Stock-based Compensation

9 Months Ended

Sep. 30, 2020

Share-based Payment Arrangement [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 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 shares available for awards for participants. On April 30, 2019, at the Annual Meeting of Shareholders of Physicians Realty Trust, the Trust’s shareholders approved the Amended and Restated Physicians Realty Trust 2013 Equity Incentive Plan. The amendment increased the number of common shares authorized for issuance under the 2013 Plan to a total of 7,000,000 common shares authorized for issuance. The 2013 Plan term was also extended to 2029.

Restricted Common Shares

Restricted common shares granted under the 2013 Plan are eligible for dividends as well as the right to vote. In the nine month period ended September 30, 2020, the Trust granted a total of 190,418 restricted common shares with a total value of $3.6 million to its officers and certain of its employees, which have a vesting period of one to three years.

A summary of the status of the Trust’s non-vested restricted common shares as of September 30, 2020 and changes during the nine month period then ended follow:


	Common Shares	Weighted Average Grant Date Fair Value
Non-vested at December 31, 2019	216,877	$	17.67
Granted	190,418	19.00
Vested	(189,642)	17.81
Forfeited	(405)	17.29
Non-vested at September 30, 2020	217,248	$	18.72

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 ending September 30, 2020 and 2019, the Company recognized non-cash share compensation of $0.9 million. For the nine month periods ending September 30, 2020 and 2019, the Company recognized non-cash share compensation of $2.6 million and $2.5 million, respectively. Unrecognized compensation expense at September 30, 2020 was $2.2 million.

Restricted Share Units

In March 2020, under the 2013 Plan, the Trust granted restricted share units at a target level of 482,646 to its officers and certain of its employees and 38,858 to its trustees. Units granted to officers and certain employees under the Company’s long term incentive plan are subject to certain performance and market conditions and a three-year service period. Units were also granted to a certain officer subject to certain timing conditions and a five-year service period. Units granted to trustees are subject to certain timing conditions and a two-year service period. Each restricted share unit contains one dividend equivalent. Each 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 and certain employees under the Company’s long term incentive plan in 2020 vest based on two 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 of $26.80 and $37.09 per unit for the March 2020 grant using the following assumptions:


Volatility	20.1		%
Dividend assumption	reinvested
Expected term in years	2.83 years
Risk-free rate	0.84		%
Share price (per share)	$	19.30

The remaining 60% of the restricted share units issued to officers and certain employees under the Company’s long term incentive plan, and 100% of other restricted share units issued to a certain officer and trustees vest based upon certain performance or timing conditions. With respect to the performance and timing conditions of the March 2020 grants, the grant date fair value of $19.30 per unit was based on the share price at the date of grant. The combined weighted average grant date fair value of the March 2020 restricted share units issued to officers and certain employees is $24.36 per unit.

The following is a summary of the activity in the Trust’s restricted share units during the nine months ended September 30, 2020:


	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, 2019	654,752		$	22.99	67,297	$	16.72
Granted	482,646		21.64		38,858	19.30
Vested	(173,259)	(1)	29.34		(46,335)	16.19

Non-vested at September 30, 2020	964,139		$	21.17	59,820	$	18.81

(1)Restricted units vested by Company executives in 2020 resulted in the issuance of 147,765 common shares, less 65,513 common shares withheld to cover minimum withholding tax obligations, for multiple employees.

For the three month periods ending September 30, 2020 and 2019, the Company recognized non-cash share compensation of $2.2 million and $1.7 million, respectively. For the nine month periods ending September 30, 2020 and 2019, the Company recognized non-cash share compensation of $6.5 million and $5.3 million, respectively. Unrecognized compensation expense at September 30, 2020 was $12.4 million.