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What changed in Healthpeak Properties's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Healthpeak Properties's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+518 added−397 removedSource: 10-K (2024-02-09) vs 10-K (2023-02-08)

Top changes in Healthpeak Properties's 2023 10-K

518 paragraphs added · 397 removed · 303 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

56 edited+23 added−14 removed64 unchanged
Biggest changeOur recent ESG highlights include: • Reported a reduction of 3.4% in Scope 1 and Scope 2 greenhouse gas emissions (“GHG”) in 2021 compared to 2020 on a like-for-like comparative basis (as defined below) • 2 new LEED certifications and 65 new ENERGY STAR certifications obtained in 2022 • Named an ENERGY STAR Partner of the Year in 2022 • Received a Green Star rating from the Global Real Estate Sustainability Benchmark (“GRESB”) for the eleventh consecutive year, recognizing top ESG performance in our sector • Named to CDP’s Leadership band for our climate disclosure for the tenth consecutive year, most recently with a score of “A-” in 2022 • Named to Newsweek ’s America’s Most Responsible Companies list for the fourth consecutive year • Named a constituent in the FTSE4Good Index for the eleventh consecutive year and S&P Global North America Dow Jones Sustainability Index for the tenth consecutive year • Named to the S&P Global Sustainability Yearbook for the eighth consecutive year • Named to the Bloomberg Gender-Equality Index for the fourth consecutive year • Named to Fortune ’s inaugural Modern Board 25 list for the first time • Named a Wall Street Journal Best-Managed Company for the first time Under our “like-for-like” methodology, direct and indirect GHG emissions are compared on a year-over-year basis using Scope 1 and Scope 2 GHG emissions for the properties that we have owned for two full consecutive calendar years, excluding non-stabilized developments and redevelopments.
Biggest changeOur recent ESG highlights include: • Reported a reduction of 4.2% in Scope 1 and Scope 2 greenhouse gas emissions (“GHG”) in 2022 compared to 2021 on a like-for-like comparative basis (as defined below) • 4 LEED certifications and 132 new ENERGY STAR certifications obtained in 2023 • Named an ENERGY STAR Partner of the Year in 2023, marking our third time receiving the award • Received a Green Star rating from the Global Real Estate Sustainability Benchmark (“GRESB”) for the twelfth consecutive year, recognizing top ESG performance in our sector • Named to CDP’s Leadership band for our climate disclosure for the eleventh consecutive year, most recently with a score of “A-” in 2023 • Named to Newsweek ’s America’s Most Responsible Companies list for the fifth consecutive year • Named a constituent in the FTSE4Good Index for the twelfth consecutive year • Named a constituent in the S&P Global Dow Jones Sustainability World Index for the fourth time and S&P Global North America Dow Jones Sustainability Index for the eleventh consecutive year • Named to the S&P Global Sustainability Yearbook for the ninth consecutive year • Named Winner for Best Proxy Statement (Mid Cap), and Finalist for Best ESG Reporting (Small to Mid Cap) by IR Magazine and Governance Intelligence • Included in Fortune ’s Best Workplaces in Real Estate list for the second consecutive year Under our “like-for-like” methodology, direct and indirect GHG emissions are compared on a year-over-year rolling basis using Scope 1 and Scope 2 GHG emissions for the properties that we have owned for two full consecutive calendar years, excluding non-stabilized developments and redevelopments in each year of the calculation.
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, development, and redevelopment.
We may take additional measures to mitigate risk, including diversifying our investments (by sector, geography, and tenant), 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, development, and redevelopment.
Other factors that contribute to our competitive position include: • our reputation gained through over three decades of successful operations and the strength of our existing portfolio of properties; • our relationships with leading pharmaceutical and biotechnology tenants, healthcare operators and systems, investment banks and other market intermediaries, corporations, private equity firms, not-for-profit organizations, and companies 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 land sites held for future development.
Other factors that contribute to our competitive position include: • our reputation gained through decades of successful operations and the strength of our existing portfolio of properties; • our relationships with leading pharmaceutical and biotechnology tenants, healthcare operators and systems, investment banks and other market intermediaries, corporations, private equity firms, not-for-profit organizations, and companies 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 land sites held for future development.
The most significant human capital measures or objectives that we focus on in managing our business and our related human capital initiatives include the following: • Workforce Diversity: We believe we are a stronger organization when our workforce represents a diversity of ideas and experiences. We value and embrace diversity in our employee recruiting, hiring, and development practices.
The most significant human capital measures or objectives that we focus on in managing our business and our related human capital initiatives include the following: • Workforce Diversity: We believe we are a stronger organization when our workforce represents a diversity of ideas and experiences. We value and embrace such diversity in our employee recruiting, hiring, and development practices.
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.
Our strategy for maximizing the benefits from these opportunities is to: (i) work with new or existing tenants 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.
Where we have used a RIDEA structure, we are dependent on management companies to fulfill our compliance obligations, and we have developed a program to periodically monitor compliance with such obligations. 8 Table of Contents 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”), that provide for the privacy and security of personal health information.
Where we have used a RIDEA structure, we are dependent on management companies to fulfill our compliance obligations, and we have developed a program to periodically monitor compliance with such obligations. 9 Table of Contents 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”), that provide for the privacy and security of personal health information.
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.
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.
See “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Financial Measures” for additional information regarding Adjusted NOI and see Note 16 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
See “Item 7, Management’s Discussion and Analysis of Financial Condition and 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).
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.
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 SEC.
In addition to improvements funded by us as the landlord, many of our life science tenants make significant investments to improve their leased space 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.
In addition to improvements funded by us as the landlord, many of our lab tenants make significant investments to improve their leased space to accommodate biology, chemistry, or medical device research initiatives. Lab properties are primarily configured in business park or campus settings and include multiple buildings.
All of our hospitals are triple-net leased. Continuing care retirement community, or CCRC CCRCs are retirement communities that include independent living, assisted living, memory care, and skilled nursing units to provide a continuum of care in an integrated campus.
All of our hospitals are triple-net leased. 7 Table of Contents Continuing care retirement community, or CCRC CCRCs are retirement communities that include independent living, assisted living, memory care, and skilled nursing units to provide a continuum of care in an integrated campus.
We partner with organizations that share our desire to support research, education, and other activities related to healthcare, senior communities, and disaster relief. For additional information on human capital matters, please see our most recent proxy statement or ESG report, each of which is available on our website at www.healthpeak.com. Available Information Our website address is www.healthpeak.com.
We partner with organizations that share our desire to support research, education, and other activities related to healthcare. For additional information on human capital matters, please see our most recent proxy statement or ESG report, each of which is available on our website at www.healthpeak.com. Available Information Our website address is www.healthpeak.com.
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 at the best available market terms and lowest possible transaction costs.
In choosing locations for our properties, we focus on the physical environment, adjacency to established businesses (e.g., hospital systems or life science submarkets) and educational centers, proximity to sources of business growth, and other local demographic factors. • Replace tenants at the best available market terms and lowest possible transaction costs.
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 (49%) and San Diego (24%), California, and Boston, Massachusetts (24%) (based on total square feet).
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 (50%) and San Diego (23%), California, and Boston, Massachusetts (25%) (based on total square feet).
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.
Outpatient medical buildings 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.
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.
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. 13 Table of Contents
We structure lease extensions, early renewals, or modifications, which reduce the cost associated with lease downtime, while securing the tenancy and relationship of our high quality tenants 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 selectively structure lease extensions, early renewals, or modifications, which reduce the cost associated with lease downtime, while securing the tenancy and relationship of our high-quality tenants on a long-term basis. 5 Table of Contents Investment Strategies The discovery and delivery of healthcare services requires real estate and, as a result, tenants depend on our real estate, in part, to maintain and grow their businesses.
Other non-reportable segment At December 31, 2022, we had the following investments in our other non-reportable segments: (i) our unconsolidated joint venture with a sovereign wealth fund that owns 19 senior housing assets (which we refer to as our SWF SH JV), (ii) loans receivable, and (iii) marketable debt securities.
Other non-reportable segment At December 31, 2023, we had the following investments in our other non-reportable segments: (i) our unconsolidated joint venture with a sovereign wealth fund that owns 19 senior housing assets (which we refer to as our SWF SH JV) and (ii) loans receivable.
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.
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.
We conduct an annual employee engagement survey through an independent third party, measuring our progress on important employee issues and identifying opportunities for growth and improvement. • Training and Development: We conduct annual employee training on our Code of Business Conduct and Ethics, as well as biennial training on harassment prevention.
We conduct a regular employee engagement survey through an independent third party, measuring our progress on important employee issues and identifying opportunities for growth and improvement. • Training and Development: We conduct annual employee training on our Code of Business Conduct and Ethics, as well as annual training on harassment prevention or unconscious bias.
In addition, our operators are subject to a variety of laws, regulations, and executive orders relating to operators’ response to the Covid pandemic, which can vary based on the provider type and jurisdiction, complicating compliance efforts.
In addition, our operators are subject to a variety of laws, regulations, and executive orders, including those relating to operators’ response to Covid and other infectious diseases, which can vary based on the provider type and jurisdiction, complicating compliance efforts.
We may finance acquisitions and other investments primarily 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 may finance acquisitions and other investments in a variety of ways, including: • 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.
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.”). Our company was originally founded in 1985. We are a Maryland corporation and qualify as a self-administered REIT.
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.”). Our company was originally founded in 1985.
(HCA) 23 % 8 % Our medical office segment also includes nine hospitals. 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.
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.
The following table provides information about our most significant life science tenant concentration for the year ended December 31, 2022: Tenants Percentage of Segment Revenues Percentage of Total Revenues Amgen, Inc. 6 % 2 % Medical office Our medical office segment includes medical office buildings (MOBs) and hospitals.
The following table provides information about our most significant lab tenant concentration for the year ended December 31, 2023: Tenants Percentage of Segment Revenues Percentage of Total Revenues Amgen, Inc. 6 % 2 % Outpatient Medical Our outpatient medical segment includes outpatient medical buildings and hospitals.
For a description of our significant activities during 2022, see “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Overview of Transactions” in this report.
For a description of our significant activities during 2023, see “Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations—Company Highlights” 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 manage our real estate portfolio for the long-term to maximize risk-adjusted returns and support the growth of our dividends. Our strategy consists of four core elements: (i) Our real estate : Our portfolio consists of high-quality properties in desirable locations.
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.
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.
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) price, (v) the range of services offered, (vi) the physical appearance of a facility, (vii) alternatives for healthcare delivery, (viii) the supply of competing properties, (ix) physicians, (x) staff, (xi) referral sources, (xii) location, (xiii) the size and demographics of the population in surrounding areas, and (xiv) the financial condition of our tenants and operators.
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. 8 Table of Contents 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) price, (v) the range of services offered, (vi) the physical appearance of a property, (vii) alternatives for healthcare delivery, (viii) the supply of competing properties, (ix) physicians, (x) staff, (xi) referral sources, (xii) location, (xiii) the size and demographics of the population in surrounding areas, and (xiv) 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. 7 Table of Contents Government Regulation, Licensing, and Enforcement Overview Our healthcare facility operators (which include our TRS entities when we use a RIDEA structure) and tenants are subject to extensive and complex federal, state, and local healthcare laws and regulations relating to quality of care, licensure and certificate of need, resident rights (including abuse and neglect), consumer protection, government reimbursement, fraud and abuse practices, and similar laws governing the operation of healthcare facilities.
Government Regulation, Licensing, and Enforcement Overview Our healthcare facility operators (which include our TRS entities when we use a RIDEA structure) and tenants are subject to extensive and complex federal, state, and local healthcare laws and regulations relating to quality of care, licensure and certificate of need, resident rights (including abuse and neglect), consumer protection, government reimbursement, fraud and abuse practices, and similar laws governing the operation of healthcare facilities.
Under the life science and medical office segments, we invest through the acquisition, development, and management of life science facilities, MOBs, and hospitals. Under the CCRC segment, our properties are operated through RIDEA structures.
Under the lab and outpatient medical segments, we invest through the acquisition, development, and management of lab buildings, outpatient medical buildings, and hospitals. Under the CCRC segment, our properties are operated through RIDEA structures.
Our MOBs are typically multi-tenant properties leased to healthcare providers (hospitals and physician practices), with approximately 87% of our MOBs located on or adjacent to hospital campuses and 98% affiliated with hospital systems as of December 31, 2022 (based on total square feet). Occasionally, we invest in MOBs located on hospital campuses subject to ground leases.
Our outpatient medical buildings are typically multi-tenant properties leased to healthcare providers (hospitals and physician practices), with approximately 87% of our outpatient medical buildings located on or adjacent to hospital campuses and 98% affiliated with hospital systems as of December 31, 2023 (based on total square feet).
While these facilities have certain similarities 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 specialized equipment such as x-ray machines and MRIs. MOBs are often built to accommodate higher structural loads for such specialized equipment and may contain vaults or other unique construction.
While these facilities have certain similarities 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 specialized equipment such as x-ray machines and MRIs.
Increased competition and resulting capitalization rate compression make it more challenging for us to identify and successfully capitalize on opportunities that meet our objectives.
Increased competition and resulting capitalization rate compression, as well as the impacts of inflation and higher interest rates, make it more challenging for us to identify and successfully capitalize on opportunities that meet our objectives.
Sustainability We believe that environmental, social, and governance (“ESG”) 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 ESG dimensions.
Such insurance also extends to us in certain situations. 11 Table of Contents Sustainability We believe that ESG 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 ESG dimensions.
We use an integrated approach to ESG throughout our business to identify risks and opportunities, capture efficiencies and cost savings, and report on the issues most relevant to stakeholders. 10 Table of Contents Environment: Our environmental management programs strive to make our buildings more sustainable and capture cost efficiencies that ultimately benefit our investors, employees, tenants, business partners, and other stakeholders, while reducing our carbon footprint and providing a positive impact on the communities in which we operate.
Environment: Our environmental management programs strive to make our buildings more sustainable and capture cost efficiencies that ultimately benefit our investors, employees, tenants, business partners, and other stakeholders, while reducing our carbon footprint and providing a positive impact on the communities in which we operate.
In certain states (including the ones in which we operate) 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. 9 Table of Contents 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.
In certain states (including the ones in which we operate) 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.
At December 31, 2022, 92% of our life science properties were triple-net leased (based on leased square feet).
At December 31, 2023, 90% of our lab properties were triple-net leased (based on leased square feet).
(iii) Our partnerships : We work with leading pharmaceutical and biotechnical companies, healthcare companies, operators, and service providers and are responsive to their space and capital needs. We provide high-quality property management services to encourage tenants to renew, expand, and relocate into our properties, which drives increased occupancy, rental rates, and property values.
(iii) Our partnerships : We work with leading pharmaceutical, biotechnology, and medical device companies, as well as healthcare delivery systems, specialty physician groups, and other healthcare service providers, to meet their real estate needs. We provide high-quality property management services to encourage tenants to renew, expand, and relocate into our properties, which drives increased occupancy, rental rates, and property values.
As of December 31, 2020, we concluded that the planned dispositions represented a strategic shift that had and will have a major effect on our operations and financial results. Therefore, the assets are classified as discontinued operations in all periods presented herein. In September 2021, we successfully completed the disposition of both portfolios.
In 2020, we concluded that the dispositions of our senior housing triple-net and senior housing operating property (“SHOP”) portfolios represented a strategic shift that had a major effect on our operations and financial results. Therefore, the results of senior housing triple-net and SHOP assets are classified as discontinued operations in all periods presented herein.
The services provided 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. 6 Table of Contents A RIDEA structure allows us, through a taxable REIT subsidiary (“TRS”), to receive cash flow from the operations of a healthcare facility in compliance with REIT tax requirements.
The services provided 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.
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. 4 Table of Contents 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 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.
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.
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. 10 Table of Contents Product Approvals While our lab 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.
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.
Failure to comply with the new disclosure requirements could negatively affect our healthcare facility operators’ participation in Medicare and state Medicaid programs. 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.
We focus on three purposely selected private pay asset classes—life science, medical office, and continuing care retirement community—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.
(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.
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.
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.
We have other non-reportable segments that are comprised primarily of loans receivable, marketable debt securities, and an interest in an unconsolidated joint venture that owns 19 senior housing assets (our “SWF SH JV”). At December 31, 2022, our portfolio of investments, including properties in our unconsolidated joint ventures, consisted of interests in 480 properties.
We have other non-reportable segments that are comprised primarily of loans receivable and an interest in an unconsolidated joint venture that owns 19 senior housing assets (our “SWF SH JV”). These non-reportable segments have been presented on an aggregate basis herein.
Human Capital Matters Our employees represent our greatest asset, and as of December 31, 2022, we had 199 full-time employees. Our Board of Directors, through its Compensation and Human Capital Committee, retains oversight of human capital management, including corporate culture, diversity, inclusion, talent acquisition, retention, employee satisfaction, engagement, and succession planning.
Our Board of Directors, through its Compensation and Human Capital Committee, retains oversight of human capital management, including corporate culture, diversity, inclusion, talent acquisition, retention, employee satisfaction, engagement, and succession planning. We report on human capital matters at each regularly scheduled Board of Directors meeting and periodically throughout the year.
We arrange for longer-term financing by offering debt and equity, placing mortgage debt, and obtaining capital from institutional lenders and joint venture partners. 5 Table of Contents Segments Life science Our life science properties, which contain laboratory and office space, are leased primarily to biotechnology, medical device and pharmaceutical companies, scientific research institutions, government agencies, and other organizations involved in the life science industry.
Segments Lab Our lab properties, which contain laboratory and office space, are leased primarily to biotechnology, medical device and pharmaceutical companies, scientific research institutions, government agencies, and other organizations involved in the life science industry.
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.
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.
Our workforce was made up of 46% female employees and 37% racially or ethnically diverse employees as of December 31, 2022.
Our workforce was made up of 48% female employees and 37% racially or ethnically diverse employees as of December 31, 2023. • Inclusion and Belonging: We promote a work environment that emphasizes respect, fairness, inclusion, and dignity.
The following table summarizes information for our reportable segments, excluding discontinued operations, for the year ended December 31, 2022 (dollars in thousands): Segment Total Portfolio Adjusted NOI (1) Percentage of Total Portfolio Adjusted NOI (1) Number of Properties Life science $ 552,533 50 % 149 Medical office 432,969 39 % 297 CCRC 103,841 9 % 15 Other non-reportable 16,920 2 % 19 $ 1,106,263 100 % 480 _______________________________________ (1) Total Portfolio metrics include results of operations from disposed properties through the disposition date.
The following table summarizes information for our reportable and other non-reportable segments for the year ended December 31, 2023 (dollars in thousands): Segment Total Portfolio Adjusted NOI (1) Percentage of Total Portfolio Adjusted NOI (1) Number of Properties Lab $ 617,541 51.3 % 146 Outpatient medical 452,725 37.6 % 297 CCRC 112,511 9.3 % 15 Other non-reportable 22,210 1.8 % 19 $ 1,204,987 100.0 % 477 _______________________________________ (1) Total Portfolio metrics include results of operations from disposed properties through the disposition date.
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.
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.
At December 31, 2022, approximately 65% of our MOBs were triple-net leased (based on leased square feet) with the remaining leased under gross or modified gross leases. The following table provides information about our most significant medical office tenant concentration for the year ended December 31, 2022: Tenant Percentage of Segment Revenues Percentage of Total Revenues HCA Healthcare, Inc.
The following table provides information about our most significant outpatient medical tenant concentration for the year ended December 31, 2023: Tenant Percentage of Segment Revenues Percentage of Total Revenues HCA Healthcare, Inc. (HCA) 23 % 8 % Our outpatient medical segment also includes nine hospitals.
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.
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.
See Note 5 to the Consolidated Financial Statements for further information regarding discontinued operations. In conjunction with the disposal of our senior housing triple-net and SHOP portfolios, we focused our strategy on investing in a diversified portfolio of high-quality healthcare properties across our three core asset classes of life science, medical office, and continuing care retirement community (“CCRC”) real estate.
Our corporate headquarters are located in Denver, Colorado, and we have additional offices in California, Tennessee, and Massachusetts. Our strategy is to invest in and manage real estate focused on healthcare discovery and delivery. We have a diversified portfolio of high-quality healthcare properties across three core asset classes of lab, outpatient medical, and continuing care retirement community (“CCRC”) real estate.
Removed
Our corporate headquarters are located in Denver, Colorado, and we have additional offices in California, Tennessee, and Massachusetts. During 2020, we began the process of disposing of our senior housing triple-net and senior housing operating property (“SHOP”) portfolios.
Added
As noted above, we completed our Reorganization on February 10, 2023, and following that date, we hold substantially all of our assets and conduct our operations through the operating subsidiary, Healthpeak OP, LLC, a consolidated subsidiary of which we are the managing member. We are a Maryland corporation and qualify as a self-administered REIT.
Removed
UPREIT Reorganization On February 7, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with New Healthpeak, Inc., a Maryland corporation (“New Healthpeak”) and our wholly owned subsidiary, and Healthpeak Merger Sub, Inc., a Maryland corporation (“Merger Sub”) that is a wholly owned subsidiary of New Healthpeak.
Added
At December 31, 2023, our portfolio of investments, including properties in our unconsolidated joint ventures, consisted of interests in 477 properties.
Removed
The purpose of the transactions contemplated by the Merger Agreement is for us to implement a corporate reorganization into a new holding company structure commonly referred to as an Umbrella Partnership Real Estate Investment Trust, or UPREIT (the “Reorganization”).
Added
See Note 4 to the Consolidated Financial Statements for further information regarding discontinued operations. 4 Table of Contents The Merger Agreement On October 29, 2023, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Physicians Realty Trust, Physicians Realty L.P.
Removed
Pursuant to the Merger Agreement, Merger Sub will merge with and into our company, with our company continuing as the surviving corporation and a wholly owned subsidiary of New Healthpeak (the “Merger”). The Merger is expected to be effective as of February 10, 2023 (the “Effective Time”).
Added
(the “Physicians Partnership”), and certain of our subsidiaries, pursuant to which, among other things, and through a series of transactions (the “Mergers”), (i) each outstanding common share of Physicians Realty Trust (other than Physicians Realty Trust common shares to be canceled in accordance with the Merger Agreement) will be automatically converted into the right to receive 0.674 (the “Exchange Ratio”) shares of our common stock, and (ii) each outstanding common unit of the Physicians Partnership will be automatically converted into and become common units in the successor entity to the Physicians Partnership equal to the Exchange Ratio.
Removed
As part of the Merger, our name will change to Healthpeak Properties Interim, Inc., and, effective immediately after the Effective Time, New Healthpeak’s name will be changed to Healthpeak Properties, Inc. The Merger is expected to be conducted in accordance with Section 3-106.2 of the Maryland General Corporation Law.
Added
Following the transactions contemplated in the Merger Agreement, the successor entities to Physicians Realty Trust and the Physicians Partnership will be direct and indirect subsidiaries of Healthpeak OP, respectively. In connection with the Mergers, we filed a Registration Statement on Form S-4 with the U.S.
Removed
Accordingly, the Merger will not require the approval of our stockholders, and the Merger will not give rise to statutory dissenters’ rights.
Added
Securities and Exchange Commission (“SEC”) on December 15, 2023, as amended on January 9, 2024, and a definitive joint proxy statement/prospectus for the Company and Physicians Realty Trust on January 11, 2024 in connection with our respective special meetings of stockholders and shareholders, as applicable, which will be held on February 21, 2024.
Removed
In connection with the Reorganization and immediately following the Merger, we will convert from a Maryland corporation to a Maryland limited liability company named Healthpeak OP, LLC (“Healthpeak OP”). 3 Table of Contents Following the Merger, the business, management and board of directors of New Healthpeak will be identical to the business, management and board of directors of our company immediately before the Merger, except that the business of the company is expected to be conducted exclusively through Healthpeak OP.
Added
Consummation of the Mergers are subject to the satisfaction or waiver of customary closing conditions, including the approval of our stockholders and the shareholders of Physicians Realty Trust. We expect the Mergers to close on March 1, 2024.
Removed
The consolidated assets and liabilities of New Healthpeak immediately following the Merger will be identical to the consolidated assets and liabilities of our company immediately prior to the Merger. New Healthpeak will not hold any assets directly other than its ownership interest in Healthpeak OP and certain de minimis assets that may be held for certain administrative functions.
Added
If the Mergers are not consummated by July 31, 2024 (unless extended under certain circumstances), either we or Physicians Realty Trust may terminate the Merger Agreement. Business Strategy Our strategy is to invest in and manage real estate focused on healthcare discovery and delivery.
Removed
None of the properties owned by us or our subsidiaries or any interests therein will be transferred as part of the Reorganization. All material indebtedness of our company immediately prior to the Merger will remain the indebtedness of Healthpeak OP after the Merger.
Added
Our portfolio is focused on lab and outpatient medical buildings, favorable sectors that benefit from the universal desire for improved health. We have built scale and fostered deep industry relationships, two unique factors that provide us with a competitive advantage.
Removed
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.
Added
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.
Removed
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.
Added
We arrange for longer-term financing by offering debt and equity, placing mortgage debt, and obtaining capital from institutional lenders and joint venture partners. 6 Table of Contents In addition, capital recycling through dispositions and redeployment through acquisitions, developments, and redevelopments is an important facet of our investment and financing strategies.
Removed
In 2021, we completed two green bond offerings with aggregate gross proceeds of $950 million. The aggregate proceeds, net of discounts and debt issuance costs, of $938 million from the two green bonds have been allocated to eligible green projects. For additional information regarding our ESG initiatives and our approach to climate change, please visit our website at www.healthpeak.com/ESG.
Added
We routinely have multiple transactions involving both individual properties and portfolios under consideration that are in varying stages of evaluation, underwriting, negotiation, and due diligence review, some of which, if consummated or completed, may have a material effect on our liquidity, results of operations, and financial condition.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

113 edited+141 added−27 removed133 unchanged
Biggest changeOur 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 inconsistent with our objectives, including the timing, terms, and strategies for any investments, and what levels of debt to incur or carry; • because we lack sole decision-making authority, we could experience impasses or disputes relating to certain decisions, including budget approvals, acquisitions, sales of assets, debt financing, execution of lease agreements, and vendor approvals, which could result in delayed decisions and missed opportunities and could require us to expend additional resources on litigation or arbitration to resolve; • our joint venture partners may have competing interests that create conflicts of interest in our markets; • our ability to transfer our interest in a joint venture to a third party may be restricted; • 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; • 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; • our joint venture agreements may contain anti-competitive restrictions that impact certain of our non-joint venture assets and require us to manage the non-joint venture assets in a manner we otherwise would not; and • our joint venture agreements may in certain circumstances grant our partners a right of first refusal to acquire certain of our non-joint venture assets.
Biggest changeOur 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 inconsistent with our objectives, including the timing, terms, and strategies for any investments, and what levels of debt to incur or carry; • because we lack sole decision-making authority, we could experience impasses or disputes relating to certain decisions, including those related to budget approvals, entitlements, construction and development, acquisitions, sales of assets, debt financing, execution of lease agreements, and vendor approvals, which could result in delayed decisions and missed opportunities and could require us to expend additional resources on litigation or arbitration to resolve; • our joint venture partners may have competing interests that create conflicts of interest in our markets; • our ability to transfer our interest in a joint venture to a third party may be restricted; • 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 or could restrict the ways in which we are able to exit investments; • 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; • our joint venture agreements may contain anti-competitive restrictions that impact certain of our non-joint venture assets and require us to manage the non-joint venture assets in a manner we otherwise would not; • our joint venture agreements may in certain circumstances grant our partners a right of first refusal to acquire certain of our non-joint venture assets; • our joint venture agreements may give our partners management rights that allow them to make operational or other decisions with which we disagree or that we would manage differently; and • our joint venture agreements may impose limitations or caps on the property management fees that we otherwise would have been entitled to receive if the underlying property were wholly owned.
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.
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 the various qualification tests imposed under the Code, through actual annual operating results, asset diversification, distribution levels, and diversity of stock ownership.
Further, 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; and (vii) other factors as our Board of Directors may deem relevant from time to time.
Further, 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) covenants in our financial or other contractual arrangements, including those in our credit facility agreement; (vi) maintenance of our REIT qualification; and (vii) other factors as our Board of Directors may deem relevant from time to time.
The impacts of such events could be severe and far-reaching, and may impact our operations in several ways, including: (i) tenants could experience deteriorating financial conditions and be unable or unwilling to pay rent on time and in full; (ii) we may have to restructure tenants' obligations and may not be able to do so on terms that are favorable to us; (iii) inquiries and tours at our properties could decrease; (iv) move-ins and new tenanting efforts, and re-letting efforts could slow or stop altogether; (v) move-outs and potential early termination of leases thereunder could increase; (vi) operating expenses, including the costs of certain essential services or supplies, including payments to third-party contractors, service providers, and employees essential to ensure continuity in our building operations may increase; (vii) procedures normally conducted on our properties may be disrupted, adversely affecting the economic viability of our tenants; and (viii) costs of development, including expenditures for materials utilized in construction and labor essential to complete existing developments in progress, may increase substantially.
The impacts of such events could be severe and far-reaching, and may impact our operations in several ways, including: (i) tenants could experience deteriorating financial condition and be unable or unwilling to pay rent on time and in full; (ii) we may have to restructure tenants' obligations and may not be able to do so on terms that are favorable to us; (iii) inquiries and tours at our properties could decrease; (iv) move-ins, new tenanting efforts, and re-letting efforts could slow or stop altogether; (v) move-outs and potential early termination of leases thereunder could increase; (vi) operating expenses, including the costs of certain essential services or supplies, including payments to third-party contractors, service providers, and employees essential to ensure continuity in our building operations, may increase; (vii) procedures normally conducted on our properties may be disrupted, adversely affecting the economic viability of our tenants; and (viii) costs of development, including expenditures for materials utilized in construction and labor essential to complete existing developments in progress, may increase substantially.
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. In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes, and other land use regulations.
We could also 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. In addition, we are required to operate our properties in compliance with fire and safety regulations, building codes and other land use regulations.
Furthermore, with respect to our CCRC properties and the properties in our SWF SH JV, all of which are 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.
Furthermore, with respect to our CCRC properties and the properties in our SWF SH JV, all of which are operated in RIDEA structures, we generally 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.
There is no guarantee that debt or equity financings will be available in the future to fund future acquisitions or general operating expenses, or that such financing will be available on terms consistent with our historical agreements or expectations.
There is no guarantee that debt or equity financings will be available in the future to fund future acquisitions, developments, or general operating expenses, or that such financing will be available on terms consistent with our historical agreements or expectations.
Potential difficulties associated with acquisitions 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 and claims, 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; 19 Table of Contents • 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.
Potential difficulties associated with acquisitions 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 and claims, 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, our medical office and senior housing tenants, operators, and borrowers compete with certain companies that have superior resources and attributes and/or provide similar healthcare services or alternatives such as home health agencies, telemedicine, life care at home, community-based service programs, retirement communities, and convalescent centers. Furthermore, these tenants, operators, and borrowers face a competitive labor market.
In addition, our outpatient medical and senior housing tenants, operators, and borrowers compete with certain companies that have superior resources and attributes and/or provide similar healthcare services or alternatives such as home health agencies, telemedicine, life care at home, community-based service programs, retirement communities, and convalescent centers. Furthermore, these tenants, operators, and borrowers face a competitive labor 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.
We maintain additional 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.
If a tenant’s revenue at a rental property with contingent rent declines, our rental revenues would decrease. 18 Table of Contents Additionally, some of our leases provide that annual rent is modified based on changes in the Consumer Price Index or other thresholds (i.e., contingent rent escalators).
If a tenant’s revenue at a rental property with contingent rent declines, our rental revenues would decrease. 20 Table of Contents Additionally, some of our leases provide that annual rent is modified based on changes in the Consumer Price Index or other thresholds (i.e., contingent rent escalators).
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.
These risks could significantly disrupt our businesses in the region, harm our ability to compete effectively, result in increased costs or construction delays, and divert management attention, any or all of which could have a material adverse effect on our business, results of operations, and financial condition.
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.
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 incident, 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. 24 Table of Contents Required regulatory approvals can delay or prohibit transfers of our senior housing properties.
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. 28 Table of Contents Required regulatory approvals can delay or prohibit transfers of our senior housing properties.
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.
Any failure to adequately train employees or 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.
Although we have taken steps to protect the security of our information systems, with multiple layers of controls around 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.
Although we have taken steps to protect the security of our information systems, with multiple layers of controls around 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 of systems or disclosure of personally identifiable information such as in the event of cyber-attacks or other cybersecurity incidents.
Our tenants’, operators’, or borrowers’ failure to comply with any of the laws, regulations, or requirements applicable to them could result in: (i) loss of accreditation; (ii) denial of reimbursement; (iii) imposition of fines; (iv) suspension or decertification from government healthcare programs; (v) civil liability; and (vi) in certain instances, suspension or denial of admissions, 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 in our Life Science and MOB segments, that we own and operate through a RIDEA structure in our CCRC segment or our SWF SH JV, or on which we hold a mortgage, and therefore may materially adversely impact us.
Our tenants’, operators’, or borrowers’ failure to comply with any of the laws, regulations, or requirements applicable to them could result in: (i) loss of accreditation; (ii) denial of reimbursement; (iii) imposition of fines; (iv) suspension or decertification from government healthcare programs; (v) civil liability; and (vi) in certain instances, suspension, or denial of admissions, 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 in our lab and outpatient medical segments, that we own and operate through a RIDEA structure in our CCRC segment or our SWF SH JV, or on which we hold a mortgage, and therefore may materially adversely impact us.
Identifying and securing new or replacement tenants or operators can be time consuming and costly, which could have a material adverse effect on our business, results of operations, and financial condition. 14 Table of Contents Property development, redevelopment, and tenant improvement risks can render a project less profitable or unprofitable and delay or prevent its undertaking or completion.
Identifying and securing new or replacement tenants or operators can be time consuming and costly, which could have a material adverse effect on our business, results of operations, and financial condition. Property development, redevelopment, and tenant improvement risks can render a project less profitable or unprofitable and delay or prevent its undertaking or completion.
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.
If, during the five-year period beginning on the date we acquire certain assets or companies in certain tax deferred transactions, 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.
Therefore, we may incur substantial expenditures to modify a life science property and experience delays before we are able to secure a new or replacement tenant or operator or to accommodate multiple tenants or operators, which may have a material adverse effect on our business, results of operations, and financial condition.
Therefore, we may incur substantial expenditures to modify a lab property and experience delays before we are able to secure a new or replacement tenant or operator or to accommodate multiple tenants or operators, which may have a material adverse effect on our business, results of operations, and financial condition.
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 could result in our disqualification as a REIT.
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 C corporations that we acquire, prior to the close of the first taxable year in which the acquisition occurs. Failure to make such E&P distributions could result in our disqualification as a REIT.
Our life science tenants face substantial requirements for, and risks related to, the research, development, clinical testing, manufacture, and commercialization of their products and technologies, including: • significant funding requirements, including for rent payments due to us; • federal, state, and foreign regulatory approvals that 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 that may face delays or difficulties, or ultimately be unsuccessful; • product and technology efficacy risks; • acceptance risks among doctors and patients; • significant regulatory and liability risks, including 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; • healthcare reforms and reimbursement policies of government or private healthcare payors, including pricing controls for prescription drug prices; • intellectual property and technology risks under patent, copyright, and trade secret laws; and • economic feasibility risks.
Our lab tenants face substantial requirements for, and risks related to, the research, development, clinical testing, manufacture, and commercialization of their products and technologies, including: • significant funding requirements, including for rent payments due to us; • federal, state, and foreign regulatory approvals that 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 that may face delays or difficulties, or ultimately be unsuccessful; • product and technology efficacy risks; • acceptance risks among doctors and patients; • significant regulatory and liability risks, including 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; • healthcare reforms and reimbursement policies of government or private healthcare payors, including pricing controls for prescription drug prices; • intellectual property and technology risks under patent, copyright, and trade secret laws; and • economic conditions restricting growth opportunities.
See “Item 1, Business—Government Regulation, Licensing, and Enforcement.” For example, to the extent that our tenants, operators, or borrowers, or assets owned in our CCRC segment or through the SFW SH JV, 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 and recoupment efforts; 25 Table of Contents • recovery of program overpayments or set-offs; • federal, state, and local litigation and enforcement actions, including those relating to Covid and the failure to satisfy the terms and conditions of financial relief; • 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); • reduced reimbursement rates under managed care contracts; • changes in reimbursement rates, methods, or timing under governmental reimbursement programs; • 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.
See “Item 1, Business—Government Regulation, Licensing and Enforcement.” For example, to the extent that our tenants, operators, or borrowers, or assets owned in our CCRC segment or through the SFW SH JV, 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, including changes that impact state reimbursement programs, particularly Medicaid reimbursement and managed care payments; 29 Table of Contents • retroactive rate adjustments and recoupment efforts; • recovery of program overpayments or set-offs; • federal, state, and local litigation and enforcement actions, including those relating to Covid and the failure to satisfy the terms and conditions of financial relief; • 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); • reduced reimbursement rates under managed care contracts; • changes in reimbursement rates, methods, or timing under governmental reimbursement programs, including changes that impact state reimbursement programs, particularly Medicaid reimbursement and managed care payments; • interruption or delays in payments due to any ongoing governmental investigations and audits at such properties or due to a partial or total federal or state government shutdown for a prolonged period of time; and • reputational harm of publicly disclosed enforcement actions, audits, or investigations related to billing and reimbursements.
Occupancy levels at, and rental income from, our medical office and senior housing properties depend on our ability and the ability of our tenants, operators, and borrowers to compete with respect to (i) the quality of care provided, (ii) reputation, (iii) price, (iv) the range of services offered, (v) the physical appearance of a property, (vi) family preference, (vii) referral sources, and (xiii) location.
Occupancy levels at, and rental income from, our outpatient medical and senior housing properties depend on our ability and the ability of our tenants, operators, and borrowers to compete with respect to (i) the quality of care provided, (ii) reputation, (iii) price, (iv) the range of services offered, (v) the physical appearance of a property, (vi) family preference, (vii) referral sources, and (viii) location.
If a hospital whose campus is located near one of our MOBs is unable to meet its financial obligations, and if an affiliated healthcare system is unable to support that hospital or goes bankrupt, the hospital may be unable to successfully compete or could be forced to close or relocate, which could adversely impact its ability to attract physicians and other healthcare-related users.
If a hospital whose campus is located near one of our outpatient medical buildings is unable to meet its financial obligations, and if an affiliated healthcare system is unable to support that hospital or goes bankrupt, the hospital may be unable to successfully compete or could be forced to close or relocate, which could adversely impact its ability to attract physicians and other healthcare-related users.
Our property development, redevelopment, and tenant improvement projects could be canceled, abandoned, delayed or, if completed, fail to perform in accordance with expectations due to, among other things: • the inability to obtain financing on favorable terms or at all, or the lack of liquidity we deem necessary or appropriate for the project; • legal and regulatory hurdles, including moratoriums on development and redevelopment activities; • the failure to obtain, or costs associated with obtaining, necessary zoning, entitlements, and permits; • cost increases; and • other factors over which we have limited or no control, including: (i) changes in market and economic conditions; (ii) natural disasters and other catastrophic events; (iii) health crises or other pandemics; (iv) labor conditions, including a labor shortage or work stoppage; (v) shortages of construction materials; (vi) environmental conditions; or (vii) civil unrest and acts of war or terrorism.
Our property development, redevelopment, and tenant improvement projects could be canceled, abandoned, delayed or, if completed, fail to perform in accordance with expectations due to, among other things: • the inability to obtain financing on favorable terms or at all, or the lack of liquidity we deem necessary or appropriate for the project; • legal and regulatory hurdles, including moratoriums on development and redevelopment activities; • the failure to obtain, or costs associated with obtaining, necessary zoning, entitlements, and permits; • cost increases; and • other factors over which we have limited or no control, including: (i) changes in market and economic conditions; (ii) natural disasters and other catastrophic events or physical climate risks, such as wildfires, earthquakes, and wind storms; (iii) pandemics or other health crises; (iv) labor conditions, including a labor shortage or work stoppage; (v) shortages of construction materials; (vi) environmental conditions; or (vii) civil unrest and acts of war or terrorism.
Increased or prolonged market disruption, volatility, or uncertainty could have a material adverse effect on our ability to raise capital, obtain new financing or refinance our existing obligations as they mature, and fund real estate and development activities.
Increased or prolonged market disruption, volatility, or uncertainty could have a material adverse effect on our ability to raise capital, obtain new financing or refinance our existing obligations as they mature, and fund acquisition and development activities.
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.
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 each term is defined in the Code.
In addition, infrastructure improvements for life science properties typically are significantly more expensive 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.
In addition, infrastructure improvements for lab properties typically are significantly more expensive than improvements to other property types due to the highly specialized nature of the properties and the greater lease square footage often required by lab tenants.
If our life science 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.
If our lab 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.
A downturn or slowdown in this sector, such as occurred during the Covid pandemic, would have a greater adverse impact on our business than if we had investments across multiple sectors, and could negatively impact the ability of our tenants, operators, and borrowers to meet their obligations to us, as well as the ability to maintain historical rental and occupancy rates, which could have a material adverse effect on our business, results of operations, and financial condition.
A downturn or slowdown in this sector would have a greater adverse impact on our business than if we had investments across multiple sectors, and could negatively impact the ability of our tenants, operators, and borrowers to meet their obligations to us, as well as the ability to maintain historical rental and occupancy rates, which could have a material adverse effect on our business, results of operations, and financial condition.
If economic, financial, regulatory, or industry conditions adversely affect the life science industry, we may be unable to lease or re-lease our life science properties in a timely manner or at favorable rates or with favorable terms.
If economic, financial, regulatory, or industry conditions continue to adversely affect the life science industry, we may be unable to lease or re-lease our lab properties in a timely manner or at profitable rates or with favorable terms.
Because of our significant concentration in the seismically active regions of South San Francisco, California, and San Diego, California, an earthquake in these areas could damage a significant portion of our life science portfolio. Similarly, a hurricane in Florida could damage a significant portion of our CCRC portfolio.
Because of our significant concentration in the seismically active regions of South San Francisco, California, and San Diego, California, an earthquake in these areas could damage a significant portion of our lab portfolio. Similarly, a hurricane in Florida could damage a significant portion of our CCRC portfolio.
A shortage of care givers or other trained personnel, union activities, wage laws, or general inflationary pressures on wages may require our tenants, operators, and borrowers to enhance pay and benefits packages, or to use more expensive contract personnel, and they may be unable to offset these added costs by increasing the rates charged to residents or patients.
A shortage of care givers or other trained personnel, union activities (including strikes, labor slowdowns, or contract negotiations), wage laws, or general inflationary pressures on wages may require our tenants, operators, and borrowers to enhance pay and benefits packages, or to use more expensive contract personnel, and they may be unable to offset these added costs by increasing the rates charged to residents or patients.
Our life science tenants’ ability to raise capital depends on the actual or perceived viability of their products and technologies, their financial and operating condition and outlook, and the overall financial, banking, and economic environment.
Our lab tenants’ ability to raise capital depends on the actual or perceived viability of their products and technologies, their financial and operating condition and outlook, and the overall financial, banking, and economic environment.
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.
The hospitals on whose campuses our outpatient medical buildings 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 outpatient medical buildings and our other properties that serve the healthcare industry.
In addition, significant climate changes in areas where we own property could result in extreme weather and changes in precipitation and temperature, all of which could result in physical damage to or a decrease in demand for properties located in these areas or affected by these conditions.
In addition, significant climate changes in areas where we own property could result in extreme weather and changes in precipitation, temperature, and other weather patterns, all of which could result in physical damage to or a decrease in demand for properties located in these areas or affected by these conditions or delays in construction.
In addition, because life science property infrastructure improvements are typically significantly more costly than improvements to other property types due to their highly specialized nature, 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.
In addition, because lab property infrastructure improvements are typically significantly more costly than improvements to other property types due to their highly specialized nature, and lab tenants typically require greater lease square footage relative to outpatient medical tenants, repositioning efforts would have a disproportionate adverse effect on our lab segment performance.
In particular, (i) a significant portion of our life science development projects and approximately 67% of our life science portfolio (based on gross asset value as of December 31, 2022) was concentrated in California, which is known to be subject to earthquakes, wildfires, and other natural disasters, and (ii) approximately 69% of our CCRC portfolio (based on gross asset value as of December 31, 2022) was concentrated in Florida, which is known to be subject to hurricanes.
In particular, (i) a significant portion of our lab development projects and approximately 67% of our lab portfolio (based on gross asset value as of December 31, 2023) was concentrated in California, which is known to be subject to earthquakes, wildfires, and other natural disasters, and (ii) approximately 69% of our CCRC portfolio (based on gross asset value as of December 31, 2023) was concentrated in Florida, which is known to be subject to hurricanes.
Finally, our life science investments could also be adversely affected if the life science industry migrates from the U.S. to other countries or to areas outside of our primary life science markets in the greater San Francisco, San Diego, and Boston areas. 15 Table of Contents Our life science tenants face significant regulation, funding requirements, and uncertainty.
Finally, our lab investments could also be adversely affected if the life science industry migrates from the U.S. to other countries or to areas outside of our primary lab markets in the greater South San Francisco, San Diego, and Boston areas. Our lab tenants face significant regulation, funding requirements, and uncertainty.
Although we generally have 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 be unable to enforce these rights or we may determine not to do so if we believe that doing so would be more detrimental than alternative approaches.
Although we generally have the right under specified circumstances to terminate a lease, evict a tenant or terminate an operator, demand immediate repayment of outstanding loan amounts or other obligations to us, or draw on a letter of credit, we may be unable to enforce these rights or we may determine not to do so if we believe that doing so would be more detrimental than alternative approaches.
In addition, such downturns could have a material adverse effect on the value of our properties and our ability to sell properties at prices or on terms acceptable or favorable to us. The illiquidity of our real estate investments may prohibit us from timely responding to economic or investment performance changes.
In addition, such downturns could have a material adverse effect on the value of our properties and our ability to sell properties at prices or on terms acceptable or favorable to us. 16 Table of Contents The illiquidity of our real estate investments may prevent us from timely responding to economic or investment performance changes.
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.
Bankruptcy Code preclude us from enforcing our remedies unless we first obtain relief from the court having jurisdiction over the bankruptcy case. This effectively limits or delays our ability to collect unpaid rent or interest payments, and we may ultimately not receive any payment at all.
Various federal, state, and local governments have enacted, and may continue to enact, laws, regulations, and moratoriums or take other actions that could limit our ability to evict tenants until such laws, regulations, or moratoriums are reversed or lifted.
Various federal, state, and local governments previously enacted, and may again enact, laws, regulations, and moratoriums or take other actions that could limit our ability to evict tenants until such laws, regulations, or moratoriums are reversed or lifted.
A downturn in our tenants’, operators’, or borrowers’ businesses could lead to voluntary or involuntary bankruptcy or similar insolvency proceedings, including assignment for the benefit of creditors, liquidation, or winding-up.
A downturn in our tenants’, operators’, or borrowers’ businesses has led, and could in the future lead, to voluntary or involuntary bankruptcy or similar insolvency proceedings, including assignment for the benefit of creditors, liquidation, or winding-up.
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.
Because we rely on our proximity to, and affiliations with, these hospitals to create tenant demand for space in our outpatient medical buildings, their inability to remain competitive or financially viable, or to attract physicians and physician groups, could adversely affect our outpatient medical building operations and have a material adverse effect on us.
The availability of external capital sources depends upon several factors, some of which we have little or no control over, including: • 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; 22 Table of Contents • 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 healthcare reform and changes in government reimbursement policies; and • the performance of the national and global economies generally, including any economic downturn and volatility in the financial markets.
The availability of external capital sources depends upon several factors, some of which we have little or no control over, including: • 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; • bank failures or other events affecting financial institutions, which could adversely affect our or our tenants’, operators’, and borrowers’ liquidity and financial performance; • 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 U.S. of its obligations; • issues facing the healthcare industry, including healthcare reform and changes in government reimbursement policies; and • the performance of the national and global economies generally, including any economic downturn and volatility in the financial markets.
The foregoing risks could result in not achieving anticipated returns on investment and could have a material adverse effect on our business, results of operations, and financial condition. Life science industry changes could have a material adverse effect on our business, results of operations and financial condition.
The foregoing risks could result in not achieving anticipated returns on investment and could have a material adverse effect on our business, results of operations, and financial condition.
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.
In addition, we have been, and may again 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.
We are subject to increased exposure to adverse conditions affecting the geographies in which our properties are located, including: (i) downturns in local economies and increases in unemployment rates; (ii) changes in local real estate conditions, including increases in real estate taxes; (iii) increased competition; (iv) decreased demand; (v) changes in state and local legislation; and (vi) local climate events and natural disasters and other catastrophic events, such as pandemics, earthquakes, hurricanes, windstorms, flooding, wildfires, and mudslides and other physical climate risks, including water stress and heat stress.
We are subject to increased exposure to adverse conditions affecting the geographies in which our properties are located, including: (i) downturns in local economies and increases in unemployment rates; (ii) changes in local real estate conditions, including increases in real estate taxes and property insurance premiums; (iii) increased competition; (iv) decreased demand; (v) changes in state and local legislation, including changes affecting business or property taxes; (vi) local climate events and natural disasters and other catastrophic events, such as pandemics, earthquakes, hurricanes, windstorms, flooding, wildfires, and mudslides and other physical climate risks, including water stress and heat stress; and (vii) failures of regional banks.
These restrictions on business combinations 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. ITEM 1B. Unresolved Staff Comments None.
These restrictions on business combinations 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.
If either of these requirements is not satisfied, then the rents will not be qualifying rents and we may not satisfy the REIT gross income requirement.
If either of these requirements is not satisfied, then the rents we receive from the TRS will not be qualifying rents and we may not satisfy the REIT gross income requirements.
Epidemics, pandemics, or other infectious diseases, including the ongoing Covid pandemic and those caused by possible new variants, as well as both future widespread and localized outbreaks of infectious diseases and other health concerns, and the health and safety measures taken to reduce the spread or lessen the impact, could cause a material disruption to our industry or deteriorate the economy as a whole.
Epidemics, pandemics, or other infectious diseases, including future outbreaks of Covid and its variants, as well as both future widespread and localized outbreaks of infectious diseases and other health concerns, and the health and safety measures taken to reduce the spread or lessen the impact, could cause a material disruption to our industry or deteriorate the economy as a whole.
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.
Decreases in our tenants’, operators’, or borrowers’ revenues, or increases in their expenses, or other factors adversely affecting their ability to borrow money, could affect their ability to meet their financial and other contractual obligations to us.
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.
The credit ratings of our senior unsecured debt are based on, among other things, our operating performance, liquidity and leverage ratios, geographic and tenant concentration, and pending or future changes in the regulatory framework applicable to our operators and our industry.
If access to capital is unavailable on acceptable terms or at all, it could have a material adverse impact on our ability to fund operations, repay or refinance our debt obligations, fund dividend payments, acquire properties, and make the investments in development and redevelopment activities, as well as capital expenditures, needed to grow our business.
If access to capital is unavailable on acceptable terms or at all, it could have a material adverse impact on our ability to fund operations, repay or refinance our debt obligations, fund dividend payments, acquire properties, and make the investments in development and redevelopment activities, as well as capital expenditures, needed to grow our business. 26 Table of Contents Our level of indebtedness may increase and materially adversely affect our future operations.
Any of the foregoing risks could have a material adverse effect on our business, results of operations, and financial condition. Our use of joint ventures may limit our returns on and our flexibility with jointly owned investments.
These events could also have a material adverse effect on our business, results of operations, and financial condition. Our use of joint ventures may limit our returns on and our flexibility with jointly owned investments.
In addition, changes in federal, state, and local legislation and regulation on climate change could require increased capital expenditures to improve the energy efficiency or resiliency of our existing properties and increase the costs of new developments without a corresponding increase in revenue.
In addition, changes in federal, state, and local legislation and regulation relating to climate change could require (i) increased capital expenditures to improve the energy efficiency or resiliency of our existing properties and increase the costs of new developments and (ii) increased compliance costs for us and our tenants, in each case without a corresponding increase in revenue.
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.
We also depend on the efforts of our executive officers for the success of our business. 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 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.
Any 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.
Covenants that limit our operational flexibility, as well as defaults resulting from the breach of any of these covenants, could have a material adverse effect on our business, results of operations, and financial condition.
Covenants that limit our operational flexibility, as well as defaults resulting from the breach of any of these covenants, could have a material adverse effect on our business, results of operations, and financial condition. The market price and trading volume of our common stock may be volatile.
While we maintain insurance coverage for earthquakes, fires, hurricanes, windstorms, floods, and other natural disasters and physical climate risks, we may be unable to purchase the limits and terms we desire on a commercially reasonable basis.
While we maintain insurance coverage for earthquakes, fires, hurricanes, windstorms, floods, and other natural disasters and physical climate risks, we may be unable to purchase the limits and terms we desire on a commercially reasonable basis due to increased insurance costs or the unavailability of insurance for certain exposures in other regions.
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.
Risks Related to Our Capital Structure and Market Conditions Volatility, disruption, or uncertainty in the financial markets may impair our ability to raise capital, obtain new financing or refinance existing obligations, and fund acquisition and development activities.
Further, life science industry consolidation could reduce the rentable square footage requirements of our client tenants and prospective client tenants, which may adversely impact our revenues from lease payments.
Further, our lab investments could face decreased demand from biotech and life science companies relative to supply, and life science industry consolidation could reduce the rentable square footage requirements of our client tenants and prospective client tenants, which may adversely impact our revenues from lease payments.
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 certain leases should be re-characterized as financing agreements, which could result in our being deemed a lender instead of a landlord.
In addition, a debtor may also assert in bankruptcy proceedings that certain leases should be re-characterized as financing agreements, which could result in our being deemed a lender instead of a landlord.
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. 13 Table of Contents 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.
Bankruptcy and insolvency laws afford certain rights to a defaulting tenant, operator, or borrower that has filed for bankruptcy or reorganization that has, and in the future may, render certain of our remedies unenforceable or, at the least, delay our ability to pursue such remedies and realize any related recoveries.
We rely on information technology networks and systems to process, transmit, and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, and to maintain personal identifying information and tenant and lease data. We utilize software and cloud-based technology from vendors, on whom our systems depend.
We rely on information technology networks, enterprise applications, and other information systems to process, transmit, and store electronic information, and to manage or support a variety of business processes, including financial transactions and records, to maintain personal identifying information and tenant and lease data, and to operate building management systems.
If a debtor were to reject its leases with us, obligations under such rejected leases would cease. The claim against the rejecting debtor for remaining rental payments due under the lease would be an unsecured claim, which would be limited by the statutory cap set forth in the U.S. Bankruptcy Code.
When a debtor rejects its leases with us, obligations under such rejected leases cease. The claim against the rejecting debtor for remaining rental payments due under the lease is an unsecured claim 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 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.
The risk of security breaches has also increased under our hybrid work model. We may be required to expend significant financial resources to detect, protect against or remediate such cybersecurity incidents or cybersecurity threats. In addition, our technology infrastructure and information systems are vulnerable to damage or interruption from natural disasters, power loss, and telecommunications failures.
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 revisions to regulations and interpretations.
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 IRS, and the U.S. Treasury Department, which results in statutory changes as well as revisions to regulations and interpretations. We cannot predict how changes in the tax laws might affect our investors or us.
Under the CARES Act and subsequent relief legislation, Congress has allocated more than $178 billion to eligible hospitals, physicians, and other health care providers through the Public Health and Social Services Emergency Fund (the “Provider Relief Fund” or “PRF”). The U.S.
Under the CARES Act and subsequent Covid relief legislation, Congress allocated more than $178 billion to eligible health care providers through the Public Health and Social Services Emergency Fund (the “Provider Relief Fund” or “PRF”). The U.S. Department of Health and Human Services (“HHS”) distributed PRF awards through various general and targeted distributions.
As a result, we have limited rights to direct or influence the business or operations of our CCRCs and in the properties owned by our SWF SH JV, all of which are under RIDEA structures, 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. 16 Table of Contents Under a RIDEA structure, our TRS is ultimately responsible for all operational risks and other liabilities of the properties, other than those arising out of certain actions by our operator, such as gross negligence or willful misconduct.
As a result, we have limited rights to direct or influence the business or operations of our CCRCs and in the properties owned by our SWF SH JV, all of which are under RIDEA structures, 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.
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.
We are unable to predict future changes to or interpretations of, or the intensity of enforcement efforts with respect to, these laws and regulations, including those that pertain to the Medicare and Medicaid programs.
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 released at a property.
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 released at a property.
PRF program terms and conditions include limitations and requirements governing use of PRF funds, implementation of controls, retention of records relating to PRF funds, audit and reporting to governmental authorities, and other PRF program requirements.
PRF program terms and conditions include limitations and requirements governing use of PRF funds, implementation of controls, retention of records, audit and reporting to governmental authorities, and other PRF program requirements. Failure to comply with program requirements may result in payment recovery or other enforcement actions.
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.
We utilize software and cloud-based technology from third-party service providers, on whom our information 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, as well as building access, security, and operations.
Furthermore, because our operators also rely on the Internet, information technology networks, systems, and software, some of our data may be vulnerable to cyber-attacks on our operators. 21 Table of Contents 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: (i) system disruptions; (ii) shutdowns; (iii) unauthorized access to or disclosure of confidential information; (iv) misappropriation of our or our business partners’ proprietary or confidential information; (v) breach of our legal, regulatory, or contractual obligations; (vi) inability to access or rely upon critical business records or systems; or (vii) other delays in our operations.
We do not control the cybersecurity systems and protocols put in place by our operators or other third parties, and such parties may have limited indemnification obligations to us, which could cause us to be negatively impacted as a result. 24 Table of Contents Cybersecurity incidents and cybersecurity threats affecting our or our operators’ or other third party providers’ information systems, including those caused by physical or electronic break-ins, computer viruses, malware, worms, attacks by hackers or foreign governments, ransomware attacks, disruptions from unauthorized access and tampering, including through social engineering such as phishing or vishing attacks, coordinated denial-of-service attacks, and similar breaches, could result in, among other things: (i) system disruptions; (ii) shutdowns; (iii) unauthorized access to or disclosure of confidential information, including as a result of impersonation of authorized users or manipulated communications; (iv) misappropriation of our or our business partners’ proprietary or confidential information; (v) breach of our legal, regulatory, or contractual obligations; (vi) inability to access or rely upon critical business records or systems; or (vii) other delays in our operations.
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.
Our outstanding indebtedness as of December 31, 2023 was approximately $6.9 billion. We may incur additional indebtedness, which may be substantial. Any significant additional indebtedness would likely negatively affect the credit ratings of our debt and require us to dedicate a growing portion of our cash flow to interest and principal payments.
Moreover, negative publicity of any of our operators’, property managers’, 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.
Moreover, negative publicity of any of our operators’, property managers’, 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 flows. 22 Table of Contents We may also be named as defendants in lawsuits arising out of our alleged actions or the alleged actions of our tenants, operators, or property managers for which such tenants, operators, or property managers may have agreed to indemnify us.
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.
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. Potential deferred and contingent tax liabilities from corporate acquisitions could limit or delay future property sales.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest change(4) Real estate revenues includes income from DFLs for one leased property classified as a DFL which was sold during the first quarter of 2022. 30 Table of Contents 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): 2022 2021 2020 Life science: Average occupancy percentage 98 % 97 % 96 % Average annual rent per square foot (1) $ 71 $ 66 $ 63 Average occupied square feet 10,610 10,143 8,714 Medical office: Average occupancy percentage 90 % 90 % 91 % Average annual rent per square foot (1) $ 33 $ 31 $ 30 Average occupied square feet 21,472 21,046 20,225 CCRC: Average occupancy percentage 82 % 79 % 81 % Average annual rent per occupied unit (1) $ 84,664 $ 80,391 $ 80,772 Average occupied units 5,926 5,881 5,605 _______________________________________ (1) Average annual rent is presented as a ratio of revenues comprised of rental and related revenues, resident fees and services, income from DFLs, and government grant income divided by the average occupied square feet or average occupied units of the facilities and annualized for acquisitions for the year in which they occurred.
Biggest change(4) Excludes operating expenses related to corporate non-segment assets (see Note 15 to the Consolidated Financial Statements). 43 Table of Contents Occupancy and Annual Rent Trends The following table summarizes occupancy and average annual rent trends for our consolidated property and investments held under a direct financing lease (“DFL”) for the years ended December 31 (average occupied square feet in thousands): 2023 2022 2021 Lab: Average occupancy percentage 98 % 98 % 97 % Average annual rent per square foot (1) $ 82 $ 71 $ 66 Average occupied square feet 10,334 10,610 10,143 Outpatient medical (2) : Average occupancy percentage 90 % 90 % 90 % Average annual rent per square foot (1) $ 35 $ 33 $ 31 Average occupied square feet 21,337 21,472 21,046 CCRC: Average occupancy percentage 84 % 82 % 79 % Average annual rent per occupied unit (3) $ 88,524 $ 84,664 $ 80,391 Average occupied units 5,960 5,926 5,881 _______________________________________ (1) Presented as a ratio of revenues comprised of rental and related revenues and income from DFLs divided by average occupied square feet and annualized for acquisitions for the year in which they occurred.
(2) The most recent month’s (or subsequent month’s, if acquired in the most recent month) base rent, including additional rent floors, 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, and deferred revenues). 31 Table of Contents ITEM 3.
(2) The most recent month’s (or subsequent month’s, if acquired in the most recent month) base rent, including additional rent floors, 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, and deferred revenues). 44 Table of Contents ITEM 3.
Legal Proceedings See the “Legal Proceedings” section of Note 12 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 Table of Contents PART II
Legal Proceedings See the “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. 45 Table of Contents PART II
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; 29 Table of Contents • 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 for environmentally sustainable and/or resilient features of 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.
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 for environmentally sustainable and/or resilient features of 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. 42 Table of Contents Properties The following table summarizes our consolidated property investments as of and for the year ended December 31, 2023 (square feet and dollars in thousands): Facility Location Number of Facilities Capacity (1) Gross Asset Value (2) Real Estate Revenues (3) Operating Expenses (4) Lab: (Sq.
(2) Represents gross real estate which includes the carrying amount of real estate after adding back accumulated depreciation and amortization. Excludes gross real estate related to life science assets held for sale of $68 million. (3) Represents the combined amount of rental and related revenues, resident fees and services, income from DFLs, and government grant income.
(2) Represents gross real estate which includes the carrying amount of real estate after adding back accumulated depreciation and amortization. Excludes gross real estate of $123 million related to two lab buildings and one outpatient medical building classified as held for sale. (3) Represents the combined amount of rental and related revenues, resident fees and services, and government grant income.
Average annual rent 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).
Average annual rent excludes termination fees and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, and DFL non-cash interest). (2) During the first quarter of 2022, we sold our remaining hospital under a DFL.
Removed
ITEM 2. Properties We are organized to invest in income-producing healthcare-related facilities.
Added
ITEM 2. Properties Our strategy is to invest in and manage real estate focused on healthcare discovery and delivery.
Removed
Properties The following table summarizes our consolidated property and direct financing lease (“DFL”) investments, excluding investments classified as discontinued operations, as of and for the year ended December 31, 2022 (square feet and dollars in thousands): Facility Location Number of Facilities Capacity (1) Gross Asset Value (2) Real Estate Revenues (3) Operating Expenses Life science: (Sq.
Added
Ft.) California 115 8,094 $ 5,869,665 $ 629,657 $ (157,795) Massachusetts 19 2,613 2,795,913 240,029 (70,259) Other (1 State) 4 240 54,236 8,640 (1,576) Total lab 138 10,947 $ 8,719,814 $ 878,326 $ (229,630) Outpatient medical: (Sq.
Removed
Ft.) California 116 7,829 $ 5,687,333 $ 596,288 $ (144,384) Massachusetts 19 2,613 2,750,357 204,828 (61,506) Other (2 States) 6 240 54,236 16,457 (3,253) Total life science 141 10,682 $ 8,491,926 $ 817,573 $ (209,143) Medical office: (Sq.
Added
Ft.) Texas 75 7,638 $ 1,549,757 $ 220,805 $ (75,159) Pennsylvania 4 1,270 367,434 34,321 (15,603) Colorado 19 1,311 362,822 47,697 (18,366) California 15 862 355,026 40,057 (17,206) South Carolina 18 1,105 340,073 27,851 (5,315) Florida 25 1,438 309,246 41,609 (14,994) Other (29 States) 139 9,977 2,586,334 341,139 (116,489) Total outpatient medical 295 23,601 $ 5,870,692 $ 753,479 $ (263,132) CCRC: (Units) Florida 9 4,783 $ 1,398,609 $ 343,971 $ (275,781) Other (5 States) 6 2,314 631,199 183,630 (137,691) Total CCRC 15 7,097 $ 2,029,808 $ 527,601 $ (413,472) Total properties 448 $ 16,620,314 $ 2,159,406 $ (906,234) _______________________________________ (1) Excludes capacity associated with developments.
Removed
Ft.) Texas 73 7,601 $ 1,514,204 $ 212,591 $ (72,310) Pennsylvania 4 1,270 364,825 33,764 (14,913) California 15 861 352,279 39,458 (18,036) South Carolina 18 1,105 344,915 27,124 (5,188) Colorado 18 1,311 344,223 43,220 (16,631) Florida 26 1,553 316,166 42,949 (15,892) Other (29 States) (4) 140 10,006 2,546,560 326,264 (110,339) Total medical office 294 23,707 $ 5,783,172 $ 725,370 $ (253,309) CCRC: (Units) Florida 9 4,881 $ 1,330,325 $ 332,601 $ (272,629) Other (5 States) 6 2,302 606,198 169,099 (127,910) Total CCRC 15 7,183 $ 1,936,523 $ 501,700 $ (400,539) Total properties 450 $ 16,211,621 $ 2,044,643 $ (862,991) _______________________________________ (1) Excludes capacity associated with developments.
Added
(3) Presented as a ratio of revenues comprised of resident fees and services and government grant income divided by average occupied units of the facilities. Average annual rent excludes termination fees and non-cash revenue adjustments (i.e., the impact of deferred community fee income).
Removed
Tenant Lease Expirations The following table shows tenant lease expirations 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, and excludes properties in our CCRC segment and assets held for sale as of December 31, 2022 (dollars and square feet in thousands): Expiration Year Segment Total 2023 (1) 2024 2025 2026 2027 2028 2029 2030 2031 2032 Thereafter Life science : Square feet 10,391 426 434 1,185 595 1,502 689 851 1,210 1,434 716 1,349 Base rent (2) $ 577,446 $ 27,000 $ 29,065 $ 52,416 $ 25,919 $ 71,660 $ 36,699 $ 52,804 $ 80,566 $ 77,799 $ 46,268 $ 77,250 % of segment base rent 100 5 5 9 5 12 6 9 14 14 8 13 Medical office: Square feet 21,486 2,517 2,383 4,646 1,791 1,809 1,920 1,285 1,150 1,576 1,348 1,061 Base rent (2) $ 528,467 $ 68,969 $ 69,119 $ 93,238 $ 48,715 $ 47,585 $ 38,533 $ 33,233 $ 30,386 $ 37,707 $ 27,075 $ 33,907 % of segment base rent 100 13 13 18 9 9 7 6 6 7 5 7 Total: Base rent (2) $ 1,105,913 $ 95,969 $ 98,184 $ 145,654 $ 74,634 $ 119,245 $ 75,232 $ 86,037 $ 110,952 $ 115,506 $ 73,343 $ 111,157 % of total base rent 100 9 9 13 7 11 7 8 10 10 6 10 _______________________________________ (1) Includes month-to-month leases.
Added
Tenant Lease Expirations The following table shows tenant lease expirations 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, and excludes properties in our CCRC segment and assets held for sale as of December 31, 2023 (dollars and square feet in thousands): Expiration Year Segment Total 2024 (1) 2025 2026 2027 2028 2029 2030 2031 2032 2033 Thereafter Lab: Square feet 10,303 537 1,065 618 1,407 681 806 1,334 1,393 866 531 1,065 Base rent (2) $ 608,770 $ 36,709 $ 50,557 $ 30,694 $ 66,918 $ 36,728 $ 50,104 $ 94,051 $ 84,727 $ 55,504 $ 36,642 $ 66,136 % of segment base rent 100 6 8 5 11 6 8 16 14 9 6 11 Outpatient medical: Square feet 21,414 2,848 2,830 2,049 1,870 2,539 1,419 1,310 1,637 1,357 918 2,637 Base rent (2) $ 546,589 $ 85,359 $ 68,994 $ 57,376 $ 51,438 $ 56,996 $ 38,197 $ 36,069 $ 40,803 $ 28,096 $ 27,376 $ 55,885 % of segment base rent 100 16 13 11 9 10 7 7 7 5 5 10 Total: Base rent (2) $ 1,155,359 $ 122,068 $ 119,551 $ 88,070 $ 118,356 $ 93,724 $ 88,301 $ 130,120 $ 125,530 $ 83,600 $ 64,018 $ 122,021 % of total base rent 100 11 10 8 10 8 8 11 11 7 5 11 _______________________________________ (1) Includes month-to-month leases.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

14 edited+1 added−2 removed4 unchanged
Biggest change(2) On August 1, 2022, our Board of Directors approved a share repurchase program under which we may acquire shares of our common stock in the open market up to an aggregate purchase price of $500 million (the “Share Repurchase Program”).
Biggest changePeriod Covered Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs (1) October 1-31, 2023 — $ — — $ 444,018,701 November 1-30, 2023 — — — 444,018,701 December 1-31, 2023 — — — 444,018,701 — $ — — $ 444,018,701 _______________________________________ (1) On August 1, 2022, our Board of Directors approved a share repurchase program under which we may acquire shares of our common stock in the open market up to an aggregate purchase price of $500 million (the “Share Repurchase Program”).
For the years ended December 31, 2021 and 2020, the “One Year Amounts” and “Three Year Amounts” are each zero, since all capital gains relate to Code Section 1231 gains.
For the year ended December 31, 2021, the “One Year Amounts” and “Three Year Amounts” are each zero, since all capital gains relate to Code Section 1231 gains.
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 29, 2017 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.
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, 2018 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.
(3) For the years ended December 31, 2022, 2021, and 2020, 10.3292%, 100%, and 100%, respectively, of the capital gain distributions represent gains from dispositions of U.S. real property interests pursuant to Code Section 897 for foreign shareholders. On February 1, 2023, we announced that our Board of Directors declared a quarterly common stock cash dividend of $0.30 per share.
(3) For the years ended December 31, 2023, 2022, and 2021, 100%, 10.3292%, and 100%, respectively, of the capital gain distributions represent gains from dispositions of U.S. real property interests pursuant to Code Section 897 for foreign shareholders. On January 31, 2024, we announced that our Board of Directors declared a quarterly common stock cash dividend of $0.30 per share.
(2) For the years ended December 31, 2022, 2021, and 2020, the amount includes $0.017760, $0.379960, and $0.221420, respectively, of Unrecaptured Section 1250 gain. Pursuant to Treasury Regulation Section 1.1061-6(c), we are disclosing additional information related to the capital gain dividends for purposes of Section 1061 of the Code.
(2) For the years ended December 31, 2023, 2022, and 2021, the amount includes $0.036256, $0.017760, and $0.379960, respectively, of unrecaptured Code Section 1250 gain. Pursuant to Treasury Regulation Section 1.1061-6(c), we are disclosing additional information related to the capital gain dividends for purposes of Section 1061 of the Code.
Amounts do not include the shares of our common stock withheld under our equity incentive plans to offset tax withholding obligations as discussed in footnote 1. 34 Table of Contents 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, 2018 to December 31, 2022.
Amounts do not include the shares of our common stock withheld under our equity incentive plans to offset tax withholding obligations as discussed in footnote 1. 47 Table of Contents 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, 2019 to December 31, 2023.
The Share Repurchase Program expires in August 2024 and may be suspended or terminated at any time without prior notice. In August 2022, we repurchased 2.1 million shares of our common stock at a weighted average price of $27.16 per share.
The Share Repurchase Program expires in August 2024 and may be suspended or terminated at any time without prior notice. During the year ended December 31, 2022, we repurchased 2.1 million shares of our common stock at a weighted average price of $27.16 per share.
For the year ended December 31, 2021, the amount includes $0.137064 of ordinary dividends qualified as business income for purposes of Code Section 199A and $0.015272 of qualified dividend income for purposes of Code Section 1(h)(11). For the year ended December 31, 2020, all $0.713864 of ordinary dividends qualified as business income for purposes of Code Section 199A.
For the year ended December 31, 2022, all $0.872948 of ordinary dividends qualified as business income for purposes of Code Section 199A. For the year ended December 31, 2021, the amount includes $0.137064 of ordinary dividends qualified as business income for purposes of Code Section 199A and $0.015272 of qualified dividend income for purposes of Code Section 1(h)(11).
During the fourth quarter of 2022, there were no repurchases; therefore, at December 31, 2022, $444 million of our common stock remained available for repurchase under the Share Repurchase Program.
During the year ended December 31, 2023, there were no repurchases; therefore, at December 31, 2023, $444 million of our common stock remained available for repurchase under the Share Repurchase Program.
The common stock dividend will be paid on February 23, 2023 to stockholders of record as of the close of business on February 9, 2023. 33 Table of Contents Issuer Purchases of Equity Securities The following table sets forth information with respect to purchases of our common stock made by or on our behalf during the quarter ended December 31, 2022.
The common stock dividend will be paid on February 26, 2024 to stockholders of record as of the close of business on February 14, 2024. 46 Table of Contents Issuer Purchases of Equity Securities The following table sets forth information with respect to purchases of our common stock made by or on our behalf during the three months ended December 31, 2023.
Code Section 1061 is generally applicable to direct and indirect holders of “applicable partnership interests.” For the year ended December 31, 2022, the “One Year Amounts” and “Three Year Amounts” are 89.6708% of the total capital gain distributions and the remaining capital gain distributions are attributable to Code Section 1231 gains, which are not subject to Code Section 1061.
For the year ended December 31, 2022, the “One Year Amounts” and “Three Year Amounts” are each 89.6708% of the total capital gain distributions and the remaining capital gain distributions are attributable to Code Section 1231 gains, which are not subject to Code Section 1061.
The following table shows the characterization of our annual common stock distributions per share: Year Ended December 31, 2022 2021 2020 Ordinary dividends (1) $ 0.872948 $ 0.152336 $ 0.713864 Capital gains (2)(3) 0.183208 0.379960 0.529796 Nondividend distributions 0.143844 0.667704 0.236340 $ 1.200000 $ 1.200000 $ 1.480000 ______________________________________ (1) For the year ended December 31, 2022, all $0.872948 of ordinary dividends qualified as business income for purposes of Code Section 199A.
The following table shows the characterization of our annual common stock distributions per share: Year Ended December 31, 2023 2022 2021 Ordinary dividends (1) $ 0.909692 $ 0.872948 $ 0.152336 Capital gains (2)(3) 0.116992 0.183208 0.379960 Nondividend distributions 0.173316 0.143844 0.667704 $ 1.200000 $ 1.200000 $ 1.200000 ______________________________________ (1) For the year ended December 31, 2023, the amount includes $0.882312 of ordinary dividends qualified as business income for purposes of Code Section 199A and $0.027380 of qualified dividend income for purposes of Code Section 1(h)(11).
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 27, 2023, we had 7,206 stockholders of record, and there were 270,018 beneficial holders of our common stock.
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.” As of February 5, 2024, we had 6,797 stockholders of record, and there were 283,417 beneficial holders of our common stock.
RATE OF RETURN TREND COMPARISON JANUARY 1, 2018–DECEMBER 31, 2022 (JANUARY 1, 2018 = $100) Performance Graph Total Stockholder Return December 31, 2018 2019 2020 2021 2022 FTSE Nareit Equity REIT Index $ 95.96 $ 123.46 $ 117.14 $ 165.51 $ 124.22 S&P 500 95.61 125.70 148.81 191.48 156.77 Healthpeak Properties, Inc. 113.68 146.78 135.52 167.70 121.58 35 Table of Contents ITEM 6. [Reserved]
RATE OF RETURN TREND COMPARISON JANUARY 1, 2019–DECEMBER 31, 2023 (JANUARY 1, 2019 = $100) Performance Graph Total Stockholder Return December 31, 2019 2020 2021 2022 2023 FTSE Nareit Equity REIT Index $ 128.66 $ 122.07 $ 172.49 $ 129.45 $ 144.16 S&P 500 131.47 155.65 200.29 163.98 207.04 Healthpeak Properties, Inc. 129.11 119.21 147.52 106.94 89.40 48 Table of Contents ITEM 6. [Reserved]
Removed
Period Covered Total Number of Shares Purchased (1) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under the Plans or Programs (2) October 1-31, 2022 4,853 $ 22.92 — $ 444,018,701 November 1-30, 2022 3,256 24.01 — 444,018,701 December 1-31, 2022 244 25.49 — 444,018,701 8,353 $ 23.42 — $ 444,018,701 _______________________________________ (1) Represents shares of our common stock withheld under our equity incentive plans to offset tax withholding obligations that occur upon vesting of restricted stock units.
Added
Code Section 1061 is generally applicable to direct and indirect holders of “applicable partnership interests.” For the year ended December 31, 2023, the “One Year Amounts” and “Three Year Amounts” are each zero, since all capital gains relate to Code Section 1231 gains.
Removed
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.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

104 edited+45 added−42 removed59 unchanged
Biggest changeNet income (loss) applicable to common shares decreased primarily as a result of the following: • a decrease in income from discontinued operations, primarily as a result of a decrease in gain on sales of real estate from dispositions of our senior housing portfolios, partially offset by lower impairments of depreciable real estate and goodwill; • a decrease in gains on sale of depreciable real estate, primarily related to the Hoag Hospital sale in May 2021; 41 Table of Contents • an increase in general and administrative expenses, primarily as a result of: (i) severance-related charges associated with the departures of our former Chief Executive Officer and our former Chief Legal Officer and General Counsel in the fourth quarter of 2022 and (ii) charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado; • an increase in depreciation, primarily as a result of: (i) development and redevelopment projects placed in service during 2021 and 2022 and (ii) 2021 and 2022 acquisitions of real estate; • an increase in interest expense, primarily as a result of: (i) higher interest rates under the commercial paper program and (ii) borrowings under the 2022 Term Loan Facilities; • a decrease in interest income primarily as a result of principal repayments on and sales of loans receivable in 2021 and 2022; • expenses incurred in 2022 for tenant relocation and other costs associated with the demolition of an MOB; • an increase in loan loss reserves in 2022 primarily due to macroeconomic conditions and increased interest rates; and • casualty-related charges during 2022.
Biggest changeThe decrease in net income (loss) applicable to common shares was partially offset by: • an increase in NOI generated from our lab and outpatient medical segments related to: (i) development and redevelopment projects placed in service during 2022 and 2023, (ii) new leasing activity during 2022 and 2023 (including the impact to straight-line rents), and (iii) 2022 acquisitions of real estate; • an increase in gains on sale of depreciable real estate related to lab and outpatient medical building sales during 2023 as compared to 2022; • a decrease in general and administrative expenses, primarily as a result of: (i) severance-related charges associated with the departures of our former Chief Executive Officer and our former Chief Legal Officer and General Counsel in the fourth quarter of 2022 and (ii) charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado in the fourth quarter of 2022; • a decrease in depreciation related to the deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022; • a decrease in other expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building, which were incurred in the first quarter of 2022; • an increase in income tax benefit primarily as a result of a $14 million tax benefit recognized in connection with the reversal of a deferred tax asset valuation allowance during the fourth quarter of 2023; • a decrease in loan loss reserves primarily as a result of principal repayments on seller financing; • an increase in equity income from unconsolidated joint ventures; and • a decrease in casualty-related charges from a hurricane during the third quarter of 2022. 54 Table of Contents Nareit FFO increased primarily as a result of the aforementioned events impacting net income (loss) applicable to common shares, except for the following, which are excluded from Nareit FFO: • gain upon change of control; • gain on sales of depreciable real estate; and • depreciation and amortization expense.
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 ATM Program.
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 shares under our ATM Program.
Rising interest rates, high inflation, supply chain disruptions, ongoing geopolitical tensions, and increased volatility in public equity and fixed income markets have led to increased costs and limited the availability of capital.
Rising interest rates, high inflation, supply chain disruptions, ongoing geopolitical tensions, and increased volatility in public and private equity and fixed income markets have led to increased costs and limited the availability of capital.
These adjustments are net of tax, when applicable. Transaction-related items include transaction expenses and gains/charges incurred as a result of mergers and acquisitions and lease amendment or termination activities.
These adjustments are net of tax, when applicable. Transaction and merger-related items include transaction expenses and gains/charges incurred as a result of mergers and acquisitions and lease amendment or termination activities.
Investing Cash Flows Our cash flows from investing activities are generally used to fund acquisitions, developments, and redevelopments of real estate assets, net of proceeds received from sales of real estate assets, sales of DFLs, and repayments on loans receivable.
Investing Cash Flows Our cash flows from investing activities are generally used to fund acquisitions, developments, and redevelopments of real estate, net of proceeds received from sales of real estate, sales of DFLs, and repayments on loans receivable.
Under the Code, REITs may be subject to certain federal income and excise taxes on undistributed taxable income. We paid quarterly cash dividends of $0.30 per common share in 2022. Our future common dividends, if and as declared, may vary and will be determined by the Board based upon the circumstances prevailing at the time, including our financial condition.
Under the Code, REITs may be subject to certain federal income and excise taxes on undistributed taxable income. We paid quarterly cash dividends of $0.30 per common share in 2023. Our future common dividends, if and as declared, may vary and will be determined by the Board based upon the circumstances prevailing at the time, including our financial condition.
Inflationary increases in expenses will generally be offset, in whole or in part, by the tenant expense reimbursements and contractual rent increases described above. 50 Table of Contents 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.
Inflationary increases in expenses will generally be offset, in whole or in part, by the tenant expense reimbursements and contractual rent increases described above. 62 Table of Contents 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.
NOI is defined as real estate revenues (inclusive of rental and related revenues, resident fees and services, income from direct financing leases, and government grant income and exclusive of interest income), less property level operating expenses; NOI excludes all other financial statement amounts included in net income (loss) as presented in Note 16 to the Consolidated Financial Statements.
NOI is defined as real estate revenues (inclusive of rental and related revenues, resident fees and services, income from direct financing leases, and government grant income and exclusive of interest income), less property level operating expenses; NOI excludes all other financial statement amounts included in net income (loss) as presented in Note 15 to the Consolidated Financial Statements.
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 16 to the Consolidated Financial Statements.
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.
More specifically, recurring capital expenditures, including second generation leasing costs and second generation tenant and capital improvements ("AFFO capital expenditures") excludes our share from unconsolidated joint ventures (reported in “other AFFO adjustments”). Adjustments for joint ventures are calculated to reflect our pro rata share of both our consolidated and unconsolidated joint ventures.
More specifically, recurring capital expenditures, including second generation leasing costs and second generation tenant and capital improvements (“AFFO capital expenditures”) excludes our share from unconsolidated joint ventures (reported in “other AFFO adjustments”). Adjustments for joint ventures are calculated to reflect our pro rata share of both our consolidated and unconsolidated joint ventures.
These commitments exclude allowances for tenant improvements related to developments and redevelopments in progress for which we have executed an agreement with a general contractor to complete the tenant improvements, which are recognized as development and redevelopment commitments and are discussed further above.
These commitments exclude allowances for Company-owned tenant improvements related to developments and redevelopments in progress for which we have executed an agreement with a general contractor to complete the tenant improvements, which are recognized as development and redevelopment commitments and are discussed further above.
(2) Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for definitions of NOI and Adjusted NOI. See Note 16 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(2) Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(2) Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for definitions of NOI and Adjusted NOI. See Note 16 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(2) Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
We have also been affected by significant inflation in construction costs over the past couple of years, which, together with rising costs of capital, have negatively affected the expected yields on our development and redevelopment projects.
We have also been affected by significant inflation in construction costs over the past few years, which, together with rising costs of capital, have negatively affected the expected yields on our development and redevelopment projects.
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. 39 Table of Contents FFO as Adjusted .
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. 52 Table of Contents FFO as Adjusted .
AFFO is defined as FFO as Adjusted after excluding the impact of the following: (i) amortization of stock-based compensation, (ii) amortization of deferred financing costs, net, (iii) straight-line rents, (iv) deferred income taxes, and (v) other AFFO adjustments, which include: (a) amortization of acquired market lease intangibles, net, (b) non-cash interest related to DFLs and lease incentive amortization (reduction of straight-line rents), (c) actuarial reserves for insurance claims that have been incurred but not reported, and (d) amortization of 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.
AFFO is defined as FFO as Adjusted after excluding the impact of the following: (i) stock-based compensation amortization expense, (ii) amortization of deferred financing costs, net, (iii) straight-line rents, (iv) deferred income taxes, (v) amortization of above (below) market lease intangibles, net, and (vi) other AFFO adjustments, which include: (a) non-cash interest related to DFLs and lease incentive amortization (reduction of straight-line rents), (b) actuarial reserves for insurance claims that have been incurred but not reported, and (c) amortization of 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.
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, other impairments (recoveries) and other losses (gains), restructuring and severance-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), deferred tax asset valuation allowances, and changes in tax legislation (“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 and merger-related items, other impairments (recoveries) and other losses (gains), restructuring and severance-related charges, prepayment costs (benefits) associated with early retirement or payment of debt, litigation costs (recoveries), casualty-related charges (recoveries), deferred tax asset valuation allowances, and changes in tax legislation (“FFO as Adjusted”).
This section generally discusses the results of our operations for the year ended December 31, 2022 compared to the year ended December 31, 2021. For a discussion of the year ended December 31, 2021 compared to the year ended December 31, 2020, please refer to Part II, Item 7.
This section generally discusses the results of our operations for the year ended December 31, 2023 compared to the year ended December 31, 2022. For a discussion of the year ended December 31, 2022 compared to the year ended December 31, 2021, please refer to Part II, Item 7.
We anticipate satisfying these future needs using one or more of the following: • cash flow from operations; • sale of, or exchange of ownership interests in, properties or other investments; • borrowings under our Revolving Facility 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 under the ATM Program (as defined below).
We anticipate satisfying these future needs using one or more of the following: • cash flow from operations; • sale of, or exchange of ownership interests in, properties or other investments; • borrowings under our Revolving Facility and commercial paper program; 60 Table of Contents • issuance of additional debt, including unsecured notes, term loans, and mortgage debt; and/or • issuance of common or preferred stock or its equivalent, including sales of common stock under the ATM Program (as defined below).
Discontinued Operations Operating, investing, and financing cash flows in our Consolidated Statements of Cash Flows are reported inclusive of both cash flows from continuing operations and cash flows from discontinued operations. Certain significant cash flows from discontinued operations are disclosed in Note 18 to the Consolidated Financial Statements.
Discontinued Operations Operating, investing, and financing cash flows in our Consolidated Statements of Cash Flows are reported inclusive of both cash flows from continuing operations and cash flows from discontinued operations. Certain significant cash flows from discontinued operations are disclosed in Note 17 to the Consolidated Financial Statements.
A downgrade in credit ratings by Moody’s, S&P Global, and Fitch may have a negative impact on the interest rates and facility fees for our Revolving Facility and 2022 Term Loan Facilities and may negatively impact the pricing of notes issued under our commercial paper program and senior unsecured notes.
A downgrade in credit ratings by Moody’s or S&P Global may have a negative impact on the interest rates of our Revolving Facility and Term Loan Facilities and facility fees for our Revolving Facility, and may negatively impact the pricing of notes issued under our commercial paper program and senior unsecured notes.
Refer to Note 5 to the Consolidated Financial Statements for additional information regarding dispositions of real estate and the associated gain (loss) on sales recognized.
Refer to Note 4 to the Consolidated Financial Statements for additional information regarding dispositions of real estate and the associated gain (loss) on sales recognized.
Our lease and other contractual commitments represent our commitments, as lessor, under signed leases and contracts for operating properties and include allowances for tenant improvements and leasing commissions.
Lease and other contractual commitments. Our lease and other contractual commitments represent our commitments, as lessor, under signed leases and contracts for operating properties and include allowances for Company-owned tenant improvements and leasing commissions.
Same-Store Adjusted NOI excludes amortization of deferred revenue from tenant-funded improvements and certain non-property specific operating expenses that are allocated to each operating segment on a consolidated basis. Properties are included in Same-Store once they are stabilized for the full period in both comparison periods.
Same-Store Adjusted NOI also excludes amortization of deferred revenue from tenant-funded improvements and certain non-property specific operating expenses that are allocated to each operating segment on a consolidated basis. 51 Table of Contents Properties are included in Same-Store once they are stabilized for the full period in both comparison periods.
Refer to “Market Trends and Uncertainties” above for a more comprehensive discussion of the potential impact of Covid as well as economic and market conditions on our business. Material Cash Requirements Our material cash requirements include the below contractual and other obligations. Debt.
Refer to “Market Trends and Uncertainties” above for a more comprehensive discussion of the potential impact of economic and market conditions on our business. Material Cash Requirements Our material cash requirements include the below contractual and other obligations. Debt.
General and administrative expense General and administrative expenses increased for the year ended December 31, 2022 primarily as a result of: (i) severance-related charges associated with the departures of our former Chief Executive Officer and our former Chief Legal Officer and General Counsel in the fourth quarter of 2022 and (ii) charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado.
General and administrative General and administrative expenses decreased for the year ended December 31, 2023 primarily as a result of: (i) severance-related charges associated with the departures of our former Chief Executive Officer and our former Chief Legal Officer and General Counsel in the fourth quarter of 2022 and (ii) charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado in the fourth quarter of 2022.
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, 2022, the outstanding DownREIT units were convertible into approximately seven million shares of our common stock.
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, 2023, the outstanding DownREIT units were convertible into approximately 7 million shares of our common stock.
AFFO is a non-GAAP supplemental financial measure and should not be considered as an alternative to net income (loss) determined in accordance with GAAP and should only be considered together with and as a supplement to the Company’s financial information prepared in accordance with GAAP.
AFFO is a non-GAAP supplemental financial measure and should not be considered as an alternative to net income (loss) determined in accordance with GAAP and should only be considered together with and as a supplement to our financial information prepared in accordance with GAAP.
Due to the terms of our SHOP seller financing notes receivable, as of December 31, 2022, we are obligated to provide additional loans up to $40 million to fund senior housing redevelopment and capital expenditure projects, which extend through 2024. See Note 8 to the Consolidated Financial Statements for additional information. Ground and other operating lease commitments.
Due to the terms of our SHOP seller financing notes receivable, as of December 31, 2023, we are obligated to provide additional loans up to $29 million to fund senior housing redevelopment capital expenditure projects, which extend through 2024. See Note 7 to the Consolidated Financial Statements for additional information. Ground and other operating lease commitments.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the SEC on February 9, 2022.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on February 8, 2023.
Off-Balance Sheet Arrangements We own interests in certain unconsolidated joint ventures as described in Note 9 to the Consolidated Financial Statements. Two of these joint ventures have mortgage debt of $87 million, of which our share is $40 million. Except in limited circumstances, our risk of loss is limited to our investment in the joint venture.
Off-Balance Sheet Arrangements We own interests in certain unconsolidated joint ventures as described in Note 8 to the Consolidated Financial Statements. Two of these joint ventures have aggregate mortgage debt of $88 million, of which our share is $40 million. Except in limited circumstances, our risk of loss is limited to our investment in the applicable joint venture.
As of December 31, 2022, we had $142 million of variable rate mortgage debt swapped to fixed through interest rate swap instruments and the $500 million 2022 Term Loan Facilities swapped to fixed through forward starting interest rate swap instruments. These interest rate swap instruments are designated as cash flow hedges.
As of December 31, 2023, we had $142 million of variable rate mortgage debt and the $500 million Term Loan Facilities swapped to fixed rates through interest rate swap instruments. These interest rate swap instruments are designated as cash flow hedges.
We will discuss and provide our analysis in the following order: • Market Trends and Uncertainties • Overview of Transactions • Dividends • Results of Operations • Liquidity and Capital Resources • Non-GAAP Financial Measures Reconciliations • Critical Accounting Estimates • Recent Accounting Pronouncements Market Trends and Uncertainties Our operating results have been and will continue to be impacted by global and national economic and market conditions generally and by the local economic conditions where our properties are located, as well as by the Covid pandemic.
We will discuss and provide our analysis in the following order: • Market Trends and Uncertainties • Company Highlights • Dividends • Results of Operations • Liquidity and Capital Resources • Non-GAAP Financial Measures Reconciliations • Critical Accounting Estimates • Recent Accounting Pronouncements Market Trends and Uncertainties Our operating results have been and will continue to be impacted by global and national economic and market conditions generally and by the local economic conditions where our properties are located.
The years ended December 31, 2022, 2021, and 2020 also include reserves for loan losses recognized in impairments and loan loss reserves (recoveries), net in the Consolidated Statements of Operations.
The years ended December 31, 2023, 2022, and 2021 include reserves and (recoveries) for expected loan losses recognized in impairments and loan loss reserves (recoveries), net in the Consolidated Statements of Operations.
We continuously monitor the effects of domestic and global events, including but not limited to inflation, labor shortages, supply chain matters, rising interest rates, and other current and expected impacts of the Covid pandemic on our operations and financial position, as well as on the operations and financial position of our tenants, operators, and borrowers, to ensure that we remain responsive and adaptable to the dynamic changes in our operating environment.
We continuously monitor the effects of domestic and global events, including but not limited to inflation, labor shortages, supply chain matters, rising interest rates, and challenges in the financial markets, on our operations and financial position, as well as on the operations and financial position of our tenants, operators, and borrowers, to ensure that we remain responsive and adaptable to the dynamic changes in our operating environment.
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.
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.
Recent Accounting Pronouncements See Note 2 to the Consolidated Financial Statements for the impact of new accounting standards. 56 Table of Contents
Recent Accounting Pronouncements See Note 2 to the Consolidated Financial Statements for the impact of new accounting standards.
(4) The year ended December 31, 2022 includes the following: (i) $7 million of charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado, which are included in general and administrative expenses in the Consolidated Statements of Operations, (ii) $14 million of expenses incurred for tenant relocation and other costs associated with the demolition of an MOB, which are included in other income (expense), net in the Consolidated Statements of Operations, and (iii) a $23 million gain on sale of a hospital that was in a direct financing lease, which is included in other income (expense), net in the Consolidated Statements of Operations.
(4) The year ended December 31, 2022 includes the following: (i) $7 million of charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado, which are included in general and administrative expenses in the Consolidated Statements of Operations, (ii) $14 million of expenses incurred for tenant relocation and other costs associated with the demolition of an outpatient medical building, which are included in other income (expense), net in the Consolidated Statements of Operations, and (iii) a $23 million gain on sale of a hospital under a DFL, which is included in other income (expense), net in the Consolidated Statements of Operations.
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 life science leases require the tenant or operator to pay all of the property operating costs or reimburse us for all such costs.
Most of our outpatient medical leases require the tenant to pay a share of property operating costs such as real estate taxes, insurance, and utilities. Substantially all of our lab leases require the tenant or operator to pay all of the property operating costs or reimburse us for all such costs.
Our ground and other operating lease commitments represent our commitments as lessee under signed operating leases. As of December 31, 2022, we had total ground and other operating lease commitments of $551 million, $17 million of which are payable within twelve months. See Note 7 to the Consolidated Financial Statements for additional information. Redeemable noncontrolling interests.
Our ground and other operating lease commitments represent our commitments as lessee under signed operating leases. As of December 31, 2023, we had total ground and other operating lease commitments of $542 million, $17 million of which are payable within twelve months. See Note 6 to the Consolidated Financial Statements for additional information. 61 Table of Contents Redeemable noncontrolling interests.
We include properties from our consolidated portfolio, as well as properties owned by our unconsolidated joint ventures in Same-Store NOI and Adjusted NOI (see NOI definition above for further discussion regarding our use of pro-rata share information and its limitations).
We include properties from our consolidated portfolio, as well as properties owned by our unconsolidated joint ventures in Same-Store NOI and Adjusted NOI (see NOI definition above for further discussion regarding our use of pro-rata share information and its limitations). Same-Store NOI and Adjusted NOI exclude government grant income under the CARES Act.
We also pay a facility fee on the entire revolving commitment that depends upon our credit ratings. As of February 6, 2023, 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.
We also pay a facility fee on the entire commitment under our Revolving Facility that depends upon our credit ratings. As of February 7, 2024, we had long-term credit ratings of Baa1 from Moody’s and BBB+ from S&P Global, and short-term credit ratings of P-2 from Moody’s and A-2 from S&P Global.
As of December 31, 2022, we had total lease and other contractual commitments of $33 million, $30 million of which we expect to spend within the next twelve months. Construction loan commitments.
As of December 31, 2023, we had total lease and other contractual commitments of $28 million, $26 million of which we expect to spend within the next twelve months. Construction loan commitments.
Each put option is subject to changes in redemption value in the event that the underlying property generates specified returns for us and meets certain promote thresholds pursuant to the respective agreements. During the year ended December 31, 2022, one of the redeemable noncontrolling interests met the conditions for redemption, but was not yet exercised.
Each put option is subject to changes in redemption value in the event that the underlying property generates specified returns for us and meets certain promote thresholds pursuant to the respective agreements. As of December 31, 2023, three of the redeemable noncontrolling interests have met the conditions for redemption, but were not yet exercised.
The increase in other income, net during the year ended December 31, 2022 was partially offset by: (i) expenses incurred in 2022 for tenant relocation and other costs associated with the demolition of an MOB and (ii) casualty losses from a hurricane in the third quarter of 2022.
The decrease in other income, net during the year ended December 31, 2023 was partially offset by: (i) other expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building, which were incurred in the first quarter of 2022 and (ii) casualty losses from a hurricane in the third quarter of 2022.
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.
These estimates could affect our financial position or results of operations. 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.
See Note 13 to the Consolidated Financial Statements for additional information about our ATM Program. Share Repurchase Program On August 1, 2022, our Board of Directors approved the Share Repurchase Program under which we may acquire shares of our common stock in the open market up to an aggregate purchase price of $500 million.
Share Repurchase Program On August 1, 2022, our Board of Directors approved the Share Repurchase Program under which we may acquire shares of our common stock in the open market up to an aggregate purchase price of $500 million.
Other income (expense), net Other income, net increased for the year ended December 31, 2022 primarily as a result of: (i) a gain upon change of control related to the sale of a 30% interest and deconsolidation of seven previously consolidated life science assets in South San Francisco, California, (ii) a gain on sale of a hospital under a DFL, and (iii) an increase in government grant income received under the CARES Act in 2022.
Other income (expense), net Other income, net decreased for the year ended December 31, 2023 primarily as a result of: (i) a gain upon change of control related to the sale of a 30% interest and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022, (ii) a gain on sale associated with the disposition of a hospital under a DFL during the first quarter of 2022, and (iii) a decrease in government grant income received under the CARES Act in 2023.
Our CCRCs are operated through RIDEA structures. We have other non-reportable segments that are comprised primarily of: (i) an interest in our unconsolidated SWF SH JV, (ii) loans receivable, and (iii) marketable debt securities. We evaluate performance based upon property adjusted net operating income (“Adjusted NOI” or “Cash NOI”) in each segment.
We have other non-reportable segments that are comprised primarily of: (i) an interest in our unconsolidated SWF SH JV and (ii) loans receivable. These non-reportable segments have been presented on an aggregate basis herein. We evaluate performance based upon property adjusted net operating income (“Adjusted NOI” or “Cash NOI”) in each segment.
(2) Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for definitions of NOI and Adjusted NOI. See Note 16 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).
(2) Represents adjustments to NOI in accordance with our definition of Adjusted NOI. Refer to “Non-GAAP Financial Measures” above for the definitions of NOI and Adjusted NOI. See Note 15 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss). (3) From our 2022 presentation of Same-Store, no properties were added or removed.
FFO as Adjusted increased primarily as a result of the aforementioned events impacting Nareit FFO, except for the following, which are excluded from FFO as Adjusted: • goodwill impairment charges related to the disposition of our senior housing portfolios, included in income from discontinued operations; • the gain on sale of a hospital under a DFL; • the expenses for tenant relocation and other costs associated with the demolition of an MOB; • the charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado; • loan loss reserves; • loss on debt extinguishment; • severance-related charges; and • casualty-related charges.
FFO as Adjusted increased primarily as a result of the aforementioned events impacting Nareit FFO, except for the following, which are excluded from FFO as Adjusted: • severance-related charges; • gain on sale of a hospital under a DFL; • reversal of a valuation allowance on deferred tax assets; • expenses for tenant relocation and other costs associated with the demolition of an outpatient medical building; • loan loss reserves; • transaction and merger-related costs; • casualty-related charges; and • the charges incurred in connection with the downsizing of our corporate headquarters in Denver, Colorado.
The following table sets forth changes in cash flows (in thousands): Year Ended December 31, 2022 2021 Change Net cash provided by (used in) operating activities $ 900,261 $ 795,248 $ 105,013 Net cash provided by (used in) investing activities (876,343) 531,032 (1,407,375) Net cash provided by (used in) financing activities (116,532) (1,288,517) 1,171,985 Operating Cash Flows Our cash flows from operations are 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.
The following table sets forth changes in cash flows (in thousands): Year Ended December 31, 2023 2022 Change Net cash provided by (used in) operating activities $ 956,242 $ 900,261 $ 55,981 Net cash provided by (used in) investing activities (576,754) (876,343) 299,589 Net cash provided by (used in) financing activities (337,299) (116,532) (220,767) Operating Cash Flows Our cash flows from operations are 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.
We present expenses as operating or general and administrative based on the underlying nature of the expense. 38 Table of Contents Same-Store Same-Store 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 portfolio of properties, excluding properties within the other non-reportable segments.
Same-Store Same-Store 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 portfolio of properties, excluding properties within the other non-reportable segments.
Operating cash flows increased $105 million for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily as the result of: (i) 2021 and 2022 acquisitions, (ii) annual rent increases, (iii) new leasing and renewal activity, and (iv) developments and redevelopments placed in service during 2021 and 2022.
Our net cash provided by operating activities increased $56 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of: (i) developments and redevelopments placed in service during 2022 and 2023, (ii) annual rent increases, (iii) higher nonrefundable entrance fee collections, and (iv) new leasing and renewal activity.
(2) The year ended December 31, 2022 includes a $311 million gain upon change of control primarily related to the sale of a 30% interest to a sovereign wealth fund and deconsolidation of seven previously consolidated life science assets in South San Francisco, California.
(2) The year ended December 31, 2022 includes a gain upon change of control related to the sale of a 30% interest to a sovereign wealth fund and deconsolidation of seven previously consolidated lab buildings in South San Francisco, California. The gain upon change of control is included in other income (expense), net in the Consolidated Statements of Operations.
Approximately 85% and 79% of our consolidated debt was fixed rate debt as of December 31, 2022 and 2021, respectively. At December 31, 2022, our fixed rate debt and variable rate debt had weighted average interest rates of 3.46% and 4.91%, respectively.
At December 31, 2023, our fixed rate debt and variable rate debt had weighted average interest rates of 3.70% and 5.72%, respectively. At December 31, 2022, our fixed rate debt and variable rate debt had weighted average interest rates of 3.46% and 4.91%, respectively.
Dividends Quarterly cash dividends paid during 2022 aggregated to $1.20 per share. On February 1, 2023, our Board of Directors declared a quarterly cash dividend of $0.30 per common share. The dividend will be paid on February 23, 2023 to stockholders of record as of the close of business on February 9, 2023.
On January 31, 2024, our Board of Directors declared a quarterly cash dividend of $0.30 per common share. The dividend will be paid on February 26, 2024 to stockholders of record as of the close of business on February 14, 2024.
Equity income (loss) from unconsolidated joint ventures Equity income from unconsolidated joint ventures decreased for the year ended December 31, 2022 as a result of increased net losses primarily due to the South San Francisco JVs transaction in 2022.
Equity income (loss) from unconsolidated joint ventures Equity income from unconsolidated joint ventures increased for the year ended December 31, 2023 primarily as a result of increased income from the South San Francisco JVs and the SWF SH JV.
For the year ended December 31, 2022, our Same-Store consists of 376 properties representing properties acquired or placed in service and stabilized on or prior to January 1, 2021 and that remained in operations under a consistent reporting structure through December 31, 2022.
For the year ended December 31, 2023, our Same-Store consists of 403 properties representing properties acquired or placed in service and stabilized on or prior to January 1, 2022 and that remained in operations through December 31, 2023. Our total property portfolio consisted of 477 and 480 properties at December 31, 2023 and 2022, respectively.
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 (primarily lease revenue rates, expense rates, and growth rates).
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 assets. 67 Table of Contents 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 (primarily lease revenue rates, expense rates, and growth rates).
The securities described in the prospectus include common stock, preferred stock, depositary shares, debt securities and warrants. 53 Table of Contents Non-GAAP Financial Measures Reconciliations Funds From Operations 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 AFFO (in thousands): Year Ended December 31, 2022 2021 2020 Net income (loss) applicable to common shares $ 497,792 $ 502,271 $ 411,147 Real estate related depreciation and amortization (1) 710,569 684,286 697,143 Healthpeak’s share of real estate related depreciation and amortization from unconsolidated joint ventures 27,691 17,085 105,090 Noncontrolling interests’ share of real estate related depreciation and amortization (19,201) (19,367) (19,906) Other real estate-related depreciation and amortization — — 2,766 Loss (gain) on sales of depreciable real estate, net (1) (10,422) (605,311) (550,494) Healthpeak’s share of loss (gain) on sales of depreciable real estate, net, from unconsolidated joint ventures 134 (6,737) (9,248) Noncontrolling interests’ share of gain (loss) on sales of depreciable real estate, net 12 5,555 (3) Loss (gain) upon change of control, net (2) (311,438) (1,042) (159,973) Taxes associated with real estate dispositions 29 2,666 (7,785) Impairments (recoveries) of depreciable real estate, net — 25,320 224,630 Nareit FFO applicable to common shares 895,166 604,726 693,367 Distributions on dilutive convertible units and other 9,407 6,162 6,662 Diluted Nareit FFO applicable to common shares $ 904,573 $ 610,888 $ 700,029 Weighted average shares outstanding - diluted Nareit FFO 546,462 544,742 536,562 Impact of adjustments to Nareit FFO: Transaction-related items (3) $ 4,788 $ 7,044 $ 128,619 Other impairments (recoveries) and other losses (gains), net (4) 3,829 24,238 (22,046) Restructuring and severance-related charges (5) 32,749 3,610 2,911 Loss (gain) on debt extinguishments — 225,824 42,912 Litigation costs (recoveries) — — 232 Casualty-related charges (recoveries), net (6) 4,401 5,203 469 Foreign currency remeasurement losses (gains) — — 153 Valuation allowance on deferred tax assets (7) — — 31,161 Tax rate legislation impact (8) — — (3,590) Total adjustments $ 45,767 $ 265,919 $ 180,821 FFO as Adjusted applicable to common shares $ 940,933 $ 870,645 $ 874,188 Distributions on dilutive convertible units and other 9,326 8,577 6,490 Diluted FFO as Adjusted applicable to common shares $ 950,259 $ 879,222 $ 880,678 Weighted average shares outstanding - diluted FFO as Adjusted 546,462 546,567 536,562 FFO as Adjusted applicable to common shares $ 940,933 $ 870,645 $ 874,188 Amortization of stock-based compensation 16,537 18,202 17,368 Amortization of deferred financing costs 10,881 9,216 10,157 Straight-line rents (49,183) (31,188) (29,316) AFFO capital expenditures (108,510) (111,480) (93,579) Deferred income taxes (4,096) (8,015) (15,647) Other AFFO adjustments (22,860) (19,510) 9,534 AFFO applicable to common shares 783,702 727,870 772,705 Distributions on dilutive convertible units and other 6,594 6,164 6,662 Diluted AFFO applicable to common shares $ 790,296 $ 734,034 $ 779,367 Weighted average shares outstanding - diluted AFFO 544,637 544,742 536,562 Refer to footnotes on the next page. 54 Table of Contents ________________________________ (1) This amount can be reconciled by combining the balances from the corresponding line of the Consolidated Statements of Operations and the detailed financial information for discontinued operations in Note 5 to the Consolidated Financial Statements.
The securities described in the prospectus include future offerings of (i) the Company’s common stock, preferred stock, depositary shares, warrants, debt securities, and guarantees by the Company of debt securities issued by Healthpeak OP and/or by the Company’s existing and future subsidiaries, and (ii) Healthpeak OP’s debt securities and guarantees by Healthpeak OP of debt securities issued by the Company and/or by Healthpeak OP’s existing and future subsidiaries. 65 Table of Contents Non-GAAP Financial Measures Reconciliations 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 AFFO (in thousands): Year Ended December 31, 2023 2022 2021 Net income (loss) applicable to common shares $ 304,284 $ 497,792 $ 502,271 Real estate related depreciation and amortization 749,901 710,569 684,286 Healthpeak’s share of real estate related depreciation and amortization from unconsolidated joint ventures 24,800 27,691 17,085 Noncontrolling interests’ share of real estate related depreciation and amortization (18,654) (19,201) (19,367) Loss (gain) on sales of depreciable real estate, net (1) (86,463) (10,422) (605,311) Healthpeak’s share of loss (gain) on sales of depreciable real estate, net, from unconsolidated joint ventures — 134 (6,737) Noncontrolling interests’ share of gain (loss) on sales of depreciable real estate, net 11,546 12 5,555 Loss (gain) upon change of control, net (2) (234) (311,438) (1,042) Taxes associated with real estate dispositions — 29 2,666 Impairments (recoveries) of depreciable real estate, net — — 25,320 Nareit FFO applicable to common shares 985,180 895,166 604,726 Distributions on dilutive convertible units and other 9,394 9,407 6,162 Diluted Nareit FFO applicable to common shares $ 994,574 $ 904,573 $ 610,888 Impact of adjustments to Nareit FFO: Transaction and merger-related items (3) $ 13,835 $ 4,788 $ 7,044 Other impairments (recoveries) and other losses (gains), net (4) (3,850) 3,829 24,238 Restructuring and severance-related charges (5) 1,368 32,749 3,610 Loss (gain) on debt extinguishments — — 225,824 Casualty-related charges (recoveries), net (6) (4,033) 4,401 5,203 Recognition (reversal) of valuation allowance on deferred tax assets (7) (14,194) — — Total adjustments $ (6,874) $ 45,767 $ 265,919 FFO as Adjusted applicable to common shares $ 978,306 $ 940,933 $ 870,645 Distributions on dilutive convertible units and other 9,402 9,326 8,577 Diluted FFO as Adjusted applicable to common shares $ 987,708 $ 950,259 $ 879,222 FFO as Adjusted applicable to common shares $ 978,306 $ 940,933 $ 870,645 Stock-based compensation amortization expense 14,480 16,537 18,202 Amortization of deferred financing costs 11,916 10,881 9,216 Straight-line rents (8) (14,387) (49,183) (31,188) AFFO capital expenditures (113,596) (108,510) (111,480) Deferred income taxes (816) (4,096) (8,015) Amortization of above (below) market lease intangibles, net (25,791) (23,380) (17,978) Other AFFO adjustments (9,335) 520 (1,532) AFFO applicable to common shares 840,777 783,702 727,870 Distributions on dilutive convertible units and other 6,581 6,594 6,164 Diluted AFFO applicable to common shares $ 847,358 $ 790,296 $ 734,034 Refer to footnotes on the next page. 66 Table of Contents ________________________________ (1) This amount can be reconciled by combining the balances from the corresponding line of the Consolidated Statements of Operations and the detailed financial information for discontinued operations in Note 4 to the Consolidated Financial Statements.
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.
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. Adjusted FFO (“AFFO”).
Noncontrolling interests’ share in discontinued operations Noncontrolling interests’ share in discontinued operations decreased for the year ended December 31, 2022 as a result of the completion of our dispositions of our senior housing portfolios. 48 Table of Contents 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 the next 12 months and for the foreseeable future for purposes of: (i) funding recurring operating expenses; (ii) meeting debt service requirements; and (iii) satisfying funding of distributions to our stockholders and non-controlling interest members.
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 the next 12 months and for the foreseeable future for purposes of: (i) costs incurred to consummate the Mergers and the other transactions contemplated in the Merger Agreement; (ii) funding recurring operating expenses; (iii) meeting debt service requirements; and (iv) satisfying funding of distributions to our stockholders and non-controlling interest members.
Our net cash used in financing activities decreased $1.2 billion for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily as a result of the following: (i) no repayments of senior unsecured notes (including debt extinguishment costs) in 2022, (ii) issuance of the 2022 Term Loan Facilities, (iii) proceeds received from the settlement of forward contracts under our ATM Program, and (iv) fewer purchases of and distributions to noncontrolling interests.
Our net cash used in financing activities increased $221 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of the following: (i) issuance of the the Term Loan Facilities in 2022, (ii) settlement of contracts under our ATM Program in 2022, (iii) higher net repayments under the commercial paper program, (iv) higher repayments of mortgage debt, and (v) increased distributions to noncontrolling interests.
Operating expenses generally relate to leased medical office and life science properties, as well as CCRC facilities. We generally recover all or a portion of our leased medical office and life science property expenses through tenant recoveries.
Operating expenses generally relate to leased outpatient medical and lab buildings, as well as CCRC facilities. We generally recover all or a portion of our leased outpatient medical and lab property expenses through tenant recoveries. We present expenses as operating or general and administrative based on the underlying nature of the expense.
Interest expense Interest expense increased for the year ended December 31, 2022 primarily as a result of: (i) higher interest rates under the commercial paper program and (ii) borrowings under the 2022 Term Loan Facilities.
Interest expense Interest expense increased for the year ended December 31, 2023 primarily as a result of: (i) senior unsecured notes issued during the first half of 2023, (ii) borrowings under the Term Loan Facilities, which were drawn during the fourth quarter of 2022, and (iii) higher interest rates on the commercial paper program, partially offset by lower borrowings on the commercial paper program.
The increase in depreciation and amortization expense for the year ended December 31, 2022 was partially offset by: (i) lower depreciation related to the deconsolidation of seven previously consolidated life science assets in South San Francisco, California and (ii) dispositions of real estate in 2021 and 2022.
Depreciation and amortization Depreciation and amortization expense increased for the year ended December 31, 2023 primarily as a result of development and redevelopment projects placed in service during 2022 and 2023, partially offset by: (i) assets placed into redevelopment in 2023, (ii) dispositions of real estate in 2022 and 2023, and (iii) lower depreciation related to the deconsolidation of seven previously consolidated lab buildings in South San Francisco, California during the third quarter of 2022.
(3) From our 2021 presentation of Same-Store, we added: (i) six stabilized developments placed in service, (ii) five stabilized acquisitions, and (iii) four stabilized redevelopments placed in service, and we removed: (i) seven life science facilities that were placed into redevelopment, (ii) one life science facility related to a significant tenant relocation, and (iii) one life science facility that was classified as held for sale.
(3) From our 2022 presentation of Same-Store, we added: (i) five stabilized acquisitions, (ii) three stabilized buildings that previously experienced a significant tenant relocation, (iii) two stabilized redevelopments placed in service, and (iv) one stabilized development placed in service, and we removed: (i) six buildings that were placed into redevelopment, (ii) one asset that was placed into land held for development, and (iii) one building that experienced a significant tenant relocation.
Our net cash used in investing activities increased $1.4 billion for the year ended December 31, 2022 compared to the year ended December 31, 2021 primarily as a result of the following: (i) fewer sales of real estate assets, (ii) increased development and redevelopment of real estate assets, and (iii) fewer repayments on loans receivable.
Our net cash used in investing activities decreased $300 million for the year ended December 31, 2023 compared to the year ended December 31, 2022 primarily as a result of the following: (i) a reduction in acquisitions of real estate, (ii) a reduction in development and redevelopment of real estate, (iii) an increase in proceeds from the sales of real estate, (iv) an increase in proceeds from principal repayments on loans receivable and marketable debt securities, and (v) an increase in proceeds from insurance recoveries.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store and the following Non-Same-Store impacts: • increased NOI from our 2021 and 2022 acquisitions; • increased occupancy in former redevelopment and development properties that have been placed in service; partially offset by • decreased NOI from our 2021 and 2022 dispositions. 45 Table of Contents Continuing Care Retirement Community 2022 and 2021 The following table summarizes results at and for the years ended December 31, 2022 and 2021 (dollars in thousands, except per unit data): SS Total Portfolio Year Ended December 31, Year Ended December 31, 2022 2021 Change 2022 2021 Change Resident fees and services $ 494,935 $ 471,325 $ 23,610 $ 494,935 $ 471,325 $ 23,610 Government grant income (1) 6,765 1,412 5,353 6,765 1,412 5,353 Healthpeak’s share of unconsolidated joint venture total revenues — — — — 6,903 (6,903) Healthpeak’s share of unconsolidated joint venture government grant income — — — 380 200 180 Operating expenses (398,915) (378,919) (19,996) (400,539) (380,865) (19,674) Healthpeak’s share of unconsolidated joint venture operating expenses — — — — (6,639) 6,639 Adjustments to NOI (2) 2,300 3,476 (1,176) 2,300 3,241 (941) Adjusted NOI $ 105,085 $ 97,294 $ 7,791 103,841 95,577 8,264 Less: non-SS Adjusted NOI 1,244 1,717 (473) SS Adjusted NOI $ 105,085 $ 97,294 $ 7,791 Adjusted NOI % change 8.0 % Property count (3) 15 15 15 15 Average occupancy 81.6 % 79.2 % 81.6 % 79.1 % Average occupied units (4) 5,926 5,881 5,926 6,002 Average annual rent per occupied unit $ 84,661 $ 80,384 $ 84,725 $ 79,954 _______________________________________ (1) Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the Consolidated Statements of Operations.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store and the following Non-Same-Store impacts: • increased NOI from our 2022 acquisitions; • business interruption proceeds related to a demolished asset; and • increased occupancy in former redevelopment and development properties that have been placed in service; partially offset by • decreased NOI from our 2022 and 2023 dispositions. 57 Table of Contents Continuing Care Retirement Community The following table summarizes results at and for the years ended December 31, 2023 and 2022 (dollars in thousands, except per unit data): SS Total Portfolio Year Ended December 31, Year Ended December 31, 2023 2022 Change 2023 2022 Change Resident fees and services $ 526,769 $ 494,935 $ 31,834 $ 527,417 $ 494,935 $ 32,482 Government grant income (1) — — — 184 6,765 (6,581) Healthpeak’s share of unconsolidated joint venture government grant income — — — — 380 (380) Operating expenses (411,539) (398,915) (12,624) (413,472) (400,539) (12,933) Adjustments to NOI (2) (1,618) 2,300 (3,918) (1,618) 2,300 (3,918) Adjusted NOI $ 113,612 $ 98,320 $ 15,292 112,511 103,841 8,670 Plus (less): non-SS adjustments 1,101 (5,521) 6,622 SS Adjusted NOI $ 113,612 $ 98,320 $ 15,292 Adjusted NOI % change 15.6 % Property count (3) 15 15 15 15 Average occupancy (4) 83.8 % 81.6 % 83.9 % 81.6 % Average occupied units (5) 5,952 5,926 5,960 5,926 Average annual rent per occupied unit $ 88,503 $ 83,519 $ 88,524 $ 84,725 _______________________________________ (1) Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the Consolidated Statements of Operations.
Noncontrolling interests’ share in continuing operations Noncontrolling interests’ share in continuing operations decreased for the year ended December 31, 2022 primarily as a result of a gain on sale of an MOB in a consolidated partnership during 2021.
Noncontrolling interests’ share in continuing operations Noncontrolling interests’ share in continuing operations increased for the year ended December 31, 2023 primarily as a result of a gain on sale of an outpatient medical building in a consolidated joint venture that was sold during the second quarter of 2023.
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.
Critical Accounting Estimates The preparation of financial statements in conformity with U.S. GAAP requires our management to use judgment in the application of critical accounting 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.
The increase in cash used in investing activities was partially offset by: (i) a reduction in investments related to the acquisitions of real estate assets, (ii) proceeds received from the sale of a 30% interest in seven previously consolidated life science assets in South San Francisco, California, and (iii) proceeds received from the sale of a hospital under a DFL.
The decrease in cash used in investing activities was partially offset by: (i) proceeds received in 2022 from the sale of a 30% interest in seven previously consolidated lab buildings in South San Francisco, California and (ii) higher investments in unconsolidated joint ventures related to the funding of redevelopment projects.
Results of Operations We evaluate our business and allocate resources among our reportable business segments: (i) life science, (ii) medical office, and (iii) CCRC. Under the life science and medical office segments, we invest through the acquisition, development, and management of life science facilities, MOBs, and hospitals, which generally requires a greater level of property management.
Results of Operations We evaluate our business and allocate resources among our reportable business segments: (i) lab, (ii) outpatient medical, and (iii) CCRC. Under the lab and outpatient medical segments, we invest through the acquisition, development, and management of lab buildings, outpatient medical buildings, and hospitals. Our CCRCs are operated through RIDEA structures.
Comparison of the Year Ended December 31, 2022 to the Year Ended December 31, 2021 Overview (1) 2022 and 2021 The following table summarizes results for the years ended December 31, 2022 and 2021 (in thousands): Year Ended December 31, 2022 2021 Change Net income (loss) applicable to common shares $ 497,792 $ 502,271 $ (4,479) Nareit FFO 895,166 604,726 290,440 FFO as Adjusted 940,933 870,645 70,288 AFFO 783,702 727,870 55,832 _______________________________________ (1) For the reconciliation of non-GAAP financial measures, see “Non-GAAP Financial Measure Reconciliations” below.
For a reconciliation of net income (loss) to AFFO and other relevant disclosures, refer to “Non-GAAP Financial Measures Reconciliations” below. 53 Table of Contents Comparison of the Year Ended December 31, 2023 to the Year Ended December 31, 2022 Overview 2023 and 2022 (1) The following table summarizes results for the years ended December 31, 2023 and 2022 (in thousands): Year Ended December 31, 2023 2022 Change Net income (loss) applicable to common shares $ 304,284 $ 497,792 $ (193,508) Nareit FFO 985,180 895,166 90,014 FFO as Adjusted 978,306 940,933 37,373 AFFO 840,777 783,702 57,075 _______________________________________ (1) For the reconciliation of non-GAAP financial measures, see “Non-GAAP Financial Measure Reconciliations” below.
As of December 31, 2022, we had total debt of $6.5 billion, including borrowings under our bank line of credit and commercial paper program, senior unsecured notes, term loans, and mortgage debt. Future interest payments associated with such debt total $1.2 billion, $188 million of which are payable within twelve months.
Future interest payments associated with borrowings under our Revolving Facility, senior unsecured notes, term loans, and mortgage debt total $1.4 billion, $220 million of which are payable within twelve months.
(4) Average annual total revenues does not include non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest, and deferred revenues). (5) 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).
(6) 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). Same-Store Adjusted NOI increased primarily as a result of the following: • mark-to-market lease renewals; and • annual rent escalations; partially offset by • higher operating expenses.
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.
The expected future undiscounted cash flows reflect external market factors, and based on the specific facts and circumstances, may be probability-weighted to reflect multiple possible cash-flow scenarios, including selling the assets at various points in the future.
Same-Store Adjusted NOI and Total Portfolio Adjusted NOI increased primarily as a result of the following: • increased rates for resident fees; • increased government grant income received under the CARES Act; and • lower Covid-related expenses; partially offset by • higher costs of labor, food, and repairs and maintenance. 46 Table of Contents Other Income and Expense Items The following table summarizes results of our other income and expense items for the years ended December 31, 2022 and 2021 (in thousands): Year Ended December 31, 2022 2021 Change Interest income $ 23,300 $ 37,773 $ (14,473) Interest expense 172,944 157,980 14,964 Depreciation and amortization 710,569 684,286 26,283 General and administrative 131,033 98,303 32,730 Transaction costs 4,853 1,841 3,012 Impairments and loan loss reserves (recoveries), net 7,004 23,160 (16,156) Gain (loss) on sales of real estate, net 9,078 190,590 (181,512) Gain (loss) on debt extinguishments — (225,824) 225,824 Other income (expense), net 326,268 6,266 320,002 Income tax benefit (expense) 4,425 3,261 1,164 Equity income (loss) from unconsolidated joint ventures 1,985 6,100 (4,115) Income (loss) from discontinued operations 2,884 388,202 (385,318) Noncontrolling interests’ share in continuing operations (15,975) (17,851) 1,876 Noncontrolling interests’ share in discontinued operations — (2,539) 2,539 Interest income Interest income decreased for the year ended December 31, 2022 primarily as a result of principal repayments on and sales of loans receivable in 2021 and 2022.
Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store, partially offset by decreased government grant income received under the CARES Act. 58 Table of Contents Other Income and Expense Items The following table summarizes the results of our other income and expense items for the years ended December 31, 2023 and 2022 (in thousands): Year Ended December 31, 2023 2022 Change Interest income $ 21,781 $ 23,300 $ (1,519) Interest expense 200,331 172,944 27,387 Depreciation and amortization 749,901 710,569 39,332 General and administrative 95,132 131,033 (35,901) Transaction and merger-related costs 17,515 4,853 12,662 Impairments and loan loss reserves (recoveries), net (5,601) 7,004 (12,605) Gain (loss) on sales of real estate, net 86,463 9,078 77,385 Other income (expense), net 6,808 326,268 (319,460) Income tax benefit (expense) 9,617 4,425 5,192 Equity income (loss) from unconsolidated joint ventures 10,204 1,985 8,219 Income (loss) from discontinued operations — 2,884 (2,884) Noncontrolling interests’ share in continuing operations (28,748) (15,975) (12,773) Interest income Interest income decreased for the year ended December 31, 2023 primarily as a result of principal repayments on loans receivable in 2022 and 2023, partially offset by higher interest rates.
Therefore, at December 31, 2022, no shares remained outstanding under ATM forward contracts. During the year ended December 31, 2022 , there were no direct issuances of shares of common stock under the ATM Program. At December 31, 2022, $1.18 billion of our common stock remained available for sale under the ATM Program.
During the year ended December 31, 2023 , we did not issue any shares of our common stock under any ATM program. At December 31, 2023, $1.5 billion of our common stock remained available for sale under the ATM Program.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeAdditionally, a one percentage point increase or decrease in interest rates would change the fair value of our fixed rate debt investments by approximately $1 million. These changes would not materially impact earnings or cash flows.
Biggest changeAt December 31, 2023, a one percentage point increase in interest rates would decrease the fair value of our fixed rate debt by approximately $255 million and a one percentage point decrease in interest rates would increase the fair value of our fixed rate debt by approximately $272 million. These changes 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.
Conversely, changes in interest rates on variable rate debt would change our future earnings and cash flows, but not materially impact the fair value of those instruments.
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 risk. We do not use derivative financial instruments for speculative or trading purposes.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk We are exposed to various market risks, primarily from 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 risk. 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 22 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.
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.
Our remaining variable rate debt at December 31, 2022 was comprised of our commercial paper program and certain of our mortgage debt. 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.
Our remaining variable rate debt at December 31, 2023 was comprised of borrowings under our commercial paper program and certain of our mortgage debt. 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.
The interest rate swap instruments 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. At December 31, 2022, both the fair value and carrying value of the interest rate swap instruments were $30 million.
The interest rate swap instruments 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. At December 31, 2023, both the fair value and carrying value of the interest rate swap instruments were $21 million.
Assuming a one percentage point increase in the interest rates related to our variable rate debt, and assuming no other changes in the outstanding balance at December 31, 2022, our annual interest expense would increase by approximately $10 million.
Assuming a one percentage point increase in the interest rates related to our variable rate debt, and assuming no other changes in the outstanding balance at December 31, 2023, our annual interest expense would increase by approximately $7 million.
At December 31, 2022, a one percentage point increase or decrease in the underlying interest rate curve would result in a corresponding increase or decrease in the fair value of the derivative instruments by approximately $23 million. Interest Rate Risk At December 31, 2022, our exposure to interest rate risk was primarily on our variable rate debt.
At December 31, 2023, a one percentage point increase or decrease in the underlying interest rate curve would result in a corresponding increase or decrease in the fair value of the derivative instruments by up to $18 million. Interest Rate Risk At December 31, 2023, our exposure to interest rate risk was primarily on our variable rate debt.
Lastly, assuming a one percentage point decrease in the interest rates related to our variable rate loans receivable, and assuming no other changes in the outstanding balance at December 31, 2022, our annual interest income would decrease by $2 million.
Lastly, assuming a one percentage point decrease in the interest rates related to our variable rate loans receivable, and assuming no other changes in the outstanding balance at December 31, 2023, our annual interest income would decrease by approximately $2 million. 68 Table of Contents
At December 31, 2022, $142 million of our variable rate mortgage debt was swapped to fixed through interest rate swap instruments. At December 31, 2022, the $500 million 2022 Term Loan Facilities were swapped to fixed through forward-starting interest rate swap instruments.
At December 31, 2023, $142 million of our variable rate mortgage debt and our $500 million Term Loan Facilities were swapped to fixed rates through interest rate swap instruments.
Removed
At December 31, 2022, a one percentage point increase in interest rates would decrease the fair value of our fixed rate debt by approximately $214 million and a one percentage point decrease in interest rates would increase the fair value of our fixed rate debt by approximately $229 million.
Removed
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.
Removed
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.
Removed
At December 31, 2022, both the fair value and carrying value of marketable debt securities was $22 million. These securities matured on December 31, 2022, and we received the related proceeds in January 2023. 57 Table of Contents

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