Healthpeak Earnings: Cambridge Rezoning Clears Way for Life Science Development Projects

Healthpeak PEAK reported third-quarter results that were relatively in line with our expectations, leading us to reaffirm our $32.50 fair value estimate for the no-moat company. Same-store net operating income for the life science portfolio increased 3.3% in the third quarter, slightly better than our estimate of 2.9% growth. Same-store net operating income for the medical office portfolio was up 3.4%, ahead of our estimate of a 2.1% increase. Meanwhile, the continuing care retirement community saw same-store NOI growth of 32.1% due to the recovery of the senior housing sector. As a result, the company reported total same-store NOI growth of 6.0% in the third quarter. Healthpeak reported adjusted funds from operations of $0.45 per share in the third quarter, which was in line with our estimate and was 2 cents better than the $0.43 figure the company reported in the third quarter of 2022.

Healthpeak revealed that the Cambridge City Council unanimously approved rezoning the neighborhood of Alewife to allow increased densification and higher building heights. Healthpeak currently owns a 39-acre land bank in Alewife for future development projects. We anticipate that Healthpeak will soon announce life science development projects to complement the company’s portfolio of 20 assets in the Boston market. The announcement gives us confidence in our forecast for $800 million in new life science development starts in 2024, which we project will deliver a 7.5% stabilized development yield.

Management announced that they had released 2.1 million square feet of medical office space, the most in a single quarter in the company’s history. We are pleased to see that Healthpeak was able to achieve 3.5% higher rents on the new lease terms, which is slightly higher than the company’s historical average. While much of the gain can be explained due to high inflation over the past several quarters, we still view the company’s execution on such a large volume of leases positively.