Physicians Realty Trust [DOC] Filings

10-Q 1 doc-20220630.htm 10-Q doc-20220630

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

☐ 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 July 27, 2022 was 226,320,806.

PHYSICIANS REALTY TRUST

Quarterly Report on Form 10-Q

for the Quarter Ended June 30, 2022

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		Page Number
Part I	Financial Information

Item 1	Financial Statements (Unaudited)


	Consolidated Balance Sheets as of June 30 , 2022 and December 31, 2021	3
	Consolidated Statements of Income for the Three and Six Months Ended June 30 , 2022 and 2021	4
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30 , 2022 and 2021	5
	Consolidated Statements of Equity for the Three and Six Months Ended June 30 , 2022 and 2021	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30 , 2022 and 2021	8









	Notes to Consolidated Financial Statements	9

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4	Controls and Procedures	37

Part II	Other Information

Item 1	Legal Proceedings	39
Item 1A	Risk Factors	39
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 6	Exhibits	40

SIGNATURES		41

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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 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;

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•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.

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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)


	June 30, 2022		December 31, 2021
	(unaudited)
ASSETS
Investment properties:
Land and improvements	$	233,699	$	235,453
Building and improvements	4,588,319		4,612,561
Tenant improvements	87,162		86,018
Acquired lease intangibles	493,149		498,221
	5,402,329		5,432,253
Accumulated depreciation	(901,526)		(821,036)
Net real estate property	4,500,803		4,611,217
Real estate held for sale	65,798		1,964
Right-of-use lease assets, net	233,281		235,483
Real estate loans receivable, net	104,716		117,844
Investments in unconsolidated entities	80,590		69,793
Net real estate investments	4,985,188		5,036,301
Cash and cash equivalents	401		9,876
Tenant receivables, net	6,135		4,948
Other assets	134,617		131,584
Total assets	$	5,126,341	$	5,182,709
LIABILITIES AND EQUITY
Liabilities:
Credit facility	$	258,509	$	267,641
Notes payable	1,464,713		1,464,008
Mortgage debt	179,516		180,269
Accounts payable	5,336		6,651
Dividends and distributions payable	57,809		57,246
Accrued expenses and other liabilities	88,311		86,254
Lease liabilities	104,591		104,957
Acquired lease intangibles, net	20,603		21,569
Total liabilities	2,179,388		2,188,595

Redeemable noncontrolling interests - partially owned properties	5,776		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 capital	3,637,459		3,610,954
Accumulated deficit	(850,101)		(776,001)
Accumulated other comprehensive income (loss)	3,570		(892)
Total shareholders’ equity	2,793,191		2,836,308
Noncontrolling interests:
Operating Partnership	146,888		150,241
Partially owned properties	1,098		484
Total noncontrolling interests	147,986		150,725
Total equity	2,941,177		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.

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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,
	2022		2021		2022		2021
Revenues:
Rental and related revenues	$	127,728	$	107,748	$	254,404	$	215,703
Interest income on real estate loans and other	4,439		5,177		8,153		10,561
Total revenues	132,167		112,925		262,557		226,264
Expenses:
Interest expense	17,234		13,541		34,057		27,256
General and administrative	10,028		9,117		20,321		18,582
Operating expenses	42,681		33,456		84,433		67,390
Depreciation and amortization	47,702		38,105		94,962		76,081

Total expenses	117,645		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, net	3,634		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 interest	16,891		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:
Basic	225,617,275		215,837,520		225,344,756		213,198,272
Diluted	239,006,973		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.

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Physicians Realty Trust

Consolidated Statements of Comprehensive Income

(In thousands) (Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	17,932	$	18,681	$	31,875	$	36,486
Other comprehensive income:
Change in fair value of interest rate swap agreements, net	3,083		543		4,462		1,340
Total other comprehensive income	3,083		543		4,462		1,340
Comprehensive income	21,015		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.

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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, 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 shares	3		5,029		—		—		5,032		—		—		—		5,032
Restricted share award grants, net	3		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 shares	9		18,475		—		—		18,484		—		—		—		18,484
Restricted share award grants, net	1		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.

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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 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 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 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.

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Physicians Realty Trust

Consolidated Statements of Cash Flows

(In thousands) (Unaudited)


	Six Months Ended June 30,
	2022		2021
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 amortization	94,962		76,081
Amortization of deferred financing costs	1,158		1,163
Amortization of lease inducements and above/below-market lease intangibles	3,100		2,283
Straight-line rental revenue/expense	(3,881)		(5,105)
Amortization of discount on unsecured senior notes	527		324
Amortization of above market assumed debt	(10)		(31)
Gain on sale of investment properties, net	(3,481)		(354)
Equity in loss of unconsolidated entities	390		823
Distributions from unconsolidated entities	3,932		3,515

Provision for bad debts	95		(161)
Non-cash share compensation	8,051		7,175


Change in operating assets and liabilities:
Tenant receivables	(1,672)		(1,354)
Other assets	3,650		5,501
Accounts payable	(1,315)		(1,583)
Accrued expenses and other liabilities	2,117		(2,418)
Net cash provided by operating activities	139,498		122,345
Cash Flows from Investing Activities:
Proceeds from sale of investment properties	7,900		4,128
Acquisition of investment properties, net	(27,325)		(37,603)
Investment in unconsolidated entities	(12,119)		10
Escrowed cash - acquisition deposits/earnest deposits	360		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 receivable	22,441		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 shares	23,516		135,259
Proceeds from credit facility borrowings	147,000		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 interest	569		—
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 period	9,876		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.

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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 price		Net 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 date	1,237,777	$	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.

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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.

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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.