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 March 31, 20192020

or

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

For the transition period from             to
 
Commission file number: 001-36007 (Physicians Realty Trust)
Commission file number: 333-205034-01 (Physicians Realty L.P.)
 
 
PHYSICIANS REALTY TRUST
PHYSICIANS REALTY L.P.
(Exact Name of Registrant as Specified in its Charter)
 
 
Maryland (Physicians
(Physicians Realty Trust)
46-2519850
Delaware (Physicians(Physicians Realty L.P.)
80-0941870
(State of Organization) 
46-2519850
80-0941870
(IRS Employer Identification No.)
   
309 N. Water Street,
Suite 500
53202
MilwaukeeWisconsin
(Address of Principal Executive Offices) 
53202
(Zip Code)
 
(414) (414) 367-5600
(Registrant’s Telephone Number, Including Area Code) 
 
Securitiesregisteredpursuant to section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common stock, $0.01 par value per shareDOCNew York Stock Exchange

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

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). 
Physicians Realty Trust        Yes ýYes No o            Physicians Realty L.P.        Yes ýYes No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Physicians Realty Trust
Large accelerated filerý     Accelerated filer o Non-accelerated filer o     Smaller reporting company o     Emerging growth company o

Physicians Realty L.P.
Large accelerated filero     Accelerated filer o Non-accelerated filer ý     Smaller reporting company o     Emerging growth company o

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.
Physicians Realty Trust      o Physicians Realty L.P. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). 
Physicians Realty Trust        Yes o No ý        Physicians Realty L.P.        Yes o No ý

The number of Physicians Realty Trust’s common shares outstanding as of April 24, 201930, 2020 was 185,281,636.202,559,482.
 



EXPLANATORY NOTE

This Quarterly Report on Form 10-Q combines the Quarterly Reports on Form 10-Q for the quarter ended March 31, 20192020 of Physicians Realty Trust (the “Trust”), a Maryland real estate investment trust, and Physicians Realty L.P. (the “Operating Partnership”), a Delaware limited partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” and the “Company,” refer to the Trust, together with its consolidated subsidiaries, including the Operating Partnership. References to the “Operating Partnership” mean collectively the Operating Partnership, together with its consolidated subsidiaries. In this report, all references to “common shares” refer to the common shares of the Trust and references to “our shareholders” refer to shareholders of the common shares of the Trust, the term “OP Units” refers to partnership interests of the Operating Partnership and the term “Series A Preferred Units” refers to Series A Participating Redeemable Preferred Units of the Operating Partnership. As of April 24, 2019, 104,17230, 2020, 116,110 Series A Preferred Units were outstanding.

The Trust is a self-managed real estate investment trust (“REIT”) formed primarily to acquire, selectively develop, own, and manage healthcare properties that are leased to physicians, hospitals, and healthcare delivery systems. The Trust operates in an umbrella partnership REIT structure (“UPREIT”) in which the Operating Partnership and its subsidiaries hold substantially all of the assets. 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 conducts substantially all of its operations through the Operating Partnership. As of March 31, 2019,2020, the Trust held a 97.3% interest in the Operating Partnership and ownsowned no Series A Preferred Units. Apart from this ownership interest, the Trust has no independent operations.

Noncontrolling interests in the Operating Partnership, shareholders’ equity of the Trust, and partners’ capital of the Operating Partnership are the primary areas of difference between the consolidated financial statements of the Trust and those of the Operating Partnership. OP Units not owned by the Trust are accounted for as limited partners’ capital in the Operating Partnership’s consolidated financial statements and as noncontrolling interests in the Trust’s consolidated financial statements. The differences between the Trust’s shareholders’ equity and the Operating Partnership’s partners’ capital are due to the differences in the equity issued by the Trust and the Operating Partnership, respectively.

The Company believes combining the Quarterly Reports of the Trust and the Operating Partnership, including the notes to the consolidated financial statements, into this single report results in the following benefits:

a combined report enhances investors’ understanding of the Trust and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;
a combined report eliminates duplicative disclosure and provides a more streamlined and readable presentation, as a substantial portion of the Company’s disclosure applies to both the Trust and the Operating Partnership; and
a combined report creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

To help investors understand the significant differences between the Trust and the Operating Partnership, this report presents the following separate sections for each of the Trust and the Operating Partnership:

the consolidated financial statements in Part I, Item 1 of this report;
certain accompanying notes to the consolidated financial statements, including Note 14 (Earnings Per Share and Earnings Per Unit);
controls and procedures in Part I, Item 4 of this report; and
the certifications of the Chief Executive Officer and the Chief Financial Officer included as Exhibits 31 and 32 to this report.


PHYSICIANS REALTY TRUST AND PHYSICIANS REALTY L.P.
 
Quarterly Report on Form 10-Q
for the Quarter Ended March 31, 20192020
 
Table of Contents
 
 

  Page Number
 
   
 
   
Financial Statements of Physicians Realty Trust 
 
 
 
 
 
   
Financial Statements of Physicians Realty L.P. 
 
 
 
 
 
   
Notes for Physicians Realty Trust and Physicians Realty L.P. 
 
   
   
 
   
   

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 the coronavirus (the “COVID-19 pandemic”) and the actions taken by governmental authorities or others in connection with the pandemic on the Company’s business;
general economic conditions;

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

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

fluctuations in interest rates and increased operating costs;

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

our ability to make distributions on our common shares;

general volatility of the market price of our common shares;

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

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

changes in our business or strategy;

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

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

the degree and nature of our competition;

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

defaults on or non-renewal of leases by tenants;

decreased rental rates or increased vacancy rates;

 
difficulties in identifying healthcare properties to acquire and completing acquisitions;

competition for investment opportunities;


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

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

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

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

our ability to operate as a public company;

changes in healthcare laws or government reimbursement rates;

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

lack of or insufficient amounts of insurance;

other factors affecting the real estate industry generally;

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

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

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

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events, or other changes after the date of this report, except as required by applicable law. You should not place undue reliance on any forward-looking statements that are based on information currently available to us or the third parties making the forward-looking statements. For a further discussion of these and other factors that could impact our future results, performance or transactions, see Part II, Item 1A (Risk Factors) of this report and, Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the fiscal year ended December 31, 20182019 (the “2018“2019 Annual Report”).

PART I.                         Financial Information
Item 1.                             Financial Statements
Physicians Realty Trust
Consolidated Balance Sheets
(In thousands, except share and per share data)
March 31,
2019
 December 31,
2018
March 31,
2020
 December 31,
2019
(unaudited)  (unaudited)  
ASSETS 
  
 
  
Investment properties: 
  
 
  
Land and improvements$210,542
 $211,253
$228,067
 $225,540
Building and improvements3,627,825
 3,623,962
3,754,098
 3,700,009
Tenant improvements43,213
 36,497
55,524
 53,931
Acquired lease intangibles386,707
 452,384
397,135
 390,450
4,268,287

4,324,096
4,434,824

4,369,930
Accumulated depreciation(443,814) (411,052)(578,274) (540,928)
Net real estate property3,824,473

3,913,044
3,856,550

3,829,002
Real estate held for sale9,038
 
Right-of-use lease asset, net126,250
 
Right-of-use lease assets, net138,864
 127,933
Real estate loans receivable75,474
 55,659
135,818
 178,240
Investments in unconsolidated entities1,331
 1,330
64,319
 66,137
Net real estate investments4,036,566

3,970,033
4,195,551

4,201,312
Cash and cash equivalents5,048
 19,161
2,612
 2,355
Tenant receivables, net10,566
 8,881
9,211
 7,972
Other assets132,825
 144,759
133,434
 134,942
Total assets$4,185,005

$4,142,834
$4,340,808

$4,346,581
LIABILITIES AND EQUITY 
  
 
  
Liabilities: 
  
 
  
Credit facility$478,892
 $457,388
$404,838
 $583,323
Notes payable967,161
 966,961
968,001
 967,789
Mortgage debt99,608
 108,504
59,354
 83,341
Accounts payable3,513
 3,886
2,709
 6,348
Dividends and distributions payable44,335
 43,821
49,138
 46,272
Accrued expenses and other liabilities56,088
 76,282
72,945
 81,238
Lease liability60,864
 
Lease liabilities74,121
 63,290
Acquired lease intangibles, net7,336
 13,585
6,402
 6,096
Total liabilities1,717,797

1,670,427
1,637,508

1,837,697
      
Redeemable noncontrolling interest - Series A Preferred Units and partially owned properties24,882
 24,747
27,875
 27,900
      
Equity: 
  
 
  
Common shares, $0.01 par value, 500,000,000 common shares authorized, 184,307,910 and 182,416,007 common shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively1,843
 1,824
Common shares, $0.01 par value, 500,000,000 common shares authorized, 202,555,703 and 189,975,396 common shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively2,026
 1,900
Additional paid-in capital2,822,520
 2,791,555
3,169,670
 2,931,921
Accumulated deficit(460,357) (428,307)(563,742) (529,194)
Accumulated other comprehensive income10,957
 14,433
Accumulated other comprehensive (loss) income(5,665) 4,321
Total shareholders’ equity2,374,963

2,379,505
2,602,289

2,408,948
Noncontrolling interests: 
  
 
  
Operating Partnership66,668
 67,477
72,771
 71,697
Partially owned properties695
 678
365
 339
Total noncontrolling interests67,363

68,155
73,136

72,036
Total equity2,442,326

2,447,660
2,675,425

2,480,984
Total liabilities and equity$4,185,005

$4,142,834
$4,340,808

$4,346,581
The accompanying notes are an integral part of these consolidated financial statements.

Physicians Realty Trust
Consolidated Statements of Income
(In thousands, except share and per share data) (Unaudited)
Three Months Ended
March 31,
Three Months Ended
March 31,
2019 20182020 2019
Revenues: 
  
 
  
Rental revenues$77,083
 $78,887
$77,870
 $77,083
Expense recoveries26,042
 24,308
24,876
 26,042
Interest income on real estate loans and other2,243
 2,028
4,682
 2,243
Total revenues105,368

105,223
107,428

105,368
Expenses: 
  
 
  
Interest expense16,269
 16,494
15,626
 16,269
General and administrative8,972
 8,459
8,977
 8,972
Operating expenses32,208
 30,459
30,963
 32,208
Depreciation and amortization36,449
 38,576
36,747
 36,449
Total expenses93,898

93,988
92,313

93,898
Income before equity in income of unconsolidated entities and gain on sale of investment properties, net:11,470
 11,235
Equity in income of unconsolidated entities30
 28
Gain on sale of investment properties, net
 69
Income before equity in (loss) income of unconsolidated entities:15,115
 11,470
Equity in (loss) income of unconsolidated entities(155) 30
Net income11,500

11,332
14,960

11,500
Net income attributable to noncontrolling interests: 
  
 
  
Operating Partnership(305) (313)(404) (305)
Partially owned properties (1)(138) (111)(142) (138)
Net income attributable to controlling interest11,057

10,908
14,414

11,057
Preferred distributions(284) (487)(317) (284)
Net income attributable to common shareholders$10,773

$10,421
$14,097

$10,773
Net income per share: 
  
 
  
Basic$0.06
 $0.06
$0.07
 $0.06
Diluted$0.06
 $0.06
$0.07
 $0.06
Weighted average common shares: 
  
 
  
Basic182,672,863
 181,809,570
196,211,728
 182,672,863
Diluted188,497,308
 187,317,243
202,842,340
 188,497,308
      
Dividends and distributions declared per common share and OP Unit$0.23
 $0.23
$0.23
 $0.23
(1)Includes amounts attributable to redeemable noncontrolling interests.

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

Physicians Realty Trust
Consolidated Statements of Comprehensive Income
(In thousands) (Unaudited)
Three Months Ended
March 31,
Three Months Ended
March 31,
2019 20182020 2019
Net income$11,500
 $11,332
$14,960
 $11,500
Other comprehensive income:   
Other comprehensive loss:   
Change in fair value of interest rate swap agreements, net(3,476) 4,298
(9,986) (3,476)
Total other comprehensive income(3,476) 4,298
Total other comprehensive loss(9,986) (3,476)
Comprehensive income8,024
 15,630
4,974
 8,024
Comprehensive income attributable to noncontrolling interests - Operating Partnership(210) (438)(132) (210)
Comprehensive income attributable to noncontrolling interests - partially owned properties(138) (111)(142) (138)
Comprehensive income attributable to common shareholders$7,676
 $15,081
$4,700
 $7,676

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

Physicians Realty Trust
Consolidated Statements of Equity
(In thousands)(Unaudited)
 Par
Value
 Additional
Paid in
Capital
 Accumulated
Deficit
 Accumulated Other Comprehensive Income Total
Shareholders’ 
Equity
 Operating
Partnership
Noncontrolling
Interest
 Partially
Owned
Properties 
Noncontrolling
Interest
 Total
Noncontrolling
Interests
 Total
Equity
Balance at December 31, 2019$1,900
 $2,931,921
 $(529,194) $4,321
 $2,408,948
 $71,697
 $339
 $72,036
 $2,480,984
Cumulative effect of changes in accounting standards
 (147) 
 
 (147) 
 
 
 (147)
Net proceeds from sale of common shares124
 239,108
 
 
 239,232
 
 
 
 239,232
Restricted share award grants, net2
 245
 (448) 
 (201) 
 
 
 (201)
Purchase of OP Units
 
 
 
 
 (93) 
 (93) (93)
Dividends/distributions declared
 
 (46,636) 
 (46,636) (1,275) 
 (1,275) (47,911)
Preferred distributions
 
 (317) 
 (317) 
 
 
 (317)
Distributions
 
 
 
 
 
 (41) (41) (41)
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership
 581
 (1,561) 
 (980) 
 
 
 (980)
Change in fair value of interest rate swap agreements
 
 
 (9,986) (9,986) 
 
 
 (9,986)
Adjustment for Noncontrolling Interests ownership in Operating Partnership
 (2,038) 
 
 (2,038) 2,038
 
 2,038
 
Net income
 
 14,414
 
 14,414
 404
 67
 471
 14,885
Balance as of March 31, 2020$2,026
 $3,169,670
 $(563,742) $(5,665) $2,602,289
 $72,771
 $365
 $73,136
 $2,675,425

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

Physicians Realty Trust
Consolidated Statements of Equity
(In thousands) (Unaudited)

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

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


Physicians Realty Trust
Consolidated Statements of Equity
(In thousands)(Unaudited)

Par
Value
 
Additional
Paid in
Capital
 
Accumulated
Deficit
 Accumulated Other Comprehensive Income 
Total
Shareholders’ 
Equity
 
Operating
Partnership
Noncontrolling
Interest
 
Partially
Owned
Properties 
Noncontrolling
Interest
 
Total
Noncontrolling
Interests
 
Total
Equity
Par
Value
 Additional
Paid in
Capital
 Accumulated
Deficit
 Accumulated Other Comprehensive Income Total
Shareholders’ 
Equity
 Operating
Partnership
Noncontrolling
Interest
 Partially
Owned
Properties 
Noncontrolling
Interest
 Total
Noncontrolling
Interests
 Total
Equity
Balance at December 31, 2017$1,814
 $2,772,823
 $(315,417) $13,952
 $2,473,172
 $73,844
 $618
 $74,462
 $2,547,634
Balance at December 31, 2018$1,824
 $2,791,555
 $(428,307) $14,433
 $2,379,505
 $67,477
 $678
 $68,155
 $2,447,660
Cumulative effect of changes in accounting standards
 (239) 
 
 (239) 
 
 
 (239)
Net proceeds from sale of common shares3
 5,313
 
 
 5,316
 
 
 
 5,316
17
 31,003
 
 
 31,020
 
 
 
 31,020
Restricted share award grants, net2
 872
 59
 
 933
 
 
 
 933
2
 640
 (287) 
 355
 
 
 
 355
Conversion of OP Units
 126
 
 
 126
 (126) 
 (126) 
Purchase of OP Units
 
 
 
 
 (105) 
 (105) (105)
Dividends/distributions declared
 
 (41,910) 
 (41,910) (1,216) 
 (1,216) (43,126)
 
 (42,536) 
 (42,536) (1,158) 
 (1,158) (43,694)
Preferred distributions
 
 (487) 
 (487) 
 
 
 (487)
 
 (284) 
 (284) 
 
 
 (284)
Distributions
 
 
 
 
 
 (43) (43) (43)
 
 
 
 
 
 (47) (47) (47)
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership
 194
 1,276
 
 1,470
 
 
 
 1,470

 (290) 
 
 (290) 
 
 
 (290)
Change in fair value of interest rate swap agreements
 
 
 4,298
 4,298
 
 
 
 4,298

 
 
 (3,476) (3,476) 
 
 
 (3,476)
Net income
 
 10,908
 
 10,908
 313
 44
 357
 11,265

 
 11,057
 
 11,057
 305
 64
 369
 11,426
Adjustment for Noncontrolling Interests ownership in Operating Partnership
 (712) 
 
 (712) 712
 
 712
 

 (149) 
 
 (149) 149
 
 149
 
Balance at March 31, 2018$1,819
 $2,778,616
 $(345,571) $18,250
 $2,453,114
 $73,527
 $619
 $74,146
 $2,527,260
Balance at March 31, 2019$1,843
 $2,822,520
 $(460,357) $10,957
 $2,374,963
 $66,668
 $695
 $67,363
 $2,442,326

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


Physicians Realty Trust
Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
Three Months Ended
March 31,
Three Months Ended
March 31,
2019 20182020 2019
Cash Flows from Operating Activities: 
  
 
  
Net income$11,500
 $11,332
$14,960
 $11,500
Adjustments to reconcile net income to net cash provided by operating activities   
   
Depreciation and amortization36,449
 38,576
36,747
 36,449
Amortization of deferred financing costs607
 618
599
 607
Amortization of lease inducements and above/below-market lease intangibles1,176
 1,190
1,194
 1,176
Straight-line rental revenue/expense(4,762) (6,450)(3,731) (4,762)
Amortization of discount on unsecured senior notes148
 142
155
 148
Amortization of above market assumed debt(16) (16)(16) (16)
Gain on sale of investment properties, net
 (69)
Equity in income of unconsolidated entities(30) (28)
Equity in loss (income) of unconsolidated entities155
 (30)
Distributions from unconsolidated entities29
 26
1,799
 29
Change in fair value of derivative13
 2
(91) 13
Provision for bad debts35
 (141)26
 35
Non-cash share compensation2,653
 2,605
2,996
 2,653
Change in operating assets and liabilities: 
  
 
  
Tenant receivables(2,076) 5,437
(1,660) (2,076)
Other assets647
 (222)(4,644) 647
Accounts payable(373) (8,461)(3,639) (373)
Accrued expenses and other liabilities(19,573) (3,651)(9,992) (19,573)
Net cash provided by operating activities26,427

40,890
34,858

26,427
Cash Flows from Investing Activities: 
  
 
  
Proceeds on sales of investment properties
 2,440
Acquisition of investment properties, net(4,303) (84,202)(11,881) (4,303)
Escrowed cash - acquisition deposits/earnest deposits(150) (2,720)
 (150)
Capital expenditures on investment properties(12,953) (5,608)(4,208) (12,953)
Issuance of real estate loans receivable(20,028) (2,000)
Investment in real estate loans receivable(6,591) (20,028)
Repayment of real estate loans receivable325
 6,717
944
 325
Issuance of note receivable
 (20,385)
Leasing commissions(552) (664)(340) (552)
Lease inducements(5) 

 (5)
Net cash used in investing activities(37,666)
(106,422)(22,076)
(37,666)
Cash Flows from Financing Activities: 
  
 
  
Net proceeds from sale of common shares31,020
 5,316
239,232
 31,020
Proceeds from credit facility borrowings68,000
 166,000
88,000
 68,000
Repayment of credit facility borrowings(47,000) (24,000)(267,000) (47,000)
Principal payments on mortgage debt(8,908) (32,157)(23,990) (8,908)
Debt issuance costs(8) (412)(7) (8)
Dividends paid - shareholders(42,301) (42,251)(44,218) (42,301)
Distributions to noncontrolling interests - Operating Partnership(1,167) (1,232)(1,275) (1,167)
Preferred distributions paid - OP Unit holder(284) (81)(317) (284)
Distributions to noncontrolling interests - partially owned properties(148) (127)(144) (148)
Payments of employee taxes for withheld stock-based compensation shares(1,973) (1,701)(2,713) (1,973)
Purchase of OP Units(105) 
(93) (105)
Net cash (used in) provided by financing activities(2,874)
69,355
Net (decrease) increase in cash and cash equivalents(14,113) 3,823
Net cash used in financing activities(12,525)
(2,874)
Net increase (decrease) in cash and cash equivalents257
 (14,113)
Cash and cash equivalents, beginning of period19,161
 2,727
2,355
 19,161
Cash and cash equivalents, end of period$5,048

$6,550
$2,612

$5,048
Supplemental disclosure of cash flow information - interest paid during the period$25,799
 $19,230
$25,188
 $25,799
Supplemental disclosure of noncash activity - change in fair value of interest rate swap agreements$(3,476) $4,298
$(9,986) $(3,476)
Supplemental disclosure of noncash activity - issuance of OP Units and Series A Preferred Units in connection with acquisitions$
 $22,651
The accompanying notes are an integral part of these consolidated financial statements.

Physicians Realty L.P.
Consolidated Balance Sheets
(In thousands, except unit and per unit data)
March 31,
2019
 December 31, 2018March 31,
2020
 December 31,
2019
(unaudited)  (unaudited)  
ASSETS 
  
 
  
Investment properties:      
Land and improvements$210,542
 $211,253
$228,067
 $225,540
Building and improvements3,627,825
 3,623,962
3,754,098
 3,700,009
Tenant improvements43,213
 36,497
55,524
 53,931
Acquired lease intangibles386,707
 452,384
397,135
 390,450
4,268,287
 4,324,096
4,434,824
 4,369,930
Accumulated depreciation(443,814) (411,052)(578,274) (540,928)
Net real estate property3,824,473
 3,913,044
3,856,550
 3,829,002
Real estate held for sale9,038
 
Right-of-use lease asset, net126,250
 
Right-of-use lease assets, net138,864
 127,933
Real estate loans receivable75,474
 55,659
135,818
 178,240
Investments in unconsolidated entities1,331
 1,330
64,319
 66,137
Net real estate investments4,036,566
 3,970,033
4,195,551
 4,201,312
Cash and cash equivalents5,048
 19,161
2,612
 2,355
Tenant receivables, net10,566
 8,881
9,211
 7,972
Other assets132,825
 144,759
133,434
 134,942
Total assets$4,185,005
 $4,142,834
$4,340,808
 $4,346,581
LIABILITIES AND CAPITAL      
Liabilities:      
Credit facility$478,892
 $457,388
$404,838
 $583,323
Notes payable967,161
 966,961
968,001
 967,789
Mortgage debt99,608
 108,504
59,354
 83,341
Accounts payable3,513
 3,886
2,709
 6,348
Distributions payable44,335
 43,821
49,138
 46,272
Accrued expenses and other liabilities56,088
 76,282
72,945
 81,238
Lease liability60,864
 
Lease liabilities74,121
 63,290
Acquired lease intangibles, net7,336
 13,585
6,402
 6,096
Total liabilities1,717,797
 1,670,427
1,637,508
 1,837,697
      
Redeemable noncontrolling interest - Series A Preferred Units and partially owned properties24,882
 24,747
27,875
 27,900
      
Capital:      
Partners’ capital:      
General partners’ capital, 184,307,910 and 182,416,007 units issued and outstanding as of March 31, 2019 and December 31, 2018, respectively2,364,006
 2,365,072
Limited partners’ capital, 5,178,291 and 5,182,784 units issued and outstanding as of March 31, 2019 and December 31, 2018, respectively66,668
 67,477
General partner’s capital, 202,555,703 and 189,975,396 units issued and outstanding as of March 31, 2020 and December 31, 2019, respectively2,607,954
 2,404,627
Limited partners’ capital, 5,663,554 and 5,666,109 units issued and outstanding as of March 31, 2020 and December 31, 2019, respectively72,771
 71,697
Accumulated other comprehensive income10,957
 14,433
(5,665) 4,321
Total partners’ capital2,441,631
 2,446,982
2,675,060
 2,480,645
Noncontrolling interest - partially owned properties695
 678
365
 339
Total capital2,442,326
 2,447,660
2,675,425
 2,480,984
Total liabilities and capital$4,185,005
 $4,142,834
$4,340,808
 $4,346,581

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


Physicians Realty L.P.
Consolidated Statements of Income
(In thousands, except unit and per unit data) (Unaudited)
Three Months Ended
March 31,
Three Months Ended
March 31,
2019 20182020 2019
Revenues: 
  
 
  
Rental revenues$77,083
 $78,887
$77,870
 $77,083
Expense recoveries26,042
 24,308
24,876
 26,042
Interest income on real estate loans and other2,243
 2,028
4,682
 2,243
Total revenues105,368
 105,223
107,428
 105,368
Expenses:      
Interest expense16,269
 16,494
15,626
 16,269
General and administrative8,972
 8,459
8,977
 8,972
Operating expenses32,208
 30,459
30,963
 32,208
Depreciation and amortization36,449
 38,576
36,747
 36,449
Total expenses93,898
 93,988
92,313
 93,898
Income before equity in income of unconsolidated entities and gain on sale of investment properties, net:11,470
 11,235
Equity in income of unconsolidated entities30
 28
Gain on sale of investment properties, net
 69
Income before equity in (loss) income of unconsolidated entities:15,115
 11,470
Equity in (loss) income of unconsolidated entities(155) 30
Net income11,500
 11,332
14,960
 11,500
Net income attributable to noncontrolling interests - partially owned properties (1)(138) (111)(142) (138)
Net income attributable to controlling interest11,362
 11,221
14,818
 11,362
Preferred distributions(284) (487)(317) (284)
Net income attributable to common unitholders$11,078
 $10,734
$14,501
 $11,078
Net income per common unit:      
Basic$0.06
 $0.06
$0.07
 $0.06
Diluted$0.06
 $0.06
$0.07
 $0.06
Weighted average common units:      
Basic187,850,775
 187,264,064
201,874,852
 187,850,775
Diluted188,497,308
 187,317,243
202,842,340
 188,497,308
      
Distributions declared per common unit$0.23
 $0.23
$0.23
 $0.23
(1)Includes amounts attributable to redeemable noncontrolling interests.

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


Physicians Realty L.P.
Consolidated Statements of Comprehensive Income
(In thousands) (Unaudited)
Three Months Ended
March 31,
Three Months Ended
March 31,
2019 20182020 2019
Net income$11,500
 $11,332
$14,960
 $11,500
Other comprehensive income:   
Other comprehensive loss:   
Change in fair value of interest rate swap agreements, net(3,476) 4,298
(9,986) (3,476)
Total other comprehensive income(3,476) 4,298
Total other comprehensive loss(9,986) (3,476)
Comprehensive income8,024
 15,630
4,974
 8,024
Comprehensive income attributable to noncontrolling interests - partially owned properties(138) (111)(142) (138)
Comprehensive income attributable to common unitholders$7,886
 $15,519
$4,832
 $7,886

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


Physicians Realty L.P.
Consolidated Statements of Changes in Capital
(In thousands) (Unaudited)

General Partner Limited Partner Accumulated Other Comprehensive Income 
Total
Partners’ Capital
 
Partially
Owned
Properties
Noncontrolling
Interest
 Total CapitalGeneral Partner Limited Partners Accumulated Other Comprehensive Income 
Total
Partners’ Capital
 
Partially
Owned
Properties
Noncontrolling
Interest
 Total Capital
Balance at December 31, 2018$2,365,072
 $67,477
 $14,433
 $2,446,982
 $678
 $2,447,660
Balance at December 31, 2019$2,404,627
 $71,697
 $4,321
 $2,480,645
 $339
 $2,480,984
Cumulative effect of changes in accounting standard(239) 
 
 (239) 
 (239)(147) 
 
 (147) 
 (147)
Net Proceeds from sale of Trust common shares and issuance of common units31,020
 
 
 31,020
 
 31,020
Net proceeds from sale of Trust common shares and issuance of common units239,232
 
 
 239,232
 
 239,232
Trust restricted share award grants, net355
 
 
 355
 
 355
(201) 
 
 (201) 
 (201)
Purchase of OP Units
 (105) 
 (105) 
 (105)
 (93) 
 (93) 
 (93)
OP Units - distributions(42,536) (1,158) 
 (43,694) 
 (43,694)(46,636) (1,275) 
 (47,911) 
 (47,911)
Preferred distributions(284) 
 
 (284) 
 (284)(317) 
 
 (317) 
 (317)
Distributions
 
 
 
 (47) (47)
 
 
 
 (41) (41)
Change in market value of Redeemable Limited Partners(290) 
 
 (290) 
 (290)(980) 
 
 (980) 
 (980)
Change in fair value of interest rate swap agreements
 
 (3,476) (3,476) 
 (3,476)
 
 (9,986) (9,986) 
 (9,986)
Net income11,057
 305
 
 11,362
 64
 11,426
14,414
 404
 
 14,818
 67
 14,885
Adjustments for Limited Partners ownership in Operating Partnership(149) 149
 
 
 
 
Balance at March 31, 2019$2,364,006
 $66,668
 $10,957
 $2,441,631
 $695
 $2,442,326
Adjustments for Limited Partners' ownership in Operating Partnership(2,038) 2,038
 
 
 
 
Balance at March 31, 2020$2,607,954
 $72,771
 $(5,665) $2,675,060
 $365
 $2,675,425

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

Physicians Realty L.P.
Consolidated Statements of Changes in Capital
(In thousands) (Unaudited)

General Partner Limited Partner Accumulated Other Comprehensive Income 
Total
Partners’ Capital
 
Partially
Owned
Properties
Noncontrolling
Interest
 Total CapitalGeneral Partner Limited Partners Accumulated Other Comprehensive Income 
Total
Partners’ Capital
 
Partially
Owned
Properties
Noncontrolling
Interest
 Total Capital
Balance at December 31, 2017$2,459,220
 $73,844
 $13,952
 $2,547,016
 $618
 $2,547,634
Net Proceeds from sale of Trust common shares and issuance of common units5,316
 
 
 5,316
 
 5,316
Balance at December 31, 2018$2,365,072
 $67,477
 $14,433
 $2,446,982
 $678
 $2,447,660
Cumulative effect of changes in accounting standard(239) 
 
 (239) 
 (239)
Net proceeds from sale of Trust common shares and issuance of common units31,020
 
 
 31,020
 
 31,020
Trust restricted share award grants, net933
 
 
 933
 
 933
355
 
 
 355
 
 355
Purchase of OP Units
 (105) 
 (105) 
 (105)
Conversion of OP Units126
 (126) 
 
 
 

 
 
 
 
 
OP Units - distributions(41,910) (1,216) 
 (43,126) 
 (43,126)(42,536) (1,158) 
 (43,694) 
 (43,694)
Preferred distributions(487) 
 
 (487) 
 (487)(284) 
 
 (284) 
 (284)
Distributions
 
 
 
 (43) (43)
 
 
 
 (47) (47)
Change in market value of Redeemable Limited Partners194
 
 
 194
 
 194
(290) 
 
 (290) 
 (290)
Buyout of Noncontrolling Interest - partially owned properties1,276
 
 
 1,276
 
 1,276
Change in fair value of interest rate swap agreements
 
 4,298
 4,298
 
 4,298

 
 (3,476) (3,476) 
 (3,476)
Net income10,908
 313
 
 11,221
 44
 11,265
11,057
 305
 
 11,362
 64
 11,426
Adjustments for Limited Partners ownership in Operating Partnership(712) 712
 
 
 
 
Balance at of March 31, 2018$2,434,864
 $73,527
 $18,250
 $2,526,641
 $619
 $2,527,260
Adjustments for Limited Partners' ownership in Operating Partnership(149) 149
 
 
 
 
Balance as of March 31, 2019$2,364,006
 $66,668
 $10,957
 $2,441,631
 $695
 $2,442,326

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


Physicians Realty L.P.
Consolidated Statements of Cash Flows
(In thousands) (Unaudited)
Three Months Ended
March 31,
Three Months Ended
March 31,
2019 20182020 2019
Cash Flows from Operating Activities: 
  
 
  
Net income$11,500
 $11,332
$14,960
 $11,500
Adjustments to reconcile net income to net cash provided by operating activities      
Depreciation and amortization36,449
 38,576
36,747
 36,449
Amortization of deferred financing costs607
 618
599
 607
Amortization of lease inducements and above/below-market lease intangibles1,176
 1,190
1,194
 1,176
Straight-line rental revenue/expense(4,762) (6,450)(3,731) (4,762)
Amortization of discount on unsecured senior notes148
 142
155
 148
Amortization of above market assumed debt(16) (16)(16) (16)
Gain on sale of investment properties, net
 (69)
Equity in income of unconsolidated entities(30) (28)
Equity in loss (income) of unconsolidated entities155
 (30)
Distributions from unconsolidated entities29
 26
1,799
 29
Change in fair value of derivative13
 2
(91) 13
Provision for bad debts35
 (141)26
 35
Non-cash share compensation2,653
 2,605
2,996
 2,653
Change in operating assets and liabilities:      
Tenant receivables(2,076) 5,437
(1,660) (2,076)
Other assets647
 (222)(4,644) 647
Accounts payable(373) (8,461)(3,639) (373)
Accrued expenses and other liabilities(19,573) (3,651)(9,992) (19,573)
Net cash provided by operating activities26,427
 40,890
34,858
 26,427
Cash Flows from Investing Activities: 
  
 
  
Proceeds on sales of investment properties
 2,440
Acquisition of investment properties, net(4,303) (84,202)(11,881) (4,303)
Escrowed cash - acquisition deposits/earnest deposits(150) (2,720)
 (150)
Capital expenditures on investment properties(12,953) (5,608)(4,208) (12,953)
Issuance of real estate loans receivable(20,028) (2,000)
Investment in real estate loans receivable(6,591) (20,028)
Repayment of real estate loans receivable325
 6,717
944
 325
Issuance of note receivable
 (20,385)
Leasing commissions(552) (664)(340) (552)
Lease inducements(5) 

 (5)
Net cash used in investing activities(37,666) (106,422)(22,076) (37,666)
Cash Flows from Financing Activities: 
  
 
  
Net proceeds from sale of Trust common shares and issuance of common units31,020
 5,316
239,232
 31,020
Proceeds from credit facility borrowings68,000
 166,000
88,000
 68,000
Repayment of credit facility borrowings(47,000) (24,000)(267,000) (47,000)
Principal payments on mortgage debt(8,908) (32,157)(23,990) (8,908)
Debt issuance costs(8) (412)(7) (8)
OP Unit distributions - General Partner(42,301) (42,251)(44,218) (42,301)
OP Unit distributions - Limited Partner(1,167) (1,232)
OP Unit distributions - Limited Partners(1,275) (1,167)
Preferred OP Units distributions - Limited Partner(284) (81)(317) (284)
Distributions to noncontrolling interests - partially owned properties(148) (127)(144) (148)
Payments of employee taxes for withheld stock-based compensation shares(1,973) (1,701)(2,713) (1,973)
Purchase of Limited Partner Units(105) 
(93) (105)
Net cash (used in) provided by financing activities(2,874) 69,355
Net (decrease) increase in cash and cash equivalents(14,113) 3,823
Net cash used in financing activities(12,525) (2,874)
Net increase (decrease) in cash and cash equivalents257
 (14,113)
Cash and cash equivalents, beginning of period19,161
 2,727
2,355
 19,161
Cash and cash equivalents, end of period$5,048
 $6,550
$2,612
 $5,048
Supplemental disclosure of cash flow information - interest paid during the period$25,799
 $19,230
$25,188
 $25,799
Supplemental disclosure of noncash activity - change in fair value of interest rate swap agreements$(3,476) $4,298
$(9,986) $(3,476)
Supplemental disclosure of noncash activity - issuance of OP Units and Series A Preferred Units in connection with acquisitions$
 $22,651

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

Physicians Realty Trust and Physicians Realty L.P.
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
 
The Trust was organized in the state of Maryland on April 9, 2013. As of March 31, 2019,2020, 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 Securities and Exchange Commission (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 the Operating Partnership. The Trust and the Operating Partnership are managed and operated as one entity, and the Trust has no significant assets other than its investment in 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. Therefore, the assets and liabilities of the Trust and the Operating Partnership are the same.
 
The Trust is a self-managed REIT formed primarily to acquire, selectively develop, own, and manage healthcare properties that are leased to physicians, hospitals, and healthcare delivery systems.

ATM Program

On August 5, 2016,In November 2019, the Trust and the Operating Partnership entered into separate At Market Issuance Sales Agreements (the “Sales Agreements”) with each of KeyBanc Capital Markets Inc., Credit Agricole Securities (USA) Inc., JMP Securities LLC,BMO Capital Markets Corp., Raymond James & Associates, Inc., and Stifel, Nicolaus & Company, Incorporated, in their capacity as agents and as forward sellers (the “Agents”), pursuant to which the Trust may issue and sell, from time to time, its common shares having an aggregate offering price of up to $300.0$500.0 million, through the Agents (the “ATM Program”). In accordance withThe Sales Agreements contemplate that, in addition to the Sales Agreements,issuance and sale of the Trust’s common shares through the Agents, the Trust may offer and sell its common shares through any of the Agents,also enter into one or more forward sales agreements from time to time by any method deemed to be an “atin the market offering” as defined in Rule 415 under thefuture with each of KeyBanc Capital Markets, Inc., Credit Agricole Securities Act(USA) Inc., BMO Capital Markets Corp., Raymond James & Associates, Inc., and Stifel, Nicolaus & Company, Incorporated, or one 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. With the Trust’s express written consent, sales may also be made in negotiated transactions or any other method permitted by law.their respective affiliates.

During the quarterly period ended March 31, 2019,2020, the Trust sold 1,681,92812,352,700 common shares pursuant to the ATM Program, at a weighted average price of $18.61$19.57 per share, resulting in total net proceeds of approximately $31.0$239.3 million. As of March 31, 2019,2020, the Trust has $132.4$227.8 million 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 March 31, 20192020 and 20182019 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 and the Operating Partnership’s combined Annual Report on Form 10-K for the year ended December 31, 2018,2019, filed with the Commission on February 28, 2019.

Principles27, 2020. Certain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on the Company's consolidated financial position or results of Consolidation
GAAP requires us to identify entitiesoperations. Except for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of variable interest entities (“VIEs”). ASC 810 broadly defines a VIE as an entity in which either (i) the equity investorschanges made as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. We identify the primary beneficiary of a VIE as the enterprise that has bothresult of the following characteristics: (i)recently adopted accounting pronouncements discussed in this Note, the powerCompany has consistently applied its accounting policies to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb lossesall periods presented in these consolidated financial statements.

or receive benefits of the VIE that could potentially be significant to the entity. We consolidate our investment in a VIE when we determine that we are the VIE’s primary beneficiary. We may change our original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. We perform this analysis on an ongoing basis.
For property holding entities not determined to be VIEs, we consolidate such entities in which the Operating Partnership owns 100% of the equity or has a controlling financial interest evidenced by ownership of a majority voting interest. All intercompany balances and transactions are eliminated in consolidation. For entities in which the Operating Partnership owns less than 100% of the equity interest, the Operating Partnership consolidates the property if it has the direct or indirect ability to control the entities’ activities based upon the terms of the respective entities’ ownership agreements. For these entities, the Operating Partnership records a noncontrolling interest representing equity held by noncontrolling interests.

Noncontrolling Interests
 
The Company presents the portion of any equity it does not own in entities that it controls (and thus consolidates) as noncontrolling interests and classifies such interests as a component of consolidated equity, separate from the Company’s total shareholders’ equity, on the consolidated balance sheets.

Operating Partnership: Net income or loss is allocated to noncontrolling interests (limited partners) based on their respective ownership percentage of the Operating Partnership. The ownership percentage is calculated by dividing the number of OP Units held by the noncontrolling interests by the total OP Units held by the noncontrolling interests and the Trust. Issuance of additional common shares and OP Units changes the ownership interests of both the noncontrolling interests and the Trust. Such transactions and the related proceeds are treated as capital transactions.

Noncontrolling interests in the Company include OP Units held by other investors. As of March 31, 2019,2020, the Trust held a 97.3% 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.

Holders of OP Units may not transfer their units without the Trust’s prior written consent, as general partner of the Operating Partnership. Beginning on the first anniversary of the issuance of OP Units to the respective holders, OP Unit holders may tender their units for redemption by the Operating Partnership in exchange for cash equal to the market price of the Trust’s common shares at the time of redemption or for unregistered common shares on a one-for-one basis. Such selection to pay cash or issue common shares to satisfy an OP Unit holder’s redemption request is solely within the control of the Trust. Accordingly, the Trust presents the OP Units of the Operating Partnership held by investors other than the Trust as noncontrolling interests within equity in the consolidated balance sheets.
Partially Owned Properties: The Trust and Operating Partnership reflect noncontrolling interests in partially owned properties on the balance sheet for the portion of consolidated properties that are not wholly owned by the Company. The earnings or losses from those properties attributable to the noncontrolling interests are reflected as noncontrolling interests in partially owned properties in the consolidated statements of income.

Redeemable Noncontrolling Interests - Series A Preferred Units and Partially Owned Properties

On February 5, 2015,In connection with the Company entered into a Second Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”) which provides for the designation and issuance of the Series A Participating Redeemable Preferred Units of the Operating Partnership (“Series A Preferred Units”).Hazelwood Medical Commons Transaction that occurred on January 9, 2018, there were 116,110 Series A Preferred Units have priority over all other partnership interests of the Operating Partnershipoutstanding, with respect to distributions and liquidation. Holders of Series A Preferred Units are entitled to a 5% cumulative return and upon redemption, the receipt of one common share and $200. The holders of the Series A Preferred Units have agreed not to cause the Operating Partnership to redeem their Series A Preferred Units prior to one year from the issuance date. In addition, Series A Preferred Units are redeemable at the option of the holders which redemption obligation may be satisfied, at the Trust’s option, in cash or registered common shares. Instruments that require settlement in registered common shares may not be classified in permanent equity as it is not always completely within an issuer’s control to deliver registered common shares. Due to the redemption rights associated with the Series A Preferred Units, the Company classifies the Series A Preferred Units in the mezzanine section of its consolidated balance sheets.

The Series A Preferred Units were evaluated for embedded features that should be bifurcated and separately accounted for as a freestanding derivative. The Company determined that the Series A Preferred Units contained features that require

bifurcation. The Company records the carrying amount of the redeemable noncontrolling interests, less thederivative value of the embedded derivative, at the greater of the carrying value or redemption value in the consolidated balance sheets.

On January 9, 2018, the acquisition of the HealthEast Clinic & Specialty Center (“Hazelwood Medical Commons”) was partially funded with the issuance of 104,172 Series A Preferred Units, with a value of $22.7 million. Due to the redemption rights associated with the Series A Preferred Units, the Trust classifies the Series A Preferred Units in the mezzanine section of its consolidated balance sheets. As$5.3 million as of March 31, 2019, the value of the embedded derivative is $3.8 million and is classified in accrued expenses and other liabilities on the consolidated balance sheets.

As of March 31, 2019, there were 104,172 Series A Preferred Units outstanding.2020.

In connection with the Company’s acquisitions of the medical office building, ambulatory surgery center, and hospital on December 29, 2015 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.

Dividends and Distributions
 
On March 22, 2019,19, 2020, the Trust announced that its Board of Trustees authorized and the Trust declared a cash dividend of $0.23 per common share for the quarterly period ended March 31, 2019.2020. The distributiondividend was paid on April 18, 201916, 2020 to common shareholders and OP Unit holders of record as of the close of business on April 3, 2019.

All distributions paid by the Operating Partnership are declared and paid at the same time as dividends are distributed by the Trust to common shareholders. It has been the Operating Partnership’s policy to declare quarterly distributions so as to allow the Trust to comply with applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”), governing REITs. The declaration and payment of quarterly distributions remains subject to the review and approval of the Trust’s Board of Trustees.

Our shareholders are entitled to reinvest all or a portion of any cash distribution on their shares of our common stock by participating in our Dividend Reinvestment and Share Purchase Plan (“DRIP”), subject to the terms of the plan.2, 2020.
 
Tax Status of Dividends and Distributions

OurThe 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).

Purchases of Investment Properties

With the adoption of ASU 2017-01 in January 2018, our acquisitions of investment properties and the majority of our future investments will be accounted for as asset acquisitions, resulting in the purchase price inclusive of acquisition costs, for tangible and intangible assets and liabilities to be based on their relative fair values. Tangible assets primarily consist of land and buildings and improvements. Additionally, the purchase price includes acquisition related expenses, above- or below-market leases, in place leases, and above- or below-market debt assumed. Any future contingent consideration will be recorded when the contingency is resolved. The determination of the fair value requires us to make certain estimates and assumptions.

The determination of fair value involves the use of significant judgment and estimation. The Company makes estimates of the fair value of the tangible and intangible acquired assets and assumed liabilities using information obtained from multiple sources as a result of pre-acquisition due diligence and generally includes the assistance of a third party

appraiser. The Company estimates the fair value of an acquired asset on an “as-if-vacant” basis and its value is depreciated in equal amounts over the course of its estimated remaining useful life. The Company determines the allocated value of other fixed assets, such as site improvements, based upon the replacement cost and depreciates such value over the assets’ estimated remaining useful lives as determined at the applicable acquisition date. The fair value of land is determined either by considering the sales prices of similar properties in recent transactions or based on an internal analysis of recently acquired and existing comparable properties within the Company’s portfolio.
The value of above- or below-market leases is estimated based on the present value (using a discount rate which reflected the risks associated with the leases acquired) of the difference between contractual amounts to be received pursuant to the leases and management’s estimate of market lease rates measured over a period equal to the estimated remaining term of the lease. The capitalized above-market or below-market lease intangibles are amortized as a reduction or addition to rental income over the estimated remaining term of the respective leases plus the term of any renewal options that the lessee would be economically compelled to exercise.

In determining the value of in-place leases, management considers current market conditions and costs to execute similar leases in arriving at an estimate of the carrying costs during the expected lease-up period from vacant to existing occupancy. In estimating carrying costs, management includes real estate taxes, insurance, other operating expenses, estimates of lost rental revenue during the expected lease-up periods, and costs to execute similar leases, including leasing commissions, tenant improvements, legal, and other related costs based on current market demand. The values assigned to in-place leases are amortized to amortization expense over the estimated remaining term of the lease. If a lease terminates prior to its scheduled expiration, all unamortized costs related to that lease are written off, net of any required lease termination payments.
The Company calculates the fair value of any long-term debt assumed by discounting the remaining contractual cash flows on each instrument at the current market rate for those borrowings, which the Company approximates based on the rate it would expect to incur on a replacement instrument on the date of acquisition, and recognizes any fair value adjustments related to long-term debt as effective yield adjustments over the remaining term of the instrument.
Based on these estimates, the Company recognizes the acquired assets and assumed liabilities at their estimated fair values, which are generally determined using Level 3 inputs, such as market rental rates, capitalization rates, discount rates, or other available market data.

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. If indicators of impairment are present, the Company evaluates the carrying value of the related real estate properties in relation to the undiscounted expected future cash flows of the underlying operations. In performing this evaluation, management considers market conditions and current intentions with respect to holding or disposing of the real estate property. The Company adjusts the net book value of real estate properties to fair value if the sum of the expected future undiscounted cash flows, including sales proceeds, is less than book value. The Company recognizes an impairment loss at the time it makes any such determination. If the Company determines that an asset is impaired, the impairment to be recognized is measured as the amount by which the recorded amount of the asset exceeds its fair value. Fair value is typically determined using a discounted future cash flow analysis or other acceptable valuation techniques which are based, in turn, upon Level 3 inputs, such as revenue and expense growth rates, capitalization rates, discount rates, or other available market data. With the adoption of ASU 2016-02, Leases, on January 1, 2019, the Company periodically evaluates the right-of-use asset for impairment as detailed above.
The Company did not0t record any impairment charges in the three month periods ended March 31, 20192020 or 2018.

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, has been met. The Company classifies a real estate property, or portfolio, as held for sale when: (i) management has approved the disposal, (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 disposal plan will significantly change or be withdrawn. Following the classification of a property as “held for sale,” no further depreciation or amortization is recorded on the assets and the assets are

written down to the lower of carrying value or fair market value, less cost to sell.As of March 31, 2019, the Company classified two properties as held for sale.2019.

Investments in Unconsolidated Entities

TheOn October 31, 2019 the Company reports investmentscontributed $8.9 million to acquire a 49% equity interest in unconsolidated entities over whose operatingMedCore Realty Eden Hill, LLC. This joint venture owns 1 medical office facility in Dover, Delaware.

On November 22, 2019 the Company contributed 2 properties valued at $39.0 million and financial policies it haspaid additional consideration of $17.0 million for a 12.3% equity interest in the ability to exercise significant influence under the equity method of accounting. Under this method of accounting, the Company’s share of the investee’s earnings or losses is includedPMAK MOB JV REOC, LLC (“PMAK Joint Venture”). This joint venture owns 59 medical office facilities located in its consolidated statements of income. The initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the equity interest.18 states.
 
Real Estate Loans Receivable
 
Real estate loans receivable consists of ten12 mezzanine loans, two2 construction loans, and 2 term loans and one construction loan as of March 31, 2019.2020. Generally, each mezzanine loan is collateralized by an ownership interest in the respective borrower, each term loan is secured by a mortgage of a related medical office building, and the construction loan isloans are secured by a mortgagemortgages on the land and the improvements as constructed. Interest incomeIn accordance with the adoption of ASU 2016-13 on the loans are recognized as earned based on the terms of the loans subject to evaluation of collectability risks and is included in the Company’s consolidated statements of income. On a quarterly basis,January 1, 2020, the Company evaluatesadjusted the collectabilityopening balance of its loan portfolio, including related interest income receivable, and establishes aretained earnings by $0.1 million. The reserve for loan losses if necessary. No such losses have been recognized duringfor the three months ended March 31, 2019 or 2018.2020 was not significant.


Rental Revenue

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 $68.9$77.9 million and $64.2$74.0 million as of March 31, 20192020 and December 31, 2018,2019, respectively. If the Company determines that collectability of straight-line rents is not probable, rental revenueincome recognition is limited to the lesser of cash collected, or lease payments collected from the lessee, including anyincome reflected on a straight-line basis, plus variable lease payments.rent when it becomes accruable.

In accordance with ASU 2016-02, Leases, TopicASC 842, (“ASC 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. On January 1, 2019 the Company adopted ASC 842 and applied the prospective approach consolidating bad debt expense with rental revenues. Bad debt expense recognized againstas an adjustment to rental revenuerevenues was insignificant$0.1 million and $0.4 million for the three months ended March 31, 2019. Net bad debt recoveries of $0.1 million was recorded in the three months ended March 31, 20182020 and was reported in operating expenses.2019, respectively.

Rental revenue is adjusted by amortization of lease inducements and above- or below-market rents on certain leases. Lease inducements and above- or below-market rents are amortized on a straight-line basis over the remaining life of the lease.

Expense Recoveries
Expense recoveries 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 the Company is generally the primary obligor with respect to real estate taxes and purchasing goods and services from third-party suppliers, has discretion in selecting the supplier, and bears the credit risk of tenant reimbursement.
The Company has certain tenants with absolute net leases. Under these lease agreements, the tenant is responsible for operating and building expenses. For absolute net leases, we do not recognize operating expense or expense recoveries.


Derivative Instruments

When the Company has derivative instruments embedded in other contracts, it records them either as an asset or a liability measured at their fair value unless they qualify for a normal purchase or normal sale exception. When specific hedge accounting criteria are not met or if the Company does not elect to apply for hedge accounting, changes in the Company’s derivative instruments’ fair value are recognized currently in earnings. As a result of our adoption of ASU 2017-12 as of January 1, 2019, if hedge accounting is applied to a derivative instrument, the entire change in the fair value of our derivatives designated and qualify as cash flow hedges are recorded in accumulated other comprehensive income (“AOCI’) 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 March 31, 2019, the Company had five outstanding interest rate swap contracts that are designated as cash flow hedges of interest rate risk. For presentational purposes, they are shown as one derivative due to the identical nature of their economic terms. Further detail is provided in Note 7 (Derivatives).

Income Taxes

The Trust elected to be taxed as a REIT for federal tax purposes commencing with the filing of its tax return for the short taxable year ending December 31, 2013. The Trust had no taxable income prior to electing REIT status. To qualify as a REIT, the Trust must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income to its shareholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Trust generally will not be subject to federal income tax to the extent it distributes qualifying dividends to its shareholders. If the Trust fails to qualify as a REIT in any taxable year, it will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants the Trust relief under certain statutory provisions. Such an event could materially adversely affect the Trust’s net income and net cash available for distribution to shareholders. However, the Trust intends to continue to operate in such a manner as to continue qualifying for treatment as a REIT. Although the Trust continues to qualify for taxation as a REIT, in various instances, the Trust is subject to state and local taxes on its income and property, and federal income and excise taxes on its undistributed income.
As discussed in Note 1 (Organization and Business), the Trust conducts substantially all of its operations through the Operating Partnership. As a partnership, the Operating Partnership generally is not liable for federal income taxes. The income and loss from the operations of the Operating Partnership is included in the tax returns of its partners, including the Trust, who are responsible for reporting their allocable share of the partnership income and loss. Accordingly, no provision for income taxes has been made on the accompanying consolidated financial statements.

Tenant Receivables, Net

Tenant receivables primarily represent amounts accrued and unpaid from tenants in accordance with the terms of the respective leases, subject to our revenue recognition policy. We review receivables monthly and write-off the remaining balance when, in the opinion of management, collection of substantially all remaining payments is not probable. We establish reserves for tenants whose rent payments are under dispute. When we determine substantially all remaining lease payments are not probable of collection, we recognize a reduction of our rental revenues and expense recoveries for all outstanding balances, including accrued straight-line rent receivables. Any subsequent receipts are recognized as rental revenues and expense recoveries in the period received. The adoption of ASC 842 resulted in an adjustment to our opening accumulated deficit balance, associated with tenant receivables where collection of substantially all operating lease payments is not probable as of January 1, 2019.

Management Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the amounts of revenue and expenses reported in the period. Significant estimates are made for the fair value assessments with respect to purchase price allocations, impairment assessments, and the valuation of financial instruments. Actual results could differ from these estimates.

Contingent Liabilities
Certain of our acquisitions provide for additional consideration to the seller in the form of an earn-out associated with lease-up contingencies. The Company recognizes the contingent liabilities only if certain parameters or other substantive contingencies are met, at which time the consideration becomes payable. Resolved contingent liabilities increase our acquired assets and reduce our liabilities.

Segment Reporting
Under the provision of Codification Topic 280, Segment Reporting, the Company has determined that it has one reportable segment with activities related to leasing and managing healthcare properties.

New Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which creates a new Topic, Accounting Standards Codification Topic 606. The standard is principle-based and provides a five-step model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. We adopted ASU 2014-09 as of January 1, 2018 under the modified retrospective approach. Based on our assessment, we have identified all of our revenue streams and concluded rental income from leasing arrangements represents a substantial portion of our revenue. Income from leasing arrangements is specifically excluded from Topic 606 and was evaluated with the adoption of ASU 2016-02, Leases. Therefore, the impact of adopting ASU 2014-09 was minimal on our current recognition and presentation of non-lease revenue.

In February 2016, the FASB issued ASU 2016-02, Leases. The update amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The standard provides the option of a modified retrospective transition approach or a cumulative effect for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. In July 2018, the FASB issued ASU 2018-11, Leases, Targeted Improvements. ASU 2018-11 provides entities with a transition method option to not restate comparative periods presented, but to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In addition, ASU 2018-11 provides entities with a practical expedient allowing lessors to not separate non-lease components from the associated lease components when certain criteria are met. ASU 2016-02 and ASU 2018-11 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

On January 1, 2019 the Company, both as a lessor and a lessee, adopted ASU 2016-02 and ASU 2018-11 using the cumulative-effect transition method. The cumulative effect adjustment to the opening balance of retained earnings was zero. Upon adoption of the new leasing standard, the Company recognized right-of-use assets and corresponding lease liability of $126.7 million and $61.0 million, respectively, on its consolidated balance sheets as of January 1, 2019. The right-of-use asset is based upon the recognized lease liabilities, adjusted for previously recognized prepaid lease payments and intangible assets and liabilities. The lease liability is measured at the present value of remaining lease payments of its operating leases for which it is the lessee, including ground, office, and equipment leases, discounted at a rate based on the Company’s incremental borrowing rate.

The Company elected to apply the package of practical expedients applicable to the Company for transition of leases in effect at adoption. This allowed the entity to forgo reassessing (1) whether a contract contains a lease, (2) classification of leases, and (3) whether capitalized costs associated with a lease meet the definition of “initial direct costs” in ASC 842. As a lessee, this allowed the Company to continue to account for its existing ground and office space leases as operating leases, however, after January 1, 2019, any new or renewed ground leases may be classified as financing leases. Additionally, the Company adopted the comparative period practical expedient which allowed the reporting for comparative periods prior to adoption to continue to be presented in the financial statements in accordance with previous lease accounting guidance.

As a lessee, the Company adopted the short-term leases practical expedient which allowed the Company not to capitalize short-term leases within its lease liability and right-of-use asset. Additionally, the Company elected the practical expedient allowing lessors to not separate nonlease components from the associated lease components when certain criteria are met. The Company elected this lessor practical expedient on various underlying assets including, among other things, land and building, and recognizes, measures, presents, and discloses revenue from its lease arrangements based upon the predominate component, which is determined to be the lease component, under the new ASU 842 guidance. As a lessor, the Company will continue to show its expense recoveries separate from its rental revenues for transparency purposes. The Company has not elected the hindsight practical expedient, which would allow the use of hindsight in determining the lease term and impairment of the right-of-use asset as of the implementation date. The adoption of the ASC 842 guidance did not have a material effect on the Company’s results of operations.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which changes the impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses, rather than incur losses as required currently by the other-than-temporary impairment model. ASU 2016-13 will apply to most financial assets measured at amortized cost and certain other instruments, including trade and othercertain receivables, loans, held-to-maturity debt securities, net investments in leases, and off-balance-sheet credit exposures (e.g., loan commitments). ASU 2016-13 requires that financial statement assets measured at an amortized cost be presented at the net amount expected to be collected through an allowance for credit losses that is deducted from the amortized cost basis. ASU 2018-19 also clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of these receivables should be accounted for in accordance with ASC 842. ASU 2016-13 is effective for reporting periods beginning after December 15, 2019, with early adoption permitted, and will be applied as a cumulative adjustment to retained earnings as of the effective date. We are currently assessing the potential effect the adoption ofJanuary 1, 2020. The Company has adopted ASU 2016-13 will have on our consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities, which expands and refines hedge accounting for both nonfinancial and financial risk components and aligns the recognition and presentationas of the effects of the hedging instrument and the hedged item in the financial statements. It also includes certain targeted improvements to simplify the application of current guidance related to hedge accounting. The Company adopted ASU 2017-12 on January 1, 2019 using the modified retrospective approach. The cumulative effect of the ineffectiveness for the year ended December 31, 2018 was immaterial, therefore no adjustment was made to beginning retained earnings. Additionally, as a result of the adoption, we no longer separately disclose the amount of the ineffective portion of the change in fair value of our derivative financial instruments. The entire change in the fair value of the of our derivatives designated and qualify as cash flow hedges are recorded in AOCI on the consolidated balance sheets and are subsequently reclassified into earnings in the period in which the hedged forecasted transaction affects earnings.

In June 2018, the FASB issued ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments for nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The amendments simplify several aspects of the accounting for nonemployee transactions by stipulating that the existing accounting guidance for share-based payments to employees, accounted for under ASC Topic 718, Compensation - Stock Compensation, will also apply to nonemployee share-based transactions, accounted for under ASC Topic 505, Equity. The Company adopted ASU 2018-07 on the effective date, January 1, 2019,2020, with no material impact on our consolidated financial statements.a cumulative effect adjustment to the opening balance of retained earnings of $0.1 million.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement; Changes to the Disclosure Requirements for Fair Value Measurements, which modifies the disclosure requirements on fair value measurements in Topic 820 as follows: (a) disclosure removals: (i) the amount of and reasons for transfers between Level 1 and Level 2; (ii) the policy for timing of transfers between levels; and (iii) the valuation process for Level 3 fair value measurements; (b) disclosure modifications: (i) no requirement to disclose the timing of liquidation unless the investee has communicated the timing to the reporting entity or announced the timing publicly; and (ii) for Level 3 fair value measurements, a narrative description of measurement uncertainty at the reporting date, not the sensitivity to future changes; and (c) disclosure additions: (i) for recurring Level 3 measurements, disclose the changes in unrealized gains and losses for the period included in OCI and the statement of comprehensive income; and (ii) for Level 3 fair value measurements in the table of significant input, disclose the range and weighted average of the significant unobservable inputs and the way it is calculated. The Company will adopthas adopted ASU 2018-13 as of the effective date, January 1, 2020, and will consider all level inputs but it does not anticipate awith no material impact to its consolidated financial statements.

Note 3. Investment and Disposition Activity

During the three months ended March 31, 2019,2020, the Company completed a $15.5 million construction loan, funding $5.0 million asthe acquisitions of March 31, 2019, and completed and funded a term loan2 operating healthcare properties located in 2 states, for $15.0an aggregate investment of approximately $12.2 million. The Company also purchasedacquired one land parcel through conversion and satisfaction of a newly-constructed addition to an existing building owned bypreviously outstanding term loan. Additionally, the Company in Tennessee for $4.3funded $6.6 million of previously committed construction loans resulting in total investment activity of $24.3 million.approximately $19.0 million for the three months ended March 31, 2020.


Investment activity for the three months ended March 31, 2020 is summarized below:
Investment  Location 
Acquisition
Date
 
Investment Amount
(in thousands)
El Paso, Texas Land(1) (2) El Paso, TX January 17, 2020 $215
Westerville MOB(1) Westerville, OH February 28, 2020 10,683
TOPA Fort Worth(1) (3) Fort Worth, TX March 16, 2020 1,500
Loan Investments  Various Various 6,591
       $18,989
(1)The Company incurred an additional $0.4 million of capitalized costs on our investment activity for the three months ended March 31, 2020.
(2)This investment was funded through the conversion and satisfaction of a previously outstanding term loan of $1.3 million and additional cash consideration of $0.2 million.
(3)This investment was funded through the conversion and satisfaction of a previously outstanding term loan of $47.0 million and additional cash consideration of $1.5 million.

The following table summarizes the acquisition date fair values of the assets acquired and the liabilities assumed, which the Company determined using Level 2 and Level 3 inputs (in thousands):
Land$2,527
Building and improvements$7,587
51,512
In-place lease intangibles434
6,586
Mortgage escrow(3,718)
Above market in-place lease intangibles118
Below market in-place lease intangibles(669)
Right-of-use asset444
Prepaid expenses(771)
Receivables316
Net assets acquired$4,303
$60,063
Acquisition credits (1)
1,027
Aggregate purchase price$61,090


Assets Held for Sale

As of March 31, 2019, the Company classified two properties representing 52,943 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 March 31, 2019:
Land and improvements$711
Building and improvements9,978
In-place lease intangibles148
Other assets211
Real estate held for sale before accumulated depreciation11,048
Accumulated depreciation(2,010)
Real estate held for sale$9,038

(1)Acquisition credits consisted primarily of tenant improvements and capital expenditures received as credits at the time of acquisition.

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 March 31, 20192020 and December 31, 20182019 (in thousands):
March 31, 2019 December 31, 2018March 31, 2020 December 31, 2019
Cost 
Accumulated
Amortization
 Net Cost 
Accumulated
Amortization
 NetCost 
Accumulated
Amortization
 Net Cost 
Accumulated
Amortization
 Net
Assets 
  
  
  
  
  
 
  
  
  
  
  
In-place leases$340,478
 $(120,364) $220,114
 $340,428
 $(111,500) $228,928
$353,004
 $(149,482) $203,522
 $346,438
 $(140,937) $205,501
Above-market leases45,517
 (14,684) 30,833
 45,568
 (13,621) 31,947
43,419
 (17,852) 25,567
 43,300
 (16,856) 26,444
Leasehold interest712
 (257) 455
 712
 (242) 470
712
 (316) 396
 712
 (302) 410
Below-market ground leases (1)
 
 
 65,676
 (2,194) 63,482
Right-of-use lease asset126,727
 (477) 126,250
 
 
 
Right-of-use lease assets141,428
 (2,564) 138,864
 129,976
 (2,043) 127,933
Total$513,434

$(135,782)
$377,652

$452,384

$(127,557)
$324,827
$538,563

$(170,214)
$368,349

$520,426

$(160,138)
$360,288
Liabilities 
  
  
  
  
  
 
  
  
  
  
  
Below-market leases$14,501
 $(7,165) $7,336
 $14,654
 $(6,768) $7,886
$14,685
 $(8,283) $6,402
 $14,054
 $(7,958) $6,096
Above-market ground leases (1)
 
 
 5,965
 (266) 5,699
Lease liability61,043
 (179) 60,864
 
 
 
Lease liabilities74,687
 (566) 74,121
 63,665
 (375) 63,290
Total$75,544

$(7,344)
$68,200

$20,619

$(7,034)
$13,585
$89,372

$(8,849)
$80,523

$77,719

$(8,333)
$69,386



The following is a summary of acquired lease intangible amortization for the three month periods ended March 31, 2020 and 2019, (in thousands):
 Three Months Ended
March 31,
 2020 2019
Amortization expense related to in-place leases$8,564
 $9,247
Decrease of rental income related to above-market leases996
 1,115
Decrease of rental income related to leasehold interest15
 15
Increase of rental income related to below-market leases363
 550
Decrease of operating expense related to above-market ground leases (1)35
 35
Increase in operating expense related to below-market ground leases (1)307
 304

(1)
Above- and below-market ground leases are included in the right-of-use asset as of January 1, 2019 due to the implementation of ASU 2016-02, Leases. Further detail is provided in Note 2 (Summary of Significant Accounting Policies).


 The following is a summary of acquired lease intangible amortization for the three month periods ended March 31, 2019 and 2018, (in thousands):
 Three Months Ended
March 31,
 2019 2018
Amortization expense related to in-place leases$9,247
 $11,002
Decrease of rental income related to above-market leases1,115
 1,480
Decrease of rental income related to leasehold interest15
 15
Increase of rental income related to below-market leases550
 843
Decrease of operating expense related to above-market ground leases (1)35
 35
Increase in operating expense related to below-market ground leases (1)304
 244

(1)
Above- and below-market ground leases are included in the right-of-use asset as of January 1, 2019 due to the implementation of ASU 2016-02, Leases. Further detail is provided in Note 2 (Summary of Significant Accounting Policies).

For the three months ended March 31, 2019, the Company wrote off in-place lease and below-market ground lease intangible assets of approximately $0.4 million with accumulated amortization of $0.3 million, for a net loss of approximately $0.1 million.

Future aggregate net amortization of the acquired lease intangibles excluding two assets classified as held for sale, as of March 31, 2019,2020, is as follows (in thousands):
Net Decrease in 
Revenue
 
Net Increase in 
Expenses
Net Decrease in 
Revenue
 
Net Increase in 
Expenses
2019$(1,990) $26,699
2020(2,718) 33,486
$1,899
 $26,698
2021(2,648) 31,233
2,473
 33,239
2022(2,203) 27,451
2,021
 29,367
2023(1,899) 24,743
1,729
 26,472
20241,675
 23,226
Thereafter(12,494) 141,888
9,764
 129,263
Total$(23,952)
$285,500
$19,561

$268,265


As of March 31, 2019,2020, the weighted average amortization period for asset lease intangibles and liability lease intangibles is 2526 and 4041 years, respectively. The increase in weighted average amortization periods since December 31, 2018 is due to the implementation of ASU 2016-02, Leases. Further detail is provided in Note 2 (Summary of Significant Accounting Policies).


Note 5. Other Assets
 
Other assets consisted of the following excluding assets classified as held for sale, as of March 31, 20192020 and December 31, 20182019 (in thousands):
March 31,
2019
 December 31,
2018
March 31,
2020
 December 31,
2019
Straight line rent receivable, net$68,929
 $64,245
$77,874
 $73,992
Note receivable20,628
 20,628
22,705
 22,694
Lease inducements, net12,922
 13,233
11,140
 11,415
Interest rate swap11,620
 15,121
Prepaid expenses7,210
 16,017
8,293
 8,000
Leasing commissions, net6,593
 6,221
8,035
 7,986
Escrows1,524
 5,534
1,976
 1,886
Interest rate swap
 4,933
Other3,399
 3,760
3,411
 4,036
Total$132,825

$144,759
$133,434

$134,942

 

Note 6. Debt
 
The following is a summary of debt as of March 31, 20192020 and December 31, 20182019 (in thousands):
March 31,
2019
 December 31,
2018
March 31,
2020
 December 31,
2019
Fixed interest mortgage notes (1)$92,975
 $101,832
$53,027
 $76,897
Variable interest mortgage note (2)6,779
 6,830
6,462
 6,581
Total mortgage debt99,754

108,662
59,489

83,478
$850 million unsecured revolving credit facility bearing variable interest of LIBOR plus 1.10%, due September 2022236,000
 215,000
160,000
 339,000
$400 million senior unsecured notes bearing fixed interest of 4.30%, due March 2027400,000
 400,000
400,000
 400,000
$350 million senior unsecured notes bearing fixed interest of 3.95%, due January 2028350,000
 350,000
350,000
 350,000
$250 million unsecured term borrowing bearing fixed interest of 2.32%, due June 2023 (3)250,000
 250,000
250,000
 250,000
$150 million senior unsecured notes bearing fixed interest of 4.03% to 4.74%, due January 2023 to 2031150,000
 150,000
150,000
 150,000
$75 million senior unsecured notes bearing fixed interest of 4.09% to 4.24%, due August 2025 to 202775,000
 75,000
75,000
 75,000
Total principal1,560,754

1,548,662
1,444,489

1,647,478
Unamortized deferred financing costs(9,336) (9,920)(7,086) (7,677)
Unamortized discounts(5,939) (6,086)(5,329) (5,483)
Unamortized fair value adjustments182
 197
119
 135
Total debt$1,545,661

$1,532,853
$1,432,193

$1,634,453

(1)FixedAs of March 31, 2020, fixed interest mortgage notes bearingbear interest from 4.63% to 5.50%, due in 2021, 2022, and 2024, with a weighted average interest rate of 4.78%. As of December 31, 2019, fixed interest mortgage notes bear interest from 3.00% to 5.50%, due in 2020, 2021, 2022, and 2024, with a weighted average interest rate of 4.37% and 4.26% as of March 31, 2019 and December 31, 2018, respectively.4.43%. The notes are collateralized by five4 properties with a net book value of $173.0 million and $174.2$112.1 million as of March 31, 20192020 and 5 properties with a net book value of $170.2 million as of December 31, 2018, respectively.2019.
(2)Variable interest mortgage note bears variable interest of LIBOR plus 2.75%, for an interest rate of 5.24%3.67% and 5.21%4.50% as of March 31, 20192020 and December 31, 2018,2019, respectively. The note is due in 2028 and is collateralized by one1 property with a net book value of $8.6 million as of March 31, 20192020 and December 31, 2018.2019.
(3)The Trust’s borrowings under the term loan feature of the Credit Agreement bear interest at a rate which is determined by the Trust’s credit rating, currently equal to LIBOR + 1.25%. The Trust has entered into a pay-fixed receive-variable interest rate swap, fixing the LIBOR component of this rate at 1.07%.

On August 7, 2018, the Operating Partnership, as borrower, and the Trust, as guarantor, executed a Second Amended and Restated Credit Agreement (the “Credit Agreement”) which extended the maturity date of the revolving credit facility under the Credit Agreement to September 18, 2022 and reduced the interest rate margin applicable to borrowings. The Credit

Agreement includes unsecured revolving credit facility of $850 million and contains a term loan feature of $250 million, bringing total borrowing capacity to $1.1 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 $1.6 billion. The revolving credit facility under the Credit Agreement also includes a one-year extension option.

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 March 31, 2019,2020, the Trust had an investment grade rating of Baa3 from Moody’s and BBB- from S&P. As such, borrowings under the revolving credit facility of the Credit Agreement accrue interest on the outstanding principal at a rate of LIBOR + 1.10%. The Credit Agreement includes a facility fee equal to 0.25% per annum, which is also determined by the Trust’s investment grade rating.

On July 7, 2016, the Operating Partnership borrowed $250.0 million under the 7-year term loan feature of the Credit Agreement. Pursuant to the credit agreement,Credit Agreement, borrowings under the term loan feature of the Credit Agreement bear interest on the outstanding principal amount at a rate which is determined by the Trust’s credit rating, currently equal to LIBOR + 1.25%. The Trust simultaneously entered into a pay-fixed receive-variable rate swap for the full borrowing amount, fixing the LIBOR component of the borrowing rate to 1.07%, for a current all-in fixed rate of 2.32%. Both the borrowing and pay-fixed receive-variable swap have a maturity date of June 10, 2023.


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 
Margin for Revolving Loans: Adjusted LIBOR Rate Loans
and Letter of Credit Fee
 Margin for Revolving Loans: Base Rate Loans 
Margin for Term Loans: Adjusted LIBOR Rate Loans
and Letter of Credit Fee
 Margin for Term Loans: Base Rate Loans
At Least A- or A3 LIBOR + 0.775% % LIBOR + 0.85% %
At Least BBB+ or Baa1 LIBOR + 0.825% % LIBOR + 0.90% %
At Least BBB or Baa2 LIBOR + 0.90% % LIBOR + 1.00% %
At Least BBB- or Baa3 LIBOR + 1.10% 0.10% LIBOR + 1.25% 0.25%
Below BBB- or Baa3 LIBOR + 1.45% 0.45% 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 March 31, 2019,2020, 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 March 31, 2019,2020, the Company had $236.0$160.0 million of borrowings outstanding under its unsecured revolving credit facility, and $250.0 million of borrowings outstanding under the term loan feature of the Credit Agreement. The Company also has a letter of credit for $8.5 million with no outstanding balance as of March 31, 2019. As defined by the Credit Agreement, $605.5$690.0 million is available to borrow without adding additional properties to the unencumbered borrowing base of assets.

Notes Payable

As of March 31, 2019, we2020, the Company had $975.0 million 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 $45.0 million maturing in 2031.

Certain properties have mortgage debt that contains financial covenants. As of March 31, 2019,2020, the Trust was in compliance with all mortgage debt financial covenants.


Scheduled principal payments due on consolidated debt as of March 31, 2019,2020, are as follows (in thousands):
2019$16,296
202025,470
$1,489
20218,289
8,296
2022256,818
180,825
2023266,000
266,008
202423,669
Thereafter987,881
964,202
Total Payments$1,560,754
$1,444,489

 
As of March 31, 2019,2020, the Company had total consolidated indebtedness of approximately $1.6$1.4 billion. The weighted average interest rate on consolidated indebtedness was 3.82%3.65% (based on the 30-day LIBOR rate as of March 31, 2019,2020, of 2.49%0.92%).

For the three month periods ended March 31, 20192020 and 2018,2019, the Company incurred interest expense on its debt, exclusive of deferred financing cost amortization, of $15.7$15.0 million and $15.9$15.7 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)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 ourthe Company’s adoption of ASU 2017-12 as of January 1, 2019, the entire change in the fair value of ourits derivatives designated and qualifyqualified as cash flow hedges are recorded in AOCI on the consolidated balance sheets and are subsequently reclassified into earnings in the period in which the hedged forecasted transaction affects earnings. Additionally, as a result of the adoption ASU 2017-12, wethe Company no longer disclosediscloses the ineffective portion of the change in fair value of ourits derivatives financial instruments designated as hedges.

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 March 31, 2019,2020, the Company had five5 outstanding interest rate swap contracts that are designated as cash flow hedges of interest rate risk. For presentational purposes, they are shown as one derivative due to the identical nature of their economic terms.

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 $250,000
 $250,000
Effective fixed interest rate(1)2.32%(1)2.32%
Effective date 7/7/2016
 7/7/2016
Maturity date 6/10/2023
 6/10/2023
Asset balance at March 31, 2019 (included in Other assets) $11,620
Asset balance at December 31, 2018 (included in Other assets) $15,121
Liability balance at March 31, 2020 (included in Other liabilities) $(5,071)
Asset balance at December 31, 2019 (included in Other assets) $4,933
(1)1.07% effective swap rate plus 1.25% spread per Credit Agreement.


Note 8. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following as of March 31, 20192020 and December 31, 20182019 (in thousands):
March 31,
2019
 December 31,
2018
March 31,
2020
 December 31,
2019
Prepaid rent$20,555
 $21,037
Real estate taxes payable$15,174
 $21,043
15,724
 21,483
Prepaid rent14,084
 18,745
Accrued interest5,916
 16,038
5,777
 16,038
Embedded derivative5,269
 4,290
Interest rate swap5,071
 
Accrued expenses4,412
 5,122
4,495
 4,882
Embedded derivative3,801
 3,673
Security deposits3,082
 3,118
3,789
 3,472
Tenant improvement allowance2,649
 2,784
2,173
 2,155
Accrued incentive compensation1,278
 1,323
1,587
 2,248
Contingent consideration753
 753
715
 715
Other4,939
 3,683
7,790
 4,918
Total$56,088
 $76,282
$72,945
 $81,238



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 a significant level of judgment in estimating the probability of achievement of these performance targets. Subsequent changes in actual experience are monitored and estimates are updated as information is available.
 
In connection with the IPO, the Trust adopted the 2013 Equity Incentive Plan (“2013 Plan”), which made shares available 600,000 common shares to be administered by the Compensation Committee of the Board of Trustees.for awards for participants. On August 7, 2014,April 30, 2019, at the Annual Meeting of Shareholders of Physicians Realty Trust, the Trust’s shareholders approved anthe Amended and Restated Physicians Realty Trust 2013 Equity Incentive Plan. The amendment to the 2013 Plan to increaseincreased the number of common shares authorized for issuance under the 2013 Plan by 1,850,000 common shares, forto a total of 2,450,0007,000,000 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 three month period ended March 31, 2019,2020, the Trust granted a total of 166,078158,675 restricted common shares with a total value of $3.0$3.1 million to its officers and certain of its employees, which have a vesting period of one year.


A summary of the status of the Trust’s non-vested restricted common shares as of March 31, 20192020 and changes during the three month period then ended follow:
Common Shares 
Weighted
Average Grant
Date Fair Value
Common Shares 
Weighted
Average Grant
Date Fair Value
Non-vested at December 31, 2018225,139
 $15.29
Non-vested at December 31, 2019216,877
 $17.67
Granted166,078
 17.89
158,675
 19.30
Vested(183,571) 14.88
(168,757) 17.91
Non-vested at March 31, 2019207,646
 $17.73
Forfeited(405) 17.29
Non-vested at March 31, 2020206,390
 $18.73

 
For all service awards, the Company records compensation expense for the entire award on a straight-line basis over the requisite service period. For the three month periods endedending March 31, 20192020 and 2018,2019, the Company recognized non-cash share compensation of $0.8 million and $0.7 million, respectively.million. Unrecognized compensation expense at March 31, 20192020 was $3.2$3.3 million.
 
Restricted Share Units

In March 2019,2020, under the 2013 Plan, the Trust granted restricted share units at a target level of 229,884482,646 to its officers and certain of its employees and 41,92538,858 to its trustees, whichtrustees. Units granted to officers and certain employees under the Company’s long term incentive plan are subject to certain performance timing, and market conditions and a three-year service period. Units were also granted to a certain officer subject to certain timing conditions and a five-year service period. Units granted to trustees are subject to certain timing conditions and a two-year service periods for officers/employees and trustees, respectively. In addition, eachperiod. Each restricted share unit contains one1 dividend equivalent. TheEach 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 50%40% of the restricted share units issued to officers and certain employees under the Company’s long term incentive plan in 20192020 vest based on two certain market conditions. The market conditions were valued with the assistance of independent valuation specialists. The Company utilized a Monte Carlo simulation to calculate the weighted average grant date fair values of $29.60$26.80 and $35.70$37.09 per unit for the March 20192020 grant market conditions using the following assumptions:
 
Volatility21.8%20.1%
Dividend assumptionreinvested
reinvested
Expected term in years2.83 years
2.83 years
Risk-free rate2.53%0.84%
Share price (per share)$17.89
$19.30

 
The remaining 50%60% of the restricted share units issued to officers and certain employees under the Company’s long term incentive plan, and 100% of other restricted share units issued to a certain officer and trustees vest based upon certain performance or timing conditions. With respect to the performance conditions of the March 2019 grant,2020 grants, the grant date fair value of $17.89$19.30 per unit was based on the share price at the date of grant. The combined weighted average grant date fair value of the March 20192020 restricted share units issued to officers and certain employees is $25.27$24.36 per unit.
 
The following is a summary of the activity in the Trust’s restricted share units during the three months ended March 31, 2019:2020: 
Executive Awards Trustee AwardsExecutive Awards Trustee Awards
Restricted Share
Units
 
Weighted
Average Grant
Date Fair Value
 Restricted Share
Units
 Weighted
Average Grant
Date Fair Value
Restricted Share
Units
 
Weighted
Average Grant
Date Fair Value
 Restricted Share
Units
 Weighted
Average Grant
Date Fair Value
Non-vested at December 31, 2018533,155
 $22.66
 67,158
 $16.01
Non-vested at December 31, 2019654,752
 $22.99
 67,297
 $16.72
Granted229,884
 25.27
 41,925
 17.89
482,646
 21.64
 38,858
 19.30
Vested(104,553)(1)26.33
 (41,786) 16.75
(173,259)(1)29.34
 (46,335) 16.19
Non-vested at March 31, 2019658,486
 $22.99
 67,297
 $16.72
Non-vested at March 31, 2020964,139
 $21.17
 59,820
 $18.81
(1)Restricted units vested by Company executives in 20192020 resulted in the issuance of 87,805147,765 common shares, less 35,26565,513 common shares withheld to cover minimum withholding tax obligations, for multiple employees.


For both the three month periods ending March 31, 2020 and 2019, and 2018, the TrustCompany recognized non-cash share restricted unit compensation expense of $2.1 million and $1.8 million.million, respectively. Unrecognized compensation expense at March 31, 20192020 was $9.9$15.3 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 March 31, 20192020 consist of one1 embedded derivative as detailed in the Redeemable Noncontrolling Interests - Series A Preferred Units and Partially Owned Properties section of Note 2 (Summary of Significant Accounting Policies) and five5 interest rate swaps. For presentational purposes, the Company’s interest rate swaps

are shown as a single derivative due to the identical nature of their economic terms, 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 Note 7 (Derivatives).Supplementary Data) of our Annual Report.

Neither the embedded derivative nor the interest rate swaps are 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 no0 assets measured at fair value as of March 31, 2019.2020.
 
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.

As of March 31, 2019, the Company classified two properties as held for sale. Upon classification as held for sale, the Company records the portfolio at the lower of its carrying amount or fair value, less costs to sell. Fair value is generally based on discounted cash flow analyses, which involved 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 March 31, 2019, fair value exceeds carrying value of our assets classified as held for sale and therefore, are recorded at their respective carrying values.

The following table presents the fair value of the Company’s financial instruments (in thousands):
March 31,
2019
 December 31,
2018
March 31,
2020
 December 31,
2019
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Carrying
Amount
 
Fair
Value
 
Carrying
Amount
 
Fair
Value
Assets:              
Real estate loans receivable$75,474
 $75,260
 $55,659
 $54,782
$135,818
 $138,320
 $178,240
 $178,095
Notes receivable$20,628
 $20,628
 $20,628
 $20,628
$22,705
 $22,705
 $22,694
 $22,694
Derivative assets$11,620
 $11,620
 $15,121
 $15,121
$
 $
 $4,933
 $4,933
Liabilities:              
Credit facility$(486,000) $(486,000) $(465,000) $(465,000)$(410,000) $(410,000) $(589,000) $(589,000)
Notes payable$(975,000) $(970,868) $(975,000) $(914,918)$(975,000) $(1,082,468) $(975,000) $(1,003,385)
Mortgage debt$(99,936) $(100,624) $(108,859) $(107,131)$(59,608) $(58,733) $(83,613) $(85,110)
Derivative liabilities$(3,801) $(3,801) $(3,673) $(3,673)$(10,340) $(10,340) $(4,290) $(4,290)


Note 11. Tenant Operating Leases
 
The Company is a lessor of medical office buildings and other healthcare facilities. Leases have expirations from 20192020 through 2039. As of March 31, 2019,2020, the future minimum rental payments on non-cancelable leases, exclusive of expense recoveries, and assets classified as held for sale, were as follows (in thousands):
2019$215,869
2020284,473
$224,645
2021279,709
296,531
2022269,409
289,574
2023259,113
281,441
2024269,574
Thereafter1,116,937
1,082,993
Total$2,425,510
$2,444,758

 
Note 12. Rent Expense
 
The Company leases the rights to parking structures at three3 of its properties, the air space above one1 property, and the land upon which 7981 of its properties are located from third party land owners pursuant to separate leases. In addition, the Company has 1011 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 8887 years remaining, excluding extension options, with a weighted average remaining term of 44 years.

Effective, January 1, 2019, the Company adopted ASU 2016-02, Leases which requires the operating leases mentioned above to be included in right-of-use lease asset, net on the Company’s March 31, 2019 consolidated balance sheets, which represents the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make the lease payments are included in lease liability on the Company’s March 31, 2019 consolidated balance sheets. Based on the present value of the lease payments for the remaining lease term of the Company’s existing leases, the Company recognized right-of-use assets of approximately $126.7 million and lease liabilities for operating leases of approximately $61.0 million on January 1, 2019. Operating lease right-of-use assets and liabilities commencing or renewing after January 1, 2019 are recognized at commencement or renewal date based on the present value of lease payments over the lease term. As of March 31, 2019, total right-of-use assets and operating lease liabilities were approximately $126.3 million and $60.9 million, respectively. The Company has entered into various short-term operating leases, primarily for office spaces, with an initial term of twelve months or less. These leases are not recorded on the Company's consolidated balance sheets.

Because the rate implicit in each lease is not readily determinable, the Company uses a rate based on its incremental borrowing rate to determine the present value of the lease payments. The weighted average discount rate was 4.3%4.4% as of

March 31, 2019. The Company is not aware of any2020. There are no operating leases that have not yet commenced that would have a significant impact on its consolidated balance sheets.

As of March 31, 2019,2020, the future minimum lease obligations under non-cancelable parking, air, ground, and corporate leases, exclusive of the assets classified as held for sale, were as follows (in thousands):
2019$2,174
20202,951
$2,530
20212,592
3,486
20222,914
3,456
20232,908
3,448
20243,431
Thereafter138,078
172,624
Total undiscounted lease payments$151,617
$188,975
Less: Interest(90,753)(114,854)
Present value of lease liabilities$60,864
$74,121

 
Lease costs consisted of the following for the three months ended March 31, 20192020 (in thousands):
March 31, 2019Three Months Ended March 31, 2020
Operating lease cost$444
$509
Variable lease cost225
250
Total lease cost$669
$759


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 March 31, 20192020 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 March 31, 2019, excluding assets classified as held for sale2020 (in thousands):
Tenant Total ABR Percent of ABR Total ABR Percent of ABR
CommonSpirit - CHI - Nebraska $16,390
 5.7% $16,865
 5.6%
CommonSpirit - CHI - KentuckyOne 13,579
 4.7%
Northside Hospital 10,098
 3.5% 14,176
 4.7%
UofL Health - Louisville, Inc. 11,862
 4.0%
US Oncology 9,520
 3.2%
Baylor Scott and White Health 7,770
 2.7% 7,960
 2.7%
Ascension - St. Vincent's - Indianapolis 7,384
 2.6%
Remaining portfolio 231,468
 80.8% 238,672
 79.8%
Total $286,689
 100.0% $299,055
 100.0%


ABR collected from the Company’s top five tenant relationships comprises 19.2%20.2% of its total ABR for the period ending March 31, 2019.2020. Total ABR from CommonSpirit Health affiliated tenants totals 20.5%16.6%, including the affiliates disclosed above. Financial statements of CommonSpirit Health, the parent of the subsidiaries and affiliates of the entities party to master lease agreements, are publicly available on the CommonSpirit Health website (www.commonspirit.org/). Information included on the CommonSpirit Health website is not incorporated by reference within this Quarterly Report on Form 10-Q.


The following table summarizes certain information about the Company’s top five geographic concentrations as of March 31, 2019, excluding assets classified as held for sale2020 (in thousands):
State Total ABR Percent of ABR Total ABR Percent of ABR
Texas $44,804
 15.6% $48,862
 16.3%
Georgia 25,040
 8.7% 26,078
 8.7%
Indiana 19,805
 6.9% 21,933
 7.3%
Nebraska 17,798
 6.2% 18,175
 6.1%
Minnesota 17,175
 6.0% 17,695
 5.9%
Other 162,067
 56.6% 166,312
 55.7%
Total $286,689
 100.0% $299,055
 100.0%


Note 14. Earnings Per Share and Earnings Per Unit
 
For the three months ended March 31, 2018, total restricted share units of 600,313 were excluded from the computation of diluted earnings per share and diluted earnings per unit as their impact would have been anti-dilutive.

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
March 31,
Three Months Ended
March 31,
2019 20182020 2019
Numerator for earnings per share - basic:
 
  
 
  
Net income$11,500
 $11,332
$14,960
 $11,500
Net income attributable to noncontrolling interests:      
Operating Partnership(305) (313)(404) (305)
Partially owned properties(138) (111)(142) (138)
Preferred distributions(284) (487)(317) (284)
Numerator for earnings per share - basic$10,773

$10,421
$14,097
 $10,773
Numerator for earnings per share - diluted:      
Numerator for earnings per share - basic$10,773
 $10,421
$14,097
 $10,773
Operating Partnership net income305
 313
404
 305
Numerator for earnings per share - diluted$11,078

$10,734
$14,501
 $11,078
Denominator for earnings per share - basic and diluted:
      
Weighted average number of shares outstanding - basic182,672,863
 181,809,570
196,211,728
 182,672,863
Effect of dilutive securities: 
  
   
Noncontrolling interest - Operating Partnership units5,177,912
 5,454,494
5,663,124
 5,177,912
Restricted common shares104,784
 53,179
87,322
 104,784
Restricted share units541,749
 
880,166
 541,749
Denominator for earnings per share - diluted:188,497,308
 187,317,243
202,842,340
 188,497,308
Earnings per share - basic$0.06
 $0.06
$0.07
 $0.06
Earnings per share - diluted$0.06
 $0.06
$0.07
 $0.06


The following table shows the amounts used in computing the Operating Partnership’s basic and diluted earnings per unit (in thousands, except unit and per unit data):
Three Months Ended
March 31,
Three Months Ended
March 31,
2019 20182020 2019
Numerator for earnings per unit - basic and diluted:      
Net income$11,500
 $11,332
$14,960
 $11,500
Net income attributable to noncontrolling interests - partially owned properties(138) (111)(142) (138)
Preferred distributions(284) (487)(317) (284)
Numerator for earnings per unit - basic and diluted$11,078
 $10,734
$14,501
 $11,078
Denominator for earnings per unit - basic and diluted:      
Weighted average number of units outstanding - basic187,850,775
 187,264,064
201,874,852
 187,850,775
Effect of dilutive securities:   
   
Restricted common shares104,784
 53,179
87,322
 104,784
Restricted share units541,749
 
880,166
 541,749
Denominator for earnings per unit - diluted188,497,308
 187,317,243
202,842,340
 188,497,308
Earnings per unit - basic$0.06
 $0.06
$0.07
 $0.06
Earnings per unit - diluted$0.06
 $0.06
$0.07
 $0.06


Note 15. Subsequent Events

On April 3, 2019,15, 2020, the Company completed the dispositionfunded a $13.0 million mezzanine loan on a new construction of a multi-specialty healthcare property representing 3,500 square feet locatedcompany building in Panama City, Florida for approximately $1.0Columbus, Ohio. The loan bears interest at a rate of 8.5% and matures in 2024.

Since March 31, 2020, we provided the final funding of $4.6 million and recognized a net gain of approximately $0.2 million. The property was disposed of at an approximate cap rate of 7.4%.substantial completion has taken place on our Denton construction loan. This asset was classified as held for sale as of March 31, 2019.

On April 4, 2019, the Trust, through a subsidiary of its Operating Partnership, completed the acquisition of a $14.8 million surgery30,000 square foot cancer center in Pasadena, Texas. The Company partially funded this transaction through the issuance of an aggregate 346,989 OP units valued at approximately $6.5 million. The newly constructed 27,035 square foot medical office buildingDenton, Texas is 100% leased through 2034,to Physician Reliance, LLC (McKesson Corporation - Moody’s: Baa2) for 10-years. The loan includes a fixed purchase option of $15.5 million which matches the loan amount and the first year unlevered yield on this investment is expected to be approximately 6.0%.

Onexercisable in May 2021. As of April 16, 2019,30, 2020, a Certificate of Occupancy has been received with rent commencing in May 2020. With construction substantially complete, the Company made a mezzanine loan with a principal balance of $0.9 million and a weighted average interest rate of 9.0% in connection withon the development of a new medical office building in Pensacola, Florida. The mezzanine loan is secured by a pledge of 100% of the borrower’s ownership interests in the real estate owner.

On April 26, 2019, the Company completed the disposition of a healthcare property representing 49,443 square feet located in Tacoma, Washington for approximately $11.5 million and recognized a net gain of approximately $2.9 million. The property was disposed of at an approximate cap rate of 6.3%. This asset was classified as held for sale as of March 31, 2019.

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. Among other things, the amendment increased the number of common shares authorized for issuance under the 2013 Plan by 4,550,000 common shares, for a total of 7,000,000 common shares authorized for issuance. The 2013 Plan term was also extendedincreases from 5.5% to 2029.

6.25%.

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 II, Item IA (Risk Factors) of this report, and Part I, Item 1A1 (Business), and Part I, Item 1A (Risk Factors) of our 20182019 Annual Report.

Overview

We are a self-managed healthcare real estate company organized in April 2013 to acquire, selectively develop, own, and manage healthcare properties that are leased to physicians, hospitals, and healthcare delivery systems. We invest in real estate that is integral to providing high quality healthcare services. Our properties are typically located on a campus with a hospital or other healthcare facilities or strategically affiliated with a hospital or other healthcare facilities. We believe the impact of government programs and continuing trends in the healthcare industry create attractive opportunities for us to invest in healthcare related real estate. In particular, we believe the demand for healthcare will continue to increase as a result of the aging population as older persons generally utilize healthcare services at a rate well in excess of younger people. Our management team has significant public healthcare REIT experience and has long-established relationships with physicians, hospitals, and healthcare 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 healthcare providers. In recent years, we have seen increased competition for healthcare 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 $4.5$4.7 billion as of March 31, 2019. During the remainder of 2019, we look for a continuation of this strategy and execution with the potential for selective dispositions and investments, and a focus on operating performance. We intend to continue to be diligent in deploying capital in the market.

2020. As of March 31, 2019,2020, our portfolio consisted of 250260 healthcare properties (which excludes two assets, representing approximately 52,943 leasable square feet, classified as held for sale) located in 3031 states with approximately 13,588,96113,839,465 net leasable square feet, which were approximately 95%96% leased with a weighted average remaining lease term of approximately 7.77.2 years. As of March 31, 2019,2020, approximately 89%90% of the net leasable square footage of our portfolio was either on campus with a hospital or other healthcare facility or strategically affiliated with a hospital or other healthcare facility.

We receive a cash rental stream from these healthcare providers under our leases. Approximately 93%94% of the annualized base rent payments from our properties as of March 31, 2019, excluding assets held for sale,2020 are from absolute and triple-net leases pursuant to which the tenants are responsible for all 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 6%5% of the annualized base rent payments from our properties as of March 31, 2019, excluding assets held for sale,2020 are from modified gross base stop leases which allow us to pass through certain increases in future operating 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 3.0%. 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 healthcare 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 March 31, 2019,2020, leases representing 2.0%2.2%, 3.7%4.2%, and 4.6% of leased square feet will expire in 2019, 2020, 2021, and 2021,2022, respectively.

We intend to grow our portfolio of high-quality healthcare properties leased to physicians, hospitals, healthcare delivery systems, and other healthcare providers primarily through acquisitions of existing healthcare facilities that provide stable revenue growth and predictable long-term cash flows. We may also selectively finance the development of new healthcare facilities through joint venture or fee arrangements with healthcare real estate developers or health system development professionals. Generally, we only 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 healthcare providers and healthcare delivery systems that offer need-based healthcare services in sustainable healthcare markets. We focus our investment activity on the following types of healthcare properties:


medical office buildings;
outpatient treatment and diagnostic facilities;
physician group practice clinics;
ambulatory surgery centers; and
specialty hospitals and treatment centers.

We believe that trends such as shifting consumer preferences, limited space in hospitals, the desire of patients and healthcare providers to limit non-essential services provided in a hospital setting, and cost considerations among other trends, continue to drive the industry trend oftowards performing more procedures in off-campus outpatient facilities that have traditionally been performed in hospitals, such as surgeries and other invasive medical procedures.versus the hospital setting. As these trends continue, we believe that demand for medical office buildings and similar healthcare properties away from hospital settings and in convenient locations to patients will continue to rise,rise. We intend to exploit this trend and thatseek off-campus properties consistent with our investment strategy accounts for these trends.philosophy and strategies.

We may invest opportunistically in life science facilities, assisted living, and independent senior living facilities and in the longer term, senior housing properties, including skilled nursing. Consistent with our qualification as a REIT, we may also opportunistically invest in companies that provide healthcare services, and in joint venture entities with operating partners, structured to comply with the REIT Investment Diversification Act of 2007.

One of the factors that influences the market price of our common shares is the dividend yield on common shares (as a percentage of the price of our common shares) relative to market interest rates. In response to the global financial crisis, the U.S. Federal Reserve took actions which resulted in low interest rates prevailing in the marketplace for a historically long period of time. Since December 2015, the U.S. Federal Reserve has raised its benchmark interest rate by a quarter of a percentage point nine times to a range of 2.25% to 2.50% and may raise its benchmark interest rate in the future. Further increases in market interest rates may lead prospective purchasers of our common shares to expect a higher dividend yield (with a resulting decline in the market price of our common shares) and higher interest rates would likely increase our borrowing costs for both our existing and future indebtedness and potentially decrease funds available for distribution. Thus, higher market interest rates could cause the market price of our common shares to decrease. 

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 March 31, 2019,2020, owned approximately 97.3% of the OP Units. As of April 24, 2019,30, 2020, there were 185,281,636202,559,482 common shares outstanding.

COVID-19 Pandemic Update

The COVID-19 pandemic has had an impact on the Company and its current operations. The Company has leveraged its technological capabilities to allow its employees to effectively work from their homes, abide by their states’ “stay at home” orders, and to continue to perform their responsibilities. The Company expects this arrangement to continue until its employees can safely return to the office in accordance with applicable state and federal laws, orders, regulations, and guidance.

The COVID-19 pandemic has also had an impact on the Company’s tenants and their operations. Although a majority of our tenants are part of the healthcare industry, the COVID-19 pandemic, state and federal laws, orders, regulations, and guidance in response to the COVID-19 pandemic, and the ensuing economic conditions have adversely impacted certain of our tenants’ operations and financial performance. We have taken extraordinary measures to communicate with our tenants and to keep our facilities clean and safe. We have instituted programs to help our tenants obtain available financial and other governmental assistance. Although certain of our tenants have requested deferral of their obligations to pay rent, most have continued to pay their rent and for those who are unable to do so, we are in discussions to work out mutually satisfactory resolutions. However, we may not be able to reach a satisfactory resolution with every tenant and any such resolution may not be on terms that are favorable to us as those currently in place. We expect these trends to continue for the foreseeable future; however, a number of key markets have already resumed elective medical procedures and are working towards re-opening certain business activities. We look forward to the safe and full return of normal activities, which may be impacted by changes in patient behaviors following the pandemic, as and when permitted by federal, state, and local governments.

As of May 7, 2020, of our 260 facilities, 2 have closed due to the COVID-19 pandemic and as of April 30, 2020 we have collected 94% of April rent with concessions limited primarily to waiving late fees. Further, the vast majority of our facilities have remained open, with 93% of our overall portfolio remaining operational as of May 4, 2020. Because the effects of the COVID-19 pandemic are uncertain, there can be no assurance that there will be no additional restrictions or orders in the future, whether patients will continue to seek medical care, particularly elective or non-essential medical procedures, at the same rates prior to the COVID-19 pandemic and the resulting impact on our tenants. For further detail of the impact and the Company’s response to the COVID-19 pandemic, please refer to Part II, Item 1A (Risk Factors) of this report.


Key Transactions in First Quarter 20192020

Investment Activity

During the three months ended March 31, 2019,2020, the Company completed $20.0acquisitions of two operating healthcare properties located in two states for an aggregate quarterly cash investment of approximately $12.2 million.This includes one property that was funded through the conversion and satisfaction of a previously outstanding term loan of $47.0 million and additional cash consideration of $1.5 million. In addition, the Company acquired one land parcel through conversion and satisfaction of a previously outstanding term loan of $1.3 million and additional cash consideration of $0.2 million. The Company also funded $6.6 million of loan transactions and acquired a newly-constructed addition to an existing building owned by the Companypreviously committed construction loans resulting in Tennessee for $4.3total cash investment activity of approximately $19.0 million. These transactions are detailed in Note 3 (Investment and Disposition Activity) to our consolidated financial statements included in Part I, Item 1 of this report.

Assets Slated for Disposition

We consider 8 properties in four states, representing an aggregate of approximately 373,213 square feet of gross leasable area, to be slated for disposition as of March 31, 2019. These assets consist of two properties representing approximately 52,943 leasable square feet classified as held for sale, five assets affiliated with Foundation Healthcare, and one additional property which we believe no longer meets our core business strategy.


Recent Developments

Quarterly Distribution

On March 22, 2019,19, 2020, we announced that our Board of Trustees authorized and declared a cash distribution of $0.23 per common share for the quarterly period ended March 31, 2019.2020. The distributiondividend was paid on April 18, 201916, 2020 to common shareholders and OP Unit holders of record as of the close of business on April 3, 2019.2, 2020.

Investment Activity

Since March 31, 2019,2020, the Trust, throughCompany funded a subsidiary$13.0 million mezzanine loan on a new construction of its Operating Partnership, completed the acquisitiona healthcare company building in Columbus, Ohio. The loan bears interest at a rate of one healthcare property with approximately 27,035 net leasable square feet for an aggregate purchase price of approximately $14.8 million. The Company partially funded this transaction through the issuance of an aggregate 346,989 OP units valued at approximately $6.5 million.8.5% and matures in 2024. The Company also made a mezzanine loan with a principal balanceprovided the final funding of $0.9$4.6 million and substantial completion has taken place on our Denton construction loan. This 30,000 square foot cancer center in Denton, Texas is 100% leased to Physician Reliance, LLC (McKesson Corporation - Moody’s: Baa2) for 10-years. The loan includes a weighted averagefixed purchase option of $15.5 million which matches the loan amount and is exercisable in May 2021. As of April 30, 2020, a Certificate of Occupancy has been received with rent commencing in May 2020. With construction substantially complete, the interest rate of 9.0% in connection withon the development of a new medical office building in Pensacola, Florida. The mezzanine loan is secured by a pledge of 100% of the borrower’s ownership interests in the real estate owner.

Disposition Activity

Since March 31, 2019, the Company completed the disposition of 2 healthcare properties representing 52,943 square feet for approximately $12.5 million and recognized a net gain of approximately $3.1 million. These assets were disposed of because we believe they no longer meet our core business strategyincreases from a size and age perspective. These assets were classified as held for sale as of March 31, 2019.

Capital Activity

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. Among other things, the amendment increased the number of common shares authorized for issuance under the 2013 Plan by 4,550,000 common shares, for a total of 7,000,000 common shares authorized for issuance. The 2013 Plan term was also extended5.5% to 2029.6.25%.

Results of Operations

Three months ended March 31, 20192020 compared to the three months ended March 31, 2018.2019.
 
The following table summarizes our results of operations for the three months ended March 31, 20192020 and 20182019 (in thousands):
2019 2018 Change %2020 2019 Change %
Revenues: 
  
  
  
 
  
  
  
Rental revenues$77,083
 $78,887
 $(1,804) (2.3)%$77,870
 $77,083
 $787
 1.0 %
Expense recoveries26,042
 24,308
 1,734
 7.1 %24,876
 26,042
 (1,166) (4.5)%
Interest income on real estate loans and other2,243
 2,028
 215
 10.6 %4,682
 2,243
 2,439
 108.7 %
Total revenues105,368
 105,223
 145
 0.1 %107,428
 105,368
 2,060
 2.0 %
Expenses: 
  
  
  
 
  
  
  
Interest expense16,269
 16,494
 (225) (1.4)%15,626
 16,269
 (643) (4.0)%
General and administrative8,972
 8,459
 513
 6.1 %8,977
 8,972
 5
 0.1 %
Operating expenses32,208
 30,459
 1,749
 5.7 %30,963
 32,208
 (1,245) (3.9)%
Depreciation and amortization36,449
 38,576
 (2,127) (5.5)%36,747
 36,449
 298
 0.8 %
Total expenses93,898
 93,988
 (90) (0.1)%92,313
 93,898
 (1,585) (1.7)%
Income before equity in income of unconsolidated entities and gain on sale of investment properties, net:11,470
 11,235
 235
 2.1 %
Equity in income of unconsolidated entities30
 28
 2
 7.1 %
Gain on sale of investment properties, net
 69
 (69) NM
Income before equity in (loss) income of unconsolidated entities:15,115
 11,470
 3,645
 31.8 %
Equity in (loss) income of unconsolidated entities(155) 30
 (185) NM
Net income$11,500
 $11,332
 $168
 1.5 %$14,960
 $11,500
 $3,460
 30.1 %
NM = Not Meaningful


Revenues
 
Total revenues increased $0.1$2.1 million, or 0.1%2.0%, for the three months ended March 31, 20192020 as compared to the three months ended March 31, 2018.2019. An analysis of selected revenues follows.
 
Rental revenues. Rental revenues decreased $1.8increased $0.8 million, or 2.3%1.0%, from $78.9 million for the three months ended March 31, 20182020 compared to $77.1 million for the three months ended March 31, 2019. Rental revenues decreased $4.2increased primarily due to our 2020 and 2019 acquisitions which resulted in additional rental revenue of $0.2 million and $2.3 million, respectively. This was partially offset by a decrease of $2.0 million due to the properties we sold during the last 12 months. This was offset by a $2.8 million increase in rental revenue associated with our property acquisitions from the last twelve months.

Expense recoveries. Expense recoveries increased $1.7decreased $1.2 million, or 7.1%4.5%, for the three months ended March 31, 2019 as2020 compared to the three months ended March 31, 2018.2019. Expense recoveries increased $2.3decreased $1.2 million due to a $1.7 million decrease in operating expenses from our existing portfolio of properties owned since March 31, 2018, and an additional $0.5a decline of $0.3 million from properties purchased in the last twelve months. This partially was offset by a $1.1 million decrease in expense recoveries due to thefrom properties sold during the last twelve months.in 2019. This was partially offset by our 2020 and 2019 acquisitions, which resulted in additional expense recoveries of $0.1 million and $0.2 million, respectively.

Interest income on real estate loans and other. Interest income on real estate loans and other increased $0.2$2.4 million, or 10.6%108.7%, for the three months ended March 31, 20192020 as compared to the three months ended March 31, 2018.2019. This increase is the result ofdue to additional interest income due to anof $2.2 million as a result of the increase in the Company’s outstanding real estate loans receivable.receivable, and $0.2 million from income generated by property management services provided by the Company to assets owned by our unconsolidated PMAK Joint Venture.

Expenses
 
Total expenses were flatdecreased $1.6 million, or 1.7%, for the three months ended March 31, 20192020 as compared to the three months ended March 31, 2018.2019. An analysis of selected expenses follows.
 
Interest expense. Interest expense decreased $0.6 million, or 4.0%, for the three months ended March 31, 2019 was $16.3 million2020 compared to $16.5the three months ended March 31, 2019. Interest expense decreased from mortgage debt by $0.4 million due to mortgage payoffs and $0.3 million due to lower interest rates for the three months ended March 31, 2018, representing a decrease of $0.22020 compared to the three months ended March 31, 2019.

General and administrative. The change in general and administrative expenses for the three months ended March 31, 2020 to the three months ended March 31, 2019 is not significant.

Operating expenses. Operating expenses decreased $1.2 million, or 1.4%. Interest3.9%, for the three months ended March 31, 2020 compared to the three months ended March 31, 2019. Operating expenses decreased $0.7 million from real estate tax expense and $0.5 million from mortgage debtbuilding maintenance expenses on our existing portfolio. Operating expenses also decreased by $0.8$0.4 million due to mortgage payoffs,from properties sold during 2019 which was partially offset by an increase of $0.5 million due to higher outstanding borrowings on our credit facility.

Generalproperties acquired during 2019 and administrative. General and administrative expenses increased $0.5 million or 6.1%, from $8.5 million during the three months ended March 31, 2018 to $9.0 million during the three months ended March 31, 2019. General and administrative expenses increased $0.8 million due to increased salaries and benefits partially offset by a $0.2 million decrease in professional fees.

Operating expenses. Operating expenses increased $1.7 million or 5.7%, from $30.5 million during the three months ended March 31, 2018 to $32.2 million during the three months ended March 31, 2019. Operating expenses increased $2.6 million from our existing portfolio of properties owned since March 31, 2018, and an additional $0.7 million from properties purchased in the last twelve months. This was partially offset by a $1.6 million decrease in operating expenses from the properties sold during the last twelve months.2020.

Depreciation and amortization. Depreciation and amortization decreased $2.1increased $0.3 million, or 5.5%0.8%, from $38.6 million duringfor the three months ended March 31, 20182020 compared to $36.4 million during the three months ended March 31, 2019. Depreciation and amortization decreased dueincreased by $0.2 million and $1.2 million from properties purchased in 2020 and 2019, respectively. This was offset by a decrease of $0.9 million from properties sold in 2019 and $0.2 million from our existing properties acquired prior to properties we sold during the last twelve months.2019.

Equity in (loss) income of unconsolidated entities. The change in equity in (loss) income from unconsolidated entities for the three months ended March 31, 20192020 compared to the three months ended March 31, 20182019 is not significant.

Gain on sale of investment properties, net. We did not dispose of any properties during the three months ended March 31, 2019. During the three months ended March 31, 2018, we sold two properties with 29,733 net leasable square feet located in Michigan and Florida for approximately $2.5 million realizing a net gain of $0.1 million.


Cash Flows
 
Three months ended March 31, 20192020 compared to the three months ended March 31, 2018.2019.
2019 20182020 2019
Cash provided by operating activities$26,427

$40,890
$34,858

$26,427
Cash used in investing activities(37,666)
(106,422)(22,076)
(37,666)
Cash (used in) provided by financing activities(2,874)
69,355
(Decrease) increase in cash and cash equivalents$(14,113)
$3,823
Cash used in financing activities(12,525)
(2,874)
Increase (decrease) in cash and cash equivalents$257

$(14,113)

 
Cash flows from operating activities. Cash flows provided by operating activities was $34.9 million during the three months ended March 31, 2020 compared to $26.4 million during the three months ended March 31, 2019, compared to $40.9 million during the three months ended March 31, 2018, representing a decreasean increase of $14.4$8.4 million. This decrease wasThe increase in cash flows provided by operating activities is primarily due to the timing of our accounts payable and other liabilities.liabilities and an increase in distribution from unconsolidated entities.

Cash flows from investing activities. Cash flows used in investing activities was $22.1 million during the three months ended March 31, 2020 compared to $37.7 million during the three months ended March 31, 2019, compared to cash flows used in investing activities of $106.4 million during the three months ended March 31, 2018, representing a change of $68.8$15.6 million. The decrease in cash flows used in investing activities was primarily attributable to the $79.9decrease of $14.1 million reductionassociated with the net issuance of real estate loans and a $1.2 million decrease in cash spent on acquisition activity and capital expenditures on existing investment properties over the prior period, and partially offset by an increase of $18.0 million on our real estate loans receivable.period.
 
Cash flows from financing activities. Cash flows used in financing activities was $12.5 million during the three months ended March 31, 2020 compared to $2.9 million during the three months ended March 31, 2019, compared to cash flows provided by financing activitiesrepresenting an increase of $69.4 million during the three months ended March 31, 2018, representing a change of $72.2$9.7 million. The 2019 activity wasincrease is primarily attributable to $200.0 million of additional net proceeds from borrowingspaydowns under the credit facility in 2020 compared to 2019, $15.1 million of $21.0additional payments on mortgage debt in 2020, and $1.9 million andof additional dividends paid to shareholders. This was partially offset by $208.2 million of additional net proceeds from the sale of common shares pursuant to the ATM Program of $31.0 million. These were offset by $8.9 million of payments on mortgage debt and $42.3 million of dividends paid.Program.

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”). NAREITNareit 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 NAREITNareit definition or that interpret the NAREITNareit 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, acquisition expenses, acceleration of deferred financing costs, change in fair value of contingent consideration, and other normalizing items. However, 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.

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
March 31,
Three Months Ended
March 31,
2019 20182020 2019
Net income$11,500
 $11,332
$14,960
 $11,500
Earnings per share - diluted$0.06
 $0.06
$0.07
 $0.06
      
Net income$11,500
 $11,332
$14,960
 $11,500
Net income attributable to noncontrolling interests - partially owned properties(138) (111)(142) (138)
Preferred distributions(284) (487)(317) (284)
Depreciation and amortization expense36,359
 38,530
36,655
 36,359
Depreciation and amortization expense - partially owned properties(74) (166)(75) (74)
Gain on sale of investment properties, net
 (69)
Proportionate share of unconsolidated joint venture adjustments1,700
 
FFO applicable to common shares and OP Units$47,363
 $49,029
$52,781
 $47,363
Net change in fair value of derivative13
 2
(91) 13
Normalized FFO applicable to common shares and OP Units$47,376
 $49,031
$52,690
 $47,376
      
FFO per common share and OP Unit$0.25
 $0.26
$0.26
 $0.25
Normalized FFO per common share and OP Unit$0.25
 $0.26
$0.26
 $0.25
      
Weighted average number of common shares and OP Units outstanding188,497,308
 187,317,243
202,842,340
 188,497,308


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- or below-market leases and assumed debt, amortization of lease inducements, amortization of deferred financing costs, and recurring capital expenditures related to tenant improvements and leasing commissions, and includes cash payments from seller master leases and rent abatement payments.payments, including our share of all required adjustments from 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.


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
March 31,
Three Months Ended
March 31,
2019 20182020 2019
Net income$11,500
 $11,332
$14,960
 $11,500
Normalized FFO applicable to common shares and OP Units$47,376
 $49,031
$52,690
 $47,376
      
Normalized FFO applicable to common shares and OP Units$47,376
 $49,031
$52,690
 $47,376
Non-cash share compensation expense2,653
 2,605
2,996
 2,653
Straight-line rent adjustments(4,762) (6,450)(3,731) (4,762)
Amortization of acquired above/below-market leases/assumed debt818
 830
889
 818
Amortization of lease inducements343
 344
290
 343
Amortization of deferred financing costs607
 618
599
 607
TI/LC and recurring capital expenditures(4,904) (4,158)(3,060) (4,904)
Seller master lease and rent abatement payments
 229
Proportionate share of unconsolidated joint venture adjustments(187) 
Normalized FAD applicable to common shares and OP Units$42,131
 $43,049
$50,486
 $42,131

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, acquisition-related 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.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.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, 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.

MOBSame-Store Cash NOI is a non-GAAP financial measure which excludes from Cash NOI assets not held for all periods,the entire preceding five quarters, non-MOB assets, slated for disposition, 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.


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
March 31,
Three Months Ended
March 31,
2019 20182020 2019
Net income$11,500
 $11,332
$14,960
 $11,500
General and administrative8,972
 8,459
8,977
 8,972
Depreciation and amortization36,449
 38,576
36,747
 36,449
Interest expense16,269
 16,494
15,626
 16,269
Net change in the fair value of derivative13
 2
(91) 13
Gain on sale of investment properties, net
 (69)
Proportionate share of unconsolidated joint venture adjustments2,454
 
NOI$73,203
 $74,794
$78,673
 $73,203
      
NOI$73,203
 $74,794
$78,673
 $73,203
Straight-line rent adjustments(4,762) (6,450)(3,731) (4,762)
Amortization of acquired above/below-market leases/assumed debt818
 830
Amortization of acquired above/below-market leases905
 818
Amortization of lease inducements343
 344
290
 343
Seller master lease and rent abatement payments
 229
Proportionate share of unconsolidated joint venture adjustments(165) 
Cash NOI$69,602
 $69,747
$75,972
 $69,602
      
Cash NOI$69,602
 $69,747
$75,972
 $69,602
Assets not held for all periods(3,625) (5,003)(4,182) (1,653)
Assets slated for disposition(2,500) (2,252)
LTACH & Hospital Cash NOI(3,822) (3,467)
Lease termination fees(180) (40)
Interest income and other(1,625) (1,528)(3,926) (1,595)
Same-Store Cash NOI$61,852
 $60,964
MOB Same-Store Cash NOI$63,862
 $62,847

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, loss (gain) on dispositions, and impairment loss.loss, including our share of all required adjustments from unconsolidated joint ventures. We define Adjusted EBITDAre, as net income or loss computed in accordance with GAAP plus depreciation and amortization, interest expense, loss (gain) on dispositions, impairment loss, acquisition expenses,which excludes from EBITDAre non-cash share compensation expense, non-cash changes in fair value, 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.


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
March 31,
Three Months Ended
March 31,
2019 20182020 2019
Net income$11,500
 $11,332
$14,960
 $11,500
Depreciation and amortization36,449
 38,576
36,747
 36,449
Interest expense16,269
 16,494
15,626
 16,269
Gain on sale of investment properties, net
 (69)
Proportionate share of unconsolidated joint venture adjustments2,426
 
EBITDAre
$64,218
 $66,333
$69,759
 $64,218
Non-cash share compensation expense2,653
 2,605
2,996
 2,653
Non-cash changes in fair value13
 2
(91) 13
Proforma adjustments for investment activity(35) 
Adjusted EBITDAre
$66,884
 $68,940
$72,629
 $66,884
 
Liquidity and Capital Resources

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 March 31, 2019,2020, we had a total of $5.0$2.6 million of cash and cash equivalents and $605.5$690.0 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. WeAssuming that the Company’s operations are not significantly impacted by the COVID-19 pandemic for a prolonged period, we believe that our existing cash and cash equivalents, cash flow from operating activities, and borrowings currently 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. 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, and, in connection with acquisitions of additional properties, the issuance of OP Units of our Operating Partnership, and proceeds from select property dispositions and joint venture transactions.

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 the effects of the COVID-19 pandemic, 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 willwould likely also experience higher borrowing costs asif 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 additionalcontinue to evaluate 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.

While we intend to sell the 8 properties slated for disposition as of March 31, 2019 for other business reasons, weWe 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 August 7, 2018, the Operating Partnership, as borrower, and the Trust, as guarantor, executed a Second Amended and Restated Credit Agreement (the “Credit Agreement”) which extended the maturity date of the revolving credit facility under the Credit Agreement to September 18, 2022 and reduced the interest rate margin applicable to borrowings. The Credit Agreement includes an unsecured revolving credit facility of $850 million and contains a 7-year term loan feature of $250 million, bringing total borrowing capacity to $1.1 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 $1.6 billion. The revolving credit facility under the Credit Agreement also includes a one-year extension option.

As of March 31, 2019,2020, the Company had $236.0$160.0 million of borrowings outstanding under its unsecured revolving credit facility, and $250.0 million of borrowings outstanding under the term loan feature of the Credit Agreement. The Company also has a letter of credit for $8.5 million with no outstanding balance as of March 31, 2019. As defined by the Credit Agreement, $605.5$690.0 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 March 31, 2019,2020, we had $975.0 million 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 $45.0 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 August 2016,November 2019, the Company entered into separate Sales Agreements to which the Trust may issue and sell, from time to time, its common shares having an aggregate offering price of up to $300.0$500.0 million. In accordance with the Sales Agreements, the Trust may offer and sell its common shares through any of 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 quarterly period ended March 31, 2019,2020, the Trust sold 1,681,92812,352,700 common shares pursuant to the ATM Program, at a weighted average price of $18.61$19.57 per share resulting in total net proceeds of approximately $31.0$239.3 million.

As of March 31, 2019,2020, the Trust has $132.4$227.8 million remaining available under the ATM Program.


Dividend Reinvestment and Share Purchase Plan
 
In December 2014, we adopted a Dividend Reinvestment and Share Purchase Plan. 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 March 31, 2019,2020, the Company hashad issued 83,262113,961 common shares under the DRIP since its inception.

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 Annual Report on Form 10-K for the year ended December 31, 2018,2019, filed with the Commission on February 28, 2019,27, 2020, 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 March 31, 2019,2020, we have investments in two unconsolidated joint ventures with ownership interests of 49.0% and 12.3%. The aggregate carrying amount of debt, including both our and our partners’ share, incurred by these ventures was approximately $679.6 million (of which our proportionate share is approximately $97.1 million). See Note 2 (Summary of

Significant Accounting Policies) to our accompanying consolidated financial statements for additional information. We have no other off-balance sheet debt.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 embedded derivative, which is recognized as an asset on the consolidated balance sheets in other assets and is measured at fair value, and five interest rate swaps. 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 Note 7 (Derivatives) toSupplementary Data) of our consolidated financial statements included in Part I, Item 1 to this reportAnnual Report for further detail on our interest rate swaps.

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 March 31, 2019,2020, our consolidated fixed interest rate debt totaled $1.1$1.0 billion, which represented 68.4%71.2% of our total consolidated debt, excluding the impact of interest rate swaps. On July 7, 2016, we entered into a pay-fixed receive-variable rate swap for the full $250.0 million borrowing amount of our term loan borrowings, fixing the LIBOR component of the borrowing rate to 1.07%, for an all-in fixed rate as of March 31, 20192020 of 2.32%. Both the borrowing and pay-fixed receive-variable swap have a maturity date of June 10, 2023.

Assuming the effects of the interest rate swap agreement we entered into on July 7, 2016 relating to our unsecured debt, our fixed interest rate debt would represent 84.4%88.5% 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.

As of March 31, 2019,2020, the fair value and the carrying value of our consolidated fixed interest rate debt were both approximately $1.1 billion.billion and $1.0 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 March 31, 2019.2020. 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 March 31, 2019,2020, our consolidated variable interest rate debt totaled $492.8$416.5 million, which represented 31.6%28.8% of our total consolidated debt. Assuming the effects of the interest rate swap agreement we entered into on July 7, 2016 relating to our unsecured debt, our variable interest rate debt would represent 15.6%11.5% 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 March 31, 2019,2020, we were exposed to market risks related to fluctuations in interest rates on $242.8$166.5 million of consolidated borrowings. Assuming no increase in the amount of our variable rate debt, if LIBOR were to change by 100 basis points, interest expense on our variable rate debt as of March 31, 20192020 would change by approximately $2.4$1.7 million annually.


Derivative Instruments

As of March 31, 2019,2020, we had five outstanding interest rate swaps that were designated as cash flow hedges of interest rate risk, with a total notional amount of $250.0 million. See Note 7 (Derivatives) within our consolidated financial statements for further detail on our interest rate swaps. We are exposed to credit risk of the counterparty to our interest rate swap agreements in the event of non-performance under the terms of the agreements. If we were not able to replace these swaps 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 swaps.
 

Indebtedness
 
As of March 31, 2019,2020, we had total consolidated indebtedness of approximately $1.6$1.4 billion. The weighted average interest rate on our consolidated indebtedness was 3.82%3.65% (based on the 30-day LIBOR rate as of March 31, 2019,2020, of 2.49%0.92%). As of March 31, 2019,2020, we had approximately $242.8$166.5 million, or approximately 15.6%11.5%, 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 March 31, 2019.2020.

Item 4.                                Controls and Procedures
 
Physicians Realty Trust

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 March 31, 2019,2020, 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 March 31, 20192020 that have materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting.

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.

Physicians Realty L.P.

Evaluation of Disclosure Controls and Procedures

The Operating Partnership’s management, with the participation of the Chief Executive Officer and Chief Financial Officer of the Operating Partnership’s general partner, has evaluated the effectiveness of the Operating Partnership’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer of the Operating Partnership’s general partner concluded that as of March 31, 2019,2020, the Operating Partnership’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 our management, including the Chief Executive Officer and Chief Financial Officer of the Operating Partnership’s general partner, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in the Operating Partnership’s system of internal control over financial reporting during the quarter ended March 31, 2019,2020, that have materially affected, or are reasonably likely to materially affect, the Operating Partnership’s internal control over financial reporting.


Limitations on Effectiveness of Controls and Procedures 

In designing and evaluating the disclosure controls and procedures and the Operating Partnership’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 Operating Partnership’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.
 
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 onThe following risk factors canand other information included in this report should be foundcarefully considered. The risks and uncertainties described below are not the only ones we face. You should also carefully consider the risk factors described in Part I, Item 1A (Risk Factors) of our 20182019 Annual Report. There have been no material changesOur business, financial condition and operating results can be materially adversely affected by a number of factors, whether currently known or unknown, including, but not limited to, those described below, any one or more of which could, directly or indirectly, cause our actual results of operations and financial condition to vary materially from past, or from anticipated future, results of operations and financial condition. Any of these factors, in whole or in part, could materially and adversely affect our business, financial condition, results of operations, and common stock price. In such case, the market value of our securities could be detrimentally affected, and investors may lose part or all of the value of their investment.

The following discussion of risk factors contains forward-looking statements. These risk factors and the risk factors previously discloseddescribed in Part I, Item 1A (Risk Factors) of the 2019 Annual Report may be important to understanding any statement in this report or elsewhere. The following information should be read in conjunction with our consolidated and combined financial statements, and related notes, included in Part I, Item 1, “Financial Statements” and Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report.

Because of the following factors, as well as other factors affecting our financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods. You should carefully consider the risks and uncertainties described below as well as the risk factors described in Part I, Item 1A (Risk Factors) of the 2019 Annual Report. Many risk factors described in our 20182019 Annual Report.Report should be interpreted as heightened risks as a result of the COVID-19 pandemic.

Risks Related To Our Business
Our business and operations may continue to be adversely affected by the global outbreak of the coronavirus (COVID-19 pandemic), or other outbreaks of pandemic disease.


The COVID-19 pandemic and the measures to prevent its spread have, and could continue to have, and any other global outbreaks of pandemic disease could have, a material adverse effect on our business, results of operations, and financial condition.

The COVID-19 pandemic has materially adversely impacted regional and global economies and financial markets. The impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified in the United States, governmental authorities, including in many states and citieswhere we own properties, either directly or through joint ventures, where we have development projects, and where our principal place of business is located, have reacted by instituting measures to prevent its spread, including quarantines, social distancing mandates, restrictions on travel and “shelter-in-place” rules. In addition, some states have limited business operations to those businesses carrying out essential services. While many of our tenants that are hospitals or healthcare delivery systems are deemed essential services, certain state or other orders have discouraged or suspended the performance of elective medical procedures which has had an adverse impact on certain tenants' financial condition. These adverse economic conditions resulting from the COVID-19 pandemic, especially any downturns in the geographic areas in which we operate, and particularly in Texas, or any downturn in the healthcare industry as a whole, may lower our occupancy levels and in certain cases, have required us to agree to rental concessions. For example, some tenants have announced temporary closures of their facilities or requested rent deferral or rent abatement during this pandemic. In some cases, we may have to restructure some tenants' long-term rent obligations and may not be able to do so on terms that are as favorable to us as those currently in place. In addition, a number of federal, state, local, and industry-initiated efforts have been enacted that could adversely affect our ability to collect rent or enforce remedies for the failure to pay rent. These restrictions and initiatives have adversely affected our business to date and may continue to do so in the future. We cannot predict if additional states and cities will implement similar restrictions or initiatives, when restrictions and initiatives currently in place will expire, if additional restrictions or initiatives will be imposed, or if these or other restrictions or initiatives will be imposed in the future and the impact on our business of any such restrictions or initiatives.

In addition, in response to an executive order issued by the Governor of Wisconsin, the majority of our employees based at our headquarters are currently working remotely. The effects of the executive order, including an extended period of remote work arrangements, could create increased vulnerability to cybersecurity breaches or incidents involving us or our third party managers, which could disrupt our business, compromise our confidential information and confidential information of third parties, including our tenants, damage our reputation, subject us to liability claims or regulatory penalties and could have an adverse effect on our business, financial condition and results of operations. In addition, we depend upon the performance of our property managers to effectively manage certain of our properties and real estate assets. Remote work arrangements and other effects of the COVID-19 pandemic could impair our and property managers' ability to effectively manage our properties, which could also adversely impact our business and results of operations.

The COVID-19 pandemic, or a future pandemic, could also have material adverse effects on our ability to successfully operate our business, our financial condition, our results of operations, and our ability to make distributions to our shareholders due to, among other factors:

a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or tenant action;
the reduced economic activity impacting our tenants' businesses, including a reduction in elective or non-essential medical or surgical procedures, which may have a material adverse effect on our tenant's financial condition and liquidity and may cause one or more of our tenants to be unable to pay their rent to us in full, or at all, or to otherwise seek rental concessions or modifications of their monetary obligations under their leases;
difficulty finding suitable replacement tenants in the event of a tenant default or non-renewal of our leases, especially for our properties in smaller markets;
reduced economic activity that could result in a recession or other prolonged adverse economic condition that could negatively impact the real estate industry, resulting in declining demand for real estate, which may affect our ability to sell any of our properties at a profit, or at all, in the future;
the general decline in business activity and demand for real estate transactions, which has adversely affected, and is likely to continue affecting, our ability to acquire additional properties;
the decline in the market price of our common shares, which could adversely impact our ability to access equity capital markets and require us to try to rely on debt financing to fund our capital needs, which may not be available on acceptable terms or at all;
any debt financing we may be able to secure could increase our leverage, which could place us at a competitive disadvantage compared to our competitors who have less debt, and could place us at a competitive disadvantage compared to our competitors who have debt on more favorable terms;
any inability to comply with covenants under our debt agreements, which could result in a default under the applicable debt agreement and could trigger a cross-default under other indebtedness, which could cause an acceleration of our

indebtedness, result in a downgrade in our credit rating or negatively impact our ability to incur additional indebtedness;
any impairment in value of our tangible or intangible assets which could be recorded as a result of a weaker economic conditions or if a tenant at one of our properties fails to pay rent; and
the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, could impair our ability to perform critical functions and may cause a disruption in our business operations.

The extent to which the COVID-19 pandemic impacts, and will continue to impact, our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted, including the scope, severity and duration of the pandemic, the actions taken to contain the pandemic or mitigate its impact, and the direct and indirect economic effects of the pandemic and containment measures, among others. The rapid development and fluidity of this situation precludes our ability to predict the full adverse impact of the COVID-19 pandemic. If we are unable to respond and manage the impact of these events, our business, financial condition and results of operations may continue to be adversely affected.

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

Recent Sales of Unregistered Securities

On January 24, 2019, the Trust, through a subsidiary of the Operating Partnership, entered into a contribution agreement with Pasadena Ambulatory Center, LP, to acquire a property located in Pasadena, Texas (the "Pasadena Property"). The transaction closed on April 4, 2019, at which time, the Operating Partnership issued 346,989 units in the Operating Partnership ("OP Units") as partial consideration for the acquisition. The OP Units are redeemable at the option of the holder which redemption obligation may be satisfied, at the Trust’s option, in cash or registered common shares. The investors in the OP Units have agreed not to cause the Operating Partnership to redeem their OP Units prior to one year from the issuance date.

The OP Units were issued in a private placement in reliance on Section 4(a)(2) of the Securities Act and Rule 506 of the SEC’s Regulation D thereunder. The issuance did not involve a public offering and was made without general solicitation or advertising.

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 March 31, 2019:2020:

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
January 1, 2019 - January 31, 2019 8,475
(1)$16.04
 N/A
 N/A
February 1, 2019 - February 28, 2019 35,265
(2)18.07
 N/A
 N/A
March 1, 2019 - March 31, 2019 72,088
(2)18.09
 N/A
 N/A
Total 115,828
 $17.93
 
 
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
January 1, 2020 - January 31, 2020 6,975
(1)$18.58
 N/A
 N/A
February 1, 2020 - February 29, 2020 65,513
(2)19.42
 N/A
 N/A
March 1, 2020 - March 31, 2020 72,718
(2)19.30
 N/A
 N/A
Total 145,206
 $19.32
 
 
(1)Represents OP Units redeemed by holders in exchange for common shares of the Company and common shares repurchased by the Company to satisfy employee withholding tax obligations related to stock-based compensation.
(2)Pursuant to a general authorization, whereby the Trust is authorized to repurchaseRepresents repurchased common shares to satisfy employee withholding tax obligations related to stock-based compensation.

Item 6.                                Exhibits

Exhibit No. Description
 
 
 
 
 
 
 
   
101.INS This instance document does not appear in the interactive data file because of XBRL Instance Document (+)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 (+)
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
*    Indicates a management contract or compensatory plan or arrangement.
**    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.

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: May 2, 20198, 2020/s/ John T. Thomas
 John T. Thomas
 Chief Executive Officer and President
 (Principal Executive Officer)
  
  
Date: May 2, 20198, 2020/s/ Jeffrey N. Theiler
 Jeffrey N. Theiler
 Executive Vice President and Chief Financial Officer
 (Principal Financial Officer)

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 L.P.
By: Physicians Realty Trust, its general partner
  
  
Date: May 2, 20198, 2020/s/ John T. Thomas
 John T. Thomas
 Chief Executive Officer and President
 (Principal Executive Officer)
  
  
Date: May 2, 20198, 2020/s/ Jeffrey N. Theiler
 Jeffrey N. Theiler
 Executive Vice President and Chief Financial Officer
 (Principal Financial Officer)


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