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 June 30, 2018

☐ 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 ý No o

Indicate by check mark whether the registrant has submitted electronically, 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 such files).

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

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


Physicians Realty Trust	Large accelerated 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 Physicians Realty Trust’s common shares outstanding as of July 27, 2018 was 182,054,612.

EXPLANATORY NOTE

This Quarterly Report on Form 10-Q combines the Quarterly Reports on Form 10-Q for the quarter ended June 30, 2018 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.

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

The Trust conducts substantially all of its operations through the Operating Partnership. As of June 30, 2018, 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 June 30, 2018

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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 June 30, 2018 and December 31, 2017	3
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2018 and 2017	4
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2017	5
	Consolidated Statement of Equity for the Six Months Ended June 30, 2018	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017	7

Financial Statements of Physicians Realty L.P.
	Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017	8
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2018 and 2017	9
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2018 and 2017	10
	Consolidated Statement of Changes in Capital for the Six Months Ended June 30, 2018	11
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2018 and 2017	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	34
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	53
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 in interest rates and increased operating costs;


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


•	our ability to make distributions on our common shares;


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


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


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


•	changes in our business or strategy;


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


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


•	the degree and nature of our competition;


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


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


•	decreased rental rates or increased vacancy rates;


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


•	competition for investment opportunities;

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


•	the impact of our investments in joint ventures we may make in the future and;


•	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


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


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


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


•	future debt;


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


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

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, new information, data or methods, future events, or other changes after the date of this report, except as required by applicable law. You should not place undue reliance on any forward-looking statements that are based on information currently available to us or the third parties making the forward-looking statements. For a further discussion of these and other factors that could impact our future results, performance or transactions, see Part II, Item 1A (Risk Factors) of this report and, Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 (the “2017 Annual Report”), and Part II, Item 1A (Risk Factors) of our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2018 (the “First Quarterly Report”).

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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)



	June 30, 2018			December 31, 2017
	(unaudited)
ASSETS
Investment properties:
Land and improvements	$	201,620		$	217,695
Building and improvements	3,546,101			3,568,858
Tenant improvements	28,091			23,056
Acquired lease intangibles	446,127			458,713
	4,221,939			4,268,322
Accumulated depreciation	(339,003		)	(300,458		)
Net real estate property	3,882,936			3,967,864
Real estate held for sale	111,411			—
Real estate loans receivable	68,151			76,195
Investments in unconsolidated entities	1,329			1,329
Net real estate investments	4,063,827			4,045,388
Cash and cash equivalents	9,226			2,727
Tenant receivables, net	5,439			9,966
Other assets	139,773			106,302
Total assets	$	4,218,265		$	4,164,383
LIABILITIES AND EQUITY
Liabilities:
Credit facility	$	459,262		$	324,394
Notes payable	966,586			966,603
Mortgage debt	139,748			186,471
Accounts payable	5,012			11,023
Dividends and distributions payable	43,357			43,804
Accrued expenses and other liabilities	66,115			56,405
Acquired lease intangibles, net	14,881			15,702
Total liabilities	1,694,961			1,604,402

Redeemable noncontrolling interest - Series A Preferred Units (2018) and partially owned properties	23,879			12,347

Equity:
Common shares, $0.01 par value, 500,000,000 common shares authorized, 182,027,309 and 181,440,051 common shares issued and outstanding as of June 30, 2018 and December 31, 2017, respectively	1,820			1,814
Additional paid-in capital	2,781,867			2,772,823
Accumulated deficit	(376,170		)	(315,417		)
Accumulated other comprehensive income	19,571			13,952
Total shareholders’ equity	2,427,088			2,473,172
Noncontrolling interests:
Operating Partnership	71,712			73,844
Partially owned properties	625			618
Total noncontrolling interests	72,337			74,462
Total equity	2,499,425			2,547,634
Total liabilities and equity	$	4,218,265		$	4,164,383

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 June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Revenues:
Rental revenues	$	80,392		$	58,015		$	159,279		$	117,107
Expense recoveries	24,288			16,108			48,596			32,462
Interest income on real estate loans and other	2,309			2,476			4,337			3,696
Total revenues	106,989			76,599			212,212			153,265
Expenses:
Interest expense	17,154			11,472			33,648			21,287
General and administrative	7,104			6,249			15,563			10,985
Operating expenses	30,341			20,519			60,800			42,608
Depreciation and amortization	37,725			28,123			76,301			56,056
Acquisition expenses	—			5,242			—			10,647
Total expenses	92,324			71,605			186,312			141,583
Income before equity in income of unconsolidated entities and (loss) gain on sale of investment properties:	14,665			4,994			25,900			11,682
Equity in income of unconsolidated entities	29			29			57			57
(Loss) gain on sale of investment properties	(2,632		)	5,308			(2,563		)	5,308
Net income	12,062			10,331			23,394			17,047
Net income attributable to noncontrolling interests:
Operating Partnership	(331		)	(314		)	(644		)	(461		)
Partially owned properties (1)	(144		)	(159		)	(255		)	(326		)
Net income attributable to controlling interests	11,587			9,858			22,495			16,260
Preferred distributions	(284		)	(188		)	(771		)	(399		)
Net income attributable to common shareholders	$	11,303		$	9,670		$	21,724		$	15,861
Net income per share:
Basic	$	0.06		$	0.06		$	0.12		$	0.11
Diluted	$	0.06		$	0.06		$	0.12		$	0.11
Weighted average common shares:
Basic	182,002,062			155,366,080			181,906,348			147,221,602
Diluted	187,431,132			161,012,360			187,387,211			151,912,432

Dividends and distributions declared per common share and OP Unit	$	0.230		$	0.230		$	0.460		$	0.455


(1)	Includes amounts attributable to redeemable noncontrolling interests.

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 June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Net income	$	12,062		$	10,331		$	23,394		$	17,047
Other comprehensive income:
Change in fair value of interest rate swap agreements	1,321			(2,367		)	5,619			(780		)
Total other comprehensive income	1,321			(2,367		)	5,619			(780		)
Comprehensive income	13,383			7,964			29,013			16,267
Comprehensive income attributable to noncontrolling interests - Operating Partnership	(367		)	(234		)	(805		)	(435		)
Comprehensive income attributable to noncontrolling interests - partially owned properties	(144		)	(159		)	(255		)	(326		)
Comprehensive income attributable to common shareholders	$	12,872		$	7,571		$	27,953		$	15,506

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, 2018	$	1,814	$	2,772,823		$	(315,417	)	$	13,952	$	2,473,172		$	73,844		$	618		$	74,462		$	2,547,634
Net proceeds from sale of common shares	3		5,967			—			—		5,970			—			—			—			5,970
Restricted share award grants, net	2		2,858			84			—		2,944			—			—			—			2,944
Purchase of OP Units	—		—			—			—		—			(303		)	—			(303		)	(303		)
Conversion of OP Units	1		942			—			—		943			(943		)	—			(943		)	—
Dividends/distributions declared	—		—			(83,837		)	—		(83,837		)	(2,408		)	—			(2,408		)	(86,245		)
Preferred distributions	—		—			(771		)	—		(771		)	—			—			—			(771		)
Distributions	—		—			—			—		—			—			(86		)	(86		)	(86		)
Change in market value of Redeemable Noncontrolling Interest	—		155			1,276			—		1,431			—			—			—			1,431
Change in fair value of interest rate swap agreements	—		—			—			5,619		5,619			—			—			—			5,619
Net income	—		—			22,495			—		22,495			644			93			737			23,232
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		(878		)	—			—		(878		)	878			—			878			—
Balance at June 30, 2018	$	1,820	$	2,781,867		$	(376,170	)	$	19,571	$	2,427,088		$	71,712		$	625		$	72,337		$	2,499,425

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

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Physicians Realty Trust

Consolidated Statements of Cash Flows

(In thousands) (Unaudited)



	Six Months Ended June 30,
	2018			2017
Cash Flows from Operating Activities:
Net income	$	23,394		$	17,047
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	76,301			56,056
Amortization of deferred financing costs	1,214			1,128
Amortization of lease inducements and above/below-market lease intangibles	2,530			2,550
Straight-line rental revenue/expense	(12,600		)	(6,605		)
Amortization of discount on unsecured senior notes	285			98
Amortization of above market assumed debt	(31		)	(147		)
Loss (gain) on sale of investment properties	2,563			(5,308		)
Equity in income of unconsolidated entities	(57		)	(57		)
Distributions from unconsolidated entities	56			83
Change in fair value of derivative	(8		)	169
Provision for bad debts	(81		)	(840		)
Non-cash share compensation	4,619			3,238
Net change in fair value of contingent consideration	(50		)	(70		)
Change in operating assets and liabilities:
Tenant receivables	4,186			2,958
Other assets	502			3,293
Accounts payable	(6,011		)	648
Accrued expenses and other liabilities	5,501			14,567
Net cash provided by operating activities	102,313			88,808
Cash Flows from Investing Activities:
Proceeds on sales of investment properties	93,187			18,150
Acquisition of investment properties, net	(157,322		)	(756,862		)
Escrowed cash - acquisition deposits/earnest deposits	(2,220		)	(19,577		)
Capital expenditures on investment properties	(18,735		)	(8,343		)
Issuance of real estate loans receivable	(2,000		)	(8,594		)
Repayment of real estate loan receivable	10,271			1,507
Issuance of note receivable	(20,385		)	—
Repayment of note receivable	—			16,423
Leasing commissions	(2,062		)	(1,209		)
Lease inducements	(73		)	(2,063		)
Net cash used in investing activities	(99,339		)	(760,568		)
Cash Flows from Financing Activities:
Net proceeds from sale of common shares	5,970			383,676
Proceeds from credit facility borrowings	277,000			488,000
Payment on credit facility borrowings	(143,000		)	(529,000		)
Proceeds from issuance of mortgage debt	—			61,000
Proceeds from issuance of senior unsecured notes	—			396,108
Principal payments on mortgage debt	(46,809		)	(36,440		)
Debt issuance costs	(419		)	(1,065		)
Dividends paid - shareholders	(84,161		)	(65,529		)
Distributions to noncontrolling interests - Operating Partnership	(2,448		)	(1,917		)
Preferred distributions paid - OP Unit holder	(342		)	(519		)
Contributions from noncontrolling interest	—			47
Distributions to noncontrolling interests - partially owned properties	(262		)	(434		)
Payments of employee taxes for withheld stock-based compensation shares	(1,701		)	(2,431		)
Purchase of Series A Preferred Units	—			(19,961		)
Purchase of OP Units	(303		)	(3,757		)
Net cash provided by financing activities	3,525			667,778
Net increase (decrease) in cash and cash equivalents	6,499			(3,982		)
Cash and cash equivalents, beginning of period	2,727			15,491
Cash and cash equivalents, end of period	$	9,226		$	11,509
Supplemental disclosure of cash flow information - interest paid during the period	$	25,730		$	14,876
Supplemental disclosure of noncash activity - change in fair value of interest rate swap agreements	$	5,619		$	(780	)
Supplemental disclosure of noncash activity - assumed debt	$	—		$	26,379
Supplemental disclosure of noncash activity - issuance of OP Units (2017) and Series A Preferred Units in connection with acquisitions	$	22,651		$	44,978

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)



	June 30, 2018			December 31, 2017
	(unaudited)
ASSETS
Investment properties:
Land and improvements	$	201,620		$	217,695
Building and improvements	3,546,101			3,568,858
Tenant improvements	28,091			23,056
Acquired lease intangibles	446,127			458,713
	4,221,939			4,268,322
Accumulated depreciation	(339,003		)	(300,458		)
Net real estate property	3,882,936			3,967,864
Real estate held for sale	111,411			—
Real estate loans receivable	68,151			76,195
Investments in unconsolidated entities	1,329			1,329
Net real estate investments	4,063,827			4,045,388
Cash and cash equivalents	9,226			2,727
Tenant receivables, net	5,439			9,966
Other assets	139,773			106,302
Total assets	$	4,218,265		$	4,164,383
LIABILITIES AND CAPITAL
Liabilities:
Credit facility	$	459,262		$	324,394
Notes payable	966,586			966,603
Mortgage debt	139,748			186,471
Accounts payable	5,012			11,023
Distributions payable	43,357			43,804
Accrued expenses and other liabilities	66,115			56,405
Acquired lease intangibles, net	14,881			15,702
Total liabilities	1,694,961			1,604,402

Redeemable noncontrolling interest - Series A Preferred Units (2018) and partially owned properties	23,879			12,347

Capital:
Partners’ capital:
General partners’ capital, 182,027,309 and 181,440,051 units issued and outstanding as of June 30, 2018 and December 31, 2017, respectively	2,407,517			2,459,220
Limited partners’ capital, 5,392,234 and 5,364,632 units issued and outstanding as of June 30, 2018 and December 31, 2017, respectively	71,712			73,844
Accumulated other comprehensive income	19,571			13,952
Total partners’ capital	2,498,800			2,547,016
Noncontrolling interest - partially owned properties	625			618
Total capital	2,499,425			2,547,634
Total liabilities and capital	$	4,218,265		$	4,164,383

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 June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Revenues:
Rental revenues	$	80,392		$	58,015		$	159,279		$	117,107
Expense recoveries	24,288			16,108			48,596			32,462
Interest income on real estate loans and other	2,309			2,476			4,337			3,696
Total revenues	106,989			76,599			212,212			153,265
Expenses:
Interest expense	17,154			11,472			33,648			21,287
General and administrative	7,104			6,249			15,563			10,985
Operating expenses	30,341			20,519			60,800			42,608
Depreciation and amortization	37,725			28,123			76,301			56,056
Acquisition expenses	—			5,242			—			10,647
Total expenses	92,324			71,605			186,312			141,583
Income before equity in income of unconsolidated entities and (loss) gain on sale of investment properties:	14,665			4,994			25,900			11,682
Equity in income of unconsolidated entities	29			29			57			57
(Loss) gain on sale of investment properties	(2,632		)	5,308			(2,563		)	5,308
Net income	12,062			10,331			23,394			17,047
Net income attributable to noncontrolling interests - partially owned properties (1)	(144		)	(159		)	(255		)	(326		)
Net income attributable to controlling interests	11,918			10,172			23,139			16,721
Preferred distributions	(284		)	(188		)	(771		)	(399		)
Net income attributable to common unitholders	$	11,634		$	9,984		$	22,368		$	16,322
Net income per common unit:
Basic	$	0.06		$	0.06		$	0.12		$	0.11
Diluted	$	0.06		$	0.06		$	0.12		$	0.11
Weighted average common units:
Basic	187,394,619			160,765,345			187,329,702			151,520,407
Diluted	187,431,132			161,012,360			187,387,211			151,912,432

Distributions declared per common unit	$	0.230		$	0.230		$	0.460		$	0.455


(1)	Includes amounts attributable to redeemable noncontrolling interests.

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

Table of Contents

Physicians Realty L.P.

Consolidated Statements of Comprehensive Income

(In thousands) (Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Net income	$	12,062		$	10,331		$	23,394		$	17,047
Other comprehensive income:
Change in fair value of interest rate swap agreements	1,321			(2,367		)	5,619			(780		)
Total other comprehensive income	1,321			(2,367		)	5,619			(780		)
Comprehensive income	13,383			7,964			29,013			16,267
Comprehensive income attributable to noncontrolling interests - partially owned properties	(144		)	(159		)	(255		)	(326		)
Comprehensive income attributable to common unitholders	$	13,239		$	7,805		$	28,758		$	15,941

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

Table of Contents

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 Capital
Balance at January 1, 2018	2,459,220		73,844		13,952	2,547,016		618	2,547,634
Net proceeds from sale of Trust common shares and issuance of common units	5,970		—		—	5,970		—	5,970
Trust restricted share award grants, net	2,944		—		—	2,944		—	2,944
Purchase of OP Units	—		(303	)	—	(303	)	—	(303	)
Conversion of OP Units	943		(943	)	—	—		—	—
OP Units - distributions	(83,837	)	(2,408	)	—	(86,245	)	—	(86,245	)
Preferred distributions	(771	)	—		—	(771	)	—