Attached files
| file | filename |
|---|---|
| 8-K - 8-K - Physicians Realty L.P. | a8-k2016q4earningslpandtru.htm |
| EX-99.1 - EXHIBIT 99.1 - Physicians Realty L.P. | a2016q4earningspressreleas.htm |
| EX-3.1 - EXHIBIT 3.1 - Physicians Realty L.P. | exhibit3102242017.htm |
Northeast Medical Center
Syracuse, NY
SUPPLEMENTAL OPERATING
& FINANCIAL INFORMATION
FOURTH QUARTER 2016
PHYSICIANS REALTY TRUST
NYSE: DOC
Medical Arts Center at Hartford
Plainville, CT
December 2016
2
COMPANY OVERVIEW
ABOUT PHYSICIANS REALTY TRUST 4
FOURTH QUARTER HIGHLIGHTS 6
FINANCIAL HIGHLIGHTS 7
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) 8
RECONCILIATION OF NON-GAAP MEASURES: NET OPERATING INCOME AND ADJUSTED EBITDA 9
MARKET CAPITALIZATION AND DEBT SUMMARY 10
FINANCIAL STATISTICS 11
SAME-STORE PORTFOLIO PERFORMANCE AND TENANT OCCUPANCY 12
INVESTMENT ACTIVITY 13
PORTFOLIO GEOGRAPHIC DISTRIBUTION 14
PORTFOLIO DIVERSIFICATION 15
LEASING RELATIONSHIPS AND EXPIRATION SCHEDULE 16
CONSOLIDATED BALANCE SHEETS 17
CONSOLIDATED STATEMENTS OF INCOME 18
REPORTING DEFINITIONS 19
TABLE OF CONTENTS
3
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, expectations or
intentions.
Forward-looking statements reflect the views of our management regarding current expectations and projections about future
events and are based on currently available information. These forward-looking statements are not guarantees of future
performance and 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.
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. 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 supplemental information package, except
as required by applicable law. You should not place undue reliance on any forward-looking statements that are based on
information currently available to us or the third parties making the forward-looking statements. For a discussion of 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 ended December 31, 2016.
NON-GAAP FINANCIAL MEASURES
This presentation includes Adjusted EBITDA, EBITDAR, Net Operating Income (or NOI), Cash NOI, Funds From Operations
(or FFO), Normalized FFO, and Normalized Funds Available For Distribution (or FAD), which are non-GAAP financial
measures. For purposes of the Securities and Exchange Commission’s (“SEC”) Regulation G, a non-GAAP financial measure is a
numerical measure of a company’s historical or future financial performance, financial position or cash flows that excludes
amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable
financial measure calculated and presented in accordance with GAAP in the statement of operations, balance sheet or statement of
cash flows (or equivalent statements) of the company, or includes amounts, or is subject to adjustments that have the effect of
including amounts, that are excluded from the most directly comparable financial measure so calculated and presented. As used in
this presentation, GAAP refers to generally accepted accounting principles in the United States of America. Our use of the non-
GAAP financial measure terms herein may not be comparable to that of other real estate investment trusts. Pursuant to the
requirements of Regulation G, we have provided reconciliations of the non-GAAP financial measures to the most directly
comparable GAAP financial measures.
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 February 24, 2017 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 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 December 31, 2016, own approximately 97.5% of the partnership interests in the operating partnership (“OP Units”).
COMPANY SNAPSHOT As of
December 31, 2016
Gross real estate investments (thousands) $ 2,940,156
Total properties 246
% Leased 96.1%
Total portfolio gross leasable area (sq. ft.) 10,883,601
% of GLA on-campus / affiliated 78.4%
Average remaining lease term for all buildings (years) 8.5
Cash and cash equivalents (thousands) $ 15,491
Total debt to firm value 27.2%
Weighted average interest rate per annum on consolidated debt 3.1%
Equity market cap (thousands) $ 2,577,916
Quarterly dividend $ 0.225
Quarter end stock price $ 18.96
Dividend yield 4.75%
Common shares outstanding 135,966,013
OP Units outstanding and not owned by DOC 3,436,207
Total firm value (thousands) (1) $ 3,668,737
(1) Represents the value of outstanding shares and units based on the closing stock price on December 31, 2016 plus the amount of outstanding debt and
redeemable equity at December 31, 2016.
5
ABOUT PHYSICIANS REALTY TRUST (CONTINUED)
BOARD OF TRUSTEES
Tommy G. Thompson
Chairman
John T. Thomas William A. Ebinger, M.D. Richard A. Weiss
Chief Executive Officer Trustee Trustee
President
Albert C. Black Mark A. Baumgartner Stanton D. Anderson
Compensation and Nominating Finance and Investment Audit Committee Chair
Governance Committee Chair Committee Chair
MANAGEMENT TEAM
John T. Thomas
Chief Executive Officer
President
Jeffrey N. Theiler D. Deeni Taylor John W. Lucey
Executive Vice President Executive Vice President Senior Vice President
Chief Financial Officer Chief Investment Officer Chief Accounting and
Administrative Officer
Bradley D. Page Daniel M. Klein Mark D. Theine
Senior Vice President Senior Vice President Senior Vice President
General Counsel Deputy Chief Investment Officer Asset & Investment Management
LOCATION AND CONTACT INFORMATION
Corporate Headquarters Independent Registered Corporate and REIT Tax Counsel
309 N. Water Street, Suite 500 Public Accounting Firm Baker & McKenzie LLP
Milwaukee, WI 53202 Ernst & Young Richard Lipton, Partner
(414) 367-5600 Chicago, IL 60606 Chicago, IL 60601
(312) 879-2000 (312) 861-8000
COVERING ANALYSTS
J. Sanabria - Bank of America Merrill Lynch P. Martin - JMP Securities
J. Kim - BMO Capital Markets Corp. J. Sadler - Keybanc Capital Markets Inc.
M. Gorman - BTIG V. Malhotra - Morgan Stanley
P. Morgan - Canaccord Genuity Inc. J. Hughes - Raymond James Financial Inc.
J. France - Cantor Fitzgerald M. Carroll - RBC Capital Markets LLC
S. Shaw - Compass Pt Rch & Trading LLC C. Vanacore - Stifel
J. Roberts - J.J.B. Hilliard W.L. Lyons LLC E. Fleming - SunTrust Robinson Humphrey
T. Okusanya - Jefferies LLC C. Kucera - Wunderlich Securities Inc.
The equity analysts listed above are those analysts that have published research material on the Company and are listed as covering the
Company. Please note that any opinions, estimates, or forecasts regarding the Company's performance made by the analysts listed above
do not represent the opinions, estimates, or forecasts of Physicians Realty Trust or its management. The Company does not by its reference
above imply its endorsement of or concurrence with any information, conclusions or recommendations made by any of such analysts.
Interested persons may obtain copies of analysts' reports on their own, as we do not distribute these reports. Several of these firms may,
from time to time, own our stock and/or hold other long or short positions on our stock, and may provide compensated services to us.
6
FOURTH QUARTER 2016 HIGHLIGHTS
OPERATING HIGHLIGHTS
• Fourth quarter 2016 total revenue of $73.7 million, up 82% over the prior year period
• Fourth quarter 2016 rental revenue of $55.9 million, an increase of 76% over the prior year period
• Generated quarterly net income per share of $0.06 on a fully diluted basis
• Generated quarterly normalized funds from operations (Normalized FFO) of $0.27 per share on a fully diluted basis
• Completed fourth quarter investments of $226.5 million, including 11 healthcare properties (and 3 condominium units)
representing 656,458 square feet, joint venture investments of $0.9 million, loan investments of $2.1 million, and
noncontrolling interest buyouts of $1.5 million
• Declared quarterly dividend of $0.225 per share for the fourth quarter
• 96.1% of portfolio square footage leased as of December 31, 2016
• Net increase to gross leasable square footage of 6.4% to 10,883,601 square feet as of December 31, 2016 from
10,233,656 as of September 30, 2016
COMPANY ANNOUNCEMENTS
• January 3, 2017: Announced the retirement of Company Founder and Chief Investment Officer John W. Sweet, effective
December 31, 2016, as well as the promotions of Deeni Taylor to EVP-Chief Investment Officer and Daniel M. Klein to
SVP-Deputy Chief Investment Officer. Also announced the completion of $225 million of medical facility investments
in the fourth quarter, resulting in total 2016 investments of $1.28 billion.
• February 24, 2017: Announced the Company's intention to sell nine properties. These nine properties, which in the
aggregate consist of 319,085 GLA, consist of five assets affiliated with Foundation Healthcare in Texas and Oklahoma
and four legacy properties in Georgia from the Company's original portfolio of 19 assets that it acquired on July 24, 2013
in connection with the completion of its initial public offering.
FOURTH QUARTER INVESTMENTS SUBSEQUENT INVESTMENTS
• NW Michigan S.C. - Units #1, #2, #4, Traverse City, MI • Orthopedic Associates MOB, Flower Mound, TX
• United Surgical Partners J.V., Scottsdale, AZ • Medical Arts Center at Hartford, Plainville, CT
• Syracuse Portfolio (2 MOBs), Syracuse, NY • CareMount Portfolio (2 MOBs), Lake Katrine, NY
• Cincinnati Eye Institute, Cincinnati, OH and Rhinebeck, NY
• Curie Building Loan, El Paso, TX
• HonorHealth - Scottsdale MOB, Scottsdale, AZ
• Fox Valley Hematology & Oncology, Appleton, WI
• Gastrointestinal Associates MOB, Powell, TN
• Northern Vision Eye Center, Traverse City, MI
• GFC Membership Buyout, Great Falls, MT
• Flower Mound Portfolio (3 MOBs), Flower Mound, TX
• HonorHealth IRF, Scottsdale, AZ
7
FINANCIAL HIGHLIGHTS
(Unaudited and in thousands, except sq. ft. and per share data)
(1) Unadjusted for unamortized fair value adjustments and deferred financing costs
(2) Outstanding common shares and OP Units at year end, multiplied by share price at year end
INCOME Three Months Ended
December 31, 2016 September 30, 2016
Revenues $ 73,674 $ 70,010
Net income 8,620 10,294
NOI 51,526 50,878
Annualized Adjusted EBITDA 192,148 184,504
Net income available to common shareholders per common share $ 0.06 $ 0.07
Normalized FFO 38,219 37,019
Normalized FFO per common share and OP Unit $ 0.27 $ 0.27
Normalized FAD 34,178 32,887
CAPITALIZATION As of
ASSETS December 31, 2016 September 30, 2016
Gross Real Estate Investments (including gross lease intangibles) 2,940,156 2,724,302
Total Assets 2,888,092 2,670,647
DEBT AND EQUITY
Total Debt (1) 999,194 794,780
Total Equity 1,782,318 1,768,410
Equity Market Capitalization 2,577,916 2,899,721
Implied Equity Market Capitalization (2) 2,643,066 2,977,674
Total Debt / Implied Equity Market Capitalization 38% 27%
Gross Real Estate Assets Real Estate Investments/Quarter Total GLA
Portfolio Growth Since IPO
$3,000,000
$2,750,000
$2,500,000
$2,250,000
$2,000,000
$1,750,000
$1,500,000
$1,250,000
$1,000,000
$750,000
$500,000
$250,000
$0
G
ro
ss
R
ea
lE
st
at
e
In
ve
st
m
en
ts
11,000,000
10,000,000
9,000,000
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
G
LA
in
SF
IPO Q3-2013
Q4-2013
Q1-2014
Q2-2014
Q3-2014
Q4-2014
Q1-2015
Q2-2015
Q3-2015
Q4-2015
Q1-2016
Q2-2016
Q3-2016
Q4-2016
$123,998
$2,940,156
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
December 31, 2016
Year Ended
December 31, 2016
Net income $ 8,620 $ 31,522
Net income attributable to NCI - partially owned properties (163) (716)
Preferred distributions (436) (1,857)
Depreciation and amortization expense 26,787 86,501
Depreciation and amortization expense - partially owned properties (163) (683)
FFO applicable to common shares and OP Units $ 34,645 $ 114,767
FFO per common share and OP Unit $ 0.25 $ 0.88
Net change in fair value of derivative (173) (240)
Acquisition expenses 3,747 14,778
Write-off of contingent consideration — (840)
Normalized FFO applicable to common shares and OP Units $ 38,219 $ 128,465
Net income available to common shareholders per common share and OP Unit $ 0.06 $ 0.22
Normalized FFO per common share and OP Unit $ 0.27 $ 0.98
Normalized FFO applicable to common shares and OP Units 38,219 128,465
Non-cash share compensation expense 944 3,920
Straight-line rent adjustments (4,070) (16,226)
Amortization of acquired above/below market leases/assumed debt 568 2,778
Amortization of lease inducements 285 892
Amortization of deferred financing costs 529 2,325
TI/LC and recurring capital expenditures (2,551) (8,087)
Seller master lease and rent abatement payments 254 1,032
Normalized FAD applicable to common shares and OP Units $ 34,178 $ 115,099
Weighted average number of common shares and OP Units outstanding 139,602,349 130,466,893
9
RECONCILIATION OF NON-GAAP MEASURES: NET OPERATING INCOME AND ADJUSTED EBITDA
(Unaudited and in thousands, except share and per share data)
NET OPERATING INCOME
Three Months Ended
December 31, 2016
Year Ended
December 31, 2016
Net income $ 8,620 $ 31,522
General and administrative 4,433 18,397
Acquisition expenses 3,747 14,778
Depreciation and amortization expense 26,811 86,589
Interest expense 8,088 23,864
Net change in fair value of derivative (173) (240)
NOI $ 51,526 $ 174,910
NOI $ 51,526 $ 174,910
Straight-line rent adjustments (4,070) (16,226)
Amortization of acquired above/below market leases 628 3,015
Amortization of lease inducements 285 892
Seller master lease and rent abatement payments 254 1,032
Write-off of contingent consideration — (840)
Cash NOI $ 48,623 $ 162,783
ADJUSTED EBITDA
Three Months Ended
December 31, 2016
Year Ended
December 31, 2016
Net income $ 8,620 $ 31,522
Depreciation and amortization 26,811 86,589
Interest expense 8,088 23,864
Net change in fair value of derivative (173) (240)
EBITDA $ 43,346 $ 141,735
Acquisition expenses 3,747 14,778
Non-cash share compensation expense 944 3,920
Write-off of contingent consideration — (840)
Adjusted EBITDA $ 48,037 $ 159,593
Adjusted EBITDA Annualized $ 192,148 $ 159,593
10
MARKET CAPITALIZATION AND DEBT SUMMARY
(Unaudited and in thousands, except share and per share data)
Debt Equity
Debt is 27% of Firm Value
MARKET CAPITALIZATION December 31, 2016
Unsecured credit facility debt $ 651,000
Unsecured notes 225,000
Mortgage debt 123,194
Total Debt (1) $ 999,194
Redeemable equity $ 26,477
Share price $ 18.96
Total common shares outstanding 135,966,013
Total OP Units outstanding 3,436,207
Implied equity market capitalization $ 2,643,066
Total Firm Value (Debt + Pref. + Equity) $ 3,668,737
Total Debt/Total Assets 34.6%
Total Debt/Total Firm Value 27.2%
DEBT SUMMARY (1)
Balance as of
December 31, 2016 Interest Rate Maturity Date
Revolving Credit Facility Debt $ 401,000 1.9 % 9/18/2020
Credit Facility Term Debt 250,000 2.9 % 6/10/2023
Senior Unsecured Notes
January '16 - Series A 15,000 4.0 % 1/7/2023
January '16 - Series B 45,000 4.4 % 1/7/2026
January '16 - Series C 45,000 4.6 % 1/7/2028
January '16 - Series D 45,000 4.7 % 1/7/2031
August '16 - Series A 25,000 4.1 % 8/11/2025
August '16 - Series B 25,000 4.2 % 8/11/2026
August '16 - Series C 25,000 4.2 % 8/11/2027
Mortgage Debt, Maturing (2):
2017 36,957 5.7 %
2018 38,885 4.2 %
2019 18,750 5.0 %
Thereafter 28,602 5.1 %
$ 999,194 3.1%
Debt Maturity Schedule as of December 31, 2016
$500,000
$400,000
$300,000
$200,000
$100,000
$0
2017 2018 2019 2020 2021 2022 2023 Thereafter
$36,957 $38,885 $18,750
$405,653
$7,292 $14,029
$265,000
$212,628
(1) Unadjusted for unamortized fair value adjustments and deferred financing costs
(2) Weighted average maturity of Mortgage Debt is 2.2 years
11
FINANCIAL STATISTICS
(Unaudited and in thousands, except share and per share data)
Quarter Ended
December 31, 2016
Annualized dividend rate (1) $ 0.90
Price per share (2) $ 18.96
Annualized Dividend Yield 4.75%
Total debt (3) $ 999,194
Net debt (less cash) 983,703
Adjusted EBITDA (annualized)* 192,148
Net Debt / Adjusted EBITDA Ratio 5.12x
Adjusted EBITDA (annualized)* $ 192,148
Cash interest expense (annualized)* 30,236
Interest Coverage Ratio 6.35x
Total interest $ 8,088
Secured debt principal amortization 2,232
Total fixed charges $ 10,320
Adjusted EBITDA 48,037
Adjusted EBITDA Fixed Charge Coverage Ratio 4.65x
Implied equity market cap $ 2,643,066
Redeemable equity 26,477
Total debt (3) 999,194
Total Firm Value 3,668,737
Total debt (3) $ 999,194
Total assets 2,888,092
Total Debt / Total Assets 34.6%
Total Debt / Total Firm Value 27.2%
Weighted average common shares 135,581,976
Weighted average unvested restricted common shares and share units 584,166
Weighted average OP Units not owned by DOC 3,436,207
Weighted Average Common Shares and OP Units - Diluted 139,602,349
(1) Annualized rate based on $0.225 quarterly dividend for the quarter ending December 31, 2016. Actual dividend amounts will be
determined by the Trust's board of trustees based on a variety of factors.
(2) Closing common share price of $18.96 as of December 31, 2016.
(3) Unadjusted for unamortized fair value adjustments and deferred financing costs.
* 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 property count and sq. ft. data.
Same-Store data excludes Assets Slated for Disposition)
SAME-STORE PORTFOLIO ANALYSIS
Portfolio Same-Store
Quarter Ended Quarter Ended
December 31, 2016 December 31, 2016
Number of properties 246 122
Gross leasable area 10,883,601 4,904,801
Cash NOI $ 48,623 $ 24,977
% Leased 96.1% 96.3%
SAME-STORE PORTFOLIO PERFORMANCE
Year-Over-Year Comparison Sequential Comparison
Q4'16 Q4'15 Change Q4'16 Q3'16 Change
Number of properties 122 122 — 122 122 —
Gross leasable area 4,904,801 4,904,801 — 4,904,801 4,904,801 —
% Leased 96.3% 96.1% 20 bps 96.3% 96.3% —
Rental revenues 34,890 34,032 +2.5% 34,890 35,069 (0.5)%
Operating expenses (9,913) (9,696) +2.2% (9,913) (10,154) (2.4)%
Same-Store Cash NOI 24,977 24,336 +2.6% 24,977 24,915 +0.2%
TENANT OCCUPANCY
Quarter Ended Percentage of total GLA
December 31, 2016 December 31, 2016
Total GLA
Total square feet beginning of quarter 10,233,656 94.0 %
Acquired GLA (1) 649,945 6.0 %
Total square feet end of quarter 10,883,601 100.0 %
Occupied GLA
Occupied GLA beginning of quarter 9,795,308 90.0 %
Expirations (111,866) (1.0)%
Renewals 82,804 0.8 %
Retention Rate 74%
New leases commencing in quarter 52,777 0.5 %
Net absorption / (vacancy loss) 23,715 0.2 %
Net occupied GLA acquired 640,104 5.9 %
Occupied GLA end of quarter 10,459,127 96.1 %
Same-Store Cash
NOI, 51.4%
Other Cash
NOI, 48.6%
(1) Includes remeasurements of existing properties totaling 6,513 square feet.
13
INVESTMENT ACTIVITY
(Unaudited and in thousands, except sq. ft. data)
ASSETS ACQUIRED
Acquisition First Year Purchase
Property Location Date Cash Yield % Leased Price GLA
Tinseltown Construction Loan (1) Jacksonville, FL 10/14/2016 9.0% — $ 554 —
N.W. Michigan Surgery Center - Units #1 & #2 Traverse City, MI 10/28/2016 6.7% 100.0% 29,448 55,215
United Surgical Partners Joint Venture (2) Scottsdale, AZ 10/31/2016 7.0% — 903 —
N.W. Michigan Surgery Center - Unit #4 Traverse City, MI 11/4/2016 6.8% 100.0% 2,715 11,041
Syracuse Portfolio (2 MOBs) Syracuse, NY 11/23/2016 7.2% 96.2% 54,239 191,409
Cincinnati Eye Institute Cincinnati, OH 11/23/2016 6.6% 100.0% 38,100 109,224
Curie Building Loan El Paso, TX 12/2/2016 5.0% — 1,500 —
HonorHealth - Scottsdale MOB Scottsdale, AZ 12/2/2016 6.0% (3) 100.0% 6,900 57,539
Fox Valley Hematology & Oncology Appleton, WI 12/8/2016 6.3% 100.0% 28,200 70,136
Gastrointestinal Associates MOB Powell, TN 12/9/2016 7.3% 100.0% 6,287 23,921
Northern Vision Eye Center Traverse City, MI 12/15/2016 7.3% 100.0% 2,777 9,997
NCI Buyout - Great Falls Clinic Great Falls, MT 12/15/2016 6.8% — 1,497 —
Flower Mound Portfolio (3 MOBs) Flower Mound, TX 12/16/2016 6.6% 100.0% 27,800 73,558
HonorHealth IRF Scottsdale, AZ 12/22/2016 7.2% 100.0% 25,628 54,418
Total / Weighted Average 6.8% $ 226,548 656,458
(1) Refers to an additional advance on a construction loan to Tinseltown Partners, LLC to fund the renovations and additions of two re-purposed
buildings in Jacksonville, Florida.
(2) Refers to the acquisition of joint venture equity interests in owned properties.
(3) Refers to first year cash yield at stabilization.
ASSETS SLATED FOR DISPOSITION
Property Location Building Type GLA
Foundation Surgical Affiliates MOB Oklahoma City, OK MOB - Single 52,000
East El Paso Physicians Medical Center El Paso, TX MOB - Single 41,007
Foundation Surgical Affiliates Hospital El Paso, TX Hospital 77,000
Foundation Surgical Hospital of San Antonio San Antonio, TX Hospital 45,954
Foundation Healthplex of San Antonio San Antonio, TX MOB - Single 22,832
Georgia MOB Portfolio (4 Properties) GA - Various Cities MOB - Single (1) & Multi (3) 80,292
319,085
Fox Valley Hematology & Oncology MOB
Appleton, WI
CareMount Kingston MOB
Lake Katrine, NY
14
PORTFOLIO GEOGRAPHIC DISTRIBUTION
(As of December 31, 2016)
State GLA
Texas 1,163,808
Kentucky 975,884
Nebraska 708,920
Ohio 650,319
Indiana 646,262
Arizona 636,549
Georgia 631,660
Washington 588,946
New York 484,483
Minnesota 455,929
Other 3,940,841
Total 10,883,601
Texas, 11%
Kentucky, 9%
Nebraska, 7%
Ohio, 6%
Indiana, 6%
Arizona, 6%
Georgia, 6%Washington, 5%
New York, 4%
Minnesota, 4%
Other, 36%
TOP TEN STATES
15
PORTFOLIO DIVERSIFICATION
(As of December 31, 2016, adjusted for the exclusion of Assets Slated for Disposition)
THREE MONTHS ENDED DECEMBER 31, 2016
Campus Proximity
(Based on Cash NOI)
Off-Campus,
22%
On-Campus /
Affiliated, 78%
Coverage
# of Properties GLA % of Total % Leased Ratio (1)
Single-tenant MOBs 116 4,201,976 38.6% 99.8% N/A
Multi-tenant MOBs 120 5,873,638 53.9% 93.2% N/A
Hospitals 6 388,792 3.6% 100.0% 2.9x
LTACHs 3 310,352 2.9% 100.0% 1.7x
Corporate Office 1 108,843 1.0% 86.0% N/A
Total 246 10,883,601 100.0% 96.1%
Building Type
(Based on Cash NOI)
MOB,
89%
LTACH,
3%
Hospital,
8%
Lease Type
(Based on Revenue)
Absolute
Net, 20%
NNN,
67%
Modified Gross,
10%
Gross,
3%
Section 603 Asset Mix
(Based on Annualized Base Revenue)
603 Assets, 24%
Non-603 Assets,
76%
(1) Adjusted for the exclusion of Assets Slated for Disposition
16
LEASING RELATIONSHIPS AND EXPIRATION SCHEDULE
(As of December 31, 2016, $ in thousands)
TOP 10 TENANTS
(Determined by ABR)
Weighted Avg. % of Total
Remaining Leased % of Total Annualized Annualized
Tenant Lease Term GLA GLA Base Rent Base Rent
CHI - KentuckyOne Health 9.3 744,101 6.8% $ 12,805 5.8%
CHI - Nebraska 9.9 617,857 5.7% 9,275 4.2%
CHI - Franciscan (Seattle-Tacoma) 9.3 328,771 3.0% 5,437 2.5%
CHI - St. Alexius (North Dakota) 9.5 320,407 2.9% 5,278 2.4%
Great Falls Hospital 18.6 185,085 1.7% 5,151 2.4%
LifeCare 11.0 310,352 2.9% 4,911 2.2%
Trios Health 28.6 161,885 1.5% 4,684 2.1%
HonorHealth 13.1 215,433 2.0% 4,262 2.0%
IMS - Dignity Health 8.3 165,860 1.5% 3,929 1.8%
EEPPMC Partners 11.7 77,000 0.7% 3,693 1.7%
Total / W.A. 11.4 3,126,751 28.7% $ 59,425 27.1%
LEASE EXPIRATION SCHEDULE
Expiration Expiring Expiring Lease % of Total Expiring Lease % of Total Average Rent
Year Leases GLA GLA ABR ABR per SF
2017 119 398,498 3.7% $ 8,482 3.9% $ 21.28
2018 111 493,676 4.5% 9,648 4.4% 19.54
2019 91 494,309 4.5% 10,050 4.6% 20.33
2020 94 409,602 3.8% 8,269 3.8% 20.19
2021 124 556,518 5.1% 11,291 5.1% 20.29
2022 50 430,066 3.9% 9,359 4.3% 21.76
2023 63 474,659 4.4% 10,141 4.6% 21.37
2024 69 779,561 7.2% 15,244 6.9% 19.55
2025 106 853,164 7.8% 20,337 9.3% 23.84
2026 107 3,018,383 27.7% 55,173 25.2% 18.28
Thereafter: 78 2,468,721 22.7% 60,062 27.4% 24.33
MTM (1) 29 81,970 0.8% 1,072 0.5% 13.08
Vacant 424,474 3.9%
Total / W.A. 1,041 10,883,601 100% $ 219,129 100% $ 20.13
(1) Includes 3 leases that expired on December 31, 2016, representing $0.1 million of total ABR.
17
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
2016
December 31,
2015
ASSETS
Investment properties:
Land and improvements $ 189,759 $ 130,788
Building and improvements 2,402,643 1,284,863
Tenant improvements 14,133 9,243
Acquired lease intangibles 301,462 205,168
2,907,997 1,630,062
Accumulated depreciation (181,785) (91,250)
Net real estate property 2,726,212 1,538,812
Real estate loans receivable 39,154 39,349
Investment in unconsolidated entity 2,258 1,322
Net real estate investments 2,767,624 1,579,483
Cash and cash equivalents 15,491 3,143
Tenant receivables, net 9,790 2,977
Other assets 95,187 53,283
Total assets $ 2,888,092 $ 1,638,886
LIABILITIES AND EQUITY
Liabilities:
Credit facility $ 643,742 $ 389,375
Notes payable 224,330 —
Mortgage debt 123,083 94,240
Accounts payable 4,423 644
Dividends and distributions payable 32,179 20,783
Accrued expenses and other liabilities 42,287 24,473
Acquired lease intangibles, net 9,253 5,950
Total liabilities 1,079,297 535,465
Redeemable noncontrolling interest – Series A Preferred Units and partially owned properties 26,477 26,960
Equity:
Common shares, $0.01 par value, 500,000,000 common shares authorized, 135,966,013 and 86,864,063
common shares issued and outstanding as of December 31, 2016 and December 31, 2015, respectively 1,362 872
Additional paid-in capital 1,920,642 1,129,284
Accumulated deficit (197,261) (109,024)
Accumulated other comprehensive income 13,708 —
Total shareholders' equity 1,738,451 1,021,132
Noncontrolling interests:
Operating Partnership 43,142 45,451
Partially owned properties 725 9,878
Total noncontrolling interest 43,867 55,329
Total equity 1,782,318 1,076,461
Total liabilities and equity $ 2,888,092 $ 1,638,886
18
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except share and per share data)
Three Months Ended
December 31,
Year Ended
December 31,
2016 2015 2016 2015
Revenues:
Rental revenues $ 55,923 $ 31,863 $ 186,301 $ 103,974
Expense recoveries 14,059 7,322 45,875 21,587
Interest income on real estate loans and other 3,692 1,219 8,858 3,880
Total revenues 73,674 40,404 241,034 129,441
Expenses:
Interest expense 8,088 3,392 23,864 10,636
General and administrative 4,433 3,549 18,397 14,908
Operating expenses 22,005 10,047 65,999 31,026
Depreciation and amortization 26,811 14,404 86,589 45,471
Acquisition expenses 3,747 3,129 14,778 14,893
Total expenses 65,084 34,521 209,627 116,934
Income before equity in income of unconsolidated entity and gain
on sale of investment property: 8,590 5,883 31,407 12,507
Equity in income of unconsolidated entity 30 26 115 104
Gain on sale of investment property — — — 130
Net income 8,620 5,909 31,522 12,741
Net income attributable to noncontrolling interests:
Operating Partnership (196) (243) (825) (576)
Partially owned properties (163) (122) (716) (377)
Net income attributable to controlling interest 8,261 5,544 29,981 11,788
Preferred distributions (436) (398) (1,857) (1,189)
Net income attributable to common shareholders $ 7,825 $ 5,146 $ 28,124 $ 10,599
Net income per share:
Basic $ 0.06 $ 0.06 $ 0.22 $ 0.15
Diluted $ 0.06 $ 0.06 $ 0.22 $ 0.15
Weighted average common shares
Basic 135,581,976 83,761,536 126,143,114 72,750,724
Diluted 139,602,349 87,911,027 130,466,893 76,792,073
Dividends and distributions declared per common share and OP Unit $ 0.225 $ 0.225 $ 0.900 $ 0.900
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 (ABR): Annualized base rent is calculated by multiplying contractual base rent for December 2016 by 12 (but excluding
the impact of concessions and straight-line rent).
Assets Slated for Disposition: Properties that are included in discontinued operations, designated as held for sale, or for which there is an active
intent to sell such properties. Where indicated, such assets are excluded from property counts, concentration statistics, and performance metrics
for all periods presented. Results from these assets are included in the Company’s GAAP financial results and reconciliations.
Coverage Ratio: Reflects the ratio of full-year EBITDAR to rent of indicated properties. Coverage ratios are calculated one quarter in arrears,
beginning the first full quarter after acquisition, for all properties the company has owned for fifteen months.
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. We believe that information
regarding FFO is helpful to shareholders and potential investors because it facilitates an understanding of the operating performance of our properties
without giving effect to real estate depreciation and amortization, which assumes that the value of real estate assets diminishes ratably over time.
We calculate FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT
defines FFO as net income or loss (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, 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, 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 results, 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 or 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.
20
REPORTING DEFINITIONS (continued)
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.
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 or below market leases and
assumed debt, amortization of deferred financing costs, amortization of lease inducements, and recurring capital expenditures related to tenant
improvements and leasing commissions, and includes cash payments from seller master leases and rent abatement payments. Other REITs or real
estate companies may use different methodologies for calculating Normalized FAD, and accordingly, our computation may not be comparable to
those reported by other REITs. Although the Company’s computation of Normalized FAD may not be comparable to that of other REITs, the
Company believes Normalized FAD provides a meaningful supplemental measure of its performance due to its frequency of use by analysts,
investors, and other interested parties in the evaluation of our performance as a REIT. Normalized FAD should not be considered as an alternative
to net income or loss attributable to controlling interest (computed in accordance with GAAP) or as an indicator of the Company’s financial
performance. 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 net
change in fair value of derivative financial instruments, acquisition-related expenses, acceleration of deferred financing costs, and other normalizing
items. However, our 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 (computed in accordance
with GAAP), as an indicator of our financial performance or of cash flow from operating activities (computed in accordance with GAAP), or as
an indicator of our liquidity, nor is it indicative of funds available to fund our 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, leases in holdover
status, 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.
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 medical properties held by the Company for the entire preceding year and not currently
slated for disposition.