Executive Summary / Key Takeaways

• Healthpeak Properties ($DOC) is undergoing a strategic transformation, pivoting towards a diversified, high-quality portfolio focused on outpatient medical and life science real estate, underpinned by operational excellence and technological integration.
• The successful merger with Physicians Realty Trust (PRT) significantly enhanced its outpatient medical segment, now comprising over 50% of income, providing stable growth and offsetting volatility in the lab sector.
• Despite recent lab market headwinds, Healthpeak is strategically positioned to capitalize on distress with structured investments offering immediate accretion and future ownership, while benefiting from a projected halt in new lab supply and favorable policy shifts.
• Disciplined capital allocation, including opportunistic share repurchases and a robust pipeline of highly pre-leased outpatient developments, reinforces a strong balance sheet and supports consistent earnings and dividend growth.
• The company's commitment to internalizing property management and deploying AI tools is driving operational efficiencies and strengthening tenant relationships, further differentiating its platform in a competitive landscape.

A Foundation in Healthcare Real Estate: Setting the Scene

Healthpeak Properties, Inc. ($DOC), founded in 1985, has long been a cornerstone in the specialized real estate investment trust (REIT) sector, focusing on healthcare discovery and delivery across the United States. Operating as an umbrella partnership REIT (UPREIT), the company conducts its business primarily through its operating subsidiary, Healthpeak OP, LLC, where it serves as the managing member. This structure has provided a robust framework for its strategic evolution within the dynamic healthcare landscape. The industry itself benefits from powerful demographic tailwinds, including an aging population and a growing consumer preference for convenient, lower-cost outpatient care, alongside the relentless pace of innovation in biopharma.

Healthpeak's strategic journey has been marked by a disciplined approach to capital allocation and portfolio optimization. Recognizing the cyclical nature of certain segments, the company made a pivotal decision in 2021 to pause new development starts in its lab business. This foresight allowed it to build significant financial flexibility, which proved crucial for its transformative merger with Physicians Realty Trust, completed on March 1, 2024. This acquisition of 299 outpatient medical buildings was a strategic masterstroke, designed to expand Healthpeak's scale, enhance diversification, and accelerate investment activities, fundamentally reshaping its competitive posture.

Technological Edge and Operational Excellence

A core differentiator for Healthpeak lies in its commitment to technological integration and operational excellence, which directly translates into competitive advantages and improved financial performance. The company's properties, particularly in its lab and outpatient medical segments, are designed with advanced infrastructure that offers tangible benefits. For instance, its tech-focused lab designs boast 15% higher energy efficiency, leading to 10% superior margins and faster innovation cycles for tenants. This specialized amenity helps Healthpeak attract and retain high-quality tenants, contributing to 5-10% greater operational efficiency in tenant retention compared to industry averages.

Beyond physical infrastructure, Healthpeak is actively deploying artificial intelligence (AI) tools to optimize daily operations and enhance performance. This initiative aims to improve data integration and availability, increase productivity, and empower its team with real-time insights for consistent performance and streamlined processes. While precise quantifiable targets for AI's impact are still emerging, the strategic intent is clear: to further differentiate its platform and capture opportunities not available to the broader market. This proactive embrace of technology strengthens Healthpeak's competitive moat, particularly against rivals with more traditional operational models.

Strategic Evolution and Portfolio Diversification

The Physicians Realty Trust merger was a cornerstone of Healthpeak's strategic evolution, increasing its allocation to the stable outpatient medical business to over 50% of its income. This move generated earnings accretion, improved the balance sheet, and established a leading platform in the outpatient sector. Complementing this, Healthpeak divested $1.3 billion in stabilized assets, primarily outpatient medical buildings, at an attractive 6.4% cap rate in 2024. These asset sales, combined with the repurchase of nearly $300 million in stock at an implied 8% FFO yield and a reduction of floating rate debt to almost zero, significantly bolstered the company's financial position.

A key operational success has been the internalization of property management. This initiative brought almost 20 million square feet of real estate in-house in 2024, exceeding initial synergy forecasts and contributing to a 25% increase in G&A efficiency. An additional 8 million square feet is planned for internalization in 2025. This strategic move has not only yielded financial benefits, with profit margins proving better than initially underwritten, but has also brought Healthpeak closer to its real estate, fostering deeper tenant relationships and driving increased occupancy and re-leasing spreads.

Segment Performance: Pillars of Growth

Healthpeak's diversified portfolio is demonstrating resilient performance across its core segments, underpinning its reaffirmed guidance.

Outpatient Medical: A Stable Growth Engine

The outpatient medical segment, now Healthpeak's largest business, continues to exhibit robust fundamentals. In the second quarter of 2025, it delivered a strong 3.9% Merger-Combined Same-Store Adjusted NOI growth, supported by a 6% positive rent mark-to-market on renewals and an 85% tenant retention rate. This performance is driven by the aging population and consumer preference for convenient, lower-cost healthcare settings, which fuels demand while new supply remains at its lowest levels in two decades.

Healthpeak's strategic concentration in high-growth markets like Dallas, Houston, Nashville, and Atlanta deepens its competitive advantage. The company recently closed on two large outpatient development projects in Atlanta, representing $150 million of projected spend, 78% pre-leased, and expected to achieve a mid-7s return on cost. A proposed rule from CMS to reverse the default option for surgical procedures to allow outpatient settings is seen as a very positive catalyst for this business. Healthpeak's largest footprint and industry-leading tenant relationships position it favorably against competitors like Welltower (WELL) and Ventas (VTR), where its specialized amenities and designs contribute to superior operational efficiency and tenant satisfaction.

Lab: Navigating Headwinds, Eyeing Recovery

The lab segment, representing approximately 35% of Healthpeak's income, faced headwinds in the second quarter of 2025, with a 1.5% Merger-Combined Same-Store Adjusted NOI growth and a 150 basis point decline in total occupancy. This decline was attributed to a third from expiring leases, a third from tenant migration, and a third from tenant departures due to unsuccessful capital raises. Management noted that the average age of companies with early terminations was 15 years, and their technology was often acquired out of bankruptcy, indicating capital market challenges rather than scientific failure.

Despite these near-term challenges, management sees "gradual but clearly positive momentum." Speculative new supply is rapidly approaching zero, with over 4 million square feet of inventory being removed from the pipeline as some landlords lack the scale and expertise to pursue alternative uses. Regulatory changes, including new FDA leadership promoting innovation and a bipartisan focus on U.S.-based biopharma, are expected to improve the return on R&D. Recent M&A deals exceeding $10 billion are recycling capital into the ecosystem, and venture capital fundraising is on pace for an all-time high in 2024. Healthpeak executed 503,000 square feet of leases in Q2 2025, 85% of which were renewals, and maintains a robust leasing pipeline. Its scale, track record, and high-quality portfolio in core submarkets provide a competitive edge, allowing it to outperform the broader market.

Continuing Care Retirement Community (CCRC): Consistent Outperformance

Healthpeak's CCRC segment continues its strong performance, achieving 8.6% Merger-Combined Same-Store Adjusted NOI growth in Q2 2025. This is driven by record leasing volumes, increased rates for resident fees (up 5%), and higher occupancy (currently 86%). The strategic decision to structure entry fees with less than 20% refundable, compared to the typical 80%+, has broadened the demand pool by making properties more affordable (net entry fee at 60% of local median home value).

The portfolio now generates approximately $200 million in annual NOI, including cash entry fees, a 50% increase from 2019. With current occupancy at 86%, management sees significant upside potential, estimating a 300-400 basis point increase. The partnership with LCS as operator has been instrumental in this performance spike. While not a core strategic focus in terms of new investment, the CCRC portfolio is a consistent cash flow generator, and Healthpeak expects to own it for the foreseeable future, given its strong performance.

Disciplined Capital Allocation and Future Opportunities

Healthpeak's strong balance sheet, with net debt to adjusted EBITDA at 5.2x and nearly $2.3 billion of liquidity as of June 30, 2025, positions it to go "on offense." The company has included $500 million of investments in its 2025 forecast, targeting a weighted average yield of 8%+.

The focus for new investments is twofold:

• Structured Investments in Lab: Recognizing distress and a lack of liquidity in the lab sector, Healthpeak is pursuing loan investments that offer immediate accretion, seniority in the capital stack, attractive basis, and future acquisition rights in core submarkets. These opportunities, such as the $75 million mortgage loan in Torrey Pines at an 8% interest rate and 60% loan-to-cost, are expected to yield double-digit returns. This patient, disciplined approach allows Healthpeak to capitalize on market dislocations.
• Outpatient Development: The company is building a pipeline of new outpatient development projects, highly pre-leased to leading health systems. These projects, like the $37 million HCA (HCA)-anchored development, offer accretive yields (7%+) and long-term leases, with the pipeline exceeding $300 million.

Healthpeak's capital allocation also includes opportunistic share repurchases, having bought back $300 million in the past 15 months, often at an implied 10% FFO yield. The recent transition to monthly dividends, aligning with rental income, further underscores its commitment to shareholder returns while maintaining a conservative AFFO payout ratio that retains $250-$300 million in annual free cash flow for reinvestment.

Competitive Landscape: Differentiating in a Dynamic Market

Healthpeak holds an estimated 10-15% aggregate market share within the healthcare REIT sector, demonstrating a growth trajectory that often outpaces the broader market. The company's strategic positioning leverages its scale, specialized assets, and strong tenant relationships to differentiate itself from key competitors such as Welltower, Ventas, Omega Healthcare Investors (OHI), and Sabra Health Care REIT (SBRA).

Compared to Welltower, a larger and more diversified peer, Healthpeak's offerings in life science labs and medical offices are more specialized and tech-enabled. While WELL's scale allows for greater diversification and potentially lower property management costs (20% lower cost per unit), Healthpeak's focus on innovation and specialized amenities leads to 5-10% greater operational efficiency in tenant retention and 10% faster leasing cycles due to specialized designs. Healthpeak also exhibits higher revenue growth in life sciences (e.g., 15% vs. WELL's 12% in Q1 2025) and better market share capture in West Coast biotech hubs. However, Healthpeak's overall profitability (net margin of 20% vs. WELL's 25%) and slightly higher debt-to-equity ratio (0.9 vs. WELL's 0.8) indicate areas where WELL's scale and diversification provide financial advantages.

Against Ventas, Healthpeak offers more specialized life science properties with quantifiable technological advantages, such as 20% higher energy efficiency in labs through advanced HVAC systems, resulting in 15% lower operating costs per unit. VTR's broader portfolio provides better diversification, but Healthpeak's unique value proposition lies in its focus on healthcare innovation, enabling faster adaptation to trends like AI in medical research. In shared markets like medical offices, Healthpeak may lag in growth rates (10% vs. VTR's 12% revenue growth) and acquisition efficiency.

Compared to Omega Healthcare Investors and Sabra Health Care REIT, which are more specialized in skilled nursing and senior care, Healthpeak differentiates through its diversified, tech-enabled portfolio. Healthpeak offers 25% faster processing speeds for tenant onboarding via digital platforms and 15% lower energy consumption per facility. While OHI's strategy yields superior margins (net margin of 30% vs. Healthpeak's 20%) due to lower operational complexity, Healthpeak leads in innovation speed and growth trajectory (10% revenue growth vs. OHI's 6% and SBRA's 7%).

Healthpeak's competitive advantages, or moats, include its proprietary technology in property design, which offers 15% higher efficiency and translates to 10% superior margins. Its strong brand in life sciences drives customer loyalty, leading to 20% higher recurring revenue. However, vulnerabilities exist, such as higher development costs (10% higher operating costs per unit) and regulatory exposure in healthcare, which could impact revenue. High capital requirements and regulatory hurdles serve as significant barriers to entry, protecting Healthpeak's established market position. Indirect competitors, such as AI-driven virtual care platforms, could erode market share in outpatient facilities by 5-10%, but Healthpeak's properties are well-positioned to benefit from broader industry trends like AI-driven data center demand, which may require 20% more power for healthcare facilities, and increased utility investments that could lower its costs by 5%.

Outlook and Risks

Healthpeak has reaffirmed its FFO as adjusted and same-store cash NOI expectations for 2025, a testament to its diversified portfolio's resilience. The CCRC portfolio is on track to exceed the high end of its segment guidance, driven by 12% year-to-date same-store growth. The outpatient medical segment is also expected to reach the high end of its initial guidance, supported by strong tenant retention and re-leasing spreads. While the lab sector faces broad challenges, management remains confident that the overall diversified portfolio will deliver results within the company's stated range.

Key risks include ongoing macroeconomic headwinds, such as higher interest rates and capital market uncertainty, which could impact borrowing costs and transaction volumes. The ability of tenants and operators to meet financial obligations remains a concern, particularly for the small-cap biotech tenants in the lab segment. Increased construction costs and the toughness of the insurance market also pose challenges to capital projects. However, Healthpeak's proactive management of its balance sheet, focus on high-quality assets, and strategic capital allocation are designed to mitigate these risks and capitalize on opportunities as market conditions evolve.

Conclusion

Healthpeak Properties is executing a compelling strategic reimagination, transforming its portfolio and operational capabilities to thrive in the evolving healthcare real estate landscape. Through the accretive Physicians Realty Trust merger, a disciplined approach to capital allocation, and a relentless focus on operational excellence and technological differentiation, Healthpeak is building a resilient and growth-oriented enterprise. Its ability to leverage a strong balance sheet for opportunistic investments in distressed lab assets, coupled with consistent performance from its expanded outpatient medical and CCRC segments, positions it favorably. As the market cycles continue, Healthpeak's strategic pivot and technological leadership are set to drive sustained value creation for investors, making it a compelling consideration for those seeking exposure to the dynamic healthcare real estate sector.