UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): February 7, 2024
Healthpeak
Properties, Inc.
(Exact Name of Registrant as Specified in its Charter)
| Maryland |
001-08895 |
33-0091377 |
(State or other Jurisdiction
of Incorporation) |
(Commission
File Number) |
(I.R.S. Employer
Identification No.) |
4600 South Syracuse Street, Suite 500
Denver, CO 80237
(Address of principal executive offices)
(Zip Code)
(720) 428-5050
(Registrant’s telephone number,
including area code)
N/A
(Former Name or Former Address, if Changed
Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| x |
Written communications pursuant to Rule 425
under the Securities Act (17 CFR 230.425) |
| ¨ |
Soliciting material pursuant to Rule 14a-12
under the Exchange Act (17 CFR 240.14a-12) |
| ¨ |
Pre-commencement communications pursuant to
Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ |
Pre-commencement communications
pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Trading symbol(s) |
Name of each exchange on which
registered |
| Common stock, $1.00 par value |
PEAK |
New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging
growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities
Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards
provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 8.01. Other Events.
As previously disclosed, on
October 29, 2023, Healthpeak Properties, Inc. (“Healthpeak”) entered into an Agreement and Plan of Merger (the “Merger
Agreement”) by and among Healthpeak, DOC DR Holdco, LLC (formerly known as Alpine Sub, LLC), a wholly owned subsidiary of Healthpeak,
DOC DR, LLC (formerly known as Alpine OP Sub, LLC), a wholly owned subsidiary of Healthpeak OP, LLC (“Healthpeak OP”), Physicians
Realty Trust (“Physicians Realty Trust”), and Physicians Realty L.P. (the “Physicians Partnership”), pursuant
to which, among other things, and through a series of transactions, (i) each outstanding common share of Physicians Realty Trust (other
than Physicians Realty Trust common shares to be cancelled in accordance with the Merger Agreement), will be converted into the right
to receive 0.674 shares of Healthpeak common stock, and (ii) each outstanding common unit of the Physicians Partnership will be converted
into common units in the successor entity to the Physicians Partnership equal to the same exchange ratio. Following the transactions contemplated
in the Merger Agreement, the successor entities to Physicians Realty Trust and the Physicians Partnership will be direct and indirect
subsidiaries of Healthpeak OP, respectively. Consummation of the transactions contemplated by the Merger Agreement are subject to the
satisfaction or waiver of customary closing conditions, including the approval of the stockholders of Healthpeak and the shareholders
of Physicians Realty Trust.
On February 7, 2024, Physicians Realty Trust disclosed preliminary estimates of certain consolidated financial data for the three months
and year ended December 31, 2023. Such disclosure is filed as Exhibit 99.1 hereto and is incorporated by reference herein.
Forward-Looking Statements
This Current Report may include
“forward-looking statements,” including but not limited to those regarding the proposed transactions between Healthpeak and
Physicians Realty Trust, within the meaning of the Private Securities Litigation Reform Act. All statements other than statements of historical
fact are “forward-looking statements” for purposes of federal and state securities laws. These forward-looking statements,
which are based on current expectations, estimates and projections about the industry and markets in which Healthpeak and Physicians Realty
Trust operate and beliefs of and assumptions made by Healthpeak management and Physicians Realty Trust management, involve uncertainties
that could significantly affect the financial or operating results of Healthpeak, Physicians Realty Trust or the combined company. Words
such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,”
“estimates,” “predicts,” “projects,” “forecasts,” “will,” “may,”
“potential,” “can,” “could,” “should,” “pro forma,” and variations of such
words and similar expressions are intended to identify such forward-looking statements. Such forward-looking statements include, but are
not limited to, statements about the benefits of the proposed transactions involving Healthpeak and Physicians Realty Trust, including
future acquisitions, dispositions, financing activity, financial and operating results, plans, objectives, expectations and intentions.
All statements that address operating performance, events or developments that Healthpeak and Physicians Realty Trust expects or anticipates
will occur in the future — including statements relating to creating value for shareholders or stockholders, as applicable, benefits
of the proposed transactions to clients, tenants, employees, shareholders or stockholders, as applicable, and other constituents of the
combined company, integrating the companies, cost savings and the expected timetable for completing the proposed transactions —
are forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties and
assumptions that are difficult to predict. Although Healthpeak and Physicians Realty Trust believe the expectations reflected in any forward-looking
statements are based on reasonable assumptions, Healthpeak and Physicians Realty Trust can give no assurance that its expectations will
be attained and, therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking
statements. For example, these forward-looking statements could be affected by factors including, without limitation, risks associated
with the ability to consummate the proposed merger and the timing of the closing of the proposed merger; securing the necessary shareholder
and stockholder approvals and satisfaction of other closing conditions to consummate the proposed merger; the occurrence of any event,
change or other circumstance that could give rise to the termination of the merger agreement relating to the proposed transactions; the
ability to secure favorable interest rates on any borrowings incurred in connection with the proposed transactions; the impact of indebtedness
incurred in connection with the proposed transactions; the ability to successfully integrate portfolios, business operations, including
properties, tenants, property managers and employees; the ability to realize anticipated benefits and synergies of the proposed transactions
as rapidly or to the extent anticipated by financial analysts or investors; potential liability for a failure to meet regulatory or tax-related
requirements, including the maintenance of REIT status; material changes in the dividend rates on securities or the ability to pay dividends
on common shares or other securities; potential changes to tax legislation; changes in demand for developed properties; adverse changes
in the financial condition of joint venture partner(s) or major tenants; risks associated with the acquisition, development, expansion,
leasing and management of properties; risks associated with the geographic concentration of Healthpeak or Physicians Realty Trust; risks
associated with the industry concentration of tenants; the potential impact of announcement of the proposed transactions or consummation
of the proposed transactions on business relationships, including with clients, tenants, property managers, customers, employees and competitors;
risks related to diverting the attention of Healthpeak’s and Physicians Realty Trust’s management from ongoing business operations;
unfavorable outcomes of any legal proceedings that have been or may be instituted against Healthpeak or Physicians Realty Trust; costs
related to uninsured losses, condemnation, or environmental issues, including risks of natural disasters; the ability to retain key personnel;
costs, fees, expenses and charges related to the proposed transactions and the actual terms of the financings that may be obtained in
connection with the proposed transactions; changes in local, national and international financial markets, insurance rates and interest
rates; general adverse economic and local real estate conditions; risks related to the market value of shares of Healthpeak common stock
to be issued in the transaction; the inability of major tenants to continue paying their rent obligations due to bankruptcy, insolvency
or a general downturn in their business; foreign currency exchange rates; increases in operating costs and real estate taxes; changes
in dividend policy or ability to pay dividends for Healthpeak or Physicians Realty Trust common shares; impairment charges; unanticipated
changes in Healthpeak’s or Physicians Realty Trust’s intention or ability to prepay certain debt prior to maturity and/or
hold certain securities until maturity; pandemics or other health crises, such as coronavirus (COVID-19); and those additional risks and
factors discussed in reports filed with the SEC by Healthpeak and Physicians Realty Trust. Moreover, other risks and uncertainties of
which Healthpeak or Physicians Realty Trust are not currently aware may also affect each of the companies’ forward-looking statements
and may cause actual results and the timing of events to differ materially from those anticipated. The forward-looking statements made
in this communication are made only as of the date hereof or as of the dates indicated in the forward-looking statements, even if they
are subsequently made available by Healthpeak or Physicians Realty Trust on their respective websites or otherwise. Neither Healthpeak
nor Physicians Realty Trust undertakes any obligation to update or supplement any forward-looking statements to reflect actual results,
new information, future events, changes in its expectations or other circumstances that exist after the date as of which the forward-looking
statements were made.
Item 9.01. Financial Statements
and Exhibits.
| (a) | Financial statements of businesses acquired. |
The unaudited consolidated interim
financial statements of Physicians Realty Trust as of September 30, 2023 and for the three and nine months ended September 30, 2023 and
2022 are filed as Exhibit 99.2 hereto. The audited consolidated financial statements of Physicians Realty Trust as of and for the years
ended December 31, 2022, 2021 and 2020 are filed as Exhibit 99.3 hereto. The information in Exhibits 99.2 and 99.3 was provided by Physicians Realty Trust.
| (b) | Pro Forma Financial Information. |
The unaudited pro forma condensed combined balance
sheet as of September 30, 2023 and the unaudited pro forma condensed combined statements of operations for the nine months ended September
30, 2023 and the year ended December 31, 2022 of Healthpeak are filed as Exhibit 99.4 hereto. Such unaudited pro forma condensed combined financial statements have been prepared on the basis of certain assumptions and estimates
as of the dates set forth therein. Such unaudited pro forma condensed combined
financial statements are not necessarily indicative of the financial position that actually would have existed or the operating results
that actually would have been achieved if the adjustments set forth therein had been in effect as of the dates and for the periods indicated
or that may be achieved in future periods and should be read in conjunction with the historical financial statements of Healthpeak and
Physicians Realty Trust.
(d) Exhibits.
ADDITIONAL INFORMATION AND
WHERE TO FIND IT
In connection with the proposed
transaction, on December 15, 2023, Healthpeak and Physicians Realty Trust filed with the SEC a registration statement on Form S-4 containing
a joint proxy statement/prospectus and other documents regarding the proposed transaction. The joint proxy statement/prospectus contains
important information about the proposed transaction and related matters. The Form S-4 was declared effective, and each of Healthpeak
and Physicians Realty Trust commenced mailing of the joint proxy statement/prospectus included as part of the Form S-4, on January 11,
2024.
STOCKHOLDERS ARE URGED AND ADVISED
TO READ THE JOINT PROXY STATEMENT/PROSPECTUS (INCLUDING ALL AMENDMENTS AND SUPPLEMENTS THERETO) AND OTHER RELEVANT DOCUMENTS FILED WITH
THE SEC CAREFULLY BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT HEALTHPEAK, PHYSICIANS REALTY TRUST AND THE PROPOSED TRANSACTION.
Investors and security holders
of Healthpeak and Physicians Realty Trust are able to obtain free copies of the registration statement, the joint proxy statement/prospectus
and other relevant documents filed by Healthpeak and Physicians Realty Trust with the SEC through the website maintained by the SEC at
www.sec.gov. Copies of the documents filed by Healthpeak with the SEC are also available on Healthpeak’s website at www.healthpeak.com,
and copies of the documents filed by Physicians Realty Trust with the SEC are available on Physicians Realty Trust’s website at
www.docreit.com.
PARTICIPANTS IN THE SOLICITATION
Healthpeak, Physicians Realty
Trust and their respective directors, trustees and executive officers may be deemed to be participants in the solicitation of proxies
from Healthpeak’s stockholders and Physicians Realty Trust’s shareholders in respect of the proposed transaction. Information
regarding Healthpeak’s directors and executive officers can be found in Healthpeak’s definitive proxy statement filed with
the SEC on March 17, 2023. Information regarding Physicians Realty Trust’s trustees and executive officers can be found in Physicians
Realty Trust’s definitive proxy statement filed with the SEC on March 23, 2023.
Additional information regarding
the interests of such potential participants is included in the joint proxy statement/prospectus and other relevant documents filed with
the SEC in connection with the proposed transaction. These documents are available on the SEC’s website and from Healthpeak and
Physicians Realty Trust, as applicable, using the sources indicated above.
NO OFFER OR SOLICITATION
This communication is for informational
purposes only and is neither an offer to purchase, nor a solicitation of an offer to sell, any securities or the solicitation of any vote
in any jurisdiction pursuant to the proposed transaction or otherwise, nor shall there be any sale, issuance or transfer of securities
in any jurisdiction in contravention of applicable law. No offer of securities shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as amended.
SIGNATURES
Pursuant to the requirements
of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned
hereunto duly authorized.
Date: February 7, 2024
| |
Healthpeak Properties, Inc. |
| |
|
| |
By: |
/s/ Peter A. Scott |
| |
|
Peter A. Scott |
| |
|
Chief Financial Officer |
Exhibit 23.1
Consent of Independent Registered Public Accounting
Firm
We consent to the incorporation by reference in the following Registration
Statements of Healthpeak Properties, Inc.:
| · | Form S-4, File No. 333-276055, as amended, related to the issuance of common shares of Healthpeak Properties, Inc.
in connection with the proposed merger with Physicians Realty Trust, |
| · | Form S-8, File No. 333-271514, related to the Healthpeak Properties, Inc. 2023 Performance Incentive Plan, |
| · | Form S-3ASR, File No. 333-269718, related to the unlimited shelf registration of common stock, preferred stock, depositary
shares, warrants, debt securities and guarantees of Healthpeak Properties, Inc. and debt securities and guarantees of Healthpeak
OP, LLC, and |
| · | Form S-8 POS, File No. 333-195735, related to securities to be offered to employees under the Healthpeak Properties, Inc.
2014 Performance Incentive Plan, as amended and restated, |
of our reports dated February 24, 2023, relating to the consolidated
financial statements and schedules of Physicians Realty Trust and the effectiveness of Physicians Realty Trust’s internal control
over financial reporting, appearing in this Current Report on Form 8-K of Healthpeak Properties, Inc.
/s/ Ernst & Young LLP
Milwaukee, Wisconsin
February 7, 2024
Exhibit 99.1
On February 7, 2024, Physicians Realty Trust (“we,”
“us,” “our,” the “Company” or “Physicians Realty Trust”), disclosed preliminary estimates
of certain consolidated financial data of Company for the three months and year ended December 31, 2023.
Preliminary Estimates for the Fourth Quarter and Full Year Ended
December 31, 2023
Set forth below are preliminary estimates of certain consolidated financial
data of the Company for the three months and year ended December 31, 2023. We have provided ranges, rather than specific amounts,
for these preliminary estimates, as our actual consolidated financial results remain subject to completion of our annual audit procedures
for the year ended December 31, 2023, which have commenced but are not yet completed. Our actual consolidated financial results for
the three months and year ended December 31, 2023 are expected to be reported in connection with the filing of our Annual Report
on Form 10-K for the year ended December 31, 2023 on February 22, 2024. Our actual consolidated financial results for the
three months and year ended December 31, 2023 may differ materially from these preliminary estimates, including as a result of audit
adjustments and other developments that may arise between now and the time our actual consolidated financial results for the three months
and year ended December 31, 2023 are finalized and reported. Moreover, these preliminary estimates should not be viewed as a substitute
for audited consolidated financial statements and related notes as of and for the year ended December 31, 2023 prepared in accordance
with Generally Accepted Accounting Principles (“GAAP”). Accordingly, you should not place undue reliance on these preliminary
estimates.
| | |
Three Months Ended
December 31, 2023 | | |
Year Ended
December 31, 2023 | |
| (Unaudited, subject to change) | |
Low | | |
High | | |
Low | | |
High | |
| Net income ($1,000s) | |
$ | 4,000 | | |
$ | 11,000 | | |
$ | 40,645 | | |
$ | 47,645 | |
| Earnings per share, diluted | |
$ | 0.02 | | |
$ | 0.04 | | |
$ | 0.16 | | |
$ | 0.19 | |
| FFO per common share, diluted | |
$ | 0.22 | | |
$ | 0.24 | | |
$ | 0.96 | | |
$ | 0.98 | |
| Normalized FFO per common share, diluted | |
$ | 0.25 | | |
$ | 0.27 | | |
$ | 0.98 | | |
$ | 1.00 | |
These preliminary estimates have been prepared by, and are the responsibility
of, our management. Our independent registered public accounting firm, Ernst & Young LLP, has not audited, reviewed, compiled
or applied agreed-upon procedures with respect to these preliminary estimates. Accordingly, our independent registered public accounting
firm does not express an opinion or any other form of assurance with respect thereto.
Non-GAAP Financial Measures
This Current Report on Form 8-K includes Funds From Operations
(“FFO”) and Normalized FFO which are non-GAAP financial measures. For purposes of the Securities and Exchange Commission's
(“SEC”) Regulation G, 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 Current Report on Form 8-K, GAAP refers to generally accepted accounting principles in the United
States of America. Pursuant to the requirements of Regulation G, we have provided reconciliations of the non-GAAP financial measures to
the most directly comparable GAAP financial measures.
Funds
From Operations (“FFO”). Funds from operations, or “FFO”, is a widely recognized measure of REIT
performance. We believe that information regarding FFO is helpful to shareholders and potential investors because it facilitates an understanding
of the operating performance of our properties without giving effect to real estate depreciation and amortization, which assumes that
the value of real estate assets diminishes ratably over time. We calculate FFO in accordance with standards established by the National
Association of Real Estate Investment Trusts (“Nareit”). Nareit defines FFO as net income or loss (computed in accordance
with GAAP) before noncontrolling interests of holders of operating partnership units, excluding preferred distributions, gains (or losses)
on sales of depreciable operating property, impairment write-downs on depreciable assets, plus real estate related depreciation and amortization
(excluding amortization of deferred financing costs). Our FFO computation includes our share of required adjustments from our unconsolidated
joint ventures and may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the Nareit definition
or that interpret the Nareit definition differently than we do. The GAAP measure that we believe to be most directly comparable to FFO,
net income, includes depreciation and amortization expenses, gains or losses on property sales, impairments, and noncontrolling interests.
In computing FFO, we eliminate these items because, in our view, they are not indicative of the results from the operations of our properties.
To facilitate a clear understanding of our historical operating results, FFO should be examined in conjunction with net income (determined
in accordance with GAAP) as presented in our financial statements. FFO does not represent cash generated from operating activities in
accordance with GAAP, should not be considered to be an alternative to net income or loss (determined in accordance with GAAP) as a measure
of our liquidity and is not indicative of funds available for our cash needs, including our ability to make cash distributions to shareholders.
Normalized
Funds From Operations (“Normalized FFO”). Changes in the accounting and reporting rules under GAAP have
prompted a significant increase in the amount of non-operating items included in FFO, as defined. Therefore, we use Normalized FFO, which
excludes from FFO net change in fair value of derivative financial instruments, acceleration of deferred financing costs, net change in
fair value of contingent consideration, gain on extinguishment of debt, merger and transaction related expenses, and other normalizing
items. Our Normalized FFO computation includes our share of required adjustments from our unconsolidated joint ventures and our use of
the term Normalized FFO may not be comparable to that of other real estate companies as they may have different methodologies for computing
this amount. Normalized FFO should not be considered as an alternative to net income or loss (computed in accordance with GAAP), as an
indicator of our financial performance or of cash flow from operating activities (computed in accordance with GAAP), or as an indicator
of our liquidity, nor is it indicative of funds available to fund our cash needs, including its ability to make distributions. Normalized
FFO should be reviewed in connection with other GAAP measurements.
Physicians Realty Trust
Reconciliation of Non-GAAP Measures
(in thousands, except share and per share
data)
(unaudited)
| | |
Three Months Ended
December 31, 2023
(Preliminary) | | |
Year Ended
December 31, 2023
(Preliminary) | |
| | |
Low | | |
High | | |
Low | | |
High | |
| Net income | |
$ | 4,000 | | |
$ | 11,000 | | |
$ | 40,645 | | |
$ | 47,645 | |
| Earnings per share - diluted | |
$ | 0.02 | | |
$ | 0.04 | | |
$ | 0.16 | | |
$ | 0.19 | |
| | |
| | | |
| | | |
| | | |
| | |
| Net income | |
$ | 4,000 | | |
$ | 11,000 | | |
$ | 40,645 | | |
$ | 47,645 | |
| Net income attributable to noncontrolling interests - partially owned properties | |
| (44 | ) | |
| (54 | ) | |
| (165 | ) | |
| (175 | ) |
| Depreciation and amortization expense | |
| 47,750 | | |
| 47,250 | | |
| 190,987 | | |
| 190,487 | |
| Depreciation and amortization expense - partially owned properties | |
| (112 | ) | |
| (137 | ) | |
| (522 | ) | |
| (547 | ) |
| Gain on the sale of investment properties, net | |
| — | | |
| — | | |
| (13 | ) | |
| (13 | ) |
| Proportionate share of unconsolidated joint venture adjustments | |
| 2,300 | | |
| 2,200 | | |
| 7,299 | | |
| 7,199 | |
| FFO applicable to common shares | |
$ | 53,894 | | |
$ | 60,259 | | |
$ | 238,231 | | |
$ | 244,596 | |
| Net change in fair value of derivative | |
| 516 | | |
| 426 | | |
| 701 | | |
| 611 | |
| Merger and transaction-related expense (1) | |
| 8,400 | | |
| 6,500 | | |
| 8,400 | | |
| 6,500 | |
| Gain on extinguishment of debt | |
| — | | |
| — | | |
| (1,763 | ) | |
| (1,763 | ) |
| Normalized FFO applicable to common shares | |
$ | 62,810 | | |
$ | 67,185 | | |
$ | 245,569 | | |
$ | 249,944 | |
| | |
| | | |
| | | |
| | | |
| | |
| FFO per common share - diluted | |
$ | 0.22 | | |
$ | 0.24 | | |
$ | 0.96 | | |
$ | 0.98 | |
| Normalized FFO per common share - diluted | |
$ | 0.25 | | |
$ | 0.27 | | |
$ | 0.98 | | |
$ | 1.00 | |
| | |
| | | |
| | | |
| | | |
| | |
| Weighted average common shares outstanding - diluted | |
| 249,642,987 | | |
| 249,642,987 | | |
| 249,344,713 | | |
| 249,344,713 | |
| (1) | During the year ended December 31, 2023, the Company
recorded merger and transaction-related expense related to the proposed merger with Healthpeak Properties, Inc. (“Healthpeak”),
which are primarily comprised of legal, accounting, tax, and other costs incurred prior to year-end. |
Forward-Looking Statements
This Current Report on Form 8-K may include “forward-looking
statements,” including but not limited to those regarding the proposed transactions between Physicians Realty Trust and Healthpeak
within the meaning of the Private Securities Litigation Reform Act. All statements other than statements of historical fact are “forward-looking
statements” for purposes of federal and state securities laws. These forward-looking statements, which are based on current expectations,
estimates and projections about the industry and markets in which Healthpeak and Physicians Realty Trust operate and beliefs of and assumptions
made by Healthpeak management and Physicians Realty Trust management, involve uncertainties that could significantly affect the financial
or operating results of Healthpeak, Physicians Realty Trust or the combined company. Words such as “expects,” “anticipates,”
“intends,” “plans,” “believes,” “seeks,” “estimates,” “predicts,”
“projects,” “forecasts,” “will,” “may,” “potential,” “can,” “could,”
“should,” “pro forma,” and variations of such words and similar expressions are intended to identify such forward-looking
statements. Such forward-looking statements include, but are not limited to, statements about the benefits of the proposed transactions
involving Healthpeak and Physicians Realty Trust, including future financial and operating results, plans, objectives, expectations and
intentions. All statements that address operating performance, events or developments that Healthpeak and Physicians Realty Trust expects
or anticipates will occur in the future — including statements relating to creating value for shareholders, benefits of the proposed
transactions to clients, tenants, employees, shareholders and other constituents of the combined company, integrating the companies, cost
savings and the expected timetable for completing the proposed transactions — are forward-looking statements. These statements are
not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Although
Healthpeak and Physicians Realty Trust believe the expectations reflected in any forward-looking statements are based on reasonable assumptions,
Healthpeak and Physicians Realty Trust can give no assurance that its expectations will be attained and, therefore, actual outcomes and
results may differ materially from what is expressed or forecasted in such forward-looking statements. For example, these forward-looking
statements could be affected by factors including, without limitation, risks associated with the ability to consummate the proposed merger
and the timing of the closing of the proposed merger; securing the necessary shareholder approvals and satisfaction of other closing conditions
to consummate the proposed merger; the occurrence of any event, change or other circumstance that could give rise to the termination of
the merger agreement relating to the proposed transactions; the ability to secure favorable interest rates on any borrowings incurred
in connection with the proposed transactions; the impact of indebtedness incurred in connection with the proposed transactions; the ability
to successfully integrate portfolios, business operations, including properties, tenants, property managers and employees; the ability
to realize anticipated benefits and synergies of the proposed transactions as rapidly or to the extent anticipated by financial analysts
or investors; potential liability for a failure to meet regulatory or tax-related requirements, including the maintenance of REIT status;
material changes in the dividend rates on securities or the ability to pay dividends on common shares or other securities; potential changes
to tax legislation; changes in demand for developed properties; adverse changes in the financial condition of joint venture partner(s) or
major tenants; risks associated with the acquisition, development, expansion, leasing and management of properties; risks associated with
the geographic concentration of Healthpeak or Physicians Realty Trust; risks associated with the industry concentration of tenants; the
potential impact of the announcement of the proposed transactions or consummation of the proposed transactions on business relationships,
including with clients, tenants, property managers, customers, employees and competitors; risks related to diverting the attention of
Healthpeak’s and Physicians Realty Trust’s management from ongoing business operations; unfavorable outcomes of any legal
proceedings that have been or may be instituted against Healthpeak or Physicians Realty Trust; costs related to uninsured losses, condemnation,
or environmental issues, including risks of natural disasters; the ability to retain key personnel; costs, fees, expenses and charges
related to the proposed transactions and the actual terms of the financings that may be obtained in connection with the proposed transactions;
changes in local, national and international financial markets, insurance rates and interest rates; general adverse economic and local
real estate conditions; risks related to the market value of shares of Healthpeak common stock to be issued in the transaction; the inability
of major tenants to continue paying their rent obligations due to bankruptcy, insolvency or a general downturn in their business; foreign
currency exchange rates; increases in operating costs and real estate taxes; changes in dividend policy or ability to pay dividends for
Healthpeak or Physicians Realty Trust common shares; impairment charges; unanticipated changes in Healthpeak’s or Physicians Realty
Trust’s intention or ability to prepay certain debt prior to maturity and/or hold certain securities until maturity; pandemics or
other health crises, such as coronavirus (COVID-19); and those additional risks and factors discussed in reports filed with the SEC by
Healthpeak and Physicians Realty Trust. Moreover, other risks and uncertainties of which Healthpeak or Physicians Realty Trust are not
currently aware may also affect each of the companies’ forward-looking statements and may cause actual results and the timing of
events to differ materially from those anticipated. The forward-looking statements made in this communication are made only as of the
date hereof or as of the dates indicated in the forward-looking statements, even if they are subsequently made available by Healthpeak
or Physicians Realty Trust on their respective websites or otherwise. Neither Healthpeak nor Physicians Realty Trust undertakes any obligation
to update or supplement any forward-looking statements to reflect actual results, new information, future events, changes in its expectations
or other circumstances that exist after the date as of which the forward-looking statements were made.
Exhibit 99.2
Physicians
Realty Trust
Consolidated
Balance Sheets
(In
thousands, except share and per share data)
| | |
September 30,
2023 | | |
December 31,
2022 | |
| | |
(unaudited) | | |
| |
| ASSETS | |
| | | |
| | |
| Investment
properties: | |
| | | |
| | |
| Land
and improvements | |
$ | 249,468 | | |
$ | 241,559 | |
| Building
and improvements | |
| 4,703,606 | | |
| 4,659,780 | |
| Construction
in progress | |
| 41,722 | | |
| 18,497 | |
| Tenant
improvements | |
| 95,447 | | |
| 88,640 | |
| Acquired
lease intangibles | |
| 509,468 | | |
| 505,335 | |
| | |
| 5,599,711 | | |
| 5,513,811 | |
| Accumulated
depreciation | |
| (1,140,208 | ) | |
| (996,888 | ) |
| Net
real estate property | |
| 4,459,503 | | |
| 4,516,923 | |
| Right-of-use
lease assets, net | |
| 227,967 | | |
| 231,225 | |
| Real
estate loans receivable, net | |
| 79,883 | | |
| 104,973 | |
| Investments
in unconsolidated entities | |
| 72,069 | | |
| 77,716 | |
| Net
real estate investments | |
| 4,839,422 | | |
| 4,930,837 | |
| Cash
and cash equivalents | |
| 195,772 | | |
| 7,730 | |
| Tenant
receivables, net | |
| 11,131 | | |
| 11,503 | |
| Other
assets | |
| 166,142 | | |
| 146,807 | |
| Total
assets | |
$ | 5,212,467 | | |
$ | 5,096,877 | |
| LIABILITIES
AND EQUITY | |
| | | |
| | |
| Liabilities: | |
| | | |
| | |
| Credit
facility | |
$ | 393,090 | | |
$ | 188,328 | |
| Notes
payable | |
| 1,451,536 | | |
| 1,465,437 | |
| Mortgage
debt | |
| 127,630 | | |
| 164,352 | |
| Accounts
payable | |
| 4,933 | | |
| 4,391 | |
| Dividends
and distributions payable | |
| 60,928 | | |
| 60,148 | |
| Accrued
expenses and other liabilities | |
| 95,637 | | |
| 87,720 | |
| Lease
liabilities | |
| 104,802 | | |
| 105,011 | |
| Acquired
lease intangibles, net | |
| 23,170 | | |
| 24,381 | |
| Total
liabilities | |
| 2,261,726 | | |
| 2,099,768 | |
| | |
| | | |
| | |
| Redeemable
noncontrolling interests - partially owned properties | |
| 3,066 | | |
| 3,258 | |
| | |
| | | |
| | |
| Equity: | |
| | | |
| | |
| Common
shares, $0.01 par value, 500,000,000 common shares authorized, 238,482,769 and 233,292,030 common
shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively | |
| 2,385 | | |
| 2,333 | |
| Additional
paid-in capital | |
| 3,817,545 | | |
| 3,743,876 | |
| Accumulated
deficit | |
| (1,012,869 | ) | |
| (881,672 | ) |
| Accumulated
other comprehensive income | |
| 15,216 | | |
| 5,183 | |
| Total
shareholders’ equity | |
| 2,822,277 | | |
| 2,869,720 | |
| Noncontrolling
interests: | |
| | | |
| | |
| Operating
Partnership | |
| 116,079 | | |
| 123,015 | |
| Partially
owned properties | |
| 9,319 | | |
| 1,116 | |
| Total
noncontrolling interests | |
| 125,398 | | |
| 124,131 | |
| Total
equity | |
| 2,947,675 | | |
| 2,993,851 | |
| Total
liabilities and equity | |
$ | 5,212,467 | | |
$ | 5,096,877 | |
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
September 30, | | |
Nine
Months Ended
September 30, | |
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Revenues: | |
| | | |
| | | |
| | | |
| | |
| Rental
and related revenues | |
$ | 134,520 | | |
$ | 128,636 | | |
$ | 397,096 | | |
$ | 385,755 | |
| Interest
income on real estate loans and other | |
| 4,027 | | |
| 2,877 | | |
| 10,895 | | |
| 8,315 | |
| Total
revenues | |
| 138,547 | | |
| 131,513 | | |
| 407,991 | | |
| 394,070 | |
| Expenses: | |
| | | |
| | | |
| | | |
| | |
| Interest
expense | |
| 20,050 | | |
| 18,299 | | |
| 59,837 | | |
| 52,356 | |
| General
and administrative | |
| 9,771 | | |
| 10,079 | | |
| 31,133 | | |
| 30,400 | |
| Operating
expenses | |
| 47,625 | | |
| 43,647 | | |
| 138,094 | | |
| 128,080 | |
| Depreciation
and amortization | |
| 47,932 | | |
| 47,040 | | |
| 143,555 | | |
| 142,002 | |
| Total
expenses | |
| 125,378 | | |
| 119,065 | | |
| 372,619 | | |
| 352,838 | |
| Income
before equity in (loss) gain of unconsolidated entities and gain on sale of investment properties, net: | |
| 13,169 | | |
| 12,448 | | |
| 35,372 | | |
| 41,232 | |
| Equity
in (loss) gain of unconsolidated entities | |
| (278 | ) | |
| (62 | ) | |
| 1,260 | | |
| (452 | ) |
| Gain
on sale of investment properties, net | |
| — | | |
| 53,894 | | |
| 13 | | |
| 57,375 | |
| Net
income | |
| 12,891 | | |
| 66,280 | | |
| 36,645 | | |
| 98,155 | |
| Net
income attributable to noncontrolling interests: | |
| | | |
| | | |
| | | |
| | |
| Operating
Partnership | |
| (505 | ) | |
| (3,252 | ) | |
| (1,443 | ) | |
| (4,830 | ) |
| Partially
owned properties (1) | |
| (51 | ) | |
| (70 | ) | |
| (121 | ) | |
| (384 | ) |
| Net
income attributable to common shareholders | |
$ | 12,335 | | |
$ | 62,958 | | |
$ | 35,081 | | |
$ | 92,941 | |
| Net
income per share: | |
| | | |
| | | |
| | | |
| | |
| Basic | |
$ | 0.05 | | |
$ | 0.28 | | |
$ | 0.15 | | |
$ | 0.41 | |
| Diluted | |
$ | 0.05 | | |
$ | 0.28 | | |
$ | 0.15 | | |
$ | 0.41 | |
| Weighted
average common shares: | |
| | | |
| | | |
| | | |
| | |
| Basic | |
| 238,480,299 | | |
| 226,529,041 | | |
| 238,124,981 | | |
| 225,743,856 | |
| Diluted | |
| 249,445,312 | | |
| 239,898,462 | | |
| 249,226,913 | | |
| 239,145,383 | |
| | |
| | | |
| | | |
| | | |
| | |
| Dividends
and distributions declared per common share | |
$ | 0.23 | | |
$ | 0.23 | | |
$ | 0.69 | | |
$ | 0.69 | |
(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
September 30, | | |
Nine
Months Ended
September 30, | |
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Net
income | |
$ | 12,891 | | |
$ | 66,280 | | |
$ | 36,645 | | |
$ | 98,155 | |
| Other
comprehensive income: | |
| | | |
| | | |
| | | |
| | |
| Change
in fair value of interest rate swap agreements, net | |
| 7,697 | | |
| 1,753 | | |
| 11,796 | | |
| 6,215 | |
| Reclassification
of accumulated gains on interest rate swap to earnings | |
| (1,763 | ) | |
| — | | |
| (1,763 | ) | |
| — | |
| Total
other comprehensive income | |
| 5,934 | | |
| 1,753 | | |
| 10,033 | | |
| 6,215 | |
| Comprehensive
income | |
| 18,825 | | |
| 68,033 | | |
| 46,678 | | |
| 104,370 | |
| Comprehensive
income attributable to noncontrolling interests - Operating Partnership | |
| (739 | ) | |
| (3,336 | ) | |
| (1,839 | ) | |
| (5,137 | ) |
| Comprehensive
income attributable to noncontrolling interests - partially owned properties | |
| (51 | ) | |
| (70 | ) | |
| (121 | ) | |
| (384 | ) |
| Comprehensive
income attributable to common shareholders | |
$ | 18,035 | | |
$ | 64,627 | | |
$ | 44,718 | | |
$ | 98,849 | |
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 (Loss) | | |
Total
Shareholders’
Equity | | |
Operating
Partnership
Noncontrolling
Interest | | |
Partially
Owned
Properties
Noncontrolling
Interest | | |
Total
Noncontrolling
Interests | | |
Total
Equity | |
| Balance
at December 31, 2022 | |
$ | 2,333 | | |
$ | 3,743,876 | | |
$ | (881,672 | ) | |
$ | 5,183 | | |
$ | 2,869,720 | | |
$ | 123,015 | | |
$ | 1,116 | | |
$ | 124,131 | | |
$ | 2,993,851 | |
| Net
proceeds from sale of common shares | |
| 44 | | |
| 65,769 | | |
| — | | |
| — | | |
| 65,813 | | |
| — | | |
| — | | |
| — | | |
| 65,813 | |
| Restricted
share award grants, net | |
| 5 | | |
| (1,127 | ) | |
| (408 | ) | |
| — | | |
| (1,530 | ) | |
| — | | |
| — | | |
| — | | |
| (1,530 | ) |
| Conversion
of OP Units | |
| 2 | | |
| 2,417 | | |
| — | | |
| — | | |
| 2,419 | | |
| (2,419 | ) | |
| — | | |
| (2,419 | ) | |
| — | |
| Dividends/distributions
declared | |
| — | | |
| — | | |
| (54,912 | ) | |
| — | | |
| (54,912 | ) | |
| (2,263 | ) | |
| — | | |
| (2,263 | ) | |
| (57,175 | ) |
| Contributions | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 7,884 | | |
| 7,884 | | |
| 7,884 | |
| Distributions | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (53 | ) | |
| (53 | ) | |
| (53 | ) |
| Change
in fair value of interest rate swap agreements | |
| — | | |
| — | | |
| — | | |
| (1,021 | ) | |
| (1,021 | ) | |
| — | | |
| — | | |
| — | | |
| (1,021 | ) |
| Adjustment
for Noncontrolling Interests ownership in Operating Partnership | |
| — | | |
| (431 | ) | |
| — | | |
| — | | |
| (431 | ) | |
| 431 | | |
| — | | |
| 431 | | |
| — | |
| Net
income | |
| — | | |
| — | | |
| 10,202 | | |
| — | | |
| 10,202 | | |
| 423 | | |
| 64 | | |
| 487 | | |
| 10,689 | |
| Balance
as of March 31, 2023 | |
$ | 2,384 | | |
$ | 3,810,504 | | |
$ | (926,790 | ) | |
$ | 4,162 | | |
$ | 2,890,260 | | |
$ | 119,187 | | |
$ | 9,011 | | |
$ | 128,198 | | |
$ | 3,018,458 | |
| Net
proceeds from sale of common shares | |
| — | | |
| 294 | | |
| — | | |
| — | | |
| 294 | | |
| — | | |
| — | | |
| — | | |
| 294 | |
| Restricted
share award grants, net | |
| 1 | | |
| 3,459 | | |
| (561 | ) | |
| — | | |
| 2,899 | | |
| — | | |
| — | | |
| — | | |
| 2,899 | |
| Purchase
of OP Units | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (72 | ) | |
| — | | |
| (72 | ) | |
| (72 | ) |
| Dividends/distributions
declared | |
| — | | |
| — | | |
| (54,936 | ) | |
| — | | |
| (54,936 | ) | |
| (2,257 | ) | |
| — | | |
| (2,257 | ) | |
| (57,193 | ) |
| Contributions | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 287 | | |
| 287 | | |
| 287 | |
| Distributions | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (52 | ) | |
| (52 | ) | |
| (52 | ) |
| Change
in fair value of interest rate swap agreements | |
| — | | |
| — | | |
| — | | |
| 5,120 | | |
| 5,120 | | |
| — | | |
| — | | |
| — | | |
| 5,120 | |
| Adjustment
for Noncontrolling Interests ownership in Operating Partnership | |
| — | | |
| (393 | ) | |
| — | | |
| — | | |
| (393 | ) | |
| 393 | | |
| — | | |
| 393 | | |
| — | |
| Net
income | |
| — | | |
| — | | |
| 12,544 | | |
| — | | |
| 12,544 | | |
| 515 | | |
| 59 | | |
| 574 | | |
| 13,118 | |
| Balance
as of June 30, 2023 | |
$ | 2,385 | | |
$ | 3,813,864 | | |
$ | (969,743 | ) | |
$ | 9,282 | | |
$ | 2,855,788 | | |
$ | 117,766 | | |
$ | 9,305 | | |
$ | 127,071 | | |
$ | 2,982,859 | |
| Restricted
share award grants, net | |
| — | | |
| 3,746 | | |
| (523 | ) | |
| — | | |
| 3,223 | | |
| — | | |
| — | | |
| — | | |
| 3,223 | |
| Conversion
of OP Units | |
| — | | |
| 350 | | |
| — | | |
| — | | |
| 350 | | |
| (350 | ) | |
| — | | |
| (350 | ) | |
| — | |
| Dividends/distributions
declared | |
| — | | |
| — | | |
| (54,938 | ) | |
| — | | |
| (54,938 | ) | |
| (2,257 | ) | |
| — | | |
| (2,257 | ) | |
| (57,195 | ) |
| Distributions | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (53 | ) | |
| (53 | ) | |
| (53 | ) |
| Reclassification
of accumulated gains on interest rate swap to earnings | |
| — | | |
| — | | |
| — | | |
| (1,763 | ) | |
| (1,763 | ) | |
| — | | |
| — | | |
| — | | |
| (1,763 | ) |
| Change
in fair value of interest rate swap agreements | |
| — | | |
| — | | |
| — | | |
| 7,697 | | |
| 7,697 | | |
| — | | |
| — | | |
| — | | |
| 7,697 | |
| Adjustment
for Noncontrolling Interests ownership in Operating Partnership | |
| — | | |
| (415 | ) | |
| — | | |
| — | | |
| (415 | ) | |
| 415 | | |
| — | | |
| 415 | | |
| — | |
| Net
income | |
| — | | |
| — | | |
| 12,335 | | |
| — | | |
| 12,335 | | |
| 505 | | |
| 67 | | |
| 572 | | |
| 12,907 | |
| Balance
as of September 30, 2023 | |
$ | 2,385 | | |
$ | 3,817,545 | | |
$ | (1,012,869 | ) | |
$ | 15,216 | | |
$ | 2,822,277 | | |
$ | 116,079 | | |
$ | 9,319 | | |
$ | 125,398 | | |
$ | 2,947,675 | |
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 (Loss) | | |
Total
Shareholders’
Equity | | |
Operating
Partnership
Noncontrolling
Interest | | |
Partially
Owned
Properties
Noncontrolling
Interest | | |
Total
Noncontrolling
Interests | | |
Total
Equity | |
| Balance
at December 31, 2021 | |
$ | 2,247 | | |
$ | 3,610,954 | | |
$ | (776,001 | ) | |
$ | (892 | ) | |
$ | 2,836,308 | | |
$ | 150,241 | | |
$ | 484 | | |
$ | 150,725 | | |
$ | 2,987,033 | |
| Net
proceeds from sale of common shares | |
| 3 | | |
| 5,029 | | |
| — | | |
| — | | |
| 5,032 | | |
| — | | |
| — | | |
| — | | |
| 5,032 | |
| Restricted
share award grants, net | |
| 3 | | |
| 118 | | |
| (421 | ) | |
| — | | |
| (300 | ) | |
| — | | |
| — | | |
| — | | |
| (300 | ) |
| Purchase
of OP Units | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (184 | ) | |
| — | | |
| (184 | ) | |
| (184 | ) |
| Dividends/distributions
declared | |
| — | | |
| — | | |
| (51,879 | ) | |
| — | | |
| (51,879 | ) | |
| (2,740 | ) | |
| — | | |
| (2,740 | ) | |
| (54,619 | ) |
| Contributions | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 569 | | |
| 569 | | |
| 569 | |
| Distributions | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (55 | ) | |
| (55 | ) | |
| (55 | ) |
| Change
in market value of Redeemable Noncontrolling Interest in partially owned properties | |
| — | | |
| — | | |
| 717 | | |
| — | | |
| 717 | | |
| — | | |
| — | | |
| — | | |
| 717 | |
| Change
in fair value of interest rate swap agreement | |
| — | | |
| — | | |
| — | | |
| 1,379 | | |
| 1,379 | | |
| — | | |
| — | | |
| — | | |
| 1,379 | |
| Adjustment
for Noncontrolling Interests ownership in Operating Partnership | |
| — | | |
| (217 | ) | |
| — | | |
| — | | |
| (217 | ) | |
| 217 | | |
| — | | |
| 217 | | |
| — | |
| Net
income | |
| — | | |
| — | | |
| 13,092 | | |
| — | | |
| 13,092 | | |
| 692 | | |
| 82 | | |
| 774 | | |
| 13,866 | |
| Balance
as of March 31, 2022 | |
$ | 2,253 | | |
$ | 3,615,884 | | |
$ | (814,492 | ) | |
$ | 487 | | |
$ | 2,804,132 | | |
$ | 148,226 | | |
$ | 1,080 | | |
$ | 149,306 | | |
$ | 2,953,438 | |
| Net
proceeds from sale of common shares | |
| 9 | | |
| 18,475 | | |
| — | | |
| — | | |
| 18,484 | | |
| — | | |
| — | | |
| — | | |
| 18,484 | |
| Restricted
share award grants, net | |
| 1 | | |
| 3,588 | | |
| (911 | ) | |
| — | | |
| 2,678 | | |
| — | | |
| — | | |
| — | | |
| 2,678 | |
| Dividends/distributions
declared | |
| — | | |
| — | | |
| (52,116 | ) | |
| — | | |
| (52,116 | ) | |
| (2,712 | ) | |
| — | | |
| (2,712 | ) | |
| (54,828 | ) |
| Distributions | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (61 | ) | |
| (61 | ) | |
| (61 | ) |
| Change
in market value of Redeemable Noncontrolling Interest in partially owned properties | |
| — | | |
| — | | |
| 527 | | |
| — | | |
| 527 | | |
| — | | |
| — | | |
| — | | |
| 527 | |
| Change
in fair value of interest rate swap agreement | |
| — | | |
| — | | |
| — | | |
| 3,083 | | |
| 3,083 | | |
| — | | |
| — | | |
| — | | |
| 3,083 | |
| Adjustment
for Noncontrolling Interests ownership in Operating Partnership | |
| — | | |
| (488 | ) | |
| — | | |
| — | | |
| (488 | ) | |
| 488 | | |
| — | | |
| 488 | | |
| — | |
| Net
income | |
| — | | |
| — | | |
| 16,891 | | |
| — | | |
| 16,891 | | |
| 886 | | |
| 79 | | |
| 965 | | |
| 17,856 | |
| Balance
as of June 30, 2022 | |
$ | 2,263 | | |
$ | 3,637,459 | | |
$ | (850,101 | ) | |
$ | 3,570 | | |
$ | 2,793,191 | | |
$ | 146,888 | | |
$ | 1,098 | | |
$ | 147,986 | | |
$ | 2,941,177 | |
| Net
proceeds from sale of common shares | |
| 5 | | |
| 7,925 | | |
| — | | |
| — | | |
| 7,930 | | |
| — | | |
| — | | |
| — | | |
| 7,930 | |
| Restricted
share award grants, net | |
| — | | |
| 4,326 | | |
| (536 | ) | |
| — | | |
| 3,790 | | |
| — | | |
| — | | |
| — | | |
| 3,790 | |
| Purchase
of OP Units | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (2,139 | ) | |
| — | | |
| (2,139 | ) | |
| (2,139 | ) |
| Dividends/distributions
declared | |
| — | | |
| — | | |
| (52,563 | ) | |
| — | | |
| (52,563 | ) | |
| (2,302 | ) | |
| — | | |
| (2,302 | ) | |
| (54,865 | ) |
| Distributions | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| (61 | ) | |
| (61 | ) | |
| (61 | ) |
| Change
in market value of Redeemable Noncontrolling Interest in partially owned properties | |
| — | | |
| — | | |
| 1,513 | | |
| — | | |
| 1,513 | | |
| — | | |
| — | | |
| — | | |
| 1,513 | |
| Change
in fair value of interest rate swap agreement | |
| — | | |
| — | | |
| — | | |
| 1,753 | | |
| 1,753 | | |
| — | | |
| — | | |
| — | | |
| 1,753 | |
| Adjustment
for Noncontrolling Interests ownership in Operating Partnership | |
| — | | |
| (727 | ) | |
| — | | |
| — | | |
| (727 | ) | |
| 727 | | |
| — | | |
| 727 | | |
| — | |
| Net
income | |
| — | | |
| — | | |
| 62,958 | | |
| — | | |
| 62,958 | | |
| 3,252 | | |
| 74 | | |
| 3,326 | | |
| 66,284 | |
| Balance
as of September 30, 2022 | |
$ | 2,268 | | |
$ | 3,648,983 | | |
$ | (838,729 | ) | |
$ | 5,323 | | |
$ | 2,817,845 | | |
$ | 146,426 | | |
$ | 1,111 | | |
$ | 147,537 | | |
$ | 2,965,382 | |
The
accompanying notes are an integral part of these consolidated financial statements.
Physicians
Realty Trust
Consolidated
Statements of Cash Flows
(In
thousands) (Unaudited)
| | |
Nine
Months Ended
September 30, | |
| | |
2023 | | |
2022 | |
| Cash
Flows from Operating Activities: | |
| | | |
| | |
| Net
income | |
$ | 36,645 | | |
$ | 98,155 | |
| Adjustments
to reconcile net income to net cash provided by operating activities | |
| | | |
| | |
| Depreciation
and amortization | |
| 143,555 | | |
| 142,002 | |
| Amortization
of deferred financing costs | |
| 2,028 | | |
| 1,739 | |
| Amortization
of lease inducements and above/below-market lease intangibles | |
| 4,055 | | |
| 4,458 | |
| Straight-line
rental revenue, net | |
| (2,756 | ) | |
| (5,359 | ) |
| Amortization
of discount on unsecured senior notes | |
| 824 | | |
| 794 | |
| Amortization
of above market assumed debt | |
| — | | |
| (10 | ) |
| Gain
on extinguishment of debt | |
| (1,763 | ) | |
| — | |
| Gain
on sale of investment properties, net | |
| (13 | ) | |
| (57,375 | ) |
| Equity
in (gain) loss of unconsolidated entities | |
| (1,260 | ) | |
| 452 | |
| Distributions
from unconsolidated entities | |
| 5,707 | | |
| 6,077 | |
| Change
in fair value of derivatives | |
| 185 | | |
| — | |
| Provision
for bad debts | |
| 571 | | |
| 269 | |
| Non-cash
share compensation | |
| 12,290 | | |
| 12,400 | |
| Change
in operating assets and liabilities: | |
| | | |
| | |
| Tenant
receivables | |
| 711 | | |
| (5,927 | ) |
| Other
assets | |
| (3,019 | ) | |
| (1,455 | ) |
| Accounts
payable | |
| 542 | | |
| (125 | ) |
| Accrued
expenses and other liabilities | |
| 7,610 | | |
| 6,258 | |
| Net
cash provided by operating activities | |
| 205,912 | | |
| 202,353 | |
| Cash
Flows from Investing Activities: | |
| | | |
| | |
| Proceeds
from sale of investment properties | |
| 2,553 | | |
| 123,179 | |
| Acquisition
of investment properties, net | |
| (39,282 | ) | |
| (111,587 | ) |
| Investment
in unconsolidated entities, net | |
| (3,671 | ) | |
| (13,349 | ) |
| Returns
of investment in unconsolidated entities | |
| 3,737 | | |
| — | |
| Development
of real estate | |
| (12,672 | ) | |
| — | |
| Escrowed
cash - acquisition deposits/earnest deposits | |
| — | | |
| 360 | |
| Capital
expenditures on investment properties | |
| (31,194 | ) | |
| (29,840 | ) |
| Investment
in real estate loans receivable | |
| (22,272 | ) | |
| (29,618 | ) |
| Repayment
of real estate loans receivable | |
| 41,065 | | |
| 22,441 | |
| Leasing
commissions | |
| (2,588 | ) | |
| (2,766 | ) |
| Lease
inducements | |
| (399 | ) | |
| (500 | ) |
| Net
cash used in investing activities | |
| (64,723 | ) | |
| (41,680 | ) |
| Cash
Flows from Financing Activities: | |
| | | |
| | |
| Net
proceeds from sale of common shares | |
| 65,914 | | |
| 31,446 | |
| Proceeds
from credit facility borrowings | |
| 513,000 | | |
| 239,000 | |
| Repayment
of credit facility borrowings | |
| (306,000 | ) | |
| (251,000 | ) |
| Repayment
of senior unsecured notes | |
| (15,000 | ) | |
| — | |
| Principal
payments on mortgage debt | |
| (36,803 | ) | |
| (15,845 | ) |
| Payment
of debt issuance costs | |
| (3,911 | ) | |
| (67 | ) |
| Dividends
paid - shareholders | |
| (165,491 | ) | |
| (156,854 | ) |
| Distributions
to noncontrolling interests - Operating Partnership | |
| (6,783 | ) | |
| (8,191 | ) |
| Contributions
from noncontrolling interest | |
| 8,171 | | |
| 569 | |
| Distributions
to noncontrolling interests - partially owned properties | |
| (281 | ) | |
| (517 | ) |
| Payments
of employee taxes for withheld stock-based compensation shares | |
| (5,891 | ) | |
| (4,255 | ) |
| Purchase
of OP Units | |
| (72 | ) | |
| (2,323 | ) |
| Net
cash provided by (used in) financing activities | |
| 46,853 | | |
| (168,037 | ) |
| Net
increase (decrease) in cash and cash equivalents | |
| 188,042 | | |
| (7,364 | ) |
| Cash
and cash equivalents, beginning of period | |
| 7,730 | | |
| 9,876 | |
| Cash
and cash equivalents, end of period | |
$ | 195,772 | | |
$ | 2,512 | |
| Supplemental
disclosure of cash flow information—interest paid during the period | |
$ | 66,082 | | |
$ | 57,977 | |
| Supplemental
disclosure of noncash activity—change in fair value of interest rate swap agreements | |
$ | 11,796 | | |
$ | 6,215 | |
| Supplemental
disclosure of noncash activity—conversion of loan receivable in connection to the acquisition of investment property | |
$ | 5,398 | | |
$ | 5,700 | |
The
accompanying notes are an integral part of these consolidated financial statements.
Physicians
Realty Trust
Notes
to Consolidated Financial Statements
Unless
otherwise indicated or unless the context requires otherwise, the use of the words “we,” “us,” “our,”
and the “Company,” refer to Physicians Realty Trust, together with its consolidated subsidiaries, including Physicians Realty
L.P.
Note
1. Organization and Business
Physicians
Realty Trust (the “Trust” or the “Company”) was organized in the state of Maryland on April 9, 2013. As
of September 30, 2023, the Trust was authorized to issue up to 500,000,000 common shares of beneficial interest, par value
$0.01 per share. The Trust filed a Registration Statement on Form S-11 with the Commission with respect to a proposed underwritten
initial public offering (the “IPO”) and completed the IPO of its common shares and commenced operations on July 24,
2013.
The
Trust contributed the net proceeds from the IPO to Physicians Realty L.P, a Delaware limited partnership (the “Operating Partnership”),
and is the sole general partner of the Operating Partnership. The Trust’s operations are conducted through the Operating Partnership
and wholly-owned and majority-owned subsidiaries of the Operating Partnership. The Trust, as the general partner of the Operating Partnership,
controls the Operating Partnership and consolidates the assets, liabilities, and results of operations of the Operating Partnership.
The
Trust is a self-managed REIT formed primarily to acquire, selectively develop, own, and manage health care properties that are leased
to physicians, hospitals, and health care delivery systems.
ATM
Program
In
May 2021, the Trust and the Operating Partnership entered into an At Market Issuance Sales Agreement (the “2021 Sales Agreement”)
with KeyBanc Capital Markets Inc., Credit Agricole Securities (USA) Inc., BMO Capital Markets Corp., and Raymond James & Associates, Inc.
in their capacity as agents for the Company and/or forward sellers and Stifel, Nicolaus & Company, Incorporated in its
capacity as sales agent for the Company (collectively, the “2021 Agents”) and Bank of Montreal, Credit Agricole Corporate
and Investments Bank, KeyBanc Capital Markets Inc., and Raymond James & Associates, Inc. as forward purchasers for the
Company (the “2021 Forward Purchasers”), pursuant to which the Trust may issue and sell, from time to time, its common shares
having an aggregate offering price of up to $500 million through the 2021 Agents (the “2021 ATM Program”). The 2021
Sales Agreement contemplates that, in addition to the issuance and sale of the Trust’s common shares through the 2021 Agents, the
Trust may also enter into one or more forward sales agreements from time to time in the future with each of the 2021 Forward Purchasers.
In
August 2023, the Trust and the Operating Partnership entered into an At Market Issuance Sales Agreement (the “2023 Sales Agreement”)
with BMO Capital Markets Corp., Credit Agricole Securities (USA) Inc., KeyBanc Capital Markets Inc., Raymond James & Associates, Inc.,
Regions Securities LLC and Stifel, Nicolaus & Company, Incorporated as sales agents for the Company and/or forward sellers
(collectively, “2023 Agents”), and Bank of Montreal, Crédit Agricole Corporate and Investment Bank, KeyBanc Capital
Markets Inc., Raymond James & Associates, Inc., Regions Securities LLC and Stifel, Nicolaus & Company, Incorporated
(collectively, “2023 Forward Purchasers”), pursuant to which the Trust may issue and sell, from time to time, its common
shares having an aggregate offering price of up to $600 million through the 2023 Agents (the “2023 ATM Program”). The
2023 Sales Agreement contemplates that, in addition to the issuance and sale of the Trust’s common shares through the 2023 Agents,
the Trust may also enter into one or more forward sales agreements from time to time in the future with each of the 2023 Forward Purchasers.
Upon entry into the 2023 Sales Agreement, we terminated the 2021 ATM Program.
During
the quarters ended March 31, 2023, June 30, 2023, and September 30, 2023, the Trust issued and sold common shares through
the 2021 ATM Program as follows (net proceeds in thousands):
| | |
Common
shares sold | | |
Weighted
average
price | | |
Net
proceeds | |
| Quarter
ended March 31, 2023 | |
| 4,400,000 | | |
$ | 15.10 | | |
$ | 65,776 | |
| Quarter
ended June 30, 2023 | |
| — | | |
| — | | |
| — | |
| Quarter
ended September 30, 2023 | |
| — | | |
| — | | |
| — | |
| Year
to date | |
| 4,400,000 | | |
$ | 15.10 | | |
$ | 65,776 | |
As
of September 30, 2023, the Trust has $600.0 million of common shares remaining
available under the 2023 ATM Program. Subsequent to September 30, 2023, in connection
with the Merger Agreement, the Trust suspended the 2023 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 September 30, 2023 and 2022 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
2022 Annual Report. The Company has consistently applied its accounting policies to all periods presented in these consolidated financial
statements.
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: Noncontrolling interests in the Company include partnership interests of the Operating Partnership (“OP Units”)
held by other investors. 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.
As
of September 30, 2023, the Trust held a 96.1% 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.
Partially
Owned Properties: The Trust reflects noncontrolling interests in partially owned properties on the consolidated balance sheets 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 - Partially Owned Properties
In
connection with the Company’s acquisitions of the outpatient medical facility, ambulatory surgery center, and hospital located
on the Great Falls Hospital campus in Great Falls, Montana, physicians affiliated with the sellers retained non-controlling interests
which were, at the holders’ option, able to be redeemed at any time after May 1, 2023. Due to the redemption provision, which
was outside of the control of the Trust, the Trust classified the investment in the mezzanine section of its consolidated balance sheets.
On July 14, 2022, the Company disposed of these three properties and removed the related redeemable noncontrolling interests from
its consolidated balance sheets.
Through
a consolidated joint venture with MedProperties Realty Advisors, LLC (“MedProperties”), the Company acquired Calko Medical
Center in Brooklyn, New York. As part of the joint venture, MedProperties can redeem its interest, at its option, at any time after September 9,
2025. Due to the redemption provision, which is outside of the control of the Company, the Company classifies the noncontrolling interests
in the mezzanine section of its consolidated balance sheets. The Company records the carrying amount of the redeemable noncontrolling
interests at the greater of the carrying value or redemption value.
Dividends
and Distributions
On
September 21, 2023, the Trust announced that its Board of Trustees authorized, and the Trust declared, a cash dividend of $0.23 per
common share for the quarter ended September 30, 2023. The dividend was paid on October 17, 2023, to common shareholders and
holders of record of OP Units as of the close of business on October 3, 2023.
Tax
Status of Dividends and Distributions
The
Company’s distributions of current and accumulated earnings and profits for U.S. federal income tax purposes generally are taxable
to shareholders as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction
of the shareholders’ basis in the shares to the extent thereof (non-dividend distributions) and thereafter as taxable gain.
Any
cash distributions received by an OP Unit holder in respect of its OP Units generally will not be taxable to such OP Unit holder for
U.S. federal income tax purposes, to the extent that such distribution does not exceed the OP Unit holder’s basis in its OP Units.
Any such distribution will instead reduce the OP Unit holder’s basis in its OP Units (and OP Unit holders will be subject to tax
on the taxable income allocated to them by the Operating Partnership in respect of their OP Units when such income is earned by the Operating
Partnership, with such income allocation increasing the OP Unit holders’ basis in their OP Units).
The
Company has elected taxable REIT subsidiary (“TRS”) status for certain of its corporate subsidiaries and, as a result, these
entities will incur both federal and state income taxes on any taxable income of such entities after consideration of any net operating
losses. To date, these income taxes have been de minimis.
Real
Estate Loans Receivable, Net
Real
estate loans receivable consists of nine mezzanine loans, three term loans, and two construction loans
as of September 30, 2023. Generally, each mezzanine loan is collateralized by a pledge of the borrower’s ownership interest
in the respective real estate owner, each term loan is secured by a mortgage on a related outpatient medical facility, and construction
loans are secured by mortgages on the land and the improvements as constructed. The reserve for loan losses was $0.4 million
as of September 30, 2023.
Rental
and Related Revenues
Rental
revenue is recognized on a straight-line basis over the terms of the related leases when collectability is probable. Recognizing rental
revenue on a straight-line basis for leases may result in recognizing revenue for amounts more or less than amounts currently due from
tenants. Amounts recognized in excess of amounts currently due from tenants are included in other assets and were approximately $105.0 million
and $101.3 million as of September 30, 2023 and December 31, 2022, respectively. If the Company determines that collectability
of straight-line rents is not probable, income recognition is limited to the lesser of cash collected, or lease income reflected on a
straight-line basis, plus variable rent when it becomes accruable.
In
accordance with ASC 842, Leases, Topic 842, if the collectability of a lease changes after the commencement date, any difference
between lease income that would have been recognized and the lease payments shall be recognized as an adjustment to lease income. Bad
debt recognized as an adjustment to rental and related revenues was $0.9 million for the nine months ended September 30, 2023
and $0.2 million for the nine months ended September 30, 2022.
Rental
revenue is adjusted by the amortization of lease inducements and above-market or below-market rents on certain leases. Lease inducements
and above-market or below-market rents are amortized on a straight-line basis over the remaining lease term. Rental and related revenues
also include expense recoveries, which relate to tenant reimbursement of real estate taxes, insurance, and other operating expenses that
are recognized in the period the applicable expenses are incurred. The reimbursements are recorded gross, as these costs are incurred
by the Company and reimbursed by the tenants. The Company has certain tenants with absolute net leases. Under these lease agreements,
the tenant is responsible for operating and building expenses and the Company does not recognize expense recoveries.
Derivative
Instruments
When
the Company has derivative instruments, 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.
If hedge accounting is applied to a derivative instrument, the entire change in the fair value of its derivatives designated and qualified
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 September 30, 2023, the Company had three outstanding interest rate swaps designated as cash
flow hedges of interest rate risk, and one interest rate swap that was de-designated as a hedging instrument during the quarter
ended September 30, 2023 but remains outstanding. Further detail is provided in Note 7 (Derivatives).
Reclassifications
Certain
amounts in the accompanying consolidated balance sheet for 2022 have been reclassified to conform to the 2023 consolidated financial
statement presentation. The reclassifications had no impact on total assets or any balance sheet total or subtotal.
New
Accounting Pronouncements
In
March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic
848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional relief to
applying reference rate reform to changing reference rates, contracts, hedging relationships, and other transactions that reference
the London Inter-Bank Offered Rate (“LIBOR”). The amendments in this update may be applied through December 31,
2024.
On
March 31, 2023, the Operating Partnership, as borrower, and the Trust, as guarantor, executed a First Amendment to the Third Amended
and Restated Credit Agreement to update the benchmark provisions to replace LIBOR with the Secured Overnight Financing Rate (“SOFR”),
as the reference rate for the purpose of calculating interest under the agreement. The Company also amended its fixed interest rate swap
agreement on its mortgage debt to update the reference rate from LIBOR to SOFR. As a result, the Company elected to apply the hedge accounting
expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon
which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients maintains
the presentation of derivatives consistent with past presentation. The adoption of this ASU did not have a material impact on the Company’s
consolidated financial statements.
Note
3. Investment and Disposition Activity
During
the nine months ended September 30, 2023, the Company executed contractual commitments related to a $40.5 million development
project, with $12.7 million spent on construction in progress thus far, completed the acquisition of three outpatient
medical facilities and three medical condominium units for an investment of $38.5 million and two parcels of
land adjacent to existing outpatient medical facilities for an investment of $1.7 million, and paid $2.2 million of additional
purchase consideration under six earn-out agreements. The Company also closed on a $35.8 million construction loan, funding
$10.7 million to date. Additionally, the Company funded an aggregate of $13.2 million on new term loans, previously announced
loan commitments, and other investments, including an $1.3 million investment in IJRI Properties, LLC, which is an entity constructing
and operating an outpatient medical facility in Indiana. The Company contributed $2.0 million to the joint venture with Davis Medical
Investors, LLC (the “Davis Joint Venture”) to fund additional purchase consideration related to the venture’s acquisitions.
Investment activity totaled approximately $81.0 million during the nine months ended September 30, 2023. As part of these investments,
the Company incurred approximately $2.0 million of capitalized acquisition costs.
Investment
activity for the three months ended September 30, 2023, included the acquisition of one outpatient medical facility and
a parcel of land adjacent to one of our existing properties for an aggregate purchase price of $3.5 million. Additionally, the Company
funded an aggregate $5.9 million under two earn-out agreements, previously announced loan commitments, and other investments,
including an $1.3 million investment in IJRI Properties, LLC, which is an entity constructing and operating an outpatient medical
facility in Indiana. The Company also funded construction in progress of $7.4 million, resulting in total investment activity of
approximately $16.8 million as of September 30, 2023.
The
following table summarizes the acquisition date fair values of the assets acquired and the liabilities assumed, as well as follow-on
capitalized costs during the nine months ended September 30, 2023, which the Company determined using Level 2 and Level 3 inputs
(in thousands):
| | |
1st
Quarter | | |
2nd
Quarter | | |
3rd
Quarter | | |
Total | |
| Land | |
$ | 1,356 | | |
$ | 6,016 | | |
$ | 1,345 | | |
$ | 8,717 | |
| Building
and improvements | |
| 1,294 | | |
| 28,353 | | |
| 2,459 | | |
| 32,106 | |
| In-place
lease intangibles | |
| — | | |
| 3,491 | | |
| 919 | | |
| 4,410 | |
| Below
market in-place lease intangibles | |
| — | | |
| — | | |
| (553 | ) | |
| (553 | ) |
| Net
assets acquired | |
$ | 2,650 | | |
$ | 37,860 | | |
$ | 4,170 | | |
$ | 44,680 | |
| Satisfaction
of real estate loans receivable | |
| — | | |
| (5,398 | ) | |
| — | | |
| (5,398 | ) |
| Cash
used in acquisition of investment property | |
$ | 2,650 | | |
$ | 32,462 | | |
$ | 4,170 | | |
$ | 39,282 | |
Dispositions
During
the nine months ended September 30, 2023, the Company sold one outpatient medical facility for approximately $2.6 million,
realizing an insignificant gain.
Note
4. Intangibles
The
following is a summary of the carrying amount of intangible assets and liabilities as of September 30, 2023 and December 31,
2022 (in thousands):
| | |
September 30,
2023 | | |
December 31,
2022 | |
| | |
Cost | | |
Accumulated
Amortization | | |
Net | | |
Cost | | |
Accumulated
Amortization | | |
Net | |
| Assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| In-place
leases | |
$ | 449,716 | | |
$ | (272,643 | ) | |
$ | 177,073 | | |
$ | 445,583 | | |
$ | (241,643 | ) | |
$ | 203,940 | |
| Above-market
leases | |
$ | 59,752 | | |
$ | (34,282 | ) | |
$ | 25,470 | | |
$ | 59,752 | | |
$ | (30,096 | ) | |
$ | 29,656 | |
| Liabilities | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Below-market
leases | |
$ | 36,962 | | |
$ | (13,792 | ) | |
$ | 23,170 | | |
$ | 37,002 | | |
$ | (12,621 | ) | |
$ | 24,381 | |
The following is a summary of acquired lease intangible amortization
for the three and nine months ended September 30, 2023 and 2022 (in thousands):
| | |
Three
Months Ended
September 30, | | |
Nine
Months Ended
September 30, | |
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Amortization
expense related to in-place leases | |
$ | 10,204 | | |
$ | 10,629 | | |
$ | 31,278 | | |
$ | 32,814 | |
| Decrease
in rental income related to above-market leases | |
| 1,373 | | |
| 1,384 | | |
| 4,187 | | |
| 4,390 | |
| Increase
in rental income related to below-market leases | |
| 594 | | |
| 556 | | |
| 1,764 | | |
| 1,522 | |
Future
aggregate net amortization of acquired lease intangibles as of September 30, 2023, is as follows (in thousands):
| | |
Net Decrease
(Increase)
in Revenue | | |
Net Increase in
Expenses | |
| 2023 | |
$ | 748 | | |
$ | 9,642 | |
| 2024 | |
| 2,887 | | |
| 35,184 | |
| 2025 | |
| 2,316 | | |
| 29,663 | |
| 2026 | |
| 1,161 | | |
| 23,548 | |
| 2027 | |
| 994 | | |
| 20,625 | |
| Thereafter | |
| (5,806 | ) | |
| 58,411 | |
| Total | |
$ | 2,300 | | |
$ | 177,073
| |
As
of September 30, 2023, the weighted average remaining amortization period is 7 years for in-place and above-market lease
intangible assets and 15 years for below-market lease intangibles.
Note
5. Other Assets
Other
assets consisted of the following as of September 30, 2023 and December 31, 2022 (in thousands):
| | |
September 30,
2023 | | |
December 31,
2022 | |
| Straight
line rent receivable, net | |
$ | 104,991 | | |
$ | 101,306 | |
| Interest
rate swaps | |
| 14,731 | | |
| 2,045 | |
| Leasing
commissions, net | |
| 14,043 | | |
| 13,231 | |
| Prepaid
expenses | |
| 14,013 | | |
| 11,009 | |
| Lease
inducements, net | |
| 7,577 | | |
| 7,894 | |
| Escrows | |
| 1,574 | | |
| 1,565 | |
| Notes
receivable, net | |
| 363 | | |
| 370 | |
| Other | |
| 8,850 | | |
| 9,387 | |
| Total | |
$ | 166,142 | | |
$ | 146,807 | |
Note
6. Debt
The
following is a summary of debt as of September 30, 2023 and December 31, 2022 (in thousands):
| | |
September 30,
2023 | | |
December 31,
2022 | |
| Fixed
interest mortgage notes (1) | |
$ | 23,330 | | |
$ | 59,776 | |
| Variable
interest mortgage notes (2) | |
| 104,797 | | |
| 105,153 | |
| Total
mortgage debt | |
| 128,127 | | |
| 164,929 | |
| $1.0 billion
unsecured revolving credit facility due September 2025 (3) | |
| — | | |
| 193,000 | |
| $400 million
unsecured term borrowing bearing fixed interest of 4.693%, due May 2028 (4) | |
| 400,000 | | |
| — | |
| $400 million
senior unsecured notes bearing fixed interest of 4.30%, due March 2027 | |
| 400,000 | | |
| 400,000 | |
| $350 million
senior unsecured notes bearing fixed interest of 3.95%, due January 2028 | |
| 350,000 | | |
| 350,000 | |
| $500 million
senior unsecured notes bearing fixed interest of 2.625%, due November 2031 | |
| 500,000 | | |
| 500,000 | |
| $135 million
senior unsecured notes bearing fixed interest of 4.43% to 4.74%, due January 2026 to 2031 | |
| 135,000 | | |
| 150,000 | |
| $75 million
senior unsecured notes bearing fixed interest of 4.09% to 4.24%, due August 2025 to 2027 | |
| 75,000 | | |
| 75,000 | |
| Total
principal | |
| 1,988,127 | | |
| 1,832,929 | |
| Unamortized
deferred financing costs | |
| (9,336 | ) | |
| (7,453 | ) |
| Unamortized
discounts | |
| (6,535 | ) | |
| (7,359 | ) |
| Total
debt | |
$ | 1,972,256 | | |
$ | 1,818,117 | |
| (1) | As
of September 30, 2023, one fixed interest
mortgage note bears interest of 4.63%, due in 2024, and is collateralized by one property
with a net book value of $37.2 million. As of December 31, 2022, fixed interest
mortgage notes bear interest from 3.33% to 4.63%, due in 2024, with a weighted
average interest rate of 3.85%. The notes are collateralized by two properties
with a net book value of $94.9 million. one mortgage note bears interest at
LIBOR plus 1.90% and the Trust entered into a pay-fixed receive-variable interest rate
swap, fixing the variable component at 1.43% as of December 31, 2022. |
| (2) | Variable
interest mortgage notes bear variable interest of SOFR
plus 1.85% and PRIME plus 2.75% for a weighted average interest rate of 7.35%
as of September 30, 2023. Variable interest mortgage notes bear variable interest of
SOFR plus 1.85% and LIBOR plus 2.75% for a weighted average interest rate of 6.20%
as of December 31, 2022. The notes are due in 2026 and 2028 and collateralized by four properties
with a net book value of $284.4 million as of September 30, 2023 and $295.5 million
as of December 31, 2022. |
| (3) | The
unsecured revolving credit facility bears variable
interest of SOFR plus 0.95%, inclusive of a 0.10% SOFR index adjustment, as of
September 30, 2023 and LIBOR plus 0.85% as of December 31, 2022. |
| (4) | The
Company’s
borrowings under the term loan feature of the Credit Agreement (as defined below) bear interest
at a rate equal to 1.10%, inclusive of a 0.10% SOFR index adjustment, plus Daily
Simple SOFR as of September 30, 2023 based on the Company’s current credit rating.
The Company entered into fixed-for-floating interest rate swaps for the full borrowing amount,
fixing the SOFR component of this rate at 3.59%, and a current all-in fixed rate of 4.69%. |
On
September 24, 2021, the Operating Partnership, as borrower, and the Trust, as guarantor, executed a Third Amended and Restated Credit
Agreement (as amended, the “Credit Agreement”) which extended the maturity date of the revolving credit facility under the
Credit Agreement to September 24, 2025 and reduced the interest rate margin applicable to borrowings. The Credit Agreement included
an unsecured revolving credit facility of $1.0 billion and contained a term loan feature of $250.0 million, bringing total
borrowing capacity to $1.25 billion. The Credit Agreement also included a swingline loan commitment for up to 10% of the maximum
principal amount and provided an accordion feature allowing the Operating Partnership to increase borrowing capacity by up to an additional
$500.0 million, subject to customary terms and conditions, resulting in a maximum borrowing capacity of $1.75 billion. The
revolving credit facility under the Credit Agreement also included two six-month extension options.
On
March 31, 2023, the Operating Partnership, as borrower, and the Trust, as guarantor, executed a First Amendment to the Credit Agreement
which expanded the accordion feature allowing the Operating Partnership to increase borrowing capacity by up to an additional $500.0 million,
and replaced the LIBOR-based benchmark rates applicable to borrowings under the Credit Agreement with SOFR based benchmark rates plus
a SOFR index adjustment of 0.10%.
On
May 24, 2023, 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 by up to an additional $500.0 million,
subject to customary terms and conditions, for a maximum aggregate principal amount of all revolving commitments and term loans under
the Credit Agreement of $1.9 billion. On the same day, the Operating Partnership borrowed $400.0 million under the term loan
feature of the Credit Agreement. 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 Company simultaneously entered into fixed-for-floating interest rate swaps for the full borrowing amount under the term
loan, fixing the Daily Simple SOFR component of the borrowing rate at 3.593%, for a current all-in fixed rate of 4.693%. Both
the borrowing and the fixed-for-floating interest rate swaps have a maturity date of May 24, 2028.
As
of September 30, 2023, the borrower had investment grade ratings of BBB from S&P and Baa2 from Moody’s. As such, borrowings
under the revolving credit facility of the Credit Agreement accrue interest on the outstanding principal at a rate of SOFR plus 0.95%,
inclusive of a 0.10% SOFR index adjustment. The Credit Agreement includes a facility fee equal to 0.20% per annum, which is
also determined by the borrower’s investment grade rating.
Base
Rate Loans, Adjusted SOFR Loans, and Letters of Credit (each, as defined in the Credit Agreement) will be subject to interest rates,
based upon the borrower’s investment grade rating as follows:
| Credit
Rating | |
Applicable
Margin for Revolving
Loans: SOFR Loans
and Letter of Credit Fee | |
Applicable
Margin for
Revolving Loans: Base
Rate Loans | | |
Applicable
Margin for Term
Loans: SOFR Loans | |
Applicable
Margin for
Term Loans: Base Rate
Loans | |
| At
Least A- or A3 | |
SOFR
+ 0.725% | |
| — | % | |
SOFR
+ 0.85% | |
| — | % |
| At
Least BBB+ or Baa1 | |
SOFR
+ 0.775% | |
| — | % | |
SOFR
+ 0.90% | |
| — | % |
| At
Least BBB or Baa2 | |
SOFR
+ 0.85% | |
| — | % | |
SOFR
+ 1.00% | |
| — | % |
| At
Least BBB- or Baa3 | |
SOFR
+ 1.05% | |
| 0.05 | % | |
SOFR
+ 1.25% | |
| 0.25 | % |
| Below
BBB- or Baa3 | |
SOFR
+ 1.40% | |
| 0.40 | % | |
SOFR
+ 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. Subject to the restrictions in the Merger Agreement, the Company may voluntarily
prepay any revolving or term loan under the Credit Agreement in whole or in part without premium or penalty. As of September 30,
2023, 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 September 30,
2023, the Company did not have any borrowings outstanding under its $1.0 billion unsecured revolving credit facility feature or the
$500.0 million accordion feature of the Credit Agreement and had $400.0 million of borrowings outstanding under the term loan
feature of the Credit Agreement.
Notes Payable
As of September 30,
2023, the Company had $1.5 billion aggregate principal amount of senior notes issued and outstanding by the Operating Partnership,
comprised of $25.0 million maturing in 2025, $70.0 million maturing in 2026, $425.0 million maturing in 2027, $395.0 million
maturing in 2028, and $545.0 million maturing in 2031.
Certain properties
are encumbered by mortgage loans that contain financial covenants. As of September 30, 2023, the Trust was in compliance
with all mortgage debt financial covenants.
Scheduled
principal payments due on consolidated debt as of September 30, 2023 are as follows (in thousands):
| 2023 | | |
$ | 255 | |
| 2024 | | |
| 23,669 | |
| 2025 | | |
| 25,476 | |
| 2026 | | |
| 170,476 | |
| 2027 | | |
| 425,476 | |
| Thereafter | | |
| 1,342,775 | |
| Total Payments | | |
$ | 1,988,127 | |
As of September 30,
2023, the Company had total consolidated indebtedness of approximately $2.0 billion. The weighted average interest rate on consolidated
indebtedness was 4.07% (based on the 30-day SOFR rate of 5.31% and a PRIME rate of 8.50% as of September 30, 2023).
As of September 30, 2023, we had approximately 5.0% and 0.2% of our outstanding long-term debt exposed to fluctuations
in SOFR and PRIME, respectively.
For the three
months ended September 30, 2023 and 2022, the Company incurred interest expense on its debt, exclusive of deferred financing cost
amortization, of $21.0 million and $17.7 million, respectively. For the nine month periods ending September 30, 2023 and
2022, the Company incurred interest expense on its debt, exclusive of deferred financing cost amortization, of $59.6 million and
$50.6 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. When specific hedge accounting
criteria are not met, that changes in a derivative’s fair value be recognized currently in earnings. Changes in the fair market
values of the Company’s derivative instruments are recorded in the consolidated statements of income if such derivatives do not
qualify for, or the Company does not elect to apply for, hedge accounting. As
a result of the Company’s adoption of ASU 2017-12 as of January 1, 2019, the change in the fair value of our derivatives designated
and qualified as cash flow hedges are recorded in accumulated other comprehensive income on the consolidated balance sheets and are subsequently
reclassified into earnings in the period in which the hedged forecasted transaction affects earnings. During the three months ended September 30,
2023, the Company de-designated an interest rate swap upon the repayment of the related debt instrument and reclassified the $1.8 million
accumulated gain from other comprehensive income to earnings. This derivative instrument has a fair value of $1.6 million as of
September 30, 2023, and is classified in other assets. Future changes in value on this derivative instrument, which matures on October 31,
2024, will be recorded directly in earnings.
As of September 30,
2023, the Company had three outstanding interest rate swaps designated as cash flow hedges of interest rate risk. See Note 2
(Summary of Significant Accounting Policies) for a further discussion of our derivatives. In
addition, the Company recognizes
its share of other comprehensive income related to derivative instruments held by unconsolidated entities.
The following
table presents the fair value of the Company’s derivative financial instruments, as well as their classification on the Company’s
consolidated balance sheets as of September 30, 2023 (in thousands):
Derivatives
Instruments | |
Maturity
Date | |
Number
of Instruments | |
Total Notional
Amount |
|
Interest Rate |
| |
Balance
Sheet Location | | Fair Value |
|
| Cash
flow hedge interest rate swaps | |
5/24/2028 | |
3 | |
$ | 400,000 |
|
3.59 | % |
| Other Assets | |
$ |
13,152 |
|
| Interest
rate swap | |
10/31/2024 | |
1 | |
| 36,050 |
|
1.37 | % |
| Other Assets | |
|
1,579 |
|
| Total | |
| |
4 | |
$ | 436,050 |
|
| |
| |
|
$ |
14,731 |
|
The following
tables provide a summary of the effect of interest rate swaps on the Company’s accompanying consolidated statements of income and
comprehensive income for the nine months ended September 30, 2023 and 2022, respectively (amounts in thousands):
Derivative Instruments as
of September 30, 2023 | |
Maturity
Date | |
Amount of Gain/(Loss)
Recognized in OCI on Derivative | |
Location of
Gain/(Loss) Reclassified
from Accumulated OCI
into Income | |
Amount of Gain/(Loss)
Reclassified from Accumulated
OCI into Income |
|
| Cash flow hedge interest rate swaps | |
5/24/2028 | |
$ | 13,152 | |
Interest expense | |
$ |
- |
|
| Interest rate swap | |
10/31/2024 | |
| - | |
Interest expense | |
|
1,763 |
|
| Total | |
| |
$ | 13,152 | |
| |
$ |
1,763 |
|
Derivative Instruments as
of September 30, 2022 | |
Maturity
Date | |
Amount of Gain/(Loss)
Recognized in OCI on Derivative | |
Location of
Gain/(Loss) Reclassified
from Accumulated OCI
into Income | |
Amount of Gain/(Loss)
Reclassified from Accumulated
OCI into Income |
| Interest rate swap | |
10/31/2024 | |
$ | 2,523 | |
Interest expense | |
$ | - |
Note 8. Accrued Expenses and Other
Liabilities
Accrued
expenses and other liabilities consisted of the following as of September 30, 2023 and December 31, 2022 (in thousands):
| |
September 30,
2023 | | |
December 31,
2022 | |
| Real estate taxes payable | |
$ | 30,893 | | |
$ | 23,303 | |
| Prepaid rent | |
| 23,537 | | |
| 21,062 | |
| Accrued interest | |
| 11,683 | | |
| 18,196 | |
| Accrued expenses | |
| 7,841 | | |
| 7,920 | |
| Accrued incentive compensation | |
| 5,342 | | |
| 2,700 | |
| Security deposits | |
| 4,586 | | |
| 4,338 | |
| Tenant improvement allowances | |
| 1,853 | | |
| 1,831 | |
| Other | |
| 9,902 | | |
| 8,370 | |
| Total | |
$ | 95,637 | | |
$ | 87,720 | |
Note 9. Stock-based Compensation
The Company
follows ASC 718, Compensation - Stock Compensation (“ASC 718”), in accounting for its share-based
payments. This guidance requires measurement of the cost of employee services received in exchange for stock compensation based on the
grant-date fair value of the employee stock awards. This cost is recognized as compensation expense ratably over the employee’s
requisite service period. Incremental compensation costs arising from subsequent modifications of awards after the grant date must be
recognized when incurred. Share-based payments classified as liability awards are marked to fair value at each reporting period. Any common
shares issued pursuant to the Company's incentive equity compensation and employee stock purchase plans will result in the Operating Partnership
issuing OP Units to the Trust on a one-for-one basis, with the Operating Partnership receiving the net cash proceeds of such issuances.
Certain of
the Company’s employee stock awards vest only upon the achievement of performance targets. ASC 718 requires recognition of compensation
cost only when achievement of performance conditions is considered probable. Consequently, the Company’s determination of the amount
of stock compensation expense requires judgment in estimating the probability of achievement of these performance targets. Subsequent
changes in actual experience are monitored and estimates are updated as information is available.
In connection
with the IPO, the Trust adopted the Physicians Realty Trust 2013 Equity Incentive Plan, which made shares available for awards for participants
(the “2013 Plan”). At the Company’s Annual Meeting of Shareholders held on May 3, 2023, shareholders approved the
Amended and Restated Physicians Realty Trust 2013 Equity Incentive Plan (the “Amended and Restated 2013 Plan”). The Amended
and Restated 2013 Plan increased the number of common shares authorized for issuance to a total of 11,000,000. The Amended and Restated
2013 Plan also extended the term of the plan from 2029 to 2033, among other changes.
Restricted Common Shares
Restricted
common shares granted under the 2013 Plan are eligible for dividends as well as the right to vote. In the nine months ended September 30,
2023, the Trust granted a total of 342,939 restricted common shares with a total value of $5.0 million to its officers
and certain of its employees, which have a vesting period of one to three years. In January 2023, under the 2013 Plan,
the Company granted restricted common shares to certain of its officers under a salary deferral program, part of which vests after one
year, with the remainder vesting after two years.
A summary
of the status of the Trust’s non-vested restricted common shares as of September 30, 2023 and changes during the nine month
period then ended follow:
| | | |
Common Shares | | |
Weighted
Average Grant
Date Fair Value | |
| Non-vested at December 31, 2022 | | |
272,898 | | |
$ | 16.69 | |
| Granted | | |
342,939 | | |
| 14.57 | |
| Vested | | |
(239,602 | ) | |
| 16.54 | |
| Forfeited | | |
(364 | ) | |
| 17.45 | |
| Non-vested at September 30, 2023 | | |
375,871 | | |
$ | 14.84 | |
For all service
awards, the Company records compensation expense for the entire award on a straight-line basis over the requisite service period. For
the three months ended September 30, 2023 and 2022, the Company recognized non-cash share compensation of $1.2 million and $1.0 million,
respectively. For the nine month periods ending September 30, 2023 and 2022, the Company recognized non-cash share compensation of
$3.5 million and $2.9 million, respectively. Unrecognized compensation expense on September 30, 2023 was $2.9 million.
Restricted Share Units
In January 2023,
under the 2013 Plan, the Company granted 11,274 restricted share units to certain of its trustees in lieu of all or a portion
of such trustee’s 2023 cash retainer. These units are subject to certain timing conditions and a one-year service period.
Each restricted share unit contains one dividend equivalent. Each recipient will accrue dividend equivalents on awarded share
units equal to the cash dividend that would have been paid on the awarded share unit had the awarded share unit been an issued and outstanding
common share on the record date for the dividend. With respect to the performance and timing conditions of the January 2023 grants,
the grant date fair value of $14.47 per unit was based on the share price at the date of grant.
In March 2023,
under the 2013 Plan, the Company granted restricted share units at a target level of 355,388 to its officers and certain of
its employees and 62,586 to its trustees. Units granted to officers and certain employees under the Company’s 2013 Plan
are subject to certain performance and market conditions and a three-year service period. Units granted to trustees are subject
to certain timing conditions and a two-year service period for full vesting. Each restricted share unit contains one dividend
equivalent. Each recipient will accrue dividend equivalents on awarded share units equal to the cash dividend that would have been paid
on the awarded share unit had the awarded share unit been an issued and outstanding common share on the record date for the dividend.
Approximately 30%
of the restricted share units issued to officers and certain employees under the Company’s 2013 Plan in 2023 vest based on a certain
market condition. The awards containing the market condition were valued with the assistance of independent valuation specialists. The
Company utilized a Monte Carlo simulation to calculate the weighted average grant date fair value of $18.71 per unit for the
March 2023 grant using the following assumptions:
| Volatility | |
| 23.4% |
| Dividend assumption | |
| reinvested |
| Expected term in years | |
| 2.83 years |
| Risk-free rate | |
| 4.70% |
| Share price (per share) | |
$ | 14.70 |
The remaining 70%
of the restricted share units issued to officers and certain employees under the Company’s 2013 Plan, and 100% of other restricted
share units issued to trustees vest based upon certain performance or timing conditions. With respect to the performance and timing conditions
of the March 2023 grants, the grant date fair value of $14.70 per unit was based on the share price at the date of grant. The
combined weighted average grant date fair value of the March 2023 restricted share units issued to officers and certain employees
was $15.90 per unit.
The following
is a summary of the activity in the Trust’s restricted share units during the nine months ended September 30, 2023:
| | | |
| Executive Awards | |
| Trustee Awards | |
| | | |
| Restricted Share
Units | | |
| Weighted
Average Grant
Date Fair Value | | |
| Restricted Share
Units | | |
| Weighted
Average Grant
Date Fair Value | |
Non-vested at December 31, 2022 | | |
| 1,046,940 | | |
$ | 21.41 | | |
| 77,992 | | |
$ | 16.60 | |
Granted | | |
| 355,388 | | |
| 15.90 | | |
| 73,860 | | |
| 14.66 | |
Vested | | |
| (223,579 | )(1) | |
| 24.36 | | |
| (49,890 | ) | |
| 16.74 | |
Non-vested at September 30, 2023 | | |
| 1,178,749 | | |
$ | 19.19 | | |
| 101,962 | | |
$ | 15.13 | |
| (1) |
|
Restricted units vested by Company executives in 2023 resulted in the issuance of 652,851 common shares, less 290,380 common shares withheld
to cover minimum withholding tax obligations. |
For the three months ended
September 30, 2023 and 2022, the Company recognized non-cash share compensation of $2.6 million and $3.3 million, respectively.
For the nine month periods ending September 30, 2023 and 2022, the Company recognized non-cash share compensation of $8.6 million
and $9.4 million, respectively. Unrecognized compensation expense on September 30, 2023 was $11.5 million.
Note 10. Fair Value Measurements
ASC Topic
820, Fair Value Measurement (“ASC 820”), requires certain assets and liabilities be reported and/or disclosed
at fair value in the financial statements and provides a framework for establishing that fair value. The framework for determining fair
value is based on a hierarchy that prioritizes the valuation techniques and inputs used to measure fair value.
In general,
fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Company has
the ability to access. Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These
Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and
yield curves that are observable at commonly quoted intervals.
Level 3 inputs
are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related
asset. These Level 3 fair value measurements are based primarily on management’s own estimates using pricing models, discounted
cash flow methodologies, or similar techniques taking into account the characteristics of the asset or liability. In instances where inputs
used to measure fair value fall into different levels of the fair value hierarchy, fair value measurements in their entirety are categorized
based on the lowest level input that is significant to the valuation. The assessment of the significance of particular inputs to these
fair value measurements requires judgment and considers factors specific to each asset or liability. As part of the Company’s acquisition
process, Level 3 inputs are used to measure the fair value of the assets acquired and liabilities assumed.
The Company’s
derivative instruments as of September 30, 2023 consist of four interest rate swaps, of which three are designated
as cash flow hedges of interest rate risk, as detailed in the Derivative Instruments section of Note 7 (Derivatives) and Note 2 (Summary
of Significant Accounting Policies) of this report.
The interest
rate swaps are not traded on an exchange. The Company’s derivative assets and liabilities are recorded at fair value based on a
variety of observable inputs including contractual terms, interest rate curves, yield curves, measure of volatility, and correlations
of such inputs. The Company measures its derivatives at fair value on a recurring basis. The fair values are based on Level 2 inputs described
above. The Company considers its own credit risk, as well as the credit risk of its counterparties, when evaluating the fair value of
its derivatives.
The Company
also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. This generally includes
assets subject to impairment. There were no such assets measured at fair value as of September 30, 2023.
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.
The following
table presents the fair value of the Company’s financial instruments (in thousands):
| | |
September 30, 2023 | | |
December 31, 2022 | |
| | |
Carrying
Amount | | |
Fair
Value | | |
Carrying
Amount | | |
Fair
Value | |
| Assets: | |
| | |
| | |
| | |
| |
| Real estate loans receivable, net | |
$ | 79,884 | | |
$ | 76,935 | | |
$ | 104,973 | | |
$ | 102,162 | |
| Notes receivable, net | |
$ | 363 | | |
$ | 363 | | |
$ | 370 | | |
$ | 370 | |
| Derivative assets | |
$ | 14,731 | | |
$ | 14,731 | | |
$ | 2,045 | | |
$ | 2,045 | |
| Liabilities: | |
| | | |
| | | |
| | | |
| | |
| Credit facility | |
$ | (400,000 | ) | |
$ | (400,000 | ) | |
$ | (193,000 | ) | |
$ | (193,000 | ) |
| Notes payable | |
$ | (1,460,000 | ) | |
$ | (1,261,390 | ) | |
$ | (1,475,000 | ) | |
$ | (1,302,767 | ) |
| Mortgage debt | |
$ | (128,127 | ) | |
$ | (127,628 | ) | |
$ | (164,929 | ) | |
$ | (163,129 | ) |
Note 11. Tenant Operating Leases
The Company
is a lessor of outpatient medical facilities and other health care facilities. Leases have expirations from 2023 through 2042. As
of September 30, 2023, the future minimum rental payments on non-cancelable leases, exclusive of expense recoveries and minimum rental
payments for assets classified as held for sale, if applicable, were as follows (in thousands):
| 2023 | | |
$ | 92,037 | |
| 2024 | | |
| 363,106 | |
| 2025 | | |
| 346,518 | |
| 2026 | | |
| 289,162 | |
| 2027 | | |
| 237,149 | |
| Thereafter | | |
| 818,876 | |
| Total | | |
$ | 2,146,848 | |
For the three
months ended September 30, 2023 and 2022, the Company recognized $134.5 million and $128.6 million, respectively, of rental
and other lease-related income related to our operating leases, of which $39.8 million and $36.6 million, respectively, were
variable lease payments. For the nine month periods ending September 30, 2023 and 2022, the Company recognized $397.1 million
and $385.8 million, respectively, of rental and other leased-related income with respect to our operating leases, of which $115.2 million
and $107.5 million, respectively, were variable lease payments.
Note 12. Rent Expense
The Company
leases the rights to parking structures at two of its properties, the air that one property occupies, and the land
upon which 97 of its properties are located from third party landowners pursuant to separate leases. In addition, the Company
has nine corporate leases, primarily for office space.
The Company’s
leases include both fixed and variable rental payments and may also include escalation clauses and renewal options. These leases have
terms of up to 92 years remaining, excluding extension options, with a weighted average remaining term of 43 years.
At the inception
of a new lease, the Company establishes an operating or finance lease asset and operating or finance lease liability calculated as the
present value of future minimum lease payments. As the Company’s leases do not provide an implicit rate, the Company calculates
a discount rate that approximates its incremental borrowing rate available at lease commencement in order to determine the present value
of future minimum lease payments. The approximated weighted average discount rate was 4.4% as of September 30, 2023. There are
no operating or finance leases that have not yet commenced that would have a significant impact on the Company’s consolidated balance
sheets.
As of September 30,
2023, the future minimum lease obligations under non-cancelable parking, air, ground, and corporate leases were as follows (in thousands):
| 2023 | | |
$ | 1,261 | |
| 2024 | | |
| 5,129 | |
| 2025 | | |
| 5,101 | |
| 2026 | | |
| 5,090 | |
| 2027 | | |
| 5,092 | |
| Thereafter | | |
| 248,386 | |
| Total undiscounted lease payments | | |
$ | 270,059 | |
| Less: Interest | | |
| (165,257 | ) |
| Present value of lease liabilities | | |
$ | 104,802 | |
Lease costs
consisted of the following for the nine months ended September 30, 2023 (in thousands):
| Fixed lease cost |
$ | 2,480 | |
| Variable lease cost |
| 1,007 | |
| Total lease cost |
$ | 3,487 | |
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 September 30, 2023 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 September 30, 2023 (in thousands):
| Tenant | |
Total ABR | | |
Percent of ABR | |
| CommonSpirit - CHI - Nebraska | |
$ | 18,666 | | |
| 5.1 | % |
| Northside Hospital | |
| 16,553 | | |
| 4.5 | % |
| UofL Health - Louisville, Inc. | |
| 14,656 | | |
| 4.0 | % |
| HonorHealth | |
| 11,287 | | |
| 3.1 | % |
| US Oncology | |
| 11,047 | | |
| 3.0 | % |
| Remaining portfolio | |
| 295,897 | | |
| 80.3 | % |
| Total | |
$ | 368,106 | | |
| 100.0 | % |
ABR collected
from the Company’s top five tenant relationships comprises 19.7% of its total ABR as of September 30, 2023. Total ABR
from CommonSpirit-affiliated tenants totals 14.9%, including the affiliate disclosed above.
The following
table summarizes certain information about the Company’s top five geographic concentrations as of September 30, 2023:
| State | | |
Total ABR | | |
Percent of ABR | |
| Texas | | |
$ | 49,405 | | |
| 13.4 | % |
| Georgia | | |
| 27,099 | | |
| 7.4 | % |
| Florida | | |
| 25,495 | | |
| 6.9 | % |
| Indiana | | |
| 23,529 | | |
| 6.4 | % |
| Arizona | | |
| 21,817 | | |
| 5.9 | % |
| Other | | |
| 220,761 | | |
| 60.0 | % |
| Total | | |
$ | 368,106 | | |
| 100.0 | % |
Note 14. Earnings Per Share
The following
table shows the amounts used in computing the Trust’s basic and diluted earnings per share (in thousands, except share and per share
data):
| | |
Three Months Ended
September 30, | | |
Nine Months Ended
September 30, | |
| | |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| Numerator for earnings per share - basic: | |
| | | |
| | | |
| | | |
| | |
| Net income | |
$ | 12,891 | | |
$ | 66,280 | | |
$ | 36,645 | | |
$ | 98,155 | |
| Net income attributable to noncontrolling interests: | |
| | | |
| | | |
| | | |
| | |
| Operating Partnership | |
| (505 | ) | |
| (3,252 | ) | |
| (1,443 | ) | |
| (4,830 | ) |
| Partially owned properties | |
| (51 | ) | |
| (70 | ) | |
| (121 | ) | |
| (384 | ) |
| Numerator for earnings per share - basic | |
$ | 12,335 | | |
$ | 62,958 | | |
$ | 35,081 | | |
$ | 92,941 | |
| Numerator for earnings per share - diluted: | |
| | | |
| | | |
| | | |
| | |
| Numerator for earnings per share - basic | |
$ | 12,335 | | |
$ | 62,958 | | |
$ | 35,081 | | |
$ | 92,941 | |
| Noncontrolling interest - Operating Partnership income | |
| 505 | | |
| 3,252 | | |
| 1,443 | | |
| 4,830 | |
| Numerator for earnings per share - diluted | |
$ | 12,840 | | |
$ | 66,210 | | |
$ | 36,524 | | |
$ | 97,771 | |
| Denominator for earnings per share - basic and diluted: | |
| | | |
| | | |
| | | |
| | |
| Weighted average number of shares outstanding - basic | |
| 238,480,299 | | |
| 226,529,041 | | |
| 238,124,981 | | |
| 225,743,856 | |
| Effect of dilutive securities: | |
| | | |
| | | |
| | | |
| | |
| Noncontrolling interest - Operating Partnership units | |
| 9,814,296 | | |
| 11,791,685 | | |
| 9,831,470 | | |
| 11,872,328 | |
| Restricted common shares | |
| 123,801 | | |
| 100,790 | | |
| 127,715 | | |
| 105,170 | |
| Restricted share units | |
| 1,026,916 | | |
| 1,476,946 | | |
| 1,142,747 | | |
| 1,424,029 | |
| Denominator for earnings per share - diluted: | |
| 249,445,312 | | |
| 239,898,462 | | |
| 249,226,913 | | |
| 239,145,383 | |
| Earnings per share - basic | |
$ | 0.05 | | |
$ | 0.28 | | |
$ | 0.15 | | |
$ | 0.41 | |
| Earnings per share - diluted | |
$ | 0.05 | | |
$ | 0.28 | | |
$ | 0.15 | | |
$ | 0.41 | |
Note 15. Subsequent Events
On October 29,
2023, the Trust and the Operating Partnership entered into an Agreement and Plan of Merger (the “Merger Agreement”) among
the Trust, the Operating Partnership, Healthpeak Properties, Inc. (“Healthpeak”), Alpine Sub, LLC (“Alpine Sub”)
and Alpine OP Sub, LLC (“Alpine OP Sub”). The Merger Agreement provides for (a) the merger of the Trust with and into
Alpine Sub (the “Company Merger”), with Alpine Sub surviving as a wholly owned subsidiary of Healthpeak (the “Company
Surviving Entity”), (b) immediately following the effectiveness of the Company Merger, the contribution by Healthpeak to Healthpeak
OP, LLC (“Healthpeak OP”), of all of the outstanding equity interests in the Company Surviving Entity (the “Contribution”)
and (c) immediately following the Contribution, the merger of the Operating Partnership with and into Alpine OP Sub (the “Partnership
Merger”), with Alpine OP Sub surviving as a subsidiary of Healthpeak OP (the “Partnership Surviving Entity”). The consummation
of the Mergers is subject to the satisfaction or waiver of certain closing conditions, including the approval of both the Trust’s
and Healthpeak’s shareholders.
Pursuant
to the terms and subject to the conditions of the Merger Agreement, at the date and time the Company Merger becomes effective (the “Company
Merger Effective Time”), each common share of the Trust (other than common shares to be canceled in accordance with the Merger Agreement),
will automatically be converted into the right to receive 0.674 (the “Exchange Ratio”) validly issued, fully paid
and non-assessable shares of Healthpeak common stock, par value $1.00 per share (“Healthpeak Common Stock”) (the “Merger
Consideration”), without interest, but subject to any withholding required under applicable tax laws. Holders of the Trust’s
common shares will receive cash in lieu of fractional shares of Healthpeak Common Stock. Pursuant to the terms and subject to the conditions
of the Merger Agreement, immediately after the Contribution and at the date and time the Partnership Merger becomes effective (the “Partnership
Merger Effective Time”), each OP Unit issued and outstanding immediately prior to the Partnership Merger Effective Time, subject
to the terms and conditions set forth in the Merger Agreement, will automatically be converted into and become a number of units in the
Partnership Surviving Entity equal to the Exchange Ratio.
The Merger
Agreement contains customary representations and warranties from each of Healthpeak and the Trust. The Trust has agreed to customary pre-closing
covenants, including covenants to use commercially reasonable efforts to carry on its
business in all material respects in the ordinary
course, consistent with past practice, and to refrain from taking certain actions without Healthpeak’s consent. Healthpeak has agreed
to customary pre-closing covenants, including a more limited set of covenants to refrain from taking certain actions without the Trust’s
consent and to use commercially reasonable efforts to carry on its business in all material respects in the ordinary course, consistent
with past practice. Each party has agreed to additional covenants, including, among others, covenants relating to (i) the Trust’s
obligation to call a meeting of its shareholders to approve the Company Merger, (ii) Healthpeak’s obligation to call a meeting
of its stockholders to approve the Healthpeak Common Stock Issuance (as defined in the Merger Agreement) and the Parent Charter Amendment
(as defined in the Merger Agreement) and (iii) each party’s non-solicitation obligations related to alternative acquisition
proposals. Healthpeak’s board of directors and the Trust’s Board of Trustees each have unanimously approved the Merger Agreement.
The Mergers are expected to close during the first half of 2024.
In connection with the
Merger Agreement, the Trust suspended the 2023 ATM Program.
Exhibit 99.3
Index to Consolidated
Financial Statements
| |
Page |
| |
|
| Report of Independent Registered
Public Accounting Firm |
2 |
| |
|
| Report of Independent Registered
Public Accounting Firm on Internal Control Over Financial Reporting |
4 |
| |
|
| Consolidated Balance Sheets
at December 31, 2022 and 2021 |
5 |
| Consolidated Statements
of Income for the Years Ended December 31, 2022, 2021, and 2020 |
6 |
| Consolidated Statements
of Comprehensive Income for the Years Ended December 31, 2022, 2021, and 2020 |
7 |
| Consolidated Statements
of Equity for the Years Ended December 31, 2022, 2021, and 2020 |
8 |
| Consolidated Statements
of Cash Flows for the Years Ended December 31, 2022, 2021, and 2020 |
9 |
| |
|
| Notes to Consolidated Financial
Statements |
10 |
| |
|
| Financial Statement Schedules |
31 |
Report of Independent
Registered Public Accounting Firm
To the Shareholders and
the Board of Trustees of Physicians Realty Trust
Opinion on the Financial
Statements
We have audited the accompanying
consolidated balance sheets of Physicians Realty Trust (the “Company”) as of December 31, 2022 and 2021, the related
consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31,
2022, and the related notes and financial statement schedules included in the Index (collectively referred to as the “consolidated
financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited,
in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal
control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 24,
2023 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements
are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements
based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits
in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing
procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management,
as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for
our opinion.
Critical Audit Matter
The critical audit matter
communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to
be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the financial statements
and (2) involved our especially challenging, subjective or complex judgments. The communication of a critical audit matter does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
| |
|
Evaluation of net real estate property for impairment |
| |
|
|
| Description of the Matter |
|
As of December 31, 2022, the Company’s consolidated balance
sheet included net real estate property of $4.5 billion. As described in Note 2 to the consolidated financial statements, the Company
periodically evaluates its long-lived assets, primarily consisting of investments in real estate, for impairment 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 long-lived assets in relation to its expected undiscounted future cash flows.
The Company adjusts the net book value of long-lived assets to fair value if the sum of the expected future undiscounted cash flows is
less than book value.
Auditing management’s long-lived assets impairment analysis was
complex and involved a high degree of subjectivity due to the significant estimation required to determine the estimated undiscounted
future cash flows of long-lived assets. In particular, the future cash flow estimates were sensitive to significant assumptions such as
future rental revenues, operating expenses, occupancy, and capitalization rates which are affected by expectations about future market
or economic conditions, as well as management’s intent to hold and operate the property over the term and in the manner assumed
in the analysis.
|
| How We Addressed the Matter in Our Audit |
|
We obtained an understanding, evaluated the design, and tested the
operating effectiveness of controls over the Company’s long-lived assets impairment review process, including controls over management’s
review of the significant assumptions described above.
To test the Company’s evaluation of long-lived assets for impairment,
we performed audit procedures that included, among others, assessing the methodologies used, evaluating the significant assumptions discussed
above, and testing the completeness and accuracy of the underlying data used by the Company in its analysis. We compared the significant
assumptions used by management to current market data and performed sensitivity analyses of the significant assumptions discussed above.
The evaluation of the Company’s methodology and significant assumptions was performed with the assistance of our valuation specialists. |
| /s/ Ernst & Young LLP |
|
| We have served as the Company’s auditor
since 2014. |
|
| Milwaukee, Wisconsin |
|
| February 24, 2023 |
|
Report of Independent
Registered Public Accounting Firm
To the Shareholders and
the Board of Trustees of Physicians Realty Trust
Opinion on Internal
Control over Financial Reporting
We have audited Physicians
Realty Trust’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO
criteria). In our opinion, Physicians Realty Trust (the Company) maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2022, based on the COSO criteria.
We also have audited,
in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets
of Physicians Realty Trust at December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, equity
and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedules
included in the Index and our report dated February 24, 2023 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management
is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility
is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting
firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit
in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations
of Internal Control Over Financial Reporting
A company’s internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition,
use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent
limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
| /s/ Ernst & Young LLP |
|
| Milwaukee, Wisconsin |
|
| February 24, 2023 |
|
Physicians Realty
Trust
Consolidated Balance
Sheets
(In thousands, except
share and per share data)
| | |
December 31, |
|
| | |
2022 | |
|
2021 |
|
| ASSETS | |
| | |
|
| |
|
| Investment
properties: | |
| | |
|
| |
|
| Land
and improvements | |
$ | 241,559 | |
|
$ | 235,453 |
|
| Building
and improvements | |
| 4,674,011 | |
|
| 4,612,561 |
|
| Tenant
improvements | |
| 92,906 | |
|
| 86,018 |
|
| Acquired
lease intangibles | |
| 505,335 | |
|
| 498,221 |
|
| | |
| 5,513,811 | |
|
| 5,432,253 |
|
| Accumulated
depreciation | |
| (996,888 | ) |
|
| (821,036 |
) |
| Net real
estate property | |
| 4,516,923 | |
|
| 4,611,217 |
|
| Real estate
held for sale | |
| — | |
|
| 1,964 |
|
| Right-of-use
lease assets, net | |
| 231,225 | |
|
| 235,483 |
|
| Real estate
loans receivable, net | |
| 104,973 | |
|
| 117,844 |
|
| Investments
in unconsolidated entities | |
| 77,716 | |
|
| 69,793 |
|
| Net real
estate investments | |
| 4,930,837 | |
|
| 5,036,301 |
|
| Cash and
cash equivalents | |
| 7,730 | |
|
| 9,876 |
|
| Tenant receivables,
net | |
| 11,503 | |
|
| 4,948 |
|
| Other
assets | |
| 146,807 | |
|
| 131,584 |
|
| Total
assets | |
$ | 5,096,877 | |
|
$ | 5,182,709 |
|
| LIABILITIES
AND EQUITY | |
| | |
|
| |
|
| Liabilities: | |
| | |
|
| |
|
| Credit
facility | |
$ | 188,328 | |
|
$ | 267,641 |
|
| Notes
payable | |
| 1,465,437 | |
|
| 1,464,008 |
|
| Mortgage
debt | |
| 164,352 | |
|
| 180,269 |
|
| Accounts
payable | |
| 4,391 | |
|
| 6,651 |
|
| Dividends
and distributions payable | |
| 60,148 | |
|
| 57,246 |
|
| Accrued
expenses and other liabilities | |
| 87,720 | |
|
| 86,254 |
|
| Lease
liabilities | |
| 105,011 | |
|
| 104,957 |
|
| Acquired
lease intangibles, net | |
| 24,381 | |
|
| 21,569 |
|
| Total
liabilities | |
| 2,099,768 | |
|
| 2,188,595 |
|
| | |
| | |
|
| |
|
| Redeemable
noncontrolling interests - partially owned properties | |
| 3,258 | |
|
| 7,081 |
|
| | |
| | |
|
| |
|
| Equity: | |
| | |
|
| |
|
| Common shares, $0.01 par
value, 500,000,000 common shares authorized, 233,292,030 and 224,678,116 common shares issued and outstanding
as of December 31, 2022 and December 31, 2021, respectively | |
| 2,333 | |
|
| 2,247 |
|
| Additional
paid-in capital | |
| 3,743,876 | |
|
| 3,610,954 |
|
| Accumulated
deficit | |
| (881,672 | ) |
|
| (776,001 |
) |
| Accumulated
other comprehensive income (loss) | |
| 5,183 | |
|
| (892 |
) |
| Total shareholders’
equity | |
| 2,869,720 | |
|
| 2,836,308 |
|
| Noncontrolling
interests: | |
| | |
|
| |
|
| Operating
Partnership | |
| 123,015 | |
|
| 150,241 |
|
| Partially
owned properties | |
| 1,116 | |
|
| 484 |
|
| Total
noncontrolling interests | |
| 124,131 | |
|
| 150,725 |
|
| Total
equity | |
| 2,993,851 | |
|
| 2,987,033 |
|
| Total
liabilities and equity | |
$ | 5,096,877 | |
|
$ | 5,182,709 |
|
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)
| | |
December 31, | |
| | |
2022 | | |
2021 | | |
2020 | |
| Revenues: | |
| | |
| | |
| |
| Rental and related revenues | |
$ | 515,373 | | |
$ | 440,198 | | |
$ | 421,134 | |
| Interest income on real estate loans and other | |
| 11,262 | | |
| 17,501 | | |
| 16,371 | |
| Total revenues | |
| 526,635 | | |
| 457,699 | | |
| 437,505 | |
| Expenses: | |
| | | |
| | | |
| | |
| Interest expense | |
| 72,234 | | |
| 60,136 | | |
| 57,179 | |
| General and administrative | |
| 40,209 | | |
| 37,757 | | |
| 33,763 | |
| Operating expenses | |
| 171,100 | | |
| 137,408 | | |
| 128,198 | |
| Depreciation and amortization | |
| 189,641 | | |
| 157,870 | | |
| 149,590 | |
| Impairment loss | |
| — | | |
| 340 | | |
| 4,872 | |
| Total expenses | |
| 473,184 | | |
| 393,511 | | |
| 373,602 | |
| Income before equity in loss of unconsolidated entities and gain on sale of investment properties, net: | |
| 53,451 | | |
| 64,188 | | |
| 63,903 | |
| Equity in loss of unconsolidated entities | |
| (790 | ) | |
| (1,570 | ) | |
| (1,257 | ) |
| Gain on sale of investment properties, net | |
| 57,375 | | |
| 24,165 | | |
| 5,842 | |
| Net income | |
| 110,036 | | |
| 86,783 | | |
| 68,488 | |
| Net income attributable to noncontrolling interests: | |
| | | |
| | | |
| | |
| Operating Partnership | |
| (5,240 | ) | |
| (2,211 | ) | |
| (1,797 | ) |
| Partially owned properties (1) | |
| (430 | ) | |
| (607 | ) | |
| (574 | ) |
| Net income attributable to controlling interest | |
| 104,366 | | |
| 83,965 | | |
| 66,117 | |
| Preferred distributions | |
| — | | |
| (13 | ) | |
| (1,241 | ) |
| Net income attributable to common shareholders | |
$ | 104,366 | | |
$ | 83,952 | | |
$ | 64,876 | |
| Net income per share: | |
| | | |
| | | |
| | |
| Basic | |
$ | 0.46 | | |
$ | 0.39 | | |
$ | 0.32 | |
| Diluted | |
$ | 0.46 | | |
$ | 0.39 | | |
$ | 0.32 | |
| Weighted average common shares: | |
| | | |
| | | |
| | |
| Basic | |
| 226,598,474 | | |
| 216,135,385 | | |
| 204,243,768 | |
| Diluted | |
| 239,610,285 | | |
| 223,060,556 | | |
| 211,145,917 | |
| Dividends and distributions declared per common share | |
$ | 0.92 | | |
$ | 0.92 | | |
$ | 0.92 | |
(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)
| | |
December 31, | |
| | |
2022 | | |
2021 | | |
2020 | |
| Net income | |
$ | 110,036 | | |
$ | 86,783 | | |
$ | 68,488 | |
| Other comprehensive income (loss): | |
| | | |
| | | |
| | |
| Change in fair value of interest rate swap agreements, net | |
| 6,075 | | |
| 1,672 | | |
| (10,180 | ) |
| Reclassification of accumulated losses on interest rate swap to earnings | |
| — | | |
| 3,295 | | |
| — | |
| Total other comprehensive income (loss) | |
| 6,075 | | |
| 4,967 | | |
| (10,180 | ) |
| Comprehensive income | |
| 116,111 | | |
| 91,750 | | |
| 58,308 | |
| Comprehensive income attributable to noncontrolling interests - Operating Partnership | |
| (5,490 | ) | |
| (2,461 | ) | |
| (1,522 | ) |
| Comprehensive income attributable to noncontrolling interests - partially owned properties | |
| (430 | ) | |
| (607 | ) | |
| (574 | ) |
| Comprehensive income attributable to common shareholders | |
$ | 110,191 | | |
$ | 88,682 | | |
$ | 56,212 | |
The accompanying notes
are an integral part of these consolidated financial statements.
Physicians Realty
Trust
Consolidated Statements
of Equity
(In thousands)
| |
Par
Value |
|
|
Additional
Paid in
Capital |
|
|
Accumulated
Deficit |
|
|
Accumulated
Other Comprehensive (Loss) Income |
|
|
Total
Shareholders’
Equity |
|
|
Operating
Partnership
Noncontrolling
interest |
|
|
Partially
Owned
Properties
Noncontrolling
Interest |
|
|
Total
Noncontrolling
Interests |
|
|
Total
Equity |
|
| Balance at January 1,
2020 |
$ |
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 |
|
194 |
|
|
|
364,194 |
|
|
|
— |
|
|
|
— |
|
|
|
364,388 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
364,388 |
|
| Restricted share award grants,
net |
|
2 |
|
|
|
9,510 |
|
|
|
(1,783 |
) |
|
|
— |
|
|
|
7,729 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
7,729 |
|
| Purchase of OP Units |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(515 |
) |
|
|
— |
|
|
|
(515) |
|
|
|
(515 |
) |
| Conversion of OP Units |
|
— |
|
|
|
41 |
|
|
|
— |
|
|
|
— |
|
|
|
41 |
|
|
|
(41 |
) |
|
|
— |
|
|
|
(41 |
) |
|
|
— |
|
| Dividends/distributions declared |
|
— |
|
|
|
— |
|
|
|
(190,751 |
) |
|
|
— |
|
|
|
(190,751 |
) |
|
|
(5,123 |
) |
|
|
— |
|
|
|
(5,123 |
) |
|
|
(195,874 |
) |
| Preferred distributions |
|
— |
|
|
|
— |
|
|
|
(1,241 |
) |
|
|
— |
|
|
|
(1,241 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,241 |
) |
| Issuance of OP Units in connection
with acquisitions |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,067 |
|
|
|
— |
|
|
|
3,067 |
|
|
|
3,067 |
|
| Distributions |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(210 |
) |
|
|
(210 |
) |
|
|
(210 |
) |
| Change in market value of
Redeemable Noncontrolling Interests |
|
— |
|
|
|
132 |
|
|
|
(1,319 |
) |
|
|
— |
|
|
|
(1,187 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,187 |
) |
| Change in fair value of interest
rate swap agreements |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10,180 |
) |
|
|
(10,180 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10,180 |
) |
| Adjustment for Noncontrolling
Interests ownership in Operating Partnership |
|
— |
|
|
|
(2,420 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,420 |
) |
|
|
2,420 |
|
|
|
— |
|
|
|
2,420 |
|
|
|
— |
|
| Net income |
|
— |
|
|
|
— |
|
|
|
66,117 |
|
|
|
— |
|
|
|
66,117 |
|
|
|
1,797 |
|
|
|
274 |
|
|
|
2,071 |
|
|
|
68,188 |
|
| Balance at December 31,
2020 |
|
2,096 |
|
|
|
3,303,231 |
|
|
|
(658,171 |
) |
|
|
(5,859 |
) |
|
|
2,641,297 |
|
|
|
73,302 |
|
|
|
403 |
|
|
|
73,705 |
|
|
|
2,715,002 |
|
| Net proceeds from sale of
common shares |
|
147 |
|
|
|
267,979 |
|
|
|
— |
|
|
|
— |
|
|
|
268,126 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
268,126 |
|
| Restricted share award grants,
net |
|
4 |
|
|
|
10,722 |
|
|
|
(1,312 |
) |
|
|
— |
|
|
|
9,414 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
9,414 |
|
| Purchase of OP Units |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,237 |
) |
|
|
— |
|
|
|
(6,237 |
) |
|
|
(6,237 |
) |
| Dividends/distributions declared |
|
— |
|
|
|
— |
|
|
|
(200,926 |
) |
|
|
— |
|
|
|
(200,926 |
) |
|
|
(6,457 |
) |
|
|
— |
|
|
|
(6,457 |
) |
|
|
(207,383 |
) |
| Preferred distributions |
|
— |
|
|
|
— |
|
|
|
(13 |
) |
|
|
— |
|
|
|
(13 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(13 |
) |
| Issuance of OP Units in connection
with acquisitions |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
116,467 |
|
|
|
— |
|
|
|
116,467 |
|
|
|
116,467 |
|
| Distributions |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(224 |
) |
|
|
(224 |
) |
|
|
(224 |
) |
| Change in market value of
Redeemable Noncontrolling Interests |
|
— |
|
|
|
(23 |
) |
|
|
456 |
|
|
|
— |
|
|
|
433 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
433 |
|
| Derecognition of cash flow
hedge |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,295 |
|
|
|
3,295 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,295 |
|
| Change in fair value of interest
rate swap agreements |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,672 |
|
|
|
1,672 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,672 |
|
| Adjustment for Noncontrolling
Interests ownership in Operating Partnership |
|
— |
|
|
|
29,045 |
|
|
|
— |
|
|
|
— |
|
|
|
29,045 |
|
|
|
(29,045) |
|
|
|
— |
|
|
|
(29,045 |
) |
|
|
— |
|
| Net income |
|
— |
|
|
|
— |
|
|
|
83,965 |
|
|
|
— |
|
|
|
83,965 |
|
|
|
2,211 |
|
|
|
305 |
|
|
|
2,516 |
|
|
|
86,481 |
|
| Balance as of December 31,
2021 |
|
2,247 |
|
|
|
3,610,954 |
|
|
|
(776,001 |
) |
|
|
(892 |
) |
|
|
2,836,308 |
|
|
|
150,241 |
|
|
|
484 |
|
|
|
150,725 |
|
|
|
2,987,033 |
|
| Net proceeds from sale of
common shares |
|
67 |
|
|
|
105,952 |
|
|
|
— |
|
|
|
— |
|
|
|
106,019 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
106,019 |
|
| Restricted share award grants,
net |
|
4 |
|
|
|
11,277 |
|
|
|
(2,468 |
) |
|
|
— |
|
|
|
8,813 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
8,813 |
|
| Purchase of OP Units |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,741 |
) |
|
|
— |
|
|
|
(6,741 |
) |
|
|
(6,741 |
) |
| Conversion of OP Units |
|
15 |
|
|
|
23,073 |
|
|
|
— |
|
|
|
— |
|
|
|
23,088 |
|
|
|
(23,088 |
) |
|
|
— |
|
|
|
(23,088 |
) |
|
|
— |
|
| Dividends/distributions declared |
|
— |
|
|
|
— |
|
|
|
(210,326 |
) |
|
|
— |
|
|
|
(210,326 |
) |
|
|
(10,017 |
) |
|
|
— |
|
|
|
(10,017 |
) |
|
|
(220,343 |
) |
| Contributions |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
569 |
|
|
|
569 |
|
|
|
569 |
|
| Distributions |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(238 |
) |
|
|
(238 |
) |
|
|
(238 |
) |
| Change in market value of
Redeemable Noncontrolling Interest in partially owned properties |
|
— |
|
|
|
— |
|
|
|
2,757 |
|
|
|
— |
|
|
|
2,757 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,757 |
|
| Change in fair value of interest
rate swap agreement |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,075 |
|
|
|
6,075 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
6,075 |
|
| Adjustment for Noncontrolling
Interests ownership in Operating Partnership |
|
— |
|
|
|
(7,380 |
) |
|
|
— |
|
|
|
— |
|
|
|
(7,380 |
) |
|
|
7,380 |
|
|
|
— |
|
|
|
7,380 |
|
|
|
— |
|
| Net income |
|
— |
|
|
|
— |
|
|
|
104,366 |
|
|
|
— |
|
|
|
104,366 |
|
|
|
5,240 |
|
|
|
301 |
|
|
|
5,541 |
|
|
|
109,907 |
|
| Balance as of December 31,
2022 |
$ |
2,333 |
|
|
$ |
3,743,876 |
|
|
$ |
(881,672 |
) |
|
$ |
5,183 |
|
|
$ |
2,869,720 |
|
|
$ |
123,015 |
|
|
$ |
1,116 |
|
|
$ |
124,131 |
|
|
$ |
2,993,851 |
|
The accompanying notes
are an integral part of these consolidated financial statements.
Physicians Realty
Trust
Consolidated Statements
of Cash Flows
(in thousands)
| | |
Year Ended December 31, | |
| | |
2022 | | |
2021 | | |
2020 | |
| Cash Flows from Operating Activities: | |
| | | |
| | | |
| | |
| Net income | |
$ | 110,036 | | |
$ | 86,783 | | |
$ | 68,488 | |
| Adjustments to reconcile net income to net cash provided by operating activities | |
| | | |
| | | |
| | |
| Depreciation and amortization | |
| 189,641 | | |
| 157,870 | | |
| 149,590 | |
| Amortization of deferred financing costs | |
| 2,314 | | |
| 2,325 | | |
| 2,372 | |
| Amortization of lease inducements and above/below-market lease intangibles | |
| 5,834 | | |
| 4,678 | | |
| 4,680 | |
| Straight-line rental (revenue) expense, net | |
| (6,847 | ) | |
| (8,671 | ) | |
| (12,395 | ) |
| Amortization of discount on unsecured senior notes | |
| 1,064 | | |
| 737 | | |
| 629 | |
| Amortization of above market assumed debt | |
| (10 | ) | |
| (62 | ) | |
| (62 | ) |
| Derecognition of cash flow hedge | |
| — | | |
| 3,295 | | |
| — | |
| Loss on extinguishment of deferred financing costs | |
| — | | |
| 730 | | |
| — | |
| Gain on sale of investment properties, net | |
| (57,375 | ) | |
| (24,165 | ) | |
| (5,842 | ) |
| Equity in loss of unconsolidated entities | |
| 790 | | |
| 1,570 | | |
| 1,257 | |
| Distributions from unconsolidated entities | |
| 7,874 | | |
| 6,928 | | |
| 5,515 | |
| Change in fair value of derivatives | |
| — | | |
| — | | |
| 15 | |
| Provision for bad debts | |
| 180 | | |
| (90 | ) | |
| 513 | |
| Non-cash share compensation | |
| 15,672 | | |
| 15,032 | | |
| 12,486 | |
| Net change in fair value of contingent consideration | |
| — | | |
| — | | |
| (715 | ) |
| Impairment on investment properties | |
| — | | |
| 340 | | |
| 4,872 | |
| Change in operating assets and liabilities: | |
| | | |
| | | |
| | |
| Tenant receivables | |
| (7,652 | ) | |
| (2,863 | ) | |
| (1,404 | ) |
| Other assets | |
| (2,317 | ) | |
| 3,404 | | |
| (7,380 | ) |
| Accounts payable | |
| (2,260 | ) | |
| (356 | ) | |
| 659 | |
| Accrued expenses and other liabilities | |
| 1,456 | | |
| (711 | ) | |
| 9,840 | |
| Net cash provided by operating activities | |
| 258,400 | | |
| 246,774 | | |
| 233,118 | |
| Cash Flows from Investing Activities: | |
| | | |
| | | |
| | |
| Proceeds on sale of investment properties | |
| 123,179 | | |
| 92,711 | | |
| 20,269 | |
| Acquisition of investment properties, net | |
| (112,455 | ) | |
| (718,179 | ) | |
| (73,040 | ) |
| Investment in unconsolidated entities | |
| (13,587 | ) | |
| (9,069 | ) | |
| (18,390 | ) |
| Capital expenditures on investment properties | |
| (39,869 | ) | |
| (32,566 | ) | |
| (33,887 | ) |
| Issuances of real estate loans receivable | |
| (30,611 | ) | |
| (16,213 | ) | |
| (115,220 | ) |
| Repayments of real estate loans receivable | |
| 38,994 | | |
| 84,874 | | |
| 21,194 | |
| Leasing commissions | |
| (3,623 | ) | |
| (3,997 | ) | |
| (2,660 | ) |
| Lease inducements | |
| (500 | ) | |
| — | | |
| — | |
| Net cash used in investing activities | |
| (38,472 | ) | |
| (602,439 | ) | |
| (201,734 | ) |
| Cash Flows from Financing Activities: | |
| | | |
| | | |
| | |
| Net proceeds from sale of common shares | |
| 106,019 | | |
| 268,126 | | |
| 364,388 | |
| Proceeds from credit facility borrowings | |
| 294,000 | | |
| 710,541 | | |
| 364,000 | |
| Repayments on credit facility borrowings | |
| (375,000 | ) | |
| (852,541 | ) | |
| (537,000 | ) |
| Proceeds from issuance of mortgage debt | |
| — | | |
| 136,050 | | |
| — | |
| Proceeds from issuance of senior unsecured notes | |
| — | | |
| 495,695 | | |
| — | |
| Principal payments on mortgage debt | |
| (16,094 | ) | |
| (13,027 | ) | |
| (25,477 | ) |
| Debt issuance costs | |
| (74 | ) | |
| (7,380 | ) | |
| (63 | ) |
| Payments made on financing leases | |
| — | | |
| (8,300 | ) | |
| — | |
| Dividends paid - shareholders | |
| (209,417 | ) | |
| (198,541 | ) | |
| (186,721 | ) |
| Distributions to noncontrolling interests - Operating Partnership | |
| (10,493 | ) | |
| (5,024 | ) | |
| (5,092 | ) |
| Preferred distributions paid - OP Unit holders | |
| — | | |
| (303 | ) | |
| (1,268 | ) |
| Contributions to noncontrolling interests | |
| 569 | | |
| — | | |
| — | |
| Distributions to noncontrolling interests - partially owned properties | |
| (588 | ) | |
| (648 | ) | |
| (628 | ) |
| Payments of employee taxes for withheld stock-based compensation shares | |
| (4,255 | ) | |
| (4,183 | ) | |
| (2,848 | ) |
| Purchases of Series A Preferred Units | |
| — | | |
| (151,202 | ) | |
| — | |
| Purchases of OP Units | |
| (6,741 | ) | |
| (6,237 | ) | |
| (515 | ) |
| Net cash (used in) provided by financing activities | |
| (222,074 | ) | |
| 363,026 | | |
| (31,224 | ) |
| Net (decrease) increase in cash and cash equivalents | |
| (2,146 | ) | |
| 7,361 | | |
| 160 | |
| Cash and cash equivalents, beginning of year | |
| 9,876 | | |
| 2,515 | | |
| 2,355 | |
| Cash and cash equivalents, end of year | |
$ | 7,730 | | |
$ | 9,876 | | |
$ | 2,515 | |
| Supplemental disclosure of cash flow information - interest paid during the year | |
$ | 70,207 | | |
$ | 50,814 | | |
$ | 54,813 | |
| Supplemental disclosure of noncash activity—settlement of note receivable in exchange for Series A Preferred Units | |
$ | — | | |
$ | 20,646 | | |
$ | — | |
| Supplemental disclosure of noncash activity - change in fair value of interest rate swap agreements | |
$ | 6,075 | | |
$ | 1,672 | | |
$ | (10,180 | ) |
| Supplemental disclosure of noncash activity - issuance of OP Units and Series A Preferred Units in connection with acquisitions | |
$ | — | | |
$ | 263,008 | | |
$ | 3,067 | |
| Supplemental disclosure of noncash activity—Conversion of loan receivable in connection to the acquisition of investment property | |
$ | 5,700 | | |
$ | 15,500 | | |
$ | — | |
The accompanying notes
are an integral part of these consolidated financial statements.
Physicians Realty
Trust
Notes to Consolidated
Financial Statements
Unless otherwise indicated
or unless the context requires otherwise the use of the words “we,” “us,” “our,” and the “Company,”
refer to Physicians Realty Trust, together with its consolidated subsidiaries, including Physicians Realty L.P.
Note 1. Organization and Business
The Trust
was organized in the state of Maryland on April 9, 2013. As of December 31, 2022, the Trust was authorized to issue up to 500,000,000 common
shares of beneficial interest, par value $0.01 per share. The Trust filed a Registration Statement on Form S-11 with the 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 health care properties that are leased to physicians,
hospitals, and health care delivery systems.
ATM Programs
In November 2019,
the Trust and the Operating Partnership entered into separate At Market Issuance Sales Agreements (the “2019 Sales Agreements”)
with each of KeyBanc Capital Markets Inc., Credit Agricole Securities (USA) Inc., BMO Capital Markets Corp., Raymond James &
Associates, Inc., and Stifel, Nicolaus & Company, Incorporated, in their capacity as agents and as forward sellers
(the “2019 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 $500 million, through the 2019 Agents (the “2019 ATM Program”). The 2019 Sales Agreements contemplate
that, in addition to the issuance and sale of the Trust’s common shares through the 2019 Agents, the Trust may also enter into one
or more forward sales agreements from time to time in the future with each of KeyBanc Capital Markets, Inc., Credit Agricole Securities
(USA) Inc., BMO Capital Markets Corp., Raymond James & Associates, Inc., and Stifel, Nicolaus & Company, Incorporated,
or one of their respective affiliates.
In May 2021,
the Trust and the Operating Partnership entered into an At Market Issuance Sales Agreement (the “2021 Sales Agreement”) with
KeyBanc Capital Markets Inc., Credit Agricole Securities (USA) Inc., BMO Capital Markets Corp., and Raymond James & Associates, Inc.
in their capacity as agents for the Company and/or forward sellers and Stifel, Nicolaus & Company, Incorporated in its capacity
as sales agent for the Company (collectively, the “2021 Agents”) and Bank of Montreal, Credit Agricole Corporate and Investments
Bank, KeyBanc Capital Markets Inc., and Raymond James & Associates, Inc. as forward purchasers for the Company (the “Forward
Purchasers”), pursuant to which the Trust may issue and sell, from time to time, its common shares having an aggregate offering
price of up to $500 million through the 2021 Agents (the “2021 ATM Program” and, together with the 2019 ATM Program the
“ATM Programs”). The 2021 Sales Agreement contemplates that, in addition to the issuance and sale of the Trust’s common
shares through the 2021 Agents, the Trust may also enter into one or more forward sales agreements from time to time in the future with
each of the Forward Purchasers. Upon entry into the 2021 Sales Agreement, the Trust terminated the 2019 ATM Program.
During 2022
and 2021, the Trust’s issuance and sale of common shares pursuant to the ATM Programs was as follows (in thousands, except common
shares and price):
| | |
2022 | |
2021 |
|
| | |
Common
shares sold | |
Weighted
average price | |
Net
proceeds | |
Common
shares sold | |
Weighted
average price | |
Net
proceeds |
|
| Quarterly
period ended March 31 | |
259,977 | |
$ | 18.93 | |
$ | 4,871 | |
2,887,296 | |
$ | 18.32 | |
$ | 52,358 |
|
| Quarterly
period ended June 30 | |
977,800 | |
| 18.61 | |
| 18,020 | |
4,532,343 | |
| 18.39 | |
| 82,519 |
|
| Quarterly
period ended September 30 | |
440,400 | |
| 18.15 | |
| 7,913 | |
— | |
| — | |
| — |
|
| Quarterly
period ended December 31 | |
5,000,000 | |
| 15.00 | |
| 74,250 | |
7,236,439 | |
| 18.54 | |
| 132,824 |
|
| Year
ended December 31 | |
6,678,177 | |
$ | 15.89 | |
$ | 105,054 | |
14,656,078 | |
$ | 18.45 | |
$ | 267,701 |
|
As of February 14,
2023, the Trust had $158.6 million remaining available under the 2021 ATM Program.
Note 2. Summary of Significant Accounting
Policies
Principles of Consolidation
GAAP requires
identification of entities 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 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. The Company identifies the primary beneficiary
of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of the VIE that
most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or receive benefits of
the VIE that could potentially be significant to the entity. The Company consolidates its investment in a VIE when it determines that
it is the VIE’s primary beneficiary. The Company may change its 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. The Company performs this analysis on an ongoing
basis.
For property
holding entities not determined to be VIEs, the Company consolidates 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.
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: Noncontrolling interests in the Company include OP Units held by other investors. 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.
During the
year ended December 31, 2021, the Operating Partnership issued 6,561,521 OP Units valued at approximately $116.5 million
on the date of issuance to partially fund the acquisition of a portfolio. The portfolio had a total aggregate purchase price of approximately
$750.0 million.
As of December 31,
2022 and 2021, the Trust held a 95.9% and 95.0% interest in the Operating Partnership, respectively. 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 reflects noncontrolling interests in partially owned properties on the consolidated balance sheets 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 - Partially Owned Properties
In connection
with the Company’s acquisitions of the medical office building, ambulatory surgery center, and hospital located on the Great Falls
Hospital campus in Great Falls, Montana, physicians affiliated with the sellers retained non-controlling interests which were, at the
holders’ option, able to be redeemed at any time after May 1, 2023. Due to the redemption provision, which was outside of the
control of the Trust, the Trust classified the investment in the mezzanine section of its consolidated balance sheets. On July 14,
2022, the Company disposed of these three properties and removed the related redeemable noncontrolling interest from its consolidated
balance sheets.
Through a
consolidated joint venture with MedProperties Realty Advisors, LLC (“MedProperties”), the Company acquired Calko Medical Center
in Brooklyn, New York. As part of the joint venture, MedProperties can redeem its interest, at their option, at any time after September 9,
2025. Due to the redemption provision, which is outside of the control of the Company, the Company classifies the noncontrolling interests
in the mezzanine section of its consolidated balance sheets. The Company records the carrying amount of the redeemable noncontrolling
interests at the greater of the carrying value or redemption value.
Dividends and Distributions
Dividends
and distributions for the years ended December 31, 2022, 2021, and 2020 are as follows:
| Declaration Date | |
Record Date | |
Payment Date | |
Cash Dividend
per Share/Unit |
|
| December 22,
2022 | |
January 4,
2023 | |
January 18,
2023 | |
$ | 0.23 |
|
| September 23, 2022 | |
October 4, 2022 | |
October 14, 2022 | |
$ | 0.23 |
|
| June 17, 2022 | |
July 5, 2022 | |
July 19, 2022 | |
$ | 0.23 |
|
| March 18, 2022 | |
March 31, 2022 | |
April 14, 2022 | |
$ | 0.23 |
|
| December 22, 2021 | |
January 4, 2022 | |
January 18, 2022 | |
$ | 0.23 |
|
| September 22, 2021 | |
October 4, 2021 | |
October 15, 2021 | |
$ | 0.23 |
|
| June 18, 2021 | |
July 2, 2021 | |
July 16, 2021 | |
$ | 0.23 |
|
| March 19, 2021 | |
April 2, 2021 | |
April 16, 2021 | |
$ | 0.23 |
|
| December 18, 2020 | |
January 5, 2021 | |
January 20, 2021 | |
$ | 0.23 |
|
| September 21, 2020 | |
October 2, 2020 | |
October 16, 2020 | |
$ | 0.23 |
|
| June 18, 2020 | |
July 2, 2020 | |
July 17, 2020 | |
$ | 0.23 |
|
| March 19, 2020 | |
April 2, 2020 | |
April 16, 2020 | |
$ | 0.23 |
|
The Company’s
shareholders are entitled to reinvest all or a portion of any cash distribution on their shares of the Company’s common stock by
participating in the DRIP, subject to the terms of the plan.
Tax Status of Dividends and
Distributions
The Company’s
distributions of current and accumulated earnings and profits for U.S. federal income tax purposes generally are taxable to shareholders
as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the shareholders’
basis in the shares to the extent thereof (non-dividend distributions) and thereafter as taxable gain.
Any cash
distributions received by an OP Unit holder in respect of its OP Units generally will not be taxable to such OP Unit holder for U.S. federal
income tax purposes, to the extent that such distribution does not exceed the OP Unit holder’s basis in its OP Units. Any such distribution
will instead reduce the OP Unit holder’s basis in its OP Units (and OP Unit holders will be subject to tax on the taxable income
allocated to them by the Operating Partnership in respect of their OP Units when such income is earned by the Operating Partnership, with
such income allocation increasing the OP Unit holders’ basis in their OP Units).
The following
table sets forth the federal income tax status of distributions per common share and OP Unit for the periods presented:
| |
| |
Year
Ended December 31, |
|
| |
| |
2022 | |
2021 | |
2020 |
|
| Per common
share and OP Unit: |
| |
| | |
| | |
| |
|
| Ordinary
dividends |
| |
$ | — | |
$ | — | |
$ | — |
|
| Section 199A
Qualified REIT Dividend |
| |
| 0.4724 | |
| 0.4856 | |
| 0.4798 |
|
| Qualified
dividends |
| |
| — | |
| — | |
| — |
|
| Long-term
capital gain |
(1 | ) |
| 0.1999 | |
| — | |
| — |
|
| Unrecaptured
Section 1250 gain |
| |
| 0.0544 | |
| — | |
| — |
|
| Non-dividend
distributions |
| |
| 0.1933 | |
| 0.4344 | |
| 0.4402 |
|
| Total |
| |
$ | 0.9200 | |
$ | 0.9200 | |
$ | 0.9200 |
|
| (1) |
For distributions classified as Long-Term Capital Gain, the One Year Amounts Disclosure is $0, the Three Year Amounts Disclosure is $0,
and $0.1999 is Section 1231 gain for purposes of Internal Revenue Code Section 1061. |
Purchases of Investment Properties
With the
adoption of ASU 2017-01 in January 2018, the Company’s acquisitions of investment properties and the majority of its future
investments will be accounted for as asset acquisitions and will result in the capitalization of acquisition costs. The purchase price,
inclusive of acquisition costs, will be allocated to tangible and intangible assets and liabilities based on their relative fair values.
Tangible assets primarily consist of land, buildings, and improvements. Intangible assets primarily consist of above-market or below-market
leases, in-place leases, above-market or below-market debt assumed, right-of-use assets, and lease liabilities. Any future contingent
consideration will be recorded when the contingency is resolved. The determination of the fair value requires the Company 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-market 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 based on 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 evaluation of anticipated cash flows is subjective and is based
on assumptions regarding future occupancy, lease rates, and cap rates that could differ materially from actual results. 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 ASC 842, on January 1, 2019, the Company periodically evaluates
the right-of-use assets for impairment as detailed above.
The Company
did not record an impairment charge for the year ended December 31, 2022. The Company recorded an impairment charge of $0.3 million
on one medical office building in Traverse City, Michigan during the year ended December 31, 2021 and an impairment charge
of $4.9 million on one medical office building in Grand Rapids, Michigan during the year ended December 31, 2020.
Assets Held for Sale and Discontinued
Operations
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. There were no properties classified as held for sale as of December 31, 2022 and one property
classified as held for sale as of December 31, 2021. Dispositions during the years ended December 31, 2022, 2021, and 2020 did
not qualify as discontinued operations.
Investments in Unconsolidated
Entities
The Company
reports investments in unconsolidated entities over whose operating and financial policies it has 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 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.
The Company
continually monitors events and changes in circumstances that could indicate that the carrying amounts of its equity method investments
may not be recoverable or realized. If indicators of potential impairment are identified, the Company evaluates its equity method investments
for impairment based on a comparison of the fair value of the investment to its carrying value. The fair value is estimated based on discounted
cash flows that include all estimated cash inflows and outflows over a specified holding period and any estimated debt premiums or discounts.
If, based on this analysis, the Company does not believe that it will be able to recover the carrying value of its equity method investment,
the Company would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of its equity method
investment.
On November 22,
2019, the Company contributed two properties valued at $39.0 million and paid additional consideration of $17.0 million
for a 12.3% equity interest in the PMAK MOB JV REOC, LLC (“PMAK Joint Venture”). As of December 31, 2022 this joint
venture owned 60 medical office facilities located in 19 states.
Since December 11,
2020, the Company contributed $33.6 million, to acquire a membership interest in Davis Medical Investors, LLC (“Davis Joint
Venture”). As of December 31, 2022, the Company holds a 45.1% membership interest in the Davis Joint Venture, which
owns 13 medical office facilities located in five states.
Real Estate Loans Receivable
Real estate
loans receivable consists of eight mezzanine loans, one construction loan, and five term loans as of December 31,
2022. 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 secured by a mortgage on the land and improvements as
constructed. Interest income on loans is 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, the Company evaluates the collectability
of its loan portfolio, including related interest income receivable, and establishes a reserve for loan losses, if necessary. For
the years ended December 31, 2022 and December 31, 2021, the Company’s loan loss reserves were $0.2 million and $0.1 million,
respectively.
Cash and Cash Equivalents
Cash and
cash equivalents consist of cash on hand and short-term investments with maturities of three months or fewer from the date of purchase.
The Company is subject to concentrations of credit risk as a result of its temporary cash investments. The Company places its temporary
cash investments with high credit quality financial institutions in order to mitigate that risk.
Rental and Related Revenues
Rental revenue
is recognized on a straight-line basis over the terms of the related leases when collectability is probable. Recognizing rental revenue
on a straight-line basis for leases may result in recognizing revenue for amounts more or less than amounts currently due from tenants.
Amounts recognized in excess of amounts currently due from tenants are included in other assets and were approximately $101.3 million
and $95.4 million as of December 31, 2022 and December 31, 2021, respectively, excluding the asset classified as held for
sale in 2021. If the Company determines that collectability of straight-line rents is not probable, income recognition is limited to the
lesser of cash collected, or lease income reflected on a straight-line basis, plus variable rent when it becomes accruable.
In accordance
with ASC 842, if the collectability of a lease changes after the commencement date, any difference between lease income that would have
been recognized and the lease payments shall be recognized as an adjustment to lease income. Bad debt recognized as an adjustment to rental
revenues was $0.2 million, $0.4 million, and $0.5 million for the years ended December 31, 2022, December 31,
2021, and December 31, 2020, respectively.
Rental revenue
is adjusted by the amortization of lease inducements and above-market or below-market rents on certain leases. Lease inducements and above-market
or below-market rents are amortized on a straight-line basis over the remaining lease term. Rental and related revenues also include expense
recoveries, which relate to tenant reimbursement of real estate taxes, insurance, and other operating expenses that are recognized in
the period the applicable expenses are incurred. The reimbursements are recorded gross, as these costs are incurred by the Company and
reimbursed by the tenants. We have certain tenants with absolute net leases. Under these lease agreements, the tenant is responsible for
operating and building expenses and we do not recognize expense recoveries.
Tenant Receivables, Net
Tenant receivables
primarily represent amounts accrued and unpaid from tenants in accordance with the terms of the respective leases, subject to the Company’s
revenue recognition policy. The Company reviews receivables monthly and writes-off the remaining balance when, in the opinion of management,
collection of substantially all remaining payments is not probable. When the Company determines substantially all remaining lease payments
are not probable of collection, it recognizes a reduction of 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.
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 the Company’s adoption of ASC 815 as of January 1, 2019, if hedge accounting is applied
to a derivative instrument, the entire change in the fair value of its derivatives designated and qualified 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 December 31, 2022, the Company had one outstanding interest rate swap, designated as a cash flow
hedge of interest rate risk. 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.
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.
Commitments
Certain of
the Company’s acquisitions provide for additional consideration to the seller in the form of an earn-out associated with lease-up
contingencies. The Company recognizes the earn-out related to asset acquisitions only if certain parameters or other substantive contingencies
are met, at which time the consideration becomes payable.
Certain of
the Company’s leases also provide for consideration available to tenants as a tenant improvement allowance. Based on existing
leases as of December 31, 2022, committed but unspent tenant related obligations were $44.7 million.
Related Parties
The Company
recognized rental revenues totaling $8.3 million in 2022, $7.9 million in 2021, and $7.5 million in 2020 from Baylor Scott
and White Health, a health care system affiliated with a member of the Trust’s Board of Trustees.
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 health care properties.
New Accounting Pronouncements
In March 2020,
the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial
Reporting, that provides optional relief to applying reference rate reform to changing reference rates, contracts, hedging relationships,
and other transactions that reference LIBOR, which has been discontinued at the end of 2021. The amendments in this update are effective
immediately and may be applied through December 31, 2022, though in October 2022, the FASB extended this date through December 31,
2024. The Company will continue to use published LIBOR rates through June of 2023 at which time the Company does not expect the replacement
benchmark to have a material impact on the Company’s consolidated financial statements.
In August 2020,
the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts
in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with characteristics
of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s
simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. This guidance is effective for fiscal years, and
interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company adopted
ASU 2020-06 on January 1, 2022, with no material effect on its consolidated financial statements.
Note 3. Investment and Disposition
Activity
During 2022, the Company
completed the acquisition of two medical office facilities and one medical condominium unit for an investment of $109.6 million
and acquired membership interest in additional assets of the Davis Joint Venture for an aggregate purchase price of $8.0 million.
The Company also paid $6.4 million of additional purchase consideration under five earn-out agreements and funded one mezzanine
loan for $5.8 million, three term loans for $22.7 million, and $2.1 million of previous construction loan commitments.
Additionally, the Company invested $5.0 million in funds managed by a venture capital firm specializing in real estate technology,
resulting in total investment activity of approximately $159.7 million as of December 31, 2022. As part of these investments,
the Company incurred approximately $2.3 million of capitalized costs.
Investment
activity for the year ending December 31, 2022 is summarized below:
| Investment | |
| |
Location | |
Acquisition
Date | |
Investment
Amount
(in thousands) | |
| City Place Portfolio - Davis Joint Venture | |
(1) | |
Woodbury, MN | |
January 12, 2022 | |
$ | 8,032 | |
| New Albany Medical Center II | |
| |
New Albany, OH | |
April 26, 2022 | |
| 27,688 | |
| Calko Medical Center | |
| |
Brooklyn, NY | |
September 9, 2022 | |
| 81,500 | |
| Atlanta Medical Condominium Investment | |
| |
Atlanta, GA | |
December 5, 2022 | |
| 400 | |
| Earnouts | |
| |
Various | |
Various | |
| 6,401 | |
| Private Equity Fund Investment | |
(2) | |
N/A | |
Various | |
| 5,049 | |
| Loan Investments | |
| |
Various | |
Various | |
| 30,609 | |
| | |
| |
| |
| |
$ | 159,679 | |
(1) The
Company acquired a 49% membership interest in three properties through the Davis Joint Venture representing 107,886 square
feet at an aggregate valuation of $43.9 million, including an $8.0 million equity contribution and a $14.0 million pro
rata share of joint venture debt. On November 21, 2022, the Davis Joint Venture acquired a property representing 42,467 square
feet at an aggregate valuation of $16.4 million. The Company did not make an equity contribution towards this property but did acquire
a $4.6 million pro rata share of joint venture debt.
(2) The
Company invested in funds managed by a venture capital firm specializing in real estate technology.
During 2022,
the Company recorded revenues and net loss of $3.6 million and $0.2 million, respectively, from its 2022 acquisitions.
During 2021,
the Company completed the acquisition of 24 operating health care properties, which includes the remaining 51% membership
interest in the Eden Hill Joint Venture, and three medical condominium units located in 14 states, for an aggregate
purchase price of approximately $973.2 million, excluding the conversion of a previously outstanding construction loan of $15.5 million.
The Company also paid $0.3 million of additional purchase consideration on one property under an earn-out agreement. Additionally,
the Company funded three mezzanine loans for $8.9 million, and closed on a $10.5 million construction loan, funding
$7.3 million as of December 31, 2021. The Company also acquired membership interests in one joint venture for approximately
$7.3 million, resulting in total investment activity of approximately $997.0 million. As part of these investments, the Company
incurred approximately $5.9 million of capitalized transaction costs.
Investment
activity for the year ending December 31, 2021 is summarized below:
| Investment | |
| |
Location | |
Acquisition
Date | |
Investment
Amount
(in thousands) | |
| Earnout - TOPA Fort Worth MOB | |
| |
Fort Worth, TX | |
January 11, 2021 | |
$ | 298 | |
| AdventHealth Wesley Chapel MOB II | |
| |
Wesley Chapel, FL | |
April 21, 2021 | |
| 35,251 | |
| TOPA Denton | |
(1) | |
Denton, TX | |
June 11, 2021 | |
| — | |
| InterMed MOB - Davis Joint Venture | |
(2) | |
Portland, ME | |
August 18, 2021 | |
| 7,291 | |
| Atkins Portfolio (5 MOBs) | |
| |
Various | |
August 30, 2021 | |
| 54,090 | |
| HonorHealth - Sonoran MOB | |
| |
Phoenix, AZ | |
September 23, 2021 | |
| 31,750 | |
| Eden Hill Medical Center | |
(3) | |
Dover, DE | |
October 15, 2021 | |
| 33,180 | |
| HonorHealth - Neuroscience Institute | |
| |
Scottsdale, AZ | |
October 27, 2021 | |
| 67,250 | |
| Landmark Portfolio (14 MOBs) | |
(4) | |
Various | |
December 20, 2021 | |
| 750,000 | |
| Atlanta Medical Condominium Investment | |
| |
Atlanta, GA | |
Various | |
| 1,653 | |
| Loan Investments | |
| |
Various | |
Various | |
| 16,214 | |
| | |
| |
| |
| |
$ | 996,977 | |
(1) The
Company funded this investment through the conversion and satisfaction of a previously outstanding construction loan of $15.5 million.
(2) The
Company purchased a 49% membership interest in this property through the Davis Joint Venture.
(3) The Company purchased the remaining 51% membership interest in the MedCore Realty Eden Hill, LLC joint venture, and as of
December 31, 2021 owns 100% of this property.
(4) This
portfolio was funded through an aggregate 6,561,521 OP Units and 672,978 Series A Preferred Units issued by the
Operating Partnership valued at approximately $116.5 million and $146.5 million, respectively, on the date of issuance. The
Company also financed an aggregate $100.0 million through three new mortgages and paid $386.3 million of cash. On
December 28, 2021, all of the Series A Preferred Units were redeemed for a total value of $146.5 million and as a result
of this redemption, there are no Series A Preferred Units outstanding.
For 2021,
the Company recorded revenues and net loss of $8.7 million and $1.3 million, respectively, from its 2021 acquisitions.
The following
table summarizes the preliminary purchase price allocations of the assets acquired and the liabilities assumed, which the Company determined
using Level 2 and Level 3 inputs (in thousands):
| | |
December 31,
2022 | |
December 31,
2021 |
|
| Land | |
$ | 9,260 | |
$ | 15,497 |
|
| Building and improvements | |
| 98,433 | |
| 840,591 |
|
| In-place lease intangibles | |
| 12,845 | |
| 90,336 |
|
| Above market in-place lease
intangibles | |
| 2,768 | |
| 13,804 |
|
| Below market in-place lease
intangibles | |
| (4,923 | ) |
| (16,326 |
) |
| Right-of-use asset | |
| 79 | |
| 100,589 |
|
| Prepaid expenses | |
| — | |
| 129 |
|
| Lease liability | |
| — | |
| (39,400 |
) |
| Net assets acquired (1) | |
$ | 118,462 | |
$ | 1,005,220 |
|
| Issuance of Series A Preferred
Units | |
| — | |
| (146,541 |
) |
| Issuance of OP Units | |
| — | |
| (116,467 |
) |
| NCI-redeemable | |
| (3,307 | ) |
| — |
|
| Satisfaction of real estate
loans receivable and conversion of JV interest | |
| (2,700 | ) |
| (24,033 |
) |
| Cash used in acquisition of
investment property | |
$ | 112,455 | |
$ | 718,179 |
|
(1) Net
assets acquired does not include acquisition credits of $6.8 million for the year ended December 31, 2021, which consist primarily
of future tenant improvements and capital expenditure commitments received as credits at the time of acquisition.
Dispositions
For the year
ended December 31, 2022, the Company sold five medical facilities, which included four medical office buildings
and one hospital, representing 212,295 square feet for approximately $124.7 million, realizing an aggregate net
gain of approximately $57.4 million.
For the year
ended December 31, 2021, the Company sold seven properties and five adjacent parcels of vacant land located in five states
for approximately $94.4 million and recognized a net gain of approximately $24.2 million.
Note 4. Intangibles
The following
is a summary of the carrying amount of intangible assets and liabilities as of December 31, 2022 and 2021, excluding the asset classified
as held for sale in 2021 (in thousands):
| | |
December 31, 2022 | | |
December 31, 2021 | |
| | |
Cost | | |
Accumulated
Amortization | | |
Net | | |
Cost | | |
Accumulated
Amortization | | |
Net | |
| Assets | |
| | |
| | |
| | |
| | |
| | |
| |
| In-place leases | |
$ | 445,583 | | |
$ | (241,643 | ) | |
$ | 203,940 | | |
$ | 441,072 | | |
$ | (201,885 | ) | |
$ | 239,187 | |
| Above-market leases | |
| 59,752 | | |
| (30,096 | ) | |
| 29,656 | | |
| 57,149 | | |
| (24,437 | ) | |
| 32,712 | |
| Liabilities | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Below-market leases | |
$ | 37,002 | | |
$ | (12,621 | ) | |
$ | 24,381 | | |
$ | 32,155 | | |
$ | (10,585 | ) | |
$ | 21,570 | |
The following
is a summary of the Company’s acquired lease intangible amortization for the years ended December 31, 2022, 2021, and
2020 (in thousands):
| | |
December 31, | |
| | |
2022 | | |
2021 | | |
2020 | |
| Amortization expense related to in-place leases | |
$ | 43,526 | | |
$ | 34,570 | | |
$ | 34,691 | |
| Decrease of rental income related to above-market leases | |
| 5,824 | | |
| 3,808 | | |
| 3,846 | |
| Increase of rental income related to below-market leases | |
| 2,111 | | |
| 1,398 | | |
| 1,417 | |
Future aggregate
net amortization of the Company’s acquired lease intangibles as of December 31, 2022, is as follows (in thousands):
| | |
Net Decrease
(Increase)
in Revenue | |
Net Increase in
Expenses |
|
| 2023 | |
$ | 3,191 | |
$ | 40,616 |
|
| 2024 | |
| 2,929 | |
| 34,718 |
|
| 2025 | |
| 2,357 | |
| 29,208 |
|
| 2026 | |
| 1,203 | |
| 23,095 |
|
| 2027 | |
| 1,036 | |
| 20,173 |
|
| Thereafter | |
| (5,441 | ) |
| 56,130 |
|
| Total | |
$ | 5,275 | |
$ | 203,940 |
|
For the year
ended December 31, 2022, the weighted average amortization periods for asset lease intangibles and liability lease intangibles are 7 years
and 15 years, respectively. Further detail is provided in Note 2 (Summary of Significant Accounting Policies).
Note 5. Other Assets
Other assets
consisted of the following as of December 31, 2022 and 2021, excluding the asset classified as held for sale in 2021, (in thousands):
| | |
December 31, | |
| | |
2022 | | |
2021 | |
| Straight-line rent receivable, net | |
$ | 101,306 | | |
$ | 95,443 | |
| Leasing commissions, net | |
| 13,231 | | |
| 11,627 | |
| Prepaid expenses | |
| 11,009 | | |
| 8,910 | |
| Lease inducements, net | |
| 7,894 | | |
| 8,293 | |
| Interest rate swap | |
| 2,045 | | |
| — | |
| Escrows | |
| 1,565 | | |
| 1,780 | |
| Notes receivable, net | |
| 370 | | |
| 1,097 | |
| Other | |
| 9,387 | | |
| 4,434 | |
| Total | |
$ | 146,807 | | |
$ | 131,584 | |
Note 6. Debt
The following
is a summary of debt as of December 31, 2022 and 2021 (in thousands):
| | |
December 31, | |
| | |
2022 | | |
2021 | |
| Fixed interest mortgage notes (1) | |
$ | 59,776 | | |
$ | 75,395 | |
| Variable interest mortgage notes (2) | |
| 105,153 | | |
| 105,629 | |
| Total mortgage debt | |
| 164,929 | | |
| 181,024 | |
| $1.0 billion unsecured revolving credit facility bearing variable interest of LIBOR plus 0.85%, due September 2025 | |
| 193,000 | | |
| 274,000 | |
| $400 million senior unsecured notes bearing fixed interest of 4.30%, due March 2027 | |
| 400,000 | | |
| 400,000 | |
| $350 million senior unsecured notes bearing fixed interest of 3.95%, due January 2028 | |
| 350,000 | | |
| 350,000 | |
| $500 million senior unsecured notes bearing fixed interest of 2.625%, due November 2031 | |
| 500,000 | | |
| 500,000 | |
| $150 million senior unsecured notes bearing fixed interest of 4.03% to 4.74%, due January 2023 to 2031 | |
| 150,000 | | |
| 150,000 | |
| $75 million senior unsecured notes bearing fixed interest of 4.09% to 4.24%, due August 2025 to 2027 | |
| 75,000 | | |
| 75,000 | |
| Total principal | |
| 1,832,929 | | |
| 1,930,024 | |
| Unamortized deferred financing costs | |
| (7,453 | ) | |
| (9,694 | ) |
| Unamortized discounts | |
| (7,359 | ) | |
| (8,423 | ) |
| Unamortized fair value adjustments | |
| — | | |
| 11 | |
| Total debt | |
$ | 1,818,117 | | |
$ | 1,911,918 | |
(1) As
of December 31, 2022, fixed interest mortgage notes bear interest from 3.33% to 4.63%, due in 2024, with a weighted
average interest rate of 3.85%. As of December 31, 2021, fixed interest mortgage notes bear interest from 3.33% and 4.83%,
due in 2022 and 2024, with a weighted average interest rate of 4.05%. The notes are collateralized by two properties with
a net book value of $94.9 million as of December 31, 2022 and three properties with a net book value of $151.9 million
as of December 31, 2021. One mortgage bears interest at LIBOR + 1.90% and the Trust entered into a pay-fixed receive-variable
interest rate swap, fixing the LIBOR component of this rate at 1.43%.
(2) Variable
interest mortgage notes bear variable interest of LIBOR plus 2.75% and SOFR plus 1.85% for a weighted average interest rate
of 6.20% and 1.95% as of December 31, 2022 and 2021, respectively. The notes are due in 2026 and 2028 and collateralized
by four properties with a net book value of $295.5 million as of December 31, 2022 and $307.2 million as
of December 31, 2021.
On September 24,
2021, the Operating Partnership, as borrower, and the Trust, as guarantor, executed a Third Amended and Restated Credit Agreement (the
“Credit Agreement”) which extended the maturity date of the revolving credit facility under the Credit Agreement to September 24,
2025 and reduced the interest rate margin applicable to borrowings. The Credit Agreement includes an unsecured revolving credit facility
of $1.0 billion and contains a term loan feature of $250.0 million, bringing total borrowing capacity to $1.3 billion.
The Credit Agreement also includes a swingline loan commitment for up to 10% of the maximum principal amount and provides an accordion
feature allowing the Operating Partnership to increase borrowing capacity by up to an additional $500.0 million, subject to customary
terms and conditions, resulting in a maximum borrowing capacity of $1.75 billion. The revolving credit facility under the Credit
Agreement also includes two, six-month extension options.
Borrowings
under the Credit Agreement bear interest on the outstanding principal amount at an adjusted LIBOR rate, which is based on the Trust’s
investment grade rating under the Credit Agreement. As of December 31, 2022, the Trust had investment grade ratings of BBB from S&P
and Baa2 from Moody’s. As such, borrowings under the revolving credit facility of the Credit Agreement accrue interest on the outstanding
principal at a rate of LIBOR + 0.85%. The Credit Agreement includes a facility fee equal to 0.20% per annum as of December 31,
2022, 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, 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 + 1.00%. 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 an all-in fixed rate of 2.07%. Both the borrowing and pay-fixed receive-variable swap had a maturity date of June 10, 2023.
On October 13,
2021, the Company used the proceeds from the senior notes to pay off the $250.0 million term loan feature of the Credit Agreement.
As defined by the Credit Agreement, the term loan feature is no longer available to the Company. The Operating Partnership simultaneously
terminated the existing pay-fixed receive-variable rate swaps associated with the full term loan borrowing of $250.0 million. As
part of the termination, the Company made total cash payments of $3.3 million to the counterparties of the swap agreements.
Base Rate
Loans, Adjusted LIBOR Rate Loans, and Letters of Credit (each, as defined in the Credit Agreement) will be subject to interest rates,
based upon the Trust’s investment grade rating as follows:
| Credit
Rating | |
Applicable
Margin for Revolving
Loans: LIBOR Rate Loans
and Letter of Credit Fee | |
Applicable
Margin
for Revolving Loans:
Base Rate Loans | | |
Applicable
Margin for Term
Loans: LIBOR Rate Loans
and Letter of Credit Fee | |
Applicable
Margin
for Term Loans:
Base Rate Loans | |
| At Least A- or A3 | |
LIBOR + 0.725% | |
| — | % | |
LIBOR + 0.85% | |
| — | % |
| At Least BBB+ or Baa1 | |
LIBOR + 0.775% | |
| — | % | |
LIBOR + 0.90% | |
| — | % |
| At Least BBB or Baa2 | |
LIBOR + 0.85% | |
| — | % | |
LIBOR + 1.00% | |
| — | % |
| At Least BBB- or
Baa3 | |
LIBOR + 1.05% | |
| 0.05 | % | |
LIBOR + 1.25% | |
| 0.25 | % |
| Below BBB- or Baa3 | |
LIBOR + 1.40% | |
| 0.40 | % | |
LIBOR + 1.65% | |
| 0.65 | % |
The Credit
Agreement contains financial covenants that, among other things, require compliance with leverage and coverage ratios and maintenance
of minimum tangible net worth, as well as covenants that may limit the Trust’s and the Operating Partnership’s ability to
incur additional debt, grant liens, or make distributions. The Company may, at any time, voluntarily prepay any revolving or term loan
under the Credit Agreement in whole or in part without premium or penalty. As of December 31, 2022, the Company was in compliance
with all financial covenants related to the Credit Agreement.
The Credit
Agreement includes customary representations and warranties by the Trust and the Operating Partnership and imposes customary covenants
on the Operating Partnership and the Trust. The Credit Agreement also contains customary events of default, and if an event of default
occurs and continues, the Operating Partnership is subject to certain actions by the administrative agent, including without limitation,
the acceleration of repayment of all amounts outstanding under the Credit Agreement.
As of December 31,
2022, the Company had $193.0 million of borrowings outstanding under its unsecured revolving credit facility. As defined by the Credit
Agreement, the unencumbered borrowing base as of December 31, 2022 allows the Company to borrow an additional $807.0 million
before reaching the maximum allowed under the credit facility.
Notes Payable
On January 7,
2016, the Operating Partnership issued and sold $150.0 million aggregate principal amount of senior notes, comprised of (i) $15.0
million aggregate principal amount of 4.03% Senior Notes, Series A, due January 7, 2023, (ii) $45.0 million aggregate
principal amount of 4.43% Senior Notes, Series B, due January 7, 2026, (iii) $45.0 million aggregate principal
amount of 4.57% Senior Notes, Series C, due January 7, 2028, and (iv) $45.0 million aggregate principal amount
of 4.74% Senior Notes, Series D, due January 7, 2031. On August 11, 2016, the note agreement for these notes was amended
to make certain changes to its terms, including certain changes to affirmative covenants, negative covenants, and definitions contained
therein. Interest on each respective series of the January 2016 Senior Notes is payable semi-annually.
On August 11,
2016, the Operating Partnership issued and sold $75.0 million aggregate principal amount of senior notes, comprised of (i) $25.0 million
aggregate principal amount of 4.09% Senior Notes, Series A, due August 11, 2025, (ii) $25.0 million aggregate
principal amount of 4.18% Senior Notes, Series B, due August 11, 2026, and (iii) $25.0 million aggregate principal
amount of 4.24% Senior Notes, Series C, due August 11, 2027. Interest on each respective series of the August 2016
Senior Notes is payable semi-annually.
On March 7,
2017, the Operating Partnership issued and sold $400.0 million aggregate principal amount of 4.30% Senior Notes which will mature
on March 15, 2027. The Senior Notes were sold at an issue price of 99.68% of their face value, before the underwriters’
discount. The Company’s net proceeds from the offering, after deducting underwriting discounts and expenses, were approximately
$396.1 million.
On December 1,
2017, the Operating Partnership issued and sold $350.0 million aggregate principal amount of 3.95% Senior Notes which will mature
on January 15, 2028. The Senior Notes were sold at an issue price of 99.78% of their face value, before the underwriters’
discount. The Company’s net proceeds from the offering, after deducting underwriting discounts and expenses, were approximately
$347.0 million.
On October 13,
2021, the Operating Partnership issued and sold $500.0 million aggregate principal amount of 2.625% Senior Notes which will
mature on November 1, 2031. The Senior Notes were sold at an issue price of 99.79% of their face value, before the underwriters’
discount. The Company’s net proceeds from the offering, after deducting underwriting discounts and expenses, were approximately
$495.1 million.
Certain properties
have mortgage debt that contains financial covenants. As of December 31, 2022, the Trust was in compliance with all senior notes
and mortgage debt financial covenants.
Scheduled
principal payments due on debt as of December 31, 2022, are as follows (in thousands):
| 2023 | |
$ | 16,007 | |
| 2024 | |
| 59,719 | |
| 2025 | |
| 218,476 | |
| 2026 | |
| 170,476 | |
| 2027 | |
| 425,476 | |
| Thereafter | |
| 942,775 | |
| Total Payments | |
$ | 1,832,929 | |
As of December 31,
2022 and 2021, the Company had total consolidated indebtedness of approximately $1.8 billion and $1.9 billion, respectively.
The weighted average interest rate on consolidated indebtedness was 3.98% as of December 31, 2022 (based on the 30-day LIBOR
rate of 4.33% and a SOFR rate of 4.30% as of December 31, 2022). The weighted average interest rate on consolidated indebtedness
was 3.20% as of December 31, 2021 (based on the 30-day LIBOR rate of 0.10% and a SOFR rate of 0.05% as of December 31,
2021).
Note 7. Derivatives
In the normal course of
business, a variety of financial instruments are used to manage or hedge interest rate risk. The Company has implemented ASC 815, Derivatives
and Hedging (“ASC 815”), which establishes accounting and reporting standards requiring that all derivatives, including
certain derivative instruments embedded in other contracts, be recorded as either an asset or a liability measured at their fair value
unless they qualify for a normal purchase or normal sales exception.
When specific
hedge accounting criteria are not met, ASC 815 requires that changes in a derivative’s fair value be recognized currently in earnings.
Changes in the fair market values of the Company’s derivative instruments are recorded in the consolidated statements of income
if such derivatives do not qualify for, or the Company does not elect to apply for, hedge accounting. As a result of the Company’s
adoption of ASC 815 as of January 1, 2019, the entire change in the fair value of its derivatives designated and qualified as cash
flow hedges are recorded in accumulated other comprehensive income on the consolidated balance sheets and are subsequently reclassified
into earnings in the period in which the hedged forecasted transaction affects earnings. Additionally, as a result of the adoption ASC
815, the Company no longer discloses the ineffective portion of the change in fair value of its derivative 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 December 31, 2022, the Company had one outstanding interest rate swap contract designated as a cash
flow hedge of interest rate risk. See Note 2 (Summary of Significant Accounting Policies) for a further discussion of the Company’s
derivatives. In addition, the Company recognizes its share of other comprehensive income (loss) related to derivative instruments held
by unconsolidated entities.
The following
table summarizes the location and aggregate fair value of the interest rate swap on the Company’s consolidated balance sheets (in
thousands):
| Total notional
amount |
| | |
$ | 36,050 |
|
| Effective
fixed interest rate |
| (1) | |
| 3.33 |
% |
| Effective
date |
| | |
| 10/31/2019 |
|
| Maturity
date |
| | |
| 10/31/2024 |
|
| Asset
balance at December 31, 2022 (included in Other assets) |
| | |
$ | 2,045 |
|
| Liability
balance at December 31, 2021 (included in Accrued expenses and other liabilities) |
| | |
$ | 452 |
|
(1) 1.43%
effective swap rate plus 1.90% spread per the hedging agreement.
Note 8. Accrued Expenses and Other
Liabilities
Accrued expenses
and other liabilities consisted of the following as of December 31, 2022 and 2021 (in thousands):
| | |
December 31, | |
| | |
2022 | | |
2021 | |
| Real estate taxes payable | |
$ | 23,303 | | |
$ | 23,487 | |
| Prepaid rent | |
| 21,062 | | |
| 22,714 | |
| Accrued interest | |
| 18,196 | | |
| 18,799 | |
| Accrued expenses | |
| 7,920 | | |
| 5,960 | |
| Security deposits | |
| 4,338 | | |
| 4,234 | |
| Accrued incentive compensation | |
| 2,700 | | |
| 1,784 | |
| Tenant improvement allowances | |
| 1,831 | | |
| 1,857 | |
| Interest rate swap | |
| — | | |
| 452 | |
| Other | |
| 8,370 | | |
| 6,967 | |
| Total | |
$ | 87,720 | | |
$ | 86,254 | |
Note 9. Stock-based Compensation
The Company
follows ASC 718, Compensation - Stock Compensation (“ASC 718”), in accounting for its share-based
payments. This guidance requires measurement of the cost of employee services received in exchange for stock compensation based on the
grant-date fair value of the employee stock awards. This cost is recognized as compensation expense ratably over the employee’s
requisite service period. Incremental compensation costs arising from subsequent modifications of awards after the grant date must be
recognized when incurred. Share-based payments classified as liability awards are marked to fair value at each reporting period. Any common
shares issued pursuant to the Company's incentive equity compensation and employee stock purchase plans will result in the Operating Partnership
issuing OP Units to the Trust on a one-for-one basis, with the Operating Partnership receiving the net cash proceeds of such issuances.
Certain of
the Company’s employee stock awards vest only upon the achievement of performance targets. ASC 718 requires recognition of compensation
cost only when achievement of performance conditions is considered probable. Consequently, the Company’s determination of the amount
of stock compensation expense requires judgment in estimating the probability of achievement of these performance targets. Subsequent
changes in actual experience are monitored and estimates are updated as information is available.
In connection
with the IPO, the Trust adopted the 2013 Equity Incentive Plan, which made shares available for awards for participants. On April 30,
2019, at the Annual Meeting of Shareholders of Physicians Realty Trust, the Trust’s shareholders approved the Amended and Restated
Physicians Realty Trust 2013 Equity Incentive Plan (“2013 Plan”). The amendment increased the number of common shares authorized
for issuance under the 2013 Plan to a total of 7,000,000 common shares authorized for issuance. The 2013 Plan term was also
extended to 2029.
Restricted Common Shares
Restricted
common shares granted under the 2013 Plan are eligible for dividends as well as the right to vote. During 2020, the Trust granted a total
of 190,418 restricted common shares with a total value of $3.6 million to the Company’s officers and certain of its
employees, which have a one-year vesting period for senior management award-recipients and a three-year vesting period
for employee award-recipients. During 2021, the Trust granted a total of 224,163 restricted common shares with a total value
of $3.9 million to the Company’s officers and certain of its employees, which have a one-year vesting period for
senior management award-recipients and a three-year vesting period for employee award-recipients. During 2022, the Trust granted
a total of 247,579 restricted common shares with a total value of $4.1 million to the Company’s officers and certain
of its employees, which have a one-year vesting period for senior management award-recipients and a three-year vesting
period for employee award-recipients.
The following
is summary of the status of the Trust’s non-vested restricted common shares during 2022, 2021, and 2020:
| | |
Common Shares | | |
Weighted
Average Grant
Date Fair Value | |
| Non-vested at December 31, 2019 | |
| 216,877 | | |
$ | 17.67 | |
| Granted | |
| 190,418 | | |
| 19.00 | |
| Vested | |
| (189,642 | ) | |
| 17.81 | |
| Forfeited | |
| (1,831 | ) | |
| 16.80 | |
| Non-vested at December 31, 2020 | |
| 215,822 | | |
| 18.73 | |
| Granted | |
| 224,163 | | |
| 17.42 | |
| Vested | |
| (185,968 | ) | |
| 18.94 | |
| Forfeited | |
| (6,570 | ) | |
| 18.05 | |
| Non-vested at December 31, 2021 | |
| 247,447 | | |
| 17.41 | |
| Granted | |
| 247,579 | | |
| 16.53 | |
| Vested | |
| (213,572 | ) | |
| 17.29 | |
| Forfeited | |
| (8,556 | ) | |
| 17.98 | |
| Non-vested at December 31, 2022 | |
| 272,898 | | |
$ | 16.69 | |
For all service
awards, the Company records compensation expense for the entire award on a straight-line basis over the requisite service period. For
the years ended December 31, 2022, 2021, and 2020 the Company recognized non-cash share compensation of $3.9 million, $3.7 million,
and $3.5 million, respectively. Unrecognized compensation expense at December 31, 2022, 2021, and 2020 was $1.4 million,
$1.4 million, and $1.3 million, respectively.
Restricted Share Units
Under the
2013 Plan, the Company granted 7,800 and 13,343 restricted share units in January 2022 and 2021, respectively,
to certain of its trustees in lieu of all or a portion of such trustee’s annual cash retainer. These units are subject to certain
timing conditions and a one-year service period. Each restricted share unit contains one dividend equivalent. Each
recipient will accrue dividend equivalents on awarded share units equal to the cash dividend that would have been paid on the awarded
share unit had the awarded share unit been an issued and outstanding common share on the record date for the dividend. With respect to
the performance and timing conditions of the January 2022 and 2021 grants, the grant date fair value of $18.83 and $17.80 per
unit, respectively, was based on the share price at the date of grant.
In March 2022,
March 2021, and March 2020 under the Trust’s 2013 Plan, the Trust granted (i) restricted share units at a target
level of 299,019, 265,275, and 223,579 respectively, to the Trust’s management, which are subject to certain
performance and market conditions and three-year service periods and (ii) 56,204, 43,582, and 38,858 restricted
share units, respectively, to the members of the Board of Trustees, which are subject to certain timing conditions and a two-year vesting
period. In March 2020, 259,067 units were also granted to an officer subject to certain timing conditions and a five-year service
period. Each restricted share unit contains one dividend equivalent. The recipient will accrue dividend equivalents on awarded
share units equal to the cash dividend that would have been paid on the awarded share unit had the awarded share unit been an issued and
outstanding common share on the record date for the dividend.
Approximately 30%, 40%,
and 40% of the restricted share units issued to the Trust’s management in 2022, 2021, and 2020, respectively, vest based on
certain market conditions. The market conditions were valued with the assistance of independent valuation specialists. The Company
utilized a Monte Carlo simulation to calculate the weighted average grant date fair values of $30.17 in 2022, $29.18 in 2021,
and $31.95 in 2020 per unit, respectively, using the following assumptions:
| | |
2022 | | |
2021 | | |
2020 | |
| Volatility | |
| 33.9 | % | |
| 33.3 | % | |
| 20.1 | % |
| Dividend assumption | |
| reinvested | | |
| reinvested | | |
| reinvested | |
| Expected term in years | |
| 2.8 years | | |
| 2.8 years | | |
| 2.8 years | |
| Risk-free rate | |
| 1.44 | % | |
| 0.25 | % | |
| 0.84 | % |
| Stock price (per share) | |
$ | 16.37 | | |
$ | 17.21 | | |
$ | 19.30 | |
The remaining 70%
of the restricted share units issued to the Trust’s management in 2022, 60% of the restricted share units issued to the Trust’s
management in 2021, 60% issued to the Trust’s management and 100% of the restricted share units issued to an officer in
2020, vest based upon certain performance or timing conditions. With respect to the performance conditions of the March 2022 grant,
the grant date fair value of $16.37 per unit is based on the share price at the date of grant. The combined weighted average grant
date fair value of the March 2022 restricted share units issued to management is $20.51 per unit. With respect to the performance
conditions of the March 2021 grant, the grant date fair value of $17.21 per unit is based on the share price at the date of
grant. The combined weighted average grant date fair value of the March 2021 restricted share units issued to management is $22.00 per
unit. With respect to the performance and timing conditions of the March 2020 grant issued to the Trust’s management, the grant
date fair value of $19.30 per unit is based on the share price at the date of grant. The combined weighted average grant date fair
value of the March 2020 restricted share units issued to management is $24.36 per unit.
The following
is a summary of the activity in the Trust’s restricted share units during 2022, 2021, and 2020:
| | |
| Executive
Awards | |
| Trustee
Awards |
|
| | |
| Restricted Share
Units | |
| |
| Weighted
Average Grant
Date Fair Value | |
| Restricted Share
Units | |
| Weighted
Average Grant
Date Fair Value |
|
| Non-vested at December 31, 2019 | |
| 654,752 | |
| |
$ | 22.99 | |
| 67,297 | |
$ | 16.72 |
|
| Granted | |
| 482,646 | |
| |
| 21.64 | |
| 38,858 | |
| 19.30 |
|
| Vested | |
| (173,259 | )(1) |
| |
| 29.34 | |
| (46,335 | ) |
| 16.19 |
|
| Non-vested at December 31, 2020 | |
| 964,139 | |
| |
| 21.17 | |
| 59,820 | |
| 18.81 |
|
| Granted | |
| 265,275 | |
| |
| 22.00 | |
| 56,925 | |
| 17.35 |
|
| Vested | |
| (252,844 | )(2) |
| |
| 16.58 | |
| (53,737 | ) |
| 18.38 |
|
| Non-vested at December 31, 2021 | |
| 976,570 | |
| |
| 22.59 | |
| 63,008 | |
| 17.85 |
|
| Granted | |
| 299,019 | |
| |
| 20.51 | |
| 64,004 | |
| 16.67 |
|
| Vested | |
| (228,649 | )(3) |
| |
| 25.27 | |
| (49,020 | ) |
| 18.30 |
|
| Non-vested at December 31, 2022 | |
| 1,046,940 | |
| |
$ | 21.41 | |
| 77,992 | |
$ | 16.60 |
|
(1) Restricted
units vested by Company management in 2020 resulted in the issuance of 147,765 common shares, less 65,513 common
shares withheld to cover minimum withholding tax obligations, for multiple employees.
(2) Restricted
units vested by Company management in 2021 resulted in the issuance of 399,165 common shares, less 162,173 common
shares withheld to cover minimum withholding tax obligations, for multiple employees.
(3) Restricted
units vested by Company management in 2022 resulted in the issuance of 361,679 common shares, less 160,573 common
shares withheld to cover minimum withholding tax obligations, for multiple employees.
The Company
recognized $11.7 million, $11.2 million, and $8.9 million of non-cash share unit compensation expense for the years ended
December 31, 2022, 2021, and 2020, respectively. Unrecognized compensation expense at December 31, 2022, 2021, and 2020
was $10.0 million, $12.0 million, and $11.5 million, respectively.
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 December 31, 2022 consist of one interest rate swap, as detailed in the Derivative Instruments
section of Note 2 (Summary of Significant Accounting Policies) and Note 7 (Derivatives).
The interest
rate swap is not traded on an exchange. The Company’s derivative assets and liabilities are recorded at fair value based on a variety
of observable inputs including contractual terms, interest rate curves, yield curves, measure of volatility, and correlations of such
inputs. The Company measures its derivatives at fair value on a recurring basis. The fair values are based on Level 2 inputs described
above. The Company considers its own credit risk, as well as the credit risk of its counterparties, when evaluating the fair value of
its derivatives.
The Company
also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. This generally includes
assets subject to impairment. There were no assets measured at fair value as of December 31, 2022. There was one asset
measured at fair value as of December 31, 2021 that had a previous carrying value of $2.3 million. During the year ended December 31,
2021, the Company recorded an impairment charge of $0.3 million related to a medical office building in Traverse City, Michigan.
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. The fair values
of fixed-rate unsecured notes payable are estimated using quoted market prices, or, if no quoted market prices are available, quoted market
prices for securities with similar terms and maturities.
The following
table presents the fair value of the Company’s financial instruments (in thousands):
| | |
December 31, | |
| | |
2022 | | |
2021 | |
| | |
Carrying
Amount | | |
Fair
Value | | |
Carrying
Amount | | |
Fair
Value | |
| Assets: | |
| | |
| | |
| | |
| |
| Real estate loans receivable, net | |
$ | 104,973 | | |
$ | 102,162 | | |
$ | 117,844 | | |
$ | 115,385 | |
| Notes receivable, net | |
$ | 370 | | |
$ | 370 | | |
$ | 1,097 | | |
$ | 1,097 | |
| Derivative asset | |
$ | 2,045 | | |
$ | 2,045 | | |
$ | — | | |
$ | — | |
| Liabilities: | |
| | | |
| | | |
| | | |
| | |
| Credit facility | |
$ | (193,000 | ) | |
$ | (193,000 | ) | |
$ | (274,000 | ) | |
$ | (274,000 | ) |
| Notes payable | |
$ | (1,475,000 | ) | |
$ | (1,302,767 | ) | |
$ | (1,475,000 | ) | |
$ | (1,554,802 | ) |
| Mortgage debt | |
$ | (164,929 | ) | |
$ | (163,129 | ) | |
$ | (181,035 | ) | |
$ | (182,189 | ) |
| Derivative liabilities | |
$ | — | | |
$ | — | | |
$ | (452 | ) | |
$ | (452 | ) |
Note 11. Tenant Operating Leases
The Company
is a lessor of medical office buildings and other health care facilities. Leases have expirations from 2023 through 2042. As of December 31,
2022, the future minimum rental payments on non-cancelable leases, exclusive of expense recoveries, were as follows (in thousands):
| 2023 | |
$ | 355,955 | |
| 2024 | |
| 345,258 | |
| 2025 | |
| 327,624 | |
| 2026 | |
| 269,881 | |
| 2027 | |
| 217,427 | |
| Thereafter | |
| 696,756 | |
| Total | |
$ | 2,212,901 | |
The following
presents rental and related revenues for the years ended 2022, 2021, and 2020, of which expense recoveries represent our variable lease
payments (in thousands):
| | |
2022 | | |
2021 | | |
2020 | |
| Rental revenues | |
$ | 371,727 | | |
$ | 328,144 | | |
$ | 317,790 | |
| Expense recoveries | |
| 143,646 | | |
| 112,054 | | |
| 103,344 | |
| Rental and related revenues | |
$ | 515,373 | | |
$ | 440,198 | | |
$ | 421,134 | |
Note 12. Rent Expense
The Company
leases the rights to parking structures at two of its properties, the air in which one property occupies, and the
land upon which 97 of its properties are located from third party landowners pursuant to separate leases. In addition, the
Company has nine corporate leases, primarily for office space.
The Company’s
leases include both fixed and variable rental payments and may also include escalation clauses and renewal options. These leases have
terms of up to 92 years remaining, excluding extension options, with a weighted average remaining term of 44 years.
Effective
January 1, 2019, the Company adopted ASC 842, Leases which requires the operating leases mentioned above to be included
in right-of-use lease assets, net on the Company’s December 31, 2022 and 2021 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 liabilities on the Company’s December 31, 2022 and 2021 consolidated balance sheets. As of December 31,
2022, total right-of-use assets and operating lease liabilities, net of accumulated amortization, were approximately $231.2 million and $105.0 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.
At the inception
of a new lease, the Company establishes an operating lease asset and operating lease liability calculated as the present value of future
minimum lease payments. As the Company’s leases do not provide an implicit rate, the Company calculates a discount rate that approximates
the Company’s incremental borrowing rate available at lease commencement to determine the present value of future minimum lease
payments. The approximated weighted average discount rate was 4.4% as of December 31, 2022. There are no operating leases that
have not yet commenced that would have a significant impact on the Company’s consolidated balance sheets.
As of December 31,
2022, the future minimum lease obligations under non-cancelable parking, air, ground, and corporate leases were as follows (in thousands):
| 2023 |
$ |
4,814 |
|
| 2024 |
|
4,785 |
|
| 2025 |
|
4,763 |
|
| 2026 |
|
4,752 |
|
| 2027 |
|
4,754 |
|
| Thereafter |
|
238,790 |
|
| Total undiscounted
lease payments |
$ |
262,658 |
|
| Less: Interest |
|
(157,647 |
) |
| Present value of lease liabilities |
$ |
105,011 |
|
During the
years ended December 31, 2022 and 2021, operating lease expense totaled $4.6 million and $3.5 million, respectively, substantially
all of which represented fixed lease payments.
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 December 31, 2022 by 12, excluding the impact of concessions and straight-line rent. The following table summarizes
certain information about the Company’s top five tenant credit concentrations as of December 31, 2022 (in thousands):
| Tenant | |
Total ABR | | |
Percent of ABR | |
| CommonSpirit - CHI - Nebraska | |
$ | 18,105 | | |
| 5.0 | % |
| Northside Hospital | |
| 16,254 | | |
| 4.5 | % |
| UofL Health - Louisville, Inc. | |
| 13,136 | | |
| 3.7 | % |
| US Oncology | |
| 11,443 | | |
| 3.2 | % |
| HonorHealth | |
| 11,192 | | |
| 3.1 | % |
| Remaining portfolio | |
| 289,733 | | |
| 80.5 | % |
| Total | |
$ | 359,863 | | |
| 100.0 | % |
ABR collected
from the Company’s top five tenant relationships comprises 19.5% of its total ABR as of December 31, 2022. Total ABR from
CommonSpirit Health affiliated tenants totals 14.8%, including the affiliates disclosed above.
The following
table summarizes certain information about the Company’s top five geographic concentrations as of December 31, 2022 (in thousands):
| State | |
Total ABR | | |
Percent of ABR | |
| Texas | |
$ | 49,179 | | |
| 13.7 | % |
| Georgia | |
| 26,093 | | |
| 7.3 | % |
| Florida | |
| 25,499 | | |
| 7.1 | % |
| Indiana | |
| 22,996 | | |
| 6.4 | % |
| Arizona | |
| 21,443 | | |
| 6.0 | % |
| Other | |
| 214,653 | | |
| 59.5 | % |
| Total | |
$ | 359,863 | | |
| 100.0 | % |
Note 14. Earnings Per Share
The following
table shows the amounts used in computing the Trust’s basic and diluted earnings per share (in thousands, except share and per share
data):
| | |
Year Ended December 31, | |
| | |
2022 | | |
2021 | | |
2020 | |
| Numerator for earnings per share - basic: | |
| | | |
| | | |
| | |
| Net income | |
$ | 110,036 | | |
$ | 86,783 | | |
$ | 68,488 | |
| Net income attributable to noncontrolling interests: | |
| | | |
| | | |
| | |
| Operating Partnership | |
| (5,240 | ) | |
| (2,211 | ) | |
| (1,797 | ) |
| Partially owned properties | |
| (430 | ) | |
| (607 | ) | |
| (574 | ) |
| Preferred distributions | |
| — | | |
| (13 | ) | |
| (1,241 | ) |
| Numerator for earnings per share - basic: | |
$ | 104,366 | | |
$ | 83,952 | | |
$ | 64,876 | |
| Numerator for earnings per share - diluted: | |
| | | |
| | | |
| | |
| Numerator for earnings per share - basic: | |
| 104,366 | | |
| 83,952 | | |
| 64,876 | |
| Operating Partnership net income | |
| 5,240 | | |
| 2,211 | | |
| 1,797 | |
| Numerator for earnings per share - diluted | |
$ | 109,606 | | |
$ | 86,163 | | |
$ | 66,673 | |
| Denominator for earnings per share - basic and diluted: | |
| | | |
| | | |
| | |
| Weighted average number of shares outstanding - basic | |
| 226,598,474 | | |
| 216,135,385 | | |
| 204,243,768 | |
| Effect of dilutive securities: | |
| | | |
| | | |
| | |
| Noncontrolling interest - Operating Partnership units | |
| 11,402,684 | | |
| 5,693,333 | | |
| 5,659,325 | |
| Restricted common shares | |
| 116,825 | | |
| 113,438 | | |
| 88,131 | |
| Restricted share units | |
| 1,492,302 | | |
| 1,118,400 | | |
| 1,154,693 | |
| Denominator for earnings per share - diluted | |
| 239,610,285 | | |
| 223,060,556 | | |
| 211,145,917 | |
| Earnings per share - basic | |
$ | 0.46 | | |
$ | 0.39 | | |
$ | 0.32 | |
| Earnings per share - diluted | |
$ | 0.46 | | |
$ | 0.39 | | |
$ | 0.32 | |
Note 15. Subsequent Events
Since December 31,
2022, the Company completed the acquisition of a medical condominium unit located in an Atlanta “Pill Hill” MOB for a purchase
price of approximately $1.3 million and a parcel of land adjacent to one of its medical office facilities located in Avondale, Arizona
for a purchase price of approximately $0.8 million. The Company also paid its $15.0 million senior unsecured notes bearing fixed
interest of 4.03% upon maturity and sold one 30,000 square foot medical office building located in Harrisburg, Pennsylvania
for $2.6 million recognizing an immaterial net gain on the sale.
Physicians Realty
Trust
Schedule III –
Real Estate and Accumulated Depreciation
December 31, 2022
(dollars in thousands)
| | |
| |
| | |
Initial Cost to Company | | |
Cost
Capitalized
| | |
Gross Amount at Which Carried as of Close of Period | | |
| | |
| | |
Life on Which
Building
Depreciation in | |
| Description | |
Location | |
Encumbrances | | |
Land | | |
Buildings and
Improvements | | |
Subsequent to
Acquisitions | | |
Land | | |
Buildings and
Improvements | | |
Total (1) | | |
Accumulated
Depreciation | | |
Year
Built | | |
Date
Acquired | | |
Income Statement
is Computed | |
| Del Sol Medical Center MOB | |
El Paso, TX | |
$ | — | | |
$ | 860 | | |
$ | 2,866 | | |
$ | 961 | | |
$ | 860 | | |
$ | 3,827 | | |
$ | 4,687 | | |
$ | (2,608 | ) | |
| 1987 | | |
| 8/24/2006 | | |
| 21 | |
| MeadowView Professional | |
Kingsport, TN | |
| — | | |
| 2,270 | | |
| 11,344 | | |
| 1,401 | | |
| 2,270 | | |
| 12,745 | | |
| 15,015 | | |
| (6,161 | ) | |
| 2005 | | |
| 5/10/2007 | | |
| 30 | |
| Firehouse Square | |
Milwaukee, WI | |
| — | | |
| 1,120 | | |
| 2,768 | | |
| 10 | | |
| 1,120 | | |
| 2,778 | | |
| 3,898 | | |
| (1,425 | ) | |
| 2002 | | |
| 8/15/2007 | | |
| 30 | |
| Valley West Hospital MOB | |
Chicago, IL | |
| — | | |
| — | | |
| 6,275 | | |
| 815 | | |
| — | | |
| 7,090 | | |
| 7,090 | | |
| (3,532 | ) | |
| 2007 | | |
| 11/1/2007 | | |
| 30 | |
| Mid Coast Hospital MOB | |
Portland, ME | |
| 5,153 | | |
| — | | |
| 11,247 | | |
| 503 | | |
| — | | |
| 11,750 | | |
| 11,750 | | |
| (5,634 | ) | |
| 2008 | | |
| 5/1/2008 | | |
| 42 | |
| Arrowhead Commons | |
Phoenix, AZ | |
| — | | |
| 740 | | |
| 2,551 | | |
| 764 | | |
| 740 | | |
| 3,315 | | |
| 4,055 | | |
| (1,216 | ) | |
| 2004 | | |
| 5/31/2008 | | |
| 46 | |
| Remington Medical Commons | |
Chicago, IL | |
| — | | |
| 895 | | |
| 6,499 | | |
| 1,547 | | |
| 895 | | |
| 8,046 | | |
| 8,941 | | |
| (3,703 | ) | |
| 2008 | | |
| 6/1/2008 | | |
| 30 | |
| Aurora MOB - Shawano | |
Green Bay, WI | |
| — | | |
| 500 | | |
| 1,566 | | |
| — | | |
| 500 | | |
| 1,566 | | |
| 2,066 | | |
| (399 | ) | |
| 2010 | | |
| 4/15/2010 | | |
| 50 | |
| East El Paso Physicians Medical Center | |
El Paso, TX | |
| — | | |
| 710 | | |
| 4,500 | | |
| 837 | | |
| 710 | | |
| 5,337 | | |
| 6,047 | | |
| (1,247 | ) | |
| 2004 | | |
| 8/30/2013 | | |
| 35 | |
| Crescent City Surgical Centre | |
New Orleans, LA | |
| — | | |
| — | | |
| 34,208 | | |
| — | | |
| — | | |
| 34,208 | | |
| 34,208 | | |
| (6,592 | ) | |
| 2010 | | |
| 9/30/2013 | | |
| 48 | |
| Foundation Surgical Affiliates MOB | |
Oklahoma City, OK | |
| — | | |
| 1,300 | | |
| 12,724 | | |
| 259 | | |
| 1,300 | | |
| 12,983 | | |
| 14,283 | | |
| (2,791 | ) | |
| 2004 | | |
| 9/30/2013 | | |
| 43 | |
| Eastwind Surgical Center | |
Columbus, OH | |
| — | | |
| 981 | | |
| 7,620 | | |
| 142 | | |
| 981 | | |
| 7,762 | | |
| 8,743 | | |
| (1,586 | ) | |
| 2007 | | |
| 11/27/2013 | | |
| 44 | |
| Foundation Surgical Hospital of San Antonio | |
San Antonio, TX | |
| — | | |
| 2,230 | | |
| 23,346 | | |
| 65 | | |
| 2,230 | | |
| 23,411 | | |
| 25,641 | | |
| (6,729 | ) | |
| 2007 | | |
| 2/19/2014 | | |
| 35 | |
| 21st Century Radiation Oncology - Sarasota | |
Sarasota, FL | |
| — | | |
| 633 | | |
| 6,557 | | |
| 67 | | |
| 633 | | |
| 6,624 | | |
| 7,257 | | |
| (2,232 | ) | |
| 1975 | | |
| 2/26/2014 | | |
| 27 | |
| 21st Century Radiation Oncology - Venice | |
Venice, FL | |
| — | | |
| 814 | | |
| 2,952 | | |
| — | | |
| 814 | | |
| 2,952 | | |
| 3,766 | | |
| (840 | ) | |
| 1987 | | |
| 2/26/2014 | | |
| 35 | |
| 21st Century Radiation Oncology - Englewood | |
Englewood, FL | |
| — | | |
| 350 | | |
| 1,878 | | |
| 29 | | |
| 350 | | |
| 1,907 | | |
| 2,257 | | |
| (482 | ) | |
| 1992 | | |
| 2/26/2014 | | |
| 38 | |
| Foundation Healthplex of San Antonio | |
San Antonio, TX | |
| — | | |
| 911 | | |
| 4,189 | | |
| 82 | | |
| 911 | | |
| 4,271 | | |
| 5,182 | | |
| (1,108 | ) | |
| 2007 | | |
| 2/28/2014 | | |
| 35 | |
| Peachtree Dunwoody Medical Center | |
Atlanta, GA | |
| — | | |
| — | | |
| 52,481 | | |
| 2,331 | | |
| — | | |
| 54,812 | | |
| 54,812 | | |
| (17,367 | ) | |
| 1987 | | |
| 2/28/2014 | | |
| 25 | |
| Pinnacle Health MOB - Wormleysburg | |
Harrisburg, PA | |
| — | | |
| 795 | | |
| 4,601 | | |
| 31 | | |
| 795 | | |
| 4,632 | | |
| 5,427 | | |
| (1,734 | ) | |
| 1990 | | |
| 4/22/2014 | | |
| 25 | |
| Pinnacle Health MOB - Carlisle | |
Carlisle, PA | |
| — | | |
| 424 | | |
| 2,232 | | |
| — | | |
| 424 | | |
| 2,232 | | |
| 2,656 | | |
| (602 | ) | |
| 2002 | | |
| 4/22/2014 | | |
| 35 | |
| South Bend Orthopaedics MOB | |
Mishawaka, IN | |
| — | | |
| 2,418 | | |
| 11,355 | | |
| — | | |
| 2,418 | | |
| 11,355 | | |
| 13,773 | | |
| (2,824 | ) | |
| 2007 | | |
| 4/30/2014 | | |
| 40 | |
| Grenada Medical Complex | |
Grenada, MS | |
| — | | |
| 185 | | |
| 5,820 | | |
| 449 | | |
| 185 | | |
| 6,269 | | |
| 6,454 | | |
| (2,182 | ) | |
| 1975 | | |
| 4/30/2014 | | |
| 30 | |
| Mississippi Sports Medicine & Orthopedics | |
Jackson, MS | |
| — | | |
| 1,272 | | |
| 14,177 | | |
| 626 | | |
| 1,272 | | |
| 14,803 | | |
| 16,075 | | |
| (3,994 | ) | |
| 1987 | | |
| 5/23/2014 | | |
| 35 | |
| Carmel Medical Pavilion | |
Carmel, IN | |
| — | | |
| — | | |
| 3,917 | | |
| 482 | | |
| — | | |
| 4,399 | | |
| 4,399 | | |
| (1,510 | ) | |
| 1993 | | |
| 5/28/2014 | | |
| 25 | |
| Renaissance ASC | |
Oshkosh, WI | |
| — | | |
| 228 | | |
| 7,658 | | |
| 17 | | |
| 228 | | |
| 7,675 | | |
| 7,903 | | |
| (1,701 | ) | |
| 2007 | | |
| 6/30/2014 | | |
| 40 | |
| Summit Urology | |
Bloomington, IN | |
| — | | |
| 125 | | |
| 4,792 | | |
| — | | |
| 125 | | |
| 4,792 | | |
| 4,917 | | |
| (1,392 | ) | |
| 1996 | | |
| 6/30/2014 | | |
| 30 | |
| IU Health - 500 Landmark | |
Bloomington, IN | |
| — | | |
| 627 | | |
| 3,549 | | |
| — | | |
| 627 | | |
| 3,549 | | |
| 4,176 | | |
| (897 | ) | |
| 2000 | | |
| 7/1/2014 | | |
| 35 | |
| IU Health - 550 Landmark | |
Bloomington, IN | |
| — | | |
| 2,717 | | |
| 15,224 | | |
| — | | |
| 2,717 | | |
| 15,224 | | |
| 17,941 | | |
| (3,851 | ) | |
| 2000 | | |
| 7/1/2014 | | |
| 35 | |
| IU Health - 574 Landmark | |
Bloomington, IN | |
| — | | |
| 418 | | |
| 1,493 | | |
| 52 | | |
| 418 | | |
| 1,545 | | |
| 1,963 | | |
| (388 | ) | |
| 2004 | | |
| 7/1/2014 | | |
| 35 | |
| Carlisle II MOB | |
Carlisle, PA | |
| — | | |
| 412 | | |
| 3,962 | | |
| 22 | | |
| 412 | | |
| 3,984 | | |
| 4,396 | | |
| (780 | ) | |
| 1996 | | |
| 7/25/2014 | | |
| 45 | |
| Surgical Institute of Monroe | |
Monroe, MI | |
| — | | |
| 410 | | |
| 5,743 | | |
| — | | |
| 410 | | |
| 5,743 | | |
| 6,153 | | |
| (1,624 | ) | |
| 2010 | | |
| 7/28/2014 | | |
| 35 | |
| Oaks Medical Building | |
Lady Lake, FL | |
| — | | |
| 1,065 | | |
| 8,642 | | |
| 78 | | |
| 1,065 | | |
| 8,720 | | |
| 9,785 | | |
| (1,753 | ) | |
| 2011 | | |
| 7/31/2014 | | |
| 42 | |
| Mansfield ASC | |
Mansfield, TX | |
| — | | |
| 1,491 | | |
| 6,471 | | |
| — | | |
| 1,491 | | |
| 6,471 | | |
| 7,962 | | |
| (1,293 | ) | |
| 2010 | | |
| 9/2/2014 | | |
| 46 | |
| Eye Center of Southern Indiana | |
Bloomington, IN | |
| — | | |
| 910 | | |
| 11,477 | | |
| — | | |
| 910 | | |
| 11,477 | | |
| 12,387 | | |
| (2,834 | ) | |
| 1995 | | |
| 9/5/2014 | | |
| 35 | |
| Zangmeister Cancer Center | |
Columbus, OH | |
| — | | |
| 1,610 | | |
| 31,120 | | |
| 249 | | |
| 1,610 | | |
| 31,369 | | |
| 32,979 | | |
| (6,740 | ) | |
| 2007 | | |
| 9/30/2014 | | |
| 40 | |
| Orthopedic One - Columbus | |
Columbus, OH | |
| — | | |
| — | | |
| 16,234 | | |
| 75 | | |
| — | | |
| 16,309 | | |
| 16,309 | | |
| (3,330 | ) | |
| 2009 | | |
| 9/30/2014 | | |
| 45 | |
| Orthopedic One - Westerville | |
Columbus, OH | |
| — | | |
| 362 | | |
| 3,944 | | |
| 55 | | |
| 362 | | |
| 3,999 | | |
| 4,361 | | |
| (834 | ) | |
| 2007 | | |
| 9/30/2014 | | |
| 43 | |
| South Point Medical Center | |
Columbus, OH | |
| — | | |
| — | | |
| 5,950 | | |
| 267 | | |
| — | | |
| 6,217 | | |
| 6,217 | | |
| (1,469 | ) | |
| 2007 | | |
| 9/30/2014 | | |
| 38 | |
| 3100 Lee Trevino Drive | |
El Paso, TX | |
| — | | |
| 2,294 | | |
| 11,316 | | |
| 1,702 | | |
| 2,294 | | |
| 13,018 | | |
| 15,312 | | |
| (3,740 | ) | |
| 1983 | | |
| 9/30/2014 | | |
| 30 | |
| 1755 Curie | |
El Paso, TX | |
| — | | |
| 2,283 | | |
| 24,543 | | |
| 3,432 | | |
| 2,283 | | |
| 27,975 | | |
| 30,258 | | |
| (7,957 | ) | |
| 1970 | | |
| 9/30/2014 | | |
| 30 | |
| 9999 Kenworthy | |
El Paso, TX | |
| — | | |
| 728 | | |
| 2,178 | | |
| 674 | | |
| 728 | | |
| 2,852 | | |
| 3,580 | | |
| (799 | ) | |
| 1983 | | |
| 9/30/2014 | | |
| 35 | |
| 32 Northeast MOB | |
Harrisburg, PA | |
| — | | |
| 408 | | |
| 3,232 | | |
| 223 | | |
| 408 | | |
| 3,455 | | |
| 3,863 | | |
| (945 | ) | |
| 1994 | | |
| 10/29/2014 | | |
| 33 | |
| 4518 Union Deposit MOB | |
Harrisburg, PA | |
| — | | |
| 617 | | |
| 7,305 | | |
| 41 | | |
| 617 | | |
| 7,346 | | |
| 7,963 | | |
| (2,079 | ) | |
| 2000 | | |
| 10/29/2014 | | |
| 31 | |
| 4520 Union Deposit MOB | |
Harrisburg, PA | |
| — | | |
| 169 | | |
| 2,055 | | |
| 429 | | |
| 169 | | |
| 2,484 | | |
| 2,653 | | |
| (692 | ) | |
| 1997 | | |
| 10/29/2014 | | |
| 28 | |
| 240 Grandview MOB | |
Harrisburg, PA | |
| — | | |
| 321 | | |
| 4,242 | | |
| 233 | | |
| 321 | | |
| 4,475 | | |
| 4,796 | | |
| (1,093 | ) | |
| 1980 | | |
| 10/29/2014 | | |
| 35 | |
| Market Place Way MOB | |
Harrisburg, PA | |
| — | | |
| 808 | | |
| 2,383 | | |
| 57 | | |
| 808 | | |
| 2,440 | | |
| 3,248 | | |
| (707 | ) | |
| 2004 | | |
| 10/29/2014 | | |
| 35 | |
| Middletown Medical - Maltese | |
Middletown, NY | |
| — | | |
| 670 | | |
| 9,921 | | |
| 37 | | |
| 670 | | |
| 9,958 | | |
| 10,628 | | |
| (2,384 | ) | |
| 1988 | | |
| 11/28/2014 | | |
| 35 | |
| Middletown Medical - Edgewater | |
Middletown, NY | |
| — | | |
| 200 | | |
| 2,966 | | |
| 11 | | |
| 200 | | |
| 2,977 | | |
| 3,177 | | |
| (713 | ) | |
| 1992 | | |
| 11/28/2014 | | |
| 35 | |
| Napoleon MOB | |
New Orleans, LA | |
| — | | |
| 1,202 | | |
| 7,412 | | |
| 5,969 | | |
| 1,202 | | |
| 13,381 | | |
| 14,583 | | |
| (3,211 | ) | |
| 1974 | | |
| 12/19/2014 | | |
| 25 | |
| West Tennessee ASC | |
Jackson, TN | |
| — | | |
| 1,661 | | |
| 2,960 | | |
| 7,116 | | |
| 1,661 | | |
| 10,076 | | |
| 11,737 | | |
| (2,262 | ) | |
| 1991 | | |
| 12/30/2014 | | |
| 44 | |
| Southdale Place | |
Edina MN | |
| — | | |
| 504 | | |
| 10,006 | | |
| 2,322 | | |
| 504 | | |
| 12,328 | | |
| 12,832 | | |
| (4,233 | ) | |
| 1979 | | |
| 1/22/2015 | | |
| 24 | |
| Crystal MOB | |
Crystal, MN | |
| — | | |
| 945 | | |
| 11,862 | | |
| 187 | | |
| 945 | | |
| 12,049 | | |
| 12,994 | | |
| (2,266 | ) | |
| 2012 | | |
| 1/22/2015 | | |
| 47 | |
| Savage MOB | |
Savage, MN | |
| — | | |
| 1,281 | | |
| 10,021 | | |
| 497 | | |
| 1,281 | | |
| 10,518 | | |
| 11,799 | | |
| (2,087 | ) | |
| 2011 | | |
| 1/22/2015 | | |
| 48 | |
| Dell MOB | |
Chanhassen, MN | |
| — | | |
| 800 | | |
| 4,520 | | |
| 205 | | |
| 800 | | |
| 4,725 | | |
| 5,525 | | |
| (1,040 | ) | |
| 2008 | | |
| 1/22/2015 | | |
| 43 | |
| Methodist Sports | |
Greenwood, IN | |
| — | | |
| 1,050 | | |
| 8,556 | | |
| — | | |
| 1,050 | | |
| 8,556 | | |
| 9,606 | | |
| (2,157 | ) | |
| 2008 | | |
| 1/28/2015 | | |
| 33 | |
| Vadnais Heights MOB | |
Vadnais Heights, MN | |
| — | | |
| 2,751 | | |
| 12,233 | | |
| 239 | | |
| 2,751 | | |
| 12,472 | | |
| 15,223 | | |
| (2,651 | ) | |
| 2013 | | |
| 1/29/2015 | | |
| 43 | |
| Minnetonka MOB | |
Minnetonka, MN | |
| — | | |
| 1,770 | | |
| 19,797 | | |
| 154 | | |
| 1,770 | | |
| 19,951 | | |
| 21,721 | | |
| (3,967 | ) | |
| 2014 | | |
| 2/5/2015 | | |
| 49 | |
| Jamestown | |
Jamestown, ND | |
| — | | |
| 656 | | |
| 9,440 | | |
| 387 | | |
| 656 | | |
| 9,827 | | |
| 10,483 | | |
| (2,317 | ) | |
| 2013 | | |
| 2/5/2015 | | |
| 43 | |
| Indiana American 3 | |
Greenwood, IN | |
| — | | |
| 862 | | |
| 6,901 | | |
| 1,988 | | |
| 862 | | |
| 8,889 | | |
| 9,751 | | |
| (2,362 | ) | |
| 2008 | | |
| 2/13/2015 | | |
| 38 | |
| Indiana American 2 | |
Greenwood, IN | |
| — | | |
| 741 | | |
| 1,846 | | |
| 943 | | |
| 741 | | |
| 2,789 | | |
| 3,530 | | |
| (893 | ) | |
| 2001 | | |
| 2/13/2015 | | |
| 31 | |
Physicians Realty
Trust
Schedule III –
Real Estate and Accumulated Depreciation
December 31,
2022
(dollars in thousands)
| | |
| |
| | |
Initial Cost to Company | | |
Cost Capitalized | | |
Gross Amount at Which Carried as of Close of Period | | |
| | |
| | |
Life on Which
Building
Depreciation in | |
| Description | |
Location | |
Encumbrances | | |
Land | | |
Buildings and
Improvements | | |
Subsequent to
Acquisitions | | |
Land | | |
Buildings and
Improvements | | |
Total (1) | | |
Accumulated
Depreciation | | |
Year
Built | | |
Date
Acquired | | |
Income Statement
is Computed | |
| Indiana American 4 | |
Greenwood, IN | |
| — | | |
| 771 | | |
| 1,928 | | |
| 364 | | |
| 771 | | |
| 2,292 | | |
| 3,063 | | |
| (775 | ) | |
| 2001 | | |
| 2/13/2015 | | |
| 31 | |
| 8920 Southpointe | |
Indianapolis, IN | |
| — | | |
| 563 | | |
| 1,741 | | |
| 910 | | |
| 563 | | |
| 2,651 | | |
| 3,214 | | |
| (1,110 | ) | |
| 1993 | | |
| 2/13/2015 | | |
| 27 | |
| Minnesota Eye MOB | |
Minnetonka, MN | |
| — | | |
| 1,143 | | |
| 7,470 | | |
| — | | |
| 1,143 | | |
| 7,470 | | |
| 8,613 | | |
| (1,585 | ) | |
| 2014 | | |
| 2/17/2015 | | |
| 44 | |
| Baylor Cancer Center- Carrollton | |
Dallas, TX | |
| — | | |
| 855 | | |
| 6,007 | | |
| 104 | | |
| 855 | | |
| 6,111 | | |
| 6,966 | | |
| (1,200 | ) | |
| 2001 | | |
| 2/27/2015 | | |
| 43 | |
| Bridgeport Medical Center | |
Lakewood, WA | |
| — | | |
| 1,397 | | |
| 10,435 | | |
| 1,006 | | |
| 1,397 | | |
| 11,441 | | |
| 12,838 | | |
| (2,753 | ) | |
| 2004 | | |
| 2/27/2015 | | |
| 35 | |
| Renaissance Office Building | |
Milwaukee, WI | |
| — | | |
| 1,379 | | |
| 4,182 | | |
| 7,977 | | |
| 1,379 | | |
| 12,159 | | |
| 13,538 | | |
| (4,796 | ) | |
| 1896 | | |
| 3/27/2015 | | |
| 15 | |
| Calkins 125 | |
Rochester, NY | |
| — | | |
| 534 | | |
| 10,164 | | |
| 970 | | |
| 534 | | |
| 11,134 | | |
| 11,668 | | |
| (2,954 | ) | |
| 1997 | | |
| 3/31/2015 | | |
| 32 | |
| Calkins 200 | |
Rochester, NY | |
| — | | |
| 210 | | |
| 3,317 | | |
| 75 | | |
| 210 | | |
| 3,392 | | |
| 3,602 | | |
| (891 | ) | |
| 2000 | | |
| 3/31/2015 | | |
| 38 | |
| Calkins 300 | |
Rochester, NY | |
| — | | |
| 372 | | |
| 6,645 | | |
| 338 | | |
| 372 | | |
| 6,983 | | |
| 7,355 | | |
| (1,554 | ) | |
| 2002 | | |
| 3/31/2015 | | |
| 39 | |
| Calkins 400 | |
Rochester, NY | |
| — | | |
| 353 | | |
| 8,226 | | |
| 803 | | |
| 353 | | |
| 9,029 | | |
| 9,382 | | |
| (2,000 | ) | |
| 2007 | | |
| 3/31/2015 | | |
| 39 | |
| Calkins 500 | |
Rochester, NY | |
| — | | |
| 282 | | |
| 7,074 | | |
| 371 | | |
| 282 | | |
| 7,445 | | |
| 7,727 | | |
| (1,679 | ) | |
| 2008 | | |
| 3/31/2015 | | |
| 41 | |
| Premier Surgery Center of Louisville | |
Louisville, KY | |
| — | | |
| 1,106 | | |
| 5,437 | | |
| — | | |
| 1,106 | | |
| 5,437 | | |
| 6,543 | | |
| (1,053 | ) | |
| 2013 | | |
| 4/10/2015 | | |
| 43 | |
| Baton Rouge Surgery Center | |
Baton Rouge, LA | |
| — | | |
| 711 | | |
| 7,720 | | |
| 51 | | |
| 711 | | |
| 7,771 | | |
| 8,482 | | |
| (1,801 | ) | |
| 2003 | | |
| 4/15/2015 | | |
| 35 | |
| Healthpark Surgery Center | |
Grand Blanc, MI | |
| — | | |
| — | | |
| 17,624 | | |
| 307 | | |
| — | | |
| 17,931 | | |
| 17,931 | | |
| (4,168 | ) | |
| 2006 | | |
| 4/30/2015 | | |
| 36 | |
| University of Michigan Center for Specialty Care | |
Livonia, MI | |
| — | | |
| 2,200 | | |
| 8,627 | | |
| 359 | | |
| 2,200 | | |
| 8,986 | | |
| 11,186 | | |
| (2,422 | ) | |
| 1988 | | |
| 5/29/2015 | | |
| 30 | |
| Coon Rapids Medical Center | |
Coon Rapids, MN | |
| — | | |
| 607 | | |
| 5,857 | | |
| 632 | | |
| 607 | | |
| 6,489 | | |
| 7,096 | | |
| (1,505 | ) | |
| 2007 | | |
| 6/1/2015 | | |
| 35 | |
| Premier RPM | |
Bloomington, IN | |
| — | | |
| 872 | | |
| 10,537 | | |
| — | | |
| 942 | | |
| 10,537 | | |
| 11,479 | | |
| (2,142 | ) | |
| 2008 | | |
| 6/5/2015 | | |
| 39 | |
| Palm Beach ASC | |
Palm Beach, FL | |
| — | | |
| 2,576 | | |
| 7,675 | | |
| — | | |
| 2,576 | | |
| 7,675 | | |
| 10,251 | | |
| (1,521 | ) | |
| 2003 | | |
| 6/26/2015 | | |
| 40 | |
| Hillside Medical Center | |
Hanover, PA | |
| — | | |
| 812 | | |
| 13,217 | | |
| 411 | | |
| 812 | | |
| 13,628 | | |
| 14,440 | | |
| (3,143 | ) | |
| 2003 | | |
| 6/30/2015 | | |
| 35 | |
| Randall Road MOB | |
Elgin, IL | |
| — | | |
| 1,124 | | |
| 15,404 | | |
| 1,761 | | |
| 1,124 | | |
| 17,165 | | |
| 18,289 | | |
| (3,381 | ) | |
| 2006 | | |
| 6/30/2015 | | |
| 38 | |
| JFK Medical Center MOB | |
Atlantis, FL | |
| — | | |
| — | | |
| 7,560 | | |
| 6 | | |
| — | | |
| 7,566 | | |
| 7,566 | | |
| (1,662 | ) | |
| 2002 | | |
| 7/24/2015 | | |
| 37 | |
| Grove City Health Center | |
Grove City, OH | |
| — | | |
| 1,363 | | |
| 8,516 | | |
| 203 | | |
| 1,363 | | |
| 8,719 | | |
| 10,082 | | |
| (1,956 | ) | |
| 2001 | | |
| 7/31/2015 | | |
| 37 | |
| Trios Health MOB | |
Kennewick, WA | |
| — | | |
| 1,492 | | |
| 55,178 | | |
| 3,795 | | |
| 1,492 | | |
| 58,973 | | |
| 60,465 | | |
| (9,905 | ) | |
| 2015 | | |
| 7/31/2015 | | |
| 45 | |
| Abrazo Scottsdale MOB | |
Phoenix, AZ | |
| — | | |
| — | | |
| 25,893 | | |
| 1,068 | | |
| — | | |
| 26,961 | | |
| 26,961 | | |
| (5,217 | ) | |
| 2004 | | |
| 8/14/2015 | | |
| 43 | |
| Avondale MOB | |
Avondale, AZ | |
| — | | |
| 1,818 | | |
| 18,108 | | |
| 947 | | |
| 1,818 | | |
| 19,055 | | |
| 20,873 | | |
| (3,280 | ) | |
| 2006 | | |
| 8/19/2015 | | |
| 45 | |
| Palm Valley MOB | |
Goodyear, AZ | |
| — | | |
| 2,666 | | |
| 28,655 | | |
| 1,199 | | |
| 2,666 | | |
| 29,854 | | |
| 32,520 | | |
| (5,516 | ) | |
| 2006 | | |
| 8/19/2015 | | |
| 43 | |
| North Mountain MOB | |
Phoenix, AZ | |
| — | | |
| — | | |
| 42,877 | | |
| 3,811 | | |
| — | | |
| 46,688 | | |
| 46,688 | | |
| (8,147 | ) | |
| 2008 | | |
| 8/31/2015 | | |
| 47 | |
| Katy Medical Complex | |
Katy, TX | |
| — | | |
| 822 | | |
| 6,797 | | |
| 192 | | |
| 822 | | |
| 6,989 | | |
| 7,811 | | |
| (1,392 | ) | |
| 2005 | | |
| 9/1/2015 | | |
| 39 | |
| Katy Medical Complex Surgery Center | |
Katy, TX | |
| — | | |
| 1,560 | | |
| 25,601 | | |
| 528 | | |
| 1,560 | | |
| 26,129 | | |
| 27,689 | | |
| (5,020 | ) | |
| 2006 | | |
| 9/1/2015 | | |
| 40 | |
| New Albany Medical Center | |
New Albany, OH | |
| — | | |
| 1,600 | | |
| 8,505 | | |
| 2,569 | | |
| 1,600 | | |
| 11,074 | | |
| 12,674 | | |
| (2,508 | ) | |
| 2005 | | |
| 9/9/2015 | | |
| 37 | |
| Fountain Hills Medical Campus | |
Fountain Hills, AZ | |
| — | | |
| 2,593 | | |
| 7,635 | | |
| 1,077 | | |
| 2,593 | | |
| 8,712 | | |
| 11,305 | | |
| (1,814 | ) | |
| 1995 | | |
| 9/30/2015 | | |
| 39 | |
| Fairhope MOB | |
Fairhope, AL | |
| — | | |
| 640 | | |
| 5,227 | | |
| 1,655 | | |
| 640 | | |
| 6,882 | | |
| 7,522 | | |
| (1,579 | ) | |
| 2005 | | |
| 10/13/2015 | | |
| 38 | |
| Foley MOB | |
Foley, AL | |
| — | | |
| 365 | | |
| 732 | | |
| — | | |
| 365 | | |
| 732 | | |
| 1,097 | | |
| (155 | ) | |
| 1997 | | |
| 10/13/2015 | | |
| 40 | |
| Foley Venture | |
Foley, AL | |
| — | | |
| 420 | | |
| 1,118 | | |
| 339 | | |
| 420 | | |
| 1,457 | | |
| 1,877 | | |
| (386 | ) | |
| 2002 | | |
| 10/13/2015 | | |
| 38 | |
| North Okaloosa MOB | |
Crestview, FL | |
| — | | |
| 190 | | |
| 1,010 | | |
| — | | |
| 190 | | |
| 1,010 | | |
| 1,200 | | |
| (196 | ) | |
| 2005 | | |
| 10/13/2015 | | |
| 41 | |
| Commons on North Davis | |
Pensacola, FL | |
| — | | |
| 380 | | |
| 1,237 | | |
| — | | |
| 380 | | |
| 1,237 | | |
| 1,617 | | |
| (243 | ) | |
| 2009 | | |
| 10/13/2015 | | |
| 41 | |
| Sorrento Road MOB | |
Pensacola, FL | |
| — | | |
| 170 | | |
| 894 | | |
| 5 | | |
| 170 | | |
| 899 | | |
| 1,069 | | |
| (177 | ) | |
| 2010 | | |
| 10/13/2015 | | |
| 41 | |
| Panama City Beach MOB | |
Panama City, FL | |
| — | | |
| — | | |
| 739 | | |
| 26 | | |
| — | | |
| 765 | | |
| 765 | | |
| (140 | ) | |
| 2012 | | |
| 10/13/2015 | | |
| 42 | |
| Perdido Medical Park | |
Pensacola, FL | |
| — | | |
| 100 | | |
| 1,147 | | |
| — | | |
| 100 | | |
| 1,147 | | |
| 1,247 | | |
| (222 | ) | |
| 2010 | | |
| 10/13/2015 | | |
| 41 | |
| Ft. Walton Beach MOB | |
Ft. Walton Beach, FL | |
| — | | |
| 230 | | |
| 914 | | |
| — | | |
| 230 | | |
| 914 | | |
| 1,144 | | |
| (203 | ) | |
| 1979 | | |
| 10/13/2015 | | |
| 35 | |
| Panama City MOB | |
Panama City, FL | |
| — | | |
| — | | |
| 661 | | |
| 39 | | |
| — | | |
| 700 | | |
| 700 | | |
| (154 | ) | |
| 2003 | | |
| 10/13/2015 | | |
| 38 | |
| Pensacola MOB | |
Pensacola, FL | |
| — | | |
| 220 | | |
| 1,685 | | |
| 78 | | |
| 220 | | |
| 1,763 | | |
| 1,983 | | |
| (346 | ) | |
| 2001 | | |
| 10/13/2015 | | |
| 39 | |
| Arete Surgical Center | |
Johnstown, CO | |
| — | | |
| 399 | | |
| 6,667 | | |
| — | | |
| 399 | | |
| 6,667 | | |
| 7,066 | | |
| (1,115 | ) | |
| 2013 | | |
| 10/19/2015 | | |
| 45 | |
| Cambridge Professional Center | |
Waldorf, MD | |
| — | | |
| 590 | | |
| 8,520 | | |
| 897 | | |
| 590 | | |
| 9,417 | | |
| 10,007 | | |
| (2,122 | ) | |
| 1999 | | |
| 10/30/2015 | | |
| 35 | |
| HonorHealth - 44th Street MOB | |
Phoenix, AZ | |
| — | | |
| 515 | | |
| 3,884 | | |
| 1,354 | | |
| 515 | | |
| 5,238 | | |
| 5,753 | | |
| (1,612 | ) | |
| 1988 | | |
| 11/13/2015 | | |
| 28 | |
| Mercy Medical Center | |
Fenton, MO | |
| — | | |
| 1,201 | | |
| 6,778 | | |
| 407 | | |
| 1,201 | | |
| 7,185 | | |
| 8,386 | | |
| (1,332 | ) | |
| 1999 | | |
| 12/1/2015 | | |
| 40 | |
| 8 C1TY Blvd | |
Nashville, TN | |
| — | | |
| 1,555 | | |
| 39,713 | | |
| 621 | | |
| 1,555 | | |
| 40,334 | | |
| 41,889 | | |
| (6,329 | ) | |
| 2015 | | |
| 12/17/2015 | | |
| 45 | |
| Treasure Coast Center for Surgery | |
Stuart, FL | |
| — | | |
| 380 | | |
| 5,064 | | |
| 70 | | |
| 380 | | |
| 5,134 | | |
| 5,514 | | |
| (865 | ) | |
| 2013 | | |
| 2/1/2016 | | |
| 42 | |
| Park Nicollet Clinic | |
Chanhassen, MN | |
| — | | |
| 1,941 | | |
| 14,555 | | |
| 138 | | |
| 1,941 | | |
| 14,693 | | |
| 16,634 | | |
| (2,742 | ) | |
| 2005 | | |
| 2/8/2016 | | |
| 40 | |
| HEB Cancer Center | |
Bedford, TX | |
| — | | |
| — | | |
| 11,839 | | |
| 11 | | |
| — | | |
| 11,850 | | |
| 11,850 | | |
| (1,978 | ) | |
| 2014 | | |
| 2/12/2016 | | |
| 44 | |
| Riverview Medical Center | |
Lancaster, OH | |
| — | | |
| 1,313 | | |
| 10,243 | | |
| 1,370 | | |
| 1,313 | | |
| 11,613 | | |
| 12,926 | | |
| (2,577 | ) | |
| 1997 | | |
| 2/26/2016 | | |
| 33 | |
| St. Luke's Cornwall MOB | |
Cornwall, NY | |
| — | | |
| — | | |
| 13,017 | | |
| 151 | | |
| — | | |
| 13,168 | | |
| 13,168 | | |
| (2,765 | ) | |
| 2006 | | |
| 2/26/2016 | | |
| 35 | |
| HonorHealth - Glendale | |
Glendale, AZ | |
| — | | |
| 1,770 | | |
| 8,089 | | |
| — | | |
| 1,770 | | |
| 8,089 | | |
| 9,859 | | |
| (1,313 | ) | |
| 2015 | | |
| 3/15/2016 | | |
| 45 | |
| Columbia MOB | |
Hudson, NY | |
| — | | |
| — | | |
| 16,550 | | |
| 47 | | |
| — | | |
| 16,597 | | |
| 16,597 | | |
| (3,243 | ) | |
| 2006 | | |
| 3/21/2016 | | |
| 35 | |
| St Vincent POB 1 | |
Birmingham, AL | |
| — | | |
| — | | |
| 10,172 | | |
| 837 | | |
| — | | |
| 11,009 | | |
| 11,009 | | |
| (5,065 | ) | |
| 1975 | | |
| 3/23/2016 | | |
| 15 | |
| Emerson Medical Building | |
Creve Coeur, MO | |
| — | | |
| 1,590 | | |
| 9,853 | | |
| 324 | | |
| 1,590 | | |
| 10,177 | | |
| 11,767 | | |
| (2,134 | ) | |
| 1989 | | |
| 3/24/2016 | | |
| 35 | |
| Eye Associates of NM - Santa Fe | |
Santa Fe, NM | |
| — | | |
| 900 | | |
| 6,604 | | |
| — | | |
| 900 | | |
| 6,604 | | |
| 7,504 | | |
| (1,363 | ) | |
| 2002 | | |
| 3/31/2016 | | |
| 35 | |
| Eye Associates of NM - Albuquerque | |
Albuquerque, NM | |
| — | | |
| 1,020 | | |
| 7,832 | | |
| 13 | | |
| 1,020 | | |
| 7,845 | | |
| 8,865 | | |
| (1,442 | ) | |
| 2007 | | |
| 3/31/2016 | | |
| 40 | |
| Gardendale Surgery Center | |
Gardendale, AL | |
| — | | |
| 200 | | |
| 5,732 | | |
| — | | |
| 200 | | |
| 5,732 | | |
| 5,932 | | |
| (965 | ) | |
| 2011 | | |
| 4/11/2016 | | |
| 42 | |
| M Health Fairview - Curve Crest | |
Stillwater, MN | |
| — | | |
| 409 | | |
| 3,279 | | |
| — | | |
| 409 | | |
| 3,279 | | |
| 3,688 | | |
| (570 | ) | |
| 2011 | | |
| 4/14/2016 | | |
| 43 | |
| M Health Fairview - Victor Gardens | |
Hugo, MN | |
| — | | |
| 572 | | |
| 4,400 | | |
| 70 | | |
| 572 | | |
| 4,470 | | |
| 5,042 | | |
| (830 | ) | |
| 2008 | | |
| 4/14/2016 | | |
| 41 | |
| Cardwell Professional Building | |
Lufkin, TX | |
| — | | |
| — | | |
| 8,348 | | |
| 575 | | |
| — | | |
| 8,923 | | |
| 8,923 | | |
| (1,567 | ) | |
| 1999 | | |
| 5/11/2016 | | |
| 42 | |
| Dacono Neighborhood Health Clinic | |
Dacono, CO | |
| — | | |
| 2,258 | | |
| 2,911 | | |
| 20 | | |
| 2,258 | | |
| 2,931 | | |
| 5,189 | | |
| (699 | ) | |
| 2014 | | |
| 5/11/2016 | | |
| 44 | |
Physicians Realty
Trust
Schedule III –
Real Estate and Accumulated Depreciation
December 31,
2022
(dollars in thousands)
| | |
| |
| | |
Initial Cost to Company | | |
Cost Capitalized
Subsequent | | |
Gross Amount at Which Carried as of Close of Period | | |
| | |
| | |
Life on Which
Building
Depreciation in | |
| Description | |
Location | |
Encumbrances | | |
Land | | |
Buildings and
Improvements | | |
to
Acquisitions | | |
Land | | |
Buildings and
Improvements | | |
Total (1) | | |
Accumulated
Depreciation | | |
Year
Built | | |
Date
Acquired | | |
Income Statement
is Computed | |
| Grand Island Specialty Clinic | |
Grand Island, NE | |
| — | | |
| 102 | | |
| 2,802 | | |
| 202 | | |
| 102 | | |
| 3,004 | | |
| 3,106 | | |
| (590 | ) | |
| 1978 | | |
| 5/11/2016 | | |
| 42 | |
| Hot Springs Village Office Building | |
Hot Springs Village, AR | |
| — | | |
| 305 | | |
| 3,309 | | |
| 119 | | |
| 305 | | |
| 3,428 | | |
| 3,733 | | |
| (870 | ) | |
| 1988 | | |
| 5/11/2016 | | |
| 30 | |
| UofL Health - East | |
Louisville, KY | |
| — | | |
| — | | |
| 81,248 | | |
| 368 | | |
| — | | |
| 81,616 | | |
| 81,616 | | |
| (12,679 | ) | |
| 2003 | | |
| 5/11/2016 | | |
| 45 | |
| UofL Health - South | |
Shepherdsville, KY | |
| — | | |
| — | | |
| 15,861 | | |
| 235 | | |
| — | | |
| 16,096 | | |
| 16,096 | | |
| (3,215 | ) | |
| 2005 | | |
| 5/11/2016 | | |
| 39 | |
| UofL Health - Plaza I | |
Louisville, KY | |
| — | | |
| — | | |
| 8,808 | | |
| 707 | | |
| — | | |
| 9,515 | | |
| 9,515 | | |
| (2,009 | ) | |
| 1970 | | |
| 5/11/2016 | | |
| 35 | |
| UofL Health - Plaza II | |
Louisville, KY | |
| — | | |
| — | | |
| 5,216 | | |
| 2,557 | | |
| — | | |
| 7,773 | | |
| 7,773 | | |
| (2,750 | ) | |
| 1964 | | |
| 5/11/2016 | | |
| 15 | |
| UofL Health - OCC | |
Louisville, KY | |
| — | | |
| — | | |
| 35,703 | | |
| 2,251 | | |
| — | | |
| 37,954 | | |
| 37,954 | | |
| (7,328 | ) | |
| 1985 | | |
| 5/11/2016 | | |
| 34 | |
| Lexington Surgery Center | |
Lexington, KY | |
| — | | |
| 1,229 | | |
| 18,914 | | |
| 675 | | |
| 1,229 | | |
| 19,589 | | |
| 20,818 | | |
| (4,436 | ) | |
| 2000 | | |
| 5/11/2016 | | |
| 30 | |
| Medical Arts Pavilion | |
Lufkin, TX | |
| — | | |
| — | | |
| 6,215 | | |
| 1,155 | | |
| — | | |
| 7,370 | | |
| 7,370 | | |
| (1,660 | ) | |
| 2004 | | |
| 5/11/2016 | | |
| 33 | |
| Memorial Outpatient Therapy Center | |
Lufkin, TX | |
| — | | |
| — | | |
| 4,808 | | |
| 100 | | |
| — | | |
| 4,908 | | |
| 4,908 | | |
| (845 | ) | |
| 1990 | | |
| 5/11/2016 | | |
| 45 | |
| Midlands Two Professional Center | |
Papillion, NE | |
| — | | |
| — | | |
| 587 | | |
| 1,137 | | |
| — | | |
| 1,724 | | |
| 1,724 | | |
| (779 | ) | |
| 1976 | | |
| 5/11/2016 | | |
| 5 | |
| Parkview MOB | |
Little Rock, AR | |
| — | | |
| 705 | | |
| 4,343 | | |
| 76 | | |
| 705 | | |
| 4,419 | | |
| 5,124 | | |
| (950 | ) | |
| 1988 | | |
| 5/11/2016 | | |
| 35 | |
| Peak One ASC | |
Frisco, CO | |
| — | | |
| — | | |
| 5,763 | | |
| 317 | | |
| — | | |
| 6,080 | | |
| 6,080 | | |
| (1,015 | ) | |
| 2006 | | |
| 5/11/2016 | | |
| 44 | |
| Physicians Medical Center | |
Tacoma, WA | |
| — | | |
| — | | |
| 5,862 | | |
| 3,227 | | |
| — | | |
| 9,089 | | |
| 9,089 | | |
| (1,933 | ) | |
| 1977 | | |
| 5/11/2016 | | |
| 27 | |
| St. Alexius - Minot Medical Plaza | |
Minot, ND | |
| — | | |
| — | | |
| 26,078 | | |
| 107 | | |
| — | | |
| 26,185 | | |
| 26,185 | | |
| (4,111 | ) | |
| 2015 | | |
| 5/11/2016 | | |
| 49 | |
| St. Clare Medical Pavilion | |
Lakewood, WA | |
| — | | |
| — | | |
| 9,005 | | |
| 534 | | |
| — | | |
| 9,539 | | |
| 9,539 | | |
| (2,220 | ) | |
| 1989 | | |
| 5/11/2016 | | |
| 33 | |
| St. Joseph Medical Pavilion | |
Tacoma, WA | |
| — | | |
| — | | |
| 11,497 | | |
| 648 | | |
| — | | |
| 12,145 | | |
| 12,145 | | |
| (2,439 | ) | |
| 1989 | | |
| 5/11/2016 | | |
| 35 | |
| St. Joseph Office Park | |
Lexington, KY | |
| — | | |
| 3,722 | | |
| 12,675 | | |
| 5,391 | | |
| 3,722 | | |
| 18,066 | | |
| 21,788 | | |
| (7,473 | ) | |
| 1992 | | |
| 5/11/2016 | | |
| 14 | |
| UofL Health - Mary & Elizabeth MOB II | |
Louisville, KY | |
| — | | |
| — | | |
| 5,587 | | |
| 679 | | |
| — | | |
| 6,266 | | |
| 6,266 | | |
| (1,182 | ) | |
| 1979 | | |
| 5/11/2016 | | |
| 34 | |
| UofL Health - Mary & Elizabeth MOB III | |
Louisville, KY | |
| — | | |
| — | | |
| 383 | | |
| 497 | | |
| — | | |
| 880 | | |
| 880 | | |
| (576 | ) | |
| 1974 | | |
| 5/11/2016 | | |
| 2 | |
| Thornton Neighborhood Health Clinic | |
Thornton, CO | |
| — | | |
| 1,609 | | |
| 2,287 | | |
| 1,679 | | |
| 1,609 | | |
| 3,966 | | |
| 5,575 | | |
| (1,001 | ) | |
| 2014 | | |
| 5/11/2016 | | |
| 43 | |
| St. Francis MOB | |
Federal Way, WA | |
| — | | |
| — | | |
| 12,817 | | |
| 74 | | |
| — | | |
| 12,891 | | |
| 12,891 | | |
| (2,579 | ) | |
| 1987 | | |
| 6/2/2016 | | |
| 38 | |
| Children's Wisconsin - Brookfield | |
Milwaukee, WI | |
| — | | |
| 476 | | |
| 4,897 | | |
| — | | |
| 476 | | |
| 4,897 | | |
| 5,373 | | |
| (818 | ) | |
| 2016 | | |
| 6/3/2016 | | |
| 45 | |
| UofL Health - South MOB | |
Shepherdsville, KY | |
| — | | |
| 27 | | |
| 3,827 | | |
| 30 | | |
| 27 | | |
| 3,857 | | |
| 3,884 | | |
| (638 | ) | |
| 2006 | | |
| 6/8/2016 | | |
| 40 | |
| Good Samaritan North Annex Building | |
Kearney, NE | |
| — | | |
| — | | |
| 2,734 | | |
| — | | |
| — | | |
| 2,734 | | |
| 2,734 | | |
| (548 | ) | |
| 1984 | | |
| 6/28/2016 | | |
| 37 | |
| NE Heart Institute Medical Building | |
Lincoln, NE | |
| — | | |
| — | | |
| 19,738 | | |
| 199 | | |
| — | | |
| 19,937 | | |
| 19,937 | | |
| (2,764 | ) | |
| 2004 | | |
| 6/28/2016 | | |
| 47 | |
| St. Vincent West MOB | |
Little Rock, AR | |
| — | | |
| — | | |
| 13,453 | | |
| — | | |
| — | | |
| 13,453 | | |
| 13,453 | | |
| (1,939 | ) | |
| 2012 | | |
| 6/29/2016 | | |
| 49 | |
| Meridan | |
Englewood, CO | |
| — | | |
| 1,608 | | |
| 15,774 | | |
| 137 | | |
| 1,608 | | |
| 15,911 | | |
| 17,519 | | |
| (3,142 | ) | |
| 2002 | | |
| 6/29/2016 | | |
| 38 | |
| UofL Health - Mary & Elizabeth MOB I | |
Louisville, KY | |
| — | | |
| — | | |
| 8,774 | | |
| 1,134 | | |
| — | | |
| 9,908 | | |
| 9,908 | | |
| (2,553 | ) | |
| 1991 | | |
| 6/29/2016 | | |
| 25 | |
| St. Alexius - Medical Arts Pavilion | |
Bismarck, ND | |
| — | | |
| — | | |
| 12,902 | | |
| 959 | | |
| — | | |
| 13,861 | | |
| 13,861 | | |
| (2,802 | ) | |
| 1974 | | |
| 6/29/2016 | | |
| 32 | |
| St. Alexius - Mandan Clinic | |
Mandan, ND | |
| — | | |
| 708 | | |
| 7,700 | | |
| 283 | | |
| 708 | | |
| 7,983 | | |
| 8,691 | | |
| (1,356 | ) | |
| 2014 | | |
| 6/29/2016 | | |
| 43 | |
| St. Alexius - Orthopaedic Center | |
Bismarck, ND | |
| — | | |
| — | | |
| 13,881 | | |
| 1,188 | | |
| — | | |
| 15,069 | | |
| 15,069 | | |
| (2,629 | ) | |
| 1997 | | |
| 6/29/2016 | | |
| 39 | |
| St. Alexius - Rehab Center | |
Bismarck, ND | |
| — | | |
| — | | |
| 5,920 | | |
| 607 | | |
| — | | |
| 6,527 | | |
| 6,527 | | |
| (1,721 | ) | |
| 1997 | | |
| 6/29/2016 | | |
| 25 | |
| St. Alexius - Tech & Ed | |
Bismarck, ND | |
| — | | |
| — | | |
| 16,688 | | |
| 418 | | |
| — | | |
| 17,106 | | |
| 17,106 | | |
| (2,998 | ) | |
| 2011 | | |
| 6/29/2016 | | |
| 38 | |
| Good Samaritan MOB | |
Kearney, NE | |
| — | | |
| — | | |
| 24,154 | | |
| 2,700 | | |
| — | | |
| 26,854 | | |
| 26,854 | | |
| (3,916 | ) | |
| 1999 | | |
| 6/29/2016 | | |
| 45 | |
| Lakeside Two Professional Center | |
Omaha, NE | |
| — | | |
| — | | |
| 13,358 | | |
| 2,115 | | |
| — | | |
| 15,473 | | |
| 15,473 | | |
| (2,634 | ) | |
| 2000 | | |
| 6/29/2016 | | |
| 38 | |
| Lakeside Wellness Center | |
Omaha, NE | |
| — | | |
| — | | |
| 10,177 | | |
| 438 | | |
| — | | |
| 10,615 | | |
| 10,615 | | |
| (1,839 | ) | |
| 2000 | | |
| 6/29/2016 | | |
| 39 | |
| McAuley Center | |
Omaha, NE | |
| — | | |
| 1,427 | | |
| 17,020 | | |
| 978 | | |
| 1,427 | | |
| 17,998 | | |
| 19,425 | | |
| (4,156 | ) | |
| 1988 | | |
| 6/29/2016 | | |
| 30 | |
| Memorial Health Center | |
Grand Island, NE | |
| — | | |
| — | | |
| 33,967 | | |
| 3,492 | | |
| — | | |
| 37,459 | | |
| 37,459 | | |
| (6,983 | ) | |
| 1955 | | |
| 6/29/2016 | | |
| 35 | |
| Missionary Ridge MOB | |
Chattanooga, TN | |
| — | | |
| — | | |
| 7,223 | | |
| 3,730 | | |
| — | | |
| 10,953 | | |
| 10,953 | | |
| (5,611 | ) | |
| 1976 | | |
| 6/29/2016 | | |
| 10 | |
| Pilot Medical Center | |
Birmingham, AL | |
| — | | |
| 1,419 | | |
| 14,528 | | |
| 99 | | |
| 1,419 | | |
| 14,627 | | |
| 16,046 | | |
| (2,888 | ) | |
| 2005 | | |
| 6/29/2016 | | |
| 35 | |
| St. Joseph Medical Clinic | |
Tacoma, WA | |
| — | | |
| — | | |
| 16,427 | | |
| 599 | | |
| — | | |
| 17,026 | | |
| 17,026 | | |
| (3,616 | ) | |
| 1991 | | |
| 6/30/2016 | | |
| 30 | |
| Woodlands Medical Arts Center | |
The Woodlands, TX | |
| — | | |
| — | | |
| 19,168 | | |
| 3,289 | | |
| — | | |
| 22,457 | | |
| 22,457 | | |
| (4,687 | ) | |
| 2001 | | |
| 6/30/2016 | | |
| 35 | |
| FESC MOB | |
Tacoma, WA | |
| — | | |
| — | | |
| 12,702 | | |
| 324 | | |
| — | | |
| 13,026 | | |
| 13,026 | | |
| (4,216 | ) | |
| 1980 | | |
| 6/30/2016 | | |
| 22 | |
| PrairieCare MOB | |
Maplewood, MN | |
| — | | |
| 525 | | |
| 3,099 | | |
| — | | |
| 525 | | |
| 3,099 | | |
| 3,624 | | |
| (492 | ) | |
| 2016 | | |
| 7/6/2016 | | |
| 45 | |
| Springwoods MOB | |
Spring, TX | |
| — | | |
| 3,821 | | |
| 14,830 | | |
| 5,029 | | |
| 3,821 | | |
| 19,859 | | |
| 23,680 | | |
| (4,979 | ) | |
| 2015 | | |
| 7/21/2016 | | |
| 44 | |
| Unity ASC, Imaging & MOB | |
West Lafayette, IN | |
| — | | |
| 960 | | |
| 9,991 | | |
| — | | |
| 960 | | |
| 9,991 | | |
| 10,951 | | |
| (1,945 | ) | |
| 2001 | | |
| 8/8/2016 | | |
| 35 | |
| Unity Medical Pavilion | |
West Lafayette, IN | |
| — | | |
| 1,070 | | |
| 12,454 | | |
| — | | |
| 1,070 | | |
| 12,454 | | |
| 13,524 | | |
| (2,423 | ) | |
| 2001 | | |
| 8/8/2016 | | |
| 35 | |
| Unity Faith, Hope & Love | |
West Lafayette, IN | |
| — | | |
| 280 | | |
| 1,862 | | |
| — | | |
| 280 | | |
| 1,862 | | |
| 2,142 | | |
| (363 | ) | |
| 2001 | | |
| 8/8/2016 | | |
| 35 | |
| Unity Immediate Care and OCC | |
West Lafayette, IN | |
| — | | |
| 300 | | |
| 1,833 | | |
| — | | |
| 300 | | |
| 1,833 | | |
| 2,133 | | |
| (342 | ) | |
| 2004 | | |
| 8/8/2016 | | |
| 37 | |
| Medical Village at Maitland | |
Orlando, FL | |
| — | | |
| 2,393 | | |
| 18,543 | | |
| 367 | | |
| 2,393 | | |
| 18,910 | | |
| 21,303 | | |
| (2,980 | ) | |
| 2006 | | |
| 8/23/2016 | | |
| 44 | |
| Tri-State Orthopaedics MOB | |
Evansville, IN | |
| — | | |
| 1,580 | | |
| 14,162 | | |
| — | | |
| 1,580 | | |
| 14,162 | | |
| 15,742 | | |
| (2,627 | ) | |
| 2004 | | |
| 8/30/2016 | | |
| 37 | |
| Maury Regional Health Complex | |
Spring Hill, TN | |
| — | | |
| — | | |
| 15,619 | | |
| 507 | | |
| — | | |
| 16,126 | | |
| 16,126 | | |
| (2,678 | ) | |
| 2012 | | |
| 9/30/2016 | | |
| 41 | |
| Spring Ridge Medical Center | |
Wyomissing, PA | |
| — | | |
| 28 | | |
| 4,943 | | |
| 23 | | |
| 28 | | |
| 4,966 | | |
| 4,994 | | |
| (888 | ) | |
| 2002 | | |
| 9/30/2016 | | |
| 37 | |
| Doctors Community Hospital POB | |
Lanham, MD | |
| — | | |
| — | | |
| 23,034 | | |
| 143 | | |
| — | | |
| 23,177 | | |
| 23,177 | | |
| (3,044 | ) | |
| 2009 | | |
| 9/30/2016 | | |
| 48 | |
| Gig Harbor Medical Pavilion | |
Gig Harbor, WA | |
| — | | |
| — | | |
| 4,791 | | |
| 2,245 | | |
| — | | |
| 7,036 | | |
| 7,036 | | |
| (1,712 | ) | |
| 1991 | | |
| 9/30/2016 | | |
| 30 | |
| Midlands One Professional Center | |
Papillion, NE | |
| — | | |
| — | | |
| 14,922 | | |
| 102 | | |
| — | | |
| 15,024 | | |
| 15,024 | | |
| (2,538 | ) | |
| 2010 | | |
| 9/30/2016 | | |
| 37 | |
| Northwest Michigan Surgery Center | |
Traverse City, MI | |
| — | | |
| 2,748 | | |
| 30,005 | | |
| — | | |
| 2,748 | | |
| 30,005 | | |
| 32,753 | | |
| (4,805 | ) | |
| 2004 | | |
| 10/28/2016 | | |
| 40 | |
| Northeast Medical Center | |
Fayetteville, NY | |
| — | | |
| 4,011 | | |
| 25,564 | | |
| 1,003 | | |
| 4,011 | | |
| 26,567 | | |
| 30,578 | | |
| (5,915 | ) | |
| 1998 | | |
| 11/23/2016 | | |
| 33 | |
| North Medical Center | |
Liverpool, NY | |
| — | | |
| 1,337 | | |
| 18,680 | | |
| 1,056 | | |
| 1,337 | | |
| 19,736 | | |
| 21,073 | | |
| (3,850 | ) | |
| 1989 | | |
| 11/23/2016 | | |
| 35 | |
| Cincinnati Eye Institute | |
Cincinnati, OH | |
| — | | |
| 2,050 | | |
| 32,546 | | |
| — | | |
| 2,050 | | |
| 32,546 | | |
| 34,596 | | |
| (5,989 | ) | |
| 1985 | | |
| 11/23/2016 | | |
| 35 | |
| HonorHealth - Scottsdale MOB | |
Scottsdale, AZ | |
| — | | |
| 3,340 | | |
| 4,288 | | |
| 5,811 | | |
| 3,340 | | |
| 10,099 | | |
| 13,439 | | |
| (2,005 | ) | |
| 2000 | | |
| 12/2/2016 | | |
| 45 | |
Physicians Realty
Trust
Schedule III –
Real Estate and Accumulated Depreciation
December 31,
2022
(dollars in thousands)
| | |
| |
| | |
Initial Cost to Company | | |
Cost Capitalized | | |
Gross Amount at Which Carried as of Close of Period | | |
| | |
| | |
Life on Which
Building
Depreciation in | |
| Description | |
Location | |
Encumbrances | | |
Land | | |
Buildings and
Improvements | | |
Subsequent to
Acquisitions | | |
Land | | |
Buildings and
Improvements | | |
Total (1) | | |
Accumulated
Depreciation | | |
Year
Built | | |
Date
Acquired | | |
Income Statement
is Computed | |
| Fox Valley Hematology & Oncology | |
Appleton, WI | |
| — | | |
| 1,590 | | |
| 26,666 | | |
| — | | |
| 1,590 | | |
| 26,666 | | |
| 28,256 | | |
| (3,882 | ) | |
| 2015 | | |
| 12/8/2016 | | |
| 44 | |
| Flower Mound MOB | |
Flower Mound, TX | |
| — | | |
| 1,945 | | |
| 8,312 | | |
| 67 | | |
| 1,945 | | |
| 8,379 | | |
| 10,324 | | |
| (1,299 | ) | |
| 2011 | | |
| 12/16/2016 | | |
| 43 | |
| Carrollton MOB | |
Flower Mound, TX | |
| — | | |
| 2,183 | | |
| 10,461 | | |
| 120 | | |
| 2,183 | | |
| 10,581 | | |
| 12,764 | | |
| (1,740 | ) | |
| 2002 | | |
| 12/16/2016 | | |
| 40 | |
| HonorHealth - Scottsdale IRF | |
Scottsdale, AZ | |
| — | | |
| — | | |
| 19,331 | | |
| — | | |
| — | | |
| 19,331 | | |
| 19,331 | | |
| (2,889 | ) | |
| 2000 | | |
| 12/22/2016 | | |
| 42 | |
| Orthopedic Associates | |
Flower Mound, TX | |
| — | | |
| 2,915 | | |
| 12,791 | | |
| 242 | | |
| 2,915 | | |
| 13,033 | | |
| 15,948 | | |
| (1,933 | ) | |
| 2011 | | |
| 1/5/2017 | | |
| 43 | |
| Medical Arts Center at Hartford | |
Plainville, CT | |
| — | | |
| 1,499 | | |
| 24,627 | | |
| 932 | | |
| 1,499 | | |
| 25,559 | | |
| 27,058 | | |
| (3,798 | ) | |
| 2015 | | |
| 1/11/2017 | | |
| 44 | |
| CareMount Medical - Lake Katrine MOB | |
Lake Katrine, NY | |
| 23,726 | | |
| 1,941 | | |
| 27,434 | | |
| — | | |
| 1,941 | | |
| 27,434 | | |
| 29,375 | | |
| (4,106 | ) | |
| 2013 | | |
| 2/14/2017 | | |
| 42 | |
| CareMount Medical - Rhinebeck MOB | |
Rhinebeck, NY | |
| — | | |
| 869 | | |
| 12,220 | | |
| — | | |
| 869 | | |
| 12,220 | | |
| 13,089 | | |
| (1,907 | ) | |
| 1965 | | |
| 2/14/2017 | | |
| 41 | |
| Monterey Medical Center | |
Stuart, FL | |
| — | | |
| 2,292 | | |
| 13,376 | | |
| 696 | | |
| 2,292 | | |
| 14,072 | | |
| 16,364 | | |
| (2,294 | ) | |
| 2003 | | |
| 3/7/2017 | | |
| 37 | |
| Creighton University Medical Center | |
Omaha, NE | |
| — | | |
| — | | |
| 32,487 | | |
| — | | |
| — | | |
| 32,487 | | |
| 32,487 | | |
| (4,028 | ) | |
| 2017 | | |
| 3/28/2017 | | |
| 49 | |
| Strictly Pediatrics Specialty Center | |
Austin, TX | |
| — | | |
| 4,457 | | |
| 62,527 | | |
| 1,189 | | |
| 4,457 | | |
| 63,716 | | |
| 68,173 | | |
| (9,584 | ) | |
| 2006 | | |
| 3/31/2017 | | |
| 40 | |
| MedStar Stephen's Crossing | |
Brandywine, MD | |
| — | | |
| 1,975 | | |
| 14,810 | | |
| 65 | | |
| 1,975 | | |
| 14,875 | | |
| 16,850 | | |
| (2,099 | ) | |
| 2015 | | |
| 6/16/2017 | | |
| 43 | |
| Health Clinic Building | |
Omaha, NE | |
| — | | |
| — | | |
| 50,177 | | |
| 16 | | |
| — | | |
| 50,193 | | |
| 50,193 | | |
| (5,701 | ) | |
| 2017 | | |
| 6/29/2017 | | |
| 49 | |
| Family Medical Center | |
Little Falls, MN | |
| — | | |
| — | | |
| 4,944 | | |
| 9,608 | | |
| — | | |
| 14,552 | | |
| 14,552 | | |
| (1,942 | ) | |
| 1990 | | |
| 6/29/2017 | | |
| 30 | |
| Craven-Hagan Clinic | |
Williston, ND | |
| — | | |
| — | | |
| 8,739 | | |
| 1,988 | | |
| — | | |
| 10,727 | | |
| 10,727 | | |
| (1,536 | ) | |
| 1984 | | |
| 6/29/2017 | | |
| 40 | |
| Chattanooga Heart Institute | |
Chattanooga, TN | |
| — | | |
| — | | |
| 18,639 | | |
| 1,101 | | |
| — | | |
| 19,740 | | |
| 19,740 | | |
| (3,156 | ) | |
| 1993 | | |
| 6/29/2017 | | |
| 37 | |
| St. Vincent Mercy Heart and Vascular Center | |
Hot Springs, AR | |
| — | | |
| — | | |
| 11,688 | | |
| 6 | | |
| — | | |
| 11,694 | | |
| 11,694 | | |
| (1,599 | ) | |
| 1998 | | |
| 6/29/2017 | | |
| 45 | |
| South Campus MOB | |
Hot Springs, AR | |
| — | | |
| — | | |
| 13,369 | | |
| 1,208 | | |
| — | | |
| 14,577 | | |
| 14,577 | | |
| (2,002 | ) | |
| 2009 | | |
| 6/29/2017 | | |
| 42 | |
| St. Vincent Mercy Cancer Center | |
Hot Springs, AR | |
| — | | |
| — | | |
| 5,090 | | |
| 180 | | |
| — | | |
| 5,270 | | |
| 5,270 | | |
| (828 | ) | |
| 2001 | | |
| 6/29/2017 | | |
| 39 | |
| St. Joseph Professional Office Building | |
Bryan, TX | |
| — | | |
| — | | |
| 11,169 | | |
| 588 | | |
| — | | |
| 11,757 | | |
| 11,757 | | |
| (1,477 | ) | |
| 1996 | | |
| 6/29/2017 | | |
| 46 | |
| St. Vincent Carmel Women's Center | |
Carmel, IN | |
| — | | |
| — | | |
| 31,720 | | |
| 620 | | |
| — | | |
| 32,340 | | |
| 32,340 | | |
| (3,903 | ) | |
| 2014 | | |
| 6/29/2017 | | |
| 48 | |
| St. Vincent Fishers Medical Center | |
Fishers, IN | |
| — | | |
| — | | |
| 62,870 | | |
| 1,694 | | |
| — | | |
| 64,564 | | |
| 64,564 | | |
| (8,356 | ) | |
| 2008 | | |
| 6/29/2017 | | |
| 45 | |
| Baylor Charles A. Sammons Cancer Center | |
Dallas, TX | |
| — | | |
| — | | |
| 256,886 | | |
| 2,643 | | |
| — | | |
| 259,529 | | |
| 259,529 | | |
| (33,763 | ) | |
| 2011 | | |
| 6/30/2017 | | |
| 43 | |
| Orthopedic & Sports Institute of the Fox Valley | |
Appleton, WI | |
| — | | |
| 2,003 | | |
| 26,394 | | |
| 100 | | |
| 2,003 | | |
| 26,494 | | |
| 28,497 | | |
| (3,889 | ) | |
| 2005 | | |
| 6/30/2017 | | |
| 40 | |
| Clearview Cancer Institute | |
Huntsville, AL | |
| — | | |
| 2,736 | | |
| 43,220 | | |
| 246 | | |
| 2,736 | | |
| 43,466 | | |
| 46,202 | | |
| (7,211 | ) | |
| 2006 | | |
| 8/4/2017 | | |
| 34 | |
| Northside Cherokee-Town Lake MOB | |
Atlanta, GA | |
| — | | |
| — | | |
| 30,627 | | |
| 1,667 | | |
| — | | |
| 32,294 | | |
| 32,294 | | |
| (4,718 | ) | |
| 2013 | | |
| 8/15/2017 | | |
| 46 | |
| HonorHealth - Mesa | |
Mesa, AZ | |
| — | | |
| 362 | | |
| 3,059 | | |
| 8 | | |
| 362 | | |
| 3,067 | | |
| 3,429 | | |
| (422 | ) | |
| 2013 | | |
| 8/15/2017 | | |
| 43 | |
| Little Falls Orthopedics | |
Little Falls, MN | |
| — | | |
| 246 | | |
| 1,977 | | |
| 146 | | |
| 246 | | |
| 2,123 | | |
| 2,369 | | |
| (665 | ) | |
| 1999 | | |
| 8/24/2017 | | |
| 28 | |
| Unity Specialty Center | |
Little Falls, MN | |
| — | | |
| — | | |
| 2,885 | | |
| 998 | | |
| — | | |
| 3,883 | | |
| 3,883 | | |
| (1,446 | ) | |
| 1959 | | |
| 8/24/2017 | | |
| 15 | |
| Immanuel One Professional Center | |
Omaha, NE | |
| — | | |
| — | | |
| 16,598 | | |
| 995 | | |
| — | | |
| 17,593 | | |
| 17,593 | | |
| (2,948 | ) | |
| 1993 | | |
| 8/24/2017 | | |
| 35 | |
| SJRHC Cancer Center | |
Bryan, TX | |
| — | | |
| — | | |
| 5,065 | | |
| 918 | | |
| — | | |
| 5,983 | | |
| 5,983 | | |
| (920 | ) | |
| 1997 | | |
| 8/24/2017 | | |
| 40 | |
| St. Vincent Women's Center | |
Hot Springs, AR | |
| — | | |
| — | | |
| 4,789 | | |
| 225 | | |
| — | | |
| 5,014 | | |
| 5,014 | | |
| (743 | ) | |
| 2001 | | |
| 8/31/2017 | | |
| 40 | |
| Legends Park MOB & ASC | |
Midland, TX | |
| — | | |
| 1,658 | | |
| 24,178 | | |
| — | | |
| 1,658 | | |
| 24,178 | | |
| 25,836 | | |
| (3,108 | ) | |
| 2003 | | |
| 9/27/2017 | | |
| 44 | |
| Franklin MOB & ASC | |
Franklin, TN | |
| — | | |
| 1,001 | | |
| 7,902 | | |
| — | | |
| 1,001 | | |
| 7,902 | | |
| 8,903 | | |
| (1,024 | ) | |
| 2014 | | |
| 10/12/2017 | | |
| 42 | |
| Eagle Point MOB | |
Lake Elmo, MN | |
| — | | |
| 1,011 | | |
| 9,009 | | |
| 8 | | |
| 1,011 | | |
| 9,017 | | |
| 10,028 | | |
| (1,116 | ) | |
| 2015 | | |
| 10/31/2017 | | |
| 48 | |
| Edina East MOB | |
Edina, MN | |
| — | | |
| 2,360 | | |
| 4,135 | | |
| 772 | | |
| 2,360 | | |
| 4,907 | | |
| 7,267 | | |
| (993 | ) | |
| 1962 | | |
| 10/31/2017 | | |
| 30 | |
| Northside Center Pointe | |
Atlanta, GA | |
| — | | |
| — | | |
| 118,430 | | |
| 9,260 | | |
| — | | |
| 127,690 | | |
| 127,690 | | |
| (21,429 | ) | |
| 2009 | | |
| 11/10/2017 | | |
| 31 | |
| Gwinnett 500 Building | |
Lawrenceville, GA | |
| — | | |
| — | | |
| 22,753 | | |
| 1,555 | | |
| — | | |
| 24,308 | | |
| 24,308 | | |
| (2,958 | ) | |
| 1995 | | |
| 11/17/2017 | | |
| 45 | |
| Hudgens Professional Building | |
Duluth, GA | |
| — | | |
| — | | |
| 21,779 | | |
| 1,283 | | |
| — | | |
| 23,062 | | |
| 23,062 | | |
| (3,196 | ) | |
| 1994 | | |
| 11/17/2017 | | |
| 40 | |
| St. Vincent Building | |
Indianapolis, IN | |
| — | | |
| 5,854 | | |
| 42,382 | | |
| 5,718 | | |
| 5,854 | | |
| 48,100 | | |
| 53,954 | | |
| (7,784 | ) | |
| 2007 | | |
| 11/17/2017 | | |
| 45 | |
| Gwinnett Physicians Center | |
Lawrenceville, GA | |
| — | | |
| — | | |
| 48,304 | | |
| 1,271 | | |
| — | | |
| 49,575 | | |
| 49,575 | | |
| (5,735 | ) | |
| 2010 | | |
| 12/1/2017 | | |
| 47 | |
| Apple Valley Medical Center | |
Apple Valley, MN | |
| — | | |
| 1,587 | | |
| 14,929 | | |
| 2,875 | | |
| 1,587 | | |
| 17,804 | | |
| 19,391 | | |
| (3,425 | ) | |
| 1974 | | |
| 12/18/2017 | | |
| 33 | |
| Desert Cove MOB | |
Scottsdale, AZ | |
| — | | |
| 1,689 | | |
| 5,207 | | |
| — | | |
| 1,689 | | |
| 5,207 | | |
| 6,896 | | |
| (739 | ) | |
| 1991 | | |
| 12/18/2017 | | |
| 38 | |
| Westgate MOB | |
Glendale, AZ | |
| — | | |
| — | | |
| 13,379 | | |
| 2,101 | | |
| — | | |
| 15,480 | | |
| 15,480 | | |
| (2,482 | ) | |
| 2016 | | |
| 12/21/2017 | | |
| 45 | |
| M Health Fairview Clinics and Specialty Center - Maplewood | |
Maplewood, MN | |
| — | | |
| 3,292 | | |
| 57,390 | | |
| 5,069 | | |
| 3,292 | | |
| 62,459 | | |
| 65,751 | | |
| (7,218 | ) | |
| 2017 | | |
| 1/9/2018 | | |
| 45 | |
| Lee's Hill Medical Plaza | |
Fredericksburg, VA | |
| — | | |
| 1,052 | | |
| 24,790 | | |
| 592 | | |
| 1,052 | | |
| 25,382 | | |
| 26,434 | | |
| (3,283 | ) | |
| 2006 | | |
| 1/23/2018 | | |
| 40 | |
| HMG Medical Plaza | |
Kingsport, TN | |
| — | | |
| — | | |
| 64,204 | | |
| — | | |
| — | | |
| 64,204 | | |
| 64,204 | | |
| (7,983 | ) | |
| 2010 | | |
| 4/3/2018 | | |
| 40 | |
| Jacksonville MedPlex (Building B) | |
Jacksonville, FL | |
| — | | |
| 3,259 | | |
| 5,988 | | |
| 632 | | |
| 3,259 | | |
| 6,620 | | |
| 9,879 | | |
| (931 | ) | |
| 2010 | | |
| 7/26/2018 | | |
| 37 | |
| Jacksonville MedPlex (Building C) | |
Jacksonville, FL | |
| — | | |
| 2,168 | | |
| 6,467 | | |
| 296 | | |
| 2,168 | | |
| 6,763 | | |
| 8,931 | | |
| (789 | ) | |
| 2010 | | |
| 7/26/2018 | | |
| 40 | |
| Northside Medical Midtown | |
Atlanta, GA | |
| — | | |
| — | | |
| 55,483 | | |
| 8,678 | | |
| — | | |
| 64,161 | | |
| 64,161 | | |
| (6,065 | ) | |
| 2018 | | |
| 9/14/2018 | | |
| 50 | |
| Doctors United ASC | |
Pasadena, TX | |
| — | | |
| 1,603 | | |
| 11,827 | | |
| — | | |
| 1,603 | | |
| 11,827 | | |
| 13,430 | | |
| (980 | ) | |
| 2018 | | |
| 4/4/2019 | | |
| 54 | |
| Atlanta Medical Condominium Investments | |
Atlanta, GA | |
| — | | |
| 4,648 | | |
| 2,201 | | |
| 1,668 | | |
| 4,648 | | |
| 3,869 | | |
| 8,517 | | |
| (734 | ) | |
| 1986 | | |
| 6/28/2019 | | |
| 30 | |
| Rockwall II MOB | |
Rockwall, TX | |
| — | | |
| — | | |
| 19,904 | | |
| 1,190 | | |
| — | | |
| 21,094 | | |
| 21,094 | | |
| (1,802 | ) | |
| 2017 | | |
| 7/26/2019 | | |
| 44 | |
| Shell Ridge Plaza - Bldg 106 | |
Walnut Creek, CA | |
| — | | |
| 1,296 | | |
| 9,007 | | |
| 16 | | |
| 1,296 | | |
| 9,023 | | |
| 10,319 | | |
| (1,070 | ) | |
| 1984 | | |
| 9/27/2019 | | |
| 30 | |
| Shell Ridge Plaza - Bldg 108 | |
Walnut Creek, CA | |
| — | | |
| 1,105 | | |
| 2,600 | | |
| 19 | | |
| 1,105 | | |
| 2,619 | | |
| 3,724 | | |
| (318 | ) | |
| 1984 | | |
| 9/27/2019 | | |
| 30 | |
| Shell Ridge Plaza - Bldg 110 | |
Walnut Creek, CA | |
| — | | |
| 1,105 | | |
| 2,786 | | |
| — | | |
| 1,105 | | |
| 2,786 | | |
| 3,891 | | |
| (337 | ) | |
| 1984 | | |
| 9/27/2019 | | |
| 30 | |
| Shell Ridge Plaza - Bldg 112 | |
Walnut Creek, CA | |
| — | | |
| 3,097 | | |
| 9,639 | | |
| 8 | | |
| 3,097 | | |
| 9,647 | | |
| 12,744 | | |
| (1,363 | ) | |
| 1984 | | |
| 9/27/2019 | | |
| 25 | |
| Shell Ridge Plaza - Bldg 114 | |
Walnut Creek, CA | |
| — | | |
| 1,392 | | |
| 4,624 | | |
| — | | |
| 1,392 | | |
| 4,624 | | |
| 6,016 | | |
| (429 | ) | |
| 1984 | | |
| 9/27/2019 | | |
| 40 | |
| ProHealth MOB | |
Manchester, CT | |
| — | | |
| 1,032 | | |
| 9,418 | | |
| 2 | | |
| 1,032 | | |
| 9,420 | | |
| 10,452 | | |
| (857 | ) | |
| 2012 | | |
| 10/15/2019 | | |
| 38 | |
| Murdock Surgery Center | |
Port Charlotte, FL | |
| — | | |
| 1,643 | | |
| 9,527 | | |
| 4 | | |
| 1,643 | | |
| 9,531 | | |
| 11,174 | | |
| (883 | ) | |
| 2006 | | |
| 12/2/2019 | | |
| 35 | |
| Westerville MOB | |
Westerville, OH | |
| — | | |
| 995 | | |
| 7,713 | | |
| 2,517 | | |
| 995 | | |
| 10,230 | | |
| 11,225 | | |
| (1,214 | ) | |
| 2003 | | |
| 2/28/2020 | | |
| 35 | |
Physicians Realty
Trust
Schedule III –
Real Estate and Accumulated Depreciation
December 31,
2022
(dollars in thousands)
| | |
| |
| | |
Initial Cost to Company | | |
Cost Capitalized | | |
Gross Amount at Which Carried as of Close of Period | | |
| | |
| | |
Life on Which
Building
Depreciation in | |
| Description | |
Location | |
Encumbrances | | |
Land | | |
Buildings and
Improvements | | |
Subsequent to
Acquisitions | | |
Land | | |
Buildings and
Improvements | | |
Total (1) | | |
Accumulated
Depreciation | | |
Year
Built | | |
Date
Acquired | | |
Income Statement
is Computed | |
| TOPA Fort Worth | |
Fort Worth, TX | |
| — | | |
| — | | |
| 42,753 | | |
| 1,532 | | |
| — | | |
| 44,285 | | |
| 44,285 | | |
| (3,290 | ) | |
| 2017 | | |
| 3/16/2020 | | |
| 39 | |
| Ascension St. Vincent Cancer Center | |
Newburgh, IN | |
| — | | |
| 1,031 | | |
| 16,319 | | |
| — | | |
| 1,031 | | |
| 16,319 | | |
| 17,350 | | |
| (1,119 | ) | |
| 2008 | | |
| 9/11/2020 | | |
| 36 | |
| Health Center at Easton | |
Easton, PA | |
| — | | |
| 952 | | |
| 13,375 | | |
| 80 | | |
| 952 | | |
| 13,455 | | |
| 14,407 | | |
| (837 | ) | |
| 2017 | | |
| 11/23/2020 | | |
| 38 | |
| Hartford HealthCare Cancer Center | |
Manchester, CT | |
| — | | |
| 1,603 | | |
| 14,487 | | |
| — | | |
| 1,603 | | |
| 14,487 | | |
| 16,090 | | |
| (827 | ) | |
| 2017 | | |
| 12/8/2020 | | |
| 39 | |
| Sacred Heart Summit Medical Office and ASC | |
Pensacola, FL | |
| — | | |
| 2,119 | | |
| 27,334 | | |
| 27 | | |
| 2,119 | | |
| 27,361 | | |
| 29,480 | | |
| (1,506 | ) | |
| 2020 | | |
| 12/18/2020 | | |
| 40 | |
| Westerville II MOB | |
Westerville, OH | |
| — | | |
| 606 | | |
| 4,133 | | |
| 630 | | |
| 606 | | |
| 4,763 | | |
| 5,369 | | |
| (337 | ) | |
| 2003 | | |
| 12/23/2020 | | |
| 31 | |
| AdventHealth Wesley Chapel MOB II | |
Wesley Chapel, FL | |
| — | | |
| — | | |
| 32,958 | | |
| 5,670 | | |
| — | | |
| 38,628 | | |
| 38,628 | | |
| (1,566 | ) | |
| 2021 | | |
| 4/21/2021 | | |
| 40 | |
| TOPA Denton | |
Denton, TX | |
| — | | |
| 2,256 | | |
| 11,211 | | |
| — | | |
| 2,256 | | |
| 11,211 | | |
| 13,467 | | |
| (501 | ) | |
| 2019 | | |
| 6/11/2021 | | |
| 38 | |
| Allegheny West Mifflin Medical Building | |
West Mifflin, PA | |
| — | | |
| 967 | | |
| 5,930 | | |
| — | | |
| 967 | | |
| 5,930 | | |
| 6,897 | | |
| (337 | ) | |
| 1992 | | |
| 8/30/2021 | | |
| 27 | |
| Forsgate Cancer Center | |
Monroe Township, NJ | |
| — | | |
| 1,986 | | |
| 8,170 | | |
| — | | |
| 1,986 | | |
| 8,170 | | |
| 10,156 | | |
| (436 | ) | |
| 1992 | | |
| 8/30/2021 | | |
| 28 | |
| Mill Run Medical Center I | |
Hilliard, OH | |
| — | | |
| 812 | | |
| 4,597 | | |
| 82 | | |
| 812 | | |
| 4,679 | | |
| 5,491 | | |
| (231 | ) | |
| 1998 | | |
| 8/30/2021 | | |
| 31 | |
| Mill Run Medical Center II | |
Hilliard, OH | |
| — | | |
| 2,802 | | |
| 15,288 | | |
| — | | |
| 2,802 | | |
| 15,288 | | |
| 18,090 | | |
| (757 | ) | |
| 1998 | | |
| 8/30/2021 | | |
| 31 | |
| New Britain Medical Building | |
Plainville, CT | |
| — | | |
| 1,209 | | |
| 6,798 | | |
| 47 | | |
| 1,209 | | |
| 6,845 | | |
| 8,054 | | |
| (350 | ) | |
| 1998 | | |
| 8/30/2021 | | |
| 29 | |
| HonorHealth - Sonoran MOB | |
Phoenix, AZ | |
| — | | |
| — | | |
| 26,347 | | |
| 2 | | |
| — | | |
| 26,349 | | |
| 26,349 | | |
| (919 | ) | |
| 2020 | | |
| 9/23/2021 | | |
| 40 | |
| Eden Hill Medical Center | |
Dover, DE | |
| 36,050 | | |
| — | | |
| 48,686 | | |
| 546 | | |
| — | | |
| 49,232 | | |
| 49,232 | | |
| (2,576 | ) | |
| 2008 | | |
| 10/15/2021 | | |
| 25 | |
| HonorHealth - Neuroscience Institute | |
Scottsdale, AZ | |
| — | | |
| — | | |
| 53,452 | | |
| 8 | | |
| — | | |
| 53,460 | | |
| 53,460 | | |
| (1,752 | ) | |
| 2021 | | |
| 10/27/2021 | | |
| 40 | |
| University of Florida Health North MOB | |
Jacksonville, FL | |
| 60,000 | | |
| — | | |
| 148,419 | | |
| 233 | | |
| — | | |
| 148,652 | | |
| 148,652 | | |
| (4,398 | ) | |
| 2015 | | |
| 12/20/2021 | | |
| 38 | |
| TGH Brandon Healthplex | |
Tampa, FL | |
| — | | |
| — | | |
| 66,864 | | |
| 469 | | |
| — | | |
| 67,333 | | |
| 67,333 | | |
| (1,965 | ) | |
| 2017 | | |
| 12/20/2021 | | |
| 38 | |
| Yulee MOB | |
Yulee, FL | |
| — | | |
| — | | |
| 17,286 | | |
| 28 | | |
| — | | |
| 17,314 | | |
| 17,314 | | |
| (499 | ) | |
| 2020 | | |
| 12/20/2021 | | |
| 39 | |
| James Devin Moncus Medical Building | |
Lafayette, LA | |
| — | | |
| — | | |
| 28,739 | | |
| 44 | | |
| — | | |
| 28,783 | | |
| 28,783 | | |
| (942 | ) | |
| 2010 | | |
| 12/20/2021 | | |
| 36 | |
| Bay City MOB | |
Bay City, MI | |
| — | | |
| — | | |
| 31,649 | | |
| 467 | | |
| — | | |
| 32,116 | | |
| 32,116 | | |
| (994 | ) | |
| 2016 | | |
| 12/20/2021 | | |
| 36 | |
| Beaumont Grosse Pointe MOB | |
Grosse Pointe, MI | |
| — | | |
| — | | |
| 21,883 | | |
| 316 | | |
| — | | |
| 22,199 | | |
| 22,199 | | |
| (685 | ) | |
| 2016 | | |
| 12/20/2021 | | |
| 38 | |
| Burns POB | |
Petoskey, MI | |
| — | | |
| — | | |
| 44,152 | | |
| 1,106 | | |
| — | | |
| 45,258 | | |
| 45,258 | | |
| (1,555 | ) | |
| 1993 | | |
| 12/20/2021 | | |
| 32 | |
| Beaumont Health & Wellness Center | |
Rochester Hills, MI | |
| — | | |
| — | | |
| 40,849 | | |
| 457 | | |
| — | | |
| 41,306 | | |
| 41,306 | | |
| (1,312 | ) | |
| 2011 | | |
| 12/20/2021 | | |
| 36 | |
| Beaumont POB | |
Sterling Heights, MI | |
| — | | |
| — | | |
| 39,501 | | |
| 540 | | |
| — | | |
| 40,041 | | |
| 40,041 | | |
| (1,373 | ) | |
| 2009 | | |
| 12/20/2021 | | |
| 36 | |
| Hospital Hill MOB I | |
Kansas City, MO | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| — | | |
| 2015 | | |
| 12/20/2021 | | |
| 0 | |
| Jackson Baptist Medical Center - Belhaven | |
Jackson, MS | |
| 20,000 | | |
| — | | |
| 56,424 | | |
| 271 | | |
| — | | |
| 56,695 | | |
| 56,695 | | |
| (1,817 | ) | |
| 2013 | | |
| 12/20/2021 | | |
| 37 | |
| Old Bridge Medical Office Building | |
Old Bridge, NJ | |
| 20,000 | | |
| — | | |
| 65,290 | | |
| 101 | | |
| — | | |
| 65,391 | | |
| 65,391 | | |
| (2,044 | ) | |
| 2014 | | |
| 12/20/2021 | | |
| 36 | |
| Saint Vincent MOB | |
Erie, PA | |
| — | | |
| — | | |
| 39,833 | | |
| 58 | | |
| — | | |
| 39,891 | | |
| 39,891 | | |
| (1,210 | ) | |
| 2007 | | |
| 12/20/2021 | | |
| 36 | |
| Riverside MOB | |
Hampton, VA | |
| — | | |
| 4,808 | | |
| 24,502 | | |
| 43 | | |
| 4,808 | | |
| 24,545 | | |
| 29,353 | | |
| (1,030 | ) | |
| 2007 | | |
| 12/20/2021 | | |
| 29 | |
| New Albany Medical Center II | |
New Albany, OH | |
| — | | |
| 1,400 | | |
| 23,098 | | |
| 232 | | |
| 1,400 | | |
| 23,330 | | |
| 24,730 | | |
| (543 | ) | |
| 2010 | | |
| 4/26/2022 | | |
| 36 | |
| Calko Medical Center | |
Brooklyn, NY | |
| — | | |
| 7,685 | | |
| 67,568 | | |
| 49 | | |
| 7,685 | | |
| 67,617 | | |
| 75,302 | | |
| (525 | ) | |
| 2013 | | |
| 9/9/2022 | | |
| 43 | |
| | |
| |
$ | 164,929 | | |
$ | 241,489 | | |
$ | 4,538,396 | | |
$ | 228,521 | | |
$ | 241,559 | | |
$ | 4,766,917 | | |
$ | 5,008,476 | | |
$ | (725,149 | ) | |
| | | |
| | | |
| | |
(1) Excludes
acquired lease intangibles.
Physicians Realty
Trust
Schedule III –
Real Estate and Accumulated Depreciation
December 31, 2022
The aggregate
cost for federal income tax purposes of the real estate as of December 31, 2022 is $5.2 billion, with accumulated tax depreciation
of $0.8 billion. The cost, net of accumulated depreciation, is approximately $4.4 billion (unaudited).
The cost
capitalized subsequent to acquisition is net of dispositions.
The changes
in total real estate for the years ended December 31, 2022, 2021, and 2020 are as follows (in thousands):
| | |
Year Ended December 31, | |
| | |
2022 | | |
2021 | | |
2020 | |
| Balance as of the beginning of the year | |
$ | 4,934,032 | | |
$ | 4,129,562 | | |
$ | 3,979,481 | |
| Acquisitions | |
| 107,693 | | |
| 856,088 | | |
| 137,434 | |
| Additions | |
| 41,951 | | |
| 31,731 | | |
| 33,701 | |
| Impairment | |
| — | | |
| (340 | ) | |
| (4,860 | ) |
| Real estate held for sale | |
| — | | |
| (2,282 | ) | |
| — | |
| Dispositions | |
| (75,200 | ) | |
| (80,727 | ) | |
| (16,194 | ) |
| Balance as of the end of the year | |
$ | 5,008,476 | | |
$ | 4,934,032 | | |
$ | 4,129,562 | |
The changes
in accumulated depreciation for the years ended December 31, 2022, 2021, and 2020 are as follows (in thousands):
| | |
Year Ended December 31, | |
| | |
2022 | | |
2021 | | |
2020 | |
| Balance as of the
beginning of the year | |
$ | 594,714 | | |
$ | 492,660 | | |
$ | 382,833 | |
| Depreciation | |
| 142,225 | | |
| 119,901 | | |
| 113,146 | |
| Real estate held for sale | |
| — | | |
| 318 | | |
| — | |
| Dispositions | |
| (11,790 | ) | |
| (18,165 | ) | |
| (3,319 | ) |
| Balance as of the end of the
year | |
$ | 725,149 | | |
$ | 594,714 | | |
$ | 492,660 | |
Physicians Realty
Trust
Schedule IV –
Mortgage Loans on Real Estate
December 31, 2022
| |
|
|
|
|
|
|
|
|
|
(in thousands) |
|
| Description |
|
Interest
Rate |
|
Fixed /
Variable |
Final
Maturity
Date |
|
|
Periodic
Payment
Terms |
|
Prior
Liens |
|
Face
Amount of
Mortgages |
|
Carrying
Amount of
Mortgages |
|
Principal
Amount of
Loans Subject
to Delinquent
Principal or
Interest |
|
| First mortgages relating to 1 property located in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| El Paso, TX |
|
|
14.0 |
% |
Fixed |
|
2023 |
|
|
(1) |
|
$ |
— |
|
$ |
27,600 |
|
$ |
28,482 |
|
$ |
— |
|
| Davie, FL |
|
|
5.0 |
% |
Fixed |
|
2023 |
|
|
(1) |
|
|
— |
|
|
8,657 |
|
|
8,656 |
|
|
— |
|
| Nashville, TN |
|
|
9.1 |
% |
Fixed |
|
2023 |
|
|
(2) |
|
|
— |
|
|
10,000 |
|
|
10,392 |
|
|
— |
|
| Roswell, GA |
|
|
8.0 |
% |
Fixed |
|
2025 |
|
|
(3) |
|
|
— |
|
|
4,075 |
|
|
4,084 |
|
|
— |
|
| Charlotte, NC |
|
|
— |
% |
Fixed |
|
— |
(4 |
) |
(5) |
|
|
— |
|
|
12,093 |
|
|
13,564 |
|
|
— |
|
| Construction loan relating to 1 property located in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fort Worth, TX |
|
|
6.0 |
% |
Fixed |
|
2023 |
|
|
(1) |
|
|
— |
|
|
9,452 |
|
|
9,451 |
|
|
— |
|
| |
|
|
|
|
|
|
|
|
|
|
|
$ |
— |
|
$ |
71,877 |
|
$ |
74,629 |
|
$ |
— |
|
| (1) | Interest
is due monthly and outstanding principal and accrued interest is due at maturity. |
| (2) | Interest
is due semi-annually and outstanding principal and accrued interest is due at maturity. |
| (3) | A
portion of interest is due monthly with remaining interest added to the outstanding principal balance. |
| (4) | Principal
balance and accrued interest is due on the sale of the mortgaged land, which, as of December 31, 2022, is under contract to be sold. |
| (5) | Monthly
interest of 4.75% was added to the outstanding principal. As of October 2022, interest ceased to accrue, and the buyer under
contract for sale of the mortgaged land is making monthly payments that are being applied to the outstanding balance and accrued interest. |
| | |
Year Ended December 31, | |
| (in thousands) | |
2022 | | |
2021 | | |
2020 | |
| Reconciliation of mortgage loans: | |
| | |
| | |
| |
| Balance at beginning of year | |
$ | 49,409 | | |
$ | 66,586 | | |
$ | 107,676 | |
| Additions: | |
| | | |
| | | |
| | |
| New mortgage loans | |
| 22,732 | | |
| 7,323 | | |
| 10,000 | |
| Draws on existing mortgage loans | |
| 2,129 | | |
| — | | |
| 25,623 | |
| Interest added | |
| 376 | | |
| 980 | | |
| 802 | |
| Total additions | |
| 25,237 | | |
| 8,303 | | |
| 36,425 | |
| | |
| | | |
| | | |
| | |
| Deductions: | |
| | | |
| | | |
| | |
| Collection of principal | |
| — | | |
| (10,000 | ) | |
| — | |
| Conversion of loan receivable in connection to the acquisition of investment property | |
| — | | |
| (15,500 | ) | |
| (77,464 | ) |
| Change in reserve for loan losses | |
| (17 | ) | |
| 20 | | |
| (51 | ) |
| Total deductions | |
| (17 | ) | |
| (25,480 | ) | |
| (77,515 | ) |
| Balance at end of year | |
$ | 74,629 | | |
$ | 49,409 | | |
$ | 66,586 | |
Exhibit 99.4
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS
The following unaudited pro forma condensed
combined financial statements and notes thereto present the unaudited pro forma condensed combined balance sheet as of September 30,
2023 and the unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2023
and the year ended December 31, 2022. The unaudited pro forma condensed combined financial statements were prepared in accordance
with Article 11 of Regulation S-X, as amended, in order to give effect to the Pro Forma Transactions (as defined and described
below) and the assumptions and adjustments described in the accompanying notes.
On October 29, 2023, Healthpeak
Properties, Inc. (“Healthpeak”) and Physicians Realty Trust entered into an Agreement and Plan of Merger, dated as of
October 29, 2023 (as amended from time to time, “Merger Agreement”) with DOC DR Holdco, LLC (“DOC DR
Holdco”), a wholly owned subsidiary of Healthpeak formerly known as Alpine Sub, LLC, DOC DR, LLC (“DOC DR OP
Sub”), a wholly owned subsidiary of Healthpeak OP, LLC (“Healthpeak OP”) formerly known as Alpine OP Sub, LLC,
and Physicians Realty L.P. The combination of Healthpeak and Physicians Realty Trust will be accomplished through (i) the
merger of Physicians Realty Trust with and into DOC DR Holdco (the “Company Merger”), with DOC DR Holdco surviving as a
wholly owned subsidiary of Healthpeak (the “Company Surviving Entity”), (ii) immediately following the date and
time the Company Merger becomes effective (the “Company Merger Effective Time”), the contribution by Healthpeak to
Healthpeak OP of all of the outstanding equity interests in the Company Surviving Entity (the “Contribution”), and
(iii) immediately following the Contribution, the merger of Physicians Realty L.P. with and into DOC DR OP Sub (the
“Partnership Merger” and together with the Company Merger, the “Mergers”), with DOC DR OP Sub surviving as a
subsidiary of Healthpeak OP (the “Partnership Surviving Entity”). Pursuant to the terms and subject to the conditions of
the Merger Agreement, at the Company Merger Effective Time, each Physicians Realty Trust common share (other than Physicians Realty
Trust common shares to be canceled in accordance with the Merger Agreement) will automatically be converted into the right to
receive 0.674 (the “Exchange Ratio”) of a newly issued share of Healthpeak common stock par value $1.00 per share
(“Healthpeak common stock”), without interest, but subject to any withholding required under applicable tax laws.
Pursuant to the terms and conditions of the
Merger Agreement, as of the Company Merger Effective Time, each outstanding Physicians Realty Trust equity-based award will be
treated as follows: (i) each unvested restricted Physicians Realty Trust common share granted by Physicians Realty Trust
pursuant to Physicians Realty Trust’s Amended and Restated 2013 Equity Incentive Plan as such plan has been amended and/or
restated (such plan the “Physicians Realty Trust Equity Incentive Plan” and each unvested restricted Physicians Realty
Trust common share, a “Physicians Realty Trust Restricted Share”) that is outstanding as of immediately prior to the
Company Merger Effective Time will become fully vested and all restrictions thereon will lapse and be canceled and be converted into
the right to receive with respect to each such share (a) a number of validly issued, fully paid and non-assessable shares of
Healthpeak common stock equal to the Exchange Ratio (the “Company Merger Consideration”), plus (b) the right to receive cash in lieu of fractional shares of Healthpeak common stock into which Physicians Realty Trust common shares would otherwise
have been converted (the “Fractional Share Consideration”), plus (c) an amount in cash equal to the unpaid dividends accrued with respect to such Physicians Realty
Trust Restricted Share during the period commencing on the grant date and ending on the date on which the closing of the Mergers
(the “Closing”) occurs (the “Closing Date”); (ii) each award of performance-based restricted stock units
with respect to Physicians Realty Trust common shares granted by Physicians Realty Trust pursuant to the Physicians Realty Trust
Equity Incentive Plan (the “Physicians Realty Trust PSUs”) that is outstanding as of immediately prior to the Company Merger
Effective Time will vest with respect to the number of shares subject to such award that would vest based on the maximum level of
achievement of the applicable performance goals over the three-year performance period as provided in the individual employment or
award agreements and be canceled and converted into the right to receive with respect to each such share (a) the Company Merger
Consideration, plus (b) the Fractional Share Consideration, plus (c) an amount in cash equal to the unpaid dividend
equivalents accrued with respect to such Physicians Realty Trust PSUs during the period commencing on the grant date and ending on
the Closing Date; and (iii) each award of restricted stock units with respect to Physicians Realty Trust common shares granted by Physicians Realty Trust pursuant to the Physicians
Realty Trust’s Amended and Restated 2013 Equity Incentive Plan as such plan has been amended and/or restated (“Physicians Realty
Trust RSUs”) that is outstanding as of immediately prior to the
Company Merger Effective Time will become fully vested and all restrictions thereon will lapse and be canceled and converted into
the right to receive with respect to each such Physicians Realty Trust common share subject to such award of Physicians Realty Trust
RSUs (a) the Company Merger Consideration, plus (b) the Fractional Share Consideration, plus (c) an amount in cash
equal to the unpaid dividend equivalents accrued with respect to such Physicians Realty Trust RSUs during the period commencing on
the grant date and ending on the Closing Date.
In addition, pursuant to the terms and
subject to the conditions of the Merger Agreement, at the date and time Partnership Merger becomes effective (the “Partnership
Merger Effective Time”), each common limited partnership interest of Physicians Realty L.P. (“Physicians Realty L.P. OP Unit”)
issued and outstanding immediately prior to the Partnership Merger Effective Time will automatically be converted into and become a
number of units in the Partnership Surviving Entity equal to the Exchange Ratio. Following the Partnership Merger Effective
Time, third-party investors in Physicians Realty L.P. receiving non-managing member units will be entitled to redeem
such units for an amount of cash per unit approximating the then-current market value of one share of Healthpeak common stock
or, at Healthpeak OP’s option, one share of Healthpeak common stock (subject to certain adjustments, such as stock splits and
reclassifications), subject to the terms of the limited liability company agreement governing the Partnership Surviving Entity.
Prior to Closing, Physicians Realty
Trust’s senior unsecured private placement notes totaling $210 million are expected to be repaid by Physicians Realty
Trust. Contemporaneously with the Closing, all outstanding balances on Physicians Realty Trust’s unsecured revolving credit
facility are expected to be repaid by Healthpeak.
Healthpeak is currently negotiating terms of a new
five-year, $500 million term loan expected to bear an interest rate of secured overnight financing rate (“SOFR”) plus
85 basis points (“New Term Loan”). The New Term Loan is expected to close contemporaneously with the Closing. Healthpeak management
intends to use the net proceeds from the New Term Loan to pay for Mergers-related cash expenditures and utilize remaining net proceeds
to repay a portion of Healthpeak’s outstanding commercial paper borrowings (“Commercial Paper Repayment”). The New Term
Loan and the Commercial Paper Repayment are collectively referred to as the “Financing Transactions.”
The following unaudited pro forma condensed
combined financial statements have been prepared by applying the acquisition method of accounting with Healthpeak treated as the accounting
acquirer. The unaudited pro forma condensed combined financial statements are based on the historical consolidated financial statements
of Healthpeak, exclusive of discontinued operations, and historical consolidated financial statements of Physicians Realty Trust, in each
case, as adjusted to give effect to the following (collectively referred to as the “Pro Forma Transactions”):
| • | The repayment of Physicians Realty Trust’s senior unsecured
private placement notes and the repayment and termination of Physicians Realty Trust’s unsecured revolving credit facility; |
| • | The accelerated vesting of certain pre-existing Physicians Realty Trust Restricted Shares, Physicians Realty Trust RSUs or Physicians Realty Trust PSUs, as applicable (“Physicians Realty
Trust Equity Awards”) in connection with the Mergers; |
| • | The Financing Transactions; and |
| • | Transaction costs relating to the Mergers. |
The unaudited pro forma condensed combined
balance sheet as of September 30, 2023 gives effect to the Pro Forma Transactions as if they occurred on September 30, 2023.
The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2023 and the
year ended December 31, 2022, give effect to the Pro Forma Transactions as if they occurred on January 1, 2022.
The unaudited pro forma condensed combined
financial statements are prepared for informational purposes only and are based on assumptions and estimates considered appropriate by
Healthpeak’s management. The unaudited pro forma adjustments represent Healthpeak’s management’s estimates based
on information available as of the date of the unaudited pro forma condensed combined financial statements and are preliminary and
subject to change as additional information becomes available and additional analyses are performed. However, Healthpeak’s management
believes that the assumptions provide a reasonable basis for presenting the significant effects that are directly attributable to the
Pro Forma Transactions, and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied
in the unaudited pro forma condensed combined financial statements.
The unaudited pro forma condensed combined financial statements
do not purport to be indicative of what Healthpeak’s financial condition or results of operations actually would have been if the
Pro Forma Transactions had been consummated as of the dates indicated, nor do they purport to represent Healthpeak’s financial position
or results of operations for future periods. Differences could result from numerous factors, including future changes in Healthpeak’s
and Physicians Realty Trust’s capital structure, portfolio of investments, property level operating expenses and revenues, including
rents expected to be received under existing leases or leases entered into in the future, changes in interest rates, potential synergies
that may be achieved following the Mergers, including potential overall savings in general and administrative expense, or any strategies
that Healthpeak’s management may consider in order to continue to efficiently manage Healthpeak’s operations and for other
reasons. Future results may vary significantly from those reflected in the unaudited pro forma condensed combined financial statements
due to factors discussed in the “Risk Factors” included elsewhere within this joint proxy statement/prospectus.
HEALTHPEAK PROPERTIES, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 2023
(in thousands)
| | |
Healthpeak | | |
Physicians | | |
| | |
| | |
| | |
| | |
| |
| | |
Properties, Inc. | | |
Realty
Trust | | |
Financing | | |
| | |
Mergers | | |
| | |
| |
| | |
Historical
As | | |
Historical
As | | |
Transactions | | |
| | |
Transaction | | |
| | |
| |
| | |
Reclassified | | |
Reclassified | | |
Adjustments | | |
Item
in | | |
Adjustments | | |
Item
in | | |
Pro
Forma | |
| | |
(Note
3) | | |
(Note
3) | | |
(Note
4) | | |
Note
4 | | |
(Note
5) | | |
Note
5 | | |
Combined | |
| ASSETS | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Real estate: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Buildings
and improvements | |
$ | 13,097,282 | | |
$ | 4,676,976 | | |
$ | — | | |
| | | |
$ | (1,031,054 | ) | |
| 1 | | |
$ | 16,743,204 | |
| Development
costs and construction in progress | |
| 863,341 | | |
| 41,722 | | |
| — | | |
| | | |
| — | | |
| | | |
| 905,063 | |
| Land
and improvements | |
| 2,657,602 | | |
| 371,545 | | |
| — | | |
| | | |
| 117,684 | | |
| 1 | | |
| 3,146,831 | |
| Accumulated
depreciation and amortization | |
| (3,498,077 | ) | |
| (833,282 | ) | |
| — | | |
| | | |
| 833,282 | | |
| 2 | | |
| (3,498,077 | ) |
| Net
real estate | |
| 13,120,148 | | |
| 4,256,961 | | |
| — | | |
| | | |
| (80,088 | ) | |
| | | |
| 17,297,021 | |
| Loans receivable,
net | |
| 225,881 | | |
| 79,883 | | |
| — | | |
| | | |
| (2,585 | ) | |
| 3 | | |
| 303,179 | |
| Investments
in and advances to unconsolidated joint ventures | |
| 745,381 | | |
| 64,046 | | |
| — | | |
| | | |
| (2,556 | ) | |
| 4 | | |
| 806,871 | |
| Accounts receivable, net | |
| 59,085 | | |
| 11,131 | | |
| — | | |
| | | |
| — | | |
| | | |
| 70,216 | |
| Cash and cash equivalents | |
| 63,478 | | |
| 195,772 | | |
| 297,000 | | |
| 1,2 | | |
| (361,107 | ) | |
| 5 | | |
| 195,143 | |
| Restricted cash | |
| 50,449 | | |
| 1,574 | | |
| — | | |
| | | |
| — | | |
| | | |
| 52,023 | |
| Intangible assets, net | |
| 339,191 | | |
| 202,542 | | |
| — | | |
| | | |
| 290,353 | | |
| 6 | | |
| 832,086 | |
| Goodwill | |
| 18,027 | | |
| — | | |
| — | | |
| | | |
| 10,449 | | |
| 7 | | |
| 28,476 | |
| Assets held for sale, net | |
| 8,277 | | |
| — | | |
| — | | |
| | | |
| — | | |
| | | |
| 8,277 | |
| Right-of-use asset, net | |
| 233,480 | | |
| 227,967 | | |
| — | | |
| | | |
| 8,184 | | |
| 8 | | |
| 469,631 | |
| Other assets,
net | |
| 739,137 | | |
| 172,591 | | |
| — | | |
| | | |
| (126,611 | ) | |
| 9 | | |
| 785,117 | |
| Total
assets | |
$ | 15,602,534 | | |
$ | 5,212,467 | | |
$ | 297,000 | | |
| | | |
$ | (263,961 | ) | |
| | | |
$ | 20,848,040 | |
| LIABILITIES AND EQUITY | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Bank
line of credit and commercial paper | |
$ | 424,000 | | |
$ | — | | |
$ | (200,000 | ) | |
| 2 | | |
$ | — | | |
| | | |
$ | 224,000 | |
| Term loans | |
| 496,603 | | |
| 393,090 | | |
| 497,000 | | |
| 1 | | |
| 6,910 | | |
| 10 | | |
| 1,393,603 | |
| Senior unsecured notes | |
| 5,401,461 | | |
| 1,451,536 | | |
| — | | |
| | | |
| (382,898 | ) | |
| 10 | | |
| 6,470,099 | |
| Mortgage debt | |
| 342,349 | | |
| 127,630 | | |
| — | | |
| | | |
| (2 | ) | |
| 10 | | |
| 469,977 | |
| Intangible liabilities, net | |
| 133,668 | | |
| 23,170 | | |
| — | | |
| | | |
| 61,943 | | |
| 11 | | |
| 218,781 | |
| Liabilities
related to assets held for sale, net | |
| 39 | | |
| — | | |
| — | | |
| | | |
| — | | |
| | | |
| 39 | |
| Lease liability | |
| 204,762 | | |
| 104,802 | | |
| — | | |
| | | |
| — | | |
| | | |
| 309,564 | |
| Accounts
payable, accrued liabilities, and other liabilities | |
| 687,650 | | |
| 131,065 | | |
| — | | |
| | | |
| (60,928 | ) | |
| 12 | | |
| 757,787 | |
| Deferred
revenue | |
| 879,174 | | |
| 30,433 | | |
| — | | |
| | | |
| — | | |
| | | |
| 909,607 | |
| Total
liabilities | |
| 8,569,706 | | |
| 2,261,726 | | |
| 297,000 | | |
| | | |
| (374,975 | ) | |
| | | |
| 10,753,457 | |
| Redeemable
noncontrolling interests | |
| 49,016 | | |
| 3,066 | | |
| — | | |
| | | |
| — | | |
| | | |
| 52,082 | |
| Common stock | |
| 547,072 | | |
| 2,385 | | |
| — | | |
| | | |
| 160,709 | | |
| 13 | | |
| 710,166 | |
| Additional paid-in capital | |
| 10,401,994 | | |
| 3,817,545 | | |
| — | | |
| | | |
| (979,709 | ) | |
| 13 | | |
| 13,239,830 | |
| Cumulative
dividends in excess of earnings | |
| (4,528,508 | ) | |
| (1,012,869 | ) | |
| — | | |
| | | |
| 934,524 | | |
| 13 | | |
| (4,606,853 | ) |
| Accumulated
other comprehensive income (loss) | |
| 36,747 | | |
| 15,216 | | |
| — | | |
| | | |
| (15,216 | ) | |
| 13 | | |
| 36,747 | |
| Total
stockholders’ equity | |
| 6,457,305 | | |
| 2,822,277 | | |
| — | | |
| | | |
| 100,308 | | |
| | | |
| 9,379,890 | |
| Joint venture partners | |
| 313,402 | | |
| 9,319 | | |
| — | | |
| | | |
| (2,108 | ) | |
| 14 | | |
| 320,613 | |
| Non-managing
member unitholders | |
| 213,105 | | |
| 116,079 | | |
| — | | |
| | | |
| 12,814 | | |
| 14 | | |
| 341,998 | |
| Total
noncontrolling interests | |
| 526,507 | | |
| 125,398 | | |
| — | | |
| | | |
| 10,706 | | |
| | | |
| 662,611 | |
| Total
equity | |
| 6,983,812 | | |
| 2,947,675 | | |
| — | | |
| | | |
| 111,014 | | |
| | | |
| 10,042,501 | |
| Total
liabilities and equity | |
$ | 15,602,534 | | |
$ | 5,212,467 | | |
$ | 297,000 | | |
| | | |
$ | (263,961 | ) | |
| | | |
$ | 20,848,040 | |
HEALTHPEAK PROPERTIES, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER
30, 2023
(in thousands, except per share data)
| | |
| | |
Physicians | | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
Realty Trust | | |
Financing | | |
| | |
Mergers | | |
| | |
| |
| | |
Healthpeak | | |
Historical
As | | |
Transactions | | |
| | |
Transaction | | |
| | |
| |
| | |
Properties, Inc. | | |
Reclassified | | |
Adjustments | | |
Item in | | |
Adjustments | | |
Item in | | |
Pro Forma | |
| | |
Historical | | |
(Note
3) | | |
(Note
4) | | |
Note
4 | | |
(Note
5) | | |
Note
5 | | |
Combined | |
| Revenue | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Rental
and related revenues | |
$ | 1,219,473 | | |
$ | 397,096 | | |
$ | — | | |
| | | |
$ | 17,455 | | |
| 15 | | |
$ | 1,634,024 | |
| Resident fees
and services | |
| 391,076 | | |
| — | | |
| — | | |
| | | |
| — | | |
| | | |
| 391,076 | |
| Interest
income | |
| 16,802 | | |
| 11,170 | | |
| — | | |
| | | |
| 784 | | |
| 16 | | |
| 28,756 | |
| Total
revenues | |
| 1,627,351 | | |
| 408,266 | | |
| — | | |
| | | |
| 18,239 | | |
| | | |
| 2,053,856 | |
| Costs and expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest expense | |
| 147,547 | | |
| 59,837 | | |
| 15,524 | | |
| 1,2 | | |
| 3,170 | | |
| 17 | | |
| 226,078 | |
| Depreciation
and amortization | |
| 561,357 | | |
| 143,237 | | |
| — | | |
| | | |
| 63,481 | | |
| 18 | | |
| 768,075 | |
| Operating | |
| 677,659 | | |
| 138,094 | | |
| — | | |
| | | |
| (203 | ) | |
| 19 | | |
| 815,550 | |
| General and
administrative | |
| 73,576 | | |
| 30,951 | | |
| — | | |
| | | |
| — | | |
| | | |
| 104,527 | |
| Transaction
costs | |
| 3,098 | | |
| 500 | | |
| — | | |
| | | |
| — | | |
| | | |
| 3,598 | |
| Impairments
and loan loss reserves (recoveries), net | |
| (156 | ) | |
| 275 | | |
| — | | |
| | | |
| — | | |
| | | |
| 119 | |
| Total
costs and expenses | |
| 1,463,081 | | |
| 372,894 | | |
| 15,524 | | |
| | | |
| 66,448 | | |
| | | |
| 1,917,947 | |
| Other income (expense): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Gain
(loss) on sales of real estate, net | |
| 86,463 | | |
| 13 | | |
| — | | |
| | | |
| — | | |
| | | |
| 86,476 | |
| Other
income (expense), net | |
| 4,208 | | |
| — | | |
| — | | |
| | | |
| — | | |
| | | |
| 4,208 | |
| Total
other income (expense), net | |
| 90,671 | | |
| 13 | | |
| — | | |
| | | |
| — | | |
| | | |
| 90,684 | |
| Income
(loss) before income taxes and equity income (loss) from unconsolidated joint ventures | |
| 254,941 | | |
| 35,385 | | |
| (15,524 | ) | |
| | | |
| (48,209 | ) | |
| | | |
| 226,593 | |
| Income tax benefit (expense) | |
| (2,225 | ) | |
| — | | |
| — | | |
| | | |
| — | | |
| | | |
| (2,225 | ) |
| Equity
income (loss) from unconsolidated joint ventures | |
| 6,646 | | |
| 1,260 | | |
| — | | |
| | | |
| (3,246 | ) | |
| 21 | | |
| 4,660 | |
| Income
(loss) from continuing operations | |
| 259,362 | | |
| 36,645 | | |
| (15,524 | ) | |
| | | |
| (51,455 | ) | |
| | | |
| 229,028 | |
| Noncontrolling
interests’ share in continuing operations | |
| (24,297 | ) | |
| (1,564 | ) | |
| — | | |
| | | |
| (4,695 | ) | |
| 22 | | |
| (30,556 | ) |
| Net
income (loss) attributable to Healthpeak Properties, Inc. from continuing operations | |
| 235,065 | | |
| 35,081 | | |
| (15,524 | ) | |
| | | |
| (56,150 | ) | |
| | | |
| 198,472 | |
| Participating
securities’ share in earnings | |
| (1,568 | ) | |
| — | | |
| — | | |
| | | |
| — | | |
| | | |
| (1,568 | ) |
| Net
income (loss) from continuing operations applicable to common shares | |
$ | 233,497 | | |
$ | 35,081 | | |
$ | (15,524 | ) | |
| | | |
$ | (56,150 | ) | |
| | | |
$ | 196,904 | |
| Basic
earnings (loss) per common share: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (Note
6) | |
| Net
income (loss) from continuing operations applicable to common shares | |
$ | 0.43 | | |
$ | 0.15 | | |
| | | |
| | | |
| | | |
| | | |
$ | 0.28 | |
| Diluted
earnings (loss) per common share: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (Note
6) | |
| Net
income (loss) from continuing operations applicable to common shares | |
$ | 0.43 | | |
$ | 0.15 | | |
| | | |
| | | |
| | | |
| | | |
$ | 0.28 | |
| Weighted
average shares outstanding: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (Note
6) | |
| Basic | |
| 546,978 | | |
| 238,125 | | |
| | | |
| | | |
| | | |
| | | |
| 710,072 | |
| Diluted | |
| 547,247 | | |
| 249,227 | | |
| | | |
| | | |
| | | |
| | | |
| 716,956 | |
HEALTHPEAK PROPERTIES, INC.
UNAUDITED PRO FORMA CONDENSED
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
2022
(in thousands, except per share data)
| | |
| | |
Physicians | | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
Realty
Trust | | |
Financing | | |
| | |
Mergers | | |
| | |
| |
| | |
Healthpeak | | |
Historical
As | | |
Transactions | | |
| | |
Transaction | | |
| | |
| |
| | |
Properties, Inc. | | |
Reclassified | | |
Adjustments | | |
Item
in | | |
Adjustments | | |
Item
in | | |
Pro
Forma | |
| |
Historical | | |
(Note
3) | | |
(Note
4) | | |
Note
4 | | |
(Note
5) | | |
Note
5 | | |
Combined | |
| Revenue | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| Rental
and related revenues | |
$ | 1,541,775 | | |
$ | 515,373 | | |
$ | — | | |
| | | |
$ | 29,976 | | |
| 15 | | |
$ | 2,087,124 | |
| Resident
fees and services | |
| 494,935 | | |
| — | | |
| — | | |
| | | |
| — | | |
| | | |
| 494,935 | |
| Interest
income | |
| 23,300 | | |
| 11,337 | | |
| — | | |
| | | |
| 1,801 | | |
| 16 | | |
| 36,438 | |
| Income
from direct financing leases | |
| 1,168 | | |
| — | | |
| — | | |
| | | |
| — | | |
| | | |
| 1,168 | |
| Total
revenues | |
| 2,061,178 | | |
| 526,710 | | |
| — | | |
| | | |
| 31,777 | | |
| | | |
| 2,619,665 | |
| Costs
and expenses: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Interest
expense | |
| 172,944 | | |
| 72,234 | | |
| 26,706 | | |
| 1,2 | | |
| 6,020 | | |
| 17 | | |
| 277,904 | |
| Depreciation
and amortization | |
| 710,569 | | |
| 189,221 | | |
| — | | |
| | | |
| 97,990 | | |
| 18 | | |
| 997,780 | |
| Operating | |
| 862,991 | | |
| 171,100 | | |
| — | | |
| | | |
| (271 | ) | |
| 19 | | |
| 1,033,820 | |
| General
and administrative | |
| 131,033 | | |
| 39,985 | | |
| — | | |
| | | |
| — | | |
| | | |
| 171,018 | |
| Transaction
costs | |
| 4,853 | | |
| 644 | | |
| — | | |
| | | |
| 78,345 | | |
| 20 | | |
| 83,842 | |
| Impairments
and loan loss reserves (recoveries), net |
|
|
7,004 |
|
|
|
75 |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
7,079 |
|
| Total
costs and expenses | |
| 1,889,394 | | |
| 473,259 | | |
| 26,706 | | |
| | | |
| 182,084 | | |
| | | |
| 2,571,443 | |
| Other
income (expense): | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Gain
(loss) on sales of real estate, net | |
| 9,078 | | |
| 57,375 | | |
| — | | |
| | | |
| — | | |
| | | |
| 66,453 | |
| Other
income (expense), net | |
| 326,268 | | |
| — | | |
| — | | |
| | | |
| — | | |
| | | |
| 326,268 | |
| Total
other income (expense), net | |
| 335,346 | | |
| 57,375 | | |
| — | | |
| | | |
| — | | |
| | | |
| 392,721 | |
| Income
(loss) before income taxes and equity income (loss) from unconsolidated joint ventures | |
| 507,130 | | |
| 110,826 | | |
| (26,706 | ) | |
| | | |
| (150,307 | ) | |
| | | |
| 440,943 | |
| Income
tax benefit (expense) | |
| 4,425 | | |
| — | | |
| — | | |
| | | |
| — | | |
| | | |
| 4,425 | |
| Equity
income (loss) from unconsolidated joint ventures | |
| 1,985 | | |
| (790 | ) | |
| — | | |
| | | |
| (4,631 | ) | |
| 21 | | |
| (3,436 | ) |
| Income
(loss) from continuing operations | |
| 513,540 | | |
| 110,036 | | |
| (26,706 | ) | |
| | | |
| (154,938 | ) | |
| | | |
| 441,932 | |
| Noncontrolling
interests’ share in continuing operations | |
| (15,975 | ) | |
| (5,670 | ) | |
| — | | |
| | | |
| (2,653 | ) | |
| 22 | | |
| (24,298 | ) |
| Net
income (loss) attributable to Healthpeak Properties, Inc. from continuing operations | |
| 497,565 | | |
| 104,366 | | |
| (26,706 | ) | |
| | | |
| (157,591 | ) | |
| | | |
| 417,634 | |
| Participating
securities’ share in earnings | |
| (2,657 | ) | |
| — | | |
| — | | |
| | | |
| — | | |
| | | |
| (2,657 | ) |
| Net
income (loss) from continuing operations applicable to common shares | |
$ | 494,908 | | |
$ | 104,366 | | |
$ | (26,706 | ) | |
| | | |
$ | (157,591 | ) | |
| | | |
$ | 414,977 | |
| Basic
earnings (loss) per common share: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (Note
6) | |
| Net
income (loss) from continuing operations applicable to common shares | |
$ | 0.92 | | |
$ | 0.46 | | |
| | | |
| | | |
| | | |
| | | |
$ | 0.59 | |
| Diluted
earnings (loss) per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note
6) |
|
| Net
income (loss) from continuing operations applicable to common shares | |
$ | 0.92 | | |
$ | 0.46 | | |
| | | |
| | | |
| | | |
| | | |
$ | 0.59 | |
| Weighted
average shares outstanding: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| (Note
6) | |
| Basic | |
| 538,809 | | |
| 226,598 | | |
| | | |
| | | |
| | | |
| | | |
| 701,903 | |
| Diluted | |
| 539,147 | | |
| 239,610 | | |
| | | |
| | | |
| | | |
| | | |
| 708,856 | |
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
Note 1 — Basis of Presentation
Each of Healthpeak’s and Physicians Realty
Trust’s historical consolidated financial information has been derived from and should be read in conjunction with Healthpeak’s
and Physicians Realty Trust’s historical consolidated financial statements included in its respective Quarterly Report on Form 10-Q
for the nine months ended September 30, 2023 and Annual Report on Form 10-K for the year ended December 31, 2022, excluding,
in the case of Healthpeak, discontinued operations, which have been incorporated by reference into this joint proxy statement/prospectus.
Certain of Physicians Realty Trust’s historical amounts have been reclassified to conform to Healthpeak’s financial statement
presentation, as discussed further in Note 3. Additionally, the carrying amount of Healthpeak’s historical goodwill, previously
classified as a component of Other assets, net, has been reclassified to a separate financial statement line item, Goodwill, on Healthpeak’s
historical reclassified unaudited condensed combined balance sheet.
The unaudited pro forma condensed combined
balance sheet gives effect to the Pro Forma Transactions as if they had been completed on September 30, 2023. The unaudited pro forma
condensed combined statements of operations give effect to the Pro Forma Transactions as if they had been completed on January 1,
2022.
The historical consolidated financial statements
of Healthpeak and Physicians Realty Trust have been adjusted in the unaudited pro forma condensed combined financial statements
to give effect to the accounting for the Pro Forma Transactions under U.S. generally accepted accounting principles (“U.S. GAAP”).
The unaudited pro forma condensed combined financial statements and related notes were prepared using the acquisition method of
accounting in accordance with Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”), with
Healthpeak treated as the accounting acquirer of Physicians Realty Trust. Healthpeak is expected to be the accounting acquirer primarily
because (i) Healthpeak is the entity that will transfer consideration to consummate the Mergers, (ii) Healthpeak stockholders
as a group will retain the largest portion of the voting rights of Healthpeak and its subsidiaries after the Company Merger Effective
Time (the “Combined Company”) and have the ability to elect, appoint, or remove a majority of the members of the Combined
Company’s board of directors and (iii) its senior management will constitute the majority of management of the Combined Company.
For more information, see “The Mergers — Accounting Treatment.” ASC 805 requires, among other things, that the
assets acquired, liabilities assumed and noncontrolling interests in a business combination be recognized at their fair values as of
the acquisition date. For purposes of the unaudited pro forma condensed combined financial statements, the estimated preliminary
purchase consideration in the Mergers has been allocated to the assets acquired, liabilities assumed and noncontrolling interests of
Physicians Realty Trust based upon Healthpeak management’s preliminary estimate of their fair values as of September 30, 2023.
The allocations of the purchase price reflected
in these unaudited pro forma condensed combined financial statements have not been finalized and are based upon the best available
information at the current time. A final determination of the fair values of the assets, liabilities and noncontrolling interests, which
cannot be made prior to the completion of the Mergers, will be based on the actual valuations of the tangible and intangible assets and
liabilities that exist as of the Closing Date. The completion of the final valuations, the allocations of the purchase price, the impact
of ongoing integration activities, the timing of the Closing Date and other changes in tangible and intangible assets and liabilities
that occur prior to the Closing Date could cause material differences in the information presented.
The unaudited pro forma condensed combined
financial statements and related notes herein present unaudited pro forma condensed combined financial condition and results of operations
of the Combined Company, after giving pro forma effect to the Pro Forma Transactions, which include the conversion of Physicians
Realty Trust common shares outstanding into newly issued shares of Healthpeak common stock equal to the Exchange Ratio and the conversion
of unvested Physicians Realty Trust Restricted Shares, Physicians Realty Trust PSUs, and Physicians Realty Trust RSUs outstanding into
newly issued shares of Healthpeak common stock. The pro forma financial statements also include the assumption of Physicians Realty
Trust’s outstanding debt, excluding Physicians Realty Trust’s senior unsecured private placement notes, which are expected
to be settled and repaid by Physicians Realty Trust prior to Closing and the termination of Physicians Realty Trust’s unsecured
revolving credit facility, which is expected to be repaid by Healthpeak and terminated contemporaneously with the Closing.
Note 2 — Significant Accounting Policies
The accounting policies used in the preparation
of these unaudited pro forma condensed combined financial statements are those set out in Healthpeak’s unaudited consolidated
financial statements as of and for the nine months ended September 30, 2023 and Healthpeak’s audited consolidated financial
statements as of and for the year ended December 31, 2022. At this time, Healthpeak’s management is not aware of any significant
accounting policy differences between Healthpeak and Physicians Realty Trust, and therefore, no adjustments were made to conform Physicians
Realty Trust’s historical consolidated financial statements to the accounting policies used by Healthpeak in the preparation of
the unaudited pro forma condensed combined financial statements.
As part of the application of ASC 805, Healthpeak
will continue to conduct a more detailed review of Physicians Realty Trust’s accounting policies in an effort to determine if differences
in accounting policies require further reclassification or adjustment of Physicians Realty Trust’s assets, liabilities or noncontrolling
interests, or reclassification or adjustment of results of operations to conform to Healthpeak’s accounting policies and classifications.
Therefore, Healthpeak may identify additional differences between the accounting policies of the two companies that, when conformed, could
have a material impact on the unaudited pro forma condensed combined financial statements. In certain cases, the information necessary
to evaluate the differences in accounting policies and the impacts thereof may not be available until after the Closing Date.
Note 3 — Reclassification Adjustments
The Healthpeak and Physicians Realty Trust historical
consolidated financial statement line items include the reclassification of certain historical balances to conform to the expected post-combination
Healthpeak presentation of these unaudited pro forma condensed combined financial statements, as described below. These reclassifications
have no effect on previously reported total assets, total liabilities, stockholders’ equity or net income available to common stockholders
of Healthpeak or Physicians Realty Trust.
Balance Sheet
The carrying amount of Healthpeak’s historical
goodwill of $18 million, previously classified as a component of Other assets, net, has been reclassified to a newly presented financial
statement line item, Goodwill, on Healthpeak’s historical reclassified unaudited condensed combined balance sheet.
The following table presents the impact of the reclassification adjustments
on Physicians Realty Trust’s historical consolidated balance sheet.
| | |
As of September 30, 2023
(In thousands) | |
| | |
Physicians
Realty Trust
Historical | | |
Reclassification
Adjustments | | |
Notes | |
Physicians Realty
Trust As Reclassified | |
| ASSETS | |
| | | |
| | | |
| |
| | |
| Real estate: | |
| | | |
| | | |
| |
| | |
| Buildings and improvements | |
$ | 4,703,606 | | |
$ | 95,447 | | |
(A) | |
$ | 4,676,976 | |
| | |
| | | |
| (122,077 | ) | |
(B) | |
| | |
| Development costs and construction in progress | |
| — | | |
| 41,722 | | |
(C) | |
| 41,722 | |
| Construction in progress | |
| 41,722 | | |
| (41,722 | ) | |
(C) | |
| — | |
| Tenant improvements | |
| 95,447 | | |
| (95,447 | ) | |
(A) | |
| — | |
| Land and improvements | |
| 249,468 | | |
| 122,077 | | |
(B) | |
| 371,545 | |
| Acquired lease intangibles | |
| 509,468 | | |
| (509,468 | ) | |
(D) | |
| — | |
| Accumulated depreciation and amortization | |
| — | | |
| 306,926 | | |
(D) | |
| (833,282 | ) |
| | |
| | | |
| (1,140,208 | ) | |
(E) | |
| | |
| Accumulated depreciation | |
| (1,140,208 | ) | |
| 1,140,208 | | |
(E) | |
| — | |
| Net real estate | |
| 4,459,503 | | |
| (202,542 | ) | |
| |
| 4,256,961 | |
| | |
As of September 30, 2023
(In thousands) | |
| | |
Physicians
Realty Trust
Historical | | |
Reclassification
Adjustments | | |
Notes | |
Physicians Realty
Trust As Reclassified | |
| Loans receivable, net | |
| — | | |
| 79,883 | | |
(F) | |
| 79,883 | |
| Real estate loans receivable, net | |
| 79,883 | | |
| (79,883 | ) | |
(F) | |
| — | |
| Investments in and advances to unconsolidated joint ventures | |
| — | | |
| 72,069 | | |
(G) | |
| 64,046 | |
| | |
| | | |
| (8,023 | ) | |
(G) | |
| | |
| Investments in unconsolidated entities | |
| 72,069 | | |
| (72,069 | ) | |
(G) | |
| — | |
| Accounts receivable, net | |
| — | | |
| 11,131 | | |
(H) | |
| 11,131 | |
| Tenant receivables, net | |
| 11,131 | | |
| (11,131 | ) | |
(H) | |
| — | |
| Cash and cash equivalents | |
| 195,772 | | |
| — | | |
| |
| 195,772 | |
| Restricted cash | |
| — | | |
| 1,574 | | |
(I) | |
| 1,574 | |
| Intangible assets, net | |
| — | | |
| 509,468 | | |
(D) | |
| 202,542 | |
| | |
| | | |
| (306,926 | ) | |
(D) | |
| | |
| Assets held for sale, net | |
| — | | |
| — | | |
| |
| — | |
| Right-of-use asset, net | |
| — | | |
| 227,967 | | |
(J) | |
| 227,967 | |
| Right-of-use lease assets, net | |
| 227,967 | | |
| (227,967 | ) | |
(J) | |
| — | |
| Other assets, net | |
| — | | |
| 8,023 | | |
(G) | |
| 172,591 | |
| | |
| | | |
| (1,574 | ) | |
(I) | |
| | |
| | |
| | | |
| 166,142 | | |
(K) | |
| | |
| Other assets | |
| 166,142 | | |
| (166,142 | ) | |
(K) | |
| — | |
| Total assets | |
$ | 5,212,467 | | |
$ | — | | |
| |
$ | 5,212,467 | |
| LIABILITIES AND EQUITY | |
| | | |
| | | |
| |
| | |
| Bank line of credit and commercial paper | |
$ | — | | |
$ | — | | |
| |
$ | — | |
| Credit facility | |
| 393,090 | | |
| (393,090 | ) | |
(L) | |
| — | |
| Term loans | |
| — | | |
| 393,090 | | |
(L) | |
| 393,090 | |
| Senior unsecured notes | |
| — | | |
| 1,451,536 | | |
(M) | |
| 1,451,536 | |
| Notes payable | |
| 1,451,536 | | |
| (1,451,536 | ) | |
(M) | |
| — | |
| Mortgage debt | |
| 127,630 | | |
| — | | |
| |
| 127,630 | |
| Intangible liabilities, net | |
| — | | |
| 23,170 | | |
(N) | |
| 23,170 | |
| Acquired lease intangibles, net | |
| 23,170 | | |
| (23,170 | ) | |
(N) | |
| — | |
| Liabilities related to assets held for sale, net | |
| — | | |
| — | | |
| |
| — | |
| Lease liability | |
| 104,802 | | |
| — | | |
| |
| 104,802 | |
| Accounts payable, accrued liabilities, and other liabilities | |
| — | | |
| 60,928 | | |
(O) | |
| 131,065 | |
| | |
| | | |
| 4,933 | | |
(P) | |
| | |
| | |
| | | |
| 95,637 | | |
(Q) | |
| | |
| | |
| | | |
| (30,433 | ) | |
(Q) | |
| | |
| Dividends and distributions payable | |
| 60,928 | | |
| (60,928 | ) | |
(O) | |
| — | |
| Accounts payable | |
| 4,933 | | |
| (4,933 | ) | |
(P) | |
| — | |
| Accrued expenses and other liabilities | |
| 95,637 | | |
| (95,637 | ) | |
(Q) | |
| — | |
| Deferred revenue | |
| — | | |
| 30,433 | | |
(Q) | |
| 30,433 | |
| Total liabilities | |
| 2,261,726 | | |
| — | | |
| |
| 2,261,726 | |
| Redeemable noncontrolling interests | |
| — | | |
| 3,066 | | |
(R) | |
| 3,066 | |
| Redeemable noncontrolling interests-partially owned properties | |
| 3,066 | | |
| (3,066 | ) | |
(R) | |
| — | |
| Common stock | |
| 2,385 | | |
| — | | |
| |
| 2,385 | |
| Additional paid-in capital | |
| 3,817,545 | | |
| — | | |
| |
| 3,817,545 | |
| | |
As of September 30, 2023
(In thousands) | |
| | |
Physicians
Realty Trust
Historical | | |
Reclassification
Adjustments | | |
Notes | |
Physicians Realty
Trust As Reclassified | |
| Cumulative dividends in excess of earnings | |
| — | | |
| (1,012,869 | ) | |
(S) | |
| (1,012,869 | ) |
| Accumulated deficit | |
| (1,012,869 | ) | |
| 1,012,869 | | |
(S) | |
| — | |
| Accumulated other comprehensive income (loss) | |
| 15,216 | | |
| — | | |
| |
| 15,216 | |
| Total stockholders’ equity | |
| 2,822,277 | | |
| — | | |
| |
| 2,822,277 | |
| Joint venture partners | |
| — | | |
| 9,319 | | |
(T) | |
| 9,319 | |
| Operating Partnership | |
| 116,079 | | |
| (116,079 | ) | |
(U) | |
| — | |
| Non-managing member unitholders | |
| — | | |
| 116,079 | | |
(U) | |
| 116,079 | |
| Partially owned properties | |
| 9,319 | | |
| (9,319 | ) | |
(T) | |
| — | |
| Total noncontrolling interests | |
| 125,398 | | |
| — | | |
| |
| 125,398 | |
| Total equity | |
| 2,947,675 | | |
| — | | |
| |
| 2,947,675 | |
| Total liabilities and equity | |
$ | 5,212,467 | | |
$ | — | | |
| |
$ | 5,212,467 | |
| (A) | To reclassify Physicians Realty Trust’s historical balance
for Tenant improvements to Buildings and improvements. |
| (B) | To reclassify Physicians Realty Trust’s historical balance
for site improvements previously recorded as a component of Buildings and improvements to Land and improvements. |
| (C) | To reclassify Physicians Realty Trust’s historical balance
for Construction in progress to Development costs and construction in progress. |
| (D) | To reclassify Physicians Realty Trust’s historical balance
for Acquired lease intangibles to Intangible assets, net, and the related accumulated amortization for such assets from Accumulated depreciation
and amortization to Intangible assets, net. |
| (E) | To reclassify Physicians Realty Trust’s historical balance
for Accumulated depreciation to Accumulated depreciation and amortization. |
| (F) | To reclassify Physicians Realty Trust’s historical balance
for Real estate loans receivable, net to Loans receivable, net. |
| (G) | To reclassify Physicians Realty Trust’s historical balance
for Investments in unconsolidated entities to (i) Other assets, net for the portion related to cost method investments and (ii) the
remainder to Investments in and advances to unconsolidated joint ventures. |
| (H) | To reclassify Physicians Realty Trust’s historical balance
for Tenant receivables, net, to Accounts receivable, net. |
| (I) | To reclassify Physicians Realty Trust’s historical balance
for restricted cash previously recorded as component of Other assets to Restricted cash. |
| (J) | To reclassify Physicians Realty Trust’s historical balance
for Right-of-use lease assets, net to Right-of-use asset, net. |
| (K) | To reclassify Physicians Realty Trust’s historical balance
for Other assets to Other assets, net. |
| (L) | To reclassify Physicians Realty Trust’s historical balance
for Credit facility to Term loans. |
| (M) | To reclassify Physicians Realty Trust’s historical balance
for Notes payable to Senior unsecured notes. |
| (N) | To reclassify Physicians Realty Trust’s historical balance
for Acquired lease intangibles, net to Intangible liabilities, net. |
| (O) | To reclassify Physicians Realty Trust’s historical balance
for Dividends and distributions payable to Accounts payable, accrued liabilities, and other liabilities. |
| (P) | To reclassify Physicians Realty Trust’s historical balance
for Accounts payable to Accounts payable, accrued liabilities, and other liabilities. |
| (Q) | To reclassify Physicians Realty Trust’s historical balance
for Accrued expenses and other liabilities to (i) Accounts payable, accrued liabilities, and other liabilities and (ii) a portion
to Deferred revenue. |
| (R) | To reclassify Physicians Realty Trust’s historical balance
for Redeemable noncontrolling interests — partially owned properties to Redeemable noncontrolling interests. |
| (S) | To reclassify Physicians Realty Trust’s historical balance
for Accumulated deficit to Cumulative dividends in excess of earnings. |
| (T) | To reclassify Physicians Realty Trust’s historical balance
for Partially owned properties to Joint venture partners. |
| (U) | To reclassify Physicians Realty Trust’s historical balance
for Operating Partnership to Non-managing member unitholders. |
Statements of Operations
The following table represents the impact of the
reclassification adjustments on Physicians Realty Trust’s historical consolidated statement of operations for the nine months
ended September 30, 2023.
| | |
For the Nine Months Ended September 30, 2023
(In thousands) | |
| | |
Physicians Realty
Trust Historical | | |
Reclassification
Adjustments | | |
Notes | |
Physicians Realty
Trust As
Reclassified | |
| Revenue | |
| | | |
| | | |
| |
| | |
| Rental and related revenues | |
$ | 397,096 | | |
$ | — | | |
| |
$ | 397,096 | |
| Resident fees and services | |
| — | | |
| — | | |
| |
| — | |
| Interest income | |
| — | | |
| 10,895 | | |
(A) | |
| 11,170 | |
| | |
| | | |
| 275 | | |
(B) | |
| | |
| Interest income on real estate loans and other | |
| 10,895 | | |
| (10,895 | ) | |
(A) | |
| — | |
| Total revenues | |
| 407,991 | | |
| 275 | | |
| |
| 408,266 | |
| Costs and expenses: | |
| | | |
| | | |
| |
| | |
| Interest expense | |
| 59,837 | | |
| — | | |
| |
| 59,837 | |
| Depreciation and amortization | |
| 143,555 | | |
| (318 | ) | |
(C) | |
| 143,237 | |
| Operating | |
| — | | |
| 138,094 | | |
(D) | |
| 138,094 | |
| Operating expenses | |
| 138,094 | | |
| (138,094 | ) | |
(D) | |
| — | |
| General and administrative | |
| 31,133 | | |
| 318 | | |
(C) | |
| 30,951 | |
| | |
| | | |
| (500 | ) | |
(E) | |
| | |
| Transaction costs | |
| — | | |
| 500 | | |
(E) | |
| 500 | |
| Impairments and loan loss reserves (recoveries), net | |
| — | | |
| 275 | | |
(B) | |
| 275 | |
| Total costs and expenses | |
| 372,619 | | |
| 275 | | |
| |
| 372,894 | |
| Other income (expense): | |
| | | |
| | | |
| |
| | |
| Gain (loss) on sales of real estate, net | |
| — | | |
| 13 | | |
(F) | |
| 13 | |
| Gain on sale of investment properties, net | |
| 13 | | |
| (13 | ) | |
(F) | |
| — | |
| Other income (expense), net | |
| — | | |
| — | | |
| |
| — | |
| Total other income (expense), net | |
| 13 | | |
| — | | |
| |
| 13 | |
| Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | |
| 35,385 | | |
| — | | |
| |
| 35,385 | |
| Income tax benefit (expense) | |
| — | | |
| — | | |
| |
| — | |
| Equity income (loss) from unconsolidated joint ventures | |
| — | | |
| 1,260 | | |
(G) | |
| 1,260 | |
| Equity in (loss) gain of unconsolidated entities | |
| 1,260 | | |
| (1,260 | ) | |
(G) | |
| — | |
| Income (loss) from continuing operations | |
| 36,645 | | |
| — | | |
| |
| 36,645 | |
| Noncontrolling interests’ share in continuing operations | |
| — | | |
| (1,443 | ) | |
(H) | |
| (1,564 | ) |
| | |
| | | |
| (121 | ) | |
(I) | |
| | |
| Operating Partnership | |
| (1,443 | ) | |
| 1,443 | | |
(H) | |
| — | |
| Partially owned properties | |
| (121 | ) | |
| 121 | | |
(I) | |
| — | |
| Net income (loss) attributable to Healthpeak Properties, Inc. from continuing operations | |
| 35,081 | | |
| — | | |
| |
| 35,081 | |
| Participating securities’ share in earnings | |
| — | | |
| — | | |
| |
| — | |
| Net income (loss) from continuing operations applicable to common shares | |
$ | 35,081 | | |
$ | — | | |
| |
$ | 35,081 | |
| (A) | To reclassify Physicians Realty Trust’s historical balance
for Interest income on real estate loans and other to Interest income. |
| (B) | To reclassify Physicians Realty Trust’s historical balance
related to its CECL reserves previously included as a reduction to Interest income on real estate loans and other (which was included
in Interest income in adjustment A above) to Impairments and loan loss reserves (recoveries), net. |
| (C) | To reclassify Physicians Realty Trust’s historical balance
related to the depreciation and amortization of certain corporate assets included in Depreciation and amortization to General and administrative. |
| (D) | To reclassify Physicians Realty Trust’s historical balance
for Operating expenses to Operating. |
| (E) | To reclassify Physicians Realty Trust’s historical balance
related to transaction costs included in General and administrative to Transaction costs. |
| (F) | To reclassify Physicians Realty Trust’s historical balance
for Gain on sale of investment properties, net to Gain (loss) on sales of real estate, net. |
| (G) | To reclassify Physicians Realty Trust’s historical balance
for Equity in loss of unconsolidated entities to Equity income (loss) gain from unconsolidated joint ventures. |
| (H) | To reclassify Physicians Realty Trust’s historical balance
for Operating Partnership to Noncontrolling interests’ share in continuing operations. |
| (I) | To reclassify Physicians Realty Trust’s historical balance
for Partially owned properties to Noncontrolling interests’ share in continuing operations. |
The following table represents the impact of the
reclassification adjustments on Physicians Realty Trust’s historical consolidated statement of operations for the year ended December 31,
2022.
| | |
For the Year Ended December 31, 2022
(In thousands) | |
| | |
Physicians
Realty Trust
Historical | | |
Reclassification
Adjustments | | |
Notes | |
Physicians Realty
Trust As Reclassified | |
| Revenue | |
| | | |
| | | |
| |
| | |
| Rental and related revenues | |
$ | 515,373 | | |
$ | — | | |
| |
$ | 515,373 | |
| Resident fees and services | |
| — | | |
| — | | |
| |
| — | |
| Interest income | |
| — | | |
| 11,262 | | |
(A) | |
| 11,337 | |
| | |
| | | |
| 75 | | |
(B) | |
| | |
| Interest income on real estate loans and other | |
| 11,262 | | |
| (11,262 | ) | |
(A) | |
| — | |
| Income from direct financing leases | |
| — | | |
| — | | |
| |
| — | |
| Total revenues | |
| 526,635 | | |
| 75 | | |
| |
| 526,710 | |
| Costs and expenses: | |
| | | |
| | | |
| |
| | |
| Interest expense | |
| 72,234 | | |
| — | | |
| |
| 72,234 | |
| Depreciation and amortization | |
| 189,641 | | |
| (420 | ) | |
(C) | |
| 189,221 | |
| Operating | |
| — | | |
| 171,100 | | |
(D) | |
| 171,100 | |
| Operating expenses | |
| 171,100 | | |
| (171,100 | ) | |
(D) | |
| — | |
| General and administrative | |
| 40,209 | | |
| 420 | | |
(C) | |
| 39,985 | |
| | |
| | | |
| (644 | ) | |
(E) | |
| | |
| Transaction costs | |
| — | | |
| 644 | | |
(E) | |
| 644 | |
| Impairments and loan loss reserves (recoveries), net | |
| — | | |
| 75 | | |
(B) | |
| 75 | |
| Total costs and expenses | |
| 473,184 | | |
| 75 | | |
| |
| 473,259 | |
| Other income (expense): | |
| | | |
| | | |
| |
| | |
| Gain (loss) on sales of real estate, net | |
| — | | |
| 57,375 | | |
(F) | |
| 57,375 | |
| Gain on sale of investment properties, net | |
| 57,375 | | |
| (57,375 | ) | |
(F) | |
| — | |
| Other income (expense), net | |
| — | | |
| — | | |
| |
| — | |
| Total other income (expense), net | |
| 57,375 | | |
| — | | |
| |
| 57,375 | |
| | |
For the Year Ended December 31, 2022
(In thousands) | |
| | |
Physicians
Realty Trust
Historical | | |
Reclassification
Adjustments | | |
Notes | |
Physicians Realty
Trust As Reclassified | |
| Income (loss) before income taxes and equity income (loss) from unconsolidated joint ventures | |
| 110,826 | | |
| — | | |
| |
| 110,826 | |
| Income tax benefit (expense) | |
| — | | |
| — | | |
| |
| — | |
| Equity income (loss) from unconsolidated joint ventures | |
| — | | |
| (790 | ) | |
(G) | |
| (790 | ) |
| Equity in loss of unconsolidated entities | |
| (790 | ) | |
| 790 | | |
(G) | |
| — | |
| Income (loss) from continuing operations | |
| 110,036 | | |
| — | | |
| |
| 110,036 | |
| Noncontrolling interests’ share in continuing operations | |
| — | | |
| (5,240 | ) | |
(H) | |
| (5,670 | ) |
| | |
| | | |
| (430 | ) | |
(I) | |
| | |
| Operating Partnership | |
| (5,240 | ) | |
| 5,240 | | |
(H) | |
| — | |
| Partially owned properties | |
| (430 | ) | |
| 430 | | |
(I) | |
| — | |
| Net income (loss) attributable to Healthpeak Properties, Inc. from continuing operations | |
| 104,366 | | |
| — | | |
| |
| 104,366 | |
| Participating securities’ share in earnings | |
| — | | |
| — | | |
| |
| — | |
| Net income (loss) from continuing operations applicable to common shares | |
$ | 104,366 | | |
$ | — | | |
| |
$ | 104,366 | |
| (A) | To reclassify Physicians Realty Trust’s historical balance
for Interest income on real estate loans and other to Interest income. |
| (B) | To reclassify Physicians Realty Trust’s historical balance
related to its CECL reserves previously included as a reduction to Interest income on real estate loans and other (which was included
in Interest income in adjustment A above) to Impairments and loan loss reserves (recoveries), net. |
| (C) | To reclassify Physicians Realty Trust’s historical balance
related to the depreciation and amortization of certain corporate assets included in Depreciation and amortization to General and administrative. |
| (D) | To reclassify Physicians Realty Trust’s historical balance
for Operating expenses to Operating. |
| (E) | To reclassify Physicians Realty Trust’s historical balance
related to transaction costs included in General and administrative to Transaction costs. |
| (F) | To reclassify Physicians Realty Trust’s historical balance
for Gain on sale of investment properties, net to Gain (loss) on sales of real estate, net. |
| (G) | To reclassify Physicians Realty Trust’s historical balance
for Equity in (loss) gain of unconsolidated entities to Equity income (loss) from unconsolidated joint ventures. |
| (H) | To reclassify Physicians Realty Trust’s historical balance
for Operating Partnership to Noncontrolling interests’ share in continuing operations. |
| (I) | To reclassify Physicians Realty Trust’s historical balance
for Partially owned properties to Noncontrolling interests’ share in continuing operations. |
Note 4 — Financing Transactions
In connection with the Mergers, Healthpeak is expected
to enter into the New Term Loan. For purposes of these pro forma adjustments, the terms of the New Term Loan are assumed to be a
five-year, $500 million term loan at an interest rate of SOFR plus 85 basis points. The New Term Loan is expected to close contemporaneously
with the Closing, and Healthpeak is expected to pay upfront lender fees of approximately $3 million.
The pro forma balance sheet adjustments include
the recognition of the liability for the New Term Loan of $500 million, net of the lender fees of $3 million and an equal and
offsetting increase to cash and cash equivalents. The unaudited pro forma condensed combined statements of operations adjustments
for the nine months ended September 30, 2023 and year ended December 31, 2022 include the recognition of interest expense
based on an effective interest calculation, utilizing SOFR as of December 6, 2023, on the New Term Loan of $24 million and $31 million,
respectively. A change of 0.125% in the annual interest rate on the New Term Loan would change pro forma interest expense by less
than $1 million for the nine months ended September 30, 2023 and $1 million for the year ended December 31,
2022, holding constant the outstanding principal balance of the New Term Loan.
| 2) | Commercial Paper Repayment |
The pro forma balance sheet adjustments for
the Commercial Paper Repayment reflect a reduction in Healthpeak’s outstanding commercial paper borrowings of $200 million,
and an equal and offsetting decrease to cash and cash equivalents. Healthpeak’s weighted average commercial paper interest rate
during the nine months ended September 30, 2023 and the year ended December 31, 2022 was 5.4% and 2.3%, respectively. The
unaudited pro forma condensed combined statements of operations adjustments for the Commercial Paper Repayment reflect a decrease
to interest expense for the nine months ended September 30, 2023 and the year ended December 31, 2022 of $8 million
and $5 million, respectively, based upon the foregoing weighted average commercial paper interest rates and Commercial Paper Repayment
amount.
Note 5 — Mergers Transaction Adjustments
Estimated Preliminary Purchase Price
The unaudited pro forma condensed combined
financial statements reflect the preliminary allocation of the purchase consideration to Physicians Realty Trust’s identifiable
net assets acquired. The preliminary allocation of purchase consideration in these unaudited pro forma condensed combined financial
statements is based upon an estimated preliminary purchase price of approximately $3 billion. The calculation of the estimated preliminary
purchase price related to the Mergers is as follows (in thousands, except per share data):
| | |
Amount | |
| Estimated Physicians Realty Trust common shares and Physicians Realty Trust Restricted Shares, PSUs and RSUs to be exchanged(a) | |
| 241,979 | |
| Exchange Ratio | |
| 0.674 | |
| Estimated shares of Healthpeak common stock issued | |
| 163,094 | |
| Closing price of Healthpeak Properties, Inc. common stock on December 6, 2023 | |
$ | 18.40 | |
| Estimated fair value of shares of Healthpeak common stock to be issued to the former holders of Physicians Realty Trust common shares, Restricted Shares, PSUs and RSUs(b) | |
$ | 3,000,930 | |
| Less: Estimated fair value of Physicians Realty Trust Restricted Shares, PSUs and RSUs attributable to post-combination services(c) | |
| (26,755 | ) |
| Preliminary share consideration | |
$ | 2,974,175 | |
| Assumed cash repayment of Physicians Realty Trust’s unsecured revolving credit facility at Closing(d) | |
| 210,000 | |
| Unaccrued and unpaid cash dividend equivalents corresponding to Physicians Realty Trust PSUs and RSUs to be settled by Healthpeak(e) | |
| 2,339 | |
| Total estimated preliminary purchase price | |
$ | 3,186,514 | |
| a) | Includes (i) 239 million Physicians Realty Trust common
shares and Physicians Realty Trust Restricted Shares outstanding as of September 30, 2023, inclusive of less than 1 million
Physicians Realty Trust Restricted Shares, (ii) 3 million Physicians Realty Trust common shares that will be issuable pursuant
to outstanding Physicians Realty Trust PSUs (reflected at the maximum level of performance) and (iii) less than 1 million Physicians
Realty Trust common shares that will be issuable pursuant to outstanding Physicians Realty Trust RSUs, in each case, that will be converted
into shares of Healthpeak common stock at the Company Merger Effective Time in accordance with the Merger Agreement. The portion of the
converted Restricted Shares, PSUs and RSUs related to post-combination expense is removed in footnote (c) below. Under the Merger Agreement,
these shares and units are to be converted to shares of Healthpeak common stock based on the Exchange Ratio. The table below summarizes
the foregoing as of September 30, 2023 (in thousands): |
| | |
Physicians Realty
Trust Share
Quantity | |
| Common shares | |
| 238,483 | |
| Restricted Shares | |
| 376 | |
| PSUs reflected at the maximum level of performance | |
| 2,759 | |
| RSUs | |
| 361 | |
| Total | |
| 241,979 | |
| b) | The estimated fair value of shares of Healthpeak common stock
to be issued to former holders of Physicians Realty Trust common shares, Restricted Shares, PSUs and RSUs was based on (i) Healthpeak’s
closing stock price as of December 6, 2023, which was $18.40 per share, (ii) multiplied by the estimated number of shares of
Healthpeak common stock to be issued to former holders of Physicians Realty Trust common shares, Restricted Shares, PSUs and RSUs, totaling
163 million after the application of the Exchange Ratio. |
| c) | Represents the estimated fair value of unvested Physicians Realty
Trust Restricted Shares, PSUs and RSUs attributable to post-combination services that will be converted into shares of Healthpeak common
stock at the Company Merger Effective Time in accordance with the Merger Agreement. Although no future service after the Closing is required,
the value attributable to post-combination services reflects the incremental fair value provided to the Physicians Realty Trust Equity
Award holders and the accelerated vesting of such awards at the Company Merger Effective Time in accordance with the Merger Agreement.
The estimated fair value of Physicians Realty Trust Restricted Shares, PSUs and RSUs attributable to pre-combination services is reflected
as a component of the preliminary purchase price. The estimated fair value of Physicians Realty Trust Restricted Shares, PSUs and RSUs
attributable to post-combination services is reflected as set forth in items 13 and 20 of this Note 5. |
| d) | Represents the repayment of Physicians Realty Trust’s
unsecured revolving credit facility that is expected to be repaid in cash by Healthpeak at Closing and terminated. Prior to Closing,
Physicians Realty Trust is expected to repay its senior unsecured private placement notes of $210 million by drawing on Physicians
Realty Trust’s unsecured revolving credit facility. |
| e) | Represents the amount of any unaccrued and unpaid cash dividend
equivalents corresponding to Physicians Realty Trust PSUs and RSUs that will be settled in cash by Healthpeak. |
The actual value of the shares of Healthpeak common
stock to be issued in the Mergers will depend on the market price of shares of Healthpeak common stock at the Closing Date. Therefore,
the actual purchase price will fluctuate with the market price of shares of Healthpeak common stock until the Company Merger is consummated.
As a result, the final purchase price could differ significantly from the current estimate, which could materially impact the unaudited
pro forma condensed combined financial statements. A 10.0% increase or decrease in Healthpeak’s stock price would increase
or decrease the purchase price, respectively, by approximately $298 million. A 20.0% increase or decrease in Healthpeak’s stock
price would increase or decrease the purchase price, respectively, by approximately $595 million. This change would be recorded as an
adjustment to the fair value of the net assets acquired, including goodwill, as applicable.
Preliminary Purchase Price Allocation
The preliminary purchase price allocation to
assets acquired, liabilities assumed and noncontrolling interests of Physicians Realty Trust is provided throughout these notes to
the unaudited pro forma condensed combined financial statements. The following table provides a summary of the preliminary
purchase price allocation by major categories of assets acquired, liabilities assumed and noncontrolling interests of Physicians
Realty Trust based on Healthpeak management’s preliminary estimate of their respective fair values as of September 30,
2023 (in thousands):
| | |
Amount | |
| Total estimated preliminary purchase price | |
$ | 3,186,514 | |
| Assets: | |
| | |
| Buildings and improvements | |
$ | 3,645,922 | |
| Development costs and construction in progress | |
| 41,722 | |
| Land and improvements | |
| 489,229 | |
| Loans receivable | |
| 77,298 | |
| Investments in and advances to unconsolidated joint ventures | |
| 61,490 | |
| Accounts receivable | |
| 11,131 | |
| Cash and cash equivalents | |
| 134,844 | |
| Restricted cash | |
| 1,574 | |
| Intangible assets | |
| 492,895 | |
| Right-of-use asset | |
| 236,151 | |
| Other assets | |
| 45,980 | |
| Total assets acquired | |
$ | 5,238,236 | |
| Liabilities:(1) | |
| | |
| Term loans | |
$ | 400,000 | |
| Senior unsecured notes | |
| 1,068,638 | |
| Mortgage debt | |
| 127,628 | |
| Intangible liabilities | |
| 85,113 | |
| Lease liability | |
| 104,802 | |
| Accounts payable, accrued liabilities and other liabilities(2) | |
| 106,387 | |
| Deferred revenue | |
| 30,433 | |
| Total liabilities assumed | |
$ | 1,923,001 | |
| Estimated preliminary fair value of net assets acquired, including noncontrolling interests | |
$ | 3,315,235 | |
| Redeemable noncontrolling interests | |
| (3,066 | ) |
| Joint venture partners’ noncontrolling interests | |
| (7,211 | ) |
| Non-managing member unitholders’ noncontrolling interests | |
| (128,893 | ) |
| Estimated preliminary fair value of net assets acquired, net of noncontrolling interests | |
$ | 3,176,065 | |
| Goodwill | |
$ | 10,449 | |
| Total estimated preliminary purchase price | |
$ | 3,186,514 | |
| (1) | The preliminary fair value of liabilities anticipated to be
assumed excludes (a) Physicians Realty Trust’s unsecured revolving credit facility that is expected to be settled at Closing,
which has been included as a component of the preliminary estimated purchase price, and (b) private placement notes of Physicians
Realty Trust totaling $210 million as these notes are expected to be settled prior to Closing by Physicians Realty Trust as set
forth in item 12 of this Note 5. |
| (2) | The preliminary fair value of Accounts payable, accrued liabilities
and other liabilities includes Physicians Realty Trust’s transaction costs of $36 million, which are assumed to be paid by Healthpeak
at Closing. |
The preliminary fair values of identifiable
assets acquired, liabilities assumed, and noncontrolling interests of Physicians Realty Trust are based on an estimated valuation as
if the Pro Forma Transactions occurred on September 30, 2023. For the preliminary estimate of fair values of assets acquired,
liabilities assumed and noncontrolling interests of Physicians Realty Trust, Healthpeak used publicly available benchmarking
information as well as a variety of other assumptions, including market participant assumptions. The allocation is dependent upon
certain valuations that have not yet been finalized. Accordingly, the preliminary purchase price allocation is subject to further
adjustment as additional information becomes available and as additional analyses and final valuations are completed, and such
differences could be material. In particular, the fair values of the assets, liabilities and noncontrolling interests were
estimated, in part, based upon the characteristics of real estate and intangible lease assets and liabilities, and adjusted to
reflect reasonable estimations for above market and below market lease intangibles, lease-up intangible values, avoided lease
origination costs, and estimates of the fair value of interests in joint ventures and other partially owned entities, all of which
are based on third-party valuation analyses and Healthpeak’s historical experience with similar assets and liabilities.
Amounts allocated to the real estate loans receivable and debt assumed take into account a market-based measurement using quoted
prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets
that are not active (markets with few transactions), inputs other than quoted prices that are observable for the asset or liability
(i.e., interest rates, yield curves, etc.) and inputs that are derived principally from or corroborated by observable market data
correlation or other means (market corroborated inputs). Amounts allocated to joint ventures take into account ownership interests,
subordination characteristics, redemption values, reported net asset values (“NAV”) for investments in certain funds
that report NAV, discounts for lack of control (as applicable), and hypothetical liquidation waterfalls. In determining the
estimated fair value of Physicians Realty Trust’s tangible assets, Healthpeak considered customary methods, including the
income, market and cost approaches. Amounts allocated to land, buildings and improvements, tenant improvements and lease intangible
assets and liabilities were based on an analysis performed by third parties based on Healthpeak’s, Physicians Realty
Trust’s and others’ portfolios with similar property characteristics.
The purchase price allocation presented above is
preliminary and has not been finalized. The final determination of the allocation of the purchase price will be completed no later than
one year following the Closing Date. These final fair values will be determined based on Healthpeak’s management’s judgment,
which is based on various factors, including (1) market conditions, (2) the industry in which the tenants operate, (3) the
characteristics of the real estate (i.e., location, size, demographics, value, age, and comparative rental rates), (4) the tenant
credit profile and/or (5) historical operating results. The final determination of these estimated fair values, the assets’
useful lives and the depreciation and amortization methods are dependent upon certain valuations and other analyses that have not yet
been completed, and as previously stated could differ materially from the amounts presented in the unaudited pro forma condensed
combined financial statements. Any increase or decrease in the fair value of the net assets acquired, as compared to the information shown
herein, could change the portion of the purchase consideration allocable to goodwill and could impact the operating results of the Combined
Company following the Mergers due to differences in the allocation of the purchase consideration, as well as changes in income and expense
related to some of the acquired assets and liabilities.
Balance Sheet
The pro forma adjustments reflect the effect
of the Mergers on Healthpeak’s and Physicians Realty Trust’s historical consolidated balance sheets as if the Pro Forma Transactions
occurred on September 30, 2023.
Assets
| 1) | The pro forma adjustments for Buildings and improvements
and Land and improvements reflect: (i) the elimination of Physicians Realty Trust’s historical carrying values of $5 billion
for Buildings and improvements and $372 million for Land and improvements and (ii) the recognition of the preliminary fair
value of $4 billion for Buildings and improvements and $489 million for Land and improvements. The pro forma adjustments are
presented as follows (in thousands): |
| | |
Elimination of
historical
carrying value | | |
Estimated fair
value | | |
Total pro forma
adjustment | |
| Buildings and improvements | |
$ | (4,676,976 | ) | |
$ | 3,645,922 | | |
$ | (1,031,054 | ) |
| Land and improvements | |
| (371,545 | ) | |
| 489,229 | | |
| 117,684 | |
| Total | |
$ | (5,048,521 | ) | |
$ | 4,135,151 | | |
$ | (913,370 | ) |
| 2) | Accumulated depreciation and amortization was adjusted to eliminate
Physicians Realty Trust’s historical accumulated depreciation and amortization balance of $833 million. |
| 3) | The pro forma adjustment for Loans receivable, net reflects
the elimination of Physicians Realty Trust’s historical carrying value of $80 million and the recognition of Loans receivable,
net at their preliminary fair value of $77 million. |
| 4) | The pro forma adjustment for Investments in and advances
to unconsolidated joint ventures reflects the elimination of Physicians Realty Trust’s historical carrying value of $64 million
and the recognition of Investments in and advances to unconsolidated joint ventures at their preliminary fair value of $61 million. |
| 5) | The pro forma adjustments for Cash and cash equivalents
included the following payments assumed to be made contemporaneously with the Closing (in thousands): |
| | |
Amount | |
| Physicians Realty Trust’s accrued dividends and distributions(a) | |
$ | (60,928 | ) |
| Transaction costs(b) | |
| (87,840 | ) |
| Debt repayments contemporaneously with the Closing(c) | |
| (210,000 | ) |
| Incremental dividend payment for Physicians Realty Trust Equity Awards(d) | |
| (2,339 | ) |
| Total | |
$ | (361,107 | ) |
| (a) | Pursuant to the terms of the Merger Agreement, all accrued and
unpaid dividends and distributions with a record date prior to the Closing Date are required to be paid by Physicians Realty Trust immediately
prior to the Closing. |
| (b) | Reflects Healthpeak’s and Physicians Realty Trust’s
transaction costs. All transaction costs are assumed to be paid by Healthpeak at Closing, and therefore are reflected as a reduction
to Cash and cash equivalents. |
| (c) | As set forth in item 10 of this Note 5, $210 million of
Physicians Realty Trust’s senior unsecured private placement notes are expected to be repaid prior to Closing by Physicians Realty
Trust by drawing on its unsecured revolving credit facility. Contemporaneously with the Closing, all outstanding balances on Physicians
Realty Trust’s unsecured revolving credit facility not repaid by Physicians Realty Trust are assumed to be repaid by Healthpeak. |
| (d) | Pursuant to the terms of the Merger Agreement, holders of Physicians
Realty Trust Equity Awards will receive dividends attributable to their equity of $6 million, of which $4 million was already
accrued and included in (a) above. |
| 6) | The pro forma adjustments for Intangible assets, net reflect:
(i) the elimination of Physicians Realty Trust’s historical carrying values for these assets, net of the associated accumulated
amortization, of $203 million and (ii) the recognition of the preliminary fair value of these assets of $493 million.
The following table summarizes the major classes of intangible assets acquired and the total pro forma adjustment to Intangible
assets, net (in thousands): |
| | |
Elimination of
historical
carrying value | | |
Estimated fair
value | | |
Total pro forma
adjustment | |
| Above market lease intangibles | |
$ | (25,469 | ) | |
$ | 33,325 | | |
$ | 7,856 | |
| Lease-up intangibles | |
| (177,073 | ) | |
| 459,570 | | |
| 282,497 | |
| Total | |
$ | (202,542 | ) | |
$ | 492,895 | | |
$ | 290,353 | |
| 7) | The pro forma adjustments for Goodwill reflect the recognition
of the preliminary goodwill balance associated with the Mergers of $10 million based on the preliminary purchase price allocation.
Healthpeak expects that the Goodwill associated with the Mergers will be attributable to the outpatient medical reportable segment. |
| 8) | The pro forma adjustments for Right-of-use asset, net reflects
the following eliminations of historical carrying values and recognition of preliminary fair values for the associated lease-related
intangible assets. The following table summarizes the pro forma adjustment to Right-of-use asset, net (in thousands): |
| | |
Elimination of
historical
carrying value | | |
Estimated fair
value | | |
Total pro forma
adjustment | |
| Below market ground lease intangibles | |
$ | (65,174 | ) | |
$ | 67,983 | | |
$ | 2,809 | |
| Above market ground lease intangibles | |
| 5,375 | | |
| — | | |
| 5,375 | |
| Total | |
$ | (59,799 | ) | |
$ | 67,983 | | |
$ | 8,184 | |
| 9) | The pro forma adjustment for Other assets, net included
the elimination of historical carrying values for balances that are not treated as separately recognized net assets under the principles
of ASC 805. The following table summarizes the pro forma adjustment (in thousands): |
| | |
Amount | |
| Straight-line rents receivable | |
$ | (104,991 | ) |
| Lease inducements | |
| (7,577 | ) |
| Leasing commissions, legal and marketing costs | |
| (14,043 | ) |
| Total pro forma adjustment | |
$ | (126,611 | ) |
Liabilities
| 10) | The pro forma adjustments for debt include the following
(in thousands): |
| | |
Elimination of
historical
amounts(a) | | |
Recognition of
post-Mergers
amounts(b) | | |
Total pro forma
adjustments | |
| Term loans | |
$ | (393,090 | ) | |
$ | 400,000 | | |
$ | 6,910 | |
| Senior unsecured notes(c) | |
| (1,451,536 | ) | |
| 1,068,638 | | |
| (382,898 | ) |
| Mortgage debt | |
| (127,630 | ) | |
| 127,628 | | |
| (2 | ) |
| Total | |
$ | (1,972,256 | ) | |
$ | 1,596,266 | | |
$ | (375,990 | ) |
| (a) | All eliminations of historical amounts are inclusive of unamortized
deferred financing costs and discounts of $7 million related to the Term loans, $8 million related to Senior unsecured notes
and less than $1 million related to Mortgage debt. Historical deferred financing costs and discounts will not be a component of
the net assets acquired by Healthpeak. |
| (b) | The recognition of post-Mergers amounts is based upon the preliminary
estimated fair value of the debt to be assumed and excludes Physicians Realty Trust’s unsecured revolving credit facility that
is expected to be repaid and terminated at Closing, which has been included as a component of the preliminary estimated purchase price. |
| (c) | The total pro forma adjustment for the Senior unsecured
notes reflects (i) the repayment of private placement notes of Physicians Realty Trust totaling $210 million as these notes
are expected to be settled prior to Closing by Physicians Realty Trust and (ii) differences between Physicians Realty Trust’s
historical carrying value (inclusive of deferred financing costs and discounts) and the preliminary fair value of Senior unsecured notes
that are expected to be assumed by Healthpeak, totaling $173 million. |
| 11) | The pro forma adjustments for Intangible liabilities, net
reflect: (i) the elimination of Physicians Realty Trust’s historical carrying values for these liabilities, net of the associated
accumulated amortization, of $23 million, and (ii) the recognition of the preliminary fair value of these intangible liabilities
of $85 million, which is comprised of below market lease intangibles. |
| 12) | Pursuant to the terms of the Merger Agreement, all accrued and
unpaid dividends and distributions with a record date prior to the Closing Date are required to be paid by Physicians Realty Trust immediately
prior to the Closing. The pro forma adjustment for Accounts payable, accrued liabilities, and other liabilities includes the payment
of dividends and distributions payable of $61 million. |
Equity
| 13) | The following table summarizes the pro forma adjustments
for stockholders’ equity (in thousands): |
| | |
Common
stock | | |
Additional
paid-in capital | | |
Cumulative
dividends in
excess of
earnings | | |
Accumulated
other
comprehensive
income (loss) | |
| Issuance of shares of Healthpeak common stock(a) | |
$ | 163,094 | | |
$ | 2,811,081 | | |
$ | — | | |
$ | — | |
| Elimination of Physicians Realty Trust’s historical equity balances(b) | |
| (2,385 | ) | |
| (3,817,545 | ) | |
| 1,012,869 | | |
| (15,216 | ) |
| Healthpeak merger related costs(c) | |
| — | | |
| 26,755 | | |
| (78,345 | ) | |
| — | |
| Total pro forma adjustment | |
$ | 160,709 | | |
$ | (979,709 | ) | |
$ | 934,524 | | |
$ | (15,216 | ) |
| (a) | The pro forma adjustments represent the issuance of shares
of Healthpeak common stock as consideration for the Mergers, as described in the Estimated Preliminary Purchase Price section
of this Note 5. The fair value of shares of Healthpeak common stock to be issued to former holders of Physicians Realty Trust common
shares and Physicians Realty Trust Equity Awards is based on the per share closing price of shares of Healthpeak common stock of $18.40
on December 6, 2023. |
| (b) | Includes the elimination of all historical equity balances of
Physicians Realty Trust. |
| (c) | Represents the estimated Mergers related costs to be incurred
by Healthpeak, including (i) $52 million of preliminary estimated transaction costs, consisting of advisory, legal, accounting,
and other transaction-related costs and (ii) $27 million of post-combination share-based compensation expense, which is recognized
as an increase to Additional paid-in capital offset by a decrease to Cumulative dividends in excess of earnings as these costs have not
yet been reflected in Healthpeak’s historical consolidated financial statements. |
| 14) | The pro forma adjustments for noncontrolling interests’
equity represents the effect of basis differences between the historical basis for noncontrolling interests and the preliminary estimated
fair value of the noncontrolling interests’ net assets. |
As of September 30, 2023, limited partners and Physicians Realty
Trust (as the general partner) held a 3.9% and 96.1% interest in Physicians Realty L.P., respectively. Substantially all net assets of
Physicians Realty Trust are held by Physicians Realty L.P. The limited partners and Physicians Realty Trust share equally in the risks
and rewards of equity ownership based on their respective ownership interests. Upon the consummation of the Mergers, all net assets of
Physicians Realty Trust will be held by the Partnership Surviving Entity by virtue of the Partnership Merger, the limited partners will
be entitled to cash distributions equal to Healthpeak common share dividends, and the ownership interests held by Healthpeak and the
limited partners will remain consistent immediately prior to and immediately following the Mergers. Therefore, the pro forma adjustment
for noncontrolling interests share of continuing operations with respect to the limited partners’ interest in the Partnership Surviving
Entity was calculated as the removal of the historical balance for non-managing member unitholders of $116 million and the recognition
of its preliminary estimated fair value of $129 million.
In addition to the noncontrolling interests relating to the Partnership
Surviving Entity and a consolidated joint venture with a redemption feature held by third-party investors (“Redeemable NCI”),
Physicians Realty Trust also holds interests in other joint ventures with the interests held by other joint venture partners also presented
as noncontrolling interests in Physicians Realty Trust’s historical consolidated financial statements, for which Healthpeak assumes
it will continue to consolidate following the Mergers (“Other NCI”). The pro forma adjustments for Other NCI included
the elimination of historical Other NCI of $9 million and the recognition of its preliminary estimated fair value of $7 million.
Statements of Operations
The pro forma adjustments reflect the effect
of the Pro Forma Transactions on Healthpeak’s and Physicians Realty Trust’s historical consolidated statements of operations
as if the Pro Forma Transactions occurred on January 1, 2022.
Revenue
| 15) | Rental and related revenues |
The historical rental revenues for Healthpeak and
Physicians Realty Trust represent contractual and straight-line rents, amortization of above market and below market lease intangibles,
and lease incentives associated with the leases in effect during the periods presented. The adjustments included in the unaudited pro forma
condensed combined statements of operations are presented to: (i) eliminate the historical straight-line rents and amortization of
above market and below market lease intangibles as well as deferred lease incentives for the real estate properties of Physicians Realty
Trust acquired as part of the Mergers, and (ii) adjust contractual rental property revenue for the acquired properties to a straight-line
basis from the Closing Date of the Mergers and (iii) amortize above market and below market lease intangibles recognized as a result
of the Mergers.
The pro forma adjustment for the amortization
of above market and below market lease intangibles recognized as a result of the Mergers was estimated based on a straight-line methodology
and the estimated remaining weighted average remaining useful life for above market lease intangibles and below market lease intangibles
of approximately 5 years each. The lease intangible asset and liability fair values and estimated amortization expense may differ
materially from the preliminary determination within these unaudited pro forma condensed combined financial statements. The pro forma
adjustments to rental revenues do not purport to be indicative of the expected change in rental revenues of the Combined Company in any
future periods.
The following table summarizes the adjustments made
to Rental and related revenues (in thousands):
| | |
Elimination of
historical
amounts | | |
Recognition of
post-Mergers
amounts | | |
Total pro forma
adjustment | |
| For the nine months ended September 30, 2023 | |
| | | |
| | | |
| | |
| Straight-line rents | |
$ | (2,756 | ) | |
$ | 8,130 | | |
$ | 5,374 | |
| Amortization of above market and below market lease intangibles and deferred lease incentives | |
| 3,140 | | |
| 8,941 | | |
| 12,081 | |
| Total | |
$ | 384 | | |
$ | 17,071 | | |
$ | 17,455 | |
| For the year ended December 31, 2022 | |
| | | |
| | | |
| | |
| Straight-line rents | |
$ | (6,847 | ) | |
$ | 19,367 | | |
$ | 12,520 | |
| Amortization of above market and below market lease intangibles and deferred lease incentives | |
| 4,613 | | |
| 12,843 | | |
| 17,456 | |
| Total | |
$ | (2,234 | ) | |
$ | 32,210 | | |
$ | 29,976 | |
| 16) | The pro forma adjustments for Interest income reflect the
amortization of the difference between the fair value and carrying value of Physicians Realty Trust’s loans receivable amortized
over the remaining life of the receivables, which resulted in an assumed increase to interest income of $1 million for the nine months
ended September 30, 2023 and $2 million for the year ended December 31, 2022. |
Expense
| 17) | The pro forma adjustments to Interest expense reflect the
impact of the Mergers on the amounts recognized in Physicians Realty Trust’s historical consolidated statements of operations for
the periods presented as a result of: (i) the elimination of historical amortization of deferred financing costs and discounts,
(ii) the elimination of historical interest expense on Physicians Realty Trust’s senior unsecured private placement notes,
which is expected to be settled and repaid prior to Closing, and the elimination of historical interest expense on Physicians Realty
Trust’s unsecured revolving credit facility, which is expected to be repaid and terminated at Closing and (iii) the effective
interest amortization of the fair value on Physicians Realty Trust’s debt assumed in the Mergers. The following table summarizes
the pro forma adjustments to Interest expense (in thousands): |
| | |
For the nine
months ended
September 30, 2023 | | |
For the year ended
December 31, 2022 | |
| Elimination of historical amortization of deferred financing costs and discounts | |
$ | (2,028 | ) | |
$ | (2,314 | ) |
| Elimination of historical interest expense on debt repaid/terminated | |
| (12,523 | ) | |
| (18,613 | ) |
| Amortization of the fair value adjustment on debt assumed | |
| 17,721 | | |
| 26,947 | |
| Total | |
$ | 3,170 | | |
$ | 6,020 | |
| 18) | The adjustments included in the unaudited pro forma condensed
combined statements of operations are presented to: (i) eliminate the historical depreciation and amortization of real estate properties
of Physicians Realty Trust acquired as part of the Mergers and (ii) recognize additional depreciation and amortization expense associated
with the preliminary fair value of acquired real estate tangible and intangible assets. |
The pro forma adjustment for the depreciation and amortization
of acquired assets is calculated using a straight-line methodology and is based on estimated useful lives for building and site improvements,
the remaining contractual, lease term for intangible lease assets and the lesser of the estimated useful life and the remaining contractual,
lease term for tenant improvements. In connection with the application of ASC 805, Healthpeak management reassessed the useful lives of
Physicians Realty Trust’s buildings. For purposes of the unaudited pro forma condensed combined statements of operations, Healthpeak
management estimated the weighted average useful life for buildings and improvements to be approximately 35 years; the weighted average
useful life for each of land improvements and tenant improvements to be approximately 5 years; and the weighted average remaining
contractual, lease-up intangibles term to be approximately 6 years. The fair value of acquired real estate tangible and intangible
assets, estimated useful lives of such assets and estimated depreciation and amortization expense may differ materially from the preliminary
determination within these unaudited pro forma condensed combined financial statements. The pro forma adjustments to depreciation
and amortization expense are not necessarily indicative of the expected change in depreciation and amortization expense of the Combined
Company in any future periods.
The following table summarizes adjustments made
to Depreciation and amortization expense by asset category for the real estate properties of Physicians Realty Trust’s to be acquired
as part of the Mergers (in thousands):
| | |
Elimination of
historical amounts | | |
Recognition of
post-Mergers
amounts | | |
Total pro forma
adjustment | |
| For the nine months ended September 30, 2023 | |
| | | |
| | | |
| | |
| Buildings and improvements | |
$ | (93,056 | ) | |
$ | 73,173 | | |
$ | (19,883 | ) |
| Land improvements | |
| (10,194 | ) | |
| 17,098 | | |
| 6,904 | |
| Tenant improvements | |
| (5,617 | ) | |
| 38,929 | | |
| 33,312 | |
| Lease-up intangibles | |
| (33,052 | ) | |
| 76,200 | | |
| 43,148 | |
| Other | |
| (1,318 | ) | |
| 1,318 | | |
| — | |
| Total | |
$ | (143,237 | ) | |
$ | 206,718 | | |
$ | 63,481 | |
| For the year ended December 31, 2022 | |
| | | |
| | | |
| | |
| Buildings and improvements | |
$ | (121,390 | ) | |
$ | 97,564 | | |
$ | (23,826 | ) |
| Land improvements | |
| (13,554 | ) | |
| 22,797 | | |
| 9,243 | |
| Tenant improvements | |
| (6,953 | ) | |
| 55,956 | | |
| 49,003 | |
| Lease-up intangibles | |
| (45,477 | ) | |
| 109,047 | | |
| 63,570 | |
| Other | |
| (1,847 | ) | |
| 1,847 | | |
| — | |
| Total | |
$ | (189,221 | ) | |
$ | 287,211 | | |
$ | 97,990 | |
| 19) | Represents pro forma adjustments to decrease ground leases
rent expense by less than $1 million for the nine months ended September 30, 2023, and less than $1 million for the
year ended December 31, 2022, as a result of the valuation of below market ground lease intangibles at their preliminary estimated
fair values and the related amortization, and removal of the historical amortization of above and below market ground lease intangibles.
The adjustment is computed on a straight-line basis with a weighted average remaining lease term of 74 years. The fair value adjustment
on Physicians Realty Trust’s ground leases may differ materially from the preliminary determination within these unaudited pro forma
condensed combined financial statements. The pro forma adjustments to operating expenses do not purport to be indicative of the
expected change in ground rent expense of the Combined Company in any future periods. |
| 20) | The pro forma adjustments for transaction costs included
(i) the recognition of post-combination compensation expense for the accelerated vesting of Physicians Realty Trust Equity Awards
pursuant to the terms of the Merger Agreement of $27 million, based on the estimated fair value of the shares of Healthpeak common
stock to be issued to holders of Physicians Realty Trust Equity Awards, and recognized as a point-in-time expense because no post-combination
services are required for the holders of Physicians Realty Trust Equity Awards to vest into their awards, as well as (ii) recognition
of $52 million in preliminary estimated Healthpeak transaction costs consisting of advisory, legal, accounting, and other transaction-related
costs, which were not incurred prior to September 30, 2023. |
Joint Ventures and Noncontrolling Interests
| 21) | The pro forma adjustments for Equity income (loss) from
unconsolidated joint ventures reflect the elimination of historical amounts and recognition of post-Mergers amounts based on the preliminary
estimated fair value of the unconsolidated joint ventures investments of Physicians Realty Trust that are assumed to be acquired by Healthpeak.
The pro forma adjustments to the unaudited pro forma condensed combined statements of operations with respect to Equity income
(loss) from unconsolidated joint ventures for the nine months ended September 30, 2023 and the year ended December 31,
2022 were reductions to income of $3 million and $5 million, respectively. |
| 22) | The pro forma adjustments for Noncontrolling interests’
share in continuing operations reflects the elimination of historical amounts and recognition of post-Mergers amounts. With respect to
Redeemable NCI and Other NCI, the post-Mergers amounts are based on the preliminary estimated fair value of the noncontrolling interests
of Physicians Realty Trust that are expected to be assumed by Healthpeak. With respect to Partnership Surviving Entity NCI, the post-Mergers
amounts are based on the expected cash distribution entitlements of non-managing member unitholders during the pro forma periods
presented. The following table summarizes the pro forma adjustments to Noncontrolling interests’ share in continuing operations
(in thousands): |
| | |
For the nine
months ended
September 30, 2023 | | |
For the year ended
December 31, 2022 | |
| Partnership Surviving Entity NCI | |
$ | (4,510 | ) | |
$ | (2,698 | ) |
| Redeemable NCI and Other NCI | |
| (185 | ) | |
| 45 | |
| Total | |
$ | (4,695 | ) | |
$ | (2,653 | ) |
Note 6 — Pro Forma Net Income Available to Common
Stockholders per Share
The following table summarizes the unaudited pro forma
net income from continuing operations per share, as if the Pro Forma Transactions occurred on January 1, 2022 (in thousands, except
per share data):
| | |
For the nine
months ended
September 30, 2023 | | |
For the year ended
December 31, 2022 | |
| Numerator – Basic | |
| | | |
| | |
| Pro forma net income from continuing operations | |
$ | 229,028 | | |
$ | 441,932 | |
| Less: Noncontrolling interests’ share in continuing operations | |
| (30,556 | ) | |
| (24,298 | ) |
| Income (loss) from continuing operations attributable to the Combined Company | |
| 198,472 | | |
| 417,634 | |
| Less: Participating securities’ share in continuing operations | |
| (1,568 | ) | |
| (2,657 | ) |
| Net Income (loss) from continuing operations applicable to common shares | |
| 196,904 | | |
| 414,977 | |
| Numerator – Dilutive | |
| | | |
| | |
| Net income (loss) applicable to common shares | |
| 196,904 | | |
| 414,977 | |
| Noncontrolling interests – non-managing member units’ income | |
| 1,443 | | |
| 5,240 | |
| Dilutive net income (loss) from continuing operations applicable to common shares | |
$ | 198,347 | | |
$ | 420,217 | |
| Denominator | |
| | | |
| | |
| Healthpeak historical basic weighted average shares outstanding | |
| 546,978 | | |
| 538,809 | |
| Physicians Realty Trust common shares, inclusive of restricted shares, converted into shares of Healthpeak common stock | |
| 160,991 | | |
| 160,991 | |
| Physicians Realty Trust PSUs and RSUs converted into shares of Healthpeak common stock | |
| 2,103 | | |
| 2,103 | |
| Basic weighted average shares outstanding | |
| 710,072 | | |
| 701,903 | |
| Dilutive potential common stock – equity awards | |
| 269 | | |
| 338 | |
| Dilutive noncontrolling interest – non-managing member units (as adjusted for the application of the Exchange Ratio) | |
| 6,615 | | |
| 6,615 | |
| Diluted weighted average shares outstanding | |
| 716,956 | | |
| 708,856 | |
| Basic earnings (loss) from continuing operations per common share | |
$ | 0.28 | | |
$ | 0.59 | |
| Diluted earnings (loss) from continuing operations per common share | |
$ | 0.28 | | |
$ | 0.59 | |
Healthpeak Properties (NYSE:PEAK)
Historical Stock Chart
From Apr 2024 to May 2024
Healthpeak Properties (NYSE:PEAK)
Historical Stock Chart
From May 2023 to May 2024
