Healthpeak Properties Inc: A Unique Health-Care Play for Income Investors
This Dividend Stock Looks Interesting
There are many ways to invest in the health-care sector, such as buying shares of drug manufacturers, medical equipment makers, and managed health-care companies. For income investors, though, there are health-care plays that are often overlooked: companies that own health-care real estate.
Check out Healthpeak Properties Inc (NYSE:PEAK), for instance. Headquartered in Denver, CO, Healthpeak invests in private-pay health-care real estate primarily across three core asset classes: life science campuses, medical office buildings, and continuing care retirement communities.
The company started as Health Care Property Investors in 1985 with an initial public offering (IPO) on the New York Stock Exchange. The company grew into one of the leading health-care REITs and was added to the S&P 500 index in 2008.
As of March 31, the company’s portfolio consisted of 501 properties. It also had another 12 properties under development and eight properties under redevelopment. (Source: “Earnings Release and Supplemental Report: First Quarter 2021,” Healthpeak Properties Inc, last accessed May 11, 2021.)
Note that Healthpeak didn’t start out with those three core asset classes. Over the past five years, the company has taken deliberate actions to reposition itself, focusing on owning non-commoditized real estate where it can gain a competitive advantage through scale and expertise. In 2016, the REIT’s life science, medical office, and continuing care retirement community properties only accounted for 39% of its portfolio income. Today, their share of the company’s portfolio income is 97%. (Source: “Investor Presentation: March 2021,” Healthpeak Properties Inc, last accessed May 11, 2021.)
Because these three core asset classes are vital, irreplaceable, and have high barriers to entry, Healthpeak now stands out from its peers. In the company’s own words, “This transformation has created a differentiated REIT that is positioned to generate consistent and stable earnings and dividend growth for years to come.” (Source: Ibid.)
As is the case with most REITs, one of the main appeals of Healthpeak Properties stock is its dividends. PEAK stock currently pays quarterly dividends of $0.30 per share, which translates to an annual yield of 3.6%.
To put that in perspective, the average dividend yield of S&P 500 companies is just 1.4% at the moment. (Source: “S&P 500 Dividend Yield,” multpl.com, last accessed May 111, 2021.)
The company isn’t standing still. To continue with its three-core-asset-class strategy, from Healthpeak Properties Inc’s February earnings release through April 30, the company closed an additional $1.0 billion of senior housing sales, including 31 senior housing operating portfolio assets.
In the first quarter of 2021, the REIT also acquired a 14-property medical office portfolio totaling 833,000 square feet for $371.0 million, an approximately 80,000-square-foot on-campus medical office building in Denver for $38.0 million, and a 48,000-square-foot on-campus medical office building in Nashville, TN for $13.0 million.
In the same quarter, Healthpeak completed a 214,000-square-foot life science development in Lexington, MA. The building is 100% leased and 86% occupied, with occupancy of the remaining space expected in the second quarter.
As for dividend coverage, the REIT generated adjusted funds from operations (AFFO) of $0.40 per share in the first quarter of 2021. The amount was in excess of its quarterly dividend payment of $0.30 per share.
Also in the first quarter, Healthpeak Properties Inc’s blended total same-store portfolio cash (adjusted) net operating income (NOI) grew 4.3% year-over-year.
Moreover, management has raised their guidance. Previously, they expected the REIT’s AFFO to be in the range of $1.50 to $1.60 per share and its blended total same-store portfolio cash (adjusted) NOI growth to be 1.5% to three percent in full-year 2021. Now they’re forecasting AFFO of $1.53 to $1.61 per share and blended total same-store portfolio cash (adjusted) NOI growth of 1.8% to 3.3% for the year.
Bottom Line on Healthpeak Properties Inc
If Healthpeak Properties stock maintains its current dividend policy, it will pay $1.20 per share in total dividends in 2021. In other words, if Healthpeak Properties Inc can achieve management’s guidance range, the REIT will cover its payout this year with ease.
For long-term income investors who want to get some exposure to the health-care sector, PEAK stock could be a good opportunity.