Healthpeak Properties Inc

F:HC5

Earnings Call Transcript 2022-Q2

[Operator]

Good morning, and welcome to the Healthpeak Properties, Inc. Second Quarter Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Andrew Johns, Senior Vice President of Investor Relations. Please go ahead.

[Andrew Johns, SVP, IR]

Welcome to Healthpeak’s Second Quarter 2022 Financial Results Conference Call. Today’s conference call will contain certain forward-looking statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, our forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our expectations. A discussion of risk and risk factors is included in our press release and detailed in our filings with the SEC. We do not undertake a duty to update any forward-looking statements.

Certain non-GAAP financial measures will be discussed on today’s call. And in exhibit to the 8-K we furnished to the SEC yesterday, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. The exhibits are also available on our website at healthpeak.com.

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

[Tom Herzog, CEO]

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

First, a few highlights from the quarter. Our Q2 operating results and same-store growth came in stronger than we had expected, but this was offset by higher interest rates, and our FFO as adjusted came in right on target. We continue to have leasing and rate growth success in both our life science and MOB businesses.

Our CCRC business is seeing record entry fee sales, but is still facing some expense pressures. We reaffirmed our FFO as adjusted guidance, which has a few moving parts that Pete will explain shortly. And we have bumped our same-store guidance by 25 basis points at the midpoint, driven by medical office.

Regarding our development pipeline. We have placed into service our final building at the Boardwalk in Torrey Pines and a portion of Phase 2 of The Shore in South San Francisco. Both developments are 100% leased. In a recent lease, we executed at Vantage in South San Francisco, brought our $1 billion life science development pipeline to 81% pre-leased.

On the balance sheet front, we secured commitments for a $500 million term loan with maturities in 2027 and 2028, which will bring our floating rate debt down to our long-term target of 15%.

Turning to our new life science joint venture. Yesterday, we announced the formation of a JV with a leading sovereign wealth fund for seven planned redevelopment properties on our Pointe Grand campus in South San Francisco. We also signed agreements with the same partner, attempt to utilize a similar JV structure for the development of Phases 2 and 3 of Vantage. This agreement is subject to various closing conditions and is expected to close in the first half of 2023.

These JVs offer Healthpeak a number of strategic benefits and allow us to accelerate development and redevelopment of these key South San Francisco life science projects.

As to our announced share repurchase program, we believe our current share price does not reflect the inherent embedded value of our high-quality portfolios. Accordingly, alongside our ongoing accretive development pipeline, our strongest current investment is in our own stock. To that end, yesterday, we announced that our Board recently approved a $500 million stock repurchase program with potential for future expansion depending on market conditions and our share price. This program will allow us to take advantage of the dislocation between the applied cap rates in the private market versus the higher implied cap rate embedded in our recent share price. We intend for the buyback program to be funded solely with proceeds from less core dispositions and JV proceeds.

Finally, a word on our ESG accomplishments. Last month, we published our 11th annual ESG report, highlighting our 2021 achievements and outlining a variety of ambitious goals. ESG continues to play a pivotal role in our business strategy with continued focus on the E, the S and the G.

With that, let me turn it to Scott.

[Scott Brinker, President and Chief Investment Officer]

Thank you, Tom, and thanks, everyone, for joining.

Each segment delivered strong operating results above or in line with expectations. In life science, occupancy finished the quarter at 99%. Cash mark-to-market on renewals was positive 28%, and those leases were signed with zero TIs and no downtime.

Same-store growth was very solid at 4.3%. We estimate the mark-to-market across the entire portfolio is positive 25%. There’s variability by tenant so that number will bounce around from year to year. Our rent roll has exceptional credit at the top and strong diversification throughout. Our top four tenants are Amgen, J&J, Bristol-Myers and AstraZeneca, who account for 19% of our total life science rent. No other tenant accounts for more than 2%.

Leasing continues to be strong. We signed more than 500,000 feet of leases in the second quarter. To date in the third quarter, we signed another 400,000 feet and already exceeded our full year leasing budget. 90% of year-to-date leasing was done with existing tenants, a competitive advantage versus new entrants.

In Boston, we’ve already re-leased the 107,000 square-foot early vacate that we mentioned last quarter. The new rent is a positive 38% mark-to-market with a 12-year lease. The tenant is an existing relationship, a world-class company with a $200 billion market cap.

Lots of activity in South San Francisco, the birth place of biotech, where we enjoy number 1 market share. We signed a lease with a credit tenant for 154,000 feet at Vantage Phase 1, bringing that development project to 45% pre-leased. We continue to retenant our Oyster Point campus in advance of expirations. In June, we signed a new lease for 150,000 feet with a credit tenant to backfill the Rigel lease that expires in January 2023. And in July, we signed a 120,000 foot lease with an existing subtenant who will go direct when the Amgen lease expires in December 2023. 60% of the Oyster Point campus has now been re-leased, with the balance expiring over the next 18 months, so we’re making great progress.

In Raleigh-Durham, we signed a new 10-year lease with Duke for 166,000 square feet. We’ve now placed the two assets in the held for sale as we plan to crystallize the value creation of the new long-term lease to a credit tenant. It’s not a core market for us, and the assets should command strong pricing.

Turning to development. Our active pipeline remains generally on time and on budget. The blended return on cost equaled to 7.5%. To date, we successfully managed through the volatile supply chain and cost environment. We have essentially locked in our return on cost with GMP contracts and strong pre-leasing.

For the past year or two, we received many questions about the risk of new supply. As of today, that risk has significantly declined, driven by higher development costs and interest rates. Construction debt was in the high 3% range just a few quarters ago. That’s long gone with rates in the 8% range today, making new starts unattractive for levered developers. Fortunately, we’re not dependent on that lending market to fund our pipeline. It’s clearly a tighter market today. Sponsorship and location are now paramount, both for attracting financing and tenants.

On the demand side, the need for scientific innovation is not going away regardless of the economic cycle. Biotech capital raising is still occurring at a healthy level, combined IPO and venture capital investment year-to-date is below last year’s historic pace but is actually above the comparable period in 2019.

A number of our tenants have reported new fundraising in the past 45 days, both public and private. And looking forward, VC firms have completed $16 billion of new fundraising this year. That capital will be used for the next round of new company formation.

In South San Francisco, we estimate market rents are up low to mid-single digits year-to-date with 2.5 million square feet of current demand. Market rents are up low single digits in Boston year-to-date and active demand is at 3.5 million feet.

In San Diego, rents are up low single digits, and active demand is 1.3 million feet. These numbers are down from their all-time highs, but still very healthy by historical standards. So, when we look at the overall landscape with ongoing secular demand and the slowdown of future new supply, the outlook remains compelling.

Moving to medical office. We had a great quarter. Same-store NOI grew 4.5%, driven by leasing, recoveries, parking and Medical City Dallas. Leasing activity is ahead of budget. We signed 1.6 million square feet of leases year-to-date with another 1.1 million under letters of intent. Retention was 81%, a key metric given the cash flow on our renewals is more than 50% higher than new leases on average over the lease term. That’s driven by lower TIs and commissions and no downtime.

On-campus buildings have materially higher retention rates, which benefits our relative performance. Same-store growth has consistently been at or near the top of the peer group, and we pointed three fundamental reasons: one, our on-campus locations, less than 30% of the country’s inventory is on campus, by contrast, 81% of our portfolio is on campus, plus another 6% that’s adjacent; two, the profitability of our host hospitals, which, on average, have profit margins 1,500 basis points above the national average; and three, operating experience and relationships that span more than two decades.

Moving to CCRCs. The business is performing very strongly on a cash basis and meeting expectations on a GAAP basis. Entry fee cash receipts are up 30% year-over-year and exceeded the amount we recognized in earnings by $10 million in the quarter. The cash receipts will amortize over a 10-year average length of stay.

We continue to have pricing power, RevPAR was up 6% year-over-year, and there’s no discounting. New supply in our markets remains exactly zero, and we expect that to continue. We’ve now had five straight months of net positive hires, and contract labor is down 40% from the high point in March.

An update on the transaction market. Price discovery is still occurring, but based on changes in borrowing costs and return targets from the big institutions, we estimate cap rates have increased about 50 basis points from a year ago. That number varies by asset though, with core assets less impacted, especially those with mark-to-market potential.

We exited three noncore MOBs in the quarter for $26 million, recycling the proceeds into a core acquisition in the same amount, a relationship deal negotiated in late 2021 that fits our medical office strategy, on-campus and anchored by a leading local hospital.

Turning to the structured joint venture in South San Francisco, which we did with an existing partner. Their scale, time horizon and sophistication allows it to collaborate due to the inevitable real estate cycles. We’ll receive a preferred return that helps us offset the earnings drag of redeveloping seven buildings with 400,000 square feet at our Pointe Grand campus.

The venture allows us to retain majority ownership, earn fees, reduce our funding requirements and enhance our upside through a promote. The purchase price was roughly $1,050 per foot for buildings that are or will soon be vacant. The assets are 28 years old on average, so the JV will invest an additional $400 per foot to fully renovate and retenant the buildings over the next two to three years. The all-in cost implies a mid- to high 5s return on cost upon stabilization in 2025.

We’ve also reached agreement with the same partner to use a similar JV structure on Phases 2 and 3 of Vantage, the adjacent Class A development campus. The purchase price for the vacant land is dependent upon final entitlements and density, which should be finalized in the first half of 2023, at which point we intend to close.

This joint venture structure augments our ability to create value through development and redevelopment. We see numerous opportunities to grow the partnership over the next decade, allowing Healthpeak to grow our life science footprint beyond what we can accomplish on our own.

I’ll turn it to Pete to cover the balance sheet and guidance.

[Pete Scott, CFO]

Thanks, Scott.

Starting with our financial results. For the second quarter, we reported FFO as adjusted of $0.44 per share and total portfolio same-store growth of 3.7%. As Scott mentioned, our life science and medical office same-store results continue to reflect strong industry fundamentals and our leading platforms. Additionally, we had another strong quarter of CCRC entry fee sales. Last item under financial results. For the second quarter, our Board declared a dividend of $0.30 per share.

Turning to our balance sheet. We ended the quarter with a 5.1 times net debt-to-EBITDA and $2 billion of liquidity. In July, we secured commitments for $500 million of unsecured term loans, which are expected to close later this month and fund in the fourth quarter. We entered into a swap agreement fixing the rate on the term loans through a maturity at 3.5%.

Term loans will be split into two tranches with $250 million maturing in 2027 and $250 million maturing in 2028. The proceeds from these term loans will be used to reduce our commercial paper balance. We would like to give a special thanks to all the banks that chose to participate in the term loan offering.

Turning now to our 2022 guidance. First, as you can see from our results, our segment performance is strong. In medical office, year-to-date same-store growth of 4.1% is trending well above our initial guidance range. In life sciences, year-to-date same-store growth of 4.8% is trending above the midpoint of our initial guidance range. And in CCRC, year-to-date same-store growth of 6.2% is in line with our expectations. Our guidance assumes sequential growth in the second half of 2022 from a continued recovery in occupancy and improving labor costs.

Second, our development machine continues to deliver. With recent and near-term deliveries, including The Shore, the Boardwalk and 101 CambridgePark Drive, we should see a nice ramp-up in earnings as these projects come on line.

Third, we have $175 million of floating rate notes receivable and expect $2 million to $3 million of incremental earnings versus our initial guidance. However, we have seen approximately $0.02 of headwinds from increased interest expense and an additional $0.01 headwind from the previously disclosed early tenant vacate at 65 Hayden, which, as Scott mentioned, has been fully re-leased at a positive 38% mark-to-market.

Fortunately, though, the strong performance of our portfolio and platform offsets both of these headwinds. So with that as a backdrop, we are reaffirming our FFO as adjusted guidance of $1.68 to $1.74 per share. We are increasing our medical office same-store guidance range by 75 basis points to 3% at the midpoint, and we are increasing our blended same-store guidance range by 25 basis points to 4.25% at the midpoint. Please refer to page 38 of our supplemental for additional details on our guidance.

Finally, a few housekeeping items before turning to Q&A. First, to assist with modeling on our guidance page in the supplemental, we have added our LIBOR assumptions for the second half of 2022. Second, we recently sent out a save the date for a management presentation, property tour and reception in South San Francisco on November 14th, prior to NAREIT. A formal invitation will follow, but in the meantime, please reach out to Andrew Johns for additional details.

With that, operator, let’s open the line for Q&A.

[Operator]

[Operator Instructions] The first question today comes from Steve Sakwa with Evercore ISI. Please go ahead.

[Steve Sakwa, Evercore ISI]

Thank. Good morning. I guess, I wanted to focus on the life science and some of the comments, Scott, that you had on demand. Could you just elaborate a little bit more where you’re seeing and which markets, the best strength and maybe relative softness, if you will, or where there’s less demand and maybe characterize it by tenant type, whether it’s biotech, large pharma? Thanks.

[Scott Brinker, President and Chief Investment Officer]

Yes. Happy to take that one, Steve. I mean, demand remains strong, certainly by historical standards. If you look at the three markets where we have the big presence, Boston today still has the highest gross demand, it also has the highest new supply. And we have virtually nothing that we’re looking to lease today. Our development pipeline is 100%. Our operating portfolio is nearly 100% with no maturities for three years. So, we’re in pretty good shape when we had that tenant vacated early, we backfilled that within a couple of weeks. So, despite demand coming down a little bit in Boston, it still remains very strong by historical standards, and we just don’t have anything to lease in the near term. So, we’re not concerned about Boston at all in terms of our portfolio.

In San Diego, it’s a similar story. Our pipeline is 100%. Our operating portfolio is nearly 100%. And we don’t have much maturing through the end of 2024. So, we still feel really good about our footprint in San Diego, even though demand has come down a little bit.

And then, in South San Francisco, where we do have some maturities over the next couple of years, primarily Oyster Point and Pointe Grand, both in South San Francisco that we’ve talked a lot about in various meetings over the past couple of months, we’re making great progress.

Those campuses are A+ locations, but the buildings tend to be 25 to 30 years old. And that first generation build-out lasted a long time, and those buildings generated a lot of cash flow for Healthpeak investors over the years. But eventually, those systems, those TIs need to be replaced, and we just reached that point with both of those big campuses. But, our success to date in backfilling both campuses has been pretty astounding. And we are getting a mark-to-market pretty substantial with Pointe Grand, in particular. So, we feel really good about South San Francisco as well.

We just signed a big new lease at Vantage to bring that to almost 50% preleased, and it doesn’t open for another 15 months or so. So, great progress there. Year-to-date, our activity has been dominated by very large credit tenants. We are starting to see more interest from the more traditional Series A 20,000 to 50,000 foot users, to the extent we have availability. So, Bohn, anything you’d add to that?

[Scott Bohn, EVP and Co-Head of Life Science]

No, I think that was a great summary, Scott. I mean the only thing I would add, there’s been some significant deals done over the past kind of 60, 90 days in South San Francisco as well as Boston of great size. I mean, in Boston, there’s been six deals alone that totaled over 2 million square feet executed in the second quarter, three in the suburbs, three kind of in downtown Boston and Cambridge. And then, South San Francisco, as we mentioned, we’ve done three deals over 100,000 square feet. There was another deal on the Peninsula that was 300,000 square feet. So, a lot of good great leasing getting done. And as Scott mentioned, there’s a lot of new company formation, the smaller deals are certainly there as well.

[Steve Sakwa, Evercore ISI]

Okay. And just as a quick follow-up. On the supply front, I know Boston has kind of been the market people have been most worried about. Scott, are you seeing any signs of maybe some of these conversion projects or potential new developments fallen by the wayside, either because of financing issues or just cost increases that don’t make yields on cost pencil?

[Scott Brinker, President and Chief Investment Officer]

Yes. I mean, for sure, I mean there’s a period of time where virtually anything that got built would get leased just because the supply-demand was so tight. But if you look at new deliveries over the next two years in San Diego and Boston, in particular, almost half of it is conversion. And some of those are actually pretty well situated, but a lot of them will struggle to compete if the market isn’t quite as tight. We’ve seen that to date.

If you look in Boston, you’re right that there’s a lot of new supply coming. But at least for the 22 deliveries, the purpose-built new supply is about 90% pre-leased, whereas the conversions are about 30% pre-leased. So, you’re seeing a pretty noticeable difference in performance already.

And if you think about trying to get new projects financed today, I mentioned the change in construction lending rates and conversions, in particular, everything we’ve heard is that both the equity and debt sources are a lot less likely to proceed with those. And if so, it would be at much, much higher rates of return. So, I would expect that to fall pretty dramatically going forward, Steve.

[Operator]

[Operator Instructions] The next question comes from Adam Kramer with Morgan Stanley. Please go ahead.

[Adam Kramer, Morgan Stanley]

Just maybe following up a little bit. I think this was covered a little bit in Steve’s question just now or is first question rather. But I just wanted to ask about tenant health. I think a lot of focus on your stock and some of your kind of close peers has been kind of tenant health in the space, right, and kind of looking at whether it’s public or private funding for biotech companies or kind of the public market valuations for some of these maybe mid-cap or small cap companies. So, maybe just kind of talk a little bit about, maybe not kind of your biggest tenants, right, your kind of largest market cap tenants, but kind of the tail of tenants, right? Some of those may be smaller cap or mid-cap tenants. Maybe talk a little bit about kind of their health, their kind of need for space and kind of the demand there broadly?

[Scott Brinker, President and Chief Investment Officer]

Yes. I’m happy to start with that one. Scott’s speaking here. Yes, our watch list really hasn’t grown at all since the last quarter. Our collections remain at 99-plus percent. So really no change from last quarter. If anything, it’s been positive. A number of our companies have actually raised money. Year-to-date, in the first quarter, we had about $1.5 billion of fundraising in our portfolio. The second quarter was about the same at $1.5 billion. And in July alone, we had almost $800 million of fundraising within the portfolio, including some public offering.

So, that market isn’t shut. Certainly, companies that have good data readouts on their clinical trials are still able to raise financing, and we’ve seen that happen in our own portfolio. So, we actually feel really good about our portfolio. We talked about 99% occupancy for the operating portfolio, highly pre-leased development pipeline.

And you’ve heard us talk in the past about the quality of our space, both the locations as well as the build-ins and build-outs and the fact that it’s generally pretty reusable if we do have a tenant go out, [ph] which we’ve had one, and we backfilled that awfully quickly with a credit tenant.

So, we actually feel really good about the portfolio, but just the reality of the life science market, it’s a high-risk business in terms of the drug discovery process. not all of them are successful, which is why we’re so focused on being in the core markets with space that’s pretty generic and well located because the need for scientific innovation isn’t changing. So, a lot of money is being pumped into the sector. $16 billion of venture capital raised year-to-date. It’s a pretty big number, larger than any year on record, other than 2021. So, there’s still a lot of activity in the space, and rent collections remain strong.

[Adam Kramer, Morgan Stanley]

Thanks, guys. That was really helpful. Maybe just switching gears to kind of the CCRC portfolio. Look, I think kind of -- a lot of the demand drivers there and looking at some of the public kind of pure-play peers in senior housing. Clearly, a lot of the demand kind of driving there. But, maybe just wanted to ask about kind of CCRC within kind of your portfolio, right? How does it kind of fit in with the MOB and with the Life Science portfolio? Why is it something you guys are kind of attracted to? And is it something that you would kind of -- how would you kind of rank, I guess, kind of growing the CCRC relative to life science and MOB?

[Tom Herzog, CEO]

Yes. This is Herzog. Yes, so for CCRCs, they represent about 10% of our company. As far as how they fit in, we own on a portfolio that is irreplaceable at this point in time. You just literally get no new supply coming up against it. It has that 8- to 10-year length of stay with the younger, healthier seniors produces some very high-quality cash flows. The entry fee creates a great stickiness to those tenants.

And then, we’ve got the strong baby boomer tailwinds. Lots of land, these things are -- of the 15 that we have, they sit in 700 acres plus of infill land, and their replacement cost would be 3 times our basis. So, impossible to replicate. It’s hard for another company to come into it because it requires so much scale and a platform. So, we do feel really good about the business as far as the yield that it produces, we’ve got $20 million to $40 million of upside in that business.

And to your comment about are there synergies relative to the rest of our business? There’s some back office synergies and whatnot, but not dramatically. The life science and MOBs have much, much greater synergies fit better together. But the yields that we’re receiving relative to the cap rates of the assets have traded at historically, have been very, very strong. Now, it’s entirely possible, and we believe that cap rates are starting to decline in CCRCs because of the benefits of the product. So, we’ll see what that looks like in the future. But as of now, it’s a nice part of our portfolio, although a small loan.

[Operator]

The next question comes from Daniel Bernstein with Capital One. Please go ahead.

[Daniel Bernstein, Capital One]

I’ll stick with the CCRCs just for a second. I just wanted to understand kind of what you’re embedding in guidance for entrance fees -- net interest fees on a cash basis? And how you’re thinking about that with higher interest rates and maybe the home market is slowing down a little bit?

[Scott Brinker, President and Chief Investment Officer]

Yes. Hey Dan. Happy to take that one. Yes, June was one of our best months ever in terms of sales, both the number of sales as well as the price points, and everything we’ve seen so far in July suggests that it’s going to be ahead of expectations as well. So, we feel good about that product.

I think just in general, there’s a housing shortage in a lot of markets, including the 15 CCRC markets that we have, which are dominated or concentrated in Florida. So, that bodes well for housing prices hopefully being pretty sticky, even if interest rates do stay a little bit higher. And with construction cost just going up, there’s not a whole lot being built in Florida right now. Certainly, no CCRCs, but probably not a whole lot of housing, either especially in these infill locations, like our buildings are at and where residents come from. So, we feel pretty good about ongoing demand.

We’ve also got a pretty big cushion when you think about the fact that our cash gen range was almost $30 million in the quarter, and our amortization was $20 million. So, in terms of the impact on earnings, there’s a huge cushion. But obviously, we’re pretty focused, if not solely focused on the cash collections, which remains strong and the outlook remains strong.

Another point I’d mention, Dan, is that we’re not targeting a super, super affluent resident here. Our average entry fee on a net basis is a little bit below $200,000. So, we’re targeting, for the most part, residents that are selling homes in the $300,000, $400,000, $500,000 range. There’s still pretty broad demand for housing at that price point and all those residents are sitting on massive gains on their housing, even over the past couple of years. So we still feel like the demand outlook is really strong.

[Daniel Bernstein, Capital One]

Okay. And then, one quick question on the MOBs. Expenses have been elevated, but it seems like year-over-year growth has come down a little bit. Do you have any specific -- and knowing that many of your tenants are triple net, do you have any specific expense initiatives in the MOB space you can talk about?

[Tom Klaritch, COO]

Hi Dan, this is Tom Klaritch. We have a number of initiatives. Every year, we have our green budget or green initiatives, and we really focus on investing in technology in our buildings that will lower our utility expense.

So, if you look at things like energy management systems, LED retrofits, even films on windows will help us do that. So, we target that every year. And then, in all of our markets, we have fairly good concentrations, and we focus on regional and in some cases, national contracts. For example, we have an elevator contract that’s national, a lot of regional cleaning contracts and the like and certain repair and maintenance items. So, that’s typically where we target our expense initiatives.

And quite frankly, we have a great risk management department, and our insurance increases have been less than the industry averages. So, we benefited from that. So there’s a number of areas that we focus on in that.

[Operator]

The next question comes from Connor Siversky with Berenberg. Please go ahead.

[Connor Siversky, Berenberg]

Just one quick question on the buyback. You talked about it previously. But, in terms of funding the potential buyback, and would that be through the sale of assets, core or noncore? And then, how would that relate to -- potentially allocating capital to, say, MOBs if we’re in a rising rate environment and you start to see rates tick up in that asset class?

[Tom Herzog, CEO]

Yes, Connor, it’s Tom Herzog. Yes, you stated it right. The buybacks would be funded solely from less core asset sales or JV proceeds. It’s not our intention to lever up. In fact, that’s why we didn’t start the program earlier in June when we had noted the share price decline, and it was harder to figure out what NAV was or just for no transactions. But, as we sit here today, we’re clearly trading below NAV. We have an implied cap rate inside of our stock that’s higher than the applied cap rates on a risk-adjusted basis in the private market. So, there’s probably some benefit there.

As far as the allocation of capital part of your question, the two places that we’ll be allocating capital as we sit here today on an ongoing basis, of course, it’s in our accretive development pipeline, side by side with -- if the market conditions dictate that we would have an accretive NAV and FFO as adjusted impact, from repurchasing shares, we will be doing that, too. But only from proceeds, not from levering up.

As it applies to MOBs and the yields on those assets, MOBs, if we end up getting really great returns relative to our cost of capital, that could shift it. In fact, just in general, if we started achieving a share price that was strong trading at a premium, we would go back into growth and acquisition mode relatively quickly. So that applies to MOBs or life science.

And then, the last thing I’d mention is, depending on how long this persists and I don’t expect it’s going to persist long enough maybe for this to matter, but if we got to a place where debt rates on new bonds in the future were expensive relative to cap rates inside of our portfolio, some of the proceeds could be allocated toward putting less debt in place as well. So, we’ve got all those different tools that we would utilize to optimize our outcome.

[Connor Siversky, Berenberg]

Got it, understood. And just quickly back to life science, apologies if I missed this earlier. But trending above guidance year-to-date, and it was mentioned that the watch list may have improved since NAREIT. I mean, what do you need to see maybe to up the guidance number for life science same-store growth towards the end of the year?

[Tom Herzog, CEO]

Either Brinker or…

[Pete Scott, CFO]

I can take that. It’s Pete. Connor, as I mentioned, we’re at around 4.8% relative to our guidance of 4% to 5%, 4.8% is year-to-date. I think another quarter of performance makes sense before we assess any changes to that guidance.

As Scott said, we do see some improvement from a capital-raising perspective from our tenants, and we’re highly occupied up at the 99% level. So, Hopefully, next quarter, we can reassess what we’re going to do with that, but we’re pleased with where we’re trending and some of the improvements since we all last spoke at around NAREIT. But at this point in time, we thought it was premature to reassess that and make any changes.

[Operator]

The next question comes from Steven Valiquette with Barclays.

[Steven Valiquette, Barclays]

I guess, circling back on the medical office portfolio, I’m actually looking at the fact that the SS NOI, growth has actually accelerated for third, fourth quarter in a row. I guess, I’m just curious to hear more about what’s driving the same-store growth acceleration? Is it just driven more by just higher rent escalators on new releases this year? And just remind us for the overall MOB portfolio, what percent of the annual leases have rent escalators that go into effect on Jan 1 each year versus how much goes into effect midyear, just rough approximation, just to frame that a little bit better for us? Thanks.

[Tom Klaritch, COO]

Sure, Steve. This Tom Klaritch. Really, we’ve seen most of our major drivers positive this quarter and really last quarter also. Our in-place escalators average 3.1%. That was pretty much driven by inflationary impact on the CPI leases, but also our mark-to-markets are averaging 2.4% year-to-date. And on a trailing 12-month basis, they’re actually in the 3-plus percentage range. So really good there.

Occupancy is trending ahead of where we were last year, on an occupied square foot basis, we’re about 65,000 square feet ahead. So that was also positive. And then our Medical City Dallas ad rent was up as well as parking income.

The other thing that’s a driver this year that is ahead of where we expected it to be was the percentage of expenses we get recovered. Last year, we were running in the kind of mid to upper 48% range. This year, we’re at 50.5%. So we’ve seen improvement there. So, on our expenses, we’re seeing better returns from the tenants on that. And that’s primarily driven by a shift in our leasing from some gross leases where we were at 6.8% last year, we’re 5.7% this year, and they moved to the net structure. So, that was positive.

And then, on the annual increases, the fixed increase and CPI increases, typically, it’s close to 50% that roll in January, give or take, all of our Medical City Dallas leases, which is about 750,000 square feet, they all roll on Jan 1 and a good percentage of our other leases roll. So, I’d say, it’s around the 50% mark.

[Operator]

The next question comes from John Pawlowski with Green Street.

[John Pawlowski, Green Street]

Just a few questions from me on the transaction market. Could you quantify the size of the pool dispositions you have teed up right now?

[Scott Brinker, President and Chief Investment Officer]

Yes. John, I’m not going to comment on a specific number. We did put the two assets in Durham in held for sale. So, those are definitely assets that we’re looking to sell. We talked about having a second phase of this joint venture in South San Francisco. So, that would likely close in the first half of 2023. So, that’s kind of in process. But, I won’t state a specific number yet just because it’s dependent upon entitlements and density. And then, there are some other things that we’re in the stages of evaluating, but nothing that’s far enough along that we would comment on, on this call.

[John Pawlowski, Green Street]

Okay. On the Durham sale, could you give us a rough sense of cap rate you expect to transact at?

[Scott Brinker, President and Chief Investment Officer]

We haven’t engaged with sellers yet. So, I’ll probably hold off from commenting on cap rates, but that’s a long-term lease to a high credit tenant in a growing market. So, we would expect that to be a sought-after asset.

[John Pawlowski, Green Street]

Okay. Final one for me. Scott, I’m curious what your team is seeing in land values, given the spike in construction costs you referenced just higher interest rates in general? So, any shift in land values the team has seen in your core markets?

[Scott Brinker, President and Chief Investment Officer]

Yes. We’re not actively in the market looking for land just given the size of our densification in land bank footprint. We’ll have better price discovery when we’re able to talk about details on the Phase 2 of this joint venture in South San Francisco. But obviously, we would not have moved forward with that if we didn’t feel like the land value was being priced at a level that we found to be attractive and adequate.

[Operator]

The next question comes from Juan Sanabria with BMO Capital Markets. Please go ahead.

[Juan Sanabria, BMO Capital Markets]

I’m just hoping we could talk about the joint venture, the new one you guys announced and maybe just a bit more background on the strategic thinking as to kind of why target the highly valuable life science opportunities versus maybe joint venturing existing assets that can maybe CCRCs, which are a much smaller piece of the portfolio. I’m just curious as to the impact on leverage and with and without the joint venture, kind of how the math changes in your mind and as part of the strategic rationale for doing this now?

[Tom Herzog, CEO]

Yes. This is Tom Herzog again. Juan, lots of stuff in there. Let me see if I can catch all the pieces that you mentioned. Let’s start with the rationale for doing the JV in life science, so when -- you’ve got to back up to the opportunity set that we’ve been describing for the last couple of years where we’ve got a $10-plus billion opportunity in land bank development and densification at the pacing that we would be completing that, that’s -- it’s probably a 10- to 15-year endeavor, which is an awful long time. Even from an investor standpoint, it gets hard to look out 10, 15 years.

So, we were -- and the other thing I would add is it’s not like once we’ve got that opportunity that we will not identify other parcels at times that are approximate to our existing clusters, which we have many. So, we still have future growth. So, by doing JVs, it’s not like we’re really giving anything up. We’re just able to accelerate the benefit and share some of the risk and the upside with a strong JV partner.

And we’ve looked at development in general, especially in life science. We looked at a number of constraints, and I’ve mentioned these in the calls in the past, is we look at demand supply in any particular market, we look at the amount of pre-leasing that’s in place, we always look internally very carefully at our funding and sources and uses and make sure we have that figured out.

And then, we have to balance it against the amount of drug that we’re willing to take on. And as you know, as you increase the size of a program that increases the amount of drag, reduction in earnings growth, timing of dividend growth, et cetera. So, we concluded that with the size of the opportunity in front of us that there would be some real advantages to taking on a strong partner that has good cost of capital that allows us to move faster and specifically, in South San Francisco is the one that we focused on at this point. We’ve got Pointe Grand brand. We’ve got Vantage. We’ve got Oyster Point. And so, that’s a lot to do all at one time. And the demand-supply characteristics in that market for us, for the locations that we have, are very favorable, and we wanted to take advantage of them.

So by taking on a joint venture partner, it allows us to share the funding, share the risk, share the upside. We get to earn some fees. We have an opportunity for promote, the waterfall, which we’re not going to get into the details on the specifics due to confidentiality with our partner. But they’re preferreds in the waterfalls, and that can take the edge off of our drag. So, there were a variety of good reasons for us to take a joint venture partner on to do more together than we could do on our own. So, that was the rationale behind the JV and why life science.

As far as existing assets, that’s a different animal. I mean there can be circumstances we’re doing a JV on a stabilized asset, makes sense. That’s going to be a pure pursuit-type JV, maybe earn a little asset management fee. You would do that if you needed the capital, which based on how we’re lining this out, I think we’re quite comfortable with where we’re at from a sources and uses perspective.

So, that doesn’t do us a lot of good, unless, of course, we want to fuel some share repurchases that are accretive, could be considered. You mentioned CCRCs, well, that could be on the table at some point, a JV where we maintain the platform. We have a great platform and team. And -- but to JV, that is something that could be considered.

And as far as impact on leverage, it really has no impact on leverage. We did this very intentionally where we didn’t start the program until we knew we were at a strong enough discount to NAV, and we looked at the implied cap rates on assets in the market versus our shares and came to the conclusion that the timing is now right. But, everything we are doing is going to be based on recycling capital on less core assets or JV. I like the JVs because it retains our -- effectively our assets under management and the scale, which we like. And so, that’s where we would drive those proceeds, but that would not involve us levering up.

[Juan Sanabria, BMO Capital Markets]

And then just one quick follow-up. I think you mentioned an incremental drag from initial expectations on the tenant that left early in Boston. I was just hoping for a little color on that.

[Tom Herzog, CEO]

Yes. The bottom line is we had a tenant that fell out, 65 Hayden. We got it re-leased within literally a couple of weeks. There’s a 38% mark-to-market. It’s going to be a very good thing for us over the next 10 years. But for 2022, we simply have downtime, so it cost us a $0.01. So, it cost us $0.01 in 2022 and then we’ll have upside going forward, that simple.

[Operator]

The next question comes from Vikram Malhotra with Mizuho. Please go ahead.

[Vikram Malhotra, Mizuho]

Just I want to go back to sort of the life sciences outlook you highlighted. At NAREIT, you were fairly clear or, I guess, specific on the watch list, the monitoring list, the impact to heels and development timing. I guess, I just want to make sure I’m clear. Are you saying the outlook has now improved and all those three things are not as impactful or not as impacted? And if so, can you give the specific contribution you anticipate on the -- from the development side over the next 12 months?

[Scott Brinker, President and Chief Investment Officer]

Vikram, I’ll start with that. I mean certainly, in the public markets, the outlook is a lot more favorable today for biotech, certainly off still the 2021 highs, but up 25%, 30% in the last 45 days or so, depending upon which index you want to monitor. So, that’s a pretty dramatic change and a positive one.

We also have not had any other material tenant defaults, which allowed us to print a good number here in the second quarter and have a good outlook for quarters three and four as well. But on balance, I’d just ask you to keep in mind that we also said at NAREIT that public market financing is just one component of the funding that comes into the life science industry with venture capital partnerships, M&A, NIH funding, all being the majority of the funding, and that had all remained quite strong. We’ve seen that continue to happen. So, there’s really no change on that side of the equation. If anything, those big venture capital firms who raised even more money for new fundraising in the past couple of months that will be used for the next round of investment. So, we feel good on that side.

On development, we talked about our current pipeline of $1 billion being 81% pre-leased, all fully bought out. So, we have certainty on cost, and we’re underwriting a 7.5% yield, which is pretty strong. It’s also high because of our land bank.

I think the point was more if you had to go buy land at today’s market value and enter into construction contracts today as opposed to 12 to 18 months ago. The cost is going to be higher depending on the market, but probably 10% to 20% higher. And to date, rents had kept up throughout 2021 and the early part of ‘22. I’m not sure that’s the case today as construction costs continue to climb, although we do see some light at the end of the tunnel.

So, the point was more, it’d be hard to recreate that return that we’re going to get on our current pipeline, if you had to go buy land at today’s market value and enter into construction contract today. It depends on the market and the project, but at fair market value, underwritten yields are probably more in the 6% to 6.5% range today for a new entrant. Fortunately, most of what we’re going to be doing is going to be through our land bank. So hopefully, our yields are going to still being pretty strong.

[Vikram Malhotra, Mizuho]

Okay. And just to clarify that point. So, in your guidance for same-store in the life sciences in the second half, you’re not baking in any credit issue or occupancy loss versus maybe sort of what you were anticipating at NAREIT?

[Pete Scott, CFO]

I think that’s right, Vik. We always have a little bit of credit cushion within our numbers, but nothing material has occurred since NAREIT. So, there is a little bit of that remaining at this point in time. But as the year concludes, we will release some of that to the extent that we don’t need it. So, there’s a little bit of cushion in the numbers for the balance of the year. And hopefully, we don’t need it. But more to report as the year progresses.

[Vikram Malhotra, Mizuho]

Okay. That’s helpful. And then just last question. You talked a little bit about the impact from the tenant that you backfilled, the $0.01 or so into ‘23. And then, you -- obviously, you talked about rates. Can you maybe just -- obviously, you won’t give us guidance now, but some of your peers, given the volatile environment of the market funding rates and sort of given bigger blocks we should think about going into ‘23, so is it fair to say if the curve -- obviously, the curve can change. But if things stay the way they are, how should we think about the rate impact into ‘23? And then, any other bigger building blocks you’d flag for us as we think about modeling next year?

[Pete Scott, CFO]

Yes. Hey Vikram, it’s Pete up. I’ll take a stab at that one. At this point in time, we’ve got great portfolios with our three segments, and we think those should generate some pretty strong same-store growth through the cycle. So, that’s point one, I’d probably factor in as you’re looking at year-over-year growth.

Two, we should have some nice earn-in from our development platform, especially this year, we’ve got some pretty big projects coming on line throughout the course of the year, that being the Boardwalk as well as the latter phases of The Shore.

And then, we talked a bit about this as well. We still have the CCRC upside of $20 million to $40 million. We won’t get that all in one year, but certainly, we see improved performance in ‘23 relative to ‘22 based upon what we’re seeing today.

A couple of headwind items. You mentioned interest rates. For the first half of the year, LIBOR was around 1% from us, a little bit south of that. We modeled the forward curve. We actually put what our LIBOR assumptions are for the second half of the year, which follows the forward curve. That’s a little bit north of 3%.

So, as I said, we were at a little south of 1% in the first half, a little north of 3% for the second half. So, I would certainly factor that in. As you look at our average rate for the year relative to what the forward curve says for 2023, again, we did not put what 2023 LIBOR assumptions are, but you guys could look at the forward curve.

And then the last thing I would point out we did in our NAREIT deck include the Oyster Point redevelopment economics. I think that’s something that, as you look at the year-over-year growth in ‘23 and ‘24, we certainly are not dealing with linear growth of 5% plus on that campus. There is some downtime with regards to some of the leases there. So, I would focus on that and then look at 2025, importantly, where once that campus is stabilized, we will see some pretty significant growth in 2025. I know you didn’t ask about 2024 or 2025, but I did want to point that out. So, I think those are the building blocks that would give you now, again, it’s a little premature to start talking about more detail at this point in time, but that’s probably the right way to start framing 2023.

[Tom Herzog, CEO]

Just to let you know, we have eight more people in the queue. We’d like to get to everybody. Maybe just give us your top question and we’ll expedite our answers as well.

[Operator]

The next question comes from Joshua Dennerlein with Bank of America. Please go ahead.

[Joshua Dennerlein, Bank of America]

Let me go back to JV. So, if I recall correctly, I think you had scaled back the plans that you’re putting in the first JV on like how big you’re building the assets. Was that driven by kind of the discussions with the JV, or were there any plans to kind of stick with your original kind of bigger initial plans?

[Tom Herzog, CEO]

Hey Josh, it’s Tom Herzog again. We looked at the changing landscape in biotech and recognize that there would be some real benefit based on the supply and demand in the market to get some product to market quicker. And Pointe Grand was perfect for that because we can get product to market in 12 to 18 months at a B plus type rate in an A plus location. And we thought that was important for what we were talking to different biotech CEOs as to the type of space that they would be looking for, smaller floor plates and a little lower entry point knowing that we’d have the A plus product next door at Vantage and the A minus at Oyster Point. So that’s what caused us to make the shift.

When we were working on the partnership with our sovereign wealth partner, we were actually working on that when we were at NAREIT talking about these things, but of course, couldn’t speak to it. We were also in discussions with them as to what they thought fit best and they agreed with that approach. So, that’s where we fell out on that.

[Operator]

The next question comes from Nick Yulico with Scotiabank. Please go ahead.

[Nick Yulico, Scotiabank]

Just realizing occupancy is high and life science collections are high as well, you mentioned earlier. But as we think about the watch list, can you frame out just what exactly the watch list is right now as a percentage of the portfolio as we think about capital markets are difficult? If we hit a recession, historically, how we should think about potential occupancy loss going forward?

[Scott Brinker, President and Chief Investment Officer]

Yes. Hey Nick, Scott here. I mean, it’s still less than 5% of the portfolio. And it’s somewhat subjective because each company’s situation is unique, and we’re doing certainly a deep dive on any company that’s even close to that category just to understand all the specifics. But, we overlay that against just some general parameters that we apply across the portfolio to try to sort the risk and manage the risk, cash balance, certainly whether they’ve asked for a termination in some cases or if they’ve done employee layoffs, coupled with lack of cash balance or market cap.

So, there’s a variety of things that we’re looking at to proactively manage that risk. But if anything, things are a little bit better today than they would have been 2 to 3 months ago, Nick.

[Tom Herzog, CEO]

And Nick, not to understate the risk, but there’s always some risk taking biotech tenants on, depending on the stage that they’re at in their drug development. So, we expect some of that type of movement. But at the same time, you end up with some very outsized growth within these clusters from those very type of tenants. So, that’s always been part of what we’re dealing with.

Just with the market dynamics over the last year or so, we had extended up a little bit higher watch list. But Scott said it’s under 5%, it’s more in the 3% range. So, this isn’t a big concern, but just one that we’re keeping an eye on.

[Operator]

The next question comes from Michael Carroll with RBC Capital Markets. Please go ahead.

[Michael Carroll, RBC Capital Markets]

Can you provide some color on how your underwriting differs at the Pointe Grand redevelopment site versus the Vantage site? I mean, what’s the difference between the face rents? And the tenant taking space, I mean, is there a TI commitment like their responsibility differ between the Pointe Grand and the Vantage developments?

[Scott Brinker, President and Chief Investment Officer]

Yes. Bohn, do you want to take that?

[Scott Bohn, EVP and Co-Head of Life Science]

Sure. Hey Michael, Scott Bohn. I’d say the difference between the Vantage and Pointe Grand start with the TIs. At Vantage, our typical TIs on our developments have been -- we’ve provided have been in the high hundreds, the $175 to $185 range historically. And the total to build out those spaces is probably $350 a foot today. So, there’s a really significant tenant contribution on the new developments. Whereas at Pointe Grand, we’ll be much closer to getting to -- getting the tenant, I should say, to -- closer to a turnkey, maybe not all the way there, but there will be much less tenant contribution there. So, the rent will reflect that. So, on a monthly basis at Pointe Grand, you’re probably in the high-6s to low-7s and then depending on just how much TI we do put in on those. Whereas at Vantage, you’re in the mid-7s, but a much bigger tenant contribution from a capital standpoint.

[Operator]

The next question comes from Tayo Okusanya from Credit Suisse. Please go ahead.

[Tayo Okusanya, Credit Suisse]

So, quick question. Just kind of given the JV strategy in South San Francisco, does that make you think any differently about how you would kind of fund or approach the ultimate redevelopment in…

[Tom Herzog, CEO]

Tayo, that’s a great question. That’s certainly something we could consider, but it would be premature for us to get into any detail on that. But that is a possibility. So, we’ll see what happens.

[Operator]

The next question comes from Dave Rogers with Baird. Please go ahead.

[Dave Rogers, Baird]

Yes. Hey Tom, maybe this is for you. You talked about the joint ventures really being able to accelerate that 10- to 15-year time frame for development. I mean, does that mean that we would expect the development -- redevelopment pipeline to kind of move from $1.2 billion to like $1.7 billion, $1.8 billion in a pretty short order, getting that 10 to 15 years down to 7 to 10. I mean, is that kind of a goal here in the next, say, 6 to 12 months or 12 to 18 months to really push that pipeline to a much larger number with that excess outside capital?

[Tom Herzog, CEO]

Yes. Hey Dave. Yes, I think that you could see the pipeline itself increase the amount of spend that we are incurring, might be similar to what we’ve had in the past. It might be in that $0.5 billion range, maybe a little bit bigger. And it could shift that 10 to 15 years to 7 to 10, depending on how much we expand program with our sovereign wealth partner. So, that’s yet to be determined, but I think the magnitude of estimates that you just put forth are probably not out of line.

[Operator]

The next question comes from Michael Griffin with Citi. Please go ahead.

[Michael Griffin, Citi]

Maybe to circle back on transaction activity. I’m curious, obviously, volumes have seemed to have kind of been muted for this year, but can you maybe give a sense of sort of -- have you seen any assets trade sort of where cap rates might have gone, expanded where they are relative to the past couple of months?

[Scott Brinker, President and Chief Investment Officer]

Yes. I can start with that one, Michael. I mean, projects that are well located and have good sponsorship still get done. So, I think Pointe Grand is a good example of that. And as I mentioned in the remarks, I mean, that was underwritten to a stabilized yield in the mid- to high-5s on a project that if everything goes to plan, would stabilize in 2025, so call it, three years forward looking. So, we feel like that’s a pretty good indication of where the market is.

Those rents are naturally just at market. So, that’s one thing about cap rates. It always requires a lot more explanation in terms of the mark-to-market, the lease term, the credit of the tenant, et cetera. But at least in life science, that mark-to-market that’s built into the cap rate is always an important question.

And these rents will be at market, naturally. We’re going to sign them in the future. So,, that impacts the stabilized return as well. A lot of our commentary is more from what’s not getting done sort of sellers’ expectations versus what buyers are willing to pay today as well as just a lot of conversations, whether it’s with pension funds or private equity or sovereign wealth or brokers or even the other REITs, just what kind of return targets do they have today versus what they would have had 6 and 12 months ago. And that’s more the basis of our commentary around what’s happening with valuations. I think, it will still take 3 to 6 months to really have clarity on what has truly happened with cap rates. But certainly, the financing market for levered buyers has changed pretty dramatically.

[Operator]

The next question comes from Austin Wurschmidt with KeyBanc. Please go ahead.

[Austin Wurschmidt, KeyBanc]

With respect to targeting the smaller tenants at Pointe Grand, I guess I’m just curious how deep that market is today, or maybe what percent of the 2.5 million square feet of demand that you identified in South San Francisco is related to those smaller tenants? And are you in negotiations, I guess, with anybody today, or given the more turnkey nature, should we expect these to be leased closer to completion?

[Scott Brinker, President and Chief Investment Officer]

Yes. It’s Scott here. I might ask Scott Bohn to comment as well, but it’s 7 separate buildings that all have various maturity dates. Some of them have already matured, others don’t mature until late ‘23. So, this is going to happen over time, but we are having productive conversations with a couple of tenants that meet the profile that we described already. So, no leases signed, but we feel like there’s a lot of demand in that size category. And all of them are existing relationships. I think that’s the other key point. 90% of our leasing year-to-date is with existing relationships, and all the potential tenants that we’re talking to at Pointe Grand are existing relationships. So, it just underscores that the incumbents really do have just a huge competitive advantage in this particular sector.

[Operator]

The next question comes from Michael Griffin with Citi.

[Michael Bilerman, Citi]

It’s Michael Bilerman. I appreciate you taking the follow-up. Tom, I wonder if you can just step back strategically. You obviously talked about doing the share buyback, which I know has been on your mind for a little while, and you talked about sort of the valuation of the shares relative to private market, but I would assume also relative to some of the parts of your peers that are involved in the same property types. I guess, what else is on your mind to sort of drive value for shareholders? And I guess, we’ve always debated the property sector allocations and you’ve honed in on MOBs and life science but also a little bit of exposure to CCRCs. And I know you’re committed because you believe the combination of those makes a lot of sense. I guess, if you’re not going to get the right value in the market for those businesses together, have you thought at all about? And I know there’s dissynergies with that, but just walk me through sort of what happened in the boardroom as you initiated a share repurchase program and other things that were discussed. Hello?

[Tom Herzog, CEO]

Sorry. I had to unmute.

[Michael Bilerman, Citi]

No worries. Can you hear me now?

[Tom Herzog, CEO]

I can hear you. When we look at what our opportunities are going forward, clearly, the development pipeline is an important driver of value. We’ve got the three businesses that are all in, vital sectors. They’re all cleaned up businesses, high barrier to entry. And so, we feel really good about all three businesses.

The trading -- what we’re trading at right now is at a discount to the sum of the parts, there will be some discount. But I think after you take into account leverage, cap rates, nonearning assets and whatnot, that is -- that neutralizes it some. But still, we see a lot of upside in our shares. So, as we look at the different opportunities, we will play through in life science and MOBs and believe we’re going to get a great outcome from the unique way that those businesses have been put together and continue the development, and we do think the JVs allow us to accelerate and capture more income as we go forward with less drag, which makes for a smoother income growth model. And then, the share repurchases, if we’re going to be trading at a discount for some period of time, we hope it’s not very long, we can take advantage of the accretive nature to both, NAV and FFO as adjusted. So, we do as a management team and as a Board, I think that that’s the right play.

When we look at -- the question you asked some of the parts, I think in your most recent piece, you had 1.7 turns low was your view on it. We think we can recapture that and a whole lot more as we go forward under our current plan.

So, I do think that the comments that come up once in a while, not by most, but once in a while of whether we do something more dramatic, we don’t believe that that would create shareholder value. There are way more dissynergies than what I think people would realize. And we do think that the MOB and the life science businesses fit very well together with all the shared infrastructure that’s in place, and the fact that MOBs create some stability to our earnings model that allow us to be more aggressive on the life science side and the development side. So, we do think it’s a great model, the way it’s put together. And that with the campuses that we have in Life Science and MOBs that literally took decades to build, there’s no way that that could be replicated, and we think that that’s going to provide strong same-store growth for years to come. So, we feel really good about our model.

[Michael Bilerman, Citi]

And then, Tom, can you just talk a little bit about the Board? I think over the years, there’s been, as the company has changed dramatically, there have been a lot of moves on and off the Board. And you have a Board today that’s 7 members, of which you are one of them. And obviously, you have some that have pretty long tenure and some newers. I know I recognize Lydia had come off during the quarter. What is the Board? And what are you looking for in terms of adding additional members? What is the right side, what is the right skill set that you’re looking for to help the company go forward at this time?

[Tom Herzog, CEO]

Yes. We had a Board of eight. If we -- you’re referencing to if we rolled back prior to the spin and over the last couple of years after the spin. We had a Board that had been together for a long time, some very, very tenured Board members. And we decided that we wanted to do a refreshment, which we did in a pretty dramatic form. And so, that’s been completed. We’re down one Board member right now with Lydia. And she took another Board on that involves construction, which is her background. And so, I think that that was great. We wish her well.

So, we will be adding like a couple of Board members, I think the optimal size of our Board. This was up to non-gov and the entire Board, but I’ll just give you some quick sentiment that there will be greater discussions on in our boardroom, but we’re probably looking to add Board members. And I’m not going to state specifically what skills we’re looking for because I think coming conversations we’ll be having in the boardroom over the next few weeks. But this isn’t something that we’re going to sit on. We’re working on it right now. And so, more to come on that.

As far as -- some have been on the Board for a longer period of time and some are newer. I personally think that, that’s a good balance. I do like having a couple of Board members that have been around for a long time. They have the history, the relationship is good. And I like having some new blood, new thoughts on the Board at all times. So, I feel like the balance from that respect is actually quite good.

[Michael Bilerman, Citi]

Yes. No, I was just referencing where it stands today and the fact that you have eight positions, but only seven are filled. So that’s why I said seven.

[Tom Herzog, CEO]

Yes, there is one.

[Michael Bilerman, Citi]

I appreciate the time. Thanks.

[Tom Herzog, CEO]

Yes. Thank you. Operator, are there any more questions?

[Operator]

No, there are no further questions, which concludes the Q&A session. I would like to turn the conference back over to Tom Herzog for any closing remarks.

[Tom Herzog, CEO]

Okay. Well, thanks, everybody, for joining our call. We appreciate your interest and look forward on seeing many of you at our upcoming industry events over the coming months. So, we’ll talk to you soon. Thanks.

[Operator]

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