Sunday, September 24, 2017

Physicians Realty Trust: How are the Acquisitions funded?

Now that Physicians Realty Trust is on a downtrend, it is time to revisit a particular aspect of the counter.

Physicians Realty Trust is a medical office REIT listed on the NYSE. It went public in 2013 and, since then, have been embarking on an acquisition spree. I first came to know of the counter when I looked through the holdings of some other US financial bloggers and it piqued my interest. I have left it at the back of my mind as it wasn't the right time to invest in the counter back then. Months later, the share price has fallen off quite a bit.

My main concern is how are the acquisitions funded. Is it by debt, equity, or both? If equity, does that mean I have to prepare myself to subscribe to rights on a frequent basis, in order to prevent dilution of my holdings?

At IPO (year 2013), gross real estate investments were $124 mil. At 31 December 2014, the properties were valued at $819 mil. At 31 December 2015, the number was $1.6 bil. At 31 December 2016, the number was at $2.9 bil. From this trend, it could be inferred that Physicians Realty Trust has been aggressively acquiring medical office properties. This trend is still continuing. The REIT highlighted that it is on track to achieve its 2017 acquisition guidance to bring in $1.2 to $1.4 bil worth of assets (see here).

See below for Physicians Realty Trust's Balance sheet. The columns, from left to right, are for year 2016, 2015, 2014, and 2013, respectively.

Shareholder' equity has been growing over time. It grew from 204 mil in 2013 to 1.7 bil in 2016. This is corroborated by the increase in the weighted average number of shares outstanding (see below). The columns, from left to right, are for year 2016, 2015, and 2014, respectively.

I would like to highlight the quadrupling of shares outstanding along with the introduction of Operating Partnership units and other dilutive securities in year 2015. As a REIT investor, I would not like to see this ballooning.

What about dividend growth? With all the acquisitions, the top line has definitely grown. What about the investors' pocket?

Sorry to disappoint. It has been flat from 2014 to 2016. In 2017, the distribution for the latest quarter rose from 0.2250 to 0.2300 QoQ. Not much, but it is improving.

What am I going to do? Nothing.

Will I eventually buy it when its price drops further? Maybe, as some sort of bond proxy when there's an even greater margin of safety.

Not vested in Physicians Realty Trust

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