine acres, right? So is there a more land that you have the option to buy or is help people to participate in the multiple phases?
Yes, we would do the whole thing together, but it could end up being several hundred thousand square feet. So I'm not sure. We do all that at one time, but theres a lot.
Speaker 8: Yeah, we would do the whole thing together, but it could end up being 700,000 square feet. So I'm not sure we'd do all of that at one time, but there's a lot that will occur between now and when we make that decision, Michael, that I would say, you know, let us come back to you on a specific plan.
Will occur between now and when we make that decision Michael that I would say you know if I just come back to you on a specific plan.
Okay, great. Thank you.
Thanks, Michael.
The next question comes from Vikram Malhotra with Mizuho. Please go ahead.
Speaker 4: The next question comes from Vikram Valhotra with Mizuhuho. Please go ahead.
Good morning. Thanks, So much to me the question, maybe just going back to you.
Speaker 9: Good morning. Thanks so much for the question. Maybe just going back to
Where maybe cap rates are today.
Speaker 9: you know where M.O.B. calculates our today your reference on the 50-bit compression. And maybe just revisit your thoughts baby strategically, philosophically monetizing M.O.B. is just given more pricing. It seems like...
Incentives EBIT.
Compression and maybe just revisit.
Your thoughts, maybe strategically and methodically monetizing it won't be just given where pricing. It seems like it's hard to envision a scenario, where maybe cap rates continue to move down at least my view, but how about thinking of using those proceeds for me to be more value add opportunities in life Sciences.
Speaker 9: It's hard to envision a scenario where MOB Catholics continue to move down the dirty at the smiley view. But how about thinking of using those free proceeds from any more value at opportunities and life sciences?
Or maybe even a more riskier.
Speaker 9: Or maybe even a more riskier asset class, not a consumer housing, but what about hospitals? It's a space you've been, you know, you've looked at in the past. So just considering one feature across an MOB monetization as it's using COC.
Clos are not nothing senior housing, but what about hospitals.
States you've been.
You've looked at in the past, but just considering I wanted to get your thoughts on MLB monetization engine.
The proceeds for other uses.
I want to start with the MLP cap rates in your view on value and I'll take the rest.
Speaker 3: Got one to start with the M will be cap rates in your viewing value and I'll take the rest. Yeah, I mean...
Yes.
The.
Strategic part about having a tremendous relationships in our platform.
Speaker 8: The strategic part about having intermenous relationships in a platform that we think has a lot of value, so we think about how we could grow that business over time. Whether through acquisitions, when our cost of capital makes sense, as you saw last year, or certainly through a development pipeline, which is active.
Think has a lot of value because we think about how we could grow that business over time.
It is through acquisitions, when our cost of capital makes sense as you saw last year or certainly through a development pipeline, which is active.
Speaker 8: really at all times, we think that has a lot of value to shareholders and it isn't an important part of the health.
Really at all times, but we think that has a lot of value to.
To shareholders.
Is it an important part of the health Peak Valley.
Speaker 8: Value proposition as far as what could happen with cap rates, you know We probably could have said the same thing a year ago or three years ago or five years ago I mean cap rates have just continued to come down So could they go any lower? I'm not sure but I don't think we would ever make a decision Based on our view of whether cap rates are gonna go down or up
<unk> proposition as far as what could happen with cap rates.
We probably could have said the same thing a year ago or three years ago or five years ago. I mean cap rates have continued to come down so could they go any lower I'm not sure, but I don't think we would ever make a decision based on our view of what the cap rates are going to go down or up.
It's a 25 million square foot portfolio that is highly strategic to us it doesn't come down to just a bet on cap rates.
Speaker 8: 25 million square foot portfolio that's high-risk strategic to us. It doesn't come down to just a bet on cap.
Yes, so vikram the second part of your question is.
Speaker 3: Yeah, so pick from the second part of your question is
It covers a number of different points, but when we looked at our MLP business.
Speaker 3: covers a number of different points. But when we look at our M.O.B. business, we do think that it is well positioned to deliver above average and more consistent returns over time, especially given the nature of the campus, being primarily on campus. Also, I think folks know our portfolio pretty well. We have a large number of trophy campuses.
We do think that it is well positioned to deliver.
Above average and more consistent returns over time, especially given the nature of the campus being primarily on campus.
Also I think folks know our portfolio pretty well, we have a large number of trophy campuses.
That were developed and acquired over many years.
Speaker 3: that were developed and acquired over many years that could absolutely not be replicated today. So quite a valuable portfolio unique in our HCA relationship with the development capabilities of it. And those come in at very nice return.
Absolutely not be replicated today so.
Quite a valuable portfolio.
In our HCA relationship with the development capabilities of it.
And those come in at very nice returns.
Speaker 3: So we like that business a lot and think that it acts as a stability in our portfolio that allows us to be more aggressive as we have a pretty sizable life science development program and aspirations around the densification and whatnot. And with the scale that we get with MOBs, it also gives us...
So we like that business, a lot and think that it acts as a stability in our portfolio that allows us to be more aggressive as we have a pretty sizeable life.
Life Science development program and aspirations around the Densification and whatnot and with the scale that we get with Mlps. It also gives us G&A scale, but also a better cost of capital and we're able to utilize all over.
Speaker 3: GNA scale but also a better cost to capital and we're able to utilize all of our synergies, corporate back office, transaction groups that work on both cat-backed functions, we've seen analysis systems, et cetera, et cetera. So it makes a lot of sense to be a part of our business when we look at the components.
<unk> corporate back office.
Transaction groups that work on both Capex functions, we seen analysis systems et cetera, et cetera. So it makes a lot of sense to be a part of our business.
When we look at the components.
So the bottom line is I guess the other thing you said is would we sell it to invest in something riskier no. That's not the plan that we have at all of that.
Speaker 3: So the bottom line is, I guess the other thing you said, would we sell it to Vest and something riskier?
Speaker 3: No, that's not the plan that we have at all. That might fit well into some other REITs plans based on the strategy that they have and then there are lots of different ways to play this.
Fifth well into some other Reits plans based on the.
The strategy that they have and then and there are lots of different ways to play this but in ours. Our business. We intentionally took us almost six years, but we created a business. That's got all three vital high barrier to entry an irreplaceable portfolio of real estate with a huge development densification opportunity out of this.
Speaker 3: But in ours, our business, we intentionally took us almost six years, but we created a business that's got all three vital, hybrid to entry in irreplaceable portfolios of real estate.
Speaker 3: with a huge development densification opportunity on the side and great balance sheet. So that probably...
And a great balance sheet, so that that probably somewhat unique.
Speaker 3: And it is a strategy that we like and we think is gonna do very, very well over the long term. As far as investing in riskier stuff like...
And it is a strategy that we like and we think it's going to do very very well over the long term as far as investing in riskier stuff like hospitals.
Speaker 3: Nothing against hospitals that they have done well in recent years, especially. But they're still subject to even our margins and whatnot and the triple net nature. Again, nothing wrong with that. That's a strategy to play, but it's not the one that we took. It's not the one that fits into the business plan that we have. So we would have zero intention of making that kind of.
Nothing against hospitals out there that they have done well and in recent years, especially but theyre still subject to EBITDAR margins and whatnot and triple.
Triple net nature again, nothing wrong with that that's a that's a strategy to play but it's not the one that we took it's not the one that fits into the business plan, but we have so we would have zero intention of making that kind of a shift.
Speaker 9: Fair enough, thanks all the thoughts. Just one more on light sciences. I think for a couple of years in a row, your initial guide on a same store basis has been 4% to 5%. And you've seen positive trends and handled beat those, ending up 6% plus if I'm not wrong. So just maybe for this year, walk us through sort of what gets you in the range versus maybe trying to get higher above to that 6% average we've seen the past few years.
Fair enough. Thanks, Thanks for all the thoughts just one one more on life Sciences.
I think for a couple of years in a row. Your initial guide on a same store basis would have been 4% to 5% and you've seen.
<unk> seen positive trends in handily beat those.
Ending up six plus percent if I'm not wrong. So just maybe for this year walk us through sort of what gets you in the range versus maybe trying to getting higher above that 6% average we've seen in the past few years.
Yeah.
Yeah, Hey, Vikram I can I can start with that and then Pete may have some.
Speaker 8: Comments as well, but you think about our same store portfolio and what really drives same store their couple of Primary components one is the contractual escalator
Comments as well, but when you think about our same store portfolio and what really drives same store there are a couple of <unk>.
Primary components, one is the contractual escalator, which is in the low threes for us.
Speaker 8: And then the market market, which we said is in the 25, 26% range, you know, is maybe that's conservative. We didn't assume that we put in a bunch of TI in those spaces. If we did, we'd obviously get much higher rental rates, so you can't look at that.
And then the Mark to market, which we said is in the 25, 26% range, who knows maybe that's conservative we didn't assume that we've put in a bunch of ti to those spaces. If we did we would obviously get much higher rental rates. So you can't look at that number in isolation, but just assume that that's the number we've got a six year weighted average lease term.
Speaker 8: in isolation, but just assume that that's the number. We've got a six year weighted average meister.
Speaker 8: So for every lease that maturers next year, there's a lease that maturers in 12 years. So it takes some time.
So for every lease that matures next year, there's at least that matures in 12 years. So you know it takes some time to go through that mark to market, but if you just average it out.
Speaker 8: to go through that mark to market, but if you just average it out.
Speaker 8: given that the six-year-weight average lease term it adds about 200 basis points.
Given the six year weighted average lease term it adds about 200 basis points a year to our same store, but that will fluctuate from year to year important point and then what are the other variables well.
Speaker 8: to our same store, but that will fluctuate from year to year. Important point. And then what are the other variables? Well, you know, one of the things we like about life sciences, it comes with really big tenants. So we have, you know, an average of 55,000 feet.
One of the things, we like about life Sciences at concert really big tenants.
So we have an average of 55000 feet for lease which is great. It's easy to administer.
Speaker 8: for lease, which is great. It's easy to administer an asset manage. The downside is when you end up releasing a space, there tends to be a TI buildout, and you end up with some downtime, perhaps some free rent.
And asset manage the downside is when you end up releasing space there tends to be a ti build out and you end up with some downtime.
Perhaps some free rent.
Speaker 8: If it's a long term new lease and that does create some noise in same store now those are temporary Obviously, and you make it up the following year, but it would create some noise in any given year
Such a long term new lease and that does create some noise in same store now those are temporary obviously you make it up the following year, but it would create some noise in any given year and you do have things like bad debt and recoveries that are going to move around from year to year, but that tends to be more minor, but we did.
Speaker 8: Then you do have things like bad debt and recoveries that are going to move around from year to year, but that tends to be more minor, but we did get a big benefit in 2021 where we have just a zero bad debt. So that allowed us to...
Get a big benefit.
In 2021, where we had just zero bad debt so that allowed us to.
Speaker 8: to be initial guidance handy. I mean, you're right that for the past three years now, we started with guidance of 45%.
To beat initial guidance candidly I mean, you're right that for the past three years now we started with guidance of 4% to 5% in 2020, we ended up with six 2%.
Speaker 8: 2020 we ended up with 6.2% full year growth for 2021 we were at 7.2% But we also had some upside from occupancy Today we're essential
Full year growth for 2021, we were at seven 2%, but we also had some upside from occupancy.
Today, we're essentially fully leased other than the frictional vacancy so there's not a ton of upside left from occupancy.
Speaker 8: other than the frictional vacancy. So there's not a ton of upside left from occupancy. Now on occasion we will proactive.
Now on occasion, we will proactively.
Rimini to lease obviously, that's a negotiation with it they don't just leave the space, but if there is.
Speaker 8: Terminate a lease obviously with that's a negotiation with the tent they don't just leave the space But if there's a Meeting of the minds where we have a growth tent that wants the space and we have an existing tent that maybe doesn't want as much
A meeting of the minds, where we have a growth tenant that wants the space and we have an existing tenant who maybe doesn't want as much space because of where their business is going we're able to terminate the lease early we do that fairly routinely actually it's one of the reasons why we think scale in a local market is important as it becomes a very.
Speaker 8: because of where their business is going. We're able to terminate it at least early. We do that fairly routinely. Actually, it's one of the reasons why we think scale in a local market is important. This becomes a very important part of being a landlord in this business. As you do have a lot of velocity of tenants, so being able to move.
Important part of land.
Landlord in this business is you do have a lot of velocity of tenants, so being able to move.
Speaker 8: tenants who need growth opportunities within your current portfolio becomes very important. Now when you do that, economically you get a very beneficial outcome because there's a huge market to market, it's a growing tenant, it's a longer term, that economically it's an easy decision. And yet from the same store standpoint, you end up getting the distorted result because there's downtime, oftentimes to build out.
Our tenants who need growth opportunities within your current portfolio becomes very important now when you do that economically you get a very beneficial outcome, because there's a huge mark to market. It's a growing tenant it's a longer term that economically it's an easy decision and yet from a same store standpoint, you end up getting.
Distorted result, because there's a downtime oftentimes to build out the space. So you know what what can be a great economic outcome could actually create some short term decline in same store and we always have some of that going through the portfolio. So in any one year you might have a net negative the next year.
Speaker 8: the space. So, you know, what can be a great economic outcome could actually create some short-term decline in same-store. We always have some of that going through the portfolio. So, in any one year you might have a net negative, the next year you might have a net positive, but there will be some noise.
You might have a net positive, but there will be some noise year to year because same store is just not a perfect metric.
Speaker 8: Year to year because same story is just not a perfect metric. It's helpful and yet it has a lot of shortcomings that often require a lot of explanation, which is why I went into the great detail because we end up managing our portfolio for the best economic outcome. And sometimes that ends up with short term.
It is helpful and yet it has a lot of shortcomings that often require a lot of explanation, which is why I went into the great detail because we end up managing our portfolio for the best economic outcome and sometimes that ends up with short term same store downside and then we ended up just explaining why are we made a certain decision so.
Speaker 8: same store downsides and then we end up just explaining why we made a certain decision.
Tom anything you'd add to that.
Speaker 3: Scott, I think you've covered, you know, actually one thing, keep in mind when you look at the entire portfolio, we've got a lot of development that's coming online. Can you release this typically? They come in at market, and then we will have escalators for the next decade. And that's great because we're, you know, we're developing those at high yields. It's very economically favorable, but that also does not produce outsized.
It's gone I think he covered actually one thing.
Keep in mind, when you look at the entire portfolio.
Got a lot of development, that's coming online 10 year leases typically they come in at market and then we will have escalators for the next decade, and that's great. Because we're you know we're developing those at high yields it's very economically favorable but that also does not produce outsized.
Our same store growth. So that's just another another item, but not it's got I think everything you said covered it.
Speaker 3: Thanks to our growth. So that's just another another item, but nope, it's got to make everything you said, cover it.
Speaker 9: Great, thanks so much, just to clarify what's the bad death assumption embedded in that life science growth number?
Great. Thanks, so much just to clarify what's the bad debt assumption embedded in that life science growth number.
Pete you want to cover that.
Yeah, its probably around a 50 basis point and that's about $2 million that we embed in there and we'll see how we progress during the course of the year aircraft on that so there was a little bit of cushion embedded within that number but some years when needed. Some years, we don't and then we can also utilize that as part of our negotiations on.
Speaker 5: Yeah, it's probably around 50 basis points amounts around $2 million that we invented there.
Speaker 5: see how we progress during the course of the year. On that, so there is a little bit of cushion embedded within that number, but some years when needed, some years we don't, and then we can also utilize that as part of our negotiations on the proactive least terminations. Great.
The proactive lease terminations.
Great. Thanks, so much.
Thanks, Brett.
Yeah.
The next question comes from Steve Southwest with Evercore ISI. Please go ahead.
Speaker 4: The next question comes from Steve Stockworth, where's Evercore, ISI. Please go ahead.
Yeah. Thanks, I know the call's getting a little long and solve this limit one here.
Speaker 3: Yeah, thanks. I know the calls getting a little long. It's all this limits one here. You guys maybe just talk about the pace of supply in the three key markets that we're seeing. Obviously, we've seen a lot of new developers and landlords coming into the life science space given the challenges we're seeing in traditional office. So, what are you seeing on the new supply front and any concerns about new supply in your markets today?
Maybe just talk about the pace of supply.
In your three key market, making you're saying, obviously, we've seen a lot of new developers and landlords coming into life science space given the.
Given the challenges we're seeing in traditional office. So a what are you seeing on the new supply front and any concerns about new supply in your markets today.
Yeah, Hey, Steve I'll cover that I'll, just go as quick as I can market by market starting in.
Speaker 8: Yeah, hey Steve, I'll cover that. I'll just go as quick as I can market by market starting in the peninsula San Francisco Bay area.
The Peninsula, San Francisco Bay.
Area.
The outlook is favorable.
Speaker 8: The outlook is favorable. It's a simple summary. There's about 700,000 feet being delivered in that market in 2022, maybe another million and a half in 2023. So certainly the active demand today being closer to three million square feet. Now that's a gross number. So some of those tenants were in upstain where they're at. But we feel like supply and demand is...
Simple summary, there's about 700000 feet being.
Being delivered.
In that market in 2022, maybe another million and a half in 'twenty.
2023.
So certainly the active demand today being closer to 3 million square feet now that's a gross number so some of those tenants wound up staying where they're at.
We feel like supply and demand is in favor of landlords in.
Speaker 8: in favor of landlords in South San Francisco for the foreseeable future. In San Diego, there's plus or minus 1.5 million square feet being delivered in 2021, more like two and a half million in 2023. A lot of that is already pre-leased. You're looking at about 70% pre-leasing in 2021 and all three of our projects are at 100%.
In South San Francisco for the foreseeable future.
In San Diego, there's plus or minus one.
One 5 million square feet being delivered in 2021, more like two and a half million in 2023.
Lot of that is already pre leased youre looking at about 70% pre leasing in 2021 and all three of our projects that are at a 100%.
And then in <unk>.
Speaker 8: and then in Boston over the next two years.
Boston over the next two years it looks like about 10 million square feet will be delivered but again. If you look at 2022 deliveries are there pre leasing is in the 70% range in the active gross demand is in the 6 million feet range today, So that's a pretty favorable dynamic.
Speaker 8: It looks like about 10 million square feet will be delivered. But again, if you look at 2022 deliveries, the pre-leasing is in the 70% range and the active gross demand is in the 6 million.
Speaker 8: feed range today. So that's a pretty favorable dynamic.
Across the three markets for the next two years.
Speaker 8: across the three markets for the next two years. Maybe a couple of other big picture comments. One is that of the 17 million total square feet that I just talked about being delivered over the next two years in the three core markets. We do include conversion.
Maybe a couple of other big picture comments, one is that of the 17 million total square feet that I just talked about being delivered over the next two years in the three core markets. We do include conversions in that number and actually they account for about 40% of the total and it is clear now as we've.
Speaker 8: in that number and actually they account for about 40% of the total and it is clear now as we've
Tried to.
Speaker 8: kind of tried to point to over the past few years that the purpose built new developments are leasing up quicker, the pre-leasing is much higher on the class A new development. It's coming to market versus the conversion. So not a surprise, but we would expect that to.
0.2 over the past few years that the purpose built new developments are leasing up quicker that pre leasing is much higher on the class a new development that's.
That's coming to market versus the bushes that conversion so not a surprise, but we would expect that too to continue and then the other comment I would make about the 17 million square feet across the three markets is that not all new supply is created equal. So maybe an extension of that first point. So we tried to go through really.
Speaker 8: continue, and then the other common I would make about the 17 million square feet across the three markets is that not all new supply is created equal. So maybe an extension of that first point. So we tried to go through really building by building and identify as it a direct competitor with our portfolios, is it a modern competitor, is it just simply not competitive at all, and really less than half of that 17 million square feet is really directly competitive.
Building by building and identify is it a direct competitor with our portfolio is at a moderate competitor or is it just simply not competitive at all.
And really less than half of that 17 million square feet is really directly competitive to our footprint, whether it's our development portfolio or even our operating portfolio. So hopefully that gives you some context.
Speaker 8: are footprint, whether it's our development portfolio, or even our operating portfolio. So hopefully I can do some.
Great. Thanks, I guess, one quick follow up and then I'll yield if you were to start with 23 developments today, which I realize you're not your yield on cost would be what I guess I'm just trying to figure out how much costs have gone up versus how much rents have gone up.
Speaker 3: Great, thanks. I guess it's one quick follow up and then I yield. If you were to start the 23 developments today, which I realize you're not, your yield on cost would be what? I guess I'm just trying to figure out how much costs have gone up versus how much rent have gone up.
Yeah, I'm not sure that we want to comment on.
Speaker 8: Yeah, I'm not sure that we want to comment on, you know, returns on projects that are a year from now or more. But I would say that costs are up in the 6 to 10% range, year over year, whereas rents are up in the 13 to 18% range. So just all else being equal to return on cost is actually then improving because the market rents have moved so fast.
Turns on projects that are a year from now or more but I would say that costs are up in the 6% to 10% range year over year, whereas rents are up in the 13% to 18% range. So.
Just all else being equal the return on cost is actually done.
Improving because the market rents have moved so fast.
Great. Thanks, that's it for me.
Thanks, Steve.
Okay.
Okay.
The next question comes from Daniel Bernstein with capital one. Please go ahead.
Speaker 4: The next question comes from Daniel Bernstein with Capital One. Please go ahead.
Hi, Hello.
Speaker 10: Hello. Two quick lifetimes questions, I guess one, given the rise of inflation and cost. Are you, is there any room to move your recent structure in lifetimes away from six bumps to more inflationary base bumps? You
Quick two quick life science questions I guess one.
Given the rise of inflation.
Uh huh.
And costs.
Are you is there any room to move your leasing structure and life science away from fixed bumps to more inflationary based bumps and then second.
Speaker 10: Secondly, and I know this is probably a month in the year. So a move in the stock market for one month doesn't mean trend. But have you considered looking at maybe doing some more venture capital in the lifetime space, similar to what your pure Alexandria does with their venture investment arm? Thanks.
Secondly, and I know this is preliminary.
In the year, so a move in the stock market.
One month doesn't.
Being trend.
But if have you considered looking at maybe doing some more venture capital in the life science space similar to what your pure Alexandria does with the.
Venture investments arm.
Yeah.
Speaker 3: that you want to take the rising inflation fix versus CPI.
Scott do you want to take the rising inflation fixed versus CPI.
Speaker 8: Yeah, I can take that. Dan, I mean, we're at 99% effectively sixth rate today, and that's just what the market is. We have a big market share, but I'm not sure it's big enough to move the market.
Yeah, I can take that Dan I mean, we're at 99% effectively fixed rate today and that's just what the market is we have a big market share, but I'm not sure it's big enough to move that market.
Two to CPI based escalators, so that that's not highly likely to occur than not even something that we're focused on we do get three 5% bumps generally in the bay area, 3% and San Diego and Boston, So I don't see that changing Tom do you want to take the second one.
Speaker 8: P.I.-based escalators, so that's not highly likely to occur and not even something that they were focused on. We do get 3.5% bumps generally in the Bay Area, 3% in San Diego, in Boston, so I don't see that changing.
Speaker 3: Yeah, Dan, what I'm hearing you say is, like Alexander, would we take some trophy assets, JVM use the proceeds to go do more development, use that as a funding mechanism? Is that your question?
Yes, Dan when I, what I'm hearing you say is like Alexandria would we take some.
The trophy assets JV them use the proceeds to go do more development use that as a funding mechanism is that your question.
Speaker 3: It would be more of direct investment from some of the biotech and former companies as a cap will provider if needed Yes, I understand your question now. Yeah, the answer is no we wouldn't do that We're real estate people finance people on that. That's where we're going to focus our
It would be more of a direct investments in some of the biotech.
Pharma companies as a capital provider if needed.
Yes, no I understand your question now yes. The answer is no we wouldn't do that.
We are real estate people finance people on that that's where we're going to focus our efforts.
Speaker 10: And then one other quick question on the MMOB side, HCA, and other possible operators clearly announced the higher CAPEX development spending. I just wanted to understand if some of those development projects that you're talking about that might be announced, we're already in the work source, there's some incremental increase in development that you can do with HCA based on their higher CAPEX development.
And then one other quick question.
On the M of beside HCA and other hospital operators clearly announced.
Higher Capex development spending just wanted to understand if.
Some of those development projects.
You were talking about that might be announced.
We're already in the works or is there some incremental increase in development that you can do with HCA based on their higher Capex development spend.
Speaker 8: Yeah, this is Tom. How you doing, Dan? The ones we talked about so far, they've been kind of on their existing campuses. They're not part of those new hospitals that they talked about developing in an year or two in Texas and in Florida. We've already had some discussions with them on those hospitals and they're likely we'll be in need for some M.O.Bs there, but it's too early to really have any details on that. But overall, there's
Yeah. This is Tom how are you doing Dan.
Okay.
The ones we talked about.
So far they've been they've kind of been on our existing campuses, they're not part of those new hospitals that HCA talked about developing.
And the next year or two in Texas and in Florida, We've already had some discussions with them on those hospitals and there likely will be a need for some mlps there, but it's too early to really have any details on that.
But overall, there's this big.
Backlog of demand for Mlps on their campus and so I'd say, that's going to be benefiting our development program with them.
Speaker 8: backlog of demand for M.O.Bs on their campuses. So I'd say that's going to be benefiting our development program with them for some time to come.
Some time to come.
That's all I had thank you.
Speaker 3: So I'll have, thank you. Thanks Dan. We have four more questions in the queue. We'll take the questions. Please nobody else add your name to the list because I know the call is going long. Thank you.
Dan we have four more questions in the queue, we'll take the questions.
Please nobody else add your name to the list because they know the kohl's going along.
I think Palo Europe .
Yes. Our final question comes from Tayo Okusanya with Credit Suisse. Please go ahead.
Speaker 4: Yes, our final question comes from Kyle O'Cresana with Creative Swiss. Please go ahead. Hi, yes, good afternoon. Thanks for squeezing me in at the end. The 750 million of development starts again. That elevated from kind of prior years, just curious if we should be expecting any development starts of new projects this year. And specifically if it could be more life sciences or MOB oriented.
Yes. Good afternoon. Thanks for squeezing me in at the end.
$750 million of developments.
That's elevated from prior years just curious.
If we should be expect developed.
Are you expecting any development starts of new projects this year and specifically if it could be more life sciences.
Canton.
Speaker 8: Yeah, Hey, Ty, I think I think Pete and I will try to tag.
Yeah, Hey, Tyler.
I think Pete and I will try to tag team. This one we're not expecting any new starts in 2022, but we do have a number of big projects that are underway with a lot of spending in 2022, including passage phase one that we just started last quarter and then a lot of activity.
Speaker 8: This one, we're not expecting any new starts in 2022, but we do have a number of big projects that are underway with a lot of spending in 2022, including Vantage Phase I that we just started last quarter. And then a lot of activity in San Diego with calendarage in Toronto Gateway, and then finishing up one-on-one Cambridge Park Drive in West Cambridge. So that accounts for the vast majority of the development.
In San Diego with caliber Ridge in Sorrento Gateway, and then finishing up wondering what Cambridge Park drive in West, Cambridge, So that accounts for the vast majority.
You already have that development spend in 2022, and then we would look to have probably three new starts in 2023, Pete anything to add.
Speaker 8: in 2022 and then we would look to have probably three new starts.
No I think that's right I mean, we will have projects that will come off tie out this year and I would actually refer you back to that development schedule and then as we look towards next year. We certainly have some densification projects that we've talked about already to backfill that so.
Speaker 5: I think that's right. I mean, we will have projects that will come off tie out this year, and I would actually refer you back to that development schedule. And then as we look towards next year, we certainly have some densification projects that we've talked about already to backfill that. So, well, that's something we've talked a lot about over the last couple quarters.
Well, that's something we've talked a lot about over the last couple of quarters. The majority of those or a big chunk of that will really start in 2023, you won't see that in a significant amount of 2022 and 2023 and beyond.
Speaker 5: majority of those or a big chunk of that will really start in 2023. You won't see that in a significant amount in
That's helpful. And then one other quick one the <unk> again, good expense management in fourth quarter, I think everyone was kind of broken up about rising labor costs, you've actually been discussed that a little bit on this call, but again youll get total labor costs are really well managed and <unk> was there any.
Speaker 4: That's helpful. And then one other quick one, the CCRC, again, good expense management in fourth quarter. I think everyone was kind of talking about rising labor costs. You've actually even discussed it a little bit on this call, but again, your total labor costs were really well managed in fourth queue. Was there anything unusual during the quarter because it's not like you had a curious app funding that went against that number? So I'm just kind of curious what happened in fourth queue. unfortunate, isn't it?
Unusual during the quarter, because it's not like you had.
Sure. That's funding that went against that number so I'm just kind of curious what happened in fourth Q.
Yeah, that's definitely requires some color because contract labor was actually quite high as was overtime, even above our expectations, but.
Speaker 8: color because contract labor was actually quite high as was over time, even above our expectations. But we did have a number of
But we did have a number of vacancies.
Speaker 8: that offset all that additional contract labor. So that was one reason the compensation was actually down. Now obviously the downside of that is that we needed to limit admission. So we felt the impact of that on revenue. So there's no free lunch.
That that offset all of that additional contract labor. So that was one reason the compensation was actually down now obviously the downside of that is that we needed to limit admission. So we felt the impact of that on revenue. So there's no free lunch, obviously, but we also have just typical.
Speaker 8: Obviously, but we also have just typical seasonality. Remember our portfolios mostly in Florida, so the third quarter has much higher utility cost, like much higher than the fourth quarter every year. And then you just also have a lot of vacations and things. So pay time off that you don't see in the fourth quarter. And then we had a little bit of just timing from real estate taxes and bad debt that benefited the fourth quarter as well.
And Alex you remember our portfolio is mostly in Florida.
Third quarter has much higher utility costs like much higher than the fourth quarter every year and then you. Just also have a lot of vacations and things so paid time off.
That you don't see in the fourth quarter, and then we had a little bit of just timing from real estate taxes, and bad debt that benefited the fourth quarter as well time.
Okay, great. Thank you.
We still have time for questions in a couple of people in our case. The next step is Mike Mueller from J P. Morgan. Please go ahead.
Speaker 11: We still have time for questions and a couple people on our team. The next step is Mike Mueller from JP Morgan. Please go ahead
Yeah, Hi, just a quick one here Pete what does guidance assume for about one credit balance and any potential refinancings.
Speaker 3: Yeah, hi, just a quick one here. Pete, what does guidance assume for the line of credit balance in any potential reach?
Yeah. Good question there Mike from a line of credit perspective, I talked about floating rate debt. That's really the majority of our floating rate debt. So we'll manage that to around.
Speaker 5: Yeah, good question there. My, you know, from a line of credit perspective, I talked about floating rate debt. That's really the majority of our floating rate debt. So we'll manage that to around, you know, plus or minus.
Plus or minus 15% of our total.
Speaker 5: amount of debt and I would say the balance is probably somewhere between $750 million to a billion dollars for the year and you think about the size of our line of credit You know it's three billion dollars, so that's essentially utilizing it in that you know 25 to 30%
Amount of debt and I would say the balance is probably somewhere between $750 million to $1 billion for the year and you think about the size of our line of credit at $3 billion. So that's essentially utilizing it in 25% to 30% range.
Got it okay that was it thank you.
Thanks, Mike.
The next question comes from Joshua <unk> with Bank of America. Please go ahead.
Speaker 11: The next question comes from Joshua Dennerley with Bank of America. Please go ahead.
Hey, guys.
Speaker 12: Hey guys, I guess I was just curious on the MOB same store and I like items. What gets you to the high and low end of the range? And um, on.
I guess I was just curious on the mob same store NOI guidance, what gets you to the high and low end of the range and.
Hey, Josh this is Tom.
Yeah.
Really the biggest drivers there.
Speaker 8: Really, the biggest drivers there that affect the range or obviously occupancy is always a driver. We've projected pretty much flat occupancy year-old.
Affect the range or you know obviously occupancy is always a driver we've projected.
Projected pretty much flat occupancy in Europe .
Speaker 8: But then you have, we're still not up to our pre-coated levels of parking income. So that's probably a potential upside there. I granted if
But then you have with <unk>.
Not up to our pre COVID-19 levels.
Our income so that's probably a potential upside there I granted if.
Another barrier comes out and we see an increase in cases that could be to the downside. So.
Speaker 8: Another vary comes out and we see an increase in cases that could be to the downside. So, you know, the big draw, that's probably two of the bigger drivers. Medical city is always, there's always a, you know, seems to be a positive and then we would think that would continue to be the same.
The big drug that's probably two of the bigger drivers and then medical city is also there's always.
It seems to be a positive and then we would think that would continue to be the same.
Awesome. Thank you.
Thanks, Josh.
We have no further questions. So this concludes our question and answer session I'll turn the conference back over to Tom Herzog for any closing remarks.
Speaker 11: We have no further questions, so this concludes that question and answer session. I'll turn the conference back over to Tom Herzog for any closing remarks.
Speaker 3: Well, thank you everybody for joining us and your interest in health peak. And we'll see you all soon, hopefully at the city conference.
Well, thank you everybody for joining us and your interest in he'll speak and.
And we will see you all soon hopefully at the at the Citi Conference.
Hi, everybody.
Yes.
Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker 11: The conference is now concluded. Thank you for attending today's presentation. You may now disconup.
Okay.
[noise].
Speaker 13: The it.