Transcript

Aaron:

Today, we’re joined by the one and only John Thomas, who’s the president & CEO of the public company, Physicians Realty Trust, which you really helped lead to some tremendous growth with a wonderful culture.

After starting his career as a tax lawyer, he really built an incredible track record and business overseeing a large portfolio of the best-in-class real estate for the medical community.

John, I’m really excited you’re on here today and I know our listeners will really enjoy hearing about your journey. And to that end, maybe you can just share a few minute[s’] biographical sketch, how you got started and early stages of your career.

John:

Yeah, Aaron, thanks for having me today.

So, I grew up in a small town in Alabama and got to college, wasn’t really sure what I wanted to do in life. And one day I was kind of … the Alex B. Keaton’s of my day. If your listeners know who that is…you always look interested in the stock market and reading the Wall Street Journal and things like that. So my dad got me doing that when I was eight or nine years old, gave me some stock in a small town bank that he worked at and was always fascinated by Wall Street, [and] what goes on there. So that I started thinking about my career and what I might be interested in doing. I looked at the Fortune 500 list of CEOs one day and realized that the vast majority of those days were JDs by background, lawyers by background, kind of before the MBA craze. So I went to law school and thought, “how do I get to Wall Street from law school?” And thought [I’m] kind of good with numbers. [I] had an accounting degree, and [I] became a tax lawyer. So a lot of fun from here to there and then a long journey from there to here.

Aaron:

A long journey from Alabama to New York City. You were at Milbank, correct? So that’s a very prestigious firm.

John:

Yeah. I’m not sure how I got in, particularly with this accent. There’s always a bias against our Southern accent. But it seemed to go over well with the girls in New York, I guess. But I made it there and loved my time there. The hiring partner that hired me and then I went to work for said, “You know, you’re starting in the major leagues. You skipped A ball and Double-A ball,” because that New York, Wall Street bias. But it was a great experience and owe a lot to the partners and others that work there.

Aaron:

Then after you went to Sonnenshein after, which I guess now is Dentons, right? You became partner there? 

John:

Yeah, that’s right. I met another non-New Yorker, got married, moved to the Midwest, and felt like it was a great law firm that I went to. But I was … missing the sophistication of the New York work. And Sonnenshein was … looking to expand in those days. They were Chicago-based. They had a New York office, LA office, [and a] London office. But they were looking to expand into more markets, and so I was fortunate enough to get connected with them. And the partner that hired me there does work for us today and really one of my mentors, and tax law in particular, but great firm and a great experience there.  

Aaron:

And a lot of major real estate investors had earlier careers in tax law, I would say. And I guess from there, how do you make the jump? How did you make the transition over to the business side? And obviously, where you’re at now is a whole other level. But maybe talk about that transition when you sort of break on the business side.

 John:

I loved practicing law. I love the sophisticated tax work and structuring. But in those days, some of the work I had done at Milbank during the early recession, the 1990 recession, bankruptcy workouts, real estate developments gone bad, and things like that, kind of led to some experience that in the mid-nineties there was mostly I mean there were very few for-profit hospitals in the United States. And so there was a little company in Dallas, Texas with some private equity that was out trying to start a for-profit hospital company. The guy who started that company is now a senator from Florida… (laughs)

But he realized he needed to buy hospitals to really build this company, and he was only going to have tax-exempt hospitals that were successful that he could really try to buy. And not a lot of people knew how you sell a tax-exempt organization to a taxable new company. And again, some of that early experience I had in the early nineties kind of helped guide that process. So our firm had a busy practice selling tax-exempt hospitals or representing tax exempt hospitals that were selling to Columbia, which became HCA, which is now the largest for-profit hospital company. But that experience led to just doing more and more work with more and more tax-exempt hospital organizations.

And, you know, one day–one of them I’d worked about 120 hours that week–and one of them called and said, “Are you interested in coming in-house? We need to bring a general counsel in-house.” I talked it over with my family and thought it’d be a great opportunity to kind of go beyond the law and go beyond just tax law, and it was then started a whole new transition into healthcare executive leadership, if you will.

Aaron:

Terrific. And that was Baylor, right?

John:

That was the Sisters of Mercy Health System in Saint Louis. And then after a couple of years there, Baylor recruited me to move to Dallas and we had some family connections. And so the Baylor healthcare system [was] a wonderful organization, very entrepreneurial. And again, just there [was] an opportunity to do more and more executive leadership as much as, being the lawyer as part of the executive team.

In those days, that was the George W. Bush years as president. And a lot of the Baylor board members were friends of the Bush family. And so we didn’t really have a government relations leader at that time, and they asked me to take that on. And so it’s easy to get into government relations when you kind of have open access to the White House. And so I spent a lot of time working on that with then Secretary of Health Tommy Thompson, working on healthcare policy issues. And Tom is the chairman of the board of our company. And so he and I’ve been connected at the hip since 2002. Again, [a] great experience.

Aaron:

That’s great. And you’ve testified before the House on a lot of topics related to your field as well. So you really got that governmental mix. A lot of real estate people can’t claim that.

John:

Yeah, a lot of some interesting experience. Baylor was always, again as an entrepreneurial organization, was always kind of bucking the general trends of hospitals and in some cases healthcare policy. Tommy and I worked hard on medical liability reform [to] kind of create what we believe, and still believe, is a more fair system for compensating victims of malpractice and bad actors, but at the same time not bankrupting the healthcare system. And in those days in Texas, I mean, we were facing hundreds of millions of dollars of liability claims, that was really bankrupting the system. You know, when we started the tort reform, medical liability reform efforts, there were 60 counties in Texas that wouldn’t deliver a baby. No doctor in those counties would deliver a baby.

Aaron:

Wow.

John:

It’s really about access to healthcare and creating a balanced system. So you still have access to healthcare, but you also have fair compensation for victims. And today, every county in Texas has access to an obstetrician. And it was because of those reform efforts we put in place in 2003. So, that kind of experience testifying in Congress, you know, first time was a little scary. The second time was … interesting. The third time, you know, old hat, (laughs) and a congressman tried to pull a surprise on me. And unfortunately, the surprise backfired. And it’s kind of a funny story. I won’t tell on the air…

Aaron:

But I guess that exposure between obviously I’m saying the tax law, and then learning the business inside and out, and then the governmental experience, and the testifying before Congress and all that. I mean, all those pieces bled together to build you into the full package, to be CEO of a public company, really managing a massive portfolio and doing deals at the highest level.

So, let’s talk about the transition; the company where it is today. Obviously, it grew massively in the last decade. It’s really been exponential. It’s not been like 10% a year. I mean, it’s been wild almost the amount of growth. Maybe you talk about those early years, how the company grew, what type of systems or culture you tried to imbue in leadership to build the type of organization to do the … the massive work you’re doing today, those investments you make in the early part of building the business that only today, many years now you’re really reaping those returns. That I think [would] be very telling for a lot of people building their companies today.

John:

Yeah. So just a little bit of background to that is I got a call from my headhunter one day and said, we’d like you to consider coming to work for this Real Estate Investment Trust based in Toledo, Ohio, and it’s called “Health Care REIT”. I really didn’t know who he was talking about or why he was calling me. (laughs) I wasn’t a real estate lawyer. I kind of managed or was involved in real estate deals as part of my job as general counsel and executive at Baylor. But I said, “you got to be calling the wrong John Thomas.” And he kind of read my bio back to me and said, “No, you’re the one that the CEO wants to talk to.” And it was really … a very important point. Again, this led to kind of success through today, which was the CEO wants somebody who understands healthcare, healthcare policy, and tax-exempt hospitals. Even today, despite my story about HCA, nonprofit hospitals or nonprofit organizations still own the vast majority of hospitals and medical buildings in the country. He said, “The real estate part’s easy. It’s understanding the business that goes on inside the building that really makes it valuable.” And so that CEO was a guy named George Chapman, again, still a mentor today. But he convinced me to come to Toledo and go to work for him and run the medical office division of a much bigger REIT that does senior housing and skilled nursing. And really one of the original REITs in the country after the REIT legislation passed in the sixties.

In 2013, I had an opportunity to start a REIT that did nothing but investing in medical office real estate. So we started with 18 buildings that had been accumulated in a little private investment fund. The guy who built that fund or created that kind of investment fund called and it was kind of like the call about calling John Thomas to go to a REIT with no experience. He said, “You know, everybody in the medical office world knows you.” And he goes, “I’m 70 years old. I can’t IPO a company, but we’d like to do an IPO and have you come run it and help us through the process.” And I’m like, “This is the dumbest idea ever.” (laughs)

Aaron:

(laughs) I mean, that sounds like something you should jump on, right?

John:

Yeah. Yeah, it does. And it’s like, you know, this is a dumb idea, but out of respect for him, he’s got John Sweet, another guy that I owe a tremendous amount to, and [I] went and met with the investment bankers that he was talking to. And they convinced me that it was kind of a good time in the market to make that work. So we went through the registration process with the SEC, went through the hell week of [the] IPO roadshow and came out the back of it; raised $135 million in the IPO; had a list of assets we wanted to go buy with those dollars. At the end of last year, we cleared just over $6 billion. So we’re recording this just before our ninth anniversary on July the 19^th [of 2022]. And … that’s been a good, fabulous run.

Aaron:

Yeah, that’s a crazy run. I mean, from that early stage in nine years, that really is a crazy run. Maybe talk about those leaps and bounds that were taken because obviously I know you’re picking up large portfolios and I know we talked a lot about COVID and your asset class is just absolutely darling, you know, where it sits. And further to the point you just made as well, that CEO is very smart who found somebody who knew how to oversee the business in the building. Somebody told me one time that “All these buildings have no value whatsoever. It’s only the people inside them doing things [that] give them that value.” So you really have that expertise in the business. So you were the perfect person and it seemed to have worked out real well. So maybe those early years, from $100 million [to] $6 billion is a big jump. When you were really growing like crazy, you obviously had to oversee a culture, you had to hire people. You were sort of building the parachute as you’re jumping. Maybe describe some of that heyday a little bit, [and] how you got to where you are.

John: 

Again, all these things kind of build on top of each other. You know, we’ve been ringing the bell that day, but we were on the floor of the New York Stock Exchange. You see our stock trade for the first time and patting ourselves on the back and again, exhausted from because it’s right at the end of the roadshow. But we looked around at each other. We had $135 million kind of coming in, minus the banker fees, things like that. But wow, we’re a one employee company… I was technically the only employee that day. (laughs)

Aaron:

You didn’t even need other people. Why did you bother hiring? (laughs)

John:

(Laughs) Yeah. The original founder and his protege that still worked for us and is still our leader today. And it was just really kind of the three of us. But we looked around at each other and said, “What do we do now?” First thing we did was to hire an executive assistant who very, very much critically [was] part of the success story and still with us, thankfully. You know, it’s odd you can’t get a corporate American Express card even though you have $135 million in the bank. Because we had no history. We had no, we had nothing. Right? (laughs)

Aaron:

A public company can’t get a credit card….

John:

Yeah. (laughs) We had a piece of paper [that] said we were a public company and a piece of paper that said we had a bank account and we had $135 million in it. But American Express wouldn’t give us credit card. We solved that problem.

But before I was the CEO, even though I was a EVP and led a division of a company, I always hated the word “culture.” You read all these books around culture and mission and go, “Oh, that’s good, but that doesn’t pay the bills.” We were sitting on top a lot of money, not a big company, but a lot of money, and we really started thinking about culture that day and I did and started realizing how important culture is. And it’s been critically part of our success. What we pitched to investors [on] how we were going to be different is the relationships that I had, the relationships that John Sweet had, the relationships that Governor Thompson—who became chairman of our board—had across the healthcare industry. And we weren’t going to just wait on brokers to bring us buildings. We were going to go knock on doors of doctors and health system executives that we knew. And these are friends, right? You’re trying to do business with friends.

And at the same time, you want to deliver [on] what you tell them you’re going to do. And so we built an organization, very family oriented, but one that really buys into relationships. We eventually captured our vision and core values in an acronym called “CARE”, and CARE stands for Communicate and Collaborate; Act with Integrity; “R” is very important to us, Respect the Relationship; and then E is Execute Consistently, And that acronym “CARE” is a nice healthcare word, but those words mean everything to us and all the decisions we make about everything we do. And it really helped us go out to doctors and hospitals who own the buildings we want to own that we wanted to buy and we wanted at least we wanted them to pay us rent forever to be in those buildings. And the very first building we bought came that way. And frankly, the last one we bought came that way. And we have 300 buildings today. So it’s about a culture in an organization where we’re all kind of rowing together. And sometimes if somebody starts rowing in the wrong direction or paddling too hard or paddling too soft, you know, we have to revert back to what’s really our focus and our vision and our … our future. And that’s a huge part of the success of the organization.

Aaron:

I completely agree. If you invest in those relationships, you can acquire $6 billion of real estate in nine years and do way more. I mean, I know you’re still on a great growth trajectory and you have a lot more in the tank to do and people are just going to be transactional, trying to squeeze everything out of something here and now. Everyone sees those people coming and they don’t last. And the people who have that integrity that you project, and that wonderful culture and that professionalism is you’re living proof of that. That’s a great way to expand a business and that’s wonderful to hear.

John:

Yeah, we really believe that. And I think one of the most important parts of my job is still managing those relationships. But it’s passing on those relationships. It’s getting others involved in transitioning those relationships, helping them understand how to build relationships with people. And we never wanted to build a portfolio to sell. We wanted to build a company that’s going to be here 100 years from now. We’re a dividend paying stock. A lot of people who buy our stock are retirees who really rely on that dividend, you know, every quarter to … to live. And our health system partners rely on us to take care of the building so that they can take care of patients. You know, we’re for profit. We want to make as much money as we can, but we really are a mission-driven organization.  

Aaron:

And you’re managing those assets at a top-notch level. You enable the medical community to do the job they need to do to save people and help the community. So it really is a wonderful win-win-win for everybody. And maybe you could talk a little bit about the mental aspect. I mean, you’ve got a public organization, you’ve got a large organization, a lot of real estate. You’re exceptional what you do, you build great relationships. But just day-to-day, a lot of people are looking to you. How do you juggle it all? I mean, maybe for somebody who’s listening to this, who’s really starting to grow and they’re very, very focused on their career—as you have been—but they’re also trying to spend time with family. How do you mentally get through that intense battle every day of juggling it all? And how do you keep your head on straight every day?

John:

Yeah, it’s a great question. This is an audio, not a visual, so you can’t see the gray hairs that I have that I didn’t have ten years ago. (laughs)

I don’t have a simple answer, but I do think we spend a lot of time trying to, in the organization, kind of understand and appreciate other people.

And, you know, when it comes to stress, until last year, I would rarely even admit to even having stress or anxiety. And of course, you have tons, right? And I have tons. And it’s not easy because I think of our organization is 100 and we have about 110 families. We don’t have 110 employees; we have 110 families that are represented. And then again, back to all the families that go into our 300 buildings. And so I think a lot about that every day. And to your point, it’s stressful. It creates a lot of stress. I don’t sleep much, never have, which is a bad thing. I don’t have the best work-life balance in the world. I’m learning, as the next generation doesn’t want to have the work-life imbalance that my generation has had. I lean on my wife and my family really hard. I don’t exercise as much as I should, but I like to run a marathon a year. So that kind of keeps me focused on something other than … than just work.

I’m a learner. I really like the CliftonStrengths Resource Guide. If you ever looked at that book and the resources around that and taking that test, it’s incredibly accurate. And I think it kind of gives you feedback about who you are and how to manage that. It’s one of the things about CliftonStrengths. The … thesis of the book is people manage other people for their weaknesses and what you really should do is manage to their strengths, help them understand where their weaknesses are, but don’t focus on the weakness as much as focusing on the strengths. And, and one of my strengths is, being a learner. I like to learn about anything and everything. That’s a way that I kind of pass on some of the stress. So meeting new people like the two of us met at an organization, that I’m still not sure how I got connected to, but I really enjoyed the people in that organization and meeting people like you. Those are my stress relievers.

Aaron:

Wonderful. Well said. What a deep management insight to lead towards people’s strengths. I love it. It’s obvious, but I guess people don’t always do that. First of all, this has been a wonderful conversation. I really, really want to thank again. It’s been outstanding and your story is outstanding. Any other questions that you think would encapsulate some of the career highlights? Anything else we should be chatting about?

John:

I don’t think so. I really enjoyed the conversation. I really love talking about Physicians Realty Trust. We named it “Physicians Realty” because that’s who we think our customer is: the physician, and then more importantly, the patients that the physicians are serving. Again, one of the more important things about our organization is we really work hard to structure transactions in a win-win way. You mentioned that before, and we really do. And that’s back to respecting the relationship. You know, I’m very focused on the succession planning and the future of the organization. I’m not going to be around forever and don’t want to be the leader forever. I want to pass on to the next generation, if you will. And so that’s a big part of my day-to-day thinking. And I wouldn’t say stress, but what I am focused on at this point kind of going forward, as we focus on the future, that’s really my primary focus.

Aaron:

John, it’s been an amazing conversation. I’ve learned a lot. I’m sure people listening to this will take away amazing lessons. And again, I just really want to thank you. I guess we’ll conclude here. Again, I really appreciate your time today.

John:

Well, I appreciate it Aaron, and I look forward to seeing you soon.