David Burke – Investor Relations John Thomas – Chief Executive Officer, Trustee Jeff Theiler – Chief Financial Officer.

Karin Ann Ford – KeyBanc Capital Markets Joe Ng – MLV & Company Craig Kucera – Wanderlust Securities Collin Philip Mings – Raymond James & Associates Wilkes Graham – Compass Point.

Greeting, and welcome to the Physicians Realty Trust Third Quarter 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, David Burke of The Ruth Group. Thank you Mr. Burke, you may begin..

Good morning and welcome to Physicians Realty Trust third quarter 2014 conference call and audio webcast.

With me today are John Thomas, Chief Executive Officer; John Sweet, Chief Investment Officer; Jeff Theiler, Chief Financial Officer, John Lucey, Principle Accounting and Reporting Officer; and Mark Theine, Senior Vice President-Asset and Investment Management.

I’d like to remind you that today’s call will contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995 that can be identified by words such as belief, expect, anticipate, plans, project, seek and similar expressions and involve numerous risks and uncertainties.

Company’s actual results could differ materially from those anticipated or implied in such forward-looking statements as a result of certain factors as set forth in the company’s 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, David, and thank you for joining us today. As David mentioned, my name is John Thomas, President and CEO of Physicians Realty Trust. I apologize I’m having a cold this morning, so I’ll do as best as I can. I will share with you some of our achievements for the third quarter of 2014 as well as some of our strategic things for 2015.

Jeff Theiler, our Executive Vice President and Chief Financial Officer will walk through our financial results for the quarter and then we’ll be pleased to take any questions that you may have.

During the quarter, we invested more than $226 million in 13 high quality medical office buildings and one surgical hospital at an average first year cash yield of 7.3%.

Since the July 19, 2013 IPO through October 31, 2014, we have grown our portfolio from approximately $110 million to over $700 million towards that medical office facilities and specialty hospitals. When we announced our overnight equity raise, September 08, 2014, we announced $180 million of pending new investments.

We have completed $161 million of those announced investments plus an additional $23 million investments for a total of $184 million of investments, closed since the equity raise in September.

A $90 million investment announced in September that has not yet closed continues to be in our pipeline has been a waiting satisfaction of a closing addition and we expect that to occur in the near future. In other words, we continue to put our investors’ capital to work quickly, efficiently, and prudently.

Working primarily with our physician and healthcare provider relationships around the country to find attractive facilities, leased a high quality physicians and providers. John Sweet, our Chief Investment Officer, in particular was very successful this past quarter sourcing and closing off-market transactions.

Looking at the past 15 months of our life as a public company, we have sourced about two-thirds of our transactions off-market and the remaining one-third had mostly been narrowly marketed.

We appreciate the support of those physicians and other providers who have interested us with their facilities and many of these clients have referred other opportunities to us for investment.

Our reputation of a trusted partner to our physicians and providers is very important to us and we believe it is very important to the long-term value we are working to create for our shareholders and other stakeholders.

In addition to our successful growth in the third quarter, we continue to develop our internal controls infrastructure with a successful IT implementation and other structural investments that are allowing us to internalize more of our property and asset management.

We expect these efforts will allow us to continue to build best-in-class customer service to our tenants and visitors, while improving the margins on our buildings and achieving high retention rates over time.

Mark Theine and John Lucey have worked hard to achieve our goals and have exceeded expectations managing our portfolio and implementing our long-term asset and accounting management tools this year, as we build a lasting healthcare real estate platform and portfolio. As we look at 2015, we remain focused on rapid, albeit prudent growth.

Our pipeline remains robust and focused on medical office billings and we believe we can exceed $1 billion in assets in the near future with stable, high quality tenants and high occupancy across our portfolio.

We will manage our platform in 2015 to be well-positioned for continued growth as we evolve to a long-term balance sheet and capital structure. We made substantial strides this year lowering our cost of capital with tremendous support from our investors and bank partners, allowing us to acquire high quality real estate.

We want to continue that evolution in 2015 with a continued pure play focused on medical office facilities with an emphasis on private pay revenue and the occasional surgical and other specialized hospital and we see appropriate valuations.

We make these investments in the short-term focused on the long-term success of each investment and that’s the long-term success of our organization to deliver value and the best possible total shareholder returns.

Jeff, please share our third quarter financial results and the terms of our own secured line of credit and we will then be happy to take your questions.

Jeff?.

Thank you, John. We’re pleased to report another successful quarter of operations. Our funds from operations or FFO for the third quarter of 2014 were $2.4 million or $0.06 per diluted share.

Normalized FFO, which adds back $2.9 million of acquisition expenses and the $1.8 million one-time shared services amendment payment to Ziegler were $2.7 million or $0.17 per diluted share.

Normalized funds available for distribution or FAD, which consists of normalized FFO adjusted for various non-cash items and recurring capital expenditures, including tenant improvement from leasing commissions, were approximately $7 million or $0.17 per diluted share.

As previous announced we completed $226 million of acquisitions in the third quarter, including the closing of $114 million of acquisitions on September 30 the last day of the quarter.

The fall of the acquisitions that took place in the third quarter, have been completed on the first day of the quarter, our rental revenues would have increased by an additional $3.6 million, depreciation and amortization expense would have increased by $1.4 million and operating expenses would have increased by $0.1 million.

Our normalized FAD per share would have been higher by roughly $0.04 had the acquisition draws on the line of credit to fund the acquisitions and follow on equity offering occurred at the beginning of the quarter or another way to say it is that our current run rate FAD is roughly $0.21 per share.

General and administrative costs were $4.4 million in the third quarter. These costs were higher than usual as they are impacted by a onetime $1.8 million payment as part of our amendment agreement with Ziegler.

The amendment of the shared services agreement enabled us to bring all of our accounting functions in-house, which will help us comply with the enhanced internal controls that will be required to meet in 2015 as required by the Sarbanes-Oxley regulations.

From an overall cost standpoint, we don’t project material difference between the shared services agreement and paying for the services individually in the near-term. And over the long run, it will allow us to scale up the company more efficiently.

We had an exceptionally busy quarter on the financing side, as we continue to strengthen the balance sheet and improve our access to capital. In September, we completed our third follow on equity offering, raising nearly $146 million in net proceeds, which were used primarily to pay down debt and to fund acquisitions.

In addition to this traditional follow on offering, we also implemented our first at-the-market equity program. This program will allow us to periodically and strategically issue equity at current market prices. The aggregate amount of equity we can issue under our at-the-market equity program is $150 million.

In this quarter we also made significant improvements to our credit facility, we transitioned from a $200 million secured credit facility to $400 million unsecured credit facility, greatly increasing our financial flexibility. In addition, the facility has a $350 million accordian feature, which would increase our overall capacity to $750 million.

Not only did we increase the size of the facility, but we’re able to achieve better pricing. And our current overall leverage level less than 35% debt to assets, our rate of interest in the lines outstanding balance is LIBOR plus 150 basis points, an improvement of 115 basis points from our previous facility.

At the end of the third quarter, we had $70 million drawn on a new line of credit in addition to $83 million of secured debt. This brings our leverage to 22% on a debt to total assets metric, providing excellent flexibility to continue executing on the external growth opportunities we see in the pipeline.

As we mentioned on the last call, our FFO was highly dependent on external growth and is also impacted by the timing of any capital events such as follow-on equity offerings. The time of these events is very difficult to predict, making it also difficult to provide meaningful guidance on an FFO per share basis.

However, we do have visibility on the overall size of the acquisition pipeline and feel comfortable providing estimates on overall closings in the fourth quarter. Since September 30th, we have closed one additional transaction, the Pinnacle Health portfolio, for $23 million.

In addition to this transaction, we currently expect to acquire to between $40 million to $80 million of additional properties during the rest of the fourth quarter.

If we achieve this target, it will bring our acquisition volume for the year to between $510 million and $550 million of high-quality medical facility with a projected average cash cap rate over a 7.5%. With that, I’ll turn it back over to John for some closing remarks..

Thank you, Jeff. Before I turn it over to questions, I would also like to mention that Physicians Realty Trust was recently selected for inclusion into Morgan Stanley REIT Index.

This recognition for a company just over a year old is a testament to the success we have had, executing our company’s business plan, as well as the tremendous support we have seen from our lenders and investors over the past year. So thank you. With that, we’ll open it up for your questions..

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Karin Ford with KeyBanc Capital Markets. Please proceed with your question..

Hi, good morning. John, I just wanted to ask you about the deal pipeline. You had obviously a great year this year with $510 million to $550 million, probably before year end done.

Based on what you’re seeing out there today, do you think 2015 could be as big as 2014 or even bigger, what’s your sense?.

Good morning, Karin. I think what we continue to see in the pipeline in the near future is really a repeat or better for next year as it looks right now.

So we’ve been averaging around $150 million per quarter in investments and we see that right now for the foreseeable future, but we’ll give better acquisition guidance after the fourth quarter call, early next year..

Okay, thanks.

And do you expect to see less competition given a disruption in the non-traded at the enlisted [ph] REIT sector these days? Do you run into them? Do you compete with them often?.

We don’t compete with them often. I think is back to be seeing what’s going to happen with the disruption there whether that capital just moves to different players. There are multiple players in that market and frankly we’ve been running into others more than ARCP and growth as have been reloading and then they’ve had the recent issues.

But I would expect to continue to see them active in the market for their foreseeable future. But bottom line is we don’t go head-to-head with them too much, but they certainly have an impact on pricing expectations, which is fairly transparent in the market. .

Okay.

Next question is have you taped the ATM yet or do you plan to tap it with some other deals you have coming up?.

Hey Karin, it’s Jeff. We have not taped the ATM yet. We’ve actually been in the blackout period through the closing of the credit facility and then also into the earnings season here. So we haven’t tapped it. We’re certainly looking at that opportunistically, as we go forward. I mean it’s a great way to match fund smaller acquisitions.

So we think as an additional tool in our tool kit and we’ll continue to evaluate these for that quarter-to-quarter..

Great. And then just last question, do you have a bias today towards shorter or longer lease terms when you guys are looking at deals..

That’s a great question, Kary. I think as we’ve continue to evolve and internalize our property management, asset management and if you look at our lease terms right now, our average lease is over ten years. We have, I mean, 1% to 2% per year in our current portfolio of lease maturities.

So I think we’re starting to at least evaluate sprinkling in some shorter-term lease maturities when the acquisition, pricing and then in the market ramps in that particular facility or market attractive to as they take advantage of the ability to increase rents in the near term and actively manage that portfolio.

I’ve talked about this before and we’re [indiscernible] and actively managing, operating healthcare real estate company. And I think that’s part of our, now that we’ve internalized, have the controls and the tools to do that, and frankly the team to do that. We’re going to start doing more and more of that on a strategic basis..

Great. Thanks for the color..

Thank you. Our next question comes from the line of Paul Morgan with MLV & Company. Please proceed with our question..

Hi, this is Joe Ng for Paul..

Hey, Joe..

Hi Joe..

Hi, excluding the $1.8 million amendment payment, G&A was $2.6 million during the quarter approximately 1.5% of your gross new [ph] asset? And you’ve mentioned that the goal is to bring the G&A level to below 1% of your gross new [ph] assets.

So how should I think about the run rate of G&A in 2014 and 2015?.

Hey Joe thanks for the question. In the past we’ve given guidance of about $7.5 million to $8.5 million of cash G&A for year. So we were on $8 million pace this quarter. As a growth company, the G&A can jump sporadically when we have to plan for additional growth and scaling up as we take advantage of the opportunities.

Recently, we hired a new VP of Asset Management out of Atlanta to help start building our presence in that region as well as some office support and getting all the systems in place for Sarbanes-Oxley.

So over the next couple of quarters, I predict cash G&A to rise from about $2 million this quarter, probably closer to about $2.5 million over the next few quarters. However, as you said and we’ve talked about, we’re committed to achieving this 1% of assets level. I’d be very surprised if we don’t achieve that in 2015..

Okay, also could you provide more color on your mix of acquisition pipeline next year or knock it at versus relationship deals or medical office versus audit assessed and also the one off deals versus the portfolio deals?.

Yes, I think what’s in our pipeline right now and what we continue to see is fairly consistently two-thirds are coming from existing relationships or them introducing us to other relationships. And the other third again fairly lightly marketed. We rarely get involved in those kinds of the mass marketed options.

It all in fact I don’t think we’ve really pursued anything in the past year on that basis.

Medical office buildings, you’ll continue to see more and more medical office facilities private labs, surgical hospitals, but we still like those and – when they’re appropriate kind of risk adjusted returns where we can find them and we still see a few of those in the future.

But portfolios tend to get more widely marketed, so our portfolio – the portfolio deals that we are actively involved in and have looked at have been – those were the portfolios owned by a developer or half to our physician group.

And it’s – but it’s a three to five building kind of opportunities not the 10 to 15 building or some of the mega deals we’re seeing this year. So lot of $20 million to $25 million acquisitions which again we think it’s kind of the sweet spot in the right place to be in the medical office facility investment world..

Thank you..

Thank you. Our next question comes from the line of Craig Kucera with Wanderlust Securities. Please proceed with your question..

Hi, good morning guys..

Good morning Craig..

Good morning Craig..

Can you give us a little bit of color on any updates with your discussions with the ratings agencies as far as maybe getting an investment grade rating at some point 2015?.

Hi, Craig, it’s Jeff. What we’ve been doing is we’ve been meeting with S&P, Moody’s as often as we can just to make sure that we’re in front them and they understand the story. And so, as we look out into 2015, getting an investment grade rating is really a primary goal for us..

:.

When you think about trying to hit that, has that then changed the amount of leverage that you might ultimately take the existing capital base that you have today instead of maybe pushing into the mid to upper 40s as we’ve talking about in the past? Does that sort of maybe bring it down closer to the 40% range?.

That’s a good question. I mean, I think as we go for the investment grade rating and then presumably once we achieve the investment grade rating, I think what you’ll find is that leverage levels are going to be consistent with other companies that have that investment grade rating.

So as you look out into the healthcare world, that’s a large diversified REIT among others. So I think if you start looking at those types of levels, that’s probably the range that we’ll be in..

Got it.

And with especially the leases that were closed at the end of the quarter and really throughout the quarter, can you advocate some additional details sort of on the escalators that were baked into $226 million of acquisitions that were closed this quarter?.

Mark, why don’t you address that?.

Sure. At the end of the quarter, we closed three buildings in El Paso and four in Columbus on the last day of the quarter, but in the total for the quarter closed 16 buildings and the average escalator is just about 2% for those transactions..

Got it. And finally with the OP Units, there was a bit of pickup in the quarter.

Can you give us a little bit of the terms of those OP Units, where they were issued and for which assets?.

Yes. The biggest one was the El Paso. That was a three building portfolio we acquired from the Orthopedic Surgery Group down there. All OP Units are consistent, have the same terms, which is they’re restricted for one year and then after that quarter-by-quarter they can raise or hanging out on off to convert to cash or shares at the same price.

They all average or the OPs are issued an average price, it’s kind of three-day average price before the closing of the transaction. So I think we’ve disclosed what that average price was made apparently we should have disclosed..

We’ve disclosed in there are three transactions in the quarter for total of $25 million of operating partnership.

$25 million?.

Yes million dollars worth and the average price across all of those for the quarter was $14.17.

Got it you’ll deal for them..

Great, thanks I appreciate the color..

They tend to refer the doctors to us and when it works out like that for them..

Great, thanks..

Thank you [Operator Instructions] Our next question comes from line of Collin Mings with Raymond James. Please proceed with your question. .

Hey good morning guys.

One of my questions has been addressed, but just a follow-up really on that duel pipeline, is there a way to maybe think about or quantify how you think about the mix between MOB’s and specialty hospitals going forward? I know John you’ve talked in the past again about seeing more relative value and opportunity right now really on MOB side.

But may be just talk a little bit more about where your portfolio is and where do you see that mix going into 2015?.

I think we look at it right now is moving to 80 to 85% we still see, we still like the others where we can find attractive value but its 80% to 85% in our current pipeline.

Okay and then as you guys continue to grow and kind of build that asset base and really improve the quality of the portfolio with some of these recent acquisitions.

Going into 2015 now there is may be some legacy properties that may be what were required before the IPO that you might want to recycle some capital out of, is there any plans for more disposition activity going forward?.

Yes think again in the – not to put off the question in our next earnings call we’ll be talking about the plans for next year, we may provide some disposition guidance. I think in the legacy portfolio there’s a handful of buildings that eventually over time will be disposed of or will recycle, but nothing material in the near-term, so..

Okay, and then just on terms of lease pricing and renewal and rent [ph] guidance that you guys had extremely small amount of renewals and leasing activity during the quarter.

But may be just talk a little bit more about the pricing environment, I know it sounds like the new properties that you guys just acquired is kind of 2% type escalated, may be just talk a little bit about may be what you’re seeing in terms of mark-to-market as far as leases in a lot of your markets and how you think about that, the pricing about it more broadly?.

Yes, Mark, can you address that?.

Yes sure, absolutely. As you mentioned, we do a very little roll over right now. Rates have definitely stayed the same or increased in lease renewals that we’ve had during the quarter.

And as John Thomas had mentioned earlier that we continue to sprinkle in a few more multi-tenant buildings where there is the opportunity to bring some leases up to market.

So in the multi-tenant buildings that we are acquiring we’re looking for leases that are at or below market upon acquisition and then we’ve got the opportunity to manage them well and to increase those rental rates and bring them up to market..

Yes, I’d just add anecdotally Mark has done a nice job of some acquisitions where the tenants are looking to extent their leases right now. We got some nice bumps for future rent renewals where we’ve already got the renewal in place and Mark has done a good job doing that..

Okay. I appreciate guys. Congrats on the progress during the quarter..

Thank you..

Thank you. Our next question comes from the line of Wilkes Graham with Compass Point. Please proceed with your question..

Hi, good morning. Just two quick questions. One, with all the acquisitions made in the quarter and obviously on the last quarter, Jeff, I’m curious.

You reported about $11.5 million of NOI during the quarter, but can you disclose what the run rate NOI is either as of today or as of September 30?.

I have to have that on my finger tips, but I can certainly follow-up with you with an exact number..

Okay. And John, with the Supreme Court looking at whether these 5 million individuals may not be entitled to receive subsidies if they purchased insurance on the federal exchanges.

I’m curious if that decision were to be – if it was determined by the Supreme Court that they’re not entitled, can you comment at all on how that would affect your business either positively or negatively?.

I don’t think it has a direct impact on our specific business, I mean, obviously healthcare in general has been riding a little bit of a wave with the increased coverage expansion. The physicians in the hospitals we’ve been working with primarily are more focused on the commercial pay and kind of higher demographic population.

And we can see the consolidation of physicians with each other and the consolidation of hospitals, acquiring physicians is continuing regardless.

So it will be something important to watch, but we just kind of done our review of our kind of strategic asset mix goals and as a big part of driver continue to focus on medical office billing, which is more private pay, reimbursement commercial pay, reimbursement facilities, particularly including on our specialty hospital in the surgical hospital side.

So [indiscernible] could have some short-term impact generally on the healthcare market, but the healthcare economy is going to be $3 trillion next year regardless and coverage expansion will occur one way or the other..

Great. Thank you..

Thank you. There are no further questions at this time. I’d like to turn the floor back over to management for closing comments..

Yes, again we just appreciate you for taking the time this morning and enjoyed seeing many of you at May REIT [ph] last week and I look forward to the follow-up in a continued success in the fourth quarter and beyond. Thank you..

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.