Q4 2023 Healthpeak Properties Inc Earnings Call

Operator: Good morning and welcome to the Healthpeak Properties, Inc. fourth quarter conference call. All participants will be in listen-only mode.

Good morning, and welcome to the help peak properties, Inc. Fourth quarter Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero. After today's presentation, there will be an opportunity to ask questions.

Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone.

Ask a question you May press Star then one on your Touchtone phone to withdraw your question Press Star. One again. Please note that this event is being recorded I would now like to turn the conference over to Andrew Johnson Senior Vice President Investor Relations. Please go ahead.

Operator: To withdraw your question, press star one again. Please note that this event is being recorded. I would now like to turn the conference over to Andrew Johns, Senior Vice President, Investor Relations. Please go ahead.

Andrew Johns: Welcome to Healthpeak's fourth quarter 2023 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, forward-looking statements are subject to risk and uncertainties that may cause actual results to differ materially from expectations. Discussion of risk 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.

Andrew Johnson: Welcome to help these fourth quarter 2023 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 forward looking statements are subject to risks and uncertainties that may cause actual results to differ materially from expectations.

The 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.

Andrew Johns: Certain non-GAAP financial measures we discussed on this call, and at Exhibit E8K, which we furnished to the SEC yesterday, we reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. The exhibit is also available on our website at healthpeak.com. I now turn the call over to our President, Chief Executive Officer, Scott Brinker. Thanks, Andrew.

Andrew Johnson: Certain non-GAAP financial measures, we discussed on this call and had exhibited at the 8-K, we furnished to the SEC yesterday, we have reconciled all non-GAAP financial measures. The most directly comparable GAAP measures in accordance with Reg G requirements.

Andrew Johnson: It is also available on our website at <unk> Dot com.

Andrew Johnson: And now I'll turn the call over to our President and Chief Executive Officer, Scott Brinker.

Scott M. Brinker: Thanks, Andrew.

Scott M. Brinker: Good morning and welcome to Healthpeak's fourth quarter earnings. Joining me today for prepared remarks is Pete Scott, our CFO. Joining for Q&A is John Thomas, the CEO of Physicians Realty Trust and our senior advisor. I want to start by thanking our entire team for their contributions in 2020.

Scott M. Brinker: And welcome to help peaks fourth quarter earnings call.

Scott M. Brinker: Joining me today for prepared remarks, as Pete Scott our CFO join.

Scott M. Brinker: Joining for Q&A, John Thomas the CEO of Physicians Realty Trust and.

Speaker Change: Our senior team.

Speaker Change: I wanted to start by thanking our entire team for their contributions in 2023.

Scott M. Brinker: Public market volatility notwithstanding, your collaboration and winning mindset allowed us to produce record leasing volumes in two of our three business segments and to exceed our initial same store and earnings guidance by 130 basis points and five cents per share, respectively. Last evening, we reported a strong fourth quarter, both operationally and financially. For the fiscal year, we grew same-store NOI by 4.8 percent and ASFO per share by 5.5 percent, driving our dividend payout ratio below 80 percent. The balance sheet remains in great shape, with 5.2 times net debt to EBITDA at year end.

Speaker Change: Public market volatility notwithstanding.

Speaker Change: Collaboration and winning mindset allowed us to produce record leasing volumes in two of our three business segments and to exceed our initial same store and earnings guidance by 130 basis points and <unk> <unk> per share respectively.

Speaker Change: Last evening, we reported a strong fourth quarter, both operationally and financially for the fiscal year. We grew same store NOI by four 8% and <unk> per share by five 5% driving our dividend payout ratio below 80%.

Speaker Change: Balance sheet remains in great shape with five two times net debt to EBITDA at year end.

Speaker Change: We expect to close the strategic combination with physicians Realty Trust on March one.

Scott M. Brinker: We expect to close the strategic combination with Physicians' Realty Trust on March 1. Since the announcement in late October, the two teams have been working side-by-side on culture, best practices, tenant relationships, technology, and every other area that will determine the success of the merger. We have the highest level of confidence that this combination will, in fact, augment our platform capabilities, relationships, balance sheet, and our needs. Just last week, we internalized property management in three markets, with up to six additional markets expected to go in-house by mid-year. We've had near 100% success bringing the existing third-party staff onto our team. Those employees, on average, have worked in these buildings for seven years, minimizing execution.

Speaker Change: Since the announcement in late October the two teams have been working side by side on culture best practices tenant relationships technology and every other area that will determine the success of the merger.

Speaker Change: We had the highest level of confidence that this combination will in fact augment our platform capabilities relationships balance sheet and earnings.

Speaker Change: Just last week, we internalized property management in three markets with up to six additional markets expected to go in house by mid year.

Speaker Change: We've had near 100% success, bringing the existing third party staff onto our team.

Speaker Change: Those employees on average have worked in these buildings for seven years minimizing execution risk.

Scott M. Brinker: As for synergies, we're confident we'll achieve the targets we outlined in late October, and they will contribute several cents per share to our earnings in 2024. Pete will expand upon the synergies and outlook in a few minutes. I want to share some thoughts on the operating environment for the two largest segments, starting with outpatient medical, where the sector is benefiting from demand exceeding supply.

Speaker Change: As for synergies, we're confident we will achieve the targets we outlined in late October and they are contributing several cents per share to our earnings in 2024.

Speaker Change: He will expand upon the synergies and outlook in a few minutes.

Speaker Change: I wanted to share some thoughts on the operating environment for the two largest segments, starting with outpatient medical where the sector is benefiting from demand exceeding supply.

Scott M. Brinker: We have two decades of operating history in the sector, and in 2023, we were at or near all-time highs for leasing volume, retention, renewal spreads, and same-store growth. Looking forward to 2024, our same-store growth outlook includes the DOC portfolio and is 75 basis points above our five-year history for initial guidance. We expect a benefit from sector fundamentals that have never been stronger, high-quality assets and operations, and internalization. Most important, we believe we're combining the two best outpatient platforms in the country to create an even bigger and better company to drive internal and external growth for the next decade plus. Today, more than 65% of the tenants in the combined portfolio are healthcare providers. When they make leasing decisions, it's often driven by relationships, and no one is better positioned than the combined company. It's a very different leasing dynamic than other real estate sectors, which deal with tens of thousands of very small tenants.

Speaker Change: We have two decades of operating history in the sector and in 2023, we were at or near all time highs for leasing volume retention renewal spreads and same store growth.

Speaker Change: Looking forward to 2020 for our same store outlook includes the Doc portfolio and a 75 basis points above our five year history for initial guidance, we expected benefit from sector fundamentals that have never been stronger high quality assets and operations and internalization.

Speaker Change: Most important we believe we are combining the two best outpatient platforms in the country to create an even bigger and better company to drive internal and external growth for the next decade plus.

Speaker Change: Today more than 65% of the tenants in the combined portfolio, our health systems when they make leasing decisions, it's often driven by relationships and no one is better positioned than the combined companies.

It's a very different leasing dynamics and other real estate sectors, who deal with tens of thousands of very small tenants relationships are absolutely critical in our sector and the senior team of the combined company has more than 200 years of experience in this sector in creating an unrivaled relationship network or.

Scott M. Brinker: Relationships are absolutely critical in our sector, and the senior team of the combined company has more than 200 years of experience in the sector, creating an unrivaled network of relationships. Our next generation coming behind them is learning from the best and bringing energy to continue innovating as the sector evolves. Let me turn to our lab business.

Speaker Change: Our next generation coming behind them is learning from the best and bringing energy to continue innovating as the sector evolves.

Speaker Change: Let me turn to our lab business. The fundamental drivers of long term growth are solidly intact with both drug approvals and new drug applications at or near all time highs that means R&D funding is paying dividends, creating a virtuous cycle.

Scott M. Brinker: The fundamental drivers of long-term growth are solidly intact, with both drug approvals and new drug applications at or near all-time highs. That means R&D funding is paying dividends, creating a virtuous cycle. Big Pharma is ramping up partnership deals and M&A to replace looming patent expirations, and companies with good data have ready access to capital. At the same time, venture capital deployment and the IPO market remain soft, and boards are deferring leasing decisions when possible.

Speaker Change: Big Pharma is wrapping up partnership deals and M&A to replace Illumina patent expirations and companies with good data have ready access to capital.

Speaker Change: At the same time venture capital deployment and the IPO market remained soft and boards are differing leasing decisions when possible those dynamics will eventually turn in our favor and we'll be well positioned to capitalize.

Scott M. Brinker: Those dynamics will eventually turn in our favor, and we'll be well positioned to capitalize. We can also comfortably underwrite a massive reduction in new deliveries starting in 2025. Fortunately, even during the market exuberance for life science, we stuck to our strategy.

Speaker Change: We can also comfortably underwrite a massive reduction in new deliveries starting in 2025.

Speaker Change: Fortunately, even during the market exuberance for life science, we stuck to our strategy as a result, we're highly concentrated in five of the best Submarkets in the country, where we have significant scale and deep relationships to capture leasing demand.

Scott M. Brinker: As a result, we're highly concentrated in five of the best submarkets in the country, where we have significant scale and deep relationships to capture leasing demand. Moreover, 85% of our rent is from campuses with 400,000 feet or more, which allows us to offer a wide range of price points and space plans and to accommodate expansions, all of which are important to tenants. Year-to-date, we've signed 58,000 feet of leases, with another 115,000 feet under LOI, plus active discussions across our portfolio. So, an encouraging start to the year.

Speaker Change: Moreover, 85% of our rent is from campuses with 400000 feet or more which allows us to offer a wide range of price points and space plans and to accommodate expansions all of which are important to tenants.

Speaker Change: Year to date, we signed 58000 feet of leases with another 115000 feet under LOI plus active discussions across our portfolio showed an encouraging start to the year.

Scott M. Brinker: Cyclical slowdowns create opportunity on the other side, and we're preparing accordingly. In the past few months, we've received approvals or entitlements that expand our land bank to more than 4 million square feet in two of the most important life science submarkets in the country. We're well positioned when new development begins. On a related point, we were pleased to close on the sale of a 65% interest at our Kellen Ridge development for a 5.3% cap rate with rents essentially at market on a long-term lease. The sale was driven by favorable pricing, not a desire to reduce our lab exposure.

Speaker Change: Cyclical slowdowns, great opportunity on the other side and we're preparing accordingly in the past few months, we received approvals or entitlements that expand our land bank to more than 4 million square feet and two of the most important life science submarkets in the country.

Speaker Change: We're well positioned when new development begins to pencil.

Speaker Change: On a related point, we were pleased to close on the sale of a 65% interest at our Cowen Rich development for a five 3% cap rate with rents essentially at market on a long term lease to.

Speaker Change: The sale was driven by favorable pricing not a desire to reduce our lab exposure, we're actively evaluating capital recycling opportunities across the combined 20 plus billion dollars portfolio, including outright sales and JV recaps.

Scott M. Brinker: We're actively evaluating capital recycling opportunities across the combined 20 plus billion dollar portfolio, including outright sales and JV recaps. Any such proceeds would likely be used to fund a growing pipeline of relationship-driven opportunities across our core segments, but we could always consider stock buybacks or debt repayment depending on relative returns. I'll close by saying that the macro backdrop has been casting a shadow over the underlying strength of the company. We can't control that shadow, but we're more confident than ever about what lies behind it, in particular our platform, portfolio, and balance sheet. I'll turn it to Pete.

Speaker Change: Any such proceeds would likely be used to fund a growing pipeline of relationship driven opportunities across our core segments. So we can always consider stock buybacks or debt repayment, depending on relative returns.

Speaker Change: I'll close by saying that the macro backdrop has been casting a shadow over the underlying strength of the company, we can't control that shadow, but we're more confident than ever about what lies behind it and particular platform portfolio and balance sheet I'll turn it to Pete.

Peter A. Scott: Thanks, Scott. Starting with our financial results, we finished the year on a strong note. For the fourth quarter, we reported FFOs adjusted at 46 cents per share and total portfolio same-store growth of 3.6%. For the full year, we reported FFOs adjusted of $1.78 per share and total portfolio same-store growth of 4.8%. And our balance sheet is in great shape as we finish the year with a 5.2 times net debt to EBITDA. Let me provide a little more color on segment performance.

Peter A. Scott: 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 <unk> 46 per share and total portfolio same store growth of three 6%.

Peter A. Scott: For the full year, we reported <unk> as adjusted of $1 78 per share and total portfolio same store growth of four 8%.

Peter A. Scott: And our balance sheet is in great shape as we finished the year with a five two times net debt to EBITDA.

Speaker Change: Let me provide a little more color on segment performance.

Peter A. Scott: In the lab, same score growth for the quarter was 2.7%, bringing our full-year growth to 3.7%, in line with the midpoint of our guidance. During the year, we signed 985,000 square feet of leases with positive cash-releasing spreads on renewals of 23%. The majority of these lease transactions were signed with existing relationships, and we were also successful in capturing incremental demand from new tenants. Occupancy in our operating portfolio ended the year at 97%. Turning to outpatient medical, we had a strong finish to the year with 4.3% same-score growth, bringing full-year growth to 3.4%, in line with the midpoint of our guidance. Occupancy ended the year at 91%, and our tenant retention was approximately 80%. Both metrics are reflective of our leading portfolio and platform, finishing with CCRC.

Speaker Change: And lab same store growth for the quarter was two 7%, bringing our full year growth to three 7% in line with the midpoint of our guidance range.

Speaker Change: During the year, we signed 985000 square feet of leases with positive cash re leasing spreads on renewals of 23%.

Speaker Change: The majority of these lease transactions were signed with existing relationships and we were also successful in capturing incremental demand from new tenants.

Speaker Change: Occupancy in our operating portfolio ended the year at 97%.

Speaker Change: Turning to outpatient medical we had a strong finish to the year with four 3% same store growth, bringing full year growth to three 4% in line with the midpoint of our guidance range.

Speaker Change: Occupancy ended the year at 91% and our tenant retention was approximately 80% both.

Speaker Change: Both metrics are reflective of our leading portfolio and platform.

Speaker Change: Initiating with <unk> same store growth for the quarter increased 5%, bringing full year growth to 15, 6%.

Peter A. Scott: Same score growth for the quarter increased 5%, bringing full-year growth to 15.6%. 2023 was a record year for entrance fee sales and cash collections. These cash collections exceeded the amortized amount included in both FFO and AFFO by $40 million.

Speaker Change: 2023 was a record year of entrance fee sales and cash collection. These cash collections exceeded the amortized amount included in both <unk> and <unk> by $40 million.

Speaker Change: Two quick items on our financial results before shifting gears to our 2020 for outlook for the fourth quarter, Our board declared a dividend of <unk> 30 per share.

Peter A. Scott: Two quick items on our financial results before shifting gears to our 2024 outlook. For the fourth quarter, our board declared a dividend of 30 cents per share. The dividend payment is forecast to remain the same post-closing of the merger, which should provide us with incremental retained earnings in 2020. You probably also noticed that Doc filed an 8K earlier this week with preliminary fourth quarter and full year 2023 results. They expect to complete their 10-K and other financial reporting on their normal timeline in the next week.

Speaker Change: The dividend payment is forecast to remain the same post closing of the merger, which should provide us with incremental retained earnings in 2024.

Speaker Change: You probably also noticed that Doc file an 8-K earlier this week with preliminary fourth quarter and full year 2023 results. They.

Speaker Change: They expect to complete their 10-K and other financial reporting on their normal timeline in the next few weeks.

Peter A. Scott: Turning now to our combined outlook for 2024, given our high degree of confidence the merger will close, coupled with the heavy lifting done by our respective teams to successfully integrate our forecast, we are in a position to provide investors with an initial view of our combined 2024 outlook. However, critical items, including finalizing the gap merger adjustment, will not occur until after the closing date, so we will make any necessary updates to our outlook and finalize guidance, most likely in conjunction with our first quarter. With all that said, our initial outlook for 2024 is as follows. FFO is adjusted ranging from $1.73 to $1.79 per share, which includes merger-related benefits of approximately two to three pennies.

Turning now to our combined outlook for 2024, given our high degree of confidence the merger will close coupled with the heavy lifting done by our respective teams to successfully integrate our forecasting.

Speaker Change: We are in a position to provide investors with an initial view of our combined 2024 outlook.

Speaker Change: However, critical items, including finalizing the gap merger adjustment will not occur until after the closing date. So we will make any necessary updates to our outlook and finalized guidance most likely in conjunction with our first quarter earnings.

Speaker Change: With all that said.

Speaker Change: Our initial outlook for 2024 is as follows.

Speaker Change: <unk> as adjusted ranging from $1 73 to $1 79 per share which includes merger related benefits of approximately two to three days.

Peter A. Scott: ASFO ranges from $1.50 to $1.56 per share, which includes merger-related benefits of approximately five pence, and total same-store growth of between positive 2.25% and positive 3.75%. Let me touch on some of the major items that underlie our outcome. First, based on the March 1st closing date, our outlook is for two months stand-alone Healthpeak and 10 months combined Healthpeak and DOC. The result of this is a weighted average share count of approximately $690 million for full year 2024, assuming no additional equity issues. Second, we have identified sources for all of our capital needs and have no remaining funding requirements in 2020. We upsized our five-year term loan to $750 million and recently swapped the entire amount to a fixed rate of $4.5 million.

Speaker Change: <unk> ranging from $1 50 to $1 56 per share which includes merger related benefits of approximately five PE.

Speaker Change: And total same store growth ranging from positive two 5% to positive 375% let.

Speaker Change: Let me touch on some of the major items that underlie our outlook first based on the March one closing date, our outlook is for two months Standalone healthy and 10 months combined healthy and dock.

Speaker Change: The result of this as a weighted average share count of approximately $690 million for full year 2024, assuming no additional equity issuances.

Speaker Change: Second we have identified sources for all of our capital needs and have no remaining funding requirement in 2024, we.

We upsized, our five year term loan to $750 million and recently swapped the entire amount to a fixed rate of four 5%.

Peter A. Scott: Last month, we closed on our well-received Callan Ridge Joint Venture, generating $130 million of proceeds and eliminating $22 million of future TIS. We have $250 million of projected retained earnings, given our well-covered dividend, and we expect some seller financing debt repayment. These proceeds will be used to fund our development and redevelopment pipeline, repay $210 million of docs, private placement notes, and fund all of our transaction costs. Third, G&A is expected to range from $95 million to $105 million, which compares to Standalone Peak at approximately $95 million for full year 2022. All in, our GNA is only increasing by approximately $5 billion at the midpoint, despite inflation and our asset base increasing by $5 billion. Fourth, our current FFO outlook includes a negative three-penny mark-to-market on the $1.9 billion of DOC debt that we will assume. Notably, we do not add back this headwind to FFO's adjustment.

Speaker Change: Last month, we closed on our well received Callen ridge joint venture generating $130 million of proceeds and eliminating $22 million of future Ti spend.

Speaker Change: We have $250 million of projected retained earnings given our well covered dividend and we expect some seller financing debt repayments.

Speaker Change: These proceeds will be used to fund our development and redevelopment pipeline repay $210 million of docs private placement note.

Speaker Change: And fund all of our transaction costs.

Speaker Change: Third G&A is expected to range from $95 million to $105 million, which compares to Standalone peaked at approximately $95 million for full year 2023.

Speaker Change: All in our G&A is only increasing by approximately $5 billion at the midpoint, despite inflation and our asset base, increasing by $5 billion.

Speaker Change: Fourth our current <unk> outlook includes a negative <unk> <unk> mark to market on the one $9 billion of Doc that we will assume.

Speaker Change: Notably, we do not add back this headwind to <unk> as adjusted.

Peter A. Scott: Fifth, perhaps conservatively, we do not include any benefit from the graphite vial termination fee in our FFOs adjustment. Sixth, item, the components of same-store growth are as follows. We see outpatient medical ranging from positive 2.5% to positive 3.5%. Fundamentals in outpatient medical continue to improve versus historical norms, including higher tenant retention, increased rent mark-to-market, and increased escalators. Our outpatient medical same-store NOI for 2024 is approximately $825 million, or 60% of the overall pool. We have included the DOC portfolio in our same store pool for 2024, given the size and strategic nature of the merger. Turning to lab, we see same-store growth ranging from positive 1.5% to positive 3%. Lab growth is driven by contractual rent escalators, positive rent mark-to-market, and the benefit of increased NOI from internalizing operations in San Francisco and San Diego.

Speaker Change: Fifth perhaps conservatively, we do not include any benefit from the graphite bio termination fee and our <unk> as adjusted.

Speaker Change: Fixed item the components of same store growth are as follows.

Speaker Change: We see outpatient medical ranging from positive two 5% to positive three 5%.

Speaker Change: Fundamentals in outpatient medical continued to improve versus historical norms, including higher tenant retention increased rent mark to market and increased escalators.

Speaker Change: Our outpatient medical same store NOI for 2024 is approximately $825 million.

Speaker Change: Or 60% of the overall pool.

We have included the Doc portfolio and our same store pool for 2024, given the size and strategic nature of the merger.

Speaker Change: Turning to lab, we see same store growth ranging from positive one 5% to positive 3%.

<unk> growth is driven by contractual rent escalators positive rent mark to market and the benefit of increased NOI from internalizing operation in San Francisco and San Diego.

Peter A. Scott: Not surprising, we do have some offsets, including a modest decline in occupancy relative to 2023 and timing of free rent, which naturally fluctuates year to year and is a headwind, particularly in the first quarter. Finishing with CCRCs, we continue to see growth in 2024 with a same-store outlook of positive 4% to positive 8%. I thought it would be helpful to finish with a high-level bridge of the major drivers in our

Speaker Change: Not surprising we do have some offsets, including a modest decline in occupancy relative to 2023.

Speaker Change: And timing of free rent, which naturally fluctuate year to year and is a headwind, particularly in the first quarter.

Speaker Change: Finishing with <unk>, we continue to see growth in 2024 with a same store outlook positive 4% to positive 8%.

Speaker Change: I thought it would be helpful to finish with a high level bridge of the major drivers in our outlook.

Peter A. Scott: Our outlook includes $40 million of synergies from the merger, noting that a portion of these synergies are operational and flowing through NOI. Additionally, we see approximately $30 million of year-over-year earnings benefit from same-store growth. We see a positive $15 million benefit from development earn-in, largely from Vantage and Nexus, plus the benefit from the Cowan Ridge joint. So there are certainly a lot of tangible positive trends. But we are facing some headwinds. Interest expense is forecast to increase $35 million due to a combination of rising interest rates as well as the aforementioned debt mark-to-market.

Speaker Change: Our outlook includes $40 million of synergies from the merger, noting that a portion of these synergies are operational and falling through NOI.

Speaker Change: We see approximately $30 million of year over year earnings benefit from same store growth.

Speaker Change: <unk>.

Speaker Change: We see a positive $15 million benefit from development earn in largely vantage and Nexus plus the benefit from the Cowen Ridge joint venture.

There are certainly a lot of tangible positive trends.

Speaker Change: But we are facing some headwinds.

Speaker Change: Interest expense is forecast to increase $35 million due to a combination of rising interest rates as well as the aforementioned debt mark to market.

Peter A. Scott: There is an approximate $10 million earnings rolldown due to some one-time security deposits received in our lab business in 2023 that are not forecast in 2024, plus dilution from potential seller financing debt repayment, which, although diluted, does provide capital to recycle into our core business. We have $40 million of temporary decline in NOI at two marquee campuses that I wanted to spend a moment on. First, there is $30 million of year-over-year decline in NOI from the well-disclosed Amgen expirations at Oyster.

Speaker Change: There was an approximately $10 million earnings roll down due to some onetime security deposits received in our lab business in 2023 that are not forecast in 2024, plus dilution from potential seller financing debt repayment, which although dilutive does provide capital to recycle into our call.

Speaker Change: Core businesses.

Speaker Change: We have $40 million of a temporary decline in NOI at two marquee campuses that I wanted to spend a moment on.

Speaker Change: First there is $30 million of year over year decline in NOI from the well disclosed Amgen exploration at Oyster point.

Peter A. Scott: A total of 323,000 square feet of combined square footage across three assets is being put into redevelopment as we upgrade these assets to Class A products and multi-tenant buildings. We are rebranding the campus portside at Oyster Point and substantially upgrading the amenity package and infrastructure in order to integrate the buildings more with the code, creating a nearly 2 million square foot contiguous mega campus with a leading life sign. We have backfilled 101,000 square feet of the expirations already with our client lease, although we don't expect that lease to commence until the third quarter as we complete work on the base building and their site. Second, after months of uncertainty, we have clarity on the Soreno Therapeutics situation, although the lease rejections do result in a negative $10 million NOI impact in 2024. We have placed the 168,000 square foot director's place assets into redevelopment and are actively touring tenants through the building.

Speaker Change: The 323000 of combined square footage across three assets is being put into redevelopment as we upgrade these assets the class a product in multi tenant buildings.

We are rebranding the campus portside at Oyster point and substantially upgrading the amenity package and infrastructure in order to integrate the buildings more with co creating a nearly 2 million square foot contiguous Mega campus with leading life science tenants.

Speaker Change: We have a backfill of 101000 square feet of the explorations already with our client lease although we don't expect that lease to commence until the third quarter as we complete work to the base building and their suite.

Speaker Change: Second after months of uncertainty we have clarity on the Sorrento therapeutics situation, although the lease rejections do result in a negative $10 million NOI impact in 2024.

Speaker Change: We have placed a 168000 square foot directors place assets into redevelopment and are actively touring tenants through the buildings. There is a nice mark to market upside opportunity on this campus as we re tenant the building, but the downtime as a headwind in 2024.

Peter A. Scott: There is a nice mark-to-market upside opportunity on this campus as we retenant the buildings, but the downtime is a headwind in 2020. In addition to the headwinds discussed already, we have included about $10 million in conservatism and our outlook for various items, including potential further capital recycling activities, proactive lease terminations, and bad times. In conclusion, while there are lots of puts and takes about our outlook, let me try and sum it up succinctly. Core operations are performing in line with, or perhaps better than, expectations.

Speaker Change: In addition to the headwinds discussed already we have included about $10 million and conservatism in our outlook for various items, including potential further capital recycling activities proactive lease terminations and bad debt.

Speaker Change: In conclusion, while there are lots of puts and takes to our outlook, let me try and sum it up succinctly core operations are performing in line to perhaps better than expectation lab is not growing at the same rate as the last 10 years nothing grows to the sky in perpetuity, but we do like our market positioning.

Peter A. Scott: Lab is not growing at the same rate as the last 10 years. Nothing grows to the sky in perpetuity, but we do like our market positioning and firmly believe we will outperform as sentiment and fundamentals improve. On the other side of the spectrum, outpatient medical is growing at a higher rate than historical averages as demand is outstripping supply, a key thesis in our merger with DOC, combined with the improved capabilities and significant synergy. We have managed the balance sheet conservatively, but like all REITs, we are not immune to rising rates, nor can we avoid the required merger-related debt mark-to-market. And, as we have consistently pointed out, we have two large marquee campuses undergoing significant repositioning.

Speaker Change: Firmly believe we will outperform our sentiment and fundamentals improve.

Speaker Change: On the other side of the spectrum outpatient medical is growing at a higher rate than historical averages as demand is outstripping supply.

Speaker Change: A key thesis in our merger with Doc combined with the improved capabilities and significant synergies.

Speaker Change: We have managed the balance sheet conservatively, but like all Reits were not immune to rising rates, nor can we avoid the required merger related debt mark to market.

And as we've consistently pointed out we have two large marquee campuses undergoing significant repositioning.

Operator: We have forecast the capital spend for these redevelopments in our 2024 plan, but none of the earnings upside. We are confident in our ability to recoup the lost NOI, but our base case assumption is that lease commencements won't start at these projects until 2025 and beyond. If we can outperform that timeline, then we will have further upside to our output. With that, let's open it up to Q&A. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: We have forecast the capital spend for these redevelopments and our 2024 plan, but none of the earnings upside we are confident in our ability to recoup the lost NOI, but our base case assumption is lease commencements won't start at these projects until 2025 and beyond.

If we can outperform that timeline then we will have further upside to our outlook with that let's open it up to Q&A.

Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question Press Star. One again, so that everyone may have a chance to participate we ask that participants limit their questions to one and.

Nick Yulico: To withdraw your question, press star one again. 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 refrain. At this time, we'll pause momentarily to assemble our roster. Our first question comes from the line of Nick Yulico with Scotiabank. Please go ahead.

Speaker Change: And a related follow up if you have additional questions. Please re queue. At this time, we will pause momentarily to assemble our roster.

Speaker Change: Our first question comes from the line of Nick <unk> with Scotiabank. Please go ahead.

Peter A. Scott: Thanks. I guess the first question is just, you know, relating to the guidance. I appreciate all the, you know, the info you gave us on the DOC impact plus some of the other year-over-year items, but is there any way to kind of think about, you know, what just legacy peak FFO or AFFO growth would be year-over-year, just putting aside sort of all the merger impacts, maybe just on a percentage basis or, Thanks. Yeah, hey, Nick, it's Pete here.

Nick: Thanks, I guess first question is just relating to the guidance I. Appreciate all the color you gave us on the.

Nick: The Doc impact plus.

Nick: Some of the other year over year of items, but is there any way to kind of think about what just legacy peak.

Nick: SSO or a peso growth would be year over year, just putting aside sort of all the merger impacts maybe you saw like a percentage basis.

Nick: Pennies.

Speaker Change: <unk>. Thanks.

Speaker Change: Yeah, Hey, Nick it's Pete here, maybe I'll just start with <unk>.

Peter A. Scott: Maybe I'll just start with... Amphithealth. You know, we did provide AFFO this year because of all the, you know, GAAP merger-related items, and we don't necessarily want to get mired into discussion on all of those on this call, but if you look at AFFO this year versus where we were last year, our outlook is effectively, you know, flat, but that does include the benefit of the synergie You know, if you try and back those out, you'd say our AFFO would be down year over year. That's actually a correct statement.

Speaker Change: <unk>.

We did provide SFO this year because of all the GAAP merger related items, and we don't necessarily want to get mired in the discussion on all of those on this call, but if you look at <unk> this year versus.

Peter A. Scott: Where we were last year, our outlook is effectively flat.

Peter A. Scott: Flat, but that does include the benefit of the synergies.

Peter A. Scott: If you try and back those out you would say <unk> would be down year over year, that's actually a correct statement and if you go back to the merger proxy. The S. Four we put out you would actually see that in our forecast as well.

Peter A. Scott: And if you go back to the merger proxy, the S4 we put out, you'd actually see that in our forecast as well. And that's really primarily because of the temporary lost NOI at the two large campuses I mentioned in the prepared remarks. So, you know, if it were not for this merger, our AFFO would actually be down year over year, but certainly with the benefits of this merger, the accretion we've articulated being about five pennies per share, we're able to keep our AFFO flat year over year. Okay, thanks. That's helpful.

Peter A. Scott: And that's really primarily because of the temporary lost NOI at the two large campuses I mentioned in the prepared remarks so.

Peter A. Scott: It were not for this merger are <unk> would actually be down year over year, but certainly with the benefits of this merger the accretion we've articulated being about five pennies per share, we're able to keep our <unk> flat year over year.

Speaker Change: Okay. Thanks, that's helpful. I guess second question is just in terms of.

Peter A. Scott: I guess my second question is just in terms of the lab business, if you can give maybe a little bit more of a feel for the, you know, the leasing that you talked about, that's, you know, in the pipeline right now, you know, kind of how that, if any of that, relates to it. San Diego plus, you know how we should think about I guess the composition of what leasing would look like going forward from a maybe mark to market standpoint, you know that was impacted in the fourth quarter. Thanks. Good question, Nick.

Speaker Change: The lab business. If you can give maybe a little bit more fuels for the the leasing that you've talked about that.

Speaker Change: In the pipeline right now.

Speaker Change: Kind of how that.

Speaker Change: If any of that relates to.

Speaker Change: San Diego plus.

Speaker Change: Or we should think about I guess the comp.

Speaker Change: What leasing would look like going forward from a maybe mark to market standpoint that was impacted in the fourth quarter. Thanks, Yes.

Speaker Change: Good question <unk> surprised that you are asking it.

Scott Bone: I'm not surprised that you're asking it. You know, we did disclose that we have signed, year-to-date, about 175,000 square feet of leases and LOIs. You know, the first week of January is quite slow, so that's probably, you know, a pretty good four-week number. If you annualize that, it's still trending in a positive direction as you compare it to a year ago. I'll turn it, actually, to Scott Bone to give a little bit more color on the composition of those leases and LOIs. Hey Nick, Scott, on those LOIs, it's a multitude of deals; it's not just one large deal, really across all the markets. Over the past few quarters, you know, demand has really trended towards the, you know, kind of stub 30,000-square-foot range, and that's where the bulk of those deals are today.

Speaker Change: Did disclose that we've signed year to date about 175000 square feet of leases in LOI as you know the first week of January is quite slow so that's probably.

Speaker Change: Pretty good four week number if you annualize that it's still trending in a positive direction as you compare it to a year ago, and where leasing was alternate actually to Scott Bowman to give a little bit more color on the composition of those leases in LOI.

Scott Bowman: Yeah, Hey, Nick Scott on.

Speaker Change: Otherwise we're.

Scott Bowman: It's a multitude of deals is not just one large deal.

Scott Bowman: Across all the markets.

Scott Bowman: As we've talked about.

Scott Bowman: Over the past few quarters, the demand has really trended towards the.

Scott Bowman: Sub.

Scott Bowman: 30000 square foot range, and that's where the bulk of those.

Scott Bowman: Those deals are today, we're pretty happy with the economics that were are shaking out on those.

Scott Bone: We're pretty happy with the economics that we're shaking out on those. When you look at mark-to-market on the portfolio, we were probably in the 20% range last year, and if you look at it today, you know, just taking into account where we are, probably more in the... 5 to 10% range, but that varies greatly, you know, given the T.I. Capital and other aspects of the lease that are in play today, so you know, hard to pin down an exact number.

Scott Bowman: Mark to market on the portfolio.

Scott Bowman: We were probably in the.

Scott Bowman: 20% range.

Scott Bowman: The last year and feel good today.

Scott Bowman: Taking into account.

Scott Bowman: Where we are probably more on the.

Scott Bowman: 5% to 10% range, but that varies greatly given the.

Scott Bowman: <unk> capital and other aspects of the lease.

Scott Bowman: That are in play today, so 100% and down an exact number because theres so much differentiation in the leases today, but I'd say, it's probably in the 5% to 10% range overall.

Scott Bone: There's so much differentiation in the leases today, but I'd say it's probably... OK. Your next question will come from the line of Juan Sanabria with BMO Capital Markets. Please go ahead. Hi, good morning.

Speaker Change: Okay. Thanks.

Speaker Change: Your next question will come from the line of Juan Sanabria with BMO capital markets. Please go ahead.

Juan Sanabria: Hi, Good morning, just a question on dispositions you talked about.

Scott M. Brinker: Just a question on dispositions. You talked about the potential for more assets to come on the market, so just curious if you'd give a little bit more flavor for the types of assets that you may look to sell. Would they be kind of core, long-leased assets, stabilized, or maybe more non-core assets? Just kind of curious about what may be being floated out there at this point in time. Yeah, hey Juan, Scott.

Juan Sanabria: Potential for more assets to come on the market. So just curious if you could give a little bit more flavor for the types of assets that you may look to sell.

Juan Sanabria: Would they be kind of core.

Juan Sanabria: Long long leased asset stabilized or maybe more noncore assets just kind of curious.

Juan Sanabria: What maybe being floated out there at this point in time.

Speaker Change: Yes, he wants to Scott.

Scott M. Brinker: I mean, obviously, we're not happy with where the stock is trading. There's a pretty big disconnect between what the private market would value our assets at and what the public markets would. So we're certainly looking at all available opportunities to create value, so I would say it's a pretty wide-ranging menu of things that we're considering. If it's core assets like we did in San Diego a couple of weeks ago, it would be more likely than not kind of a recap where we maintain an ownership stake. We don't have a whole lot of sort of true non-core assets, but we have fewer core assets that we could consider selling.

Speaker Change: Obviously, we're not happy with where the stock is trading there was a pretty big disconnect between what the private.

Speaker Change: Market with value of our assets and what the public markets would so we're certainly looking at all available opportunities to create value. So I would say, it's a pretty wide ranging menu of things that we're considering if its core assets like we did in San Diego.

Speaker Change: A weeks ago would be more likely than not kind of a recap where we maintain an ownership stake.

Speaker Change: We don't have a whole lot of.

Speaker Change: True noncore assets that we have less core assets that we could consider selling those may come at a slightly higher cap rates than.

Scott M. Brinker: Those may come at slightly higher cap rates than the print we had a couple of weeks ago in San Diego. That was obviously an A plus type asset on campus, but we're looking at a number of things. We've been saying that for the last year.

Speaker Change: We had a couple of weeks ago in San Diego that was obviously, an a plus.

Speaker Change: Asset in campus, but.

Speaker Change: We're looking at a number of things we've been saying that for the last year. We were a net seller of real estate in 2023 from where we sit here today will probably be a net seller in 2024, but we have the ability to be price sensitive balance sheets in great shape sources and uses are spoken for so we'd be price sensitive on anything that we do.

Peter A. Scott: We were a net seller of real estate in 2023. From where we sit here today, we'll probably be a net seller in 2024. But we have the ability to be price sensitive, each balance in great shape, sources, and uses are spoken for, so we'd be price sensitive on anything that we do.

Peter A. Scott: Great, and then I'm hoping maybe you could talk to the, maybe a question for Pete, the cadence of lab and same store growth. You mentioned there could be kind of a temporary drag in the first quarter. I believe you said free runs, not sure.

Speaker Change: Great and then I was hoping maybe you could talk to the maybe a question for Pete the cadence of lab same store growth you mentioned, there could be kind of a temporary drag in the first quarter. I believe you said free rents that sure.

Peter A. Scott: Lots of information, Dave, which is great, but I was just curious if you could talk about the cadence of expected growth for fiscal year 24. Yeah, sure, Juan. I think from an FFO perspective, I would say that... There's probably not a huge amount of variability as you look out across the four quarters in the year. I will say that some of these larger leases that are commencing in the first quarter for labs, especially some of the ones we've been pretty vocal about, like the Voyager deal out in Boston that we did that commenced the beginning of this month, or January, I should say, beginning of the year, as well as the RevMed deal. They just came with three months of free rent, and we have the MGM deal that we just commenced. They took over one of the Amgen buildings that had expired.

Speaker Change: Lots of information, Dave, which is great, but just curious if you could talk about the cadence of expected growth for fiscal year 'twenty four.

Yes, sure I think from an.

Speaker Change: <unk> perspective, I would say that.

Speaker Change: The cadence, there's probably not a huge amount of variability as you look out across the four quarters in the year I will say that some of these larger leases that are commencing in the first quarter for lab.

Speaker Change: Some of the ones we've been pretty.

Speaker Change: Vocal about like the Voyager deal.

Speaker Change: In Boston that we did that commenced at the beginning of this month.

Speaker Change: Our January I should say beginning of the year as well as the Radnet deal I mean, they just came with three months of free rent and we have the MGM deal that we just commenced as they took over one of the Amgen buildings that expired.

Peter A. Scott: So there's just a I'm not going to say there's a significant amount of additional free rent beyond what's market rate, but all of those leases are pretty sizable and commenced earlier this year, so it's just going to have a little bit of an impact on the first and second quarter tame store numbers relative to the overall guide, and that's really why I wanted to point that out. Some years free rent works in your favor, some years it doesn't. A little bit of a headwind this year in our numbers, but again, these are long-term leases with really high-quality, you know, tenants. So I just wanted to point out that same store for lab will be a little bit weaker in the first half of the year versus. I appreciate it. Thank you. Your next question comes from the line of Michael Griffin with Citi. Please go ahead.

Speaker Change: So there is just.

Speaker Change: And like I said, there is a significant amount of additional free rent beyond what's market, but all of those leases are pretty sizable and commenced earlier. This year. So it's just going to have a little bit of an impact on the first and second quarter same store numbers relative to the overall guide and that's really why I wanted to point that out some <unk>.

Speaker Change: There is free rent works in your favor some years, a dozen little bit of a headwind this year in our number but again. These are long term leases with really high quality.

Speaker Change: Tenants. So I just wanted to point out that same store for lab will be a little bit weaker first half of the year versus second half.

Speaker Change: I appreciate it thank you.

Speaker Change: Yes.

Speaker Change: Your next question comes from the line of Michael Griffin with Citi. Please go ahead.

Peter A. Scott: Great, thanks. I wanted to ask about the development pipeline. I noticed some of those projects were pushed out a couple quarters relative to last quarter. Curious if you could give any color on why that's the case.

Michael Griffin: Great. Thanks, I wanted to ask on the development pipeline I noticed some of the projects were pushed out a couple of quarters relative to last last quarter curious if you could give any color on why that's the case are there any worries about demand for those projects.

Peter A. Scott: Are there any worries about demand for those projects? Yeah. Hey Griff, it's Pete.

Michael Griffin: Yeah, Hey, Greg it's Pete.

Peter A. Scott: I'll certainly start with that, and I'll hit on the biggest ones. You know, Vantage, we actually delivered a portion of that late last year, and then the initial occupancy is for what's remaining, and we do have another lease with Estellas that's expected to start later this year. So that's really the reason why that got pushed back a little bit.

Peter A. Scott: I can certainly start with that and I'll hit on the biggest ones.

Peter A. Scott: Vantage, we actually delivered a portion of that.

Peter A. Scott: Late last year and then the initial occupancy is for what's remaining and we do have another lease with Astellas is expected to start later this year. So that's really the reason why that got pushed back a little bit. It's because we delivered a portion of that on gateway, we have certainly talked about that.

Peter A. Scott: It's because we delivered a portion of that. You know, on Gateway, we have certainly talked about that at length over the last few weeks. Thank you all for joining us for today's webinar.

Peter A. Scott: We're going to start in about six to nine months with the Sorento situation. I mean, realistically, the way we look at it, even if we sign a lease today, between space planning and actually, you know, doing some of the work to do the specific TI build out, I mean, you're talking about six to nine months before the lease can even commence. As a result, we did push that out a little bit. We're certainly touring, you know, tenants around the building and the facility. It's a really great-looking, high-quality campus, A-plus right there, overlooking the 805.

Peter A. Scott: At at lagged over the last six to nine months with the Sorrento situation I mean realistically the way we look at it even if we signed a lease today between space planning and actually doing some of the work to do the specific Ti build out I mean, you are talking about six to nine.

Peter A. Scott: Before lease can even commence we don't have a lease signed at this point in time. So as a result, we did push that out a little bit or certainly touring.

Peter A. Scott: Tenants through the building and the facility, it's a really great looking high quality campus, a plus right there overlooking.

Peter A. Scott: Oh, five but as we look out based upon how long it takes leases to get signed that has actually slowed a little bit we decided that it made sense to push that out just a couple of quarters I don't know Scott bonus is there anything you'd want to add to that is a good fit.

Scott Bone: But as we looked out, you know, based upon how long it takes leases to get signed, which has actually slowed a little bit, we decided that it made sense to push that out. I don't know, Scott Bone, if there's anything you'd want to add to that. No, that's a good piece.

Peter A. Scott: Sure.

Scott Bone: Great, thanks. And then I just wanted to touch again on the synergies from the merger. You talked about realizing about $40 to $60 million of that. It seems like the merger is going, you know, on pace or maybe even better than expected. Curious if you could see any additional upside, kind of on top of that $60 million, or if that's sort of the, you know, kind of highest level of synergies that you could see. Yeah, Griff, I'll take that.

Scott: Great. Thanks, and then I just wanted to touch again on the synergies from the merger you talked about realizing about $40 million to $60 million of that seems like the merger.

Scott: Going on pace or maybe even better than expected curious if you could see any additional upside.

Scott: On top of that $60 million or if that's sort of the.

Scott: Youre kind of highest level of synergies that you could say.

Speaker Change: Yeah, Jeff I'll take that Scott in October we talked about $40 million of a year, one runway run rate synergies and we've got a full $40 million.

Scott M. Brinker: Scott, in October, we talked about 40 million in year one run rate synergies, and we've got a full 40 million in our 2024 guidance, so I would say we are ahead of expectations in year one, so hopefully we can exceed that number as well. In terms of year two, you know, we'll see. The internalization so far is going well. Three markets down, six more in the queue, so we're taking them one at a time just to make sure that it goes well and reduces execution risk. But if we're satisfied with the results, we could certainly continue to internalize more and more markets going forward, and that would be a big part of the process. Achieving the high end, if not above the high end, of that synergy. Great. That's it for me.

Scott: In our 2020 for guidance.

Scott: So I would say we are ahead of those expectations in year one.

Speaker Change: So hopefully we can exceed that number as well in terms of year or two.

Speaker Change: We'll see the internalization, so far is going well three markets down six more in the queue. So we are taking them one at a time just to make sure that it goes well reduce execution risk, but if we're satisfied with the results. We can certainly continue to internalize more and more markets going forward.

Speaker Change: And that would be a big part of.

Speaker Change: Achieving the high end, if not above the high end of that synergy range.

Speaker Change: Great. That's it for me thanks for the time.

Scott M. Brinker: Thanks for your time. Your next question comes from the line of Rich Anderson with Wedbush. Please go ahead. Hey, thanks. Good morning. So, on the Amgen and Sorrento spaces, I think the next time we'll see that in the numbers is 2026. Correct me if I'm wrong. Is any one of the other sorts sort of maybe faster to the punch?

Speaker Change: Your next question comes from the line of Rich Anderson with Wedbush. Please go ahead.

Richard Anderson: Thanks, Good morning, so on the Amgen in Sorrento spaces, I think you're the next time, we will see that.

Richard Anderson: In the numbers is 2026, correct me if I'm wrong.

Richard Anderson: Any one of the other sort of maybe faster to the punch it sounds like surrenders, a little bit more ready to use based on your comments, where I. Just just curious whats the realistic timeline is to see them back in cash.

Peter A. Scott: It sounds like Sorrento is a little bit more ready to use. Based on what your comments were, I'm just curious what the realistic timeline is for them to be back in, you know, cash-paying assets. Yeah, I think, Rich.

Richard Anderson: Cash paying assets.

Richard Anderson: Yes.

Richard Anderson: I think rich.

Peter A. Scott: You know, as you quoted, two years. That's really more of a same-store figure, I would say, from a lease-out perspective... As you pointed out. Thank you. Less significant on that than the scope of work on the Portside project that we've rebranded. So I would say that we can finish the scope of work on Sorrento, which is the Director's Place campus, a lot quicker than we'll actually finish the work on the Portside campus. So I would see, you know, NOI probably earlier from that campus if I were to give you some guidance between the two than I would from the Portside campus, although that said, you do have to bear in mind that we will actually commence that lease, the 101,000-square-foot lease at Portside with Pliant later this year, so we have backfilled some of that. We have not backfilled at this point any of the Sorrento campus, but Hey, Rich, can I add something to that? Sure, sure, Scott.

Richard Anderson: As you quoted two years, that's really more of a same store.

Richard Anderson: Figure I would say from a lease up perspective.

Richard Anderson: As you pointed out the two campuses to rent out the scope of work is.

Richard Anderson: Less significant on that then the scope of work on the port side projects that we've rebranded so I would say that we can finish the scope of work on <unk>.

Richard Anderson: Sorento and Thats the directors place campus.

Richard Anderson: A lot quicker than we will actually finish the work on the port side campus. So I would see NOI probably earlier from that campus. If I were to give you some guidance between the two than I would from the port side campus. Although that said you do have to bear in mind that we will actually commence at least one.

Richard Anderson: <unk> 1000 square foot lease at Port side with client later this year. So we have backfill some of that we have not backfill to at this point any of the.

Richard Anderson: Sorrento campus, but were certainly to our antenna zero.

Richard Anderson: Okay.

Speaker Change: Hey, Rick can I add something to that just sure sure Scott from my seat.

Scott M. Brinker: From my seat, our lab business, even two years ago, we were essentially at 98, 99% occupancy, with essentially nothing in the way of redevelopment, and a completely pre-leased development pipeline. From where we sit today, we've got some upside in occupancy on the operating portfolio. Scott and Mike are working on, we've got a pretty big redevelopment bucket that has a lot of NOI upside, and then a fair amount of development that hasn't been leased yet. So, just on Amgen, Sorento, and Vantage alone, you're talking about $50-60 million. I don't know if that's 25 or 26, but we do think it's achievable.

Speaker Change: Our lab business, even two years ago were essentially at 90, 899% occupancy.

Scott: Essentially nothing in redevelopment.

Rick: In a completely pre leased development pipeline from where we sit today, we've got some upside in occupancy on the operating portfolio.

Rick: Scott and Mike are working on we've got a pretty big redevelopment bucket that has a lot of NOI upside and a fair amount of development that hasnt been leased yet so just on Amgen Sorrento advantage alone you are talking about $50 million to $60 million.

NOI upside I don't know if thats, 25% to 26, but we do think it's achievable. Those are all class a assets now theres a cost of capital so maybe subtract a little bit of that upside from an earnings standpoint, but it's substantial so our lab business. Two years ago was kind of hit full utilization for lack of a better word and today there is.

Scott M. Brinker: Those are all Class A assets. Now there's a cost of capital, so maybe subtract a little bit of that upside from an earnings standpoint, but it's substantial. So our lab business two years ago was kind of at full utilization, for lack of a better word, and today there's a fair amount of upside for us to go recapture. Okay, yeah. Fair. Thanks for that color, Scott.

Rick: A fair amount of upside for us to go recapture.

Speaker Change: Okay fair. Thanks, Thanks for that color Scott.

Scott M. Brinker: This is the second question shifting over to MOBs or outpatient medical, whatever we call them. So you guys are guiding the 3%, same store, you know, combined with Doc. Big, particularly peer healthcare realty sees a path to same store going up over the next couple of years beyond that through some, you know, occupancy lift and whatnot. I'm curious if you have a game plan as three, sort of like, that's your starting point, but do you see more growth out of medical office now, you know, representing the majority of your portfolio? Do you see more growth potential beyond that 3%, which has been sort of the, you know, the legacy level of growth for medical offices over the many, several past years? I'm wondering where you see it going.

Speaker Change: This is the second question shifting over to Mlps or outpatient medical whatever we call.

Speaker Change: So you guys are guiding to 3% same store combined.

Speaker Change: Combined with Doc.

Speaker Change: Sure.

Speaker Change: Pure play peer healthcare realty's sees a path to same store going up over the next couple of years beyond that through some occupancy lift and whatnot I'm curious.

Speaker Change: You have a game plan has three sort of like that's your starting point, but do you see more growth out of medical office now representing the.

Speaker Change: The majority of your portfolio do you see more growth potential beyond that 3%, which has been sort of the legacy level of growth for medical office for the over the many several past years, I'm wondering where you see it going from here.

Scott M. Brinker: Yeah, I mean, it's really been 2% to 3% growth for business for the last decade. But we do see that accelerating. It's not going to 10, but we do think it's going to improve for the forward 5 to 10 years versus the previous 5 to 10 years, just given supply and demand, construction costs, and therefore our ability to push rents. So our guidance this year is at the very high end, actually well above the high end of any guidance we've given in that segment historically. We have a pretty good track record of beating our same store guidance and our earnings guidance, so you can assume that hopefully, there's some upside to the number that we gave. But it's a combination of occupancy, obviously we were up 40 basis points quarter over quarter, I think like 60 basis points year over year, all-time high release spreads, all-time high retention, so yeah, we do think that there's some upside to the historical outpatient How do you condition tenants to be okay with higher rents, right? Because they've lived with this world, and you've got to be careful about... you know, sort of screwing up the system, so to speak.

Thanks.

Speaker Change: Yes, I mean, it's really been a 2% to 3% growth.

Speaker Change: Business for the last decade, we do see them accelerating its not going to turn but we do think it's going to improve for this forward five to 10 years versus the previous five to 10 years, just given supply demand construction cost and.

Speaker Change: Therefore, our ability to push rents.

Speaker Change: So our guidance. This year is at the very high end actually well above the high end of any guidance, we've given in that segment historically and we have a.

Speaker Change: A pretty good track record of beating our same store guidance and our earnings guidance. So you can assume that hopefully there's some upside to the number that we gave but.

Speaker Change: But it's a combination of occupancy obviously, we were up 40 basis points quarter over quarter by 60 basis points year over year, all time high re leasing spreads.

Speaker Change: Hi retention. So yes, we do think that there is some upside to the historical outpatient medical growth.

Speaker Change: How do your condition tenants to be okay with.

Speaker Change: Rents right because they've lived with the world.

Speaker Change: You've got to be careful about.

Speaker Change: Sort of screwing up the system so to speak.

John T. Thomas: Is it there for the taking, you think, or do you sort of have to sort of thread that? Yeah, and I'll ask John and Tom to comment as well. They're both here today. Yeah, if you look at the rich, the rents, I mean, we've seen – what's actually benefited us is the new developments because the market rents that are coming in on those... Typically, 20% or so higher than what the existing rates are, so it gives us a little room to grow. And then, you know, if you look at our tenancy... Back 20 years ago, it was 25% hospital leases and 7 Today, that number is 65% for hospitals, so you do have a little more ability to push the rents up when you're dealing with these issues. Yeah, no, I agree with that, Tom.

Speaker Change: Is it there for the taking you think or do you sort of have to sort of thread that needle.

Speaker Change: Yes.

Speaker Change: John and Tom to comment as well they are both here today.

Speaker Change: If you look at it rich.

Speaker Change: The rents I mean, we've seen what's actually benefited us as the new developments because the market rents that are coming in on those is typically 20%, 20% or so higher than what the existing rates are so it gives us a little room to grow and then if you look at our tenancy.

Speaker Change: That 20 years ago was 25% hospital.

Speaker Change: Leases and 75% third party physicians today that number is 65% hospitals. So you do have a little more.

John T. Thomas: And I think we've seen, you know, six straight quarters of well above that in renewal spreads, and then, Conditioning, your comment about conditioning tenants, I mean, the options, as Tom said. But historically, it was to go to a new building, but the rents now are 20% higher in a new building. So it's much more, I guess, negotiating leverage, and if you're raising the rents 5% to 10%, that's better than the 20%, and that's the condition. Inflation increasers, you know, that's more important, I think, than the renewal spread right now. We're starting to get across the board, you know, annual increasers that are fixed at 3 to 4 to 5 percent. People don't want to do inflationary, you know, CPI increasers. So that just adds to that continuous stream.

Speaker Change: <unk> ability to push the rents up when youre dealing with the institutions like that John if you have anything to add yes, no I agree with that Tom and I think we've seen six straight quarters of well above that in renewal spreads and then and then conditioning your comment about conditioning tenants I mean these the options is Thompson.

Speaker Change: Historically was to go to a new building, but the rents now are 20% higher on a new building. So it's much more.

Speaker Change: It's negotiating leverage and youre raising the rents by 10% that's better than the 20% and that's the conditioning and then.

Speaker Change: Inflation increases and Thats more important I think in the than the renewal spread right now we are starting to get across the board.

Speaker Change: Annual increases that are fixed for 3% to 4% to 5%.

Speaker Change: People don't want to do inflationary of CPI increases so that just adds to that continuous stream, so as more and more of the portfolio roles.

John T. Thomas: So it's more and more of the portfolio roles. You know, more and more of the rents are going up. 3-4-5% on renewal spreads, and then you're adding a 3-4% annual increase, so the next 10 years, as Scott said, is very optimistic. Great.

Speaker Change: More and more of the rents are going up.

Speaker Change: 345% on renewal spreads and then youre, adding a 3% to 4% annual increase or so.

Speaker Change: In the next 10 years as Scott said.

Speaker Change: Very optimistic.

Speaker Change: Great great color. Thanks.

Operator: Your next question comes from the line of Wes Goloday with Baird. Please go ahead. Hey, good morning, everyone.

Speaker Change: Your next question comes from the line of Wes Golladay with Baird. Please go ahead.

Speaker Change: Yes.

Wes Golladay: Hey, good morning, everyone can you comment on what's going on with the push out of collecting on the solar financing.

Peter A. Scott: Can you comment on what's going on with the push out of collecting on the seller financing? Looks like it was pushed out a few months ago. Yeah, you know, the seller financing. I mean, we. We actually did quite well off of providing that on our senior housing sales, which were three, four years ago. So it's a business that we actually like if we provide the right LTV. The Counterparty, you know, with these loans, we've gotten repaid a lot over the last few years. I mean, the balance was...

Wes Golladay: It was pushed out a few months.

Wes Golladay: Yes, the seller financing.

Wes Golladay: I mean, we.

Wes Golladay: We actually did quite well also providing that on our senior housing sales, which were three four years ago. So it's a business that we actually like it.

Wes Golladay: If we provide the right LTV.

Wes Golladay: To the counterparty.

Wes Golladay: With these loans, we've gotten repaid a lot over the last few years I mean, the balance was I.

Wes Golladay: I think six or $700 million it was pretty high down now to about $175 million.

Peter A. Scott: It was pretty high, down now to about $175 million. You know, in our guidance for this year, called Outlook, we had $0 to $100 million getting repaid, so $50 million at the midpoint. It could be a little bit higher than that, and obviously, that's probably more front-of-the-year weighted as well. I think our expectation is that if it gets repaid, it will get repaid in the very near term. If not, it would get extended, which obviously, if it gets extended versus repaid, then there's an earnings benefit to that.

Wes Golladay: Guidance for this year caught outlook.

Wes Golladay: Yes.

Wes Golladay: We had zero to a $100 million getting repaid $50 million at the midpoint.

Wes Golladay: It could be a little bit higher than that.

Wes Golladay: And obviously thats probably more.

Wes Golladay: Front of the year weighted as well I think our expectation is if it gets repaid who will get repaid in the very near term is not it would get extended which obviously if it gets extended versus repaid and there is an earnings benefit to that but again the expectation given where the ltvs are those are is that as the counterparty sell assets we'd.

Peter A. Scott: But again, the expectation, given where the LTVs of those are, is that as the counterparty sells assets, we'd expect to get those loans repaid, and probably more towards the front-of-the-year. Okay, thanks for that. And then I guess, can you comment on maybe how the conversations are going on leasing lab space? I think you had a new lease of just under 200,000 square feet in the fourth quarter. It looks like there was some good activity in the first half of January. And maybe there's a little bit of a lag effect, but there's been some M&A in the space. There's The biotech index has had a nice bounce. Any noticeable change in your conversations? Yeah, Wes, this is Scott, Scott Bowen.

Wes Golladay: To get those loans repaid.

And probably more towards the front end of the year.

Speaker Change: Okay. Thanks for that and then I guess can you comment on maybe how the conversations are going on Lucent lab space I think we've had new leasing or just under 200000 square feet in the fourth quarter. It looks like some good activity in the first half.

Speaker Change: In January.

Speaker Change: And maybe theres, a little bit of a lag effect, but there's been some M&A in this space. There is the biotech index has a nice balance any noticeable change in your conversations.

Speaker Change: Yes.

Speaker Change: This is Scott Scott Brun.

Scott Bone: I think from a demand perspective, you know, we're in line with pre-COBA levels across all three portfolios. Boards are still cautious, as Pete mentioned.

Scott M. Brinker: From a demand perspective, we're in line with pre COVID-19 levels across all three portfolios.

Scott M. Brinker: Boards are still cautious as Pete mentioned is taking new space and expansions and things like that we are seeing some groups who have been on the sidelines or kind of floating around in the market.

Scott Bone: We are seeing some groups who have been on the sidelines or kind of floating around the market really start to dig in on space plans and get real as they approach funding from some of the capital markets, private and public, open up. So I think that we're off to a strong start for the year. We like the way that the pipeline's shaping up. You know, the underlying fundamentals that Scott mentioned in his prepared remarks are strong indicators. Thanks for your time.

Scott M. Brinker: Really kind of starting to dig in on space plans and getting real as they approach fundings that some of the capital markets.

Private and public open up.

Scott M. Brinker: So I think that we're off to a strong start for the year, we like the way that the pipeline shaping up.

Scott M. Brinker: The underlying fundamentals as Scott mentioned in his prepared remarks.

Scott M. Brinker: Our strong indicators of future demand.

Alright, thanks for the time.

Operator: Your next question comes from the line of Jim Kammerg with Evercore. Please go ahead. Good morning.

Scott M. Brinker: Your next question comes from the line of Jim <unk> with Evercore. Please go ahead.

Jim: Good morning, Thank you.

Jim Kammerg: Thank you. The Q&A is kind of built on some of this, but could you provide a little bit more detail regarding the $700 to $800 million of development, redevelopment, and CapEx guidance that you provided? Because I ask you kind of to reconcile to the known development and redevelopment and what remains to be spent. And even if that were all spent in 24, I think that's roughly half of a $700 million kind of target. So is this other activity at ALY, Vantage, VISTA, Sorento, et cetera? If you could just help kind of what the major components of that are in terms of that total spend for 24, please? Yeah, happy to take that, Jim.

Jim: Q&A is kind of built on some of this but could you provide a little bit more detail.

Jim: In the $700 million to $800 million of development of any capex guidance that you provided.

Jim: When you kind of reconcile two known development and Redevelopments and what remains to be spent.

Jim: And even that Royal spent in 'twenty four.

Jim: That's roughly half of kind of a seven.

Jim: $700 million kind of target. So is this other activity at <unk> advantage Sorrento et cetera can you just help kind of what are the major components of that in terms of.

Jim: Total spend for 24 please.

Jim: Okay.

Speaker Change: Yeah happy to take that Jim I mean, obviously on the development side, we still have to finish out the vantage project, which is pretty significant we will also got some new HCA developments that are kicking off I mean, that's a great program for us and we'd like to continue to recycle capital and keep that program going.

Peter A. Scott: I mean, obviously, on the development side, we still have to finish out the Vantage project, which is pretty significant. We've also got some new HCA developments that are kicking off. I mean, that's a great program for us, and we'd like to continue to recycle capital and keep that program going, and the yields are starting to increase on that, which is great. I'd say what has gone up pretty significantly year over year as you look at 2023 versus 2024 is the larger redevelopment bucket. I mean, we're still redeveloping our Point Grand Campus; we've got another asset given the As So we've got another large building there, plus we'll have the Portside buildings go as well as Sorrento.

Speaker Change: The yields are starting to increase on that which is great I would say what has gone up.

Speaker Change: No pretty significantly year over year as you look at.

Speaker Change: 2023 versus 2024 is the larger redevelopment bucket I mean, we're still redeveloped or.

Speaker Change: Point Grand campus, we've got another asset given the Astellas leave behind space. There is they took on the lease at vantage. So we've got another large building there plus we will have.

Speaker Change: The port side buildings as well as <unk> so I.

Peter A. Scott: So I'd say that the biggest components of that are finishing out the current development pipeline as well as, you know, the redevelopment picking up. And that was always our expectation was that we would have to, you know, redevelop Portside when those leases expired. I mean, Amgen was on that campus for 20 years, and really, we had to put zero capex into that over that period of time.

Speaker Change: I'd say the biggest components of that are finishing out the current development pipeline as well as the redevelopment ticking up and that was always our expectation was that we would have to redevelop especially port side when those leases expired and Amgen was on that campus for 20 years.

Speaker Change: Really we had to put zero capex into that over that period of time. So we did really really well on that investment.

Peter A. Scott: So we did really, really well on that investment, but, you know, 20 years later, there's some capital that has to go into that. So those are really the biggest drivers of that spend this year. Yeah, there's no new starts in lab in that forecast. There are a couple of new starts in Outpatient Medical. Some are from Legacy Healthpeak, others from Legacy Dock, just commitments that were made, in some cases, two years ago.

Speaker Change: 20 years later, there's some capital that has to go into that so those are really the biggest drivers of that spend this year. There is no new starts in lab in that forecast Theres a couple of new starts in outpatient medical some are from legacy <unk> others from legacy Doc just commitments that were made in some case.

Speaker Change: Two years ago.

Scott M. Brinker: Any new commitments, though, on development, it's because the yields are attractive, 7, 8%, highly pre-lead. So we continue to find those very attractive and would recycle capital. Go ahead and move forward with those. Great.

Speaker Change: Any new commitments, though on development, it's because the yields are attractive seven 8% highly pre leased so we continue to find those very attractive and we recycle capital. So that we can go ahead and move forward with those.

Peter A. Scott: So, basically, as this unfolds, the opportunity becomes more apparent. That's when those shifts become more explicit redevelopment or CIP activities. That's what you're saying. Yeah, correct. That's fine.

Speaker Change: Great. So basically as this unfolds relief opportunity becomes more apparent.

Speaker Change: I will shift to become more explicit.

Speaker Change: Development of our CIP activities, so what youre, saying.

Speaker Change: Yes, correct.

Scott M. Brinker: And secondly, if I could, you mentioned, I think, Scott Brinker, that you're looking at all capital alternatives. What are the latest thoughts on the CCRC portfolio? Is that still a possibility?

Speaker Change: That's fine and then secondly, if I could you mentioned I think Scott Brinker.

Speaker Change: Looking at our capital alternatives, what are the latest thoughts on the <unk> portfolio.

Speaker Change: Is that still a potential.

Scott M. Brinker: Is there still room to grow on the NOI and FFO contribution? Or is that nearing maturity, and it might be a capital event for you? Yeah, we're at 85% occupancy today. I would think we could get back into the 90s.

Speaker Change: Still room to grow on the NOI contribution or is that nearing maturity and it might be a capital event for you.

Speaker Change: Yes, we are 85% occupancy today I would think we could get back into the nineties and.

Scott M. Brinker: In that portfolio, it's performing well. We've got good assets, mostly in Florida, obviously favorable supply-demand. In that market, for seniors, we've got a really good operating partner in LCS. We've got a really strong internal team overseeing it, so we're not in a rush. At the same time, it really has no strategic overlap with our medical and lab businesses, which are highly complementary, same process and procedure, et cetera. So at some point, I think we will recycle, but, as I said earlier, would be price sensitive. We don't need to do anything.

Speaker Change: And that portfolio is performing well.

Speaker Change: Got good assets, mostly in Florida.

Speaker Change: Shareable supply demand in that market for seniors, who has got a really good operating partner in Lcs, We've got a really strong internal team.

Speaker Change: Overseeing it so we're not in a rush at the same time.

Speaker Change: It really has no strategic overlap.

Speaker Change: With our medical and lab businesses, which are highly complementary same process and procedure et cetera.

Speaker Change: So at some point I think we will recycle but to my comment earlier would be price sensitive we don't need to do anything it's performing fine we've got the team to run it but the capital markets have just been too.

Scott M. Brinker: It's performing fine. We've got the team to run it, but the capital markets have just been too tight and soft to transact on a portfolio of that size, but we'll see if things start to open up in 2020. Appreciate the color.

Speaker Change: Too tight.

Speaker Change: And soft to transact on a portfolio of that size, but we'll see if things start to open up in 2024.

Speaker Change: I appreciate the color. Thank you.

Speaker Change: Your next question comes from the line of Joshua <unk> with Bank of America. Please go ahead.

Operator: Thank you. Your next question comes from the line of Joshua Dennerlin with Bank of America. Please go ahead.

Speaker Change: Yeah.

Joshua: Yeah, Hey, guys I appreciate all the color around guidance.

Joshua Dennerlin: Yeah, hey guys. I appreciate all the color around guidance. One quick question on that. I think you're, I think if I heard correctly, you're including DOC in your SAMHSA or medical office NOI outlook.

Joshua: One quick question on that.

Joshua: I think if I heard correctly youre, including dock in your same store metal medical office NOI outlook. If you had if you strip out.

Joshua: From 2020 or same store pool, what would the centura MLB NOI growth look like.

Scott M. Brinker: If you would, if you stripped out DOC from the 2024 SAMHSA or pool, what would the SAMHSA or MOB NOI growth look like? Yeah, hard to say. We are getting the benefit of the internalization in the peak portfolio that we obviously would not have done absent the merger, so it becomes hard to parse the two numbers, but I think we said historically DOC has lower in-place escalators than Healthpeak, but that's converging over time as they sign new leases with, as John said, 3% or better escalators, so I'm guessing it'd be a little So I would expect their growth rate to mirror, or closely mirror, the Healthpeak growth rate going forward. Okay, okay. That's helpful. And then maybe one different kind of question.

Speaker Change: Yes hard to say.

Speaker Change: We are getting the benefit of the internalization in the peak portfolio that we obviously would not have done absent the mergers. So it becomes hard to parse the two numbers, but I think we said historically, a doc has lower in place escalators and health peak, but thats converging over time as they signed new leases with.

Speaker Change: As John said, 3% or better escalators, so I'm guessing it would be a little bit lower but not materially.

Speaker Change: They said numerous times their growth rate in 2023 was impacted.

Speaker Change: By some unique asset specific events and proactive terminations so.

Speaker Change: I would expect our growth rates.

Speaker Change: Here, we're closely mirrored the health peak growth rate going forward.

Speaker Change: Okay. Okay. That's helpful and then maybe one.

Speaker Change: Different kind of question just you.

Scott M. Brinker: Just, um, you mentioned the stock price; you're not happy with it, and that kind of carries your appetite for stock buybacks here. Yeah, I mean, we did buy back stock, albeit at a higher price, a year and a half ago, and I would say that the response from the street was pretty unenthusiastic to that. That said... We do put an authorization in place every quarter for stock issuance or buyback with our board. And we're not at a level, I think, today, where we'd buy back stock, but certainly it's something that we're paying attention to. We're certainly a long ways away from a level where we'd even...

Speaker Change: You mentioned the stock price Youre not happy with it just kind of curious your appetite for stock buybacks here.

Speaker Change: Yes.

Speaker Change: I mean, we did buyback some stock, albeit at a higher price.

Speaker Change: Year year, and a half ago and I would say that the response from the street was pretty unenthusiastic to that said.

Speaker Change: We do put an authorization in every quarter for stock issuance or buyback with our board.

Speaker Change: And we're not at a level I think today, where we buyback stock, but certainly it's something that we're paying attention to we're certainly a long ways away from a level, where we would even consider issuing equity which is why we're talking more about capital recycling. So we have a buyback program in place we don't need to file one we still have.

Scott M. Brinker: Issuing equity, which is why we're talking more about capital recycling. So we have a buyback program in place. We don't need to file one.

Scott M. Brinker: We still have 400-plus million in buyback we could do, but we're not going to look to lever up if we ever bought back shares. We would look to do something through capital recycling, but I think I'd probably just leave it at that.

Speaker Change: 400, plus million of buyback, we could do but we're not going to look to lever up if we ever bought back shares we would look to do something through capital recycling.

Speaker Change: Sure.

Speaker Change: So I think I'd, probably just leave it at that.

Speaker Change: Okay.

Speaker Change: Okay.

Operator: Okay. Thanks, guys. Your next question comes from the line of Mike Mueller with J.P. Morgan. Please go ahead. Yeah, hi. I know there's some moving parts with properties that are going into redevelopment, but can you give us a little more color, unless I missed it, in terms of the lab, same-store NOI, what's embedded in there for occupancy and spreads for 24 compared to what you did, especially on the spread side in 23? Yeah, hey, Mike, it's Pete.

Speaker Change: Thanks, guys.

Speaker Change: Your next question comes from the line of Mike Mueller with JP Morgan. Please go ahead.

Michael Mueller: Yes, Hi, I know, there's some moving parts with properties that are going into redevelopment, but can you give us a little more color unless I missed it in terms of the lab same store NOI, what's embedded in there for occupancy in spreads for 24 compared to what you, especially on the spread side in 'twenty three.

Michael Mueller: Yeah, Hey, Mike, It's Pete I'll handle that so obviously.

Peter A. Scott: I'll handle that. So obviously, you know, our outlook is one and a half to 3% positive. What are the positive drivers within that? I mean, obviously, you've got rent escalators, which tend to be on average in the low threes; we've got some positive mark to market embedded in there on, you know, lease renewals that we do get done. And then, as we've said, there's a little bit of internalization benefit as well. So I think if we just stopped right there, we'd probably be 5%, you know, plus from a same-store growth perspective, which actually would mirror what's happened over the last 10 years. That said, there are some offsets which I think are pretty well known.

Peter A. Scott: Our outlook is 1.5% to 3% positive.

Peter A. Scott: What are the positive drivers within that I mean, obviously, it got rent escalators, which tend to be on.

Peter A. Scott: On average in the low threes, we've got some positive mark to market embedded in there on it.

Lease renewals that we do get done and then as we've said there is a little bit of internalization benefit as well. So I think if we just stop right there, we'd probably be 5%.

Peter A. Scott: Plus from our same store growth perspective, which actually would.

Peter A. Scott: Kind of mirror, what's happened over the last 10 years that said there are some offsets, which I think are pretty well known we've got average occupancy will probably be in the low 96% area. So you compare that to where we were last year, that's probably up 100 plus basis points decline. So.

Peter A. Scott: We've got average occupancy will probably be in the low 96% area, so you compare that to where we were last year, and that's probably a hundred plus basis point. So a modest decline, but nevertheless a headwind. The free rent that I mentioned, some years it's up, some years it's down. It's up this year, but it certainly is a little bit of a headwind as well.

Peter A. Scott: A modest decline, but nevertheless, a headwind the free rent that I mentioned some years adopt some years, it's down it's up this year, but it certainly is a little bit of a headwind as well and then as we always do we have a little bit of bad debt cushion.

Peter A. Scott: And then, as we always do, we have a little bit of bad debt cushioning in order to provide ourselves with a little bit of flexibility depending upon what goes on within our tenant portfolio. That's certainly improved, though pretty significantly, year over year, but we still do include a little bit there. So when you take all the positives and you take all the headwinds, it kind of blends out to that 1.5 to 3%. I know it's not what it was for the last 10 years, but our stock price is also not where it was a couple years ago as well, so it's certainly been factored into, I think, our. And maybe one follow-up.

Peter A. Scott: Cushion in order to.

Peter A. Scott: Provide ourselves with a little bit of flexibility depending upon what goes on within our tenant portfolio. That's certainly improved pretty significantly year over year, but we still do include a little bit there. So when you take all the positives and you take all the headwinds kind of blends out to that 1.5% to 3% I know, it's not what it.

Peter A. Scott: Was for the last 10 years, but are.

Peter A. Scott: Stock prices are also not where it was a couple of years ago as well. So it's certainly been factored into I think our valuation at this point in time sure and maybe one follow up took a positive spreads.

Peter A. Scott: Talk about positive spreads. Would you think that the spreads would be closer to what you were showing in 24, fourth quarter 24, or full year 23? No, the fourth quarter number was an outlier. There may be select spaces within the portfolio that would have a negative renewal rate, mark to market, but that was an outlier. 10-year-old T.I.

Peter A. Scott: Would you think that the spreads would be closer to what you were showing in 'twenty four fourth quarter 'twenty for full year 'twenty three.

Peter A. Scott: Okay.

Peter A. Scott: The fourth quarter number was an outlier there may be select spaces within the portfolio that would have a negative renewal rate mark to market, but that was an outlier I think 10 year old T is a tenant that wanted to stay in the space with credit investment grade.

Peter A. Scott: The fourth quarter number was an outlier there may be select spaces within the portfolio that would have a negative renewal rate mark to market, but that was an outlier I think 10 year old T is a tenant that wanted to stay in the space with credit investment grade.

Peter A. Scott: is a tenant that wanted to stay in the space with credit investment grades. Credit, no downtime, no TI. So I mean, that was.

Peter A. Scott: Credit.

Peter A. Scott: No downtime on OTC.

Peter A. Scott: So I mean that was a unique situation I wouldn't expect a lot of those.

Peter A. Scott: I wouldn't expect a lot. Got it. Thank you. Your next question comes from the line of Vikram Malhotra with Mizzouho. Please go ahead.

Speaker Change: Got it thank you.

Speaker Change: Thanks, Mike.

Speaker Change: Your next question comes from the line of Vikram Malhotra with Mizuho. Please go ahead.

Vikram Malhotra: Thanks for answering the questions. First, on CCRCs, I know you mentioned at some point you might look to divest, but I was a bit surprised because I thought the growth would be higher, or at least I was anticipating it. And just looking at the outlook, I thought there would be a more sort of robust outlook. So maybe you can just compare and contrast or just give a sense of if you're seeing something different from, you know, your earlier expectations.

Vikram Malhotra: Thanks for taking the questions just maybe first on <unk> I know you mentioned at some point you might look to divest, but I was a bit surprised just I thought the growth would be higher at least I was anticipating it in just looking at the outlook I thought it would be a more robust.

Vikram Malhotra: Robust outlook. So maybe if you can just compare and contrast, or just give us a sense of if you're seeing something different from.

Vikram Malhotra: Your earlier expectations.

Scott M. Brinker: Yeah, well, we still see some occupancy growth. Rental rates will grow, but more in the mid-single digits as opposed to high-single digits, just given the current situation and the fundamentals in that sector. And then, obviously, we've had a huge benefit from contract labor coming down over the past 18 months. But we're largely through that benefit. We have very little contract labor in the portfolio today, so you just lose a lot of that benefit in the same store. So, I mean, that's what's happening at the property level. Then obviously, our accounting for this asset class has an impact as well. Most of the income in this portfolio comes from the prepaid rent on the non-refundable entry fee.

Speaker Change: Yes, we still see some occupancy growth in 2020 for rental rates will grow but more in the mid single digits as opposed to high single digits just given.

Speaker Change: The fundamentals in that sector.

Speaker Change: And then obviously, we've had a huge benefit from contract labor coming down over the past 18 months, we're largely through that benefit we have very little contract labor in the portfolio. Today. So you just lose a lot of that.

Speaker Change: Benefit in same stores, so I mean, thats whats happening at the property level and then obviously our accounting.

Speaker Change: For this asset class has an impact as well most of the income in this portfolio comes from the prepaid rent.

Speaker Change: On the nonrefundable entry fee.

Scott M. Brinker: That's usually more than 75% of the total NOI, and we just have this gap accounting method that we amortize all the entry fees, and we're leaving roughly $40 million of earnings on the table relative to the cash and why that's actually being generated. So unfortunately, our reporting for CCRCs does not really reflect the underlying performance of that asset class. I chalked that up to take gap accounting.

Speaker Change: That's usually more than 75% of the total NOI.

Speaker Change: And we just have this GAAP accounting method that we amortize all the entry fees and we're leaving roughly $40 million of earnings on the table relative to the cash NOI, that's actually being generated so unfortunately, our reporting for <unk> does not really reflect the underlying performance.

Speaker Change: Of that asset class, but.

Speaker Change: Chuck that up to GAAP accounting Unfortunately.

Scott M. Brinker: Okay, that makes sense. And then you mentioned sort of relationships were key in MOBs, and you've got a great HCA program. I'm just wondering two subparts to that. One, is there a likelihood of the HCA program expanding, becoming bigger, or other types of properties within HCA? And then second, is there a pathway for similar programs with larger health systems?

Speaker Change: Okay that makes sense.

Speaker Change: You mentioned sort of relationships were key in <unk> and <unk>.

Speaker Change: Great HCA program I'm just wondering.

Speaker Change: Two subpar said one is there.

Speaker Change: <unk> of the HCA program, expanding becoming bigger or other types of properties within HCA.

Speaker Change: And then second just is there a pathway for similar programs with larger health systems.

Scott M. Brinker: Well, the answer is yes across the board. I mean, there's a massive opportunity to help these big health systems grow their outpatient network. I might ask John to comment. Yeah, hey, Vikram, I think you're aware, you know, we've been doing this with Northside in Atlanta, have a project. We're actually about to top out and further opportunities with Northside pretty routinely. Same thing, both organizations have a great relationship with Honor Health and we continue to have development opportunities there as well, you know, to come, so stand by, but those are just a couple of great examples and, you know, fantastic. Your next question will come from the line of Austin Warschmidt with KeyBank Capital Markets. Please go ahead.

Speaker Change: The answer is yes across the board I mean, there is a massive opportunity to help these big health systems grow their outpatient network I might ask John to comment specifically, Yeah, Hey, Vikram I think I think you are aware we've been doing this with Northside in Atlanta.

Speaker Change: Project.

John T. Thomas: Actually about the top out and further opportunities with Northside pretty routinely same thing.

John T. Thomas: And we both.

John T. Thomas: Both organizations have a great relationship upon our health and we continue to have.

John T. Thomas: Development opportunities there as well.

Speaker Change: To come so standby.

Speaker Change: Just a couple of great examples in a fantastic market.

Speaker Change: Your next question will come from the line of Austin <unk> with Keybanc capital markets. Please go ahead.

Scott Bone: Great, thanks. Scott Bone, you flagged the estimated mark-to-mark on lab of 5 to 10. I'm just curious how that compares to the least expirations you have over the next several years, and also curious if there's any sort of variation between larger versus smaller requirements. You noted some strength in sort of that smaller, you know, smaller segment requirement. So any detail would be helpful.

Austin: Great. Thanks, Scott.

Austin: Flag the estimated mark to market on lab at 5% to 10 I'm just curious how that compares to the lease explorations you have over the next several years and also curious if there is what sort of the variation between larger versus smaller requirements.

Austin: You noted some strength in sort of that smaller smaller segment requirement. So any detail would be would be helpful. Thank you.

Scott Bone: Thank you. Yeah, sure. On the mark-to-market, I think it's probably lower in the very near term just with the engine leases rolling. You know, it's kind of weighed down a little bit.

Speaker Change: Yeah sure on the Mark to market I think it's probably lower in the very near term just with the with the Amgen leases rolling.

Speaker Change: Kind of weighed down a little bit of business.

Scott Bone: Those were relatively high rents that grew, you know, over that 20-year period that Pete mentioned. Tenant demand and leasing, you know, we've talked about over the past several quarters. I mean, if you look across all three markets, you know, the active demand is probably, Somewhere between 60-75% of that is sub-30,000 square feet, so that's when the strike zone. For more information, visit www.healthpeakproperties.com. But even as we get into sort of 25 and 26, do you expect that still to be pretty muted? Or are there any, you know, opportunities?

Relatively high rents it grew.

Speaker Change: And over that 20 year period that Pete mentioned.

Speaker Change: And then on the.

Speaker Change: Tenant demand side and leasing.

Speaker Change: So that over the past several quarters I mean, if you look at <unk>.

Speaker Change: Cross all three markets the after demand probably.

Speaker Change: Somewhere between.

Speaker Change: $60 to 75% of that is.

Speaker Change: 30000 square feet.

Speaker Change: Really the strike zone.

For deals over the past six.

Speaker Change: Six to nine months.

Speaker Change: But even as we get into sort of 25% in 2006, I mean do you expect that still to be pretty muted or is there any opportunities. I know you guys have flagged in the past I think 25 was going to be a little bit of a more attractive year like does that then reaccelerate still as we get into the next year or has the.

Scott Bone: I know you guys have flagged in the past, but I think 25 was going to be a little bit of a more attractive year. Like, does that then re-accelerate still as we get into next year? Or has the gradual moderation in market rents sort of wiped away some of that upside? It's more the former 23 and 24 were more modest because of Amgen, but it starts to pick up a lot more material.

Speaker Change: The gradual moderation in market rents sort of wiped away some of that upside.

Speaker Change: Okay.

Speaker Change: It's more the former 23 and 24 were more modest because of Amgen and it starts to pick up a lot more materially in 'twenty, five and thereafter, but keeping in mind Scott's bigger picture comment that it is down year over year from what we would've said a year ago, just because of market fundamentals, but this should be the low point on the mark to market.

Scott M. Brinker: 25 and thereafter, but keeping in mind Scott's bigger picture comment that it is down year over year from what we would have said a year ago just because of market fundamentals. This should be the low point on the mark to market. Gather some momentum into 25 and, That's helpful.

Speaker Change: And that will gather some momentum into 'twenty five and beyond.

Speaker Change: That's helpful. And then you guys gave a little bit of color around sort of the thoughts around synergies, but I guess I'm just curious how much of that $40 million do you think kind of hits.

Peter A. Scott: And then you guys gave a little bit of color around sort of the thoughts around synergies, but I guess I'm just curious, how much of that $40 million do you think kind of hits right out of the gate when the deal closes, and what is sort of that go-get for the balance of the year? How would you kind of break down the cadence of that and then think about maybe what could end up getting pulled forward even or even upward beyond maybe the high end of that? Just curious about the latest thoughts.

Speaker Change: Right out of the gate when the deal closes and what is sort of that that go get.

Speaker Change: For the balance of the year, how would you kind of breakdown the cadence of that and then thinking about maybe what could end up getting pulled forward even.

Speaker Change: Or even an upside beyond maybe the high end of that just curious the latest thoughts. Thank you.

Peter A. Scott: Thank you. Yeah. Hey Austin, it's Pete.

Speaker Change: Yes.

Peter A. Scott: I keep hoping one of these days we'll open a pre-call note from you and see five thumbs up that are green, but if it wasn't this quarter, maybe it'll be next quarter. You're due. It just means you're due.

Speaker Change: Since Pete I keep hoping one of these days I'll open up.

Speaker Change: <unk> five thumbs up that are green, but wasn't this quarter, maybe it'll be.

Speaker Change: You do just means.

Speaker Change: Where do where certainly do.

Peter A. Scott: We're due. We're certainly due. Look, on the synergies... What I would say, you know, on the $40 million, we said the vast majority of that was actually GNA savings, and we would expect to achieve pretty much all of that at closing. Some of those, you know, G&A savings are difficult. We have to have conversations with employees on our side. DOCCA had to have those on their side.

Speaker Change: Look on the on the synergies.

Speaker Change: What I would say on the $40 million, we said the vast majority of that is actually on G&A savings and we would expect to achieve.

Pretty much all of that at closing some of those G&A savings are difficult we have to have conversations with employees on our side dock had to have those on their side.

Peter A. Scott: Those conversations have been had, never fun, but I'd expect the vast majority of that to hit right away. As we talked about on the balance, on the internalization, you know, most of that really is the three markets that we've said we've internalized already, so those are really tangible, but those will hit kind of quarterly as we get NOI benefits within our portfolio throughout the year. But again, we feel confident that we're going to hit all those numbers. That's why it's in our, you know, $40 million estimate that that's really just 10 months as opposed to hitting that in a year, so we're hitting those numbers a little bit. As to the additional $20 million, I think those are really kind of 2025 numbers, and a lot of that is really internalization focused, although there could be Thank you. Yeah, no, that's great. Green thumbs on the answer.

Speaker Change: Those conversations have been had never fun, but I'd expect the vast majority of that to hit right away as we talked about on the balance on the internalization.

Speaker Change: Most of that really is the three markets that we've said we've internalized already so those are really tangible but those will hit kind of quarterly as we get NOI benefits within our portfolio throughout the year.

Speaker Change: But again, we feel confident that we're going to hit all of those numbers Thats why its in our.

Speaker Change: $40 million estimate that that's really just 10 months as opposed to hitting that in a year or so hitting those numbers a little bit.

Speaker Change: Earlier on as to the additional $20 million I think those are really kind of 2025 numbers and a lot of that is really internalization focused although there could be.

Speaker Change: A modest amount more of a G&A and where we sit today, we feel confident that we can hit those numbers.

Speaker Change: But again those will be 25 numbers and that will flow through to all the years beyond that.

Speaker Change: Yes, no thats, great great Green thumbs on the answers I appreciate it.

Austin Warschmidt: I appreciate the detail. Okay, thanks. Our final question will come from the line of John Pawlowski with Green Street. Please go ahead.

Speaker Change: Yes.

Speaker Change: Our final question will come from the line of John Pawlowski with Green Street. Please go ahead.

Scott M. Brinker: Thanks for your time. I was hoping you could provide a just a very rough range of disposition volume you would look to close on this year if your public market valuation is still depressed. I mean, it could be zero if the market's tighter, it could be a couple billion dollars if the market opens up. I mean, we'll see, John.

John Pawlowski: Thanks for the time I was hoping you can provide just a very rough ranges disposition volume that you would look to close on this year, if you're a public market valuation is still good Brad.

John Pawlowski: I mean, it could be zero, if the markets tighter can be couple billion. If the market opens up I mean, you will see John.

Scott M. Brinker: We're having all sorts of discussions, but we have to... And I've been saying that on a couple quarters in a row of earnings calls, so we'll just have to see how the market plays out, but there's a lot of active discussion across the portfolio. Okay. I know, like, the market's not, you know, completely liquid right now, but there's still such a massive gap in where the stock is trading, and we're able to close some deals. And I know not everything's going to trade at a low 5% cap rate, but even if it's well north of that, it still seems like a very interesting trade right now to try to narrow the public-to-private valuation So, you know, how much are you actively on the market looking to sell right now in lifestyle and finance? Yeah, I don't really have a different answer than what I just said.

All sorts of discussions, but we have them.

John Pawlowski: In saying that on a couple of quarters in a row of earnings call. So we'll just have to see how the market plays out, but there's a lot of active discussions.

John Pawlowski: Cross the portfolio today.

John Pawlowski: Okay, I know like the market is not complete.

John Pawlowski: Completing the liquid right now, but there's still such a massive gap and where your stock is trading and where you are able to close some deals and I know im not everything is going to trade at a low 5% cap rate, but even thats well north of that it still seems like a very interesting trade right now to try to narrow the public to private valuation gap. So.

John Pawlowski: No.

John Pawlowski: Are you how much are you actively on the market looking to sell right now in life Science.

Speaker Change: Yes, I don't really have a different answer than what I gave were shipped to <unk>.

Scott M. Brinker: We're in active discussions across the portfolio. I mean, it could be a very material number if the markets... open up. Yeah, I think the other things I would add, John, is obviously we don't have any acquisitions dialed into our forecast as well, and then, you know, on top of that, and hopefully this was something that everyone got from our prepared remarks, is that we have baked in potential dilution from if we wanted to sell non-core assets, the likely use of proceeds immediately would be to repay debt, right? And that's got a dilutive impact on it.

Speaker Change: <unk> across the portfolio I mean, it could be a very material number of the markets.

Speaker Change: Yes, I think the other things I would add John is obviously, we don't have any acquisitions dialed into our forecast as well.

Speaker Change: And then on top of that.

Speaker Change: We did actually baked in and hopefully this was something that everyone got from our.

Speaker Change: Prepared remarks that we have baked in potential dilution from if we wanted to sell non core assets will likely use of proceeds immediately would be to repay debt right. That's got a dilutive impact to it that's not to say that we're going to look to further delever, we'd like to recycle that capital over time into.

Peter A. Scott: That's not to say that, you know, we're going to look to further de-lever. We'd like to recycle that capital over time into, you know, our core business segments, but we have dialed in some flexibility within our forecast to allow us to recycle. Okay, and maybe a follow-up. Can you just help us understand the two development starts for $90 million? I know it's a small volume, but seven to 8% development yields on a risk-adjusted basis seems pretty thin relative to again, where the stock is trading or even debt repayment on a risk-adjusted basis. So why is development winning out of the use of proceeds right now?

Speaker Change: Our core business segments, but we have dialed in some flexibility within our forecast to allow us to recycle capital.

Speaker Change: Okay, and then maybe.

Speaker Change: Follow up.

Speaker Change: Yes.

Speaker Change: Just help us understand the two development starts $90 million I know its small volume but.

Speaker Change: Yes.

Speaker Change: 7%, 8% development yields on a risk adjusted basis seems pretty thin relative to again why the stock is trading or even debt repayment and on a risk adjusted.

Speaker Change: Basis of wise development, winning out of and use of proceeds right now.

Scott M. Brinker: Yeah, I mean, it's with a top partner in HCA, one of them is in Dallas where we've had tremendous success. We've got assets on that campus; it's bursting at the seams. We're obviously highly pre-leased, signing long-term leases with no CapEx for the foreseeable future, so the cash flow returns are still quite attractive in our view, and we're selling assets to fund them on an accretive level, so I still find those to be an attractive use of capital for our shareholders.

Speaker Change: Yes, I mean its width.

Speaker Change: A top partner and one of them is in Dallas, where we've had tremendous success, we've got assets on that campus. It's bursting at the seams.

Speaker Change: We're obviously highly pre leased signing long term leases with no capex for the foreseeable future. So the cash flow returns are still quite attractive in our view and we're selling assets to fund it in an accretive level. So.

Speaker Change: I still find those to be an attractive use of capital for our shareholders Sean.

Sean: Okay. Thank you for your time.

This concludes our question and answer session I would like to turn the conference back over to Scott Brinker for any closing remarks.

Scott M. Brinker: Okay, thank you for your time. This concludes our question and answer session. I'd like to turn the conference back over to Scott Brinker for any closing remarks. Yeah, I want to thank everybody for their interest. The team here is completely focused and hard at work on beating our earnings guidance again. I think we've delivered really strong FFO growth. This year at more than 5%, we grew FFO by more than 7% the year before that, and we expect to continue that.

Scott M. Brinker: Yes, I want to thank everybody for their interest the team here is completely focused hard at work on beating our earnings guidance again, I think we delivered really strong <unk> growth this year at more than 5% in <unk> more than 7% the year before that.

Scott M. Brinker: We expect to continue that so in any event I appreciate you tuning in today.

Speaker Change: With any questions. Thanks, everyone.

Speaker Change: Yes.

Speaker Change: The conference call has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change: [music].

Scott M. Brinker: So in any event, I appreciate you tuning in today. Call with any questions. Thanks, everyone. The conference call has now concluded. Thank you for attending today's presentation. You may now disconnect.

Speaker Change: Yes.

[music].

Speaker Change: Yes.

Speaker Change: [music].