Investing in healthcare real estate investment trusts (REITs) can offer income stability and growth potential due to rising healthcare spending and favorable demographic trends. Healthpeak Properties (DOC), a diversified healthcare REIT with a robust portfolio across outpatient medical, life sciences, and senior housing facilities, is a top option. DOC recently posted solid Q3 earnings, beating expectations and raising its full-year FFO guidance midpoint, indicating its ability to deliver value to shareholders. One of DOC’s standout features is its compelling 5% dividend yield, which outpaces the sector median and is supported by a favorable payout ratio.
Healthpeak Properties (DOC), a member of the S&P 500 Index ($SPX), offers investors an attractive income stream with the potential for capital appreciation. The company’s diverse portfolio includes life science, outpatient medical, and senior housing properties across the U.S.
Healthpeak Properties’ strategic acquisition of Physicians Realty Trust earlier this year has already begun to yield substantial cost synergies, streamlining operations and enhancing cost-effectiveness.
For income-focused investors, DOC presents a quality option with defensive characteristics, ideal for those seeking stable returns. The merger, announced on March 1, was an all-stock transaction that has bolstered the company’s fundamentals and strategic growth initiatives in the healthcare real estate market.
The merger has resulted in a conglomerate with a market cap of $15.8 billion. The conglomerate is headquartered in Denver. DOC operates in three segments: outpatient medical office buildings (MOBs), lab space, and continuing care retirement communities. It leases its properties to major health systems like HCA Healthcare (HCA) and CommonSpirit Health. Large health systems account for one-third of its annual base rent (ABR). Biopharmaceutical companies such as Bristol Myers Squibb (BMY) and senior housing properties make up the remainder. The healthcare REIT’s stock has gained 14.8% year-to-date. Notably, shares bought at the opening on the first business day of this year have yielded around 6.1%, resulting in a total return of approximately 21%, roughly in line with the broader market’s performance.
Healthpeak Properties recently reported its third-quarter earnings results. The company had an excellent quarter, posting adjusted FFO of $0.45 per share, beating Wall Street’s expectations by $0.01. FFO, a key metric in the REIT sector, adjusts net income by adding back expenses like depreciation and amortization.
The company also reported a total portfolio same-store growth of 4.1%. This growth was partially fueled by annual rent escalators of 3.4% in the outpatient medical segment and 2.8% in the lab segment. Additionally, there is ongoing recovery in the senior housing segment, which experienced a 14.2% year-over-year SSNOI growth in Q3 and a 20.2% year-over-year growth year-to-date. Its revenue grew 25.9% year-over-year to $700.DOC, a healthcare REIT, reported adjusted funds from operations of $234.4 million for the third quarter, beating expectations by $15.86 million. Since its acquisition of Physicians Realty Trust earlier this year, DOC is seeing robust merger synergies. Management now expects at least $50 million in cost savings in the first year, an increase from the $45 million previously forecasted in July. This is primarily due to property management internalization. With internalization, DOC is now managing its 50 million square foot portfolio with uniform processes, procedures, and technology across the board, enhancing its ability to leverage its scale effectively. Management highlighted that the merger made general and administrative expenses 25% more efficient. The life science segment also continues to perform well, with DOC signing over 700,000 square feet in leases with positive 10% cash re-leasing spreads in the third quarter.
As of Oct. 24, year-to-date, the company has signed leases for 1.7 million square feet of lab space and has an additional 575,000 square feet pending under signed letters of intent. This includes over 300,000 square feet of new leases at its high-priority campuses: Vantage, Portside, and Director’s Gateway. Management said that South San Francisco remains the strongest market, featuring activity across various suite sizes and price points. It’s also important to note the company’s outpatient medical business, which is benefiting from favorable industry fundamentals where demand outstrips supply. Its high-quality portfolio is achieving record re-leasing spreads and DOC is consistently increasing the rent escalator up to 3% on new leases. The company added that demand is growing and new supply will remain limited due to the cost of new construction.
Healthcare Real Estate Investment Trusts (REITs) are gaining attention, and Healthpeak Properties stands out as a prime choice for investors seeking a 5% yield.
Healthpeak Properties is actively expanding its portfolio with new outpatient development projects, which are predominantly pre-leased to top-tier health systems, ensuring a steady stream of earnings. The company recently initiated a $37 million project, fully pre-leased to HCA, a leading health system, enhancing its yield potential. DOC, the ticker for Healthpeak Properties, is financially robust, supported by a strong balance sheet. It boasts favorable long-term credit ratings from Moody’s and S&P Global, reflecting its financial stability. This is further underscored by its $3 billion in total liquidity, an entirely undrawn revolver, and a net debt to EBITDA ratio of 5.1x, which is well below the 6.0x threshold commonly regarded as safe for REITs. Looking forward, Healthpeak Properties has raised its full-year guidance for the third time in 2024. The company has updated its forecast for 2024 FFO per share, as adjusted, to a range of $1.79-$1.81, from the previous range of $1.77-$1.81. Additionally, it has increased the midpoint of its AFFO guidance by $0.01 has set the new range at $1.56 to $1.58. Total merger-combined same-store cash (adjusted) net operating income growth is projected to be 3.5%-4.5%, up from the previous target range of 2.75%-4.25%. Analysts tracking the company predict a 1.12% year-over-year rise in its earnings to $1.80 per share for fiscal 2024. Also, Wall Street expects DOC’s revenue to advance 23.66% year-over-year to $2.67 billion. In terms of valuation, DOC stock looks attractive at current levels, with a forward P/FFO ratio of 12.55x, which is below the sector’s median multiple of 14.50x. On the dividend side, DOC offers an attractive forward yield of 5.33%, well above the sector median of 4.15%. The dividend is well covered by a payout ratio of 66.88%, ensuring ample retained capital for funding growth and share repurchases.
Investors seeking a 5% yield in the healthcare REIT sector should consider Healthpeak Properties. Analyzing the options market sentiment for this stock, we focus on the January 17, 2025, option chain. The $22.50 CALL option has a bid/ask spread of $1.00/$1.10, and the $22.50 PUT option shows a spread of $0.80/$0.90. This strike price is closest to the current stock price.
To estimate the expected price movement, we use the midpoint prices of these options. The calculation is as follows: 0.85 (22.50 put) + 1.05 (22.50 call) = 1.90/22.72 = 8.4%. The options market suggests that DOC stock could experience an 8% movement by the January options expiration, based on the $22.50 strike price. This would place the stock in a potential trading range of $20.81 to $24.62.
Notably, at the $22.50 strike price, open call options significantly outnumber open put options, with 1,239 calls open compared to 256 puts. This indicates a bullish sentiment among investors in the options market.
While activity in DOC’s options pits is relatively light, this indicates a prevailing bullish sentiment in the options market and implies a higher probability of the stock’s value increasing. What are analysts’ expectations for DOC stock? On Oct. 1, Wells Fargo assumed coverage of DOC stock with an ‘Equal Weight’ rating and a price target of $23, up from $22. The firm stated that the healthcare sector has performed well in 2024, benefiting from secular tailwinds such as the acceleration of the retirement age population, occupancy recovery post-COVID, and minimal to negative supply growth due to high development costs and bed moratoriums that hinder the addition of new stock. On Oct. 21, Deutsche Bank analyst Omotayo Okusanya upgraded Healthpeak Properties to ‘Buy’ from ‘Hold’ with a price target of $28, up from $20.
Deutsche Bank analysts have expressed cautious optimism to investors regarding the life sciences real estate market, despite it navigating a complex landscape. They highlight improving biotech fundraising, anticipated Federal Reserve rate-cutting over the next 12-18 months, and a projected decline in supply into 2025 as factors that could bolster investor confidence.
Healthpeak Properties and Alexandria Real Estate (ARE) are identified as companies particularly well-positioned to capitalize on this improving market outlook, with expectations of increasing their market share as the sector adapts to a normalized demand curve. Analysts have a consensus rating of “Moderate Buy” on Healthpeak Properties stock. Among the 19 analysts covering the stock, 12 recommend a “Strong Buy,” one suggests a “Moderate Buy,” and six maintain a “Hold” rating.The average price target for DOC stock is $25.53, indicating an upside potential of around 12% from current levels.
