Physicians Realty Trust

Greetings, ladies and gentlemen, and welcome to the Physicians' Realty Trust third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. It is now my pleasure to introduce your host, Brad Page. Thank you. You may begin.

Thank you. Good morning and welcome to the Physicians Realty Trust third quarter 2021 earnings conference call and webcast. Joining me today are John Thomas, Chief Executive Officer, Jeff Tyler, Chief Financial Officer, Jeanne Taylor, Chief Investment Officer, Mark Thine, Executive Vice President, Asset Management, John Lucey, Chief Accounting Officer, Lori Becker, Senior Vice President and Controller, Dan Klein, Deputy Chief Investment Officer, and Amy Hall, Senior Vice President, Leasing and Physician Strategy. During this call, John Thomas will provide a summary of the company's activities and performance for the third quarter of 2021 and year to date, as well as our strategic focus for the remainder of 2021. Jeff Tyler will review our financial results for the third quarter of 2021, and Mark Thine will provide a summary of our operations for the third quarter. Following that, we will open the call for questions. Today's call will contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. They are based on the current beliefs of management and the information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control or ability to predict. Although we believe our assumptions are reasonable, our forward-looking statements are not guarantees of future performance. Our actual results could differ materially from our current expectations and those anticipated or implied in such forward-looking statements. For more detailed description of potential risks and other important factors that could cause actual results to differ from those contained in any forward-looking statements, please refer to our filings with the Securities and Exchange Commission. With that, I would now like to turn the call over to the company's CEO, John Thomas. John? Thank you, Brad.

I have to admit, this may be the most anticipated earnings call I've ever had the opportunity to participate in. Physicians Realty Trust had a landmark quarter in acquisitions, operations, and balance sheet management. The momentum has continued into the fourth quarter, as subsequent to quarter end, we sold our three LTACs at a cash gain, continuing our progress to eventually become a REIT with 100% of our revenue generated by investments in outpatient medical office facilities. Despite the Delta variant COVID spikes, each of our facilities have remained open continuously since the summer of 2020, and rental income collection rates remain near 100%. In March 2021, we shared our expectations of completing 400 to 600 million in new investments during the year, including both acquisitions and development financing. It would have been easy to complete good investments pro-radiably throughout the year, but our investors are more interested in dog making great investments with better long-term accretive returns resulting from our relationship focused strategy rather than just meeting a calendar. We appreciate your confidence through the first half of the year while we completed our negotiations with Landmark and were patient with our great partner in Scottsdale, Honor Health, while they completed the construction of two of the most recent additions to the dog portfolio. On October 1st, we announced our agreement to purchase the 15-building landmark healthcare facilities portfolio for $764 million. The Class A portfolio includes 1.4 million square feet with an average building size of 97,000 feet. Each asset is affiliated with a premier health system, including 10 new system relationships to dock. Those include the investment grade-rated University of Florida Health, Beaumont Health, mclaren healthcare to combine for 40 of the portfolio's tenancy in total 74 of the landmark portfolio is leased to an investment grade health system and the portfolio carries over seven years of average remaining lease term each providing great stability for years to come additionally the transaction includes a purchase option on another 46 000 foot on-campus mob that landmark has developed currently with Doc Mezzanine Capital and their own equity in construction financing. That MLB will be completed in 2022. Upon completion of this acquisition, our share of leases to investment-grade health systems as a percentage of our gross leaseable space will increase from 64% today to 65% on a pro forma basis. We are excited to add these relationships and assets to our portfolio and are well into the final due diligence and closing process. including the transition of property management responsibilities where applicable. While Watermore Health Systems could exercise their rights to match our purchase price or other conditions could prevent us from closing, we do not anticipate a material reduction in this investment opportunity and expect to close the landmark acquisitions by the end of the year. The two new Honor Health medical facilities we acquired were self-developed by Honor Health. The Honor Health Neuroscience Facility, located on their flagship Osborne campus, has 109,000 rentable square feet and is 100% leased, with a weighted average remaining lease term of 7.7 years. The Honor Health Sonoran Medical Office Facility is 60,000 square feet on the campus and attached to Honor Health's new Sonoran Hospital and serves that high-growth sub-market northwest of Phoenix. These investments expand our total investments anchored by Honor Health to eight facilities totaling approximately 459,000 square feet. We expect to continue to grow with this outstanding investment grade health system and the physicians aligned with them in the future. With these announced investments, we now exceed $1 billion of new investments closed or under contract during 2021. Doc's growth has been fueled by our relationship with healthcare systems and physician groups and the developers working directly with those providers. Those developers include Cambridge Healthcare, the Davis Group, Landmark, Meridian, Catalyst, and others. While there's nothing wrong with private ownership of medical office facilities, there's a unique advantage public companies, like Doc, have with long-term ownership of medical office facilities aligned with best-in-class health care providers. Most of our largest clients are faith-based or community nonprofit tax-exempt organizations who are focused on access to health care for the next 50 years, not the interest rate in the next five years. Our stability and long-term approach to capital and ownership and laser-focused vesting industry customer service and property management provide us a measurable advantage to sourcing and completing our investments, growth strategy, and goals. We believe investors want access to a publicly traded, best-in-class, pure-play medical office read, and we humbly believe all the data identifies Physicians Realty Trust, our board, and our management as the best option for that investment. Before I turn the call over to Jeff to review our financials, we are also excited and humbled to announce that DOC is among Modern Healthcare's 2021 Best Places to Work. Our ranking of 26th in the supplier category represents our debut appearance, earning this distinction while serving as the highest rated healthcare real estate provider among the honorees. DOC wouldn't be voted a best place to work without our exceptional team. And today I want to recognize our very own Mark Dukes, VP of Asset Management. who just began his one-year term as chairman of BOMA International. His leadership and attention to Doc will not waver, but this recognition and leadership to the commercial real estate industry is a tribute to his professional and personal excellence, and we are blessed to have him on our leadership team. We'd also like to recognize Mark Thine, our EVP of Asset Management and one of Doc's founders, who was recently named by Globe Street to the 50 Under 40 list for people to know in the U.S. commercial real estate industry. Congratulations, Mark and Mark, and keep up the outstanding leadership to Doc and the providers and the communities we serve.