2019Annual Report Scripps Wateridge (San Diego, CA)
Dear Fellow Shareholders,
On October 30, 2019, we announced our new name, Healthpeak
Properties, and related rebranding. Healthpeak Properties was chosen as it
encompasses who we are as a company and where our focus lies. “Health”
communicates the sector in which we invest, and “PEAK” is consistent
with our goal of being one of the premier REITs in the United States and
connotes our focus, stability and high-quality.
The name change represents the culmination of our successful efforts to reposition our
strategy, team, portfolio and balance sheet. To provide some perspective, over the last
three and a half years we sold, transitioned or spun-off over $14 billion of non-core assets,
raised over $2.0 billion of new equity, paid down $5 billion of near-term debt, reinvested
$5 billion into new investments in quality real estate, put in place a new leadership team,
and refreshed our Board.
Today, we believe Healthpeak provides investors with a highly differentiated investment
opportunity. We have a focused and disciplined investment approach, a strong balance
sheet and a diversified high-quality portfolio of properties balanced across the three
primary private-pay healthcare businesses of life science, medical office and senior housing.
We continue to seek to have roughly one-third of our assets in each of our three core
business lines, and in 2019 we moved closer to our target as we increased our life science
concentration from 25% at the beginning of the year to 31% at year-end. This is a result of
strategic life science acquisitions in our core markets and continued deliveries from our
$1 billion plus development pipeline. In our medical office segment, we added new projects
to our development program with HCA Healthcare (“HCA”) and redeveloped certain of our
older, but irreplaceable, on-campus assets. And, in senior housing we continued to improve
our portfolio through the sale of $1.4 billion of non-core assets and reinvestment of $1.4 billion
into newer assets with higher price points and/or in higher barrier markets and top operators.
TICKER: PEAK
ENTERPRISE VALUE: $25B(1)
NUMBER OF PROPERTIES: 665
DEVELOPMENT PIPELINE: $1.3B
2019 TSR: 29%
INVESTMENT GRADE: BBB+/Baa1
LEVERAGE: 5.6x(2)
(1) As of 12/31/2019
(2) Represents 4Q-2019 Net Debt to
Adjusted EBITDAre
2
HEALTHPEAK PROPERTIES Aegis Living (Dana Point, CA)
Capital markets were supportive in 2019 leading us to increase our credit
line capacity to $2.5 billion, launch a new $1.0 billion commercial paper
program and issue $2.1 billion of new senior notes. We improved our debt
maturity schedule and raised $1.4 billion of new equity at premiums to
our net asset value. We are optimistic about the future and have ample
investment opportunities, but we will continue to be highly disciplined in
our investment approach.
Healthpeak’s Investment Thesis
At Healthpeak, we believe in the power of clarity. That a simple strategy,
unwavering focus and deliberate actions enable consistent delivery on our
vision. We are focused on owning high-quality real estate and creating
long-term value for our stakeholders. Our investment thesis is supported
by the following five fundamental principles:
Focused, Simple
and Clear Strategy
1
Commitment to
ESG /
Sustainability
5
4
3
Talented Workforce
2
High-Quality
Real Estate
Portfolio
Positioned for
Growth
Strong Balance Sheet
and Credit Profile
HEALTHPEAK’S TRANSFORMATION
MOB and Life Science
Private Pay
Balance sheet (leverage)
Mezzanine loan investments
International investments
Tenant concentration (top 3)
Q3-16
Q4-19
29%
78%
60%(1)
97%
6.1x
5.6x
$ 719M
$ 850M
$
$
0
0
54%
24%(2)
(1) As a percentage of Portfolio Income. Portfolio Income
represents 4Q19 Cash NOI plus interest income plus
our pro-rata share of Cash NOI from unconsolidated
joint ventures and is pro-forma to reflect the pending
acquisition of The Post and certain other previously
announced transactions. Portfolio Income is further
adjusted to reflect acquisitions and dispositions
as if they occurred on the first day of the quarter.
Please see page 11 for a reconciliation for pro-forma
Portfolio Income.
(2) As a percentage of Portfolio Income, pro-forma to
reflect the 2019 Brookdale Transaction which closed on
01/31/20, the Senior Housing Joint Venture and certain
other previously announced transactions. Portfolio
Income is further adjusted to reflect acquisitions,
dispositions and operator transitions as if they occurred
on the first day of the quarter. Please see page 11 for
2019 Brookdale Transaction and Senior Housing Joint
Venture defined.
3
2019 ANNUAL REPORT Focused, Simple and Clear Strategy
Healthpeak’s strategy is predicated on the following four cornerstones:
1
1
2
3
4
Focused on owning a high-quality, diversified private-pay healthcare portfolio in the three core
business lines of life science, medical office and senior housing. We expect growth in each of
these three business lines will be driven by the powerful demographic growth for US healthcare as
a result of aging baby boomers.
Maintain a low cost of capital and strong credit ratings. We aim to keep a BBB+/Baa1 balance
sheet that can successfully sustain itself through the inevitable industry cycles.
Partner with leading operators, health systems and tenants. We pride ourselves on having a
positive reputation in the industry, resulting in Healthpeak being a partner of choice.
Maintain a people-first culture that attracts, develops and retains top-tier talent.
High-Quality Real Estate Portfolio Positioned for Growth
2
Healthcare represents a significant part of our economy, with healthcare spending accounting for 18% of the United States GDP.
Actuaries at the Centers for Medicare & Medicaid Services project that national health expenditures will continue to grow at an
annualized rate of 5.5% through 2027, pushing healthcare spending to nearly 20% of GDP by 2027.
Within healthcare, there are multiple avenues to invest including life science, medical office, senior housing, skilled nursing,
hospitals, high yielding mezzanine debt and international healthcare. At Healthpeak, we choose to operate in the three private
pay businesses while avoiding the bumpy ride of government reimbursement. Our real estate portfolio is well-balanced across
our business lines with 29% of our pro-forma Portfolio Income derived from medical office, 31% from life science and 34% from
senior housing, including 11% from our Continuing Care Retirement Communities (“CCRCs”).
4
HEALTHPEAK PROPERTIES
Life Science
CambridgePark Drive campus (Boston, MA)
Our 10 million(1) square foot life science portfolio represents 31% of our overall Portfolio
Income as of December 31, 2019. In 2019, we continued implementing our strategy of
increasing density in our three core markets of San Francisco, Boston and San Diego.
In San Francisco, we continue to maintain a successful development portfolio,
delivering Phase III of The Cove at Oyster Point in the second quarter of 2019. All
324,000 square feet were fully leased upon delivery. In the fourth quarter of 2019 we
also signed a significant lease with Janssen BioPharma, Inc., part of the Johnson &
Johnson Family of Companies, for 61% of Phase II of The Shore at Sierra Point, which is
currently under construction.
In Boston, we leveraged our relationships to expand our portfolio to over 1.8 million
square feet. We acquired 35 CambridgePark Drive for $333 million, a newly built
life science property in West Cambridge adjacent to Healthpeak’s property at
87 CambridgePark Drive and future development opportunity at 101 CambridgePark
Drive. Combined, Healthpeak has assembled approximately 440,000 square feet of
contiguous space across this Class A West Cambridge campus.
We also acquired the $228 million Hartwell Innovation Campus, a four-property life
science campus with 280,000 square feet in the Boston suburb of Lexington, through
our relationship with King Street Properties. The location of the campus is compelling,
adjacent to Lincoln Labs, the 2 million square foot government funded research park
affiliated with MIT, and five minutes from Healthpeak’s Hayden Research Campus.
And finally, in early 2020 we announced the acquisition of The Post, a $320 million
Class A life science campus, located near our Hayden Research Campus in Boston.
The 426,000 square foot campus is 100% leased to four biotech and innovation
tenants with an 11-year weighted average lease term.
In San Diego, we launched our Boardwalk development project in Torrey Pines.
Totaling approximately 190,000 square feet, the Class A campus will combine
three adjacent Healthpeak holdings, including two land sites, with new ground-up
development surrounding our existing property which will be redeveloped.
Class A life science real estate continues to experience unprecedented demand. The
cluster strategy we have employed, which utilizes a combination of stabilized and
development properties in the same local markets, allows our tenants the flexibility
to move within our portfolio as their needs change and creates leasing synergy by
minimizing vacancy periods.
(1) Pro-forma to reflect the pending acquisition of The Post, which was announced in the first quarter
of 2020, and our active development pipeline (including 101 CambridgePark Drive).
PORTFOLIO INCOME(2)
(As of December 31, 2019)
31%
Life
Science
29%
Medical
Office
34%
Senior
Housing
6%
Other
(2) Portfolio income represents 4Q19
Cash NOI plus interest income
plus our pro-rata share of Cash
NOI from unconsolidated joint
ventures. Portfolio Income is
pro-forma to reflect the pending
acquisition of The Post, the
Brookdale Transaction which
closed on 01/31/20, the Senior
Housing Joint Venture and certain
other previously announced
transactions. Pro-forma Portfolio
Income is further adjusted
to reflect acquisitions and
dispositions as if they occurred on
the first day of the quarter. Please
see page 11 for a reconciliation for
pro-forma Portfolio Income.
A: Life Science: Slightly more
volatile, but has tremendous new
demand, especially in the three
primary markets of San Francisco,
Boston and San Diego
B: Medical Office: Lower growth
and steadier business, which creates
reliable and consistent same-store
Cash NOI growth
C: Senior Housing: An operating
business with expected upside as
the senior population grows and life
spans increase
A+B+C
We believe the blend of the three,
all benefiting from the same
baby boomer demographic, but
operating on different cycles, is
a winning combination that will
produce consistent earnings and the
opportunity for dividend growth.
5
2019 ANNUAL REPORT
Medical Office
Medical City Hospital (Dallas, TX)
Our primarily on-campus medical office portfolio consists of over 21 million
square feet and was 92% occupied as of December 31, 2019. Our portfolio is
geographically diverse and has significant density in many of the major markets
across the United States including Dallas, Houston, Seattle, Denver and Nashville.
The on-campus nature of our portfolio provides Healthpeak with a competitive
advantage as it results in a higher percentage of specialty physician tenants
with services such as orthopedic, cardiovascular and oncology. We believe this
advantage ultimately leads to higher occupancy and tenant retention rates.
Additionally, it may avoid the likely continued growth in competition from new
delivery settings, such as urgent care centers and retail clinics.
Relationships also remain a significant driver of success in our medical office
segment. Our portfolio is 95% affiliated with leading healthcare institutions,
including HCA, Healthpeak’s largest hospital affiliation.
We continue to build our relationship with HCA through the exclusive development
program we put in place in 2018. In 2019, we added seven on-campus projects with
an aggregate spend of approximately $166 million and a blended overall stabilized
yield on cost in the 7-7.5% range. This mutually beneficial program provides
Healthpeak with a flow of accretive growth opportunities and provides HCA the
ability to expand its outpatient capacity in core markets. We expect a visible
pipeline of approximately $100 million of new medical office development per year
with HCA.
Swedish Medical Center (Seattle, WA)
HealthONE Sky Ridge Medical Center (Denver, CO)
Patewood Memorial Hospital MOBs (Greenville, SC)
TriStar Skyline Medical Center (Nashville, TN)
Memorial Hermann The Woodlands
Medical Center (Shenandoah, TX)
6
HEALTHPEAK PROPERTIES
Senior Housing
Discovery Village Palm Beach Gardens (Palm Beach Gardens, FL)
Over the last three years, we have completely restructured our senior housing
business, with an almost entirely new team and operating platform, as well as
a vastly improved portfolio. To provide perspective on the transformation, over
this period we disposed of $4.6 billion of non-core senior housing assets and
acquired $1.5 billion of high-quality assets, which reduced the age of our portfolio
and improved our geographic footprint to higher-growth and higher-price point
markets. We also established or expanded our relationships with top-tier operators
and further diversified our operator mix.
Healthpeak’s senior housing portfolio of approximately 27,000(1) units is now well-
diversified by market and across the core product offerings of independent living,
assisted living and memory care. Our portfolio includes triple-net (“NNN”) and
senior housing operating portfolio (“SHOP”) structures, as well as a large portfolio of
attractive CCRCs.
In 2019, the following transactions were key contributors to our restructuring and
repositioning efforts:
• We acquired full control of a unique
and differentiated CCRC portfolio,
while expanding our relationship
with Life Care Services, the largest
operator in the CCRC industry.
• We grew with several operators
Healthpeak has targeted for growth,
including our acquisitions with
Oakmont Senior Living and Discovery
Senior Living — two regionally
focused, best-in-class companies
who excel at both development and
operations. Additionally, we signed
agreements with both of these
operators that provide us with a
flow of high quality senior housing
purchase options over the next 3-4
years.
• We sold $1.4 billion of
non-core assets and also completed
a series of transactions that reduced
our Brookdale Senior Living
concentration of Portfolio Income to
under 6%(2).
• We solidified our triple-net lease
portfolio through sales, lease
amendments and restructurings.
• We completed our exit from the UK,
selling our remaining 49% interest.
• And finally, we continued to make
excellent progress building out our
senior housing asset management
systems and team.
As a result of the actions taken in each of our core segments, Healthpeak ended 2019
with a much-improved and more-focused portfolio that we expect over time to generate
stable cash flows, consistent earnings and the opportunities for dividend growth.
BENEFITS OF CCRCs
Campuses include over 700
acres of land
Scale allows the properties to
offer considerable amenities and
significant expansion opportunities
Significant scale of a CCRC
creates barriers to entry, so
there has been ZERO new CCRC
supply within 10-miles of these
properties in the past 10 years
Residents typically enter CCRCs
around age 80, which positions
these assets to capture the earliest
wave of aging Baby Boomers
Very low resident turnover rate,
with average length of stay of 8
to 10 years
Freedom Village at Bradenton (Bradenton, FL)
Cypress Village (Jacksonville, FL)
(1) Pro-forma to reflect the 2019 Brookdale
Transaction which closed on 1/31/20, the
Senior Housing Joint Venture and certain other
previously announced transactions.
(2) As a percentage of Portfolio Income. Portfolio
Income represents 4Q19 Cash NOI plus interest
income plus our pro-rata share of Cash NOI
from unconsolidated joint ventures and is pro-
forma to reflect the pending acquisition of The
Post and certain other previously announced
transactions. Portfolio Income is further adjusted
to reflect acquisitions and dispositions as if they
occurred on the first day of the quarter. Please
see page 11 for a reconciliation for pro-forma
Portfolio Income.
7
2019 ANNUAL REPORT
Strong Balance Sheet and Credit Profile
3
We further improved our balance sheet during 2019 and successfully capitalized on attractive opportunities in both the debt
and equity markets.
We were able to refinance and upsize our line of credit to $2.5 billion and institute a $1.0 billion commercial paper program, both
of which improved our cost of capital. We also took the opportunity to repay $1.7 billion of senior notes with a weighted average
interest rate and maturity of 3.4% and two years, respectively, and issue $2.1 billion of new senior notes with a weighted average
interest rate and maturity of 3.2% and nine years, respectively. Accordingly, we significantly improved our debt maturity profile to a
weighted average maturity of 6.9 years and have no material maturities until 2023. We expect to maintain our leverage ratio in the
mid to high 5s.
In the equity market, we capitalized on our strong share price and issued or sold $837 million under our ATM program and an
additional $547 million in public equity offerings to be used primarily for acquisitions and developments.
Our efforts to strengthen our balance sheet were recognized by ratings agencies as evidenced by our upgrade to Baa1 (stable)
from Moody’s in January and BBB+ (stable) by Fitch in October. We are now rated Baa1/BBB+ (stable) by all three of the major
rating agencies.
Talented Workforce
4
At Healthpeak, we believe that companies with the strongest teams will vastly outperform over time. We have worked hard over
the last three years to attract and retain a strong and experienced team of employees and members of our Board.
Starting with our executive leadership team, in order to support the successful execution of our strategy and vision, we
announced key leadership promotions this year. Scott Brinker, in addition to his role as Chief Investment Officer, was promoted
to President. Mr. Brinker assumed full operational oversight of Healthpeak’s business segments while continuing to be
responsible for enterprise-wide investments and portfolio management. Jeff Miller was promoted to Executive Vice President
of senior housing, which expands his role to include oversight and execution of the senior housing business while he continues
to advance our operational excellence in senior housing. Lisa Alonso was promoted to Executive Vice President and Chief
Human Resources Officer. Ms. Alonso will take on additional leadership responsibilities and oversight while working to ensure
Healthpeak remains an employer of choice that focuses on fostering a people first culture.
Moving on to our Board of Directors, in 2019 we further strengthened our Board through the appointment of independent
Director Sara Grootwassink Lewis, Founder and CEO of Lewis Corporate Advisors. Ms. Lewis brings more than 20 years of
corporate finance and capital markets experience and has served on several public company boards, including Sun Life Financial
and Weyerhaeuser Company. With the addition of Ms. Lewis, our Board has expanded to eight directors with an average tenure
of approximately five years.
Board Highlights
AVERAGE AGE
61 years
8
AVERAGE TENURE
FEMALE DIRECTORS
INDEPENDENT DIRECTORS
5 years
50%
7/8
HEALTHPEAK PROPERTIES And finally, when it comes to our employees, we believe Healthpeak’s people-first culture attracts top talent and creates
a strong environment that fosters innovation, collaboration and diversity. We pride ourselves on promoting an engaged,
collaborative and fun workplace, while providing professional development opportunities and training. Our diversity initiative is
aligned with our search for top talent, as we seek to source employees from 100% of talent pool, rather than a selective subset.
Commitment to ESG / Sustainability
5
Environmental sustainability and sound social and governance practices are top priorities for Healthpeak. We remain committed
to our decade-long focus on environmental, social and governance (“ESG”) initiatives, and have been frequently recognized by
prominent ESG reporting organizations as an industry leader in these efforts.
Our 2019 highlights reflect the hard work and emphasis our team places on ESG initiatives:
• Corporate Responsibility Magazine: Named to the 2019 100 Best Corporate Citizens List.
• Investors’ Business Daily: Named to the inaugural Top 50 ESG Companies.
• Ethical Boardroom: Received the Corporate Governance Award for North American REITs.
• CDP: Named to the Leadership Band for the seventh consecutive year, with a score of A- (top 10%).
• Dow Jones / RobecoSAM: Named a constituent in the North America Dow Jones Sustainability Index (DJSI) for the seventh
consecutive year and became a constituent in the Dow Jones Global 1200 ESG Index for the first time.
• S&P Global: Named to the Sustainability Yearbook for the fifth consecutive year.
• GRESB: Received the Green Star designation (excellence in sustainability implementation and transparency) for the eighth
consecutive year.
• MSCI: Scored ‘AA’ ESG rating (Leader).
• Nareit: Received the Dividends Through Diversity & Inclusion Recognition Award for leading diversity and inclusion practices
among REITs.
• FTSE4Good: Named to the FTSE4Good index for the eighth consecutive year.
ISS ESG QUALITYSCORE - REPRESENTS LOWEST RISK
1
Environmental
1
Social
2
Governance
9
2019 ANNUAL REPORT In Closing
2019 represented a milestone year for Healthpeak Properties. We
carried out several important transactions that ultimately completed
our restructuring and repositioning initiatives and culminated in our
name change.
Thank you to our employees and Board of Directors whose hard work,
commitment and dedication were the driving forces to the successes
we achieved this past year.
And to our stakeholders, thank you for your continued support. As
we look ahead we will continue to capture value from our current
portfolio, grow through acquisitions in our core segments, keep our
portfolio fresh through our development and redevelopment pipelines,
maintain a conservative balance sheet and continue our decade-long
focus on our ESG efforts.
Tom Herzog
Chief Executive Officer
Healthpeak Properties, Inc.
10
HEALTHPEAK PROPERTIES Reconciliation
Q4-2019 PORTFOLIO INCOME
Portfolio Income(1)
$84,463,710
$84,713,592
$91,531,246
$36,560,330
$297,268,878
Senior housing asset sales and transitions(2)
(2,666,925)
(2,666,925)
SENIOR HOUSING LIFE SCIENCE MEDICAL OFFICE
OTHER
TOTAL
Reclassification of CCRCs from Other to
Senior Housing
13,340,390
(13,340,390)
0
Other pro-forma adjustments(3)
2,103,162
6,041,165
(6,421,256)
(6,670,485)
(4,947,415)
Pro-forma Portfolio Income
$97,240,337
$90,754,757
$85,109,990
$16,549,455
$289,654,538
(1) Portfolio Income is presented by business line. Senior Housing includes triple-net Portfolio Income of approximately $40 million and SHOP Portfolio
Income of approximately $45 million.
(2)
Includes pro-forma adjustments to reflect asset sales and asset transitions from senior housing triple-net to SHOP in connection with the Brookdale
Transaction, the Senior Housing Joint Venture, and certain other previously announced sales and transitions.
(3) Pro-forma to reflect the sale of our U.K. holdings, the pending acquisition of The Post, and certain other previously announced sales. Pro-forma
Portfolio Income is further adjusted to reflect acquisitions, dispositions and operator transitions as if they occurred on the first day of the quarter and is
presented at our share.
TRANSACTIONS DEFINED:
2019 Brookdale Transaction represents a series of transactions between Brookdale and Healthpeak, including, but not limited
to: (i) Healthpeak’s acquisitions of Brookdale’s interest in 13 CCRCs which were transitioned to LCS, (ii) Brookdale’s acquisition
of 18 triple-net properties from Healthpeak, and (iii) restructuring the remaining 24 triple-net properties operated by Brookdale
into a single master lease.
Senior Housing Joint Venture represents the $790 million joint venture with a sovereign wealth fund in which Healthpeak sold a
46.5% interest in a 19-property senior housing operating portfolio managed by Brookdale to a sovereign wealth fund.
11
2019 ANNUAL REPORT Hayden Research Campus (Lexington, MA)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
FORM 10-K
For the fiscal year ended December 31, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 001-08895
Healthpeak Properties, Inc.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of
incorporation or organization)
33-0091377
(I.R.S. Employer
Identification No.)
1920 Main Street, Suite 1200
Irvine, CA 92614
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code (949) 407-0700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock
Trading symbol(s)
PEAK
Name of each exchange
on which registered
New York Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant; (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company or an emerging growth company. See the definitions of "large accelerated filer,” "accelerated filer”, "smaller
reporting company” and "emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
Accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined by Rule 12b-2 of the Act.) Yes No
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the
price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of
the registrant’s most recently completed second fiscal quarter: $13.2 billion.
As of February 10, 2020 there were 505,411,840 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement for the registrant’s 2020 Annual Meeting of Stockholders have been incorporated by
reference into Part III of this Report.
Healthpeak Properties, Inc.
Form 10-K
For the Fiscal Year Ended December 31, 2019
Table of Contents
Cautionary Language Regarding
Forward-Looking Statements
Business
Part I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
Part II
Item 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of
Part III
Item 10. Directors, Executive Officers and
Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial
Owners and Management and Related
Stockholder Matters
138
138
138
138
Item 13. Certain Relationships and Related Transactions,
138
and Director Independence
Item 14.
Principal Accounting Fees and Services
Part IV
Item 15.
Exhibits, Financial Statement Schedules
Item 16.
Form 10-K Summary
138
139
139
142
3
5
5
13
29
29
32
32
33
33
35
35
Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About
63
Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
64
135
135
137
All references in this report to "Healthpeak,” the "Company,” "we,” "us” or "our” mean Healthpeak Properties, Inc., together with
its consolidated subsidiaries. Unless the context suggests otherwise, references to "Healthpeak Properties, Inc.” mean the parent
company without its subsidiaries.
2
HEALTHPEAK PROPERTIES Cautionary Language Regarding
Forward-Looking Statements
Statements in this Annual Report on Form 10-K that are not historical factual statements are "forward-looking statements” within
the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act”). Forward-looking statements include, among other things, statements regarding our and our officers’
intent, belief or expectation as identified by the use of words such as "may," "will,” "project,” "expect,” "believe,” "intend,” "anticipate,”
"seek,” "target,” "forecast,” "plan,” "potential,” "estimate,” "could,” "would,” "should” and other comparable and derivative terms or
the negatives thereof. Forward-looking statements reflect our current expectations and views about future events and are subject to
risks and uncertainties that could significantly affect our future financial condition and results of operations. While forward-looking
statements reflect our good faith belief and assumptions we believe to be reasonable based upon current information, we can give
no assurance that our expectations or forecasts will be attained. Further, we cannot guarantee the accuracy of any such forward-
looking statement contained in this Annual Report, and such forward-looking statements are subject to known and unknown risks and
uncertainties that are difficult to predict. As more fully set forth under "Item 1A, Risk Factors” in this report, these risks and uncertainties
include, among other things:
• operational risks associated with third party management contracts, including the additional regulation and liabilities of our RIDEA
lease structures;
• the ability of our existing and future tenants, operators and borrowers to conduct their respective businesses in a manner sufficient
to maintain or increase their revenues and manage their expenses in order to generate sufficient income to make rent and loan
payments to us and our ability to recover investments made, if applicable, in their operations;
• the financial condition of our existing and future tenants, operators, and borrowers, including potential bankruptcies and downturns
in their businesses, and their legal and regulatory proceedings, which may result in uncertainties regarding our ability to continue to
realize the full benefit of such tenants’ and operators’ leases and borrowers’ loans;
• our concentration in the healthcare property sector, particularly in senior housing, life sciences and medical office buildings, which
makes our profitability more vulnerable to a downturn in a specific sector than if we were investing in multiple industries;
• the effect on us and our tenants and operators of legislation, executive orders and other legal requirements, including compliance
with the Americans with Disabilities Act, fire, safety and health regulations, environmental laws, the Affordable Care Act, licensure,
certification and inspection requirements, and laws addressing entitlement programs and related services, including Medicare and
Medicaid, which may result in future reductions in reimbursements or fines for noncompliance;
• our ability to identify replacement tenants and operators and the potential renovation costs and regulatory approvals
associated therewith;
• the risks associated with property development and redevelopment, including costs above original estimates, project delays and
lower occupancy rates and rents than expected;
• the potential impact of uninsured or underinsured losses;
• the risks associated with our investments in joint ventures and unconsolidated entities, including our lack of sole decision making
authority and our reliance on our partners’ financial condition and continued cooperation;
• competition for the acquisition and financing of suitable healthcare properties as well as competition for tenants and operators,
including with respect to new leases and mortgages and the renewal or rollover of existing leases;
• our, or our counterparties’, ability to fulfill obligations, such as financing conditions and/or regulatory approval requirements,
required to successfully consummate acquisitions, dispositions, transitions, developments, redevelopments, joint venture
transactions, or other transactions;
• our ability to achieve the benefits of acquisitions or other investments within expected time frames or at all, or within expected
cost projections;
• the potential impact on us and our tenants, operators and borrowers from current and future litigation matters, including the
possibility of larger than expected litigation costs, adverse results, and related developments;
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2019 ANNUAL REPORT CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS
• changes in federal, state or local laws and regulations, including those affecting the healthcare industry that affect our costs of
compliance or increase the costs, or otherwise affect the operations, of our tenants and operators;
• our ability to foreclose on collateral securing our real estate-related loans;
• volatility or uncertainty in the capital markets, the availability and cost of capital as impacted by interest rates, changes in our credit
ratings, and the value of our common stock, and other conditions that may adversely impact our ability to fund our obligations or
consummate transactions, or reduce the earnings from potential transactions;
• changes in global, national and local economic and other conditions;
• our ability to manage our indebtedness level and changes in the terms of such indebtedness;
• competition for skilled management and other key personnel;
• our reliance on information technology systems and the potential impact of system failures, disruptions or breaches; and
• our ability to maintain our qualification as a real estate investment trust ("REIT”).
Except as required by law, we do not undertake, and hereby disclaim, any obligation to update any forward-looking statements, which
speak only as of the date on which they are made.
4
HEALTHPEAK PROPERTIES Part I
Item 1. Business
General Overview
Healthpeak Properties, Inc. is a Standard & Poor’s ("S&P”) 500 company that acquires, develops, owns, leases, and manages healthcare real
estate across the United States ("U.S.”). We are a Maryland corporation and qualify as a self-administered REIT. We are headquartered in
Irvine, California, with additional offices in Nashville and San Francisco. At December 31, 2019, we had 204 full-time employees.
On October 30, 2019, we changed our name from HCP, Inc. to Healthpeak Properties, Inc. Our common shares began trading on the
New York Stock Exchange under the new name and ticker symbol, "PEAK”, on November 5, 2019.
We invest in a diversified portfolio of high-quality healthcare properties across our three core asset classes of senior housing, life science, and
medical office real estate. Our senior housing properties are either operated under triple-net leases in our senior housing triple-net segment
or through RIDEA structures in our senior housing operating portfolio ("SHOP”) segment. Under the life science and medical office segments,
we invest through the acquisition, development, and management of life science buildings and medical office buildings. We have other non-
reportable segments that are comprised primarily of our unconsolidated joint ventures, hospital properties, and debt investments.
At December 31, 2019, our consolidated portfolio of investments consisted of interests in 617 properties. We also owned interests in
48 properties owned by our unconsolidated joint ventures at December 31, 2019. The following table summarizes information for our
reportable segments for the year ended December 31, 2019 (dollars in thousands):
SEGMENT
Senior housing triple-net
SHOP
Life science
Medical office
Other non-reportable(2)
Totals
TOTAL PORTFOLIO
ADJUSTED NOI(1)
PERCENTAGE OF TOTAL
PORTFOLIO ADJUSTED NOI(1)
NUMBER OF
PROPERTIES
$ 197,601
162,330
311,192
364,115
51,873
$1,087,111
18%
15%
29%
33%
5%
100%
90
115
134
267
11
617
(1) Total Portfolio metrics include results of operations from disposed properties and properties that transitioned segments through the disposition
or transition date. Adjusted NOI excludes our share of income (loss) from unconsolidated joint ventures. See "Item 7, Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Results of Operations—Non-GAAP Financial Measures” for additional information regarding
Adjusted NOI and see Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(2) Adjusted NOI for Other non-reportable segments excludes our share of earnings from unconsolidated joint ventures, which is recorded in equity
income (loss) from unconsolidated joint ventures in our consolidated statements of operations.
For a description of our significant activities during 2019, see "Item 7, Management’s Discussion and Analysis of Financial Condition and
Results of Operations—2019 Transaction Overview” in this report.
Business Strategy
We invest in and manage our real estate portfolio for the long-term to maximize benefit to our stockholders and support the growth of
our dividends. Our strategy consists of four core elements:
(i) Our real estate: Our portfolio is grounded in high-quality properties in desirable locations. We focus on three purposely selected
private pay asset classes, senior housing, life science, and medical office, to provide stability through inevitable market cycles.
(ii) Our financials: We maintain a strong investment-grade balance sheet with ample liquidity as well as long-term fixed-rate debt
financing with staggered maturities to reduce our exposure to interest-rate volatility and refinancing risk.
(iii) Our partnerships: We work with leading healthcare companies, operators, and service providers and are responsive to their space
and capital needs. We provide high-quality management services to encourage tenants to renew, expand, and relocate into our
properties, which drives increased occupancy, rental rates, and property values.
(iv) Our platform: We have a people-first culture that we believe attracts, develops, and retains top talent. We continually strive to
create and maintain an industry-leading platform with systems and tools that allow us to effectively and efficiently manage our
assets and investment activity.
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2019 ANNUAL REPORT PART I
Internal Growth Strategies
We believe our real estate portfolio holds the potential for increased future cash flows as it is well-maintained and in desirable locations.
Our strategy for maximizing the benefits from these opportunities is to: (i) work with new or existing tenants and operators to address
their space and capital needs and (ii) provide high-quality property management services in order to motivate tenants to renew,
expand, or relocate into our properties.
We expect to continue our internal growth as a result of our ability to:
• Build and maintain long-term leasing and management relationships with quality tenants and operators. In choosing locations for
our properties, we focus on the physical environment, adjacency to established businesses (e.g., hospital systems) and educational
centers, proximity to sources of business growth, and other local demographic factors.
• Replace tenants and operators at the best available market terms and lowest possible transaction costs. We believe we are
well-positioned to attract new tenants and operators and achieve attractive rental rates and operating cash flow as a result of
the location, design, and maintenance of our properties, together with our reputation for high-quality building services and
responsiveness to tenants, and our ability to offer space alternatives within our portfolio.
• Extend and modify terms of existing leases prior to expiration. We structure lease extensions, early renewals, or modifications, which
reduce the cost associated with lease downtime or the re-investment risk resulting from the exercise of tenants’ purchase options,
while securing the tenancy and relationship of our high quality tenants and operators on a long-term basis.
Investment Strategies
The delivery of healthcare services requires real estate and, as a result, tenants and operators depend on real estate, in part, to maintain
and grow their businesses. We believe the healthcare real estate market provides investment opportunities due to the: (i) compelling
long-term demographics driving the demand for healthcare services; (ii) specialized nature of healthcare real estate investing; and
(iii) ongoing consolidation of the fragmented healthcare real estate sector.
While we emphasize healthcare real estate ownership, we may also provide real estate secured financing to, or invest in equity or
debt securities of, healthcare operators or other entities engaged in healthcare real estate ownership. We may also acquire all or
substantially all of the securities or assets of other REITs, operating companies, or similar entities where such investments would be
consistent with our investment strategies. We may co-invest alongside institutional or development investors through partnerships or
limited liability companies.
We monitor, but do not limit, our investments based on the percentage of our total assets that may be invested in any one property
type, investment vehicle, or geographic location, the number of properties that may be leased to a single tenant or operator, or loans
that may be made to a single borrower. In allocating capital, we target opportunities with the most attractive risk/reward profile for our
portfolio as a whole. We may take additional measures to mitigate risk, including diversifying our investments (by sector, geography,
tenant, or operator), structuring transactions as master leases, requiring tenant or operator insurance and indemnifications, and/or
obtaining credit enhancements in the form of guarantees, letters of credit, or security deposits.
We believe we are well-positioned to achieve external growth through acquisitions, financing, and development. Other factors that
contribute to our competitive position include:
• our reputation gained through over 30 years of successful operations and the strength of our existing portfolio of properties;
• our relationships with leading healthcare operators and systems, investment banks and other market intermediaries, corporations,
private equity firms, not-for-profit organizations, and public institutions seeking to monetize existing assets or develop new facilities;
• our relationships with institutional buyers and sellers of high-quality healthcare real estate;
• our track record and reputation for executing acquisitions responsively and efficiently, which provides confidence to domestic and
foreign institutions and private investors who seek to sell healthcare real estate in our market areas;
• our relationships with nationally recognized financial institutions that provide capital to the healthcare and real estate industries; and
• our control of sites (including assets under contract with radius restrictions).
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HEALTHPEAK PROPERTIES PART I
Financing Strategies
Our REIT qualification requires us to distribute at least 90% of our REIT taxable income (excluding net capital gains); therefore, we do not
retain a significant amount of capital. As a result, we regularly access the public equity and debt markets to raise the funds necessary to
finance acquisitions and debt investments, develop and redevelop properties, and refinance maturing debt.
We may finance acquisitions and other investments through the following vehicles:
• cash flow from operations;
• sale or exchange of ownership interests in properties or other investments;
• borrowings under our credit facility or commercial paper program;
• issuance of additional debt, including unsecured notes, term loans, and mortgage debt; and/or
• issuance of common stock or preferred stock or its equivalent.
We maintain a disciplined balance sheet by actively managing our debt to equity levels and maintaining multiple sources of liquidity.
Our debt obligations are primarily long-term fixed rate with staggered maturities.
We finance our investments based on our evaluation of available sources of funding. For short-term purposes, we may utilize our
revolving line of credit facility or commercial paper program, arrange for other short-term borrowings from banks or other sources, or
issue equity securities pursuant to our at-the-market equity offering program. We arrange for longer-term financing by offering debt
and equity securities, placing mortgage debt, and obtaining capital from institutional lenders and joint venture partners.
Segments
Senior Housing (Triple-Net and Senior Housing Operating Portfolio, or Shop)
Our senior housing properties are owned either through triple-net leases with third party tenant-operators or through so-called RIDEA
structures, which is permitted by the Housing and Economic Recovery Act of 2008, and includes most of the provisions previously
proposed in the REIT Investment Diversification and Empowerment Act of 2007 (commonly referred to as "RIDEA”). Our senior housing
properties include independent living facilities ("ILFs”), assisted living facilities ("ALFs”), memory care facilities ("MCFs”), and continuing
care retirement communities ("CCRCs”), which cater to different segments of the elderly population based upon their personal needs.
The services provided by our third party tenant-operators under triple-net leases or by our third-party manager-operators under a
RIDEA structure at our properties are primarily paid for by the residents directly or through private insurance and are less reliant on
government reimbursement programs such as Medicare and Medicaid.
Our triple-net leases are typically long-term agreements with third party tenant-operators. Under triple-net leases, our tenant-operators
are typically responsible for the ongoing expenses of the property, including real estate taxes, insurance, and maintenance, in addition
to paying rent and utilities. Additionally, operational risks and liabilities are the responsibility of our tenant-operator, including with
respect to any employment matters, compliance with healthcare and other laws and liabilities relating to personal injury-tort matters,
resident-patient quality of care claims, and governmental reimbursement matters.
A RIDEA structure allows us, through a taxable REIT subsidiary ("TRS”), to receive cash flow from the operations of a healthcare facility
(as compared to only receiving contractual rent from a third-party tenant-operator under a triple-net lease structure) in compliance
with REIT tax requirements. The criteria for operating a healthcare facility through a RIDEA structure require us to lease the facility to
an affiliate TRS under a triple-net lease, and for such affiliate TRS to engage an independent qualifying management company (also
known as an eligible independent contractor or third-party operator) to manage and operate the day-to-day business of the facility in
exchange for a management fee. As a result, under a RIDEA structure, we are required to rely on a third-party operator to hire and train
all facility employees, enter into many third-party contracts for the benefit of the facility, including resident/patient agreements, comply
with laws, including but not limited to healthcare laws, and provide resident care. We are substantially limited in our ability to control
or influence day-to-day operations under a RIDEA structure, and thus rely on the third-party tenant-operator to manage and operate
the business.
Unlike our triple-net leased properties, through our TRS, we bear all operational risks and liabilities associated with the operation of
these properties, with limited exceptions, such as a third-party operator’s gross negligence or willful misconduct. These operational
risks and liabilities include those relating to any employment matters of our operator, compliance with healthcare and other laws and
liabilities relating to personal injury-tort matters, resident-patient quality of care claims, and any governmental reimbursement matters,
even though we have limited ability to control or influence our third-party operators’ management of these risks.
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2019 ANNUAL REPORT PART I
We view RIDEA as an important structure for senior housing properties that present attractive valuation entry points and/or growth
profiles, and this structure has become the preferred structure (as opposed to triple-net leases) among most high-quality operators in
the senior housing industry. Many of the management agreements we have in RIDEA structures have terms ranging from 5 to 15 years,
with mutual renewal options. The base management fees are typically 4.5% to 5.0% of gross revenues (as defined in the respective
management agreements) generated by the RIDEA properties. In addition, there are sometimes incentive management fees payable
to our third-party operators if operating results of the RIDEA properties exceed pre-established thresholds. Conversely, there are
sometimes provisions in the management agreements that reduce management fees payable to our third-party operators if operating
results do not meet certain pre-established thresholds.
Our senior housing property types under both triple-net leases and RIDEA structures are further described below:
• Independent Living Facilities. ILFs are designed to meet the needs of seniors who choose to live in an environment surrounded
socially by their peers with services such as housekeeping, meals, and activities. Additionally, the programs and services may include
transportation, social activities, exercise and fitness programs, beauty or barber shop access, hobby and craft activities, community
excursions, meals in a dining room setting, and other activities sought by residents. These residents generally do not need assistance
with activities of daily living ("ADL”). However, in some of our facilities, residents have the option to contract for these services.
• Assisted Living Facilities. ALFs are licensed care facilities that provide personal care services, support and housing for those who
need help with ADL, such as bathing, eating, dressing and medication management, yet require limited medical care. These facilities
are often in apartment-like buildings with private residences ranging from single rooms to large apartments. Certain ALFs may have
a dedicated portion of a facility that offers higher levels of personal assistance for residents requiring memory care as a result of
Alzheimer’s disease or other forms of dementia. Levels of personal assistance are based in part on local regulations.
• Memory Care Facilities. MCFs address the unique challenges of residents with Alzheimer’s disease or other forms of dementia.
Residents may live in semi-private apartments or private rooms and have structured activities delivered by staff members trained
specifically on how to care for residents with memory impairment. These facilities offer programs that provide comfort and care in a
secure environment.
• Continuing Care Retirement Communities. CCRCs offer several levels of service, including independent living, assisted living, and
skilled nursing home care. CCRCs are different from other housing and care options for seniors because they usually provide written
agreements or long-term contracts between residents and the communities (frequently lasting the term of the resident’s lifetime),
which offer a continuum of housing, services and healthcare on one campus or site. CCRCs are appealing as they allow residents to
"age in place.” CCRCs typically require the individual to be in relatively good health and independent upon entry.
The following table provides information about our senior housing triple-net tenant concentration for the year ended
December 31, 2019:
TENANT
Brookdale Senior Living, Inc. ("Brookdale”)(1)
PERCENTAGE OF
SEGMENT REVENUES
PERCENTAGE OF
TOTAL REVENUES
38%
4%
(1) Excludes facilities operated by Brookdale in our SHOP segment, as discussed below. Percentages of segment and total revenues include partial-year
revenue earned from senior housing triple-net facilities that were sold or transitioned during 2019. Accordingly, the percentages of segment and total
revenues are expected to decrease in 2020 (see Note 3 to the Consolidated Financial Statements).
As third-party operators manage our RIDEA properties in exchange for the receipt of a management fee, we are not directly exposed to
the credit risk of these operators in the same manner or to the same extent as our triple-net tenants.
Life Science
These properties contain laboratory and office space primarily for biotechnology, medical device and pharmaceutical companies,
scientific research institutions, government agencies, and other organizations involved in the life science industry. While these
properties have characteristics similar to commercial office buildings, they generally contain more advanced electrical, mechanical,
heating, ventilating, and air conditioning systems. The facilities generally have specialty equipment including emergency generators,
fume hoods, lab bench tops, and related amenities. In many instances, life science tenants make significant investments to improve their
leased space, in addition to landlord improvements, to accommodate biology, chemistry, or medical device research initiatives.
Life science properties are primarily configured in business park or campus settings and include multiple buildings. The business
park and campus settings allow us the opportunity to provide flexible, contiguous/adjacent expansion to accommodate the growth
of existing tenants. Our properties are located in well-established geographical markets known for scientific research and drug
discovery, including San Francisco (57%) and San Diego (25%), California, and Boston, Massachusetts (12%) (based on square feet). At
December 31, 2019, 87% of our life science properties were triple-net leased (based on leased square feet).
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HEALTHPEAK PROPERTIES PART I
The following table provides information about our life science tenant concentration for the year ended December 31, 2019:
TENANTS
Amgen, Inc.
Medical Office
PERCENTAGE OF
SEGMENT REVENUES
PERCENTAGE OF
TOTAL REVENUES
12%
3%
Medical office buildings ("MOBs”) typically contain physicians’ offices and examination rooms, and may also include pharmacies, hospital
ancillary service space, and outpatient services such as diagnostic centers, rehabilitation clinics, and day-surgery operating rooms.
While these facilities are similar to commercial office buildings, they require additional plumbing, electrical, and mechanical systems to
accommodate multiple exam rooms that may require sinks in every room and special equipment such as x-ray machines. In addition,
MOBs are often built to accommodate higher structural loads for certain equipment and may contain vaults or other specialized
construction. Our MOBs are typically multi-tenant properties leased to healthcare providers (hospitals and physician practices),
with approximately 84% of our MOBs located on hospital campuses and 95% affiliated with hospital systems (based on square feet).
Occasionally, we invest in MOBs located on hospital campuses subject to ground leases. At December 31, 2019, approximately 58% of
our MOBs were net leased (based on leased square feet) with the remaining leased under gross or modified gross leases.
The following table provides information about our medical office tenant concentration for the year ended December 31, 2019:
TENANT
HCA Healthcare, Inc. (HCA)
Other Non-reportable Segments.
PERCENTAGE OF
SEGMENT REVENUES
PERCENTAGE OF
TOTAL REVENUES
23%
6%
At December 31, 2019, we had interests in 11 hospitals and 10 debt investments. Additionally, we had interests in 43 senior housing
facilities, 3 MOBs, and 2 post-acute/skilled nursing facilities ("SNFs”) owned and operated by our unconsolidated joint ventures. Services
provided by our tenants and operators in hospitals are paid for by private sources, third-party payors (e.g., insurance and HMOs) or
through Medicare and Medicaid programs. Our hospital property types include acute care, long-term acute care, and specialty and
rehabilitation hospitals. SNFs offer restorative, rehabilitative, and custodial nursing care for people following a hospital stay or not
requiring the more extensive and complex treatment available at hospitals. All of our hospitals are triple-net leased.
Competition
Investing in real estate serving the healthcare industry is highly competitive. We face competition from other REITs, investment companies,
pension funds, private equity investors, sovereign funds, healthcare operators, lenders, developers, and other institutional investors, some
of whom may have greater flexibility (e.g., non-REIT competitors), greater resources, and lower costs of capital than we do. Increased
competition makes it more challenging for us to identify and successfully capitalize on opportunities that meet our objectives. Our ability
to compete may also be impacted by global, national, and local economic trends, availability of investment alternatives, availability and
cost of capital, construction and renovation costs, existing laws and regulations, new legislation, and population trends.
Income from our investments depends on our tenants’ and operators’ ability to compete with other companies on multiple levels,
including: (i) the quality of care provided, (ii) reputation, (iii) success of product or drug development, (iv) the physical appearance
of a facility, (v) price and range of services offered, (vi) alternatives for healthcare delivery, (vii) the supply of competing properties,
(viii) physicians, (ix) staff, (x) referral sources, (xi) location, (xii) the size and demographics of the population in surrounding areas, and
(xiii) the financial condition of our tenants and operators. For a discussion of the risks associated with competitive conditions affecting
our business, see "Item 1A, Risk Factors” in this report.
Government Regulation, Licensing and Enforcement
Overview
Our healthcare facility operators (which include our TRS entities when we use a RIDEA structure) and tenants are typically subject to
extensive and complex federal, state, and local healthcare laws and regulations relating to quality of care, licensure and certificate of
need, government reimbursement, fraud and abuse practices, and similar laws governing the operation of healthcare facilities, and
we expect the healthcare industry, in general, will continue to face increased regulation and pressure in the areas of fraud, waste
and abuse, cost control, healthcare management, and provision of services, among others. These regulations are wide ranging and
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2019 ANNUAL REPORT PART I
can subject our tenants and operators to civil, criminal, and administrative sanctions. Affected tenants and operators may find it
increasingly difficult to comply with this complex and evolving regulatory environment because of a relative lack of guidance in many
areas as certain of our healthcare properties are subject to oversight from several government agencies, and the laws may vary from
one jurisdiction to another. Changes in laws, regulations, reimbursement enforcement activity, and regulatory non-compliance by our
tenants and operators can all have a significant effect on their operations and financial condition, which in turn may adversely impact us,
as detailed below and set forth under "Item 1A, Risk Factors” in this report.
The following is a discussion of certain laws and regulations generally applicable to our operators, and in certain cases, to us.
Fraud and Abuse Enforcement
There are various extremely complex U.S. federal and state laws and regulations governing healthcare providers’ relationships and
arrangements and prohibiting fraudulent and abusive practices by such providers. These laws include: (i) U.S. federal and state false
claims acts, which, among other things, prohibit providers from filing false claims or making false statements to receive payment from
Medicare, Medicaid, or other U.S. federal or state healthcare programs; (ii) U.S. federal and state anti-kickback and fee-splitting statutes,
including the Medicare and Medicaid anti-kickback statute, which prohibit or restrict the payment or receipt of remuneration to induce
referrals or recommendations of healthcare items or services; (iii) U.S. federal and state physician self-referral laws (commonly referred
to as the "Stark Law”), which generally prohibit referrals by physicians to entities with which the physician or an immediate family
member has a financial relationship; and (iv) the federal Civil Monetary Penalties Law, which prohibits, among other things, the knowing
presentation of a false or fraudulent claim for certain healthcare services. Violations of U.S. healthcare fraud and abuse laws carry civil,
criminal, and administrative sanctions, including punitive sanctions, monetary penalties, imprisonment, denial of Medicare and Medicaid
reimbursement, and potential exclusion from Medicare, Medicaid or other federal or state healthcare programs. These laws are enforced
by a variety of federal, state, and local agencies and in the U.S. can also be enforced by private litigants through, among other things,
federal and state false claims acts, which allow private litigants to bring qui tam or "whistleblower” actions. Many of our tenants and
operators are subject to these laws, and may become the subject of governmental enforcement actions or whistleblower actions if they
fail to comply with applicable laws. Additionally, as of November 2019, the licensed operators of our U.S. long-term care facilities that
participate in government reimbursement programs are required to have compliance and ethics programs that meet the requirements
of federal laws and regulations relating to the Social Security Act. Consistent with RIDEA, such responsibilities are delegated to our
operating partners and we have developed a program to periodically monitor compliance with such obligations.
Laws and Regulations Governing Privacy and Security
There are various U.S. federal and state privacy laws and regulations, including the privacy and security rules contained in the Health
Insurance Portability and Accountability Act of 1996 (commonly referred to as "HIPAA”), which provide for the privacy and security of
personal health information. An increasing focus of the U. S. Federal Trade Commission’s ("FTC’s”) consumer protection regulation is the
impact of technological change on protection of consumer privacy. The FTC, as well as state attorneys general, have taken enforcement
action against companies that do not abide by their representations to consumers regarding electronic security and privacy. To
the extent we or our affiliated operating entities are a covered entity or business associate under HIPAA and the Health Information
Technology for Economic and Clinical Health Act (the "HITECH Act”), compliance with those requirements would require us to, among
other things, conduct a risk analysis, implement a risk management plan, implement policies and procedures, and conduct employee
training. In most cases, we are dependent on our tenants and management companies to fulfill our compliance obligations, and we have
developed a program to periodically monitor compliance with such obligations. Because of the far reaching nature of these laws, there
can be no assurance we would not be required to alter one or more of our systems and data security procedures to be in compliance
with these laws. Our failure to protect health information could subject us to civil or criminal liability and adverse publicity, and could
harm our business and impair our ability to attract new customers and residents. We may be required to notify individuals, as well as
government agencies and the media, if we experience a data breach.
Reimbursement
Sources of revenue for some of our tenants and operators include, among others, governmental healthcare programs, such as the
federal Medicare programs and state Medicaid programs, and non-governmental third-party payors, such as insurance carriers and
HMOs. As federal and state governments focus on healthcare reform initiatives, and as the federal government and many states
face significant current and future budget deficits, efforts to reduce costs by these payors will likely continue, which may result in
reduced or slower growth in reimbursement for certain services provided by some of our tenants and operators. Additionally, new
and evolving payor and provider programs in the U.S., including but not limited to Medicare Advantage, Dual Eligible, Accountable
Care Organizations, and Bundled Payments could adversely impact our tenants’ and operators’ liquidity, financial condition, or results
of operations.
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HEALTHPEAK PROPERTIES PART I
Healthcare Licensure and Certificate of Need
Certain healthcare facilities in our portfolio are subject to extensive national, federal, state, and local licensure, certification, and
inspection laws and regulations. A healthcare facility’s failure to comply with these laws and regulations could result in a revocation,
suspension, restriction, or non-renewal of the facility’s license and loss of a certificate of need, which could adversely affect the facility’s
operations and ability to bill for items and services provided at the facility. In addition, various licenses and permits are required to
handle controlled substances (including narcotics), operate pharmacies, handle radioactive materials, and operate equipment. Many
states in the U.S. require certain healthcare providers to obtain a certificate of need, which requires prior approval for the construction,
expansion, or closure of certain healthcare facilities. The approval process related to state certificate of need laws may impact the
ability of some of our tenants and operators to expand or change their businesses.
Product Approvals
While our life science tenants include some well-established companies, other tenants are less established and, in some cases, may
not yet have a product approved by the Food and Drug Administration, or other regulatory authorities, for commercial sale. Creating
a new pharmaceutical product or medical device requires substantial investments of time and capital, in part because of the extensive
regulation of the healthcare industry. It also entails considerable risk of failure in demonstrating that the product is safe and effective
and in gaining regulatory approval and market acceptance.
Senior Housing Entrance Fee Communities
Certain of our senior housing facilities, primarily the CCRCs in our unconsolidated joint ventures, are operated as entrance fee
communities. Generally, an entrance fee is an upfront fee or consideration paid by a resident, a portion of which may be refundable, in
exchange for some form of long-term benefit, typically consisting of a right to receive certain personal or health care services. Some
of the entrance fee communities are subject to significant state regulatory oversight, including, for example, oversight of each facility’s
financial condition, establishment and monitoring of reserve requirements and other financial restrictions, the right of residents to
cancel their contracts within a specified period of time, the right of residents to receive a refund of their entrance fees, lien rights in
favor of the residents, restrictions on change of ownership, and similar matters.
Americans with Disabilities Act ("ADA”)
Our properties must comply with the ADA and any similar state or local laws to the extent that such properties are "public
accommodations” as defined in those statutes. The ADA may require removal of barriers to access by persons with disabilities in certain
public areas of our properties where such removal is readily achievable. To date, we have not received any notices of noncompliance
with the ADA that have caused us to incur substantial capital expenditures to address ADA concerns. Should barriers to access by
persons with disabilities be discovered at any of our properties, we may be directly or indirectly responsible for additional costs that
may be required to make facilities ADA-compliant. Noncompliance with the ADA could result in the imposition of fines or an award of
damages to private litigants. The obligation to make readily achievable accommodations pursuant to the ADA is an ongoing one, and
we continue to assess our properties and make modifications as appropriate in this respect.
Environmental Matters
A wide variety of federal, state, and local environmental and occupational health and safety laws and regulations affect healthcare
facility operations. These complex federal and state statutes, and their enforcement, involve a myriad of regulations, many of which
involve strict liability on the part of the potential offender. Some of these federal and state statutes may directly impact us. Under
various federal, state, and local environmental laws, ordinances, and regulations, an owner of real property or a secured lender, such
as us, may be liable for the costs of removal or remediation of hazardous or toxic substances at, under or disposed of in connection
with such property, as well as other potential costs relating to hazardous or toxic substances (including government fines and damages
for injuries to persons and adjacent property). The cost of any required remediation, removal, fines or personal or property damages
and any related liability therefore could exceed or impair the value of the property and/or the assets. In addition, the presence of such
substances, or the failure to properly dispose of or remediate such substances, may adversely affect the value of such property and the
owner’s ability to sell or rent such property or to borrow using such property as collateral which, in turn, could reduce our earnings. For
a description of the risks associated with environmental matters, see "Item 1A, Risk Factors” in this report.
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2019 ANNUAL REPORT PART I
Insurance
We obtain various types of insurance to mitigate the impact of property, business interruption, liability, flood, windstorm, earthquake,
fire, environmental, and terrorism-related losses. We attempt to obtain appropriate policy terms, conditions, limits, and deductibles
considering the relative risk of loss, the cost of such coverage, and current industry practice. There are, however, certain types of
extraordinary losses, such as those due to acts of war or other events that may be either uninsurable or not economically insurable.
In addition, we have a large number of properties that are exposed to earthquake, flood, and windstorm occurrences which carry
higher deductibles.
We maintain property insurance for all of our properties. Tenants under triple-net leases, primarily in our senior housing triple-net
segment, are required to provide primary property, business interruption, and liability insurance. We maintain separate general and
professional liability insurance for our SHOP facilities. Additionally, our corporate general liability insurance program also extends
coverage for all of our properties beyond the aforementioned. We periodically review whether we or our RIDEA operators will bear
responsibility for maintaining the required insurance coverage for the applicable SHOP properties, but the costs of such insurance are
facility expenses paid from the revenues of those properties, regardless of who maintains the insurance.
We also maintain directors and officers liability insurance which provides protection for claims against our directors and officers arising
from their responsibilities as directors and officers. Such insurance also extends to us in certain situations.
Sustainability
We believe that sustainability initiatives are a vital part of corporate responsibility, which supports our primary goal of increasing
stockholder value through profitable growth. We continue to advance our commitment to sustainability, with a focus on achieving goals
in each of the environmental, social, and governance ("ESG”) dimensions of sustainability.
Our environmental management programs strive to capture cost efficiencies that ultimately benefit our investors, tenants, operators,
employees, and other stakeholders, while providing a positive impact on the communities in which we operate. Our social responsibility
committee leads our local philanthropic and volunteer activities, and our transparent corporate governance initiatives incorporate
sustainability as a critical component in achieving our business objectives and properly managing risks.
Our 2019 ESG and sustainability achievements include being recognized by the CDP 2019 Climate Change Program. We completed
CDP’s annual investor survey, received a score of A- for our disclosure and were named to the Leadership Band for the seventh
consecutive year. CDP collects and publishes the environmental data on behalf of more than 525 investors. We were also named a
constituent in the FTSE4Good Index and achieved the Green Star designation from the Global Real Estate Sustainability Benchmark
(GRESB) for the eighth consecutive year. We were named a constituent in the North America Dow Jones Sustainability Index (“DJSI”) for
the seventh consecutive year. The list is compiled according to the results of RobecoSAM’s annual Corporate Sustainability Assessment,
which also determines constituency for the DJSI series. In addition, we were named to the Bloomberg Gender-Equality Index, Investors’
Business Daily’s Top 50 ESG Companies list, and Corporate Responsibility Magazine’s 100 Best Corporate Citizens list. We also
won Ethical Boardroom’s Corporate Governance Award for North American REITs and NAREIT’s Diversity and Inclusion Recognition
Award. For additional information regarding our ESG initiatives and our approach to climate change, please visit our website
at www.healthpeak.com/corporate-responsibility.
Available Information
Our website address is www.healthpeak.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q , Current Reports on
Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available
on our website, free of charge, as soon as reasonably practicable after we electronically file such materials with, or furnish them to,
the U.S. Securities and Exchange Commission (“SEC”). Additionally, the SEC maintains a website that contains reports, proxy and
information statements, and other information regarding issuers that file electronically with the SEC, including us, at www.sec.gov.
References to our website throughout this Annual Report on Form 10-K are provided for convenience only and the content on our
website does not constitute a part of this Annual Report on Form 10-K.
12
HEALTHPEAK PROPERTIES Item 1A. Risk Factors
The section below discusses the most significant risk factors that may materially adversely affect our business, results of operations
and financial condition.
As set forth below, we believe that the risks we face generally fall into the following categories:
PART I
• risks related to our business and operations;
• risks related to our capital structure and market conditions;
• risks related to other events; and
• risks related to tax, including REIT-related risks.
Risks Related to Our Business and Operations
We assume operational risks with respect to our SHOP properties managed in RIDEA structures that could have a material adverse
effect on our business, results of operations and financial condition.
RIDEA permits REITs, such as us, to own or partially own qualified healthcare properties in a structure through which we can participate
directly in the cash flow of the properties’ operations (as compared to receiving only contractual rent payments under a triple-net
lease) in compliance with REIT requirements. The criteria for operating a qualified healthcare property in a RIDEA structure requires us to
lease the property to an affiliate TRS and for such affiliate TRS to engage an independent qualifying management company, or operator
(also known as an eligible independent contractor) to manage and operate the day-to-day business of the property. The operator
performs its services in exchange for a management fee. As a result, under a RIDEA structure, we are required to rely on our operator to
manage and operate the property, including hiring and training all employees, entering into all third-party contracts for the benefit of
the property, including resident/patient agreements, complying with laws, including but not limited to healthcare laws, and providing
resident care.
We have limited rights to direct or influence the business or operations of these properties. However, as the owner of the property
under a RIDEA structure, our TRS, and hence we, are ultimately responsible for all operational risks and other liabilities of the property,
other than those arising out of certain actions by our operator, such as gross negligence or willful misconduct. Operational risks include,
and our resulting revenues therefore depend on, among other things: (i) occupancy rates; (ii) the entrance fees and rental rates charged
to residents; (iii) Medicare and Medicaid reimbursement rates, to the extent applicable; (iv) our operators’ reputations and ability
to attract and retain residents; (v) general economic conditions and market factors that impact seniors; (vi) competition from other
senior housing providers; (vii) compliance with federal, state, local and industry-regulated licensure, certification and inspection laws,
regulations and standards; (viii) litigation involving our properties or residents/patients; (ix) the availability and cost of general and
professional liability insurance coverage; and (x) the ability to control operating expenses. Although we are permitted under a RIDEA
structure to have certain general oversight approval rights (e.g., budgets, material contracts, etc.) and the right to review operational
and financial reporting information, our operators are ultimately in control of the day-to-day business of the property. As a result, we
have limited rights to direct or influence the business or operations of our properties in the SHOP segment and we depend on our
operators to operate these properties in a manner that complies with applicable law, minimizes legal risk and maximizes the value of our
investment. The failure by our operators to adequately manage these risks could have a material adverse effect on our business, results
of operations and financial condition.
When we use a RIDEA structure, our TRS is generally required to be the holder of the applicable healthcare license and is the entity
that is enrolled in government healthcare programs (e.g., Medicare, Medicaid), where applicable. As the holder of a healthcare license,
our TRS and we (through our ownership interest in our TRS) are subject to various regulatory laws. Most states regulate and inspect
healthcare property operations, patient care, construction and the safety of the physical environment. However, we are required under
RIDEA to rely on our operators to oversee and direct these aspects of the properties’ operations to ensure compliance with these
applicable laws and regulations. If one or more of our healthcare properties fails to comply with applicable laws, our TRS would be
responsible (except in limited circumstances, such as the gross negligence or willful misconduct of our operators, where we would have
a contractual claim against them), which could subject our TRS to penalties including loss or suspension of licenses and certificates of
need, certification or accreditation, exclusion from government healthcare programs (i.e., Medicare, Medicaid), administrative sanctions
and civil monetary penalties. Some states also reserve the right to sanction affiliates of a licensee when they take administrative action
against the licensee. Additionally, when we receive individually identifiable health information relating to residents of our healthcare
properties, we are subject to federal and state data privacy and security laws and rules, and could be subject to liability in the event of
an audit, complaint, cybersecurity attack or data breach. Furthermore, our TRS has exposure to professional liability claims that could
arise out of resident claims, such as quality of care, and the associated litigation costs.
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2019 ANNUAL REPORT PART I
Rents received from the TRS in a RIDEA structure are treated as qualifying rents from real property for REIT tax purposes only if (i) they
are paid pursuant to a lease of a “qualified healthcare property” and (ii) the operator qualifies as an “eligible independent contractor,”
as defined in the Internal Revenue Code of 1986, as amended (the “Code”). If either of these requirements are not satisfied, then the
rents will not be qualifying rents.
Decreases in our tenants’, operators’ or borrowers’ revenues, or increases in their expenses, could affect their ability to meet their
financial and other contractual obligations to us.
Our leases consist of triple-net leases, in which we lease our properties directly to tenants and operators, as well as RIDEA leases, in
which we lease our properties to an affiliate TRS that enters into a management agreement with an eligible independent contractor,
or operator, to manage and oversee the day-to-day business and operations of the properties. We are also a direct or indirect lender
to various tenants and operators and separately provide loans to certain third parties. We have very limited control over the success
or failure of our tenants’, operators’ and borrowers’ businesses, regardless of the structure of our relationship with them. Any of
our triple-net tenants or operators under a RIDEA structure may experience a downturn in their business that materially weakens
their financial condition. As a result, they may fail to make payments or perform their obligations when due. Although we generally
have arrangements and other agreements that give us the right under specified circumstances to terminate a lease, evict a tenant or
terminate our operator, or demand immediate repayment of outstanding loan amounts or other obligations to us, we may not be able
to enforce such rights or we may determine not to do so if we believe that enforcement of our rights would be more detrimental to our
business than seeking alternative approaches.
Our senior housing tenants and our SHOP segment under a RIDEA structure primarily depend on private sources for their revenues and
the ability of their patients and residents to pay fees. Costs associated with independent and assisted living services are not generally
reimbursable under governmental reimbursement programs such as Medicare and Medicaid. Accordingly, our tenants and operators
of our SHOP segments depend on attracting seniors with appropriate levels of income and assets, which may be affected by many
factors, including: (i) prevailing economic and market trends; (ii) consumer confidence; (iii) demographics; (iv) property condition; and
(v) social and environmental factors. Consequently, if our tenants or operators on our behalf fail to effectively conduct their operations,
or to maintain and improve our properties, it could adversely affect our business reputation as the owner of the properties, as well as
the business reputation of our tenants or operators and their ability to attract and retain patients and residents in our properties, which
could have a materially adverse effect on our and our tenant’s or operator’s business, results of operations and financial condition.
Our senior housing tenants and our SHOP segment under a RIDEA structure also rely on reimbursements from governmental programs
for a portion of the revenues from certain properties. Changes in reimbursement policies and other governmental regulation, such
as potential changes to, or repeal of, the Patient Protection and Affordable Care Act, along with the Health Care and Education
Reconciliation Act of 2010 (the “Affordable Care Act”), that may result from actions by Congress or executive orders, may result in
reductions in our tenants’ revenues or in our revenues from our RIDEA structures, operations and cash flows and affect our tenants’
ability to meet their obligations to us or our financial performance through a RIDEA structure. In addition, failure to comply with
reimbursement regulations or other laws applicable to healthcare providers could result in penalties, fines, litigation costs, lost
revenue or other consequences, which could adversely impact our tenants’ ability to make contractual rent payments to us under a
triple-net lease or our cash flows from operations under a RIDEA structure. For a further discussion of the legislation and regulation that
are applicable to us and our tenants, operators and borrowers, see “-The requirements of, or changes to, government reimbursement
programs such as Medicare or Medicaid, may adversely affect our tenants’, operators’ and borrowers’ ability to meet their financial and
other contractual obligations to us.”
Revenues of our senior housing tenants and our SHOP segment under a RIDEA structure are also dependent on a number of other
factors, including licensed bed capacity, occupancy, the healthcare needs of residents, the rate of reimbursement, the income and
assets of seniors in the regions in which we own properties, and social and environmental factors. For example, due to generally
increased vulnerability to illness, a severe flu season, an epidemic or any other widespread illness could result in early move-outs or
delayed move-ins during quarantine periods, which would reduce our operators’ revenues. Additionally, new and evolving payor and
provider programs in the United States, including but not limited to Medicare Advantage, Dual Eligible, Accountable Care Organizations,
Bundled Payments and other value-based reimbursement arrangements, have resulted in reduced reimbursement rates, average length
of stay and average daily census, particularly for higher acuity patients. If our tenants fail to maintain revenues sufficient to meet their
financial obligations to us, our business, results of operations and financial condition would be materially adversely affected. Similarly, if
our operators under a RIDEA structure underperform, our business, results of operations and financial condition would also be materially
adversely affected.
Increased competition, operating costs and market changes have resulted and may further result in lower net revenues for some of
our tenants, operators and borrowers and may affect their ability to meet their financial and other contractual obligations to us.
The healthcare industry is highly competitive. The occupancy levels at, and rental income from, our properties are dependent on
our ability and the ability of our tenants, operators and borrowers to compete with other tenants and operators on a number of
different levels, including the quality of care provided, reputation, the physical appearance of a property, price, the range of services
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HEALTHPEAK PROPERTIES PART I
offered, family preference, alternatives for healthcare delivery, the supply of competing properties, physicians, staff, referral sources,
location, and the size and demographics of the population in the surrounding area. In addition, our tenants, operators and borrowers
face an increasingly competitive labor market for skilled management personnel and nurses. An inability to attract and retain skilled
management personnel and nurses and other trained personnel could negatively impact the ability of our tenants, operators and
borrowers to meet their obligations to us. A shortage of nurses or other trained personnel, union activities or general inflationary
pressures on wages may force tenants, operators and borrowers to enhance pay and benefits packages to compete effectively for
skilled personnel, or to use more expensive contract personnel, but they be unable to offset these added costs by increasing the rates
charged to residents. Any increase in labor costs and other property operating expenses or any failure by our tenants, operators or
borrowers to attract and retain qualified personnel could adversely affect our cash flow and have a materially adverse effect on our
business, results of operations and financial condition.
Our tenants, operators and borrowers also compete with numerous other companies providing similar healthcare services or
alternatives such as home health agencies, life care at home, community-based service programs, retirement communities and
convalescent centers. This competition, which is due, in part, to over-development in some segments in which we invest, has caused
the occupancy rate of newly constructed buildings to slow and the monthly rate that many newly built and previously existing
properties were able to obtain for their services to decrease. Our tenants, operators and borrowers may be unable to achieve
occupancy and rate levels, and to manage their expenses, in a way that will enable them to meet all of their obligations to us. Further,
many competing companies may have resources and attributes that are superior to those of our tenants, operators and borrowers.
Our tenants, operators and borrowers may encounter increased competition that could limit their ability to maintain or attract
residents or expand their businesses or to manage their expenses, which could materially adversely affect their ability to meet their
financial and other contractual obligations to us, potentially decreasing our revenues, impairing our assets and/or increasing collection
and dispute costs.
The financial deterioration, insolvency or bankruptcy of one or more of our major tenants, operators or borrowers could have a
material adverse effect on our business, results of operations and financial condition.
A downturn in any of our tenants’, operators’ or borrowers’ businesses could ultimately lead to voluntary or involuntary bankruptcy
or similar insolvency proceedings, including but not limited to assignment for the benefit of creditors, liquidation, or winding-up.
Bankruptcy and insolvency laws afford certain rights to a defaulting tenant, operator or borrower that has filed for bankruptcy or
reorganization that may render certain of our remedies unenforceable or, at the least, delay our ability to pursue such remedies and
realize any related recoveries. For example, we cannot evict a tenant or operator solely because of its bankruptcy filing.
A debtor has the right to assume, or to assume and assign to a third party, or to reject its executory contracts and unexpired leases in
a bankruptcy proceeding. If a debtor were to reject its leases with us, obligations under such rejected leases would cease. The claim
against the rejecting debtor would be an unsecured claim, which would be limited by the statutory cap set forth in the U.S. Bankruptcy
Code. This statutory cap may be substantially less than the remaining rent actually owed under the lease. In addition, a debtor may
also assert in bankruptcy proceedings that leases should be re-characterized as financing agreements, which could result in our
being deemed a lender instead of a landlord. A lender’s rights and remedies, as compared to a landlord’s, generally are materially less
favorable, and our rights as a lender may be subordinated to other creditors’ rights.
Furthermore, the automatic stay provisions of the U.S. Bankruptcy Code would preclude us from enforcing our remedies unless we
first obtain relief from the court having jurisdiction over the bankruptcy case. This would effectively limit or delay our ability to collect
unpaid rent or interest payments, and we may ultimately not receive any payment at all. In addition, we would likely be required to
fund certain expenses and obligations (e.g., real estate taxes, insurance, debt costs and maintenance expenses) to preserve the value of
our properties, avoid the imposition of liens on our properties or transition our properties to a new tenant or operator. Additionally, we
lease many of our properties to healthcare providers who provide long-term custodial care to the elderly. Evicting operators for failure
to pay rent while the property is occupied typically involves specific procedural or regulatory requirements and may not be successful.
Even if eviction is possible, we may determine not to do so due to reputational or other risks. Bankruptcy or insolvency proceedings
typically also result in increased costs to the operator, significant management distraction and performance declines.
If we are unable to transition affected properties, they would likely experience prolonged operational disruption, leading to lower
occupancy rates and further depressed revenues. Publicity about the operator’s financial condition and insolvency proceeds may also
negatively impact their and our reputations, decreasing customer demand and revenues. Any or all of these risks could have a material
adverse effect on our revenues, results of operations and cash flows. These risks would be magnified where we lease multiple properties
to a single operator under a master lease, as an operator failure or default under a master lease would expose us to these risks across
multiple properties.
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2019 ANNUAL REPORT PART I
We depend on investments in the healthcare property sector, making our profitability more vulnerable to a downturn or slowdown
in that specific sector than if we were investing in multiple industries.
We concentrate our investments in the healthcare property sector. As a result, we are subject to risks inherent to investments in a single
industry. A downturn or slowdown in the healthcare property sector would have a greater adverse impact on our business than if we
had investments in multiple industries. Specifically, such a downturn or slowdown could negatively impact the ability of our tenants,
operators and borrowers to meet their obligations to us, as well as the ability to maintain rental and occupancy rates, which could
have a material adverse effect on our business, financial condition and results of operations. In addition, a downturn or slowdown in
the healthcare property sector could adversely affect the value of our properties and our ability to sell properties at prices or on terms
acceptable or favorable to us.
In addition, we are exposed to the risks inherent in concentrating our investments in real estate. Our real estate investments are
relatively illiquid due to several factors including, but not limited to: (i) restrictions on our ability to sell properties under applicable REIT
tax laws; (ii) other tax-related considerations; (iii) regulatory hurdles; and (iv) market conditions. Our ability to quickly sell or transition
any of our properties in response to changes in the performance of our properties or economic and other conditions is limited. We may
be unable to recognize full value for any property that we seek to sell for liquidity reasons. Our inability to timely respond to investment
performance changes could have a material adverse effect on our financial condition and results of operations.
Tenants and operators that fail to comply with federal, state, local and international laws and regulations, including licensure,
certification and inspection requirements, may cease to operate or be unable to meet their financial and other contractual
obligations to us.
Our tenants, operators and borrowers are subject to or impacted by extensive, frequently changing federal, state, local and
international laws and regulations. These laws and regulations include, among others: (i) laws protecting consumers against deceptive
practices; (ii) laws relating to the operation of our properties and how our tenants and operators conduct their business, such as fire,
health and safety, data security and privacy laws; (iii) federal and state laws affecting hospitals, clinics and other healthcare communities
that participate in both Medicare and Medicaid that specify reimbursement rates, pricing, reimbursement procedures and limitations,
quality of services and care, background checks, food service and physical plants, and similar foreign laws regulating the healthcare
industry; resident rights laws (including abuse and neglect laws) and fraud laws; (iv) anti-kickback and physician referral laws; (v) the
ADA and similar state and local laws; and (vi) safety and health standards set by the Occupational Safety and Health Administration or
similar foreign agencies. Certain of our properties may also require a license, registration and/or certificate of need to operate.
Our tenants’, operators’ or borrowers’ failure to comply with any of these laws, regulations or requirements could result in: (i) loss of
accreditation, denial of reimbursement; (ii) imposition of fines, suspension or decertification from government healthcare programs;
(iii) civil liability; and (iv) in certain instances, criminal penalties, loss of license or closure of the property and/or the incurrence of
considerable costs arising from an investigation or regulatory action, which may have an adverse effect on properties that we own and
lease to a third party tenant, that we own and operate through a RIDEA structure or on which we hold a mortgage, and therefore may
materially adversely impact us. See “Item 1-Business-Government Regulation, Licensing and Enforcement-Healthcare Licensure and
Certificate of Need.”
We may have difficulty identifying and securing replacement tenants or operators, and we may be required to incur substantial
renovation or tenant improvement costs to make our properties suitable for them.
Our tenants may not renew existing leases, and our operators may not renew their management agreements beyond their current
terms. If we or our tenants or operators terminate or do not renew the leases or management agreements for our properties, we
would attempt to reposition those properties with another tenant or operator. We may also voluntarily change operators for a variety
of reasons. For example, we transitioned a significant number of properties managed by Brookdale to other operators as part of our
strategic plan to reduce our Brookdale concentration. Healthcare properties are typically highly customized. The improvements
generally required to conform a property to healthcare use, such as upgrading electrical, gas and plumbing infrastructure, are costly
and at times tenant-specific and are typically subject to regulatory requirements. A new or replacement tenant or operator may require
different features in a property, depending on that tenant’s or operator’s particular business. In addition, infrastructure improvements
for life science properties typically are significantly more costly than improvements to other property types due to the highly
specialized nature of the properties and the greater lease square footage often required by life science tenants. We may be unable to
recover part or all of these higher costs. Therefore, if a current tenant or operator is unable to pay rent and/or vacates a property, we
may incur substantial expenditures to modify a property and experience delays before we are able to secure another tenant or operator
or to accommodate multiple tenants or operators. These expenditures or renovations and delays may have a material adverse effect on
our business, results of operations and financial condition.
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HEALTHPEAK PROPERTIES PART I
Additionally, we may fail to identify suitable replacements or enter into leases, management agreements or other arrangements
with new tenants or operators on a timely basis or on terms as favorable to us as our current leases, if at all. Furthermore, during
transition periods to new tenants or operators, we anticipate that the attention of existing tenants or operators will be diverted from
the performance of the properties, which would cause the financial and operational performance at these properties to decline. For
example, the Brookdale properties we intended to sell or transition performed significantly worse during the transition period than our
senior housing properties as a whole. Following a decline in performance, we may not be able to rehabilitate the property to previous
performance levels, which would adversely impact our results of operations. We also may be required to fund certain expenses and
obligations, such as real estate taxes, debt costs and maintenance expenses, to preserve the value of, and avoid the imposition of liens
on, our properties while they are being repositioned. In addition, we may incur certain obligations and liabilities, including obligations
to indemnify the replacement tenant or operator, which could have a material adverse effect on our business, results of operations and
financial condition.
We face additional risks associated with property development and redevelopment that can render a project less profitable or not
profitable at all and, under certain circumstances, prevent completion of development or redevelopment activities once undertaken.
Property development and redevelopment is a significant component of our growth strategy. At December 31, 2019, our active
development and redevelopment pipeline was approximately $1.4 billion with remaining costs to complete of approximately $758
million. Large-scale, ground-up, healthcare property development presents additional risks for us, including risks that:
• a development opportunity may be abandoned after expending significant resources resulting in the loss of deposits or failure to
recover expenses already incurred;
• the development and construction costs of a project may exceed original estimates due to increased interest rates and higher costs
relating to materials, transportation, labor, leasing, negligent construction or construction defects, damage, vandalism or accidents,
among others, which could make the completion of the development project less profitable;
• the project may not be completed on schedule as a result of a variety of factors that are beyond our control, including natural
disasters, labor conditions, material shortages, regulatory hurdles, including the ability to obtain necessary zoning or land use
permits, civil unrest and acts of war or terrorism, which result in increases in construction costs and debt service expenses or provide
tenants or operators with the right to terminate pre-construction leases; and
• demand for the new project may decrease prior to completion, due to competition or other developments, and occupancy rates and
rents at a newly completed property may not meet expected levels and could be insufficient to make the property profitable.
Any of the foregoing risks could result in not achieving our expected return on investment and have a material adverse effect on our
business, results of operations and financial condition.
Changes within the life science industry may adversely impact our revenues and results of operations.
For the year ended December 31, 2019, properties in our life science segment accounted for approximately 22% of our total revenues.
Our life science investments could be adversely affected if the life science industry is impacted by an economic, financial, or banking
crisis or if the life science industry migrates from the U.S. to other countries or to areas outside of primary life science markets in South
San Francisco, California, San Diego, California, and greater Boston, Massachusetts. Our ability to negotiate contractual rent escalations
on future leases and to achieve increases in rental rates will depend upon market conditions and the demand for life science properties
at the time the leases are negotiated and the increases are proposed. If economic, financial or industry conditions adversely affect
our life science tenants, we may not be able to lease or re-lease our properties in a timely manner or at favorable rates, which would
negatively impact our revenues and results of operations. For example, some of our properties may be better suited for a particular
life science industry client tenant and could require modification before we are able to re-lease vacant space to another life science
industry client tenant, which may delay the re-leasing process and result in unrecovered costs. Additionally, some of our life science
properties may not be suitable for lease to traditional office client tenants without significant expenditures on renovations, which could
delay an attempt to reposition the property for rent to non-life science tenants. Because infrastructure improvements for life science
properties typically are significantly more costly than improvements to other property types due to the highly specialized nature of the
properties, and life science tenants typically require greater lease square footage relative to medical office tenants, repositioning efforts
would have a disproportionate adverse effect on our life science segment performance. See “-We may have difficulty identifying and
securing replacement tenants or operators, and we may be required to incur substantial renovation or tenant improvement costs to
make our properties suitable for them.”
It is common for businesses in the life science industry to undergo mergers or consolidations. Future mergers or consolidations of life
science entities could reduce the amount of rentable square footage requirements of our client tenants and prospective client tenants,
which may adversely impact our revenues from lease payments and results of operations.
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2019 ANNUAL REPORT PART I
Our tenants in the life science industry face high levels of regulation, funding requirements, expense and uncertainty.
Life science tenants, particularly those involved in developing and marketing pharmaceutical products, are subject to certain unique
risks, including the following:
• some of our tenants require significant funding for the research, development, clinical testing, manufacture and commercialization
of their products and technologies, as well as to fund their obligations, including rent payments due to us, and our tenants’ ability
to raise capital depends on the viability of their products and technologies, their financial and operating condition and outlook, and
the overall financial, banking and economic environment. If venture capital firms, private investors, the public markets, companies
in the life science industry, the government or other sources of funding are difficult to obtain or unavailable to support our tenants’
activities, including as a result of general economic conditions, adverse market conditions or government shutdowns that limit our
tenants’ ability to raise capital, a tenant’s business would be adversely affected or fail;
• the research, development, clinical testing, manufacture and marketing of some of our tenants’ products require federal, state and
foreign regulatory approvals which may be costly or difficult to obtain, may take several years and be subject to delay, may not be
obtained at all, require validation through clinical trials and the use of substantial resources, and may often be unpredictable;
• even after a life science tenant gains regulatory approval and market acceptance, the product may still present significant regulatory
and liability risks, including, among others, the possible later discovery of safety concerns and other defects and potential loss of
approvals, competition from new products and the expiration of patent protection for the product;
• our tenants with marketable products may be adversely affected by healthcare reform and the reimbursement policies of
government or private healthcare payors;
• our tenants with marketable products may be unable to successfully manufacture their drugs economically;
• our tenants depend on the commercial success of certain products, which may be reliant on the efficacy of the product, as well as
acceptance among doctors and patients; negative publicity or negative results or safety signals from the clinical trials of competitors
may reduce demand or prompt regulatory actions; and
• our tenants may be unable to adapt to the rapid technological advances in the industry and to adequately protect their intellectual
property under patent, copyright or trade secret laws and defend against third-party claims of intellectual property violations.
If our tenants’ businesses are adversely affected, they may fail to make their rent payments to us, which could have a material adverse
effect on our business, results of operations and financial condition.
The hospitals on whose campuses our MOBs are located and their affiliated healthcare systems could fail to remain competitive or
financially viable, which could adversely impact their ability to attract physicians and physician groups to our MOBs and our other
properties that serve the healthcare industry.
Our MOBs and other properties that serve the healthcare industry depend on the competitiveness and financial viability of the
hospitals on whose campuses our MOBs are located and their affiliated healthcare systems in order to attract physicians and
other healthcare-related users. The viability of these hospitals, in turn, depends on factors such as: (i) the quality and mix of healthcare
services provided; (ii) competition for patients and physicians; (iii) demographic trends in the surrounding community; (iv) market
position; and (v) growth potential, as well as the ability of the affiliated healthcare systems to provide economies of scale and access to
capital. If a hospital whose campus is located on or near one of our MOBs is unable to meet its financial obligations, and if an affiliated
healthcare system is unable to support that hospital, the hospital may not be able to compete successfully or could be forced to close
or relocate, which could adversely impact its ability to attract physicians and other healthcare-related users. Because we rely on our
proximity to and affiliations with these hospitals to create tenant demand for space in our MOBs, their inability to remain competitive or
financially viable, or to attract physicians and physician groups, could adversely affect our MOB operations and have a material adverse
effect on us.
In addition, changes to or replacement of the Affordable Care Act and related regulations could result in significant changes to the
scope of insurance coverage and reimbursement policies, which could put negative pressure on the operations and revenues of
our MOBs.
We may be unable to maintain or expand our relationships with our existing and future hospital and health system clients.
The success of our medical office portfolio depends, to a large extent, on past, current and future relationships with hospitals and their
affiliated health systems. We invest significant amounts of time in developing relationships with both new and existing clients. If we fail
to maintain these relationships, including through a lack of responsiveness, failure to adapt to the current market or employment of
individuals with inadequate experience, our reputation and relationships will be harmed and we may lose business to competitors. If our
relationships with hospitals and their affiliated health systems deteriorate, it could have a material adverse effect on us.
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Economic and other conditions that negatively affect geographic areas from which a greater percentage of our revenue is
recognized could have a material adverse effect on our business, results of operations and financial condition.
For the year ended December 31, 2019, we derived 28% of our revenue from properties located in California, which is also where a
large portion of our life science portfolio is located. As a result, we are subject to increased exposure to adverse conditions affecting
California, including: (i) downturns in local economies; (ii) changes in local real estate conditions, including increases in real estate taxes;
(iii) increased competition; (iv) decreased demand; (v) changes in state-specific legislation; and (vi) local climate events and natural
disasters, such as earthquakes, windstorms, flooding, wildfires and mudslides. These risks could significantly disrupt our businesses in
the region, harm our ability to compete effectively, result in increased costs, and divert management attention, any or all of which could
have a material adverse effect on our business, results of operations and financial condition.
In addition, if significant changes in the climate occur in areas where we own property, this could result in physical damage to or a
decrease in demand for properties located in these areas or affected by these conditions. If changes in the climate have material
effects, such as property destruction, or occur for extended periods, this could have a material adverse effect on business, results of
operations and financial condition. In addition, changes in federal, state and local legislation and regulation on climate change could
require increased capital expenditures to improve the energy efficiency of our existing properties and could also cause increased costs
for our new developments without a corresponding increase in revenue.
Uninsured or underinsured losses could result in a significant loss of capital invested in a property, lower than expected future
revenues, and unanticipated expense.
We maintain and regularly review the comprehensive insurance coverage on our properties with terms, conditions, limits and
deductibles that we believe are adequate and appropriate given the relative risk and costs of such coverage. However, a large number
of our properties are located in areas exposed to earthquake, windstorm, flood and other natural disasters. In particular, a significant
portion of our life science development projects and approximately 80% of our existing life science portfolio (based on gross asset
value) is concentrated in California, which is known to be subject to earthquakes, wildfires and other natural disasters. While we
purchase insurance coverage for earthquake, fire, windstorm, flood and other natural disasters that we believe is adequate in light of
current industry practice and analyses prepared by outside consultants, such insurance may not fully cover such losses. These losses
can result in decreased anticipated revenues from a property and the loss of all or a portion of the capital we have invested in a
property. Following these events, we may remain liable for any mortgage debt or other financial obligations related to the property.
Furthermore, the insurance market for natural disasters exposures can be volatile, and we may be unable to purchase the limits and
terms we desire on a commercially reasonable basis. In addition, there are certain exposures for which we do not purchase insurance
because we do not believe it is economically feasible to do so or there is no viable insurance market. We maintain earthquake
insurance for our properties that are located in the vicinity of active earthquake zones in amounts and with deductibles we believe are
commercially reasonable. Because of our significant concentration in the seismically active regions of South San Francisco, California
and San Diego, California, a damaging earthquake in these areas could significantly impact multiple properties, which may amount to a
significant portion of our life science portfolio. As a result, aggregate deductible amounts may be material, and our insurance coverage
may be materially insufficient to cover our losses, either of which would adversely affect our business, financial condition, results of
operations and cash flows.
If one of our properties experiences a loss that is uninsured or that exceeds policy coverage limits, we could lose our investment in
the damaged property as well as the anticipated future cash flows from such property. If the damaged property is subject to recourse
indebtedness, we could continue to be liable for the indebtedness even if the property is irreparably damaged.
In addition, even if damage to our properties is covered by insurance, a disruption of business caused by a casualty event may result in
loss of revenues for us. Any business interruption insurance may not fully compensate the lender or us for such loss of revenue.
Our use of joint ventures may limit our flexibility with jointly owned investments.
We have and may continue to develop and/or acquire properties in joint ventures with other persons or entities when circumstances
warrant the use of these structures. Our participation in joint ventures is subject to risks that may not be present with other methods of
ownership, including:
• our joint venture partners could have investment and financing goals that are not consistent with our objectives, including the timing,
terms and strategies for any investments, and what levels of debt to incur or carry;
• we could experience an impasse on certain decisions because we do not have sole decision-making authority, which could require us
to expend additional resources on resolving such impasses or potential disputes, including litigation or arbitration;
• our joint venture partners may have competing interests in our markets that could create conflicts of interest;
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2019 ANNUAL REPORT PART I
• our ability to transfer our interest in a joint venture to a third party may be restricted and the market for our interest may be limited
and/or valued lower than fair market value;
• our joint venture partners may be structured differently than us for tax purposes, and this could create conflicts of interest and risks
to our REIT status; and
• our joint venture partners might become insolvent, fail to fund their share of required capital contributions or fail to fulfill their
obligations as a joint venture partner, which may require us to infuse our own capital into the venture on behalf of the partner despite
other competing uses for such capital.
With respect to our joint ventures, we are limited in our ability to control or influence operations, and in our ability to exit or transfer our
interest in the joint venture to a third party. As a result, we may not receive full value for our ownership interest if we tried to sell it to a
third party.
In addition, in some instances, we and/or our joint venture partner will have the right to cause us to sell our interest, or acquire our
partner’s interest, at a time when we otherwise would not have initiated such a transaction. Our ability to acquire our partner’s interest
will be limited if we do not have sufficient cash, available borrowing capacity or other capital resources. This would require us to sell our
interest in the joint venture when we would otherwise prefer to retain it. Any of the foregoing risks could have a material adverse effect
on our business, results of operations and financial condition.
We have now, and may have in the future, contingent rent provisions and/or rent escalators based on the Consumer Price Index,
which could hinder our profitability and growth.
We derive a significant portion of our revenues from leasing properties pursuant to leases that generally provide for fixed rental
rates, subject to annual escalations. Under certain leases, a portion of the tenant’s rental payment to us is based on the property’s
revenues (i.e., contingent rent). If, as a result of weak economic conditions or other factors, the property’s revenue declines, our rental
revenues would decrease and our results of operations could be materially adversely affected. Additionally, some of our leases provide
that annual rent escalates based on changes in the Consumer Price Index or other thresholds (i.e., contingent rent escalators). If the
Consumer Price Index does not increase or other applicable thresholds are not met, rental rates may not increase and our growth and
profitability may be hindered. Furthermore, if strong economic conditions result in significant increases in the Consumer Price Index, but
the escalations under our leases with contingent rent escalators are capped, our growth and profitability also may be limited.
Competition may make it difficult to identify and purchase, or develop, suitable healthcare properties to grow our investment
portfolio, to finance acquisitions on favorable terms, or to retain or attract tenants and operators.
We face significant competition from other REITs, investment companies, private equity and hedge fund investors, sovereign funds,
healthcare operators, lenders, developers and other institutional investors, some of whom may have greater resources and lower costs
of capital than we do. Increased competition makes it more challenging for us to identify and successfully capitalize on opportunities
that meet our business goals and could improve the bargaining power of property owners seeking to sell, thereby impeding our
investment, acquisition and development activities. Similarly, our properties face competition for tenants and operators from other
properties in the same market, which may affect our ability to attract and retain tenants and operators, or may reduce the rents we are
able to charge. If we cannot capitalize on our development pipeline, identify and purchase a sufficient quantity of healthcare properties
at favorable prices, finance acquisitions on commercially favorable terms, or attract and retain profitable tenants and operators, our
business, results of operations and financial condition may be materially adversely affected.
From time to time we have made, and we may seek to make, one or more material acquisitions, which may involve the expenditure
of significant funds.
We regularly review potential transactions in order to maximize stockholder value. Our review process may require significant
management attention and a potential transaction could be abandoned or rejected by us or the other parties involved after we expend
significant resources and time. In addition, future acquisitions may require the issuance of securities, the incurrence of debt, assumption
of contingent liabilities or incurrence of significant expenditures, each of which could have a material adverse effect on our business,
financial condition or results of operations. In addition, the financing required for acquisitions may not be available on commercially
favorable terms or at all.
From time to time, we may acquire other companies, and if we are unable to successfully integrate these operations, our business,
results of operations and financial condition may be materially adversely affected.
Acquisitions require the integration of companies that have previously operated independently. Successful integration of acquired
companies depends primarily on our ability to consolidate operations, systems, procedures, properties and personnel, and to eliminate
redundancies and reduce costs. We may encounter difficulties in these integrations. Potential difficulties associated with acquisitions
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HEALTHPEAK PROPERTIES PART I
include: (i) our ability to effectively monitor and manage our expanded portfolio of properties; (ii) the loss of key employees; (iii) the
disruption of our ongoing business or that of the acquired entity; (iv) possible inconsistencies in standards, controls, procedures and
policies; and (v) the assumption of unexpected liabilities, including:
• liabilities relating to the cleanup or remediation of undisclosed environmental conditions;
• unasserted claims of vendors, residents, patients or other persons dealing with the seller;
• liabilities, claims and litigation, whether or not incurred in the ordinary course of business, relating to periods prior to our acquisition;
• claims for indemnification by general partners, directors, officers and others indemnified by the seller;
• claims for return of government reimbursement payments; and
• liabilities for taxes relating to periods prior to our acquisition.
In addition, acquired companies and their properties may fail to perform as expected, including in respect of estimated cost savings.
Inaccurate assumptions regarding future rental or occupancy rates could result in overly optimistic estimates of future revenues.
Similarly, we may underestimate future operating expenses or the costs necessary to bring properties up to standards established for
their intended use or for property improvements.
If we have difficulties with any of these areas, or if we later discover additional liabilities or experience unforeseen costs relating to our
acquired companies, we may not achieve the anticipated economic benefits from our acquisitions, and this may have a material adverse
effect on our business, results of operations and financial condition.
Our tenants, operators and borrowers face litigation and may experience rising liability and insurance costs.
In some states, advocacy groups have been created to monitor the quality of care at healthcare properties, and these groups have
brought litigation against the tenants and operators of such properties. Also, in several instances, private litigation by patients,
residents or “whistleblowers” has sought, and sometimes resulted in, large damage awards. See “-The requirements of, or changes to,
governmental reimbursement programs such as Medicare or Medicaid, may adversely affect our tenants’, operators’ and borrowers’
ability to meet their financial and other contractual obligations to us.” The effect of this litigation and other potential litigation may
materially increase the costs incurred by our tenants, operators and borrowers for monitoring and reporting quality of care compliance,
which under a RIDEA structure would be borne by us. In addition, their cost of liability and medical malpractice insurance can be
significant and may increase or not be available at a reasonable cost. Cost increases could cause our tenants and borrowers to be
unable to make their lease or mortgage payments or fail to purchase the appropriate liability and malpractice insurance, or cause our
borrowers to be unable to meet their obligations to us, potentially decreasing our revenues and increasing our collection and litigation
costs. Furthermore, with respect to our senior housing properties operated in RIDEA structures, we directly bear the costs of any such
increases in litigation, monitoring, reporting and insurance due to our direct exposure to the cash flows of such properties.
In addition, as a result of our ownership of healthcare properties, we may be named as a defendant in lawsuits arising from the alleged
actions of our tenants or operators. With respect to our triple-net leases, our tenants generally have agreed to indemnify us for various
claims, litigation and liabilities in connection with their leasing and operation of our triple-net leased properties. With respect to our RIDEA
structured properties, we are responsible for these claims, litigation and liabilities, with limited indemnification rights against our operator
typically based on the gross negligence or willful misconduct by the operator. Although our leases provide us with certain information
rights with respect to our tenants, one or more of our tenants may be or become party to pending litigation or investigation to which
we are unaware or do not have a right to participate or evaluate. In such cases, we would be unable to determine the potential impact of
such litigation or investigation on our tenants or our business or results. Moreover, negative publicity of any of our operators’ or tenants’
litigation, other legal proceedings or investigations may also negatively impact their and our reputation, resulting in lower customer
demand and revenues, which could have a material adverse effect on our financial condition, results of operations and cash flow.
Required regulatory approvals can delay or prohibit transfers of our healthcare properties.
Transfers of healthcare properties to successor tenants or operators are typically subject to regulatory approvals or ratifications,
including, but not limited to, change of ownership approvals and Medicare and Medicaid provider arrangements that are not required
for transfers of other types of commercial operations and other types of real estate. The replacement of any tenant or operator could be
delayed by the regulatory approval process of any federal, state or local government agency necessary for the transfer of the property
or the replacement of the operator licensed to manage the property, during which time the property may experience performance
declines. If we are unable to find a suitable replacement tenant or operator upon favorable terms, or at all, we may take possession of a
property, which could expose us to successor liability, require us to indemnify subsequent operators to whom we transfer the operating
rights and licenses, or require us to spend substantial time and funds to preserve the value of the property and adapt the property to
other uses, all of which could have a material adverse effect of our business, results of operations and financial condition.
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2019 ANNUAL REPORT PART I
Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require us to make expenditures that
adversely affect our cash flows.
Our properties must comply with applicable ADA and any similar state and local laws. This may require removal of barriers to access by
persons with disabilities in public areas of our properties. Noncompliance could result in the incurrence of additional costs associated
with bringing the properties into compliance, the imposition of fines or an award of damages to private litigants in individual lawsuits or
as part of a class action. While the tenants to whom we lease our properties are obligated to comply with the ADA and similar state and
local provisions, and typically under tenant leases are obligated to cover costs associated with compliance, if required changes involve
greater expenditures than anticipated, or if the changes must be made on a more accelerated basis than anticipated, the ability of these
tenants to cover costs could be adversely affected. As a result, we could be required to expend funds to comply with the provisions
of the ADA and similar state and local laws on behalf of tenants, which could adversely affect our results of operations and financial
condition. Additionally, with respect to our SHOP properties under RIDEA structures, we are ultimately responsible for such litigation
and compliance costs.
In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and other land use
regulations. New and revised regulations and codes may be adopted by governmental agencies and bodies and become applicable
to our properties. For example, new safety laws for senior housing properties were adopted following the particularly damaging 2018
hurricane season. Compliance could require substantial capital expenditures, and may restrict our ability to renovate our properties.
These expenditures and restrictions could have a material adverse effect on our financial condition and cash flows.
The requirements of, or changes to, governmental reimbursement programs such as Medicare or Medicaid, may adversely affect our
tenants’, operators’ and borrowers’ ability to meet their financial and other contractual obligations to us.
Certain of our tenants, operators and borrowers are affected, directly or indirectly, by a complex set of federal, state and local laws and
regulations pertaining to governmental reimbursement programs. These laws and regulations are subject to frequent and substantial
changes that are sometimes applied retroactively. See “Item 1-Business-Government Regulation, Licensing and Enforcement.” For
example, to the extent that our tenants, operators or borrowers receive a significant portion of their revenues from governmental
payors, primarily Medicare and Medicaid, they are generally subject to, among other things:
• statutory and regulatory changes;
• retroactive rate adjustments;
• recovery of program overpayments or set-offs;
• federal, state and local litigation and enforcement actions;
• administrative proceedings;
• policy interpretations;
• payment or other delays by fiscal intermediaries or carriers;
• government funding restrictions (at a program level or with respect to specific properties);
• interruption or delays in payments due to any ongoing governmental investigations and audits at such properties; and
• reputational harm of publicly disclosed enforcement actions, audits or investigations related to billing and reimbursements.
The failure to comply with the extensive laws, regulations and other requirements applicable to their business and the operation of our
properties could result in, among other challenges: (i) becoming ineligible to receive reimbursement from governmental reimbursement
programs; (ii) becoming subject to prepayment reviews or claims for overpayments; (iii) bans on admissions of new patients or
residents; (iv) civil or criminal penalties; and (v) significant operational changes, including requirements to increase staffing or the scope
of care given to residents. These laws and regulations are enforced by a variety of federal, state and local agencies and can also be
enforced by private litigants through, among other things, federal and state false claims acts, which allow private litigants to bring qui
tam or “whistleblower” actions.
We are unable to predict future changes to or interpretations of federal, state and local statutes and regulations, including the Medicare
and Medicaid statutes and regulations, or the intensity of enforcement efforts with respect to such statutes and regulations. Any
changes in the regulatory framework or the intensity or extent of governmental or private enforcement actions could have a material
adverse effect on our tenants and operators. If, in turn, such tenants or operators fail to make contractual rent payments to us or, with
respect to our SHOP segment, cash flows are adversely affected, it could have a material adverse effect on us.
Sometimes, governmental payors freeze or reduce payments to healthcare providers, or provide annual reimbursement rate increases
that are smaller than expected, due to budgetary and other pressures. In addition, the federal government periodically makes changes
in the statutes and regulations relating to Medicare and Medicaid reimbursement that may impact state reimbursement programs,
particularly Medicaid reimbursement. We cannot make any assessment as to the ultimate timing or the effect that any future changes
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may have on our tenants’, operators’ and borrowers’ costs of doing business and on the amount of reimbursement by government
and other third-party payors. The failure of any of our tenants, operators or borrowers to comply with these laws and regulations, and
significant limits on the scope of services reimbursed, reductions in reimbursement rates and fees, or increases in provider or similar
types of taxes, could materially adversely affect their ability to meet their financial and contractual obligations to us.
Furthermore, executive orders and legislation may amend or repeal the Affordable Care Act and related regulations in whole or in part.
We also anticipate that Congress, state legislatures, and third-party payors may continue to review and assess alternative healthcare
delivery and payment systems and may propose and adopt legislation or policy changes or implementations effecting additional
fundamental changes in the healthcare system. For example, the Department of Health and Human Services has focused on tying
Medicare payments to quality or value through alternative payment models, which generally aim to make providers attentive to the
total costs of treatments. Medicare no longer reimburses hospitals for care related to certain preventable adverse events and imposes
payment reductions on hospitals for preventable readmissions. These punitive approaches could be expanded to additional types of
providers in the future. Additionally, the Centers for Medicare and Medicaid Services recently finalized a new patient driven payment
model used to calculate reimbursement rates for patients in skilled nursing properties. While we cannot quantify or predict the likely
impact of these changes on the revenues and profitability of our tenants, operators and borrowers, these provisions could result in
decreases in payments to our operators and tenants or increase our operators’ and tenants’ costs. If any such changes significantly and
adversely affect our tenants’ profitability, they could in turn negatively affect our tenants’ ability and willingness to comply with the
terms of their leases with us and/or renew their leases with us upon expiration, which could impact our business, prospects, financial
condition or results of operations.
Legislation to address federal government operations and administration decisions affecting the Centers for Medicare and Medicaid
Services could have a material adverse effect on our tenants’, operators’ and borrowers’ liquidity, financial condition or results
of operations.
Congressional consideration of legislation pertaining to the federal debt ceiling, the Affordable Care Act, tax reform and entitlement
programs, including reimbursement rates for physicians, could have a material adverse effect on our tenants’, operators’ and borrowers’
liquidity, financial condition or results of operations. In particular, reduced funding for entitlement programs such as Medicare and
Medicaid would result in increased costs and fees for programs such as Medicare Advantage Plans and additional reductions in
reimbursements to providers. Amendments to or repeal of the Affordable Care Act in whole or in part and decisions by the Centers for
Medicare and Medicaid Services could impact the delivery of services and benefits under Medicare, Medicaid or Medicare Advantage
Plans and could affect our tenants and operators and the manner in which they are reimbursed by such programs. Such changes could
have a material adverse effect on our tenants’, operators’ and borrowers’ liquidity, financial condition or results of operations, which
could adversely affect their ability to satisfy their obligations to us and could have a material adverse effect on us.
We may be unable to successfully foreclose on the collateral securing our real estate-related loans, and even if we are successful
in our foreclosure efforts, we may be unable to successfully operate, occupy or reposition the underlying real estate, which may
adversely affect our ability to recover our investments.
If a tenant or operator defaults under one of our mortgages or mezzanine loans, we may have to foreclose on the loan or protect
our interest by acquiring title to the collateral and thereafter making substantial improvements or repairs in order to maximize the
property’s investment potential. In some cases, the collateral consists of the equity interests in an entity that directly or indirectly
owns the applicable real property or interests in operating properties and, accordingly, we may not have full recourse to assets of that
entity, or that entity may have incurred unexpected liabilities. Tenants, operators or borrowers may contest enforcement of foreclosure
or other remedies, seek bankruptcy protection against our exercise of enforcement or other remedies and/or bring claims for lender
liability in response to actions to enforce mortgage obligations. Foreclosure-related costs, high loan-to-value ratios or declines in the
value of the property may prevent us from realizing an amount equal to our mortgage or mezzanine loan upon foreclosure, and we may
be required to record a valuation allowance for such losses. Even if we are able to successfully foreclose on the collateral securing our
real estate-related loans, we may inherit properties for which we may be unable to expeditiously secure tenants or operators, if at all,
or we may acquire equity interests that we are unable to immediately resell due to limitations under the securities laws, either of which
would adversely affect our ability to fully recover our investment.
Risks Related to Our Capital Structure and Market Conditions
Changes or increases in interest rates could result in a decrease in our stock price and increased interest costs on new debt and
existing variable rate debt, which could materially adversely impact our ability to refinance existing debt, sell properties and
conduct acquisition, investment and development activities.
An increase in interest rates could reduce the amount investors are willing to pay for our common stock. Because REIT stocks are often
perceived as high-yield investments, investors may perceive less relative benefit to owning REIT stocks as interest rates and the yield on
government treasuries and other bonds increase.
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2019 ANNUAL REPORT PART I
Additionally, we have existing debt obligations that are variable rate obligations with interest and related payments that vary with the
movement of certain indices. If interest rates increase, so would our interest costs for any variable rate debt and for new debt. This
increased cost would make the financing of any acquisition and development activity more costly. In addition, an increase in interest
rates could decrease the amount third parties are willing to pay for our properties, thereby limiting our ability to reposition our portfolio
promptly in response to changes in economic or other conditions.
Rising interest rates could limit our ability to refinance existing debt when it matures, or cause us to pay higher interest rates upon
refinancing and increase interest expense on refinanced indebtedness. If prevailing interest rates are higher than the interest rates of our
senior notes at their maturity, we will incur additional interest expense upon any replacement debt.
We manage a portion of our exposure to interest rate risk by accessing debt with staggered maturities and through the use of
derivative instruments, primarily interest rate swap agreements. However, no amount of hedging activity can fully insulate us from
the risks associated with changes in interest rates. Swap agreements involve risk, including that counterparties may fail to honor their
obligations under these arrangements, that these arrangements may not be effective in reducing our exposure to interest rate changes,
that the amount of income we earn from hedging transactions may be limited by federal tax provisions governing REITs and that these
arrangements may cause us to pay higher interest rates on our debt obligations than would otherwise be the case. Failure to hedge
effectively against interest rate risk could adversely affect our results of operations and financial condition.
Cash available for distribution to stockholders may be insufficient to make dividend distributions at expected levels and are made at
the discretion of our Board of Directors.
If cash available for distribution generated by our properties decreases as a result of our announced dispositions or otherwise, we
may be unable to make dividend distributions at expected levels. Our inability to make expected distributions would likely result in a
decrease in the market price of our common stock. All distributions are made at the discretion of our Board of Directors in accordance
with Maryland law and depend on: (i) our earnings; (ii) our financial condition; (iii) debt and equity capital available to us; (iv) our
expectations for future capital requirements and operating performance; (v) restrictive covenants in our financial or other contractual
arrangements, including those in our credit facility agreement; (vi) maintenance of our REIT qualification; (vii) restrictions under
Maryland law; and (viii) other factors as our Board of Directors may deem relevant from time to time. Additionally, our ability to make
distributions will be adversely affected if any of the risks described herein, or other significant adverse events, occur.
We rely on external sources of capital to fund future capital needs, and if access to such capital is unavailable on acceptable terms
or at all, it could have a material adverse effect on our ability to meet commitments as they become due or make future investments
necessary to grow our business.
We may not be able to fund all future capital needs, including capital expenditures, debt maturities and other commitments, from cash
retained from operations and dispositions. If we are unable to obtain enough internal capital, we may need to rely on external sources of
capital (including debt and equity financing) to fulfill our capital requirements. Our access to capital depends upon a number of factors,
some of which we have little or no control over, including but not limited to:
• general availability of capital, including less favorable terms, rising interest rates and increased borrowing costs;
• the market price of the shares of our equity securities and the credit ratings of our debt and any preferred securities we may issue;
• the market’s perception of our growth potential and our current and potential future earnings and cash distributions;
• our degree of financial leverage and operational flexibility;
• the financial integrity of our lenders, which might impair their ability to meet their commitments to us or their willingness to make
additional loans to us, and our inability to replace the financing commitment of any such lender on favorable terms, or at all;
• the stability of the market value of our properties;
• the financial performance and general market perception of our tenants and operators;
• changes in the credit ratings on U.S. government debt securities or default or delay in payment by the United States of its obligations;
• issues facing the healthcare industry, including, but not limited to, healthcare reform and changes in government reimbursement
policies; and
• the performance of the national and global economies generally.
If access to capital is unavailable on acceptable terms or at all, it could have material adverse impact on our ability to fund operations,
repay or refinance our debt obligations, fund dividend payments, acquire properties and make the investments needed to grow
our business.
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Adverse changes in our credit ratings could impair our ability to obtain additional debt and equity financing on favorable terms, if at
all, and negatively impact the market price of our securities, including our common stock.
Our credit ratings can affect the amount and type of capital we can access, as well as the terms of any financing we may obtain. The
credit ratings of our senior unsecured debt are based on, among other things, our operating performance, liquidity and leverage ratios,
overall financial position, level of indebtedness and pending or future changes in the regulatory framework applicable to our operators
and our industry. We may be unable to maintain our current credit ratings, and in the event that our current credit ratings deteriorate,
we would likely incur higher borrowing costs, which would make it more difficult or expensive to obtain additional financing or
refinance existing obligations and commitments. Also, a downgrade in our credit ratings would trigger additional costs or other
potentially negative consequences under our current and future credit facilities and debt instruments.
Our level of indebtedness may increase and materially adversely affect our future operations.
Our outstanding indebtedness as of December 31, 2019 was approximately $6.4 billion. We may incur additional indebtedness,
including in connection with the development or acquisition of properties, which may be substantial. Any significant additional
indebtedness would likely negatively affect the credit ratings of our debt and require us to dedicate a substantial portion of our cash
flow to interest and principal payments due on our indebtedness. Greater demands on our cash resources may reduce funds available
to us to pay dividends, conduct development activities, make capital expenditures and acquisitions or carry out other aspects of our
business strategy. Increased indebtedness can also make us more vulnerable to general adverse economic and industry conditions and
create competitive disadvantages for us compared to other companies with relatively lower debt levels. Increased future debt service
obligations may limit our operational flexibility, including our ability to finance or refinance our properties, contribute properties to joint
ventures or sell properties as needed.
Covenants in our debt instruments limit our operational flexibility, and breaches of these covenants could materially adversely affect
our business, results of operations and financial condition.
The terms of our current secured and unsecured debt instruments and other indebtedness that we may incur, require or will require
us to comply with a number of customary financial and other covenants, such as maintaining leverage ratios, minimum tangible net
worth requirements, REIT status and certain levels of debt service coverage. Our continued ability to incur additional debt and to
conduct business in general is subject to compliance with these financial and other covenants, which limit our operational flexibility.
For example, mortgages on our properties contain customary covenants such as those that limit or restrict our ability, without the
consent of the lender, to further encumber or sell the applicable properties, or to replace the applicable tenant or operator. Breaches
of certain covenants may result in defaults under the mortgages on our properties and cross-defaults under certain of our other
indebtedness, even if we satisfy our payment obligations to the respective obligee. Covenants that limit our operational flexibility as
well as defaults resulting from the breach of any of these covenants could materially adversely affect our business, results of operations
and financial condition.
Volatility, disruption or uncertainty in the financial markets may impair our ability to raise capital, obtain new financing or refinance
existing obligations and fund real estate and development activities.
We may be affected by general market and economic conditions. Increased or prolonged market disruption, volatility or uncertainty
could materially adversely impact our ability to raise capital, obtain new financing or refinance our existing obligations as they mature
and fund real estate and development activities. Market volatility could also lead to significant uncertainty in the valuation of our
investments and those of our joint ventures, which may result in a substantial decrease in the value of our properties and those of our
joint ventures. As a result, we may be unable to recover the carrying amount of such investments and the associated goodwill, if any,
which may require us to recognize impairment charges in earnings.
Risks Related to Other Events
We rely on information technology in our operations, and any material failure, inadequacy, interruption or security failure of that
technology could harm our business.
We rely on information technology networks and systems, including the Internet, to process, transmit and store electronic information,
and to manage or support a variety of business processes, including financial transactions and records, and maintaining personal
identifying information and tenant and lease data. We purchase some of our information technology from vendors, on whom our
systems depend. We rely on commercially available systems, software, tools and monitoring to provide security for the processing,
transmission and storage of confidential tenant and customer data, including individually identifiable information relating to financial
accounts. Although we have taken steps to protect the security of our information systems and the data maintained in those systems,
it is possible that our safety and security measures will not prevent the systems’ improper functioning or damage, or the improper
access or disclosure of personally identifiable information such as in the event of cyber-attacks. The risk of security breaches has
25
2019 ANNUAL REPORT PART I
generally increased as the number, intensity and sophistication of attacks and intrusions have increased. In addition, the pace and
unpredictability of cyber threats generally quickly renders long-term implementation plans designed to address cybersecurity
risks obsolete. Because our operators also rely on information technology networks, systems and software, we may be exposed to
cyber-attacks on our operators.
Security breaches of our or our operators’ networks and systems, including those caused by physical or electronic break-ins, computer
viruses, malware, worms, attacks by hackers or foreign governments, disruptions from unauthorized access and tampering, including
through social engineering such as phishing attacks, coordinated denial-of-service attacks and similar breaches, could result in, among
other things, system disruptions, shutdowns, unauthorized access to or disclosure of confidential information, misappropriation of our
or our business partners’ proprietary or confidential information, breach of our legal, regulatory or contractual obligations, inability
to access or rely upon critical business records or systems or other delays in our operations. In some cases, it may be difficult to
anticipate or immediately detect such incidents and the damage they cause. We may be required to expend significant financial
resources to protect against or to remediate such security breaches. In addition, our technology infrastructure and information systems
are vulnerable to damage or interruption from natural disasters, power loss and telecommunications failures. Any failure to maintain
proper function, security and availability of our and our operators’ information systems and the data maintained in those systems could
interrupt our operations, damage our reputation, subject us to liability claims or regulatory penalties, harm our business relationships
or increase our security and insurance costs, which could have a material adverse effect on our business, financial condition and results
of operations.
We are subject to certain provisions of Maryland law and our charter relating to business combinations which may prevent a
transaction that may otherwise be in the interest of our stockholders.
The Maryland Business Combination Act (the “MBCA”) provides that unless exempted, a Maryland corporation may not engage in
business combinations, including a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer
or issuance or reclassification of equity securities with an “interested stockholder” or an affiliate of an interested stockholder for five
years after the most recent date on which the interested stockholder became an interested stockholder, and thereafter unless specified
criteria are met. An interested stockholder is generally a person owning or controlling, directly or indirectly, 10% or more of the voting
power of the outstanding voting stock of a Maryland corporation. Unless our Board of Directors takes action to exempt us, generally or
with respect to certain transactions, from the MBCA, it will be applicable to business combinations between us and other persons.
In addition to the restrictions on business combinations contained in the MBCA, our charter also contains restrictions on business
combinations. Our charter requires that, except in certain circumstances, “business combinations,” including a merger or consolidation,
and certain asset transfers and issuances of securities, with a “related person,” including a beneficial owner of 10% or more of our
outstanding voting stock, be approved by the affirmative vote of the holders of at least 90% of our outstanding voting stock.
The restrictions on business combinations provided under Maryland law and contained in our charter may delay, defer or prevent a
change of control or other transaction even if such transaction involves a premium price for our common stock or our stockholders
believe that such transaction is otherwise in their best interests.
Unfavorable resolution of litigation matters and disputes could have a material adverse effect on our financial condition.
From time to time, we are involved in legal proceedings, lawsuits and other claims. We may also be named as defendants in lawsuits
arising out of our alleged actions or the alleged actions of our tenants and operators for which such tenants and operators have agreed
to indemnify, defend and hold us harmless. An unfavorable resolution of any such litigation may have a material adverse effect on our
business, results of operations and financial condition. Regardless of the outcome, litigation or other legal proceedings may result
in substantial costs, disruption of our normal business operations, and the diversion of management attention. We may be unable to
prevail in, or achieve a favorable settlement of, any pending or future legal action against us. See “Item 3-Legal Proceedings” of this
Annual Report on Form 10-K.
The loss or limited availability of our key personnel could disrupt our operations and have a material adverse effect on our business,
results of operations, financial condition, and the value of our common stock.
We depend on the efforts of our executive officers for the success of our business, and competition for these individuals is intense.
Although they are covered by our Executive Severance Plan and Change in Control Plan, which provide many of the benefits typically
found in executive employment agreements, none of our executive officers have employment agreements with us. The loss or
limited availability of the services of any of our executive officers, or our inability to recruit and retain qualified personnel, could, at
least temporarily, have a material adverse effect on our business, results of operations and financial condition and the value of our
common stock.
26
HEALTHPEAK PROPERTIES PART I
Environmental compliance costs and liabilities associated with our real estate-related investments may be substantial and may
materially impair the value of those investments.
Federal, state and local laws, ordinances and regulations may require us, as a current or previous owner of real estate, to investigate
and clean up certain hazardous or toxic substances or petroleum released at a property. We may be held liable to a governmental entity
or to third parties for property damage and for investigation and cleanup costs incurred by the third parties in connection with the
contamination. The costs of cleanup and remediation could be substantial. In addition, some environmental laws create a lien on the
contaminated site in favor of the government for damages and the costs it incurs in connection with the contamination.
Although we currently carry environmental insurance on our properties in an amount that we believe is commercially reasonable and
generally require our tenants and operators to indemnify us for environmental liabilities they cause, such liabilities could exceed the
amount of our insurance, the financial ability of the tenant or operator to indemnify us or the value of the contaminated property. As
the owner of a site, we may also be held liable to third parties for damages and injuries resulting from environmental contamination
emanating from the site. We may also experience environmental liabilities arising from conditions not known to us. The cost of
defending against these claims, complying with environmental regulatory requirements, conducting remediation of any contaminated
property, or paying personal injury or other claims or fines could be substantial and could have a materially adverse effect on our
business, results of operations and financial condition.
In addition, the presence of contamination or the failure to remediate contamination may materially adversely affect our ability to use,
sell or lease the property or to borrow using the property as collateral.
Risks Related to Tax, including REIT-Related Risks
Loss of our tax status as a REIT would substantially reduce our available funds and would have materially adverse consequences for
us and the value of our common stock.
Qualification as a REIT involves the application of numerous highly technical and complex provisions of the Internal Revenue Code of
1986, as amended (the “Code”), for which there are limited judicial and administrative interpretations, as well as the determination of
various factual matters and circumstances not entirely within our control. We intend to continue to operate in a manner that enables us
to qualify as a REIT. However, our qualification and taxation as a REIT depend upon our ability to meet, through actual annual operating
results, asset diversification, distribution levels and diversity of stock ownership, the various qualification tests imposed under the Code.
For example, to qualify as a REIT, at least 95% of our gross income in any year must be derived from qualifying sources, and we must
make distributions to our stockholders aggregating annually to at least 90% of our REIT taxable income, excluding net capital gains.
Rents we receive from a TRS in a RIDEA structure are treated as qualifying rents from real property for REIT tax purposes only if (i) they
are paid pursuant to a lease of a “qualified healthcare property,” and (ii) the operator qualifies as an “eligible independent contractor,”
as defined in the Code. If either of these requirements are not satisfied, then the rents will not be qualifying rents. Furthermore, new
legislation, regulations, administrative interpretations or court decisions could change the tax laws or interpretations of the tax laws
regarding qualification as a REIT, or the federal income tax consequences of that qualification, in a manner that is materially adverse to
our stockholders. Accordingly, there is no assurance that we have operated or will continue to operate in a manner so as to qualify or
remain qualified as a REIT.
If we lose our REIT status, we will face serious tax consequences that will substantially reduce the funds available to make payments of
principal and interest on the debt securities we issue and to make distributions to stockholders. If we fail to qualify as a REIT:
• we will not be allowed a deduction for distributions to stockholders in computing our taxable income;
• we will be subject to corporate-level income tax on our taxable income at regular corporate rates;
• we will be subject to increased state and local income taxes; and
• unless we are entitled to relief under relevant statutory provisions, we will be disqualified from taxation as a REIT for the four taxable
years following the year during which we fail to qualify as a REIT.
As a result of all these factors, our failure to qualify as a REIT could also impair our ability to expand our business and raise capital and
could materially adversely affect the value of our common stock.
Further changes to U.S. federal income tax laws could materially and adversely affect us and our stockholders.
The present federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative, judicial or
administrative action at any time, which could affect the federal income tax treatment of an investment in us. The federal income tax
rules dealing with U.S. federal income taxation and REITs are constantly under review by persons involved in the legislative process,
the U.S. Internal Revenue Service (the “IRS”) and the U.S. Treasury Department, which results in statutory changes as well as frequent
27
2019 ANNUAL REPORT PART I
revisions to regulations and interpretations. We cannot predict how changes in the tax laws might affect our investors or us. Revisions
in federal tax laws and interpretations thereof could significantly and negatively affect our ability to qualify as a REIT, as well as the tax
considerations relevant to an investment in us, or could cause us to change our investments and commitments.
We could have potential deferred and contingent tax liabilities from corporate acquisitions that could limit, delay or impede future
sales of our properties.
If, during the five-year period beginning on the date we acquire certain companies, we recognize a gain on the disposition of any
property acquired, then, to the extent of the excess of (i) the fair market value of such property as of the acquisition date over (ii) our
adjusted income tax basis in such property as of that date, we will be required to pay a corporate-level federal income tax on this
gain at the highest regular corporate rate. There can be no assurance that these triggering dispositions will not occur, and these
requirements could limit, delay or impede future sales of our properties.
In addition, the IRS may assert liabilities against us for corporate income taxes for taxable years prior to the time that we acquire certain
companies, in which case we will owe these taxes plus interest and penalties, if any.
There are uncertainties relating to the calculation of non-REIT tax earnings and profits (“E&P”) in certain acquisitions, which may
require us to distribute E&P.
In order to remain qualified as a REIT, we are required to distribute to our stockholders all of the accumulated non-REIT E&P of certain
companies that we acquire, prior to the close of the first taxable year in which the acquisition occurs. Failure to make such E&P
distributions would result in our disqualification as a REIT. The determination of the amount to be distributed in such E&P distributions
is a complex factual and legal determination. We may have less than complete information at the time we undertake our analysis, or we
may interpret the applicable law differently from the IRS. We currently believe that we have satisfied the requirements relating to such
E&P distributions. There are, however, substantial uncertainties relating to the determination of E&P, including the possibility that the IRS
could successfully assert that the taxable income of the companies acquired should be increased, which would increase our non-REIT
E&P. Moreover, an audit of the acquired company following our acquisition could result in an increase in accumulated non-REIT E&P,
which could require us to pay an additional taxable distribution to our then-existing stockholders, if we qualify under rules for curing
this type of default, or could result in our disqualification as a REIT.
Thus, we might fail to satisfy the requirement that we distribute all of our non-REIT E&P by the close of the first taxable year in which
the acquisition occurs. Moreover, although there are procedures available to cure a failure to distribute all of our E&P, we cannot now
determine whether we will be able to take advantage of these procedures or the economic impact on us of doing so.
Our charter contains ownership limits with respect to our common stock and other classes of capital stock.
Our charter contains restrictions on the ownership and transfer of our common stock and preferred stock that are intended to assist
us in preserving our qualification as a REIT. Under our charter, subject to certain exceptions, no person or entity may own, actually
or constructively, more than 9.8% (by value or by number of shares, whichever is more restrictive) of the outstanding shares of our
common stock or any class or series of our preferred stock.
Additionally, our charter has a 9.9% ownership limitation on the direct or indirect ownership of our voting shares, which may include
common stock or other classes of capital stock. Our Board of Directors, in its sole discretion, may exempt a proposed transferee from
either ownership limit. The ownership limits may delay, defer or prevent a transaction or a change of control that might involve a
premium price for our common stock or might otherwise be in the best interests of our stockholders.
28
HEALTHPEAK PROPERTIES PART I
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We are organized to invest in income-producing healthcare-related facilities. In evaluating potential investments, we consider a
multitude of factors, including:
• location, construction quality, age, condition, and design of the property;
• geographic area, proximity to other healthcare facilities, type of property, and demographic profile, including new competitive supply;
• whether the expected risk-adjusted return exceeds the incremental cost of capital;
• whether the rent or operating income provides a competitive market return to our investors;
• duration, rental rates, tenant and operator quality, and other attributes of in-place leases, including master lease structures and coverage;
• current and anticipated cash flow and its adequacy to meet our operational needs;
• availability of security such as letters of credit, security deposits and guarantees;
• potential for capital appreciation;
• expertise and reputation of the tenant or operator;
• occupancy and demand for similar healthcare facilities in the same or nearby communities;
• availability of qualified operators or property managers and whether we can manage the property;
• potential alternative uses of the facilities;
• the regulatory and reimbursement environment in which the properties operate;
• tax laws related to REITs;
• prospects for liquidity through financing or refinancing; and
• our access to and cost of capital.
29
2019 ANNUAL REPORT PART I
Property and Direct Financing Lease Investments
The following table summarizes our consolidated property and direct financing lease (“DFL”) investments as of and for the year ended
December 31, 2019 (square feet and dollars in thousands):
FACILITY LOCATION
Senior housing triple-net—real estate:
Florida
Texas
California
Oregon
Washington
Other (17 States)
Senior housing—DFLs(3):
Other (12 States)
Total senior housing triple-net
SHOP:
California
Florida
Virginia
New Jersey
Maryland
Texas
Other (19 States)
Total SHOP
FACILITY LOCATION
Life science:
California
Other (3 States)
Total life science
Medical office:
Texas
California
South Carolina
Pennsylvania
Colorado
Other (28 States)
Total medical office
Other—Hospital(4):
California
Texas
Other (6 States)
Other—SNF(5):
Virginia
Total other non-reportable segments
Total properties
NUMBER OF
FACILITIES CAPACITY
(Units)
1,418 $
1,323
1,023
954
562
3,343
8,623
11
13
11
10
8
37
90
GROSS ASSET
VALUE(1)
REAL ESTATE
REVENUES(2)
OPERATING
EXPENSES
209,109
181,729
161,785
73,488
98,167
244,049
968,327
$ 24,594 $
19,610
21,481
12,542
11,336
87,918
177,481
—
—
(3,183)
(121)
(95)
(1,123)
(4,522)
—
968,327
21,960
$199,441 $
(43)
(4,565)
—
8,623 $
(Units)
1,781 $
2,696
1,319
825
853
1,132
4,570
701,938
554,188
290,313
216,576
155,345
159,755
648,990
13,176 $ 2,727,105
$ 90,339 $
117,753
34,901
50,672
53,097
130,773
247,636
(67,559)
(100,904)
(26,324)
(37,249)
(42,842)
(92,266)
(198,569)
$725,171 $ (565,713)
NUMBER OF
FACILITIES CAPACITY
GROSS ASSET
VALUE(1)
REAL ESTATE
REVENUES(2)
OPERATING
EXPENSES
(Sq. Ft.)
6,836 $ 4,439,853
1,439
1,086,917
8,275 $ 5,526,770
$ 382,986
57,798
$ 440,784
$ (90,496)
(16,976)
$ (107,472)
(Sq. Ft.)
7,123 $ 1,278,337
357,815
1,011
336,193
1,046
336,121
1,058
269,429
1,231
1,802,855
9,243
20,712 $ 4,380,750
(Beds)
$ 182,228
41,295
24,269
28,159
40,780
254,799
$ 571,530
$ (65,412)
(12,881)
(4,648)
(13,325)
(16,138)
(89,134)
$ (201,538)
88,800
55,719
142,110
286,629
$
$
13,845
6,790
29,006
49,641
$
$
(1)
(73)
(8)
(82)
84 $
212
946
1,242 $
(Beds)
—
1,242 $
—
286,629
$ 13,889,581
972
$
50,613
$1,987,539
—
$
(82)
$ (879,370)
—
90
17
22
10
8
9
8
41
115
118
16
134
66
18
17
4
17
145
267
1
3
7
11
—
11
617
(1) Represents gross real estate and the carrying value of DFLs. Gross real estate represents the carrying amount of real estate after adding back
accumulated depreciation and amortization. Excludes real estate held for sale with an aggregate gross asset value of $719 million.
(2) Represent the combined amount of rental and related revenues, resident fees and services, and income from DFLs.
(3) Represents income from DFLs that were transitioned or sold in 2019.
(4)
Includes leased properties that are classified as DFLs.
(5) Represents revenues generated from a real estate asset that was sold in October 2019.
30
HEALTHPEAK PROPERTIES Occupancy and Annual Rent Trends
The following table summarizes occupancy and average annual rent trends for our consolidated property and DFL investments for the
years ended December 31 (average occupied square feet in thousands):
PART I
Senior housing triple-net:
Average annual rent per unit(1)
Average capacity (available units)
SHOP:
Average occupancy percentage
Average annual rent per unit(1)
Average capacity (available units)
Life science:
Average occupancy percentage
Average annual rent per square foot(1)
Average occupied square feet
Medical office:
Average occupancy percentage
Average annual rent per square foot(1)
Average occupied square feet
Other non-reportable segments:
Average annual rent per bed - Hospital(1)
Average capacity (available beds) - Hospital
Average annual rent per unit - U.K.(1)(2)
Average capacity (available units) - U.K.(2)
Average annual rent per bed - SNF(1)
Average capacity (available beds) - SNF
2019
2018
2017
2016
2015
$17,373
$16,449
$15,352
$14,604
$14,544
11,565
16,914
21,536
28,455
28,777
83%
85%
87%
88%
87%
$49,784
$48,433
$41,133
$42,851
$41,435
14,633
11,248
12,758
16,028
12,704
97%
95%
96%
98%
$
57
$
54
$
52
$
48
$
97%
46
7,288
7,078
6,841
7,332
7,179
92%
93%
92%
92%
$
29
$
29
$
28
$
28
$
92%
28
19,069
18,655
17,950
16,973
15,844
$39,113
$39,246
$38,017
$39,076
$39,834
1,304
1,300
1,337
9,097
3,188
1,478
9,200
3,190
—
—
10,504
10,298
10,803
120
120
426
1,487
10,048
2,515
8,292
1,047
—
—
—
—
(1) Average annual rent is presented as a ratio of real estate revenues (comprised of rental and related revenues, resident fees and services, and income
from DFLs) divided by the average capacity or average occupied square feet of the facilities. Average annual rent for leased properties (including DFLs)
excludes termination fees and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest,
and the impact of deferred community fee income).
(2) Our previous investments in the U.K. were deconsolidated in June 2018. We then sold our remaining unconsolidated investments in the U.K. in
December 2019 (see Note 4 to the Consolidated Financial Statements).
31
2019 ANNUAL REPORT Life science:
Square feet
Base rent(2)
Medical office:
Square feet
Base rent(2)
% of segment base rent
Other non-reportable segments:
Properties
Base rent(2)
PART I
Tenant Lease Expirations
The following table shows tenant lease expirations, including those related to DFLs, for the next 10 years and thereafter at our
consolidated properties, assuming that none of the tenants exercise any of their renewal or purchase options, unless otherwise noted
below, and excludes properties in our SHOP segment and assets held for sale as of and for the year ended December 31, 2019 (dollars
and square feet in thousands):
SEGMENT
Senior housing triple-net:
Properties
Base rent(2)
TOTAL
2020(1)
2021
2022
2023
2024
2025
2026
2027
2028
2029 THEREAFTER
EXPIRATION YEAR
63
5
3
—
8
1
1
6
1
11
7
20
$ 102,946 $
7,684 $ 1,861 $
— $ 20,047 $ 1,533 $
1,932 $ 4,397 $ 5,377 $ 16,941 $ 6,994
$ 36,180
% of segment base rent
100
7
2
—
19
1
2
4
5
16
7
% of segment base rent
100
6
8
9
12
8
13
7
10
6
16
5
7,940
520
530
761
768
476
1,190
524
781
460
1,110
$ 372,783 $ 22,230 $ 29,177 $ 31,751 $ 44,557 $ 28,217 $ 49,707 $ 24,574 $ 38,770 $ 21,498 $ 58,171
$ 24,131
37
820
18,967
3,040
2,079
2,132
1,615
1,543
3,510
935
629
1,544
524
1,416
$ 451,725 $ 81,276 $ 54,448 $ 54,672 $ 42,534 $ 43,023 $ 62,066 $ 24,317 $ 15,444 $ 32,097 $ 12,746
$ 29,102
100
11
18
1
12
—
12
3
9
—
10
6
14
—
5
—
3
—
7
—
$ 49,394 $
8,301 $
— $ 12,374 $
— $ 23,260 $
— $
— $
— $
— $
3
—
—
—
7
1
$ 5,459
11
% of segment base rent
100
17
—
25
—
47
—
—
—
—
Total:
Base rent(2)
$ 976,848 $ 119,491 $ 85,486 $ 98,797 $ 107,138 $ 96,033 $ 113,705 $ 53,288 $ 59,591 $ 70,536 $ 77,911
$ 94,872
% of total base rent
100
12
9
10
11
10
12
5
6
7
8
10
(1)
Includes month-to-month leases.
(2) The most recent month’s (or subsequent month’s, if acquired in the most recent month) base rent, including additional rent floors and cash income
from DFLs, annualized for 12 months. Base rent does not include tenant recoveries, additional rents in excess of floors, and non-cash revenue
adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest and deferred revenues).
See the “Tenant Purchase Options” section of Note 6 to the Consolidated Financial Statements for additional information on leases
subject to purchase options. See Schedule III: Real Estate and Accumulated Depreciation, included in this report, which information is
incorporated by reference in this Item 2.
Item 3. Legal Proceedings
Except as described below, we are not aware of any legal proceedings or claims that we believe could have, individually or taken
together, a material adverse effect on our financial condition, results of operations, or cash flows.
See “Legal Proceedings” section of Note 11 to the Consolidated Financial Statements for information regarding legal proceedings,
which information is incorporated by reference in this Item 3.
Item 4. Mine Safety Disclosures
None.
32
HEALTHPEAK PROPERTIES Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities
Our common stock is listed on the New York Stock Exchange under the symbol “PEAK.”
At January 31, 2020, we had 8,504 stockholders of record, and there were 200,205 beneficial holders of our common stock.
Dividends (Distributions)
It has been our policy to declare quarterly dividends to common stockholders so as to comply with applicable provisions of the Code
governing REITs. All distributions are made at the discretion of our Board of Directors in accordance with Maryland law. Distributions
with respect to our common stock can be characterized for federal income tax purposes as ordinary dividends, capital gains,
nondividend distributions or a combination thereof. The following table shows the characterization of our annual common stock
distributions per share:
Ordinary dividends(1)
Capital gains
Nondividend distributions
YEAR ENDED DECEMBER 31,
2019
2018
2017
$0.7633 $0.9578 $1.4800
0.2714
0.5222
0.4453
—
—
—
$1.4800 $1.4800 $1.4800
(1) For the year ended December 31, 2019 all $0.7633 of ordinary dividends qualified as business income for purposes of Code Section 199A. For the
year ended December 31, 2018 the amount includes $0.9414 of qualified business income for purposes of Code Section 199A and $0.0164 of qualified
dividend income for purposes of Code Section 1(h)(11).
On January 30, 2020, we announced that our Board of Directors declared a quarterly common stock cash dividend of $0.37 per
share. The common stock dividend will be paid on February 28, 2020 to stockholders of record as of the close of business on
February 18, 2020.
Issuer Purchases of Equity Securities
The table below sets forth the information with respect to purchases of our common stock made by or on our behalf during the quarter
ended December 31, 2019.
PERIOD COVERED
October 1-31, 2019
November 1-30, 2019
December 1-31, 2019
Total
TOTAL NUMBER
OF SHARES
PURCHASED(1)
AVERAGE
PRICE
PAID PER
SHARE
682
$35.88
2,452
35.78
—
—
3,134
$35.80
—
—
—
—
TOTAL NUMBER
OF SHARES
PURCHASED AS
PART OF PUBLICLY
ANNOUNCED PLANS
OR PROGRAMS
MAXIMUM NUMBER
(OR APPROXIMATE
DOLLAR VALUE)
OF SHARES THAT MAY
YET BE PURCHASED
UNDER THE PLANS
OR PROGRAMS
(1) Represents restricted shares withheld under our equity incentive plans to offset tax withholding obligations that occur upon vesting of restricted
shares. The value of the shares withheld is based on the closing price of our common stock on the last trading day prior to the date the relevant
transaction occurred.
—
—
—
—
33
2019 ANNUAL REPORT PART II
Performance Graph
The graph and table below compare the cumulative total return of Healthpeak, the S&P 500 Index and the Equity REIT Index of NAREIT,
from January 1, 2015 to December 31, 2019. Total cumulative return is based on a $100 investment in Healthpeak common stock
and in each of the indices at the close of trading on December 31, 2014 and assumes quarterly reinvestment of dividends before
consideration of income taxes. Stockholder returns over the indicated periods should not be considered indicative of future stock prices
or stockholder returns.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN AMONG S&P 500, EQUITY REITS AND HEALTHPEAK PROPERTIES, INC.
RATE OF RETURN TREND COMPARISON JANUARY 1, 2015–DECEMBER 31, 2019 (JANUARY 1, 2015 = $100)
Performance Graph Total Stockholder Return
$250
$200
$150
$100
$50
$0
01/01/15
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
FTSE NAREIT Equity REIT Index
Healthpeak Properties, Inc.
S&P 500
FTSE NAREIT Equity REIT Index
S&P 500
Healthpeak Properties, Inc.
DECEMBER 31,
2015
2016
2017
2018
2019
$102.83
$111.70
$121.39
$116.48
$149.86
101.37
113.49
138.26
132.19
91.96
83.34
76.89
87.41
173.80
112.85
34
HEALTHPEAK PROPERTIES Item 6. Selected Financial Data
Set forth below is our selected financial data as of and for each of the years in the five-year period ended December 31 (dollars in
thousands, except per share data):
PART II
Statement of operations data:
Total revenues
Income (loss) from continuing operations
Net income (loss) applicable to common shares
Basic earnings per common share:
Continuing operations
Discontinued operations
Net income (loss) applicable to common shares
Diluted earnings per common share:
Continuing operations
Discontinued operations
Net income (loss) applicable to common shares
Balance sheet data:
Total assets
Debt obligations(1)
Total equity
Other data:
Dividends paid
Dividends paid per common share(2)
Funds from operations (“NAREIT FFO”)(3)
Diluted NAREIT FFO per common share(3)
FFO as Adjusted(3)
Diluted FFO as Adjusted per common share(3)
Funds available for distribution (“FAD”)(3)
YEAR ENDED DECEMBER 31,
2019
2018
2017
2016
2015
$ 1,997,383 $ 1,846,689 $ 1,848,378 $ 2,129,294 $ 1,940,489
60,061
43,987
1,073,474
1,058,424
422,634
413,013
374,171
626,549
152,668
(560,552)
0.09
—
0.09
0.09
—
0.09
2.25
—
2.25
2.24
—
2.24
0.88
—
0.88
0.88
—
0.88
0.77
0.57
1.34
0.77
0.57
1.34
0.30
(1.51)
(1.21)
0.30
(1.51)
(1.21)
14,032,891
12,718,553
14,088,461
15,759,265
21,449,849
6,351,613
5,567,908
7,880,466
9,189,495
11,069,003
6,667,474
6,512,591
5,594,938
5,941,308
9,746,317
720,123
696,913
694,955
979,542
1,046,638
1.480
1.480
1.480
2.095
2.260
780,307
780,189
661,113
1,119,153
(10,841)
1.59
1.66
1.41
2.39
(0.02)
864,352
857,233
918,402
1,282,390
1,470,167
1.76
1.82
1.95
2.74
3.16
745,820
746,397
803,720
1,215,696
1,261,849
(1)
Includes bank line of credit, commercial paper, term loans, senior unsecured notes, mortgage debt and other debt. Excludes mortgage debt on assets
held for sale.
(2) Represents cash dividends. Additionally, in October 2016 we issued $6.17 per common share of stock dividends related to the spin-off of Quality Care
Properties, Inc.
(3) For a more detailed discussion and reconciliation of NAREIT FFO, FFO as Adjusted and FAD, see “Results of Operations” and “Non-GAAP Financial
Measure Reconciliations” in Item 7 of this report.
Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
The information set forth in this Item 7 is intended to provide readers with an understanding of our financial condition, changes in
financial condition and results of operations. We will discuss and provide our analysis in the following order:
• 2019 Transaction Overview
• Dividends
• Results of Operations
• Liquidity and Capital Resources
• Contractual Obligations
• Off-Balance Sheet Arrangements
• Inflation
• Non-GAAP Financial Measure Reconciliations
• Critical Accounting Policies
• Recent Accounting Pronouncements
35
2019 ANNUAL REPORT PART II
2019 Transaction Overview
Master Transaction and Cooperation Agreement with Brookdale
In October 2019, Healthpeak and Brookdale Senior Living Inc. (“Brookdale”) entered into a Master Transactions and Cooperation
Agreement (the “2019 MTCA”), which includes a series of transactions related to its jointly owned 15-campus continuing care retirement
community (“CCRC”) portfolio (the “CCRC JV”) and the portfolio of 43 senior housing properties that Brookdale triple-net leases
from us.
In connection with the 2019 MTCA, Healthpeak and Brookdale, and certain of their respective subsidiaries, agreed to the following
related to the CCRC JV:
• Healthpeak, which owns a 49% interest in the CCRC JV, agreed to purchase Brookdale’s 51% interest in 13 of the 15 communities in
the CCRC JV based on a valuation of $1.06 billion (the “CCRC Acquisition”);
• The management agreements related to the CCRC Acquisition communities will be terminated, with management transitioned (under
new management agreements) from Brookdale to Life Care Services LLC (“LCS”) simultaneous with closing the CCRC Acquisition;
• We will pay a $100 million management termination fee to Brookdale upon closing the CCRC Acquisition; and
• The remaining two CCRCs will be jointly marketed for sale to third parties.
In addition, pursuant to the 2019 MTCA, Healthpeak and Brookdale agreed to the following transactions related to properties that
Brookdale triple-net leases from us:
• Brookdale will acquire 18 of the properties (the “Brookdale Acquisition Assets”) from us for cash proceeds of $385 million;
• We will terminate the triple-net lease related to one property and transition it to a RIDEA structure with LCS as the manager;
• The remaining 24 properties will be restructured into a single master lease with 2.4% annual rent escalators and a maturity date of
December 31, 2027 (the “2019 Amended Master Lease”);
• A portion of annual rent (amount in excess of 6.5% of sales proceeds) related to 14 of the 18 Brookdale Acquisition Assets will be
reallocated to the remaining properties under the 2019 Amended Master Lease;
• Upon sale of the Brookdale Acquisition Assets, Brookdale will pay down $20 million of future rent under the 2019 Amended Master
Lease; and
• We will provide up to $35 million of capital investment in the 2019 Amended Master Lease properties over a five-year term, which will
increase rent by 7% of the amount spent, per annum.
With the exception of the capital investment to be made over the next five years and the sale of the two CCRCs to be marketed to third
parties, each of the above transactions, including payment of the $100 million management termination fee, closed on January 31, 2020.
Discovery Portfolio Acquisition
• In April 2019, we acquired a portfolio of nine senior housing properties, with a total of 1,242 units, for $445 million. The properties are
located across Florida, Georgia, and Texas and are operated by Discovery Senior Living, LLC.
Oakmont Portfolio Acquisitions
• In May 2019, we acquired three newly-built, senior housing communities in California for $113 million. The portfolio is operated by
Oakmont Senior Living LLC (“Oakmont”) and includes 132 assisted living units and 68 memory care units with an average occupancy
of 96% at closing.
• In July 2019, we acquired five additional senior housing communities in California for $284 million. The portfolio is operated by
Oakmont and includes 430 units. The properties are located in the Los Angeles, San Jose, and San Francisco markets.
Sierra Point Towers Acquisition
• In June 2019, we completed the acquisition of two life science buildings in South San Francisco, California adjacent to our The Shore
at Sierra Point development, for $245 million.
Hartwell Innovation Campus Acquisition
• In July 2019, we acquired a life science campus in the suburban Boston submarket of Lexington, Massachusetts, for $228 million.
The 277,000 square foot campus, comprised of four buildings, is 100% leased to seven biopharmaceutical and medical
diagnostics tenants.
36
HEALTHPEAK PROPERTIES PART II
Cambridge Acquisitions
• In January and February 2019, we acquired a life science facility for $71 million and development rights at an adjacent undeveloped
land parcel for consideration of up to $27 million. The existing facility and land parcel are located in Cambridge, Massachusetts.
• In December 2019, we acquired one life science building, adjacent to our existing properties in Cambridge, Massachusetts, for
$333 million.
Sovereign Wealth Fund Senior Housing Joint Venture
• In December 2019, we formed a new joint venture with a sovereign wealth fund (“SWF SH JV”) that owns 19 SHOP assets operated
by Brookdale. We own 53.5% of the joint venture and contributed all 19 assets with a fair value of $790 million. The joint venture
partner owns the other 46.5% and purchased its interest for cash of $367 million.
United Kingdom Joint Venture
• In December 2019, we sold our remaining 49% interest in our United Kingdom investments (the “U.K. JV”) for proceeds of £70 million
($91 million), net of debt assumed. We no longer own any real estate in the United Kingdom.
Other Real Estate and Loan Transactions
• In May 2019, we acquired one medical office building (“MOB”) in Kansas for $15 million.
• In June 2019, we acquired the outstanding equity interests of, and began consolidating, a senior housing joint venture structure
(which owned one senior housing facility), in which we previously held an unconsolidated equity investment, for $24 million.
• In July 2019, we acquired a $16 million, Class A two-story building in the Sorrento Mesa submarket of San Diego. The 56,000 square
foot property is located on our Directors Place life science campus and is adjacent to our future development site.
• In September 2019, we sold 13 senior housing facilities under DFLs for $274 million.
• During the year ended December 31, 2019, we transitioned 35 senior housing triple-net assets, including a 14-property DFL portfolio,
to a RIDEA structure, with Sunrise Senior Living, LLC (“Sunrise”) as the operator. Those 35 assets generated revenue of $67 million
during the year ended 2018. We expect to transition two additional senior housing triple-net assets to a RIDEA structure with Sunrise
in 2020.
• During the year ended December 31, 2019, we sold 18 SHOP assets for $181 million, 2 senior housing triple-net assets for $26 million,
10 MOBs for $23 million, 1 life science asset for $7 million, 1 undeveloped life science land parcel for $35 million, and 2 facilities from
the other non-reportable segment for $20 million.
• In January 2020, we sold six SHOP assets for $36 million.
• In January 2020, we entered into definitive agreements to acquire a life science campus in Waltham, Massachusetts, for $320 million.
We made a $20 million nonrefundable deposit upon completing due diligence and expect to close the transaction in the second
quarter of 2020.
Financing Activities
• In February 2019, we terminated our previous at-the-market equity program established in February 2018 (the “2018 ATM Program”)
and established a new at-the-market program (the “2019 ATM Program”) pursuant to which shares of our common stock having
an aggregate gross sales price of up to $1.0 billion may be sold (i) by Healthpeak through a consortium of banks acting as sales
agents or directly to the banks acting as principals or (ii) by a consortium of banks acting as forward sellers on behalf of any forward
purchasers pursuant to a forward sale agreement.
• During the year ended December 31, 2019, we directly issued or settled previous forward sales agreements for 26.7 million shares,
resulting in net proceeds of $782 million. Total net proceeds were comprised of: (i) $422 million of net proceeds from the settlement
of 15.3 million shares under a 2018 forward sales agreement at a weighted average net price of $27.66 per share, after commissions,
(ii) $171 million of net proceeds from the settlement of 5.5 million shares under ATM forward sales agreements at a weighted average
net price of $30.91 per share, after commissions, and (iii) $189 million of net proceeds from the direct issuance of 5.9 million shares on
the ATM at a weighted average net price of $31.84 per share, after commissions.
• An aggregate of 30.4 million shares of our common stock, sold at an initial weighted average net price of $33.05 per share, after
commissions, remain available for issuance under forward sales agreements as of December 31, 2019.
• In May 2019, we entered into a new $2.5 billion unsecured revolving line of credit facility (the “Revolving Facility”) maturing on
May 23, 2023. The Revolving Facility contains two, six-month extension options, subject to certain customary conditions. Borrowings
under the Revolving Facility accrue interest at LIBOR plus a margin that depends on our credit ratings (0.825% as of December 31,
2019). We pay a facility fee on the entire revolving commitment that depends on our credit ratings (0.15% as of December 31, 2019).
37
2019 ANNUAL REPORT PART II
• In May 2019, we entered into a new $250 million unsecured term loan facility (the “2019 Term Loan” and, together with the Revolving
Facility, the “Facilities”), and borrowed the full $250 million capacity in June 2019. The 2019 Term Loan matures on May 23, 2024 and
accrues interest at LIBOR plus a margin that depends on our credit ratings (0.90% as of December 31, 2019). The Facilities include
a feature that allows us to increase the borrowing capacity by an aggregate amount of up to $750 million, subject to securing
additional commitments.
• In July 2019, we completed a public offering of $650 million aggregate principal amount of 3.25% senior unsecured notes due 2026
(the “2026 Notes”) and $650 million aggregate principal amount of 3.50% senior unsecured notes due 2029 (the “2029 Notes” and,
together with the 2026 Notes, the “Notes”). The proceeds were used to: (i) redeem all of our $800 million, 2.63% senior unsecured
notes due February 2020 (the “2020 Notes”), (ii) repurchase $250 million aggregate principal amount of our 4.25% senior notes
due 2023 (the “2023 Notes”), and (iii) repurchase $250 million aggregate principal amount of our 4.00% senior notes due 2022 (the
“2022 Notes”).
• In September 2019, we established an unsecured commercial paper program (the “Commercial Paper Program”) under which we
may issue, from time to time, unsecured short-term debt securities with a maximum aggregate face or principal amount outstanding
at any one time not exceeding $1.0 billion.
• In November 2019, we completed a public offering of $750 million aggregate principal amount of 3.00% senior unsecured notes
due 2030 (the “2030 Notes”). The proceeds were used to repurchase the remaining $350 million aggregate principal amount of our
2022 Notes.
Developments
• As part of the previously-announced development program with HCA, during the year ended December 31, 2019, we commenced
the development of seven MOBs, six of which will be on-campus, with an aggregate estimated cost of approximately $166 million.
• At December 31, 2019, we had eight life science development projects in process with an aggregate total estimated cost of
approximately $1.1 billion.
Dividends
Quarterly cash dividends paid during 2019 aggregated to $1.48 per share. On January 30, 2020, our Board of Directors declared a
quarterly cash dividend of $0.37 per common share. The dividend will be paid on February 28, 2020 to stockholders of record as of the
close of business on February 18, 2020.
Results of Operations
We evaluate our business and allocate resources among our reportable business segments: (i) senior housing triple-net, (ii) SHOP,
(iii) life science, and (iv) medical office. Our senior housing facilities are managed utilizing triple-net leases and RIDEA structures. Under
the life science and medical office segments, we invest through the acquisition and development of life science facilities and MOBs,
which generally require a greater level of property management. We have other non-reportable segments that are comprised primarily
of our debt investments, hospital properties, and unconsolidated joint ventures. We evaluate performance based upon: (i) property
net operating income from continuing operations (“NOI”) and (ii) Adjusted NOI (cash NOI) in each segment. The accounting policies
of the segments are the same as those described in the summary of significant accounting policies (see Note 2 to the Consolidated
Financial Statements).
Non-GAAP Financial Measures
NET OPERATING INCOME
NOI and Adjusted NOI are non-U.S. generally accepted accounting principles (“GAAP”) supplemental financial measures used to
evaluate the operating performance of real estate. NOI is defined as real estate revenues (inclusive of rental and related revenues,
resident fees and services, and income from direct financing leases), less property level operating expenses (which exclude transition
costs); NOI excludes all other financial statement amounts included in net income (loss) as presented in Note 15 to the Consolidated
Financial Statements. Management believes NOI provides relevant and useful information because it reflects only income and operating
expense items that are incurred at the property level and presents them on an unlevered basis. Adjusted NOI is calculated as NOI
after eliminating the effects of straight-line rents, DFL non-cash interest, amortization of market lease intangibles, termination fees,
actuarial reserves for insurance claims that have been incurred but not reported, and the impact of deferred community fee income
and expense. Adjusted NOI is oftentimes referred to as “Cash NOI.” NOI and Adjusted NOI exclude our share of income (loss) generated
by unconsolidated joint ventures, which is recognized in equity income (loss) from unconsolidated joint ventures in the consolidated
statements of operations. We use NOI and Adjusted NOI to make decisions about resource allocations, to assess and compare property
38
HEALTHPEAK PROPERTIES PART II
level performance, and to evaluate our same property portfolio (“SPP”), as described below. We believe that net income (loss) is the
most directly comparable GAAP measure to NOI and Adjusted NOI. NOI and Adjusted NOI should not be viewed as alternative measures
of operating performance to net income (loss) as defined by GAAP since they do not reflect various excluded items. Further, our
definitions of NOI and Adjusted NOI may not be comparable to the definitions used by other REITs or real estate companies, as they
may use different methodologies for calculating NOI and Adjusted NOI. For a reconciliation of NOI and Adjusted NOI to net income (loss)
by segment, refer to Note 15 to the Consolidated Financial Statements.
Operating expenses generally relate to leased medical office and life science properties and SHOP facilities. We generally recover all or
a portion of our leased medical office and life science property expenses through tenant recoveries. We present expenses as operating
or general and administrative based on the underlying nature of the expense.
SAME PROPERTY PORTFOLIO
SPP NOI and Adjusted (Cash) NOI information allows us to evaluate the performance of our property portfolio under a consistent
population by eliminating changes in the composition of our consolidated portfolio of properties. SPP NOI excludes certain non-
property specific operating expenses that are allocated to each operating segment on a consolidated basis.
Properties are included in SPP once they are stabilized for the full period in both comparison periods. Newly acquired operating assets
are generally considered stabilized at the earlier of lease-up (typically when the tenant(s) control(s) the physical use of at least 80% of
the space) or 12 months from the acquisition date. Newly completed developments and redevelopments are considered stabilized at
the earlier of lease-up or 24 months from the date the property is placed in service. Properties that experience a change in reporting
structure, such as a transition from a triple-net lease to a RIDEA reporting structure, are considered stabilized after 12 months in
operations under a consistent reporting structure. A property is removed from SPP when it is classified as held for sale, sold, placed into
redevelopment, experiences a casualty event that significantly impacts operations, or a change in reporting structure has been agreed
to (such as triple-net to SHOP).
For a reconciliation of SPP to total portfolio Adjusted NOI and other relevant disclosures by segment, refer to our Segment Analysis below.
FUNDS FROM OPERATIONS (“FFO”)
FFO encompasses NAREIT FFO and FFO as Adjusted, each of which is described in detail below. We believe FFO applicable to common
shares, diluted FFO applicable to common shares, and diluted FFO per common share are important supplemental non-GAAP measures
of operating performance for a REIT. Because the historical cost accounting convention used for real estate assets utilizes straight-line
depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over
time. Since real estate values instead have historically risen and fallen with market conditions, presentations of operating results for a
REIT that use historical cost accounting for depreciation could be less informative. The term FFO was designed by the REIT industry to
address this issue.
NAREIT FFO. FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), is net income (loss) applicable
to common shares (computed in accordance with GAAP), excluding gains or losses from sales of depreciable property, including any
current and deferred taxes directly associated with sales of depreciable property, impairments of, or related to, depreciable real estate,
plus real estate and other real estate-related depreciation and amortization, and adjustments to compute our share of NAREIT FFO
and FFO as Adjusted (see below) from joint ventures. Adjustments for joint ventures are calculated to reflect our pro-rata share of both
our consolidated and unconsolidated joint ventures. We reflect our share of NAREIT FFO for unconsolidated joint ventures by applying
our actual ownership percentage for the period to the applicable reconciling items on an entity by entity basis. For consolidated joint
ventures in which we do not own 100%, we reflect our share of the equity by adjusting our NAREIT FFO to remove the third party
ownership share of the applicable reconciling items based on actual ownership percentage for the applicable periods. Our pro-rata
share information is prepared on a basis consistent with the comparable consolidated amounts, is intended to reflect our proportionate
economic interest in the operating results of properties in our portfolio and is calculated by applying our actual ownership percentage
for the period. We do not control the unconsolidated joint ventures, and the pro-rata presentations of reconciling items included
in NAREIT FFO do not represent our legal claim to such items. The joint venture members or partners are entitled to profit or loss
allocations and distributions of cash flows according to the joint venture agreements, which provide for such allocations generally
according to their invested capital.
The presentation of pro-rata information has limitations, which include, but are not limited to, the following: (i) the amounts shown on
the individual line items were derived by applying our overall economic ownership interest percentage determined when applying the
equity method of accounting and do not necessarily represent our legal claim to the assets and liabilities, or the revenues and expenses
and (ii) other companies in our industry may calculate their pro-rata interest differently, limiting the usefulness as a comparative
measure. Because of these limitations, the pro-rata financial information should not be considered independently or as a substitute
for our financial statements as reported under GAAP. We compensate for these limitations by relying primarily on our GAAP financial
statements, using the pro-rata financial information as a supplement.
39
2019 ANNUAL REPORT PART II
NAREIT FFO does not represent cash generated from operating activities in accordance with GAAP, is not necessarily indicative of cash
available to fund cash needs and should not be considered an alternative to net income (loss). We compute NAREIT FFO in accordance
with the current NAREIT definition; however, other REITs may report NAREIT FFO differently or have a different interpretation of the
current NAREIT definition from ours.
FFO as Adjusted. In addition, we present NAREIT FFO on an adjusted basis before the impact of non-comparable items including, but
not limited to, transaction-related items, impairments (recoveries) of non-depreciable assets, losses (gains) from the sale of non-
depreciable assets, severance and related charges, prepayment costs (benefits) associated with early retirement or payment of debt,
litigation costs (recoveries), casualty-related charges (recoveries), foreign currency remeasurement losses (gains), and changes in
tax legislation (“FFO as Adjusted”). Transaction-related items include transaction expenses and gains/charges incurred as a result of
mergers and acquisitions and lease amendment or termination activities. Prepayment costs (benefits) associated with early retirement
of debt include the write-off of unamortized deferred financing fees, or additional costs, expenses, discounts, make-whole payments,
penalties or premiums incurred as a result of early retirement or payment of debt. Management believes that FFO as Adjusted provides a
meaningful supplemental measurement of our FFO run-rate and is frequently used by analysts, investors, and other interested parties in
the evaluation of our performance as a REIT. At the same time that NAREIT created and defined its FFO measure for the REIT industry, it
also recognized that “management of each of its member companies has the responsibility and authority to publish financial information
that it regards as useful to the financial community.” We believe stockholders, potential investors, and financial analysts who review
our operating performance are best served by an FFO run-rate earnings measure that includes certain other adjustments to net income
(loss), in addition to adjustments made to arrive at the NAREIT defined measure of FFO. FFO as Adjusted is used by management in
analyzing our business and the performance of our properties and we believe it is important that stockholders, potential investors, and
financial analysts understand this measure used by management. We use FFO as Adjusted to: (i) evaluate our performance in comparison
with expected results and results of previous periods, relative to resource allocation decisions, (ii) evaluate the performance of our
management, (iii) budget and forecast future results to assist in the allocation of resources, (iv) assess our performance as compared
with similar real estate companies and the industry in general, and (v) evaluate how a specific potential investment will impact our
future results. Other REITs or real estate companies may use different methodologies for calculating an adjusted FFO measure, and
accordingly, our FFO as Adjusted may not be comparable to those reported by other REITs. For a reconciliation of net income (loss) to
NAREIT FFO and FFO as Adjusted and other relevant disclosure, refer to “Non-GAAP Financial Measures Reconciliations” below.
FUNDS AVAILABLE FOR DISTRIBUTION (“FAD”)
FAD is defined as FFO as Adjusted after excluding the impact of the following: (i) amortization of deferred compensation expense,
(ii) amortization of deferred financing costs, net, (iii) straight-line rents, (iv) deferred income taxes, (v) amortization of acquired
market lease intangibles, net, (vi) non-cash interest related to DFLs and lease incentive amortization (reduction of straight-line rents),
(vii) actuarial reserves for insurance claims that have been incurred but not reported, and (viii) deferred revenues, excluding amounts
amortized into rental income that are associated with tenant funded improvements owned/recognized by us and up-front cash
payments made by tenants to reduce their contractual rents. Also, FAD: (i) is computed after deducting recurring capital expenditures,
including second generation leasing costs and second generation tenant and capital improvements and (ii) includes lease restructure
payments and adjustments to compute our share of FAD from our unconsolidated joint ventures and those related to CCRC
non-refundable entrance fees. Certain prior period amounts in the “Non-GAAP Financial Measures Reconciliation” below for FAD have
been reclassified to conform to the current period presentation. More specifically, recurring capital expenditures, including second
generation leasing costs and second generation tenant and capital improvements (“FAD capital expenditures”) excludes our share
from unconsolidated joint ventures (reported in “other FAD adjustments”). Adjustments for joint ventures are calculated to reflect our
pro-rata share of both our consolidated and unconsolidated joint ventures. We reflect our share of FAD for unconsolidated joint ventures
by applying our actual ownership percentage for the period to the applicable reconciling items on an entity by entity basis. We reflect
our share for consolidated joint ventures in which we do not own 100% of the equity by adjusting our FAD to remove the third party
ownership share of the applicable reconciling items based on actual ownership percentage for the applicable periods (reported in
“other FAD adjustments”). See FFO for further disclosure regarding our use of pro-rata share information and its limitations. Other REITs
or real estate companies may use different methodologies for calculating FAD, and accordingly, our FAD may not be comparable to
those reported by other REITs. Although our FAD computation may not be comparable to that of other REITs, management believes
FAD provides a meaningful supplemental measure of our performance and is frequently used by analysts, investors, and other interested
parties in the evaluation of our performance as a REIT. We believe FAD is an alternative run-rate earnings measure that improves the
understanding of our operating results among investors and makes comparisons with: (i) expected results, (ii) results of previous
periods, and (iii) results among REITs more meaningful. FAD does not represent cash generated from operating activities determined
in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs as it excludes the following items which
generally flow through our cash flows from operating activities: (i) adjustments for changes in working capital or the actual timing of
the payment of income or expense items that are accrued in the period, (ii) transaction-related costs, (iii) litigation settlement expenses,
(iv) severance-related expenses, and (v) actual cash receipts from interest income recognized on loans receivable (in contrast to our
FAD adjustment to exclude non-cash interest and depreciation related to our investments in direct financing leases). Furthermore,
FAD is adjusted for recurring capital expenditures, which are generally not considered when determining cash flows from operations
40
HEALTHPEAK PROPERTIES PART II
or liquidity. FAD is a non-GAAP supplemental financial measure and should not be considered as an alternative to net income (loss)
determined in accordance with GAAP. For a reconciliation of net income (loss) to FAD and other relevant disclosure, refer to “Non-GAAP
Financial Measures Reconciliations” below.
Comparison of the Year Ended December 31, 2019 to the Year Ended December 31, 2018 and the Year Ended December 31, 2018 to
the Year Ended December 31, 2017
Overview(1)
2019 AND 2018
The following table summarizes results for the years ended December 31, 2019 and 2018 (dollars in thousands):
Net income (loss) applicable to common shares
NAREIT FFO
FFO as Adjusted
FAD
YEAR ENDED DECEMBER 31,
2019
2018
CHANGE
$ 43,987
$1,058,424 $(1,014,437)
780,307
864,352
745,820
780,189
857,233
746,397
118
7,119
(577)
(1) For the reconciliation of non-GAAP financial measures, see “Non-GAAP Financial Measure Reconciliations” below.
Net income (loss) applicable to common shares (“net income (loss)”) decreased primarily as a result of the following:
• a reduction in NOI as a result of asset sales during 2018 and 2019;
• a larger net gain on sales of real estate during 2018 compared to 2019, primarily related to the sale of our Shoreline Technology
Center life science campus in November 2018;
• increased depreciation and amortization expense as a result of: (i) assets acquired during 2018 and 2019, (ii) development and
redevelopment projects placed into operations during 2018 and 2019, and (iii) the conversion of 14 senior housing triple-net assets
from a DFL to a RIDEA structure in 2019, partially offset by decreased depreciation and amortization from asset sales during 2018
and 2019;
• an increase in loss on debt extinguishments, resulting from redemptions and repurchases of senior unsecured notes in 2019; and
• increased impairment charges on real estate asset recognized during 2019 compared to 2018.
The decrease in net income (loss) was partially offset by:
• increased NOI from: (i) annual rent escalations, (ii) 2018 and 2019 acquisitions, and (iii) development and redevelopment projects
placed in service during 2018 and 2019;
• a reduction in interest expense as a result of debt repayments during 2018 and 2019; and
• an increase in other income, primarily resulting from: (i) a gain on deconsolidation of 19 SHOP assets in 2019, and (ii) a loss on
consolidation of seven care homes in the U.K. during the first quarter of 2018, partially offset by a gain on consolidation related to the
acquisition of the outstanding equity interests in three life science joint ventures in November 2018.
NAREIT FFO increased primarily as a result of the aforementioned events impacting net income (loss), except for the following, which
are excluded from NAREIT FFO:
• gains on sales of real estate, including related tax impacts;
• depreciation and amortization expense;
• impairments charges on real estate assets; and
• gains and losses on change in control.
FFO as Adjusted decreased primarily as a result of the aforementioned events impacting NAREIT FFO, except for losses on debt
extinguishment, which are excluded from FFO as Adjusted.
FAD decreased primarily as a result of the aforementioned events impacting FFO as Adjusted, except for the impact of straight-line
rents, which is excluded from FAD. The decrease in FAD was also partially due to increased FAD capital expenditures during 2019.
41
2019 ANNUAL REPORT PART II
2018 AND 2017
The following table summarizes results for the years ended December 31, 2018 and 2017 (dollars in thousands):
Net income (loss) applicable to common shares
NAREIT FFO
FFO as Adjusted
FAD
YEAR ENDED DECEMBER 31,
2018
2017
CHANGE
$1,058,424
$413,013 $645,411
780,189
857,233
746,397
661,113
119,076
918,402
(61,169)
803,720
(57,323)
Net income (loss) applicable to common shares (“net income (loss)”) increased primarily as a result of the following:
• a larger net gain on sales of real estate during 2018 compared to 2017, primarily related to the sale of our Shoreline Technology
Center life science campus in November 2018;
• increased NOI from: (i) annual rent escalations, (ii) 2017 and 2018 acquisitions, and (iii) development and redevelopment projects
placed in service during 2017 and 2018;
• a gain on consolidation related to the acquisition of the outstanding equity interests in three life science joint ventures in
November 2018;
• impairments of our mezzanine loan facility to Tandem Health Care (the “Tandem Mezzanine Loan”) in 2017;
• a net charge to NOI from the November 2017 transactions with Brookdale (the “2017 Brookdale Transactions”)(See Note 3 to the
Consolidated Financial Statements);
• a reduction in interest expense as a result of debt repayments, primarily in the second and third quarters of 2017 and throughout
2018, partially offset by an increased average balance under our Revolving Facility during 2018;
• higher income tax expense in 2017 related to the impact of new tax rate legislation, partially offset by tax benefits from higher sales
volume during 2017;
• a reduction in litigation-related costs from securities class action litigation, and a one-time legal settlement in 2017;
• a reduction in loss on debt extinguishment related to repurchases of our senior unsecured notes in July 2018 compared to July 2017; and
• casualty-related charges incurred due to hurricanes in the third quarter of 2017.
The increase in net income (loss) was partially offset by:
• a reduction in NOI in our senior housing triple-net segment, primarily as a result of the sale of senior housing triple-net assets and the
transition of senior housing triple-net assets to SHOP during 2017 and 2018;
• a reduction in NOI in our SHOP segment, primarily as a result of occupancy declines and higher labor costs;
• a loss on consolidation of seven care homes in the U.K. during the first quarter of 2018;
• a reduction in income related to the gain on sale of our £138.5 million par value Four Seasons Health Care’s senior notes (the “Four
Seasons Notes”) during 2017;
• increased impairment charges on real estate asset recognized during 2018 compared to 2017;
• a reduction in income as a result of: (i) asset sales during 2017 and 2018 and (ii) selling interests into the U.K. JV and a joint venture
with Morgan Stanley Real Estate Investments (“MSREI MOB JV”)(see Note 4 to the Consolidated Financial Statements);
• a reduction in interest income due to the: (i) payoff of our HC-One mezzanine loan (the “HC-One Facility”) in June 2017 and (ii) sale of
our Tandem Mezzanine Loan in March 2018;
• increased depreciation and amortization expense as a result of: (i) assets acquired during 2017 and 2018 and (ii) development and
redevelopment projects placed into operations during 2017 and 2018, primarily in our life science and medical office segments,
partially offset by decreased depreciation and amortization from asset sales during 2017 and 2018;
• a reduction in equity income from unconsolidated joint ventures as a result of the sale of our equity method investment in RIDEA II in
June 2018, partially offset by additional equity income from the U.K. JV; and
• an increase in severance and related charges during 2018 primarily related to the departure of our former Executive Chairman compared
to severance and related charges primarily related to the departure of our former Chief Accounting Officer (“CAO”) in 2017.
42
HEALTHPEAK PROPERTIES PART II
NAREIT FFO increased primarily as a result of the aforementioned events impacting net income (loss), except for the following, which
are excluded from NAREIT FFO:
• gains on sales of real estate, including related tax impacts;
• depreciation and amortization expense;
• impairments of facilities within our senior housing triple-net and SHOP segments; and
• net gain on consolidation.
FFO as Adjusted decreased primarily as a result of the aforementioned events impacting NAREIT FFO, except for the following, which
are excluded from FFO as Adjusted:
• the net charge to NOI from the 2017 Brookdale Transactions;
• the impact of tax rate legislation during the fourth quarter of 2017;
• severance and related charges;
• losses on debt extinguishments;
• litigation-related costs;
• casualty-related charges;
• the gain on sale of our Four Seasons Notes during the first quarter of 2017; and
• the impairments of our Tandem Mezzanine Loan in 2017 and an undeveloped life science land parcel in 2018.
FAD decreased primarily as a result of the aforementioned events impacting FFO as Adjusted, except for the impact of straight-line
rents, which is excluded from FAD. The decrease in FAD was partially offset by lower FAD capital expenditures.
Segment Analysis
The following tables provide selected operating information for our SPP and total property portfolio for each of our reportable segments.
For the year ended December 31, 2019, our SPP consists of 411 properties representing properties acquired or placed in service and
stabilized on or prior to January 1, 2018 and that remained in operations under a consistent reporting structure through December 31,
2019. For the year ended December 31, 2018, our SPP consisted of 522 properties acquired or placed in service and stabilized on or
prior to January 1, 2017 and that remained in operations under a consistent reporting structure through December 31, 2018. Our total
consolidated property portfolio consisted of 617, 645 and 744 properties at December 31, 2019, 2018 and 2017, respectively.
43
2019 ANNUAL REPORT PART II
Senior Housing Triple-Net
2019 AND 2018
The following table summarizes results at and for the years ended December 31, 2019 and 2018 (dollars in thousands except per
unit data):
Real estate revenues(2)
Operating expenses
NOI
Adjustments to NOI
Adjusted NOI
Less: non-SPP adjusted NOI
SPP adjusted NOI
SPP Adjusted NOI % change
Property count(3)
Average capacity (units)(4)
Average annual rent per unit
SPP
TOTAL PORTFOLIO(1)
2019
2018 CHANGE
2019
2018 CHANGE
$90,212
$85,799
$ 4,413
$ 199,441
$ 276,091
$(76,650)
(170)
(181)
11
(4,565)
(3,618)
(947)
90,042
85,618
4,424
194,876
272,473
(77,597)
(1,126)
1,180
(2,306)
2,725
2,127
598
$88,916
$86,798
$ 2,118
197,601
274,600
(76,999)
(108,685)
(187,802)
79,117
$ 88,916
$ 86,798
$ 2,118
2.4%
59
59
5,340
5,340
90
146
11,565
16,914
$16,684
$16,287
$ 17,373
$ 16,449
(1) Total Portfolio includes results of operations from disposed properties and properties that transitioned segments through the disposition or transition date.
(2) Represents rental and related revenues and income from DFLs.
(3) From our 2018 presentation of SPP, we removed 15 senior housing triple-net properties that were sold, 45 senior housing triple-net properties that
were transitioned or we agreed to transition to our SHOP segment, and 27 senior housing triple-net properties that were classified as held for sale.
(4) Represents average capacity as reported by the respective tenants or operators for the 12-month period and a quarter in arrears from the periods presented.
SPP NOI and Adjusted NOI increased primarily as a result of annual rent escalations.
Total Portfolio NOI and Adjusted NOI decreased primarily as a result of the following Non-SPP impacts:
• the transfer of 22 and 41 senior housing triple-net facilities to our SHOP segment during 2018 and 2019, respectively, and
• senior housing triple-net facilities sold during 2018 and 2019.
The decrease in Total Portfolio NOI and Adjusted NOI is partially offset by the aforementioned increases to SPP.
2018 AND 2017
The following table summarizes results at and for the years ended December 31, 2018 and 2017 (dollars in thousands except per unit data):
Real estate revenues(2)
Operating expenses
NOI
Adjustments to NOI
Adjusted NOI
Less: non-SPP adjusted NOI
SPP adjusted NOI
SPP Adjusted NOI % change
Property count(3)
Average capacity (units)(4)
Average annual rent per unit
SPP
TOTAL PORTFOLIO(1)
2018
2017 CHANGE
2018
2017
CHANGE
$245,737
$239,273
$ 6,464
$276,091
$313,547
$(37,456)
(377)
(371)
(6)
(3,618)
(3,819)
201
245,360
238,902
6,458
272,473
309,728
(37,255)
4,274
5,899
(1,625)
2,127
17,098
(14,971)
$249,634
$244,801
$ 4,833
274,600
326,826
(52,226)
(24,966)
(82,025)
57,059
$249,634
$244,801
$ 4,833
2.0%
146
146
15,002
15,000
146
181
16,914
21,536
$ 16,665
$ 16,345
$ 16,449
$ 15,352
(1) Total Portfolio includes results of operations from disposed properties and properties that transitioned segments through the disposition
or transition date.
(2) Represents rental and related revenues and income from DFLs.
(3) From our 2017 presentation of SPP, we removed 11 senior housing triple-net properties that were sold and 22 senior housing triple-net properties that
were transitioned to our SHOP segment.
(4) Represents average capacity as reported by the respective tenants or operators for the 12-month period and a quarter in arrears from the
periods presented.
44
HEALTHPEAK PROPERTIES PART II
SPP NOI and Adjusted NOI increased primarily as a result of annual rent escalations. The increase in Adjusted NOI was partially offset by
rent reductions under the 2017 Brookdale Transactions.
Total Portfolio NOI and Adjusted NOI decreased primarily as a result of the following Non-SPP impacts:
• decreased NOI from senior housing triple-net facilities sold during 2017 and 2018; and
• decreased NOI from the transfer of 25 and 22 senior housing triple-net facilities to our SHOP segment during 2017 and
2018, respectively.
The decrease in Total Portfolio NOI and Adjusted NOI is partially offset by the aforementioned increases to SPP. The decrease in Total
Portfolio NOI was further offset by the net charge of triple-net lease terminations from the 2017 Brookdale Transactions.
Senior Housing Operating Portfolio
2019 AND 2018
The following table summarizes results at and for the years ended December 31, 2019 and 2018 (dollars in thousands, except per
unit data):
Resident fees and services
Operating expenses
NOI
Adjustments to NOI
Adjusted NOI
Less: non-SPP adjusted NOI
SPP adjusted NOI
SPP Adjusted NOI % change
Property count(2)
Average occupancy
Average capacity (units)(3)
Average annual rent per unit
SPP
TOTAL PORTFOLIO(1)
2019
2018
CHANGE
2019
2018
CHANGE
$119,874
$117,159
$ 2,715
$ 725,171
$ 547,976
$ 177,195
(87,637)
(86,308)
(1,329)
(565,713)
(414,312)
(151,401)
32,237
122
30,851
1,835
1,386
(1,713)
159,458
133,664
25,794
2,872
2,875
(3)
$ 32,359
$ 32,686
$ (327)
162,330
136,539
25,791
(129,971)
(103,853)
(26,118)
$ 32,359
$ 32,686
$
(327)
(1.0)%
21
87.6%
21
87.3%
2,442
2,436
115
83.2%
93
84.5%
14,633
11,248
$ 49,138
$ 47,951
$ 49,784
$ 48,433
(1) Total Portfolio includes results of operations from disposed properties and properties that transitioned segments through the disposition or
transition date.
(2) From our 2018 presentation of SPP, we removed 16 SHOP properties that were deconsolidated, 3 SHOP properties that were sold, 1 SHOP property
that was placed into redevelopment and 8 SHOP properties that were classified as held for sale.
(3) Represents average capacity as reported by the respective tenants or operators for the 12-month period and a quarter in arrears from the
periods presented.
SPP Adjusted NOI decreased primarily as a result of the following:
• higher labor costs and
• a temporary decline in performance of facilities that transitioned between operators within the SHOP segment, partially offset by
• increased community fees received and
• increased occupancy and rates for resident fees and services
SPP NOI increased primarily as a result of the aforementioned impacts to SPP Adjusted NOI and a non-cash increase to our IBNR
(“Incurred But Not Reported”) insurance liability estimate during the fourth quarter of 2018 in conjunction with the transition of certain
insurance policies to a new plan.
Total Portfolio NOI and Adjusted NOI increased primarily as a result of the following Non-SPP impacts:
• increased NOI from: (i) 2019 acquisitions and (ii) the transfer of 22 and 41 senior housing triple-net assets to our SHOP segment
during 2018 and 2019, respectively, partially offset by
• lost NOI from: (i) assets sold in 2018 and 2019 and (ii) the deconsolidation of 16 assets in 2019 upon formation of the Sovereign
Wealth Fund Senior Housing Joint Venture.
45
2019 ANNUAL REPORT PART II
2018 AND 2017
The following table summarizes results at and for the years ended December 31, 2018 and 2017 (dollars in thousands, except per
unit data):
Resident fees and services
Operating expenses
NOI
Adjustments to NOI
Adjusted NOI
Less: non-SPP adjusted NOI
SPP adjusted NOI
SPP Adjusted NOI % change
Property count(2)
Average occupancy
Average capacity (units)(3)
Average annual rent per unit
SPP
TOTAL PORTFOLIO(1)
2018
2017
CHANGE
2018
2017
CHANGE
$ 262,887
$ 256,471
$ 6,416
$ 547,976
$ 525,473
$ 22,503
(182,511)
(183,384)
80,376
2,174
73,087
12,759
873
7,289
(10,585)
133,664
2,875
$ 82,550
$ 85,846
$ (3,296)
136,539
128,982
33,227
162,209
4,682
(30,352)
(25,670)
(414,312)
(396,491)
(17,821)
(53,989)
(76,363)
22,374
$ 82,550
$ 85,846
$ (3,296)
(3.8)%
46
87.6%
46
88.6%
6,072
6,058
$ 43,219
$ 42,387
93
84.5%
102
86.6%
11,248
12,758
$ 48,433
$ 41,133
(1) Total Portfolio includes results of operations from disposed properties and properties that transitioned segments through the disposition or
transition date.
(2) From our 2017 presentation of SPP, we removed nine properties that were sold, eight SHOP properties that were placed into redevelopment and three
SHOP properties that were classified as held for sale.
(3) Represents average capacity as reported by the respective tenants or operators for the 12-month period and a quarter in arrears from the
periods presented.
SPP Adjusted NOI decreased primarily as a result of the following:
• occupancy declines and higher labor costs; partially offset by
• increased rates for resident fees and services.
SPP NOI increased primarily as a result of the net charge for management fee terminations from the 2017 Brookdale Transactions,
partially offset by the aforementioned decreases to SPP Adjusted NOI.
Total Portfolio Adjusted NOI decreased primarily as a result of the aforementioned impacts to SPP and the following Non-SPP impacts:
• decreased NOI from our partial sale of RIDEA II in the first quarter of 2017; and
• decreased NOI from SHOP assets sold in 2017 and 2018; partially offset by
• increased NOI from the transfer of 25 and 22 senior housing triple-net assets to our SHOP segment during 2017 and
2018, respectively.
Total Portfolio NOI increased primarily a result of the net charge for management fee terminations from the 2017 Brookdale
Transactions, partially offset by the aforementioned decreases to Total Portfolio Adjusted NOI.
46
HEALTHPEAK PROPERTIES PART II
Life Science
2019 AND 2018
The following table summarizes results at and for the years ended December 31, 2019 and 2018 (dollars and sq. ft. in thousands, except
per sq. ft. data):
Rental and related revenues
Operating expenses
NOI
Adjustments to NOI
Adjusted NOI
Less: non-SPP adjusted NOI
SPP adjusted NOI
SPP Adjusted NOI % change
Property count(2)
Average occupancy
Average occupied square feet
Average annual total revenues per occupied square foot
Average annual base rent per occupied square foot
SPP
TOTAL PORTFOLIO(1)
2019
2018
CHANGE
2019
2018
CHANGE
$293,400
$276,996
$16,404
$ 440,784
$395,064
$ 45,720
(69,422)
(65,017)
(4,405)
(107,472)
(91,742)
(15,730)
223,978
211,979
11,999
333,312
303,322
29,990
(1,948)
(2,835)
887
(22,120)
(9,589)
(12,531)
$222,030
$209,144
$12,886
311,192
293,733
(89,162)
(84,589)
17,459
(4,573)
$ 222,030
$209,144
$ 12,886
6.2%
93
96.2%
93
94.9%
5,415
5,345
$
$
54
43
$
$
51
41
134
96.7%
124
95.0%
7,288
7,078
$
$
57
45
$
$
54
44
(1) Total Portfolio includes results of operations from disposed properties and properties that transitioned segments through the disposition or
transition date.
(2) From our 2018 presentation of SPP, we removed one life science facility that was sold, two life science facilities that were placed into redevelopment,
and one life science facility related to a casualty event.
SPP NOI and Adjusted NOI increased primarily as a result of the following:
• new leasing activity;
• mark-to-market lease renewals;
• increased occupancy; and
• specific to Adjusted NOI, annual rent escalations.
Total Portfolio NOI and Adjusted NOI increased primarily as a result of the aforementioned increases to SPP and the following
Non-SPP impacts:
• increased NOI from: (i) increased occupancy in former development and redevelopment facilities placed into service in 2018 and
2019 and (ii) acquisitions in 2019; and
• lost NOI from: (i) facilities sold in 2018 and 2019 and (ii) the placement of facilities into redevelopment in 2019.
47
2019 ANNUAL REPORT PART II
2018 AND 2017
The following table summarizes results at and for the years ended December 31, 2018 and 2017 (dollars and sq. ft. in thousands, except
per sq. ft. data):
Rental and related revenues
Operating expenses
NOI
Adjustments to NOI
Adjusted NOI
Less: non-SPP adjusted NOI
SPP adjusted NOI
SPP Adjusted NOI % change
Property count(2)
Average occupancy
Average occupied square feet
Average annual total revenues per occupied square foot
Average annual base rent per occupied square foot
SPP
TOTAL PORTFOLIO(1)
2018
2017 CHANGE
2018
2017
CHANGE
$265,120
$258,781
$ 6,339
$395,064
$358,816
$ 36,248
(58,752)
(56,431)
(2,321)
(91,742)
(78,001)
(13,741)
206,368
202,350
4,018
303,322
280,815
596
1,636
(1,040)
(9,589)
(4,517)
$206,964
$203,986
$ 2,978
293,733
276,298
22,507
(5,072)
17,435
(86,769)
(72,312)
(14,457)
$206,964
$203,986
$ 2,978
1.5%
94
94.8%
94
95.5%
5,166
5,195
$
$
51
41
$
$
50
40
124
95.0%
131
96.2%
7,078
6,841
$
$
54
44
$
$
52
42
(1) Total Portfolio includes results of operations from disposed properties and properties that transitioned segments through the disposition or
transition date.
(2) From our 2017 presentation of SPP, we removed 12 life science facilities that were sold and 3 life science facilities that were placed
into redevelopment.
SPP NOI and Adjusted NOI increased primarily as a result of the following:
• new leasing activity; and
• specific to Adjusted NOI, annual rent escalations; partially offset by
• a mark-to-market rent decrease on a 147,000 square foot lease in South San Francisco.
Total Portfolio NOI and Adjusted NOI increased primarily as a result of the aforementioned increases to SPP and the following
Non-SPP impacts:
• increased NOI from: (i) increased occupancy in portions of a development placed into operations in 2017 and 2018 and (ii)
acquisitions in 2017; partially offset by
• decreased NOI from: (i) sales of life science facilities in 2017 and 2018 and (ii) the placement of life science facilities into
redevelopment in 2017 and 2018.
48
HEALTHPEAK PROPERTIES PART II
Medical Office
2019 AND 2018
The following table summarizes results at and for the years ended December 31, 2019 and 2018 (dollars and sq. ft. in thousands, except
per sq. ft. data):
Rental and related revenues
Operating expenses
NOI
Adjustments to NOI
Adjusted NOI
Less: non-SPP adjusted NOI
SPP adjusted NOI
SPP Adjusted NOI % change
Property count(2)
Average occupancy
Average occupied square feet
Average annual total revenues per occupied square foot
Average annual base rent per occupied square foot
SPP
TOTAL PORTFOLIO(1)
2019
2018
CHANGE
2019
2018 CHANGE
$ 478,185
$ 467,169
$11,016
$ 571,530
$ 547,375
$24,155
(162,901)
(159,748)
(3,153)
(201,538)
(195,100)
(6,438)
315,284
307,421
(4,443)
(5,681)
7,863
1,238
369,992
352,275
17,717
(5,877)
(6,690)
813
$ 310,841
$ 301,740
$ 9,101
364,115
345,585
18,530
(53,274)
(43,845)
(9,429)
$ 310,841
$ 301,740
$ 9,101
3.0%
227
92.9%
227
93.1%
16,372
16,368
$
$
29
24
$
$
28
24
267
92.1%
269
92.5%
19,069
18,655
$
$
29
25
$
$
29
24
(1) Total Portfolio includes results of operations from disposed properties and properties that transitioned segments through the disposition or
transition date.
(2) From our 2018 presentation of SPP, we removed seven MOBs that were sold, two MOBs that were placed into redevelopment, two MOBs that were
classified as held for sale, and one MOB that we intend to demolish.
SPP NOI and Adjusted NOI increased primarily as a result of the following:
• mark-to-market lease renewals;
• increased percentage-based rents; and
• specific to adjusted NOI, annual rent escalations.
Total Portfolio NOI and Adjusted NOI increased primarily as a result of the aforementioned increases to SPP and the following
Non-SPP impacts:
• NOI from our 2018 and 2019 acquisitions; and
• increased occupancy in former development and redevelopment properties placed into service; partially offset by
• lost NOI from dispositions during 2018 and 2019.
49
2019 ANNUAL REPORT PART II
2018 AND 2017
The following table summarizes results at and for the years ended December 31, 2018 and 2017 (dollars and sq. ft. in thousands, except
per sq. ft. data):
Rental and related revenues
Operating expenses
NOI
Adjustments to NOI
Adjusted NOI
Less: non-SPP adjusted NOI
SPP adjusted NOI
SPP Adjusted NOI % change
Property count(2)
Average occupancy
Average occupied square feet
Average annual total revenues per occupied square foot
Average annual base rent per occupied square foot
SPP
TOTAL PORTFOLIO(1)
2018
2017 CHANGE
2018
2017
CHANGE
$ 460,298
$ 450,562
$ 9,736
$ 547,375
$ 512,385
$ 34,990
(158,116)
(155,725)
(2,391)
(195,100)
(187,688)
302,182
294,837
(4,099)
(3,732)
7,345
(367)
352,275
324,697
(6,690)
(5,405)
$ 298,083
$ 291,105
$ 6,978
345,585
319,292
(7,412)
27,578
(1,285)
26,293
(47,502)
(28,187)
(19,315)
$ 298,083
$ 291,105
$ 6,978
2.4%
223
92.9%
223
93.2%
16,266
16,358
$
$
28
24
$
$
27
23
269
92.5%
256
92.4%
18,655
17,950
$
$
29
24
$
$
28
24
(1) Total Portfolio includes results of operations from disposed properties and properties that transitioned segments through the disposition or
transition date.
(2) From our 2017 presentation of SPP, we removed four MOBs that were sold and three MOBs that were placed into redevelopment.
SPP NOI and Adjusted NOI increased primarily as a result of the following:
• mark-to-market lease renewals;
• increased percentage-based rents; and
• specific to adjusted NOI, annual rent escalations.
Total Portfolio NOI and Adjusted NOI increased primarily as a result of the aforementioned increases to SPP and the following
Non-SPP impacts:
• NOI from our 2017 and 2018 acquisitions and
• increased occupancy in former development and redevelopment properties placed into service in 2017 and 2018, partially offset by
• lost NOI from dispositions during 2017 and 2018.
50
HEALTHPEAK PROPERTIES PART II
Other Income and Expense Items
The following table summarizes results for the years ended December 31, 2019, 2018 and 2017 (in thousands):
Interest income
Interest expense
Depreciation and amortization
General and administrative
Transaction costs
Impairments (recoveries), net
Gain (loss) on sales of real estate, net
Loss on debt extinguishments
Other income (expense), net
Income tax benefit (expense)
Equity income (loss) from unconsolidated joint ventures
Noncontrolling interests’ share in earnings
YEAR ENDED DECEMBER 31,
2019
2018
2017
2019 VS.
2018
2018 VS.
2017
$ 9,844
$ 10,406
$ 56,237
$
(562) $ (45,831)
225,619
266,343
307,716
(40,724)
(41,373)
659,989
549,499
534,726
110,490
14,773
92,966
8,743
225,937
96,702
10,772
55,260
88,772
7,963
(3,736)
(2,029)
7,930
2,809
166,384
170,677
(111,124)
22,900
925,985
356,641
(903,085)
569,344
(58,364)
(44,162)
(54,227)
(14,202)
10,065
182,129
17,262
13,316
17,854
31,420
1,333
(8,625)
(2,594)
10,901
(14,531)
(12,381)
(8,465)
168,813
(18,104)
(592)
16,521
(6,031)
(2,150)
(13,495)
(3,916)
Interest income. The decrease in interest income for the year ended December 31, 2018 was primarily the result of: (i) the sale of our
Tandem Mezzanine Loan during the first quarter of 2018, (ii) the payoff of our HC-One Facility in June 2017, and (iii) the conversion of the
U.K. Bridge Loan into real estate during the first quarter of 2018.
Interest expense. The decrease in interest expense for the year ended December 31, 2019 was primarily the result of senior unsecured
notes repurchases and redemptions during 2018.
The decrease in interest expense for the year ended December 31, 2018 was primarily the result of senior unsecured notes repurchases
during 2017 and 2018, partially offset by an increased average balance under our Revolving Facility during 2018.
Depreciation and amortization. The increase in depreciation and amortization expense for the year ended December 31, 2019 was
primarily as a result of: (i) assets acquired during 2018 and 2019, (ii) development and redevelopment projects placed into operations
during 2018 and 2019 (primarily in our life science and medical office segments), and (iii) the conversion of 14 senior housing triple-net
assets from a DFL to a RIDEA structure in 2019, partially offset by dispositions of real estate throughout 2018 and 2019.
The increase in depreciation and amortization expense for the year ended December 31, 2018 was primarily as a result of: (i) assets
acquired during 2017 and 2018 (primarily in our life science and medical office segments) and (ii) development and redevelopment
projects placed into operations during 2017 and 2018 (primarily in our life science and medical office segments), partially offset by
dispositions of real estate throughout 2017 and 2018.
General and administrative expenses. The decrease in general and administrative expenses for the year ended December 31, 2019 was
primarily as a result of decreased severance and related charges, driven by the departure of our former Executive Chairman in March
2018, partially offset by higher compensation costs in 2019.
The increase in general and administrative expenses for the year ended December 31, 2018 was primarily as a result of increased
severance and related charges, primarily resulting from the departure of our former Executive Chairman in March 2018, which exceeded
severance and related charges in 2017, primarily related to the departure of our former CAO in the third quarter of 2017.
Impairments (recoveries), net. Impairments (recoveries), net increased for the year ended December 31, 2019 as a result of committing
to a formal plan to sell certain assets as part of a broader initiative to improve our portfolio quality and therefore, classifying those assets
as held for sale. While some properties that are classified as held for sale are expected to result in a gain recognized upon disposition,
others had a carrying value that exceeded the expected sale proceeds less costs to sell, resulting in an impairment charge during the
respective period. The impairment charges recognized in each period vary depending on facts and circumstances related to each asset
and are impacted by negotiations with potential buyers, current operations of the assets, market conditions, and other factors.
Impairments (recoveries), net decreased for the year ended December 31, 2018, primarily as a result of the $144 million impairment
charge recognized in 2017 related to our Tandem Mezzanine Loan (see Note 7 to the Consolidated Financial Statements).
Gain (loss) on sales of real estate, net. During the year ended December 31, 2019, we sold: (i) our remaining interest in the U.K. JV,
(ii) 18 SHOP facilities, (iii) 2 senior housing triple-net facilities, (iv) 10 MOBs, (v) 1 life science asset, (vi) 1 undeveloped life science land
parcel, and (vii) two facilities from the other non-reportable segment, and recognized total net gain on sales of $23 million.
51
2019 ANNUAL REPORT PART II
During the year ended December 31, 2018, we sold: (i) our remaining interest in RIDEA II, (ii) a 51% interest in our U.K. Portfolio,
(iii) 31 SHOP facilities, (iv) 16 life science assets, (v) 13 senior housing triple-net facilities, and (vi) four MOBs and recognized total net
gain on sales of $926 million.
During the year ended December 31, 2017, we sold: (i) 68 senior housing triple-net facilities, (ii) five life science facilities, (iii) five SHOP
facilities, (iv) four MOBs, and (v) a 40% interest in RIDEA II, and recognized total net gain on sales of $357 million.
Loss on debt extinguishments. During the year ended December 31, 2019, we repurchased or redeemed $1.65 billion of our senior
unsecured notes and recognized an aggregate loss on debt extinguishment of $58 million.
During the year ended December 31, 2018, we repurchased $700 million of our 5.375% senior notes due 2021 and recognized a
$44 million loss on debt extinguishment.
During the year ended December 31, 2017, we repurchased $500 million of our 5.375% senior notes due 2021 and recognized a
$54 million loss on debt extinguishment.
Other income (expense), net. The increase in other income (expense), net for the year ended December 31, 2019 was primarily as a
result of (i) a gain on deconsolidation recognized in 2019 related to a senior housing joint venture with a sovereign wealth fund (see
Note 4 to the Consolidated Financial Statements) and (ii) a loss on consolidation of seven U.K. care homes in March 2018 (see Note 18
to the Consolidated Financial Statements). The increase in other income (expense), net was partially offset by a gain on consolidation
related to the acquisition of the outstanding equity interests in three life science joint ventures in November 2018.
The decrease in other income (expense), net for the year ended December 31, 2018 was primarily as a result of: (i) a loss on
consolidation of seven U.K. care homes in March 2018 (see Note 18 to the Consolidated Financial Statements) and (ii) a gain on sale of
our Four Seasons Notes in March 2017. The decrease in other income (expense), net was partially offset by: (i) a gain on consolidation
related to the acquisition of the outstanding equity interests in three life science joint ventures in November 2018, (ii) casualty-related
charges due to hurricanes incurred in the third quarter of 2017, and (iii) decreased litigation costs in 2018.
Income tax benefit (expense). The increase in income tax benefit for the year ended December 31, 2018, compared to the year ended
December 31, 2017, was primarily the result of: (i) a $17 million income tax expense related to the impact of tax rate legislation during
the fourth quarter of 2017 and (ii) a $6 million income tax benefit related to our share of operating losses from our RIDEA joint ventures
and U.K. real estate investments during 2018, partially offset by a $6 million benefit from the partial sale of RIDEA II in 2017.
Equity income (loss) from unconsolidated joint ventures. The decrease in equity income from unconsolidated joint ventures for the year
ended December 31, 2019 was primarily the result of an impairment charge recognized related to one asset classified as held-for-sale
in the CCRC JV (see Note 8 to the Consolidated Financial Statements) and the sale of our equity method investment in RIDEA II in June
2018, partially offset by additional equity income from our investment in the U.K. JV.
The decrease in equity income from unconsolidated joint ventures for the year ended December 31, 2018 was primarily the result of the sale
of our equity method investment in RIDEA II in June 2018, partially offset by additional equity income from our investment in the U.K. JV.
Liquidity and Capital Resources
We anticipate that our cash flow from operations, available cash balances and cash from our various financing activities will be adequate for at
least the next 12 months for purposes of: (i) funding recurring operating expenses; (ii) meeting debt service requirements; and (iii) satisfying
our distributions to our stockholders and non-controlling interest members. Distributions were made using a combination of cash flows from
operations, funds available under our revolving line of credit, proceeds from the sale of properties, and other sources of cash available to us.
Our principal investing liquidity needs for the next 12 months are to:
• fund capital expenditures, including tenant improvements and leasing costs and
• fund future acquisition, transactional and development activities.
We anticipate satisfying these future investing needs using one or more of the following:
• cash flow from operations;
• sale or exchange of ownership interests in properties or other investments;
• borrowings under our Facilities and Commercial Paper Program;
• issuance of additional debt, including unsecured notes, term loans, and mortgage debt; and/or
• issuance of common or preferred stock or its equivalent.
52
HEALTHPEAK PROPERTIES PART II
Access to capital markets impacts our cost of capital and ability to refinance maturing indebtedness, as well as our ability to fund future
acquisitions and development through the issuance of additional securities or secured debt. Credit ratings impact our ability to access
capital and directly impact our cost of capital as well. For example, our Revolving Facility and 2019 Term Loan accrue interest at a rate
per annum equal to LIBOR plus a margin that depends upon the credit ratings of our senior unsecured long-term debt. We also pay a
facility fee on the entire revolving commitment that depends upon our credit ratings. As of February 10, 2020, we had long-term credit
ratings of Baa1 from Moody’s and BBB+ from S&P Global and Fitch, and short-term credit ratings of P-2, A-2 and F2 from Moody’s, S&P
Global, and Fitch, respectively.
Cash Flow Summary
The following summary discussion of our cash flows is based on the Consolidated Statements of Cash Flows and is not meant to be an
all-inclusive discussion of the changes in our cash flows for the periods presented below. The following table sets forth changes in cash
flows (in thousands):
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
OPERATING CASH FLOWS
YEAR ENDED DECEMBER 31,
2019
2018
2017
$
846,073
$
848,709
$
847,041
(1,448,778)
1,829,279
1,246,257
647,271
(2,620,536)
(2,148,461)
Operating cash flow decreased $3 million between the years ended December 31, 2019 and 2018 primarily as the result of: (i) dispositions
during 2018 and 2019 and (ii) occupancy declines and higher labor costs within our SHOP segment. The decrease in operating cash flow is
partially offset by: (i) 2018 and 2019 acquisitions, (ii) annual rent increases, (iii) developments and redevelopments placed in service during
2018 and 2019, and (iv) decreased interest paid as a result of debt repayments during 2018 and 2019. Our cash flow from operations is
dependent upon the occupancy levels of our buildings, rental rates on leases, our tenants’ performance on their lease obligations, the level
of operating expenses, and other factors.
Operating cash flow increased $2 million between the years ended December 31, 2018 and 2017 primarily as the result of: (i) 2017
and 2018 acquisitions, (ii) annual rent increases, (iii) developments and redevelopments placed in service during 2017 and 2018, and
(iv) decreased interest paid as a result of debt repayments during 2017 and 2018. The increase in operating cash flow is partially
offset by: (i) dispositions during 2017 and 2018, (ii) the partial sale and deconsolidation of the U.K. JV in 2018, (iii) the partial sale and
deconsolidation of RIDEA II during the first quarter of 2017, (iv) occupancy declines and higher labor costs within our SHOP segment,
(v) decreased interest received as a result of loan repayments during 2017, and (vi) decreased distributions of earnings from our
unconsolidated joint ventures.
INVESTING CASH FLOWS
The following are significant investing activities for the year ended December 31, 2019:
• received net proceeds of $976 million primarily from: (i) sales of real estate assets (including real estate assets under DFLs), (ii) the
sale of our investment in the U.K. JV, and (iii) the sale of a 46.5% interest in 19 previously consolidated SHOP assets; and
• made investments of $2.4 billion primarily related to the (i) acquisition, development, and redevelopment of real estate and (ii)
funding of loan investments.
The following are significant investing activities for the year ended December 31, 2018:
• received net proceeds of $2.9 billion primarily from: (i) sales of real estate assets, (ii) the sale of RIDEA II, (iii) the sale of the Tandem
Mezzanine Loan, and (iv) the U.K. JV transaction; and
• made investments of $1.1 billion primarily related to the acquisition, development, and redevelopment of real estate.
The following are significant investing activities for the year ended December 31, 2017:
• received net proceeds of $1.8 billion from sales of real estate, including the sale and recapitalization of RIDEA II;
• received net proceeds of $559 million primarily from: (i) the sale of our Four Seasons Notes, (ii) the repayment of our HC-One Facility,
and (iii) a DFL repayment; and
• made investments of $1.1 billion primarily for the acquisition and development of real estate.
53
2019 ANNUAL REPORT PART II
FINANCING CASH FLOWS
The following are significant financing activities for the year ended December 31, 2019:
• made net borrowings of $573 million primarily under our bank line of credit, commercial paper, term loan, senior unsecured notes
(including debt extinguishment costs);
• paid cash dividends on common stock of $720 million; and
• issued common stock of $796 million.
The following are significant financing activities for the year ended December 31, 2018:
• repaid $2.4 billion of debt under our: (i) bank line of credit, (ii) term loan, (iii) senior unsecured notes (including debt extinguishment
costs) and (iv) mortgage debt;
• paid cash dividends on common stock of $697 million;
• paid $83 million for distributions to and purchases of noncontrolling interests, primarily related to our acquisition of Brookdale’s
noncontrolling interest in RIDEA I;
• raised net proceeds of $218 million from the issuances of common stock, primarily from our at-the-market equity program; and
• received proceeds of $300 million for issuances of noncontrolling interests, primarily related to the MSREI MOB JV.
The following are significant financing activities for the year ended December 31, 2017:
• repaid $1.4 billion of debt under our: (i) term loans, (ii) senior unsecured notes (including debt extinguishment costs) and
(iii) mortgage debt, partially offset by net borrowings under our bank line of credit; and
• paid cash dividends on common stock of $695 million.
Debt
BANK LINE OF CREDIT, TERM LOANS AND COMMERCIAL PAPER PROGRAM
In May 2019, we entered into the Revolving Facility, a new $2.5 billion unsecured revolving line of credit facility maturing on May 23,
2023. The Revolving Facility contains two, six-month extension options, subject to certain customary conditions. Additionally, in May
2019, we entered into the 2019 Term Loan, a new $250 million unsecured term loan facility and we borrowed the full $250 million
capacity in June 2019. The 2019 Term Loan matures on May 23, 2024. The Facilities include a feature that allows us to increase the
borrowing capacity by an aggregate amount of up to $750 million, subject to securing additional commitments.
In September 2019, we established the Commercial Paper Program. Under the terms of the Commercial Paper Program, we may
issue, from time to time, unsecured short-term debt securities with varying maturities. Amounts available under the Commercial
Paper Program may be borrowed, repaid and re-borrowed from time to time, with the maximum aggregate face or principal amount
outstanding at any one time not to exceed $1.0 billion. Amounts borrowed under the Commercial Paper Program will be sold on terms
that are customary for the U.S. commercial paper market and will be at least equal in right of payment with all of our other unsecured
and unsubordinated indebtedness. We intend to use the Revolving Facility as a liquidity backstop for the repayment of unsecured short
term debt securities issued under the Commercial Paper Program.
SENIOR UNSECURED NOTES
On July 5, 2019, we completed a public offering of $650 million aggregate principal amount of 3.25% senior unsecured notes due 2026
and $650 million aggregate principal amount of 3.50% senior unsecured notes due 2029.
Using the net proceeds from the Notes offering in July 2019, we: (i) redeemed all of our $800 million 2020 Notes, (ii) repurchased
$250 million aggregate principal amount of our 2023 Notes, and (iii) repurchased $250 million aggregate principal amount of our
2022 Notes.
On November 21, 2019, we completed a public offering of $750 million aggregate principal amount of 3.00% senior unsecured notes
due 2030 (the “2030 Notes”).
Using a portion of the net proceeds from the 2030 Notes offering, we repurchased the remaining $350 million aggregate principal
amount of our 2022 Notes.
See Note 10 to the Consolidated Financial Statements for additional information about our outstanding debt.
See “2019 Transaction Overview” for further information regarding our significant financing activities during the year ended
December 31, 2019.
54
HEALTHPEAK PROPERTIES PART II
Approximately 96%, 98% and 84% of our consolidated debt, inclusive of $42 million, $43 million and $44 million of variable rate
debt swapped to fixed through interest rate swaps, was fixed rate debt as of December 31, 2019, 2018 and 2017, respectively. At
December 31, 2019, our fixed rate debt and variable rate debt had weighted average interest rates of 3.92% and 2.78%, respectively.
At December 31, 2018, our fixed rate debt and variable rate debt had weighted average interest rates of 4.04% and 2.15%, respectively.
At December 31, 2017, our fixed rate debt and variable rate debt had weighted average interest rates of 4.19% and 2.56%, respectively.
For a more detailed discussion of our interest rate risk, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 3 below.
Equity
At December 31, 2019, we had 505 million shares of common stock outstanding, equity totaled $6.7 billion, and our equity securities
had a market value of $17.7 billion.
At December 31, 2019, non-managing members held an aggregate of five million units in seven limited liability companies
(“DownREITs”) for which we are the managing member. The DownREIT units are exchangeable for an amount of cash approximating the
then-current market value of shares of our common stock or, at our option, shares of our common stock (subject to certain adjustments,
such as stock splits and reclassifications). At December 31, 2019, the DownREIT units were convertible into seven million shares of our
common stock.
AT-THE-MARKET PROGRAM
In February 2019, we terminated our 2018 ATM Program and concurrently established our 2019 ATM Program. In addition to the issuance
and sale of shares of our common stock, we may also enter into one or more forward sales agreements with sales agents for the sale of
our shares of common stock under our 2019 ATM Program.
During the year ended December 31, 2019, the Company directly issued 5.9 million shares of common stock at a weighted average net
price of $31.84 per share, after commissions, resulting in net proceeds of $189 million.
Additionally, during the year ended December 31, 2019, the Company settled 5.5 million shares under forward contracts at a weighted
average net price of $30.91 per share, after commissions, resulting in net proceeds of $171 million.
At December 31, 2019, we had 14.8 million shares outstanding under forward contracts under the 2019 ATM Program, with a weighted
average net price of $31.56 per share, after commissions.
At December 31, 2019, approximately $163 million of our common stock remained available for sale under the 2019 ATM Program,
after giving effect to equity issued directly and pursuant to forward sale contracts as described in Note 12 to the Consolidated
Financial Statements. Actual future sales of our common stock will depend upon a variety of factors, including but not limited to market
conditions, the trading price of our common stock, and our capital needs. We have no obligation to sell any of the remaining shares
under our 2019 ATM Program.
See Note 12 to the Consolidated Financial Statements for additional information about our 2019 ATM Program, including with respect to
equity sales during the year ended December 31, 2019.
NOVEMBER 2019 FORWARD EQUITY OFFERING
In November 2019, we entered into a forward equity sales agreement to sell an aggregate of 15.6 million shares of our common stock
(including shares sold through the exercise of underwriters’ options) at an initial net price of $34.46 per share, after underwriting
discounts and commissions. The agreement has a one year term that expires on November 4, 2020 during which time we may settle
the forward sales agreement by delivery of physical shares of common stock to the forward seller or, at our election, by settling in
cash or net shares. The forward sale price that we expect to receive upon settlement of the agreement will be the initial net price of
$34.46 per share, subject to adjustments for: (i) accrued interest, (ii) the forward purchasers’ stock borrowing costs, and (iii) certain
fixed price reductions during the term of the agreement. At December 31, 2019, all shares remained outstanding under the forward
sales agreement.
DECEMBER 2018 FORWARD EQUITY OFFERING
In December 2018, we entered into a forward equity sales agreement to sell an aggregate of 15.3 million shares of our common stock
(including shares sold through the exercise of underwriters’ options) at an initial net price of $28.60 per share, after underwriting
discounts and commissions. Contemporaneously, the agreement had a one year term that expired on December 13, 2019 during
which time we could settle the forward sales agreement by delivery of physical shares of common stock to the forward seller or, at our
election, settle in cash or net shares. During the year ended December 31, 2019, we settled all 15.3 million shares under the forward
sales agreement at a weighted average net price of $27.66 per share resulting in net proceeds of $422 million. At December 31, 2019,
no shares remained outstanding under the forward sales agreement.
An aggregate of 30.4 million shares of our common stock, sold at an initial weighted average net price of $33.05 per share, after
commissions, remain available for issuance under forward sales agreements as of December 31, 2019.
55
2019 ANNUAL REPORT PART II
Shelf Registration
In May 2018, we filed a prospectus with the SEC as part of a registration statement on Form S-3, using an automatic shelf registration
process. This shelf registration statement expires in May 2021 and at or prior to such time, we expect to file a new shelf registration
statement. Under the “shelf” process, we may sell any combination of the securities described in the prospectus through one or
more offerings. The securities described in the prospectus include common stock, preferred stock, depositary shares, debt securities
and warrants.
Contractual Obligations
The following table summarizes our material contractual payment obligations and commitments at December 31, 2019 (in thousands):
TOTAL(1)
2020 2021-2022
2023-2024
MORE THAN
FIVE YEARS
Bank line of credit
Commercial paper
Term loan
Senior unsecured notes
Mortgage debt(2)
Construction loan commitments(3)
Lease and other contractual commitments(4)
Development commitments(5)
Ground and other operating leases
Interest(6)
Total
— 300,000
1,700,000
3,700,000
$
— $
— $
— $
93,000
93,000
250,000
5,700,000
264,244
25,050
123,957
—
4,132
25,050
96,042
237,295
213,082
505,352
7,992
—
—
15,707
—
27,915
24,213
16,569
1,825,021
234,885
468,642
— $
—
250,000
—
—
—
8,316
236,089
—
—
—
—
—
—
15,929
413,753
464,862
707,741
$9,023,919
$674,183
$853,046
$2,387,998
$5,108,692
(1) Excludes $85 million of life care bonds and demand notes that have no scheduled maturities and are classified as other debt in our consolidated
balance sheets.
(2) Excludes mortgage debt on assets held for sale and mortgage debt from unconsolidated joint ventures.
(3) Represents commitments to finance development projects.
(4) Represents our commitments, as lessor, under signed leases and contracts for operating properties and includes allowances for tenant improvements
and leasing commissions. Excludes allowances for tenant improvements related to developments in progress for which we have executed an
agreement with a general contractor to complete the tenant improvements (recognized in the “Development commitments” line).
(5) Represents construction and other commitments for developments in progress and includes allowances for tenant improvements of $88 million that
we have provided as a lessor.
(6)
Interest on variable-rate debt is calculated using rates in effect at December 31, 2019.
Off-Balance Sheet Arrangements
We own interests in certain unconsolidated joint ventures as described in Note 8 to the Consolidated Financial Statements. Except in
limited circumstances, our risk of loss is limited to our investment in the joint venture and any outstanding loans receivable. In addition,
we have certain properties which serve as collateral for debt that is owed by a previous owner of certain of our facilities, as described
under Note 11 to the Consolidated Financial Statements. Our risk of loss for these certain properties is limited to the outstanding debt
balance plus penalties, if any. We have no other material off-balance sheet arrangements that we expect would materially affect our
liquidity and capital resources except those described above under “Contractual Obligations”.
Inflation
Our leases often provide for either fixed increases in base rents or indexed escalators, based on the Consumer Price Index or other
measures, and/or additional rent based on increases in the tenants’ operating revenues. Most of our MOB leases require the tenant to
pay a share of property operating costs such as real estate taxes, insurance and utilities. Substantially all of our senior housing triple-net,
life science, and remaining other leases require the tenant or operator to pay all of the property operating costs or reimburse us for all
such costs. We believe that inflationary increases in expenses will be offset, in part, by the tenant or operator expense reimbursements
and contractual rent increases described above.
56
HEALTHPEAK PROPERTIES PART II
PART II
Non-GAAP Financial Measure Reconciliations
Funds From Operations and Funds Available for Distribution
The following is a reconciliation from net income (loss) applicable to common shares, the most directly comparable financial measure
calculated and presented in accordance with GAAP, to NAREIT FFO, FFO as Adjusted and FAD (in thousands, except per share data):
Net income (loss) applicable to common shares
Real estate related depreciation and amortization
YEAR ENDED DECEMBER 31,
2019
2018
2017
2016
2015
$ 43,987 $1,058,424 $ 413,013 $ 626,549 $ (560,552)
659,989
549,499
534,726
572,998
510,785
Healthpeak’s share of real estate related depreciation and amortization from
unconsolidated joint ventures
60,303
63,967
60,058
49,043
48,188
Noncontrolling interests’ share of real estate related depreciation and amortization
(20,054)
(11,795)
(15,069)
(21,001)
(14,506)
Other real estate-related depreciation and amortization
Loss (gain) on sales of real estate, net
6,155
6,977
9,364
11,919
(22,900)
(925,985)
(356,641)
(164,698)
22,223
(6,377)
Healthpeak’s share of loss (gain) on sales of real estate, net, from unconsolidated
joint ventures
Noncontrolling interests’ share of gain (loss) on sales of real estate, net
Loss (gain) upon change of control, net(1)
Taxes associated with real estate dispositions(2)
Impairments (recoveries) of depreciable real estate, net(3)
NAREIT FFO applicable to common shares
Distributions on dilutive convertible units and other
Diluted NAREIT FFO applicable to common shares
(2,118)
335
—
—
(166,707)
(9,154)
3,913
44,343
—
221,317
780,307
6,592
(1,430)
(16,332)
(15,003)
—
—
224
—
(5,498)
60,451
1,453
—
—
22,590
—
2,948
780,189
661,113
1,119,153
(10,841)
—
—
8,732
—
$ 786,899 $ 780,189 $ 661,113 $1,127,885 $ (10,841)
Weighted average shares outstanding - diluted NAREIT FFO
494,335
470,719
468,935
471,566
462,795
Impact of adjustments to NAREIT FFO:
Transaction-related items(4)
Other impairments (recoveries) and losses (gains), net(5)
Severance and related charges(6)
Loss on debt extinguishments(7)
Litigation costs (recoveries)(8)
Casualty-related charges (recoveries), net(9)
Foreign currency remeasurement losses (gains)
Tax rate legislation impact(10)
Total adjustments
FFO as Adjusted applicable to common shares
Distributions on dilutive convertible units and other
$ 15,347 $
11,029 $ 62,576 $
96,586 $
32,932
10,147
5,063
58,364
(520)
(4,106)
(250)
—
7,619
13,906
44,162
363
—
(35)
—
92,900
5,000
54,227
15,637
10,964
(1,043)
17,028
— 1,446,800
16,965
46,020
3,081
—
585
—
6,713
—
—
—
(5,437)
—
$ 84,045 $
77,044 $ 257,289 $ 163,237 $1,481,008
$ 864,352 $ 857,233 $ 918,402 $1,282,390 $1,470,167
6,396
(198)
6,657
12,849
13,597
Diluted FFO as Adjusted applicable to common shares
$ 870,748 $ 857,035 $ 925,059 $1,295,239 $1,483,764
Weighted average shares outstanding - diluted FFO as Adjusted
494,335
470,719
473,620
473,340
469,064
FFO as Adjusted applicable to common shares
Amortization of deferred compensation(11)
Amortization of deferred financing costs
Straight-line rents
FAD capital expenditures
Lease restructure payments
CCRC entrance fees(12)
Deferred income taxes(13)
Other FAD adjustments(14)
FAD applicable to common shares
Distributions on dilutive convertible units and other
Diluted FAD applicable to common shares
$ 864,352 $ 857,233 $ 918,402 $1,282,390 $1,470,167
14,790
10,863
14,714
12,612
13,510
14,569
(28,451)
(23,138)
(23,933)
(108,844)
(106,193)
(113,471)
1,153
18,856
1,195
17,880
1,470
21,385
15,581
20,014
(27,560)
(88,953)
16,604
21,287
23,233
20,222
(38,415)
(82,072)
22,657
27,895
(18,972)
(18,744)
(15,490)
(13,692)
(15,281)
(7,927)
(9,162)
(12,722)
(9,975)
(166,557)
745,820
746,397
803,720
1,215,696
1,261,849
6,591
—
—
13,088
14,230
$ 752,411 $ 746,397 $ 803,720 $1,228,784 $1,276,079
Weighted average shares outstanding - diluted FAD
494,335
470,719
468,935
473,340
469,064
57
2019 ANNUAL REPORT PART II
Diluted earnings per common share
Depreciation and amortization
Loss (gain) on sales of real estate, net
Loss (gain) upon change of control, net(1)
Taxes associated with real estate dispositions(2)
Impairments (recoveries) of depreciable real estate, net(3)
Diluted NAREIT FFO per common share
Transaction-related items(4)
Other impairments (recoveries) and losses (gains), net(5)
Severance and related charges(6)
Loss on debt extinguishments(7)
Litigation costs (recoveries)(8)
Casualty-related charges (recoveries), net(9)
Foreign currency remeasurement losses (gains)
Tax rate legislation impact(10)
Diluted FFO as Adjusted per common share
YEAR ENDED DECEMBER 31,
2019
2018
2017
2016
$
0.09 $
2.24 $
0.88 $
1.34 $
1.43
(0.04)
(0.34)
—
0.45
1.30
(1.96)
(0.02)
0.01
0.09
1.25
(0.76)
—
(0.01)
0.05
1.30
(0.38)
—
0.13
—
$
1.59 $
1.66 $
1.41 $
2.39 $
0.03
0.02
0.01
0.12
—
(0.01)
—
—
0.02
0.02
0.03
0.09
—
—
—
—
0.13
0.20
0.01
0.11
0.03
0.02
—
0.04
0.20
—
0.04
0.10
0.01
—
—
—
$
1.76 $
1.82 $
1.95 $
2.74 $
2015
(1.21)
1.22
(0.04)
—
—
0.01
(0.02)
0.07
3.11
0.01
—
—
—
(0.01)
—
3.16
(1) For the year ended December 31, 2019, primarily relates to the gain related to the deconsolidation of 19 previously consolidated SHOP assets that
were contributed into a new unconsolidated senior housing joint venture with a sovereign wealth fund. For the year ended December 31, 2019, also
includes the gain related to the acquisition of the outstanding equity interests in a previously unconsolidated senior housing joint venture. For the year
ended December 31, 2018, represents the gain related to the acquisition of our partner’s interests in four previously unconsolidated life science assets,
partially offset by the loss on consolidation of seven U.K. care homes.
(2) For the year ended December 31, 2016, represents income tax expense associated with the state built-in gain tax payable upon the disposition of
specific real estate assets, of which $49 million relates to the HCR ManorCare, Inc. (“HCRMC”) real estate portfolio that we spun-off in 2016.
(3) For the year ended December 31, 2019, includes a $6 million impairment charge related to depreciable real estate held by the CCRC JV, which we
recognized in equity income (loss) from unconsolidated joint ventures in the consolidated statements of operations.
(4) For the year ended December 31, 2017, includes $55 million of net non-cash charges related to the right to terminate certain triple-net leases and
management agreements in conjunction with the 2017 Brookdale Transactions. For the year ended December 31, 2016, primarily relates to the spin-off
of Quality Care Properties, Inc.
(5) For the year ended December 31, 2019, represents the impairment of 13 senior housing triple-net facilities under DFLs recognized as a result of
entering into sales agreements. For the year ended December 31, 2018, primarily relates to the impairment of an undeveloped life science land parcel
classified as held for sale, partially offset by an impairment recovery upon the sale of a mezzanine loan investment in March 2018. For the year ended
December 31, 2017, relates to $144 million of impairments on our Tandem Mezzanine Loan, net of a $51 million impairment recovery upon the sale of
our Four Seasons Notes. For the year ended December 31, 2015, include impairment charges of: (i) $1.3 billion related to our HCRMC DFL investments,
(ii) $112 million related to our Four Seasons Notes and (iii) $46 million related to our equity investment in HCRMC, partially offset by an impairment
recovery of $6 million related to a loan payoff.
(6) For the year ended December 31, 2018, primarily relates to the departure of our former Executive Chairman and corporate restructuring activities. For
the year ended December 31, 2017, primarily relates to the departure of our former CAO. For the year ended December 31, 2016, primarily relates to
the departure of our former President and Chief Executive Officer. For the year ended December 31, 2015, relates to the departure of our former Chief
Investment Officer.
(7) For all periods presented, represents the premium associated with the prepayment of senior unsecured notes and mortgage debt.
(8) For all periods presented, relates to costs from securities class action litigation and a legal settlement. See Note 11 to the Consolidated Financial
Statements for additional information.
(9) For the year ended December 31, 2019, represents incremental insurance proceeds related to hurricanes in 2017, net of evacuation costs related to
hurricanes in 2019.
(10) Represents the remeasurement of deferred tax assets and liabilities as a result of the Tax Cuts and Jobs Act that was signed into legislation on
December 22, 2017.
(11) Excludes amounts related to the acceleration of deferred compensation for restricted stock units that vested upon the departure of certain former
employees, which have already been excluded from FFO as Adjusted in severance and related charges.
(12) Represents our 49% share of our CCRC JV’s non-refundable entrance fees collected in excess of amortization.
(13) Excludes $17 million of deferred tax expenses, which is included in tax rate legislation impact for the year ended December 31, 2017. Additionally, the
year ended December 31, 2017, excludes $1 million of deferred tax benefit from the casualty-related charges, which is included in casualty-related
charges (recoveries), net.
(14) Primarily includes our share of FAD capital expenditures from unconsolidated joint ventures, partially offset by noncontrolling interests’ share of FAD
capital expenditures from consolidated joint ventures. Our equity investment in HCRMC was accounted for using the equity method, which required
an elimination of DFL income that was proportional to our ownership in HCRMC. Further, our share of earnings from HCRMC (equity income) increased
for the corresponding elimination of related lease expense recognized at the HCRMC entity level, which we presented as a non-cash joint venture FAD
adjustment. Beginning in January 2016, as a result of placing our equity investment in HCRMC on a cash basis method of accounting, we no longer
eliminated our proportional ownership share of income from DFLs to equity income (loss) from unconsolidated joint ventures.
58
HEALTHPEAK PROPERTIES PART II
Critical Accounting Policies
The preparation of financial statements in conformity with U.S. GAAP requires our management to use judgment in the application of
accounting policies, including making estimates and assumptions. We base estimates on the best information available to us at the
time, our experience and on various other assumptions believed to be reasonable under the circumstances. These estimates affect
the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements,
and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and
circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have
been applied, resulting in a different presentation of our consolidated financial statements. From time to time, we re-evaluate our
estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made
in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. For a more
detailed discussion of our significant accounting policies, see Note 2 to the Consolidated Financial Statements. Below is a discussion of
accounting policies that we consider critical in that they may require complex judgment in their application or require estimates about
matters that are inherently uncertain.
Principles of Consolidation
The consolidated financial statements include the accounts of Healthpeak Properties, Inc., our wholly-owned subsidiaries, and joint
ventures that we control, through voting rights or other means. We consolidate investments in variable interest entities (“VIEs”) when
we are the primary beneficiary of the VIE. A variable interest holder is considered to be the primary beneficiary of a VIE if it has the
power to direct the activities that most significantly impact the entity’s economic performance and has the obligation to absorb losses
of, or the right to receive benefits from, the entity that could potentially be significant to the VIE.
We make judgments about which entities are VIEs based on an assessment of whether: (i) the equity investment at risk is insufficient to
finance that entity’s activities without additional subordinated financial support, (ii) substantially all of an entity’s activities either involve
or are conducted on behalf of an investor that has disproportionately few voting rights, or (iii) the equity investors as a group lack any
of the following: (a) the power through voting or similar rights to direct the activities of an entity that most significantly impact the
entity’s economic performance, (b) the obligation to absorb the expected losses of an entity, or (c) the right to receive the expected
residual returns of an entity. Criterion (iii) above is generally applied to limited partnerships and similarly structured entities by assessing
whether a simple majority of the limited partners hold substantive rights to participate in the significant decisions of the entity or have
the ability to remove the decision maker or liquidate the entity without cause. If neither of those criteria are met, the entity is a VIE.
We continually assess whether events have occurred that require us to reconsider the initial determination of whether an entity is a
VIE. Such events include, but are not limited to: (i) a change to the contractual arrangements of the entity or in the ability of a party
to exercise its participation or kick-out rights, (ii) a change to the capitalization structure of the entity, or (iii) acquisitions or sales of
interests that constitute a change in control. When a reconsideration event occurs, we reassess whether the entity is a VIE.
We also make judgments with respect to our level of influence or control over an entity and whether we are (or are not) the primary
beneficiary of a VIE. Consideration of various factors includes, but is not limited to:
• which activities most significantly impact the entity’s economic performance, and our ability to direct those activities;
• our form of ownership interest;
• our representation on the entity’s governing body;
• the size and seniority of our investment;
• our ability to manage our ownership interest relative to other interest holders; and
• our ability and the rights of other investors to participate in policy making decisions, replace the manager, and/or liquidate the
entity, if applicable.
Our ability to correctly assess our influence or control over an entity when determining the primary beneficiary of a VIE affects the
presentation of these entities in our consolidated financial statements. When we perform a reassessment of the primary beneficiary
at a date other than at inception of the VIE, our assumptions may be different and may result in the identification of a different
primary beneficiary.
If we determine that we are the primary beneficiary of a VIE, our consolidated financial statements include the operating results of
the VIE rather than the results of our variable interest in the VIE. We require VIEs to provide us timely financial information and review
the internal controls of VIEs to determine if we can rely on the financial information it provides. If a VIE has deficiencies in its internal
controls over financial reporting, or does not provide us with timely financial information, it may adversely impact the quality and/or
timing of our financial reporting and our internal controls over financial reporting.
59
2019 ANNUAL REPORT PART II
Revenue Recognition
LEASE CLASSIFICATION
At the inception of a new lease arrangement, including new leases that arise from amendments, we assess the terms and conditions
to determine the proper lease classification. For leases entered into prior to January 1, 2019, a lease arrangement is classified as an
operating lease if none of the following criteria are met: (i) transfer of ownership to the lessee prior to or shortly after the end of the
lease term, (ii) the lessee has a bargain purchase option during or at the end of the lease term, (iii) the lease term is equal to 75% or
more of the underlying property’s economic life, or (iv) the present value of future minimum lease payments (excluding executory costs)
is equal to 90% or more of the estimated fair value of the leased asset. If one of the four criteria is met and the minimum lease payments
are determined to be reasonably predictable and collectible, the lease arrangement is generally accounted for as a DFL.
Concurrent with our adoption of Accounting Standards Update (“ASU”) No. 2016-02, Leases (“ASU 2016-02”) on January 1, 2019, we
began classifying a lease entered into subsequent to adoption as an operating lease if none of the following criteria are met: (i) transfer
of ownership to the lessee by the end of the lease term, (ii) lessee has a purchase option during or at the end of the lease term that it
is reasonably certain to exercise, (iii) the lease term is for the major part of the remaining economic life of the underlying asset, (iv) the
present value of future minimum lease payments is equal to substantially all of the fair value of the underlying asset, or (v) the underlying
asset is of such a specialized nature that it is expected to have no alternative use to us at the end of the lease term.
If the assumptions utilized in the above classification assessments were different, our lease classification for accounting purposes may
have been different; thus the timing and amount of our revenue recognized would have been impacted, which may be material to our
consolidated financial statements.
RENTAL AND RELATED REVENUES
We recognize rental revenue for operating leases on a straight-line basis over the lease term when collectibility of all minimum lease
payments is probable and the tenant has taken possession or controls the physical use of a leased asset. If the lease provides for
tenant improvements, we determine whether the tenant improvements are owned by the tenant or us. When we are the owner of
the tenant improvements, the tenant is not considered to have taken physical possession or have control of the leased asset until the
tenant improvements are substantially complete. When the tenant is the owner of the tenant improvements, any tenant improvement
allowance funded is treated as a lease incentive and amortized as a reduction of revenue over the lease term. The determination of
ownership of a tenant improvement is subject to significant judgment. If our assessment of the owner of the tenant improvements was
different, the timing and amount of our revenue recognized would be impacted.
Certain leases provide for additional rents that are contingent upon a percentage of the facility’s revenue in excess of specified base
amounts or other thresholds. Such revenue is recognized when actual results reported by the tenant, or estimates of tenant results,
exceed the base amount or other thresholds. The recognition of additional rents requires us to make estimates of amounts owed and, to
a certain extent, is dependent on the accuracy of the facility results reported to us. Our estimates may differ from actual results, which
could be material to our consolidated financial statements.
RESIDENT FEES AND SERVICES
Resident fee revenue is recorded when services are rendered and includes resident room and care charges, community fees and other
resident charges. Residency agreements are generally for a term of 30 days to one year, with resident fees billed monthly, in advance.
Revenue for certain care related services is recognized as services are provided and is billed monthly in arrears.
Certain of our CCRCs are operated as entrance fee communities, which typically require a resident to pay an upfront entrance fee that
includes both a refundable portion and non-refundable portion. When we receive a nonrefundable entrance fee, it is recognized as
deferred revenue and amortized into revenue over the estimated stay of the resident.
Credit Losses
We continuously assess the collectibility of operating lease straight-line rent receivables. If it is no longer probable that substantially all
future minimum lease payments will be received, the straight-line rent receivable balance is written off and recognized as a decrease
in revenue in that period. We monitor the liquidity and creditworthiness of our tenants and operators on a continuous basis. This
evaluation considers industry and economic conditions, property performance, credit enhancements, and other factors. We exercise
judgment in this assessment and consider payment history and current credit status in developing these estimates. These estimates
may differ from actual results, which could be material to our consolidated financial statements.
Loans receivable and DFLs (collectively, “Finance Receivables”), are reviewed and assigned an internal rating of Performing, Watch List,
or Workout. Finance Receivables that are deemed Performing meet all present contractual obligations, and collection and timing of all
amounts owed is reasonably assured. Watch List Finance Receivables are defined as Finance Receivables that do not meet the definition
of Performing or Workout. Workout Finance Receivables are defined as Finance Receivables in which we have determined, based on
current information and events, that: (i) it is probable we will be unable to collect all amounts due according to the contractual terms of
the agreement, (ii) the tenant, operator, or borrower is delinquent on making payments under the contractual terms of the agreement,
and (iii) we have commenced action or anticipate pursuing action in the near term to seek recovery of our investment.
60
HEALTHPEAK PROPERTIES PART II
Finance Receivables are placed on nonaccrual status when management determines that the collectibility of contractual amounts is
not reasonably assured (the asset will have an internal rating of either Watch List or Workout). Further, we perform a credit analysis
to support the tenant’s, operator’s, borrower’s, and/or guarantor’s repayment capacity and the underlying collateral values. We use
the cash basis method of accounting for Finance Receivables placed on nonaccrual status unless one of the following conditions
exist whereby we utilize the cost recovery method of accounting: (i) if we determine that it is probable that we will only recover the
recorded investment in the Finance Receivable, net of associated allowances or charge-offs (if any) or (ii) we cannot reasonably estimate
the amount of an impaired Finance Receivable. For cash basis method of accounting we apply payments received, excluding principal
paydowns, to interest income so long as that amount does not exceed the amount that would have been earned under the original
contractual terms. For cost recovery method of accounting any payment received is applied to reduce the recorded investment.
Generally, we return a Finance Receivable to accrual status when all delinquent payments become current under the terms of the loan
or lease agreements and collectibility of the remaining contractual loan or lease payments is reasonably assured.
Prior to the adoption of ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) on January 1,
2020, allowances were established for Finance Receivables on an individual basis utilizing an estimate of probable losses, if they were
determined to be impaired. Finance Receivables are impaired when it is was deemed probable that we would be unable to collect
all amounts due in accordance with the contractual terms of the loan or lease. An allowance was based upon our assessment of the
lessee’s or borrower’s overall financial condition, economic resources, payment record, the prospects for support from any financially
responsible guarantors and, if appropriate, the net realizable value of any collateral. These estimates considered all available evidence,
including the expected future cash flows discounted at the Finance Receivable’s effective interest rate, fair value of collateral, general
economic conditions and trends, historical and industry loss experience, and other relevant factors, as appropriate. If a Finance
Receivable was deemed partially or wholly uncollectible, the uncollectible balance was charged off against the allowance in the period
in which the uncollectible determination has been made.
Subsequent to adopting ASU 2016-13 on January 1, 2020, we began using a loss model that relies on future expected credit losses,
rather than incurred losses, as was required under historical U.S. GAAP. Under the new model, we are required to recognize future credit
losses expected to be incurred over the life of a financing receivable at inception of that instrument. The model emphasized historical
experience and future market expectations to determine a loss to be recognized at inception. However, the model continues to be
applied on an individual basis and rely on counter-party specific information to ensure the most accurate estimate is recognized.
Real Estate
We make estimates as part of our process for allocating a purchase price to the various identifiable assets and liabilities of an acquisition
based upon the relative fair value of each asset or liability. The most significant components of our allocations are typically buildings
as-if-vacant, land, and in-place leases. In the case of allocating fair value to buildings and intangibles, our fair value estimates will affect
the amount of depreciation and amortization we record over the estimated useful life of each asset acquired. In the case of allocating
fair value to in-place leases, we make our best estimates based on our evaluation of the specific characteristics of each tenant’s lease.
Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market conditions, and costs to
execute similar leases. Our assumptions affect the amount of future revenue and/or depreciation and amortization expense that we will
recognize over the remaining useful life for the acquired in-place leases.
Certain of our acquisitions involve the assumption of contract liabilities. We typically estimate the fair value of contract liabilities
by applying a reasonable profit margin to the total discounted estimated future costs associated with servicing the contract. We
consider a variety of market and contract-specific conditions when making assumptions that impact the estimated fair value of the
contract liability.
A variety of costs are incurred in the development and leasing of properties. After determination is made to capitalize a cost, it is
allocated to the specific component of a project that is benefited. Determination of when a development project is substantially
complete and capitalization must cease involves a degree of judgment. The costs of land and buildings under development include
specifically identifiable costs. The capitalized costs include pre-construction costs essential to the development of the property,
development costs, construction costs, interest costs, real estate taxes, and other costs incurred during the period of development. We
consider a construction project to be considered substantially complete and available for occupancy and cease capitalization of costs
upon the completion of the related tenant improvements.
Assets Held for Sale
The Company classifies a real estate property as held for sale when: (i) management has approved the disposal, (ii) the property is
available for sale in its present condition, (iii) an active program to locate a buyer has been initiated, (iv) it is probable that the property
will be disposed of within one year, (v) the property is being marketed at a reasonable price relative to its fair value, and (vi) it is unlikely
that the disposal plan will significantly change or be withdrawn. If an asset is classified as held for sale, it is reported at the lower of its
carrying value or fair value less costs to sell and no longer depreciated.
61
2019 ANNUAL REPORT PART II
Impairment of Long-Lived Assets
We assess the carrying value of our real estate assets and related intangibles (“real estate assets”) when events or changes in
circumstances indicate that the carrying value may not be recoverable. Recoverability of real estate assets is measured by comparing
the carrying amount of the real estate assets to the respective estimated future undiscounted cash flows. The expected future
undiscounted cash flows reflect external market factors and are probability-weighted to reflect multiple possible cash-flow scenarios,
including selling the assets at various points in the future. Additionally, the estimated future undiscounted cash flows are calculated
utilizing the lowest level of identifiable cash flows that are largely independent of the cash flows of other assets and liabilities. In order
to review our real estate assets for recoverability, we make assumptions regarding external market conditions (including capitalization
rates and growth rates), forecasted cash flows and sales prices, and our intent with respect to holding or disposing of the asset. If our
analysis indicates that the carrying value of the real estate assets is not recoverable on an undiscounted cash flow basis, we recognize
an impairment charge for the amount by which the carrying value exceeds the fair value of the real estate asset.
Determining the fair value of real estate assets, including assets classified as held-for-sale, involves significant judgment and generally
utilizes market capitalization rates, comparable market transactions, estimated per-unit or per square foot prices, negotiations with
prospective buyers, and forecasted cash flows (lease revenue rates, expense rates, growth rates, etc.). Our ability to accurately
predict future operating results and resulting cash flows, and estimate fair values, impacts the timing and recognition of impairments.
While we believe our assumptions are reasonable, changes in these assumptions may have a material impact on our consolidated
financial statements.
Investments in Unconsolidated Joint Ventures
The initial carrying value of investments in unconsolidated joint ventures is based on the amount paid to purchase the joint venture
interest or the carrying value of the assets prior to the sale or contribution of the interests to the joint venture. We evaluate our equity
method investments for impairment by first reviewing for indicators of impairment based on the performance of the underlying real
estate assets held by the joint venture. If an equity-method investment shows indicators of impairment, we compare the fair value of
the investment to the carrying value. If we determine there is a decline in the fair value of our investment in an unconsolidated joint
venture below its carrying value and it is other-than-temporary, an impairment charge is recorded. The determination of the fair value
of investments in unconsolidated joint ventures and as to whether a deficiency in fair value is other-than-temporary involves significant
judgment. Our estimates consider all available evidence including, as appropriate, the present value of the expected future cash flows,
discounted at market rates, general economic conditions and trends, severity and duration of a fair value deficiency, and other relevant
factors. Capitalization rates, discount rates, and credit spreads utilized in our valuation models are based on rates we believe to be
within a reasonable range of current market rates for the respective investments. While we believe our assumptions are reasonable,
changes in these assumptions may have a material impact on our consolidated financial statements.
Income Taxes
As part of the process of preparing our consolidated financial statements, significant management judgment is required to evaluate our
compliance with REIT requirements. Our determinations are based on interpretation of tax laws and our conclusions may have an impact
on the income tax expense recognized. Adjustments to income tax expense may be required as a result of: (i) audits conducted by
federal, state, and local tax authorities, (ii) our ability to qualify as a REIT, (iii) the potential for built-in gain recognition, and (iv) changes
in tax laws. Adjustments required in any given period are included within the income tax provision.
Recent Accounting Pronouncements
See Note 2 to the Consolidated Financial Statements for the impact of new accounting standards.
62
HEALTHPEAK PROPERTIES PART II
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk
We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates. We use derivative
and other financial instruments in the normal course of business to mitigate interest rate. We do not use derivative financial instruments
for speculative or trading purposes. Derivatives are recorded on the consolidated balance sheets at fair value (see Note 21 to the
Consolidated Financial Statements).
To illustrate the effect of movements in the interest rate markets, we performed a market sensitivity analysis on our hedging
instruments. We applied various basis point spreads to the underlying interest rate curves of the derivative portfolio in order to
determine the change in fair value. Assuming a one percentage point change in the underlying interest rate curve, the estimated
change in fair value of each of the underlying derivative instruments would not be material.
Interest Rate Risk
At December 31, 2019, our exposure to interest rate risk is primarily on our variable rate debt. At December 31, 2019, $42 million of our
variable-rate debt was hedged by interest rate swap transactions. The interest rate swaps are designated as cash flow hedges, with the
objective of managing the exposure to interest rate risk by converting the interest rates on our variable-rate debt to fixed interest rates.
Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt and assets until their maturity
or earlier prepayment and refinancing. If interest rates have risen at the time we seek to refinance our fixed rate debt, whether at
maturity or otherwise, our future earnings and cash flows could be adversely affected by additional borrowing costs. Conversely, lower
interest rates at the time of refinancing may reduce our overall borrowing costs. However, interest rate changes will affect the fair value
of our fixed rate instruments. At December 31, 2019, a one percentage point increase or decrease in interest rates would change the
fair value of our fixed rate debt by approximately $365 million and $401 million, respectively, and would not materially impact earnings
or cash flows. Additionally, a one percentage point increase or decrease in interest rates would change the fair value of our fixed rate
debt investments by approximately $2 million and less than $7 million, respectively, and would not materially impact earnings or cash
flows. Conversely, changes in interest rates on variable rate debt and investments would change our future earnings and cash flows, but
not materially impact the fair value of those instruments. Assuming a one percentage point change in the interest rate related to our
variable-rate debt and variable-rate investments, and assuming no other changes in the outstanding balance at December 31, 2019, our
annual interest expense and interest income would increase by approximately $3 million and $1 million, respectively.
Market Risk
We have investments in marketable debt securities classified as held-to-maturity because we have the positive intent and ability to hold
the securities to maturity. Held-to-maturity securities are recorded at amortized cost and adjusted for the amortization of premiums and
discounts through maturity. We consider a variety of factors in evaluating an other-than-temporary decline in value, such as: the length
of time and the extent to which the market value has been less than our current adjusted carrying value; the issuer’s financial condition,
capital strength and near-term prospects; any recent events specific to that issuer and economic conditions of its industry; and our
investment horizon in relationship to an anticipated near-term recovery in the market value, if any. At December 31, 2019, both the fair
value and carrying value of marketable debt securities was $20 million.
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2019 ANNUAL REPORT PART II
Item 8. Financial Statements and Supplementary Data
Healthpeak Properties, Inc.
Index to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets—December 31, 2019 and 2018
Consolidated Statements of Operations—for the years ended December 31, 2019, 2018, and 2017
Consolidated Statements of Comprehensive Income (Loss)—for the years ended December 31, 2019, 2018, and 2017
Consolidated Statements of Equity—for the years ended December 31, 2019, 2018, and 2017
Consolidated Statements of Cash Flows—for the years ended December 31, 2019, 2018, and 2017
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the stockholders and the Board of Directors of Healthpeak Properties, Inc.
Opinion on the Financial Statements
69
72
73
74
75
76
77
We have audited the accompanying consolidated balance sheets of Healthpeak Properties, Inc. and subsidiaries (formerly HCP, Inc.)
(the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations, comprehensive income (loss),
equity, and cash flows, for each of the three years in the period ended December 31, 2019, and the related notes and the schedules
listed in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present
fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations
and its cash flows for each of the three years in the period ended December 31, 2019, in conformity with accounting principles
generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control -
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated
February 12, 2020, expressed an unqualified opinion on the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 2, Summary of Significant Accounting Policies-Recent Accounting Pronouncements, to the financial statements,
the Company has changed its method of derecognizing real estate from partial sales effective January 1, 2018 due to the adoption of
Accounting Standards Update No. 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of
Nonfinancial Assets on a modified retrospective basis.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations
of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
64
HEALTHPEAK PROPERTIES PART II
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were
communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material
to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical
audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating
the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which
they relate.
MASTER TRANSACTIONS AND COOPERATION AGREEMENT WITH BROOKDALE - REFER TO NOTES 2, 3, 8, AND 18 TO THE
FINANCIAL STATEMENTS
Critical Audit Matter Description
The Company consolidates investments in variable interest entities (“VIEs”) when the Company is the primary beneficiary of the VIE.
The Company makes judgments about which entities are VIEs, and continually assesses whether events have occurred that require
management to reconsider the initial determination of whether an entity is a VIE. Additionally, the Company makes judgments regarding
the level of influence or control over the VIE in determining the primary beneficiary, an evaluation performed continuously.
In October 2019, the Company and Brookdale Senior Living Inc. (“Brookdale”) entered into a Master Transactions and Cooperation
Agreement (the “2019 MTCA”), which includes a series of transactions, including that related to its jointly owned 15-campus continuing
care retirement community portfolio (the “CCRC JV”). In connection with the 2019 MTCA, the Company, which owned a 49% interest
in the CCRC JV, agreed to purchase Brookdale’s 51% interest in 13 of the 15 communities in the CCRC JV. The Company completed the
acquisition of the 13 communities in the CCRC JV simultaneously with other transactions that were part of the 2019 MTCA on January 31,
2020. Determining that the Company would not consolidate the 13 communities in the CCRC JV upon entering into the 2019 MTCA in
the fourth quarter of 2019 required significant judgment by management.
The determination of whether the Company should consolidate the CCRC JV requires a continuous assessment, and specific
transactions or events that affect whether the Company holds a controlling financial interest requires significant judgement. Given
the judgments necessary to evaluate whether entering into the 2019 MTCA during the fourth quarter of 2019 changed the Company’s
previous primary beneficiary and consolidation conclusions, performing audit procedures to evaluate the accounting for these
transactions upon execution of the 2019 MTCA involved especially complex and subjective auditor judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the Company’s accounting determination upon signing the 2019 MTCA to acquire the 13 communities
in the CCRC JV included the following, among others:
• We tested the effectiveness of the controls in place to identify transactions requiring evaluation and assessed the application of the
consolidation principles of the real estate ventures based on accounting principles generally accepted in the United States.
• We evaluated the Company’s accounting conclusion relating to the rights acquired and obligations assumed upon execution of the
2019 MTCA concerning the impending acquisition of the 13 communities in the CCRC JV that contained terms leading to subjective
judgments by:
• Reading the 2019 MTCA and the existing CCRC JV agreements and evaluating the structure and terms of the agreements
to determine if the Company’s acquisition of the 13 communities in the CCRC JV should be recorded upon execution of the
2019 MTCA.
• Evaluating the judgments made in following areas, among others: 1) whether the 2019 MTCA qualifies as a reconsideration event,
2) whether the 2019 MTCA resulted in control rights shifting upon execution but before anticipated closing of the acquisition
in a future period, including an evaluation of forward starting rights (such as call options and put options conveyed pursuant to
contracts in existence as of the balance sheet date) upon execution, and 3) whether certain potential rights upon the resolution of
a contingency are substantive.
• We utilized professionals in our firm having expertise in accounting for consolidations to assist in our evaluation of the Company’s
conclusion not to consolidate the 13 communities in the CCRC JV upon signing the 2019 MTCA.
IMPAIRMENTS - REAL ESTATE - REFER TO NOTES 2 AND 5 TO THE FINANCIAL STATEMENTS
Critical Audit Matter Description
The Company’s evaluation of impairment of real estate involves an assessment of the carrying value of real estate assets and related
intangibles (“real estate assets”) when events or changes in circumstances indicate that the carrying value may not be recoverable. If a
real estate asset is classified as held for sale, the long-lived asset shall be measured at the lower of its carrying amount or fair value less
cost to sell. If a real estate asset’s carrying amount is not recoverable, the real estate asset shall be measured at the lower of its carrying
amount or fair value.
65
2019 ANNUAL REPORT PART II
The determination of the fair value of real estate assets involves significant judgment. The fair value of the impaired assets was based on
forecasted sales prices, which are considered to be Level 3 measurements within the fair value hierarchy. Forecasted sales prices were
determined using a direct capitalization model or a market approach (comparable sales model), which rely on certain assumptions by
the Company, including: (i) property hold periods (ii) market capitalization rates, (iii) market prices per unit, and (iv) forecasted cash
flow streams (lease revenue rates, expense rates, growth rates, etc.). There are inherent uncertainties in these assumptions.
Given the Company’s evaluation of the forecasted sales price of real estate assets requires management to make significant estimates
and assumptions related to property hold periods, market capitalization rates, market prices per unit, and forecasted cash flow streams,
performing audit procedures to evaluate the reasonableness of management’s forecasted sales price required a high degree of auditor
judgment and an increased extent of effort.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasted sales price for certain real estate assets included the following, among others:
• We tested the effectiveness of controls over impairment of real estate, including those over the determination of the forecasted sales
price for real estate assets.
• We evaluated the forecasted sales prices for a sample of real estate assets, which may have included estimates of property hold
periods, market capitalization rates, market prices per unit, and/or forecasted cash flow streams used in the determination of
fair value for each selected real estate asset by (1) evaluating the source information and assumptions used by management and
(2) testing the mathematical accuracy of the direct capitalization model.
• We performed a retrospective review of impairment charges and real estate assets that were classified as held for sale to evaluate
the changing facts and circumstances that led to the timing and recognition of impairment and/or change in classification during the
period and how such compared to the facts that were considered in previous periods.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
February 12, 2020
We have served as the Company’s auditor since 2010.
66
HEALTHPEAK PROPERTIES Part II
HEALTHPEAK PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS
Real estate:
Buildings and improvements
Development costs and construction in progress
Land
Accumulated depreciation and amortization
Net real estate
Net investment in direct financing leases
Loans receivable, net
Investments in and advances to unconsolidated joint ventures
Accounts receivable, net of allowance of $4,565 and $5,127
Cash and cash equivalents
Restricted cash
Intangible assets, net
Assets held for sale, net
Right-of-use asset, net
Other assets, net
Total assets
Bank line of credit and commercial paper
LIABILITIES AND EQUITY
Term loan
Senior unsecured notes
Mortgage debt
Other debt
Intangible liabilities, net
Liabilities of assets held for sale, net
Lease liability
Accounts payable and accrued liabilities
Deferred revenue
Total liabilities
Commitments and contingencies
Common stock, $1.00 par value: 750,000,000 shares authorized; 505,221,643 and 477,496,499 shares
issued and outstanding
Additional paid-in capital
Cumulative dividends in excess of earnings
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Joint venture partners
Non-managing member unitholders
Total noncontrolling interests
Total equity
Total liabilities and equity
See accompanying Notes to Consolidated Financial Statements.
PART II
DECEMBER 31,
2019
2018
$11,120,039 $10,877,248
692,336
537,643
1,992,602
1,637,506
(2,771,922)
(2,842,947)
11,033,055
10,209,450
84,604
190,579
825,515
59,417
144,232
40,425
331,693
504,394
172,486
646,491
713,818
62,998
540,088
48,171
110,790
29,056
305,079
108,086
—
591,017
$14,032,891 $12,718,553
$
93,000 $
80,103
248,942
—
5,647,993
5,258,550
276,907
138,470
84,771
74,991
36,369
156,611
456,153
289,680
90,785
54,663
1,125
—
391,583
190,683
7,365,417
6,205,962
505,222
477,496
9,183,892
8,398,847
(3,601,199)
(2,927,196)
(2,857)
(4,708)
6,085,058
5,944,439
378,061
204,355
582,416
391,401
176,751
568,152
6,667,474
6,512,591
$14,032,891 $12,718,553
67
2019 ANNUAL REPORT PART II
HEALTHPEAK PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
Revenues:
Rental and related revenues
Resident fees and services
Income from direct financing leases
Interest income
Total revenues
Costs and expenses:
Interest expense
Depreciation and amortization
Operating
General and administrative
Transaction costs
Impairments (recoveries), net
Total costs and expenses
Other income (expense):
Gain (loss) on sales of real estate, net
Loss on debt extinguishments
Other income (expense), net
Total other income (expense), net
Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures
Income tax benefit (expense)
Equity income (loss) from unconsolidated joint ventures
Net income (loss)
Noncontrolling interests’ share in earnings
Net income (loss) attributable to Healthpeak Properties, Inc.
Participating securities’ share in earnings
Net income (loss) applicable to common shares
Earnings per common share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
See accompanying Notes to Consolidated Financial Statements.
68
YEAR ENDED DECEMBER 31,
2019
2018
2017
$1,222,078 $1,237,236 $1,213,649
727,980
544,773
524,275
37,481
9,844
54,274
10,406
54,217
56,237
1,997,383
1,846,689
1,848,378
225,619
659,989
879,370
92,966
8,743
225,937
266,343
549,499
705,038
96,702
10,772
55,260
307,716
534,726
666,251
88,772
7,963
166,384
2,092,624
1,683,614
1,771,812
22,900
925,985
356,641
(58,364)
(44,162)
(54,227)
182,129
146,665
13,316
895,139
51,424
1,058,214
17,262
(8,625)
17,854
(2,594)
31,420
333,834
410,400
1,333
10,901
60,061
1,073,474
422,634
(14,531)
(12,381)
(8,465)
45,530
1,061,093
414,169
(1,543)
(2,669)
(1,156)
$
43,987 $1,058,424 $ 413,013
$
$
0.09 $
0.09 $
2.25 $
2.24 $
0.88
0.88
486,255
489,335
470,551
475,387
468,759
468,935
HEALTHPEAK PROPERTIES HEALTHPEAK PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
Net income (loss)
Other comprehensive income (loss):
Net unrealized gains (losses) on derivatives
Reclassification adjustment realized in net income (loss)
Change in Supplemental Executive Retirement Plan obligation and other
Foreign currency translation adjustment
Total other comprehensive income (loss)
Total comprehensive income (loss)
Total comprehensive income (loss) attributable to noncontrolling interests
Total comprehensive income (loss) attributable to Healthpeak Properties, Inc.
See accompanying Notes to Consolidated Financial Statements.
PART II
YEAR ENDED DECEMBER 31,
2019
2018
2017
$ 60,061 $1,073,474 $422,634
758
1,023
(590)
660
6,025
(11,107)
18,088
561
799
64
(5,358)
15,862
1,851
19,316
5,618
61,912
1,092,790
428,252
(14,531)
(12,381)
(8,465)
$ 47,381 $1,080,409 $419,787
69
2019 ANNUAL REPORT PART II
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2019 ANNUAL REPORT
PART II
HEALTHPEAK PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization of real estate, in-place lease and other intangibles
Amortization of deferred compensation
Amortization of deferred financing costs
Straight-line rents
Equity loss (income) from unconsolidated joint ventures
Distributions of earnings from unconsolidated joint ventures
Non-cash lease and management fee termination loss (income), net
Deferred income tax expense (benefit)
Impairments (recoveries), net
Loss on extinguishment of debt
Loss (gain) on sales of real estate, net
Loss (gain) on consolidation, net
Casualty-related loss (recoveries), net
Loss (gain) on sale of marketable securities
Other non-cash items
Decrease (increase) in accounts receivable and other assets, net
Increase (decrease) in accounts payable, accrued liabilities and deferred revenue
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Acquisitions of real estate
Development, redevelopment, and other major improvements of real estate
Leasing costs, tenant improvements, and recurring capital expenditures
Proceeds from sales of real estate, net
Contributions to unconsolidated joint ventures
Distributions in excess of earnings from unconsolidated joint ventures
Proceeds from insurance recovery
Proceeds from the RIDEA II transaction, net
Proceeds from the U.K. JV transaction, net
Proceeds from the Sovereign Wealth Fund Senior Housing JV transaction, net
Proceeds from sales/principal repayments on debt investments and direct financing leases
Investments in loans receivable, direct financing leases and other
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Borrowings under bank line of credit and commercial paper
Repayments under bank line of credit and commercial paper
Issuance and borrowings of debt, excluding bank line of credit and commercial paper
Repayments and repurchase of debt, excluding bank line of credit and commercial paper
Borrowings under term loan
Payments for debt extinguishment and deferred financing costs
Issuance of common stock and exercise of options
Repurchase of common stock
Dividends paid on common stock
Issuance of noncontrolling interests
Distributions to and purchase of noncontrolling interests
Net cash provided by (used in) financing activities
Effect of foreign exchanges on cash, cash equivalents and restricted cash
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash, beginning of year
Cash, cash equivalents and restricted cash, end of year
See accompanying Notes to Consolidated Financial Statements.
72
YEAR ENDED DECEMBER 31,
2019
2018
2017
$
60,061 $ 1,073,474 $ 422,634
659,989
18,162
10,863
(22,479)
8,625
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—
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225,937
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(49,771)
71,659
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230,455
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9,359
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(1,604,026)
—
(41,552)
217,656
(3,432)
(696,913)
299,666
(82,854)
(2,620,536)
191
57,643
82,203
534,726
14,258
14,569
(23,933)
(10,901)
44,142
54,641
(5,523)
166,384
54,227
(356,641)
—
12,053
(50,895)
(2,735)
(24,782)
4,817
847,041
(560,753)
(373,479)
(115,260)
1,314,325
(46,334)
37,023
—
462,242
—
—
558,769
(30,276)
1,246,257
1,244,189
(1,150,596)
5,395
(1,468,446)
—
(51,415)
28,121
(4,785)
(694,955)
1,615
(57,584)
(2,148,461)
376
(54,787)
136,990
82,203
$ 184,657 $ 139,846 $
HEALTHPEAK PROPERTIES PART II
PART II
Notes to the Consolidated Financial Statements
NOTE 1. Business
OVERVIEW
Healthpeak Properties, Inc. (formerly HCP, Inc.), a Standard & Poor’s 500 company, is a Maryland corporation that is organized to qualify
as a real estate investment trust (“REIT”) which, together with its consolidated entities (collectively, “Healthpeak” or the “Company”),
invests primarily in real estate serving the healthcare industry in the United States (“U.S.”). HealthpeakTM acquires, develops,
leases, owns, and manages healthcare real estate. The Company’s diverse portfolio is comprised of investments in the following
reportable healthcare segments: (i) senior housing triple-net, (ii) senior housing operating portfolio (“SHOP”), (iii) life science, and
(iv) medical office.
On October 30, 2019, the Company changed its name from HCP, Inc. to Healthpeak Properties, Inc. Common shares of the Company
began trading on the New York Stock Exchange under the new name and a new ticker symbol, “PEAK”, on November 5, 2019.
NOTE 2. Summary of Significant Accounting Policies
USE OF ESTIMATES
Management is required to make estimates and assumptions in the preparation of financial statements in conformity with U.S. generally
accepted accounting principles (“GAAP”). These estimates and assumptions affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from management’s estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Healthpeak Properties, Inc., its wholly-owned subsidiaries, joint ventures
and variable interest entities that it controls through voting rights or other means. Intercompany transactions and balances have been
eliminated upon consolidation.
The Company is required to continually evaluate its variable interest entity (“VIE”) relationships and consolidate these entities when it is
determined to be the primary beneficiary of their operations. A VIE is broadly defined as an entity where either: (i) the equity investment
at risk is insufficient to finance that entity’s activities without additional subordinated financial support, (ii) substantially all of an entity’s
activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights, or (iii) the equity
investors as a group lack any of the following: (a) the power through voting or similar rights to direct the activities of an entity that
most significantly impact the entity’s economic performance, (b) the obligation to absorb the expected losses of an entity, or (c) the
right to receive the expected residual returns of an entity. Criterion (iii) above is generally applied to limited partnerships and similarly
structured entities by assessing whether a simple majority of the limited partners hold substantive rights to participate in the significant
decisions of the entity or have the ability to remove the decision maker or liquidate the entity without cause. If neither of those criteria
are met, the entity is a VIE.
The designation of an entity as a VIE is reassessed upon certain events, including, but not limited to: (i) a change to the contractual
arrangements of the entity or in the ability of a party to exercise its participation or kick-out rights, (ii) a change to the capitalization
structure of the entity, or (iii) acquisitions or sales of interests that constitute a change in control.
A variable interest holder is considered to be the primary beneficiary of a VIE if it has the power to direct the activities of a VIE that
most significantly impact the entity’s economic performance and has the obligation to absorb losses of, or the right to receive benefits
from, the entity that could potentially be significant to the VIE. The Company qualitatively assesses whether it is (or is not) the primary
beneficiary of a VIE. Consideration of various factors include, but is not limited to, its form of ownership interest, its representation on
the VIE’s governing body, the size and seniority of its investment, its ability and the rights of other investors to participate in policy
making decisions, its ability to manage its ownership interest relative to the other interest holders, and its ability to replace the VIE
manager and/or liquidate the entity.
For its investments in joint ventures that are not considered to be VIEs, the Company evaluates the type of ownership rights held by the
limited partner(s) that may preclude consolidation by the majority interest holder. The assessment of limited partners’ rights and their
impact on the control of a joint venture should be made at inception of the joint venture and continually reassessed.
REVENUE RECOGNITION
Lease Classification
At the inception of a new lease arrangement, including new leases that arise from amendments, the Company assesses the terms and
conditions to determine the proper lease classification. For leases entered into prior to January 1, 2019, a lease arrangement is classified
as an operating lease if none of the following criteria are met: (i) transfer of ownership to the lessee prior to or shortly after the end of
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2019 ANNUAL REPORT PART II
the lease term, (ii) lessee has a bargain purchase option during or at the end of the lease term, (iii) the lease term is equal to 75% or
more of the underlying property’s economic life, or (iv) the present value of future minimum lease payments (excluding executory costs)
is equal to 90% or more of the excess fair value (over retained tax credits) of the leased property. If one of the four criteria is met and the
minimum lease payments are determined to be reasonably predictable and collectible, the lease arrangement is generally accounted
for as a direct financing lease (“DFL”).
Concurrent with the Company’s adoption of Accounting Standards Update (“ASU”) No. 2016-02, Leases (“ASU 2016-02”) on January 1, 2019,
the Company began classifying a lease entered into subsequent to adoption as an operating lease if none of the following criteria are
met: (i) transfer of ownership to the lessee by the end of the lease term, (ii) lessee has a purchase option during or at the end of the lease
term that it is reasonably certain to exercise, (iii) the lease term is for the major part of the remaining economic life of the underlying asset,
(iv) the present value of future minimum lease payments is equal to substantially all of the fair value of the underlying asset, or (v) the
underlying asset is of such a specialized nature that it is expected to have no alternative use to the Company at the end of the lease term.
Rental and Related Revenues
The Company commences recognition of rental revenue for operating lease arrangements when the tenant has taken possession
or controls the physical use of a leased asset. The tenant is not considered to have taken physical possession or have control of the
leased asset until the Company-owned tenant improvements are substantially complete. If a lease arrangement provides for tenant
improvements, the Company determines whether the tenant improvements are owned by the tenant or the Company. When the
Company is the owner of the tenant improvements, any tenant improvements funded by the tenant are treated as lease payments which
are deferred and amortized into income over the lease term. When the tenant is the owner of the tenant improvements, any tenant
improvement allowance that is funded by the Company is treated as a lease incentive and amortized as a reduction of revenue over the
lease term. Ownership of tenant improvements is determined based on various factors including, but not limited to, the following criteria:
• lease stipulations of how and on what a tenant improvement allowance may be spent;
• which party to the arrangement retains legal title to the tenant improvements upon lease expiration;
• whether the tenant improvements are unique to the tenant or general purpose in nature;
• if the tenant improvements are expected to have significant residual value at the end of the lease term;
• the responsible party for construction cost overruns; and
• which party constructs or directs the construction of the improvements.
Certain leases provide for additional rents that are contingent upon a percentage of the facility’s revenue in excess of specified base
amounts or other thresholds. Such revenue is recognized when actual results reported by the tenant or estimates of tenant results,
exceed the base amount or other thresholds, and only after any contingency has been removed (when the related thresholds are
achieved). This may result in the recognition of rental revenue in periods subsequent to when such payments are received.
Tenant recoveries subject to operating leases generally relate to the reimbursement of real estate taxes, insurance, and repairs and
maintenance expense, and are recognized as both revenue (in rental and related revenues) and expense (in operating expenses) in the
period the expense is incurred as the Company is the party paying the service provider.
For operating leases with minimum scheduled rent increases, the Company recognizes income on a straight line basis over the lease
term when collectibility of future minimum lease payments is probable. Recognizing rental income on a straight line basis results in a
difference in the timing of revenue amounts from what is contractually due from tenants. If the Company determines that collectibility of
future minimum lease payments is not probable, the straight-line rent receivable balance is written off and recognized as a decrease in
revenue in that period and future revenue recognition is limited to amounts contractually owed and paid.
Resident Fees and Services
Resident fee revenue is recorded when services are rendered and includes resident room and care charges, community fees and other
resident charges. Residency agreements for SHOP facilities are generally for a term of 30 days to one year, with resident fees billed
monthly, in advance. Revenue for certain care related services is recognized as services are provided and is billed monthly in arrears.
Certain of the Company’s continuing care retirement communities (“CCRCs”) are operated as entrance fee communities, which typically require
a resident to pay an upfront entrance fee that includes both a refundable portion and non-refundable portion. When the Company receives a
nonrefundable entrance fee, it is recognized as deferred revenue and amortized into revenue over the estimated stay of the resident.
Income from Direct Financing Leases
The Company utilizes the direct finance method of accounting to record DFL income. For a lease accounted for as a DFL, the net
investment in the DFL represents receivables for the sum of future minimum lease payments and the estimated residual value of the
leased property, less the unamortized unearned income. Unearned income is deferred and amortized to income over the lease term to
provide a constant yield when collectibility of the lease payments is reasonably assured.
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HEALTHPEAK PROPERTIES PART II
Interest Income
Loans receivable are classified as held-for-investment based on management’s intent and ability to hold the loans for the foreseeable
future or to maturity. Loans held-for-investment are carried at amortized cost and reduced by a valuation allowance for estimated credit
losses, as necessary. The Company recognizes interest income on loans, including the amortization of discounts and premiums, loan
fees paid and received, using the interest method. The interest method is applied on a loan-by-loan basis when collectibility of the
future payments is reasonably assured. Premiums and discounts are recognized as yield adjustments over the term of the related loans.
Gain (loss) on sales of real estate, net
The Company recognizes a gain (loss) on sale of real estate when the criteria for an asset to be derecognized are met, which include
when: (i) a contract exists, (ii) the buyer obtains control of the asset, and (iii) it is probable that the Company will receive substantially
all of the consideration to which it is entitled. These criteria are generally satisfied at the time of sale.
CREDIT LOSSES
The Company evaluates the liquidity and creditworthiness of its tenants, operators, and borrowers on a monthly and quarterly basis. The
Company’s evaluation considers industry and economic conditions, individual and portfolio property performance, credit enhancements,
liquidity, and other factors. The Company’s tenants, operators, and borrowers furnish property, portfolio, and guarantor/operator-level
financial statements, among other information, on a monthly or quarterly basis; the Company utilizes this financial information to calculate
the lease or debt service coverages that it uses as a primary credit quality indicator. Lease and debt service coverage information is
evaluated together with other property, portfolio, and operator performance information, including revenue, expense, net operating
income, occupancy, rental rate, reimbursement trends, capital expenditures, and EBITDA (defined as earnings before interest, tax, and
depreciation and amortization), along with other liquidity measures. The Company evaluates, on a monthly basis or immediately upon a
significant change in circumstance, its tenants’, operators’, and borrowers’ ability to service their obligations with the Company.
If it is no longer probable that substantially all future minimum lease payments under operating leases will be received, the straight-line
rent receivable balance is written off and recognized as a decrease in revenue in that period.
In connection with the Company’s quarterly review process or upon the occurrence of a significant event, loans receivable and DFLs
(collectively, “Finance Receivables”), are reviewed and assigned an internal rating of Performing, Watch List, or Workout. Finance
Receivables that are deemed Performing meet all present contractual obligations, and collection and timing, of all amounts owed is
reasonably assured. Watch List Finance Receivables are defined as Finance Receivables that do not meet the definition of Performing
or Workout. Workout Finance Receivables are defined as Finance Receivables in which the Company has determined, based on current
information and events, that: (i) it is probable it will be unable to collect all amounts due according to the contractual terms of the
agreement, (ii) the tenant, operator, or borrower is delinquent on making payments under the contractual terms of the agreement, and
(iii) the Company has commenced action or anticipates pursuing action in the near term to seek recovery of its investment.
Finance Receivables are placed on nonaccrual status when management determines that the collectibility of contractual amounts
is not reasonably assured (the asset will have an internal rating of either Watch List or Workout). Further, the Company performs a
credit analysis to support the tenant’s, operator’s, borrower’s, and/or guarantor’s repayment capacity and the underlying collateral
values. The Company uses the cash basis method of accounting for Finance Receivables placed on nonaccrual status unless one of the
following conditions exist whereby it utilizes the cost recovery method of accounting if: (i) the Company determines that it is probable
that it will only recover the recorded investment in the Finance Receivable, net of associated allowances or charge-offs (if any), or
(ii) the Company cannot reasonably estimate the amount of an impaired Finance Receivable. For cash basis method of accounting,
the Company applies payments received, excluding principal paydowns, to interest income so long as that amount does not exceed
the amount that would have been earned under the original contractual terms. For cost recovery method of accounting, any payment
received is applied to reduce the recorded investment. Generally, the Company returns a Finance Receivable to accrual status when all
delinquent payments become current under the terms of the loan or lease agreements and collectibility of the remaining contractual
loan or lease payments is reasonably assured.
Prior to the adoption of ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) on January 1, 2020,
allowances were established for Finance Receivables on an individual basis utilizing an estimate of probable losses, if they were
determined to be impaired. Finance Receivables were impaired when it was deemed probable that the Company would be unable
to collect all amounts due in accordance with the contractual terms of the Finance Receivable. An allowance was based upon the
Company’s assessment of the borrower’s overall financial condition, economic resources, payment record, the prospects for support
from any financially responsible guarantors and, if appropriate, the net realizable value of any collateral. These estimates considered all
available evidence, including the expected future cash flows discounted at the Finance Receivable’s effective interest rate, fair value of
collateral, general economic conditions and trends, historical and industry loss experience, and other relevant factors, as appropriate. If
a Finance Receivable was deemed partially or wholly uncollectible, the uncollectible balance was charged off against the allowance in
the period in which the uncollectible determination was made.
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2019 ANNUAL REPORT PART II
Subsequent to adopting ASU 2016-13 on January 1, 2020, the Company began using a loss model that relies on future expected
credit losses, rather than incurred losses, as was required under historical U.S. GAAP. Under the new model, the Company is required
to recognize future credit losses expected to be incurred over the life of a Financing Receivable at inception of that instrument. The
model emphasizes historical experience and future market expectations to determine a loss to be recognized at inception. However,
the model continues to be applied on an individual basis and to rely on counter-party specific information to ensure the most accurate
estimate is recognized.
REAL ESTATE
The Company’s real estate acquisitions are generally classified as asset acquisitions for which the Company records identifiable assets
acquired, liabilities assumed, and any associated noncontrolling interests at cost on a relative fair value basis. In addition, for such asset
acquisitions, no goodwill is recognized, third party transaction costs are capitalized and any associated contingent consideration is
generally recorded when the amount of consideration is reasonably estimable and probable of being paid.
The Company assesses fair value based on available market information, such as capitalization and discount rates, comparable sale
transactions, and relevant per square foot or unit cost information. A real estate asset’s fair value may be determined utilizing cash
flow projections that incorporate such market information. Estimates of future cash flows are based on a number of factors including
historical operating results, known and anticipated trends, as well as market and economic conditions. The fair value of tangible assets
of an acquired property is based on the value of the property as if it is vacant.
The Company recognizes acquired “above and below market” leases at their relative fair value (for asset acquisitions) using discount
rates which reflect the risks associated with the leases acquired. The fair value is based on the present value of the difference between
(i) the contractual amounts paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each
in-place lease, measured over a period equal to the remaining term of the lease for above market leases and the initial term plus
the extended term for any leases with renewal options that are reasonably certain to be exercised. Other intangible assets acquired
include amounts for in-place lease values that are based on an evaluation of the specific characteristics of each property and the
acquired tenant lease(s). Factors considered include estimates of carrying costs during hypothetical expected lease-up periods, market
conditions, and costs to execute similar leases. In estimating carrying costs, the Company includes estimates of lost rents at market
rates during the hypothetical expected lease-up periods, which are dependent on local market conditions and expected trends. In
estimating costs to execute similar leases, the Company considers leasing commissions, legal, and other related costs.
Certain of the Company’s acquisitions involve the assumption of contract liabilities. The Company typically estimates the fair value of
contract liabilities by applying a reasonable profit margin to the total discounted estimated future costs associated with servicing the
contract. A variety of market and contract-specific conditions are considered when making assumptions that impact the estimated fair
value of the contract liability.
The Company capitalizes direct construction and development costs, including predevelopment costs, interest, property taxes,
insurance, and other costs directly related and essential to the development or construction of a real estate asset. The Company
capitalizes construction and development costs while substantive activities are ongoing to prepare an asset for its intended use.
The Company considers a construction project as substantially complete and held available for occupancy upon the completion of
Company-owned tenant improvements, but no later than one year from cessation of significant construction activity. Costs incurred
after a project is substantially complete and ready for its intended use, or after development activities have ceased, are expensed as
incurred. For redevelopment of existing operating properties, the Company capitalizes the cost for the construction and improvement
incurred in connection with the redevelopment.
Costs previously capitalized related to abandoned developments/redevelopments are charged to earnings. Expenditures for repairs
and maintenance are expensed as incurred. The Company considers costs incurred in conjunction with re-leasing properties, including
tenant improvements and lease commissions, to represent the acquisition of productive assets and such costs are reflected as investing
activities in the Company’s consolidated statement of cash flows.
The Company computes depreciation on properties using the straight-line method over the assets’ estimated useful lives. Depreciation
is discontinued when a property is identified as held for sale. Buildings and improvements are depreciated over useful lives ranging
up to 60 years. Above and below market lease intangibles are amortized to revenue over the remaining noncancellable lease terms
and renewal periods that are reasonably certain to be exercised, if any. In-place lease intangibles are amortized to expense over the
remaining noncancellable lease term and renewal periods that are reasonably certain to be exercised, if any.
Concurrent with the Company’s adoption of ASU 2016-02 on January 1, 2019, the Company elected to recognize expense associated
with short-term leases (those with a noncancellable lease term of 12 months or less) under which the Company is the lessee on a
straight-line basis and not recognize those leases on its consolidated balance sheets.
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HEALTHPEAK PROPERTIES PART II
For leases other than short-term operating leases under which the Company is the lessee, such as ground leases and corporate office
leases, the Company recognizes a right-of-use asset and related lease liability on its consolidated balance sheet at inception of the lease.
The lease liability is calculated as the sum of: (i) the present value of minimum lease payments at lease commencement (discounted using
the Company’s secured incremental borrowing rate) and (ii) the present value of amounts probable of being paid under any residual value
guarantees. The right-of-use asset is calculated as the lease liability, adjusted for the following: (i) any lease payments made to the lessor at
or before the commencement date, minus any lease incentives received and (ii) any initial direct costs incurred by the Company.
IMPAIRMENT OF LONG-LIVED ASSETS AND GOODWILL
The Company assesses the carrying value of real estate assets and related intangibles (“real estate assets”) when events or changes
in circumstances indicate that the carrying value may not be recoverable. The Company tests its real estate assets for impairment by
comparing the sum of the expected future undiscounted cash flows to the carrying value of the real estate assets. The expected future
undiscounted cash flows reflect external market factors and are probability-weighted to reflect multiple possible cash-flow scenarios,
including selling the assets at various points in the future. Further, the analysis considers the impact, if any, of master lease agreements
on cash flows, which are calculated utilizing the lowest level of identifiable cash flows that are largely independent of the cash flows
of other assets and liabilities. If the carrying value exceeds the expected future undiscounted cash flows, an impairment loss will be
recognized to the extent that the carrying value of the real estate assets exceeds their fair value.
Determining the fair value of real estate assets, including assets classified as held-for-sale, involves significant judgment and generally
utilizes market capitalization rates, comparable market transactions, estimated per unit or per square foot prices, negotiations with
prospective buyers, and forecasted cash flows (lease revenue rates, expense rates, growth rates, etc.).
When testing goodwill for impairment, if the Company concludes that it is more likely than not that the fair value of a reporting unit is
less than its carrying value, the Company recognizes an impairment loss for the amount by which the carrying value, including goodwill,
exceeds the reporting unit’s fair value.
ASSETS HELD FOR SALE AND DISCONTINUED OPERATIONS
The Company classifies a real estate property as held for sale when: (i) management has approved the disposal, (ii) the property is
available for sale in its present condition, (iii) an active program to locate a buyer has been initiated, (iv) it is probable that the property
will be disposed of within one year, (v) the property is being marketed at a reasonable price relative to its fair value, and (vi) it is unlikely
that the disposal plan will significantly change or be withdrawn. If an asset is classified as held for sale, it is reported at the lower of its
carrying value or fair value less costs to sell and no longer depreciated.
A discontinued operation represents: (i) a component of an entity or group of components that has been disposed of or is classified as held
for sale in a single transaction and represents a strategic shift that has or will have a major effect on the Company’s operations and financial
results or (ii) an acquired business that is classified as held for sale on the date of acquisition. Examples of a strategic shift may include
disposing of: (i) a separate major line of business, (ii) a separate major geographic area of operations, or (iii) other major parts of the Company.
INVESTMENTS IN UNCONSOLIDATED JOINT VENTURES
Investments in entities the Company does not consolidate, but over which the Company has the ability to exercise significant influence
over operating and financial policies, are reported under the equity method of accounting. Under the equity method of accounting, the
Company’s share of the investee’s earnings or losses is included in equity income (loss) from unconsolidated joint ventures within the
Company’s consolidated statements of operations.
The initial carrying value of investments in unconsolidated joint ventures is based on the amount paid to purchase the joint venture
interest, the fair value of assets contributed to the joint venture, or the fair value of the assets prior to the sale of interests in the joint
venture. To the extent that the Company’s cost basis is different from the basis reflected at the joint venture level, the basis difference
is generally amortized over the lives of the related assets and liabilities, and such amortization is included in the Company’s share of
equity in earnings of the joint venture. The Company evaluates its equity method investments for impairment based on a comparison
of the fair value of the equity method investment to its carrying value. When the Company determines a decline in fair value below
carrying value of an investment in an unconsolidated joint venture is other-than-temporary, an impairment is recorded. The Company
recognizes gains on the sale of interests in joint ventures to the extent the economic substance of the transaction is a sale.
The Company’s fair values of its equity method investments are determined based on discounted cash flow models that include all
estimated cash inflows and outflows over a specified holding period and, where applicable, any estimated debt premiums or discounts.
Capitalization rates, discount rates, and credit spreads utilized in these valuation models are based on assumptions that the Company
believes to be within a reasonable range of current market rates for the respective investments.
SHARE-BASED COMPENSATION
Compensation expense for share-based awards granted to employees with graded vesting schedules is generally recognized on a
straight-line basis over the vesting period. Forfeitures of share-based awards are recognized as they occur.
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2019 ANNUAL REPORT PART II
CASH AND CASH EQUIVALENTS AND RESTRICTED CASH
Cash and cash equivalents consist of cash on hand and short-term investments with original maturities of three months or less when
purchased. Restricted cash primarily consists of amounts held by mortgage lenders to provide for: (i) real estate tax expenditures,
(ii) tenant improvements, and (iii) capital expenditures, as well as security deposits and net proceeds from property sales that were
executed as tax-deferred dispositions.
DERIVATIVES AND HEDGING
During its normal course of business, the Company uses certain types of derivative instruments for the purpose of managing interest
rate and foreign currency risk. To qualify for hedge accounting, derivative instruments used for risk management purposes must
effectively reduce the risk exposure that they are designed to hedge. In addition, at inception of a qualifying cash flow hedging
relationship, the underlying transaction or transactions, must be, and are expected to remain, probable of occurring in accordance with
the Company’s related assertions.
The Company recognizes all derivative instruments, including embedded derivatives that are required to be bifurcated, as assets or
liabilities to the consolidated balance sheets at fair value. Changes in fair value of derivative instruments that are not designated in hedging
relationships or that do not meet the criteria of hedge accounting are recognized in earnings. For derivative instruments designated in
qualifying cash flow hedging relationships, changes in fair value related to the effective portion of the derivative instruments are recognized in
accumulated other comprehensive income (loss), whereas changes in fair value of the ineffective portion are recognized in earnings.
If it is determined that a derivative instrument ceases to be highly effective as a hedge, or that it is probable the underlying forecasted
transaction will not occur, the Company discontinues its cash flow hedge accounting prospectively and records the appropriate
adjustment to earnings based on the current fair value of the derivative instrument. For net investment hedge accounting, upon sale or
liquidation of the hedged investment, the cumulative balance of the remeasurement value is reclassified to earnings.
INCOME TAXES
Healthpeak Properties, Inc. has elected REIT status and believes it has always operated so as to continue to qualify as a REIT under
Sections 856 to 860 of the Internal Revenue Code of 1986, as amended (the “Code”). Accordingly, Healthpeak Properties, Inc.
will generally not be subject to U.S. federal income tax, provided that it continues to qualify as a REIT and makes distributions to
stockholders equal to or in excess of its taxable income. In addition, the Company has formed several consolidated subsidiaries that
have elected REIT status. Healthpeak Properties, Inc. and its consolidated REIT subsidiaries are each subject to the REIT qualification
requirements under the Code. If any REIT fails to qualify as a REIT in any taxable year, it will be subject to federal income taxes at regular
corporate rates and may be ineligible to qualify as a REIT for four subsequent tax years.
Healthpeak Properties, Inc. and its consolidated REIT subsidiaries are subject to state, local, and/or foreign income taxes in some
jurisdictions. In certain circumstances each REIT may also be subject to federal excise taxes on undistributed income. In addition, certain
activities that the Company undertakes may be conducted by entities that have elected to be treated as taxable REIT subsidiaries
(“TRSs”). TRSs are subject to federal, state, and local income taxes. The Company recognizes tax penalties relating to unrecognized tax
benefits as additional income tax expense. Interest relating to unrecognized tax benefits is recognized as interest expense.
CAPITAL RAISING ISSUANCE COSTS
Costs incurred in connection with the issuance of common shares are recorded as a reduction of additional paid-in capital. Debt
issuance costs related to debt instruments, excluding line of credit arrangements and commercial paper, are deferred, recorded
as a reduction of the related debt liability, and amortized to interest expense over the remaining term of the related debt liability
utilizing the effective interest method. Debt issuance costs related to line of credit arrangements and commercial paper are deferred,
included in other assets, and amortized to interest expense on a straight-line basis over the remaining term of the related line of credit
arrangement. Commercial paper are unsecured short-term debt securities with varying maturities. A line of credit serves as a liquidity
backstop for repayment of commercial paper borrowings.
Penalties incurred to extinguish debt and any remaining unamortized debt issuance costs, discounts, and premiums are recognized as
income or expense in the consolidated statements of operations at the time of extinguishment.
SEGMENT REPORTING
The Company’s reportable segments, based on how it evaluates its business and allocates resources, are as follows: (i) senior housing
triple-net, (ii) SHOP, (iii) life science, and (iv) medical office. During the first quarter of 2019, as a result of a change in how operating
results are reported to the Company’s chief operating decision makers for the purpose of evaluating performance and allocating
resources, two facilities were reclassified from other non-reportable segments to the medical office segment. Accordingly, all prior
period segment information has been recast to conform to the current period presentation.
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HEALTHPEAK PROPERTIES PART II
NONCONTROLLING INTERESTS
Arrangements with noncontrolling interest holders are assessed for appropriate balance sheet classification based on the redemption
and other rights held by the noncontrolling interest holder. Net income (loss) attributable to a noncontrolling interest is included in net
income (loss) on the consolidated statements of operations and, upon a gain or loss of control, the interest purchased or sold, and any
interest retained, is recorded at fair value with any gain or loss recognized in earnings. The Company accounts for purchases or sales of
equity interests that do not result in a change in control as equity transactions.
The Company consolidates non-managing member limited liability companies (“DownREITs”) because it exercises control, and
the noncontrolling interests in these entities are carried at cost. The non-managing member limited liability company (“LLC”) units
(“DownREIT units”) are exchangeable for an amount of cash approximating the then-current market value of shares of the Company’s
common stock or, at the Company’s option, shares of the Company’s common stock (subject to certain adjustments, such as stock
splits and reclassifications). Upon exchange of DownREIT units for the Company’s common stock, the carrying amount of the DownREIT
units is reclassified to stockholders’ equity.
FOREIGN CURRENCY TRANSLATION AND TRANSACTIONS
Assets and liabilities denominated in foreign currencies that are translated into U.S. dollars use exchange rates in effect at the end of the
period, and revenues and expenses denominated in foreign currencies that are translated into U.S. dollars use average rates of exchange
in effect during the related period. Gains or losses resulting from translation are included in accumulated other comprehensive income
(loss). Gains or losses resulting from foreign currency transactions are translated into U.S. dollars at the rates of exchange prevailing at
the dates of the transactions. The effects of transaction gains or losses are included in other income (expense), net in the consolidated
statements of operations.
FAIR VALUE MEASUREMENT
The Company measures and discloses the fair value of nonfinancial and financial assets and liabilities utilizing a hierarchy of valuation
techniques based on whether the inputs to a fair value measurement are considered to be observable or unobservable in a marketplace.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market
assumptions. This hierarchy requires the use of observable market data when available. These inputs have created the following fair
value hierarchy:
• Level 1—quoted prices for identical instruments in active markets;
• Level 2—quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are
not active; and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
• Level 3—fair value measurements derived from valuation techniques in which one or more significant inputs or significant value
drivers are unobservable.
The Company measures fair value using a set of standardized procedures that are outlined herein for all assets and liabilities that are
required to be measured at fair value. When available, the Company utilizes quoted market prices to determine fair value and classifies
such items in Level 1. In instances where a market price is available, but the instrument is in an inactive or over-the-counter market, the
Company consistently applies the dealer (market maker) pricing estimate and classifies the asset or liability in Level 2.
If quoted market prices or inputs are not available, fair value measurements are based on valuation models that utilize current market or
independently sourced market inputs, such as interest rates, option volatilities, credit spreads, and/or market capitalization rates. Items
valued using such internally-generated valuation techniques are classified according to the lowest level input that is significant to the
fair value measurement. As a result, the asset or liability could be classified in either Level 2 or Level 3 even though there may be some
significant inputs that are readily observable. Internal fair value models and techniques used by the Company include discounted cash
flow models. The Company also considers its counterparty’s and own credit risk for derivative instruments and other liabilities measured
at fair value. The Company has elected the mid-market pricing expedient when determining fair value.
EARNINGS PER SHARE
Basic earnings per common share is computed by dividing net income (loss) applicable to common shares by the weighted average
number of shares of common stock outstanding during the period. The Company accounts for unvested share-based payment awards
that contain non-forfeitable dividend rights or dividend equivalents (whether paid or unpaid) as participating securities, which are
included in the computation of earnings per share pursuant to the two-class method. Diluted earnings per common share is calculated
by including the effect of dilutive securities, such as the impact of forward equity sales agreements using the treasury stock method and
common shares issuable from the assumed conversion of DownREIT units, stock options, certain performance restricted stock units, and
unvested restricted stock units.
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2019 ANNUAL REPORT PART II
RECENT ACCOUNTING PRONOUNCEMENTS
Adopted
Revenue Recognition. Between May 2014 and February 2017, the Financial Accounting Standards Board (“FASB”) issued four ASUs
changing the requirements for recognizing and reporting revenue (together, herein referred to as the “Revenue ASUs”): (i) ASU No.
2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), (ii) ASU No. 2016-08, Principal versus Agent Considerations
(Reporting Revenue Gross versus Net) (“ASU 2016-08”), (iii) ASU No. 2016-12, Narrow-Scope Improvements and Practical Expedients
(“ASU 2016-12”), and (iv) ASU No. 2017-05, Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales
of Nonfinancial Assets (“ASU 2017-05”). ASU 2014-09 provides guidance for revenue recognition to depict the transfer of promised
goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. ASU 2016-08 is intended to improve the operability and understandability of the implementation guidance on
principal versus agent considerations. ASU 2016-12 provides practical expedients and improvements on the previously narrow scope
of ASU 2014-09. ASU 2017-05 clarifies the scope of the FASB’s guidance on nonfinancial asset derecognition and aligns the accounting
for partial sales of nonfinancial assets and in-substance nonfinancial assets with the guidance in ASU 2014-09. The Company adopted
the Revenue ASUs effective January 1, 2018 and utilized a modified retrospective adoption approach, resulting in a cumulative-effect
adjustment to equity of $79 million as of January 1, 2018. Under the Revenue ASUs, the Company also elected to utilize a practical
expedient which allowed the Company to only reassess contracts that were not completed as of the adoption date, rather than all
historical contracts.
As the timing and recognition of the majority of the Company’s revenue is the same whether accounted for under the Revenue ASUs
or lease accounting guidance (see discussion below), the impact of the Revenue ASUs, upon and subsequent to adoption, is generally
limited to the following:
• Prior to the adoption of the Revenue ASUs, the Company recognized a gain on sale of real estate using the full accrual method when
collectibility of the sales price was reasonably assured, the Company was not obligated to perform additional activities that may be
considered significant, the initial investment from the buyer was sufficient, and other profit recognition criteria had been satisfied.
The Company deferred all or a portion of a gain on sale of real estate if the requirements for gain recognition were not met at the
time of sale. Subsequent to adopting the Revenue ASUs on January 1, 2018, the Company began recognizing a gain on sale of real
estate upon transferring control of the asset to the purchaser, which is generally satisfied at the time of sale. In conjunction with
its adoption of the Revenue ASUs, the Company reassessed its historical partial sale of real estate transactions to determine which
transactions, if any, were not completed contracts (i.e., the transaction did not qualify for sale treatment under previous guidance).
The Company concluded that it had one such material transaction, its partial sale of RIDEA II in the first quarter of 2017 (which
was not a completed sale under historical guidance as of the Company’s adoption date due to a minor obligation related to the
interest sold). In accordance with the Revenue ASUs, the Company recorded its retained 40% equity investment at fair value as of
the sale date. As a result, the Company recorded an adjustment to equity as of January 1, 2018 (under the modified retrospective
transition approach) representing a step-up in the fair value of its equity investment in RIDEA II of $107 million (to a carrying value
of $121 million as of January 1, 2018) and a $30 million impairment charge to decrease the carrying value to the sales price of the
investment (see Note 4). The Company completed the sale of its equity investment in June 2018 and no longer holds an economic
interest in RIDEA II.
• The Company generally expects that the Revenue ASUs will result in certain transactions qualifying as sales of real estate at an earlier
date than under historical accounting guidance.
Leases. In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”). ASU 2016-02 (codified under Accounting
Standards Codification (“ASC”) 842, Leases) amends the previous accounting for leases to: (i) require lessees to put most leases on
their balance sheets (not required for short-term leases with lease terms of 12 months or less), but continue recognizing expenses on
their income statements in a manner similar to requirements under prior accounting guidance, (ii) eliminate real estate specific lease
provisions, and (iii) modify the classification criteria and accounting for sales-type leases for lessors. Additionally, ASU 2016-02 provides
a practical expedient, which the Company elected, that allows an entity to not reassess the following upon adoption (must be elected
as a group): (i) whether an expired or existing contract contains a lease arrangement, (ii) lease classification related to expired or
existing lease arrangements, or (iii) whether costs incurred on expired or existing leases qualify as initial direct costs.
As a result of adopting ASU 2016-02 on January 1, 2019 using the modified retrospective transition approach, the Company recognized
a cumulative-effect adjustment to equity of $1 million as of January 1, 2019. Under ASU 2016-02, the Company began capitalizing fewer
costs related to the drafting and negotiation of its lease agreements. Additionally, the Company began recognizing all of its significant
operating leases for which it is the lessee, including corporate office leases, equipment leases, and ground leases, on its consolidated
balance sheets as a lease liability and corresponding right-of-use asset. As such, the Company recognized a lease liability of $153 million
and right-of-use asset of $166 million on January 1, 2019. The aggregate lease liability is calculated as the present value of minimum
lease payments, discounted using a rate that approximates the Company’s secured incremental borrowing rate, adjusted for the
noncancelable term of each lease. The right-of-use asset is calculated as the aggregate lease liability, adjusted for the existing accrued
straight-line rent liability balance of $20 million and net unamortized above/below market ground lease intangible assets of $33 million.
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HEALTHPEAK PROPERTIES PART II
Under ASU 2016-02, a practical expedient was offered to lessees to make a policy election, which the Company elected, to not
separate lease and nonlease components, but rather account for the combined components as a single lease component under
ASC 842. In July 2018, the FASB issued ASU No. 2018-11, Leases - Targeted Improvements (“ASU 2018-11”), which provides lessors
with a similar option to elect a practical expedient allowing them to not separate lease and nonlease components in a contract for the
purpose of revenue recognition and disclosure. This practical expedient is limited to circumstances in which: (i) the timing and pattern
of transfer are the same for the nonlease component and the related lease component and (ii) the lease component, if accounted
for separately, would be classified as an operating lease. This practical expedient causes an entity to assess whether a contract is
predominantly lease or service based and recognize the entire contract under the relevant accounting guidance (i.e., predominantly
lease-based would be accounted for under ASU 2016-02 and predominantly service-based would be accounted for under the Revenue
ASUs). The Company elected this practical expedient as well and, as a result, beginning January 1, 2019, the Company recognizes
revenue from its senior housing triple-net, medical office, and life science segments under ASC 842 and revenue from its SHOP segment
under the Revenue ASUs (codified under ASC 606, Revenue from Contracts with Customers).
In December 2018, the FASB issued ASU No. 2018-20, Narrow Scope Improvements for Lessors (“ASU 2018-20”), which requires that a lessor:
(i) exclude certain lessor costs paid directly by a lessee to third parties on behalf of the lessor from a lessor’s measurement of variable lease
revenue and associated expense (i.e., no gross up of revenue and expense for these costs,) and (ii) include lessor costs that are paid by the
lessor and reimbursed by the lessee in the measurement of variable lease revenue and the associated expense (i.e., gross up revenue and
expense for these costs). This is consistent with the Company’s historical presentation and did not require a change on January 1, 2019.
Other. Effective January 1, 2019, the Company adopted ASU No. 2017-12, Targeted Improvements to Accounting for Hedging Activities
(“ASU 2017-12”). The amendments in ASU 2017-12 expand and refine hedge accounting for both nonfinancial and financial risk
components and align the recognition and presentation of the effects of the hedging instrument and the hedged item in the financial
statements. For cash flow and net investment hedges existing at the date of adoption, the Company adopted the amendments in
ASU 2017-12 using the modified retrospective approach. For amendments impacting presentation and disclosure, the Company
adopted ASU 2017-12 using a prospective approach. The adoption of ASU 2017-12 did not have a material impact to the Company’s
consolidated financial position, results of operations, cash flows, or disclosures.
Not Yet Adopted
Credit Losses. In June 2016, the FASB issued ASU 2016-13. ASU 2016-13 is intended to improve financial reporting by requiring
timelier recognition of credit losses on loans and other financial instruments held by financial institutions and other organizations. The
amendments in ASU 2016-13 eliminate the “probable” initial threshold for recognition of credit losses in current accounting guidance
and, instead, reflect an entity’s current estimate of all expected credit losses over the life of the financial instrument. Previously, when
credit losses were measured under current accounting guidance, an entity generally only considered past events and current conditions
in measuring the incurred loss. The amendments in ASU 2016-13 broaden the information that an entity must consider in developing
its expected credit loss estimate for assets measured either collectively or individually. The use of forecasted information incorporates
more timely information in the estimate of expected credit loss. ASU 2016-13 is effective for fiscal years, and interim periods within,
beginning after December 15, 2019. Early adoption is permitted for fiscal years, and interim periods within, beginning after December
15, 2018. A reporting entity is required to apply the amendments in ASU 2016-13 using a modified retrospective approach by recording
a cumulative-effect adjustment to equity as of the beginning of the fiscal year of adoption. A prospective transition approach is required
for debt securities for which an other-than-temporary impairment had been recognized before the effective date. Upon adoption of
ASU 2016-13, the Company is required to reassess its financing receivables, including DFLs and loans receivable, and expects that
application of ASU 2016-13 may result in the Company recognizing credit losses at an earlier date than would otherwise be recognized
under current accounting guidance. The Company is evaluating the impact of the adoption of ASU 2016-13 on January 1, 2020 to its
consolidated financial position and results of operations.
NOTE 3. Master Transactions and Cooperation Agreement with Brookdale
2019 MASTER TRANSACTIONS AND COOPERATION AGREEMENT WITH BROOKDALE
In October 2019, the Company and Brookdale Senior Living Inc. (“Brookdale”) entered into a Master Transactions and Cooperation Agreement
(the “2019 MTCA”), which includes a series of transactions related to its jointly owned 15-campus continuing care retirement community
(“CCRC”) portfolio (the “CCRC JV”) and the portfolio of 43 senior housing properties Brookdale triple-net leases from the Company.
In connection with the 2019 MTCA, the Company and Brookdale, and certain of their respective subsidiaries, agreed to the following
related to the CCRC JV:
• The Company, which owns a 49% interest in the CCRC JV, agreed to purchase Brookdale’s 51% interest in 13 of the 15 communities in
the CCRC JV based on a valuation of $1.06 billion (the “CCRC Acquisition”);
• The management agreements related to the CCRC Acquisition communities will be terminated, with management transitioned (under
new management agreements) from Brookdale to Life Care Services LLC (“LCS”) simultaneous with closing the CCRC Acquisition;
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2019 ANNUAL REPORT PART II
• The Company will pay a $100 million management termination fee to Brookdale upon closing the CCRC Acquisition; and
• The remaining two CCRCs will be jointly marketed for sale to third parties.
In addition, pursuant to the 2019 MTCA, the Company and Brookdale agreed to the following transactions related to properties
Brookdale triple-net leases from the Company:
• Brookdale will acquire 18 of the properties from the Company (the “Brookdale Acquisition Assets”) for cash proceeds of $385 million;
• The Company will terminate the triple-net lease related to one property and transition it to a RIDEA structure with LCS as
the manager;
• The remaining 24 properties will be restructured into a single master lease with 2.4% annual rent escalators and a maturity date of
December 31, 2027 (the “2019 Amended Master Lease”);
• A portion of annual rent (amount in excess of 6.5% of sales proceeds) related to 14 of the 18 Brookdale Acquisition Assets will be
reallocated to the remaining properties under the 2019 Amended Master Lease;
• Upon sale of the Brookdale Acquisition Assets, Brookdale will pay down $20 million of future rent under the 2019 Amended Master
Lease; and
• The Company will provide up to $35 million of capital investment in the 2019 Amended Master Lease properties over a five-year term,
which will increase rent by 7% of the amount spent, per annum.
With the exception of the capital investment to be made over the next five years and the sale of the two CCRCs that are being
marketed to third parties, each of the above transactions, including payment of the $100 million management termination fee, closed
on January 31, 2020. The Company expects to recognize a management termination fee expense, gain on sales of real estate, and gain
on consolidation during the first quarter of 2020 related to the 2019 MTCA transactions.
As discussed in Note 2, certain events require the Company to reconsider whether an entity is a VIE (as defined in Note 2). Additionally, the
Company is required to continually reassess whether it is the primary beneficiary of a VIE. The Company considered whether entering into
the 2019 MTCA during the fourth quarter of 2019: (i) constituted a reconsideration event as it relates to the CCRC JV or (ii) changed the
Company’s previous primary beneficiary and consolidation conclusions and, in both cases, concluded that it did not. As a result, the above
transactions had no impact to the Company’s consolidated financial statements during the year ended December 31, 2019.
2017 MTCA WITH BROOKDALE
In November 2017, the Company and Brookdale entered into a Master Transactions and Cooperation Agreement (the “2017 MTCA”)
to provide the Company with the ability to significantly reduce its concentration of assets leased to and/or managed by Brookdale.
In connection with the overall transaction pursuant to the 2017 MTCA, the Company and Brookdale, and certain of their respective
subsidiaries, agreed to the following:
• The Company, which owned 90% of the interests in its RIDEA I and RIDEA III joint ventures with Brookdale at the time the 2017
MTCA was executed, agreed to purchase Brookdale’s 10% noncontrolling interest in each joint venture. At the time the 2017 MTCA
was executed, these joint ventures collectively owned and operated 58 independent living, assisted living, memory care, and/or
skilled nursing facilities (the “RIDEA Facilities”). The Company completed its acquisitions of the RIDEA III noncontrolling interest for
$32 million in December 2017 and the RIDEA I noncontrolling interest for $63 million in March 2018;
• The Company received the right to sell, or transition to other operators, 32 of the 78 total assets under an Amended and Restated
Master Lease and Security Agreement (the “2017 Amended Master Lease”) with Brookdale and 36 of the RIDEA Facilities (and
terminate related management agreements with an affiliate of Brookdale without penalty), certain of which were sold during 2018
and 2019 and are included in the disposition transactions discussed in Note 4;
• The Company provided an aggregate $5 million annual reduction in rent on three assets, effective January 1, 2018; and
• Brookdale agreed to purchase two of the assets under the 2017 Amended Master Lease for $35 million and four of the RIDEA Facilities
for $240 million, all of which were sold in 2018 and are included in the 2018 disposition transactions discussed in Note 4.
During 2018, the Company terminated the previous management agreements or leases with Brookdale on 37 assets contemplated
under the 2017 MTCA and completed the transition of 20 SHOP assets and 17 senior housing triple-net assets to other managers.
FAIR VALUE MEASUREMENT TECHNIQUES AND QUANTITATIVE INFORMATION
During the fourth quarter of 2017, the Company performed a fair value assessment of each of the 2017 MTCA components that provided
measurable economic benefit or detriment to the Company. Each fair value calculation was based on an income or market approach
and relied on historical and forecasted EBITDAR (defined as earnings before interest, taxes, depreciation, amortization and rent) and
revenue, as well as market data, including, but not limited to, a discount rate of 12%, a management fee rate of 5% of revenue, EBITDAR
growth rates ranging from zero to 3%, and real estate capitalization rates ranging from 6% to 7%. All assumptions were supported by
independent market data and considered to be Level 2 measurements within the fair value hierarchy.
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HEALTHPEAK PROPERTIES PART II
As a result of the assessment, the Company recognized a $20 million net reduction of rental and related revenues related to the right
to terminate leases for 32 triple-net assets and the write-off of unamortized lease intangible assets related to those same 32 triple-net
assets during the year ended December 31, 2017. Additionally, the Company recognized $35 million of operating expenses related to
the right to terminate management agreements for 36 SHOP assets during the year ended December 31, 2017.
NOTE 4. Real Estate Transactions
2019 REAL ESTATE INVESTMENTS
Cambridge Acquisition
During the first quarter of 2019, the Company acquired a life science facility for $71 million and development rights at an adjacent
undeveloped land parcel for consideration of up to $27 million. The existing facility and land parcel are located in Cambridge, Massachusetts.
Discovery Portfolio Acquisition
In April 2019, the Company acquired a portfolio of nine senior housing properties for $445 million. The properties are located across
Florida, Georgia, and Texas and are operated by Discovery Senior Living, LLC.
Oakmont Portfolio Acquisitions
In May 2019, the Company acquired three senior housing communities in California for $113 million and in July 2019, the Company
acquired an additional five senior housing communities for $284 million. Both portfolios were acquired from and continue to be operated
by Oakmont Senior Living LLC (“Oakmont”). Each portfolio was contributed to a DownREIT joint venture in which the sellers received non-
controlling interests in lieu of cash for a portion of the sales price. The Company consolidates each DownREIT joint venture.
As part of the May and July 2019 Oakmont transactions, the Company assumed $50 million and $112 million, respectively, of secured
mortgage debt, both of which were recorded at their relative fair values through asset acquisition accounting.
Sierra Point Towers Acquisition
In June 2019, the Company acquired two life science buildings in South San Francisco, California adjacent to the Company’s The Shore
at Sierra Point development, for $245 million.
Vintage Park JV Interest Purchase
In June 2019, the Company acquired the outstanding equity interests of a senior housing joint venture structure (which owned one
senior housing facility), in which the Company previously held an unconsolidated equity investment, for $24 million. Subsequent
to acquisition, the Company owned 100% of the equity. Upon consolidating the facility at acquisition, the Company derecognized
the existing investment in the joint venture structure, marked the real estate to fair value (using a relative fair value allocation), and
recognized a gain on consolidation of $12 million, net of a tax impact of $1 million. The gain on consolidation is recognized within other
income (expense), net and the tax impact is recognized within income tax benefit (expense).
Hartwell Innovation Campus Acquisition
In July 2019, the Company acquired a life science campus in the suburban Boston submarket of Lexington, Massachusetts, for $228 million.
The campus is comprised of four buildings.
West Cambridge Acquisition
In December 2019, the Company acquired one life science building, adjacent to the Company’s existing properties in Cambridge,
Massachusetts, for $333 million.
Sovereign Wealth Fund Senior Housing Joint Venture
In December 2019, the Company formed a new joint venture (the “SWF SH JV”) with a sovereign wealth fund that owns 19 SHOP assets
operated by Brookdale. The Company owns 53.5% of the SWF SH JV and contributed all 19 assets with a fair value of $790 million. The
SWF SH JV partner owns the other 46.5% and purchased its interest for $367 million. Upon formation of the SWF SH JV, the Company
recognized its retained equity method investment at fair value, deconsolidated the 19 assets, and recognized a gain on deconsolidation
of $161 million recorded in other income (expense), net.
Other Real Estate Acquisitions
During the year ended December 31, 2019, the Company acquired one medical office building (“MOB”) in Kansas for $15 million, one
MOB in Texas for $9 million, and one life science building in the Sorrento Mesa submarket of San Diego, California for $16 million.
The Post Acquisition
In January 2020, the Company entered into definitive agreements to acquire a life science campus in Waltham, Massachusetts, for
$320 million. The Company made a $20 million nonrefundable deposit upon completing due diligence and expects to close the
transaction in the second quarter of 2020.
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2019 ANNUAL REPORT PART II
2018 REAL ESTATE INVESTMENTS
MSREI MOB JV
In August 2018, the Company and Morgan Stanley Real Estate Investment (“MSREI”) formed a joint venture (the “MSREI JV”) to own a portfolio
of MOBs for which the Company is a 51% owner and consolidates. To form the joint venture, MSREI contributed cash of $298 million and the
Company contributed nine wholly-owned MOBs (the “Contributed Assets”). The Contributed Assets are primarily located in Texas and Florida
and were valued at approximately $320 million at the time of contribution. The MSREI JV used substantially all of the cash contributed by
MSREI to acquire an additional portfolio of 16 MOBs in Greenville, South Carolina (the “Greenville Portfolio”) for $285 million. Concurrent with
acquiring the additional MOBs, the MSREI JV entered into 10-year leases with the anchor tenants in the Greenville Portfolio.
The Contributed Assets are accounted for at historical depreciated cost by the Company, as the assets continue to be consolidated. The
Greenville Portfolio was accounted for as an asset acquisition, which required the Company to record the individual components of the
acquisition at their relative fair values. As a result, the Company recorded net real estate of $276 million and net intangible assets of $20 million
during the year ended December 31, 2018 related to the Greenville Portfolio. Additionally, the Company recognized a noncontrolling interest
of $298 million related to the interest owned by MSREI. Refer to Note 18 for a discussion of the Company’s consolidation of the MSREI JV.
Life Science JV Interest Purchase
In November 2018, the Company acquired the outstanding equity interests in three life science joint ventures (which owned four
buildings) for $92 million, bringing the Company’s equity ownership to 100% for all three joint ventures. As the Company began
consolidating the assets upon acquisition, it derecognized the existing investment in the joint ventures, marked the real estate to fair
value (using a relative fair value allocation), and recognized a gain on consolidation of $50 million within other income (expense), net.
Other Real Estate Acquisitions
During the year ended December 31, 2018, the Company acquired development rights on a land parcel in the Boston suburb of
Lexington, Massachusetts for $21 million. The Company commenced a life science development on the land in 2018.
Construction, Tenant, and Other Capital Improvements
The following table summarizes the Company’s expenditures for construction, tenant and other capital improvements (in thousands):
SEGMENT
Senior housing triple-net
SHOP
Life science
Medical office
Other
YEAR ENDED DECEMBER 31,
2019
2018
2017
$ 6,662 $ 11,311 $ 32,343
90,874
53,389
49,473
499,956
396,431
240,901
146,016
144,694
148,926
450
1,361
135
$743,958 $607,186 $471,778
As part of the development program with HCA Healthcare, Inc., during the year ended December 31, 2019, the Company commenced
development on seven MOBs, six of which will be on-campus.
HELD FOR SALE
At December 31, 2019, 27 senior housing triple-net facilities (inclusive of 18 facilities being sold to Brookdale under the 2019 MTCA -
see Note 3), 28 SHOP facilities, and 2 MOBs were classified as held for sale, with an aggregate carrying value of $504 million, primarily
comprised of real estate assets of $476 million, net of accumulated depreciation of $243 million. Liabilities of assets held for sale were
primarily comprised of mortgage debt of $32 million and other liabilities of $4 million at December 31, 2019.
At December 31, 2018, one undeveloped life science land parcel and nine SHOP facilities were classified as held for sale, with an
aggregate carrying value of $108 million, primarily comprised of real estate assets of $101 million, net of accumulated depreciation of
$30 million. Liabilities of assets held for sale were primarily comprised of intangible liabilities and other liabilities at December 31, 2018.
2019 DISPOSITIONS OF REAL ESTATE
During the quarter ended March 31, 2019, the Company sold nine SHOP assets for $68 million, two senior housing triple-net assets for
$26 million, and one undeveloped life science land parcel for $35 million, resulting in total gain on sales of $8 million.
During the quarter ended June 30, 2019, the Company sold one SHOP asset for $14 million, five MOBs for $15 million, and one life
science asset for $7 million, resulting in total gain on sales of $11 million.
During the quarter ended September 30, 2019, the Company sold one MOB for $3 million and one SHOP asset for $7 million, resulting in
no material gain or loss on sales.
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HEALTHPEAK PROPERTIES PART II
During the quarter ended December 31, 2019, the Company sold seven SHOP assets for $92 million, four MOBs for $5 million, and
two facilities from the other non-reportable segment for $20 million, resulting in total gain on sales of $11 million.
In January 2020, the Company sold six SHOP assets for $36 million.
2018 DISPOSITIONS OF REAL ESTATE
Shoreline Technology Center
In November 2018, the Company sold its Shoreline Technology Center life science campus located in Mountain View, California for
$1.0 billion and recognized a gain on sale of $726 million.
Brookdale MTCA Dispositions
As discussed in Note 3, during the fourth quarter of 2018, the Company sold 19 assets (11 senior housing triple-net assets and 8 SHOP assets)
to a third-party for $377 million and recognized a gain on sale of $40 million. Refer to Note 3 for further detail on the Brookdale transactions.
RIDEA II Sale Transaction
In January 2017, the Company completed the contribution of its ownership interest in RIDEA II to an unconsolidated joint venture owned
by Healthpeak and an investor group led by Columbia Pacific Advisors, LLC (“CPA”) (the “Healthpeak/CPA JV”). Also in January 2017, RIDEA
II was recapitalized with $602 million of debt, of which $360 million was provided by a third-party and $242 million was provided by the
Company. In return for both transaction elements, the Company received combined proceeds of $480 million from the Healthpeak/CPA
JV and $242 million in loans receivable and retained an approximately 40% ownership interest in RIDEA II. This transaction resulted in the
Company deconsolidating the net assets of RIDEA II and recognizing a net gain on sale of $99 million. Refer to Note 2 for the impact of
adopting the Revenue ASUs on January 1, 2018 to the Company’s partial sale of RIDEA II in the first quarter of 2017.
In June 2018, the Company sold its remaining 40% ownership interest in RIDEA II to an investor group led by CPA for $91 million.
Additionally, CPA refinanced the Company’s $242 million of loans receivable from RIDEA II, resulting in total proceeds of $332 million.
The Company no longer holds an economic interest in RIDEA II.
U.K. Portfolio
In June 2018, the Company entered into a joint venture with an institutional investor (the “U.K. JV”) through which the Company sold a 51%
interest in substantially all United Kingdom (“U.K.”) assets previously owned by the Company (the “U.K. Portfolio”) based on a total value of
£382 million ($507 million). The Company retained a 49% noncontrolling interest in the U.K. JV and received gross proceeds of $402 million,
including proceeds from the refinancing of the Company’s previously held intercompany loans. Upon closing the U.K. JV, the Company
deconsolidated the U.K. Portfolio, recognized its retained noncontrolling interest investment at fair value ($105 million) and recognized
a gain on sale of $11 million, net of $17 million of cumulative foreign currency translation reclassified from other comprehensive income
recorded in gain (loss) on sales of real estate, net (see Note 21 for the reclassification impact of the Company’s hedge of its net investment
in the U.K.). The U.K. JV provides numerous mechanisms by which the joint venture partner can acquire the Company’s remaining interest
in the U.K. JV. The fair value of the Company’s retained noncontrolling interest investment was based on Level 2 measurements within the
fair value hierarchy. Additionally, in August 2018, the Company sold its remaining £11 million U.K. development loan at par.
In December 2019, the Company sold its remaining 49% interest in the U.K. JV (see Note 8).
2018 Other Dispositions
During the quarter ended March 31, 2018, the Company sold two SHOP assets for $35 million, resulting in total gain on sales of
$21 million (includes asset sales to Brookdale as discussed in Note 3 above).
During the quarter ended June 30, 2018, the Company sold eight SHOP assets for $268 million and two senior housing triple-net assets
for $35 million, resulting in total gain on sales of $25 million (includes asset sales to Brookdale as discussed in Note 3 above).
During the quarter ended September 30, 2018, the Company sold 4 life science assets for $269 million, 11 SHOP assets for $76 million
and 2 MOBs for $21 million, resulting in total gain on sales of $95 million.
During the quarter ended December 31, 2018, the Company sold two SHOP facilities for $15 million, two MOBs for $4 million, and one
undeveloped land parcel for $3 million, resulting in no material gain or loss on sales.
2017 Dispositions
In January 2017, the Company sold four life science facilities in Salt Lake City, Utah for $76 million, resulting in a net gain on sale of $45 million.
In March 2017, the Company sold 64 senior housing triple-net assets, previously under triple-net leases with Brookdale, for $1.125 billion
to affiliates of Blackstone Real Estate Partners VIII, L.P., resulting in a net gain on sale of $170 million.
85
2019 ANNUAL REPORT PART II
Additionally, during the year ended December 31, 2017, the Company sold the following: (i) a life science land parcel for $27 million,
(ii) one life science building for $5 million, (iii) four senior housing triple-net facilities for $27 million, (iv) five SHOP facilities for
$43 million, and (v) four MOBs for $15 million, and recorded a net gain on sale of $41 million.
NOTE 5. Impairments
REAL ESTATE
During the year ended December 31, 2019, the Company recognized an aggregate impairment charge of $194 million in conjunction
with classifying 8 senior housing triple-net assets, 27 SHOP assets, 3 MOBs, and 1 other non-reportable asset as held for sale and writing
their aggregate carrying value of $416 million down to their aggregate fair value less estimated costs to sell of $223 million.
During the year ended December 31, 2019, the Company also recognized an impairment charge of $4 million related to one MOB that it
intends to demolish.
Additionally, during the year ended December 31, 2019, the Company determined the carrying value of two MOBs and one SHOP
asset that were candidates for potential future sale was no longer recoverable due to the Company’s shortened intended hold period
under the held-for-use impairment model. Accordingly, the Company wrote-down the carrying amount of these three assets to their
respective fair value, which resulted in an aggregate impairment charge of $18 million.
The fair value of the impaired assets was based on forecasted sales prices, which are considered to be Level 3 measurements within
the fair value hierarchy. Forecasted sales prices were determined using a direct capitalization model or a market approach (comparable
sales model), which rely on certain assumptions by management, including: (i) market capitalization rates, (ii) comparable market
transactions, (iii) estimated prices per unit or per square foot, (iv) negotiations with perspective buyers, and (v) forecasted cash flow
streams (lease revenue rates, expense rates, growth rates, etc.). There are inherent uncertainties in making these assumptions. For the
Company’s impairment calculations during the year ended December 31, 2019, the Company estimated the fair value of each asset
using either (i) market capitalization rates ranging from 4.97% to 8.27%, with a weighted average rate of 6.22%, or (ii) prices per unit
ranging from $24,000 to $125,000, with a weighted average price of $73,000.
During 2018, in conjunction with classifying the assets as held for sale, the Company determined that 17 underperforming SHOP
assets and an undeveloped life science land parcel were impaired. Additionally, the Company determined that three additional
underperforming SHOP assets that were candidates for potential future sale were impaired under the held-for-use impairment model.
Accordingly, the Company recognized total impairment charges of $52 million during 2018 to write-down the carrying value of the
assets to their respective fair values (less an estimate of costs to sell for assets classified as held for sale). The fair value of the assets
was based on contracted or forecasted sales prices and expected future cash flows, which are considered to be Level 2 measurements
within the fair value hierarchy.
During 2017, the Company determined the carrying value of 11 underperforming senior housing triple-net assets that were candidates
for potential future sale was no longer recoverable due to the Company’s shortened intended hold period under the held-for-use
impairment model. Accordingly, the Company wrote-down the carrying amount of these 11 assets to their respective fair values, which
resulted in an aggregate impairment charge of $23 million. The fair value of the assets was based on forecasted sales prices which are
considered to be Level 2 measurements within the fair value hierarchy.
CASUALTY-RELATED
During the year ended December 31, 2019, the Company recognized a $5 million casualty-related gain, net of deferred tax impacts,
as a result of insurance proceeds received for property damage and other associated costs related to hurricanes in 2017. The gain is
recorded in other income (expense), net.
As a result of Hurricane Harvey and Hurricane Irma during the year ended December 31, 2017, the Company recorded an estimated
$13 million of casualty-related losses, net of a small insurance recovery. The losses are comprised of $8 million of property damage and
$5 million of other associated costs, including storm preparation, clean up, relocation, and other costs. Of the total $13 million casualty
losses incurred, $12 million was recorded in other income (expense), net, and $1 million was recorded in equity income (loss) from
unconsolidated joint ventures as it relates to casualty losses for properties owned by certain of our unconsolidated joint ventures. In
addition, the Company recorded a $1 million deferred tax benefit associated with the casualty-related losses.
OTHER
See Note 7 for information on the impairment charge related to the mezzanine loan facility to certain affiliates of Tandem Health Care
(together with its affiliates, “Tandem) and the impairment recovery related to Four Seasons Notes (as defined below). See Note 8 for
information on the impairment charge related to an asset classified as held-for-sale within the CCRC JV. See Note 6 for information on
the impairment charge related to the write-down of a DFL portfolio to its fair value.
86
HEALTHPEAK PROPERTIES NOTE 6. Leases
LEASE INCOME
The following table summarizes the Company’s lease income (dollars in thousands):
Fixed income from operating leases
Variable income from operating leases
Interest income from direct financing leases
DIRECT FINANCING LEASES
Net investment in DFLs consists of the following (dollars in thousands):
Present value of minimum lease payments receivable
Present value of estimated residual value
Less deferred selling profits
Net investment in direct financing leases before allowance
Allowance for direct financing lease losses
Net investment in direct financing leases
Properties subject to direct financing leases
Minimum lease payments receivable
Estimated residual value
Less unearned income
Net investment in direct financing leases
Properties subject to direct financing leases
Direct Financing Lease Internal Ratings
PART II
YEAR ENDED DECEMBER 31,
2019
2018
2017
$984,942 $1,013,757 $944,796
237,136
223,479
268,853
37,481
54,274
54,217
DECEMBER 31, 2019
$ 19,138
84,604
(19,138)
84,604
—
$ 84,604
2
DECEMBER 31, 2018
$1,013,976
507,484
(807,642)
$ 713,818
29
The following table summarizes the Company’s internal ratings for DFLs at December 31, 2019 (dollars in thousands):
SEGMENT
Other non-reportable segments
Direct Financing Lease Conversion
CARRYING
AMOUNT
PERCENTAGE OF
DFL PORTFOLIO
INTERNAL RATINGS
PERFORMING DFLS WATCH LIST DFLS WORKOUT DFLS
$84,604
$84,604
100
100
$84,604
$84,604
—
$—
—
$—
During the first quarter of 2019, the Company converted a DFL portfolio of 14 senior housing triple-net properties, previously on
“Watch List” status, to a RIDEA structure, requiring the Company to recognize net assets equal to the lower of the net assets’ fair value
or the carrying value of the net investment in the DFL. As a result, the Company derecognized the $351 million carrying value of the net
investment in DFL related to the 14 properties and recognized a combination of net real estate ($331 million) and net intangibles assets
($20 million) for the same aggregate amount, with no gain or loss recognized. As a result of the transaction, the 14 properties were
transitioned from the senior housing triple-net segment to the SHOP segment during the first quarter of 2019.
Direct Financing Lease Sale
During the second quarter of 2019, the Company entered into agreements to sell 13 senior housing facilities under DFLs (the “DFL
Sale Portfolio”) for $274 million. Upon entering into the agreements, the Company recognized an allowance for DFL losses and related
impairment charge of $10 million to write-down the carrying value of the DFL Sale Portfolio to its fair value. The fair value of the DFL
Sale Portfolio was based upon the agreed on sale price, less estimated costs to sell, which is considered to be a Level 2 measurement
within the fair value hierarchy. In conjunction with the entering into agreements to sell the DFL Sale Portfolio, the Company placed the
portfolio on nonaccrual status and began recognizing income equal to the amount of cash received.
The Company completed the sale of the DFL Sale Portfolio in September 2019.
87
2019 ANNUAL REPORT PART II
The following table summarizes the activity of the DFL Sale Portfolio during the periods presented (dollars in thousands):
Income from DFLs
Cash payments received
Direct Financing Lease Receivable Maturities
YEAR ENDED DECEMBER 31,
2019
2018
2017
$17,287 $23,616 $23,820
16,005
19,633
19,494
The following table summarizes future minimum lease payments contractually due under DFLs at December 31, 2019 (in thousands):
YEAR
2020
2021
2022
2023
2024
Thereafter
Undiscounted minimum lease payments receivable
Less: imputed interest
Present value of minimum lease payments receivable
AMOUNT
$ 9,553
8,409
1,176
—
—
—
19,138
—
$19,138
The following table summarizes future minimum lease payments contractually due under DFLs at December 31, 2018 (in thousands):
YEAR
2019
2020
2021
2022
2023
Thereafter
Residual Value Risk
AMOUNT
$ 114,970
63,308
63,687
58,135
58,570
655,306
$1,013,976
Quarterly, the Company reviews the estimated unguaranteed residual value of assets under DFLs to determine if there have been any
material changes compared to the prior quarter. As needed, the Company and/or the related tenants will invest necessary funds to
maintain the residual value of each asset.
OPERATING LEASES
Future Minimum Rents
The following table summarizes future minimum lease payments to be received, excluding operating expense reimbursements, from
tenants under non-cancelable operating leases as of December 31, 2019 (in thousands):
YEAR
2020
2021
2022
2023
2024
Thereafter
88
AMOUNT
$ 998,376
968,622
904,799
822,259
708,871
2,522,333
$6,925,260
HEALTHPEAK PROPERTIES The following table summarizes future minimum lease payments to be received, excluding operating expense reimbursements, from
tenants under non-cancelable operating leases as of December 31, 2018 (in thousands):
PART II
YEAR
2019
2020
2021
2022
2023
Thereafter
AMOUNT
$ 971,417
928,102
853,451
751,972
675,537
2,320,847
$6,501,326
Tenant Purchase Options
Certain leases, including DFLs, contain purchase options whereby the tenant may elect to acquire the underlying real estate. Annualized base
rent from leases subject to purchase options, summarized by the year the purchase options are exercisable, are as follows (dollars in thousands):
YEAR
2020
2021
2022
2023
2024
Thereafter
ANNUALIZED
BASE RENT(1)
NUMBER OF
PROPERTIES
$17,219
27,947
10,924
—
2,924
25,022
$84,036
10
7
3
—
1
19
40
(1) Represents the most recent month’s base rent including additional rent floors and cash income from DFLs annualized for 12 months. Base rent does not
include tenant recoveries, additional rents in excess of floors, and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease
intangibles, DFL non-cash interest and deferred revenues).
During the fourth quarter of 2019, the Company’s tenant exercised its option to acquire from the Company an acute care hospital
and adjacent land parcel located in Irvine, California for $226 million. The sale is scheduled to close during the first half of 2021. The
annualized base rent associated with the assets covered by this purchase option is included in the table above for 2021.
LEASE COSTS
The following tables provide information regarding the Company’s leases to which it is the lessee, such as corporate offices and ground
leases (dollars in thousands):
LEASE EXPENSE INFORMATION:
Total lease expense(1)
YEAR ENDED DECEMBER 31,
2019
2018
2017
$16,238 $14,783 $13,674
(1)
Lease expense related to corporate assets is included in general and administrative expenses and lease expense related to ground leases is included
within operating expenses in the Company’s consolidated statements of operations.
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for amounts included in the measurement of lease liability:
Operating cash flows for operating leases
ROU asset obtained in exchange for new lease liability:
Operating leases
WEIGHTED AVERAGE LEASE TERM AND DISCOUNT RATE:
Weighted average remaining lease term (years):
Operating leases
Weighted average discount rate:
Operating leases
YEAR ENDED DECEMBER 31,
2019
2018
2017
$12,727 $11,655 $10,745
$ 5,733 $ — $ —
DECEMBER 31, 2019
51
4.36%
89
2019 ANNUAL REPORT PART II
The following table summarizes future minimum lease payments under non-cancelable ground and other operating leases included in
the Company’s lease liability as of December 31, 2019 (in thousands):
YEAR
2020
2021
2022
2023
2024
Thereafter
Undiscounted minimum lease payments included in the lease liability
Less: imputed interest
Present value of lease liability
$
AMOUNT
9,407
9,208
9,045
8,985
7,139
451,790
495,574
(338,963)
$ 156,611
The following table summarizes future minimum lease obligations under non-cancelable ground and other operating leases as of
December 31, 2018 (in thousands):
YEAR
2019
2020
2021
2022
2023
Thereafter
AMOUNT
$ 5,597
5,687
5,776
5,862
5,983
466,130
$495,035
DEPRECIATION EXPENSE
While the Company leases the majority of its property, plant, and equipment to various tenants under operating leases and DFLs, in
certain situations, the Company owns and operates certain property, plant, and equipment for general corporate purposes. Corporate
assets are recorded within other assets, net within the Company’s consolidated balance sheets and depreciation expense for those
assets is recorded in general and administrative expenses in the Company’s consolidated statements of operations. Included within
other assets, net as of December 31, 2019 and December 31, 2018 is $4 million and $2 million, respectively, of accumulated depreciation
related to corporate assets. Included within general and administrative expenses for the year ended December 31, 2019, 2018, and
2017 is $2 million, $4 million and $1 million, respectively, of depreciation expense related to corporate assets.
NOTE 7. Loans Receivable
The following table summarizes the Company’s loans receivable (in thousands):
Mezzanine
Participating development loans and other(1)
Unamortized discounts, fees, and costs
DECEMBER 31,
2019
2018
REAL ESTATE
SECURED
OTHER
SECURED
TOTAL
REAL ESTATE
SECURED
OTHER
SECURED
TOTAL
$
— $27,752 $ 27,752
$ — $21,013 $21,013
161,964
— 161,964
42,037
— 42,037
—
863
863
—
(52)
(52)
$161,964
$28,615 $190,579
$42,037 $20,961 $62,998
(1) At December 31, 2019, the Company had $25 million remaining of commitments to fund $174 million of senior housing development projects. At
December 31, 2018, the Company had $73 million remaining of commitments to fund a $115 million senior housing development project.
90
HEALTHPEAK PROPERTIES PART II
Loans Receivable Internal Ratings
The following table summarizes the Company’s internal ratings for loans receivable at December 31, 2019 (dollars in thousands):
INVESTMENT TYPE
Real estate secured
Other secured
REAL ESTATE SECURED LOANS
CARRYING
AMOUNT
$161,964
28,615
$190,579
PERCENTAGE
OF LOAN
PORTFOLIO
INTERNAL RATINGS
PERFORMING
LOANS
WATCH LIST
LOANS
WORKOUT
LOANS
85
15
100
$161,964
28,615
$190,579
$—
—
$—
$—
—
$—
The following table summarizes the Company’s loans receivable secured by real estate at December 31, 2019 (dollars in thousands):
FINAL
MATURITY
DATE
NUMBER
OF LOANS PAYMENT TERMS
PRINCIPAL
AMOUNT(1)
CARRYING
AMOUNT
2021
2021
2022
2022
2026
1 Monthly interest-only payments, accrues interest at 7.5% and secured by a senior housing facility
$ 2,250 $ 2,250
under development in Texas
1 Monthly interest-only payments, accrues interest at 7.5% and secured by a senior housing facility
8,290
8,290
under development in Florida
1 Monthly interest-only payments, accrues interest at 6.5% and secured by a senior housing facility
102,412
102,412
under development in Washington(2)
1 Monthly interest-only payments, accrues interest at 5.75% and secured by a senior housing facility
4,200
4,200
in Illinois
1 Monthly interest-only payments, accrues interest at the greater of 2% or LIBOR, plus 4.25% and
44,812
44,812
secured by a senior housing facility in Florida
5
$161,964 $161,964
(1) Represents future contractual principal payments to be received on loans receivable secured by real estate.
(2) Contains a participation feature that allows the Company to participate in up to 20% of the appreciation of the asset through the time the loan is
refinanced or repaid.
During the year ended December 31, 2019, the Company recognized $6 million in interest income related to loans secured by
real estate.
SHOP Seller Financing
In December 2019, the Company sold two SHOP facilities in Florida for $56 million and provided the buyer with initial financing of
$45 million. The remainder of the sales price was received in cash at the time of sale. Additionally, the Company has agreed to provide
up to $10 million of redevelopment funding (80% of the estimated cost of redevelopment), none of which has been funded as of
December 31, 2019. The initial and redevelopment financings are secured by the buyer’s equity ownership in the property.
Four Seasons Health Care
In March 2017, pursuant to a shift in the Company’s investment strategy, the Company sold its £138.5 million par value Four Seasons
senior notes (the “Four Seasons Notes”) for £83 million ($101 million). The disposition of the Four Seasons Notes generated a £42 million
($51 million) gain on sale, recognized in other income (expense), net.
OTHER SECURED LOANS
Tandem Health Care Loan
From July 2012 through May 2015, the Company funded, in aggregate, $257 million under a collateralized mezzanine loan facility
(the “Mezzanine Loan”) to certain affiliates of Tandem.
During the year ended December 31, 2017, the Company recognized aggregate impairment charges of $144 million related to the
Mezzanine Loan, which reduced the carrying value to $105 million as of December 31, 2017. The aggregate impairment charges were
the result of a variety of factors, including, but not limited to, poor operating results of the underlying real estate assets, market and
industry data that reflected a declining trend in admissions and a continuing shift away from higher-rate Medicare plans in the post-
acute/skilled nursing sector, bids from prospective purchasers of the Mezzanine Loan, and eventually entering into an agreement
with the borrower for a discounted repayment of the Mezzanine Loan. The calculations of the fair value were primarily based on an
income approach and relied on forecasted EBITDAR and market data, including, but not limited to, sales price per unit/bed, rent
coverage ratios, and real estate capitalization rates. All valuation inputs were considered to be Level 2 measurements within the fair
value hierarchy.
91
2019 ANNUAL REPORT PART II
In March 2018, the Company sold the Mezzanine Loan to a third party for approximately $112 million, which resulted in an impairment
recovery, net of transaction costs and fees, of $3 million included in other income (expense), net. The Company holds no further
economic interest in the operations of Tandem.
Beginning in the first quarter of 2017, the Company elected to recognize interest income on a cash basis. During the years ended
December 31, 2018 and 2017, the Company recognized interest income of zero and $23 million, respectively, and received cash
payments of zero and $25 million, respectively, from Tandem.
U.K. Bridge Loan
In 2016, the Company provided a £105 million ($131 million at closing) bridge loan (the “U.K. Bridge Loan”) to Maria Mallaband Care
Group Ltd. (“MMCG”) to fund the acquisition of a portfolio of seven care homes in the U.K. Under the U.K. Bridge Loan, the Company
retained a three-year call option to acquire those seven care homes at a future date for £105 million, subject to certain conditions
precedent being met. In March 2018, upon resolution of all conditions precedent, the Company began the process of exercising
its call option to acquire the seven care homes and concluded that it should consolidate the real estate. As a result, the Company
derecognized the outstanding loan receivable of £105 million and recognized a £29 million ($41 million) loss on consolidation. Refer to
Note 18 for further discussion regarding impact of consolidating the seven care homes during the first quarter of 2018.
In June 2018, the Company completed the process of exercising the above-mentioned call option. The seven care homes acquired
through the call option were included in the U.K. JV transaction (see Note 4).
NOTE 8. Investments in and Advances to Unconsolidated Joint Ventures
The Company owns interests in the following entities that are accounted for under the equity method (dollars in thousands):
CARRYING AMOUNT
DECEMBER 31,
ENTITY(1)
SWF SH JV(2)
CCRC JV(3)
U.K. JV(4)
MBK JV
Other SHOP JVs(5)
Medical Office JVs(6)
K&Y JVs(7)
Advances to unconsolidated joint ventures, net
PROPERTY COUNT OWNERSHIP %
2019
19
15
—
4
5
3
2
2018
—
54 $428,258 $
49
49
50
41-90
20-67
80
325,830
365,764
— 101,735
33,415
26,876
9,845
1,215
76
35,435
25,493
10,160
1,430
71
$825,515 $540,088
(1) These entities are not consolidated because the Company does not control, through voting rights or other means, the joint ventures.
(2)
In December 2019, the Company formed the SWF SH JV with a sovereign wealth fund. See Note 4 for discussion of the formation of the SWF SH JV.
(3) See Note 3 for discussion of the 2019 MTCA with Brookdale, including the pending acquisition of Brookdale’s interest in the CCRC JV.
(4) See Note 4 for discussion of the formation of the U.K. JV in 2018 and subsequent sale of the Company’s equity method investment in 2019.
(5)
(6)
In June 2019, the Company acquired the outstanding equity interests in, and began consolidating, the Vintage Park JV (see Note 4). Remaining
unconsolidated SHOP joint ventures (and the Company’s ownership percentage) include: (i) Waldwick JV (85%); (ii) Otay Ranch JV (90%); (iii) MBK
Development JV (50%); (iv) Discovery Naples JV (41%); and (v) Discovery Sarasota JV (47%). The Company’s investments in the Discovery Naples JV and
the Discovery Sarasota JV are preferred equity investments earning a 10% per annum fixed-rate return.
Includes three unconsolidated medical office joint ventures (and the Company’s ownership percentage): (i) Ventures IV (20%); (ii) Ventures III (30%);
and (iii) Suburban Properties, LLC (67%).
(7) At December 31, 2019, includes one unconsolidated joint venture. In October 2019, the Company sold its interest in one of the K&Y joint ventures
for $4 million. In January 2020, the Company sold its interest in the remaining K&Y joint venture for $12 million. At December 31, 2018, includes three
unconsolidated joint ventures.
92
HEALTHPEAK PROPERTIES The following tables summarize combined financial information for the Company’s unconsolidated joint ventures (in thousands):
PART II
Real estate, net
Other assets, net
Total assets
Mortgage and other debt
Accounts payable and other
Other partners’ capital
Healthpeak Properties, Inc.’s capital
Total liabilities and partners’ capital
Total revenues
Total operating expense
Net income (loss)
Healthpeak Properties, Inc.’s share in earnings (losses)
Fees earned by Healthpeak Properties, Inc.
Distributions received by Healthpeak Properties, Inc.
DECEMBER 31,
2019
2018
$2,278,743 $2,128,147
511,014
479,935
$2,789,757 $2,608,082
$ 552,824 $ 827,622
591,498
756,359
889,076
655,177
515,791
609,492
$2,789,757 $2,608,082
YEAR ENDED DECEMBER 31,
2019
2018
2017
$ 523,684 $ 642,724 $ 810,216
(381,257)
(492,784)
(643,452)
(50,872)
(43,704)
(42,408)
(8,625)
(2,594)
10,901
169
125
133
47,186
48,939
81,165
At December 31, 2019 and 2018, the aggregate unamortized basis difference of the Company’s investments in unconsolidated joint
ventures of $64 million and $69 million, respectively, is primarily attributable to the difference between the amount for which the
Company purchased its interest in the entity and the historical carrying value of the net assets of the entity. The difference is being
amortized over the remaining useful life of the related assets and included in equity income (loss) from unconsolidated joint ventures.
CCRC JV. During 2019, the CCRC JV classified one property that Brookdale and the Company committed to sell to a third-party as held
for sale in the joint venture’s stand-alone financial statements. In conjunction with classifying the property as held for sale, the CCRC
JV recognized an impairment charge of $12 million to reflect the write-down of the property’s previous carrying value to the estimated
selling price, less costs to sell. The Company recognized its 49% share of the impairment charge ($6 million) through equity income
(loss) from unconsolidated joint ventures during the year ended December 31, 2019.
Additionally, in October 2019, the Company agreed to acquire Brookdale’s 51% interest in 13 of the 15 communities held by the CCRC
JV, which the Company completed in January 2020. Refer to Note 3 for a detailed discussion of the 2019 MTCA with Brookdale.
U.K. JV. In December 2019, the Company sold its remaining 49% interest in the U.K. JV for proceeds of £70 million ($91 million) and
recognized a loss on sale of $7 million (based on exchange rates at the time the transaction was completed), including $1 million of loss
in accumulated other comprehensive income (loss) that was reclassified to gain (loss) on sale of real estate. As of December 31, 2019,
the Company no longer owned real estate in the U.K.
NOTE 9. Intangibles
Intangible assets primarily consist of lease-up intangibles and above market tenant lease intangibles. The following table summarizes
the Company’s intangible lease assets (in thousands):
INTANGIBLE LEASE ASSETS
Gross intangible lease assets
Accumulated depreciation and amortization
Intangible assets, net
DECEMBER 31,
2019
2018
$ 615,538 $ 556,114
(283,845)
(251,035)
$ 331,693 $ 305,079
93
2019 ANNUAL REPORT PART II
Intangible liabilities primarily consist of below market lease intangibles. The following table summarizes the Company’s intangible lease
liabilities (in thousands):
INTANGIBLE LEASE LIABILITIES
Gross intangible lease liabilities
Accumulated depreciation and amortization
Intangible liabilities, net
DECEMBER 31,
2019
2018
$113,213 $ 94,444
(38,222)
(39,781)
$ 74,991 $ 54,663
The following table sets forth amortization related to intangible assets, net and intangible liabilities, net (in thousands):
Depreciation and amortization expense related to amortization of lease-up intangibles
Rental and related revenues related to amortization of net below market lease liabilities
YEAR ENDED DECEMBER 31,
2019
2018
2017
$148,509 $67,350 $76,732
6,471
5,253
2,030
During the year ended December 31, 2019, in conjunction with the Company’s acquisitions of real estate (see Note 4), the Company
acquired intangible assets of $157 million and intangible liabilities of $33 million. The intangible assets and intangible liabilities acquired
have a weighted average amortization period of 3 years and 8 years, respectively.
On January 1, 2019, in conjunction with the adoption of ASU 2016-12 (see Note 2), the Company reclassified $39 million of intangible
assets, net and $6 million of intangible liabilities, net related to above and below market ground leases to right-of-use asset, net.
The following table summarizes the estimated annual amortization for each of the five succeeding fiscal years and thereafter (in thousands):
2020
2021
2022
2023
2024
Thereafter
RENTAL AND RELATED
REVENUES(1)
DEPRECIATION AND
AMORTIZATION(2)
$ 8,876
$103,988
8,034
8,349
7,783
7,145
25,270
$65,457
51,516
44,922
39,020
22,880
59,833
$322,159
(1) The amortization of net below market lease intangibles is recorded as an increase to rental and related revenues.
(2) The amortization of lease-up intangibles is recorded to depreciation and amortization expense.
NOTE 10. Debt
BANK LINE OF CREDIT AND TERM LOANS
On May 23, 2019, the Company executed a $2.5 billion unsecured revolving line of credit facility (the “Revolving Facility”), which
matures on May 23, 2023 and contains two, six month extension options, subject to certain customary conditions. Borrowings under the
Revolving Facility accrue interest at LIBOR plus a margin that depends on credit ratings of the Company’s senior unsecured long-term
debt. The Company pays a facility fee on the entire revolving commitment that depends on its credit ratings. Based on those credit
ratings at December 31, 2019, the margin on the Revolving Facility was 0.825% and the facility fee was 0.15%.
In conjunction with the Company’s exit from the U.K. in December 2019 (see Note 8), the Company paid down £55 million ($72 million)
under the Revolving Facility. At December 31, 2019, the Company had no balance outstanding under the Revolving Facility.
In May 2019, the Company also entered into a new $250 million unsecured term loan facility, which the Company fully drew down on
June 20, 2019 (the “2019 Term Loan” and, together with the Revolving Facility, the “Facilities”). The 2019 Term Loan matures on May 23,
2024. Based on the Company’s credit ratings at December 31, 2019, the 2019 Term Loan accrues interest at a rate of LIBOR plus 0.90%,
with a weighted average effective interest rate of 2.79%.
The Facilities include a feature that allows the Company to increase the borrowing capacity by an aggregate amount of up to
$750 million, subject to securing additional commitments. The Facilities also contain certain financial restrictions and other customary
requirements, including cross-default provisions to other indebtedness. Among other things, these covenants, using terms defined in
the agreements: (i) limit the ratio of Enterprise Total Indebtedness to Enterprise Gross Asset Value to 60%; (ii) limit the ratio of Enterprise
94
HEALTHPEAK PROPERTIES PART II
Secured Debt to Enterprise Gross Asset Value to 40%; (iii) limit the ratio of Enterprise Unsecured Debt to Enterprise Unencumbered
Asset Value to 60%; (iv) require a minimum Fixed Charge Coverage ratio of 1.5 times; and (v) require a minimum Consolidated Tangible
Net Worth of $7.0 billion. At December 31, 2019, the Company believes it was in compliance with each of these restrictions and
requirements of the Facilities.
On July 3, 2018, the Company exercised its one-time right under a previously-drawn term loan to repay the outstanding GBP balance and
re-borrow in USD with all other key terms unchanged, which resulted in repayment of a £169 million balance and re-borrowing of $224
million. In November 2018, the Company repaid the $224 million unsecured term loan, bringing the total term loan balance to zero at
December 31, 2018.
COMMERCIAL PAPER PROGRAM
In September 2019, the Company established an unsecured commercial paper program (the “Commercial Paper Program”). Under the
terms of the Commercial Paper Program, the Company may issue, from time to time, unsecured short-term debt securities with varying
maturities. Amounts available under the Commercial Paper Program may be borrowed, repaid, and re-borrowed from time to time, with
the maximum aggregate face or principal amount outstanding at any one time not exceeding $1.0 billion. Amounts borrowed under
the Commercial Paper Program will be sold on terms that are customary for the U.S. commercial paper market and will be at least
equal in right of payment with all of the Company’s other unsecured and unsubordinated indebtedness. The Company intends to use
its Revolving Facility as a liquidity backstop for the repayment of unsecured short term debt securities issued under the Commercial
Paper Program.
As of December 31, 2019, the Company had $93 million of notes outstanding under the Commercial Paper Program, with original
maturities of one month and a weighted average interest rate of 2.04%.
SENIOR UNSECURED NOTES
At December 31, 2019, the Company had senior unsecured notes outstanding with an aggregate principal balance of $5.7 billion.
The senior unsecured notes contain certain covenants including limitations on debt, maintenance of unencumbered assets,
cross-acceleration provisions, and other customary terms. The Company believes it was in compliance with these covenants at
December 31, 2019.
The following table summarizes the Company’s senior unsecured notes issuances during the year ended December 31, 2019
(dollars in thousands):
DATE
November 21, 2019
July 5, 2019
July 5, 2019
AMOUNT COUPON RATE MATURITY DATE
$750,000
$650,000
$650,000
3.000%
3.250%
3.500%
2030
2026
2029
There were no senior unsecured notes issuances for the years ended December 31, 2018 and 2017.
The following table summarizes the Company’s senior unsecured notes payoffs for the periods presented (dollars in thousands):
DATE
Year ended December 31, 2019:
November 21, 2019(1)
July 22, 2019(2)
July 8, 2019(2)
July 8, 2019(2)
Year ended December 31, 2018:
November 8, 2018
July 16, 2018(3)
Year ended December 31, 2017:
July 27, 2017(4)
May 1, 2017
AMOUNT COUPON RATE MATURITY DATE
$350,000
$800,000
$250,000
$250,000
$450,000
$700,000
$500,000
$250,000
4.000%
2.625%
4.000%
4.250%
3.750%
5.375%
5.375%
5.625%
2022
2020
2022
2023
2019
2021
2021
2017
(1) The Company recognized a $22 million loss on debt extinguishment related to the repurchase of senior notes.
(2) Upon completing the redemption of the 2.625% senior unsecured notes due February 2020 and repurchasing a portion of the 4.250% senior unsecured
notes due 2023 and the 4.000% senior unsecured notes due 2022, the Company recognized a $35 million loss on debt extinguishment.
(3) The Company recognized a $44 million loss on debt extinguishment related to the repurchase of senior notes.
(4) The Company recognized a $54 million loss on debt extinguishment related to the repurchase of senior notes.
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2019 ANNUAL REPORT PART II
MORTGAGE DEBT
At December 31, 2019, the Company had $264 million in aggregate principal of mortgage debt outstanding (excluding mortgage debt
on assets held for sale), which is secured by 17 healthcare facilities with an aggregate carrying value of $511 million.
Mortgage debt generally requires monthly principal and interest payments, is collateralized by real estate assets, and is generally
non-recourse. Mortgage debt typically restricts transfer of the encumbered assets, prohibits additional liens, restricts prepayment,
requires payment of real estate taxes, requires maintenance of the assets in good condition, requires insurance on the assets, and
includes conditions to obtain lender consent to enter into or terminate material leases. Some of the mortgage debt may require tenants
or operators to maintain compliance with the applicable leases or operating agreements of such real estate assets.
In May 2019, upon acquiring three senior housing assets from Oakmont, the Company assumed $50 million of secured mortgage debt
maturing in 2028 and having a weighted average interest rate of 4.83%. In July 2019, upon acquiring five senior housing assets from
Oakmont, the Company assumed an additional $112 million of secured mortgage debt with maturity dates ranging from 2027 to 2033
and a weighted average interest rate of 4.89% (see Note 4).
DEBT MATURITIES
The following table summarizes the Company’s stated debt maturities and scheduled principal repayments at December 31, 2019
(dollars in thousands):
YEAR
2020
2021
2022
2023
2024
Thereafter
(Discounts), premium and debt
costs, net
Debt on assets held for sale(4)
BANK LINE
OF CREDIT
COMMERCIAL
PAPER
TERM
LOAN
SENIOR UNSECURED NOTES(1)
MORTGAGE DEBT(2)
AMOUNT INTEREST RATE AMOUNT INTEREST RATE
TOTAL(3)
$—
$93,000 $
— $
—
—
—
—
—
—
—
—
300,000
550,000
— 250,000
1,150,000
—% $ 4,132
—%
11,821
3.37%
4.37%
4.17%
3,886
4,069
4,247
5.08% $
97,132
5.26%
—%
—%
11,821
303,886
554,069
—% 1,404,247
—
— 3,700,000
3.86% 236,089
4.09% 3,936,089
93,000
250,000
5,700,000
— (1,058)
(52,007)
93,000
248,942
5,647,993
—
—
—
$—
$93,000 $248,942 $5,647,993
264,244
12,663
276,907
32,289
$309,196
6,307,244
(40,402)
6,266,842
32,289
$6,299,131
—
—
—
—
—
—
—
—
—
(1) Effective interest rates on the senior notes range from 3.14% to 6.87% with a weighted average effective interest rate of 3.94% and a weighted average
maturity of seven years.
(2) Excluding mortgage debt on assets held for sale, effective interest rates on the mortgage debt range from 2.22% to 5.91% with a weighted average
effective interest rate of 4.09% and a weighted average maturity of 13 years.
(3) Excludes $85 million of other debt that has no scheduled maturities. Other debt represents (i) $52 million of non-interest bearing life care bonds and
occupancy fee deposits at certain of the Company’s senior housing facilities and (ii) $33 million of on-demand notes from the CCRC JV which bear
interest at a rate of 3.6%.
(4) Represents mortgage debt on assets held for sale with interest rates that ranged from 3.45% to 6.80% and matures in 2026, 2028, and 2044.
NOTE 11. Commitments and Contingencies
LEGAL PROCEEDINGS
From time to time, the Company is a party to, or has a significant relationship to, legal proceedings, lawsuits, and other claims. Except
as described below, the Company is not aware of any legal proceedings or claims that it believes may have, individually or taken
together, a material adverse effect on the Company’s financial condition, results of operations, or cash flows. The Company’s policy is to
expense legal costs as they are incurred.
Class Action. On May 9, 2016, a purported stockholder of the Company filed a putative class action complaint, Boynton Beach
Firefighters’ Pension Fund v. HCP, Inc., et al., Case No. 3:16-cv-01106-JJH, in the U.S. District Court for the Northern District of Ohio
against the Company, certain of its officers, HCR ManorCare, Inc. (“HCRMC”), and certain of its officers, asserting violations of the
federal securities laws. The suit asserts claims under sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), and alleges that the Company made certain false or misleading statements relating to the value of and risks
concerning its investment in HCRMC by allegedly failing to disclose that HCRMC had engaged in billing fraud, as alleged by the
U.S. Department of Justice (“DoJ”) in a suit against HCRMC arising from the False Claims Act that the DoJ voluntarily dismissed with
prejudice. The plaintiff in the class action suit demands compensatory damages (in an unspecified amount), costs and expenses
96
HEALTHPEAK PROPERTIES PART II
(including attorneys’ fees and expert fees), and equitable, injunctive, or other relief as the Court deems just and proper. On
November 28, 2017, the Court appointed Societe Generale Securities GmbH (SGSS Germany) and the City of Birmingham Retirement
and Relief Systems (Birmingham) as Co-Lead Plaintiffs in the class action. The motion to dismiss was fully briefed on May 21, 2018 and
oral arguments were held on October 23, 2018. Subsequently, on December 6, 2018, HCRMC and its officers were voluntarily dismissed
from the class action lawsuit without prejudice to such claims being refiled. On November 22, 2019, the Court granted the motion to
dismiss. On December 20, 2019, Co-Lead plaintiffs filed a motion to amend the Court’s judgment. Defendants’ opposition brief is due on
February 18, 2020, and Co-Lead Plaintiffs’ reply brief is due on March 19, 2020. The Company believes the suit to be without merit and
intends to vigorously defend against it.
Derivative Actions. On June 16, 2016 and July 5, 2016, purported stockholders of the Company filed two derivative actions, Subodh
v. HCR ManorCare Inc., et al., Case No. 30-2016-00858497-CU-PT-CXC and Stearns v. HCR ManorCare, Inc., et al., Case No.
30-2016-00861646-CU-MC-CJC, in the Superior Court of California, County of Orange, against certain of the Company’s current and
former directors and officers and HCRMC. The Company is named as a nominal defendant. As both derivative actions contained
substantially the same allegations, they have been consolidated into a single action (the “California derivative action”). The consolidated
action alleges that the defendants engaged in various acts of wrongdoing, including, among other things, breaching fiduciary duties
by publicly making false or misleading statements of fact regarding HCRMC’s finances and prospects, and failing to maintain adequate
internal controls. On April 18, 2017, the Court approved the parties’ stipulation to stay the case pending disposition of the motion to
dismiss the class action litigation.
On April 10, 2017, a purported stockholder of the Company filed a derivative action, Weldon v. Martin et al., Case No. 3:17-cv-755,
in federal court in the Northern District of Ohio, Western Division, against certain of the Company’s current and former directors and
officers and HCRMC. The Company is named as a nominal defendant. The Weldon complaint asserts similar claims to those asserted
in the California derivative action. In addition, the complaint asserts a claim under Section 14(a) of the Exchange Act, alleging that the
Company made false statements in its 2016 proxy statement by not disclosing that the Company’s performance issues in 2015 were
the direct result of alleged billing fraud at HCRMC. On April 18, 2017, the Court re-assigned and transferred this action to the judge
presiding over the related federal securities class action. On July 11, 2017, the Court approved a stipulation by the parties to stay the
case pending disposition of the motion to dismiss the class action.
On July 21, 2017, a purported stockholder of the Company filed another derivative action, Kelley v. HCR ManorCare, Inc., et al., Case
No. 8:17-cv-01259, in federal court in the Central District of California, against certain of the Company’s current and former directors
and officers and HCRMC. The Company is named as a nominal defendant. The Kelley complaint asserts similar claims to those asserted
in Weldon and in the California derivative action. Like Weldon, the Kelley complaint also additionally alleges that the Company made
false statements in its 2016 proxy statement, and asserts a claim for a violation of Section 14(a) of the Exchange Act. On November 28,
2017, the federal court in the Central District of California granted Defendants’ motion to transfer the action to the Northern District of
Ohio (i.e., the court where the class action and other federal derivative action are pending). The Court in the Northern District of Ohio
is currently considering whether to consolidate the Weldon and Kelley actions, appointment of lead plaintiffs and counsel, and whether
the stay in Weldon should continue as to either or both actions.
The Company’s Board of Directors received letters dated August 17, 2016, April 19, 2017, and April 20, 2017 from private law firms acting
on behalf of clients who are purported stockholders of the Company, each asserting allegations similar to those made in the California
derivative action matters discussed above. Each letter demands that the Board of Directors take action to assert the Company’s rights. The
Board of Directors completed its evaluation and rejected the demand letters in December of 2017. One of the law firms has more recently
requested that the Board of Directors reconsider its determination after a final ruling on the motion to dismiss in the class action litigation.
The Company believes that the plaintiffs lack standing or the lawsuits and demands are without merit, but cannot predict the outcome
of these proceedings or reasonably estimate any potential loss at this time. Accordingly, no loss contingency has been recorded for
these matters as of December 31, 2019, as the likelihood of loss is not considered probable or estimable.
DOWNREIT LLCs
In connection with the formation of certain DownREIT LLCs, members may contribute appreciated real estate to a DownREIT LLC in
exchange for DownREIT units. These contributions are generally tax-deferred, so that the pre-contribution gain related to the property is
not taxed to the member. However, if a contributed property is later sold by the DownREIT LLC, the unamortized pre-contribution gain
that exists at the date of sale is specifically allocated and taxed to the contributing members. In many of the DownREITs, the Company
has entered into indemnification agreements with those members who contributed appreciated property into the DownREIT LLC. Under
these indemnification agreements, if any of the appreciated real estate contributed by the members is sold by the DownREIT LLC in
a taxable transaction within a specified number of years, the Company will reimburse the affected members for the federal and state
income taxes associated with the pre-contribution gain that is specially allocated to the affected member under the Code (“make-
whole payments”). These make-whole payments include a tax gross-up provision. These indemnification agreements have expiration
terms that range through 2039 on a total of 27 properties.
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2019 ANNUAL REPORT PART II
COMMITMENTS
The following table summarizes the Company’s material commitments, excluding debt service obligations (see Note 10) and obligations
as the lessee under operating leases (see Note 6), at December 31, 2019 (in thousands):
Construction loan commitments(1)
Lease and other contractual commitments(2)
Development commitments(3)
Total
AMOUNT
$ 25,050
123,957
237,295
$386,302
(1) Represents commitments to finance development projects.
(2) Represents the Company’s commitments, as lessor, under signed leases and contracts for operating properties and includes allowances for tenant
improvements and leasing commissions. Excludes allowances for tenant improvements related to developments in progress for which the Company
has executed an agreement with a general contractor to complete the tenant improvements (recognized in the “Development commitments” line).
(3) Represents construction and other commitments for developments in progress and includes allowances for tenant improvements of $88 million that
the Company has provided as a lessor.
CREDIT ENHANCEMENT GUARANTEE
At December 31, 2019, certain of the Company’s senior housing facilities serve as collateral for $64 million of debt (maturing May 1,
2025) that is owed by a previous owner of the facilities. This indebtedness is guaranteed by the previous owner who has an investment
grade credit rating. These senior housing facilities, which were converted to a RIDEA structure during the first quarter of 2019 (see
Note 6), had a carrying value of $334 million as of December 31, 2019.
ENVIRONMENTAL COSTS
Various environmental laws govern certain aspects of the ongoing management and operation of our facilities, including those related
to presence of asbestos-containing materials. The presence of, or the failure to manage and/or remediate, such materials may adversely
affect the occupancy and performance of the Company’s facilities. The Company monitors its properties for the presence of such
hazardous or toxic substances and is not aware of any environmental liability with respect to the properties that would have a material
adverse effect on the Company’s business, financial condition, or results of operations. The Company carries environmental insurance
and believes that the policy terms, conditions, limitations, and deductibles are adequate and appropriate under the circumstances,
given the relative risk of loss, the cost of such coverage, and current industry practice.
GENERAL UNINSURED LOSSES
The Company obtains various types of insurance to mitigate the impact of property, business interruption, liability, workers’
compensation, flood, windstorm, earthquake, environmental, cyber, and terrorism related losses. The Company attempts to obtain
appropriate policy terms, conditions, limits, and deductibles considering the relative risk of loss, the cost of such coverage, and current
industry practice. There are, however, certain types of extraordinary losses, such as those due to acts of war or other events that may
be either uninsurable or not economically insurable. In addition, the Company has a large number of properties that are exposed to
earthquake, flood, and windstorm occurrences for which the related insurances carry high deductibles and have limits.
NOTE 12. Equity
DIVIDENDS
On January 30, 2020, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.37 per share. The
common stock cash dividend will be paid on February 28, 2020 to stockholders of record as of the close of business on February 18, 2020.
During the years ended December 31, 2019, 2018, and 2017, the Company declared and paid common stock cash dividends of
$1.480 per share.
AT-THE-MARKET EQUITY OFFERING PROGRAM
In June 2015, the Company established an at-the-market equity offering program (“ATM Program”) to sell shares of its common stock
from time to time through a consortium of banks acting as sales agents or directly to the banks acting as principals. In May 2018,
the Company renewed its ATM Program (the “2018 ATM Program”). During the year ended December 31, 2018, the Company issued
5.4 million shares of common stock at a weighted average net price of $28.27 per share, resulting in net proceeds of $154 million.
In February 2019, the Company terminated the 2018 ATM Program and established a new ATM Program (the “2019 ATM Program”) pursuant to
which shares of common stock having an aggregate gross sales price of up to $1.0 billion may be sold (i) by the Company through a consortium
of banks acting as sales agents or directly to the banks acting as principals or (ii) by a consortium of banks acting as forward sellers on behalf of
any forward purchasers pursuant to a forward sale agreement. The use of a forward sale agreement allows the Company to lock in a share price
on the sale of shares at the time the agreement is effective, but defer receiving the proceeds from the sale of shares until a later date.
98
HEALTHPEAK PROPERTIES PART II
ATM Direct Issuances
During the year ended December 31, 2019, the Company issued 5.9 million shares of common stock at a weighted average net price of
$31.84 per share, after commissions, resulting in net proceeds of $189 million.
ATM Forward Contracts
During the year ended December 31, 2019, the Company utilized the forward provisions under the 2019 ATM Program to allow for
the sale of up to an aggregate of 20.3 million shares of its common stock, at an initial weighted average net price of $31.44 per share,
after commissions.
During the year ended December 31, 2019, the Company settled 5.5 million shares at a weighted average net price of $30.91 per share,
after commissions, resulting in net proceeds of $171 million. At December 31, 2019, 14.8 million shares remained outstanding under
forward contracts under the 2019 ATM Program, with an initial weighted average net price of $31.56 per share, after commissions.
At December 31, 2019, approximately $163 million of the Company’s common stock remained available for sale under the
2019 ATM Program.
Subsequent to December 31, 2019, the Company utilized the forward provisions under the 2019 ATM Program to allow for the sale of up
to an additional 2.0 million shares of its common stock, at an initial weighted average net price of $35.23 per share, after commissions.
Each forward sale has a one year term. At any time during the term, the Company may settle the forward sale by delivery of physical
shares of common stock to the forward seller or, at the Company’s election, in cash or net shares. The forward sale price that the
Company expects to receive upon settlement of outstanding forward contracts will be the initial forward price established upon the
effective date, subject to adjustments for: (i) accrued interest, (ii) the forward purchasers’ stock borrowing costs, and (iii) certain fixed
price reductions during the term of the agreement.
FORWARD EQUITY OFFERINGS
November 2019 Offering. In November 2019, the Company entered into a forward equity sales agreement (the “2019 forward equity
sales agreement”) to sell an aggregate of 15.6 million shares of its common stock (including shares sold through the exercise of
underwriters’ options) at an initial net price of $34.46 per share, after underwriting discounts and commissions. The 2019 forward equity
sales agreement has a one year term that expires on November 4, 2020 during which time the Company may settle the 2019 forward
equity sales agreement by delivery of physical shares of common stock to the forward seller or, at the Company’s election, by settling
in cash or net shares. The forward sale price that the Company expects to receive upon settlement of the 2019 forward equity sales
agreement will be the initial net price of $34.46 per share, subject to adjustments for: (i) accrued interest, (ii) the forward purchasers’
stock borrowing costs, and (iii) certain fixed price reductions during the term of the agreement. During the year ended December 31,
2019, no shares were settled under the 2019 forward equity sales agreement. Therefore, at December 31, 2019, all shares remained
outstanding under the 2019 forward equity sales agreement.
December 2018 Offering. In December 2018, the Company entered into a forward equity sales agreement (the “2018 forward equity
sales agreement”) to sell an aggregate of 15.3 million shares of its common stock (including shares sold through the exercise of
underwriters’ options) at an initial net price of $28.60 per share, after underwriting discounts and commissions. Contemporaneously, the
2018 forward equity sales agreement had a one year term that expired on December 13, 2019 during which time the Company could
settle the forward sales agreement by delivery of physical shares of common stock to the forward seller or, at the Company’s election,
settle in cash or net shares. During the year ended December 31, 2019, the Company settled all 15.3 million shares under the 2018
forward equity sales agreement at a weighted average net price of $27.66 per share resulting in net proceeds of $422 million. Therefore,
at December 31, 2019, no shares remained outstanding under the 2018 forward equity sales agreement.
In December 2018, contemporaneous with the forward equity offering discussed above, the Company completed an offering of two
million shares of common stock at a net price of $28.60 per share, resulting in net proceeds of $57 million.
The following table summarizes the Company’s other common stock activities (shares in thousands):
Dividend Reinvestment and Stock Purchase Plan
Conversion of DownREIT units
Exercise of stock options
Vesting of restricted stock units
Repurchase of common stock
YEAR ENDED DECEMBER 31,
2019
336
213
152
468
162
2018
237
3
120
401
141
2017
983
78
32
419
157
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2019 ANNUAL REPORT PART II
ACCUMULATED OTHER COMPREHENSIVE LOSS
The following table summarizes the Company’s accumulated other comprehensive income (loss) (in thousands):
Cumulative foreign currency translation adjustment(1)
Unrealized gains (losses) on derivatives, net
Supplemental Executive Retirement plan minimum liability and other
Total accumulated other comprehensive income (loss)
(1) See Notes 4, 8, and 21 for a discussion of the U.K. JV transaction.
NONCONTROLLING INTERESTS
DECEMBER 31,
2019
2018
$(1,023) $(1,683)
1,314
(467)
(3,148)
(2,558)
$(2,857) $(4,708)
At December 31, 2019, there were five million DownREIT units (seven million shares of Healthpeak common stock are issuable upon
conversion) outstanding in seven DownREIT LLCs, all of which the Company is the managing member of. At December 31, 2019, the
carrying and market values of the five million DownREIT units were $204 million and $257 million, respectively.
See Notes 3 and 4 for transactions involving noncontrolling interests.
NOTE 13. Earnings Per Common Share
Basic income (loss) per common share (“EPS”) is computed based on the weighted average number of common shares outstanding.
Diluted income (loss) per common share is computed based on the weighted average number of common shares outstanding plus
the impact of forward equity sales agreements using the treasury stock method and common shares issuable from the assumed
conversion of DownREIT units, stock options, certain performance restricted stock units, and unvested restricted stock units. Only those
instruments having a dilutive impact on the Company’s basic income (loss) per share are included in diluted income (loss) per share
during the periods presented.
Restricted stock and certain performance restricted stock units are considered participating securities, because dividend payments are
not forfeited even if the underlying award does not vest, and require use of the two-class method when computing basic and diluted
earnings per share.
During the year ended December 31, 2019, the Company utilized the forward sale provisions under the 2019 ATM Program to sell up to
an aggregate of 20.3 million shares of common stock with a one year term. During the year ended December 31, 2019, the Company
settled 5.5 million shares under forward contracts under the 2019 ATM Program, leaving 14.8 million shares outstanding thereunder.
Additionally, in November 2019, the Company entered into the 2019 forward equity sales agreement to sell an aggregate of 15.6 million
shares of its common stock by November 4, 2020. At December 31, 2019, all 15.6 million shares remained outstanding thereunder.
Additionally, in December 2018, the Company entered into forward equity sales agreement to sell an aggregate of 15.3 million shares of
its common stock by December 13, 2019. During the year ended December 31, 2019, the Company settled all 15.3 million shares under
the December 2018 forward sales agreement.
The Company expects to settle the remaining forward sales with shares of common stock prior to their respective expiration dates. See
Note 12 for further details.
The Company considered the potential dilution resulting from the forward agreements to the calculation of earnings per share. At
inception, the agreements do not have an effect on the computation of basic EPS as no shares are delivered until settlement. However,
the Company uses the treasury stock method to determine the dilution, if any, resulting from the forward sales agreements during
the period of time prior to settlement. The aggregate effect on the Company’s diluted weighted-average common shares for the year
ended December 31, 2019, was 2.8 million weighted-average incremental shares from the forward equity sales agreements.
100
HEALTHPEAK PROPERTIES The following table illustrates the computation of basic and diluted earnings per share (in thousands, except per share amounts):
PART II
Numerator
Net income (loss)
Noncontrolling interests’ share in earnings
Net income (loss) attributable to Healthpeak Properties, Inc.
Less: Participating securities’ share in earnings
Net income (loss) applicable to common shares
Numerator - Dilutive
Net income (loss) applicable to common shares
Add: distributions on dilutive convertible units and other
Dilutive net income (loss) available to common shares
Denominator
Basic weighted average shares outstanding
Dilutive potential common shares - equity awards
Dilutive potential common shares - forward equity agreements(1)
Dilutive potential common shares - DownREIT conversions
Diluted weighted average common shares
Earnings per common share
Basic
Diluted
YEAR ENDED DECEMBER 31,
2019
2018
2017
$ 60,061 $1,073,474 $422,634
(14,531)
(12,381)
(8,465)
45,530
1,061,093
414,169
(1,543)
(2,669)
(1,156)
$ 43,987 $1,058,424 $413,013
$ 43,987 $1,058,424 $413,013
—
6,919
—
$ 43,987 $1,065,343 $413,013
486,255
470,551
468,759
309
2,771
—
168
—
4,668
176
—
—
489,335
475,387
468,935
$
$
0.09 $
0.09 $
2.25 $
2.24 $
0.88
0.88
(1) Represents the current dilutive impact of 30 million shares of common stock under forward sales agreements that have not been settled as of
December 31, 2019. Based on the forward price of each agreement as of December 31, 2019, issuance of all 30 million shares would result in
approximately $1.00 billion of net proceeds.
For the years ended December 31, 2019, 2018, and 2017, 7 million, 2 million, and 7 million shares, respectively, issuable upon conversion
of DownREIT units were not included because they are anti-dilutive. Additionally, for the years ended December 31, 2019 and 2018,
28 million and 15 million shares of common stock, respectively, issuable pursuant to the settlement of forward equity sales agreements
were not included because they are anti-dilutive (see discussion above). For all periods presented in the above table, approximately
1 million shares of common stock subject to outstanding equity awards (restricted stock units and stock options) were not included
because they are anti-dilutive.
NOTE 14. Compensation Plans
STOCK BASED COMPENSATION
On May 11, 2006, the Company’s stockholders approved the 2006 Performance Incentive Plan, which was amended and restated in
2009 (“the 2006 Plan”). On May 1, 2014, the Company’s stockholders approved the 2014 Performance Incentive Plan (“the 2014 Plan”)
(collectively, the “Plans”). Following the adoption of the 2014 Plan, no new awards will be issued under the 2006 Plan. The Plans
provide for the granting of stock-based compensation, including stock options, restricted stock, and restricted stock units to officers,
employees, and directors in connection with their employment with or services provided to the Company. The maximum number of
shares reserved for awards under the 2014 Plan is 33 million shares, and, as of December 31, 2019, 28 million of the reserved shares
under the 2014 Plan are available for future awards, of which 19 million shares may be issued as restricted stock or restricted stock units.
Total share-based compensation expense recognized during the years ended December 31, 2019, 2018, and 2017 was $18 million,
$15 million, and $14 million, respectively. The year ended December 31, 2019 includes a $1 million charge recognized in general and
administrative expenses primarily resulting from accelerated vesting of restricted stock units related to the departure of the Company's
former Executive Vice President - Senior Housing. The year ended December 31, 2018 includes a $2 million charge recognized in
general and administrative expenses primarily resulting from accelerated vesting of restricted stock units related to the departure
of the Company's Executive Chairman. The year ended December 31, 2017 includes a $1 million charge recognized in general and
administrative expenses related to the accelerated vesting of restricted stock units primarily resulting from the departure of the
Company's former Chief Accounting Officer. As of December 31, 2019, there was $26 million of future expense related to unvested
share-based compensation arrangements granted under the Company’s incentive plans, which is expected to be recognized over a
weighted average period of two years associated with future employee service.
101
2019 ANNUAL REPORT PART II
STOCK OPTIONS
There have been no grants of stock options since 2014. Stock options outstanding and exercisable were 0.6 million at December 31,
2019 and 0.8 million at December 31, 2018. Proceeds received from stock options exercised under the Plans for the years ended
December 31, 2019, 2018, and 2017 were $5 million, $2 million, and $1 million, respectively. Compensation expense related to stock
options was immaterial for all periods presented.
RESTRICTED STOCK AWARDS
Under the Plans, restricted stock awards, including restricted stock units and performance stock units are granted subject to certain
restrictions. Conditions of vesting are determined at the time of grant. Restrictions on certain awards generally lapse, as provided in the Plans
or in the applicable award agreement, upon retirement, a change in control or other specified events. The fair market value of restricted
stock awards, both time vesting and those subject to specific performance criteria, are expensed over the period of vesting. Restricted stock
units, which vest based solely upon passage of time generally vest over a period of three to six years. The fair value of restricted stock units
is determined based on the closing market price of the Company's shares on the grant date. Performance stock units, which are restricted
stock awards that vest dependent upon attainment of various levels of performance that equal or exceed targeted levels, generally vest in
their entirety at the end of a three year performance period. The number of shares that ultimately vest can vary from 0% to 200% of target
depending on the level of achievement of the performance criteria. The fair value of performance stock units is determined based on the
Monte Carlo valuation model. The compensation expense recognized for all restricted stock awards is net of actual forfeitures.
Upon vesting of restricted stock awards, the participant is required to pay the related tax withholding obligation. Participants can
generally elect to have the Company reduce the number of common stock shares delivered to pay the employee tax withholding
obligation. The value of the shares withheld is dependent on the closing market price of the Company’s common stock on the trading
date prior to the relevant transaction occurring. During the years ended December 31, 2019, 2018, and 2017, the Company withheld
162,000, 141,000, and 157,000 shares, respectively, to offset tax withholding obligations with respect to the vesting of the restricted
stock and performance restricted stock unit awards.
Holders of restricted stock awards, including restricted stock units and performance stock units, are generally entitled to receive
dividends equal to the amount that would be paid on an equivalent number of shares of common stock.
The following table summarizes restricted stock award activity, including performance stock units, for the year ended December 31,
2019 (units in thousands):
Unvested at January 1, 2019
Granted
Vested
Forfeited
Unvested at December 31, 2019
RESTRICTED
STOCK
UNITS
WEIGHTED
AVERAGE
GRANT DATE
FAIR VALUE
1,698
$ 27.13
652
(468)
(182)
1,700
32.33
27.52
31.37
28.56
At December 31, 2019, the weighted average remaining vesting period of restricted stock and performance based units was two years.
The total fair value (at vesting) of restricted stock and performance based units which vested for the years ended December 31, 2019,
2018, and 2017 was $14 million, $10 million, and $15 million, respectively.
NOTE 15. Segment Disclosures
The Company evaluates its business and allocates resources based on its reportable business segments: (i) senior housing triple-net,
(ii) SHOP, (iii) life science, and (iv) medical office. The Company has non-reportable segments that are comprised primarily of the
Company’s unconsolidated joint ventures, hospital properties, and debt investments. The accounting policies of the segments are the
same as those described under Summary of Significant Accounting Policies (see Note 2).
During the first quarter of 2019, as a result of a change in how operating results are reported to the chief operating decision makers for
the purpose of evaluating performance and allocating resources, the Company reclassified operating results related to two facilities
from its other non-reportable segment to its medical office segment. Accordingly, all prior period segment information has been recast
to conform to current period presentation.
102
HEALTHPEAK PROPERTIES PART II
During the years ended December 31, 2019, 2018, and 2017, 41, 22, and 25 senior housing triple-net facilities, respectively, were
transferred to the Company’s SHOP segment as a result of terminating the triple-net leases and transitioning the assets to a RIDEA
structure. When an asset is transferred from one segment to another, the results associated with that asset are included in the original
segment until the date of transfer. Results generated after the transfer date are included in the new segment.
The Company evaluates performance based on: property NOI and Adjusted NOI. NOI is defined as real estate revenues (inclusive of
rental and related revenues, resident fees and services, and income from direct financing leases), less property level operating expenses
(which exclude transition costs); NOI excludes all other financial statement amounts included in net income (loss). Adjusted NOI is
calculated as NOI after eliminating the effects of straight-line rents, DFL non-cash interest, amortization of market lease intangibles,
termination fees, actuarial reserves for insurance claims that have been incurred but not reported, and the impact of deferred
community fee income and expense.
NOI and Adjusted NOI exclude the Company's share of income (loss) from unconsolidated joint ventures, which is recognized as equity
income (loss) from unconsolidated joint ventures in the consolidated statements of operations.
Non-segment assets consist of assets in the Company's other non-reportable segments and corporate non-segment assets. Corporate
non-segment assets consist primarily of corporate assets, including cash and cash equivalents, restricted cash, accounts receivable,
net, marketable equity securities, and real estate assets and liabilities held for sale. See Note 19 for other information regarding
concentrations of credit risk.
The following tables summarize information for the reportable segments (in thousands):
For the year ended December 31, 2019:
Real estate revenues(1)
Operating expenses
NOI
Adjustments to NOI(2)
Adjusted NOI
Addback adjustments
Interest income
Interest expense
Depreciation and amortization
General and administrative
Transaction costs
SENIOR
HOUSING
TRIPLE-NET
SHOP
LIFE
SCIENCE
MEDICAL
OFFICE
OTHER NON-
REPORTABLE
CORPORATE
NON-SEGMENT
TOTAL
$199,441 $ 725,171 $ 440,784 $ 571,530
$50,613
$
— $1,987,539
(4,565)
(565,713)
(107,472)
(201,538)
194,876
159,458
333,312
369,992
2,725
2,872
(22,120)
(5,877)
197,601
162,330
311,192
364,115
(2,725)
(2,872)
22,120
5,877
—
—
(1,003)
(7,519)
—
(277)
—
(434)
(82)
50,531
1,342
51,873
(1,342)
9,844
— (879,370)
— 1,108,169
—
(21,058)
— 1,087,111
—
—
21,058
9,844
—
(216,386)
(225,619)
(55,361)
(214,590)
(168,339)
(214,669)
(7,030)
— (659,989)
—
—
—
—
—
—
—
—
—
(17,332)
Recoveries (impairments), net
(43,859)
(164,369)
Gain (loss) on sales of real estate, net
3,557
19,384
3,651
3,139
Loss on debt extinguishment
Other income (expense), net
Income tax benefit (expense)
Equity income (loss) from unconsolidated
joint ventures
—
—
— 160,886
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(377)
(6,831)
—
8,137
—
(8,625)
(92,966)
(92,966)
(8,743)
(8,743)
— (225,937)
—
22,900
(58,364)
(58,364)
13,106
17,262
—
182,129
17,262
(8,625)
Net income (loss)
$ 98,210 $ (46,750) $ 168,347 $ 140,696
$45,649
$(346,091) $
60,061
(1) Represents rental and related revenues, resident fees and services, and income from DFLs.
(2) Represents straight-line rents, DFL non-cash interest, amortization of market lease intangibles, net, actuarial reserves for insurance claims that have
been incurred but not reported, deferral of community fees, net, and termination fees.
103
2019 ANNUAL REPORT PART II
For the year ended December 31, 2018:
Real estate revenues(1)
Operating expenses
NOI
Adjustments to NOI(2)
Adjusted NOI
Addback adjustments
Interest income
Interest expense
Depreciation and amortization
General and administrative
Transaction costs
Recoveries (impairments), net
SENIOR
HOUSING
TRIPLE-NET
SHOP
LIFE
SCIENCE
MEDICAL
OFFICE
OTHER NON-
REPORTABLE
CORPORATE
NON-SEGMENT
TOTAL
$276,091 $ 547,976 $ 395,064 $ 547,375
$ 69,777
$
— $1,836,283
(3,618)
(414,312)
(91,742)
(195,100)
272,473
133,664
303,322
352,275
2,127
2,875
(9,589)
(6,690)
274,600
136,539
293,733
345,585
(2,127)
(2,875)
9,589
6,690
—
—
(2,404)
(2,725)
—
(316)
—
(474)
(266)
69,511
(627)
68,884
627
10,406
(1,469)
— (705,038)
— 1,131,245
—
(11,904)
— 1,119,341
—
—
11,904
10,406
(258,955)
(266,343)
(79,605)
(104,405)
(140,480)
(200,430)
(24,579)
— (549,499)
—
—
—
—
—
—
— (44,343)
(7,639)
—
—
—
—
—
(3,278)
20,755
—
9,605
—
(2,594)
(96,702)
(10,772)
—
—
(96,702)
(10,772)
(55,260)
925,985
(44,162)
(44,162)
3,711
17,854
—
13,316
17,854
(2,594)
Gain (loss) on sales of real estate, net
641
93,977
806,184
4,428
Loss on debt extinguishment
Other income (expense), net
Income tax benefit (expense)
Equity income (loss) from unconsolidated
joint ventures
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
Net income (loss)
$191,105 $ 76,168 $ 961,071 $ 155,799
$ 78,357
$(389,026) $1,073,474
(1) Represents rental and related revenues, resident fees and services, and income from DFLs.
(2) Represents straight-line rents, DFL non-cash interest, amortization of market lease intangibles, net, actuarial reserves for insurance claims that have
been incurred but not reported, deferral of community fees, net, and termination fees.
For the year ended December 31, 2017:
Real estate revenues(1)
Operating expenses
NOI
Adjustments to NOI(2)
Adjusted NOI
Addback adjustments
Interest income
Interest expense
Depreciation and amortization
General and administrative
Transaction costs
Recoveries (impairments), net
Loss on debt extinguishment
Other income (expense), net
Income tax benefit (expense)
Equity income (loss) from unconsolidated
joint ventures
Discontinued operations
Net income (loss)
SENIOR
HOUSING
TRIPLE-NET
SHOP
LIFE
SCIENCE
MEDICAL
OFFICE
OTHER NON-
REPORTABLE
CORPORATE
NON-SEGMENT
TOTAL
$ 313,547 $ 525,473 $ 358,816 $ 512,385
$ 81,920
$
— $1,792,141
(3,819)
(396,491)
(78,001)
(187,688)
309,728
128,982
280,815
324,697
17,098
33,227
(4,517)
(5,405)
326,826
162,209
276,298
319,292
(17,098)
(33,227)
4,517
5,405
—
—
(2,518)
(7,920)
—
(373)
—
(506)
(103,820)
(103,162)
(128,864)
(176,507)
—
—
(22,590)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(252)
81,668
(1,993)
79,675
1,993
56,237
(4,230)
(22,373)
—
—
(143,794)
3,796
—
50,895
—
10,901
—
— (666,251)
— 1,125,890
—
38,410
— 1,164,300
—
—
(38,410)
56,237
(292,169)
(307,716)
— (534,726)
(88,772)
(88,772)
(7,963)
(7,963)
— (166,384)
—
356,641
(54,227)
(19,475)
1,333
—
—
(54,227)
31,420
1,333
10,901
—
$ 461,149 $ 35,385 $ 197,494 $ 156,779
$ 33,100
$(461,273) $ 422,634
Gain (loss) on sales of real estate, net
280,349
17,485
45,916
9,095
(1) Represents rental and related revenues, resident fees and services, and income from DFLs.
(2) Represents straight-line rents, DFL non-cash interest, amortization of market lease intangibles, net, actuarial reserves for insurance claims that have
been incurred but not reported, deferral of community fees, net, and termination fees.
104
HEALTHPEAK PROPERTIES The following table summarizes the Company’s revenues by segment (in thousands):
SEGMENTS
Senior housing triple-net
SHOP
Life science
Medical office
Other non-reportable segments
Total revenues
The following table summarizes the Company’s total assets by segment (in thousands):
SEGMENT
Senior housing triple-net
SHOP
Life science
Medical office
Reportable segment assets
Accumulated depreciation and amortization
Net reportable segment assets
Other non-reportable segment assets
Assets held for sale, net
Other non-segment assets
Total assets
PART II
YEAR ENDED DECEMBER 31,
2019
2018
2017
$ 199,441 $ 276,091 $ 313,547
725,171
440,784
571,530
60,457
547,976
395,064
547,375
80,183
525,473
358,816
512,385
138,157
$1,997,383 $1,846,689 $1,848,378
DECEMBER 31,
2019
2018
$ 1,012,443 $ 2,965,679
2,969,871
2,173,795
5,688,659
4,303,471
4,761,357
4,603,794
14,432,330
14,046,739
(2,966,987 )
(2,997,012 )
11,465,343
11,049,727
1,233,752
504,394
829,402
847,921
108,086
712,819
$14,032,891 $12,718,553
See Notes 3 and 4 for significant transactions impacting the Company's segment assets during the periods presented.
The Company completed the required annual goodwill impairment test during the fourth quarter of 2019, 2018, and 2017, and no
impairment was recognized.
At December 31, 2019 goodwill of $47 million was allocated to segment assets as follows: (i) senior housing triple-net—$14 million,
(ii) SHOP—$16 million, (iii) medical office—$13 million, and (iv) other—$4 million. At December 31, 2018 goodwill of $47 million was
allocated to segment assets as follows: (i) senior housing triple-net—$21 million, (ii) SHOP—$9 million, (iii) medical office—$11 million,
and (iv) other—$6 million. During the year ended December 31, 2019, as a result of transferring 41 senior housing triple-net facilities to
the Company’s SHOP segment and two facilities from its other non-reportable segments to its medical office segment, the Company
reallocated $7 million of goodwill from the senior housing triple-net segment to the SHOP segment and $2 million of goodwill from
other non-reportable segments to the MOB segment.
NOTE 16. Income Taxes
The Company has elected to be taxed as a REIT under the applicable provisions of the Code for every year beginning with the year
ended December 31, 1985. The Company has also elected for certain of its subsidiaries to be treated as TRSs (the “TRS entities”) which
are subject to federal and state income taxes. All entities other than the TRS entities are collectively referred to as the “REIT” within this
Note 16. Certain REIT entities are also subject to state, local and foreign income taxes.
105
2019 ANNUAL REPORT PART II
Distributions with respect to our common stock can be characterized for federal income tax purposes as ordinary dividends, capital
gains, nondividend distributions or a combination thereof. The following table shows the characterization of our annual common stock
distributions per share:
Ordinary dividends(1)
Capital gains
Nondividend distributions
YEAR ENDED DECEMBER 31,
2019
2018
2017
$0.7633 $0.9578 $1.4800
0.2714
0.5222
0.4453
—
—
—
$1.4800 $1.4800 $1.4800
(1) For the year ended December 31, 2019 all $0.7633 of ordinary dividends qualified as business income for purposes of Code Section 199A. For the
year ended December 31, 2018 the amount includes $0.9414 of qualified business income for purposes of Code Section 199A and $0.0164 of qualified
dividend income for purposes of Code Section 1(h)(11).
The TRS entities subject to tax reported losses before income taxes from continuing operations of $100 million, $59 million, and
$58 million for the years ended December 31, 2019, 2018, and 2017, respectively. The REIT’s losses from continuing operations before
income taxes from the U.K. prior to deconsolidation in June 2018 were $11 million and $4 million for the years ended December 31, 2018
and 2017, respectively.
The total income tax expense (benefit) from continuing operations consists of the following components (in thousands):
Current
Federal
State
Foreign
Total current
Deferred
Federal
State
Foreign
Total deferred
Total income tax expense (benefit)
YEAR ENDED DECEMBER 31,
2019
2018
2017
$
261 $
(568) $ 949
729
—
4,003
84
1,504
1,737
$
990 $ 3,519 $ 4,190
$(16,061) $(11,905) $ 2,730
(2,191)
(4,589)
(5,889)
—
(4,879)
(2,364)
$(18,252) $(21,373) $(5,523)
$(17,262) $(17,854) $(1,333)
On December 22, 2017, the Tax Cuts and Jobs Act was signed into law. As a result of the reduced U.S. federal corporate tax rate, the
Company recorded a tax expense of $17 million, due to a remeasurement of deferred tax assets and liabilities, which is included in total
deferred tax expense (benefit) in the table above.
The following table reconciles income tax expense (benefit) from continuing operations at statutory rates to actual income tax expense
recorded (in thousands):
Tax benefit at U.S. federal statutory income tax rate on income or loss subject to tax
State income tax expense, net of federal tax
Gross receipts and margin taxes
Foreign rate differential
Effect of permanent differences
Return to provision adjustments
Remeasurement of deferred tax assets and liabilities
Increase (decrease) in valuation allowance
Change in tax status of TRS
Total income tax expense (benefit)
106
YEAR ENDED DECEMBER 31,
2019
2018
2017
$(20,923) $(17,857) $(21,085)
(3,845)
(1,313)
(1,222)
1,430
1,580
1,716
—
20
157
—
4,583
1,316
301
(34)
(278)
632
6
1,597
— 17,080
(253)
—
(57)
—
$(17,262) $(17,854) $ (1,333)
HEALTHPEAK PROPERTIES PART II
Deferred income taxes reflect the net effects of temporary differences between the carrying amounts of the assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes. The following table summarizes the significant components
of the Company’s deferred tax assets and liabilities from continuing operations (in thousands):
Property, primarily differences in depreciation and amortization, the basis of land,
and the treatment of interest and certain costs
Net operating loss carryforward
Expense accruals and other
Valuation allowance
Net deferred tax assets
DECEMBER 31,
2019
2018
2017
$40,466 $31,034 $31,691
33,771
20,559
10,720
3,258
2,424
(4,878)
(295)
229
(548)
$72,617 $53,722 $42,092
Deferred tax assets and liabilities are included in other assets, net and accounts payable and accrued liabilities, respectively.
At December 31, 2019 the Company had a net operating loss (“NOL”) carryforward of $134 million related to the TRS entities. This
amount can be used to offset future taxable income, if any. If unused, $22 million will begin to expire in 2035. The remainder, totaling
$112 million, may be carried forward indefinitely.
The Company records a valuation allowance against deferred tax assets in certain jurisdictions when it cannot sustain a conclusion that
it is more likely than not that it can realize the deferred tax assets during the periods in which these temporary differences become
deductible. The deferred tax asset valuation allowance is adequate to reduce the total deferred tax assets to an amount that the
Company estimates will “more-likely-than-not” be realized.
The following table summarizes the Company’s unrecognized tax benefits (in thousands):
Total unrecognized tax benefits at January 1
Gross amount of increases for prior years’ tax positions
Total unrecognized tax benefits at December 31
DECEMBER 31,
2019 2018 2017
$ — $— $—
469 — —
$469 $— $—
The Company had unrecognized tax benefits of $0.5 million at December 31, 2019, that, if recognized, would reduce the annual
effective tax rate. The Company accrued no interest or penalties related to the unrecognized tax benefits during 2019. The Company
does not expect the unrecognized tax benefits to increase or decrease materially in 2020.
The Company files numerous U.S. federal, state and local income and franchise tax returns. With a few exceptions, the Company is no
longer subject to U.S. federal, state, or local tax examinations by taxing authorities for years prior to 2016.
For the years ended December 31, 2019, 2018, and 2017 the tax basis of the Company’s net assets was less than the reported amounts
by $1.2 billion, $1.4 billion, and $1.7 billion, respectively.
107
2019 ANNUAL REPORT PART II
NOTE 17. Supplemental Cash Flow Information
The following table provides supplemental cash flow information (in thousands):
Supplemental cash flow information:
Interest paid, net of capitalized interest
Income taxes paid (refunded)
Capitalized interest
Supplemental schedule of non-cash investing and financing activities:
Accrued construction costs
Retained equity method investment from U.K. JV transaction
Derecognition of U.K. Bridge Loan receivable
Consolidation of net assets related to U.K. Bridge Loan
YEAR ENDED DECEMBER 31,
2019
2018
2017
$201,784 $275,690 $309,111
1,426
4,480
30,459
21,056
10,045
16,937
126,006
88,826
67,425
— 104,922
— 147,474
— 106,457
—
—
—
Vesting of restricted stock units and conversion of non-managing member units into common stock
5,614
537
2,908
Net noncash impact from the consolidation of previously unconsolidated joint ventures
Deconsolidation of noncontrolling interest in connection with RIDEA II transaction
Liabilities assumed with real estate acquisitions
Conversion of DFLs to real estate
Retained investment in connection with SWF SH JV
Seller financing provided on disposition of real estate asset
17,850
68,293
—
—
— 58,061
172,565
350,540
427,328
44,812
8,457
5,425
—
—
—
—
—
—
See discussions related to: (i) the Brookdale Transactions in Note 3, (ii) the U.K. JV transaction in Notes 4 and 8, (iii) the U.K. Bridge
Loan in Notes 6 and 18, (iv) the conversion of DFLs to real estate in Note 6, and (v) the consolidation of previously unconsolidated joint
ventures in Note 4.
The following table summarizes cash, cash equivalents, and restricted cash (in thousands):
Cash and cash equivalents
Restricted cash
Cash, cash equivalents and restricted cash
NOTE 18. Variable Interest Entities
UNCONSOLIDATED VARIABLE INTEREST ENTITIES
DECEMBER 31,
2019
2018
$144,232 $110,790
40,425
29,056
$184,657 $139,846
At December 31, 2019, the Company had investments in: (i) two properties leased to VIE tenants, (ii) five unconsolidated VIE joint
ventures, (iii) marketable debt securities of one VIE, and (iv) one loan to a VIE borrower. The Company determined it is not the primary
beneficiary of and therefore does not consolidate these VIEs because it does not have the ability to control the activities that most
significantly impact their economic performance. Except for the Company’s equity interest in the unconsolidated joint ventures (CCRC
OpCo, the development investment, Waldwick JV, and the LLC investment discussed below), it has no formal involvement in these VIEs
beyond its investments.
VIE Tenants. The Company leases two properties to a total of one tenant that have also been identified as VIEs (“VIE tenants”). These
VIE tenants are “thinly capitalized” entities that rely on the operating cash flows generated from the senior housing facilities to pay
operating expenses, including the rent obligations under their leases.
CCRC OpCo. The Company holds a 49% ownership interest in CCRC OpCo, a joint venture entity formed in August 2014 that operates
senior housing properties in a RIDEA structure and has been identified as a VIE. The equity members of CCRC OpCo “lack power”
because they share certain operating rights with Brookdale, as manager of the CCRCs. The assets of CCRC OpCo primarily consist of
the CCRCs that it owns and leases, resident fees receivable, notes receivable, and cash and cash equivalents; its obligations primarily
consist of operating lease obligations to CCRC PropCo, debt service payments, capital expenditures, accounts payable, and expense
accruals. Assets generated by the CCRC operations (primarily rents from CCRC residents) of CCRC OpCo may only be used to settle its
contractual obligations (primarily from debt service payments, capital expenditures, and rental costs and operating expenses incurred
to manage such facilities). Refer to Note 3 for a discussion around the impact of the 2019 MTCA on the Company’s VIE and consolidation
conclusions related to the CCRC JV.
108
HEALTHPEAK PROPERTIES PART II
Waldwick Development JV. The Company holds an 85% ownership interest in a development joint venture (the “Waldwick JV”), which
has been identified as a VIE as power is shared with a member that does not have a substantive equity investment at risk. The assets
of the joint venture primarily consist of an in-progress senior housing facility development project that it owns and cash and cash
equivalents; its obligations primarily consist of accounts payable and expense accruals associated with the cost of its development
obligations. Any assets generated by the joint venture may only be used to settle its contractual obligations (primarily development
expenses and debt service payments).
LLC Investment. The Company holds a limited partner ownership interest in an unconsolidated LLC that has been identified as a VIE.
The Company’s involvement in the entity is limited to its equity investment as a limited partner and it does not have any substantive
participating rights or kick-out rights over the general partner. The assets and liabilities of the entity primarily consist of those
associated with its senior housing real estate and development activities. Any assets generated by the entity may only be used to settle
its contractual obligations (primarily development expenses and debt service payments).
Development Investments. The Company holds investments (consisting of mezzanine debt and/or preferred equity) in two senior
housing development joint ventures. The joint ventures are also capitalized by senior loans from a third party and equity from the third
party managing-member, but are considered to be “thinly capitalized” as there is insufficient equity investment at risk.
Debt Securities Investment. The Company holds commercial mortgage-backed securities (“CMBS”) issued by Federal Home Loan
Mortgage Corporation (commonly referred to as Freddie MAC) through a special purpose entity that has been identified as a VIE
because it is “thinly capitalized.” The CMBS issued by the VIE are backed by mortgage debt obligations on real estate assets.
Seller Financing Loan. The Company provided seller financing of $10 million related to its sale of seven senior housing triple-net facilities. The
financing was provided in the form of a secured five-year mezzanine loan to a “thinly capitalized” borrower created to acquire the facilities.
The classification of the related assets and liabilities and the maximum loss exposure as a result of the Company’s involvement with
these VIEs at December 31, 2019 was as follows (in thousands):
VIE TYPE
ASSET/LIABILITY TYPE
VIE tenants - operating leases(2)
Lease intangibles, net and straight-line rent receivables
CCRC OpCo
Investments in unconsolidated joint ventures
Unconsolidated development joint ventures Loans receivable, net and Investments in unconsolidated joint ventures
Loan - seller financing
CMBS and LLC investment
Loans receivable, net
Marketable debt and LLC investment
MAXIMUM LOSS EXPOSURE
AND CARRYING AMOUNT(1)
497
164,271
24,171
9,875
34,854
(1) The Company’s maximum loss exposure represents the aggregate carrying amount of such investments (including accrued interest).
(2) The Company’s maximum loss exposure may be mitigated by re-leasing the underlying properties to new tenants upon an event of default.
As of December 31, 2019, the Company had not provided, and is not required to provide, financial support through a liquidity arrangement
or otherwise, to its unconsolidated VIEs, including circumstances in which it could be exposed to further losses (e.g., cash shortfalls).
See Notes 4, 5, 6, and 7 for additional descriptions of the nature, purpose, and operating activities of the Company’s unconsolidated
VIEs and interests therein.
109
2019 ANNUAL REPORT PART II
CONSOLIDATED VARIABLE INTEREST ENTITIES
The Company’s consolidated total assets and total liabilities at December 31, 2019 and December 31, 2018 include certain assets of
VIEs that can only be used to settle the liabilities of the related VIE. The VIE creditors do not have recourse to the Company. Total assets
and total liabilities include VIE assets and liabilities as follows (in thousands):
Assets
Buildings and improvements
Development costs and construction in progress
Land
Accumulated depreciation and amortization
Net real estate
Investments in and advances to unconsolidated joint ventures
Accounts receivable, net
Cash and cash equivalents
Restricted cash
Intangible assets, net
Right-of-use asset, net
Other assets, net
Total assets
Liabilities
Mortgage debt
Other debt
Intangible liabilities, net
Lease liability
Accounts payable and accrued liabilities
Deferred revenue
Total liabilities
DECEMBER 31,
2019
2018
$3,236,105 $1,949,582
67,285
526,576
39,584
151,746
(568,574)
(398,143)
3,261,392
1,742,769
—
11,986
47,027
13,596
1,550
7,904
23,772
3,399
206,840
111,333
92,664
52,124
—
43,149
$3,685,629 $1,933,876
$ 218,767 $
44,598
42,405
39,545
90,875
80,427
96,985
—
19,128
—
66,736
24,215
$ 569,004 $ 154,677
Ventures V, LLC. The Company holds a 51% ownership interest in and is the managing member of a joint venture entity formed in
October 2015 that owns and leases MOBs (“Ventures V”). The Company classifies Ventures V as a VIE due to the non-managing member
lacking substantive participation rights in the management of Ventures V or kick-out rights over the managing member. The Company
consolidates Ventures V as the primary beneficiary because it has the ability to control the activities that most significantly impact the
VIE’s economic performance. The assets of Ventures V primarily consist of leased properties (net real estate), rents receivable, and cash
and cash equivalents; its obligations primarily consist of capital expenditures for the properties. Assets generated by Ventures V may
only be used to settle its contractual obligations (primarily from capital expenditures).
Watertown JV. The Company holds a 95% ownership interest in and is the managing member of joint venture entities formed in
November 2017 that own and operate a senior housing property in a RIDEA structure (“Watertown JV”). Watertown PropCo is a VIE as
the Company and the non-managing member share in control of the entity, but substantially all of the entity’s activities are performed
on behalf of the Company. Watertown OpCo is a VIE as the non-managing member, through its equity interest, lacks substantive
participation rights in the management of Watertown OpCo or kick-out rights over the managing member. The Company consolidates
Watertown PropCo and Watertown OpCo as the primary beneficiary because it has the ability to control the activities that most
significantly impact these VIEs’ economic performance. The assets of Watertown PropCo primarily consist of a leased property (net real
estate), rents receivable, and cash and cash equivalents; its obligations primarily consist of notes payable to a non-VIE consolidated
subsidiary of the Company. The assets of Watertown OpCo primarily consist of leasehold interests in a senior housing facility (operating
lease), resident fees receivable, and cash and cash equivalents; its obligations primarily consist of lease payments to Watertown PropCo
and operating expenses of its senior housing facilities (accounts payable and accrued expenses). Assets generated by the senior
housing operations (primarily from senior housing resident rents) of the Watertown structure may only be used to settle its contractual
obligations (primarily from the rental costs, operating expenses incurred to manage such facilities, and debt costs).
110
HEALTHPEAK PROPERTIES PART II
Life Science JVs. The Company holds a 99% ownership interest in multiple joint venture entities that own and lease life science assets
(the “Life Science JVs”). The Life Science JVs are VIEs as the members share in control of the entities, but substantially all of the activities
are performed on behalf of the Company. The Company consolidates the Life Science JVs as the primary beneficiary because it has
the ability to control the activities that most significantly impact these VIEs’ economic performance. The assets of the Life Science
JVs primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; their obligations primarily
consist of debt service payments and capital expenditures for the properties. Assets generated by the Life Science JVs may only be
used to settle their contractual obligations (primarily from capital expenditures).
MSREI MOB JV. The Company holds a 51% ownership interest in, and is the managing member of, a joint venture entity formed in
August 2018 that owns and leases MOBs (the “MSREI JV” - see Note 4). The MSREI JV is a VIE due to the non-managing member lacking
substantive participation rights in the management of the joint venture or kick-out rights over the managing member. The Company
consolidates the MSREI JV as the primary beneficiary because it has the ability to control the activities that most significantly impact
the VIE’s economic performance. The assets of the MSREI JV primarily consist of leased properties (net real estate), rents receivable, and
cash and cash equivalents; its obligations primarily consist of capital expenditures for the properties. Assets generated by the MSREI JV
may only be used to settle its contractual obligations (primarily from capital expenditures).
Consolidated Lessees. The Company leases two senior housing properties to a lessee entity under a cash flow lease through which the
Company receives monthly rent equal to the residual cash flows of the property. The lessee entity is classified as a VIEs as it is a “thinly
capitalized” entity. The Company consolidates the lessee entity as it has the ability to control the activities that most significantly
impact the economic performance of the lessee entity. The lessee entity’s assets primarily consist of leasehold interests in a senior
housing facility (operating leases), resident fees receivable, and cash and cash equivalents; its obligations primarily consist of lease
payments to the Company and operating expenses of the senior housing facility (accounts payable and accrued expenses). Assets
generated by the senior housing operations (primarily from senior housing resident rents) may only be used to settle its contractual
obligations (primarily from the rental costs, operating expenses incurred to manage such facilities and debt costs).
DownREITs. The Company holds a controlling ownership interest in and is the managing member of seven DownREITs. The Company
classifies the DownREITs as VIEs due to the non-managing members lacking substantive participation rights in the management of
the DownREITs or kick-out rights over the managing member. The Company consolidates the DownREITs as the primary beneficiary
because it has the ability to control the activities that most significantly impact these VIEs’ economic performance. The assets of the
DownREITs primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents; their obligations
primarily consist of debt service payments and capital expenditures for the properties. Assets generated by the DownREITs (primarily
from resident rents) may only be used to settle their contractual obligations (primarily from debt service and capital expenditures).
Other Consolidated Real Estate Partnerships. The Company holds a controlling ownership interest in and is the general partner (or
managing member) of multiple partnerships that own and lease real estate assets (the “Partnerships”). The Company classifies the
Partnerships as VIEs due to the limited partners (non-managing members) lacking substantive participation rights in the management
of the Partnerships or kick-out rights over the general partner (managing member). The Company consolidates the Partnerships as the
primary beneficiary because it has the ability to control the activities that most significantly impact these VIEs’ economic performance.
The assets of the Partnerships primarily consist of leased properties (net real estate), rents receivable, and cash and cash equivalents;
their obligations primarily consist of debt service payments and capital expenditures for the properties. Assets generated by the
Partnerships (primarily from resident rents) may only be used to settle their contractual obligations (primarily from debt service and
capital expenditures).
Other consolidated VIEs. The Company made a loan to an entity that entered into a tax credit structure (“Tax Credit Subsidiary”) and
a loan to an entity that made an investment in a development joint venture (“Development JV”) both of which are considered VIEs. The
Company consolidates the Tax Credit Subsidiary and Development JV as the primary beneficiary because it has the ability to control
the activities that most significantly impact the VIEs’ economic performance. The assets and liabilities of the Tax Credit Subsidiary and
Development JV substantially consist of a development in progress, notes receivable, prepaid expenses, notes payable, and accounts
payable and accrued liabilities generated from their operating activities. Any assets generated by the operating activities of the Tax
Credit Subsidiary and Development JV may only be used to settle their contractual obligations.
Exchange Accommodation Titleholder. During the year ended December 31, 2019, the Company acquired a life science facility (the
“acquired property”) using a reverse like-kind exchange structure pursuant to Section 1031 of the Code (a “reverse 1031 exchange”).
As of December 31, 2019, the Company had not completed the reverse 1031 exchange and as such, the acquired property remained in
the possession of an Exchange Accommodation Titleholder (“EAT”). The EAT is classified as a VIE as it is a “thinly capitalized” entity. The
Company consolidates the EAT because it is the primary beneficiary as it has the ability to control the activities that most significantly
impact the EAT’s economic performance. The property held by the EAT is reflected as real estate with a carrying value of $323 million as
of December 31, 2019. The assets of the EAT primarily consist of a leased property (net real estate), rents receivable, and cash and cash
equivalents; its obligations primarily consist of capital expenditures for the property. Assets generated by the EAT may only be used to
settle its contractual obligations (primarily from capital expenditures).
111
2019 ANNUAL REPORT PART II
U.K. Bridge Loan. In 2016, the Company provided a £105 million ($131 million at closing) bridge loan to MMCG to fund the acquisition
of a portfolio of seven care homes in the U.K. MMCG created a special purpose entity to acquire the portfolio and funded it entirely
using the Company’s bridge loan. As such, the special purpose entity had historically been identified as a VIE because it was “thinly
capitalized.” The Company retained a three-year call option to acquire all the shares of the special purpose entity, which it could only
exercise upon the occurrence of certain events. During the quarter ended March 31, 2018, the Company concluded that the conditions
required to exercise the call option had been met and initiated the call option process to acquire the special purpose entity. In
conjunction with initiating the process to legally exercise its call option and the satisfaction of required contingencies, the Company
concluded that it was the primary beneficiary of the special purpose entity and therefore, should consolidate the entity. As such, during
the quarter ended March 31, 2018, the Company derecognized the previously outstanding loan receivable, recognized the special
purpose entity’s assets and liabilities at their respective fair values, and recognized a £29 million ($41 million) loss on consolidation,
net of a tax benefit of £2 million ($3 million), to account for the difference between the carrying value of the loan receivable and the
fair value of net assets and liabilities assumed. The loss on consolidation was recognized within other income (expense), net and the
tax benefit was recognized within income tax benefit (expense). The fair value of net assets and liabilities consolidated during the
first quarter of 2018 consisted of £81 million ($114 million) of net real estate, £4 million ($5 million) of intangible assets, and £9 million
($13 million) of net deferred tax liabilities.
In June 2018, the Company completed the exercise of the above-mentioned call option and formally acquired full ownership of the
special purpose entity. As such, the Company reconsidered whether the special purpose entity was a VIE and concluded that it was no
longer “thinly capitalized” as the previously outstanding bridge loan converted to equity at risk and, therefore, was no longer a VIE. The
real estate assets held by the special purpose entity were contributed to the U.K. JV formed by the Company in June 2018 (see Note 4).
In December 2019, the Company sold its remaining interest in the U.K. JV (see Note 8).
NOTE 19. Concentration of Credit Risk
Concentrations of credit risk arise when one or more tenants, operators, or obligors related to the Company’s investments are engaged
in similar business activities or activities in the same geographic region, or have similar economic features that would cause their ability
to meet contractual obligations, including those to the Company, to be similarly affected by changes in economic conditions. The
Company regularly monitors various segments of its portfolio to assess potential concentrations of credit risks.
To mitigate the credit risk of leasing properties to certain senior housing operators, leases with operators are often combined into
portfolios that contain cross-default terms, so that if a tenant of any of the properties in a portfolio defaults on its obligations under its
lease, the Company may pursue its remedies under the lease with respect to any of the properties in the portfolio. Certain portfolios
also contain terms whereby the net operating profits of the properties are combined for the purpose of securing the funding of rental
payments due under each lease.
The following table provides information regarding the Company’s concentrations with respect to certain states; the information
provided is presented for the gross assets and revenues that are associated with certain real estate assets as percentages of total
Company’s total assets and revenues:
PERCENTAGE OF TOTAL
COMPANY ASSETS
PERCENTAGE OF TOTAL
COMPANY REVENUES
DECEMBER 31, YEAR ENDED DECEMBER 31,
2019
2018
2019
2018
2017
37
12
34
16
28
17
26
18
26
17
STATE
California
Texas
112
HEALTHPEAK PROPERTIES PART II
NOTE 20. Fair Value Measurements
Financial assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheets are immaterial at
December 31, 2019.
The table below summarizes the carrying amounts and fair values of the Company’s financial instruments (in thousands):
Loans receivable, net(2)
Marketable debt securities(2)
Bank line of credit and commercial paper(2)
Term loan(2)
Senior unsecured notes(1)
Mortgage debt(2)
Other debt(2)
Interest-rate swap liabilities(2)
DECEMBER 31,
2019(3)
2018(3)
CARRYING VALUE FAIR VALUE CARRYING VALUE FAIR VALUE
$ 190,579 $ 190,579
$
62,998 $
62,998
19,756
93,000
19,756
93,000
248,942
248,942
19,202
80,103
—
19,202
80,103
—
5,647,993
6,076,150
5,258,550
5,302,485
276,907
280,373
138,470
136,161
84,771
84,771
553
553
90,785
1,310
90,785
1,310
(1)
(2)
Level 1: Fair value calculated based on quoted prices in active markets.
Level 2: Fair value based on (i) for marketable debt securities, quoted prices for similar or identical instruments in active or inactive markets,
respectively, or (ii) for loans receivable, net, mortgage debt, and swaps, calculated utilizing standardized pricing models in which significant inputs
or value drivers are observable in active markets. For bank line of credit, commercial paper, term loans and other debt, the carrying values are a
reasonable estimate of fair value because the borrowings are primarily based on market interest rates and the Company’s credit rating.
(3) During the years ended December 31, 2019 and 2018, there were no material transfers of financial assets or liabilities within the fair value hierarchy.
NOTE 21. Derivative Financial Instruments
The following table summarizes the Company’s outstanding swap contracts as of December 31, 2019 (dollars in thousands):
DATE ENTERED
Interest rate:
July 2005(2)
MATURITY DATE HEDGE DESIGNATION NOTIONAL PAY RATE
RECEIVE RATE FAIR VALUE(1)
July 2020
Cash Flow $42,000
3.820% BMA Swap Index
$(553)
(1) Derivative liabilities are recorded in accounts payable and accrued liabilities on the consolidated balance sheets.
(2) Represents three interest-rate swap contracts, which hedge fluctuations in interest payments on variable-rate secured debt due to overall changes in
hedged cash flows.
The Company uses derivative instruments to mitigate the effects of interest rate fluctuations on specific forecasted transactions as well
as recognized financial obligations or assets. Utilizing derivative instruments allows the Company to manage the risk of fluctuations in
interest rates related to the potential impact these changes could have on future earnings and forecasted cash flows. The Company
does not use derivative instruments for speculative or trading purposes. Assuming a one percentage point shift in the underlying
interest rate curve, the estimated change in fair value of each of the underlying derivative instruments would not exceed $1 million.
On June 29, 2018, concurrent with closing the U.K. JV transaction, the Company terminated a cross currency swap contract, which was
designated as a hedge of the Company’s net investment in the U.K. As such, upon deconsolidation of the U.K. Portfolio, the Company
reclassified the $6 million loss in other comprehensive income related to the cross currency swap through gain (loss) on sales of real
estate, net.
Concurrent with the sale of its remaining interest in the U.K. JV (see Note 8), the Company paid-off the remainder of its
GBP-denominated borrowings under the Revolving Facility and terminated its previously-designated net investment hedge.
113
2019 ANNUAL REPORT PART II
NOTE 22. Selected Quarterly Financial Data (Unaudited)
The following table summarizes selected quarterly information for the years ended December 31, 2019 and 2018 (in thousands, except
per share amounts):
Total revenues
Income (loss) before income taxes and equity income from investments in unconsolidated
joint ventures
Net income (loss)
Net income (loss) applicable to Healthpeak Properties, Inc.
Dividends paid per common share
Basic earnings per common share
Diluted earnings per common share
Total revenues
Income (loss) before income taxes and equity income from investments in unconsolidated
joint ventures
Net (loss) income
Net (loss) income applicable to Healthpeak Properties, Inc.
Dividends paid per common share
Basic earnings per common share
Diluted earnings per common share
THREE MONTHS ENDED 2019
MARCH 31
JUNE 30 SEPTEMBER 30 DECEMBER 31
$436,154 $491,567
$537,971
$531,691
62,395
(10,338)
(40,926)
40,293
64,990
(9,980)
61,470
(13,597)
0.37
0.13
0.13
0.37
(0.03)
(0.03)
(42,308)
(45,863)
0.37
(0.09)
(0.09)
47,359
43,520
0.37
0.09
0.09
THREE MONTHS ENDED 2018
MARCH 31
JUNE 30 SEPTEMBER 30 DECEMBER 31
$479,197 $469,551
$456,022
37,331
88,375
98,908
$441,919
833,600
43,237
40,232
92,928
89,942
0.37
0.08
0.08
0.37
0.19
0.19
102,926
99,371
0.37
0.21
0.21
834,383
831,548
0.37
1.75
1.73
114
HEALTHPEAK PROPERTIES PART II
Schedule II: Valuation and Qualifying Accounts
(Dollars in thousands)
ALLOWANCE ACCOUNTS(1)
ADDITIONS
DEDUCTIONS
YEAR ENDED DECEMBER 31,
2019(2)
2018
2017
BALANCE AT
BEGINNING
OF YEAR
AMOUNTS
CHARGED
AGAINST
OPERATIONS, NET
ACQUIRED
PROPERTIES
UNCOLLECTIBLE
ACCOUNTS
WRITTEN-OFF DISPOSITIONS
BALANCE AT
END OF YEAR
$ 2,401
169,374
29,518
$ 1,549
$1,315
$ —
$
(700)
$ 4,565
4,105
144,135
—
—
(1,887)
(2,732)
(143,795)
(1,547)
27,797
169,374
(1)
(2)
Includes allowance for doubtful accounts, straight-line rent reserves, and allowances for loan and direct financing lease losses (see Note 6 to the
Consolidated Financial Statements).
In conjunction with adopting ASU 2016-02 (see Note 2 to the Consolidated Financial Statements) on January 1, 2019, the Company wrote-off certain
previously reserved tenant receivables (accounts receivable and straight-line rent receivable) through a cumulative effect adjustment to equity. These
amounts are included in the end of year balance for 2018, but removed from the beginning of the year balance for 2019.
115
2019 ANNUAL REPORT I
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PART II
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117
2019 ANNUAL REPORT
D
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2
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PART II
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121
I
/
D
E
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U
Q
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2019 ANNUAL REPORT
PART II
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Q
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123
2019 ANNUAL REPORT
—
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PART II
I
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2
PART II
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127
2019 ANNUAL REPORT
PART II
I
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$
C
N
C
N
C
N
C
N
H
N
H
N
H
N
M
N
V
N
V
N
V
N
V
N
V
N
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N
V
N
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A
P
A
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P
A
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C
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a
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1
5
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2
5
5
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2
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2
0
5
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2
HEALTHPEAK PROPERTIES
8
1
0
2
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1
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1
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2
PART II
)
1
9
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(
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1
1
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(
,
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3
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2
(
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7
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1
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3
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1
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$
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$
C
S
C
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C
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C
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N
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0
129
2019 ANNUAL REPORT
PART II
I
/
D
E
R
U
Q
C
A
R
A
E
Y
D
E
T
A
L
U
M
U
C
C
A
D
N
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G
9
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P
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L
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I
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130
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PART II
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131
2019 ANNUAL REPORT
D
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2
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C
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PART II
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133
2019 ANNUAL REPORT
Part II
PART II
A summary of activity for real estate and accumulated depreciation follows (in thousands):
Real estate:
Balances at beginning of year
Acquisition of real estate and development and improvements
Sales and/or transfers to assets held for sale
Deconsolidation of real estate
Impairments
Other(1)
Balances at end of year
Accumulated depreciation:
Balances at beginning of year
Depreciation expense
Sales and/or transfers to assets held for sale
Deconsolidation of real estate
Other(1)
Balances at end of year
YEAR ENDED DECEMBER 31,
2019
2018
2017
$13,052,397 $13,473,573 $13,974,760
2,434,566
1,093,903
(933,575)
(1,052,145)
(769,355)
(219,613)
240,557
(325,580)
(49,729)
(87,625)
995,443
(589,391)
(825,074)
(37,274)
(44,891)
$13,804,977 $13,052,397 $13,473,573
$ 2,842,947 $ 2,741,695 $ 2,648,930
488,111
(308,955)
(152,036)
(98,145)
461,664
(239,231)
(43,525)
(77,656)
436,085
(115,195)
(152,572)
(75,553)
$ 2,771,922 $ 2,842,947 $ 2,741,695
(1) Represents real estate and accumulated depreciation related to fully depreciated assets, foreign exchange translation, or changes in
lease classification.
Schedule IV: Mortgage Loans on Real Estate
(Dollars in thousands)
LOCATION
SEGMENT INTEREST RATE MATURITY DATE PRIOR LIENS
Texas
Florida
Illinois
Washington
Florida
Other
Other
Other
Other
Other
7.5%
7.5%
5.8%
6.5%
04/01/2021
04/01/2021
03/01/2022
12/21/2022
> of 2%
or Libor,
plus 4.25%
01/01/2026
$—
—
—
—
—
$—
MONTHLY
DEBT SERVICE
FACE AMOUNT
OF MORTGAGES
CARRYING
AMOUNT OF
MORTGAGES
$ 15
$ 2,250
$ 2,250
54
21
564
241
$895
8,290
4,200
8,290
4,200
102,412
102,412
44,812
44,812
$161,964
$161,964
PRINCIPAL
AMOUNT
SUBJECT TO
DELINQUENT
PRINCIPAL OR
INTEREST
$—
—
—
—
—
$—
Reconciliation of mortgage loans
Balance at beginning of year
Additions:
New mortgage loans
Draws on existing mortgage loans
Total additions
Deductions:
Principal repayments and conversions to equity ownership(1)
Total deductions
Change in balance due to foreign currency translation
Balance at end of year
(1)
Includes the conversion of loans into equity ownership in real estate.
134
YEAR ENDED DECEMBER 31,
2019
2018
2017
$ 42,037 $ 188,418
$196,359
59,552
60,375
119,927
—
42,398
42,398
—
13,776
13,776
— (188,779)
(36,708)
— (188,779)
(36,708)
—
—
14,991
$161,964 $ 42,037
$188,418
HEALTHPEAK PROPERTIES PART II
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Disclosure Controls and Procedures. We maintain disclosure controls and procedures that are designed to ensure that information
required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management,
including our Principal Executive Officer and Principal Financial Officer, to allow for timely decisions regarding required disclosure. In
designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter
how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management
is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, we carried out an evaluation, under the supervision and with
the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness
of the design and operation of our disclosure controls and procedures as of December 31, 2019. Based upon that evaluation, our
Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective, as of
December 31, 2019, at the reasonable assurance level.
Management’s Annual Report on Internal Control over Financial Reporting. Management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f).
Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial
Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework
in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
Based on our evaluation under the framework in Internal Control—Integrated Framework (2013), our management concluded that our
internal control over financial reporting was effective as of December 31, 2019.
The effectiveness of our internal control over financial reporting as of December 31, 2019 has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their report, which is included herein.
Changes in Internal Control Over Financial Reporting. There were no changes in our internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2019 that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
135
2019 ANNUAL REPORT PART II
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Healthpeak Properties, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Healthpeak Properties, Inc. and subsidiaries (formerly HCP, Inc.) (the
“Company”) as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control -
Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB),
the consolidated financial statements as of and for the year ended December 31, 2019, of the Company and our report dated
February 12, 2020, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding
the Company’s adoption of Accounting Standards Update 2017-05.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of
the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal
Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting
based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness
exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing
such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for
our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements
in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
February 12, 2020
136
HEALTHPEAK PROPERTIES Item 9B. Other Information
None.
PART II
137
2019 ANNUAL REPORT Part III
Item 10. Directors, Executive Officers and Corporate Governance
We have adopted a Code of Business Conduct and Ethics that applies to all of our directors and employees, including our Chief
Executive Officer and all senior financial officers, including our principal financial officer, principal accounting officer and controller.
We have also adopted a Vendor Code of Business Conduct and Ethics applicable to our vendors and business partners. Current
copies of our Code of Business Conduct and Ethics and Vendor Code of Business Conduct and Ethics are posted on our website at
www.healthpeak.com/corporate-responsibility/governance. In addition, waivers from, and amendments to, our Code of Business
Conduct and Ethics that apply to our directors and executive officers, including our principal executive officer, principal financial officer,
principal accounting officer, or persons performing similar functions, will be timely posted in the Investor Relations section of our
website at www.healthpeak.com.
We hereby incorporate by reference the information appearing under the captions “Proposal No. 1 Election of Directors,” “Our
Executive Officers,” “Board of Directors and Corporate Governance” and in our definitive proxy statement relating to our 2020 Annual
Meeting of Stockholders to be held on April 23, 2020.
Item 11. Executive Compensation
We hereby incorporate by reference the information under the caption “Executive Compensation” in our definitive proxy statement
relating to our 2020 Annual Meeting of Stockholders to be held on April 23, 2020.
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
We hereby incorporate by reference the information under the captions “Security Ownership of Principal Stockholders, Directors and
Management” and “Equity Compensation Plan Information” in our definitive proxy statement relating to our 2020 Annual Meeting of
Stockholders to be held on April 23, 2020.
Item 13. Certain Relationships and Related Transactions, and
Director Independence
We hereby incorporate by reference the information under the caption “Board of Directors and Corporate Governance” in our definitive
proxy statement relating to our 2020 Annual Meeting of Stockholders to be held on April 23, 2020.
Item 14. Principal Accounting Fees and Services
We hereby incorporate by reference under the caption “Audit and Non-Audit Fees” in our definitive proxy statement relating to our
2020 Annual Meeting of Stockholders to be held on April 23, 2020.
138
HEALTHPEAK PROPERTIES Part IV
Part IV
Item 15. Exhibits, Financial Statement Schedules
(a) 1. Financial Statement Schedules
The following Consolidated Financial Statements are included in Part II, Item 8-Financial Statements and Supplementary Data of this
Annual Report on Form 10-K.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets - December 31, 2019 and 2018
Consolidated Statements of Operations - for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Comprehensive Income (Loss) - for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Equity - for the years ended December 31, 2019, 2018 and 2017
Consolidated Statements of Cash Flows - for the years ended December 31, 2019, 2018 and 2017
Notes to Consolidated Financial Statements
(a) 2. Financial Statement Schedules
The following Consolidated Financial Statements are included in Part II, Item 8-Financial Statements and Supplementary Data of this
Annual Report on Form 10-K.
Schedule II: Valuation and Qualifying Accounts
Schedule III: Real Estate and Accumulated Depreciation
Schedule IV: Mortgage Loans on Real Estate
(a) 3. Exhibits
EXHIBIT
NUMBER DESCRIPTION
INCORPORATED BY REFERENCE HEREIN
FORM
DATE FILED
Articles of Restatement of Healthpeak Properties, Inc. (formerly HCP, Inc.)
dated June 1, 2012, as supplemented by the Articles Supplementary,
dated July 31, 2017, and as amended by the Articles of Amendment, dated
October 30, 2019.†
Sixth Amended and Restated Bylaws of Healthpeak, Properties, Inc., dated
October 30, 2019.
Current Report on Form 8-K
(File No. 001-08895)
October 30, 2019
Indenture, dated as of September 1, 1993, between Healthpeak and The
Bank of New York, as Trustee.
Registration Statement on Form S-3/A
(Registration No. 333-86654)
May 21, 2002
First Supplemental Indenture dated as of January 24, 2011, to the
Indenture, dated as of September 1, 1993, by and between Healthpeak
and The Bank of New York Mellon Trust Company, N.A., as Trustee.
Current Report on Form 8-K
(File No. 001-08895)
January 24, 2011
Indenture, dated November 21, 2012, between Healthpeak and The Bank
of New York Mellon Trust Company, N.A., as trustee.
Current Report on Form 8-K
(File No. 001-08895)
Second Supplemental Indenture, dated November 12, 2013, between
Healthpeak and The Bank of New York Mellon Trust Company, N.A.,
as trustee.
Third Supplemental Indenture dated February 21, 2014, between the
Company and The Bank of New York Mellon Trust Company, N.A.,
as trustee.
3.1
3.2
4.1
4.1.1
4.2
4.2.2
4.2.3
Current Report on Form 8-K
(File No. 001-08895)
November 19, 2012
November 13, 2013
Current Report on Form 8-K
(File No. 001-08895)
February 24, 2014
139
2019 ANNUAL REPORT PART IV
EXHIBIT
NUMBER DESCRIPTION
4.2.4
4.2.5
4.2.6
4.2.8
4.2.9
4.3
4.4
4.6
4.7
4.8
4.9
Fourth Supplemental Indenture, dated August 14, 2014, between
Healthpeak and The Bank of New York Mellon Trust Company, N.A.,
as trustee.
Fifth Supplemental Indenture, dated January 21, 2015, between
Healthpeak and The Bank of New York Mellon Trust Company, N.A.,
as trustee.
INCORPORATED BY REFERENCE HEREIN
FORM
Current Report on Form 8-K
(File No. 001-08895)
DATE FILED
August 14, 2014
Current Report on Form 8-K
(File No. 001-08895)
January 21, 2015
Sixth Supplemental Indenture, dated May 20, 2015, between Healthpeak
and The Bank of New York Mellon Trust Company, N.A., as trustee.
Current Report on Form 8-K
(File No. 001-08895)
Eighth Supplemental Indenture dated July 5, 2019, between Healthpeak
and The Bank of New York Mellon Trust Company, N.A., as trustee.
Current Report on Form 8-K
(File No. 001-08895)
May 20, 2015
July 5, 2019
Current Report on Form 8-K
(File No. 001-08895)
November 21, 2019
Ninth Supplemental Indenture dated November 19, 2019, between
Healthpeak and The Bank of New York Mellon Trust Company, N.A.,
as trustee.
Form of 6.750% Senior Notes due 2041.
Form of 3.15% Senior Notes due 2022.
Form of 4.250% Senior Notes due 2023.
Form of 4.20% Senior Notes due 2024.
Form of 3.875% Senior Notes due 2024.
Form of 3.400% Senior Notes due 2025.
4.10
Form of 4.000% Senior Notes due 2025.
4.12
Form of 3.250% Senior Notes due 2026.
4.13
Form of 3.500% Senior Notes due 2029.
4.14
Form of 3.000% Senior Notes due 2030.
4.15
10.1
Description of Healthpeak Capital Stock†
Second Amended and Restated Director Deferred Compensation Plan.*
10.2
Non-Employee Directors Stock-for-Fees Program.*
10.3
Executive Severance Plan.*
Current Report on Form 8-K
(File No. 001-08895)
Current Report on Form 8-K
(File No. 001-08895)
Current Report on Form 8-K
(File No. 001-08895)
Current Report on Form 8-K
(File No. 001-08895)
Current Report on Form 8-K
(File No. 001-08895)
Current Report on Form 8-K
(File No. 001-08895)
Current Report on Form 8-K
(File No. 001-08895)
Current Report on Form 8-K
(File No. 001-08895)
Current Report on Form 8-K
(File No. 001-08895)
Current Report on Form 8-K
(File No. 001-08895)
Quarterly Report on Form 10-Q
(File No. 001-08895)
Quarterly Report on Form 10-Q
(File No. 001-08895)
Quarterly Report on Form 10-Q
(File No. 001-08895)
January 24, 2011
July 23, 2012
November 13, 2013
February 24, 2014
August 14, 2014
January 21, 2015
May 20, 2015
July 5, 2019
July 5, 2019
November 21, 2019
November 3, 2009
August 5, 2014
November 1, 2016
November 1, 2016
10.4
Executive Change in Control Severance Plan (as Amended and Restated as
of May 6, 2016).*
Quarterly Report on Form 10-Q
(File No. 001 08895)
10.5
2006 Performance Incentive Plan, as amended and restated.*
Annex 2 to HCP’s Proxy Statement
(File No. 001-08895)
March 10, 2009
Form of Employee 2006 Performance Incentive Plan Nonqualified Stock
Option Agreement.*
Quarterly Report on Form 10-Q
(File No. 001-08895)
May 1, 2012
Amended and Restated Healthpeak Properties, Inc. 2014 Performance
Incentive Plan, as amended through October 24, 2019.†*
Form of 2014 Performance Incentive Plan Non-NEO Restricted Stock Unit
Award Agreement (adopted 2014).*
Quarterly Report on Form 10-Q
(File No. 001-08895)
Form of 2014 Performance Incentive Plan Non-NEO Option Agreement
(adopted 2014).*
Quarterly Report on Form 10-Q
(File No. 001-08895)
Form of 2014 Performance Incentive Plan CEO 3-Year LTIP RSU Agreement
(adopted 2015).*
Quarterly Report on Form 10-Q
(File No. 001-08895)
Form of 2014 Performance Incentive Plan CEO 1-Year LTIP RSU Agreement
(adopted 2015).*
Quarterly Report on Form 10-Q
(File No. 001-08895)
August 5, 2014
August 5, 2014
May 5, 2015
May 5, 2015
10.5.1
10.6
10.6.1
10.6.2
10.6.3
10.6.4
140
HEALTHPEAK PROPERTIES PART IV
INCORPORATED BY REFERENCE HEREIN
10.8
Amended and Restated Dividend Reinvestment and Stock Purchase Plan.
Registration Statement on Form S-3
(Registration No. 333-49746)
November 13, 2000
10.6.5
10.6.6
10.6.7
10.6.8
10.6.9
10.6.10
10.6.11
10.6.12
10.6.13
10.9
10.9.1
10.9.2
EXHIBIT
NUMBER DESCRIPTION
FORM
Form of 2014 Performance Incentive Plan CEO Retentive LTIP RSU
Agreement (adopted 2015).*
Quarterly Report on Form 10-Q
(File No. 001-08895)
Form of 2014 Performance Incentive Plan NEO 3-Year LTIP RSU Agreement
(adopted 2015).*
Quarterly Report on Form 10-Q
(File No. 001-08895)
Form of 2014 Performance Incentive Plan NEO 3-Year LTIP RSU Agreement
(adopted 2018).*
Quarterly Report on Form 10-Q
(File No. 001-08895)
Form of 2014 Performance Incentive Plan NEO 3-Year LTIP RSU Agreement
(adopted 2019).*
Quarterly Report on Form 10-Q
(File No. 001-08895)
Form of 2014 Performance Incentive Plan NEO 1-Year LTIP RSU Agreement
(adopted 2015).*
Quarterly Report on Form 10-Q
(File No. 001-08895)
Form of 2014 Performance Incentive Plan NEO Retentive LTIP RSU
Agreement (adopted 2015).*
Form of 2014 Performance Incentive Plan NEO Retentive LTIP RSU
Agreement (adopted 2018).*
Form of 2014 Performance Incentive Plan NEO Retentive LTIP RSU
Agreement (adopted 2019).*
Form of 2014 Performance Incentive Plan Non-Employee Director
RSU Agreement.*
10.7
Form of Directors and Officers Indemnification Agreement.*
Quarterly Report on Form 10-Q
(File No. 001-08895)
Quarterly Report on Form 10-Q
(File No. 001-08895)
Quarterly Report on Form 10-Q
(File No. 001-08895)
Quarterly Report on Form 10-Q
(File No. 001-08895)
Annual Report on Form 10-K, as
amended (File No. 001-08895)
Amended and Restated Limited Liability Company Agreement of
HCPI/Utah, LLC, dated as of January 20, 1999.
Annual Report on Form 10-K
(File No. 001-08895)
Amendments No. 1-9 to Amended and Restated Limited Liability
Company Agreement of HCPI/Utah, LLC, dated as of January 20, 1999.
Annual Report on Form 10-K
(File No. 001-08895)
Tax Matters Amendment to Amended and Restated Limited
Liability Company Agreement of HCPI/Utah, LLC, effective as of
December 31, 2018.
10.10
Amended and Restated Limited Liability Company Agreement of
HCPI/Utah II, LLC, dated as of August 17, 2001, as amended.
10.10.1 Tax Matters Amendment to Amended and Restated Limited
Liability Company Agreement of HCPI/Utah II, LLC, effective as of
December 31, 2018.
10.11
Amended and Restated Limited Liability Company Agreement of
HCPI/Tennessee, LLC, dated as of October 2, 2003.
10.11.1 Amendment No. 1 to Amended and Restated Limited Liability Company
Agreement of HCPI/Tennessee, LLC, dated as of September 29, 2004.
10.11.2 Amendment No. 2 to Amended and Restated Limited Liability Company
Agreement of HCPI/Tennessee, LLC, dated as of October 27, 2004.
10.11.3 Amendment No. 3 to Amended and Restated Limited Liability Company
Agreement of HCPI/Tennessee, LLC and New Member Joinder
Agreement, dated as of October 19, 2005, by and among Healthpeak,
HCPI/Tennessee, LLC and A. Daniel Weyland.
10.11.4 Amendment No. 4 to Amended and Restated Limited Liability Company
Agreement of HCPI/Tennessee, LLC, effective as of January 1, 2007.
10.11.5 Tax Matters Amendment to Amended and Restated Limited Liability
Company Agreement of HCPI/Tennessee, LLC, effective as of
December 31, 2018.
10.12
Amended and Restated Limited Liability Company Agreement of
HCP DR MCD, LLC, dated as of February 9, 2007.
10.12.1 Tax Matters Amendment to Amended and Restated Limited
Liability Company Agreement of HCP DR MCD, LLC, effective as of
December 31, 2018.
Annual Report on Form 10-K
(File No. 001-08895)
Current Report on Form 8-K
(File No. 001-08895)
Annual Report on Form 10-K
(File No. 001-08895)
Quarterly Report on Form 10-Q
(File No. 001-08895)
Quarterly Report on Form 10-Q
(File No. 001-08895)
Annual Report on Form 10-K
(File No. 001-08895)
Quarterly Report on Form 10-Q
(File No. 001-08895)
Annual Report on Form 10-K, as
amended (File No. 001-08895)
Annual Report on Form 10-K
(File No. 001-08895)
Current Report on Form 8-K
(File No. 001-08895)
Annual Report on Form 10-K
(File No. 001-08895)
DATE FILED
May 5, 2015
May 5, 2015
May 3, 2018
May 2, 2019
May 5, 2015
May 5, 2015
May 3, 2018
May 2, 2019
May 5, 2015
February 12, 2008
March 29, 1999
February 13, 2018
February 14, 2019
November 9, 2012
February 14, 2019
November 12, 2003
November 8, 2004
March 15, 2005
November 1, 2005
February 12, 2008
February 14, 2019
April 20, 2012
February 14, 2019
10.13
Amended and Restated Limited Liability Company Agreement of HCP DR
California II, LLC, dated as of June 1, 2014.
Quarterly Report on Form 10-Q
(File No. 001-08895)
August 5, 2014
141
2019 ANNUAL REPORT Amended and Restated Limited Liability Company Agreement of HCP DR
California III, LLC, dated as of May 1, 2019.
Quarterly Report on Form 10-Q
(File No. 001-08895)
Second Amended and Restated Limited Liability Company Agreement of
SH DR California IV, LLC, dated as of July 18, 2019.
Quarterly Report on Form 10-Q
(File No. 001-08895)
INCORPORATED BY REFERENCE HEREIN
FORM
Annual Report on Form 10-K
(File No. 001-08895)
DATE FILED
February 14, 2019
August 1, 2019
October 31, 2019
May 23, 2019
Current Report on Form 8-K
(File No. 001-08895)
Current Report on Form 8-K
(File No. 001-08895)
February 26, 2019
PART IV
EXHIBIT
NUMBER DESCRIPTION
10.13.1 Tax Matters Amendment to Amended and Restated Limited Liability
Company Agreement of HCP DR California II, LLC, effective as of
December 31, 2018.
10.14
10.15
10.16
10.17
21.1
23.1
31.1
31.2
32.1
32.2
Amended and Restated Credit Agreement, dated as of May 23, 2019, by
and among Healthpeak, as borrower, the lenders referred to therein, and
Bank of America, N.A., as administrative agent.
At-the-Market Equity Offering Sales Agreement, dated February 26, 2019,
among Healthpeak and the sales agents, forward sellers and forward
purchasers referred to therein.
Subsidiaries of the Company.†
Consent of Independent Registered Public Accounting Firm—Deloitte &
Touche LLP.†
Certification by Thomas M. Herzog, Healthpeak’s Principal Executive
Officer, Pursuant to Securities Exchange Act Rule 13a-14(a).††
Certification by Peter A. Scott, Healthpeak’s Principal Financial Officer,
Pursuant to Securities Exchange Act Rule 13a-14(a).††
Certification by Thomas M. Herzog, Healthpeak’s Principal Executive
Officer, Pursuant to Securities Exchange Act Rule 13a-14(b) and 18 U.S.C.
Section 1350.†
Certification by Peter A. Scott, Healthpeak’s Principal Financial Officer,
Pursuant to Securities Exchange Act Rule 13a-14(b) and 18 U.S.C.
Section 1350.†
101.INS XBRL Instance Document.†
101.SCH XBRL Taxonomy Extension Schema Document.†
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document.†
101.DEF XBRL Taxonomy Extension Definition Linkbase Document.†
101.LAB XBRL Taxonomy Extension Labels Linkbase Document.†
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document.†
104
Cover Page Interactive Data File (embedded within the Inline
XBRL document).
* Management Contract or Compensatory Plan or Arrangement.
†
Filed herewith.
†† Furnished herewith.
Item 16. Form 10-K Summary
None.
142
HEALTHPEAK PROPERTIES Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 12, 2020
PART IV
Healthpeak Properties, Inc. (Registrant)
/s/ THOMAS M. HERZOG
Thomas M. Herzog,
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE
/s/ THOMAS M. HERZOG
Thomas M. Herzog
/s/ PETER A. SCOTT
Peter A. Scott
/s/ SHAWN G. JOHNSTON
Shawn G. Johnston
/s/ BRIAN G. CARTWRIGHT
Brian G. Cartwright
/s/ CHRISTINE N. GARVEY
Christine N. Garvey
/s/ R. KENT GRIFFIN, JR.
R. Kent Griffin, Jr.
/s/ DAVID B. HENRY
David B. Henry
/s/ LYDIA H. KENNARD
Lydia H. Kennard
/s/ SARA GROOTWASSINK LEWIS
Sara Grootwassink Lewis
/s/ KATHERINE M. SANDSTROM
Katherine M. Sandstrom
TITLE
Chief Executive Officer
(Principal Executive Officer), Director
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
DATE
February 12, 2020
February 12, 2020
Executive Vice President and Chief Accounting Officer
(Principal Accounting Officer)
February 12, 2020
Chairman of the Board
February 12, 2020
Director
Director
Director
Director
Director
Director
February 12, 2020
February 12, 2020
February 12, 2020
February 12, 2020
February 12, 2020
February 12, 2020
143
2019 ANNUAL REPORT BOARD OF DIRECTORS
BRIAN G. CARTWRIGHT
Chairman of the Board, Healthpeak Properties, Inc.
Former General Counsel,
U.S. Securities and Exchange Commission
THOMAS M. HERZOG
Chief Executive Officer, Healthpeak Properties, Inc.
CHRISTINE N. GARVEY
Former Global Head of Corporate
Real Estate Services, Deutsche Bank AG
R. KENT GRIFFIN, JR.
Managing Director, PHICAS Investors
Former President, BioMed Realty Trust, Inc.
EXECUTIVE MANAGEMENT
THOMAS M. HERZOG
Chief Executive Officer
SCOTT M. BRINKER
President
Chief Investment Officer
THOMAS M. KLARITCH
Executive Vice President
Chief Development Officer
Chief Operating Officer
TROY E. MCHENRY
Executive Vice President
Chief Legal Officer
General Counsel
Corporate Secretary
DAVID B. HENRY
Former Vice Chairman and Chief Executive Officer,
Kimco Realty Corporation
LYDIA H. KENNARD
President and Chief Executive Officer,
KDG Construction Consulting
SARA GROOTWASSINK LEWIS
Founder and Chief Executive Officer,
Lewis Corporate Advisors, LLC
KATHERINE M. SANDSTROM
Former Senior Managing Director,
Heitman, LLC
PETER A. SCOTT
Executive Vice President
Chief Financial Officer
SHAWN G. JOHNSTON
Executive Vice President
Chief Accounting Officer
JEFFREY H. MILLER
Executive Vice President,
Senior Housing
LISA A. ALONSO
Executive Vice President
Chief Human Resources Officer
Review our Reports Online
2019
Annual Report
2020
Annual Meeting
and Proxy Statement
www.healthpeak.com
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Corporate HQ , Irvine, CA
1920 Main Street, Suite 1200
Irvine, CA 92614
(949) 407 - 0700
San Francisco, CA
950 Tower Lane, Suite 1650
Foster City, CA 94404
Nashville, TN
3000 Meridian Boulevard, Suite 200
Franklin, TN 37067
www.healthpeak.com