Stock-based Compensation

12 Months Ended

Dec. 31, 2018

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 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. During 2016, a total of 155,306 restricted common shares with a total value of $2.8 million were granted to Company employees with vesting periods ranging from one to three years. During 2017, the Trust granted a total of 143,593 restricted common shares with a total value of $2.8 million to the Company’s officers and certain of its employees, which have a one-year vesting period for senior management award-recipients and a three-year vesting period for employee award-recipients. During 2018, the Trust granted a total of 206,446 restricted common shares with a total value of $3.1 million to the Company’s officers and certain of its employees, which have a one-year vesting period for senior management award-recipients and a three-year vesting period for employee award-recipients.

The following is summary of the status of the Trust’s non-vested restricted common shares during 2018, 2017, and 2016:



	Common Shares		Weighted Average Grant Date Fair Value
Non-vested at December 31, 2015	311,839		$	14.17
Granted	155,306		17.96
Vested	(170,034	)	14.16
Forfeited	(326	)	15.36
Non-vested at December 31, 2016	296,785		16.16
Granted	143,593		19.74
Vested	(266,552	)	16.00
Forfeited	(550	)	18.78
Non-vested at December 31, 2017	173,276		19.36
Granted	206,446		14.87
Vested	(153,325	)	19.32
Forfeited	(1,258	)	16.27
Non-vested at December 31, 2018	225,139		$	15.29

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 years ended December 31, 2018, 2017, and 2016 the Company recognized non-cash share compensation of $3.1 million, $3.1 million, and $3.6 million, respectively. Unrecognized compensation expense at December 31, 2018, 2017, and 2016 was $1.0 million, $1.0 million, and $1.2 million, respectively.

Restricted Share Units:

In March 2018, March 2017, and March 2016 under the Trust’s 2013 Plan, the Trust granted (i) restricted share units at a target level of 254,282, 174,320, and 104,553 respectively, to the Trust’s senior management, which are subject to certain performance and market conditions and a three-year service period and (ii) 50,745, 32,831, and 36,784 restricted share units, respectively, to the members of the Board of Trustees, which are subject to a two-year vesting period. 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 40% of the restricted share units issued to officers in 2018, 70% issued to officers in 2017, and 80% issued to officers in 2016, 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 values in 2018, 2017, and 2016 of $19.28, $33.43, and $28.50 per unit, respectively, using the following assumptions:



	2018			2017			2016
Volatility	21.7		%	21.5		%	20.3		%
Dividend assumption	reinvested			reinvested			reinvested
Expected term in years	2.8 years			2.8 years			2.8 years
Risk-free rate	2.40		%	1.68		%	1.07		%
Stock price (per share)	$	14.78		$	19.80		$	17.67

The remaining 60% of the restricted share units issued to officers in 2018, 30% issued to officers in 2017, and 20% issued to officers in 2016, vest based upon certain performance conditions. With respect to the performance conditions of the March 2018 grant, the grant date fair value of $14.78 per unit was based on the share price at the date of grant. The combined weighted average grant date fair value of the March 2018 restricted share units issued to officers is $16.58 per unit. 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 is $29.34 per unit. With respect to the performance conditions of the March 2016 grant, the grant date fair value of $17.67 per unit was based on the share price at the date of grant. The combined weighted average grant date fair value of the March 2016 restricted share units issued to officers is $26.33 per unit.

The following is a summary of the activity in the Trust’s restricted share units during 2018, 2017, and 2016:



	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, 2015	130,930			$	18.48	40,957		$	15.87
Granted	104,553			26.33		36,784		17.67
Vested	—			—		(20,481	)	15.87
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 December 31, 2017	354,123			26.30		51,220		19.04
Granted	254,282			16.58		50,745		14.78
Vested	(75,250	)	(2)	19.22		(34,807	)	18.67
Non-vested at December 31, 2018	533,155			$	22.66	67,158		$	16.01


(1)	Restricted units vested by Company executives in 2017 resulted in the issuance of 105,792 common shares, less 50,582 common shares withheld to cover minimum withholding tax obligations, for multiple employees.


(2)	Restricted units vested by Company executives in 2018 resulted in the issuance of 126,108 common shares, less 56,502 common shares withheld to cover minimum withholding tax obligations, for multiple employees.

The Company recognized $5.5 million, $3.6 million, and $2.1 million of non-cash share unit compensation expense for the years ended December 31, 2018, 2017, and 2016, respectively. Unrecognized compensation expense at December 31, 2018, 2017, and 2016 was $5.2 million, $5.0 million, and $2.8 million, respectively.