Stock-based Compensation

6 Months Ended

Jun. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

The Company follows ASC 718, Compensation - Stock Compensation (“ASC 718”), in accounting for its share-based payments. This guidance requires measurement of the cost of employee services received in exchange for stock compensation based on the grant-date fair value of the employee stock awards. This cost is recognized as compensation expense ratably over the employee’s requisite service period. Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized when incurred. Share-based payments classified as liability awards are marked to fair value at each reporting period. Any common shares issued pursuant to the Company's incentive equity compensation and employee stock purchase plans will result in the Operating Partnership issuing OP Units to the Trust on a one-for-one basis, with the Operating Partnership receiving the net cash proceeds of such issuances.

Certain of the Company’s employee stock awards vest only upon the achievement of performance targets. ASC 718 requires recognition of compensation cost only when achievement of performance conditions is considered probable. Consequently, the Company’s determination of the amount of stock compensation expense requires a significant level of judgment in estimating the probability of achievement of these performance targets. Subsequent changes in actual experience are monitored and estimates are updated as information is available.

In connection with the IPO, the Trust adopted the 2013 Equity Incentive Plan (“2013 Plan”), which made available 600,000 common shares to be administered by the Compensation and Nominating Governance Committee of the Board of Trustees. On August 7, 2014, at the Annual Meeting of Shareholders of Physicians Realty Trust, the Trust’s shareholders approved an amendment to the 2013 Plan to increase the number of common shares authorized for issuance under the 2013 Plan by 1,850,000 common shares, for a total of 2,450,000 common shares authorized for issuance.

Restricted Common Shares:

Restricted common shares granted under the 2013 Plan are eligible for dividends as well as the right to vote. In the six month period ended June 30, 2017, the Trust granted a total of 143,593 restricted common shares with a total value of $2.8 million to its officers and certain of its employees, which have vesting periods ranging from one to three years.

A summary of the status of the Trust’s non-vested restricted common shares as of June 30, 2017 and changes during the six month period then ended follow:



	Common Shares		Weighted Average Grant Date Fair Value
Non-vested at December 31, 2016	296,785		$	16.16
Granted	143,593		19.74
Vested	(239,587	)	16.11
Forfeited	(550	)	18.78
Non-vested at June 30, 2017	200,241		$	18.77

For all service awards, the Company records compensation expense for the entire award on a straight-line basis over the requisite service period. For the three month periods ended June 30, 2017 and 2016, the Company recognized non-cash share compensation of $0.8 million and $1.1 million, respectively. For the six month periods ended June 30, 2017 and 2016, the Company recognized non-cash share compensation of $1.6 million and $1.9 million, respectively. Unrecognized compensation expense at June 30, 2017 was $2.5 million.

Restricted Share Units:

In March 2017, under the 2013 Plan, the Trust granted restricted share units at a target level of 174,320 to its officers and certain employees and 32,831 to its trustees, which are subject to certain performance, timing, and market conditions and a three-year and two-year service period for officers/employees and trustees, respectively. In addition, each restricted share unit contains one dividend equivalent. The recipient will accrue dividend equivalents on awarded share units equal to the cash dividend that would have been paid on the awarded share unit had the awarded share unit been an issued and outstanding common share on the record date for the dividend.

Approximately 70% of the restricted share units issued to officers and certain employees vest based on certain market conditions. The market conditions were valued with the assistance of independent valuation specialists. The Company utilized a Monte Carlo simulation to calculate the weighted average grant date fair value of $33.43 per unit for the March 2017 grant using the following assumptions:



Volatility	21.5		%
Dividend assumption	reinvested
Expected term in years	2.8
Risk-free rate	1.68		%
Share price (per share)	$	19.80

The remaining 30% of the restricted share units issued to officers and certain employees, and 100% of restricted share units issued to trustees, vest based upon certain performance or timing conditions. With respect to the performance conditions of the March 2017 grant, the grant date fair value of $19.80 per unit was based on the share price at the date of grant. The combined weighted average grant date fair value of the March 2017 restricted share units issued to officers and certain employees is $29.34 per unit.

The following is a summary of the activity in the Trust’s restricted share units during the six months ended June 30, 2017:



	Executive Awards					Trustee Awards
	Restricted Share Units			Weighted Average Grant Date Fair Value		Restricted Share Units		Weighted Average Grant Date Fair Value
Non-vested at December 31, 2016	235,483			$	21.84	57,260		$	17.03
Granted	174,320			29.34		32,831		19.80
Vested	(55,680	)	(1)	16.94		(38,871	)	16.72
Non-vested at June 30, 2017	354,123			$	26.30	51,220		$	19.04


(1)	Restricted units vested by Company executives in 2017 resulted in the issuance of 105,792 shares of common stock, less 50,112 shares of common stock withheld to cover minimum withholding tax obligations, for multiple employees.

For the three month periods ending June 30, 2017 and 2016, the Trust recognized non-cash share unit compensation expense of $1.0 million and $0.5 million, respectively. For the six month periods ended June 30, 2017 and 2016, the Trust recognized non-cash share unit compensation expense of $1.7 million and $0.9 million, respectively. Unrecognized compensation expense at June 30, 2017 was $7.0 million.