Physicians Realty Trust

Good morning and welcome to the Physicians Realty Trust second quarter 2023 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Bradley Page, Senior Vice President,

general counsel please go ahead thank you jason good morning and welcome to the physicians realty trust second quarter 2023 earnings conference call and webcast joining me today are john thomas chief executive officer jeff tyler chief financial officer deanie taylor chief investment officer mark fine executive vice president asset management john lucy chief accounting and administrative officer and Lori Becker, Senior Vice President, Controller. During this call, John Thomas will provide a summary of the company's activities and performance for the second quarter of 2023, and our year-to-date performance, as well as our strategic focus for the remainder of 2023. Jeff Tyler will review our financial results for the second quarter of 2023, and Mark Vine will provide a summary of our operations for the second quarter. Today's call will contain forward-looking statements made pursuant to the provisions of the Private Securities Litigation Reform Act of 1995. They reflect the views of management regarding current expectations and projections about future events and are based on information currently available to us. Our forward-looking statements involve numerous risks and uncertainties. They depend on assumptions, data, and methods that may be incorrect or imprecise. You should not rely on our forward-looking statements as predictions of future events, and we do not guarantee that the transactions or events described will happen as described or that they will happen at all. For a more detailed description of other risks and other important factors that could cause our 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 like to now turn the call over to the company's CEO, John Thomas. John?

Thank you, Brad. On July 19th, we celebrated DOC's 10th anniversary as a public company. From our earliest days as the custodians of a modest portfolio of 19 buildings, the DOC team has remained committed to a disciplined strategy of thoughtful growth and prudent balance sheet management. This steadfast approach, combined with our unmatched partnerships with health systems and physicians across the country, has propelled our portfolio to nearly 300 owned assets, totaling over 16 million rentable square feet. While we are proud to reflect on our achievements so far, we are excited to embrace the opportunities available for docs next decade. The demands of the U.S. healthcare delivery system will continue to grow in tandem with the aging of America, and providers need to expand their outpatient presence to effectively care for their patients. Physicians for Realty Trust remains ready to partner with our clients to address these changes. We are well positioned to finance and own the purpose-built outpatient facilities that will replace expensive and aged inpatient space. The opportunity to deliver accretive growth through acquisitions has been limited for much of the past two years due to rapidly rising interest rates and the expected uncertainty as to where investment yields should settle. We've chosen to remain patient during this time, prudently waiting for market pricing to meet our cost of capital. That doesn't mean we've been stagnant, Our team has worked diligently to remain connected with our health system partners while also thoughtfully evaluating where the puck is moving for outpatient real estate. We're pleased to share that our patience is beginning to be rewarded. During the quarter, we completed a modest number of acquisitions highlighted by the purchase of the Cardiovascular Associates Building in Birmingham, Alabama at a first year yield of 7%. This 73,000 square foot building was designed and built in response to market innovations that now allow many cardiology services and procedures to be performed in an outpatient facility. This is a natural clinical evolution with Medicare and commercial payers each recognizing the higher quality and lower cost of providing cardiology services in an outpatient location. We expect this to be a growth strategy for us as the first of many similar cardiology-focused outpatient facilities we will purchase, develop, and finance in the future. In addition to the acquisition of stable properties, we will continue to invest meaningful capital in the development of outpatient medical facilities. This capital will be provided in varying forms, including loan to own debt facilities and mezzanine financing arrangements on heavily pre-leased projects. Many of these projects will eventually come on balance sheet through contractual takeout commitments. Our pipeline includes $68 million in contractual commitments to projects under construction and the potential for $500 million of further investments in projects in the planning stage. Projects within our development pipeline are diverse in nature, reflecting the robust opportunity available for outpatient medical investors. Four projects in our active pipeline are redevelopments of existing buildings. One is the conversion of a vacant big box retail anchor, and three represent the conversion of suburban general office buildings. In each case, these projects will soon be helping leading healthcare providers deliver care in their communities. We expect that our stabilized yields on these opportunities will exceed the interest rates received during each respective construction period with first-year rent returns that we project to exceed 7% once stabilized. In any case, these financing opportunities will have higher long-term IRRs than we can achieve in the current acquisition market. We have not finalized these capital commitments, and some may not come to fruition, yet we are confident that our opportunity for attractive development financings will continue to grow. Within the existing portfolio, DOC's leasing team continues to do an outstanding job of maximizing the performance of our portfolio. We have ambitious goals to achieve positive net absorption this year while also capturing the exceptional renewal spreads and increasing escalators that we've delivered in recent quarters. That momentum has continued this quarter with leasing spreads totaling 7.8%. Over time, the achievement of leasing results in excessive historical levels and maintaining or improving total occupancy should lead to sustainable and elevated NOI growth over time that is sustainably higher than what the outpatient medical space has provided in the past. We project that this past quarter is the trough for same-store growth as we sign and commence both new and renewal leases in the future. Jeff will now share comments on our financial results of second quarter 2023, and Mark will discuss our operating results.