Physicians Realty: What's up DOC?

05/11/2017 2:50 am EST

Focus: REITS

Brad Thomas

Editor, Forbes Real Estate Investor

Physicians Realty (DOC) s a medical office building-focused healthcare REIT that seeks to acquire, selectively develop, own, and manage healthcare properties that are leased to physicians, hospitals, and healthcare delivery systems, observes Brad Thomas, editor of the iREIT Investor.

Since it became a public company in 2013, DOC has grown its real estate investments from $124 million to approximately $2.9 billion. It has increased its net leasable square footage to about 11 million from .5 million at IPO. As of Q4-16, DOC owns 246 properties across 29 states, consisting of 10.9 million square feet.

The company has a well-balanced portfolio; the diversified tenant base consists of over 684 tenants with 1,040 distinct leases.

DOC maintains an exceptionally strong balance sheet, as the company ended the quarter with a debt to total capitalization around 27% and net debt to adjusted EBITDA of 5.1x.

DOC currently has access to an $850 million line of credit (balance is $401 million), $400 million of unsecured bonds, $225 million of unsecured notes, and $250 million 7-year bank term loan.

The unencumbered value of the portfolio is $2.7 billion (as of Q4-16). DOC expects to convert much of this balance to long-term fixed rate debt in 2017.

DOC’s growth is largely driven by accretive acquisitions. The recent investment grade ratings should meaningfully lower DOC’s cost of debt, and this should widen investment spreads.

DOC is well positioned to capitalize on the strong demographics that are driving the US healthcare industry. Between 2015 and 2060, the US population over 65 years is projected to more than double from 47.8 million to nearly 98.2 million.

Consumer choice and government policy are driving healthcare providers to purpose-built, clinically-efficient real estate solutions.

The catalysts to drive DOC’s price appreciation include: 1) lower cost of capital (recent investment grade rating), 2) continued portfolio growth, and 3) continued focus on higher-quality markets.

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