# Healthpeak Properties, Inc.: Form 10-Q for the period ended Jun 30, 2020

- Company: [Healthpeak Properties, Inc.](/companies/doc.md) (CIK 765880)
- Form: 10-Q
- Filed: 2020-08-05
- Accepted by EDGAR: Aug 5, 2020, 16:19 ET
- Period: 2020-06-30
- Accession: 0001628280-20-011794
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/765880/000162828020011794/healthpeak-10q06302020.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/765880/000162828020011794/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-04-01 to 2020-06-30 | $269.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2020-01-01 to 2020-06-30 | $533.2m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2020-04-01 to 2020-06-30 | $315.8m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2020-01-01 to 2020-06-30 | $691.9m | us-gaap:CostOfGoodsAndServicesSold |
| Interest expense | 3 months, 2020-04-01 to 2020-06-30 | $57.5m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2020-01-01 to 2020-06-30 | $115.9m | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-04-01 to 2020-06-30 | −$7.3m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2020-01-01 to 2020-06-30 | −$40.4m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-04-01 to 2020-06-30 | $51.5m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2020-01-01 to 2020-06-30 | $330.6m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-04-01 to 2020-06-30 | $0.09 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2020-01-01 to 2020-06-30 | $0.63 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-04-01 to 2020-06-30 | $0.09 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2020-01-01 to 2020-06-30 | $0.63 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-04-01 to 2020-06-30 | 538,517,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2020-01-01 to 2020-06-30 | 523,498,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2020-01-01 to 2020-06-30 | $319.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 6 months, 2020-01-01 to 2020-06-30 | $388.1m | us-gaap:PaymentsOfDividends |
| Share repurchases | 6 months, 2020-01-01 to 2020-06-30 | $10.0m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2020-06-30 | $731.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2020-06-30 | $16.32bn | us-gaap:Assets |
| Total liabilities | at 2020-06-30 | $8.65bn | us-gaap:Liabilities |
| Long-term debt | at 2020-06-30 | $6.76bn | us-gaap:LongTermDebt |
| Shareholders' equity | at 2020-06-30 | $7.10bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 107,506 characters.

*All references in this report to “Healthpeak,” the “Company,” “we,” “us” or “our” mean Healthpeak Properties, Inc., together with its consolidated subsidiaries. Unless the context suggests otherwise, references to “Healthpeak Properties, Inc.” mean the parent company without its subsidiaries.*

### Cautionary Language Regarding Forward-Looking Statements

Statements in this Quarterly Report on Form 10-Q that are not historical factual statements are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include, among other things, statements regarding our and our officers’ intent, belief or expectation as identified by the use of words such as “may,” “will,” “project,” “expect,” “believe,” “intend,” “anticipate,” “seek,” “target,” “forecast,” “plan,” “potential,” “estimate,” “could,” “would,” “should” and other comparable and derivative terms or the negatives thereof. Forward-looking statements reflect our current expectations and views about future events and are subject to risks and uncertainties that could significantly affect our future financial condition and results of operations. While forward-looking statements reflect our good faith belief and assumptions we believe to be reasonable based upon current information, we can give no assurance that our expectations or forecasts will be attained. As more fully set forth under Part II, Item 1A. “Risk Factors” in this report and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, risks and uncertainties that may cause our actual results to differ materially from the expectations contained in the forward-looking statements include, among other things:

- the severity and duration of the COVID-19 pandemic;
- actions that have been taken and may continue to be taken by governmental authorities to contain the COVID-19 outbreak or to treat its impact;
- the impact of the COVID-19 pandemic and health and safety measures taken to slow its spread;
- operational risks associated with third party management contracts, including the additional regulation and liabilities of our RIDEA lease structures;
- the ability of our existing and future tenants, operators and borrowers to conduct their respective businesses in a manner sufficient to maintain or increase their revenues and manage their expenses in order to generate sufficient income to make rent and loan payments to us and our ability to recover investments made, if applicable, in their operations;
- the imposition of laws or regulations prohibiting eviction of our tenants or operators, including new governmental efforts in response to COVID-19;
- the financial condition of our existing and future tenants, operators and borrowers, including potential bankruptcies and downturns in their businesses, and their legal and regulatory proceedings, which may result in uncertainties regarding our ability to continue to realize the full benefit of such tenants’ and operators’ leases and borrowers’ loans;
- our concentration in the healthcare property sector, particularly in senior housing, life sciences and medical office buildings, which makes our profitability more vulnerable to a downturn in a specific sector than if we were investing in multiple industries;
- the effect on us and our tenants and operators of legislation, executive orders and other legal requirements, including compliance with the Americans with Disabilities Act, fire, safety and health regulations, environmental laws, the Affordable Care Act, licensure, certification and inspection requirements, and laws addressing entitlement programs and related services, including Medicare and Medicaid, which may result in future reductions in reimbursements or fines for noncompliance;
- our ability to identify replacement tenants and operators and the potential renovation costs and regulatory approvals associated therewith;
- the risks associated with property development and redevelopment, including costs above original estimates, project delays and lower occupancy rates and rents than expected;
- the potential impact of uninsured or underinsured losses, including as a result of hurricanes, earthquakes and other natural disasters, pandemics such as COVID-19, acts of war and/or terrorism and other events that may cause such losses and/or performance declines by us or our tenants and operators;
- the risks associated with our investments in joint ventures and unconsolidated entities, including our lack of sole decision making authority and our reliance on our partners’ financial condition and continued cooperation;
- competition for the acquisition and financing of suitable healthcare properties as well as competition for tenants and operators, including with respect to new leases and mortgages and the renewal or rollover of existing leases;
- our, or our counterparties’, ability to fulfill obligations, such as financing conditions and/or regulatory approval requirements, required to successfully consummate acquisitions, dispositions, transitions, developments, redevelopments, joint venture transactions or other transactions;
- our ability to achieve the benefits of acquisitions or other investments within expected time frames or at all, or within expected cost projections;
- the potential impact on us and our tenants, operators and borrowers from current and future litigation matters, including the possibility of larger than expected litigation costs, adverse results and related developments;
- changes in federal, state or local laws and regulations, including those affecting the healthcare industry that affect our costs of compliance or increase the costs, or otherwise affect the operations, of our tenants and operators;
- our ability to foreclose on collateral securing our real estate-related loans;
- volatility or uncertainty in the capital markets, the availability and cost of capital as impacted by interest rates, changes in our credit ratings, and the value of our common stock, and other conditions that may adversely impact our ability to fund our obligations or consummate transactions, or reduce the earnings from potential transactions;
- changes in global, national and local economic and other conditions, including the ongoing economic downturn, volatility in the financial markets and high unemployment rates;
- our ability to manage our indebtedness level and changes in the terms of such indebtedness;
- competition for skilled management and other key personnel;
- our reliance on information technology systems and the potential impact of system failures, disruptions or breaches; and
- our ability to maintain our qualification as a real estate investment trust (“REIT”).

Except as required by law, we do not undertake, and hereby disclaim, any obligation to update any forward-looking statements, which speak only as of the date on which they are made.

### COVID-19 Infection Information

Information related to the number of our senior housing facilities with confirmed resident COVID-19 cases was provided to us by our operators, but has not been independently verified by us. We have no reason to believe that this information is inaccurate in any material respect, but cannot assure you it is accurate.

The information set forth in this Item 2 is intended to provide readers with an understanding of our financial condition, changes in financial condition and results of operations. We will discuss and provide our analysis in the following order:

- Executive Summary
- COVID-19 Update
- 2020 Transaction Overview
- Dividends
- Results of Operations
- Liquidity and Capital Resources
- Contractual Obligations and Off-Balance Sheet Arrangements
- Non-GAAP Financial Measures Reconciliations
- Critical Accounting Policies and Recent Accounting Pronouncements

### Executive Summary

Healthpeak Properties, Inc. is a Standard & Poor’s (“S&P”) 500 company that acquires, develops, owns, leases and manages healthcare real estate across the United States (“U.S.”). We are a Maryland corporation and qualify as a self-administered REIT. We are headquartered in Irvine, California, with additional offices in Nashville and San Francisco.

We invest in a diversified portfolio of high-quality healthcare properties across our three core asset classes of senior housing, life science, and medical office real estate. Our senior housing properties are either operated under triple-net leases in our senior housing triple-net segment or through RIDEA structures in our senior housing operating portfolio (“SHOP”) and continuing care retirement community (“CCRC”) segments. Under the life science and medical office segments, we invest through the acquisition, development and management of life science buildings and medical office buildings (“MOBs”). We have other non-reportable segments that are comprised primarily of hospital properties and debt investments.

At June 30, 2020, our portfolio of investments, including properties in our unconsolidated joint ventures, consisted of interests in 633 properties. The following table summarizes information for our reportable segments for the three months ended June 30, 2020 (dollars in thousands):

| Segment | Total Portfolio Adjusted NOI(1) | Percentage of Total Portfolio Adjusted NOI(1) | Number of Properties |
| --- | ---: | ---: | ---: |
| Senior housing triple-net | $24,104 | 9% | 62 |
| SHOP | 26,288 | 9% | 139 |
| CCRC | 32,056 | 11% | 17 |
| Life science | 101,473 | 36% | 135 |
| Medical office | 85,911 | 31% | 269 |
| Other non-reportable | 10,749 | 4% | 11 |
| Totals | $280,581 | 100% | 633 |

(1) Total Portfolio metrics include results of operations from disposed properties and properties that transferred segments through the disposition or transfer date. See Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations–Non-GAAP Financial Measures for additional information regarding Adjusted NOI and see Note 13 to the Consolidated Financial Statements for a reconciliation of Adjusted NOI by segment to net income (loss).

For a description of our significant activities during 2020, see “Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations–2020 Transaction Overview” in this report.

We invest in and manage our real estate portfolio for the long-term to maximize benefit to our stockholders and support the growth of our dividends. Our strategy consists of four core elements:

(i) Our *real estate*: Our portfolio is grounded in high-quality properties in desirable locations. We focus on three purposely selected private pay asset classes, senior housing, life science and medical office, to provide stability through inevitable market cycles.

(ii) Our *financials*: We maintain a strong investment-grade balance sheet with ample liquidity as well as long-term fixed-rate debt financing with staggered maturities to reduce our exposure to interest-rate volatility and refinancing risk.

(iii) Our *partnerships*: We work with leading healthcare companies, operators and service providers and are responsive to their space and capital needs. We provide high-quality management services to encourage tenants to renew, expand and relocate into our properties, which drives increased occupancy, rental rates, and property values.

(iv) Our *platform*: We have a people-first culture that we believe attracts, develops and retains top talent. We continually strive to create and maintain an industry-leading platform, with systems and tools that allow us to effectively and efficiently manage our assets and investment activity.

### COVID-19 Update

Beginning in late 2019, a novel strain of Coronavirus (“COVID-19”) began to spread throughout the world, including the United States, ultimately being declared a pandemic by the World Health Organization. Global health concerns and increased efforts to reduce the spread of the COVID-19 pandemic have prompted federal, state, and local governments to restrict normal daily activities, and have resulted in travel bans, quarantines, school closings, “shelter-in-place” orders requiring individuals to remain in their homes other than to conduct essential services or activities, as well as business limitations and shutdowns, which resulted in closure of many businesses deemed to be non-essential. Although some of these restrictions have since been lifted or scaled back, a recent surge of COVID-19 has resulted in the re-imposition of certain restrictions and may lead to other restrictions being re-implemented in response to efforts to reduce the spread of COVID-19. In addition, our tenants, operators and borrowers are facing significant cost increases as a result of increased health and safety measures, including increased staffing demands for patient care and sanitation, as well as increased usage and inventory of critical medical supplies and personal protective equipment. These health and safety measures, which may remain in place for a significant amount of time, are placing a substantial strain on the business operations of many of our tenants, operators, and borrowers.

### SHOP, CCRC, and Senior Housing Triple-Net

Within our SHOP and CCRC properties, occupancy rates have declined quarter-over-quarter and we expect that trend to continue during the pandemic as a result of a reduction in, or in some cases prohibitions on, new tenant move-ins due to stricter move-in criteria, lower inquiry volumes, and reduced in-person tours, as well as incidences of COVID-19 outbreaks at our facilities or the perception that outbreaks may occur. Outbreaks, which directly affect our residents and the employees at our senior housing facilities, have and could continue to materially and adversely disrupt operations, as well as cause significant reputational harm to us, our operators, and our tenants. As of July 31, 2020, we had confirmed resident COVID-19 cases at 111 of our 218 senior housing properties. Our senior housing property operators are also facing significant cost increases as a result of higher staffing hours and compensation, the implementation of increased health and safety measures and protocols, and increased usage and inventory of critical medical supplies and personal protective equipment. At our SHOP and CCRC facilities, we bear these significant cost increases.

We also temporarily suspended development and redevelopment projects in the greater San Francisco and Boston areas as a result of “shelter-in-place” orders and local, state, and federal directives. Our operators also temporarily suspended development and redevelopment across our senior housing portfolio for the same reasons, except for certain life safety and essential projects. Although some of these development and redevelopment projects have been allowed to restart with infection control protocols in place, future local, state, or federal orders could cause us to re-suspend the work. Other projects remain suspended and we do not know when we will be able to restart construction. In locations where construction continues, construction workers are following applicable guidelines, including appropriate social distancing, limitations on large group gatherings in close proximity, and increased sanitation efforts, which has slowed the pace of construction. These protective actions do not, however, eliminate the risk that outbreaks caused or spread by such activities may occur and impact our tenants, operators and residents. In addition, our planned dispositions may not occur within the expected time or at all because of buyer terminations or withdrawals related to the pandemic, capital constraints, inability to tour properties, or other factors relating to the pandemic.

### Medical Office Portfolio

Within our medical office portfolio, many physician practices have delayed or discontinued nonessential surgeries and procedures due to “shelter-in-place” orders and other health and safety measures, which has negatively impacted their cash flows. However, we experienced a slight increase in new leases and lease renewal requests in the second quarter of 2020, and we expect that planned move-outs will be delayed during the COVID-19 pandemic, which is expected to slightly increase short-term retention in this portfolio.

We implemented a deferred rent program for May and June 2020 that was limited to certain non-health system and non-hospital tenants in good standing, which has reduced our cash collections during those months, although we are requiring that the deferred rent be repaid ratably by the end of 2020. Under this program, we agreed to defer approximately $6 million of rent through June 30, 2020. We may also determine to implement a deferred rent program for future periods.

### Life Science Portfolio

Within our life science portfolio, we have numerous tenants that are working tirelessly to address critical research and testing needs in the fight against COVID-19. We are focused on providing our tenants with the necessary space to complete their critical work and are in continuous contact with our tenants regarding how we can help them meet their needs. Through June 30, 2020, we had provided approximately $1 million of rent deferrals to our life science tenants, all of which is required to be repaid by the end of 2020.

However, within our life science portfolio, we may experience a decline in leasing activity at certain points during the COVID-19 pandemic. As a result of governmental restrictions on business activities in the greater San Francisco and Boston areas, we temporarily suspended development, redevelopment, and tenant improvement projects at many of our life science properties, resulting in delayed deliveries and project completions. Though we have been able to continue or re-start these projects, we remain subject to future governmental restrictions that may again suspend these projects. Even when these projects continue, we have been experiencing losses in efficiency as a result of the implementation of health and safety protocols related to social distancing and proper hygiene and sanitization.

### Liquidity

We believe that we are well positioned to manage the COVID-19 pandemic and measures to slow its spread while working closely with our tenants, operators, and borrowers as they navigate the pandemic. We had approximately $2.85 billion of liquidity available, including $2.5 billion borrowing capacity under our unsecured revolving line of credit facility and $350 million of cash and cash equivalents, as of July 31, 2020. Additionally, after completing the July 2020 redemption of $300 million of senior unsecured notes due in 2022, we have no significant debt maturities until 2023. While a future downgrade in our credit ratings would adversely impact our cost of borrowing, we believe we continue to have access to the unsecured debt markets. We could also seek to enter into one or more secured debt financings, issue additional securities, including under our 2020 ATM Program (as defined below), or dispose of certain assets to fund future operating costs, capital expenditures, or acquisitions, although no assurances can be made in this regard.

### Future Rent Collections

The impact of COVID-19 on the ability of our tenants to pay rent in the future is currently unknown. We have, and will continue to monitor the credit quality of each of our tenants and write-off straight-line rent and accounts receivable, as necessary. In the event we conclude that substantially all of a tenant’s straight-line rent or accounts receivable is not probable of collection in the future, such amounts will be written off, which could have a material impact on our future results of operations.

### Employee Update

We have taken, and will continue to take, proactive measures to provide for the well-being of our workforce. We have maximized our systems infrastructure as well as virtual and remote working technologies for our employees, including our executive team, to ensure productivity and connectivity internally, as well as with key third-party relationships.

The extent of the impact of the COVID-19 pandemic on our business and financial results will depend on future developments, including the duration, severity, and spread of COVID-19, health and safety actions taken to contain its spread, any possible resurgence of COVID-19 that may occur after the initial outbreak subsides, and how quickly and to what extent normal economic and operating conditions can resume within the markets in which we operate, each of which are highly uncertain at this time and outside of our control.

### 2020 Transaction Overview

### The Post Acquisition

In January 2020, we entered into definitive agreements to acquire a life science campus in Waltham, Massachusetts for $320 million. We closed the acquisition in April 2020.

### Master Transaction and Cooperation Agreement with Brookdale

In January 2020, Healthpeak and Brookdale Senior Living Inc. (“Brookdale”) completed certain of the transactions governed by the previously announced Master Transactions and Cooperation Agreement (the “2019 MTCA”), which includes a series of transactions related to the previously jointly owned 15-campus CCRC portfolio (the “CCRC JV”) and the portfolio of senior housing properties that were triple-net leased to Brookdale. Specifically, the following transactions were completed on January 31, 2020:

- We acquired Brookdale’s 51% interest in 13 of the 15 communities in the CCRC JV based on a valuation of $1.06 billion (the “CCRC Acquisition”) and transitioned management (under new management agreements) of those 13 communities to Life Care Services LLC (“LCS”);
- We paid Brookdale $100 million to terminate the previous management agreements related to those 13 communities;
- Brookdale acquired 18 of the triple-net lease properties (the “Brookdale Acquisition Assets”) from us for cash proceeds of $385 million;
- The remaining 24 triple-net lease properties were restructured into a single master lease with 2.4% annual rent escalators and a maturity date of December 31, 2027 (the “2019 Amended Master Lease”);
- A portion of annual rent (amount in excess of 6.5% of sales proceeds) related to 14 of the 18 Brookdale Acquisition Assets was reallocated to the remaining properties under the 2019 Amended Master Lease; and
- Brookdale paid down $20 million of future rent under the 2019 Amended Master Lease.

### Other Real Estate Transactions

- During the first quarter of 2020, we sold seven SHOP assets for $36 million and a hospital under a direct financing lease (“DFL”) for $82 million.
- During the second quarter of 2020, we sold two SHOP assets for $28 million and three MOBs in San Diego, California for $106 million (through exercise of a purchase option by one of our tenants).
- During the first half of 2020, we converted: (i) six senior housing triple-net assets with Capital Senior Living Corporation (“CSL”) into a RIDEA structure, with CSL remaining as the manager, (ii) one senior housing triple-net asset with CSL into a RIDEA structure with Discovery Senior Living, LLC as the operator, and (iii) two senior housing triple-net assets with HRA Senior Living (“HRA”) into a RIDEA structure, with HRA remaining as the manager.

### Financing Activities

- During the six months ended June 30, 2020, we utilized the forward provisions under the at-the-market equity offering program established in February 2019 (the “2019 ATM Program”) to allow for the sale of up to an aggregate of 2 million shares of our common stock at an initial weighted average net price of $35.23 per share, after commissions.
- During the six months ended June 30, 2020, we settled all 32.5 million shares previously outstanding under (i) ATM forward contracts and (ii) a 2019 forward equity sales agreement at a weighted average net price of $32.73 per share, after commissions, resulting in net proceeds of $1.06 billion.
- In June 2020, we completed a public offering of $600 million aggregate principal amount of 2.875% senior unsecured notes due 2031 (the “2031 Notes”).
- In June 2020, using a portion of the net proceeds from the 2031 Notes offering, we repurchased $250 million aggregate principal amount of our 4.250% senior unsecured notes due in 2023.
- In July 2020, using an additional portion of the net proceeds from the 2031 Notes offering, we redeemed all $300 million aggregate principal amount of our 3.150% senior unsecured notes due in 2022.

### Development Activities

- As part of the development program with HCA Healthcare Inc., at June 30, 2020, we had seven MOB developments under contract, six of which will be on-campus, with an aggregate total estimated cost of $184 million.
- At June 30, 2020, we had six life science development projects in process with an aggregate total estimated cost of approximately $855 million.

### Dividends

The following table summarizes our common stock cash dividends declared in 2020:

| Declaration Date | Record Date | Amount Per Share | Dividend Payment Date |
| --- | --- | ---: | --- |
| January 30 | February 18 | $0.37 | February 28 |
| April 30 | May 8 | 0.37 | May 19 |
| August 4 | August 14 | 0.37 | August 25 |

43

### Results of Operations

We evaluate our business and allocate resources among our reportable business segments: (i) senior housing triple-net, (ii) SHOP, (iii) CCRC, (iv) life science, and (v) medical office. Our senior housing facilities, including CCRCs, are managed utilizing triple-net leases and RIDEA structures. Under the life science and medical office segments, we invest through the acquisition and development of life science facilities and MOBs, which generally require a greater level of property management. We have other non-reportable segments that are comprised primarily of our debt investments and hospital properties. We evaluate performance based upon property adjusted net operating income (“Adjusted NOI” or “Cash NOI”) in each segment. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 2 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the U.S. Securities and Exchange Commission (“SEC”), as updated by Note 2 to the Consolidated Financial Statements herein.

### Non-GAAP Financial Measures

#### Net Operating Income

NOI and Adjusted NOI are non-U.S. generally accepted accounting principles (“GAAP”) supplemental financial measures used to evaluate the operating performance of real estate. NOI is defined as real estate revenues (inclusive of rental and related revenues, resident fees and services, income from direct financing leases, and government grant income and exclusive of interest income), less property level operating expenses (which exclude transition costs); NOI excludes all other financial statement amounts included in net income (loss) as presented in Note 13 to the Consolidated Financial Statements. Adjusted NOI is calculated as NOI after eliminating the effects of straight-line rents, DFL non-cash interest, amortization of market lease intangibles, termination fees, actuarial reserves for insurance claims that have been incurred but not reported, and the impact of deferred community fee income and expense. NOI and Adjusted NOI include our share of income (loss) generated by unconsolidated joint ventures and exclude noncontrolling interests’ share of income (loss) generated by consolidated joint ventures. Adjusted NOI is oftentimes referred to as “Cash NOI.” Management believes NOI and Adjusted NOI are important supplemental measures because they provide relevant and useful information by reflecting only income and operating expense items that are incurred at the property level and present them on an unlevered basis. We use NOI and Adjusted NOI to make decisions about resource allocations, to assess and compare property level performance, and to evaluate our Same-Store (“SS”) performance, as described below. We believe that net income (loss) is the most directly comparable GAAP measure to NOI and Adjusted NOI. NOI and Adjusted NOI should not be viewed as alternative measures of operating performance to net income (loss) as defined by GAAP since they do not reflect various excluded items. Further, our definitions of NOI and Adjusted NOI may not be comparable to the definitions used by other REITs or real estate companies, as they may use different methodologies for calculating NOI and Adjusted NOI. For a reconciliation of NOI and Adjusted NOI to net income (loss) by segment, refer to Note 13 to the Consolidated Financial Statements.

Operating expenses generally relate to leased medical office and life science properties, as well as SHOP and CCRC facilities. We generally recover all or a portion of our leased medical office and life science property expenses through tenant recoveries. We present expenses as operating or general and administrative based on the underlying nature of the expense.

#### Same-Store

Same-Store NOI and Adjusted (Cash) NOI information allows us to evaluate the performance of our property portfolio under a consistent population by eliminating changes in the composition of our consolidated portfolio of properties. Same-Store Adjusted NOI excludes amortization of deferred revenue from tenant-funded improvements and certain non-property specific operating expenses that are allocated to each operating segment on a consolidated basis.

Properties are included in Same-Store once they are stabilized for the full period in both comparison periods. Newly acquired operating assets are generally considered stabilized at the earlier of lease-up (typically when the tenant(s) control(s) the physical use of at least 80% of the space) or 12 months from the acquisition date. Newly completed developments and redevelopments are considered stabilized at the earlier of lease-up or 24 months from the date the property is placed in service. Properties that experience a change in reporting structure, such as a conversion from a triple-net lease to a RIDEA reporting structure, are considered stabilized after 12 months in operations under a consistent reporting structure. A property is removed from Same-Store when it is classified as held for sale, sold, placed into redevelopment, experiences a casualty event that significantly impacts operations, a change in reporting structure (such as triple-net to SHOP) or operator transition has been agreed to, or a significant tenant relocates from a Same-Store property to a non Same-Store property and that change results in a corresponding increase in revenue. For a reconciliation of Same-Store to total portfolio Adjusted NOI and other relevant disclosures by segment, refer to our Segment Analysis below.

#### Funds From Operations (“FFO”)

FFO encompasses NAREIT FFO and FFO as Adjusted, each of which is described in detail below. We believe FFO applicable to common shares, diluted FFO applicable to common shares, and diluted FFO per common share are important supplemental non-GAAP measures of operating performance for a REIT. Because the historical cost accounting convention used for real estate assets utilizes straight-line depreciation (except on land), such accounting presentation implies that the value of real estate assets diminishes predictably over time. Since real estate values instead have historically risen and fallen with market conditions, presentations of operating results for a REIT that use historical cost accounting for depreciation could be less informative. The term FFO was designed by the REIT industry to address this issue.

*NAREIT FFO*. FFO, as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), is net income (loss) applicable to common shares (computed in accordance with GAAP), excluding gains or losses from sales of depreciable property, including any current and deferred taxes directly associated with sales of depreciable property, impairments of, or related to, depreciable real estate, plus real estate and other real estate-related depreciation and amortization, and adjustments to compute our share of NAREIT FFO and FFO as Adjusted (see below) from joint ventures. Adjustments for joint ventures are calculated to reflect our pro-rata share of both our consolidated and unconsolidated joint ventures. We reflect our share of NAREIT FFO for unconsolidated joint ventures by applying our actual ownership percentage for the period to the applicable reconciling items on an entity by entity basis. For consolidated joint ventures in which we do not own 100%, we reflect our share of the equity by adjusting our NAREIT FFO to remove the third party ownership share of the applicable reconciling items based on actual ownership percentage for the applicable periods. Our pro-rata share information is prepared on a basis consistent with the comparable consolidated amounts, is intended to reflect our proportionate economic interest in the operating results of properties in our portfolio and is calculated by applying our actual ownership percentage for the period. We do not control the unconsolidated joint ventures, and the pro-rata presentations of reconciling items included in NAREIT FFO do not represent our legal claim to such items. The joint venture members or partners are entitled to profit or loss allocations and distributions of cash flows according to the joint venture agreements, which provide for such allocations generally according to their invested capital.

The presentation of pro-rata information has limitations, which include, but are not limited to, the following: (i) the amounts shown on the individual line items were derived by applying our overall economic ownership interest percentage determined when applying the equity method of accounting and do not necessarily represent our legal claim to the assets and liabilities, or the revenues and expenses and (ii) other companies in our industry may calculate their pro-rata interest differently, limiting the usefulness as a comparative measure. Because of these limitations, the pro-rata financial information should not be considered independently or as a substitute for our financial statements as reported under GAAP. We compensate for these limitations by relying primarily on our GAAP financial statements, using the pro-rata financial information as a supplement.

NAREIT FFO does not represent cash generated from operating activities in accordance with GAAP, is not necessarily indicative of cash available to fund cash needs and should not be considered an alternative to net income (loss). We compute NAREIT FFO in accordance with the current NAREIT definition; however, other REITs may report NAREIT FFO differently or have a different interpretation of the current NAREIT definition from ours.

*FFO as Adjusted*. In addition, we present NAREIT FFO on an adjusted basis before the impact of non-comparable items including, but not limited to, transaction-related items, impairments (recoveries) of non-depreciable assets, losses (gains) from the sale of non-depreciable assets, severance and related charges, prepayment costs (benefits) associated with early retirement or payment of debt, litigation costs (recoveries), casualty-related charges (recoveries), foreign currency remeasurement losses (gains), and changes in tax legislation (“FFO as Adjusted”). Transaction-related items include transaction expenses and gains/charges incurred as a result of mergers and acquisitions and lease amendment or termination activities. Prepayment costs (benefits) associated with early retirement of debt include the write-off of unamortized deferred financing fees, or additional costs, expenses, discounts, make-whole payments, penalties or premiums incurred as a result of early retirement or payment of debt. Management believes that FFO as Adjusted provides a meaningful supplemental measurement of our FFO run-rate and is frequently used by analysts, investors, and other interested parties in the evaluation of our performance as a REIT. At the same time that NAREIT created and defined its FFO measure for the REIT industry, it also recognized that “management of each of its member companies has the responsibility and authority to publish financial information that it regards as useful to the financial community.” We believe stockholders, potential investors, and financial analysts who review our operating performance are best served by an FFO run-rate earnings measure that includes certain other adjustments to net income (loss), in addition to adjustments made to arrive at the NAREIT defined measure of FFO. FFO as Adjusted is used by management in analyzing our business and the performance of our properties and we believe it is important that stockholders, potential investors, and financial analysts understand this measure used by management. We use FFO as Adjusted to: (i) evaluate our performance in comparison with expected results and results of previous periods, relative to resource allocation decisions, (ii) evaluate the performance of our management, (iii) budget and forecast future results to assist in the allocation of resources, (iv) assess our performance as compared with similar real estate companies and the industry in general, and (v) evaluate how a specific potential investment will impact our future results. Other REITs or real estate companies may use different methodologies for calculating an adjusted FFO measure, and accordingly, our FFO as Adjusted may not be comparable to those reported by other REITs. For a reconciliation of net income (loss) to NAREIT FFO and FFO as Adjusted and other relevant disclosure, refer to “Non-GAAP Financial Measures Reconciliations” below.

#### Adjusted FFO (“AFFO”)

AFFO is defined as FFO as Adjusted after excluding the impact of the following: (i) amortization of deferred compensation expense, (ii) amortization of deferred financing costs, net, (iii) straight-line rents, (iv) deferred income taxes, (v) amortization of acquired market lease intangibles, net, (vi) non-cash interest related to DFLs and lease incentive amortization (reduction of straight-line rents), (vii) actuarial reserves for insurance claims that have been incurred but not reported, and (viii) deferred revenues, excluding amounts amortized into rental income that are associated with tenant funded improvements owned/recognized by us and up-front cash payments made by tenants to reduce their contractual rents. Also, AFFO: (i) is computed after deducting recurring capital expenditures, including second generation leasing costs and second generation tenant and capital improvements and (ii) includes lease restructure payments and adjustments to compute our share of AFFO from our unconsolidated joint ventures. Certain prior period amounts in the “Non-GAAP Financial Measures Reconciliation” below for AFFO have been reclassified to conform to the current period presentation. More specifically, recurring capital expenditures, including second generation leasing costs and second generation tenant and capital improvements ("AFFO capital expenditures") excludes our share from unconsolidated joint ventures (reported in “other AFFO adjustments”). Adjustments for joint ventures are calculated to reflect our pro-rata share of both our consolidated and unconsolidated joint ventures. We reflect our share of AFFO for unconsolidated joint ventures by applying our actual ownership percentage for the period to the applicable reconciling items on an entity by entity basis. We reflect our share for consolidated joint ventures in which we do not own 100% of the equity by adjusting our AFFO to remove the third party ownership share of the applicable reconciling items based on actual ownership percentage for the applicable periods (reported in “other AFFO adjustments”). See FFO for further disclosure regarding our use of pro-rata share information and its limitations. Other REITs or real estate companies may use different methodologies for calculating AFFO, and accordingly, our AFFO may not be comparable to those reported by other REITs. Although our AFFO computation may not be comparable to that of other REITs, management believes AFFO provides a meaningful supplemental measure of our performance and is frequently used by analysts, investors, and other interested parties in the evaluation of our performance as a REIT. We believe AFFO is an alternative run-rate earnings measure that improves the understanding of our operating results among investors and makes comparisons with: (i) expected results, (ii) results of previous periods, and (iii) results among REITs more meaningful. AFFO does not represent cash generated from operating activities determined in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs as it excludes the following items which generally flow through our cash flows from operating activities: (i) adjustments for changes in working capital or the actual timing of the payment of income or expense items that are accrued in the period, (ii) transaction-related costs, (iii) litigation settlement expenses, (iv) severance-related expenses, and (v) actual cash receipts from interest income recognized on loans receivable (in contrast to our AFFO adjustment to exclude non-cash interest and depreciation related to our investments in direct financing leases). Furthermore, AFFO is adjusted for recurring capital expenditures, which are generally not considered when determining cash flows from operations or liquidity. AFFO is a non-GAAP supplemental financial measure and should not be considered as an alternative to net income (loss) determined in accordance with GAAP. For a reconciliation of net income (loss) to AFFO and other relevant disclosure, refer to “Non-GAAP Financial Measures Reconciliations” below.

### Comparison of the Three and Six Months Ended June 30, 2020 to the Three and Six Months Ended June 30, 2019

### Overview

#### Three Months Ended June 30, 2020 and 2019

The following table summarizes results for the three months ended June 30, 2020 and 2019 (dollars in thousands):

|  | Three Months Ended June 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: |
| Net income (loss) applicable to common shares | $51,131 | $(13,991) | $65,122 |
| NAREIT FFO | 182,367 | 198,422 | (16,055) |
| FFO as Adjusted | 214,713 | 212,939 | 1,774 |
| AFFO | 191,926 | 195,067 | (3,141) |

Net income (loss) applicable to common shares increased primarily as a result of the following:

- an increase in net gain on sales of real estate during the second quarter of 2020;
- a reduction in impairment charges related to depreciable real estate and assets underlying DFLs during the second quarter of 2020;
- government grant income received under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) during the second quarter of 2020; and
- NOI generated from: (i) 2019 and 2020 acquisitions of real estate, (ii) development and redevelopment projects placed in service during 2019 and 2020, and (iii) new leasing activity during 2019 and 2020.

The increase in net income (loss) applicable to common shares was partially offset by:

- a reduction in income related to assets sold during 2019 and 2020;
- an increase in loss on debt extinguishment, resulting from the repurchase of senior unsecured notes in the second quarter of 2020;
- a reduction in other income, net as a result of a gain upon change of control related to the acquisition of the outstanding equity interests in a senior housing joint venture in the second quarter of 2019;
- additional expenses and decreased occupancy in our SHOP and CCRC segments related to COVID-19;
- increased depreciation and amortization expense as a result of: (i) assets acquired during 2019 and 2020, (ii) the acquisition of Brookdale’s interest in and consolidation of 13 CCRCs during the first quarter of 2020, and (iii) development and redevelopment projects placed into service during 2019 and 2020, partially offset by dispositions of real estate throughout 2019 and 2020 and intangible assets that were fully depreciated in 2019 and 2020; and
- increased credit losses related to loans receivable as a result of: (i) adopting the current expected credit losses model required under Accounting Standards Update No. 2016-13, *Measurement of Credit Losses on Financial Instruments (“*ASU 2016-13”), (ii) new loans funded during the second quarter of 2020, and (iii) the impact of COVID-19 on expected credit losses.

NAREIT FFO decreased primarily as a result of the aforementioned events impacting net income (loss) applicable to common shares, except for the following, which are excluded from NAREIT FFO:

- impairments of depreciable real estate;
- net gain on sales depreciable of real estate;
- the gain upon change of control related to the acquisition of the outstanding equity interests in a senior housing joint venture in the second quarter of 2019; and
- depreciation and amortization expense.

FFO as Adjusted increased primarily as a result of the aforementioned events impacting NAREIT FFO, except for the following, which are excluded from FFO as Adjusted:

- net gain on sales of assets underlying DFLs and non-depreciable assets, such as land;
- the loss on debt extinguishment; and
- the increase in credit losses.

AFFO decreased primarily as a result of the aforementioned events impacting FFO as Adjusted, except for the impact of straight-line rents, which is excluded from AFFO. The decrease in AFFO was partially offset by decreased capital expenditures during the period that are not otherwise deducted from AFFO and the increase in deferred tax benefit.

#### Six Months Ended June 30, 2020 and 2019

The following table summarizes results for the six months ended June 30, 2020 and 2019 (dollars in thousands):

|  | Six Months Ended June 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: |
| Net income (loss) applicable to common shares | $328,786 | $47,036 | $281,750 |
| NAREIT FFO | 353,917 | 404,455 | (50,538) |
| FFO as Adjusted | 441,727 | 424,961 | 16,766 |
| AFFO | 399,528 | 386,536 | 12,992 |

Net income (loss) applicable to common shares increased primarily as a result of the following:

- an increase in other income, net as a result of (i) a gain upon change of control related to the acquisition of the outstanding equity interests in 13 CCRCs from Brookdale during the first quarter of 2020, (ii) a gain on sale related to the sale of a hospital underlying a DFL during the first quarter of 2020, and (iii) government grant income received under the CARES Act during the second quarter of 2020;
- an increase in net gain on sales of real estate during the first half of 2020;
- a reduction in impairment charges related to depreciable real estate and assets underlying DFLs during the first half of 2020;
- an increase in income tax benefit as a result of (i) the above-mentioned acquisition of Brookdale’s interest in 13 CCRCs and related management termination fee expense paid to Brookdale in connection with transitioning management to LCS during the first quarter of 2020 and (ii) the extension of the net operating loss carryback period provided by the CARES Act; and
- NOI generated from: (i) 2019 and 2020 acquisitions of real estate, (ii) development and redevelopment projects placed in service during 2019 and 2020, and (iii) new leasing activity during 2019 and 2020.

The increase in net income (loss) applicable to common shares was partially offset by:

- a reduction in income related to assets sold during 2019 and 2020;
- an increase in loss on debt extinguishment, resulting from repurchase of senior unsecured notes in the second quarter of 2020;
- increased depreciation and amortization expense as a result of: (i) assets acquired during 2019 and 2020, (ii) the acquisition of Brookdale’s interest in and consolidation of 13 CCRCs during the first quarter of 2020, and (iii) development and redevelopment projects placed into service during 2019 and 2020, partially offset by dispositions of real estate throughout 2019 and 2020;
- increased interest expense as a result of senior unsecured notes issuances and assumed mortgage debt in conjunction with real estate acquisitions, partially offset by senior unsecured notes redemptions, repurchases, and repayments; and
- increased credit losses related to loans receivable as a result of: (i) adopting the current expected credit losses model required under ASU 2016-13, (ii) new loans funded during 2020, and (iii) the impact of COVID-19 on expected credit losses.

NAREIT FFO decreased primarily as a result of the aforementioned events impacting net income (loss) applicable to common shares, except for the following, which are excluded from NAREIT FFO:

- impairments of depreciable real estate;
- net gain on sales of depreciable real estate;
- the gain upon change of control related to the acquisition of Brookdale’s interest in 13 CCRCs; and
- depreciation and amortization expense.

FFO as Adjusted increased primarily as a result of the aforementioned events impacting NAREIT FFO, except for the following, which are excluded from FFO as Adjusted:

- net gain on sales of assets underlying DFLs and non-depreciable assets, such as land;
- the loss on debt extinguishment; and
- the increase in credit losses.

AFFO increased primarily as a result of the aforementioned events impacting FFO as Adjusted, except for the impact of straight-line rents and the increase in deferred tax benefit, which are excluded from AFFO. The increase in AFFO was partially offset by increased capital expenditures during the period that are not otherwise deducted from AFFO.

#### Segment Analysis

The following tables provide selected operating information for our Same-Store and total property portfolio for each of our reportable segments. For the three months ended June 30, 2020, our Same-Store consists of 468 properties representing properties acquired or placed in service and stabilized on or prior to April 1, 2019 and that remained in operations under a consistent reporting structure through June 30, 2020. For the six months ended June 30, 2020, our Same-Store consists of 442 properties representing properties acquired or placed in service and stabilized on or prior to January 1, 2019 and that remained in operations under a consistent reporting structure through June 30, 2020. Our total property portfolio consisted of 633 and 676 properties at June 30, 2020 and 2019, respectively.

### Senior Housing Triple-Net

The following table summarizes results at and for the three months ended June 30, 2020 and 2019 (dollars in thousands, except per unit data):

|  | SS Three Months Ended June 30, 2020 | 2019 | Change | Total Portfolio(1) Three Months Ended June 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Rental and related revenues | $20,590 | $19,254 | $1,336 | $24,589 | $43,792 | $(19,203) |
| Income from direct financing leases | — | — | — | — | 6,013 | (6,013) |
| Noncontrolling interests' share of consolidated joint venture total revenues | — | — | — | — | 1 | (1) |
| Operating expenses | (49) | (44) | (5) | (526) | (866) | 340 |
| Adjustments to NOI | (260) | 433 | (693) | 41 | 4,806 | (4,765) |
| Adjusted NOI | $20,281 | $19,643 | $638 | 24,104 | 53,746 | (29,642) |
| Less: non-SS adjusted NOI |  |  |  | (3,823) | (34,103) | 30,280 |
| SS adjusted NOI |  |  |  | $20,281 | $19,643 | $638 |
| Adjusted NOI % change |  |  | 3.2% |  |  |  |
| Property count(2) | 47 | 47 |  | 62 | 104 |  |
| Average capacity (units)(3) | 4,364 | 4,366 |  | 5,906 | 12,474 |  |
| Average annual rent per unit | $18,634 | $18,037 |  | $16,681 | $17,512 |  |

(1) Total Portfolio includes results of operations from disposed properties and properties that transferred segments through the disposition or transfer date.

(2) From our 2019 presentation of Same-Store, we removed 31 senior housing triple-net properties that were sold, 12 senior housing triple-net properties that were converted, or we agreed to convert, to SHOP, 12 senior housing triple-net properties that were classified as held for sale, and 1 senior housing triple-net property that was transferred to other non-reportable.

(3) Represents average capacity as reported by the respective tenants or operators for the three-month period.

Same-Store Adjusted NOI increased primarily as a result of annual rent escalations.

Total Portfolio Adjusted NOI decreased primarily as a result of the following Non-Same-Store impacts:

- the transfer of nine senior housing triple-net facilities to our SHOP segment during 2020;
- the transfer of two senior housing triple-net facilities to our CCRC segment during 2020; and
- senior housing triple-net facilities sold during 2019 and 2020.

The decrease in Total Portfolio Adjusted NOI is partially offset by the aforementioned increase to Same-Store.

The following table summarizes results at and for the six months ended June 30, 2020 and 2019 (dollars in thousands, except per unit data):

|  | SS Six Months Ended June 30, 2020 | 2019 | Change | Total Portfolio(1) Six Months Ended June 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Rental and related revenues | $41,118 | $38,053 | $3,065 | $57,724 | $93,232 | $(35,508) |
| Income from direct financing leases | — | — | — | — | 15,405 | (15,405) |
| Noncontrolling interests' share of consolidated joint venture total revenues | — | — | — | — | (1) | 1 |
| Operating expenses | (98) | (88) | (10) | (1,032) | (1,860) | 828 |
| Adjustments to NOI | (830) | 1,069 | (1,899) | (3,333) | 5,371 | (8,704) |
| Adjusted NOI | $40,190 | $39,034 | $1,156 | 53,359 | 112,147 | (58,788) |
| Less: non-SS adjusted NOI |  |  |  | (13,169) | (73,113) | 59,944 |
| SS adjusted NOI |  |  |  | $40,190 | $39,034 | $1,156 |
| Adjusted NOI % change |  |  | 3.0% |  |  |  |
| Property count(2) | 47 | 47 |  | 62 | 104 |  |
| Average capacity (units)(3) | 4,365 | 4,366 |  | 6,442 | 13,543 |  |
| Average annual rent per unit | $18,457 | $17,921 |  | $16,886 | $16,836 |  |

(1) Total Portfolio includes results of operations from disposed properties and properties that transferred segments through the disposition or transfer date.

(2) From our 2019 presentation of Same-Store, we removed 31 senior housing triple-net properties that were sold, 12 senior housing triple-net properties that were converted, or we agreed to convert, to SHOP, 12 senior housing triple-net properties that were classified as held for sale, and 1 senior housing triple-net property that was transferred to other non-reportable.

(3) Represents average capacity as reported by the respective tenants or operators for the six-month period.

Same-Store Adjusted NOI increased primarily as a result of annual rent escalations.

Total Portfolio Adjusted NOI decreased primarily as a result of the following Non-Same-Store impacts:

- the transfer of 39 and 9 senior housing triple-net facilities to our SHOP segment during 2019 and 2020, respectively;
- the transfer of two senior housing triple-net facilities to our CCRC segment during 2020; and
- senior housing triple-net facilities sold during 2019 and 2020.

The decrease in Total Portfolio Adjusted NOI is partially offset by the aforementioned increase to Same-Store.

### Senior Housing Operating Portfolio

The following table summarizes results at and for the three months ended June 30, 2020 and 2019 (dollars in thousands, except per unit data):

|  | SS Three Months Ended June 30, 2020 | 2019 | Change | Total Portfolio(1) Three Months Ended June 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Resident fees and services | $73,086 | $79,751 | $(6,665) | $155,293 | $177,001 | $(21,708) |
| Government grant income(2) | 1,889 | — | 1,889 | 2,209 | — | 2,209 |
| Healthpeak’s share of unconsolidated joint venture total revenues | 19,099 | 20,128 | (1,029) | 24,684 | 5,922 | 18,762 |
| Healthpeak's share of unconsolidated joint venture government grant income | — | — | — | 270 | — | 270 |
| Noncontrolling interests' share of consolidated joint venture total revenues | (151) | (160) | 9 | (504) | (523) | 19 |
| Operating expenses | (64,226) | (60,685) | (3,541) | (137,507) | (137,460) | (47) |
| Healthpeak's share of unconsolidated joint venture operating expenses | (13,319) | (12,408) | (911) | (18,686) | (4,430) | (14,256) |
| Noncontrolling interests' share of consolidated joint venture operating expenses | 113 | 106 | 7 | 411 | 320 | 91 |
| Adjustments to NOI | (66) | 205 | (271) | 118 | 898 | (780) |
| Adjusted NOI | $16,425 | $26,937 | $(10,512) | 26,288 | 41,728 | (15,440) |
| Less: non-SS adjusted NOI |  |  |  | (9,863) | (14,791) | 4,928 |
| SS adjusted NOI |  |  |  | $16,425 | $26,937 | $(10,512) |
| Adjusted NOI % change |  |  | (39.0)% |  |  |  |
| Property count(3) | 71 | 71 |  | 139 | 144 |  |
| Average occupancy | 79.1% | 86.9% |  | 79.8% | 82.1% |  |
| Average capacity (units)(4) | 9,363 | 9,368 |  | 16,386 | 15,638 |  |
| Average annual rent per unit | $47,724 | $51,863 |  | $49,647 | $48,179 |  |

(1) Total Portfolio includes results of operations from disposed properties and properties that transferred segments through the disposition or transfer date.

(2) Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the consolidated statements of operations.

(3) From our 2019 presentation of Same-Store, we removed four SHOP properties that were classified as held for sale and one SHOP property that was placed in redevelopment.

(4) Represents average capacity as reported by the respective tenants or operators for the three-month period.

Same Store Adjusted NOI decreased primarily as a result of the following:

- additional expenses and decreased occupancy related to COVID-19; partially offset by
- government grant income received under the CARES Act.

Total Portfolio Adjusted NOI decreased primarily as a result of the aforementioned impacts to Same-Store and the following Non-Same-Store impacts:

- decreased NOI from assets sold in 2019 and 2020; partially offset by
- increased NOI from (i) 2019 acquisitions and (ii) the transfer of 21 and 9 senior housing triple-net assets to our SHOP segment during 2019 and 2020, respectively.

The following table summarizes results at and for the six months ended June 30, 2020 and 2019 (dollars in thousands, except per unit data):

|  | SS Six Months Ended June 30, 2020 | 2019 | Change | Total Portfolio(1) Six Months Ended June 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Resident fees and services | $73,689 | $75,607 | $(1,918) | $326,254 | $303,182 | $23,072 |
| Government grant income(2) | 437 | — | 437 | 2,209 | — | 2,209 |
| Healthpeak’s share of unconsolidated joint venture total revenues | 39,200 | 40,348 | (1,148) | 50,449 | 11,571 | 38,878 |
| Healthpeak's share of unconsolidated joint venture government grant income | — | — | — | 270 | — | 270 |
| Noncontrolling interests' share of consolidated joint venture total revenues | (190) | (200) | 10 | (1,042) | (995) | (47) |
| Operating expenses | (56,767) | (55,568) | (1,199) | (275,637) | (234,407) | (41,230) |
| Healthpeak's share of unconsolidated joint venture operating expenses | (25,978) | (24,677) | (1,301) | (36,642) | (8,591) | (28,051) |
| Noncontrolling interests' share of consolidated joint venture operating expenses | 130 | 130 | — | 788 | 670 | 118 |
| Adjustments to NOI | (176) | 505 | (681) | 649 | 2,080 | (1,431) |
| Adjusted NOI | $30,345 | $36,145 | $(5,800) | 67,298 | 73,510 | (6,212) |
| Less: non-SS adjusted NOI |  |  |  | (36,953) | (37,365) | 412 |
| SS adjusted NOI |  |  |  | $30,345 | $36,145 | $(5,800) |
| Adjusted NOI % change |  |  | (16.0)% |  |  |  |
| Property count(3) | 48 | 48 |  | 139 | 144 |  |
| Average occupancy | 83.2% | 87.0% |  | 83.4% | 82.4% |  |
| Average capacity (units)(4) | 6,466 | 6,468 |  | 16,340 | 14,714 |  |
| Average annual rent per unit | $46,740 | $48,345 |  | $51,701 | $44,233 |  |

(1) Total Portfolio includes results of operations from disposed properties and properties that transferred segments through the disposition or transfer date.

(2) Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the consolidated statements of operations.

(3) From our 2019 presentation of Same-Store, we removed three SHOP properties that were classified as held for sale and one SHOP property that was placed in redevelopment.

(4) Represents average capacity as reported by the respective tenants or operators for the six-month period.

Same Store Adjusted NOI decreased primarily as a result of the following:

- additional expenses and decreased occupancy related to COVID-19; partially offset by
- government grant income received under the CARES Act.

Total Portfolio Adjusted NOI decreased primarily as a result of the aforementioned impacts to Same-Store and the following Non-Same-Store impacts:

- decreased NOI from assets sold in 2019 and 2020; partially offset by
- increased NOI from (i) 2019 acquisitions and (ii) the transfer of 39 and 9 senior housing triple-net assets to our SHOP segment during 2019 and 2020, respectively.

### Continuing Care Retirement Community

The following table summarizes results at and for the three months ended June 30, 2020 and 2019 (dollars in thousands, except per unit data):

|  | SS(1) Three Months Ended June 30, 2020 | 2019 | Change | Total Portfolio(2) Three Months Ended June 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Resident fees and services | $— | $— | $— | $113,926 | $— | $113,926 |
| Government grant income(3) | — | — | — | 11,871 | — | 11,871 |
| Healthpeak’s share of unconsolidated joint venture total revenues | — | — | — | 4,781 | 52,835 | (48,054) |
| Healthpeak's share of unconsolidated joint venture government grant income | — | — | — | 534 | — | 534 |
| Operating expenses | — | — | — | (94,248) | — | (94,248) |
| Healthpeak's share of unconsolidated joint venture operating expenses | — | — | — | (4,826) | (42,456) | 37,630 |
| Adjustments to NOI | — | — | — | 18 | 4,745 | (4,727) |
| Adjusted NOI | $— | $— | $— | 32,056 | 15,124 | 16,932 |
| Less: non-SS adjusted NOI |  |  |  | (32,056) | (15,124) | (16,932) |
| SS adjusted NOI |  |  |  | $— | $— | $— |
| Adjusted NOI % change |  |  | —% |  |  |  |
| Property count | — | — |  | 17 | 15 |  |
| Average Occupancy | —% | —% |  | 80.4% | 85.7% |  |
| Average capacity (units)(4) | — | — |  | 8,321 | 7,269 |  |
| Average annual rent per unit | $— | $— |  | $65,682 | $64,797 |  |

(1) All CCRC properties have been removed from the Same-Store population as they experienced a change in reporting structure, underwent an operator transition during the periods presented, or are classified as held for sale. As such, no Same-Store results are presented in the table above.

(2) Total Portfolio includes results of operations from disposed properties and properties that transferred segments through the disposition or transfer date.

(3) Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the consolidated statements of operations.

(4) Represents average capacity as reported by the respective tenants or operators for the three-month period.

Total Portfolio Adjusted NOI increased primarily as a result of the following:

- the acquisition of the remaining 51% interest in 13 communities previously held in a joint venture during the first quarter of 2020; and
- the transfer of two CCRC properties that converted from senior housing triple-net to RIDEA structures during the fourth quarter of 2019.

The following table summarizes results at and for the six months ended June 30, 2020 and 2019 (dollars in thousands, except per unit data):

|  | SS(1) Six Months Ended June 30, 2020 | 2019 | Change | Total Portfolio(2) Six Months Ended June 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Resident fees and services | $— | $— | $— | $205,706 | $— | $205,706 |
| Government grant income(3) | — | — | — | 11,871 | — | 11,871 |
| Healthpeak’s share of unconsolidated joint venture total revenues | — | — | — | 26,428 | 105,073 | (78,645) |
| Healthpeak's share of unconsolidated joint venture government grant income | — | — | — | 534 | — | 534 |
| Operating expenses | — | — | — | (250,730) | — | (250,730) |
| Healthpeak's share of unconsolidated joint venture operating expenses | — | — | — | (22,863) | (83,833) | 60,970 |
| Adjustments to NOI | — | — | — | 91,579 | 8,197 | 83,382 |
| Adjusted NOI | $— | $— | $— | 62,525 | 29,437 | 33,088 |
| Less: non-SS adjusted NOI |  |  |  | (62,525) | (29,437) | (33,088) |
| SS adjusted NOI |  |  |  | $— | $— | $— |
| Adjusted NOI % change |  |  | —% |  |  |  |
| Property count | — | — |  | 17 | 15 |  |
| Average Occupancy | —% | —% |  | 83.2% | 85.7% |  |
| Average capacity (units)(4) | — | — |  | 8,321 | 7,269 |  |
| Average annual rent per unit | $— | $— |  | $65,430 | $63,698 |  |

(1) All CCRC properties have been removed from the Same-Store population as they experienced a change in reporting structure, underwent an operator transition during the periods presented, or are classified as held for sale. As such, no Same-Store results are presented in the table above.

(2) Total Portfolio includes results of operations from disposed properties and properties that transferred segments through the disposition or transfer date.

(3) Represents government grant income received under the CARES Act, which is recorded in other income (expense), net in the consolidated statements of operations.

(4) Represents average capacity as reported by the respective tenants or operators for the six-month period.

Total Portfolio Adjusted NOI increased primarily as a result of the following:

- the acquisition of the remaining 51% interest in 13 communities previously held in a joint venture during the first quarter of 2020; and
- the transfer of two CCRC properties that converted from senior housing triple-net to RIDEA structures during the fourth quarter of 2019.

### Life Science

The following table summarizes results at and for the three months ended June 30, 2020 and 2019 (dollars and square feet in thousands, except per square foot data):

|  | SS Three Months Ended June 30, 2020 | 2019 | Change | Total Portfolio(1) Three Months Ended June 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Rental and related revenues | $87,963 | $84,841 | $3,122 | $138,496 | $107,596 | $30,900 |
| Noncontrolling interests' share of consolidated joint venture total revenues | (41) | (41) | — | (57) | (42) | (15) |
| Operating expenses | (20,775) | (20,471) | (304) | (34,205) | (25,480) | (8,725) |
| Noncontrolling interests' share of consolidated joint venture operating expenses | 14 | 13 | 1 | 18 | 13 | 5 |
| Adjustments to NOI | (557) | (2,265) | 1,708 | (2,779) | (7,606) | 4,827 |
| Adjusted NOI | $66,604 | $62,077 | $4,527 | 101,473 | 74,481 | 26,992 |
| Less: non-SS adjusted NOI |  |  |  | (34,869) | (12,404) | (22,465) |
| SS adjusted NOI |  |  |  | $66,604 | $62,077 | $4,527 |
| Adjusted NOI % change |  |  | 7.3% |  |  |  |
| Property count(2) | 97 | 97 |  | 135 | 126 |  |
| Average occupancy | 96.6% | 95.7% |  | 95.9% | 96.3% |  |
| Average occupied square feet | 5,948 | 5,895 |  | 8,757 | 7,010 |  |
| Average annual total revenues per occupied square foot | $59 | $56 |  | $62 | $57 |  |
| Average annual base rent per occupied square foot(3) | $56 | $53 |  | $49 | $45 |  |

(1) Total Portfolio includes results of operations from disposed properties through the disposition date.

(2) From our 2019 presentation of Same-Store, we removed two life science facilities that were placed in redevelopment and one life science facility related to a significant tenant relocation.

(3) Base rent does not include tenant recoveries, additional rents in excess of floors and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest, and deferred revenues).

Same-Store Adjusted NOI increased primarily as a result of the following:

- annual rent escalations;
- new leasing activity; and
- mark-to-market lease renewals.

Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned impacts to Same-Store and the following Non-Same-Store impacts:

- increased NOI from (i) increased occupancy in developments and redevelopments placed into service in 2019 and 2020 and (ii) acquisitions in 2019 and 2020; partially offset by
- decreased NOI from the placement of facilities into redevelopment in 2019 and 2020; and
- decreased termination fee income.

The following table summarizes results at and for the six months ended June 30, 2020 and 2019 (dollars and square feet in thousands, except per square foot data):

|  | SS Six Months Ended June 30, 2020 | 2019 | Change | Total Portfolio(1) Six Months Ended June 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Rental and related revenues | $167,920 | $162,469 | $5,451 | $267,379 | $202,068 | $65,311 |
| Noncontrolling interests' share of consolidated joint venture total revenues | (66) | (72) | 6 | (109) | (82) | (27) |
| Operating expenses | (39,396) | (38,235) | (1,161) | (64,406) | (47,472) | (16,934) |
| Noncontrolling interests' share of consolidated joint venture operating expenses | 24 | 22 | 2 | 35 | 26 | 9 |
| Adjustments to NOI | (1,563) | (3,641) | 2,078 | (7,059) | (10,084) | 3,025 |
| Adjusted NOI | $126,919 | $120,543 | $6,376 | 195,840 | 144,456 | 51,384 |
| Less: non-SS adjusted NOI |  |  |  | (68,921) | (23,913) | (45,008) |
| SS adjusted NOI |  |  |  | $126,919 | $120,543 | $6,376 |
| Adjusted NOI % change |  |  | 5.3% |  |  |  |
| Property count(2) | 95 | 95 |  | 135 | 126 |  |
| Average occupancy | 95.9% | 95.9% |  | 95.4% | 96.4% |  |
| Average occupied square feet | 5,796 | 5,801 |  | 8,405 | 6,833 |  |
| Average annual total revenues per occupied square foot | $57 | $55 |  | $62 | $56 |  |
| Average annual base rent per occupied square foot(3) | $54 | $52 |  | $49 | $45 |  |

(1) Total Portfolio includes results of operations from disposed properties through the disposition date.

(2) From our 2019 presentation of Same-Store, we removed two life science facilities that were placed in redevelopment and one life science facility related to a significant tenant relocation.

(3) Base rent does not include tenant recoveries, additional rents in excess of floors and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest, and deferred revenues).

Same-Store Adjusted NOI increased primarily as a result of the following:

- annual rent escalations;
- new leasing activity; and
- mark-to-market lease renewals.

Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned impacts to Same-Store and the following Non-Same-Store impacts:

- increased NOI from (i) increased occupancy in developments and redevelopments placed into service in 2019 and 2020 and (ii) acquisitions in 2019 and 2020; partially offset by
- decreased NOI from (i) decreased overall portfolio occupancy and (ii) the placement of facilities into redevelopment in 2019 and 2020.

### Medical Office

The following table summarizes results at and for the three months ended June 30, 2020 and 2019 (dollars and square feet in thousands, except per square foot data):

|  | SS Three Months Ended June 30, 2020 | 2019 | Change | Total Portfolio(1) Three Months Ended June 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Rental and related revenues | $127,819 | $128,076 | $(257) | $141,636 | $141,927 | $(291) |
| Healthpeak’s share of unconsolidated joint venture total revenues | 669 | 686 | (17) | 691 | 709 | (18) |
| Noncontrolling interests' share of consolidated joint venture total revenues | (8,235) | (8,207) | (28) | (8,347) | (8,381) | 34 |
| Operating expenses | (43,433) | (44,329) | 896 | (49,350) | (50,176) | 826 |
| Healthpeak's share of unconsolidated joint venture operating expenses | (275) | (283) | 8 | (275) | (283) | 8 |
| Noncontrolling interests' share of consolidated joint venture operating expenses | 2,508 | 2,482 | 26 | 2,507 | 2,496 | 11 |
| Adjustments to NOI | (989) | (1,373) | 384 | (951) | (1,212) | 261 |
| Adjusted NOI | $78,064 | $77,052 | $1,012 | 85,911 | 85,080 | 831 |
| Less: non-SS adjusted NOI |  |  |  | (7,847) | (8,028) | 181 |
| SS adjusted NOI |  |  |  | $78,064 | $77,052 | $1,012 |
| Adjusted NOI % change |  |  | 1.3% |  |  |  |
| Property count(2) | 244 | 244 |  | 269 | 271 |  |
| Average occupancy | 92.0% | 92.0% |  | 91.3% | 91.9% |  |
| Average occupied square feet | 17,845 | 17,843 |  | 19,164 | 19,346 |  |
| Average annual total revenues per occupied square foot | $29 | $29 |  | $30 | $29 |  |
| Average annual base rent per occupied square foot(3) | $25 | $25 |  | $25 | $25 |  |

(1) Total Portfolio includes results of operations from disposed properties through the disposition date.

(2) From our 2019 presentation of Same-Store, we removed four MOBs that were sold, five MOBs that were classified as held for sale, four MOBs that were placed into redevelopment, and one MOB that we intend to demolish.

(3) Base rent does not include tenant recoveries, additional rents in excess of floors and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest, and deferred revenues).

Same-Store Adjusted NOI increased primarily as a result of the following:

- mark-to-market lease renewals; and
- annual rent escalations.

Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store and the following Non-Same-Store impacts:

- increased NOI from our 2019 and 2020 acquisitions; and
- increased occupancy in former redevelopment and development properties that have been placed into service; partially offset by
- decreased NOI from MOB sales during 2019 and 2020.

The following table summarizes results at and for the six months ended June 30, 2020 and 2019 (dollars and square feet in thousands, except per square foot data):

|  | SS Six Months Ended June 30, 2020 | 2019 | Change | Total Portfolio(1) Six Months Ended June 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Rental and related revenues | $256,349 | $254,088 | $2,261 | $286,782 | $284,122 | $2,660 |
| Healthpeak’s share of unconsolidated joint venture total revenues | 1,341 | 1,369 | (28) | 1,386 | 1,414 | (28) |
| Noncontrolling interests' share of consolidated joint venture total revenues | (16,763) | (16,381) | (382) | (16,987) | (16,684) | (303) |
| Operating expenses | (87,045) | (86,882) | (163) | (100,037) | (99,163) | (874) |
| Healthpeak's share of unconsolidated joint venture operating expenses | (550) | (558) | 8 | (550) | (558) | 8 |
| Noncontrolling interests' share of consolidated joint venture operating expenses | 5,108 | 4,879 | 229 | 5,107 | 4,920 | 187 |
| Adjustments to NOI | (2,437) | (3,311) | 874 | (2,408) | (2,960) | 552 |
| Adjusted NOI | $156,003 | $153,204 | $2,799 | 173,293 | 171,091 | 2,202 |
| Less: non-SS adjusted NOI |  |  |  | (17,290) | (17,887) | 597 |
| SS adjusted NOI |  |  |  | $156,003 | $153,204 | $2,799 |
| Adjusted NOI % change |  |  | 1.8% |  |  |  |
| Property count(2) | 243 | 243 |  | 269 | 271 |  |
| Average occupancy | 92.0% | 92.2% |  | 91.3% | 91.8% |  |
| Average occupied square feet | 17,745 | 17,750 |  | 19,189 | 19,372 |  |
| Average annual total revenues per occupied square foot | $29 | $29 |  | $30 | $29 |  |
| Average annual base rent per occupied square foot(3) | $25 | $25 |  | $25 | $25 |  |

(1) Total Portfolio includes results of operations from disposed properties through the disposition date.

(2) From our 2019 presentation of Same-Store, we removed four MOBs that were sold, five MOBs that were classified as held for sale, four MOBs that were placed into redevelopment, and one MOB that we intend to demolish.

(3) Base rent does not include tenant recoveries, additional rents in excess of floors and non-cash revenue adjustments (i.e., straight-line rents, amortization of market lease intangibles, DFL non-cash interest, and deferred revenues).

Same-Store Adjusted NOI increased primarily as a result:

- mark-to-market lease renewals; and
- annual rent escalations.

Total Portfolio Adjusted NOI increased primarily as a result of the aforementioned increases to Same-Store and the following Non-Same-Store impacts:

- increased NOI from our 2019 and 2020 acquisitions; and
- increased occupancy in former redevelopment and development properties that have been placed into service; partially offset by
- decreased NOI from MOB sales during 2019 and 2020.

### Other Income and Expense Items

The following table summarizes the results of our other income and expense items for the three and six months ended June 30, 2020 and 2019 (in thousands):

|  | Three Months Ended June 30, 2020 | 2019 | Change | Six Months Ended June 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Interest income | $4,230 | $2,414 | $1,816 | $7,918 | $4,127 | $3,791 |
| Interest expense | 57,550 | 56,942 | 608 | 115,926 | 106,269 | 9,657 |
| Depreciation and amortization | 178,488 | 165,296 | 13,192 | 367,764 | 297,247 | 70,517 |
| General and administrative | 23,720 | 27,120 | (3,400) | 46,069 | 48,475 | (2,406) |
| Transaction costs | 627 | 1,337 | (710) | 15,475 | 5,855 | 9,620 |
| Impairments and loan loss reserves (recoveries), net | 24,050 | 68,538 | (44,488) | 63,173 | 77,396 | (14,223) |
| Gain (loss) on sales of real estate, net | 82,863 | 11,448 | 71,415 | 247,732 | 19,492 | 228,240 |
| Loss on debt extinguishments | (25,824) | (1,135) | (24,689) | (24,991) | (1,135) | (23,856) |
| Other income (expense), net | 19,586 | 21,008 | (1,422) | 230,194 | 24,141 | 206,053 |
| Income tax benefit (expense) | 7,346 | 1,864 | 5,482 | 40,390 | 5,322 | 35,068 |
| Equity income (loss) from unconsolidated joint ventures | (17,086) | (1,506) | (15,580) | (29,065) | (2,369) | (26,696) |
| Noncontrolling interests’ share in earnings | (3,543) | (3,617) | 74 | (7,003) | (7,137) | 134 |

#### Interest income

Interest income increased for the three and six months ended June 30, 2020 primarily as a result of new loans and additional funding of existing loans.

#### Interest expense

Interest expense increased for the three and six months ended June 30, 2020 as a result of (i) senior unsecured notes and term loan issuances and (ii) assumed debt in conjunction with real estate acquisitions. The increase in interest expense was partially offset by senior unsecured notes redemptions, repurchases, and repayments during 2019 and decreased short-term borrowings under the line of credit and commercial paper program during 2020.

#### Depreciation and amortization expense

Depreciation and amortization expense increased for the three and six months ended June 30, 2020 primarily as a result of: (i) assets acquired during 2019 and 2020, (ii) the acquisition of Brookdale’s interest in and consolidation of 13 CCRCs during the first quarter of 2020, and (iii) development and redevelopment projects placed into service during 2019 and 2020, partially offset by dispositions of real estate throughout 2019 and 2020 and assets that were fully depreciated in 2019 and 2020.

#### General and administrative expense

General and administrative expenses decreased for the three and six months ended June 30, 2020 primarily as a result of decreased severance and related charges.

#### Transaction Costs

Transaction costs increased for the six months ended June 30, 2020 primarily as a result of costs associated with the transition of 13 CCRCs from Brookdale to LCS in January 2020.

#### Impairments and loan loss reserves (recoveries), net

The impairment charges recognized in each period vary depending on facts and circumstances related to each asset and are impacted by negotiations with potential buyers, current operations of the assets, and other factors. Additionally, impairments and loan loss reserves (recoveries), net decreased for the three and six months ended June 30, 2020 primarily as a result of committing to a formal plan to sell fewer assets during 2020 as compared to 2019 and therefore, subjecting fewer new assets to the held-for-sale impairment model.

The decrease in impairment and loan loss reserves (recoveries) during 2020 is partially offset by an increase in credit losses (which are recorded in impairments and loan loss reserves (recoveries), net) under the current expected credit losses model (which we began using in conjunction with our adoption of ASU 2016-13 on January 1, 2020), primarily due to the current and anticipated economic impact of COVID-19.

#### Gain (loss) on sales of real estate, net

During the three months ended June 30, 2020, we sold two SHOP assets for $28 million and three MOBs for $106 million, resulting in total gain on sales of $83 million. During the six months ended June 30, 2020, we sold 9 SHOP assets for $64 million, 18 senior housing triple-net assets for $385 million, and three MOBs for $106 million, resulting in total gain on sales of $248 million.

During the three months ended June 30, 2019, we sold one SHOP asset for $14 million, five MOBs for $15 million, and one life science asset for $7 million, resulting in total gain on sales of $11 million. During the six months ended June 30, 2019, we sold 10 SHOP assets for $82 million, 2 senior housing triple-net assets for $26 million, 5 MOBs for $15 million, 1 life science asset for $7 million, and 1 undeveloped life science land parcel for $35 million, resulting in total gain on sales of $19 million.

#### Loss on debt extinguishments

Loss on debt extinguishments increased for the three and six months ended June 30, 2020 as a result of repurchasing $250 million aggregate principal amount of our 4.250% senior notes due in 2023 in June 2020.

#### Other income (expense), net

Other income (expense), net, decreased for the three months ended June 30, 2020 primarily as a result of (i) a gain upon change of control related to the acquisition of the outstanding equity interests in a senior housing joint venture in June 2019 and (ii) a casualty-related gain recognized in the second quarter of 2019 related to hurricanes in 2017, partially offset by government grant income received under the CARES Act during the second quarter of 2020.

Other income (expense), net, increased for the six months ended June 30, 2020 primarily as a result of: (i) a gain upon change of control related to the acquisition of the outstanding equity interests in 13 CCRCs from Brookdale during the first quarter of 2020, (ii) a gain on sale related to the sale of a hospital underlying a DFL during the first quarter of 2020, and (iii) government grant income received under the CARES Act during the second quarter of 2020. The increase was partially offset by a gain upon change of control related to the acquisition of the outstanding equity interests in a senior housing joint venture and a casualty-related gain related to hurricanes in 2017, both of which were recognized during the six months ended June 30, 2019.

#### Income tax benefit (expense)

Income tax benefit increased for the three months ended June 30, 2020 primarily as result of a tax benefit related to operating losses from properties within our SHOP and CCRC segments and the tax expense from the gain upon change of control related to the acquisition of the outstanding equity interests in a senior housing joint venture in June 2019.

Income tax benefit increased for the six months ended June 30, 2020 primarily as a result of the tax benefits related to the purchase of Brookdale’s interest in 13 of the 15 communities in the CCRC JV, including the management termination fee expense paid to Brookdale in connection with transitioning management of 13 CCRCs to LCS, and the extension of the net operating loss carryback period provided by the CARES Act.

#### Equity income (loss) from unconsolidated joint ventures

Equity income (loss) from unconsolidated joint ventures decreased for the three and six months ended June 30, 2020 as a result of our share of net losses from an unconsolidated joint venture owning 19 SHOP assets that was formed in December 2019, partially offset by our share of a gain on sale of one asset in an unconsolidated joint venture during the first quarter of 2020.

### Liquidity and Capital Resources

We anticipate that our cash flow from operations, available cash balances and cash from our various financing activities will be adequate for at least the next 12 months for purposes of: (i) funding recurring operating expenses; (ii) meeting debt service requirements; and (iii) satisfying our distributions to our stockholders and non-controlling interest members. During the six months ended June 30, 2020, distributions to common shareholders and noncontrolling interest holders exceeded cash flows from operations by approximately $84 million. Distributions were made using a combination of cash flows from operations, funds available under our revolving line of credit and commercial paper program, proceeds from the sale of properties, and other sources of cash available to us.

Our principal investing liquidity needs for the next 12 months are to:

- fund capital expenditures, including tenant improvements and leasing costs; and
- fund future acquisition, transactional and development activities.

We anticipate satisfying these future investing needs using one or more of the following:

- cash flow from operations;
- sale of, or exchange of ownership interests in, properties or other investments;
- borrowings under our revolving line of credit facility and unsecured commercial paper program;
- issuance of additional debt, including unsecured notes, term loans and mortgage debt; and/or
- issuance of common or preferred stock or its equivalent.

Our ability to access the capital markets impacts our cost of capital and ability to refinance maturing indebtedness, as well as our ability to fund future acquisitions and development through the issuance of additional securities or secured debt. Credit ratings impact our ability to access capital and directly impact our cost of capital as well. For example, our Revolving Facility and 2019 Term Loan accrue interest at a rate per annum equal to LIBOR plus a margin that depends upon the credit ratings of our senior unsecured long term debt. We also pay a facility fee on the entire revolving commitment that depends upon our credit ratings. As of August 3, 2020, we had long-term credit ratings of Baa1 from Moody’s and BBB+ from S&P Global and Fitch, and short-term credit ratings of P-2, A-2, and F2 from Moody’s, S&P Global, and Fitch, respectively.

A downgrade in credit ratings by Moody’s, S&P Global, and Fitch may have a negative impact on the interest rates and facility fees for our Revolving Facility and 2019 Term Loan. While a downgrade in our credit ratings would adversely impact our cost of borrowing, we believe we continue to have access to the unsecured debt markets, and we could also seek to enter into one or more secured debt financings, issue additional securities, including under our 2020 ATM Program (as defined below), or dispose of certain assets to fund future operating costs, capital expenditures, or acquisitions, although no assurances can be made in this regard. Refer to “COVID-19 Update” above and “Item 1A, Risk Factors” for a more comprehensive discussion of the potential impact of COVID-19 on our business.

### Cash Flow Summary

The following summary discussion of our cash flows is based on the Consolidated Statements of Cash Flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.

The following table sets forth changes in cash flows (in thousands):

|  | Six Months Ended June 30, 2020 | 2019 | Change |
| --- | ---: | ---: | ---: |
| Net cash provided by (used in) operating activities | $319,823 | $380,560 | $(60,737) |
| Net cash provided by (used in) investing activities | (535,270) | (1,088,977) | 553,707 |
| Net cash provided by (used in) financing activities | 867,584 | 724,658 | 142,926 |

#### Operating Cash Flows

The decrease in operating cash flow is primarily the result of a reduction in income related to: (i) the termination fee paid to Brookdale in conjunction with the CCRC Acquisition, (ii) assets sold during 2019 and 2020, (iii) occupancy declines and additional expenses within our SHOP and CCRC segments related to COVID-19, and (iv) increased interest paid as a result of new debt issuances and debt assumed in conjunction with real estate acquisitions. The decrease in operating cash flow is partially offset by: (i) 2019 and 2020 acquisitions, (ii) annual rent increases, (iii) new leasing activity, and (iv) developments and redevelopments placed in service during 2019 and 2020. Our cash flow from operations is dependent upon the occupancy levels of our buildings, rental rates on leases, our tenants’ performance on their lease obligations, the level of operating expenses, and other factors.

#### Investing Cash Flows

The following are significant investing activities for the six months ended June 30, 2020:

- made investments of $1.2 billion primarily related to the acquisition, development, and redevelopment of real estate and funding of a new and existing loans; and
- received net proceeds of $662 million primarily from sales of real estate assets.

The following are significant investing activities for the six months ended June 30, 2019:

- made investments of $1.3 billion primarily related to the acquisition, development, and redevelopment of real estate; and
- received net proceeds of $179 million primarily from sales of real estate assets.

#### Financing Cash Flows

The following are significant financing activities for the six months ended June 30, 2020:

- made net borrowings of $214 million under our bank line of credit, commercial paper program, senior unsecured notes (including debt extinguishment costs) and mortgage debt;
- issued common stock of $1.1 billion; and
- paid cash dividends on common stock of $388 million.

The following are significant financing activities for the six months ended June 30, 2019:

- made net borrowings of $695 million under our bank line of credit, term loan, and mortgage debt;
- Issued common stock of $407 million; and
- paid cash dividends on common stock of $355 million.

### Debt

In June 2020, we completed a public offering of $600 million in aggregate principal amount of 2031 Notes.

In June 2020, using a portion of the net proceeds from the 2031 Notes offering, we repurchased $250 million aggregate principal amount of our 4.250% senior unsecured notes due in 2023.

Additionally, in July 2020, using a portion of the net proceeds from the 2031 Notes offering, we redeemed all $300 million of our 3.150% senior unsecured notes due in 2022.

See Note 9 to the Consolidated Financial Statements for additional information about our outstanding debt.

Approximately 96% and 87% of our consolidated debt, inclusive of $41 million and $42 million of variable rate debt swapped to fixed through interest rate swaps, was fixed rate debt as of June 30, 2020 and 2019, respectively. At June 30, 2020, our fixed rate debt and variable rate debt had weighted average interest rates of 3.84% and 1.18%, respectively. At June 30, 2019, our fixed rate debt and variable rate debt had weighted average interest rates of 4.04% and 3.31%, respectively. For a more detailed discussion of our interest rate risk, see “Quantitative and Qualitative Disclosures About Market Risk” in Item 3 below.

### Equity

At June 30, 2020, we had 538 million shares of common stock outstanding, equity totaled $7.7 billion, and our equity securities had a market value of $15.0 billion.

At June 30, 2020, non-managing members held an aggregate of five million units in seven limited liability companies (“DownREITs”) for which we are the managing member. The DownREIT units are exchangeable for an amount of cash approximating the then-current market value of shares of our common stock or, at our option, shares of our common stock (subject to certain adjustments, such as stock splits and reclassifications). At June 30, 2020, the outstanding DownREIT units were convertible into approximately seven million shares of our common stock.

#### At-The-Market Program

In February 2020, we terminated our previous at-the-market equity offering program and concurrently established a new at-the-market equity offering program (the “2020 ATM Program”). In addition to the issuance and sale of shares of our common stock, we may also enter into one or more forward sales agreements with sales agents for the sale of our shares of common stock under our 2020 ATM Program.

During the three months ended June 30, 2020, no shares were settled under ATM forward contracts. At June 30, 2020, approximately $1.25 billion of our common stock remained available for sale under the 2020 ATM Program. Actual future sales of our common stock will depend upon a variety of factors, including but not limited to market conditions, the trading price of our common stock, and our capital needs. We have no obligation to sell any of the remaining shares under our 2020 ATM Program.

See Note 11 to the Consolidated Financial Statements for additional information about our 2020 ATM Program, including equity sales during the three and six months ended June 30, 2020.

#### Shelf Registration

In May 2018, we filed a prospectus with the SEC as part of a registration statement on Form S-3, using an automatic shelf registration process. This shelf registration statement expires in May 2021 and at or prior to such time, we expect to file a new shelf registration statement. Under the “shelf” process, we may sell any combination of the securities described in the prospectus through one or more offerings. The securities described in the prospectus include common stock, preferred stock, depositary shares, debt securities, and warrants.

### Contractual Obligations and Off-Balance Sheet Arrangements

Our commitments related to development and redevelopment projects decreased by $17 million, to $344 million at June 30, 2020 when compared to December 31, 2019, primarily as a result of completed development and redevelopment projects, partially offset by additional development and redevelopment projects in the second quarter of 2020.

Our commitments related to debt have materially changed since December 31, 2019 as a result of paydowns on our Commercial Paper Program, the issuance and repurchase of senior unsecured notes in June 2020, and the redemption of senior unsecured notes in July 2020. As of June 30, 2020, we had no balance outstanding under our revolving line of credit or Commercial Paper Program. See Note 9 to the Consolidated Financial Statements for additional information about our debt commitments.

There have been no other material changes, outside of the ordinary course of business, to these contractual obligations during the six months ended June 30, 2020.

We own interests in certain unconsolidated joint ventures as described in Note 7 to the Consolidated Financial Statements. Except in limited circumstances, our risk of loss is limited to our investment in the joint ventures and any outstanding loans receivable. In addition, we have certain properties which serve as collateral for debt that is owed by a previous owner of certain of our facilities. Our risk of loss for these certain properties is limited to the outstanding debt balance plus penalties, if any. We have no other material off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources except for commitments and operating leases included in our Annual Report on Form 10-K for the year ended December 31, 2019 in “Contractual Obligations” under “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

### Non-GAAP Financial Measures Reconciliations

The following is a reconciliation from net income (loss) applicable to common shares, the most directly comparable financial measure calculated and presented in accordance with GAAP, to NAREIT FFO, FFO as Adjusted and AFFO (in thousands, except per share data):

|  | Three Months Ended June 30, 2020 | 2019 | Six Months Ended June 30, 2020 | 2019 |
| --- | ---: | ---: | ---: | ---: |
| Net income (loss) applicable to common shares | $51,131 | $(13,991) | $328,786 | $47,036 |
| Real estate related depreciation and amortization | 178,488 | 165,296 | 367,764 | 297,247 |
| Healthpeak's share of real estate related depreciation and amortization from unconsolidated joint ventures | 25,618 | 15,123 | 55,228 | 30,200 |
| Noncontrolling interests' share of real estate related depreciation and amortization | (4,980) | (5,013) | (10,023) | (9,934) |
| Other real estate-related depreciation and amortization | 891 | 1,357 | 2,128 | 3,442 |
| Loss (gain) on sales of real estate, net | (82,863) | (11,448) | (247,732) | (19,492) |
| Healthpeak's share of loss (gain) on sales of real estate, net, from unconsolidated joint ventures | (1,519) | — | (9,248) | — |
| Noncontrolling interests' share of gain (loss) on sales of real estate, net | (3) | 208 | (3) | 208 |
| Loss (gain) upon change of control, net(1) | (2,528) | (11,501) | (169,962) | (11,501) |
| Taxes associated with real estate dispositions | 335 | — | (11,540) | — |
| Impairments (recoveries) of depreciable real estate, net | 17,797 | 58,391 | 48,519 | 67,249 |
| NAREIT FFO applicable to common shares | 182,367 | 198,422 | 353,917 | 404,455 |
| Distributions on dilutive convertible units and other | — | 1,484 | 3,501 | 3,279 |
| Diluted NAREIT FFO applicable to common shares | $182,367 | $199,906 | $357,418 | $407,734 |
| Weighted average shares outstanding - diluted NAREIT FFO | 538,517 | 485,054 | 529,009 | 484,435 |
| Impact of adjustments to NAREIT FFO: |  |  |  |  |
| Transaction-related items(2) | $685 | $6,435 | $93,064 | $12,324 |
| Other impairments (recoveries) and other losses (gains), net(3) | 6,291 | 10,147 | (27,015) | 10,147 |
| Severance and related charges | — | 3,728 | — | 3,728 |
| Loss on debt extinguishments(4) | 25,824 | 1,135 | 24,991 | 1,135 |
| Litigation costs (recoveries) | 100 | (527) | 206 | (399) |
| Casualty-related charges (recoveries), net(5) | — | (6,242) | — | (6,242) |
| Foreign currency remeasurement losses (gains) | 143 | (159) | 153 | (187) |
| Tax rate legislation impact(6) | (697) | — | (3,589) | — |
| Total adjustments | $32,346 | $14,517 | $87,810 | $20,506 |
| FFO as Adjusted applicable to common shares | $214,713 | $212,939 | $441,727 | $424,961 |
| Distributions on dilutive convertible units and other | 1,834 | 1,446 | 3,390 | 3,226 |
| Diluted FFO as Adjusted applicable to common shares | $216,547 | $214,385 | $445,117 | $428,187 |
| Weighted average shares outstanding - diluted FFO as Adjusted | 544,018 | 485,054 | 529,009 | 484,435 |

65

|  | Three Months Ended June 30, 2020 | 2019 | Six Months Ended June 30, 2020 | 2019 |
| --- | ---: | ---: | ---: | ---: |
| FFO as Adjusted applicable to common shares | $214,713 | $212,939 | $441,727 | $424,961 |
| Amortization of deferred compensation | 4,984 | 4,308 | 8,972 | 7,898 |
| Amortization of deferred financing costs | 2,534 | 2,740 | 5,116 | 5,440 |
| Straight-line rents | (8,316) | (5,695) | (14,544) | (11,940) |
| AFFO capital expenditures | (18,781) | (19,513) | (40,572) | (38,733) |
| Lease restructure payments | 328 | 292 | 619 | 580 |
| CCRC entrance fees(7) | — | 4,845 | — | 8,340 |
| Deferred income taxes | (6,686) | (3,897) | (1,899) | (7,629) |
| Other AFFO adjustments(8) | 3,150 | (952) | 109 | (2,381) |
| AFFO applicable to common shares | 191,926 | 195,067 | 399,528 | 386,536 |
| Distributions on dilutive convertible units and other | 1,864 | 1,484 | 3,501 | 3,278 |
| Diluted AFFO applicable to common shares | $193,790 | $196,551 | $403,029 | $389,814 |
| Weighted average shares outstanding - diluted AFFO | 544,018 | 485,054 | 529,009 | 484,435 |

66

|  | Three Months Ended June 30, 2020 | 2019 | Six Months Ended June 30, 2020 | 2019 |
| --- | ---: | ---: | ---: | ---: |
| Diluted earnings per common share | $0.09 | $(0.03) | $0.63 | $0.10 |
| Depreciation and amortization | 0.37 | 0.36 | 0.79 | 0.66 |
| Loss (gain) on sales of real estate, net | (0.15) | (0.02) | (0.49) | (0.04) |
| Loss (gain) upon change of control, net(1) | — | (0.02) | (0.32) | (0.02) |
| Taxes associated with real estate dispositions | — | — | (0.02) | — |
| Impairments (recoveries) of depreciable real estate, net | 0.03 | 0.12 | 0.09 | 0.14 |
| Diluted NAREIT FFO per common share | $0.34 | $0.41 | $0.68 | $0.84 |
| Transaction-related items(2) | — | 0.01 | 0.18 | 0.02 |
| Other impairments (recoveries) and other losses (gains), net(3) | 0.01 | 0.02 | (0.06) | 0.02 |
| Severance and related charges | — | 0.01 | — | 0.01 |
| Loss on debt extinguishments(4) | 0.05 | — | 0.05 | — |
| Casualty-related charges (recoveries), net(5) | — | (0.01) | — | (0.01) |
| Tax rate legislation impact(6) | — | — | (0.01) | — |
| Diluted FFO as Adjusted per common share | $0.40 | $0.44 | $0.84 | $0.88 |

(1) For the six months ended June 30, 2020, relates to the gain on consolidation of 13 continuing care retirement communities ("CCRCs") in which we acquired Brookdale's interest and began consolidating during the first quarter of 2020. For the three and six months ended June 30, 2019, represents the gain related to the acquisition of the outstanding equity interests in a previously unconsolidated senior housing joint venture. Gains upon change of control are included in other income (expense), net in the consolidated statements of operations.

(2) For the six months ended June 30, 2020, includes the termination fee and transition fee expenses related to terminating the management agreements with Brookdale for 13 CCRCs and transitioning those communities to LCS, partially offset by the tax benefit recognized related to those expenses. The expense related to terminating the CCRC management agreements with Brookdale is included in operating expenses in the consolidated statement of operations for the six months ended June 30, 2020.

(3) For the three months ended June 30, 2020, represents additional reserves for loan losses under the current expected credit losses accounting standard in accordance with Accounting Standards Codification 326, *Financial Instruments – Credit Losses ("ASC 326")* and the impairment of an undeveloped MOB land parcel, which is classified as held-for-sale. The six months ended June 30, 2020 also includes additional reserves for loan losses under ASC 326 and a gain on sale of a hospital that was in a direct financing lease ("DFL"). For the three and six months ended June 30, 2019, represents the impairment of 13 senior housing triple-net facilities under DFLs recognized as a result of entering into sales agreements.

(4) For all periods presented, primarily represents the premium associated with the prepayment of senior unsecured notes and mortgage debt.

(5) For the three and six months ended June 30, 2019, represents incremental insurance proceeds received for property damage and other associated costs related to hurricanes in 2017.

(6) For the three and six months ended June 30, 2020, represents the tax benefit of the CARES Act extending the net operating loss carryback period to five years.

(7) In connection with the acquisition of the remaining 51% interest in the CCRC JV in January 2020, we consolidated the 13 communities in the CCRC JV and recorded the assets and liabilities at their acquisition date relative fair values, including the CCRC contract liabilities associated with previously collected non-refundable entrance fees. In conjunction with increasing those CCRC contract liabilities to their fair value, we concluded that we will no longer adjust for the timing difference between non-refundable entrance fees collected and amortized as we believe the amortization of these fees is a meaningful representation of how we satisfy the performance obligations of the fees. As such, upon consolidation of the CCRC assets, we no longer exclude the difference between CCRC entrance fees collected and amortized from the calculation of AFFO. For comparative periods presented, the adjustment continues to represent our 49% share of non-refundable entrance fees collected by the CCRC JV, net of reserves and net of CCRC JV entrance fee amortization.

(8) Primarily includes our share of AFFO capital expenditures from unconsolidated joint ventures, partially offset by noncontrolling interests' share of AFFO capital expenditures from consolidated joint ventures.

For a reconciliation of Adjusted NOI to net income (loss), refer to Note 13 to the Consolidated Financial Statements. For a reconciliation of Same-Store Adjusted NOI to total portfolio Adjusted NOI by segment, refer to the analysis of each segment in “Results of Operations” above.

### Critical Accounting Policies and Recent Accounting Pronouncements

The preparation of financial statements in conformity with U.S. GAAP requires our management to use judgment in the application of accounting policies, including making estimates and assumptions. We base estimates on the best information available to us at the time, our experience and on various other assumptions believed to be reasonable under the circumstances. These estimates affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, it is possible that different accounting would have been applied, resulting in a different presentation of our consolidated financial statements. From time to time, we re-evaluate our estimates and assumptions. In the event estimates or assumptions prove to be different from actual results, adjustments are made in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. A summary of our critical accounting policies is included in our Annual Report on Form 10-K for the year ended December 31, 2019 in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2 to the Consolidated Financial Statements. There have been no significant changes to our critical accounting policies during 2020 other than those resulting from new accounting standards (see Note 2 to the Consolidated Financial Statements).

## Market risk

As filed, 3,580 characters.

We are exposed to various market risks, including the potential loss arising from adverse changes in interest rates. We use derivative and other financial instruments in the normal course of business to mitigate interest rate risk. We do not use derivative financial instruments for speculative or trading purposes. Derivatives are recorded on the consolidated balance sheets at fair value (see Note 17 to the Consolidated Financial Statements).

To illustrate the effect of movements in the interest rate markets, we performed a market sensitivity analysis on our hedging instruments. We applied various basis point spreads to the underlying interest rate curves of the derivative portfolio in order to determine the change in fair value. Assuming a one percentage point change in the underlying interest rate curve, the estimated change in fair value of each of the underlying derivative instruments would not be material.

*Interest Rate Risk.* At June 30, 2020, our exposure to interest rate risk is primarily on our variable rate debt. At June 30, 2020, $41 million of our variable-rate debt was hedged by interest rate swap transactions. The interest rate swaps are designated as cash flow hedges, with the objective of managing the exposure to interest rate risk by converting the interest rates on our variable-rate debt to fixed interest rates.

Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt and assets until their maturity or earlier prepayment and refinancing. If interest rates have risen at the time we seek to refinance our fixed rate debt, whether at maturity or otherwise, our future earnings and cash flows could be adversely affected by additional borrowing costs. Conversely, lower interest rates at the time of refinancing may reduce our overall borrowing costs. However, interest rate changes will affect the fair value of our fixed rate instruments. A one percentage point increase or decrease in interest rates would change the fair value of our fixed rate debt by approximately $412 million and $450 million, respectively, and would not materially impact earnings or cash flows. Conversely, changes in interest rates on variable rate debt and investments would change our future earnings and cash flows, but not materially impact the fair value of those instruments. Assuming a one percentage point change in our interest rate related to the variable-rate debt and variable-rate investments, and assuming no other changes in the outstanding balance at June 30, 2020, our annual interest expense and interest income would increase by approximately $3 million and $1 million, respectively.

*Market Risk.* We have investments in marketable debt securities classified as held-to-maturity because we have the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are recorded at amortized cost and adjusted for the amortization of premiums and discounts through maturity. We consider a variety of factors in evaluating an other-than-temporary decline in value, such as: the length of time and the extent to which the market value has been less than our current adjusted carrying value; the issuer’s financial condition, capital strength, and near-term prospects; any recent events specific to that issuer and economic conditions of its industry; and our investment horizon in relationship to an anticipated near-term recovery in the market value, if any. At June 30, 2020, both the fair value and carrying value of marketable debt securities was $20 million.

## Controls and procedures

As filed, 1,854 characters.

*Disclosure Controls and Procedures.* We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2020. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2020.

*Changes in Internal Control Over Financial Reporting.* There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 15,613 characters.

We have described in Part II, Item 1A of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, the primary risks that could materially affect our business, financial condition, or future results. The risk factors described in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, updated the risk factors we previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019. The following further updates our previously disclosed risk factors:

### Risks Related to Our Business and Operations

**The COVID-19 pandemic and health and safety measures intended to reduce its spread have adversely affected, and may continue to adversely affect, our business, results of operations and financial condition.**

Beginning in late 2019, a novel strain of Coronavirus (“COVID-19”) began to spread throughout the world, including the United States, ultimately being declared a pandemic by the World Health Organization. Global health concerns and efforts to reduce the spread of COVID-19 prompted federal, state and local governments to restrict normal daily activities, and have resulted in travel bans, quarantines, and “shelter-in-place” orders requiring individuals to remain in their homes other than to conduct essential services or activities, as well as business limitations and shutdowns. This resulted in the closure of many businesses deemed to be non-essential. Although some of these restrictions have since been lifted or scaled back, a recent resurgence of COVID-19 has resulted in the re-imposition of certain restrictions and may lead to other restrictions being re-implemented in response to efforts to reduce the spread of COVID-19. These restrictions may remain in place for a significant amount of time, and continue to place a substantial strain on the business operations of many of our tenants, operators and borrowers. In many cases, these measures have limited and continue to limit the ability of our tenants and operators to conduct their normal businesses operations and comply with their rent and other financial obligations to us.

Within our SHOP and CCRC properties, average occupancy declined from 85.7% and 86.2% for the three months ended March 31, 2020, to 79.8% and 80.4%, respectively, for the three months ended June 30, 2020 and we expect occupancy rates will continue to decline for at least the duration of the COVID-19 pandemic due to a reduction in, or in some cases prohibitions on, new tenant move-ins due to “shelter-in-place” and local health department orders, stricter move-in criteria, lower inquiry volumes, and reduced in-person tours, as well as incidences of COVID-19 outbreaks at our facilities or the perception that outbreaks may occur. Outbreaks, which directly affect our residents and the employees at our senior housing facilities, have and could continue to materially and adversely disrupt operations. These outbreaks could cause significant reputational harm to us and our operators and could adversely affect demand for senior housing for an extended period. As of July 31, 2020, we had confirmed resident COVID-19 cases at 111 of our 218 senior housing properties. Our senior housing property operators are also facing material cost increases as a result of higher staffing hours and compensation, as well as increased usage and inventory of critical medical supplies and personal protective equipment. At our SHOP and CCRC facilities, we bear these material cost increases.

We temporarily suspended development and redevelopment projects in the greater San Francisco and Boston areas as a result of the “shelter-in-place” orders and local, state and federal directives. Our operators also temporarily suspended development and redevelopment across our senior housing portfolio for the same reasons, except for certain life safety and essential projects. Although these development and redevelopment projects have restarted with infection control protocols in place, future local, state or federal orders could cause us to re-suspend the work. Furthermore, construction workers are following applicable guidelines, including appropriate social distancing, limitations on large group gatherings in close proximity, and increased sanitation efforts, which has slowed the pace of construction. These protective actions do not, however, eliminate the risk that outbreaks caused or spread by such activities may occur and impact our tenants, operators and residents. In addition, our planned dispositions may not occur within the expected time or at all because of buyer terminations or withdrawals related to the pandemic, capital constraints or other factors relating to the pandemic.

Within our medical office portfolio, many physician practices temporarily discontinued or have reinstituted a discontinuation of nonessential surgeries and procedures due to health and safety measures, which has negatively impacted their cash flows. We implemented a deferred rent program for May and June 2020 that was limited to certain non-health system and non-hospital tenants in good standing, which reduced our second quarter 2020 cash flow. We may also determine to implement a deferred rent program for future periods. We are also experiencing and expect to continue to experience a decline in new leasing activity through the duration of the COVID-19 pandemic.

Within our life science portfolio, we may experience a decline in new leasing activity due to the COVID-19 pandemic. In addition, as a result of governmental restrictions on business activities, particularly in the greater San Francisco and Boston areas, we temporarily suspended development, redevelopment and tenant improvement projects at many of our life science properties. Although we have been able to restart these projects, future governmental restrictions may re-suspend them or suspend others. We are also experiencing time delays with our development, redevelopment, and tenant improvement projects due to the implementation of health and safety protocols related to social distancing and proper hygiene and sanitization.

The COVID-19 pandemic subjects our business and the businesses of our tenants and operators to various risks and uncertainties that have significantly affected and could materially adversely affect our business, results of operations and financial condition for at least the pendency of the COVID-19 pandemic and possibly longer, including the following:

- rent deferrals or delays in rent commencement for tenants may result in a significant decrease in our cash receipts during the period of the deferrals;
- material cost increases at our SHOP and CCRC facilities, for which we are responsible;
- non-payment of contractual obligations by our tenants or operators, and any limitations on our ability to enforce our lease agreements or management agreements with our tenants or operators, as applicable, as a result of any federal, state or local restrictions on tenant evictions for failure to make contractual rent payments, which may result in higher reserves for bad debt;
- our tenants, operators or borrowers becoming insolvent or initiating bankruptcy or similar proceedings, which would adversely affect our ability to collect rent or interest payments from such tenants or borrowers, as applicable, and result in increased costs to us, as well as decreased revenues;
- the complete or partial closures of, or other operational issues at, one or more of our properties resulting from government action or directives, which may intensify the risk of rent deferrals or non-payment of contractual obligations by our tenants or operators;
- any possession taken of our properties, in whole or in part, by governmental authorities for public purposes in eminent domain proceedings or any government mandate or action that requires the use of our properties for the care and treatment of patients suffering from COVID-19;
- the likelihood that we will amend existing lease agreements and existing rental terms, with our tenants, and management agreements and existing fee structures, with our RIDEA operators, particularly in our senior housing portfolio, which would have an adverse effect on our revenues and results of operations;
- increased costs or delays that may result if we determine to reposition or transition any of our currently-leased properties to another tenant or operator, which could adversely impact our revenues and results of operations;
- the impact on our results of operations and financial condition resulting from (i) suspensions or delays in development and redevelopment activities and tenant improvement projects, including due to local, state and federal orders or guidelines, delays caused by slow-downs in construction as a result of implementing social distancing and other health and safety protocols, or delays caused by a shortage of construction materials or labor, as well as potential postponement of rent commencement dates due to delays in tenant improvement projects, and (ii) a decrease in acquisitions and dispositions of properties compared to historical levels;
- reduced valuations for properties in our portfolio that we wish to sell, and potential delayed transaction timing due to government delays or government mandated COVID-related access restrictions;
- the need to provide seller financing in order to dispose of certain properties in our portfolio at acceptable prices;
- the impact on our tenants or operators, particularly in our senior housing portfolio, of lawsuits related to COVID-19 outbreaks that have occurred or may occur at our properties and the potential that insurance coverage may not be sufficient to cover any potential losses;
- material increases in our insurance costs and larger deductibles or the inability to obtain insurance at economically reasonable rates;
- significant expenses likely to be incurred in connection with our pursuit of creditor rights resulting from operator and tenant defaults and insolvency;
- a potential downgrade of our issuer and long-term credit rating following the change in our outlook from “stable” to “negative” by Moody’s, which could increase our cost of capital and any future debt financing;
- refusal or failure by one or more of our lenders under our credit facility to fund their financing commitments to us as a result of lender liquidity and/or viability challenges, which financing commitments we may not be able to replace on favorable terms, or at all;
- the likelihood that conditions related to the COVID-19 pandemic may require us to recognize additional impairments of long-lived assets or credit losses related to loans receivable;
- the impact on our business if our executive officers, management team or a significant percentage of our employees are unable to continue to work because of illness caused by COVID-19, as well as the significant time and attention devoted by our management team to monitor the COVID-19 pandemic and seek to mitigate its effect on our business;
- the deterioration of state and local economic conditions and job losses, particularly in San Francisco, San Diego and Boston, which may decrease demand for and occupancy levels at our life science properties and cause our rental rates and property values to be negatively impacted; and
- the potential for shifts in consumer and business behaviors that fundamentally and adversely affect demand for properties in our portfolio.

The impact of the COVID-19 pandemic on our SHOP and CCRC properties managed in RIDEA structures has had and may continue to have a more significant impact on our results of operations on a relative basis because we receive cash flow from the operations of the property (as compared to only receiving contractual rent from a third-party tenant-operator under a triple-net lease structure), and we also bear all operational risks and liabilities associated with the operation of those properties, other than those arising out of certain actions by our operator, such as gross negligence or willful misconduct. Accordingly, impacts from the COVID-19 pandemic directly affecting one of our SHOP and CCRC properties, including lower net operating income caused by decreased revenues that may result from declines in occupancy or otherwise, and increased expenses, has had and is expected to continue to have a more direct and immediate impact on our results of operations than such an impact affecting one of our triple-net leased properties in our senior housing portfolio. For example, increased operating expenses at our SHOP and CCRC properties, including due to labor shortages, as well as increased screening and protective measures intended to prevent an outbreak and/or slow the spread of a COVID-19 outbreak, has adversely affected and is expected to continue to adversely affect the cash flow from operations we receive from the affected properties. In addition, our RIDEA operators who are adversely affected by the COVID-19 pandemic may request revisions to their management agreements and existing fee structures in order to reduce the amount of cash from operations that flows directly to us. Because we bear all operational risks and liabilities related to our SHOP and CCRC properties, other than those arising out of certain actions by our operator, such as gross negligence or willful misconduct, we may be directly adversely impacted by potential lawsuits related to COVID-19 outbreaks that have occurred or may occur at those properties, and our insurance coverage may not be sufficient to cover any potential losses. The same factors may also affect our triple net lease tenants and may limit their ability to pay the contractual rent when due.

Additionally, the COVID-19 pandemic could increase the magnitude of many of the other risks described herein and elsewhere in this Quarterly Report may have other adverse effects on our operations that we are not currently able to predict. For example, we may be required to delay or limit our acquisition and disposition strategies in the short and medium-term by, for example, redirecting significant resources and management attention away from seeking attractive acquisitions and limiting any plans for dispositions given a potentially smaller pool of potential buyers who could face difficulties in obtaining financing, delays in transaction timing resulting from government mandated COVID-related access restrictions, and the potential negative impact the pandemic could have on the value of any assets we are seeking to sell. The COVID-19 pandemic has also resulted in significant volatility in the local, national and global financial markets, and we may be unable to obtain any required financing on favorable terms or on a timely basis or at all.

The extent of the impact of the COVID-19 pandemic on our business and financial results will depend on future developments, including the duration, severity and spread of the pandemic, resurgences of COVID-19 that have occurred in most states, health and safety actions taken to contain its spread, and how quickly and to what extent normal economic and operating conditions can resume within the markets in which we operate, each of which are highly uncertain at this time and outside of our control. Even after the COVID-19 pandemic subsides, we may continue to experience adverse impacts to our business and financial results as a result of its national and global economic impact. The adverse impact of the COVID-19 pandemic on our business, results of operations and financial condition could be material.

Filed Aug 5, 2020.
Source: SEC EDGAR, the filing index for accession 0001628280-20-011794. Last ingested by Listed: Nov 10, 2026, 05:05 ET. No prices; not investment advice.