Healthpeak Properties Inc (PEAK) 2019 Q4 法說會逐字稿

Good day, and welcome to Healthpeak's Fourth Quarter Financial Results Conference Call. (Operator Instructions) Please note, the event's being recorded.

I'd now like to turn the conference over to Barbat Rodgers. Please go ahead.

Thank you, and welcome to Healthpeak's Fourth Quarter Financial Results Conference Call. Today's conference call will contain certain forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our expectations. A discussion of risks 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 financial measures will be discussed on this call. In an exhibit of the 8-K we furnished with the SEC today, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. The exhibit is also available on our website at www.healthpeak.com.

I will now turn the call over to our Chief Executive Officer, Tom Herzog.

Thank you, Barbat, and good morning, everyone. With me today are Scott Brinker, our President and Chief Investment Officer; and Pete Scott, our Chief Financial Officer. Also here and available for the Q&A portion of the call are Tom Klaritch, our Chief Development and Operating Officer; and Troy McHenry, our Chief Legal Officer and General Counsel.

Our fourth quarter and full year financial results were in line with our expectations. Since our last earnings call, we closed several previously announced transactions. We're also quite active in our life science segment, executing a contract to acquire a strategic $320 million property near our Hayden Research Campus in Boston, and signing significant development pre-leasing at Hayden as well as The Shore at Sierra Point in South San Francisco. In our earnings release issued last night, we provided full year 2020 guidance. Pete will provide more details in his prepared remarks.

As we position the company for 2020, let me describe how we see our current state of play. First, our portfolio is now well balanced across our 3 core private pay segments of senior housing, life science and Medical Office. In senior housing, we continue to purposefully and successfully execute our strategy of building a portfolio and platform that we believe will deliver strong results over the long term. We have made great progress in achieving alignment with the strongest operators in some of the most attractive markets in the country. At the same time, we exited many noncore markets and selectively sold or redeveloped assets to better position the portfolio. More specifically, in 2019, we announced $1.4 billion of noncore asset sales and reallocated that capital into $1.4 billion of newer, higher price point and higher barrier-to-entry senior housing acquisitions, most notably, our investments in the Discovery and Oakmont portfolios, and our partnership with LCS on our CCRC portfolio. These transactions not only broaden our base of leading operators, but also advanced our goal of reducing concentration with any one operator. Net effect of this redeployment has been to reduce our average property age from 23 to 18 years, improve our monthly REVPOR by 45% to over $5,700 per unit, and to reduce our concentration with any one operator to 10% or less.

In life science, we materially expanded our operating portfolio through $1.2 billion of strategic acquisitions, and $307 million of completed developments in our core markets. We have further established a leading position in the Route 128 and West Cambridge submarkets of Boston, growing this core market from 0 to 1.8 million square feet in just 2 years, including our active and near-term development pipeline.

And in Medical Office, we further expanded our proprietary development program with HCA, accumulating a pipeline of almost $200 million in development spend in high-quality, well-located and anchored on-campus Medical Office buildings. We also welcomed Justin Hill to lead business development for Healthpeak's Medical Office segment, supporting our vision to expand the MOB flow of business.

Second, our acquisition, development and redevelopment pipelines are well positioned to support future growth and value creation. Through the relationships we have with our partners and operators, we have built a healthy acquisition pipeline, including options to purchase over $1.5 billion of senior housing developments upon stabilization of Oakmont and Discovery over the next 4 years. We entered 2020 with an active development pipeline of $1.3 billion, almost 60% of which is pre-leased. And we have a shadow pipeline for future development and redevelopment projects of $1.4 billion.

Third, we are conservatively financed and are rated BBB+/Baa1 by the 3 rating agencies. Our balance sheet is strong and we have ample liquidity. And with the forward equity raised over the last several months, we're solidly positioned to execute on our 2020 plan while maintaining in a year-end 2020 net debt-to-EBITDA ratio within our target range of mid- to high-5s.

Fourth, I'm very pleased with the team we have in place and the enormous improvements we've made on our infrastructure, including systems, automation and data.

Finally, on the ESG front, in 2019, we continued our long standing tradition, a commitment to ESG, receiving numerous awards across every category. We also added new talent to our board with the addition of Sara Lewis and now have an average Board tenure of 5 years.

In summary, we feel very good about our current position and are optimistic about our business for 2020 and beyond. Before I turn the call over to Pete, I'd like to provide you with some background around the press release we issued yesterday concerning our same-store SHOP policies. A number of investors and analysts had communicated to us the desire for more comparability in the SHOP same-store metrics in the health care REIT space. Accordingly, to provide full clarity of Healthpeak's same-store SHOP policies, we created a compilation and rationale of all the material components and posted this to the Investor Presentations section of our website. The majority of our policies remain unchanged. However, we modified 2 of our existing policies and added 1 item of new disclosure effective January 1, 2020. First, going forward, we will include all JVs at share. With the recent addition of the Brookdale senior housing JV, we determined it useful to investors to provide the pro rata share of all JVs in our same-store pool. Second, going forward, we will remove future operator transition properties from same-store to better align with health care industry practice. However, if material, we will continue to provide separate disclosure of transition portfolio results. Lastly, we've begun providing the management fee component of operating expenses. To aid in understanding the impact of these changes, we have provided pro forma 2019 same-store results as if these revisions were adopted for the full year 2019. We've concluded that all of our other same-store SHOP policies represent best practices and provide detailed and transparent disclosure of our treatment, and accordingly, no other changes will be made at this time. It's also important to keep in mind that same-store is purely a performance metric and does not affect GAAP earnings, FFO or AFFO. Finally, in 2020, we'll begin using the more common “same-store” terminology rather than “same-property performance”, to conform to others in our sector and most other REITs.

With that, I'll turn it over to Pete. Pete?

Thanks, Tom. I'll start today with a review of our results, provide an update on our recent capital markets activity, and end with a discussion of our 2020 guidance and related assumptions.

Starting with our financial results. We ended the year on a strong note. For the fourth quarter, we reported FFO as Adjusted of $0.44 per share and blended same-store cash NOI growth of 3.6%. For the full year 2019, we reported FFO as Adjusted of $1.76 per share and blended same-store cash NOI growth of 3.7%.

Turning to our recent balance sheet and capital markets activity. We had an active fourth quarter. Starting with our debt activities. In November, we issued $750 million of 3% bonds maturing in 2030. We used the proceeds to redeem the remaining $350 million of our December 2022 bonds and repaid our revolver and commercial paper balances. Successful offering and redemption extended our weighted average tenor to approximately 7 years, and further improved our debt maturity profile. We ended the quarter with a net debt-to-adjusted EBITDA of 5.6x and $2.4 billion of capacity under our line of credit.

Moving on to our equity activities. From November through early January, we raised total gross proceeds of approximately $800 million through a $547 million follow-on offering and $250 million under our ATM program. All of the equity raised was structured under forward contracts, which we expect to settle in 2020. As of today, we have 32 million shares of common stock remaining under forward sales agreements for just over $1 billion. Utilizing forward contracts allows us to better match fund the equity required for our identified acquisition opportunities and for our development and redevelopment activity.

Before moving to guidance, let me spend a moment on our dividend. For the full year 2019, our dividend was fully covered with a FAD payout ratio of 97%. In 2020, we expect our FAD payout ratio to improve into the low-90% range. Accordingly, our board decided to maintain our annual dividend at $1.48 per share in 2020, with plans to revisit it again in 2021.

Turning now to our 2020 guidance. We expect full year 2020 FFO as Adjusted to range between $1.77 to $1.83 per share, and blended same-store cash NOI growth of 2% to 3%. The components of our blended same-store growth rate are as follows: Life Science at 4% to 5%; Medical Office at 1.75% to 2.75%; Senior Housing at negative 1% to positive 1%; and other at 1.75% to 2.5%. We expect earnings and same-store growth to be lower in the first half of 2020 compared to the second half as we face more difficult comparables early in the year.

Included within our guidance are the following high-level sources and uses. Starting with our sources of capital. $1 billion of equity from the drawdown of our forwards; $500 million of noncore dispositions, including the North Fulton Hospital purchase option; and just over $300 million of debt capacity. From a uses perspective, we anticipate the following: $800 million dollars of acquisitions, consisting of The Post, Oakmont purchase options and other pipeline opportunities; $850 million of capital spend, which is fully funded and is primarily driven by our development and redevelopment activities; and $225 million to repay debt related to the Brookdale Transaction.

Let me spend a minute now on our FFO as Adjusted earnings roll forward. The midpoint of our 2020 FFO guidance assumes $0.04 of positive growth compared to 2019. Starting with the positives. We see $0.06 of positive impact primarily from our blended same-store NOI growth assumption of 2.5%. We see $0.04 of positive impact from developments coming online. The vast majority of this benefit is from the final phases of The Cove and the first phase of The Shore. We see $0.02 of positive impact from transactions, including $0.015 from the Brookdale Transaction and $0.005 from 2020 acquisitions. Moving now to some of the offsets. We have negative $0.04 from the rollover impact of our 2019 capital recycling, which was heavily back-end weighted. Our 2019 dispositions included some of our final legacy portfolio cleanup transactions, such as the Prime Care DFL and the U.K. assets. These dispositions came with high cap rates, but also materially derisked our portfolio. We have negative $0.02 as a result of a deferred revenue recognition impact related to certain leases. Accounting rules do not allow recognition of rental revenue in FFO until tenant improvement projects are substantially completed even if cash rent is received from the tenant. For 2020, this amounts to just over $10 million. More than half of this is associated with the Celgene lease at The Shore, where their TI buildout was delayed due to the merger with Bristol Myers. Importantly, though, we do get to include this cash rent in FAD. We have $0.01 of drag from higher year-over-year development and redevelopment spend. While this is an immediate term drag, we continue to see opportunities for significant long-term value creation with our development and redevelopment projects. We have accelerated Phase 3 of The Shore, we have broken ground on the Boardwalk in San Diego, and we have added more HCA developments. Finally, we see negative $0.01 from various other items. And net-net, with all the puts and takes, we are guiding to $0.04 of increase in 2020 compared to 2019. Perhaps there is a bit of conservatism in our guidance as well. Please see Page 48 of our supplemental for a complete list of guidance assumptions.

I want to briefly touch on the guidance addendum we added to our website. We felt it was important to expand on some important topics. First, we included a quick overview of The Post acquisition and how it synergistically fits within our portfolio and expands our Boston footprint. Second, we included an update on the status of our active development pipeline. As a result of our pre-leasing success, we expect positive earnings contribution from our active development pipeline for the next several years. Third, we included a quick update on our Brookdale Transaction, which closed just last week. We reaffirmed the modest FFO accretion and, as we mentioned, the transaction is neutral to FAD. Finally, fourth, we included additional detail on our 2020 guidance with a projected sources and uses, a breakdown of the components of our blended same-store NOI growth as well as an FFO roll forward.

Few housekeeping items before I turn the call over to Scott. Starting with CCRCs. In the first quarter, we expect to book a gain on consolidation in the $100 million to $150 million range, and an approximate $100 million management fee termination expense. Both items will be excluded from FFO as Adjusted. We are nearing completion of the fair value analysis of all components of the CCRCs, including the fair value of nonrefundable entrance fees, or more commonly referred to as NREFs. The fair value of in-place NREFs is expected to be approximately $400 million to $450 million, and amortized over an expected actuarially determined remaining length of stay of approximately 6 to 7 years. These items are covered in more detail in the guidance addendum.

Moving on to some financial reporting items that will take effect in the first quarter. First, we are aligning the definitions of FAD, cash NOI and adjusted EBITDA to reflect the nonrefundable entrance fees on a GAAP amortization basis in accordance with accounting consolidation rules. 2020 cash NREF collections are expected to approximate GAAP NREF amortization. Second, refundable entrance fees of approximately $300 million will now be included in accrued liabilities and excluded from net debt. Lastly, we are changing the name of FAD to AFFO to be consistent with industry norms. These changes, along with a few others, are outlined on Page 49 of the supplemental.

With that, I would like to turn the call over to Scott.

Thank you, Pete. I'll start with our segment-level operating results for full year 2019. In life science, which represented 32% of our same-store pool, we reported cash NOI growth of 6.2%, above the high end of our original guidance range. Outperformance was driven by leasing activity and mark-to-market, both of which exceeded expectations. For the full year, we executed 2 million square feet of leasing, including more than 700,000 square feet in the fourth quarter.

Turning to Medical Office, which represented 44% of our same-store pool. We reported cash NOI growth of 3%, which was above the high end of our original guidance range. Outperformance was primarily driven by mark-to-market, strong retention and higher-than-expected add rents at Medical City Dallas. We leased more than 2.7 million square feet in 2019, exceeding our expectation.

Moving to senior housing. Triple-net represented 13%; and SHOP, 5%, of our total same-store pool. Full year, senior housing cash NOI increased 1.5%, with triple-net growing 2.4%, and SHOP declining 1%. In December, we closed on the previously announced joint venture of our 19-property Brookdale-managed SHOP portfolio. These properties were removed from the SHOP same-store numbers in accordance with our policy in effect in 2019, in which unconsolidated JVs were excluded from same store. Had we not removed these assets, our full year SHOP same-store results would have been negative 4.5%, slightly above our original guidance. Additionally, had our new same-store definition been in place in 2019, our SHOP results would have been negative 2.7% due to transitions being excluded and joint ventures being included at share. Senior housing portfolio outside the same-store pool includes recent acquisitions with Discovery and Oakmont, triple-net conversions with Sunrise and Oakmont, the CCRC portfolio and our redevelopment and held-for-sale properties. The scale of this portfolio is significant, and the asset quality will be accretive to our same-store pool when they're added based upon our policies. In general, performance at Oakmont and the CCRCs have been strong, while results have lagged expectations at Discovery and Sunrise, where numerous initiatives are underway to improve performance.

Turning to transactions. Since our last earnings call, we've closed on over $1.8 billion of acquisitions and dispositions. Starting with life science, we continued to grow in Boston and San Diego. We're under contract to acquire The Post, a $320 million Class A life science campus located near our Hayden Research Campus in Boston. The price represents a 5.1% cash cap rate. The 426,000 square foot campus is 100% leased to 4 biotech and innovation tenants, with an 11-year weighted average lease term and roughly 3% escalators. Additionally, the campus likely has potential for increased density over time. The Post enhances our cluster strategy, offering leasing flexibility for our tenants, which is so critical in life science real estate. To that end, in December, we closed on the previously announced $333 million acquisition of 35 CambridgePark Drive, a newly built Class A life science property in West Cambridge. The building is next door to the property and land parcel that we acquired in early 2019, creating 440,000 square feet of contiguous space upon completion of the land parcel development.

In San Diego, we expanded our development pipeline with the addition of The Boardwalk. This $164 million project is located on Science Center Drive in Torrey Pines. This is an A+ site and will be Healthpeak's flagship in San Diego. The campus includes 3 adjacent Healthpeak holdings, comprised of 2 land sites, totaling 105,000 square feet of ground-up development that will flank both sides of an existing 85,000 square foot property that will be redeveloped. Upon stabilization, the campus is projected to generate an estimated yield on cost of 7%. We've made significant progress leasing our active development pipeline. At The Shore, we executed a 10-year lease for 182,000 square feet with Janssen BioPharma, part of the Johnson & Johnson family of companies, representing approximately 60% of Phase 2. Janssen has expansion rights that can be executed over the course of 2020. We continue to see strength and positive momentum in South San Francisco, where we enjoy #1 market share.

And in Boston, we're now 57% pre-leased at our 75 Hayden development project. The 2 recently signed leases totaled 122,000 square feet, and we're seeing strong interest and activity on the remaining space at the property.

Moving on to senior housing. 2019 was an extremely active year. Since our last earnings call, we closed several important transactions, including the acquisition of Brookdale's interest in the CCRC portfolio and the transition of operations to LCS; the sale of 18 triple-net lease properties back to Brookdale; the sale of a 46.5% interest in the 19-property Brookdale SHOP portfolio to a sovereign wealth fund; and our exit from the U.K. Additionally, we reached agreement on our remaining 6-property master lease with Capital Senior Living, who will release $1.9 million of security deposits to Healthpeak upon signing definitive documents in exchange for converting the 6 properties into a RIDEA structure, effective February 1. The annual rent on the properties is currently $4.4 million, with trailing 12-month EBITDAR of $3.7 million. All of our Capital Senior Living properties are well along in the disposition process, and upon completion of the sales, we'll have no further investments with Capital Senior Living. We also delivered our proprietary asset management platform, which we call Peak Vision. We look forward to showing it off in person. Having rebuilt our senior housing team, we've now built the technology platform as well. Relationships continue to drive our deal flow. In December, we signed an agreement with Oakmont, which provides Healthpeak the option to acquire up to 24 of Oakmont's development properties upon stabilization, based upon a pre-determined pricing formula with a year 1 cash cap rate equal to 5.5%. The properties are concentrated in California, with an estimated value of $1.3 billion. The acquisitions are expected to be offered in tranches between 2020 and 2023, and would be paid for in part with DownREIT units. At each closing, Healthpeak would enter into a highly incentivized management contract with Oakmont, creating a strong alignment of interest.

Finally, in our Medical Office segment, we added an on-campus MOB in Nashville to our development program with HCA. The 172,000 square foot Class A building has an estimated spend of $49 million, and is located on one of HCA's flagship campuses. The project is 45% pre-leased, with active discussions on the remaining space. We also delivered the 90,000 square foot on-campus MOB at Grand Strand Medical Center. This project was our first development in the HCA program. The project was 71% leased upon delivery, with strong momentum to lease up the remainder of the space.

Taking a step back, 2019 was just an incredible year for the company, and it goes way beyond strong operating results, high-quality acquisitions and leasing activity. More important, we solidified and grew key external relationships and further established a team of skilled and collaborative colleagues that extends well beyond the individuals you hear from on these earnings calls. Those human assets are even more valuable than our high-quality portfolio.

Now I'll turn the call back to the operator for Q&A.

(Operator Instructions) Our first question comes from Nick Yulico, Scotiabank.

Pete, you mentioned that the guidance is perhaps conservative. Can you elaborate on which items would drive the range higher and what you were talking about there?

Yes, Nick, good question. Our blended guidance does assume some modest deceleration when you look at same-store growth. And I think about MOBs. We finished 2019 at 3%. The component midpoint is around 2.4%, which was the same as last year. As you remember, we had some strong add rents at Medical City Dallas, which is difficult to forecast. So that certainly factors in. Within life sciences, we finished last year at 6.2%, we had a very, very strong year. The component midpoint is in the mid-4s, which actually was the same we had last year as well. Market fundamentals remained strong, and certainly, we'd like to outperform again this year. But as you know, there's some lumpy leases and the mark-to-markets where we ultimately end up, the rents seem to be moving upwards a lot faster than downward. So look, we think there's some potential upside there. And then in senior housing, I think triple-net is generally in line. It's more of a straightforward business to forecast. And then SHOP, on an apples-to-apples basis, I would say, is modestly improving, but still a challenging environment. So that's how I think about the various segments heading into 2020.

Okay, that's helpful. And then second question is on The Post acquisition you made, and also I guess the rest of the Boston portfolio. I mean, the difference between the cash and GAAP yield on The Post acquisition seems pretty big and even more so than a straight-line rent benefit would suggest. So I guess I'm wondering if there's a big mark-to-market rent benefit on that acquisition. And maybe you can also just give us a feel for the rest of the Boston portfolio that's in place, where you think the -- those in-place rents are versus market today?

Nick, it's Pete. So I'll start with The Post first. One thing about The Post, one, we're very excited about it. And if you look, we've put some nice pictures of that asset in the guidance addendum. The weighted average lease term is long on that asset, over 10 years. So that obviously is a contributor to some of the differences between GAAP versus cash. There is a little bit of a mark-to-market on those leases as well, although the straight-line impact is, by far, the biggest driver of that. As we think about Boston, generally, where we are relative to market, I would say some of the newer assets we bought, I'll use an example, 35 CambridgePark Drive, the weighted average rent there is in the very low-70s asking rents in that market, and we included this in the addendum for Class A; new space is approaching the mid-80s. And some of those rents were signed -- or leases were signed, give or take, a year, 1.5 years ago. So you've seen some significant movement in rental rates, which is also driving down the initial cash cap rates as well, which is something to keep in mind. But we're certainly benefiting from that on the yields on the development we're doing, especially at 75 Hayden, where we are significantly exceeding our underwriting. There, we thought we'd be in the mid-50s from a rent perspective, it's a different market than West Cambridge, but we're actually approaching mid-60s at this point in time on a blended basis for the leases we've signed as well as the conversations we're having right now with tenants. So things are moving in a good direction for us, and we're certainly taking advantage of it.

Okay. Just one -- that's helpful. Just one other follow-up on that is, on the 75 Hayden, and then as we think about the 101 starting as a development. It sounds like those yields could be even higher than the range that you guys provide in that development page, the life science page that's in the guidance addendum? You actually get over 8% maybe. Is that right?

Yes. I think on 75 Hayden, we still have some more leasing to complete there. But based on the rents I just quoted, yes, we could be above that -- the high end of that range. We're a little conservative in how we show those ranges until we have leases signed, but certainly, we're trending in a good direction there. I'd say on 101, we're still working through the entitlements there, and we will work on finalizing our cost. It's a little bit more expensive developing in West Cambridge than it is in Lexington. We've got to build some subsurface parking there. But certainly, the rents are helping us from a yield perspective. So more to come on that, hard to comment today without our final budgets being done on that.

The next question is from Jordan Sadler, KeyBanc Capital Markets.

I wanted to see if you could -- you talked about some of the conservatism baked into the same-store pool. I guess, I'm curious if you could maybe walk through the non-same-store pool, specifically, the cadence of the total SHOP portfolio performance throughout 2020, and how that will contribute to FFO? As we know, the same-store portfolio is less than 25% of total SHOP portfolio NOI.

Yes. Jordan, I'll try to handle that because most of the life science and MOB portfolio outside of development is already captured same-store pool. It's really the senior housing portfolio. Because we really started over. I mean, we blew apart virtually every asset that we own, either selling it, converting it to SHOP, restructuring leases, changing operators, acquisitions, redevelopment. Hardly an asset remained untouched from 3 years ago. So about 80% of that senior housing pool is not in same store. That includes the CCRCs, which are performing extremely well. And that closed the transition from Brookdale to LCS on February 1. Performance right up through the closing date under Brookdale's operations were really strong. And we haven't seen any noticeable falloff in performance so far. So that's fantastic. That would potentially be upside to our earnings guidance because you saw we baked in up to $10 million of degradation. So that would be fantastic. That's a big number. It's $110 million of total NOI. So that's significant.

Sunrise is a meaningful piece as well that's not in same-store today. We've done a lot of surgery on that portfolio as well. Frankly, a lot of the Prime Care assets were old past-generation Sunrise assets in more secondary markets, and we sold a lot of those. And even what remains, there are a number of assets, 10 to 15, that are being sold so that we'd be left with a portfolio of about 25 higher-quality Sunrise assets that are kind of in their core markets. They're really good at the A+ sites in the primary markets, and we've tried to hold on to those because we think they'll do a great job. And that's a material amount of NOI in the range of $70 million, including the 2 CCRCs that they operate for us. So those will start becoming part of same-store on a quarterly basis in 2020, but they won't be part of the full year pool until 2021.

And then there's the Oakmont portfolio. Both the triple-net conversion assets as well as the acquisitions, that's going to be $30-plus million of NOI. It's pretty material. All in, California, for the most part, brand new, at least the acquisitions that we've done. I wouldn't call that a lease-up portfolio, although it's very new real estate, they lease them up so quickly that they're essentially stabilized within a couple of months of opening. Nonetheless, they should have strong growth over the next several years, and hopefully, well into the future. Those, again, will be added to the quarterly same-store pool throughout the course of 2020, and then they come into the full year pool in 2021.

And then the last material addition would be the Discovery acquisition. As we noted in the prepared comments, that was a lease-up portfolio that did not fill up in 2019 the way we expected it to. They've shown some recent momentum. They've made a number of changes to personnel and local initiatives that we think will start to pay off over the course of 2020. So those assets will become part of the quarterly same-store pool in 2020 as we move through the year. And then in 2021, they would become part of the full year pool. So that’s a long way of saying that by the end of 2020, and certainly into 2021, the results of the senior housing portfolio will start to appear in a meaningful way within that same-store pool. So we've had the same challenge, Jordan, that our best assets, and frankly, the majority of the pool in senior housing is not in same-store. So it's been challenging for us as well, but it's just a function of all the surgery we had to do to hopefully build what we think is going to be a great portfolio over time. And as we look forward over the next 24 months, the vast, vast majority of our senior housing portfolio will start to become part of same-store.

It's -- that's -- I appreciate that you walked through that. I guess, the part that I'm trying to understand, and maybe just from a modeling perspective and trying to take -- I could absolutely take it off-line, but I think the broader audience would probably appreciate, just how the total NOI from the total SHOP portfolio flows throughout the year, right? I mean, is this going to be rising gradually? Or with less of a seasonal impact because of the pieces that have some momentum or a little bit of lease-up? Is that generally how it's going to perform? Gradually improving throughout the year?

Yes, I think that's fair. But the major components are the CCRCs, which are mostly stabilized. Sunrise, which is a stabilized portfolio; Oakmont, which is essentially a stabilized portfolio; and then Discovery, you should have some lease-up benefit over the course of the next 24 months.

Okay. Okay. And then separately, can you offer the same-store guide, particularly for life science and SHOP using the old methodology? Just curious how much contribution you'll see, if any, from the inclusion of the CCRC portfolio as well?

Yes. Let me -- Jordan, it's Pete here to talk about the life science same-store. I do want to provide a little bit of background on this, and Tom touched on it in the Q&A portion of our last call. I've described before the cluster within a cluster strategy within our markets and that we are able to really support our tenants as they have success and need to grow. I want to give you an example, because I think this will be helpful. So Global Blood Therapeutics is a tenant in The Cove Phase 1. They lease 67,000 square feet and we collect about $4 million of rent. Next month, they are moving into The Cove Phase 4 and will lease 164,000 square feet, and we will get over $10 million of rent. But they're vacating a building that's in same-store and moving into a building that is not in same-store, even though we're receiving over $6 million of rents, which is a very good thing. And we've subsequently backfilled all of that space, it just had some downtime between when GBT vacates and the new tenant actually takes possession. We had a similar example with MyoKardia at Phase 1 of The Shore. So we updated our policy to remove the vacated building from the pool because it wasn't going to provide what we believe is the right organic growth number for how that segment is actually doing. I think we all know it's performing quite well. We have very strong lease escalators. We also have very strong mark-to-market. So we have pulled those 2 assets out, it's really those two. There's one other smaller one as well in San Diego. So it is a good question. We are at 4.5% from the midpoint. If we were not to have pulled those assets out, we would have been a few hundred basis points below, so in the 2% range. But frankly, as we look at it, we hope we keep signing more leases with existing tenants and collecting a lot more rent, and we're trying to provide what we believe is the best organic growth number within our same-store pool. So that is the life sciences portion of that question. On the CCRCs, remember, with the CCRCs that are not in same-store, they will not go into same-store until next year. And also, it -- not only was it an acquisition of the interest we didn't own, we're also transitioning to LCS. So that will go into the full year pool in, I believe it will be 2022 for the full year, and it will start to go into the quarterly pool in 2021.

What about with the other -- just forgetting about the CCRCs, just the -- if you layered on the old methodology to the same-store SHOP portfolio, what would that number have been?

Yes, Jordan.

Instead of the negative 2.5%?

Yes. One clarifying point on the CCRCS. We are going to create a stand-alone segment, so you'll have full disclosure on that segment starting in 2020, even though it's not part of same-store. So you'll get full transparency there. And then on the question about the same-store, I want to make sure I'm answering the right question. If you could just restate it?

I'm just curious what same-store SHOP NOI guidance would be for 2020 if you hadn't changed methodologies. You're currently projecting negative 2.5%?

Yes. Okay. So the major difference in that case would be the unconsolidated joint ventures would not be in the pool. So that includes Brookdale and a few assets with an operator called MBK. And our guidance for 2020 would have actually been better than the 2.5%, negative 2.5% that we reported yesterday, primarily because of the Brookdale joint venture portfolio. We've talked about that portfolio having its challenges being based primarily in Houston and Denver with a lot of new supply. So our guidance would have been better with our old policy.

Next question is from John Kim, BMO Capital Markets.

Maybe I'll ask Jordan's question in a different way. So your total SHOP margins were down seasonally this quarter, but up 60 basis points year-over-year. Should we take that margin improvement as a good run rate going forward as we look at 2020?

John, can you repeat that? It faded and we couldn't hear your question.

Sure. Sorry about that. Your SHOP margins were down seasonally this quarter but up 60 basis points year-over-year. Should we take that margin improvement as a good run rate going forward when we look at margins on your total SHOP portfolio?

Yes. The -- I want to make sure you're looking at the right numbers though. The margin for the overall SHOP portfolio is probably modestly better because of the held-for-sale assets, which are the lower quality properties. The margin on the same-store portfolio would not have increased. All that being said, we do think there's substantial room for improvement on the balance of the senior housing portfolio that we intend to hold long term. The margin today is in the mid-20s. We think there's clearly opportunity to improve that in at least 5 basis points and as much as 10 basis points over time.

Okay. And then on your lease restructuring with Capital Senior, how much more do you need to do on your remaining triple-net portfolio? Specifically with the Harbor or maybe some of your other smaller operators? And is this -- any of this contemplated in the guidance currently?

Yes, if you look at the heat map on the supplemental, we've cleaned it up pretty dramatically. There were about 50 data points on that chart 2 years ago. We're down to about 4 or 5 data points. And the only 2 that are well below 1.0 rent cover are de minimis in size. They have pretty good corporate guarantees standing behind them until the lease maturity dates, at which point, we would sell those assets. They're not core to the portfolio, but it's also just such a small dollar amount.

And that's Page 30, if you wanted to look at it. It's changed dramatically over the last couple of years, as you've stated.

And then you talked about HRA, John, we did a big restructuring with them last year, where we went from 14 assets in multiple leases with multiple different maturity dates down to a core portfolio of 8 assets that are based in Florida, where they're located. We consolidated all up the leases into 1 master lease, did a 10-year term, substantially improved the credit and guarantee behind that lease. We also agreed to give them $10 million of capital to renovate the building, so they're just now getting started with those projects. So over time, we expect that rent cover to improve. But until the renovations are done, I think you'll see it stay below 1.0x rent cover. But we feel like we've done the work that's necessary. The Brookdale portfolio has an 8-year term, that's in the master lease with the full credit of Brookdale. Then the only other material lease is with Aegis, which is a 10-year lease with strong rent cover and very good assets. So hopefully, we've done our work on the triple-net portfolio.

So a year from now, the heat map will improve significantly from where it is today?

Well, the only thing that's really going to happen now are the 2 small dots on the leases that mature over the next 3 to 4 years, those will eventually go away. But you won't see us add anything to the heat map because we're really not doing new triple-net leases.

Next question comes from Vikram Malhotra, Morgan Stanley.

Just on the CCRCs, can you -- maybe I missed this, can you -- you mentioned you've baked in some degradation, can you give us a sense of how you view sort of the growth in that portfolio in 2020? And just again related to CCRCs, can you clarify the initial -- when you presented the NOI from the CCRC that -- I think it was about $51 million, is the amortization of the -- all the nonrefundable fees, is that included or partly included in that number?

Yes. It was $55 million in the presentation, Vikram. And that number represents both the total NOI, including the cash NREF as well as the total NOI, including the amortization of the NREF, they're essentially the same number. So I think that's a really important point to understand. It sounds like there's been some misunderstanding about that point. And I think it's a critical point that economically, the NOI that we acquired is $55 million, whether you measure it on a cash basis or an amortization basis.

So that includes the $400 million to $500 million that -- the fair value that will be amortized over the 6 years or so, that number includes that 60 -- $55 million includes everything?

Yes, Vikram, this is Tom. Yes, it includes the amortization of the nonrefundable entrance fee for the 51% that we just acquired in that number as well as the NOI for the 51% we just acquired. And the number you're looking at in that deck.

Great. Okay. And then just the trajectory in 2020?

Yes. That portfolio has performed well for a number of years. We have good disclosure in the presentations that we do each quarter with the long-run historical NOI growth in that portfolio and occupancy. It's been a steady, upward slope in 2020 versus 2019, it was an extremely good year for the CCRCs. The total NOI was up almost 6%. Of course, it bounces around quarter-to-quarter. But for the full year, it was really strong growth. We're not expecting similar growth in 2020. In fact, we are projecting, per that presentation, the potential for some degradation. But all signs to date suggest that we may have some upside to the guidance number.

Okay, great. And just on the SHOP portfolio, can you kind of maybe give us a bit more color on what's embedded in that negative 2.5% NOI? I know it's a small piece of the overall pool but just how are you seeing sort of the moving pieces between occupancy, rent growth and expenses?

Yes, happy to do that, Vikram. We're projecting a modest increase in occupancy. The Brookdale portfolio, which is now included at share, we're projecting negative growth, just given the last 6 months in that portfolio, it's not going to turn around overnight. So that's weighing down the SHOP same-store portfolio. It would otherwise have seen some reasonable occupancy growth. The REVPOR growth is pretty muted, we're projecting about 2% in 2020, just the reality of market conditions today. And then the primary operating expense is of course labor. That cost has been growing at around 5% per year, and we're projecting that, that will continue in 2020.

Next question is from Michael Carroll, RBC Capital Markets.

Tom, can you talk a little bit about your MOB strategy today? It appeared, at least for the past several quarters, that PEAK has been mainly focused on the development side. I guess, with the addition of Justin to the team, could PEAK be more aggressive on the acquisition side, too?

I'll start with that. And Klaritch, if you've got something to add. It has been one of our objectives as we go into 2020 to start working on the flow of business in MOB, similar to what we've had in senior housing and life science. The addition of Justin Hill, working with Tom Klaritch and Scott Brinker, we think, is a big step forward. And I do think through relationships, we will have a number of opportunities that come out of that. So that is definitely part of -- that's definitely one of the significant goals we have as we go into 2020.

Tom, anything you'd add on that?

I think 2019 was actually a little bit slow on the transaction front for MOBs, and there was not a lot of high-quality portfolios out there. We are hearing, in the coming months, there should be several decent-sized portfolios coming to market, and we'll certainly take a look at those and hopefully be able to execute on some.

Okay. And then are you focused on the larger transactions? Or would you pursue, I guess, some smaller individual-type portfolios, too -- or individual assets also?

I think it's more likely to be a flow business like we're doing in life science and senior housing, which is a very targeted approach. We now have a very senior resource to allocate the time, to travel around the country to see sites and meet with partners and sellers. And he's -- Justin is extremely skilled at doing that. So there's no doubt that the activity will pick up in the Medical Office segment.

The big portfolios, pretty much everybody gets a chance to see those. We look at all of those. It may be that, on occasion, we'll find the risk-adjusted returns appropriate. But I would put that more in the occasional category, or opportunistic. That's not going to be the primary way we grow our business in any of the 3 segments.

Okay, great. And then last one for me. Scott, I think you mentioned in your prepared remarks that there is increased density at The Post that you could do. Can you provide us some more color on that? And what should we expect?

Yes. It's a 36-acre campus with a sea of surface parking lot spaces. So that's not a near-term priority, but it's certainly something that when we do life science acquisitions, whether it's the towers at Sierra Point or the CambridgePark Drive, too many syllables on that one, CambridgePark Drive acquisition or The Post, where when we do acquisitions in life science, we always look for the opportunity to build scale on that campus over time. We've just found that to be such a critical component of life science real estate, to have that local density and scale.

Next question is from Rich Anderson, SMBC.

So just getting back to the CCRCs, I just want to make sure I have this right. You'll run about 85% rental revenue and about 15% amortization. Is that about right? For total -- in terms of the total revenue -- one?

I would characterize that differently, Rich. When you look at the total amount of income generated on the CCRCs, it's about 60% from the NREFs, nonrefundable entrance fees, and about 40% from the NOI. The numbers, just so you have them, is it's about $65 million for the NREFs; and about $45 million, net, with the NOI coming to about $110 million.

Okay. So NOI, meaning -- okay, I was just looking at the revenue, I was looking at Slide 47 on your supplemental and trying to sort of just look at the revenue side of the equation.

Yes. I think it's probably easier, Rich, the way we think about it is how Tom described it, which is as a percentage of NOI. And that cash NOI is essentially the annual rent we receive from our residents. And then the NREFs is broken out separately, and that's the entrance fees that we receive from residents when they move in. So we think about it as those 2 pieces.

So it's a setup to a bigger question. So you now own it 100%, you're having to bob and weave through a lot of disclosure noise that you did a good job explaining in your disclosure materials last night. But I'm wondering if -- and I know you have -- you like the CCRCs, I know you're somewhat the exception with that, a lot of people have avoided that space, but perhaps there's a turnaround story here. But I'm wondering, when you think of all the work you've had to do to explain the disclosures and whatnot and now owning 100%, have you given yourself like a sort of a card in your back pocket and some optionality should it not work out very well, that it's easier simply to sell a portfolio that you own 100% then if it's kind of wound up in a joint venture?

I think if it’s in the unlikely event that doesn't work out well, we certainly have given ourselves that card. But we feel very confident that it's going to work out. You mentioned the accounting and some of the confusion that came out of it. We had a few different calls with analysts last night, very knowledgeable analysts, as we walk through the economics and how they match up to the cash that's generated. And I think the analysts all came to the conclusion, as well as some others that we've had the opportunity to talk to over the prior months, that the accounting does capture the economics in these deals.

But I do think there's been some misinformation out there that, frankly, I'd like to take a minute, not to give me the question, Rich, to set the record straight on it. And I think it's important, because this is a -- in my view, a very favorable asset class and a great opportunity, but one with high barriers to entry and hard to get into, so I'm going to take a minute on that.

We mentioned earlier that the CCRCs in this portfolio generated about $110 million of FFO into 2 buckets, and we talked about that, the NOI and the nonrefundable fees. And what's important about these 2 buckets is the NOI produces about a 10% to 15% margin by itself. The nonrefundable fees adds to that margin and brings it more like to a 25% margin. In other words, the nonrefundable fees are a critical component of the income to generate a profitable return on the CCRC portfolios. So when one considers the fair value that has to be assessed, it has to include those nonrefundable fees.

Some facts. The average senior resident enters the communities at around age 80, and they're usually pretty healthy at that point, and they have an 8- to 10-year actuarial life of stay. The nonrefundable fees are then amortized over these 8- to 10-year lives. So it produces a proper amortization of income based on providing those services and providing those units in that shelter and both services to these seniors.

So when we look at the major points of the transaction, I think the first one is, when we underwrite that -- when we underwrote those deals and we underwrite future deals, we look at it on a cash, not a GAAP or FFO basis. That's how we underwrite it. So the underwriting is based on cash, but the fact is, is that GAAP also follows the money, and GAAP generally gets to the right place on this stuff and especially in this type of an accounting. The annual income being recorded on this stuff is roughly equivalent to the cash being received, which is really important when considering that the accounting metric reflects the true economics.

The NREFs, this is an important point that I think gets missed. The NREFs are absolutely akin to prepaid rents and are accounted for very similarly, which, as you know, is consistent across all forms of real estate as you pick it up in purchase accounting. You don't ignore prepaid rents. If you had rent that was prepaid for 3 years on a particular property and you want to buy that property, you're not going to ignore that in your purchase price. You get a reduced purchase price, record a deferred revenue, and you'll recognize that income in over that 3-year period. Of course, you'll do that. And that's true for any real estate, well it's true for these, too. And these nonrefundable fees are just simply prepaid rents on the NREFs for seniors.

So those NREFs then are amortized over an 8 to 10 year life. Now you got to recognize, why the 8 to 10 years? Because it's assessed by actuaries every quarter. So it's not us making these numbers up. Actuaries look at the numbers, determine the appropriate life to amortize this, and that's the period of time in which we bring this income in.

For the existing residents at the date that we did the acquisition, the value of the NREFs are simply booked as deferred revenue under GAAP. And then for the new residents, of course, as they come in, rather than recognize all those NREFs at one time -- and say that's a $150,000 number, rather than recognized it all at one time and GAAP and income and FAD, which I think you would object to, we then amortize that over that 8- to 10-year period in which we're going to be providing the services. Makes perfect sense under GAAP where you're expecting some kind of a matching principle, of course. This step is not -- there's nothing esoteric or fancy going on here.

So the cash to recognize for deferred revenue, importantly, follows the cash. And that cash, in this case, comes from a deferred purchase price just as if you had bought an asset that had prepaid rents upfront. Of course, you're going to pay less for that asset if you're not going to be collecting those rents because your seller collected a whole bunch of those rents on day 1, and the next day, you bought the asset and you weren't going to get those rental payments. So that's fairly basic.

So when we go through and we think about some of the principles, is that GAAP is usually designed to follow the money and the economics. And in this particular case, it absolutely does. GAAP is designed to report income in the correct period and it usually gets that right. And in this case, it absolutely does. GAAP is designed to create a matching of revenue and expenses. All these principles are spot on in the CCRC accounting. So some of the misinformation that we heard buzzing around, I felt very important to set the record straight. And I'm glad to take more questions on this.

I guess it does -- I mean, it's important that every real estate in the country is required, not optional, required to use this kind of accounting across a whole vast array of different things that are accounted for when you purchase real estate. And so there's nothing special here, and I just wanted to bump some of the stuff that I've heard out there.

All right. That's a Six Sigma question -- or answer to a question, if I ever heard one.

And then just one quick one. You haven't disclosed the cap rate or the economics behind the sovereign wealth JV. Is there a reason for that? Or did I just miss it someplace?

Rich, Scott here. When we announced that deal last quarter, we talked about a cap rate on sale of about 6%.

Okay. I don't remember that. Yes.

Inclusive of the asset management fee. And that's on a trailing 12. That performance has been weaker more recently. So it just depends what time period you're looking at, but it's in that range.

Okay. I'm sorry I missed that. That's all I have.

Next question is from Nick Joseph with Citi.

It's Michael Bilerman here with Nick. First off, Tom and Pete, I do appreciate -- I think the industry appreciates you spending the time with Ventas and Welltower to work towards some commonality. And also being able to put out a presentation which lays out every item, I think, is really helpful for the Street to have. So just thank you for doing that.

I want to come back to the life science same-store change you made. And Global -- and I know you want to be working with your tenants and partners with your tenants. It's possible, Global Blood could have looked at Alexandria, Kilroy, they could have looked at BioMed, or a variety of different other landlords in the area, for the increased square footage that they needed. And so you would have lost them if you couldn't satisfy them potentially. And maybe there's some other dynamics, but you potentially could have lost a tenant in your existing building that's not going to your development. And therefore, the asset should stay in the same-store because it is part of your organic growth of having to backfill when the tenant leaves to something else. And so I don't -- well, I appreciate the color and the desire to think about something, I actually don't think it's the right methodology change to make because it is a vacancy that you're going to have to deal with, whether they go to your own building or someone else's shouldn't matter.

Michael, it's Pete here. I appreciate the point. Maybe I should clarify it. With Global Blood, we proactively allowed them out of their lease. So we would not have lost them. They would have stayed within their current premises and not moved, but we might have lost them from expanding within our portfolio. But we certainly could have held them to their current lease and not allowed them to get out of it earlier. We proactively elected to allow them to get out of their lease, because they needed more space.

And I should just clarify, too, that within the policy, we will not remove a building unless -- and we'll be fully transparent on this, because we show fully sequentially when buildings come out. We have basically said, unless we are getting significantly more revenues from that tenant for their move, then we would not be removing them. So it's more of a proactive choice on our part. We could have said no, made them stay in their building, but given up significant increases in rent because they needed more space. So our choice is to work with our tenants.

And I actually will tell you, in San Francisco, we've heard over and over again the fact that we're the dominant landlord, that many, many tenants look to lease with us because of their opportunity to grow. And if you look at our tenant base, it's heavily weighted towards biotechs. We do have some pharma exposure as well, which is pretty big. But those are the tenants where you can actually see significant growth and partnering with them is quite important.

Mike, before you respond, if I could add something for you. I do appreciate and understand the question, it's something we grappled with some as to the best approach. We did conclude that it's better information if we're moving a tenant out of, let's just say 25,000 square feet that had 6 years remaining on the lease into 100,000 square feet that might have a 10-year lease at a higher rate to show a same-store decline when, in fact, it was very profitable to the company, it did feel strange in the same-store.

But one thing I'm going to catch these guys by surprise a little bit. But Pete, probably won't clobber me too much. One thing we will do is we will footnote, in some way that is not in the fine print, the impact of these transactions and what it would have had on same-store as we go forward, because we're not trying to obviously hide it. We would want to put that out there so you can see it, if that would be a reasonable solution.

So how much term was left on the lease? And I may have written down the numbers wrong, but I think I heard $4 million of rent, 67,000 square feet; $10 million of rent, 164,000 square feet, which seems that it's basically $60, the same rent. And so I guess I was -- maybe the numbers wrong, but I was surprised the rent stayed the same. When you have a newbuild, I assume you have all the TIs that you put in the existing space and you have a massive amount of TIs for the new space. So just help us, walk me through the economics here of what really was the exchange other than more space. And how much term is left?

Yes. So I don't know that I have the exact term on me, but I would say, they moved into Phase 1 of The Cove, that was close to a 10-year lease, so they had north of 5 years left on their term. From a TI buildout perspective, I would say that we built more of a -- and we do this often, Michael, with tenants that we think have a lot of upside opportunity. We build a very generic space so we're not doing a whole redo in TIs. So the original TI package that we gave to Global Blood and their initial lease was around $150, and then the renewal -- or excuse me, the new lease we signed with a backfill tenant is substantially higher than what Global Blood was paying, but also the TIs were substantially below that $150, given it was more of a generic space that was built out initially.

And the rent is -- was it $60 a foot the right thing in both cases? Or maybe the gross rent numbers you quoted are not right?

I quoted approximate numbers. I believe we were a slight pickup. But remember, we had some escalators for when they signed their initial lease, and then we ultimately signed them for probably around 5.25 monthly, low-60s for Phase 4, which is actually a pretty strong rent within that market.

Page 18 of the guidance where you have the roll forward, Pete, and it's helpful, just to go from one to the other. We talked a little bit earlier in the call about the non-same-store SHOP assets given all the transitions and everything you've done in that portfolio. What would the change be from -- like where does that show up on this reconciliation? How many pennies is that adding potentially to 2020 as those operations stabilize and improve?

Yes. So it's certainly adding within the development earn-in. So the 2 big tenants I talked about, MyoKardia and Global Blood, those are big contributors. And as I said in my prepared remarks, Phase 4 of The Cove, which is Global Blood...

No. I'm talking about the SHOP portfolio.

Oh, sorry.

The fact that the SHOP -- your SHOP -- your normal SHOP growth is a small percentage of your entire SHOP portfolio, which is captured in the 2.5% blended. But you clearly are getting upside as you made all those transitions, you had all the down NOI in 2019 that affected you. I would assume that there is a positive benefit as those assets stabilize and ramp. Where is that being captured?

Well, the transition assets are in the same-store pool for 2020 because they will have had a full year of comparable results under a common operator. So you're not missing anything there. But to the point I made earlier, almost 80% of the senior housing portfolio is not in same-store, even in 2020. They will start being added to the quarterly pool throughout the course of 2020, but that's not captured in the guidance number. So there actually is a substantial amount of upside or downside in earnings based on the results of that non-same-store portfolio.

Right. So that's what I'm trying to get at, is what's embedded in your $1.80 guidance for that non-same-store SHOP pool, which is the largest portion of your SHOP assets? What are you assuming from an increased, decreased or not relative -- embedded in that $1.80 of FFO?

Yes. So Michael, and obviously, the roll-forward is, at a very high level. If we did every single adjustment, it wouldn't be able to fit on an 8.5 by 11. But big picture, within 2020 transactions, Scott mentioned the CCRCs being the biggest component that is not in same-store. That is picked up in that 2020 transactions. We talk about the $0.015 of accretion from the Brookdale Transaction. So a big chunk of it is picked up there.

And then also when you look at the 2019 capital recycling, Scott also mentioned the Oakmont and Discovery acquisitions. If you look in that table, Footnote C, you've got 2019 acquisitions, which actually includes Oakmont and Discovery, but that's also offset as we look at this for the capital recycling we did as well as some of the funding. So the positive impact of those is offsetting some of the negative from the capital recycling.

And I'd also point out, we do have that other bucket down there, which is a bit of a catch-all, but does obviously pick up some other things. As I said, this is more high level. But going through those 3 items, CCRCs, Oakmont and Discovery, that's the absolute vast majority of non-SPP senior housing assets, or SHOP assets, right there.

Last, just a question on the dividend. And Tom, you referenced the Board maintained and will think about it next year. Can you at least tell us what the framework or mindset that they made that decision to then reevaluate in 2021? How are they -- what are they looking for? The current trajectory of AFFO would indicate you're going to be able to cover more in 2020 than you did in 2019, right? Arguably, if you're able to hit the guidance that you've laid out, your dividend coverage by the end of the year should improve rather than go down. But just maybe help us understand what's the framework, what are they thinking about from a dividend perspective next year?

Absolutely. I can give you some insight on that. That was a robust conversation. We had some very good viewpoints around the room. Recognize that our yield is quite strong, but then coming out of the restructuring, that our coverage was quite high, or quite low in other words, at 97%. And as we look at it, we also knew that we were going to have a FAD improvement during the year and we could have easily raised the dividend some to capture at least some growth and certainly provide an indication of where we're going, because that's where we see ourselves going as we look forward the next 2, 3 years.

Ultimately, at the current time, the Board decided, let's stay put. The yield's good. We've got excellent growth on the horizon. Let's get that coverage in a stronger place first so that we're happy with that, along with all the rest of our metrics. And we can always revisit that. It could be midyear, it could be 2021. But we've had -- probably 2021, there should be a good opportunity to revisit that then.

So because our yield is so high and the coverage could use a little bit of improvement, that's how we came to that conclusion. So I mean, frankly, we could have easily added if we chose to, but we felt that we would seek to get the better coverage first and then move on to start increasing the yield after that.

Right. So there wasn't -- it was much more about whether to raise than to cut.

Oh, yes. The word cut never came up in the room.

Okay. That's what I wanted to know.

And Michael, one last point before you go. Michael, one last point. We had 8 years left on the GBT lease. So I think it's pretty important to note that for this, there was a lot of term left, and they're now in a 10-year lease at The Cove Phase 4.

And you've already re-leased that space, it sounds like, right?

We've already re-leased it. It's just a matter of downtime to get the new tenant in.

Next question is from Jonathan Hughes of Raymond James.

On the CCRCs. And Tom, Pete, all the details are greatly appreciated. But looking at Page 49 of the supplement talks about the accounting change that's to come in the first quarter. Can you just clarify that you will be booking effectively $45 million of NOI through cash NOI or -- and EBITDA? Or will the full $110 million, including the $65 million of NREF amortization, also be booked in there?

Yes, Jonathan, it will be at $110 million because we'll be under consolidation at that point. So it will be the full amount of the NOI and NREFs -- the amortization and NREFs.

Got it. Okay. And then maybe one for Scott. I think you mentioned the recently acquired Discovery and Oakmont properties are a little behind relative to underwriting. I think you said there were some personnel changes. So what happened there versus your expectations when you bought them less than a year ago?

Yes, to clarify, Oakmont is on schedule, if not ahead of schedule. I had mentioned that Discovery was behind. That's a lease-up portfolio, 9 assets that we acquired, and 5 of them are generally doing well, the other 4 fell behind. So we were expecting some pretty significant occupancy improvement. The opposite happened on those 4 properties. Discovery had a number of transactions that they were working on in 2019 which ended up being a bit of a distraction, unfortunately. And shortly after our acquisition last April, pretty significant change in personnel at the property and regional level that needed to be sorted out over the course of 2019.

So we think that they've addressed those things, but occupancy today in that portfolio sits in the high 70s, which is roughly where we acquired it when -- of course, we're expecting that, that will eventually stabilize well into the 90% range. So they're behind. We still think they're a great operator and we're still confident in the assets, but certainly, we're not happy with the first year performance.

Is the -- are the REVPOR trends kind of in line with your expectations, it's just the occupancy?

Yes, it's been mostly an occupancy problem.

Next question is from Steven Valiquette of Barclays.

So all the 2020 guidance details are definitely helpful. One of the metrics -- well first, you mentioned in your prepared remarks, you had $1.4 billion of announced noncore asset sales over the past year or so, and that was well above the original guidance. So for 2020, you're projecting another $500 million of dispositions. Can you just remind us whether this -- the 2020 disposition guidance is fairly generalized just as a place-marker? Or is there some pretty good internal visibility on which properties and property types that you plan to sell, just the $500 million may be realistic for this year? And should we assume that most of the additional sale activity will be in senior housing? Or is that not the right assumption?

Yes. I can start with that, it's Pete. And Scott, if he wants to add anything, he can.

So the $500 million, what's included in there is the North Fulton purchase option, which is around $80 million. It also includes the held for sale assets, which we do disclose in our supplemental. That's about another $300 million when you back out the triple-net assets we sold to Brookdale, which is included in that, too. And then there's certainly some other noncore assets within senior housing as well as potentially MOBs that are not very significant, but certainly would make up the balance there. We don't intend to sell anything in life sciences.

So I would say $500 million is our initial guidance on that. If that number were to go up, we certainly would be looking to recycle that capital into acquisitions or development spend. So we wouldn't have it go up just to raise cash, we'd want it to go up in order to fund some capital recycling activity. So that's the way we think about it.

Okay, got it. And just quickly on senior housing. You gave us some clarity last quarter, talked about softness in markets like Houston and Denver as standouts. Now the more time has passed, just curious if there's any notable trend changes in these "standout markets", either for the better or worse. Or are dynamics still pretty similar to what was happening in mid-2019 as we enter 2020 now?

Yes, I don't think there's anything materially different from comments we would have made 6 months ago. In the past couple of years, we've been a bit more cautious than most about the state of the industry and how long it would take for it to turn around. I think that turned out to be the correct assessment, for sure. From where we sit today, occupancy across the sector is generally flat, which is certainly an improvement from where it's been in the past 3 or 4 years. But too often, I think that occupancy is coming at the expense of discounting and incentives, and those aren't being picked up by the NIC data that a lot of people like to focus on.

So we don't see rents growing at 3%, at least not nationally. Certainly, they are in particular markets, but not at the industry-wide level. We think it's more likely in the 1% to 2% range. With flat occupancy growth, you can assume that revenue is growing 1% to 2% a year. And if labor is the vast majority of your operating expenses growing 5% a year on a 30% margin business, it's pretty simple math to understand why NOI at an industry level has been declining in the 5% to 10% range.

So we see that improving slightly throughout the course of 2020, but we don't think we've yet hit that inflection point despite the fact that occupancy is flat. We really need to see both flat occupancy and pricing power or a dramatic increase in occupancy so that revenue growth can keep pace with expense growth. And we're just not there yet as an industry, but getting closer, for sure.

If I go to jump in [first] -- oh no, I'm sorry, finish your question.

And if I could just sneak -- yes, go ahead. Sure.

No, I was going to ask one more, a quick one. You go ahead first. I'd rather have you comment on the prior question first.

No, actually, I was going to make a comment. I recognize the call is going long. We had lots of topics -- we had a lot of materials for you guys to review, and I apologize. There was just so much complexity and so much information to get to you, that we felt without it, it would have been very hard to discern what had taken place in our business.

We've got another half a dozen, 6 people. I would that ask the questions quickly, if we could just please request that you do. And we'll try to give quick answers just to get through the rest of the questions. But we'll move quickly as we can at this point. So yes, please continue.

All right. Just a quick one here, just to the extent you could comment on this. Is there any color on what prompted the planned sale of the -- I think it was 6 additional Capital Senior Living properties, kind of over and above what you announced previously?

Yes. We had a good dialogue with Kim and her team. They have important strategic initiatives on their end, which included reducing their lease liabilities. Healthpeak was their smallest partner, they certainly have others. They were not core assets for us, and we've talked about having 2 or 3 years ago, 30 different senior housing operating partners. Today, we're down to about 20. We'd like to get down to about 10. And we were not looking to grow with CSU, so it made sense, both for us and for CSU strategically, to exit that relationship. We think the combination of re-leasing the security deposits and the likely sale price for those assets will result in a perfectly good outcome for us rather than having yet another underwater triple-net lease. We've been working hard to get rid of those.

Next question from Chad Vanacore of Stifel.

All right. So I'm going to keep it to one question in the interest of time. Just thinking about CapEx, it looked pretty high this quarter. How should we think about run rate for 2020? And was this quarter, was that related to accelerated development? Or was that catch-up for earlier in the year?

Yes, Chad, it's Pete. CapEx has historically been back-end weighted for us. So the fourth quarter tends to be the highest quarter, which is why we focus more on a full year CapEx number and not just a fourth quarter number because you could get some misleading payout information there. So we'd focus you more on the full year number. And then from a guidance perspective, we do include CapEx in the supplemental with regards to recurring CapEx there and others. So I'd just encourage you to look at that additional detail for what we're budgeting for 2020.

Next question comes from Tayo Okusanya of Mizuho.

I just wanted to follow-up on some of Steve Valiquette's questions. In regards to the acquisition outlook, again, most of your peers don't really give guidance, but you've kind of given an $800 million guidance. Is that something very specific that's out there? Or is that more of a kind of just a generic placeholder number?

Yes. Good question, Tayo. We've raised these equity forwards, and in our sources and uses, we fully deploy those. And you can see what they're getting deployed into, capital spend, acquisitions and the Brookdale Transaction. On the acquisition front, that includes The Post, so that's $320 million. When you take the balance, just under $500 million, we announced our Oakmont purchase option agreement a couple of -- actually about 2 months ago. And some of that is identified for those, although hard to get into specifics on timing right now. But certainly, that's within our plan for some of those. And then the balance of that is a little bit on our pipeline. So that's how we came up with the $800 million number.

Great. And I guess a quick second question. The Amgen lease amendment and extension, could you just talk a little bit about, again, why that was done? And kind of what's the worst-case scenario if they do decide to terminate early?

Yes. So we obviously have a very strong relationship with Amgen, and we have for years. The transaction that we announced in December, we believe, was a win-win. As part of the agreement, Amgen extended their maturities on 3 buildings that are most important to them, and we were able to spread out the lease maturities. They will vacate 1 building that they currently occupy, and then the other 3 buildings they lease are actually subleased. So now we have full clarity, they had extension rights on those subleases there, and we have an opportunity to talk to the market about those buildings.

It's a Main & Main location right next to The Cove, at our Brittania Oyster Point Campus. So I guess, worst case, they would just vacate all of their leases, but it would get spread out over the next 4 years, would be the worst case. Hard to say what they will end up doing with the buildings they extended the leases on. They have the right to stay in those through 2029. So I would say, best case is on those 3 buildings, they stay for the full 10-year term essentially that they renewed for.

So hard to gauge now, but we felt quite good about having clarity on that campus and an opportunity now to work with other tenants, either subtenants or the market, on leasing up some of those buildings.

Next question is from Daniel Bernstein of Capital One.

One thing is -- maybe later we could talk more a little bit more offline about the amortization on the CCRCs, I don't want to go back over it again, given the time, but I do want to talk to you guys about it.

The one question I had is you have a bunch of debt, '23, through '25, that's around 4% yield, you obviously called the 2022 debt earlier. Did you bake in any refinancing into your 2020 guidance?

Yes. No, we did not bake in any refinancing into our guidance. If you look over the last 6 months, we've done a lot of bond deals and actually extinguished much of the debt that we have maturing in 2020 to 2022. So we have not baked in any additional debt issuances and redemptions.

Okay. And then I don't want to put in a corner on long-term seniors housing fundamentals, but if you look at your portfolio, it's around 85% occupancy. I think historically, it's probably been higher than that. Do you think the industry is going to get back to that -- and maybe your portfolio, back to that upper-80s occupancy within seniors housing, over, say, the next 3, 5 years? Is there that kind of upside embedded within your portfolio? Or is it going to take a little bit longer than that?

Yes, I think the portfolio we've built will get back to that level. I think 3 to 5 years is a comfortable window to get there.

Next question, Michael Mueller, JPMorgan.

I guess on the same-store definition, what's the -- 2 things, what's the trigger for the transition assets to go back into the same-store pool? And then secondly, when we look at the 2019 performance on the new definition of minus 2.7% versus the minus 2.5% 2020 guidance, should we read into that, you're expecting slight improvement? Or is the property mix changing where it's driving that little bit of improvement?

I'll take the first one, and Pete, the second. This is Tom. For the transition, it's -- you have to have comparable operators in both periods. So if we're moving from 1 SHOP operator to another, we will pull it out of the same-store pool for transition purposes. But I'll remind you, if it's material in that portfolio, we'll continue to disclose it both ways as we have in the past. So you won't lose anything from what we've given you in the past.

Pete, the second part?

I hate to do this, Mike, but can you repeat the question?

Yes. I guess, when we look at 2019 SHOP performance of minus 2.7% under the new definition versus 2020 guidance of minus 2.5%, is that slight improvement based on operations getting better? Or is the pool size changing from year-to-year that's driving that improvement?

Yes, it is a bit of a different pool, Michael, because of the transition portfolio, which, under this definition, would not have been in the 2019 same-store result, but they will be in the 2020 same-store pool under both the old and the new policy. I think the best apples-to-apples comparison is that if we had used the 2020 same-store policy, our 2019 results would have been negative roughly 4% versus the guidance of negative 2.5%.

So there is a slight improvement built into 2020 relative to 2019. That's not a perfect apples-to-apples comparison because of the pools, but that's as close as we can get. And that's primarily the reduction in size of the Brookdale portfolio, frankly. Rather than 100% share, it's at 53.5%. And that's the portfolio that's been dragging down performance. That's just the reality. We don't think that lasts forever, but that has been the case in the past 2 years.

Next question is from Lukas Hartwich, Green Street Advisors.

I'll just ask one. So there's a lot of capital chasing life science these days. I'm curious how you think that impacts the supply outlook for that segment.

Yes. Good question, Lukas. We're certainly seeing cap rate compression. It's no longer this niche asset class. There's a lot of capital chasing the space and driving cap rates down. And also, when you add to the mix the fact that you've got a lot of increased demand from tenants looking to lease space, you have a virtuous cycle, which I've talked about in the past. So -- and they're also seeing a lot of pre-leasing happening well in advance.

And so I think where we are today, it's likely that we'll see additional developments in each 1 of our markets. We are obviously participating in that in all 3 markets, but we're certainly mindful of making sure that we would look to match whatever new supply we deliver with our view on where demand is from a tenant perspective within the marketplace.

Next question comes from Joshua Dennerlein, Bank of America Merrill Lynch.

The Post acquisition, you kind of expanded in the $128 million, a submarket for the Boston Life science. What kind of draws you to that submarket? And is there any other submarkets you really like in Boston?

Yes. We actually really like the Lexington market primarily because of its location to [the 2], and also the [LYT stop]. And we like the West Cambridge market because that is exactly where the [T stop] is. So we see some real synergies between owning assets in West Cambridge as well as in Lexington. I know The Post said it's in Waltham, but if you look at the map, it's less than a mile from our Hayden Research Campus.

So we like the suburb play, but what's important to us is making sure that our tenants can utilize the transit system to get it to and from their workplace because traffic in Boston is not easy to navigate. And as we look at the suburbs, we'll continue to assess the ability for our tenants to access that transit.

Okay. Is that it for questions, operator?

Yes. I'll now turn it back to Tom Herzog for any closing remarks.

Yes. Just a couple of comments. I will say that the CCRC class of assets, the portfolio, we consider to be a great opportunity for us. We recognize that there's a little bit of education on the accounting. It's not that difficult when we have an opportunity to go one-on-one with people, which we've done some of. Glad to do that with anybody, so call in, our team can help. I do apologize for the length of the call. There was just so much going on. I'm guessing, for the sanity of our team and for you, it'll be less busy next year. And I do thank you all for joining the call and your interest in Healthpeak. So we'll see you soon. Thank you.

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.