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Physicians Realty Trust (NYSE:DOC)
Q2 2020 Earnings Call
Aug 6, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Physicians Realty Trust Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Bradley Page, Senior Vice President, General Counsel. Thank you, you may begin.

Bradley Page -- Senior Vice President, General Counsel

Thank you. Good morning and welcome to the Physicians Realty Trust second quarter 2020 earnings conference call and webcast. Joining me today are John Thomas, Chief Executive Officer; Jeff Theiler, Chief Financial Officer; Deeni Taylor, Chief Investment Officer; Mark Theine, Executive Vice President of Asset Management; John Lucey, Chief Accounting and Administrative Officer; Laurie Becker, Senior Vice President, Controller; and Dan Klein, Deputy Chief Investment Officer.

During this call, John Thomas will provide a summary of the company's activities and performance for the second quarter of 2020 and year-to-date as well as our strategic focus for the remainder of 2020. Jeff Theiler will review our financial results for the second quarter of 2020 and our thoughts for the remainder of the year. Mark Theine will provide a summary of our operations for the second quarter of 2020. Following that, we will open the call for questions.

Today's call will contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. They are based on the current beliefs of management and information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties, and factors that are beyond our control and ability to predict. Although we believe our assumptions are reasonable, our forward-looking statements are not guarantees of future performance.

Our actual results could differ materially from our current expectations and those anticipated or implied in such forward-looking statements. For a more detailed description of potential risks and other important factors that could cause actual results to differ from those contained in any forward-looking statements, please refer to our filings with the Securities and Exchange Commission. With that, I would now like to turn the call over to the company's CEO, John Thomas. John?

John T. Thomas -- President and Chief Executive Officer

Thank you, Brad. Thank you for joining us this morning. Like all of us, Physicians Realty Trust entered the second quarter of 2020 facing a global pandemic that threatened the physical and financial well-being of our families and clients. The pandemic has tested and unfortunately continues to test all of us in many ways. We are proud to report that the DOC team and our health system clients have endured the pandemic remarkably well to continue to serve our shareholders, teammates, and the communities we all serve with resilience and perseverance.

As a healthcare real estate organization, the most important financial metric of performance during this time is rent collection and as of August 3rd, we have collected 98% of cash billings for rent and operating expenses billed for the second quarter. We have also collected 97% of July cash billings and August is off to a better start than any of the last four months. We continue to work with our tenants who represent the unpaid remaining accounts receivable and expect over time to collect a higher percentage of those remaining amounts. We are pleased to report the largest single tenant, representing 50% of the outstanding second quarter accounts receivable balance, is back in their offices providing healthcare services and has started paying rent again as of August the 1st. They are committed to getting caught up and we will work with them to get these accounts receivable resolved as soon as possible while they serve their patients.

We ended the second quarter with perhaps the strongest balance sheet we have ever had. Jeff Theiler, our Executive Vice President and Chief Financial Officer, will review our operating profit and loss and balance sheet statistics in a few minutes. We are proud to report the highest quarterly earnings generally that we have ever had. We also ended the second quarter consistent with our perpetual high occupancy and leasing. Mark Theine, our Executive Vice President for Asset Management, will share more details about our operating performance in a few minutes. Mark and his team have done an outstanding job keeping our buildings open and occupied, and more importantly, clean and inviting to providers and our patients seeking healthcare services. All of our buildings are open and actively serving patients even as many of our markets have seen spikes in new COVID-19 cases.

While we didn't make any significant investments in the second quarter, we continue to build our pipeline and seek new opportunities for investment later this year and in 2021. The investment market is active and consistent with the reliability and strength of medical office real estate. Pricing for new investments appears to be consistent with pre-pandemic pricing. In May, we commissioned a consumer survey in five of our largest markets seeking information from consumers about their preferences when seeking healthcare services. Over 76% of those surveyed indicated they would rather see a physician in a medical office facility a mile or more away from a hospital. In fact, 22% of those surveyed said they would delay seeking emergency care in a hospital setting out of concern that they would be exposed to COVID-19. These findings are consistent with our long-held interpretation of the data that consumers want convenient access to outpatient care services away from hospitals and only want to go to the hospital campus when absolutely necessary.

Our rent collections during quarter two are also consistent with these findings as the providers located in our off-campus medical office facilities anchored by a health system were the most current and consistent with their rent payments during quarter two. We are very proud of our entire portfolio, but last month, DOC was honored by the International Building Owners and Management Association or BOMA which awarded the Baylor Scott & White Charles A. Sammons Cancer Center the outstanding building of the year for medical office facilities worldwide. This is a tribute to property management and operational excellence and we honor Michelle Morris, Susan Leinweaver, Mark Dukes, and Mark Theine for their leadership in earning this award, but more importantly, what they do every day for our providers and their patients who need access to our buildings to deliver world-class healthcare.

Physicians Realty Trust also completed another milestone in quarter two with the release of our first annual Environmental Social and Governance or ESG report published on our website. Our Board of Trustees and team are committed to an ongoing process to be transparent regarding our ESG successes as well as areas where we can continue to improve. We want to be held accountable by our shareholders and the partners we serve. As part of our culture, we have also formalized and enhanced our ambitious goals and efforts toward achieving success in diversity, equity, and inclusion. We are determined to be leaders not only in corporate America, but in our society as well. Sadly, recent events have once again shown us where we are deficient as a society and calls all of us to evaluate what we have or haven't done and how we can do better in our organization, in our country, and everywhere. DOC has always been committed to diversity and inclusiveness, but we haven't done enough.

Our culture is committed to leadership and success in achieving our goals and more. Success will make DOC and the communities we serve better for our shareholders, team, our providers and their patients. Jeff will now discuss our financial results. Mark will then share our operating results and then we'll be happy to take your questions. Jeff?

Jeff N. Theiler -- Executive Vice President and Chief Financial Officer

Thank you, John. In the second quarter of 2020, the company generated normalized funds from operations of $56.6 million, which was an increase of 42% over the comparable quarter last year. Normalized FFO per share was $0.27 versus $0.21 in the same quarter of last year and our normalized funds available for distribution were $0.25 per share or $53.1 million, an increase of 26% over the comparable quarter of last year. We are pleased to have continued our strong operational performance despite the ongoing COVID pandemic and have strived to be as transparent as possible during this time by publishing monthly updates since the pandemic began to accelerate in March.

Our resilient cash flow is due to both our high-quality investment grade tenant base as well as the collaboration between our dedicated credit department and asset management teams, which has enabled us to analyze the financial necessity of each individual rent relief request and then identify the right action to take on a case-by-case basis. This has led to consistently high rent collections as John noted in his prepared remarks.

On the investment side, we had a fairly light quarter as we try to determine where pricing will settle out as investors weigh reduced economic activity against historically low interest rates. We invested $23.7 million primarily consisting of construction funding for our existing pipeline as well as a $13 million mezzanine loan for the development of a building in Columbus, Ohio. In order to keep the company's foundation strong, we improved our balance sheet by raising $99.1 million in the second quarter on the ATM at an average price of $18.07 per share. This brought our second quarter consolidated debt-to-EBITDA ratio down to 4.6 [Phonetic] times, which puts us in a comfortable position to navigate this period of uncertainty. At the end of the quarter, we had $70 million drawn on our revolving credit facility, which translates to additional capacity under the line of $780 [Phonetic] million. As a reminder, we have no material term debt coming due until 2023 and minimal lease expirations and capex obligations over the next several years. So we believe we are in an excellent position in terms of liquidity.

Finally, we have just under $5 million of cash on the balance sheet as of today, which is a normal amount for us to keep on hand to fund near-term operations. We don't currently feel the need to stockpile cash based on our current portfolio performance, but we'll of course keep a careful eye on this as the pandemic continues to evolve and adjust, if necessary. To wrap up on operations for the second quarter, we generated MOB same-store NOI growth of 1.4%. Our G&A came in slightly under budget at $8.2 million as COVID impacts have generally lessened our expense load. At this point in the year, we are trending to the bottom-end of our stated full year 2020 G&A guidance range of $33.5 million to $35.5 million. Recurring capital expenditures came in at $4.8 million, which were lower than budgeted at the beginning of the year and we remain on track to meet our 2020 recurring capex target of $17 million to $19 million that we presented on last quarter's earnings call. I will now turn the call over to Mark to walk through our portfolio statistics in more detail. Mark?

Mark D. Theine -- Executive Vice President, Asset & Investment Manager

Thanks, Jeff. Our mission to provide better healthcare through real estate has never been more important. Today, 100% of our facilities are open for care and the majority have returned to near pre-COVID patient volumes. While COVID-19 has continued to change our world, healthcare workers have heroically continued to offer compassionate care and keep pace with those changes. Similarly, our asset and property management teams have quickly adopted to change and collaborated with our healthcare partners to implement policies and procedures for social distancing, use of PPE, visitor screening, and enhanced cleaning protocols.

From an operational perspective, the second quarter can be summarized by strong collection, retention, and execution. DOC's outperformance in terms of rent collection and occupancy compared to our peers further demonstrates the high-quality nature of our healthcare partners and the intrinsic value of our real estate investments. Notably, the off-campus affiliated segment of our portfolio has had the strongest performance in terms of both total percentage collected and pace of collections. This data demonstrates the strength and resilience of these properties ultimately reaffirming DOC's investment philosophy that the delivery of healthcare is shifting away from the big box hospitals reserved for the sickest patients to safe and clean facilities in convenient outpatient locations.

Moving to strong retention. We completed a total of 179,000 square feet of leasing activity during the second quarter, highlighted by 76% tenant retention rate, 2.8% renewal leasing spreads, and positive portfolio net absorption of 15,000 square feet. As part of these lease renewals, we have opportunistically executed a limited number of extensions providing tenants with free rent in lieu of TI in exchange for long-term commitments to their suites. While these leases only total about 25,000 square feet, it is these types of mutually beneficial transactions that create exceptional long-term shareholder value.

We expect MOB retention in general to remain strong for the remainder of the year as providers focus on safely increasing patient volumes while maintaining safe social distancing. Tours [Phonetic] for new leasing have also returned primarily with existing tenants looking to expand in hospital systems continue to plan for outpatient growth. We are actively working with our healthcare partners on their outpatient strategies adding 42,000 square feet of net absorption through the first half of 2020 across our 96% leased portfolio.

Expirations remain limited for the next five years with less than 9% of the portfolio expiring in any year through 2025. This combination of high occupancy and low turnover results in stable, predictable cash flow, and lower tenant improvements and leasing commissions all leading to more funds available for distribution. This quarter, we proactively managed our recurring capex investment to 6.1% of cash NOI or $4.8 million and expect to fall within the $17 million to $19 million full year capex guidance previously announced. Our second quarter performance demonstrates not only our unique portfolio, but our ability to remain focused even while prioritizing the health and safety of our team members and those we serve.

Finishing with strong execution, I am extremely proud of our team's commitment to operational excellence, which was recognized by BOMA International who selected the Baylor Scott & White Charles A. Sammons Cancer Center as the outstanding building of the year. To be very clear, this award is not an architectural design award, but rather the organization's highest worldwide honor to recognize excellence in property management operations, policies, community involvement, and ESG efforts as judged by an independent panel of real estate experts. These same property management practices and expectations are evident across all DOC managed properties and highlight another reason why hospital executives routinely select DOC as their long-term real estate partner.

As we celebrate the seventh anniversary of DOC this summer, we self-managed six of our top 10 largest markets and continue to grow our award winning property management platform. In terms of portfolio execution for the quarter, our MOB same-store portfolio generated cash NOI growth of 1.4%. A decrease in parking revenue in April and May had a 50 basis point impact on our same-store NOI growth, which would have been about [Phonetic] 2% without the lower-paid parking volume. Same-store occupancy continues to reflect a 21,000 square foot suite available for lease that was discussed last quarter. The remainder of the portfolio continues to grow according to the annual rent escalations as expected, which average 2.4% across the portfolio.

To conclude, 2020 has clearly been a trying period for many types of real estates due to both the economic slowdown and physical distancing requirements of the pandemic. Fortunately, for Physicians Realty Trust, we have long-term leases, minimal lease expirations over the next few years, and strong liquidity to invest opportunistically. Today, we reaffirm our sincere gratitude and appreciation for all healthcare workers fighting this deadly disease and to our hospital system partners as we work together to provide a safe environment for healthcare delivery during this challenging time. With that, I'll turn the call back over to John.

John T. Thomas -- President and Chief Executive Officer

Thank you, Jeff and Mark. As noted briefly already, despite the spike of new cases in many of our markets, most notably Phoenix, Texas, and Atlanta, all of our facilities are open and operating including our outpatient surgical facilities. With increased access to personal protective equipment like masks and gowns, renewed restrictions on elective or scheduled surgery and procedures have been limited almost entirely to inpatient facilities providing inpatient care for COVID-19 patients. With stockpiling of PPE by all providers now, we continue to hear from our providers that they can serve non-COVID outpatients in our medical office facilities while the hospitals focus necessarily on COVID and other emergent care. We're now happy to address your questions. Jesse?

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from the line of Daniel Bernstein with Capital One. Please proceed with your question.

Daniel Bernstein -- Capital One -- Analyst

Hi, good morning. So when I look at the June collections presentation versus the May, it's pretty clear that the non-investment grade collections have kind of caught up with the investment grade. So I don't know if there is something specific that happened between the last presentation and now, but what caused that catch-up? Was it federal funding? Was it the opening of elective surgeries or pickup in elective surgeries? Just trying to understand kind of that pickup in the collections on the non-investment grade side, which really made a difference in maybe your reporting in the numbers versus I think estimates.

John T. Thomas -- President and Chief Executive Officer

Yeah, Dan, I don't think anything real specific. The vast majority of our space is investment grade or on the campus of an investment grade hospital. So I think some of the smaller tenants took a little time to get there PPP loans in place and their Medicare Advance funding in place, but again right now for April, we're almost completely -- I mean we have almost no AR for April at this point and for the whole quarter over 98%. So I think all of our facilities are open and operating and back to working and paying the rent consistently.

Daniel Bernstein -- Capital One -- Analyst

Okay and then I guess the other question is there has been some stress at the hospitals. Are you seeing any additional opportunities in terms of monetizations that might be popping up out there or maybe on the development side as well as hospitals probably could use some REIT funding.

John T. Thomas -- President and Chief Executive Officer

Yeah, I think that's something we'll see in time. There have been some hospitals out there marketing at least the idea of monetizing some buildings. I don't think there's been a lot of trades from that perspective, but what we are seeing is some new development opportunities that are starting to gestate and kind of in the market testing the funding levels at this point. So we'll see more of that we think in 2021, but we do have that expectation.

Daniel Bernstein -- Capital One -- Analyst

Okay, that's really all I have. Again, congrats on a good quarter and I'll flush [Phonetic] later. Thanks.

John T. Thomas -- President and Chief Executive Officer

Thank you, Dan.

Operator

Thank you. Our next question comes from the line of Nick Joseph with Citigroup. Please proceed with your question.

Michael Griffin -- Citigroup -- Analyst

Hey, there. This is Michael Griffin on for Nick. JT, you mentioned in your prepared remarks building up the deal pipeline. Any sense of the size for the back half of the year and into 2021. And then do you see yourself preferring more of the acquisition route or continuing on the mezz loan funding side or kind of a combination?

John T. Thomas -- President and Chief Executive Officer

Yeah, thanks for the question. I think it will be a combination. Our activity is picking up. Obviously, can improve cost of capital, certainly helps in that perspective and the consistency or I guess maybe the lack of volatility that we've seen over the last few weeks and would hope to continue to see from the results we just reported, but we got both acquisitions, development and some mezzanine financing kind of opportunities in the pipeline and as we just talked about looking for some health system monetization opportunities in 2021.

Michael Griffin -- Citigroup -- Analyst

Thanks and just on your current tenant make up, you got about 35% single-tenant, roughly 55%, 60% multi-tenant. Do you like this mix? Would you prefer more or less exposure to one?

John T. Thomas -- President and Chief Executive Officer

I think the mix has served us well. Some of the single-tenant facilities were the ones that had the busiest schedules in May and June, but again back to a normal environment, I think it's a good mix for us and it also kind of staggers out our kind of lease roll as well. So we don't have a fixed percentage in mind. I think we look at all opportunities that we pursue with our existing and future healthcare system clients and a lot of the single-tenant buildings in our portfolio are 100% leased to a health system investment grade tenant. So we feel really good about those.

Michael Griffin -- Citigroup -- Analyst

Okay. Well that's it from me. Thanks for the time.

Operator

Thank you. Our next question comes from the line of Vikram Malhotra with Morgan Stanley. Please proceed with your question.

Vikram Malhotra -- Morgan Stanley -- Analyst

Thanks for taking the questions. Maybe just one. First a somewhat longer-term question. You obviously saw a big merger in the telehealth space a few days ago. Obviously, reported utilization of telehealth has gone up pretty dramatically over the last few months. Just wondering any updated thoughts either anecdotes from your tenants or just yourself on kind of how telehealth may impact MOBs positively or negatively?

John T. Thomas -- President and Chief Executive Officer

Vikram, thanks for the question. It's obviously a very timely explosion in a positive way of telehealth. Most of our clients are telling us it's additional revenue. They're finally getting paid for it. Creates a lot of efficiency, particularly for our surgeons and our oncology physicians who can do a quick check of their post-surgical procedure check-in with their patients without those patients having to come into the office. Many of those surgeons were extremely busy in May and June and are still taking some family time off in July, but doing telehealth from their vacation homes. So I think it's a win-win really across the board.

Our portfolio -- while we do have some primary care and some internal medicine and we have almost no behavioral health, psychiatry. So some of those services that have been very kind of prominent in the telehealth world, most of our facilities are procedural based and investments continue to follow kind of a procedural based environment where physical presence of the patient and the doctor together is required for most of the care. So we see it as a win, long-term opportunity and we also see some opportunity for modifying existing space to facilitate more telehealth in the office.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay, great. And then just maybe a more minute question on -- as you kind of look to do -- as you're doing more renewals, maybe even new leases, anything change sort of in what tenants or potential tenants are asking in terms of the lease structure, bumps, anything maybe you are looking for in terms of more information or tweaking the lease structure itself. I know you didn't have -- obviously you had very strong rent collection, but just wondering kind of through COVID, is there anything you are thinking about changing or are people looking for any change in the structure of the lease?

Mark D. Theine -- Executive Vice President, Asset & Investment Manager

Hey Vikram, this is Mark Theine. So we've had great leasing activity through the first half of the year and as you know our portfolio just in general doesn't have a lot of leased expirations, but as we approach to those renewals, we have not seen much change in terms of term. Obviously, we continue to try and push rates through to 3%. We've maybe seen a little bit of increase in requests for some free rents at the beginning, but if we do that, it's in lieu of TI and a lot of times we're still getting the same term. So we'll continue to push forward on the 69 leases we've got left to renew this year, which is about 1.4% of the portfolio.

Jeff N. Theiler -- Executive Vice President and Chief Financial Officer

Hey, Vikram, sorry, just wanted to add by saying -- this is Jeff. The other thing that we've really been pushing for -- obviously, we've had great success with our credit analysis of the tenants. So certainly as we look to new leasing and renewal leasing, we're always making sure that we have as much visibility as possible on those tenant financials so we can continue to monitor them and make appropriate decisions based on how they are performing quarter-to-quarter.

Vikram Malhotra -- Morgan Stanley -- Analyst

Okay, thanks so much.

Operator

Thank you. Our next question comes from Michael Carroll with RBC Capital Markets. Please proceed with your question.

Michael Carroll -- RBC Capital Markets -- Analyst

Yeah, thanks. I'm not sure if you asked -- I think I jumped on late, so I'm sorry if you already addressed [Phonetic] this in your prepared remarks, but I know your rent collections have been pretty strong around 98% in the second quarter. Can you provide some color on the 2% of the tenants that didn't pay rent and did the company -- how are you treating that within your books. I mean have you increased bad debt. I mean is there concerns around those specific operators?

John T. Thomas -- President and Chief Executive Officer

Hey, Mike. Thanks for the question. Yeah, we did address that in the beginning, but I'm happy to do it again. It was very positive news. So about 2% of accounts receivable we have left over for the first quarter, the biggest part of that, over half of it is one tenant and they have finally gotten back into their office and are busy again and have started paying rent again. So we've already picked up some of that second quarter AR from them and we expect to fully collect that and get that resolved with them pretty quickly. So that's the vast majority of that number and the balance we still believe is collectible. So we have not really adjusted our historical bad debt numbers at this point.

Michael Carroll -- RBC Capital Markets -- Analyst

Okay, great. And then JT, can you talk a little bit about your investment strategy that you're looking for going forward. I know that the balance sheet is much stronger. I know you're talking about a little bit of the pipeline building. I mean, do you expect that some of that activity could ramp up here in the near-term or do you think it will remain a little bit more cautious for the remainder of the year just due to the uncertainty with COVID?

John T. Thomas -- President and Chief Executive Officer

Yeah, we've been conservative, Mike. I mean we have really a pretty good pipeline still in place. Pricing trades that are happening in the market are not -- have not really changed from pre-COVID pricing even though cost of capital is still higher than it was in February and March. So it's -- we're being very cautious. We're working more on some 2021 development opportunities right now. We will have some acquisition -- I do expect we'll have some acquisitions this quarter and in the fourth quarter, but it still will be a modest amount as we kind of let the market settle down. I mean the fantastic results of our portfolio and really all medical office portfolios that we've seen in the public markets are driving a lot of -- even more capital into our space. So the competition is pretty tough, but we continue to be more focused on the direct off-market opportunities the best we can.

Michael Carroll -- RBC Capital Markets -- Analyst

Great, thank you.

Operator

Thank you. Our next question comes from Connor Siversky with Berenberg. Please proceed with your question.

Keegan Carl -- Berenberg Capital Markets -- Analyst

This is Keegan on for Connor. Thanks for taking my question guys. So first off, we saw some pretty positive material from your ESG report, but we are kind of wondering how this is going to affect your capex load in the near future related to your in-place portfolio. Do you see opportunities to increase energy efficiency in some of your existing assets and if that's the case, what kind of timeline are you seeing?

Mark D. Theine -- Executive Vice President, Asset & Investment Manager

Yeah, sounds good. This is Mark. Again, thanks for the question. So first, thanks for recognizing the ESG report and all the good work our team has been doing there. We're really proud of the report that we put out this quarter. So as part of that report, we committed $3.5 million to capex investments. That number is within our $17 million and $19 million capex guidance for the year. So if you look at our numbers for the year at the midway point, we've invested about $7.8 million. So on the back half of the year, we're looking at about $6 million per quarter to be within that range and we expect to hit that.

So capex team has done an exceptional job at really evaluating and prioritizing our capex projects. And as it relates to LED upgrades as you mentioned, we did three of those already in the last year with several more in the portfolio. I think one of the interesting things about our portfolio and our leases is that some of those costs are actually eligible to be passed through and amortized into our leases in our operating expenses. So we'll continue to invest in our buildings making better from a ESG perspective as well as patient environment. So we're on pace and doing a great job. So thanks again for recognizing the ESG report.

Keegan Carl -- Berenberg Capital Markets -- Analyst

All right, thanks for the color there. And then to switch gears a little bit here. Obviously, you guys improved your leverage metrics pretty significantly, but in terms of net debt to EBITDA, are you comfortable where you're sitting at the moment and if the acquisition market were to kind of loosen up again, what leverage range can we see through the end of this year and into 2021?

Jeff N. Theiler -- Executive Vice President and Chief Financial Officer

This is Jeff. So look, obviously, we're in uncharted territory here with this pandemic. So we've been taking a very careful and conservative approach as JT talked about on the acquisition front and also on the capital side. So we're really looking at the environment month-by-month. We'll make adjustments as we see changes in the environment, but I think for right now, you can expect a pretty conservative capital structure and acquisition pace going forward.

Keegan Carl -- Berenberg Capital Markets -- Analyst

All right. That's it from me. Thanks for your time guys.

Jeff N. Theiler -- Executive Vice President and Chief Financial Officer

Yep, thank you.

Operator

Thank you. Our next question comes from Jordan Sadler with KeyBanc Capital Markets. Please proceed with your question.

Jordan Sadler -- Analyst

Well, good morning everybody. Wanted to follow-up on both the capital structure, Jeff, but then also on investments. So on the capital structure, it seems at these leverage levels and with this activity, [Indecipherable] that you're already in a pretty conservative capital structure position, but are you saying we could see it get more conservative, so potentially lower leverage here.

John T. Thomas -- President and Chief Executive Officer

Jordan, how are you doing? Look, at this point in time, it wouldn't -- we don't think that would be the right thing, but like I said, we want to monitor this month-to-month. So it's hard to make long-term projections right now and so what we're doing is we're trying to be as conservative as we think reasonable for the environment, which right now I think we're at that point. If things deteriorate, I mean certainly we could be more conservative on the capital front. If things get much better, we could get a little bit more aggressive on the acquisition front. So it's hard to make a long-term plan right now. So we're just trying to stay as safe as possible and as conservative as possible.

Jordan Sadler -- Analyst

Okay, makes sense. And then just in terms of investment. I'm kind of just curious on the perspective on whether or not there is an asset management opportunity though. I know that sounds like pricing is pretty similar to where it was pre-COVID, but let's [Phonetic] suggest that there is still really an appetite in the market for these assets that you guys own. Is there an opportunity to sort of prune or monetize stuff that are not your favorite children and on the other side of things, where do you see, if anywhere, opportunity in the market. Is there any dislocation?

John T. Thomas -- President and Chief Executive Officer

Hey Jordan. I think great question. I think the acquisitions we're working on again are kind of single buildings, not portfolios, not widely marketed opportunities, but really direct negotiations with health systems or physicians that are tied to health systems and they own their buildings and looking to monetize for various reasons and then also development opportunities. I think hospitals have learned a lot over the last few months about kind of their infrastructure and their space needs and their kind of parking ratios and parking -- the ability to keep patients segregated and things like that. So a lot of that learning is going into some new development plans on existing buildings we have as well as some new buildings to be built.

And most of those, at least things we're looking at right now, are kind of off-campus health system affiliated buildings and people want to spread out and kind of allocate their outpatient services to the most efficient location. That's some of the learning and that's driving some of our kind of investment thesis in the near-term, but monetizing or selling things, we have very little left in the portfolio that we were just going to actively like to sell. It would be a small dollar amount if we did and we would look at opportunities on a case-by-case basis. The one thing that's been performing remarkably well in this quarter has been the LTACHs and we've long said we'd like to sell those if we can get to the right pricing on those. In the meantime, they're paying their rent. They are high yielding, they're driving some good revenue and good profit for us.

Jordan Sadler -- Analyst

Just one last follow-up on the LTACHs since you raised it. I know there was a catch-up on the back rent, Jeff, sequentially. So I think that was booked into revenue this quarter. Can you just sequentially tell us what we should expect?

Jeff N. Theiler -- Executive Vice President and Chief Financial Officer

Yeah, sure Jordan. So you're right, there was a catch-up. Obviously, the LTACHs are cash basis. They repaid some back rent. They repaid some of the legal fees from the bankruptcy and real estate taxes from the bankruptcy. So there is about an additional $1.4 million of call it non-recurring revenue this quarter from the LTACH.

Jordan Sadler -- Analyst

And what about on the expense side, non-recurring expenses?

Jeff N. Theiler -- Executive Vice President and Chief Financial Officer

Nothing significant. Nothing material.

Jordan Sadler -- Analyst

Okay, thank you guys.

Jeff N. Theiler -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Our next question comes from John Kim with BMO. Please proceed with your question.

John Kim -- BMO Capital Markets -- Analyst

Thank you. Good morning. I was wondering if you could talk about on the impact of any of free rent to your cash same-store numbers. It wasn't really broken out this quarter. And if you think it's going to have a more significant impact going forward. I think Mark mentioned that you're offering more free rent.

John T. Thomas -- President and Chief Executive Officer

Yeah, John, I mean virtually none. I mean there has been a very small amount of kind of trading that and is part of lease renewal negotiations and pretty typical either TI or free rent. Nothing, no -- I mean modest immaterial adjustments at all.

John Kim -- BMO Capital Markets -- Analyst

Can you comment on the acquisition environment as far as if you're seeing a lot more product being marketed today as health systems potentially look to sell assets as a source of capital?

John T. Thomas -- President and Chief Executive Officer

Yeah, there is only one health system that's been out what I'd say actively marketing portfolio of medical office buildings and to my knowledge, it hasn't traded or [Phonetic] price. The acquisitions market that we've seen -- again, most of the actively marketed portfolios are trading at kind of pre-COVID pricing and have not been attractive to us at those prices, but again, we've done best and we've grown the company best when we are buying one building at a time, two buildings at a time in an off-market way and that's what we're really focused on right now. So the market has picked up. There have been trades. We have some things active in our pipeline that we're working to get to the finish line before the end of the year and hopefully before -- [Indecipherable] before the end of the quarter, but it's active. The amount of capital coming into the MOB space just continues to come in, low interest rates, etc. It's driving a lot of activity.

John Kim -- BMO Capital Markets -- Analyst

And as part of [Phonetic] -- what is your updated views on cap rates on off-campus affiliated versus on-campus and how that's trending?

John T. Thomas -- President and Chief Executive Officer

Well, since we are the only ones that like the off-campus affiliated buildings, those should be sevens and eights, but the reality is that we're in the 5.5 [Phonetic] to low 6 [Phonetic] range, kind of in most of the things we're looking at in our portfolio and we really don't break that out between on and off. Off-campus affiliated buildings though have been the best performing from a rent collection, they are the busiest from an activity standpoint.

They were slow in April, primarily because of the rationing of PPE, but now the PPE supplies have come back, those were the first to open and frankly that's where care is being provided in those states that are starting to restrict inpatient or surgery and inpatient facilities. If you follow CMS proposals for next fiscal year, they are increasing the number of cases Medicare is that can be done in an outpatient -- the number of surgeries that can be done in an outpatient setting and incentivizing that with higher reimbursement. So we continue to be very excited about the -- particularly the off-campus affiliated buildings, but all of our buildings are doing well.

John Kim -- BMO Capital Markets -- Analyst

Last one from me is in June, I don't think you have any rent deferrals. I'm wondering if you have any in July or any change in deferral requests?

John T. Thomas -- President and Chief Executive Officer

No, we've not done deferrals. We've had one major tenant that we were patient with through the quarter that has started paying their rent again. They fully intend to get caught up with their -- the accounts receivable that is built up for them in the second quarter, but they're back in occupying their space and very busy and expect to work that out with them over time, but it's again less than -- a little over 1% of kind of our accounts receivable balance for the quarter and a handful of other small tenants that again we're working with to get caught up. We don't have any increase in bad debt and no formal deferrals. We're reporting cash collections and its cash bills and cash collected.

John Kim -- BMO Capital Markets -- Analyst

Yeah, got it. Thank you.

Operator

Thank you. Our next question comes from Michael Gorman with BTIG. Please proceed with your question.

Michael Gorman -- BTIG Research -- Analyst

Thanks, good morning guys. John, I just wanted to go back for a minute and kind of get -- try to get a better sense for what's going on, on the ground with some of the practices. You mentioned last quarter that you had facilities in Texas that were kind of working over time to do catch-up from the initial lock downs, but that there were some concern about whether they'd be able to kind of backfill the pipeline so that the surgical numbers could continue. We continue to see the national news about cancer diagnosis being down, different diseases -- the diagnosis rates are down. I'm just trying to triangulate the comments that maybe some of the physician flows are back to pre-COVID numbers with just other things that we're hearing out there. So I was wondering if you could just give a little bit more color on that and maybe what some of your practices are seeing in terms of like surgical pipeline numbers?

John T. Thomas -- President and Chief Executive Officer

Yeah, great question, Mike. So on the surgical pipeline, what we heard originally in May and June, I think some of the comments you are referencing is that they were extremely busy catching up from March and April, but just weren't sure about how their schedules look in July and August. Right now, they are all reporting very strong schedules in July and August as well or coming out of July and that the August schedule is full as well.

On the oncology side, those were our busiest buildings throughout. They were never really restricted. We had to work with those tenants and kind of facilitate a clean passage way I guess from the car to the treatment facilities, but those have continued to be busy. Obviously, the diagnostic care both in oncology and cardiology we see in these national numbers has been a major -- will be a major problem over time for patients themselves, but we don't see any slowdown in the number of -- the volume in our facilities. You know, 100% -- I mean our oncology facilities -- those tenants were always consistent with their rent and always busy from that perspective, if you want to think about it on that side.

But I think the public health issues that you reference, many of our hospitals are trying to encourage patients that they can come into the facility. They can come in with -- don't delay heart care, don't delay cancer care, don't delay routine diagnostics and starting to see a pick up there. So, sorry to ramble a little bit, but I think the long-term impacts we won't know about until next year, but the flow of patients -- we were open on Saturdays, there is some inefficiency on the surgical side because they have to get tested in the parking lot before the surgical patient is led into the building, but again we're helping to facilitate that. That really works well in the off-campus buildings where we have more space in the parking lot for that kind of activity. So, Saturday surgery is pretty common in our -- across the board.

Michael Gorman -- BTIG Research -- Analyst

Okay, thanks. That's very helpful. Appreciate it.

Operator

Thank you. We have reached the end of our question-and-answer session. So I'd like to pass the floor back over to management for any additional closing comments.

John T. Thomas -- President and Chief Executive Officer

Again, we know it's a very busy day in earnings world, but we really appreciate your time and attention today. Just hope all of you will stay safe. We're all wearing masks and checking our temperature coming into our buildings both as a best practice for our office, but also for working with our health system clients and tenants to help bend this curve back down. So be safe and thanks for your time.

Operator

[Operator Closing Remarks]

Duration: 46 minutes

Call participants:

Bradley Page -- Senior Vice President, General Counsel

John T. Thomas -- President and Chief Executive Officer

Jeff N. Theiler -- Executive Vice President and Chief Financial Officer

Mark D. Theine -- Executive Vice President, Asset & Investment Manager

Jordan Sadler -- Analyst

Daniel Bernstein -- Capital One -- Analyst

Michael Griffin -- Citigroup -- Analyst

Vikram Malhotra -- Morgan Stanley -- Analyst

Michael Carroll -- RBC Capital Markets -- Analyst

Keegan Carl -- Berenberg Capital Markets -- Analyst

John Kim -- BMO Capital Markets -- Analyst

Michael Gorman -- BTIG Research -- Analyst

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