Business Overview and History: Healthpeak Properties, Inc. (DOC) is a leading owner, operator, and developer of real estate focused on the healthcare sector. With a diverse portfolio spanning life science, medical office, and continuing care retirement communities (CCRCs), Healthpeak has established itself as a premier healthcare real estate investment trust (REIT).
Healthpeak Properties, Inc., formerly known as HCP, Inc., was founded in 1985 and is headquartered in Denver, Colorado. The company initially focused on skilled nursing facilities but has since diversified its portfolio to include other healthcare-related property types. In 2016, the company rebranded to Healthpeak Properties to better reflect its focus on developing and owning properties that support the delivery of healthcare services.
Healthpeak Properties was organized in the state of Maryland on April 9, 2013, as Physicians Realty Trust. The company filed a Registration Statement on Form S-11 with the SEC for its proposed underwritten initial public offering (IPO) and completed the IPO of its common shares on July 24, 2013, when it also commenced operations. The net proceeds from the IPO were contributed to Physicians Realty L.P., a Delaware limited partnership (the "Operating Partnership"), of which Healthpeak is the sole general partner.
The company's operations are conducted through the Operating Partnership and its wholly-owned and majority-owned subsidiaries. Healthpeak is a self-managed REIT formed primarily to acquire, selectively develop, own, and manage healthcare properties leased to physicians, hospitals, and healthcare delivery systems.
In May 2021, Healthpeak and the Operating Partnership entered into an At Market Issuance Sales Agreement, allowing the company to issue and sell common shares with an aggregate offering price of up to $500 million through an ATM program. In August 2023, they entered into a new agreement, increasing the aggregate offering price to $600 million and terminating the previous program.
Healthpeak reflects noncontrolling interests in partially owned properties on its consolidated balance sheets for the portion of consolidated properties not wholly owned by the company. The earnings or losses from those properties attributable to the noncontrolling interests are reflected as noncontrolling interests in partially owned properties in the consolidated statements of income.
Today, Healthpeak's portfolio consists of approximately 588 properties across 36 states, totaling 33.5 million square feet. The company's life science segment accounts for 48% of net operating income (NOI), medical office buildings (MOBs) contribute 35%, and CCRCs make up the remaining 17%. Healthpeak's top markets include Boston, San Francisco, San Diego, and Nashville.
Financial Performance and Ratios: Healthpeak has maintained a solid financial profile over the years. As of the latest reporting period, the company had total assets of $15.70 billion and total liabilities of $8.77 billion, resulting in a debt-to-total-capitalization ratio of 42.98%. The company's interest coverage ratio stood at 2.72x, indicating a comfortable ability to service its debt obligations.
In fiscal year 2023, Healthpeak reported total revenue of $2.18 billion, up from $2.06 billion in the prior year. Net income for the year was $306.01 million, or $0.56 per diluted share, compared to $500.45 million, or $0.92 per diluted share, in 2022. The company's adjusted funds from operations (AFFO) per share, a key metric for REITs, was $1.47 in 2023, up from $1.42 in 2022.
Healthpeak's financial ratios reflect a well-managed and diversified REIT. As of the latest reporting period, the company's debt-to-EBITDA ratio was 5.1x, and its fixed-charge coverage ratio stood at 3.68x, both within the company's targeted ranges.
Financials: Healthpeak's financial performance demonstrates consistent growth and stability. The company's revenue growth from $2.06 billion in 2022 to $2.18 billion in 2023 showcases its ability to generate increasing cash flows. Despite a decrease in net income from $500.45 million in 2022 to $306.01 million in 2023, the company's AFFO per share increased from $1.42 to $1.47, indicating improved operational efficiency.
For the most recent quarter (Q3 2023), Healthpeak reported revenue of $700.39 million, representing a 5.3% increase year-over-year. Net income for the quarter was $85.68 million, down 12.0% compared to the same period last year. Operating cash flow (OCF) increased by 12.2% to $324.67 million, while free cash flow (FCF) grew by 7.5% to $288.95 million.
Liquidity: Healthpeak maintains a strong liquidity position, which is crucial for its ongoing operations and future growth initiatives. The company's ability to increase its ATM program from $500 million to $600 million demonstrates its access to capital markets. Additionally, the comfortable interest coverage ratio of 2.72x suggests that Healthpeak has sufficient cash flow to meet its debt obligations and maintain financial flexibility.
As of September 30, 2023, Healthpeak had $195.77 million in cash and cash equivalents, along with $1.0 billion of available capacity on its unsecured revolving credit facility. The company's debt-to-equity ratio stands at 1.00, indicating a balanced capital structure. While specific current and quick ratios were not provided, the company's overall liquidity position appears strong.
Segment Performance and Outlook: Healthpeak's life science segment has been a key driver of growth, benefiting from strong demand for laboratory and research space. In the third quarter of 2024, the life science portfolio achieved 2.8% same-store net operating income (NOI) growth, and occupancy increased 30 basis points sequentially to 95.9%. The company has signed over 700,000 square feet of new leases in this segment since July 1, 2024, with positive cash re-leasing spreads of 10%.
The medical office building (MOB) segment has also performed well, with third-quarter same-store NOI growth of 3.4% and tenant retention of 89%. Healthpeak has executed over 5 million square feet of leases in this segment year-to-date, putting it on pace for a record leasing year. The company has been able to push rent escalators to 3% on new MOB leases, capitalizing on strong demand for outpatient healthcare facilities.
Healthpeak's CCRC portfolio continued its strong momentum, delivering 14.2% same-store NOI growth in the third quarter of 2024. This performance was driven by occupancy and rate growth, coupled with moderating expense growth.
Looking ahead, Healthpeak has revised its 2024 guidance, increasing the midpoint of both FFO as Adjusted and AFFO by $0.01 per share. The company also tightened its same-store NOI growth guidance range to 3.5% to 4.5%, up 50 basis points at the midpoint. Additionally, Healthpeak now expects to achieve $50 million in merger-related synergies in 2024, 25% above its initial forecast.
The company has increased its guidance for the third time this year, driven by outperformance in leasing, same-store operations, and merger synergies. For 2024, Healthpeak is now guiding for FFO as adjusted of $1.79 to $1.81 per share and AFFO of $1.56 to $1.58 per share. This increase is primarily driven by the improved same-store guidance and the higher expected merger synergies.
Risks and Challenges: While Healthpeak has demonstrated resilience, the company faces some risks and challenges. The healthcare real estate sector is subject to regulatory changes, reimbursement pressures, and evolving patient preferences, which could impact the company's tenants and, by extension, Healthpeak's performance.
Additionally, the life science segment is susceptible to fluctuations in funding and research and development (R&D) spending, which could affect demand for laboratory space. Healthpeak's ability to navigate these dynamics and maintain high occupancy and rental rates will be crucial to its continued success.
Industry Trends and Market Position: The healthcare real estate sector has experienced a compound annual growth rate (CAGR) of approximately 5-7% over the past 5 years, driven by the aging population and increasing demand for outpatient care. Healthpeak's focus on outpatient medical facilities, life science properties, and CCRCs positions it well to capitalize on these trends.
As a self-managed REIT, Healthpeak has grown its portfolio significantly since its IPO in 2013, from $124 million to $5.9 billion as of Q3 2023. The company's portfolio now consists of 278 healthcare properties across 32 states, with approximately 15.64 million net leasable square feet that are 95% leased.
The healthcare real estate sector has seen increased competition in recent years, but Healthpeak believes the aging population and shift towards outpatient care will continue to drive demand for its properties. The company's diversified portfolio and focus on strategic locations affiliated with hospitals or health systems provide stability and growth potential.
Conclusion: Healthpeak Properties has established itself as a diversified and well-managed healthcare REIT, with a balanced portfolio that has delivered consistent growth. The company's focus on life science, medical office, and CCRC properties has positioned it well to capitalize on the long-term trends in the healthcare industry. With a strong balance sheet, disciplined capital allocation, and a proven track record, Healthpeak appears poised to continue generating value for its shareholders. The company's recent guidance increases and strong performance across its segments further reinforce its positive outlook for the future.