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8-K - 8-K - Physicians Realty Trusta14-24001_18k.htm
EX-99.1 - EX-99.1 - Physicians Realty Trusta14-24001_1ex99d1.htm

Exhibit 99.2

 

 



 

 

TABLE OF CONTENTS

 

COMPANY OVERVIEW

 

 

 

COMPANY INFORMATION

5

 

 

THIRD 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

 

 

THIRD 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 unsecured 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;

 

·                  our geographic concentrations in Texas and the 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;

 

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

 

·                  the impact of our investment in joint ventures;

 

3



 

·                  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 real estate investment trust (or REIT) for U.S. federal income tax purposes;

 

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

 

·                  various other factors may materially adversely affect us, including the per share trading price of our common shares, such as:

 

·                  higher market interest rates;

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

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

·                  future offerings of debt; and

·                  if securities analysts do not publish research or reports about our industry or if they downgrade our common shares or the healthcare-related real estate sector.

 

While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. You should not place undue reliance on any forward-looking statements, which speak only as of the date of this report. We disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of new information, data or methods, future events or other changes after the date of this prospectus, except as required by applicable law. For a further discussion of these and other factors that could impact our future results, performance or transactions, see Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-K for the fiscal year December 31, 2013 and Part II, Item1A (Risk Factors) of our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31 and September 30, 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 November 12, 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 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 October 1, 2014, own approximately 93.7% 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
September 30, 2014

 

Gross real estate investments (thousands)

 

$

712,951

 

Total buildings

 

64

 

Occupancy

 

95.4

%

Total portfolio gross leasable area

 

2,524,950

 

 

 

 

 

% of GLA on-campus / affiliated

 

76.0

%

Average remaining lease term for all buildings (years)

 

10.27

 

 

 

 

 

Cash and cash equivalents (thousands)

 

$

17,025

 

Total debt to total capitalization

 

19.8

%

Weighted average interest rate per annum on consolidated debt

 

3.5

%

Equity market cap (thousands)

 

$

622,560

 

Quarterly dividend

 

$

0.225

 

Quarter end stock price

 

$

13.72

 

Dividend yield

 

6.6

%

Shares outstanding

 

45,376,115

 

Operating Partnership Units outstanding (1)

 

5,741,190

 

Total enterprise value (thousands) (2) 

 

$

854,749

 

 


(1)         In conjunction with our IPO and several acquisitions since our IPO, we have issued 5,741,190 common units in our operating partnership that are not held by us as of September 30, 2014. On October 1, 2014, we purchased an aggregate of 2,550,851 operating partnership units from certain limited partners.  As a result, there are 3,190,339 operating partnership units issued that are not held by us as of October 1, 2014.

 

(2)         Represents the value of outstanding shares and units based on the closing stock price on September 30, 2014 plus the amount of outstanding debt at September 30, 2014.

 

5



 

ABOUT PHYSICIANS REALTY TRUST CONTINUED

 

Board of Trustees

 

Tommy G. Thompson

William A. Ebinger, M.D.

Richard A. Weiss

Chairman

 

 

 

 

 

Albert C. Black

Mark A. Baumgartner

Stanton D. Anderson

Compensation, Nominating and 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

 

 

Jeffrey Theiler

John W. Lucey

Executive Vice President — Chief Financial Officer

Senior Vice President — Principal Accounting and Reporting Officer

 

 

Mark D. Theine

 

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 LLP

The Ruth Group

Richard Lipton

David Burke

Partner

President

300 E Randolph Street

757 Third Avenue, 22nd Floor

Chicago, IL 60601

New York, NY 10017

(312) 861-8000

(646) 536-7009

 

 

External Auditor

 

Ernst & Young

 

155 N. Upper Wacker Drive

 

Chicago, IL 60606

 

(312) 879-2000

 

 

6



 

THIRD QUARTER HIGHLIGHTS

 

Operating

 

·                  Third quarter 2014 total revenue of $14.2 million, up 279.8% over the prior year period

·                  Third quarter 2014 rental revenue of $12.5 million, an increase of 328.3% over the prior year period

·                  Generated quarterly normalized funds from operations (Normalized FFO) of $0.17 per share on a fully diluted basis

·                  Closed on 11 acquisitions comprising 16 buildings totaling 795,139 square feet for approximately $226.2 million in the aggregate

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

·                  Achieved 95.4% portfolio wide occupancy based on square footage as of September 30, 2014

·                  Increased gross leasable square footage by 45.9% to 2,524,950 square feet, as of September 30, 2014, from 1,731,069 at end of second quarter 2014

·                  Completed follow-on public offering raising approximately $145.7 million in net proceeds in September 2014

 

Third Quarter Acquisitions

 

·                  Landmark Medical Portfolio (Premier), Bloomington, IN

·                  Carlisle II MOB, Carlisle, PA

·                  Surgical Institute of Monroe, Monroe, MI

·                  The Oaks Medical Building, Lady Lake, FL

·                  Mansfield Baylor ASC, Mansfield, TX

·                  Eye Center of Southern Indiana, Bloomington, IN

·                  Wayne State Medical Center, Troy, MI

·                  Orthopaedic One, Columbus & Westerville, OH

·                  Mark H. Zangmeister Cancer Center, Columbus, OH

·                  Berger Medical Center, Orient, OH

·                  El Paso Medical Portfolio, El Paso, TX

·                  Pinnacle Portfolio, Harrisburg, PA (subsq. 10/29/14)

 

Company Announcements

 

·                  July 2, 2014: Announced the closing of four unrelated transactions totaling $44.9 million at an average first year unlevered cash yield of 7.8%. These transactions include a total of six buildings in North Carolina, Wisconsin and Indiana, and increase the total value of the Company’s portfolio of real estate assets to more than $500 million.

·                  September 8, 2014: Announced commencement of a public offering of 9,000,000 common shares of beneficial interest and plans to grant the underwriters a 30-day option to purchase up to an additional 1,350,000 common shares

·                  September 9, 2014: Announced pricing of public offering of 9,500,000 common shares of at a public offering price per share of $14.00

·                  September 12, 2014: Announced the completion of public offering of 10,925,000 common shares of beneficial interest, including 1,425,000 common shares issued pursuant to the exercise of an option to purchase additional common shares granted to the underwriters, at a price per share of $14.00

·                  September 18, 2014: Announced the closing of a new $400 million unsecured revolving credit facility and the payoff of previous secured revolving credit facility

·                  September 26, 2014: Announced a quarterly cash dividend of $0.225 per common share for the quarter ending September 30, 2014, which was paid on October 30, 2014 to shareholders of record on October 17, 2014

 

7



 

FINANCIAL HIGHLIGHTS

 

(Unaudited and in thousands, except per share data)

See Glossary for definition of terms.

 

 

 

Three Months Ended

 

 

 

September 30, 2014

 

June 30, 2014

 

 

 

 

 

 

 

INCOME ITEMS

 

 

 

 

 

Revenues

 

$

14,161

 

$

11,447

 

NOI

 

11,590

 

9,246

 

Annualized Adjusted EBITDA

 

37,320

 

29,164

 

Normalized FFO

 

7,175

 

5,150

 

Normalized FAD

 

6,985

 

5,011

 

Net loss Available to Common Shareholders per common share

 

$

(0.06

)

$

(0.02

)

Normalized FAD per common share and unit

 

$

0.17

 

$

0.17

 

 

 

 

As of

 

 

 

September 30, 2014

 

June 30, 2014

 

ASSETS

 

 

 

 

 

Gross Real Estate Investments (including gross lease intangibles)

 

$

712,951

 

$

484,714

 

Total Assets

 

708,662

 

469,152

 

CAPITALIZATION

 

 

 

 

 

Total Debt

 

$

153,420

 

$

78,963

 

Total Shareholder’s Equity

 

535,664

 

376,065

 

Total Equity Capitalization

 

622,560

 

493,406

 

Total Market Capitalization (1)

 

701,329

 

550,141

 

Total Debt / Total Market Capitalization

 

22

%

14

%

 


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

 

 

8



 

RECONCILIATION OF NON-GAAP MEASURES

FUNDS FROM OPERATIONS (FFO),

See Glossary for definition of terms.

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
September 30, 2014

 

Nine Months Ended
September 30, 2014

 

Net loss

 

$

(2,251

)

$

(6,409

)

Depreciation and amortization expense

 

4,413

 

10,565

 

Gain on the sale of property

 

(34

)

(34

)

Impairment charge

 

250

 

250

 

FFO

 

$

2,378

 

$

4,372

 

FFO per share and unit

 

$

0.06

 

$

0.14

 

Net change in fair value of derivative

 

(66

)

(138

)

Acquisition related expenses

 

2,922

 

9,254

 

Acceleration of deferred financing costs

 

141

 

141

 

Other normalizing items

 

1,800

 

1,800

 

Normalized FFO

 

$

7,175

 

$

15,429

 

Normalized FFO per share and unit

 

$

0.17

 

$

0.48

 

 

 

 

 

 

 

Normalized FFO

 

$

7,175

 

$

15,429

 

Non-cash share compensation expense

 

601

 

1,358

 

Straight-line rent adjustments

 

(1,200

)

(2,785

)

Amortization of acquired above market leases

 

76

 

194

 

Amortization of lease inducements

 

69

 

137

 

Amortization of deferred financing costs

 

274

 

626

 

Recurring capital expenditures

 

(10

)

(97

)

Normalized FAD

 

$

6,985

 

$

14,862

 

Normalized FAD per share and unit

 

$

0.17

 

$

0.46

 

 

 

 

 

 

 

Weighted average number of shares and units outstanding

 

41,224,028

 

32,323,682

 

 

9



 

NET OPERATING INCOME AND ADJUSTED EBITDA

See Glossary for definition of terms.

(Unaudited and in thousands)

 

 

Net Operating Income (NOI)

 

 

 

Three Months Ended
September 30, 2014

 

Nine Months Ended
September 30, 2014

 

Net loss

 

$

(2,251

)

$

(6,409

)

General and administrative

 

4,445

 

8,867

 

Acquisition related expenses

 

2,922

 

9,254

 

Depreciation and amortization

 

4,413

 

10,565

 

Interest expense, net

 

1,845

 

4,711

 

Gain on sale of property

 

(34

)

(34

)

Impairment charge

 

250

 

250

 

NOI

 

$

11,590

 

$

27,204

 

 

 

 

 

 

 

NOI

 

$

11,590

 

$

27,204

 

Straight-line rent adjustments

 

(1,200

)

(2,785

)

Amortization of acquired above market leases

 

76

 

194

 

Amortization of lease inducement

 

69

 

137

 

Cash NOI

 

$

10,535

 

$

24,750

 

 

Adjusted EBITDA

 

 

 

Three Months Ended
September 30, 2014

 

Nine Months Ended
September 30, 2014

 

Net loss

 

$

(2,251

)

$

(6,409

)

 

 

 

 

 

 

Depreciation and amortization

 

4,413

 

10,565

 

Interest expense, net

 

1,911

 

4,849

 

Change in fair value derivative liability, net

 

(66

)

(138

)

EBITDA

 

4,007

 

8,867

 

Acquisition related expenses

 

2,922

 

9,254

 

Non-cash share compensation

 

601

 

1,358

 

Shared service amendment payment

 

1,800

 

1,800

 

Adjusted EBITDA

 

$

9,333

 

$

21,279

 

 

 

 

 

 

 

Adjusted EBITDA Annualized

 

$

37,320

 

$

28,372

 

 

10



 

MARKET CAPITALIZATION AND DEBT SUMMARY

(In thousands, except share and per share data)

 

Market Capitalization

 

 

 

As of

 

GRAPHIC

 

 

September
30, 2014

 

Revolving Credit Facility Debt

 

$

70,000

 

Senior Notes and Term Loans

 

83,420

 

Total Debt

 

$

153,420

 

 

 

 

 

Share price (closing price as of September 30, 2014)

 

$

13.72

 

Total Common Shares Outstanding

 

45,376,115

 

Equity Market Capitalization

 

$

622,560

 

 

 

 

 

Total Capitalization (Debt + Equity)

 

$

775,980

 

 

 

 

 

Total Debt / Total Capitalization

 

19.8

%

Total Debt / Total Assets

 

21.6

%

Total Debt / Total Enterprise Value

 

17.9

%

 

Debt Summary

 

 

 

Balance as of
September 30,
2014

 

Interest Rate:

 

Maturity
Date:

 

Revolving Credit Facility

 

$

70,000

 

1.66

%

09/18/18

 

Senior Notes and Term Loans:

 

 

 

 

 

 

 

Canton MOB

 

6,233

 

5.94

%

06/06/17

 

Firehouse Square

 

2,781

 

6.58

%

09/06/17

 

Hackley Medical Center

 

5,433

 

5.93

%

01/06/17

 

MeadowView Professional Center

 

10,454

 

5.81

%

06/06/17

 

Mid Coast Hospital MOB

 

7,921

 

4.93

%

05/16/16

 

Remington Medical Commons

 

4,433

 

2.90

%

09/28/17

 

Valley West Hospital MOB

 

4,905

 

4.83

%

12/01/20

 

Oklahoma City, OK MOB

 

7,690

 

4.71

%

01/10/21

 

Crescent City Surgical Center

 

18,750

 

5.00

%

01/23/19

 

San Antonio Hospital

 

9,944

 

5.00

%

06/26/22

 

Mansfield ASC

 

4,876

 

4.97

%

10/26/17

 

Total / Weighted Average:

 

$

153,420

 

3.54

%

 

 

 

Senior Notes and Term Loans

Debt Maturity Schedule as of September 30, 2014

 

GRAPHIC

 

11



 

FINANCIAL STATISTICS

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

 

 

 

September 30,
2014

 

Weighted Average Common Shares and Units Outstanding

 

 

 

Weighted average common shares

 

36,313,644

 

Weighted average unvested restricted common shares

 

326,013

 

Weighted average units

 

4,584,371

 

Weighted Average Common Shares and Units - Diluted

 

41,224,028

 

 

 

 

 

Outstanding Common Shares and OP Units at Quarter End

 

51,117,305

 

 

 

 

 

Common Dividend Yield

 

 

 

Annualized dividend rate (1)

 

$

0.90

 

Price per share (2)

 

$

13.72

 

Annualized dividend yield

 

6.56

%

 

 

 

 

Net Debt / Adjusted EBITDA Ratio

 

 

 

Total debt

 

$

153,420

 

Net debt (less cash)

 

$

136,395

 

Adjusted EBITDA (annualized)*

 

$

37,320

 

Net Debt / Adjusted EBITDA Ratio

 

3.65x

 

 

 

 

 

Interest Coverage Ratio

 

 

 

Adjusted EBITDA (annualized)*

 

$

37,320

 

Cash interest expense (annualized)*

 

$

5,984

 

Interest Coverage Ratio

 

6.24x

 

 

 

 

 

Quarterly Fixed Charge Coverage Ratio

 

 

 

Total interest

 

$

1,911

 

Secured debt principal amortization

 

431

 

Total fixed charges

 

$

2,342

 

Adjusted EBITDA

 

$

9,330

 

Adjusted EBITDA fixed charge coverage ratio

 

3.98x

 

 

 

 

 

Enterprise Value

 

 

 

Total market cap

 

$

701,329

 

Total debt

 

153,420

 

Total Enterprise Value

 

$

854,749

 

 

 

 

 

Leverage

 

 

 

Total debt

 

$

153,420

 

Total assets

 

$

708,662

 

Total Debt / Total Assets

 

21.6

%

Total Debt / Total Enterprise Value

 

17.9

%

 


(1)         Annualized rate based on $0.225 quarterly dividend for the quarter ending September 30, 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 $13.72 as of September 30, 2014

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

 

12



 

ACQUISITION ACTIVITY AND TENANT OCCUPANCY

 

Acquisition Activity

 

Property (1)

 

Property

Location

 

Date
Acquired

 

Cash
Cap Rate

 

Percent
Leased at
Acquisition

 

Purchase
Price (4)

 

GLA

 

Landmark Medical Portfolio – 3 MOBs

 

Bloomington, IN

 

07/01/2014

 

7.50

%

100

%

$

23,837

 

90,000

 

Carlisle II MOB

 

Carlisle, PA

 

07/25/2014

 

9.35

%

100

%

4,500

 

13,245

 

Surgical Institute of Monroe

 

Monroe, MI

 

07/28/2014

 

8.00

%

100

%

6,000

 

24,500

 

The Oaks Medical Building

 

Lady Lake, FL

 

07/31/2014

 

7.00

%

100

%

10,600

 

27,992

 

Mansfield Baylor ASC (3)

 

Mansfield, TX

 

09/02/2014

 

7.80

%

100

%

8,500

 

15,662

 

Eye Center of Southern Indiana

 

Bloomington, IN

 

09/05/2014

 

7.25

%

100

%

12,174

 

32,096

 

Wayne State Medical Center

 

Troy, MI

 

09/10/2014

 

6.81

%

100

%

46,500

 

176,000

 

Zangmeister Cancer Center

 

Columbus, OH

 

09/30/2014

 

7.05

%

100

%

36,600

 

109,667

 

Berger Medical Center

 

Columbus, OH

 

09/30/2014

 

7.50

%

77.7

%

6,785

 

31,528

 

OrthoOne — 2 MOBs

 

Columbus, OH

 

09/30/2014

 

7.07

%

100

%

24,500

 

95,749

 

El Paso Ortho — 3 buildings

 

El Paso, TX

 

09/30/2014

 

7.78

%

94.5

%

46,235

 

178,700

 

Pinnacle Portfolio (3)

 

Harrisburg, PA

 

10/29/2014

 

7.36

%

96.5

%

23,100

 

127,439

 

Total

 

 

 

 

 

 

 

 

 

$

249,331

 

922,578

 

 


(1)         MOB means medical office building

(2)         ASC means ambulatory surgery centers

(3)         Subsequent to close of third quarter, prior to Earnings Release

(4)         In thousands

 

Tenant Occupancy

 

Total Portfolio

 

September 30, 2014

 

% of Portfolio

 

Quarterly Leasing Activity

 

 

 

 

 

Expirations:

 

 

 

 

 

Expiring GLA

 

(8,996

)

0.4

%

Leasing:

 

 

 

 

 

Renewal leases in Q3

 

5,767

 

0.2

%

New leases commencing in Q3

 

1,348

 

0.1

%

Total leasing activity

 

(1,881

)

0.1

%

 

 

 

 

 

 

Quarterly disposition square feet

 

(2,000

)

0.1

%

 

 

 

 

 

 

Total square feet end of quarter

 

2,524,950

 

100.0

%

Occupied square feet end of quarter

 

2,407,819

 

95.4

%

 

13



 

PORTFOLIO LEASE EXPIRATIONS AND HISTORICAL OCCUPANCY

as of September 30, 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)(2)

 

Percent of
Total
Annualized
Base Rent
of
Expiring
Leases

 

Annualized
Rent
Leased by
GLA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

4

 

9,200

 

0.4

%

$

225

 

0.4

%

24.47

 

2015

 

14

 

30,452

 

1.2

%

829

 

1.5

%

27.23

 

2016

 

19

 

86,114

 

3.4

%

1,992

 

3.5

%

23.13

 

2017

 

13

 

44,557

 

1.8

%

1,211

 

2.1

%

27.18

 

2018

 

18

 

163,648

 

6.5

%

3,701

 

6.5

%

22.61

 

2019

 

13

 

130,350

 

5.2

%

2,885

 

5.1

%

22.13

 

2020

 

9

 

37,721

 

1.5

%

776

 

1.4

%

20.56

 

2021

 

9

 

68,193

 

2.7

%

1,665

 

2.9

%

24.41

 

2022

 

11

 

106,611

 

4.2

%

2,655

 

4.7

%

24.90

 

2023

 

14

 

126,714

 

5.0

%

3,029

 

5.3

%

23.90

 

Thereafter:

 

62

 

1,602,659

 

63.5

%

38,023

 

66.7

%

23.72

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MTM

 

1

 

1,600

 

0.1

%

9

 

0.0

%

5.63

 

Vacant

 

34

 

117,131

 

4.6

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total/Average:

 

221

 

2,524,950

 

100.0

%

$

56,999

 

100.0

%

$

23.67

 

 


(1) Calculated by multiplying (a) base rent payments for the month ended September 30, 2014, by (b) 12.

(2) In thousands

 

Historical Occupancy

 

 

 

As of

 

 

 

9/30/2014

 

6/30/2014

 

3/31/2014

 

12/31/2013

 

9/30/2013

 

Total Portfolio Occupancy, end of period

 

95.4

%

94.2

%

93.5

%

91.1

%

90.3

%

 

 

Wayne State University Medical Center

Troy, MI

 

14



 

PORTFOLIO DISTRIBUTION BY STATE

as of September 30, 2014

 

Market

 

GLA

 

% of Portfolio

 

Texas

 

558,374

 

22.1

%

Georgia

 

347,631

 

13.8

%

Ohio

 

313,377

 

12.4

%

Michigan

 

292,710

 

11.6

%

Indiana

 

211,812

 

8.4

%

Pennsylvania

 

206,241

 

8.2

%

Mississippi

 

97,210

 

3.8

%

Florida

 

95,206

 

3.8

%

Illinois

 

75,655

 

3.0

%

Tennessee

 

64,200

 

2.5

%

Louisiana

 

60,000

 

2.4

%

Oklahoma

 

52,000

 

2.1

%

Wisconsin

 

50,999

 

2.0

%

Maine

 

44,677

 

1.8

%

North Carolina

 

29,422

 

1.2

%

Arizona

 

12,800

 

0.5

%

Montana

 

12,636

 

0.5

%

Total

 

2,524,950

 

100.0

%

 

 

15



 

PORTFOLIO DIVERSIFICATION BY TYPE

as of September 30, 2014

 

Portfolio Diversification by Type

 

 

 

Number
of
Buildings

 

GLA

 

% of
Total
GLA

 

Occupancy

 

Number
of States

 

Medical office buildings:

 

 

 

 

 

 

 

 

 

 

 

Single-tenant

 

31

 

916,743

 

36.3

%

96.3

%

11

 

Multi-tenant

 

26

 

1,027,930

 

40.7

 

91.9

 

14

 

Other facilities that serve healthcare industry:

 

 

 

 

 

 

 

 

 

 

 

Hospitals

 

4

 

269,925

 

10.7

 

100.0

 

2

 

LTACHs

 

3

 

310,352

 

12.3

 

100.0

 

2

 

Total

 

64

 

2,524,950

 

100

%

 

 

 

 

 

GRAPHIC

 

Hospital an LTACH Coverage Ratio (EBITDAR/Rent) for September 30, 2014 is 3.32x

 

16



 

TOP 10 HEALTH SYSTEM RELATIONSHIPS (TENANTS)

as of September 30, 2014

(In thousands)

 

Tenant

 

Weighted
Average
Remaining
Lease Term

 

Total Leased
GLA

 

Percent of
Leased GLA

 

Annualized Base
Rent

 

Percent of
Annualized
Base Rent

 

LifeCare

 

13.26

 

310,352

 

12.3

%

4,697

 

8.24

%

East El Paso Physicians Medical Center

 

13.93

 

77,000

 

3.1

%

3,282

 

5.76

%

Wayne State University Physician Group

 

14.95

 

176,000

 

7.0

%

3,168

 

5.56

%

Crescent City Surgical Centre

 

14.01

 

60,000

 

2.4

%

3,000

 

5.26

%

Foundation Hospital of San Antonio, LLC

 

14.42

 

68,786

 

2.7

%

2,885

 

5.06

%

Northside Hospital

 

8.19

 

88,003

 

3.5

%

2,242

 

3.93

%

Mid Ohio Oncology

 

9.67

 

98,325

 

3.9

%

2,233

 

3.92

%

Premier Healthcare

 

9.76

 

90,000

 

3.6

%

1,788

 

3.14

%

El Paso Specialty Hospital

 

11.26

 

54,311

 

2.2

%

1,740

 

3.05

%

Eagles Landing Family Practice

 

14.42

 

68,711

 

2.7

%

1,560

 

2.74

%

 

Mark H. Zangmeister Cancer Center

Columbus, OH

The Oaks Medical Building

Lady Lake, FL

 

 

Mansfield Baylor ASC

Mansfield, TX

Orthopaedic One

Columbus, OH

 

17



 

CONSOLIDATED BALANCE SHEETS

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

 

 

 

September 30,

 

December 31,

 

 

 

2014

 

2013

 

 

 

(Unaudited)

 

(Audited)

 

ASSETS

 

 

 

 

 

Investment properties:

 

 

 

 

 

Land and improvements

 

$

70,561

 

$

26,088

 

Building and improvements

 

567,342

 

193,184

 

Tenant improvements

 

5,986

 

5,458

 

Acquired lease intangibles

 

60,831

 

31,236

 

 

 

704,720

 

255,966

 

Accumulated depreciation

 

(39,105

)

(28,427

)

Net real estate property

 

665,615

 

227,539

 

Real estate loan receivable

 

6,907

 

 

Investment in unconsolidated entity

 

1,324

 

 

Net real estate investments

 

673,846

 

227,539

 

Cash and cash equivalents

 

17,025

 

56,478

 

Tenant receivables, net

 

1,282

 

837

 

Deferred costs, net

 

5,097

 

2,105

 

Other assets

 

11,412

 

5,901

 

Total assets

 

$

708,662

 

$

292,860

 

LIABILITIES AND EQUITY

 

 

 

 

 

Liabilities:

 

 

 

 

 

Credit facility

 

$

70,000

 

$

 

Mortgage debt

 

83,420

 

42,821

 

Accounts payable

 

633

 

836

 

Dividend payable

 

11,379

 

5,681

 

Accrued expenses and other liabilities

 

7,222

 

2,685

 

Acquired lease intangibles, net

 

344

 

 

Total liabilities

 

172,998

 

52,023

 

Equity:

 

 

 

 

 

Common shares, $0.01 par value, 500,000,000 shares authorized, 45,376,115 and 21,548,597 shares issued and outstanding as of September 30, 2014 and December 31, 2013, respectively.

 

453

 

215

 

Additional paid-in capital

 

511,500

 

213,359

 

Accumulated deficit

 

(37,674

)

(8,670

)

Total shareholders’ equity

 

474,279

 

204,904

 

Noncontrolling interests:

 

 

 

 

 

Operating partnership

 

60,679

 

35,310

 

Partially owned properties

 

706

 

623

 

Total noncontrolling interest

 

61,385

 

35,933

 

Total equity

 

535,664

 

240,837

 

Total liabilities and equity

 

$

708,662

 

$

292,860

 

 

18



 

CONSOLIDATED STATEMENTS OF OPERATION

(In thousands, except share and per share data)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30

 

September 30

 

 

 

2014

 

2013 (1)

 

2014

 

2013 (1)

 

Revenues:

 

 

 

 

 

 

 

 

 

Rental revenues

 

$

12,506

 

$

2,920

 

$

29,555

 

$

7,952

 

Expense recoveries

 

1,355

 

798

 

3,445

 

2,399

 

Interest income on real estate loans and other

 

300

 

11

 

640

 

206

 

Total revenues

 

14,161

 

3,729

 

33,640

 

10,557

 

Expenses:

 

 

 

 

 

 

 

 

 

Interest expense, net

 

1,911

 

826

 

4,849

 

3,114

 

General and administrative

 

4,445

 

1,285

 

8,867

 

1,507

 

Operating expenses

 

2,531

 

1,130

 

6,367

 

3,578

 

Depreciation and amortization

 

4,413

 

1,146

 

10,565

 

3,123

 

Acquisition expenses

 

2,922

 

756

 

9,254

 

756

 

Management fees

 

 

 

 

475

 

Impairment loss

 

250

 

 

250

 

 

Total expenses

 

16,472

 

5,143

 

40,152

 

12,553

 

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

 

(2,311

)

(1,414

)

(6,512

)

(1,996

)

Equity in income of unconsolidated entity

 

26

 

 

69

 

 

Gain (loss) on sale of property

 

34

 

(2

)

34

 

(2

)

Net loss

 

(2,251

)

(1,416

)

(6,409

)

(1,998

)

Less: Net (income) loss attributable to Predecessor

 

 

(6

)

 

576

 

Less: Net loss (income) attributable to noncontrolling interests —operating partnership

 

233

 

(61

)

887

 

(61

)

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

 

(76

)

323

 

(226

)

323

 

Net loss attributable to common shareholders

 

$

(2,094

)

$

(1,160

)

$

(5,748

)

$

(1,160

)

Net loss per share:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.06

)

$

(0.10

)

$

(0.21

)

$

(0.10

)

Weighted average common shares:

 

 

 

 

 

 

 

 

 

Basic and diluted

 

36,313,644

 

11,486,011

 

27,980,408

 

11,486,011

 

 

 

 

 

 

 

 

 

 

 

Dividends and distributions declared per common share and unit

 

$

0.23

 

$

0.18

 

$

0.68

 

$

0.18

 

 

Comparative financial results for the three-month period ended September 30, 2013 reflect the Company’s results from July 24, 2013 through September 30, 2013, combined with the results of the Company’s predecessor from July 1, 2013 through July 23, 2013. Comparative financial results for the nine-month period ended September 30, 2013 reflect the Company’s results from July 24, 2013 through September 30, 2013, combined with the results of the Company’s predecessor from Jan 1, 2013 through July 23, 2013.

 

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, acquisition-related expenses, and other non-reoccurring items. We consider Adjusted EBITDA an important measure because it provides additional information to allow management, investors, and our current and potential creditors to evaluate and compare our core operating results and our ability to service debt.

 

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

 

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

 

Funds From Operations (FFO): Funds from operations, or FFO, is a widely recognized measure of REIT performance. Although FFO is not computed in accordance with generally accepted accounting principles, or GAAP, we believe that information regarding FFO is helpful to shareholders and potential investors because it facilitates an understanding of the operating performance of our initial properties without giving effect to real estate depreciation and amortization, which assumes that the value of real estate assets diminishes ratably over time. Because real estate values have historically increased or decreased with market conditions, we believe that FFO provides a more meaningful and accurate indication of our performance. We calculate FFO in accordance with 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, impairments and noncontrolling interests. In computing FFO, we eliminate these items because, in our view, they are not indicative of the results from the operations of our properties. To facilitate a clear understanding of our historical operating result, FFO should be examined in conjunction with net income (determined in accordance with GAAP) as presented in our financial statements. FFO does not represent cash generated from operating activities in accordance with GAAP, should not be considered to be an alternative to net income (loss) (determined in accordance with GAAP) as a measure of our liquidity and is not indicative of funds available for our cash needs, including our ability to make cash distributions to shareholders.

 

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

 

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

 

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

 

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

 

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

 

Medical Office Building: 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 and recurring capital expenditures, including leasing costs and tenant and capital improvements. DOC believes Normalized FAD provides a meaningful supplemental measure of its ability to fund its ongoing distributions. Normalized FAD should not be considered as an alternative to net income or loss attributable to controlling interest (computed in accordance with GAAP) as an indicator of DOC’s financial performance or to cash flow from operating activities (computed in accordance with GAAP) as an indicator of DOC’s liquidity. Normalized FAD should be reviewed in connection with other GAAP measurements.

 

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

 

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

 

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

 

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

 

21