DOC 10-K Fiscal year ended Dec. 31, 2017

Physicians Realty Trust	Large accelerated filer ý Accelerated filer o Non-accelerated filer o (Do not check if a smaller reporting company) Smaller reporting company o Emerging growth company o

Physicians Realty L.P.	Large accelerated filer o Accelerated filer o Non-accelerated filer ý (Do not check if a smaller reporting company) Smaller reporting company o Emerging growth company o

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•	a combined report enhances investors’ understanding of the Trust and the Operating Partnership by enabling investors to view the business as a whole in the same manner as management views and operates the business;

•	a combined report eliminates duplicative disclosure and provides a more streamlined and readable presentation, as a substantial portion of the Company’s disclosure applies to both the Trust and the Operating Partnership; and

•	a combined report creates time and cost efficiencies through the preparation of one combined report instead of two separate reports.

•	the market for registrant’s common equity, related stockholder matters and issuer purchases of equity securities in Item 5 of this report;

•	selected financial data in Item 6 of this report;

•	the consolidated financial statements in Item 8 and Item 15 of this report;

•	certain accompanying notes to the consolidated financial statements, including Note 3 (Acquisitions and Dispositions) , Note 14 (Earnings Per Share and Earnings Per Unit) and Note 16 (Quarterly Data) ;

•	controls and procedures in Item 9A of this report; and

•	the certifications of the Chief Executive Officer and the Chief Financial Officer included as Exhibits 31 and 32 to this report.

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•	general economic conditions;

•	adverse economic or real estate developments, either nationally or in the markets where our properties are located;

•	our failure to generate sufficient cash flows to service our outstanding indebtedness, or our ability to pay down or refinance our indebtedness;

•	fluctuations in interest rates and increased operating costs;

•	the availability, terms and deployment of debt and equity capital, including our unsecured revolving credit facility;

•	our ability to make distributions on our common shares;

•	general volatility of the market price of our common shares;

•	our increased vulnerability economically due to the concentration of our investments in healthcare properties;

•	our geographic concentration in Texas causes us to be particularly exposed to downturns in the Texas economy or other changes in Texas market conditions;

•	changes in our business or strategy;

•	our dependence upon key personnel whose continued service is not guaranteed;

•	our ability to identify, hire and retain highly qualified personnel in the future;

•	the degree and nature of our competition;

•	changes in governmental regulations, tax rates and similar matters;

•	defaults on or non-renewal of leases by tenants;

•	decreased rental rates or increased vacancy rates;

•	difficulties in identifying healthcare properties to acquire and completing acquisitions;

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•	competition for investment opportunities;

•	any adverse effects to the business, financial position or results of operations of Catholic Health Initiatives (“CHI”), or one or more of the CHI-affiliated tenants, that impact the ability of CHI-affiliated tenants to pay us rent;

•	the impact of our investment in joint ventures;

•	the financial condition and liquidity of, or disputes with, any joint venture and development partners with whom we may make co-investments in the future;

•	cybersecurity incidents could disrupt our business and result in the compromise of confidential information;

•	our ability to operate as a public company;

•	changes in accounting principles generally accepted in the United States (GAAP);

•	lack of or insufficient amounts of insurance;

•	other factors affecting the real estate industry generally;

•	our failure to maintain our qualification as a real estate investment trust (or REIT) for U.S. federal income tax purposes;

•	limitations imposed on our business and our ability to satisfy complex rules in order for us to qualify as a REIT for U.S. federal income tax purposes;

•	changes in governmental regulations or interpretations thereof, such as real estate and zoning laws and increases in real property tax rates and taxation of REITs; and

•	factors that may materially adversely affect us, or the per share market price of our common shares, including:

•	higher market interest rates;

•	the number of our common shares available for future issuance or sale;

•	our issuance of equity securities or the perception that such issuance might occur;

•	future debt;

•	failure of securities analysts to publish research or reports about us or our industry; and

•	securities analysts’ downgrade of our common shares or the healthcare-related real estate sector.

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(1)	“MTM” means month-to-month. This line also includes 4 leases which expired on December 31, 2017 , representing 0.1% of portfolio leasable square feet.

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•	medical office buildings;

•	outpatient treatment and diagnostic facilities;

•	physician group practice clinics;

•	ambulatory surgery centers; and

•	specialty hospitals and treatment centers.

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•	whether the property is anchored by a financially-sound healthcare delivery system or whether tenants have strong affiliation to a healthcare delivery system;

•	the performance of the local healthcare delivery system and its future prospects;

•	property location, with a particular emphasis on proximity to healthcare delivery systems;

•	demand for medical office buildings and healthcare related facilities, current and future supply of competing properties, and occupancy and rental rates in the market;

•	population density and growth potential;

•	ability to achieve economies of scale with our existing medical office buildings and healthcare related facilities or anticipated investment opportunities; and

•	existing and potential competition from other healthcare real estate owners and operators.

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We seek to invest in properties serving healthcare systems with dominant market share, high credit quality and those who are investing capital into their campuses. In particular, we seek to own off-market or selectively marketed assets with attractive demographics, economic growth, and high barriers to entry. We seek to invest in and maintain well occupied properties that we believe are critical to the delivery of healthcare.

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We emphasize ensuring an appropriate and balanced mix of tenants to provide synergies within both individual buildings and the broader health system campus. Our primary tenants are healthcare systems, academic medical centers and leading physician groups. These groups typically have strong and stable financial performance. We believe this helps ensure stability in our rental income and tenant retention over time.

•	We seek to maintain a core, critical portfolio of properties and to build our reputation as a dedicated leading MOB owner and operator.

•	We seek to maintain or increase our average rental rates, and focus on actively leasing our vacant space and reducing leasing concessions.

•	Continue to maintain a high level of liquidity, including borrowing availability under our unsecured revolving credit facility.

•	Maintain access to multiple sources of capital, including private debt issuances, public bond offerings, public equity offerings, unsecured bank loans, and secured property level debt.

•	Closely monitor our existing debt maturities and average interest rates.

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•	For the full year 2017 , we completed acquisitions of 40 operating healthcare properties, 2 condominium units, and 1 parking deck, located in 15 states for an aggregate purchase price of approximately $1.37 billion . In addition, we funded $42.9 million of other investments, including the issuance of loans and buyouts of noncontrolling interests, resulting in total investments of $1.41 billion .

•	During 2017, we completed acquisitions of 8 healthcare properties as a result of the exercise of certain rights of first refusal by the sellers. These properties comprising approximately 1,402,872 net leasable square feet in three states for an aggregate purchase price of $677.7 million .

•	Since January 1, 2018 , we have completed acquisitions of 2 healthcare properties for an aggregate purchase price of $98.7 million containing an aggregate of 220,140 net leasable square feet. One of these properties was partially funded by issuing an aggregate of 104,172 preferred operating partnership units valued at approximately $22.7 million on the date of issuance.

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We consider 10 properties in four states, representing an aggregate of approximately 391,014 square feet of gross leasable area, to be slated for disposition as of December 31, 2017 . These assets consist of five assets leased to entities who have succeeded to the interests of certain Foundation Healthcare, Inc. affiliates (“Former Foundation Assets”) and five additional properties which we believe no longer meet our core business strategy from a size, age, geography, or line of business perspective.

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In August 2016, we entered into separate At Market Issuance Sales Agreements with each of KeyBanc Capital Markets Inc., Credit Agricole Securities (USA) Inc., JMP Securities LLC, Raymond James & Associates, Inc. and Stifel Nicolaus & Company, Incorporated (the “Agents”), pursuant to which we may issue and sell, from time to time, our common shares having an aggregate offering price of up to $300.0 million , through the Agents (the “ATM Program”). During the fiscal year-ended December 31, 2017 , we issued and sold pursuant to the ATM Program 6,347,914 common shares at a weighted average price of $19.48 per share, resulting in net proceeds to us of approximately $122.5 million .

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In March 2017, the Operating Partnership issued and sold $400.0 million in aggregate principal amount of its 4.30% Senior Notes which will mature on March 15, 2027 . Our net proceeds from the offering, after deducting underwriting discounts and expenses, were approximately $396.1 million . We used the net proceeds of the public debt offering to repay a portion of the outstanding indebtedness under our unsecured revolving credit facility and for general corporate purposes, including working capital and funding acquisitions.

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In March 2017, we completed a follow-on public offering of 17,250,000 common shares of beneficial interest, including 2,250,000 common shares issued upon exercise of the underwriters’ overallotment option, resulting in net proceeds to us of approximately $300.8 million . We contributed the net proceeds of this offering to the Operating Partnership in exchange for 17,250,000 OP Units, and the Operating Partnership used the net proceeds of the public offering to repay borrowings under its unsecured revolving credit facility and for general corporate purposes, including working capital and funding acquisitions.

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In July 2017, we completed a follow-on public offering of 21,500,000 common shares of beneficial interest, including 1,500,000 common shares issued upon partial exercise of the underwriters’ option to purchase additional shares, resulting in net proceeds to us of approximately $420.7 million . We contributed the net proceeds of this offering to the Operating Partnership in exchange for 21,500,000 OP Units, and the Operating Partnership used the net proceeds of the public offering to repay borrowings under its unsecured revolving credit facility and for general corporate purposes, including working capital and funding acquisitions.

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On December 1, 2017 , the Operating Partnership issued and sold $350.0 million in aggregate principal amount of its 3.95% Senior Notes which will mature on January 15, 2028 . Our net proceeds from the offering, after deducting underwriting discounts and expenses, were approximately $347.0 million . We used the net proceeds of the public debt offering to repay outstanding indebtedness under our unsecured revolving credit facility and for general corporate purposes, including working capital and funding acquisitions.

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The Board of Trustees authorized and the Trust declared a cash dividend of $0.225 per common share and OP Unit for the quarterly period ended March 31, 2017, which was paid on April 18, 2017 to common shareholders and OP Unit holders of record as of the close of business on April 5, 2017 . The Board of Trustees authorized and the Trust declared a cash dividend of $0.23 per common share and OP Unit for the quarterly period ended June 30, 2017, which was paid on July 18, 2017 to common shareholders and OP Unit holders of record as of the close of business on July 3, 2017 . The Board of Trustees authorized and the Trust declared a cash dividend of $0.23 per common share and OP Unit for the quarterly period ended September 30, 2017, which was paid on October 18, 2017 to common shareholders and OP Unit holders of record as of the close of business on October 3, 2017 . The Board of Trustees authorized and the Trust declared a cash dividend of $0.23 per common share and OP Unit for the quarterly period ended December 31, 2017, which was paid on January 18, 2018 to common shareholders and OP Unit holders of record as of the close of business on January 3, 2018 .

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•	Risks related to our business;

•	Risks related to the healthcare industry;

•	Risks related to the real estate industry;

•	Risks related to financings;

•	Risks related to our portfolio and structure; and

•	Risks related to our qualification and operation as a REIT.

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•	Recent amendments to an existing statutory moratorium on the establishment of new long-term care hospitals (“LTCH”), the establishment of new LTCH satellite facilities, and bed increases within such existing facilities, which is in effect through December 31, 2017, could impact the Medicare participation of facilities that are not already participating in the Medicare program as LTCHs.

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The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) reforms Medicare payment policy for services paid under the Medicare physician fee schedule and adopts a series of policy changes affecting a wide range of providers and suppliers. MACRA repeals the sustainable growth rate (the “SGR”) formula effective January 1, 2015, and establishes a new payment framework which may impact payment rates for our tenants, including LTCHs.

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The Bipartisan Budget Act of 2013 establishes new payment limits for Medicare patients discharged from an LTCH who do not meet specified criteria. For any Medicare patient who does not meet the new criteria, the LTCH will be paid a lower “site-neutral” payment rate, which may impact the financial condition of tenants affected by the lower payment rate. Additionally, new rules may cause all discharges from LTCHs to be paid at the site-neutral rate if the number of discharges for which payment is made under the site-neutral payment rate is greater than 50% of the total number of discharges from the LTCH.

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The Bipartisan Budget Act of 2015 (H.R. 1314) (the “BBA”) provides changes to the requirements for providers who seek “hospital outpatient department” (“HOPD”) reimbursement under Medicare. The 2015 BBA generally requires providers who seek to qualify for HOPD to be located on the campus of the hospital that seeks such HOPD, which generally is higher than reimbursement for providers that do not qualify as HOPD providers. The BBA specifically grandfathers HOPD providers in existence as of November 2, 2015 and does not change such HOPD providers’ eligibility for HOPD reimbursement.

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The Affordable Care Act instituted a market basket payment adjustment to LTCHs. In fiscal years 2017 through 2019, the market basket update will be reduced by 0.75%. The Affordable Care Act specifically allows these market basket reductions to result in a less than 0% payment update and payment rates that are less than the prior year. MACRA sets the annual update for fiscal year 2018 at 1% after taking into account the market basket payment reduction of 0.75% mandated by the Affordable Care Act.

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•	changes in the demand for and methods of delivering healthcare services;

•	changes in third party reimbursement methods and policies;

•	consolidation and pressure to integrate within the healthcare industry through acquisitions and joint ventures; and

•	increased scrutiny of billing, referral and other practices by U.S. federal and state authorities.

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•	vacancies or our inability to rent space on favorable terms, including possible market pressures to offer tenants rent abatements, tenant improvements, early termination rights, or tenant-favorable renewal options;

•	inability to collect rent from tenants;

•	competition from other real estate investors with significant capital, including other real estate operating companies, REITs, and institutional private equity or other investment funds;

•	reductions in the level of demand for healthcare properties and changes in the demand for certain healthcare-related properties;

•	increases in the supply of medical office space;

•	increases in expenses associated with our real estate operations, including, but not limited to, insurance costs, third party management fees, energy prices, real estate assessments, and other taxes and costs of compliance with laws, regulations and governmental policies, and restrictions on our ability to pass such expenses on to our tenants; and

•	changes in, and changes in interpretation or enforcement of, laws, regulations, and governmental policies associated with real estate, including, without limitation, health, safety, environmental, real estate and zoning and tax laws, increases in real property tax rates and taxation of REITs, governmental fiscal policies, and the ADA.

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•	our cash flow may be insufficient to meet our required principal and interest payments;

•	we may be unable to borrow additional funds as needed or on favorable terms, including to make acquisitions;

•	we may be unable to refinance our indebtedness at maturity or the refinancing terms may be less favorable than the terms of our original indebtedness;

•	because a portion of our debt bears, or is expected to bear, interest at variable rates, an increase in interest rates could materially increase our interest expense;

•	we may fail to effectively hedge against interest rate volatility;

•	we may be forced to dispose of one or more of our properties, possibly on disadvantageous terms if we are able to do so at all;

•	our leverage could place us at a competitive disadvantage compared to our competitors who have less debt;

•	we may experience increased vulnerability to economic and industry downturns, reducing our ability to respond to changing business and economic conditions;

•	we may default on our obligations and the lenders or mortgagees may foreclose on our properties that secure their loans and receive an assignment of rents and leases;

•	we may violate financial covenants contained in our various loan documents which would cause a default on our obligations, giving lenders various remedies, including increased interest rates, foreclosure, and liability for additional expenses;

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•	we may inadvertently violate non-financial restrictive covenants in our loan documents, such as covenants that require us to maintain the existence of entities, maintain insurance policies and provide financial statements, which would entitle the lenders to accelerate our debt obligations; and

•	our default under any of our mortgage loans with cross-default or cross-collateralization provisions could result in default on other indebtedness and result in the foreclosures of other properties.

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“business combination” provisions that, subject to limitations, prohibit certain business combinations between us and an “interested shareholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our shares or an affiliate or associate of ours who was the beneficial owner, directly or indirectly, of 10% or more of the voting power of our shares at any time within the two-year period immediately prior to the date in question) or an affiliate thereof for five years after the most recent date on which the shareholder becomes an interested shareholder, and thereafter imposes certain minimum price and/or supermajority shareholder voting requirements on these combinations; and

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“control share” provisions that provide that holders of “control shares” of our Trust (defined as shares that, when aggregated with all other shares controlled by the shareholder, entitle the shareholder to exercise one of three increasing ranges of voting power in electing trustees) acquired in a “control share acquisition” (defined as the direct or indirect acquisition of ownership or control of issued and outstanding “control shares,” subject to certain exceptions) have no voting rights with respect to their control shares, except to the extent approved by our shareholders by the affirmative vote of at least two-thirds of all the votes entitled to be cast on the matter, excluding all interested shares.

•	redemption rights;

•	a requirement that the Trust may not be removed as the general partner of the Operating Partnership without our consent;

•	transfer restrictions on OP Units;

•	the Trust’s ability, as general partner, in some cases, to amend the partnership agreement and to cause the Operating Partnership to issue units with terms that could delay, defer, or prevent a merger or other change of control of the Trust or the Operating Partnership without the consent of the limited partners; and

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•	the right of the limited partners to consent to direct or indirect transfers of the general partnership interest, including as a result of a merger or a sale of all or substantially all of our assets, in the event that such transfer requires approval by our common shareholders.

•	we would not be allowed a deduction for dividends paid to shareholders in computing our taxable income and would be subject to U.S. federal income tax at regular corporate rates;

•	we could possibly be subject to increased state and local taxes; and

•	unless we are entitled to relief under certain U.S. federal income tax laws, we could not re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT.

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(1)	“GLA” means gross leasable area.

(2)	Annualized base rent is calculated by multiplying (a) base rental payments for the month ended December 31, 2017 , by (b) 12.

(3)	Excludes leases related to the Company’s 108,843 square foot corporate office building.

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(1)	Excludes leases related to the Company’s 108,843 square foot corporate office building.

(2)	Annualized base rent is calculated by multiplying (a) base rental payments for the month ended December 31, 2017 , by (b) 12.

(3)	Annualized base rent per leased square foot is calculated by dividing (a) annualized base rent as of December 31, 2017 , by (b) square footage under commenced leases as of December 31, 2017 .

(4)	Includes 4 leases which expired on December 31, 2017 , representing 0.1% of portfolio leasable square feet.

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(1)	Calculated for each tenant as the monthly contracted base rent per the terms of such tenant’s lease, as of December 31, 2017 , multiplied by 12.

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(1)	Dividend information is for dividends declared with respect to that quarter.

(2)	On March 18, 2016 , the Trust declared a cash dividend of $0.225 per share for the quarterly period ended March 31, 2016. The dividend was paid on April 18, 2016 to common shareholders and OP Unit holders of record on April 1, 2016 .

(3)	On June 23, 2016 , the Trust declared a cash dividend of $0.225 per share for the quarterly period ended June 30, 2016. The dividend was paid on July 18, 2016 to common shareholders and OP Unit holders of record on July 5, 2016 .

(4)	On September 26, 2016 , the Trust declared a cash dividend of $0.225 per common share for the quarterly period ended September 30, 2016. The dividend was paid on October 18, 2016 to common shareholders and OP Unit holders of record on October 6, 2016 .

(5)	On December 22, 2016 , the Trust declared a cash dividend of $0.225 per share for the quarter ending December 31, 2016. The dividend was paid on January 18, 2017 to common shareholders and OP Unit holders of record on January 5, 2017 .

(6)	On March 17, 2017 , the Trust declared a cash dividend of $0.225 per share for the quarterly period ended March 31, 2017. The dividend was paid on April 18, 2017 to common shareholders and OP Unit holders of record on April 5, 2017 .

(7)	On June 12, 2017 , the Trust declared a cash dividend of $0.230 per share for the quarterly period ended June 30, 2017. The dividend was paid on July 18, 2017 to common shareholders and OP Unit holders of record on July 3, 2017 .

(8)	On September 21, 2017 , the Trust declared a cash dividend of $0.230 per share for the quarterly period ended September 30, 2017. The dividend was paid on October 18, 2017 to common shareholders and OP Unit holders of record on October 3, 2017 .

(9)	On December 21, 2017 , the Trust declared a cash dividend of $0.230 per share for the quarterly period ended December 31, 2017. The dividend was paid on January 18, 2018 to common shareholders and OP Unit holders of record on January 3, 2018 .

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(1)	Represents OP Units redeemed by holders in exchange for common shares of the Trust.

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(1)	Because our IPO and the formation transactions were completed on July 24, 2013 and we had no operations prior to completion of our IPO, the results of operations, for the year ended December 31, 2013 reflect the results of operations of the Predecessor from January 1, 2013 through July 23, 2013 and of the Company from July 24, 2013 through December 31, 2013.

(2)	An adjustment of $0.3 million and $0.1 million was required for net income attributable to redeemable noncontrolling interests for the year ended December 31, 2017 and December 31, 2016 , respectively. No such adjustment was required for the year ended December 31, 2015 .

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(1)	Because the formation transactions were completed on July 24, 2013 and we had no operations prior to completion of the Trust’s IPO, the results of operations, for the year ended December 31, 2013 reflect the results of operations of the Predecessor from January 1, 2013 through July 23, 2013 and of the Company from July 24, 2013 through December 31, 2013.

(2)	An adjustment of $0.3 million and $0.1 million was required for net income attributable to redeemable noncontrolling interests for the year ended December 31, 2017 and December 31, 2016 , respectively. No such adjustment was required for the year ended December 31, 2015 .

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(1)	“MTM” means month-to-month.

(2)	Includes 4 leases which expired on December 31, 2017 , representing 0.1% of portfolio leasable square feet.

•	medical office buildings;

•	outpatient treatment and diagnostic facilities;

•	physician group practice clinics;

•	ambulatory surgery centers; and

•	specialty hospitals and treatment centers.

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(1)	The Company partially funded the purchase price of this acquisition by issuing a total of 104,172 Preferred OP Units valued at approximately $22.7 million in the aggregate on the date of issuance.

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•	property expenses;

•	interest expense and scheduled principal payments on outstanding indebtedness;

•	general and administrative expenses; and

•	capital expenditures for tenant improvements and leasing commissions.

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•	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.

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(1)	Obligations shown represent 100% of debt service and do not reflect joint venture interests.

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(1)	Our borrowings under the term loan feature of our Credit Agreement bear interest at a rate which is determined by our credit rating, currently equal to LIBOR + 1.80% . We have entered into a pay-fixed receive-variable interest rate swap, fixing the LIBOR component of this rate at 1.07% , resulting in an effective interest rate of 2.87% .

(2)	We own a 66.3% interest in the joint venture that owns this property. Debt shown in this schedule is the full amount of the mortgage indebtedness on this property.

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(1)	An adjustment of $ 0.3 million and $ 0.1 million was required for net income attributable to redeemable noncontrolling interests for the year ended December 31, 2017 and December 31, 2016 , respectively. No such adjustment was required for the year ended December 31, 2015 .

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(1)	An adjustment of $ 0.3 million and $ 0.1 million was required for net income attributable to redeemable noncontrolling interests for the year ended December 31, 2017 and December 31, 2016 , respectively. No such adjustment was required for the year ended December 31, 2015 .

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Physicians Realty Trust (the “Trust”) was organized in the state of Maryland on April 9, 2013. As of December 31, 2017 , the Trust was authorized to issue up to 500,000,000 common shares of beneficial interest, par value $ 0.01 per share (“common shares”). The Trust filed a Registration Statement on Form S-11 with the Securities and Exchange Commission (the “Commission”) with respect to a proposed underwritten initial public offering (the “IPO”) and completed the IPO of its common shares and commenced operations on July 24, 2013.

The Trust contributed the net proceeds from the IPO to Physicians Realty L.P. (the “Operating Partnership” and together with the Trust and its consolidated subsidiaries, including the Operating Partnership, the “Company”), a Delaware limited partnership, and is the sole general partner of the Operating Partnership. The Trust and the Operating Partnership are managed and operated as one entity. The Trust has no significant assets other than its investment in the Operating Partnership. The Trust’s operations are conducted through the Operating Partnership and wholly-owned and majority-owned subsidiaries of the Operating Partnership. The Trust, as the general partner of the Operating Partnership, controls the Operating Partnership and consolidates the assets, liabilities, and results of operations of the Operating Partnership. Therefore, the assets and liabilities of the Trust and the Operating Partnership are the same.

The Trust is a self-managed real estate investment trust (“REIT”) formed primarily to acquire, selectively develop, own, and manage healthcare properties that are leased to physicians, hospitals, and healthcare delivery systems.

Equity Offerings

In March 2017, the Trust completed a follow-on public offering of 17,250,000 common shares of beneficial interest, including 2,250,000 common shares issued upon exercise of the underwriters’ overallotment option, resulting in net proceeds to it of approximately $ 300.8 million . The Trust contributed the net proceeds of this offering to the Operating Partnership in exchange for 17,250,000 OP Units, and the Operating Partnership used the net proceeds of the public offering to repay borrowings under its unsecured revolving credit facility and for general corporate purposes, including working capital and funding acquisitions.

In July 2017, the Trust completed a follow-on public offering of 21,500,000 common shares of beneficial interest, including 1,500,000 common shares issued upon partial exercise of the underwriters’ overallotment option, resulting in net proceeds to it of approximately $ 420.7 million . The Trust contributed the net proceeds of this offering to the Operating Partnership in exchange for 21,500,000 OP Units, and the Operating Partnership used the net proceeds of the public offering to repay borrowings under its unsecured revolving credit facility and for general corporate purposes, including working capital and funding acquisitions.

ATM Program

On August 5, 2016, the Trust and the Operating Partnership entered into separate At Market Issuance Sales Agreements (the “2016 Sales Agreements”) with each of KeyBanc Capital Markets Inc., Credit Agricole Securities (USA) Inc., JMP Securities LLC, Raymond James & Associates, Inc., and Stifel Nicolaus & Company, Incorporated (the “2016 Agents”), pursuant to which the Trust may issue and sell, from time to time, its common shares having an aggregate offering price of up to $ 300.0 million , through the Agents (the “2016 ATM Program”). In accordance with the 2016 Sales Agreements, the Trust may offer and sell its common shares through any of the 2016 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 the NYSE or other existing market, or sales made to or through a market maker. With the Trust’s express written consent, sales may also be made in negotiated transactions or any other method permitted by law.

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During 2016 and 2017, the Trust’s issuance and sale of common shares pursuant to the 2016 ATM Program is as follows (in thousands, except common shares and price):

	2017											2016
	Common shares sold			Weighted average price				Net proceeds				Common shares sold			Weighted average price				Net proceeds
Quarterly period ended March 31	—			$	—			$	—			—			$	—			$	—
Quarterly period ended June 30	4,150,000			20.07				82,440				—			—				—
Quarterly period ended September 30	—			—				—				—			—				—
Quarterly period ended December 31	2,197,914			18.39				40,011				135,531			19.09				2,561
Year ended December 31	6,347,914			$	19.48			$	122,451			135,531			$	19.09			$	2,561

Principles of Consolidation

GAAP requires us to identify entities for which control is achieved through means other than voting rights and to determine which business enterprise is the primary beneficiary of variable interest entities (“VIEs”). ASC 810 broadly defines a VIE as an entity in which either (i) the equity investors as a group, if any, lack the power through voting or similar rights to direct the activities of such entity that most significantly impact such entity’s economic performance or (ii) the equity investment at risk is insufficient to finance that entity’s activities without additional subordinated financial support. We identify the primary beneficiary of a VIE as the enterprise that has both of the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance; and (ii) the obligation to absorb losses or receive benefits of the VIE that could potentially be significant to the entity. We consolidate our investment in a VIE when we determine that we are the VIE’s primary beneficiary. We may change our original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. We perform this analysis on an ongoing basis.

For property holding entities not determined to be VIEs, we consolidate such entities in which the Operating Partnership owns 100 % of the equity or has a controlling financial interest evidenced by ownership of a majority voting interest. All intercompany balances and transactions are eliminated in consolidation. For entities in which the Operating Partnership owns less than 100% of the equity interest, the Operating Partnership consolidates the property if it has the direct or indirect ability to control the entities’ activities based upon the terms of the respective entities’ ownership agreements. For these entities, the Operating Partnership records a noncontrolling interest representing equity held by noncontrolling interests.

Noncontrolling Interests

The Company presents the portion of any equity it does not own in entities that it controls (and thus consolidates) as noncontrolling interests and classifies such interests as a component of consolidated equity, separate from the Company’s total shareholders’ equity, on the consolidated balance sheets.

Operating Partnership: Net income or loss is allocated to noncontrolling interests (limited partners) based on their respective ownership percentage of the Operating Partnership. The ownership percentage is calculated by dividing the number of OP Units held by the noncontrolling interests by the total OP Units held by the noncontrolling interests and the Trust. Issuance of additional common shares and OP Units changes the ownership interests of both the noncontrolling interests and the Trust. Such transactions and the related proceeds are treated as capital transactions.

During the year ended December 31, 2017 , the Operating Partnership partially funded one property acquisition by issuing an aggregate of 2,247,817 OP Units valued at approximately $ 44.3 million on the date of issuance. The acquisition had a total purchase price of approximately $ 78.6 million . In addition, the Operating Partnership funded the acquisition of the remaining non-controlling interest on a property by issuing an aggregate of 38,641 OP Units valued at approximately $ 0.7 million .

During the year ended December 31, 2016 , the Operating Partnership partially funded one property acquisition by issuing an aggregate of 174,085 OP Units valued at approximately $ 2.9 million on the date of issuance. The acquisition had a

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total purchase price of approximately $ 8.5 million . In addition, the Operating Partnership funded the acquisition of the remaining non-controlling interest on a property by issuing an aggregate of 217,549 OP Units valued at approximately $ 4.0 million .

Noncontrolling interests in the Company include OP Units held by the Predecessor’s prior investors and other investors. As of December 31, 2017 and 2016 , the Trust held a 97.1 % and 97.5 % interest in the Operating Partnership, respectively. As the sole general partner and the majority interest holder, the Trust consolidates the financial position and results of operations of the Operating Partnership.

Holders of OP Units may not transfer their units without the Trust’s prior written consent, as general partner of the Operating Partnership. Beginning on the first anniversary of the issuance of OP Units, OP Unit holders may tender their units for redemption by the Operating Partnership in exchange for cash equal to the market price of the Trust’s common shares at the time of redemption or for unregistered common shares on a one -for-one basis. Such selection to pay cash or issue common shares to satisfy an OP Unit holder’s redemption request is solely within the control of the Trust. Accordingly, the Trust presents the OP Units of the Operating Partnership held by investors other than the Trust as noncontrolling interests within equity in the consolidated balance sheet.

Partially Owned Properties: The Trust and OP reflect noncontrolling interests in partially owned properties on the balance sheet for the portion of consolidated properties that are not wholly owned by the Company. The earnings or losses from those properties attributable to the noncontrolling interests are reflected as noncontrolling interests in partially owned properties in the consolidated statements of income.

Redeemable Noncontrolling Interests-Series A Preferred Units and Partially Owned Properties

On February 5, 2015, the Trust entered into a Second Amended and Restated Agreement of Limited Partnership (the “Partnership Agreement”) which provides for the designation and issuance of the newly designated Series A Participating Redeemable Preferred Units of the Operating Partnership (“Series A Preferred Units”). Series A Preferred Units have priority over all other partnership interests of the Operating Partnership with respect to distributions and liquidation. Holders of Series A Preferred Units are entitled to a 5 % cumulative return and upon redemption, the receipt of one common share and $ 200 . Series A Preferred Units are redeemable at the option of the holders; however, the holders of the Series A Preferred Units have agreed not to cause the Operating Partnership to redeem their Series A Preferred Units prior to one year from the issuance date. After such one year period, if the holders of Series A Preferred Units exercise their option to redeem Series A Preferred Units, the Trust may satisfy its redemption obligation, at the Trust’s option, in cash or registered common shares. Instruments that require settlement in registered common shares may not be classified in permanent equity as it is not always completely within an issuer’s control to deliver registered common shares. Due to the redemption rights associated with the Series A Preferred Units, the Trust classifies the Series A Preferred Units in the mezzanine section of its consolidated balance sheets.

The Series A Preferred Units were evaluated for embedded features that should be bifurcated and separately accounted for as a freestanding derivative. The Company determined that the Series A Preferred Units contained features that require bifurcation. The Company records the carrying amount of the redeemable noncontrolling interests, less the value of the embedded derivative, at the greater of the carrying value or redemption value in the consolidated balance sheets.

On February 5, 2015, the acquisition of the Minnetonka MOB was partially funded with the issuance of 44,685 Series A Preferred Units which were valued at $ 9.7 million . On December 17, 2015, the acquisition of the Nashville MOB was partially funded with the issuance of 91,236 Series A Preferred Units which were valued at $ 19.7 million .

On April 1, 2016, the Series A Preferred Units issued in conjunction with the Minnetonka MOB acquisition were redeemed for a total value of $ 9.8 million . The fair value of the embedded derivative associated with the previously outstanding Series A Preferred Units was $ 2.7 million which was derecognized in the course of the redemption.

On January 12, 2017, the Series A Preferred Units issued in conjunction with the Nashville MOB acquisition were redeemed for a total value of $ 20.0 million . The fair value of the embedded derivative associated with the previously outstanding Series A Preferred Units was $ 5.6 million which was derecognized in the course of the redemption.

In connection with the acquisition of the Minnetonka MOB, the Trust received a $ 5 million equity investment from a third party, effective March 1, 2015. This investment earns a 15 % cumulative preferred return. At any point subsequent to the third anniversary of the investment, the holder can require the Trust to redeem the instrument at a price for which the investor will realize a 15 % internal rate of return. Due to the redemption provision, which is outside of the control of the Trust, the Trust

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classifies the investment in the mezzanine section of its consolidated balance sheets. The Trust records the carrying amount of the redeemable noncontrolling interests at the greater of the carrying value or redemption value.

In connection with the acquisition on December 29, 2015 of a medical office building located on the campus of the Great Falls Clinic and Hospital in Great Falls, Montana (the “Great Falls Clinic”), physicians affiliated with the seller retained a non-controlling interest which may, at the holders’ option, be redeemed at any time. Due to the redemption provision, which is outside of the control of the Trust, the Trust classifies the investment in the mezzanine section of its consolidated balance sheet. The Trust records the carrying amount of the redeemable noncontrolling interests at the greater of the carrying value or redemption value. As of December 31, 2017 , physicians affiliated with the seller redeemed a portion of their non-controlling interest for $ 1.1 million .

Dividends and Distributions

Dividends and distributions for the years ended December 31, 2017 , 2016 , and 2015 are as follows:

Declaration Date		Record Date		Payment Date		Cash Dividend per Share/Unit
December 21, 2017		January 3, 2018		January 18, 2018		$	0.230
September 21, 2017		October 3, 2017		October 18, 2017		$	0.230
June 12, 2017		July 3, 2017		July 18, 2017		$	0.230
March 17, 2017		April 5, 2017		April 18, 2017		$	0.225
December 22, 2016		January 5, 2017		January 18, 2017		$	0.225
September 26, 2016		October 6, 2016		October 18, 2016		$	0.225
June 23, 2016		July 5, 2016		July 18, 2016		$	0.225
March 18, 2016		April 1, 2016		April 18, 2016		$	0.225
December 31, 2015		January 15, 2016		January 29, 2016		$	0.225
September 28, 2015		October 16, 2015		October 30, 2015		$	0.225
July 1, 2015		July 17, 2015		July 31, 2015		$	0.225
April 6, 2015		April 17, 2015		May 1, 2015		$	0.225

Our shareholders are entitled to reinvest all or a portion of any cash distribution on their shares of our common stock by participating in our Dividend Reinvestment and Share Purchase Plan (“DRIP”), subject to the terms of the plan.

Tax Status of Dividends and Distributions

Our distributions of current and accumulated earnings and profits for U.S. federal income tax purposes generally are taxable to shareholders as ordinary income. Distributions in excess of these earnings and profits generally are treated as a non-taxable reduction of the shareholders’ basis in the shares to the extent thereof (non-dividend distributions) and thereafter as taxable gain.

Any cash distributions received by an OP Unit holder in respect of its OP Units generally will not be taxable to such OP Unit holder for U.S. federal income tax purposes, to the extent that such distribution does not exceed the OP Unit holder’s basis in its OP Units. Any such distribution will instead reduce the OP Unit holder’s basis in its OP Units (and OP Unit holders will be subject to tax on the taxable income allocated to them by the Operating Partnership in respect of their OP Units when such income is earned by the Operating Partnership, with such income allocation increasing the OP Unit holders’ basis in their OP Units).

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The following table sets forth the federal income tax status of distributions per common share and OP Unit for the periods presented:

		Year Ended December 31,
		2017				2016				2015
Per common share and OP Unit:
Ordinary dividends		$	0.4529			$	0.5325			$	0.2693
Qualified dividends		—				—				—
Capital gain distributions		—				—				—
Non-dividend distributions		0.4571				0.3675				0.6307
Total		$	0.9100			$	0.9000			$	0.9000

Purchases of Investment Properties

A property acquired not subject to an existing lease is treated as an asset acquisition and recorded at its purchase price, inclusive of acquisition costs, allocated between the acquired assets and assumed liabilities, including identified intangible assets and liabilities, based upon their relative fair values at the date of acquisition. A property acquired with an existing lease is accounted for as a business combination pursuant to the acquisition method in accordance with ASC Topic 805, Business Combinations (“ASC 805”), and assets acquired and liabilities assumed, including identified intangible assets and liabilities, are recorded at fair value.

The determination of fair value involves the use of significant judgment and estimation. The Company makes estimates of the fair value of the tangible and intangible acquired assets and assumed liabilities using information obtained from multiple sources as a result of pre-acquisition due diligence and generally includes the assistance of a third party appraiser. The Company estimates the fair value of buildings acquired on an “as-if-vacant” basis and depreciates the building value over the estimated remaining life of the building. The Company determines the allocated value of other fixed assets, such as site improvements, based upon the replacement cost and depreciates such value over the assets’ estimated remaining useful lives as determined at the applicable acquisition date. The fair value of land is determined either by considering the sales prices of similar properties in recent transactions or based on internal analyses of recently acquired and existing comparable properties within the Company’s portfolio.

In recording identified intangible assets and liabilities in connection with a business combination, the value of above- or below-market leases is estimated based on the present value (using an interest rate which reflected the risks associated with the leases acquired) of the difference between contractual amounts to be received pursuant to the leases and management’s estimate of market lease rates measured over a period equal to the estimated remaining term of the lease. The capitalized above-market or below-market lease intangibles are amortized as a reduction or addition to rental income over the estimated remaining term of the respective leases plus the term of any renewal options that the lessee would be economically compelled to exercise.

In determining the value of in-place leases, management considers current market conditions and costs to execute similar leases in arriving at an estimate of the carrying costs during the expected lease-up period from vacant to existing occupancy. In estimating carrying costs, management includes real estate taxes, insurance, other operating expenses, estimates of lost rental revenue during the expected lease-up periods, and costs to execute similar leases, including leasing commissions, tenant improvements, legal, and other related costs based on current market demand. The values assigned to in-place leases are amortized to amortization expense over the estimated remaining term of the lease. If a lease terminates prior to its scheduled expiration, all unamortized costs related to that lease are written off, net of any required lease termination payments.

The Company calculates the fair value of any long-term debt assumed by discounting the remaining contractual cash flows on each instrument at the current market rate for those borrowings, which the Company approximates based on the rate it would expect to incur on a replacement instrument on the date of acquisition, and recognizes any fair value adjustments related to long-term debt as effective yield adjustments over the remaining term of the instrument.

Based on these estimates, the Company recognizes the acquired assets and assumed liabilities at their estimated fair values, which are generally determined using Level 3 inputs, such as market rental rates, capitalization rates, discount rates, or other available market data. Initial valuations are subject to change until the information is finalized, no later than 12 months from the acquisition date. The Company expenses transaction costs associated with acquisitions accounted for as business combinations in the period incurred.

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Impairment of Intangible and Long-Lived Assets

The Company periodically evaluates its long-lived assets, primarily consisting of investments in real estate, for impairment indicators or whenever events or changes in circumstances indicate that the recorded amount of an asset may not be fully recoverable. If indicators of impairment are present, the Company evaluates the carrying value of the related real estate properties in relation to the undiscounted expected future cash flows of the underlying operations. In performing this evaluation, management considers market conditions and current intentions with respect to holding or disposing of the real estate property. The Company adjusts the net book value of real estate properties to fair value if the sum of the expected future undiscounted cash flows, including sales proceeds, is less than book value. The Company records an impairment loss at the time it makes any such determination. If the Company determines that an asset is impaired, the impairment to be recorded is measured as the amount by which the book value of the asset exceeds its fair value. Fair value is typically determined using a discounted future cash flow analysis or other acceptable valuation techniques, which are based, in turn, upon Level 3 inputs, such as revenue and expense growth rates, capitalization rates, discount rates, or other available market data.

The Company recorded an impairment charge of $ 1.0 million on a vacant medical office building in Port Charlotte, Florida during the year ended December 31, 2017 . There were no impairment charges in the years ended December 31, 2016 , and 2015 .

Assets Held for Sale and Discontinued Operations

The Company may sell properties from time to time for various reasons, including favorable market conditions. The Company classifies certain long-lived assets as held for sale once the criteria, as defined by GAAP, has been met. Long-lived assets to be disposed of are reported at the lower of their carrying amount or fair value minus cost to sell, and are no longer depreciated. No properties were classified as held for sale as of December 31, 2017 , 2016 , or 2015 and dispositions during the years ended December 31, 2017 , 2016 , and 2015 did not qualify as discontinued operations.

Investments in Unconsolidated Entities

The Company reports investments in unconsolidated entities over whose operating and financial policies it has the ability to exercise significant influence under the equity method of accounting. Under this method of accounting, the Company’s share of the investee’s earnings or losses is included in its consolidated statements of income. The initial carrying value of investments in unconsolidated entities is based on the amount paid to purchase the equity interest.

During 2014, the Company completed the acquisition of a 40 % limited liability company membership interest in Jeff Orleans Medical Development Real Estate, L.L.C., the entity that owns and leases to the Company the land on which the Crescent City Surgical Centre is situated, for $ 1.3 million .

During 2016, the Company completed the acquisition of a 43 % limited liability company membership interest in Desert Cove MOB, LLC. During 2017, the Company completed the acquisition of the remaining 57 % interest in this facility for a purchase price of approximately $ 4.6 million and consolidated it effective December 2017. The Company has a total investment in the facility of $ 5.5 million .

Real Estate Loans Receivable

Real estate loans receivable consists of ten mezzanine loans and two term loans. Each mezzanine loan is collateralized by an ownership interest in the respective borrower, while the term loans are secured by equity interests in two medical office building developments. Interest income on the loans are recognized as earned based on the terms of the loans subject to evaluation of collectability risks and are included in the Company’s consolidated statements of income.

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and short-term investments with maturities of three months or less from the date of purchase. The Company is subject to concentrations of credit risk as a result of its temporary cash investments. The Company places its temporary cash investments with high credit quality financial institutions in order to mitigate that risk.

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Escrow Reserves

The Company is required to maintain various escrow reserves on certain notes payable to cover future property taxes and insurance and tenant improvements costs as defined in each loan agreement. The total reserves as of December 31, 2017 and 2016 are $2.0 million and $4.3 million , respectively, which are included in other assets in the consolidated balance sheets.

Deferred Costs

Deferred costs consist primarily of fees paid to obtain financing and costs associated with the origination of long-term leases on real estate properties. After the purchase of a property, lease commissions incurred to extend in-place leases or generate new leases are added to deferred lease costs. Deferred lease costs are included as a component of other assets and are amortized on a straight-line basis over the terms of their respective agreements. Deferred financing costs are shown as a direct reduction from the related debt liability. The Trust amortizes deferred financing costs as a component of interest expense over the terms of the related borrowings on a straight-line basis.

Derivative Instruments

When the Company has derivative instruments embedded in other contracts, it records them either as an asset or a liability measured at their fair value unless they qualify for a normal purchase or normal sales exception. When specific hedge accounting criteria are not met, changes in the Company’s derivative instruments’ fair value are recognized currently in earnings. If hedge accounting is applied to a derivative instrument, such changes are reported in accumulated other comprehensive income (“AOCI”) within the equity section of the consolidated balance sheets, exclusive of ineffectiveness amounts, which are recognized as adjustments to net income.

To manage interest rate risk for certain of its variable-rate debt, the Company uses interest rate swaps as part of its risk management strategy. These derivatives are designed to mitigate the risk of future interest rate increases by providing a fixed interest rate for a limited, pre-determined period of time. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. As of December 31, 2017 , the Company had five outstanding interest rate swap contracts that are designated as cash flow hedges of interest rate risk. For presentational purposes, they are shown as one derivative due to the identical nature of their economic terms. Further detail is provided in Note 7 (Derivatives) .

The effective portion of the change in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income (“AOCI”) on the consolidated balance sheets and is subsequently reclassified into earnings as interest expense for the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. For the twelve months ended months ended December 31, 2017 , the Company recorded a $ 0.2 million loss as a result of hedge ineffectiveness. The Company expects hedge ineffectiveness to be insignificant in the next 12 months.

Tenant Receivables, Net

Tenant accounts receivable are stated net of the applicable allowance. Rental payments under these contracts are primarily due monthly. The Company assesses the collectability of tenant receivables, including straight-line rent receivables, and defers recognition of revenue if collectability is not reasonably assured. The Company bases its assessment of the collectability of rent receivables on several factors, including, among other things, payment history, the financial strength of the tenant, and current economic conditions. If management’s evaluation of these factors indicates it is probable that the Company will be unable to recover the full value of the receivable, the Company provides a reserve against the portion of the receivable that it estimates may not be recovered. At December 31, 2017 and 2016 , the allowance for doubtful accounts was $ 1.6 million and $ 2.4 million , respectively.

Rental Revenue

Rental revenue is recognized on a straight-line basis over the terms of the related leases when collectability is reasonably assured. Recognizing rental revenue on a straight-line basis for leases may result in recognizing revenue for amounts more or less than amounts currently due from tenants. Accumulated amounts recognized in excess of amounts currently due from tenants, net of related allowances, are included in other assets and were approximately $47.6 million and $32.0 million as of December 31, 2017 and 2016 , respectively. If the Company determines that collectability of straight-line rents is not reasonably assured, the Company limits future recognition to amounts contractually owed and, where appropriate, establishes an allowance for estimated losses. Allowances recognized against straight line rent were approximately $ 4.9 million

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and $ 0.6 million as of December 31, 2017 and December 31, 2016 , respectively. Rental revenue is adjusted by amortization of lease inducements and above- or below-market rents on certain leases. Lease inducements and above- or below-market rents are amortized on a straight line basis over the remaining life of the lease.

Expense Recoveries

Expense recoveries relate to tenant reimbursement of real estate taxes, insurance, and other operating expenses that are recognized as expense recovery revenue in the period the applicable expenses are incurred. The reimbursements are recorded at gross, as the Company is generally the primary obligor with respect to real estate taxes and purchasing goods and services from third-party suppliers, has discretion in selecting the supplier, and bears the credit risk of tenant reimbursement.

The Company has certain tenants with absolute net leases. Under these lease agreements, the tenant is responsible for operating and building expenses. For absolute net leases, the Company does not recognize expense recoveries.

Income Taxes

The Trust elected to be taxed as a REIT for federal tax purposes commencing with the filing of its tax return for the short taxable year ending December 31, 2013. The Trust had no taxable income prior to electing REIT status. To qualify as a REIT, the Trust must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of its annual REIT taxable income to its shareholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, the Trust generally will not be subject to federal income tax to the extent it distributes qualifying dividends to its shareholders. If the Trust fails to qualify as a REIT in any taxable year, it will be subject to federal income tax (including any applicable alternative minimum tax) on its taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost unless the Internal Revenue Service grants the Trust relief under certain statutory provisions. Such an event could materially adversely affect the Trust’s net income and net cash available for distribution to shareholders. However, the Trust intends to continue to operate in such a manner as to continue qualifying for treatment as a REIT. Even if the Trust continues to qualify for taxation as a REIT, the Trust may be subject to state and local taxes on its income and property and federal income and excise taxes on its undistributed income.

As discussed in

Note 1 (Organization and Business) , the Trust conducts substantially all of its operations through the Operating Partnership. As a partnership, the Operating Partnership generally is not liable for federal income taxes. The income and loss from the operations of the Operating Partnership is included in the tax returns of its partners, including the Trust, who are responsible for reporting their allocable share of the partnership income and loss. Accordingly, no provision for income taxes has been made on the accompanying consolidated financial statements.

Management Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the amounts of revenue and expenses reported in the period. Significant estimates are made for the fair value assessments with respect to purchase price allocations, impairment assessments, and the valuation of financial instruments. Actual results could differ from these estimates.

Contingent Liabilities

The Company records liabilities for contingent consideration (included in accrued expenses and other liabilities on its consolidated balance sheets) at fair value as of the acquisition date and reassesses the fair value at the end of each reporting period, with any changes being recognized in earnings. Increases or decreases in the fair value of contingent consideration can result from changes in discount periods, discount rates, and probabilities that contingencies will be met.

Related Parties

In 2017 , the Company recognized rental revenues totaling $ 0.6 million and $ 4.0 million from Aurora Health Care and Baylor Cancer Center, respectively. Both are healthcare facilities affiliated with certain members of the Trust’s Board of Trustees.

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Reclassifications

Certain prior period amounts have been reclassified to conform to the current financial statement presentation, with no effect on the previously reported consolidated financial position or consolidated results of operations.

Segment Reporting

Under the provision of Codification Topic 280, Segment Reporting , the Company has determined that it has one reportable segment with activities related to leasing and managing healthcare properties.

New Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers , which creates a new Topic, Accounting Standards Codification Topic 606. The standard is principle-based and provides a five-step model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This standard is effective for interim or annual periods beginning after December 15, 2017 and allows for either full retrospective or modified retrospective adoption. The Company will adopt ASU 2014-09 on January 1, 2018 via the modified retrospective approach. The modified retrospective approach applies the standard in the year of initial application and presents the cumulative effect of prior periods with an adjustment to beginning retained earnings, with no restatement of comparative periods. As leasing arrangements (which are excluded from ASU 2014-09) represent the primary source of revenue for the Company, the impact of adoption will be limited to the Company’s recognition and presentation of non-lease revenues, which are currently reflected as a component of other income. Adoption of ASU 2014-09 will not have a material impact on the amount and timing of the recognition of income subject to this standard and we do not intend to further break out income line items with no cumulative effect adjustment to be recognized upon adoption.

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis . ASU 2015-02 requires entities to evaluate whether they should consolidate certain legal entities. Principally, the new consolidation standard modified the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIE”) or voting interest entities. The Company adopted ASU 2015-02 on January 1, 2016. Based on the Company’s review and subsequent analysis of the structure of the Company’s legal entities, the Company has concluded that the Operating Partnership is a VIE because the limited partners of the Operating Partnership do not have substantive kick-out or participating rights. The Trust is the general partner and controlling owner of approximately 97.1 % of the Operating Partnership and will continue to consolidate the Operating Partnership under this new guidance. With respect to the Company’s investment in unconsolidated joint ventures, the new consolidation standard did not have an impact on previous consolidation conclusions.

In February 2016, the FASB issued ASU 2016-02, Leases . The update amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. ASU 2016-02 will be effective for annual reporting periods beginning after December 15, 2018. Early adoption is permitted. As a result of adopting ASU 2016-02, the Company will recognize all of its operating leases for which it is the lessee, including ground leases, on its consolidated balance sheets. The Company is evaluating the impact of the adoption of ASU 2016-02 on January 1, 2019 to its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting . This update simplifies several aspects of accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statements of cash flows. ASU 2016-09 is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2016. The Company adopted ASU 2016-09 on January 1, 2017, with no material effect on its consolidated financial statements with no adjustments made to prior periods.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses, which changes the impairment model for most financial instruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses as required currently by the other-than-temporary impairment model. ASU 2016-13 will apply to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables, loans, held-to-maturity debt securities, net investments in leases, and off-balance-sheet credit exposures (e.g., loan commitments). ASU 2016-13 is effective for reporting periods beginning after December 15, 2019, with early adoption permitted, and will be applied as a cumulative adjustment to retained earnings as of the effective date. We are currently assessing the potential effect the adoption of ASU 2016-13 will have on our consolidated financial statements.

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In August 2016, the FASB issued ASU 2016-15, S tatement of Cash Flows: Classification of Certain Cash Receipts and Cash Payment. ASU 2016-15 clarifies the guidance on the classification of certain cash receipts and payments in the statement of cash flows to reduce diversity in practice with respect to: (i) debt prepayment or debt extinguishment costs; (ii) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing; (iii) contingent consideration payments made after a business combination; (iv) proceeds from the settlement of insurance claims; (v) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (vi) distributions received from equity method investees; (vii) beneficial interests in securitization transactions; and (viii) separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017 with early adoption permitted. The Company adopted ASU 2016-15 on January 1, 2018, with no material effect on its consolidated financial statements and no adjustments made to prior periods.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows: Restricted Cash , which will require companies to include restricted cash with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown in the statement of cash flows. ASU 2016-18 will require disclosure of a reconciliation between the balance sheet and the statement of cash flows when the balance sheet includes more than one line item for cash, cash equivalents, restricted cash, and restricted cash equivalents. An entity with material restricted cash and restricted cash equivalents balances will be required to disclose the nature of the restrictions. ASU 2016-18 is effective for reporting periods beginning after December 15, 2017, and is required to be applied retrospectively to all periods presented. The Company adopted ASU 2016-18 on January 1, 2018, with no material effect on its consolidated financial statements and no adjustments made to prior periods.

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During 2017 , the Company completed acquisitions of 40 operating healthcare properties, 2 condominium units, and 1 parking deck located in 15 states, for an aggregate purchase price of approximately $ 1.37 billion . In addition, the Company completed $ 39.1 million of loan investments, $ 1.1 million of redeemable noncontrolling interest buyouts, and $ 2.8 million of noncontrolling interest buyouts, resulting in total investment activity of approximately $ 1.41 billion .

Investment activity for the year ending December 31, 2017 is summarized below:

Property (1)				Location		Acquisition Date		Purchase Price (in thousands)
Orthopedic Associates	(2)			Flower Mound, TX		January 5, 2017		$	18,750
Medical Arts Center at Hartford	(2)			Plainville, CT		January 11, 2017		30,250
Noncontrolling Interest Buyout - New Albany	(3)			New Albany, OH		January 31, 2017		2,824
CareMount - Lake Katrine MOB	(2)	(4)		Lake Katrine, NY		February 14, 2017		41,791
CareMount - Rhinebeck MOB	(2)			Rhinebeck, NY		February 14, 2017		18,639
Syracuse Condos	(2)			Fayetteville & Liverpool, NY		February 27, 2017		2,659
Monterey Medical Center - MOB	(2)			Stuart, FL		March 7, 2017		18,979
Creighton University Medical Center	(5)			Omaha, NE		March 28, 2017		33,420
Strictly Pediatrics Specialty Center	(2)	(6)		Austin, TX		March 31, 2017		78,628
MedStar Stephen's Crossing	(2)			Brandywine, MD		June 16, 2017		20,900
2017 CHI Portfolio - Tranche 1 (8 MOBs)	(5)			AR, MN, ND, NE, TN, TX		June 29, 2017		124,181
St. Vincent Portfolio (2 MOBs)	(2)			Carmel & Fishers, IN		June 29, 2017		93,880
Baylor Charles A. Sammons Cancer Center	(2)			Dallas, TX		June 30, 2017		290,000
Orthopedic & Sports Institute of the Fox Valley	(7)			Appleton, WI		June 30, 2017		27,900
Peachtree Dunwoody Medical Center - Parking Deck	(7)			Atlanta, GA		June 30, 2017		25,000
Clearview Cancer Institute	(2)			Huntsville, AL		August 4, 2017		53,250
Northside Cherokee/Town Lake MOB	(2)			Atlanta, GA		August 15, 2017		37,127
HonorHealth Mesa MOB	(2)			Mesa, AZ		August 15, 2017		4,800
2017 CHI Portfolio - Tranche 2 (5 MOBs)	(5)			AR, MN, NE, TX		August 24, 2017 & August 31, 2017		33,694
Noncontrolling Interest Buyout - Great Falls Clinic	(8)			Great Falls, MT		September 21, 2017		1,061
Legends Park MOB & ASC	(2)			Midland, TX		September 27, 2017		30,000
Franklin MOB & ASC	(2)			Franklin, TN		October 12, 2017		9,950
Eagle Point MOB	(2)			Lake Elmo, MN		October 31, 2017		10,949
Edina East MOB	(2)			Edina, MN		October 31, 2017		7,800
Northside MOB - Center Pointe	(2)			Atlanta, GA		November 10, 2017		155,986
Gwinnett 500 Building	(2)			Lawrenceville, GA		November 17, 2017		25,297
Hudgens Professional Building	(2)			Duluth, GA		November 17, 2017		23,696
St. Vincent Building	(2)			Indianapolis, IN		November 17, 2017		60,124
Gwinnett Physicians Center	(2)	(9)		Lawrenceville, GA		December 1, 2017		51,721
Apple Valley Medical Center	(2)			Apple Valley, MN		December 18, 2017		21,500
Desert Cove MOB (57% Interest)	(2)	(10)		Scottsdale, AZ		December 18, 2017		4,560
Westgate MOB	(2)			Glendale, AZ		December 21, 2017		15,800

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Property (1)				Location		Acquisition Date		Purchase Price (in thousands)
Loan Investments	(11)			Various		Various		39,063
								$	1,414,179

(1)	“MOB” means medical office building. “ASC” means ambulatory surgery center.

(2)	The Company accounted for these acquisitions as business combinations pursuant to the acquisition method and expensed total acquisition costs of $ 16.6 million .

(3)	The Company acquired the previously outstanding interest in the New Albany MOB from the predecessor owner. As consideration, the Operating Partnership paid approximately $ 2.1 million in cash and issued 38,641 OP Units, representing approximately $ 2.8 million in aggregate.

(4)	The Company partially funded this acquisition through the assumption of an existing mortgage valued at approximately $ 26.4 million .

(5)

These acquisitions are part of the CHI Portfolio. The Company accounted for nine of these facilities, consisting of an aggregate purchase price of $ 143.0 million , as asset acquisitions and capitalized total acquisition costs of $ 0.4 million . The remaining six facilities, consisting of an aggregate purchase price of $ 48.3 million , were accounted for as business combinations pursuant to the acquisition method, with acquisition expense totaling $ 0.1 million .

(6)	The Company partially funded the purchase price of this acquisition by issuing a total of 2,247,817 OP Units valued at approximately $ 44.3 million in the aggregate on the date of issuance.

(7)	The Company accounted for these acquisitions as asset acquisitions and capitalized total acquisition costs of $ 0.5 million .

(8)	The Company acquired an additional 3.2 % interest in the Great Falls Clinic joint venture from the predecessor owner, increasing the Company’s total interest to 85.0 % .

(9)	As part of this acquisition, the Company assumed a $ 17.6 million mortgage on the facility.

(10)	The Company acquired an additional 57.0 % ownership interest in Desert Cove MOB, LLC increasing the Company’s total interest to 100 % .

(11)	The loan investments listed here include 8 separate transactions at a weighted average interest rate of 8.1 % .

For 2017 , the Company recorded revenues and net income of $ 49.6 million and $ 8.6 million , respectively, from its 2017 acquisitions.

During 2016 , the Company completed acquisitions of 95 properties (including 5 condominium units and the CHI Portfolio) and 1 land parcel, located in 23 states, for an aggregate purchase price of approximately $ 1.27 billion . In addition, the Company completed $ 0.9 million of joint venture investments, $ 10.2 million of loan investments, $ 2.5 million of redeemable noncontrolling interest buyouts, and $ 0.6 million of equity buyouts, resulting in total investment activity of approximately $ 1.29 billion .

This aggregate purchase price does not include near-term capital expenditure commitments of $ 12.9 million and committed tenant improvement allowances of $ 8.9 million related to the Company’s acquisition of the CHI Portfolio.

Investment activity for the year ending December 31, 2016 is summarized below:

Property (1)				Location		Acquisition Date		Purchase Price (in thousands)
Tinseltown - Loan Draws				Jacksonville, FL				$	2,192
Randall Road MOB - Suite 380	(3)			Elgin, IL		January 14, 2016		704
Great Falls Hospital	(2)			Great Falls, MT		January 25, 2016		29,043
Monterey Medical Center ASC	(2)			Stuart, FL		February 1, 2016		6,900
Physicians Medical Plaza MOB	(2)	(4)		Indianapolis, IN		February 1, 2016		8,500
Mezzanine Loan - Davis				Minnetonka, MN		February 4, 2016		500
Park Nicollet Clinic	(2)			Chanhassen, MN		February 8, 2016		18,600
HEB Cancer Center	(2)			Bedford, TX		February 12, 2016		13,980
Riverview Medical Center	(2)			Lancaster, OH		February 26, 2016		12,800
St. Luke's Cornwall MOB	(2)			Cornwall, NY		February 26, 2016		14,550
HonorHealth Glendale	(3)			Glendale, AZ		March 15, 2016		9,820
Columbia MOB	(2)			Hudson, NY		March 21, 2016		18,450

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Property (1)				Location		Acquisition Date		Purchase Price (in thousands)
St Vincent POB 1	(2)			Birmingham, AL		March 23, 2016		10,951
St Vincent POB 2	(2)			Birmingham, AL		March 23, 2016		7,945
St Vincent POB 3	(2)			Birmingham, AL		March 23, 2016		10,455
Emerson Medical Building	(2)			Creve Coeur, MO		March 24, 2016		14,250
Randall Road MOB - Suite 160	(3)			Elgin, IL		March 24, 2016		865
Patient Partners Surgery Center	(2)			Gallatin, TN		March 30, 2016		4,750
Eye Associates of NM - Santa Fe	(3)			Santa Fe, NM		March 31, 2016		8,739
Eye Associates of NM - Albuquerque	(3)			Albuquerque, NM		March 31, 2016		10,536
Gardendale Surgery Center	(2)			Gardendale, AL		April 11, 2016		7,450
HealthEast - Curve Crest	(2)			Stillwater, MN		April 14, 2016		4,144
HealthEast - Victor Gardens	(2)			Hugo, MN		April 14, 2016		6,025
NOMS - Clyde	(3)			Clyde, OH		May 10, 2016		6,342
Blandford MOB	(3)	(5)		Little Rock, AR		May 11, 2016		2,580
Cardwell MOB	(2)	(5)		Lufkin, TX		May 11, 2016		8,444
Dacono Neighborhood Health	(3)	(5)		Dacono, CO		May 11, 2016		5,152
Franciscan Health	(3)	(5)		Tacoma, WA		May 11, 2016		9,772
Grand Island Specialty Clinic	(3)	(5)		Grand Island, NE		May 11, 2016		2,891
Hot Springs MOB	(2)	(5)		Hot Springs Village, AR		May 11, 2016		3,626
Jewish Medical Center East	(3)	(5)		Louisville, KY		May 11, 2016		85,000
Jewish Medical Center South MOB - 1	(3)	(5)		Shepherdsville, KY		May 11, 2016		17,021
Jewish Medical Plaza I	(2)	(5)		Louisville, KY		May 11, 2016		9,650
Jewish Medical Plaza II	(2)	(5)		Louisville, KY		May 11, 2016		6,124
Jewish OCC	(3)	(5)		Louisville, KY		May 11, 2016		35,600
Lakeside Three Professional Center	(2)	(5)		Omaha, NE		May 11, 2016		1,581
Lexington Surgery Center	(2)	(5)		Lexington, KY		May 11, 2016		20,169
Medical Arts Pavilion	(2)	(5)		Lufkin, TX		May 11, 2016		6,304
Memorial Outpatient Center	(3)	(5)		Lufkin, TX		May 11, 2016		4,958
Midlands Two Professional Center	(2)	(5)		Papillion, NE		May 11, 2016		1,341
Parkview MOB	(2)	(5)		Little Rock, AR		May 11, 2016		5,060
Peak One ASC	(2)	(5)		Frisco, CO		May 11, 2016		6,587
Physicians Medical Center	(2)	(5)		Tacoma, WA		May 11, 2016		6,782
St. Alexius - Minot Medical Plaza	(3)	(5)		Minot, ND		May 11, 2016		26,570
St. Clare Medical Pavilion	(2)	(5)		Lakewood, WA		May 11, 2016		10,617
St. Joseph Medical Pavilion	(2)	(5)		Tacoma, WA		May 11, 2016		13,320
St. Joseph Office Park	(2)	(5)		Lexington, KY		May 11, 2016		17,228
St. Mary - Caritas Medical II	(2)	(5)		Louisville, KY		May 11, 2016		5,603
St. Mary - Caritas Medical III	(2)	(5)		Louisville, KY		May 11, 2016		842
Thornton Neighborhood Health	(3)	(5)		Thornton, CO		May 11, 2016		3,875
Medical Village at Kissimmee	(2)			Kissimmee, FL		May 26, 2016		4,923
Medical Village at Leesburg	(2)			Leesburg, FL		May 26, 2016		4,576
St. Francis MOB	(2)	(5)		Federal Way, WA		June 2, 2016		14,287
Children's Hospital MOB	(2)			Milwaukee, WI		June 3, 2016		5,850
Jewish Medical Center South MOB - 2	(2)			Shepherdsville, KY		June 8, 2016		4,343
Good Samaritan North Annex Building	(3)	(5)		Kearney, NE		June 28, 2016		2,874
NE Heart Institute Medical Building	(3)	(5)		Lincoln, NE		June 28, 2016		19,600

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Property (1)				Location		Acquisition Date		Purchase Price (in thousands)
St. Vincent West MOB	(3)	(5)		Little Rock, AR		June 29, 2016		14,120
Meridan MOB	(3)	(5)		Englewood, CO		June 29, 2016		17,329
St. Mary - Caritas Medical I	(2)	(5)		Louisville, KY		June 29, 2016		8,864
St. Alexius - Medical Arts Pavilion	(3)	(5)		Bismarck, ND		June 29, 2016		12,983
St. Alexius - Mandan Clinic	(3)	(5)		Mandan, ND		June 29, 2016		8,390
St. Alexius - Orthopaedic Center	(2)	(5)		Bismarck, ND		June 29, 2016		14,727
St. Alexius - Rehab Center	(3)	(5)		Bismarck, ND		June 29, 2016		6,215
St. Alexius - Tech & Ed	(3)	(5)		Bismarck, ND		June 29, 2016		16,680
Good Samaritan MOB	(2)	(5)		Kearney, NE		June 29, 2016		24,198
Lakeside Two Professional Building	(2)	(5)		Omaha, NE		June 29, 2016		13,691
Lakeside Wellness Center	(3)	(5)		Omaha, NE		June 29, 2016		10,138
McAuley Center	(3)	(5)		Omaha, NE		June 29, 2016		18,382
Memorial Health Center	(3)	(5)		Grand Island, NE		June 29, 2016		34,042
Missionary Ridge MOB	(2)	(5)		Chattanooga, TN		June 29, 2016		7,635
Pilot Medical Center	(3)			Birmingham, AL		June 29, 2016		17,351
St. Joseph Medical Clinic	(2)	(5)		Tacoma, WA		June 30, 2016		16,444
Woodlands Medical Arts Center	(2)	(5)		The Woodlands, TX		June 30, 2016		21,227
FESC MOB	(3)	(5)		Tacoma, WA		June 30, 2016		16,748
Mezzanine Loan - Catalyst				Pensacola, FL		June 30, 2016		1,340
Prairie Care MOB	(2)			Maplewood, MN		July 6, 2016		4,886
RE Loan - Chihuahua Development LLC				El Paso, TX		July 7, 2016		1,300
Springwoods MOB	(2)	(5)		Spring, TX		July 21, 2016		19,925
Equity Buyout - Foundation	(6)			TX / OK		July 26, 2016		611
Mezzanine Loan - Hazelwood				Minnetonka, MN		July 29, 2016		3,375
Jackson, Tennessee Land	(3)			Jackson, TN		August 2, 2016		1,000
Unity Portfolio (4 MOBs)	(2)			West Lafayette, IN		August 8, 2016		28,751
Medical Village at Maitland	(2)			Orlando, FL		August 23, 2016		23,211
Tri-State Orthopaedics MOB	(2)			Evansville, IN		August 30, 2016		22,000
Maury Regional Healthcare MOB	(2)	(8)		Spring Hill, TN		September 30, 2016		18,500
Spring Ridge Medical Center	(2)			Wyomissing, PA		September 30, 2016		6,100
Doctors Community Hospital POB	(2)			Lanham, MD		September 30, 2016		26,750
Gig Harbor Medical Pavilion	(3)	(5)		Gig Harbor, WA		September 30, 2016		4,766
Midlands One Professional Center	(2)	(5)		Papillion, NE		September 30, 2016		14,856
Noncontrolling Interest Buyout - Great Falls Clinic	(7)			Great Falls, MT		September 30, 2016		1,015
N.W. Michigan Surgery Center - Units #1 & #2	(3)	(9)		Traverse City, MI		October 28, 2016		29,448
United Surgical Partners Joint Venture	(10)			Scottsdale, AZ		October 31, 2016		903
N.W. Michigan Surgery Center - Unit #4	(3)	(11)		Traverse City, MI		November 4, 2016		2,715
Syracuse Portfolio (2 MOBs)	(2)			Syracuse, NY		November 23, 2016		54,239
Cincinnati Eye Institute	(3)			Cincinnati, OH		November 23, 2016		38,100
Curie Building Loan				El Paso, TX		December 2, 2016		1,500
HonorHealth - Scottsdale MOB	(3)			Scottsdale, AZ		December 2, 2016		6,900
Fox Valley Hematology & Oncology	(3)			Appleton, WI		December 8, 2016		28,200
Gastrointestinal Associates MOB	(2)			Powell, TN		December 9, 2016		6,287
Northern Vision Eye Center	(3)			Traverse City, MI		December 15, 2016		2,777

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Property (1)				Location		Acquisition Date		Purchase Price (in thousands)
Noncontrolling Interest Buyout - Great Falls Clinic	(12)			Great Falls, MT		December 15, 2016		1,497
Flower Mound Portfolio (3 MOBs)	(3)			Flower Mound, TX		December 16, 2016		27,800
HonorHealth IRF	(3)			Scottsdale, AZ		December 22, 2016		25,628
								$	1,285,185

(1)	“MOB” means medical office building. “ASC” means ambulatory surgical center. “POB” means professional office building. “IRF” means inpatient rehabilitation facility.

(2)	The Company accounted for these acquisitions as business combinations pursuant to the acquisition method and expensed total acquisition costs of $ 14.8 million .

(3)	The Company accounted for these acquisitions as asset acquisitions and capitalized total acquisition costs of $ 3.0 million .

(4)	The Company partially funded the purchase price of this acquisition by issuing a total of 174,085 OP Units valued at approximately $ 2.9 million in the aggregate on the date of issuance.

(5)	These acquisitions are part of the CHI portfolio.

(6)	The Company acquired the previously outstanding 1 % noncontrolling interest retained by the predecessor owner on three properties, El Paso, Texas and Oklahoma City, Oklahoma.

(7)	The Company acquired an additional 3 % interest in the Great Falls Clinic joint venture from the predecessor owner, increasing the Company’s total interest to 77.3 % .

(8)	The Company acquired 99.7 % of the ownership interest in this property, the remainder of which was retained by the seller.

(9)	The Company partially funded the purchase price of the acquisition of two condominium units within the Northwest Michigan Surgery Center through unregistered issuance of 947,936 common shares of beneficial interest.

(10)	The Company’s investment in the United Surgical Partners J.V. represents a 43 % ownership interest.

(11)	The Company partially funded the purchase price of the acquisition of one additional condominium unit within the Northwest Michigan Surgery Center through the unregistered issuance of 88,602 common shares of beneficial interest.

(12)	The company acquired an additional 4.6 % interest in the Great Falls Clinic joint venture from the predecessor owner, increasing the Company’s total interest to 81.8 % .

For 2016 , the Company recorded revenues and net income of $ 66.7 million and $ 14.9 million , respectively, from its 2016 acquisitions.

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The following table summarizes the preliminary purchase price allocations of the assets acquired and the liabilities assumed, which the Company determined using Level 2 and Level 3 inputs (in thousands):

	December 31, 2017				December 31, 2016
Land	$	38,358			$	57,847
Building and improvements	1,168,741				1,112,746
In-place lease intangible	128,370				58,666
Above-market in-place lease intangible	18,967				9,359
Below-market in-place lease intangible	( 4,270		)		( 4,518		)
Above-market in-place ground lease	( 4,620		)		( 644		)
Below-market in-place ground lease	17,683				28,937
Contingent consideration	( 765		)		( 156		)
Receivable	434				104
Debt assumed	( 43,989		)		—
Issuance of OP Units	( 44,978		)		( 2,869		)
Investment in unconsolidated entity	( 2,871		)		903
Lease inducement	—				8,945
Prepaid expenses	—				2,659
Issuance of Common Shares	—				( 20,980		)
Noncontrolling interest	—				( 50		)
Net assets acquired	$	1,271,060			$	1,250,949

These preliminary allocations are subject to revision within the measurement period, not to exceed one year from the date of the acquisitions.

Dispositions

On April 7, 2017, the Company closed an agreement to sell a portfolio of four medical office buildings located in Georgia (the “Georgia Portfolio”), for approximately $ 18.2 million , which reflects a gain of approximately $ 5.2 million .

On August 15, 2017, the Company completed the disposition of land with a carrying value of $ 7.7 million in a sale-leaseback at the Peachtree Dunwoody Medical Center. The Company entered into a 90 year term ground lease at closing with all rent prepaid in consideration of the full present value of rent owed. There was no gain or loss recorded as a result of this transaction.

On December 18, 2017 , the Company sold one 20,939 square foot medical office building located in Nebraska for approximately $ 2.5 million , recording a gain of approximately $ 0.7 million .

The following table summarizes revenues and net income related to the disposition properties for the periods presented (in thousands):

	Year Ended December 31,
	2017				2016				2015
Revenue	$	823			$	1,967			$	1,666
Income before gain on sale of investment properties	108				433				421
Gain on sale of investment properties	5,870				—				—
Net income	$	5,978			$	433			$	421

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Unaudited Pro Forma Financial Information

Physicians Realty Trust

The following table illustrates the pro forma consolidated revenue, net income, and earnings per share as if the Company had acquired the 2017 acquisitions detailed above as of January 1, 2016 (in thousands, except share and per share amounts):

	Year Ended December 31,
	2017				2016
Revenue	$	405,320			$	352,432
Net income	42,149				39,233
Net income available to common shareholders	39,759				35,614
Earnings per share - basic	$	0.24			$	0.22
Earnings per share - diluted	$	0.24			$	0.22
Weighted average number of shares outstanding - basic	163,123,109				163,123,109
Weighted average number of shares outstanding - diluted	168,231,299				168,231,299

Physicians Realty L.P.

The following table illustrates the pro forma consolidated revenue, net income, and earnings per share as if the Company had acquired the 2017 acquisitions detailed above as of January 1, 2016 (in thousands, except unit and per unit amounts):

The following is a summary of the carrying amount of intangible assets and liabilities as of December 31, 2017 and 2016 (in thousands):

	December 31, 2017												December 31, 2016
	Cost				Accumulated Amortization				Net				Cost				Accumulated Amortization				Net
Assets
In-place leases	$	343,429			$	( 85,424	)		$	258,005			$	222,394			$	( 55,605	)		$	166,789
Above-market leases	54,148				( 11,968		)		42,180				35,478				( 6,909		)		28,569
Leasehold interest	712				( 183		)		529				712				( 124		)		588
Below-market ground lease	60,424				( 1,344		)		59,080				42,878				( 539		)		42,339
Total	$	458,713			$	( 98,919	)		$	359,794			$	301,462			$	( 63,177	)		$	238,285
Liabilities
Below-market lease	$	14,344			$	( 4,479	)		$	9,865			$	10,297			$	( 2,345	)		$	7,952
Above-market ground lease	5,965				( 128		)		5,837				1,345				( 44		)		1,301
Total	$	20,309			$	( 4,607	)		$	15,702			$	11,642			$	( 2,389	)		$	9,253

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The following is a summary of the acquired lease intangible amortization for the years ended December 31, 2017 , 2016 , and 2015 (in thousands):

	December 31,
	2017				2016				2015
Amortization expense related to in-place leases	$	37,073			$	28,902			$	15,300
Decrease of rental income related to above-market leases	5,357				4,403				2,596
Decrease of rental income related to leasehold interests	59				59				59
Increase of rental income related to below-market leases	2,309				1,835				643
Decrease of operating expense related to above-market ground leases	84				24				16
Increase in operating expense related to below-market ground leases	810				471				68

For the twelve months ended December 31, 2017 , the Company wrote-off in-place lease intangible assets of approximately $ 3.5 million with accumulated amortization of approximately $ 2.1 million , resulting in the recognition of $ 1.4 million in additional amortization expense. The Company also wrote-off above-market lease intangible assets of approximately $ 0.3 million with accumulated amortization of approximately $ 0.1 million , resulting in the recognition of $ 0.2 million in additional amortization expense. In addition, the Company, wrote-off below-market lease intangible of approximately $ 0.1 million with accumulated amortization of approximately $ 36.0 thousand , resulting in the recognition of $ 0.1 million reduction in amortization expense, for a net recognition of approximately $ 1.5 million reduction in rental income from intangible amortization.

Future aggregate net amortization of the acquired lease intangibles as of December 31, 2017 , is as follows (in thousands):

	Net Decrease in Revenue				Net Increase in Expenses
2018	$	( 3,355	)		$	41,455
2019	( 3,376		)		36,429
2020	( 3,392		)		33,009
2021	( 3,333		)		30,582
2022	( 2,872		)		26,225
Thereafter	( 16,516		)		143,548
Total	$	( 32,844	)		$	311,248

Other assets consisted of the following as of December 31, 2017 and 2016 (in thousands):

	December 31,
	2017				2016
Straight line rent receivable	47,599				32,018
Prepaid expenses	18,103				8,928
Interest rate swap	14,693				13,881
Lease inducements, net	14,232				13,255
Leasing commissions, net	4,128				1,858
Earnest deposits	2,780				1,500
Escrows	1,996				4,334
Notes receivable	—				16,618
Other	2,771				2,795
Total	$	106,302			$	95,187

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The following is a summary of debt as of December 31, 2017 and 2016 (in thousands):

	December 31,
	2017				2016
Fixed interest mortgage notes	$	158,171		(1)	$	90,185		(2)
Variable interest mortgage notes	28,509			(3)	33,009			(4)
Total mortgage debt	186,680				123,194
$850 million unsecured revolving credit facility bearing variable interest of LIBOR plus 1.20%, due September 2020	80,000				401,000
$400 million senior unsecured notes bearing fixed interest of 4.30%, due March 2027	400,000				—
$350 million senior unsecured notes bearing fixed interest of 3.95%, due January 2028	350,000				—
$250 million unsecured term borrowing bearing fixed interest of 2.87%, due June 2023	250,000			(5)	250,000
$150 million senior unsecured notes bearing fixed interest of 4.03% to 4.74%, due January 2023 to 2031	150,000				150,000
$75 million senior unsecured notes bearing fixed interest of 4.09% to 4.24%, due August 2025 to 2027	75,000				75,000
Total principal	1,491,680				999,194
Unamortized deferred financing cost	( 7,808		)		( 8,477		)
Unamortized discount	( 6,663		)		—
Unamortized fair value adjustment	259				438
Total debt	$	1,477,468			$	991,155

(1)	Fixed interest mortgage notes, bearing interest from 3.00 % to 5.50 % , with a weighted average interest rate of 4.45 % , and due in 2018, 2019, 2020, 2021, 2022, and 2024 collateralized by nine properties with a net book value of $ 267.7 million .

(2)	Fixed interest mortgage notes, bearing interest from 4.71 % to 6.58 % , with a weighted average interest rate of 5.44 % , and due in 2017, 2018, 2019, 2020, 2021, 2022, and 2032 collateralized by 11 properties with a net book value of $ 156.7 million .

(3)	Variable interest mortgage notes, bearing variable interest of LIBOR plus 2.25 % to 3.25 % , with a weighted average interest rate of 4.50 % and due in 2018, collateralized by three properties with a net book value of $ 39.2 million .

(4)	Variable interest mortgage notes bearing variable interest of LIBOR plus 2.25 % to 3.25 % , with a weighted average interest rate of 3.68 % and due in 2017 and 2018, collateralized by four properties with a net book value of $ 45.6 million .

(5)	The Trust’s borrowings under the term loan feature of the Credit Agreement bear interest at a rate which is determined by the Trust’s credit rating, currently equal to LIBOR + 1.80% . The Trust has entered into a pay-fixed receive-variable interest rate swap, fixing the LIBOR component of this rate at 1.07 % .

On June 10, 2016, the Operating Partnership, as borrower, and the Trust entered into an amended and restated Credit Agreement with KeyBank National Association, as administrative agent, KeyBanc Capital Markets Inc., BMO Capital Markets, and Citizens Bank N.A., as joint lead arrangers and co-book runners, BMO Capital Markets and Citizens Bank N.A., as co-syndication agents, and the lenders party thereto (the “Credit Agreement”) which increased the maximum principal amount available under an unsecured revolving credit facility from $ 750 million to $ 850 million . The Credit Agreement contains a 7 -year term loan feature allowing the Operating Partnership to borrow in a single drawing up to $ 250 million , increasing the borrowing capacity to an aggregate $ 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 .

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On July 7, 2016, the Operating Partnership borrowed $ 250.0 million under the 7 -year term loan feature of the Credit Agreement. Borrowings under the term loan feature of the Credit Agreement bear interest on the outstanding principal amount at a rate which is determined by the Trust’s credit rating, currently equal to LIBOR + 1.80% . The Trust simultaneously entered into a pay-fixed receive-variable rate swap for the full borrowing amount, fixing the LIBOR component of the borrowing rate to 1.07 % , for an all-in fixed rate of 2.87 % . Both the borrowing and pay-fixed receive-variable swap have a maturity date of June 10, 2023 .

The Credit Agreement has a maturity date of September 18, 2020 and includes a one year extension option. Borrowings under the Credit Agreement bear interest on the outstanding principal amount at an adjusted LIBOR rate, which is based on the Trust’s investment grade rating under the Credit Agreement. As of December 31, 2017 , the Trust had an investment grade rating from Moody’s of Baa3 and from S&P of BBB- . As such, borrowings under the revolving credit facility of the Credit Agreement accrued interest on the outstanding principal at a rate of LIBOR plus 1.20 % . The Credit Agreement includes a facility fee equal to 0.25 % per annum, which is also determined by the Trust’s investment grade rating.

The Credit Agreement contains financial covenants that, among other things, require compliance with leverage and coverage ratios and maintenance of minimum tangible net worth, as well as covenants that may limit the Trust’s and the Operating Partnership’s ability to incur additional debt or make distributions. The Company may, at any time, voluntarily prepay any revolving or swingline loan under the Credit Agreement in whole or in part without premium or penalty. Prepayments of term borrowings require payment of premiums of up to 2.0 % of the amount of prepayment, dependent on the date of such prepayment. As of December 31, 2017 , the Company was in compliance with all financial covenants related to the Credit Agreement.

The Credit Agreement includes customary representations and warranties by the Trust and the Operating Partnership, and imposes customary covenants on the Operating Partnership and the Trust. The Credit Agreement also contains customary events of default, and if an event of default occurs and continues, the Operating Partnership is subject to certain actions by the administrative agent, including without limitation, the acceleration of repayment of all amounts outstanding under the Credit Agreement.

The Credit Agreement provides for revolving credit and term loans to the Trust and the Operating Partnership. Base Rate Loans, Adjusted LIBOR Rate Loans, and Letters of Credit (each, as defined in the Credit Agreement) will be subject to interest rates, based upon the Trust’s investment grade rating as follows:

Credit Rating		Margin for Revolving Loans: Adjusted LIBOR Rate Loans and Letter of Credit Fee		Margin for Revolving Loans: Base Rate Loans			Margin for Term Loans: Adjusted LIBOR Rate Loans and Letter of Credit Fee		Margin for Term Loans: Base Rate Loans
At Least A- or A3		LIBOR + 0.85%		—	%		LIBOR + 1.40%		0.40	%
At Least BBB+ or Baa1		LIBOR + 0.90%		—	%		LIBOR + 1.45%		0.45	%
At Least BBB or Baa2		LIBOR + 1.00%		0.10	%		LIBOR + 1.55%		0.55	%
At Least BBB- or Baa3		LIBOR + 1.20%		0.20	%		LIBOR + 1.80%		0.80	%
Below BBB- or Baa3		LIBOR + 1.55%		0.60	%		LIBOR + 2.25%		1.25	%

As of December 31, 2017 , the Company had $ 80.0 million of borrowings outstanding under its unsecured revolving credit facility, and $ 250.0 million of borrowings outstanding under the term loan feature of the Credit Agreement. The Company also issued a letter of credit for $ 17.0 million with no outstanding balance as of December 31, 2017 . As defined by the Credit Agreement, $ 753.0 million is available to borrow without adding additional properties to the unencumbered borrowing base of assets.

Notes Payable

On January 7, 2016, the Operating Partnership issued and sold $ 150.0 million aggregate principal amount of senior notes, comprised of (i) $ 15.0 million aggregate principal amount of 4.03 % Senior Notes, Series A, due January 7, 2023, (ii) $ 45.0 million aggregate principal amount of 4.43 % Senior Notes, Series B, due January 7, 2026, (iii) $ 45.0 million aggregate principal amount of 4.57 % Senior Notes, Series C, due January 7, 2028, and (iv) $ 45.0 million aggregate principal amount of 4.74 % Senior Notes, Series D, due January 7, 2031. On August 11, 2016, the note agreement for these notes was amended to make certain changes to its terms, including certain changes to affirmative covenants, negative covenants, and definitions contained therein. Interest on each respective series of the January 2016 Senior Notes is payable semi-annually.

On August 11, 2016, the Operating Partnership issued and sold $ 75.0 million aggregate principal amount of senior notes, comprised of (i) $ 25.0 million aggregate principal amount of 4.09 % Senior Notes, Series A, due August 11, 2025, (ii)

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$ 25.0 million aggregate principal amount of 4.18 % Senior Notes, Series B, due August 11, 2026, and (iii) $ 25.0 million aggregate principal amount of 4.24 % Senior Notes, Series C, due August 11, 2027. Interest on each respective series of the August 2016 Senior Notes is payable semi-annually.

On January 26, 2017 , the Company entered into a $ 300.0 million notional amount forward starting swap to reduce the exposure to fluctuations in interest rates related to the forecasted issuance of the 4.30 % senior notes due in 2027. Upon the issuance of the senior notes on March 7, 2017, the forward starting swap was terminated and the Company recorded a $ 0.8 million loss which will be recognized over the life of the notes utilizing the effective interest method.

On March 7, 2017 , the Operating Partnership issued and sold $ 400.0 million aggregate principal amount of 4.30 % Senior Notes which will mature on March 15, 2027 . The Senior Notes began accruing interest on March 7, 2017 and began paying interest semi-annually beginning September 15, 2017 . The Senior Notes were sold at an issue price of 99.68 % of their face value, before the underwriters’ discount. Our net proceeds from the offering, after deducting underwriting discounts and expenses, were approximately $ 396.1 million .

On December 1, 2017 , the Operating Partnership issued and sold $ 350.0 million aggregate principal amount of 3.95 % Senior Notes which will mature on January 15, 2028 . The Senior Notes began accruing interest on December 1, 2017 and will begin paying interest semi-annually beginning July 15, 2018 . The Senior Notes were sold at an issue price of 99.78 % of their face value, before the underwriters’ discount. Our net proceeds from the offering, after deducting underwriting discounts and expenses, were approximately $ 347.0 million .

Certain properties have mortgage debt that contains financial covenants. As of December 31, 2017 , the Trust was in compliance with all mortgage debt financial covenants.

Scheduled principal payments due on debt as of December 31, 2017 , are as follows (in thousands):

2018	$	54,775
2019	44,631
2020	110,122
2021	8,718
2022	24,708
Thereafter	1,248,726
Total Payments	$	1,491,680

As of December 31, 2017 and 2016 , the Company had total consolidated indebtedness of approximately $ 1.5 billion and $ 1.0 billion , respectively. The weighted average interest rate on consolidated indebtedness was 3.93 % as of December 31, 2017 (based on the 30-day LIBOR rate as of December 31, 2017 of 1.49 % ). The weighted average interest rate on consolidated indebtedness was 3.09 % as of December 31, 2016 (based on the 30-day LIBOR rate as of December 31, 2016 of 0.72 % ).

In the normal course of business, a variety of financial instruments are used to manage or hedge interest rate risk. The Company has implemented ASC 815, Derivatives and Hedging (ASC 815), which establishes accounting and reporting standards requiring that all derivatives, including certain derivative instruments embedded in other contracts, be recorded as either an asset or a liability measured at their fair value unless they qualify for a normal purchase or normal sales exception.

When specific hedge accounting criteria are not met, ASC 815 requires that changes in a derivative’s fair value be recognized currently in earnings. Changes in the fair market values of the Company’s derivative instruments are recorded in the consolidated statements of income if such derivatives do not qualify for, or the Company does not elect to apply for, hedge accounting. If hedge accounting is applied to a derivative instrument, such changes are reported in accumulated other comprehensive income within the equity section of the consolidated balance sheets, exclusive of ineffectiveness amounts, which are recorded as adjustments to net income.

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To manage interest rate risk for certain of its variable-rate debt, the Company uses interest rate swaps as part of its risk management strategy. These derivatives are designed to mitigate the risk of future interest rate increases by providing a fixed interest rate for a limited, pre-determined period of time. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. As of December 31, 2017 , the Company had five outstanding interest rate swap contracts that are designated as cash flow hedges of interest rate risk. For presentational purposes, they are shown as one derivative due to the identical nature of their economic terms.

The effective portion of the change in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in accumulated other comprehensive income on the consolidated balance sheets and is subsequently reclassified into earnings as interest expense for the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the derivatives is recognized directly in earnings. For the twelve months ended December 31, 2017 , the Company recorded a $ 0.2 million loss as a result of hedge ineffectiveness. The Company expects hedge ineffectiveness to be insignificant in the next 12 months.

The following table summarizes the location and aggregate fair value of the interest rate swaps on the Company’s consolidated balance sheets (in thousands):

Total notional amount		$	250,000
Effective fixed interest rate	(1)	2.87		%
Effective date		7/7/2016
Maturity date		6/10/2023
Asset balance at December 31, 2017 (included in Other assets)		$	14,693

(1)	1.07 % effective swap rate plus 1.80 % spread per Credit Agreement.

Accrued expenses and other liabilities consisted of the following as of December 31, 2017 and 2016 (in thousands):

The Company follows ASC 718, Compensation – Stock Compensation (“ASC 718”), in accounting for its share-based payments. This guidance requires measurement of the cost of employee services received in exchange for stock compensation based on the grant-date fair value of the employee stock awards. This cost is recognized as compensation expense ratably over the employee’s requisite service period. Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized when incurred. Share-based payments classified as liability awards are marked to fair value at each reporting period. Any Common Shares issued pursuant to the Company’s incentive equity compensation and employee stock purchase plans will result in the Operating Partnership issuing OP Units to the Trust on a one-for-one basis, with the Operating Partnership receiving the net cash proceeds of such issuances.

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Certain of the Company’s employee stock awards vest only upon the achievement of performance targets. ASC 718 requires recognition of compensation cost only when achievement of performance conditions is considered probable. Consequently, the Company’s determination of the amount of stock compensation expense requires a significant level of judgment in estimating the probability of achievement of these performance targets. Additionally, the Company must make estimates regarding employee forfeitures in determining compensation expense. Subsequent changes in actual experience are monitored and estimates are updated as information is available.

In connection with the IPO, the Trust adopted the 2013 Equity Incentive Plan (“2013 Plan”), which made available 600,000 common shares to be administered by the Compensation and Nominating Governance Committee of the Board of Trustees. On August 7, 2014, at the Annual Meeting of Shareholders of Physicians Realty Trust, the Trust’s shareholders approved an amendment to the 2013 Plan to increase the number of common shares authorized for issuance under the 2013 Plan by 1,850,000 common shares, for a total of 2,450,000 common shares authorized for issuance.

Restricted Common Shares:

Restricted common shares granted under the 2013 Plan are eligible for dividends as well as the right to vote. During 2015, a total of 162,522 restricted common shares with a total value of $ 2.6 million were granted to Trust employees and the Board of Trustees with vesting periods ranging from one to three years. During 2016, a total of 155,306 restricted common shares with a total value of $ 2.8 million were granted to Company employees with vesting periods ranging from one to three years. During 2017, the Trust granted a total of 143,593 restricted common shares with a total value of $ 2.8 million to the Company’s officers and certain of its employees, which have a one -year vesting period for senior management award-recipients and a three -year vesting period for employee award-recipients.

The following is summary of the status of the Trust’s non-vested restricted common shares during 2017 , 2016 , and 2015 :

	Common Shares			Weighted Average Grant Date Fair Value
Non-vested at December 31, 2014	319,654			$	12.60
Granted	162,522			15.95
Vested	( 170,337	)		12.93
Non-vested at December 31, 2015	311,839			14.17
Granted	155,306			17.96
Vested	( 170,034	)		14.16
Forfeited	( 326	)		15.36
Non-vested at December 31, 2016	296,785			16.16
Granted	143,593			19.74
Vested	( 266,552	)		16.00
Forfeited	( 550	)		18.78
Non-vested at December 31, 2017	173,276			$	19.36

For all service awards, the Company records compensation expense for the entire award on a straight-line basis over the requisite service period. For the years ended December 31, 2017 , 2016 , and 2015 the Company recognized non-cash share compensation of $ 3.1 million , $ 3.6 million , and $ 2.9 million , respectively. Unrecognized compensation expense at December 31, 2017 , 2016 , and 2015 was $ 1.0 million , $ 1.2 million , and $ 2.1 million , respectively.

Restricted Share Units:

In March 2017 , March 2016 , and March 2015 under the Trust’s 2013 Plan, the Trust granted (i) restricted share units at a target level of 174,320 , 104,553 , and 75,250 respectively, to the Trust’s senior management, which are subject to certain performance and market conditions and a three -year service period and (ii) 32,831 , 36,784 , and 40,957 restricted share units, respectively, to the members of the Board of Trustees, which are subject to a two -year vesting period. Each restricted share unit contains one dividend equivalent. The recipient will accrue dividend equivalents on awarded share units equal to the cash dividend that would have been paid on the awarded share unit had the awarded share unit been an issued and outstanding common share on the record date for the dividend.

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Approximately 70 % of the restricted share units issued to officers in 2017 , and 80 % issued to officers in 2016 and 2015 , vest based on certain market conditions. The market conditions were valued with the assistance of independent valuation specialists. The Company utilized a Monte Carlo simulation to calculate the weighted average grant date fair values in 2017 , 2016 , and 2015 of $ 33.43 , $ 28.50 , and $ 20.06 per unit, respectively, using the following assumptions:

	2017				2016				2015
Volatility	21.5		%		20.3		%		20.7		%
Dividend assumption	reinvested				reinvested				reinvested
Expected term in years	2.8 years				2.8 years				2.8 years
Risk-free rate	1.68		%		1.07		%		1.14		%
Stock price (per share)	$	19.80			$	17.67			$	15.87

The remaining 30 % of the restricted share units issued to officers in 2017 , and 20 % issued to officers in 2016 and 2015 , vest based upon certain performance conditions. With respect to the performance conditions of the March 2017 grant, the grant date fair value of $ 19.80 per unit was based on the share price at the date of grant. The combined weighted average grant date fair value of the March 2017 restricted share units issued to officers is $ 29.34 per unit. With respect to the performance conditions of the March 2016 grant, the grant date fair value of $ 17.67 per unit was based on the share price at the date of grant. The combined weighted average grant date fair value of the March 2016 restricted share units issued to officers is $ 26.33 per unit. With respect to the performance conditions of the March 2015 grant, the grant date fair value of $ 15.87 per unit was based on the share price at the date of grant. The combined weighted average grant date fair value of the March 2015 restricted share units issued to officers is $ 19.22 per unit.

The following is a summary of the activity in the Trust’s restricted share units during 2017 , 2016 , and 2015 :

	Executive Awards							Trustee Awards
	Restricted Share Units			Weighted Average Grant Date Fair Value				Restricted Share Units			Weighted Average Grant Date Fair Value
Non-vested at December 31, 2014	55,680			$	16.94			—			$	—
Granted	75,250			19.22				40,957			15.87
Non-vested at December 31, 2015	130,930			18.48				40,957			15.87
Granted	104,553			26.33				36,784			17.67
Vested	—			—				( 20,481	)		15.87
Non-vested at December 31, 2016	235,483			21.84				57,260			17.03
Granted	174,320			29.34				32,831			19.80
Vested	( 55,680	)		16.94				( 38,871	)		16.72
Non-vested at December 31, 2017	354,123			$	26.30			51,220			$	19.04

ASC Topic 820, Fair Value Measurement (“ASC 820”), requires certain assets and liabilities be reported and/or disclosed at fair value in the financial statements and provides a framework for establishing that fair value. The framework for determining fair value is based on a hierarchy that prioritizes the valuation techniques and inputs used to measure fair value.

In general, fair values determined by Level 1 inputs use quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs use other inputs that are observable, either directly or indirectly. These Level 2 inputs include quoted prices for similar assets and liabilities in active markets, and other inputs such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 inputs are unobservable inputs, including inputs that are available in situations where there is little, if any, market activity for the related asset. These Level 3 fair value measurements are based primarily on management’s own estimates using pricing models, discounted cash flow methodologies, or similar techniques taking into account the

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characteristics of the asset or liability. In instances where inputs used to measure fair value fall into different levels of the fair value hierarchy, fair value measurements in their entirety are categorized based on the lowest level input that is significant to the valuation. The assessment of the significance of particular inputs to these fair value measurements requires judgment and considers factors specific to each asset or liability.

The Company’s derivative instruments as of December 31, 2017 , consist of five interest rate swaps. For presentational purposes, the Company’s interest rate swaps are shown as a single derivative due to the identical nature of their economic terms, as detailed in the Derivative Instruments section of Note 2 (Summary of Significant Accounting Policies) and

Note 7 (Derivatives) .

The Company’s interest rate swaps are not traded on an exchange. The Company’s derivative assets and liabilities are recorded at fair value based on a variety of observable inputs including contractual terms, interest rate curves, yield curves, measure of volatility, and correlations of such inputs. The Company measures its derivatives at fair value on a recurring basis. The fair values are based on Level 2 inputs described above. The Company considers its own credit risk, as well as the credit risk of its counterparties, when evaluating the fair value of its derivatives.

The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. This generally includes assets subject to impairment. There was one asset measured at fair value as of December 31, 2017 .

The carrying amounts of cash and cash equivalents, tenant receivables, payables, and accrued interest are reasonable estimates of fair value because of the short term maturities of these instruments. Fair values for real estate loans receivable and mortgage debt are estimated based on rates currently prevailing for similar instruments of similar maturities and are based primarily on Level 2 inputs.

The following table presents the fair value of the Company’s financial instruments (in thousands):

The Company is lessor of medical office buildings and other healthcare facilities. Leases have expirations from 2018 through 2045 . As of December 31, 2017 , the future minimum rental payments on non-cancelable leases, exclusive of expense recoveries, were as follows (in thousands):

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The Company leases the rights to parking structures at 2 of its properties, the air space above 1 property, and the land upon which 78 of its properties are located from third party land owners pursuant to separate leases. In addition, the Company leases 4 individual office spaces. The leases require fixed rental payments and may also include escalation clauses and renewal options. These leases have terms of up to 98 years remaining, excluding extension options. As of December 31, 2017 , the future minimum lease obligations under non-cancelable parking, air, ground, and office leases were as follows (in thousands):

2018	$	2,678
2019	2,604
2020	2,549
2021	2,563
2022	2,585
Thereafter	119,224
Total	$	132,203

The Company uses annualized base rent (“ABR”) as its credit concentration metric. A nnualized base rent is calculated by multiplying contractual base rent for the month ended December 31, 2017 by 12, excluding the impact of concessions and straight-line rent. The following table summarizes certain information about the Company’s top five tenant credit concentrations as of December 31, 2017 (in thousands):

Tenant		Total ABR				Percent of ABR
CHI - Nebraska		$	15,906			5.6	%
CHI - KentuckyOne Health		13,120				4.6	%
Baylor Scott and White Health		7,402				2.6	%
US Oncology		6,706				2.4	%
CHI - St. Alexius (ND)		6,239				2.2	%
Remaining portfolio		236,297				82.6	%
Total		$	285,670			100.0	%

Annualized base rent collected from the Company’s top five tenant relationships comprises 17.4 % of its total annualized base rent for the period ending December 31, 2017 . Total annualized base rent from CHI affiliated tenants totals 18.7 % , including the affiliates disclosed above. Although CHI is not a party to nor a guarantor of the related lease agreements, it controls each of the subsidiaries and the affiliates that are parties to the master lease agreements, which were entered into in connection with the closing of the transactions. Consolidated financial statements of CHI, the parent of the subsidiaries and affiliates of the entities party to master lease agreements, are publicly available on the Catholic Health Initiatives website (http://www.catholichealthinitiatives.org/). Information included on the CHI website is not incorporated by reference within this Annual Report on Form 10-K.

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The following table summarizes certain information about the Company’s top five geographic concentrations as of December 31, 2017 (in thousands):

The following table shows the amounts used in computing the Trust’s basic and diluted earnings per share (in thousands, except share and per share data):

	Year Ended December 31,
	2017				2016				2015
Numerator for earnings per share - basic:
Net income	$	39,773			$	31,522			$	12,741
Net income attributable to noncontrolling interests:
Operating Partnership	( 1,136		)		( 825		)		( 576		)
Partially owned properties	( 491		)		( 716		)		( 377		)
Preferred distributions	( 731		)		( 1,857		)		( 1,189		)
Numerator for earnings per share - basic:	$	37,415			$	28,124			$	10,599
Numerator for earnings per share - diluted:
Numerator for earnings per share - basic:	37,415				28,124				10,599
Operating Partnership net income	1,136				825				576
Numerator for earnings per share - diluted	$	38,551			$	28,949			$	11,175
Denominator for earnings per share - basic and diluted:
Weighted average number of shares outstanding - basic	163,123,109				126,143,114				72,750,724
Effect of dilutive securities:
Noncontrolling interest - Operating Partnership units	4,839,967				3,692,095				3,708,494
Restricted shares	89,497				205,036				190,619
Restricted share units	178,726				426,648				142,236
Denominator for earnings per share - diluted	168,231,299				130,466,893				76,792,073
Earnings per share - basic	$	0.23			$	0.22			$	0.15
Earnings per share - diluted	$	0.23			$	0.22			$	0.15

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The following table shows the amounts used in computing the Operating Partnership’s basic and diluted earnings per unit (in thousands, except unit and per unit data):

Since December 31, 2017 , the Trust, through subsidiaries of its Operating Partnership, has completed acquisitions of 2 healthcare properties for an aggregate purchase price of $ 98.7 million containing an aggregate of 220,140 net leasable square feet and disposed of one property for $ 1.4 million which resulted in no gain or loss. In addition, the Operating Partnership funded a $ 2.0 million loan through a separate transaction, resulting in aggregate investment activity of $ 100.7 million . Property acquisitions are summarized below:

Property			Location		Acquisition Date		Investment (in thousands)
Hazelwood Medical Commons	(1)		Maplewood, MN		January 9, 2018		$	70,702
Lee's Hill Medical Plaza			Fredericksburg, VA		January 23, 2018		28,000
Loan Investment			Pensacola, FL		February 16, 2018		2,000
							$	100,702

(1)	The Company partially funded the purchase price of this acquisition by issuing a total of 104,172 Preferred OP Units valued at approximately $ 22.7 million in the aggregate on the date of issuance.

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Physicians Realty Trust

The following unaudited quarterly data has been prepared on the basis of a December 31 year-end. Amounts are in thousands, except for common share and per share amounts.

As a result of the acquisition activity and equity offerings throughout 2017 and 2016 , the quarterly periods are not comparable quarter over quarter.

		Quarter Ended
2017		March 31				June 30				September 30				December 31
Total revenues		$	76,666			$	76,599			$	92,999			$	97,320
Operating income		6,688				4,994				12,511				9,523
Net income		6,716				10,331				12,539				10,187
Net income attributable to common shareholders		6,191				9,670				12,018				9,536
Earnings per share – basic:
Net income available to common shareholders		$	0.04			$	0.06			$	0.07			$	0.05
Weighted average number of shares outstanding		138,986,629				155,366,080				177,847,424				179,683,948
Earnings per share – diluted:
Net income available to common shareholders		$	0.04			$	0.06			$	0.07			$	0.05
Weighted average number of shares outstanding		142,605,930				161,012,360				183,298,145				185,273,236

		Quarter Ended
2016		March 31				June 30				September 30				December 31
Total revenues		$	44,134			$	53,216			$	70,010			$	73,674
Operating income		5,392				7,158				10,267				8,590
Net income		5,424				7,184				10,294				8,620
Net income available to common shareholders		4,386				6,486				9,427				7,825
Earnings per share – basic:
Net income available to common shareholders		$	0.04			$	0.05			$	0.07			$	0.06
Weighted average number of shares outstanding		102,704,008				131,481,329				134,608,396				135,581,976
Earnings per share – diluted:
Net income available to common shareholders		$	0.04			$	0.05			$	0.07			$	0.06
Weighted average number of shares outstanding		107,148,380				135,944,722				138,880,787				139,602,349

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Physicians Realty L.P.

The following unaudited quarterly data has been prepared on the basis of a December 31 year-end. Amounts are in thousands, except for common unit and per unit amounts.

As a result of the acquisition activity and equity offerings throughout 2017 and 2016 , the quarterly periods are not comparable quarter over quarter.

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								Initial Cost to Company												Gross Amount at Which Carried as of Close of Period
Description		Location		Encumbrances				Land				Buildings and Improvements				Cost Capitalized Subsequent to Acquisitions				Land				Buildings and Improvements				Total				Accumulated Depreciation				Year Built		Date Acquired		Life on Which Building Depreciation in Income Statement is Computed
Arrowhead Commons		Phoenix, AZ		$	—			$	740			$	2,551			$	730			$	740			$	3,281			$	4,021			$	( 563	)		2004		5/31/2008		46
Aurora Medical Office Building		Green Bay, WI		—				500				1,566				—				500				1,566				2,066				( 243		)		2010		4/15/2010		50
El Paso Medical Office Building		El Paso, TX		—				860				2,866				406				860				3,272				4,132				( 1,809		)		1987		8/24/2006		21
Farmington Professional Pavilion		Detroit, MI		—				580				1,793				132				580				1,925				2,505				( 1,478		)		1972		1/5/2006		15
Firehouse Square		Milwaukee, WI		—				1,120				2,768				—				1,120				2,768				3,888				( 961		)		2002		8/15/2007		30
Hackley Medical Center		Grand Rapids, MI		—				1,840				6,402				64				1,840				6,466				8,306				( 2,381		)		1968		12/22/2006		30
MeadowView Professional Center		Kingsport, TN		—				2,270				11,344				—				2,270				11,344				13,614				( 4,054		)		2005		5/10/2007		30
Mid Coast Hospital Medical Office Building		Portland, ME		7,009				—				11,247				81				—				11,328				11,328				( 3,614		)		2008		5/1/2008		42
New Albany Professional Building		Columbus, OH		—				237				2,767				621				237				3,388				3,625				( 799		)		2000		1/4/2008		42
Remington Medical Commons		Chicago, IL		—				895				6,499				319				895				6,818				7,713				( 2,228		)		2008		6/1/2008		30
Summit Healthplex		Atlanta, GA		—				2,633				15,576				5,524				2,633				21,100				23,733				( 5,518		)		2002		7/3/2008		44
Valley West Hospital Medical Office Building		Chicago, IL		4,531				—				6,275				620				—				6,895				6,895				( 2,357		)		2007		11/1/2007		30
East El Paso Medical Office Building		El Paso, TX		—				710				4,500				—				710				4,500				5,210				( 557		)		2004		8/30/2013		35
East El Paso Surgical Hospital		El Paso, TX		—				3,070				23,627				—				3,070				23,627				26,697				( 2,844		)		2004		8/30/2013		36
LifeCare Plano LTACH		Plano, TX		—				3,370				11,689				455				3,370				12,144				15,514				( 2,119		)		1987		9/18/2013		25
Crescent City Surgical Centre		New Orleans, LA		18,750				—				34,208				—				—				34,208				34,208				( 3,029		)		2010		9/30/2013		48
Foundation Surgical Affiliates Medical Office Building		Oklahoma City, OK		7,101				1,300				12,724				—				1,300				12,724				14,024				( 1,258		)		2004		9/30/2013		43
Pensacola Medical Office Building		Pensacola, FL		—				990				5,005				16				990				5,021				6,011				( 437		)		2012		10/4/2013		49
Central Ohio Neurosurgical Surgeons Medical Office		Columbus, OH		—				981				7,620				—				981				7,620				8,601				( 707		)		2007		11/27/2013		44
Great Falls Ambulatory Surgery Center		Great Falls, MT		—				203				3,224				67				203				3,291				3,494				( 404		)		1999		12/11/2013		33
Eagles Landing Family Practice Medical Office Building		McDonough, GA		—				800				3,345				1,548				800				4,893				5,693				( 532		)		2007		2/19/2014		36
Eagles Landing Family Practice Medical Office Building		Jackson, GA		—				800				3,345				1,255				800				4,600				5,400				( 475		)		2006		2/19/2014		38
Eagles Landing Family Practice Medical Office Building		Conyers, GA		—				1,000				3,345				—				1,000				3,345				4,345				( 360		)		2008		2/19/2014		37
Eagles Landing Family Practice Medical Office Building		McDonough, GA		—				400				3,345				1,741				400				5,086				5,486				( 531		)		2010		2/19/2014		37
Foundation San Antonio Surgical Hospital		San Antonio, TX		7,691				2,230				23,346				43				2,230				23,389				25,619				( 2,919		)		2007		2/19/2014		35
21st Century Radiation Oncology Centers — Sarasota		Sarasota, FL		—				633				6,557				—				633				6,557				7,190				( 969		)		1975		2/26/2014		27
21st Century Radiation Oncology Centers - Venice		Venice, FL		—				814				2,952				—				814				2,952				3,766				( 364		)		1987		2/26/2014		35
21st Century Radiation Oncology Centers - Englewood		Englewood, FL		—				350				1,878				—				350				1,878				2,228				( 209		)		1992		2/26/2014		38
21st Century Radiation Oncology Centers — Port Charlotte		Port Charlotte, FL		—				269				2,326				( 852		)		156				1,474				1,630				( 262		)		1996		2/26/2014		36
Foundation San Antonio Healthplex		San Antonio, TX		—				911				4,189				—				911				4,189				5,100				( 480		)		2007		2/28/2014		35
Peachtree Dunwoody Medical Center		Atlanta, GA		17,000				—				27,435				24,894				—				52,329				52,329				( 5,076		)		1987		2/28/2014		25
LifeCare LTACH — Fort Worth		Fort Worth, TX		—				2,730				24,639				—				2,730				24,639				27,369				( 3,162		)		1985		3/28/2014		30
LifeCare LTACH — Pittsburgh		Pittsburgh, PA		—				1,142				11,737				—				1,142				11,737				12,879				( 1,575		)		1987		3/28/2014		30
PinnacleHealth Medical Office Building		Harrisburg, PA		—				795				4,601				—				795				4,601				5,396				( 731		)		1990		4/22/2014		25
Pinnacle Health Medical Office Building		Carlisle, PA		—				424				2,232				—				424				2,232				2,656				( 255		)		2002		4/22/2014		35
South Bend Orthopaedics Medical Office Building		Mishawaka, IN		—				2,418				11,355				—				2,418				11,355				13,773				( 1,195		)		2007		4/30/2014		40
Grenada Medical Complex		Grenada, MS		—				185				5,820				116				185				5,936				6,121				( 862		)		1975		4/30/2014		30
Mississippi Ortho Medical Office Building		Jackson, MS		—				1,272				14,177				626				1,272				14,803				16,075				( 1,650		)		1987		5/23/2014		35
Carmel Medical Pavilion		Carmel, IN		—				—				3,917				99				—				4,016				4,016				( 593		)		1993		5/28/2014		25
Renaissance Ambulatory Surgery Center		Oshkosh, WI		—				228				7,658				17				228				7,675				7,903				( 696		)		2007		6/30/2014		40
Presbyterian Medical Plaza		Monroe, NC		—				1,195				5,681				27				1,195				5,708				6,903				( 476		)		2008		6/30/2014		45
Summit Urology		Bloomington, IN		—				125				4,792				—				125				4,792				4,917				( 573		)		1996		6/30/2014		30
500 Landmark		Bloomington, IN		—				627				3,549				—				627				3,549				4,176				( 370		)		2000		7/1/2014		35
550 Landmark		Bloomington, IN		—				2,717				15,224				—				2,717				15,224				17,941				( 1,586		)		2000		7/1/2014		35
574 Landmark		Bloomington, IN		—				418				1,493				—				418				1,493				1,911				( 159		)		2004		7/1/2014		35
Carlisle II MOB		Carlisle, PA		—				412				3,962				—				412				3,962				4,374				( 317		)		1996		7/25/2014		45
Surgical Institute of Monroe		Monroe, MI		—				410				5,743				—				410				5,743				6,153				( 659		)		2010		7/28/2014		35
The Oaks @ Lady Lake		Lady Lake, FL		—				1,065				8,642				—				1,065				8,642				9,707				( 710		)		2011		7/31/2014		42
Mansfield ASC		Mansfield, TX		—				1,491				6,471				—				1,491				6,471				7,962				( 517		)		2010		9/2/2014		46
Eye Center of Southern Indiana		Bloomington, IN		—				910				11,477				—				910				11,477				12,387				( 1,134		)		1995		9/5/2014		35
Wayne State		Troy, MI		—				3,560				43,052				—				3,560				43,052				46,612				( 3,921		)		1986		9/10/2014		38
Zangmeister		Columbus, OH		—				1,610				31,120				4				1,610				31,124				32,734				( 2,644		)		2007		9/30/2014		40
Ortho One - Columbus		Columbus, OH		—				—				16,234				7				—				16,241				16,241				( 1,309		)		2009		9/30/2014		45
Ortho One - Westerville		Columbus, OH		—				362				3,944				—				362				3,944				4,306				( 328		)		2007		9/30/2014		43
Berger Medical Center		Columbus, OH		—				—				5,950				—				—				5,950				5,950				( 561		)		2007		9/30/2014		38
El Paso - Lee Trevino		El Paso, TX		—				2,294				11,316				412				2,294				11,728				14,022				( 1,351		)		1983		9/30/2014		30
El Paso - Murchison		El Paso, TX		—				2,283				24,543				1,303				2,283				25,846				28,129				( 2,895		)		1970		9/30/2014		30
El Paso - Kenworthy		El Paso, TX		—				728				2,178				25				728				2,203				2,931				( 230		)		1983		9/30/2014		35
Pinnacle - 32 Northeast		Harrisburg, PA		—				408				3,232				91				408				3,323				3,731				( 352		)		1994		10/29/2014		33
Pinnacle - 4518 Union Deposit		Harrisburg, PA		—				617				7,305				15				617				7,320				7,937				( 803		)		2000		10/29/2014		31
Pinnacle - 4520 Union Deposit		Harrisburg, PA		—				169				2,055				—				169				2,055				2,224				( 244		)		1997		10/29/2014		28

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The cost capitalized subsequent to acquisitions is net of dispositions.

The changes in total real estate for the years ended December 31, 2017 , 2016 , and 2015 are as follows (in thousands):

	Year Ended December 31,
	2017				2016				2015
Balance as of the beginning of the year	$	2,606,536			$	1,424,894			$	729,034
Acquisitions	1,207,098				1,170,593				695,693
Additions	12,243				11,049				4,440
Impairment	( 965		)		—				—
Dispositions	( 15,303		)		—				( 4,273		)
Balance as of the end of the year	$	3,809,609			$	2,606,536			$	1,424,894

The changes in accumulated depreciation for the years ended December 31, 2017 , 2016 , and 2015 are as follows (in thousands):

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†	Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement for purposes of Section 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.

(1)	Incorporated by reference to Amendment No. 2 to the Registrant’s Registration Statement on Form S-11 filed with the SEC on June 14, 2013 (File No. 333-188862).

(2)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on February 24, 2017 (File No. 001-36007).

(3)	Incorporated by reference to the Registrant’s Registration Statement on Form S-3 filed with the SEC on June 17, 2015 (File No. 333-205034).

(4)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on March 7, 2017 (File No. 001-36007).

(5)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on December 1, 2017 (File No. 001-36007).

(6)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on February 6, 2015.

(7)	Incorporated by reference to Amendment No. 3 to the Registrant’s Registration Statement on Form S-11 filed with the SEC on June 20, 2013 (File No. 333-188862).

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(8)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on February 28, 2018 (File No. 001-36007).

(9)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on May 7, 2014 (File No. 001-36007).

(10)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on August 7, 2014 (File No. 001-36007).

(11)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 12, 2015 (File No. 001-36007).

(12)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on June 13, 2016 (File No. 001-36007).

(13)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 10, 2015 (File No. 001-36007).

(14)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on January 12, 2016 (File No. 001-36007).

(15)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on August 11, 2016 (File No. 001-36007).

(16)	Incorporated by reference to the Registrant’s Annual Report on Form 10-K filed with the SEC on March 12, 2015 (File No. 001-36007).

(17)	Incorporated by reference to the Registrant’s Quarterly Report on Form 10-Q filed with the SEC on May 6, 2016 (File No. 001-36007).

(18)	Incorporated by reference to the Registrant’s Current Report on Form 8-K filed with the SEC on July 7, 2017 (File No. 001-36007).