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Here's Why You Should Retain Healthpeak (PEAK) Stock for Now
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Healthpeak Properties, Inc. is poised to benefit from its diversified, high-quality and well-balanced portfolios across three core asset classes of lab, outpatient medical and continuing care retirement community (CCRC) real estate in the United States.
What’s Aiding it?
The increasing life expectancy of the U.S. population and biopharma drug development growth opportunities have promoted the lab real estate market fundamentals lately and led to a rise in demand for such assets. Amidst this, Healthpeak’s lab portfolio is witnessing healthy leasing demand.
From the beginning of 2023 through Jul 27, it executed 461,000 square feet of lab leases, with existing tenants accounting for almost 90% of the leasing. With limited lease maturities in the portfolio through year-end 2024, PEAK’s lab segment is well-positioned for growth. We expect a year-over-year increase of 4.1% in the segment’s cash same-store NOI in 2023.
Also, the use of artificial intelligence and machine learning is likely to increase the probability of success in drug research and lower the timeline for development, allowing greater allocation of healthcare spending by healthcare research institutes in the coming years. Healthpeak’s focus on enhancing its lab portfolio via acquisitions, developments and redevelopments against this backdrop is expected to pay off well.
Speaking of Healthpeak’s CCRC portfolio, which refers to its retirement communities that include independent living, assisted living and skilled nursing units, it is anticipated that the senior citizens’ population will rise in the years ahead. Given that this age cohort generally ends up spending more on healthcare services than the average population, PEAK’s CCRC portfolio is likely to capitalize on this positive expenditure trend, driving the segment’s growth.
This healthcare real estate investment trust (REIT) maintains a healthy balance sheet position with ample financial flexibility. It exited the second quarter of 2023 with nearly $3 billion of liquidity and a net debt-to-adjusted EBITDAre of 5.1X. Also, it enjoyed long-term credit ratings of Baa1(Stable) from Moody’s and BBB+ (Stable) from S&P Global as of Jun 30, 2023, rendering it access to the debt market at favorable costs. Hence, a robust financial footing is likely to continue supporting the company’s efforts to capitalize on long-term growth opportunities.
Further, PEAK’s current cash flow growth is projected at 55.80% compared with 8.77% estimated for the industry. Its trailing 12-month return on equity is 7.48% compared with the industry’s average of 2.97%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Analysts seem bullish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2023 funds from operations (FFO) per share has been raised marginally over the past two months to $1.75.
Shares of PEAK have lost 0.8% in the quarter-to-date period compared with the industry’s fall of 2.7%.
Image Source: Zacks Investment Research
What’s Hurting it?
Nonetheless, competition from other industry players in the healthcare services sector may weigh on Healthpeak. The company’s operators contend with peers for occupancy, which could limit the company’s power to raise rents and affect revenues and profitability.
PEAK’s development and redevelopment pipeline, although encouraging for long-term growth, exposes the company to the risks associated with rising construction costs in an inflationary environment. Also, global supply-chain disruptions and labor shortages, including procurement delays and long lead times on certain materials, are negatively impacting the scheduled completion and/or costs of these projects.
Further, high interest rates are likely to increase the company's borrowing costs, affecting its ability to purchase or develop real estate. Our estimate indicates a year-over-year rise of 16.9% in the company’s interest expense in the current year.
The Zacks Consensus Estimate for Welltower’s 2023 FFO per share has been raised marginally over the past week to $3.54.
The Zacks Consensus Estimate for SBA Communications’ current-year FFO per share has moved marginally northward over the past month to $12.88.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been raised 3.3% over the past month to $1.26.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Here's Why You Should Retain Healthpeak (PEAK) Stock for Now
Healthpeak Properties, Inc. is poised to benefit from its diversified, high-quality and well-balanced portfolios across three core asset classes of lab, outpatient medical and continuing care retirement community (CCRC) real estate in the United States.
What’s Aiding it?
The increasing life expectancy of the U.S. population and biopharma drug development growth opportunities have promoted the lab real estate market fundamentals lately and led to a rise in demand for such assets. Amidst this, Healthpeak’s lab portfolio is witnessing healthy leasing demand.
From the beginning of 2023 through Jul 27, it executed 461,000 square feet of lab leases, with existing tenants accounting for almost 90% of the leasing. With limited lease maturities in the portfolio through year-end 2024, PEAK’s lab segment is well-positioned for growth. We expect a year-over-year increase of 4.1% in the segment’s cash same-store NOI in 2023.
Also, the use of artificial intelligence and machine learning is likely to increase the probability of success in drug research and lower the timeline for development, allowing greater allocation of healthcare spending by healthcare research institutes in the coming years. Healthpeak’s focus on enhancing its lab portfolio via acquisitions, developments and redevelopments against this backdrop is expected to pay off well.
Speaking of Healthpeak’s CCRC portfolio, which refers to its retirement communities that include independent living, assisted living and skilled nursing units, it is anticipated that the senior citizens’ population will rise in the years ahead. Given that this age cohort generally ends up spending more on healthcare services than the average population, PEAK’s CCRC portfolio is likely to capitalize on this positive expenditure trend, driving the segment’s growth.
This healthcare real estate investment trust (REIT) maintains a healthy balance sheet position with ample financial flexibility. It exited the second quarter of 2023 with nearly $3 billion of liquidity and a net debt-to-adjusted EBITDAre of 5.1X. Also, it enjoyed long-term credit ratings of Baa1(Stable) from Moody’s and BBB+ (Stable) from S&P Global as of Jun 30, 2023, rendering it access to the debt market at favorable costs. Hence, a robust financial footing is likely to continue supporting the company’s efforts to capitalize on long-term growth opportunities.
Further, PEAK’s current cash flow growth is projected at 55.80% compared with 8.77% estimated for the industry. Its trailing 12-month return on equity is 7.48% compared with the industry’s average of 2.97%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Analysts seem bullish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2023 funds from operations (FFO) per share has been raised marginally over the past two months to $1.75.
Shares of PEAK have lost 0.8% in the quarter-to-date period compared with the industry’s fall of 2.7%.
Image Source: Zacks Investment Research
What’s Hurting it?
Nonetheless, competition from other industry players in the healthcare services sector may weigh on Healthpeak. The company’s operators contend with peers for occupancy, which could limit the company’s power to raise rents and affect revenues and profitability.
PEAK’s development and redevelopment pipeline, although encouraging for long-term growth, exposes the company to the risks associated with rising construction costs in an inflationary environment. Also, global supply-chain disruptions and labor shortages, including procurement delays and long lead times on certain materials, are negatively impacting the scheduled completion and/or costs of these projects.
Further, high interest rates are likely to increase the company's borrowing costs, affecting its ability to purchase or develop real estate. Our estimate indicates a year-over-year rise of 16.9% in the company’s interest expense in the current year.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Welltower (WELL - Free Report) , SBA Communications (SBAC - Free Report) and Americold Realty Trust (COLD - 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 Welltower’s 2023 FFO per share has been raised marginally over the past week to $3.54.
The Zacks Consensus Estimate for SBA Communications’ current-year FFO per share has moved marginally northward over the past month to $12.88.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been raised 3.3% over the past month to $1.26.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.