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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to
 
Commission file number: 001-36007
PHYSICIANS REALTY TRUST
(Exact Name of Registrant as Specified in its Charter)
Maryland46-2519850
(State of Organization)(IRS Employer Identification No.)
309 N. Water Street, Suite 50053202
MilwaukeeWisconsin
(Address of Principal Executive Offices)(Zip Code)
 
(414) 367-5600
(Registrant’s Telephone Number, Including Area Code) 
Securities registered pursuant to section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, $0.01 par value per shareDOCNew York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes No      

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).     Yes No   
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer   Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes No   

The number of Physicians Realty Trust’s common shares outstanding as of July 28, 2020 was 208,144,166.


PHYSICIANS REALTY TRUST
 
Quarterly Report on Form 10-Q
for the Quarter Ended June 30, 2020
 
Table of Contents
 
  Page Number
 
 
 
 
 
 
 
 
   
 
   
   


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This Quarterly Report on Form 10-Q contains forward-looking statements made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts may be forward-looking statements within the meaning of the federal securities laws. In particular, statements pertaining to our capital resources, property performance, and results of operations contain forward-looking statements. Likewise, all of our statements regarding anticipated growth in our funds from operations and anticipated market conditions, demographics, and results of operations are forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believe,” “expect,” “outlook,” “continue,” “project,” “may,” “will,” “should,” “seek,” “approximately,” “intend,” “plan,” “pro forma,” “estimate” or “anticipate” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans, expectations, or intentions.
 
These forward-looking statements reflect the views of our management regarding current expectations and projections about future events and are based on currently available information. These forward-looking statements are not guarantees of future performance and involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data, or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:
 
the unknown duration and economic, operational and financial impacts of the global outbreak of a novel strain of the coronavirus (the “COVID-19 pandemic”) and the actions taken by governmental authorities or others in connection with the COVID-19 pandemic on the Company’s business;
general economic conditions;

adverse economic or real estate developments, either nationally or in the markets where our properties are located;

our failure to generate sufficient cash flows to service our outstanding indebtedness, or our ability to pay down or refinance our indebtedness;

fluctuations in interest rates and increased operating costs;

the availability, terms and deployment of debt and equity capital, including our unsecured revolving credit facility;

our ability to make distributions on our common shares;

general volatility of the market price of our common shares;

our increased vulnerability economically due to the concentration of our investments in healthcare properties;

our geographic concentration in Texas causes us to be particularly exposed to downturns in the Texas economy or other changes in Texas market conditions;

changes in our business or strategy;

our dependence upon key personnel whose continued service is not guaranteed;

our ability to identify, hire, and retain highly qualified personnel in the future;

the degree and nature of our competition;

changes in governmental regulations or interpretations thereof, such as real estate and zoning laws and increases in real property tax rates, taxation of real estate investment trusts (“REITs”), and similar matters;

defaults on or non-renewal of leases by tenants;

decreased rental rates or increased vacancy rates;
1

 
difficulties in identifying healthcare properties to acquire and completing acquisitions;

competition for investment opportunities;

any adverse effects to the business, financial position or results of operations of CommonSpirit Health, or one or more of the CommonSpirit Health-affiliated tenants, that impact the ability of CommonSpirit Health-affiliated tenants to pay us rent;

the impact of our investments in joint ventures we have and may make in the future;

the financial condition and liquidity of, or disputes with, any joint venture and development partners with whom we may make co-investments in the future;

cybersecurity incidents could disrupt our business and result in the compromise of confidential information;

our ability to operate as a public company;

changes in healthcare laws or government reimbursement rates;

changes in accounting principles generally accepted in the United States (“GAAP”);

lack of or insufficient amounts of insurance;

other factors affecting the real estate industry generally;

our failure to maintain our qualification as a REIT for U.S. federal income tax purposes;

limitations imposed on our business and our ability to satisfy complex rules in order for us to qualify as a REIT for U.S. federal income tax purposes; and

other factors that may materially adversely affect us, or the per share trading price of our common shares, including:
 
the number of our common shares available for future issuance or sale;
our issuance of equity securities or the perception that such issuance might occur;
future debt;
failure of securities analysts to publish research or reports about us or our industry; and
securities analysts’ downgrade of our common shares or the healthcare-related real estate sector.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events, or other changes after the date of this report, except as required by applicable law. You should not place undue reliance on any forward-looking statements that are based on information currently available to us or the third parties making the forward-looking statements. For a further discussion of these and other factors that could impact our future results, performance or transactions, see Part II, Item 1A (Risk Factors) of this report and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 (the “First Quarterly Report”), and, Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “2019 Annual Report”).

As used in this report, unless the context otherwise requires, references to “we,” “us,” “our,” and the “Company” refer to Physicians Realty Trust (the “Trust”), a Maryland real estate investment trust, and Physicians Realty L.P. (the “Operating Partnership”), a Delaware limited partnership and the subsidiary through which we conduct our business.
2

PART I.                         Financial Information
Item 1.                             Financial Statements
Physicians Realty Trust
Consolidated Balance Sheets
(In thousands, except share and per share data)
June 30,
2020
December 31, 2019
 (unaudited) 
ASSETS  
Investment properties:  
Land and improvements$228,068  $225,540  
Building and improvements3,757,451  3,700,009  
Tenant improvements60,237  53,931  
Acquired lease intangibles397,011  390,450  
 4,442,767  4,369,930  
Accumulated depreciation(615,775) (540,928) 
Net real estate property3,826,992  3,829,002  
Right-of-use lease assets, net138,281  127,933  
Real estate loans receivable, net160,120  178,240  
Investments in unconsolidated entities62,682  66,137  
Net real estate investments4,188,075  4,201,312  
Cash and cash equivalents3,891  2,355  
Tenant receivables, net7,238  7,972  
Other assets134,424  134,942  
Total assets$4,333,628  $4,346,581  
LIABILITIES AND EQUITY  
Liabilities:  
Credit facility$315,353  $583,323  
Notes payable968,213  967,789  
Mortgage debt58,867  83,341  
Accounts payable3,845  6,348  
Dividends and distributions payable51,211  46,272  
Accrued expenses and other liabilities83,637  81,238  
Lease liabilities73,939  63,290  
Acquired lease intangibles, net6,060  6,096  
Total liabilities1,561,125  1,837,697  
Redeemable noncontrolling interest - Series A Preferred Units and partially owned properties28,421  27,900  
Equity:  
Common shares, $0.01 par value, 500,000,000 common shares authorized, 208,139,470 and 189,975,396 common shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively
2,081  1,900  
Additional paid-in capital3,270,915  2,931,921  
Accumulated deficit(595,117) (529,194) 
Accumulated other comprehensive (loss) income(6,908) 4,321  
Total shareholders’ equity2,670,971  2,408,948  
Noncontrolling interests:  
Operating Partnership72,715  71,697  
Partially owned properties396  339  
Total noncontrolling interests73,111  72,036  
Total equity2,744,082  2,480,984  
Total liabilities and equity$4,333,628  $4,346,581  
The accompanying notes are an integral part of these consolidated financial statements.
3

Physicians Realty Trust
Consolidated Statements of Income
(In thousands, except share and per share data) (Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
 2020201920202019
Revenues:    
Rental revenues$79,801  $68,303  $157,671  $145,386  
Expense recoveries24,952  24,171  49,828  50,213  
Interest income on real estate loans and other4,313  2,429  8,995  4,672  
Total revenues109,066  94,903  216,494  200,271  
Expenses:    
Interest expense14,197  16,053  29,823  32,322  
General and administrative8,242  7,676  17,219  16,648  
Operating expenses31,029  30,636  61,992  62,844  
Depreciation and amortization37,045  36,285  73,792  72,734  
Total expenses90,513  90,650  182,826  184,548  
Income before equity in (loss) income of unconsolidated entities and gain on sale of investment properties, net:18,553  4,253  33,668  15,723  
Equity in (loss) income of unconsolidated entities(109) 30  (264) 60  
Gain on sale of investment properties, net  3,033    3,033  
Net income 18,444  7,316  33,404  18,816  
Net income attributable to noncontrolling interests:    
Operating Partnership(476) (200) (880) (505) 
Partially owned properties (1)(148) (136) (290) (274) 
Net income attributable to controlling interest17,820  6,980  32,234  18,037  
Preferred distributions(317) (294) (634) (578) 
Net income attributable to common shareholders$17,503  $6,686  $31,600  $17,459  
Net income per share:    
Basic$0.09  $0.04  $0.16  $0.09  
Diluted$0.09  $0.04  $0.16  $0.09  
Weighted average common shares:    
Basic203,692,604  185,239,471  199,952,166  183,963,257  
Diluted210,405,776  190,815,892  206,699,177  189,699,284  
Dividends and distributions declared per common share and OP Unit$0.23  $0.23  $0.46  $0.46  
(1)Includes amounts attributable to redeemable noncontrolling interests.

The accompanying notes are an integral part of these consolidated financial statements.
4

Physicians Realty Trust
Consolidated Statements of Comprehensive Income
(In thousands) (Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
 2020201920202019
Net income$18,444  $7,316  $33,404  $18,816  
Other comprehensive loss:
Change in fair value of interest rate swap agreements, net(1,243) (5,558) (11,229) (9,034) 
Total other comprehensive loss(1,243) (5,558) (11,229) (9,034) 
Comprehensive income17,201  1,758  22,175  9,782  
Comprehensive income attributable to noncontrolling interests - Operating Partnership(450) (35) (582) (245) 
Comprehensive income attributable to noncontrolling interests - partially owned properties(148) (136) (290) (274) 
Comprehensive income attributable to common shareholders$16,603  $1,587  $21,303  $9,263  

The accompanying notes are an integral part of these consolidated financial statements.
5

Physicians Realty Trust
Consolidated Statements of Equity
(In thousands) (Unaudited)
 Par
Value
Additional
Paid in
Capital
Accumulated
Deficit
Accumulated Other Comprehensive IncomeTotal
Shareholders’ 
Equity
Operating
Partnership
Noncontrolling
Interest
Partially
Owned
Properties 
Noncontrolling
Interest
Total
Noncontrolling
Interests
Total
Equity
Balance at December 31, 2019$1,900  $2,931,921  $(529,194) $4,321  $2,408,948  $71,697  $339  $72,036  $2,480,984  
Cumulative effect of changes in accounting standards—  (147) —  —  (147) —  —  —  (147) 
Net proceeds from sale of common shares124  239,108  —  —  239,232  —  —  —  239,232  
Restricted share award grants, net2  245  (448) —  (201) —  —  —  (201) 
Purchase of OP Units—  —  —  —  —  (93) —  (93) (93) 
Dividends/distributions declared—  —  (46,636) —  (46,636) (1,275) —  (1,275) (47,911) 
Preferred distributions—  —  (317) —  (317) —  —  —  (317) 
Distributions—  —  —  —  —  —  (41) (41) (41) 
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership—  581  (1,561) —  (980) —  —  —  (980) 
Change in fair value of interest rate swap agreements—  —  —  (9,986) (9,986) —  —  —  (9,986) 
Adjustment for Noncontrolling Interests ownership in Operating Partnership—  (2,038) —  —  (2,038) 2,038  —  2,038    
Net income—  —  14,414  —  14,414  404  67  471  14,885  
Balance as of March 31, 2020$2,026  $3,169,670  $(563,742) $(5,665) $2,602,289  $72,771  $365  $73,136  $2,675,425  
Net proceeds from sale of common shares55  99,450  —  —  99,505  —  —  —  99,505  
Restricted share award grants, net—  3,017  (791) —  2,226  —  —  —  2,226  
Purchase of OP Units—  —  —  —  —  (67) —  (67) (67) 
Dividends/distributions declared—  —  (47,924) —  (47,924) (1,271) —  (1,271) (49,195) 
Preferred distributions—  —  (317) —  (317) —  —  —  (317) 
Distributions—  —  —  —  —  —  (42) (42) (42) 
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership—  (416) (163) —  (579) —  —  —  (579) 
Change in fair value of interest rate swap agreements—  —  —  (1,243) (1,243) —  —  —  (1,243) 
Adjustment for Noncontrolling Interests ownership in Operating Partnership—  (806) —  —  (806) 806  —  806    
Net income—  —  17,820  —  17,820  476  73  549  18,369  
Balance as of June 30, 2020$2,081  $3,270,915  $(595,117) $(6,908) $2,670,971  $72,715  $396  $73,111  $2,744,082  

The accompanying notes are an integral part of these consolidated financial statements.
6

Physicians Realty Trust
Consolidated Statements of Equity
(In thousands) (Unaudited)
 Par
Value
Additional
Paid in
Capital
Accumulated
Deficit
Accumulated Other Comprehensive IncomeTotal
Shareholders’ 
Equity
Operating
Partnership
Noncontrolling
Interest
Partially
Owned
Properties 
Noncontrolling
Interest
Total
Noncontrolling
Interests
Total
Equity
Balance at December 31, 2018$1,824  $2,791,555  $(428,307) $14,433  $2,379,505  $67,477  $678  $68,155  $2,447,660  
Cumulative effect of changes in accounting standards—  (239) —  —  (239) —  —  —  (239) 
Net proceeds from sale of common shares17  31,003  —  —  31,020  —  —  —  31,020  
Restricted share award grants, net2  640  (287) —  355  —  —  —  355  
Purchase of OP Units—  —  —  —  —  (105) —  (105) (105) 
Dividends/distributions declared—  —  (42,536) —  (42,536) (1,158) —  (1,158) (43,694) 
Preferred distributions—  —  (284) —  (284) —  —  —  (284) 
Distributions—  —  —  —  —  —  (47) (47) (47) 
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership—  (290) —  —  (290) —  —  —  (290) 
Change in fair value of interest rate swap agreements—  —  —  (3,476) (3,476) —  —  —  (3,476) 
Net income—  —  11,057  —  11,057  305  64  369  11,426  
Adjustment for Noncontrolling Interests ownership in Operating Partnership—  (149) —  —  (149) 149  —  149    
Balance at March 31, 2019$1,843  $2,822,520  $(460,357) $10,957  $2,374,963  $66,668  $695  $67,363  $2,442,326  
Net proceeds from sale of common shares10  18,306  —  —  18,316  —  —  —  18,316  
Restricted share award grants, net—  2,646  22  —  2,668  —  —  —  2,668  
Purchase of OP Units—  —  —  —  —  (717) —  (717) (717) 
Dividends/distributions declared—  —  (42,674) —  (42,674) (1,238) —  (1,238)