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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 September 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 October 26, 2022 was 228,260,860.



PHYSICIANS REALTY TRUST
 
Quarterly Report on Form 10-Q
for the Quarter Ended September 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;

the potential impact of severe weather events and climate change;

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)
September 30,
2022
December 31,
2021
 (unaudited) 
ASSETS  
Investment properties:  
Land and improvements$241,385 $235,453 
Building and improvements4,666,085 4,612,561 
Tenant improvements90,318 86,018 
Acquired lease intangibles505,335 498,221 
 5,503,123 5,432,253 
Accumulated depreciation(948,883)(821,036)
Net real estate property4,554,240 4,611,217 
Real estate held for sale 1,964 
Right-of-use lease assets, net232,320 235,483 
Real estate loans receivable, net120,576 117,844 
Investments in unconsolidated entities79,613 69,793 
Net real estate investments4,986,749 5,036,301 
Cash and cash equivalents2,512 9,876 
Tenant receivables, net9,644 4,948 
Other assets143,569 131,584 
Total assets$5,142,474 $5,182,709 
LIABILITIES AND EQUITY  
Liabilities:  
Credit facility$256,893 $267,641 
Notes payable1,465,078 1,464,008 
Mortgage debt164,556 180,269 
Accounts payable6,526 6,651 
Dividends and distributions payable58,382 57,246 
Accrued expenses and other liabilities92,494 86,254 
Lease liabilities104,905 104,957 
Acquired lease intangibles, net24,970 21,569 
Total liabilities2,173,804 2,188,595 
Redeemable noncontrolling interests - partially owned properties3,288 7,081 
Equity:  
Common shares, $0.01 par value, 500,000,000 common shares authorized, 226,763,146 and 224,678,116 common shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
2,268 2,247 
Additional paid-in capital3,648,983 3,610,954 
Accumulated deficit(838,729)(776,001)
Accumulated other comprehensive income (loss)5,323 (892)
Total shareholders’ equity2,817,845 2,836,308 
Noncontrolling interests:  
Operating Partnership146,426 150,241 
Partially owned properties1,111 484 
Total noncontrolling interests147,537 150,725 
Total equity2,965,382 2,987,033 
Total liabilities and equity$5,142,474 $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
September 30,
Nine Months Ended
September 30,
 2022202120222021
Revenues:    
Rental and related revenues$127,381 $110,314 $381,785 $326,017 
Interest income on real estate loans and other4,132 4,997 12,285 15,558 
Total revenues131,513 115,311 394,070 341,575 
Expenses:    
Interest expense18,299 13,498 52,356 40,754 
General and administrative10,079 9,534 30,400 28,116 
Operating expenses43,647 35,679 128,080 103,069 
Depreciation and amortization47,040 38,582 142,002 114,663 
Impairment loss 340  340 
Total expenses119,065 97,633 352,838 286,942 
Income before equity in loss of unconsolidated entities and gain on sale of investment properties, net:12,448 17,678 41,232 54,633 
Equity in loss of unconsolidated entities(62)(390)(452)(1,213)
Gain on sale of investment properties, net53,894 4,757 57,375 5,111 
Net income 66,280 22,045 98,155 58,531 
Net income attributable to noncontrolling interests:    
Operating Partnership(3,252)(529)(4,830)(1,405)
Partially owned properties (1)(70)(152)(384)(455)
Net income attributable to controlling interest62,958 21,364 92,941 56,671 
Preferred distributions   (13)
Net income attributable to common shareholders$62,958 $21,364 $92,941 $56,658 
Net income per share:    
Basic$0.28 $0.10 $0.41 $0.26 
Diluted$0.28 $0.10 $0.41 $0.26 
Weighted average common shares:    
Basic226,529,041 217,406,657 225,743,856 214,616,482 
Diluted239,898,462 223,992,049 239,145,383 221,399,649 
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.
4

Physicians Realty Trust
Consolidated Statements of Comprehensive Income
(In thousands) (Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
 2022202120222021
Net income$66,280 $22,045 $98,155 $58,531 
Other comprehensive income:
Change in fair value of interest rate swap agreements, net1,753 465 6,215 1,805 
Total other comprehensive income1,753 465 6,215 1,805 
Comprehensive income68,033 22,510 104,370 60,336 
Comprehensive income attributable to noncontrolling interests - Operating Partnership(3,336)(541)(5,137)(1,449)
Comprehensive income attributable to noncontrolling interests - partially owned properties(70)(152)(384)(455)
Comprehensive income attributable to common shareholders$64,627 $21,817 $98,849 $58,432 

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 
Net proceeds from sale of common shares5 7,925 — — 7,930 — — — 7,930 
Restricted share award grants, net— 4,326 (536)— 3,790 — — — 3,790 
Purchase of OP Units— — — — — (2,139)— (2,139)(2,139)
Dividends/distributions declared— — (52,563)— (52,563)(2,302)— (2,302)(54,865)
Distributions— — — — — — (61)(61)(61)
Change in market value of Redeemable Noncontrolling Interest in partially owned properties— — 1,513 — 1,513 — — — 1,513 
Change in fair value of interest rate swap agreement— — — 1,753 1,753 — — — 1,753 
Adjustment for Noncontrolling Interests ownership in Operating Partnership— (727)— — (727)727 — 727  
Net income— — 62,958 — 62,958 3,252 74 3,326 66,284 
Balance as of September 30, 2022$2,268 $3,648,983 $(838,729)$5,323 $2,817,845 $146,426 $1,111 $147,537 $2,965,382 

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 
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 Interests— — 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.
7

Physicians Realty Trust
Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
 Nine Months Ended
September 30,
20222021
Cash Flows from Operating Activities:  
Net income$98,155 $58,531 
Adjustments to reconcile net income to net cash provided by operating activities 
Depreciation and amortization142,002 114,663 
Amortization of deferred financing costs1,739 1,744 
Amortization of lease inducements and above/below-market lease intangibles4,458 3,526 
Straight-line rental revenue/expense(5,359)(7,276)
Amortization of discount on unsecured senior notes794 489 
Amortization of above market assumed debt(10)(47)
Gain on sale of investment properties, net(57,375)