Attached files

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8-K - 8-K - Physicians Realty Trusta14-11807_18k.htm
EX-10.8 - EX-10.8 - Physicians Realty Trusta14-11807_1ex10d8.htm
EX-10.6 - EX-10.6 - Physicians Realty Trusta14-11807_1ex10d6.htm
EX-10.4 - EX-10.4 - Physicians Realty Trusta14-11807_1ex10d4.htm
EX-10.5 - EX-10.5 - Physicians Realty Trusta14-11807_1ex10d5.htm
EX-10.2 - EX-10.2 - Physicians Realty Trusta14-11807_1ex10d2.htm
EX-10.9 - EX-10.9 - Physicians Realty Trusta14-11807_1ex10d9.htm
EX-10.3 - EX-10.3 - Physicians Realty Trusta14-11807_1ex10d3.htm
EX-10.1 - EX-10.1 - Physicians Realty Trusta14-11807_1ex10d1.htm
EX-10.7 - EX-10.7 - Physicians Realty Trusta14-11807_1ex10d7.htm
EX-99.1 - EX-99.1 - Physicians Realty Trusta14-11807_1ex99d1.htm

Exhibit 99.2

 

March 2014

 

 



 

 

TABLE OF CONTENTS

 

COMPANY OVERVIEW

 

 

 

COMPANY INFORMATION

5

 

 

FIRST QUARTER HIGHLIGHTS

7

 

 

FINANCIAL HIGHLIGHTS

8

 

 

FINANCIAL INFORMATION

 

 

 

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

 

 

FIRST QUARTER ACQUISITION ACTIVITY AND TENANT OCCUPANCY

13

 

 

PORTFOLIO INFORMATION

 

 

 

PORTFOLIO LEASE EXPIRATIONS AND HISTORICAL OCCUPANCY

14

 

 

PORTFOLIO DISTRIBUTION BY STATE

15

 

 

PORTFOLIO DIVERSIFICATION BY TYPE

16

 

 

TOP 10 HEALTH SYSTEM RELATIONSHIPS

17

 

 

CONSOLIDATED BALANCE SHEETS

18

 

 

CONSOLIDATED AND COMBINED 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 in which 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 senior secured revolving credit facility;

 

·                  our ability to make distributions on our shares of beneficial interest;

 

·                  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;

 

·                  a substantial portion of our revenue is derived from our five largest tenants and thus, the bankruptcy, insolvency or weakened financial position of any one of them could seriously harm our operating results and financial condition;

 

·                  our geographic concentrations in Texas and greater Atlanta, Georgia metropolitan area 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;

 

3



 

 

·                  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;

 

·                  our ability to operate as a public company;

 

·                  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 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; and

 

·                  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.

 

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, 2013 and Part II, Item1A (Risk Factors) of our Quarterly Report on Form 10-Q for the quarterly period ended March 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 May 7, 2014 and other information filed with, or furnished to, the SEC. You can access the Company’s SEC reports and amendments to those reports filed or furnished 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 will elect to be taxed as a real estate investment trust (REIT) for U.S. federal income tax purposes beginning with our short taxable year ending December 31, 2013 upon the filing of our federal income tax return for such year. 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 March 31, 2014, own approximately 85.4% of the partnership interests in the operating partnership.

 

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
March 31, 2014

 

Gross real estate investments (thousands)

 

$

412,011

 

Total buildings

 

40

 

Occupancy

 

93.5

%

Total portfolio gross leasable area

 

1,452,013

 

 

 

 

 

% of MOB GLA on-campus / affiliated

 

75

%

Average remaining lease term for all buildings (years)

 

10.1

 

 

 

 

 

Cash and cash equivalents (thousands)

 

$

10,092

 

Total debt to total capitalization

 

34.6

%

Weighted average interest rate per annum on portfolio debt

 

3.97

%

Equity market cap (thousands)

 

$

301,129

 

Quarterly dividend

 

$

0.225

 

Quarter end stock price

 

$

13.92

 

Dividend yield

 

6.5

%

Shares and units outstanding (1) 

 

25,331,740

 

Total enterprise value (thousands) (2) 

 

$

512,000

 

 

(1)         In conjunction with our IPO, we issued 2,744,000 common units in our operating partnerships in connection with our acquisition of our initial portfolio of 19 medical office buildings and assumed the debt related to such properties. In connection with our purchase of the Crescent City Surgical Centre, we issued 954,877 common units in our operating partnership as well as additional cash consideration to the physician sellers.

(2)         Represents the value of outstanding shares and units based on the closing stock price on March 31, 2014 plus the amount of outstanding debt at March 31, 2014.

 

5



 

 

ABOUT PHYSICIANS REALTY TRUST CONTINUED

 

Board of Trustees

 

Tommy G. Thompson

Chairman

William A. Ebinger, M.D.

Richard A. Weiss

 

 

 

Albert C. Black

Mark A. Baumgartner

Stanton D. Anderson

Compensation, Nominating and Governance Committee Chair

Finance and Investment Committee Chair

Audit Committee Chair

 

 

 

John T. Thomas

 

 

Chief Executive Officer, President

 

 

 

 

 

Management Team

 

 

 

John T. Thomas

John W. Sweet

Chief Executive Officer, President

Executive Vice President - Chief Investment Officer

 

 

John W. Lucey

Mark D. Theine

Senior Vice President — Principal Accounting and Reporting Officer

Senior Vice President — Asset & Investment Management

 

 

Location & Contact Information

 

 

 

Corporate Headquarters

Transfer Agent

735 N. Water Street, Suite 1000

Registrar and Transfer Company

Milwaukee, WI 53202

10 Commerce Drive

(414) 978-6494

Cranford, NJ 07010

 

(908) 497-2300

 

 

Corporate & REIT Tax Counsel

Investor Relations

Baker & McKenzie

The Ruth Group

Richard Lipton

Stephanie Carrington

Partner

Senior Vice President

300 E Randolph Street

757 Third Avenue, 22nd Floor

Chicago, IL 60601

New York, NY 10017

(312) 861-8000

(646) 536-7017

 

 

 

 

External Auditor

 

Ernst & Young

 

155 N. Upper Wacker Drive

 

Chicago, IL 60606

 

(312) 879-2000

 

 

6


 


 

 

FIRST QUARTER HIGHLIGHTS

 

Operating

 

·                  First quarter 2014 total revenue of $8.0 million, up 141.0% over the prior year period

·                  First quarter 2014 rental revenue of $6.8 million, an increase of 172.6% over the prior year period

·                  Generated quarterly funds from operations (Normalized FFO) of $0.12 on a fully diluted basis

·                  Closed on seven acquisitions comprising 13 buildings totaling 550,670 square feet for approximately $147.4 million in the aggregate

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

·                  Surpassed 93.5% portfolio wide occupancy based on square footage as of March 31, 2014

·                  Increased gross leasable square footage by 61.1% to 1,452,013 square feet, as of March 31, 2014, from 901,343 at end of fourth quarter 2013

 

First Quarter Acquisitions

 

·                  Foundations San Antonio Surgical Hospital and MOB, San Antonio, TX

·                  Eagles Landing Family Practice, GA

·                  21st Century Oncology, Sarasota, FL

·                  Peachtree Dunwoody MOB, Atlanta, GA

·                  LifeCare, Pittsburgh, PA and Fort Worth, TX

 

Company Announcements

 

·                  January 2, 2014: Announced that it closed its previously announced mezzanine loan of approximately $6.9 million to affiliates controlled by MedProperties Holdings, LLC a leading Dallas-based private investor in healthcare real estate (Global Rehab-Rehabilitation Hospital, Scottsdale, AZ, featured on the cover)

·                  January 27, 2014: Announced tax reporting information for dividends paid to its shareholders during the year ended December 31, 2013

·                  February 3, 2014: Entered into an Agreement of Sale and Purchase to purchase an approximately 45,200 square foot medical office building known as South Bend Orthopaedics Medical Office Building

·                  February 11, 2014: Entered into an Agreement of Sale and Purchase to purchase four medical office buildings located in Sarasota, Venice, Engelwood and Port Charlotte, Florida

·                  February 19, 2014: Announced that it closed on the purchase and leaseback of the Eagles Landing Family Practice medical office buildings. The four medical facilities located in Jackson, Conyers and McDonough (2), Georgia total approximately 68,711 square feet and are 100% leased

·                  February 20, 2014: Entered into and closed an Agreement of Sale and Purchase to purchase a surgical hospital located in San Antonio, Texas

·                  February 27, 2014: Announced financial results for the fourth quarter and year ended December 31, 2013

·                  March 3, 2014: Announced the execution and closing of a contract to purchase the Peachtree Dunwoody Medical Center, a premier multi-tenant medical office building located in the heart of Atlanta’s “Pill Hill” hospital market

·                  March 31, 2014: Announced the execution and closing of an Agreement of Sale and Purchase to purchase and leaseback two long-term acute care hospitals located in Pittsburgh, Pennsylvania and Fort Worth, Texas

 

7



 

 

FINANCIAL HIGHLIGHTS

 

(Unaudited and in thousands, except per share data)

See Glossary for definition of terms.

 

 

 

Three Months Ended
March 31, 2014

 

 

 

 

 

INCOME ITEMS

 

 

 

Revenues

 

$

7,991

 

NOI

 

6,399

 

Annualized Adjusted EBITDA

 

18,632

 

Normalized FFO

 

3,104

 

Normalized FAD

 

2,953

 

Net loss Available to Common Shareholders per common share

 

$

(0.15

)

Normalized FAD per common share and unit

 

$

0.12

 

Fixed Charge Coverage Ratio (EBITDA/Int Exp, net)

 

0.08

x

 

 

 

As of

 

 

 

March 31, 2014(1)

 

ASSETS

 

 

 

Gross Real Estate Investments (including gross lease intangibles)

 

$

412,011

 

Total Assets

 

401,851

 

CAPITALIZATION

 

 

 

Total Debt

 

$

159,382

 

Total Shareholder’s Equity

 

231,803

 

Total Market Capitalization (1)

 

352,618

 

Total Debt / Total Market Capitalization

 

45

%

 

(1)         Represents outstanding shares and units at quarter end multiplied by the share price at quarter end.

 

8



 

 

RECONCILIATION OF NON-GAAP MEASURES

See Glossary for definition of terms.

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
March 31, 2014

 

Net loss

 

$

(3,558

)

Depreciation and amortization expense

 

2,416

 

FFO

 

$

(1,142

)

FFO per share and unit

 

$

(0.05

)

Acquisition related expenses

 

4,287

 

Net change in fair value of derivative financial instrument

 

(41

)

Normalized FFO

 

$

3,104

 

Normalized FFO per share and unit

 

$

0.12

 

 

 

 

 

Normalized FFO

 

$

3,104

 

Non-cash share compensation expense

 

273

 

Straight-line rent adjustments

 

(652

)

Amortization of acquired above market leases

 

46

 

Amortization of lease inducements

 

34

 

Amortization of deferred financing costs

 

148

 

Normalized FAD

 

$

2,953

 

Normalized FAD per share and unit

 

$

0.12

 

 

 

 

 

Weighted average number of shares and units outstanding

 

25,274,626

 

 

9



 

 

NET OPERATING INCOME AND ADJUSTED EBITDA

(Unaudited and in thousands)

See Glossary for definition of terms.

 

Net Operating Income (NOI)

 

 

 

Three Months Ended
March 31, 2014 
(1)

 

Net loss

 

$

(3,558

)

General and administrative

 

2,014

 

Acquisition related expenses

 

4,287

 

Depreciation and amortization

 

2,416

 

Interest expense, net

 

1,281

 

Change in fair value of derivative liability

 

(41

)

NOI

 

$

6,399

 

 

 

 

 

NOI

 

$

6,399

 

Straight-line rent adjustments

 

(652

)

Amortization of acquired above market leases

 

46

 

Amortization of lease inducement

 

34

 

Cash NOI

 

$

5,827

 

Cash NOI percentage growth over 4th quarter 2013

 

20.6

%

 

Adjusted EBITDA

 

 

 

Three Months Ended
March 31, 2014

 

Net loss

 

$

(3,558

)

 

 

 

 

Depreciation and amortization

 

2,416

 

Interest expense, net

 

1,281

 

Change in fair value of derivative liability

 

(41

)

EBITDA

 

98

 

Acquisition related expenses

 

4,287

 

Non-cash share compensation

 

273

 

Adjusted EBITDA

 

$

4,658

 

 

 

 

 

Adjusted EBITDA Annualized (1)

 

$

18,632

 

 

(1)         We have been operating as a public REIT for less than a full year and can make no assurances that our actual EBITDA or Adjusted EBITDA in future periods will be consistent with the annualized amount shown above and may differ significantly.

 

10



 

 

MARKET CAPITALIZATION AND DEBT SUMMARY

(In thousands, except share and per share data)

 

Market Capitalization

 

Revolving Credit Facility Debt

 

$

80,000

 

Senior Notes and Term Loans

 

79,382

 

Total Debt

 

$

159,382

 

 

 

 

 

Stock price (closing price as of March 31, 2014)

 

$

13.92

 

Total Common Shares Outstanding

 

21,632,863

 

Equity Market Capitalization

 

$

301,129

 

 

 

 

 

Total Capitalization (Debt + Equity)

 

$

460,511

 

 

 

 

 

Total Debt / Total Capitalization

 

34.6

%

Total Debt / Total Assets

 

39.7

%

Total Debt / Total Enterprise Value

 

31.1

%

 

Debt Summary

 

 

 

Balance as of
March 31, 2014

 

Stated Interest
Rate:

 

Interest
Rate (1):

 

Maturity Date:

 

 

 

 

 

 

 

 

 

 

 

Revolving Credit Facility

 

$

80,000

 

LIBOR + 2.65

%

 

 

8/29/2016

 

Senior Notes and Term Loans:

 

 

 

 

 

 

 

 

 

Canton MOB

 

6,282

 

5.94

%

5.94

%

06/06/17

 

Firehouse Square

 

2,812

 

6.58

%

6.58

%

09/06/17

 

Hackley Medical Center

 

5,486

 

5.93

%

5.93

%

01/06/17

 

MeadowView Professional Center

 

10,538

 

5.81

%

5.81

%

6/06/17

 

Mid Coast Hospital MOB

 

8,023

 

LIBOR + 2.25

%

4.82

%

05/16/16

 

Remington Medical Commons

 

4,499

 

LIBOR + 2.75

%

2.93

%

09/28/17

 

Valley West Hospital MOB

 

4,957

 

4.83

%

4.83

%

11/10/20

 

Oklahoma City, OK MOB

 

7,771

 

4.71

%

4.71

%

01/01/20

 

Crescent City Surgical Center

 

18,750

 

5.00

%

5.00

%

02/01/19

 

San Antonio Hospital

 

10,264

 

5.00

%

5.00

%

06/01/22

 

Total:

 

$

159,382

 

 

 

 

 

 

 

 

(1) Weighted average interest rate per annum on portfolio debt: 5.26%

(2) Weighted average interest rate per annum on portfolio debt: 3.97%

 

 

11



 

 

FINANCIAL STATISTICS

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

 

 

 

March 31, 2014

 

Weighted Average Shares and Units Outstanding

 

 

 

Weighted average common shares

 

21,298,597

 

Weighted average unvested restricted shares

 

334,266

 

Weighted average units

 

3,698,877

 

Weighted Average Shares and Units - Diluted

 

25,331,740

 

 

 

 

 

Outstanding Common Shares and OP Units at Quarter End

 

25,331,740

 

 

 

 

 

Common Dividend Yield

 

 

 

Annualized dividend rate (1)

 

$

0.90

 

Price per share (2)

 

$

13.92

 

Annualized dividend yield

 

6.47

%

 

 

 

 

Net Debt / Adjusted EBITDA Ratio

 

 

 

Total debt

 

$

159,382

 

Net debt (less cash)

 

$

149,290

 

Adjusted EBITDA (annualized)*

 

$

18,632

 

Net Debt / Adjusted EBITDA Ratio

 

8.01x

 

 

 

 

 

Interest Coverage Ratio

 

 

 

Adjusted EBITDA (annualized)*

 

$

18,632

 

Cash interest expense (annualized)*

 

$

4,532

 

Interest Coverage Ratio

 

4.11x

 

 

 

 

 

Quarterly Fixed Charge Coverage Ratio

 

 

 

Total interest

 

$

1,281

 

Secured debt principal amortization

 

384

 

Total fixed charges

 

$

1,665

 

Adjusted EBITDA

 

$

4,658

 

Adjusted fixed charge coverage ratio

 

2.80x

 

 

 

 

 

Enterprise Value

 

 

 

Outstanding shares and units multiplied by stock price (3/31/14)

 

$

352,618

 

Total debt

 

159,382

 

Total Enterprise Value

 

$

512,000

 

 

 

 

 

Leverage

 

 

 

Total debt

 

$

159,382

 

Total assets

 

$

401,851

 

Total Debt / Total Assets

 

39.7

%

Total Debt / Total Enterprise Value

 

31.1

%

 

(1)         Annualized rate based on $0.225 quarterly dividend for the quarter ending March 31, 2014. Actual dividend amounts will be determined by the Trust’s board of trustees based on a variety of factors.

(2)         Closing share price of $13.92 as of March 31, 2014

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

 

12



 

 

FIRST QUARTER ACQUISITION ACTIVITY AND TENANT OCCUPANCY

 

Acquisition Activity

 

Property

 

Property Location

 

Date Acquired

 

Percent Leased
at Acquisition

 

Purchase
Price

 

GLA

 

Foundations San Antonio Hospital

 

San Antonio, TX

 

2/19/2014

 

100

%

$

25,555,555

 

45,954

 

Eagles Landing Family Practice

 

GA

 

2/19/2014

 

100

%

$

20,800,000

 

68,711

 

21st Century Oncology

 

Sarasota, FL

 

2/26/2014

 

100

%

$

17,486,000

 

46,895

 

Foundations San Antonio MOB

 

San Antonio, TX

 

2/28/2014

 

100

%

$

6,800,000

 

22,832

 

Peachtree Dunwoody MOB

 

Atlanta, GA

 

2/28/2014

 

96

%

$

36,726,000

 

131,368

 

LifeCare Ft. Worth

 

Fort Worth, TX

 

3/31/2014

 

100

%

$

27,160,493

 

80,000

 

LifeCare Pittsburgh

 

Pittsburgh, PA

 

3/31/2014

 

100

%

$

12,839,507

 

154,910

 

Total

 

 

 

 

 

 

 

$

147,367,555

 

550,670

 

 

Tenant Occupancy

 

Total Portfolio

 

 

 

Total GLA at beginning of quarter

 

901,343

 

Occupied GLA beginning of quarter

 

820,895

 

Occupancy percentage beginning of quarter

 

91.1

%

 

 

 

 

Occupied GLA from leasing

 

 

 

Expirations:

 

 

 

Expiring GLA

 

(47,643

)

Leasing:

 

 

 

Renewal leases in Q1

 

38,098

 

New leases commencing in Q1

 

0

 

Lease terminations in Q1

 

0

 

Total leasing activity

 

38,098

 

 

 

 

 

GLA change from acquisitions/dispositions

 

 

 

Occupied acquisitions square feet added

 

545,491

 

Vacant square feet acquired

 

5,179

 

Total acquisitions square feet added

 

550,670

 

 

 

 

 

Occupied disposition square feet

 

0

 

 

 

 

 

Total square feet end of quarter

 

1,452,013

 

Occupied square feet end of quarter

 

1,356,841

 

Occupancy percentage end of quarter

 

93.5

%

 

13



 

 

PORTFOLIO LEASE EXPIRATIONS AND HISTORICAL OCCUPANCY

as of March 31, 2014

 

Portfolio Lease Expirations

 

Expiration

 

Number
of Leases
Expiring

 

Total
GLA of
Expiring
Leases

 

Percent of
Area
Represented
by Expiring
Leases

 

Annualized
Base Rent
Under
Expiring
Leases (1)

 

Percent of
Total
Annualized
Base Rent
of
Expiring
Leases

 

Annualized
Rent
Leased by
GLA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

9

 

21,336

 

1.5

%

$

552,983

 

1.6

%

25.92

 

2015

 

8

 

24,770

 

1.7

%

482,320

 

1.4

%

19.47

 

2016

 

11

 

68,254

 

4.7

%

1,586,613

 

4.7

%

23.25

 

2017

 

6

 

30,301

 

2.1

%

881,951

 

2.6

%

29.11

 

2018

 

16

 

146,019

 

10.1

%

3,152,757

 

9.3

%

21.59

 

2019

 

8

 

99,329

 

6.8

%

2,234,756

 

6.6

%

22.50

 

2020

 

6

 

17,957

 

1.2

%

433,500

 

1.3

%

24.14

 

2021

 

6

 

44,814

 

3.1

%

1,090,090

 

3.2

%

24.32

 

2022

 

3

 

13,517

 

0.9

%

288,034

 

0.8

%

21.31

 

2023

 

1

 

52,000

 

3.6

%

1,248,000

 

3.7

%

24.00

 

Thereafter:

 

36

 

836,944

 

57.6

%

21,948,686

 

64.7

%

26.22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MTM

 

1

 

1,600

 

0.1

%

9,000

 

0.0

%

5.63

 

Vacant

 

26

 

95,172

 

6.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total/Average:

 

137

 

1,452,013

 

100.0

%

$

33,908,690

 

100.0

%

$

24.99

 

 

(1)Calculated by multiplying (a) base rent payments for the month ended March 31, 2014, by (b) 12.

 

Historical Occupancy

 

 

 

As of

 

 

 

3/31/2014

 

12/31/2013

 

9/30/2013

 

6/30/2013

 

3/31/2013

 

Total Portfolio Occupancy, end of period

 

93.5

%

91.1

%

90.3

%

84.6

%

82.5

%

 

 

14



 

 

PORTFOLIO DISTRIBUTION BY STATE

as of March 31, 2014

 

Market

 

GLA

 

% of Portfolio

 

Texas

 

364,012

 

25.07

%

Georgia

 

347,632

 

23.94

%

Pennsylvania

 

154,910

 

10.67

%

Michigan

 

92,210

 

6.35

%

Ohio

 

76,433

 

5.26

%

Illinois

 

74,912

 

5.16

%

Florida

 

69,214

 

4.77

%

Tennessee

 

64,200

 

4.42

%

Louisiana

 

60,000

 

4.13

%

Oklahoma

 

52,000

 

3.58

%

Maine

 

44,677

 

3.08

%

Wisconsin

 

26,377

 

1.82

%

Arizona

 

12,800

 

0.88

%

Montana

 

12,636

 

0.87

%

Total

 

1,452,013

 

100

%

 

 

15



 

 

PORTFOLIO DIVERSIFICATION BY TYPE

as of  March 31, 2014

 

Portfolio Diversification by Type

 

 

 

Number
of
Buildings

 

GLA

 

% of
Total
GLA

 

Occupancy

 

Number
of States

 

Medical office buildings:

 

 

 

 

 

 

 

 

 

 

 

Single-tenant

 

17

 

354,830

 

24.4

%

91.9

%

8

 

Multi-tenant

 

17

 

603,877

 

41.6

 

89.0

 

9

 

Other facilities that serve healthcare industry:

 

 

 

 

 

 

 

 

 

 

 

Hospitals

 

3

 

182,954

 

12.6

 

100.0

 

2

 

Post-acute

 

3

 

310,352

 

21.4

 

100.0

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

40

 

1,452,013

 

100.0

%

 

 

 

 

 

Campus Proximity and Asset Type

 

 

 

Hospital and Post-Acute Care Coverage Ratio (EBITDAR / Rent) for March 31, 2014 is 3.21x.

 

16



 

 

TOP 10 HEALTH SYSTEM RELATIONSHIPS (TENANTS)

as of March 31, 2014

 

Tenant

 

Weighted
Average
Remaining
Lease Term

 

Total Leased
GLA

 

Percent of
Leased GLA

 

Annualized Base
Rent

 

Percent of
Annualized
Base Rent

 

LifeCare

 

13.76

 

310,352

 

21.37

%

4,697,063

 

13.85

%

East El Paso Physicians Medical Center

 

14.43

 

77,000

 

5.30

%

3,282,377

 

9.68

%

Crescent City Surgical Centre

 

14.51

 

60,000

 

4.13

%

3,000,000

 

8.85

%

Foundation Bariatric Hospital

 

11.23

 

68,786

 

4.74

%

2,884,873

 

8.51

%

Northside Hospital

 

8.81

 

72,102

 

4.97

%

1,817,889

 

6.60

%

Eagles Landing Family Practice

 

14.93

 

68,711

 

4.73

%

1,560,000

 

4.60

%

21st Century

 

11.92

 

44,295

 

3.05

%

1,454,839

 

4.29

%

Foundation Surgical Affiliates, LLC

 

9.51

 

52,000

 

3.58

%

1,248,000

 

3.68

%

Holston Medical Group

 

5.16

 

42,220

 

2.91

%

895,498

 

2.64

%

Peachtree Orthopaedics

 

9.34

 

27,573

 

1.90

%

810,066

 

2.39

%

 

 

17



 

 

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per share data)

 

 

 

March 31,

 

December 31,

 

 

 

2014

 

2013

 

 

 

(Unaudited)

 

(Audited)

 

ASSETS

 

 

 

 

 

Investment properties:

 

 

 

 

 

Land and improvements

 

$

44,419

 

$

26,088

 

Building and improvements

 

313,985

 

192,959

 

Tenant improvements

 

5,498

 

5,458

 

Acquired lease intangibles

 

39,712

 

31,236

 

Property under development

 

225

 

225

 

 

 

403,839

 

255,966

 

Accumulated depreciation

 

(30,858

)

(28,427

)

Net real estate property

 

372,981

 

227,539

 

Real estate loan receivable

 

6,855

 

 

Investment in unconsolidated entity

 

1,317

 

 

Net real estate investments

 

381,153

 

227,539

 

Cash and cash equivalents

 

10,092

 

56,478

 

Tenant receivables, net

 

1,403

 

837

 

Deferred costs, net

 

2,690

 

2,105

 

Other assets

 

6,513

 

5,901

 

Total assets

 

$

401,851

 

$

292,860

 

LIABILITIES AND EQUITY

 

 

 

 

 

Liabilities:

 

 

 

 

 

Debt

 

$

159,382

 

$

42,821

 

Accounts payable

 

722

 

836

 

Dividend payable

 

5,699

 

5,681

 

Accrued expenses and other liabilities

 

3,889

 

2,288

 

Derivative liability

 

356

 

397

 

Total liabilities

 

170,048

 

52,023

 

Equity:

 

 

 

 

 

Common shares, $0.01 par value, 500,000,000 shares authorized, 21,632,863 and 21,548,597 shares issued and outstanding as of March 31, 2014 and December 31, 2013, respectively.

 

216

 

215

 

Additional paid-in capital

 

213,833

 

213,359

 

Accumulated deficit

 

(16,630

)

(8,670

)

Total shareholders’ equity

 

197,419

 

204,904

 

Noncontrolling interests:

 

 

 

 

 

Operating partnership

 

33,749

 

35,310

 

Partially owned properties

 

635

 

623

 

Total noncontrolling interest

 

34,384

 

35,933

 

Total equity

 

231,803

 

240,837

 

Total liabilities and equity

 

$

401,851

 

$

292,860

 

 

18



 

 

CONSOLIDATED STATEMENTS OF OPERATION

(In thousands, except share and per share data)

 

 

 

Three Months Ended

 

 

 

March 31, 2014

 

 

 

 

 

Predecessor

 

 

 

2014

 

2013 (1)

 

Revenues:

 

 

 

 

 

Rental revenues

 

$

6,808

 

$

2,497

 

Expense recoveries

 

1,070

 

814

 

Interest income on real estate loans and other

 

113

 

5

 

Total revenues

 

7,991

 

3,316

 

Expenses:

 

 

 

 

 

Interest expense, net

 

1,281

 

1,166

 

General and administrative

 

2,014

 

120

 

Operating expenses

 

1,609

 

1,188

 

Depreciation and amortization

 

2,416

 

979

 

Acquisition expenses

 

4,287

 

 

Management fees

 

 

238

 

Total expenses

 

11,607

 

3,691

 

Other income:

 

 

 

 

 

Change in fair value of derivative

 

41

 

74

 

Equity in income of unconsolidated entity

 

17

 

 

Net loss

 

(3,558

)

$

(301

)

Less: Net loss attributable to noncontrolling interests — operating partnership

 

531

 

 

 

Less: Net income attributable to noncontrolling interests — partially owned properties

 

(66

)

 

 

Net loss attributable to common shareholders

 

$

(3,093

)

 

 

Net loss per share:

 

 

 

 

 

Basic and diluted

 

$

(0.15

)

 

 

Weighted average common shares:

 

 

 

 

 

Basic and diluted

 

21,298,597

 

 

 

 

 

 

 

 

 

Dividends and distributions declared per common share and unit

 

$

0.225

 

 

 

 

(1)         The results of operation for the three months ended March 31, 2013 reflect the results of operations of the Predecessor Ziegler Funds.

 

19



 

 

GLOSSARY

 

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, and acquisition-related expenses. 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 December 2013 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 the April 2002 National Policy Bulletin of the National Association of Real Estate Investment Trusts, or NAREIT, which we refer to as the “White Paper.” The White Paper defines FFO as net income (computed in accordance with GAAP) before noncontrolling interests of holders of OP units, excluding gains (or losses) on sales of depreciable operating property 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 the White Paper definition or that interpret the White Paper 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 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 generally include acute care hospitals, inpatient rehabilitation hospitals and long-term acute care hospitals. Acute care hospitals provide a wide range of inpatient and outpatient services, including, but not limited to, surgery, rehabilitation, therapy and clinical laboratories. Long-term acute care hospitals provide inpatient services for patients with complex medical conditions who require more intensive care, monitoring or emergency support than that available in most skilled nursing facilities.

 

Medical Office Building: 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. 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.

 

20



 

 

GLOSSARY CONTINUED

 

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. DOC believes Normalized FAD provides a meaningful supplemental measure of its ability to fund its ongoing distributions. In order to understand and analyze DOC’s liquidity, Normalized FAD should be compared with cash flow (computed in accordance with GAAP). 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.

 

21