Q2 2020 Physicians Realty Trust Earnings Call

[music], ladies and gentlemen, we thank you for your patience and please continue to stand by the physician Realty Trust's Conference call will begin shortly again. Please continue to stand by the physician Realty Trust Conference will begin shortly thank you.

Greetings and welcome to the physician Realty Trust second quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. A question 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 and it's now my pleasure to introduce your host Bradley page Senior Vice President General Counsel. Thank you you may begin.

Thank you good morning, and welcome to the Physicians Realty Trust second quarter 2020 earnings conference call and webcast.

Joining me today are John Thomas Chief Executive Officer, Jeff Tyler Chief Financial Officer, Deeni, Taylor Chief Investment Officer.

Mark by the executive Vice President of asset management.

John Lucey, Chief accounting and administrative officer worried back or senior Vice President controller, and Dan Flying Deputy Chief Investment Officer.

During this call John Thomas will provide a summary of the company's activities and performance for the second quarter of 2020 and year to date as well as our strategic focus for the remainder of 20 to 20.

Tyler will review our financial results for the second quarter of 2020, I thought for the remainder of the year.

That's fine we'll provide a summary of our operations for the second quarter 0.1.

Following that we walk on the call for questions.

Today's call will contain forward looking statements as defined by the private Securities Litigation Reform Act 1995.

They are based on the current beliefs of management in information currently available to us.

Our actual results will be affected by known and unknown risks trends uncertainties in factors that are beyond our control and ability to per day.

Although we believe our assumptions are reasonable are 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 statement.

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'd now like turn the call over to the company's CEO John Thomas John.

Thank you Brad. Thank you for joining us this morning like all of US Physicians Realty Trust entered the second quarter of 2020 facing a global pandemic that threaten the physical financial well being of our families in class.

The pandemic has tested and unfortunately continues to test all of us in many ways.

We are proud to report that the dock team at our health system clients have endured the pandemic remarkably well continue to serve our shareholders teammates and the communities, we all serve with Brazilians and perseverance.

The healthcare real estate organization, the most important financial metric of performance. During this time is rent collection.

And as of August 3rd we have collected 98% of cash billings per rep and operating expenses built for the second quarter.

We've also collected 97% of July cats billings.

In August is off to a better start than any of the last four months.

We continue to work with our tenants who represent the unpaid remaining accounts receivable.

And expect overtime to collect a high percentage of those remaining amount.

We're really pleased we're pleased to report the largest single tenant representing 50% of the outstanding second quarter accounts receivable balance.

It's back in our offices, providing health care services and have started paying rent again as of August the first.

They are committed to getting caught up and we will work with them to get these accounts receivable resolve as soon as possible.

Well they serve their patients.

We ended the second quarter would perhaps the strongest balance sheet, we have ever had.

Jeff Tyler, our executive Vice President and Chief Financial Officer will review, our operating profit and loss and balance sheet statistics in a few minutes.

We are proud report the highest quarterly earnings generally than we've ever had.

We also entered the second quarter consistent with our perpetual high occupancy on leasing.

Mark Fine our executive Vice President of present management will share more details about our operating performance and a few minutes.

Mark and his team has done an outstanding job, keeping our buildings open and occupied and more importantly, clean and inviting to providers and our patients seeking health care services.

All of our building for open and actively serving patients even at many of our markets have seen spikes and new Cobot 19 case.

Well, we didn't make any significant investments in the second quarter, we continue to build our pipeline and seek new opportunities for investment later this year and in 2021.

The investment market is active and consistent with the reliability and strength of medical office real estate pricing for new investments appears to be consistent pretty pandemic price.

In May we commissioned that consumer survey in five of our largest markets seeking information from concerns about the preferences when thinking health care services.

Over 76% of those survey indicated they would rather see a position than in medical office facility.

Our more away from hospital.

Back 22% of those surveyed said they would delay seeking emergency care in a hospital setting out of concerned that they would be exposed to cobot 19.

These findings are consistent with our long held interpretation of the data that consumers more convenient access to outpatient care services away from hospitals and only want to go to the hospital campus when absolutely necessary.

Our recollection during quarter. Two are also consistent with these findings as the providers located in our off campus medical office facilities anchored by health system or the most current and consistent with the rent payments during quarter two.

We're very proud of our entire portfolio the last month Doc with honored by the International building owners and management Association or BOMA, which awarded the Baylor Scott and why Charles I assignments cancer Center.

Outstanding building of the year for medical office facilities worldwide.

This is a tribute to property management and operational excellence.

We honor and sell more Susan lean waiver, Mark boots, and Mark mine for their leadership in earning this award.

But more importantly, what they do everyday for our providers and their patients who need access to our buildings to deliver world class health care.

This is dropping crops also completed another milestone in quarter two with the release of our first annual environmental social and governance or yes G report published on our website.

Our board of trustees and team are committed to an ongoing process to be transparent regarding our yesterday successes.

As well in areas, where we can continue to improve.

We want to be held accountable for our shareholders and the partner who we serve.

As part of our culture, we have also formalized and enhanced our ambitious goals and efforts toward achieving success and diversity equity and inclusion.

We are determined to be leaders not only in corporate America up in our society as well.

Sadly recent events have once again, showing us where we are deficient as a society in calls all of us to evaluate what we have or haven't done and how we can be better in our organization and our country and everywhere.

Dr has always been committed to diversity and inclusion those but we haven't done enough.

Our culture is committed to leadership and success in achieving our goals and more.

Success will make dock and the communities, we serve better for our shareholders team a providers and their patients.

Jeff will now discuss our financial results.

Mark will then sure operating results and then we'll be happy to take your questions Jeff.

Thank you John.

In the second quarter 2020, the company generated normalized funds from operations at $56.6 million, which was an increase of 42% over the comparable quarter last year.

Normalized FFO per share was 27 cents versus 21 cents in the same quarter last year and our normalized funds available for distribution were 25 cents per share or $53.1 million, an increase of 26% over the comparable quarter of last year.

We are pleased with continued our strong operational performance. Despite the ongoing cool that endemic in a strive to be as transparent as possible. During this time I publishing monthly updates since the pandemic began to accelerate in March.

Our resilient cash flow is due to both our high quality investment grade tenant base as well as the collaboration between our dedicated credit Department and asset management teams, which has enabled us to analyze the financial necessity of each individual rent relief request and then identify the right action to take on a case by case basis.

This is led to a consistently high rent collections as John noted in his prepared remarks.

On the investment side, you had a fairly like corridor as we tried to determine where pricing will settle out as investors way reduced economic activity against historically low interest rates.

We invested $23.7 million, primarily consisting of construction funding for our existing pipeline as well as a $13 million mezzanine loan for the development of a building in Columbus, Ohio.

In order to keep the company's foundation strong we improved our balance sheet by raising $99.1 million in the second quarter on the ATM at an average price of $18.07 per share.

This brought our second quarter consolidated debt to EBITDA ratio down to 4.6 times, which puts us in a comfortable position to navigate this period of uncertainty.

At the ended the quarter, we had $70 million drama revolving credit facility, which translates to additional capacity under the line $780 million.

As a reminder, we had no material term debt coming due until 2023 and minimum lease expiration and capex obligations over the next several years. So we believe we are an excellent position in terms of liquidity.

Finally, we have just under $5 million with cash on the balance sheet as of today, which is a normal amount for us to keep on hand coupon near term operations.

We don't currently feel the need stockpile cash based on our current portfolio performance.

The will of course keep a careful eye on this as a pandemic continues to evolve and adjust if necessary.

To wrap up on operations for the second quarter regenerated demo. These same store NOI growth of 1.4%.

Our gionee came in slightly under budget at $8.2 million, that's covert impact of generally lessened our expenses.

At this point in the year, we're trending to the bottom end of our stated full year 2020, DNA guidance range of 33, and a half to 35 and a half million dollars.

Recurring capital expenditures came in at $4.8 million.

Also lower which were lower than budgeted at the beginning in the year. We remain on track to meet our 2020 recurring capex target a $17 million to $19 million, we presented on last quarters earnings call.

I will now turn the call over to Mark to walk through our portfolio statistics in more detail Mark.

Thanks, Jeff.

Our mission to provide better health care through real estate has never been more important.

Today, 100% of our facilities are open for care and the majority have returned to near pre Colvin patient volumes.

While coven 19 has continued to change our world healthcare workers have heroically continued to offer compassionate care and keep pace with those changes.

Similarly, our asset and property management teams have quickly adopted to change and collaborated with our healthcare partners to implement policies and procedures for social distancing use of PB visitor screening and enhance cleaning protocol.

From an operational perspective, the second quarter can be summarized by strong collection retention and execution.

Docs outperformance in terms of rent collection in occupancy compared to our peers further demonstrates the high quality nature of our healthcare partners and the intrinsic value of our real estate investments.

Notably the off campus affiliated segment of our portfolio has had the strongest performance in terms of both total percentage collected and pace of collections.

This data demonstrates the strength and resilience of these properties ultimately reaffirming docs investment philosophy that the delivery of health care is shifting away from the big box hospitals reserved for the sickest patients to safe and clean facilities in convenient outpatient locations.

Moving to strong retention, we completed a total of 179000 square feet of leasing activity during the second quarter highlighted by a 76% tenant retention rate, 2.8% renewal leasing spreads and positive portfolio net absorption of 15000 square feet.

As part of these lease renewals, we have opportunistically executed a limited number of extensions providing tenants with free rent Louis T.I. in exchange for long term commitments to their suites.

While these leases only total about 25000 square feet. It as these types of mutually beneficial transactions that create exceptional long term shareholder value.

We expect MLB retention in general to remain strong for the remainder of the year as providers focus on safely increasing patient volumes, while maintaining safe social distancing.

Tumors for a new leasing of also returns primarily with existing tenants looking to expand and hospital systems should continue to plan for outpatient girls.

We are actively working with our healthcare partners on their outpatient strategies, adding 42000 square feet of net absorption through the first half of 2020 across our 96% leased portfolio.

Expirations remain limited for the next five years with less than 9% of the portfolio expiring in any year through 2025.

This combination of high occupancy and low turnover result in stable predictable cash flow and lower tenant improvements and leasing commissions, all leading to more funds available for distribution.

This quarter, we proactively managed our recurring Capex investment just 6.1% of cash NOI or 4.8 million and expect to fall within the 17 to 19 million dollar full year Capex guidance previously announced.

Our second quarter performance demonstrates not only our unique portfolio, but our ability to remain focused even while prioritizing the health and safety of our team members and those we serve.

Finishing with strong execution I am extremely proud of our team's commitment to operational excellence, which was recognized by BOMA International who selected the Baylor Scott and White, Charlie Salmons cancer Center as would be outstanding building of the year.

To be very clear. This award is not an architectural design award, but rather the organizations highest worldwide honor to recognize excellence in property management operations policies community involvement and SG efforts as judged by an independent panel of real estate experts.

These same property management practices and expectations are evident across all stock managed properties and highlight another reason why hospital executives routinely select dock.

As their long term real estate partner.

As we celebrate the seventh anniversary of dock. This summer we self managed six of our top 10 largest markets and continue to grow our award winning property management platform.

In terms of portfolio execution for the quarter, our MLB same store portfolio generated cash NOI growth of 1.4%.

A decrease in parking revenue in April and May had a 50 basis point impact on our same store NOI growth, which would've been about 2% without the lower paid parking volume.

Same store occupancy continues to reflect the 21000 square foot sweet available for lease that was discussed last quarter.

The remainder of the portfolio continues to grow according to the annual rent Escalations as expected.

Averaged 2.4% across the portfolio.

To conclude.

2020 has clearly been they trying period for many types of real estate due to both the economic slowdown and physical distancing requirements of the pandemic.

Fortunately for physicians Realty Trust, we have long term leases minimal lease expirations over the next few years and strong liquidity to invest opportunistically.

Today, we reaffirm our sincere gratitude and appreciation for all healthcare workers fighting this deadly disease and to our hospital system partners as we work together to provide the safe environment for health care delivery. During this challenging time with that I'll turn the call back over to John.

Thank you, Jeff Mark as noted briefly already despite the spike up new cases in many of our markets, most notably Phoenix, Texas in Atlanta, all of our facilities are open and operating including our outpatient surgical facilities.

With increased access to personal protective equipment like masking gallons renewed restrictions on a left it or scheduled surgery and procedures have been limited almost entirely to inpatient facilities, providing inpatient care for Kogan 19 patients.

What stockpiling of TB by all providers now we continue to hear from our providers that they can serve non toby the outpatient and our medical office facilities, well the hospitals focus necessarily on cobot and other emergent care.

We're now having to address your questions Jesse.

Thank you, ladies and gentlemen, we will now be conducting the question and answer session. If he would like to ask a question. Please press star one on your telephone keypad. The confirmation kindly indicate that your line is on the question Q.

You May press star to if he would like to remove your question from the Q for participants using speaker equipment, and maybe necessary to pick up your handset before pressing the star Keith.

Our first question comes in a line of Daniel Bernstein with capital. One. Please proceed with your question.

Hi, good morning.

Hi.

So when I look at the mid June collections.

Presentation versus the May it's pretty clear addicted noninvestment grade.

Elections have kind of caught up with the investment grade. So I don't know if there's something specific that happened between the last presentation now, but you know [laughter] what caused that catch up was it a federal funding was it the opening of.

Elective surgeries or pick up an elective surgeries just trying to understand.

You know.

Got it that pick up in the collections on the non investment grade side, which really made a difference and and maybe your reporting in the numbers versus I think estimates.

Yeah, Dan I don't think anything real specific you know the vast majority of our spaces is investment grade or on the campus of investment grade hospitals. So I think some of the smaller tenants.

Took a little time to get their ppb loans in place their Medicare advanced funding in place but.

Again right now for April were were almost completely I mean, we have almost no way our for April at this point and the whole quarter over 90%. So I think all of our sellers are open and operating and back to working and paying the record consistently.

Okay.

And then I guess the other question is.

There has been some stress to the hospitals or you're seeing any.

Additional opportunities in terms of monetizations that might be popping up out there or maybe on the on the development side as well as hospitals, probably could you some refunding.

Yeah, I think that's something we'll see in time would there have been some hospitals south their marketing at least the idea of monetizing some buildings.

I don't think there's been a lot of trades from that perspective, but what we are seeing some new development opportunities that are.

Starting to just say and.

And the market.

Testing media and the funding levels at this point, so we'll see more that we think in 2021, but we.

We do have that expectation.

Okay. That's really all I have you guys congrats on a quarter and <unk>. Thanks.

Thank you. Our next question comes from the line of Nick Joseph with Citigroup. Please proceed with your question.

Hey, there this is Michael Gryphon on for Nick Jay to you mentioned a in your prepared remarks building up a the deal pipeline any sense of the size for the back half of the air and into 2021, and then do you see yourself, referring more of the acquisition route or continuing on the Mezz loan funding side or kind of a comp.

Nation.

Yeah.

Thanks for the question I think it'd be a combination our activities picking up obviously you can improve cost of capital certainly helps in that perspective in the consistency or I guess, maybe the lack of volatility.

And then we've seen over the last few weeks and we'd hope to continue to see from the results. We just reported.

Well, we got both acquisitions development and some mezzanine financing can opportunities in the pipeline.

As we've talked about looking for some health system in a monetization opportunities in 2021.

Thanks, and just on your your current tend to make up you got about 35% single tenant yeah, roughly 50, 560% multi tenant do you like this mix or would you prefer more or less exposure to one.

[laughter], having said that makes it served us well you know some of the single tenant facilities were the you know the ones, but they had the busy schedules and May and June but you know again back to ask him a normal environment I think it's a good mix for us and it also kind of staggers out are you know kind of lease role as well so.

We don't have a fixed percentage in mind I think we look at all opportunities that.

The we pursue with our existing and future health care system clients.

In a lot of the single tenant buildings in our portfolio or you know, 100% leased to a health system investment grade tenant. So we feel really good about those so.

Okay, well that's it for me thanks for the time.

Thank you. Our next question comes from the line of Vikram Malhotra with Morgan Stanley. Please proceed with your question.

Hi, Thanks for taking the questions maybe just one first they are somewhat longer dumb question.

You, obviously saw big merger in the Delta Health space, a few days ago.

Obviously reported utilization of telehealth has gone up pretty dramatically.

You know the last few months just wondering any updated thoughts I know either anecdotes from your 10 M. So just your yourself on kind of how did that help may in fact.

I am obese positively or negatively.

You know a become thanks for the question.

It's a very timely indexed explosion of positive way of Tele health most of our clients are telling us. It's additional revenue from their finally getting paid for it creates a lot of efficiency, particularly for surgeons and our oncology physicians, who can you know do a quick Jack up there you know post Postsurgical first procedure check in with their patients.

Without those folks tend to come into the office.

Many of those surgeons are you know we're extremely busy in May and June and are still taking some time what family time off in July, but but doing tele health from their vacation home said I think it's a win win really across the board.

In our portfolio, while we do have some primary care and some internal medicine, and we have almost no behavioral health psychiatry. So some of those services that you know I've been very kind of prominent in the Tele health World.

Most of our facilities are procedural based and then investments continue to follow kind of us procedural based environment, where you know as you know physical presence or the patient in the Doctor together is required for most of the care. So we see there's a win long term opportunity and we also see some opportunity for you know modify existing space to facilitate more tele health in the office.

Okay, Great and then just maybe.

Maybe a more my new question on as you as you kind of looked to me as you're doing more renewals, maybe even new leases.

And he can change sort of in you know what denim. So potentially then it's the asked me in terms of the lease structure bombs and you can maybe youre looking for in terms of you know more information or tweaking the lease structure itself. I know you didn't have obviously you had very strong rent collection, but just wondering kind of through Kuwait is then can you were thinking about changing or people.

Looking for any change in the structure I believe.

Hey, Vikram. This is mark so yeah, we've had great leasing activity through the first half of the year and as you know our portfolio just in general doesn't have a lot of lease expirations, but as we approach of those renewals.

We have not seen much change in terms of a term or obviously, we continued to try and push rate, 2% to 3%, maybe seen a little bit of increasing or in requests for some free rent at the beginning but if we do that it's in lieu of T. I and a lot of times are still getting the same terms so.

Well continue to push forward on 69 leases, we got left or a new this year, which is about 1.4% of portfolio.

Hey, a bigger I'm, sorry, I wanted to ask what I'm, saying. This is this is Jeff.

One thing that we've really been pushing for you know obviously, we've had great success with our credit analysis of the tenants.

So certainly as we look to new leasing and renewal leasing we're always making sure that we have as much visibility as possible on those kinda financials. So we can continue to monitor them and make appropriate decisions.

So on how they're performing quarter to quarter.

Great. Thanks, so much.

Thank you. Our next question comes from Michael Carroll with RBC Capital markets. Please proceed with your question.

Yeah. Thanks, I'm not sure if U.S. I jumped on late so I'm sorry, if you already reiterate this in your prepared remarks, but I know you're right collections have been pretty strong around 98% and the second quarter can you provide some color on the 2% attendance that they didn't pay rennardson did the company how you treating that within your your books I mean have you.

Increased bad debt I mean as their concerns around those specific operators.

Hey, Mike. Thanks for the question Yeah, we did address that in the beginning but I'm happy to do it again, because very positive news.

About 2% of accounts receivable, we have left over for the first quarter.

The biggest part of that over half of it is one tenant and they have.

Finally gotten back into their office center busy again and have started paying rent again. So we've already picked up some of that a second quarter, a our from from them and we expect to fall they collect that and get that resolved with them pretty quickly. So that's the vast majority of that number and the balance we we still believe its collectible so we haven't.

Not really adjusted our historical bad debt numbers at this point.

Okay, Great and then just yet.

And then I'd just like can you talk a little bit about your investment strategy that you're looking for going forward I know that I'm. The balance sheet is much stronger I know you're talking about a little bit of the pipeline building I mean do you expect that some of that activity could ramp up here in the near term or do you think will remain a little bit more cautious.

So for the remainder of the year just did the uncertainty with coated.

Yeah, we've been we've been conservative I commend the we have a really a pretty good pipeline still in place.

Pricing trades that are happening in the market or not I'm, not really changed from pre cobot pricing.

Even though cost of capital still higher than it was you know in February and March so it's.

Yeah, we're being very cops are cautious we're working more on some 2021 development opportunities right. Now we will have some acquisition I do expect will have some acquisitions this quarter and a in the fourth quarter, but it's still will be a modest amount as says we can elect to the market settle down.

I mean, the fantastic results of of our portfolio and really all medical office portfolios and we've seen in them in the public markets. You know driving a lot of <unk>, you know even more capital into our space and the competition is pretty tough, but we continue to learn more focused on.

More focused on the a you know the direct off market opportunities to best we can.

[noise] great. Thank you.

Yep.

Thank you. Our next question comes from Conor suffer scheme with Berenberg. Please proceed with your question.

This is keeping on pick on area. Thanks for taking my question guys. So first off we felt it pretty positive material. Yes, you report, but we're kind of wondering how this is going to affect your capex slowed in the near future related to your in place portfolio do you see opportunities to increase energy efficiency and some of your existing assets and if that's the case, what kind of timeline or you see.

Yeah. That's all good this is mark again, thanks for the question. So first thanks to recognize in the U.S.G. report and all the good work a team has been doing there. We're really proud of the report that we put out this quarter. So it's part of that report.

We committed 3.5 million to Capex investments that number is within our 17 to 19 million dollar capex guidance for the year.

So if you look at our numbers for the year I'm happy I'm at the Midway point, we've invested about 7.8 million. So in the back half. The year you know, we're looking at about $6 million per quarter to a to be within that range and we expect to hit that so capex team has done an exceptional job it really evaluating and prioritizing our capex projects.

And as it relates to an LCD a upgrades as he mentioned we did three of those already in the last year with several more in the portfolio I think one of the interesting things about our portfolio and our leases is that some of those costs are actually eligible to be passed through and amortized into our leases in our in our operating expenses. So will continue.

To investing in our buildings, making them better from an you'll see perspective as wells as you know patient environments. So we're on pace and doing a great job. So thanks again for recognizing the issue report.

Alright, thanks to the color there and then to a switch gears a little bit here. Obviously, you guys improved your leverage metrics pretty pretty significantly but in terms of net debt to EBITDA are you comfortable you're sitting at the moment and if the acquisition market where to kind of loosen up again, what leverage range, we see through the end of this year and into 2021.

And then this is Jeff so like you know obviously, we're in uncharted territory here with this pandemic. So we've been taking a very careful in concert excuse me conservative approach a straight you talked about on the acquisition front and also on the capital side. So we're really you know looking at the environment month by month.

I will make adjustments as we see changes in the environment, but I think for right. Now you can expect a pretty conservative capital structure and an acquisition.

Hey, it's going forward.

All right that's it for me Thanks for your time guys.

Thank you.

Thank you. Our next question comes from Jordan Sadler with Keybanc capital markets. Please proceed with your question.

[noise] whoa.

Good morning, everybody.

Wanted to follow up on that Uh huh.

But the capital structure job.

But then also on our investments so.

On the capital structure the genes.

These leverage levels and with this equity.

For years that you're you're already in a in a pretty conservative capital structure position, but are you, saying, we could see debt.

We're conservative so potentially lower leverage here.

Hi, Jordan.

You know look at this point in time it wouldn't.

We don't think that would be the right thing, but like I said, we want to monitor this month to month. So it's hard to make long term projections right now.

And so what we're doing is we're trying to be as conservative as we think reasonable for the environment.

Which you know right now I think we're at that point, if things deteriorate I mean, certainly we could we could be more conservative on capital front, if things get much better we could we could you know get a little bit more aggressive on the acquisition front. So it's hard to make a long term plan right now so we're just trying to stay.

As safe as possible and its conservative as possible.

Okay makes sense and then just in terms of.

Investment I'm glad just curious on that well perspective on whether or not there is an asset management opportunity available I know that that does the pricing is pretty similar to where it was pico bid, but it suggests that there's still really an appetite in the markets would be assets.

You guys Oh is it is there an opportunity to sort of food or monetize stop you.

They're not your favorite children.

And you know on the other side of things, where do you see it's anywhere opportunity in the market was there any dislocation.

And Jordan I think great question. The the I think the acquisitions, we're working on again our are kind of.

Single buildings, not not portfolio is not widely marketed opportunities that really direct negotiations with health systems are positions that are tied to health systems and you know that on their buildings and looking to monetize for you know for various reasons and then also you know development opportunities.

I think hospitals have learned a lot over the last few months about you know kind of their infrastructure and their space needs and there are kind of parking ratios and parking you know the ability to keep patient segregated and things like that so a lot of that learning is going into some new development plans on existing buildings, we have.

As well as some new buildings that are to the to be built and most of those at least things were looking at right now or you know kind off campus health system affiliated buildings, and yes people want to spread out and kind of allocate their outpatient services to the most efficient location. So.

That's the you know some of the learning and that's driving some of our come investment thesis in the near term.

But.

Monetizing or selling things you know, where we have very little left in the portfolio that we were just going to actively like to sell it'd be a small dollar amount. If we did you know we would look at opportunities I'm you know the case by case basis.

No. The one thing that's been performing remarkably well in this in this quarter's many LTX and.

We've long said, we'd like to sell those if we can get to the you know the right pricing on those in the meantime, there.

There are paying the rent there a you know their high yielding they're driving some some good revenue and good.

Good profit force so.

Just one last follow up or on the Opex. Since you raised that I know there was a catch up on the back rent Jeff sequentially. So I think that was booked into.

Revenue this quarter can you just sequentially tell us what we should expect.

Yeah sure Jordan so.

You're right there was a catch up obviously the out that's their cash basis. They read you know they repaid some background that we pay some of the legal fees from the bankruptcy and real estate taxes from the bankruptcy. So there's about an additional 1.4 million of you know cut the call. It nonrecurring revenue this quarter from the okay.

<unk>.

And what about on the expense side nonrecurring expenses.

No nothing significant.

Nothing material okay. Okay.

Okay.

Thank you guys.

Thank you.

Thank you. Our next question comes from John Kim with BMO. Please proceed with your question.

Thank you. Good morning, I was wondering if you could talk about the impact if any on free rent to your cash same store numbers, there wasn't really broken out at this quarter.

And if you think it's going to have it more significant impact going forward I think mark mentioned that you're offering more free rent.

Yeah John.

But virtually none I mean, it that there's been any very small amount of kind of trading mad and it's part of lease renewal negotiations and pretty typical you know either to yeah, you're free rent nothing no no I.

I mean modest immaterial adjustments at all.

Can you comment on the Atlas acquisition environment, it's hard to if you're seeing a lot more product being marketed today as health systems potentially look to to fill assets as a source of capital.

Yeah, there's only one health system, that's been out [noise].

What I'd say actively marketing a portfolio of medical office buildings and it to my knowledge it hasn't traded more price.

You know the.

The acquisitions I'm market than we've seen again most of the actively marketed portfolios or are trading it kind of pre tobin pricing and.

I've not been attractive to US you know those prices but.

Yeah, we've done Bascome, we've grown the company you know best when we're buying one building in a time to billings at a time in an off market way and that's what we're really focused on right now. So the market has picked up there have been trades, we have some things active in our in our pipeline that we're we're working to get to the finish line before the end of the year hopefully before even some further into the quarter, but.

In fact, if the amount of capital coming into the MLP space just continues to.

The come and low interest rates et cetera, it's driving a lot of activity.

And as part of that what is what is your updated views on cap rates on you know off campus affiliated written on campus and how that's trending.

Well since we don't wasn't likely off campus affiliated buildings, you know those should be sevens analogs, but [laughter] reality is it you know where in that five and a half to low six range kind of in most of things were looking at in our portfolio and you know, we really don't break that out between on and off.

You know.

The off campus ability to buildings have been the best performing from a rent collection there the busiest from an activity per standpoint.

They were slow in April, but primarily because of the rationing of phebe, but right now the p. supplies of it's come back those were the first open and frankly, that's where cares being provided in those states that are starting to restrict inpatient.

Or surgery in inpatient facilities.

If you follow.

CMS proposals for next fiscal year, they're increasing.

Number of cases Medicare is that can be done and then outpacing the number of surgeries that come down in an outpatient setting and incentivizing that with higher reimbursement. So.

Yeah, we continue to be very excited about the particularly the off campus affiliated buildings, but Oliver billings are doing well.

That's one for me is them in June I don't think you have any rent deferral.

I'm wondering if you had the any in July or any change in deferral requests for me kind of.

No we would not we've got done deferrals, we've had we've had one major tenant or that.

We were patient with through the quarter started paying the rent again, they fully intend to get caught up with their big accounts receivable that has built up for them and then in the second quarter.

But there are backing occupying the space and very busy.

And expect to work that that out with them over time, but its.

Yeah, again less than a little over 1% of skin of our accounts receivable balance for the quarter and you know a handful of other small tenants that again, we're working with them to get caught out we don't have any.

Increase in bad debt.

And no formal deferrals.

We're we're reporting cash collections net cash you know cash bills and cash collection.

Yeah got it thank you.

Thank you. Our next question comes from Michael Gorman with BTI. James. Please proceed with your question.

Thanks, Good morning, guys.

You know John I, just wanted to go back for a minute and kind of get to try to get a better sense for what's going on on the ground with some other practices you mentioned last quarter that you had facilities in Texas that we're kind of working overtime to do catch up.

From the initial lockdowns, but that there was some concern about whether they'd be able to kind of back filled the pipeline to that those surgical numbers could continue.

You know we continue to see the National news about cancer diagnoses being down a different diseases. The diagnosis rates are down I'm, just trying to triangulate the comments that maybe some of the physician flows are back to pre covert numbers with just other things that we're hearing out there. So I was wondering if you're just give a little bit more color on that and maybe what some of your practices are seeing in terms of.

Like surgical pipeline numbers.

Yes. Good question, Mike So on the surgical pipeline no. What we heard originally in May and June I think some the comments you are referencing is you know that they were extremely busy catching up from March and April.

But just weren't sure about how they are scheduled to look in July and August right right now, they're all reporting very strong schedules in July and August as well or were you know it coming coming out of July and that the August schedule as full as well.

On the oncology side, you know those where our busiest buildings threw out a then they were never really restricted we had to.

Work with those tenants and you know kind of facilitate a.

Clean passage way I guess from them from the car to the you know to that the treatment facilities, but.

Does it continue to be busy obviously the diagnostic care.

Both in car oncology and cardiology, we see in these national numbers has been a major will will be a major problem overtime.

You know for patients themselves, but we don't see any slowdown in the number of volume in our foot soldiers.

The.

You know hundred per Se I mean, our oncology facilities are 10 those tenants were.

Oh, it's consistent with Iran, and always busy from that perspective, if you you want to think about on that side.

But I think I think the public health.

Issues that you referenced.

You know many of our hospitals are trying to encourage patients to you know that they can come into the facility and you know they can come in with don't delay our care don't delay cancer care don't delayed routine diagnostics.

And I'm starting to pick up there so I'm, sorry to ramp a little bit, but I think I think the long term impacts we won't know about until next year, but flow patients we were open on Saturdays.

No there was an efficiency on the surgical side, because they have to get tested in the parking lot before there you know the surgical patients led into the building, but you know again, we're hoping to facilitate that.

That really works well in the off campus buildings, where we have more space and the parking lot for that kind of activity. So.

You know Saturday surgeries pretty common or across the board.

Okay. Thanks, that's very helpful. Appreciate it yeah.

[music].

Thank you we have reached the end of our question and answer session. So I'd like to pass the floor back over to management for any additional closing comments.

Yeah, we know it's a very busy day in and earnings were all but we really appreciate your time and attention today just hope all of you will will stay safe were all wearing a masking checking our temperature coming into our buildings. You know boats is the best practice for our office, but also for working with our health system clients and tenants to help no been this curve back down.

It will be safe and thanks for your time.

Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.