Physicians Realty Trust - Quarter Report: 2022 June (Form 10-Q)

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, 2022

☐ 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)


Maryland		46-2519850
(State of Organization)		(IRS Employer Identification No.)

309 N. Water Street, Suite 500		53202
Milwaukee,	Wisconsin
(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 class

Trading Symbol

Name of each exchange on which registered

Common stock, $0.01 par value per share

DOC

New 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.

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. ☐

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 27, 2022 was 226,320,806.

PHYSICIANS REALTY TRUST

Quarterly Report on Form 10-Q

for the Quarter Ended June 30, 2022

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		Page Number
Part I	Financial Information

Item 1	Financial Statements (Unaudited)


	Consolidated Balance Sheets as of June 30 , 2022 and December 31, 2021	3
	Consolidated Statements of Income for the Three and Six Months Ended June 30 , 2022 and 2021	4
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30 , 2022 and 2021	5
	Consolidated Statements of Equity for the Three and Six Months Ended June 30 , 2022 and 2021	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30 , 2022 and 2021	8









	Notes to Consolidated Financial Statements	9

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4	Controls and Procedures	37

Part II	Other Information

Item 1	Legal Proceedings	39
Item 1A	Risk Factors	39
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	39

Item 6	Exhibits	40

SIGNATURES		41

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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 and any variants that have emerged or that may emerge in the future, (the “COVID-19 pandemic”) and the actions taken by governmental authorities or others in connection with the COVID-19 pandemic will have on the Company’s business;

•general economic conditions, including inflation and recession;

•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 indebtedness or to pay down or refinance our indebtedness;

•fluctuations and increases in interest rates and 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 health care 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;

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•difficulties in identifying health care 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 made 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;

•the disruption of our business and the compromise of confidential information resulting from cybersecurity attacks, breaches, and other incidents;

•our ability to operate as a public company;

•changes in health care 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 health care-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 I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission (the “Commission”) on February 24, 2022 (the “2021 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 consolidated subsidiary of the Trust through which we conduct our business.

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PART I. Financial Information

Item 1. Financial Statements

Physicians Realty Trust

Consolidated Balance Sheets

(In thousands, except share and per share data)


	June 30, 2022		December 31, 2021
	(unaudited)
ASSETS
Investment properties:
Land and improvements	$	233,699	$	235,453
Building and improvements	4,588,319		4,612,561
Tenant improvements	87,162		86,018
Acquired lease intangibles	493,149		498,221
	5,402,329		5,432,253
Accumulated depreciation	(901,526)		(821,036)
Net real estate property	4,500,803		4,611,217
Real estate held for sale	65,798		1,964
Right-of-use lease assets, net	233,281		235,483
Real estate loans receivable, net	104,716		117,844
Investments in unconsolidated entities	80,590		69,793
Net real estate investments	4,985,188		5,036,301
Cash and cash equivalents	401		9,876
Tenant receivables, net	6,135		4,948
Other assets	134,617		131,584
Total assets	$	5,126,341	$	5,182,709
LIABILITIES AND EQUITY
Liabilities:
Credit facility	$	258,509	$	267,641
Notes payable	1,464,713		1,464,008
Mortgage debt	179,516		180,269
Accounts payable	5,336		6,651
Dividends and distributions payable	57,809		57,246
Accrued expenses and other liabilities	88,311		86,254
Lease liabilities	104,591		104,957
Acquired lease intangibles, net	20,603		21,569
Total liabilities	2,179,388		2,188,595

Redeemable noncontrolling interests - partially owned properties	5,776		7,081

Equity:
Common shares, $0.01 par value, 500,000,000 common shares authorized, 226,316,998 and 224,678,116 common shares issued and outstanding as of June 30, 2022 and December 31, 2021, respectively	2,263		2,247
Additional paid-in capital	3,637,459		3,610,954
Accumulated deficit	(850,101)		(776,001)
Accumulated other comprehensive income (loss)	3,570		(892)
Total shareholders’ equity	2,793,191		2,836,308
Noncontrolling interests:
Operating Partnership	146,888		150,241
Partially owned properties	1,098		484
Total noncontrolling interests	147,986		150,725
Total equity	2,941,177		2,987,033
Total liabilities and equity	$	5,126,341	$	5,182,709

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

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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,
	2022		2021		2022		2021
Revenues:
Rental and related revenues	$	127,728	$	107,748	$	254,404	$	215,703
Interest income on real estate loans and other	4,439		5,177		8,153		10,561
Total revenues	132,167		112,925		262,557		226,264
Expenses:
Interest expense	17,234		13,541		34,057		27,256
General and administrative	10,028		9,117		20,321		18,582
Operating expenses	42,681		33,456		84,433		67,390
Depreciation and amortization	47,702		38,105		94,962		76,081

Total expenses	117,645		94,219		233,773		189,309
Income before equity in loss of unconsolidated entities and gain on sale of investment properties, net:	14,522		18,706		28,784		36,955
Equity in loss of unconsolidated entities	(224)		(403)		(390)		(823)
Gain on sale of investment properties, net	3,634		378		3,481		354
Net income	17,932		18,681		31,875		36,486
Net income attributable to noncontrolling interests:
Operating Partnership	(886)		(417)		(1,578)		(876)
Partially owned properties (1)	(155)		(151)		(314)		(303)
Net income attributable to controlling interest	16,891		18,113		29,983		35,307
Preferred distributions	—		—		—		(13)
Net income attributable to common shareholders	$	16,891	$	18,113	$	29,983	$	35,294
Net income per share:
Basic	$	0.07	$	0.08	$	0.13	$	0.17
Diluted	$	0.07	$	0.08	$	0.13	$	0.16
Weighted average common shares:
Basic	225,617,275		215,837,520		225,344,756		213,198,272
Diluted	239,006,973		222,660,502		238,738,465		220,053,306

Dividends and distributions declared per common share	$	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.

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Physicians Realty Trust

Consolidated Statements of Comprehensive Income

(In thousands) (Unaudited)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	17,932	$	18,681	$	31,875	$	36,486
Other comprehensive income:
Change in fair value of interest rate swap agreements, net	3,083		543		4,462		1,340
Total other comprehensive income	3,083		543		4,462		1,340
Comprehensive income	21,015		19,224		36,337		37,826
Comprehensive income attributable to noncontrolling interests - Operating Partnership	(1,040)		(428)		(1,801)		(908)
Comprehensive income attributable to noncontrolling interests - partially owned properties	(155)		(151)		(314)		(303)
Comprehensive income attributable to common shareholders	$	19,820	$	18,645	$	34,222	$	36,615

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

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Physicians Realty Trust

Consolidated Statements of Equity

(In thousands) (Unaudited)


	Par Value		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity		Operating Partnership Noncontrolling Interest		Partially Owned Properties Noncontrolling Interest		Total Noncontrolling Interests		Total Equity
Balance at December 31, 2021	$	2,247	$	3,610,954	$	(776,001)	$	(892)	$	2,836,308	$	150,241	$	484	$	150,725	$	2,987,033

Net proceeds from sale of common shares	3		5,029		—		—		5,032		—		—		—		5,032
Restricted share award grants, net	3		118		(421)		—		(300)		—		—		—		(300)
Purchase of OP Units	—		—		—		—		—		(184)		—		(184)		(184)

Dividends/distributions declared	—		—		(51,879)		—		(51,879)		(2,740)		—		(2,740)		(54,619)


Contributions	—		—		—		—		—		—		569		569		569
Distributions	—		—		—		—		—		—		(55)		(55)		(55)
Change in market value of Redeemable Noncontrolling Interest in partially owned properties	—		—		717		—		717		—		—		—		717



Change in fair value of interest rate swap agreement	—		—		—		1,379		1,379		—		—		—		1,379
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		(217)		—		—		(217)		217		—		217		—


Net income	—		—		13,092		—		13,092		692		82		774		13,866
Balance as of March 31, 2022	$	2,253	$	3,615,884	$	(814,492)	$	487	$	2,804,132	$	148,226	$	1,080	$	149,306	$	2,953,438

Net proceeds from sale of common shares	9		18,475		—		—		18,484		—		—		—		18,484
Restricted share award grants, net	1		3,588		(911)		—		2,678		—		—		—		2,678


Dividends/distributions declared	—		—		(52,116)		—		(52,116)		(2,712)		—		(2,712)		(54,828)



Distributions	—		—		—		—		—		—		(61)		(61)		(61)
Change in market value of Redeemable Noncontrolling Interest in partially owned properties	—		—		527		—		527		—		—		—		527



Change in fair value of interest rate swap agreement	—		—		—		3,083		3,083		—		—		—		3,083
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		(488)		—		—		(488)		488		—		488		—


Net income	—		—		16,891		—		16,891		886		79		965		17,856
Balance as of June 30, 2022	$	2,263	$	3,637,459	$	(850,101)	$	3,570	$	2,793,191	$	146,888	$	1,098	$	147,986	$	2,941,177

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

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Physicians Realty Trust

Consolidated Statements of Equity

(In thousands) (Unaudited)


	Par Value		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’ Equity		Operating Partnership Noncontrolling Interest		Partially Owned Properties Noncontrolling Interest		Total Noncontrolling Interests		Total Equity
Balance at December 31, 2020	$	2,096	$	3,303,231	$	(658,171)	$	(5,859)	$	2,641,297	$	73,302	$	403	$	73,705	$	2,715,002

Net proceeds from sale of common shares	28		52,404		—		—		52,432		—		—		—		52,432
Restricted share award grants, net	4		(333)		(664)		—		(993)		—		—		—		(993)
Purchase of OP Units	—		—		—		—		—		(269)		—		(269)		(269)

Dividends/distributions declared	—		—		(49,011)		—		(49,011)		(1,243)		—		(1,243)		(50,254)
Preferred distributions	—		—		(13)		—		(13)		—		—		—		(13)


Distributions	—		—		—		—		—		—		(73)		(73)		(73)
Change in market value of Redeemable Noncontrolling Interests	—		(23)		896		—		873		—		—		—		873

Change in fair value of interest rate swap agreements	—		—		—		797		797		—		—		—		797
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		1,136		—		—		1,136		(1,136)		—		(1,136)		—


Net income	—		—		17,194		—		17,194		459		76		535		17,729
Balance as of March 31, 2021	$	2,128	$	3,356,415	$	(689,769)	$	(5,062)	$	2,663,712	$	71,113	$	406	$	71,519	$	2,735,231

Net proceeds from sale of common shares	46		82,781		—		—		82,827		—		—		—		82,827
Restricted share award grants, net	—		3,242		(482)		—		2,760		—		—		—		2,760
Purchase of OP Units	—		—		—		—		—		(5,063)		—		(5,063)		(5,063)

Dividends/distributions declared	—		—		(50,061)		—		(50,061)		(1,242)		—		(1,242)		(51,303)



Distributions	—		—		—		—		—		—		(50)		(50)		(50)
Change in market value of Redeemable Noncontrolling Interests	—		—		(388)		—		(388)		—		—		—		(388)

Change in fair value of interest rate swap agreements	—		—		—		543		543		—		—		—		543
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		(2,124)		—		—		(2,124)		2,124		—		2,124		—


Net income	—		—		18,113		—		18,113		417		76		493		18,606
Balance as of June 30, 2021	$	2,174	$	3,440,314	$	(722,587)	$	(4,519)	$	2,715,382	$	67,349	$	432	$	67,781	$	2,783,163

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

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Physicians Realty Trust

Consolidated Statements of Cash Flows

(In thousands) (Unaudited)


	Six Months Ended June 30,
	2022		2021
Cash Flows from Operating Activities:
Net income	$	31,875	$	36,486
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	94,962		76,081
Amortization of deferred financing costs	1,158		1,163
Amortization of lease inducements and above/below-market lease intangibles	3,100		2,283
Straight-line rental revenue/expense	(3,881)		(5,105)
Amortization of discount on unsecured senior notes	527		324
Amortization of above market assumed debt	(10)		(31)
Gain on sale of investment properties, net	(3,481)		(354)
Equity in loss of unconsolidated entities	390		823
Distributions from unconsolidated entities	3,932		3,515

Provision for bad debts	95		(161)
Non-cash share compensation	8,051		7,175


Change in operating assets and liabilities:
Tenant receivables	(1,672)		(1,354)
Other assets	3,650		5,501
Accounts payable	(1,315)		(1,583)
Accrued expenses and other liabilities	2,117		(2,418)
Net cash provided by operating activities	139,498		122,345
Cash Flows from Investing Activities:
Proceeds from sale of investment properties	7,900		4,128
Acquisition of investment properties, net	(27,325)		(37,603)
Investment in unconsolidated entities	(12,119)		10
Escrowed cash - acquisition deposits/earnest deposits	360		189
Capital expenditures on investment properties	(21,515)		(13,509)
Investment in real estate loans receivable	(14,611)		(10,673)
Repayment of real estate loans receivable	22,441		18,602


Leasing commissions	(1,842)		(2,575)
Lease inducements	(500)		—
Net cash used in investing activities	(47,211)		(41,431)
Cash Flows from Financing Activities:
Net proceeds from sale of common shares	23,516		135,259
Proceeds from credit facility borrowings	147,000		154,000
Repayment of credit facility borrowings	(157,000)		(248,000)


Principal payments on mortgage debt	(838)		(7,377)
Debt issuance costs	(17)		(13)

Dividends paid - shareholders	(104,737)		(98,417)
Distributions to noncontrolling interests - Operating Partnership	(5,479)		(2,549)
Preferred distributions paid - OP Unit holder	—		(303)
Contributions from noncontrolling interest	569		—
Distributions to noncontrolling interests - partially owned properties	(331)		(334)
Payments of employee taxes for withheld stock-based compensation shares	(4,261)		(4,184)
Purchase of Series A Preferred Units	—		(4,661)
Purchase of OP Units	(184)		(5,332)
Net cash used in financing activities	(101,762)		(81,911)
Net decrease in cash and cash equivalents	(9,475)		(997)
Cash and cash equivalents, beginning of period	9,876		2,515
Cash and cash equivalents, end of period	$	401	$	1,518
Supplemental disclosure of cash flow information—interest paid during the period	$	32,405	$	26,028
Supplemental disclosure of noncash activity—settlement of note receivable in exchange for Series A Preferred Units	$	—	$	20,646
Supplemental disclosure of noncash activity—change in fair value of interest rate swap agreements	$	4,462	$	1,340
Supplemental disclosure of noncash activity—conversion of loan receivable in connection to the acquisition of investment property	$	5,700	$	15,500

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

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Physicians Realty Trust

Notes to Consolidated Financial Statements

Unless otherwise indicated or unless the context requires otherwise, the use of the words “we,” “us,” “our,” and the “Company,” refer to Physicians Realty Trust, together with its consolidated subsidiaries, including Physicians Realty L.P.

Note 1. Organization and Business

Physicians Realty Trust (the “Trust” or the “Company”) was organized in the state of Maryland on April 9, 2013. As of June 30, 2022, the Trust was authorized to issue up to 500,000,000 common shares of beneficial interest, par value $0.01 per share. The Trust filed a Registration Statement on Form S-11 with the Commission with respect to a proposed underwritten initial public offering (the “IPO”) and completed the IPO of its common shares and commenced operations on July 24, 2013.

The Trust contributed the net proceeds from the IPO to Physicians Realty L.P, a Delaware limited partnership (the “Operating Partnership”), and is the sole general partner of the Operating Partnership. The Trust’s operations are conducted through the Operating Partnership and wholly-owned and majority-owned subsidiaries of the Operating Partnership. The Trust, as the general partner of the Operating Partnership, controls the Operating Partnership and consolidates the assets, liabilities, and results of operations of the Operating Partnership.

The Trust is a self-managed REIT formed primarily to acquire, selectively develop, own, and manage health care properties that are leased to physicians, hospitals, and health care delivery systems.

ATM Program

In May 2021, the Trust and the Operating Partnership entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with KeyBanc Capital Markets Inc., Credit Agricole Securities (USA) Inc., BMO Capital Markets Corp., and Raymond James & Associates, Inc. in their capacity as agents for the Company and/or forward sellers and Stifel, Nicolaus & Company, Incorporated in its capacity as sales agent for the Company (collectively, the “Agents”) and Bank of Montreal, Credit Agricole Corporate and Investments Bank, KeyBanc Capital Markets Inc., and Raymond James & Associates, Inc. as forward purchasers for the Company (the “Forward Purchasers”), pursuant to which the Trust may issue and sell, from time to time, its common shares having an aggregate offering price of up to $500 million through the Agents (the “ATM Program”). The Sales Agreement contemplates that, in addition to the issuance and sale of the Trust’s common shares through the Agents, the Trust may also enter into one or more forward sales agreements from time to time in the future with each of the Forward Purchasers.

During the quarters ended March 31, 2022 and June 30, 2022, the Trust issued and sold common shares through the ATM Program as follows (net proceeds in thousands):


	Common shares sold	Weighted average price		Net proceeds
Quarter ended March 31, 2022	259,977	$	18.93	$	4,871
Quarter ended June 30, 2022	977,800	18.61		18,020

Year to date	1,237,777	$	18.68	$	22,891

As of June 30, 2022, the Trust has $308.1 million of common shares remaining available under the ATM Program.

Note 2. Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods ended June 30, 2022 and 2021 pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements included in the Trust’s 2021 Annual Report. The Company has consistently applied its accounting policies to all periods presented in these consolidated financial statements.

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Noncontrolling Interests

As of June 30, 2022, the Trust held a 95.0% interest in the Operating Partnership. As the sole general partner and the majority interest holder, the Trust consolidates the financial position and results of operations of the Operating Partnership.

Redeemable Noncontrolling Interests - Partially Owned Properties

In connection with the Company’s acquisitions of the medical office building, ambulatory surgery center, and hospital located on the Great Falls Hospital campus in Great Falls, Montana, physicians affiliated with the sellers retained non-controlling interests which may, at the holders’ option, be redeemed at any time after May 1, 2023. Due to the redemption provision, which is outside of the control of the Trust, the Trust classifies the investment in the mezzanine section of its consolidated balance sheets. The Trust records the carrying amount of the redeemable noncontrolling interests at the greater of the carrying value or redemption value. As of June 30, 2022, the redeemable noncontrolling interests were recorded at the carrying value of $5.8 million, and the Company classified these three properties as held for sale. See Note 15 for additional details.

Dividends and Distributions

On June 17, 2022, the Trust announced that its Board of Trustees authorized and the Trust declared a cash dividend of $0.23 per common share for the quarter ended June 30, 2022. The dividend was paid on July 19, 2022 to common shareholders and holders of record of partnership interests of the Operating Partnership (“OP Units”) as of the close of business on July 5, 2022.

Tax Status of Dividends and Distributions

The Company’s distributions of current and accumulated earnings and profits for U.S. federal income tax purposes generally are taxable to shareholders as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the shareholders’ basis in the shares to the extent thereof (non-dividend distributions) and thereafter as taxable gain.

Any cash distributions received by an OP Unit holder in respect of its OP Units generally will not be taxable to such OP Unit holder for U.S. federal income tax purposes, to the extent that such distribution does not exceed the OP Unit holder’s basis in its OP Units. Any such distribution will instead reduce the OP Unit holder’s basis in its OP Units (and OP Unit holders will be subject to tax on the taxable income allocated to them by the Operating Partnership in respect of their OP Units when such income is earned by the Operating Partnership, with such income allocation increasing the OP Unit holders’ basis in their OP Units).

The Company has elected taxable REIT subsidiary (“TRS”) status for certain of its corporate subsidiaries and, as a result, these entities will incur both federal and state income taxes on any taxable income of such entities after consideration of any net operating losses. To date, these income taxes have been de minimis.

Impairment of Intangible and Long-Lived Assets

The Company periodically evaluates its long-lived assets, primarily consisting of investments in real estate, for impairment indicators or whenever events or changes in circumstances indicate that the recorded amount of an asset may not be fully recoverable. The Company did not record impairment charges for the three and six months ended June 30, 2022 and 2021.

Assets Held for Sale

The Company may sell properties from time to time for various reasons, including favorable market conditions. The Company classifies certain long-lived assets as held for sale once the criteria, as defined by GAAP, have been met. The Company classifies a real estate property as held for sale when: (i) management has approved the disposition of the property, (ii) the property is available for sale in its present condition, (iii) an active program to locate a buyer has been initiated, (iv) it is probable that the property will be disposed of within one year, (v) the property is being marketed at a reasonable price relative to its fair value, and (vi) it is unlikely that the disposition plan will significantly change or be withdrawn. Following the classification of a property as “held for sale,” no further depreciation or amortization is recorded for the asset and the book value of the asset is written down to the lower of carrying value or fair market value, less cost to sell. As of June 30, 2022, the Company classified three properties as held for sale.

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Real Estate Loans Receivable, Net

Real estate loans receivable consists of nine mezzanine loans, three term loans, and one construction loan as of June 30, 2022. Generally, each mezzanine loan is collateralized by a pledge of the borrower’s ownership interest in the respective real estate owner, each term loan is secured by a mortgage on a related medical office building, and construction loans are secured by mortgages on the land and the improvements as constructed. The reserve for loan losses was $0.1 million as of June 30, 2022.

Rental and Related Revenues

Rental revenue is recognized on a straight-line basis over the terms of the related leases when collectability is probable. Recognizing rental revenue on a straight-line basis for leases may result in recognizing revenue for amounts more or less than amounts currently due from tenants. Amounts recognized in excess of amounts currently due from tenants, excluding assets classified as held for sale, are included in other assets and were approximately $97.7 million and $95.4 million as of June 30, 2022 and December 31, 2021, respectively. If the Company determines that collectability of straight-line rents is not probable, income recognition is limited to the lesser of cash collected, or lease income reflected on a straight-line basis, plus variable rent when it becomes accruable.

In accordance with ASC 842, Leases, Topic 842, if the collectability of a lease changes after the commencement date, any difference between lease income that would have been recognized and the lease payments shall be recognized as an adjustment to lease income. Bad debt recognized as an adjustment to rental and related revenues was $0.2 million for the six months ended June 30, 2022 and insignificant for the six months ended June 30, 2021.

Rental revenue is adjusted by the amortization of lease inducements and above-market or below-market rents on certain leases. Lease inducements and above-market or below-market rents are amortized on a straight-line basis over the remaining lease term. Rental and related revenues also include expense recoveries, which relate to tenant reimbursement of real estate taxes, insurance, and other operating expenses that are recognized in the period the applicable expenses are incurred. The reimbursements are recorded gross, as these costs are incurred by the Company and reimbursed by the tenants. We have certain tenants with absolute net leases. Under these lease agreements, the tenant is responsible for operating and building expenses and we do not recognize expense recoveries.

New Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting, that provides optional relief to applying reference rate reform to changing reference rates, contracts, hedging relationships, and other transactions that reference LIBOR, which has been discontinued at the end of 2021. The amendments in this update are effective immediately and may be applied through December 31, 2022. The Company will continue to use published LIBOR rates through June of 2023 at which time the Company does not expect the replacement benchmark to have a material impact on the Company’s consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company adopted ASU 2020-06 on January 1, 2022, with no material effect on its consolidated financial statements.

Note 3. Investment and Disposition Activity

During the six months ended June 30, 2022, the Company completed the acquisition of one medical office facility for a purchase price of $27.7 million and acquired a 49% membership interest in three properties through Davis Medical Investors, LLC (the “Davis Joint Venture”) for an aggregate purchase price of $8.0 million. The Company also paid $1.1 million of additional purchase consideration under an earn-out agreement and funded one mezzanine loan for $5.8 million, one term loan for $7.5 million, and $1.3 million of previous construction loan commitments. Additionally, the Company invested $4.4 million in funds managed by a real estate technology private equity fund, resulting in total investment activity of approximately $55.8 million as of June 30, 2022. As part of these investments, the Company incurred approximately $0.2 million of capitalized costs.

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Investment activity for the three months ended June 30, 2022, included the acquisition of one medical office facility for a purchase price of $27.7 million, and the funding of one mezzanine loan for $5.8 million, one term loan for $7.5 million and $0.4 million of previous construction loan commitments. The Company also paid $1.1 million of additional purchase consideration under an earn-out agreement and invested $4.4 million in funds managed by a real estate technology private equity fund, resulting in total investment activity of approximately $46.9 million as of June 30, 2022.

The following table summarizes the acquisition date fair values of the assets acquired and the liabilities assumed, as well as follow-on capitalized costs during the six months ended June 30, 2022, which the Company determined using Level 2 and Level 3 inputs (in thousands):


	1st Quarter		2nd Quarter		Total
Land	$	—	$	1,400	$	1,400
Building and improvements	—		25,119		25,119
In-place lease intangibles	—		2,839		2,839
Above market in-place lease intangibles	—		588		588


Leasehold Interest	—		79		79


Net assets acquired	$	—	$	30,025	$	30,025

Satisfaction of Real Estate Loans Receivable	—		(2,700)		(2,700)
Cash used in acquisition of investment property	$	—	$	27,325	$	27,325

Dispositions

During the six months ended June 30, 2022, the Company sold two medical office buildings representing 27,210 square feet for approximately $8.4 million, realizing an aggregate net gain of approximately $3.5 million.

Assets Held for Sale

As of June 30, 2022, the Company classified three properties representing 185,085 square feet as held for sale. In accordance with this classification, the following assets are classified as held for sale in the accompanying consolidated balance sheets at June 30, 2022:


Land and improvements	$	2,916
Building and improvements	55,954
Tenant improvements	10,306
In-place lease intangibles	6,971
Other assets	2,138
Real estate held for sale before accumulated depreciation	78,285
Accumulated depreciation	(12,487)
Real estate held for sale	$	65,798

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Note 4. Intangibles

The following is a summary of the carrying amount of intangible assets and liabilities, excluding assets classified as held for sale if applicable, as of June 30, 2022 and December 31, 2021 (in thousands):


	June 30, 2022						December 31, 2021
	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
Assets
In-place leases	$	435,578	$	(220,301)	$	215,277	$	441,072	$	(201,885)	$	239,187
Above-market leases	$	57,571	$	(27,277)	$	30,294	$	57,149	$	(24,437)	$	32,712
Liabilities
Below-market leases	$	32,154	$	(11,551)	$	20,603	$	32,155	$	(10,585)	$	21,570

The following is a summary of acquired lease intangible amortization for the three and six month periods ended June 30, 2022 and 2021 (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Amortization expense related to in-place leases	$	11,145	$	8,173	$	22,185	$	16,487
Decrease in rental income related to above-market leases	1,503		919		3,006		1,846
Increase in rental income related to below-market leases	508		317		966		640

Future aggregate net amortization of acquired lease intangibles, excluding three assets classified as held for sale, as of June 30, 2022, is as follows (in thousands):


	Net Decrease in Revenue		Net Increase in Expenses
2022	$	1,695	$	20,664
2023	3,192		38,747
2024	2,997		33,328
2025	2,467		27,935
2026	1,318		21,838
Thereafter	(1,978)		72,765
Total	$	9,691	$	215,277

As of June 30, 2022, the weighted average remaining amortization period is 8 years for in-place and above-market lease intangibles assets and 16 years for below-market lease intangibles.

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Note 5. Other Assets

Other assets consisted of the following, excluding assets classified as held for sale if applicable, as of June 30, 2022 and December 31, 2021 (in thousands):


	June 30, 2022		December 31, 2021
Straight line rent receivable, net	$	97,693	$	95,443
Leasing commissions, net	12,466		11,627
Lease inducements, net	8,343		8,293
Prepaid expenses	6,862		8,910
Escrows	1,716		1,780
Interest rate swap	1,302		—
Notes receivable, net	1,269		1,097
Other	4,966		4,434
Total	$	134,617	$	131,584

Note 6. Debt

The following is a summary of debt as of June 30, 2022 and December 31, 2021 (in thousands):


	June 30, 2022		December 31, 2021
Fixed interest mortgage notes (1)	$	74,795	$	75,395
Variable interest mortgage notes (2)	105,391		105,629
Total mortgage debt	180,186		181,024
$1.0 billion unsecured revolving credit facility bearing variable interest of LIBOR plus 0.85%, due September 2025	264,000		274,000
$400 million senior unsecured notes bearing fixed interest of 4.30%, due March 2027	400,000		400,000
$350 million senior unsecured notes bearing fixed interest of 3.95%, due January 2028	350,000		350,000
$500 million senior unsecured notes bearing fixed interest of 2.625%, due November 2031	500,000		500,000
$150 million senior unsecured notes bearing fixed interest of 4.03% to 4.74%, due January 2023 to 2031	150,000		150,000
$75 million senior unsecured notes bearing fixed interest of 4.09% to 4.24%, due August 2025 to 2027	75,000		75,000
Total principal	1,919,186		1,930,024
Unamortized deferred financing costs	(8,552)		(9,694)
Unamortized discounts	(7,896)		(8,423)
Unamortized fair value adjustments	—		11
Total debt	$	1,902,738	$	1,911,918

(1)As of June 30, 2022, fixed interest mortgage notes bear interest from 3.33% to 4.83%, due in 2022 and 2024, with a weighted average interest rate of 4.04%. As of December 31, 2021, fixed interest mortgage notes bear interest from 3.33% to 4.83%, due in 2022 and 2024, with a weighted average interest rate of 4.05%. The notes are collateralized by three properties with a net book value of $143.5 million as of June 30, 2022 and $151.9 million as of December 31, 2021. One mortgage bears interest at LIBOR + 1.90% and the Trust entered into a pay-fixed receive-variable interest rate swap, fixing the LIBOR component of this rate at 1.43%.

(2)Variable interest mortgage notes bear variable interest of LIBOR + 2.75% and SOFR + 1.85% for a weighted average interest rate of 3.39% and 1.95% as of June 30, 2022 and December 31, 2021, respectively. The notes are due in 2026 and 2028 and collateralized by four properties with a net book value of $300.9 million as of June 30, 2022 and $307.2 million as of December 31, 2021.

On September 24, 2021, the Operating Partnership, as borrower, and the Trust, as guarantor, executed a Third Amended and Restated Credit Agreement (the “Credit Agreement”) which extended the maturity date of the revolving credit facility under the Credit Agreement to September 24, 2025 and reduced the interest rate margin applicable to borrowings. The

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Credit Agreement includes an unsecured revolving credit facility of $1.0 billion and contains a term loan feature of $250.0 million, bringing total borrowing capacity to $1.3 billion. The Credit Agreement also includes a swingline loan commitment for up to 10% of the maximum principal amount and provides an accordion feature allowing the Operating Partnership to increase borrowing capacity by up to an additional $500.0 million, subject to customary terms and conditions, resulting in a maximum borrowing capacity of $1.75 billion. The revolving credit facility under the Credit Agreement also includes two, six-month extension options.

Borrowings under the Credit Agreement bear interest on the outstanding principal amount at an adjusted LIBOR rate, which is based on the Trust’s investment grade rating under the Credit Agreement. As of June 30, 2022, the Trust had investment grade ratings of BBB from S&P, Baa2 from Moody’s, and BBB from Fitch. As such, borrowings under the revolving credit facility of the Credit Agreement accrue interest on the outstanding principal at a rate of LIBOR + 0.85%. The Credit Agreement includes a facility fee equal to 0.20% per annum, which is also determined by the Trust’s investment grade rating.

On October 13, 2021, the Operating Partnership issued $500.0 million in aggregate principle amount of 2.625% Senior Notes due November 1, 2031 (the “2031 Senior Notes”) in a public offering and the Company used the proceeds from the 2031 Senior Notes to pay off a $250.0 million term loan feature of the Credit Agreement. The Operating Partnership simultaneously terminated the existing pay-fixed receive-variable rate swaps associated with the full term loan borrowing of $250.0 million. As part of the termination, the Company made total cash payments of $3.3 million to the counterparties of the swap agreements. As defined by the Credit Agreement, the term loan feature is no longer available to the Company.

Base Rate Loans, Adjusted LIBOR Rate Loans, and Letters of Credit (each, as defined in the Credit Agreement) will be subject to interest rates, based upon the Trust’s investment grade rating as follows:


Credit Rating	Applicable Margin for Revolving Loans: LIBOR Rate Loans and Letter of Credit Fee	Applicable Margin for Revolving Loans: Base Rate Loans		Applicable Margin for Term Loans: LIBOR Rate Loans and Letter of Credit Fee	Applicable Margin for Term Loans: Base Rate Loans
At Least A- or A3	LIBOR + 0.725%	—	%	LIBOR + 0.85%	—	%
At Least BBB+ or Baa1	LIBOR + 0.775%	—	%	LIBOR + 0.90%	—	%
At Least BBB or Baa2	LIBOR + 0.85%	—	%	LIBOR + 1.00%	—	%
At Least BBB- or Baa3	LIBOR + 1.05%	0.05	%	LIBOR + 1.25%	0.25	%
Below BBB- or Baa3	LIBOR + 1.40%	0.40	%	LIBOR + 1.65%	0.65	%

The Credit Agreement contains financial covenants that, among other things, require compliance with leverage and coverage ratios and maintenance of minimum tangible net worth, as well as covenants that may limit the Trust’s and the Operating Partnership’s ability to incur additional debt, grant liens, or make distributions. The Company may, at any time, voluntarily prepay any revolving or term loan under the Credit Agreement in whole or in part without premium or penalty. As of June 30, 2022, the Company was in compliance with all financial covenants related to the Credit Agreement.

The Credit Agreement includes customary representations and warranties by the Trust and the Operating Partnership and imposes customary covenants on the Operating Partnership and the Trust. The Credit Agreement also contains customary events of default, and if an event of default occurs and continues, the Operating Partnership is subject to certain actions by the administrative agent, including without limitation, the acceleration of repayment of all amounts outstanding under the Credit Agreement.

As of June 30, 2022, the Company had $264.0 million of borrowings outstanding under its unsecured revolving credit facility. As defined by the Credit Agreement, the current unencumbered borrowing base allows the Company to borrow an additional $736.0 million before reaching the maximum allowed under the credit facility.

Notes Payable

As of June 30, 2022, the Company had $1.5 billion aggregate principal amount of senior notes issued and outstanding by the Operating Partnership, comprised of $15.0 million maturing in 2023, $25.0 million maturing in 2025, $70.0 million maturing in 2026, $425.0 million maturing in 2027, $395.0 million maturing in 2028, and $545.0 million maturing in 2031.

Certain properties have mortgage debt that contains financial covenants. As of June 30, 2022, the Trust was in compliance with all mortgage debt financial covenants.

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Scheduled principal payments due on consolidated debt as of June 30, 2022 are as follows (in thousands):


2022	$	15,256
2023	16,008
2024	59,719
2025	289,476
2026	170,476
Thereafter	1,368,251
Total Payments	$	1,919,186

As of June 30, 2022, the Company had total consolidated indebtedness of approximately $1.9 billion. The weighted average interest rate on consolidated indebtedness was 3.48% (based on the 30-day LIBOR rate of 1.45% and a SOFR rate of 1.50% as of June 30, 2022).

For the three months ended June 30, 2022 and 2021, the Company incurred interest expense on its debt, exclusive of deferred financing cost amortization, of $16.7 million and $13.0 million, respectively. For the six months ended June 30, 2022 and 2021, the Company incurred interest expense on its debt, exclusive of deferred financing cost amortization, of $32.9 million and $26.1 million, respectively.

Note 7. Derivatives

In the normal course of business, a variety of financial instruments are used to manage or hedge interest rate risk. The Company has implemented ASC 815, Derivatives and Hedging (“ASC 815”), which establishes accounting and reporting standards requiring that all derivatives, including certain derivative instruments embedded in other contracts, be recorded as either an asset or a liability measured at their fair value unless they qualify for a normal purchase or normal sales exception.

When specific hedge accounting criteria are not met, ASC 815 requires that changes in a derivative’s fair value be recognized currently in earnings. Changes in the fair market values of the Company’s derivative instruments are recorded in the consolidated statements of income if such derivatives do not qualify for, or the Company does not elect to apply for, hedge accounting. As a result of the Company’s adoption of ASU 2017-12 as of January 1, 2019, the entire change in the fair value of its derivatives designated and qualified as cash flow hedges are recorded in accumulated other comprehensive income on the consolidated balance sheets and are subsequently reclassified into earnings in the period in which the hedged forecasted transaction affects earnings.

To manage interest rate risk for certain of its variable-rate debt, the Company uses interest rate swaps as part of its risk management strategy. These derivatives are designed to mitigate the risk of future interest rate increases by providing a fixed interest rate for a limited, pre-determined period of time. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. As of June 30, 2022, the Company had one outstanding interest rate swap contract designated as a cash flow hedge of interest rate risk. See Note 2 (Summary of Significant Accounting Policies) of the 2021 Annual Report for a further discussion of our derivatives. In addition, the Company recognizes its share of other comprehensive income (loss) related to derivative instruments held by unconsolidated entities.

The following table summarizes the location and aggregate fair value of the interest rate swaps on the Company’s consolidated balance sheets (in thousands):


Total notional amount		$	36,050
Effective fixed interest rate	(1)	3.33		%
Effective date		10/31/2019
Maturity date		10/31/2024
Asset balance at June 30, 2022 (included in Other assets)		$	1,302
Liability balance at December 31, 2021 (included in Accrued expenses and other liabilities)		$	452

(1)1.43% effective swap rate plus 1.90% spread per Credit Agreement.

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Note 8. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following as of June 30, 2022 and December 31, 2021 (in thousands):


	June 30, 2022		December 31, 2021
Prepaid rent	$	25,096	$	22,714
Real estate taxes payable	20,068		23,487
Accrued interest	19,151		18,799
Accrued expenses	6,952		5,960
Security deposits	4,244		4,234
Accrued incentive compensation	3,329		1,784
Tenant improvement allowances	1,831		1,857
Interest rate swap	—		452


Other	7,640		6,967
Total	$	88,311	$	86,254

Note 9. Stock-based Compensation

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, 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 (“2013 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 six month period ended June 30, 2022, the Trust granted a total of 247,579 restricted common shares with a total value of $4.1 million to its officers and certain of its employees, which have a vesting period of one to three years.

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A summary of the status of the Trust’s non-vested restricted common shares as of June 30, 2022 and changes during the six month period then ended follow:


	Common Shares	Weighted Average Grant Date Fair Value
Non-vested at December 31, 2021	247,447	$	17.41
Granted	247,579	16.53
Vested	(213,572)	17.29
Forfeited	(4,763)	18.03
Non-vested at June 30, 2022	276,691	$	16.71

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 months ended June 30, 2022 and 2021, the Company recognized non-cash share compensation of $1.0 million and $0.9 million, respectively. For the six months ended June 30, 2022 and 2021, the Company recognized non-cash share compensation of $1.9 million and $1.8 million, respectively. Unrecognized compensation expense at June 30, 2022 was $3.5 million.

Restricted Share Units

In January 2022, under the 2013 Plan, the Company granted 7,800 restricted share units to certain of its trustees in lieu of all or a portion of such trustee’s 2022 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 2022 grants, the grant date fair value of $18.83 per unit was based on the share price at the date of grant.

In March 2022, under the 2013 Plan, the Company granted restricted share units at a target level of 299,019 to its officers and certain of its employees and 56,204 to its trustees. Units granted to officers and certain employees under the Company’s 2013 Plan are subject to certain performance and market conditions and a three-year service period. Units granted to trustees are subject to certain timing conditions and a two-year service period for full vesting. 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 30% of the restricted share units issued to officers and certain employees under the Company’s 2013 Plan in 2022 vest based on a certain market condition. The awards containing the market condition 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 $30.17 per unit for the March 2022 grant using the following assumptions:


Volatility	33.9		%
Dividend assumption	reinvested
Expected term in years	2.84 years
Risk-free rate	1.44		%
Share price (per share)	$	16.37

The remaining 70% of the restricted share units issued to officers and certain employees under the Company’s 2013 Plan, and 100% of other restricted share units issued to trustees vest based upon certain performance or timing conditions. With respect to the performance and timing conditions of the March 2022 grants, the grant date fair value of $16.37 per unit was 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 officers and certain employees is $20.51 per unit.

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The following is a summary of the activity in the Trust’s restricted share units during the six months ended June 30, 2022:


	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, 2021	976,570		$	22.59	63,008	$	17.85
Granted	299,019		20.51		64,004	16.67
Vested	(228,649)	(1)	25.27		(41,220)	18.20

Non-vested at June 30, 2022	1,046,940		$	21.41	85,792	$	16.81

(1)Restricted units vested by Company executives 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.

For the three months ended June 30, 2022 and 2021, the Company recognized non-cash share compensation of $2.8 million and $2.5 million, respectively. For the six months ended June 30, 2022 and 2021, the Company recognized non-cash share compensation of $6.1 million and $5.3 million, respectively. Unrecognized compensation expense at June 30, 2022 was $15.5 million.

Note 10. Fair Value Measurements

ASC Topic 820, Fair Value Measurement (“ASC 820”), requires certain assets and liabilities be reported and/or disclosed at fair value in the financial statements and provides a framework for establishing that fair value. The framework for determining fair value is based on a hierarchy that prioritizes the valuation techniques and inputs used to measure fair value.

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset. These Level 3 fair value measurements are based primarily on management’s own estimates using pricing models, discounted cash flow methodologies, or similar techniques taking into account the characteristics of the asset or liability. In instances where inputs used to measure fair value fall into different levels of the fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability. As part of the Company’s acquisition process, Level 3 inputs are used to measure the fair value of the assets acquired and liabilities assumed.

The Company’s derivative instruments as of June 30, 2022 consist of one interest rate swap, as detailed in the Derivative Instruments section of Note 7 (Derivatives) of this report and Note 2 (Summary of Significant Accounting Policies) of Part II, Item 8 (Financial Statements and Supplementary Data) of our 2021 Annual Report.

The interest rate swap is not traded on an exchange. The Company’s derivative assets and liabilities are recorded at fair value based on a variety of observable inputs including contractual terms, interest rate curves, yield curves, measure of volatility, and correlations of such inputs. The Company measures its derivatives at fair value on a recurring basis. The fair values are based on Level 2 inputs described above. The Company considers its own credit risk, as well as the credit risk of its counterparties, when evaluating the fair value of its derivatives.

The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. This generally includes assets subject to impairment. There were no assets measured at fair value as of June 30, 2022.

The carrying amounts of cash and cash equivalents, tenant receivables, payables, and accrued interest are reasonable estimates of fair value because of the short-term maturities of these instruments. Fair values for real estate loans receivable and mortgage debt are estimated based on rates currently prevailing for similar instruments of similar maturities and are based primarily on Level 2 inputs.

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As of June 30, 2022, the Company classified three properties as held for sale. Upon classification as held for sale, the Company records the value of the assets at the lower of their carrying value or fair value, less costs to sell. Fair value is generally based on discounted cash flow analyses, which involves management’s best estimate of market participants’ holding period, market comparables, future occupancy levels, rental rates, capitalization rates, lease-up periods, and capital requirements. As of June 30, 2022, the fair values exceed the carrying values of each of the three assets classified as held for sale and therefore the values of the assets are recorded at respective carrying values.

The following table presents the fair value of the Company’s financial instruments (in thousands):


	June 30, 2022				December 31, 2021
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets:
Real estate loans receivable, net	$	104,716	$	102,224	$	117,844	$	115,385
Notes receivable, net	$	1,269	$	1,269	$	1,097	$	1,097
Derivative assets	$	1,302	$	1,302	$	—	$	—
Liabilities:
Credit facility	$	(264,000)	$	(264,000)	$	(274,000)	$	(274,000)
Notes payable	$	(1,475,000)	$	(1,350,072)	$	(1,475,000)	$	(1,554,802)
Mortgage debt	$	(180,186)	$	(176,795)	$	(181,035)	$	(182,189)
Derivative liabilities	$	—	$	—	$	(452)	$	(452)

Note 11. Tenant Operating Leases

The Company is a lessor of medical office buildings and other health care facilities. Leases have expirations from 2022 through 2042. As of June 30, 2022, the future minimum rental payments on non-cancelable leases, exclusive of expense recoveries and minimum rental payments for the three assets classified as held for sale, were as follows (in thousands):


2022	$	176,124
2023	349,539
2024	335,636
2025	314,952
2026	257,364
Thereafter	874,873
Total	$	2,308,488

For the three months ended June 30, 2022 and 2021, we recognized $127.7 million and $107.7 million, respectively, of rental and other lease-related income related to our operating leases, of which $35.8 million and $27.2 million, respectively, were variable lease payments. For the six months ended June 30, 2022 and 2021, we recognized $254.4 million and $215.7 million, respectively, of rental and other lease-related income related to our operating leases, of which $71.0 million and $54.7 million, respectively, were variable lease payments.

Note 12. Rent Expense

The Company leases the rights to parking structures at two of its properties, the air space above one property, and the land upon which 97 of its properties are located from third party land owners pursuant to separate leases. In addition, the Company has nine corporate leases, primarily for office space.

The Company’s leases include both fixed and variable rental payments and may also include escalation clauses and renewal options. These leases have terms of up to 93 years remaining, excluding extension options, with a weighted average remaining term of 44 years.

At the inception of a new lease, the Company establishes an operating or finance lease asset and operating or finance lease liability calculated as the present value of future minimum lease payments. As our leases do not provide an implicit rate, we calculate a discount rate that approximates our incremental borrowing rate available at lease commencement to determine

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the present value of future minimum lease payments. The approximated weighted average discount rate was 4.4% as of June 30, 2022. There are no operating or finance leases that have not yet commenced that would have a significant impact on the Company’s consolidated balance sheets.

As of June 30, 2022, the future minimum lease obligations under non-cancelable parking, air, ground, and corporate leases, exclusive of the three assets classified as held for sale, were as follows (in thousands):


2022	$	2,140
2023	4,717
2024	4,707
2025	4,704
2026	4,752
Thereafter	243,544
Total undiscounted lease payments	$	264,564
Less: Interest	(159,973)
Present value of lease liabilities	$	104,591

Lease costs consisted of the following for the six months ended June 30, 2022 (in thousands):



Fixed lease cost	$	1,663
Variable lease cost	635
Total lease cost	$	2,298

Note 13. Credit Concentration

The Company uses annualized base rent (“ABR”) as its credit concentration metric. ABR is calculated by multiplying contractual base rent for the month ended June 30, 2022 by 12, excluding the impact of concessions and straight-line rent. The following table summarizes certain information about the Company’s top five tenant credit concentrations as of June 30, 2022, excluding the three assets classified as held for sale (in thousands):


Tenant	Total ABR		Percent of ABR
CommonSpirit - CHI - Nebraska	$	18,054	5.1	%
Northside Hospital	15,875		4.5	%
UofL Health - Louisville, Inc.	13,040		3.7	%
US Oncology	11,407		3.2	%
HonorHealth	10,987		3.1	%
Remaining portfolio	284,357		80.4	%
Total	$	353,720	100.0	%

ABR collected from the Company’s top five tenant relationships comprises 19.6% of its total ABR as of June 30, 2022. Total ABR from CommonSpirit Health affiliated tenants totals 15.0%, including the affiliates disclosed above.

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The following table summarizes certain information about the Company’s top five geographic concentrations as of June 30, 2022, excluding the three assets classified as held for sale (in thousands):


State	Total ABR		Percent of ABR
Texas	$	48,695	13.8	%
Georgia	25,977		7.3	%
Florida	24,983		7.1	%
Indiana	22,773		6.4	%
Arizona	20,973		5.9	%
Other	210,319		59.5	%
Total	$	353,720	100.0	%

Note 14. Earnings Per Share

The following table shows the amounts used in computing the Trust’s basic and diluted earnings per share (in thousands, except share and per share data):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Numerator for earnings per share - basic:
Net income	$	17,932	$	18,681	$	31,875	$	36,486
Net income attributable to noncontrolling interests:
Operating Partnership	(886)		(417)		(1,578)		(876)
Partially owned properties	(155)		(151)		(314)		(303)
Preferred distributions	—		—		—		(13)
Numerator for earnings per share - basic	$	16,891	$	18,113	$	29,983	$	35,294
Numerator for earnings per share - diluted:
Numerator for earnings per share - basic	$	16,891	$	18,113	$	29,983	$	35,294
Noncontrolling interest - Operating Partnership income	886		417		1,578		876
Numerator for earnings per share - diluted	$	17,777	$	18,530	$	31,561	$	36,170
Denominator for earnings per share - basic and diluted:
Weighted average number of shares outstanding - basic	225,617,275		215,837,520		225,344,756		213,198,272
Effect of dilutive securities:
Noncontrolling interest - Operating Partnership units	11,914,523		5,403,909		11,913,318		5,544,796
Restricted common shares	52,843		58,083		102,651		83,848
Restricted share units	1,422,332		1,360,990		1,377,740		1,226,390
Denominator for earnings per share - diluted:	239,006,973		222,660,502		238,738,465		220,053,306
Earnings per share - basic	$	0.07	$	0.08	$	0.13	$	0.17
Earnings per share - diluted	$	0.07	$	0.08	$	0.13	$	0.16

Note 15. Subsequent Events

Since the quarter ended June 30, 2022, the Company funded a $4.1 million term loan and disposed of three related facilities in Great Falls, Montana including two medical office buildings and one hospital that were classified as held for sale as of June 30, 2022 for approximately $116.3 million. The Company recognized a net gain on the sale of approximately $53.9 million.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our unaudited consolidated financial statements, including the notes to those statements, included in Part I, Item 1 of this report, and the Section entitled “Cautionary Statement Regarding Forward-Looking Statements” in this report. As discussed in more detail in the Section entitled “Cautionary Statement Regarding Forward-Looking Statements,” this discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause those differences include those discussed in Part I, Item 1 (Business) and Part I, Item 1A (Risk Factors) of our 2021 Annual Report.

Company Highlights

•Reported second quarter 2022 total revenue of $132.2 million, an increase of 17.0% over the prior year period.

•Generated second quarter net income per share of $0.07 on a fully diluted basis.

•Generated second quarter Normalized Funds From Operations (Normalized FFO) of $0.27 per share on a fully diluted basis compared to $0.26 per share for the same period last year.

•Completed $46.9 million of investments and previous construction loan commitments during the second quarter.

•Second quarter MOB Same-Store Cash Net Operating Income growth was 1.9% year-over-year.

•Declared a quarterly dividend of $0.23 per share and OP Unit for the second quarter 2022, paid on July 19, 2022.

•Disposed of one property for $6.4 million and recognized a net gain on the sale of approximately $3.7 million.

•Sold 977,800 common shares pursuant to the ATM program at a weighted average price of $18.61 during the second quarter, resulting in net proceeds of $18.0 million.

Subsequent Event Highlights:

•Disposed of three related facilities in Great Falls, Montana on July 14, 2022 which included two medical office buildings and one hospital for $116.3 million and recognized a net gain on the sale of approximately $53.9 million. These assets were classified as held for sale as of June 30, 2022.

Overview

We are a self-managed health care real estate company organized in April 2013 to acquire, selectively develop, own, and manage health care properties that are leased to physicians, hospitals, and health care delivery systems. We invest in real estate that is integral to providing high quality health care services. Our properties are typically located on a campus with a hospital or other health care facilities or strategically affiliated with a hospital or other health care facilities. We believe the impact of government programs and continuing trends in the health care industry create attractive opportunities for us to invest in health care related real estate. In particular, we believe the demand for health care will continue to increase as a result of the aging population as older persons generally utilize health care services at a rate well in excess of younger people. Our management team has significant public health care REIT experience and has long-established relationships with physicians, hospitals, and health care delivery system decision makers that we believe will provide quality investment and growth opportunities. Our principal investments include medical office buildings, outpatient treatment facilities, as well as other real estate integral to health care providers. In recent years, we have seen increased competition for health care properties and we expect this trend to continue. We seek to generate attractive risk-adjusted returns for our shareholders through a combination of stable and increasing dividends and potential long-term appreciation in the value of our properties and our common shares.

We grew our portfolio of gross real estate investments from approximately $124 million at the time of our IPO in July 2013 to approximately $5.8 billion as of June 30, 2022. As of June 30, 2022, our consolidated portfolio consisted of 276 health care properties (which excludes three assets, representing approximately 185,085 leasable square feet, classified as held for sale) located in 32 states with approximately 15,451,325 net leasable square feet, which were approximately 95% leased with a weighted average remaining lease term of approximately 5.9 years. As of June 30, 2022, approximately 90% of the net leasable square footage of our portfolio was either on the campus of a hospital or strategically affiliated with a health system.

We receive a cash rental stream from the health care providers under our leases. Approximately 95% of the annualized base rent payments from our properties as of June 30, 2022, excluding our three assets held for sale, are from absolute and triple-net leases pursuant to which the tenants are responsible for operating expenses relating to the property, including but not limited to real estate taxes, utilities, property insurance, routine maintenance and repairs, and property management. This structure helps insulate us from increases in certain operating expenses and provides more predictable cash flow. Approximately 4% of the annualized base rent payments from our properties as of June 30, 2022, excluding our three assets held for sale, are from modified gross base stop leases which allow us to pass through certain increases in future operating

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expenses (e.g., property tax and insurance) to tenants for reimbursement, thus protecting us from increases in such operating expenses.

We seek to structure our triple-net leases to generate attractive returns on a long-term basis. Our leases typically have initial terms of 5 to 15 years and include annual rent escalators of approximately 1.5% to 4.0%, with an annual weighted average rent escalator of approximately 2.4%. Certain of the Company’s leases include provisions indexing annual rent escalators to changes in Consumer Price Index (“CPI”), often with a floor or ceiling. As of June 30, 2022, approximately 6.5% of the Company’s annual rent escalators have CPI provisions. Our operating results depend significantly upon the ability of our tenants to make required rental payments. We believe that our portfolio of medical office buildings and other health care facilities will enable us to generate stable cash flows over time because of the diversity of our tenants, staggered lease expiration schedule, long-term leases, and low historical occurrence of tenants defaulting under their leases. As of June 30, 2022, leases representing approximately 1.9%, 4.8%, and 6.8% of leased square feet will expire in 2022, 2023, and 2024, respectively.

We intend to grow our portfolio of high-quality health care properties leased to physicians, hospitals, health care delivery systems, and other health care providers primarily through acquisitions of existing health care facilities that provide stable revenue growth and predictable long-term cash flows. We may also selectively finance the development of new health care facilities through joint venture or fee arrangements with health care real estate developers or health system development professionals. Generally, we expect to make investments in new development properties when approximately 80% or more of the development property has been pre-leased before construction commences. We seek to invest in properties where we can develop strategic alliances with financially sound health care providers and health care delivery systems that offer need-based health care services in sustainable health care markets. We focus our investment activity on medical office buildings and ambulatory surgery centers.

We believe that trends such as shifting consumer preferences, limited space in hospitals, the desire of patients and health care providers to limit non-essential services provided in a hospital setting, and cost considerations, continue to drive the industry towards performing more procedures in outpatient facilities versus the hospital setting. As these trends continue, we believe that demand for medical office buildings and similar health care properties away from hospital settings and in convenient locations to patients will continue to rise. We intend to exploit this trend and seek outpatient properties consistent with our investment philosophy and strategies.

While not our focus, we may choose to invest opportunistically in life science facilities, senior housing properties, skilled nursing facilities, specialty hospitals, and treatment centers. Consistent with our qualification as a REIT, we may also opportunistically invest in companies that provide health care services, and in joint venture entities with operating partners, structured to comply with the REIT Investment Diversification Act of 2007.

The Trust is a Maryland real estate investment trust and elected to be taxed as a REIT for U.S. federal income tax purposes. We conduct our business through an UPREIT structure in which our properties are owned by our Operating Partnership directly or through limited partnerships, limited liability companies, or other subsidiaries. The Trust is the sole general partner of our Operating Partnership and, as of June 30, 2022, owned approximately 95.0% of the OP Units. As of July 27, 2022, there were 226,320,806 common shares outstanding.

Key Transactions in Second Quarter 2022

Investment Activity

During the three months ended June 30, 2022, the Company completed the acquisition of one medical office facility for a purchase price of $27.7 million, and funded one mezzanine loan for $5.8 million, one term loan for $7.5 million, and $0.4 million of previous construction loan commitments. The Company also paid $1.1 million of additional purchase consideration under an earn-out agreement and invested $4.4 million in funds managed by a real estate technology private equity fund, resulting in total investment activity of approximately $46.9 million.

During the three months ended June 30, 2022, the Company sold one medical office building representing 17,213 square feet for approximately $6.4 million, realizing a net gain of approximately $3.7 million.

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Recent Developments

Quarterly Distribution

On June 17, 2022, we announced that our Board of Trustees authorized and declared a cash distribution of $0.23 per common share for the quarterly period ended June 30, 2022. The dividend was paid on July 19, 2022 to common shareholders and OP Unit holders of record as of the close of business on July 5, 2022.

Recent Events

Since June 30, 2022, the Company funded a $4.1 million term loan and disposed of three related facilities in Great Falls, Montana including two medical office buildings and one hospital classified as held for sale as of June 30, 2022 for approximately $116.3 million. The Company recognized a net gain on the sale of approximately $53.9 million.

Results of Operations

Three months ended June 30, 2022 compared to the three months ended June 30, 2021.

The following table summarizes our results of operations for the three months ended June 30, 2022 and 2021 (in thousands):


	2022		2021		Change		%
Revenues:
Rental and related revenues	$	127,728	$	107,748	$	19,980	18.5	%
Interest income on real estate loans and other	4,439		5,177		(738)		(14.3)	%
Total revenues	132,167		112,925		19,242		17.0	%
Expenses:
Interest expense	17,234		13,541		3,693		27.3	%
General and administrative	10,028		9,117		911		10.0	%
Operating expenses	42,681		33,456		9,225		27.6	%
Depreciation and amortization	47,702		38,105		9,597		25.2	%

Total expenses	117,645		94,219		23,426		24.9	%
Income before equity in loss of unconsolidated entities and gain on sale of investment properties, net:	14,522		18,706		(4,184)		(22.4)	%
Equity in loss of unconsolidated entities	(224)		(403)		179		44.4	%
Gain on sale of investment properties, net	3,634		378		3,256		NM
Net income	$	17,932	$	18,681	$	(749)	(4.0)	%

NM = Not Meaningful

Revenues

Total revenues increased $19.2 million, or 17.0%, for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. An analysis of selected revenues follows.

Rental and related revenues. Rental and related revenues increased $20.0 million, or 18.5%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Rental and related revenues were comprised of the following based upon contractual billing terms (in thousands):


	2022		2021		Change		%
Rental revenues	$	91,892	$	80,572	$	11,320	14.0	%
Expense recoveries	35,836		27,176		8,660		31.9	%
Rental and related revenues	$	127,728	$	107,748	$	19,980	18.5	%

Rental revenues increased $11.3 million, or 14.0%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Rental revenues increased $13.0 million from properties acquired in 2022 and 2021, including

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$9.5 million related to the 14 medical office buildings acquired on December 20, 2021 from Landmark Healthcare Facilities LLC (the “Landmark Portfolio”). These increases were partially offset by a decrease of $1.8 million related to properties sold in 2022 and 2021.

Expense recoveries increased $8.7 million, or 31.9%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Expense recoveries increased $6.4 million from properties acquired in 2022 and 2021, including $4.8 million related to the Landmark Portfolio in 2021, and $2.6 million due to an increase in reimbursable operating expenses from our existing portfolio, explained below. These increases were partially offset by a decrease of $0.1 million related to properties sold in 2022 and 2021.

Interest income on real estate loans and other. Interest income on real estate loans and other decreased $0.7 million, or 14.3%, for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. Interest income on real estate loans and other decreased due to lower average real estate loan balances in 2022 compared to 2021.

Expenses

Total expenses increased $23.4 million, or 24.9%, for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. An analysis of selected expenses follows.

Interest expense. Interest expense increased $3.7 million, or 27.3%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The issuance of the 2031 Senior Notes resulted in an increase of $3.4 million, new mortgage debt resulted in an increase of $0.9 million, and increased borrowings on our credit facility resulted in an increase of $0.6 million. These increases were partially offset by the October 2021 pay off and extinguishment of our $250.0 million term loan feature of the Credit Agreement and the associated pay-fixed receive-variable rate swaps which resulted in a decrease of $0.7 million and $0.5 million, respectively.

General and administrative. General and administrative expenses increased $0.9 million, or 10.0%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. The increase was primarily due to higher travel and administrative costs of $0.5 million and non-cash compensation of $0.3 million.

Operating expenses. Operating expenses increased $9.2 million, or 27.6%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Net operating expenses from properties acquired in 2022 and 2021 increased by $6.8 million, including $5.2 million related to the Landmark Portfolio in 2021. Operating expenses on the existing portfolio increased by $2.6 million, or 7.9% quarter over quarter, mainly due to additional building maintenance costs of $0.9 million, utilities costs of $0.6 million, property management costs of $0.3 million, taxes of $0.3 million, and insurance costs of $0.2 million.

Depreciation and amortization. Depreciation and amortization increased $9.6 million, or 25.2%, for the three months ended June 30, 2022 compared to the three months ended June 30, 2021. Depreciation and amortization increased $10.6 million for properties purchased in 2022 and 2021, including $7.7 million related to the Landmark Portfolio in 2021. These increases were partially offset by $0.8 million related to properties sold during 2022 and 2021.

Equity in loss of unconsolidated entities. The change in equity in loss of unconsolidated entities for the three months ended June 30, 2022 compared to the three months ended June 30, 2021 is primarily due to our additional investments in the Davis Joint Venture.

Gain on sale of investment properties, net. During the three months ended June 30, 2022, we sold one property representing 17,213 net leasable square feet located in Ohio for approximately $6.4 million, realizing a net gain of approximately $3.7 million. During the three months ended June 30, 2021, we sold one property representing 19,800 net leasable square feet located in Alabama and three parcels of vacant land in Texas for approximately $3.8 million, realizing a net gain of approximately $0.4 million.

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Six months ended June 30, 2022 compared to the six months ended June 30, 2021.

The following table summarizes our results of operations for the six months ended June 30, 2022 and 2021 (in thousands):


	2022		2021		Change		%
Revenues:
Rental and related revenues	$	254,404	$	215,703	$	38,701	17.9	%
Interest income on real estate loans and other	8,153		10,561		(2,408)		(22.8)	%
Total revenues	262,557		226,264		36,293		16.0	%
Expenses:
Interest expense	34,057		27,256		6,801		25.0	%
General and administrative	20,321		18,582		1,739		9.4	%
Operating expenses	84,433		67,390		17,043		25.3	%
Depreciation and amortization	94,962		76,081		18,881		24.8	%


Total expenses	233,773		189,309		44,464		23.5	%
Income before equity in loss of unconsolidated entities and gain on sale of investment properties, net:	28,784		36,955		(8,171)		(22.1)	%
Equity in loss of unconsolidated entities	(390)		(823)		433		52.6	%
Gain on sale of investment properties, net	3,481		354		3,127		NM
Net income	$	31,875	$	36,486	$	(4,611)	(12.6)	%

Revenues

Total revenues increased $36.3 million, or 16.0%, for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. An analysis of selected revenues follows.

Rental and related revenues. Rental and related revenues increased $38.7 million, or 17.9%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Rental and related revenues were comprised of the following based on contractual billing terms (in thousands):


	2022		2021		Change		%
Rental revenues	$	183,442	$	160,967	$	22,475	14.0	%
Expense recoveries	70,962		54,736		16,226		29.6	%
Rental and related revenues	$	254,404	$	215,703	$	38,701	17.9	%

Rental revenues increased $22.5 million, or 14.0%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Rental revenues increased $26.1 million from properties acquired in 2022 and 2021, including $18.9 million related to the Landmark Portfolio in 2021. This increase was partially offset by a decrease of $3.7 million related to properties sold in 2022 and 2021.

Expense recoveries increased $16.2 million, or 29.6%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Expense recoveries increased $12.6 million from properties acquired in 2022 and 2021, including $9.1 million related to the Landmark Portfolio in 2021, and $3.8 million due to an increase in reimbursable operating expenses from our existing portfolio, explained below.

Interest income on real estate loans and other. Interest income on real estate loans and other decreased $2.4 million, or 22.8%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Interest income on real estate loans and other decreased due to lower average real estate loan balances in 2022 compared to 2021.

Expenses

Total expenses increased by $44.5 million, or 23.5%, for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. An analysis of selected expenses follows.

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Interest expense. Interest expense increased $6.8 million, or 25.0%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase was primarily attributable to the issuance of the 2031 Senior Notes which resulted in an increase of $6.8 million.

General and administrative. General and administrative expenses increased $1.7 million, or 9.4%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. The increase was primarily attributable to increased non-cash compensation of $0.9 million and higher travel and marketing costs of $0.9 million.

Operating expenses. Operating expenses increased $17.0 million, or 25.3%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Net operating expenses from properties acquired in 2022 and 2021 increased by $13.5 million, including $10.0 million related to the Landmark Portfolio in 2021. Operating expenses on the existing portfolio increased by $3.8 million, or 5.7% year over year, mainly due to additional utility charges of $1.6 million, building maintenance costs of $1.5 million, and property management costs of $0.5 million.

Depreciation and amortization. Depreciation and amortization increased $18.9 million, or 24.8%, for the six months ended June 30, 2022 compared to the six months ended June 30, 2021. Depreciation and amortization increased $21.2 million for properties purchased in 2022 and 2021, including $15.4 million related to the Landmark Portfolio in 2021. These increases were partially offset by $1.6 million from properties sold during 2022 and 2021, and an additional decrease of $0.7 million from our existing portfolio.

Equity in loss of unconsolidated entities. The change in equity in loss of unconsolidated entities for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 is primarily due to our additional investments in the Davis Joint Venture.

Gain on sale of investment properties, net. During the six months ended June 30, 2022 we sold two properties representing 27,210 net leasable square feet located in two states for approximately $8.4 million, realizing a net gain of approximately $3.5 million. During the six months ended June 30, 2021, across three states we sold two properties with 63,889 net leasable square feet and three parcels of vacant land for approximately $4.3 million, recognizing a net gain of $0.4 million.

Cash Flows

Six months ended June 30, 2022 compared to the six months ended June 30, 2021 (in thousands).


	2022		2021
Cash provided by operating activities	$	139,498	$	122,345
Cash used in investing activities	(47,211)		(41,431)
Cash used in financing activities	(101,762)		(81,911)
Decrease in cash and cash equivalents	$	(9,475)	$	(997)

Cash flows from operating activities. Cash flows provided by operating activities was $139.5 million during the six months ended June 30, 2022 compared to $122.3 million during the six months ended June 30, 2021, representing an increase of $17.2 million. Net cash provided by operating activities increased primarily due to the impact of our 2022 and 2021 acquisitions, including the Landmark Portfolio, and contractual rent increases. These increases were partially offset by the impact of our 2022 and 2021 dispositions.

Cash flows from investing activities. Cash flows used in investing activities was $47.2 million during the six months ended June 30, 2022 compared to cash flows used in investing activities of $41.4 million during the six months ended June 30, 2021, representing a change of $5.8 million. The increase in cash flows used in investing activities was primarily due to cash spent on capital expenditures which increased by $8.0 million and net increase of $1.7 million of cash spent on the acquisitions of investment properties and unconsolidated entities. This was partially offset by proceeds on sales of investment properties which increased cash by $3.8 million.

Cash flows from financing activities. Cash flows used in financing activities was $101.8 million during the six months ended June 30, 2022 compared to $81.9 million during the six months ended June 30, 2021, representing an increase of $19.9 million. The change in cash used in financing activities was primarily due to a decrease in net proceeds from the sale of common shares pursuant to the applicable ATM Program of $111.7 million. Further, $6.3 million of additional dividends were paid to shareholders in 2022 compared to 2021, and $2.9 million of additional distributions were paid to noncontrolling interests of the operating partnership. These fluctuations were partially offset by a decrease in net paydowns under the credit

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facility of $84.0 million in 2022 compared to 2021 and a decrease in additional principal payments on mortgage debt of $6.5 million. Further, cash used in the redemption of Series A Preferred Units decreased $4.7 million because no redemptions were made in 2022, and cash used in the redemption of OP Units decreased by $5.1 million.

Non-GAAP Financial Measures

This report includes Funds From Operations (FFO), Normalized FFO, Normalized Funds Available For Distribution (FAD), Net Operating Income (NOI), Cash NOI, MOB Same-Store Cash NOI, Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre) and Adjusted EBITDAre, which are non-GAAP financial measures. For purposes of Item 10(e) of Regulation S-K promulgated under the Securities Act, a non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable financial measure calculated and presented in accordance with GAAP in the statement of operations, balance sheet or statement of cash flows (or equivalent statements) of the company, or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable financial measure so calculated and presented. As used in this report, GAAP refers to generally accepted accounting principles in the United States of America. Pursuant to the requirements of Item 10(e) of Regulation S-K promulgated under the Securities Act, we have provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

FFO and Normalized FFO

We believe that information regarding FFO is helpful to shareholders and potential investors because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization, which assumes that the value of real estate assets diminishes ratably over time. We calculate FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (Nareit). Nareit defines FFO as net income or loss (computed in accordance with GAAP) before noncontrolling interests of holders of OP units, excluding preferred distributions, gains (or losses) on sales of depreciable operating property, impairment write-downs on depreciable assets, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs). Our FFO computation includes our share of required adjustments from our unconsolidated joint ventures and may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the Nareit definition or that interpret the Nareit definition differently than we do. The GAAP measure that we believe to be most directly comparable to FFO, net income, includes depreciation and amortization expenses, gains or losses on property sales, impairments, and noncontrolling interests. In computing FFO, we eliminate these items because, in our view, they are not indicative of the results from the operations of our properties. To facilitate a clear understanding of our historical operating results, FFO should be examined in conjunction with net income (determined in accordance with GAAP) as presented in our financial statements. FFO does not represent cash generated from operating activities in accordance with GAAP, should not be considered to be an alternative to net income or loss (determined in accordance with GAAP) as a measure of our liquidity and is not indicative of funds available for our cash needs, including our ability to make cash distributions to shareholders.

We use Normalized FFO, which excludes from FFO net change in fair value of derivative financial instruments, acceleration of deferred financing costs, net change in fair value of contingent consideration, and other normalizing items. Our Normalized FFO computation includes our share of required adjustments from our unconsolidated joint ventures and our use of the term Normalized FFO may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount. Normalized FFO should not be considered as an alternative to net income or loss (computed in accordance with GAAP), as an indicator of our financial performance or of cash flow from operating activities (computed in accordance with GAAP), or as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions. Normalized FFO should be reviewed in connection with other GAAP measurements.

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The following is a reconciliation from net income, the most direct financial measure calculated and presented in accordance with GAAP, to FFO and Normalized FFO (in thousands, except per share data):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	17,932	$	18,681	$	31,875	$	36,486
Earnings per share - diluted	$	0.07	$	0.08	$	0.13	$	0.16

Net income	$	17,932	$	18,681	$	31,875	$	36,486
Net income attributable to noncontrolling interests - partially owned properties	(155)		(151)		(314)		(303)
Preferred distributions	—		—		—		(13)
Depreciation and amortization expense	47,589		38,000		94,738		75,877
Depreciation and amortization expense - partially owned properties	(70)		(70)		(140)		(140)
Gain on sale of investment properties, net	(3,634)		(378)		(3,481)		(354)

Proportionate share of unconsolidated joint venture adjustments	2,350		2,141		4,733		4,338
FFO applicable to common shares	$	64,012	$	58,223	$	127,411	$	115,891



Proportionate share of unconsolidated joint venture adjustments	(270)		—		(278)		—
Normalized FFO applicable to common shares	$	63,742	$	58,223	$	127,133	$	115,891

FFO per common share - diluted	$	0.27	$	0.26	$	0.53	$	0.53
Normalized FFO per common share - diluted	$	0.27	$	0.26	$	0.53	$	0.53

Weighted average common shares outstanding - diluted	239,006,973		222,660,502		238,738,465		220,053,306

Normalized Funds Available for Distribution (FAD)

We define Normalized FAD, a non-GAAP measure, which excludes from Normalized FFO non-cash share compensation expense, straight-line rent adjustments, amortization of acquired above-market or below-market leases and assumed debt, amortization of lease inducements, amortization of deferred financing costs, and loan reserve adjustments, including our share of all required adjustments from unconsolidated joint ventures. We also adjust for recurring capital expenditures related to tenant improvements and leasing commissions, and cash payments from seller master leases and rent abatement payments, including our share of all required adjustments for unconsolidated joint ventures. Other REITs or real estate companies may use different methodologies for calculating Normalized FAD, and accordingly, our computation may not be comparable to those reported by other REITs. Although our computation of Normalized FAD may not be comparable to that of other REITs, we believe Normalized FAD provides a meaningful supplemental measure of our performance due to its frequency of use by analysts, investors, and other interested parties in the evaluation of our performance as a REIT. Normalized FAD should not be considered as an alternative to net income or loss attributable to controlling interest (computed in accordance with GAAP) or as an indicator of our financial performance. Normalized FAD should be reviewed in connection with other GAAP measurements.

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The following is a reconciliation from net income, the most direct financial measure calculated and presented in accordance with GAAP, to Normalized FAD (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	17,932	$	18,681	$	31,875	$	36,486
Normalized FFO applicable to common shares	$	63,742	$	58,223	$	127,133	$	115,891

Normalized FFO applicable to common shares	$	63,742	$	58,223	$	127,133	$	115,891
Non-cash share compensation expense	3,798		3,468		8,051		7,175
Straight-line rent adjustments	(1,727)		(2,380)		(3,881)		(5,105)
Amortization of acquired above/below-market leases/assumed debt	1,301		860		2,640		1,724
Amortization of lease inducements	225		264		450		528
Amortization of deferred financing costs	579		582		1,158		1,163
TI/LC and recurring capital expenditures	(6,868)		(5,673)		(12,531)		(11,311)
Loan reserve adjustments	4		(84)		7		(131)

Proportionate share of unconsolidated joint venture adjustments	(66)		(214)		(497)		(425)
Normalized FAD applicable to common shares	$	60,988	$	55,046	$	122,530	$	109,509

Net Operating Income (NOI), Cash NOI, and MOB Same-Store Cash NOI

NOI is a non-GAAP financial measure that is defined as net income or loss, computed in accordance with GAAP, generated from our total portfolio of properties and other investments before general and administrative expenses, depreciation and amortization expense, interest expense, net change in the fair value of derivative financial instruments, gain or loss on the sale of investment properties, and impairment losses, including our share of all required adjustments from our unconsolidated joint ventures. We believe that NOI provides an accurate measure of operating performance of our operating assets because NOI excludes certain items that are not associated with management of the properties. Our use of the term NOI may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount.

Cash NOI is a non-GAAP financial measure which excludes from NOI straight-line rent adjustments, amortization of acquired above and below market leases, and other non-cash and normalizing items, including our share of all required adjustments from unconsolidated joint ventures. Other non-cash and normalizing items include items such as the amortization of lease inducements, loan reserve adjustments, payments received from seller master leases and rent abatements, and changes in fair value of contingent consideration. We believe that Cash NOI provides an accurate measure of the operating performance of our operating assets because it excludes certain items that are not associated with management of the properties. Additionally, we believe that Cash NOI is a widely accepted measure of comparative operating performance in the real estate community. Our use of the term Cash NOI may not be comparable to that of other real estate companies as such other companies may have different methodologies for computing this amount.

MOB Same-Store Cash NOI is a non-GAAP financial measure which excludes from Cash NOI assets not held for the entire preceding five quarters, non-MOB assets, and other normalizing items not specifically related to the same-store property portfolio. Management considers MOB Same-Store Cash NOI a supplemental measure because it allows investors, analysts, and Company management to measure unlevered property-level operating results. Our use of the term MOB Same-Store Cash NOI may not be comparable to that of other real estate companies, as such other companies may have different methodologies for computing this amount.

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The following is a reconciliation from the Trust’s net income, the most direct financial measure calculated and presented in accordance with GAAP, to NOI, Cash NOI, and MOB Same-Store Cash NOI (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	17,932	$	18,681	$	31,875	$	36,486
General and administrative	10,028		9,117		20,321		18,582

Depreciation and amortization expense	47,702		38,105		94,962		76,081
Interest expense	17,234		13,541		34,057		27,256

Gain on sale of investment properties, net	(3,634)		(378)		(3,481)		(354)

Proportionate share of unconsolidated joint venture adjustments	3,404		3,561		6,826		7,072
NOI	$	92,666	$	82,627	$	184,560	$	165,123

NOI	$	92,666	$	82,627	$	184,560	$	165,123
Straight-line rent adjustments	(1,727)		(2,380)		(3,881)		(5,105)
Amortization of acquired above/below-market leases	1,301		875		2,650		1,755
Amortization of lease inducements	225		264		450		528
Loan reserve adjustments	4		(84)		7		(131)


Proportionate share of unconsolidated joint venture adjustments	(99)		(145)		(170)		(316)
Cash NOI	$	92,370	$	81,157	$	183,616	$	161,854

Cash NOI	$	92,370	$	81,157
Assets not held for all periods or held for sale	(14,396)		(3,552)
Hospital Cash NOI	(2,850)		(2,474)
Lease termination fees	(182)		(157)
Interest income on real estate loans	(2,248)		(3,907)
Joint venture and other income	(3,566)		(3,241)
MOB Same-Store Cash NOI	$	69,128	$	67,826

Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre) and Adjusted EBITDAre

We calculate EBITDAre in accordance with standards established by Nareit and define EBITDAre as net income or loss computed in accordance with GAAP plus depreciation and amortization, interest expense, gain or loss on the sale of investment properties, and impairment loss, including our share of all required adjustments from unconsolidated joint ventures. We define Adjusted EBITDAre, which excludes from EBITDAre non-cash share compensation expense, non-cash changes in fair value, pursuit costs, non-cash intangible amortization, the pro forma impact of investment activity, and other normalizing items. We consider EBITDAre and Adjusted EBITDAre important measures because they provide additional information to allow management, investors, and our current and potential creditors to evaluate and compare our core operating results and our ability to service debt.

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The following is a reconciliation from the Trust’s net income, the most direct financial measure calculated and presented in accordance with GAAP, to EBITDAre and Adjusted EBITDAre (in thousands):


	Three Months Ended June 30,
	2022		2021
Net income	$	17,932	$	18,681
Depreciation and amortization expense	47,702		38,105
Interest expense	17,234		13,541
Gain on sale of investment properties, net	(3,634)		(378)

Proportionate share of unconsolidated joint venture adjustments	3,674		3,498
EBITDAre	$	82,908	$	73,447

Non-cash share compensation expense	3,798		3,468

Pursuit costs	93		70
Non-cash intangible amortization	1,525		1,126
Proportionate share of unconsolidated joint venture adjustments	(270)		—
Pro forma adjustments for investment activity	280		125
Adjusted EBITDAre	$	88,334	$	78,236

Liquidity and Capital Resources

In March 2020, the Securities and Exchange Commission (SEC) adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities. The rule is effective January 4, 2021 but earlier compliance is permitted. As a result of the amendments to Rule 3-10 of Regulation S-X, subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the subsidiary obligor is consolidated into the parent company’s consolidated financial statements, the parent guarantee is “full and unconditional” and the alternative disclosure required by Rule 13-01 is provided, which includes narrative disclosure and summarized financial information. Accordingly, separate consolidated financial statements of the Operating Partnership have not been presented. Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company has excluded the summarized financial information for the Operating Partnership as the assets, liabilities, and results of operations of the Company and the Operating Partnership are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company, and management believes such summarized financial information would be repetitive and not provide incremental value to investors.

Our short-term liquidity requirements consist primarily of operating and interest expenses and other expenditures directly associated with our properties, including:

•property expenses;

•interest expense and scheduled principal payments on outstanding indebtedness;

•general and administrative expenses; and

•capital expenditures for tenant improvements and leasing commissions.

In addition, we will require funds for future distributions expected to be paid to our common shareholders and OP Unit holders in our Operating Partnership.

As of June 30, 2022, we had a total of $0.4 million of cash and cash equivalents and $736.0 million of near-term availability on our unsecured revolving credit facility. Our primary sources of cash include rent we collect from our tenants, borrowings under our unsecured credit facility, and financings of debt and equity securities. We believe that our existing cash and cash equivalents, cash flow from operating activities, and borrowings available under our unsecured revolving credit facility will be adequate to fund any existing contractual obligations to purchase properties and other obligations through the next year. However, because of the 90% distribution requirement under the REIT tax rules under the Code, we may not be able to fund all of our future capital needs from cash retained from operations, including capital needed to make investments and to satisfy or refinance maturing obligations. As a result, we expect to rely upon external sources of capital, including debt and equity financing, to fund future capital needs. If we are unable to obtain needed capital on satisfactory terms or at all, we may not be able to make the investments needed to expand our business or to meet our obligations and commitments as they mature.

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We will rely upon external sources of capital to fund future capital needs, and, if we encounter difficulty in obtaining such capital, we may not be able to make future acquisitions necessary to grow our business or meet maturing obligations.

Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, recurring and non-recurring capital expenditures, and scheduled debt maturities. We expect to satisfy our long-term liquidity needs through cash flow from operations, unsecured borrowings, issuances of equity and debt securities, proceeds from select property dispositions and joint venture transactions, and, in connection with acquisitions of additional properties, the issuance of OP Units of our Operating Partnership.

Our ability to access capital in a timely and cost-effective manner is essential to the success of our business strategy as it affects our ability to satisfy existing obligations, including repayment of maturing indebtedness, and to make future investments and acquisitions. Factors such as general market conditions, interest rates, credit ratings on our debt and equity securities, expectations of our potential future earnings and cash distributions, and the market price of our common shares, each of which are beyond our control and vary or fluctuate over time, all impact our access to and cost of capital. In particular, to the extent interest rates continue to rise, we may experience a decline in the trading price of our common shares, which may impact our decision to conduct equity offerings for capital raising purposes. We will likely also experience higher borrowing costs as interest rates rise, which may also impact our decisions to incur additional indebtedness, or to engage in transactions for which we may need to fund through borrowing. We expect to continue to utilize equity and debt financings to support our future growth and investment activity.

We also continuously evaluate opportunities to finance future investments. New investments are generally funded from temporary borrowings under our primary unsecured credit facility and the proceeds from financing transactions such as those discussed above. Our investments generate cash from net operating income and principal payments on loans receivable. Permanent financing for future investments, which generally replaces funds drawn under our primary unsecured credit facility, has historically been provided through a combination of the issuance of debt and equity securities and the incurrence or assumption of secured debt.

We intend to invest in additional properties as suitable opportunities arise and adequate sources of financing are available. We are currently evaluating additional potential investments consistent with the normal course of our business. There can be no assurance as to whether or when any portion of these investments will be completed. Our ability to complete investments is subject to a number of risks and variables, including our ability to negotiate mutually agreeable terms with sellers and our ability to finance the investment. We may not be successful in identifying and consummating suitable acquisitions or investment opportunities, which may impede our growth and negatively affect our results of operations and may result in the use of a significant amount of management’s resources. We expect that future investments in properties will depend on and will be financed by, in whole or in part, our existing cash, borrowings, including under our unsecured revolving credit facility, or the proceeds from additional issuances of equity or debt securities.

We currently do not expect to sell any of our properties to meet our liquidity needs, although we may do so in the future.

We currently are in compliance with all debt covenants on our outstanding indebtedness.

Credit Facility

On September 24, 2021, the Operating Partnership, as borrower, and the Trust, as guarantor, executed the Credit Agreement which extended the maturity date of the revolving credit facility under the Credit Agreement to September 24, 2025 and reduced the interest rate margin applicable to borrowings. The Credit Agreement includes an unsecured revolving credit facility of $1.0 billion and contains a term loan feature of $250 million, bringing total borrowing capacity to $1.3 billion. The Credit Agreement also includes a swingline loan commitment for up to 10% of the maximum principal amount and provides an accordion feature allowing the Trust to increase borrowing capacity by up to an additional $500 million, subject to customary terms and conditions, resulting in a maximum borrowing capacity of $1.75 billion. The revolving credit facility under the Credit Agreement also includes two six-month extension options.

On October 13, 2021, the Company used the proceeds from the 2031 Senior Notes to pay off a $250.0 million term loan feature of the Credit Agreement. The Operating Partnership simultaneously terminated the existing pay-fixed receive-variable rate swaps associated with the full term loan borrowing of $250.0 million. As part of the termination, the Company made total cash payments of $3.3 million to the counterparties of the swap agreements. As defined by the Credit Agreement, the term loan feature is no longer available to the Company.

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As of June 30, 2022, the Company had $264.0 million of borrowings outstanding under its unsecured revolving credit facility. As defined by the Credit Agreement, $736.0 million is available to borrow without adding additional properties to the unencumbered borrowing base of assets. See Note 6 (Debt) to our accompanying consolidated financial statements for a further discussion of our credit facility.

Senior Notes

As of June 30, 2022, we had $1.5 billion aggregate principal amount of senior notes issued and outstanding by the Operating Partnership, comprised of $15.0 million maturing in 2023, $25.0 million maturing in 2025, $70.0 million maturing in 2026, $425.0 million maturing in 2027, $395.0 million maturing in 2028, and $545.0 million maturing in 2031. See Note 6 (Debt) to our accompanying consolidated financial statements for a further discussion of our senior notes.

ATM Program

In May 2021, the Company entered into the Sales Agreement, pursuant to which the Trust may issue and sell, from time to time, its common shares having an aggregate offering price of up to $500 million. In accordance with the Sales Agreement, the Trust may offer and sell its common shares through the Agents, from time to time, by any method deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended, which includes sales made directly on the New York Stock Exchange or other existing trading market, or sales made to or through a market maker.

During the quarters ended March 31, 2022 and June 30, 2022, the Trust issued and sold common shares through the ATM Program as follows (net proceeds in thousands):


	Common shares sold	Weighted average price		Net proceeds
Quarter ended March 31, 2022	259,977	$	18.93	$	4,871
Quarter ended June 30, 2022	977,800	18.61		18,020

Year to date	1,237,777	$	18.68	$	22,891

As of June 30, 2022, the Trust has $308.1 million of common shares remaining available under the ATM Program.

Dividend Reinvestment and Share Purchase Plan

In December 2014, the Company adopted a Dividend Reinvestment and Share Purchase Plan (“DRIP”). Under the DRIP:

•existing shareholders may purchase additional common shares by reinvesting all or a portion of the dividends paid on their common shares and by making optional cash payments of not less than $50 and up to a maximum of $10,000 per month;

•new investors may join the DRIP by making an initial investment of not less than $1,000 and up to a maximum of $10,000; and

•once enrolled in the DRIP, participants may authorize electronic deductions from their bank account for optional cash payments to purchase additional shares.

The DRIP is administered by our transfer agent, Computershare Trust Company, N.A. Our common shares sold under the DRIP are newly issued or purchased in the open market, as further described in the DRIP. As of June 30, 2022, the Company had issued 195,803 common shares under the DRIP since its inception.

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Critical Accounting Policies

Our consolidated financial statements included in Part I, Item 1 of this report are prepared in conformity with GAAP for interim financial information set forth in the ASC, as published by the Financial Accounting Standards Board, which require us to make estimates and assumptions regarding future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. We base these estimates on our experience and assumptions we believe to be reasonable under the circumstances. However, if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, we may have applied a different accounting treatment, resulting in a different presentation of our financial statements. We periodically reevaluate our estimates and assumptions, and in the event they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Please refer to our 2021 Annual Report for further information regarding the critical accounting policies that affect our more significant estimates and judgments used in the preparation of our consolidated financial statements included in Part I, Item 1 of this report.

REIT Qualification Requirements

We are subject to a number of operational and organizational requirements necessary to qualify and maintain our qualification as a REIT. If we fail to qualify as a REIT or fail to remain qualified as a REIT in any taxable year, our income would be subject to federal income tax at regular corporate rates and potentially increased state and local taxes and we could incur substantial tax liabilities which could have an adverse impact upon our results of operations, liquidity, and distributions to our shareholders.

Off-Balance Sheet Arrangements

As of June 30, 2022, we have investments in two unconsolidated joint ventures with ownership interests of 49.0% and 12.3%, respectively. The aggregate carrying amount of debt, including both our and our partners’ share, incurred by these ventures was approximately $793.7 million (of which our proportionate share is approximately $144.0 million). See Note 2 (Summary of Significant Accounting Policies) of Part II, Item 8 (Financial Statements and Supplementary Data) of our 2021 Annual Report for the fiscal year ended December 31, 2021 for additional information. We have no other off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Our future income, cash flows, and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We use certain derivative financial instruments to manage, or hedge, interest rate risks related to our borrowings. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based upon their credit rating and other factors. Our derivative instruments consist of one interest rate swap. See Note 7 (Derivatives) in Part I, Item I of this report and Note 2 (Summary of Significant Accounting Policies) of Part II, Item 8 (Financial Statements and Supplementary Data) of our 2021 Annual Report for further detail on our interest rate swap.

Interest rate risk amounts are our management’s estimates and were determined by considering the effect of hypothetical interest rates on our consolidated financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur in that environment. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.

Fixed Interest Rate Debt

As of June 30, 2022, our consolidated fixed interest rate debt totaled $1.5 billion, which represented 78.9% of our total consolidated debt, excluding the impact of the interest rate swap. We entered into a pay-fixed receive-variable rate swap for $36.1 million of our mortgage debt, fixing the LIBOR component of the borrowing rate to 1.43%, for an all-in fixed rate as of June 30, 2022 of 3.33%. Both the borrowing and pay-fixed receive-variable swap have a maturity date of October 31, 2024.

Assuming the effects of our interest rate swap agreement, our fixed interest rate debt would represent 80.8% of our total consolidated debt. Interest rate fluctuations on our fixed interest rate debt will generally not affect our future earnings or cash flows unless such instruments mature or are otherwise terminated. However, interest rate changes could affect the fair value of our fixed interest rate debt.

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As of June 30, 2022, the fair value and the carrying value of our consolidated fixed interest rate debt were approximately $1.4 billion and $1.5 billion, respectively. The fair value estimate of our fixed interest rate debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated on June 30, 2022. As we expect to hold our fixed interest rate debt instruments to maturity, based on the underlying structure of the debt instrument, and the amounts due under such instruments are limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that market fluctuations in interest rates, and the resulting change in fair value of our fixed interest rate debt instruments, would have a significant impact on our operating cash flows.

Variable Interest Rate Debt

As of June 30, 2022, our consolidated variable interest rate debt totaled $405.4 million, which represented 21.1% of our total consolidated debt. Assuming the effects of our interest rate swap agreement, our variable interest rate debt would represent 19.2% of our total consolidated debt. Interest rate changes on our variable rate debt could impact our future earnings and cash flows but would not significantly affect the fair value of such debt. As of June 30, 2022, we were exposed to market risks related to fluctuations in interest rates on $369.4 million of consolidated borrowings. Assuming no increase in the amount of our variable rate debt, if LIBOR and SOFR were to change by 100 basis points, interest expense on our variable rate debt as of June 30, 2022 would change by approximately $2.7 million and $1.0 million annually, respectively.

Derivative Instruments

As of June 30, 2022, we had one outstanding interest rate swap that was designated as a cash flow hedge of interest rate risk, with a total notional amount of $36.1 million. See Note 7 (Derivatives) within our consolidated financial statements for further detail on our interest rate swap. We are exposed to credit risk of the counterparty to our interest rate swap agreement in the event of non-performance under the terms of the agreements. If we were not able to replace the swap in the event of non-performance by the counterparty, we would be subject to variability of the interest rate on the amount outstanding under our debt that is fixed through the use of the swap.

Indebtedness

As of June 30, 2022, we had total consolidated indebtedness of approximately $1.9 billion. The weighted average interest rate on our consolidated indebtedness was 3.48% (based on the 30-day LIBOR rate of 1.45% and a SOFR rate of 1.50% as of June 30, 2022). As of June 30, 2022, we had approximately $369.4 million, or approximately 19.2%, of our outstanding long-term debt exposed to fluctuations in short-term interest rates. See Note 6 (Debt) to our consolidated financial statements included in Part I, Item 1 to this report for a summary of our indebtedness as of June 30, 2022.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Trust’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Trust’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based on such evaluation, the Trust’s Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2022, the Trust’s disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information it is required to disclose in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to the Trust’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in the Trust’s system of internal control over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting.

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Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures and the Trust’s internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and the Trust’s internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

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PART II. Other Information

Item 1. Legal Proceedings

From time to time, we are party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. We are not currently a party, as plaintiff or defendant, to any legal proceedings which, individually or in the aggregate, would be expected to have a material effect on our business, financial condition, or results of operations if determined adversely to us.

Item 1A. Risk Factors

Information on risk factors can be found in Part I, Item 1A (Risk Factors) of our 2021 Annual Report. There have been no material changes from the risk factors previously disclosed in our 2021 Annual Report.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

From time to time the Operating Partnership issues OP Units to the Trust, as required by the Partnership Agreement, to reflect additional issuances of common shares by the Trust and to preserve equitable ownership ratios.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table sets forth information relating to repurchases of our common shares of beneficial interest and OP Units during the three months ended June 30, 2022:

ISSUER PURCHASES OF EQUITY SECURITIES


Period	(a) Total Number of Shares (or Units) Purchased		(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
April 1, 2022 - April 30, 2022	—		$	—	N/A	N/A
May 1, 2022 - May 31, 2022	—		—		N/A	N/A
June 1, 2022 - June 30, 2022	9,523	(1)	17.45		N/A	N/A
Total	9,523		$	17.45	—	—

(1)Represents repurchased common shares to satisfy employee withholding tax obligations related to stock-based compensation.

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Item 6. Exhibits


Exhibit No.						Description
22.1						List of Subsidiary Issuers and Guaranteed Securities**
31.1						Certification of John T. Thomas, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Physicians Realty Trust**
31.2						Certification of Jeffrey N. Theiler, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Physicians Realty Trust**


32.1						Certification of John T. Thomas and Jeffrey N. Theiler, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) for Physicians Realty Trust**


101.INS						This instance document does not appear in the interactive data file because of XBRL tags are embedded within the inline XBRL document.
101.SCH						Inline XBRL Extension Schema Document (+)
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document (+)
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document (+)
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document (+)
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document (+)
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

** Filed herewith

(+) Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement for purposes of Section 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			PHYSICIANS REALTY TRUST


Date: August 5, 2022			/s/ John T. Thomas
			John T. Thomas
			President and Chief Executive Officer
			(Principal Executive Officer)


Date: August 5, 2022			/s/ Jeffrey N. Theiler
			Jeffrey N. Theiler
			Executive Vice President and Chief Financial Officer
			(Principal Financial Officer)