After closing its merger with Physicians Realty Trust in March 2024, Denver-based Healthpeak Properties, Inc. (NYSE: DOC) has spent the past year making lasting improvements to its earnings, balance sheet, and platform capabilities.
“This merger was an opportunity to quickly go to the next level,” says Healthpeak President and CEO Scott Brinker.
In an interview with REIT.com, Brinker discusses the progress made to date on merger synergies, melding corporate cultures, capital allocation opportunities, the transition of health care delivery to a lower-cost, more convenient outpatient setting, and more.
The merger with Physicians Realty Trust has been described as a ‘merger of equals.’ What made you think that these two companies would be stronger together than apart?
From day one, the discussion of a potential merger focused on whether both companies would be better together than as stand-alone entities. That was the only transaction either side was willing to consider. Looking back now, a little over one-year post-close, our merger has proven to be a resounding success.
Joining Healthpeak and Physicians Realty Trust brought together two leading platforms with a combined portfolio of nearly 50 million square feet. Both parties also brought critical relationships, and together, we now have affiliations with each of the 10 largest health systems in the United States, many of the world’s largest biopharma, and a diversified mix of biotechs, regional health systems, and large physician groups.
What have been some of the key priorities over the past year on the operational and financial side? How would you describe progress so far in terms of meeting merger synergy targets?
Even before agreeing to the transaction, we spent a huge amount of time thinking about the team and platform from top to bottom with the joint mindset that the status quo is never good enough. Both companies were already operating at a high level, and this merger was an opportunity to quickly go to the next level, combining each company's complementary talent and strengths.
Our merger is already producing measurable results, delivering meaningful, lasting improvements to our earnings, balance sheet, and platform capabilities.
Financially, we surpassed our year one synergy targets by over 25% and now expect total synergies north of $65 million. Strategically, we’ve brought Healthpeak closer to our real estate and tenants. Today, 70% of our people directly support our real estate—up from less than 50% two years ago.
During 2024, we internalized property management across nearly 20 million square feet, with an additional 14 million square feet planned in 2025 and beyond. We’ve effectively doubled Healthpeak’s headcount, and many of those team members are on the ground interacting with our tenants and eliminating the duplication that was needed when we had third-party property managers.
As we continue to innovate in regard to our technology, we can do rollouts quickly across the entire portfolio because we now control the day-to-day operations at the property level. The positive feedback from the property managers on the ground and our tenants further validates the strategic decision to internalize.
Can you talk about the challenges and opportunities of melding two distinct corporate teams. Did you use the merger as a chance to create a new corporate culture?
In early 2024, we undertook an important initiative to define our desired company culture. The result is our WE CARE core values: Winning mindset, Empower the team, Collaborate and communicate, Act with integrity, Respect the relationship, and Excellence in execution.
Our outstanding 2024 operating and financial results reflect these core values in action and highlight the strong culture we are building together. “How” we accomplish our success is as important to us as the success itself, and our WE CARE core values will guide our path forward.
How would you describe the operating environment for Healthpeak’s two largest segments, lab and outpatient medical?
The universal desire for improved health drives demand for our real estate, which is uniquely focused on health care discovery and delivery. This is a vast market that is supported by medical innovation and demographic tailwinds.
Health care delivery continues to transition to outpatient care, which is less expensive for payers, more convenient for consumers, and more profitable for providers. Coupled with very little new supply, the fundamentals in our outpatient medical business have never been stronger. In 2024, we produced record leasing volumes, re-leasing spreads, and tenant retention, all of which drive earnings growth. These important metrics were well above industry norms and continue our strong track record of excellence in execution.
In our life science business, the fundamental drivers of long-term growth remain intact as R&D spending, new drug applications, and drug approvals are at or near all-time highs. Few sectors are more critical than the life sciences to the U.S. maintaining leadership on the world stage over the next several decades.
The sector will see a significant reduction in new deliveries beginning this year, and new construction starts are virtually zero. As a result, the supply and demand picture over the next few years should turn very positive for Healthpeak, and we are actively building an investment pipeline to take advantage of the coming improvement.
What are some developments or projects, either completed or coming soon, that you think position Healthpeak for continued success going forward?
In our outpatient medical business, our capabilities and relationships continue to generate proprietary development opportunities. While construction costs remain elevated, our health system partners are selectively prioritizing projects to capture market share while moving more services out of the hospital. We have a pipeline of highly pre-leased and accretive development projects that exceed $300 million.
How active do you expect Healthpeak to be on the acquisition front in the next several years?
We entered 2025 with significant balance sheet capacity for accretive investments. With demand starting to recover and no new construction starts for the foreseeable future, we see a compelling window to begin allocating capital to life sciences again.
Our focus is loan investments that provide immediate accretion, more seniority in the capital stack, and an attractive basis and future acquisition rights of buildings in our core submarkets. The best time to invest is when no one else is, and we think we’ll continue to find attractive opportunities to create value in markets where we already have significant scale and expertise.
Where do you see innovation in the health care real estate sector coming from in the years ahead?
The health care sector is not a traditional real estate business. Leasing and investment outcomes are very much impacted by the underlying business taking place in our buildings, not just the attributes of the real estate itself.
A thorough understanding of the operating and regulatory environment and close relationships with the leading providers will drive superior investment and portfolio management decisions over time. Technology and consumer preference will continue to drive health care delivery to a lower-cost, more convenient outpatient setting, which will greatly benefit our portfolio.
We also see a real opportunity for AI to improve the success ratios for new diagnostics and therapeutics, which should drive more R&D spending and benefit our life science portfolio.