Shares of healthcare-focused real estate investment trust (REIT) Physicians Realty Trust (DOC) fell 26% in March, according to data from S&P Global Market Intelligence. That was twice the decline of the broader market as measured by the S&P 500 Index and 6 percentage points worse than the 20% drop in the broader REIT sector, using Vanguard Real Estate ETF as a proxy.
The big story for the market and Physicians Realty in March was COVID-19. As the U.S. government, at various levels, sought to slow the progress of the rapidly spreading virus, people were asked to practice social distancing, and non-essential businesses were shut. The U.S. economy, broadly speaking, stopped in place.
That said, Physicians Realty owns medical office buildings (roughly 96% of its rents), which would generally be considered essential businesses. So the impact on the REIT's lessees should have been less material than for the broader economy, even if office visits ended up declining because of social distancing.
That, however, doesn't change anything about market sentiment, which tends to go to extremes, often indiscriminately. There's likely to be some impact on Physicians Realty's business, but not to the extent that one would expect at a senior housing facility. Moreover, the REIT's average lease length is roughly seven years today, which should be more-than-enough time for it to get past the COVID-19 issue. For the most part, its business looks reasonably well-positioned.
Physicians Realty's shares are pretty volatile right now, but the drop in price should interest investors looking at the REIT space. The stock's yield is higher than it has been in a while, and the company's business appears better-positioned than some of its larger competitors, which often have material exposure to senior housing. If you can stomach some near-term uncertainty, the long-term picture here seems pretty solid.