doc-20220504May 4, 2022false000157454000015745402022-05-042022-05-04
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 4, 2022
PHYSICIANS REALTY TRUST
(Exact name of registrant as specified in its charter)
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| Maryland | | 001-36007 | 46-2519850 |
| (State of Organization) | | (Commission File Number) | (IRS Employer Identification No.) |
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| 309 N. Water Street, Suite 500 | | 53202 |
| Milwaukee | Wisconsin | |
| (Address of Principal Executive Offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (414) 367-5600
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to section 12(b) of the Act:
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| 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 is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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.
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Item 2.02. Results of Operations and Financial Condition.
On May 4, 2022, Physicians Realty Trust (the “Company”) issued a press release that announced operating results for its first quarter ended March 31, 2022. The press release refers to a supplemental information package that is available on the Company’s website (www.docreit.com). Copies of the press release and supplemental information package have been furnished as Exhibits 99.1 and 99.2, respectively, to this Current Report, and are incorporated herein by reference.
The information included in this current report, including Exhibits 99.1 and 99.2, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”) or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into a filing under the Securities Act of 1933, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01. Financial Statement and Exhibits.
(d) Exhibits.
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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 hereunto duly authorized.
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| Date: | May 4, 2022 | | PHYSICIANS REALTY TRUST |
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| | By: | /s/ John T. Thomas |
| | | John T. Thomas |
| | | President and Chief Executive Officer |
EXHIBIT INDEX
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| Exhibit No. | | Description |
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PRESS RELEASE
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Contact: Physicians Realty Trust John T. Thomas President and CEO (214) 549-6611 jtt@docreit.com Jeffrey N. Theiler Executive Vice President and CFO (414) 367-5610 jnt@docreit.com | |
Physicians Realty Trust Reports First Quarter 2022 Financial Results
Announces $0.06 Net Income per Share and $0.27 Normalized FFO per Share for the First Quarter of 2022
First Quarter Highlights:
•Reported first quarter 2022 total revenue of $130.4 million, an increase of 15.0% over the prior year period.
•Generated first quarter net income per share of $0.06 on a fully diluted basis.
•Generated first quarter Normalized Funds From Operations (Normalized FFO) of $0.27 per share on a fully diluted basis.
•Completed an investment valued at $22.0 million to acquire a 49% membership interest in three properties through the Davis Joint Venture, consisting of our pro rata share of debt and a contribution of $8.0 million.
•First quarter MOB Same-Store Cash Net Operating Income growth was 2.0% year-over-year.
•Declared a quarterly dividend of $0.23 per share and OP Unit for the first quarter 2022, paid on April 14, 2022.
•Disposed of one property for $2.0 million and recognized a net loss on the sale of approximately $0.2 million.
•Sold 259,977 common shares pursuant to the ATM program at a weighted average price of $18.93 during the first quarter, resulting in net proceeds of $4.9 million.
Subsequent Event Highlights:
•Disposed of a 17,213 square foot medical office building on April 22, 2022 for $6.4 million and recognized a net gain on the sale of approximately $3.7 million. This asset was classified as held for sale as of March 31, 2022.
•On April 26, 2022, the Company purchased a medical office facility comprising of 59,233 square feet in New Albany, Ohio for $27.7 million.
Milwaukee, WI - May 4, 2022 - Physicians Realty Trust (NYSE: DOC) (the “Company,” the “Trust,” “we,” “our” and “us”), a self-managed health care real estate investment trust, today announced results for the first quarter ended March 31, 2022.
John T. Thomas, President and Chief Executive Officer of the Trust, commented, “Physicians Realty Trust had a strong first quarter and has remained focused on disciplined capital allocation for the benefit of our shareholders. We believe our portfolio is built for long-term success by providing stable growth in all economic scenarios and will begin to capture additional upside in this inflationary environment. We look forward to sharing more about our first quarter performance during today’s conference call.”
First Quarter Financial Results
Total revenue for the first quarter ended March 31, 2022 was $130.4 million, an increase of 15.0% from the first quarter 2021. As of March 31, 2022, the portfolio was 95% leased, excluding one asset classified as held for sale.
Total expenses for the first quarter 2022 were $116.1 million, compared to total expenses of $95.1 million for the first quarter 2021.
Net income for the first quarter 2022 was $13.9 million, compared to net income of $17.8 million for the first quarter 2021.
Net income attributable to common shareholders for the first quarter 2022 was $13.1 million. Diluted earnings per share for the first quarter 2022 was $0.06 based on approximately 238.3 million weighted average common shares and operating partnership units (OP Units) outstanding.
Funds From Operations (FFO) totaled $63.4 million for the first quarter 2022 and consisted of net income plus depreciation and amortization on our consolidated portfolio of $47.1 million and our unconsolidated joint ventures of $2.4 million and $0.2 million from the loss on the sale of investment properties. This was partially offset by $0.2 million of other adjustments, resulting in FFO of $0.27 per share on a fully diluted basis. Normalized FFO, which adjusts for our share of changes in fair value of derivatives from unconsolidated investments, was $63.4 million, or $0.27 per share on a fully diluted basis.
Normalized Funds Available for Distribution (FAD) for the first quarter 2022, which consists of normalized FFO adjusted for non-cash share compensation, straight-line rent adjustments, amortization of acquired above-market and below-market leases and assumed debt, amortization of lease inducements, amortization of deferred financing costs, recurring capital expenditures, loan reserve adjustments, and our share of adjustments from unconsolidated investments was $61.5 million.
Our Medical Office Building (MOB) Same-Store portfolio, which includes 249 properties representing 85% of our consolidated leasable square footage, generated year-over-year MOB Same-Store Cash Net Operating Income (Cash NOI) growth of 2.0% for the first quarter 2022.
Other Recent Events
First Quarter Investment Activity
During the first quarter, the Company acquired a 49% membership interest in three properties through the Davis Joint Venture and funded a previous construction loan commitment of $0.9 million.
City Place Portfolio - Davis Joint Venture - On January 12, 2022, the Company contributed approximately $8.0 million to acquire a 49% interest in three properties located in Minnesota, comprising 107,886 square feet. These properties are 88% leased with a weighted average remaining lease term of 10.3 years. The aggregate investment value is $22.0 million, including $14.0 million of the Company’s pro rata share of joint venture debt. The first year yield on this investment is expected to be approximately 5.2%.
First Quarter Disposition Activity and Asset Held for Sale
During the first quarter 2022, the Company completed the disposition of one medical office building representing 9,997 square feet for approximately $2.0 million, realizing a net loss of approximately $0.2 million.
As of March 31, 2022, the Company classified one property, representing 17,213 square feet, as held for sale.
Capital Activity
During the first quarter 2022, the Company issued 259,977 shares pursuant to its at the market (ATM) program at a weighted average price of $18.93 for net proceeds of $4.9 million.
Dividend Paid
On March 18, 2022, our Board of Trustees authorized and declared a cash distribution of $0.23 per common share and OP Unit for the quarterly period ended March 31, 2022. The dividend was paid on April 14, 2022 to common shareholders and OP Unit holders of record as of the close of business on March 31, 2022.
Recent Acquisition and Disposition Activity
Since the first quarter 2022, the Company completed the acquisition of a medical office facility and disposed of one property that was classified as held for sale as of March 31, 2022. The Company sold the property for approximately $6.4 million and recognized a net gain on the sale of approximately $3.7 million.
New Albany Medical Center II - On April 26, 2022, the Company completed an investment for approximately $27.7 million to acquire a 59,233 square foot medical office facility located in New Albany, Ohio. This three-story building is 94.6% leased with a weighted average remaining lease term of 7.8 years and anchored by OrthoNeuro, a 20-physician orthopedic group. The first year yield on this investment is expected to be approximately 5.5%.
Leadership Team Promotions
We are proud to formally announce our Board of Trustees has promoted Mark Dukes to Senior Vice President, Asset Management. Mr. Dukes has led the day-to-day operations of our Asset Management team since 2016, helping strengthen our unique culture and cultivate strong relationships with our health care partners. He was also recently sworn in to serve as Chair and Chief Elected Officer of the Building Owners and Managers Association (BOMA) International, one of the highest honors in commercial real estate management.
IREM® CSP Designations Earned
The Company is proud to announce it has earned ten new IREM® Certified Sustainable Property (CSP) designations in 2021, reinforcing the Company’s ongoing commitment to expanding its environmental, social, and governance (ESG) practices. The IREM® CSP is a sustainability certification program that focuses on the role of exceptional real estate management through green building performance. IREM’s sustainability certification provides properties with recognition for resource efficiency and environmental initiatives. In total, the Company has earned 28 IREM CSP designations since 2019.
The Company is expecting to release its third annual Environmental, Social, and Governance (ESG) Report in June of 2022. The report will detail the Company’s ESG achievements and progress toward ongoing ESG goals.
Conference Call Information
The Company has scheduled a conference call on Wednesday, May 4, 2022, at 10:00 a.m. ET to discuss its financial performance and operating results for the first quarter ended March 31, 2022. The conference call can be accessed by dialing (877) 407-0784 from within the U.S. or (201) 689-8560 for international callers. Participants can reference the Physicians Realty Trust First Quarter Earnings Call or passcode: 13727959. The conference call also will be available via a live listen-only webcast and can be accessed through the Investor Relations section of the Company’s website, www.docreit.com. A replay of the conference call will be available beginning May 4, 2022, at 1:00 p.m. ET until June 4, 2022, at 11:59 p.m. ET, by dialing (844) 512-2921 (U.S.) or (412) 317-6671 (International); passcode: 13727959. A replay of the webcast also will be accessible on the Investor Relations website for one year following the event. Beginning May 4, 2022, the Company’s supplemental information package for the first quarter 2022 will be accessible through the Investor Relations section of the Company’s website under the “Supplemental” tab.
About Physicians Realty Trust
Physicians Realty Trust is a self-managed health care real estate company organized to acquire, selectively develop, own, and manage health care properties that are leased to physicians, hospitals and health care delivery systems. The Company invests in real estate that is integral to providing high quality health care. The Company conducts its business through an UPREIT structure in which its properties are owned by Physicians Realty L.P., a Delaware limited partnership (the “operating partnership”), directly or through limited partnerships, limited liability companies or other subsidiaries. The Company is the sole general partner of the operating partnership and, as of March 31, 2022, owned approximately 95.0% of OP Units.
Investors are encouraged to visit the Investor Relations portion of the Company’s website (www.docreit.com) for additional information, including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, press releases, supplemental information packages and investor presentations. The information contained on our website is not a part of an is not incorporated by reference into this press release.
Forward-Looking Statements
This press release contains statements that are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of words such as “anticipate”, “believe”, “expect”, “estimate”, “plan”, “outlook”, “continue”, “intend”, and “project” and other similar expressions that predict or indicate future events or trends or that are not statements of historical matters. These forward-looking statements may include statements regarding the Company’s strategic and operational plans, the Company’s ability to generate internal and external growth, the future outlook, anticipated cash returns, cap rates or yields on properties, anticipated closing of property acquisitions, ability to execute its business plan, and the impact of the Coronavirus and its variants, including the Delta and Omicron variants and any future variants which may emerge, (COVID-19) pandemic on the Company’s business. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. These forward-looking statements are subject to various risks and uncertainties, not all of which are known to the Company and many of which are beyond the Company’s control, which could cause actual results to differ materially from such statements. These risks and uncertainties are described in greater detail in the Company’s filings with the Securities and Exchange Commission (the “Commission”), including, without limitation, the Company’s annual and periodic reports and other documents filed with the Commission. Unless legally required, the Company disclaims any obligation to update any forward-looking statements after the date of this release, whether as a result of new information, future events or otherwise. For a discussion of factors that could impact the Company’s results, performance, or transactions, see Part I, Item 1A (Risk Factors) of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Source: Physicians Realty Trust
Physicians Realty Trust
Condensed Consolidated Statements of Income
(in thousands, except share and per share data) (Unaudited)
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| Three Months Ended
March 31, | | |
| | 2022 | | 2021 | | | | |
| Revenues: | | | | | | | |
| Rental revenues | $ | 91,550 | | | $ | 80,395 | | | | | |
| Expense recoveries | 35,126 | | | 27,560 | | | | | |
| Rental and related revenues | 126,676 | | | 107,955 | | | | | |
| Interest income on real estate loans and other | 3,714 | | | 5,384 | | | | | |
| Total revenues | 130,390 | | | 113,339 | | | | | |
| Expenses: | | | | | | | |
| Interest expense | 16,823 | | | 13,715 | | | | | |
| General and administrative | 10,293 | | | 9,465 | | | | | |
| Operating expenses | 41,752 | | | 33,934 | | | | | |
| Depreciation and amortization | 47,260 | | | 37,976 | | | | | |
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| Total expenses | 116,128 | | | 95,090 | | | | | |
| Income before equity in loss of unconsolidated entities and loss on sale of investment properties, net: | 14,262 | | | 18,249 | | | | | |
| Equity in loss of unconsolidated entities | (166) | | | (420) | | | | | |
| Loss on sale of investment properties, net | (153) | | | (24) | | | | | |
| Net income | 13,943 | | | 17,805 | | | | | |
| Net income attributable to noncontrolling interests: | | | | | | | |
| Operating Partnership | (692) | | | (459) | | | | | |
| Partially owned properties (1) | (159) | | | (152) | | | | | |
| Net income attributable to controlling interest | 13,092 | | | 17,194 | | | | | |
| Preferred distributions | — | | | (13) | | | | | |
| Net income attributable to common shareholders | $ | 13,092 | | | $ | 17,181 | | | | | |
| Net income per share: | | | | | | | |
| Basic | $ | 0.06 | | | $ | 0.08 | | | | | |
| Diluted | $ | 0.06 | | | $ | 0.08 | | | | | |
| Weighted average common shares: | | | | | | | |
| Basic | 225,069,208 | | | 210,529,698 | | | | | |
| Diluted | 238,340,243 | | | 217,322,425 | | | | | |
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| Dividends and distributions declared per common share | $ | 0.23 | | | $ | 0.23 | | | | | |
(1)Includes amounts attributable to redeemable noncontrolling interests.
Physicians Realty Trust
Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
| | | | | | | | | | | |
| March 31, | | December 31, |
| 2022 | | 2021 |
| (unaudited) | | |
| ASSETS | | | |
| Investment properties: | | | |
| Land and improvements | $ | 235,216 | | | $ | 235,453 | |
| Building and improvements | 4,612,574 | | | 4,612,561 | |
| Tenant improvements | 89,768 | | | 86,018 | |
| Acquired lease intangibles | 498,221 | | | 498,221 | |
| | 5,435,779 | | | 5,432,253 | |
| Accumulated depreciation | (867,799) | | | (821,036) | |
| Net real estate property | 4,567,980 | | | 4,611,217 | |
| Real estate held for sale | 2,113 | | | 1,964 | |
| Right-of-use lease assets, net | 234,345 | | | 235,483 | |
| Real estate loans receivable, net | 93,176 | | | 117,844 | |
| Investments in unconsolidated entities | 75,669 | | | 69,793 | |
| Net real estate investments | 4,973,283 | | | 5,036,301 | |
| Cash and cash equivalents | 2,729 | | | 9,876 | |
| Tenant receivables, net | 5,783 | | | 4,948 | |
| Other assets | 134,248 | | | 131,584 | |
| Total assets | $ | 5,116,043 | | | $ | 5,182,709 | |
| LIABILITIES AND EQUITY | | | |
| Liabilities: | | | |
| Credit facility | $ | 249,075 | | | $ | 267,641 | |
| Notes payable | 1,464,358 | | | 1,464,008 | |
| Mortgage debt | 179,886 | | | 180,269 | |
| Accounts payable | 1,399 | | | 6,651 | |
| Dividends and distributions payable | 56,689 | | | 57,246 | |
| Accrued expenses and other liabilities | 79,013 | | | 86,254 | |
| Lease liabilities | 104,739 | | | 104,957 | |
| Acquired lease intangibles, net | 21,111 | | | 21,569 | |
| Total liabilities | 2,156,270 | | | 2,188,595 | |
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| Redeemable noncontrolling interests - partially owned properties | 6,335 | | | 7,081 | |
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| Equity: | | | |
Common shares, $0.01 par value, 500,000,000 common shares authorized, 225,293,058 and 224,678,116 common shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively | 2,253 | | | 2,247 | |
| Additional paid-in capital | 3,615,884 | | | 3,610,954 | |
| Accumulated deficit | (814,492) | | | (776,001) | |
| Accumulated other comprehensive income (loss) | 487 | | | (892) | |
| Total shareholders’ equity | 2,804,132 | | | 2,836,308 | |
| Noncontrolling interests: | | | |
| Operating Partnership | 148,226 | | | 150,241 | |
| Partially owned properties | 1,080 | | | 484 | |
| Total noncontrolling interests | 149,306 | | | 150,725 | |
| Total equity | 2,953,438 | | | 2,987,033 | |
| Total liabilities and equity | $ | 5,116,043 | | | $ | 5,182,709 | |
Physicians Realty Trust
Reconciliation of Non-GAAP Measures
(in thousands, except share and per share data) (Unaudited)
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| | Three Months Ended
March 31, | | |
| | 2022 | | 2021 | | | | |
| Net income | $ | 13,943 | | | $ | 17,805 | | | | | |
| Earnings per share - diluted | $ | 0.06 | | | $ | 0.08 | | | | | |
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| Net income | $ | 13,943 | | | $ | 17,805 | | | | | |
| Net income attributable to noncontrolling interests - partially owned properties | (159) | | | (152) | | | | | |
| Preferred distributions | — | | | (13) | | | | | |
| Depreciation and amortization expense | 47,149 | | | 37,877 | | | | | |
| Depreciation and amortization expense - partially owned properties | (70) | | | (70) | | | | | |
| Loss on sale of investment properties, net | 153 | | | 24 | | | | | |
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| Proportionate share of unconsolidated joint venture adjustments | 2,383 | | | 2,197 | | | | | |
| FFO applicable to common shares | $ | 63,399 | | | $ | 57,668 | | | | | |
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| Proportionate share of unconsolidated joint venture adjustments | (8) | | | — | | | | | |
| Normalized FFO applicable to common shares | $ | 63,391 | | | $ | 57,668 | | | | | |
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| FFO per common share | $ | 0.27 | | | $ | 0.27 | | | | | |
| Normalized FFO per common share | $ | 0.27 | | | $ | 0.27 | | | | | |
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| Normalized FFO applicable to common shares | $ | 63,391 | | | $ | 57,668 | | | | | |
| Non-cash share compensation expense | 4,253 | | | 3,707 | | | | | |
| Straight-line rent adjustments | (2,154) | | | (2,725) | | | | | |
| Amortization of acquired above/below-market leases/assumed debt | 1,339 | | | 864 | | | | | |
| Amortization of lease inducements | 225 | | | 264 | | | | | |
| Amortization of deferred financing costs | 579 | | | 581 | | | | | |
| TI/LC and recurring capital expenditures | (5,663) | | | (5,638) | | | | | |
| Loan reserve adjustments | 3 | | | (47) | | | | | |
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| Proportionate share of unconsolidated joint venture adjustments | (431) | | | (211) | | | | | |
| Normalized FAD applicable to common shares | $ | 61,542 | | | $ | 54,463 | | | | | |
| | | | | | | |
| Weighted average number of common shares outstanding | 238,340,243 | | | 217,322,425 | | | | | |
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| Three Months Ended
March 31, | | |
| | 2022 | | 2021 | | | | |
| Net income | $ | 13,943 | | | $ | 17,805 | | | | | |
| General and administrative | 10,293 | | | 9,465 | | | | | |
| | | | | | | |
| Depreciation and amortization expense | 47,260 | | | 37,976 | | | | | |
| Interest expense | 16,823 | | | 13,715 | | | | | |
| | | | | | | |
| Loss on sale of investment properties, net | 153 | | | 24 | | | | | |
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| Proportionate share of unconsolidated joint venture adjustments | 3,422 | | | 3,511 | | | | | |
| NOI | $ | 91,894 | | | $ | 82,496 | | | | | |
| | | | | | | | |
| NOI | $ | 91,894 | | | $ | 82,496 | | | | | |
| Straight-line rent adjustments | (2,154) | | | (2,725) | | | | | |
| Amortization of acquired above/below-market leases | 1,349 | | | 880 | | | | | |
| Amortization of lease inducements | 225 | | | 264 | | | | | |
| Loan reserve adjustments | 3 | | | (47) | | | | | |
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| Proportionate share of unconsolidated joint venture adjustments | (71) | | | (171) | | | | | |
| Cash NOI | $ | 91,246 | | | $ | 80,697 | | | | | |
| | | | | | | |
| Cash NOI | $ | 91,246 | | | $ | 80,697 | | | | | |
| Assets not held for all periods or held for sale | (12,353) | | | (1,822) | | | | | |
| Hospital Cash NOI | (3,478) | | | (3,139) | | | | | |
| Lease termination fees | (5) | | | — | | | | | |
| Interest income on real estate loans | (2,199) | | | (4,107) | | | | | |
| Joint venture and other income | (3,509) | | | (3,271) | | | | | |
| MOB Same-Store Cash NOI | $ | 69,702 | | | $ | 68,358 | | | | | |
| | | | | | | | | | | | | |
| Three Months Ended
March 31, | | |
| | 2022 | | 2021 | | |
| Net income | $ | 13,943 | | | $ | 17,805 | | | |
| Depreciation and amortization expense | 47,260 | | | 37,976 | | | |
| Interest expense | 16,823 | | | 13,715 | | | |
| Loss on sale of investment properties, net | 153 | | | 24 | | | |
| | | | | |
| Proportionate share of unconsolidated joint venture adjustments | 3,420 | | | 3,482 | | | |
EBITDAre | $ | 81,599 | | | $ | 73,002 | | | |
| | | | | |
| Non-cash share compensation expense | 4,253 | | | 3,707 | | | |
| | | | | |
| Pursuit costs | 74 | | | 20 | | | |
| Non-cash intangible amortization | 1,575 | | | 1,128 | | | |
| Proportionate share of unconsolidated joint venture adjustments | (8) | | | — | | | |
| Pro forma adjustments for investment activity | 68 | | | 6 | | | |
Adjusted EBITDAre | $ | 87,561 | | | $ | 77,863 | | | |
This press release includes Funds From Operations (FFO), Normalized FFO, Normalized Funds Available For Distribution (FAD), Net Operating Income (NOI), Cash NOI, MOB Same-Store Cash NOI, Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre) and Adjusted EBITDAre, which are non-GAAP financial measures. For purposes of the SEC’s Regulation G, a non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable financial measure calculated and presented in accordance
with GAAP in the statement of operations, balance sheet or statement of cash flows (or equivalent statements) of the company, or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable financial measure so calculated and presented. As used in this press release, GAAP refers to generally accepted accounting principles in the United States of America. Pursuant to the requirements of Regulation G, we have provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.
We believe that information regarding FFO is helpful to shareholders and potential investors because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization, which assumes that the value of real estate assets diminishes ratably over time. We calculate FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (Nareit). 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. Our Normalized FFO computation includes our share of required adjustments from our unconsolidated joint ventures and 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.
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.
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.
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.
exhibit9922022q1suppleme
SUPPLEMENTAL OPERATING & FINANCIAL INFORMATION FIRST QUARTER 2022 PHYSICIANS REALTY TRUST NYSE: DOC Exhibit 99.2 March 2022 James Devin Moncus Medical Building Lafayette, LA AdventHealth Wesley Chapel MOB II Wesley Chapel, FL
2 COMPANY OVERVIEW ABOUT PHYSICIANS REALTY TRUST 4 FIRST QUARTER 2022 HIGHLIGHTS 6 FINANCIAL HIGHLIGHTS 7 FINANCIAL INFORMATION RECONCILIATION OF NON-GAAP MEASURES: FUNDS FROM OPERATIONS (FFO), NORMALIZED FUNDS FROM OPERATIONS (NORMALIZED FFO), AND NORMALIZED FUNDS AVAILABLE FOR DISTRIBUTION (NORMALIZED FAD) 8 RECONCILIATION OF NON-GAAP MEASURES: NET OPERATING INCOME AND ADJUSTED EBITDAre 9 MARKET CAPITALIZATION AND DEBT SUMMARY 10 LEVERAGE STATISTICS AND COVENANT PERFORMANCE 11 PORTFOLIO PERFORMANCE AND LEASING ROLLFORWARD 12 INVESTMENT ACTIVITY AND CONSTRUCTION LOAN SUMMARY 13 PORTFOLIO DIVERSIFICATION 14 CONSOLIDATED LEASING RELATIONSHIPS AND EXPIRATION SCHEDULE 15 CONSOLIDATED BALANCE SHEETS 16 CONSOLIDATED STATEMENTS OF INCOME 17 REPORTING DEFINITIONS 18 TABLE OF CONTENTS
3 FORWARD-LOOKING STATEMENTS Certain statements made in this supplemental information package constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). In particular, statements pertaining to our capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, our pro forma financial statements and our statements regarding anticipated market conditions are forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “outlook,” “continue,” “projects,” “pro forma,” “estimates” or “anticipates” 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. 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. 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, of new information, data or methods, future events or other changes after the date of this supplemental information package, 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 discussion of factors that could impact our future results, performance or transactions, see Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. NON-GAAP FINANCIAL MEASURES This presentation includes EBITDAre, Adjusted EBITDAre, EBITDAR, Net Operating Income (or NOI), Cash NOI, MOB Same-Store Cash NOI, Funds From Operations (or FFO), Normalized FFO, and Normalized Funds Available For Distribution (or FAD), which are non-GAAP financial measures. For purposes of the Securities and Exchange Commission’s (“SEC”) Regulation G, a non-GAAP financial measure is a numerical measure of a company’s historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable financial measure calculated and presented in accordance with GAAP in the statements of operations, balance sheets or statements 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 presentation, GAAP refers to generally accepted accounting principles in the United States of America. Our use of the non-GAAP financial measure terms herein may not be comparable to that of other real estate investment trusts. Pursuant to the requirements of Regulation G, we have provided reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures. ADDITIONAL INFORMATION The information in this supplemental information package should be read in conjunction with the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, earnings press release dated May 4, 2022, and other information filed with, or furnished to, the SEC. You can access the Company’s reports and amendments to those reports filed or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act in the “Investor Relations” section on the Company’s website (www.docreit.com) under the tab “SEC Filings” as soon as reasonably practicable after they are filed with, or furnished to, the SEC. The information on or connected to the Company’s website is not, and shall not be deemed to be, a part of, or incorporated into this supplemental information package. You also can review these SEC filings and other information by accessing the SEC’s website at http://www.sec.gov.
4 ABOUT PHYSICIANS REALTY TRUST Physicians Realty Trust (NYSE:DOC) (the “Trust,” the “Company,” “DOC,” “we,” “our” and “us”) is a self-managed health care real estate company organized in 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 typically are on a campus with a hospital or other health care facilities or strategically located and affiliated with a hospital or other health care facilities. Our management team has significant public health care REIT experience and long established relationships with physicians, hospitals, and health care delivery system decision makers that we believe will provide quality investment opportunities to generate attractive risk-adjusted returns to our shareholders. We are 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 Physicians Realty L.P., a Delaware limited partnership (the “operating partnership”), directly or through limited partnerships, limited liability companies, or other subsidiaries. We are the sole general partner of the operating partnership and, as of March 31, 2022, owned approximately 95.0% of the partnership interests in the operating partnership (“OP Units”). Unless otherwise indicated, portfolio statistics include amounts attributable to the Company's pro-rata share of unconsolidated joint venture assets and exclude the Company's corporate office building. COMPANY SNAPSHOT As of March 31, 2022 Gross real estate investments (thousands) $ 5,872,705 Total health care properties (1) 291 % Leased (1) 95.2% Total portfolio gross leasable area (sq. ft.) (1) 16,194,632 % of GLA on-campus / affiliated (1) 89% Weighted average remaining lease term for all buildings (years) (1) 6.2 Cash and cash equivalents (thousands) $ 2,729 Net consolidated debt to firm value 31.3% Weighted average interest rate per annum on consolidated debt 3.3% Equity market cap (thousands) $ 3,951,640 Quarterly dividend $ 0.23 Quarter end stock price $ 17.54 Dividend yield 5.25% Common shares outstanding 225,293,058 OP Units outstanding and not owned by DOC 11,912,516 Dilutive restricted common shares and units 1,358,936 Consolidated firm value (thousands) $ 6,101,361 (1) Excludes one asset classified as held for sale.
5 ABOUT PHYSICIANS REALTY TRUST (CONTINUED) BOARD OF TRUSTEES Tommy G. Thompson Chairman John T. Thomas President, Chief Executive Officer Stanton D. Anderson Compensation Committee Chair Mark A. Baumgartner Audit Committee Chair Albert C. Black Nominating and Corporate Governance Committee Chair William A. Ebinger, M.D. Trustee Pamela J. Kessler Trustee Ava E. Lias-Booker Trustee Richard A. Weiss Finance and Investment Committee Chair MANAGEMENT TEAM John T. Thomas President, Chief Executive Officer Jeffrey N. Theiler Executive Vice President, Chief Financial Officer D. Deeni Taylor Executive Vice President, Chief Investment Officer Mark D. Theine Executive Vice President, Asset & Investment Management John W. Lucey Chief Accounting and Administrative Officer Daniel M. Klein Senior Vice President, Deputy Chief Investment Officer Bradley D. Page Senior Vice President, General Counsel Laurie P. Becker Senior Vice President, Controller Amy M. Hall Senior Vice President, Leasing & Physician Strategy W. Mark Dukes Senior Vice President, Asset Management COVERING ANALYSTS J. Dennerlein - Bank of America Merrill Lynch J. Petersen - Jefferies LLC C. Siversky - Berenberg Capital Markets LLC A. Wurschmidt - Keybanc Capital Markets Inc. J. Sanabria - BMO Capital Markets Corp. R. Hill - Morgan Stanley M. Gorman - BTIG J. Hughes - Raymond James Financial Inc. D. Bernstein - Capital One Securities M. Carroll - RBC Capital Markets LLC N. Joseph - Citi D. Rodgers - Robert W. Baird & Co. D. Toti - Colliers Securities S. Manaker - Stifel M. Ross - Compass Point M. Lewis - Truist Securities T. Okusanya - Credit Suisse The equity analysts listed above are those analysts that have published research material on the Company and are listed as covering the Company. Please note that any opinions, estimates, or forecasts regarding the Company's performance made by the analysts listed above do not represent the opinions, estimates, or forecasts of the Company or its management. The Company does not by its reference above imply its endorsement of or concurrence with any information, conclusions or recommendations made by any of such analysts. Interested persons may obtain copies of analysts' reports on their own, as we do not distribute these reports. Several of these firms may, from time to time, own our stock and/or hold other long or short positions on our stock, and may provide compensated services to us. LOCATION AND CONTACT INFORMATION Corporate Headquarters Independent Registered Corporate and REIT Tax Counsel 309 N. Water Street, Suite 500 Public Accounting Firm Baker & McKenzie LLP Milwaukee, WI 53202 Ernst & Young Richard Lipton, Senior Counsel (414) 367-5600 Chicago, IL 60606 Chicago, IL 60601 (312) 879-2000 (312) 861-8000
6 FIRST QUARTER 2022 HIGHLIGHTS OPERATING HIGHLIGHTS • First quarter 2022 total revenue of $130.4 million, an increase of 15.0% compared to the prior year period • First quarter 2022 rental and related revenue of $126.7 million, an increase of 17.3% compared to the prior year period • Generated quarterly net income per share of $0.06 on a fully diluted basis • Generated quarterly normalized funds from operations (Normalized FFO) of $0.27 per share on a fully diluted basis • Completed an investment valued at $22.0 million to acquire a 49% membership interest in three properties through the Davis Joint Venture, consisting of our pro rata share of debt and a contribution of $8.0 million • First quarter MOB Same-Store Cash Net Operating Income (Cash NOI) growth of 2.0% year-over-year • Declared quarterly dividend of $0.23 per share for the first quarter • 95.2% of portfolio square footage leased as of March 31, 2022, which excludes one asset classified as held for sale COMPANY ANNOUNCEMENTS • February 23, 2022: Announced that on February 22, 2022, our Board of Trustees (the "Board") appointed Ava E. Lias- Booker to join the Company’s Board, effective March 1, 2022. In connection with Ms. Lias-Booker’s appointment, the Board increased its size from 8 to 9 trustees. • March 18, 2022: Announced that the Board authorized and declared a cash distribution of $0.23 per common share and OP Unit for the quarterly period ended March 31, 2022. The distribution was paid on April 14, 2022 to common shareholders and OP Unit holders of record as of the close of business on March 31, 2022. FIRST QUARTER INVESTMENT HIGHLIGHTS SUBSEQUENT INVESTMENT ACTIVITY • City Place Portfolio (3 MOBs) (Davis JV - 49% interest) • New Albany Medical Center II, New Albany, OH • Disposition of Northern Vision Eye Center • Disposition of New Albany MOB Beaumont Health & Wellness Center Rochester Hills, MI Saint Vincent MOB Erie, PA
7 FINANCIAL HIGHLIGHTS (Unaudited and in thousands, except sq. ft. and per share data) (1) Unadjusted for unamortized fair value adjustments, unamortized discount, and unamortized deferred financing costs. G ro ss R ea l E st at e In ve st m en ts G ross Leasable A rea Portfolio Growth Since IPO Gross Real Estate Assets Gross Real Estate Investments/Year Portfolio GLA IPO 2013 2014 2015 2016 2017 2018 2019 2020 2021 Q1 2022 $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 0 3,000,000 6,000,000 9,000,000 12,000,000 15,000,000 18,000,000 INCOME Three Months Ended March 31, 2022 December 31, 2021 Revenues $ 130,390 $ 116,124 Net income 13,943 28,252 NOI 91,894 85,061 Annualized Adjusted EBITDAre 350,244 351,952 Net income available to common shareholders per common share $ 0.06 $ 0.12 Normalized FFO 63,391 58,394 Normalized FFO per common share $ 0.27 $ 0.26 Normalized FAD 61,542 54,919 CAPITALIZATION As of ASSETS March 31, 2022 December 31, 2021 Gross Real Estate Investments (including gross lease intangibles) 5,872,705 5,871,990 Total Assets 5,116,043 5,182,709 DEBT AND EQUITY Consolidated Debt (1) 1,910,604 1,930,024 Total Equity 2,953,438 2,987,033 Equity Market Capitalization 3,951,640 4,230,689 Consolidated Firm Value 6,101,361 6,412,100 Consolidated Debt / Total Firm Value 31.3% 30.1% $123,998 $5,872,705
8 RECONCILIATION OF NON-GAAP MEASURES: FUNDS FROM OPERATIONS (FFO), NORMALIZED FUNDS FROM OPERATIONS (NORMALIZED FFO), AND NORMALIZED FUNDS AVAILABLE FOR DISTRIBUTION (NORMALIZED FAD) (Unaudited and in thousands, except share and per share data) Three Months Ended March 31, 2022 Three Months Ended December 31, 2021 Net income $ 13,943 $ 28,252 Net income attributable to NCI - partially owned properties (159) (152) Depreciation and amortization expense 47,149 43,097 Depreciation and amortization expense - partially owned properties (70) (70) Loss (gain) on the sale of investment properties, net 153 (19,054) Proportionate share of unconsolidated joint venture adjustments 2,383 2,296 FFO applicable to common shares $ 63,399 $ 54,369 Loss on extinguishment of debt — 4,025 Proportionate share of unconsolidated joint venture adjustments (8) — Normalized FFO applicable to common shares $ 63,391 $ 58,394 Net income available to common shareholders per common share $ 0.06 $ 0.12 FFO per common share $ 0.27 $ 0.24 Normalized FFO per common share $ 0.27 $ 0.26 Normalized FFO applicable to common shares $ 63,391 $ 58,394 Non-cash share compensation expense 4,253 4,192 Straight-line rent adjustments (2,154) (1,395) Amortization of acquired above/below market leases/assumed debt 1,339 902 Amortization of lease inducements 225 235 Amortization of deferred financing costs 579 581 TI/LC and recurring capital expenditures (5,663) (7,548) Loan reserve adjustments 3 (22) Proportionate share of unconsolidated joint venture adjustments (431) (420) Normalized FAD applicable to common shares $ 61,542 $ 54,919 Weighted average number of common shares outstanding 238,340,243 227,969,369
9 RECONCILIATION OF NON-GAAP MEASURES: NET OPERATING INCOME AND ADJUSTED EBITDAre (Unaudited and in thousands) NET OPERATING INCOME Three Months Ended March 31, 2022 Three Months Ended December 31, 2021 Net income $ 13,943 $ 28,252 General and administrative 10,293 9,641 Depreciation and amortization expense 47,260 43,207 Interest expense 16,823 19,382 Loss (gain) on the sale of investment properties, net 153 (19,054) Proportionate share of unconsolidated joint venture adjustments 3,422 3,633 NOI $ 91,894 $ 85,061 NOI $ 91,894 $ 85,061 Straight-line rent adjustments (2,154) (1,395) Amortization of acquired above/below market leases 1,349 917 Amortization of lease inducements 225 235 Loan reserve adjustments 3 (22) Proportionate share of unconsolidated joint venture adjustments (71) (231) Cash NOI $ 91,246 $ 84,565 Cash NOI $ 91,246 $ 84,565 Assets not held for all periods or held for sale (12,353) (4,653) Hospital Cash NOI (3,478) (3,389) Lease termination fees (5) — Interest income on real estate loans (2,199) (3,458) Joint venture and other income (3,509) (3,769) MOB Same-Store Cash NOI $ 69,702 $ 69,296 EBITDAre Three Months Ended March 31, 2022 Net income $ 13,943 Depreciation and amortization expense 47,260 Interest expense 16,823 Loss on the sale of investment properties 153 Proportionate share of unconsolidated joint venture adjustments 3,420 EBITDAre $ 81,599 Non-cash share compensation expense 4,253 Pursuit costs 74 Non-cash intangible amortization 1,575 Proportionate share of unconsolidated joint venture adjustments (8) Pro forma adjustments for investment activity 68 Adjusted EBITDAre $ 87,561 Adjusted EBITDAre Annualized (1) $ 350,244 (1) Amounts are annualized and actual full year results may differ significantly from the annualized amounts shown.
10 (1) Unadjusted for unamortized fair value adjustments, unamortized discount, and unamortized deferred financing costs. (2) Weighted average maturity of Mortgage Debt is 3.7 years. Debt is 31% of Firm Value Debt Equity MARKET CAPITALIZATION AND DEBT SUMMARY (Unaudited and in thousands, except share and per share data) MARKET CAPITALIZATION March 31, 2022 Unsecured credit facility debt $ 255,000 Unsecured notes 1,475,000 Mortgage debt 180,604 Consolidated Debt (1) 1,910,604 Pro rata share of unconsolidated joint venture debt 143,819 Enterprise debt $ 2,054,423 Redeemable equity $ 6,335 Share price $ 17.54 Total common shares outstanding 225,293,058 Total OP Units outstanding 11,912,516 Total dilutive restricted common shares and units 1,358,936 Implied equity market capitalization $ 4,184,422 Consolidated Firm Value (Debt + Pref. + Equity) $ 6,101,361 Consolidated Debt/Gross Assets 31.9% Consolidated Debt/Total Firm Value 31.3% ENTERPRISE DEBT SUMMARY (1) Balance as of March 31, 2022 Interest Rate Maturity Date Revolving Credit Facility Debt $ 255,000 1.3 % 9/24/2025 Senior Unsecured Notes January '16 - Series A 15,000 4.0 % 1/7/2023 January '16 - Series B 45,000 4.4 % 1/7/2026 January '16 - Series C 45,000 4.6 % 1/7/2028 January '16 - Series D 45,000 4.7 % 1/7/2031 August '16 - Series A 25,000 4.1 % 8/11/2025 August '16 - Series B 25,000 4.2 % 8/11/2026 August '16 - Series C 25,000 4.2 % 8/11/2027 March '17 400,000 4.3 % 3/15/2027 December '17 350,000 4.0 % 1/15/2028 October '21 500,000 2.6 % 11/1/2031 Pro Rata Share Of Unconsolidated Joint Venture Debt 143,819 2.9 % Various Mortgage Debt, Maturing:(2) 2022 14,939 4.8 % 2023 — — % 2024 60,155 3.9 % Thereafter 105,510 2.2 % $ 2,054,423 3.3 % Enterprise Debt Repayment Schedule as of March 31, 2022 $15,674 $16,008 $59,719 $341,937 $252,834 $425,476 $397,775 $545,000 2022 2023 2024 2025 2026 2027 2028 Thereafter $0 $150,000 $300,000 $450,000 $600,000 $750,000
11 LEVERAGE STATISTICS AND COVENANT PERFORMANCE (Unaudited and in thousands, except share and per share data) CONSOLIDATED LEVERAGE STATISTICS Quarter Ended March 31, 2022 Consolidated debt $ 1,910,604 Net consolidated debt (less cash) 1,907,875 Adjusted EBITDAre $ 87,561 Less: Amounts attributable to Unconsolidated Joint Ventures (3,176) Consolidated Adjusted EBITDAre $ 84,385 Consolidated Adjusted EBITDAre (annualized)* $ 337,540 Net Consolidated Debt / Consolidated Adjusted EBITDAre Ratio 5.65x Consolidated Adjusted EBITDAre $ 84,385 Cash interest expense 16,253 Interest Coverage Ratio 5.19x Consolidated interest expense $ 16,823 Capitalized interest 146 Secured debt principal amortization 420 Total fixed charges $ 17,389 Consolidated Adjusted EBITDAre 84,385 Consolidated Adjusted EBITDAre / Fixed Charge Coverage Ratio 4.85x Implied equity market cap $ 4,184,422 Redeemable equity 6,335 Consolidated debt 1,910,604 Consolidated Firm Value $ 6,101,361 Net consolidated debt (less cash) $ 1,907,875 Gross assets 5,983,842 Net Consolidated Debt / Gross Assets 31.9 % Net Consolidated Debt / Consolidated Firm Value 31.3 % Weighted average common shares 225,069,208 Weighted average OP Units not owned by DOC 11,912,099 Dilutive effect of unvested restricted common shares and share units 1,358,936 Weighted Average Common Shares and OP Units - Diluted 238,340,243 * Amounts are annualized and actual results may differ significantly from the annualized amounts shown. COVENANT PERFORMANCE Required March 31, 2022 Total Leverage Ratio ≤ 60.0% 34.5% Total Secured Leverage Ratio ≤ 40.0% 3.3% Maintenance of Unencumbered Assets ≥ 1.5x 2.9x Consolidated Debt Service (Trailing Four Quarters) ≥ 1.5x 4.5x ENTERPRISE LEVERAGE STATISTICS Quarter Ended March 31, 2022 Enterprise debt $ 2,054,423 Net enterprise debt (less cash) 2,051,694 Adjusted EBITDAre (annualized)* 350,244 Net Enterprise Debt / Adjusted EBITDAre Ratio 5.86x
12 PORTFOLIO PERFORMANCE AND LEASING ROLLFORWARD (Unaudited and in thousands, except property count and sq. ft. data. Same Store data excludes asset Held for Sale) MOB SAME-STORE PORTFOLIO PERFORMANCE Year-Over-Year Comparison Sequential Comparison Q1'22 Q1'21 Change Q1'22 Q4'21 Change Number of MOBs 249 249 — 249 249 — Gross leasable area 13,211,370 13,211,370 — 13,211,370 13,211,370 — % Leased 95.0 % 95.4 % -40 bps 95.0 % 95.0 % — bps Rental and related revenues $ 103,706 $ 101,101 +2.6 % $ 103,706 $ 100,649 +3.0 % Operating expenses (34,004) (32,743) +3.9 % (34,004) (31,353) +8.5 % MOB Same-Store Cash NOI $ 69,702 $ 68,358 +2.0 % $ 69,702 $ 69,296 +0.6 % Cash NOI $ 91,246 $ 80,697 $ 91,246 $ 84,565 Cash NOI from: Assets not held for all periods or held for sale (12,353) (1,822) (12,353) (4,653) Repositioning assets — — — — Hospital Cash NOI (3,478) (3,139) (3,478) (3,389) Lease termination fees (5) — (5) — Interest income on real estate loans (2,199) (4,107) (2,199) (3,458) Joint venture and other income (3,509) (3,271) (3,509) (3,769) MOB Same-Store Cash NOI $ 69,702 $ 68,358 $ 69,702 $ 69,296 MOB SAME-STORE PORTFOLIO ANALYSIS Portfolio MOB Same-Store Quarter Ended Quarter Ended March 31, 2022 March 31, 2022 Number of health care properties(1) 291 249 Gross leasable area(1) 16,194,632 13,211,370 Cash NOI(1) $ 91,246 $ 69,702 % Leased(1) 95.2 % 95.0 % LEASING ROLLFORWARD Quarter Ended Percentage of Total GLA March 31, 2022 March 31, 2022 Total GLA Total square feet at beginning of quarter 16,156,908 99.8 % Acquired GLA(2) 54,937 0.3 % Disposed GLA(1) (17,213) (0.1) % Total square feet at end of quarter 16,194,632 100.0 % Leased GLA Leased GLA at beginning of quarter 15,383,390 95.0 % Expirations (279,402) (1.7) % Renewals 212,459 1.3 % Retention Rate 76 % New leases in quarter 63,483 0.4 % Net absorption (3,460) — % Net leased GLA acquired / (disposed) 29,407 0.2 % Leased GLA at end of quarter 15,409,337 95.2 % (1) Excludes one property classified as held for sale during the period. (2) Includes remeasurements of existing properties totaling 2,072 square feet. MOB Same- Store Cash NOI, 76.4% Other Cash NOI, 23.6%
13 INVESTMENT ACTIVITY AND CONSTRUCTION LOAN SUMMARY (Unaudited and in thousands, except sq. ft. data) QUARTERLY INVESTMENTS Acquisition Date First Year Cash Yield Investment AmountInvestment Location % Leased GLA City Place Portfolio - Davis Joint Venture (1) Woodbury, MN 1/12/2022 5.2% 88.2% $ 22,008 52,864 Construction Loan Draws Fort Worth, TX Various 6.0% — 904 — Total / Weighted Average 5.2% 88.2% $ 22,912 52,864 (1) The Company acquired a 49% membership interest in three properties through the Davis Joint Venture representing 107,886 square feet at an aggregate valuation of $43.9 million, including an $8.0 million equity contribution and a $14.0 million pro rata share of joint venture debt. CONSTRUCTION LOAN SUMMARY Construction Loan Location Estimated Date of Completion Interest Rate Quarterly Fundings Amount Drawn to Date Total Commitment Purchase Option Cap Rate TOPA Hillwood Fort Worth, TX 2Q 2022 6.0% $ 904 $ 8,227 $ 10,500 6.2% QUARTERLY DISPOSITIONS Property Location Date Proceeds GLA Northern Vision Eye Center Traverse City, MI 1/19/2022 $ 1,950 9,997 Sacred Heart Summit Medical Office and ASC Pensacola, FL 8 C1TY Blvd Nashville, TN HELD FOR SALE Property Location GLA New Albany MOB Columbus, OH 17,213
14 % of # of Properties GLA % of Total Q1 Cash NOI % Leased Single-tenant MOBs 124 5,574,492 34.4% 35.9% 99.7% Multi-tenant MOBs 149 9,687,941 59.9% 56.7% 92.5% Specialty Hospitals 5 313,959 1.9% 3.9% 100.0% Consolidated Total 278 15,576,392 96.2% 96.5% 95.2% Pro Rata Unconsolidated Joint Venture Assets 13 618,240 3.8% 3.5% 92.7% Portfolio Total 291 16,194,632 100.0% 100.0% 95.2% PORTFOLIO DIVERSIFICATION (As of March 31, 2022, $ in thousands, excludes asset Held for Sale) UNCONSOLIDATED JOINT VENTURE SUMMARY Joint Venture % Ownership # of Properties GLA Q1 Cash NOI % Leased PMAK Joint Venture 12.3% 60 2,923,589 $ 13,984 89.9% Davis Joint Venture 49.0% 12 524,891 2,831 96.6% Absolute Net, 9% NNN, 85% Modified Gross, 4% Gross, 2% On-Campus / Adjacent, 53% Off-Campus / Affiliated, 36% Off-Campus / Unaffiliated, 11% 603 Assets, 16% Non-603 Assets, 84% Texas, 12% Georgia, 7% Indiana, 7% Nebraska, 6% Kentucky, 6% Arizona, 6% Minnesota, 6%Florida, 6% Tennessee, 5% Ohio, 5% Other, 34% Top Ten States (Based on GLA) Lease Type (Based on Annualized Base Revenue) Campus Proximity (Based on Annualized Base Revenue) Consolidated 603 Asset Mix (Based on Annualized Base Revenue)
15 CONSOLIDATED LEASING RELATIONSHIPS AND EXPIRATION SCHEDULE (As of March 31, 2022, $ in thousands, excludes asset Held for Sale) LEASE EXPIRATION SCHEDULE Expiration Expiring Expiring Lease % of Total Expiring Lease % of Total Average Rent Year Leases GLA GLA ABR ABR per SF 2022 105 394,074 2.5% $ 9,240 2.6% $23.45 2023 139 757,970 4.9% 17,928 5.0% 23.65 2024 131 983,105 6.3% 23,646 6.6% 24.05 2025 155 1,030,026 6.6% 25,940 7.3% 25.18 2026 178 3,405,176 21.9% 76,613 21.5% 22.50 2027 120 1,603,005 10.3% 35,803 10.1% 22.34 2028 100 1,579,275 10.1% 35,904 10.1% 22.73 2029 53 877,429 5.6% 27,175 7.6% 30.97 2030 57 743,592 4.8% 17,591 4.9% 23.66 2031 41 975,799 6.3% 22,586 6.3% 23.15 Thereafter 107 2,436,001 15.6% 62,873 17.8% 25.81 MTM 41 50,850 0.3% 638 0.2% 12.55 Vacant 740,090 4.8% Total / W.A. 1,227 15,576,392 100.0% $ 355,937 100.0% $23.99 (1) Represents direct leases to investment grade entities and their subsidiaries. Parent rating used where direct tenant is not rated. (2) Investment grade quality companies without public debt outstanding would add an additional 5.1% and 5.0%, respectively, to Investment Grade GLA and Investment Grade ABR. INVESTMENT GRADE TENANCY (1) % of Total Credit Rating Leased % of Leased Annualized Annualized Relationship (Moody's / S&P) GLA GLA Base Rent Base Rent CommonSpirit Health Baa1/A- 2,770,856 18.7% $ 52,033 14.6% University of Louisville Baa1/A+ 617,157 4.2% 12,750 3.6% Ascension Health Alliance Aa2/AA+ 606,229 4.1% 15,405 4.3% HonorHealth A2/NA 426,715 2.9% 11,143 3.1% McKesson Corporation Baa2/BBB+ 403,751 2.7% 11,059 3.1% Baylor Scott and White Health Aa3/AA- 268,639 1.8% 8,356 2.3% UnitedHealth Group Incorporated A3/A+ 226,004 1.5% 6,934 1.9% UF Health - Jacksonville Baa3/NA 223,748 1.5% 7,923 2.2% Trinity Health Credit Group Aa3/AA- 176,649 1.2% 4,350 1.2% McLaren Healthcare A1/NA 167,517 1.1% 3,412 1.0% Other 3,073,972 20.7% 75,682 21.4% Total 8,961,237 60.4% (2) $ 209,047 58.7% (2) TOP 10 TENANTS BY ABR Weighted Avg. % of Total Remaining Leased % of Leased Annualized Annualized Tenant Lease Term GLA GLA Base Rent Base Rent CommonSpirit - CHI - Nebraska 4.7 899,928 6.1% $ 17,739 5.0% Northside Hospital 8.7 678,094 4.6% 15,703 4.4% UofL Health - Louisville, Inc. 4.9 617,157 4.2% 12,750 3.6% HonorHealth 7.5 426,715 2.9% 11,143 3.1% US Oncology 5.7 403,751 2.7% 11,059 3.1% Baylor Scott and White Health 3.8 268,639 1.8% 8,356 2.4% Ascension - St. Vincent's - Indianapolis 5.6 363,118 2.4% 8,010 2.3% UF Health - Jacksonville 7.4 223,748 1.5% 7,923 2.2% CommonSpirit - CHI - St. Alexius 4.3 359,209 2.4% 6,816 1.9% UnitedHealth Group Incorporated 11.9 191,171 1.3% 5,922 1.6% Total / Weighted Average 6.1 4,431,530 29.9% $ 105,421 29.6%
16 CONSOLIDATED BALANCE SHEETS (In thousands, except share data) March 31, 2022 December 31, 2021 ASSETS (unaudited) Investment properties: Land and improvements $ 235,216 $ 235,453 Building and improvements 4,612,574 4,612,561 Tenant improvements 89,768 86,018 Acquired lease intangibles 498,221 498,221 5,435,779 5,432,253 Accumulated depreciation (867,799) (821,036) Net real estate property 4,567,980 4,611,217 Real estate held for sale 2,113 1,964 Right-of-use lease assets, net 234,345 235,483 Real estate loans receivable, net 93,176 117,844 Investments in unconsolidated entities 75,669 69,793 Net real estate investments 4,973,283 5,036,301 Cash and cash equivalents 2,729 9,876 Tenant receivables, net 5,783 4,948 Other assets 134,248 131,584 Total assets $ 5,116,043 $ 5,182,709 LIABILITIES AND EQUITY Liabilities: Credit facility $ 249,075 $ 267,641 Notes payable 1,464,358 1,464,008 Mortgage debt 179,886 180,269 Accounts payable 1,399 6,651 Dividends and distributions payable 56,689 57,246 Accrued expenses and other liabilities 79,013 86,254 Lease liabilities 104,739 104,957 Acquired lease intangibles, net 21,111 21,569 Total liabilities 2,156,270 2,188,595 Redeemable noncontrolling interests - partially owned properties 6,335 7,081 Equity: Common shares, $0.01 par value, 500,000,000 common shares authorized, 225,293,058 and 224,678,116 common shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively 2,253 2,247 Additional paid-in capital 3,615,884 3,610,954 Accumulated deficit (814,492) (776,001) Accumulated other comprehensive income (loss) 487 (892) Total shareholders’ equity 2,804,132 2,836,308 Noncontrolling interests: Operating Partnership 148,226 150,241 Partially owned properties 1,080 484 Total noncontrolling interests 149,306 150,725 Total equity 2,953,438 2,987,033 Total liabilities and equity $ 5,116,043 $ 5,182,709
17 CONSOLIDATED STATEMENTS OF INCOME (Unaudited and in thousands, except share and per share data) Three Months Ended March 31, 2022 2021 Revenues: Rental revenues $ 91,550 $ 80,395 Expense recoveries 35,126 27,560 Rental and related revenues 126,676 107,955 Interest income on real estate loans and other 3,714 5,384 Total revenues 130,390 113,339 Expenses: Interest expense 16,823 13,715 General and administrative 10,293 9,465 Operating expenses 41,752 33,934 Depreciation and amortization 47,260 37,976 Total expenses 116,128 95,090 Income before equity in loss of unconsolidated entities and loss on sale of investment properties, net: 14,262 18,249 Equity in loss of unconsolidated entities (166) (420) Loss on sale of investment properties, net (153) (24) Net income 13,943 17,805 Net income attributable to noncontrolling interests: Operating Partnership (692) (459) Partially owned properties (1) (159) (152) Net income attributable to controlling interest 13,092 17,194 Preferred distributions — (13) Net income attributable to common shareholders $ 13,092 $ 17,181 Net income per share: Basic $ 0.06 $ 0.08 Diluted $ 0.06 $ 0.08 Weighted average common shares: Basic 225,069,208 210,529,698 Diluted 238,340,243 217,322,425 Dividends and distributions declared per common share $ 0.23 $ 0.23 (1) Includes amounts attributable to redeemable noncontrolling interests.
18 REPORTING DEFINITIONS Adjusted Earnings Before Interest Taxes, Depreciation and Amortization for Real Estate (Adjusted EBITDAre): We define Adjusted EBITDAre as EBITDAre, computed in accordance with standards established by the National Association of Real Estate Investment Trusts (“Nareit”), plus non-cash compensation, other non-recurring items, pursuit costs, non-cash intangible amortization, and pro forma impact of investment activity. We consider Adjusted EBITDAre an important measure because it provides 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. Annualized Base Rent (ABR): Annualized base rent is calculated by multiplying reported base rent for March 2022 by 12 (but excluding the impact of straight- line rent). Cash Net Operating Income (NOI): 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. Earnings Before Interest Taxes, Depreciation, Amortization and Rent (EBITDAR): We define EBITDAR as net (loss) income computed in accordance with GAAP plus depreciation, amortization, interest expense and net change in the fair value of derivative financial instruments, net (loss) included from discontinued operations, stock-based compensation, acquisition-related expenses and lease expense. We consider EBITDAR an important measure because it provides additional information to allow management, investors, and our current and potential creditors to evaluate and compare our tenants' ability to fund their rent obligations. Earnings Before Interest Taxes, Depreciation and Amortization for Real Estate (EBITDAre): In 2017, Nareit issued a white paper defining EBITDA for real estate as net income or loss computed in accordance with GAAP plus interest expense, income tax expense, depreciation and amortization expense, impairment, gains or losses from the sale of real estate; and the proportionate share of joint venture depreciation, amortization and other adjustments. We adopted the use of EBITDAre in the first quarter of 2018. Funds From Operations (FFO): Funds from operations, or FFO, is a widely recognized measure of REIT performance. 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. Gross Leasable Area (GLA): Gross leasable area (in square feet). Gross Real Estate Investments: Based on acquisition price (and includes lease intangibles). Health System: We define an entity to be a health system if each of the following criteria are met: 1) the entity provides inpatient or outpatient services in the primary course of business; 2) services are provided at more than one campus or site of care; and 3) if the entity only provides outpatient services, they must employ a minimum of 50 physicians. Health System-Affiliated: Properties are considered affiliated with a health system if one or more of the following conditions are met: 1) the land parcel is contained within the physical boundaries of a hospital campus; 2) the land parcel is located adjacent to the campus; 3) the building is physically connected to the hospital regardless of the land ownership structure; 4) a ground lease is maintained with a health system entity; 5) a master lease is maintained with a health system entity; 6) significant square footage is leased to a health system entity; 7) the property includes an ambulatory surgery center with a hospital ownership interest; or 8) a significant square footage is leased to a physician group that is either employed, directly or indirectly by a health system, or has a significant clinical and financial affiliation with the health system. Hospitals: Hospitals refer to specialty surgical hospitals. These hospitals provide a wide range of inpatient and outpatient services, including but not limited to, surgery and clinical laboratories. Hospital Campus: We define a hospital campus to be the physical area immediately adjacent to a hospital institution's main buildings, including other areas and structures that are located within 250 yards of the main buildings.
19 REPORTING DEFINITIONS (continued) Medical Office Building (MOB): Medical office buildings are office and clinic facilities, often located near hospitals or on hospital campuses, specifically constructed and designed for use by physicians and other health care personnel to provide services to their patients. They may also include ambulatory surgery centers that are used for general or specialty surgical procedures not requiring an overnight stay in a hospital. Medical office buildings may contain sole and group physician practices and may provide laboratory and other patient services. MOB Same-Store Cash Net Operating Income (NOI): 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, lease termination fees, 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. MOB Same-Store Portfolio: The MOB same-store portfolio consists of medical office properties held by the Company for the entire preceding five quarters. Net Operating Income (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. Normalized Funds Available for Distribution (Normalized 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. Normalized Funds From Operations (Normalized FFO): Changes in the accounting and reporting rules under GAAP have prompted a significant increase in the amount of non-operating items included in FFO, as defined. Therefore, 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. Our Normalized FFO computation includes our share of required adjustments from our unconsolidated joint ventures and 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 its ability to make distributions. Normalized FFO should be reviewed in connection with other GAAP measurements. Off-Campus: A building portfolio that is not located on or adjacent to key hospital based-campuses. On-Campus / Affiliated: Refers to a property that is either located within a quarter mile of a hospital campus or is located more than a quarter mile from a hospital campus but is affiliated with a health system. Section 603 Assets: For the purposes of this Supplemental Information, "603 Asset" is defined to be our estimate of Annualized Base Revenue (ABR) as a percentage of all our ABR, derived from leases to hospitals for hospital outpatient department space located in an off-campus medical office building at least 250 yards from the hospital's main campus inpatient location, and that was billing Medicare for outpatient department services provided in that off-campus location as of November 2, 2015. ABR that is "not-603" for the purposes of this Supplemental Information could and would include ABR from space leased to a hospital outpatient department services provided in leased space within the 250 yard requirement for on-campus locations or in buildings that are more than 250 yards from the hospital service provider's main campus, but the hospital did not start billing for that service in the location until after November 2, 2015. djac
