Healthpeak Properties (DOC): A Contrarian Play in Healthcare REITs with 6.6% Yield and $27.50 Upside

Healthpeak Properties (DOC) is a diamond in the rough for income investors willing to look past short-term volatility. This healthcare real estate giant boasts a 6.6% dividend yield, trades at a 37% discount to its $27.50 fair value, and is riding a wave of merger synergies worth $65 million+—all while positioning itself at the crossroads of two unstoppable trends: rising healthcare demand and the shift to outpatient care. Let's dive into why this is a contrarian buy now—and why the risks are worth the reward.

1. Healthcare REITs Are Undervalued, and DOC Is Leading the Charge

The healthcare sector is the ultimate recession-proof industry, yet healthcare REITs like DOC are trading at a 48% discount to private market valuations. This undervaluation stems from near-term fears about rising interest rates and margin pressure—fears I believe are overblown.

DOC's portfolio is a masterclass in defensive assets:
- 700 properties, mostly in Life Sciences labs (biotech/R&D hubs) and Outpatient Medical facilities (clinics, surgery centers).
- 95% occupancy in core segments, with 7.7% same-store NOI growth in Life Sciences alone.
- Long-term leases averaging 8.7 years, shielding it from rental fluctuations.

The sector's recovery is already underway. As Baby Boomers age and telehealth drives outpatient demand, DOC's properties are primed to benefit. The $6.8 billion merger with Physicians Realty Trust expanded its Life Sciences footprint—now 30% of NOI—and locked in 30%+ rent increases on lab leases.

2. Dividend Sustainability: A 6.6% Yield with a Safety Net

The dividend—currently $1.22 annually—is the star here. At a 6.6% yield, it's among the highest in the sector, and DOC has increased it monthly since 2024. But what about the 305% payout ratio?

Here's the catch: the payout ratio is based on trailing earnings, which were hit by one-time merger costs. Forward estimates project a 62.6% payout ratio by 2026, once synergies and NOI growth kick in. Meanwhile, $1.67 of free cash flow per share backs the dividend, and the company has repurchased shares at $18.50—$9 below its $27.50 fair value.

The key metric? AFFO (Adjusted Funds from Operations), which is $1.50 per share and rising. As long as AFFO stays above the dividend, this payout is safe.

3. Merger Synergies: $65M+ and Growing

The Physicians Realty merger was a game-changer. Initial targets of $40 million in synergies have already been blown away:
- $65 million+ saved by 2025, driven by internalizing property management in 14 markets (19M sq ft).
- $100M+ synergies expected by 2026, unlocking cash to reinvest or boost the dividend.

These savings are not just cost cuts—they're reinvested into high-return projects like the San Diego lab complex (12% returns) and Cambridge Point mixed-use lab/residential project. Yes, Cambridge Point faces delays, but 80% of its lab space is already leased.

4. Risks? Yes—But They're Priced In

No free lunch here. DOC's P/E ratio of 44x and 5.75x net debt/EBITDA are red flags. Risks include:
- Interest rate sensitivity: 75% of debt is fixed, but rising rates could pressure refinancing.
- Execution risk: Cambridge Point's residential delays and tenant defaults in CCRCs.
- Dividend cuts: If AFFO slips below $1.20/share, the payout could shrink.

But here's why I'm bullish:
- The stock's $18 price is a fire sale compared to its $27.50 fair value.
- Analysts see 24% upside, with a $21.67 price target by 2026.
- Sector recovery trends will eventually push valuations higher.

Final Call: Buy DOC with a 2-Year Horizon

This is a buy for income seekers with a 2+ year view. The $17.50 entry with a $15 stop-loss gives a 59% upside to $27.50. While short-term traders might get spooked by earnings dips or interest rate spikes, DOC's dividend and Life Sciences tailwinds are too strong to ignore.

Action Items:
1. Buy DOC at $18.22.
2. Set a $15 stop-loss to protect against margin-driven selloffs.
3. Hold for 2+ years to capture synergy benefits and valuation rebound.

Healthcare real estate is the ultimate contrarian bet right now—and DOC is the best way to play it.

Disclosure: This is not financial advice. Consult your advisor before investing.