Healthpeak Properties, Inc. PEAK has been making efforts to migrate to a higher-quality portfolio, which entails the sale of its senior housing operating portfolio (SHOP) and triple-net portfolio to focus on life science, medical office and continuing care retirement community (CCRC) assets. While such portfolio-repositioning effortsare 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.
Notably, in light of the global efforts to develop vaccines and treatments for the coronavirus, there is a higher demand for drug innovation. Also, increasing life expectancy of the U.S. population, and biopharma drug-development growth opportunities have promoted the life-science and medical-office real estate market fundamentals. This is propelling leasing activity and rent growth for Heathpeak.
In February 2021, the company acquired a 48,360-sq-ft medical office building in Nashville, TN, for $13.4 million.
Such expansion moves along with capital recycling through non-core dispositions of SHOP and triple-net leased assets to acquire and fund the development of life science and medical office assets in high barrier-to-entry markets have enabled it to benefit from favorable operating trends.
Also, with an expectation of a rise in senior citizen population in the years ahead, we believe that Healthpeak has strong upside potential, being well-poised to capitalize on the expenditure trend of senior citizens on healthcare services.
However, the pandemic has been affecting Healthpeak’s senior housing businesses overwhelmingly. Move-ins have been low in light of the pandemic-related protocols, reduced in-person tours and incidences of coronavirus outbreaks at the company’s facilities. This along with significant move-outs has been impacting occupancy rates at its SHOP and CCRC portfolios, thereby, denting revenues.
In fact, as of 2020 end, average occupancy at its SHOP and CCRC portfolios was at 75.3% and 81.4%, declining from 83.2% and 85.6% from 2019 end, respectively. Such occupancy declines are likely to continue for at least the duration of the pandemic. Also, senior housing assets are seeing significant cost increases.
Also, aligning its payout ratio with the targeted life science, medical office and CCRC portfolio and strategy, in February, the company slashed its dividend by 19% to 30 cents from 37 cents paid out earlier.
Additionally, it made significant progress on its $4-billion planned sale of SHOP and triple-net leased assets by closing 12 transactions for gross proceeds of $2.5 billion. Although such efforts are strategic fits for the long term, the dilutive impacts on earnings and reduced cash flows in the near term from the sale of assets are unavoidable.
Shares of this Zacks Rank #3 (Hold) company have gained 7.8% over the past year compared with the industry’s growth of 12.7%.
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Extra Space Storage Inc.’s EXR Zacks Consensus Estimate for 2021 FFO per share has moved up 3.2% to $5.84 in the past month. The company currently carries a Zacks Rank of 2 (Buy).
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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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