Physicians Realty Advances Sustainability Across Medical Office Building Portfolio
Apr. 13 2021
Physicians Realty Trust (NYSE: DOC) is working to be a sustainability trailblazer in green initiatives across its portfolio by setting aggressive goals, emphasizing accountability, and adopting a building certification platform particularly well-suited to the assets in its portfolio.
John Thomas, president and CEO of Physicians Realty, says the organization has always had a focus on implementing environmental stewardship “in a way that has a direct financial benefit for our tenants, and ultimately, contributes to better health care for the communities we serve.”
While sustainability has long been a company priority, Physicians Realty, which has built a $4 billion-plus portfolio that includes 269 outpatient medical buildings, surgery centers, and cancer centers across 36 states, undertook an initiative in 2018 to develop and launch a formal environmental, social, and governance (ESG) program.
Under the helm of Mark Theine, Physician Realty’s executive vice president of asset management, the company’s ESG team collected years of data, creating a baseline of sustainability metrics across its portfolio. To reach its sustainability goals, Physicians Realty analyzes areas of highest energy usage, emissions, water, and waste at its buildings to both enhance operations and plan for future system upgrades.
All of Physician Realty’s environmental projects adhere to what the company has coined a “G2 Sustainability” philosophy, resulting in positive returns for tenants and investors.
“Our ‘green’ initiatives lead to ‘green’ money savings for our tenants, and ultimately, that improves the quality of the buildings,” Theine explains. “It creates a better facility for patient care, the hospital systems are able to operate those buildings cost-efficiently, and that keeps them committed to those buildings long term, which of course, helps Physicians Realty and our shareholders. It’s a win-win.”
Based on 2018 performance, the company set aggressive goals for the next three years, including a 10% reduction in energy, emissions, and water usage along with a 10% increase in waste diversion. To publicize results, the company released its first interactive ESG Report in June 2020.
“We made great progress in our first year,” Theine notes. “Utilizing 2018 as our base year, we recorded about a 2.5% progression toward our energy, emissions, water, and waste targets.”
Thomas adds that under Theine’s leadership, the company has seen “fantastic results.” By putting the annual ESG Report online, the organization wants to be “held accountable to achieve those results and exceed those goals,” Thomas says.
Adoption of IREM CSP
Among its various ESG initiatives, Physicians Realty adopted a building certification program that complemented other programs it was already utilizing, including LEED and ENERGY STAR. The program it selected, the IREM Certified Sustainable Property (CSP) program, has become a cornerstone of Physician Realty’s green initiatives.
IREM allows for the certification of properties not covered by other programs. For example, LEED—the world’s most recognizable green building certification program—isn’t necessarily appropriate for all properties, especially older ones. Brand-new green buildings boasting environmentally friendly features are often LEED-certified. IREM’s program, meanwhile, gives existing buildings the opportunity to catch up.
“One of the things we like about the IREM certification is since we’re primarily acquiring existing properties around the country, we can take an existing building and improve it by putting sustainability practices into the building,” Theine explains.
Thomas agrees, pointing out that IREM’s program allows the company to pursue measurable efforts in buildings it owns. “We really do see the IREM program as having a much more meaningful impact, because we can acquire buildings and use their evaluation metrics as part of our underwriting process to improve operations,” he notes.
To earn IREM CSP certification, properties must meet baseline requirements and earn points across energy, water, health, recycling, and purchasing categories. IREM provides a checklist and scorecard for tracking and a third party audits the program.
Physicians Realty earned IREM CSP designations at eight properties in 2019 and another 10 designations in 2020. The company has initially committed to achieve designations at 25 multi-tenant properties over three years.
The REIT has tied these IREM goals to its corporate and compensation goals for the executive team, Theine points out. “Our board has done a great job leading with vision and demonstrating a commitment to sustainability by deliberately tying our compensation to our sustainability goals,” he adds.
Sustainability in Action
One of the most sustainable properties in Physicians Realty’s portfolio, the HealthEast Clinic and Specialty Center in Maplewood, Minnesota, includes all LED lighting and low-flow plumbing fixtures, while an aggressive new recycling program has helped achieve a 45% diversion rate for recyclable materials.
Strictly Pediatrics Specialty Center in Austin, Texas, features a 2,500-square-foot-panel solar array—one of the largest in Central Texas—which generates 900,000 million kilowatts of clean energy annually. Over the next 25 years, the Strictly Pediatrics solar system is expected to save $2.6 million in electricity costs and avoid approximately 21,466 metric tons of carbon dioxide from being released into the atmosphere. A recent retrofit of the interior lighting will further reduce the property’s carbon footprint.
The Baylor Scott & White Charles A. Sammons Cancer Center in Dallas, one of the country’s largest medical office buildings, received LEED Gold certification, ENERGY STAR certification, and designation as an IREM CSP property.
Through retrofitting common area lighting fixtures and updating outdated HVAC components, the company achieved an 8.5% reduction in energy use at the property from 2018 to 2019. A recommissioning of the building mechanical systems is underway, which Physicians Realty expects to further reduce the site’s energy usage by an additional 3-5%.