Q1 2025 Healthpeak Properties Inc Earnings Call
Good morning, and welcome to the help Big properties, Inc. First quarter conference call all participants will be in a listen only mode.
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Speaker Change: Like to turn the conference over to Andrew Johns Senior Vice President Investor Relations. Please go ahead.
Speaker Change: Welcome to help banks first quarter 2025 financial results Conference call. Today's conference call contains certain forward looking statements. Although we believe expectations reflected in any forward looking statements are based on reasonable assumptions. Our forward looking statements are subject to risks and uncertainties.
Speaker Change: Actual results may differ materially from our expectations.
Speaker Change: A discussion of risks and risk factors included in our press release and detailed in our filings with SEC, we do not undertake a duty to update any forward looking statements certain non-GAAP financial measures. We discussed on this call and exhibit to the 8-K refers to the SEC yesterday, we have reconciled all non-GAAP financial measures. The most directly comparable GAAP measures in accordance with Reg G. HN is also available on our website at.
Speaker Change: <unk> Dot com.
Speaker Change: I'll now turn the call over to our President and Chief Executive Officer, Scott Brittain, Okay. Thanks, Andrew and welcome to help fix first quarter earnings call.
Speaker Change: Excited to introduce Calvin knows as our new CFO will be an outstanding partner for me and the senior team.
Speaker Change: When I took this role on October 22, I talked about getting healthy closer to a real estate immersing ourselves in the underlying business of our tenants to drive better capital allocation decisions.
Speaker Change: The merger with physicians accelerated our transformation and calvin's promotion moves us further in that direction.
Speaker Change: Well rounded experience includes health care operations portfolio management.
Speaker Change: Transactions and development Calvin has been withheld peak for seven years and excel that every role we've given them.
Speaker Change: As I reflect on what the role of the CFO she'd be it health peak, we have the luxury of outstanding in place leadership in accounting finance capital markets and Investor Relations.
Speaker Change: This allows calvin to be more of a strategic and operational CFO and we expect a seamless transition.
Speaker Change: Our existing strategy around leveraging the balance sheet will not change.
Speaker Change: Today, our executive team is 45 years old on average with an average tenure of 10 years at healthy.
Speaker Change: Every one of US was internally promoted to our current position this points to a strong culture deep bench and thoughtful succession planning.
Speaker Change: Thank you to our entire team for another quarter of excellence and execution one of the we care core values that define our culture.
Speaker Change: Execution is important in any environment, but particularly in this backdrop. This team has worked diligently to meet or exceed expectations, including earnings leasing and merger synergies.
Speaker Change: Calvin will cover guidance in more detail, but I want to comment that maintaining guidance against this market backdrop is a testament to our diversified high quality portfolio.
Speaker Change: Strong results in outpatient medical and senior housing are offsetting weakness in our lab business caused by actions in comments from Washington that impacted biotech capital region and I'll come back to this topic.
Speaker Change: We produced another strong quarter in outpatient medical our largest business segment across the outpatient sector demand is outpacing new supply a trend we expect will remain in our favor due to the high cost of new construction our decision to internalize property management has been an overwhelming success strategically and financially.
Speaker Change: We completed an additional $4 5 million square feet since January one with additional markets in the pipeline.
Speaker Change: Outpatient medical is one of the very few sectors in all of real estate with positive NOI growth every year for the past two decades, we expect that portfolio to outperform other sectors. If the economy slowed down and we foresee a de minimis impact from tariffs.
Speaker Change: Our senior housing portfolio had another strong quarter of occupancy and rental rate growth driving positive, 16% same store growth with occupancy at 86% with plenty of upside to capture and I'm very happy with the strategic and tactical decisions. We've made to grow NOI on these properties.
Speaker Change: Moving to our lab business, which represents approximately 35% of our income.
Speaker Change: There has been a barrage of headlines so consider these thoughts to be an alternative perspective, no doubt its a bumpy road right now, but we do see some themes emerging that could be positive for our lab business overtime most.
Speaker Change: Most important is our governments focus on China, which has been making a big push to challenge America's leadership position in the Biopharma sector.
Speaker Change: Our view is that policymakers in a bipartisan way have correctly identified U S. Based biopharma has been paramount to our national security and economic prosperity.
Speaker Change: We see very little chance that in America first agenda leaves behind the Biopharma sector.
Speaker Change: For too long innovation from the U S has subsidized medicines around the world and other countries have captured too much control of the supply chain Washington's willingness to address these risks and in equities has the potential to be very positive for life science real estate demand here in the U S.
Speaker Change: This includes the push to onshore bio manufacturing and would logically include R&D as well.
Speaker Change: There appears to be support in Washington to address that profitability and complexity of pbms and to eliminate the so-called till penalty in the inflation reduction act, which would extend market exclusivity for small molecule drugs by four years.
Speaker Change: Both changes would improve biopharma return on investment and therefore, it manifests space.
Speaker Change: Our functional FDA is critical to the U S maintaining its leadership position in the sector.
Speaker Change: Today, It takes at least 10 years and $1 billion to bring a drug to market in the U S. It's in our national interest to look for ways to make that process more efficient.
The recent job cuts at the FDA captured headlines, but did not impact the scientists or the reviewers.
Speaker Change: It is early but the feedback to date from our tenants suggest normal response times from the FDA with only isolated delays.
Speaker Change: Final drug approvals have continued at the FDA since the inauguration.
Speaker Change: New applications have been approved as well, including last week for one of our tenants to start phase one trials for gene edited liver transplant.
Speaker Change: There is also discussion at the FDA of using technology to replace expensive by Varian work and a new conditional approval, which could shorten the timeline for costly phase III trials. The point is there is some early evidence that the FDA is looking to encourage innovation and create faster timelines last.
Speaker Change: The last point I'll make on this topic is that consumers also vote in elections and consumer demand for innovative diagnostics and therapeutics is not going away. In fact demand is projected to accelerate to 8% per year through 2030, we.
Speaker Change: We expect orders to push their elected representatives to support medical innovation.
Speaker Change: Specific to our portfolio, we continue to focus on capturing market share with our high quality portfolio.
Speaker Change: We signed 450000 square feet of leases year to date and our pipeline is the largest it's been since last summer.
Speaker Change: Not surprising to see some tenants delay final leasing decisions given the environment, but we see this as demand getting pushed back not eliminated.
Speaker Change: Finally, we have even more confidence today that new supply in the sector will essentially go to zero for many years to come. This is obviously a great foundation for a recovery in our lab business.
Speaker Change: I want to comment on recent capital allocation by this team, which puts our balance sheet and liquidity in an enviable position.
Speaker Change: We were early to shut down capital allocation to life Science, we have not started a new development. Since 2021 second we executed the merger with physicians Realty Trust, which increased our allocation to the stable and attractive outpatient medical business to just over 50%.
Speaker Change: <unk> generated earnings accretion, improving our balance sheet and creating the best platform in the outpatient sector.
Speaker Change: Finally, we sold $1 $4 billion of stabilized assets at a very attractive six 3% cap rate and used the proceeds to fully fund our development pipeline by back almost $300 million of stock at an implied 8% cap rate and bring leverage down to the low fives.
Speaker Change: We also reduced floating rate debt from 20% to <unk>.
Speaker Change: Zero.
Speaker Change: That brings us to today, our life science loan pipeline is active and we continue to see opportunity to position help pay for the inevitable recovery.
Speaker Change: We still believe the best time to invest is when others are not.
Speaker Change: As market uncertainty has increased we stepped back to reassess the appropriate risk adjusted returns, which may be different than three to six months ago when certain transactions were negotiated.
Speaker Change: We chose to maintain our $500 million investment guidance. This year, but we've now included stock buybacks in that line item to reflect our optionality in any event, we intend to maintain leverage within our targeted range in the mid fives I am happy to turn the call to Kelvin.
Kelvin: Thank you Scott for the warm introduction I am grateful to have the opportunity to grow within health <unk> leadership in this role I am excited to continue to help shape our business strategy.
Kelvin: Once the outcomes that drive our operating results.
Kelvin: The complement of my real estate and transaction mindset alongside of this outstanding team will allow us to continue to focus on disciplined capital allocation decisions that will deliver long term value to our shareholders.
Kelvin: Before we get started with our first quarter results I wanted to share a brief update on our master planned development projects in West Cambridge.
Kelvin: I spent the last five years working closely in the Boston market to help build our lab portfolio, including our land assemblage and entitlement efforts for our Cambridge point Master plan B.
Kelvin: And behalf of the team I am pleased to announce that we've selected Hines to join US the development partner to advance the residential component of the project.
Kelvin: <unk> brings a depth of expertise in place, making multifamily construction and mixed use development, which will allow us to commence this project. Once we are fully entitled wait next year. We're.
Kelvin: We are extremely pleased with this outcome and the partnership with Hines advances our vision to establish a mixed use destination of scale and validates this generational opportunity that will be delivered over the next decade plus.
Kelvin: Now turning to the first quarter financial and operating results.
Kelvin: We reported <unk> as adjusted of <unk> 46 per share <unk> 43 per share and total portfolio same store growth of 7%.
Kelvin: Moving to segment performance.
Kelvin: Patient medical we reported first quarter same store growth of 5% driven by strong tenant retention and positive rent mark to market of four 1% and the benefit from our continued internalization efforts.
Kelvin: During the quarter, we executed nearly 1 million square feet of leases, including 265000 square feet of new leasing, which is followed up by a strong and active pipeline as we head into the second quarter.
Kelvin: On the rentals for the outpatient business have never been stronger and our team is working hard to translate this favorable backdrop into higher occupancy stronger rent mark to market and ultimately cash flow growth.
Kelvin: Turning to the web.
Kelvin: We reported same store growth of seven 7%, which includes the positive impact from the expiration of the free rent on two large leases in south San Francisco and a full quarter benefit of internalization.
Kelvin: For the balance of the year, we expect quarterly same store growth to decelerate as the benefits of internalization and free rent normalized.
Kelvin: Despite the challenging market backdrop, we continue to see strong demand for space within our portfolio.
Kelvin: And year to date through April we have signed 443000 square feet of leases and have entered into LOI on an additional 400000 square feet.
Kelvin: And finally <unk>.
Kelvin: We reported same store growth of 15, 9% driven by rate growth of approximately 6% and 100 basis point increase in occupancy.
Kelvin: Shifting to the balance sheet.
Kelvin: In February we issued $500 million of unsecured notes at a rate of five and three eighths.
Kelvin: That is 102 basis points spread over the 10 year.
And this was also the tightest 10 year spread in the history of healthy.
Kelvin: We had in the first quarter at five two times net debt to EBITDA and $2 8 billion of available liquidity.
Kelvin: Which further positions our balance sheet for long term success.
Kelvin: Pending with guidance.
Kelvin: We are maintaining our <unk> as adjusted guidance in the range of $1 81 per share to $1 87 per share.
Kelvin: We're also maintaining our blended portfolio of same store growth in the range of 3% to 4%, which reflects the strong performance during this first quarter.
Kelvin: The strength of this diversified portfolio reinforces our ability to maintain guidance and allows us to direct our business strategy towards initiatives that will provide the greatest long term value to the company.
Kelvin: With that operator, please open the line for Q&A.
Kelvin: We will now begin the question and answer session to ask a question you May Press Star then one on your it that just don't phone if youre using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then one.
Kelvin: So that everyone may have a chance to participate we ask that participants to limit your questions to one and a related follow up if you have additional questions. Please re queue.
Kelvin: At this time, we will pause momentarily to assemble our roster.
Granite: The first question comes from granite with Bank of America.
Karl: Karl Please go ahead.
Karl: Thank you good morning, and congratulations Calvin on scale position.
Speaker Change: My question is about you've made comments about weakness in lifestyles and appreciate all the comments that you made on the policy front. So I'm curious.
Speaker Change: In a broader sense, what would change to a more positive expectation and performance perhaps in the back half of 2025, if there is any news or updates can be expected.
Speaker Change: Yes fair enough.
Speaker Change: Here with me this morning, I'll start with that Scott probably has some comments as well, but I think.
Speaker Change: Important that we do have a diversified portfolio just to start with 65% is in industries with really strong fundamentals and across the entire portfolio of life science in particular very high quality assets and platform, where I think we have been outperforming the market at large and I think that will continue obviously theres a lot of them.
Speaker Change: Stability and uncertainty in.
In certain sectors right now is not most sectors biopharma.
Speaker Change: Biopharma is one of them, whether it's tariffs or capital raising of regulatory uncertainty. We think that does start to come down over the balance of the year, obviously certain things they've already backed away from.
Speaker Change: From pressure from Congress or just the American public and I do think that will benefit.
Speaker Change: The sector and add some stability, but the first 90 days or 120 days of this quarter.
Speaker Change: Not ideal from a capital raising standpoint, that's not new information in terms of what's happened with Ipos for venture capital or secondary funding.
Speaker Change: So we still see a lot of upside certainly the patent cliffs that big pharma needs to fill that is not going away.
Speaker Change: And biotech is the likely spot for them to look there was a deal announced yesterday just as an example, so there are things that we can point to that that we see as potential inflection points.
Speaker Change: But the first 120 days was not ideal from a capital raising standpoint.
Ben: Thank you and also I guess Ben you.
Speaker Change: You may comments about.
Speaker Change: Potential push outs of re leasing in our lifetimes, so hoping if you could potentially quantify that.
Speaker Change: With.
Speaker Change: Current pipeline if that is what you are seeing are things getting pushed out.
Speaker Change: By single quarters or.
Speaker Change: Your term.
Speaker Change: As you are making.
Speaker Change: Yes, I mean, we signed 250000 feet plus of leases in the first quarter continued momentum into April really strong LOI pipeline.
Speaker Change: And as I mentioned Theres, a pipeline beyond that tours.
Speaker Change: <unk> proposals that is the largest it's been since last summer. So we actually feel pretty good about the leasing that we're doing and we do have four or 500 basis points of leases that have been signed that are just not yet.
Speaker Change: Occupied in paying rent, but obviously those leases will commence in the coming quarters. So theres clearly some positives.
Speaker Change: So we feel good about that thought and you should comment <unk> Scott.
Speaker Change: The thing I would add too is that.
Speaker Change: The tenants that are in our.
Speaker Change: <unk> pipeline of our active demand pipeline. Those are tenants that are typically have raised capital or already have well capitalized balance sheets.
Speaker Change: Arent you need to raise capital in the next six months some groups who are executing on their business plan and can play through kind of some of this noise here.
Speaker Change: Okay. Thank you I appreciate it.
Speaker Change: Your next question comes from the line up John Kelly Koski with Wells Fargo. John. Please go ahead.
Speaker Change: Good morning, Thank you.
Speaker Change: First question would be on the guide the.
Speaker Change: $500 million of investments, where the share repurchases driven by the relative attractive the relative attractiveness of the stock or is that more due to the difficulty of underwriting lab here.
Speaker Change: It's more of the attractiveness of the stock we have the luxury of a strong balance sheet that gives us optionality and flexibility we bought back stock year to date almost $100 million of that.
Speaker Change: <unk>, 10% <unk> yield for really high quality portfolio. So that was the driver.
Speaker Change: Okay, and I guess on.
Speaker Change: In terms of underwriting lab in an environment like this how is it changed for you in terms of what you need to see maybe pre and post liberation day.
Speaker Change: Yes. It is.
Speaker Change: Just timelines for leasing.
Speaker Change: No that rental rates are changing in any material way. It's just if we underwrote a two year lease up six months ago that might be a longer lease up today, there's just uncertainty it may end up being less.
Speaker Change: The headlines today J D.
Speaker Change: Daily if not hourly but from where we sit today.
Speaker Change: We would be smart to underwrite a longer lease up than we would have six months ago. Yes, I would also add it's less about kind of liberation day, and the tariffs and it is about the.
Speaker Change: Just the uncertainty and instability NIH funding.
Speaker Change: <unk> added more so than tariffs.
Speaker Change: The biotech Georgia.
Speaker Change: Got it thank you.
Austin Smith: Your next question comes from the line of Boston, where Smith with Keybanc capital markets. Austin. Please go ahead.
Austin: Great. Thanks, good morning, everybody.
Austin: <unk> just going back to your comments about weakness in the lab business. I guess can you just provide an update about the health of the tenant base and more specifically the watch list and whether there is any signs of credit concerns emerging at this point.
Austin: Yeah, we had a significant improvement in rent collections and bad debt in 2024 relative to 'twenty three on top of really strong.
Austin: Leasing volumes, but at any point in time, a number of our tenants are in the market actively raising capital and not spend a lot more difficult for the last three to four months. So theres a number that are still in process of trying to raise money unclear still make it or not a lot depends on.
Austin: Whether some of this regulatory uncertainty and market chaos.
Austin: Stabilizes in which case I think a good number of them will end up raising money and if not obviously a number of them will not so.
Austin: We still feel like the guidance range that we've reaffirmed by the way. So there is no change in guidance or same store.
Austin: Captures the potential.
Austin: Upside and downside scenarios from where we sit today.
That's helpful. And then just maybe pivoting to your comment about risk adjusted returns and potentially moved here versus three to six months ago.
Austin: Many of the parties that you're speaking with are in need of a solution in the near term and it could be price takers, where you think maybe you can still get a deal done.
Austin: Particularly on sort of the loan investments that you've that you've spoken to.
Austin: Yes, I think it's too early to speculate.
Austin: On that Austin.
Austin: We'll have more clarity in the coming weeks and months, but I'd hesitate to.
Austin: To trash it chip precise feedback on a question like that I appreciate the question itself, but.
Austin: We're just too early in that process.
Austin: Understood. Thanks for the time.
Ronald Camden: Your next question comes from the line of Ronald Camden with Morgan Stanley Ronald Please go ahead.
Speaker Change: Hey, just going back sort of the guidance and just a little bit more details because presumably a lot of the deceleration is coming from the lab side right because the mlps and the CRC or seems it seems pretty stable as you mentioned just as it all sort of free rent deceleration just what's what.
Ronald Camden: Color on sort of the diesel on the lab side would be would be more helpful.
Ronald Camden: Well, yes, Ron even in the outpatient in senior housing sector. Our first quarter results were significantly ahead of the initial year guidance for those segments. So there could be some deceleration in all three segments, but I think youre right.
Ronald Camden: The bigger drop is more likely to be in life Science. We did has free rent it was supporting.
Ronald Camden: Our first quarter result.
Ronald Camden: Set of internalization.
Ronald Camden: We'll no longer have that year over year benefit in my science, So that will have an impact as well and then just the uncertainty that I mentioned earlier around the funding environment.
Speaker Change: Great and just my follow up would be are any do you think about sort of your three markets.
Speaker Change: Yes, Sam San Diego, Boston, San Francisco is there.
Speaker Change: That's better positioned worst position from all of these sort of funding environment and cut so for US just trying to figure out what the ranking looks like in your minds.
Speaker Change: Yeah, Hey, Ron it's Jeff.
Speaker Change: Boston overall relative to market size continues to be.
Speaker Change: The slowest.
Speaker Change: Fortunately.
Speaker Change: Several growth tenants, there driving the demand within our portfolio and very little roll vacant space. There. So we're in good shape and Boston, all things equal, but I would say from a <unk>.
Speaker Change: Demand perspective, it's probably the slowest San Diego has been pretty consistent over the past 12 to 18 months.
Speaker Change: And in San Francisco, we clearly see the most demand there.
Speaker Change: And part of that is due to our portfolio and our scale. We do a lot of deals that don't hit the active broker sheets.
Speaker Change: So.
Speaker Change: That's your I would rank them.
Speaker Change: Thanks, so much.
Speaker Change: Your next question comes from the line of <unk> with Citi.
Speaker Change: Please go ahead.
Speaker Change: Hi, Thanks can you give some more color on the <unk>.
Speaker Change: <unk> leasing activity today is that from the development pipeline and kind of what what do the rents might look like for that space.
Speaker Change: Yes.
Speaker Change: <unk> numbers I don't really want to get into the quantum of the LOI is most of those are in the operating portfolio.
Speaker Change: But the pipeline as Scott mentioned is as strong as it's been since last summer.
Speaker Change: And there are certainly deals and thats been that pipeline.
Speaker Change: That do full answer that Devin readout bucket.
Speaker Change: I think we're ready to get into the details of those deals just yet.
Speaker Change: Matter when their executions versus pipeline.
Speaker Change: Okay, Great and then just for the follow up for that $500 million of investments activity how are you.
Speaker Change: Thinking about capital allocation in terms of.
Speaker Change: Development of our external growth versus buyback buybacks today.
Speaker Change: There will be flexible it depends what happens with the stock price depends what happens with some of these opportunities we've been pursuing and what the potential new terms would look like so hard to speculate.
Speaker Change: Got it got Optionality.
Speaker Change: Thanks.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Rich Anderson with Wedbush Alright, Rich. Please go ahead, thanks and good morning.
Speaker Change: Kelvin congrats on the move up looking forward to working with you.
Speaker Change: Scott you mentioned a lot about sort of the slowdown in leasing and life science understood given all the chaos, which is the right word to use.
Speaker Change: Specific though to sort of the marquee leasing that we've talked about in the past portside vantage directors place $60 million of NOI. There are potential you've made some good progress getting through a lot of that maybe half of it is sort of locked up for future revenue recognition, but do you think.
Speaker Change: That now.
Speaker Change: Getting to $60 million was a three year event actually realize that cash do you think it's significantly pushed back now, but based on what's happening or do you think you're still on track with those three specific opportunities.
Speaker Change: Richard I think it just depends I mean, it's the next nine months look like the last three months it might take a little bit longer, but we've seen that the market can shift pretty quickly based on one press release your comment so it's hard to predict.
Speaker Change: What what the future holds we do see as I said in the prepared remarks, a lot of themes emerging that could be very helpful.
Speaker Change: But stability would be the most important thing in the near term for us to answer your question on specific lease up timelines.
Speaker Change: Fair enough.
Speaker Change: And then follow up is you talked about kind of reassessing required returns on your life Science loan program.
Speaker Change: <unk> serves you were getting an eight ish type number on that the buyback was an eight implied.
Speaker Change: So.
Speaker Change: Whats the appropriate premium to doing buybacks is it a 100 basis points in your mind or is it more or less.
Speaker Change: Is that sort of TBD.
Speaker Change: Number that you're sort of addressing as you monitor the market. Thanks.
Speaker Change: Yes.
Speaker Change: 8%, you mentioned was a really low loan to value first mortgage Torrey pines kind of premier sub market. Most of the life science investments that we had been pursuing where more distressed situations that the returns were substantially higher.
Speaker Change: 8%, I mean way into the double digits. So it's a different investment profile than buying back our own stock.
Speaker Change: Okay, and so that that double digit isn't enough for you at this point is that a fair statement.
Speaker Change: Yes, that's why we stepped back.
Speaker Change: We're reassessing that pipeline it is not going away.
Speaker Change: But we have stepped back to reassess fair enough. Okay. Thanks, everyone.
Speaker Change: Your next question comes from the line of Vikram Malhotra with Mizuho Vikram. Please go ahead.
Vikram Malhotra: Morning, Thanks for taking the questions maybe.
Speaker Change: Maybe just first one on life Sciences, specifically.
Speaker Change: Can you kind of talk about the components of same stores, specifically occupancy how you see that trending for the balance of the year end.
Speaker Change: If there is some pressure then how much of that is known versus sort of discipline colder for the uncertainty that you referenced.
Speaker Change: Yes.
Speaker Change: We don't guide to occupancy.
Speaker Change: I never have and we're certainly not going to start to an entire event like this it's possible that occupancy comes down a bit.
Speaker Change: The offsets we signed a ton of leases that will.
Speaker Change: We will become rent pain spaces in the next couple of quarters. We've continued to sign leases here in the first quarter into April got a bunch of LOI is the offset is we obviously have 600000 of maturities this year and we get really good clarity in the supplemental about what's happening with each of those whether they are going into redevelopment.
Speaker Change: Under LOI being negotiated or likely going vacant so theres pretty good clarity there any uncertainty element is what happens with regulatory policy in.
Speaker Change: And bad debt and that's just too hard to speculate on in an environment like this but most important is diversified portfolio our earnings guidance Hasnt changed our same store guidance Hasnt changed and those are the numbers that we're focused on the aggregate company wide metrics.
Speaker Change: Okay, but just to clarify so where the overall same store has not changed in the guidance unchanged I'm assuming you.
Speaker Change: The MLB side is doing better like you referenced so that that's probably gone up in the same store NOI for life Sciences have gone down our diesel is that fair.
Speaker Change: From where we sit today, that's most likely.
Speaker Change: But again, there is quite a bit of uncertainty to be too precise in life science in particular, but the outpatient business is doing very well great portfolio platform good fundamentals.
Speaker Change: So we do feel good about that sector.
Speaker Change: Okay, and then just a last thing just to clarify so the watch list sort of you referenced I'm assuming.
Speaker Change: Thats a review you've done over the last 30 60 days given this uncertainty.
Speaker Change: Can you kind of frame it for us a little bit like.
Speaker Change: Compared to sort of two.
Speaker Change: Two years ago, when we were coming out of all of this uncertainty during COVID-19 too many companies that formed like how does the watch list compare today to that uncertainty maybe two three years ago.
Kelvin: Hey, Rick this is kelvin.
Kelvin: We have a very robust credit monitoring platform and I would say that where we sit today be the composition of our watch list Hasnt changed materially. So I don't think theres anything that we can speculate on right now, we still kind of need to wait and see.
Kelvin: But the composition hasn't changed materially.
Kelvin: Thank you.
Speaker Change: Your next question comes from the line of Michael Carroll with RBC capital markets. Michael. Please go ahead.
Speaker Change: Yes. Thanks, I just wanted to quickly follow up on the life Science side I know Scott you kind of mentioned in the call that there is a lot of tenants or maybe a few tenants, they're trying to raise capital and if they can't then that could be a problem I guess first how many are we talking about here and what happens if they can't raise capital. So just kind of a general mixture of some could be bought.
Speaker Change: It out and others might default on their lease I mean, what's the type of scenarios, we should think about related to your earlier comments.
Speaker Change: Yes, theyre sub tenants in some of the spaces. So each one is.
Speaker Change: Is unique.
Speaker Change: I won't speculate on the number.
Speaker Change: Okay.
Speaker Change: The guidance range that you've reaffirmed captures the potential outcome.
Speaker Change: What we foresee based on the very detailed credit monitoring that we do in Calvin reference data, it's qualitative and quantitative.
Speaker Change: Kind of looking at it from every angle and obviously spending a lot of time with the companies that we think do you need to raise capital to continue.
Speaker Change: Okay.
Speaker Change: And then I guess, congrats Calvin and maybe can you talk a little bit about the <unk>.
Speaker Change: Heinz agreement that was announced I know that their plan is to build apartments on the site, but how should we think about the bed.
Speaker Change: The benefits and the cash flow that could come from Doc related to this I mean is it related to.
Speaker Change: Selling the land in the beginning and then you get some upside or will this not really kind of hit your P&L until these buildings are completed I guess, how should we think about the amount and the timeline of that.
Speaker Change: Yes.
Speaker Change: So I am looking at it as a phased takedown B agreement, we have with Hines has a four evaluation on the land and as they get ready to take down sites over time, including the first one that would take place within six to 12 months of entitlements late next year, we would be able to recapture those proceeds.
Speaker Change: So it will be over time.
Speaker Change: Okay, great. Thank you.
Speaker Change: Your next question comes from the line of Juan Sanabria with BMO capital markets. One. Please go ahead.
Speaker Change: Hi, This is robin handle and Antoine just curious if you can provide a bit more detail on the on the watch list profiles are these tenants any particular sectors and is there a is there any insights you can share on the aggregate wireless pool as far as the total portfolio.
Speaker Change: Hey, Ron This is Kelvin I don't think we have granular detail to share again I think the watch list composition is consistent with what it's looked like in the past.
Speaker Change: But we continue to monitor actively and as we get further along in the year, we'll have more color.
Speaker Change: Got it.
Speaker Change: You've talked a lot about the stepping back in investments.
Speaker Change: But I imagine banks relative sidelined at this point just was curious if you can elaborate what do you want to see to fill the void in lending and and then on the purchase agreements tied to your loans are willing sellers to provide that as part of.
Speaker Change: The deal.
Speaker Change: While we have purchase options on everything we've done to date.
Speaker Change: And we'd have options on everything that we would do in the future I mean, that's just fundamental to the strategy here would be a pathway to ownership on buildings that we want to own.
Speaker Change: What would need to change probably better security potentially higher rate.
Speaker Change: Come to mind as things that that are on our mind as we.
Speaker Change: Reassess.
Speaker Change: Life Science pipeline.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Wes Golladay with Baird. Please go ahead.
Wes Golladay: Good morning, everyone do you expect to see any distressed opportunities from the tier one locations for lab. If this goes on for another year.
Well the answer is yes, I mean, that's that's been the pipeline those are the things we're pursuing so we do see significant opportunity coming out of this I mean, we've outperformed the sector.
Wes Golladay: The last couple of years.
Wes Golladay: And capital allocation decisions made in the past two to three years that position us well to take advantage of that stress. So we still see that opportunity. It's just a matter of when is the right time to invest and what are the right terms and natural reassessing, but the answer to your question is yes, absolutely.
Speaker Change: Okay and then when you look at your outpatient medical developments do you have a higher hurdle for that and do you expect any impact from the tariffs on the development cost.
Wes Golladay: And then material way.
Wes Golladay: You want to comment on sure yes, sure. So I can start with the tariffs I mean I think what.
Wes Golladay: We're seeing in the tariffs if the tariffs that are in place today.
Wes Golladay: Continue we'd probably see your estimate of.
Wes Golladay: 2% to 6%.
Wes Golladay: Increase in cost, but I think what's important on our active developments on the <unk> side.
Wes Golladay: 100% under GMP contracts and over 85% of our readers.
Wes Golladay: GMP, so that accounts for that.
Wes Golladay: They are building corner shell and any ongoing <unk>, so we see little to no risk.
Wes Golladay: Cost increases to our active portfolio.
Wes Golladay: But going forward again, its a little bit of a murky crystal ball, but probably in the two.
Wes Golladay: 2% to 6% range, but we're also working very closely with our <unk>.
Speaker Change: Suppliers in gcs to ensure we.
Wes Golladay: Drive those costs down as much as we possibly can.
Speaker Change: Okay, and do you have a higher hurdle rate for future projects at some point you may want to maintain the relationship you have with and also your cost May go up so how you manage that.
Speaker Change: Yes, I mean, certainly in a volatile environment and we have to be thoughtful and flexible on capital deployment and what's the appropriate risk adjusted returns. So that's why you saw us scaled back.
Speaker Change: The amount of the $500 million of investments, that's going towards acquisitions or loans and increase the buybacks. So the answer is yes, we're flexible.
Speaker Change: Adjust and allocate capital we see the best risk adjusted return.
Speaker Change: Yes.
Speaker Change: Okay. Thank you.
Speaker Change: Your next question comes from the line of John Pawlowski with Green Street, John. Please go ahead.
John Pawlowski: Okay. Thanks for the time Calvin can you just spend a few minutes.
John Pawlowski: Talking through the West, Cambridge development I don't have a good sense of what the total construction cost might be over time, what percentage of it is going to come through a healthy balance sheet timeline. So.
John Pawlowski: Love an update on kind of the bigger master plan.
John Pawlowski: Capital cost and the time to deploy the capital.
John Pawlowski: Yes, so I might start with.
John Pawlowski: We're not yet fully entitled on the projects, we're working through the entitlements now and we expect to be entitled at the end of 2026.
The Heinz partnership that's been our focus really to accelerate the project catalyze the projects with residential which is the highest in demand right. Now. So we don't have any construction cost exposure to the residential component Heinz will be responsible for all of those expenses.
John Pawlowski: And down the line as the market improves we will evaluate when it's appropriate.
To get started and pursue the lab components. So we're really focused on high end right now.
John Pawlowski: Happy to have them as a partner in being able to get started on the project.
Speaker Change: I guess I worry a little a little about that dynamic that.
John Pawlowski: Youre waiting to start lab in practice, you're going to be parking over to this deal.
John Pawlowski: So you are effectively committing to a big check today so.
John Pawlowski: I guess, maybe any comments there would help given where stocks trading on that and just the total capital cost.
John Pawlowski: How how high of odds are there thats youre going to start these lab developments in West Cambridge.
John Pawlowski: Yes.
John Pawlowski: Aren't you back to investments we've made in.
John Pawlowski: West, Cambridge, specifically half of our $600 million has been.
John Pawlowski: As developable sites. The other half is actually leased today. So we have credit tenants occupying buildings that are paying us rent. So I don't think we have.
John Pawlowski: Pressure per se to move quickly.
John Pawlowski: But again heinz's is prepared to get started within six to 12 months on the residential component and the economics there are actually beneficial.
John Pawlowski: For value on the land.
John Pawlowski: Are we going to serve the upside so I think we're going to actually be able to pull in some economics from the hydro transaction.
John Pawlowski: Okay. Thank you.
Speaker Change: Yes, John there is there any independent multifamily in the ladder independent projects and we are not allocating any capital to.
Speaker Change: To the multifamily that time, so I just want to make sure youre clear on our capital commitment and the deal structure.
Speaker Change: And your next question comes from the line of Jim <unk> with Evercore. Jim. Please go ahead.
Jim: Hi, Good morning, Thank you, maybe a qualitative probe potentially on the development and redevelopment prospects would.
Speaker Change: Would you say that you have a number of tenants you are having discussions with.
Speaker Change: Space needs is really kind of held together. It's just we can all appreciate that the decision making has been a positive I'm just trying to get a better sense of.
Speaker Change: With that kind of looks like as an aggregate pool that your number of conversations and so on.
Speaker Change: Yeah, and Jim It's Scott again.
Jim: I would say go back to my comment I made earlier the pipeline that we have today.
Speaker Change: Both on the LOI pipeline. The <unk> pipeline. These are tenants that are well capitalized have already raised funds there aren't looking to raise.
Jim: Raise money in the next three to six months, so now they've got their business plan.
Speaker Change: We are looking to take either additional space.
Speaker Change: Renewing in place or are moving to believe they are moving to looking to take additional space.
Speaker Change: Okay, and then so derivative of that question you Havent seen to your knowledge tenants, you're speaking with jump ship and go somewhere else for 10 Bucks cheaper rent, it's not a price issue, it's really a total capital and visibility of their business issue.
Speaker Change: Making the decision to go through or not.
Speaker Change: Yes, I think thats accurate and I think Thats why you see the incumbent landlords when an outside share of the deal right I mean I think.
Speaker Change: These are mission critical facilities.
Speaker Change: And theyre going to make a decision for the long term and wanted to know who the landlord is going to be for the duration of the lease.
Speaker Change: One of the reasons, we've outperformed the.
Speaker Change: The broader market.
Speaker Change: Sounds good thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Mike Mueller with Jpmorgan, Mike. Please go ahead, yes.
Mike Mueller: Yes, Hi, first also want to pass on and congrats to Kelvin.
Speaker Change: And for the two questions.
Speaker Change: First it looks like at rents may have helped your MLP growth this quarter, both sequentially and year over year was that the case and if so how much and for the second question. What do you see as full occupancy for the CCR sees.
Speaker Change: Yes, Mike This is mark I'll take the first one on the medical city AD rent.
Speaker Change: We had a great start to the year. There ahead of budget as you mentioned and I had a schedule. It's a total of about $1 million in the quarter, which is about 50 basis 50 basis point impact on our same store for the year over year and sequential.
Speaker Change: And Mike <unk> Senior housing question, we're at roughly 86% today. There are a couple of properties that bring that average down.
Speaker Change: Theres upside, it's probably in the $3 to 400 basis point range would be a rough estimate just based on trajectory to lead volume continues to be strong so definitely some upside to capture.
Speaker Change: Got it thank you.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of BOMA Tayo Okusanya with Deutsche Bank, Hi, Matteo. Please go ahead.
Speaker Change: Yes.
Speaker Change: Good morning, everyone tailwind first of all congratulations.
Speaker Change: I'll look forward to working with you.
Speaker Change: So my first question.
Speaker Change: Round.
Speaker Change: I mean, you kind of given a very.
Candid picture of life Sciences, which I appreciate.
But it takes a look at your leasing volumes and it sounds like things actually accelerating into Q relative to one Q.
Speaker Change: How should we be kind and it kind of sounds very much like last year as well right, where the backdrop is tough, but youre leasing actually gotten better over the course of the year.
Speaker Change: Is that the.
Speaker Change: Same idea is this year on <unk>.
Speaker Change: <unk>.
Speaker Change: Cautioning that may be we may not have that same kind of Tam both this year.
Speaker Change: First quarter is always a little weak.
Speaker Change: That was the case last year, and we're less than 200000 feet and we signed an 800000 feet and <unk>. So there is definitely an increase and we have a good pipeline I mean, we keep saying that.
Speaker Change: So yes, I mean, the leasing pipeline is strong weather is what signed in April the LOI is and what comes behind that as we said a couple of times now it's as strong as it's been since the summer, but we've also said it wouldn't surprise us if some of those lease executions get pushed back that's just the reality of the market environment that we're in.
Speaker Change: There's a huge amount of uncertainty and we are giving you a candid view, we still love the sector, we have a great market position high quality real estate, but if youre expecting massive earnings growth and turnaround and <unk> I mean, that's going to be tougher I mean, I don't think that should be a surprise. If you look at what's happened to Biopharma capital raise.
Speaker Change: In.
Speaker Change: In the start to the year.
Speaker Change: Fair enough.
Speaker Change: And then also for the new leases in the quarter.
Speaker Change: Weighted average lease term was like 58 months or so that number is going to almost double that anything unique there in regards to mix or just terms changing people wanting sort of leasing because of the uncertainty.
Speaker Change: No.
Speaker Change: And I think that a new leaf river on average about five years, which is not too far off where we were I think for full year.
Speaker Change: 2024.
Speaker Change: As we've talked about.
Speaker Change: When we talk about mark to market and other things in the life science portfolio, our deals tend to be pretty chunky.
Speaker Change: So looking at it on a quarter by quarter basis.
Speaker Change: <unk> necessarily the right way I think you got it.
Speaker Change: The full year, our trailing 12 months.
Speaker Change: So I don't think theres anything specific in that quarter that is.
Speaker Change: No that's helpful.
Speaker Change: One more for me if you don't mind.
Speaker Change: Development bucket for other redevelopment, but that amount increase this quarter and now you have 16 projects versus 12 last quarter could you talk a little bit about kind of what's the additional products, where what's being moved into readout is it like a building you have a tenant moved out and now moving into lead them just kind of trying to understand some of the movement that.
Speaker Change: Yes, we added.
Speaker Change: Three projects to that bucket this quarter.
Speaker Change: Two lab buildings and one alone building.
Speaker Change: All of them is we're 100% pre lease.
Speaker Change: Some pretty large size as well as.
Speaker Change: Base building work needed on those buildings, that's about 130000 feet and about $40 million total.
Speaker Change: And those.
Speaker Change: The bulk of those I think are.
Speaker Change: Q4 stars for the lease of OSB and for the next few quarters.
Speaker Change: Okay.
Speaker Change: The current kind of intimating moved out of those buildings.
Speaker Change: Great.
Speaker Change: Okay.
Speaker Change: Paul.
Speaker Change: Thank you.
Speaker Change: And your next question comes from Rich Anderson with Wedbush Rich. Please go ahead. Thanks for the quick follow up when you think about maintaining guidance.
Speaker Change: And <unk>.
Speaker Change: Perhaps ramping up buybacks and ramping down.
Speaker Change: Your life Science loan business is the net.
Speaker Change: Forest.
Speaker Change: <unk>, but.
Speaker Change: But yet you were able to maintain guidance or wood or would that be something with a combination of those two observations actually help you to sustain maintained guidance I'm just curious how the math works in your mind. Thanks.
Speaker Change: Yes, I mean, it depends obviously what price for buying back the stock.
Speaker Change: And which investments either proceed or not some of that higher returns.
Speaker Change: Some of that higher returns at others. There's also the impact on leverage and we did make the comment in any of that we don't expect to take our leverage above five five times.
Speaker Change: <unk>, obviously are not helpful for leverage.
Speaker Change: Whereas investments could potentially be high enough yield yielding that they would be beneficial to leverage so.
Speaker Change: There is an impact, but I'll come back to regardless of how we use the $500 million and that could include just sitting on the cash.
Speaker Change: And keeping leverage lower we still feel like our guidance range captures the potential endpoints.
Speaker Change: Okay, great. Thanks very much.
Speaker Change: Yes.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Scott Brinker for any closing remarks.
Scott Brinker: Thanks for your time today look forward to seeing you in.
Speaker Change: In May if not June at the various events. Thanks, everyone.
Speaker Change: Yeah.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Yes.
Speaker Change: [music].
Speaker Change: Sure.