Wisconsin-based Physicians Realty Trust (DOC) was incorporated in 2013. The company has grown its portfolio from approximately $124 million of gross real estate investments at the time of its IPO to approximately $5.7 billion as of its latest filings.
DOC’s portfolio currently comprises 279 health care properties located in 33 states totaling close to 15.6 million net leasable square feet. Out of these, around 95% were leased, featuring a weighted average remaining lease term of about 6.3 years. Additionally, around 90% of the portfolio’s net leasable square footage was either on a campus with a hospital or other health care facilities, which allows the company to unlock operating efficiencies.
DOC features a strong dividend track record powered by quite robust funds from operations (FFO) generation. The stock appears to be slightly overpriced, but it still offers an above-average dividend yield which is likely to serve income-oriented investors rather adequately. That said, I believe that DOC lacks meaningful growth prospects. For this reason, I am neutral on the stock.
Recent Results
DOC’s Q4 results demonstrated another quarter of stable performance. Revenue increased 4.2% to $116.12 million, while FFO/share came in at $0.26, matching the prior year’s result.
Revenue growth was supported by same-store cash NOI growth of 2.9% in the company’s Medical Office Buildings (MOB), which comprise 84% of DOC’s net leasable square footage. While normalized FFO grew 2.9% to $59.3 million as well, the increase was offset by the newly-issued shares by the company, which it utilizes to fund its future investments. Specifically, DOC executed investments worth around $852.2 million during the quarter. Hence, the extra dilution offset all of the quarter’s FFO growth.
DOC’s portfolio was 95% leased at the end of the year, stable sequentially.
Dividend & Valuation
DOC’s FFO/share generation has been very consistent over the past few years. Since 2015, FFO/share has hovered between $0.95 and $1.05. Accordingly, the trust has paid very durable dividends per share each year. DPS has grown from $0.90 to $0.92 during this period. In fact, DPS has been maintained at $0.92 since 2018.
Dividends should continue to be relatively well-covered, supported by DOC’s robust cash flows and potential for slight growth over time, powered by rent hikes.
While the company’s overall growth prospects appear rather soft, the stock is currently yielding just over 5.3%, which translates to an above-average yield in the space these days.
The company is expected to generate an FFO/share close to $1.11 this year, which implies a P/FFO of 15.88. In my view, this suggests a premium considering that DOC’s FFO/share has hardly grown in seven years. However, it appears that income-oriented investors appreciate the stock’s dividend and are happy to slightly overpay for it, since the stock has historically retained a premium
Wall Street’s Take
Turning to Wall Street, Physicians Realty has a Moderate Buy consensus rating, based on three Buys and five Holds assigned in the past three months.
At $19.63, the average Physicians Realty stock projections imply 11.34% upside potential.
Conclusion
DOC’s healthcare-oriented real estate portfolio should be able to generate strong revenues even during the harshest times, as illustrated by the company’s unaffected results during the pandemic. DOC’s essential properties reduce the company’s risk profile relative to commercial or residential REITs.
I believe DOC likely has a place in some conservative, income-oriented portfolios. However, I would argue that the stock lacks any exciting growth prospects that would propel investors’ total return potential besides the base dividend.
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