Healthpeak Properties, Inc.’s PEAK continuing care retirement communities (CCRC) portfolio is well-positioned to benefit from the increasing expenditure on healthcare services by senior citizens. Also, the company’s capital-recycling efforts and a robust balance sheet position bode well.
Healthpeak’s CCRC portfolio, which refers to its retirement communities, is owned and operated through the REIT Investment Diversification and Empowerment Act of 2007 (commonly referred to as RIDEA) structures. Under this structure, the residents pay the third-party manager-operators directly or via private insurance. This reduces the operators’ dependency on government reimbursement programs like Medicare and Medicaid, thereby ensuring steady cash flows.
Its life-science real-estate properties are poised to gain from the increasing life expectancy of the United States population and biopharma drug development growth opportunities. Also, given the need for effective diagnostics, therapies and vaccines, this segment has received a boost. This is driving sector fundamentals, leasing activity and rent growth. In February this year, PEAK announced the execution of long-term leases with Graphite Bio and another leading biotech company at its life science development, Nexus on Grand.
Moreover, PEAK has been making concerted efforts to dispose of non-core assets belonging to the senior housing operating property (SHOP) and triple-net leased categories through its capital-recycling program. It redeploys the proceeds to acquire and fund the development of life science and medical office assets in high barrier-to-entry markets. Also, PEAK’s development pipeline bodes well for its growth. As of Jun 30, 2022, it had six life science development projects underway with an estimated cost of $1 billion.
Healthpeak focuses on maintaining a decent balance sheet position with ample liquidity. It exited the second quarter of 2022 with a net debt-to-adjusted EBITDAre of 5.1X and liquidity of $2 billion. Also, investment-grade credit ratings of Baa1 from Moody’s and BBB+ from S&P Global and Fitch provide easy access to capital at favorable costs. This gives Healthpeak enough financial flexibility to continue its expansion efforts.
However, a spike in new COVID-19 cases due to new variants might adversely impact Healthpeak’s CCRC portfolio.
Also, higher interest rates might increase the borrowing costs for the company affecting its ability to purchase or develop real estate. Healthpeak’s total consolidated debt as of Jun 30, 2022, was approximately $6.5 billion. Moreover, the dividend payout might become less attractive than the yields on fixed income and money market accounts.
Analysts seem bearish about this Zacks Rank #3 (Hold) stock. The estimate revisions trend for 2022 funds from operations (FFO) per share does not indicate a favorable outlook for the company as it has been unchanged over the past month at $1.73.
Shares of Healthpeak have declined 5.5% in the past three months against the industry’s growth of 3.7%.
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Stocks to Consider
Some better-ranked stocks from the REIT sector are Public Storage PSA, Extra Space Storage EXR and Host Hotels & Resorts HST.
The Zacks Consensus Estimate for Public Storage’s current-year FFO per share has marginally moved northward in the past week to $15.64. PSA carries a Zacks Rank #2 at present.
The Zacks Consensus Estimate for Extra Space Storage’s ongoing year’s FFO per share has been raised 1.9% over the past week to $8.46. EXR sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Host Hotels & Resorts’ 2022 FFO per share has moved 6.1% upward in the past month to $1.73. HST currently holds a Zacks Rank of 2.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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