Healthpeak Properties Inc (PEAK) 2020 Q3 法說會逐字稿

Good morning, and welcome to the Healthpeak Properties, Inc. Third Quarter 2020 Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Barbat Rodgers, Senior Director, Investor Relations. Please go ahead.

Thank you, and welcome to Healthpeak's Third 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 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 financial measures will be discussed on this call in an exhibit of the 8-K we furnished with the SEC yesterday. 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. On the call with me today are Scott Brinker, our President and CIO; and Pete Scott, our CFO. Also on the line 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.

Starting with our Q3 results. 3 quarters of our business, represented primarily by life science and MOBs, is performing on track or ahead of our pre-COVID expectations. We are seeing leasing executions in life science and MOBs that are in line with or ahead of our original annual plan and we have increased our same-store outlook in both segments.

In life science, our development activity remains on track with very strong pre-leasing. The industry continues to set records in VC funding, IPOs and secondary equity offerings, which is adding to the already strong demand for space. In medical office, we're on track with our development program with HCA and have or expect to deliver 4 development projects this year.

The other 1/4 of our business, represented by shop, triple-net and CCRCs, continues to experience pressure from occupancy and expense trends related to COVID, partially offset by CARES Act stimulus. However, our results have been quite favorable relative to the outlook framework we provided last quarter.

Improvements to PPE, testing, staffing, quarantines and other protocols have allowed our senior housing operators to better contain outbreaks of the virus and to function more effectively and profitably. And as we look forward, we are encouraged that health care workers and seniors are prioritized to receive a vaccine when available in Phases Ia and Ib.

Over the past 4 years, we have taken deliberate actions to exit noncore senior housing and SNF assets, we're reinvesting the proceeds in our growing life science, MOBs and CCRC businesses, each of which consists of irreplaceable and high barrier to entry portfolios and each with significant embedded upside.

In our life science business, we have critical mass and a strong competitive position in each of the 3 major hotbeds of innovation: South San Francisco, Boston and San Diego. In the Boston life science market, during the past 3 years, we have built a 2.4 million square foot portfolio, inclusive of our latest acquisition and development announcements, with Boston now being roughly equivalent in size to our San Diego Life science portfolio. We have grown and strengthened our medical office business with a renewed focus on new developments with HCA and other top hospitals.

Including our acquisitions and development completions announced last night, we have added almost 800,000 square feet of on-campus medical office space year-to-date. And earlier this year, we increased our ownership interest in our CCRC portfolio to 100% and transitioned operations to LCS, who is, in our view, the top operator in this important segment of senior housing.

We currently have a $1.2 billion active development pipeline that is fully funded in our plan and 63% pre-leased. Additionally, we have an enormous shadow pipeline of development and densification opportunities in our life science, MOBs and CCRC businesses with significant value creation potential over the next 10 to 15 years. And our company remains in great financial shape with strong liquidity and a fortress balance sheet, which we continue to manage carefully.

And finally, during 2020, we continue to invest heavily in people and systems. And have built what we believe is one of the top platforms in our industry.

As to the status of our SHOP and triple-net portfolio transactions. First, over the last 4 years, we have dramatically reduced the size of both our SHOP and triple-net portfolios, with aggregate sales of over $5 billion. As I noted during our last quarterly earnings call and on our recent webcast and industry conference presentation, there has been strong interest in our SHOP and triple-net portfolios from a number of potential buyers that have considerable dry powder. These buyers include PE firms whose investment time horizon fits well to capture the future recovery and potential upside of the senior housing market.

Importantly, we believe there could be an opportunity to accelerate the exit of our SHOP and triple-net portfolios, which we now consider noncore. We're in various stages on a number of transactions, representing the majority of our roughly $4.5 billion, plus or minus, of SHOP and triple-net assets, which Scott will discuss further in a few minutes.

We believe senior housing will remain a vital asset class in our society, and we'll continue to serve the demand of the rapidly growing baby boomer demographic. So we will be a seller at the right price. But we are also fully prepared to play through and sell these assets over time, if needed. Regardless, our focus going forward will be on growing in our 3 core businesses of life science, MOBs and CCRCs.

Moving on to our dividend. Our year-to-date dividend currently exceeds our AFFO by $0.01, implying a year-to-date payout ratio of 101%. As we mentioned on prior calls, we are comfortable if our dividend modestly exceeds our AFFO for a short period of time, and we'll continue to assess our dividend based on our earnings results, the path of the virus and the outcomes of our various potential transactions.

Last night, we announced we were relocating our corporate headquarters to Denver, and we'll be moving 20 to 25 people from Irvine to Denver during 2021. We chose Denver as it provides a centralized location relative to our nationwide portfolio, equal travel time to our 2 offices in Irvine and Nashville, which will continue to house the majority of our talented employee base. And quicker travel when meeting with our analysts, investors and rating agencies around the country. Denver also provided a favorable location to attract and retain top talent.

And finally, we also announced that we are replacing our age 75 mandatory director retirement policy with a 15-year term limit. Given the current makeup of our Board, we believe the new policy will provide a more orderly and consistent Board refreshment over time and will maintain a favorable mix of experience and diversity. And frankly, I could not be happier with the breadth and depth of our current Board.

With that, I'll turn it over to Pete to discuss our financial results. Pete?

Thanks, Tom. I'll start today with a review of our third quarter results, provide an update on our balance sheet and finish with a discussion on our 2020 outlook. Starting with our third quarter results.

We reported FFO as adjusted of $0.40 per share and same-store cash NOI growth of 2.8%. Same-store growth for the quarter was driven primarily by our 2 office platforms which represent 85% of the same-store pool and grew a combined 4.3%. As Tom mentioned, both segments continue to benefit from favorable operating trends and tenant demand.

Starting with life science. With the impressive 5.5% same-store growth for the quarter was driven by strong leasing, contractual rent escalators and positive mark-to-market. In medical office, 3.3% growth was driven by positive mark-to-market, contractual rent escalators and higher ad rents, partially offset by a decline in parking income.

As expected, year-over-year performance in our senior housing portfolio, which represents 12% of the same-store pool, was challenged. Triple-net growth of 4% was offset by a 16% decline in SHOP. As Tom mentioned, we are in various stages of selling the majority of our SHOP and triple-net assets.

In accordance with our policy and generally accepted accounting principles, 111 stabilized senior housing assets were classified as held for sale at quarter end. These assets are excluded from same store, which significantly impacts our reported results. In order to provide additional transparency, we added a pro forma senior housing page who are supplemental this quarter on Page 36.

As these assets included in the same-store pool, reported senior housing and SHOP same-store would have been negative 27% and negative 44%, respectively.

Two other items I would like to mention regarding our third quarter results. First, we experienced a total of approximately $10 million or $0.02 per share of elevated COVID expenses in our SHOP and CCRC portfolios combined. This compares favorably to the $20 million in elevated COVID expenses we incurred in the second quarter.

Second, we received approximately $2 million or a little less than $0.005 per share in CARES Act grant. When looking at our sequential revenue and NOI performance, particularly for CCRCs, it is important to note we received approximately $15 million of CARES Act grant in the second quarter, compared to only $2 million during the third quarter.

Turning to our balance sheet. Our liquidity and balance sheet remains strong and provides us tremendous flexibility. We reported a net debt-to-EBITDA of 5.7x. We ended October with $2.6 billion of total liquidity, and we have no bonds maturing until November 2023 when a modest $300 million come to due.

Moving on to our earnings outlook. We have updated our 2020 outlook and earnings framework, which can be found on Pages 45 to 47 of our supplemental.

Starting with medical office and life science. First, we have increased our medical office same-store outlook by 50 basis points at the midpoint to 1.75% to 2.25%. Second, we have increased our life science same-store outlook by 100 basis points at the midpoint to 5.25% to 5.75%, which is also 100 basis points above our original 2020 guidance range.

In addition, depending on how collections progress through year-end, our full year same-store could surpass the top end of our range and speaks to the strength of the life science sector. As a result of our improved outlook for medical office and life science, we see a $0.01 to $0.02 pickup in FFO per share for 2020.

Now our fourth quarter outlook for SHOP and CCRCs. As Tom mentioned, our SHOP and CCRC performance exceeded our August outlook framework. For SHOP, we expect occupancy to decline 100 to 200 basis points relative to the third quarter. For CCRCs, we expect occupancy to be flat at the midpoint relative to the third quarter.

With regard to expenses, we expect both SHOP and CCRC fourth quarter incremental COVID expenses to be in line with the third quarter run rate. Important to note that the SHOP occupancy and expense outlook is inclusive of the entire stabilized SHOP portfolio owned as of November 1, and does not adjust for potential dispositions. While Scott will provide more detail on the specific transactions, let me provide a quick update on sources and uses.

Starting with acquisitions. During the third quarter and through October, we closed on approximately $200 million of acquisitions, inclusive of the Midwest MOB portfolio. We have also entered in the binding contract on $792 million of life science acquisitions.

Moving to dispositions. During the third quarter and through October, we completed $115 million of noncore disposition, which includes approximately $100 million of senior housing and the balance in medical office. We currently have a number of senior housing dispositions in various stages, including approximately $1.5 billion under purchase agreements and approximately $2 billion under letters of intent, which, if successful, are expected to close late 2020 or early 2021.

The net proceeds from our senior housing disposition could be used for future strategic acquisitions, debt repayments or potentially some amount of seller financing.

On a run rate basis, our leverage will remain in the mid- to high 5x net debt to EBITDA. However, our spot leverage metric for the fourth quarter may temporarily go above or below our [loan] target depending on when transactions close. As a reminder, the earnings outlook and framework in the supplemental is based on our best available information as of the current date.

Finally, along with our earnings release, we published our October preliminary results and I wanted to touch on a few highlights. In life science, the strong momentum continues with 99% of contractual rents received and occupancy increasing 40 basis points. In medical office, the sector continues to show consistent favorable results with 98% of contractual rents received and occupancy unchanged from September.

In SHOP, 98% of our properties are now accepting move-ins and occupancy declined only 10 basis points, which is the lowest monthly decline experienced during COVID. In CCRCs 100% of our properties are now accepting move-ins and occupancy declined 20 basis points. Notably, our IL, AL and memory care occupancy was flat, which is the first month during COVID when occupancy did not decline.

Additionally, in October, we received $5.5 million of CARES Act grant, and we expect to receive an additional $7.5 million during the balance of the quarter.

Two last comments on the October preliminary results deck before turning the call over to Scott. First, we now include certain historical senior housing data by month going back to March. We felt it was important for The Street to have all of this information in one place to assess COVID trends. Second, we modified our presentation to show operating metrics for the combined same-store and stabilized held for sale portfolios. Our previous disclosures had only been for the same-store portfolio, but given the magnitude of assets that went into held for sale this quarter, we felt it was appropriate to change our methodology.

With that, let me turn the call over to Scott.

Thank you, Pete. I'll speak to operating results in each business segment and finish with the transaction update. In life science, the 5.5% growth was driven by contractual escalators in the low 3% range augmented once again by strong leasing and mark-to-market.

In addition, rent collections have exceeded our expectations at 99-plus percent and bad debt has been below historical averages year-to-date. We're benefiting from our concentration in the core markets of San Francisco, Boston and San Diego, which together represent 97% of our portfolio. These 3 markets continue to dominate the capital raising in the sector. We're also capitalizing on our 2 decades of institutional experience and relationships.

The PEAK portfolio is unique in that about 70% of our tenants are biotechs with the balanced split between pharma, medical device, R&D and university. That's important because biotechs are capturing the vast majority of the capital inflows and, therefore, driving demand for space. Only 3% of our life science rent is from tech and office. Significant because the lab environment can't be replicated at home.

2/3 of our year-to-date leasing was done with existing tenants, highlighting the importance in life science of both relationships and scale in a local market. We have direct dialogue with our tenants about their growth and a huge competitive advantage when they need more space. Year-to-date, we've executed more than 150% of our original full year leasing budget, driven by faster lease-up at our new developments as well as renewals and expansions.

In 3Q, we executed 80,000 square feet of renewals at a 14% cash mark-to-market. New leasing was also strong and included a 118,000 square foot lease at the Boardwalk in Torrey Pines. That project delivers in 4Q '21 and is now 100% pre-leased with a weighted average lease term of 13-plus years and a return on cost in the low 7% range. So another huge development success by our team and platform.

Subsequent to quarter end, we signed an additional 96,000 square feet of leases in October. And the pipeline is solid as well with 227,000 square feet under letters of intent. Our new development deliveries over the next 15 months are 88% leased with very good activity on the remaining 12%.

Based on a favorable supply and demand outlook, we began construction at 101 CambridgePark Drive in West Cambridge, a 159,000 square foot lab building that we expect to deliver in 3Q '22. The project is next door to our existing holdings in that submarket, creating a 450,000 square foot Class A campus.

Turning to medical office. Leasing continues to be strong and we're tracking in line with our original full year leasing budget. Nearly 700,000 square feet of leases commenced in 3Q, including more than 400,000 square feet of renewals at a 4.3% cash mark-to-market. We ended the quarter with 90.7% occupancy, down 40 basis points from the prior quarter, driven by the placement of 2 development projects into the operating portfolio.

Third quarter rent collections were above 99%, and repayment of COVID-related rent deferrals were also above 99%. Year-to-date, bad debt is actually below historical averages, reflecting operational excellence and the resiliency of on-campus medical office.

We delivered nearly 200,000 square feet of medical office development in the quarter. This includes a 119,000 square-foot building in Brentwood, Tennessee. Upon delivery, it was 49% leased to HCA with another 13% under signed letters of intent. We also delivered a 70,000 square foot medical office building located at the Ogden Regional Medical Center in Utah. That project was 69% leased at delivery and is 78% leased today.

Turning to our CCRC portfolio. Cash NOI was better than expected, driven by occupancy, COVID expenses being lower-than-anticipated and $2 million of CARES Act funding. Entrance fee sales improved 30% versus last quarter but are still about 50% below historical averages. We are seeing steady improvement in demand as LCS was able to begin phased reopenings.

Also, the strong housing market in Florida is a clear positive looking forward, given our concentration there. Skilled nursing occupancy within our CCRCs improved more than 1,000 basis points since the low point in May as elective surgeries have resumed.

Turning to SHOP. Occupancy declined 220 basis points when comparing ADC in June to the ADC in September. Much better than we experienced in 2Q. And COVID expenses were just under $5 million for the quarter, an improvement of 60% from 2Q. The improvement carried through into October with occupancy down only 10 basis points from September.

Our operators have begun implementing phased reopening plans. Currently, 98% of our properties are allowing move-ins, more than half are allowing in-person tours. And between 75% and 80% are now offering at least some level of family visitation and group activities, including dining. This gradual reopening drove a 70% increase in move-ins over the prior quarter.

On net portfolio, we collected 97% of contractual rent in 3Q with the other 3% deferred with [capital] senior living. Rent coverage after management fee for the same-store pool was 0.89x on an as-reported basis, which uses the industry standard of trailing 12 months and 1/4 in arrears. On a real-time basis, rent coverage after management fee for the 3-month period ended September was 0.62.

In both cases, the results were negatively impacted by moving the Aegis portfolio to held for sale as that portfolio has strong rent cover.

Turning to transactions. We're moving forward on a number of senior housing asset sales that will further rebalance our portfolio, toward life science and medical office. We continue to see strong interest from buyers and we're in various stages on roughly $4.5 billion of senior housing dispositions and loan repayments, which we put into 4 buckets.

First, since July 1, we closed on the sale of 14 assets for roughly $100 million. Second, we have signed purchase agreements, some binding and some nonbinding on 8 transactions for approximately $1.5 billion, subject to closing commissions. Third, we have signed letters of intent on 6 transactions for approximately $2 billion. And fourth, the majority of the remaining senior housing portfolio is actively being marketed for sale. If successful, we expect the aggregate shop sales to represent cash cap rates in the high 5s on a pre-COVID basis and about 3% on a third quarter annualized basis. We expect the triple-net sales to represent cap rates in the high 7s based on rent and in the high 5s based on property level EBITDAR.

The price per unit for the senior housing sales range from nearly $600,000 to less than $50,000, given dramatic differences in age, location and competitive position. In all cases, we have contractual obligations to not disclose the name of the operator or the buyer. We'll be able to comment about which assets were sold after the applicable closing.

It's also important to note that COVID remains unpredictable, so there's no assurance on the completion of the asset sales. Also, in specific cases, we may choose to provide short-term financing to speed up the closing. Seller financing, if any, would be in the 65% loan-to-value range with escalating rates to incentivize repayments as we have no intention of being a long-term lender.

Moving to acquisitions. We've had great success finding opportunities to recycle proceeds from the asset sales. The vast majority of which were sourced off-market and represent locations and relationships that we specifically targeted.

In October, we closed on a 439,000 square foot medical office portfolio or $169 million. Price represents a 5.5% cash cap rate in year 1. Portfolio is 92% occupied. 6 of the 7 buildings are located on-campus and the other building is heavily anchored by a leading health system.

We like to have scale of at least 200,000 square feet in any local market, and this acquisition allowed us to enter Indianapolis at scale and to do so with the #1 health system in North Indy as well as the #1 health system in South Indy.

We're also under contract, to acquire the Cambridge Discovery Park, a Class A life science and research campus in West Cambridge. The campus is adjacent to Route 2 and with an easy walking distance to our existing holdings next to Alewife Station. The purchase price represents a 5% cash cap rate and a 6.5% GAAP cap rate, inclusive of the mark-to-market.

The 607,000 square foot campus expands our footprint in Boston and provides Healthpeak with #1 market share in West Cambridge. We also have the potential with existing entitlements to densify the Discovery Park with an additional 100,000 square feet. We're excited to do this acquisition and partnership with Bulfinch, a family-owned company with decades of expertise and relationships in Boston.

And finally, we're under contract to acquire a 12 acre land site located between our existing Forbes and Modular Labs 3 development sites. This site gives us additional runway to extend our #1 market share in South San Francisco. We now control the most prominent sites on all 3 major roads in this important submarket, which is the birthplace of biotech.

Combined, these 3 contiguous sites allow Healthpeak to build an amenity-rich campus with 1 million square feet or more be built in phases based upon our assessment of supply and demand.

In summary, we're making excellent progress transforming our portfolio with solid pricing on the senior housing sales and compelling off-market acquisitions and new development in life science and medical office. With these transactions, along with our strong balance sheet, and talented team, we're confident in our ability to deliver value to our stakeholders into the future.

And now back to the operator for Q&A.

(Operator Instructions) Our first question today will come from Nick Yulico with Scotiabank.

So I guess, first question on the senior housing asset sales. If you could just talk a little bit more about why you're doing this now? And you did say that you're seller at the right price. So I guess, you do think that you are getting in a good price here. Maybe you could talk a little bit more about why the pricing is attractive and why you're willing to get out of this portfolio right now when others see growth in senior housing over the next couple of years, what -- why are you confident that you're going to sell at the right price and reinvest into something that's better growth than senior housing?

Hey Nick, it's Tom. So when I think about our decision to make these sales, I think I had mentioned that we had received interest from a number of parties and as we assessed it. The movement forward was not a knee-jerk reaction to COVID rather it was a strategic long-range decision on where we want our portfolio mix and future growth to reside. So we've been selling senior housing for about 4 years, as I mentioned in my script, and I think, as you know. But we do see COVID as providing a potential catalyst to fully exit the business.

We -- as we think about the reinvestment of the proceeds, we see lots of opportunities to reinvest in both internal and external opportunities in our life science businesses. And we do think both of those businesses have a natural competitive advantage for us, given our life science clusters in the 3 major markets and the on-campus HCA anchored MOB platform.

So as to -- I think you mentioned pricing, the bottom line is this, is there -- certainly, senior housing is down some right now, it's going to be a valid business going forward in the future, but at the same time, it's going to be a bumpy ride. And if we can capture pricing in the ranges that we just spoke of, call it, high 5s on SHOP on a pre-COVID basis and call it a 3 on Q3 annualized, that's a pretty solid yield at that pricing.

And with that, we're able to capture quite a strong price without having to go through the bumpy uncertain ride that certainly senior housing is going to have. So our view at that point is that there may be other players outside of Healthpeak given our strategy that are better positioned to take advantage of that opportunity and let us move on to reinvest in these other businesses that we're interested in.

Okay. That's helpful. I guess, the other question relates to acquisitions. You have gotten a lot done here. Some of which is income-producing -- majority of income producing, but also some land. How should we think about -- if you're selling $4.5 billion of senior housing and your acquisitions you just announced are just under $1 billion, still $3-plus billion to invest.

How much of that is going to be in income-producing properties? Are you seeing -- there is at least, I know, 1 large life science portfolio right now where the reports are $3 billion sale price. Is that -- should we think about something like that, you're gearing up for an acquisition like that?

And I guess, I'm wondering, in terms of the dividend, you did mention you're comfortable with the dividend for some short time being not fully covered by AFFO, but how confident you guys are in being able to reinvest all this capital, so it's not going to create a significant amount of dilution that would have to cut your dividend?

Okay. There's a lot in that question. It's a great question. That covers a lot, let me try to sequence it in a way that will help make sense of it. So we have acquisitions that we've announced of, call it, $1 billion. Some of that in life science or most of it in life science, some of it in MOB. The MOB stuff at a 5.5% cap on campus. So we feel very good about that, very strategic.

In the life science side, a very strategic asset for us in West Cambridge. That has been a market that we have had interest in having significant market share. And then the [Gallo] asset, which is contiguous to our BML 3 and Forbes land sites that are entitled and could create a mega campus for us in the future. So those are very strategic acquisitions for us that we took off, off market deals, and we feel really good about them.

When we think about the sales proceeds, as to how much of this makes, we'll end up seeing. But we have $1.5 billion under some form of hard or soft contract and a couple of billion under LOI, we would expect that there's some or a fair amount or maybe all of it that gets done, we'll see how it plays out.

But one has to remember that when orchestrating this big of a transaction, that tax planning becomes important. And a couple of these big portfolios were 1031 capable, which eliminates any tax risk that we would have with our investors that we consider to be very important. And so then when we look at -- if we -- as we do the acquisitions, could we end up utilizing some of our liquidity if a number of the sales don't make? And so we've put some information into our SEF that I think you can back into quite easily to see that we will still have lots of liquidity and a great balance sheet, even if some of the sales don't make, we're going to be totally fine on that front.

To your question about use of proceeds, you're referencing a major, we'll call it, $3 billion life science deal in Boston. I know which one you're talking about, that probably is not for us, a nice portfolio. We have not chosen to compete in East Cambridge. We'll leave that to some of our competitors. So for us, that's not one that we will pursue.

And as to our dividend, the other leg of this whole thing, really, at 101% payout ratio, it's pretty much just a fully covered dividend up to this point. We've got a strong portfolio. Our balance sheet and liquidity are great, we're going to be comfortable. And I mentioned this a quarter ago, I mentioned at a recent conference, if our dividend modestly exceeds our AFFO for a short period, the impact on NAV is almost nothing.

So as we proceed over the coming months, we'll be able to continue to assess the dividend based on our projected AFFO, the path and duration of the virus, which is still uncertain. The outcomes of the sales, our preferred payout ratio as we reposition the portfolio and where we'd like to see that fall. And given all these facts, I just see little benefit and prematurely making an adjustment to our dividend before we see how these things play out.

So the bottom line is when it comes down to it, a protracted dividend with shortfall of size is something we would not do because we will seek to continue to protect our liquidity and ultimately, our credit ratings. So we're not worried about the dividend. We will end up in the right place on that when the right time comes and make the right decision on it.

Our next question will come from Steve Sakwa with Evercore ISI.

Maybe just following up on Nick's line of questioning but maybe kind of take it at the higher level. And I realize there's a lot of moving pieces here, both on the disposition side and the acquisition side. But if you are successful in executing all of the sales in the, call it, $4 billion, $4.5 billion range. And you sort of look out, is it your expectation that you can effectively achieve the same blended yield on the investments that you make on a stabilized basis? I realized there are some timing differences of when the money goes out and when the money kind of comes back in but was your expectation longer-term that this would be sort of FFO neutral and maybe some dilution in the short term? Is that how you're thinking about it?

It's a very interesting question. And you almost have to be in the inside of the company to be able to model, these types of things. The bottom line is when one looks at the timing of transactions and could that create some dilution that could affect payout ratio. I saw a couple of notes for that effect, it's a fair question. I think in terms of if these assets do sell at the right price, and again, we've said we'll only liquidate these assets at the right price, or we'll play through. We've got a great platform.

But if they do sell at the current yield in the third quarter, and you can project forward what it looks like for us or any of our competitors as we go forward in COVID, is it really dilutive to sell assets now? The answer is no. It's not dilutive at all. Not for the time being as we roll forward into the recovery, whether that's 6 months or 9 months or 24 months, we don't know. That could be a different answer, but that's a bumpy ride with a lot of uncertainty. So the answer is no.

It's not more dilutive by taking these actions because when you think about what would we use the proceeds for? Well, we just showed that we had $1 billion of transactions that we could do at solid cap rates. We have more off-market things that we're looking at and that we will be able to do and decide if those make sense.

To the extent that we have excess cash, that's not hard. We'll look at our 2024 and 2025 maturities and take debt out in the 4% range, bring our net debt-to-EBITDA down into the low 4s for a short period of time and then identify other opportunities when the timing is right, reinvest, put new longer date bonds in place, and -- we're in great shape in that respect.

So things I've read about were people validly wondered would we have a special dividend or have to do some things that make it more painful, we're just not in that position at all.

So Steve, to your question on yield, we spoke to the current quarter annualized, roughly a 3 across on a blended basis, just compare that to the types of investments that we would make that would obviously have a yield that'd be much higher than that. Even paying down debt temporarily has a higher yield than that. And if there's a hockey stick recovery in senior housing, and I hope there is, then it was -- we have a recovery quicker than we had expected. And that would all be good, it would not change our decision strategically and where we're trying to bring this company. So I think those are all great questions, and that's how we think about all those items.

Okay. Just as a follow-up on development, I realize you guys are looking to expand the development on life sciences and MOBs. A lot of people are expanding their life science endeavors in the markets in which you're operating in. Just maybe talk about some of the competitive supply issues? And is there any risk or worry on your part that the market gets a bit overheated, whether it be in Boston or in South San Francisco?

Steve, Scott here. I mean, certainly, any real estate business has the potential for supply and demand to get out of balance for a short period of time. Longer term, we think the fundamentals in life science are as good as any real estate sector. But even looking over a shorter period of time, there's between 2.5 million and 3 million square feet of new supply in each of the 3 core markets today, but it's substantially pre-leased, about 2/3 on average. Now some submarkets are higher or lower than that. But that's a 2-year delivery time frame that's 67% pre-leased.

Our portfolio is similar, 88% is leased. That's delivering over the next 15 months. 68%, that's delivering through the year-end 2022. So we do a very, very careful supply and demand analysis before we pull the trigger on any new development. And the most recent was at 101 CambridgePark Drive in West Cambridge, where we feel very good about the window that we would open in mid-2022, given the amount of demand in that sector relative to the unleased new supply that's coming. So we'll continue to watch it quarter-to-quarter as we make new decisions.

We also think about our densification opportunities in that business, which is different than sitting on a bunch of vacant land. We feel like we've got up to 3 million square feet of net additional space that we could add on existing campuses. And obviously, those are all in A+ type locations that we could do those tomorrow, we could do those 10 years from now or 20 years from now. So we don't feel like there's any urgency to those particular opportunities, which is a great place to be strategically that we can pull the trigger when we think supply and demand is favorable.

Our next question comes from Michael Carroll with RBC.

Can you provide some details on how far along these seniors housing sales are right now? I'm assuming the transactions are fairly far along given you're comfortable quoting sales prices and valuations.

So I guess, should we assume that the $3.5 billion that you kind of quoted and highlighted in your press release could be closed over the next few quarters?

Michael, Scott here. We'll hold off on quoting specific closing dates. I think we're better off talking about specific portfolios once they, in fact, do close. But you're right. I mean, we felt comfortable disclosing that we have $1.5 billion undersigned purchase agreements with known counterparties that we have strong relationships with. They certainly have strong brand names. And you think a high likelihood of execution. But it's a unusual environment. So until they're closed, we'll disclose the names of the buyers and the -- more importantly, the operators at that time.

And then in the letters of intent, it's another $2 billion. Those are in various stages. Some were more recently signed, and then some are substantially far along. So it really is a mix. We talked about having 14 different transactions in those 2 buckets alone in addition to all the assets that are marketed for sale but not yet exclusive. So we're making great progress. And yet it's a pretty dynamic environment that changes by the day.

So the feedback could be different in 2 weeks or 2 months. But from where we sit today, we feel like we're making great progress and have picked good counterparties that we'll execute.

And then, Scott, can you talk a little bit about the, I guess, roughly $800 million that was not in that $3.5 billion type number? I mean, are those mostly triple-net or SHOP assets? It's a mix of both? Can you kind of give us some color on what's the progress on those specific assets?

Yes, I'm happy to do that. It's a mix of triple-net and SHOP. The stage of marketing those is some are close to signing letters of intent, and some are just now being marketed for sale. And then we have some that are in joint ventures where we don't have lateral authority to go ahead and make that decision. So the timing of those going for sale is more uncertain, Mike.

Our next question will come from Juan Sanabria with BMO Capital Markets.

I just wanted to shift to the corporate headquarter announcement and just see or to confirm if all the senior executives that we know are staying with PEAK and making the move and what the potential cost could be of opening that new office?

And kind of related to that, are there any offsets in the G&A that we should expect if you do, in fact, exit seniors housing with all the asset management people, et cetera, tied to that line of business?

Juan, it's Tom. First of all, we're relocating 20 to 25 people in total. The Irvine and Nashville offices will remain in place. Nobody's losing their job as a result of these relocations. It puts us in a central life position, which I think is going to be much more efficient for the senior executives.

We'll have some senior executive talent that will be in Nashville as their main headquarters or their main location and the same with Irvine. But our C-suite and EVPs will also have offices in Denver. So I think that is going to work out very nicely.

We always had difficulty with the travel back and forth between Nashville and Irvine because it was a connector flight, made it very difficult for a large portion of our team that is now in charge of a bigger and bigger part of our business.

And I can tell you, BNN, they're very southwest corner of the country when we head-to-head to Boston to oversee our 2.4 million square feet of life science and other properties and interact with Wall Street. Those were long flights. So we think this is going to be a better outcome.

As far as cost savings -- so as far as concerns, no, we don't have any concerns on that. As far as cost savings, there might be a little bit of that. Early on, I would say it's a push. Over time, Denver is a much cheaper place to do business. So it will probably have some cost savings over time, but that wasn't the real reason that we did it. So as far as offsets in G&A, yes, there's a little bit of that that will occur over time. But not a big deal. This was more about getting our executive office in the right location, and Denver is a better place to recruit and retain talent over time as well. So that entered our thoughts as we made this move.

My question, sorry, with regards to the G&A was more, is there a benefit to shareholders from exiting seniors housing in terms of reducing that G&A low since you'd effectively be exiting 1/3 of your business outside of what you've maintained in CCRCs?

Well, we'll keep the CCRCs. If we looked at it from an NOI perspective, SHOP and triple-net are about 17% of our total NOI. And as far as a G&A savings, that's not the motivation behind the move. So no, I wouldn't model a lot in. There might be a little bit. But we will reallocate our skilled personnel as we can to other parts of the business that we are growing.

So I do see some savings over time but I would not model anything dramatic into your numbers for them.

Okay. And just my final question. Could you just provide a little bit more on the vendor financing? Like, how much potential are you willing to provide? And do you see that as a bridge maybe from an earnings perspective to alleviate any pressures in the mismatch of reallocating that capital, recycling that capital? Maybe if you could just help us a little bit there on quantum and how you're thinking about that?

Juan, it's Scott. I'd say the answer is to be determined. We mentioned it because it's possible that for specific portfolios, we would provide that as a way to get to the closing quicker.

Obviously, the buyers buying at a blended 3 cap are underwriting a pretty dramatic improvement in NOI over time, which makes sense.

The lenders are not always quite as willing to take that risk. So it's -- at least for some of the portfolios, it's not an ideal time to source debt as that NOI bounces back. Chances are the debt markets would become more favorable. So if we do provide this seller financing, it likely be in the 60% to 65% range of the purchase price. And we'd set it up with relatively short terms and escalating rates so that there's mutual incentive to pay us back sooner than later. Tom or Pete, anything you want to add?

Pete?

Yes, I can add some color to that. Juan, nice to have you on these calls again. As you think about the use of proceeds here, I think it's important to point out, we won't sit on net cash, right?

We have the ability to repay up to $1.5 billion of bonds when you look at what we have maturing in '23 and '24.

And so then when you think about the $1 billion of acquisitions we announced today, we've got a pipeline building as well. There may be a little bit of seller financing within that as well, as we've pointed out. So I wouldn't look at this as we're going to be sitting on a whole bunch of cash that we've got to put to work. We've got a plan for all of that.

And as Tom mentioned, our leverage may dip into the high 4s to the extent that we don't put that capital to work into acquisitions right away, but it will get back into the run rate, mid-5s over a period of time as we do find the right acquisitions.

Our next question comes from Jordan Sadler with KeyBanc.

I wanted to just dig in a little bit in terms of redeploying the capital once it comes in. It's been touched on a little bit. You guys already put $1 billion or so to work. But talk to us a little bit about mix going forward. I mean, is this going to be 40-40-20? Or what do you see in terms of the landscape over the next few quarters in terms of being able to deploy into life sci, MOB, and CCRCs?

Jordan, next few quarters is a relatively short period of time, so let me address the exact question. You can expand it if you want. Now first, it depends on how much of these sales were successful in executing and the timing because they could be Q4, a bunch of it could be. It could get into Q1. So it depends. It depends on how much seller financing in a short-term bridge might be required to get the sales done in certain cases. It depends on whether we've identified additional strategic acquisitions in our core businesses during that period of time.

We have the option of paying down some 4% debt in '24 and '25. It would be kind of nice to shave the top off of those debt maturity stack. So that would not bother us at all.

And that could all happen over the next few quarters, and those will be decisions made based on what plays on all those different factors I just mentioned.

As far as the mix, it's probably realistically easiest to invest in life science right now. Because we've got so many densification opportunities and development opportunities. But we also have strong opportunities in MOBs. Tom Klaritch, with his decades-long relationship with HCA and the things that we're doing with them, have created some nice opportunity. We've got Justin Hill, who's out working his hospital relationships and identifying other off marketplaces to invest money favorably.

We have some densification opportunities in our CCRCs on those average 50-acre land parcels that could create some upside. So it could be a whole variety of different things. I don't think we're going to be hurting for opportunities. We're going to be underwriting carefully to make sure that the mix is right, and we're engaging those funds in the highest risk reward opportunities that we have in front of us in these 3 businesses.

And maybe as a follow-up, Tom. I heard sort of a commentary on the life sci portfolio exposure. You guys are pretty bunched up in South San Franc, San Diego, and Boston, obviously. Any appetite for additional markets? Or you think you'll stay focused?

Well, I think we'll stay pretty focused because we've got irreplaceable clusters in each of those 3 markets, and that's a very important thing when you're dealing with biotech tenants that are rapidly growing. It's one of the most critical things, frankly, is to have purpose-built biotech space in clusters.

So we're going to want to continue to capture share in those 3 markets. But that doesn't preclude us from going to some of the higher yielding cap rate markets outside of the 3 major hotbed innovation centers.

And it is something we will be looking at. But at this point, I wouldn't put it on the list of something that we're doing near-term, but we are going to be looking at it.

Scott, anything that you would add on that?

Yes. The only thing I would add, Tom, is that in that business, it's so important to have scale in a local market. We mentioned that in the last -- well, in 2020, 2/3 of our leasing has been done with existing tenants.

So if we do enter a market, we would want to be able to do so in scale. Not on my comments about medical office, but even more critical in life science. So that would be just a fundamental thing that we have to work through.

Scott, I had one more I have it, which is just you've been an active participant in the seniors housing landscape for over a decade. How would you characterize buyer demand versus assets available for sale today? They're buyer's market or seller's market?

Yes. We went out to a very specific group of counterparties. So generally speaking, we went direct. We didn't run a bunch of broad auctions. To get the temperature of the entire marketplace, it was quite targeted. And it was a mix. Maybe as you might expect, some were highly interested and others were much less interested.

I think the -- maybe the more interesting thing from my standpoint would be that most of the buyers seem to fall in the category of more sort of operationally intensive real estate investors as opposed to pure real estate investors. And I think that aligns with the direction that senior housing has been moving. So that's probably the only kind of very unique thing that I've noticed over the past 6 to 9 months.

Tom, anything you'd add?

No, I think that's right, Scott. If I could ask the analysts on the phone. We do have another 10 people in the queue. We'll start to speed along if we could the questions and even our answers. But let's continue to proceed. We'll get to everybody. So let's go to the next analyst. Operator, please.

Our next question comes from Nick Joseph with Citi.

I was going to ask an eight parter like everyone else, but I'll keep it short. And I recognize the senior housing, this exit has sort of evolved over the last 3 to 6 months. So it's not necessarily massive new news because I think you sort of earmarked it a little bit. But I'm thinking about what's leftover and how you think about the synergies of the life science and the MOB business as well as the CCRCs with the framework of when you came into the role, you spent a lot of time talking about having a balanced portfolio, 3 private-pay businesses with different drivers and having that diversity was going to be good for shareholders.

So that if one part wasn't doing as well, the other one would pick up and you create this very stable portfolio that you eventually wanted to get to be 1/3, 1/3, 1/3, right?

Clearly, things have changed. You've decided now to exit senior housing, and you're left with predominantly an attractive life science and an attractive MOB business, where I understand you have the capabilities and strength in both in the marketplace. But do they really have synergies, right?

And you have pure-play MOB players that are listed. You have a pure-play life science player that's listed as well as a number of private life science players. So why keep these businesses together in addition to holding the CCRCs? What's the point?

In other words, your point is that we spoke to a balanced portfolio of life science, MOB, senior housing. We're retaining the CCRCs and what is our investment thesis as to why to have the 3 businesses together with CCRCs remaining. Is that the main point?

Yes. Like, I mean, the question is, yes, can you have -- what's the benefit of owning PEAK when there are more sharpshooters within each asset class separately capitalized. How do you view the synergies of the business going forward?

Well, the way we've thought about it is that we've got 3 businesses that all take advantage of the same baby boomer growth demographic. They're all private-pay, and in all 3 cases, these 3 businesses have irreplaceable portfolios and high barrier to entry.

And that's true, of course, in life science with these clusters. There's no way to reassemble that now. One could not reassemble an 84% on-campus HCA anchored MOB business with -- on an affiliated basis at the 97% range. And in CCRCs, there's no way that you could accumulate a portfolio of CCRCs given that they rarely change hands be in there, controlled by nonprofits.

The CCRCs will only represent 8% of our company, but they price at an 8% to 10% cap rate and that is a very, very strong return given the lower risk profile for this asset class. It attracts a more affluent senior. The nonrefundable entrance fees bring stability to the tenant base. We've got the 8 to 10-year average length of stay versus 2-year for SHOP.

And these things set on 50-acre parcels of land each, 500 unit properties. We haven't had 1 new CCRC asset in 10 years within 10 miles of any of our properties. And we have the LCS, that's a very well capitalized operator for the 5-decade a track record for operating CCRCs.

So when we look at each of these 3 businesses, they do all benefit from the first 3 things that I spoke to and do create some degree of diversification, but all feeding off of the same aspects of benefiting from the baby boomer demographic, the high barrier to entry, the irreplaceable portfolios. And so we do like all 3 of them and think that that's a better plan.

Now your other question, I think, really alluded to what changed our mind on SHOP and triple-net? Because you're right, we did talk 1/3, 1/3, 1/3. And it wasn't so long ago that we had 65% of our business that was SNF and senior housing. We spun our SNF. We sold off billions and billions of dollars of senior housing, and those are good businesses for other companies.

And the further into it we got at some point, we looked up and realized at 17% remaining SHOP and triple-net, we have a decision to make. It is distracting. It's a more volatile business. And would we be better as a REIT to allow some of our competitors to compete in that business and we bring it down to the 3 businesses that we chose, especially with COVID coming on, driving that current yield and cap rate down for at least some period of time with a bumpy road to follow. What an opportunity to be able to choose to exit those businesses, if that's what we preferred and do so on a non-dilutive basis for some period of time, and that's the decision we came to if we're successful with these sales.

And just as a follow-up, like, how much does managing the managers and senior housing play into how you feel about the lack of control over those assets and being able to adapt to things. Whereas in the MOB and life science portfolios, it's you and your own staff that are making the management decisions?

Scott, do you want to take that one?

Yes, I'm happy to, Tom. I mean, there's certainly a lot of friction in that structure, particularly for a REIT who cannot own more than a small percentage of one of the operating companies. So that has been a source of friction throughout the life of the RIDEA structure. It seems to have intensified as the acuity within the business has increased.

So it certainly is part of our view and our decision around whether to exit the business, stay in the business, or grow the business. That has been a source of tension that feels like it's growing, not decreasing, Michael.

Our next question comes from Rich Anderson with SMBC.

So on the topic of -- this is a better business for someone else to do. How did you kind of come to that conclusion?

I know you said what you've said, but to the extent, you just don't have the heart to kind of put into the business with all the moving parts and the bumpiness, but how much did quality play into this?

In other words, did you look at your portfolio and say, I don't know. I don't know if that can really compete with some of the portfolios that are out there? Did -- were there any considerations specific to your portfolio that drove this decision? Or was this more of a holistic senior housing call just generally?

Scott, why don't you go ahead and start?

Yes, Rich, it was a holistic decision. Now there are certainly some assets that in order to capture any NOI growth. The new owner will have to invest a pretty material amount of capital back into the building. And for a private equity firm with a 5 to 7-year time horizon, that is a perfectly fine outcome. That's not something that we were particularly excited to do. So yes, that played the role, but the decision to sell $4.5 billion-plus or minus, was 100% driven by just our view about whether the business fits inside of a healthcare REIT that otherwise has scale, critical mass, and a great platform in 2 businesses that are pure real estate businesses with, we think, very solid supply and demand in the short-term, in the intermediate-term and the long-term.

And we think that's a company that's going to be very attractive to investors as a pure real estate company.

Senior housing could be a great business. It's not really a real estate business going forward is our view. It feels much more like an operating business. And to my point earlier, that's the buyer pool of who we're talking to. They understand that, and that's what they're interested in. That's just different, very different than a real estate company, especially for a public REIT, is our view.

Okay. And then my second question, sorry, you're popular, so you're going to stick around for a bit, I guess. The topic that Michael Billman brought up about competing with your peers, you're reallocating probably some very smart people that are focused on senior housing into these other asset classes.

Do you think that there will be some sort of time to kind of catch-up to the Alexandria's and the healthcare realities and the health trust -- healthcare trust folks who spend all their time in medical office and life science, respectively? Or do you think it will be a fairly easy kind of turnaround to get that level of IP redirected and functional to the extent that you'll be able to be as competitive and as smart in the space as those 2 asset classes?

Rich, the bottom-line is this. We've grown the 2 businesses of life science and MOBs. I think we'd be hard-pressed to find an MOB team that has more experience than what we have with Tom Klaritch, having been one of the co-founders of MedCap, has been in the business for a long, long-time with deep relationships. So no, we do not feel like we're coming from behind in that respect. And we have a bigger balance sheet. The ability to put out more funds, do bigger deals. So we think we've got great competitive edge there.

And when we look at life science, we've been doing that for many decades because you have to roll all the way back to Slough before it was acquired by HCP in 2007, which is still quite a while ago, and we have some very deep experienced people in that business as well, along with relationships, development expertise, portfolios that were purpose structured in clusters as pure lab.

Not the office tech combination type properties that you're seeing spring up more often now. So we feel that we're already in an outstanding position to compete in both of those businesses and along with some very, very large densification opportunities that we've alluded to a couple of times, and we will be bringing out more fully over the coming months to help investors understand the magnitude of those opportunities over the next period of years. So I feel like that catch-up mode.

Yes, I wasn't suggesting that the people that are there now that are doing that job are probably -- I'm certain very good at the job. I'm just talking about as you grow and you're redeploying senior housing folks into these other asset classes, will it take some time for them to get sort of up to speed? But I get your point, and it was perfectly well answered.

No. No. I get that. As far as the senior housing folks being dispersed into some of the other businesses, the businesses are already well staffed with experienced people and being able to bring some of the senior housing people into some of these other businesses, skilled people that bring other talents in, I think, is a positive.

And then realistically, I mean, let me make the statement is that within senior housing if we do exit this business, there are a number of senior housing people in the platform. Some will remain with the CCRCs. And if there's some senior housing that remains behind, it will also be downsized that platform. And -- but there is the reality of attrition that occurs. So some of that is taken care of naturally as well. So these are all things that we've been working through and considering. But I think we'll end up in a good place in all that.

Our next question comes from Steven Valiquette with Barclays.

One of the pieces of good news from divesting most of your senior housing assets is that this will eliminate a lot of the additional operational uncertainty for the company in '21 related to COVID-19.

I guess, in light of that, are you planning to give official full year 2021 guidance when the time is right and you have more visibility on the divestitures and redeployment, maybe on the fourth quarter conference call?

And also just based on your comments earlier on this call about not much dilution anticipated from the senior housing asset sales is that your directional goal, at least for now to try to grow FFO per share next year from whatever the final jump-off point will be in 2020?

Yes, Pete.

Yes. Steve, it's Pete here. Nice to hear from you. I think on the guidance question, it's a little soon to talk about '21 guidance. We're in the middle of our budgeting right now. For this year, we wanted to provide the outlook framework that we put out and I think it's been effective to at least help educate the street on the way we're looking at things right now.

And obviously, there's still some uncertainty on the timing of the closing of transactions as well as at least for this year, some of the CARES Act grants and other things like that that I'd like to be able to issue formal guidance, but it's a little soon for me to talk about that on the call today.

We'll talk about it more when we get to our next quarterly update call. I think as you think about your other question and what our earnings growth looks like as we head into next year to the extent that we're successful and disposing of these senior housing assets.

Without SHOP and triple-net, I can say unequivocally that we should have much more stable earnings going forward. As Tom mentioned, our portfolio will be comprised of the 3 stable, high barrier to entry businesses.

And when you look at medical office, we've grown same-store by 2% to 3% the last 15-plus years, life sciences, escalators are above 3% in that business, and we're in a great backdrop from a positive rent mark-to-market.

And the CCRCs have a longer length of stay and a stable NREF model. So as we look at those businesses, we do think they should generate 2% to 3% consistent same-store growth. In fact, in the near-term, it might actually be better than that given the backdrop in life sciences.

We also have this well-established development and redevelopment platform, and we've got future densification opportunities across our portfolio. So as we look forward, I don't want to give a specific timeline on this, but when you factor in all the things that I just said, that is basically 4% to 5% FFO growth, and you put a dividend on top of that. I know Tom's talked about it in the past. And we see ourselves as a very stable 8% to 10% annual total shareholder return REIT and I think that's something that will really appeal to the market out there because to date, in the healthcare REIT sector, you haven't really been able to find a lot of those companies.

Yes, it's extremely helpful. And yes, you're right. In the last 5 years, you have had FFO going down mainly because of divestitures and (inaudible) talk about the CAGRs for growth going forward again. So I appreciate the color.

Our next question comes from Joshua Dennerlein with Bank of America.

Yes. Most of mine have already been answered, but 1 question for you on that $4.5 billion of the potential sales. How is that split between the net lease valuation and SHOP valuation? I know you gave the cap rates, but it's kind of hard to back into it.

Josh, it's Scott. We can't quite comment on that level of detail. I think the best thing we could point you to is just the disclosures that we have that show the amount of triple-net rents in the portfolio as well as the amount of SHOP NOI. Both historically, but in -- obviously, 3Q as well and then -- and try to use the cap rates that we've provided separately, and I think you at least get into the same or the right ballpark, but we're not going to say much more than that at this point.

Our next question comes from Daniel Bernstein with Capital One.

Since almost everything has been asked, I'm probably tempted just to ask who's going to win the elections tonight, but probably try to stay away from that.

Actually, I mean, I do have a somewhat political question, which is if you do have a bite at presidency and you get some pharmaceutical price controls, do you have any concern about the demand side of the business for life science?

You've signed a lot of leases in the last quarter or 2. It doesn't seem like there's that much concern from your tenants, but how do you think about the risk there from a regulatory side on demand for life science?

Dan, really from life science, there's been attempt made at drug pricing controls for a lot of years. That doesn't mean that they can't occur. But both parties are making statements at this point during an election. We'll see how it plays out. There's been discussion of tying reimbursements to an international index or giving Medicare direct negotiating power. But we have a tendency to look at it more holistically. We don't see a huge risk. The baby boomer generation is demanding lots of drug innovation. The development of biology-based drugs has accelerated massively. The FDA approval process is faster, the patent cliffs with pharma's looking to replenish their growth taken out these biotech's when they come to proven drugs. And then COVID-19 has been a stark reminder of the importance of continuing to develop new drugs and treatments.

So when you put all this together, I just can't see the government ultimately wanting to stifle innovation. It could be that there's some kind of reforms that are made, we do think that most pharma's and big biopharma's have some of that factored into their future economics from what we believe and what we've understood, but we don't see that being a deterrent to growth in demand for this type of real estate.

Our next question comes from Lukas Hartwich with Green Street.

So by getting out of senior housing, how did you weigh giving up an attractive avenue of external growth looking forward?

It's one of these things where when 1 looks at it strategically, as I mentioned in my prepared remarks, we're believers that society is going to need senior housing in the future. Both from a social perspective and from a need perspective. So that business is here to stay. But it is a higher acuity, different business today than it was a decade ago. And it's subject to a lot of new supply.

So it is going to be a bumpy ride, but yet there's -- with the fast-growing demographics, there's plenty of upside, which is good for us because it means we can capture good pricing as we seek to exit.

So as far as the lost growth opportunity, I'm not troubled by that. I'm not troubled that if we exit a business that has more volatility, in our view, doesn't fit as neatly into a REIT, to focus on our other growth opportunities that I've already outlined. It doesn't bother me to create an opportunity for investors that's more focused and leave the senior housing to some others in the industry, both REITs and non-REITs that will compete on that front.

And the same thing -- we felt the same thing about SNFs and the triple-net side of SNFs, that's not necessarily a bad business. It's just one that we chose not to compete in.

So we've just tightened it up further, where we think that there's a great place for a REIT that specializes in the businesses that we've talked about, life science, on-campus MOBs, and CCRCs. So we're not necessarily making a statement, we think senior housing is a bad business. It's just one that we've chosen to shift away from in our strategic position.

And if we weren't down at 17% of our business spend SHOP and triple-net, we probably would need to be thinking awfully hard about whether an exit made sense. It's only because it's down at that level that we're able to take this action.

Our next question comes from Mike Mueller with JPMorgan.

I guess, given the comments about senior housing being an operating business and not a real estate business per se. Why did you stop short of selling CCRCs then?

Well, Mike, for the reasons that I mentioned earlier, so I won't repeat them all. But CCRCs, we do view more as being real estate like. Seniors come in. It's a more affluent senior. They have a tendency to sell their single-family home. They invest in a sizable nonrefundable entrance fee. They have an 8- to 10-year length of stay and so it's not -- and then there's a much lower level of acuity.

They come in the vast majority of them through the independent side of the business. And so it's completely a lifestyle choice where they are effectively going in and investing for the balance of their lives into the asset that they will be occupying.

And for us, that creates a much more stable asset from an investment perspective or from a real estate investment perspective. And so a different play than what would be a SHOP portfolio.

Our next question comes from Vikram Malhotra with Morgan Stanley.

Just 2 quick ones. Maybe just first, you've talked a lot about sort of the growth opportunity in life science and MOB. And I'm just wondering, sort of part of your decision was clearly driven by kind of your view of seniors housing over the next few years and maybe longer term, but as you alluded to, perhaps not.

But how much of it was sort of your view that maybe your life science and MOB portfolios were not sort of being valued correctly by the market? Or potentially you may be more value could be ascribed once it's simpler and there's more focus? Or could you maybe just talk about leaving growth aside, kind of how you thought about the kind of inherent value that investors will be rewarded for?

There's no question, Vikram. I'm glad you asked that question. When you think about a company that's got senior housing, life science, MOBs, and SHOP, and triple-net that has been so volatile with so much new supply, at least over the last several years, and we recognize that there could be a recovery coming. The vast majority of our time visiting with investors and analysts is spent talking about SHOP and it seems that a lot of the think time is around that topic.

We've been told by some big investors that until we downsize even further, we will not get the full multiple rerating that our portfolio and our strategy, and perhaps our team deserve. But as we downsize that further, that there will be a rerating that will likely take place in the future. And that is absolutely one of the things that we looked at when we came to this decision.

Okay. And then just the other quick one. Sorry, there are just 2 quick ones. One is I know you can't talk about the dividend yet. But given the business is ultimately going to be perhaps more CapEx-intensive combined. Can you at least sort of talk about a payout range you're going to be comfortable with going forward once the [debt] settles?

And then just second, the changes in the Board eligibility requirements kind of did they and how did they, if at all, related to the strategic decision, just timing-wise and just more broadly?

Sure. As far as the CapEx part of what you just described, we had more CapEx by far on the senior housing, SHOP, triple-net side. Those assets, as they age and new supply comes on to compete, they take on an awful lot of CapEx. So as you know, you don't get to spend NOI at the end of the day or dividend NOI, your dividend, cash flow. And so that was definitely a part of our decision as we looked at the equation.

And then as I think about payout ratios, one of the things that you mentioned, which I think, again, is a very fair question. It depends on what our business ends up looking like after we complete these sales, having a strong development and densification pipeline. When you look at high-quality REITs across the industry, they'll have a little bit lower payout to keep more retained earnings, so that can be recycled accretively into development.

And I'm not telling you that we've made a determination with our Board as to where exactly we'll fall out, and it depends on what we look like. But those are all the exact kind of things that come into consideration when we make those important decisions. And we want to get it right.

We would hate to have a knee-jerk reaction in the middle of COVID and adjust the dividend too far or not enough. So if it's required at all. So we're going to be going through that exercise. And I believe we'll come to the right place.

The second part of your question was our Board, how did -- I think you're looking for a little bit more color on how we looked at it. Bottom-line is this. We put that age 75 requirement in place 2.5 years ago.

We refreshed half of our Board during that time. We an older aged Board, very, very good Board members, but they were of older age. And we knew that refreshment and they had been in place a long time, and we knew refreshment was important.

So we utilized an age 75 retirement age for a period of time. We've refreshed half of our Board at this point. And we have a number of younger Board members that have joined our Board in the early 50s as far as age. And so as we started looking out as to what our Board would look like over time, we recognize that an age 75 policy just didn't make a lot of sense. And we thought more progressive to have a 15-year term limit. It would result in really strong experience, diversity, and expertise, breadth, and depth on our Board. We felt very good about the way it looked with that 15-year term limit and thought that that would be an excellent Board refreshment over the long-term. So that's how we came to the decision, nothing more than that.

This concludes our question-and-answer session. I'd like to turn the call back over to Tom Herzog for any closing remarks.

Okay. Thank you. And thanks, everybody, for joining our call. Again, a long call, but a lot going on. I got to tell you when choosing our call today, we had the option of the morning of the elections or the morning after the elections. We obviously chose the morning of, it's going to be an exciting evening to everyone. So we'll talk to you all soon. We'll see you on some NDRs next week, and Nareit the week following. So look forward to talking to you then. Bye-bye.

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