Physicians Realty Trust [DOC] Filings

10-Q 1 doc-20210930.htm 10-Q doc-20210930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-36007

PHYSICIANS REALTY TRUST

(Exact Name of Registrant as Specified in its Charter)


Maryland		46-2519850
(State of Organization)		(IRS Employer Identification No.)

309 N. Water Street, Suite 500		53202
Milwaukee,	Wisconsin
(Address of Principal Executive Offices)		(Zip Code)

(414) 367-5600

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol

Name of each exchange on which registered

Common stock, $0.01 par value per share

DOC

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The number of Physicians Realty Trust’s common shares outstanding as of October 29, 2021 was 220,289,484.

PHYSICIANS REALTY TRUST

Quarterly Report on Form 10-Q

for the Quarter Ended September 30, 2021

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		Page Number
Part I	Financial Information

Item 1	Financial Statements (Unaudited)


	Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020	3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2021 and 2020	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2021 and 2020	5
	Consolidated Statements of Equity for the Three and Nine Months Ended September 30, 2021 and 2020	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020	8









	Notes to Consolidated Financial Statements	9

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4	Controls and Procedures	39

Part II	Other Information

Item 1	Legal Proceedings	40
Item 1A	Risk Factors	40
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	40
Item 5	Other Information	41
Item 6	Exhibits	42

SIGNATURES		43

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts may be forward-looking statements within the meaning of the federal securities laws. In particular, statements pertaining to our capital resources, property performance, and results of operations contain forward-looking statements. Likewise, all of our statements regarding anticipated growth in our funds from operations and anticipated market conditions, demographics, and results of operations are forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believe,” “expect,” “outlook,” “continue,” “project,” “may,” “will,” “should,” “seek,” “approximately,” “intend,” “plan,” “pro forma,” “estimate,” or “anticipate” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans, expectations, or intentions.

These forward-looking statements reflect the views of our management regarding current expectations and projections about future events and are based on currently available information. These forward-looking statements are not guarantees of future performance and involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data, or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

•the unknown duration and economic, operational, and financial impacts of the global outbreak of a novel strain of the coronavirus and its variants, including the Delta variant and any future variants which may emerge, (the “COVID-19 pandemic”) and the actions taken by governmental authorities or others in connection with the COVID-19 pandemic on the Company’s business;

•general economic conditions;

•adverse economic or real estate developments, either nationally or in the markets where our properties are located;

•our failure to generate sufficient cash flows to service our outstanding indebtedness, or our ability to pay down or refinance our indebtedness;

•fluctuations in interest rates and increased operating costs;

•the availability, terms and deployment of debt and equity capital, including our unsecured revolving credit facility;

•our ability to make distributions on our common shares;

•general volatility of the market price of our common shares;

•our increased vulnerability economically due to the concentration of our investments in health care properties;

•our geographic concentration in Texas causes us to be particularly exposed to downturns in the Texas economy or other changes in Texas market conditions;

•changes in our business or strategy;

•our dependence upon key personnel whose continued service is not guaranteed;

•our ability to identify, hire, and retain highly qualified personnel in the future;

•the degree and nature of our competition;

•changes in governmental regulations or interpretations thereof, such as real estate and zoning laws and increases in real property tax rates, taxation of real estate investment trusts (“REITs”), and similar matters;

•defaults on or non-renewal of leases by tenants;

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•decreased rental rates or increased vacancy rates;

•difficulties in identifying health care properties to acquire and completing acquisitions;

•competition for investment opportunities;

•any adverse effects to the business, financial position or results of operations of CommonSpirit Health, or one or more of the CommonSpirit Health-affiliated tenants, that impact the ability of CommonSpirit Health-affiliated tenants to pay us rent;

•the impact of our investments in joint ventures we have and may make in the future;

•the financial condition and liquidity of, or disputes with, any joint venture and development partners with whom we may make co-investments in the future;

•cybersecurity incidents could disrupt our business and result in the compromise of confidential information;

•our ability to operate as a public company;

•changes in health care laws or government reimbursement rates;

•changes in accounting principles generally accepted in the United States (“GAAP”);

•lack of or insufficient amounts of insurance;

•other factors affecting the real estate industry generally;

•our failure to maintain our qualification as a REIT for U.S. federal income tax purposes;

•limitations imposed on our business and our ability to satisfy complex rules in order for us to qualify as a REIT for U.S. federal income tax purposes; and

•other factors that may materially adversely affect us, or the per share trading price of our common shares, including:

•the number of our common shares available for future issuance or sale;

•our issuance of equity securities or the perception that such issuance might occur;

•future debt;

•failure of securities analysts to publish research or reports about us or our industry; and

•securities analysts’ downgrade of our common shares or the health care-related real estate sector.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events, or other changes after the date of this report, except as required by applicable law. You should not place undue reliance on any forward-looking statements that are based on information currently available to us or the third parties making the forward-looking statements. For a further discussion of these and other factors that could impact our future results, performance or transactions, see Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K/A for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission (the “Commission”) on April 9, 2021 (the “2020 Annual Report”).

As used in this report, unless the context otherwise requires, references to “we,” “us,” “our,” and the “Company” refer to Physicians Realty Trust (the “Trust”), a Maryland real estate investment trust, and Physicians Realty L.P. (the “Operating Partnership”), a Delaware limited partnership and the subsidiary through which we conduct our business.

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PART I. Financial Information

Item 1. Financial Statements

Physicians Realty Trust

Consolidated Balance Sheets

(In thousands, except share and per share data) (Unaudited)


	September 30, 2021		December 31, 2020
	(unaudited)
ASSETS
Investment properties:
Land and improvements	$	231,162	$	231,621
Building and improvements	3,879,810		3,824,796
Tenant improvements	81,605		73,145
Acquired lease intangibles	409,048		406,935
	4,601,625		4,536,497
Accumulated depreciation	(779,910)		(687,554)
Net real estate property	3,821,715		3,848,943
Real estate held for sale	44,706		—
Right-of-use lease assets, net	141,967		137,180
Real estate loans receivable, net	181,125		198,800
Investments in unconsolidated entities	78,562		77,755
Net real estate investments	4,268,075		4,262,678
Cash and cash equivalents	5,366		2,515
Tenant receivables, net	5,545		4,757
Other assets	130,489		144,000
Total assets	$	4,409,475	$	4,413,950
LIABILITIES AND EQUITY
Liabilities:
Credit facility	$	401,548	$	412,322
Notes payable	969,313		968,653
Mortgage debt	50,042		57,875
Accounts payable	5,760		7,007
Dividends and distributions payable	53,730		52,116
Accrued expenses and other liabilities	79,621		91,929
Lease liabilities	78,682		74,116
Acquired lease intangibles, net	5,829		6,641
Total liabilities	1,644,525		1,670,659

Redeemable noncontrolling interests - Series A Preferred Units (2020) and partially owned properties	7,039		28,289

Equity:
Common shares, $0.01 par value, 500,000,000 common shares authorized, 217,409,035 and 209,550,592 common shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively	2,174		2,096
Additional paid-in capital	3,443,748		3,303,231
Accumulated deficit	(751,150)		(658,171)
Accumulated other comprehensive loss	(4,054)		(5,859)
Total shareholders’ equity	2,690,718		2,641,297
Noncontrolling interests:
Operating Partnership	66,736		73,302
Partially owned properties	457		403
Total noncontrolling interests	67,193		73,705
Total equity	2,757,911		2,715,002
Total liabilities and equity	$	4,409,475	$	4,413,950

The accompanying notes are an integral part of these consolidated financial statements.

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Physicians Realty Trust

Consolidated Statements of Income

(In thousands, except share and per share data) (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenues:
Rental and related revenues	$	110,314	$	104,362	$	326,017	$	311,861
Interest income on real estate loans and other	4,997		5,204		15,558		14,199
Total revenues	115,311		109,566		341,575		326,060
Expenses:
Interest expense	13,498		13,698		40,754		43,521
General and administrative	9,534		8,346		28,116		25,565
Operating expenses	35,679		32,503		103,069		94,495
Depreciation and amortization	38,582		37,952		114,663		111,744
Impairment loss	340		—		340		—
Total expenses	97,633		92,499		286,942		275,325
Income before equity in loss of unconsolidated entities and gain on sale of investment properties, net:	17,678		17,067		54,633		50,735
Equity in loss of unconsolidated entities	(390)		(592)		(1,213)		(856)
Gain on sale of investment properties, net	4,757		—		5,111		—
Net income	22,045		16,475		58,531		49,879
Net income attributable to noncontrolling interests:
Operating Partnership	(529)		(425)		(1,405)		(1,305)
Partially owned properties (1)	(152)		(151)		(455)		(441)
Net income attributable to controlling interest	21,364		15,899		56,671		48,133
Preferred distributions	—		(317)		(13)		(951)
Net income attributable to common shareholders	$	21,364	$	15,582	$	56,658	$	47,182
Net income per share:
Basic	$	0.10	$	0.07	$	0.26	$	0.23
Diluted	$	0.10	$	0.07	$	0.26	$	0.23
Weighted average common shares:
Basic	217,406,657		208,187,129		214,616,482		202,717,190
Diluted	223,992,049		215,129,968		221,399,649		209,555,060

Dividends and distributions declared per common share	$	0.23	$	0.23	$	0.69	$	0.69

(1)Includes amounts attributable to redeemable noncontrolling interests.

The accompanying notes are an integral part of these consolidated financial statements.

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Physicians Realty Trust

Consolidated Statements of Comprehensive Income

(In thousands) (Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Net income	$	22,045	$	16,475	$	58,531	$	49,879
Other comprehensive income (loss):
Change in fair value of interest rate swap agreements, net	465		599		1,805		(10,630)
Total other comprehensive income (loss)	465		599		1,805		(10,630)
Comprehensive income	22,510		17,074		60,336		39,249
Comprehensive income attributable to noncontrolling interests - Operating Partnership	(541)		(442)		(1,449)		(1,024)
Comprehensive income attributable to noncontrolling interests - partially owned properties	(152)		(151)		(455)		(441)
Comprehensive income attributable to common shareholders	$	21,817	$	16,481	$	58,432	$	37,784

The accompanying notes are an integral part of these consolidated financial statements.

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Physicians Realty Trust

Consolidated Statements of Equity

(In thousands) (Unaudited)


	Par Value		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity		Operating Partnership Noncontrolling Interest		Partially Owned Properties Noncontrolling Interest		Total Noncontrolling Interests		Total Equity
Balance at December 31, 2020	$	2,096	$	3,303,231	$	(658,171)	$	(5,859)	$	2,641,297	$	73,302	$	403	$	73,705	$	2,715,002

Net proceeds from sale of common shares	28		52,404		—		—		52,432		—		—		—		52,432
Restricted share award grants, net	4		(333)		(664)		—		(993)		—		—		—		(993)
Purchase of OP Units	—		—		—		—		—		(269)		—		(269)		(269)

Dividends/distributions declared	—		—		(49,011)		—		(49,011)		(1,243)		—		(1,243)		(50,254)
Preferred distributions	—		—		(13)		—		(13)		—		—		—		(13)


Distributions	—		—		—		—		—		—		(73)		(73)		(73)
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership	—		(23)		896		—		873		—		—		—		873

Change in fair value of interest rate swap agreements	—		—		—		797		797		—		—		—		797
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		1,136		—		—		1,136		(1,136)		—		(1,136)		—


Net income	—		—		17,194		—		17,194		459		76		535		17,729
Balance as of March 31, 2021	$	2,128	$	3,356,415	$	(689,769)	$	(5,062)	$	2,663,712	$	71,113	$	406	$	71,519	$	2,735,231

Net proceeds from sale of common shares	46		82,781		—		—		82,827		—		—		—		82,827
Restricted share award grants, net	—		3,242		(482)		—		2,760		—		—		—		2,760
Purchase of OP Units	—		—		—		—		—		(5,063)		—		(5,063)		(5,063)

Dividends/distributions declared	—		—		(50,061)		—		(50,061)		(1,242)		—		(1,242)		(51,303)



Distributions	—		—		—		—		—		—		(50)		(50)		(50)
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership	—		—		(388)		—		(388)		—		—		—		(388)

Change in fair value of interest rate swap agreements	—		—		—		543		543		—		—		—		543
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		(2,124)		—		—		(2,124)		2,124		—		2,124		—


Net income	—		—		18,113		—		18,113		417		76		493		18,606
Balance as of June 30, 2021	$	2,174	$	3,440,314	$	(722,587)	$	(4,519)	$	2,715,382	$	67,349	$	432	$	67,781	$	2,783,163

Net proceeds from sale of common shares	—		(117)		—		—		(117)		—		—		—		(117)
Restricted share award grants, net	—		3,642		113		—		3,755		—		—		—		3,755


Dividends/distributions declared	—		—		(50,062)		—		(50,062)		(1,233)		—		(1,233)		(51,295)



Distributions	—		—		—		—		—		—		(51)		(51)		(51)
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership	—		—		22		—		22		—		—		—		22

Change in fair value of interest rate swap agreements	—		—		—		465		465		—		—		—		465
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		(91)		—		—		(91)		91		—		91		—


Net income	—		—		21,364		—		21,364		529		76		605		21,969
Balance as of September 30, 2021	$	2,174	$	3,443,748	$	(751,150)	$	(4,054)	$	2,690,718	$	66,736	$	457	$	67,193	$	2,757,911

The accompanying notes are an integral part of these consolidated financial statements.

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Physicians Realty Trust

Consolidated Statements of Equity

(In thousands) (Unaudited)


	Par Value		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity		Operating Partnership Noncontrolling Interest		Partially Owned Properties Noncontrolling Interest		Total Noncontrolling Interests		Total Equity
Balance at December 31, 2019	$	1,900	$	2,931,921	$	(529,194)	$	4,321	$	2,408,948	$	71,697	$	339	$	72,036	$	2,480,984
Cumulative effect of changes in accounting standards	—		(147)		—		—		(147)		—		—		—		(147)
Net proceeds from sale of common shares	124		239,108		—		—		239,232		—		—		—		239,232
Restricted share award grants, net	2		245		(448)		—		(201)		—		—		—		(201)
Purchase of OP Units	—		—		—		—		—		(93)		—		(93)		(93)

Dividends/distributions declared	—		—		(46,636)		—		(46,636)		(1,275)		—		(1,275)		(47,911)
Preferred distributions	—		—		(317)		—		(317)		—		—		—		(317)


Distributions	—		—		—		—		—		—		(41)		(41)		(41)
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership	—		581		(1,561)		—		(980)		—		—		—		(980)

Change in fair value of interest rate swap agreements	—		—		—		(9,986)		(9,986)		—		—		—		(9,986)
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		(2,038)		—		—		(2,038)		2,038		—		2,038		—


Net income	—		—		14,414		—		14,414		404		67		471		14,885
Balance as of March 31, 2020	$	2,026	$	3,169,670	$	(563,742)	$	(5,665)	$	2,602,289	$	72,771	$	365	$	73,136	$	2,675,425

Net proceeds from sale of common shares	55		99,450		—		—		99,505		—		—		—		99,505
Restricted share award grants, net	—		3,017		(791)		—		2,226		—		—		—		2,226
Purchase of OP Units	—		—		—		—		—		(67)		—		(67)		(67)

Dividends/distributions declared	—		—		(47,924)		—		(47,924)		(1,271)		—		(1,271)		(49,195)
Preferred distributions	—		—		(317)		—		(317)		—		—		—		(317)


Distributions	—		—		—		—		—		—		(42)		(42)		(42)
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership	—		(416)		(163)		—		(579)		—		—		—		(579)

Change in fair value of interest rate swap agreements	—		—		—		(1,243)		(1,243)		—		—		—		(1,243)
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		(806)		—		—		(806)		806		—		806		—


Net income	—		—		17,820		—		17,820		476		73		549		18,369
Balance as of June 30, 2020	$	2,081	$	3,270,915	$	(595,117)	$	(6,908)	$	2,670,971	$	72,715	$	396	$	73,111	$	2,744,082

Net proceeds from sale of common shares	1		1,528		—		—		1,529		—		—		—		1,529
Restricted share award grants, net	—		2,951		(493)		—		2,458		—		—		—		2,458
Purchase of OP Units	—		—		—		—		—		(355)		—		(355)		(355)

Dividends/distributions declared	—		—		(47,943)		—		(47,943)		(1,271)		—		(1,271)		(49,214)
Preferred distributions	—		—		(317)		—		(317)		—		—		—		(317)


Distributions	—		—		—		—		—		—		(41)		(41)		(41)
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership	—		(45)		87		—		42		—		—		—		42

Change in fair value of interest rate swap agreements	—		—		—		599		599		—		—		—		599
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		(162)		—		—		(162)		162		—		162		—


Net income	—		—		15,899		—		15,899		425		76		501		16,400
Balance as of September 30, 2020	$	2,082	$	3,275,187	$	(627,884)	$	(6,309)	$	2,643,076	$	71,676	$	431	$	72,107	$	2,715,183

The accompanying notes are an integral part of these consolidated financial statements.

Physicians Realty Trust [DOC] Filings
10-Q	[2021-11-05]
10-Q	[2021-08-05]
10-Q	[2021-05-06]
10-K	[2021-02-26]
10-Q	[2020-11-06]
10-Q	[2020-08-07]
10-Q	[2020-05-08]
10-K	[2020-02-27]
10-Q	[2019-11-06]
10-Q	[2019-08-08]
10-Q	[2019-05-02]
10-K	[2019-02-28]
10-Q	[2018-11-05]
10-Q	[2018-08-03]
10-Q	[2018-05-04]
10-K	[2018-03-01]
10-Q	[2017-11-03]
10-Q	[2017-08-04]
10-Q	[2017-05-05]
10-K	[2017-02-24]
10-Q	[2016-11-03]
10-Q	[2016-08-04]
10-Q	[2016-05-06]
10-K	[2016-02-29]
10-Q	[2015-11-09]
10-Q	[2015-08-10]
10-Q	[2015-05-08]
10-K	[2015-03-12]
10-Q	[2014-11-13]
10-Q	[2014-08-13]
10-Q	[2014-05-07]
10-K	[2014-03-21]
10-Q	[2013-11-12]
10-Q	[2013-08-30]