Physicians Realty Trust Reports Second Quarter 2023 Financial Results

Physicians Realty Trust (NYSE: DOC) (the “Company,” the “Trust,” “we,” “our” and “us”), a self-managed health care real estate investment trust, today announced results for the second quarter ended June 30, 2023.

John T. Thomas, President and Chief Executive Officer of the Trust, commented, “On July 19, 2023, we celebrated our 10th anniversary. We are proud of our achievements since going public in 2013, delivering strong returns to shareholders, paying 40 consecutive quarterly dividends, investing with and for our health care provider partners, and providing a successful outpatient medical real estate platform for our health care partners. With a focus on disciplined capital allocation and strategic partnerships, we have expanded our outpatient medical footprint and, in the process, achieved remarkable leasing activity. We anticipate further revenue growth and strong financial performance as we continue to innovate and capitalize on the opportunities in our pipeline consistent with the returns required in this dynamic capital markets environment. As we celebrate this milestone, our passionate DOC team, families, and partners nationwide remain dedicated to shaping the future of health care delivery.

“We look forward to sharing more about our second quarter results during today’s conference call,” Mr. Thomas concluded.

Second Quarter Financial Results

Total revenue for the second quarter ended June 30, 2023, was $135.1 million, an increase of 2.2% from the second quarter ended June 30, 2022. As of June 30, 2023, the portfolio was approximately 94.5% leased.

Total expenses for the second quarter 2023 were $123.8 million, compared to total expenses of $117.6 million for the second quarter 2022.

Net income for the second quarter 2023 was $13.1 million, compared to net income of $17.9 million for the second quarter 2022, a decrease of 27.0% due to prior year dispositions that generated a gain of $3.6 million in the second quarter 2022.

Net income attributable to common shareholders for the second quarter 2023 was $12.5 million. Diluted earnings per share for the second quarter 2023 was $0.05 based on approximately 249.2 million weighted average common shares and operating partnership units (“OP Units”) outstanding.

Funds From Operations (“FFO”) totaled $61.2 million for the second quarter 2023 and consisted of net income plus depreciation and amortization on our consolidated portfolio of $47.8 million and our unconsolidated joint ventures of $0.4 million, offset by $0.2 million of other adjustments, resulting in FFO of $0.25 per share on a fully diluted basis. Normalized FFO, which adjusts for our proportionate share of unconsolidated joint venture adjustments, was $61.2 million, or $0.25 per share on a fully diluted basis.

Normalized Funds Available for Distribution (“FAD”) for the second quarter 2023, which consists of Normalized FFO adjusted for non-cash share compensation, straight-line rent adjustments, amortization of acquired above-market and below-market leases and assumed debt, amortization of lease inducements, amortization of deferred financing costs, recurring capital expenditures and lease commissions, loan reserve adjustments, and our share of adjustments from unconsolidated investments, was $60.2 million.

Our Outpatient Medical Same-Store portfolio, which includes 269 properties representing 97% of our consolidated leasable square footage, generated year-over-year Outpatient Medical Same-Store Cash Net Operating Income (“Cash NOI”) growth of 0.8% for the second quarter 2023.

Other Recent Events

Second Quarter Investment Highlights

Investment activity in the quarter ended June 30, 2023, was highlighted by the acquisition of two health care properties for a purchase price of $33.3 million.

Emory Dunwoody Ambulatory Surgical Center (“ASC”) - On May 16, 2023, the Company completed the acquisition of a $5.3 million building located in Dunwoody, Georgia, a northern suburb of Atlanta. The building is 100% pre-leased for a 12-year term to The Emory Clinic, Inc., a subsidiary of Emory University, with annual escalators of 2.25%. The Company plans to finance 100% of the project costs for the renovation of the 22,000 square foot ASC, which are expected to be completed in the second quarter of 2025. The ASC is adjacent to the Emory Dunwoody Outpatient Medical Building development the Company previously announced.

Cardiovascular Associates (“CVA”) Building - On May 31, 2023, through a joint venture partnership with the prior owner, the Company completed the acquisition of a Class-A facility comprising 72,555 rentable square feet in Birmingham, Alabama, for a purchase price of approximately $28.0 million. The facility is 85% leased to Baptist Health Centers, LLC, a subsidiary of Tenet Health (S&P: ‘B+’), with a weighted average remaining lease term of approximately 8 years. The anchor lease is guaranteed by BBH BMC, LLC dba Brookwood Medical Center, Tenet’s largest hospital in Alabama. The Company owns 99.0% of the joint venture, with a first-year cash yield on the investment of 7.0%.

El Paso Seller Financing Loan Update

On June 30, 2023, the Company received payment in full for a term loan related to the previously owned Foundation El Paso Surgical Hospital. The $27.6 million loan was originated in conjunction with the Company’s sale of the facility in October of 2019 and yielded interest at a rate of 14.0% per year at the time of payoff.

Second Quarter Capital Activity

On May 24, 2023, Physicians Realty L.P. (the “Operating Partnership”), as borrower, and the Trust, as guarantor, executed a second amendment to the credit agreement, which added a new $400.0 million unsecured term loan with a scheduled maturity date of May 24, 2028 and expanded the accordion feature, which allows the Operating Partnership to increase borrowing capacity under the credit agreement, as amended, by up to an additional $500 million. Borrowings under the term loan feature of the Credit Agreement bear interest on the outstanding principal amount at a rate equal to 1.10%, inclusive of a 0.10% SOFR index adjustment, plus Daily Simple SOFR as defined in the Credit Agreement. The Operating Partnership simultaneously entered into fixed-for-floating interest rate swaps for the full borrowing amount, fixing the SOFR component of this rate at 3.593%, for a current all-in fixed rate of 4.693%.

Publication of 2022 ESG Report

On June 5, 2023, the Company announced the publication of its fourth annual Environmental, Social, and Governance (ESG) Report. The comprehensive and fully interactive report, available digitally at www.docreit.com/esg, details the Company’s ESG achievements and progress toward ongoing ESG goals.

Recent Investment Activity

Since June 30, 2023, the Company closed on the acquisition of an outpatient medical facility in Palos Heights, Illinois for approximately $2.6 million.

Palos Heights Surgery Center - On July 20, 2023, the Company completed the acquisition of a 21,297 rentable square feet in Palos Heights, Illinois, for a purchase price of approximately $2.6 million. The facility is 80% occupied with anchor tenant Palos SurgiCenter, who agreed to extend their lease an additional 10 years at close through 2036, in 62% of the space. The stabilized yield on the investment is 8.0%.

Dividend Paid

On June 16, 2023, our Board of Trustees authorized and declared a cash distribution of $0.23 per common share and OP Unit for the quarterly period ended June 30, 2023. The dividend was paid on July 18, 2023, to common shareholders and OP Unit holders of record as of the close of business on July 5, 2023.

Conference Call Information

The Company has scheduled a conference call on Thursday, August 3, 2023, at 10:00 a.m. ET to discuss its financial performance and operating results for the second quarter ended June 30, 2023. The conference call can be accessed by dialing (844) 826-3035 from within the U.S. or (412) 317-5195 for international callers. Participants can reference the Physicians Realty Trust Second Quarter Earnings Call. The conference call will also be available via a live listen-only webcast and can be accessed through the Investor Relations section of the Company’s website, www.docreit.com. A replay of the conference call will be available beginning August 3, 2023, at 2:00 p.m. ET until September 3, 2023, at 11:59 p.m. ET, by dialing (844) 512-2921 (U.S.) or (412) 317-6671 (International); passcode: 10179994. A replay of the webcast will also be accessible on the Investor Relations website for one year following the event. Beginning August 3, 2023, the Company’s supplemental information package for the second quarter 2023 will be accessible through the Investor Relations section of the Company’s website under the “Supplemental” tab.

About Physicians Realty Trust

Physicians Realty Trust is a self-managed health care real estate company organized to acquire, selectively develop, own, and manage health care properties that are leased to physicians, hospitals, and health care delivery systems. The Company invests in real estate that is integral to providing high quality health care. The Company conducts its business through an UPREIT structure in which its properties are owned by Physicians Realty L.P., a Delaware limited partnership (the “operating partnership”), directly or through limited partnerships, limited liability companies or other subsidiaries. The Company is the sole general partner of the operating partnership and, as of June 30, 2023, owned approximately 96.0% of OP Units.

Investors are encouraged to visit the Investor Relations portion of the Company’s website (www.docreit.com) for additional information, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, press releases, supplemental information packages and investor presentations. The information contained on our website is not a part of, and is not incorporated by reference into, this press release.

Forward-Looking Statements

This press release contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “anticipate”, “believe”, “expect”, “estimate”, “plan”, “outlook”, “continue”, “intend”, and “project” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements may include statements regarding the Company’s strategic and operational plans, the Company’s ability to generate internal and external growth, the future outlook, anticipated cash returns, cap rates or yields on properties, anticipated closing of property acquisitions, anticipated completion of development projects, and ability to execute its business plan. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. These forward-looking statements are subject to various risks and uncertainties, not all of which are known to the Company and many of which are beyond the Company’s control, which could cause actual results to differ materially from such statements. These risks and uncertainties are described in greater detail in the Company’s filings with the Securities and Exchange Commission (the “Commission”), including, without limitation, the Company’s annual and periodic reports and other documents filed with the Commission. Unless legally required, the Company disclaims any obligation to update any forward-looking statements after the date of this release, whether as a result of new information, future events or otherwise. For a discussion of factors that could impact the Company’s results, performance, or transactions, see Part I, Item 1A (Risk Factors) of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022.