With rising healthcare spending and favorable demographic trends driving long-term demand, investing in healthcare real estate investment trusts (REITs) can provide both income stability and growth potential. Among the top options in this space is Healthpeak Properties , a diversified healthcare REIT known for its robust portfolio across outpatient medical, life sciences, and senior housing facilities. DOC recently posted solid Q3 earnings, beating expectations and raising its full-year FFO guidance midpoint—a promising signal of its ability to deliver value to shareholders.
One of the standout features of DOC’s investment appeal is its compelling 5% dividend yield, which outpaces the sector median and is supported by a favorable payout ratio. Moreover, DOC not only offers an attractive income stream but also potential capital appreciation, underpinned by solid fundamentals and strategic growth initiatives in the healthcare real estate market. Notably, Healthpeak’s strategic acquisition earlier this year of Physicians Realty Trust has already started to yield substantial cost synergies, giving DOC a more streamlined and cost-effective operation.
For income-focused investors seeking a quality pick with defensive characteristics, DOC is an appealing option for stable returns.
About Healthpeak Properties Stock
Healthpeak Properties is an S&P 500 Index member with a diverse portfolio of life science, outpatient medical, and senior housing properties throughout the U.S. Healthpeak Properties was formed through a merger between Healthpeak and Physicians Realty Trust, announced on March 1, in an all-stock transaction. The resulting conglomerate from the merger, now with a market cap of $15.8 billion, is headquartered in Denver.
DOC operates across three segments: outpatient medical office buildings (MOBs), lab space, and continuing care retirement communities. It leases its properties to several major health systems, including HCA Healthcare and CommonSpirit Health. Large health systems account for one-third of its annual base rent (ABR), with biopharmaceutical companies such as Bristol Myers Squibb and senior housing properties comprising the remainder.
The healthcare REIT’s stock has gained 14.8% on a year-to-date basis. Notably, shares purchased at the opening on the first business day of this year have yielded around 6.1%, leading to a total return of approximately 21%, roughly in line with the broader market’s performance.
Healthpeak Properties Reports Solid Q3 Results, Raises Guidance
Healthpeak Properties recently reported its third-quarter earnings results. Overall, the company had an excellent quarter. It posted 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, along with 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 $700.4 million, beating expectations by $15.86 million.
Notably, since its acquisition of Physicians Realty Trust earlier this year, DOC is seeing robust merger synergies, with management now expecting at least $50 million in cost savings in the first year, an increase from the $45 million previously forecasted in July, primarily due to property management internalization. Because of the 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. 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. 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.
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.
Healthpeak Properties is also building a pipeline of new outpatient development projects, predominantly pre-leased to top health systems, with yields that enhance earnings. Most recently, DOC began a $37 million project that is fully pre-leased to HCA.
DOC is also supported by a solid balance sheet, backed by favorable long-term credit ratings from Moody’s and S&P Global. This is demonstrated by its $3 billion in total liquidity, with an entirely undrawn revolver, and a net debt to EBITDA ratio of 5.1x, comfortably below the 6.0x threshold typically considered safe for REITs.
Looking ahead, the healthcare REIT raised its full-year guidance for the third time this year. DOC updated its 2024 FFO per share, as adjusted, forecast to $1.79-$1.81, from the previous range of $1.77-$1.81. It also increased the midpoint of its AFFO guidance by $0.01, setting 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.
DOC Stock Valuation and Dividend Yield
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.
Options Market Sentiment on Healthpeak Properties Stock
Looking at the January 17, 2025 option chain, the $22.50 CALL option has a bid/ask spread of $1.00/$1.10, while the $22.50 PUT option displays a spread of $0.80/$0.90. Remember that this option strike is closest to the current stock price. We can calculate the expected price movement by using the midpoint prices of these options:
0.85 (22.50 put) + 1.05 (22.50 call) = 1.90/22.72 = 8.4%
Based on current prices, the options market suggests that DOC stock could experience a movement of about 8% by the January options expiration from the $22.50 strike price when applying the long straddle strategy. That would place the stock in a trading range of $20.81 to $24.62.
Importantly, at the $22.50 strike price, the open call options outnumber the open put options by about five to one, with 1,239 calls open compared to 256 puts. While activity in DOC's options pits is relatively light, this points to a prevailing bullish sentiment in the options market and suggests a higher likelihood of the stock’s value increasing.
What Do Analysts Expect 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, which 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. The analysts told investors in a research note that the life sciences real estate market is “navigating a complex landscape.” However, with improving biotech fundraising, expectations of a Federal Reserve rate-cutting cycle over the next 12-18 months, and a decline in supply heading into 2025, investors “should begin to have cautious optimism.”
Deutsche Bank thinks that Healthpeak Properties and Alexandria Real Estate in particular are well-positioned to capitalize on this improving outlook. It noted that both companies will likely increase their market share as the sector adapts to a normalized demand curve.
Analysts have a consensus rating of “Moderate Buy” on Healthpeak Properties stock. Out of the 19 analysts covering the stock, 12 recommend a “Strong Buy,” one rates it as a “Moderate Buy,” and six have a “Hold” rating. The average price target for DOC stock is $25.53, indicating an upside potential of around 12% from current levels.
On the date of publication, Oleksandr Pylypenko did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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