Healthpeak Properties, Inc. PEAK has been witnessing robust demand for its life science and medical office properties. This will likely support top-line growth for the company in the upcoming period. However, the operating environment for senior housing remains challenging amid discouraging move-out and move-in trends.
Understandably, in light of global efforts to develop vaccines and treatments for the coronavirus, the demand for drug innovation has been increasing. This along with long-term favorable factors like increasing life expectancy of the U.S. population and growth opportunities for biopharma drug development has promoted the life-science and medical-real estate market fundamentals.
Amid such trends, the company executed numerous leases that have been driving segment occupancy, while rent payments have remained in line with previous collections.
In fact, at its life science portfolio, Healthpeak leased 89,000 square feet of space in August. This has likely driven a 30-basis-point monthly increase in occupancy to 96.6%. Rent collections for the month totaled 99% of contractual payments, in line with July.
Additionally, at its medical office portfolio, the company leased 125,000 square feet of space in August. Moreover, occupancy remained stable at 91.1%, while contractual rents received totaled 98%.
This aside, Healthpeak made concerted efforts to reposition its portfolio. As part of such efforts, the company recycled capital through non-core dispositions to its solid investment and development pipeline. In fact, the expansion of its life-science and medical office footprint as well as selective buyouts of high-quality senior housing assets in high-barrier-to-entry markets renewed growth opportunities for the company.
Its ample liquidity and strong balance-sheet position also support such repositioning efforts.
However, Healthpeak’s senior housing businesses have all been adversely impacted by the pandemic. Move-ins remain below historical averages in light of the coronavirus outbreak-related protocols, shelter in place, reduced in-person tours and incidences of the coronavirus outbreak at the company’s facilities.
This along with significant move-outs has been impacting occupancy rates at its senior housing operating portfolio (“SHOP”) and continuing care retirement community (“CCRC”) portfolios.
In fact, as of Aug 31, spot occupancy at its SHOP portfolio was 77.1%, declining 100 basis points from the July-end numbers. Also, for the duration of the pandemic, Healthpeak expects 0.5-2.5% and 0.5-1% of occupancy attrition per month in SHOP and CCRC assets, respectively. In addition, incremental expenses are expected to increase 0-5% during the pandemic.
Moreover, in a bid to optimize portfolio and eliminate small operator relationships, the company has been disposing of non-core healthcare properties. Although such efforts are strategic fits for the long term, the dilutive impact on earnings and reduced cash flows in the near term from the sale of assets is unavoidable.
Shares of this Zacks Ranks #3 (Hold) company have lost 25% compared with the industry’s decline of 11.5% over the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks to Consider
Alpine Income Property Trust, Inc.’s PINE funds from operations (FFO) per share estimates for 2020 have been revised 4.4% upward to $1.18 over the past month. It currently carries a Zacks Rank of 2 (Buy).
Duke Realty Corporation’s DRE Zacks Consensus Estimate for 2020 FFO per share has been revised 3.5% upward to $1.49 over the past two months. The company currently carries a Zacks Rank of 2.
Sabra Healthcare REIT, Inc.’s SBRA FFO per share estimates for the ongoing year have been revised 1.2% upward to $1.74 over the past month. The company currently carries a Zacks Rank of 2.
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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