Physicians Realty Trust(DOC) - 2022 Q2 - Quarterly Report

Part I Financial Information Financial Statements (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 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 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 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 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] - 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] - 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] - 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] - A cash dividend of $0.23 per common share for the quarter ended June 30, 2022, was declared and paid in July 2022[40] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - Generated Q2 2022 Normalized Funds From Operations (Normalized FFO) of $0.27 per share, up from $0.26 in Q2 2021[123] - Completed $46.9 million of investments and previous construction loan commitments during Q2[123] - 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] - 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] Results of Operations 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][143] - 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] Non-GAAP Financial Measures 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 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] - 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][196] 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] Quantitative and Qualitative Disclosures About Market Risk 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] - 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][223] - 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] - 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][222] Controls and Procedures 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] - 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] Part II Other Information Legal Proceedings 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] Risk Factors 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] Unregistered Sales of Equity Securities and Use of Proceeds 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] - 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][234] Exhibits 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] 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]