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8-K - 8-K - Physicians Realty Trusta15-17076_18k.htm
EX-99.1 - EX-99.1 - Physicians Realty Trusta15-17076_1ex99d1.htm

Exhibit 99.2

 

 



 

 

TABLE OF CONTENTS

 

COMPANY OVERVIEW

 

 

 

ABOUT PHYSICIANS REALTY TRUST

5

 

 

SECOND QUARTER HIGHLIGHTS

7

 

 

FINANCIAL HIGHLIGHTS

8

 

 

FINANCIAL INFORMATION

 

 

 

RECONCILIATION OF NON-GAAP MEASURES: FUNDS FROM OPERATIONS (FFO), NORMALIZED FUNDS FROM OPERATIONS (NORMALIZED FFO), AND NORMALIZED FUNDS AVAILABLE FOR DISTRIBUTION (NORMALIZED FAD) 

9

 

 

NET OPERATING INCOME AND ADJUSTED EBITDA

10

 

 

MARKET CAPITALIZATION AND DEBT SUMMARY

11

 

 

FINANCIAL STATISTICS

12

 

 

SAME-STORE PORTFOLIO PERFORMANCE AND TENANT OCCUPANCY

13

 

 

INVESTMENT ACTIVITY AND LEASE EXPIRATION SCHEDULE

14

 

 

PORTFOLIO GEOGRAPHIC DISTRIBUTION

15

 

 

PORTFOLIO DIVERSIFICATION

16

 

 

TOP 10 HEALTH SYSTEM RELATIONSHIPS

17

 

 

CONSOLIDATED BALANCE SHEETS

18

 

 

CONSOLIDATED STATEMENTS OF OPERATIONS

19

 

 

REPORTING DEFINITIONS

20

 

Forward looking statements:

 

Certain statements made in this supplemental information package constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). In particular, statements pertaining to our capital resources, portfolio performance and results of operations contain forward-looking statements.  Likewise, our pro forma financial statements and our statements regarding anticipated market conditions are forward-looking statements. You can identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,” “should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions.

 

2



 

Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

 

·      general economic conditions;

 

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

 

·      our failure to generate sufficient cash flows to service our outstanding indebtedness;

 

·      fluctuations in interest rates and increased operating costs;

 

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

 

·      our ability to make distributions on our common shares;

 

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

 

·      our limited operating history;

 

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

 

·      our geographic concentrations in Texas and metro Atlanta, Georgia causes us to be particularly exposed to downturns in these economies or other changes in real estate market conditions;

 

·      changes in our business or strategy;

 

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

 

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

 

·      the degree and nature of our competition;

 

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

 

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

 

·      decreased rental rates or increased vacancy rates;

 

·      difficulties in identifying healthcare properties to acquire and complete acquisitions;

 

·      competition for investment opportunities;

 

·      our failure to successfully develop, integrate and operate acquired properties and operations;

 

·      the impact of our investment in joint ventures;

 

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

 

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

 

·      our ability to operate as a public company;

 

3



 

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

 

·      lack of or insufficient amounts of insurance;

 

·      other factors affecting the real estate industry generally;

 

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

 

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

 

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

 

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

 

·      higher market interest rates;

 

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

 

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

 

·      future offerings of debt;

 

·      failure of securities analysts to publish reseach or reports about our industry; and

 

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

 

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. You should not place undue reliance on any forward-looking statements, which speak only as of the date of this report. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes after the date of this prospectus, except as required by applicable law. For a further discussion of these and other factors that could impact our future results, performance or transactions, see Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the fiscal year December 31, 2014.

 

ADDITIONAL INFORMATION

 

The information in this supplemental information package should be read in conjunction with the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, earnings press release dated August 7, 2015 and other information filed with, or furnished to, the SEC. You can access the Company’s reports and amendments to those reports filed or furnished to the Securities and Exchange Commission (the “SEC”) pursuant to Section 13(a) or 15(d) of the Exchange Act in the “Investor Relations” section on the Company’s website (www.docreit.com) under the tab “SEC Filings” as soon as reasonably practicable after they are filed with, or furnished to, the SEC. The information on or connected to the Company’s website is not, and shall not be deemed to be, a part of, or incorporated into this supplemental information package. You also can review these SEC filings and other information by accessing the SEC’s website at http://www.sec.gov.

 

4



 

ABOUT PHYSICIANS REALTY TRUST

 

Physicians Realty Trust (NYSE:DOC) (the “Trust,” the “Company,” “DOC,” “we,” “our” and “us”) is a self-managed healthcare real estate company organized in 2013 to acquire, selectively develop, own and manage healthcare properties that are leased to physicians, hospitals and healthcare delivery systems.

 

We invest in real estate that is integral to providing high quality healthcare services. Our properties typically are on a campus with a hospital or other healthcare facilities or strategically located and affiliated with a hospital or other healthcare facilities.

 

Our management team has significant public healthcare REIT experience and long established relationships with physicians, hospitals and healthcare delivery system decision makers that we believe will provide quality investment opportunities to generate attractive risk-adjusted returns to our shareholders.

 

We are a Maryland real estate investment trust and elected to be taxed as a REIT for U.S. federal income tax purposes beginning with our short taxable year ending December 31, 2013. We conduct our business through an UPREIT structure in which our properties are owned by Physicians Realty L.P., a Delaware limited partnership (the “operating partnership”), directly or through limited partnerships, limited liability companies or other subsidiaries. We are the sole general partner of the operating partnership and, as of June 30, 2015, own approximately 94.9% of the partnership interests in the operating partnership (“OP Units”).

 

We had no business operations prior to completion of our initial public offering (the “IPO”) on July 24, 2013. Our predecessor, which is not a legal entity, is comprised of the four healthcare real estate funds managed by B.C. Ziegler & Company (“Ziegler”), which are referred to as the Predecessor Ziegler Funds, that owned directly or indirectly interests in entities that owned the initial properties we acquired through the operating partnership on July 24, 2013 in connection with completion of the IPO and related formation transactions.

 

COMPANY SNAPSHOT

 

 

 

As of

 

 

 

June 30, 2015

 

Gross real estate investments (thousands)

 

$

1,204,354

 

Total buildings

 

122

 

% Leased

 

94.6

%

Total portfolio gross leasable area

 

4,454,640

 

 

 

 

 

% of GLA on-campus / affiliated

 

72.7

%

Average remaining lease term for all buildings (years)

 

8.6

 

 

 

 

 

Cash and cash equivalents (thousands)

 

$

22,549

 

Total debt to firm value

 

19.7

%

Weighted average interest rate per annum on consolidated debt

 

2.88

%

Equity market cap (thousands)

 

$

1,095,619

 

Quarterly dividend

 

$

0.225

 

Quarter end stock price

 

$

15.36

 

Dividend yield

 

5.86

%

Common shares outstanding

 

71,329,378

 

OP Units outstanding and not owned by DOC

 

3,848,950

 

Total firm value (thousands) (1)

 

$

1,453,169

 

 


(1) Represents the value of outstanding shares and units based on the closing stock price on June 30, 2015 plus the amount of outstanding debt and redeemable equity at June 30, 2015.

 

5



 

ABOUT PHYSICIANS REALTY TRUST (CONTINUED)

 

BOARD OF TRUSTEES

 

Tommy G. Thompson

 

William A. Ebinger, M.D.

 

Richard A. Weiss

Chairman

 

 

 

 

 

 

 

 

 

Albert C. Black

 

Mark A. Baumgartner

 

Stanton D. Anderson

Compensation, Nominating and

 

Finance and Investment

 

Audit Committee Chair

Governance Committee Chair

 

Committee Chair

 

 

 

 

 

 

 

 

 

John T. Thomas

 

 

 

 

Chief Executive Officer

 

 

 

 

President

 

 

 

 

 

 

 

MANAGEMENT TEAM

 

 

 

 

 

 

 

 

 

John T. Thomas

 

John W. Sweet

 

Jeffrey N. Theiler

Chief Executive Officer

 

Executive Vice President

 

Executive Vice President

President

 

Chief Investment Officer

 

Chief Financial Officer

 

 

 

 

 

Bradley D. Page

 

John W. Lucey

 

Mark D. Theine

Senior Vice President

 

Senior Vice President

 

Senior Vice President

General Counsel

 

Principal Accounting and

 

Asset & Investment

 

 

Reporting Officer

 

Management

 

 

 

 

 

LOCATION AND CONTACT INFORMATION

 

 

 

 

 

 

 

Corporate Headquarters

 

External Auditor

 

Corporate and REIT Tax Counsel

309 N. Water Street, Suite 500

 

Ernst & Young

 

Baker & McKenzie LLP

Milwaukee, WI 53202

 

155 N. Upper Wacker Drive

 

Richard Lipton, Partner

(414) 367-5600

 

Chicago, IL 60606

 

300 E. Randolph Street, Suite 5000

 

 

(312) 879-2000

 

Chicago, IL 60601

 

 

 

 

(312) 861-8000

 

COVERING ANALYSTS

 

 

 

 

 

J. Kim - BMO Capital Markets Corp.

 

S. Manaker - Oppenheimer & CO.

P. Morgan - Canaccord Genuity Inc.

 

J. Hughes - Raymond James Financial Inc.

W. Graham - Compass Pt Rch & Trading LLC

 

M. Carroll - RBC Capital Markets LLC

J. Roberts - J.J.B. Hilliard W.L. Lyons LLC

 

C. Kucera - Wunderlich Securities Inc.

J. Sadler - Keybanc Capital Markets Inc.

 

J. Sanabria - Bank of America Merrill Lynch

 

6



 

SECOND QUARTER HIGHLIGHTS

 

OPERATING

 

·                  Second quarter 2015 total revenue of $29.7 million, up 159% over the prior year period

·                  Second quarter 2015 rental revenue of $23.6 million, an increase of 131% over the prior year period

·                  Generated quarterly normalized funds from operations (Normalized FFO) of $0.21 per share on a fully diluted basis

·                  Closed on 13 acquisitions totaling 460,857 square feet for total second quarter 2015 investments of $148 million

·                  Funded a $9 million mezzanine loan

·                  Declared quarterly dividend of $0.225 per share for the second quarter

·                  94.6% of portfolio square footage leased as of June 30, 2015

·                  Net increase to gross leasable square footage of 12% to 4,454,640 square feet, as of June 30, 2015 from 3,993,783 as of March 31, 2015

 

SECOND QUARTER INVESTMENTS

 

SUBSEQUENT ACQUISITIONS

· Premier Surgery Center of Louisville, Louisville, KY

 

· Randall Road MOB - Suite 140, Elgin, IL

· Baton Rouge MOB, Baton Rouge, LA

 

· Medical Specialists of Palm Beach, Atlantis, FL

· Health Park Medical Center, Grand Blanc, MI

 

· OhioHealth - SW Health Center, Grove City, OH

· Plaza HCA MOB, Jacksonville, FL

 

· Trios Health MOB, Kennewick, WA

· Northern Ohio Medical Center, Sheffield, OH

 

 

· University of Michigan - Northville MOB, Livonia, MI

 

 

· Coon Rapids Medical Center, Coon Rapids, MN

 

 

· Premier Landmark MOB, Bloomington, IN

 

 

· Palm Beach ASC, Palm Beach, FL

 

 

· Brookstone Physician Center, Jacksonville, AL

 

 

· Jackson Woman’s Clinic, Jackson, TN

 

 

· Hillside Medical Center, Hanover, PA

 

 

· Randall Road MOB, Elgin, IL

 

 

· Mezz Loan - UF Health MOB, Jacksonville, FL

 

 

 

COMPANY ANNOUNCEMENTS

 

·                  June 11, 2015: Announced it has been awarded the 2015 National Association of Real Estate Investment Trusts’ (NAREIT) Investor CARE (Communications and Reporting Excellence) Gold in Small Cap REITs award.

·                  July 1, 2015: Announced a quarterly cash dividend of $0.225 per common share for the quarter ending June 30, 2015, which was paid on July 31, 2015 to shareholders of record on July 17, 2015.

·                  July 23, 2015:  Announced it has amended and upsized its unsecured revolving credit facility from $400 million to $750 million and that such credit facility also provides an accordion feature allowing for an additional $350 million of capacity, subject to customary terms and conditions, resulting in a maximum borrowing capacity of $1.1 billion.

 

7



 

FINANCIAL HIGHLIGHTS

(Unaudited and in thousands, except sq. ft. and per share data)

 

INCOME

 

 

 

Three Months Ended

 

 

 

June 30, 2015

 

March 31, 2015

 

Revenues

 

$

29,683

 

$

24,484

 

NOI

 

22,264

 

18,788

 

Annualized Adjusted EBITDA

 

76,712

 

64,496

 

Normalized FFO

 

15,657

 

13,660

 

Normalized FAD

 

14,990

 

12,468

 

Net income (loss) available to common shareholders per common share

 

$

0.04

 

$

(0.01

)

Normalized FAD per common share and OP unit

 

$

0.20

 

$

0.18

 

 

 

 

 

 

 

 

CAPITALIZATION

 

 

 

As of

 

 

 

June 30, 2015

 

March 31, 2015

 

ASSETS

 

 

 

 

 

Gross Real Estate Investments (including gross lease intangibles)

 

$

1,204,354

 

$

1,047,575

 

Total Assets

 

1,203,456

 

1,066,207

 

DEBT AND EQUITY

 

 

 

 

 

Total Debt

 

$

286,774

 

$

156,952

 

Total Equity

 

868,819

 

862,279

 

Equity Market Capitalization

 

1,095,619

 

1,238,232

 

Implied Equity Market Capitalization (1)

 

1,154,739

 

1,302,348

 

Total Debt / Implied Equity Market Capitalization

 

25

%

12

%

 


(1) Outstanding common shares and OP units at quarter end multiplied by share price at quarter end

 

 

8



 

RECONCILIATION OF NON-GAAP MEASURES:

FUNDS FROM OPERATIONS (FFO),

NORMALIZED FUNDS FROM OPERATIONS (NORMALIZED FFO)

AND NORMALIZED FUNDS AVAILABLE FOR DISTRIBUTION (NORMALIZED FAD)

(Unaudited and in thousands, except share and per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 2015

 

June 30, 2015

 

Net income

 

$

3,297

 

$

2,849

 

Preferred distributions

 

(425

)

(491

)

Depreciation and amortization expense

 

10,351

 

18,591

 

Loss on the sale of investment property

 

 

15

 

FFO

 

$

13,223

 

$

20,964

 

FFO per common share and OP unit

 

$

0.18

 

$

0.29

 

Net change in fair value of derivative

 

(141

)

(154

)

Acquisition related expenses

 

2,575

 

8,507

 

Normalized FFO

 

$

15,657

 

$

29,317

 

Normalized FFO per common share and OP unit

 

$

0.21

 

$

0.41

 

 

 

 

 

 

 

Normalized FFO

 

15,657

 

29,317

 

Non-cash share compensation expense

 

903

 

1,606

 

Straight-line rent adjustments

 

(1,877

)

(3,889

)

Amortization of acquired above/below market leases

 

385

 

607

 

Amortization of lease inducements

 

138

 

257

 

Amortization of deferred financing costs

 

301

 

594

 

TI/LC and recurring capital expenditures

 

(787

)

(1,815

)

Seller master lease and rent abatement payments

 

270

 

781

 

Normalized FAD

 

$

14,990

 

$

27,458

 

Normalized FAD per common share and OP unit

 

$

0.20

 

$

0.38

 

 

 

 

 

 

 

Weighted average number of common shares and OP units outstanding

 

74,446,611

 

71,982,290

 

 

9



 

NET OPERATING INCOME AND ADJUSTED EBITDA

(Unaudited and in thousands, except share and per share data)

 

NET OPERATING INCOME

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 2015

 

June 30, 2015

 

Net income

 

$

3,297

 

$

2,849

 

General and administrative

 

3,989

 

7,341

 

Acquisition related expenses

 

2,575

 

8,507

 

Depreciation and amortization

 

10,351

 

18,591

 

Interest expense

 

2,193

 

3,903

 

Net change in fair value of derivative

 

(141

)

(154

)

Loss on sale of investment property

 

 

15

 

NOI

 

$

22,264

 

$

41,052

 

 

 

 

 

 

 

NOI

 

$

22,264

 

$

41,052

 

Straight-line rent adjustments

 

(1,877

)

(3,889

)

Amortization of acquired above/below market leases

 

385

 

607

 

Amortization of lease inducement

 

138

 

257

 

Seller master lease and rent abatement payments

 

270

 

781

 

Cash NOI

 

$

21,180

 

$

38,808

 

 

ADJUSTED EBITDA

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 2015

 

June 30, 2015

 

Net income

 

$

3,297

 

$

2,849

 

Depreciation and amortization

 

10,351

 

18,591

 

Interest expense

 

2,193

 

3,903

 

Net change in fair value of derivative

 

(141

)

(154

)

EBITDA

 

$

15,700

 

$

25,189

 

Acquisition related expenses

 

2,575

 

8,507

 

Non-cash share compensation

 

903

 

1,606

 

Adjusted EBITDA

 

$

19,178

 

$

35,302

 

 

 

 

 

 

 

Adjusted EBITDA Annualized

 

$

76,712

 

$

70,604

 

 

10



 

MARKET CAPITALIZATION AND DEBT SUMMARY

(Unaudited and in thousands, except share data)

 

MARKET CAPITALIZATION

 

 

 

As of

 

 

 

June 30, 2015

 

Revolving credit facility debt

 

$

191,000

 

Mortgage debt

 

95,774

 

Total Debt

 

$

286,774

 

 

 

 

 

Redeemable equity

 

$

11,656

 

 

 

 

 

Share price

 

$

15.36

 

Total common shares outstanding

 

71,329

 

Total OP units outstanding

 

3,849

 

Implied equity market capitalization

 

$

1,154,739

 

 

 

 

 

Total Firm Value (Debt + Pref. + Equity)

 

$

1,453,169

 

Total Debt/Total Assets

 

23.8

%

Total Debt/Total Firm Value

 

19.7

%

 

 

DEBT SUMMARY

 

 

 

Balance as of

 

 

 

 

 

 

 

6/30/2015

 

Interest Rate:

 

Maturity Date

 

Revolving Credit Facility Debt

 

$

191,000

 

1.7

%

9/18/2019

(3)

Mortgage Debt

 

 

 

 

 

 

 

Canton MOB

 

6,154

 

5.9

%

6/6/2017

 

Firehouse Square

 

2,732

 

6.6

%

9/6/2017

 

Hackley Medical Center

 

5,340

 

5.9

%

1/6/2017

 

MeadowView Professional Center

 

10,317

 

5.8

%

6/6/2017

 

Mid Coast Hospital MOB

 

7,764

 

4.8

%

5/16/2016

 

Remington Medical Commons

 

4,331

 

2.9

%

9/28/2017

 

Valley West Hospital MOB

 

4,823

 

4.8

%

12/1/2020

 

Oklahoma City, OK MOB

 

7,561

 

4.7

%

1/10/2021

 

Crescent City Surgical Center

 

18,750

 

5.0

%

1/23/2019

 

San Antonio Hospital

 

9,455

 

5.0

%

6/26/2022

 

Savage MOB (2)

 

5,824

 

5.0

%

2/1/2022

 

Plaza HCA MOB (2)

 

11,931

 

6.1

%

8/1/2017

 

 

 

$

285,982

 

2.9

%

3.44

(1)

 


(1)         Weighted average maturity of mortgage debt only (2) Excludes market value adjustment of $0.8 million (3) Extended one year on July 22, 2015

 

 

11



 

FINANCIAL STATISTICS

(Unaudited and in thousands, except share and per share data)

 

 

 

Quarter Ended

 

 

 

June 30, 2015

 

 

 

 

 

Annualized dividend rate(1)

 

$

0.90

 

Price per share(2)

 

$

15.36

 

Annualized dividend yield

 

5.86

%

 

 

 

 

Total debt

 

$

286,774

 

Net debt (less cash)

 

264,225

 

Adjusted EBITDA (annualized)*

 

76,712

 

Net Debt / Adjusted EBITDA Ratio

 

3.44x

 

 

 

 

 

Adjusted EBITDA (annualized)*

 

$

76,712

 

Cash interest expense (annualized)*

 

7,568

 

Interest Coverage Ratio

 

10.14x

 

 

 

 

 

Total interest

 

$

2,193

 

Secured debt principal amortization

 

500

 

Total fixed charges

 

$

2,693

 

Adjusted EBITDA

 

19,178

 

Adjusted EBITDA fixed charge coverage ratio

 

7.12x

 

 

 

 

 

Equity market cap

 

$

1,154,739

 

Redeemable equity

 

11,656

 

Total debt

 

286,774

 

Total Firm Value

 

$

1,453,169

 

 

 

 

 

Total debt

 

$

286,774

 

Total assets

 

1,203,456

 

Total Debt / Total Assets

 

23.8

%

Total Debt / Total Firm Value

 

19.7

%

 

 

 

 

Weighted average common shares

 

70,376,959

 

Weighted average unvested restricted common shares

 

371,288

 

Weighted average OP units not owned by DOC

 

3,698,364

 

Weighted Average Common Shares and Units - Diluted

 

74,446,611

 

 


(1)         Annualized rate based on $0.225 quarterly dividend for the quarter ending June 30, 2015.  Actual dividend amounts will be determined by the Trust’s board of trustees based on a variety of factors.

(2)         Closing share price of $15.36 as of June 30, 2015.

*                 Amounts are annualized and actual amounts may differ significantly from the annualized amounts shown.

 

12



 

SAME-STORE PORTFOLIO PERFORMANCE AND TENANT OCCUPANCY

(Unaudited and in thousands, except square footage data)

 

SAME-STORE PORTFOLIO ANALYSIS

 

 

 

Portfolio

 

Same-Store

 

 

 

3 Months

 

3 Months

 

 

 

Ended 06/30/15

 

Ended 06/30/15

 

Number of properties

 

122

 

38

 

Gross leasable area

 

4,454,640

 

1,430,728

 

Cash NOI

 

$

21,180

 

$

7,912

 

% Leased

 

94.6

%

94.4

%

 

 

SAME-STORE PORTFOLIO PERFORMANCE

 

 

 

Year-over-year Comparison

 

Sequential Comparison

 

 

 

2Q15

 

2Q14

 

Change

 

2Q15

 

1Q15

 

Change

 

Number of properties

 

38

 

38

 

 

38

 

38

 

 

Gross leasable area

 

1,430,728

 

1,430,728

 

 

1,430,728

 

1,430,728

 

 

% Leased

 

94.4

%

94.3

%

10

 bps

94.4

%

94.5

%

-10

 bps

Rental revenues

 

10,037

 

9,761

 

+2.8

%

10,037

 

9,976

 

+0.6

%

Operating expenses

 

(2,125

)

(2,026

)

+4.9

%

(2,125

)

(2,070

)

+2.7

%

Same-property Cash NOI

 

7,912

 

7,735

 

+2.3

%

7,912

 

7,906

 

+0.1

%

 

TENANT OCCUPANCY

 

 

 

Quarter Ending

 

Percentage of Total

 

Total GLA

 

06/30/15

 

GLA at 06/30/15

 

Total square feet beginning of quarter

 

3,993,783

 

89.7

%

Acquired GLA

 

460,857

 

10.3

%

Disposed GLA

 

 

0.0

%

Total square feet end of quarter

 

4,454,640

 

100.0

%

 

 

 

 

 

 

Occupied GLA

 

 

 

 

 

Occupied GLA beginning of quarter

 

3,763,856

 

84.5

%

 

 

 

 

 

 

Lease expiring in quarter

 

(42,015

)

-0.9

%

Leases renewed in quarter

 

34,774

 

0.8

%

Retention Rate

 

83

%

 

 

New leases commencing in quarter

 

6,154

 

0.1

%

Net absorption/(vacancy Loss)

 

(1,087

)

0.0

%

 

 

 

 

 

 

Net occupied GLA acquired / (disposed)

 

452,457

 

10.2

%

Occupied GLA end of quarter

 

4,215,226

 

94.6

%

 

13



 

INVESTMENT ACTIVITY AND LEASE EXPIRATION SCHEDULE

 

INVESTMENT ACTIVITY

 

 

 

 

 

 

Acquisition

 

Cash

 

%

 

Purchase

 

 

 

Property

 

Location

 

Date

 

Cap Rate

 

Leased

 

Price

 

GLA

 

Premier Surgery Center of Louisville

 

Louisville, KY

 

4/10/2015

 

6.2

%

100

%

$

8,000

 

18,887

 

Baton Rouge MOB

 

Baton Rouge, LA

 

4/15/2015

 

7.0

%

100

%

10,486

 

25,269

 

Healthpark Medical Center

 

Grand Blanc, MI

 

4/30/2015

 

6.9

%

100

%

18,913

 

59,347

 

Plaza HCA MOB

 

Jacksonville, FL

 

4/30/2015

 

7.7

%

81

%

19,000

 

44,354

 

Northern Ohio Medical Center

 

Sheffield, OH

 

5/28/2015

 

7.5

%

100

%

11,236

 

40,782

 

University of Michigan - Northville MOB

 

Livonia, MI

 

5/29/2015

 

7.9

%

100

%

14,750

 

46,267

 

Coon Rapids Medical Center

 

Coon Rapids, MN

 

6/1/2015

 

8.0

%

100

%

7,298

 

31,617

 

Premier Landmark MOB

 

Bloomington, IN

 

6/5/2015

 

7.5

%

100

%

11,308

 

39,000

 

Palm Beach ASC

 

Palm Beach, FL

 

6/26/2015

 

6.7

%

100

%

14,070

 

20,403

 

Brookstone Physician Center

 

Jacksonville, AL

 

6/30/2015

 

8.2

%

100

%

2,800

 

19,800

 

Jackson Woman’s Clinic

 

Jackson, TN

 

6/30/2015

 

6.7

%

100

%

5,672

 

19,002

 

Hillside Medical Center

 

Hanover, PA

 

6/30/2015

 

7.4

%

100

%

11,400

 

46,249

 

Randall Road MOB (1)

 

Elgin, IL

 

6/30/2015

 

8.3

%

100

%

14,795

 

55,369

 

Medical Specialists of Palm Beach

 

Atlantis, FL

 

7/24/2015

 

6.3

%

100

%

11,051

 

34,537

 

OhioHealth — SW Health Center

 

Grove City, OH

 

7/31/2015

 

7.2

%

100

%

11,460

 

50,000

 

Trios Health MOB

 

Kennewick, WA

 

7/31/2015

 

6.6

%

100

%

64,000

 

151,500

 

Mezz Loan - UF Health MOB

 

Jacksonville, FL

 

6/1/2015

 

 

 

9,000

 

 

Total / Weighted Average

 

 

 

 

 

7.1

%

98

%

$

309,239

 

500,883

 

 


(1) Acquired 14 condos on June 30, 2015 and one on July 17, 2015 out of 19 total condo units

 

LEASE EXPIRATION SCHEDULE

(As of June 30, 2015)

 

Expiration

 

Expiring

 

Expiring Lease

 

% of Total

 

Expiring Lease

 

% of Total

 

Average Rent

 

Year

 

Leases

 

GLA

 

GLA

 

ABR

 

ABR

 

Per SF

 

2015

 

20

 

45,041

 

1.0

%

$

892

 

0.9

%

$

19.80

 

2016

 

41

 

182,470

 

4.1

%

3,927

 

4.1

%

21.52

 

2017

 

58

 

238,338

 

5.4

%

5,142

 

5.4

%

21.57

 

2018

 

55

 

317,879

 

7.1

%

6,116

 

6.5

%

19.24

 

2019

 

35

 

274,851

 

6.2

%

6,037

 

6.4

%

21.96

 

2020

 

33

 

124,323

 

2.8

%

2,479

 

2.6

%

19.94

 

2021

 

21

 

112,196

 

2.5

%

2,485

 

2.6

%

22.15

 

2022

 

19

 

195,591

 

4.4

%

4,714

 

5.0

%

24.10

 

2023

 

32

 

306,160

 

6.9

%

6,858

 

7.2

%

22.40

 

2024

 

53

 

567,714

 

12.7

%

11,093

 

11.7

%

19.54

 

Thereafter:

 

86

 

1,815,645

 

40.7

%

44,597

 

47.3

%

24.56

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MTM

 

14

 

35,018

 

0.8

%

309

 

0.3

%

8.82

 

Vacant

 

 

239,414

 

5.4

%

 

 

 

 

 

 

Total/W.A.

 

467

 

4,454,640

 

100.0

%

$

94,649

 

100.0

%

$

22.72

 

 

14



 

PORTFOLIO GEOGRAPHIC DISTRIBUTION

(As of June 30, 2015)

 

 

TOP TEN STATES

 

 

State

 

GLA

 

Georgia

 

631,402

 

Texas

 

579,844

 

Indiana

 

407,746

 

Michigan

 

398,324

 

Pennsylvania

 

370,255

 

Minnesota

 

348,750

 

Ohio

 

333,830

 

Florida

 

204,680

 

New York

 

185,365

 

Illinois

 

172,500

 

Other

 

821,944

 

Total

 

4,454,640

 

 

15



 

PORTFOLIO DIVERSIFICATION

(As of June 30, 2015)

 

 

 

 

 

 

 

 

 

 

 

Coverage

 

 

 

# of Buildings

 

GLA

 

% of Total

 

% Leased

 

Ratio

 

Single-tenant MOBs

 

52

 

1,459,622

 

32.8

%

99.2

%

N/A

 

Multi-tenant MOBs

 

62

 

2,305,898

 

51.7

%

91.6

%

N/A

 

Hospitals

 

4

 

269,925

 

6.1

%

100.0

%

3.5x

 

LTACHs

 

3

 

310,352

 

7.0

%

100.0

%

3.4x

 

Corporate office

 

1

 

108,843

 

2.4

%

67.8

%

N/A

 

Total

 

122

 

4,454,640

 

100.0

%

94.6

%

 

 

 

THREE MONTH PERIOD ENDING 6/30/15

 

 

 

 

16



 

TOP 10 HEALTH SYSTEM RELATIONSHIPS

(As of June 30, 2015, $ in thousands)

 

 

 

Weighted Avg.

 

 

 

 

 

 

 

% of Total

 

 

 

Remaining

 

Leased

 

% of Total

 

Annualized

 

Annualized

 

Tenant

 

Lease Term

 

GLA

 

GLA

 

Base Rent

 

Base Rent

 

LifeCare

 

12.5

 

310,352

 

7.0

%

$

4,803

 

5.1

%

East El Paso Physicians Medical Center

 

13.2

 

118,007

 

2.6

%

3,481

 

3.7

%

Wayne State University Physician Group

 

14.2

 

176,000

 

4.0

%

3,168

 

3.4

%

Crescent City Surgical Centre

 

13.3

 

60,000

 

1.3

%

3,090

 

3.3

%

Foundation Hospital of San Antonio, LLC

 

11.2

 

68,786

 

1.5

%

2,971

 

3.1

%

Mid Ohio Oncology

 

8.9

 

98,325

 

2.2

%

2,322

 

2.5

%

Northside Hospital

 

7.4

 

88,003

 

2.0

%

2,291

 

2.4

%

University of Rochester Cancer Center

 

4.9

 

98,221

 

2.2

%

1,945

 

2.1

%

Columbus Regional Health System

 

9.4

 

125,189

 

2.8

%

1,909

 

2.0

%

Pinnacle Health

 

7.6

 

90,199

 

2.0

%

1,872

 

2.0

%

Total/W.A.

 

10.3

 

1,233,082

 

27.7

%

$

27,852

 

29.5

%

 

Coon Rapids Medical Center

Coon Rapids, MN

Healthpark Medical Center

Grand Blanc, MI

 

 

Hillside Medical Center

Hanover, PA

Palm Beach ASC

Palm Beach, FL

 

17



 

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

 

 

June 30,

 

December 31,

 

 

 

2015

 

2014

 

 

 

(unaudited)

 

(audited)

 

ASSETS

 

 

 

 

 

Investment properties:

 

 

 

 

 

Land and improvements

 

$

110,349

 

$

79,334

 

Building and improvements

 

931,467

 

644,086

 

Tenant improvements

 

6,810

 

5,614

 

Acquired lease intangibles

 

132,255

 

72,985

 

 

 

1,180,881

 

802,019

 

Accumulated depreciation

 

(64,353

)

(45,569

)

Net real estate property

 

1,116,528

 

756,450

 

Real estate loans receivable

 

25,320

 

15,876

 

Investment in unconsolidated entity

 

1,324

 

1,324

 

Net real estate investments

 

1,143,172

 

773,650

 

Cash and cash equivalents

 

22,549

 

15,923

 

Tenant receivables, net

 

2,333

 

1,324

 

Deferred costs, net

 

4,413

 

4,870

 

Other assets

 

30,989

 

15,806

 

Total assets

 

$

1,203,456

 

$

811,573

 

LIABILITIES AND EQUITY

 

 

 

 

 

Liabilities:

 

 

 

 

 

Credit facility

 

$

191,000

 

$

138,000

 

Mortgage debt

 

95,774

 

78,105

 

Accounts payable

 

1,097

 

700

 

Dividends payable

 

16,942

 

16,548

 

Accrued expenses and other liabilities

 

14,997

 

6,140

 

Acquired lease intangibles, net

 

3,171

 

2,871

 

Total liabilities

 

322,981

 

242,364

 

Redeemable Noncontrolling Interest - Operating Partnership and partially owned properties

 

11,656

 

 

Equity:

 

 

 

 

 

Common share, $0.01 par value, 500,000,000 shares authorized, 70,955,331 and 50,640,863 shares issued and outstanding as of June 30, 2015 and December 31, 2014, respectively

 

713

 

510

 

Additional paid-in capital

 

904,002

 

586,017

 

Accumulated deficit

 

(81,683

)

(51,797

)

Total shareholders’ equity

 

823,032

 

534,730

 

Noncontrolling interests:

 

 

 

 

 

Operating Partnership

 

44,473

 

33,727

 

Partially owned properties

 

1,314

 

752

 

Total noncontrolling interest

 

45,787

 

34,479

 

Total equity

 

868,819

 

569,209

 

Total liabilities and equity

 

$

1,203,456

 

$

811,573

 

 

18



 

CONSOLIDATED STATEMENT OF OPERATIONS

(in thousands, except share and per share data)

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30,

 

June 30,

 

 

 

2015

 

2014

 

2015

 

2014

 

Revenues:

 

 

 

 

 

 

 

 

 

Rental revenues

 

$

23,625

 

$

10,241

 

$

43,966

 

$

17,049

 

Expense recoveries

 

4,908

 

1,020

 

8,444

 

2,090

 

Interest income on real estate loans and other

 

1,150

 

186

 

1,757

 

340

 

Total revenues

 

29,683

 

11,447

 

54,167

 

19,479

 

Expenses:

 

 

 

 

 

 

 

 

 

Interest expense

 

2,193

 

1,657

 

3,903

 

2,938

 

General and administrative

 

3,989

 

2,408

 

7,341

 

4,422

 

Operating expenses

 

7,304

 

2,227

 

13,013

 

3,836

 

Depreciation and amortization

 

10,351

 

3,736

 

18,591

 

6,152

 

Acquisition expenses

 

2,575

 

2,045

 

8,507

 

6,332

 

Total expenses

 

26,412

 

12,073

 

51,355

 

23,680

 

Income (loss) before equity in income of unconsolidated entity, loss on sale of investment property, and noncontrolling interests:

 

3,271

 

(626

)

2,812

 

(4,201

)

Equity in income of unconsolidated entity

 

26

 

26

 

52

 

43

 

Loss on sale of investment property

 

 

 

(15)

 

 

Net income (loss)

 

3,297

 

(600

)

2,849

 

(4,158

)

Net (income) loss attributable to noncontrolling interests:

 

 

 

 

 

 

 

 

 

Operating Partnership

 

(157

)

123

 

(133

)

654

 

Partially owned properties

 

(144

)

(84

)

(176

)

(150

)

Net income (loss) attributable to controlling interest

 

2,996

 

(561

)

2,540

 

(3,654

)

Preferred distributions

 

(425

)

 

(491

)

 

Net income (loss) attributable to common shareholders

 

$

2,571

 

$

(561

)

$

2,049

 

$

(3,654

)

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.04

 

$

(0.02

)

$

0.03

 

$

(0.15

)

Diluted

 

$

0.04

 

$

(0.02

)

$

0.03

 

$

(0.15

)

Weighted average common shares

 

 

 

 

 

 

 

 

 

Basic

 

70,376,959

 

26,163,982

 

68,026,278

 

23,744,730

 

Diluted

 

74,267,284

 

26,163,982

 

71,862,249

 

23,744,730

 

 

 

 

 

 

 

 

 

 

 

Dividends and distributions declared per common share and OP unit

 

$

0.225

 

$

0.225

 

$

0.45

 

$

0.45

 

 

19



 

REPORTING DEFINITIONS

 

Adjusted Earnings Before Interest Taxes, Depreciation and Amortization (Adjusted EBITDA): We define Adjusted EBITDA for DOC as net (loss) income computed in accordance with GAAP plus depreciation, amortization, interest expense and net change in the fair value of derivative financial instruments, net (loss) included from discontinued operations, stock based compensation, acquisition-related expenses, and other non-reoccurring items. We consider Adjusted EBITDA an important measure because it provides additional information to allow management, investors, and our current and potential creditors to evaluate and compare our core operating results and our ability to service debt.

 

Annualized Base Rent: Annualized base rent is calculated by multiplying contractual base rent for September 2014 by 12 (but excluding the impact of concessions and straight-line rent).

 

Earnings Before Interest Taxes, Depreciation, Amortization and Rent (EBITDAR): We define EBITDAR for DOC as net (loss) income computed in accordance with GAAP plus depreciation, amortization, interest expense and net change in the fair value of derivative financial instruments, net (loss) included from discontinued operations, stock based compensation, acquisition-related expenses and lease expense. We consider EBITDAR an important measure because it provides additional information to allow management, investors, and our current and potential creditors to evaluate and compare our tenants ability to fund their rent obligations.

 

Funds From Operations (FFO): Funds from operations, or FFO, is a widely recognized measure of REIT performance. Although FFO is not computed in accordance with generally accepted accounting principles, or GAAP, we believe that information regarding FFO is helpful to shareholders and potential investors because it facilitates an understanding of the operating performance of our initial properties without giving effect to real estate depreciation and amortization, which assumes that the value of real estate assets diminishes ratably over time. Because real estate values have historically increased or decreased with market conditions, we believe that FFO provides a more meaningful and accurate indication of our performance. We calculate FFO in accordance with standards established by the National Association of Real Estate Investment Trusts, (“NAREIT”).   NAREIT defines FFO as net income (computed in accordance with GAAP) before noncontrolling interests of holders of OP units, excluding preferred distributions, gains (or losses) on sales of depreciable operating property, impairment write-downs on depreciable assets and extraordinary items (computed in accordance with GAAP), plus real estate related depreciation and amortization (excluding amortization of deferred financing costs). Our FFO computation may not be comparable to FFO reported by other REITs that do not compute FFO in accordance with NAREIT definition or that interpret the NAREIT definition differently than we do. The GAAP measure that we believe to be most directly comparable to FFO, net income (loss), includes depreciation and amortization expenses, gains or losses on property sales, impairments and noncontrolling interests. In computing FFO, we eliminate these items because, in our view, they are not indicative of the results from the operations of our properties. To facilitate a clear understanding of our historical operating result, FFO should be examined in conjunction with net income (determined in accordance with GAAP) as presented in our financial statements. FFO does not represent cash generated from operating activities in accordance with GAAP, should not be considered to be an alternative to net income (loss) (determined in accordance with GAAP) as a measure of our liquidity and is not indicative of funds available for our cash needs, including our ability to make cash distributions to shareholders.

 

Gross Leasable Area (GLA): Gross leasable area (in square feet).

 

Gross Real Estate Investments: Based on acquisition price (and includes lease intangibles).

 

Health System-Affiliated: Properties are considered affiliated with a health system if one or more of the following conditions are met: 1) the land parcel is contained within the physical boundaries of a hospital campus; 2) the land parcel is located adjacent to the campus; 3) the building is physically connected to the hospital regardless of the land ownership structure; 4) a ground lease is maintained with a health system entity; 5) a master lease is maintained with a health system entity; 6) significant square footage is leased to a health system entity; 7) the property includes an ambulatory surgery center with a hospital partnership interest; or (8) a significant square footage is leased to a physician group that is either employed, directly or indirectly by a health system, or has a significant clinical and financial affiliation with the health system.

 

Hospitals: Hospitals refer to specialty surgical hospitals. These hospitals provide a wide range of inpatient and outpatient services, including but not limited to, surgery and clinical laboratories.

 

LTACHs: Long-term acute care hospitals (LTACH) provide inpatient services for patients with complex medical conditions who require more sensitive care, monitoring or emergency support than that available in most skilled nursing facilities.

 

Medical Office Building (MOB): Medical office buildings are office and clinic facilities, often located near hospitals or on hospital campuses, specifically constructed and designed for use by physicians and other health care personnel to provide services to their patients. They may also include ambulatory surgery centers that are used for general or specialty surgical procedures not requiring an overnight stay in a hospital. Medical office buildings may contain sole and group physician practices and may provide laboratory and other patient services.

 

Net Operating Income (NOI): NOI is a non-GAAP financial measure that is defined as net income or loss, computed in accordance with GAAP, generated from DOC’s total portfolio of properties before general and administrative expenses, acquisition-related expenses, depreciation and amortization expense, REIT expenses, interest expense and net change in the fair value of derivative financial instruments, and gains or loss on the sale of discontinued properties. DOC believes that NOI provides an accurate measure of operating performance of its operating assets because NOI excludes certain items that are not associated with management of the properties. Additionally, DOC’s use of the term NOI may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount.

 

20



 

REPORTING DEFINITIONS (continued)

 

Cash Net Operating Income (NOI): Cash NOI is a non-GAAP financial measure which excludes from NOI straight-line rent adjustments, amortization of acquired below and above market leases and other non-cash and normalizing items. Other non-cash and normalizing items include items such as the amortization of lease inducements, and payment received from a seller master lease. DOC believes that Cash NOI provides an accurate measure of the operating performance of its operating assets because it excludes certain items that are not associated with management of the properties. Additionally, DOC believes that Cash NOI is a widely accepted measure of comparative operating performance in the real estate community. However, DOC’s use of the term Cash NOI may not be comparable to that of other real estate companies as such other companies may have different methodologies for computing this amount.

 

Normalized Funds Available for Distribution (Normalized FAD): DOC defines Normalized FAD, a non-GAAP measure, which excludes from Normalized FFO, non-cash compensation expense, straight-line rent adjustments, amortization of acquired above market leases, amortization of deferred financing costs and amortization of lease inducements and recurring capital expenditures, including leasing costs and tenant and capital improvements. FAD includes payments received from a seller master lease.  DOC believes Normalized FAD provides a meaningful supplemental measure of its ability to fund its ongoing distributions. Normalized FAD should not be considered as an alternative to net income or loss attributable to controlling interest (computed in accordance with GAAP) as an indicator of DOC’s financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of DOC’s liquidity. Normalized FAD should be reviewed in connection with other GAAP measurements.

 

Normalized Funds From Operations (Normalized FFO): Changes in the accounting and reporting rules under GAAP have prompted a significant increase in the amount of non-operating items included in FFO, as defined. Therefore, DOC uses Normalized FFO, which excludes from FFO acquisition-related expenses, net change in fair value of derivative financial instruments, non-controlling income from operating partnership units included in diluted shares, acceleration of deferred financing costs, and other normalizing items. However, DOC’s use of the term Normalized FFO may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount. Normalized FFO should not be considered as an alternative to net income or loss attributable to controlling interest (computed in accordance with GAAP) as an indicator of DOC’s financial performance or to cash flow operating activities (computed in accordance with GAAP) as an indicator of DOC’s liquidity, nor its indicative of funds available to fund DOC’s cash needs, including its ability to make distributions. Normalized FFO should be reviewed in connection with other GAAP measurements.

 

Occupancy:  Occupancy represents the percentage of total gross leasable area that is leased, including month-to-month leases and leases that are signed but not yet commenced, as of the date reported.

 

Off-Campus:  A building portfolio that is not located on or adjacent to key hospital based-campuses and is not affiliated with recognized healthcare systems.

 

On-Campus / Affiliated: On-campus refers to a property that is located on or within a quarter mile to a healthcare system. Affiliated refers to a property that is not on the campus of a healthcare system, but anchored by a healthcare system.

 

Same-Store Portfolio: The same-store portfolio consists of properties held by the Company for the entire preceding year and not currently slated for disposition.

 

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