Brad Page - SVP and General Counsel John Thomas - President and CEO Jeff Theiler - CFO John Sweet - CIO Deeni Taylor - EVP of Investments John Lucey - Principle Accounting and Reporting Officer Mark Theine - SVP of Asset and Investment Management.

Juan Sanabria - Bank of America Merrill Lynch Jonathan Hughes - Raymond James Jordan Sadler - KeyBanc Capital Markets Dan Altscher - FBR Paul Morgan - Canaccord John Kim - BMO Capital Markets Michael Carroll - RBC Capital Markets.

Greetings and welcome to the Physicians Realty Trust's Third Quarter 2015 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 Brad Page, Senior Vice President, General Counsel for Physicians Realty Trust. Thank you, Mr. Page you may begin..

Thank you good morning and welcome to the Physicians Realty Trust's third quarter 2015 earnings release conference call and webcast.

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

During this call, John Thomas will provide a Company update and overview of recent transactions and on strategic focus. Then Jeff Theiler will review the financial results for the first quarter and our thoughts for the remainder of 2015. 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 and factors 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.

Our actual results could differ materially from our current expectations and those anticipated or implied in such forward-looking statements. For more detailed description of such potential risks, please refer to our filings with the Securities and Exchange Commission.

With that, I would now like to turn the call over to our Company's CEO, John Thomas. .

Thank you, Brad. Good morning everyone and thank you for joining us today for Physicians Realty Trust's third quarter 2015 earnings conference call. During the quarter we celebrated the two year anniversary of the Company and I am pleased to discuss today our best quarter yet for growth and operating results.

From the beginning of the Company's life just over 27 months ago, we have always stressed the importance of building a great long-term organization striving to achieve our liable rising dividends and a total shareholder returns.

Our portfolio now totals more than $1.5 billion in high quality medical office buildings and we believe we are well on our way to continue delivering on our goals into the future.

Our growth and focus on the quality of our income has delivered normalized FFO of $0.26 per share during the third quarter more than 14% above our quarterly dividend and an increase of 53% year-over-year.

During the quarter we invested over $297 million in 11 medical office facilities totaling 876,000 square feet, a 19% increase in gross leasehold square footage.

This is not only the largest volume of quarterly acquisitions in the history of our Company but we added some of the highest quality facilities and providers in the country to our organization including major health system on campus and affiliated facilities in three top MSAs, Columbus Ohio, Phoenix Arizona and Houston Texas.

Our third quarter and year-to-date results reflect the hard work and dedication of our fantastic team. Starting with our founder and Chief Investment Officer John Sweet, who's led our efforts to double the size of our asset base this year and now working with Deeni Taylor we’ll continue to self-drive our high but disciplined rate of growth.

Jeff Taylor, John Lucey and their team also deserves special recognition as they have kept pace with our growth rates scaling our reporting and accounting infrastructure, cost effectively allowing us to communicate with investors and clients confidently and frequently especially when we see the opportunity to raise capital at the right time at the best price.

In a minute I will ask Jeff to speak to our operating results, noting he will be reporting the third quarter of 2015 produced the best operating results in the history of the Company. We believe this platform will continue to do even better consistently better for quarters and years to come. But first I'd like to speak of the quality of our portfolio.

We want to own the highest quality medical office outpatient care facilities in the United States. The vast majority of investments in 2015 reflect our strategic plan and focus.

These investments are highlighted by our facilities in Houston, Phoenix, Minneapolis and Columbus Ohio the 5th, 12th, 16th and 32nd largest MSAs in the United States respectively.

In these four markets alone we’ve invested $406 million and 1.3 million square feet, 51% is on campus, 80% is on campus or affiliated with our major health system and more importantly 96% occupied. The average age of these buildings is nine years with many of them less than five years old.

The first year unlevered yield of these investments is 6.8% and the average lease term is 8.3 years. Our four largest markets are now Phoenix, Atlanta, Columbus Ohio and Minneapolis but we’re also well diversified yet geographically with facilities now located in 25 states.

While it’s easy to define quality simply by location on campus or a famous street in our top five MSA, we believe the definition of quality in healthcare real estate is much broader, especially from a clinical standpoint.

In MedPAC the organization established by Congress to provide analysis and recommendation to Congress for improving the Medicare system reported in its latest reports to Congress that Medicare inpatient volume in 2013 was 10.1 million admissions, a decline by 1% over 2012.

In contrast, outpatient volumes in 2013 were 196 million admissions, an increase of 6 million admissions or 5.5% over 2012. Because there’s exit top to the capacity, and these trends, occupancy rates in hospitals averaged just 60% in 2013 despite a national reduction in over 1000 beds. Since 1975 over 2000 hospitals in United States have closed.

Medicare inpatient discharge volume from 2006 to 2013 declined by a total of 17% over the past 17 years. In contrast Medicare outpatient service volume from 2006 to 2013 increased by 33%.

MedPAC in the healthcare industry not only expects this continued shift for inpatient, outpatient services and settings, the affordable care act and payers are encouraging and incentivizing the shift in care to more efficient integrated service providers in the lowest cost settings capable of meeting the clinical needs of the patients.

We believe the data is undeniable that the future of healthcare services in the vast majority of the care will be provided in outpatient settings.

Our healthcare expertise combined with our experience in real estate and finance enables us to soar substantially more potential investments in far more markets that’s providing to you our investors far more opportunities for more outsized growth and higher risk adjusted returns. We don’t stop at the address when we underwrite.

We believe quality in healthcare real estate begins with the quality of care provided in that facility, the critical math of patients seeking convenient access to that care, the qualities of patient's ability to pay or otherwise compensate the provider for that care, and the care providers are willing to deliver that care efficiently, effectively and faithfully.

A beautiful but empty building regardless of location is not high quality healthcare real estate.

The strength of our team is the ability to match quality criteria with Physical real estate and locations that optimize the success of our clinical provider tenants and that products reliable long-term and growing net operating income for our organization.

As an example earlier this year we invested $41 million in Rochester New York to acquire strategically located outpatient medical office for consisting of five Class A facilities.

While Rochester is the 51st largest MSA in the country, the Alpha Spark is least primarily to the university of Rochester medical center one of the largest healthcare providers in New York and a strong investment great credit with an S&P double A minus rating.

The convenient outpatient location provided a central healthcare destination for high margin and needed access to oncology, orthopedics and family medicine primary care services.

Our investment produces a 7.2% first year unlevered return with long-term triple net leases and the opportunity to expand the relationship with the university of Rochester and new investments in the future. That goes toward the physicians and the patients want to go and that's where the rents located.

We believe that is high quality healthcare real estate.

While our primary focus is the quality they incur tenant, we do believe the vast majority, the best anchor tenants are healthcare systems and large physician groups and the percentage of our facilities that are on campus or affiliated with our health system is now 77% with a goal to increase that percentage to 90% or more over time.

Finally, we would like to thank our investors for the strong support in the upsized $226 million follow-on offering completed in October. This capital further strengthened the already very strong balance sheet and positioned us for continued and sustainable growth.

We have excellent liquidity moving forward to take advantage of accretive investment opportunities and a growing pipeline of off market transactions. I will now turn the call over to Jeff, to discuss our financial results for the quarter. After that, we'll be happy to take your questions.

Jeff?.

Thank you, John. We're happy to report another strong quarter of operations and acquisition activity. Our third quarter 2015 funds from operations or FFO were $16 million or $0.21 per diluted share. Our normalized FFO, which added back $3.3 million of acquisition expenses and some other small normalizing adjustments were $19.3 million.

Normalized funds from operations per share was $0.26 per share, which represents a year-over-year increase of 53% from the third quarter 2014 normalized FFO per share of $0.17. Normalized funds available for distribution or FAD for the third quarter were approximately $16.9 million or $0.23 per diluted share.

Importantly, this quarter marks a milestone for our Company in which we for the first time achieved our stated goal of covering our quarterly dividend, a testament to the success of our disciplined investment program and the strength of our operating portfolio.

We achieved record investment results this quarter adding 11 medical office building properties and one mezzanine loan investment. The investments this quarter totaled $297 million, expanding our asset base by about 25%, and were achieved in an average first year unlevered cash yield to 6.7%.

Had we acquired all these assets at the beginning of the quarter, they would have contributed an additional $2.7 million of cash NOI to our portfolio.

In this past quarter as we have throughout the life of our Company, we source many of these deals through relationships which we believe enables us to achieve higher risk adjusted returns for our shareholders. Subsequent to the end of the third quarter, we close on $53.5 million of additional investments.

For the year, we have closed on $741.6 million of investments, putting us at the bottom end of the upsized $700 million to $900 million of full year 2015 investment guidance that we announced on our second quarter earnings call.

We are evaluating an increasing pipeline of potential opportunities and expect to continue to execute our growth strategy in the highly fragmented medical office building sector. We utilize our line of credit to fund our acquisition activity in the third quarter ending on September 30 with a balance of $473 million.

Our debt to gross asset at the end of the third quarter was 38.4%, and our net debt to adjusted EBITDA ratio was 5.9X. In keeping with our strategy of maintaining a conservative capital structure to position our Company for a long-term sustainable growth, we executed a follow on offering in October at $15 per share.

The upsized offering generated net proceeds of $226.3 million, $225 million of that offering was used to pay down our line of credit, with $1.3 million contributed towards acquisitions made subsequent to the end of the third quarter.

Pro forma for the pay down of the line of credit and the $53.5 million of acquisition subsequent to the end of the quarter our debt to gross assets would be 26%. We continue to work on finalizing our first long-term debt issuances and expect to announce an agreement before the end of the year.

On a 10 year basis, pricing is now anticipated to be slightly better than the range we announced last quarter of treasuries plus 225 to 250 basis points. Our portfolio continues to perform exceptionally well, and was 95.5% leased at the end of the third quarter.

Our same-store portfolio which encompasses about 37% of our total NOI, grew cash NOI at 2.3% year-over-year which was primarily driven by contractual rent increases and a 30 basis point improvement in occupancy.

This was partially offset by a 4.6% increase in operating expenses driven by additional insurance expense incurred in the third quarter of about $70,000. Finally, our general and administrative cost for the third quarter were $4.0 million, which was primarily driven by salary expense and about $275,000 of one-time rating agency fees.

We expect to incur a similar G&A expense in the fourth quarter which will put us at the high end of the $14 million to $15 million range we estimated at the beginning of the year. We continue to work diligently toward reducing our G&A below 1% of assets.

All-in-all, our portfolio is continuing to perform well, our pipeline of potential opportunities remains as big as ever and we are exceptionally well positioned to continue to execute on our disciplined growth strategy in the fourth quarter of this year and into 2016. With that, I'll turn it back over to John..

Thank you, Jeff. Operator, we'll be happy to start taking questions..

[Operator Instructions] The first question is from Juan Sanabria with Bank of America Merrill Lynch. Please go ahead. .

Good morning, guys. Just given the very successful acquisition quarter record numbers, what you guys feel is a sustainable sort of quarterly or annual run-rate - however you want to frame it or what you guys think you can do with the current team. And any views on cap rates as well would be helpful, thanks..

Yes one, we've been consistently growing every quarter and adding - Deeni is going to bring an additional level of resources and relationships to the organization.

So we kind of consistently been in $200 million third quarter I think next year we look at it similar to this year, we'll put our formal guidance in the next earning call around acquisition expectations next year.

But as long as capital market stay up and we think the volume of opportunities will continue to be there in the kind of consistent pace we've been growing.

Cap rates I think we're very excited to this quarter to cap rates we achieved littler price year than previous quarters but again we've consistently said where we can match quality with our cost of capital. And I think quality, the bigger markets to more on campus or more health system affiliated assets, we can find those - we will pay up for those.

But we're still for the year right at 7% on the deployment of capital and that's a first year unlevered cap rate. So, we haven't seen a big change in pricing this quarter but I think that's what we'd expect going into the first quarter..

Okay. And then as you think about the quality of assets that you highlighted in the quarter and the whole shift towards outpatient and lower cost settings. How do you underwrite and what are the key metrics you look at to underwrite hospitals as the key sort of tenant and sort of the relationship with the medical office buildings.

Any sort of key benchmarked market share et cetera that you look at demographic growth.

Where are you focused on?.

Yes, we look at all the above. The one of easy thing with hospitals is most of them have credit ratings and more public data about their historic and current financials.

But also more importantly we look at their growth rates and their access to new market where they are growing and aligning with physicians most importantly because hospital doesn’t do anything with the physician order.

So they get to have good relationships with physicians and then growing and aligning with those physicians in outpatient care setting. So those settings can be on campus or off campus should reflection of underwriting what services are in the building and how that hospital is going to grow..

And then Jeff on - I think you mentioned quickly at the end of your prepared remarks on terming up the line, so what size tenure year are you thinking - it would be on secured market or private placement market or what are the latest thoughts?.

Yes, sure Juan. So latest thoughts on private placement market, the size is likely to be around $150 million and we'd expect to become a private placement market, you typically are trenching that out in several different countries but kind of average maturity of 10 years or so..

Okay.

And you said 225 to 250 over or maybe a little bit below that?.

I think it will actually be a little bit below that under the range..

Okay. Thanks guys. Great quarter..

The next question is from Jonathan Hughes with Raymond James. Please go ahead..

Hi, good morning guys. Thanks for taking my questions. Congrats on the third quarter and growth in IPO.

Are you guys putting any of these large MOB portfolios in your pipelines or they mostly smaller one-off deals? And then I guess one more, have you seen any assets circle back around that were previously on the auction block?.

The simple answer is all the above. Jonathan, there has been several larger portfolios out there floating around and we see most of those.

I think for us it's a matter - most of those will carry some kind of portfolio or portfolio of premium and so one of the things we do is reflect - is the quality of the overall portfolio worth paying a premium for or how do they match up with our – say [indiscernible] down in the middle of fairway kind of pipeline and the way we've grown.

And so its nice opportunities out there, nice portfolios out there but we are yet to see a lot - its entire assisted to pay a premium to those assets while we are still growing very effectively in putting capital together or putting capital work at a better cap rate once [indiscernible]..

Okay. And then I guess to get segway into my next question. So looking at the Memorial Hermann assets you brought in 3Q, could you maybe talk about the difference in yields there on those assets versus the portfolio of Memorial Hermann assets that were bought earlier this year by competitor of yours.

I think the cap rate differentiate there was a kind of 80 basis points. So I won't expect the portfolio premium, but it seems like it was even more of a differential than it was expected..

Yes, I think that reflects the approach that John Sweet had with the seller. It's a Physician Group that really self developed those assets working with Memorial Hermann, very newer bigger buildings in a great market. The other assets were on campus but frankly not assets that were as attracted to us that. But in the end it's Memorial Hermann credit.

So, again no criticism of that portfolio that we are very excited in and we think we got a very attractive price and yield on those assets and they will be there for a very long time and they are completely occupied or 95% occupied.

So can't really explain the differential other than jobs we're getting done, we're working hard developing a relationship with the seller and the seller caring who the next owner was..

Okay. Now it's great, it's great color.

Then I guess one last one, I know you're definitely focused on external growth right now, but given some of the other healthcare REITs out there looking to aggressively moving into hospital sector, would you be open for selling some of your hospitals or LTAC that recycle that capital into MOBs or is that something you haven't looked at?.

We always evaluate our portfolio, I mean everything -- just about everything we bought in the last two years, so we're excited about the investments we've made, but always looking to maximize the best source of capital and then deploy that in the best new opportunities and so we're a pure play medical office building REIT, we like to serve with the hospital in a business, we like the specialized post care facilities with the best operators and we think we have all of that in the portfolio.

But we'll look at it from time-to-time and if there is a good opportunity to recycle capital, we'll evaluate it. We have no current plans to do so but we're evaluating it constantly though..

Okay. That's it from me, thanks guys..

Thanks, John..

The next question comes from Jordan Sadler with KeyBanc Capital Markets. Please go ahead..

Thank you, good morning. My first one is just sort of following back up on the hospital underwriting.

I'm curious John, given sort of your history and experience from the real estate perspective, would you be interested in owning an acute care hospital today?.

We focus on our patient care, Jordan, and as I said -- I'm sure there's some good opportunities out there to own acute care hospitals. But the average age of hospitals and there's not going to be most hospitals in the United States were built in the 50s, 60s, so there's a lot of big infrastructure out there.

Just with the outpatient – the trends to more and more clinical services being performed frankly in a physician's office. We have no plans to invest in acute care hospitals.

Our surgical hospitals are licensed hospitals in their respective states, but the outpatient care facilities that are primarily to expand the scope of services for the physicians that work there, but they're not in taking patients and they're not big general acute care hospitals.

So, long way to answer to say no, I wouldn't expect just to invest in any hospitals and again back to -- probably didn't tie the square tightly in my opening comments but a lot of hospitals are closing, a lot of hospitals are re-building in new kind of better markets within their submarkets and so we'd rather focus on the outpatient care and aligning with those hospitals in those newer markets where we can..

The other sort of question I have for you which is a little bit along the same lines, but given sort of the recent budget approval, the Section C03 revision there, can you maybe speak to that and how is that -- how you're addressing that near acquisitions in underwriting strategy and how you may expect that to impact tenant decisions going forward?.

That's a great question. So, we’re calling those 603 assets after the section number and we have a number of grandfather 603 assets [indiscernible].

Section 603 you're going to have the same scope of services in our building if it's build as an outpatient department of the hospital, you should expect much higher reimbursement particularly in oncology and cardiology, those are the two service lines or two of the service lines where you get significantly higher rates building as a hospital outpatient department even though it's in effective position office with ancillary services.

Section 603 requires or provides those facilities to build on that basement on that basis, need to be on campus which is historically defined by regulation as kind of tied to the hospital within 250 yards of the hospital.

The grandfather's all existing HOPD providers of hospitals billing facility, hospital outpatient department reimbursement rate, those are grandfathered – in place. So we have a number of those, like DMO calling them 603 assets, we have a number of those grandfathered facilities.

Historically we’ll have to see how the rigs are written, but historically if you're grandfathered you can’t change the address of that location and continue to achieve that higher reimbursement. So, we would think that our 603 assets providers are going to want to stay in those locations for a very long time. So that excites us a lot.

On the other hand going forward you're certainly making new investment decisions, we will underwrite what their expected reimbursement is going to look like in the location and obviously they want HOPD reimbursement as a new provider, at least under the new life it’s going to have to be on campus as defined by the rigs and certainly that'll make us look at that investment in that perspective.

But there's other reasons to be off campus providing -- getting into new markets looking into align with new physician groups and accessing new higher patient demographics.

And so you still may get better or good reimbursement just not the HOPD reimbursement, so that'll call us to dig a little bit deeper into the expected reimbursement structure of that provider. So again long one answer to the question but it's good for our existing assets, we've already built that into our underwriting process and structure.

And one thing it does is it really levels the playing field between big multi-specialty groups and hospitals with lot of physician groups already performing these services and doing it very successfully at a high margin. And that really levels the playing field.

So, for this year if you want to continue to stay independent of the hospital really levels the playing field from a competitive standpoint. And again we think we have great relationships with those big multi-specialty groups across the country.

So something to factor in that really drive a decision one way to the other just something to factor into the analysis..

Would you -- I mean so on a sort of look back basis, does this sort of enhance the value of the Grandfather 603 asset as we look at and as your underwriting new investment I guess basically everything on the ground today are being built before 2017, would it be considered a grandfather asset, right? I mean so -- changed anything now?.

Yes slight better to what you just said. You have to be the way I understand the law you have be billing in their location as of the effective day which is November 2nd. If you create a new location after September 2nd you can bill HOPD until January 1, 2017, if you otherwise qualify and then you'll go to the lower physician office rate.

So, I think the more important answer to your question is we certainly view hospital outpatient department in an existing building as one that's probably -- you don't want to stay in there for a very long time.

So when we underwrite 10 to 15 year investments at least the way the new laws written, those hospital tenants are going to understand there for the longer term than that we would expect. So yes, we think it enhances the value of those assets..

Thanks guys..

The next question is from Dan Altscher with FBR. Please go ahead..

Thanks and good morning everyone. Really nice results, glad to see the dividend coverage. Just reading from the language in the press release, it sounded like the idea of a lowering the further [indiscernible] further was kind of the game plan.

So I just want to confirm I think we're trying to say is maybe not dividend increases but just naturally get it down as cash flow search to continue to ramp is that right?.

I think it's a fair interpretation Dan, and thank you for the nice comments..

Great, okay, good. And I just want to spend a minute just on the - I guess the T1 or the leasing commission number in the quarter it was a little large.

Can you give us some color or context as to what that was specifically related to?.

Sure Dan, it's Jeff. Yes it was little bit larger than normal and primarily what that related to as we had about $1.5 million of additional CapEx associated with our office build out of the new Dock Headquarters..

Okay.

So that was probably more of one-time in nature?.

It's definitely is a one-time expense..

Nothing unusual or unexpected in the rest of the core portfolio..

Okay. Great and that's perfect. And then I guess just one clarification question. I think Jeff, you said that pro forma for the pay down of the revolver, you're looking at 26% kind of debt to assets.

Just want to make sure that was not including any potential future bond issuances that you're referring to?.

No, that was just pro forma for the pay down of the revolver and the additional acquisitions that we announced subsequent to the end of the third quarter..

Okay.

So maybe just to make it really simple for me, can you kind of just give me a sense as to where I guess the line currently its, how much capacity or how much is currently drawn kind of in that number?.

Yes, I mean we have about give or take $500 million of capacity on the line, $750 million a line..

Okay. Great, that's simple. All right, thanks, appreciate it..

The next question is from Paul Morgan with Canaccord. Please go ahead sir..

Hi, good morning. Just quickly going back to the section 603 asset, if I missed it I'm sorry.

Did you say what share of your assets or NOI did you kind -- did you quantify these things part of your section 603 portfolio?.

We're working through that Paul, we'll follow up with you but it's not a huge percentage but there's a nice batch of – 603 assets, Grandfather 603 assets in the portfolio. So actually talking to some of the hospital tenants that we work with to clarify whether it's HOPD or not.

Most probably which ones are but some of them are really classic position offices. So you have to dig a little deeper to figure that it's HOPD build or not. So we're working with the hospitals on that assessment..

Okay. All right, thanks. And then you've talked about with some of your prior acquisitions that there are opportunities for growth with those tenants be either expansions of their network and the acquisition of other facilities or potentially development opportunities.

And as you look at your current pipeline for investment, are there -- is that a meaningful piece of it, do you see opportunities you could accelerate over the next few quarters either till acquisitions or development opportunities with your operator?.

We have one specific asset that we're working with the private party to expand that asset on behalf of the provider. I don't see it being a material part of our growth next year. We have a number of assets where the potential for expansion is there. But I don't see that being a near term event.

And then I think the bigger opportunity is like the [indiscernible] as we know what some of there kind a three to five year plans are, we hope to have opportunities there. The IMS Group out in Phoenix added 30 providers this year and has a similar aggressive growth by next year.

Those buildings that we bought in partnership with them are substantially full. So we look for some opportunities over the next 18 months there. So it's short answer, more potential long-term, we see some exciting organic growth opportunities with them..

Thanks and then getting probably a pretty good clarity on the rest of the year. As we think about your investments before year end, are there main indicative chips in around of the fourth quarter, first order until we see inactive last two months of the year..

I think -- I mean our guidance was $700 million to $900 million. We wouldn't expect to change that probably. And I hope you more that towards the higher end of that guidance.

But we slowdown the pipeline a little bit intentionally in July and August and we pushed out some discussions intentionally during that period of time when the market was so rocky. So I'd say that's still good guidance but the pipeline for first quarter 2016 as we're really pleased where we sit today..

Okay, great. And then just lastly, I mean it's only about a third of your portfolio is in the same store pool. So as I think about it's all of additional asset get rolled into it over the next few quarters. Is there any reason to expect any variance and kind of your sort of low 2% same store NOI number.

Is there any upside or downside for all the assets that you've acquired over the past 12 months that they get added to the pool?.

We will continue to expect 2.5% to 3% quarter-to-quarter. We have some variability each quarter in that number, but pretty confident in that range..

Okay. Great, thank you..

[Operator Instructions] The next question is from John Kim with Capital Markets. Please go ahead sir..

Thank you. Your acquisition related guidance - your acquisition related expenses were pretty significant. And three quarters into the year, they're higher than your G&A costs. So can you just provide some breakdown as to the external versus internal breakdown of these costs, as well as what percentage directly related to transaction..

So this is John, so I understand do you mean - internal versus external meaning external like progresses and stuff like that and internal being allocated acquisition personnel..

Correct..

We can do that. We'd actually don't have that at our fingertips right now. But I think we are just around 1% of assets which is fairly typical and what we've been kind of doing over the past couple of years. So, I wouldn't expect the number to change drastically from that going forward..

I'm just wondering if you're actually paying brokerage fees, a higher dollar figure than your internal management..

No, and I don't think so. We can look at it John but most of two-thirds of our acquisitions are kind a off-market – probably half of those are no broker involved at all, sometimes the broker working with us helps to establish the relationship and I don't think it's an unusual percentage..

Okay. And it looks like your margins were higher this quarter with the increase in occupancy.

Where do you see the occupancy next year given you have pretty minimal exploration?.

95% to 96% should stay there, you think about MOB and that's substantially full. We heard already above a good pace on our next year renewals have very limited amount and as a percentage basis expiring through the end of this year. So 95% and 96%, we continue to buy buildings that are 90% to 100% occupied.

So to the extent that affected - should still be in that range..

Even estimate on your mark-to-market on your explorations for next couple of years?.

Yes, Mark why do you speak to recent renewals and just the kind of -.

Sure. On the third quarter we had 19,000 square feet that we renewed our head up renewal in the quarter with a 78% retention rate, there was only one lease that we did not renew in the quarter and unfortunately that was a physician who had a stroke and we work on their termination that's his leads with prepayment only.

But we added 78% retention rate and then for the releasing spreads, we were actually up substantially 22% for the quarter again on the small 19,000 square feet renewals that increased up nicely..

Yes, based on model 22% increase in spread but we continue to see renewals add or above the exploration. So 2% to 3% growth should be normal..

On that growth figure, can you discuss maybe what your signing is far as annual lease accelerators?.

Typically 2% to 3%, we will always push for three where we can..

Okay. And then finally I know you are still in active growth mode.

But are you going to be providing 2016 FFO guidance next year?.

No, John, this is Jeff, I don't think so. We've talked about it a lot because we wanted to be as transparent as we possibly can be to the market.

So, because we are still an external growth, because the FFO is so dependent on the timing of the acquisitions and either the leverage that you have throughout the year, it's really, really difficult to come up with an estimate that's meaningful and it would change quarter-to-quarter as our acquisition activity change.

So I think what we will end up doing is providing the same type of guidance that we did this year and overall acquisition bucket and then that gives a little bit more flexibility as to the timing of those acquisitions because it's just highly variable depending on the deal..

Great. Thank you..

The next question is from Michael Carroll with RBC Capital Markets. Please go ahead..

John, can you give us some color on your recent investment activity. I’m specifically looking at the catalyst portfolio, looks like it's 12 facilities with an aggregate of 94,000 square feet – those facility seem to be fairly small..

Yes, Mike, smaller than we like but a great tenant base and it's a really young dynamic development team that's really built a nice client base and particularly the [pendent] [ph] looks lot, not going to stretching over the Jacksonville. So again kind of smaller assets but newer, would get tenant base.

But the pipeline there which we essentially controlled to the acquisition as well is really moving towards kind of the preferred assets and size of assets and location that we want.

So I wouldn't call it a loss lead, we got a nice cap rate on those assets with a nice tenant base but going forward we would start some bigger more interesting opportunities with those same hospital systems in that groups..

Okay.

And then can you talk a little bit about the mezzanine loan that you made, I guess for the children facility to be - just buy that property and you expect to take amount in the near term?.

I'm glad you asked about that, we are very excited about those two investments. Those were built by developer called Landmark, they’re actually basing a lot, but we had a very long relationship with the Landmark organization.

The Jacksonville Florida assets over 200,000 square feet, we’d be humble to say probably the best, nicest looking best occupied medical office building, outpatient care facility built this year and developed. I mean every REIT on though - every developer on those try to win that opportunity.

So Landmark was just looking to recap it for a five year period upon CEO, working with them we put in some mezzanine debt as part of their recap and working with GE Healthcare as well. And then we have an opportunity to buy it, the determination of that five year recap.

So, same thing in Kansas City, the Truman Medical Center is the tenant of that buildings, 82,000 square foot facility it was just completed last month, it's on – hospitals here in Kansas City, so kind of a great location close to a number of hospitals but the tenant is Truman Medical Center which is the teaching hospital from the University of Missouri Kansas City.

So again similar structure we get a nice premium yield on the mezzanine loan during the term and then the opportunity upon the maturity of the senior loan and our mezzanine loan to buy that time. So, great new assets and great opportunity for the future..

And what was the rate on those funds?.

8.5% - just over 8%. We’ve indexed those to the tenure closure at the time of closing so..

Okay, great. Thank you..

Gentlemen, there are no further questions registered at this time..

This is John, thank you everyone for listening in. We look forward to seeing most of you at NAREIT. Please call up if you have any further questions..

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