Please ensure Javascript is enabled for purposes of website accessibility

Physicians Realty Trust Reit (DOC) Q3 2021 Earnings Call Transcript

By Motley Fool Transcribers – Nov 5, 2021 at 2:01PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

DOC earnings call for the period ending September 30, 2021.

Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Physicians Realty Trust Reit (DOC 0.38%)
Q3 2021 Earnings Call
Nov 5, 2021, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings ladies and gentlemen, and welcome to the Physicians Realty Trust Third Quarter 2021 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce your host Brad Page. Thank you. You may begin.

10 stocks we like better than Physicians Realty Trust
When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* 

They just revealed what they believe are the ten best stocks for investors to buy right now... and Physicians Realty Trust wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of October 20, 2021

Bradley D. Page -- Senior Vice President and General Counsel

Thank you. Good morning and welcome to the Physicians Realty Trust Third Quarter 2021 Earnings Conference Call and Webcast. Joining me today are John Thomas, Chief Executive Officer; Jeff Taylor, Chief Financial Officer; Deeni Taylor, Chief Investment Officer; Mark Theine, Executive Vice President, Asset Management; John Lucey, Chief Accounting Officer; Laurie Becker, Senior Vice President and Controller; Dan Klein, Deputy Chief Investment Officer; and Amy Hall, Senior Vice President, Leasing & Physician Strategy.

During this call, John Thomas will provide a summary of the company's activities and performance for the third quarter of 2021 and year-to-date, as well as our strategic focus for the remainder of 2021. Jeff Taylor will review our financial results for the third quarter of 2021 and Mark Theine will provide a summary of our operations for the third quarter. 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 the information currently available to us. Our actual results will be affected by known and unknown risks, trends, uncertainties and factors that are beyond our control or ability to predict. Although we believe our assumptions are reasonable, our forward-looking statements are not guarantees of future performance. Our actual results could differ materially from our current expectations and those anticipated or implied in such forward-looking statements. For more detailed description of 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? Thank you, Brad. I have to admit. This may be the most anticipated earnings call I've ever had the opportunity to participate in. Physicians Realty Trust had a landmark quarter and acquisitions operations and balance sheet management. The momentum has continued into the fourth quarter. And subsequent to quarter end, we sold our three LTACHs at a cash gain continuing our progress to eventually become a REIT with 100% of our revenue generated by investments in outpatient medical office facilities. Despite the delta-variant COVID spikes each of our facilities have remained open continuously since the summer of 2020, and rental income collection rates remain near 100%. In March 2021, we shared our expectations of completing 400 million to 600 million in new investments during the year, including both acquisitions and development financing. It would have been easy to complete good investments pro ratably throughout the year, but our investors are more interested in DOC making great investments with better long-term accretive returns resulting from our relationship focus strategy rather than just meeting a calendar. We appreciate your confidence through the first half of the year while we completed our negotiations with Landmark and we're patient with our great partner in Scottsdale, HonorHealth, while they completed the construction of two of the most recent additions to the DOC portfolio. On October 1, we announced our agreement to purchase the 15 building Landmark healthcare facilities portfolio for $764 million. The Class A portfolio includes 1.4 million square feet with an average building size of 97,000 feet. Each asset is affiliated with a premier health system, including 10 new system relationships to DOC. Those include the investment grade rated University of Florida Health, Beaumont Health, and McLaren Healthcare to combine for 40% of the portfolio tenancy. In total, 74% of the Landmark portfolio is leased to an investment-grade health system. And the portfolio carries over seven years of average remaining lease term, each providing great stability for years to come. Additionally, the transaction includes a purchase option on another 46,000 foot but on campus MLB that Landmark has developed. Currently, with DOC, mezzanine capital and their own equity in construction financing. That MLB will be completed in 2022. Upon completion of this acquisition, our share of leases to investment grade health systems as a percentage of our gross leasable space will increase from 64% today to 65% on a pro forma basis. We are excited to add these relationships and assets to our portfolio and are well on into the final due diligence and closing process, including the transition of property management responsibilities where applicable. While one or more health systems could exercise the rights to match our purchase price or other conditions could prevent us from closing, we do not anticipate any material reduction in this investment opportunity and expect to close a landmark acquisitions by the end of the year. The two new HonorHealth medical facilities we acquired were self developed by HonorHealth. The HonorHealth neuroscience facility located on their flagship Osborne campus has 190,000 rentable square feet and is 100% leased, with a weighted average remaining lease term of 7.7 years. The HonorHealth Sonoran medical office facility is 60,000 square feet, on the campus and attached to HonorHealth's new Sonoran hospital, and serves that high growth submarket northwest of Phoenix. These investments expand our total investments anchored by HonorHealth to eight facilities totaling approximately 459,000 square feet. We expect to continue to grow with this outstanding investment grade health system and the Physicians aligned with them in the future. With these announced investments, we now exceed $1 billion of new investments closed or under contract during 2021. That growth has been fueled by our relationship with healthcare systems and physician groups and the developers working directly with those providers. Those developers include Cambridge Health Care, The Davis Group, Landmark, Meridian, Catalyst and others. While there's nothing wrong with private ownership of medical office facilities, as a unique advantage, public companies, like DOC have long-term ownership of medical office facilities in line with best-in-class healthcare providers. Most of our largest clients are faith-based or community non-profit, tax-exempt organizations, who're focused on access to healthcare for the next 50 years, not the interest rate in the next 5 years. Our stability and long-term approach to capital in ownership, and laser focused best in industry customer service and property management, provide us a measurable advantage to sourcing and completing our investments growth strategy and goals. We believe investors want access to a publicly traded, best in class, pure play medical office reit. And we humbly believe all the data identifies Physicians Realty Trust, our Board and our management as the best option for that investment. Before I turn the call over to Jeff to review our financials, we are also excited and humbled to announce that DOC is among Modern Healthcare's 2021 Best Places to Work. Our ranking at 26 in the supplier category represents our debut appearance, earning this distinction, while serving as the highest rated healthcare real estate provider among the honorees. DOC wouldn't be voted a Best Place to Work without our exceptional team, and today I want to recognize our very own Mark Dukes VP of Asset Management who just began his one-year term as Chairman of BOMA International. His leadership and attention to DOC will not waver that this recognition and leadership, the commercial real estate industry is a tribute to his professional and personal excellence and we are blessed to have him on our leadership team. We would also like to recognize Mark Theine, our EVP of Asset Management and one of DOC's founders, who was recently named by Globe Street to the 50 under 40 list for people to know in the US commercial real estate industry. Congratulations, Mark and Mark, and keep up the outstanding leadership to DOC and the providers and the communities we serve. Jeff?

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

Thank you, John. In the third quarter of 2021, the company generated normalized funds from operations of $58 million or $0.26 per share. Our normalized funds available for distribution were $55 million, an increase of 5.3% over the comparable quarter of last year and our FAD per share was $0.24. In the third quarter, the company delivered consistent performance with same-store NOI growth of 2.5%, and same-store occupancy down 50 basis points year-over-year as strong lease spreads have offset a handful of deliberate non-renewals. The portfolio's no material impact stood [Phonetic] off from the delta-variant, and we continue to collect over 99% of all contractual rents and accounts receivable balances remain at the lowest levels in the history of the company. Looking back over the past two years, although we were optimistic that the portfolio would weather the pandemic better than most real estate asset classes has performed so well, it has even surprised us. As we continue to invest in building the best tenant base in the industry, refine our credit monitoring process, and dispose of our limited non-core assets, like we did with our recently announced LTACH sale, we see no reason why we won't continue to perform even better over the long term. The Company closed $109 million of investments this quarter at an average first year unlevered yield of 5.4% highlighted by the off-market acquisition of a newly constructed on campus MOB with HonorHealth,

In October, the company closed another $100 million of deals and announced the $764 million Landmark transaction. The 15 building portfolio is 74% leased to investment grade tenants, and not only provides an exceptionally high quality portfolio today, but also opens the door to 10 new health system relationships for future growth. Since many of our acquisitions are repeat deals often directly with health systems, we would expect this latest transaction to provide future benefits as well. We continue to see enhanced demand for medical office properties as private market participants aggressively pursue the product. However, the difficulty of prying these assets away from health system owner is significant, which enhances the value of our existing portfolio, as well as our platform.

We had a busy quarter on the financing side of the business. We amended and extended our revolving credit facility, pushing the term out until 2025 and reducing our current cost by 5 basis points. We also took advantage of our upgraded rating profile from Moody's and S&P to issue $500 million in 10-year bonds with a 2.625% coupon. We used a portion of the proceeds to repay our $250 million term loan and expect to continue to build out our long-term debt curve over time as we grow the company. As of now, we have only $84 million of debt coming due through 2025, providing exceptional financial stability for our investors. We issued $53 million on the ATM in October at an average price of $18.61 as we see the pipeline continue to build for next year.

Additionally, we recently signed a contract to sell our three long-term acute care assets for $62 million, finally eliminating some non-core assets that we bought in the early years of the company. These are assets that went through the bankruptcy process in 2019 and generated some temporary negative sentiment. While we achieved a 9% unlevered IRR on our LTAC investment, we prefer the risk adjusted returns of medical office buildings over the long term and capitalize on the opportunity to sharpen our pure play MLB focus. Following this transaction, medical office buildings will now provide 96% of our overall NOI, an increase of 2% from last quarter.

Turning to other relevant portfolio metrics. Our third quarter G&A came in at $9.5 million and recurring capital expenditures were $6.7 million for the quarter. So, both are trending toward our full year guidance of $36 million to $38 million for G&A and $25 million to $27 million for CapEx.

I will now turn the call over to Mark to walk through some of our portfolio statistics in more detail. Mark?

Mark D. Theine -- Executive Vice President, Asset Management

Thanks, Jeff. DOC continues to benefit from our growing operating platform and strong relationships with healthcare partners. Before highlighting our Q3 performance, I'd like to start by recognizing two outstanding recent achievements by the team. First, Physicians Realty Trust was selected by the Institute of Real Estate Management as the 2021 accredited management organization of the year. The AML accreditation was established 75 years ago to advance best practices in real estate management at the company level, with 560 worldwide firms holding this prestigious accreditation. Today, we are exceptionally proud to be at the very top of that list as the 2021 accredited management organization of the year.

Second, we recently announced our inaugural GRESB score of 75 in their 2021 Real Estate Assessment, outperforming the international score of 73 out of 100. In addition, we received a Green Star designation recognizing the teams work implementing and measuring sustainability policies. As these achievements indicate, DOC remains committed to acting as an ESG Leader as we accelerate our external growth momentum. We continue to expand our in-house property management, leasing platforms during the third quarter, laying the groundwork for additional cost efficiencies to deliver long-term enterprise value for our shareholders. As an example, our recent off-market acquisition of two newly constructed facilities occupied by HonorHealth, our 14th and 15th real estate investments in the Phoenix, Arizona MSA. Through our in-house management teams, we are excited to expand this trusted partnership with HonorHealth, while also realizing the benefit of our management infrastructure through additional property management fees.

Looking forward, our management structure is scalable, and will continue to benefit from concentration as we invest in top quality properties and portfolios like the Landmark portfolio that has scheduled to close in Q4. In the third quarter, we saw the power of our platform and portfolio generate both internal and external growth opportunities, led by same-store growth of 2.5%, leasing spreads a positive 4.4%, and an in-house leasing team that saved over $4 million year-to-date in commissions, that would have otherwise been paid to outside leasing brokers assuming a conservative 3% fee. Our same-store MOB portfolio, which again does not exclude repositioning assets, generated cash NOI growth of 2.5% for Q3 2021. The NOI growth was driven primarily by a year-over-year 2.5% increase in base rental revenue. Operating expenses were up 7.3%, and offset by an 8.4% increase in operating expense recovery revenue, once again demonstrating the insulated nature of our triple net leases.

Year-over-year, operating expenses were up 2.2 million overall, primarily due to a $0.8 million increase in property insurance costs and a $0.7 million increase in real estate taxes. Same store occupancy year-over-year was down approximately 50 basis points, as we intentionally vacated several suites this quarter to make room for anchor tenants with stronger credit to expand at better rates and lease terms. Year-to-date, our leasing team has completed nearly 800,000 square feet of leasing activity with an 80% retention rate and positive 2.7% leasing spreads. In Q3, specifically, tenant retention was 72% across 179,000 square feet of lease renewals, with cash renewal leasing spreads a positive 4.4%. To further drive future internal growth, 80% of the leases executed this quarter contain an annual rent escalation of at least 2.5%. Notably, these results were also achieved with limited leasing costs totaling $1.47 per square foot per year across the full volume of consolidated leasing activity. A figure that's much more efficient than industry averages. Our successful net effective rent outcomes are driven by the quality of our assets and backed by the market pressures, driving increases in rental rates and construction pricing.

As we look at our portfolio moving forward, DOC's investments are diversified geographically, with no one state accounting for more than 15% of rent, and no single tenant accounting for more than 5.7%. Additionally, our investment grade quality tenants improved to 64.4% in the third quarter from 62.5% in the second quarter, as a result of the Life Care portfolio disposition and HonorHealth investment. These metrics and all of our portfolio quality metrics will further improve with the acquisition of the Class A Landmark portfolio that is 74% leased to investment grade tenants and includes 10 new hospital relationships. The team is focused on the due diligence and integration of this portfolio by the end of the year, and overall very excited about growing the DOC portfolio from $5 billion in real estate investments at the beginning of 2021, to nearly $6 billion in real estate investments by year-end.

With that, I'll now turn the call back over to John.

John T. Thomas -- President and Chief Executive Officer, Trustee

Thank you, Mark. Now, we'll take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question comes from the line of John Kim with BMO Capital Markets. Please proceed with your question.

John Kim -- BMO Capital Markets -- Analyst

Thanks, good morning. I'm here with one scenario [Phonetic]. There's a lot going on in medical office today, including HTA announcing its strategic review this morning, I was wondering if you can comment on your interest level and participating in the potential sale process versus other opportunities that you're seeing in the market?

John T. Thomas -- President and Chief Executive Officer, Trustee

John, we're focused on our core business and acquiring new investments in investment grade quality, medical office buildings and financing developments of those facilities. So, again, we see every opportunity that's kind of publicly available and evaluate those, but we don't comment on them to reach a conclusion. So, thanks for the question.

John Kim -- BMO Capital Markets -- Analyst

Okay. Last quarter you mentioned, John, cap rates for high quality portfolio as going in the low-fives, and I'm wondering if you can update us on that this quarter and what you're seeing for respective assets?

John T. Thomas -- President and Chief Executive Officer, Trustee

Yes, I think we're seeing a -- we think the Landmark portfolio is humbly is the highest quality portfolio we've seen and execute on that in an off-market basis. We are seeing portfolios trade frankly well below in the mid fours now today. So, yes, high-quality assets and kind of sizable portfolios, but we think the Landmark portfolio we acquired at an attractive price and frankly better than an openly marketed process.

John Kim -- BMO Capital Markets -- Analyst

I was going to ask about that. So the 4, 9 was negotiated a while ago, where would that trade today if it were to be sold? And can you also comment on the ROFR. You mentioned that you weren't that concerned about it but how many assets or what percentage of the portfolio have that option?

John T. Thomas -- President and Chief Executive Officer, Trustee

Yes. So, these were all built, purpose developed for those health systems. And I think one was acquired by Landmark in the process of their relationship with that health system. But all of them have a ROFRs and whether on the ground leases, we or Landmark or both have visited with all the health systems and starting to receive waivers back verbally and in writing. So, they still have some time left in their review process, but we expect substantially all of them, if not all of them to weigh those ROFRs and complete the acquisitions.

And your other question, again, we're seeing prints of assets sold in the open market portfolios on the open market in the mid fours. So, again, we think the Landmark portfolio, specifically with the quality of the building, the age of the buildings, the wall to the buildings, the health system credits involved. 74% of these buildings are leased to investment grade health system credit. So, we'd think of trading them mid-fours but not low-fours.

John Kim -- BMO Capital Markets -- Analyst

Got it. That's very helpful. Thank you.

John T. Thomas -- President and Chief Executive Officer, Trustee

Yes. Thank you.

Operator

Thank you. Our next question comes from the line of Jordan Sadler with Capital Market. Please proceed with your question.

Jordan Sadler -- KeyBanc Capital Markets Inc. -- Analyst

Great. So, I think the previous guidance was for 400 million to 600 million. So, I guess that's over with. You guys are blowing through that. Any sort of goalposts you'd offer up for the sort of remainder of the year or just on a look-forward basis, John, or just kind of trying to frame up what the investment opportunity looks like, it really seems to heat after this third quarter?

John T. Thomas -- President and Chief Executive Officer, Trustee

Yes. Well, depending on how you count, there's a lot out there available in the market and we're still evaluating some opportunities for the year-end. And I don't think we're prepared to kind of update guidance, if you will, as we did blow through the 400 million to 600 million. And included in that is we've got -- we did announce over 1 billion of investments, which biggest chunk is Landmark of course. We do have three projects still under construction. One of those will break ground the first week of December. It's 100% leased, beautiful facility, and we think it'll be an award winner next year, and in the Minneapolis market. Got one in the New York MSA under construction. With Landmark, we now have an option to acquire that building when it's completed next year. And then, we have a project with an investment grade tenant in the Dallas-Fort Worth market. So, I think we'll see a little bit more completed this year. And then, first quarter pipeline is really building up nicely.

Jordan Sadler -- KeyBanc Capital Markets Inc. -- Analyst

Okay. And then, can you speak to the financing of all this, maybe, Jeff, you can frame up where you are on leverage right now on a pro forma basis for all this activity and where you expect to be or how you expect to get back to sort of the target range?

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

Sure. Thanks, Jordan. So, if you look at our third quarter on a enterprise debt to EBITDA, we are about 5.0 times. Pro forma for all this activity, assuming Landmark is completely in the fourth quarter, that would bring us to about 6 times debt to EBITDA. So, that's certainly at the higher end of where we've operated historically. However, if you look at our portfolio we're 65% investment grade tenancy. We collected 99% of all our rents during a terrible pandemic. We're effectively 98% triple net lease. So, there is no operating margin risk in there. We only have 4% to 6% of our leases expiring each year over the next three years, and we've prepaid pretty much all of our debt. So, we only have $84 million of debt to refinance through 2025. So, we think we're in an incredibly stable financial position. So, we'll leverage trend down from 6 times pro forma? Yes, probably will. Are we nervous about carrying 6 times debt to EBITDA for some period of time? No, absolutely not. So, we'll be opportunistic. As we look at funding, it will depend a lot on the upcoming pipeline and we'll just continue to evaluate it.

Jordan Sadler -- KeyBanc Capital Markets Inc. -- Analyst

Okay. That's helpful. And then, maybe, Jake [Phonetic], just coming back to Landmark but also the HonorHealth transactions, including one of the more recent ones, new construction assets, closing at what looks like a 4.5 cap. Can you maybe speak to the merits of investing in MLBs sub 5 -- at sub 5 cap rates, and maybe it would help explaining the difference in the growth profile of the maybe the HonorHealth assets versus the active [Phonetic] portfolio, for example, where you're getting a 5.5? Thank you.

John T. Thomas -- President and Chief Executive Officer, Trustee

Yes. I think, yes, I understand, Jordan. The Phoenix market is really as hard as it can be, part of the pun with Phoenix. We think the rents in those two buildings are below market at this point. And certainly in the current market, we have some shorter-term leases in those buildings. We have a nice long vault overall in both those billings. But we have some shorter-term leases where we can move some things around and take advantage of some of those kind of mark-to-market in that billings. We think the opportunity set there in particular is much stronger than that stated first year cap rate.

So, we have opportunities for more development and more acquisitions with HonorHealth itself directly. So, these were off market transactions. They were under construction and went into a pre-sale arrangement with them mid year, and it just took them till now to complete it and CO'd and rent commencing. So, kind of the rationale for that. I think Jeff can walk through the math kind of with the rent bumps. And again, our expectation of moving some rents up more aggressively in parts of those buildings, they'll be accretive in 2022.

Jordan Sadler -- KeyBanc Capital Markets Inc. -- Analyst

Okay, thanks for that.

Operator

Thank you. Our next question comes from the line of Jason Idoine with RBC. Please proceed with your question.

Jason Idoine -- RBC Capital Markets -- Analyst

Hey, good morning guys. It sounds like you have an opportunity to potentially drive rent growth higher, you've been holding back some space. So, I was wondering if you could quantify that opportunity?

Mark D. Theine -- Executive Vice President, Asset Management

Yes, sure, Jason. This is Mark. So, as you mentioned, and we said in our prepared remarks, we deliberately did not renew a few leases this quarter to make room for our anchor tenants. In many cases, investment grade rated hospital systems to expand and take over the full building. That's a specific example of renewable [Phonetic] that we've just seen. And then, year-over-year, some of the other spots where we're really -- we're really picking our spots and focused on markets like Phoenix, Orlando, Dallas where market rental rates are increasing more than the averages. So, for us, our portfolio is 96% leased, but there is opportunities for maybe 1%, 2% in the portfolio here to really pick our spots and try and drive rental increases and market rents, higher than normal.

Jason Idoine -- RBC Capital Markets -- Analyst

Okay. And then, as we look into the acquisition pipeline, I guess, looking ahead to 2022, obviously 2021 was very back-end weighted, should we expect anything similar in 2022, given you're still going to be digesting the Landmark deal or will it be more evenly spread out throughout the year?

John T. Thomas -- President and Chief Executive Officer, Trustee

Yes, good question. In my introductory remarks, like it should, ratably during the year. And I think back to one of the other questions, we will issue guidance for next year with our next earnings call. But we've been deploying 500 million to a billion almost every year. And again, most years it's more ratable throughout the year, this one, we just had the opportunity to capture a very large transaction and also two development projects that just took longer to complete than we expected. So, again, I think hopefully we'll see some more ratable. The first quarter is building up very nice right now and we're in negotiations with a couple more development projects, which have not commenced yet, probably commence first quarter, and we'll be able to include that in our numbers for next year.

Jason Idoine -- RBC Capital Markets -- Analyst

Okay, thanks.

Operator

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

Richard Hill -- Morgan Stanley -- Analyst

Hey, good morning, guys. One of the things that we've noticed and certainly in our channel checks is there's a lot more interest from private equity and medical office. And I'm wondering now that you think about that, how do you think about those competitive pressures? How do you drive accretive growth? Would you consider levering up here a little bit given your balance sheet, just sort of thinking about a pretty strong background backdrop for medical office and how your capital allocations drive through that?

John T. Thomas -- President and Chief Executive Officer, Trustee

Yes, if you look at institutional real estate investors, whether they be public or private, if you look across all commercial real estate asset classes, I mean, I don't think there is another one maybe but cell towers that collected virtually all their rents in 2020, and many are still suffering through significant declines in occupancy and high wage labor cost which don't affect us. And so, as you're allocating capital in an institutional investor, it's no surprise that some of the world's biggest private equity firms and non-traded REITs are going to be very attracted to the medical office space and just driving appreciation of those assets. Again 4.5 is probably the -- kind of F&B of best-in-class assets, generally a 4.5 cap rate going in. But we look at our investments in a long term IRR basis. Again, those investors that have a three year to five year horizon, where there'll be private equity or other private capital, we think we compete very well against that. We think the health systems are looking for long-term owners with the transparency of a public company and the business model of a public company that wants to be -- create situations, relationships that are win-win, and that's -- we think that's how come we keep getting repeat business with the likes of HonorHealth and others. And had a great long-term relationship with Landmark and they finally decided just to sell us all their assets. So, we think that's the update. The firms are welcome to the party. We have great relationships with most of them. And we look from time to time at potential joint venture opportunities, but we, for the most part, think adding assets to our balance sheet is our primary focus. Jeff?

Richard Hill -- Morgan Stanley -- Analyst

Yes, that's helpful, guys. And if I may -- I appreciate the color on the unlevered yields for Landmark but any thoughts or anything you might be willing to share on accretion in '22 or '23? Recognize it's early, recognize you haven't guided. So, if the answer is no, I completely get it, but I figured I'd ask.

John T. Thomas -- President and Chief Executive Officer, Trustee

Yes, the answer is generally no. But the Landmark portfolio does have some more vacancy across the portfolio than our portfolio. And we're already working on in evaluating lease-up opportunities for that space, I mean we're talking about 200 or 300 basis points. But -- and there are some shorter vaults in some of those buildings. And as we talked about before,the market rents are moving more aggressively up in those markets. And so, again, we expect to take full advantage of those opportunities with those health systems and source new developments with those health systems.

Richard Hill -- Morgan Stanley -- Analyst

Got it. Thank you, guys.

Operator

Thank you, ladies and gentlemen, at this time there are no further questions. I would like to turn the floor back to management for closing comments.

John T. Thomas -- President and Chief Executive Officer, Trustee

We appreciate everybody joining us this morning. We look forward to follow-up calls and may reit. Unfortunately, Zoom's next week, but we look forward to seeing you in one way or the other thing. Thanks for participating.

Operator

[Operator Closing Remarks]

Duration: 35 minutes

Call participants:

Bradley D. Page -- Senior Vice President and General Counsel

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

Mark D. Theine -- Executive Vice President, Asset Management

John T. Thomas -- President and Chief Executive Officer, Trustee

John Kim -- BMO Capital Markets -- Analyst

Jordan Sadler -- KeyBanc Capital Markets Inc. -- Analyst

Jason Idoine -- RBC Capital Markets -- Analyst

Richard Hill -- Morgan Stanley -- Analyst

More DOC analysis

All earnings call transcripts

AlphaStreet Logo

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool recommends Physicians Realty Trust. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.