Healthpeak Properties: A Diversified Healthcare REIT Poised for Lab Recovery and Outpatient Dominance (NYSE:DOC)

## Executive Summary / Key Takeaways<br>* Healthpeak Properties (DOC) is strategically transforming its portfolio, leveraging a recent merger to solidify its leadership in outpatient medical facilities while actively positioning for an anticipated recovery in the life science sector.<br>* The company's diversified portfolio, particularly the robust performance of its Outpatient Medical and Continuing Care Retirement Community (CCRC) segments, provides a stable foundation, offsetting current headwinds in the Lab business.<br>* Healthpeak is aggressively pursuing strategic capital allocation, including the potential sale of $1 billion in non-core outpatient assets to fund higher-return lab opportunities and development, alongside opportunistic share repurchases.<br>* A significant technological overhaul, including an enterprise-wide ERP upgrade and AI integration, is driving operational efficiencies and enhancing tenant engagement, contributing to reduced general and administrative (G&A) expenses and a differentiated platform.<br>* Despite near-term occupancy declines in the Lab segment, positive leading indicators—such as increased M&A activity, favorable regulatory shifts, and a dramatic reduction in new supply—suggest a recovery is on the horizon, with earnings benefits expected from late 2026.<br><br>## Setting the Stage: Healthpeak's Strategic Evolution in Healthcare Real Estate<br>Healthpeak Properties, Inc., founded in 1985, has evolved into a leading S&P 500 real estate investment trust (REIT) focused on the dynamic healthcare discovery and delivery sectors across the United States. Operating as an umbrella partnership REIT (UPREIT), Healthpeak's core strategy centers on owning, operating, and developing high-quality real estate within three primary segments: outpatient medical, lab, and continuing care retirement communities (CCRC). This diversified approach, coupled with a commitment to operational excellence and technological innovation, underpins its competitive positioning in a complex industry.<br><br>The company's strategic journey has been marked by pivotal transformations, including the internalization of property management and a significant merger, designed to enhance scale, deepen tenant relationships, and drive long-term value. Healthpeak's competitive landscape includes established healthcare REITs such as Welltower Inc. (TICKER:WELL), Ventas, Inc. (TICKER:VTR), and Omega Healthcare Investors, Inc. (TICKER:OHI). Healthpeak distinguishes itself through its integrated development approach, high-quality asset base, and strategic market concentration, which collectively aim to foster stronger customer loyalty and resilient revenue streams. While direct quantitative comparisons with all competitors can be challenging, Healthpeak's operational efficiency and diversified portfolio are key differentiators.<br><br>## The Transformative Merger and Operational Excellence<br>A defining moment in Healthpeak's recent history was the merger with Physicians Realty Trust (TICKER:PRT), which closed on March 1, 2024. This strategic move significantly expanded Healthpeak's footprint, adding 299 outpatient medical buildings and enhancing its size, scale, and diversification. The merger was accretive to earnings, improved the balance sheet, and solidified Healthpeak's position as a leader in the outpatient sector. [cite: Q4 2024, Scott Brinker]<br><br>A key strategic initiative accelerated by the merger is the internalization of property management. By October 2025, Healthpeak had internalized approximately 39 million square feet, with plans for another 3 million square feet. [cite: Q3 2025, Scott Brinker] This shift brings Healthpeak closer to its tenants, providing direct control over workflows, enhancing local market knowledge, and enabling rapid deployment of technology at the property level. [cite: Q3 2025, Scott Brinker] This operational control has already yielded tangible benefits, with G&A expenses projected at $90 million for 2025, less than five years ago despite significant inflation and the merger. [cite: Q3 2025, Scott Brinker]<br><br>## Outpatient Medical: A Bedrock of Stability<br>The Outpatient Medical segment serves as a stable and growing foundation for Healthpeak. This sector benefits from an aging population and a strong consumer preference for convenient, lower-cost healthcare settings, driving demand that consistently outpaces new supply. [cite: Q2 2025, Scott Brinker] New supply in this segment is at its lowest levels in two decades, creating a favorable dynamic for Healthpeak, which boasts the largest footprint and industry-leading tenant relationships. [cite: Q2 2025, Scott Brinker]<br><br>Financially, the segment demonstrates consistent strength. For the nine months ended September 30, 2025, Outpatient Medical generated total revenues of $967.59 million, up from $888.45 million in the prior year period. Adjusted NOI for the same period increased to $602.33 million from $551.68 million. Merger-Combined Same-Store Adjusted NOI increased by $20.41 million for the nine months ended September 30, 2025, driven by mark-to-market lease renewals, annual rent escalations, and increased percentage-based rents. Occupancy, while slightly down year-over-year, remained robust at 91.30% as of September 30, 2025. Leasing activity in Q3 2025 was strong, with 1.2 million square feet of leases executed, achieving positive cash re-leasing spreads of 5.4% and escalators of 3% or above. [cite: Q3 2025, Kelvin Moses] New leasing comprised 270,000 square feet, marking the highest quarter in the combined company's history. [cite: Q3 2025, Kelvin Moses] Healthpeak continues to grow in core markets like Dallas, Houston, and Atlanta, deepening its competitive advantage through strategic developments, such as two large outpatient projects in Atlanta anchored by Northside Hospital, which are 78% pre-leased and expected to yield a mid-7s return on cost. [cite: Q2 2025, Scott Brinker]<br>\<br><br>## Lab Segment: Emerging Opportunities Amidst Transition<br>The Lab segment, representing approximately 35% of Healthpeak's income, has faced headwinds from depressed biotechnology capital raising, lower market rents, increased capitalization rates, and oversupply. This culminated in other-than-temporary impairment charges of $169 million for the South San Francisco JVs and $7 million for the Needham Land Parcel JV during Q3 2025. Total revenues for the Lab segment for the nine months ended September 30, 2025, were $640.12 million, a decrease from $663.62 million in the prior year. Adjusted NOI also saw a slight decrease to $427.07 million from $444.02 million over the same period. Occupancy stood at 93.40% as of September 30, 2025, down from 95.70% a year prior.<br><br>Despite these challenges, management observes a turning point. Leading indicators are becoming positive, including increased M&A activity, reduced regulatory noise, lower interest rates, positive data readouts, and biotech stock outperformance. [cite: Q3 2025, Scott Brinker] The leasing pipeline has doubled since the start of the year to 1.8 million square feet, with a favorable mix of new and renewal leases. [cite: Q3 2025, Scott Brinker] Critically, new supply in the lab sector is projected to decline by 75% in 2025, with new starts near zero, and vacant development projects are being absorbed by alternative uses, which will help balance supply and demand. [cite: Q1 2025, Scott Brinker, Q3 2025, Scott Brinker] Healthpeak's occupancy in the Lab segment is expected to decline further into the high 70s over the next few months before bottoming out and recovering, with earnings contributions from new leasing and pipeline conversions anticipated from late 2026. [cite: Q3 2025, Scott Brinker, Kelvin Moses] The company is actively pursuing opportunistic investments in this segment, including loan investments with attractive yields and future acquisition rights in core submarkets, aiming for double-digit unlevered IRRs. [cite: Q3 2025, Scott Brinker, Q4 2024, Scott Brinker]<br><br>## Continuing Care Retirement Communities (CCRC): Differentiated Performance<br>Healthpeak's CCRC segment continues to be a strong performer. The company's strategic decision to implement a unique entry fee structure, where less than 20% of fees are refundable, has broadened its appeal and driven record sales and net cash collection. [cite: Q4 2024, Scott Brinker] This model positions the properties more comparably to rental senior housing, while still offering extensive amenities and a continuum of care that appeals to independent seniors seeking peace of mind. [cite: Q4 2024, Scott Brinker, Q3 2025, Scott Brinker]<br><br>The CCRC business is performing at a high level, with Net Operating Income (NOI) increasing by over 50% since 2019, including double-digit growth in 2025. [cite: Q3 2025, Scott Brinker] For the nine months ended September 30, 2025, resident fees and services generated $448.24 million in revenue, up from $422.51 million in the prior year. Adjusted NOI for the segment rose to $111.78 million from $100.06 million over the same period. This growth is primarily driven by increased rates for resident fees and higher occupancy, which reached 86.70% as of September 30, 2025, with sequential occupancy up 70 basis points in Q3 2025. [cite: Q3 2025, Scott Brinker, 59] Management anticipates continued occupancy growth, indicating further upside potential. [cite: Q3 2025, Scott Brinker]<br><br>## Technological Edge and Operational Excellence<br>Healthpeak is actively transforming its operational capabilities through significant technological investments. The company completed an enterprise-wide ERP system upgrade in Q2 2025, which has substantially changed its processes and control environment. This new platform is designed to improve data integration and availability, increase productivity, and establish a foundation for the rapid deployment of additional AI capabilities. [cite: Q2 2025, Scott Brinker]<br><br>Healthpeak is advancing a strategic plan to become an AI-enabled real estate owner, focusing on areas where data and automation can enhance efficiency, particularly in property operations, facilities engineering, and accounting. [cite: Q3 2025, Kelvin Moses] By partnering with a leading enterprise technology firm, the company's automation initiatives are building a stronger data architecture to improve connectivity across internal systems and reduce manual work. [cite: Q3 2025, Kelvin Moses] This tech-enabled platform is expected to streamline operations, differentiate property management and leasing platforms, and expand tenant services, driving new revenue opportunities. [cite: Q3 2025, Scott Brinker] The tangible benefits are already evident, with G&A projected at $90 million for 2025, lower than five years ago despite significant inflation and the merger. [cite: Q3 2025, Scott Brinker] This technological differentiation enhances Healthpeak's competitive moat by improving operational efficiency, tenant satisfaction (evidenced by sector-leading Kingsley client satisfaction results), and ultimately, financial performance through higher retention rates and re-leasing spreads. [cite: Q3 2025, Kelvin Moses, Q2 2025, Scott Brinker]<br>\<br><br>## Financial Health and Strategic Capital Allocation<br>Healthpeak maintains a strong investment-grade balance sheet, ending Q3 2025 with $2.7 billion of liquidity and a net debt to adjusted EBITDA of 5.3x. [cite: Q3 2025, Kelvin Moses] Approximately 95% of its consolidated debt was fixed rate as of September 30, 2025, with a weighted average effective interest rate of 4.20% for fixed-rate debt, mitigating interest rate risk.<br><br>The company's capital allocation strategy is highly disciplined and opportunistic. In 2024, Healthpeak sold $1.3 billion to $1.4 billion of stabilized outpatient medical assets at a compelling 6.4% cap rate, using the proceeds to fully fund its development pipeline, repurchase approximately $300 million of stock at an implied 8% FFO yield, and reduce floating rate debt to nearly zero. [cite: Q1 2025, Scott Brinker, Q4 2024, Scott Brinker] For 2025, Healthpeak has reaffirmed its investment guidance of $500 million, which includes stock buybacks, reflecting its flexibility to pursue the best risk-adjusted returns with a weighted average yield of 8% plus. [cite: Q1 2025, Scott Brinker, Q4 2024, Peter Scott] The company is currently exploring the sale of an additional $1 billion or more in non-core outpatient medical assets, aiming to recycle these proceeds into higher-return lab opportunities and outpatient development projects with mid-7s yields. [cite: Q3 2025, Scott Brinker] This proactive management of its portfolio and capital structure positions Healthpeak to capitalize on market dislocations and drive long-term value.<br>\<br><br>## Risks and Outlook<br>Healthpeak has reaffirmed its FFO as adjusted guidance for 2025 in the range of $1.81 to $1.87 per share, and total same-store growth guidance of 3% to 4%. [cite: Q3 2025, Kelvin Moses, Q4 2024, Peter Scott] This outlook is supported by the strong performance of its Outpatient Medical (2.5% to 3.5% same-store growth guidance) and CCRC (4% to 8% same-store growth guidance) segments, which are outperforming expectations. [cite: Q3 2025, Kelvin Moses, Q4 2024, Peter Scott] However, the Lab segment's same-store growth is projected at 3% to 4%, reflecting ongoing market adjustments. [cite: Q4 2024, Peter Scott]<br><br>Key risks include continued macroeconomic uncertainty, higher interest rates, and potential challenges in capital raising for some biotech tenants. While the company's watch list for at-risk tenants has meaningfully decreased over the past 60 days, a handful of small-cap and private biotech tenants still require close monitoring. [cite: Q3 2025, Kelvin Moses, Q1 2025, Scott Brinker] The decline in Lab occupancy experienced in 2025 is expected to flow through to earnings in 2026, with a recovery in occupancy and earnings anticipated from late 2026 and thereafter. [cite: Q3 2025, Kelvin Moses]<br>\<br><br>## Conclusion<br>Healthpeak Properties stands at a pivotal juncture, having strategically transformed its portfolio and operational capabilities to capitalize on evolving healthcare real estate dynamics. The successful integration of Physicians Realty Trust (TICKER:PRT), coupled with a robust Outpatient Medical segment and a high-performing CCRC business, provides a strong and diversified earnings base. While the Lab segment navigates a period of transition, marked by impairments and occupancy adjustments, positive leading indicators and a disciplined capital allocation strategy position Healthpeak to convert market distress into long-term growth opportunities.<br><br>The company's commitment to technological differentiation, evidenced by its ERP upgrade and AI initiatives, is not merely a cost-saving measure but a strategic enabler for enhanced tenant relationships and operational efficiency. This, alongside a strong balance sheet and a proactive approach to asset recycling, underpins Healthpeak's ability to drive value. As the Lab market gradually recovers and the Outpatient and CCRC segments continue their consistent performance, Healthpeak's diversified portfolio, strategic investments, and technological leadership are poised to deliver compelling returns for discerning investors.