Physicians Realty Trust(DOC) - 2021 Q3 - Quarterly Report

Part I Financial Information Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, highlighting year-over-year increases in total revenues and net income driven by property acquisitions Consolidated Balance Sheets As of September 30, 2021, total assets were approximately $4.41 billion, with net real estate investments increasing to $4.27 billion, while total liabilities decreased to $1.64 billion and total equity rose to $2.76 billion Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Net real estate investments | $4,268,075 | $4,262,678 | | Cash and cash equivalents | $5,366 | $2,515 | | Total Assets | $4,409,475 | $4,413,950 | | Liabilities & Equity | | | | Credit facility | $401,548 | $412,322 | | Notes payable | $969,313 | $968,653 | | Total Liabilities | $1,644,525 | $1,670,659 | | Total Equity | $2,757,911 | $2,715,002 | Consolidated Statements of Income Total revenues increased by 5.2% to $115.3 million in Q3 2021 and by 4.8% to $341.6 million for the nine months, driving significant net income growth Q3 2021 vs Q3 2020 Performance (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $115,311 | $109,566 | 5.2% | | Total Expenses | $97,633 | $92,499 | 5.6% | | Net Income | $22,045 | $16,475 | 33.8% | | Diluted EPS | $0.10 | $0.07 | 42.9% | Nine Months 2021 vs 2020 Performance (in thousands, except per share data) | Metric | Nine Months 2021 | Nine Months 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $341,575 | $326,060 | 4.8% | | Total Expenses | $286,942 | $275,325 | 4.2% | | Net Income | $58,531 | $49,879 | 17.3% | | Diluted EPS | $0.26 | $0.23 | 13.0% | Consolidated Statements of Comprehensive Income Comprehensive income significantly increased to $22.5 million in Q3 2021 and $60.3 million for the nine-month period, primarily due to net income growth and positive interest rate swap fair value changes Comprehensive Income (in thousands) | Period | Net Income | Other Comprehensive Income (Loss) | Comprehensive Income | | :--- | :--- | :--- | :--- | | Q3 2021 | $22,045 | $465 | $22,510 | | Q3 2020 | $16,475 | $599 | $17,074 | | Nine Months 2021 | $58,531 | $1,805 | $60,336 | | Nine Months 2020 | $49,879 | $(10,630) | $39,249 | Consolidated Statements of Equity Total equity increased to $2.758 billion by September 30, 2021, driven by net income and common share sales, partially offset by dividends - Total equity grew to $2.758 billion by September 30, 2021, up from $2.715 billion at the start of the year[23] - Key drivers of the equity change during the first nine months of 2021 include net proceeds from common share sales ($135.2 million), net income ($58.5 million), and dividends/distributions declared ($153.0 million)[23] Consolidated Statements of Cash Flows Net cash from operating activities increased to $175.7 million, funding $119.0 million in investing activities and $53.9 million in financing activities, ending with $5.4 million cash Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $175,747 | $166,360 | | Net Cash used in Investing Activities | $(118,965) | $(88,925) | | Net Cash used in Financing Activities | $(53,931) | $(76,121) | | Net Increase in Cash | $2,851 | $1,314 | Notes to Consolidated Financial Statements The notes detail accounting policies, investment activities, debt structure, and significant post-period events, clarifying the company's operations as a healthcare REIT - The company is a self-managed REIT focused on acquiring, developing, owning, and managing healthcare properties leased to physicians, hospitals, and healthcare delivery systems[34] - During the first nine months of 2021, the company acquired eight medical office facilities and three condo units for approximately $122.7 million and funded $14.4 million in new loans[56] - Subsequent to the quarter end, the company entered an agreement to acquire the Landmark Portfolio for $764.3 million, issued $500 million in senior notes, and sold the LifeCare portfolio for $62.0 million[125][126][129] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting Q3 2021 revenue growth, Normalized FFO, and new investments, alongside liquidity and non-GAAP measure reconciliations Company Highlights and Overview The company reported strong Q3 2021 results with revenue growth and solid Normalized FFO, supported by a 263-property portfolio and recent strategic acquisitions - Reported Q3 2021 total revenue of $115.3 million (5.2% YoY increase) and Normalized FFO of $0.26 per share[132] - As of September 30, 2021, the portfolio comprised 263 properties in 32 states, with 13.9 million net leasable square feet, 95% leased, and a weighted average remaining lease term of 6.3 years[134] - Entered into a master transaction agreement on October 1, 2021, to acquire 15 medical office buildings for an aggregate purchase price of $764.3 million[132][147] Results of Operations Operating results show Q3 2021 total revenues increased by $5.7 million (5.2%) and net income by 33.8%, driven by property acquisitions Q3 2021 vs Q3 2020 Results (in thousands) | Item | Q3 2021 | Q3 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $115,311 | $109,566 | $5,745 | 5.2% | | Total Expenses | $97,633 | $92,499 | $5,134 | 5.6% | | Net Income | $22,045 | $16,475 | $5,570 | 33.8% | Nine Months 2021 vs 2020 Results (in thousands) | Item | Nine Months 2021 | Nine Months 2020 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $341,575 | $326,060 | $15,515 | 4.8% | | Total Expenses | $286,942 | $275,325 | $11,617 | 4.2% | | Net Income | $58,531 | $49,879 | $8,652 | 17.3% | - The increase in Q3 rental revenue was driven by properties purchased in 2021 ($1.1 million) and 2020 ($1.5 million), and growth from the existing portfolio ($1.2 million)[155] Non-GAAP Financial Measures This section defines and reconciles non-GAAP measures like FFO and NOI, reporting Q3 2021 Normalized FFO of $0.26 per share and 2.5% MOB Same-Store Cash NOI growth FFO and Normalized FFO Reconciliation (in thousands, except per share) | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Net Income | $22,045 | $16,475 | | Adjustments (Depreciation, etc.) | $36,050 | $39,194 | | FFO applicable to common shares | $58,095 | $55,669 | | Normalizing Adjustments | $0 | $(729) | | Normalized FFO | $58,095 | $54,940 | | Normalized FFO per share | $0.26 | $0.26 | - MOB Same-Store Cash NOI for Q3 2021 was $67.5 million, a 2.5% increase from $65.9 million in Q3 2020[201] Adjusted EBITDAre Reconciliation (in thousands) | Metric | Q3 2021 | Q3 2020 | | :--- | :--- | :--- | | Net Income | $22,045 | $16,475 | | EBITDAre Adjustments | $51,290 | $54,384 | | EBITDAre | $73,335 | $70,859 | | Other Adjustments | $5,552 | $3,809 | | Adjusted EBITDAre | $78,887 | $74,668 | Liquidity and Capital Resources Liquidity sources include cash from operations and credit facilities, with $841.0 million available on the unsecured revolving credit facility and an active ATM program - As of September 30, 2021, liquidity included $5.4 million in cash and $841.0 million available under the unsecured revolving credit facility[207] - In September 2021, the company amended its credit agreement, increasing the unsecured revolving credit facility to $1.0 billion and extending the maturity to September 2025[217] - The company has an active $500 million ATM program established in May 2021, with $465.3 million remaining available as of September 30, 2021[222][225] Quantitative and Qualitative Disclosures About Market Risk The company manages interest rate risk on its $1.4 billion debt, with 88.5% effectively fixed-rate, limiting the impact of rate fluctuations - Total consolidated indebtedness was approximately $1.4 billion as of September 30, 2021, with a weighted average interest rate of 3.48%[240] - After accounting for a $250.0 million interest rate swap, approximately 88.5% of total debt is effectively fixed-rate, reducing interest rate risk[234][235] - The company has $164.7 million of variable-rate debt exposure, where a 100 basis point change in interest rates would result in an approximate $1.6 million annual change in interest expense[238] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal controls during the quarter - The CEO and CFO concluded that as of September 30, 2021, the company's disclosure controls and procedures were effective to provide reasonable assurance that required information is recorded and reported in a timely manner[241] - No changes in the company's internal control over financial reporting occurred during the quarter ended September 30, 2021, that have materially affected, or are reasonably likely to materially affect, internal controls[242] Part II Other Information Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material effect on its business or financial condition - The company is not currently involved in any legal proceedings that are expected to have a material impact[245] Risk Factors No material changes have occurred to the risk factors previously disclosed in the company's 2020 Annual Report on Form 10-K/A - There have been no material changes to the risk factors disclosed in the 2020 Annual Report[246] Unregistered Sales of Equity Securities and Use of Proceeds The company's Operating Partnership issues OP Units for new common share issuances, with no equity security repurchases during Q3 2021 Issuer Purchases of Equity Securities (Q3 2021) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | July 2021 | — | $— | | August 2021 | — | $— | | September 2021 | — | $— | | Total | — | $— | Other Information New employment agreements were executed with executive officers on November 4, 2021, extending terms and updating compensation structures - On November 4, 2021, the Company entered into new employment agreements with its executive team, extending the initial term to December 31, 2024[251] 2021 Executive Base Salaries | Executive | Title | 2021 Base Salary | | :--- | :--- | :--- | | John T. Thomas | President and CEO | $865,000 | | Jeffrey N. Theiler | EVP and CFO | $512,000 | | D. Deeni Taylor | EVP and CIO | $512,000 | | Mark D. Theine | EVP of Asset Management | $412,000 | | Bradley D. Page | SVP and General Counsel | $358,000 | Exhibits This section lists all exhibits filed with the Form 10-Q, including key agreements for acquisitions, credit facilities, executive employment, and certifications - Key exhibits filed include: - Exhibit 2.1: Master Transaction Agreement for Landmark Portfolio - Exhibit 10.1: Third Amended and Restated Credit Agreement - Exhibits 10.2-10.10: New Employment Agreements for Executives - Exhibits 31.1, 31.2, 32.1: Sarbanes-Oxley Certifications[259]