Peter Scott: Yes. Well, they’re very different portfolios. I mean, we’re not a pure play medical portfolio today. We have the CCRCs, we have lab, and NOI is one metric you could think about. It’s certainly one that real estate investors tend to point to, but it’s certainly not the only metric. I mean, when you think about CapEx and volatility of earnings, but CapEx in particular, DOC, given the nature of their portfolio, just has a very low CapEx burden relative to ours. So, that certainly drives a lot of the accretion as well on an AFFO basis, which feels more like a cash economics analysis to us. And I’m not sure that I would agree with your point in terms of AFFO, kind of the true economics of the deal. I think there’s probably some accretion even without other synergies, Rich.
Operator: Our next question comes from the line of Tayo Okusanya with Deutsche Bank. Your line is open.
Tayo Okusanya: Yes. Can you all hear me?
Scott Brinker: Yes.
Peter Scott: Yes.
Tayo Okusanya: Excellent. So, question just around the transaction. I mean, summer of 2022, we have the HR, HCA transaction go down, a lot of questions around someone who’s primarily on campus buying someone who has a lot of off-campus. A lot of questions around someone who has a higher same-store NOI growth for the MOB portfolio, buying someone who has a lower same-store NOI growth profile, a lot of questions around pricing. Again, your implied cap rate today is higher than the implied cap rate for DOC. A lot of questions around, again, someone who has managed their portfolio externally, buying someone who’s managing it internally, it just seems like there’s a lot of similarities a year-and-a-half ago when people were kind of struggling with the HCA, HR deal.
How do you convince shareholders this time around that the DOC Healthpeak transaction is different, especially when, again, it seems to be taking away a little bit from the lab science theory that you guys have been trying to tell for the past few years?
John Thomas: Yes. Hey, Tayo, it’s JT. We couldn’t be more excited about this opportunity, and Scott and Pete and our teams sat down and kind of evaluated the opportunity. We looked at it as really combining the best parts of both organizations and kind of the different strategies. Everything was on the table to evaluate what was the best go-forward strategy for all the questions you just asked is I’ve talked about a lot. This question has come up a lot today. DOC’s always had the reputation as the off-campus outpatient medical read. We’re 50% on and 50% off. The assets we’ve helped finance to develop over the last five years have been off-campus and have won awards and are full and at least the best health systems in the country.
Pete’s been doing the same thing, so it’s really not a difference in strategy. It is adding relationships, adding, in a lot of cases, mutual. HonorHealth is a great mutual client of ours in Scottsdale, and we’re doing more growth with them on and off-campus, so it’s really what meets the needs of the providers and the patients that they’re serving and during the pandemic, you’ve heard me talk about this a lot. We did a survey, and people didn’t want to go anywhere near a hospital for their routine care if they didn’t have COVID and that really has driven a lot of health systems to evaluate their strategies. I mentioned before 10 off-campus outpatient facilities for every hospital, and that just continues to grow, and the pandemic showed the need for even more of that.
So, it’s not so much as changing one strategy to the other. It’s about looking at each other’s strategies and maximizing the combined opportunities that we have in front of us. So, it’s a — we’re not going to — don’t really need to talk about other transactions. I would just say very different structures, very different way to put the companies together, very different strategies. This opportunity makes sense for all of us without leasing one more foot because we effectively are 95% leased already. The outpatient, or excuse me, the lab business is highly leased as well, so it’s a great opportunity for the DOC shareholders to work with the — invest in one of the best lab businesses and portfolios in the world and opportunity for the peak shareholders to get the combined strengths of both teams.
Tayo Okusanya: Okay.
Operator: Your next question comes from the line of Ronald Kamdem with Morgan Stanley. Your line is open.
Adam Kramer: Hey, guys. It’s Adam Kramer on for Ron. Congrats on the deal. Congrats to everyone involved here. Look, it’s been covered a little bit, but maybe I’ll ask it a little bit of a different way, which is, look, obviously, this deal is focused on outpatient medical. Wondering what read-throughs we should have, if any, towards the legacy peak life science business?
Scott Brinker: Yes. It’s completely independent of the lab business, which our confidence in that platform and portfolio and segment has never been stronger. This was just a unique opportunity to make the company better in pretty much every important way, balance sheet, capabilities, relationships, scale. It’s a pretty long list, so I wouldn’t have — I wouldn’t make any read-through to the lab business. This is just something that made sense independently. It was a unique opportunity that, fortunately, because of our balance sheet and relationships, we were able to put together and execute, so no read-through at all to the lab business.
Adam Kramer: Got it. That’s helpful. And then, just on the go-forward financing kind of growth plan, how do you think through your cost of capital in terms of the combined entity, or is this more of a capital recycling story, bigger asset base now, and you focus more on capital recycling versus a cost of capital accretion plan?
Peter Scott: Yes. I think one of the things we haven’t talked about yet that’s a very big competitive rationale for doing this was the combination of our two balance sheets. DOC has a great balance sheet. We think we have a sector-leading balance sheet as well. We’re not levering up to do this. In fact if anything, we’re modestly deleveraging with the synergies, so we have a little bit of dry powder. But when you look at a combined basis, we’ve got a weighted average interest rate of less than 4%. We’ve got a weighted average debt maturity of greater than 5 years, almost no secured debt, liquidity of approximately $3 billion. We did put a new term loan in place, which enhances the liquidity of the pro forma combined company, and our net debt EBITDAs in the low fives.
