Healthpeak Properties: Is a 7% Dividend Yield Sustainable Amid Healthcare Real Estate Growth?

Healthpeak Properties (NYSE: HPE) is offering investors a compelling 7% dividend yield, fueled by its Q1 2025 results and strategic focus on healthcare real estate. But can this dividend remain sustainable, and what does the future hold for growth? Let's dissect the numbers.

Dividend Sustainability: Strong Coverage, But Watch the Payout Ratio

Healthpeak's dividend of $0.10167 per month (annualizing to $1.22 per share) is supported by robust Funds from Operations (FFO). In Q1 2025, Adjusted AFFO per share rose to $0.43, up from $0.42 in the prior year. At this pace, annualized AFFO would reach $1.72 per share, implying a payout ratio of 71%—comfortable but on the higher end for a real estate investment trust (REIT).

This visual would show AFFO comfortably exceeding dividend requirements, but narrowing margins could signal risk if growth slows.

The company has reaffirmed its full-year 2025 guidance, including $1.81–$1.87 in Nareit FFO per share, suggesting stability. However, AFFO growth of just $0.01 per share year-over-year highlights the need for continued cost discipline and rental increases.

Merger Synergies: Outpatient and Lab Growth Drives NOI

The merger with Physicians Realty Trust in late 2023 has turbocharged Healthpeak's portfolio, with outpatient medical properties now representing over 50% of the portfolio. This focus is paying off:

• Same-Store NOI grew 7% in Q1, driven by:
• Outpatient medical: +5% growth (54.5% of the portfolio).
• Lab space: +7.7% growth (34.7% of the portfolio).
• CCRCs (Continuing Care Retirement Communities): +15.9% growth (10.8% of the portfolio).

Lab and outpatient sectors are critical to Healthpeak's strategy, as healthcare systems prioritize cost-efficient outpatient care and biotech innovation. Post-Q1, the company secured 175,000 sq ft of new lab leases, with letters of intent for an additional 400,000 sq ft, underscoring strong demand.

This visual would highlight the dominance of outpatient and lab assets, which are outperforming traditional real estate segments.

Risks to Consider

While Healthpeak's results are promising, several risks could challenge its dividend:

1. Interest Rate Exposure: The company issued $500 million in 10-year notes at 5.375% in February 蕹, but rising rates could pressure future refinancing costs.
2. Occupancy Risks: While outpatient and lab sectors are stable, a slowdown in healthcare spending or a shift to virtual care could impact demand.
3. Balance Sheet Leverage: Net debt/Adjusted EBITDA stands at 5.2x, manageable but elevated. A recession could strain liquidity.

Investment Outlook: A High-Yield Play with Upside, but Not Without Caution

Healthpeak's 7% yield is attractive in a low-interest-rate environment, and its healthcare focus aligns with long-term trends favoring outpatient and lab facilities. The merger's synergy benefits are evident in its NOI growth, and the balance sheet remains resilient with $2.8 billion in liquidity.

However, investors should monitor:
- AFFO growth to ensure the dividend remains comfortably covered.
- Lease renewal activity, particularly in lab spaces, to confirm demand sustainability.
- Interest rate trends, which could impact refinancing costs.

This visual would show HPE's dividend yield outperforming broader markets and some peers, but with higher risk.

Bottom Line: Healthpeak offers a compelling dividend yield backed by a strong healthcare real estate portfolio. While risks exist, its focus on high-growth sectors and disciplined capital allocation make it a hold for income seekers, with upside potential if lab and outpatient demand continues to surge. Investors should proceed cautiously but remain open to this high-yield opportunity.