John T. Thomas, President, Chief Executive Officer and Trustee
of Physicians Realty Trust (NYSE: DOC), shared his insights on
current and upcoming trends regarding real estate investment trusts
(REITs) at the 2018 Building Owners and Managers Association (BOMA)
International Medical Office Building (MOB) & Healthcare Real
Estate Conference May 10 in Houston.
The session, titled “Direct from the REIT C-Suite,” also
included moderator Jay Miele, Managing Director of Hammond Hanlon
Camp LLC; Danny Prosky, Managing Director of American Healthcare
Investors LLC; and Todd Meredith, President and CEO of Healthcare
Realty Trust.
The panel discussed what type of transaction volume and sellers
they anticipate in the next several months, with many saying they
expect to see all types of sellers from across the board and more
transactions, but not as many sizeable ones as 2017.
Mr. Thomas noted, “At Physicians Realty Trust, we have the
ability to invest, but we’re going to sell some assets, recycle
some assets and continue trying to improve the overall quality of
the portfolio. We’ll do some deals, but they’ll be reserved for the
clients we’ve built big relationships with like Ascension and
Baylor. We’ll be there for them.
“I think the complexion of sellers will look a lot like last
year,” he continued. “If you want to sell your building, why wait?
If you think the cap rates are turning, now is a good time to sell
if you’re looking to recapitalize.”
The panelists said they expect portfolio transactions will still
see competitive pricing in the coming months. One panelist said he
expects premium pricing for large transactions and that cap rates
will compress quite a bit as well for transactions involving only
one or two high-quality properties.
“I agree with what others have said,” Mr. Thomas told the BOMA
MOB conference audience. “There’s plenty of capital out there, but
it’s more private based. I think it will take longer this year for
the cap rate to adjust. I’ve said it all the time, that medical
office is the best real estate for resiliency.”
With MOB prices at or near all-time highs, the panelists were
asked if they’re seeing healthcare REITs diversify into other asset
types. Several said they haven’t seen much diversification. In
fact, it seems like just the opposite, they said, as previously
more diversified REITs have recently narrowed their focus to fewer
asset types. The panelists were asked if they expect the trend
toward specialization to continue. One panelist noted that
healthcare has been unique and that other sectors have long been
specialized.
“The market is rewarding us for specialization,” Mr. Thomas
observed, “and if the market gives us a different signal, we’ll
change course.”
The group agreed that construction costs are increasing, which
is setting the stage for more rent increases. “We’re seeing
evidence of this,” Mr. Thomas noted. “Steel tariffs, labor
shortages and a shortage of land are all contributing to this.”
When asked how the trend of reduced reimbursements are affecting
the healthcare sector, the panel discussed a number of new models,
including more inexpensive retail-oriented medical facilities.
“Everyone is now pushing everything out of big, expensive
hospitals and treating patients in lower-cost care facilities,” Mr.
Thomas said. “We still need hospitals, but we’re seeing fewer and
fewer of them and more efficient outpatient care.”
The panelists agreed that the industry is on the leading edge of
some dramatic changes in how healthcare is delivered. One panelist
noted, however, that it will take a long time to change these
healthcare models, and that they won’t replace the fundamentals of
visiting your doctor and delivering quality care.
The group was asked what new disrupters are having an impact on
real estate such as wearables. The panelists agreed that wearables
aren’t yet having much of an impact but they might in the future.
They said the increase in healthcare consumerism and the move to
more Healthcare Savings Accounts (HSAs) is giving patients more
spending power and the desire to shop around for their medical
needs, but this is primarily for peripheral primary care services
and prescriptions. One panelist said the dramatic population
migration into cities is significantly lowering medical facility
occupancy rates in smaller, rural markets, which is making it
harder for them to succeed.
The panelists were asked to “flash back” five to seven years and
discuss some of the key differences between then and now. One
panelist noted there’s been no real change in what they like to
acquire and they still look at the same characteristics. Another
panelist noted that the competition is very different, but that has
made the industry better and brought more transparency.
Mr. Thomas noted, “Five to seven years ago, the disrupters were
innovative, non-traditional aggregators of assets. Today, a big
change is foreign capital and the increased amount of private
capital pursuing MOB assets.
“We’re also still in the very early stages of institutional
ownership of MOBs. About $200 billion or so of MOBs in the U.S.
aren’t owned by REITs or other forms of institutional capital.
There’s a lot of fragmentation.”
Mr. Thomas, who was recently named the “Healthcare Real Estate
Executive of the Year” by Healthcare Real Estate Insights magazine,
has been president and CEO of Physicians Realty Trust since its
initial public offering (IPO) in 2013. In that time, DOC has
invested more than $4.4 billion in healthcare real estate assets
and has assembled a portfolio with more than 13 million square feet
of high-quality medical office space leased to leading health
systems and their affiliates.
About Physicians Realty Trust
Physicians Realty Trust is a self-managed healthcare real estate
company organized to acquire, selectively develop, own and manage
healthcare properties that are leased to physicians, hospitals and
healthcare delivery systems. The Company invests in real estate
that is integral to providing high quality healthcare. The Company
conducts its business through an UPREIT structure in which its
properties are owned by Physicians Realty L.P., a Delaware limited
partnership (the “operating partnership”), directly or through
limited partnerships, limited liability companies or other
subsidiaries. The Company is the sole general partner of the
operating partnership and, as of March 31, 2018, owned
approximately 97.1% of the partnership interests in our operating
partnership (“OP Units”).
Forward-Looking Statements
This press release contains statements that are “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended, pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Forward-looking
statements may be identified by the use of words such as
“anticipate”, “believe”, “expect”, “estimate”, “plan”, “outlook”,
“continue”, and “project” and other similar expressions that
predict or indicate future events or trends or that are not
statements of historical matters. These forward looking statements
may include statements regarding the Company’s strategic and
operational plans, the Company’s ability to generate internal and
external growth, the future outlook, anticipated cash returns, cap
rates or yields on properties, anticipated closing of property
acquisitions, and ability to execute its business plan. While
forward-looking statements reflect our good faith beliefs, they are
not guarantees of future performance. Forward looking statements
should not be read as a guarantee of future performance or results,
and will not necessarily be accurate indications of the times at,
or by, which such performance or results will be achieved. Forward
looking statements are based on information available at the time
those statements are made and/or management’s good faith belief as
of that time with respect to future events, and are subject to
risks and uncertainties that could cause actual performance or
results to differ materially from those expressed in or suggested
by the forward looking statements. These forward-looking statements
are subject to various risks and uncertainties, not all of which
are known to the Company and many of which are beyond the Company’s
control, which could cause actual results to differ materially from
such statements. These risks and uncertainties are described in
greater detail in the Company’s filings with the Securities and
Exchange Commission (the “Commission”), including, without
limitation, the Company’s annual and periodic reports and other
documents filed with the Commission. Unless legally required, the
Company disclaims any obligation to update any forward-looking
statements after the date of this release, whether as a result of
new information, future events or otherwise. For a description of
factors that may cause the Company’s actual results or performance
to differ from its forward-looking statements, please review the
information under the heading “Risk Factors” included in the
Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2017 filed by the Company with the Commission on
March 1, 2018.
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version on businesswire.com: https://www.businesswire.com/news/home/20180523006291/en/
Physicians Realty TrustJohn T. ThomasPresident and CEO(214)
549-6611jtt@docreit.comorJeffrey N. TheilerExecutive Vice President
and CFO(414) 367-5610jnt@docreit.com
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