Healthcare real estate can be one of the most resilient and profitable types of commercial real estate available to investors, and that's especially true when it comes to medical office properties. There are few businesses more essential and recession-resistant than physicians' offices, and most tenants tend to occupy the same space for decades, making it a great worry-free source of income.
One real estate investment trust, or REIT, that invests almost exclusively in medical office real estate is Physicians Realty Trust (NYSE: DOC). In this article, we'll take a closer look at Physicians Realty Trust's portfolio, its growth strategy and long-term opportunities, recent developments, and how the stock has performed for investors so far.
Physicians Realty Trust company profile
Physicians Realty Trust is a REIT focused on medical office properties occupied by top-quality tenants. As of the end of 2020, the company owned 275 properties, 94% of which were medical office buildings.
The average building is about 53,000 square feet, and 89% of the properties are occupied by tenants affiliated with major health systems. Just to name a few, top tenants include CommonSpirit (Nebraska), University of Louisville Health, Ascension -- St. Vincent's, and U.S. Oncology.
Unlike some other leading healthcare REITs, Physicians Realty Trust doesn't develop new properties from the ground up. While development can be an excellent way to create value, Physicians Realty Trust relies on its core competency of leveraging its relationships with major healthcare systems to find acquisition opportunities.
And it's worth noting that there's plenty of growth opportunity here, even without development. The vast majority of medical office properties in the U.S. are owned by the healthcare systems of physician practices that operate them, and the industry is in the early stages of REIT consolidation. Selling to a REIT like Physicians Realty Trust can be a win-win -- it frees up capital for the health system or practice, and the REIT gets a steady, predictable income stream.
In fact, Physicians Realty Trust estimates there are at least $250 billion of properties currently in its investable universe. Plus, this figure is likely to grow -- there's a clear trend away from hospital-based care in favor of outpatient care. With about $5 billion of real estate currently in the portfolio, there's plenty of room to grow for years to come. And with investment-grade credit and nearly $700 million of liquidity available, Physicians Realty Trust has the financial flexibility to pursue opportunities as they arise.
Physicians Realty Trust news
Physicians Realty Trust was relatively unscathed by the COVID-19 pandemic. Most of its properties were open for the duration, and the company has collected virtually all of its billed rent (99.6% rent collection in the fourth quarter of 2020). In fact, if you were to look at the company's 2020 results and didn't know any better, you might have a tough time figuring out anything was out of the ordinary in the U.S. economy.
In fact, not only did Physicians Realty Trust not lose income due to the COVID-19 pandemic, but the company performed quite well. Normalized FFO actually increased by about 6% year over year in 2020, so there's no reason for investors to be concerned about the pandemic's effects on the business. There really weren't any, at least in terms of profitability.
On the growth front, the company certainly pumped the brakes on its acquisition strategy at the onset of the pandemic but got back into growth mode toward the latter part of the year. Physicians Realty Trust spent about $275 million on acquisitions in 2020, with about three-fourths of this amount taking place in November and December alone. And the company sees quite a few opportunities in the pipeline for 2021, with guidance calling for between $400 million and $600 million of acquisitions.
It's also worth addressing telemedicine, an undeniable growth trend in healthcare right now. There's significant worry among investors that companies like Teladoc (NASDAQ: TDOC) could end up making medical offices less necessary over time.
Physicians Realty Trust completely disagrees. The way the company sees it, telemedicine actually makes medical offices more efficient and profitable. Think of it this way: The ideal candidates for telemedicine are things like follow-up visits and basic diagnostic appointments, both of which are low-revenue compared with things like outpatient surgeries and other types of visits that must be done in person.
Physicians Realty Trust stock price
Physicians Realty Trust is a relatively young REIT, having completed its IPO in 2013, but that still gives us quite a bit of performance history to look at. Here's a look at how it has performed for investors relative to the S&P 500. And since Physicians Realty Trust prioritizes paying an above-average dividend, it's important to compare total returns, not just stock price performance.