Healthpeak Properties (DOC) Q2 2026 Earnings Call Transcript

DATE

Wednesday, Aug. 5, 2026 at 10:00 a.m. ET

CALL PARTICIPANTS

• President and Chief Executive Officer - Scott Brinker
• Chief Financial Officer - Kelvin Moses
• Senior Vice President, Investor Relations - Andrew Johns
• Senior Vice President - Scott Bohn

TAKEAWAYS

• FFO as Adjusted -- $0.46 per share for the second quarter, matching the prior year period.
• Net Income -- $0.08 per share, compared to $0.05 per share in the second quarter of 2025.
• Brookfield Joint Venture -- $1.025 billion in proceeds generated from the sale of a 49% interest in an 86-asset outpatient medical portfolio valued at $2.1 billion.
• Full Year 2026 FFO Guidance -- $1.73 to $1.77 per share, representing a $0.02 increase at the midpoint from previous guidance.
• Total Same-Store Cash NOI Guidance -- 0% to 1.5%, a 75 basis point increase at the midpoint driven by performance in Lab and Senior Housing segments.
• Net Debt to Adjusted EBITDAre -- 4.7x at quarter end, with $4.1 billion in available liquidity.
• Outpatient Medical Occupancy -- 90.7%, reflecting a sequential increase of 20 basis points.
• Outpatient Medical Cash Re-leasing Spreads -- 5%, consistent with the average of the previous 10 quarters.
• Lab Portfolio Occupancy -- 78.5%, an 80 basis point sequential increase and 140 basis points higher than year-end 2025.
• Lab New Leasing -- 222,000 square feet executed during the quarter, with approximately 30% of total lab leasing occurring on vacant space.
• Janus Living Performance -- 45% revenue growth and 34% adjusted EBITDA growth year over year, with Healthpeak maintaining a 73.6% equity ownership interest.
• Janus Living Same-Store Adjusted NOI -- 19.2% growth, contributing to the parent company's raised earnings guidance.
• Share Repurchase Program -- $100 million in stock repurchased in April 2026 at a weighted average price of $16.81 per share.
• New Buyback Authorization -- $500 million authorized by the Board of Directors in July 2026, replacing the previous program.
• Seller Note Repayment -- $400 million received from the partial repayment of a seller financing loan, which included $9 million in interest income from accelerated discount recognition.
• Atlanta Development -- $20 million new outpatient medical project in Sugar Hill, Georgia, which is 84% pre-leased to Northside Hospital.
• Debt Extinguishment -- $900 million of debt repaid through Aug. 4, including $650 million of senior unsecured notes in July.
• Torrey Pines Leasing -- 97% leased percentage in the San Diego submarket when accounting for executed leases and LOIs, up from 65% at year-end 2025.
• Lab Leasing Pipeline -- 500,000 square feet under letters of intent as of the earnings call date.
• Outpatient Medical Pipeline -- 882,000 square feet under letters of intent as of Aug. 3, 2026.
• Capital Expenditures -- 10% for renewals and 20% to 25% for new leasing, which management described as consistent with historical averages.

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RISKS

• Moses stated, "Boston is probably the most challenged just given the supply overhang across that marketplace," noting a significant supply-demand imbalance in that specific sector.
• Bohn noted that while activity is improving, "we're still in an environment where folks are a little cautious," which can lead to lease conversion timelines ranging from three to nine months.

SUMMARY

Management at Healthpeak Properties, Inc. (NYSE:DOC) reported increased fiscal 2026 guidance following sequential occupancy gains in both Lab and Outpatient Medical segments. The company completed a $1.025 billion recapitalization of its outpatient portfolio with Brookfield and maintained leverage below 5x, providing capacity for opportunistic acquisitions. The Janus Living senior housing subsidiary contributed significantly to consolidated growth, prompting management to raise same-store NOI expectations. The company also executed a $100 million share buyback and established a new $500 million authorization as part of its capital allocation strategy.

• CEO Brinker characterized the current market environment as an "acquisition game" for life sciences over the next few years, noting the company has the platform and balance sheet to capitalize on distressed opportunities.
• Management highlighted the Brookfield joint venture includes a call option for Healthpeak to repurchase the noncontrolling interest after seven years at a price providing a 6.5% unlevered rate of return.
• SVP Bohn noted that lab leasing demand is normalizing in the 25,000 to 75,000 square foot range as the biotech funding environment improves.
• CFO Moses reported that lab commencements in the second half of 2026 are expected to exceed expirations, supporting a forecast of modest total occupancy improvement by year-end.
• CEO Brinker stated that the company is willing to maintain leverage below its 5.5x long-term target because "the cost of debt today isn't much lower than the fair market cap rate of our real estate."
• Management indicated that property management internalization and the rollout of an agentic operating platform are contributing to higher tenant retention and lower tenant improvement costs compared to peers.

INDUSTRY GLOSSARY

• FFO (Funds From Operations): A measure used by REITs to define cash flow from operations, calculated by adding depreciation and amortization to earnings and subtracting gains from property sales.
• NOI (Net Operating Income): A formula used to calculate the profitability of income-producing real estate by subtracting all reasonably necessary operating expenses from all revenue.
• REIT (Real Estate Investment Trust): A company that owns, operates, or finances income-producing real estate across various property sectors.
• Outpatient Medical (MOB): Medical Office Buildings or facilities used for medical services that do not require an overnight stay.
• Wet Lab: Laboratory space equipped with specialized plumbing, ventilation, and equipment for handling biological or chemical matter.
• Cash Re-leasing Spread: The difference between the rent paid by a tenant on a new or renewal lease compared to the rent paid at the end of the prior lease for the same space.
• Cap Rate (Capitalization Rate): A percentage rate of return used in real estate to indicate the potential rate of return on an investment property based on the income that the property is expected to generate.
• LOI (Letter of Intent): A document outlining the preliminary agreement between two parties before a lease or contract is finalized.

Full Conference Call Transcript

Operator: Good morning, and welcome to the Healthpeak Properties, Inc. Second Quarter 2026 Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Andrew Johns, Senior Vice President, Investor Relations. Please go ahead.

Andrew Johns: Welcome. Today's conference call contains certain forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, these statements are subject to risks and uncertainties that may cause actual results to differ materially from our expectations. A discussion of risk and risk factors is included in our press release and detailed in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. Certain non-GAAP measures will be discussed on this call. In an 8-K that we filed with SEC yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with regulatory requirements.

The exhibit is also available on our website at healthpeak.com. I'll now turn the call over to our President and Chief Executive Officer, Scott Brinker.

Scott Brinker: Thanks, A.J., and welcome to Healthpeak's second quarter earnings call. WE CARE is the acronym we use for our core values with the W representing our winning mindset. That's easy to do when demand exceeds supply and fundamentals are in your favor. Everyone's happy and looks really smart. It's a lot harder to do when supply exceeds demand, but that's exactly when a winning mindset is needed the most. As the life science pendulum finally starts to swing back in our favor, I want to say thank you to the team here who live up to our core values and maintain a winning mindset these past four years. It absolutely paid off, and we're stronger because of it.

The downturn also provided a window to redefine our company and reset the competitive landscape. We were bold and strategic, including a $5 billion merger and $1 billion IPO. Today, we're a bigger and better company because of those decisive actions. Even more important, we added capabilities, including strategic new hires and internalizing property management in much of our renewal leasing. Now we're in the process of rolling out our agentic operating platform. This modern version of Healthpeak is an on-the-ground operator who generates superior results with our people and platform. We're already seeing a payoff from this strategy.

In the past two quarters, two of the largest and most respected real estate investors in the world chose Healthpeak as their operating partner. Neither Blackstone or Brookfield had any meaningful prior exposure to the outpatient medical sector. Both joint ventures allow us to maintain control of strategic buildings and tenant relationships, while providing an alternative source of equity capital. We're excited to grow both of those partnerships in the future. Our balance sheet is stronger than it's ever been. Leverage is below 5x, and we have flexibility to pursue a number of capital allocation alternatives. We're funding highly pre-leased outpatient development projects sourced directly through our relationships such as the project in Atlanta that we announced last evening.

We can also do outpatient acquisitions in our joint ventures with Blackstone and Brookfield, where the deal structures generate additional returns to Healthpeak as the operating partner. We also see a unique opportunity in life science to create value via acquisition. Life science has been a development game for the past decade, but for the next few years, it will be an acquisition game, and we have the platform and balance sheet to capitalize on the opportunity. We can also do stock buybacks if and when the stock price is well below intrinsic value.

Today, that's less attractive, but we did buy back $100 million in April at a 10-plus percent FFO yield when the stock was less than $17 per share. And finally, we could maintain leverage below our 5.5x long-term target given the cost of debt today isn't much lower than the fair market cap rate of our real estate. This is not the right environment to have elevated leverage. With our strong balance sheet, we can afford to be patient and utilize our dry powder when it's most impactful. A few comments on operating results and the underlying environment. The strong fundamentals in outpatient medical that we spoke to with the merger announcement 3 years ago continued to be validated.

Last quarter, we had plus 5% cash re-leasing spreads and modest TIs that continue to be materially lower than peers. Total occupancy increased 20 basis points sequentially, and our leasing pipeline suggests that an internal growth in the outpatient portfolio will accelerate in 2027. In life science, public capital raising last quarter was the highest since 2Q '21. The IPO market is healthy but measured with 13 later-stage companies raising more than $5 billion in proceeds in the first half of the year. This week alone, we could see 5 biotech priced IPOs. M&A has been record-breaking with more than $250 billion of announcements in the last 3 quarters, which recycles capital back into the ecosystem.

Most important, the science continues to advance and year-to-date FDA approvals are above the 5-year trend. The building blocks are in place for occupancy in the sector to inflect, led by Healthpeak. In Senior Housing, we'll provide all the details on the Janus Living call, but happy to report that same-store portfolio had 260 basis points of occupancy growth and 19% NOI growth. We have an active and accretive acquisition pipeline sourced through our deep relationships in the sector, including $1.8 billion closed since January 1. Our Senior Housing portfolio will essentially double in size this year, and the number of operating partners will increase from 2 to more than 10.

We're on pace to accomplish a 3-year business plan in 12 months. Janus Living success is also driving earnings growth at Healthpeak, given our unique and creative deal structure that aligns the interest of both companies. I'll turn it to Kelvin.

Kelvin Moses: Thank you, Scott. We continue to execute our plan and have made tremendous progress year-to-date in our leasing and capital allocation objectives. I'll take a moment on our outpatient medical recapitalization with Brookfield. We're pleased to complete this strategic partnership as the proceeds raised exceed our capital recycling target for the year in a single transaction. With the leadership from our investment's team, we have demonstrated our ability to execute scale transactions and partner with leading institutional investment managers. From a structure perspective, Healthpeak will retain a 51% ownership interest in a 5.6 million square foot outpatient medical portfolio and raise $1 billion of cash proceeds.

We will utilize our best-in-class platform and expertise to provide asset management, property management and leasing services maintaining day-to-day control of the real estate and preserving our client relationship. Economically, the transaction represents a trailing cash cap rate of 5.9% and after 7 years, we'll have a finite number of call rights to repurchase the noncontrolling interest at a price sufficient to provide Brookfield a 6.5% unlevered rate of return. Most importantly, this partnership expands our access to alternative sources of equity capital with a framework we can replicate to pursue growth opportunities across our business. Now turning to the second quarter results. We reported FFO as adjusted of $0.46 per share and net debt-to-EBITDA of 4.7x.

Now starting with outpatient medical. We had another strong quarter of leasing as we continue to see demand for our real estate. For the quarter, we executed 1.2 million square feet of leases, including approximately 327,000 square feet of new leasing, bringing our year-to-date total to 2.3 million square feet. We achieved 80% tenant retention and cash re-leasing spreads of 5%, which is in line with our average of 5% over the last 10 quarters and above our pre-Physician Realty merger averages of 2% to 3%. We ended the quarter with total occupancy up 20 basis points sequentially to 90.7%. Since July 1, we have an additional 204,000 square feet of lease execution and approximately 882,000 square feet under LOI.

I'd like to highlight our partnership with Northside in Atlanta as it's proven to be a source of strategic growth for our outpatient portfolio. We have now entered into another development agreement for the ground up construction of a new outpatient medical project to support their expansion in Atlanta, where we have #1 market share. This will be the fifth development project with Northside, totaling approximately 565,000 square feet. Moving to Lab. We continue to make progress towards net absorption and total occupancy capture through year-end. For the quarter, we executed 381,000 square feet of leases, of which approximately 60% was new leasing and 30% on vacant space.

We ended the quarter with total occupancy increasing by 80 basis points sequentially to 78.5%. That is a 140 basis points increase since year-end 2025. And since July, we've entered into approximately 20,000 square feet of leases and have another 480,000 square feet under LOI. As a result of this activity, we anticipate a modest improvement in total occupancy by year-end from where we stand as of June 30. These results reflect our focus on driving leasing volumes at our properties, which I would like to highlight by sharing our progress in Torrey Pines, the premier lab submarket in San Diego.

The activity we've seen in Torrey is a testament to our team on the ground and our high-quality portfolio as tenants are seeking core assets and core locations with experienced landlords. This is allowing us to capture an outsized share of the deal volume. When accounting for executed leases and LOIs, our leased percentage in the submarket increases to 97% from approximately 65% at year-end 2025. [ And ending with Senior Housing. ] Healthpeak's ownership interest in Janus Living is now 74%, which represents approximately $6.5 billion of equity value.

For the second quarter, Janus Living delivered total revenue growth of 45%, adjusted EBITDA growth of 34% and ended the period with cash on the balance sheet and no outstanding debt. Now moving to the balance sheet. We had significant activity during the second quarter into the third quarter against the backdrop of elevated borrowing costs. We have taken prudent steps to manage our debt maturities and maintain flexibility in accessing the capital markets. Through year-end, we now expect to generate $1.9 billion of gross proceeds from capital recycling initiatives, and to date, we have completed $1 billion of acquisitions and buybacks.

Through August 4, we have repaid $900 million of debt, including $650 million of senior unsecured notes in July. We ended the second quarter with net debt to adjusted EBITDA of 4.7x and $4.1 billion of available liquidity. And quickly ending with guidance before we open up for Q&A. We raised our FFO's adjusted guidance range by $0.02 to $1.73 to $1.77 per share. The raise was driven by a 75 basis point increase in total same-store NOI from midpoint which includes a 200 basis points increase in both Lab and Senior Housing and the recognition of the low market interest amortization related to the $400 million seller note repayment.

To recap, we've made significant progress across the business through the first half of the year, and our balance sheet has never been stronger. We have ample capacity available to deploy into new investments as we find opportunities. And with that, operator, please open the line for questions.

Operator: Your first question is from the line of Ronald Kamdem from Morgan Stanley.

Ronald Kamdem: I just wanted to add about the Lab portfolio, looked like occupancy picked up as you mentioned sequentially and still expecting sort of improvement in the back half of the year. I guess I'm just curious, as you're sort of putting it all together with the environment with the leasing pipeline, when do you think you'll have line of sight to be able to see sort of same-store inflect to the positive?

Kelvin Moses: Hi, Ron, this is Kelvin. I'll start there. I mean I think what's most important that we've been really focused on is capturing more than our share of the demand in the market and driving net absorption through the portfolio. And we've been able to do that through the first half of the year. We started with 77% occupancy coming into the year and now we're at 78.5% total occupancy, which I think is a testament to the team doing a really phenomenal job on the ground to capture that demand, and it will certainly translate. We improved our same-store guidance for Lab by 200 basis points at the midpoint, and that's certainly trending in the right direction.

That's driven by the improvement in occupancy and just the overall health that we're seeing in the sector. So I think it's probably a little too soon to predict exactly which quarter we'll see that inflection, but we're certainly trending in the right direction.

Scott Brinker: Ron, I just want to add, same-store is less relevant. The real key is total occupancy and moving NOI in that segment higher. That's what generates earnings growth and ultimately share price. So that's all we talk about internally. That's the number we're reporting on. We report same-store because we have to. That's not the number we focus on. The key is we're growing total occupancy, and that's going to grow total NOI and ultimately earnings. So we're making progress already in the first half of this year.

Operator: Your next question comes from the line of Juan Sanabria from BMO Capital Markets.

Juan Sanabria: I appreciate how succinct the prepared remarks were. Just on the Lab and the competitive environment for leasing, you obviously have different players out there with different motivations, highly motivated to push up leasing as you guys are. But just curious if anything has changed with regards to the rate environment, free rent, build-out costs, et cetera? And maybe as part of that, if you can comment on any changes in the size of tenants out there, small, medium, large and where the improvements have been?

Kelvin Moses: Hi, Juan, this is Kelvin. I'll start there. What I'd say is the pipeline continues to be fairly robust. We've seen since September 25, strong demand just continue in the portfolio. We've had a 2 million square foot leasing pipeline. And we've been capturing that demand and translating it into executed LOIs and leases. So as of the earnings call, we had 500,000 square feet under LOI, which is within our 2 million square feet of pipeline. And I'd say the characteristics of that pipeline hasn't changed dramatically. It's disproportionately wet lab space. It's biotech tenants that are really attracted to core assets in core locations.

So we're certainly a recipient of all of the positive momentum we've seen in the biotech sector. From a rates and concession standpoint, I'd say that the rates continue to be in line generally with our portfolio averages. Free rent has trended to be 1 month per year up to 2 months per year of lease term. And that's been fairly consistent. So it's really -- it's use dependent. It's a condition of the quality of the space, how much capital needs to be invested that's really driving the economics around these deals. And each situation is fairly unique.

But most importantly, our portfolio can accommodate a wide variety of uses, and we've seen the benefit of that in our results. We've had fairly low capital deployed to capture that occupancy, just given the quality of our spaces for second-generation leases. And in certain instances where we have redevelopments, CapEx could be more elevated as we have to improve spaces that have been occupied for multiple decades by a single tenant. So I think the pipeline continues to be strong, and the team is doing a phenomenal job converting it.

Scott Bohn: Juan, this is Scott Bohn. The only thing I'd add on that, too, is the, from a size perspective, we have seen more in that 25,000 to 75,000 square foot range, both in the execution as well as the LOI and pipeline bucket. So I think that size range is normalizing as we see the funding environment continue to improve.

Operator: Your next question is from the line of John Kilichowski Wells Fargo.

William John Kilichowski: Scott, in the opening remarks, you talked about the outlook for Lab getting more attractive here. I'm curious, are we getting back into an environment, where the distressed lab opportunity is looking more attractive to you? And what's the opportunity set today there?

Scott Brinker: Yes. The building blocks for the sector recovery are definitely there, and we're starting to translate that into leasing pipeline and leasing execution and growing occupancy. So things are definitely getting better. Obviously, there was some work that needed to be done with vacancy. So it's not going to happen overnight, but the trajectory is clearly positive. I think the incumbents like Healthpeak are definitely capturing market share. So we're focused on core markets, buildings we want to own long term and particularly situations where we think our platform can bring something to the table and lease up a building that's otherwise not doing very well.

So I think we've got the team and the balance sheet and the credibility to do all those things. The pipeline is active. It may end up not doing anything, we'll see. These deals take time to play out. Sometimes they're quite complicated, lenders involved, et cetera. But we're working on a number of situations. We obviously did the one at Gateway over the new year. It's doing phenomenally well. Scott, Natalia and the team are leasing it up, signed something like 125,000 feet of leases or LOIs since that purchase and active discussions on another 200,000 feet or so. So like really making good progress on that at a great basis.

So hopefully, it's -- situations like that, that we're focused on core submarket in a situation where we can really add value with our platform and balance sheet and relationships. So we're working on a number of them, but no promises that any of them get done, but I think we'll end up being a consolidator over the next 24 months, which should prove to be a great time to grow the portfolio.

Operator: Your next question is from the line of Austin Wurschmidt from KeyBanc Capital Markets.

Austin Wurschmidt: Kelvin, I think you had said that about 30% of the new leasing in the second quarter was for vacant space. I'm just wondering if you can give us some sense about the difference between leased versus occupied today and kind of how that's trended versus last quarter? And what kind of a commencement schedule looks like across those leases that have been signed and are expected to take occupancy over the next 6 months or so?

Kelvin Moses: Yes. Thanks, Austin, for that question. Without giving very specific guidance in terms of occupancy in the forward quarters, what I can simply say is that we have commencements in the back half of the year that exceed our expirations, and we continue to expect a modest improvement in total occupancy for the lab portfolio. We've talked about the pipeline. It continues to be healthy. And these leases have the potential to commence starting in 2026 that are within our LOI bucket. I wouldn't say it's a substantial share of that 500,000 square feet that we mentioned, but we do have the potential for some of our recent executions to benefit 2026 and into 2027.

So we continue to focus on just capturing demand. We're only midway through the year. So there's plenty of time, no pressure on the team here to go out there and further improve the conversion of that pipeline that will drive incremental occupancy into 2027.

Operator: Your next question is from the line of Seth Bergey from Citi.

Seth Bergey: It sounds like the kind of activity in the market has certainly improved, and you're seeing kind of more tenants. I'm just wondering how is that conversion time line kind of changed just given the amount of the available lab space? Are you seeing a pickup between kind of when tenants come to market and getting across that finish line and signing a lease?

Scott Bohn: Sure, Seth. It's Scott Bohn. I mean, we're still in an environment where folks are a little cautious, right? I mean, there's a little scar tissue out there. So I think people and groups are taking their time and doing the diligence they need to do, which they should in a lease process. So from initial tour to execution, depending on the deal, it could be 3 months, it could be 9 months, right? There's a lot of factors at play, size, organization, things like that, but it's been relatively consistent over the past 12 months.

Operator: Your next question is from the line of Connor Mitchell from UBS.

Connor Mitchell: You guys mentioned some CapEx that's required for second-generation leasing or spaces that have been occupied now turning over. Can you just expand on that a bit and maybe how much CapEx we should expect over the near or medium term just based on the known move-outs and the leasing pipeline?

Kelvin Moses: Hi, Connor. This is Kelvin. I'll start there. What I would say is, generally speaking, as you look through the available space in our portfolio, we've done a great job over the year to invest in capital and preparing for these second-generation leases. So we've done a great job keeping capital costs low to obtain the occupancy that we've been able to achieve. So I think on our redevelopment assets, in certain instances, you'll see a more elevated capital need to get spaces that were occupied for multiple decades by a single tenant to be prepared for multi-tenant occupancy or to be modernized for the current user's requirements. So those spaces will require some elevated capital.

But generally speaking, with our availabilities, we're looking at pretty modest capital cost across the board to get tenants in. We don't have much space in our portfolio that needs to be built out from shell. I think that's a huge advantage, both from a timing standpoint of getting a tenant to occupancy, but also from a capital spend standpoint. So we're certainly taking advantage of the quality of our space right now to be able to capture the demand.

Scott Brinker: Yes. If you're looking for numbers too, I'd just say around 10% for renewals, probably 20%, 25% for new leasing. It's probably just a good rule of thumb, some higher, some lower, but just as an average, it's about what it's been over the last decade.

Operator: Your next question is from the line of Rich Anderson at Cantor Fitzgerald.

Richard Anderson: Very nice quarter. Last quarter, you guided to 100 basis point uptick in -- for the year in Life Science, and you've achieved that and then some so far. You have not made a commitment going forward necessarily on what that number will look like. And I can appreciate it's a lumpy business and so on. But is -- I guess, the question is 100 basis points up despite being 150 basis points up for the first half. Is that still in the range of possible, meaning like you could have some volatility in terms of timing of leasing, chunky assets that are coming -- that are expiring so on?

Or is 100 basis points up the full year, meaning some giveback in the second half is probably off the table at this point?

Kelvin Moses: Yes, Rich, maybe I'll try to answer that simplistically. When we had articulated the 100 basis points, that was off of year-end 2025, total occupancy at 77%, and we've already exceeded that. And I think for the balance of the year, I mentioned a few times that we have commencements that will exceed our expirations. Every quarter is unique in terms of the timing of when those vacates occur. So there could be some lumpiness, but we've anticipated modest improvement in total occupancy through year-end from here. So we've already captured the 100 basis points that we had articulated previously, and there's still room to capture some incremental occupancy through the balance of the year.

Operator: Your next question comes from the line of Rich Hightower at Barclays.

Richard Hightower: I guess shifting to outpatient for a minute. I noticed that, I guess, cash spreads decelerated a little bit in the second quarter versus the first quarter. So maybe just help us understand a window into that? And where would you estimate sort of the mark-to-market opportunity in outpatient? And I guess, thirdly, are you looking at growing that portfolio, maybe even via the JVs.

Scott Brinker: Yes. Thanks for the question, Rich. Mark and the team are doing a great job taking advantage of solid fundamentals in that business. So the re-leasing spreads, I don't know they might have been down 20 basis points from last quarter, but they're up like 50% from the last decade at plus 5%. That's a phenomenal result in that business. And even better, we're doing it with very modest TIs. And we're getting 3% escalators on essentially all the leasing that's being done. So the re-leasing spreads only half the story, to couple that with low TIs and really strong escalators, just a phenomenal result. So we're actually really pleased with it.

Operator: Your next question comes from the line of Farrell Granath from Bank of America.

Farrell Granath: Staying on the MOB topic, I was curious if you can expand on your appetite for potentially doing more JVs, especially in this recap structure. And also, if you could just touch on what led you to do this Brookfield transaction, especially keeping the call option on the go forward.

Scott Brinker: Yes. Adam and the team did a fantastic job with Brookfield. That's a great organization to work with. We've done some things with them over the years. Happy to have them as a partner going forward. They obviously have a huge balance sheet and appetite to grow as does Blackstone. So really two amazing partners to add to our portfolio over the last few quarters. And I would expect us to do more with each. The deal structures are a little different. We're 51% owner with Brookfield. We're a 20% owner with Blackstone.

And they each have their own unique things that they're trying to pursue, but the common thread is they're looking to partner with Healthpeak as their GP in this business. We do have a fantastic existing portfolio that we can recap at what we think are strong prices. Obviously, they're getting the returns that they need. But from our perspective, these are strong prices. And with Brookfield, that buyback option, I mean, when this team joined Healthpeak, I don't know, 8 years ago, we inherited contracts that the tenants had a lot of purchase options that were in the money. I think we've created a purchase option here that will be in the money for Healthpeak.

After 7 years, obviously, we'll make that decision at the time, but the 6.5% unlevered return with the quality of the portfolio, we think that's certainly achievable. So a great price upfront from our perspective, but also the ability to acquire assets in the future at a strong price, maintain the hospital relationships, control of the decision-making. I mean, it's really a phenomenal outcome. It just puts our balance sheet in the best position it's ever been with leverage below 5x. We're seeing a lot of opportunity across all three business segments that we're excited to take advantage of, but we'll be patient and make sure that when we actually use the dry powder that it's as impactful as possible.

Operator: Your next question comes from the line of Michael Carroll at RBC Capital Markets.

Michael Carroll: I know, Scott, you touched on this throughout the call, but I wanted to circle back on the lab acquisition opportunities what markets are most interesting? And should we think about this as more of a fee simple type acquisition, or are you still interested in the structured finance type deals that you guys done in the past?

Scott Brinker: Yes. We'll focus on the core markets where we have a competitive advantage, people on the ground that can actually make a difference. We're already capturing more than our fair share of the leasing. So I think that will be a common thread in anything that we do is we can bring our platform to the table and create value in addition to our balance sheet. In terms of deal structure, we did some loans, I don't know, 2 years ago because owners hadn't really capitulated, so the pricing didn't make sense from our perspective. But I think we're getting closer to the point that pricing has come down. Gateway is a good example where fee simple made more sense.

So I'd say the majority of what we're looking at today is feasible. But there may be unique situations where we'd still look to a loan structure with an option to buy. But pathway to ownership in any event, we're not here to make loans.

Operator: Your next question comes from the line of Michael Stroyeck from Green Street.

Michael Stroyeck: Can you maybe just provide some color on which lab markets are seeing the strongest demand today? And maybe related to that, where is pricing power holding up the best across those markets if there is differentiation?

Kelvin Moses: Yes. Maybe I'll start, Michael. Thanks for the question. And I might ask Scott to jump in here as well. But we're certainly seeing the demand the strongest in the Bay Area. No surprise that the biotech ecosystem in that market just continues to thrive. And we're positioning our portfolio to be able to capture that demand. San Diego has also been tremendously productive. We talked about Torrey Pines and what we've seen there. And a good amount of that demand has been homegrown. These are existing clients that have had successful outcomes in their businesses and are seeking more space.

That's the story that you like to hear across the sector, and that's happened quite frequently in the Torrey submarket that's driven those outcomes that we talked about getting from high 60s to high 90s, lease percentage is pretty phenomenal in a short amount of time. So great execution from our team, but also just the strength of what we're seeing in that market. Boston is probably the most challenged just given the supply overhang across that marketplace. I think where we're positioned in West Cambridge and Lexington, we have an opportunity to continue to capture demand that's kind of seeking that kind of suburban urban product, and we've done a phenomenal job there.

We're also very well leased in that market. So with regards to our available spaces, we've been chasing a subset of the demand. There's other submarkets that are proving to become alternatives outside of biotech in life sciences. So as the supply overhang gets managed, that should probably improve over time. But Scott, I don't know if you'd add anything specifically...

Scott Bohn: Yes. I think in Boston, one thing I would note is in the second quarter, we saw 80% of the market activity that we saw in all 2025, right? So you're certainly seeing signs of light there. I mean as Kelvin mentioned, there's the biggest supply-demand imbalance there. So a lot to work through, but our relative position there is important to remember, too. I mean, if you look at the Route 128 West market, I mean, overall, it's 30% vacant, but our assets are 11% vacant, right? So it really comes down to what is the quality of your assets within that particular submarket.

And your question on pricing power, we talked about it a lot, but our portfolio of scale, especially in markets like Bay Area or Torrey allow us to see a lot of deals that aren't widely marketed, whether those are just relationships we have with tenants within the portfolio or otherwise or the VCs and many of those are groups who are growing within the portfolio. So we tend to have a little bit more pricing power on deals like that than you would on widely marketed deal.

Operator: Your next question is from the line of Mike Mueller at JPMorgan.

Michael Mueller: Scott, you touched on outpatient spreads. Was there anything out of the ordinary driving the weaker lapse rent spread in the quarter? Was it just spreads bouncing around, trying to drive occupancy or something else?

Scott Brinker: It's just a unique situation. We've had very positive spreads for the last couple of years, plus or minus 5%, 6%, 7%. In most quarters, there's always going to be an outlier quarter, up or down. This was one where it was a little bit down. We had a lease in Boston. The team did a great job renewing at actually really strong terms. It's a 10-year lease, not much TI, but the rent was a little bit lower and ended up being a bit competitive, but the team did a great job winning that deal. So still a great outcome, but it's really just the one big lease that drove that outcome.

I think Kelvin spoke earlier to the mark-to-market across the whole portfolio, plus or minus in line. But there are obviously going to be outliers on either side of that depending on specific building or when that lease was signed, nothing to read into this specific quarter though.

Operator: We have reached the end of the Q&A session. The conference has now concluded. Thanks for attending today's presentation. You may now disconnect.

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