Healthpeak Properties, Inc. PEAK has scored entitlements for Phases II and III of the Vantage campus in South San Francisco. This milestone allows the company to intensify its lab development project, marking a monumental leap from its initial land acquisition. Double the allowable density on the campus has been approved, with the green light given to deliver an additional 1.3 million square feet of lab space, making the total square feet of the campus a whopping 1.7 million upon full buildout.
The U.S. population’s increasing life expectancy and emerging biopharma drug development growth opportunities are boons to the lab real estate market fundamentals. Healthpeak’s strategic focus on enhancing its lab segment aligns seamlessly with this favorable demand for lab assets. The entitlements also afford flexibility to wrap up the remaining phases in line with market demand.
Construction for Phase 1 of the campus commenced in 2022, encompassing 343,000 rental square feet across two buildings and a 40,000-square-foot amenity building. Astellas Pharma, which took up residence in December, has already leased 52% of this Phase. Strategically situated in South San Francisco and at the doorstep of Genentech’s headquarters, the 20-acre campus offers tenants a highly amenitized, world-class campus setting with unparalleled access to multiple modes of transportation.
According to Scott Bohn, Healthpeak’s chief development officer and co-head of lab, “The Vantage master plan is a continuation of Healthpeak’s vision to create a world-class campus. The future phases of Vantage provide Healthpeak a strategic development pipeline to meet the growth needs of our current and future tenants.”
Moreover, Healthpeak continues to make strategic portfolio-repositioning efforts to strengthen its lab, outpatient medical, and continuing care retirement community assets. As of Sep 30, 2023, the company had five lab development projects underway with an estimated total cost of around $707.5 million and one outpatient medical development project in process with an aggregate estimated cost of nearly $30.7 million.
The healthy liquidity position of around $3 billion, as of the end of the third quarter of 2023, gives PEAK a strong foothold as it charges ahead with its growth game plan. The Zacks Rank #3 (Hold) company has seen the Zacks Consensus Estimate for its 2023 funds from operations (FFO) per share revised upward slightly over the past two months to $1.77.
Despite PEAK’s 8% gain in the quarter-to-date period, trailing the industry’s 16.7% uptick, the company faces cutthroat competition in the healthcare services sector. This may put a spoke in its wheel, constraining its ability to hike rents and affecting revenues and profitability.
Additionally, a high-interest-rate environment is expected to bump up the company’s borrowing costs, potentially impeding its real estate acquisition and development prospects.
Promising Stocks to Watch
Reining in as better-ranked stocks from the REIT sector are EastGroup Properties EGP, Stag Industrial STAG, and Park Hotels & Resorts PK. While PK boasts a Zacks Rank #1 (Strong Buy), EGP and STAG each carry a Zacks Rank #2 (Buy).
EastGroup Properties’ 2023 FFO per share has seen a marginal upward revision in the past two months to $7.70, whereas Stag Industrial’s ongoing year’s FFO per share has witnessed a 1.3% increase over the past two months to $2.28. On the other hand, Park Hotels & Resorts’ current-year FFO per share estimate has inched up slightly over the past month to $1.99.
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