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, 2021

or

☐ 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

(Exact Name of Registrant as Specified in its Charter)

Maryland		46-2519850
(State of Organization)		(IRS Employer Identification No.)
309 N. Water Street, Suite 500		53202
Milwaukee	Wisconsin
(Address of Principal Executive Offices)		(Zip Code)

(414) 367-5600

(Registrant’s Telephone Number, Including Area Code) 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, $0.01 par value per share	DOC	New York Stock Exchange

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.         Yes ☒ No ☐                    

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).              Yes ☒ No ☐        

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.

Large accelerated filer ☒     Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐ No ☒        

The number of Physicians Realty Trust’s common shares outstanding as of July 28, 2021 was 217,405,868.

PHYSICIANS REALTY TRUST

Quarterly Report on Form 10-Q

for the Quarter Ended June 30, 2021

Table of Contents

		Page Number
Part I	Financial Information
Item 1	Financial Statements (Unaudited)
	Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020	3
	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2021 and 2020	4
	Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2021 and 2020	5
	Consolidated Statements of Equity for the Three and Six Months Ended June 30, 2021 and 2020	6
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020	8
	Notes to Consolidated Financial Statements	9
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4	Controls and Procedures	37
Part II	Other Information
Item 1	Legal Proceedings	38
Item 1A	Risk Factors	38
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	38
Item 6	Exhibits	39
SIGNATURES		40

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:

•the unknown duration and economic, operational, and financial impacts of the global outbreak of a novel strain of the coronavirus and its variants, including the Delta variant (the “COVID-19 pandemic”) and the actions taken by governmental authorities or others in connection with the COVID-19 pandemic on the Company’s business;

•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 health care 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 real estate investment trusts (“REITs”), and similar matters;

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

•decreased rental rates or increased vacancy rates;

1

•difficulties in identifying health care properties to acquire and completing acquisitions;

•competition for investment opportunities;

•any adverse effects to the business, financial position or results of operations 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 have and 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 health care 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 health care-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/A for the fiscal year ended December 31, 2020 filed with the Securities and Exchange Commission (the “Commission”) on April 9, 2021 (the “2020 Annual Report”).

As used in this report, unless the context otherwise requires, references to “we,” “us,” “our,” and the “Company” refer to Physicians Realty Trust (the “Trust”), a Maryland real estate investment trust, and Physicians Realty L.P. (the “Operating Partnership”), a Delaware limited partnership and the subsidiary through which we conduct our business.

2

PART I.                         Financial Information

Item 1.                             Financial Statements

Physicians Realty Trust

Consolidated Balance Sheets

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

	June 30, 2021		December 31, 2020
	(unaudited)
ASSETS
Investment properties:
Land and improvements	$	233,073	$	231,621
Building and improvements	3,873,370		3,824,796
Tenant improvements	78,423		73,145
Acquired lease intangibles	409,156		406,935
	4,594,022		4,536,497
Accumulated depreciation	(759,163)		(687,554)
Net real estate property	3,834,859		3,848,943
Right-of-use lease assets, net	140,860		137,180
Real estate loans receivable, net	176,819		198,800
Investments in unconsolidated entities	73,406		77,755
Net real estate investments	4,225,944		4,262,678
Cash and cash equivalents	1,518		2,515
Tenant receivables, net	4,846		4,757
Other assets	125,359		144,000
Total assets	$	4,357,667	$	4,413,950
LIABILITIES AND EQUITY
Liabilities:
Credit facility	$	319,331	$	412,322
Notes payable	969,087		968,653
Mortgage debt	50,498		57,875
Accounts payable	5,424		7,007
Dividends and distributions payable	53,852		52,116
Accrued expenses and other liabilities	84,605		91,929
Lease liabilities	78,615		74,116
Acquired lease intangibles, net	6,001		6,641
Total liabilities	1,567,413		1,670,659
Redeemable noncontrolling interests - Series A Preferred Units (2020) and partially owned properties	7,091		28,289
Equity:
Common shares, $0.01 par value, 500,000,000 common shares authorized, 217,402,529 and 209,550,592 common shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively	2,174		2,096
Additional paid-in capital	3,440,314		3,303,231
Accumulated deficit	(722,587)		(658,171)
Accumulated other comprehensive loss	(4,519)		(5,859)
Total shareholders’ equity	2,715,382		2,641,297
Noncontrolling interests:
Operating Partnership	67,349		73,302
Partially owned properties	432		403
Total noncontrolling interests	67,781		73,705
Total equity	2,783,163		2,715,002
Total liabilities and equity	$	4,357,667	$	4,413,950

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

3

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,
	2021		2020		2021		2020
Revenues:
Rental revenues	$	80,572	$	79,801	$	160,967	$	157,671
Expense recoveries	27,176		24,952		54,736		49,828
Interest income on real estate loans and other	5,177		4,313		10,561		8,995
Total revenues	112,925		109,066		226,264		216,494
Expenses:
Interest expense	13,541		14,197		27,256		29,823
General and administrative	9,117		8,242		18,582		17,219
Operating expenses	33,456		31,029		67,390		61,992
Depreciation and amortization	38,105		37,045		76,081		73,792
Total expenses	94,219		90,513		189,309		182,826
Income before equity in loss of unconsolidated entities and gain on sale of investment properties, net:	18,706		18,553		36,955		33,668
Equity in loss of unconsolidated entities	(403)		(109)		(823)		(264)
Gain on sale of investment properties, net	378		—		354		—
Net income	18,681		18,444		36,486		33,404
Net income attributable to noncontrolling interests:
Operating Partnership	(417)		(476)		(876)		(880)
Partially owned properties (1)	(151)		(148)		(303)		(290)
Net income attributable to controlling interest	18,113		17,820		35,307		32,234
Preferred distributions	—		(317)		(13)		(634)
Net income attributable to common shareholders	$	18,113	$	17,503	$	35,294	$	31,600
Net income per share:
Basic	$	0.08	$	0.09	$	0.17	$	0.16
Diluted	$	0.08	$	0.09	$	0.16	$	0.16
Weighted average common shares:
Basic	215,837,520		203,692,604		213,198,272		199,952,166
Diluted	222,660,502		210,405,776		220,053,306		206,699,177
Dividends and distributions declared per common share	$	0.23	$	0.23	$	0.46	$	0.46

(1)Includes amounts attributable to redeemable noncontrolling interests.

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

4

Physicians Realty Trust

Consolidated Statements of Comprehensive Income

(In thousands) (Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income	$	18,681	$	18,444	$	36,486	$	33,404
Other comprehensive income (loss):
Change in fair value of interest rate swap agreements, net	543		(1,243)		1,340		(11,229)
Total other comprehensive income (loss)	543		(1,243)		1,340		(11,229)
Comprehensive income	19,224		17,201		37,826		22,175
Comprehensive income attributable to noncontrolling interests - Operating Partnership	(428)		(450)		(908)		(582)
Comprehensive income attributable to noncontrolling interests - partially owned properties	(151)		(148)		(303)		(290)
Comprehensive income attributable to common shareholders	$	18,645	$	16,603	$	36,615	$	21,303

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

5

Physicians Realty Trust

Consolidated Statements of Equity

(In thousands) (Unaudited)

	Par Value		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’  Equity		Operating Partnership Noncontrolling Interest		Partially Owned Properties  Noncontrolling Interest		Total Noncontrolling Interests		Total Equity
Balance at December 31, 2020	$	2,096	$	3,303,231	$	(658,171)	$	(5,859)	$	2,641,297	$	73,302	$	403	$	73,705	$	2,715,002
Net proceeds from sale of common shares	28		52,404		—		—		52,432		—		—		—		52,432
Restricted share award grants, net	4		(333)		(664)		—		(993)		—		—		—		(993)
Purchase of OP Units	—		—		—		—		—		(269)		—		(269)		(269)
Dividends/distributions declared	—		—		(49,011)		—		(49,011)		(1,243)		—		(1,243)		(50,254)
Preferred distributions	—		—		(13)		—		(13)		—		—		—		(13)
Distributions	—		—		—		—		—		—		(73)		(73)		(73)
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership	—		(23)		896		—		873		—		—		—		873
Change in fair value of interest rate swap agreements	—		—		—		797		797		—		—		—		797
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		1,136		—		—		1,136		(1,136)		—		(1,136)		—
Net income	—		—		17,194		—		17,194		459		76		535		17,729
Balance as of March 31, 2021	$	2,128	$	3,356,415	$	(689,769)	$	(5,062)	$	2,663,712	$	71,113	$	406	$	71,519	$	2,735,231
Net proceeds from sale of common shares	46		82,781		—		—		82,827		—		—		—		82,827
Restricted share award grants, net	—		3,242		(482)		—		2,760		—		—		—		2,760
Purchase of OP Units	—		—		—		—		—		(5,063)		—		(5,063)		(5,063)
Dividends/distributions declared	—		—		(50,061)		—		(50,061)		(1,242)		—		(1,242)		(51,303)
Distributions	—		—		—		—		—		—		(50)		(50)		(50)
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership	—		—		(388)		—		(388)		—		—		—		(388)
Change in fair value of interest rate swap agreements	—		—		—		543		543		—		—		—		543
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		(2,124)		—		—		(2,124)		2,124		—		2,124		—
Net income	—		—		18,113		—		18,113		417		76		493		18,606
Balance as of June 30, 2021	$	2,174	$	3,440,314	$	(722,587)	$	(4,519)	$	2,715,382	$	67,349	$	432	$	67,781	$	2,783,163

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

6

Physicians Realty Trust

Consolidated Statements of Equity

(In thousands) (Unaudited)

	Par Value		Additional Paid in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income (Loss)		Total Shareholders’  Equity		Operating Partnership Noncontrolling Interest		Partially Owned Properties  Noncontrolling Interest		Total Noncontrolling Interests		Total Equity
Balance at December 31, 2019	$	1,900	$	2,931,921	$	(529,194)	$	4,321	$	2,408,948	$	71,697	$	339	$	72,036	$	2,480,984
Cumulative effect of changes in accounting standards	—		(147)		—		—		(147)		—		—		—		(147)
Net proceeds from sale of common shares	124		239,108		—		—		239,232		—		—		—		239,232
Restricted share award grants, net	2		245		(448)		—		(201)		—		—		—		(201)
Purchase of OP Units	—		—		—		—		—		(93)		—		(93)		(93)
Dividends/distributions declared	—		—		(46,636)		—		(46,636)		(1,275)		—		(1,275)		(47,911)
Preferred distributions	—		—		(317)		—		(317)		—		—		—		(317)
Distributions	—		—		—		—		—		—		(41)		(41)		(41)
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership	—		581		(1,561)		—		(980)		—		—		—		(980)
Change in fair value of interest rate swap agreements	—		—		—		(9,986)		(9,986)		—		—		—		(9,986)
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		(2,038)		—		—		(2,038)		2,038		—		2,038		—
Net income	—		—		14,414		—		14,414		404		67		471		14,885
Balance as of March 31, 2020	$	2,026	$	3,169,670	$	(563,742)	$	(5,665)	$	2,602,289	$	72,771	$	365	$	73,136	$	2,675,425
Net proceeds from sale of common shares	55		99,450		—		—		99,505		—		—		—		99,505
Restricted share award grants, net	—		3,017		(791)		—		2,226		—		—		—		2,226
Purchase of OP Units	—		—		—		—		—		(67)		—		(67)		(67)
Dividends/distributions declared	—		—		(47,924)		—		(47,924)		(1,271)		—		(1,271)		(49,195)
Preferred distributions	—		—		(317)		—		(317)		—		—		—		(317)
Distributions	—		—		—		—		—		—		(42)		(42)		(42)
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership	—		(416)		(163)		—		(579)		—		—		—		(579)
Change in fair value of interest rate swap agreements	—		—		—		(1,243)		(1,243)		—		—		—		(1,243)
Adjustment for Noncontrolling Interests ownership in Operating Partnership	—		(806)		—		—		(806)		806		—		806		—
Net income	—		—		17,820		—		17,820		476		73		549		18,369
Balance as of June 30, 2020	$	2,081	$	3,270,915	$	(595,117)	$	(6,908)	$	2,670,971	$	72,715	$	396	$	73,111	$	2,744,082

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

7

Physicians Realty Trust

Consolidated Statements of Cash Flows

(In thousands) (Unaudited)

	Six Months Ended June 30,
	2021		2020
Cash Flows from Operating Activities:
Net income	$	36,486	$	33,404
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization	76,081		73,792
Amortization of deferred financing costs	1,163		1,194
Amortization of lease inducements and above/below-market lease intangibles	2,283		2,384
Straight-line rental revenue/expense	(5,105)		(7,006)
Amortization of discount on unsecured senior notes	324		311
Amortization of above market assumed debt	(31)		(31)
Gain on sale of investment properties, net	(354)		—
Equity in loss of unconsolidated entities	823		264
Distributions from unconsolidated entities	3,515		3,329
Change in fair value of derivative	—		14
Provision for bad debts	(161)		5
Non-cash share compensation	7,175		6,047
Change in operating assets and liabilities:
Tenant receivables	(1,354)		(738)
Other assets	5,501		(3,369)
Accounts payable	(1,583)		(2,503)
Accrued expenses and other liabilities	(2,418)		633
Net cash provided by operating activities	122,345		107,730
Cash Flows from Investing Activities:
Proceeds from sale of investment properties	4,128		—
Acquisition of investment properties, net	(37,603)		(12,378)
Investment in unconsolidated entities	10		—
Escrowed cash - acquisition deposits/earnest deposits	189		(210)
Capital expenditures on investment properties	(13,509)		(11,803)
Investment in real estate loans receivable	(10,673)		(29,822)
Repayment of real estate loans receivable	18,602		944
Leasing commissions	(2,575)		(898)
Net cash used in investing activities	(41,431)		(54,167)
Cash Flows from Financing Activities:
Net proceeds from sale of common shares	135,259		338,737
Proceeds from credit facility borrowings	154,000		156,000
Repayment of credit facility borrowings	(248,000)		(425,000)
Principal payments on mortgage debt	(7,377)		(24,480)
Debt issuance costs	(13)		(13)
Dividends paid - shareholders	(98,417)		(90,854)
Distributions to noncontrolling interests - Operating Partnership	(2,549)		(2,550)
Preferred distributions paid - OP Unit holder	(303)		(634)
Distributions to noncontrolling interests - partially owned properties	(334)		(360)
Payments of employee taxes for withheld stock-based compensation shares	(4,184)		(2,713)
Purchase of Series A Preferred Units	(4,661)		—
Purchase of OP Units	(5,332)		(160)
Net cash used in financing activities	(81,911)		(52,027)
Net (decrease) increase in cash and cash equivalents	(997)		1,536
Cash and cash equivalents, beginning of period	2,515		2,355
Cash and cash equivalents, end of period	$	1,518	$	3,891
Supplemental disclosure of cash flow information - interest paid during the period	$	26,028	$	28,660
Supplemental disclosure of noncash activity — settlement of note receivable in exchange for Series A Preferred Units	$	20,646	$	—
Supplemental disclosure of noncash activity — change in fair value of interest rate swap agreements	$	1,340	$	(11,229)
Supplemental disclosure of noncash activity — Conversion of loan receivable in connection with the acquisition of investment property	$	15,500	$	—

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

8

Physicians Realty Trust

Notes to Consolidated Financial Statements

Unless otherwise indicated or unless the context requires otherwise, the use of the words “we,” “us,” “our,” and the “Company,” refer to Physicians Realty Trust, together with its consolidated subsidiaries, including Physicians Realty L.P.

Note 1. Organization and Business

Physicians Realty Trust (the “Trust” or the “Company”) was organized in the state of Maryland on April 9, 2013. As of June 30, 2021, the Trust was authorized to issue up to 500,000,000 common shares of beneficial interest, par value $0.01 per share. The Trust filed a Registration Statement on Form S-11 with the Commission with respect to a proposed underwritten initial public offering (the “IPO”) and completed the IPO of its common shares and commenced operations on July 24, 2013.

The Trust contributed the net proceeds from the IPO to Physicians Realty L.P, a Delaware limited partnership (the “Operating Partnership”), and is the sole general partner of the Operating Partnership. The Trust’s operations are conducted through the Operating Partnership and wholly-owned and majority-owned subsidiaries of the Operating Partnership. The Trust, as the general partner of the Operating Partnership, controls the Operating Partnership and consolidates the assets, liabilities, and results of operations of the Operating Partnership.

The Trust is a self-managed REIT formed primarily to acquire, selectively develop, own, and manage health care properties that are leased to physicians, hospitals, and health care delivery systems.

ATM Program

In November 2019, the Trust and the Operating Partnership entered into separate At Market Issuance Sales Agreements (the “2019 Sales Agreements”) with each of KeyBanc Capital Markets Inc., Credit Agricole Securities (USA) Inc., BMO Capital Markets Corp., Raymond James & Associates, Inc., and Stifel, Nicolaus & Company, Incorporated, in their capacity as agents and as forward sellers (the “2019 Agents”), pursuant to which the Trust may issue and sell, from time to time, its common shares having an aggregate offering price of up to $500 million, through the 2019 Agents (the “2019 ATM Program”). The 2019 Sales Agreements contemplate that, in addition to the issuance and sale of the Trust’s common shares through the 2019 Agents, the Trust may also enter into one or more forward sales agreements from time to time in the future with each of KeyBanc Capital Markets, Inc., Credit Agricole Securities (USA) Inc., BMO Capital Markets Corp., Raymond James & Associates, Inc., and Stifel, Nicolaus & Company, Incorporated, or one of their respective affiliates.

In May 2021, the Trust and the Operating Partnership entered into an At Market Issuance Sales Agreement (the “2021 Sales Agreement”) with KeyBanc Capital Markets Inc., Credit Agricole Securities (USA) Inc., BMO Capital Markets Corp., and Raymond James & Associates, Inc. in their capacity as agents for the Company and/or forward sellers and Stifel, Nicolaus & Company, Incorporated in its capacity as sales agent for the Company (collectively, the “2021 Agents”) and Bank of Montreal, Credit Agricole Corporate and Investments Bank, KeyBanc Capital Markets Inc. and Raymond James & Associates, Inc. as forward purchasers for the Company (the “Forward Purchasers”), pursuant to which the Trust may issue and sell, from time to time, its common shares having an aggregate offering price of up to $500 million through the 2021 Agents (the “2021 ATM Program”). The 2021 Sales Agreement contemplates that, in addition to the issuance and sale of the Trust’s common shares through the 2021 Agents, the Trust may also enter into one or more forward sales agreements from time to time in the future with each of the Forward Purchasers. Upon entry into the 2021 Sales Agreement, we terminated the 2019 ATM Program.

During the quarterly periods ended March 31, 2021 and June 30, 2021, the Trust’s issuance and sale of common shares pursuant to the ATM Programs is as follows (in thousands, except common shares and price):

	Common shares sold	Weighted average price		Net proceeds
Quarterly period ended March 31, 2021	2,887,296	$	18.32	$	52,358
Quarterly period ended June 30, 2021	4,532,343	18.39		82,519
Year to date	7,419,639	$	18.36	$	134,877

As of June 30, 2021, the Trust has $465.3 million remaining available under the 2021 ATM Program.

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Note 2. Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of the results for the periods ended June 30, 2021 and 2020 pursuant to the instructions to Form 10-Q and Article 10 of Regulation S-X. All such adjustments are of a normal recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the audited financial statements included in the Trust’s 2020 Annual Report. The Company has consistently applied its accounting policies to all periods presented in these consolidated financial statements.

Noncontrolling Interests

As of June 30, 2021, the Trust held a 97.6% interest in the Operating Partnership. As the sole general partner and the majority interest holder, the Trust consolidates the financial position and results of operations of the Operating Partnership.

Redeemable Noncontrolling Interests - Series A Preferred Units and Partially Owned Properties

In connection with the acquisition of the HealthEast Clinic & Specialty Center (“Hazelwood Medical Commons Transaction”) that occurred on January 9, 2018, the Company issued 116,110 Series A Participating Redeemable Preferred Units of the Operating Partnership (“Series A Preferred Units”). On January 4, 2021, these Series A Preferred Units were redeemed for a total value of $25.3 million and as a result of this redemption, there are no Series A Preferred Units outstanding as of June 30, 2021.

In connection with the Company’s acquisitions of the medical office building, ambulatory surgery center, and hospital located on the Great Falls Hospital campus in Great Falls, Montana, physicians affiliated with the sellers retained non-controlling interests which may, at the holders’ option, be redeemed at any time after May 1, 2023. Due to the redemption provision, which is outside of the control of the Trust, the Trust classifies the investment in the mezzanine section of its consolidated balance sheets. The Trust records the carrying amount of the redeemable noncontrolling interests at the greater of the carrying value or redemption value.

Dividends and Distributions

On June 18, 2021, the Trust announced that its Board of Trustees authorized and the Trust declared a cash dividend of $0.23 per common share for the quarterly period ended June 30, 2021. The dividend was paid on July 16, 2021 to common shareholders and holders of record of partnership interests of the Operating Partnership (“OP Units”) as of the close of business on July 2, 2021.

Tax Status of Dividends and Distributions

The Company’s distributions of current and accumulated earnings and profits for U.S. federal income tax purposes generally are taxable to shareholders as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the shareholders’ basis in the shares to the extent thereof (non-dividend distributions) and thereafter as taxable gain.

Any cash distributions received by an OP Unit holder in respect of its OP Units generally will not be taxable to such OP Unit holder for U.S. federal income tax purposes, to the extent that such distribution does not exceed the OP Unit holder’s basis in its OP Units. Any such distribution will instead reduce the OP Unit holder’s basis in its OP Units (and OP Unit holders will be subject to tax on the taxable income allocated to them by the Operating Partnership in respect of their OP Units when such income is earned by the Operating Partnership, with such income allocation increasing the OP Unit holders’ basis in their OP Units).

Impairment of Intangible and Long-Lived Assets

The Company periodically evaluates its long-lived assets, primarily consisting of investments in real estate, for impairment indicators or whenever events or changes in circumstances indicate that the recorded amount of an asset may not be fully recoverable. The Company did not record any impairment charges in the three and six month periods ended June 30, 2021 or 2020.

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Real Estate Loans Receivable, Net

Real estate loans receivable consists of 21 mezzanine loans, one construction loan, and three term loans as of June 30, 2021. Generally, each mezzanine loan is collateralized by a pledge of the borrower’s ownership interest in the respective real estate owner, each term loan is secured by a mortgage of a related medical office building, and construction loans are secured by mortgages on the land and the improvements as constructed. In accordance with the adoption of ASU 2016-13, Financial Instruments - Credit Losses (“ASU 2016-13”) on January 1, 2020, the Company adjusted the opening balance of retained earnings by $0.1 million. The reserve for loan losses was $0.1 million as of June 30, 2021.

Rental Revenue

Rental revenue is recognized on a straight-line basis over the terms of the related leases when collectability is probable. Recognizing rental revenue on a straight-line basis for leases may result in recognizing revenue for amounts more or less than amounts currently due from tenants. Amounts recognized in excess of amounts currently due from tenants are included in other assets and were approximately $91.9 million and $86.6 million as of June 30, 2021 and December 31, 2020, respectively. If the Company determines that collectability of straight-line rents is not probable, income recognition is limited to the lesser of cash collected, or lease income reflected on a straight-line basis, plus variable rent when it becomes accruable.

In accordance with ASC 842, Leases, if the collectability of a lease changes after the commencement date, any difference between lease income that would have been recognized and the lease payments shall be recognized as an adjustment to lease income. Bad debt recognized as an adjustment to rental revenues was insignificant for the six months ended June 30, 2021. Bad debt recognized as an adjustment to rental revenues was $0.1 million for the six months ended June 30, 2020.

Rental revenue is adjusted by amortization of lease inducements and above-market or below-market rents on certain leases. Lease inducements and above-market or below-market rents are amortized on a straight-line basis over the remaining lease term.

Expense Recoveries

Expense recoveries relate to tenant reimbursement of real estate taxes, insurance, and other operating expenses that are recognized in the period the applicable expenses are incurred. The reimbursements are recorded gross, as the Company is generally the primary obligor with respect to real estate taxes and purchasing goods and services from third-party suppliers, has discretion in selecting the supplier, and bears the credit risk of tenant reimbursement.

The Company has certain single tenant properties with absolute net or triple net leases. Under these lease agreements, the tenant is responsible for operating expenses. For certain single tenant properties with absolute net or triple net leases, the Company does not recognize operating expense or expense recoveries. Bad debt recognized as an adjustment to expense recoveries was insignificant for the three and six months ended June 30, 2021 and 2020.

New Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which changes the impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses, rather than incur losses as required previously by the other-than-temporary impairment model. ASU 2016-13 applies to most financial assets measured at amortized cost and certain other instruments, including certain receivables, loans, held-to-maturity debt securities, net investments in leases, and off-balance-sheet credit exposures (e.g., loan commitments). ASU 2016-13 requires that financial statement assets measured at an amortized cost be presented at the net amount expected to be collected through an allowance for credit losses that is deducted from the amortized cost basis. ASU 2018-19 also clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of these receivables should be accounted for in accordance with ASC 842. The Company has adopted ASU 2016-13 as of the effective date, January 1, 2020, with a cumulative effect adjustment to the opening balance of retained earnings of $0.1 million.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) Facilitation of the Effects of Reference Rate Reform on Financial Reporting, that provides optional relief to applying reference rate reform to changing reference rates, contracts, hedging relationships, and other transactions that reference LIBOR, which will be discontinued by the end of 2021. The amendments in this update are effective immediately and may be applied through December 31, 2022. The Company is evaluating how the transition away from LIBOR will impact the Company, and if the optional relief in this standard will be adopted. The Company does not expect the adoption of the standard to have a material impact on the Company’s consolidated financial statements if adopted.

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In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact ASU 2020-06 will have on its consolidated financial statements.

Note 3. Investment and Disposition Activity

During the six months ended June 30, 2021, the Company completed the acquisition of two medical office facilities and three medical condominium units for an aggregate investment of approximately $36.9 million, excluding the conversion of a previously outstanding construction loan of $15.5 million. The Company also funded two mezzanine loans for $6.7 million, and closed on a $10.5 million construction loan, funding $4.0 million as of June 30, 2021. Additionally, the Company paid $0.3 million of additional purchase consideration under an earn-out agreement resulting in total investment activity of approximately $47.9 million. As part of these investments, the Company incurred approximately $0.4 million of capitalized costs.

Investment activity for the three months ended June 30, 2021 included the acquisition of two health care properties and one medical condominium unit for an aggregate purchase price of approximately $36.2 million, excluding the conversion of a previously outstanding construction loan of $15.5 million. The Company also funded one mezzanine loan for $1.9 million and $1.4 million of previous construction loan commitments resulting in total investment activity of $39.5 million for the three months ended June 30, 2021.

The following table summarizes the acquisition date fair values of the assets acquired and the liabilities assumed during the six months ended June 30, 2021, which the Company determined using Level 2 and Level 3 inputs (in thousands):

	1st Quarter		2nd Quarter		Total
Land	$	189	$	2,655	$	2,844
Building and improvements	917		44,743		45,660
In-place lease intangibles	29		4,442		4,471
Prepaid expenses	—		129		129
Net assets acquired	$	1,135	$	51,969	$	53,104

Dispositions

During the six months ended June 30, 2021, the Company sold two medical office facilities and three adjacent parcels of vacant land for approximately $4.3 million and recognized an aggregate net gain of approximately $0.4 million.

The following table summarizes revenues and net income related to the disposed properties for the periods presented (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenues	$	50	$	291	$	284	$	581
(Loss) income before net gain on sale of investment properties	$	(28)	$	112	$	1	$	203
Gain on sale of investment properties, net	378		—		354		—
Net income	$	350	$	112	$	355	$	203

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Note 4. Intangibles

The following is a summary of the carrying amount of intangible assets and liabilities as of June 30, 2021 and December 31, 2020 (in thousands):

	June 30, 2021						December 31, 2020
	Cost		Accumulated Amortization		Net		Cost		Accumulated Amortization		Net
Assets
In-place leases	$	365,058	$	(188,549)	$	176,509	$	362,837	$	(173,862)	$	188,975
Above-market leases	$	43,386	$	(22,516)	$	20,870	$	43,386	$	(20,670)	$	22,716
Leasehold interest	$	712	$	(391)	$	321	$	712	$	(361)	$	351
Right-of-use lease assets	$	146,372	$	(5,512)	$	140,860	$	141,507	$	(4,327)	$	137,180
Liabilities
Below-market leases	$	15,882	$	(9,881)	$	6,001	$	15,882	$	(9,241)	$	6,641

The following is a summary of acquired lease intangible amortization for the three and six month periods ended June 30, 2021 and 2020 (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Amortization expense related to in-place leases	$	8,173	$	8,537	$	16,487	$	17,102
Decrease in rental income related to above-market leases	919		967		1,846		1,964
Decrease in rental income related to leasehold interest	15		15		30		30
Increase in rental income related to below-market leases	317		342		640		705
Decrease in operating expense related to above-market ground leases	35		35		70		70
Increase in operating expense related to below-market ground leases	309		309		618		616

Future aggregate net amortization of acquired lease intangibles as of June 30, 2021, is as follows (in thousands):

	Net Decrease in  Revenue		Net Increase in  Expenses
2021	$	1,137	$	16,942
2022	1,929		30,445
2023	1,622		27,566
2024	1,559		24,561
2025	1,562		21,004
Thereafter	7,381		118,236
Total	$	15,190	$	238,754

As of June 30, 2021, the weighted average remaining amortization period for asset lease intangibles and liability lease intangibles is 27 and 41 years, respectively.

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Note 5. Other Assets

Other assets consisted of the following as of June 30, 2021 and December 31, 2020 (in thousands):

	June 30, 2021		December 31, 2020
Straight line rent receivable, net	$	91,942	$	86,551
Leasing commissions, net	11,104		9,282
Lease inducements, net	8,897		9,396
Prepaid expenses	7,026		9,401
Escrows	1,343		1,507
Notes receivable, net	1,010		23,760
Other	4,037		4,103
Total	$	125,359	$	144,000

Note 6. Debt

The following is a summary of debt as of June 30, 2021 and December 31, 2020 (in thousands):

	June 30, 2021		December 31, 2020
Fixed interest mortgage notes (1)	$	44,757	$	51,896
Variable interest mortgage note (2)	5,867		6,105
Total mortgage debt	50,624		58,001
$850 million unsecured revolving credit facility bearing variable interest of LIBOR plus 0.90%, due September 2022	72,000		166,000
$400 million senior unsecured notes bearing fixed interest of 4.30%, due March 2027	400,000		400,000
$350 million senior unsecured notes bearing fixed interest of 3.95%, due January 2028	350,000		350,000
$250 million unsecured term borrowing bearing fixed interest of 2.07%, due June 2023 (3)	250,000		250,000
$150 million senior unsecured notes bearing fixed interest of 4.03% to 4.74%, due January 2023 to 2031	150,000		150,000
$75 million senior unsecured notes bearing fixed interest of 4.09% to 4.24%, due August 2025 to 2027	75,000		75,000
Total principal	1,347,624		1,449,001
Unamortized deferred financing costs	(4,219)		(5,369)
Unamortized discounts	(4,531)		(4,855)
Unamortized fair value adjustments	42		73
Total debt	$	1,338,916	$	1,438,850

(1)As of June 30, 2021, fixed interest mortgage notes bear interest from 4.63% to 5.50%, due in 2022 and 2024, with a weighted average interest rate of 4.79%. As of December 31, 2020, fixed interest mortgage notes bear interest from 4.63% to 5.50%, due in 2021, 2022, and 2024, with a weighted average interest rate of 4.78%. The notes are collateralized by three properties with a net book value of $97.6 million as of June 30, 2021 and four properties with a net book value of $110.3 million as of December 31, 2020.

(2)Variable interest mortgage note bears variable interest of LIBOR plus 2.75%, for an interest rate of 2.84% and 2.90% as of June 30, 2021 and December 31, 2020, respectively. The note is due in 2028 and is collateralized by one property with a net book value of $8.2 million as of June 30, 2021 and $8.3 million as of December 31, 2020.

(3)The Trust’s borrowings under the term loan feature of the Credit Agreement bears interest at a rate which is determined by the Trust’s credit rating, currently equal to LIBOR + 1.00%. The Trust has entered into a pay-fixed receive-variable interest rate swap, fixing the LIBOR component of this rate at 1.07%.

On August 7, 2018, the Operating Partnership, as borrower, and the Trust, as guarantor, executed a Second Amended and Restated Credit Agreement (the “Credit Agreement”) which extended the maturity date of the revolving credit facility under the Credit Agreement to September 18, 2022 and reduced the interest rate margin applicable to borrowings. The Credit Agreement includes an unsecured revolving credit facility of $850 million and contains a term loan feature of $250 million, bringing total borrowing capacity to $1.1 billion. The Credit Agreement also includes a swingline loan commitment for up to

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10% of the maximum principal amount and provides an accordion feature allowing the Trust to increase borrowing capacity by up to an additional $500 million, subject to customary terms and conditions, resulting in a maximum borrowing capacity of $1.6 billion. The revolving credit facility under the Credit Agreement also includes a one-year extension option.

Borrowings under the Credit Agreement bear interest on the outstanding principal amount at an adjusted LIBOR rate, which is based on the Trust’s investment grade rating under the Credit Agreement. As of June 30, 2021, the Trust had investment grade ratings of BBB from S&P, Baa3 from Moody’s, and BBB from Fitch. As such, borrowings under the revolving credit facility of the Credit Agreement accrue interest on the outstanding principal at a rate of LIBOR + 0.90%. The Credit Agreement includes a facility fee equal to 0.20% per annum, which is also determined by the Trust’s investment grade rating.

On July 7, 2016, the Operating Partnership borrowed $250.0 million under the 7-year term loan feature of the Credit Agreement. Pursuant to the Credit Agreement, borrowings under the term loan feature of the Credit Agreement bear interest on the outstanding principal amount at a rate which is determined by the Trust’s credit rating, currently equal to LIBOR + 1.00%. The Trust simultaneously entered into a pay-fixed receive-variable rate swap for the full borrowing amount, fixing the LIBOR component of the borrowing rate to 1.07%, for a current all-in fixed rate of 2.07%. Both the borrowing and pay-fixed receive-variable swap have a maturity date of June 10, 2023.

Base Rate Loans, Adjusted LIBOR Rate Loans, and Letters of Credit (each, as defined in the Credit Agreement) will be subject to interest rates, based upon the Trust’s investment grade rating as follows:

Credit Rating	Margin for Revolving Loans: Adjusted LIBOR Rate Loans and Letter of Credit Fee	Margin for Revolving Loans: Base Rate Loans		Margin for Term Loans: Adjusted LIBOR Rate Loans and Letter of Credit Fee	Margin for Term Loans: Base Rate Loans
At Least A- or A3	LIBOR + 0.775%	—	%	LIBOR + 0.85%	—	%
At Least BBB+ or Baa1	LIBOR + 0.825%	—	%	LIBOR + 0.90%	—	%
At Least BBB or Baa2	LIBOR + 0.90%	—	%	LIBOR + 1.00%	—	%
At Least BBB- or Baa3	LIBOR + 1.10%	0.10	%	LIBOR + 1.25%	0.25	%
Below BBB- or Baa3	LIBOR + 1.45%	0.45	%	LIBOR + 1.65%	0.65	%

The Credit Agreement contains financial covenants that, among other things, require compliance with leverage and coverage ratios and maintenance of minimum tangible net worth, as well as covenants that may limit the Trust’s and the Operating Partnership’s ability to incur additional debt, grant liens, or make distributions. The Company may, at any time, voluntarily prepay any revolving or term loan under the Credit Agreement in whole or in part without premium or penalty. As of June 30, 2021, the Company was in compliance with all financial covenants related to the Credit Agreement.

The Credit Agreement includes customary representations and warranties by the Trust and the Operating Partnership and imposes customary covenants on the Operating Partnership and the Trust. The Credit Agreement also contains customary events of default, and if an event of default occurs and continues, the Operating Partnership is subject to certain actions by the administrative agent, including without limitation, the acceleration of repayment of all amounts outstanding under the Credit Agreement.

As of June 30, 2021, the Company had $72.0 million of borrowings outstanding under its unsecured revolving credit facility, and $250.0 million of borrowings outstanding under the term loan feature of the Credit Agreement. As defined by the Credit Agreement, the current unencumbered borrowing base allows the Company to borrow an additional $778.0 million before reaching the maximum allowed under the credit facility.

Notes Payable

As of June 30, 2021, the Company had $975.0 million aggregate principal amount of senior notes issued and outstanding by the Operating Partnership, comprised of $15.0 million maturing in 2023, $25.0 million maturing in 2025, $70.0 million maturing in 2026, $425.0 million maturing in 2027, $395.0 million maturing in 2028, and $45.0 million maturing in 2031.

Certain properties have mortgage debt that contains financial covenants. As of June 30, 2021, the Trust was in compliance with all mortgage debt financial covenants.

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Scheduled principal payments due on consolidated debt as of June 30, 2021, are as follows (in thousands):

2021	$	919
2022	92,825
2023	266,008
2024	23,669
2025	25,476
Thereafter	938,727
Total Payments	$	1,347,624

As of June 30, 2021, the Company had total consolidated indebtedness of approximately $1.3 billion. The weighted average interest rate on consolidated indebtedness was 3.65% (based on the 30-day LIBOR rate as of June 30, 2021, of 0.09%).

For the three month periods ended June 30, 2021 and 2020, the Company incurred interest expense on its debt, exclusive of deferred financing cost amortization, of $13.0 million and $13.6 million, respectively. For the six month periods ending June 30, 2021 and 2020, the Company incurred interest expense on its debt, exclusive of deferred financing cost amortization, of $26.1 million and $28.6 million, respectively.

Note 7. Derivatives

In the normal course of business, a variety of financial instruments are used to manage or hedge interest rate risk. The Company has implemented ASC 815, Derivatives and Hedging (“ASC 815”), which establishes accounting and reporting standards requiring that all derivatives, including certain derivative instruments embedded in other contracts, be recorded as either an asset or a liability measured at their fair value unless they qualify for a normal purchase or normal sales exception.

When specific hedge accounting criteria are not met, ASC 815 requires that changes in a derivative’s fair value be recognized currently in earnings. Changes in the fair market values of the Company’s derivative instruments are recorded in the consolidated statements of income if such derivatives do not qualify for, or the Company does not elect to apply for, hedge accounting. As a result of the Company’s adoption of ASU 2017-12 as of January 1, 2019, the entire change in the fair value of its derivatives designated and qualified as cash flow hedges are recorded in accumulated other comprehensive income on the consolidated balance sheets and are subsequently reclassified into earnings in the period in which the hedged forecasted transaction affects earnings.

To manage interest rate risk for certain of its variable-rate debt, the Company uses interest rate swaps as part of its risk management strategy. These derivatives are designed to mitigate the risk of future interest rate increases by providing a fixed interest rate for a limited, pre-determined period of time. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. As of June 30, 2021, the Company had five outstanding interest rate swap contracts that are designated as cash flow hedges of interest rate risk. For presentational purposes, they are shown as one derivative due to the identical nature of their economic terms. See Note 2 (Summary of Significant Accounting Policies) for a further discussion of our derivatives.

The following table summarizes the location and aggregate fair value of the interest rate swaps on the Company’s consolidated balance sheets (in thousands):

Total notional amount		$	250,000
Effective fixed interest rate	(1)	2.07		%
Effective date		7/7/2016
Maturity date		6/10/2023
Liability balance at June 30, 2021 (included in Accrued expenses and other liabilities)		$	4,014
Liability balance at December 31, 2020 (included in Accrued expenses and other liabilities)		$	5,317

(1)1.07% effective swap rate plus 1.00% spread per Credit Agreement.

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Note 8. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following as of June 30, 2021 and December 31, 2020 (in thousands):

	June 30, 2021		December 31, 2020
Prepaid rent	$	21,587	$	22,248
Real estate taxes payable	20,458		23,436
Accrued interest	15,979		16,009
Accrued expenses	4,940		5,721
Interest rate swap	4,014		5,317
Security deposits	3,798		3,714
Accrued incentive compensation	3,207		1,945
Tenant improvement allowances	1,915		1,917
Embedded derivative	—		4,944
Other	8,707		6,678
Total	$	84,605	$	91,929

Note 9. Stock-based Compensation

The Company follows ASC 718, Compensation - Stock Compensation (“ASC 718”), in accounting for its share-based payments. This guidance requires measurement of the cost of employee services received in exchange for stock compensation based on the grant-date fair value of the employee stock awards. This cost is recognized as compensation expense ratably over the employee’s requisite service period. Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized when incurred. Share-based payments classified as liability awards are marked to fair value at each reporting period. Any common shares issued pursuant to the Company's incentive equity compensation and employee stock purchase plans will result in the Operating Partnership issuing OP Units to the Trust on a one-for-one basis, with the Operating Partnership receiving the net cash proceeds of such issuances.

Certain of the Company’s employee stock awards vest only upon the achievement of performance targets. ASC 718 requires recognition of compensation cost only when achievement of performance conditions is considered probable. Consequently, the Company’s determination of the amount of stock compensation expense requires judgment in estimating the probability of achievement of these performance targets. Subsequent changes in actual experience are monitored and estimates are updated as information is available.

In connection with the IPO, the Trust adopted the 2013 Equity Incentive Plan, which made shares available for awards for participants. On April 30, 2019, at the Annual Meeting of Shareholders of Physicians Realty Trust, the Trust’s shareholders approved the Amended and Restated Physicians Realty Trust 2013 Equity Incentive Plan (“2013 Plan”). The amendment increased the number of common shares authorized for issuance under the 2013 Plan to a total of 7,000,000 common shares authorized for issuance. The 2013 Plan term was also extended to 2029.

Restricted Common Shares

Restricted common shares granted under the 2013 Plan are eligible for dividends as well as the right to vote. In the six month period ended June 30, 2021, the Trust granted a total of 224,163 restricted common shares with a total value of $3.9 million to its officers and certain of its employees, which have a vesting period of one to three years.

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A summary of the status of the Trust’s non-vested restricted common shares as of June 30, 2021 and changes during the six month period then ended follow:

	Common Shares	Weighted Average Grant Date Fair Value
Non-vested at December 31, 2020	215,822	$	18.73
Granted	224,163	17.42
Vested	(185,968)	18.94
Non-vested at June 30, 2021	254,017	$	17.42

For all service awards, the Company records compensation expense for the entire award on a straight-line basis over the requisite service period. For the three month periods ending June 30, 2021 and 2020, the Company recognized non-cash share compensation of $0.9 million. For the six month periods ending June 30, 2021 and 2020, the Company recognized non-cash share compensation of $1.8 million and $1.7 million, respectively. Unrecognized compensation expense at June 30, 2021 was $3.3 million.

Restricted Share Units

In January 2021, under the 2013 Plan, the Company granted 13,343 restricted share units to certain of its trustees in lieu of all or a portion of such trustee’s 2021 cash retainer. These units are subject to certain timing conditions and a one-year service period. Each restricted share unit contains one dividend equivalent. Each recipient will accrue dividend equivalents on awarded share units equal to the cash dividend that would have been paid on the awarded share unit had the awarded share unit been an issued and outstanding common share on the record date for the dividend. With respect to the performance and timing conditions of the January 2021 grants, the grant date fair value of $17.80 per unit was based on the share price at the date of grant.

In March 2021, under the 2013 Plan, the Company granted restricted share units at a target level of 265,275 to its officers and certain of its employees and 43,582 to its trustees. Units granted to officers and certain employees under the Company’s 2013 Plan are subject to certain performance and market conditions and a three-year service period. Units granted to trustees are subject to certain timing conditions and a two-year service period. Each restricted share unit contains one dividend equivalent. Each recipient will accrue dividend equivalents on awarded share units equal to the cash dividend that would have been paid on the awarded share unit had the awarded share unit been an issued and outstanding common share on the record date for the dividend.

Approximately 40% of the restricted share units issued to officers and certain employees under the Company’s 2013 Plan in 2021 vest based on two certain market conditions. The awards containing market conditions were valued with the assistance of independent valuation specialists. The Company utilized a Monte Carlo simulation to calculate the weighted average grant date fair values of $27.53 and $30.82 per unit for the March 2021 grant using the following assumptions:

Volatility	33.3		%
Dividend assumption	reinvested
Expected term in years	2.84 years
Risk-free rate	0.25		%
Share price (per share)	$	17.21

The remaining 60% of the restricted share units issued to officers and certain employees under the Company’s 2013 Plan, and 100% of other restricted share units issued to trustees vest based upon certain performance or timing conditions. With respect to the performance and timing conditions of the March 2021 grants, the grant date fair value of $17.21 per unit was based on the share price at the date of grant. The combined weighted average grant date fair value of the March 2021 restricted share units issued to officers and certain employees is $22.00 per unit.

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The following is a summary of the activity in the Trust’s restricted share units during the six months ended June 30, 2021: 

	Executive Awards				Trustee Awards
	Restricted Share Units		Weighted Average Grant Date Fair Value		Restricted Share Units	Weighted Average Grant Date Fair Value
Non-vested at December 31, 2020	964,139		$	21.17	59,820	$	18.81
Granted	265,275		22.00		56,925	17.35
Vested	(252,844)	(1)	16.58		(40,394)	18.57
Non-vested at June 30, 2021	976,570		$	22.59	76,351	$	17.84

(1)Restricted units vested by Company executives in 2021 resulted in the issuance of 399,165 common shares, less 162,173 common shares withheld to cover minimum withholding tax obligations, for multiple employees.

For the three month periods ending June 30, 2021 and 2020, the Company recognized non-cash share compensation expense of $2.5 million and $2.2 million, respectively. For the six month periods ending June 30, 2021 and 2020, the Company recognized non-cash share compensation of $5.3 million and $4.3 million, respectively. Unrecognized compensation expense at June 30, 2021 was $14.5 million.

Note 10. Fair Value Measurements

ASC Topic 820, Fair Value Measurement (“ASC 820”), requires certain assets and liabilities be reported and/or disclosed at fair value in the financial statements and provides a framework for establishing that fair value. The framework for determining fair value is based on a hierarchy that prioritizes the valuation techniques and inputs used to measure fair value.

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset. These Level 3 fair value measurements are based primarily on management’s own estimates using pricing models, discounted cash flow methodologies, or similar techniques taking into account the characteristics of the asset or liability. In instances where inputs used to measure fair value fall into different levels of the fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability. As part of the Company’s acquisition process, Level 3 inputs are used to measure the fair value of the assets acquired and liabilities assumed.

The Company’s derivative instruments as of June 30, 2021 consist of five interest rate swaps. For presentational purposes, the Company’s interest rate swaps are shown as a single derivative due to the identical nature of their economic terms, as detailed in the Derivative Instruments section of Note 7 (Derivatives) of this report and Note 2 (Summary of Significant Accounting Policies) of Part II, Item 8 (Financial Statements and Supplementary Data) of our 2020 Annual Report.

The interest rate swaps are not traded on an exchange. The Company’s derivative assets and liabilities are recorded at fair value based on a variety of observable inputs including contractual terms, interest rate curves, yield curves, measure of volatility, and correlations of such inputs. The Company measures its derivatives at fair value on a recurring basis. The fair values are based on Level 2 inputs described above. The Company considers its own credit risk, as well as the credit risk of its counterparties, when evaluating the fair value of its derivatives.

The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. This generally includes assets subject to impairment. There were no assets measured at fair value as of June 30, 2021.

The carrying amounts of cash and cash equivalents, tenant receivables, payables, and accrued interest are reasonable estimates of fair value because of the short-term maturities of these instruments. Fair values for real estate loans receivable and mortgage debt are estimated based on rates currently prevailing for similar instruments of similar maturities and are based primarily on Level 2 inputs.

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The following table presents the fair value of the Company’s financial instruments (in thousands):

	June 30, 2021				December 31, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
Assets:
Real estate loans receivable, net	$	176,819	$	174,306	$	198,800	$	198,814
Notes receivable, net	$	1,010	$	1,010	$	23,760	$	23,760
Liabilities:
Credit facility	$	(322,000)	$	(322,000)	$	(416,000)	$	(416,000)
Notes payable	$	(975,000)	$	(1,067,434)	$	(975,000)	$	(1,063,367)
Mortgage debt	$	(50,666)	$	(51,674)	$	(58,074)	$	(59,651)
Derivative liabilities	$	(4,014)	$	(4,014)	$	(10,261)	$	(10,261)

Note 11. Tenant Operating Leases

The Company is a lessor of medical office buildings and other health care facilities. Leases have expirations from 2021 through 2039. As of June 30, 2021, the future minimum rental payments on non-cancelable leases, exclusive of expense recoveries, were as follows (in thousands):

2021	$	155,834
2022	306,557
2023	299,679
2024	287,652
2025	271,913
Thereafter	969,327
Total	$	2,290,962

Note 12. Rent Expense

The Company leases the rights to parking structures at two of its properties, the air space above one property, and the land upon which 81 of its properties are located from third party land owners pursuant to separate leases. In addition, the Company has nine corporate leases, primarily for office space.

The Company’s leases include both fixed and variable rental payments and may also include escalation clauses and renewal options. These leases have terms of up to 86 years remaining, excluding extension options, with a weighted average remaining term of 44 years.

At the inception of a new lease, the Company establishes an operating lease asset and operating lease liability calculated as the present value of future minimum lease payments. As our leases do not provide an implicit rate, we calculate a discount rate that approximates our incremental borrowing rate available at lease commencement to determine the present value of future minimum lease payments. The approximated weighted average discount rate was 4.4% as of June 30, 2021. There are no operating leases that have not yet commenced that would have a significant impact on the Company’s consolidated balance sheets.

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As of June 30, 2021, the future minimum lease obligations under non-cancelable parking, air, ground, and corporate leases, were as follows (in thousands):

2021	$	1,627
2022	3,701
2023	3,693
2024	3,676
2025	3,657
Thereafter	180,379
Total undiscounted lease payments	$	196,733
Less: Interest	(118,118)
Present value of lease liabilities	$	78,615

Lease costs consisted of the following for the six months ended June 30, 2021 (in thousands):

Operating lease cost	$	1,223
Variable lease cost	501
Total lease cost	$	1,724

Note 13. Credit Concentration

The Company uses annualized base rent (“ABR”) as its credit concentration metric. ABR is calculated by multiplying contractual base rent for the month ended June 30, 2021 by 12, excluding the impact of concessions and straight-line rent. The following table summarizes certain information about the Company’s top five tenant credit concentrations as of June 30, 2021 (in thousands):

Tenant	Total ABR		Percent of ABR
CommonSpirit - CHI - Nebraska	$	17,591	5.6	%
Northside Hospital	15,175		4.9	%
UofL Health - Louisville, Inc.	12,526		4.0	%
US Oncology	10,940		3.5	%
Baylor Scott and White Health	8,156		2.6	%
Remaining portfolio	247,684		79.4	%
Total	$	312,072	100.0	%

ABR collected from the Company’s top five tenant relationships comprises 20.6% of its total ABR for the period ending June 30, 2021. Total ABR from CommonSpirit Health affiliated tenants totals 16.6%, including the affiliates disclosed above.

The following table summarizes certain information about the Company’s top five geographic concentrations as of June 30, 2021 (in thousands):

State	Total ABR		Percent of ABR
Texas	$	50,798	16.3	%
Georgia	25,794		8.3	%
Indiana	23,952		7.7	%
Nebraska	18,892		6.1	%
Kentucky	17,889		5.7	%
Other	174,747		55.9	%
Total	$	312,072	100.0	%

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Note 14. Earnings Per Share

The following table shows the amounts used in computing the Trust’s basic and diluted earnings per share (in thousands, except share and per share data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Numerator for earnings per share - basic:
Net income	$	18,681	$	18,444	$	36,486	$	33,404
Net income attributable to noncontrolling interests:
Operating Partnership	(417)		(476)		(876)		(880)
Partially owned properties	(151)		(148)		(303)		(290)
Preferred distributions	—		(317)		(13)		(634)
Numerator for earnings per share - basic	$	18,113	$	17,503	$	35,294	$	31,600
Numerator for earnings per share - diluted:
Numerator for earnings per share - basic	$	18,113	$	17,503	$	35,294	$	31,600
Operating Partnership net income	417		476		876		880
Numerator for earnings per share - diluted	$	18,530	$	17,979	$	36,170	$	32,480
Denominator for earnings per share - basic and diluted:
Weighted average number of shares outstanding - basic	215,837,520		203,692,604		213,198,272		199,952,166
Effect of dilutive securities:
Noncontrolling interest - Operating Partnership units	5,403,909		5,660,952		5,544,796		5,662,038
Restricted common shares	58,083		10,268		83,848		63,068
Restricted share units	1,360,990		1,041,952		1,226,390		1,021,905
Denominator for earnings per share - diluted:	222,660,502		210,405,776		220,053,306		206,699,177
Earnings per share - basic	$	0.08	$	0.09	$	0.17	$	0.16
Earnings per share - diluted	$	0.08	$	0.09	$	0.16	$	0.16

Note 15. Subsequent Events

On July 1, 2021, Moody's Investors Service (“Moody's”) upgraded each of the Company’s senior unsecured debt ratings to ‘Baa2’ with a stable outlook, from the previous rating of ‘Baa3’.

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Item 2.                                 Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our unaudited consolidated financial statements, including the notes to those statements, included in Part I, Item 1 of this report, and the Section entitled “Cautionary Statement Regarding Forward-Looking Statements” in this report. As discussed in more detail in the Section entitled “Cautionary Statement Regarding Forward-Looking Statements,” this discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause those differences include those discussed in Part I, Item 1 (Business) and Part I, Item 1A (Risk Factors) of our 2020 Annual Report.

Company Highlights

•Reported second quarter 2021 total revenue of $112.9 million, an increase of 3.5% over the prior year period.

•Generated second quarter net income per share of $0.08 on a fully diluted basis.

•Generated second quarter Normalized Funds From Operations (Normalized FFO) of $0.26 per share on a fully diluted basis.

•New investments and construction loan commitments of $39.5 million during the second quarter, excluding the conversion of a previously outstanding construction loan of $15.5 million.

•Second quarter MOB Same-Store Cash Net Operating Income growth was 2.4% year-over-year.

•Declared a quarterly dividend of $0.23 per share and OP Unit for the second quarter 2021, paid July 16, 2021.

•Sold 4,532,343 common shares pursuant to the ATM program at a weighted average price of $18.39 during the second quarter 2021, resulting in net proceeds of approximately $82.5 million.

•Assigned a senior unsecured debt rating of 'BBB' from Standard and Poor’s Rating (“S&P”).

•Assigned a senior unsecured debt rating of 'Baa2' from Moody’s Investors Services (“Moody’s”).

Overview

We are a self-managed health care real estate company organized in April 2013 to acquire, selectively develop, own, and manage health care properties that are leased to physicians, hospitals, and health care delivery systems. We invest in real estate that is integral to providing high quality health care services. Our properties are typically located on a campus with a hospital or other health care facilities or strategically affiliated with a hospital or other health care facilities. We believe the impact of government programs and continuing trends in the health care industry create attractive opportunities for us to invest in health care related real estate. In particular, we believe the demand for health care will continue to increase as a result of the aging population as older persons generally utilize health care services at a rate well in excess of younger people. Our management team has significant public health care REIT experience and has long-established relationships with physicians, hospitals, and health care delivery system decision makers that we believe will provide quality investment and growth opportunities. Our principal investments include medical office buildings, outpatient treatment facilities, as well as other real estate integral to health care providers. In recent years, we have seen increased competition for health care properties and we expect this trend to continue. We seek to generate attractive risk-adjusted returns for our shareholders through a combination of stable and increasing dividends and potential long-term appreciation in the value of our properties and our common shares.

We grew our portfolio of gross real estate investments from approximately $124 million at the time of our IPO in July 2013 to approximately $4.9 billion as of June 30, 2021. As of June 30, 2021, our portfolio consisted of 263 health care properties located in 31 states with approximately 14,080,739 net leasable square feet, which were approximately 96% leased with a weighted average remaining lease term of approximately 6.6 years. As of June 30, 2021, approximately 90% of the net leasable square footage of our portfolio was either on the campus of a hospital or strategically affiliated with a health system.

We receive a cash rental stream from the health care providers under our leases. Approximately 94% of the annualized base rent payments from our properties as of June 30, 2021 are from absolute and triple-net leases pursuant to which the tenants are responsible for all operating expenses relating to the property, including but not limited to real estate taxes, utilities, property insurance, routine maintenance and repairs, and property management. This structure helps insulate us from increases in certain operating expenses and provides more predictable cash flow. Approximately 4% of the annualized base rent payments from our properties as of June 30, 2021 are from modified gross base stop leases which allow us to pass through certain increases in future operating expenses (e.g., property tax and insurance) to tenants for reimbursement, thus protecting us from increases in such operating expenses.

We seek to structure our triple-net leases to generate attractive returns on a long-term basis. Our leases typically have initial terms of 5 to 15 years and include annual rent escalators of approximately 1.5% to 3.0%, with an annual weighted

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average rent escalator of approximately 2.4%. Our operating results depend significantly upon the ability of our tenants to make required rental payments. We believe that our portfolio of medical office buildings and other health care facilities will enable us to generate stable cash flows over time because of the diversity of our tenants, staggered lease expiration schedule, long-term leases, and low historical occurrence of tenants defaulting under their leases. As of June 30, 2021, leases representing 2.0%, 4.3%, and 4.9% of leased square feet will expire in 2021, 2022, and 2023, respectively.

We intend to grow our portfolio of high-quality health care properties leased to physicians, hospitals, health care delivery systems, and other health care providers primarily through acquisitions of existing health care facilities that provide stable revenue growth and predictable long-term cash flows. We may also selectively finance the development of new health care facilities through joint venture or fee arrangements with health care real estate developers or health system development professionals. Generally, we expect to make investments in new development properties when approximately 80% or more of the development property has been pre-leased before construction commences. We seek to invest in properties where we can develop strategic alliances with financially sound health care providers and health care delivery systems that offer need-based health care services in sustainable health care markets. We focus our investment activity on medical office buildings and ambulatory surgery centers.

We believe that trends such as shifting consumer preferences, limited space in hospitals, the desire of patients and health care providers to limit non-essential services provided in a hospital setting, and cost considerations, continue to drive the industry towards performing more procedures in outpatient facilities versus the hospital setting. As these trends continue, we believe that demand for medical office buildings and similar health care properties away from hospital settings and in convenient locations to patients will continue to rise. We intend to exploit this trend and seek outpatient properties consistent with our investment philosophy and strategies.

While not our focus, we may choose to invest opportunistically in life science facilities, senior housing properties, skilled nursing facilities, specialty hospitals, and treatment centers. Consistent with our qualification as a REIT, we may also opportunistically invest in companies that provide health care services, and in joint venture entities with operating partners, structured to comply with the REIT Investment Diversification Act of 2007.

The Trust is a Maryland real estate investment trust and elected to be taxed as a REIT for U.S. federal income tax purposes. We conduct our business through an UPREIT structure in which our properties are owned by our Operating Partnership directly or through limited partnerships, limited liability companies, or other subsidiaries. The Trust is the sole general partner of our Operating Partnership and, as of June 30, 2021, owned approximately 97.6% of the OP Units. As of July 28, 2021, there were 217,405,868 common shares outstanding.

Key Transactions in Second Quarter 2021

Investment Activity

During the three months ended June 30, 2021, the Company completed the acquisition of one medical condominium unit located in Georgia and two operating health care properties located in two states for an aggregate investment of approximately $36.2 million, excluding the conversion of a previously outstanding construction loan of $15.5 million.. The Company also funded one mezzanine loan for $1.9 million and also funded $1.4 million of previous loan commitments, resulting in total investment activity of approximately $39.5 million.

During the three months ended June 30, 2021, the Company sold one medical office building located in Alabama representing 19,800 square feet and three adjacent parcels of vacant land in Texas for approximately $3.8 million, realizing a net gain of approximately $0.4 million.

Recent Developments

Quarterly Distribution

On June 18, 2021, we announced that our Board of Trustees authorized and declared a cash distribution of $0.23 per common share for the quarterly period ended June 30, 2021. The dividend was paid on July 16, 2021 to common shareholders and OP Unit holders of record as of the close of business on July 2, 2021.

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Credit Rating Upgrades

On May 13, 2021, Standard & Poor’s Ratings Services (“S&P”) upgraded each of the Company’s senior unsecured debt ratings to ‘BBB’ with a stable outlook, from the previous rating of ‘BBB-’.

On July 1, 2021, Moody's Investors Service (“Moody's”) upgraded each of the Company’s senior unsecured debt ratings to ‘Baa2’ with a stable outlook, from the previous rating of ‘Baa3’.

Results of Operations

Three months ended June 30, 2021 compared to the three months ended June 30, 2020.

The following table summarizes our results of operations for the three months ended June 30, 2021 and 2020 (in thousands):

	2021		2020		Change		%
Revenues:
Rental revenues	$	80,572	$	79,801	$	771	1.0	%
Expense recoveries	27,176		24,952		2,224		8.9	%
Interest income on real estate loans and other	5,177		4,313		864		20.0	%
Total revenues	112,925		109,066		3,859		3.5	%
Expenses:
Interest expense	13,541		14,197		(656)		(4.6)	%
General and administrative	9,117		8,242		875		10.6	%
Operating expenses	33,456		31,029		2,427		7.8	%
Depreciation and amortization	38,105		37,045		1,060		2.9	%
Total expenses	94,219		90,513		3,706		4.1	%
Income before equity in loss of unconsolidated entities and gain on sale of investment properties, net:	18,706		18,553		153		0.8	%
Equity in loss of unconsolidated entities	(403)		(109)		(294)		NM
Gain on sale of investment properties, net	378		—		378		NM
Net income	$	18,681	$	18,444	$	237	1.3	%

NM = Not Meaningful

Revenues

Total revenues increased $3.9 million, or 3.5%, for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. An analysis of selected revenues follows.

Rental revenues. Rental revenues increased $0.8 million, or 1.0%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. Rental revenues increased $0.5 million and $1.6 million from properties purchased in 2021 and 2020, respectively. Rental revenues also increased $0.3 million from our existing portfolio. This was partially offset by a decrease of $1.1 million due to additional rent collected from our three LifeCare properties in 2020, and by $0.5 million due to properties sold in 2021 and 2020.

Expense recoveries. Expense recoveries increased $2.2 million, or 8.9% for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. Expense recoveries increased due to a $1.9 million increase in reimbursable operating expenses from our existing portfolio, and an additional net $0.5 million of expense recoveries relates to properties acquired and sold in 2021 and 2020.

Interest income on real estate loans and other. Interest income on real estate loans and other increased $0.9 million, or 20.0%, for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. An increase of $1.7 million was due to new loan activity since March 31, 2020, which was partially offset by $1.0 million of loans payoffs and conversions in 2021 and 2020.

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Expenses

Total expenses increased $3.7 million, or 4.1%, for the three months ended June 30, 2021 as compared to the three months ended June 30, 2020. An analysis of selected expenses follows.

Interest expense. Interest expense decreased $0.7 million, or 4.6%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The decrease is the result of a lower effective interest rate on our credit facility of $0.6 million, lower debt balances of $0.2 million, mortgage payoffs of $0.1 million, and lower credit facility fees of $0.1 million. Our weighted average effective interest rate on our credit facility was 1.1% and 1.7% for the three months ended June 30, 2021 and 2020, respectively. These decreases were partially offset by increases on our interest rate swap contracts of $0.3 million.

General and administrative. General and administrative expenses increased $0.9 million, or 10.6%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. The increase was due to additional marketing and environmental, social, and governmental (“ESG”) expenses of $0.4 million, additional payroll and benefits of $0.3 million, and travel expenses of $0.3 million.

Operating expenses. Operating expenses increased $2.4 million, or 7.8%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. Net operating expenses on properties purchased and sold in 2021 and 2020 increased by $0.7 million. Operating expenses on the remaining properties increased by $1.9 million, or 6.1% quarter over quarter, due to additional maintenance costs of $0.6 million, tenant service costs of $0.6 million, insurance costs of $0.4 million, and real estate taxes of $0.2 million.

Depreciation and amortization. Depreciation and amortization increased $1.1 million, or 2.9%, for the three months ended June 30, 2021 compared to the three months ended June 30, 2020. Depreciation and amortization increased $0.3 million and $0.9 million for properties purchased in 2021 and 2020, respectively. The increase was partially offset by a decrease of $0.2 million for properties sold during 2021 and 2020.

Equity in loss of unconsolidated entities. The change in equity in loss of unconsolidated entities for the three months ended June 30, 2021 compared to the three months ended June 30, 2020 is primarily due to the timing of our December 11, 2020 investment in Davis Medical Investors, LLC.

Gain on sale of investment properties, net. During the three months ended June 30, 2021, we sold one property with 19,800 net leasable square feet located in Alabama and three parcels of vacant land in Texas for approximately $3.8 million, realizing a net gain of approximately $0.4 million.

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Six months ended June 30, 2021 compared to the six months ended June 30, 2020.

The following table summarizes our results of operations for the six months ended June 30, 2021 and 2020 (in thousands):

	2021		2020		Change		%
Revenues:
Rental revenues	$	160,967	$	157,671	$	3,296	2.1	%
Expense recoveries	54,736		49,828		4,908		9.8	%
Interest income on real estate loans and other	10,561		8,995		1,566		17.4	%
Total revenues	226,264		216,494		9,770		4.5	%
Expenses:
Interest expense	27,256		29,823		(2,567)		(8.6)	%
General and administrative	18,582		17,219		1,363		7.9	%
Operating expenses	67,390		61,992		5,398		8.7	%
Depreciation and amortization	76,081		73,792		2,289		3.1	%
Total expenses	189,309		182,826		6,483		3.5	%
Income before equity in loss of unconsolidated entities and gain on sale of investment properties, net:	36,955		33,668		3,287		9.8	%
Equity in loss of unconsolidated entities	(823)		(264)		(559)		NM
Gain on sale of investment properties, net	354		—		354		NM
Net income	$	36,486	$	33,404	$	3,082	9.2	%

Revenues

Total revenues increased $9.8 million, or 4.5%, for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. An analysis of selected revenues follows.

Rental revenues. Rental revenues increased $3.3 million, or 2.1%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. Rental revenues increased $0.5 million and $3.9 million from properties purchased in 2021 and 2020, respectively. The increase was partially offset by a decrease in rental revenue of $0.9 million associated with our properties sold during 2021 and 2020.

Expense recoveries. Expense recoveries increased $4.9 million, or 9.8%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. Expense recoveries increased due to a $4.6 million increase in reimbursable operating expenses from our existing portfolio, and an additional net $0.6 million of expense recoveries related to properties acquired and sold in 2021 and 2020.

Interest income on real estate loans and other. Interest income on real estate loans and other increased $1.6 million, or 17.4%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. An increase of $3.6 million was due to new loan activity since March 31, 2020, which was partially offset by $2.4 million due to loan payoffs and conversions in 2021 and 2020. Property management fees related to servicing our unconsolidated joint ventures also increased which resulted in an additional increase in other income of $0.2 million.

Expenses

Total expenses increased by $6.5 million, or 3.5%, for the six months ended June 30, 2021 as compared to the six months ended June 30, 2020. An analysis of selected expenses follows.

Interest expense. Interest expense decreased $2.6 million, or 8.6%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The decrease was due to a lower effective interest rate on our credit facility of $2.4 million, lower debt balances of $0.7 million, mortgage payoffs of $0.2 million, and lower credit facility fees of $0.2 million. Our weighted average effective interest rate on our credit facility was 1.1% and 2.2% for the six months ended June 30, 2021 and 2020, respectively. This decrease was partially offset by increases on our interest rate swap contracts of $1.2 million.

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General and administrative. General and administrative expenses increased $1.4 million, or 7.9%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The increase was primarily attributable to increased salaries and benefits of $1.0 million and travel expenses of $0.4 million.

Operating expenses. Operating expenses increased $5.4 million, or 8.7%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. Net operating expenses on properties purchased and sold in 2021 and 2020 increased by $0.8 million. Operating expenses on the remaining properties increased by $4.6 million, or 7.5% year over year, due to additional maintenance costs of $1.5 million, real estate taxes of $1.2 million, insurance costs of $1.1 million, and tenant service costs of $0.9 million..

Depreciation and amortization. Depreciation and amortization increased $2.3 million, or 3.1%, for the six months ended June 30, 2021 compared to the six months ended June 30, 2020. The increase was due to our 2021 and 2020 property acquisitions which resulted in additional depreciation and amortization of $0.3 million and $2.0 million, respectively.

Equity in income of unconsolidated entities. The change in equity in income from unconsolidated entities for the six months ended June 30, 2021 compared to the six months ended June 30, 2020 was primarily due to the timing of our December 11, 2020 investment in Davis Medical Investors, LLC.

Gain on sale of investment properties, net. During the six months ended June 30, 2021 we sold two properties with 63,889 net leasable square feet and three parcels of vacant land in three states for approximately $4.3 million, recognizing a net gain of $0.4 million. During the six months ended June 30, 2020, we did not dispose of any properties.

Cash Flows

Six months ended June 30, 2021 compared to the six months ended June 30, 2020 (in thousands).

	2021		2020
Cash provided by operating activities	$	122,345	$	107,730
Cash used in investing activities	(41,431)		(54,167)
Cash used in financing activities	(81,911)		(52,027)
(Decrease) increase in cash and cash equivalents	$	(997)	$	1,536

Cash flows from operating activities. Cash flows provided by operating activities was $122.3 million during the six months ended June 30, 2021 compared to $107.7 million during the six months ended June 30, 2020, representing an increase of $14.6 million. Net cash provided by operating activities increased primarily due to the impact of our 2021 and 2020 acquisitions and contractual rent increases offset by our 2021 and 2020 dispositions.

Cash flows from investing activities. Cash flows used in investing activities was $41.4 million during the six months ended June 30, 2021 compared to cash flows used in investing activities of $54.2 million during the six months ended June 30, 2020, representing a change of $12.7 million. The decrease in cash flows used in investing activities was primarily due to a decrease in net investments in real estate loan receivables of $36.8 million, and an increase of $4.1 million from proceeds on sales of investment properties. The change in cash used in investing activities was partially offset by an increase in cash spent on acquisitions of investment properties of $25.2 million compared to the prior year, and an increase of $1.7 million in both capital expenditures and leasing commissions.

Cash flows from financing activities. Cash flows used in financing activities was $81.9 million during the six months ended June 30, 2021 compared to $52.0 million during the six months ended June 30, 2020, representing an increase of $29.9 million. The change in cash used in financing activities was primarily due to a decrease in net proceeds from the sale of common shares pursuant to the applicable ATM Program of $203.5 million. Further, $7.6 million of additional dividends were paid to shareholders in 2021 compared to 2020, an additional $5.2 million was used to redeem OP Units, an additional $4.7 million was used to redeem the Series A Preferred Units, and there was an increase of $1.5 million related to taxes paid for stock based compensation. This was partially offset by a decrease in net paydowns under the credit facility of $175.0 million in 2021 compared to 2020 and a decrease of $17.1 million of principal payments on mortgage debt compared to the prior year.

Non-GAAP Financial Measures

This report 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

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and Amortization for Real Estate (EBITDAre) and Adjusted EBITDAre, which are non-GAAP financial measures. For purposes of Item 10(e) of Regulation S-K promulgated under the Securities Act, 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 report, GAAP refers to generally accepted accounting principles in the United States of America. Pursuant to the requirements of Item 10(e) of Regulation S-K promulgated under the Securities Act, we have provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.

FFO and Normalized FFO

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). Nareit defines FFO as net income or loss (computed in accordance with GAAP) before noncontrolling interests of holders of OP units, excluding preferred distributions, gains (or losses) on sales of depreciable operating property, impairment write-downs on depreciable assets, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs). Our FFO computation includes our share of required adjustments from our unconsolidated joint ventures and may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the Nareit definition or that interpret the Nareit definition differently than we do. The GAAP measure that we believe to be most directly comparable to FFO, net income, includes depreciation and amortization expenses, gains or losses on property sales, impairments, and noncontrolling interests. In computing FFO, we eliminate these items because, in our view, they are not indicative of the results from the operations of our properties. To facilitate a clear understanding of our historical operating results, FFO should be examined in conjunction with net income (determined in accordance with GAAP) as presented in our financial statements. FFO does not represent cash generated from operating activities in accordance with GAAP, should not be considered to be an alternative to net income or loss (determined in accordance with GAAP) as a measure of our liquidity and is not indicative of funds available for our cash needs, including our ability to make cash distributions to shareholders.

We use Normalized FFO, which excludes from FFO net change in fair value of derivative financial instruments, acceleration of deferred financing costs, net change in fair value of contingent consideration, and other normalizing items. However, our use of the term Normalized FFO may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount. Normalized FFO should not be considered as an alternative to net income or loss (computed in accordance with GAAP), as an indicator of our financial performance or of cash flow from operating activities (computed in accordance with GAAP), or as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions. Normalized FFO should be reviewed in connection with other GAAP measurements.

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The following is a reconciliation from net income, the most direct financial measure calculated and presented in accordance with GAAP, to FFO and Normalized FFO (in thousands, except per share data):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income	$	18,681	$	18,444	$	36,486	$	33,404
Earnings per share - diluted	$	0.08	$	0.09	$	0.16	$	0.16
Net income	$	18,681	$	18,444	$	36,486	$	33,404
Net income attributable to noncontrolling interests - partially owned properties	(151)		(148)		(303)		(290)
Preferred distributions	—		(317)		(13)		(634)
Depreciation and amortization expense	38,000		36,951		75,877		73,606
Depreciation and amortization expense - partially owned properties	(70)		(63)		(140)		(138)
Gain on sale of investment properties, net	(378)		—		(354)		—
Proportionate share of unconsolidated joint venture adjustments	2,141		1,656		4,338		3,356
FFO applicable to common shares	$	58,223	$	56,523	$	115,891	$	109,304
Net change in fair value of derivative	—		105		—		14
Normalized FFO applicable to common shares	$	58,223	$	56,628	$	115,891	$	109,318
FFO per common share	$	0.26	$	0.27	$	0.53	$	0.53
Normalized FFO per common share	$	0.26	$	0.27	$	0.53	$	0.53
Weighted average number of common shares outstanding	222,660,502		210,405,776		220,053,306		206,699,177

Normalized Funds Available for Distribution (FAD)

We define Normalized FAD, a non-GAAP measure, which excludes from Normalized FFO non-cash share compensation expense, straight-line rent adjustments, amortization of acquired above-market or below-market leases and assumed debt, amortization of lease inducements, amortization of deferred financing costs, and loan reserve adjustments, including our share of all required adjustments from unconsolidated joint ventures. We also adjust for recurring capital expenditures related to tenant improvements and leasing commissions, and cash payments from seller master leases and rent abatement payments, including our share of all required adjustments for unconsolidated joint ventures. Other REITs or real estate companies may use different methodologies for calculating Normalized FAD, and accordingly, our computation may not be comparable to those reported by other REITs. Although our computation of Normalized FAD may not be comparable to that of other REITs, we believe Normalized FAD provides a meaningful supplemental measure of our performance due to its frequency of use by analysts, investors, and other interested parties in the evaluation of our performance as a REIT. Normalized FAD should not be considered as an alternative to net income or loss attributable to controlling interest (computed in accordance with GAAP) or as an indicator of our financial performance. Normalized FAD should be reviewed in connection with other GAAP measurements.

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The following is a reconciliation from net income, the most direct financial measure calculated and presented in accordance with GAAP, to Normalized FAD (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income	$	18,681	$	18,444	$	36,486	$	33,404
Normalized FFO applicable to common shares	$	58,223	$	56,628	$	115,891	$	109,318
Normalized FFO applicable to common shares	$	58,223	$	56,628	$	115,891	$	109,318
Non-cash share compensation expense	3,468		3,051		7,175		6,047
Straight-line rent adjustments	(2,380)		(3,275)		(5,105)		(7,006)
Amortization of acquired above/below-market leases/assumed debt	860		884		1,724		1,773
Amortization of lease inducements	264		289		528		579
Amortization of deferred financing costs	582		595		1,163		1,194
TI/LC and recurring capital expenditures	(5,673)		(4,765)		(11,311)		(7,825)
Loan reserve adjustments	(84)		(35)		(131)		(35)
Proportionate share of unconsolidated joint venture adjustments	(214)		(255)		(425)		(442)
Normalized FAD applicable to common shares	$	55,046	$	53,117	$	109,509	$	103,603

Net Operating Income (NOI), Cash NOI, and MOB Same-Store Cash NOI

NOI is a non-GAAP financial measure that is defined as net income or loss, computed in accordance with GAAP, generated from our total portfolio of properties and other investments before general and administrative expenses, depreciation and amortization expense, interest expense, net change in the fair value of derivative financial instruments, gain or loss on the sale of investment properties, and impairment losses, including our share of all required adjustments from our unconsolidated joint ventures. We believe that NOI provides an accurate measure of operating performance of our operating assets because NOI excludes certain items that are not associated with management of the properties. Our use of the term NOI may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount.

Cash NOI is a non-GAAP financial measure which excludes from NOI straight-line rent adjustments, amortization of acquired above and below market leases, and other non-cash and normalizing items, including our share of all required adjustments from unconsolidated joint ventures. Other non-cash and normalizing items include items such as the amortization of lease inducements, loan reserve adjustments, payments received from seller master leases and rent abatements, and changes in fair value of contingent consideration. We believe that Cash NOI provides an accurate measure of the operating performance of our operating assets because it excludes certain items that are not associated with management of the properties. Additionally, we believe that Cash NOI is a widely accepted measure of comparative operating performance in the real estate community. Our use of the term Cash NOI may not be comparable to that of other real estate companies as such other companies may have different methodologies for computing this amount.

MOB Same-Store Cash NOI is a non-GAAP financial measure which excludes from Cash NOI assets not held for the entire preceding five quarters, non-MOB assets, and other normalizing items not specifically related to the same-store property portfolio. Management considers MOB Same-Store Cash NOI a supplemental measure because it allows investors, analysts, and Company management to measure unlevered property-level operating results. Our use of the term MOB Same-Store Cash NOI may not be comparable to that of other real estate companies, as such other companies may have different methodologies for computing this amount.

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The following is a reconciliation from the Trust’s net income, the most direct financial measure calculated and presented in accordance with GAAP, to NOI, Cash NOI, and MOB Same-Store Cash NOI (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net income	$	18,681	$	18,444	$	36,486	$	33,404
General and administrative	9,117		8,242		18,582		17,219
Depreciation and amortization expense	38,105		37,045		76,081		73,792
Interest expense	13,541		14,197		27,256		29,823
Net change in the fair value of derivative	—		105		—		14
Gain on sale of investment properties, net	(378)		—		(354)		—
Proportionate share of unconsolidated joint venture adjustments	3,561		2,461		7,072		4,915
NOI	$	82,627	$	80,494	$	165,123	$	159,167
NOI	$	82,627	$	80,494	$	165,123	$	159,167
Straight-line rent adjustments	(2,380)		(3,275)		(5,105)		(7,006)
Amortization of acquired above/below-market leases	875		899		1,755		1,804
Amortization of lease inducements	264		289		528		579
Loan reserve adjustments	(84)		(35)		(131)		(35)
Proportionate share of unconsolidated joint venture adjustments	(145)		(266)		(316)		(431)
Cash NOI	$	81,157	$	78,106	$	161,854	$	154,078
Cash NOI	$	81,157	$	78,106
Assets not held for all periods	(1,732)		(561)
LTACH & Hospital Cash NOI	(4,375)		(5,497)
Lease termination fees	(157)		(235)
Interest income on real estate loans	(3,907)		(3,061)
Joint ventures and other income	(3,241)		(2,568)
MOB Same-Store Cash NOI	$	67,745	$	66,184

Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre) and Adjusted EBITDAre

We calculate EBITDAre in accordance with standards established by Nareit and define EBITDAre as net income or loss computed in accordance with GAAP plus depreciation and amortization, interest expense, gain or loss on the sale of investment properties, and impairment loss, including our share of all required adjustments from unconsolidated joint ventures. We define Adjusted EBITDAre, which excludes from EBITDAre non-cash share compensation expense, non-cash changes in fair value, pursuit costs, non-cash intangible amortization, the pro forma impact of investment activity, and other normalizing items. We consider EBITDAre and Adjusted EBITDAre important measures because they provide additional information to allow management, investors, and our current and potential creditors to evaluate and compare our core operating results and our ability to service debt.

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The following is a reconciliation from the Trust’s net income, the most direct financial measure calculated and presented in accordance with GAAP, to EBITDAre and Adjusted EBITDAre (in thousands):

	Three Months Ended June 30,
	2021		2020
Net income	$	18,681	$	18,444
Depreciation and amortization expense	38,105		37,045
Interest expense	13,541		14,197
Gain on sale of investment properties, net	(378)		—
Proportionate share of unconsolidated joint venture adjustments	3,498		2,437
EBITDAre	$	73,447	$	72,123
Non-cash share compensation expense	3,468		3,051
Non-cash changes in fair value	—		105
Pursuit costs	70		—
Non-cash intangible amortization	1,126		1,174
Pro forma adjustments for investment activity	125		—
Adjusted EBITDAre	$	78,236	$	76,453

Liquidity and Capital Resources

In March 2020, the Securities and Exchange Commission (SEC) adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities. The rule is effective January 4, 2021 but earlier compliance is permitted. As a result of the amendments to Rule 3-10 of Regulation S-X, subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the subsidiary obligor is consolidated into the parent company’s consolidated financial statements, the parent guarantee is “full and unconditional” and the alternative disclosure required by Rule 13-01 is provided, which includes narrative disclosure and summarized financial information. Accordingly, separate consolidated financial statements of the Operating Partnership have not been presented. Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company has excluded the summarized financial information for the Operating Partnership as the assets, liabilities, and results of operations of the Company and the Operating Partnership are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company, and management believes such summarized financial information would be repetitive and not provide incremental value to investors.

Our short-term liquidity requirements consist primarily of operating and interest expenses and other expenditures directly associated with our properties, including:

•property expenses;

•interest expense and scheduled principal payments on outstanding indebtedness;

•general and administrative expenses; and

•capital expenditures for tenant improvements and leasing commissions.

In addition, we will require funds for future distributions expected to be paid to our common shareholders and OP Unit holders in our Operating Partnership.

As of June 30, 2021, we had a total of $1.5 million of cash and cash equivalents and $778.0 million of near-term availability on our unsecured revolving credit facility. Our primary sources of cash include rent we collect from our tenants, borrowings under our unsecured credit facility, and financings of debt and equity securities. We believe that our existing cash and cash equivalents, cash flow from operating activities, and borrowings available under our unsecured revolving credit facility will be adequate to fund any existing contractual obligations to purchase properties and other obligations through the next year. However, because of the 90% distribution requirement under the REIT tax rules under the Code, we may not be able to fund all of our future capital needs from cash retained from operations, including capital needed to make investments and to satisfy or refinance maturing obligations. As a result, we expect to rely upon external sources of capital, including debt and equity financing, to fund future capital needs. If we are unable to obtain needed capital on satisfactory terms or at all, we may not be able to make the investments needed to expand our business or to meet our obligations and commitments as they mature.

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We will rely upon external sources of capital to fund future capital needs, and, if we encounter difficulty in obtaining such capital, we may not be able to make future acquisitions necessary to grow our business or meet maturing obligations.

Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, recurring and non-recurring capital expenditures, and scheduled debt maturities. We expect to satisfy our long-term liquidity needs through cash flow from operations, unsecured borrowings, issuances of equity and debt securities, proceeds from select property dispositions and joint venture transactions, and, in connection with acquisitions of additional properties, the issuance of OP Units of our Operating Partnership.

Our ability to access capital in a timely and cost-effective manner is essential to the success of our business strategy as it affects our ability to satisfy existing obligations, including repayment of maturing indebtedness, and to make future investments and acquisitions. Factors such as general market conditions, interest rates, credit ratings on our debt and equity securities, expectations of our potential future earnings and cash distributions, and the market price of our common shares, each of which are beyond our control and vary or fluctuate over time, all impact our access to and cost of capital. In particular, to the extent interest rates continue to rise, we may experience a decline in the trading price of our common shares, which may impact our decision to conduct equity offerings for capital raising purposes. We will likely also experience higher borrowing costs as interest rates rise, which may also impact our decisions to incur additional indebtedness, or to engage in transactions for which we may need to fund through borrowing. We expect to continue to utilize equity and debt financings to support our future growth and investment activity.

We also continuously evaluate opportunities to finance future investments. New investments are generally funded from temporary borrowings under our primary unsecured credit facility and the proceeds from financing transactions such as those discussed above. Our investments generate cash from net operating income and principal payments on loans receivable. Permanent financing for future investments, which generally replaces funds drawn under our primary unsecured credit facility, has historically been provided through a combination of the issuance of debt and equity securities and the incurrence or assumption of secured debt.

We intend to invest in additional properties as suitable opportunities arise and adequate sources of financing are available. We are currently evaluating additional potential investments consistent with the normal course of our business. There can be no assurance as to whether or when any portion of these investments will be completed. Our ability to complete investments is subject to a number of risks and variables, including our ability to negotiate mutually agreeable terms with sellers and our ability to finance the investment. We may not be successful in identifying and consummating suitable acquisitions or investment opportunities, which may impede our growth and negatively affect our results of operations and may result in the use of a significant amount of management’s resources. We expect that future investments in properties will depend on and will be financed by, in whole or in part, our existing cash, borrowings, including under our unsecured revolving credit facility, or the proceeds from additional issuances of equity or debt securities.

We currently do not expect to sell any of our properties to meet our liquidity needs, although we may do so in the future. 

We currently are in compliance with all debt covenants on our outstanding indebtedness.

Credit Facility

On August 7, 2018, the Operating Partnership, as borrower, and the Trust, as guarantor, executed a Second Amended and Restated Credit Agreement (the “Credit Agreement”) which extended the maturity date of the revolving credit facility under the Credit Agreement to September 18, 2022 and reduced the interest rate margin applicable to borrowings. The Credit Agreement includes an unsecured revolving credit facility of $850 million and contains a seven-year term loan feature of $250 million, bringing total borrowing capacity to $1.1 billion. The Credit Agreement also includes a swingline loan commitment for up to 10% of the maximum principal amount and provides an accordion feature allowing the Trust to increase borrowing capacity by up to an additional $500 million, subject to customary terms and conditions, resulting in a maximum borrowing capacity of $1.6 billion. The revolving credit facility under the Credit Agreement also includes a one-year extension option.

As of June 30, 2021, the Company had $72.0 million of borrowings outstanding under its unsecured revolving credit facility, and $250 million of borrowings outstanding under the term loan feature of the Credit Agreement. As defined by the Credit Agreement, $778.0 million is available to borrow without adding additional properties to the unencumbered borrowing base of assets. See Note 6 (Debt) to our accompanying consolidated financial statements for a further discussion of our credit facility.

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Senior Notes

As of June 30, 2021, we had $975.0 million aggregate principal amount of senior notes issued and outstanding by the Operating Partnership, comprised of $15.0 million maturing in 2023, $25.0 million maturing in 2025, $70.0 million maturing in 2026, $425.0 million maturing in 2027, $395.0 million maturing in 2028, and $45.0 million maturing in 2031. See Note 6 (Debt) to our accompanying consolidated financial statements for a further discussion of our senior notes.

ATM Program

In November 2019, the Company entered into the 2019 Sales Agreements, pursuant to which the Trust may issue and sell, from time to time, its common shares having an aggregate offering price of up to $500 million. In accordance with the 2019 Sales Agreements, the Trust may offer and sell its common shares through any of the 2019 Agents, from time to time, by any method deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended, which includes sales made directly on the New York Stock Exchange or other existing trading market, or sales made to or through a market maker.

In May 2021, the Company entered into the 2021 Sales Agreement, pursuant to which the Trust may issue and sell, from time to time, its common shares having an aggregate offering price of up to $500 million. In accordance with the 2021 Sales Agreement, the Trust may offer and sell its common shares through the 2021 Agents, from time to time, by any method deemed to be an “at the market offering” as defined in Rule 415 under the Securities Act of 1933, as amended, which includes sales made directly on the New York Stock Exchange or other existing trading market, or sales made to or through a market maker. Upon entry into the 2021 Sales Agreement, the Company terminated the 2019 ATM Program.

During the quarterly periods ended March, 31, 2021 and June 30, 2021, the Trust’s issuance and sale of common shares pursuant to the ATM Programs is as follows (in thousands, except common shares and price):

	Common shares sold	Weighted average price		Net proceeds
Quarterly period ended March 31, 2021	2,887,296	$	18.32	$	52,358
Quarterly period ended June 30, 2021	4,532,343	18.39		82,519
Year to date	7,419,639	$	18.36	$	134,877

As of June 30, 2021, the Trust has $465.3 million remaining available under the 2021 ATM Program.

Dividend Reinvestment and Share Purchase Plan

In December 2014, the Company adopted a Dividend Reinvestment and Share Purchase Plan. Under the DRIP:

•existing shareholders may purchase additional common shares by reinvesting all or a portion of the dividends paid on their common shares and by making optional cash payments of not less than $50 and up to a maximum of $10,000 per month;

•new investors may join the DRIP by making an initial investment of not less than $1,000 and up to a maximum of $10,000; and

•once enrolled in the DRIP, participants may authorize electronic deductions from their bank account for optional cash payments to purchase additional shares.

The DRIP is administered by our transfer agent, Computershare Trust Company, N.A. Our common shares sold under the DRIP are newly issued or purchased in the open market, as further described in the DRIP. As of June 30, 2021, the Company had issued 160,379 common shares under the DRIP since its inception.

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Critical Accounting Policies

Our consolidated financial statements included in Part I, Item 1 of this report are prepared in conformity with GAAP for interim financial information set forth in the ASC, as published by the Financial Accounting Standards Board, which require us to make estimates and assumptions regarding future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. We base these estimates on our experience and assumptions we believe to be reasonable under the circumstances. However, if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, we may have applied a different accounting treatment, resulting in a different presentation of our financial statements. We periodically reevaluate our estimates and assumptions, and in the event they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Please refer to our 2020 Annual Report for further information regarding the critical accounting policies that affect our more significant estimates and judgments used in the preparation of our consolidated financial statements included in Part I, Item 1 of this report.

REIT Qualification Requirements

We are subject to a number of operational and organizational requirements necessary to qualify and maintain our qualification as a REIT. If we fail to qualify as a REIT or fail to remain qualified as a REIT in any taxable year, our income would be subject to federal income tax at regular corporate rates and potentially increased state and local taxes and we could incur substantial tax liabilities which could have an adverse impact upon our results of operations, liquidity, and distributions to our shareholders.

Off-Balance Sheet Arrangements

As of June 30, 2021, we have investments in three unconsolidated joint ventures with ownership interests of 49.0% in two of the joint ventures and 12.3% in the third. The aggregate carrying amount of debt, including both our and our partners’ share, incurred by these ventures was approximately $773.4 million (of which our proportionate share is approximately $136.4 million). See Note 2 (Summary of Significant Accounting Policies) of our 2020 Annual Report for the fiscal year ended December 31, 2020, filed with the SEC on April 9, 2021 for additional information. We have no other off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.

Item 3.                                 Quantitative and Qualitative Disclosures about Market Risk

Our future income, cash flows, and fair values relevant to financial instruments are dependent upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. We use certain derivative financial instruments to manage, or hedge, interest rate risks related to our borrowings. We do not use derivatives for trading or speculative purposes and only enter into contracts with major financial institutions based upon their credit rating and other factors. Our derivative instruments consist of five interest rate swaps. See Note 7 (Derivatives) in Part I, Item I of this report and Note 2 (Summary of Significant Accounting Policies) of Part II, Item 8 (Financial Statements and Supplementary Data) of our 2020 Annual Report for further detail on our interest rate swaps.

Interest rate risk amounts are our management’s estimates and were determined by considering the effect of hypothetical interest rates on our consolidated financial instruments. These analyses do not consider the effect of any change in overall economic activity that could occur in that environment. Further, in the event of a change of that magnitude, we may take actions to further mitigate our exposure to the change. However, due to the uncertainty of the specific actions that would be taken and their possible effects, these analyses assume no changes in our financial structure.

Fixed Interest Rate Debt

As of June 30, 2021, our consolidated fixed interest rate debt totaled $1.0 billion, which represented 75.7% of our total consolidated debt, excluding the impact of interest rate swaps. On July 7, 2016, we entered into a pay-fixed receive-variable rate swap for the full $250.0 million borrowing amount of our term loan borrowings, fixing the LIBOR component of the borrowing rate to 1.07%, for an all-in fixed rate as of June 30, 2021 of 2.07%. Both the borrowing and pay-fixed receive-variable swap have a maturity date of June 10, 2023.

Assuming the effects of the interest rate swap agreement we entered into on July 7, 2016 relating to our unsecured debt, our fixed interest rate debt would represent 94.2% of our total consolidated debt. Interest rate fluctuations on our fixed

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interest rate debt will generally not affect our future earnings or cash flows unless such instruments mature or are otherwise terminated. However, interest rate changes could affect the fair value of our fixed interest rate debt.

As of June 30, 2021, the fair value and the carrying value of our consolidated fixed interest rate debt were approximately $1.1 billion and $1.0 billion, respectively. The fair value estimate of our fixed interest rate debt was estimated using a discounted cash flow analysis utilizing rates we would expect to pay for debt of a similar type and remaining maturity if the loans were originated on June 30, 2021. As we expect to hold our fixed interest rate debt instruments to maturity, based on the underlying structure of the debt instrument, and the amounts due under such instruments are limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that market fluctuations in interest rates, and the resulting change in fair value of our fixed interest rate debt instruments, would have a significant impact on our operating cash flows.

Variable Interest Rate Debt

As of June 30, 2021, our consolidated variable interest rate debt totaled $327.9 million, which represented 24.3% of our total consolidated debt. Assuming the effects of the interest rate swap agreement we entered into on July 7, 2016 relating to our unsecured debt, our variable interest rate debt would represent 5.8% of our total consolidated debt. Interest rate changes on our variable rate debt could impact our future earnings and cash flows but would not significantly affect the fair value of such debt. As of June 30, 2021, we were exposed to market risks related to fluctuations in interest rates on $77.9 million of consolidated borrowings. Assuming no increase in the amount of our variable rate debt, if LIBOR were to change by 100 basis points, interest expense on our variable rate debt as of June 30, 2021 would change by approximately $0.8 million annually.

Derivative Instruments

As of June 30, 2021, we had five outstanding interest rate swaps that were designated as cash flow hedges of interest rate risk, with a total notional amount of $250.0 million. See Note 7 (Derivatives) within our consolidated financial statements for further detail on our interest rate swaps. We are exposed to credit risk of the counterparty to our interest rate swap agreements in the event of non-performance under the terms of the agreements. If we were not able to replace these swaps in the event of non-performance by the counterparty, we would be subject to variability of the interest rate on the amount outstanding under our debt that is fixed through the use of the swaps.

Indebtedness

As of June 30, 2021, we had total consolidated indebtedness of approximately $1.3 billion. The weighted average interest rate on our consolidated indebtedness was 3.65% (based on the 30-day LIBOR rate as of June 30, 2021, of 0.09%). As of June 30, 2021, we had approximately $77.9 million, or approximately 5.8%, of our outstanding long-term debt exposed to fluctuations in short-term interest rates. See Note 6 (Debt) to our consolidated financial statements included in Part I, Item 1 to this report for a summary of our indebtedness as of June 30, 2021.

Item 4.                                 Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Trust’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Trust’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this report. Based on such evaluation, the Trust’s Chief Executive Officer and Chief Financial Officer concluded that as of June 30, 2021, the Trust’s disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information it is required to disclose in reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to the Trust’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in the Trust’s system of internal control over financial reporting during the quarter ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting.

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Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures and the Trust’s internal control over financial reporting, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures and the Trust’s internal control over financial reporting must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

PART II.       Other Information

Item 1.                                 Legal Proceedings

From time to time, we are party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of our business. We are not currently a party, as plaintiff or defendant, to any legal proceedings which, individually or in the aggregate, would be expected to have a material effect on our business, financial condition, or results of operations if determined adversely to us.

Item 1A.                       Risk Factors

Information on risk factors can be found in Part I, Item 1A (Risk Factors) of our 2020 Annual Report. There have been no material changes from the risk factors previously disclosed in our 2020 Annual Report.

Item 2.                       Unregistered Sales of Equity Securities and Use of Proceeds

Recent Sales of Unregistered Securities

From time to time the Operating Partnership issues OP Units to the Trust, as required by the Partnership Agreement, to reflect additional issuances of common shares by the Trust and to preserve equitable ownership ratios.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

The following table sets forth information relating to repurchases of our common shares of beneficial interest and OP Units during the three months ended June 30, 2021:

ISSUER PURCHASES OF EQUITY SECURITIES

Period	(a) Total Number of Shares (or Units) Purchased		(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
April 1, 2021 - April 30, 2021	281,714	(1)	$	17.97	N/A	N/A
May 1, 2021 - May 31, 2021	—		—		N/A	N/A
June 1, 2021 - June 30, 2021	10,099	(2)	18.47		N/A	N/A
Total	291,813		$	17.99	—	—

(1)Represents OP Units redeemed by holders in exchange for cash.

(2)Represents repurchased common shares to satisfy employee withholding tax obligations related to stock-based compensation.

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Item 6.                                 Exhibits

Exhibit No.	Description
22.1	List of Subsidiary Issuers and Guaranteed Securities**
31.1	Certification of John T. Thomas, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Physicians Realty Trust**
31.2	Certification of Jeffrey N. Theiler, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 for Physicians Realty Trust**
32.1	Certification of John T. Thomas and Jeffrey N. Theiler, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code) for Physicians Realty Trust**
101.INS	This instance document does not appear in the interactive data file because of XBRL tags are embedded within the inline XBRL document.
101.SCH	Inline XBRL Extension Schema Document (+)
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document (+)
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document (+)
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document (+)
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document (+)
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

**    Filed herewith

(+) Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement for purposes of Section 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	PHYSICIANS REALTY TRUST
Date: August 5, 2021	/s/ John T. Thomas
	John T. Thomas
	Chief Executive Officer and President
	(Principal Executive Officer)
Date: August 5, 2021	/s/ Jeffrey N. Theiler
	Jeffrey N. Theiler
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

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