Physicians Realty Trust

Greetings and welcome to the Physicians Realty Trust fourth quarter and 2021 year-end earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bradley Page, Senior Vice President, General Counsel. Thank you, sir. You may begin.

Thank you, Jesse. Good morning and welcome to the Physicians Realty Trust fourth quarter 2021 and year-end earnings conference call. Joining me today are John Thomas, Chief Executive Officer, Jeff Tyler, Chief Financial Officer, Deanie Taylor, Chief Investment Officer, Mark Thine, Executive Vice President, Asset Management, John Lucey, Chief Accounting and Administrative Officer, Lori Becker, Senior Vice President, 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 fourth quarter of 2021 and year to date, as well as our strategic focus for 2022. Jeff Tyler will review our financial results from the fourth quarter of 2021 and year end, and Mark Thine will provide a summary of our operations for the fourth quarter of 2021. 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 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 a 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, and thanks, everyone, for joining us for our on-time as scheduled earnings call. Physicians Realty Trust had an outstanding 2021, and we entered 2022 very excited about our internal and external growth prospects. Our confidence comes from the continued performance of the DOC portfolio in the face of a challenging operating environment. Despite the emergence of the Delta and then Omicron COVID variants and the highest inflationary environment in recent memory, our healthcare provider tenants demonstrated their financial resiliency throughout the year, delivering 99.9% rent collections in 2021. These strong collections resulted in less than $100,000 of bad debt expense for the year on total rent and CAM revenues of over $437 million. This operational strength combined with our 95% leased rate and unmatched exposure to investment grade quality tenants left us well positioned to deliver full year same store NOI growth of 2.5% across our entire portfolio of medical office facilities. We see internal growth momentum accelerating with the portfolio averaging 2.9% same store growth in the fourth quarter, all without the benefit of a repositioning basket. Mark Dine, Mark Dukes, Amy Hall, and our entire team did an incredible job managing our portfolio, generating these best in asset class results. As one of the most stable and reliable real estate asset classes over the last decade, and specifically over the last year, it's not surprising that medical office space continues to attract capital from new investors. These compressed cap rates not only increase the underlying value of the DOC portfolio, but also make our longstanding health system and developer partnerships even more important as we work to source attractive investment opportunities. In 2021, we leveraged these relationships to complete $1 billion of gross investments and an average first year cash yield of 4.9%, increasing our portfolio footprint by 11%. These investments are highlighted by our acquisition of the $750 million landmark portfolio in December, which is the largest transaction we've completed in the history of the company. Most importantly, the acquisition adds 10 new health system relationships to our portfolio, providing ample opportunity for future growth. In addition to Landmark, we completed $258 million of other investments, all of which we are excited about, and all off-market. These deals include our seventh and eighth transactions with Honor Health, a premier investment-grade health system serving the rapidly growing Phoenix MSA. We are IRR-focused long-term investors nurturing relationships and providing best-in-class service to health care providers, earning more business. That's capital allocation for the long term. We couldn't have accomplished these results without the exceptional financial leadership and balance sheet management of Jeff Tyler and his team. I will let Jeff share the details, but an upgrade to our investment grade credit rating is a pretty good starting point during a once-in-100-year pandemic. In addition, we ended the year with leverage of 5.8 times debt to EBITDA and are well positioned in a rising interest rate environment with 80% of our outstanding debt locked at fixed interest rates. Transitioning to DOC's ESG platform, we ended 2021 with 10 new buildings earning IREM certified sustainable property designations, recognizing DOC's commitment to resource efficiency and environmental initiatives at each of these properties. Approximately 19% of our portfolio square footage is now certified with IREM Certification requires each property to meet baseline requirements and earn necessary points across energy, water, health, recycling, and purchasing commitments. We also received a 2021 Energy Star Partner of the Year Award from the Environmental Protection Agency and the Department of Energy in recognition of our commitments to environmental transparency and accountability. In 2021, we completed our inaugural Gresby application. Gresby is a mission-driven, industry-led organization providing standardized and validated ESG data to financial markets. In our first year submission to Gresby, we earned a score of 75. This score outperformed the international average of 73. In addition, we received a Green Star designation awarded to participants achieving scores of 50 plus on Gresby's measurement of the management and performance sections. We look forward to sharing the full results of our environmental impact in our ESG report after third-party data verification is completed in quarter two. 2021 represents the final year of our inaugural three-year environmental goal cycle based on our pre-pandemic 2018 baselines. Social accomplishments in 2021 included 695 hours of paid volunteer time off and company organized activities to give back individually and corporately to the communities we serve. Doc also provided more than $400,000 in philanthropic fundraising and in-kind donations to community and healthcare provider organizations, benefiting their research and mission initiatives, surpassing our 2021 goal of $350,000. We are thrilled and humbled to earn recognition as the 2021 Modern Healthcare Best Places to Work. Based on anonymous team member survey results, Doc was the highest rated healthcare real estate provider among the honorees. This prestigious nationwide ranking is the gold standard in the healthcare industry for recognizing workplaces that empower employees to provide patients and customers the best care of products and services. We're proud to enhance the company's governance through updates to our management team and board of trustees with two outstanding individuals. Since 2016, the daily operations of our Ascent property management team had been led by Mark Dukes when he joined us from Duke Realty. after overseeing their healthcare portfolio asset management team while working directly with Deanie Taylor. In 2021, Mark was sworn in to serve as chair and the chief elected officer of the Building Owners Management Association International, the highest honor in property management and commercial real estate. In recognition of his leadership and talents, he's earned a promotion to senior vice president of asset management. Our board is also looking to the future and starting the process for succession planning. And we're very excited to add Ava Lias-Booker, a senior partner at the prestigious McGuire Woods Law Firm, who's been elected to the board effective March 1st, 2022. In addition to Ava's wealth of legal and business experience, we're excited about her leadership in DE&I efforts at McGuire Woods and helping us meet and exceed our hiring and career development goals for our team. Looking to 2022, we're proud to be starting the year from a position of strength. Unlike other segments of the healthcare real estate, The growth we experienced in 2021 is organic rather than a recovery of pre-pandemic NOI. And our portfolio remains insulated from direct exposure to high labor costs. Similarly, our health care system clients are stronger than they've ever been. We're pleased to offer them a stable real estate platform as they work to expand their outpatient delivery capabilities to benefit their patients. On the acquisitions front, we will pursue accretive investments that also make sense from a long-term IRR standpoint appropriately considering the potential for continued inflation in a rising rate environment. We're fortunate that the long-term thesis of medical office remains more compelling than ever, and our health system clients have a growing appetite for new outpatient care facilities in strong demographic markets. We are actively involved in discussions with multiple partners for financing new medical office developments anchored by high-quality health systems and providers to be started during 2022 which should convert to ownership and long-term rental income streams in 2023 and 2024. It yields well in excess of current acquisition yields. Including our development pipeline, we expect to invest $250 to $500 million in 2022. Due to our relationship focus and strength in off-market acquisitions, we anticipate first-year yields on these acquisitions and developments to range from 5.25% to 6%. In conclusion, Physicians Realty Trust has entered 2022 with a strong, stable, and proven portfolio. Our management team is well-rounded with multiple years of collaborative progress, working together with a rock solid commitment to our culture that continues to earn recognition and awards. We have an eight-year track record of disciplined investments in management, and we expect another year of measured investments in this volatile capital market that will benefit our shareholders for years to come. Jeff?