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 March 31, 2019

☐ 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 pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) 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 Smaller reporting company o Emerging growth company o


Physicians Realty L.P.	Large accelerated filer o Accelerated filer o Non-accelerated filer ý 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 April 24, 2019 was 185,281,636.

EXPLANATORY NOTE

This Quarterly Report on Form 10-Q combines the Quarterly Reports on Form 10-Q for the quarter ended March 31, 2019 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 April 24, 2019, 104,172 Series A Preferred Units were 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 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 March 31, 2019, the Trust held a 97.3% 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 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 March 31, 2019

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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 March 31, 2019 and December 31, 2018	3
	Consolidated Statements of Income for the Three Months Ended March 31, 2019 and 2018	4
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2019 and 2018	5
	Consolidated Statements of Equity for the Three Months Ended March 31, 2019 and 2018	6
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018	8

Financial Statements of Physicians Realty L.P.
	Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018	9
	Consolidated Statements of Income for the Three Months Ended March 31, 2019 and 2018	10
	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2019 and 2018	11
	Consolidated Statements of Changes in Capital for the Three Months Ended March 31, 2019 and 2018	12
	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018	14

Notes for Physicians Realty Trust and Physicians Realty L.P.
	Notes to Consolidated Financial Statements	15

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35
Item 3	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4	Controls and Procedures	47

Part II	Other Information

Item 1	Legal Proceedings	48
Item 1A	Risk Factors	48
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 6	Exhibits	50

SIGNATURES		51

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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 CommonSpirit Health, or one or more of the CommonSpirit Health-affiliated tenants, that impact the ability of CommonSpirit Health-affiliated tenants to pay us rent;


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


•	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 healthcare laws or government reimbursement rates;


•	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 I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “2018 Annual 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)



	March 31, 2019			December 31, 2018
	(unaudited)
ASSETS
Investment properties:
Land and improvements	$	210,542		$	211,253
Building and improvements	3,627,825			3,623,962
Tenant improvements	43,213			36,497
Acquired lease intangibles	386,707			452,384
	4,268,287			4,324,096
Accumulated depreciation	(443,814		)	(411,052		)
Net real estate property	3,824,473			3,913,044
Real estate held for sale	9,038			—
Right-of-use lease asset, net	126,250			—
Real estate loans receivable	75,474			55,659
Investments in unconsolidated entities	1,331			1,330
Net real estate investments	4,036,566			3,970,033
Cash and cash equivalents	5,048			19,161
Tenant receivables, net	10,566			8,881
Other assets	132,825			144,759
Total assets	$	4,185,005		$	4,142,834
LIABILITIES AND EQUITY
Liabilities:
Credit facility	$	478,892		$	457,388
Notes payable	967,161			966,961
Mortgage debt	99,608			108,504
Accounts payable	3,513			3,886
Dividends and distributions payable	44,335			43,821
Accrued expenses and other liabilities	56,088			76,282
Lease liability	60,864			—
Acquired lease intangibles, net	7,336			13,585
Total liabilities	1,717,797			1,670,427

Redeemable noncontrolling interest - Series A Preferred Units and partially owned properties	24,882			24,747

Equity:
Common shares, $0.01 par value, 500,000,000 common shares authorized, 184,307,910 and 182,416,007 common shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively	1,843			1,824
Additional paid-in capital	2,822,520			2,791,555
Accumulated deficit	(460,357		)	(428,307		)
Accumulated other comprehensive income	10,957			14,433
Total shareholders’ equity	2,374,963			2,379,505
Noncontrolling interests:
Operating Partnership	66,668			67,477
Partially owned properties	695			678
Total noncontrolling interests	67,363			68,155
Total equity	2,442,326			2,447,660
Total liabilities and equity	$	4,185,005		$	4,142,834

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 March 31,
	2019			2018
Revenues:
Rental revenues	$	77,083		$	78,887
Expense recoveries	26,042			24,308
Interest income on real estate loans and other	2,243			2,028
Total revenues	105,368			105,223
Expenses:
Interest expense	16,269			16,494
General and administrative	8,972			8,459
Operating expenses	32,208			30,459
Depreciation and amortization	36,449			38,576
Total expenses	93,898			93,988
Income before equity in income of unconsolidated entities and gain on sale of investment properties, net:	11,470			11,235
Equity in income of unconsolidated entities	30			28
Gain on sale of investment properties, net	—			69
Net income	11,500			11,332
Net income attributable to noncontrolling interests:
Operating Partnership	(305		)	(313		)
Partially owned properties (1)	(138		)	(111		)
Net income attributable to controlling interest	11,057			10,908
Preferred distributions	(284		)	(487		)
Net income attributable to common shareholders	$	10,773		$	10,421
Net income per share:
Basic	$	0.06		$	0.06
Diluted	$	0.06		$	0.06
Weighted average common shares:
Basic	182,672,863			181,809,570
Diluted	188,497,308			187,317,243

Dividends and distributions declared per common share and OP Unit	$	0.23		$	0.23


(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 March 31,
	2019			2018
Net income	$	11,500		$	11,332
Other comprehensive income:
Change in fair value of interest rate swap agreements, net	(3,476		)	4,298
Total other comprehensive income	(3,476		)	4,298
Comprehensive income	8,024			15,630
Comprehensive income attributable to noncontrolling interests - Operating Partnership	(210		)	(438		)
Comprehensive income attributable to noncontrolling interests - partially owned properties	(138		)	(111		)
Comprehensive income attributable to common shareholders	$	7,676		$	15,081

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

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Physicians Realty Trust

Consolidated Statements 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 December 31, 2018	$	1,824	$	2,791,555		$	(428,307	)	$	14,433		$	2,379,505		$	67,477		$	678		$	68,155		$	2,447,660
Cumulative effect of changes in accounting standard	—		(239		)	—			—			(239		)	—			—			—			(239		)
Net proceeds from sale of common shares	17		31,003			—			—			31,020			—			—			—			31,020
Restricted share award grants, net	2		640			(287		)	—			355			—			—			—			355
Purchase of OP Units	—		—			—			—			—			(105		)	—			(105		)	(105		)
Dividends/distributions declared	—		—			(42,536		)	—			(42,536		)	(1,158		)	—			(1,158		)	(43,694		)
Preferred distributions	—		—			(284		)	—			(284		)	—			—			—			(284		)
Distributions	—		—			—			—			—			—			(47		)	(47		)	(47		)
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership	—		(290		)	—			—			(290		)	—			—			—			(290		)
Change in fair value of interest rate swap agreements	—		—			—			(3,476		)	(3,476		)	—			—			—			(3,476		)
Net income	—		—			11,057			—			11,057			305			64			369			11,426
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		(149		)	—			—			(149		)	149			—			149			—
Balance at March 31, 2019	$	1,843	$	2,822,520		$	(460,357	)	$	10,957		$	2,374,963		$	66,668		$	695		$	67,363		$	2,442,326

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

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Physicians Realty Trust

Consolidated Statements 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 December 31, 2017	$	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		5,313			—			—		5,316			—			—			—			5,316
Restricted share award grants, net	2		872			59			—		933			—			—			—			933
Conversion of OP Units	—		126			—			—		126			(126		)	—			(126		)	—
Dividends/distributions declared	—		—			(41,910		)	—		(41,910		)	(1,216		)	—			(1,216		)	(43,126		)
Preferred distributions	—		—			(487		)	—		(487		)	—			—			—			(487		)
Distributions	—		—			—			—		—			—			(43		)	(43		)	(43		)
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership	—		194			1,276			—		1,470			—			—			—			1,470
Change in fair value of interest rate swap agreements	—		—			—			4,298		4,298			—			—			—			4,298
Net income	—		—			10,908			—		10,908			313			44			357			11,265
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		(712		)	—			—		(712		)	712			—			712			—
Balance at March 31, 2018	$	1,819	$	2,778,616		$	(345,571	)	$	18,250	$	2,453,114		$	73,527		$	619		$	74,146		$	2,527,260

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)



	Three Months Ended March 31,
	2019			2018
Cash Flows from Operating Activities:
Net income	$	11,500		$	11,332
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	36,449			38,576
Amortization of deferred financing costs	607			618
Amortization of lease inducements and above/below-market lease intangibles	1,176			1,190
Straight-line rental revenue/expense	(4,762		)	(6,450		)
Amortization of discount on unsecured senior notes	148			142
Amortization of above market assumed debt	(16		)	(16		)
Gain on sale of investment properties, net	—			(69		)
Equity in income of unconsolidated entities	(30		)	(28		)
Distributions from unconsolidated entities	29			26
Change in fair value of derivative	13			2
Provision for bad debts	35			(141		)
Non-cash share compensation	2,653			2,605
Change in operating assets and liabilities:
Tenant receivables	(2,076		)	5,437
Other assets	647			(222		)
Accounts payable	(373		)	(8,461		)
Accrued expenses and other liabilities	(19,573		)	(3,651		)
Net cash provided by operating activities	26,427			40,890
Cash Flows from Investing Activities:
Proceeds on sales of investment properties	—			2,440
Acquisition of investment properties, net	(4,303		)	(84,202		)
Escrowed cash - acquisition deposits/earnest deposits	(150		)	(2,720		)
Capital expenditures on investment properties	(12,953		)	(5,608		)
Issuance of real estate loans receivable	(20,028		)	(2,000		)
Repayment of real estate loans receivable	325			6,717
Issuance of note receivable	—			(20,385		)
Leasing commissions	(552		)	(664		)
Lease inducements	(5		)	—
Net cash used in investing activities	(37,666		)	(106,422		)
Cash Flows from Financing Activities:
Net proceeds from sale of common shares	31,020			5,316
Proceeds from credit facility borrowings	68,000			166,000
Repayment of credit facility borrowings	(47,000		)	(24,000		)
Principal payments on mortgage debt	(8,908		)	(32,157		)
Debt issuance costs	(8		)	(412		)
Dividends paid - shareholders	(42,301		)	(42,251		)
Distributions to noncontrolling interests - Operating Partnership	(1,167		)	(1,232		)
Preferred distributions paid - OP Unit holder	(284		)	(81		)
Distributions to noncontrolling interests - partially owned properties	(148		)	(127		)
Payments of employee taxes for withheld stock-based compensation shares	(1,973		)	(1,701		)
Purchase of OP Units	(105		)	—
Net cash (used in) provided by financing activities	(2,874		)	69,355
Net (decrease) increase in cash and cash equivalents	(14,113		)	3,823
Cash and cash equivalents, beginning of period	19,161			2,727
Cash and cash equivalents, end of period	$	5,048		$	6,550
Supplemental disclosure of cash flow information - interest paid during the period	$	25,799		$	19,230
Supplemental disclosure of noncash activity - change in fair value of interest rate swap agreements	$	(3,476	)	$	4,298
Supplemental disclosure of noncash activity - issuance of OP Units and Series A Preferred Units in connection with acquisitions	$	—		$	22,651

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)



	March 31, 2019			December 31, 2018
	(unaudited)
ASSETS
Investment properties:
Land and improvements	$	210,542		$	211,253
Building and improvements	3,627,825			3,623,962
Tenant improvements	43,213			36,497
Acquired lease intangibles	386,707			452,384
	4,268,287			4,324,096
Accumulated depreciation	(443,814		)	(411,052		)
Net real estate property	3,824,473			3,913,044
Real estate held for sale	9,038			—
Right-of-use lease asset, net	126,250			—
Real estate loans receivable	75,474			55,659
Investments in unconsolidated entities	1,331			1,330
Net real estate investments	4,036,566			3,970,033
Cash and cash equivalents	5,048			19,161
Tenant receivables, net	10,566			8,881
Other assets	132,825			144,759
Total assets	$	4,185,005		$	4,142,834
LIABILITIES AND CAPITAL
Liabilities:
Credit facility	$	478,892		$	457,388
Notes payable	967,161			966,961
Mortgage debt	99,608			108,504
Accounts payable	3,513			3,886
Distributions payable	44,335			43,821
Accrued expenses and other liabilities	56,088			76,282
Lease liability	60,864			—
Acquired lease intangibles, net	7,336			13,585
Total liabilities	1,717,797			1,670,427

Redeemable noncontrolling interest - Series A Preferred Units and partially owned properties	24,882			24,747

Capital:
Partners’ capital:
General partners’ capital, 184,307,910 and 182,416,007 units issued and outstanding as of March 31, 2019 and December 31, 2018, respectively	2,364,006			2,365,072
Limited partners’ capital, 5,178,291 and 5,182,784 units issued and outstanding as of March 31, 2019 and December 31, 2018, respectively	66,668			67,477
Accumulated other comprehensive income	10,957			14,433
Total partners’ capital	2,441,631			2,446,982
Noncontrolling interest - partially owned properties	695			678
Total capital	2,442,326			2,447,660
Total liabilities and capital	$	4,185,005		$	4,142,834

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 March 31,
	2019			2018
Revenues:
Rental revenues	$	77,083		$	78,887
Expense recoveries	26,042			24,308
Interest income on real estate loans and other	2,243			2,028
Total revenues	105,368			105,223
Expenses:
Interest expense	16,269			16,494
General and administrative	8,972			8,459
Operating expenses	32,208			30,459
Depreciation and amortization	36,449			38,576
Total expenses	93,898			93,988
Income before equity in income of unconsolidated entities and gain on sale of investment properties, net:	11,470			11,235
Equity in income of unconsolidated entities	30			28
Gain on sale of investment properties, net	—			69
Net income	11,500			11,332
Net income attributable to noncontrolling interests - partially owned properties (1)	(138		)	(111		)
Net income attributable to controlling interest	11,362			11,221
Preferred distributions	(284		)	(487		)
Net income attributable to common unitholders	$	11,078		$	10,734
Net income per common unit:
Basic	$	0.06		$	0.06
Diluted	$	0.06		$	0.06
Weighted average common units:
Basic	187,850,775			187,264,064
Diluted	188,497,308			187,317,243

Distributions declared per common unit	$	0.23		$	0.23


(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 L.P.

Consolidated Statements of Comprehensive Income

(In thousands) (Unaudited)



	Three Months Ended March 31,
	2019			2018
Net income	$	11,500		$	11,332
Other comprehensive income:
Change in fair value of interest rate swap agreements, net	(3,476		)	4,298
Total other comprehensive income	(3,476		)	4,298
Comprehensive income	8,024			15,630
Comprehensive income attributable to noncontrolling interests - partially owned properties	(138		)	(111		)
Comprehensive income attributable to common unitholders	$	7,886		$	15,519

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

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Physicians Realty L.P.

Consolidated Statements 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 December 31, 2018	$	2,365,072		$	67,477		$	14,433		$	2,446,982		$	678		$	2,447,660
Cumulative effect of changes in accounting standard	(239		)	—			—			(239		)	—			(239		)
Net Proceeds from sale of Trust common shares and issuance of common units	31,020			—			—			31,020			—			31,020
Trust restricted share award grants, net	355			—			—			355			—			355
Purchase of OP Units	—			(105		)	—			(105		)	—			(105		)
OP Units - distributions	(42,536		)	(1,158		)	—			(43,694		)	—			(43,694		)
Preferred distributions	(284		)	—			—			(284		)	—			(284		)
Distributions	—			—			—			—			(47		)	(47		)
Change in market value of Redeemable Limited Partners	(290		)	—			—			(290		)	—			(290		)
Change in fair value of interest rate swap agreements	—			—			(3,476		)	(3,476		)	—			(3,476		)
Net income	11,057			305			—			11,362			64			11,426
Adjustments for Limited Partners ownership in Operating Partnership	(149		)	149			—			—			—			—
Balance at March 31, 2019	$	2,364,006		$	66,668		$	10,957		$	2,441,631		$	695		$	2,442,326

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

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Physicians Realty L.P.

Consolidated Statements 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 December 31, 2017	$	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	5,316		—		—		5,316		—		5,316
Trust restricted share award grants, net	933		—		—		933		—		933
Conversion of OP Units	126