Q3 2020 Physicians Realty Trust Earnings Call

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Greetings, ladies and gentlemen, and welcome 'cause admissions Realty Trust third quarter 2020 earnings Conference call.

This time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

Anyone require operator assistance. Please press star zero on your telephone keypad. It's now my pleasure to introduce your host Mr. Brad page. Thank you. Sir you may begin. Thank you good morning, and welcome to the Physicians Realty Trust third quarter 2020 earnings Conference call and webcast. Joining me today are John Thomas Chief.

Vicki them Officer, Jeff Tyler Chief Financial Officer, Deeni, Taylor, Chief Investment Officer, Mark Klein Executive Vice President of asset management, John Lucey, Chief accounting and administrative officer, Lori back or senior Vice President controller, and Dan Klein Deputy Chief Investment Officer.

During this call John Thomas will provide a summary of the company's activities and performance for the third quarter of 2020 and year to date as well as our thoughts for the remainder of 2020, Jeff Tyler will review our financial results for the third quarter of 2020.

Denmark Fine will provide a summary of our operations for the third quarter of 2020 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 in fact.

Is 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.

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. Thank you for joining us. This morning Physicians Realty Trust had another strong quarter with tenants open operating and providing high quality health care services [noise] subs.

Substantially all providers that lease space from us have stabilized and are paying their contractual rent and obligations as we have collected over 98.4% of our third quarter ramp and are now near 99% for the second quarter.

We continue to view medical office at the most resilient class a real estate in the market and our portfolio of medical office buildings delivered outstanding results in this quarter.

This includes the physician joint venture tenant that we mentioned last quarter after struggling to operate and pay ran at the height of depend and make an April in may. They are now back in their offices and have remained current on rents in September.

We're pleased to share that we've agreed to a formal payment plan with this tenant for all back rent and charges do obtaining multiyear extensions on a substantial portion of their leases in the process.

Our continued emphasis on portfolio quality has distinguished us in this time of uncertainty as we believe our actual cash rent collections lead the industry.

The resilience of our tenants and assets has led to more recognition weird.

We are excited that Fitch ratings assigned a corporate credit rating a triple b with a stable outlook to physicians Realty Trust in their commentary fixed noted that physicians offers durable cash flows relative to the broader universe and that the court grown a virus pandemics has not resulted in any meaningful erosion docs credit profile.

We look forward to working with it and the other agencies as we continue to grow prudently strengthening what we believe is our already best in class balance sheet.

During the quarter, we completed the acquisition of an off campus cancer Center fully leased to essentially the same Vincent Evansville Ministry had a 5.8% first year yield this asset pair strong tenant credit with high acuity care, all while still being accretive to shareholders perfectly representing our commitment to investment quality.

We continue to be selective on new investments building our pipeline for the year ahead with the assets that meet our disciplined acquisition criteria.

Our near term pipeline includes the newly completed off campus outpatient care facility leased to Ascension Sacred Heart Ministry.

Anchored by their new AMC in Pensacola, Florida.

As Doc funded development is already welcoming patients having opened ahead of schedule despite being constructed during the pandemic and enduring a direct hit from Hurricane Sally.

We have an option to purchase this facility from our development partner at a first year yield of 6.25%, which we expect to execute by the end of 2020 pending our normal closing conditions.

We're starting to see more opportunities to acquire or finance medical office developments pre leased a credit worthy tenants as a result of our longstanding health system relationships. We've recently initiated two new financings for developments to commence in 2021 and anticipate more to come.

On the home front, we've been cautious with our team with many of our colleagues living states experiencing an increase in cobot cases, we're still working primarily from home and as evidenced by our results. Our team has answered the call and is performing very well doing whatever it takes to manage work family and in many cases virtual learning for their families.

Jeff will now discuss our financial results followed by embarked on with a report from operations Jeff.

Thank you John in the third quarter of 2020, the company generated normalized funds from operations of $54.9 million, which was an increase of roughly 7% over the comparable quarter last year.

Normalized FFO per share was 26 cents versus 27 cents in the same quarter of last year, primarily due to reduced leverage our normalized funds available for distribution were $51.9 million, an increase of about 9% over the comparable quarter of last year and our fad per share was 24 cents.

Our tenants continue to show impressive resiliency to the ongoing pandemic, our cash rent collection in the third quarter was 98.4% of build rents consistent with past quarters.

We also reached a short term deferred rent agreement with a health system joint venture that accounted for half of the uncollected total another 0.8% of build rents.

The final 0.8% of rent not collected or deferred about two thirds of that is currently on a cash basis.

Therefore, we are not expecting to increase reserves on uncollected rent at all in the future assuming we don't see a wholesale shift and the impact of the pandemic we.

We believe our insight into our tenant operations is second to none due in large part to our dedicated credit team, which consistently monitors our tenants financials.

This insight along with the high credit quality of our tenant base has enabled our team to produce sector, leading rent collections.

Our investment pipeline of swelled in the back half of the year with well over $100 million of investments executable in the next three to four months, assuming a stable cost of capital.

In the third quarter, we completed 24, and a half a million dollars of investments at an average cap rate of 5.7%, but.

While we are poised to grow aggressively we will continue to monitor the pandemic and economy like everyone else and adjust our strategy if necessary.

Since the beginning of the year, we have raised $340 million on the ATM at an average price of $19.10. We enter the fourth quarter of the year and an excellent capital position with consolidated debt to EBITDA of 4.8 times.

Additionally, as of 930, we had only $95 million drawn on our $850 million line of credit as well.

Well, we are arguably under levered compared to most of the healthcare REIT sector. This is not a bad capital position to be in right now given the volatility weve seen in the equity markets.

We also have no material debt coming due over the next three years and minimal capex obligations.

We are keeping our usual levels of cash on the balance sheet based on the strong payment history of our tenants and see no need to preemptively conserve capital at this point.

As John noted we were pleased to announce that Fitch ratings recognize our conservative capital structure and high credit tenant base with an initial rating of Triple B flat that was announced in August. This had the immediate impact of lowering our revolving debt cost by 20 basis points and our term loan cost by 25 basis points.

Resulting in interest expense savings of $1.2 million on an annual basis, assuming a constant revolver balance balance of $95 million.

Our cost of capital continues to improve on a relative basis versus our peers, which will allow us to start capturing more and more of the consolidation action happening in the medical office building sector.

Our same store portfolio generated growth of 0.8%, which mark will discuss in more detail momentarily.

Our DNA was consistent sequentially at $8.3 million as cobot impacts are still slightly reducing our overall expense load.

We are currently projecting to end up the year at or slightly below the midpoint of the 2020 DNA guidance of 33, and a half to 35 and a half million dollars.

Finally recurring capital expenditures were $5.3 million, which has started to trend up a bit from the beginning of the year as we go back into a more normalized capex schedule.

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

Thanks, Jeff our teams on the ground in our portfolio are healthy and continues to perform well in the third quarter. We remain focused on providing best in class service to our healthcare partners as they work tirelessly to offer compassionate care to cope in 19 patients as well as care for routine patients under enhance.

Safety guidelines.

100% of our facilities remain open and we have seen nearly all of our clinical lease space resumed to pre Colin.

Great in this new environment with larger inventory of ERP and enhanced social distancing.

And cleaning procedures.

Despite the impact of COVID-19, Ducs operating results in the third quarter were steady.

Strong tenant retention renewal leasing spreads and above average leasing activity were positive signs of the strength and resilience of our tenants and the size of our portfolio.

During the quarter, we completed a total of 335000 square feet of leasing activity.

The second highest quarterly volume in the history of the company, including nearly 225000 square feet of early lease renewals.

Tenant retention was 85 first.