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, ~~2019~~2020

☐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
Milwaukee	Wisconsin	53202
(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 class	Trading Symbol	Name of each exchange on which registered
Common stock, $0.01 par value per share	DOC	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

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, 2019~~30, 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, ~~2019~~2020 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, 104,172~~30, 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 ~~owns~~owned 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, ~~2019~~2020

Table of Contents



		Page Number
Part I	Financial Information

Item 1	Financial Statements (Unaudited)

Financial Statements of Physicians Realty Trust
	Consolidated Balance Sheets as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019	3
	Consolidated Statements of Income for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	4
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	5
	Consolidated Statements of Equity for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	8

Financial Statements of Physicians Realty L.P.
	Consolidated Balance Sheets as of March 31, ~~2019~~2020 and December 31, ~~2018~~2019	9
	Consolidated Statements of Income for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	10
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	11
	Consolidated Statements of Changes in Capital for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	12
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, ~~2019~~2020 and ~~2018~~2019	14

Notes for Physicians Realty Trust and Physicians Realty L.P.
	Notes to Consolidated Financial Statements	15

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3529
Item 3	Quantitative and Qualitative Disclosures About Market Risk	4640
Item 4	Controls and Procedures	4741

Part II	Other Information

Item 1	Legal Proceedings	4842
Item 1A	Risk Factors	4842
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	4844
Item 6	Exhibits	5045

SIGNATURES		5146

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, ~~2018~~2019 (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 improvements	3,627,825			3,623,962			3,754,098			3,700,009
Tenant improvements	43,213			36,497			55,524			53,931
Acquired lease intangibles	386,707			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 property	3,824,473			3,913,044			3,856,550			3,829,002
Real estate held for sale	9,038			—
Right-of-use lease asset, net	126,250			—
Right-of-use lease assets, net							138,864			127,933
Real estate loans receivable	75,474			55,659			135,818			178,240
Investments in unconsolidated entities	1,331			1,330			64,319			66,137
Net real estate investments	4,036,566			3,970,033			4,195,551			4,201,312
Cash and cash equivalents	5,048			19,161			2,612			2,355
Tenant receivables, net	10,566			8,881			9,211			7,972
Other assets	132,825			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 payable	967,161			966,961			968,001			967,789
Mortgage debt	99,608			108,504			59,354			83,341
Accounts payable	3,513			3,886			2,709			6,348
Dividends and distributions payable	44,335			43,821			49,138			46,272
Accrued expenses and other liabilities	56,088			76,282			72,945			81,238
Lease liability	60,864			—
Lease liabilities							74,121			63,290
Acquired lease intangibles, net	7,336			13,585			6,402			6,096
Total liabilities	1,717,797			1,670,427			1,637,508			1,837,697

Redeemable noncontrolling interest - Series A Preferred Units and partially owned properties	24,882			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, respectively	1,843			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, respectively							2,026			1,900
Additional paid-in capital	2,822,520			2,791,555			3,169,670			2,931,921
Accumulated deficit	(460,357		)	(428,307		)	(563,742		)	(529,194		)
Accumulated other comprehensive income	10,957			14,433
Accumulated other comprehensive (loss) income							(5,665		)	4,321
Total shareholders’ equity	2,374,963			2,379,505			2,602,289			2,408,948
Noncontrolling interests:
Operating Partnership	66,668			67,477			72,771			71,697
Partially owned properties	695			678			365			339
Total noncontrolling interests	67,363			68,155			73,136			72,036
Total equity	2,442,326			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			2018			2020			2019
Revenues:
Rental revenues	$	77,083		$	78,887		$	77,870		$	77,083
Expense recoveries	26,042			24,308			24,876			26,042
Interest income on real estate loans and other	2,243			2,028			4,682			2,243
Total revenues	105,368			105,223			107,428			105,368
Expenses:
Interest expense	16,269			16,494			15,626			16,269
General and administrative	8,972			8,459			8,977			8,972
Operating expenses	32,208			30,459			30,963			32,208
Depreciation and amortization	36,449			38,576			36,747			36,449
Total expenses	93,898			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 entities	30			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 income	11,500			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 interest	11,057			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:
Basic	182,672,863			181,809,570			196,211,728			182,672,863
Diluted	188,497,308			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			2018			2020			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 income	8,024			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 shares	124		239,108			—			—			239,232			—			—			—			239,232
Restricted share award grants, net	2		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 shares 17
31,003
—
—
31,020
—
—
—
31,020
Restricted share award grants, net 2
�� 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 shares	3		5,313			—			—		5,316			—			—			—			5,316			17		31,003			—			—			31,020			—			—			—			31,020
Restricted share award grants, net	2		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			2018			2020			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 amortization	36,449			38,576			36,747			36,449
Amortization of deferred financing costs	607			618			599			607
Amortization of lease inducements and above/below-market lease intangibles	1,176			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 notes	148			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 entities							155			(30		)
Distributions from unconsolidated entities	29			26			1,799			29
Change in fair value of derivative	13			2			(91		)	13
Provision for bad debts	35			(141		)	26			35
Non-cash share compensation	2,653			2,605			2,996			2,653
Change in operating assets and liabilities:
Tenant receivables	(2,076		)	5,437			(1,660		)	(2,076		)
Other assets	647			(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 activities	26,427			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 receivable	325			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 shares	31,020			5,316			239,232			31,020
Proceeds from credit facility borrowings	68,000			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 equivalents							257			(14,113		)
Cash and cash equivalents, beginning of period	19,161			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, 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 improvements	3,627,825			3,623,962			3,754,098			3,700,009
Tenant improvements	43,213			36,497			55,524			53,931
Acquired lease intangibles	386,707			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 property	3,824,473			3,913,044			3,856,550			3,829,002
Real estate held for sale	9,038			—
Right-of-use lease asset, net	126,250			—
Right-of-use lease assets, net							138,864			127,933
Real estate loans receivable	75,474			55,659			135,818			178,240
Investments in unconsolidated entities	1,331			1,330			64,319			66,137
Net real estate investments	4,036,566			3,970,033			4,195,551			4,201,312
Cash and cash equivalents	5,048			19,161			2,612			2,355
Tenant receivables, net	10,566			8,881			9,211			7,972
Other assets	132,825			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 payable	967,161			966,961			968,001			967,789
Mortgage debt	99,608			108,504			59,354			83,341
Accounts payable	3,513			3,886			2,709			6,348
Distributions payable	44,335			43,821			49,138			46,272
Accrued expenses and other liabilities	56,088			76,282			72,945			81,238
Lease liability	60,864			—
Lease liabilities							74,121			63,290
Acquired lease intangibles, net	7,336			13,585			6,402			6,096
Total liabilities	1,717,797			1,670,427			1,637,508			1,837,697

Redeemable noncontrolling interest - Series A Preferred Units and partially owned properties	24,882			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, respectively	2,364,006			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, respectively	66,668			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, respectively							2,607,954			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, respectively							72,771			71,697
Accumulated other comprehensive income	10,957			14,433			(5,665		)	4,321
Total partners’ capital	2,441,631			2,446,982			2,675,060			2,480,645
Noncontrolling interest - partially owned properties	695			678			365			339
Total capital	2,442,326			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			2018			2020			2019
Revenues:
Rental revenues	$	77,083		$	78,887		$	77,870		$	77,083
Expense recoveries	26,042			24,308			24,876			26,042
Interest income on real estate loans and other	2,243			2,028			4,682			2,243
Total revenues	105,368			105,223			107,428			105,368
Expenses:
Interest expense	16,269			16,494			15,626			16,269
General and administrative	8,972			8,459			8,977			8,972
Operating expenses	32,208			30,459			30,963			32,208
Depreciation and amortization	36,449			38,576			36,747			36,449
Total expenses	93,898			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 entities	30			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 income	11,500			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 interest	11,362			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:
Basic	187,850,775			187,264,064			201,874,852			187,850,775
Diluted	188,497,308			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			2018			2020			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 income	8,024			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 Capital			General 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 units	31,020			—			—			31,020			—			31,020
Net proceeds from sale of Trust common shares and issuance of common units																			239,232			—			—			239,232			—			239,232
Trust restricted share award grants, net	355			—			—			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 income	11,057			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 Capital			General 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 units	5,316			—			—		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 units																		31,020			—			—			31,020			—			31,020
Trust restricted share award grants, net	933			—			—		933			—			933			355			—			—			355			—			355
Purchase of OP Units																		—			(105		)	—			(105		)	—			(105		)
Conversion of OP Units	126			(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 Partners	194			—			—		194			—			194			(290		)	—			—			(290		)	—			(290		)
Buyout of Noncontrolling Interest - partially owned properties	1,276			—			—		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 income	10,908			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			2018			2020			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 amortization	36,449			38,576			36,747			36,449
Amortization of deferred financing costs	607			618			599			607
Amortization of lease inducements and above/below-market lease intangibles	1,176			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 notes	148			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 entities							155			(30		)
Distributions from unconsolidated entities	29			26			1,799			29
Change in fair value of derivative	13			2			(91		)	13
Provision for bad debts	35			(141		)	26			35
Non-cash share compensation	2,653			2,605			2,996			2,653
Change in operating assets and liabilities:
Tenant receivables	(2,076		)	5,437			(1,660		)	(2,076		)
Other assets	647			(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 activities	26,427			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 receivable	325			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 units	31,020			5,316			239,232			31,020
Proceeds from credit facility borrowings	68,000			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 equivalents							257			(14,113		)
Cash and cash equivalents, beginning of period	19,161			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 with~~The 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 “at~~in the ~~market offering” as defined in Rule 415 under the~~future 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 ~~1,681,928~~12,352,700 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, ~~2019~~2020 and ~~2018~~2019 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.~~

~~Principles~~27, 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 entities~~operations. 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 investors~~changes 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 ~~power~~Company 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 losses~~all 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 Partnership~~outstanding, 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 the~~derivative 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 ~~distribution~~dividend was paid on April ~~18, 2019~~16, 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

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

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

~~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 ~~not~~0t record any impairment charges in the three month periods ended March 31, ~~2019~~2020 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

~~The~~On October 31, 2019 the Company ~~reports investments~~contributed $8.9 million to acquire a 49% equity interest in ~~unconsolidated entities over whose operating~~MedCore 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 has~~paid 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 included~~PMAK 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 ~~ten~~12 mezzanine loans, ~~two~~2 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 is~~loans are secured by ~~a mortgage~~mortgages on the land and the improvements as constructed. ~~Interest income~~In 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 ~~evaluates~~adjusted the ~~collectability~~opening balance of ~~its loan portfolio, including related interest income receivable, and establishes a~~retained earnings by $0.1 million. The reserve for loan losses ~~if necessary. No such losses have been recognized during~~for 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, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. If the Company determines that collectability of straight-line rents is not probable, ~~rental revenue~~income recognition is limited to the lesser of cash collected, or lease ~~payments collected from the lessee, including any~~income reflected on a straight-line basis, plus variable ~~lease payments.~~rent when it becomes accruable.

In accordance with ~~ASU 2016-02,~~ ~~Leases,~~ ~~Topic~~ASC 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 ~~against~~as an adjustment to rental ~~revenue~~revenues 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, 2018~~2020 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 other~~certain 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 of~~January 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 presentation~~as 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 adopt~~has adopted ASU 2018-13 as of the effective date, January 1, 2020, ~~and will consider all level inputs but it does not anticipate a~~with 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 as~~the acquisitions of ~~March 31, 2019, and completed and funded a term loan~~2 operating healthcare properties located in 2 states, for ~~$15.0~~an aggregate investment of approximately $12.2 million. The Company also ~~purchased~~acquired one land parcel through conversion and satisfaction of a ~~newly-constructed addition to an existing building owned by~~previously outstanding term loan. Additionally, the Company ~~in Tennessee for $4.3~~funded $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 intangibles	434			6,586
Mortgage escrow	(3,718		)
Above market in-place lease intangibles				118
Below market in-place lease intangibles				(669		)
Right-of-use asset				444
Prepaid expenses				(771		)
Receivables				316
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 improvements 9,978
In-place lease intangibles 148
Other assets 211
Real estate held for sale before accumulated depreciation 11,048
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, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	March 31, 2019							December 31, 2018							March 31, 2020							December 31, 2019
	Cost		Accumulated Amortization			Net		Cost		Accumulated Amortization			Net		Cost		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 leases	45,517		(14,684		)	30,833		45,568		(13,621		)	31,947		43,419		(17,852		)	25,567		43,300		(16,856		)	26,444
Leasehold interest	712		(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 asset	126,727		(477		)	126,250		—		—			—
Right-of-use lease assets															141,428		(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 liability	61,043		(179		)	60,864		—		—			—
Lease liabilities															74,687		(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 leases	996		1,115
Decrease of rental income related to leasehold interest	15		15
Increase of rental income related to below-market leases	363		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 leases 1,115
1,480
Decrease of rental income related to leasehold interest 15
15
Increase of rental income related to below-market leases 550
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
2024						1,675		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, ~~2019~~2020 and December 31, ~~2018~~2019 (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 receivable	20,628		20,628		22,705		22,694
Lease inducements, net	12,922		13,233		11,140		11,415
Interest rate swap	11,620		15,121
Prepaid expenses	7,210		16,017		8,293		8,000
Leasing commissions, net	6,593		6,221		8,035		7,986
Escrows	1,524		5,534		1,976		1,886
Interest rate swap					—		4,933
Other	3,399		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, ~~2019~~2020 and December 31, ~~2018~~2019 (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 debt	99,754			108,662			59,489			83,478
$850 million unsecured revolving credit facility bearing variable interest of LIBOR plus 1.10%, due September 2022	236,000			215,000			160,000			339,000
$400 million senior unsecured notes bearing fixed interest of 4.30%, due March 2027	400,000			400,000			400,000			400,000
$350 million senior unsecured notes bearing fixed interest of 3.95%, due January 2028	350,000			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 2031	150,000			150,000			150,000			150,000
$75 million senior unsecured notes bearing fixed interest of 4.09% to 4.24%, due August 2025 to 2027	75,000			75,000			75,000			75,000
Total principal	1,560,754			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 adjustments	182			197			119			135
Total debt	$	1,545,661		$	1,532,853		$	1,432,193		$	1,634,453

(1)

~~Fixed~~As of March 31, 2020, fixed interest mortgage notes ~~bearing~~bear 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 ~~five~~4 properties with a net book value of ~~$173.0 million and $174.2~~$112.1 million as of March 31, ~~2019~~2020 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, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The note is due in 2028 and is collateralized by ~~one~~1 property with a net book value of $8.6 million as of March 31, ~~2019~~2020 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%.

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, we~~2020, 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
2020	25,470		$	1,489
2021	8,289		8,296
2022	256,818		180,825
2023	266,000		266,008
2024			23,669
Thereafter	987,881		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, ~~2019~~2020 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 ~~our~~the Company’s adoption of ASU 2017-12 as of January 1, 2019, the entire change in the fair value of ~~our~~its derivatives designated and ~~qualify~~qualified 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 ~~disclose~~discloses the ineffective portion of the change in fair value of ~~our~~its 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 ~~five~~5 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, ~~2019~~2020 and December 31, ~~2018~~2019 (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 rent	14,084		18,745
Accrued interest	5,916		16,038		5,777		16,038
Embedded derivative					5,269		4,290
Interest rate swap					5,071		—
Accrued expenses	4,412		5,122		4,495		4,882
Embedded derivative	3,801		3,673
Security deposits	3,082		3,118		3,789		3,472
Tenant improvement allowance	2,649		2,784		2,173		2,155
Accrued incentive compensation	1,278		1,323		1,587		2,248
Contingent consideration	753		753		715		715
Other	4,939		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 increase~~increased the number of common shares authorized for issuance under the 2013 Plan ~~by 1,850,000 common shares, for~~to a total of ~~2,450,000~~7,000,000 common shares authorized for issuance. The 2013 Plan term was also extended to 2029.

Restricted Common Shares

Restricted common shares granted under the 2013 Plan are eligible for dividends as well as the right to vote. In the three month period ended March 31, ~~2019,~~2020, the Trust granted a total of ~~166,078~~158,675 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, ~~2019~~2020 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, 2018	225,139		$	15.29
Non-vested at December 31, 2019					216,877		$	17.67
Granted	166,078		17.89		158,675		19.30
Vested	(183,571	)	14.88		(168,757	)	17.91
Non-vested at March 31, 2019	207,646		$	17.73
Forfeited					(405	)	17.29
Non-vested at March 31, 2020					206,390		$	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 ~~ended~~ending March 31, ~~2019~~2020 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, ~~2019~~2020 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 ~~229,884~~482,646 to its officers and certain of its employees and ~~41,925~~38,858 to its ~~trustees, which~~trustees. 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, each~~period. Each restricted share unit contains ~~one~~1 dividend equivalent. ~~The~~Each recipient will accrue dividend equivalents on awarded share units equal to the cash dividend that would have been paid on the awarded share unit had the awarded share unit been an issued and outstanding common share on the record date for the dividend.

Approximately ~~50%~~40% of the restricted share units issued to officers and certain employees under the Company’s long term incentive plan in ~~2019~~2020 vest based on two certain market conditions. The market conditions were valued with the assistance of independent valuation specialists. The Company utilized a Monte Carlo simulation to calculate the weighted average grant date fair values of ~~$29.60~~$26.80 and ~~$35.70~~$37.09 per unit for the March ~~2019~~2020 grant ~~market conditions~~ using the following assumptions:


Volatility	21.8		%	20.1		%
Dividend assumption	reinvested			reinvested
Expected term in years	2.83 years			2.83 years
Risk-free rate	2.53		%	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 ~~2019~~2020 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 Awards				Executive 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, 2018	533,155			$	22.66	67,158		$	16.01
Non-vested at December 31, 2019										654,752			$	22.99	67,297		$	16.72
Granted	229,884			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, 2019	658,486			$	22.99	67,297		$	16.72
Non-vested at March 31, 2020										964,139			$	21.17	59,820		$	18.81


(1)	Restricted units vested by Company executives in ~~2019~~2020 resulted in the issuance of ~~87,805~~147,765 common shares, less ~~35,265~~65,513 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 ~~Trust~~Company recognized non-cash share ~~restricted unit~~ compensation ~~expense~~ of $2.1 million and $1.8 ~~million.~~million, respectively. Unrecognized compensation expense at March 31, ~~2019~~2020 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, ~~2019~~2020 consist of ~~one~~1 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 ~~five~~5 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 ~~2019~~2020 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
2020	284,473		$	224,645
2021	279,709		296,531
2022	269,409		289,574
2023	259,113		281,441
2024			269,574
Thereafter	1,116,937		1,082,993
Total	$	2,425,510	$	2,444,758

Note 12. Rent Expense

The Company leases the rights to parking structures at ~~three~~3 of its properties, the air space above ~~one~~1 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 any~~2020. 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
2020	2,951			$	2,530
2021	2,592			3,486
2022	2,914			3,456
2023	2,908			3,448
2024				3,431
Thereafter	138,078			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, ~~2019~~2020 (in thousands):


	March 31, 2019		Three Months Ended March 31, 2020
Operating lease cost	$	444	$	509
Variable lease cost	225		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, ~~2019~~2020 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 sale~~2020 (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 sale~~2020 (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			2018			2020			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 income	305			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 - basic	182,672,863			181,809,570			196,211,728			182,672,863
Effect of dilutive securities:
Noncontrolling interest - Operating Partnership units	5,177,912			5,454,494			5,663,124			5,177,912
Restricted common shares	104,784			53,179			87,322			104,784
Restricted share units	541,749			—			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			2018			2020			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 - basic	187,850,775			187,264,064			201,874,852			187,850,775
Effect of dilutive securities:
Restricted common shares	104,784			53,179			87,322			104,784
Restricted share units	541,749			—			880,166			541,749
Denominator for earnings per unit - diluted	188,497,308			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 disposition~~funded a $13.0 million mezzanine loan on a new construction of a ~~multi-specialty~~ healthcare ~~property representing 3,500 square feet located~~company building in ~~Panama City, Florida for approximately $1.0~~Columbus, 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 surgery~~30,000 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 with~~on 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 ~~2018~~2019 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 ~~250~~260 healthcare properties ~~(which excludes two assets, representing approximately 52,943 leasable square feet, classified as held for sale)~~ located in 3031 states with approximately ~~13,588,961~~13,839,465 net leasable square feet, which were approximately ~~95%~~96% leased with a weighted average remaining lease term of approximately ~~7.7~~7.2 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 of~~towards 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 ~~that~~seek 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 ~~185,281,636~~202,559,482 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 ~~2019~~2020

Investment Activity

During the three months ended March 31, ~~2019,~~2020, the Company completed ~~$20.0~~acquisitions 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 Company~~previously committed construction loans resulting in ~~Tennessee for $4.3~~total 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 ~~distribution~~dividend was paid on April ~~18, 2019~~16, 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, through~~Company funded a ~~subsidiary~~$13.0 million mezzanine loan on a new construction of ~~its Operating Partnership, completed the acquisition~~a 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 balance~~provided 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 average~~fixed 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 with~~on 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~~

Results of Operations

Three months ended March 31, ~~2019~~2020 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, ~~2019~~2020 and ~~2018~~2019 (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 recoveries	26,042		24,308		1,734			7.1	%	24,876			26,042		(1,166		)	(4.5	)%
Interest income on real estate loans and other	2,243		2,028		215			10.6	%	4,682			2,243		2,439			108.7	%
Total revenues	105,368		105,223		145			0.1	%	107,428			105,368		2,060			2.0	%
Expenses:
Interest expense	16,269		16,494		(225		)	(1.4	)%	15,626			16,269		(643		)	(4.0	)%
General and administrative	8,972		8,459		513			6.1	%	8,977			8,972		5			0.1	%
Operating expenses	32,208		30,459		1,749			5.7	%	30,963			32,208		(1,245		)	(3.9	)%
Depreciation and amortization	36,449		38,576		(2,127		)	(5.5	)%	36,747			36,449		298			0.8	%
Total expenses	93,898		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 entities	30		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, ~~2019~~2020 as compared to the three months ended March 31, ~~2018.~~2019. An analysis of selected revenues follows.

Rental revenues. Rental revenues ~~decreased $1.8~~increased $0.8 million, or ~~2.3%~~1.0%, ~~from $78.9 million~~ for the three months ended March 31, ~~2018~~2020 compared to ~~$77.1 million for~~ the three months ended March 31, 2019. Rental revenues ~~decreased $4.2~~increased 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 $1.7~~decreased $1.2 million, or ~~7.1%~~4.5%, for the three months ended March 31, ~~2019 as~~2020 compared to the three months ended March 31, ~~2018.~~2019. Expense recoveries ~~increased $2.3~~decreased $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 $0.5~~a 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 the~~from 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, ~~2019~~2020 as compared to the three months ended March 31, ~~2018.~~2019. This increase is ~~the result of~~due to additional interest income ~~due to an~~of $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 flat~~decreased $1.6 million, or 1.7%, for the three months ended March 31, ~~2019~~2020 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 million~~2020 compared to ~~$16.5~~the 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 $0.2~~2020 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%. Interest~~3.9%, 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 debt~~building 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.~~

~~General~~properties 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 $2.1~~increased $0.3 million, or ~~5.5%~~0.8%, ~~from $38.6 million during~~for the three months ended March 31, ~~2018~~2020 compared to ~~$36.4 million during~~ the three months ended March 31, 2019. Depreciation and amortization ~~decreased due~~increased 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, ~~2019~~2020 compared to the three months ended March 31, ~~2018~~2019 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, ~~2019~~2020 compared to the three months ended March 31, ~~2018.~~2019.


	2019			2018			2020			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 decrease~~an increase of ~~$14.4~~$8.4 million. ~~This decrease was~~The 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 ~~$79.9~~decrease of $14.1 million ~~reduction~~associated 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 activities~~representing 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 was~~increase is primarily attributable to $200.0 million of additional net ~~proceeds from borrowings~~paydowns under the credit facility in 2020 compared to 2019, $15.1 million of ~~$21.0~~additional payments on mortgage debt in 2020, and $1.9 million ~~and~~of 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”). ~~NAREIT~~Nareit defines FFO as net income or loss (computed in accordance with GAAP) before noncontrolling interests of holders of OP units, excluding preferred distributions, gains (or losses) on sales of depreciable operating property, impairment write-downs on depreciable assets, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs). Our FFO computation includes our share of required adjustments from our unconsolidated joint ventures and may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with ~~NAREIT~~Nareit definition or that interpret the ~~NAREIT~~Nareit definition differently than we do. The GAAP measure that we believe to be most directly comparable to FFO, net income, includes depreciation and amortization expenses, gains or losses on property sales, impairments, and noncontrolling interests. In computing FFO, we eliminate these items because, in our view, they are not indicative of the results from the operations of our properties. To facilitate a clear understanding of our historical operating results, FFO should be examined in conjunction with net income (determined in accordance with GAAP) as presented in our financial statements. FFO does not represent cash generated from operating activities in accordance with GAAP, should not be considered to be an alternative to net income or loss (determined in accordance with GAAP) as a measure of our liquidity and is not indicative of funds available for our cash needs, including our ability to make cash distributions to shareholders.

We use Normalized FFO, which excludes from FFO net change in fair value of derivative financial instruments, ~~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			2018			2020			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 expense	36,359			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 adjustments							1,700			—
FFO applicable to common shares and OP Units	$	47,363		$	49,029		$	52,781		$	47,363
Net change in fair value of derivative	13			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 outstanding	188,497,308			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			2018			2020			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 expense	2,653			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 debt	818			830			889			818
Amortization of lease inducements	343			344			290			343
Amortization of deferred financing costs	607			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			2018			2020			2019
Net income	$	11,500		$	11,332		$	14,960		$	11,500
General and administrative	8,972			8,459			8,977			8,972
Depreciation and amortization	36,449			38,576			36,747			36,449
Interest expense	16,269			16,494			15,626			16,269
Net change in the fair value of derivative	13			2			(91		)	13
Gain on sale of investment properties, net	—			(69		)
Proportionate share of unconsolidated joint venture adjustments							2,454			—
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 debt	818			830
Amortization of acquired above/below-market leases							905			818
Amortization of lease inducements	343			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		2018			2020			2019
Net income	$	11,500	$	11,332		$	14,960		$	11,500
Depreciation and amortization	36,449		38,576			36,747			36,449
Interest expense	16,269		16,494			15,626			16,269
Gain on sale of investment properties, net	—		(69		)
Proportionate share of unconsolidated joint venture adjustments						2,426			—
EBITDAre	$	64,218	$	66,333		$	69,759		$	64,218
Non-cash share compensation expense	2,653		2,605			2,996			2,653
Non-cash changes in fair value	13		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 ~~will~~would 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 additional~~continue 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, we~~We currently do not expect to sell any of our properties to meet our liquidity needs, although we may do so in the future.

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

Credit Facility

On 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.

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 ~~1,681,928~~12,352,700 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 ~~has~~had issued ~~83,262~~113,961 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) to~~Supplementary Data) of our ~~consolidated financial statements included in Part I, Item 1 to this report~~Annual 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, ~~2019~~2020 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, ~~2019~~2020 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, ~~2019~~2020 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 on~~The following risk factors ~~can~~and other information included in this report should be ~~found~~carefully 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 ~~2018~~2019 Annual Report. ~~There have been no material changes~~Our 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 disclosed~~described 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 ~~2018~~2019 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 repurchase~~Represents repurchased common shares to satisfy employee withholding tax obligations related to stock-based compensation.

Item 6. Exhibits



Exhibit No.		Description
10.1		~~Employment~~Form of Restricted Share Unit Award Agreement dated as of January 1, 2019 between the Trust and Laurie P. Becker- Trustees (Time Vesting)*
31.1		Certification of John T. Thomas, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Physicians Realty Trust**
31.2		Certification of Jeffrey N. Theiler, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Physicians Realty Trust**
31.3		Certification of John T. Thomas, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Physicians Realty L.P.**
31.4		Certification of Jeffrey N. Theiler, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Physicians Realty L.P.**
32.1		Certification of John T. Thomas and Jeffrey N. Theiler, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) for Physicians Realty Trust**
32.2		Certification of John T. Thomas and Jeffrey N. Theiler, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) for Physicians Realty L.P.**

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 (+)
104		Cover 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, 2019~~8, 2020	/s/ John T. Thomas
	John T. Thomas
	Chief Executive Officer and President
	(Principal Executive Officer)


Date: May ~~2, 2019~~8, 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, 2019~~8, 2020	/s/ John T. Thomas
	John T. Thomas
	Chief Executive Officer and President
	(Principal Executive Officer)


Date: May ~~2, 2019~~8, 2020	/s/ Jeffrey N. Theiler
	Jeffrey N. Theiler
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

5146



Land and improvements	$	711
Building and improvements	9,978
In-place lease intangibles	148
Other assets	211
Real estate held for sale before accumulated depreciation	11,048
Accumulated depreciation	(2,010		)
Real estate held for sale	$	9,038