Attached files
file | filename |
---|---|
EX-99.1 - EXHIBIT 99.1 - Physicians Realty Trust | a2017q2earningspressreleas.htm |
8-K - 8-K - Physicians Realty Trust | a8-k2017q2earningslpandtru.htm |
St. Vincent Women's Center
Carmel, IN
SUPPLEMENTAL OPERATING
& FINANCIAL INFORMATION
SECOND QUARTER 2017
PHYSICIANS REALTY TRUST
NYSE: DOC
Exhibit 99.2
June 2017
Baylor Charles A. Sammons Cancer Center
Dallas, TX
2
COMPANY OVERVIEW
ABOUT PHYSICIANS REALTY TRUST 4
SECOND 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 AND ASSETS SLATED FOR DISPOSITION 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,” "outlook," "continue," "projects," “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, and Part II, Item 1A (Risk Factors) of our Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2017.
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 August 3, 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 June 30, 2017, own approximately 96.7% of the partnership interests in the operating partnership (“OP Units”).
COMPANY SNAPSHOT As of
June 30, 2017
Gross real estate investments (thousands) $ 3,759,813
Total properties 262
% Leased 96.3%
Total portfolio gross leasable area (sq. ft.) 12,596,009
% of GLA on-campus / affiliated 80.2%
Average remaining lease term for all buildings (years) 8.5
Cash and cash equivalents (thousands) $ 11,509
Total debt to firm value 29.9%
Weighted average interest rate per annum on consolidated debt 3.6%
Equity market cap (thousands) $ 3,175,626
Quarterly dividend $ 0.230
Quarter end stock price $ 20.14
Dividend yield 4.57%
Common shares outstanding 157,677,566
OP Units outstanding and not owned by DOC 5,399,265
Total firm value (thousands) (1) $ 4,705,467
(1) Represents the value of outstanding shares and units based on the closing stock price on June 30, 2017 plus the amount of outstanding debt and redeemable
equity at June 30, 2017.
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 T. Okusanya - Jefferies LLC
D. Babin - Baird 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
B. Maher - FBR Capital E. Fleming - SunTrust Robinson Humphrey
J. Roberts - J.J.B. Hilliard W.L. Lyons 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
SECOND QUARTER 2017 HIGHLIGHTS
OPERATING HIGHLIGHTS
• Second quarter 2017 total revenue of $76.6 million, up 44% over the prior year period
• Second quarter 2017 rental revenue of $58.0 million, an increase of 37% 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 $0.24 per share on a fully diluted basis
• Completed second quarter investments of $588.2 million, including 13 healthcare properties representing 1,284,276
square feet and loan investments of $6.3 million.
• Declared quarterly dividend of $0.23 per share for the second quarter
• 96.3% of portfolio square footage leased as of June 30, 2017
• Net increase to gross leasable square footage of 10.6% to 12,596,009 square feet as of June 30, 2017 from 11,391,821 as
of March 31, 2017
COMPANY ANNOUNCEMENTS
• June 12, 2017: Announced that our Board of Trustees authorized and declared a cash distribution of $0.230 per common
share and OP Unit for the quarterly period ended June 30, 2017, representing an increase of $0.005 relative to the
previous quarter. The distribution was paid on July 18, 2017 to common shareholders and OP Unit holders of record as
of the close of business on July 3, 2017.
• June 28, 2017: Announced the execution of $735.0 million in Purchase and Sale Agreements, representing 18 medical
office facilities, including the Baylor Charles A. Sammons Cancer Center in Dallas, TX.
• July 5, 2017: Announced the closing of our underwritten public offering of 20,000,000 common shares of beneficial
interest at a price per share of $20.40, for net proceeds of $391.0 million.
SECOND QUARTER INVESTMENT HIGHLIGHTS
• MedStar Stephen's Crossing, Brandywine, MD
• 2017 CHI Portfolio - Tranche 1 (8 MOBs)
• St. Vincent Portfolio (2 MOBs), Carmel & Fishers, IN
• Baylor Charles A. Sammons Cancer Center, Dallas, TX
• Fox Valley Orthopedic & Sports Institute, Appleton, WI
7
FINANCIAL HIGHLIGHTS
(Unaudited and in thousands, except sq. ft. and per share data)
(1) Unadjusted for unamortized fair value adjustments, unamortized discount, and unamortized deferred financing costs.
(2) Outstanding common shares and OP Units at quarter end, multiplied by share price at quarter end.
INCOME Three Months Ended
June 30, 2017 March 31, 2017
Revenues $ 76,599 $ 76,666
Net income 10,331 6,716
NOI 56,113 54,770
Annualized Adjusted EBITDA 225,984 204,120
Net income available to common shareholders per common share $ 0.06 $ 0.04
Normalized FFO 37,891 39,597
Normalized FFO per common share and OP Unit $ 0.24 $ 0.28
Normalized FAD 34,231 34,993
CAPITALIZATION As of
ASSETS June 30, 2017 March 31, 2017
Gross Real Estate Investments (including gross lease intangibles) 3,759,813 3,181,312
Total Assets 3,665,891 3,196,393
DEBT AND EQUITY
Total Debt (1) 1,409,133 1,018,749
Total Equity 2,147,029 2,092,534
Equity Market Capitalization 3,175,626 3,049,968
Implied Equity Market Capitalization (2) 3,284,367 3,157,478
Total Debt / Implied Equity Market Capitalization 43% 32%
Gross Real Estate Assets Real Estate Investments/Quarter Total GLA
Portfolio Growth Since IPO
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
G
ro
ss
R
ea
lE
st
at
e
In
ve
st
m
en
ts
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
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
Q1-2017
Q2-2017
$123,998
$3,759,813
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
June 30, 2017
Six Months Ended
June 30, 2017
Net income $ 10,331 $ 17,047
Net income attributable to NCI - partially owned properties (159) (326)
Preferred distributions (188) (399)
Depreciation and amortization expense 28,098 56,009
Depreciation and amortization expense - partially owned properties (129) (281)
Gain on the sale of investment properties (5,308) (5,308)
FFO applicable to common shares and OP Units $ 32,645 $ 66,742
FFO per common share and OP Unit $ 0.20 $ 0.44
Net change in fair value of derivative 4 169
Acquisition expenses 5,242 10,647
Write-off of contingent consideration — (70)
Normalized FFO applicable to common shares and OP Units $ 37,891 $ 77,488
Net income available to common shareholders per common share and OP Unit $ 0.06 $ 0.11
Normalized FFO per common share and OP Unit $ 0.24 $ 0.51
Normalized FFO applicable to common shares and OP Units 37,891 77,488
Non-cash share compensation expense 1,324 2,390
Straight-line rent adjustments (2,097) (6,605)
Amortization of acquired above/below market leases/assumed debt 844 1,782
Amortization of lease inducements 311 621
Amortization of deferred financing costs 579 1,128
TI/LC and recurring capital expenditures (4,865) (8,078)
Seller master lease and rent abatement payments 244 498
Normalized FAD applicable to common shares and OP Units $ 34,231 $ 69,224
Weighted average number of common shares and OP Units outstanding 161,012,360 151,912,432
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
June 30, 2017
Six Months Ended
June 30, 2017
Net income $ 10,331 $ 17,047
General and administrative 6,249 10,985
Acquisition expenses 5,242 10,647
Depreciation and amortization expense 28,123 56,056
Interest expense 11,472 21,287
Net change in fair value of derivative 4 169
Gain on sale of investment properties (5,308) (5,308)
NOI $ 56,113 $ 110,883
NOI $ 56,113 $ 110,883
Straight-line rent adjustments (2,097) (6,605)
Amortization of acquired above/below market leases 844 1,782
Amortization of lease inducements 311 621
Seller master lease and rent abatement payments 244 498
Write-off of contingent consideration — (70)
Cash NOI $ 55,415 $ 107,109
ADJUSTED EBITDA
Three Months Ended
June 30, 2017
Six Months Ended
June 30, 2017
Net income $ 10,331 $ 17,047
Depreciation and amortization 28,123 56,056
Interest expense 11,472 21,287
Net change in fair value of derivative 4 169
EBITDA $ 49,930 $ 94,559
Acquisition expenses 5,242 10,647
Non-cash share compensation expense 1,324 2,390
Write-off of contingent consideration — (70)
Adjusted EBITDA $ 56,496 $ 107,526
Adjusted EBITDA Annualized* $ 225,984 $ 215,052
* Amounts are annualized and actual amounts may differ significantly from the annualized amounts shown.
10
(1) Unadjusted for unamortized fair value adjustments, unamortized discount, and unamortized deferred financing costs.
(2) Weighted average maturity of Mortgage Debt is 2.9 years.
MARKET CAPITALIZATION AND DEBT SUMMARY
(Unaudited and in thousands, except share and per share data)
Debt Equity
Debt is 30% of Firm Value
MARKET CAPITALIZATION June 30, 2017
Unsecured credit facility debt $ 610,000
Unsecured notes 625,000
Mortgage debt 174,133
Total Debt (1) $ 1,409,133
Redeemable equity $ 11,967
Share price $ 20.14
Total common shares outstanding 157,677,566
Total OP Units outstanding 5,399,265
Implied equity market capitalization $ 3,284,367
Total Firm Value (Debt + Pref. + Equity) $ 4,705,467
Total Debt/Total Assets 38.4%
Total Debt/Total Firm Value 29.9%
DEBT SUMMARY (1)
Balance as of
June 30, 2017 Interest Rate Maturity Date
Revolving Credit Facility Debt $ 360,000 2.4 % 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
March '17 400,000 4.3 % 3/15/2027
Mortgage Debt, Maturing (2):
2017 4,066 3.9 %
2018 38,697 4.5 %
2019 18,750 5.0 %
Thereafter 112,620 4.2 %
$ 1,409,133 3.6%
Debt Repayment Schedule as of June 30, 2017
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
2017 2018 2019 2020 2021 2022 2023 Thereafter
$5,063 $54,195 $44,022
$389,482
$8,048 $9,597
$265,532
$633,194
11
FINANCIAL STATISTICS
(Unaudited and in thousands, except share and per share data)
Quarter Ended
June 30, 2017
Annualized dividend rate (1) $ 0.92
Price per share (2) $ 20.14
Annualized Dividend Yield 4.57%
Total debt (3) $ 1,409,133
Net debt (less cash) 1,397,624
Adjusted EBITDA (annualized)* 225,984
Net Debt / Adjusted EBITDA Ratio 6.18x
Adjusted EBITDA (annualized)* $ 225,984
Cash interest expense (annualized)* 43,572
Interest Coverage Ratio 5.19x
Total interest $ 11,472
Secured debt principal amortization 484
Total fixed charges $ 11,956
Adjusted EBITDA 56,496
Adjusted EBITDA Fixed Charge Coverage Ratio 4.73x
Implied equity market cap $ 3,284,367
Redeemable equity 11,967
Total debt (3) 1,409,133
Total Firm Value 4,705,467
Total debt (3) $ 1,409,133
Total assets 3,665,891
Total Debt / Total Assets 38.4%
Total Debt / Total Firm Value 29.9%
Weighted average common shares 155,366,080
Weighted average unvested restricted common shares and share units 247,015
Weighted average OP Units not owned by DOC 5,399,265
Weighted Average Common Shares and OP Units - Diluted 161,012,360
(1) Annualized rate based on $0.230 quarterly dividend for the quarter ending June 30, 2017. 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 $20.14 as of June 30, 2017.
(3) Unadjusted for unamortized fair value adjustments, unamortized discount, and unamortized 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
June 30, 2017 June 30, 2017
Number of properties 262 156
Gross leasable area 12,596,009 6,102,854
Cash NOI $ 55,415 $ 30,374
% Leased 96.3% 95.8%
SAME-STORE PORTFOLIO PERFORMANCE
Year-Over-Year Comparison Sequential Comparison
Q2'17 Q2'16 Change Q2'17 Q1'17 Change
Number of properties 156 156 — 156 156 —
Gross leasable area 6,102,854 6,102,854 — 6,102,854 6,102,854 —
% Leased 95.8% 95.7% 10 bps 95.8% 96.3% -50 bps
Rental revenues 42,413 41,769 +1.5% 42,413 44,010 (3.6)%
Operating expenses (12,039) (11,683) +3.0% (12,039) (12,486) (3.6)%
Same-Store Cash NOI 30,374 30,086 +1.0% 30,374 31,524 (3.6)%
TENANT OCCUPANCY
Quarter Ended Percentage of total GLA
June 30, 2017 June 30, 2017
Total GLA
Total square feet beginning of quarter 11,391,821 90.4 %
Acquired GLA (1) 1,284,480 10.2 %
Disposed GLA (80,292) (0.6)%
Total square feet end of quarter 12,596,009 100.0 %
Occupied GLA
Occupied GLA beginning of quarter 10,989,999 87.2 %
Expirations (340,372) (2.7)%
Renewals 204,617 1.6 %
Retention Rate 60%
New leases commencing in quarter 95,678 0.8 %
Net absorption / (vacancy loss) (40,077) (0.3)%
Net occupied GLA acquired 1,178,775 9.4 %
Occupied GLA end of quarter 12,128,697 96.3 %
Same-Store Cash
NOI, 54.8%
Other Cash
NOI, 45.2%
(1) Includes remeasurements of existing properties totaling 204 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
MedStar Stephen's Crossing Brandywine, MD 6/16/2017 6.4% 100.0% $ 20,900 60,840
St. Vincent Portfolio (2 MOBs) Carmel & Fishers, IN 6/29/2017 4.7% 94.4% 93,880 206,005
2017 CHI Portfolio - Tranche 1 (8 MOBs) NE, ND, MN, TN, AR,
TX
6/29/2017 6.8% 99.5% 124,181 492,338
Baylor Charles A. Sammons Cancer Center Dallas, TX 6/30/2017 4.7% 95.0% 290,000 458,396
Orthopedic & Sports Institute of the Fox Valley Appleton, WI 6/30/2017 6.5% 100.0% 27,900 66,697
Peachtree Dunwoody MOB - Parking Deck Atlanta, GA 6/30/2017 5.0% — 25,000 —
Loan Investments Various Various 8.2% — 6,315 —
Total / Weighted Average 5.3% $ 588,176 1,284,276
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
Farmington MOB Farmington, MI MOB - Multi 21,338
260,131
MedStar Stephen's Crossing
Brandywine, MD
Orthopedic & Sports Institute of the Fox Valley
Appleton, WI
ASSETS SOLD
Property Location Building Type GLA
Georgia MOB Portfolio (4 Properties) (1) GA - Various Cities MOB - Single & Multi 80,292
(1) The sale of these assets was completed on April 7, 2017 for total proceeds of $18.2 million, resulting in a gain of approximately $5.3 million.
14
PORTFOLIO GEOGRAPHIC DISTRIBUTION
(As of June 30, 2017)
State GLA
Texas 1,840,739
Kentucky 976,620
Nebraska 917,173
Indiana 852,267
Ohio 650,319
Arizona 636,549
New York 613,439
Washington 589,141
Georgia 551,368
Tennessee 507,208
Other 4,461,186
Total 12,596,009
Texas, 15%
Kentucky, 8%
Nebraska, 7%
Indiana, 7%
Ohio, 5%
Arizona, 5%
New York, 5%Washington, 4%
Georgia, 4%
Tennessee, 4%
Other, 36%
TOP TEN STATES
15
PORTFOLIO DIVERSIFICATION
(As of June 30, 2017)
THREE MONTHS ENDED JUNE 30, 2017
Campus Proximity
(Based on Cash NOI)
Off-Campus,
24%
On-Campus /
Affiliated, 76%
Coverage
# of Properties GLA % of Total % Leased Ratio (1)
Single-tenant MOBs 123 4,737,792 37.6% 99.9% N/A
Multi-tenant MOBs 129 7,050,230 56.0% 93.9% N/A
Hospitals 6 388,792 3.1% 100.0% 3.1x
LTACHs 3 310,352 2.5% 100.0% 1.5x
Corporate Office 1 108,843 0.8% 71.3% N/A
Total 262 12,596,009 100.0% 96.3%
Building Type
(Based on Cash NOI)
MOB,
91%
LTACH,
2%
Hospital,
7%
Lease Type
(Based on Revenue)
Absolute
Net, 17%
NNN,
74%
Modified Gross,
7%
Gross,
2%
Section 603 Asset Mix
(Based on Annualized Base Revenue)
603 Assets, 20%
Non-603 Assets,
80%
(1) Adjusted for the exclusion of Assets Slated for Disposition.
16
LEASING RELATIONSHIPS AND EXPIRATION SCHEDULE
(As of June 30, 2017, $ 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 - Nebraska 9.5 826,110 6.6% $ 14,829 5.7%
CHI - KentuckyOne Health 8.8 744,101 5.9% 13,120 5.1%
Baylor Scott and White Health 8.7 252,977 2.0% 6,730 2.6%
US Oncology 7.9 251,798 2.0% 6,573 2.5%
CHI - St. Alexius (North Dakota) 9.1 361,671 2.9% 6,235 2.4%
CHI - Franciscan (Seattle - Tacoma) 8.9 330,614 2.6% 5,591 2.2%
HonorHealth 12.4 229,082 1.8% 5,446 2.1%
Great Falls Hospital 18.1 185,085 1.5% 5,194 2.0%
LifeCare 10.5 310,352 2.5% 5,021 1.9%
Trios Health 28.1 161,885 1.3% 4,684 1.8%
Total / W.A. 10.6 3,653,675 29.1% $ 73,423 28.3%
LEASE EXPIRATION SCHEDULE
Expiration Expiring Expiring Lease % of Total Expiring Lease % of Total Average Rent
Year Leases GLA GLA ABR ABR per SF
2017 52 156,828 1.2% $ 3,342 1.3% $ 21.31
2018 119 473,668 3.8% 8,545 3.3% 18.04
2019 94 537,901 4.3% 11,135 4.3% 20.70
2020 100 431,162 3.4% 8,682 3.3% 20.14
2021 146 588,684 4.7% 12,049 4.6% 20.47
2022 77 554,311 4.4% 13,185 5.1% 23.79
2023 66 465,921 3.7% 10,317 4.0% 22.14
2024 76 809,514 6.4% 16,042 6.2% 19.82
2025 110 891,636 7.1% 21,235 8.2% 23.82
2026 126 3,567,595 28.3% 70,724 27.2% 19.82
2027 66 1,414,025 11.2% 26,780 10.3% 18.94
Thereafter: 66 2,168,328 17.3% 56,793 21.9% 26.19
MTM 31 69,124 0.5% 736 0.3% 10.65
Vacant 467,312 3.7%
Total / W.A. 1,129 12,596,009 100% $ 259,565 100% $ 20.61
17
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
June 30,
2017
December 31,
2016
ASSETS
Investment properties:
Land and improvements $ 207,034 $ 189,759
Building and improvements 3,117,371 2,402,643
Tenant improvements 18,561 14,133
Acquired lease intangibles 381,875 301,462
3,724,841 2,907,997
Accumulated depreciation (229,633) (181,785)
Net real estate property 3,495,208 2,726,212
Real estate loans receivable 47,923 39,154
Investment in unconsolidated entity 2,232 2,258
Net real estate investments 3,545,363 2,767,624
Cash and cash equivalents 11,509 15,491
Tenant receivables, net 5,991 9,790
Other assets 103,028 95,187
Total assets $ 3,665,891 $ 2,888,092
LIABILITIES AND EQUITY
Liabilities:
Credit facility $ 603,585 $ 643,742
Notes payable 619,675 224,330
Mortgage debt 173,958 123,083
Accounts payable 5,071 4,423
Dividends and distributions payable 38,381 32,179
Accrued expenses and other liabilities 51,042 42,287
Acquired lease intangibles, net 15,183 9,253
Total liabilities 1,506,895 1,079,297
Redeemable noncontrolling interest – Series A Preferred Units (2016) and partially owned properties 11,967 26,477
Equity:
Common shares, $0.01 par value, 500,000,000 common shares authorized, 157,677,566 and 135,966,013
common shares issued and outstanding as of June 30, 2017 and December 31, 2016, respectively 1,576 1,360
Additional paid-in capital 2,313,443 1,920,644
Accumulated deficit (252,647) (197,261)
Accumulated other comprehensive income 12,928 13,708
Total shareholders' equity 2,075,300 1,738,451
Noncontrolling interests:
Operating Partnership 71,091 43,142
Partially owned properties 638 725
Total noncontrolling interest 71,729 43,867
Total equity 2,147,029 1,782,318
Total liabilities and equity $ 3,665,891 $ 2,888,092
18
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except share and per share data)
Three Months Ended
June 30,
Six Months Ended
June 30,
2017 2016 2017 2016
Revenues:
Rental revenues $ 58,015 $ 42,196 $ 117,107 $ 77,051
Expense recoveries 16,108 9,552 32,462 17,455
Interest income on real estate loans and other 2,476 1,468 3,696 2,844
Total revenues 76,599 53,216 153,265 97,350
Expenses:
Interest expense 11,472 4,279 21,287 8,476
General and administrative 6,249 4,926 10,985 9,047
Operating expenses 20,519 13,798 42,608 24,835
Depreciation and amortization 28,123 19,799 56,056 35,809
Acquisition expenses 5,242 3,256 10,647 6,633
Total expenses 71,605 46,058 141,583 84,800
Income before equity in income of unconsolidated entities: 4,994 7,158 11,682 12,550
Equity in income of unconsolidated entities 29 26 57 58
Gain on sale of investment properties 5,308 — 5,308 —
Net income 10,331 7,184 17,047 12,608
Net income attributable to noncontrolling interests:
Operating Partnership (314) (201) (461) (374)
Partially owned properties (159) (60) (326) (377)
Net income attributable to controlling interest 9,858 6,923 16,260 11,857
Preferred distributions (188) (437) (399) (985)
Net income attributable to common shareholders $ 9,670 $ 6,486 $ 15,861 $ 10,872
Net income per share:
Basic $ 0.06 $ 0.05 $ 0.11 $ 0.09
Diluted $ 0.06 $ 0.05 $ 0.11 $ 0.09
Weighted average common shares
Basic 155,366,080 131,481,329 147,221,602 117,092,668
Diluted 161,012,360 135,944,722 151,912,432 121,575,247
Dividends and distributions declared per common share and OP Unit $ 0.230 $ 0.225 $ 0.455 $ 0.450
19
REPORTING DEFINITIONS
Section 603 Assets: We define Section 603 Assets as those receiving preferential “grandfathered” treatment under Section 603 of the Bipartisan
Budget Act of 2015 (the “2015 BBA”). Under the 2015 BBA, non-grandfathered hospital outpatient departments (“HOPDs”) are generally excluded
from charging preferential outpatient department rates for Medicare patients treated in “off-campus” locations (more than 250 yards of the hospital’s
main inpatient location) on or after January 1, 2017, potentially impacting their profitability. All locations in existence as of November 2, 2015 are
considered "grandfathered", as long as the hospital was billing services in that location on an HOPD basis as of November 2, 2015 and continues
to provide those services in that location.
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 June 2017 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.
20
REPORTING DEFINITIONS (continued)
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.
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 share 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 expenses, acceleration of deferred financing costs, write off contingent
consideration 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.