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Where Will Healthpeak Properties Be in 5 Years?

Jun 11, 2020 by Matt Frankel, CFP

Healthcare REIT Healthpeak Properties (NYSE: PEAK) has undergone quite a transformation in recent years. The company decided to spin off its troubled skilled-nursing portfolio, reduce debt, and focus its efforts on a core group of three types of healthcare properties -- medical offices, senior housing, and life sciences. And the company even got a new name. If you haven't been paying attention, Healthpeak Properties was formerly known as HCP, Inc.

Healthpeak now owns 636 properties, with the portfolio almost evenly split (by rental income) across its three main property types. The company has a rock-solid balance sheet and an investment-grade (BBB+/BAA1) credit rating, and perhaps most importantly, has virtually eliminated its exposure to the riskiest areas of healthcare.

Now that the company is essentially done with its transformation, Healthpeak seems like it's finally ready to get into growth mode. Here's an overview of the opportunities in Healthpeak's three main focus areas, and what you can expect the company to do in order to capitalize on them.

Three high-potential areas of healthcare

The healthcare real estate market as a whole is massive and fragmented. There is about $1.1 trillion worth of healthcare properties in the United States, and less than 20% of the total is owned by REITs.

It's no secret that the U.S. population is aging rapidly. The massive baby boomer generation is expected to cause the 65-and-older age group to roughly double by 2050, and the 85-and-older age group to grow even faster.

This is naturally going to create growing demand for senior housing (the 85+ age group is the key demographic served). Healthpeak focuses on markets with strong demographics and either leases to or partners with top-notch operators.

Medical offices could be an especially big growth opportunity. Not only is this a highly fragmented form of healthcare real estate (many are owned by the doctors or health systems that operate them), but there's a clear trend toward outpatient care as opposed to in-hospital procedures. Outpatient procedures are generally more cost-effective than hospital care, and the company can leverage its relationships with major health systems to find attractive growth opportunities. What's more, demand for medical offices will continue to grow as the population ages.

And finally, pharmaceutical innovation has never been more exciting, so there should be long-tailed growth potential in life science real estate as well.

Healthpeak's investment plan -- what we know

Recent activity and management comments both indicate that Healthpeak is ready to enter growth mode once again. The company currently has more than $1 billion of active development projects in the pipeline. (For reference, Healthpeak's market cap is around $16 billion.) And all of the company's developments that are expected to be completed within the next year are 100% pre-leased.

Also, it's worth pointing out that Healthpeak has been relatively unscathed by the COVID-19 pandemic. Approximately 97% of its life science tenants and 90% of its medical office tenants paid May rent (and another 6% of medical office rent is deferred). And more surprisingly, 97% of senior housing net-leased property tenants paid rent.

The point is that with rent collection numbers like that, $2.8 billion in liquidity, and a low debt level -- current debt-to-EBITDA ratio is just 4.8x, far lower than many peers -- there's no reason to believe the company will need to pump the brakes on its growth ambitions anytime soon.

The Millionacres bottom line

With billions of dollars to work with, a strong and flexible balance sheet, and three areas of healthcare to focus on -- all of which have extremely attractive growth potential -- it's safe to say Healthpeak could be a significantly larger company in five years than it is today.

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Matthew Frankel, CFP owns shares of Healthpeak Properties, Inc. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.