Physicians Realty Trust(US:DOC)2020-02-27 22:06Part I This section provides a foundational understanding of the company's business operations, risk factors, property portfolio, and legal disclosures Business Physicians Realty Trust is a self-managed healthcare REIT specializing in acquiring, developing, and managing healthcare properties leased to physicians, hospitals, and healthcare systems Portfolio Overview as of December 31, 2019 | Metric | Value | | :--- | :--- | | Gross Real Estate Investments | ~$4.7 billion | | Number of Properties | 258 | | States | 31 | | Net Leasable Square Feet | ~13.7 million | | Leased Percentage | ~96% | | Weighted Average Remaining Lease Term | ~7.4 years | | On-campus or Strategically Affiliated | ~90% of net leasable square footage | - The company's revenue is largely insulated from operating expense volatility, with approximately 94% of annualized base rent derived from absolute and triple-net leases, where tenants are responsible for most property operating expenses24288 - The company's growth strategy focuses on acquiring high-quality healthcare properties, particularly off-market opportunities, that are strategically aligned with dominant healthcare systems, while also emphasizing an investment-grade credit rating and a flexible balance sheet313941 - Major industry trends driving the company's market opportunity include projected U.S. healthcare spending growth to $6.0 trillion by 2027, the aging U.S. population, and the ongoing shift of clinical care from traditional hospitals to more cost-effective outpatient facilities47495159 - The company faces geographic concentration risk, with 13.8% of its gross leasable area located in Texas, and customer concentration risk, with tenants affiliated with CommonSpirit Health accounting for 16.7% of total consolidated annualized base rent as of year-end 20196366 Risk Factors The company identifies several material risks to its business, including concentration in healthcare properties and specific geographic areas, reliance on key tenants, and competition for property acquisitions - The company's investments are concentrated in healthcare properties, making it vulnerable to downturns in the healthcare industry, with significant geographic concentration in Texas, where 13.8% of gross leasable area and 15.5% of annualized base rent are located9699 - A significant tenant concentration exists with CommonSpirit Health affiliates, which represented approximately 16.7% of total consolidated annualized base rent as of December 31, 2019, making any adverse financial developments for CommonSpirit a potential material impact on the company's results113114 - The heavily regulated healthcare industry poses risks through potential changes to laws like the Affordable Care Act and reductions in Medicare/Medicaid reimbursement, which could adversely affect tenants' ability to pay rent, thereby impacting the company's financial performance146148153 - The company relies on external capital sources to fund growth and meet obligations due to the REIT requirement of distributing at least 90% of taxable income, and difficulty in obtaining debt or equity financing could impede growth and the ability to meet maturing obligations195196 - Failure to maintain qualification as a REIT would result in being taxed as a regular corporation, substantially reducing funds available for distribution to shareholders and impairing the ability to raise capital226228 Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - There are no unresolved staff comments as of the filing date244 Properties As of December 31, 2019, the company's consolidated portfolio consisted of 258 properties totaling approximately 13.7 million gross leasable square feet, with a 96% lease rate and notable concentration in Texas Top 5 States by Annualized Base Rent (as of Dec 31, 2019) | State | Annualized Base Rent (thousands) | Percent of Total | | :--- | :--- | :--- | | Texas | $45,602 | 15.5% | | Georgia | $25,658 | 8.7% | | Indiana | $21,372 | 7.3% | | Nebraska | $18,052 | 6.1% | | Minnesota | $17,520 | 6.0% | Top 5 Tenants by Annualized Base Rent (as of Dec 31, 2019) | Tenant | Annualized Base Rent (thousands) | Percent of Total | | :--- | :--- | :--- | | CommonSpirit - CHI - Nebraska | $16,809 | 5.7% | | Northside Hospital | $13,576 | 4.6% | | UofL Health - Louisville, Inc. | $11,859 | 4.0% | | Baylor Scott and White Health | $7,770 | 2.6% | | US Oncology | $7,563 | 2.6% | - The company has a significant concentration of leases expiring in 2026, representing 26.0% of the portfolio's leased square feet24825 - The company leases the land for 80 of its properties, which accounts for 44.7% of its total leasable square feet, and these ground leases may contain restrictions on re-leasing and property sales253 Legal Proceedings The company states that it is not currently a party to any legal proceedings that would be expected to have a material effect on its business, financial condition, or results of operations - The company is not currently involved in any material legal proceedings254 Mine Safety Disclosures This item is not applicable to the company - Not applicable255 Part II This section details the company's stock market performance, selected financial data, management's discussion and analysis of financial condition, market risk disclosures, and financial statements, offering a comprehensive financial overview Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Physicians Realty Trust's common shares trade on the NYSE under the symbol "DOC", and the company repurchased 744,544 OP Units at an average price of $17.61 during Q4 2019 - The Trust's common shares are traded on the NYSE under the symbol "DOC", with no established public market for the Operating Partnership's OP Units258260 Cumulative Total Return Comparison (July 19, 2013 - Dec 31, 2019) | Index | Initial Investment | Value at 12/31/2019 | | :--- | :--- | :--- | | Physicians Realty Trust | $100.00 | $234.20 | | Standard & Poor's 500 | $100.00 | $218.01 | | MSCI US REIT (RMS) | $100.00 | $167.96 | Issuer Purchases of Equity Securities (Q4 2019) | Period | Total Units Purchased | Average Price Paid per Unit | | :--- | :--- | :--- | | Oct 2019 | 744,544 | $17.61 | | Nov 2019 | 0 | N/A | | Dec 2019 | 0 | N/A | | Total | 744,544 | $17.61 | Selected Financial Data This section presents selected historical financial data for both Physicians Realty Trust and Physicians Realty L.P. for the five years ended December 31, 2019, highlighting total revenues and net income Physicians Realty Trust - Selected Financial Data (in thousands, except per share data) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total Revenues | $415,281 | $422,551 | $343,584 | | Net Income Attributable to Common Shareholders | $73,274 | $54,890 | $37,415 | | Net Income per Share (Diluted) | $0.39 | $0.30 | $0.23 | | Total Assets | $4,346,581 | $4,142,834 | $4,164,383 | | Total Liabilities | $1,837,697 | $1,670,427 | $1,604,402 | | Dividends Declared per Common Share | $0.920 | $0.920 | $0.915 | Physicians Realty L.P. - Selected Financial Data (in thousands, except per unit data) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total Revenues | $415,281 | $422,551 | $343,584 | | Net Income Attributable to Common Unitholders | $75,429 | $56,466 | $38,551 | | Net Income per Unit (Diluted) | $0.39 | $0.30 | $0.23 | | Total Assets | $4,346,581 | $4,142,834 | $4,164,383 | | Total Liabilities | $1,837,697 | $1,670,427 | $1,604,402 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting portfolio growth to $4.7 billion in assets by year-end 2019, a 1.7% decrease in total revenues, and a significant increase in net income driven by property sales Results of Operations Comparison: 2019 vs. 2018 (in thousands) | Line Item | 2019 | 2018 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $415,281 | $422,551 | $(7,270) | (1.7)% | | Total Expenses | $369,376 | $376,008 | $(6,632) | (1.8)% | | Gain on sale of investment properties, net | $31,309 | $11,664 | $19,645 | 168.4% | | Net Income | $77,186 | $58,321 | $18,865 | 32.4% | - The decrease in 2019 rental revenue was primarily due to $11.6 million less revenue from properties sold in 2018 and 2019, partially offset by revenue from new acquisitions301302 Cash Flow Summary: 2019 vs. 2018 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Provided by Operating Activities | $201,177 | $208,694 | | Used in Investing Activities | $(255,308) | $(77,183) | | Provided by (Used in) Financing Activities | $37,325 | $(115,077) | Non-GAAP Performance Measures (per share/unit) | Metric | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | FFO per common share and OP Unit | $0.99 | $1.08 | $0.94 | | Normalized FFO per common share and OP Unit | $0.99 | $1.08 | $1.04 | - The company maintains liquidity through cash from operations, its unsecured credit facility, and debt/equity financing, with $502.5 million of near-term availability on its unsecured revolving credit facility as of December 31, 2019354 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk on its debt, which is managed through a mix of fixed and variable-rate debt and the use of derivative instruments Consolidated Indebtedness as of December 31, 2019 | Debt Type | Amount (in thousands) | Interest Rate Profile | | :--- | :--- | :--- | | Senior Unsecured Revolving Credit Facility | $339,000 | Floating (LIBOR + 1.10%) | | Senior Unsecured Term Loan (swapped) | $250,000 | Fixed (2.32%) | | Senior Unsecured Notes | $975,000 | Fixed (3.95% - 4.74%) | | Mortgage Debt | $83,478 | Mostly Fixed | | Total Principal | $1,647,478 | ~79% Fixed (incl. swaps) | - The company is exposed to market risk from fluctuations in interest rates on $345.6 million of its consolidated borrowings, where a hypothetical 100 basis point increase in LIBOR would result in an approximate $3.5 million increase in annual interest expense399 - The company uses interest rate swaps to manage interest rate volatility, with five outstanding swaps totaling a notional amount of $250.0 million as of year-end 2019, effectively fixing the rate on its term loan400396 Financial Statements and Supplementary Data This section contains the consolidated financial statements for Physicians Realty Trust and Physicians Realty L.P. for the fiscal year ended December 31, 2019, along with unqualified audit opinions from Ernst & Young LLP - The independent registered public accounting firm, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements of Physicians Realty Trust and its internal control over financial reporting as of December 31, 2019410411 - The auditor's report identified the evaluation of net real estate property for impairment as a critical audit matter, due to the significant estimation and subjective judgment required in forecasting future cash flows415417 - The financial statements include consolidated balance sheets, statements of income, comprehensive income, equity, and cash flows for both Physicians Realty Trust and Physicians Realty L.P., along with detailed notes to the financial statements406408 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure - None reported656 Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2019, with no material changes reported - Management concluded that the disclosure controls and procedures for both the Trust and the Operating Partnership were effective as of December 31, 2019658666 - Management concluded that the internal control over financial reporting was effective as of December 31, 2019, an assessment concurred with by Ernst & Young LLP661662 - There were no changes in internal control over financial reporting during the fourth quarter of 2019 that materially affected, or are reasonably likely to materially affect, internal controls659669 Other Information The company reports no other information for this item - None674 Part III This section incorporates by reference information on the company's directors, executive officers, corporate governance, compensation, and security ownership from its forthcoming proxy statement Directors, Executive Officers, Corporate Governance, Compensation, and Security Ownership The information required for Items 10 through 14 is incorporated by reference from the company's definitive proxy statement for its 2020 Annual Meeting of Shareholders - Information for Item 10 (Directors, Executive Officers and Corporate Governance), Item 11 (Executive Compensation), Item 12 (Security Ownership), Item 13 (Certain Relationships and Related Transactions), and Item 14 (Principal Accountant Fees and Services) is incorporated by reference from the forthcoming 2020 Proxy Statement676678679680681 Part IV This section lists the exhibits and financial statement schedules included in the Form 10-K report and indicates the absence of a Form 10-K summary Exhibits, Financial Statement Schedules This section lists the documents filed as part of the Form 10-K report, including financial statements, schedules, and an index of all exhibits - This item contains the index of financial statements, financial statement schedules (Schedule III – Real Estate and Accumulated Depreciation), and exhibits filed with the Form 10-K684686687 Form 10-K Summary The company indicates that there is no Form 10-K summary provided - None689