Healthpeak Properties (DOC): A High-Yield Gamble on Merger Synergies

Is Healthpeak Properties (NYSE: DOC) a buy at a 7% dividend yield? The merger with Physicians Realty Trust has created a healthcare real estate giant, but investors are grappling with execution risks and a payout ratio that screams “caution.” Let's dissect the numbers and decide if this REIT is a steal or a trap.

Valuation: A Discounted Dividend Machine?

Healthpeak's stock has cratered from $22.59 in October 2024 to $17.51 by June 2025 (), fueling that juicy 7% yield. But is this price justified? Let's compare to private market benchmarks:

• Same-Store NOI Growth: 7% in Q1 2025, trouncing the 2%-5% average for private healthcare real estate.
• Debt Metrics: Net debt/EBITDA of 5.2x is leaner than the 6.0x-7.0x typical in private deals, suggesting lower leverage risk.
• Development Pipeline: Investments like Cambridge Point (mixed-use lab/residential) and San Diego lab projects offer 12% preferred returns—way above the 4%-6% cap rates of traditional private healthcare assets.

The math? Healthpeak is trading at a 20% discount to private market valuations of similar healthcare portfolios. That's a bargain if you believe its synergies will stick.

Dividend Stress Test: Can 7% Survive?

The payout ratio is a staggering 545%, meaning Healthpeak is paying out more than five times its earnings. That's a red flag, but there's nuance:

• FFO Growth: Adjusted FFO rose to $0.46 per share in Q1, up from $0.27 a year ago. Post-merger cost savings of $50 million are boosting cash flow.
• Monthly Dividends: The shift to $0.10167/month payments ($1.22 annually) aligns with predictable rental income. This stability could attract yield-starved investors.
• Share Buybacks: $94 million spent in Q1 to repurchase shares at $18.50, signaling confidence in undervaluation.

Risk Alert: Rising interest rates could crimp refinancing costs. Healthpeak's $500M debt issuance in Feb 2025 at 5.375% was a win, but future borrowings may be pricier. Monitor the FFO-to-dividend ratio closely—anything below 1.0 is a death knell.

Merger Synergies: 2026 or Bust?

The Physicians Realty merger created a 50M-square-foot empire, but execution is key:

• Tenant Diversification: Leases with top health systems (Baylor Scott & White) and biopharma firms reduce single-tenant risk. 95%+ retention rates in lab and outpatient spaces are bulletproof.
• Pipeline Momentum: 1.2M sq. ft. leased in Q1, with 400K sq. ft. in lab LOIs. The lab segment's 7.7% NOI growth is a goldmine as biotech demand surges.
• 2026 Target: Management forecasts 3%-4% same-store NOI growth, down from Q1's 7%, but this reflects “normalization.” If they hit these targets, the stock could rebound.

The Tipping Point: Synergies must deliver $100M+ in annual savings by 2026. Miss this, and the dividend could be slashed.

Risks: When the Wheels Could Come Off

• Development Delays: Cambridge Point's residential component faces permitting hurdles. A delay here could sink projected returns.
• Occupancy Pressure: While 95%+ retention is strong, rising interest rates might stress smaller tenants. Watch for occupancy dips in CCRCs (currently 15.9% growth).
• Private Market Competition: If cap rates tighten further, Healthpeak's growth could stall against cheaper private capital.

Verdict: Buy with a Seatbelt On

Buy: If you believe Healthpeak's lab/outpatient focus and merger synergies will sustain cash flows, the 7% yield is a screaming deal. The $21.67 consensus price target (a 23% upside) isn't crazy if they hit 2026 targets.

Hold/Wait: Near-term risks—execution of developments, interest rates, and a payout ratio flirting with disaster—demand caution. Wait for FFO growth to hit $0.50+/share before doubling down.

Sell: If same-store NOI drops below 2% in 2026 or FFO-to-dividend falls below 0.8, run for the exits.

Action Plan

• Buy Now: For income hunters willing to bet on merger success. Target $17.50, with a $15 stop-loss.
• Hold: If you already own DOC, wait for Q2 2025 earnings (July 24) to confirm FFO trends.
• Avoid: If you can't stomach a dividend cut or a stock dip to $16 on execution misses.

Healthpeak is a high-stakes bet on healthcare's future. The yield is seductive, but only investors with a 2-year+ horizon and nerves of steel should pull the trigger.

Final Verdict: Buy, but keep your emergency parachute packed.