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Here's Why You Should Retain Healthpeak (PEAK) Stock for Now
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Healthpeak is well-poised to benefit from its diversified, high-quality and well-balanced portfolio across three core asset classes of life science, medical office and continuing care retirement communities (CCRC).
The company has been focusing on enhancing its life-science real-estate properties, which are benefiting from the increasing life expectancy of the United States population and biopharma drug development growth opportunities.
In first-quarter 2023, PEAK’s life-science portfolio witnessed 6.3% year-over-year growth in the cash same-store portfolio net operating income (NOI). We expect its life science portfolio’s cash same-store NOI to improve 3.7% year over year in 2023.
Also, a well-diversified tenant base in the life-science portfolio is expected to aid steady rental revenue generation. Per the March Investor Presentation, publicly-traded tenants accounted for 73% of the annualized base rent for this portfolio.
Moreover, PEAK’s life science development projects underway seem encouraging.
With a likelihood of the senior citizen population rising in the years ahead, Healthpeak’s CCRC portfolio, which refers to its retirement communities that include independent living, assisted living and skilled nursing units, is well-positioned to benefit from the high healthcare expenditures incurred by this age cohort. We estimate 9.1% year-over-year growth in the CCRC portfolio’s cash same-store NOI in 2023.
Furthermore, PEAK’s capital-recycling efforts have enabled it to acquire and fund the development of life science and medical office assets in high barrier-to-entry markets, which bode well.
The company maintains a robust balance sheet position and exited first-quarter 2023 with $2.5 billion of liquidity. It also enjoys long-term credit ratings of Baa1(Stable) from Moody’s and BBB+ (Stable) from S&P Global as of Apr 26, 2023, rendering it easy access to the debt market at favorable costs. With enough financial flexibility, Healthpeak is well-placed to capitalize on long-term growth opportunities.
In addition, PEAK’s trailing 12-month return on equity (ROE) is 7.73% compared with the industry’s average of 3.77%, indicating that it is more efficient in using shareholders’ funds than its peers.
Nevertheless, intense competition from other industry players in the healthcare services sector could weigh on Healthpeak. Also, the company’s operators contend with peers for occupancy and to manage expenses. This could hurt Healthpeak’s revenues and limit profitability to a certain extent.
PEAK’s development and redevelopment pipeline, although encouraging for long-term growth, exposes the company to certain construction risks, such as high material costs, entitlement delays and lease-up concerns.
Further, a high interest rate environment could lead to an increase in the company's borrowing costs, affecting its ability to purchase or develop real estate. Our estimate for 2023 interest expense indicates a rise of 16.9% year over year.
Shares of this Zacks Rank #3 (Hold) company have lost 11.3% in the quarter-to-date period compared with its industry’s fall of 5.9%.
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Here's Why You Should Retain Healthpeak (PEAK) Stock for Now
Healthpeak is well-poised to benefit from its diversified, high-quality and well-balanced portfolio across three core asset classes of life science, medical office and continuing care retirement communities (CCRC).
The company has been focusing on enhancing its life-science real-estate properties, which are benefiting from the increasing life expectancy of the United States population and biopharma drug development growth opportunities.
In first-quarter 2023, PEAK’s life-science portfolio witnessed 6.3% year-over-year growth in the cash same-store portfolio net operating income (NOI). We expect its life science portfolio’s cash same-store NOI to improve 3.7% year over year in 2023.
Also, a well-diversified tenant base in the life-science portfolio is expected to aid steady rental revenue generation. Per the March Investor Presentation, publicly-traded tenants accounted for 73% of the annualized base rent for this portfolio.
Moreover, PEAK’s life science development projects underway seem encouraging.
With a likelihood of the senior citizen population rising in the years ahead, Healthpeak’s CCRC portfolio, which refers to its retirement communities that include independent living, assisted living and skilled nursing units, is well-positioned to benefit from the high healthcare expenditures incurred by this age cohort. We estimate 9.1% year-over-year growth in the CCRC portfolio’s cash same-store NOI in 2023.
Furthermore, PEAK’s capital-recycling efforts have enabled it to acquire and fund the development of life science and medical office assets in high barrier-to-entry markets, which bode well.
The company maintains a robust balance sheet position and exited first-quarter 2023 with $2.5 billion of liquidity. It also enjoys long-term credit ratings of Baa1(Stable) from Moody’s and BBB+ (Stable) from S&P Global as of Apr 26, 2023, rendering it easy access to the debt market at favorable costs. With enough financial flexibility, Healthpeak is well-placed to capitalize on long-term growth opportunities.
In addition, PEAK’s trailing 12-month return on equity (ROE) is 7.73% compared with the industry’s average of 3.77%, indicating that it is more efficient in using shareholders’ funds than its peers.
Nevertheless, intense competition from other industry players in the healthcare services sector could weigh on Healthpeak. Also, the company’s operators contend with peers for occupancy and to manage expenses. This could hurt Healthpeak’s revenues and limit profitability to a certain extent.
PEAK’s development and redevelopment pipeline, although encouraging for long-term growth, exposes the company to certain construction risks, such as high material costs, entitlement delays and lease-up concerns.
Further, a high interest rate environment could lead to an increase in the company's borrowing costs, affecting its ability to purchase or develop real estate. Our estimate for 2023 interest expense indicates a rise of 16.9% year over year.
Shares of this Zacks Rank #3 (Hold) company have lost 11.3% in the quarter-to-date period compared with its industry’s fall of 5.9%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are Iron Mountain (IRM - Free Report) , Rexford Industrial Realty (REXR - Free Report) and Stag Industrial (STAG - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Iron Mountain’s 2023 funds from operations (FFO) per share is pegged at $3.96.
The Zacks Consensus Estimate for Rexford Industrial’s current-year FFO per share is pegged at $2.19.
The Zacks Consensus Estimate for Stag Industrial’s ongoing year’s FFO per share is pegged at $2.25.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.