Thinking Of Buying Healthpeak Properties? Here Are The Properties And Tenants You'd Be Adding To Your Portfolio

Real estate investment trusts (REITs) are one of the most popular income-oriented types of stocks investors can purchase. Receiving monthly or quarterly dividend payments on a regular basis is comforting to those who rely on such payments for ongoing household or other bills. 

But it’s always important to consider the properties, tenants and contractual agreements that comprise the largest percentage of a REIT’s business to ensure that those payments will continue. 

Take a look at one healthcare REIT with a slightly different tenant base from most of its peers in the same subsector:

Healthpeak Properties Inc. PEAK is a Denver-based diversified healthcare REIT that owns and operates private-pay facilities such as life science centers, medical offices and continuing care retirement communities. Although it has properties across the country, most of its properties are in the San Francisco, San Diego and Boston areas. Healthpeak Properties’ initial public offering (IPO) was created in 1985, and it was added to the S&P 500 in 2008. It owns 480 properties worth over $20 billion.

Healthpeak Properties has approximately 200 tenants in its Life Science centers, and the top 20 tenants represent about 45% of the life science annualized base rents (ABR). Publicly traded companies account for 73% of Healthpeak’s ABR, and about 80% of its ABR comes from companies with market caps over $1 billion. Biotech companies make up the preponderance of Healthpeak Properties’ tenants, with a somewhat even distribution between large-cap, mid-cap, small-cap and private biotech companies.

Many of Healthpeak Properties’ life science tenants are large, well-known pharmaceuticals, such as Amgen Inc., Johnson & Johnson, Pfizer Inc. and Bristol-Myers Squibb Co.

Healthpeak Properties’ emphasis on life sciences is what sets it apart from most other healthcare REITs, which are more involved with hospitals, assisted living facilities and skilled nursing homes. Life science and medical office buildings combined make up about 90% of Healthpeak Properties’ net operating income (NOI).

The chart below from Healthpeak Properties’ March 2023 investor presentation shows the 20 largest tenants in its property portfolio. One of the positives that stands out from the chart is the remaining lease term for most of its top tenants. Only four have remaining lease terms of less than five years, and 11 of the 20 have remaining lease terms longer than seven years.

Another positive for Healthpeak Properties is its life science portfolio occupancy rate, which was 99% at year-end 2022, up over 2% since 2019. While its medical office occupancy rate was 91.4%, its tenant retention rate average since 2015 is only 81%, which is somewhat low. Each time a tenant does not renew its lease, there are carrying costs until a new tenant is put into place, so Healthpeak Properties still has its work cut out to boost that renewal rate higher.

With the growth of an aging Baby Boomer population, the Biotech industry should thrive over the next two decades, as long-term drug research for common diseases will continue. This bodes well for Healthpeak Properties’ ability to improve on its occupancy levels.

Here's a summary of some of Healthpeak Properties’ largest tenants:

Amgen Inc. AMGN is a Thousand Oaks, California-based American multinational biopharmaceutical company established in 1980. Amgen focuses on molecular biology and biochemistry with a goal to use recombinant DNA technology to provide cures for cancer, arthritis and other autoimmune diseases. It’s been on the Fortune 500 list for 23 years. Amgen’s IPO was in June 1983, and today it’s a member of both the Dow 30 and S&P 500.

 

Johnson & Johnson JNJ is a Brunswick, New Jersey-based American multinational corporation that develops and sells medical devices, pharmaceuticals and consumer packaged goods. Founded in 1886, it’s in the top 40 of the Fortune 500 list of the largest U.S. corporations in terms of total revenue. Johnson & Johnson has over 250 subsidiary companies that are based in 60 countries and sells products in 175 countries. Johnson & Johnson’s worldwide sales are close to $100 billion.

Johnson & Johnson launched its IPO in 1944, has a market cap of $506.41 billion and is a member of both the Dow 30 and S&P 500. It is one of the most popular stocks on the New York Stock Exchange and has an average daily volume of 8.6 million shares traded.

Bristol-Myers Squibb Co. BMY is a New York-based American multinational pharmaceutical company. In 2022 it had revenue of $46.2 billion and is on the Fortune 500 list of the largest U.S. corporations. It manufactures prescription pharmaceuticals and does research and development in biologics for cancer, HIV/AIDS, diabetes and the treatment for several other areas of physical and mental disorders. Bristol-Myers Squibb was founded in 1887 and is a member of the S&P 500.

Recent News

On Feb. 7, Healthpeak Properties reported its fourth-quarter and full-year 2022 operating results. Adjusted funds from operations (AFFO) of $0.44 were up 7.3% over FFO of $0.41 reported in the fourth quarter of 2021 and a penny above analysts’ estimates. Revenue of $524.47 million was about 1% above the Street’s estimates of $519.38 million and was 8.5% above revenue of $483.2 million from the fourth quarter of 2021.

Healthpeak Properties’s $1.70-$1.76 forward guidance of adjusted FFO for 2023 fell short of Wall Street’s consensus estimates of $1.77. That initiated a slew of selling over the next few months that dropped the share price from $28 to a recent closing price of $21.01. In mid-March, the chart of Healthpeak Properties formed a “death cross” — the 50-day moving average crossed below the 200-day moving average.

Analysts have not been kind to Healthpeak Properties in recent months. In early April, Citigroup analyst Michael Griffin downgraded Healthpeak Properties from Buy to Neutral, while announcing a price target of $23. Griffin cited its heavy concentration of life science properties in San Francisco, an area that has recently seen declines in other sectors, such as tech.

On March 31, Scotiabank analyst Nicholas Yulico also downgraded Healthpeak Properties from Sector Outperform to Sector Perform and announced a price target of $24. Yulico also mentioned a tougher operating environment for Healthpeak Properties’ life science properties over the next year.

It’s been almost four months since an analyst has seen the value in Healthpeak Properties. On Jan. 3, Jefferies analyst Jonathan Petersen upgraded Healthpeak Properties from Hold to Buy and raised his price target from $23 to $29.

Healthpeak Properties pays a quarterly dividend of $0.30. Its $1.20 annual dividend yields 5.7%. Potential investors should know that the quarterly dividend was cut in February 2021 from $0.37 to $0.30 per share and has not seen an increase since that time. Its forward FFO of $1.74 covers the $1.20 dividend with a payout ratio of 68.9%, and the price/FFO ratio (P/FFO) at 12.2 is reasonable.

Despite its strong, well-established tenant base and decent dividend yield, Healthpeak Properties’ one-year total return is negative 35.73%, making it one of the weakest performing of all the healthcare REITs. Its poor performance is largely the result of negative earnings revisions and recent analyst downgrades.

It’s been in a long-term downtrend since August 2021 when it traded near $35 per share. The 52-week range is $20.21 to $35.72, and the most recent closing price was less than a dollar above the lows.

Healthpeak Properties will announce its first-quarter 2023 operating results after the market closes on April 27. FFO estimates are for $0.08, which would be well below the first-quarter 2022 FFO of $0.43. The consensus estimate on revenue is $522.21 million, which would be an improvement over revenue of $498.37 million achieved in the first quarter of 2022.

Over the past five years, private market real estate investments have outperformed the publicly traded REIT market by about 50%. Check out Benzinga’s Real Estate Offering Screener to discover the latest passive real estate investments.

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