And as Scott mentioned, we’ve got less G&A, improved cost to capital. So, from a balance sheet perspective, from a cost of capital perspective, this is a big win for both companies and for shareholders and for our bondholders as well.
Adam Kramer: Great. Thanks so much for the time, and congrats again.
Operator: Our next question comes from the line of Jim Kammert from Evercore. Your line is open.
Jim Kammert: Thank you. Good morning. I appreciate all the color regarding the potential synergies on the OEM side, but I was just wondering, could you help me walk through the map a little bit? I mean, Peak just reported third quarter, I think 3.4% same-store NOI growth from the medical office, and I believe DOC just reported about 1.5% for the third quarter. So, on a pro forma basis, are you suggesting that the overall combined portfolio could be at peaks operating performance level or greater? I’m just trying to understand how the synergies work through and what you’re quantifying, what that impact is.
Scott Brinker: Yes. I think we’ll bring the same-store growth rate more in line over time. I mean, there’s a couple of differences. We do have a higher base escalator than DOC. We’re in the high twos. They’re more in the mid twos, just given the nature of their portfolio. But over time, as we restrike leases, we’d expect to bring those escalators more in line. They have had better releasing spreads than us in part because they have the lower escalator. So, there’s just a bigger mark-to-market opportunity. Those things usually go together, obviously. But we do have the redevelopment capabilities as some of their older properties mature. We would expect that we would bring our redevelopment capabilities to this portfolio as well, which means that they’re really not part of the same-store pool, either on the downside or the upside.
And DOC just has a different model. So, I think that that will change as well. And then, clearly the internalization of the property management should be a benefit to the portfolio as well. So, I do think you’ll see those two numbers look more in line and consistent among the two portfolios over time, Jim.
Jim Kammert: Okay, great. Thank you. And I could a second one. I think you’ve touched upon this in different aspects on the call. But is there not potentially more distress, if you will, evaluation-wise in lab? And just trying to figure out how the company came to the decision to maybe just the opportunity to present itself, but pivot a little bit incremental exposure to OM. And my perception is that the distress component is less so in OM versus lab, just curious why now to make that kind of allocation.
Scott Brinker: There’s going to be opportunities in both segments. I think having a bigger balance sheet and cost of capital just allows us to be better positioned to take advantage of those opportunities, whether it’s in lab or medical. But no question, in lab, we will start to see distressed opportunities, whether it’s from refinancing, risk, or delayed lease up. So, that hasn’t started in earnest yet, but I would expect over the next 12 to 24 months that there will be quite a bit of opportunity. And I just don’t see any way that our company isn’t better positioned to capitalize on those opportunities as a result of this deal, just given the balance sheet, the improved G&A, improved liquidity. So, I believe this is a positive step in positioning ourselves for that distress, which I think is coming, but we haven’t really seen much of it yet.
And then, in medical, I wouldn’t call it operational distress, but there will be plenty of refinancing related risk in the coming years in that sector, just given what’s happened with interest rates and cap rates, it was harder for us to compete or DOC to compete for that matter when secured financing rates were in the 3% to 4% range and LTVs were at 70%. But guess what, like that world is long gone and a lot of the private market has in place financing with those exact terms and it’s not going to look like that even remotely when they refinance. So, I think you’ll see a lot of opportunity there as well, but more driven by refinancing than operational distress. So, Jim, we’re going to be opportunistic across the whole portfolio. I would view it as one or the other.
Hopefully we’ll position ourselves to do both.
Jim Kammert: Terrific, thank you.
Operator: Our next question comes from the line of Nick Yulico with Scotiabank. Your line is open.
Nicholas Yulico: Thanks, yes. Just first question is on the Healthpeak side related to just the existing portfolio. I was hoping to get update on just Oyster Point, if you could remind us how much square footage is still, you have to lease there and how you’re thinking about rents on that space. And then, also for Sorrento, if you have any update on outcome you’re expecting from the bankruptcy and then also any activity you’re seeing on the development asset there?
Scott Brinker: Yes, maybe Nick, I’ll head on Sorrento first and then I’ll have Scott Bohn touch on Oyster Point. On Sorrento, we got our rents paid in October. No update yet since it’s still October on November rents. But no matter what happens on that outcome, we’re prepared to release those assets and we have a plan and we think the rents are still below market on those operating assets. So, at this point in time, we’ve received our rents but no additional update beyond that. Obviously, we did announce a nice lease at our Oyster Point campus, 100,000 square feet leased. With Pliant Therapeutics, I’ll turn it to Scott, he can talk about what else is going on, on that campus.
Scott Bohn: Yes, hi Nick. Yes, I mean with the lease with Pliant on the campus, we took another 100,000 square feet off the table there. So, the 940,000 square foot campus, we’ve now completed lease on about 70% of that. We’ve got the 70,000 square foot building that’s currently in Redev that we got back at the end of last year. And now we have two buildings, a total of about 189,000 square feet that we’ll get back in January of ’24. But both those buildings will go into a relatively extensive Redev, nine to 12 months. So, we’re talking about not leasing out until 2025, so some time there.
Nicholas Yulico: All right, thanks guys. Second question is just again on the Healthpeak side, if you could tell us a little bit more about, how the board thought about this decision to do M&A right now versus whether there were other options considered, right like to maximize shareholder value. I mean, in these situations where spot price has been impacted, were there other considerations about maybe trying to sell your company or selling assets, doing something else besides this M&A as a way to kind of address the future of the company? Thanks.
Scott Brinker: Yes, we’ve already had some asset sales this year. We have other things that are potentially in process. So, certainly with the stock trading where it’s at, capital recycling has been on the list of priorities. It’s not a highly liquid market today, just given the financing environment. But neither company is viewing this as a sale. This is just a combination based on relative value that made sense in and of itself. It’s a unique opportunity. So, no, this isn’t a situation where we’re considering a broad range of options. We just thought this was highly compelling for all the reasons that we mentioned, both strategically and financially, Nick.
