PHYSICIANS REALTY TRUST The following discussion should be read in conjunction with our unaudited consolidated financial statements, including the notes to those statements, included in Part I, Item 1 of this report, and the Section entitled "Cautionary Statement Regarding Forward-Looking Statements" in this report. As discussed in more detail in the Section entitled "Cautionary Statement Regarding Forward-Looking Statements," this discussion contains forward-looking statements, which involve risks and uncertainties. Our actual results may differ materially from the results discussed in the forward-looking statements. Factors that might cause those differences include those discussed in Part I, Item 1 (Business) and Part I, Item 1A (Risk Factors) of our 2020 Annual Report.
Overview
We are a self-managed health care real estate company organized inApril 2013 to acquire, selectively develop, own, and manage health care properties that are leased to physicians, hospitals, and health care delivery systems. We invest in real estate that is integral to providing high quality health care services. Our properties are typically located on a campus with a hospital or other health care facilities or strategically affiliated with a hospital or other health care facilities. We believe the impact of government programs and continuing trends in the health care industry create attractive opportunities for us to invest in health care related real estate. In particular, we believe the demand for health care will continue to increase as a result of the aging population as older persons generally utilize health care services at a rate well in excess of younger people. Our management team has significant public health care REIT experience and has long-established relationships with physicians, hospitals, and health care delivery system decision makers that we believe will provide quality investment and growth opportunities. Our principal investments include medical office buildings, outpatient treatment facilities, as well as other real estate integral to health care providers. In recent years, we have seen increased competition for health care properties and we expect this trend to continue. We seek to generate attractive risk-adjusted returns for our shareholders through a combination of stable and increasing dividends and potential long-term appreciation in the value of our properties and our common shares. We grew our portfolio of gross real estate investments from approximately$124 million at the time of our IPO inJuly 2013 to approximately$4.9 billion as ofMarch 31, 2021 . As ofMarch 31, 2021 , our portfolio consisted of 262 health care properties located in 31 states with approximately 13,969,275 net leasable square feet, which were approximately 96% leased with a weighted average remaining lease term of approximately 6.7 years. As ofMarch 31, 2021 , approximately 90% of the net leasable square footage of our portfolio was either on the campus of a hospital or strategically affiliated with a health system. We receive a cash rental stream from the health care providers under our leases. Approximately 94% of the annualized base rent payments from our properties as ofMarch 31, 2021 are from absolute and triple-net leases pursuant to which the tenants are responsible for all operating expenses relating to the property, including but not limited to real estate taxes, utilities, property insurance, routine maintenance and repairs, and property management. This structure helps insulate us from increases in certain operating expenses and provides more predictable cash flow. Approximately 5% of the annualized base rent payments from our properties as ofMarch 31, 2021 are from modified gross base stop leases which allow us to pass through certain increases in future operating expenses (e.g., property tax and insurance) to tenants for reimbursement, thus protecting us from increases in such operating expenses. We seek to structure our triple-net leases to generate attractive returns on a long-term basis. Our leases typically have initial terms of 5 to 15 years and include annual rent escalators of approximately 1.5% to 3.0%, with an annual weighted average rent escalator of approximately 2.4%. Our operating results depend significantly upon the ability of our tenants to make required rental payments. We believe that our portfolio of medical office buildings and other health care facilities will enable us to generate stable cash flows over time because of the diversity of our tenants, staggered lease expiration schedule, long-term leases, and low historical occurrence of tenants defaulting under their leases. As ofMarch 31, 2021 , leases representing 3.2%, 4.4%, and 4.8% of leased square feet will expire in 2021, 2022, and 2023, respectively. We intend to grow our portfolio of high-quality health care properties leased to physicians, hospitals, health care delivery systems, and other health care providers primarily through acquisitions of existing health care facilities that provide stable revenue growth and predictable long-term cash flows. We may also selectively finance the development of new health care facilities through joint venture or fee arrangements with health care real estate developers or health system development professionals. Generally, we expect to make investments in new development properties when approximately 80% or more of the development property has been pre-leased before construction commences. We seek to invest in properties where we can develop strategic alliances with financially sound health care providers and health care delivery systems that offer need-based health care services in sustainable health care markets. We focus our investment activity on medical office buildings and ambulatory surgery centers. 23 -------------------------------------------------------------------------------- Table of C ontents We believe that trends such as shifting consumer preferences, limited space in hospitals, the desire of patients and health care providers to limit non-essential services provided in a hospital setting, and cost considerations, continue to drive the industry towards performing more procedures in outpatient facilities versus the hospital setting. As these trends continue, we believe that demand for medical office buildings and similar health care properties away from hospital settings and in convenient locations to patients will continue to rise. We intend to exploit this trend and seek outpatient properties consistent with our investment philosophy and strategies. While not our focus, we may choose to invest opportunistically in life science facilities, senior housing properties, skilled nursing facilities, specialty hospitals, and treatment centers. Consistent with our qualification as a REIT, we may also opportunistically invest in companies that provide health care services, and in joint venture entities with operating partners, structured to comply with the REIT Investment Diversification Act of 2007. The Trust is aMaryland real estate investment trust and elected to be taxed as a REIT forU.S. federal income tax purposes. We conduct our business through an UPREIT structure in which our properties are owned by ourOperating Partnership directly or through limited partnerships, limited liability companies, or other subsidiaries. The Trust is the sole general partner of ourOperating Partnership and, as ofMarch 31, 2021 , owned approximately 97.4% of the OP Units. As ofApril 26, 2021 , there were 215,469,415 common shares outstanding.
COVID-19 Pandemic Update
As ofApril 30, 2021 , none of our facilities are closed due to the COVID-19 pandemic and we have collected 99.7% of first quarter billings. Because the effects of the COVID-19 pandemic are uncertain, there can be no assurance that there will be no additional restrictions or orders in the future, whether patients will continue to seek medical care, particularly elective medical procedures that can be deferred, at the same rates as prior to the COVID-19 pandemic and the resulting impact on our tenants. For further detail of the impact and the Company's response to the COVID-19 pandemic, please refer to Part I, Item 1A (Risk Factors) and Part II, Item 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations) of our 2020 Annual Report.
Key Transactions in First Quarter 2021
Investment Activity
During the three months endedMarch 31, 2021 , the Company completed the acquisition of two medical condominium units located in an Atlanta "Pill Hill" MOB for an aggregate investment of approximately$0.7 million . The Company also funded one mezzanine loan for$4.8 million and closed on a$10.5 million construction loan, funding$2.6 million as ofMarch 31, 2021 . Additionally, the Company paid$0.3 million of additional purchase consideration under an earn-out agreement resulting in total investment activity of approximately$8.4 million .
During the three months ended
Recent Developments
Quarterly Distribution
On
Investment Activity
SinceMarch 31, 2021 , the Company completed the acquisition of a medical condominium unit located in an Atlanta "Pill Hill" MOB for a purchase price of approximately$0.9 million . The Company also completed the acquisition of a newly completed 96,768 square foot medical office facility located inWesley Chapel, Florida for a purchase price of approximately$35.3 million . 24 -------------------------------------------------------------------------------- Table of C ontents Results of Operations
Three months ended
The following table summarizes our results of operations for the three months
ended
2021 2020 Change %
Revenues:
Rental revenues $ 80,395 $ 77,870 $ 2,525 3.2 %
Expense recoveries 27,560 24,876 2,684 10.8 %
Interest income on real estate loans and
other 5,384 4,682 702 15.0 %
Total revenues 113,339 107,428 5,911 5.5 %
Expenses:
Interest expense 13,715 15,626 (1,911) (12.2) %
General and administrative 9,465 8,977 488 5.4 %
Operating expenses 33,934 30,963 2,971 9.6 %
Depreciation and amortization 37,976 36,747 1,229 3.3 %
Total expenses 95,090 92,313 2,777 3.0 %
Income before equity in loss of
unconsolidated entities and loss on sale of
investment property: 18,249 15,115 3,134 20.7 %
Equity in loss of unconsolidated entities (420) (155) (265) NM
Loss on sale of investment property (24) - (24) NM
Net income $ 17,805 $ 14,960 $ 2,845 19.0 %
NM = Not Meaningful
Revenues
Total revenues increased $5.9 million , or 5.5%, for the three months ended March
31, 2021 as compared to the three months ended March 31, 2020 . An analysis of
selected revenues follows.
Rental revenues. Rental revenues increased $2.5 million , or 3.2%, for the three
months ended March 31, 2021 compared to the three months ended March 31, 2020 .
Rental revenues increased $2.3 million from properties purchased in 2020 and
$0.5 million due to additional rent collected from our three LifeCare properties
compared to the prior year period. This was offset by a decrease of $0.4 million
due to properties sold in 2021 and 2020.
Expense recoveries. Expense recoveries increased $2.7 million , or 10.8% for the
three months ended March 31, 2021 compared to the three months ended March 31,
2020 . Expense recoveries increased due to a $2.0 million increase in
reimbursable operating expenses from our existing portfolio and an additional
$0.7 million of expense recoveries relates to properties acquired in 2020.
Interest income on real estate loans and other. Interest income on real estate
loans and other increased $0.7 million , or 15.0%, for the three months ended
March 31, 2021 as compared to the three months ended March 31, 2020 . This
increase is due to a higher outstanding real estate loans receivable balance
resulting in additional interest income of $0.6 million , and additional income
generated from property management services provided to our unconsolidated joint
ventures resulted in $0.2 million .
Expenses
Total expenses increased$2.8 million , or 3.0%, for the three months endedMarch 31, 2021 as compared to the three months endedMarch 31, 2020 . An analysis of selected expenses follows. Interest expense. Interest expense decreased$1.9 million , or 12.2%, for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 . The decrease relates to a lower effective interest rate on our credit facility of$1.9 million , lower debt balances of$0.6 million , mortgage payoffs of$0.2 million , and lower credit facility fees of$0.1 25 -------------------------------------------------------------------------------- Table of C ontents million. Our weighted average effective interest rate on our credit facility was 1.1% and 2.8% for the three months endedMarch 31, 2021 and 2020, respectively. This is partially offset by increases on our interest rate swap contracts of$1.0 million . General and administrative. General and administrative expenses increased$0.5 million , or 5.4%, for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 . This increase is due to additional payroll and benefits of$0.8 million , which includes an increase in non-cash compensation of$0.7 million , partially offset by a decrease in professional fees of$0.3 million . Operating expenses. Operating expenses increased$3.0 million , or 9.6%, for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 . Properties acquired during 2020 resulted in additional operating expenses of$0.9 million . Operating expenses also increased due to an additional$0.8 million of maintenance costs,$0.6 million of insurance costs, and$0.6 million of additional real estate tax expense on the existing portfolio.
Depreciation and amortization. Depreciation and amortization increased
Equity in loss of unconsolidated entities. The change in equity in loss of unconsolidated entities for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 is primarily due to ourDecember 11, 2020 investment inDavis Medical Investors, LLC . Loss on sale of investment property. During the three months endedMarch 31, 2021 , we sold one property located inMichigan for approximately$0.5 million , realizing an insignificant loss on the sale.
Cash Flows
Three months ended
2021 2020
Cash provided by operating activities $ 41,301 $ 34,858
Cash used in investing activities (15,247) (22,076)
Cash used in financing activities (24,620) (12,525)
Increase in cash and cash equivalents $ 1,434 $ 257
Cash flows from operating activities. Cash flows provided by operating
activities was $41.3 million during the three months ended March 31, 2021
compared to $34.9 million during the three months ended March 31, 2020 ,
representing an increase of $6.4 million . The increase in cash flows provided by
operating activities is primarily due to the timing of our payments on accounts
payable and other liabilities.
Cash flows from investing activities. Cash flows used in investing activities
was $15.2 million during the three months ended March 31, 2021 compared to cash
flows used in investing activities of $22.1 million during the three months
ended March 31, 2020 , representing a change of $6.9 million . The change in cash
used in investing activities is primarily due to the decrease in cash spent on
acquisitions of investment properties of $10.7 million compared to the prior
year. This is offset by an increase in capital expenditures of $1.9 million ,
additional net investment in real estate loan receivables of $1.4 million , and
an increase in leasing commissions paid of $0.7 million .
Cash flows from financing activities. Cash flows used in financing activities
was $24.6 million during the three months ended March 31, 2021 compared to $12.5
million during the three months ended March 31, 2020 , representing an increase
of $12.1 million . The change in cash used in financing activities is primarily
due to a decrease in net proceeds from the sale of common shares pursuant to the
ATM Program of $186.8 million . Further, $5.2 million of additional dividends
were paid to shareholders, an additional $4.7 million was used to redeem the
Series A Preferred Units, and there was an increase of $1.3 million related to
taxes paid for stock based compensation. This was partially offset by a decrease
in net paydowns under the credit facility of $169.0 million in 2021 compared to
2020, and a decrease of $17.1 million of principal payments on mortgage debt
compared to the prior year.
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Table of C ontents
Non-GAAP Financial Measures
This report includes Funds From Operations (FFO), Normalized FFO, Normalized
Funds Available For Distribution (FAD), Net Operating Income (NOI), Cash NOI,
MOB Same-Store Cash NOI, Earnings Before Interest, Taxes, Depreciation and
Amortization for Real Estate (EBITDAre) and Adjusted EBITDAre, which are
non-GAAP financial measures. For purposes of Item 10(e) of Regulation S-K
promulgated under the Securities Act, a non-GAAP financial measure is a
numerical measure of a company's historical or future financial performance,
financial position or cash flows that excludes amounts, or is subject to
adjustments that have the effect of excluding amounts, that are included in the
most directly comparable financial measure calculated and presented in
accordance with GAAP in the statement of operations, balance sheet or statement
of cash flows (or equivalent statements) of the company, or includes amounts, or
is subject to adjustments that have the effect of including amounts, that are
excluded from the most directly comparable financial measure so calculated and
presented. As used in this report, GAAP refers to generally accepted accounting
principles in the United States of America . Pursuant to the requirements of Item
10(e) of Regulation S-K promulgated under the Securities Act, we have provided
reconciliations of the non-GAAP financial measures to the most directly
comparable GAAP financial measures.
FFO and Normalized FFO
We believe that information regarding FFO is helpful to shareholders and potential investors because it facilitates an understanding of the operating performance of our properties without giving effect to real estate depreciation and amortization, which assumes that the value of real estate assets diminishes ratably over time. We calculate FFO in accordance with standards established by theNational Association of Real Estate Investment Trusts (Nareit). Nareit defines FFO as net income or loss (computed in accordance with GAAP) before noncontrolling interests of holders of OP units, excluding preferred distributions, gains (or losses) on sales of depreciable operating property, impairment write-downs on depreciable assets, plus real estate related depreciation and amortization (excluding amortization of deferred financing costs). Our FFO computation includes our share of required adjustments from our unconsolidated joint ventures and may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with the Nareit definition or that interpret the Nareit definition differently than we do. The GAAP measure that we believe to be most directly comparable to FFO, net income, includes depreciation and amortization expenses, gains or losses on property sales, impairments, and noncontrolling interests. In computing FFO, we eliminate these items because, in our view, they are not indicative of the results from the operations of our properties. To facilitate a clear understanding of our historical operating results, FFO should be examined in conjunction with net income (determined in accordance with GAAP) as presented in our financial statements. FFO does not represent cash generated from operating activities in accordance with GAAP, should not be considered to be an alternative to net income or loss (determined in accordance with GAAP) as a measure of our liquidity and is not indicative of funds available for our cash needs, including our ability to make cash distributions to shareholders. We use Normalized FFO, which excludes from FFO net change in fair value of derivative financial instruments, acceleration of deferred financing costs, net change in fair value of contingent consideration, and other normalizing items. However, our use of the term Normalized FFO may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount. Normalized FFO should not be considered as an alternative to net income or loss (computed in accordance with GAAP), as an indicator of our financial performance or of cash flow from operating activities (computed in accordance with GAAP), or as an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including our ability to make distributions. Normalized FFO should be reviewed in connection with other GAAP measurements. 27 -------------------------------------------------------------------------------- Table of C ontents The following is a reconciliation from net income, the most direct financial measure calculated and presented in accordance with GAAP, to FFO and Normalized FFO (in thousands, except per share data): Three Months Ended March 31, 2021 2020 Net income$ 17,805 $ 14,960 Earnings per share - diluted $
0.08
Net income $
17,805
(152) (142)
Preferred distributions (13) (317)
Depreciation and amortization expense 37,877 36,655
Depreciation and amortization expense - partially owned properties
(70) (75)
Loss on sale of investment property 24 -
Proportionate share of unconsolidated joint venture adjustments 2,197 1,700
FFO applicable to common shares $ 57,668 $ 52,781
Net change in fair value of derivative - (91)
Normalized FFO applicable to common shares $
57,668
FFO per common share $ 0.27$ 0.26 Normalized FFO per common share $
0.27
Weighted average number of common shares outstanding 217,322,425 202,842,340
Normalized Funds Available for Distribution (FAD)
We define Normalized FAD, a non-GAAP measure, which excludes from Normalized FFO
non-cash share compensation expense, straight-line rent adjustments,
amortization of acquired above-market or below-market leases and assumed debt,
amortization of lease inducements, amortization of deferred financing costs, and
loan reserve adjustments, including our share of all required adjustments from
unconsolidated joint ventures. We also adjust for recurring capital expenditures
related to tenant improvements and leasing commissions, and cash payments from
seller master leases and rent abatement payments, including our share of all
required adjustments for unconsolidated joint ventures. Other REITs or real
estate companies may use different methodologies for calculating Normalized FAD,
and accordingly, our computation may not be comparable to those reported by
other REITs. Although our computation of Normalized FAD may not be comparable to
that of other REITs, we believe Normalized FAD provides a meaningful
supplemental measure of our performance due to its frequency of use by analysts,
investors, and other interested parties in the evaluation of our performance as
a REIT. Normalized FAD should not be considered as an alternative to net income
or loss attributable to controlling interest (computed in accordance with GAAP)
or as an indicator of our financial performance. Normalized FAD should be
reviewed in connection with other GAAP measurements.
28
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Table of C ontents
The following is a reconciliation from net income, the most direct financial
measure calculated and presented in accordance with GAAP, to Normalized FAD (in
thousands):
Three Months Ended
March 31,
2021 2020
Net income $ 17,805 $ 14,960
Normalized FFO applicable to common shares Normalized FFO applicable to common shares$ 57,668 $ 52,690 Non-cash share compensation expense 3,707 2,996 Straight-line rent adjustments (2,725) (3,731) Amortization of acquired above/below-market leases/assumed debt 864 889 Amortization of lease inducements 264 290 Amortization of deferred financing costs 581 599 TI/LC and recurring capital expenditures (5,638) (3,060) Loan reserve adjustments (47) - Proportionate share of unconsolidated joint venture adjustments (211) (187) Normalized FAD applicable to common shares
Net Operating Income (NOI), Cash NOI, and MOB Same-Store Cash NOI
NOI is a non-GAAP financial measure that is defined as net income or loss,
computed in accordance with GAAP, generated from our total portfolio of
properties and other investments before general and administrative expenses,
depreciation and amortization expense, interest expense, net change in the fair
value of derivative financial instruments, gain or loss on the sale of
investment properties, and impairment losses, including our share of all
required adjustments from our unconsolidated joint ventures. We believe that NOI
provides an accurate measure of operating performance of our operating assets
because NOI excludes certain items that are not associated with management of
the properties. Our use of the term NOI may not be comparable to that of other
real estate companies as they may have different methodologies for computing
this amount.
Cash NOI is a non-GAAP financial measure which excludes from NOI straight-line
rent adjustments, amortization of acquired above and below market leases, and
other non-cash and normalizing items, including our share of all required
adjustments from unconsolidated joint ventures. Other non-cash and normalizing
items include items such as the amortization of lease inducements, loan reserve
adjustments, payments received from seller master leases and rent abatements,
and changes in fair value of contingent consideration. We believe that Cash NOI
provides an accurate measure of the operating performance of our operating
assets because it excludes certain items that are not associated with management
of the properties. Additionally, we believe that Cash NOI is a widely accepted
measure of comparative operating performance in the real estate community. Our
use of the term Cash NOI may not be comparable to that of other real estate
companies as such other companies may have different methodologies for computing
this amount.
MOB Same-Store Cash NOI is a non-GAAP financial measure which excludes from Cash
NOI assets not held for the entire preceding five quarters, non-MOB assets, and
other normalizing items not specifically related to the same-store property
portfolio. Management considers MOB Same-Store Cash NOI a supplemental measure
because it allows investors, analysts, and Company management to measure
unlevered property-level operating results. Our use of the term MOB Same-Store
Cash NOI may not be comparable to that of other real estate companies, as such
other companies may have different methodologies for computing this amount.
29
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Table of C ontents
The following is a reconciliation from the Trust's net income, the most direct
financial measure calculated and presented in accordance with GAAP, to NOI, Cash
NOI, and MOB Same-Store Cash NOI (in thousands):
Three Months Ended
March 31,
2021 2020
Net income $ 17,805 $ 14,960
General and administrative 9,465 8,977
Depreciation and amortization expense 37,976 36,747
Interest expense 13,715 15,626
Net change in the fair value of derivative - (91)
Loss on sale of investment property 24 -
Proportionate share of unconsolidated joint venture adjustments 3,511 2,454
NOI $ 82,496 $ 78,673
NOI $ 82,496 $ 78,673
Straight-line rent adjustments (2,725) (3,731)
Amortization of acquired above/below-market leases 880 905
Amortization of lease inducements 264 290
Loan reserve adjustments (47) -
Proportionate share of unconsolidated joint venture adjustments (171) (165)
Cash NOI $ 80,697 $ 75,972
Cash NOI $ 80,697 $ 75,972
Assets not held for all periods (2,049) (566)
LTACH & Hospital Cash NOI (4,336) (3,822)
Lease termination fees - (180)
Interest income on real estate loans (4,107) (3,487)
Joint ventures and other income (3,270) (2,573)
MOB Same-Store Cash NOI Earnings Before Interest, Taxes, Depreciation and Amortization for Real Estate (EBITDAre) and Adjusted EBITDAre
We calculate EBITDAre in accordance with standards established by Nareit and
define EBITDAre as net income or loss computed in accordance with GAAP plus
depreciation and amortization, interest expense, gain or loss on the sale of
investment properties, and impairment loss, including our share of all required
adjustments from unconsolidated joint ventures. We define Adjusted EBITDAre,
which excludes from EBITDAre non-cash share compensation expense, non-cash
changes in fair value, pursuit costs, non-cash intangible amortization, the pro
forma impact of investment activity, and other normalizing items. We consider
EBITDAre and Adjusted EBITDAre important measures because they provide
additional information to allow management, investors, and our current and
potential creditors to evaluate and compare our core operating results and our
ability to service debt.
30
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Table of C ontents
The following is a reconciliation from the Trust's net income, the most direct
financial measure calculated and presented in accordance with GAAP, to EBITDAre
and Adjusted EBITDAre (in thousands):
Three Months Ended
March 31,
2021 2020
Net income $ 17,805 $ 14,960
Depreciation and amortization expense 37,976 36,747
Interest expense 13,715 15,626
Loss on sale of investment property 24 -
Proportionate share of unconsolidated joint venture adjustments 3,482 2,426
EBITDAre $
73,002
Non-cash share compensation expense 3,707 2,996 Non-cash changes in fair value - (91) Pursuit costs 20 - Non-cash intangible amortization 1,128 1,453 Pro forma adjustments for investment activity 6 (35) Adjusted EBITDAre$ 77,863 $ 74,082
Liquidity and Capital Resources
InMarch 2020 , theSecurities and Exchange Commission (SEC) adopted amendments to Rule 3-10 of Regulation S-X and created Rule 13-01 to simplify disclosure requirements related to certain registered securities. The rule is effectiveJanuary 4, 2021 but earlier compliance is permitted. As a result of the amendments to Rule 3-10 of Regulation S-X, subsidiary issuers of obligations guaranteed by the parent are not required to provide separate financial statements, provided that the subsidiary obligor is consolidated into the parent company's consolidated financial statements, the parent guarantee is "full and unconditional" and the alternative disclosure required by Rule 13-01 is provided, which includes narrative disclosure and summarized financial information. Accordingly, separate consolidated financial statements of theOperating Partnership have not been presented. Furthermore, as permitted under Rule 13-01(a)(4)(vi), the Company has excluded the summarized financial information for theOperating Partnership as the assets, liabilities, and results of operations of the Company and theOperating Partnership are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company, and management believes such summarized financial information would be repetitive and not provide incremental value to investors.
Our short-term liquidity requirements consist primarily of operating and interest expenses and other expenditures directly associated with our properties, including:
•property expenses; •interest expense and scheduled principal payments on outstanding indebtedness; •general and administrative expenses; and •capital expenditures for tenant improvements and leasing commissions.
In addition, we will require funds for future distributions expected to be paid
to our common shareholders and OP Unit holders in our
As ofMarch 31, 2021 , we had a total of$3.9 million of cash and cash equivalents and$694.0 million of near-term availability on our unsecured revolving credit facility. Our primary sources of cash include rent we collect from our tenants, borrowings under our unsecured credit facility, and financings of debt and equity securities. We believe that our existing cash and cash equivalents, cash flow from operating activities, and borrowings available under our unsecured revolving credit facility will be adequate to fund any existing contractual obligations to purchase properties and other obligations through the next year. However, because of the 90% distribution requirement under the REIT tax rules under the Code, we may not be able to fund all of our future capital needs from cash retained from operations, including capital needed to make investments and to satisfy or refinance maturing obligations. As a result, we expect to rely upon external sources of capital, including debt and equity financing, to fund future capital needs. If we are unable to obtain needed capital on satisfactory terms or at all, we may not be able to make the investments needed to expand our business or to meet our obligations and commitments as they mature. 31 -------------------------------------------------------------------------------- Table of C ontents We will rely upon external sources of capital to fund future capital needs, and, if we encounter difficulty in obtaining such capital, we may not be able to make future acquisitions necessary to grow our business or meet maturing obligations. Our long-term liquidity needs consist primarily of funds necessary to pay for acquisitions, recurring and non-recurring capital expenditures, and scheduled debt maturities. We expect to satisfy our long-term liquidity needs through cash flow from operations, unsecured borrowings, issuances of equity and debt securities, proceeds from select property dispositions and joint venture transactions, and, in connection with acquisitions of additional properties, the issuance of OP Units of ourOperating Partnership . Our ability to access capital in a timely and cost-effective manner is essential to the success of our business strategy as it affects our ability to satisfy existing obligations, including repayment of maturing indebtedness, and to make future investments and acquisitions. Factors such as general market conditions, interest rates, credit ratings on our debt and equity securities, expectations of our potential future earnings and cash distributions, and the market price of our common shares, each of which are beyond our control and vary or fluctuate over time, all impact our access to and cost of capital. In particular, to the extent interest rates continue to rise, we may experience a decline in the trading price of our common shares, which may impact our decision to conduct equity offerings for capital raising purposes. We will likely also experience higher borrowing costs as interest rates rise, which may also impact our decisions to incur additional indebtedness, or to engage in transactions for which we may need to fund through borrowing. We expect to continue to utilize equity and debt financings to support our future growth and investment activity. We also continuously evaluate opportunities to finance future investments. New investments are generally funded from temporary borrowings under our primary unsecured credit facility and the proceeds from financing transactions such as those discussed above. Our investments generate cash from net operating income and principal payments on loans receivable. Permanent financing for future investments, which generally replaces funds drawn under our primary unsecured credit facility, has historically been provided through a combination of the issuance of debt and equity securities and the incurrence or assumption of secured debt. We intend to invest in additional properties as suitable opportunities arise and adequate sources of financing are available. We are currently evaluating additional potential investments consistent with the normal course of our business. There can be no assurance as to whether or when any portion of these investments will be completed. Our ability to complete investments is subject to a number of risks and variables, including our ability to negotiate mutually agreeable terms with sellers and our ability to finance the investment. We may not be successful in identifying and consummating suitable acquisitions or investment opportunities, which may impede our growth and negatively affect our results of operations and may result in the use of a significant amount of management's resources. We expect that future investments in properties will depend on and will be financed by, in whole or in part, our existing cash, borrowings, including under our unsecured revolving credit facility, or the proceeds from additional issuances of equity or debt securities.
We currently do not expect to sell any of our properties to meet our liquidity needs, although we may do so in the future.
We currently are in compliance with all debt covenants on our outstanding indebtedness.
Credit Facility
OnAugust 7, 2018 , theOperating Partnership , as borrower, and the Trust, as guarantor, executed a Second Amended and Restated Credit Agreement (the "Credit Agreement") which extended the maturity date of the revolving credit facility under the Credit Agreement toSeptember 18, 2022 and reduced the interest rate margin applicable to borrowings. The Credit Agreement includes an unsecured revolving credit facility of$850 million and contains a seven-year term loan feature of$250 million , bringing total borrowing capacity to$1.1 billion . The Credit Agreement also includes a swingline loan commitment for up to 10% of the maximum principal amount and provides an accordion feature allowing the Trust to increase borrowing capacity by up to an additional$500 million , subject to customary terms and conditions, resulting in a maximum borrowing capacity of$1.6 billion . The revolving credit facility under the Credit Agreement also includes a one-year extension option. As ofMarch 31, 2021 , the Company had$156.0 million of borrowings outstanding under its unsecured revolving credit facility, and$250 million of borrowings outstanding under the term loan feature of the Credit Agreement. As defined by the Credit Agreement,$694.0 million is available to borrow without adding additional properties to the unencumbered borrowing base of assets. See Note 6 (Debt) to our accompanying consolidated financial statements for a further discussion of our credit facility. 32 -------------------------------------------------------------------------------- Table of C ontents Senior Notes As ofMarch 31, 2021 , we had$975.0 million aggregate principal amount of senior notes issued and outstanding by theOperating Partnership , comprised of$15.0 million maturing in 2023,$25.0 million maturing in 2025,$70.0 million maturing in 2026,$425.0 million maturing in 2027,$395.0 million maturing in 2028, and$45.0 million maturing in 2031. See Note 6 (Debt) to our accompanying consolidated financial statements for a further discussion of our senior notes.
ATM Program
InNovember 2019 , the Company entered into separate Sales Agreements to which the Trust may issue and sell, from time to time, its common shares having an aggregate offering price of up to$500.0 million . In accordance with the Sales Agreements, the Trust may offer and sell its common shares through any of the Agents, from time to time, by any method deemed to be an "at the market offering" as defined in Rule 415 under the Securities Act of 1933, as amended, which includes sales made directly on theNew York Stock Exchange or other existing trading market, or sales made to or through a market maker.
During the quarterly period ended
Dividend Reinvestment and Share Purchase Plan
In
•existing shareholders may purchase additional common shares by reinvesting all or a portion of the dividends paid on their common shares and by making optional cash payments of not less than$50 and up to a maximum of$10,000 per month; •new investors may join the DRIP by making an initial investment of not less than$1,000 and up to a maximum of$10,000 ; and •once enrolled in the DRIP, participants may authorize electronic deductions from their bank account for optional cash payments to purchase additional shares. The DRIP is administered by our transfer agent,Computershare Trust Company, N.A. Our common shares sold under the DRIP are newly issued or purchased in the open market, as further described in the DRIP. As ofMarch 31, 2021 , the Company had issued 151,273 common shares under the DRIP since its inception.
Critical Accounting Policies
Our consolidated financial statements included in Part I, Item 1 of this report are prepared in conformity with GAAP for interim financial information set forth in the ASC, as published by theFinancial Accounting Standards Board , which require us to make estimates and assumptions regarding future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. We base these estimates on our experience and assumptions we believe to be reasonable under the circumstances. However, if our judgment or interpretation of the facts and circumstances relating to various transactions or other matters had been different, we may have applied a different accounting treatment, resulting in a different presentation of our financial statements. We periodically reevaluate our estimates and assumptions, and in the event they prove to be different from actual results, we make adjustments in subsequent periods to reflect more current estimates and assumptions about matters that are inherently uncertain. Please refer to our 2020 Annual Report for further information regarding the critical accounting policies that affect our more significant estimates and judgments used in the preparation of our consolidated financial statements included in Part I, Item 1 of this report.
REIT Qualification Requirements
We are subject to a number of operational and organizational requirements
necessary to qualify and maintain our qualification as a REIT. If we fail to
qualify as a REIT or fail to remain qualified as a REIT in any taxable year, our
income would be subject to federal income tax at regular corporate rates and
potentially increased state and local taxes and we could incur substantial tax
liabilities which could have an adverse impact upon our results of operations,
liquidity, and distributions to our shareholders.
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Table of C ontents Off-Balance Sheet Arrangements As ofMarch 31, 2021 , we have investments in three unconsolidated joint ventures with ownership interests of 49.0% in two of the joint ventures and 12.3% in the third. The aggregate carrying amount of debt, including both our and our partners' share, incurred by these ventures was approximately$771.4 million (of which our proportionate share is approximately$136.2 million ). See Note 2 (Summary of Significant Accounting Policies) of our 2020 Annual Report for the fiscal year endedDecember 31, 2020 , filed with theSEC onApril 9, 2021 for additional information. We have no other off-balance sheet arrangements that we expect would materially affect our liquidity and capital resources.
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