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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-K
 
☒     ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2020

☐     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 or Other Jurisdiction of Incorporation or Organization) (I.R.S. 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 under Section 12(b) of the Act:
Title of each class Trading Symbol(s)   Name of each exchange on which registered
Common Shares, $0.01 par value DOC   New York Stock Exchange
 
Securities registered under Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.      Yes ☒ No ☐    
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.      Yes ☐ No ☒    
 
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 (§ 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 the 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.      ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 4262(b)) by the registered accounting firm that prepared or issues its audit report. ☒

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

The aggregate market value of Physicians Realty Trust’s common shares held by non-affiliates as of June 30, 2020 was approximately $3,623,042,043 based upon the closing price reported for such date on the New York Stock Exchange.
 
As of February 22, 2021, there were 210,588,276 shares of Physicians Realty Trust’s common shares outstanding.
 
DOCUMENTS INCORPORATED BY REFERENCE
The information required by Part III of this Annual Report on Form 10-K, to the extent not set forth in this Form 10-K, is incorporated herein by reference from Physicians Realty Trust’s definitive proxy statement relating to the annual meeting of shareholders to be held on May 5, 2021, to be filed with the Securities and Exchange Commission within 120 days after the end of the Registrant’s fiscal year ended December 31, 2020.


PHYSICIANS REALTY TRUST
 
Annual Report on Form 10-K for the Year Ended December 31, 2020

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Forward-Looking Statements

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
 
This Annual Report on Form 10-K 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).

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.

Factors that may cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements include, without limitation, those discussed in Item 1 - Business, Item 1A - Risk Factors, Item 6 - Management’s Discussion and Analysis of Financial Condition and Results of Operations and elsewhere in this report and our other filings with the SEC.

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 consolidated subsidiary of the Trust through which we conduct our business.

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Summary Risk Factors

An investment in our common shares involves a high degree of risk. You should carefully read and consider the risks discussed below and described more fully along with other risks in Part I, Item 1A “Risk Factors” of this report, before investing in our common shares.

•Our business and operations and those of our tenants have and may continue to be adversely affected by the global outbreak of the coronavirus (“COVID-19”) pandemic.

•Our portfolio is concentrated in health care properties, making us dependent on the health care industry generally, and possibly more vulnerable economically than if our investments were diversified across different industries.

•We may not be successful in identifying and consummating suitable investment acquisitions or investment opportunities, which may impede our growth and negatively affect our business, financial condition, and results of operations.

•Cybersecurity incidents, attacks or other significant disruptions of our information technology systems or the information technology systems of our third party property managers could disrupt our business and result in the compromise of confidential information of ours and third parties, including our tenants.

•The health care industry is heavily regulated, and new laws or regulations, changes to existing laws, regulations, health policies, or reimbursement levels from third-party payors, loss of licensure or failure to obtain licensure could adversely impact our company and result in the inability of our tenants to make rent payments to us.
•Our operating performance is subject to risks associated with the real estate industry including vacancies or our inability to rent space on favorable terms, inability to collect rent from tenants, changes in the demand for certain health care-related properties, and impacts from periods of economic slowdown or recession such as the recent U.S. economic downturn.

•Required payments of principal and interest on borrowings may leave us with insufficient cash to operate our properties or to pay the distributions currently contemplated or necessary to qualify as a REIT and may expose us to the risk of default under our debt obligations.

•Our failure to qualify and maintain our qualification as a REIT in any taxable year would result in adverse tax consequences that would substantially reduce funds available for distribution to our shareholders.

•Certain provisions of Maryland law, the Trust’s declaration of trust and the partnership agreement of the Operating Partnership contain limits and restrictions on the transferability of our outstanding shares of beneficial interest, which may have the effect of delaying, discouraging or preventing a transaction or change of control of our company.
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PART I
 
ITEM 1. BUSINESS
 
Overview
 
Physicians Realty Trust, a Maryland real estate investment trust, and Physicians Realty L.P., a Delaware limited partnership, were 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. Unless otherwise indicated or unless the context requires otherwise, all references in this report to “we,” “us,” “our,” the “Company,” and “Physicians Realty” refer to the Trust, together with its consolidated subsidiaries, including the Operating Partnership. References to the “Operating Partnership” mean collectively the Operating Partnership together with its consolidated subsidiaries. We completed our initial public offering (“IPO”) in July 2013. The Trust’s common shares are listed on the New York Stock Exchange (“NYSE”) and it is included in the MSCI US REIT Index and MidCap 400.

We have grown our consolidated portfolio of gross real estate investments from approximately $124 million at the time of our IPO to approximately $4.9 billion as of December 31, 2020. As of December 31, 2020, our consolidated portfolio consisted of 263 health care properties located in 31 states with approximately 14,011,008 net leasable square feet, which were approximately 96% leased with a weighted average remaining lease term of approximately 6.8 years. As of December 31, 2020, approximately 90% of the net leasable square footage of our consolidated portfolio was either on campus with a hospital or other health care facility or strategically affiliated with a hospital or other health care provider organization.

We receive a cash rental stream from health care providers under our leases. Approximately 94% of the annualized base rent payments from our properties as of December 31, 2020 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 relatively predictable cash flow. We seek to structure our 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 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 December 31, 2020, leases representing a percentage of our consolidated portfolio on the basis of leased square feet will expire as follows: 
Year Portfolio Lease Expirations
MTM (1) 0.4%
2021 4.3%
2022 4.4%
2023 4.8%
2024 6.1%
2025 7.7%
2026 23.9%
2027 10.2%
2028 10.1%
2029 4.3%
2030 4.3%
Thereafter 19.5%
Total 100.0%
(1)“MTM” means month-to-month. This line also includes 12 leases which expired on December 31, 2020, representing 0.2% of leased square feet.

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 system. 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. Our management team has significant public health care REIT
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experience and has long established relationships with physicians, hospitals, and health care delivery system decision makers who we believe will provide quality investment and growth opportunities. Our principal investments include medical office buildings, outpatient treatment facilities, and other real estate integral to health care providers. 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.

The Trust is a Maryland real estate investment trust and has elected to be taxed as a REIT for U.S. federal income tax purposes. We conduct our business through an umbrella partnership REIT structure in which our properties are owned by the Operating Partnership directly or through limited partnerships, limited liability companies, or other subsidiaries. The Trust is the sole general partner of the Operating Partnership and, as of February 22, 2021, owned approximately 97.4% of the OP Units.

Our Objectives and Growth Strategy

Overview

Our principal business objective is to provide attractive risk-adjusted returns to our shareholders through a combination of (i) sustainable and increasing rental revenue and cash flow that generate reliable, increasing dividends, and (ii) potential long-term appreciation in the value of our properties and common shares.

Our primary strategy to achieve our business objective is to utilize our physician and hospital relationships nationwide to identify off-market opportunities to invest in, own, and manage a diversified portfolio of high quality health care properties, and to understand our tenants’ real estate strategies, which we believe will drive high retention, high occupancy, and reliable, increasing rental revenue cash flow and growth.

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 with premier health care real estate developers. 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 (“MOB”) and ambulatory surgery centers.
 
We may from time to time also make investments in other health care properties. We believe that trends such as shifting consumer preferences, limited space in hospitals, the desires 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 off-campus 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 favor off-campus properties consistent with our investment philosophy and strategies.

While not our focus, we may at some point decide to invest opportunistically in life science facilities, senior housing properties, skilled nursing facilities, specialty hospitals, and treatment centers. Consistent with the Trust’s 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 (“RIDEA”).

As of December 31, 2020, we have grown our consolidated portfolio of gross real estate investments to approximately $4.9 billion while maintaining a conservative balance sheet. For short-term funding purposes, we may borrow on our primary unsecured credit facility. From time to time, we replace these borrowings with long-term capital such as senior unsecured notes and equity, or alternative securities. We may selectively utilize capital market transactions in furtherance of our investment strategy.

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Business Strategy

We are focused on building and maintaining a portfolio of high-quality health care properties leased to physicians, hospitals, health care delivery systems, and other health care providers. Our investment strategy includes a focus on investments with the following key attributes:

•We seek to invest in properties occupied by health care systems with dominant market share and high credit quality and in those who are investing capital into their campuses. In particular, we seek to acquire off-market or selectively marketed assets with attractive demographics, economic growth, and high barriers to entry. We seek to own well-occupied properties that we believe are critical to the delivery of health care and which are off-campus but affiliated with a hospital.
•We emphasize ensuring an appropriate and balanced mix of tenants to provide synergies within both individual buildings and the broader health system campus. Our primary tenants are health care systems, academic medical centers, and leading physician groups. These groups typically have strong and stable financial performance. We believe this helps ensure stability in our rental income and tenant retention over time.
•We seek to maintain a core, critical portfolio of properties and to build our reputation as a dedicated leading MOB owner and operator.
•We seek to maintain or increase our average rental rates, focus on actively leasing our vacant space, and reduce leasing concessions.

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 and consider the potential for long-term relationships and repeat business when assessing acquisition potential.

We actively manage our balance sheet to maintain our investment grade credit rating, to maintain an appropriate level of leverage, and to preserve financing flexibility for funding of future acquisitions. In particular, we:

•Seek to maintain a high level of liquidity, including borrowing availability under our unsecured revolving credit facility.
•Maintain access to multiple sources of capital, including private debt issuances, public bond offerings, public equity offerings, unsecured bank loans, and equity from joint venture partners.
•Periodically review our portfolio to consider the potential dispositions of lower quality properties to reinvest the proceeds into higher quality properties.
•Closely monitor our existing debt maturities, average interest rates, and look for refinancing opportunities.

Sustainability Strategy

Since our founding in 2013, the Company has established a track record of environmental stewardship, value creation at the community level, and strong governance. We are also committed to increased transparency and accountability through public disclosure. We believe that sustainable investments are investments in a brighter future, and we are committed to being a leader in Environmental, Social, and Governance (“ESG”) performance within the REIT industry. Our ESG Committee, formed in 2018, is overseen by the Nominating and Governance Committee of our Board of Trustees and each major department is represented within this group. In 2020, we released our first inaugural annual ESG report.

As a result of our commitment to sustainability, we have been recognized with eight Institute of Real Estate Management Certified Sustainable Property (“IREM® CSP”) designations in 2019 and ten IREM® CSP designations in 2020. In addition, we have incorporated green lease language into nearly all of our new leases and renewals, aligning our financial and energy incentives with our tenants. This has resulted in recognition by the Institute for Market Transformation (“IMT”) as a Green Lease Leader in 2020. Our portfolio also includes three LEED-certified properties, and DOC has been an Energy Star Partner since 2015.

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Climate Resilience

We are focused on climate preparedness as part of our sustainability strategy. As a long-term owner and active manager of our assets, we are proactive in identifying climate risks and implementing preventive measures to combat these risks. Responsibility for these measures is distributed across several departments including Executive Leadership, Asset Management, Construction & Project Management, Leasing, Marketing, and Property Management. In 2020, we began work to implement the recommendations of the Task Force on Climate-Related Financial Disclosure (“TCFD”), and the aforementioned team is assessing our climate related risk and intends to report in alignment with TCFD in our annual ESG report.

Sustainability Accounting Standards Board (“SASB”)

The Real Estate Sustainability Accounting Standard issued by SASB in 2018 proposes sustainability accounting metrics designed for disclosure in mandatory filings, such as Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this report, and serves as the framework against which we have aligned our disclosures for sustainability information.

Energy and water data is collected from utility bills and submeters and assured by a third party. The recommended energy and water management activity metrics for the real estate industry include:
•energy consumption data coverage as a percentage of floor area (“Energy Use Intensity”);
•total energy consumed by portfolio area (“Total Energy Consumption”);
•like-for-like change in energy consumption by portfolio area (“Like-for-Like Energy Change”);
•water withdrawal as a percentage of total floor area (“Water Intensity”);
•total water withdrawn by portfolio area (“Total Water Consumption”); and
•like-for-like change in water withdrawal by portfolio area (“Like-for-Like Water Change”).

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The charts below detail our Energy Use Intensity, Total Energy Consumption, Like-for-Like Energy Change, Water Intensity, Total Water Consumption, and Like-for-Like Water Change for 2018 through 2020 for which data on occupied and actively-managed properties was available.1
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Our Industry and Market Opportunity

The nature of health care delivery continues to evolve due to the impact of government programs, regulatory changes and consumer preferences. We believe these changes have increased the need for capital among health care providers and increased pressure on these providers to integrate more efficient real estate solutions in order enhance the delivery of quality health care. In particular, we believe the following factors and trends are creating an attractive environment in which to invest in health care properties.

$3.8 Trillion Health Care Industry Projected to Grow to $6.2 Trillion (and 19.4% of U.S. GDP) by 2028

According to the U.S. Centers for Medicare & Medicaid Services (“CMS”), health care spending accounted for 17.7% of U.S. gross domestic product (“GDP”) in 2019. The general aging of the population, driven by the Baby Boomer generation and advances in medical technology and services which increase life expectancy, are key drivers of the growth in health care expenditures. The anticipated continuing increase in demand for health care services, together with an evolving complex and costly regulatory environment, changes in medical technology and reductions in government reimbursements are expected to pressure capital-constrained health care providers to find cost effective solutions for their real estate needs.
1 The charts reflect the performance of 4.5 million square feet, which is 32% of our portfolio and 44% of our managed portfolio. The energy scope includes energy produced from fuel, gas, and electricity. The water scope includes irrigation, domestic water, and sewer utilities. Data points in the Like-for-Like Change table above are measured against our 2018 benchmark.
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We believe the demand by health care providers for health care real estate will increase as health care spending in the United States continues to increase. According to the Centers for Medicare & Medicaid Services’ National Health Expenditure Projections 2019-2028, national health care expenditures continue to rise and are projected to grow from an estimated $3.8 trillion in 2019 to $6.2 trillion by 2028, representing an average annual rate of growth of 5.4%, reaching a projected 19.7% of GDP in 2028.

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Source: Centers for Medicare & Medicaid Services, Office of the Actuary

Aging Population

The aging of the U.S. population has a direct effect on the demand for health care as older persons generally utilize health care services at a rate well in excess of younger people. According to the U.S. Census Bureau, the U.S. population over 65 years of age is projected to more than double from 49.2 million to nearly 94.7 million, and the 85 and older population is expected to almost triple, from 6.4 million to 19.0 million, between 2016 and 2060. Also, according to the U.S. Census Bureau, the number of older Americans is growing as a percentage of the total U.S. population with the number of persons older than 65 estimated to comprise 15.2% of the total U.S. population in 2016 and projected to grow to 23.5% by 2060.

We believe that health care expenditures for the population over 65 years of age will continue to rise as a disproportionate share of health care dollars is spent on older Americans. To illustrate, in 2012 the elderly (65+ years old) represented only 14% of the population while accounting for 34% of all health care-related spending. We believe the older population group increasingly will require treatment and management of chronic and acute health ailments and that this increased demand for health care services will create a substantial need for additional medical office buildings and other facilities that serve the health care industry in many regions of the United States. Additionally, we believe there will likely be a focus on lowering the cost of outpatient care for the aging U.S. population, which will continue to support medical office and outpatient facility property demand in the long term. For example, beginning in 2019, CMS expanded the list of procedures that can be performed and reimbursed in outpatient surgery centers to include 12 cardiac catheterization diagnostic procedures and 5 ancillary procedures. CMS expanded this list to include an additional 31 procedures between 2020 and 2021. We believe these trends will result in a substantial increase in the demand for health care space in our facilities and the number of properties meeting our investment criteria.

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We believe advances in medical technology will continue to enable health care providers to identify and treat once fatal illnesses and improve the survival rate of critically ill and injured patients who will require continuing medical care in outpatient medical office buildings.

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Source: U.S. Census Bureau

Affordable Care Act

The Affordable Care Act (as hereinafter defined) constituted a significant overhaul of many aspects of health care regulations and health insurance and created new features in the framework for health care services over the near term. It required every American to have health insurance or be subjected to a tax. Those who cannot afford health insurance are offered insurance subsidies or Medicaid coverage. On December 14, 2018, a federal district court in Texas ruled that the Affordable Care Act’s individual mandate was unconstitutional. The Affordable Care Act remains law while appeals of this ruling continue.

The U.S. Census Bureau estimated that approximately 50 million Americans did not have health care insurance in 2009, before the Affordable Care Act was enacted. The U.S. Census Bureau calculated that in 2019, approximately 26.1 million Americans did not have health insurance, continuing a trend after passage of the Affordable Care Act to reduce the number of uninsured. The Affordable Care Act and subsequent legislation, executive orders and events, as well as their potential impact on our business, are discussed more fully under Item 1 - Business, under the caption “Certain Government Regulations.”

We believe an increase in the number of Americans with access to health insurance would result in an increase in physician office visits and an overall rise in health care utilization which in turn will drive a need for expansion of medical, outpatient, and smaller specialty hospital facilities. We also believe the increased dissemination of health research through media outlets, marketing of health care products, and availability of advanced screening techniques and medical procedures have contributed to a more engaged population of health care users and has created increased demand for customized facilities providing specialized, preventive and integrative health care services. With the growth of electronic health care information transmission, physician offices increasingly engage with patients through telehealth. Health care payors, including Medicare, are beginning to reimburse for telehealth services when medical information is transmitted and used between patients and physicians. Telehealth services have also expanded as a result of COVID-19 and the need for social distancing.

We further believe the provisions of the Affordable Care Act that are designed to lower certain reimbursement amounts under Medicare and tie reimbursement levels to the quality of services provided will increase the pressure on health care providers to become more efficient in their business models, invest capital in their businesses, lower costs and improve the quality of care, which in turn will drive health care systems to monetize their real estate assets and create demand for new, modern and specialized facilities.

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Clinical Care Continues to Shift to Outpatient Care

According to the American Hospital Association (the “AHA”), many procedures traditionally performed in hospitals, such as certain types of surgery, are increasingly moving to outpatient facilities driven by advances in clinical science, shifting consumer preferences, limited or inefficient space in existing hospitals, and lower costs in the outpatient environment. This continuing shift toward delivering health care services in an outpatient environment rather than a traditional hospital environment increases the need for additional outpatient facilities and smaller, more specialized and efficient hospitals. Studies by the Medicare Payment Advisory Commission and others have shown that health care is delivered more cost effectively and with higher patient satisfaction when it is provided on an outpatient basis. Increasingly, hospital admissions are reserved for the critically ill, and less critical patients are treated on an outpatient basis with recuperation in their own homes. We believe health care market trends toward outpatient care will continue to push health care services out of larger, older, inefficient hospitals and into newer, more efficient and conveniently located outpatient facilities and smaller specialized hospitals. We believe that increased specialization within the medical field is also driving demand for medical facilities designed specifically for particular specialties and that physicians want to locate their practices in medical office space that is in or adjacent to these facilities.

Impact of BBA on Outpatient Care

Section 603 Assets: Section 603 of the Bipartisan Budget Act of 2015 (the “2015 BBA”) generally prohibits hospital outpatient departments (“HOPDs”) from charging preferential hospital outpatient department rates for Medicare patients treated in “off-campus” locations on or after January 1, 2017, potentially impacting their profitability. These preferential Medicare rates are only permitted if the hospital provides HOPD services in a building within 250 yards of the hospital’s main inpatient location. A hospital HOPD can be grandfathered by the 2015 BBA even if the location is outside the 250 yard distance. Under the statutory authority, an off-campus HOPD facility in existence as of November 2, 2015 can be “grandfathered” and can continue to be paid at the preferential HOPD rates, if, among other things, the hospital was billing HOPD services in that location on a HOPD basis as of November 2, 2015 and continues to provide those services in that location. On November 21, 2018, the Secretary of Health and Human Services (the “Secretary”) issued a final rule, effective January 1, 2019, that eliminates the higher, Outpatient Prospective Payment System (“OPPS”) reimbursement rate for evaluation and management services provided by Grandfathered HOPD locations (the “Final Rule”). The Secretary, instead, will only reimburse for evaluation and management services at the lower, Medicare Physician Fee Schedule rate that new non-grandfathered off-campus HOPD locations receive. The AHA and a number of hospitals have sued the Secretary in federal court to enforce the plain meaning of Section 603 of the 2015 BBA and restore the right to Grandfathered HOPD reimbursement rates. On September 17, 2019, a federal district judge ruled in favor of the AHA. The court stated that CMS did not have the authority to lower payments for off-campus hospital-based departments that were grandfathered under the 2015 BBA. CMS challenged this ruling and requested a stay in the decision, which the court denied on October 21, 2019. In its December 15, 2020 final rule for hospital OPPS rates, CMS continued its efforts to lower payment for certain HOPD services basing reductions on the principle of “site neutrality.” These lower payment levels are effective January 1, 2021, notwithstanding the CMS’ projections that overall payments under OPPS will increase by 2.4%.“Grandfathered” hospitals providing HOPD services in our portfolio are referred to as 603 assets in our SEC reports and other public disclosures.

We own a number of assets that will continue to be reimbursed at hospital outpatient department rates, which we refer to as “603 assets” after the applicable section of the 2015 BBA. Rent derived from these 603 assets accounts for approximately 17% of our total consolidated portfolio annualized base rent as of December 31, 2020. Depending upon the implementation of the regulations and mix of procedures in an HOPD, the 2015 BBA may enhance the value of these 603 assets because existing HOPDs may lose their higher reimbursements rates should they choose to change locations, thus enhancing lease renewal probabilities and rent growth.

Portfolio Summary
 
Please see Item 2 - Properties for a table that summarizes our consolidated portfolio as of December 31, 2020.
 
Geographic Concentration
 
As of December 31, 2020, approximately 14.2% of our consolidated gross leasable area was derived from properties located in Texas. 

As a result of this geographic concentration, we are particularly exposed to downturns in the Texas economy or other changes in local real estate market conditions. Any material change in the current payment programs or regulatory, economic, environmental, or competitive conditions in Texas could have a disproportionate effect on our overall business results. In the event of negative economic or other changes in the Texas market, our business, financial condition, and results of operations,
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our ability to make distributions to our shareholders and the market price of our common shares may be adversely affected. See the discussion under Item 1A - Risk Factors, under the caption, “Economic and other conditions that negatively affect geographic areas in which we conduct business, and in particular Texas, and other areas to which a greater percentage of our revenue is attributed could materially adversely affect our business, results of operations, and financial condition.”

Customer Concentration
 
We receive substantially all of our revenue as rent payments from tenants under leases of space in our health care properties, with our five largest tenants based upon rental revenue representing approximately $62.0 million, or 20.3%, of the annualized base rent from our consolidated properties as of December 31, 2020. No one tenant represents more than 5.6% of our total consolidated annualized base rent; however, 16.7% of our total consolidated annualized base rent as of December 31, 2020 is from tenants affiliated with CommonSpirit Health. We have no control over the success or failure of our tenants’ businesses and, at any time, any of our tenants may experience a downturn in its business that may weaken its financial condition. Our business, financial position, or results of operations could be materially adversely affected if CommonSpirit Health were to experience a material adverse effect on its business, financial position, or results of operations.
 
Competition
 
We compete with many other entities engaged in real estate investment activities for acquisitions of health care properties, including national, regional and local operators, acquirers, and developers of health care-related real estate properties and other investors such as private equity firms, some of whom may have greater financial resources and lower costs of capital than we do. The competition for health care-related real estate properties may significantly increase the price that we must pay for health care properties or other assets that we seek to acquire, and our competitors may succeed in acquiring those properties or assets themselves. In addition, our potential acquisition targets may find our competitors to be more attractive because they may have greater resources, may be willing to pay more for the properties or may have a more compatible operating philosophy. In particular, larger REITs that target health care properties may enjoy significant competitive advantages that result from, among other things, a lower cost of capital, enhanced operating efficiencies, more personnel, and market penetration and familiarity with markets. In addition, the number of entities and the amount of funds competing for suitable investment properties may increase. Increased competition would result in increased demand for the same assets and therefore increase prices paid for them. Those higher prices for health care properties or other assets may adversely affect our returns from our investments.

We also face competition in leasing available MOBs and other facilities that serve the health care industry to prospective tenants. As a result, we may have to provide rent concessions, incur charges for tenant improvements, offer other inducements, or we may be unable to timely lease vacant space in our properties, all of which may have a material adverse impact on our results of operations.
 
Seasonality
 
Our business has not been, and we do not expect it to become, subject to material seasonal fluctuations.
 
Human Capital Management
 
At December 31, 2020, we had 81 full-time employees, none of whom are subject to a collective bargaining agreement. We believe that relations with our employees are positive.

We believe that the success of our business depends on a strong, talented, and committed workforce to ensure excellence on behalf of our clients and shareholders. We prioritize the well-being of our team members and offer comprehensive benefits packages, opportunities for personal and group volunteer efforts, and paths for life-long learning to our employees. Our employees work with a variety of business units across the Company to diversify their skill sets and are offered challenging projects, stock ownership, and a collaborative environment with exposure to our top executives. In addition, our team members regularly participate in training courses on topics such as leadership, freedom from harassment through a positive work environment, and more.

To represent our commitment to diversity, equity, and inclusion (“DE&I”), we established a DE&I Council in 2019 that sets goals, develops educational platforms, and plans activities to promote DE&I at all levels of our organization. As part of our multi-year DE&I goals, we have developed a roadmap to recruit, retain, and support underrepresented populations within our company. Strategies include promoting the inclusion of diverse candidates in recruitment efforts, providing enhanced career development support for underrepresented populations, and ensuring that we continue to offer benefits and compensation that
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attracts and retains diverse team members. The DE&I Council is overseen by the Nominating and Corporate Governance Committee of the Board of Trustees.

We have a strong commitment to team involvement in the workplace. Employees lead committees focusing on social, environmental, philanthropic, and health & wellness topics that shape the Company’s policies and drive positive change. We also conduct annual engagement surveys through third-party companies to provide anonymous team member feedback. We believe that continuous improvement and investment in our team is the key to our continued success.

Environmental Matters
 
As an owner of real estate, we are subject to various federal, state, and local environmental laws, regulations, and ordinances and also could be liable to third parties as a result of environmental contamination or noncompliance at our properties even if we no longer own such properties. See the discussion under Item 1A, “Risk Factors,” under the caption “Environmental compliance costs and liabilities associated with owning, leasing, developing and operating our properties may affect our results of operations.”

Certain Government Regulations

Overview
 
Our tenants and operators are typically subject to extensive and complex federal, state, and local health care laws and regulations relating to fraud and abuse practices, government reimbursement, licensure, protection of patient health information, and certificate of need and similar laws governing the operation of health care facilities, and we expect that the health care industry, in general, will continue to face increased regulation and pressure in the areas of fraud, waste and abuse, cost control, health care management, and provision of services, among others. These regulations are wide-ranging and can subject our tenants and operators to civil, criminal and administrative sanctions. Affected tenants and operators may find it increasingly difficult to comply with this complex and evolving regulatory environment because of a relative lack of guidance in many areas as certain of our health care properties are subject to oversight from several government agencies and the laws may vary from one jurisdiction to another. Changes in laws and regulations, reimbursement enforcement activity and regulatory non-compliance by our tenants and operators can all have a significant effect on their operations and financial condition, which in turn may adversely impact us, as detailed below and set forth under Item 1A, “Risk Factors,” under the caption “The health care industry is heavily regulated, and new laws or regulations, changes to existing laws or regulations, loss of licensure, or failure to obtain licensure could adversely impact our company and result in the inability of our tenants to make rent payments to us.”

In 2017, Congress came within a single vote of repealing of the Affordable Care Act and substantially reducing funding to the Medicaid program. New legislation may be introduced in the future, proposing changes, if not full repeal of the Affordable Care Act. Beyond this, significant changes to commercial health insurance and government-sponsored insurance (e.g., Medicare and Medicaid) remain possible. Commercial and government payors are likely to continue imposing larger discounts and tighter cost controls upon operators, through reductions in reimbursement rates and changes in payment methodologies, discounted fee structures, the assumption by health care providers of all or a portion of the financial risk or otherwise. A shift toward less comprehensive health insurance coverage and increased consumer cost-sharing on health expenditures could have a material adverse effect on certain of our operators’ liquidity, financial condition, and results of operations and, in turn, their ability to satisfy their contractual obligations, including making rental payments under and otherwise complying with the terms of our leases.
The following is a discussion of certain laws and regulations generally applicable to our operators, and in certain cases, to us.

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Health Care Legislation

Health Reform Laws. On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act of 2010 (the “Affordable Care Act”) and the Health Care and Education Reconciliation Act of 2010, which amends the Affordable Care Act (collectively with other subsequently enacted federal health care laws and regulations, the “Health Reform Laws”). The Health Reform Laws contain various provisions that may directly impact us or the operators and tenants of our properties. Some provisions of the Health Reform Laws may have a positive impact on our operators’ or tenants’ revenues, by, for example, increasing coverage of uninsured individuals, while others may have a negative impact on the reimbursement of our operators or tenants by, for example, altering the market basket adjustments for certain types of health care facilities. The Health Reform Laws also enhance certain fraud and abuse penalty provisions that could apply to our operators and tenants, in the event of one or more violations of the federal health care regulatory laws. In addition, there are provisions that impact the health coverage that we and our operators and tenants provide to our respective employees. The Health Reform Laws also provide additional Medicaid funding to allow states to carry out the expansion of Medicaid coverage to certain financially-eligible individuals beginning in 2014, and have also permitted states to expand their Medicaid coverage to these individuals since April 1, 2010, if certain conditions are met. On June 28, 2012, the United States Supreme Court upheld the individual mandate of the Health Reform Laws but partially invalidated the expansion of Medicaid. The ruling on Medicaid expansion allows states not to participate in the expansion-and to forego funding for the Medicaid expansion-without losing their existing Medicaid funding. As of December 1, 2020, 12 states have pursued the option not to adopt the Medicaid expansion. Thirty-nine states and the District of Columbia have adopted the expansion. The participation by states in the Medicaid expansion could have the dual effect of increasing our tenants’ revenues, through new patients, but could also further strain state budgets. While the federal government paid for approximately 100% of those additional costs from 2014 to 2016, states now are expected to pay for part of those additional costs. 

Challenges to the Health Reform Laws and Potential Repeal and/or Further Reforms under Trump Administration. Since the enactment of the Health Reform Laws, there have been multiple attempts through legislative action and legal challenge to repeal or amend the Health Reform Laws, including the case that was before the U.S. Supreme Court, King v. Burwell. Although the Supreme Court in Burwell upheld the use of subsidies to individuals in federally-facilitated health care exchanges on June 25, 2015, which ultimately did not disrupt significantly the implementation of the Health Reform Laws, we cannot predict whether other current or future efforts to repeal, amend or challenge the validity of all or part of the Health Reform Laws will be successful, nor can we predict the impact that such a repeal, amendment or challenge would have on our operators or tenants and their ability to meet their obligations to us.

In 2017, former President Trump and Congress unsuccessfully sought to repeal and replace the Affordable Care Act. On January 20, 2017, President Trump issued an Executive Order stating that it is the administration’s official policy to repeal the Affordable Care Act and instructing the Secretary of Health and Human Services and the heads of all other executive departments and agencies with authority and responsibility under the Affordable Care Act to, among other matters, delay implementation of or grant an exemption from any provision of the Affordable Care Act that would impose a fiscal burden on any state or a cost, fee, tax, penalty, or regulatory burden on individuals, families, health care providers, health insurers, patients, and others. On December 22, 2017, the Tax Cuts and Jobs Act (the “Tax Act”) was signed into law. The Tax Act, among other things, reduces the Affordable Care Act’s individual mandate penalty to zero beginning in 2019. The elimination of the penalties does not remove the requirement to obtain health care coverage; however, without penalties there effectively will be no enforcement. On December 14, 2018, a federal district court in Texas ruled that the Affordable Care Act’s individual mandate was unconstitutional. The court also ruled that the provisions of the individual mandate were not severable from the remainder of the Affordable Care Act, rendering the remainder of the Affordable Care Act invalid as well. Following a series of appeals, the Supreme Court heard oral argument on November 10, 2020, with a decision expected in 2021. The law remains in place pending a final decision.

It is possible that Congress will continue to consider other legislation to repeal the Affordable Care Act or repeal and replace some or all elements of the Affordable Care Act. In addition, Congress is considering authorization of significant additional funding for health care services to combat the COVID-19 pandemic.

The US Department of Labor (“DOL”) issued a final rule on June 21, 2018 authorizing the creation of Association Health Plans (“AHP”). This rule was one of three components of a 2017 Executive Order to increase consumer health insurance options and also created short-term limited duration health insurance and health reimbursement arrangements. On March 28, 2019, the US District Court for the District of Columbia vacated the AHP. On April 26, 2019, the DOJ appealed that decision.
On June 24, 2019, former President Trump signed an Executive Order on Improving Price and Quality Transparency in American Health Care to Put Patients First. The Order was intended to increase the availability of meaningful price and quality information for patients. CMS included in its final rule for Medicare hospital outpatient payment, the requirement that
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hospitals make public their standard charges, along with payer-specific negotiated rates, in a consumer-friendly format. This requirement was to be effective January 1, 2020. In 2019, the AHA and other hospital groups initiated litigation against DHHS/CMS to prevent implementation of this price transparency rule. The AHA was unsuccessful in challenging this rule which became effective January 1, 2021. The public availability of hospital charges may give patients information to select physician office-based care rather than in the hospital.
We cannot predict the effect of Trump or Biden Executive Orders, the Tax Act’s 2019 repeal of the individual mandate penalty on the Affordable Care Act, or the Texas court’s decision or any appeal thereof, the decision on the AHP rule or any appeal thereof, other state-based litigation, or whether Congress’ attempt to change the law will be successful. Further, we cannot predict how the Affordable Care Act might be amended or modified, either through the legislative or judicial process, and how any such modification might impact our tenants’ operations or the net effect of this law on us. If the operations, cash flows or financial condition of our operators and tenants are materially adversely impacted by any repeal or modification of the law, our revenue and operations may be materially adversely affected as well.

Fraud and Abuse Enforcement
 
There are various extremely complex federal and state laws and regulations governing health care providers’ relationships and arrangements and prohibiting fraudulent and abusive practices by such providers. These laws include (i) federal and state false claims acts, which, among other things, prohibit providers from filing false claims or making false statements to receive payment from Medicare, Medicaid or other federal or state health care programs, (ii) federal and state anti-kickback and fee-splitting statutes, including the Medicare and Medicaid anti-kickback statute, which prohibit the payment or receipt of remuneration to induce referrals or recommendations of health care items or services, (iii) federal and state physician self-referral laws (commonly referred to as the “Stark Law”), which generally prohibit referrals by physicians to entities with which the physician or an immediate family member has a financial relationship, (iv) the federal Civil Monetary Penalties Law, which prohibits, among other things, the knowing presentation of a false or fraudulent claim for certain health care services and (v) federal and state privacy laws, including the privacy and security rules contained in the Health Insurance Portability and Accountability Act of 1996, which provide for the privacy and security of personal health information. Violations of health care fraud and abuse laws carry civil, criminal and administrative sanctions, including punitive sanctions, monetary penalties, imprisonment, denial of Medicare and Medicaid reimbursement, and potential exclusion from Medicare, Medicaid, or other federal or state health care programs. These laws are enforced by a variety of federal, state, and local agencies and can also be enforced by private litigants through, among other things, federal and state false claims acts, which allow private litigants to bring qui tam or “whistleblower” actions. Many of our operators and tenants are subject to these laws, and some of them may in the future become the subject of governmental enforcement actions if they fail to comply with applicable laws.
 
Reimbursement
 
Sources of revenue for many of our tenants and operators include, among other sources, governmental health care programs, such as the federal Medicare program, state Medicaid programs, and non-governmental payors, such as insurance payors, managed care organizations (MCOs), health maintenance organizations (HMOs), and Accountable Care Organizations (ACOs). As federal and state governments focus on health care reform initiatives, and as the federal government and many states face significant budget deficits, efforts to reduce costs by these payors will likely continue, which may result in reduced or slower growth in reimbursement for certain services provided by some of our tenants and operators.

We cannot predict whether future Congressional action will reduce physician reimbursements. Efforts by other payors to reduce health care costs are likely to continue, which may result in reductions or slower growth in reimbursement for certain services provided by some of our tenants. Further, revenue realizable under third-party payor agreements can change after examination and retroactive adjustment by payors during the claims settlement process or as a result of post-payment audits. For example, payors may disallow requests for reimbursement based on determinations that certain costs are not reimbursable or reasonable, because additional documentation is necessary or because certain services were not covered or were not medically necessary. The Health Care Reform Laws and regulatory changes could impose further limitations on government and private payments to health care providers. In some cases, states have enacted or are considering enacting measures designed to reduce their Medicaid expenditures and to make changes to private health care insurance. In addition, the failure of any of our tenants to comply with various laws and regulations could jeopardize their ability to continue participating in Medicare, Medicaid, and other government sponsored payment programs. The financial impact on our tenants’ failure to comply with such laws and regulations could restrict their ability to make rent payments to us.
 
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Health Care Licensure and Certificate of Need
 
Certain health care facilities in our portfolio are subject to extensive federal, state and local licensure, certification and inspection laws, and regulations. In addition, various licenses and permits are required to dispense narcotics, operate pharmacies and laboratories, handle radioactive materials, and operate equipment. Many states require certain health care providers to obtain a certificate of need, which requires prior approval for the construction, expansion, and closure of certain health care facilities. The approval process related to state certificate of need laws may impact some of our tenants’ and operators’ abilities to expand or change their businesses.

COVID-19 Relief

The Consolidated Appropriations Act of 2021 (the “CAA”) signed by President Trump on December 27, 2020 will expand or extend Medicaid and Medicare payment for health care providers and services beginning in 2021. The CAA extends and supplements certain health care provisions of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), enacted on March 27, 2020. Among other changes, the CAA will moderate reductions in physician payment that were scheduled to start on January 1, 2021, making approximately $3 billion available for physician services. The CAA authorizes $1.4 trillion to fund federal agencies through 2021, including the U.S. Department of Health and Human Services which administers the Medicare and Medicaid programs at the national level. New patient protections will be established that restrict “surprise billing” by out-of-network health care providers and physicians and will restrict billing patients at higher rates than in-network providers.

Available Information
 
Our website address is www.docreit.com. We make available, free of charge through the Investor Relations portion of the website, 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, the “Exchange Act”) as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission (the “SEC” or the “Commission”). Reports of beneficial ownership filed pursuant to Section 16(a) of the Exchange Act are also available on our website. These reports and other information are also available, free of charge, at www.sec.gov.
 
In addition, the Trust’s Board of Trustees has established a Code of Business Conduct and Ethics that applies to our officers, including our President and Chief Executive Officer, Chief Financial Officer, trustees, and employees. The Code of Business Conduct and Ethics provides a statement of the Company’s policies and procedures for conducting business legally and ethically. A copy of the Code of Business Conduct and Ethics is available in the Investor Relations section of our website (www.docreit.com) under the tab “Corporate Information - Governance Documents.” Any amendments to or waivers from the Code of Business Conduct and Ethics will be disclosed on our website. Information contained on our website is not part of this report.

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ITEM 1A. RISK FACTORS

The following summarizes the most significant risks of purchasing or owning our securities. Additional unknown risks may also impair our financial performance and business operations. Our business, financial condition, and/or results of operation may be materially adversely affected by the nature and impact of these risks. In such case, the market value of our securities could be detrimentally affected, and investors may lose part or all of the value of their investment. You should carefully consider the risks and uncertainties described below.

 We have grouped these risk factors into the following general categories:

•Risks related to our business;
•Risks related to the health care industry; 
•Risks related to the real estate industry; 
•Risks related to financings;
•Risks related to our portfolio and structure; and 
•Risks related to our qualification and operation as a REIT.
 
Risks Related To Our Business

Our business and operations have and may continue to be adversely affected by the global outbreak of the COVID-19 pandemic, and may be adversely affected by other outbreaks of pandemic disease.

The COVID-19 pandemic and the measures to prevent its spread have, and could continue to have, and any other global outbreaks of pandemic disease could have, a material adverse effect on our business, results of operations, and financial condition. The extent of the impact of the COVID-19 pandemic on the Company’s business, financial condition, and results of operations, including liquidity, capital, and financing resources will depend on numerous evolving conditions that the Company cannot predict.

The COVID-19 pandemic has materially adversely impacted regional and global economies and financial markets. The impact of the outbreak has been rapidly evolving and, as cases of COVID-19 have continued to be identified in the United States, governmental authorities, including in many states and cities where we own properties, either directly or through joint ventures, where we have development projects, and where our principal place of business is located, have reacted by instituting measures to prevent its spread, including quarantines, social distancing mandates, face mask mandates, restrictions on travel and “shelter-in-place” rules. In addition, some states have limited business operations to those businesses carrying out essential services and other states have begun lifting their restrictions only to impose additional restrictions and mandates in the wake of increased COVID-19 cases. For example, recent increases in COVID-19 cases in certain areas of the country have resulted or may result in the imposition of additional protocols or restrictions by state and local governments. While many of our tenants that are hospitals or health care delivery systems are deemed essential services, certain state or other orders have discouraged or suspended the performance of elective medical procedures which has had an adverse impact on certain tenants' financial condition. These adverse economic conditions resulting from the COVID-19 pandemic, especially any downturns in the geographic areas in which we operate, and particularly in Texas and Georgia, or any downturn in the health care industry as a whole, may lower our occupancy levels and in certain cases, have required us to agree to rental concessions. In some cases, we have restructured some tenants' long-term rent obligations and may not be able to do so on terms that are as favorable to us as those currently in place. In addition, a number of federal, state, local, and industry-initiated efforts have been enacted that could adversely affect our ability to collect rent or enforce remedies for the failure to pay rent. These restrictions and initiatives have adversely affected our business to date and may continue to do so in the future. We cannot predict if additional states and cities will implement similar restrictions or initiatives, when restrictions and initiatives currently in place will expire, if additional restrictions or initiatives will be imposed, or if these or other restrictions or initiatives will be imposed in the future and the impact on our business of any such restrictions or initiatives.

Further, certain of our tenants have been able to secure stimulus funds under the CARES Act, the CAA or other government assistance programs. There is significant uncertainty regarding whether the U.S. Congress or state governmental authorities will pass further laws providing for additional stimulus, funding, or relief, and we are unable to predict whether additional stimulus measures will be enacted, whether our tenants will be eligible or will apply for any such funds, whether the funds, if available, could be used by tenants to pay rent or could affect or limit our tenants’ future operations, and/or whether the funds will be sufficient for tenants’ rent and other obligations to us. There can be no assurance as to the total amount of
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financial and other types of assistance our tenants may receive under these programs, and we cannot predict the impact of any such future legislation on our tenants’ operations. Moreover, we are unable to assess the extent to which potential negative impacts on our tenants, and, in turn, to us, arising from the COVID-19 pandemic will be offset by amounts or benefits to be received under any government assistance programs. Any inability by our tenants to secure any such funds may impact their ability to pay their rent or other obligations to us, which could have a material adverse effect on our business, financial condition, and results of operations.

In addition, in light of health and safety concerns, the majority of our employees are currently working remotely. The effects of the applicable executive orders, including an extended period of remote work arrangements, could create increased vulnerability to cybersecurity breaches or incidents involving us or our third party managers, which could disrupt our business, compromise our confidential information and confidential information of third parties, including our tenants, damage our reputation, subject us to liability claims or regulatory penalties, and could have an adverse effect on our business, financial condition, and results of operations. In addition, we depend upon the performance of our property managers to effectively manage certain of our properties and real estate assets. Remote work arrangements and other effects of the COVID-19 pandemic could impair our and property managers' ability to effectively manage our properties, which could also adversely impact our business and results of operations.

The COVID-19 pandemic, or a future pandemic, could also have material adverse effects on our ability to successfully operate our business, our financial condition, our results of operations, and our ability to make distributions to our shareholders due to, among other factors:

•a complete or partial closure of, or other operational issues at, one or more of our properties resulting from government or tenant action;
•the reduced economic activity impacting our tenants' businesses, including a suspension or a reduction in elective medical or surgical procedures that can be deferred, which may have a material adverse effect on our tenant's financial condition and liquidity and may cause one or more of our tenants to be unable to pay their rent to us in full, or at all, or to otherwise seek rental concessions or modifications of their monetary obligations under their leases;
•difficulty finding suitable replacement tenants in the event of a tenant default or non-renewal of our leases, especially for our properties in smaller markets;
•reduced economic activity that could result in a recession or other prolonged adverse economic condition that could negatively impact the real estate industry, resulting in declining demand for real estate, which may affect our ability to sell any of our properties at a profit, or at all, in the future;
•the general decline in business activity and demand for real estate transactions, which has adversely affected, and is likely to continue affecting, our ability to acquire additional properties;
•the decline in the market price of our common shares, which could adversely impact our ability to access equity capital markets and require us to try to rely on debt financing to fund our capital needs, which may not be available on acceptable terms or at all;
•any debt financing we may be able to secure could increase our leverage, which could place us at a competitive disadvantage compared to our competitors who have less debt, and could place us at a competitive disadvantage compared to our competitors who have debt on more favorable terms;
•any inability to comply with covenants under our debt agreements, which could result in a default under the applicable debt agreement and could trigger a cross-default under other indebtedness, which could cause an acceleration of our indebtedness, result in a downgrade in our credit rating, or negatively impact our ability to incur additional indebtedness;
•any impairment in value of our tangible or intangible assets which could be recorded as a result of weaker economic conditions or if a tenant at one of our properties fails to pay rent; and
•the potential negative impact on the health of our personnel, particularly if a significant number of them are impacted, could impair our ability to perform critical functions and may cause a disruption in our business operations.

The extent to which the COVID-19 pandemic impacts, and will continue to impact, our operations and those of our tenants will depend on future developments, which are highly uncertain and cannot be predicted, including the scope, severity, and duration of the pandemic including whether there are additional waves or other additional periods of increased COVID-19 cases and the availability and effectiveness of vaccines or an effective treatment, the actions taken to contain the pandemic or mitigate its impact including mandatory closures, shelter-in-place or social distancing measures, face mask measures, travel restrictions or quarantine mandates, and the direct and indirect economic effects of the pandemic and containment measures, among others. The rapid development and fluidity of this situation precludes our ability to predict the full adverse impact of the COVID-19 pandemic. If we are unable to respond and manage the impact of these events, our business, financial condition, and results of operations including liquidity, capital, and financing resources may continue to be adversely affected.

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Our real estate investments are concentrated in health care properties, and any downturn in the health care industry could materially affect our business.

We acquire, own, manage, operate, and selectively develop properties for lease primarily to physicians, hospitals, and health care delivery systems. We are subject to risks inherent in concentrating investments in real estate, and further from the concentration of our investments in the health care sector. Any adverse effects that result from these risks could be more pronounced than if we diversified our investments outside of health care properties. Given our concentration in this sector, our tenant base is especially concentrated and dependent upon the health care industry generally, and any industry downturn could adversely affect the ability of our tenants to make lease payments and our ability to maintain current rental and occupancy rates. Our tenant mix could become even more concentrated if a significant portion of our tenants practice in a particular medical field or are reliant upon a particular health care delivery system. Accordingly, a downturn in the health care industry generally, or in the health care-related facility specifically, could adversely affect our business, financial condition, and results of operations, our ability to make distributions to our shareholders, and the market price of our common shares.
 
Economic and other conditions that negatively affect geographic areas in which we conduct business, and in particular Texas, and other areas to which a greater percentage of our revenue is attributed could materially adversely affect our business, results of operations, and financial condition.

Our operating results depend upon our ability to maintain and increase occupancy levels and rental rates at our properties. Adverse economic or other conditions in the geographic markets in which we operate, including periods of economic slowdown or recession, industry slowdowns, periods of deflation, relocation of businesses, changing demographics, pandemics, hurricanes, tornadoes, floods, the effects of climate change, earthquakes and other natural disasters, fires, terrorist acts, civil disturbances or acts of war, and other man-made disasters which may result in uninsured or underinsured losses, and changes in tax, real estate, zoning, and other laws and regulations, may lower our occupancy levels and limit our ability to increase rents or require us to offer rental concessions. 
 
As of December 31, 2020, approximately 2.0 million square feet of our gross leasable area and $48.8 million of our total consolidated annualized base rent was derived from properties located in Texas (14.2% of our gross leasable area and 15.9% of our total consolidated annualized base rent). As a result of this geographic concentration, we are particularly exposed to downturns in the Texas economy or other changes in local real estate market conditions. Any material change in the current payment programs or regulatory, economic, environmental, or competitive conditions in Texas could have a disproportionate effect on our overall business results. In the event of negative economic or other changes in any of the markets in which we conduct business, our business, financial condition, and results of operations, our ability to make distributions to our shareholders, and the market price of our common shares may be adversely affected.

In addition, one of our strategies is to capitalize on shifting consumer preferences and other demographic and market trends by pursuing off-campus properties consistent with our investment philosophy and strategies. We may not be successful in identifying and acquiring suitable off-campus properties that meet our investment criteria or that we can acquire on satisfactory terms. Further, if such preferences and trends do not continue, such off-campus properties may not produce the expected benefits or command the same rent as our on-campus affiliated properties, and we may not be able to lease such properties on terms acceptable to us, or at all. If we are unable to successfully acquire, lease, and operate such off-campus properties, our business, financial condition, and results of operations could be adversely impacted.

We have and may in the future make investments in joint ventures, which could be adversely affected by our lack of decision-making authority, our reliance upon our joint venture partners’ financial condition, any disputes that may arise between us and our joint venture partners and our exposure to potential losses from the actions of our joint venture partners.

We have and may in the future make co-investments with third parties through partnerships, joint ventures, or other entities, acquiring noncontrolling interests in or sharing responsibility for the management of the affairs of a property, partnership, joint venture or other entity. Joint ventures generally involve risks not present with respect to our wholly-owned properties, including the following:

•our joint venture partners may make decisions with which we disagree or that are not in our best interest;
•we may be prevented from taking actions that are opposed by our joint venture partners;
•our ability to transfer our interest in a joint venture to a third party may be restricted;
•our joint venture partners might become bankrupt or fail to fund their share of required capital contributions which may delay construction or development of a health care related facility or increase our financial commitment to the joint venture;
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•our joint venture partners may have economic or business interests or goals with respect to the health care related facility or the joint venture that are or become inconsistent with our business interests and goals which could increase the likelihood of disputes regarding the ownership, management, or disposition of the health care related facility or the joint venture may compete with us for property acquisitions;
•disputes may develop with our joint venture partners over decisions affecting the health care related facility or the joint venture which may result in litigation or arbitration that would increase our expenses and distract our officers and/or trustees from focusing their time and effort on our business and possibly disrupt the daily operations of the health care related facility; and
•we may suffer losses as a result of the actions of our joint venture partners with respect to our joint venture investments.

Joint venture investments involve risks that may not be present with other methods of ownership. In addition to those risks identified above, our partners may be in a position to take action or withhold consent contrary to our instructions or requests. In the future, in certain instances, we or our partners may have the right to trigger a buy-sell arrangement, which could cause us to sell our interest, or acquire our partners’ interest, at a time when we otherwise would not have initiated such a transaction. Our ability to acquire our partners’ interest may be limited if we do not have sufficient cash, available borrowing capacity, or other capital resources. In such event, we may be forced to sell our interest in the joint venture when we would otherwise prefer to retain it. Joint ventures may require us to share decision-making authority with our partners, which could limit our ability to control the properties in the joint ventures. Even when we have a controlling interest, certain major decisions may require partner approval, such as the sale, acquisition or financing of a property.

Our health care properties and tenants face competition from nearby hospitals and other health care properties, and we may not realize the benefits that we anticipate from focusing on health care properties that are strategically aligned with a health care delivery system and from the relationships established through such strategic alignments. Further, we may not be able to maintain or expand our relationships with our existing and future hospital and health care delivery system clients.

As part of our business strategy, we focus on health care properties that are strategically aligned with a health care delivery system by (i) seeking to acquire, own, manage, and develop health care properties that are located on medical campuses where the underlying land is owned by a health care delivery system or by us, or (ii) seeking to acquire, own, manage, and develop health care properties located in close proximity to a health care delivery system or strategically aligned with a health care delivery system through leasing or other arrangements. We may not realize the benefits that we anticipate as a result of these strategic relationships, such as increased rents and reduced tenant turnover rates as compared to health care properties that are not strategically aligned. Moreover, building a portfolio of health care properties that are strategically aligned does not assure the success of any given property. The associated health care delivery system may not be successful and the strategic alignment that we seek for our health care properties could dissolve, and we may not succeed in replacing them. In addition, our health care properties, the associated health care delivery systems with which our health care properties are strategically aligned, and our tenants may be unable to compete successfully with nearby hospitals, medical practices, other health care properties that provide comparable services, pharmacies and other retailers, like CVS, Walmart, Walgreens, and others, that may initiate or expand health care clinic operations and services to compete with our tenants. Any of our properties may be materially and adversely affected if the health care delivery system with which it is strategically aligned is unable to compete successfully. If we do not realize the benefits that we anticipate from our business strategy and our strategic alignments dissolve and we are not successful in replacing them, our reputation, business, financial results, and prospects may be adversely affected.

The success of our business depends, to a large extent, on our current and future relationships with hospital and health care delivery system clients. We invest a significant amount of time to develop, maintain, and be responsive to these relationships, and our relationships have helped us to secure acquisition and development opportunities, as well as other advisory, property management, and projects, with both new and existing clients. If our relationships with hospital or health system clients deteriorate, if a conflict of interest or non-compete arrangement prevents us from expanding these relationships, or if a hospital on or near whose campus one of our properties is located fails or becomes unable to meet its financial obligations, the business of our tenants could be adversely affected or our ability to secure new acquisition and development opportunities or other advisory, property management, and hospital project management projects could be adversely impacted and our professional reputation within the industry could be damaged.

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Any failure, inability, or unwillingness by our tenants to pay rent or other amounts under leases could materially adversely affect our financial results; we may have difficulty finding suitable replacement tenants in the event of a tenant default or non-renewal of our leases, especially for our properties located in smaller markets.

Our portfolio of health care properties is leased to physicians, hospitals, health care delivery systems, and other health care providers and our revenues are subject to the financial strength of our tenants. We cannot provide assurance that our tenants will have sufficient assets, income, and access to financing to enable them to satisfy their respective obligations to us, and any failure, inability or unwillingness by our tenants to do so could adversely affect our financial results. We have had tenants pay us rent late or fail to pay rent, which has increased during the COVID-19 pandemic and has adversely affected our financial results.

We cannot predict whether our tenants will renew or extend existing leases beyond their current terms. Nearly all of our properties are subject to leases which have multi-year terms. As of December 31, 2020, leases representing 4.3% and 4.4% of leased square feet at our consolidated properties will expire in 2021 and 2022, respectively, and leases representing 0.2% of leased square feet had expired as of December 31, 2020. If any of our leases are not renewed or extended, or if a tenant defaults under the terms of its lease or becomes insolvent, we would attempt to relet those spaces or properties to other tenants or new tenants. In case of non-renewal, we generally have advance notice before expiration of the lease term to arrange for reletting or repositioning of the spaces or the properties and our tenants are required to continue to perform all of their obligations (including the payment of all rental amounts) under the non-renewed leases until such expiration. However, following expiration of a lease term or if we exercise our right to replace a tenant in default, rental payments on the related properties could decline or cease altogether while we relet or reposition the spaces or the properties with suitable replacement tenants. We also might not be successful in identifying suitable replacement tenants or entering into leases with new tenants on a timely basis or on terms as favorable to us as our current leases, or at all, and we may be required to fund certain expenses and obligations (e.g., real estate taxes, debt costs, and maintenance expenses) to preserve the value of, and avoid the imposition of liens on, our properties while they are being relet or repositioned. Our ability to relet or reposition our properties, or spaces within our properties, with suitable tenants could be significantly delayed or limited by state licensing, receivership, certificate of need or other laws, as well as by the Medicare and Medicaid change-of-ownership rules. We could also incur substantial additional expenses in connection with any licensing, receivership, or change-of-ownership proceedings. In addition, our ability to locate suitable replacement tenants could be impaired by the specialized health care uses or contractual restrictions on use of the properties, and we may be required to spend substantial amounts to adapt the properties to other uses. Any such delays, limitations and expenses could adversely impact our ability to collect rent, obtain possession of leased properties, or otherwise exercise remedies for tenant default and could have a material adverse effect on us or cause us to take an impairment charge on a property.
 
All of these risks may be greater in smaller markets, where there may be fewer potential replacement tenants, making it more difficult to replace tenants, especially for specialized spaces, like hospital or outpatient treatment facilities located in our properties, and could have a material adverse effect on us.

If the business, financial position or results of operations of CommonSpirit Health or one or more of our CommonSpirit Health-affiliated tenants suffer or are adversely affected, it could have a material adverse effect on our business, financial position, or results of operations.

As of December 31, 2020, tenants affiliated with CommonSpirit Health (“CommonSpirit”), represented approximately 16.7% of our total consolidated annualized base rent. Although CommonSpirit is not a party to nor a guarantor of the related lease agreements, it controls each of the subsidiaries and affiliates that are parties to a master lease agreement we have with the CommonSpirit tenants. Given this control, if CommonSpirit’s business, financial position or results of operations suffer or are adversely affected, it could adversely affect its ability to provide any financial or operational support for the subsidiaries and affiliates it controls, which could adversely affect one or more of the CommonSpirit-affiliated tenants’ ability to pay rent to us. In addition, if CommonSpirit were to cause its subsidiaries or affiliates to terminate any of their leases, vacate the leased premises, or consolidate, downsize, or relocate their operations from any of our premises, or if the subsidiaries and affiliates do not comply with the health care regulations to which the leased properties and operations are subject, we may be required to find other lessees for any affected leased properties and there could be a decrease or cessation of rental payments by CommonSpirit’s subsidiaries and affiliates. Additionally, if CommonSpirit’s business, financial position or results of operations were to suffer or its credit ratings were to be downgraded, it could cause investors to lose confidence in our ability to collect rent from the CommonSpirit-affiliated tenants and could cause our stock price to decline. Moreover, there can be no assurance that CommonSpirit’s subsidiaries and affiliates will have sufficient assets, income, and access to financing to enable them to satisfy their payment obligations under their lease agreements. The inability of any of these subsidiaries and affiliates to meet their rent obligations could materially adversely affect our business, financial position, or results of operations including our ability to pay dividends to our stockholders as required to maintain our status as a REIT. The inability of CommonSpirit’s
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subsidiaries and affiliates to satisfy their other obligations under their lease agreements such as the payment of taxes, insurance, and utilities could have a material adverse effect on the condition of the leased properties as well as on our business, financial position, and results of operations. For these reasons, if CommonSpirit were to experience a material adverse effect on its business, financial position, or results of operations, our business, financial position, or results of operations could also be materially adversely affected.

We may not be successful in identifying and completing off-market acquisitions and other suitable acquisitions or investment opportunities, which may impede our growth and adversely affect our business, financial condition, and results of operations.
 
An important component of our growth strategy is to acquire “off-market” properties before they are widely marketed by the owners. Facilities that are acquired off-market are typically more attractive to us as a purchaser because of the absence of a formal marketing process, which could lead to higher prices or other unattractive terms. If we cannot obtain off-market deal flow in the future, our ability to locate and acquire facilities at attractive prices could be adversely affected. We expect to compete with many other entities engaged in real estate investment activities for acquisitions of health care properties, including national, regional, and local operators, acquirers and developers of health care-related real estate properties, and other investors such as private equity firms, some of whom may have greater financial resources and lower costs of capital than we do. The competition for health care-related real estate properties may significantly increase the price that we must pay for health care properties or other assets that we seek to acquire, and our competitors may succeed in acquiring those properties or assets themselves. In addition, our potential acquisition targets may find our competitors to be more attractive because they may have greater resources, may be willing to pay more for the properties, or may have a more compatible operating philosophy. In particular, larger REITs that target health care properties may enjoy significant competitive advantages that result from, among other things, a lower cost of capital, enhanced operating efficiencies, more personnel and market penetration, and familiarity with markets. In addition, the number of entities and the amount of funds competing for suitable investment properties may increase. Increased competition would result in increased demand for these assets and therefore likely would increase prices paid for them. Those higher prices for health care properties or other assets may adversely affect our returns from our investments.

We have and may in the future make investments in development projects, which may not yield anticipated returns which could directly affect our operating results and reduce the amount of funds available for distributions.

A component of our growth strategy is exploring development opportunities, some of which may arise through strategic joint ventures. In deciding whether to make an investment in a particular development, we make certain assumptions regarding the expected future performance of that property. To the extent that we consummate development opportunities, our investment in these projects will be subject to the following risks:

•we may not be able to obtain financing for development projects on favorable terms or at all;
•we may not complete development projects on schedule or within budgeted amounts;
•we may encounter delays in obtaining or fail to obtain all necessary zoning, land use, building, occupancy, environmental and other governmental permits and authorizations, or underestimate the costs necessary to develop the property to market standards;
•development or construction delays may provide tenants the right to terminate preconstruction leases or cause us to incur additional costs;
•volatility in the price of construction materials or labor may increase our development costs;
•hospitals or health systems may maintain significant decision-making authority with respect to the development schedule;
•we may incorrectly forecast risks associated with development in new geographic regions;
•tenants may not lease space at the quantity or rental rate levels projected;
•demand for our development project may decrease prior to completion, including due to competition from other developments; and
•lease rates and rents at newly developed properties may fluctuate based on factors beyond our control, including market and economic conditions.

If our investments in development projects do not yield anticipated returns for any reason, including those set forth above, our business, financial condition and results of operations, our ability to make distributions to our shareholders and the trading price of our common shares may be adversely affected.

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Some of our existing properties and properties we acquire in the future are and may be subject to ground lease or other restrictions on the use of the space. If we are required to undertake significant capital expenditures to procure new tenants, then our business and results of operations may suffer.

Eighty-one of our consolidated properties, representing approximately 44.5% of our total leasable square feet and 42.8% of our annualized revenue based on rental payments for the month ended December 31, 2020, are subject to ground leases that contain certain restrictions. These restrictions include limits on our ability to re-lease our initial properties to tenants not affiliated with the health care delivery system that owns the underlying property, rights of purchase and rights of first offer and refusal with respect to sales of the property, and limits on the types of medical procedures that may be performed. As a lessee under a ground lease, we are also exposed to the possibility of losing the property upon expiration of the ground lease term or earlier breach by us of the ground lease. In addition, lower than expected rental rates, including annual rent escalators, upon re-leasing could impede our growth. We may not be able to re-lease space on terms that are favorable to us or at all. Further, we may be required to undertake significant capital expenditures to renovate or reconfigure space to attract new tenants. If we are unable to promptly re-lease our initial properties, if the rates upon such re-leasing are significantly lower than expected, or if we are required to undertake significant capital expenditures in connection with re-leasing, our business, financial condition, and results of operations, our ability to make distributions to our shareholders, and the market price of our common shares may be adversely affected.

Uninsured losses or losses in excess of our insurance coverage could adversely affect our financial condition and our cash flows.

We maintain and we require our tenants and property managers to maintain when appropriate, desirable, or necessary, comprehensive liability, fire, flood, earthquake, wind (as deemed necessary or as required by our lenders), extended coverage, and rental loss insurance with respect to our properties. Certain types of losses, however, may be either uninsurable or not economically insurable, such as losses due to pandemics and other communicable diseases, riots, acts of war, or terrorism. Should an uninsured loss occur, we could lose both our investment in and anticipated profits and cash flows from a health care-related facility. If any such loss is insured, we may be required to pay a significant deductible on any claim for recovery of such a loss prior to our insurer being obligated to reimburse us for the loss, or the amount of the loss may exceed our coverage for the loss. In addition, future lenders may require such insurance, and our failure to obtain such insurance could constitute a default under loan agreements. We may determine not to insure some or all of our properties at levels considered customary in our industry, which would expose us to an increased risk of loss. As a result, our business, financial condition, and results of operations, our ability to make distributions to our shareholders, and the market price of our common shares may be adversely affected.

Environmental compliance costs and liabilities associated with owning, leasing, developing, and operating our properties may affect our results of operations.

Under various U.S. federal, state, and local laws, ordinances, and regulations, current and prior owners and tenants of real estate may be jointly and severally liable for the costs of investigating, remediating, and monitoring certain hazardous substances or other regulated materials on or in such property. In addition to these costs, the past or present owner or tenant of a property from which a release emanates could be liable for any personal injury or property damage that results from such releases, including for the unauthorized release of asbestos-containing materials and other hazardous substances into the air, as well as any damages to natural resources or the environment that arise from such releases. These environmental laws often impose such liability without regard to whether the current or prior owner or tenant knew of, or was responsible for, the presence or release of such substances or materials. Moreover, the release of hazardous substances or materials, or the failure to properly remediate such substances or materials, may adversely affect the owner’s or tenant’s ability to lease, sell, develop, or rent such property or to borrow by using such property as collateral. Persons who transport or arrange for the disposal or treatment of hazardous substances or other regulated materials may be liable for the costs of removal or remediation of such substances at a disposal or treatment facility, regardless of whether or not such facility is owned or operated by such person.
 
Certain environmental laws impose compliance obligations on owners and tenants of real property with respect to the management of hazardous substances and other regulated materials. For example, environmental laws govern the management and removal of asbestos-containing materials and lead-based paint. Failure to comply with these laws can result in penalties or other sanctions. If we incur substantial costs to comply with these environmental laws or we are held liable under these laws, our business, financial condition, and results of operations, our ability to make distributions to our shareholders, and the market price of our common shares may be adversely affected.
 
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We may be unable to make distributions which could result in a decrease in the market price of our common shares.

Substantially all of our assets are held through the Operating Partnership, which holds substantially all of its properties and assets through subsidiaries. Our Operating Partnership’s cash flow is dependent upon cash distributions to it by its subsidiaries, and in turn, substantially all of the Trust’s cash flow is dependent upon cash distributions to it by the Operating Partnership. The creditors of each of our direct and indirect subsidiaries are entitled to payment of that subsidiary’s obligation to them, as and when due and payable, before distributions may be made by that subsidiary to its equity holders. Therefore, our Operating Partnership’s ability to make distributions to holders of OP Units, including the Trust, depends on its subsidiaries’ ability first to satisfy their obligations to their creditors and then to make distributions to the Operating Partnership. Finally, the Trust’s ability to pay dividends to holders of common shares depends upon our Operating Partnership’s ability to first satisfy its obligations to its creditors and then to make distributions to the Trust.
    
While we expect to make regular quarterly distributions to the holders of our common shares, if sufficient cash is not available for distribution from our operations, we may have to fund distributions from working capital, borrow to provide funds for such distributions, or reduce the amount of such distributions. To the extent we borrow to fund distributions, our future interest costs would increase, thereby reducing our earnings and cash available for distributions from what they otherwise would have been. If cash available for distribution generated by our assets is less than expected, or if such cash available for distribution decreases in future periods from expected levels, our inability to make distributions could result in a decrease in the market price of our common shares. All distributions are made at the discretion of our Board of Trustees. Any inability to make distributions, or to make distributions at expected levels in the future, could result in a decrease in the market price of our common shares.

Cybersecurity incidents could disrupt our business and result in the compromise of confidential information.
 
Our business is at risk from and may be impacted by cybersecurity attacks, or other significant disruptions to the Company’s information technology systems involving us, our tenants, or any third party property managers, including attempts to gain unauthorized access to our confidential data, and other electronic security breaches, including those resulting from human error or technology failures. These cybersecurity risks may be heightened as a result of our tenants increased use of telehealth services. Such cyber attacks can range from individual attempts to gain unauthorized access to our information technology systems to more sophisticated security threats. In the past, we have experienced cybersecurity breaches, which to date have not had a material impact on our operations, but there can be no assurance that any future breach or disruption will not have a material adverse effect on our business, financial condition or operations. While we employ a number of measures to prevent, detect and mitigate these threats, there is no guarantee such efforts will be successful in preventing a cyber attack. Even well-protected information technology systems remain vulnerable, as techniques used in such attempted attacks continually evolve and in some cases are designed not to be detected and may not be detected.

In addition, we rely on third party property managers to manage certain of our properties and real estate assets. We face risks associated with cybersecurity attacks or breaches affecting such third party property managers. A cybersecurity attack or a security breach at any such third party could be perceived as a cybersecurity attack or a breach of our system. Cybersecurity incidents or other disruptions could disrupt our business, compromise confidential information of ours and third parties, including our tenants, damage to our reputation, subject us to liability claims or regulatory penalties and could have an adverse effect on our business, financial condition and results of operations.

A failure to meet market expectations with respect to our business could negatively affect the market price of our common shares and thereby limit our ability to raise capital.
 
The availability of equity capital to us will depend, in part, upon the market price of our common shares which, in turn, will depend upon various market conditions and other factors that may change from time to time. Our failure to meet the market’s expectation with regard to future earnings and cash distributions may adversely affect the market price of our common shares and, as a result, the cost and availability of equity capital to us.
 
In addition, the vesting of any restricted shares granted to trustees, executive officers, and other employees under our 2013 Equity Incentive Plan, the issuance of our common shares or OP Units in connection with future property, portfolio or business acquisitions, and other issuances of our common shares, including pursuant to our ATM program, may cause dilution to our shareholders and could have an adverse effect on the per share market price of our common shares and may adversely affect the terms upon which we may be able to obtain additional capital through the sale of equity securities.

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Increases in interest rates may increase our interest expense and adversely affect our cash flows, our ability to service our indebtedness and our ability to make distributions to our shareholders, and could cause our stock price to decline. Failure to hedge effectively against interest rate changes may adversely affect our results of operations.

One of the factors that influences the market price of our common shares is the dividend yield on common shares (as a percentage of the price of our common shares) relative to market interest rates. In response to the global financial crisis, the U.S. Federal Reserve took actions which resulted in low interest rates prevailing in the marketplace for a historically long period of time. From 2015 to 2018, the U.S. Federal Reserve raised its benchmark interest rate. While the U.S. Federal Reserve decreased its benchmark interest rate in 2019 and again in 2020 in response to the impacts of the COVID-19 pandemic, it may raise its benchmark interest rate in the future. Further increases in market interest rates may lead prospective purchasers of our common shares to expect a higher dividend yield (with a resulting decline in the market price of our common shares) and higher interest rates would likely increase our borrowing costs for both our existing and future indebtedness and potentially decrease funds available for distribution. Thus, higher market interest rates could cause the market price of our common shares to decrease.
 
Additionally, as of December 31, 2020, we had approximately $172.1 million of variable-rate indebtedness outstanding that has not been swapped for a fixed interest rate. Certain indebtedness in the future, including borrowings under our unsecured revolving credit facility since December 31, 2020 and thereafter, will be subject to variable interest rates. Increases in interest rates on any variable rate indebtedness will increase our interest expense, which could adversely affect our cash flow and our ability to pay distributions to our shareholders.
 
In certain cases, we may seek to manage our exposure to interest rate volatility by using interest rate hedging arrangements. Hedging involves risks, such as the risk that the counterparty may fail to honor its obligations under an arrangement, that the arrangements may not be effective in reducing our exposure to interest rate changes, and that a court could rule that such an agreement is not legally enforceable. In addition, we may be limited in the type and amount of hedging transactions that we may use in the future by our need to satisfy the REIT income tests under the Code. Failure to hedge effectively against interest rate changes may have an adverse effect on our business, financial condition, results of operations, our ability to make distributions to our shareholders, and the market price of our common shares.

The income from certain of our properties is dependent on the ability of third party property managers to successfully manage those properties.

We depend upon the performance of third party property managers to effectively manage certain of our properties and real estate assets. Approximately 40.3% of our total portfolio gross leasable area is managed by third party property managers. We do not control third party property managers, and are accordingly subject to various risks generally associated with outsourcing of management of day-to-day activities. The income we recognize from any properties managed by third party property managers is dependent on the ability of the property manager of such property to successfully manage the property, which such property management is not within our control. Property managers generally compete with other companies in the management of properties, with respect to the quality of care provided, reputation, physical appearance of the property, and price and location, among other attributes. A property manager’s inability to successfully compete with other companies on one or more of the foregoing aspects could adversely impact our business and results of operations. Additionally, because we do not control third party property managers, any adverse events such as issues related to insufficient internal controls, cybersecurity incidents, or other adverse events may impact the income we recognize from properties managed by such third party property managers. We may be unable to anticipate such events or properly assess the magnitude of any such events because we do not control third party property managers who provide property management services to us.

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Risks Related to the Health Care Industry
 
The health care industry is heavily regulated, and new laws or regulations, changes to existing laws and regulations, health policies, reimbursement levels from third-party payors, loss of licensure, or failure to obtain licensure could adversely impact our company and result in the inability of our tenants to make rent payments to us.
 
The health care industry is heavily regulated by U.S. federal, state and local governmental authorities. Our tenants generally are subject to laws and regulations covering, among other things, licensure, certification for participation in government programs, billing for services, privacy and security of health information, and relationships with physicians and other referral sources. In addition, new laws and regulations, changes in existing laws and regulations or changes in the interpretation of such laws or regulations could negatively affect our financial condition and the financial condition of our tenants. These changes, in some cases, could apply retroactively. The enactment, timing, or effect of legislative or regulatory changes cannot be predicted.

The Affordable Care Act, along with other U.S. health care reform efforts, has resulted in significant health care reform since it was signed into law in 2010, including by changing how health care services are covered, delivered, and reimbursed through expanded coverage of uninsured individuals and reduced Medicare program spending. The complexities and ramifications of the Affordable Care Act are significant and were implemented in a phased approach which began in 2010. It remains difficult to predict the full effects of the Affordable Care Act and its impact on our business, our revenues, and financial condition and those of our tenants due to the law’s complexity, lack of implementing regulations or interpretive guidance, gradual implementation, partial repeal, and possible full repeal. Further, we are unable to foresee how individuals and businesses will respond to the choices afforded them by the Affordable Care Act, or the effect of any potential changes made to the Affordable Care Act or other health care laws and programs. The Affordable Care Act could adversely affect the reimbursement rates received by our tenants, the financial success of our tenants and strategic partners and consequently us.

On January 20, 2017, President Trump issued an Executive Order stating that it is the administration’s official policy to repeal the Affordable Care Act and instructing the Secretary of Health and Human Services and the heads of all other executive departments and agencies with authority and responsibility under the Affordable Care Act to, among other matters, minimize the economic and regulatory impacts of the Affordable Care Act to the extent permitted by law. On December 22, 2017, the Tax Act was signed into law. The Tax Act, amongst other things, repeals the Affordable Care Act’s individual mandate penalty beginning in 2019. The elimination of the penalties does not remove the requirement to obtain health care coverage; however, without penalties there effectively will be no enforcement. On December 14, 2018, a federal district court in Texas ruled that the Affordable Care Act’s individual mandate was unconstitutional. The court also ruled that the provisions of the individual mandate were not severable from the remainder of the Affordable Care Act, rendering the remainder of the Affordable Care Act invalid as well. The Affordable Care Act remains law while the appeals process continues, and it is uncertain whether this or any future attempts to amend or repeal the law will be successful. We cannot predict the impact or effect that the Executive Order, the Tax Act’s 2019 repeal of the individual mandate penalty on the Affordable Care Act, or any future judicial decision or legislative amendment to the Affordable Care Act may have on us or our tenants. Further, we cannot predict how the Affordable Care Act may be amended or modified, either through the legislative or judicial process, and how any such modification might impact our tenants’ operations or the net effect of this law on us. Both our tenants and we may be materially adversely affected by the law or its repeal, amendment, or replacement, and if the operations, cash flows, or financial condition of our operators and tenants are materially adversely impacted by any repeal or modification of the law, our revenue and operations may be materially adversely affected as well.

Changes to health care laws and regulations, including to government reimbursement programs such as Medicare and reimbursement rates applicable to our current and future tenants, could have a material adverse effect on the financial condition of our tenants and, consequently, their ability to meet obligations to us.
Statutory, regulatory, and reimbursement policy changes and judicial decisions may impact one or more specific providers that lease space in any of our facilities. The laws and regulations applicable to the health care industry are subject to frequent and substantial changes that may have a dramatic effect on the permissible or impermissible activities, costs of doing business, availability, and amount of reimbursement by both government and other third-party payors, and the costs of complying with such laws and regulations. Such changes could adversely affect the ability of our tenants to make rent payments to us, which may have an adverse effect on our business, operations, and financial condition. This may in turn have an adverse effect on our ability to make distributions to our shareholders and the market price of our common shares.
For example, our tenants are generally subject to laws and regulations covering, among other things, laws protecting consumers against deceptive practices, laws relating to the operation of properties and businesses, such as fire, health and safety, data security and privacy laws, laws affecting hospitals, clinics, and other health care providers that participate in
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Medicare and/or Medicaid that specify reimbursement rates, pricing, reimbursement procedures, payment policies, HOPD eligibility, quality of services and care, background checks, anti-kickback and physician referral laws, the Americans with Disabilities Act of 1990 (“ADA”) and similar state and local laws, regulations established by the Occupational Safety and Health Administration (“OSHA”), requirements and regulations established by CMS, and other legislation such as the CARES Act and the CAA.

These laws, policies and regulations and any amendments or newly established laws or regulations may have an adverse financial impact on the net operating revenues and profitability of many of our tenants, including MOBs, long term care hospitals (“LTCH”) and other physicians offices. This could adversely affect their ability to pay rent.

Many states also regulate the establishment and construction of health care facilities and services, and the expansion of existing health care facilities and services through certificate of need, or CON, laws, which may include regulation of certain types of beds, medical equipment, and capital expenditures. Under such laws, the applicable state regulatory body must determine a need exists for a project before the project can be undertaken. If any of our tenants seeks to undertake a CON-regulated project, but are not authorized by the applicable regulatory body to proceed with the project, these tenants could be prevented from operating in their intended manner and could be materially adversely affected.

The application of lower reimbursement rates to our tenants or failure to qualify for existing rates under certain exceptions, the failure to comply with these laws and regulations, or the failure to secure CON approval to undertake a desired project could adversely affect our tenants’ ability to make rent payments to us which may have an adverse effect on our business, financial condition, and results of operations, our ability to make distributions to our shareholders, and the market price of our common shares.

Adverse trends in health care provider operations may negatively affect our lease revenues and our ability to make distributions to our shareholders.

The health care industry is currently experiencing, among other things:
•changes in the demand for and methods of delivering health care services, such as telehealth services; 
•changes in third party reimbursement methods and policies;
•consolidation and pressure to integrate within the health care industry through acquisitions, joint ventures, and managed service organizations;
•increased scrutiny of billing, pricing, referral, and other practices by U.S. federal and state authorities;
•competition among health care providers; and
•increased scrutiny of control over release of confidential patient medical information.

These factors may adversely affect the economic performance of some or all of our tenants and, in turn, our lease revenues, which may have a material adverse effect on our business, financial condition, and results of operations, our ability to make distributions to our shareholders, and the market price of our common shares.

Reductions in reimbursement from third party payors, including Medicare and Medicaid, could adversely affect the profitability of our tenants and hinder their ability to make rent payments to us or renew their leases.
 
Sources of revenue for our tenants typically include private insurance payors, the U.S. federal Medicare program, state Medicaid programs, MCOs, HMOs, and ACOs. Health care providers continue to face government and private payor pressure to control or reduce health care costs and significant reductions in health care reimbursement, including changes to payment methodologies under the Affordable Care Act and other federal or state health care legislation. In some cases, private insurers rely upon all or portions of the Medicare payment systems to determine payment rates which may result in decreased reimbursement from private insurers.
 
The slowdown in the United States economy has negatively affected state budgets, thereby putting pressure on states to decrease spending on state programs including Medicaid. The need to control Medicaid expenditures may be exacerbated by the potential for increased enrollment in state Medicaid programs due to unemployment and declines in family incomes. Historically, states have often attempted to reduce Medicaid spending by limiting benefits and tightening Medicaid eligibility requirements. Many states have adopted, or are considering the adoption of, legislation designed to enroll Medicaid recipients in managed care programs and/or impose additional taxes on hospitals to help finance or expand the states’ Medicaid systems.
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On September 15, 2020, CMS advised states on implementing value-based care (“VBC”) programs, with a particular emphasis on Medicaid. VBC programs hold providers financially accountable for providing quality care, reducing health disparities, eliminating unnecessary procedures, and lowering costs. Potential reductions to Medicaid program spending in response to state budgetary pressures could negatively impact the ability of our tenants to successfully operate their businesses.
 
Efforts by payors to reduce health care costs will likely continue which may result in reductions or slower growth in reimbursement for certain services provided by some of our tenants. A reduction in reimbursements to our tenants from third party payors for any reason could adversely affect our tenants’ ability to make rent payments to us which may have a material adverse effect on our businesses, financial condition and results of operations, our ability to make distributions to our shareholders, and the market price of our common shares. 

Our tenants and our company are subject to fraud and abuse laws, the violation of which by a tenant may jeopardize the tenant’s ability to make rent payments to us.
 
There are various federal and state laws prohibiting fraudulent and abusive business practices by health care providers who participate in, receive payments from, or are in a position to make referrals in connection with government-sponsored health care programs, including the Medicare and Medicaid programs. Our lease arrangements with certain tenants may also be subject to these fraud and abuse laws.

Violations of these laws may result in criminal and/or civil penalties that range from punitive sanctions, damage assessments, penalties, imprisonment, denial of Medicare and Medicaid payments, and/or exclusion from the Medicare and Medicaid programs. In addition, the Affordable Care Act clarifies that the submission of claims for items or services generated in violation of the Anti-Kickback Statute constitutes a false or fraudulent claim under the False Claims Act. The federal government issued safe harbor regulations defining the scope of leasing and physicians referrals that can be subject to enforcement. Further, the government has taken the position, and some courts have held, that violations of these and other laws, such as the Stark Law, can also be a violation of the False Claims Act. On November 20, 2020, the office of Inspector General of the Department of Health and Human Services issued final rules further clarifying the scope of the safe harbor regulations associated with the Stark Law and the Anti-Kickback Statute. These final rules limit civil monetary and criminal penalties to protect non-abusive business arrangements and lower barriers to value-based care. Additionally, certain laws, such as the False Claims Act, allow for individuals to bring whistleblower actions on behalf of the government for violations thereof. Imposition of any of these penalties upon one of our tenants or strategic partners could jeopardize that tenant’s ability to operate or to make rent payments or affect the level of occupancy in our health care properties, which may have a material adverse effect on our business, financial condition, and results of operations, our ability to make distributions to our shareholders, and the market price of our common shares. Further, we enter into leases and other financial relationships with health care delivery systems that are subject to or impacted by these laws. We also have other investors who are health care providers in certain of our subsidiaries that own our health care properties. If any of our relationships, including those related to the other investors in our subsidiaries, are found not to comply with these laws, we and our health care provider investors may be subject to civil and/or criminal penalties.
 
Our health care-related tenants may be subject to significant legal actions that could subject them to increased operating costs and substantial uninsured liabilities, which may affect their ability to pay their rent payments to us, and we could be subject to health care industry violations.
 
As is typical in the health care industry, our tenants may become subject to claims that their services have resulted in patient injury or other adverse effects. Many of these tenants may have experienced an increasing trend in the frequency and severity of professional liability and general liability insurance claims and litigation asserted against them. The insurance coverage maintained by these tenants may not cover all claims made against them nor continue to be available at a reasonable cost, if at all. In some states, insurance coverage for the risk of punitive damages arising from professional liability and general liability claims and/or litigation may not, in certain cases, be available to these tenants due to state law prohibitions or limitations of availability. As a result, these types of tenants of our health care properties and health care-related facilities operating in these states may be liable for punitive damage awards that are either not covered or are in excess of their insurance policy limits.
 
We also believe that there has been, and will continue to be, an increase in governmental investigations of certain health care providers, particularly in the area of Medicare/Medicaid false claims, as well as an increase in enforcement actions resulting from these investigations. Insurance is not available to cover such losses. Any adverse determination in a legal proceeding or governmental investigation, any settlements of such proceedings, or investigations in excess of insurance coverage, whether currently asserted or arising in the future, could have a material adverse effect on a tenant’s financial condition. If a tenant is unable to obtain or maintain insurance coverage, if judgments are obtained or settlements reached in
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excess of the insurance coverage, if a tenant is required to pay uninsured punitive damages, or if a tenant is subject to an uninsurable government enforcement action or investigation, the tenant could be exposed to substantial additional liabilities, which may affect the tenant’s ability to pay rent, which in turn could have a material adverse effect on our business, financial condition, and results of operations, our ability to pay distributions to our shareholders, and the market price of our common shares. We could also be subject to costly government investigations or other enforcement actions which could have a material adverse effect on our business, financial condition, and results of operations, our ability to pay distributions to our shareholders, and the market price of our common shares.

The Health Insurance Portability and Accountability Act, commonly referred to as HIPAA, was established to set national standards for the confidentiality, security, and transmission of personal health information (PHI). Health care providers are required, under HIPAA and its implementing regulations, to protect and keep confidential any PHI. HIPAA also sets limits and conditions on use and disclosure of PHI without patient authorization. The law gives patients specific rights to their health information, including rights to obtain a copy of or request corrections to their medical records. The physician or the medical practice can be liable if there are improper disclosures of PHI, including from employee mishandling of PHI, medical records security breaches, lost or stolen electronic devices, hacking, social media breaches or failure to get patient authorizations. Violations could result in multi-million dollar penalties. Actual or potential violations of HIPAA could subject our tenants to government investigations, litigation or other enforcement actions which could adversely affect our tenants’ ability to pay rent and could have a material adverse effect on our business, financial condition, and results of operations, our ability to pay distributions to our shareholders, and the market price of our common shares.

Trends in the methods of delivering health care services could reduce demand for medical office space.
 
The health care industry is experiencing, among other things, changes in the demand for and methods of delivering health care services such as telehealth, and telehealth services have also expanded rapidly in response to the COVID-19 pandemic and the need for social distancing. During the COVID-19 pandemic, both government and other third-party payors have incentivized physicians, providers, and patients to utilize technology for medical encounters by paying and reimbursing for such encounters as if they were in-office encounters, and CMS has made several changes in the manner in which Medicare will pay for telehealth visits. It is unclear whether these incentives and other changes will remain in place permanently or will be rolled-back following the COVID-19 pandemic, although the Company expects that the availability and popularity of patients using telehealth services will continue to increase over time. While the revenues and efficiencies of telehealth services may increase the service offerings of our tenants, a long-term increase in telehealth services could reduce demand for medical office space, which could increase non-renewal of leases by our tenants and adversely impact our ability to maintain current rental and occupancy rates and could adversely affect our revenues, financial condition, and results of operations.
 
Risks Related to the Real Estate Industry
 
Our operating performance is subject to risks associated with the real estate industry.
 
Real estate investments are subject to various risks and fluctuations and cycles in value and demand, many of which are beyond our control. Certain events may decrease cash available for distributions as well as the value of our properties. These events include, but are not limited to:

•vacancies or our inability to rent space on favorable terms, including possible market pressures to offer tenants rent abatements, tenant improvements, early termination rights, or tenant-favorable renewal options;
•inability to collect rent from tenants;
•competition from other real estate investors with significant capital, including other real estate operating companies, REITs, and institutional private equity or other investment funds;
•reductions in the level of demand for health care properties and changes in the demand for certain health care-related properties;
•increases in the supply of medical office space;
•increases in expenses associated with our real estate operations, including, but not limited to, insurance costs, third party management fees, energy prices, real estate assessments, and other taxes and costs of compliance with laws, regulations and governmental policies, and restrictions on our ability to pass such expenses on to our tenants; and
•changes in, and changes in interpretation or enforcement of, laws, regulations, and governmental policies associated with real estate, including, without limitation, health, safety, environmental, real estate and zoning and tax laws, increases in real property tax rates and taxation of REITs, governmental fiscal policies, and the ADA. 
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In addition, periods of economic slowdown or recession, such as the recent U.S. economic downturn, rising interest rates or declining demand for real estate, or the public perception that any of these events may occur, could result in a general decline in rents or an increased incidence of defaults under existing leases. If we cannot operate our properties to meet our financial expectations, our business, financial condition, results of operations, cash flow, per share market price of our common shares, and ability to satisfy our debt service obligations and to make distributions to our shareholders could be adversely affected.

Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of any of our properties.
 
Because real estate investments are relatively illiquid, our ability to promptly sell one or more of our properties in response to changing economic, financial, and investment conditions is limited. The real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates, and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any of our properties for the price or on the terms set by us or whether any price or other terms offered by a prospective purchaser would be acceptable to us or at all. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of any of our properties. We may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure that we will have funds available to correct those defects or to make those improvements.
 
In acquiring a property, we may agree to transfer restrictions that materially restrict us from selling that property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed on that property. These transfer restrictions would impede our ability to sell a property even if we deem it necessary or appropriate. These facts and any others that would impede our ability to respond to adverse changes in the performance of our properties may have an adverse effect on our business, financial condition, results of operations, or ability to make distributions to our shareholders and the market price of our common shares.
 
Uncertain market conditions could cause us to sell our health care properties at a loss in the future.
 
We intend to hold our various real estate investments until such time as we determine that a sale or other disposition appears to be advantageous to achieve our investment objectives. Our senior management team and the Trust’s Board of Trustees may exercise their discretion as to whether and when to sell a property, and we will have no obligation to sell our buildings at any particular time. We generally intend to hold our health care properties for an extended period of time, and we cannot predict with any certainty the various market conditions affecting real estate investments that will exist at any particular time in the future. Because of the uncertainty of market conditions that may affect the future disposition of our health care properties, we may not be able to sell our properties at a profit in the future or at all. In addition, if we are unable to access the capital markets for financing in the future, we may need to sell some of our properties to raise capital. We may incur prepayment penalties in the event that we sell a property subject to a mortgage earlier than we otherwise had planned. Additionally, we could be forced to sell health care properties at inopportune times which could result in us selling the affected property at a substantial loss. Accordingly, the extent to which we will pay cash distributions and realize potential appreciation on our real estate investments will, among other things, be dependent upon fluctuating market conditions. Any inability to sell a health care property could adversely impact our ability to make debt payments and distributions to our shareholders.

We face risks associated with the potential impacts of climate change.

The impacts of climate change on our operations are highly uncertain and could have material adverse effects on our properties, operations, and business. To the extent that severe weather events or significant changes in climate occur in the geographic locations where our properties are located, we may experience revenue loss, cost increase, construction delays, tenant disruption or displacement, and decreased demand for properties located in such geographic areas or affected by such changes. In addition, changes in federal and state laws and regulations intended to reduce the impacts of climate change could result in, among other things, increased capital expenditures to improve energy efficiency at our properties, increased costs of property insurance or render such insurance unavailable on terms acceptable to us, and increased costs of developing properties without corresponding increases in revenue.
 
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Our assets may be subject to impairment charges.
 
We periodically evaluate our real estate investments and other assets for impairment indicators. The judgment regarding the existence of impairment indicators is based upon factors such as market conditions, tenant performance, and legal structure. For example, the termination of a lease by a major tenant may lead to an impairment charge. If we determine that an impairment has occurred, we would be required to make an adjustment to the net carrying value of the asset, which could have an adverse effect on our results of operations in the period in which the impairment charge is recorded. We have had tenant defaults that have caused us to record impairment charges in the past, and it is possible we may have tenant defaults in the future, which could lead to impairment charges.

Our investments in, or originations of, mezzanine and term loans will be subject to specific risks relating to the particular property or entity obligated to repay the loan, and our loan assets will involve greater risks of loss than senior loans secured by income-producing properties.
 
As of December 31, 2020, we have 22 mezzanine loans, three term loans, and one construction loan outstanding, and in the future, we may originate further loans. These investments involve special risks relating to the particular borrower, including its financial condition, liquidity, results of operations, business, and prospects. We may also originate other real estate-related investments which take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property or other properties. These types of assets involve a higher degree of risk than long-term senior mortgage lending secured by income producing real property because the loan may become unsecured as a result of foreclosure by the senior lender and because it is in a subordinated position and there may not be adequate equity in the property. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy such loan. If a borrower defaults on a loan or debt senior to our loan, or in the event of a borrower bankruptcy, such loan will be satisfied only after the senior debt. We may be unable to enforce guaranties of payment and/or performance given as security for some loans. As a result, we may not recover some or all of our initial expenditure. Mezzanine and term loans may partially finance the construction of real estate projects and so involve additional risks inherent in the construction process, such as adherence to budgets and construction schedules. In addition, mezzanine and term loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal. Significant losses related to our mezzanine and term loans would result in operating losses for us and may limit our ability to make distributions to our shareholders.
 
Risks Related to Financings
 
Required payments of principal and interest on borrowings may leave us with insufficient cash to operate our properties or to pay the distributions currently contemplated or necessary to qualify as a REIT and may expose us to the risk of default under our debt obligations.

We historically borrow on our unsecured revolving credit facility to acquire properties. Then, as market conditions dictate, we have issued equity or long-term fixed rate debt to repay borrowings under our unsecured revolving credit facility. We are subject to risks associated with debt financing, including the risk that existing indebtedness may not be refinanced or that the terms of refinancing may not be as favorable as the terms of current indebtedness. The majority of our borrowings were completed under indentures or contractual agreements that limit the amount of indebtedness we may incur. Accordingly, in the event that we are unable to raise additional equity or borrow money because of these limitations, our ability to acquire additional properties may be limited. 

As of December 31, 2020, we had approximately $58.0 million of mortgage debt on individual properties and approximately $416.0 million of borrowings outstanding under our unsecured credit facility. In addition, in January 2016, August 2016, March 2017, and December 2017 we issued and sold $150.0 million, $75.0 million, $400.0 million, and $350.0 million, respectively, aggregate principal amount of senior notes. We expect to incur additional debt in the future. We do not anticipate that our internally generated cash flow will be adequate to repay our existing indebtedness upon maturity, and, therefore, we expect to repay our indebtedness through refinancings and future offerings of equity and debt securities, either of which we may be unable to secure on favorable terms or at all. Our level of debt and the limitations imposed upon us by our debt agreements could have adverse consequences, including the following:
 
•our cash flow may be insufficient to meet our required principal and interest payments;
•we may be unable to borrow additional funds as needed or on favorable terms, including to make acquisitions;
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•we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;
•because a portion of our debt bears, or is expected to bear, interest at variable rates, an increase in interest rates could materially increase our interest expense;
•we may fail to effectively hedge against interest rate volatility;
•we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms if we are able to do so at all;
•our leverage could place us at a competitive disadvantage compared to our competitors who have less debt;
•we may experience increased vulnerability to economic and industry downturns, reducing our ability to respond to changing business and economic conditions;
•we may default on our obligations and the lenders or mortgagees may foreclose on our properties that secure their loans and receive an assignment of rents and leases;
•we may violate financial covenants contained in our various loan documents which would cause a default on our obligations, giving lenders various remedies, including increased interest rates, foreclosure, and liability for additional expenses;
•we may inadvertently violate non-financial restrictive covenants in our loan documents, such as covenants that require us to maintain the existence of entities, maintain insurance policies and provide financial statements, which would entitle the lenders to accelerate our debt obligations; and
•our default under any of our mortgage loans with cross-default or cross-collateralization provisions could result in default on other indebtedness and result in the foreclosures of other properties.

The realization of any or all of these risks may have an adverse effect on our business, financial condition, and results of operations, our ability to make distributions to our shareholders, and the market price of our common shares.

In addition, in July 2017, the U.K. Financial Conduct Authority announced that it would phase out LIBOR as a benchmark by the end of 2021. It is unclear whether new methods of calculating LIBOR will be established after 2021. We are unable to predict the effect of any changes, any alternative reference rates, or any other reforms to LIBOR or any replacement of LIBOR that may be enacted in the United Kingdom or elsewhere. Such changes, reforms, or replacements relating to LIBOR could have a material adverse impact on the market for, or value of, any of our LIBOR-linked loans, derivatives, and other indebtedness or on our financial condition or results of operations.
 
As of December 31, 2020, we had approximately $416.0 million of borrowings outstanding under our unsecured credit facility (including the term loan feature of our unsecured credit facility). During 2016 and 2017, we issued an aggregate of $975.0 million of debt. All of these items are senior to our common shares upon liquidation, and we may in the future make offerings of debt or preferred equity securities which may be senior to our common shares for purposes of dividend distributions or upon liquidation, any of which may materially adversely affect the per share market price of our common shares.
 
As of December 31, 2020, there were approximately $416.0 million of borrowings outstanding under our unsecured credit facility (including the term loan feature of our unsecured credit facility). During 2016 and 2017, we issued $975.0 million of aggregate principal amount of senior notes. In the future, we may attempt to increase our capital resources by making additional offerings of debt or equity securities (or causing the Operating Partnership to issue debt securities), including medium-term notes, senior or subordinated notes, and classes or series of preferred shares. Upon liquidation, holders of our debt securities and lenders with respect to other borrowings will be entitled to receive our available assets prior to distribution to the holders of our common shares. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences, and privileges more favorable than those of our common shares and may result in dilution to owners of our common shares. Holders of our common shares are not entitled to preemptive rights or other protections against dilution. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of our future offerings. Thus, our shareholders bear the risk that our future offerings could reduce the per share market price of our common shares and dilute their interest in us.

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The derivative instruments that we may use to hedge against interest rate fluctuations may not be successful in mitigating our risks associated with interest rates and could reduce the overall returns on our shareholders’ investment.
We may use derivative instruments to hedge exposure to changes in interest rates on certain of our variable rate loans, but no hedging strategy can protect us completely. We cannot assure our shareholders that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging of these transactions will not result in losses. Any settlement charges incurred to terminate unused derivative instruments may result in increased interest expense, which may reduce the overall return on our investments. These instruments may also generate income that may not be treated as qualifying REIT income for purposes of the 75% or 95% REIT income tests.

We 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.
 
In order to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), we are required, among other things, to distribute each year to our shareholders at least 90% of our taxable income, without regard to the deduction for dividends paid and excluding net capital gain. Because of this distribution requirement, 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. Our access to capital will depend upon a number of factors over which we have little or no control, including general stock and bond market conditions and investor interest, the market’s perception of our current and potential future earnings, analyst reports about us and the REIT industry, cash distributions and the market price of our common shares, and other factors such as governmental regulatory action and changes in REIT tax laws. We may not be in a position to take advantage of attractive investment opportunities for growth if we are unable to access the capital markets on a timely basis on favorable terms. Moreover, additional equity offerings may result in substantial dilution of our shareholders’ interests, and additional debt financing may substantially increase our leverage, either of which could cause the per share price of our common shares to decline.
 
If we become highly leveraged in the future, the resulting increase in outstanding debt could adversely affect our ability to make debt service payments, to pay our anticipated distributions, to obtain additional financing, and to make the distributions required to qualify as a REIT.
 
As of December 31, 2020, our indebtedness represented approximately 28% of our gross assets. If we become more highly leveraged, the resulting increase in outstanding debt could adversely affect our ability to make debt service payments, to pay our anticipated distributions, to obtain additional financing, and to make the distributions required to qualify as a REIT. The occurrence of any of the foregoing risks could adversely affect our business, financial condition, and results of operations, or credit ratings, our ability to make distributions to our shareholders, and the market price of our common shares.
 
We are subject to covenants in our debt agreements that may restrict or limit our operations and acquisitions and our failure to comply with the covenants in our debt agreements could have a material adverse impact on our business, results of operations, and financial condition.

The terms of the instruments governing our existing indebtedness require us to comply with a number of customary financial and other covenants, such as maintaining certain leverage and coverage ratios and minimum tangible net worth requirements. Our continued ability to incur additional debt and to conduct business in general is subject to our compliance with these covenants, which limit our operational flexibility. Breaches of these covenants could result in defaults under the instruments governing the applicable indebtedness, in addition to any other indebtedness cross-defaulted against such instruments. Any such default could have a material adverse impact on our business, results of operations, and financial condition or our ability to make distributions to our shareholders.

A downgrade in our credit ratings could materially adversely affect our business and financial condition.

Our credit rating and the credit ratings assigned to our debt securities could change based upon, among other things, our financial condition. These ratings are subject to ongoing evaluation by credit rating agencies, and any rating could be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant such action.

If any of the credit rating agencies that have rated our securities downgrades or lowers its credit rating, or if any credit rating agency indicates that it has placed any such rating on a “watch list” for a possible downgrade or lowering, or otherwise
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indicates that its outlook for that rating is negative, such action could have a material adverse effect on our costs and availability of funding, which could in turn have a material adverse effect on our financial condition, results of operations, cash flows, the market price of our securities, and our ability to satisfy our debt service obligations, among other obligations.

If securities analysts downgrade our common shares or the health care-related real estate sector, the market price of our common shares could decline.
 
The market for our common shares depends in part upon the research and reports that industry or financial analysts publish about us and our industry. We have no control over these analysts. Furthermore, if one or more of the analysts who do cover us downgrades our shares or our industry, or the stock of any of our competitors, the price of our common shares could decline. If one or more of these analysts ceases coverage of our company, we could lose attention in the market which in turn could cause the market price of our common shares to decline.

Risks Related to Our Portfolio and Structure
  
We have no direct operations and rely upon funds received from the Operating Partnership to meet our obligations.
 
The Trust conducts substantially all of its operations through the Operating Partnership. As of February 22, 2021, the Trust owned approximately 97.4% of the OP Units and apart from this ownership interest, the Trust does not have any independent operations. As a result, the Trust relies upon distributions from the Operating Partnership to pay any distributions that the Trust might declare on the Trust’s common shares. We also rely upon distributions from the Operating Partnership to the Trust to meet our obligations, including tax liability on taxable income allocated to the Trust from the Operating Partnership (which might make distributions to the Trust not equal to the tax on such allocated taxable income). Shareholders’ claims will consequently be structurally subordinated to all existing and future liabilities and obligations (whether or not for borrowed money) of the Operating Partnership and its subsidiaries. Therefore, in the event of bankruptcy, liquidation or reorganization of the Trust, claims of the Trust’s shareholders will be satisfied only after all of the Trust’s and the Operating Partnership’s and its subsidiaries’ liabilities and obligations have been paid in full.
 
Our business could be harmed if key personnel terminate their employment with us or if we are unsuccessful in integrating new personnel into our operations.

Our success depends, to a significant extent, on the continued services of Mr. Thomas, our President and Chief Executive Officer and the rest of our executive leadership team. We do not maintain key person life insurance on any of our officers. Our ability to continue to acquire and develop health care properties depends upon the significant relationships that our senior management team has developed over many years.
 
Although the Trust has entered into employment agreements with our management team we cannot provide any assurance that any of them will remain employed by the Trust. Our ability to retain our leadership team, or to attract suitable replacements should any member of the senior management team leave, is dependent on the competitive nature of the employment market. The loss of services of, or the failure to successfully integrate one or more new members of, our senior management team could adversely affect our business and our prospects.

Certain provisions of Maryland law, the Trust’s declaration of trust and the partnership agreement of the Operating Partnership contain limits and restrictions on transferability of our outstanding shares of beneficial interest, which may have the effect of delaying, discouraging or preventing a transaction or change of control of our company.

In order for us to qualify as a REIT, no more than 50% of the value of the Trust’s outstanding shares of beneficial interest may be owned, beneficially or constructively, by five or fewer individuals at any time during the last half of each taxable year. Subject to certain exceptions, the Trust’s declaration of trust prohibits any shareholder from owning beneficially or constructively more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our shares of beneficial interest, though the Trust has granted, and may in the future grant, a waiver from the ownership limitations. The constructive ownership rules under the Code are complex and may cause the outstanding shares owned by a group of related individuals or entities to be deemed to be constructively owned by one individual entity. As a result, the acquisition of less than 9.8% of our outstanding shares of any class or series by an individual or entity could cause that individual or entity to own constructively in excess of 9.8% of the outstanding shares of any class or series of our shares of beneficial interest and to be subject to the Trust’s declaration of trust’s ownership limit. The Trust’s declaration of trust also prohibits, among other prohibitions, any person from owning our shares of beneficial interest that would result in our being “closely held” under Section 856(h) of the Code, or otherwise cause us to fail to qualify as a REIT. Further, the partnership agreement of the Operating Partnership contains certain provisions such as redemption rights, restrictions on transfer of OP
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Units, consent and other rights of the Trust as the general partner of the Operating Partnership, and rights of the limited partners of the Operating Partnership to consent to certain transfers of the general partnership interest. The share ownership restrictions of the Code for REITs and the 9.8% share ownership limit, and other restrictions contained in the Trust’s declaration of trust and the Operating Partnership’s partnership agreement may inhibit market activity in our shares of beneficial interest, restrict our business combination opportunities, or otherwise delay, deter or prevent a transaction or change of control that our shareholders otherwise believe to be in their best interests.

In addition, certain provisions of the Maryland General Corporation Law, (“MGCL”), applicable to Maryland real estate investment trusts may have the effect of inhibiting, delaying, deferring, or preventing a third party from making a proposal to acquire the Trust (and, indirectly, the Operating Partnership) or of impeding or delaying a change of control under circumstances that otherwise could provide the Trust’s common shareholder with the opportunity to realize a premium over the then-prevailing market price of shares, including:

•“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested shareholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate or associate of ours who was the beneficial owner directly or indirectly, of 10% or more of the voting power of our shares at any time within the two-year period immediately prior to the date in question) or an affiliate thereof for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter imposes certain minimum price and/or supermajority shareholder voting requirements on these combinations; and
•“control share” provisions that provide that holders of “control shares” of our Trust (defined as shares that, when aggregated with all other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing trustees) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares,” subject to certain exceptions) have no voting rights with respect to their control shares, except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.
The Trust’s Board of Trustees has by resolution exempted any business combination between us and any other person from the business combination provisions of the MGCL, provided that the business combination is first approved by the Board of Trustees (including a majority of trustees who are not affiliates or associates of such person). In addition, the Trust’s bylaws contain a provision exempting any and all acquisitions of our shares from the control share provisions of the MGCL. However, the Board of Trustees may at any time alter or repeal the resolution exempting certain businesses from the business combination provisions of the MGCL and we may at any time amend or eliminate the provision of our bylaws exempting acquisitions of our shares from the control share provisions of the MGCL.
Certain provisions of the MGCL permit the Board of Trustees, without shareholder approval and regardless of what is currently provided in the Trust’s declaration of trust or bylaws, to implement certain corporate governance provisions with respect to the Trust, some of which (for example, a classified board) are not currently applicable to us. If implemented, these provisions may have the effect of limiting or precluding a third party from making an unsolicited acquisition proposal for us or of delaying, deferring, or preventing a change in control of us under circumstances that otherwise could provide our common shareholders with the opportunity to realize a premium over the then current market price. Pursuant to our declaration of trust, we have elected to be subject to the provisions of Title 3, Subtitle 8 of the MGCL relating to the filling of vacancies on our Board of Trustees.
 
We could increase the number of authorized shares, classify and reclassify unissued shares, and issue shares without shareholder approval.
 
The Trust’s Board of Trustees, without shareholder approval, has the power under the Trust’s declaration of trust to amend our declaration of trust to increase or decrease the aggregate number of shares or the number of shares of any class or series of the Trust that we are authorized to issue, and to authorize us to issue authorized but unissued common shares or preferred shares. In addition, under the declaration of trust, the Board of Trustees has the power to classify or reclassify any unissued common or preferred shares into one or more classes or series of shares and set or change the preference, conversion or other rights, voting powers, restrictions, limitations as to dividends and other distributions, qualifications or terms or conditions of redemption for such newly classified or reclassified shares. As a result, we may issue series or classes of common shares or preferred shares with preferences, dividends, powers, and rights, voting or otherwise, that are senior to, or otherwise conflict with, the rights of holders of our common shares. Although the Board of Trustees has no such intention at the present time, it could establish a class or series of preferred shares that could, depending on the terms of such class or series, delay,
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defer, or prevent a transaction or a change of control that might involve a premium price for our common shares or that our shareholders otherwise believe to be in their best interests.

Risks Related to Our Qualification and Operation as a REIT
 
If we fail to qualify as a REIT in any taxable year, we will face serious tax consequences that would substantially reduce funds available for distributions to our shareholders.
 
Since our formation, the Trust has been organized and has operated in such a manner as to qualify for taxation as a REIT under the U.S. federal income tax laws, and we intend to continue to operate in such a manner, but no assurances can be given that we will operate in a manner so as to qualify or remain qualified as a REIT.
 
Failure to qualify as a REIT, or failure to remain qualified as a REIT, would cause us to be taxed as a regular corporation, which would substantially reduce funds available for distribution to our shareholders. If we fail to qualify as a REIT in any taxable year, we would face serious tax consequences that will substantially reduce the funds available for distribution to our shareholders because:

•we would not be allowed a deduction for dividends paid to shareholders in computing our taxable income and would be subject to U.S. federal income tax at regular corporate rates;
•we could possibly be subject to increased state and local taxes; and
•unless we are entitled to relief under certain U.S. federal income tax laws, we could not re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT.
 
In addition, if we fail to qualify as a REIT, we will no longer be required to make distributions. As a result of all these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and it would adversely affect the value of our shares of beneficial interest.
 
Failure to make required distributions would subject us to U.S. federal corporate income tax.
 
We intend to operate in a manner so as to qualify as a REIT for U.S. federal income tax purposes. In order to qualify as a REIT, we generally are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, each year to our shareholders. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to U.S. federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our shareholders in a calendar year is less than a minimum amount specified under the Code.
 
Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments.
 
To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our shareholders, and the ownership of our shares of beneficial interest. In order to meet these tests, we may be required to forego investments we might otherwise make. Thus, compliance with the REIT requirements may hinder our performance.

In particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities, and qualified real estate assets. The remainder of our investment in securities (other than government securities, securities of taxable REIT subsidiaries (“TRS”), and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities, securities of TRSs, and qualified real estate assets) can consist of the securities of any one issuer, and no more than 20% of the value of our total assets can be represented by the securities of one or more TRSs. Further, debt instruments that do not otherwise qualify as real estate assets (because they are not secured by interests in real property or in certain entities that directly or indirectly own real property or because they are not issued by other publicly offered REITs) will generally not be treated as “securities” for purposes of the asset test, but no more than 25% of the value of our total assets may be represented by such debt instruments. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate
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otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our shareholders.
 
The prohibited transactions tax may limit our ability to dispose of our properties.
 
A REIT’s net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property other than “foreclosure property,” held primarily for sale to customers in the ordinary course of business. We may be subject to the prohibited transactions tax equal to 100% of net gain upon a disposition of real property. Although a safe harbor to the characterization of the sale of real property by a REIT as a prohibited transaction is available, we cannot assure you that we can comply with the safe harbor or that we will avoid owning property that may be characterized as held primarily for sale to customers in the ordinary course of business. Consequently, we may choose not to engage in certain sales of our properties or may conduct such sales through any TRS that we may form, which would be subject to federal and state income taxation.
 
Any ownership of a TRS will be subject to limitations and our transactions with a TRS will cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms.
 
Overall, no more than 20% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. In addition, the Code also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. We will monitor the value of our respective investments in any TRS for the purpose of ensuring compliance with TRS ownership limitations and will structure our transactions with any TRS on terms that we believe are arm’s-length to avoid incurring a 100% excise tax on such transactions. There can be no assurance, however, that we will be able to comply with the 20% limitation or avoid application of the 100% excise tax.
  
If leases of our properties are not respected as true leases for federal income tax purposes, we would fail to qualify as a REIT and would be subject to higher taxes and have less cash available for distribution to our shareholders.
 
To qualify as a REIT, we must satisfy two gross income tests, under which specified percentages of our gross income must be derived from certain sources, such as “rents from real property.” Rents paid to the Operating Partnership by third party lessees and any TRS lessee pursuant to the leases of our properties will constitute substantially all of our gross income. In order for such rent to qualify as “rents from real property” for purposes of the gross income tests, the leases must be respected as true leases for federal income tax purposes and not be treated as service contracts, joint ventures, or some other type of arrangement. If our leases are not respected as true leases for federal income tax purposes, we would fail to qualify as a REIT.
 
We may be subject to adverse legislative or regulatory tax changes that could reduce the market price of our common shares.
 
At any time, the U.S. federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. We cannot predict when or if any new U.S. federal income tax law, regulation, or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation, or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation, or interpretation may take effect retroactively. We and our shareholders could be adversely affected by any such change in the U.S. federal income tax laws, regulations, or administrative interpretations.

ITEM 1B. UNRESOLVED STAFF COMMENTS
 
None.

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ITEM 2. PROPERTIES
 
Geographic Diversification/Concentration

The following table lists the states in which our consolidated properties are located and provides certain information regarding our consolidated portfolio’s geographic diversification/concentration as of December 31, 2020:
State Number of Properties GLA (1)
(square feet) 		Percent of GLA Annualized Base Rent (2)
(thousands) 		Percent of Annualized Base Rent
Alabama 8  332,239  2.4  % $ 8,042  2.6  %
Arizona 13  733,791  5.2  % 16,313  5.3  %
Arkansas 7  269,800  1.9  % 4,519  1.5  %
California 5  93,011  0.7  % 2,149  0.7  %
Colorado 5  129,620  0.9  % 2,967  1.0  %
Connecticut 3  138,511  1.0  % 3,695  1.2  %
Florida 21  437,333  3.1  % 12,615  4.1  %
Georgia 8  1,065,193  7.6  % 24,836  8.1  %
Illinois 3  139,450  1.0  % 2,785  0.9  %
Indiana 24  1,135,403  8.1  % 23,562  7.7  %
Kentucky 12  980,639  7.0  % 17,399  5.7  %
Louisiana 3  150,777  1.1  % 6,345  2.1  %
Maine 1  44,677  0.3  % 1,314  0.4  %
Maryland 3  166,594  1.2  % 4,108  1.3  %
Michigan 6  250,456  1.8  % 6,533  2.1  %
Minnesota 19  826,708  5.9  % 17,746  5.8  %
Mississippi 2  97,294  0.7  % 2,551  0.8  %
Missouri 2  69,184  0.5  % 1,914  0.6  %
Montana 3  185,085  1.3  % 5,575  1.8  %
Nebraska 13  984,687  7.0  % 18,526  6.1  %
New Mexico 2  53,029  0.4  % 1,464  0.5  %
New York 13  613,520  4.4  % 14,379  4.7  %
North Dakota 8  434,215  3.1  % 8,256  2.7  %
Ohio 12  666,717  4.8  % 13,429  4.4  %
Oklahoma 1  52,000  0.4  % 556  0.2  %
Pennsylvania 12  443,891  3.2  % 6,391  2.1  %
Tennessee 8  706,805  5.0  % 13,143  4.3  %
Texas 30  1,989,443  14.2  % 48,820  15.9  %
Virginia 1  72,255  0.5  % 1,886  0.6  %
Washington 9  542,795  3.9  % 9,858  3.2  %
Wisconsin (3) 6  205,886  1.4  % 4,677  1.6  %
Total 263  14,011,008  100.0  % $ 306,353  100.0  %
(1)“GLA” means gross leasable area.
(2)Annualized base rent is calculated by multiplying (a) base rental payments for the month ended December 31, 2020, by (b) 12.
(3)Excludes the Company’s 108,843 square foot corporate office building.

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Scheduled Lease Expirations
 
The following table provides a summary of lease expirations for our consolidated properties owned as of December 31, 2020, for the periods indicated:
Expiration (1) Number of Leases Expiring GLA Percent of GLA Annualized Base Rent
(thousands) 		Percent of Annualized Base Rent Annualized Base Rent Leased per Square Foot (2)
2021 161  580,827  4.1  % $ 12,555  4.1  % $ 21.61 
2022 110  591,137  4.2  % 14,238  4.6  % 24.09 
2023 120  642,232  4.6  % 14,922  4.9  % 23.24 
2024 97  822,014  5.9  % 18,822  6.1  % 22.90 
2025 161  1,038,005  7.4  % 24,993  8.2  % 24.08 
2026 123  3,203,579  22.9  % 69,244  22.6  % 21.61 
2027 86  1,369,699  9.8  % 29,341  9.6  % 21.42 
2028 75  1,358,010  9.7  % 30,248  9.9  % 22.27 
2029 34  581,790  4.2  % 15,779  5.2  % 27.12 
2030 49  583,171  4.2  % 12,334  4.0  % 21.15 
Thereafter 75  2,608,111  18.5  % 62,988  20.5  % 24.15 
Month to month (3) 36  52,375  0.4  % 889  0.3  % 16.97 
Vacant —  580,058  4.1  % —  —  — 
Total / Weighted average 1,127  14,011,008  100.0  % $ 306,353  100.0  % $ 22.81 
(1)Excludes leases related to the Company’s 108,843 square foot corporate office building.
(2) Annualized base rent per leased square foot is calculated by dividing (a) annualized base rent as of December 31, 2020 by (b) square footage under executed leases as of December 31, 2020.
(3)Includes 12 leases which expired on December 31, 2020, representing 0.2% of portfolio leasable square feet.

Tenants
 
As of December 31, 2020, our consolidated properties were approximately 96% leased. No single tenant accounted for more than 5.6% of our total annualized base rent or 5.6% of total base revenue as of December 31, 2020; however, 16.7% of our total annualized base rent as of December 31, 2020 were from tenants affiliated with CommonSpirit.

The following table sets forth certain information about the 10 largest tenants in our consolidated portfolio based on total annualized base rent as of December 31, 2020:
Tenant # of
Properties 		Leased GLA % Leased GLA Annualized Base
Rent
(thousands) 		% of Portfolio
Annualized Base Rent
CommonSpirit - CHI - Nebraska 13 899,129  6.7  % $ 17,229  5.6  %
Northside Hospital 7 662,816  4.9  % 14,879  4.9  %
UofL Health - Louisville, Inc. 9 596,021  4.4  % 12,151  4.0  %
US Oncology 9 367,235  2.7  % 9,758  3.2  %
Baylor Scott and White Health 2 268,639  2.0  % 7,960  2.6  %
Ascension - St. Vincent's - Indianapolis 4 363,976  2.7  % 7,736  2.5  %
CommonSpirit - CHI - St. Alexius (ND) 7 359,209  2.7  % 6,650  2.2  %
HonorHealth 6 257,506  1.9  % 6,382  2.1  %
Great Falls Clinic 3 185,085  1.4  % 5,575  1.8  %
CommonSpirit - CHI - Franciscan 7 292,736  2.3  % 5,455  1.7  %
Total 67 4,252,352  31.7  % $ 93,775  30.6  %
 
Before entering into a lease and during the lease term, we seek to manage our exposure to significant tenant credit issues. In most instances, we seek to obtain tenant financial information, including credit reports, financial statements, and tax returns. Where appropriate, we seek to obtain financial commitments in the form of letters of credit, security deposits, or
39

personal guarantees from tenants. On an ongoing basis, we monitor accounts receivable and payment history for both tenants and properties and seek to identify any credit concerns as quickly as possible. In addition, we keep in close contact with our tenants in an effort to identify and address negative changes to their businesses prior to such adverse changes affecting their ability to pay rent to us.
 
Ground Leases

We lease the land upon which 81 of our consolidated properties are built, representing approximately 44.5% of our total leasable square feet and 42.8% of our annualized base revenue as of December 31, 2020. The ground leases subject these properties to certain restrictions. These restrictions may limit our ability to re-let such facilities to tenants not affiliated with the health care delivery system that owns the underlying land. Restrictions may also include rights of first offer and refusal with respect to sales of the properties and may limit the types of medical procedures that may be performed at the facilities.

ITEM 3. 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 4. MINE SAFETY DISCLOSURES
 
Not applicable.
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PART II
 
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Trust’s common shares are traded on the NYSE under the symbol “DOC.” As of February 22, 2021, the Trust had 387 registered shareholders of record of the Trust’s common shares.
 
It has been the Trust’s policy to declare quarterly dividends to its shareholders so as to comply with applicable provisions of the Code governing REITs. The declaration and payment of quarterly dividends remains subject to the review and approval of the Board of Trustees.

Stock Performance Graph

This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of Physicians Realty Trust under the Securities Act or the Exchange Act.

The graph below compares the cumulative total return of our common shares, the Standard & Poor’s 500, and the MSCI US REIT Index (RMS), from the date of our listing on the NYSE on July 19, 2013 through December 31, 2020. The comparison assumes $100 was invested on July 19, 2013 in our common shares and in each of the foregoing indexes and assumes reinvestment of dividends, as applicable. The MSCI US REIT Index consists of equity REITs that are included in the MSCI US Investable Market 2500 Index, except for specialty equity REITS that do not generate a majority of their revenue and income from real estate rental and leasing operations. We have included the MSCI US REIT Index because we joined the MSCI US REIT Index in November 2014 and therefore we believe that it is representative of the industry in which we compete and is relevant to an assessment of our performance.

DOC-20201231_G5.JPG
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Index
Period Ending Physicians Realty Trust Standard & Poor’s 500 MSCI US REIT (RMS)
7/19/2013 $ 100.00  $ 100.00  $ 100.00 
12/31/2013 $ 112.34  $ 110.29  $ 91.70 
12/31/2014 $ 156.36  $ 125.39  $ 119.56 
12/31/2015 $ 167.72  $ 127.13  $ 122.57 
12/31/2016 $ 197.82  $ 142.33  $ 133.11 
12/31/2017 $ 196.89  $ 173.40  $ 139.86 
12/31/2018 $ 185.68  $ 165.80  $ 133.47 
12/31/2019 $ 234.20  $ 218.01  $ 167.96 
12/31/2020 $ 229.91  $ 258.12  $ 155.24 

Recent Sales of Unregistered Securities

On November 9, 2020, the Trust, through a subsidiary of the Operating Partnership, entered into a contribution agreement with NNGS Holdings Summit, LLC, to acquire a property located in Pensacola, Florida (the “Pensacola Property”). The transaction closed on December 18, 2020, at which time, the Operating Partnership issued 167,779 units in the Operating Partnership as consideration for the acquisition.

The OP Units are redeemable at the option of the holder which redemption obligation may be satisfied, at the Trust’s option, in cash or registered common shares. The investor in the OP Units has agreed not to cause the Operating Partnership to redeem its OP Units prior to one year from the issuance date.

The OP Units were issued in a private placement in reliance on Section 4(a)(2) of the Securities Act and Rule 506 of the SEC’s Regulation D there under. The issuance did not involve a public offering and was made without general solicitation or advertising.

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 December 31, 2020:

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
October 1, 2020 - October 31, 2020 2,277  (1) $ 17.93  N/A N/A
November 1, 2020 - November 30, 2020 —  —  N/A N/A
December 1, 2020 - December 31, 2020 —  —  N/A N/A
Total 2,277  $ 17.93  —  — 
(1)Represents OP Units redeemed by holders in exchange for common shares of the Company.

On October 30, 2020, the Company received a redemption notice from the holder of 116,110 Series A Preferred Units of the Operating Partnership (“Series A Preferred Units”) issued in connection with the January 9, 2018 acquisition of the HealthEast Clinic & Specialty Center (“Hazelwood Medical Commons Transaction”). The Series A Preferred Units were redeemed on January 4, 2021. As a result of the redemption, there are no Series A Preferred Units outstanding.

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ITEM 6. SELECTED FINANCIAL DATA
 
On November 19, 2020, the SEC issued amendments to streamline and enhance certain financial disclosure requirements in Regulation S-K. These changes are effective for annual filings for the first fiscal year ending on or after August 9, 2021. Early adoption is permitted for companies after February 10, 2021, and companies are permitted to selectively early adopt the provisions of the final rules, provided an amended item is adopted in its entirety. We early adopted the amendments to Item 301 in their entirety, which removed the requirement to furnish selected financial data for each of the last five fiscal years.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion should be read in conjunction with our financial statements, including the notes to those statements, included in 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” and elsewhere in this report.
 
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. 

As of December 31, 2020, leases representing a percentage of our consolidated portfolio on the basis of leased square feet will expire as follows:
Year Portfolio Lease Expirations
MTM (1) 0.4%
2021 4.3%
2022 4.4%
2023 4.8%
2024 6.1%
2025 7.7%
2026 23.9%
2027 10.2%
2028 10.1%
2029 4.3%
2030 4.3%
Thereafter 19.5%
Total 100.0%
(1)Includes 12 leases which expired on December 31, 2020, representing 0.2% of portfolio occupied leasable square feet.

We receive a cash rental stream from these health care providers under our leases. Approximately 94% of the annualized base rent payments from our properties as of December 31, 2020 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
43

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 5% of the annualized base rent payments from our properties as of December 31, 2020 are from modified gross leases which allow us to pass through certain increases in 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 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.

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 only 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 (“MOB”) and ambulatory surgery centers.

We may from time to time also make investments in other health care properties. 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 off-campus 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 off-campus 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 RIDEA.

The COVID-19 pandemic has had an impact on our company and its current operations, and we continue to closely monitor the impact on all aspects of its business, including the impact on our tenants. We have leveraged our technological capabilities to allow our employees to effectively work from their homes, abide by states’ “stay at home” and public gathering orders and mask mandates, and continue to perform their responsibilities. We expect this arrangement to continue until our employees can safely return to the office in accordance with applicable state and federal laws, orders, regulations, and guidance.

The COVID-19 pandemic has also had an impact on our tenants and their operations. Although a majority of our tenants are part of the health care industry, the COVID-19 pandemic, state and federal laws, orders, regulations, and guidance in response to the COVID-19 pandemic, and the ensuing economic conditions have adversely impacted certain of our tenants’ operations and financial performance. We have taken extraordinary measures to communicate with our tenants and to keep our facilities clean and safe. We have instituted programs to help our tenants obtain available financial and other governmental assistance. Although certain of our tenants have requested deferral of their obligations to pay rent, most have continued to pay their rent and for those who are unable to do so, we are in discussions to work out mutually satisfactory resolutions. However, we may not be able to reach a satisfactory resolution with every tenant and any such resolution may not be on terms that are as favorable to us as those currently in place. We expect those trends to continue for the foreseeable future. While a number of key markets have resumed allowing health care providers to provide elective medical procedures and have reopened certain business activities, the timing of a safe and full return of normal activities may be impacted by changes in patient behaviors during and following the pandemic and may be restricted by federal, state, and local governments, as well as affiliated health care providers.

A recent increase in COVID-19 in certain areas of the country has resulted or may result in the imposition of additional restrictions by state and local governments. Further restrictions may include the shutdown or limitations on health care providers’ ability to perform elective medical procedures. In light of the various uncertainties and changing developments
44

related to the COVID-19 pandemic, we are unable to predict the impact any restrictions may have on us or the operations of our tenants.

As of February 22, 2021, none of our facilities are closed due to the COVID-19 pandemic and we have collected 99.6% of fourth quarter billings. Because the effects of the COVID-19 pandemic are uncertain, there can be no assurance that there will be no additional restrictions or orders in the future, whether patients will continue to seek medical care, particularly elective medical procedures that can be deferred, at the same rates as prior to the COVID-19 pandemic and the resulting impact on our tenants. For further detail of the impact and the Company’s response to the COVID-19 pandemic, please refer to Part I, Item 1A (Risk Factors) of this report.

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 December 31, 2020, owned approximately 97.3% of the OP Units. As of February 22, 2021, we have 210,588,276 common shares outstanding.

2020 Investment Activity

During 2020, the Company completed the acquisition of seven operating health care properties located in six states, for an aggregate purchase price of approximately $74.5 million, excluding the conversion of a previously outstanding term loan of $47.0 million and the satisfaction of one construction loan of $29.1 million. The Company also paid $1.1 million of additional purchase consideration on two properties under earn-out agreements and acquired one land parcel through the conversion and satisfaction of a previously outstanding term loan for $0.2 million. Additionally, the Company funded twelve mezzanine loans for $79.6 million, one term loan for $10.0 million, and $25.4 million of previous construction loan commitments, which includes the final funding on the Denton and Sacred Heart ASC construction loans. The Company also funded an additional amount of $0.3 million to an existing term loan. The Company also acquired membership interest in one joint venture for approximately $18.3 million, resulting in total consolidated investments of $209.3 million.

During 2020, we sold two medical office buildings located in Ohio for approximately $20.5 million and recognized a net gain of approximately $5.8 million.

Recent Developments
 
On December 18, 2020, the Trust’s Board of Trustees authorized and declared a cash distribution of $0.23 per common share and OP Unit for the quarterly period ended December 31, 2020. The distribution was paid on January 20, 2021 to common shareholders and OP Unit holders of record as of the close of business on January 5, 2021.

On January 4, 2021, 116,110 Series A Preferred Units issued in connection with the Hazelwood Medical Commons Transaction were redeemed for a total value of $25.3 million and $20.6 million of note receivables and accrued interest were repaid. As a result of this redemption, there are no Series A Preferred Units outstanding. The fair value of the embedded derivative associated with the previously outstanding Series A Preferred Units was $4.9 million which was derecognized in the course of the redemption.

2021 Investment Activity

Since December 31, 2020, the Company has completed the acquisition of multiple medical condominium units located in Atlanta “Pill Hill” MOB for a purchase price of approximately $0.7 million and funded one mezzanine loan in Elizabeth, New Jersey for $4.8 million.
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Results of Operations
 
Year Ended December 31, 2020 compared to the Year Ended December 31, 2019.

The following table summarizes our results of operations for the years ended December 31, 2020 and 2019 (in thousands):
  2020 2019 Change %
Revenues:        
Rental revenues $ 314,846  $ 303,264  $ 11,582  3.8  %
Expense recoveries 103,344  101,115  2,229  2.2  %
Interest income on real estate loans and other 19,315  10,902  8,413  77.2  %
Total revenues 437,505  415,281  22,224  5.4  %
Expenses:        
Interest expense 57,179  65,022  (7,843) (12.1) %
General and administrative 33,763  33,099  664  2.0  %
Operating expenses 128,198  124,819  3,379  2.7  %
Depreciation and amortization 149,590  146,436  3,154  2.2  %
Impairment loss 4,872  —  4,872  NM
Total expenses 373,602  369,376  4,226  1.1  %
Income before equity in loss of unconsolidated entities and gain on sale of investment properties, net: 63,903  45,905  17,998  39.2  %
Equity in loss of unconsolidated entities (1,257) (28) (1,229) NM
Gain on sale of investment properties, net 5,842  31,309  (25,467) NM
Net income $ 68,488  $ 77,186  $ (8,698) (11.3) %
NM = Not Meaningful

Revenues
 
Total revenues increased $22.2 million, or 5.4%, for the year ended December 31, 2020 as compared to the year ended December 31, 2019. An analysis of selected revenues follows.
 
Rental revenues. Rental revenues increased $11.6 million, or 3.8%, for the year ended December 31, 2020 as compared to the year ended December 31, 2019. Rental revenues increased $4.4 million at our three LifeCare properties due to 2019 write-offs and 2020 rent catch-up payments. Our 2020 and 2019 acquisitions resulted in additional revenue of $3.3 million and $5.8 million, respectively. This was partially offset by a decrease in rental revenue of $2.3 million associated with our properties sold during 2019.
 
Expense recoveries. Expense recoveries increased $2.2 million, or 2.2%, for the year ended December 31, 2020 as compared to the year ended December 31, 2019. The increase in expense recoveries primarily resulted from our 2020 and 2019 acquisitions which resulted in additional expense recoveries of $2.0 million and $0.3 million, respectively. Expense recoveries also increased $1.2 million resulting from our existing portfolio of properties. These increases were partially offset by a decrease of $1.3 million associated with our properties sold during 2019.
 
Interest income on real estate loans and other. Interest income on real estate loans and other increased $8.4 million, or 77.2%, for the year ended December 31, 2020 as compared to the year ended December 31, 2019. This increase is due to additional interest income of $6.0 million as a result of an increase in the Company’s outstanding real estate loans receivable and $1.2 million from expired earn-outs and tenant improvement income. Property management fees related to services provided by the Company on assets owned by our unconsolidated PMAK Joint Venture increased $1.1 million.
 
Expenses
 
Total expenses increased by $4.2 million, or 1.1%, for the year ended December 31, 2020 as compared to the year ended December 31, 2019. An analysis of selected expenses follows.

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Interest expense. Interest expense decreased $7.8 million, or 12.1%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The interest expense decrease was comprised of $6.8 million due to a lower effective interest rate on our credit facility, lower debt balances and mortgage payoffs of $4.6 million, and lower credit facility fees of $0.2 million. Our weighted average effective interest rate on our credit facility was 1.8% and 3.4% for the year ended December 31, 2020 and 2019, respectively. This is partially offset by increases on our interest rate swap contracts of $4.2 million.

General and administrative. General and administrative expenses increased $0.7 million, or 2.0%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase is mainly attributable to increased salaries and benefits of $2.4 million. This is partially offset by decreases in 2020 travel expenses of $1.0 million due to the COVID-19 pandemic and lower professional fees of $0.7 million.
 
Operating expenses. Operating expenses increased $3.4 million, or 2.7%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase is primarily due to our 2020 and 2019 property acquisitions which resulted in additional operating expenses of $2.5 million and $0.7 million, respectively. In addition, there was an increase of $1.8 million from operating expenses associated with our existing portfolio of properties. These increases were partially offset by a decrease of $1.8 million associated with properties sold during 2019.
 
Depreciation and amortization. Depreciation and amortization increased $3.2 million, or 2.2%, for the year ended December 31, 2020 compared to the year ended December 31, 2019. The increase is due to our 2020 and 2019 property acquisitions which resulted in additional depreciation and amortization of $2.1 million and $2.9 million, respectively. In addition, there was an increase of $0.3 million from depreciation and amortization with our existing portfolio of properties. This was offset by a reduction in depreciation and amortization of $2.2 million associated with our sold properties.

Impairment Loss. During the year ended December 31, 2020, the Company recorded an impairment charge of $4.9 million related to a medical office building in Grand Rapids, Michigan, one of the Company’s original properties owned at the time of the IPO. The property is currently under contract to be sold. The Company did not record any impairment loss for the year ended December 31, 2019.

Equity in loss of unconsolidated entities. The change in equity in loss of unconsolidated entities for the year ended December 31, 2020 compared to the year ended December 31, 2019 is due to owning our 2019 joint ventures for a full year in 2020, and the investment in a new joint venture in 2020.
 
Gain on sale of investment properties, net. During the year ended December 31, 2020 we sold two properties in Ohio for approximately $20.5 million, realizing a net gain of $5.8 million. During the year ended December 31, 2019 we sold six properties in five states for approximately $86.3 million, realizing a net gain of $31.3 million.

Year Ended December 31, 2019 compared to the Year Ended December 31, 2018.
  
A discussion of the results of operations for the year ended December 31, 2018 is found in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 27, 2020, which is available free of charge on the SEC’s website at www.sec.gov and in the Investor Relations portion of our website (www.docreit.com).

Cash Flows
 
Year Ended December 31, 2020 compared to the Year Ended December 31, 2019 (in thousands).
  2020 2019
Cash provided by operating activities $ 233,297  $ 201,177 
Cash used in investing activities (201,913) (255,308)
Cash (used in) provided by financing activities (31,224) 37,325 
Decrease in cash and cash equivalents $ 160  $ (16,806)
 
Cash flows from operating activities. Cash flows provided by operating activities were $233.3 million during the year ended December 31, 2020 compared to $201.2 million during the year ended December 31, 2019, representing a increase of $32.1 million. This change is primarily attributable to the increase in rental revenues, interest income, and distributions from our unconsolidated entities in 2020 compared to 2019. It is also attributable to the timing of our accounts payable and other liabilities and tenant receivables.
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Cash flows from investing activities. Cash flows used in investing activities was $201.9 million during the year ended December 31, 2020 compared to cash flows used in investing activities of $255.3 million during the year ended December 31, 2019, representing a change of $53.4 million. The decrease in cash flows used in investing activities was primarily attributable to a $40.0 million decrease in cash spent on acquisition of investment properties, and a $7.6 million decrease in investment of unconsolidated entities. Additionally, there was an increase of repayments on real estate loans of $13.3 million and a decrease of $6.3 million on capital expenditures in 2020 compared to 2019. This was partially offset by $14.5 million of additional real estate loans issued in 2020.

Cash flows from financing activities. Cash flows used in financing activities was $31.2 million during the year ended December 31, 2020 compared to cash flows provided by financing activities of $37.3 million during the year ended December 31, 2019, representing a change of $68.5 million. This was primarily due to $297.0 million of additional net paydowns to our credit facility in 2020. Dividends paid to shareholders also increased by $15.8 million in 2020 compared to 2019. This was partially offset by sales of our common shares pursuant to the ATM Programs, resulting in additional net proceeds of $232.8 million in 2020. Cash flows used in the purchase of OP units also decreased by $13.5 million in 2020 compared to 2019.
 
Year Ended December 31, 2019 compared to Year Ended December 31, 2018 (in thousands).

A discussion of cash flows for the year ended December 31, 2018 is found in Item 7 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 27, 2020, which is available free of charge on the SEC’s website at www.sec.gov and in the Investor Relations portion of our website (www.docreit.com).

Non-GAAP Financial Measures
 
This report includes Funds From Operations (“FFO”), Normalized FFO, Normalized Funds Available For Distribution (“FAD”), Net Operating Income (“NOI”), and Cash NOI, 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, 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
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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.

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):
Year Ended December 31,
  2020 2019 2018
Net income $ 68,488  $ 77,186  $ 58,321 
Earnings per share - diluted $ 0.32  $ 0.39  $ 0.30 
Net income $ 68,488  $ 77,186  $ 58,321 
Net income attributable to noncontrolling interests - partially owned properties (574) (548) (515)
Preferred distributions (1,241) (1,209) (1,340)
Depreciation and amortization expense 149,208  146,072  158,163 
Depreciation and amortization expense - partially owned properties (297) (282) (336)
Gain on sale of investment properties, net (5,842) (31,309) (11,664)
Impairment loss 4,872  —  — 
Proportionate share of unconsolidated joint venture adjustments 7,063  715  — 
FFO applicable to common shares $ 221,677  $ 190,625  $ 202,629 
FFO per common share $ 1.05  $ 0.99  $ 1.08 
Net change in fair value of derivative —  1  (6)
Net change in fair value of contingent consideration (715) (37) (50)
Normalized FFO applicable to common shares $ 220,962  $ 190,589  $ 202,573 
Normalized FFO per common share $ 1.05  $ 0.99  $ 1.08 
   
Weighted average number of common shares outstanding 211,145,917  191,626,320  187,526,762 

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, recurring capital expenditures related to tenant improvements and leasing commissions, loan reserve adjustments, and cash payments from seller master leases and rent abatement payments, including our share of all required adjustments from 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):
  Year Ended December 31,
  2020 2019 2018
Net income $ 68,488  $ 77,186  $ 58,321 
Normalized FFO applicable to common shares $ 220,962  $ 190,589  $ 202,573 
Normalized FFO applicable to common shares $ 220,962  $ 190,589  $ 202,573 
Non-cash share compensation expense 12,486  10,115  8,681 
Straight-line rent adjustments (12,395) (9,986) (21,860)
Amortization of acquired above/below-market leases/assumed debt 3,462  3,485  3,287 
Amortization of lease inducements 1,156  1,312  1,310 
Amortization of deferred financing costs 2,372  2,416  2,428 
TI/LC and recurring capital expenditures (19,042) (19,544) (19,779)
Seller master lease and rent abatement payments —  —  229 
Loan reserve adjustments 84  —  — 
Proportionate share of unconsolidated joint venture adjustments (624) (36) — 
Normalized FAD applicable to common shares $ 208,461  $ 178,351  $ 176,869 

NOI and 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.


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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, and Cash NOI (in thousands):
Year Ended December 31,
  2020 2019 2018
Net income $ 68,488  $ 77,186  $ 58,321 
General and administrative 33,763  33,099  28,816 
Depreciation and amortization 149,590  146,436  158,389 
Interest expense 57,179  65,022  66,183 
Net change in the fair value of derivative —  1  (6)
Gain on sale of investment properties, net (5,842) (31,309) (11,664)
Impairment loss 4,872  —  — 
Proportionate share of unconsolidated joint venture adjustments 10,458  1,048  — 
NOI $ 318,508  $ 291,483  $ 300,039 
   
NOI $ 318,508  $ 291,483  $ 300,039 
Straight-line rent adjustments (12,395) (9,986) (21,860)
Amortization of acquired above/below-market leases 3,524  3,547  3,287 
Amortization of lease inducements 1,156  1,312  1,310 
Seller master lease and rent abatement payments —  —  229 
Loan reserve adjustments 84  —  — 
Change in fair value of contingent consideration (715) (37) (50)
Proportionate share of unconsolidated joint venture adjustments (581) (36) — 
Cash NOI $ 309,581  $ 286,283  $ 282,955 

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 December 31, 2020, we had a total of $2.5 million of cash and cash equivalents and $684.0 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
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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. 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 7-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.
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As of December 31, 2020, the Company had $166.0 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, $684.0 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.

Senior Notes

As of December 31, 2020, 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 Programs

During the fiscal year-ended December 31, 2020, we issued and sold pursuant to the ATM Program (as defined herein) 19,280,491 common shares at a weighted average price of $19.06 per share, resulting in net proceeds to us of approximately $363.8 million. See to Note 1 (Organization and Business) to our accompanying consolidated financial statements for further detail.

Dividend Reinvestment and Share Purchase Plan

On December 2, 2014, we adopted a Dividend Reinvestment and Share Purchase Plan (the “DRIP”). 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 will be newly issued or purchased in the open market, as further described in the DRIP. As of December 31, 2020, the Company had issued 141,491 common shares under the DRIP since its inception.

Critical Accounting Policies

Our consolidated financial statements are prepared in conformity with GAAP, which require us to make estimates and assumptions 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. Set forth below is a summary of our accounting policies that we believe are critical to the preparation of our consolidated financial statements.

Lease Accounting

We, as lessor, make a determination with respect to each of our leases whether they should be accounted for as operating leases or direct financing leases. The classification criteria are based on estimates regarding the fair value of the leased facilities, minimum lease payments, effective cost of funds, the economic life of the facilities, the existence of a bargain purchase option, and certain other terms in the lease agreements. We believe all of our leases should be accounted for as operating leases. Payments received under operating leases are accounted for in the consolidated statements of income as rental revenue for actual rent collected plus or minus a straight-line adjustment for estimated minimum lease escalators, adjustments relating to amortization of lease inducements and above/below-market leases, and rent abatements. Assets subject to operating leases are reported as real estate investments in the consolidated balance sheets.

Effective January 1, 2019, we adopted ASC 842, Leases, which requires operating leases, in which we are a lessee, to be included in right-of-use lease assets, net on our consolidated balance sheets, which represents our right to use the underlying
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asset for the lease term. Our obligation to make the lease payments is included in lease liabilities on our consolidated balance sheets. Our leases include both fixed and variable rental payments and may also include renewal options.

Substantially all of our leases contain fixed or formula-based rent escalators. To the extent that escalator increases are tied to a fixed index or rate, lease payments are accounted for on a straight-line basis over the life of the lease.

Purchase of Investment Properties

We expect to record the majority of our future investments as asset acquisitions and as a result will capitalize acquisition costs. The purchase price, inclusive of acquisition costs, will be allocated to tangible and intangible assets and liabilities based on their relative fair values. Tangible assets primarily consist of land and buildings and improvements. Intangible assets primarily consist of above-market or below-market leases, in-place leases, above-market or below-market debt assumed, right-of-use assets, and lease liabilities. Any future contingent consideration will be recorded when the contingency is resolved. The determination of the fair value requires the Company to make certain estimates and assumptions. See Note 2 (Summary of Significant Accounting Policies) to our accompanying consolidated financial statements for details on our policies for recording purchases of investment properties.

Real Estate Investment Properties and Identified Intangible Assets
 
We are required to make subjective assessments of the useful lives of our properties for purposes of determining the amount of depreciation to record on an annual basis with respect to our investments in real estate. These assessments have a direct impact on our net income because if we were to shorten the expected useful lives of our investments in real estate, we would depreciate such investments over fewer years, resulting in more depreciation expense and lower net income on an annual basis. Real estate investment properties and identified intangible assets are carried at cost, net of accumulated depreciation and amortization. Medical office buildings are depreciated over their estimated useful lives, ranging up to 40 years, using the straight-line method. Tenant improvements and in-place leases are amortized over the lease life of the in-place leases or the tenant’s respective lease term. Cost of maintenance and repairs are charged to expense when incurred.
 
We periodically assess the carrying value of real estate investments and related intangible assets in accordance with ASC Topic 360, Property, Plant & Equipment (“ASC 360”), to determine if facts and circumstances exist that would suggest that the recorded amount of an asset might be impaired or that the estimated useful life should be modified. In the event impairment in value occurs and a portion of the carrying amount of the real estate investment will not be recovered in part or in whole, a provision will be recorded to reduce the carrying basis of the real estate investment and related intangibles to their estimated fair value. The estimated fair value of our real estate investments is determined by use of a number of customary industry standard methods that include discounted cash flow modeling using appropriate discount and capitalization rates and/or estimated cash proceeds received upon the anticipated disposition of the asset from market comparables. Estimates of future cash flows are based on a number of factors including the historical operating results, leases in place, known trends, and other market or economic factors affecting the real estate investment. The evaluation of anticipated cash flows is subjective and is based on assumptions regarding future occupancy, occupancy rates, lease rates, and capitalization rates that could differ materially from actual results. If our anticipated holding periods change or estimated cash flows decline based on market conditions or other unforeseen factors, impairment may be recorded. Long-lived assets classified as held-for-sale are recorded at the lower of carrying value or fair value less estimated costs to sell.
 
Revenue
 
We recognize rental revenues in accordance with ASC 842, Leases. ASC 842 requires that rental revenue and adjustments relating to lease inducements and above-market and below-market leases be recognized on a straight-line basis over the term of the lease 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 are included in other assets on the consolidated balance sheets. If the Company determines that collectability of straight-line rents is not probable, rental revenue is limited to the lease payments collected from the lessee, including any variable lease payments.
 
Expense recoveries related to tenant reimbursement for real estate taxes, insurance, and other operating expenses are recognized as expense recoveries revenue in the period the applicable expenses are incurred. The reimbursements are recognized at gross, as we are generally the primary obligor with respect to real estate taxes and purchasing goods and services from third party suppliers, have discretion in selecting the supplier, and bear the credit risk.
 
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We have certain tenants with absolute net leases. Under these lease agreements, the tenant is responsible for operating and building expenses. For absolute net leases, we do not recognize expense recoveries.

Use of Estimates
 
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions 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 period. Significant estimates are made for the valuation of real estate and related intangibles, valuation of financial instruments, impairment assessments, and fair value assessments with respect to purchase price allocations. Actual results could differ from those estimates.
 
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 December 31, 2020, we have investments in three unconsolidated joint ventures with ownership interests of 49% 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 $768.6 million (of which our proportionate share is approximately $135.8 million). See Note 2 (Summary of Significant Accounting Policies) to our accompanying consolidated financial statements for additional information. We have no other off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.

Inflation
 
Historically, inflation has not had a significant impact on the operating performance of our properties. Some of our lease agreements contain provisions designed to mitigate the adverse impact of inflation. These provisions include clauses that enable us to receive increased rent pursuant to escalation clauses which generally increase rental rates during the terms of the leases. These escalation clauses often provide for fixed rent increases or indexed escalations (based upon changes in the consumer price index or other measures). However, some of these contractual rent increases may be less than the actual rate of inflation. Most of our lease agreements also require the tenant to pay an allocable share of operating expenses, including common area maintenance costs, real estate taxes, and insurance. This requirement reduces our exposure to increases in these costs and operating expenses resulting from inflation.

55

ITEM 7A. 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 one embedded derivative, which is recognized as an asset on the consolidated balance sheets in other assets, and is measured at fair value and five interest rate swaps. See Note 2 (Summary of Significant Accounting Policies) and Note 7 (Derivatives) to our consolidated financial statements included in Item 7 to this report for further detail on our interest rate swaps.

Interest 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 December 31, 2020, our consolidated fixed interest rate debt totaled $1.0 billion, which represented 70.9% 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 December 31, 2020 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 88.1% of our total consolidated debt. Interest rate fluctuations on our fixed 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 December 31, 2020, 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 December 31, 2020. 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 December 31, 2020, our consolidated variable interest rate debt totaled $422.1 million, which represented 29.1% 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 11.9% 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 December 31, 2020, we were exposed to market risks related to fluctuations in interest rates on $172.1 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 December 31, 2020 would change by approximately $1.7 million annually.

Derivative Instruments

As of December 31, 2020, 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.
 
56

Indebtedness
 
As of December 31, 2020, we had total consolidated indebtedness of approximately $1.4 billion. The weighted average interest rate on our consolidated indebtedness was 3.49% (based on the 30-day LIBOR rate as of December 31, 2020, of 0.15%). As of December 31, 2020, we had approximately $172.1 million, or approximately 11.9%, of our outstanding long-term debt exposed to fluctuations in short-term interest rates.

The following table sets forth certain information with respect to our consolidated indebtedness outstanding as of December 31, 2020 (in thousands):
Principal Fixed/Floating
Rate 		Rate   Maturity
Senior Unsecured Revolving Credit Facility $ 166,000  Floating LIBOR + 0.90% 9/18/2022
Senior Unsecured Term Loan (1) 250,000  Fixed 2.07  % 6/10/2023
Senior Unsecured Notes
January 2016 - Series A 15,000  Fixed 4.03  % 1/7/2023
January 2016 - Series B 45,000  Fixed 4.43  % 1/7/2026
January 2016 - Series C 45,000  Fixed 4.57  % 1/7/2028
January 2016 - Series D 45,000  Fixed 4.74  % 1/7/2031
August 2016 - Series A 25,000  Fixed 4.09  % 8/11/2025
August 2016 - Series B 25,000  Fixed 4.18  % 8/11/2026
August 2016 - Series C 25,000  Fixed 4.24  % 8/11/2027
March 2017 Notes 400,000  Fixed 4.30  % 3/15/2027
December 2017 Notes 350,000  Fixed 3.95  % 1/15/2028
Mid Coast Hospital MOB (2) 6,105  Floating LIBOR + 2.75% 11/13/2028
Foundation Surgical Affiliates MOB 6,471  Fixed 4.71  % 1/10/2021
Savage MOB 4,925  Fixed 5.50  % 2/1/2022
CareMount Medical - Lake Katrine MOB 24,718  Fixed 4.63  % 11/6/2024
Gwinnett Physicians Center 15,782  Fixed 4.83  % 12/1/2022
Total principal 1,449,001     
Unamortized deferred financing costs (5,369)
Unamortized discounts (4,855)
Unamortized fair value adjustments 73     
Total $ 1,438,850     
(1)Our borrowings under the term loan feature of our Credit Agreement bear interest at a rate which is determined by our credit rating, currently equal to LIBOR + 1.00%. We have entered into a pay-fixed receive-variable interest rate swap, fixing the LIBOR component of this rate at 1.07%, resulting in an effective interest rate of 2.07%.
(2)We own a 66.3% interest in the joint venture that owns this property. Debt shown in this schedule is the full amount of the mortgage indebtedness on this property.

57

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Index to Consolidated Financial Statements
  Page
     
 
59
61
 
62
 
63
64
 
65
 
66
     
67

58

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Trustees of Physicians Realty Trust

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Physicians Realty Trust (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule included in the Index at Item 15 (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 26, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
59

Evaluation of net real estate property and right-of-use lease assets, net for impairment
Description of the Matter
As of December 31, 2020, the Company’s consolidated balance sheet included net real estate property and right-of-use lease assets, net of $3.8 billion and $137.2 million, respectively. As described in Note 2 to the consolidated financial statements, the Company periodically evaluates its long-lived assets, primarily consisting of investments in real estate, for impairment whenever events or changes in circumstances indicate that the recorded amount of an asset may not be fully recoverable. If indicators of impairment are present, the Company evaluates the carrying value of the related long-lived assets in relation to its expected undiscounted future cash flows. The Company adjusts the net book value of long-lived assets to fair value if the sum of the expected future undiscounted cash flows is less than book value.

Auditing management’s long-lived assets impairment analysis was complex and involved a high degree of subjectivity due to the significant estimation required to determine the estimated undiscounted future cash flows of long-lived assets. In particular, the future cash flow estimates were sensitive to significant assumptions such as future rental revenues, operating expenses, occupancy, and capitalization rates which are affected by expectations about future market or economic conditions, as well as management’s intent to hold and operate the property over the term and in the manner assumed in the analysis.

How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s long-lived assets impairment review process, including controls over management’s review of the significant assumptions described above.

To test the Company’s evaluation of long-lived assets for impairment, we performed audit procedures that included, among others, assessing the methodologies used, evaluating the significant assumptions discussed above, and testing the completeness and accuracy of the underlying data used by the Company in its analysis. We compared the significant assumptions used by management to current market data and performed sensitivity analyses of the significant assumptions discussed above. The evaluation of the Company’s methodology and significant assumptions was performed with the assistance of our valuation specialists.



We have served as the Company’s auditor since 2014.
Chicago, Illinois
February 26, 2021
60

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Trustees of Physicians Realty Trust

Opinion on Internal Control over Financial Reporting

We have audited Physicians Realty Trust’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Physicians Realty Trust (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of Physicians Realty Trust at December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedule included in the Index at Item 15 and our report dated February 26, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


Chicago, Illinois
February 26, 2021
61

Physicians Realty Trust
Consolidated Balance Sheets
(In thousands, except share and per share data)
December 31,
ASSETS 2020 2019
Investment properties:    
Land and improvements $ 231,621  $ 225,540 
Building and improvements 3,824,796  3,700,009 
Tenant improvements 73,145  53,931 
Acquired lease intangibles 406,935  390,450 
  4,536,497  4,369,930 
Accumulated depreciation (687,554) (540,928)
Net real estate property 3,848,943  3,829,002 
Right-of-use lease assets, net 137,180  127,933 
Real estate loans receivable, net 198,800  178,240 
Investments in unconsolidated entities 77,755  66,137 
Net real estate investments 4,262,678  4,201,312 
Cash and cash equivalents 2,515  2,355 
Tenant receivables, net 4,757  7,972 
Other assets 144,000  134,942 
Total assets $ 4,413,950  $ 4,346,581 
LIABILITIES AND EQUITY    
Liabilities:    
Credit facility $ 412,322  $ 583,323 
Notes payable 968,653  967,789 
Mortgage debt 57,875  83,341 
Accounts payable 7,007  6,348 
Dividends and distributions payable 52,116  46,272 
Accrued expenses and other liabilities 91,929  81,238 
Lease liabilities 74,116  63,290 
Acquired lease intangibles, net 6,641  6,096 
Total liabilities 1,670,659  1,837,697 
Redeemable noncontrolling interests - Series A Preferred Units and partially owned properties 28,289  27,900 
Equity:    
Common shares, $0.01 par value, 500,000,000 common shares authorized, 209,550,592 and 189,975,396 common shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively
2,096  1,900 
Additional paid-in capital 3,303,231  2,931,921 
Accumulated deficit (658,171) (529,194)
Accumulated other comprehensive (loss) income (5,859) 4,321 
Total shareholders’ equity 2,641,297  2,408,948 
Noncontrolling interests:    
Operating Partnership 73,302  71,697 
Partially owned properties 403  339 
Total noncontrolling interests 73,705  72,036 
Total equity 2,715,002  2,480,984 
Total liabilities and equity $ 4,413,950  $ 4,346,581 
The accompanying notes are an integral part of these consolidated financial statements.
62

Physicians Realty Trust
Consolidated Statements of Income
(In thousands, except share and per share data)
  December 31,
  2020 2019 2018
Revenues:      
Rental revenues $ 314,846  $ 303,264  $ 313,006 
Expense recoveries 103,344  101,115  97,989 
Interest income on real estate loans and other 19,315  10,902  11,556 
Total revenues 437,505  415,281  422,551 
Expenses:      
Interest expense 57,179  65,022  66,183 
General and administrative 33,763  33,099  28,816 
Operating expenses 128,198  124,819  122,620 
Depreciation and amortization 149,590  146,436  158,389 
Impairment loss 4,872  —  — 
Total expenses 373,602  369,376  376,008 
Income before equity in (loss) income of unconsolidated entities and gain on sale of investment properties, net: 63,903  45,905  46,543 
Equity in (loss) income of unconsolidated entities (1,257) (28) 114 
Gain on sale of investment properties, net 5,842  31,309  11,664 
Net income 68,488  77,186  58,321 
Net income attributable to noncontrolling interests:
Operating Partnership (1,797) (2,155) (1,576)
Partially owned properties (1) (574) (548) (515)
Net income attributable to controlling interest 66,117  74,483  56,230 
Preferred distributions (1,241) (1,209) (1,340)
Net income attributable to common shareholders $ 64,876  $ 73,274  $ 54,890 
Net income per share:      
Basic $ 0.32  $ 0.39  $ 0.30 
Diluted $ 0.32  $ 0.39  $ 0.30 
Weighted average common shares:      
Basic 204,243,768  185,770,251  182,064,064 
Diluted 211,145,917  191,626,320  187,526,762 
Dividends and distributions declared per common share $ 0.92  $ 0.92  $ 0.92 
(1)Includes amounts attributable to redeemable noncontrolling interests.

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

63

Physicians Realty Trust
Consolidated Statements of Comprehensive Income
(In thousands)
December 31,
  2020 2019 2018
Net income $ 68,488  $ 77,186  $ 58,321 
Other comprehensive (loss) income:
Change in fair value of interest rate swap agreements, net (10,180) (10,112) 481 
Total other comprehensive (loss) income (10,180) (10,112) 481 
Comprehensive income 58,308  67,074  58,802 
Comprehensive income attributable to noncontrolling interests - Operating Partnership (1,522) (1,863) (1,589)
Comprehensive income attributable to noncontrolling interests - partially owned properties (574) (548) (515)
Comprehensive income attributable to common shareholders $ 56,212  $ 64,663  $ 56,698 

The accompanying notes are an integral part of these consolidated financial statements.
64

Physicians Realty Trust
Consolidated Statements of Equity
(In thousands)
  Par
Value 		Additional
Paid in
Capital 		Accumulated
Deficit 		Accumulated Other Comprehensive (Loss) Income Total
Shareholders’
Equity 		Operating
Partnership
Noncontrolling
interest 		Partially
Owned
Properties
Noncontrolling
Interest 		Total 
Noncontrolling
Interests 		Total
Equity
Balance at January 1, 2018 $ 1,814  $ 2,772,823  $ (315,417) $ 13,952  $ 2,473,172  $ 73,844  $ 618  $ 74,462  $ 2,547,634 
Net proceeds from sale of common shares 6  10,753  —  —  10,759  —  —  —  10,759 
Restricted share award grants, net 2  6,837  (326) —  6,513  —  —  —  6,513 
Purchase of OP Units —  —  —  —  —  (2,203) —  (2,203) (2,203)
Conversion of OP Units 2  2,523  —  —  2,525  (2,525) —  (2,525) — 
Dividends/distributions declared —  —  (167,817) —  (167,817) (4,742) —  (4,742) (172,559)
Preferred distributions —  —  (1,340) —  (1,340) —  —  —  (1,340)
Distributions —  —  —  —  —  —  (173) (173) (173)
Change in the market value of redeemable Noncontrolling interest in Operating Partnership —  146  363  —  509  —  —  —  509 
Change in fair value of interest rate swap agreements —  —  —  481  481  —  —  —  481 
Adjustment for Noncontrolling Interests ownership in Operating Partnership —  (1,527) —  —  (1,527) 1,527  —  1,527  — 
Net income —  —  56,230  —  56,230  1,576  233  1,809  58,039 
Balance at December 31, 2018 1,824  2,791,555  (428,307) 14,433  2,379,505  67,477  678  68,155  2,447,660 
Cumulative effect of changes in accounting standards —  (239) —  —  (239) —  —  —  (239)
Net proceeds from sale of common shares 74  131,555  —  —  131,629  —  —  —  131,629 
Restricted share award grants, net 2  7,918  (898) —  7,022  —  —  —  7,022 
Purchase of OP Units —  —  —  —  —  (14,023) —  (14,023) (14,023)
Dividends/distributions declared —  —  (172,324) —  (172,324) (4,947) —  (4,947) (177,271)
Preferred distributions —  —  (1,209) —  (1,209) —  —  —  (1,209)
Issuance of OP Units in connection with acquisition —  —  —  —  —  22,598  —  22,598  22,598 
Contributions —  —  —  —  —  —  572  572  572 
Distributions —  —  —  —  —  —  (174) (174) (174)
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership —  (309) (939) —  (1,248) —  —  —  (1,248)
Buyout of Noncontrolling Interest - partially owned properties —  (122) —  —  (122) —  (990) (990) (1,112)
Change in fair value of interest rate swap agreements —  —  —  (10,112) (10,112) —  —  —  (10,112)
Adjustment for Noncontrolling Interests ownership in Operating Partnership —  1,563  —  —  1,563  (1,563) —  (1,563) — 
Net income —  —  74,483  —  74,483  2,155  253  2,408  76,891 
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 194  364,194  —  —  364,388  —  —  —  364,388 
Restricted share award grants, net 2  9,510  (1,783) —  7,729  —  —  —  7,729 
Purchase of OP Units —  —  —  —  —  (515) —  (515) (515)
Conversion of OP Units —  41  —  —  41  (41) —  (41) — 
Dividends/distributions declared —  —  (190,751) —  (190,751) (5,123) —  (5,123) (195,874)
Preferred distributions —  —  (1,241) —  (1,241) —  —  —  (1,241)
Issuance of OP Units in connection with acquisitions —  —  —  —  —  3,067  —  3,067  3,067 
Distributions —  —  —  —  —  —  (210) (210) (210)
Change in market value of Redeemable Noncontrolling Interest in Operating Partnership —  132  (1,319) —  (1,187) —  —  —  (1,187)
Change in fair value of interest rate swap agreements —  —  —  (10,180) (10,180) —  —  —  (10,180)
Adjustment for Noncontrolling Interests ownership in Operating Partnership —  (2,420) —  —  (2,420) 2,420  —  2,420  — 
Net income —  —  66,117  —  66,117  1,797  274  2,071  68,188 
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 
The accompanying notes are an integral part of these consolidated financial statements.
65

Physicians Realty Trust
Consolidated Statements of Cash Flows
(in thousands)
  Year Ended December 31,
  2020 2019 2018
Cash Flows from Operating Activities:      
Net income $ 68,488  $ 77,186  $ 58,321 
Adjustments to reconcile net income to net cash provided by operating activities      
Depreciation and amortization 149,590  146,436  158,389 
Amortization of deferred financing costs 2,372  2,416  2,428 
Amortization of lease inducements and above/below-market lease intangibles 4,680  4,859  4,659 
Straight-line rental revenue/expense (12,395) (9,986) (21,860)
Amortization of discount on unsecured senior notes 629  603  577 
Amortization of above market assumed debt (62) (62) (62)
Gain on sale of investment properties, net (5,842) (31,309) (11,664)
Equity in loss (income) of unconsolidated entities 1,257  28  (114)
Distributions from unconsolidated entities 5,515  119  112 
Change in fair value of derivatives 15  1  (6)
Provision for bad debts 513  2,206  304 
Non-cash share compensation 12,486  10,115  8,681 
Net change in fair value of contingent consideration (715) (37) (50)
Impairment on investment properties 4,872  —  — 
Change in operating assets and liabilities:      
Tenant receivables (1,404) (5,902) 230 
Other assets (7,201) (2,955) (852)
Accounts payable 659  2,462  (7,137)
Accrued expenses and other liabilities 9,840  4,997  16,738 
Net cash provided by operating activities 233,297  201,177  208,694 
Cash Flows from Investing Activities:      
Proceeds on sale of investment properties 20,269  20,934  217,222 
Acquisition of investment properties, net (73,040) (113,081) (236,595)
Investment in unconsolidated entities (18,390) (25,954) — 
Acquisition of noncontrolling interests —  (1,112) (6,406)
Escrowed cash - acquisition deposits/earnest deposits (179) (10) 2,780 
Capital expenditures on investment properties (33,887) (40,137) (34,638)
Issuances of real estate loans receivable (115,220) (100,744) (11,750)
Repayments of real estate loans receivable 21,194  7,855  15,928 
Issuances of note receivable —  —  (20,385)
Leasing commissions (2,660) (3,057) (3,167)
Lease inducements —  (2) (172)
Net cash used in investing activities (201,913) (255,308) (77,183)
Cash Flows from Financing Activities:      
Net proceeds from sale of common shares 364,388  131,629  10,759 
Proceeds from credit facility borrowings 364,000  454,000  422,000 
Repayments on credit facility borrowings (537,000) (330,000) (287,000)
Principal payments on mortgage debt (25,477) (25,184) (78,018)
Debt issuance costs (63) (117) (4,540)
Dividends paid - shareholders (186,721) (170,880) (168,060)
Distributions to noncontrolling interests - Operating Partnership (5,092) (4,838) (4,808)
Preferred distributions paid - OP Unit holders (1,268) (1,176) (911)
Contributions to noncontrolling interests —  572  — 
Distributions to noncontrolling interests - partially owned properties (628) (582) (547)
Payments of employee taxes for withheld stock-based compensation shares (2,848) (2,076) (1,749)
Purchases of OP Units (515) (14,023) (2,203)
Net cash (used in) provided by financing activities (31,224) 37,325  (115,077)
Net increase (decrease) in cash and cash equivalents 160  (16,806) 16,434 
Cash and cash equivalents, beginning of year 2,355  19,161  2,727 
Cash and cash equivalents, end of year $ 2,515  $ 2,355  $ 19,161 
Supplemental disclosure of cash flow information - interest paid during the year $ 54,813  $ 62,633  $ 58,705 
Supplemental disclosure of noncash activity - change in fair value of interest rate swap agreements and redeemable equity - property $ (10,180) $ (10,112) $ 481 
Supplemental disclosure of noncash activity - issuance of OP Units and Series A Preferred Units in connection with acquisitions $ 3,067  $ 25,200  $ 22,651 

The accompanying notes are an integral part of these consolidated financial statements.
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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
 
The Trust was organized in the state of Maryland on April 9, 2013. As of December 31, 2020, 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 Securities and Exchange Commission (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 the Operating Partnership. The Trust and the Operating Partnership are managed and operated as one entity, and the Trust has no significant assets other than its investment in 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. Therefore, the assets and liabilities of the Trust and the Operating Partnership are the same.
 
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 August 2016, the Trust and the Operating Partnership entered into separate At The Market Issuance Sales Agreements (the “2016 Sales Agreements”) with each of KeyBanc Capital Markets Inc., Credit Agricole Securities (USA) Inc., JMP Securities LLC, Raymond James & Associates, Inc., and Stifel Nicolaus & Company, Incorporated (the “2016 Agents”), pursuant to which the Trust could issue and sell, from time to time, its common shares having an aggregate offering price of up to $300.0 million, through the 2016 Agents (the “2016 ATM Program”). The 2016 ATM Program was terminated in connection with the entry into the Sales Agreements (defined below). During the fiscal year-ended December 31, 2020, the Trust did not issue any common shares pursuant to the 2016 ATM Program.

In November 2019, the Trust and the Operating Partnership entered into separate At The Market Issuance Sales Agreements (the “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 “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 $500.0 million, through the Agents (the “ATM Program”, and together with the 2016 ATM Program, the “ATM Programs”). The Sales Agreements contemplate that, in addition to the issuance and sale of the Trust’s common shares through the 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. During the fiscal year ended December 31, 2020, the Trust issued and sold pursuant to the ATM Program 19,280,491 common shares at a weighted average price of $19.06 per share, resulting in net proceeds of approximately $363.8 million.

During 2020 and 2019, the Trust’s issuance and sale of common shares pursuant to the ATM Programs was as follows (in thousands, except common shares and price): 
2020 2019
  Common
shares sold 		Weighted
average price 		Net
proceeds 		Common
shares sold 		Weighted
average price 		Net
proceeds
Quarterly period ended March 31 12,352,700  $ 19.57  $ 239,337  1,681,928  $ 18.61  $ 30,986 
Quarterly period ended June 30 5,543,066  18.07  99,138  971,000  18.66  17,935 
Quarterly period ended September 30 78,194  18.52  1,433  3,020,711  17.41  52,070 
Quarterly period ended December 31 1,306,531  18.44  23,848  1,617,500  18.84  30,177 
Year ended December 31 19,280,491  $ 19.06  $ 363,756  7,291,139  $ 18.17  $ 131,168 

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As of February 22, 2021, the Trust had $83.2 million remaining available under the ATM Program.

Note 2. Summary of Significant Accounting Policies

Principles of Consolidation
 
GAAP requires identification of entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of variable interest entities (“VIEs”). ASC 810 broadly defines a VIE as an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. The Company identifies the primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or receive benefits of the VIE that could potentially be significant to the entity. The Company consolidates its investment in a VIE when it determines that it is the VIE’s primary beneficiary. The Company may change its original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. The Company performs this analysis on an ongoing basis.
 
For property holding entities not determined to be VIEs, the Company consolidates such entities in which the Operating Partnership owns 100% of the equity or has a controlling financial interest evidenced by ownership of a majority voting interest. All intercompany balances and transactions are eliminated in consolidation.

Noncontrolling Interests

The Company presents the portion of any equity it does not own in entities that it controls (and thus consolidates) as noncontrolling interests and classifies such interests as a component of consolidated equity, separate from the Company’s total shareholders’ equity, on the consolidated balance sheets.
 
Operating Partnership: Noncontrolling interests in the Company include OP Units held by other investors. Net income or loss is allocated to noncontrolling interests (limited partners) based on their respective ownership percentage of the Operating Partnership. The ownership percentage is calculated by dividing the number of OP Units held by the noncontrolling interests by the total OP Units held by the noncontrolling interests and the Trust. Issuance of additional common shares and OP Units changes the ownership interests of both the noncontrolling interests and the Trust. Such transactions and the related proceeds are treated as capital transactions.

During the year ended December 31, 2020, the Operating Partnership partially funded one property acquisition by issuing 167,779 OP Units valued at approximately $3.1 million on the date of issuance. The acquisition had a total aggregate purchase price of approximately $32.4 million.

During the year ended December 31, 2019, the Operating Partnership partially funded six property acquisitions by issuing 1,257,021 OP Units valued at approximately $22.6 million on the date of issuances. The acquisitions had a total aggregate purchase price of approximately $49.4 million.

As of December 31, 2020 and 2019, the Trust held a 97.3% and 97.1% interest in the Operating Partnership, respectively. As the sole general partner and the majority interest holder, the Trust consolidates the financial position and results of operations of the Operating Partnership.
 
Holders of OP Units may not transfer their units without the Trust’s prior written consent, as general partner of the Operating Partnership. Beginning on the first anniversary of the issuance of OP Units to the respective holders, OP Unit holders may tender their units for redemption by the Operating Partnership in exchange for cash equal to the market price of the Trust’s common shares at the time of redemption or for unregistered common shares on a one-for-one basis. Such selection to pay cash or issue common shares to satisfy an OP Unit holder’s redemption request is solely within the control of the Trust. Accordingly, the Trust presents the OP Units of the Operating Partnership held by investors other than the Trust as noncontrolling interests within equity in the consolidated balance sheets.
 
Partially Owned Properties: The Trust reflect noncontrolling interests in partially owned properties on the consolidated balance sheets for the portion of consolidated properties that are not wholly owned by the Company. The earnings or losses
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from those properties attributable to the noncontrolling interests are reflected as noncontrolling interests in partially owned properties in the consolidated statements of income.

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

On February 5, 2015, the Company entered into a Second Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”) which provides for the designation and issuance of the Series A Participating Redeemable Preferred Units of the Operating Partnership (“Series A Preferred Units”). Series A Preferred Units have priority over all other partnership interests of the Operating Partnership with respect to distributions and liquidation. Holders of Series A Preferred Units are entitled to a 5% cumulative return and upon redemption, the receipt of one common share and $200. The holders of the Series A Preferred Units have agreed not to cause the Operating Partnership to redeem their Series A Preferred Units prior to one year from the issuance date. In addition, Series A Preferred Units are redeemable at the option of the holders which redemption obligation may be satisfied, at the Trust’s option, in cash or registered common shares. Instruments that require settlement in registered common shares may not be classified in permanent equity as it is not always completely within an issuer’s control to deliver registered common shares. Due to the redemption rights associated with the Series A Preferred Units, the Company classifies the Series A Preferred Units in the mezzanine section of its consolidated balance sheets.
 
The Series A Preferred Units were evaluated for embedded features that should be bifurcated and separately accounted for as a freestanding derivative. The Company determined that the Series A Preferred Units contained features that require bifurcation. The Company records the carrying amount of the redeemable noncontrolling interests, less the value of the embedded derivative, at the greater of the carrying value or redemption value in the consolidated balance sheets.

On January 9, 2018, the Hazelwood Medical Commons Transaction was partially funded with the issuance of 104,172 Series A Preferred Units, with a value of $22.7 million.

In connection with the Hazelwood Medical Commons Transaction, the Operating Partnership agreed to pay additional purchase consideration under an earn-out agreement with the seller if certain lease-up requirements were achieved before January 8, 2023. On June 19, 2019, the Operating Partnership funded, with the issuance of 8,529 Series A Preferred Units, an earn-out payment valued at $1.9 million on the date of issuance. On August 1, 2019, the Operating Partnership funded, with the issuance of 3,409 Series A Preferred Units, a second earn-out payment valued at $0.7 million on the date of issuance. Both of these earn-out payments were capitalized to the cost basis of the property.

As of December 31, 2020 and December 31, 2019, there were 116,110 Series A Preferred Units outstanding. As of December 31, 2020 the embedded derivative value was $4.9 million. On January 4, 2021, 116,110 Series A Preferred Units were redeemed for a total value of $25.3 million. As a result of this redemption, there are no Series A Preferred Units outstanding.

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. The value of the Company’s redeemable noncontrolling interests as of December 31, 2020 and December 31, 2019 is $7.7 million and $6.5 million, respectively.

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Dividends and Distributions

Dividends and distributions for the years ended December 31, 2020, 2019, and 2018 are as follows:
Declaration Date Record Date Payment Date Cash Dividend
per Share/Unit
December 18, 2020 January 5, 2021 January 20, 2021 $ 0.23 
September 21, 2020 October 2, 2020 October 16, 2020 $ 0.23 
June 18, 2020 July 2, 2020 July 17, 2020 $ 0.23 
March 19, 2020 April 2, 2020 April 16, 2020 $ 0.23 
December 20, 2019 January 3, 2020 January 17, 2020 $ 0.23 
September 20, 2019 October 3, 2019 October 18, 2019 $ 0.23 
June 21, 2019 July 3, 2019 July 18, 2019 $ 0.23 
March 22, 2019 April 3, 2019 April 18, 2019 $ 0.23 
December 21, 2018 January 4, 2019 January 18, 2019 $ 0.23 
September 19, 2018 October 3, 2018 October 18, 2018 $ 0.23 
June 21, 2018 July 3, 2018 July 18, 2018 $ 0.23 
March 23, 2018 April 3, 2018 April 18, 2018 $ 0.23 

The Company’s shareholders are entitled to reinvest all or a portion of any cash distribution on their shares of the Company’s common stock by participating in the Dividend Reinvestment and Share Purchase Plan (“DRIP”), subject to the terms of the plan.

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).

The following table sets forth the federal income tax status of distributions per common share and OP Unit for the periods presented:
Year Ended December 31,
2020 2019 2018
Per common share and OP Unit:
Ordinary dividends $ —  $ —  $ — 
Section 199A Qualified REIT Dividend 0.4798  0.4035  0.2825 
Qualified dividends —  —  — 
Capital gain distributions —  0.0003  — 
Non-dividend distributions 0.4402  0.5162  0.6375 
Total $ 0.9200  $ 0.9200  $ 0.9200 

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Purchases of Investment Properties
 
With the adoption of ASU 2017-01 in January 2018, the Company’s acquisitions of investment properties and the majority of its future investments will be accounted for as asset acquisitions and will result in the capitalization of acquisition costs. The purchase price, inclusive of acquisition costs, will be allocated to tangible and intangible assets and liabilities based on their relative fair values. Tangible assets primarily consist of land and buildings and improvements. Intangible assets primarily consist of above-market or below-market leases, in-place leases, above-market or below-market debt assumed, right-of-use assets, and lease liabilities. Any future contingent consideration will be recorded when the contingency is resolved. The determination of the fair value requires the Company to make certain estimates and assumptions.

The determination of fair value involves the use of significant judgment and estimation. The Company makes estimates of the fair value of the tangible and intangible acquired assets and assumed liabilities using information obtained from multiple sources as a result of pre-acquisition due diligence and generally includes the assistance of a third party appraiser. The Company estimates the fair value of an acquired asset on an “as-if-vacant” basis and its value is depreciated in equal amounts over the course of its estimated remaining useful life. The Company determines the allocated value of other fixed assets, such as site improvements, based upon the replacement cost and depreciates such value over the assets’ estimated remaining useful lives as determined at the applicable acquisition date. The fair value of land is determined either by considering the sales prices of similar properties in recent transactions or based on an internal analysis of recently acquired and existing comparable properties within the Company’s portfolio.
 
The value of above-market or below-market leases is estimated based on the present value (using a discount rate which reflected the risks associated with the leases acquired) of the difference between contractual amounts to be received pursuant to the leases and management’s estimate of market lease rates measured over a period equal to the estimated remaining term of the lease. The capitalized above-market or below-market lease intangibles are amortized as a reduction or addition to rental income over the estimated remaining term of the respective leases plus the term of any renewal options that the lessee would be economically compelled to exercise.

In determining the value of in-place leases, management considers current market conditions and costs to execute similar leases in arriving at an estimate of the carrying costs during the expected lease-up period from vacant to existing occupancy. In estimating carrying costs, management includes real estate taxes, insurance, other operating expenses, estimates of lost rental revenue during the expected lease-up periods, and costs to execute similar leases, including leasing commissions, tenant improvements, legal, and other related costs based on current market demand. The values assigned to in-place leases are amortized to amortization expense over the estimated remaining term of the lease. If a lease terminates prior to its scheduled expiration, all unamortized costs related to that lease are written off, net of any required lease termination payments.
 
The Company calculates the fair value of any long-term debt assumed by discounting the remaining contractual cash flows on each instrument at the current market rate for those borrowings, which the Company approximates based on the rate it would expect to incur on a replacement instrument on the date of acquisition, and recognizes any fair value adjustments related to long-term debt as effective yield adjustments over the remaining term of the instrument.

Based on these estimates, the Company recognizes the acquired assets and assumed liabilities based on their estimated fair values, which are generally determined using Level 3 inputs, such as market rental rates, capitalization rates, discount rates, or other available market data.

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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. If indicators of impairment are present, the Company evaluates the carrying value of the related real estate properties in relation to the undiscounted expected future cash flows of the underlying operations. In performing this evaluation, management considers market conditions and current intentions with respect to holding or disposing of the real estate property. The evaluation of anticipated cash flows is subjective and is based on assumptions regarding future occupancy, lease rates, and cap rates that could differ materially from actual results. The Company adjusts the net book value of real estate properties to fair value if the sum of the expected future undiscounted cash flows, including sales proceeds, is less than book value. The Company recognizes an impairment loss at the time it makes any such determination. If the Company determines that an asset is impaired, the impairment to be recognized is measured as the amount by which the recorded amount of the asset exceeds its fair value. Fair value is typically determined using a discounted future cash flow analysis or other acceptable valuation techniques which are based, in turn, upon Level 3 inputs, such as revenue and expense growth rates, capitalization rates, discount rates, or other available market data. With the adoption of ASU 2016-02, Leases, on January 1, 2019, the Company periodically evaluates the right-of-use assets for impairment as detailed above.

The Company recorded an impairment charge of $4.9 million on one medical office building in Grand Rapids, Michigan during the year ended December 31, 2020. The Company did not record impairment charges in the years ended December 31, 2019 and 2018.
 
Assets Held for Sale and Discontinued Operations

The Company may sell properties from time to time for various reasons, including favorable market conditions. The Company classifies certain long-lived assets as held for sale once the criteria, as defined by GAAP, has been met. The Company classifies a real estate property, or portfolio, as held for sale when: (i) management has approved the disposal, (ii) the property is available for sale in its present condition, (iii) an active program to locate a buyer has been initiated, (iv) it is probable that the property will be disposed of within one year, (v) the property is being marketed at a reasonable price relative to its fair value, and (vi) it is unlikely that the disposal plan will significantly change or be withdrawn. Following the classification of a property as “held for sale,” no further depreciation or amortization is recorded on the assets and the assets are written down to the lower of carrying value or fair market value, less cost to sell. No properties were classified as held for sale as of December 31, 2020 or 2019, and dispositions during the years ended December 31, 2020, 2019, and 2018 did not qualify as discontinued operations.

Investment in Unconsolidated Entities

The Company reports investments in unconsolidated entities over whose operating and financial policies it has the ability to exercise significant influence under the equity method of accounting. Under this method of accounting, the Company’s share of the investee’s earnings or losses is included in its consolidated statements of income. The initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the equity interest.

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its equity method investments may not be recoverable or realized. If indicators of potential impairment are identified, the Company evaluates its equity method investments for impairment based on a comparison of the fair value of the investment to its carrying value. The fair value is estimated based on discounted cash flows that include all estimated cash inflows and outflows over a specified holding period and any estimated debt premiums or discounts. If, based on this analysis, the Company does not believe that it will be able to recover the carrying value of its equity method investment, the Company would record an impairment loss to the extent that the carrying value exceeds the estimated fair value of its equity method investment.

On October 31, 2019 the Company contributed $8.9 million to acquire a 49% equity interest in MedCore Realty Eden Hill, LLC. This joint venture owns one medical office facility in Dover, Delaware.

On November 22, 2019 the Company contributed two properties valued at $39.0 million and paid additional consideration of $17.0 million for a 12.3% equity interest in the PMAK MOB JV REOC, LLC (“PMAK Joint Venture”). This joint venture owns 59 medical office facilities located in 18 states.

On December 11, 2020 the Company contributed $18.3 million to acquire a 49% equity interest in Davis Medical Investors, LLC (“Davis Joint Venture”). This joint venture owns eight medical office facilities located in four states.

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Real Estate Loans Receivable
 
Real estate loans receivable consists of 22 mezzanine loans, one construction loan, and three term loans as of December 31, 2020. Generally, each mezzanine loan is collateralized by an ownership interest in the respective borrower, each term loan is secured by a mortgage of a related medical office building, and the construction loan is secured by a mortgage on the land and improvements as constructed. Interest income on loans is recognized as earned based on the terms of the loans subject to evaluation of collectability risks and is included in the Company’s consolidated statements of income. On a quarterly basis, the Company evaluates the collectability of its loan portfolio, including related interest income receivable, and establishes a reserve for loan losses, if necessary. For the year ended December 31, 2020, the Company has recognized loss of $0.2 million. There were no such losses recognized for the year ended December 31, 2019.

Cash and Cash Equivalents
 
Cash and cash equivalents consist of cash on hand and short-term investments with maturities of three months or fewer from the date of purchase. The Company is subject to concentrations of credit risk as a result of its temporary cash investments. The Company places its temporary cash investments with high credit quality financial institutions in order to mitigate that risk.

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 $86.6 million and $74.0 million as of December 31, 2020 and December 31, 2019, respectively. If the Company determines that collectability of straight-line rents is not probable, rental revenue is limited to the lease payments collected from the lessee, including any variable lease payments.

In accordance with ASU 2016-02, Leases, Topic 842, 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 $0.5 million and $9.8 million for the years ended December 31, 2020 and December 31, 2019, respectively. Net bad debt expense recoveries of $0.4 million were reported in operating expenses for the year ended December 31, 2018.

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 term of the lease.

Tenant Receivables, Net
 
Tenant receivables primarily represent amounts accrued and unpaid from tenants in accordance with the terms of the respective leases, subject to the Company’s revenue recognition policy. The Company reviews receivables monthly and writes-off the remaining balance when, in the opinion of management, collection of substantially all remaining payments is not probable. When the Company determines substantially all remaining lease payments are not probable of collection, it recognizes a reduction of rental revenues and expense recoveries for all outstanding balances, including accrued straight-line rent receivables. Any subsequent receipts are recognized as rental revenues and expense recoveries in the period received. The adoption of ASC 842 resulted in an adjustment to the Company’s opening accumulated deficit balance of $0.2 million, associated with tenant receivables where collection of substantially all operating lease payments was not probable as of January 1, 2019.

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 tenants with absolute net leases. Under these lease agreements, the tenant is responsible for operating and building expenses. For absolute net leases, the Company does not recognize operating expense or expense recoveries. Bad debt recognized as an adjustment to expense recoveries was $0.1 million for each of the years ended December
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31, 2020 and December 31, 2019. No bad debt was recognized as an adjustment to expense recoveries for the year ended December 31, 2018.

Derivative Instruments

When the Company has derivative instruments embedded in other contracts, it records them either as an asset or a liability measured at their fair value unless they qualify for a normal purchase or normal sale exception. When specific hedge accounting criteria are not met or if the Company does not elect to apply for hedge accounting, changes in the Company’s derivative instruments’ fair value are recognized currently in earnings. As a result of the Company’s adoption of ASU 2017-12 as of January 1, 2019, if hedge accounting is applied to a derivative instrument, the entire change in the fair value of its derivatives designated and qualified as cash flow hedges are recorded in accumulated other comprehensive income (“AOCI”) 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 December 31, 2020, 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. Further detail is provided in Note 7 (Derivatives).

Income Taxes
 
The Trust elected to be taxed as a REIT for federal tax purposes commencing with the filing of its tax return for the short taxable year ending December 31, 2013. The Trust had no taxable income prior to electing REIT status. To qualify as a REIT, the Trust must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income to its shareholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Trust generally will not be subject to federal income tax to the extent it distributes qualifying dividends to its shareholders. If the Trust fails to qualify as a REIT in any taxable year, it will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants the Trust relief under certain statutory provisions. Such an event could materially adversely affect the Trust’s net income and net cash available for distribution to shareholders. However, the Trust intends to continue to operate in such a manner as to continue qualifying for treatment as a REIT. Although the Trust continues to qualify for taxation as a REIT, in various instances, the Trust is subject to state and local taxes on its income and property, and federal income and excise taxes on its undistributed income.
 
As discussed in Note 1 (Organization and Business), the Trust conducts substantially all of its operations through the Operating Partnership. As a partnership, the Operating Partnership generally is not liable for federal income taxes. The income and loss from the operations of the Operating Partnership is included in the tax returns of its partners, including the Trust, who are responsible for reporting their allocable share of the partnership income and loss. Accordingly, no provision for income taxes has been made on the accompanying consolidated financial statements.

Management Estimates
 
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the amounts of revenue and expenses reported in the period. Significant estimates are made for the fair value assessments with respect to purchase price allocations, impairment assessments, and the valuation of financial instruments. Actual results could differ from these estimates.
 
Commitments
 
Certain of the Company’s acquisitions provide for additional consideration to the seller in the form of an earn-out associated with lease-up contingencies. The Company recognizes the earn-out only if certain parameters or other substantive contingencies are met, at which time the consideration becomes payable.

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Certain of the Company’s leases also provide for consideration available to tenants as a tenant improvement allowance. Based on existing leases as of December 31, 2020, committed but unspent tenant related obligations were $37.2 million.

Related Parties

The Company recognized rental revenues totaling $7.5 million in 2020 and $8.0 million in 2019 and 2018 from Baylor Scott and White Health. The Company recognized rental revenues totaling $0.6 million in 2020 and 2019 and $1.1 million in 2018 from Advocate Aurora Health. Both are health care systems affiliated with certain members of the Trust’s Board of Trustees.
 
Segment Reporting
 
Under the provision of Codification Topic 280, Segment Reporting, the Company has determined that it has one reportable segment with activities related to leasing and managing health care properties.

New Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases. The update amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The standard provides the option of a modified retrospective transition approach or a cumulative effect for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. In July 2018, the FASB issued ASU 2018-11, Leases, Targeted Improvements. ASU 2018-11 provides entities with a transition method option to not restate comparative periods presented, but to recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In addition, ASU 2018-11 provides entities with a practical expedient allowing lessors to not separate non-lease components from the associated lease components when certain criteria are met. ASU 2016-02 and ASU 2018-11 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

On January 1, 2019 the Company, both as a lessor and a lessee, adopted ASU 2016-02 and ASU 2018-11 using the cumulative-effect transition method. The cumulative effect adjustment to the opening balance of retained earnings was $0.2 million. Upon adoption of the new leasing standard, the Company recognized right-of-use assets and corresponding lease liabilities of $126.7 million and $61.0 million, respectively, on its consolidated balance sheets as of January 1, 2019. The right-of-use asset is based upon the recognized lease liabilities, adjusted for previously recognized prepaid lease payments and intangible assets and liabilities. The lease liability is measured at the present value of remaining lease payments of its operating leases for which it is the lessee, including ground, office, and equipment leases, discounted at a rate based on the Company’s incremental borrowing rate.

The Company elected to apply the package of practical expedients applicable to the Company for transition of leases in effect at adoption. This allowed the Company to forgo reassessing (1) whether a contract contains a lease, (2) classification of leases, and (3) whether capitalized costs associated with a lease meet the definition of “initial direct costs” under ASC 842. As a lessee, this allowed the Company to continue to account for its existing ground and office space leases as operating leases, however, after January 1, 2019, any new or renewed ground leases may be classified as financing leases. Additionally, the Company adopted the comparative period practical expedient which allowed the reporting for comparative periods prior to adoption to continue to be presented in the financial statements in accordance with previous lease accounting guidance.

As a lessee, the Company adopted the short-term leases practical expedient which allowed the Company not to capitalize short-term leases within its lease liabilities and right-of-use assets. Additionally, the Company elected the practical expedient allowing lessors to not separate non-lease components from the associated lease components when certain criteria are met. The Company elected this lessor practical expedient on various underlying assets including, among other things, land and building, and recognizes, measures, presents, and discloses revenue from its lease arrangements based upon the predominant component, which is determined to be the lease component, under the new ASC 842 guidance. As a lessor, the Company will continue to show its expense recoveries separate from its rental revenues for transparency purposes. The Company has not elected the hindsight practical expedient, which would allow the use of hindsight in determining the lease term and impairment of the right-of-use assets as of the implementation date. The adoption of the ASC 842 guidance did not have a material effect on the Company’s results of operations.

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
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losses as required currently by the other-than-temporary impairment model. ASU 2016-13 will apply 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, Codification Improvements to Topic 320, Financial Instruments - Credit Losses, 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 Topic 842, Leases. ASU 2016-13 and ASU 2018-19 are effective for reporting periods beginning after December 15, 2019 and are applied as a cumulative adjustment to retained earnings as of January 1, 2020. The Company adopted ASU 2016-13 on January 1, 2020, with no material effect on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement; Changes to the Disclosure Requirements for Fair Value Measurements, which modifies the disclosure requirements on fair value measurements in Topic 820 as follows: (a) disclosure removals: (i) the amount of and reasons for transfers between Level 1 and Level 2; (ii) the policy for timing of transfers between levels; and (iii) the valuation process for Level 3 fair value measurements; (b) disclosure modifications: (i) no requirement to disclose the timing of liquidation unless the investee has communicated the timing to the reporting entity or announced the timing publicly; and (ii) for Level 3 fair value measurements, a narrative description of measurement uncertainty at the reporting date, not the sensitivity to future changes; and (c) disclosure additions: (i) for recurring Level 3 measurements, disclose the changes in unrealized gains and losses for the period included in OCI and the statement of comprehensive income; and (ii) for Level 3 fair value measurements in the table of significant input, disclose the range and weighted average of the significant unobservable inputs and the way it is calculated. The Company adopted ASU 2018-13 on January 1, 2020, with no material effect on its consolidated financial statements.

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.

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 2020, the Company completed the acquisition of seven operating health care properties located in six states, for an aggregate purchase price of approximately $74.5 million, excluding the conversion of a previously outstanding term loan of $47.0 million and the satisfaction of one construction loan of $29.1 million. The Company also paid $1.1 million of additional purchase consideration on two properties under earn-out agreements and acquired one land parcel through the conversion and satisfaction of a previously outstanding term loan for $0.2 million. Additionally, the Company funded twelve mezzanine loans for $79.6 million, one term loan for $10.0 million, $25.4 million of previous construction loan commitments, which includes the final funding on the Denton and Sacred Heart ASC construction loans, and an additional $0.3 million to an existing term loan. The Company also acquired membership interest in one joint venture for approximately $18.3 million, resulting in total investment activity of approximately $209.3 million. As part of these investments, we incurred approximately $1.3 million of capitalized costs.

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Investment activity for the year ending December 31, 2020 is summarized below:
Investment Location Acquisition
Date 		Investment Amount
(in thousands)
El Paso, Texas Land (1) El Paso, TX January 17, 2020 $ 215 
Westerville MOB Westerville, OH February 28, 2020 10,683 
TOPA Fort Worth (2) Fort Worth, TX March 16, 2020 1,500 
Ascension St. Vincent Cancer Center Newburgh, IN September 11, 2020 21,085 
Health Center at Easton Easton, PA November 23, 2020 15,775 
Hartford HealthCare Cancer Center Manchester, CT December 8, 2020 16,855 
Davis Joint Venture (3) Various December 11, 2020 18,252 
Sacred Heart Summit Medical Office and ASC (4) Pensacola, FL December 18, 2020 3,264 
Westerville II MOB Westerville, OH December 23, 2020 5,350 
Landmark Mezzanine Loan Portfolio Various Various 54,250 
Loan Investments Various Various 60,971 
Earn-out Investments (5) Various Various 1,136 
    $ 209,336 
(1)This investment was funded through the conversion and satisfaction of a previously outstanding term loan of $1.3 million and additional cash consideration of $0.2 million.
(2)This investment was funded through the conversion and satisfaction of a previously outstanding term loan of $47.0 million and additional cash consideration of $1.5 million.
(3)The Company purchased a 49% membership interest in this joint venture.
(4)This investment was funded through the conversion and satisfaction of a previously outstanding construction loan of $29.1 million and additional consideration of $3.3 million consisting of an aggregate 167,779 OP Units issued by the Operating Partnership valued at approximately $3.1 million on the date of issuance and $0.2 million of cash.
(5)The Company completed the settlement of acquisitions related earn-out payments upon execution of leases at two properties. All earn-out payments are considered to be additional purchase price upon each respective property.

During 2020, the Company recorded revenues and net income of $5.3 million and $0.7 million, respectively, from its 2020 acquisitions.

During 2019, the Company completed acquisitions of twelve operating health care properties located in six states, for an aggregate purchase price of approximately $128.2 million. The Company also purchased a newly-constructed addition to an existing building owned by the Company in Tennessee for $4.3 million. The Company funded $128.3 million of loan transactions which included seven mezzanine loans for an aggregate $22.9 million, three term loans for $86.2 million, and two construction loans with an aggregate commitment amount of $44.3 million and funding to date of $19.2 million. The Company paid $3.2 million of additional purchase consideration on two properties under earn-out agreements and purchased two noncontrolling interests for $1.1 million. The Company also acquired membership interests in two joint ventures for approximately $64.9 million. Total investment activity for 2019 was approximately $330.1 million and as part of these investments, the Company incurred approximately $5.1 million of capitalized costs.

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Investment activity for the year ending December 31, 2019 is summarized below:
Property Location Acquisition
Date
Purchase Price
(in thousands)
Addition - West TN ASC Jackson, TN January 31, 2019 $ 4,271 
Doctors United ASC (1) Pasadena, TX April 4, 2019 14,812 
NCI Buyout - MN Portfolio Various May 6, 2019 540 
Atlanta Condominium Investments Atlanta, GA June 28, 2019 8,500 
Rockwall II MOB (2) Rockwall, TX July 26, 2019 24,006 
Shadeland Station Portfolio (2 MOBs) Indianapolis, IN August 2, 2019 23,296 
Noncontrolling Interest Buyout - Rockwall II MOB (2) Rockwall, TX August 23, 2019 572 
Shell Ridge Portfolio (5 MOBs) (3) Walnut Creek, CA September 27, 2019 34,625 
ProHealth MOB Manchester, CT October 15, 2019 11,300 
MedCore Realty Eden Hill Joint Venture (4) Dover, DE October 31, 2019 8,920 
PMAK Joint Venture (5) Various November 22, 2019 55,990 
Murdock Surgery Center Port Charlotte, FL December 2, 2019 11,666 
Loan Investments Various Various 128,345 
Earn-out Investment (6) Various Various 3,208 
    $ 330,051 
(1)The Operating Partnership partially funded the acquisition by issuing an aggregate 346,989 OP Units valued at approximately $6.5 million on the date of issuance.
(2)On July 26, 2019 the Company completed the acquisition of a 97.5% interest in Rockwall II MOB. The Company acquired the remaining interest on August 23, 2019.
(3)The Operating Partnership partially funded the acquisition by issuing an aggregate 910,032 OP Units valued at approximately $16.1 million on the date of issuance.
(4)The Company purchased a 49% membership interest in this joint venture.
(5)The Company purchased a 12% membership interest in this joint venture by contributing 2 properties valued at $39.0 million and paid additional consideration of $17.0 million.
(6)The Company completed the settlement of acquisitions related earn-out payments upon execution of leases at two properties. One payment valued at $1.9 million at the time of issuance was funded with the issuance of 8,529 Series A Preferred Units. A second payment valued at $0.7 million at the time of issuance was funded with the issuance of 3,409 Series A Preferred Units. All earn-out payments are considered to be additional purchase price upon each respective property.

For 2019, the Company recorded revenues and net income of $3.9 million and $1.0 million, respectively, from its 2019 acquisitions.

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The following table summarizes the preliminary purchase price allocations of the assets acquired and the liabilities assumed, which the Company determined using Level 2 and Level 3 inputs (in thousands):
December 31, 2020 December 31, 2019
Land $ 8,841  $ 18,394 
Building and improvements 128,594  108,027 
In-place lease intangibles 18,165  14,853 
Above market in-place lease intangibles 118  136 
Below market in-place lease intangibles (1,962) (96)
Right-of-use asset 444  630 
Receivables 140  54 
Issuance of OP Units (3,067) (22,598)
Mortgage escrow —  (3,718)
Prepaid expenses (771) — 
Issuance of Series A Preferred Units —  (2,602)
Net assets acquired $ 150,502  $ 113,080 
Acquisition credits (1) 1,027  — 
Aggregate purchase price $ 151,529  $ 113,080 
(1) Acquisition credits consisted primarily of future tenant improvements and capital expenditure commitments received as credits at the time of acquisition.

Dispositions

For the year ended December 31, 2020, the Company sold two medical office buildings in Ohio for approximately $20.5 million and recognized a net gain on the sales of approximately $5.8 million.

For the year ended December 31, 2019, the Company sold six medical office buildings in five states for approximately $86.3 million and recognized a net gain on the sales of approximately $31.3 million.

The following table summarizes revenues and net income related to the 2020 disposition properties for the periods presented (in thousands):
  Year Ended December 31,
  2020 2019 2018
Revenue $ 1,335  $ 1,371  $ 1,368 
Income before gain on sale of investment properties, net $ 706  $ 742  $ 740 
Gain on sale of investment properties, net 5,842  —  — 
Net income $ 6,548  $ 742  $ 740 

The following table summarizes revenues and net income related to the 2019 disposition properties for the periods presented (in thousands):
  Year Ended December 31,
  2020 2019 2018
Revenue $ —  $ 3,581  $ 9,056 
(Loss) income before gain on sale of investment properties, net $ —  $ (490) $ 3,695 
Gain on sale of investment properties, net —  31,309  — 
Net income $ —  $ 30,819  $ 3,695 

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Note 4. Intangibles

The following is a summary of the carrying amount of intangible assets and liabilities as of December 31, 2020 and 2019 (in thousands):
  December 31, 2020 December 31, 2019
  Cost Accumulated
Amortization 		Net Cost Accumulated
Amortization 		Net
Assets            
In-place leases $ 362,837  $ (173,862) $ 188,975  $ 346,438  $ (140,937) $ 205,501 
Above-market leases 43,386  (20,670) 22,716  43,300  (16,856) 26,444 
Leasehold interest 712  (361) 351  712  (302) 410 
Right-of-use lease assets 141,507  (4,327) 137,180  129,976  (2,043) 127,933 
Total $ 548,442  $ (199,220) $ 349,222  $ 520,426  $ (160,138) $ 360,288 
Liabilities            
Below-market lease $ 15,882  $ (9,241) $ 6,641  $ 14,054  $ (7,958) $ 6,096 
Lease liabilities 74,766  (650) 74,116  63,665  (375) 63,290 
Total $ 90,648  $ (9,891) $ 80,757  $ 77,719  $ (8,333) $ 69,386 

The following is a summary of the Company’s acquired lease intangible amortization for the years ended December 31, 2020, 2019, and 2018 (in thousands):
  December 31,
  2020 2019 2018
Amortization expense related to in-place leases $ 34,691  $ 35,984  $ 50,082 
Decrease of rental income related to above-market leases 3,846  4,354  5,194 
Decrease of rental income related to leasehold interests 59  59  59 
Increase of rental income related to below-market leases 1,417  1,886  2,718 
Decrease of operating expense related to above-market ground leases (1) 139  139  139 
Increase in operating expense related to below-market ground leases (1) 1,234  1,219  1,013 
(1)Above-market and below-market ground leases are included in the right-of-use asset as of January 1, 2019 due to the implementation of ASU 2016-02, Leases. Further detail is provided in Note 2 (Summary of Significant Accounting Policies).
 
For the year ended December 31, 2020, the Company wrote off in-place lease assets of approximately $1.8 million with accumulated amortization of $0.9 million, for a net loss of approximately $0.8 million.

Future aggregate net amortization of the Company’s acquired lease intangibles as of December 31, 2020, is as follows (in thousands): 
  Net Decrease in
Revenue 		Net Increase in
Expenses
2021 $ 2,372  $ 33,990 
2022 1,929  30,074 
2023 1,622  27,194 
2024 1,559  24,189 
2025 1,562  20,638 
Thereafter 7,382  115,954 
Total $ 16,426  $ 252,039 
 
For the year ended December 31, 2020, the weighted average amortization periods for asset lease intangibles and liability lease intangibles are 27 years and 41 years, respectively. Further detail is provided in Note 2 (Summary of Significant Accounting Policies).

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Note 5. Other Assets
 
Other assets consisted of the following as of December 31, 2020 and 2019 (in thousands):
December 31,
2020 2019
Straight-line rent receivable, net $ 86,551  $ 73,992 
Notes receivable, net 23,760  22,694 
Prepaid expenses 9,401  8,000 
Lease inducements, net 9,396  11,415 
Leasing commissions, net 9,282  7,986 
Escrows 1,507  1,886 
Interest rate swap —  4,933 
Other 4,103  4,036 
Total $ 144,000  $ 134,942 
  
Note 6. Debt
 
The following is a summary of debt as of December 31, 2020 and 2019 (in thousands):
  December 31,
  2020 2019
Fixed interest mortgage notes (1) $ 51,896  $ 76,897 
Variable interest mortgage note (2) 6,105  6,581 
Total mortgage debt 58,001  83,478 
$850 million unsecured revolving credit facility bearing variable interest, due September 2022 (3)
166,000  339,000 
$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, due June 2023 (4)
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 1,449,001  1,647,478 
Unamortized deferred financing costs (5,369) (7,677)
Unamortized discounts (4,855) (5,483)
Unamortized fair value adjustments 73  135 
Total debt $ 1,438,850  $ 1,634,453 
(1)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%. As of December 31, 2019, fixed interest mortgage notes bear interest from 3.00% and 5.50%, due in 2020, 2021, 2022, and 2024, with a weighted average interest rate of 4.43%. The notes are collateralized by four properties with a net book value of $110.3 million as of December 31, 2020 and five properties with a net book value of and $170.2 million as of December 31, 2019.
(2)Variable interest mortgage note bears variable interest of LIBOR plus 2.75%, for an interest rate of 2.90% and 4.50% as of December 31, 2020 and December 31, 2019, respectively. The note is due in 2028 and is collateralized by one property with a net book value of $8.3 million and $8.6 million as of December 31, 2020 and December 31, 2019, respectively.
(3)As of December 31, 2020, the unsecured revolving credit facility bears variable interest of LIBOR plus 0.90%. As of December 31, 2019, the unsecured revolving credit facility had a variable interest rate of LIBOR plus 1.10%.
(4)As of December 31, 2020, the Trust’s borrowings under the term loan feature of the Credit Agreement bear interest at a rate which is determined by the Trust’s credit rating, currently equal to LIBOR + 1.00%. As of December 31, 2019, the term loan feature of the Credit Agreement bears interest at a rate equal to LIBOR + 1.25%. The Trust has entered into a pay-fixed receive-variable interest rate swap, fixing the LIBOR component of this rate at 1.07%.
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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 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 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 December 31, 2020, the Trust had investment grade ratings of BBB from Fitch, Baa3 from Moody’s and BBB- from S&P. 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 as of December 31, 2020, 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% as of December 31, 2020. 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 December 31, 2020, 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 December 31, 2020, the Company had $166.0 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 unencumbered borrowing base as of December 31, 2020 allows the Company to borrow an additional $684.0 million before reaching the maximum allowed under the credit facility.

Notes Payable

On January 7, 2016, the Operating Partnership issued and sold $150.0 million aggregate principal amount of senior notes, comprised of (i) $15.0 million aggregate principal amount of 4.03% Senior Notes, Series A, due January 7, 2023, (ii) $45.0 million aggregate principal amount of 4.43% Senior Notes, Series B, due January 7, 2026, (iii) $45.0 million aggregate
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principal amount of 4.57% Senior Notes, Series C, due January 7, 2028, and (iv) $45.0 million aggregate principal amount of 4.74% Senior Notes, Series D, due January 7, 2031. On August 11, 2016, the note agreement for these notes was amended to make certain changes to its terms, including certain changes to affirmative covenants, negative covenants, and definitions contained therein. Interest on each respective series of the January 2016 Senior Notes is payable semi-annually.

On August 11, 2016, the Operating Partnership issued and sold $75.0 million aggregate principal amount of senior notes, comprised of (i) $25.0 million aggregate principal amount of 4.09% Senior Notes, Series A, due August 11, 2025, (ii) $25.0 million aggregate principal amount of 4.18% Senior Notes, Series B, due August 11, 2026, and (iii) $25.0 million aggregate principal amount of 4.24% Senior Notes, Series C, due August 11, 2027. Interest on each respective series of the August 2016 Senior Notes is payable semi-annually.

On March 7, 2017, the Operating Partnership issued and sold $400.0 million aggregate principal amount of 4.30% Senior Notes which will mature on March 15, 2027. The Senior Notes were sold at an issue price of 99.68% of their face value, before the underwriters’ discount. The Company’s net proceeds from the offering, after deducting underwriting discounts and expenses, were approximately $396.1 million.

On December 1, 2017, the Operating Partnership issued and sold $350.0 million aggregate principal amount of 3.95% Senior Notes which will mature on January 15, 2028. The Senior Notes were sold at an issue price of 99.78% of their face value, before the underwriters’ discount. The Company’s net proceeds from the offering, after deducting underwriting discounts and expenses, were approximately $347.0 million.
 
Certain properties have mortgage debt that contains financial covenants. As of December 31, 2020, the Trust was in compliance with all senior notes and mortgage debt financial covenants.
 
Scheduled principal payments due on debt as of December 31, 2020, are as follows (in thousands):
2021 $ 8,296 
2022 186,825 
2023 266,008 
2024 23,669 
2025 25,476 
Thereafter 938,727 
Total Payments $ 1,449,001 

As of December 31, 2020 and 2019, the Company had total consolidated indebtedness of approximately $1.4 billion and $1.6 billion, respectively. The weighted average interest rate on consolidated indebtedness was 3.49% as of December 31, 2020 (based on the 30-day LIBOR rate as of December 31, 2020 of 0.15%). The weighted average interest rate on consolidated indebtedness was 3.65% as of December 31, 2019 (based on the 30-day LIBOR rate as of December 31, 2019 of 1.75%).

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. Additionally, as a result of the adoption ASU 2017-12, the Company no longer discloses the ineffective portion of the change in fair value of its derivatives financial instruments designated as hedges.

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
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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 December 31, 2020, 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 the Company’s 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 December 31, 2020 (included in Accrued expenses and other liabilities)
$ 5,317 
Asset balance at December 31, 2019 (included in Other assets)
$ 4,933 
(1)1.07% effective swap rate plus 1.00% spread per Credit Agreement.

Note 8. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following as of December 31, 2020 and 2019 (in thousands):
December 31,
2020 2019
Real estate taxes payable $ 23,436  $ 21,483 
Prepaid rent 22,248  21,037 
Accrued interest 16,009  16,038 
Accrued expenses 5,721  4,882 
Interest rate swap 5,317  — 
Embedded derivative 4,944  4,290 
Security deposits 3,714  3,472 
Accrued incentive compensation 1,945  2,248 
Tenant improvement allowances 1,917  2,155 
Contingent consideration —  715 
Other 6,678  4,918 
Total $ 91,929  $ 81,238 

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.
 
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In connection with the IPO, the Trust adopted the 2013 Equity Incentive Plan (“2013 Plan”) to make shares available for awards to 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. 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. During 2018, the Trust granted a total of 206,446 restricted common shares with a total value of $3.1 million to the Company’s officers and certain of its employees, which have a one-year vesting period for senior management award-recipients and a three-year vesting period for employee award-recipients. During 2019, the Trust granted a total of 194,413 restricted common shares with a total value of $3.5 million to the Company’s officers and certain of its employees, which have a one-year vesting period for senior management award-recipients and a three-year vesting period for employee award-recipients. During 2020, the Trust granted a total of 190,418 restricted common shares with a total value of $3.6 million to the Company’s officers and certain of its employees, which have a one-year vesting period for senior management award-recipients and a three-year vesting period for employee award-recipients.

The following is summary of the status of the Trust’s non-vested restricted common shares during 2020, 2019, and 2018:
  Common Shares Weighted
Average Grant
Date Fair Value
Non-vested at December 31, 2017 173,276  $ 19.36 
Granted 206,446  14.87 
Vested (153,325) 19.32 
Forfeited (1,258) 16.27 
Non-vested at December 31, 2018 225,139  15.29 
Granted 194,413  17.80 
Vested (200,104) 15.13 
Forfeited (2,571) 16.96 
Non-vested at December 31, 2019 216,877  17.67 
Granted 190,418  19.00 
Vested (189,642) 17.81 
Forfeited (1,831) 16.80 
Non-vested at December 31, 2020 215,822  $ 18.73 

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 years ended December 31, 2020, 2019, and 2018 the Company recognized non-cash share compensation of $3.5 million, $3.3 million, and $3.1 million, respectively. Unrecognized compensation expense at December 31, 2020, 2019, and 2018 was $1.3 million, $1.1 million, and $1.0 million, respectively. 
 
Restricted Share Units:

In March 2020, March 2019, and March 2018 under the Trust’s 2013 Plan, the Trust granted (i) restricted share units at a target level of 223,579, 229,884, and 254,282 respectively, to the Trust’s senior management, which are subject to certain performance and market conditions and a three-year service periods and (ii) 38,858, 41,925, and 50,745 restricted share units, respectively, to the members of the Board of Trustees, which are subject to certain timing conditions and a two-year vesting period. In March 2020, 259,067 units were also granted to an officer subject to certain timing conditions and a five-year service period. Each restricted share unit contains one dividend equivalent. The 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.

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Approximately 40%, 50%, and 40% of the restricted share units issued to the Trust’s senior management in 2020, 2019, and 2018, respectively, vest based on certain market conditions. The 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 $31.95 in 2020, $32.65 in 2019, and $19.28 in 2018 per unit, respectively, using the following assumptions:
2020 2019 2018
Volatility 20.1  % 21.8  % 21.7  %
Dividend assumption reinvested reinvested reinvested
Expected term in years 2.8 years 2.8 years 2.8 years
Risk-free rate 0.84  % 2.53  % 2.40  %
Stock price (per share) $ 19.30  $ 17.89  $ 14.78 

 The remaining 60% of the restricted share units issued to the Trust’s senior management and 100% of the restricted share units issued to an officer in 2020, 50% issued to the Trust’s senior management in 2019, and 60% issued to the Trust’s senior management in 2018, vest based upon certain performance or timing conditions. With respect to the performance and timing conditions of the March 2020 grant issued to the Trust’s senior management, the grant date fair value of $19.30 per unit was based on the share price at the date of grant. The combined weighted average grant date fair value of the March 2020 restricted share units issued to officers is $24.36 per unit. With respect to the performance conditions of the March 2019 grant, the grant date fair value of $17.89 per unit was based on the share price at the date of grant. The combined weighted average grant date fair value of the March 2019 restricted share units issued to officers is $25.27 per unit. With respect to the performance conditions of the March 2018 grant, the grant date fair value of $14.78 per unit was based on the share price at the date of grant. The combined weighted average grant date fair value of the March 2018 restricted share units issued to officers is $16.58 per unit.

The following is a summary of the activity in the Trust’s restricted share units during 2020, 2019, and 2018: 
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, 2017 354,123  $ 26.30  51,220  $ 19.04 
Granted 254,282  16.58  50,745  14.78 
Vested (75,250) (1) 19.22  (34,807) 18.67 
Non-vested at December 31, 2018 533,155  22.66  67,158  16.01 
Granted 229,884  25.27  41,925  17.89 
Vested (104,553) (2) 26.33  (41,786) 16.75 
Forfeited (3,734) 23.08  —  — 
Non-vested at December 31, 2019 654,752  22.99  67,297  16.72 
Granted 482,646  21.64  38,858  19.30 
Vested (173,259) (3) 29.34  (46,335) 16.19 
Non-vested at December 31, 2020 964,139  $ 21.17  59,820  $ 18.81 
(1)Restricted units vested by Company executives in 2018 resulted in the issuance of 126,108 common shares, less 56,502 common shares withheld to cover minimum withholding tax obligations, for multiple employees.
(2)Restricted units vested by Company executives in 2019 resulted in the issuance of 87,805 common shares, less 35,265 common shares withheld to cover minimum withholding tax obligations, for multiple employees.
(3)Restricted units vested by Company executives in 2020 resulted in the issuance of 147,765 common shares, less 65,513 common shares withheld to cover minimum withholding tax obligations, for multiple employees.
 
The Company recognized $8.9 million, $6.7 million, and $5.5 million of non-cash share unit compensation expense for the years ended December 31, 2020, 2019, and 2018, respectively. Unrecognized compensation expense at December 31, 2020, 2019, and 2018 was $11.5 million, $5.8 million, and $5.2 million, respectively.
 
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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 December 31, 2020, consist of one embedded derivative as detailed in the Redeemable Noncontrolling Interests - Series A Preferred Units and Partially Owned Properties section of Note 2 (Summary of Significant Accounting Policies) and 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 2 (Summary of Significant Accounting Policies) and Note 7 (Derivatives).

Neither the embedded derivative nor the interest rate swaps are 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 was one asset measured at fair value as of December 31, 2020 that had a previous carrying value of $5.4 million. During the year ended December 31, 2020, the Company recorded an impairment charge of $4.9 million related to a medical office building in Grand Rapids, Michigan, one of the Company’s original properties at the time of the IPO. There were no assets measured at fair value as of December 31, 2019.

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):
December 31,
2020 2019
  Carrying
Amount 		Fair
Value 		Carrying
Amount 		Fair
Value
Assets:
Real estate loans receivable, net $ 198,800  $ 198,814  $ 178,240  $ 178,095 
Notes receivable, net $ 23,760  $ 23,760  $ 22,694  $ 22,694 
Derivative assets $ —  $ —  $ 4,933  $ 4,933 
Liabilities:
Credit facility $ (416,000) $ (416,000) $ (589,000) $ (589,000)
Notes payable $ (975,000) $ (1,063,367) $ (975,000) $ (1,003,385)
Mortgage debt $ (58,074) $ (59,651) $ (83,613) $ (85,110)
Derivative liabilities $ (10,261) $ (10,261) $ (4,290) $ (4,290)
 
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 December 31, 2020, the future minimum rental payments on non-cancelable leases, exclusive of expense recoveries, were as follows (in thousands):
2021 $ 305,926 
2022 299,200 
2023 291,830 
2024 279,696 
2025 263,358 
Thereafter 918,290 
Total $ 2,358,300 
 
Note 12. Rent Expense
 
The Company leases the rights to parking structures at three of its properties, the air space above one property, and the land upon which 81 of its properties are located from third party landowners pursuant to separate leases. In addition, the Company has 10 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 87 years remaining, excluding extension options, with a weighted average remaining term of 44 years.

Effective January 1, 2019, the Company adopted ASC 842, Leases which requires the operating leases mentioned above to be included in right-of-use lease assets, net on the Company’s December 31, 2020 and 2019 consolidated balance sheets, which represents the Company’s right to use the underlying asset for the lease term. The Company’s obligation to make the lease payments are included in lease liabilities on the Company’s December 31, 2020 and 2019 consolidated balance sheets. Based on the present value of the lease payments for the remaining lease term of the Company’s existing leases, the Company recognized right-of-use assets of approximately $126.7 million and lease liabilities for operating leases of approximately $61.0 million on January 1, 2019. Operating lease right-of-use assets and liabilities commencing or renewing after January 1, 2019 are recognized at commencement or renewal date based on the present value of lease payments over the lease term. As of December 31, 2020, total right-of-use assets and operating lease liabilities, net of accumulated amortization, were approximately $137.2 million and $74.1 million, respectively. The Company has entered into various short-term operating leases, primarily for office spaces, with an initial term of twelve months or less. These leases are not recorded on the Company's consolidated balance sheets.

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 the Company’s leases do not provide an implicit rate, the Company calculates a discount rate that approximates the Company’s incremental borrowing rate available at lease
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commencement to determine the present value of future minimum lease payments. The approximated weighted average discount rate was 4.4% as of December 31, 2020. There are no operating leases that have not yet commenced that would have a significant impact on the Company’s consolidated balance sheets.

As of December 31, 2020, the future minimum lease obligations under non-cancelable parking, air, ground, and corporate leases, were as follows (in thousands):
2021 $ 3,505 
2022 3,458 
2023 3,450 
2024 3,433 
2025 3,414 
Thereafter 169,592 
Total undiscounted lease payments $ 186,852 
Less: Interest (112,736)
Present value of lease liabilities $ 74,116 

As of December 31, 2019, the future minimum lease obligations under non-cancelable parking, air, ground, and corporate leases, were as follows (in thousands):
2020 $ 3,130 
2021 3,119 
2022 3,084 
2023 3,066 
2024 3,040 
Thereafter 141,486 
Total undiscounted lease payments $ 156,925 
Less: Interest (93,635)
Present value of lease liabilities $ 63,290 

Lease costs consisted of the following for the year ended December 31, 2020 and December 31, 2019 (in thousands):
December 31,
  2020 2019
Operating lease cost $ 2,190  $ 1,896 
Variable lease cost 995  973 
Total lease cost $ 3,185  $ 2,869 

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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 December 31, 2020 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 December 31, 2020 (in thousands):
Tenant Total ABR Percent of ABR
CommonSpirit - CHI - Nebraska $ 17,229  5.6  %
Northside Hospital 14,879  4.9  %
UofL Health - Louisville, Inc. 12,151  4.0  %
US Oncology 9,758  3.2  %
Baylor Scott and White Health 7,960  2.6  %
Remaining portfolio 244,376  79.7  %
Total $ 306,353  100.0  %

ABR collected from the Company’s top five tenant relationships comprises 20.3% of its total ABR for the period ending December 31, 2020. Total ABR from CommonSpirit Health affiliated tenants totals 16.7%, including the affiliates disclosed above.

The following table summarizes certain information about the Company’s top five geographic concentrations as of December 31, 2020 (in thousands):
State Total ABR Percent of ABR
Texas $ 48,820  15.9  %
Georgia 24,836  8.1  %
Indiana 23,562  7.7  %
Nebraska 18,526  6.1  %
Minnesota 17,746  5.8  %
Other 172,863  56.4  %
Total $ 306,353  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):
  Year Ended December 31,
  2020 2019 2018
Numerator for earnings per share - basic:
Net income $ 68,488  $ 77,186  $ 58,321 
Net income attributable to noncontrolling interests:
Operating Partnership (1,797) (2,155) (1,576)
Partially owned properties (574) (548) (515)
Preferred distributions (1,241) (1,209) (1,340)
Numerator for earnings per share - basic: $ 64,876  $ 73,274  $ 54,890 
Numerator for earnings per share - diluted:
Numerator for earnings per share - basic: 64,876  73,274  54,890 
Operating Partnership net income 1,797  2,155  1,576 
Numerator for earnings per share - diluted $ 66,673  $ 75,429  $ 56,466 
Denominator for earnings per share - basic and diluted:
Weighted average number of shares outstanding - basic 204,243,768  185,770,251  182,064,064 
Effect of dilutive securities:  
Noncontrolling interest - Operating Partnership units 5,659,325  5,466,010  5,329,270 
Restricted common shares 88,131  103,293  99,129 
Restricted share units 1,154,693  286,766  34,299 
Denominator for earnings per share - diluted 211,145,917  191,626,320  187,526,762 
Earnings per share - basic $ 0.32  $ 0.39  $ 0.30 
Earnings per share - diluted $ 0.32  $ 0.39  $ 0.30 

Note 15. Subsequent Events

Since December 31, 2020, the Company has closed on the acquisition of multiple medical condominium units located in Atlanta “Pill Hill” MOB for a purchase price of approximately $0.7 million and funded one mezzanine loan in Elizabeth, New Jersey for $4.8 million.

On January 4, 2021, 116,110 Series A Preferred Units issued in connection with the Hazelwood Medical Commons Transaction were redeemed for a total value of $25.3 million and $20.6 million of note receivables and accrued interest were repaid. As a result of this redemption, there are no Series A Preferred Units Outstanding.

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Physicians Realty Trust
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2020
(dollars in thousands)

      Initial Cost to Company Gross Amount at Which Carried as of Close of Period      
Description Location Encumbrances Land Buildings and
Improvements 		Cost Capitalized
Subsequent to
Acquisitions 		Land Buildings and
Improvements 		Total (1) Accumulated
Depreciation 		Year
Built 		Date 
Acquired 		Life on Which Building
Depreciation in
Income Statement
is Computed
Del Sol Medical Center MOB El Paso, TX —  860  2,866  545  860  3,411  4,271  (2,291) 1987 8/24/2006 21
Hackley MOB Grand Rapids, MI —  1,840  6,402  (2,977) 165  3,425  3,590  (3,111) 1968 12/22/2006 30
MeadowView Professional Kingsport, TN —  2,270  11,344  1,017  2,270  12,361  14,631  (5,274) 2005 5/10/2007 30
Firehouse Square Milwaukee, WI —  1,120  2,768  10  1,120  2,778  3,898  (1,239) 2002 8/15/2007 30
Valley West Hospital MOB Chicago, IL —  —  6,275  785  —  7,060  7,060  (3,047) 2007 11/1/2007 30
New Albany MOB Columbus, OH —  237  2,767  736  237  3,503  3,740  (1,196) 2000 1/4/2008 42
Mid Coast Hospital MOB Portland, ME 6,105  —  11,247  499  —  11,746  11,746  (4,833) 2008 5/1/2008 42
Arrowhead Commons Phoenix, AZ $ —  $ 740  $ 2,551  $ 754  $ 740  $ 3,305  $ 4,045  $ (957) 2004 5/31/2008 46
Remington Medical Commons Chicago, IL —  895  6,499  862  895  7,361  8,256  (3,021) 2008 6/1/2008 30
Aurora MOB - Shawano Green Bay, WI —  500  1,566  —  500  1,566  2,066  (337) 2010 4/15/2010 50
East El Paso Physicians Medical Center El Paso, TX —  710  4,500  109  710  4,609  5,319  (949) 2004 8/30/2013 35
LifeCare 2.0 - Plano Plano, TX —  3,370  11,689  455  3,370  12,144  15,514  (3,625) 1987 9/18/2013 25
Crescent City Surgical Centre New Orleans, LA —  —  34,208  —  —  34,208  34,208  (5,167) 2010 9/30/2013 48
Foundation Surgical Affiliates MOB Oklahoma City, OK 6,471  1,300  12,724  —  1,300  12,724  14,024  (2,145) 2004 9/30/2013 43
Eastwind Surgical Center Columbus, OH —  981  7,620  —  981  7,620  8,601  (1,227) 2007 11/27/2013 44
Great Falls ASC Great Falls, MT —  203  3,224  85  203  3,309  3,512  (719) 1999 12/11/2013 33
Foundation Surgical Hospital of San Antonio San Antonio, TX —  2,230  23,346  43  2,230  23,389  25,619  (5,205) 2007 2/19/2014 35
21st Century Radiation Oncology - Sarasota Sarasota, FL —  633  6,557  67  633  6,624  7,257  (1,729) 1975 2/26/2014 27
21st Century Radiation Oncology - Venice Venice, FL —  814  2,952  —  814  2,952  3,766  (650) 1987 2/26/2014 35
21st Century Radiation Oncology - Englewood Englewood, FL —  350  1,878  —  350  1,878  2,228  (372) 1992 2/26/2014 38
Foundation Healthplex of San Antonio San Antonio, TX —  911  4,189  —  911  4,189  5,100  (856) 2007 2/28/2014 35
Peachtree Dunwoody Medical Center Atlanta, GA —  —  52,481  1,377  —  53,858  53,858  (12,420) 1987 2/28/2014 25
LifeCare 2.0 - Fort Worth Fort Worth, TX —  2,730  24,639  —  2,730  24,639  27,369  (5,676) 1985 3/28/2014 30
LifeCare 2.0 - Pittsburgh Pittsburgh, PA —  1,142  11,737  —  1,142  11,737  12,879  (2,834) 1987 3/28/2014 30
Pinnacle Health MOB - Wormleysburg Harrisburg, PA —  795  4,601  31  795  4,632  5,427  (1,332) 1990 4/22/2014 25
Pinnacle Health MOB - Carlisle Carlisle, PA —  424  2,232  —  424  2,232  2,656  (463) 2002 4/22/2014 35
South Bend Orthopaedics MOB Mishawaka, IN —  2,418  11,355  —  2,418  11,355  13,773  (2,172) 2007 4/30/2014 40
Grenada Medical Complex Grenada, MS —  185  5,820  244  185  6,064  6,249  (1,590) 1975 4/30/2014 30
Mississippi Sports Medicine & Orthopedics Jackson, MS —  1,272  14,177  626  1,272  14,803  16,075  (3,056) 1987 5/23/2014 35
Carmel Medical Pavilion Carmel, IN —  —  3,917  320  —  4,237  4,237  (1,132) 1993 5/28/2014 25
Renaissance ASC Oshkosh, WI —  228  7,658  17  228  7,675  7,903  (1,299) 2007 6/30/2014 40
Summit Urology Bloomington, IN —  125  4,792  —  125  4,792  4,917  (1,065) 1996 6/30/2014 30
IU Health - 500 Landmark Bloomington, IN —  627  3,549  —  627  3,549  4,176  (686) 2000 7/1/2014 35
IU Health - 550 Landmark Bloomington, IN —  2,717  15,224  —  2,717  15,224  17,941  (2,945) 2000 7/1/2014 35
IU Health - 574 Landmark Bloomington, IN —  418  1,493  —  418  1,493  1,911  (295) 2004 7/1/2014 35
Carlisle II MOB Carlisle, PA —  412  3,962  —  412  3,962  4,374  (595) 1996 7/25/2014 45
Surgical Institute of Monroe Monroe, MI —  410  5,743  —  410  5,743  6,153  (1,238) 2010 7/28/2014 35
Oaks Medical Building Lady Lake, FL —  1,065  8,642  8  1,065  8,650  9,715  (1,334) 2011 7/31/2014 42
Mansfield ASC Mansfield, TX —  1,491  6,471  —  1,491  6,471  7,962  (982) 2010 9/2/2014 46
Eye Center of Southern Indiana Bloomington, IN —  910  11,477  —  910  11,477  12,387  (2,154) 1995 9/5/2014 35
Zangmeister Cancer Center Columbus, OH —  1,610  31,120  147  1,610  31,267  32,877  (5,086) 2007 9/30/2014 40
Orthopedic One - Columbus Columbus, OH —  —  16,234  59  —  16,293  16,293  (2,520) 2009 9/30/2014 45
Orthopedic One - Westerville Columbus, OH —  362  3,944  —  362  3,944  4,306  (631) 2007 9/30/2014 43
South Point Medical Center Columbus, OH —  —  5,950  —  —  5,950  5,950  (1,078) 2007 9/30/2014 38
3100 Lee Trevino Drive El Paso, TX —  2,294  11,316  1,166  2,294  12,482  14,776  (2,649) 1983 9/30/2014 30
1755 Curie El Paso, TX —  2,283  24,543  3,432  2,283  27,975  30,258  (5,569) 1970 9/30/2014 30
9999 Kenworthy El Paso, TX —  728  2,178  589  728  2,767  3,495  (536) 1983 9/30/2014 35
32 Northeast MOB Harrisburg, PA —  408  3,232  223  408  3,455  3,863  (700) 1994 10/29/2014 33
4518 Union Deposit MOB Harrisburg, PA —  617  7,305  52  617  7,357  7,974  (1,567) 2000 10/29/2014 31
4520 Union Deposit MOB Harrisburg, PA —  169  2,055  37  169  2,092  2,261  (479) 1997 10/29/2014 28
240 Grandview MOB Harrisburg, PA —  321  4,242  175  321  4,417  4,738  (812) 1980 10/29/2014 35
Market Place Way MOB Harrisburg, PA —  808  2,383  57  808  2,440  3,248  (574) 2004 10/29/2014 35
Middletown Medical - Maltese Middletown, NY —  670  9,921  37  670  9,958  10,628  (1,794) 1988 11/28/2014 35
Middletown Medical - Edgewater Middletown, NY —  200  2,966  11  200  2,977  3,177  (536) 1992 11/28/2014 35
Napoleon MOB New Orleans, LA —  1,202  7,412  3,015  1,202  10,427  11,629  (2,265) 1974 12/19/2014 25
West Tennessee ASC Jackson, TN —  1,661  2,960  7,116  1,661  10,076  11,737  (1,311) 1991 12/30/2014 44
Southdale Place Edina MN —  504  10,006  1,927  504  11,933  12,437  (3,148) 1979 1/22/2015 24
Crystal MOB Crystal, MN —  945  11,862  51  945  11,913  12,858  (1,764) 2012 1/22/2015 47
Savage MOB Savage, MN 4,925  1,281  10,021  —  1,281  10,021  11,302  (1,563) 2011 1/22/2015 48
Dell MOB Chanhassen, MN —  800  4,520  178  800  4,698  5,498  (796) 2008 1/22/2015 43
92

Physicians Realty Trust
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2020
(dollars in thousands)

      Initial Cost to Company Gross Amount at Which Carried as of Close of Period      
Description Location Encumbrances Land Buildings and
Improvements 		Cost Capitalized
Subsequent to
Acquisitions 		Land Buildings and
Improvements 		Total (1) Accumulated
Depreciation 		Year
Built 		Date 
Acquired 		Life on Which Building
Depreciation in
Income Statement
is Computed
Methodist Sports Greenwood, IN —  1,050  8,556  —  1,050  8,556  9,606  (1,612) 2008 1/28/2015 33
Vadnais Heights MOB Vadnais Heights, MN —  2,751  12,233  27  2,751  12,260  15,011  (2,098) 2013 1/29/2015 43
Minnetonka MOB Minnetonka, MN —  1,770  19,797  145  1,770  19,942  21,712  (2,953) 2014 2/5/2015 49
Jamestown Jamestown, ND —  656  9,440  299  656  9,739  10,395  (1,782) 2013 2/5/2015 43
Indiana American 3 Greenwood, IN —  862  6,901  1,486  862  8,387  9,249  (1,696) 2008 2/13/2015 38
Indiana American 2 Greenwood, IN —  741  1,846  560  741  2,406  3,147  (600) 2001 2/13/2015 31
Indiana American 4 Greenwood, IN —  771  1,928  298  771  2,226  2,997  (525) 2001 2/13/2015 31
8920 Southpointe Indianapolis, IN —  563  1,741  657  563  2,398  2,961  (747) 1993 2/13/2015 27
Minnesota Eye MOB Minnetonka, MN —  1,143  7,470  —  1,143  7,470  8,613  (1,219) 2014 2/17/2015 44
Baylor Cancer Center- Carrollton Dallas, TX —  855  6,007  91  855  6,098  6,953  (887) 2001 2/27/2015 43
Bridgeport Medical Center Lakewood, WA —  1,397  10,435  965  1,397  11,400  12,797  (1,907) 2004 2/27/2015 35
Renaissance Office Building Milwaukee, WI —  1,379  4,182  7,036  1,379  11,218  12,597  (3,090) 1896 3/27/2015 15
Calkins 125 Rochester, NY —  534  10,164  779  534  10,943  11,477  (2,232) 1997 3/31/2015 32
Calkins 200 Rochester, NY —  210  3,317  58  210  3,375  3,585  (714) 2000 3/31/2015 38
Calkins 300 Rochester, NY —  372  6,645  278  372  6,923  7,295  (1,170) 2002 3/31/2015 39
Calkins 400 Rochester, NY —  353  8,226  213  353  8,439  8,792  (1,540) 2007 3/31/2015 39
Calkins 500 Rochester, NY —  282  7,074  56  282  7,130  7,412  (1,238) 2008 3/31/2015 41
Premier Surgery Center of Louisville Louisville, KY —  1,106  5,437  —  1,106  5,437  6,543  (781) 2013 4/10/2015 43
Baton Rouge Surgery Center Baton Rouge, LA —  711  7,720  51  711  7,771  8,482  (1,331) 2003 4/15/2015 35
Healthpark Surgery Center Grand Blanc, MI —  —  17,624  61  —  17,685  17,685  (3,061) 2006 4/30/2015 36
University of Michigan Center for Specialty Care Livonia, MI —  2,200  8,627  205  2,200  8,832  11,032  (1,774) 1988 5/29/2015 30
Coon Rapids Medical Center Coon Rapids, MN —  607  5,857  468  607  6,325  6,932  (1,043) 2007 6/1/2015 35
Premier RPM Bloomington, IN —  872  10,537  —  872  10,537  11,409  (1,577) 2008 6/5/2015 39
Palm Beach ASC Palm Beach, FL —  2,576  7,675  —  2,576  7,675  10,251  (1,115) 2003 6/26/2015 40
Brookstone Physician Center Jacksonville, AL —  —  1,913  —  —  1,913  1,913  (365) 2007 6/30/2015 31
Hillside Medical Center Hanover, PA —  812  13,217  358  812  13,575  14,387  (2,259) 2003 6/30/2015 35
Randall Road MOB Elgin, IL —  1,124  15,404  1,640  1,124  17,044  18,168  (2,423) 2006 6/30/2015 38
JFK Medical Center MOB Atlantis, FL —  —  7,560  6  —  7,566  7,566  (1,213) 2002 7/24/2015 37
Grove City Health Center Grove City, OH —  1,363  8,516  —  1,363  8,516  9,879  (1,427) 2001 7/31/2015 37
Trios Health MOB Kennewick, WA —  1,492  55,178  3,795  1,492  58,973  60,465  (7,211) 2015 7/31/2015 45
Abrazo Scottsdale MOB Phoenix, AZ —  —  25,893  683  —  26,576  26,576  (3,712) 2004 8/14/2015 43
Avondale MOB Avondale, AZ —  1,818  18,108  100  1,818  18,208  20,026  (2,342) 2006 8/19/2015 45
Palm Valley MOB Goodyear, AZ —  2,666  28,655  461  2,666  29,116  31,782  (3,903) 2006 8/19/2015 43
North Mountain MOB Phoenix, AZ —  —  42,877  1,368  —  44,245  44,245  (5,629) 2008 8/31/2015 47
Katy Medical Complex Katy, TX —  822  6,797  42  822  6,839  7,661  (1,013) 2005 9/1/2015 39
Katy Medical Complex Surgery Center Katy, TX —  1,560  25,601  281  1,560  25,882  27,442  (3,633) 2006 9/1/2015 40
New Albany Medical Center New Albany, OH —  1,600  8,505  1,403  1,600  9,908  11,508  (1,663) 2005 9/9/2015 37
Fountain Hills Medical Campus Fountain Hills, AZ —  2,593  7,635  744  2,593  8,379  10,972  (1,259) 1995 9/30/2015 39
Fairhope MOB Fairhope, AL —  640  5,227  890  640  6,117  6,757  (1,027) 2005 10/13/2015 38
Foley MOB Foley, AL —  365  732  —  365  732  1,097  (112) 1997 10/13/2015 40
Foley Venture Foley, AL —  420  1,118  208  420  1,326  1,746  (191) 2002 10/13/2015 38
North Okaloosa MOB Crestview, FL —  190  1,010  —  190  1,010  1,200  (142) 2005 10/13/2015 41
Commons on North Davis Pensacola, FL —  380  1,237  —  380  1,237  1,617  (176) 2009 10/13/2015 41
Sorrento Road MOB Pensacola, FL —  170  894  —  170  894  1,064  (128) 2010 10/13/2015 41
Panama City Beach MOB Panama City, FL —  —  739  26  —  765  765  (99) 2012 10/13/2015 42
Perdido Medical Park Pensacola, FL —  100  1,147  —  100  1,147  1,247  (161) 2010 10/13/2015 41
Ft. Walton Beach MOB Ft. Walton Beach, FL —  230  914  —  230  914  1,144  (147) 1979 10/13/2015 35
Panama City MOB Panama City, FL —  —  661  39  —  700  700  (106) 2003 10/13/2015 38
Pensacola MOB Pensacola, FL —  220  1,685  78  220  1,763  1,983  (249) 2001 10/13/2015 39
Arete Surgical Center Johnstown, CO —  399  6,667  —  399  6,667  7,066  (804) 2013 10/19/2015 45
Cambridge Professional Center Waldorf, MD —  590  8,520  664  590  9,184  9,774  (1,481) 1999 10/30/2015 35
HonorHealth - 44th Street MOB Phoenix, AZ —  515  3,884  1,346  515  5,230  5,745  (1,113) 1988 11/13/2015 28
Mercy Medical Center Fenton, MO —  1,201  6,778  —  1,201  6,778  7,979  (948) 1999 12/1/2015 40
8 C1TY Blvd Nashville, TN —  1,555  39,713  348  1,555  40,061  41,616  (4,500) 2015 12/17/2015 45
Great Falls Clinic Great Falls, MT —  1,687  27,402  441  1,687  27,843  29,530  (3,766) 2004 12/29/2015 40
Great Falls Hospital Great Falls, MT —  1,026  25,262  —  1,026  25,262  26,288  (3,304) 2015 1/25/2016 40
Treasure Coast Center for Surgery Stuart, FL —  380  5,064  —  380  5,064  5,444  (615) 2013 2/1/2016 42
Park Nicollet Clinic Chanhassen, MN —  1,941  14,555  —  1,941  14,555  16,496  (1,945) 2005 2/8/2016 40
HEB Cancer Center Bedford, TX —  —  11,839  11  —  11,850  11,850  (1,406) 2014 2/12/2016 44
Riverview Medical Center Lancaster, OH —  1,313  10,243  783  1,313  11,026  12,339  (1,728) 1997 2/26/2016 33
St. Luke's Cornwall MOB Cornwall, NY —  —  13,017  63  —  13,080  13,080  (1,956) 2006 2/26/2016 35
HonorHealth - Glendale Glendale, AZ —  1,770  8,089  —  1,770  8,089  9,859  (929) 2015 3/15/2016 45
Columbia MOB Hudson, NY —  —  16,550  47  —  16,597  16,597  (2,291) 2006 3/21/2016 35
93

Physicians Realty Trust
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2020
(dollars in thousands)

      Initial Cost to Company Gross Amount at Which Carried as of Close of Period      
Description Location Encumbrances Land Buildings and
Improvements 		Cost Capitalized
Subsequent to
Acquisitions 		Land Buildings and
Improvements 		Total (1) Accumulated
Depreciation 		Year
Built 		Date 
Acquired 		Life on Which Building
Depreciation in
Income Statement
is Computed
St Vincent POB 1 Birmingham, AL —  —  10,172  781  —  10,953  10,953  (3,497) 1975 3/23/2016 15
Emerson Medical Building Creve Coeur, MO —  1,590  9,853  296  1,590  10,149  11,739  (1,480) 1989 3/24/2016 35
Eye Associates of NM - Santa Fe Santa Fe, NM —  900  6,604  —  900  6,604  7,504  (964) 2002 3/31/2016 35
Eye Associates of NM - Albuquerque Albuquerque, NM —  1,020  7,832  13  1,020  7,845  8,865  (1,018) 2007 3/31/2016 40
Gardendale Surgery Center Gardendale, AL —  200  5,732  —  200  5,732  5,932  (679) 2011 4/11/2016 42
HealthEast - Curve Crest Stillwater, MN —  409  3,279  —  409  3,279  3,688  (401) 2011 4/14/2016 43
HealthEast - Victor Gardens Hugo, MN —  572  4,400  62  572  4,462  5,034  (581) 2008 4/14/2016 41
Cardwell Professional Building Lufkin, TX —  —  8,348  247  —  8,595  8,595  (1,052) 1999 5/11/2016 42
Dacono Neighborhood Health Clinic Dacono, CO —  2,258  2,911  20  2,258  2,931  5,189  (489) 2014 5/11/2016 44
Grand Island Specialty Clinic Grand Island, NE —  102  2,802  167  102  2,969  3,071  (409) 1978 5/11/2016 42
Hot Springs Village Office Building Hot Springs Village, AR —  305  3,309  95  305  3,404  3,709  (605) 1988 5/11/2016 30
UofL Health - East Louisville, KY —  —  81,248  152  —  81,400  81,400  (8,821) 2003 5/11/2016 45
UofL Health - South Shepherdsville, KY —  —  15,861  235  —  16,096  16,096  (2,244) 2005 5/11/2016 39
UofL Health - Plaza I Louisville, KY —  —  8,808  707  —  9,515  9,515  (1,380) 1970 5/11/2016 35
UofL Health - Plaza II Louisville, KY —  —  5,216  1,985  —  7,201  7,201  (1,836) 1964 5/11/2016 15
UofL Health - OCC Louisville, KY —  —  35,703  1,282  —  36,985  36,985  (4,974) 1985 5/11/2016 34
Lexington Surgery Center Lexington, KY —  1,229  18,914  503  1,229  19,417  20,646  (3,087) 2000 5/11/2016 30
Medical Arts Pavilion Lufkin, TX —  —  6,215  753  —  6,968  6,968  (1,066) 2004 5/11/2016 33
Memorial Outpatient Therapy Center Lufkin, TX —  —  4,808  100  —  4,908  4,908  (589) 1990 5/11/2016 45
Midlands Two Professional Center Papillion, NE —  —  587  382  —  969  969  (613) 1976 5/11/2016 5
Parkview MOB Little Rock, AR —  705  4,343  76  705  4,419  5,124  (661) 1988 5/11/2016 35
Peak One ASC Frisco, CO —  —  5,763  317  —  6,080  6,080  (699) 2006 5/11/2016 44
Physicians Medical Center Tacoma, WA —  —  5,862  3,131  —  8,993  8,993  (1,229) 1977 5/11/2016 27
St. Alexius - Minot Medical Plaza Minot, ND —  —  26,078  29  —  26,107  26,107  (2,868) 2015 5/11/2016 49
St. Clare Medical Pavilion Lakewood, WA —  —  9,005  209  —  9,214  9,214  (1,520) 1989 5/11/2016 33
St. Joseph Medical Pavilion Tacoma, WA —  —  11,497  108  —  11,605  11,605  (1,668) 1989 5/11/2016 35
St. Joseph Office Park Lexington, KY —  3,722  12,675  4,899  3,722  17,574  21,296  (5,045) 1992 5/11/2016 14
UofL Health - Mary & Elizabeth MOB II Louisville, KY —  —  5,587  91  —  5,678  5,678  (816) 1979 5/11/2016 34
UofL Health - Mary & Elizabeth MOB III Louisville, KY —  —  383  356  —  739  739  (525) 1974 5/11/2016 2
Thornton Neighborhood Health Clinic Thornton, CO —  1,609  2,287  —  1,609  2,287  3,896  (369) 2014 5/11/2016 43
St. Francis MOB Federal Way, WA —  —  12,817  74  —  12,891  12,891  (1,792) 1987 6/2/2016 38
Children's Wisconsin - Brookfield Milwaukee, WI —  476  4,897  —  476  4,897  5,373  (569) 2016 6/3/2016 45
UofL Health - South MOB Shepherdsville, KY —  27  3,827  —  27  3,827  3,854  (443) 2006 6/8/2016 40
Good Samaritan North Annex Building Kearney, NE —  —  2,734  —  —  2,734  2,734  (396) 1984 6/28/2016 37
NE Heart Institute Medical Building Lincoln, NE —  —  19,738  233  —  19,971  19,971  (1,898) 2004 6/28/2016 47
St. Vincent West MOB Little Rock, AR —  —  13,453  —  —  13,453  13,453  (1,342) 2012 6/29/2016 49
Meridan Englewood, CO —  1,608  15,774  137  1,608  15,911  17,519  (2,172) 2002 6/29/2016 38
UofL Health - Mary & Elizabeth MOB I Louisville, KY —  —  8,774  496  —  9,270  9,270  (1,695) 1991 6/29/2016 25
St. Alexius - Medical Arts Pavilion Bismarck, ND —  —  12,902  350  —  13,252  13,252  (1,903) 1974 6/29/2016 32
St. Alexius - Mandan Clinic Mandan, ND —  708  7,700  250  708  7,950  8,658  (929) 2014 6/29/2016 43
St. Alexius - Orthopaedic Center Bismarck, ND —  —  13,881  628  —  14,509  14,509  (1,763) 1997 6/29/2016 39
St. Alexius - Rehab Center Bismarck, ND —  —  5,920  202  —  6,122  6,122  (1,160) 1997 6/29/2016 25
St. Alexius - Tech & Ed Bismarck, ND —  —  16,688  128  —  16,816  16,816  (2,052) 2011 6/29/2016 38
Good Samaritan MOB Kearney, NE —  —  24,154  1,428  —  25,582  25,582  (2,577) 1999 6/29/2016 45
Lakeside Two Professional Center Omaha, NE —  —  13,358  1,218  —  14,576  14,576  (1,721) 2000 6/29/2016 38
Lakeside Wellness Center Omaha, NE —  —  10,177  397  —  10,574  10,574  (1,244) 2000 6/29/2016 39
McAuley Center Omaha, NE —  1,427  17,020  837  1,427  17,857  19,284  (2,847) 1988 6/29/2016 30
Memorial Health Center Grand Island, NE —  —  33,967  1,845  —  35,812  35,812  (4,714) 1955 6/29/2016 35
Missionary Ridge MOB Chattanooga, TN —  —  7,223  3,410  —  10,633  10,633  (3,689) 1976 6/29/2016 10
Pilot Medical Center Birmingham, AL —  1,419  14,528  55  1,419  14,583  16,002  (1,999) 2005 6/29/2016 35
St. Joseph Medical Clinic Tacoma, WA —  —  16,427  72  —  16,499  16,499  (2,499) 1991 6/30/2016 30
Woodlands Medical Arts Center The Woodlands, TX —  —  19,168  2,664  —  21,832  21,832  (2,960) 2001 6/30/2016 35
FESC MOB Tacoma, WA —  —  12,702  324  —  13,026  13,026  (2,919) 1980 6/30/2016 22
PrairieCare MOB Maplewood, MN —  525  3,099  —  525  3,099  3,624  (340) 2016 7/6/2016 45
Springwoods MOB Spring, TX —  3,821  14,830  4,941  3,821  19,771  23,592  (3,138) 2015 7/21/2016 44
Unity ASC, Imaging & MOB West Lafayette, IN —  960  9,991  —  960  9,991  10,951  (1,339) 2001 8/8/2016 35
Unity Medical Pavilion West Lafayette, IN —  1,070  12,454  —  1,070  12,454  13,524  (1,668) 2001 8/8/2016 35
Unity Faith, Hope & Love West Lafayette, IN —  280  1,862  —  280  1,862  2,142  (250) 2001 8/8/2016 35
Unity Immediate Care and OCC West Lafayette, IN —  300  1,833  —  300  1,833  2,133  (235) 2004 8/8/2016 37
Medical Village at Maitland Orlando, FL —  2,393  18,543  316  2,393  18,859  21,252  (1,999) 2006 8/23/2016 44
Tri-State Orthopaedics MOB Evansville, IN —  1,580  14,162  —  1,580  14,162  15,742  (1,797) 2004 8/30/2016 37
Maury Regional Health Complex Spring Hill, TN —  —  15,619  335  —  15,954  15,954  (1,798) 2012 9/30/2016 41
94

Physicians Realty Trust
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2020
(dollars in thousands)

      Initial Cost to Company Gross Amount at Which Carried as of Close of Period      
Description Location Encumbrances Land Buildings and
Improvements 		Cost Capitalized
Subsequent to
Acquisitions 		Land Buildings and
Improvements 		Total (1) Accumulated
Depreciation 		Year
Built 		Date 
Acquired 		Life on Which Building
Depreciation in
Income Statement
is Computed
Spring Ridge Medical Center Wyomissing, PA —  28  4,943  —  28  4,943  4,971  (603) 2002 9/30/2016 37
Doctors Community Hospital POB Lanham, MD —  —  23,034  14  —  23,048  23,048  (2,047) 2009 9/30/2016 48
Gig Harbor Medical Pavilion Gig Harbor, WA —  —  4,791  2,245  —  7,036  7,036  (1,190) 1991 9/30/2016 30
Midlands One Professional Center Papillion, NE —  —  14,922  34  —  14,956  14,956  (1,724) 2010 9/30/2016 37
Northwest Michigan Surgery Center Traverse City, MI —  2,748  30,005  —  2,748  30,005  32,753  (3,246) 2004 10/28/2016 40
Northeast Medical Center Fayetteville, NY —  4,011  25,564  953  4,011  26,517  30,528  (3,959) 1998 11/23/2016 33
North Medical Center Liverpool, NY —  1,337  18,680  915  1,337  19,595  20,932  (2,564) 1989 11/23/2016 35
Cincinnati Eye Institute Cincinnati, OH —  2,050  32,546  —  2,050  32,546  34,596  (4,047) 1985 11/23/2016 35
HonorHealth - Scottsdale MOB Scottsdale, AZ —  3,340  4,288  5,811  3,340  10,099  13,439  (787) 2000 12/2/2016 45
Fox Valley Hematology & Oncology Appleton, WI —  1,590  26,666  —  1,590  26,666  28,256  (2,606) 2015 12/8/2016 44
Northern Vision Eye Center Traverse City, MI —  490  2,132  —  490  2,132  2,622  (268) 2006 12/15/2016 35
Flower Mound MOB Flower Mound, TX —  1,945  8,312  17  1,945  8,329  10,274  (862) 2011 12/16/2016 43
Carrollton MOB Flower Mound, TX —  2,183  10,461  86  2,183  10,547  12,730  (1,162) 2002 12/16/2016 40
HonorHealth - Scottsdale IRF Scottsdale, AZ —  —  19,331  —  —  19,331  19,331  (1,926) 2000 12/22/2016 42
Orthopedic Associates Flower Mound, TX —  2,915  12,791  —  2,915  12,791  15,706  (1,275) 2011 1/5/2017 43
Medical Arts Center at Hartford Plainville, CT —  1,499  24,627  861  1,499  25,488  26,987  (2,435) 2015 1/11/2017 44
CareMount Medical - Lake Katrine MOB Lake Katrine, NY 24,718  1,941  27,434  —  1,941  27,434  29,375  (2,718) 2013 2/14/2017 42
CareMount Medical - Rhinebeck MOB Rhinebeck, NY —  869  12,220  —  869  12,220  13,089  (1,263) 1965 2/14/2017 41
Monterey Medical Center Stuart, FL —  2,292  13,376  188  2,292  13,564  15,856  (1,494) 2003 3/7/2017 37
Creighton University Medical Center Omaha, NE —  —  32,487  —  —  32,487  32,487  (2,647) 2017 3/28/2017 49
Strictly Pediatrics Specialty Center Austin, TX —  4,457  62,527  866  4,457  63,393  67,850  (6,166) 2006 3/31/2017 40
MedStar Stephen's Crossing Brandywine, MD —  1,975  14,810  —  1,975  14,810  16,785  (1,333) 2015 6/16/2017 43
Health Clinic Building Omaha, NE —  —  50,177  —  —  50,177  50,177  (3,619) 2017 6/29/2017 49
Family Medical Center Little Falls, MN —  —  4,944  9,608  —  14,552  14,552  (873) 1990 6/29/2017 30
Craven-Hagan Clinic Williston, ND —  —  8,739  1,017  —  9,756  9,756  (897) 1984 6/29/2017 40
Chattanooga Heart Institute Chattanooga, TN —  —  18,639  942  —  19,581  19,581  (1,885) 1993 6/29/2017 37
St. Vincent Mercy Heart and Vascular Center Hot Springs, AR —  —  11,688  6  —  11,694  11,694  (1,017) 1998 6/29/2017 45
South Campus MOB Hot Springs, AR —  —  13,369  372  —  13,741  13,741  (1,212) 2009 6/29/2017 42
St. Vincent Mercy Cancer Center Hot Springs, AR —  —  5,090  122  —  5,212  5,212  (516) 2001 6/29/2017 39
St. Joseph Professional Office Building Bryan, TX —  —  11,169  175  —  11,344  11,344  (925) 1996 6/29/2017 46
St. Vincent Carmel Women's Center Carmel, IN —  —  31,720  509  —  32,229  32,229  (2,422) 2014 6/29/2017 48
St. Vincent Fishers Medical Center Fishers, IN —  —  62,870  282  —  63,152  63,152  (5,268) 2008 6/29/2017 45
Baylor Charles A. Sammons Cancer Center Dallas, TX —  —  256,886  828  —  257,714  257,714  (21,554) 2011 6/30/2017 43
Orthopedic & Sports Institute of the Fox Valley Appleton, WI —  2,003  26,394  100  2,003  26,494  28,497  (2,496) 2005 6/30/2017 40
Clearview Cancer Institute Huntsville, AL —  2,736  43,220  —  2,736  43,220  45,956  (4,542) 2006 8/4/2017 34
Northside Cherokee-Town Lake MOB Atlanta, GA —  —  30,627  1,667  —  32,294  32,294  (2,852) 2013 8/15/2017 46
HonorHealth - Mesa Mesa, AZ —  362  3,059  8  362  3,067  3,429  (266) 2013 8/15/2017 43
Little Falls Orthopedics Little Falls, MN —  246  1,977  146  246  2,123  2,369  (409) 1999 8/24/2017 28
Unity Specialty Center Little Falls, MN —  —  2,885  914  —  3,799  3,799  (868) 1959 8/24/2017 15
Immanuel One Professional Center Omaha, NE —  —  16,598  854  —  17,452  17,452  (1,804) 1993 8/24/2017 35
SJRHC Cancer Center Bryan, TX —  —  5,065  721  —  5,786  5,786  (551) 1997 8/24/2017 40
St. Vincent Women's Center Hot Springs, AR —  —  4,789  225  —  5,014  5,014  (450) 2001 8/31/2017 40
Legends Park MOB & ASC Midland, TX —  1,658  24,178  —  1,658  24,178  25,836  (1,943) 2003 9/27/2017 44
Franklin MOB & ASC Franklin, TN —  1,001  7,902  —  1,001  7,902  8,903  (634) 2014 10/12/2017 42
Eagle Point MOB Lake Elmo, MN —  1,011  9,009  —  1,011  9,009  10,020  (683) 2015 10/31/2017 48
Edina East MOB Edina, MN —  2,360  4,135  436  2,360  4,571  6,931  (584) 1962 10/31/2017 30
Northside Center Pointe Atlanta, GA —  —  118,430  6,180  —  124,610  124,610  (12,500) 2009 11/10/2017 31
Gwinnett 500 Building Lawrenceville, GA —  —  22,753  281  —  23,034  23,034  (1,749) 1995 11/17/2017 45
Hudgens Professional Building Duluth, GA —  —  21,779  227  —  22,006  22,006  (1,922) 1994 11/17/2017 40
St. Vincent Building Indianapolis, IN —  5,854  42,382  5,718  5,854  48,100  53,954  (4,555) 2007 11/17/2017 45
Gwinnett Physicians Center Lawrenceville, GA 15,782  —  48,304  367  —  48,671  48,671  (3,346) 2010 12/1/2017 47
Apple Valley Medical Center Apple Valley, MN —  1,587  14,929  2,556  1,587  17,485  19,072  (1,952) 1974 12/18/2017 33
Desert Cove MOB Scottsdale, AZ —  1,689  5,207  —  1,689  5,207  6,896  (448) 1991 12/18/2017 38
Westgate MOB Glendale, AZ —  —  13,379  2,092  —  15,471  15,471  (1,332) 2016 12/21/2017 45
Hazelwood Medical Commons Maplewood, MN —  3,292  57,390  3,737  3,292  61,127  64,419  (4,192) 2017 1/9/2018 45
Lee's Hill Medical Plaza Fredericksburg, VA —  1,052  24,790  52  1,052  24,842  25,894  (1,963) 2006 1/23/2018 40
HMG Medical Plaza Kingsport, TN —  —  64,204  —  —  64,204  64,204  (4,622) 2010 4/3/2018 40
Jacksonville MedPlex (Building B) Jacksonville, FL —  3,259  5,988  172  3,259  6,160  9,419  (484) 2010 7/26/2018 37
Jacksonville MedPlex (Building C) Jacksonville, FL —  2,168  6,467  21  2,168  6,488  8,656  (437) 2010 7/26/2018 40
Northside Medical Midtown Atlanta, GA —  —  55,483  8,721  —  64,204  64,204  (3,189) 2018 9/14/2018 50
Doctors United ASC Pasadena, TX —  1,603  11,827  —  1,603  11,827  13,430  (457) 2018 4/4/2019 54
95

Physicians Realty Trust
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2020
(dollars in thousands)

      Initial Cost to Company Gross Amount at Which Carried as of Close of Period      
Description Location Encumbrances Land Buildings and
Improvements 		Cost Capitalized
Subsequent to
Acquisitions 		Land Buildings and
Improvements 		Total (1) Accumulated
Depreciation 		Year
Built 		Date 
Acquired 		Life on Which Building
Depreciation in
Income Statement
is Computed
Atlanta Medical Condominium Investments Atlanta, GA —  3,888  2,201  165  3,888  2,366  6,254  (273) 1986 6/28/2019 30
Rockwall II MOB Rockwall, TX —  —  19,904  1,190  —  21,094  21,094  (765) 2017 7/26/2019 44
Community Health 7240 Indianapolis, IN —  1,017  8,052  —  1,017  8,052  9,069  (328) 1985 8/2/2019 40
Community Health 7330 Indianapolis, IN —  1,216  7,633  —  1,216  7,633  8,849  (313) 1988 8/2/2019 40
Shell Ridge Plaza - Bldg 106 Walnut Creek, CA —  1,296  9,007  35  1,296  9,042  10,338  (428) 1984 9/27/2019 30
Shell Ridge Plaza - Bldg 108 Walnut Creek, CA —  1,105  2,600  —  1,105  2,600  3,705  (125) 1984 9/27/2019 30
Shell Ridge Plaza - Bldg 110 Walnut Creek, CA —  1,105  2,786  —  1,105  2,786  3,891  (135) 1984 9/27/2019 30
Shell Ridge Plaza - Bldg 112 Walnut Creek, CA —  3,097  9,639  —  3,097  9,639  12,736  (545) 1984 9/27/2019 25
Shell Ridge Plaza - Bldg 114 Walnut Creek, CA —  1,392  4,624  —  1,392  4,624  6,016  (171) 1984 9/27/2019 40
ProHealth MOB Manchester, CT —  1,032  9,418  2  1,032  9,420  10,452  (330) 2012 10/15/2019 38
Murdock Surgery Center Port Charlotte, FL —  1,643  9,527  4  1,643  9,531  11,174  (310) 2006 12/2/2019 35
Westerville MOB Westerville, OH —  995  7,713  2,298  995  10,011  11,006  (225) 2003 2/28/2020 35
TOPA Fort Worth Fort Worth, TX —  —  42,753  668  —  43,421  43,421  (946) 2017 3/16/2020 39
Ascension St. Vincent Cancer Center Newburgh, IN —  1,031  16,319  —  1,031  16,319  17,350  (160) 2008 9/11/2020 36
Health Center at Easton Easton, PA —  952  13,375  —  952  13,375  14,327  (64) 2017 11/23/2020 38
Hartford HealthCare Cancer Center Manchester, CT —  1,603  14,487  —  1,603  14,487  16,090  (33) 2017 12/8/2020 39
Sacred Heart Summit Medical Office and ASC Pensacola, FL —  2,119  27,334  —  2,119  27,334  29,453  (60) 2020 12/18/2020 40
Westerville II MOB Westerville, OH —  606  4,133  —  606  4,133  4,739  (13) 2003 12/23/2020 31
  $ 58,001  $ 231,762  $ 3,741,754  $ 156,187  $ 230,087  $ 3,897,941  $ 4,128,028  $ (492,660)      
Undeveloped Land:
El Paso, Texas Land El Paso, TX —  1,534  —  —  1,534  —  1,534  —  N/A 1/17/2020 N/A
$ —  $ 1,534  $ —  $ —  $ 1,534  $ —  $ 1,534  $ — 
Total $ 58,001  $ 233,296  $ 3,741,754  $ 156,187  $ 231,621  $ 3,897,941  $ 4,129,562  $ (492,660)
(1) Excludes acquired lease intangibles.

96

Physicians Realty Trust
Schedule III – Real Estate and Accumulated Depreciation
December 31, 2020

The aggregate cost for federal income tax purposes of the real estate as of December 31, 2020 is $4.7 billion, with accumulated tax depreciation of $584.0 million. The cost, net of accumulated depreciation, is approximately $4.1 billion (unaudited).

The cost capitalized subsequent to acquisitions is net of dispositions.

The changes in total real estate for the years ended December 31, 2020, 2019, and 2018 are as follows (in thousands): 
  Year Ended December 31,
  2020 2019 2018
Balance as of the beginning of the year $ 3,979,481  $ 3,871,712  $ 3,809,609 
Acquisitions 137,434  126,407  235,232 
Additions 33,701  35,531  8,821 
Impairment (4,860) —  — 
Dispositions (16,194) (54,169) (181,950)
Balance as of the end of the year $ 4,129,562  $ 3,979,481  $ 3,871,712 
 
The changes in accumulated depreciation for the years ended December 31, 2020, 2019, and 2018 are as follows (in thousands):
  Year Ended December 31,
  2020 2019 2018
Balance as of the beginning of the year $ 382,833  $ 283,495  $ 201,527 
Depreciation 113,146  109,030  106,300 
Dispositions (3,319) (9,692) (24,332)
Balance as of the end of the year $ 492,660  $ 382,833  $ 283,495 

97

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 
ITEM 9A. CONTROLS AND PROCEDURES

Physicians Realty Trust
 
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 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 December 31, 2020, 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 December 31, 2020, that have materially affected, or are reasonably likely to materially affect, the Trust’s internal control over financial reporting.
 
Management’s Report on Internal Control over Financial Reporting.
 
The Trust’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an assessment of the effectiveness of the Trust’s internal control over financial reporting based on the criteria set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on the assessment, management has concluded that the Trust’s internal control over financial reporting was effective as of December 31, 2020 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP.

The effectiveness of the Trust’s internal control over financial reporting as of December 31, 2020 has been audited by Ernst & Young LLP (“EY”), an independent registered public accounting firm, as stated in their report included in Part II, Item 7 of this Annual Report on Form 10-K.
 
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.

ITEM 9B. OTHER INFORMATION
 
None.

98

PART III
 
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Incorporated herein by reference are “Proposal 1 - Election of Trustees”, “Corporate Governance - Trustee - Nominees”, “Delinquent Section 16(a) Reports”, “Corporate Governance - Trustee Nomination Procedure”, “Corporate Governance - Committee Membership and Structure - Audit Committee” and, “Executive Officers” to be included in the Trust’s 2021 Proxy Statement, which will be filed with the SEC within 120 days after the end of its fiscal year ended December 31, 2020.
 
Code of Business Conduct and Ethics
 
Information regarding our Code of Business Conduct and Ethics is provided in Part I, Item 1 - Business “Available Information” and is incorporated herein by reference. 

ITEM 11. EXECUTIVE COMPENSATION
 
Incorporated herein by reference are “Executive Compensation”, “Corporate Governance - Non-Employee Trustee Compensation”, and “Executive Compensation - Compensation Committee Report” to be included in the Trust’s 2021 Proxy Statement, which will be filed with the SEC within 120 days after the end of its fiscal year ended December 31, 2020.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
Incorporated herein by reference are “Stock Ownership - Beneficial Ownership of the Company’s Securities” and “Stock Ownership - Equity Compensation Plan Information” to be included in the Trust’s 2021 Proxy Statement, which will be filed with the SEC within 120 days after the end of its fiscal year ended December 31, 2020.
 
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
 
Incorporated herein by reference are “Stock Ownership - Certain Relationships and Related Transactions” and “Corporate Governance - Trustee Independence” to be included in the Trust’s 2021 Proxy Statement, which will be filed with the SEC within 120 days after the end of its fiscal year ended December 31, 2020.
 
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
Incorporated herein by reference is “Audit Committee Matters - Proposal 2: Ratification of Appointment of Independent Registered Public Accounting Firm”, “Audit Committee Matters - Audit Committee Pre-Approval Policies and Procedures”, and “Audit Committee Matters - Fees Paid to Independent Registered Public Accounting Firm” to be included in the Trust’s 2021 Proxy Statement, which will be filed with the SEC within 120 days after the end of its fiscal year ended December 31, 2020.
99

PART IV
 
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)The following documents are filed as part of this report:

(1)Financial Statements:
  Page
     
59
 
61
 
62
 
63
64
 
65
 
66
     
 
67

(2)Financial Statement Schedules:
 
92
 
All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are omitted because they are not required under the related instructions or are not applicable, or because the required information is shown in the consolidated financial statements or notes thereto.
 
(3)Exhibits:
 
See the Exhibit Index immediately following the signature page of this report on Form 10-K.
100

ITEM 16. FORM 10-K SUMMARY

None.
101


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) 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
   
Dated: February 26, 2021 /s/ John T. Thomas
  John T. Thomas
  Chief Executive Officer and President
  (Principal Executive Officer)
 
Power of Attorney
 
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John T. Thomas and Jeffrey N. Theiler and each of them severally, his or her true and lawful attorney-in-fact with power of substitution and resubstitution to sign in his or her name, place and stead, in any and all capacities, to do any and all things and execute any and all instruments that such attorney may deem necessary or advisable under the Securities Exchange Act of 1934 and any rules, regulations and requirements of the Securities and Exchange Commission in connection with this Annual Report on Form 10-K and any and all amendments hereto, as fully and for all intents and purposes as he or she might do or could do in person, and hereby ratifies and confirms all said attorneys-in-fact and agents, each acting alone, and his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
102

Signature   Title   Date
         
/s/ JOHN T. THOMAS   Chief Executive Officer and   February 26, 2021
John T. Thomas   President and Trustee (Principal Executive Officer)  
         
/s/ JEFFREY N. THEILER   Executive Vice President and   February 26, 2021
Jeffrey N. Theiler   Chief Financial Officer (Principal Financial Officer)  
         
/s/ JOHN W. LUCEY   Chief Accounting and Administrative Officer   February 26, 2021
John W. Lucey   (Principal Accounting Officer)  
         
/s/ STANTON D. ANDERSON   Trustee   February 26, 2021
Stanton D. Anderson        
         
/s/ MARK A. BAUMGARTNER   Trustee   February 26, 2021
Mark A. Baumgartner        
         
/s/ ALBERT C. BLACK, JR.   Trustee   February 26, 2021
Albert C. Black, Jr.        
         
/s/ WILLIAM A. EBINGER, M.D.   Trustee   February 26, 2021
William A. Ebinger, M.D.        
         
/s/ PAMELA J. KESSLER   Trustee   February 26, 2021
Pamela J. Kessler    
/s/ TOMMY G. THOMPSON   Chairman   February 26, 2021
Tommy G. Thompson        
         
/s/ RICHARD A. WEISS   Trustee   February 26, 2021
Richard A. Weiss    



103

EXHIBIT INDEX
Exhibit No.   Title
3.1
(1)
3.2
(2)
3.3
(3)
4.1
(1)
4.2
(4)
4.3
(4)
4.4
(4)
4.5
(5)
4.6
(5)
4.7
(6)
(7)
(1)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(8)
(9)
(9)
(9)
(9)
(10)
(11)
(11)
(11)
(18)
(19)
(17)
(13)
(13)
(13)
(13)
(13)
(14)
(14)
(14)
(14)
(14)
104

Exhibit No.   Title
(15)
(16)
(16)
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 XBRL Extension Schema Document(†)
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document(†)
101.DEF XBRL Taxonomy Extension Definition Linkbase Document(†)
101.LAB XBRL Taxonomy Extension Label Linkbase Document(†)
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document(†)
104.0 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*    Filed herewith.
**     Indicates a management contract or compensatory plan or arrangement.

†    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.
 
(1)Incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11 filed with the SEC on June 14, 2013 (File No. 333-188862).
(2)Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on February 24, 2017 (File No. 001-36007).
(3)Incorporated by reference to the Registrant’s Registration Statement on Form S-3 filed with the SEC on June 17, 2015 (File No. 333-205034).
(4)Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on March 7, 2017 (File No. 001-36007).
(5)Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on December 1, 2017 (File No. 001-36007).
(6)Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on February 6, 2015.
(7)Incorporated by reference to Amendment No. 3 to the Registrant’s Registration Statement on Form S-11 filed with the SEC on June 20, 2013 (File No. 333-188862).
(8)Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on November 7, 2019 (File No. 001-36007).
(9)Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on May 7, 2014 (File No. 001-36007).
(10)Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on April 30, 2019 (File No. 001-36007).
105

(11)Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 12, 2015 (File No. 001-36007).
(12)Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on June 13, 2016 (File No. 001-36007).
(13)Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on January 12, 2016 (File No. 001-36007).
(14)Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on August 11, 2016 (File No. 001-36007).
(15)Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on August 7, 2018 (File No. 001-36007).
(16)Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the SEC on February 28, 2019 (File No. 001-36007).
(17)Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 8, 2020 (File No. 001-36007).
(18)Incorporated by reference to the Registrant’s Quarterly Report on Form 8-K filed with the SEC on February 28, 2018 (File No. 001-36007).
(19)Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the SEC on February 27, 2020 (File No. 001-36007).




106
Exhibit 4.7
DESCRIPTION OF THE REGISTRANT’S SECURITIES REGISTERED PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE ACT OF 1934

Physicians Realty Trust has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), being our common shares.

DESCRIPTION OF COMMON SHARES

The following description of our common shares and preferred shares is a summary and does not purport to be complete. It is subject to and qualified in its entirety by reference to our declaration of trust (the “Declaration of Trust”) and our Bylaws (the “Bylaws”), each of which are incorporated by reference as an exhibit to the Annual Report on Form 10-K of which this Exhibit 4.7 is a part. We encourage you to read our Declaration of Trust, our Bylaws and the applicable provisions of the Maryland REIT LAW (the “MRL”) and the Maryland General Corporation Law (the “MGCL”) for additional information.

The terms “we,” “us” and “our” as such terms are used in the following description of common shares and preferred shares refer to Physicians Realty Trust, and not any of its subsidiaries, unless the context requires otherwise.

General

Our Declaration of Trust provides that we may issue up to 500,000,000 common shares of beneficial interest, $0.01 par value per share, and 100,000,000 preferred shares of beneficial interest, $0.01 par value per share. Our Declaration of Trust authorizes our board of trustees to amend our Declaration of Trust to increase or decrease the aggregate number of authorized shares or the number of shares of any class or series that we have the authority to issue without shareholder approval.

Under Maryland law, shareholders are not personally liable for the obligations of a Maryland real estate investment trust solely as a result of their status as shareholders.

Common Shares

All of the common shares that may be issued in connection with an offering will, upon issuance, be duly authorized, fully paid and nonassessable. Subject to the preferential rights, if any, of holders of any other class or series of shares of beneficial interest and to the provisions of our Declaration of Trust regarding the restrictions on ownership and transfer of shares of beneficial interest, holders of our common shares are entitled to receive distributions on such shares of beneficial interest out of assets legally available therefor if, as and when authorized by our board of trustees and declared by us, and the holders of our common shares are entitled to share ratably in our assets legally available for distribution to our shareholders in the event of our liquidation, dissolution or winding up after payment of or adequate provision for all of our known debts and liabilities.

Subject to the provisions of our Declaration of Trust regarding the restrictions on ownership and transfer of common shares of beneficial interest and except as may otherwise be specified in the terms of any class or series of common shares, each outstanding common share entitles the holder to one vote on all matters submitted to a vote of shareholders, including the election of trustees, and, except as provided with respect to any other class or series of shares of beneficial interest, the holders of such common shares will possess the exclusive voting power. There is no cumulative voting in the election of our



trustees, which means that the shareholders entitled to cast a majority of the votes entitled to be cast in the election of trustees can elect all of the trustees then standing for election, and the remaining shareholders will not be able to elect any trustees.

Holders of common shares have no preference, conversion, exchange, sinking fund, redemption or appraisal rights and have no preemptive rights to subscribe for any of our securities. Subject to the restrictions on ownership and transfer of shares contained in our Declaration of Trust and the terms of any other class or series of common shares, all of our common shares will have equal dividend, liquidation and other rights.

Power to Reclassify Our Unissued Shares of Beneficial Interest

Our Declaration of Trust authorizes our board of trustees to classify and reclassify any unissued common or preferred shares into other classes or series of shares of beneficial interest. Prior to the issuance of shares of each class or series, our board of trustees is required by Maryland law and by our Declaration of Trust to set, subject to the provisions of our Declaration of Trust regarding the restrictions on ownership and transfer of shares of beneficial interest, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each class or series. Therefore, our board of trustees could authorize the issuance of common shares or preferred shares that have priority over our common shares as to voting rights, dividends or upon liquidation or with terms and conditions that could have the effect of delaying, deferring or preventing a change in control or other transaction that might involve a premium price for our common shares or otherwise be in the best interests of our shareholders.

Restrictions on Ownership and Transfer

For us to qualify as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), our shares of beneficial interest must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year. Also, not more than 50% of the value of our outstanding shares of beneficial interest may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) during the last half of a taxable year.

Because our board of trustees believes it is at present essential for us to qualify as a REIT, among other purposes, our Declaration of Trust provides that, subject to certain exceptions, no person may beneficially or constructively own more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our shares of beneficial interest, which we refer to as the ownership limit. Our board of trustees has granted, and may in the future grant, an exemption to the 9.8% share ownership limit. However, our board of trustees may not grant an exemption from this restriction to any proposed transferee whose ownership in excess of 9.8% of the number or value of our outstanding shares would result in our failing to qualify as a REIT.

Our Declaration of Trust also prohibits any person from (i) beneficially owning shares of beneficial interest to the extent that such beneficial ownership would result in our being “closely held” within the meaning of Section 856(h) of the Code (without regard to whether the ownership interest is held during the last half of the taxable year), (ii) transferring our shares of beneficial interest to the extent that such transfer would result in our shares of beneficial interest being beneficially owned by less than 100 persons (determined under the principles of Section 856(a)(5) of the Code), (iii) beneficially or constructively owning our shares of beneficial interest to the extent such beneficial or constructive ownership would cause us to constructively own ten percent or more of the ownership interests in a tenant (other than a taxable REIT subsidiary (“TRS”)) of our real property within the meaning of Section 856(d)(2)(B) of the Code or (iv) beneficially or constructively owning or transferring our shares of beneficial interest if such ownership or transfer would otherwise cause us to fail to qualify as a REIT under the Code, including, but not limited to, as a result of any operators that manage “qualified healthcare



properties” for a TRS failing to qualify as “eligible independent contractors” under the REIT rules. Any person who acquires or attempts or intends to acquire beneficial or constructive ownership of our shares of beneficial interest that will or may violate any of the foregoing restrictions on ownership and transfer, or any person who would have owned our shares of beneficial interest that resulted in a transfer of shares to a charitable trust (as described below), is required to give written notice immediately to us, or in the case of a proposed or attempted transaction, to give at least 15 days’ prior written notice, and provide us with such other information as we may request in order to determine the effect of such transfer on our status as a REIT. The foregoing restrictions on ownership and transfer will not apply if our board of trustees determines that it is no longer in our best interests to attempt to qualify, or to continue to qualify, as a REIT, or that compliance with the restrictions on ownership and transfer is no longer required for us to qualify as a REIT.

Our board of trustees, in its sole discretion, may prospectively or retroactively exempt a person from the restrictions described in the paragraph above (other than the restriction described in clause (iv) of the preceding paragraph) and may establish or increase an excepted holder percentage limit for such person. The person seeking an exemption must provide to our board of trustees such representations, covenants and undertakings as our board of trustees may deem appropriate in order to conclude that granting the exemption will not cause us to fail to qualify as a REIT. Our board of trustees may not grant such an exemption to any person if such exemption would result in our failing to qualify as a REIT. Our board of trustees may require a ruling from the IRS or an opinion of counsel, in either case in form and substance satisfactory to the board of trustees, in its sole discretion, in order to determine or ensure our status as a REIT. Our board of trustees may from time to time increase or decrease the ownership limit for one or more persons, but any decreased ownership limit will not be effective for any person whose percentage ownership of our shares is in excess of the decreased ownership limit until the person’s percentage ownership of our shares equals or falls below the decreased ownership limit (although any acquisition of our shares in excess of the decreased ownership limit will be in violation of the decreased ownership limit). Our board of trustees may not increase the ownership limit if the increase, taking into account any expected holder limits, would allow five or fewer individuals (including certain entities) to beneficially own more than 49.9% in value of our outstanding shares.

Any attempted transfer of our shares of beneficial interest which, if effective, would result in a violation of any of the restrictions described above will result in the number of shares causing the violation (rounded up to the nearest whole share) to be automatically transferred to one or more charitable trusts for the exclusive benefit of one or more charitable beneficiaries, except that any transfer that results in the violation of the restriction relating to our shares of beneficial interest being beneficially owned by fewer than 100 persons will be void ab initio. In either case, the proposed transferee will not acquire any rights in such shares. The automatic transfer will be deemed to be effective as of the close of business on the business day prior to the date of the purported transfer or other event that results in the transfer to the trust. Shares held in the trust will be issued and outstanding shares. The proposed transferee will not benefit economically from ownership of any shares held in the trust, will have no rights to dividends or other distributions and will have no rights to vote or other rights attributable to the shares held in the trust. The trustee of the trust will have all voting rights and rights to dividends or other distributions with respect to shares held in the trust. These rights will be exercised for the exclusive benefit of the charitable beneficiary. Any dividend or other distribution paid prior to our discovery that shares have been transferred to the trust will be paid by the recipient to the trustee upon demand. Any dividend or other distribution authorized but unpaid will be paid when due to the trustee. Any dividend or other distribution paid to the trustee will be held in trust for the charitable beneficiary. Subject to Maryland law, the trustee will have the authority (i) to rescind as void any vote cast by the proposed transferee prior to our discovery that the shares have been transferred to the trust and (ii) to recast the vote in accordance with the desires of the trustee acting for the benefit of the charitable beneficiary. However, if we have already taken irreversible trust action, then the trustee will not have the authority to rescind and recast the vote.

Within 20 days of receiving notice from us that shares of beneficial interest have been transferred to the trust, the trustee will sell the shares to a person designated by the trustee, whose ownership of the shares will not violate the above restrictions on ownership and transfer. Upon the sale, the interest of the charitable beneficiary in the shares sold will



terminate and the trustee will distribute the net proceeds of the sale to the proposed transferee and to the charitable beneficiary as follows: The proposed transferee will receive the lesser of (i) the price paid by the proposed transferee for the shares or, if the event that resulted in the transfer to the trust did not involve a purchase of the shares at market price, the market price (as defined in our Declaration of Trust) of the shares on the day of the event causing the shares to be held in the trust and (ii) the price per share received by the trustee (net of any commission and other expenses of sale) from the sale or other disposition of the shares. The trustee may reduce the amount payable to the proposed transferee by the amount of dividends or other distributions paid to the proposed transferee and owed by the proposed transferee to the trustee. Any net sale proceeds in excess of the amount payable to the proposed transferee will be paid immediately to the charitable beneficiary. If, prior to our discovery that our shares have been transferred to the trust, the shares are sold by the proposed transferee, then (i) the shares shall be deemed to have been sold on behalf of the trust and (ii) to the extent that the proposed transferee received an amount for the shares that exceeds the amount the proposed transferee was entitled to receive, the excess shall be paid to the trustee upon demand.

In addition, shares of beneficial interest held in the trust will be deemed to have been offered for sale to us, or our designee, at a price per share equal to the lesser of (i) the price per share in the transaction that resulted in the transfer to the trust (or, if the event that resulted in the transfer to the trust did not involve a purchase of the shares at market price, the market price of the shares on the day of the event causing the shares to be held in trust) and (ii) the market price on the date we, or our designee, accept the offer, which we may reduce by the amount of dividends and other distributions paid to the proposed transferee and owed by the proposed transferee to the trustee and pay such amount instead to the trustee for the benefit of the charitable beneficiary. We will have the right to accept the offer until the trustee has sold the shares. Upon a sale to us, the interest of the charitable beneficiary in the shares sold will terminate and the trustee will distribute the net proceeds of the sale to the proposed transferee and any dividends or other distributions held by the trustee must be paid to the charitable beneficiary.
If a transfer to a charitable trust, as described above, would be ineffective for any reason to prevent a violation of the restrictions described above, the transfer that would have resulted in such violation will be void ab initio, and the proposed transferee shall acquire no rights in such shares.

All certificated shares will bear a legend referring to the restrictions described above (or a declaration that we will furnish a full statement about certain restrictions on transfer to a shareholder on request and without charge).

Every owner of more than 5% (or such lower percentage as required by the Code or the regulations promulgated thereunder) of all classes or series of our shares of beneficial interest, within 30 days after the end of each taxable year, is required to give us written notice, stating the owner’s name and address, the number of shares of each class and series of our shares of beneficial interest beneficially owned and a description of the manner in which the shares are held. Each such owner must also provide us with such additional information as we may request in order to determine the effect, if any, of the beneficial ownership on our status as a REIT and to ensure compliance with the restrictions on ownership and transfer of our shares. In addition, each shareholder will upon demand be required to provide us with such information as we may request in order to determine our status as a REIT and to comply with the requirements of any taxing authority or governmental authority or to determine such compliance.

These restrictions on ownership and transfer could delay, defer or prevent a transaction or a change in control that might involve a premium price for our common shares or otherwise be in the best interest of our shareholders.

Listing

Our common shares are listed on the NYSE under the symbol “DOC.”




Transfer Agent and Registrar

The transfer agent and registrar for our common shares is Computershare Trust Company, N.A.

CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR
DECLARATION OF TRUST AND BYLAWS
 
Number of Trustees; Vacancies
 
Our Declaration of Trust and Bylaws provide that the number of our trustees may be established, increased or decreased by our board of trustees but may not be less than the minimum number required by the MRL, if any, nor more than 15. Pursuant to our Declaration of Trust, we have also elected to be subject to the provision of Subtitle 8 of Title 3 of the MGCL regarding the filling of vacancies on our board of trustees. Accordingly, except as may be provided by our board of trustees in setting the terms of any class or series of shares of beneficial interest, any and all vacancies on our board of trustees may be filled only by the affirmative vote of a majority of the remaining trustees in office, even if the remaining trustees do not constitute a quorum, and any individual elected to fill such vacancy will serve for the remainder of the full term of the class in which the vacancy occurred and until a successor is duly elected and qualifies.
 
Each of our trustees will be elected by our shareholders to serve for a one-year term and until his or her successor is duly elected and qualified. A majority of all votes cast with respect to a trustee at a meeting of shareholders at which a quorum is present is sufficient to elect that trustee; provided, however, that the trustees shall be elected by a plurality of all the votes cast at any annual meeting for which the number of nominees exceeds the number of trustees to be elected. The presence in person or by proxy of shareholders entitled to cast a majority of all the votes entitled to be cast at a meeting constitutes a quorum.
 
Removal of Trustees
 
Our Declaration of Trust provides that, subject to the rights of holders of any class or series of preferred shares, a trustee may be removed only for “cause,” and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast generally in the election of trustees. For this purpose, “cause” means, with respect to any particular trustee, conviction of a felony or a final judgment of a court of competent jurisdiction holding that such trustee caused demonstrable, material harm to us through bad faith or active and deliberate dishonesty. These provisions, when coupled with the exclusive power of our board of trustees to fill vacancies on our board of trustees, generally precludes shareholders from (i) removing incumbent trustees except for “cause” and with a substantial affirmative vote and (ii) filling the vacancies created by such removal with their own nominees.
 
Business Combinations
 
Under certain provisions of the MGCL applicable to Maryland real estate investment trusts, certain “business combinations,” including a merger, consolidation, statutory share exchange or, in certain circumstances, an asset transfer or issuance or reclassification of equity securities, between a Maryland real estate investment trust and an “interested shareholder” or, generally, any person who beneficially, directly or indirectly, owns 10% or more of the voting power of the real estate investment trust’s outstanding voting shares or an affiliate or associate of the real estate investment trust who, at any time within the two-year period prior to the date in question, was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then outstanding voting shares of beneficial interest of the real estate investment trust, or an affiliate of such an interested shareholder, are prohibited for five years after the most recent date on which the interested



shareholder becomes an interested shareholder. Thereafter, any such business combination must be recommended by the board of trustees of such real estate investment trust and approved by the affirmative vote of at least (a) 80% of the votes entitled to be cast by holders of outstanding voting shares of beneficial interest in the real estate investment trust and (b) two-thirds of the votes entitled to be cast by holders of voting shares of beneficial interest in the real estate investment trust other than shares held by the interested shareholder with whom (or with whose affiliate) the business combination is to be effected or held by an affiliate or associate of the interested shareholder, unless, among other conditions, the real estate investment trust’s common shareholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the interested shareholder for its shares. Under the MGCL, a person is not an “interested shareholder” if the board of trustees approved in advance the transaction by which the person otherwise would have become an interested shareholder. A real estate investment trust’s board of trustees may provide that its approval is subject to compliance with any terms and conditions determined by it.

These provisions of the MGCL do not apply, however, to business combinations that are approved or exempted by a board of trustees prior to the time that the interested shareholder becomes an interested shareholder. Pursuant to the statute, our board of trustees has by resolution exempted business combinations between us and any other person from these provisions of the MGCL, provided that the business combination is first approved by our board of trustees, including a majority of trustees who are not affiliates or associates of such person, and, consequently, the five year prohibition and the supermajority vote requirements will not apply to such business combinations. As a result, any person may be able to enter into business combinations with us that may not be in the best interests of our shareholders without compliance by us with the supermajority vote requirements and other provisions of the statute. This resolution, however, may be altered or repealed in whole or in part at any time. If this resolution is repealed, or our board of trustees does not otherwise approve a business combination, the statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

Control Share Acquisitions
 
The MGCL provides that holders of “control shares” of a Maryland real estate investment trust acquired in a “control share acquisition” have no voting rights with respect to the control shares except to the extent approved by the affirmative vote of at least two-thirds of the votes entitled to be cast on the matter, excluding shares of beneficial interest in a real estate investment trust in respect of which any of the following persons is entitled to exercise or direct the exercise of the voting power of such shares in the election of trustees: (1) a person who makes or proposes to make a control share acquisition, (2) an officer of the real estate investment trust or (3) an employee of the real estate investment trust who is also a trustee of the real estate investment trust. “Control shares” are voting shares which, if aggregated with all other such shares owned by the acquirer, or in respect of which the acquirer is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquirer to exercise voting power in electing trustees within one of the following ranges of voting power: (A) one-tenth or more but less than one-third, (B) one-third or more but less than a majority or (C) a majority or more of all voting power. Control shares do not include shares that the acquirer is then entitled to vote as a result of having previously obtained shareholder approval or shares acquired directly from the real estate investment trust. A “control share acquisition” means the acquisition of issued and outstanding control shares, subject to certain exceptions.
 
A person who has made or proposes to make a control share acquisition, upon satisfaction of certain conditions (including an undertaking to pay expenses and making an “acquiring person statement” as described in the MGCL), may compel a board of trustees to call a special meeting of shareholders to be held within 50 days of demand to consider the



voting rights of the shares. If no request for a meeting is made, the real estate investment trust may itself present the question at any shareholders’ meeting.
 
If voting rights are not approved at the meeting or if the acquirer does not deliver an acquiring person statement as required by the statute, then, subject to certain conditions and limitations, the real estate investment trust may redeem any or all of the control shares (except those for which voting rights have previously been approved) for fair value determined, without regard to the absence of voting rights for the control shares, as of the date of any meeting of shareholders at which the voting rights of such shares are considered and not approved or, if no such meeting is held, as of the date of the last control share acquisition by the acquirer. If voting rights for control shares are approved at a shareholders’ meeting and the acquirer becomes entitled to vote a majority of the shares entitled to vote, all other shareholders may exercise appraisal rights, unless our Declaration of Trust or Bylaws provide otherwise. The fair value of the shares as determined for purposes of such appraisal rights may not be less than the highest price per share paid by the acquirer in the control share acquisition.
 
The control share acquisition statute does not apply to (a) shares acquired in a merger, consolidation or statutory share exchange if the real estate investment trust is a party to the transaction or (b) acquisitions approved or exempted by the declaration of trust or bylaws of the real estate investment trust.
 
Our Bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions by any person of our shares. There is no assurance that such provision will not be amended or eliminated at any time in the future.

Subtitle 8
 
Subtitle 8 of Title 3 of the MGCL permits a Maryland real estate investment trust with a class of equity securities registered under the Securities Exchange Act of 1934 (as amended, the “Exchange Act”) and at least three independent trustees to elect to be subject, by provision in its declaration of trust or bylaws or a resolution of its board of trustees and notwithstanding any contrary provision in the declaration of trust or bylaws, to any or all of five provisions:
 
•a classified board;
•a two-thirds vote requirement for removing a trustee;
•a requirement that the number of trustees be fixed only by vote of the trustees;
•a requirement that a vacancy on the board be filled only by the remaining trustees and, if the board is classified, for the remainder of the full term of the class of trustees in which the vacancy occurred; and
•a majority requirement for the calling of a shareholder-requested special meeting of shareholders.

Pursuant to our Declaration of Trust, we have elected to be subject to the provision of Subtitle 8 that requires that vacancies on our board may be filled only by the remaining trustees and for the remainder of the full term of the trusteeship in which the vacancy occurred. Through provisions in our Declaration of Trust and Bylaws unrelated to Subtitle 8, we already (1) require the affirmative vote of the holders of not less than two-thirds of all of the votes entitled to be cast on the matter for the removal of any trustee from the board, which removal will be allowed only for cause, (2) vest in the board the exclusive power to fix the number of trusteeships, (3) require that a vacancy on the board be filled only by the remaining trustees and (4) require, unless called by our chairman, chief executive officer, president or a majority of the board of



trustees, the written request of shareholders entitled to cast not less than a majority of the votes entitled to be cast at such meeting to call a special meeting of shareholders.

Meetings of Shareholders
 
Pursuant to our Declaration of Trust and Bylaws, a meeting of our shareholders for the purpose of the election of trustees and the transaction of any business will be held annually on a date and at the time and place set by our board of trustees. A special meeting of our shareholders to act on any matter that may properly be brought before a meeting of our shareholders will also be called by our secretary upon the written request of shareholders entitled to cast not less than a majority of all the votes entitled to be cast at the meeting on such matter and containing the information required by our Bylaws. Our secretary will inform the requesting shareholders of the reasonably estimated cost of preparing and delivering the notice of meeting (including our proxy materials), and the requesting shareholder must pay such estimated cost before our secretary is required to prepare and deliver the notice of the special meeting.
 
Mergers; Extraordinary Transactions
 
Under the MRL, a Maryland real estate investment trust generally cannot merge with, or convert into another entity unless advised by its board of trustees and approved by the affirmative vote of shareholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter unless a lesser percentage (but not less than a majority of all of the votes entitled to be cast on the matter) is set forth in the trust’s declaration of trust. Our Declaration of Trust provides that these mergers, consolidations and conversions must be advised by our board of trustees and approved by a majority of all of the votes entitled to be cast on the matter. Our Declaration of Trust also provides that we may sell or transfer all or substantially all of our assets if approved by our board of trustees and by the affirmative vote of a majority of all the votes entitled to be cast on the matter. However, many of our operating assets will be held by our subsidiaries, and these subsidiaries may be able to sell all or substantially all of their assets, merge with or convert into another entity without the approval of our shareholders.
 
Amendment to Our Declaration of Trust and Bylaws
 
Under the MRL, a Maryland real estate investment trust generally cannot amend its declaration of trust unless advised by its board of trustees and approved by the affirmative vote of shareholders entitled to cast at least two-thirds of the votes entitled to be cast on the matter unless a different percentage (but not less than a majority of all of the votes entitled to be cast on the matter) is set forth in the trust’s declaration of trust.
 
Except for amendments to the provisions of our Declaration of Trust related to the removal of trustees and the vote required to amend the provision regarding amendments to the removal provisions itself (each of which require the affirmative vote of not less than two-thirds of all the votes entitled to be cast on the matter) and certain amendments described in our Declaration of Trust that require only approval by our board of trustees, our Declaration of Trust may be amended only with the approval of our board of trustees and the affirmative vote of not less than a majority of all of the votes entitled to be cast on the matter.
 
Our board of trustees is vested with the power to adopt, alter or repeal any provision of our Bylaws and to adopt new bylaws. In addition, our shareholders may alter or repeal any provision of our Bylaws and adopt new bylaw provisions if any



such alteration, repeal or adoption is approved by the affirmative vote of a majority of the votes entitled to be cast on the matter.

Our Termination
 
Our Declaration of Trust provides for us to have a perpetual existence. Our termination must be approved by a majority of our entire board of trustees and the affirmative vote of not less than a majority of all of the votes entitled to be cast on the matter.
 
Advance Notice of Trustee Nominations and New Business
 
Our Bylaws provide that, with respect to an annual meeting of shareholders, nominations of individuals for election to our board of trustees at an annual meeting and the proposal of other business to be considered by shareholders may be made only (1) pursuant to our notice of the meeting, (2) by or at the direction of our board of trustees or (3) by a shareholder of record both at the time of giving of notice and at the time of the annual meeting, who is entitled to vote at the meeting and has complied with the advance notice provisions set forth in our Bylaws. Our Bylaws currently require the shareholder generally to provide notice to the secretary containing the information required by our Bylaws not less than 120 days nor more than 150 days prior to the first anniversary of the date of our proxy statement for the solicitation of proxies for election of trustees at the preceding year’s annual meeting, or if the date of the meeting is advanced or delayed by more than 30 days from the first anniversary of the preceding year’s annual meeting, or with respect to the first annual meeting after this offering, not more than 150 days before the date of such meeting and not less than the later of 120 days before the date of such meeting or 10 days after the date on which we first publicly announce the date of such meeting.
 
With respect to special meetings of shareholders, only the business specified in our notice of meeting may be brought before the meeting. Nominations of individuals for election to our board of trustees at a special meeting may be made only by or at the direction of our board of trustees or provided that our board of trustees has determined that trustees will be elected at such meeting, by a shareholder who has complied with the advance notice provisions set forth in our Bylaws. Such shareholder may nominate one or more individuals, as the case may be, for election as a trustee if the shareholder’s notice containing the information required by our Bylaws is delivered to the secretary not earlier than the 120th day prior to such special meeting and not later than 5:00 p.m., Eastern Time, on the later of (1) the 90th day prior to such special meeting or (2) the tenth day following the day on which public announcement is first made of the date of the special meeting and the proposed nominees of our board of trustees to be elected at the meeting.
 
Indemnification and Limitation of Trustees’ and Officers’ Liability
 
Maryland law permits a Maryland real estate investment trust to include in its declaration of trust a provision eliminating the liability of its trustees and officers to the trust and its shareholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty that is established by a final judgment and is material to the cause of action. Our Declaration of Trust contains a provision that eliminates our trustees’ and officers’ liability to the maximum extent permitted by Maryland law.
 
Maryland law permits a Maryland real estate investment trust to indemnify its present and former trustees and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or threatened to be made a party by reason of their service in those or other capacities unless it is established that: (a) the act or omission of the trustee or officer was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty; (b) the trustee or officer actually received an improper personal benefit in money, property or services; or (c) in the case of any criminal proceeding, the trustee or officer had reasonable cause to believe that the act or omission was unlawful. However,



under Maryland law, a Maryland real estate investment trust may not indemnify for an adverse judgment in a suit by or in the right of the real estate investment trust or for a judgment of liability on the basis that personal benefit was improperly received, unless in either case a court orders indemnification and then only for expenses. In addition, Maryland law permits a Maryland real estate investment trust to advance reasonable expenses to a trustee or officer upon the real estate investment trust’s receipt of (a) a written affirmation by the trustee or officer of his or her good faith belief that he or she has met the standard of conduct necessary for indemnification and (b) a written undertaking by him or her or on his or her behalf to repay the amount paid or reimbursed by the trust if it is ultimately determined that the standard of conduct was not met.
 
Our Declaration of Trust authorizes us to obligate ourselves and our Bylaws obligate us, to the maximum extent permitted by Maryland law, to indemnify any present or former trustee or officer or any individual who, while a trustee or officer of our company and at our request, serves or has served as a trustee, director, officer, partner, member, manager, employee, or agent of another real estate investment trust, corporation, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity from and against any claim or liability to which that individual may become subject or which that individual may incur by reason of his or her service in any of the foregoing capacities and to pay or reimburse his or her reasonable expenses in advance of final disposition of a proceeding. Our Declaration of Trust and Bylaws also permit us to indemnify and advance expenses to any individual who served a predecessor of our company in any of the capacities described above and any employees or agents of our company or a predecessor of our company.
 
We have entered into indemnification agreements with each of our executive officers and trustees whereby we agree to indemnify such executive officers and trustees to the fullest extent permitted by Maryland law against all expenses and liabilities, subject to limited exceptions. These indemnification agreements also provide that upon an application for indemnity by an executive officer or trustee to a court of appropriate jurisdiction, such court may order us to indemnify such executive officer or trustee.

 REIT Qualification
 
Our Declaration of Trust provides that our board of trustees may revoke or otherwise terminate our REIT election, without approval of our shareholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT.






Exhibit 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the “Agreement”), by and between PHYSICIANS REALTY TRUST, a Maryland trust (the “Company”), and AMY M. HALL (the “Executive”) is entered into and effective on this 4th day of January, 2021 (the “Effective Date”).
NOW THEREFORE, in consideration of the mutual covenants herein contained, the parties, intending to be legally bound, hereby agree as follows:
1.EMPLOYMENT
The Company hereby agrees to employ the Executive as its Senior Vice President, Leasing and Physician Strategy (the “SVP-Leasing”) upon the terms and conditions herein contained, and the Executive hereby agrees to accept such employment and to serve in such position. As SVP-Leasing, the Executive will have those duties which can reasonably be expected to be performed by a person in such position and shall undertake such other responsibilities as may be assigned to the Executive by the Company’s Chief Executive Officer (“CEO”) from time to time. For purposes of the Agreement, all references to the “Board” shall mean the Board of Trustees. In such capacity, the Executive shall report to the Company’s Board and shall have such powers and responsibilities consistent with her position as may be assigned. Throughout the Employment Term, the Executive shall devote her best efforts and all of her business time and services to the business and affairs of the Company.
2.TERM OF AGREEMENT
Subject to earlier termination as herein provided, the Executive’s employment under the Agreement shall continue in effect until December 31, 2022 (the “Initial Term”). The Agreement will automatically renew, subject to earlier termination as herein provided, for successive one (1) year periods (the “Additional Terms”), unless either the Executive provides notice of non-renewal at least sixty (60) days prior to the expiration of the Initial Term or the then Additional Term, whichever is applicable, or the Company provides notice of non-renewal at least six (6) months prior to the expiration of the Initial Term or the then Additional Term, whichever is applicable; provided, the number of Additional Terms shall not exceed two (2) and, unless earlier terminated in accordance with the terms of this Agreement, the Agreement shall automatically terminate on December 31, 2024. The Initial Term and any Additional Term(s) shall be referred to collectively as the “Employment Term.”
Notwithstanding the foregoing, the Company shall be entitled to terminate the Agreement immediately, subject to a continuing obligation to make any payments required under Section 5 below, if the Executive (i) incurs a Disability as described in Section 5(b), (ii) is terminated for Cause, as defined in Section 5(c), or (iii) voluntarily terminates her employment without Good Reason (as defined below), as described in Section 5(d).
3.SALARY AND BONUS
The Executive shall receive a base salary during the Employment Term at a rate of $260,000 per annum for 2021 (the “Base Salary”), payable in substantially equal semi-monthly installments. The Compensation Committee of the Board shall consult with the SVP-Leasing and review the Executive’s Base Salary at annual intervals, and may increase the Executive’s annual Base Salary from time to time as the Committee deems to be appropriate.
Subject to Section 12, the Executive will have an annual cash bonus opportunity for each calendar year during the Employment Term (the “Annual Bonus”) based upon performance goals that are established by the Board or the Compensation Committee of the Board, as the case may be, in its sole discretion. In the event an Annual Bonus is payable pursuant to this Section 3, such bonus shall be paid to the Executive no later than March 15th of the year after the year to which the bonus relates.
1


4.ADDITIONAL COMPENSATION AND BENEFITS
The Executive shall receive the following additional compensation and welfare and fringe benefits during the term of the Agreement:
(a)Options and Other Long-Term Incentives. During the Employment Term, any options, restricted shares or other awards granted under the Physicians Realty Trust 2013 Equity Incentive Plan (the “2013 Equity Plan”) shall be at the discretion of the Compensation Committee of the Company’s Board.
(b)Vacation. The Executive shall be entitled to vacation and personal days in accordance with the policies the Company maintains from time to time.
(c)Business Expenses. The Company shall reimburse the Executive for all reasonable expenses she incurs in promoting the Company’s business, including expenses for travel and similar items, upon presentation by the Executive (generally within 60 days of the date incurred) of an itemized account of such expenditures. Any reimbursement of expenses made under the Agreement shall only be made for eligible expenses (including transportation and cellular service expenses as set forth above) incurred during the Employment Term, and no reimbursement of any expense shall be made by the Company after December 31st of the year following the calendar year in which the expense was incurred. The amount eligible for reimbursement under the Agreement during a taxable year may not affect expenses eligible for reimbursement in any other taxable year, and the right to reimbursement under the Agreement is not subject to liquidation or exchange for another benefit. The Executive will comply with the Company’s policies regarding these benefits, including all Internal Revenue Service rules and requirements.
(d)Professional Expenses. Each calendar year during the Employment Term, the Company agrees to reimburse the Executive for up to $10,000 of reasonable professional expenses (i.e., accounting, financial planning, estate planning expenses) incurred by the Executive during such year for personal advice rendered to the Executive.
(e)Other Benefits and Perquisites. The Executive shall be entitled to participate in the benefit plans provided by the Company for all employees, generally, and for the Company’s executive employees. The Company shall be entitled to change or terminate these plans in its sole discretion at any time.
5.PAYMENTS UPON TERMINATION
(a)    Accrued Obligations. Upon termination of employment for any reason, the Executive shall be entitled to receive her Base Salary accrued through the date of termination, any accrued but unpaid vacation pay, plus any bonuses earned but unpaid with respect to fiscal years or other periods ending in or with the year of termination (collectively, the “Accrued Obligations”). For purposes of the preceding sentence, except upon termination of employment by the Company for Cause (as defined below), the Executive shall be entitled to receive an Annual Bonus for the year of termination based on the actual achievement of any performance goal or goals thereunder and pro-rated based on the Executive’s period of service during the performance period. Payments under this Section 5(a) shall be made to the Executive within the time period required by applicable law (and in all events within sixty (60) days following the date of termination). The Executive shall also receive any nonforfeitable benefits payable to her under the terms of any deferred compensation, incentive or other benefit plans maintained by the Company, payable in accordance with the terms of the applicable plan.
(b)     Disability. The Company shall be entitled to terminate the Executive’s employment if the Board determines that the Executive has been unable to attend to her duties for at least ninety (90) days because of a Disability (as defined below), and has received a written opinion from a physician acceptable to the Board that such condition prevents the Executive from resuming full performance of her duties and is likely to continue for an indefinite period. Subject to compliance with the covenants in Section 9 and Section 10 and the execution and
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timely return by the Executive of a release of claims in a form and substance reasonably requested by the Company (the “Release”), the Company shall pay severance to the Executive in accordance with its normal payroll practices, equal to twelve (12) months of the Executive’s Base Salary as in effect at the time her employment terminates, with the first payment on the first payroll date after the revocation period for the Release has expired; provided (i) if the time period for returning and revoking the Release begins in one taxable year and ends in a second taxable year, the payments shall not commence until the first payroll date in the second taxable year; and (ii) all such payments shall immediately terminate at an earlier date if the Executive returns to active employment, either with the Company or otherwise. Any amounts payable under this Section 5(b) shall be reduced on a dollar-for-dollar basis by the amount of bona fide disability pay (within the meaning of Treas. Reg. section 1.409A-1(a)(5)) received or receivable by the Executive during such twelve-month period, provided such disability payments are made pursuant to a plan sponsored by the Company that covers a substantial number of employees of the Company and was established prior to the date the Executive incurred a permanent disability, and further provided that such reduction does not otherwise affect the time of payment of amounts pursuant to this Section 5(b). For purposes of the Agreement, “Disability” means the Executive is incapacitated due to physical or mental illness and such incapacity, with or without reasonable accommodation, prevents the Executive from satisfactorily performing the essential functions of her job for the Company on a full-time basis for at least ninety (90) days in a calendar year.
(c)    Termination for Cause. If the Executive’s employment is terminated by the Company for Cause, the amount the Executive shall be entitled to receive from the Company shall be limited to the Accrued Obligations. For purposes of the Agreement, the term “Cause” shall be limited to the following
i.the Executive engaging in any act of fraud, dishonesty, theft, misappropriation or embezzlement of funds or misrepresentation with respect to the Company;
ii.the Executive’s conviction or plea of no contest with respect to any felony or other crime involving moral turpitude;
iii.the Executive’s material breach of her obligations under the Agreement, including, without limitation, breach of the covenants set forth in Section 9 and Section 10 below or the refusal of the Executive to perform her job duties as directed by the Board, which the Executive failed to cure within thirty (30) days after receiving written notice from the Board specifying the alleged breach;
iv.violation of any material duty or obligation to the Company or of any direction or any rule or regulation reasonably established by the Board, which the Executive failed to cure within thirty (30) days after receiving written notice from the Board specifying the alleged violation; or
v.insubordination or misconduct in the performance of, or neglect of, the Executive’s duties which the Executive failed to cure within thirty (30) days after receiving written notice from the Board specifying the alleged insubordination, misconduct, or neglect.
(d)     Voluntary Termination by the Executive Without Good Reason. If the Executive resigns or otherwise voluntarily terminates her employment without Good Reason (as defined in Section 5(e) below), or if the Executive’s employment terminates due to non-renewal of the Agreement by the Executive, the amount the Executive shall be entitled to receive from the Company shall be limited to the Accrued Obligations.
(e)     Termination by the Executive for Good Reason. The Executive may terminate her employment for Good Reason if (i) a Good Reason circumstance shall have occurred, and the Executive provides the Company with written notice thereof within ninety (90) days after the occurrence of the Good Reason circumstance, which notice shall specifically identify the circumstance that the Executive believes constitutes Good Reason; (ii) the
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Company fails to correct the circumstance so identified within thirty (30) days after the receipt of such notice; and (iii) the Executive resigns within ninety (90) days after the date of delivery of the notice referred to in clause (i) above. For purposes of the Agreement, “Good Reason” shall mean the occurrence or failure to cause the occurrence, as the case may be, without the Executive’s prior express written consent, of any of the following circumstances:
1.the assignment to the Executive of a position other than the position of SVP-Leasing (other than for Cause or by reason of her Disability) or the assignment of duties materially inconsistent with such position if either such change in assignment constitutes a material diminution in the Executive’s authority, duties or responsibilities;
2.receipt by the Executive of a direction to report to anyone other than the CEO if such change in reporting duties constitutes a material diminution in the authority, duties or responsibilities of the supervisor to whom the Executive is required to report;
3.a relocation of more than thirty-five (35) miles from the geographic location where the Executive is providing services under this Agreement;
4.a material diminution in the Executive’s (i) Base Salary or (ii) total compensation opportunity;
5.a failure by the Company (A) to continue any bonus, incentive or material compensatory plan, program or arrangement in which the Executive is entitled to participate (the “Bonus Plans”), provided that any such Bonus Plans may be modified at the Company’s discretion from time to time but shall be deemed terminated if (x) any such plan does not remain substantially in the form in effect prior to such modification and (y) if plans providing the Executive with substantially similar benefits are not substituted therefor (“Substitute Plans”), or (B) to continue the Executive as a participant in the Bonus Plans and Substitute Plans on at least the same basis as to potential amount of the bonus as the Executive participated in prior to any change in such plans or awards, in accordance with the Bonus Plans and the Substitute Plans;
6.any material breach by the Company of any provision of the Agreement; or
7.a failure of any successor to the Company (whether direct or indirect and whether by merger, acquisition, consolidation or otherwise) to assume in a writing delivered to the Executive upon the successor becoming such, the obligations of the Company hereunder.
The failure by the Executive to set forth in the written notice to the Company of her termination for Good Reason of any facts or circumstances which contribute to the showing of Good Reason shall not waive any right of the Executive hereunder or preclude the Executive from asserting such fact or circumstance in enforcing her rights hereunder.
Upon termination of employment for Good Reason, subject to compliance with the covenants in Section 9 and Section 10 and the execution of the Release, and except as otherwise provided by Sections 12 and 18, the Executive shall be entitled to receive the amounts and benefits described in Section 5(f) below.
(f)    Involuntary Termination by the Company without Cause. If the Executive’s employment is involuntarily terminated by the Company without Cause and for a reason other than death or Disability, subject to compliance with the covenants in Section 9 and Section 10 and the execution and timely return by the Executive of the Release, and except as otherwise provided by Sections 12 and 18, the Executive shall be entitled to receive the amounts and benefits described in this Section 5(f). The Company shall pay severance to the Executive in accordance with its normal payroll practices, equal to the Executive’s Base Salary as in effect at the time her
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employment terminates for twenty four (24) months, with the first payment on the first payroll date after the revocation period for the Release has expired; provided, that if the time period for returning and revoking the Release begins in one taxable year and ends in a second taxable year, the payments shall not commence until the first payroll date in the second taxable year. In addition, the Executive shall be entitled to the following:
i.Any options, restricted shares or other awards granted to the Executive under the 2013 Equity Plan shall become fully vested and, in the case of options, exercisable in full;
ii.Provided that the Executive elects continuation of coverage under the Company’s group health plan pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended (“COBRA”), the Executive shall be provided continued coverage at the Company’s expense under any health insurance programs maintained by the Company in which the Executive participated at the time of her termination for twelve (12) months or until, if earlier, the date the Executive obtains comparable coverage under a group health plan maintained by a new employer. To the extent the benefits provided under the immediately preceding sentence are otherwise taxable to the Executive, such benefits, for purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”) (and the regulations and other guidance issued thereunder) shall be provided as separate monthly in-kind payments of those benefits, and to the extent those benefits are subject to and not otherwise excepted from Section 409A of the Code, the provision of the in-kind benefits during one calendar year shall not affect the in kind benefits to be provided in any other calendar year; and
iii.A lump sum payment equal to two times the average of the Annual Bonuses paid to the Executive for the two fiscal years of the Company ending prior to the Executive’s employment termination date, if any, payable on the first payroll date after the revocation period for the Release has expired, and subject to forfeiture if the Executive violates any of the covenants in Section 9 and Section 10.
For purposes of clause (i) above, the reference to “fully vested” in connection with any award subject to performance-based vesting conditions refers to vesting at the maximum level of achievement of the performance goal or goals under the award.
(g)    Non-Renewal of the Agreement by the Company. If the Executive’s employment terminates due to non-renewal of the Agreement by the Company or automatic termination of the Agreement on December 31, 2024. subject to compliance with the covenants in Section 9 and Section 10 and the execution and timely return by the Executive of the Release, and except as otherwise provided by Sections 12 and 18, the Executive shall be entitled to receive the amounts and benefits described in this Section 5(g). The Company shall pay severance to the Executive in accordance with its normal payroll practices, equal to the Executive’s Base Salary as in effect at the time her employment terminates for six (6) months, with the first payment on the first payroll date after the revocation period for the Release has expired; provided, that if the time period for returning and revoking the Release begins in one taxable year and ends in a second taxable year, the payments shall not commence until the first payroll date in the second taxable year. In addition, the Executive shall be entitled to the following:
i.Any options, restricted shares or other awards granted to the Executive under the 2013 Equity Plan that are subject to performance-based vesting conditions shall vest, based on the actual level of achievement of the performance goal or goals under the award and shall be pro-rated based on the Executive’s period of service during the performance period. Any options, restricted shares or other awards granted to the Executive under the 2013 Equity Plan that are not subject to performance-based vesting conditions shall be accelerated and such awards shall become immediately fully vested and, in the case of options, exercisable in full; and
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ii.Provided that the Executive elects continuation of coverage under the Company’s group health plan pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended (“COBRA”), the Executive shall be provided continued coverage at the Company’s expense under any health insurance programs maintained by the Company in which the Executive participated at the time of her termination for six (6) months or until, if earlier, the date the Executive obtains comparable coverage under a group health plan maintained by a new employer. To the extent the benefits provided under the immediately preceding sentence are otherwise taxable to the Executive, such benefits, for purposes of Section 409A of the Code (and the regulations and other guidance issued thereunder) shall be provided as separate monthly in-kind payments of those benefits, and to the extent those benefits are subject to and not otherwise excepted from Section 409A of the Code, the provision of the in-kind benefits during one calendar year shall not affect the in-kind benefits to be provided in any other calendar year.
Notwithstanding the foregoing, if the Executive and the Company enter into a new agreement for the performance of services by the Executive for the Company or its affiliate with respect to the period commencing on or immediately after December 31, 2024, the Executive shall not be entitled to receive the amounts and benefits described in this Section 5(g) and this Section 5(g) shall be null and void and of no further effect.
6.    EFFECT OF CHANGE IN CONTROL
(a)    Vesting of Awards. In the event of a Change in Control, the surviving or successor entity (or its parent corporation) may continue, assume or replace awards granted to the Executive under the terms of the 2013 Equity Plan that are outstanding as of the Change in Control, and such awards or replacements therefore shall remain outstanding and be governed by their respective terms. If and to the extent that outstanding awards granted to the Executive under the terms of the 2013 Equity Plan are not continued, assumed or replaced in connection with a Change in Control, then the vesting of such awards shall be accelerated and such awards shall become immediately fully vested and, in the case of options, exercisable in full as of the Change in Control. With respect to outstanding awards granted to the Executive under the terms of the 2013 Equity Plan that are subject to performance-based vesting conditions, the level of achievement of the performance-based vesting conditions shall be measured consistent with the original terms of the award to preserve the intent of the metrics, and to the extent performance can no longer be reasonably measured consistent with the original terms, the vesting of such awards shall be accelerated and such awards shall become immediately fully vested and, in the case of options, exercisable in full as of the Change in Control. The reference to “fully vested” in connection with any award subject to performance-based vesting conditions refers to vesting at the maximum level of achievement of the performance goal or goals under the award.
(b)    Certain Calculations. In the event of a Change in Control, all calculations required to be made to determine whether any payments or distributions by the Company, or other benefits provided by the Company, to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of the Agreement or otherwise) would be subject to the excise tax imposed by Section 4999 of the Code, or whether any interest or penalties with respect to such excise tax would be due, including the assumptions to be utilized in arriving at any such determinations, shall be made by a nationally recognized accounting firm, consulting firm or law firm, designated by the Executive (the “Consulting Firm”). All fees and expenses of the Consulting Firm shall be borne solely by the Company.
(c)    Severance Payment and Benefits. If, at any time during the period of twelve (12) consecutive months commencing on the occurrence of a Change in Control, (i) the Executive is involuntarily terminated (other than for Cause), or (ii) the Executive terminates her employment for Good Reason, or (iii) the Company gives notice of non-renewal of the Agreement, or (iv) such period of twelve (12) consecutive months includes
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December 31, 2024, then subject to compliance with the covenants in Section 9 and Section 10 and the execution and timely return by the Executive of the Release, in lieu of the amounts and benefits otherwise payable under Section 5(e), 5(f) or 5(g) above, whichever is applicable, (A) the Executive shall be entitled to receive a lump sum severance payment equal to two times the sum of (i) the Executive’s Base Salary, as in effect at the time of the Change in Control, and (ii) the average of the annual bonuses paid to the Executive for the prior two fiscal years of the Company ending prior to the Change in Control, if any, and (B) any options, restricted shares, or other awards granted to the Executive under the 2013 Equity Plan or any replacement awards shall become fully vested and, in the case of options, exercisable in full. For purposes of the above, the reference to “fully vested” in connection with any award subject to performance-based vesting conditions refers to vesting at the maximum level of achievement of the performance goal or goals under the award. Such lump sum payment shall be made to the Executive within sixty (60) days following the date of the Executive’s termination of employment. Notwithstanding the foregoing, such lump sum severance payment shall be reduced on a dollar-for-dollar basis by any portion of such payment received or receivable by the Executive from any successor to the Company; provided, such reduction does not otherwise affect the time of payment of such lump sum severance pursuant to this Section 6(c). In addition to the severance payment, the Executive shall be entitled to continued coverage at the Company’s expense under any health insurance programs maintained by the Company in which the Executive participated at the time of her termination, which coverage shall be continued for eighteen (18) months or until, if earlier, the date the Executive obtains comparable coverage under a group health plan maintained by a new employer. To the extent the benefits provided under the immediately preceding sentence are otherwise taxable to the Executive, such benefits, for purposes of Section 409A of the Code (and the regulations and other guidance issued thereunder) shall be provided as separate monthly in-kind payments of those benefits, and to the extent those benefits are subject to and not otherwise excepted from Section 409A of the Code, the provision of the in kind benefits during one calendar year shall not affect the in-kind benefits to be provided in any other calendar year.
(d)    Definition of Change in Control. For purposes of the Agreement, a “Change in Control” shall mean the occurrence of any one of the following events:
i.any Person is or becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing fifty percent (50%) or more of the combined voting power of the Company’s then outstanding securities eligible to vote for the election of the Board (the “Company Voting Securities”); provided, however, the event described in this paragraph (i) shall not be deemed to be a Change in Control if such event results from the acquisition of Company Voting Securities pursuant to a Non-Qualifying Transaction (as defined in paragraph (iii) below);
ii.individuals who, on the Effective Date, constitute the Board (the “Incumbent Trustees”) cease for any reason to constitute at least a majority of the Board; provided, however, that any person becoming a trustee subsequent to the Effective Date, whose election or nomination for election was approved (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for trustee, without written objection to such nomination) by a vote of at least two-thirds of the trustees who were, as of the date of such approval, Incumbent Trustees, shall be an Incumbent Trustee; provided, further, that no individual initially appointed, elected or nominated as a trustee of the Company as a result of an actual or threatened election contest with respect to the election or removal of trustees or as a result of any other actual or threatened solicitation of proxies or consents or pursuant to any proxy access right by or on behalf of any person other than the Board shall be deemed to be an Incumbent Trustee;
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iii.the consummation of a merger, consolidation, statutory share exchange or similar form of corporate transaction involving (A) the Company or (B) any of its wholly owned subsidiaries pursuant to which, in the case of this clause (B), Company Voting Securities are issued or issuable (any event described in the immediately preceding clause (A) or (B), a “Reorganization”) or the sale or other disposition of all or substantially all of the assets of the Company to an entity that is not an Affiliate of the Company (a “Sale”), unless immediately following such Reorganization or Sale: (1) more than fifty percent (50%) of the total voting power (in respect of the election of trustees, or similar officials in the case of an entity other than a trust) of (x) the Company (or, if the Company ceases to exist, the entity resulting from such Reorganization), or, in the case of a Sale, the entity which has acquired all or substantially all of the assets of the Company (in either case, the “Surviving Entity”), or (y) if applicable, the ultimate parent entity that directly or indirectly has Beneficial Ownership of more than fifty percent (50%) of the total voting power (in respect of the election of trustees, or similar officials in the case of an entity other than a trust) of the Surviving Entity (the “Parent Entity”), is represented by Company Voting Securities that were outstanding immediately prior to such Reorganization or Sale (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Reorganization or Sale), (2) no Person is or becomes the Beneficial Owner, directly or indirectly, of fifty percent (50%) or more of the total voting power (in respect of the election of trustees, or similar officials in the case of an entity other than a trust) of the outstanding voting securities of the Parent Entity (or, if there is no Parent Entity, the Surviving Entity) and (3) at least a majority of the members of the board of trustees (or similar officials in the case of an entity other than a trust) of the Parent Entity (or, if there is no Parent Entity, the Surviving Entity) following the consummation of the Reorganization or Sale were, at the time of the approval by the Board of the execution of the initial agreement providing for such Reorganization or Sale, Incumbent Trustees (any Reorganization or Sale which satisfies all of the criteria specified in (1), (2) and (3) above being deemed to be a “Non-Qualifying Transaction”); or
iv.the stockholders of the Company approve a plan of complete liquidation or dissolution of the Company. Notwithstanding the foregoing, if any Person becomes the Beneficial Owner, directly or indirectly, of fifty percent (50%) or more of the combined voting power of Company Voting Securities solely as a result of the, acquisition of Company Voting Securities by the Company which reduces the number of Company Voting Securities outstanding, such increased amount shall be deemed not to result in a Change in Control; provided, however, that if such Person subsequently becomes the Beneficial Owner, directly or indirectly, of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities Beneficially Owned by such Person to a percentage equal to or greater than fifty percent (50%), a Change in Control of the Company shall then be deemed to occur.
For purposes of this Section 6(d), the following terms shall have the following meanings:
i.“Affiliate” shall mean an affiliate of the Company, as defined in Rule 12b-2 promulgated under Section 12 of the Securities Exchange Act of 1934, as amended from time to time (the “Exchange Act”);
ii.“Beneficial Owner” shall have the meaning set forth in Rule 13d-3 under the Exchange Act;
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iii.“Person” shall have the meaning set forth in Section 3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof; except that such term shall not include (1) the Company or any of its subsidiaries, (2) a trustee or other fiduciary holding securities under an employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries, (3) an underwriter temporarily holding securities pursuant to an offering of such securities, (4) a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of shares of common stock of the Company or (5) the Executive or any group of persons including the Executive (or any entity controlled by the Executive or any group of persons including the Executive).
7.DEATH
If the Executive dies during the Employment Term, the Company shall pay to the Executive’s surviving spouse or if there is no surviving spouse, the Executive’s estate, a lump sum payment equal to the Accrued Obligations. In addition, the death benefits payable by reason of the Executive’s death under any retirement, deferred compensation, life insurance or other employee benefit plan maintained by the Company shall be paid to the beneficiary designated by the Executive, and the options, restricted shares or other awards held by the Executive under the Company’s equity incentive plans shall become fully vested, and, in the case of options, exercisable in full, in accordance with the terms of the applicable plan or plans.
8.WITHHOLDING
The Company shall, to the extent permitted by law, have the right to withhold and deduct from any payment hereunder any federal, state or local taxes of any kind required by law to be withheld with respect to any such payment.
9.PROTECTION OF CONFIDENTIAL INFORMATION
During the Executive’s employment with the Company, the Company shall grant the Executive otherwise prohibited access to its trade secrets and confidential information which are not known to the Company’s competitors or within the Company’s industry generally, which were developed by the Company over a long period of time and/or at its substantial expense, and which are of great competitive value to the Company, and access to the Company’s customers and clients. For purposes of the Agreement, “Confidential Information” includes all trade secrets and confidential and proprietary information of the Company, including, but not limited to, the following: financial models, financial information and data, business methods, electronic files, computer drives/disks, passwords, address and telephone lists, internal memoranda, correspondence, business strategies, business plans and/or projections, lease forms, construction contract forms, development and construction management service agreements, tenant lists, lease terms, rates, rent rolls, strategies, improvements, discoveries, plans for research or future business, infrastructure, marketing and sales plans and strategies, budgets, customer and client information, employee, customer and client nonpublic personal information, supplier lists, business records, audit processes, management methods and information, reports, recommendations and conclusions, information regarding the names, contact information, skills and compensation of employees and contractors of the Company, other information not generally known to the public, and other business information disclosed to the Executive by the Company, either directly or indirectly, in writing, orally, or by drawings or observation.
The Executive acknowledges and agrees that Confidential Information is proprietary to and a trade secret of the Company and, as such, is a special and unique asset of the Company, and that any disclosure or unauthorized use of any Confidential Information by the Executive will cause irreparable harm and loss to the Company. The Executive understands and acknowledges that each and every component of the Confidential Information (i) has been developed by the Company at significant effort and expense and is sufficiently secret to derive economic value from not being generally known to other parties, and (ii) constitutes a protectable business
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interest of the Company. The Executive acknowledges and agrees that the Company owns the Confidential Information. The Executive agrees not to dispute, contest, or deny any such ownership rights either during or after the Executive’s employment with the Company. The Executive agrees to preserve and protect the confidentiality of all Confidential Information. The Executive agrees that the Executive shall not at any time (whether during or after the Executive’s employment), directly or indirectly, disclose to any unauthorized person or use for the Executive’s own account any Confidential Information without the Company’s consent. Throughout the Executive’s employment and at all times thereafter: (i) the Executive shall hold all Confidential Information in the strictest confidence, take all reasonable precautions to prevent its inadvertent disclosure to any unauthorized person, and follow all policies of the Company protecting the Confidential Information; (ii) the Executive shall not, directly or indirectly, utilize, disclose or make available to any other person or entity, any of the Confidential Information, other than in the proper performance of the Executive’s duties; (iii) the Executive shall not use the Confidential Information or trade secrets to attempt to solicit, induce, recruit, or take away clients or customers of the Company; and (iv) if the Executive learns that any person or entity is taking or threatening to take any actions which would compromise any Confidential Information, the Executive shall promptly advise the Company of all facts concerning such action or threatened action. The foregoing shall not apply to any information which is already in the public domain, or is generally disclosed by the Company or is otherwise in the public domain at the time of disclosure (other than through an unauthorized disclosure by the Executive or any other person).
Upon the termination of the Executive’s employment for any reason, the Executive shall immediately return and deliver to the Company any and all Confidential Information, software, devices, cell phones, personal data assistants, credit cards, data, reports, proposals, lists, correspondence, materials, equipment, computers, hard drives, papers, books, records, documents, memoranda, manuals, e-mail, electronic or magnetic recordings or data, including all copies thereof, which belong to the Company or relate to the Company’s business and which are in the Executive’s possession, custody or control, whether prepared by the Executive or others. If at any time after termination of the Executive’s employment she determines that she has any Confidential Information in her possession or control, the Executive shall immediately return to the Company all such Confidential Information in the Executive’s possession or control, including all copies and portions thereof.
The Executive recognizes that because her work for the Company may bring her into contact with confidential and proprietary information of the Company, the restrictions of this Section 9 are required for the reasonable protection of the Company and its investments and for the Company’s reliance on and confidence in the Executive.
10.RESTRICTIVE COVENANTS
In consideration for (i) the Company’s promise to provide Confidential Information to the Executive, (ii) the substantial economic investment made by the Company in the Confidential Information and goodwill of the Company, and/or the business opportunities disclosed or entrusted to the Executive, (iii) access to the Company’s customers and clients, and (iv) the Company’s employment of the Executive pursuant to the Agreement and the compensation and other benefits provided by the Company to the Executive, to protect the Company’s Confidential Information and business goodwill of the Company, the Executive agrees to the following restrictive covenants.
(a)    Non-Competition. The Executive hereby agrees that during the Restricted Period (defined below), other than in connection with the Executive’s duties under the Agreement, the Executive shall not, and shall not use any Confidential Information to, without the prior consent of the Company, directly or indirectly, either individually or as an owner, principal, partner, stockholder, manager, contractor, distributor, lender, investor, consultant, agent, employee, co-venturer or as a director or officer of any corporation or association, or in any other manner or capacity whatsoever, become employed by, control, carry on, join, lend money for, engage in, establish, perform services for, invest in, solicit investors for, consult for, do business with or otherwise engage in any Competing Business (defined below) within the Restricted Territory (defined below); provided however,
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that nothing in this Section 10(a) shall prevent the Executive from owning a passive investment in up to two percent (2%) of the stock of a publicly traded corporation engaged in a Competing Business and such ownership shall not be considered to be a violation of Section 10(a).
i.“Restricted Period” means during the Executive’s employment with the Company and for a period equal to the later of (i) one (1) year immediately following the date of the Executive’s termination from employment for any reason or (ii) the number of months for which the Executive is receiving monthly severance payments under Section 5 of the Agreement.
ii.“Competing Business” means any business, individual, partnership, firm, corporation or other entity that provides the same or substantially similar products or services as those provided by the Company during the Executive’s employment, which includes, without limitation, the business of buying, managing, holding and selling medical office buildings.
iii.As SVP-Leasing of the Company, the Executive has responsibility for the Company’s operations throughout the United States. Because the Company does business throughout the United States, the “Restricted Territory” means the United States and any other region or state in which the Executive performed services, was assigned responsibility for the Company, or about which the Executive received Confidential Information.
(b)    Non-Solicitation. The Executive agrees that during the Restricted Period, other than in connection with the Executive’s duties under the Agreement, the Executive shall not, and shall not use any Confidential Information to, directly or indirectly, either individually or as an owner, principal, partner, stockholder, manager, contractor, distributor, lender, investor, consultant, agent, employee, co-venturer or as a director or officer of any corporation or association, or in any other manner or capacity whatsoever, and whether personally or through other persons:
i.Solicit business from, interfere with, attempt to solicit business with, or do business with any customer or client of the Company with whom the Company did business or who the Company solicited within the preceding two (2) years, and who or which: (1) the Executive contacted, called on, serviced, or did business with during her employment with the Company; (2) the Executive learned of as a result of her employment with the Company; or (3) about whom the Executive received Confidential Information. This restriction applies only to business which is in the scope of services or products provided by the Company; or
ii.Solicit, induce, or attempt to solicit or induce, engage or hire, on behalf of himself or any other person or entity, any person who is an employee or full-time consultant of the Company or who was employed or retained by the Company within the preceding two (2) years.
(c)    Non-Disparagement. The Executive shall refrain, both during and after the Employment Term from publishing any oral or written statements about the Company or any of the Company’s board of trustees, equity holders, members, shareholders, managers, officers, employees, consultants, agents or representatives that (i) are slanderous, libelous or defamatory; or (ii) place the Company or any of its trustees, managers, officers, employees, consultants, agents or representatives in a false light before the public. A violation or threatened violation of this prohibition may be enjoined by the courts. The rights afforded the Company under this provision are in addition to any and all rights and remedies otherwise afforded by law.
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(d)    Tolling. If the Executive violates any of the restrictions contained in Section 10, the Restricted Period shall be suspended and shall not run in favor of the Executive from the time of the commencement of any violation until the time when the Executive cures the violation to the satisfaction of the Company.
(e)    Reasonableness. The Executive hereby represents to the Company that she has read and understands, and agrees to be bound by, the terms of this Section 10. The Executive acknowledges that the geographic scope and duration of the covenants contained in this Section 10 are fair and reasonable in light of (i) the nature and wide geographic scope of the operations of the Company’s business; (ii) the Executive’s level of control over and contact with the business in the Restricted Territory; and (iii) the amount of compensation, trade secrets and Confidential Information that the Executive is receiving in connection with her employment by the Company. It is the desire and intent of the parties that the provisions of Section 10 be enforced to the fullest extent permitted under applicable law, whether now or hereafter in effect and therefore, to the extent permitted by applicable law, the Executive and the Company hereby waive any provision of applicable law that would render any provision of Section 10 invalid or unenforceable.
11.INJUNCTIVE RELIEF
The Executive acknowledges that (a) compliance with the covenants set forth in Section 9 and Section 10 of the Agreement are necessary to protect the Company’s business and Confidential Information; (b) a breach or threatened breach of any of such covenants will irreparably harm the Company; and (c) an award of money damages will not be adequate to remedy such harm. Consequently, the Executive acknowledges and agrees that, in addition to other remedies, in the event the Executive breaches or threatens to breach any of the covenants contained in the Agreement, the Company shall be entitled to both a temporary and/or permanent injunction to prevent the continuation of such harm and enforce such provisions and money damages insofar as they can be determined, including, without limitation, all costs and reasonable attorneys’ fees incurred by or on behalf of the Company in the enforcement of the terms of the Agreement. The Company may apply to any court of competent jurisdiction for a temporary restraining order, preliminary injunction or other interim or conservatory relief, as necessary or applicable. This provision with respect to injunctive relief shall not, however, diminish the Company’s right to claim and recover damages.
It is expressly understood and agreed that although the parties consider the restrictions contained in the Agreement to be reasonable, if a court determines that the time or territory or any other restriction contained in the Agreement is an unenforceable restriction on the activities of the Executive, no such provision of the Agreement shall be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such extent as such court may judicially determine or indicate to be reasonable. By agreeing to this contractual modification prospectively at this time, the Company and the Executive intend to make this provision enforceable under the law or laws of all applicable jurisdictions so that the entire agreement not to compete and the Agreement as prospectively modified shall remain in full force and effect and shall not be rendered void or illegal.
12.CLAWBACK
Any compensation paid to the Executive shall be subject to recovery by the Company, and the Executive shall be required to repay such compensation, if (i) such recovery and repayment is required by applicable law or (ii) either in the year such compensation is paid, or within the three (3) year period thereafter the Company is required to prepare an accounting restatement due to material noncompliance of the Company with any financial reporting requirement under applicable securities laws and the Executive is either (A) a named executive officer or (B) an employee who is responsible for preparation of the Company’s financial statements. The parties agree that the repayment obligations set forth in this Section 12 shall only apply to the extent repayment is required by applicable law, or to the extent the Executive’s compensation is determined to be in excess of the amount that would have been deliverable to the Executive taking into account any restatement or correction of any inaccurate financial statements or materially inaccurate performance metric criteria.
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13.MANDATORY MEDIATION AND ARBITRATION
In the event there is an unresolved legal dispute between the Executive and the Company that involves legal rights or remedies arising from the Agreement or the employment relationship between the Executive and the Company (“Dispute”), except as otherwise provided herein, before commencing an arbitration action or other legal proceeding, the parties shall promptly submit the Dispute to mediation, using a mediator jointly selected by the parties, or if the parties are unable to agree upon a mediator then the Dispute shall be submitted to non-binding mediation with the American Arbitration Association in Waukesha County, Wisconsin in accordance with its rules. The cost of the mediation shall be borne equally between the parties. If the parties are unable to achieve a mutually agreeable resolution of the Dispute through mediation, the parties agree to submit their Dispute to binding arbitration under the authority of the Federal Arbitration Act and/or the Wisconsin Uniform \Arbitration Act; provided, however, that the Company may pursue a temporary restraining order, preliminary injunction and/or other interim or conservatory relief in accordance with Section 11 above, with related expedited discovery for the parties, in a court of law, and, thereafter, require arbitration of all issues of final relief. Insured workers compensation claims (other than wrongful discharge claims), and claims for unemployment insurance are, excluded from arbitration under this provision. The Arbitration will be conducted by the American Arbitration Association pursuant to the American Arbitration Association’s National Rules for the Resolution of Employment Disputes. The arbitrator(s) shall be duly licensed to practice law in the State of Wisconsin. Each party will be allowed at least one deposition. The arbitrator(s) shall be required to state in a written opinion all facts and conclusions of law relied upon to support any decision rendered. No arbitrator will have authority to render a decision that contains an outcome determinative error of state or federal law, or to fashion a cause of action or remedy not otherwise provided for under applicable state or federal law. Any dispute over whether the arbitrator(s) has failed to comply with the foregoing will be resolved by summary judgment in a court of law. In all other respects, the arbitration process will be conducted in accordance with the American Arbitration Association’s National Rules for the Resolution of Employment Disputes. The Company will pay the arbitration costs and arbitrator’s fees beyond $500, subject to a final arbitration award on who should bear costs and fees. All proceedings shall be conducted in Waukesha County, Wisconsin, or another mutually agreeable site. The duty to arbitrate described above shall survive the termination of the Agreement. Except as otherwise provided above, the parties hereby waive trial in a court of law or by jury. All other rights, remedies, statutes of limitation and defenses applicable to claims asserted in a court of law will apply in the arbitration.
14.NOTICE
All notices or communications hereunder shall be in writing and sent certified or registered mail, return receipt requested, postage prepaid, addressed as follows (or to such other address as such party may designate in writing from time to time):
If to the Company:
Physicians Realty Trust
309 North Water Street Suite 500
Milwaukee, Wisconsin 53202
(414) 367-5600
Attention: Corporate Secretary
If to the Executive:
Amy M. Hall
c/o Physicians Realty Trust
309 North Water Street Suite 500
Milwaukee, Wisconsin 53202
(414) 367-5600
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Attention: Corporate Secretary
The actual date of receipt, as shown by the receipt therefor, shall determine the time at which notice was given.
15.SEPARABILITY
If any provision of the Agreement shall be declared to be invalid or unenforceable, in whole or in part, such invalidity or unenforceability shall not affect the remaining provisions hereof which shall remain in full force and effect.
16.ASSIGNMENT
The Agreement shall be binding upon and inure to the benefit of the heirs and representatives of the Executive and the assigns and successors of the Company, but neither the Agreement nor any rights hereunder shall be assignable or otherwise subject to hypothecation by the Executive.
17.ENTIRE AGREEMENT
The Agreement represents the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings, including that certain Change in Control Agreement dated November 8th, 2019 (which is hereby automatically terminated effective upon the execution of the Agreement), (whether oral or written) between the Company and the Executive with respect to the subject matter hereof. In the event of any conflict between the Agreement and the 2013 Equity Plan, any bonus plan or any award agreement, the Agreement shall control. No oral statements or prior written material not specifically incorporated in the Agreement shall be of any force and effect. The Agreement may be amended at any time by mutual written agreement of the parties hereto. The Executive acknowledges and represents that in executing the Agreement, she did not rely on, has not relied on, and specifically disavows any reliance on any communications, promises, statements, inducements, or representation(s), oral or written, by the Company, except as expressly contained in the Agreement. The parties represent that they relied on their own judgment in entering into the Agreement.
18.SECTION 409A COMPLIANCE
The Agreement and the benefits or payments to be provided under the Agreement are intended to be exempt from with the requirements of Section 409A of the Code, and shall be interpreted and construed consistently with such intent, provided, that if the Agreement is not exempt, the Agreement is drafted in a manner to comply with the requirements of Section 409A of the Code. The payments to the Executive pursuant to the Agreement are also intended to be exempt from Section 409A of the Code to the maximum extent possible, under either the separation pay exemption pursuant to Treasury Regulation Section 1.409A-1(b)(9) (iii) or as short-term deferrals pursuant to Treasury Regulation Section 1.409A-1(b)(4). Each payment and benefit hereunder shall constitute a “separately identified” amount within the meaning of Treasury Regulation Section 1.409A-2(b)(2). In the event the terms of the Agreement would subject the Executive to taxes or penalties under Section 409A of the Code (“409A Penalties”), the Company and the Executive shall cooperate diligently to amend the terms of the Agreement to avoid such 409A Penalties, to the extent possible. To the extent any amounts under the Agreement are payable by reference to Executive’s “termination,” “termination of employment,” or similar phrases, such term shall be deemed to refer to the Executive’s “separation from service” (as defined in Treasury Regulation Section 1.409A-l(h) (without regard to any permissible alternative definition thereunder) with the Company and all entities treated as a single employer with the Company under Sections 414(b) and (c) of the Code but substituting a fifty percent (50%) ownership level for the eighty percent (80%) ownership level set forth therein). Notwithstanding any other provision in the Agreement, if the Executive is a “Specified Employee” (as defined in Treasury Regulation Section 1.409A-l(i) on December 31st of the prior calendar year), as of the date of the Executive’s separation from service, then to the extent any amount payable under the Agreement (i) constitutes
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the payment of nonqualified deferred compensation within the meaning of Section 409A of the Code, (ii) is payable upon the Executive’s separation from service and (iii) under the terms of the Agreement would be payable prior to the six-month anniversary of the Executive’s separation from service, such payment shall be delayed and paid to the Executive, together with interest at an annual rate equal to the interest rate specified by Regions Bank for a six-month certificate of deposit, on the first day of the first calendar month beginning seven (7) months following the date of termination, or, if earlier, within ninety (90) days following the Executive’s death to the Executive’s surviving spouse (or such other beneficiary as the Executive may designate in writing). Any reimbursement or advancement payable to the Executive pursuant to the Agreement shall be conditioned on the submission by the Executive of all expense reports reasonably required by the Company under any applicable expense reimbursement policy, and shall be paid to the Executive within thirty (30) days following receipt of such expense reports, but in no event later than the last day of the calendar year following the calendar year in which the Executive incurred the reimbursable expense. Any amount of expenses eligible for reimbursement, or in-kind benefit provided, during a calendar year shall not affect the amount of expenses eligible for reimbursement, or in- kind benefit to be provided, during any other calendar year. The right to any reimbursement or in-kind benefit pursuant to the Agreement shall not be subject to liquidation or exchange for any other benefit. Whenever a payment under the Agreement that constitutes a payment of nonqualified deferred compensation within the meaning of Code Section 409A specifies a payment period, the actual date of payment within such specified period shall be within the sole discretion of the Company, and the Executive shall have no right (directly or indirectly) to determine the year in which such payment is made. In the event a payment period straddles two consecutive calendar years, the payment shall be made in the later of such calendar years.
19.GOVERNING LAW
The Agreement shall be construed, interpreted, and governed in accordance with the laws of the State of Wisconsin, other than the conflict of laws provisions of such laws. Subject to Section 13, venue of any litigation arising from the Agreement or any disputes relating to the Executive’s employment shall be in the United States District Court for the Eastern District of Wisconsin, or a state district court of competent jurisdiction in Waukesha County, Wisconsin. The Executive consents to personal jurisdiction of the United States District Court for the Eastern District of Wisconsin, or a state district court of competent jurisdiction in Waukesha County, Wisconsin for any dispute relating to or arising out of the Agreement or the Executive’s employment, and Executive agrees that Executive shall not challenge personal or subject matter jurisdiction in such courts.
20.SURVIVAL
The respective rights and obligations of the parties hereunder, including without limitation the Executive’s post-termination obligations under Section 9 and Section 10, shall survive any termination of the Executive’s employment, or of the Employment Term, to the extent necessary to the agreed preservation of such rights and obligations.

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IN WITNESS WHEREOF, the Company has caused the Agreement to be duly executed, and the Executive has hereunto set her hand, as of the day and year first above written.

    PHYSICIANS REALTY TRUST

    By: /s/ John T. Thomas    
    Title: President & Chief Executive Officer Physicians Realty Trust    

    EXECUTIVE

    /s/ Amy M Hall    
Amy M. Hall

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Exhibit 10.24
PERFORMANCE-BASED RESTRICTED SHARE UNIT AWARD AGREEMENT
PHYSICIANS REALTY TRUST
2013 EQUITY INCENTIVE PLAN
1.Grant of Award. Pursuant to the Physicians Realty Trust 2013 Equity Incentive Plan (the “Plan”) for Employees, Consultants, and Outside Trustees of Physicians Realty Trust, a Maryland real estate investment trust (the “Company”), the Company grants to

_________________________________
(the “Participant”)
an Award of Restricted Share Units in accordance with Section 6.5 of the Plan. The number of Restricted Share Units awarded under this Restricted Share Unit Award Agreement (the “Agreement”) is _____________________ (__________) units (the “Awarded Units”). Each Restricted Share Unit represents the right to receive one Common Share if the Restricted Share Unit becomes vested and nonforfeitable in accordance with Sections 3 and 4 of this Agreement. The “Date of Grant” of this Award is _________, 20__. The Participant shall have no rights as a shareholder of the Company, no dividend rights and no voting rights with respect to the Restricted Share Units or the Common Shares underlying the Restricted Share Units unless and until the Restricted Share Units become vested and nonforfeitable and such Common Shares are delivered to the Participant in accordance with Section 6 of this Agreement. The Participant is not required to pay any cash consideration for the grant of the Restricted Share Units.
2.Subject to Plan. This Agreement is subject to the terms and conditions of the Plan, and the terms of the Plan shall control; provided that, in the event of any conflict among this Agreement, the Plan and an Employment Agreement in effect between the Company and the Participant (the “Employment Agreement”), the terms of the Employment Agreement shall control to the extent that it results in accelerated vesting of the Restricted Share Units, and it shall not result in a delay of any vesting or in any non-vesting of any Restricted Share Units that otherwise would occur under the terms of the standard vesting provisions contained in Sections 3 and 4(b) and (c) of this Agreement. The capitalized terms used herein that are defined in the Plan shall have the same meanings assigned to them in the Plan. This Agreement is subject to any rules promulgated pursuant to the Plan by the Board or the Committee and communicated to the Participant in writing.
3.Vesting. The Participant’s rights and interest in the Awarded Units shall vest as set forth in Exhibit A.
4.Forfeiture of Awarded Units.
a.In General. Except as otherwise provided in this Section 4, or the Employment Agreement (if applicable), Awarded Units (and related dividend equivalents) that are not vested in accordance with Section 3 shall be forfeited on the date of the Participant’s Termination of Service. Upon forfeiture, all of the Participant’s rights and interest with respect to the forfeited Awarded Units (and related dividend equivalents) shall cease and terminate, without any further obligations on the part of the Company.
b.Death or Total and Permanent Disability. In the event that the Participant’s Termination of Service is due to death or Total and Permanent Disability at a time that the


Participant’s Awarded Units have not yet vested, a pro rata portion of the Participant’s Awarded Units shall vest and become nonforfeitable as follows: First, the Company shall determine the actual level of the performance goal achieved (such determination may be by means of a good faith estimate) as of the Company’s fiscal quarter-end coincident with or next preceding the Participant’s Termination of Service (or, if the Participant’s Termination of Service occurs in the first fiscal quarter of the Performance Period, then the Company’s fiscal quarter-end coincident with or next following the Participant’s Termination of Service) and calculating, on a preliminary basis, the resulting number of Awarded Units that would have become vested and nonforfeitable (based on such calculation) assuming the determination date was the end of the Performance Period and the Committee had certified such level of achievement. Second, a pro rata portion of that number of Awarded Units will be calculated by multiplying that number by a fraction, the numerator of which is the number of months from the Date of Grant through the date of Termination of Service (rounding any partial month to the next whole month) and the denominator of which is the number of whole months in the Performance Period. No fractional Common Shares shall be issued, and subject to the preceding limitations on the number of related Common Shares available under this Agreement, any fractional Common Share that would have resulted from the foregoing calculations shall be rounded up to the next whole Common Share. Any Awarded Units (and related dividend equivalents) that were unvested at the date of Termination of Service and that exceed the pro rata portion of the Awarded Units that become vested and nonforfeitable under this Section 4(b) shall be forfeited.
c.Retirement. In the event that the Participant’s Termination of Service is due to Retirement at a time that the Participant’s Awarded Units have not yet vested, the greater of: (i) 100% of the Participant’s Awarded Units or (ii) the portion of the Participant’s Awarded Units that would otherwise vest and become nonforfeitable based on the actual level of the performance goal achieved, shall vest and become nonforfeitable. The Company shall determine the actual level of the performance goal achieved (such determination may be by means of a good faith estimate) immediately prior to the Participant’s Termination of Service and shall calculate the resulting number of Awarded Units that would have become vested and nonforfeitable (based on such calculation) assuming the determination date was the date of the Participant’s Termination of Service and the Committee had certified such level of achievement. No fractional Common Shares shall be issued, and subject to the preceding limitations on the number of related Common Shares available under this Agreement (that is, 300% of the related Common Shares), any fractional Common Share that would have resulted from the foregoing calculations shall be rounded up to the next whole Common Share.
5.Restrictions on Transfer of Awarded Units. Subject to the provisions of the Plan and the terms of this Agreement, the Participant shall not be permitted to sell, transfer, pledge, hypothecate, margin, assign or otherwise encumber any of the Awarded Units, related rights to dividend equivalents or any other rights relating thereto, and the Awarded Units, related rights to dividend equivalents and other rights relating thereto, shall not be subject to execution, attachment, lien, or similar process; provided, however, the Participant will be entitled to designate a beneficiary or beneficiaries to receive any settlement in respect of the Awarded Units upon the death of the Participant, in the manner and to the extent permitted by the Committee. Any purported transfer or other transaction not permitted under this Section 5 shall be deemed null and void.


6.Timing and Manner of Settlement of Awarded Units.
a.Settlement Timing. The timing of settlement of Awarded Units is set forth in Exhibit B.
b.Manner of Settlement. The Company may make delivery of Common Shares in settlement of Awarded Units by either delivering certificates representing such Common Shares to the Participant (if requested by the Participant in accordance with Section 6.3(a) of the Plan and the Company has elected, in its sole discretion, to issue certificates (as opposed to electronic book entry form with respect to its Common Shares)) or by registering the Common Shares in the Participant’s name. In no event will the Company issue fractional Common Shares.
c.Effect of Settlement. Neither the Participant nor any of the Participant’s successors, heirs, assigns or personal representatives shall have any further rights or interests in any Awarded Units that have been paid and settled. Although a settlement date or range of dates for settlement are specified above, the Company retains discretion to determine the settlement date, and no Participant or beneficiary of a Participant shall have any claim for damages or loss by virtue of the fact that the market price of Common Shares was higher on a given date upon which settlement could have been made as compared to the market price on or after the actual settlement date (any claim relating to settlement will be limited to a claim for delivery of Common Shares and related dividend equivalents).
7.Legend. The following legend shall be inserted on a certificate, if issued, evidencing Common Shares issued under the Plan if the Common Shares were not issued in a transaction registered under the applicable federal and state securities laws:
“Common Shares represented by this certificate have been acquired by the holder for investment and not for resale, transfer or distribution, have been issued pursuant to exemptions from the registration requirements of applicable state and federal securities laws, and may not be offered for sale, sold or transferred other than pursuant to effective registration under such laws, or in transactions otherwise in compliance with such laws, and upon evidence satisfactory to the Company of compliance with such laws, as to which the Company may rely upon an opinion of counsel satisfactory to the Company.”
8.Dividend Equivalents. During the period beginning on the Date of Grant and ending on the date that Common Shares are issued in settlement of Awarded Units, the Participant will accrue dividend equivalents equal to the cash dividend or distributions during that period that would have been paid had the Awarded Unit been an issued and outstanding Common Share. Such accrued dividend equivalents (i) will vest and become payable upon the same terms and at the same time of settlement as the Awarded Units to which they relate; (ii) will be payable with respect to the total number of Awarded Units that become vested and nonforfeitable; and (iii) will be denominated and payable solely in cash. Dividend equivalent payments, at settlement, will be net of applicable federal, state, local and social insurance withholding taxes (subject to Section 22 of this Agreement).
9.Adjustment to Number of Awarded Units. The number of Awarded Units shall be subject to adjustment in accordance with Articles 11 through 13 of the Plan. Any such adjustment shall be made taking into account any crediting of cash dividend equivalents to the Participant under Section 8


in connection with such transaction or event. Restricted Share Units credited to the Participant as a result of an adjustment shall be subject to the same forfeiture and settlement terms as applied to the related Awarded Units prior to the adjustment.
10.Specific Performance. The parties acknowledge that remedies at law will be inadequate remedies for breach of this Agreement and consequently agree that this Agreement shall be enforceable by specific performance. The remedy of specific performance shall be cumulative of all of the rights and remedies at law or in equity of the parties under this Agreement.
11.Participant’s Acknowledgments. The Participant acknowledges that a copy of the Plan has been made available for his review by the Company, and represents that he is familiar with the terms and provisions thereof, and hereby accepts this Award subject to all the terms and provisions thereof. The Participant hereby agrees to accept as binding, conclusive, and final all decisions or interpretations of the Committee or the Board, as appropriate, upon any questions arising under the Plan or this Agreement. The Participant acknowledges and agrees that (i) sales of Common Shares delivered in settlement of the Awarded Units will be subject to the Company’s policies regulating trading by Employees, Consultants and Outside Trustees, including any applicable “blackout” or other designated periods in which sales of Common Shares are not permitted, and (ii) Common Shares delivered in settlement will be subject to any recoupment or “clawback” policy applied with prospective or retroactive effect.
12.Law Governing. This Agreement shall be governed by, construed, and enforced in accordance with the laws of the State of Maryland (excluding any conflict of laws rule or principle of Maryland law that might refer the governance, construction, or interpretation of this agreement to the laws of another state).
13.No Right to Continue Service or Employment. Nothing herein shall be construed to confer upon the Participant the right to continue in the employ or to provide services to the Company or any Subsidiary, whether as an Employee or as a Consultant or as an Outside Trustee, or interfere with or restrict in any way the right of the Company or any Subsidiary to discharge the Participant as an Employee, Consultant, or Outside Trustee at any time.
14.Legal Construction. In the event that any one or more of the terms, provisions, or agreements that are contained in this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect for any reason, the invalid, illegal, or unenforceable term, provision, or agreement shall not affect any other term, provision, or agreement that is contained in this Agreement and this Agreement shall be construed in all respects as if the invalid, illegal, or unenforceable term, provision, or agreement had never been contained herein.
15.Covenants and Agreements as Independent Agreements. Each covenant and agreement that is set forth in this Agreement shall be construed as a covenant and agreement independent of any other provision of this Agreement. The existence of any claim or cause of action of the Participant against the Company, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by the Company of the covenants and agreements that are set forth in this Agreement.
16.Entire Agreement. This Agreement, together with the Plan and the Employment Agreement (if applicable), supersede any and all other prior understandings and agreements, either oral or in writing, between the parties with respect to the subject matter hereof and constitute the sole and only agreements between the parties with respect to the said subject matter. All prior negotiations and agreements between the parties with respect to the subject matter hereof are merged into this Agreement.


Each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any party or by anyone acting on behalf of any party, which are not embodied in this Agreement or the Plan or the Employment Agreement (if applicable) and that any agreement, statement or promise that is not contained in this Agreement or the Plan or the Employment Agreement (if applicable) shall not be valid or binding or of any force or effect.
17.Parties Bound. The terms, provisions, and agreements that are contained in this Agreement shall apply to, be binding upon, and inure to the benefit of the parties and their respective heirs, executors, administrators, legal representatives, and permitted successors and assigns, subject to the limitation on assignment expressly set forth herein.
18.Modification. No change or modification of this Agreement shall be valid or binding upon the parties unless the change or modification is in writing and signed by the parties. Notwithstanding the preceding sentence, the Company may amend the Plan or this Agreement to the extent permitted by the Plan.
19.Headings. The headings that are used in this Agreement are used for reference and convenience purposes only and do not constitute substantive matters to be considered in construing the terms and provisions of this Agreement.
20.Gender and Number. Words of any gender used in this Agreement shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, and vice versa, unless the context requires otherwise.
21.Notice. Any notice required or permitted to be delivered hereunder shall be deemed to be delivered only when actually received by the Company or by the Participant, as the case may be, at the addresses set forth below, or at such other addresses as they have theretofore specified by written notice delivered in accordance herewith:
a.Notice to the Company shall be addressed and delivered as follows:
Physicians Realty Trust
309 N. Water Street, Suite 500
Milwaukee, Wisconsin 53202
Attn: Corporate Secretary
Fax: (414) 249-4720
Notice to the Participant shall be addressed and delivered as set forth on the signature page.
22.Tax Requirements. The Participant is hereby advised to consult immediately with his or her own tax advisor regarding the tax consequences of this Agreement. The Company or, if applicable, any Subsidiary (for purposes of this Section 22, the term “Company” shall be deemed to include any applicable Subsidiary) shall have the right to deduct from all amounts paid in cash or other form in connection with the Plan, any federal, state, local, or other taxes required by law to be withheld in connection with this Award. The Company may, in its sole discretion, also require the Participant receiving Common Shares in settlement of Awarded Units pay the Company the amount of any taxes that the Company is required to withhold in connection with the Participant’s income arising with respect to this Award. Such payments shall be required to be made when requested by the Company and may be required to be made prior to the delivery of any certificate representing Common Shares, if such


certificate is requested by the Participant in accordance with Section 6.3(a) of the Plan. Such payment may be made (i) by the delivery of cash to the Company in an amount that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required tax withholding obligations of the Company; (ii) if the Company, in its sole discretion, so consents in writing, the actual delivery by the Participant to the Company of Common Shares, other than (A) Restricted Shares, or (B) Common Shares that the Participant has acquired from the Company within six (6) months prior thereto, which shares so delivered have an aggregate Fair Market Value that equals or exceeds (to avoid the issuance of fractional shares under (iii) below) the required tax withholding payment; (iii) if the Company, in its sole discretion, so consents in writing, the Company’s withholding of a number of shares to be delivered upon the vesting of this Award, which shares so withheld have an aggregate Fair Market Value that equals (but does not exceed) the required tax withholding payment; or (iv) any combination of (i), (ii), or (iii). The Company may, in its sole discretion, withhold any such taxes from any other cash remuneration otherwise paid by the Company to the Participant.
23.REIT Status. This Agreement shall be interpreted and construed in a manner consistent with the Company’s status as a real estate investment trust.
24.Unfunded Plan. The Participant acknowledges and agrees that any rights of the Participant to the Participant’s Awarded Units and related dividend equivalents and any other related rights shall constitute bookkeeping entries on the books of the Company and shall not create in the Participant any right to or claim against any specific assets of the Company or any Subsidiary, nor result in the creation of any trust or escrow account for the Participant. With respect to the Participant’s entitlement to any payment hereunder, the Participant shall be a general creditor of the Company.
25.Code Section 409A. Payments made pursuant to this Agreement are intended to be exempt from, or to otherwise comply with, Section 409A of the Code and the Treasury regulations and guidance issued thereunder (collectively, “Code Section 409A”). Accordingly, other provisions of the Plan or this Agreement notwithstanding, the provisions of this Section 25 will apply in order that the Awarded Units, and related dividend equivalents and any other related rights, will be exempt from or otherwise comply with Code Section 409A. In addition, the Company and the Committee reserve the right, to the extent the Company or the Committee deems necessary or advisable in its sole discretion, to unilaterally amend or modify the Plan and/or this Agreement to ensure that all Awarded Units, and related dividend equivalents and any other related rights, are exempt from or otherwise comply, and in operation comply, with Code Section 409A (including, without limitation, the avoidance of penalties thereunder). Other provisions of the Plan and this Agreement notwithstanding, the Company makes no representations that the Awarded Units, and related dividend equivalents and any other related rights, will be exempt from or avoid any penalties that may apply under Code Section 409A, makes no undertaking to preclude Code Section 409A from applying to the Awarded Units and related dividend equivalents and any other related rights, and will not indemnify or provide a gross up payment to a Participant (or his beneficiary) for any taxes, interest or penalties imposed under Code Section 409A. The settlement of Awarded Units that constitute nonqualified deferred compensation within the meaning of Code Section 409A (“409A Awarded Units”) may not be accelerated by the Company except to the extent permitted under Code Section 409A. The Company may, however, accelerate the vesting of 409A Awarded Units, without changing the settlement terms of such 409A Awarded Units. In the case of any settlement of 409A Awarded Units during a specified period following any date triggering a right to settlement, the Participant shall have no influence on any determination as to the tax year in which the settlement will be made. Notwithstanding any other provision in this Agreement, if the Participant is a “specified employee” for purposes of Code Section 409A as of the date of the Participant’s Termination of Service, then to the extent any amount payable under this Agreement (i) constitutes the payment of nonqualified


deferred compensation, within the meaning of Code Section 409A, (ii) is payable upon the Participant’s Termination of Service for a reason other than death, and (iii) under the terms of this Agreement would be payable prior to the six-month anniversary of the Participant’s Termination of Service, such payment shall be delayed and paid to the Participant on the day that is six months and one day following the Participant’s Termination of Service or, if earlier, within ninety (90) days following the Participant’s death.




IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its duly authorized officer, and the Participant, to evidence his or her consent and approval of all the terms hereof, has duly executed this Agreement, as of the date specified in Section 1 hereof.

COMPANY:
PHYSICIANS REALTY TRUST
By:    
Name:    
Title:    
PARTICIPANT:
[____________]
    
Signature

Name:    
Address:        
    




Exhibit A

[For the period from __________ to _________(the "Performance Period"), [insert the relevant performance goals and any specific definitions related to such goals here]]1


1 Performance award and other awards (whether relating to cash or Common Shares) under the Plan may be made subject to the attainment of performance goals relating to one or more business criteria that may consist of one or more or any combination or any component or ratio or other metric of the following criteria: cash flow; cost; revenues; sales; earnings; margins; ratio of debt to debt plus equity, debt to equity or debt to assets; net borrowing, credit quality or debt ratings; profit before tax; economic profit; earnings before interest and taxes; earnings before interest, taxes, depreciation and amortization; gross margin; earnings per share (whether on a pre-tax, after-tax, operational or other basis); operating earnings; capital expenditures; expenses or expense levels; economic value added; ratio of operating earnings to capital spending or any other operating ratios; free cash flow; net profit; net sales; net asset value per share; the accomplishment of mergers, acquisitions, dispositions, restructurings, public offerings or similar extraordinary business transactions; sales growth; price of the Company’s Common Shares; return on assets, equity or shareholders’ equity; market share; inventory levels, inventory turn or shrinkage; total return to shareholders; establishment and/or implementation of Company policies; regulatory and/or compliance goals; management of expenses; external performance, tenant, customer or supplier satisfaction, operational goals or other awards or surveys; environmental, social and governance goals or sustainability goals or such other business criteria as the Committee considers appropriate or desirable in light of the business goals of the Company (“Performance Criteria”).  Any Performance Criteria may be used to measure the performance of the Company as a whole or any business unit of the Company and may be measured relative to a peer group or index. Any Performance Criteria may include or exclude (i) extraordinary, unusual and/or non-recurring items of gain or loss, (ii) gains or losses on the disposition of a business, (iii) changes in tax or accounting regulations or laws, (iv) the effect of a merger or acquisition, as identified in the Company’s quarterly and annual earnings releases, or (v) other similar occurrences.


Exhibit 21.1
LIST OF SUBSIDIARIES
(as of December 31, 2020)
ENTITY STATE OF ORIGIN
Physicians Realty L.P. Delaware
Ziegler-Texas 8, LLC Wisconsin
Ziegler-El Paso 8 Limited Partnership Wisconsin
Ziegler-Illinois 12, LLC Wisconsin
Ziegler-Michigan 12, LLC Wisconsin
Ziegler-Tennessee 14, LLC Wisconsin
Ziegler-Maine 15, LLC Wisconsin
Ziegler-Wisconsin 16, LLC Wisconsin
Ziegler-Illinois 18, LLC Wisconsin
Ziegler-Ohio 19, LLC Wisconsin
Ziegler-Arizona 23, LLC Wisconsin
Ziegler-Wisconsin 24, LLC Wisconsin
Sandwich Development Partners, LLC Illinois
Remington Development Partners, LLC Illinois
DOC-FSH El Paso Medical Center, LLC Wisconsin
DOC-FSH El Paso Medical Center Partners, LLC Wisconsin
DOC-LifeCare Plano LTACH Wisconsin
DOC-CCSC Crescent City Surgical Centre, LLC Wisconsin
Crescent City Surgical Centre Facility, L.L.C. Louisiana
DOC-MP TXAZ, LLC Wisconsin
DOC-Greymark HQ OKC MOB, LLC Wisconsin
DOC-SSH Slidell Surgical Center, LLC Wisconsin
DOC-CONS Columbus MOB, LLC Wisconsin
Eastwind MOB, LLC Ohio
DOC-CCSC Crescent City Land, LLC Wisconsin
DOC-Great Falls MT ASC, LLC Wisconsin
DOC-FSH San Antonio Hospital, LLC Wisconsin
DOC-FSH San Antonio MOB, LLC Wisconsin
DOC-PDMC Atlanta, LLC Wisconsin
DOC-LifeCare Pittsburgh LTACH, LLC Wisconsin
DOC-LifeCare Ft. Worth LTACH, LLC Wisconsin
DOC-Pinnacle Harrisburg MOBs, LLC Wisconsin
DOC-SBO MOB, LLC Wisconsin
DOC-Grenada MOB, LLC Wisconsin
DOC-Carmel MOB, LLC Wisconsin
DOC-MSMOC Jackson MOB, LLC Wisconsin
DOC-Premier Landmark MOBs, LLC Wisconsin
DOC-Summit Bloomington MOB, LLC Wisconsin
DOC-Renaissance Oshkosh MOB, LLC Wisconsin
DOC-Baylor Mansfield ASC, LLC Wisconsin
DOC-SIM Monroe ASC, LLC Wisconsin
DOC-Oaks Lady Lake MOB, LLC Wisconsin
DOC-CRMC Carlisle, MOB LLC Wisconsin
DOC-Indiana 7 MOB, LLC Wisconsin
DOC-2625 Market Place MOB, LLC Wisconsin


ENTITY STATE OF ORIGIN
DOC-4518 Union Deposit MOB, LLC Wisconsin
DOC-4520 Union Deposit MOB, LLC Wisconsin
DOC-240 Grandview Avenue MOB, LLC Wisconsin
DOC-32 Northeast Drive MOB, LLC Wisconsin
DOC-1755 Curie Drive MOB, LLC Wisconsin
DOC-3100 Lee Trevino Drive MOB, LLC Wisconsin
DOC-9999 Kenworthy Street MOB, LLC Wisconsin
DOC-9085 Southern Street MOB, LLC Wisconsin
Southern Point LLC Delaware
DOC-3100 Plaza Properties Boulevard MOB, LLC Wisconsin
Zangmeister Center LLC Delaware
DOC-170 Taylor Station Road MOB, LLC Wisconsin
COG Real Estate Partners II, LLC Ohio
DOC-560 North Cleveland Avenue MOB, LLC Wisconsin
Cardinal Westerville II LLC Ohio
DOC-Middletown Medical MOBs, LLC Wisconsin
DOC-2633 Napoleon Avenue MOB, LLC Wisconsin
DOC-207 Stonebridge Boulevard ASC, LLC Wisconsin
DOC-DG Holding, LLC Wisconsin
DOC-2422 20th Street SW MOB, LLC Wisconsin
DOC-3400 West 66th Street MOB, LLC Wisconsin
MMB Medical Partners, LLC Delaware
MTKA II MP LLC Delaware
VH Medical Partners LLC Delaware
Crystal Medical Building, LLC Minnesota
Savage Medical Building, LLC Minnesota
Dell Medical Building, LLC Minnesota
DOC-MSM Greenwood MOBs, LLC Wisconsin
CAN Real Estate, LLC Indiana
DOC-Indiana American MOBs, LLC Wisconsin
DOC-MP Holding, LLC Wisconsin
DOC-4352 North Josey Lane MOB, LLC Wisconsin
DOC-7308 Bridgeport Way W MOB, LLC Wisconsin
DOC-309 Renaissance, LLC Wisconsin
DOC-CCP MOBs, LLC New York
DOC-2511 Terra Crossing Boulevard MOB, LLC Wisconsin
DOC-9118 Bluebonnet Centre Boulevard MOB, LLC Wisconsin
DOC-19900 Haggerty Road MOB, LLC Wisconsin
DOC-679 East County Line Road MOB, LLC* Wisconsin
DOC-600 Health Park Boulevard MOB, LLC Wisconsin
DOC-5319 Hoag Drive MOB, LLC Wisconsin
DOC-15255 Max Leggett Parkway MOB, LLC Wisconsin
DOC-3833 Coon Rapids Boulevard NW MOB, LLC Wisconsin
DOC-2605 East Creeks Edge Drive MOB, LLC Wisconsin
DOC-1701B Pelham Road South MOB, LLC Wisconsin


ENTITY STATE OF ORIGIN
DOC-1710 North Randall Road MOB, LLC Wisconsin
DOC-250 Fame Avenue MOB, LLC Wisconsin
DOC-3602 Kyoto Gardens Drive MOB, LLC Wisconsin
DOC-5401 South Congress Avenue MOB, LLC Wisconsin
DOC-3730 Plaza Way MOB, LLC Wisconsin
DOC-2030 Stringtown Road MOB, LLC Ohio
DOC-3815 East Bell Road MOB, LLC Wisconsin
DOC-13555 West McDowell Road MOB, LLC Wisconsin
DOC-10815 West McDowell Road MOB, LLC Wisconsin
DOC-9250 North 3rd Street MOB, LLC Wisconsin
DOC-MP Kyle, LLC Wisconsin
DOC-Katy Medical MOBs, LLC Wisconsin
DOC-7277 Smith’s Mill Road MOB, LLC Wisconsin
DOC-16838 East Palisades Boulevard MOBs, LLC Wisconsin
DOC-Great Falls Holding, LLC Wisconsin
DOC-2000 Lewis Turner Boulevard MOB, LLC Wisconsin
DOC-2101 Northside Drive MOB, LLC Wisconsin
DOC-411 North Section Street MOB, LLC Wisconsin
DOC-1624 North McKenzie Street MOB, LLC Wisconsin
DOC-669 South McKenzie Street MOB, LLC Wisconsin
DOC-12601 Sorrento Road MOB, LLC Wisconsin
DOC-5150 North Davis Highway MOB, LLC Wisconsin
DOC-1299 Industrial Drive MOB, LLC Wisconsin
DOC-5101 North Davis Highway MOB, LLC Wisconsin
DOC-12600 Sorrento Road MOB, LLC Wisconsin
DOC-4397 Ronald Reagan Boulevard ASC, LLC Wisconsin
DOC-3510 Old Washington Road MOB, LLC Wisconsin
DOC-LM Kansas City MOB, LLC Wisconsin
DOC-3311 North 44th Street MOBs, LLC Wisconsin
DOC-1203 Smizer Mill Road MOB, LLC Wisconsin
DOC-Nashville MOB, LLC Wisconsin
Cambridge Nashville Medical Center, L.P. Tennessee
DOC-1709 Medical Park Drive MOB, LLC Wisconsin
Great Falls Clinic-Frauenshuh, LLC Minnesota
DOC-1155 SE Monterey Road ASC, LLC Wisconsin
DOC-Davis Group MOB Portfolio, LLC Wisconsin
DOC-300 Lake Drive East MOB, LLC Wisconsin
DOC-1609 Hospital Parkway MOB, LLC Wisconsin
DOC-2405 North Columbus Street MOB, LLC Wisconsin
DOC-21 Laurel Avenue MOB, LLC Wisconsin
DOC-67 Prospect Avenue MOB, LLC Wisconsin
DOC-6220 West Bell Road ASC, LLC Wisconsin
DOC-833 St. Vincent’s Drive MOB, LLC Wisconsin
DOC-2660 10th Avenue South MOB, LLC Wisconsin
DOC-2700 10th Avenue South MOB, LLC Wisconsin


ENTITY STATE OF ORIGIN
DOC-633 Emerson Road MOB, LLC Wisconsin
DOC-5757 Harper Drive NE MOB, LLC Wisconsin
DOC-2947 Rodeo Park Drive East MOB, LLC Wisconsin
DOC-2213 Decatur Highway ASC, LLC Wisconsin
DOC-2900 Curve Crest MOB, LLC Wisconsin
DOC-14688 Everton Avenue MOB, LLC Wisconsin
DOC-FREH El Paso, LLC* Wisconsin
DOC-1624 South I Street MOB, LLC Wisconsin
DOC-1802 South Yakima Street MOB, LLC Wisconsin
DOC-34509 9th Avenue South MOB, LLC Wisconsin
DOC-100 East Liberty Street MOB, LLC Wisconsin
DOC-250 East Liberty Street MOB, LLC Wisconsin
DOC-3920 Dutchmans Lane MOB, LLC Wisconsin
DOC-1903 West Hebron Lane MOB, LLC Wisconsin
DOC-1111 West Frank Avenue MOB, LLC Wisconsin
DOC-1105 West Frank Avenue MOB, LLC Wisconsin
DOC-225 Abraham Flexner Way MOB, LLC Wisconsin
DOC-Harrodsburg Road MOBs, LLC Wisconsin
DOC-1451 Harrodsburg Road MOB, LLC Wisconsin
DOC-4419 North Highway 7 MOB, LLC Wisconsin
DOC-1 St. Vincent Circle MOB, LLC Wisconsin
DOC-908 North Howard MOB, LLC Wisconsin
DOC-401 East Gold Coast Road MOB, LLC Wisconsin
DOC-1118 NW 16th Street MOB, LLC Wisconsin
DOC-4075 East 128th Avenue MOB, LLC Wisconsin
DOC-350 Peak One Drive MOB, LLC Wisconsin
DOC-3101 Summit View Drive MOB, LLC Wisconsin
DOC-1301 West Frank Avenue MOB, LLC Wisconsin
DOC-6401 Kimball Drive MOB, LLC Wisconsin
DOC-11311 Bridgeport Way MOB, LLC Wisconsin
DOC-1900 Bluegrass Avenue MOB, LLC Wisconsin
DOC-4500 Churchman Avenue MOB, LLC Wisconsin
DOC-2111 Landmark Circle MOB, LLC Wisconsin
DOC-1351 East McPherson Highway MOB, LLC Wisconsin
DOC-12635 West Bluemound Road MOB, LLC Wisconsin
DOC-1905 West Hebron Lane MOB, LLC Wisconsin
DOC-3200 West 33rd Street MOB, LLC Wisconsin
DOC-310 North 9th Street MOB, LLC Wisconsin
DOC-725 Glenwood Drive MOB, LLC Wisconsin
DOC-810 East Rosser Avenue MOB, LLC Wisconsin
DOC-1212 East Main Street MOB, LLC Wisconsin
DOC-1310 East Main Avenue MOB, LLC Wisconsin
DOC-1708 South Yakima Street MOB, LLC Wisconsin
DOC-2116 West Faidley Avenue MOB, LLC Wisconsin
DOC-2255 East Mossy Oaks Drive MOB, LLC Wisconsin


ENTITY STATE OF ORIGIN
DOC-2420 South State Street MOB, LLC Wisconsin
DOC-2500 Sunset Drive NW MOB, LLC Wisconsin
DOC-3219 Central Avenue MOB, LLC Wisconsin
DOC-4402 Churchman Avenue MOB, LLC Wisconsin
DOC-7440 West 91st Street MOB, LLC Wisconsin
DOC-11045 Lansing Circle MOB, LLC Wisconsin
DOC-11109 South 84th Street MOB, LLC Wisconsin
DOC-12809 West Dodge Road MOB, LLC Wisconsin
DOC-16221 St. Vincent Way MOB, LLC Wisconsin
DOC-16940 Lakeside Hills Plaza MOB, LLC Wisconsin
DOC-17030 Lakeside Hills Plaza MOB, LLC Wisconsin
DOC-17198 St. Luke’s Way MOB, LLC Wisconsin
DOC-2001 Beam Avenue MOB, LLC Wisconsin
DOC-100 Pilot Medical Drive MOB, LLC Wisconsin
DOC-DG Hazelwood MOB, LLC Wisconsin
DOC-Unity Lafayette MOBS, LLC Wisconsin
DOC-Medical Village at Maitland, LLC Wisconsin
DOC-225 Crosslake Drive MOB, LLC Wisconsin
DOC-1003 Reserve Boulevard MOB, LLC Wisconsin
DOC-1320 Broadcasting Road MOB, LLC Wisconsin
DOC-8116 Good Luck Road MOB, LLC Wisconsin
DOC-Dutchmans Lane Property, LLC Wisconsin
DOC-4100 Park Forest MOB (Unit 4), LLC* Michigan
DOC-4100 Park Forest MOB, LLC Michigan
DOC-4000 Medical Center Drive MOB, LLC Wisconsin
DOC-5100 West Taft Road MOB, LLC Wisconsin
DOC-Desert Cove MOB, LLC* Wisconsin
DOC-1561 Ulster Avenue MOB, LLC* Delaware
CEI Drive MOB, LLC Ohio
DOC-20745 North Scottsdale Road MOB, LLC Wisconsin
DOC-3925 North Gateway Drive MOB, LLC Wisconsin
DOC-6734 Route 9 MOB, LLC Wisconsin
DOC-Scottsdale IRF, LLC Wisconsin
DOC-4033 Eastern Sky Drive MOB, LLC Wisconsin
DOC-4921 Long Prairie Road MOB, LLC Wisconsin
DOC-4951 Long Prairie Road MOB, LLC Wisconsin
DOC-4780 North Josey Lane MOB, LLC Wisconsin
DOC-5000 Long Prairie Road MOB, LLC Wisconsin
DOC-201 North Mountain Road MOB, LLC Wisconsin
DOC-1050 SE Monterey Road MOB, LLC Wisconsin
DOC-1301 Barbara Jordan Boulevard MOB, LLC Wisconsin
DOC-LM Brandon MOB, LLC Wisconsin
DOC-1315 Barbara Jordan Boulevard, LLC Wisconsin
DOC-2412 Cuming Street MOB, LLC Wisconsin
DOC-13950 Brandywine Road MOB, LLC Wisconsin


ENTITY STATE OF ORIGIN
DOC-1455 Higdon Ferry Road MOB, LLC Wisconsin
DOC-3135 West Broadway Street MOB, LLC Wisconsin
DOC-2501 Citico Avenue MOB, LLC Wisconsin
DOC-7710 Mercy Road MOB, LLC Wisconsin
DOC-200 Heart Center Lane MOB, LLC Wisconsin
DOC-One Mercy Lane MOB, LLC Wisconsin
DOC-1213 15th Avenue W MOB, LLC Wisconsin
DOC-6829 North 72nd Street MOB, LLC Wisconsin
DOC-808 3rd Street SE MOB, LLC Wisconsin
DOC-1108 1st Street SE MOB, LLC Wisconsin
DOC-2215 East Villa Maria MOB, LLC Wisconsin
DOC-1662 Higdon Ferry Road MOB, LLC Wisconsin
DOC-811 2nd Street SE MOB, LLC Wisconsin
DOC-2700 East 29th Street MOB, LLC Wisconsin
DOC-118 Womens Center Lane MOB, LLC Wisconsin
DOC-8096 Twin Beech Road MOB, LLC Wisconsin
DOC-2105 East Enterprise Avenue MOB, LLC Wisconsin
DOC-13950 Brandywine Road MOB, LLC Wisconsin
STV Carmel MOB, LLC Delaware
STV Fishers MOB, LLC Delaware
CP MOB I and II, LLC Delaware
TL MOB, LLC Delaware
DOC-3410 Worth St. MOB, LLC Wisconsin
DOC-3601 CCI Drive MOB, LLC Wisconsin
DOC-MedCore Realty HSP, LLC Wisconsin
DOC-1124 East McKellips Road MOB, LLC Wisconsin
DOC-2945 Hazelwood Street MOB, LLC Wisconsin
DOC-3316 West 66th Street MOB, LLC Wisconsin
DOC-8515 Eagle Point Boulevard MOB, LLC Wisconsin
DOC-9160 Carothers Parkway MOB, LLC Wisconsin
DOC-DG CityPlace MOB, LLC Wisconsin
DOC-Deauville Boulevard MOBs, LLC Wisconsin
DOC-1225 South Broadway MOB, LLC Wisconsin
DOC-250 West 96th Street MOB, LLC Wisconsin
DOC-500 Medical Center Boulevard MOB, LLC Wisconsin
DOC-631 Professional Drive MOB, LLC Wisconsin
DOC-3855 Pleasant Hill Road MOB, LLC Wisconsin
DOC-7330 North 99th Avenue MOB, LLC Wisconsin
DOC-10401 Spotsylvania Avenue MOB, LLC* Wisconsin
DOC-14655 Galaxie Avenue MOB, LLC Wisconsin
DOC-105 West Stone Drive MOB, LLC Wisconsin
DOC-1110 West Peachtree Street NW MOB, LLC Wisconsin
DOC-9726 Touchton Road MOB, LLC Wisconsin
DOC-DG Sandusky MOB, LLC Wisconsin
DOC-TL Slidell Hospital, LLC Wisconsin


ENTITY STATE OF ORIGIN
DOC-DG Cincinnati MOB, LLC Wisconsin
DOC-5146 Preston Avenue ASC, LLC Wisconsin
DOC-2600 Scripture Street MOB, LLC Wisconsin
DOC-886 McKinley Avenue MOB, LLC Wisconsin
DOC-NNGS Pensacola PT MOB, LLC Wisconsin
DOC-Pensacola Summit ASC, LLC Wisconsin
DOC-Shell Ridge Plaza MOB, LLC Wisconsin
DOC-7260 Shadeland Station POB, LLC Wisconsin
DOC-DG CityPlace II MOB, LLC Wisconsin
DOC-5555 Peachtree Dunwoody Road NE MOB, LLC Wisconsin
DOC-7240/7330 Shadeland Station POB, LLC Wisconsin
DOC-CHI Rockwall Holding, LLC Wisconsin
DOC-Medcore Eden Hill, LLC Wisconsin
DOC-CHI FW Holding, LLC Wisconsin
DOC-1400 George Dieter Drive MOB, LLC Wisconsin
DOC-515 West Middle Turnpike MOB, LLC Wisconsin
DOC-East Boulevard MOB, LLC Wisconsin
DOC-TL Slidell MOB, LLC Wisconsin
DOC-500 S. Henderson Street MOB, LLC Wisconsin
DOC-1400 Education Way MOB, LLC Wisconsin
DOC-DG New Albany MOB, LLC Wisconsin
DOC-PMAK MOB Holding, LLC Wisconsin
DOC-HIGH POINT MOB, LLC Wisconsin
DOC-Physicians Drive El Paso, LLC Wisconsin
DOC-465 N. Cleveland Avenue MOB, LLC Wisconsin
DOC-201 Veterans Way MOB, LLC Wisconsin
DOC-911 John Street MOB, LLC Wisconsin
DOC-3699 Epworth Road MOB, LLC Wisconsin
DOC-DG Xchange MOB, LLC Wisconsin
DOC-101 Pennsylvania Avenue MOB, LLC Wisconsin
DOC-2401 Northampton Street MOB, LLC Wisconsin
DOC-DG MOB Fund Holding, LLC Wisconsin
DOC-2000 Joseph E. Sanker Boulevard MOB, LLC Wisconsin
DOC-5 City Avenue MOB, LLC Wisconsin
DOC-LM Bay City MOB, LLC Wisconsin
DOC-LM Hospital Hill MOB, LLC Wisconsin
DOC-LM Jackson MOB, LLC Wisconsin
DOC-LM Jacksonville MOB, LLC Wisconsin
DOC-LM Lafayette MOB, LLC Wisconsin
DOC-LM Mount Sinai MOB, LLC Wisconsin
DOC-LM Old Bridge MOB, LLC Wisconsin
DOC-LM Petoskey MOB, LLC Wisconsin
DOC-LM TGH Brandon Healthplex, LLC Wisconsin


ENTITY STATE OF ORIGIN
DOC-LM Troy MOB, LLC Wisconsin
DOC-DG MOB Funding, LLC Wisconsin
DOC-376 Tolland Turnpike MOB, LLC Wisconsin
DOC-484 County Line Rd West MOB, LLC Wisconsin
DOC-484 County Line Rd West MOB, LLC Wisconsin
DOC-Pensacola Summit ASC, LLC Wisconsin
DOC-376 Tolland Turnpike MOB, LLC Wisconsin





Exhibit 22.1

LIST OF SUBSIDIARY ISSUERS OF GUARANTEED SECURITIES

Physicians Realty Trust is the guarantor of the outstanding guaranteed debt securities of its subsidiaries, as listed below.

Debt Instrument Issuer
4.300% Senior Notes due 2027
Physicians Realty L.P.
3.950% Senior Notes due 2028
Physicians Realty L.P.




Exhibit 23.1
Consent of Independent Registered Public Accounting Firm
 
We consent to the incorporation by reference in the Registration Statements (No. 333-190085, No. 333-198715, No. 333-204032, and No. 333-231187 on Forms S-8 and No.333-236725 on Forms S-3) of Physicians Realty Trust of our reports dated February 26, 2021 with respect to the consolidated financial statements and schedule of Physicians Realty Trust, and the effectiveness of internal control over financial reporting of Physicians Realty Trust, included in this Annual Report (Form 10-K) for the year ended December 31, 2020.
 
  /s/ Ernst & Young LLP
Ernst & Young LLP


Chicago, Illinois
February 26, 2021

Exhibit 31.1

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, John T. Thomas, certify that:

1.I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2020, of Physicians Realty Trust;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 26, 2021 /s/ John T. Thomas
  John T. Thomas
  Chief Executive Officer and President



Exhibit 31.2

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Jeffrey N. Theiler, certify that:
1.I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2020, of Physicians Realty Trust;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: February 26, 2021 /s/ Jeffrey N. Theiler
  Jeffrey N. Theiler
  Executive Vice President and Chief Financial Officer



Exhibit 32.1

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906
OF THE SARBANES-OXLEY ACT OF 2002
 
Each of the undersigned hereby certifies, for the purposes of 18 U.S.C. Section 1350, in his capacity as an officer of Physicians Realty Trust (the “Company”), that, to such person’s knowledge:
 
a.    the Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2020, as filed with the Securities and Exchange Commission (the “Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
 
b.    the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
Date: February 26, 2021
  
/s/ John T. Thomas  
John T. Thomas  
Chief Executive Officer and President  
   
   
/s/ Jeffrey N. Theiler  
Jeffrey N. Theiler  
Executive Vice President and Chief Financial Officer  
 
This certification is not deemed to be “filed” for purposes of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liability under the Exchange Act. This certification is not deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except to the extent that the Company specifically incorporates it by reference.