Announces $0.28 Net Income per Share and $0.26 Normalized FFO per Share for the Third Quarter of 2022
Third Quarter Highlights:
Reported third quarter 2022 total revenue of $131.5 million, an increase of 14.1% over the prior year period.
Generated third quarter net income per share of $0.28 on a fully diluted basis, compared to net income per share of $0.10 for the same period last year.
Generated third quarter Normalized Funds From Operations (Normalized FFO) of $0.26 per share on a fully diluted basis, consistent with the same period last year.
Completed $101.7 million of investments, including the funding of previous construction loan commitments.
Third quarter MOB Same-Store Cash Net Operating Income growth was 1.1% year-over-year.
Declared a quarterly dividend of $0.23 per share and OP Unit for the third quarter 2022, paid on October 14, 2022.
Disposed of three related properties in Great Falls, Montana for $116.3 million and recognized a net gain on the sale of approximately $53.9 million.
Sold 440,400 common shares pursuant to the ATM program at a weighted average price of $18.15 during the third quarter, resulting in net proceeds of $7.9 million.
Subsequent Event Highlights:
Earned a score of 75 out of 100 and a Green Star designation in the 2022 GRESB Real Estate Assessment and a score of 98 out of 100 and an “A” rating for its GRESB Public Disclosure Level.
MILWAUKEE–(BUSINESS WIRE)–Physicians Realty Trust (NYSE: DOC) (the “Company,” the “Trust,” “we,” “our” and “us”), a self-managed health care real estate investment trust, today announced results for the third quarter ended September 30, 2022.
John T. Thomas, President and Chief Executive Officer of the Trust, commented, “While cash flows from medical office buildings remain strong and stable amidst market uncertainty, we remain disciplined on new investments and operating expenses. Although we’ve slowed our pace of investments, our asset management and leasing teams continue to operate our existing facilities with an intense focus on expense controls and mark-to-market leasing spreads consistent with current market conditions.
“We executed over 251,000 square feet of leasing activity during the third quarter 2022 with a weighted average lease term of 6 years. The weighted average leasing spread was 6.2% on 204,000 renewed square feet representing tenant retention of 81% on our consolidated portfolio in the third quarter. We look forward to sharing more about our third quarter performance during today’s conference call,” Mr. Thomas concluded.
Third Quarter Financial Results
Total revenue for the third quarter ended September 30, 2022 was $131.5 million, an increase of 14.1% from the third quarter 2021. As of September 30, 2022, the portfolio was approximately 95% leased.
Total expenses for the third quarter 2022 were $119.1 million, compared to total expenses of $97.6 million for the third quarter 2021.
Net income for the third quarter 2022 was $66.3 million, compared to net income of $22.0 million for the third quarter 2021.
Net income attributable to common shareholders for the third quarter 2022 was $63.0 million. Diluted earnings per share for the third quarter 2022 was $0.28 based on approximately 239.9 million weighted average common shares and operating partnership units (OP Units) outstanding.
Funds From Operations (FFO) totaled $61.5 million for the third quarter 2022 and consisted of net income plus depreciation and amortization on our consolidated portfolio of $46.9 million and our unconsolidated joint ventures of $2.3 million offset by $53.9 million from the gain on the sale of investment properties and $0.2 million of other adjustments, resulting in FFO of $0.26 per share on a fully diluted basis. Normalized FFO, which adjusts for our proportionate share of unconsolidated joint venture adjustments, was $61.4 million, or $0.26 per share on a fully diluted basis.
Normalized Funds Available for Distribution (FAD) for the third quarter 2022, which consists of Normalized FFO adjusted for non-cash share compensation, straight-line rent adjustments, amortization of acquired above-market and below-market leases and assumed debt, amortization of lease inducements, amortization of deferred financing costs, recurring capital expenditures, loan reserve adjustments, and our share of adjustments from unconsolidated investments, was $61.8 million.
Our Medical Office Building (MOB) Same-Store portfolio, which includes 249 properties representing 85% of our consolidated leasable square footage, generated year-over-year MOB Same-Store Cash Net Operating Income (Cash NOI) growth of 1.1% for the third quarter 2022.
Other Recent Events
Third Quarter Investment Activity
During the third quarter ended September 30, 2022, the Company completed the previously announced acquisition of one medical office facility for a purchase price of $81.5 million. The Company also funded two term loans for $14.1 million, $0.6 million of a previously announced term loan, and previous construction loan commitments of $0.4 million. The Company also paid $5.0 million of additional purchase consideration under two earn-out agreements and invested $0.3 million in funds managed by a real estate technology private equity fund.
Calko Medical Center – On September 9, 2022, through a joint venture with Dallas, Texas-based MedProperties Realty Advisors, LLC (“MedProperties”), the Company completed the acquisition of a Class-A, free-standing facility, comprising of 85,567 rentable square feet in Brooklyn, New York, the top MSA, for a purchase price of approximately $81.5 million. The facility is anchored by Maimonides Medical Center and physicians associated with Maimonides, and is 100% leased and occupied with a weighted average remaining lease term of approximately 7 years. The purpose-built medical facility is anchored by the Brooklyn Surgery Center and is home to a state-of-the-art urgent care center, a comprehensive orthopedic department, a pain management center, a pathology lab, a fertility clinic, and 30,000 square feet of private physician office space. The facility also includes one of the largest endoscopy programs in the country with the latest imaging equipment and a state-of-the-art radiology department. The Company owns 90% of the joint venture, with MedProperties owning the remaining 10%. The stabilized cash yield on the investment is 5.5%.
Third Quarter Disposition Activity
As previously disclosed, the Company completed the disposition of three related facilities in Great Falls, Montana on July 14, 2022 for $116.3 million at a blended cap rate of 4.7%. The disposition included two medical office buildings and one hospital and the Company recognized a net gain of approximately $53.9 million.
Capital Activity
During the third quarter 2022, the Company issued 440,400 shares pursuant to its at the market (ATM) program at a weighted average price of $18.15 for net proceeds of $7.9 million.
Revised 2022 Guidance
The Company has revised its recurring capital expenditures guidance to be $25 million to $27 million for the year ended December 31, 2022, a reduction from $29 million to $31 million previously announced.
Dividend Paid
On September 23, 2022, our Board of Trustees authorized and declared a cash distribution of $0.23 per common share and OP Unit for the quarterly period ended September 30, 2022. The dividend was paid on October 14, 2022 to common shareholders and OP Unit holders of record as of the close of business on October 4, 2022.
2022 GRESB Real Estate Assessment
The Company earned a score of 75 in the 2022 GRESB Real Estate Assessment, outperforming the international average of 74 out of 100. The Company also received a Green Star designation, awarded to submitters achieving scores of 50+ on GRESB’s implementation and measurement of the management & policy sections. The Company is proud to maintain these year-over-year honors from our inaugural GRESB participation in 2021. In addition, the Company’s 2022 GRESB Public Disclosure Level earned an “A” rating and a score of 98 out of 100, ranking first in its health care comparison group.
The GRESB Public Disclosure Level is an overall measure of Environmental, Social, and Governance (“ESG”) disclosure by listed property companies based on a selection of indicators aligned with the existing GRESB Real Estate Assessment. The Public Disclosure Level provides insight into the ESG disclosure activities of both GRESB participants and non-participants.
Conference Call Information
The Company has scheduled a conference call on Thursday, November 3, 2022, at 3:00 p.m. ET to discuss its financial performance and operating results for the third quarter ended September 30, 2022. The conference call can be accessed by dialing (877) 407-0784 from within the U.S. or (201) 689-8560 for international callers. Participants can reference the Physicians Realty Trust Third Quarter Earnings Call or passcode: 13733056. The conference call also will be available via a live listen-only webcast and can be accessed through the Investor Relations section of the Company’s website, www.docreit.com. A replay of the conference call will be available beginning November 3, 2022, at 6:00 p.m. ET until December 3, 2022, at 11:59 p.m. ET, by dialing (844) 512-2921 (U.S.) or (412) 317-6671 (International); passcode: 13733056. A replay of the webcast also will be accessible on the Investor Relations website for one year following the event. Beginning November 3, 2022, the Company’s supplemental information package for the third quarter 2022 will be accessible through the Investor Relations section of the Company’s website under the “Supplemental” tab.
About Physicians Realty Trust
Physicians Realty Trust is a self-managed health care real estate company organized to acquire, selectively develop, own, and manage health care properties that are leased to physicians, hospitals and health care delivery systems. The Company invests in real estate that is integral to providing high quality health care. The Company conducts its business through an UPREIT structure in which its properties are owned by Physicians Realty L.P., a Delaware limited partnership (the “operating partnership”), directly or through limited partnerships, limited liability companies or other subsidiaries. The Company is the sole general partner of the operating partnership and, as of September 30, 2022, owned approximately 95.1% of OP Units.
Investors are encouraged to visit the Investor Relations portion of the Company’s website (www.docreit.com) for additional information, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, press releases, supplemental information packages and investor presentations. The information contained on our website is not a part of an is not incorporated by reference into this press release.
Forward-Looking Statements
This press release contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “anticipate”, “believe”, “expect”, “estimate”, “plan”, “outlook”, “continue”, “intend”, and “project” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements may include statements regarding the Company’s strategic and operational plans, the Company’s ability to generate internal and external growth, the future outlook, anticipated cash returns, cap rates or yields on properties, anticipated closing of property acquisitions, ability to execute its business plan, and the impact of the Coronavirus and its variants, including the Delta and Omicron variants and any future variants which may emerge, (COVID-19) pandemic on the Company’s business. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. These forward-looking statements are subject to various risks and uncertainties, not all of which are known to the Company and many of which are beyond the Company’s control, which could cause actual results to differ materially from such statements. These risks and uncertainties are described in greater detail in the Company’s filings with the Securities and Exchange Commission (the “Commission”), including, without limitation, the Company’s annual and periodic reports and other documents filed with the Commission. Unless legally required, the Company disclaims any obligation to update any forward-looking statements after the date of this release, whether as a result of new information, future events or otherwise. For a discussion of factors that could impact the Company’s results, performance, or transactions, see Part I, Item 1A (Risk Factors) of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Physicians Realty Trust
Condensed Consolidated Statements of Income
(in thousands, except share and per share data) (Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2022
2021
2022
2021
Revenues:
Rental revenues
$
90,818
$
81,096
$
274,260
$
242,062
Expense recoveries
36,563
29,218
107,525
83,955
Rental and related revenues
127,381
110,314
381,785
326,017
Interest income on real estate loans and other
4,132
4,997
12,285
15,558
Total revenues
131,513
115,311
394,070
341,575
Expenses:
Interest expense
18,299
13,498
52,356
40,754
General and administrative
10,079
9,534
30,400
28,116
Operating expenses
43,647
35,679
128,080
103,069
Depreciation and amortization
47,040
38,582
142,002
114,663
Impairment loss
—
340
—
340
Total expenses
119,065
97,633
352,838
286,942
Income before equity in loss of unconsolidated entities and gain on sale of investment properties, net:
12,448
17,678
41,232
54,633
Equity in loss of unconsolidated entities
(62
)
(390
)
(452
)
(1,213
)
Gain on sale of investment properties, net
53,894
4,757
57,375
5,111
Net income
66,280
22,045
98,155
58,531
Net income attributable to noncontrolling interests:
Operating Partnership
(3,252
)
(529
)
(4,830
)
(1,405
)
Partially owned properties (1)
(70
)
(152
)
(384
)
(455
)
Net income attributable to controlling interest
62,958
21,364
92,941
56,671
Preferred distributions
—
—
—
(13
)
Net income attributable to common shareholders
$
62,958
$
21,364
$
92,941
$
56,658
Net income per share:
Basic
$
0.28
$
0.10
$
0.41
$
0.26
Diluted
$
0.28
$
0.10
$
0.41
$
0.26
Weighted average common shares:
Basic
226,529,041
217,406,657
225,743,856
214,616,482
Diluted
239,898,462
223,992,049
239,145,383
221,399,649
Dividends and distributions declared per common share
$
0.23
$
0.23
$
0.69
$
0.69
(1)
Includes amounts attributable to redeemable noncontrolling interests.
Physicians Realty Trust
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
September 30,
December 31,
2022
2021
(unaudited)
ASSETS
Investment properties:
Land and improvements
$
241,385
$
235,453
Building and improvements
4,666,085
4,612,561
Tenant improvements
90,318
86,018
Acquired lease intangibles
505,335
498,221
5,503,123
5,432,253
Accumulated depreciation
(948,883
)
(821,036
)
Net real estate property
4,554,240
4,611,217
Real estate held for sale
—
1,964
Right-of-use lease assets, net
232,320
235,483
Real estate loans receivable, net
120,576
117,844
Investments in unconsolidated entities
79,613
69,793
Net real estate investments
4,986,749
5,036,301
Cash and cash equivalents
2,512
9,876
Tenant receivables, net
9,644
4,948
Other assets
143,569
131,584
Total assets
$
5,142,474
$
5,182,709
LIABILITIES AND EQUITY
Liabilities:
Credit facility
$
256,893
$
267,641
Notes payable
1,465,078
1,464,008
Mortgage debt
164,556
180,269
Accounts payable
6,526
6,651
Dividends and distributions payable
58,382
57,246
Accrued expenses and other liabilities
92,494
86,254
Lease liabilities
104,905
104,957
Acquired lease intangibles, net
24,970
21,569
Total liabilities
2,173,804
2,188,595
Redeemable noncontrolling interests – partially owned properties
3,288
7,081
Equity:
Common shares, $0.01 par value, 500,000,000 common shares authorized, 226,763,146 and 224,678,116 common shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
2,268
2,247
Additional paid-in capital
3,648,983
3,610,954
Accumulated deficit
(838,729
)
(776,001
)
Accumulated other comprehensive income (loss)
5,323
(892
)
Total shareholders’ equity
2,817,845
2,836,308
Noncontrolling interests:
Operating Partnership
146,426
150,241
Partially owned properties
1,111
484
Total noncontrolling interests
147,537
150,725
Total equity
2,965,382
2,987,033
Total liabilities and equity
$
5,142,474
$
5,182,709
Physicians Realty Trust
Reconciliation of Non-GAAP Measures
(in thousands, except share and per share data) (Unaudited)
Three Months Ended
September 30,
2022
2021
Net income
$
66,280
$
22,045
Earnings per share – diluted
$
0.28
$
0.10
Net income
$
66,280
$
22,045
Net income attributable to noncontrolling interests – partially owned properties
(70
)
(152
)
Depreciation and amortization expense
46,939
38,463
Depreciation and amortization expense – partially owned properties
(101
)
(70
)
Gain on sale of investment properties, net
(53,894
)
(4,757
)
Impairment loss
—
340
Proportionate share of unconsolidated joint venture adjustments
2,298
2,226
FFO applicable to common shares
$
61,452
$
58,095
Proportionate share of unconsolidated joint venture adjustments
(82
)
—
Normalized FFO applicable to common shares
$
61,370
$
58,095
FFO per common share – diluted
$
0.26
$
0.26
Normalized FFO per common share – diluted
$
0.26
$
0.26
Normalized FFO applicable to common shares
$
61,370
$
58,095
Non-cash share compensation expense
4,349
3,665
Straight-line rent adjustments
(1,478
)
(2,171
)
Amortization of acquired above/below-market leases/assumed debt
1,133
833
Amortization of lease inducements
225
394
Amortization of deferred financing costs
581
581
TI/LC and recurring capital expenditures
(4,129
)
(6,673
)
Loan reserve adjustments
152
20
Proportionate share of unconsolidated joint venture adjustments
(403
)
(153
)
Normalized FAD applicable to common shares
$
61,800
$
54,591
Weighted average common shares outstanding – diluted
239,898,462
223,992,049
Three Months Ended
September 30,
2022
2021
Net income
$
66,280
$
22,045
General and administrative
10,079
9,534
Depreciation and amortization expense
47,040
38,582
Interest expense
18,299
13,498
Gain on sale of investment properties, net
(53,894
)
(4,757
)
Impairment loss
—
340
Proportionate share of unconsolidated joint venture adjustments
3,463
3,653
NOI
$
91,267
$
82,895
NOI
$
91,267
$
82,895
Straight-line rent adjustments
(1,478
)
(2,171
)
Amortization of acquired above/below-market leases
1,133
849
Amortization of lease inducements
225
394
Loan reserve adjustments
152
20
Proportionate share of unconsolidated joint venture adjustments
(176
)
(143
)
Cash NOI
$
91,123
$
81,844
Cash NOI
$
91,123
$
81,844
Assets not held for all periods or held for sale
(12,785
)
(3,304
)
Hospital Cash NOI
(2,775
)
(2,519
)
Lease termination fees
—
(158
)
Interest income on real estate loans
(2,517
)
(3,797
)
Joint venture and other income
(3,595
)
(3,350
)
MOB Same-Store Cash NOI
$
69,451
$
68,716
Three Months Ended
September 30,
2022
2021
Net income
$
66,280
$
22,045
Depreciation and amortization expense
47,040
38,582
Interest expense
18,299
13,498
Gain on sale of investment properties, net
(53,894
)
(4,757
)
Impairment loss
—
340
Proportionate share of unconsolidated joint venture adjustments
3,545
3,627
EBITDAre
$
81,270
$
73,335
Non-cash share compensation expense
4,349
3,665
Pursuit costs
149
75
Non-cash intangible amortization
1,358
1,227
Proportionate share of unconsolidated joint venture adjustments
(82
)
—
Pro forma adjustments for investment activity
871
585
Adjusted EBITDAre
$
87,915
$
78,887
This press release includes Funds From Operations (FFO), Normalized FFO, Normalized Funds Available For Distribution (FAD), Net Operating Income (NOI), Cash NOI, MOB Same-Store Cash NOI, Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre) and Adjusted EBITDAre, which are non-GAAP financial measures. For purposes of the SEC’s Regulation G, a non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable financial measure calculated and presented in accordance with GAAP in the statement of operations, balance sheet or statement of cash flows (or equivalent statements) of the company, or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable financial measure so calculated and presented. As used in this press release, GAAP refers to generally accepted accounting principles in the United States of America. Pursuant to the requirements of Regulation G, we have provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.
We believe that information regarding FFO is helpful to shareholders and potential investors because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization, which assumes that the value of real estate assets diminishes ratably over time. We calculate FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (Nareit).
Contacts
Physicians Realty Trust
John T. Thomas
President and CEO
(214) 549-6611
jtt@docreit.com
Jeffrey N. Theiler
Executive Vice President and CFO
(414) 367-5610
jnt@docreit.com
