Part I. Financial Information This section presents the company's financial statements, management's discussion and analysis, and disclosures on market risk and controls [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) This section presents Physicians Realty Trust's unaudited consolidated financial statements and detailed notes for periods ended June 30, 2023, and December 31, 2022 [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's assets, liabilities, and equity as of June 30, 2023, and December 31, 2022 Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | **ASSETS** | | | | Net real estate property | $4,484,009 | $4,516,923 | | Cash and cash equivalents | $245,660 | $7,730 | | Total assets | $5,279,538 | $5,096,877 | | **LIABILITIES** | | | | Credit facility | $392,524 | $188,328 | | Notes payable | $1,451,162 | $1,465,437 | | Total liabilities | $2,293,564 | $2,099,768 | | **EQUITY** | | | | Total shareholders' equity | $2,855,788 | $2,869,720 | | Total equity | $2,982,859 | $2,993,851 | [Consolidated Statements of Income](index=6&type=section&id=Consolidated%20Statements%20of%20Income) This section details the company's revenues, expenses, and net income for the three and six months ended June 30, 2023 and 2022 Consolidated Statements of Income Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenues | $135,100 | $132,167 | $269,444 | $262,557 | | Total expenses | $123,817 | $117,645 | $247,241 | $233,773 | | Net income | $13,085 | $17,932 | $23,754 | $31,875 | | Net income attributable to common shareholders | $12,544 | $16,891 | $22,746 | $29,983 | | Basic EPS | $0.05 | $0.07 | $0.10 | $0.13 | | Diluted EPS | $0.05 | $0.07 | $0.10 | $0.13 | | Dividends declared per common share | $0.23 | $0.23 | $0.46 | $0.46 | [Consolidated Statements of Comprehensive Income](index=7&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents the company's net income and other comprehensive income components for the three and six months ended June 30, 2023 and 2022 Consolidated Statements of Comprehensive Income Highlights (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $13,085 | $17,932 | $23,754 | $31,875 | | Change in fair value of interest rate swap agreements, net | $5,120 | $3,083 | $4,099 | $4,462 | | Total other comprehensive income | $5,120 | $3,083 | $4,099 | $4,462 | | Comprehensive income | $18,205 | $21,015 | $27,853 | $36,337 | | Comprehensive income attributable to common shareholders | $17,462 | $19,820 | $26,683 | $34,222 | [Consolidated Statements of Equity](index=8&type=section&id=Consolidated%20Statements%20of%20Equity) This section outlines changes in the company's total equity and shareholders' equity between December 31, 2022, and June 30, 2023 Consolidated Statements of Equity Highlights (in thousands) | Metric | Balance at Dec 31, 2022 | Balance as of June 30, 2023 | | :----------------------------------- | :---------------------- | :-------------------------- | | Total Shareholders' Equity | $2,869,720 | $2,855,788 | | Total Equity | $2,993,851 | $2,982,859 | | Net proceeds from sale of common shares (6 months) | N/A | $66,107 | | Dividends/distributions declared (6 months) | N/A | $(109,848) | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash flows from operating, investing, and financing activities for the six months ended June 30, 2023 and 2022 Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $145,785 | $139,498 | | Net cash used in investing activities | $(48,578) | $(47,211) | | Net cash provided by (used in) financing activities | $140,723 | $(101,762) | | Net increase (decrease) in cash and cash equivalents | $237,930 | $(9,475) | | Cash and cash equivalents, end of period | $245,660 | $401 | [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the consolidated financial statements [Note 1. Organization and Business](index=11&type=section&id=Note%201.%20Organization%20and%20Business) Physicians Realty Trust is a healthcare REIT operating through its Operating Partnership, actively managing its ATM Program for common share issuance - Physicians Realty Trust is a self-managed REIT focused on acquiring, developing, owning, and managing healthcare properties, primarily leased to physicians, hospitals, and healthcare delivery systems[35](index=35&type=chunk) - As of June 30, 2023, the Trust held a **96.0% interest** in the Operating Partnership[41](index=41&type=chunk) ATM Program Share Sales (Net Proceeds in thousands) | Period | Common shares sold | Weighted average price | Net proceeds | | :--------------------- | :----------------- | :--------------------- | :----------- | | Quarter ended March 31, 2023 | 4,400,000 | $15.10 | $65,776 | | Quarter ended June 30, 2023 | — | — | — | | Year to date | 4,400,000 | $15.10 | $65,776 | - As of June 30, 2023, **$158.6 million** of common shares remained available under the ATM Program[37](index=37&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=11&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note details key accounting policies, including noncontrolling interests, revenue recognition, and the adoption of ASU 2020-04 for reference rate reform - The Trust consolidates the financial position and results of operations of the Operating Partnership, in which it holds a majority interest[41](index=41&type=chunk) - Redeemable noncontrolling interests are classified in the mezzanine section of the consolidated balance sheets due to redemption provisions outside the Trust's control, such as MedProperties' interest in Calko Medical Center[44](index=44&type=chunk) - Rental revenue is recognized on a straight-line basis over lease terms, with adjustments for lease inducements and above/below-market rents[50](index=50&type=chunk)[52](index=52&type=chunk) - The company adopted ASU 2020-04, transitioning from LIBOR to SOFR for its credit agreement and fixed interest rate swap, with **no material impact** on financial statements[55](index=55&type=chunk) [Note 3. Investment and Disposition Activity](index=14&type=section&id=Note%203.%20Investment%20and%20Disposition%20Activity) During the first six months of 2023, the company engaged in significant investment activities totaling approximately $64.2 million, including a $40.5 million development project, acquisitions of medical facilities and land, and funding of construction and term loans. Disposition activity included the sale of one outpatient medical facility for $2.6 million - Total investment activity for the six months ended June 30, 2023, was approximately **$64.2 million**, including a **$40.5 million** development project and **$35.9 million** in acquisitions[56](index=56&type=chunk) - For the three months ended June 30, 2023, investment activity totaled approximately **$49.8 million**, including **$34.6 million** for medical facility acquisitions[57](index=57&type=chunk) - During the six months ended June 30, 2023, the Company sold one outpatient medical facility for approximately **$2.6 million**, realizing an insignificant gain[59](index=59&type=chunk) [Note 4. Intangibles](index=14&type=section&id=Note%204.%20Intangibles) This note details intangible assets and liabilities, including in-place, above-market, and below-market leases, with their respective amortization periods Summary of Intangible Assets and Liabilities (in thousands) | Intangible Type | June 30, 2023 Net | December 31, 2022 Net | | :---------------- | :---------------- | :-------------------- | | In-place leases | $186,358 | $203,940 | | Above-market leases | $26,843 | $29,656 | | Below-market leases | $23,211 | $24,381 | - The weighted average remaining amortization period is **7 years** for in-place and above-market lease intangible assets and **15 years** for below-market lease intangibles[62](index=62&type=chunk) [Note 5. Other Assets](index=15&type=section&id=Note%205.%20Other%20Assets) Other assets primarily include straight-line rent receivable, leasing commissions, lease inducements, and interest rate swaps. As of June 30, 2023, total other assets amounted to $149.7 million, an increase from $146.8 million at December 31, 2022, driven mainly by an increase in straight-line rent receivable and interest rate swaps Other Assets (in thousands) | Asset Type | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Straight line rent receivable, net | $103,866 | $101,306 | | Leasing commissions, net | $13,882 | $13,231 | | Lease inducements, net | $7,822 | $7,894 | | Prepaid expenses | $7,499 | $11,009 | | Interest rate swaps | $6,749 | $2,045 | | Total | $149,695 | $146,807 | [Note 6. Debt](index=16&type=section&id=Note%206.%20Debt) As of June 30, 2023, the company's total consolidated indebtedness was approximately $2.0 billion, with a weighted average interest rate of 4.04%. This includes $1.5 billion in senior unsecured notes and $400 million from a new term loan executed in May 2023, which bears a fixed interest rate of 4.693% after swaps. The company was in compliance with all debt covenants Summary of Debt (in thousands) | Debt Type | June 30, 2023 | December 31, 2022 | | :------------------------------------------------ | :------------ | :---------------- | | Fixed interest mortgage notes | $59,511 | $59,776 | | Variable interest mortgage notes | $104,916 | $105,153 | | $1.0 billion unsecured revolving credit facility due September 2025 | — | $193,000 | | $400 million unsecured term borrowing due May 2028 | $400,000 | — | | Senior unsecured notes (various maturities) | $1,451,162 | $1,465,437 | | Total principal | $2,024,427 | $1,832,929 | | Total debt | $2,007,612 | $1,818,117 | - On May 24, 2023, the Operating Partnership borrowed **$400 million** under a new term loan, fixing the interest rate at **4.693%** through interest rate swaps, maturing May 24, 2028[67](index=67&type=chunk) - As of June 30, 2023, the company had **$1.5 billion** in senior notes outstanding and was in compliance with all financial covenants[72](index=72&type=chunk)[73](index=73&type=chunk) - The weighted average interest rate on consolidated indebtedness was **4.04%** as of June 30, 2023[75](index=75&type=chunk) [Note 7. Derivatives](index=18&type=section&id=Note%207.%20Derivatives) The company uses interest rate swaps as cash flow hedges to manage interest rate risk on its variable-rate debt, aiming to mitigate future interest rate increases by fixing rates. As of June 30, 2023, there were four outstanding interest rate swaps with a total notional amount of $436.1 million, recorded at fair value based on Level 2 inputs - The company uses interest rate swaps as cash flow hedges to manage interest rate risk for variable-rate debt, providing fixed interest rates for pre-determined periods[79](index=79&type=chunk) Derivative Financial Instruments (in thousands) | Derivative Type | Maturity Date | Number of Instruments | Total Notional Amount | Interest Rate | | :---------------------- | :------------ | :-------------------- | :-------------------- | :------------ | | Interest rate swap | 5/24/2028 | 3 | $400,000 | 3.59% | | Interest rate swap | 10/31/2024 | 1 | $36,050 | 1.90% | | Total | | 4 | $436,050 | | - Derivative assets and liabilities are recorded at fair value using **Level 2 inputs**, considering contractual terms, interest rate curves, and credit risk[98](index=98&type=chunk) [Note 8. Accrued Expenses and Other Liabilities](index=19&type=section&id=Note%208.%20Accrued%20Expenses%20and%20Other%20Liabilities) Accrued expenses and other liabilities totaled $93.4 million as of June 30, 2023, an increase from $87.7 million at December 31, 2022. Key components include prepaid rent, real estate taxes payable, and accrued interest Accrued Expenses and Other Liabilities (in thousands) | Liability Type | June 30, 2023 | December 31, 2022 | | :-------------------------- | :------------ | :---------------- | | Prepaid rent | $25,113 | $21,062 | | Real estate taxes payable | $22,102 | $23,303 | | Accrued interest | $18,684 | $18,196 | | Accrued expenses | $7,226 | $7,920 | | Security deposits | $4,539 | $4,338 | | Accrued incentive compensation | $3,422 | $2,700 | | Tenant improvement allowances | $1,853 | $1,831 | | Other | $10,493 | $8,370 | | Total | $93,432 | $87,720 | [Note 9. Stock-based Compensation](index=19&type=section&id=Note%209.%20Stock-based%20Compensation) This note details stock-based compensation, including restricted share grants, their fair values, and the total non-cash compensation expense recognized - The Amended and Restated 2013 Equity Incentive Plan increased authorized common shares to **11,000,000** and extended the plan term to **2033**[84](index=84&type=chunk) - In the six months ended June 30, 2023, **342,939 restricted common shares** were granted with a total value of **$5.0 million**[85](index=85&type=chunk) - For the six months ended June 30, 2023, non-cash share compensation recognized was **$8.2 million** (**$2.3 million** for restricted common shares and **$5.9 million** for restricted share units)[87](index=87&type=chunk)[93](index=93&type=chunk) - Unrecognized compensation expense on June 30, 2023, was **$14.1 million** for restricted share units and **$4.1 million** for restricted common shares[87](index=87&type=chunk)[93](index=93&type=chunk) [Note 10. Fair Value Measurements](index=21&type=section&id=Note%2010.%20Fair%20Value%20Measurements) The company applies ASC Topic 820 for fair value measurements, categorizing inputs into Level 1, 2, or 3. Derivative instruments (interest rate swaps) are measured at fair value on a recurring basis using Level 2 observable inputs. Real estate loans receivable and mortgage debt fair values are estimated based on prevailing rates for similar instruments, primarily using Level 2 inputs - Fair value measurements are based on a hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs like interest rates), and Level 3 (unobservable inputs, management estimates)[95](index=95&type=chunk)[96](index=96&type=chunk) - The company's derivative instruments are measured at fair value on a recurring basis using **Level 2 inputs**[98](index=98&type=chunk) Fair Value of Financial Instruments (in thousands) | Instrument | June 30, 2023 Carrying Amount | June 30, 2023 Fair Value | December 31, 2022 Carrying Amount | December 31, 2022 Fair Value | | :-------------------------- | :------------------------------ | :----------------------- | :-------------------------------- | :----------------------------- | | Real estate loans receivable, net | $88,970 | $87,036 | $104,973 | $102,162 | | Derivative assets | $6,749 | $6,749 | $2,045 | $2,045 | | Notes payable | $(1,460,000) | $(1,284,250) | $(1,475,000) | $(1,302,767) | | Mortgage debt | $(164,427) | $(162,649) | $(164,929) | $(163,129) | [Note 11. Tenant Operating Leases](index=22&type=section&id=Note%2011.%20Tenant%20Operating%20Leases) The company leases outpatient medical and other healthcare facilities, with leases expiring from 2023 through 2042. As of June 30, 2023, future minimum rental payments on non-cancelable leases totaled $2.21 billion. Rental and other lease-related income for the six months ended June 30, 2023, was $262.6 million, including $75.4 million in variable lease payments Future Minimum Rental Payments on Non-Cancelable Leases (in thousands) | Year | Amount | | :--- | :------- | | 2023 | $185,592 | | 2024 | $358,748 | | 2025 | $340,921 | | 2026 | $289,769 | | 2027 | $232,726 | | Thereafter | $802,665 | | Total | $2,210,421 | - For the six months ended June 30, 2023, rental and other lease-related income was **$262.6 million**, with variable lease payments accounting for **$75.4 million**[103](index=103&type=chunk) [Note 12. Rent Expense](index=22&type=section&id=Note%2012.%20Rent%20Expense) This note details the company's lease obligations for properties and corporate offices, including terms, discount rates, and total undiscounted payments - The company leases land for **97 properties**, parking structures, and corporate office space, with a weighted average remaining lease term of **43 years**[104](index=104&type=chunk)[105](index=105&type=chunk) Future Minimum Lease Obligations (in thousands) | Year | Amount | | :--- | :------- | | 2023 | $2,216 | | 2024 | $4,819 | | 2025 | $4,798 | | 2026 | $4,787 | | 2027 | $4,789 | | Thereafter | $239,130 | | Total undiscounted lease payments | $260,539 | | Less: Interest | $(155,843) | | Present value of lease liabilities | $104,696 | - The approximated weighted average discount rate for leases was **4.4%** as of June 30, 2023[106](index=106&type=chunk) [Note 13. Credit Concentration](index=23&type=section&id=Note%2013.%20Credit%20Concentration) The company's top five tenant relationships account for 19.7% of its total Annualized Base Rent (ABR) as of June 30, 2023, with CommonSpirit-CHI-Nebraska being the largest at 5.1%. Geographically, Texas represents the highest concentration at 13.4% of total ABR Top Five Tenant Credit Concentrations (as of June 30, 2023, in thousands) | Tenant | Total ABR | Percent of ABR | | :-------------------------- | :-------- | :------------- | | CommonSpirit - CHI - Nebraska | $18,615 | 5.1% | | Northside Hospital | $16,409 | 4.5% | | UofL Health - Louisville, Inc. | $14,637 | 4.0% | | HonorHealth | $11,310 | 3.1% | | US Oncology | $11,024 | 3.0% | | Remaining portfolio | $294,395 | 80.3% | | Total | $366,390 | 100.0% | - Total ABR from CommonSpirit-affiliated tenants, including the disclosed affiliate, totals **14.9%**[111](index=111&type=chunk) Top Five Geographic Concentrations (as of June 30, 2023) | State | Total ABR | Percent of ABR | | :------ | :-------- | :------------- | | Texas | $49,041 | 13.4% | | Georgia | $26,949 | 7.4% | | Florida | $25,667 | 7.0% | | Indiana | $23,729 | 6.5% | | Arizona | $21,668 | 5.9% | | Other | $219,336 | 59.8% | | Total | $366,390 | 100.0% | [Note 14. Earnings Per Share](index=24&type=section&id=Note%2014.%20Earnings%20Per%20Share) For the three months ended June 30, 2023, basic and diluted earnings per share were $0.05, down from $0.07 in the prior year. For the six months ended June 30, 2023, basic and diluted EPS were $0.10, compared to $0.13 in the prior year, reflecting a decrease in net income attributable to common shareholders Earnings Per Share Summary | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income attributable to common shareholders | $12,544 | $16,891 | $22,746 | $29,983 | | Basic EPS | $0.05 | $0.07 | $0.10 | $0.13 | | Diluted EPS | $0.05 | $0.07 | $0.10 | $0.13 | | Weighted average common shares outstanding - diluted | 249,228,221 | 239,006,973 | 249,069,697 | 238,738,465 | [Note 15. Subsequent Events](index=24&type=section&id=Note%2015.%20Subsequent%20Events) On July 20, 2023, the company completed the acquisition of an outpatient medical facility in Palos Heights, Illinois, for approximately $2.6 million - On July 20, 2023, the Company acquired an outpatient medical facility in Palos Heights, Illinois, for approximately **$2.6 million**[114](index=114&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance for Q2 and H1 2023, covering revenue, net income, investments, capital, non-GAAP measures, liquidity, and debt management [Second Quarter Highlights](index=25&type=section&id=Second%20Quarter%20Highlights) This section summarizes key financial and operational achievements for the second quarter ended June 30, 2023 - Total revenue for Q2 2023 increased by **2.2%** to **$135.1 million**[121](index=121&type=chunk) - Net income for Q2 2023 decreased by **27.0%** to **$13.1 million**, with diluted net income per share at **$0.05**[121](index=121&type=chunk) - Generated Normalized Funds From Operations (Normalized FFO) of **$0.25 per share** on a fully diluted basis[121](index=121&type=chunk) - Completed **$49.8 million** in investments, including funding of previous loan commitments[121](index=121&type=chunk) - Outpatient Medical Same-Store Cash Net Operating Income (NOI) growth was **0.8%** year-over-year[121](index=121&type=chunk) - Declared a quarterly dividend of **$0.23 per share** and OP Unit[121](index=121&type=chunk) - Closed on a **$400.0 million** five-year term loan with an all-in fixed rate of **4.693%** (with swaps)[121](index=121&type=chunk) [Overview](index=25&type=section&id=Overview) The company is a healthcare REIT with a portfolio of 277 properties, 95% leased, focusing on predictable cash flow through net leases - The company's portfolio grew from **$124 million** at IPO (July 2013) to approximately **$5.8 billion** as of June 30, 2023[119](index=119&type=chunk) - As of June 30, 2023, the consolidated portfolio consisted of **277 healthcare properties** in **32 states**, with approximately **15.6 million net leasable square feet**, **95% leased**, and a weighted average remaining lease term of **5.4 years**[119](index=119&type=chunk) - Approximately **93%** of annualized base rent (ABR) payments are from absolute net and triple net leases, where tenants are responsible for operating expenses, providing predictable cash flow[120](index=120&type=chunk) - Leases typically have initial terms of **5 to 15 years** with annual rent escalators of **1.5% to 4.0%** (weighted average **2.4%**)[121](index=121&type=chunk) - Approximately **91%** of the portfolio's net leasable square footage is on a hospital campus or strategically affiliated with a health system[119](index=119&type=chunk) [Key Transactions in Second Quarter 2023](index=26&type=section&id=Key%20Transactions%20in%20Second%20Quarter%202023) During Q2 2023, the company completed $49.8 million in investment activities, including acquiring two outpatient medical facilities and two medical condominium units for $34.6 million. Capital activities included shareholder approval of an amended equity incentive plan and the execution of a new $400 million unsecured term loan, with proceeds used to repay the revolving credit facility. A quarterly cash dividend of $0.23 per common share was declared - Investment Activity: Acquired two outpatient medical facilities and two medical condominium units for **$34.6 million**, funded **$7.0 million** in loans, contributed **$2.0 million** to a joint venture, and funded **$4.3 million** in construction in progress, totaling **$49.8 million** in Q2 2023[127](index=127&type=chunk) - El Paso Seller Financing Loan Update: Received full payment of a **$27.6 million** term loan related to the Foundation El Paso Surgical Hospital, yielding **14.0% interest**[128](index=128&type=chunk) - Capital Activity: Shareholders approved the Amended and Restated 2013 Equity Incentive Plan, increasing authorized shares to **11,000,000** and extending the term to **2033**[130](index=130&type=chunk) - Capital Activity: Executed a new **$400 million** unsecured term loan due May 24, 2028, with an all-in fixed rate of **4.693%** (after swaps), using proceeds to repay the unsecured revolving credit facility[131](index=131&type=chunk)[132](index=132&type=chunk) - Recent Developments: Declared a cash dividend of **$0.23 per common share** for Q2 2023[133](index=133&type=chunk) - Recent Events: Acquired an outpatient medical facility in Palos Heights, Illinois, for approximately **$2.6 million** on July 20, 2023[134](index=134&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) For the three months ended June 30, 2023, total revenues increased by 2.2% to $135.1 million, driven by higher interest income and expense recoveries, while net income decreased by 27.0% to $13.1 million due to increased interest and operating expenses and a lower gain on property sales. For the six months ended June 30, 2023, total revenues rose by 2.6% to $269.4 million, but net income fell by 25.5% to $23.8 million, primarily impacted by higher expenses and reduced gains from property sales Results of Operations (Three Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Change | % Change | | :------------------------------------------------ | :----- | :----- | :----- | :------- | | Total revenues | $135,100 | $132,167 | $2,933 | 2.2% | | Rental and related revenues | $131,178 | $129,328 | $1,850 | 1.4% | | Interest income on real estate loans and other | $3,922 | $2,839 | $1,083 | 38.1% | | Total expenses | $123,817 | $117,645 | $6,172 | 5.2% | | Interest expense | $20,634 | $17,234 | $3,400 | 19.7% | | Operating expenses | $45,075 | $42,681 | $2,394 | 5.6% | | Net income | $13,085 | $17,932 | $(4,847) | (27.0)% | Results of Operations (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | Change | % Change | | :------------------------------------------------ | :----- | :----- | :----- | :------- | | Total revenues | $269,444 | $262,557 | $6,887 | 2.6% | | Rental and related revenues | $262,576 | $257,119 | $5,457 | 2.1% | | Interest income on real estate loans and other | $6,868 | $5,438 | $1,430 | 26.3% | | Total expenses | $247,241 | $233,773 | $13,468 | 5.8% | | Interest expense | $39,787 | $34,057 | $5,730 | 16.8% | | Operating expenses | $90,469 | $84,433 | $6,036 | 7.1% | | Net income | $23,754 | $31,875 | $(8,121) | (25.5)% | [Cash Flows](index=31&type=section&id=Cash%20Flows) For the six months ended June 30, 2023, cash provided by operating activities increased by $6.3 million to $145.8 million. Cash used in investing activities increased by $1.4 million to $48.6 million. Cash provided by financing activities significantly increased by $242.5 million to $140.7 million, primarily due to increased credit facility borrowings and common share sales, partially offset by debt repayments and higher dividends Cash Flow Summary (Six Months Ended June 30, in thousands) | Metric | 2023 | 2022 | | :----------------------------------- | :----- | :----- | | Cash provided by operating activities | $145,785 | $139,498 | | Cash used in investing activities | $(48,578) | $(47,211) | | Cash provided by (used in) financing activities | $140,723 | $(101,762) | | Increase (decrease) in cash and cash equivalents | $237,930 | $(9,475) | - The increase in cash provided by operating activities was primarily due to the timing of tenant receivables and accrued expenses[160](index=160&type=chunk) - The significant change in financing activities was driven by a **$366.0 million increase** in credit facility borrowings and **$42.6 million** from common share sales, partially offset by **$149.0 million** in credit facility paydowns and **$15.0 million** in senior unsecured note repayments[162](index=162&type=chunk) [Non-GAAP Financial Measures](index=31&type=section&id=Non-GAAP%20Financial%20Measures) This section defines and reconciles non-GAAP financial measures like FFO, Normalized FFO, FAD, NOI, and EBITDAre, used to evaluate company performance - FFO (Funds From Operations) is calculated in accordance with Nareit standards, excluding real estate depreciation, gains/losses on property sales, and impairments from GAAP net income[164](index=164&type=chunk) - Normalized FFO further adjusts FFO by excluding non-cash changes in derivative fair value, accelerated deferred financing costs, and other normalizing items[165](index=165&type=chunk) FFO and Normalized FFO (in thousands, except per share data) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income | $13,085 | $17,932 | $23,754 | $31,875 | | FFO applicable to common shares | $61,175 | $64,012 | $121,515 | $127,411 | | Normalized FFO applicable to common shares | $61,175 | $63,742 | $121,515 | $127,133 | | FFO per common share - diluted | $0.25 | $0.27 | $0.49 | $0.53 | | Normalized FFO per common share - diluted | $0.25 | $0.27 | $0.49 | $0.53 | Normalized FAD (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Normalized FFO applicable to common shares | $61,175 | $63,742 | $121,515 | $127,133 | | Non-cash share compensation expense | $3,655 | $3,798 | $8,322 | $8,051 | | Straight-line rent adjustments | $(701) | $(1,727) | $(1,936) | $(3,881) | | Recurring capital expenditures and lease commissions | $(5,790) | $(6,868) | $(11,576) | $(12,531) | | Normalized FAD applicable to common shares | $60,177 | $60,988 | $119,880 | $122,530 | NOI, Cash NOI, and Outpatient Medical Same-Store Cash NOI (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net income | $13,085 | $17,932 | | NOI | $93,585 | $92,666 | | Cash NOI | $94,168 | $92,370 | | Outpatient Medical Same-Store Cash NOI | $82,352 | $81,686 | EBITDAre and Adjusted EBITDAre (in thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | | :----------------------------------- | :------------------------------- | :------------------------------- | | Net income | $13,085 | $17,932 | | EBITDAre | $83,403 | $82,908 | | Adjusted EBITDAre | $87,044 | $88,334 | [Liquidity and Capital Resources](index=36&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with $245.7 million cash and $1.0 billion credit facility, managing debt and equity programs for capital needs - As of June 30, 2023, the company had **$245.7 million** in cash and cash equivalents and **$1.0 billion** of near-term availability on its unsecured revolving credit facility[179](index=179&type=chunk) - The company expects to rely on external sources of capital (debt and equity financing) to fund future capital needs due to REIT distribution requirements[179](index=179&type=chunk) - The Credit Agreement was amended to add a new **$400 million** unsecured term loan (maturity May 24, 2028) and expanded the accordion feature to a maximum borrowing capacity of **$1.9 billion**[189](index=189&type=chunk) - As of June 30, 2023, **$158.6 million** remained available under the ATM Program for common share issuance[193](index=193&type=chunk) - The company is in compliance with all debt covenants on its outstanding indebtedness[186](index=186&type=chunk) - The company has investments in two unconsolidated joint ventures with an aggregate debt of approximately **$764.2 million** (proportionate share **$139.1 million**)[197](index=197&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages market risk, particularly interest rate risk, using derivative financial instruments like interest rate swaps. As of June 30, 2023, 73.3% of its consolidated debt was fixed-rate, increasing to 94.8% with the effect of interest rate swaps. The remaining 5.2% variable-rate debt exposes the company to interest rate fluctuations, with a 100 basis point change in SOFR potentially altering annual interest expense by $1.0 million - The company uses interest rate swaps to manage interest rate risk, not for trading or speculative purposes[198](index=198&type=chunk) - As of June 30, 2023, fixed interest rate debt totaled **$1.5 billion**, representing **73.3%** of total consolidated debt (excluding swap impact)[200](index=200&type=chunk) - Assuming the effects of interest rate swap agreements, fixed interest rate debt would represent **94.8%** of total consolidated debt[201](index=201&type=chunk) - Variable interest rate debt totaled **$541.0 million** (**26.7%** of total debt), reducing to **5.2%** with swap effects[203](index=203&type=chunk) - A **100 basis point change** in SOFR would change interest expense on variable rate debt by approximately **$1.0 million** annually[203](index=203&type=chunk) - The company had four outstanding interest rate swaps designated as cash flow hedges, with a total notional amount of **$436.1 million**[204](index=204&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2023. There have been no material changes in internal control over financial reporting during the quarter. The company acknowledges that controls provide reasonable, not absolute, assurance due to inherent limitations and resource constraints - The Trust's disclosure controls and procedures were evaluated as **effective** at a reasonable assurance level as of June 30, 2023[206](index=206&type=chunk) - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2023[207](index=207&type=chunk) - Management recognizes that controls provide only reasonable assurance and are subject to resource constraints and judgment[208](index=208&type=chunk) Part II. Other Information This section covers legal proceedings, risk factors, equity security sales, other information, and a list of exhibits [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently a party to any legal proceedings that are expected to have a material adverse effect on its business, financial condition, or results of operations - The company is not currently involved in any legal proceedings that would materially affect its business, financial condition, or results of operations[209](index=209&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - No material changes have occurred in the risk factors previously disclosed in the 2022 Annual Report[210](index=210&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Operating Partnership issues OP Units to maintain ownership ratios, with the company repurchasing 15,683 shares/units for $14.14 average price in Q2 2023 - The Operating Partnership issues OP Units to the Trust to reflect additional common share issuances and preserve equitable ownership ratios[211](index=211&type=chunk) Issuer Purchases of Equity Securities (Three Months Ended June 30, 2023) | Period | Total Number of Shares (or Units) Purchased | Average Price Paid per Share (or Unit) | | :-------------------------- | :------------------------------------------ | :------------------------------------- | | April 1, 2023 - April 30, 2023 | 5,000 | $14.45 | | May 1, 2023 - May 31, 2023 | — | — | | June 1, 2023 - June 30, 2023 | 10,683 | $13.99 | | Total | 15,683 | $14.14 | - Repurchases included OP Units redeemed by holders for cash and common shares repurchased to satisfy employee withholding tax obligations related to stock-based compensation[213](index=213&type=chunk)[214](index=214&type=chunk) [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) Effective August 1, 2023, the Trust's Bylaws were amended to implement proxy access, allowing qualifying shareholders to nominate Board members - The Trust's Bylaws were amended to implement proxy access, allowing shareholders owning at least **3%** of common shares for **three continuous years** to nominate up to the greater of **two individuals** or **20%** of the Board of Trustees[216](index=216&type=chunk) - The amendments also revised procedural requirements for shareholder nominations, including compliance with Rule 14a-19 under the Exchange Act and specific disclosure requirements[218](index=218&type=chunk) [Item 6. Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including the Amended and Restated Bylaws, the Amended and Restated 2013 Equity Incentive Plan, the Second Amendment to the Third Amended and Restated Credit Agreement, and certifications under the Sarbanes-Oxley Act - Exhibit 3.1: Amended and Restated Bylaws, as amended through August 1, 2023[221](index=221&type=chunk) - Exhibit 10.1: Physicians Realty Trust Amended and Restated 2013 Equity Incentive Plan, effective May 3, 2023[221](index=221&type=chunk) - Exhibit 10.2: Second Amendment to Third Amended and Restated Credit Agreement, dated May 24, 2023[221](index=221&type=chunk) - Exhibits 31.1, 31.2, 32.1: Certifications of CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[221](index=221&type=chunk)

We expect this to be a growth strategy for us as the first of many similar cardiology focused outpatient facilities, we will purchase development finance in the future. In each case, these projects will soon be helping leading healthcare providers deliver care in their communities. Jeff will now share comments on our financial results of second quarter 2023 and Mark will discuss our operating results. Jeff? We closed on a five-year $400 million term loan in May, and concurrently entered into a five-year swa ...

PHYSICIANS REALTY TRUS Invest in better. 1 DOC Portfolio 290 97% 89% 95% 67% Assets Owned of NOI from MOBs On-Campus / Affiliated (% ABR) Portfolio Leased Rate IG Tenancy(1) (% GLA) PHYSICIANS REALTY TRUST Purchase Price Portfolio Square Footage DOC 1st Year Cash Cap Rate Management Team • Former lead Health Care and Lab Space Equity Research Analyst at Green Street Advisors • Former real estate investment banker at Lehman Brothers and Bank of America • Former Director of Financial Reporting with Assisted L ...

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 March 31, 2023 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) 309 N. Water Street, Suite 500 Milwaukee, Wisconsin 5 ...

Financial Data and Key Metrics Changes - In Q1 2023, the company generated normalized funds from operations of $60.3 million or $0.24 per share, with normalized funds available for distribution increasing by 3% year-over-year to $59.7 million [39] - Same-store net operating income (NOI) across the entire medical office building (MOB) portfolio increased by 1.0%, marking the 20th consecutive quarter of positive same-store growth [16][21] - Renewal spreads for the full MOB portfolio were negative 0.7%, impacted by a unique situation at a single location [40] Business Line Data and Key Metrics Changes - The company reported a 10.1% leasing spread for the quarter, indicating strong performance in lease renewals despite the negative impact from one asset [65] - The landmark portfolio, which joined the same-store pool, grew cash NOI by 4.1% year-over-year, exceeding underwriting expectations [45] Market Data and Key Metrics Changes - The company noted that revenue from outpatient medical services grew by 8% in 2022, while inpatient revenues experienced no growth, highlighting a shift in market demand [33] - The company has a growing pipeline of $300 million in discussions for new outpatient medical investments, indicating a robust market opportunity [11] Company Strategy and Development Direction - The company focuses on financing outpatient medical facilities, which are increasingly in demand due to demographic trends and healthcare providers' need to reduce costs [30] - The company is committed to maintaining high credit quality, with 67% of tenants being investment-grade quality [44] - The company plans to capitalize on its strong balance sheet and market conditions to pursue acquisition opportunities in the second half of the year [34][91] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term value of the portfolio, despite short-term challenges, and anticipates improvements in occupancy and rent growth in the latter half of the year [50][134] - The company is focused on managing operating expenses, which have increased due to inflationary pressures, while leveraging economies of scale to keep costs low [163] Other Important Information - The company celebrated its 10th anniversary of its initial public offering, reflecting on its growth and commitment to healthcare access [13] - The company issued $66 million of equity to strengthen its balance sheet, positioning itself well for future opportunities [42] Q&A Session Summary Question: What is the expected timeline for occupancy to return to historical levels? - Management indicated confidence in improvements in the back half of the year, with 58,000 square feet of leases signed and under construction expected to contribute positively [50] Question: Can you elaborate on the investment pipeline and current market conditions? - Management noted that the acquisition pipeline is modest, with private buyers active in the low sixes range, while the company aims for higher cap rates without compromising quality [51][106] Question: What are the expectations for same-store NOI growth moving forward? - Management expects same-store NOI growth to rebound to historical ranges of 2% to 3% as leases come online and market conditions improve [134] Question: How is the company managing operating expenses amid rising costs? - Management highlighted that operating expenses are being managed effectively, with a focus on keeping them below inflation rates through strategic investments and economies of scale [163]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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) (State or Other Jurisdiction of Incorporation or Organization ...

Company Participants John Thomas - Chief Executive Officer Mark Theine - Executive Vice President, Asset Management Michael Carroll - RBC Steven Valiquette - Barclays Operator It is now my pleasure to introduce your host, Brad Page. Thank you, Mr. Page. You may begin. During this call, John Thomas will provide a summary of the company's activities and performance for the fourth quarter of 2022 and year-to-date performance in 2023, as well as our strategic focus for the remainder of 2023. Jeff Theiler will r ...

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 | --- | --- | |------------------------------------------------------------------|------------------------------------------| | | | | | | | | | | | | | Maryland | 46-2519850 | | (State of Organiza ...

Financial Data and Key Metrics Changes - For Q3 2022, the company reported FFO as adjusted of $0.43 per share and total portfolio same-store growth of 5.1% [21] - The midpoint of FFO as adjusted guidance was increased by $0.02 to $1.73, with a tightened range of $1.72 to $1.74 [30] - The company declared a dividend of $0.30 per share for the third quarter [26] Business Line Data and Key Metrics Changes - Life Sciences reported same-store growth of 5.4% with an occupancy rate of 99% [21] - Medical Office achieved same-store growth of 4.9% and total occupancy of 90% [23] - Continuing Care Retirement Communities (CCRC) saw same-store growth of 4.1%, driven by a 110 basis point increase in occupancy [25] Market Data and Key Metrics Changes - The company noted strong demand in the Life Science sector, with over $200 billion spent annually on drug research [10] - In South San Francisco, rental rates increased in the mid-single digits year-to-date, with approximately 2 million square feet of active demand [37] - The overall economic backdrop has normalized demand levels, but the Life Science portfolio remains well-positioned for growth [43] Company Strategy and Development Direction - The company will continue to focus on life science and medical office sectors, which are high-margin businesses aligned with modern economic needs [9] - The strategy includes a flexible funding plan, prioritizing public equity at accretive prices while considering third-party capital when appropriate [17] - The company aims to leverage its competitive advantage in capital markets to pursue opportunistic acquisitions when conditions improve [16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to navigate tough market conditions and emphasized the importance of maintaining a strong balance sheet [14] - The company anticipates a temporary impact on occupancy and sales at CCRC properties due to Hurricane Ian but has factored this into revised guidance [27] - Management highlighted the importance of operational expertise in niche real estate sectors to drive value [13] Other Important Information - The company has a net debt to EBITDA ratio of 5.3x, below the target range, and $2.4 billion in liquidity [28] - The company is advancing entitlements across all three life science markets, with expectations to commence the next wave of development in the second half of 2023 [16] - The company has seen a reduction in construction cost escalations, now expected to be in the 6% to 8% range over the next 12 months [42] Q&A Session Summary Question: Demand pipeline and supply balance in Life Science - Management noted that while demand has normalized, it remains strong compared to historical levels, and supply projects are being put on hold due to rising interest rates [45][47] Question: Market rent growth outlook - Management indicated that market rents are still growing in the low to mid-single digits, with minimal vacancy rates across the board [50] Question: Cap rates and development returns - Management stated that cap rates for life science properties have increased by at least 100 basis points in the last six months, with a current development pipeline yielding approximately 7.5% [55][56] Question: CCRC position and potential exit - Management confirmed that while they are satisfied with the CCRC business, they remain open to opportunistic exits if beneficial for shareholders [59][61] Question: Entitlement priorities for future developments - Management outlined ongoing entitlement efforts in all three core markets, with specific projects in Boston and the Bay Area progressing well [62][64] Question: Intersection of Life Science and Medical Office - Management acknowledged the potential for synergies between life science and medical office businesses, particularly in R&D collaborations with health systems [65][67] Question: Changes in tenant requirements - Management observed that tenants are seeking larger tenant improvements and are willing to pay higher rents while reducing their upfront capital expenditures [83]

Part I Financial Information [Financial Statements (Unaudited)](index=3&type=section&id=Item%201%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements, including Balance Sheets, Income, Equity, and Cash Flow statements, for the specified periods [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) The balance sheets show a slight decrease in total assets and equity as of June 30, 2022, with liabilities remaining stable Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | **Total Assets** | **$5,126,341** | **$5,182,709** | | Net real estate investments | $4,985,188 | $5,036,301 | | Real estate held for sale | $65,798 | $1,964 | | **Total Liabilities** | **$2,179,388** | **$2,188,595** | | Notes payable | $1,464,713 | $1,464,008 | | Credit facility | $258,509 | $267,641 | | **Total Equity** | **$2,941,177** | **$2,987,033** | [Consolidated Statements of Income](index=7&type=section&id=Consolidated%20Statements%20of%20Income) Total revenues increased significantly for both the three and six-month periods ended June 30, 2022, though net income and diluted EPS decreased due to higher expenses Three Months Ended June 30 (in thousands, except per share data) | Metric | 2022 | 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $132,167 | $112,925 | 17.0% | | Total Expenses | $117,645 | $94,219 | 24.9% | | Net Income | $17,932 | $18,681 | (4.0)% | | Net Income Attributable to Common Shareholders | $16,891 | $18,113 | (6.7)% | | Diluted EPS | $0.07 | $0.08 | (12.5)% | Six Months Ended June 30 (in thousands, except per share data) | Metric | 2022 | 2021 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $262,557 | $226,264 | 16.0% | | Total Expenses | $233,773 | $189,309 | 23.5% | | Net Income | $31,875 | $36,486 | (12.6)% | | Net Income Attributable to Common Shareholders | $29,983 | $35,294 | (15.0)% | | Diluted EPS | $0.13 | $0.16 | (18.8)% | [Consolidated Statements of Cash Flows](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash provided by operating activities increased for the six months ended June 30, 2022, while investing and financing activities resulted in a net decrease in cash Cash Flow Summary for Six Months Ended June 30 (in thousands) | Cash Flow Category | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $139,498 | $122,345 | | Net cash used in investing activities | ($47,211) | ($41,431) | | Net cash used in financing activities | ($101,762) | ($81,911) | | **Net decrease in cash and cash equivalents** | **($9,475)** | **($997)** | [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the company's accounting policies, REIT structure, investment and disposition activities, debt levels, and dividend declarations - The company is a **self-managed REIT** focused on acquiring, developing, owning, and managing healthcare properties leased to physicians, hospitals, and healthcare delivery systems[33](index=33&type=chunk) - During the six months ended June 30, 2022, the company completed investment activities of approximately **$55.8 million**, including property acquisitions and loan fundings[53](index=53&type=chunk) - The company sold two medical office buildings for approximately **$8.4 million** during the first six months of 2022, realizing a net gain of **$3.5 million**[57](index=57&type=chunk) - As of June 30, 2022, the company had approximately **$1.9 billion** in total consolidated indebtedness with a weighted average interest rate of **3.48%**[76](index=76&type=chunk) - A cash dividend of **$0.23 per common share** for the quarter ended June 30, 2022, was declared and paid in July 2022[40](index=40&type=chunk) - Subsequent to the quarter end, the company disposed of three facilities in Great Falls, Montana for approximately **$116.3 million**, recognizing a net gain of about **$53.9 million**[120](index=120&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the financial results for Q2 2022, highlighting revenue growth, FFO performance, and detailing liquidity, capital resources, and non-GAAP measure reconciliations [Company Highlights and Overview](index=26&type=section&id=Company%20Highlights%20and%20Overview) Q2 2022 highlights include significant revenue growth, strong Normalized FFO, and substantial investments, alongside a highly leased portfolio and a notable post-quarter disposition - Reported Q2 2022 total revenue of **$132.2 million**, a **17.0% increase** over the prior year period[123](index=123&type=chunk) - Generated Q2 2022 Normalized Funds From Operations (Normalized FFO) of **$0.27 per share**, up from **$0.26 in Q2 2021**[123](index=123&type=chunk) - Completed **$46.9 million** of investments and previous construction loan commitments during Q2[123](index=123&type=chunk) - As of June 30, 2022, the portfolio consisted of **276 healthcare properties** across **32 states**, with approximately **15.5 million net leasable square feet**, which was **95% leased**[126](index=126&type=chunk) - Subsequent to quarter end, disposed of three facilities in Great Falls, Montana for **$116.3 million**, recognizing a net gain of approximately **$53.9 million**[124](index=124&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) Total revenues increased significantly in Q2 2022 and for the six-month period, primarily due to acquisitions, though higher expenses led to a decrease in net income Comparison of Three Months Ended June 30, 2022 vs 2021 (in thousands) | Item | 2022 | 2021 | Change | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $132,167 | $112,925 | $19,242 | 17.0% | | Rental and related revenues | $127,728 | $107,748 | $19,980 | 18.5% | | Total Expenses | $117,645 | $94,219 | $23,426 | 24.9% | | Interest expense | $17,234 | $13,541 | $3,693 | 27.3% | | Operating expenses | $42,681 | $33,456 | $9,225 | 27.6% | | Depreciation and amortization | $47,702 | $38,105 | $9,597 | 25.2% | | Net Income | $17,932 | $18,681 | ($749) | (4.0)% | - The increase in rental revenue for Q2 2022 was primarily driven by **$13.0 million** from properties acquired in 2022 and 2021, including the Landmark Portfolio[141](index=141&type=chunk)[143](index=143&type=chunk) - The increase in interest expense for Q2 2022 was mainly due to the issuance of the **2031 Senior Notes** and increased borrowings on the credit facility[147](index=147&type=chunk) [Non-GAAP Financial Measures](index=33&type=section&id=Non-GAAP%20Financial%20Measures) The company utilizes non-GAAP measures like FFO, FAD, NOI, and EBITDAre to assess performance, showing increases in Normalized FFO, MOB Same-Store Cash NOI, and Adjusted EBITDAre for Q2 2022 FFO and Normalized FFO Reconciliation (Three Months Ended June 30, in thousands) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Income | $17,932 | $18,681 | | Adjustments (Depreciation, Gain on Sale, etc.) | $46,080 | $39,542 | | **FFO applicable to common shares** | **$64,012** | **$58,223** | | Normalizing adjustments | ($270) | $0 | | **Normalized FFO applicable to common shares** | **$63,742** | **$58,223** | | **Normalized FFO per common share - diluted** | **$0.27** | **$0.26** | MOB Same-Store Cash NOI (Three Months Ended June 30, in thousands) | Metric | 2022 | 2021 | Change (%) | | :--- | :--- | :--- | :--- | | MOB Same-Store Cash NOI | $69,128 | $67,826 | 1.9% | Adjusted EBITDAre (Three Months Ended June 30, in thousands) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | EBITDAre | $82,908 | $73,447 | | Adjustments | $5,426 | $4,789 | | **Adjusted EBITDAre** | **$88,334** | **$78,236** | [Liquidity and Capital Resources](index=37&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is primarily supported by cash from operations, its unsecured credit facility, and equity/debt issuances, with significant availability for future capital needs - As of June 30, 2022, the company had **$0.4 million** of cash and cash equivalents and **$736.0 million** of availability on its unsecured revolving credit facility[193](index=193&type=chunk) - The company expects to rely on external capital sources, including debt and equity financing, to fund future capital needs like acquisitions and maturing obligations[193](index=193&type=chunk)[196](index=196&type=chunk) ATM Program Activity - Year to Date 2022 | Period | Common shares sold | Weighted average price | Net proceeds (thousands) | | :--- | :--- | :--- | :--- | | Q1 2022 | 259,977 | $18.93 | $4,871 | | Q2 2022 | 977,800 | $18.61 | $18,020 | | **Total YTD** | **1,237,777** | **$18.68** | **$22,891** | - As of June 30, 2022, the company has **$308.1 million** of common shares remaining available for issuance under the ATM Program[208](index=208&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=40&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is primarily exposed to interest rate risk on its approximately **$1.9 billion** consolidated debt, with a portion being variable-rate and partially hedged by derivative instruments - As of June 30, 2022, total consolidated indebtedness was approximately **$1.9 billion** with a weighted average interest rate of **3.48%**[223](index=223&type=chunk) - After accounting for an interest rate swap, approximately **19.2% ($369.4 million)** of the company's outstanding long-term debt is exposed to fluctuations in short-term interest rates[221](index=221&type=chunk)[223](index=223&type=chunk) - A hypothetical **100 basis point change** in LIBOR and SOFR would change annual interest expense on variable rate debt by approximately **$2.7 million** and **$1.0 million**, respectively[221](index=221&type=chunk) - The company uses an interest rate swap with a notional amount of **$36.1 million** to fix the rate on a portion of its variable-rate mortgage debt[217](index=217&type=chunk)[222](index=222&type=chunk) [Controls and Procedures](index=41&type=section&id=Item%204%20Controls%20and%20Procedures) Management concluded that the Trust's disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of June 30, 2022, the Trust's disclosure controls and procedures are **effective** at providing reasonable assurance that required information is recorded and reported in a timely manner[224](index=224&type=chunk) - No changes occurred during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, the Trust's internal control over financial reporting[225](index=225&type=chunk) Part II Other Information [Legal Proceedings](index=43&type=section&id=Item%201%20Legal%20Proceedings) The company is not currently involved in any legal proceedings expected to have a material impact on its business or financial condition - The company is not currently involved in any legal proceedings expected to have a **material impact** on its business[229](index=229&type=chunk) [Risk Factors](index=43&type=section&id=Item%201A%20Risk%20Factors) No material changes to the company's risk factors have occurred since the prior annual report - No material changes to risk factors have occurred since the **2021 Annual Report**[230](index=230&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The Operating Partnership issues OP Units to reflect common share issuances, and the company repurchased shares to satisfy employee tax obligations related to stock-based compensation - The Operating Partnership issues OP Units to the Trust to mirror common share issuances and maintain ownership ratios[231](index=231&type=chunk) - In June 2022, **9,523 common shares** were repurchased at an average price of **$17.45** to satisfy employee withholding tax obligations for stock-based compensation[232](index=232&type=chunk)[234](index=234&type=chunk) [Exhibits](index=44&type=section&id=Item%206%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files - The report includes CEO and CFO certifications under **Sections 302 and 906** of the Sarbanes-Oxley Act[236](index=236&type=chunk) [Signatures](index=45&type=section&id=SIGNATURES) The report was duly signed and authorized by the company's Principal Executive Officer and Principal Financial Officer on August 5, 2022 - The Form 10-Q was signed on **August 5, 2022**, by the company's Principal Executive Officer and Principal Financial Officer[241](index=241&type=chunk)