What's in the Offing for Healthpeak (PEAK) in Q3 Earnings?
Healthpeak Properties, Inc. PEAK is scheduled to report third-quarter 2020 earnings on Nov 2, after market close. While the company’s results are expected to reflect year-over-year revenue growth, its funds from operations (FFO) per share are anticipated to display a decline.
In the last reported quarter, this health real estate investment trust (REIT) reported FFO as adjusted of 40 cents per share, meeting the Zacks Consensus Estimate. Results were supported by the decent performance of its life science and medical office segments.
Over the preceding four quarters, the company beat the Zacks Consensus Estimate on two occasions and met in the other two, the average beat being 1.15%. The graph below depicts this surprise history:
Healthpeak Properties, Inc. Price and EPS Surprise
Healthpeak Properties, Inc. price-eps-surprise | Healthpeak Properties, Inc. Quote
Let’s see how things have shaped up prior to the third-quarter earnings release.
Factors at Play
Healthpeak’s three senior housing businesses — senior housing triple-net, senior housing operating portfolio (“SHOP”), continuing care retirement community (“CCRC”), which account for 29% of net operating income (NOI) — have not been immune to the adverse trends in the seniors housing industry and are expected to have been adversely impacted by the COVID-19 pandemic.
Specifically, during third-quarter 2020, the seniors housing industry continued to bear the brunt of the rampant spread of the coronavirus that resulted in occupancy and rental rate erosions as well as higher expenses. In fact, seniors housing occupancy in the third quarter declined 265 basis points (bps) sequentially to 82.1%, per the National Investment Center for Seniors Housing & Care (NIC) data.
Moreover, the annual absorption rate was -3.8% during the quarter versus -0.5% in the June-end quarter. The decline in occupancy and absorption is expected to have decelerated rent growth. In fact, annual rent growth for the quarter was 1.7%, down from 2.1% observed in the April-June period.
As for Healthpeak’s seniors housing operating portfolio, move-ins have remained low in light of the pandemic-related protocols, shelter in place, reduced in-person tours and incidences of coronavirus outbreaks at the company’s facilities. This along with significant move-outs is projected to have hindered occupancy rates at its SHOP and CCRC portfolios during the third quarter.
In fact, as of Aug 31, spot occupancy at its SHOP portfolio was 77.1%, declining 100 bps from the July-end numbers. Also, for the duration of the pandemic, Healthpeak expects 0.5-2.5% and 0.5-1% of occupancy attrition per month in SHOP and CCRC assets, respectively.
In addition, higher expenses in its seniors housing segment due to higher labor costs and required protective-equipment supplies are likely to hurt results. Overall, the company expects incremental expenses to increase 0-5% during the pandemic. This is likely to have taken a toll on third-quarter NOI and bottom-line growth.
In its medical office segment, the company faced pandemic-related leasing slowdowns during the second quarter. This is expected to have an adverse impact on lease commencements and occupancy at such properties in the third quarter.
Healthpeak’s elevated disposition activity in the first half of 2020 is likely to have impeded its cash flows from operations and bottom-line growth for the September-end quarter.
In fact, prior to the third-quarter earnings release, there is a lack of any solid catalyst for becoming optimistic about the company’s prospects. Markedly, the Zacks Consensus Estimate for the third-quarter FFO per share has been unchanged at 39 cents over the past month. It also suggests an 11.4% year-over-year decline.
Nonetheless, amid the increasing need for effective diagnostics, therapies and vaccines to combat the coronavirus pandemic, the company’s life-science properties have become indispensable. Hence, Healthpeak life science assets are expected to have continued to perform well in the third quarter. In fact, in August, the company leased 89,000 square feet of space in its life science portfolio, including 48,000 square feet of new leasing. This drove a 30-bps increase in August occupancy to 96.6% from July.
This along with healthy rent collections from life-science, medical office and triple-net leased tenants is likely to have supported revenue growth for the company in the third quarter.
In fact, total revenues for the third quarter are pegged at $606.8 million, suggesting year-over-year growth of 12.8%.
Here is what our quantitative model predicts:
Our proven model does not conclusively predict a beat in terms of FFO per share for Healthpeak Properties this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Healthpeak currently has a Zacks Rank #3 and an Earnings ESP of 0.00%.
You can see the complete list of today’s Zacks #1 Rank stocks here.
Stocks That Warrant a Look
Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a beat this quarter:
Lexington Realty Trust LXP, set to report quarterly numbers on Nov 5, currently has an Earnings ESP of +1.33% and a Zacks Rank of 3.
National Storage Affiliates Trust NSA, slated to release third-quarter earnings on Nov 5, has an Earnings ESP of +1.94% and a Zacks Rank of 3 at present.
Ventas, Inc. VTR, slated to release third-quarter earnings on Nov 6, has an Earnings ESP of +2.03% and a Zacks Rank of 3 at present.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
Have You Seen Zacks’ 2020 Election Stock Report?
The upcoming election could be a massive buying opportunity for savvy investors. Trillions of dollars will shift into new market sectors after the election. The question is, which sectors will soar for each candidate? Zacks has put together a new special report to help readers like you target big profits.
The 2020 Election Stock Report reveals specific stocks you’ll want to own immediately after the results are announced – 6 if Trump wins, 6 if Biden wins. Past election reports have led investors to gains of +71%, +83%, even +185% in the following months. This year’s picks could be even more lucrative.
Check out Zacks’ 2020 Election Stock Report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Ventas, Inc. (VTR) : Free Stock Analysis Report
Lexington Realty Trust (LXP) : Free Stock Analysis Report
National Storage Affiliates Trust (NSA) : Free Stock Analysis Report
Healthpeak Properties, Inc. (PEAK) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
