Notes to Consolidated Financial Statements
Unless otherwise indicated or unless the context requires otherwise the use of the words “we,” “us,” or “our” refers to Physicians Realty Trust and Physicians Realty L.P., collectively.
Note 1.
Organization and Business
Physicians Realty Trust (the “Trust”) was organized in the state of Maryland on April 9, 2013. As of
March 31, 2017
, the Trust was authorized to issue up to
500,000,000
common shares of beneficial interest, par value
$0.01
per share (“common shares”). 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 Physicians Realty L.P. (the “Operating Partnership” and together with the Trust and its consolidated subsidiaries, including the Operating Partnership, the “Company”), a Delaware limited partnership, and is the sole general partner of the Operating Partnership. The Trust and the Operating Partnership are managed and operated as one entity. 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 real estate investment trust (“REIT”) formed primarily to acquire, selectively develop, own, and manage healthcare properties that are leased to physicians, hospitals, and healthcare delivery systems.
Equity Offerings
On
March 17, 2017
, the Trust completed a follow-on public offering of
17,250,000
common shares of beneficial interest, including
2,250,000
common shares issued upon exercise of the underwriters’ overallotment option, resulting in net proceeds to it of approximately
$300.7 million
. The Trust contributed the net proceeds of this offering to the Operating Partnership in exchange for
17,250,000
OP Units, and the Operating Partnership used the net proceeds of the public offering to repay borrowings under its unsecured revolving credit facility and for general corporate purposes, including working capital and funding acquisitions.
ATM Program
On August 5, 2016, the Trust and the Operating Partnership entered into separate At Market Issuance Sales Agreements (the “2016 Sales Agreements”) with each of KeyBanc Capital Markets Inc., Credit Agricole Securities (USA) Inc., JMP Securities LLC, Raymond James & Associates, Inc., and Stifel Nicolaus & Company, Incorporated (the “2016 Agents”), pursuant to which the Trust may issue and sell, from time to time, its common shares having an aggregate offering price of up to
$300.0 million
, through the 2016 Agents (the “2016 ATM Program”). In accordance with the 2016 Sales Agreements, the Trust may offer and sell its common shares through any of the 2016 Agents, from time to time, by any method deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended, which includes sales made directly on the New York Stock Exchange or other existing trading market, or sales made to or through a market maker. With the Trust’s express written consent, sales may also be made in negotiated transactions or any other method permitted by law.
During the quarterly period ended
March 31, 2017
, the Trust did not issue and sell any common shares pursuant to any of the 2016 Sales Agreements. As of
April 28, 2017
, the Trust has
$297.4 million
remaining available under the 2016 ATM Program.
Note 2.
Summary of Significant Accounting Policies
The accompanying unaudited consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods ended
March 31, 2017
and
2016
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 accounting principles generally accepted in the United States (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements included in the Trust’s and the Operating Partnership’s combined Annual Report on Form 10-K for the year ended
December 31, 2016
, filed with the Commission on February 24, 2017.
Principles of Consolidation
GAAP requires us to identify 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. We identify 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. We consolidate our investment in a VIE when we determine that we are the VIE’s primary beneficiary. We may change our original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. We perform this analysis on an ongoing basis.
For property holding entities not determined to be VIEs, we consolidate such entities in which the Operating Partnership owns
100%
of the equity or has a controlling financial interest evidenced by ownership of a majority voting interest. All intercompany balances and transactions are eliminated in consolidation. For entities in which the Operating Partnership owns less than
100%
of the equity interest, the Operating Partnership consolidates the property if it has the direct or indirect ability to control the entities’ activities based upon the terms of the respective entities’ ownership agreements. For these entities, the Operating Partnership records a noncontrolling interest representing equity held by noncontrolling interests.
Noncontrolling Interests
The Company presents the portion of any equity it does not own in entities that it controls (and thus consolidates) as noncontrolling interests and classifies such interests as a component of consolidated equity, separate from the Company’s total shareholders’ equity, on the consolidated balance sheets.
Operating Partnership: Net income or loss is allocated to noncontrolling interests (limited partners) based on their respective ownership percentage of the Operating Partnership. The ownership percentage is calculated by dividing the number of OP Units held by the noncontrolling interests by the total OP Units held by the noncontrolling interests and the Trust. Issuance of additional common shares and OP Units changes the ownership interests of both the noncontrolling interests and the Trust. Such transactions and the related proceeds are treated as capital transactions.
During the
three months ended March 31, 2017
, the Operating Partnership partially funded a property acquisition by issuing an aggregate of
2,247,817
OP Units valued at approximately
$44.3 million
. The acquisition had a total purchase price of approximately
$78.6 million
.
In addition, on January 31, 2017, the Operating Partnership redeemed the noncontrolling interest in a joint venture between the Operating Partnership and Medical Center of New Albany I, LLC, an Ohio limited liability company. As consideration, the Operating Partnership paid approximately
$2.1 million
in cash and issued
38,641
OP Units, representing an aggregate
$2.8 million
.
Noncontrolling interests in the Company include OP Units held by other investors. As of
March 31, 2017
, the Trust held a
96.6%
interest in the Operating Partnership. As the sole general partner and the majority interest holder, the Trust consolidates the financial position and results of operations of the Operating Partnership.
Holders of OP Units may not transfer their OP 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, OP Unit holders may tender their units for redemption by the Operating Partnership in exchange for cash equal to the market price of the Trust’s common shares at the time of redemption or for unregistered common shares on a
one-for-one
basis. Such selection to pay cash or issue common shares to satisfy an OP Unit holder’s redemption request is solely within the control of the Trust. Accordingly, the Trust presents the OP Units of the Operating Partnership held by investors other than the Trust as noncontrolling interests within equity in the consolidated balance sheets.
Partially Owned Properties: The Trust and Operating Partnership reflect noncontrolling interests in partially owned properties on the balance sheet for the portion of consolidated properties that are not wholly owned by the Company. The earnings or losses from those properties attributable to the noncontrolling interests are reflected as noncontrolling interests in partially owned properties in the consolidated statements of income.
Redeemable Noncontrolling Interests - Series A Preferred Units and Partially Owned Properties
On February 5, 2015, the Company entered into a Second Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”) which provides for the designation and issuance of the newly designated Series A Participating Redeemable Preferred Units of the Operating Partnership (“Series A Preferred Units”). Series A Preferred Units have priority over all other partnership interests of the Operating Partnership with respect to distributions and liquidation. Holders of Series A Preferred Units are entitled to a
5%
cumulative return and upon redemption, the receipt of
one
common share and
$200
. The holders of the Series A Preferred Units have agreed not to cause the Operating Partnership to redeem their Series A Preferred Units prior to
one year
from the issuance date. In addition, Series A Preferred Units are redeemable at the option of the holders which redemption obligation may be satisfied, at the Trust’s option, in cash or registered common shares. Instruments that require settlement in registered common shares may not be classified in permanent equity as it is not always completely within an issuer’s control to deliver registered common shares. Due to the redemption rights associated with the Series A Preferred Units, the Company classifies the Series A Preferred Units in the mezzanine section of the consolidated balance sheets.
The Series A Preferred Units were evaluated for embedded features that should be bifurcated and separately accounted for as a freestanding derivative. The Company determined that the Series A Preferred Units contained features that require bifurcation. The Company records the carrying amount of the redeemable noncontrolling interests, less the value of the embedded derivative, at the greater of the carrying value or redemption value in the consolidated balance sheets in accrued expenses and other liabilities.
On February 5, 2015, the acquisition of the Minnetonka MOB was partially funded with the issuance of
44,685
Series A Preferred Units which were valued at
$9.7 million
. On December 17, 2015, the acquisition of the Nashville MOB was partially funded with the issuance of
91,236
Series A Preferred Units which were valued at
$19.7 million
.
On April 1, 2016, the Series A Preferred Units issued in conjunction with the Minnetonka MOB acquisition were redeemed for a total value of
$9.8 million
. The fair value of the embedded derivative associated with the previously outstanding Series A Preferred Units was
$2.7 million
which was derecognized in the course of the redemption.
On January 12, 2017, the Series A Preferred Units issued in conjunction with the Nashville MOB acquisition were redeemed for a total value of
$20.0 million
. The fair value of the embedded derivative associated with the previously outstanding Series A Preferred Units was
$5.6 million
which was derecognized in the course of the redemption.
As of March 31, 2017,
no
Series A Preferred Units are outstanding.
In connection with the acquisition of the Minnetonka MOB, the Trust received a
$5 million
equity investment from a third party, effective March 1, 2015. This investment earns a
15%
cumulative preferred return. At any point subsequent to the third anniversary of the investment, the holder can require the Trust to redeem the instrument at a price for which the investor will realize a
15%
internal rate of return. Due to the redemption provision, which is outside of the control of the Trust, the Trust classifies the investment in the mezzanine section of its consolidated balance sheet. The Trust records the carrying amount of the redeemable noncontrolling interests at the greater of the carrying value or redemption value.
In connection with the acquisition of the Great Falls Clinic, physicians affiliated with the seller retained a non-controlling interest which may, at the holders option, be redeemed at any time. Due to the redemption provision, which is outside of the control of the Trust, the Trust classifies the investment in the mezzanine section of its consolidated balance sheet. The Trust records the carrying amount of the redeemable noncontrolling interests at the greater of the carrying value or redemption value.
Dividends and Distributions
On
March 17, 2017
, the Trust announced that its Board of Trustees authorized and the Trust declared a cash dividend of
$0.225
per common share for the quarterly period ended
March 31, 2017
. The distribution was paid on
April 18, 2017
to common shareholders and OP Unit holders of record as of the close of business on
April 5, 2017
.
All distributions paid by the Operating Partnership are declared and paid at the same time as dividends are distributed by the Trust to common shareholders. It has been the Operating Partnership’s policy to declare quarterly distributions so as to allow the Trust to comply with applicable provisions of the Internal Revenue Code of 1986, as amended (the “Code”), governing REITs. The declaration and payment of quarterly distributions remains subject to the review and approval of the Trust’s Board of Trustees.
Our shareholders are entitled to reinvest all or a portion of any cash distribution on their shares of our common stock by participating in our Dividend Reinvestment and Share Purchase Plan (“DRIP”), subject to the terms of the plan.
Tax Status of Dividends and Distributions
Our distributions of current and accumulated earnings and profits for U.S. federal income tax purposes generally are taxable to shareholders as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the shareholders’ basis in the shares to the extent thereof (non-dividend distributions) and thereafter as taxable gain.
Any cash distributions received by an OP Unit holder in respect of its OP Units generally will not be taxable to such OP Unit holder for U.S. federal income tax purposes, to the extent that such distribution does not exceed the OP Unit holder’s basis in its OP Units. Any such distribution will instead reduce the OP Unit holder’s basis in its OP Units (and OP Unit holders will be subject to tax on the taxable income allocated to them by the Operating Partnership in respect of their OP Units when such income is earned by the Operating Partnership, with such income allocation increasing the OP Unit holders’ basis in their OP Units).
Purchases of Investment Properties
A property acquired not subject to an existing lease is treated as an asset acquisition and recorded at its purchase price, inclusive of acquisition costs, allocated between the acquired tangible and intangible assets and assumed liabilities based upon their relative fair values at the date of acquisition. A property acquired with an existing lease is accounted for as a business combination pursuant to the acquisition method in accordance with ASC Topic 805,
Business Combinations
(“ASC 805”), and assets acquired and liabilities assumed, including identified intangible assets and liabilities, are recorded at fair value.
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 buildings acquired on an “as-if-vacant” basis and depreciates the building value over the estimated remaining life of the building. 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 internal analyses of recently acquired and existing comparable properties within the Company’s portfolio.
In recognizing identified intangible assets and liabilities in connection with a business combination, the value of above or below-market leases is estimated based on the present value (using an interest rate which reflected the risks associated with the leases acquired) of the difference between contractual amounts to be received pursuant to the leases and management’s estimate of market lease rates measured over a period equal to the estimated remaining term of the lease. The capitalized above-market or below-market lease intangibles are amortized as a reduction or addition to rental income over the estimated remaining term of the respective leases plus the term of any renewal options that the lessee would be economically compelled to exercise.
In determining the value of in-place leases, management considers current market conditions and costs to execute similar leases in arriving at an estimate of the carrying costs during the expected lease-up period from vacant to existing occupancy. In estimating carrying costs, management includes real estate taxes, insurance, other operating expenses, estimates
of lost rental revenue during the expected lease-up periods, and costs to execute similar leases, including leasing commissions, tenant improvements, legal, and other related costs based on current market demand. The values assigned to in-place leases are amortized to amortization expense over the estimated remaining term of the lease. If a lease terminates prior to its scheduled expiration, all unamortized costs related to that lease are written off, net of any required lease termination payments.
The Company calculates the fair value of any long-term debt assumed by discounting the remaining contractual cash flows on each instrument at the current market rate for those borrowings, which the Company approximates based on the rate it would expect to incur on a replacement instrument on the date of acquisition, and recognizes any fair value adjustments related to long-term debt as effective yield adjustments over the remaining term of the instrument.
Based on these estimates, the Company recognizes the acquired assets and assumed liabilities at their estimated fair values, which are generally determined using Level 3 inputs, such as market rental rates, capitalization rates, discount rates, or other available market data. Initial valuations are subject to change until the information is finalized, no later than 12 months from the acquisition date. The Company expenses transaction costs associated with acquisitions accounted for as business combinations in the period incurred.
Impairment of Intangible and Long-Lived Assets
The Company periodically evaluates its long-lived assets, primarily consisting of investments in real estate, for impairment indicators or whenever events or changes in circumstances indicate that the recorded amount of an asset may not be fully recoverable. If indicators of impairment are present, the Company evaluates the carrying value of the related real estate properties in relation to the undiscounted expected future cash flows of the underlying operations. In performing this evaluation, management considers market conditions and current intentions with respect to holding or disposing of the real estate property. The Company adjusts the net book value of real estate properties to fair value if the sum of the expected future undiscounted cash flows, including sales proceeds, is less than book value. The Company recognizes an impairment loss at the time it makes any such determination. If the Company determines that an asset is impaired, the impairment to be recognized is measured as the amount by which the recorded amount of the asset exceeds its fair value. Fair value is typically determined using a discounted future cash flow analysis or other acceptable valuation techniques, which are based, in turn, upon Level 3 inputs, such as revenue and expense growth rates, capitalization rates, discount rates, or other available market data.
The Company did
not
record impairment charges in the
three
month periods ended
March 31, 2017
and
2016
.
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. Long-lived assets to be disposed of are reported at the lower of their carrying amount or fair value minus cost to sell, and are no longer depreciated.
Four
properties were classified as held for sale as of
March 31, 2017
. See
Note 3 (Acquisitions and Dispositions)
for further detail regarding the properties held for sale.
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.
Real Estate Loans Receivable
Real estate loans receivable consists of
seven
mezzanine loans and
two
term loans. Each mezzanine loan is collateralized by an ownership interest in the respective borrower, while the
two
term loans are secured by equity interests in
two
medical office building developments, respectively. Interest income on the loans are recognized as earned based on the terms of the loans subject to evaluation of collectability risks and are included in the Company’s consolidated statements of income.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and short-term investments with maturities of three or fewer months 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.
Escrow Reserves
The Company is required to maintain various escrow reserves on certain notes payable to cover future property taxes and insurance and tenant improvements costs as defined in each loan agreement. The total reserves as of
March 31, 2017
and
December 31, 2016
are
$3.9 million
and
$4.3 million
, respectively, which are included in other assets in the consolidated balance sheets.
Deferred Costs
Deferred costs consist primarily of fees paid to obtain financing and costs associated with the origination of long-term leases on real estate properties. After the purchase of a property, lease commissions incurred to extend in-place leases or generate new leases are added to deferred lease costs. Deferred lease costs are included as a component of other assets and are amortized on a straight-line basis over the terms of their respective agreements. Deferred financing costs are shown as a direct reduction from the related debt liability. The Company amortizes deferred financing costs as a component of interest expense over the terms of the related borrowings using a method that approximates a level yield.
Rental Revenue
Rental revenue is recognized on a straight-line basis over the terms of the related leases when collectability is reasonably assured. 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
$36.6 million
and
$32.0 million
as of
March 31, 2017
and
December 31, 2016
, respectively. If the Company determines that collectability of straight-line rents is not reasonably assured, the Company limits future recognition to amounts contractually owed and, where appropriate, establishes an allowance for estimated losses. Rental revenue is adjusted by amortization of lease inducements and above or below market rents on certain leases. Lease inducements and above or below-market rents are amortized over the remaining life of the lease.
Expense Recoveries
Expense recoveries relate to tenant reimbursement of real estate taxes, insurance, and other operating expenses that are recognized as expense recovery revenue in the period the applicable expenses are incurred. The reimbursements are recorded at gross, as the Company is generally the primary obligor with respect to real estate taxes and purchasing goods and services from third-party suppliers, has discretion in selecting the supplier, and bears the credit risk of tenant reimbursement.
The Company has certain tenants with absolute net leases. Under these lease agreements, the tenant is responsible for operating and building expenses. For absolute net leases, the Company does not recognize expense recoveries.
Derivative Instruments
When the Company has derivative instruments embedded in other contracts, it records them either as an asset or a liability measured at their fair value unless they qualify for a normal purchase or normal sales exception. When specific hedge accounting criteria are not met, changes in the Company’s derivative instruments’ fair value are 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 the derivative instruments do not qualify for, or the Company does not elect to apply for, hedge accounting. If hedge accounting is applied to a derivative instrument, such changes are reported in accumulated other comprehensive income within the consolidated statement of equity, exclusive of ineffectiveness amounts, which are recognized as adjustments to net income.
To manage interest rate risk for certain of its variable-rate debt, the Company uses interest rate swaps as part of its risk management strategy. These derivatives are designed to mitigate the risk of future interest rate increases by providing a fixed interest rate for a limited, pre-determined period of time. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. As of
March 31, 2017
, the Company had
five
outstanding interest rate swap contracts that are designated as cash flow hedges of interest rate risk. For presentational purposes, they are shown as one derivative due to the identical nature of their economic terms. Further detail is provided in
Note 7 (Derivatives)
.
The effective portion of the change in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (“AOCI”) on the consolidated balance sheets and is subsequently reclassified into earnings as interest expense for the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. For the three months ended
March 31, 2017
, the Company recognized a
$0.2 million
loss
as a result of hedge ineffectiveness. The Company expects hedge ineffectiveness to be insignificant in the next 12 months.
Income Taxes
The Trust elected to be taxed as a REIT for federal tax purposes commencing with the filing of its tax return for the short taxable year ending December 31, 2013. The Trust had no taxable income prior to electing REIT status. To qualify as a REIT, the Trust must meet certain organizational and operational requirements, including a requirement to distribute at least
90%
of its annual REIT taxable income to its shareholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Trust generally will not be subject to federal income tax to the extent it distributes qualifying dividends to its shareholders. If the Trust fails to qualify as a REIT in any taxable year, it will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants the Trust relief under certain statutory provisions. Such an event could materially adversely affect the Trust’s net income and net cash available for distribution to shareholders. However, the Trust intends to continue to operate in such a manner as to continue qualifying for treatment as a REIT. Although the Trust continues to qualify for taxation as a REIT, in various instances, the Trust is subject to state and local taxes on its income and property, and federal income and excise taxes on its undistributed income.
As discussed in
Note 1 (Organization and Business)
, the Trust conducts substantially all of its operations through the Operating Partnership. As a partnership, the Operating Partnership generally is not liable for federal income taxes. The income and loss from the operations of the Operating Partnership is included in the tax returns of its partners, including the Trust, who are responsible for reporting their allocable share of the partnership income and loss. Accordingly, no provision for income taxes has been made on the accompanying consolidated financial statements.
Tenant Receivables, Net
Tenant accounts receivable are stated net of the applicable allowance. Rental payments under these contracts are primarily due monthly. The Company assesses the collectability of tenant receivables, including straight-line rent receivables, and defers recognition of revenue if collectability is not reasonably assured. The Company bases its assessment of the collectability of rent receivables on several factors, including, among other things, payment history, the financial strength of the tenant, and current economic conditions. If management’s evaluation of these factors indicates it is probable that the Company will be unable to recover the full value of the receivable, the Company provides a reserve against the portion of the receivable that it estimates may not be recovered. At
March 31, 2017
and
December 31, 2016
, the allowance for doubtful accounts was
$2.2 million
and
$2.4 million
, respectively.
Management Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the amounts of revenue and expenses reported in the period. Significant estimates are made for the fair value assessments with respect to purchase price allocations, impairment assessments, and the valuation of financial instruments. Actual results could differ from these estimates.
Contingent Liabilities
The Company records liabilities for contingent consideration (included in accrued expenses and other liabilities on its consolidated balance sheets) at fair value as of the acquisition date and reassesses the fair value at the end of each reporting period, with any changes being recognized in earnings. Increases or decreases in the fair value of contingent consideration can result from changes in discount periods, discount rates, and probabilities that contingencies will be met.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on the previously reported consolidated balance sheets or consolidated statements of income.
Segment Reporting
Under the provision of Codification Topic 280,
Segment Reporting
, the Company has determined that it has
one
reportable segment with activities related to leasing and managing healthcare properties.
New Accounting Pronouncements
In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers
, which creates a new Topic, Accounting Standards Codification Topic 606. The standard is principle-based and provides a five-step model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This standard is effective for interim or annual periods beginning after December 15, 2017 and allows for either full retrospective or modified retrospective adoption. Early adoption of this standard is permitted for reporting periods beginning after December 15, 2016. The Company anticipates that adoption of ASU 2014-09 will take place on January 1, 2018 via the modified retrospective approach. Under the full retrospective method, the standard would be applied retrospectively to all reporting periods represented on the financial statements. The modified retrospective approach applies the standard in the year of initial application and presents the cumulative effect of prior periods with an adjustment to beginning retained earnings, with no restatement of comparative periods. As leasing arrangements (which are excluded from ASU 2014-09) represent the primary source of revenue for the Company, the impact of adoption will be limited to the Company’s recognition and presentation of non-lease revenues. The Company continues to evaluate the impact of ASU 2014-09 to its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases
. The update amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted. As a result of adopting ASU 2016-02, the Company will recognize all of its operating leases for which it is the lessee, including ground leases, on its consolidated balance sheets. The Company is evaluating the impact of the adoption of ASU 2016-02 on January 1, 2019 to its consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting
. This update simplifies several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statements of cash flows. ASU 2016-09 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. The Company adopted ASU 2016-09 on January 1, 2017, with no material effect on its consolidated financial statements with no adjustments made to prior periods.
In January 2017, the FASB issued ASU 2017-01,
Clarifying the Definition of a Business
, that clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. ASU 2017-01 will be effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of adopting ASU 2017-01 on its consolidated financial statements.
Note 3.
Acquisitions and Dispositions
During the
three
months ended
March 31, 2017
, the Company completed acquisitions of
7
operating healthcare properties and
2
condominium units located in
5
states for an aggregate purchase price of approximately
$243.2 million
. In addition, the Company completed
$2.3 million
of loan transactions and
$2.8 million
of noncontrolling interest buyouts, resulting in total investment activity of approximately
$248.3 million
.
Investment activity for the three months ended
March 31, 2017
is summarized below:
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Property (1)
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Location
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Acquisition
Date
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Purchase
Price
(in thousands)
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Tinseltown - Loan Draw
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(2)
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Jacksonville, FL
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$
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516
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Hazelwood Mezzanine Loan - Amendment
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(3)
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Minnetonka, MN
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1,763
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Orthopedic Associates
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(4)
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Flower Mound, TX
|
|
January 5, 2017
|
|
18,750
|
|
|
Medical Arts Center at Hartford
|
(4)
|
|
|
Plainville, CT
|
|
January 11, 2017
|
|
30,250
|
|
|
Noncontrolling Interest Buyout - New Albany
|
(5)
|
|
|
New Albany, OH
|
|
January 31, 2017
|
|
2,824
|
|
|
CareMount - Lake Katrine MOB
|
(4)
|
(6)
|
|
Lake Katrine, NY
|
|
February 14, 2017
|
|
41,791
|
|
|
CareMount - Rhinebeck MOB
|
(4)
|
|
|
Rhinebeck, NY
|
|
February 14, 2017
|
|
18,639
|
|
|
Syracuse Condos
|
(4)
|
|
|
Fayetteville & Liverpool, NY
|
|
February 27, 2017
|
|
2,659
|
|
|
Monterey Medical Center MOB
|
(4)
|
|
|
Stuart, FL
|
|
March 7, 2017
|
|
18,979
|
|
|
Creighton University Medical Center
|
(7)
|
(8)
|
|
Omaha, NE
|
|
March 28, 2017
|
|
33,529
|
|
|
Strictly Pediatrics Specialty Center
|
(4)
|
(9)
|
|
Austin, TX
|
|
March 31, 2017
|
|
78,628
|
|
|
|
|
|
|
|
|
|
|
$
|
248,328
|
|
|
|
|
|
(1)
|
“MOB” means medical office building.
|
|
|
|
|
(2)
|
This investment represents the final Tinseltown draw, resulting in a total loan balance of
$12.6 million
.
|
|
|
|
|
(3)
|
The existing Hazelwood Mezzanine Loan was amended, resulting in a total outstanding principal balance of
$5.1 million
.
|
|
|
|
|
(4)
|
The Company accounted for these acquisitions as business combinations pursuant to the acquisition method. Acquisition costs expensed during the period total
$5.4 million
.
|
|
|
|
|
(5)
|
The Company acquired the previously outstanding interest in the New Albany MOB from the predecessor owner. As consideration, the Operating Partnership paid approximately
$2.1 million
in cash and issued
38,641
OP Units, representing an aggregate
$2.8 million
.
|
|
|
|
|
(6)
|
The Company partially funded this acquisition through the assumption of an existing mortgage valued at approximately
$26.4 million
.
|
|
|
|
|
(7)
|
The Company accounted for this acquisition as an asset acquisition and capitalized total acquisition costs of
$0.1 million
.
|
|
|
|
|
(8)
|
This acquisition is part of the CHI portfolio.
|
|
|
|
|
(9)
|
The Company partially funded this acquisition through the issuance of
2,247,817
OP Units valued at approximately
$44.3 million
.
|
For the
three
months ended
March 31, 2017
, the Company recorded revenues of
$1.8 million
from its first quarter acquisitions. Net loss attributable to acquisitions completed during the
three
months ended
March 31, 2017
was
$2.8 million
as a result of related closing expenses totaling
$3.3 million
.
The following table summarizes the acquisition date fair values of the assets acquired and the liabilities assumed, which the Company determined using Level 2 and Level 3 inputs (in thousands):
|
|
|
|
|
|
|
|
Land
|
$
|
14,190
|
|
|
Building and improvements
|
187,239
|
|
|
In-place lease intangible
|
27,670
|
|
|
Above market in-place lease intangible
|
13,406
|
|
|
Below market in-place lease intangible
|
(757
|
)
|
|
Below market in-place ground lease
|
1,042
|
|
|
Receivables
|
480
|
|
|
Debt assumed
|
(26,379
|
)
|
|
Issuance of OP Units
|
(44,978
|
)
|
|
Net assets acquired
|
$
|
171,913
|
|
These preliminary allocations are subject to revision within the measurement period, not to exceed one year from the date of the acquisitions.
Georgia Portfolio Disposition
On February 23, 2017, the Company executed an agreement to sell a portfolio of
four
medical office buildings (the “Georgia Portfolio”), representing an aggregate
80,292
square feet, for approximately
$18.2 million
. On April 7, 2017, the Company closed on the sale of the Georgia Portfolio. The disposition met the Company’s held for sale criteria at March 31, 2017. In accordance with this classification, the following assets are classified as held for sale in the accompanying consolidated balance sheets at March 31, 2017 (in thousands):
|
|
|
|
|
|
|
|
Land and improvements
|
$
|
2,578
|
|
|
Building and improvements
|
13,404
|
|
|
Tenant improvements
|
469
|
|
|
Acquired lease intangibles
|
2,137
|
|
|
Real estate held for sale before accumulated depreciation
|
18,588
|
|
|
Accumulated depreciation
|
(6,662
|
)
|
|
Real estate held for sale
|
$
|
11,926
|
|
Unaudited Pro Forma Financial Information
Physicians Realty Trust
The following table illustrates the pro forma consolidated revenue, net income, and earnings per share as if the Company had acquired the
2017
acquisitions detailed above as of January 1,
2016
(in thousands, except share and per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
Revenue
|
$
|
79,922
|
|
|
$
|
49,155
|
|
|
Net income
|
7,426
|
|
|
5,994
|
|
|
Net income available to common shareholders
|
6,903
|
|
|
4,937
|
|
|
Earnings per share - basic
|
$
|
0.05
|
|
|
$
|
0.04
|
|
|
Earnings per share - diluted
|
$
|
0.05
|
|
|
$
|
0.04
|
|
|
Weighted average number of shares outstanding - basic
|
138,986,629
|
|
|
138,986,629
|
|
|
Weighted average number of shares outstanding - diluted
|
142,605,930
|
|
|
142,605,930
|
|
Physicians Realty L.P.
The following table illustrates the pro forma consolidated revenue, net income, and earnings per share as if the Company had acquired the
2017
acquisitions detailed above as of January 1,
2016
(in thousands, except unit and per unit amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2017
|
|
2016
|
|
Revenue
|
$
|
79,922
|
|
|
$
|
49,155
|
|
|
Net income
|
7,426
|
|
|
5,994
|
|
|
Net income available to common unitholders
|
7,048
|
|
|
5,129
|
|
|
Earnings per unit - basic
|
$
|
0.05
|
|
|
$
|
0.04
|
|
|
Earnings per unit - diluted
|
$
|
0.05
|
|
|
$
|
0.04
|
|
|
Weighted average number of units outstanding - basic
|
142,172,746
|
|
|
142,172,746
|
|
|
Weighted average number of units outstanding - diluted
|
142,605,930
|
|
|
142,605,930
|
|
Note 4.
Intangibles
The following is a summary of the carrying amount of intangible assets and liabilities (including those related to the Georgia Portfolio) as of
March 31, 2017
and
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Cost
|
|
Accumulated
Amortization
|
|
Net
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In-place leases
|
$
|
250,038
|
|
|
$
|
(64,317
|
)
|
|
$
|
185,721
|
|
|
$
|
222,394
|
|
|
$
|
(55,605
|
)
|
|
$
|
166,789
|
|
|
Above market leases
|
48,884
|
|
|
(8,298
|
)
|
|
40,586
|
|
|
35,478
|
|
|
(6,909
|
)
|
|
28,569
|
|
|
Leasehold interest
|
712
|
|
|
(138
|
)
|
|
574
|
|
|
712
|
|
|
(124
|
)
|
|
588
|
|
|
Below market ground leases
|
43,920
|
|
|
(724
|
)
|
|
43,196
|
|
|
42,878
|
|
|
(539
|
)
|
|
42,339
|
|
|
Total
|
$
|
343,554
|
|
|
$
|
(73,477
|
)
|
|
$
|
270,077
|
|
|
$
|
301,462
|
|
|
$
|
(63,177
|
)
|
|
$
|
238,285
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Below market lease
|
$
|
11,054
|
|
|
$
|
(2,914
|
)
|
|
$
|
8,140
|
|
|
$
|
10,297
|
|
|
$
|
(2,345
|
)
|
|
$
|
7,952
|
|
|
Above market ground leases
|
1,345
|
|
|
(52
|
)
|
|
1,293
|
|
|
1,345
|
|
|
(44
|
)
|
|
1,301
|
|
|
Total
|
$
|
12,399
|
|
|
$
|
(2,966
|
)
|
|
$
|
9,433
|
|
|
$
|
11,642
|
|
|
$
|
(2,389
|
)
|
|
$
|
9,253
|
|
The following is a summary of the acquired lease intangible amortization for the
three
month periods ended
March 31, 2017
and
2016
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
2016
|
|
Amortization expense related to in-place leases
|
|
$
|
8,740
|
|
|
$
|
5,689
|
|
|
Decrease of rental income related to above-market leases
|
|
1,389
|
|
|
987
|
|
|
Decrease of rental income related to leasehold interest
|
|
14
|
|
|
15
|
|
|
Increase of rental income related to below-market leases
|
|
569
|
|
|
226
|
|
|
Decrease of operating expense related to above market ground leases
|
|
8
|
|
|
4
|
|
|
Increase in operating expense related to below market ground leases
|
|
185
|
|
|
47
|
|
For the three months ended
March 31, 2017
, the Company wrote-off in-place lease intangible assets of approximately
$0.6 million
with accumulated amortization of
$0.1 million
. In addition, the Company wrote-off above market lease intangible assets of approximately
$169,000
with accumulated amortization of approximately
$26,000
, and below market lease intangible liabilities of approximately
$53,000
with accumulated accretion of approximately
$5,000
, for a net
loss
of approximately
$95,000
to rental income from intangible amortization.
Future aggregate net amortization of the acquired lease intangibles as of
March 31, 2017
, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Decrease in
Revenue
|
|
Net Increase in
Expenses
|
|
2017
|
$
|
(2,315
|
)
|
|
$
|
24,138
|
|
|
2018
|
(2,986
|
)
|
|
28,461
|
|
|
2019
|
(3,113
|
)
|
|
24,096
|
|
|
2020
|
(3,203
|
)
|
|
21,719
|
|
|
2021
|
(3,281
|
)
|
|
20,320
|
|
|
Thereafter
|
(19,505
|
)
|
|
108,776
|
|
|
Total
|
$
|
(34,403
|
)
|
|
$
|
227,510
|
|
As of
March 31, 2017
, the weighted average amortization period for asset lease intangibles and liability lease intangibles are
17
and
11
years, respectively.
Note 5.
Other Assets
Other assets consisted of the following as of
March 31, 2017
and
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
Straight line rent receivable
|
$
|
36,595
|
|
|
$
|
32,018
|
|
|
Note receivable
|
—
|
|
|
16,618
|
|
|
Interest rate swap
|
15,303
|
|
|
13,881
|
|
|
Lease inducements, net
|
15,049
|
|
|
13,255
|
|
|
Prepaid expenses
|
9,112
|
|
|
8,928
|
|
|
Escrows
|
3,901
|
|
|
4,334
|
|
|
Leasing commissions, net
|
2,331
|
|
|
1,858
|
|
|
Earnest deposits
|
124
|
|
|
1,500
|
|
|
Other
|
3,383
|
|
|
2,795
|
|
|
Total
|
$
|
85,798
|
|
|
$
|
95,187
|
|
Note 6.
Debt
The following is a summary of debt as of
March 31, 2017
and
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
|
Fixed interest mortgage notes
|
$
|
110,865
|
|
(1)
|
$
|
90,185
|
|
(2)
|
|
Variable interest mortgage note
|
32,884
|
|
(3)
|
33,009
|
|
(4)
|
|
Total mortgage debt
|
143,749
|
|
|
123,194
|
|
|
|
$850 million unsecured revolving credit facility bearing variable interest of LIBOR plus 1.20%, due September 2020
|
—
|
|
|
401,000
|
|
|
|
$400 million senior unsecured notes bearing fixed interest of 4.30%, due March 2027
|
400,000
|
|
|
—
|
|
|
|
$250 million unsecured term borrowing bearing fixed interest of 2.87%, due June 2023 (5)
|
250,000
|
|
|
250,000
|
|
|
|
$150 million senior unsecured notes bearing fixed interest of 4.03% to 4.74%, due January 2023 to 2031
|
150,000
|
|
|
150,000
|
|
|
|
$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
|
1,018,749
|
|
|
999,194
|
|
|
|
Unamortized deferred financing cost
|
(8,578
|
)
|
|
(8,477
|
)
|
|
|
Unamortized discount
|
(3,872
|
)
|
|
—
|
|
|
|
Unamortized fair value adjustment
|
379
|
|
|
438
|
|
|
|
Total debt
|
$
|
1,006,678
|
|
|
$
|
991,155
|
|
|
|
|
|
|
(1)
|
Fixed interest mortgage notes, bearing interest from
4.63%
to
6.58%
, with a weighted average interest rate of
5.23%
, and due in 2017, 2018, 2019, 2020, 2021, 2022, 2024, and 2032 collateralized by
11
properties with a net book value of
$199.9 million
.
|
|
|
|
|
(2)
|
Fixed interest mortgage notes, bearing interest from
4.71%
to
6.58%
, with a weighted average interest rate of
5.44%
, and due in 2017, 2018, 2019, 2020, 2021, 2022, and 2032 collateralized by
11
properties with a net book value of
$156.7 million
.
|
|
|
|
|
(3)
|
Variable interest mortgage notes, bearing variable interest of LIBOR plus
2.25%
to
3.25%
, with a weighted average interest rate of
3.90%
and due in 2017 and 2018, collateralized by
four
properties with a net book value of
$46.3 million
.
|
|
|
|
|
(4)
|
Variable interest mortgage notes, bearing variable interest of LIBOR plus
2.25%
to
3.25%
, with a weighted average interest rate of
3.68%
and due in 2017 and 2018, collateralized by
four
properties with a net book value of
$45.6 million
.
|
|
|
|
|
(5)
|
The Trust’s borrowings under the term loan feature of the Credit Agreement bear interest at a rate which is determined by the Trust’s credit rating, currently equal to
LIBOR + 1.80%
. The Trust has entered into a pay-fixed receive-variable interest rate swap, fixing the LIBOR component of this rate at
1.07%
.
|
On June 10, 2016, the Operating Partnership, as borrower, and the Trust entered into an amended and restated Credit Agreement with KeyBank National Association, as administrative agent, KeyBanc Capital Markets Inc., BMO Capital Markets, and Citizens Bank N.A., as joint lead arrangers and co-book runners, BMO Capital Markets and Citizens Bank N.A., as co-syndication agents, and the lenders party thereto (the “Credit Agreement”) which increased the maximum principal amount available under an unsecured revolving credit facility from
$750 million
to
$850 million
. The Credit Agreement contains a
7
-year term loan feature allowing the Operating Partnership to borrow in a single drawing up to
$250 million
, increasing the borrowing capacity to an aggregate
$1.1 billion
.
The Credit Agreement also includes a swingline loan commitment for up to
10%
of the maximum principal amount and provides an accordion feature allowing the Trust to increase borrowing capacity by up to an additional
$500 million
, subject to customary terms and conditions, resulting in a maximum borrowing capacity of
$1.6 billion
.
On July 7, 2016, the Operating Partnership borrowed
$250.0
million under the
7
-year 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 which is determined by the Trust’s credit rating, currently equal to
LIBOR + 1.80%
. 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
2.87%
. Both the borrowing and pay-fixed receive-variable swap have a maturity date of
June 10, 2023
.
The Credit Agreement has a maturity date of
September 18, 2020
and includes a
one
year extension option. Borrowings under the Credit Agreement bear interest on the outstanding principal amount at an adjusted LIBOR rate, which is based on the Trust’s investment grade rating under the Credit Agreement. As of
March 31, 2017
, the Trust had an investment grade rating from Moody’s of
Baa3
and as such, borrowings under the revolving credit facility of the Credit Agreement accrued interest on the
outstanding principal at a rate of LIBOR plus
1.20%
. The Credit Agreement includes a facility fee equal to
0.25%
per annum, which is also determined by the Trust’s investment grade rating.
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 or make distributions. The Company may, at any time, voluntarily prepay any revolving or swingline loan under the Credit Agreement in whole or in part without premium or penalty. Prepayments of term borrowings require payment of premiums of up to
2.0%
of the amount of prepayment, dependent on the date of such prepayment. As of
March 31, 2017
, the Company was in compliance with all financial covenants.
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.
The Credit Agreement provides for revolving credit and term loans to the Trust and the Operating Partnership. Base Rate Loans, Adjusted LIBOR Rate Loans, and Letters of Credit (each, as defined in the Credit Agreement) will be subject to interest rates, based upon the Trust’s investment grade rating as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit Rating
|
|
Margin for Revolving Loans: Adjusted LIBOR Rate Loans
and Letter of Credit Fee
|
|
Margin for Revolving Loans: Base Rate Loans
|
|
Margin for Term Loans: Adjusted LIBOR Rate Loans
and Letter of Credit Fee
|
|
Margin for Term Loans: Base Rate Loans
|
|
At Least A- or A3
|
|
LIBOR + 0.85%
|
|
—
|
%
|
|
LIBOR + 1.40%
|
|
0.40
|
%
|
|
At Least BBB+ or BAA1
|
|
LIBOR + 0.90%
|
|
—
|
%
|
|
LIBOR + 1.45%
|
|
0.45
|
%
|
|
At Least BBB or BAA2
|
|
LIBOR + 1.00%
|
|
0.10
|
%
|
|
LIBOR + 1.55%
|
|
0.55
|
%
|
|
At Least BBB- or BAA3
|
|
LIBOR + 1.20%
|
|
0.20
|
%
|
|
LIBOR + 1.80%
|
|
0.80
|
%
|
|
Below BBB- or BAA3
|
|
LIBOR + 1.55%
|
|
0.60
|
%
|
|
LIBOR + 2.25%
|
|
1.25
|
%
|
As of
March 31, 2017
, there were
no
borrowings outstanding under our unsecured revolving credit facility and
$850.0 million
available for us to borrow without adding additional properties to the unencumbered borrowing base of assets, as defined by the Credit Agreement. As of
March 31, 2017
, the Company had
$250.0 million
of borrowings outstanding under the term loan feature of the Credit Agreement.
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 began accruing interest on
March 7, 2017
and will pay interest semi-annually beginning
September 15, 2017
. The Senior Notes were sold at an issue price of
99.68%
of their face value, before the underwriters’ discount. Our net proceeds from the offering, after deducting underwriting discounts and expenses, were approximately $
396.1 million
.
Certain properties have mortgage debt that contains financial covenants. As of
March 31, 2017
, the Trust was in compliance with all mortgage debt financial covenants.
Scheduled principal payments due on debt as of
March 31, 2017
, are as follows (in thousands):
|
|
|
|
|
|
|
|
2017
|
$
|
33,163
|
|
|
2018
|
40,276
|
|
|
2019
|
20,603
|
|
|
2020
|
6,062
|
|
|
2021
|
8,128
|
|
|
Thereafter
|
910,517
|
|
|
Total Payments
|
$
|
1,018,749
|
|
As of
March 31, 2017
, the Company had total consolidated indebtedness of approximately
$1.0 billion
. The weighted average interest rate on consolidated indebtedness was
4.06%
(based on the 30-day LIBOR rate as of
March 31, 2017
, of
0.93%
).
For the
three
month periods ended
March 31, 2017
and
2016
, the Company incurred interest expense on its debt of
$9.3 million
and
$3.8 million
, respectively.
Note 7.
Derivatives
In the normal course of business, a variety of financial instruments are used to manage or hedge interest rate risk. The Company has implemented ASC 815,
Derivatives and Hedging
(ASC 815), which establishes accounting and reporting standards requiring that all derivatives, including certain derivative instruments embedded in other contracts, be recorded as either an asset or a liability measured at their fair value unless they qualify for a normal purchase or normal sales exception.
When specific hedge accounting criteria are not met, ASC 815 requires that changes in a derivative’s fair value be recognized currently in earnings. Changes in the fair market values of the Company’s derivative instruments are recorded in the consolidated statements of income if such derivatives do not qualify for, or the Company does not elect to apply for, hedge accounting. If hedge accounting is applied to a derivative instrument, such changes are reported in accumulated other comprehensive income within the consolidated statement of equity, exclusive of ineffectiveness amounts, which are recognized as adjustments to net income.
To manage interest rate risk for certain of its variable-rate debt, the Company uses interest rate swaps as part of its risk management strategy. These derivatives are designed to mitigate the risk of future interest rate increases by providing a fixed
interest rate for a limited, pre-determined period of time. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. As of
March 31, 2017
, the Company had
five
outstanding interest rate swap contracts that are designated as cash flow hedges of interest rate risk. For presentational purposes, they are shown as one derivative due to the identical nature of their economic terms.
The effective portion of the change in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (“AOCI”) on the consolidated balance sheets and is subsequently reclassified into earnings as interest expense for the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. For the three months ended
March 31, 2017
, the Company recognized a
$0.2 million
loss
as a result of hedge ineffectiveness. The Company expects hedge ineffectiveness to be insignificant in the next 12 months.
The following table summarizes the location and aggregate fair value of the interest rate swaps on the Company’s consolidated balance sheets (in thousands):
|
|
|
|
|
|
|
|
|
Total notional amount
|
|
$
|
250,000
|
|
|
Effective fixed interest rate
|
(1)
|
2.87
|
%
|
|
Effective date
|
|
7/7/2016
|
|
|
Maturity date
|
|
6/10/2023
|
|
|
Asset balance at March 31, 2017 (included in Other assets)
|
|
$
|
15,303
|
|
|
Asset balance at December 31, 2016 (included in Other assets)
|
|
$
|
13,881
|
|
|
|
|
|
(1)
|
1.07%
effective swap rate plus
1.80%
spread per Credit Agreement.
|
On
January 26, 2017
, the Company entered into a
$300.0 million
notional amount forward starting swap to reduce our exposure to fluctuations in interest rates related to the forecasted issuance of the
4.30%
senior notes due in 2027. Upon the issuance of the senior notes on March 7, 2017, the forward starting swap was terminated and we realized a
$0.8 million
loss which will be recognized over the life of the notes utilizing the effective interest method.
Note 8.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following as of
March 31, 2017
and
December 31, 2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
Real estate taxes payable
|
$
|
8,327
|
|
|
$
|
9,300
|
|
|
Prepaid rent
|
10,787
|
|
|
5,834
|
|
|
Embedded derivative
|
—
|
|
|
5,571
|
|
|
Tenant improvement allowance
|
3,935
|
|
|
5,315
|
|
|
Accrued interest
|
3,467
|
|
|
4,905
|
|
|
Security deposits
|
2,968
|
|
|
4,506
|
|
|
Accrued incentive compensation
|
733
|
|
|
1,405
|
|
|
Contingent consideration
|
1,322
|
|
|
1,392
|
|
|
Accrued expenses and other
|
4,667
|
|
|
4,059
|
|
|
Total
|
$
|
36,206
|
|
|
$
|
42,287
|
|
Note 9.
Stock-based Compensation
The Company follows ASC 718,
Compensation
-
Stock Compensation
(“ASC 718”), in accounting for its share-based payments. This guidance requires measurement of the cost of employee services received in exchange for stock compensation based on the grant-date fair value of the employee stock awards. This cost is recognized as compensation expense ratably over the employee’s requisite service period. Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized when incurred. Share-based payments classified as liability awards are marked to fair value at each reporting period. Any common shares issued pursuant to the Company's incentive equity compensation and employee stock purchase plans will result in the Operating Partnership issuing OP Units to the Trust on a one-for-one basis, with the Operating Partnership receiving the net cash proceeds of such issuances.
Certain of the Company’s employee stock awards vest only upon the achievement of performance targets. ASC 718 requires recognition of compensation cost only when achievement of performance conditions is considered probable. Consequently, the Company’s determination of the amount of stock compensation expense requires a significant level of judgment in estimating the probability of achievement of these performance targets. Subsequent changes in actual experience are monitored and estimates are updated as information is available.
In connection with the IPO, the Trust adopted the 2013 Equity Incentive Plan (“2013 Plan”), which made available
600,000
common shares to be administered by the Compensation and Nominating Governance Committee of the Board of Trustees. On August 7, 2014, at the Annual Meeting of Shareholders of Physicians Realty Trust, the Trust’s shareholders approved an amendment to the 2013 Plan to increase the number of common shares authorized for issuance under the 2013 Plan by
1,850,000
common shares, for a total of
2,450,000
common shares authorized for issuance.
Restricted Common Shares:
Restricted common shares granted under the 2013 Plan are eligible for dividends as well as the right to vote. In the
three
month period ended
March 31, 2017
, the Trust granted a total of
133,637
restricted common shares with a total value of
$2.6 million
to its officers and certain of its employees, which have vesting periods ranging from
one
to
three
years.
A summary of the status of the Trust’s non-vested restricted common shares as of
March 31, 2017
and changes during the
three
month period then ended follow:
|
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
Weighted
Average Grant
Date Fair Value
|
|
Non-vested at December 31, 2016
|
296,785
|
|
|
$
|
16.16
|
|
|
Granted
|
133,637
|
|
|
19.71
|
|
|
Vested
|
(233,771
|
)
|
|
16.07
|
|
|
Non-vested at March 31, 2017
|
196,651
|
|
|
$
|
18.67
|
|
For all service awards, the Company records compensation expense for the entire award on a straight-line basis over the requisite service period. For the
three
month periods ended
March 31, 2017
and
2016
, the Company recognized non-cash share compensation of
$0.8 million
and
$0.9 million
, respectively. Unrecognized compensation expense at
March 31, 2017
was
$3.1 million
. The Company’s compensation expense recorded in connection with grants of restricted common shares reflects an initial estimated cumulative forfeiture rate of
0%
over the requisite service period of the awards. That estimate will be revised if subsequent information indicates that the actual number of awards expected to vest is likely to differ from previous estimates.
Restricted Share Units:
In March 2017, under the 2013 Plan, the Trust granted restricted share units at a target level of
174,320
to its officers and certain employees and
32,831
to its trustees, which are subject to certain performance, timing, and market conditions and a
three
-year and
two
-year service period for officers/employees and trustees, respectively. In addition, 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
70%
of the restricted share units issued to officers and certain employees 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 value of
$33.43
per unit for the March 2017 grant using the following assumptions:
|
|
|
|
|
|
|
|
Volatility
|
21.5
|
%
|
|
Dividend assumption
|
reinvested
|
|
|
Expected term in years
|
2.8
|
|
|
Risk-free rate
|
1.68
|
%
|
|
Share price (per share)
|
$
|
19.80
|
|
The remaining
30%
of the restricted share units issued to officers and certain employees, and
100%
of restricted share units issued to trustees, vest based upon certain performance or timing conditions. With respect to the performance conditions of the March 2017 grant, the grant date fair value of
$19.80
per unit was based on the share price at the date of grant. The combined weighted average grant date fair value of the March 2017 restricted share units issued to officers and certain employees is
$29.34
per unit.
The following is a summary of the activity in the Trust’s restricted share units during the
three
months ended
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2016
|
235,483
|
|
|
$
|
21.84
|
|
|
57,260
|
|
|
$
|
17.03
|
|
|
Granted
|
174,320
|
|
|
29.34
|
|
|
32,831
|
|
|
19.80
|
|
|
Vested
|
(55,680
|
)
|
(1)
|
16.94
|
|
|
(38,871
|
)
|
|
16.72
|
|
|
Non-vested at March 31, 2017
|
354,123
|
|
|
$
|
26.30
|
|
|
51,220
|
|
|
$
|
19.04
|
|
|
|
|
|
(1)
|
Restricted units vested by Company executives in 2017 resulted in the issuance of
105,792
shares of common stock, less
50,582
shares of common stock withheld to cover minimum withholding tax obligations, for multiple employees.
|
For the
three
month periods ended
March 31, 2017
and
2016
, the Trust recognized non-cash share unit compensation expense of
$0.7 million
and
$0.4 million
, respectively. Unrecognized compensation expense at
March 31, 2017
was
$8.0 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.
The Company’s derivative instruments as of
March 31, 2017
consist of
five
interest rate swaps. For presentational purposes, the Company’s interest rate swaps are shown as a single derivative due to the identical nature of their economic
terms, as detailed in the Derivative Instruments section of
Note 2 (Summary of Significant Accounting Policies)
and
Note 7 (Derivatives)
.
The Company’s 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
March 31, 2017
.
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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2017
|
|
December 31,
2016
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Fair
Value
|
|
Assets:
|
|
|
|
|
|
|
|
|
Real estate loans receivable
|
$
|
40,258
|
|
|
$
|
39,520
|
|
|
$
|
39,154
|
|
|
$
|
39,154
|
|
|
Notes receivable
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,618
|
|
|
$
|
16,618
|
|
|
Derivative assets
|
$
|
15,303
|
|
|
$
|
15,303
|
|
|
$
|
13,881
|
|
|
$
|
13,881
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Credit facility
|
$
|
(250,000
|
)
|
|
$
|
(250,000
|
)
|
|
$
|
(651,000
|
)
|
|
$
|
(651,000
|
)
|
|
Notes payable
|
$
|
(625,000
|
)
|
|
$
|
(619,763
|
)
|
|
$
|
(225,000
|
)
|
|
$
|
(214,584
|
)
|
|
Mortgage debt
|
$
|
(143,749
|
)
|
|
$
|
(146,627
|
)
|
|
$
|
(123,632
|
)
|
|
$
|
(125,420
|
)
|
|
Derivative liabilities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(5,571
|
)
|
|
$
|
(5,571
|
)
|
Note 11.
Tenant Operating Leases
The Company is lessor of medical office buildings and other healthcare facilities. Leases have expirations from
2017
through
2045
. As of
March 31, 2017
, the future minimum rental payments on non-cancelable leases, exclusive of expense recoveries, were as follows (in thousands):
|
|
|
|
|
|
|
|
2017
|
$
|
174,981
|
|
|
2018
|
229,761
|
|
|
2019
|
225,141
|
|
|
2020
|
220,347
|
|
|
2021
|
214,449
|
|
|
Thereafter
|
1,319,326
|
|
|
Total
|
$
|
2,384,005
|
|
Note 12.
Rent Expense
The Company leases the rights to parking structures at
three
of its properties, the air space above
one
property, and the land upon which
59
of its properties are located from third party land owners pursuant to separate leases. In addition, the Company leases
four
individual office spaces. The leases require fixed rental payments and may also include escalation clauses and renewal options. These leases have terms of up to
99
years remaining, excluding extension options.
As of
March 31, 2017
, the future minimum lease obligations under non-cancelable parking, air, ground, and office leases were as follows (in thousands):
|
|
|
|
|
|
|
|
2017
|
$
|
1,877
|
|
|
2018
|
2,548
|
|
|
2019
|
2,513
|
|
|
2020
|
2,499
|
|
|
2021
|
2,556
|
|
|
Thereafter
|
68,381
|
|
|
Total
|
$
|
80,374
|
|
Rent expense for the parking, air, and ground leases of
$0.6 million
and
$0.4 million
for the three month periods ended
March 31, 2017
and
2016
, respectively, are reported in operating expenses in the consolidated statements of income. Rent expense for office leases was insignificant for the three month periods ended
March 31, 2017
and
2016
, and is reported within general and administrative expenses in the consolidated statements of operations.
Note 13.
Credit Concentration
The Company uses annualized base rent (“ABR”) as its credit concentration metric.
A
nnualized base rent is calculated by multiplying contractual base rent for the month ended
March 31, 2017
by 12, excluding the impact of concessions and straight-line rent. The following table summarizes certain information about the Company’s top five tenant credit concentrations as of
March 31, 2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Tenant
|
|
Total ABR
|
|
Percent of ABR
|
|
CHI - KentuckyOne Health
|
|
$
|
12,808
|
|
|
5.5
|
%
|
|
CHI - Nebraska
|
|
11,400
|
|
|
4.9
|
%
|
|
CHI - Franciscan (Seattle - Tacoma)
|
|
5,463
|
|
|
2.3
|
%
|
|
CHI - St. Alexius (North Dakota)
|
|
5,278
|
|
|
2.2
|
%
|
|
Great Falls Hospital
|
|
5,194
|
|
|
2.2
|
%
|
|
Remaining portfolio
|
|
194,018
|
|
|
82.9
|
%
|
|
Total
|
|
$
|
234,161
|
|
|
100.0
|
%
|
Annualized base rent collected from the Company’s top five tenant relationships comprises
17.1%
of its total annualized base rent for the period ending
March 31, 2017
. Total annualized base rent from CHI affiliated tenants totals
17.2%
, including the affiliates disclosed above. Consolidated financial statements of CHI, the parent of the subsidiaries and affiliates of the entities party to master lease agreements, are publicly available on the Catholic Health Initiatives website (http://www.catholichealthinitiatives.org/). Information included on the CHI website is not incorporated by reference within this Quarterly Report on Form 10-Q.
The following table summarizes certain information about the Company’s top five geographic concentrations as of
March 31, 2017
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
State
|
|
Total ABR
|
|
Percent of ABR
|
|
Texas
|
|
$
|
31,674
|
|
|
13.5
|
%
|
|
Kentucky
|
|
15,685
|
|
|
6.7
|
%
|
|
New York
|
|
14,204
|
|
|
6.1
|
%
|
|
Arizona
|
|
14,083
|
|
|
6.0
|
%
|
|
Florida
|
|
12,889
|
|
|
5.5
|
%
|
|
Other
|
|
145,626
|
|
|
62.2
|
%
|
|
Total
|
|
$
|
234,161
|
|
|
100.0
|
%
|
Note 14.
Earnings Per Share and Earnings Per Unit
The following table shows the amounts used in computing the Trust’s basic and diluted earnings per share (in thousands, except share and per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
2016
|
|
Numerator for earnings per share
-
basic:
|
|
|
|
|
|
|
|
Net income
|
|
$
|
6,716
|
|
|
$
|
5,424
|
|
|
Net income attributable to noncontrolling interests:
|
|
|
|
|
|
Operating Partnership
|
|
(147
|
)
|
|
(173
|
)
|
|
Partially owned properties
|
|
(167
|
)
|
|
(317
|
)
|
|
Preferred distributions
|
|
(211
|
)
|
|
(548
|
)
|
|
Numerator for earnings per share - basic
|
|
$
|
6,191
|
|
|
$
|
4,386
|
|
|
Numerator for earnings per share - diluted:
|
|
|
|
|
|
Numerator for earnings per share - basic
|
|
$
|
6,191
|
|
|
$
|
4,386
|
|
|
Operating Partnership net income
|
|
147
|
|
|
173
|
|
|
Numerator for earnings per share - diluted
|
|
$
|
6,338
|
|
|
$
|
4,559
|
|
|
Denominator for earnings per share
-
basic and diluted:
|
|
|
|
|
|
Weighted average number of shares outstanding - basic
|
|
138,986,629
|
|
|
102,704,008
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Noncontrolling interest - Operating Partnership units
|
|
3,186,117
|
|
|
3,846,459
|
|
|
Restricted common shares
|
|
96,643
|
|
|
162,314
|
|
|
Restricted share units
|
|
336,541
|
|
|
435,599
|
|
|
Denominator for earnings per share - diluted:
|
|
142,605,930
|
|
|
107,148,380
|
|
|
Earnings per share - basic
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
Earnings per share - diluted
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
The following table shows the amounts used in computing the Operating Partnership’s basic and diluted earnings per unit (in thousands, except unit and per unit data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2017
|
|
2016
|
|
Numerator for earnings per unit - basic and diluted:
|
|
|
|
|
|
Net income
|
|
6,716
|
|
|
5,424
|
|
|
Net income attributable to noncontrolling interests - partially owned properties
|
|
(167
|
)
|
|
(317
|
)
|
|
Preferred distributions
|
|
(211
|
)
|
|
(548
|
)
|
|
Numerator for earnings per unit - basic and diluted
|
|
$
|
6,338
|
|
|
$
|
4,559
|
|
|
Denominator for earnings per unit - basic and diluted:
|
|
|
|
|
|
Weighted average number of units outstanding - basic
|
|
142,172,746
|
|
|
106,550,467
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
Restricted common shares
|
|
96,643
|
|
|
162,314
|
|
|
Restricted share units
|
|
336,541
|
|
|
435,599
|
|
|
Denominator for earnings per unit - diluted
|
|
142,605,930
|
|
|
107,148,380
|
|
|
Earnings per unit - basic
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
|
Earnings per unit - diluted
|
|
$
|
0.04
|
|
|
$
|
0.04
|
|
Note 15.
Subsequent Events
On April 7, 2017, the Trust sold
four
medical office buildings, representing an aggregate
80,292
square feet, in Georgia for approximately
$18.2 million
and recognized a gain on the sale of approximately
$5.5 million
. Due to the Trust’s adoption of Accounting Standards Update 2014-08,
Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity
(“ASU 2014-08”), which raises the threshold for disposals to qualify as discontinued operations, the Trust did not report this disposition as a discontinued operation.