I don’t have much time this week, so I’m in shallow water. I’ve got a little back-of-the envelope one for you. Healthpeak Properties Trust (DOC) is a Denver-based owner of outpatient medical buildings and lab space. The company merged with Physicians Realty Trust in 2024. The stock has not performed well, but the 7% dividend yield is very enticing. DOC trades with a market cap of $12.5 billion.

The dividend seems well-covered, however the lab space (31% of revenues) is a wildcard. There has been an incredible amount of new supply, and the biotech market isn’t exactly robust. Despite the risks, this one deserves a closer look.

For now, here are my rough numbers. I am taking a leap of faith by annualizing just one quarter for the balance of 2025. The stock trades with an FFO yield of approximately 11%. I subtracted maintenance capital expenditures (taking management at face value) from net operating income, and it appears that the real estate trades for an implied cap rate of 7.3%. This seems pretty high, but it probably reflects the risks associated with lab space tenants. Leverage is also a little higher than I’d prefer, but the maturity timetable appears manageable.

The problem with Healthpeak, and so many other office REITs for that matter, is “what does upside look like?” How does this story improve? It’s not like the National Intitutes of Health is going to start writing grant checks for new clinical trials any time soon. Healthpeak doesn’t have the ability to refinance debt any more cheaply than what’s on its books today.

Beware the siren song of high dividend yields. Usually the market knows something about risk that you don’t. If you’re just buying debt with a single-B credit rating, you should definitely receive more than 7% on your money. The “equity” may not be worth more than a similar junk bond.

Until next time.

DISCLAIMER

The information provided in this article is based on the opinions of the author after reviewing publicly available press reports and SEC filings. The author makes no representations or warranties as to accuracy of the content provided. This is not investment advice. You should perform your own due diligence before making any investments.