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Should Investors Retain Healthpeak (DOC) Stock for Now?
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Healthpeak (DOC - Free Report) is well-poised to benefit from its diversified and top-quality healthcare real estate assets in the high barrier-to-entry markets of the United States. Solid demand for lab assets is likely to drive its lab portfolio’s growth. Its continuing care retirement community (CCRC) portfolio is poised to gain from the rise in senior citizens’ healthcare expenditure. However, competition from industry players and a high interest rate environment add to its woes.
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 and led to a rise in demand for such assets. 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, indicating a rise in the allocation of healthcare spending by healthcare research institutes in the upcoming years.
Healthpeak follows a cluster strategy in three premier lab epicenters, namely, San Diego, San Francisco and Boston, to assemble assets through acquisitions, developments and redevelopments. On the back of these portfolio moves, the company is gaining scale and is well-poised to meet the growing demand from lab tenants. In 2023, the lab portfolio witnessed year-over-year growth of 3.7% in the cash same-store portfolio net operating income.
With the 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 positioned to benefit from the high healthcare expenditures incurred by this age cohort.
The company maintains a healthy balance sheet position and exited the fourth quarter of 2023 with around $3 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 Dec 31, 2023, rendering it easy access to the debt market at favorable costs. With a sound liquidity position, Healthpeak is well-placed to bank on growth opportunities.
What’s Hurting It?
Healthpeak operates in a competitive market and contends with several other companies providing similar healthcare services or alternatives. The company’s operators contend with peers for occupancy, which could limit its power to raise rents and affect revenues and profitability.
DOC’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.
Additionally, a high interest rate environment is a concern for Healthpeak. Elevated rates imply high borrowing costs for the company, which would affect its ability to purchase or develop real estate. The company has a substantial debt burden, and its net debt, as of Dec 31, 2023, was approximately $6.7 billion.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have gained 7.4% compared with the industry's upside of 7.9%.
The Zacks Consensus Estimate for ARE’s 2024 FFO per share has gained marginally upward over the past two months to $9.45.
The Zacks Consensus Estimate for LAMR’s current year FFO per share has moved marginally upward in the past two months to $7.74.
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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Should Investors Retain Healthpeak (DOC) Stock for Now?
Healthpeak (DOC - Free Report) is well-poised to benefit from its diversified and top-quality healthcare real estate assets in the high barrier-to-entry markets of the United States. Solid demand for lab assets is likely to drive its lab portfolio’s growth. Its continuing care retirement community (CCRC) portfolio is poised to gain from the rise in senior citizens’ healthcare expenditure. However, competition from industry players and a high interest rate environment add to its woes.
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 and led to a rise in demand for such assets. 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, indicating a rise in the allocation of healthcare spending by healthcare research institutes in the upcoming years.
Healthpeak follows a cluster strategy in three premier lab epicenters, namely, San Diego, San Francisco and Boston, to assemble assets through acquisitions, developments and redevelopments. On the back of these portfolio moves, the company is gaining scale and is well-poised to meet the growing demand from lab tenants. In 2023, the lab portfolio witnessed year-over-year growth of 3.7% in the cash same-store portfolio net operating income.
With the 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 positioned to benefit from the high healthcare expenditures incurred by this age cohort.
The company maintains a healthy balance sheet position and exited the fourth quarter of 2023 with around $3 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 Dec 31, 2023, rendering it easy access to the debt market at favorable costs. With a sound liquidity position, Healthpeak is well-placed to bank on growth opportunities.
What’s Hurting It?
Healthpeak operates in a competitive market and contends with several other companies providing similar healthcare services or alternatives. The company’s operators contend with peers for occupancy, which could limit its power to raise rents and affect revenues and profitability.
DOC’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.
Additionally, a high interest rate environment is a concern for Healthpeak. Elevated rates imply high borrowing costs for the company, which would affect its ability to purchase or develop real estate. The company has a substantial debt burden, and its net debt, as of Dec 31, 2023, was approximately $6.7 billion.
Over the past three months, shares of this Zacks Rank #3 (Hold) company have gained 7.4% compared with the industry's upside of 7.9%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are Alexandria Real Estate Equities (ARE - Free Report) and Lamar Advertising (LAMR - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for ARE’s 2024 FFO per share has gained marginally upward over the past two months to $9.45.
The Zacks Consensus Estimate for LAMR’s current year FFO per share has moved marginally upward in the past two months to $7.74.
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.