Physicians Realty Trust(DOC) - 2023 Q2 - Quarterly Report

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 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 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 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 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 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 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 This section provides detailed explanations and disclosures supporting the consolidated financial statements Note 1. Organization and Business 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] - As of June 30, 2023, the Trust held a 96.0% interest in the Operating Partnership[41] 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] Note 2. Summary of Significant Accounting Policies 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] - 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] - Rental revenue is recognized on a straight-line basis over lease terms, with adjustments for lease inducements and above/below-market rents[50][52] - 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] Note 3. Investment and Disposition Activity 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] - For the three months ended June 30, 2023, investment activity totaled approximately $49.8 million, including $34.6 million for medical facility acquisitions[57] - 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] Note 4. Intangibles 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] Note 5. Other Assets 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 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] - As of June 30, 2023, the company had $1.5 billion in senior notes outstanding and was in compliance with all financial covenants[72][73] - The weighted average interest rate on consolidated indebtedness was 4.04% as of June 30, 2023[75] Note 7. Derivatives 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] 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] Note 8. Accrued Expenses and Other Liabilities 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 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] - In the six months ended June 30, 2023, 342,939 restricted common shares were granted with a total value of $5.0 million[85] - 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][93] - Unrecognized compensation expense on June 30, 2023, was $14.1 million for restricted share units and $4.1 million for restricted common shares[87][93] Note 10. Fair Value Measurements 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][96] - The company's derivative instruments are measured at fair value on a recurring basis using Level 2 inputs[98] 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 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] Note 12. Rent Expense 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][105] 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] Note 13. Credit Concentration 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] 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 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 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - Net income for Q2 2023 decreased by 27.0% to $13.1 million, with diluted net income per share at $0.05[121] - Generated Normalized Funds From Operations (Normalized FFO) of $0.25 per share on a fully diluted basis[121] - Completed $49.8 million in investments, including funding of previous loan commitments[121] - Outpatient Medical Same-Store Cash Net Operating Income (NOI) growth was 0.8% year-over-year[121] - Declared a quarterly dividend of $0.23 per share and OP Unit[121] - Closed on a $400.0 million five-year term loan with an all-in fixed rate of 4.693% (with swaps)[121] 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] - 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] - 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] - 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] - Approximately 91% of the portfolio's net leasable square footage is on a hospital campus or strategically affiliated with a health system[119] Key Transactions in Second Quarter 2023 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] - 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] - 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] - 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][132] - Recent Developments: Declared a cash dividend of $0.23 per common share for Q2 2023[133] - Recent Events: Acquired an outpatient medical facility in Palos Heights, Illinois, for approximately $2.6 million on July 20, 2023[134] Results of Operations 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 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] - 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] Non-GAAP Financial Measures 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] - Normalized FFO further adjusts FFO by excluding non-cash changes in derivative fair value, accelerated deferred financing costs, and other normalizing items[165] 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 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] - 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] - 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] - As of June 30, 2023, $158.6 million remained available under the ATM Program for common share issuance[193] - The company is in compliance with all debt covenants on its outstanding indebtedness[186] - The company has investments in two unconsolidated joint ventures with an aggregate debt of approximately $764.2 million (proportionate share $139.1 million)[197] Item 3. Quantitative and Qualitative Disclosures About Market Risk 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] - As of June 30, 2023, fixed interest rate debt totaled $1.5 billion, representing 73.3% of total consolidated debt (excluding swap impact)[200] - Assuming the effects of interest rate swap agreements, fixed interest rate debt would represent 94.8% of total consolidated debt[201] - Variable interest rate debt totaled $541.0 million (26.7% of total debt), reducing to 5.2% with swap effects[203] - A 100 basis point change in SOFR would change interest expense on variable rate debt by approximately $1.0 million annually[203] - The company had four outstanding interest rate swaps designated as cash flow hedges, with a total notional amount of $436.1 million[204] Item 4. Controls and Procedures 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] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2023[207] - Management recognizes that controls provide only reasonable assurance and are subject to resource constraints and judgment[208] 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 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] Item 1A. Risk Factors 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] 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][214] Item 5. Other Information 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] - The amendments also revised procedural requirements for shareholder nominations, including compliance with Rule 14a-19 under the Exchange Act and specific disclosure requirements[218] Item 6. Exhibits 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] - Exhibit 10.1: Physicians Realty Trust Amended and Restated 2013 Equity Incentive Plan, effective May 3, 2023[221] - Exhibit 10.2: Second Amendment to Third Amended and Restated Credit Agreement, dated May 24, 2023[221] - 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]