Healthpeak Property: High Yield in Healthcare

10/19/2020 5:00 am EST

Focus: REITS

Angus Kelleher-Furguson

, Argus Research Corporation

Healthpeak Properties (PEAK) is a self-administered real estate investment trust that invests directly or through joint ventures in healthcare facilities in the United States, notes Angus Kelleher-Ferguson, an analyst with Argus Research — a leading independent Wall Street research firm.

The company’s portfolio consists of senior housing facilities, post-acute/skilled nursing facilities, life science facilities, medical office buildings, and hospitals.

We expect the company to benefit from steady demand in its Medical Office and Life Science segments, which should help to offset declining occupancy in its Senior Housing unit. In general, we believe that Healthpeak is well positioned to weather the pandemic based on changes in its portfolio over the last several years.

We are encouraged by growth in same-property NOI in the company’s core businesses and by several recent investments. Prior to the pandemic, management expected to achieve strong growth in its life science segment, with a 4%-5% increase in same-property NOI in 2020.

We expect the segment to get a further boost as research related to coronavirus treatments increases demand for life science facilities. We also look for Healthpeak to benefit from favorable demographics, a generally high-quality real-estate portfolio, and a healthy balance sheet.

The REIT pays a quarterly dividend of $0.37 per share, or $1.48 annually, for a yield of about 5.2%. In 2019, the company paid out $1.48 per share and the FFO payout ratio was 84%. We think the dividend is secure, though we do not expect it to be raised in 2020 or 2021.

Over the past five years, Healthpeak has raised the dividend at an average annual rate of 1.1%. Our dividend estimates are $1.48 per share for both 2020 and 2021.

PEAK shares trade at 17.0-times our 2020 estimate, above the midpoint of the five-year historical range of 8.2-21.4 and the peer median of 15.2. We believe that PEAK deserves to trade at a higher multiple given its improved growth prospects in the Life Science segment.

The high dividend yield may also be attractive to income-oriented investors, especially given the potential for low long-term interest rates. Our revised target price of $32 implies a total return, including the dividend, of 19% from current levels.

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