With the pandemic’s impact waning, the healthcare real estate industry has been witnessing an improvement in its operating fundamentals. Given this backdrop, healthcare real estate investment trusts (REITs) like Healthpeak Properties, Inc. PEAK, Welltower Inc. WELL and Ventas, Inc. VTR have been experiencing a rebound in demand for their services, which has been driving occupancy levels.
Last month, PEAK reported fourth-quarter 2022 funds from operations (FFO) as adjusted per share of 44 cents, beating the Zacks Consensus Estimate by a penny. The reported figure was up 7.3% year over year. The performance was backed by healthy top-line growth.
WELL and VTR reported fourth-quarter normalized FFO per share of 83 cents and 73 cents, respectively, both surpassing the Zacks Consensus Estimate by a penny. Both figures were in line with the prior-year quarter’s tally.
Healthpeak is well-poised to benefit from its diversified, high-quality and well-balanced portfolio across three core asset classes of life science, medical office and continuing care retirement communities (CCRC).
The life-science industry has been benefiting from the increasing life expectancy of the United States population and biopharma drug development growth opportunities. As a result, the demand for life science real-estate assets has been soaring.
Healthpeak has been focusing on enhancing its life-science real-estate assets to capitalize on this positive trend. In 2022, the company executed around 1.4 million square feet of leases across the life-science portfolio, 68% of which were new leases.
Also, a well-diversified tenant base in the life-science portfolio is expected to aid steady rental revenue generation.
Further, its active life science developments are expected to be accretive to annual NOI in the upcoming period, which bodes well for the company.
Healthpeak’s CCRC portfolio, which refers to its retirement communities that include independent living, assisted living and skilled nursing units, is poised to benefit from the expenditure trend of senior citizens, who constitute a major customer base of healthcare services and incur higher healthcare expenditures than the average population.
PEAK’s efforts to dispose of non-core assets belonging to the senior housing operating property (SHOP) and triple-net leased categories through its capital-recycling program and redeploying the proceeds to acquire and fund the development of life science and medical office assets in high barrier-to-entry markets bode well for growth.
On the balance sheet front, Healthpeak exited fourth-quarter 2022 with $2.5 billion of liquidity and a net debt-to-adjusted EBITDAre of 5.3X. Also, long-term credit ratings of Baa1(Stable) from Moody’s and BBB+ (Stable) from S&P Global and Fitch as of Dec 31, 2022, render easy access to the debt market at favorable costs. With enough financial flexibility, Healthpeak is well-placed to capitalize on future growth opportunities.
In addition, the company’s trailing 12-month return on equity (ROE) is 6.96% compared with the industry’s average of 3.84%, indicating that it is more efficient in using shareholders’ funds than its peers.
However, intense competition from other industry players in the healthcare services sector is a key concern for Healthpeak. Also, the company’s operators contend with peers for occupancy and to manage expenses. This could hurt Healthpeak’s revenues and limit profitability to a certain extent.
PEAK’s development and redevelopment pipeline, although encouraging for long-term growth, exposes the company to the risks associated with rising construction costs amid the inflationary environment.
Further, rising interest rates are likely to increase the company's borrowing costs, affecting its ability to purchase or develop real estate.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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