Edgar Filing: Physicians Realty Trust

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2017

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

For the transition period from to

Commission file number: 001-36007 (Physicians Realty Trust)

Commission file number: 333-205034-01 (Physicians Realty L.P.)

PHYSICIANS REALTY TRUST

PHYSICIANS REALTY L.P.

(Exact Name of Registrant as Specified in its Charter)



Maryland (Physicians Realty Trust) Delaware (Physicians Realty L.P.) (State of Organization)		46-2519850 80-0941870 (IRS Employer Identification No.)

309 N. Water Street, Suite 500 Milwaukee, Wisconsin (Address of Principal Executive Offices)		53202 (Zip Code)

(414) 367-5600

(Registrant’s Telephone Number, Including Area Code)

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

Physicians Realty Trust Yes ý No o Physicians Realty L.P. Yes o No ý

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Physicians Realty Trust Yes ý No o Physicians Realty L.P. Yes o No ý

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Physicians Realty Trust	Large accelerated filer ý Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o Emerging growth company o


Physicians Realty L.P.	Large accelerated filer o Accelerated filer o Non-accelerated filer ý (Do not check if a smaller reporting company) Smaller reporting company o Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Physicians Realty Trust o Physicians Realty L.P. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).

Physicians Realty Trust Yes o No ý Physicians Realty L.P. Yes o No ý

The number of the Registrant’s common shares outstanding as of October 31, 2017 was 179,218,618.

EXPLANATORY NOTE

This Quarterly Report on Form 10-Q combines the Quarterly Reports on Form 10-Q for the quarter ended September 30, 2017 of Physicians Realty Trust (the “Trust”), a Maryland real estate investment trust, and Physicians Realty L.P. (the “Operating Partnership”), a Delaware limited partnership. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” and the “Company,” refer to the Trust, together with its consolidated subsidiaries, including the Operating Partnership. References to the “Operating Partnership” mean collectively the Operating Partnership, together with its consolidated subsidiaries. In this report, all references to “common shares” refer to the common shares of the Trust and references to “our shareholders” refer to shareholders of the common shares of the Trust, the term “OP Units” refers to partnership interests of the Operating Partnership and the term “Series A Preferred Units” refers to Series A Participating Redeemable Preferred Units of the Operating Partnership. As of October 31, 2017, no Series A Preferred Units are outstanding.

The Trust is a self-managed real estate investment trust (“REIT”) formed primarily to acquire, selectively develop, own, and manage healthcare properties that are leased to physicians, hospitals, and healthcare delivery systems. The Trust’s operations are conducted through the Operating Partnership and wholly-owned and majority-owned subsidiaries of the Operating Partnership. The Trust, as the general partner of the Operating Partnership, controls the Operating Partnership and consolidates the assets, liabilities, and results of operations of the Operating Partnership.

The Trust conducts substantially all of its operations through the Operating Partnership. As of September 30, 2017, the Trust held a 97.1% interest in the Operating Partnership and owns no Series A Preferred Units. Apart from this ownership interest, the Trust has no independent operations.

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

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


•	a combined report enhances investors’ understanding of the Trust and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;


•	a combined report eliminates duplicative disclosure and provides a more streamlined and readable presentation, as a substantial portion of the Company’s disclosure applies to both the Trust and the Operating Partnership; and


•	a combined report creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

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


•	the consolidated financial statements in Part I, Item 1 of this report;


•	certain accompanying notes to the consolidated financial statements, including Note 3 (Acquisitions and Dispositions) and Note 14 (Earnings Per Share and Earnings Per Unit);


•	controls and procedures in Part I, Item 4 of this report; and


•	the certifications of the Chief Executive Officer and the Chief Financial Officer included as Exhibits 31 and 32 to this report.

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PHYSICIANS REALTY TRUST AND PHYSICIANS REALTY L.P.

Quarterly Report on Form 10-Q

for the Quarter Ended September 30, 2017

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		Page Number
Part I	Financial Information

Item 1	Financial Statements (Unaudited)

Financial Statements of Physicians Realty Trust
	Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016	3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2017 and 2016	4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016	5
	Consolidated Statement of Equity for the Nine Months Ended September 30, 2017	6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016	7

Financial Statements of Physicians Realty L.P.
	Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016	8
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2017 and 2016	9
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2017 and 2016	10
	Consolidated Statement of Changes in Capital for the Nine Months Ended September 30, 2017	11
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016	12

Notes for Physicians Realty Trust and Physicians Realty L.P.
	Notes to Consolidated Financial Statements	13

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3	Quantitative and Qualitative Disclosures About Market Risk	51
Item 4	Controls and Procedures	52

Part II	Other Information

Item 1	Legal Proceedings	53
Item 1A	Risk Factors	54
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	54
Item 6	Exhibits	55

SIGNATURES		56

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements made pursuant to safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts may be forward-looking statements within the meaning of the federal securities laws. In particular, statements pertaining to our capital resources, property performance and results of operations contain forward-looking statements. Likewise, all of our statements regarding anticipated growth in our funds from operations and anticipated market conditions, demographics and results of operations are forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believe,” “expect,” “outlook,” “continue,” “project,” “may,” “will,” “should,” “seek,” “approximately,” “intend,” “plan,” “pro forma,” “estimate” or “anticipate” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans, expectations or intentions.

These forward-looking statements reflect the views of our management regarding current expectations and projections about future events and are based on currently available information. These forward-looking statements are not guarantees of future performance and involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:


•	general economic conditions;


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


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


•	fluctuations or increases in interest rates;


•	fluctuations or increases in operating costs;


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


•	our ability to make distributions on our common shares;


•	general volatility of the market price of our common shares;


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


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


•	changes in our business or strategy;


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


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


•	the degree and nature of our competition;


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


•	defaults on or non-renewal of leases by tenants;


•	decreased rental rates or increased vacancy rates;


•	difficulties in identifying healthcare properties to acquire and completing acquisitions;

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•	competition for investment opportunities;


•	any adverse effects to Catholic Health Initiatives’ (“CHI”) business, financial position or results of operations that impact the ability of affiliates of CHI to pay us rent;


•	our failure to successfully develop, integrate and operate acquired properties and operations;


•	the impact of our investments in joint ventures;


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


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


•	our ability to operate as a public company;


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


•	lack of or insufficient amounts of insurance;


•	other factors affecting the real estate industry generally;


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


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


•	various other factors that may materially adversely affect us, or the per share trading price of our common shares, including:


•	the number of our common shares available for future issuance or sale;


•	our issuance of equity securities or the perception that such issuance might occur;


•	future debt;


•	failure of securities analysts to publish research or reports about us or our industry; and


•	securities analysts’ downgrade of our common shares or the healthcare-related real estate sector.

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events or other changes after the date of this report, except as required by applicable law. You should not place undue reliance on any forward-looking statements that are based on information currently available to us or the third parties making the forward-looking statements. For a further discussion of these and other factors that could impact our future results, performance or transactions, see Part II, Item 1A (Risk Factors) of this report, Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the “2016 Annual Report”), and Part II, Item 1A (Risk Factors) of our Quarterly Report on Form 10-Q for the quarterly periods ended March 31, 2017 (the “First Quarterly Report”), and June 30, 2017 (the “Second Quarterly Report”, and together with the First Quarterly Report, the “2017 Quarterly Reports”).

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PART I. Financial Information

Item 1. Financial Statements

Physicians Realty Trust

Consolidated Balance Sheets

(In thousands, except share and per share data)



	September 30, 2017			December 31, 2016
	(unaudited)
ASSETS
Investment properties:
Land and improvements	$	204,305		$	189,759
Building and improvements	3,255,900			2,402,643
Tenant improvements	20,786			14,133
Acquired lease intangibles	402,608			301,462
	3,883,599			2,907,997
Accumulated depreciation	(263,497		)	(181,785		)
Net real estate property	3,620,102			2,726,212
Real estate loans receivable	78,944			39,154
Investment in unconsolidated entities	2,232			2,258
Net real estate investments	3,701,278			2,767,624
Cash and cash equivalents	4,924			15,491
Tenant receivables, net	8,389			9,790
Other assets	123,909			95,187
Total assets	$	3,838,500		$	2,888,092
LIABILITIES AND EQUITY
Liabilities:
Credit facility	$	382,960		$	643,742
Notes payable	619,793			224,330
Mortgage debt	169,464			123,083
Accounts payable	6,590			4,423
Dividends and distributions payable	43,452			32,179
Accrued expenses and other liabilities	51,421			42,287
Acquired lease intangibles, net	15,680			9,253
Total liabilities	1,289,360			1,079,297

Redeemable noncontrolling interest - Series A Preferred Units (2016) and partially owned properties	10,919			26,477

Equity:
Common shares, $0.01 par value, 500,000,000 common shares authorized, 179,208,786 and 135,966,013 common shares issued and outstanding as of September 30, 2017 and December 31, 2016, respectively	1,792			1,360
Additional paid-in capital	2,732,121			1,920,644
Accumulated deficit	(282,019		)	(197,261		)
Accumulated other comprehensive income	12,012			13,708
Total shareholders’ equity	2,463,906			1,738,451
Noncontrolling interests:
Operating Partnership	73,688			43,142
Partially owned properties	627			725
Total noncontrolling interests	74,315			43,867
Total equity	2,538,221			1,782,318
Total liabilities and equity	$	3,838,500		$	2,888,092

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

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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,
	2017			2016			2017			2016
Revenues:
Rental revenues	$	69,408		$	53,327		$	186,515		$	130,378
Expense recoveries	21,102			14,361			53,564			31,816
Interest income on real estate loans and other	2,489			2,322			6,185			5,166
Total revenues	92,999			70,010			246,264			167,360
Expenses:
Interest expense	11,998			7,300			33,285			15,776
General and administrative	5,860			4,917			16,845			13,964
Operating expenses	27,471			19,159			70,079			43,994
Depreciation and amortization	32,975			23,969			89,031			59,778
Acquisition expenses	2,184			4,398			12,831			11,031
Total expenses	80,488			59,743			222,071			144,543
Income before equity in income of unconsolidated entities and gain on sale of investment properties:	12,511			10,267			24,193			22,817
Equity in income of unconsolidated entities	28			27			85			85
Gain on sale of investment properties	—			—			5,308			—
Net income	12,539			10,294			29,586			22,902
Net income attributable to noncontrolling interests:
Operating Partnership	(362		)	(255		)	(823		)	(629		)
Partially owned properties (1)	(53		)	(176		)	(379		)	(553		)
Net income attributable to controlling interests	12,124			9,863			28,384			21,720
Preferred distributions	(106		)	(436		)	(505		)	(1,421		)
Net income attributable to common shareholders:	$	12,018		$	9,427		$	27,879		$	20,299
Net income per share:
Basic	$	0.07		$	0.07		$	0.18		$	0.17
Diluted	$	0.07		$	0.07		$	0.18		$	0.16
Weighted average common shares:
Basic	177,847,424			134,608,396			157,542,167			122,973,862
Diluted	183,298,145			138,880,787			162,480,918			127,395,989

Dividends and distributions declared per common share and OP Unit	$	0.230		$	0.225		$	0.685		$	0.675


(1)	Includes amounts attributable to redeemable noncontrolling interests. No such adjustments are required for the three and nine months ended September 30, 2016.

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

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Physicians Realty Trust

Consolidated Statements of Comprehensive Income

(In thousands) (Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net income	$	12,539		$	10,294		$	29,586		$	22,902
Other comprehensive income:
Change in fair value of interest rate swap agreements	(916		)	652			(1,696		)	652
Total other comprehensive income	(916		)	652			(1,696		)	652
Comprehensive income	11,623			10,946			27,890			23,554
Comprehensive income attributable to noncontrolling interests - Operating Partnership	(339		)	(272		)	(774		)	(646		)
Comprehensive income attributable to noncontrolling interests - partially owned properties	(53		)	(176		)	(379		)	(553		)
Comprehensive income attributable to common shareholders	$	11,231		$	10,498		$	26,737		$	22,355

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

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Physicians Realty Trust

Consolidated Statement of Equity

(In thousands) (Unaudited)



	Par Value		Additional Paid in Capital			Accumulated Deficit			Accumulated Other Comprehensive Income			Total Shareholders’ Equity			Operating Partnership Noncontrolling Interest			Partially Owned Properties Noncontrolling Interest			Total Noncontrolling Interests			Total Equity
Balance at January 1, 2017	$	1,360	$	1,920,644		$	(197,261	)	$	13,708		$	1,738,451		$	43,142		$	725		$	43,867		$	1,782,318
Net proceeds from sale of common shares	430		804,023			—			—			804,453			—			—			—			804,453
Restricted share award grants, net	2		2,391			(473		)	—			1,920			—			—			—			1,920
Purchase of OP Units	—		—			—			—			—			(3,757		)	—			(3,757		)	(3,757		)
Conversion of OP Units	—		783			—			—			783			(783		)	—			(783		)	—
Dividends/distributions declared	—		—			(112,164		)	—			(112,164		)	(3,635		)	—			(3,635		)	(115,799		)
Preferred distributions	—		—			(505		)	—			(505		)	—			—			—			(505		)
Issuance of OP Units in connection with acquisitions	—		—			—			—			—			44,259			—			44,259			44,259
Contributions	—		—			—			—			—			—			47			47			47
Distributions	—		—			—			—			—			—			(266		)	(266		)	(266		)
Buyout of Noncontrolling Interests - partially owned properties	—		(2,800		)	—			—			(2,800		)	719			(24		)	695			(2,105		)
Change in fair value of interest rate cap agreements	—		—			—			(1,696		)	(1,696		)	—			—			—			(1,696		)
Net income	—		—			28,384			—			28,384			823			145			968			29,352
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		7,080			—			—			7,080			(7,080		)	—			(7,080		)	—
Balance at September 30, 2017	$	1,792	$	2,732,121		$	(282,019	)	$	12,012		$	2,463,906		$	73,688		$	627		$	74,315		$	2,538,221

The accompanying notes are an integral part of this consolidated financial statement.

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Physicians Realty Trust

Consolidated Statements of Cash Flows

(In thousands) (Unaudited)



	Nine Months Ended September 30,
	2017			2016
Cash Flows from Operating Activities:
Net income	$	29,586		$	22,902
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	89,031			59,778
Amortization of deferred financing costs	1,731			1,796
Amortization of lease inducements and above/below market lease intangibles	3,780			2,994
Straight-line rental revenue/expense	(11,168		)	(12,156		)
Amortization of discount on unsecured senior notes	177			—
Amortization of above market assumed debt	(163		)	(177		)
Gain on sale of investment properties	(5,308		)	—
Equity in income of unconsolidated entities	(85		)	(85		)
Distributions from unconsolidated entities	112			82
Change in fair value of derivative	160			(67		)
Provision for bad debts	(297		)	152
Non-cash share compensation	4,976			3,497
Net change in fair value of contingent consideration	4			(840		)
Change in operating assets and liabilities:
Tenant receivables	(754		)	(7,543		)
Other assets	(541		)	(6,320		)
Accounts payable	2,167			1,578
Accrued expenses and other liabilities	14,834			23,832
Net cash provided by operating activities	128,242			89,423
Cash Flows from Investing Activities:
Proceeds on sales of investment properties	18,150			—
Acquisition of investment properties, net	(916,270		)	(1,044,601		)
Escrowed cash - acquisition / earnest deposits	(25,271		)	—
Capital expenditures on existing investment properties	(14,819		)	(8,665		)
Real estate loans receivable	(38,844		)	(8,153		)
Repayment of note receivable	16,423			4,118
Repayment of real estate loan receivable	1,507			4,500
Leasing commissions	(1,184		)	(707		)
Lease inducements	(2,508		)	(4,870		)
Net cash used in investing activities	(962,816		)	(1,058,378		)
Cash Flows from Financing Activities:
Net proceeds from sale of common shares	804,453			764,292
Proceeds from credit facility borrowings	627,000			921,000
Payment on credit facility borrowings	(889,000		)	(860,000		)
Proceeds from issuance of mortgage debt	61,000			21,500
Proceeds from issuance of senior unsecured notes	396,108			225,000
Principal payments on mortgage debt	(40,999		)	(1,646		)
Debt issuance costs	(1,129		)	(4,693		)
Dividends paid - shareholders	(101,846		)	(74,515		)
Distributions to noncontrolling interest - Operating Partnership	(3,154		)	(2,410		)
Preferred distributions paid - OP Unit holder	(519		)	(1,115		)
Contributions from noncontrolling interest	47			—
Distributions to noncontrolling interest - partially owned properties	(1,653		)	(450		)
Other financing activities	(2,583		)	—
Purchase of Series A Preferred Units	(19,961		)	(9,756		)
Purchase of OP Units	(3,757		)	(2,999		)
Net cash provided by financing activities	824,007			974,208
Net (decrease) increase in cash and cash equivalents	(10,567		)	5,253
Cash and cash equivalents, beginning of period	15,491			3,143
Cash and cash equivalents, end of period	$	4,924		$	8,396
Supplemental disclosure of cash flow information - interest paid during the period	$	33,307		$	6,971
Supplemental disclosure of noncash activity - change in fair value of interest rate swap agreements	$	(1,696	)	$	652
Supplemental disclosure of noncash activity - assumed debt	$	26,379		$	—
Supplemental disclosure of noncash activity - issuance of OP Units in connection with acquisitions	$	44,978		$	6,769
Supplemental disclosure of noncash activity - contingent consideration	$	—		$	156

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

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Physicians Realty L.P.

Consolidated Balance Sheets

(In thousands, except unit and per unit data)



	September 30, 2017			December 31, 2016
	(unaudited)
ASSETS
Investment properties:
Land and improvements	$	204,305		$	189,759
Building and improvements	3,255,900			2,402,643
Tenant improvements	20,786			14,133
Acquired lease intangibles	402,608			301,462
	3,883,599			2,907,997
Accumulated depreciation	(263,497		)	(181,785		)
Net real estate property	3,620,102			2,726,212
Real estate loans receivable	78,944			39,154
Investment in unconsolidated entities	2,232			2,258
Net real estate investments	3,701,278			2,767,624
Cash and cash equivalents	4,924			15,491
Tenant receivables, net	8,389			9,790
Other assets	123,909			95,187
Total assets	$	3,838,500		$	2,888,092
LIABILITIES AND CAPITAL
Liabilities:
Credit facility	$	382,960		$	643,742
Notes payable	619,793			224,330
Mortgage debt	169,464			123,083
Accounts payable	6,590			4,423
Dividends and distributions payable	43,452			32,179
Accrued expenses and other liabilities	51,421			42,287
Acquired lease intangibles, net	15,680			9,253
Total liabilities	1,289,360			1,079,297

Redeemable noncontrolling interest - Series A Preferred Units (2016) and partially owned properties	10,919			26,477

Capital:
Partners’ capital:
General partners’ capital, 179,208,786 and 135,966,013 units issued and outstanding as of September 30, 2017 and December 31, 2016, respectively	2,451,894			1,724,743
Limited partners’ capital, 5,379,981 and 3,436,207 units issued and outstanding as of September 30, 2017 and December 31, 2016, respectively	73,688			43,142
Accumulated other comprehensive income	12,012			13,708
Total partners’ capital	2,537,594			1,781,593
Noncontrolling interest - partially owned properties	627			725
Total capital	2,538,221			1,782,318
Total liabilities and capital	$	3,838,500		$	2,888,092

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

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Physicians Realty L.P.

Consolidated Statements of Income

(In thousands, except unit and per unit data) (Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues:
Rental revenues	$	69,408		$	53,327		$	186,515		$	130,378
Expense recoveries	21,102			14,361			53,564			31,816
Interest income on real estate loans and other	2,489			2,322			6,185			5,166
Total revenues	92,999			70,010			246,264			167,360
Expenses:
Interest expense	11,998			7,300			33,285			15,776
General and administrative	5,860			4,917			16,845			13,964
Operating expenses	27,471			19,159			70,079			43,994
Depreciation and amortization	32,975			23,969			89,031			59,778
Acquisition expenses	2,184			4,398			12,831			11,031
Total expenses	80,488			59,743			222,071			144,543
Income before equity in income of unconsolidated entities and gain on sale of investment properties:	12,511			10,267			24,193			22,817
Equity in income of unconsolidated entities	28			27			85			85
Gain on sale of investment properties	—			—			5,308			—
Net income	12,539			10,294			29,586			22,902
Net income attributable to noncontrolling interests - partially owned properties (1)	(53		)	(176		)	(379		)	(553		)
Net income attributable to controlling interests	12,486			10,118			29,207			22,349
Preferred distributions	(106		)	(436		)	(505		)	(1,421		)
Net income attributable to common unitholders	$	12,380		$	9,682		$	28,702		$	20,928
Net income per common unit:
Basic	$	0.07		$	0.07		$	0.18		$	0.17
Diluted	$	0.07		$	0.07		$	0.18		$	0.16
Weighted average common units:
Basic	183,227,405			138,227,384			162,205,324			126,751,876
Diluted	183,298,145			138,880,787			162,480,918			127,395,989

Distributions declared per common unit	$	0.230		$	0.225		$	0.685		$	0.675


(1)	Includes amounts attributable to redeemable noncontrolling interests. No such adjustments are required for the three and nine months ended September 30, 2016.

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

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Physicians Realty L.P.

Consolidated Statements of Comprehensive Income

(In thousands) (Unaudited)



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Net income	$	12,539		$	10,294		$	29,586		$	22,902
Other comprehensive income:
Change in fair value of interest rate swap agreements	(916		)	652			(1,696		)	652
Total other comprehensive income	(916		)	652			(1,696		)	652
Comprehensive income	11,623			10,946			27,890			23,554
Comprehensive income attributable to noncontrolling interests - partially owned properties	(53		)	(176		)	(379		)	(553		)
Comprehensive income attributable to common unitholders	$	11,570		$	10,770		$	27,511		$	23,001

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

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Physicians Realty L.P.

Consolidated Statement of Changes in Capital

(In thousands) (Unaudited)



	General Partner	Limited Partner	Accumulated Other Comprehensive Income	Total Partners’ Capital	Partially Owned Properties Noncontrolling Interest	Total Partners’ Capital
Balance at January 1, 2017	1,724,743	43,142	13,708	1,781,593	725	1,782,318
Net proceeds from sale of common shares	804,453	—	—	804,453