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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 June 30, 2022

or

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)
Maryland46-2519850
(State of Organization)(IRS Employer Identification No.)
309 N. Water Street, Suite 50053202
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 classTrading SymbolName of each exchange on which registered
Common stock, $0.01 par value per shareDOCNew 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 July 27, 2022 was 226,320,806.



PHYSICIANS REALTY TRUST
 
Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 2022
 
Table of Contents
 
  Page Number
 
 
 
 
 
 
 
 
   
 
   
   


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 any variants that have emerged or that may emerge in the future, (the “COVID-19 pandemic”) and the actions taken by governmental authorities or others in connection with the COVID-19 pandemic will have on the Company’s business;

general economic conditions, including inflation and recession;

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 indebtedness or to pay down or refinance our indebtedness;

fluctuations and increases in interest rates and 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;

decreased rental rates or increased vacancy rates;
1

 
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 made 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;

the disruption of our business and the compromise of confidential information resulting from cybersecurity attacks, breaches, and other incidents;

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 for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission (the “Commission”) on February 24, 2022 (the “2021 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 consolidated subsidiary of the Trust through which we conduct our business.
2

PART I.                         Financial Information
Item 1.                             Financial Statements
Physicians Realty Trust
Consolidated Balance Sheets
(In thousands, except share and per share data)
June 30,
2022
December 31,
2021
 (unaudited) 
ASSETS  
Investment properties:  
Land and improvements$233,699 $235,453 
Building and improvements4,588,319 4,612,561 
Tenant improvements87,162 86,018 
Acquired lease intangibles493,149 498,221 
 5,402,329 5,432,253 
Accumulated depreciation(901,526)(821,036)
Net real estate property4,500,803 4,611,217 
Real estate held for sale65,798 1,964 
Right-of-use lease assets, net233,281 235,483 
Real estate loans receivable, net104,716 117,844 
Investments in unconsolidated entities80,590 69,793 
Net real estate investments4,985,188 5,036,301 
Cash and cash equivalents401 9,876 
Tenant receivables, net6,135 4,948 
Other assets134,617 131,584 
Total assets$5,126,341 $5,182,709 
LIABILITIES AND EQUITY  
Liabilities:  
Credit facility$258,509 $267,641 
Notes payable1,464,713 1,464,008 
Mortgage debt179,516 180,269 
Accounts payable5,336 6,651 
Dividends and distributions payable57,809 57,246 
Accrued expenses and other liabilities88,311 86,254 
Lease liabilities104,591 104,957 
Acquired lease intangibles, net20,603 21,569 
Total liabilities2,179,388 2,188,595 
Redeemable noncontrolling interests - partially owned properties5,776 7,081 
Equity:  
Common shares, $0.01 par value, 500,000,000 common shares authorized, 226,316,998 and 224,678,116 common shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively
2,263 2,247 
Additional paid-in capital3,637,459 3,610,954 
Accumulated deficit(850,101)(776,001)
Accumulated other comprehensive income (loss)3,570 (892)
Total shareholders’ equity2,793,191 2,836,308 
Noncontrolling interests:  
Operating Partnership146,888 150,241 
Partially owned properties1,098 484 
Total noncontrolling interests147,986 150,725 
Total equity2,941,177 2,987,033 
Total liabilities and equity$5,126,341 $5,182,709 
The accompanying notes are an integral part of these consolidated financial statements.
3

Physicians Realty Trust
Consolidated Statements of Income
(In thousands, except share and per share data) (Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
 2022202120222021
Revenues:    
Rental and related revenues$127,728 $107,748 $254,404 $215,703 
Interest income on real estate loans and other4,439 5,177 8,153 10,561 
Total revenues132,167 112,925 262,557 226,264 
Expenses:    
Interest expense17,234 13,541 34,057 27,256 
General and administrative10,028 9,117 20,321 18,582 
Operating expenses42,681 33,456 84,433 67,390 
Depreciation and amortization47,702 38,105 94,962 76,081 
Total expenses117,645 94,219 233,773 189,309 
Income before equity in loss of unconsolidated entities and gain on sale of investment properties, net:14,522 18,706 28,784 36,955 
Equity in loss of unconsolidated entities(224)(403)(390)(823)
Gain on sale of investment properties, net3,634 378 3,481 354 
Net income 17,932 18,681 31,875 36,486 
Net income attributable to noncontrolling interests:    
Operating Partnership(886)(417)(1,578)(876)
Partially owned properties (1)(155)(151)(314)(303)
Net income attributable to controlling interest16,891 18,113 29,983 35,307 
Preferred distributions   (13)
Net income attributable to common shareholders$16,891 $18,113 $29,983 $35,294 
Net income per share:    
Basic$0.07 $0.08 $0.13 $0.17 
Diluted$0.07 $0.08 $0.13 $0.16 
Weighted average common shares:    
Basic225,617,275 215,837,520 225,344,756 213,198,272 
Diluted239,006,973 222,660,502 238,738,465 220,053,306 
Dividends and distributions declared per common share$0.23 $0.23 $0.46 $0.46 
(1)Includes amounts attributable to redeemable noncontrolling interests.

The accompanying notes are an integral part of these consolidated financial statements.
4

Physicians Realty Trust
Consolidated Statements of Comprehensive Income
(In thousands) (Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
 2022202120222021
Net income$17,932 $18,681 $31,875 $36,486 
Other comprehensive income:
Change in fair value of interest rate swap agreements, net3,083 543 4,462 1,340 
Total other comprehensive income3,083 543 4,462 1,340 
Comprehensive income21,015 19,224 36,337 37,826 
Comprehensive income attributable to noncontrolling interests - Operating Partnership(1,040)(428)(1,801)(908)
Comprehensive income attributable to noncontrolling interests - partially owned properties(155)(151)(314)(303)
Comprehensive income attributable to common shareholders$19,820 $18,645 $34,222 $36,615 

The accompanying notes are an integral part of these consolidated financial statements.
5

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, 2021$2,247 $3,610,954 $(776,001)$(892)$2,836,308 $150,241 $484 $150,725 $2,987,033 
Net proceeds from sale of common shares3 5,029 — — 5,032 — — — 5,032 
Restricted share award grants, net3 118 (421)— (300)— — — (300)
Purchase of OP Units— — — — — (184)— (184)(184)
Dividends/distributions declared— — (51,879)— (51,879)(2,740)— (2,740)(54,619)
Contributions— — — — — — 569 569 569 
Distributions— — — — — — (55)(55)(55)
Change in market value of Redeemable Noncontrolling Interest in partially owned properties— — 717 — 717 — — — 717 
Change in fair value of interest rate swap agreement— — — 1,379 1,379 — — — 1,379 
Adjustment for Noncontrolling Interests ownership in Operating Partnership— (217)— — (217)217 — 217  
Net income— — 13,092 — 13,092 692 82 774 13,866 
Balance as of March 31, 2022$2,253 $3,615,884 $(814,492)$487 $2,804,132 $148,226 $1,080 $149,306 $2,953,438 
Net proceeds from sale of common shares9 18,475 — — 18,484 — — — 18,484 
Restricted share award grants, net1 3,588 (911)— 2,678 — — — 2,678 
Dividends/distributions declared— — (52,116)— (52,116)(2,712)— (2,712)(54,828)
Distributions— — — — — — (61)(61)(61)
Change in market value of Redeemable Noncontrolling Interest in partially owned properties— — 527 — 527 — — — 527 
Change in fair value of interest rate swap agreement— — — 3,083 3,083 — — — 3,083 
Adjustment for Noncontrolling Interests ownership in Operating Partnership— (488)— — (488)488 — 488  
Net income— — 16,891 — 16,891 886 79 965 17,856 
Balance as of June 30, 2022$2,263 $3,637,459 $(850,101)$3,570 $2,793,191 $146,888 $1,098 $147,986 $2,941,177 

The accompanying notes are an integral part of these consolidated financial statements.
6

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 shares28 52,404 — — 52,432 — — — 52,432 
Restricted share award grants, net4 (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 Interests— (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 shares46 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 Interests— — (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 

The accompanying notes are an integral part of these consolidated financial statements.
7

Physicians Realty Trust
Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
 Six Months Ended
June 30,
20222021
Cash Flows from Operating Activities:  
Net income$31,875 $36,486 
Adjustments to reconcile net income to net cash provided by operating activities 
Depreciation and amortization94,962 76,081 
Amortization of deferred financing costs1,158 1,163 
Amortization of lease inducements and above/below-market lease intangibles3,100 2,283 
Straight-line rental revenue/expense(3,881)(5,105)
Amortization of discount on unsecured senior notes527 324 
Amortization of above market assumed debt(10)(31)
Gain on sale of investment properties, net(3,481)(354)
Equity in loss of unconsolidated entities390 823 
Distributions from unconsolidated entities3,932 3,515 
Provision for bad debts95 (161)
Non-cash share compensation8,051 7,175 
Change in operating assets and liabilities:  
Tenant receivables(1,672)(1,354)
Other assets3,650 5,501 
Accounts payable(1,315)(1,583)
Accrued expenses and other liabilities2,117 (2,418)
Net cash provided by operating activities139,498 122,345 
Cash Flows from Investing Activities:  
Proceeds from sale of investment properties7,900 4,128 
Acquisition of investment properties, net(27,325)(37,603)
Investment in unconsolidated entities(12,119)10 
Escrowed cash - acquisition deposits/earnest deposits360 189 
Capital expenditures on investment properties(21,515)(13,509)
Investment in real estate loans receivable(14,611)(10,673)
Repayment of real estate loans receivable22,441 18,602 
Leasing commissions(1,842)(2,575)
Lease inducements(500) 
Net cash used in investing activities(47,211)(41,431)
Cash Flows from Financing Activities:  
Net proceeds from sale of common shares23,516 135,259 
Proceeds from credit facility borrowings147,000 154,000 
Repayment of credit facility borrowings(157,000)(248,000)
Principal payments on mortgage debt(838)(7,377)
Debt issuance costs(17)(13)
Dividends paid - shareholders(104,737)(98,417)
Distributions to noncontrolling interests - Operating Partnership(5,479)(2,549)
Preferred distributions paid - OP Unit holder (303)
Contributions from noncontrolling interest569  
Distributions to noncontrolling interests - partially owned properties(331)(334)
Payments of employee taxes for withheld stock-based compensation shares(4,261)(4,184)
Purchase of Series A Preferred Units (4,661)
Purchase of OP Units(184)(5,332)
Net cash used in financing activities(101,762)(81,911)
Net decrease in cash and cash equivalents(9,475)(997)
Cash and cash equivalents, beginning of period9,876 2,515 
Cash and cash equivalents, end of period$401 $1,518 
Supplemental disclosure of cash flow information—interest paid during the period$32,405 $26,028 
Supplemental disclosure of noncash activity—settlement of note receivable in exchange for Series A Preferred Units$ $20,646 
Supplemental disclosure of noncash activity—change in fair value of interest rate swap agreements$4,462 $1,340 
Supplemental disclosure of noncash activity—conversion of loan receivable in connection to the acquisition of investment property$5,700 $15,500 
The accompanying notes are an integral part of these consolidated financial statements.
8

Physicians Realty Trust
Notes to Consolidated Financial Statements

Unless otherwise indicated or unless the context requires otherwise, the use of the words “we,” “us,” “our,” and the “Company,” refer to Physicians Realty Trust, together with its consolidated subsidiaries, including Physicians Realty L.P.
 
Note 1. Organization and Business
 
Physicians Realty Trust (the “Trust” or the “Company”) was organized in the state of Maryland on April 9, 2013. As of June 30, 2022, the Trust was authorized to issue up to 500,000,000 common shares of beneficial interest, par value $0.01 per share. The Trust filed a Registration Statement on Form S-11 with the Commission with respect to a proposed underwritten initial public offering (the “IPO”) and completed the IPO of its common shares and commenced operations on July 24, 2013.
 
The Trust contributed the net proceeds from the IPO to Physicians Realty L.P, a Delaware limited partnership (the “Operating Partnership”), and is the sole general partner of the Operating Partnership. The Trust’s operations are conducted through the Operating Partnership and wholly-owned and majority-owned subsidiaries of the Operating Partnership. The Trust, as the general partner of the Operating Partnership, controls the Operating Partnership and consolidates the assets, liabilities, and results of operations of the Operating Partnership.
 
The Trust is a self-managed REIT formed primarily to acquire, selectively develop, own, and manage health care properties that are leased to physicians, hospitals, and health care delivery systems.

ATM Program

In May 2021, the Trust and the Operating Partnership entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with KeyBanc Capital Markets Inc., Credit Agricole Securities (USA) Inc., BMO Capital Markets Corp., and Raymond James & Associates, Inc. in their capacity as agents for the Company and/or forward sellers and Stifel, Nicolaus & Company, Incorporated in its capacity as sales agent for the Company (collectively, the “Agents”) and Bank of Montreal, Credit Agricole Corporate and Investments Bank, KeyBanc Capital Markets Inc., and Raymond James & Associates, Inc. as forward purchasers for the Company (the “Forward Purchasers”), pursuant to which the Trust may issue and sell, from time to time, its common shares having an aggregate offering price of up to $500 million through the Agents (the “ATM Program”). The Sales Agreement contemplates that, in addition to the issuance and sale of the Trust’s common shares through the Agents, the Trust may also enter into one or more forward sales agreements from time to time in the future with each of the Forward Purchasers.

During the quarters ended March 31, 2022 and June 30, 2022, the Trust issued and sold common shares through the ATM Program as follows (net proceeds in thousands):
 Common
shares sold
Weighted average priceNet
proceeds
Quarter ended March 31, 2022
259,977 $18.93 $4,871 
Quarter ended June 30, 2022
977,800 18.61 18,020 
Year to date1,237,777 $18.68 $22,891 

As of June 30, 2022, the Trust has $308.1 million of common shares remaining available under the ATM Program.


Note 2. Summary of Significant Accounting Policies
 
The accompanying unaudited consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods ended June 30, 2022 and 2021 pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements included in the Trust’s 2021 Annual Report. The Company has consistently applied its accounting policies to all periods presented in these consolidated financial statements.
9


Noncontrolling Interests
 
As of June 30, 2022, the Trust held a 95.0% interest in the Operating Partnership. As the sole general partner and the majority interest holder, the Trust consolidates the financial position and results of operations of the Operating Partnership.

Redeemable Noncontrolling Interests - Partially Owned Properties

In connection with the Company’s acquisitions of the medical office building, ambulatory surgery center, and hospital located on the Great Falls Hospital campus in Great Falls, Montana, physicians affiliated with the sellers retained non-controlling interests which may, at the holders’ option, be redeemed at any time after May 1, 2023. Due to the redemption provision, which is outside of the control of the Trust, the Trust classifies the investment in the mezzanine section of its consolidated balance sheets. The Trust records the carrying amount of the redeemable noncontrolling interests at the greater of the carrying value or redemption value. As of June 30, 2022, the redeemable noncontrolling interests were recorded at the carrying value of $5.8 million, and the Company classified these three properties as held for sale. See Note 15 for additional details.

Dividends and Distributions
 
On June 17, 2022, the Trust announced that its Board of Trustees authorized and the Trust declared a cash dividend of $0.23 per common share for the quarter ended June 30, 2022. The dividend was paid on July 19, 2022 to common shareholders and holders of record of partnership interests of the Operating Partnership (“OP Units”) as of the close of business on July 5, 2022.
 
Tax Status of Dividends and Distributions

The Company’s distributions of current and accumulated earnings and profits for U.S. federal income tax purposes generally are taxable to shareholders as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the shareholders’ basis in the shares to the extent thereof (non-dividend distributions) and thereafter as taxable gain.

Any cash distributions received by an OP Unit holder in respect of its OP Units generally will not be taxable to such OP Unit holder for U.S. federal income tax purposes, to the extent that such distribution does not exceed the OP Unit holder’s basis in its OP Units. Any such distribution will instead reduce the OP Unit holder’s basis in its OP Units (and OP Unit holders will be subject to tax on the taxable income allocated to them by the Operating Partnership in respect of their OP Units when such income is earned by the Operating Partnership, with such income allocation increasing the OP Unit holders’ basis in their OP Units).

The Company has elected taxable REIT subsidiary (“TRS”) status for certain of its corporate subsidiaries and, as a result, these entities will incur both federal and state income taxes on any taxable income of such entities after consideration of any net operating losses. To date, these income taxes have been de minimis.

Impairment of Intangible and Long-Lived Assets

The Company periodically evaluates its long-lived assets, primarily consisting of investments in real estate, for impairment indicators or whenever events or changes in circumstances indicate that the recorded amount of an asset may not be fully recoverable. The Company did not record impairment charges for the three and six months ended June 30, 2022 and 2021.

Assets Held for Sale

The Company may sell properties from time to time for various reasons, including favorable market conditions. The Company classifies certain long-lived assets as held for sale once the criteria, as defined by GAAP, have been met. The Company classifies a real estate property as held for sale when: (i) management has approved the disposition of the property, (ii) the property is available for sale in its present condition, (iii) an active program to locate a buyer has been initiated, (iv) it is probable that the property will be disposed of within one year, (v) the property is being marketed at a reasonable price relative to its fair value, and (vi) it is unlikely that the disposition plan will significantly change or be withdrawn. Following the classification of a property as “held for sale,” no further depreciation or amortization is recorded for the asset and the book value of the asset is written down to the lower of carrying value or fair market value, less cost to sell. As of June 30, 2022, the Company classified three properties as held for sale.
10


Real Estate Loans Receivable, Net
 
Real estate loans receivable consists of nine mezzanine loans, three term loans, and one construction loan as of June 30, 2022. Generally, each mezzanine loan is collateralized by a pledge of the borrower’s ownership interest in the respective real estate owner, each term loan is secured by a mortgage on a related medical office building, and construction loans are secured by mortgages on the land and the improvements as constructed. The reserve for loan losses was $0.1 million as of June 30, 2022.

Rental and Related Revenues

Rental revenue is recognized on a straight-line basis over the terms of the related leases when collectability is probable. Recognizing rental revenue on a straight-line basis for leases may result in recognizing revenue for amounts more or less than amounts currently due from tenants. Amounts recognized in excess of amounts currently due from tenants, excluding assets classified as held for sale, are included in other assets and were approximately $97.7 million and $95.4 million as of June 30, 2022 and December 31, 2021, respectively. If the Company determines that collectability of straight-line rents is not probable, income recognition is limited to the lesser of cash collected, or lease income reflected on a straight-line basis, plus variable rent when it becomes accruable.

In accordance with ASC 842, Leases, Topic 842, if the collectability of a lease changes after the commencement date, any difference between lease income that would have been recognized and the lease payments shall be recognized as an adjustment to lease income. Bad debt recognized as an adjustment to rental and related revenues was $0.2 million for the six months ended June 30, 2022 and insignificant for the six months ended June 30, 2021.

Rental revenue is adjusted by the amortization of lease inducements and above-market or below-market rents on certain leases. Lease inducements and above-market or below-market rents are amortized on a straight-line basis over the remaining lease term. Rental and related revenues also include expense recoveries, which relate to tenant reimbursement of real estate taxes, insurance, and other operating expenses that are recognized in the period the applicable expenses are incurred. The reimbursements are recorded gross, as these costs are incurred by the Company and reimbursed by the tenants. We have certain tenants with absolute net leases. Under these lease agreements, the tenant is responsible for operating and building expenses and we do not recognize expense recoveries.

New Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting, that provides optional relief to applying reference rate reform to changing reference rates, contracts, hedging relationships, and other transactions that reference LIBOR, which has been discontinued at the end of 2021. The amendments in this update are effective immediately and may be applied through December 31, 2022. The Company will continue to use published LIBOR rates through June of 2023 at which time the Company does not expect the replacement benchmark to have a material impact on the Company’s consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company adopted ASU 2020-06 on January 1, 2022, with no material effect on its consolidated financial statements.

Note 3.