Healthpeak Properties, Inc. PEAK recently received approval of entitlements for Phases II and III of its purpose-built lab development campus — Vantage — in South San Francisco.
Compared with the time Healthpeak had acquired the land, the entitlements reflect double the allowable density on the campus. Specifically, the company will be able to deliver an additional 1.3 million square feet of lab space. Upon full buildout, this will bring the total square feet of the campus to 1.7 million.
The increasing life expectancy of the U.S. population and biopharma drug development growth opportunities have promoted the lab real estate market fundamentals lately. Amid this encouraging demand for lab assets, Healthpeak’s focus on enhancing its lab segment seems to be a strategic fit, and it expects the majority of its future growth to be driven by such assets. Importantly, the entitlements provide flexibility to complete the remaining phases in accordance with market demand.
The construction for Phase 1 of the campus, comprising 343,000 rental square feet across two buildings and a 40,000-square-foot amenity building, began in 2022. This Phase is presently 52% leased to Astellas Pharma, which took initial occupancy this December.
The 20-acre campus is strategically located in the heart of South San Francisco and at the doorstep of Genentech’s headquarters, offering tenants a highly amenitized, world-class campus setting with access to multiple modes of transportation. This includes direct access to the Rails-to-Trails pathway, which provides pedestrians with a connection to downtown South San Francisco's restaurant and retail corridor and the Caltrain station.
Per Scott Bohn, the company’s chief development officer and co-head of lab, “Inspired by our success at The Cove and other nearby campuses, the Vantage master plan is a continuation of Healthpeak’s vision to create a world class campus that provides an inviting and collaborative setting for the nurturing of ideas, knowledge, and discoveries that shape the biotech industry. The future phases of Vantage provide Healthpeak a strategic development pipeline to meet the growth needs of our current and future tenants.”
Healthpeak continues to make concerted portfolio-repositioning efforts to focus on developing its lab, outpatient medical and continuing care retirement community assets. As of Sep 30, 2023, the company had five lab development projects underway with an estimated total cost of around $707.5 million and one outpatient medical development project in process with an aggregate estimated cost of nearly $30.7 million.
The healthcare real estate investment trust’s (REIT) healthy balance sheet position is likely to support its growth endeavors. As of the end of the third quarter of 2023, PEAK had around $3 billion of liquidity.
Analysts seem bullish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2023 funds from operations (FFO) per share has been raised marginally over the past two months to $1.77.
Shares of PEAK have gained 8% in the quarter-to-date period compared with the industry’s upside of 16.7%.
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Nonetheless, competition from other industry players in the healthcare services sector may weigh on Healthpeak. The company’s operators contend with peers for occupancy, which could limit the company’s power to raise rents and affect revenues and profitability.
Also, a high interest rate environment is likely to increase the company's borrowing costs, affecting its ability to purchase or develop real estate.
Stocks to Consider
Some better-ranked stocks from the REIT sector are EastGroup Properties EGP, Stag Industrial STAG and Park Hotels & Resorts PK. While PK sports a Zacks Rank #1 (Strong Buy), EGP and STAG each carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for EastGroup Properties’ 2023 FFO per share has moved marginally upward in the past two months to $7.70.
The consensus estimate for Stag Industrial’s ongoing year’s FFO per share has increased 1.3% over the past two months to $2.28.
The consensus mark for Park Hotels & Resorts’ current-year FFO per share has moved marginally northward over the past month to $1.99.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
