Stock-based Compensation

12 Months Ended

Dec. 31, 2023

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 Physicians Realty Trust 2013 Equity Incentive Plan, which made shares available for awards for participants (the “2013 Plan”). At the Company’s Annual Meeting of Shareholders held on May 3, 2023, shareholders approved the Amended and Restated Physicians Realty Trust 2013 Equity Incentive Plan (the “Amended and Restated 2013 Plan”). The Amended and Restated 2013 Plan increased the number of common shares authorized for issuance to a total of 11,000,000. The Amended and Restated 2013 Plan also extended the term of the plan from 2029 to 2033, among other changes.

Restricted Common Shares

Restricted common shares granted under the 2013 Plan are eligible for dividends as well as the right to vote. During 2021, the Trust granted a total of 224,163 restricted common shares with a total value of $3.9 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 2022, the Trust granted a total of 247,579 restricted common shares with a total value of $4.1 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. During 2023, the Trust granted a total of 342,939 restricted common shares with a total value of $5.0 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. In January 2023, under the 2013 Plan, the Company granted restricted common shares to certain of its officers under a salary deferral program, part of which vests after one year, with the remainder vesting after two years.

The following is summary of the status of the Trust’s non-vested restricted common shares during 2023, 2022, and 2021:


	Common Shares	Weighted Average Grant Date Fair Value
Non-vested at December 31, 2020	215,822	$	18.73
Granted	224,163	17.42
Vested	(185,968)	18.94
Forfeited	(6,570)	18.05
Non-vested at December 31, 2021	247,447	17.41
Granted	247,579	16.53
Vested	(213,572)	17.29
Forfeited	(8,556)	17.98
Non-vested at December 31, 2022	272,898	16.69
Granted	342,939	14.57
Vested	(239,602)	16.54
Forfeited	(2,277)	14.75
Non-vested at December 31, 2023	373,958	$	14.85

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, 2023, 2022, and 2021 the Company recognized non-cash share compensation of $4.7 million, $3.9 million, and $3.7 million, respectively. Unrecognized compensation expense at December 31, 2023, 2022, and 2021 was $1.6 million, $1.4 million, and $1.4 million, respectively.

Restricted Share Units

Under the 2013 Plan, the Company granted 11,274, 7,800, and 13,343 restricted share units in January 2023, 2022 and 2021, respectively, to certain of its trustees in lieu of all or a portion of such trustee’s annual cash retainer. These units are subject to certain timing conditions and a one-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. With respect to the performance and timing conditions of the January 2023, 2022 and 2021 grants, the grant date fair value of $14.47, $18.83, and $17.80 per unit, respectively, was based on the share price at the date of grant.

In March 2023, March 2022, and March 2021 under the Trust’s 2013 Plan, the Trust granted (i) restricted share units at a target level of 355,388, 299,019, and 265,275 respectively, to the Trust’s management, which are subject to certain performance and market conditions and three-year service periods and (ii) 62,586, 56,204, and 43,582 restricted share units, respectively, to the members of the Board of Trustees, which are subject to certain timing conditions and 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 30%, 30%, and 40% of the restricted share units issued to the Trust’s management in 2023, 2022, and 2021, respectively, 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 of $18.71 in 2023, $30.17 in 2022, and $29.18 in 2021 per unit, respectively, using the following assumptions:


	2023			2022			2021
Volatility	23.4		%	33.9		%	33.3		%
Dividend assumption	reinvested			reinvested			reinvested
Expected term in years	2.8 years			2.8 years			2.8 years
Risk-free rate	4.70		%	1.44		%	0.25		%
Stock price (per share)	$	14.70		$	16.37		$	17.21

The remaining 70%, 70%, and 60% of the restricted share units issued to the Trust’s management in 2023, 2022, and 2021, respectively, vest based upon certain performance or timing conditions. With respect to the performance and timing conditions of the March 2023 grant issued to the Trust’s management, the grant date fair value of $14.70 per unit is based on the share price at the date of grant. The combined weighted average grant date fair value of the March 2023 restricted share units issued to management is $15.90 per unit. With respect to the performance conditions of the March 2022 grant, the grant date fair value of $16.37 per unit is based on the share price at the date of grant. The combined weighted average grant date fair value of the March 2022 restricted share units issued to management is $20.51 per unit. With respect to the performance conditions of the March 2021 grant, the grant date fair value of $17.21 per unit is based on the share price at the date of grant. The combined weighted average grant date fair value of the March 2021 restricted share units issued to management is $22.00 per unit.

The following is a summary of the activity in the Trust’s restricted share units during 2023, 2022, and 2021:


	Executive Awards				Trustee Awards
	Restricted Share Units		Weighted Average Grant Date Fair Value		Restricted Share Units	Weighted Average Grant Date Fair Value
December 31, 2020	964,139		$	21.17	59,820	$	18.81
Granted	265,275		22.00		56,925	17.35
Vested	(252,844)	(1)	16.58		(53,737)	18.38
Non-vested at December 31, 2021	976,570		22.59		63,008	17.85
Granted	299,019		20.51		64,004	16.67
Vested	(228,649)	(2)	25.27		(49,020)	18.30
Non-vested at December 31, 2022	1,046,940		21.41		77,992	16.60
Granted	355,388		15.90		73,860	14.66
Vested	(223,579)	(3)	24.36		(61,164)	16.32
Non-vested at December 31, 2023	1,178,749		$	19.19	90,688	$	15.22

(1)Restricted units vested by Company management in 2021 resulted in the issuance of 399,165 common shares, less 162,173 common shares withheld to cover minimum withholding tax obligations, for multiple employees.

(2)Restricted units vested by Company management in 2022 resulted in the issuance of 361,679 common shares, less 160,573 common shares withheld to cover minimum withholding tax obligations, for multiple employees.

(3)Restricted units vested by Company executives in 2023 resulted in the issuance of 652,851 common shares, less 290,380 common shares withheld to cover minimum withholding tax obligations, for multiple employees.

The Company recognized $10.8 million, $11.7 million, and $11.2 million of non-cash share unit compensation expense for the years ended December 31, 2023, 2022, and 2021, respectively. Unrecognized compensation expense at December 31, 2023, 2022, and 2021 was $8.8 million, $10.0 million, and $12.0 million, respectively.