Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 - Physicians Realty Trust | a2016q3earningspressreleas.htm |
| 8-K - 8-K - Physicians Realty Trust | a8-k2016q3earnings11022016.htm |
Springwoods MOB
Spring, TX
SUPPLEMENTAL OPERATING
& FINANCIAL INFORMATION
THIRD QUARTER 2016
PHYSICIANS REALTY TRUST
NYSE: DOC
Midlands One MOB
Papillion, NE
September 2016
2
COMPANY OVERVIEW
ABOUT PHYSICIANS REALTY TRUST 4
THIRD 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 LEASE EXPIRATION SCHEDULE 13
PORTFOLIO GEOGRAPHIC DISTRIBUTION 14
PORTFOLIO DIVERSIFICATION 15
TOP 10 HEALTH SYSTEM RELATIONSHIPS 16
CONSOLIDATED BALANCE SHEETS 17
CONSOLIDATED STATEMENTS OF INCOME 18
REPORTING DEFINITIONS 19
TABLE OF CONTENTS
3
FORWARD-LOOKING STATEMENTS
Certain statements made in this supplemental information package constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). In particular, statements pertaining to
our capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, our pro
forma financial statements and our statements regarding anticipated market conditions are forward-looking statements. You can
identify forward-looking statements by the use of forward-looking terminology such as “believes,” “expects,” “may,” “will,”
“should,” “seeks,” “approximately,” “intends,” “plans,” “pro forma,” “estimates” or “anticipates” or the negative of these words
and phrases or similar words or phrases which are predictions of or indicate future events or trends and which do not relate solely
to historical matters. You can also identify forward-looking statements by discussions of strategy, plans, expectations or
intentions.
Forward-looking statements reflect the views of our management regarding current expectations and projections about future
events and are based on currently available information. These forward-looking statements are not guarantees of future
performance and involve numerous risks and uncertainties and you should not rely on them as predictions of future events.
Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be
able to realize them.
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any
obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of
new information, data or methods, future events or other changes after the date of this supplemental information package, except
as required by applicable law. You should not place undue reliance on any forward-looking statements that are based on
information currently available to us or the third parties making the forward-looking statements. For a discussion of factors that
could impact our future results, performance or transactions, see Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-
K for the fiscal year ended December 31, 2015, and Part II, Item 1A (Risk Factors) of our Quarterly Reports on Form 10-Q for the
quarterly periods ended March 31, 2016 and June 30, 2016.
NON-GAAP FINANCIAL MEASURES
This presentation includes Adjusted EBITDA, EBITDAR, net operating income (or NOI), Cash NOI, Funds From Operations (or
FFO), Normalized FFO, and Normalized Funds Available For Distribution (or FAD), which are non-GAAP financial measures.
For purposes of the Securities and Exchange Commission’s (“SEC”) Regulation G, a non-GAAP financial measure is a numerical
measure of a company’s historical or future financial performance, financial position or cash flows that excludes amounts, or is
subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable financial
measure calculated and presented in accordance with GAAP in the statement of operations, balance sheet or statement of cash
flows (or equivalent statements) of the company, or includes amounts, or is subject to adjustments that have the effect of
including amounts, that are excluded from the most directly comparable financial measure so calculated and presented. As used in
this presentation, GAAP refers to generally accepted accounting principles in the United States of America. Our use of the non-
GAAP financial measure terms herein may not be comparable to that of other real estate investment trusts. Pursuant to the
requirements of Regulation G, we have provided reconciliations of the non-GAAP financial measures to the most directly
comparable GAAP financial measures.
ADDITIONAL INFORMATION
The information in this supplemental information package should be read in conjunction with the Company’s Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, earnings press release dated November 2, 2016 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 September 30, 2016, own approximately 97.4% of the partnership interests in the operating partnership (“OP Units”).
COMPANY SNAPSHOT As of
September 30, 2016
Gross real estate investments (thousands) $ 2,724,302
Total properties 235
% Leased 95.7%
Total portfolio gross leasable area (sq. ft.) 10,233,656
% of GLA on-campus / affiliated 79.2%
Average remaining lease term for all buildings (years) 8.5
Cash and cash equivalents (thousands) $ 8,396
Total debt to firm value 20.9%
Weighted average interest rate per annum on consolidated debt 3.3%
Equity market cap (thousands) $ 2,899,721
Quarterly dividend $ 0.225
Quarter end stock price $ 21.54
Dividend yield 4.18%
Common shares outstanding 134,620,300
OP Units outstanding and not owned by DOC 3,618,988
Total firm value (thousands) (1) $ 3,798,345
(1) Represents the value of outstanding shares and units based on the closing stock price on September 30, 2016 plus the amount of outstanding debt and
redeemable equity at September 30, 2016.
5
ABOUT PHYSICIANS REALTY TRUST (CONTINUED)
BOARD OF TRUSTEES
Tommy G. Thompson
Chairman
John T. Thomas William A. Ebinger, M.D. Richard A. Weiss
Chief Executive Officer Trustee Trustee
President
Albert C. Black Mark A. Baumgartner Stanton D. Anderson
Compensation and Nominating Finance and Investment Audit Committee Chair
Governance Committee Chair Committee Chair
MANAGEMENT TEAM
John T. Thomas
Chief Executive Officer
President
John W. Sweet Jeffrey N. Theiler Deeni D. Taylor
Executive Vice President Executive Vice President Executive Vice President
Chief Investment Officer Chief Financial Officer Investments
Bradley D. Page John W. Lucey Mark D. Theine
Senior Vice President Senior Vice President Senior Vice President
General Counsel Chief Accounting and Asset & Investment
Administrative Officer 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 J. Sadler - Keybanc Capital Markets Inc.
J. Kim - BMO Capital Markets Corp. V. Malhotra - Morgan Stanley
M. Gorman - BTIG J. Hughes - Raymond James Financial Inc.
J. France - Cantor Fitzgerald M. Carroll - RBC Capital Markets LLC
P. Morgan - Canaccord Genuity Inc. C. Vanacore - Stifel
S. Shaw - Compass Pt Rch & Trading LLC E. Fleming - SunTrust Robinson Humphrey
J. Roberts - J.J.B. Hilliard W.L. Lyons LLC C. Kucera - Wunderlich Securities Inc.
P. Martin - JMP Securities
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
THIRD QUARTER 2016 HIGHLIGHTS
OPERATING HIGHLIGHTS
• Third quarter 2016 total revenue of $70.0 million, up 101% over the prior year period
• Third quarter 2016 rental revenue of $53.3 million, an increase of 89% over the prior year period
• Generated quarterly net income per share of $0.07 on a fully diluted basis
• Generated quarterly normalized funds from operations (Normalized FFO) of $0.27 per share on a fully diluted basis
• Completed third quarter investments of $177.0 million, including 13 healthcare properties representing 635,263 square
feet, 1 land parcel for $1.0 million, loan investments of $4.7 million, and noncontrolling interest buyouts of $1.6 million.
• Declared quarterly dividend of $0.225 per share for the third quarter
• 95.7% of portfolio square footage leased as of September 30, 2016
• Net increase to gross leasable square footage of 6.7% to 10,233,656 square feet as of September 30, 2016 from
9,586,638 as of June 30, 2016
COMPANY ANNOUNCEMENTS
• July 5, 2016: Announced the closure of the second tranche of the CHI portfolio, consisting of 20 facilities representing a
total investment of $305 million, as well as the completion of additional investments totaling $43.5 million. Investments
completed during the second quarter totaled a Company record $691 million.
• August 3, 2016: Announced second quarter 2016 financial results, as well as the completion of $30.5 million of
investments since June 30, 2016.
THIRD QUARTER INVESTMENTS SUBSEQUENT INVESTMENTS
• Buyouts - Great Falls Clinic & Foundation • N.W. Michigan S.C., Traverse City, MI
• Prairie Care MOB, Maplewood, MN • United Surgical Partners J.V., Scottsdale, AZ
• RE Loan, El Paso, TX
• Springwoods MOB, Spring, TX
• Mezzanine Loan - Hazelwood, Minnetonka, MN
• Jackson, Tennessee Land, Jackson, TN
• Unity Portfolio - 4 Properties, West Lafayette, IN
• Medical Village at Maitland, Orlando, FL
• Tri-State Orthopaedics MOB, Evansville, IN
• Maury Regional Healthcare MOB, Spring Hill, TN
• Spring Ridge Medical Center, Wyomissing, PA
• Doctors Community Hospital MOB, Lanham, MD
• Gig Harbor Medical Pavilion, Gig Harbor, WA
• Midlands One Professional Center, Papillion, NE
7
FINANCIAL HIGHLIGHTS
(Unaudited and in thousands, except sq. ft. and per share data)
(1) Unadjusted for unamortized fair value adjustments and deferred financing costs
(2) Outstanding common shares and OP Units at quarter end, multiplied by share price at quarter end
INCOME Three Months Ended
September 30, 2016 June 30, 2016
Revenues $ 70,010 $ 53,216
Net income 10,294 7,184
NOI 50,878 39,417
Annualized Adjusted EBITDA 184,504 142,588
Net income available to common shareholders per common share $ 0.07 $ 0.05
Normalized FFO 37,019 29,537
Normalized FFO per common share and OP Unit $ 0.27 $ 0.22
Normalized FAD 32,887 26,971
CAPITALIZATION As of
ASSETS September 30, 2016 June 30, 2016
Gross Real Estate Investments (including gross lease intangibles) 2,724,302 2,547,128
Total Assets 2,670,647 2,532,912
DEBT AND EQUITY
Total Debt (1) 794,780 642,337
Total Equity 1,768,410 1,798,068
Equity Market Capitalization 2,899,721 2,822,433
Implied Equity Market Capitalization (2) 2,977,674 2,904,251
Total Debt / Implied Equity Market Capitalization 27% 22%
Gross Real Estate Assets Real Estate Investments/Quarter Total GLA
Portfolio Growth Since IPO
$3,000,000
$2,750,000
$2,500,000
$2,250,000
$2,000,000
$1,750,000
$1,500,000
$1,250,000
$1,000,000
$750,000
$500,000
$250,000
$0
G
ro
ss
R
ea
lE
st
at
e
In
ve
st
m
en
ts
11,000,000
10,000,000
9,000,000
8,000,000
7,000,000
6,000,000
5,000,000
4,000,000
3,000,000
2,000,000
1,000,000
0
G
LA
in
SF
IPO Q3-2013
Q4-2013
Q1-2014
Q2-2014
Q3-2014
Q4-2014
Q1-2015
Q2-2015
Q3-2015
Q4-2015
Q1-2016
Q2-2016
Q3-2016
$123,998
$2,724,302
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
September 30, 2016
Nine Months Ended
September 30, 2016
Net income $ 10,294 $ 22,902
Net income attributable to NCI - partially owned properties (176) (553)
Preferred distributions (436) (1,421)
Depreciation and amortization expense 23,947 59,714
Depreciation and amortization expense - partially owned properties (168) (520)
FFO applicable to common shares and OP Units $ 33,461 $ 80,122
FFO per common share and OP Unit $ 0.24 $ 0.63
Net change in fair value of derivative — (67)
Acquisition expenses 4,398 11,031
Write-off of contingent consideration (840) (840)
Normalized FFO applicable to common shares and OP Units $ 37,019 $ 90,246
Net income available to common shareholders per common share and OP Unit $ 0.07 $ 0.16
Normalized FFO per common share and OP Unit $ 0.27 $ 0.71
Normalized FFO applicable to common shares and OP Units 37,019 90,246
Non-cash share compensation expense 1,005 2,976
Straight-line rent adjustments (4,952) (12,156)
Amortization of acquired above/below market leases 698 2,210
Amortization of lease inducements 248 607
Amortization of deferred financing costs 849 1,796
TI/LC and recurring capital expenditures (2,235) (5,536)
Seller master lease and rent abatement payments 255 778
Normalized FAD applicable to common shares and OP Units $ 32,887 $ 80,921
Weighted average number of common shares and OP Units outstanding 138,880,787 127,395,989
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
September 30, 2016
Nine Months Ended
September 30, 2016
Net income $ 10,294 $ 22,902
General and administrative 4,917 13,964
Acquisition expenses 4,398 11,031
Depreciation and amortization expense 23,969 59,778
Interest expense 7,300 15,776
Net change in fair value of derivative — (67)
NOI $ 50,878 $ 123,384
NOI $ 50,878 $ 123,384
Straight-line rent adjustments (4,952) (12,156)
Amortization of acquired above/below market leases 757 2,387
Amortization of lease inducements 248 607
Seller master lease and rent abatement payments 255 778
Write-off of contingent consideration (840) (840)
Cash NOI $ 46,346 $ 114,160
ADJUSTED EBITDA
Three Months Ended
September 30, 2016
Nine Months Ended
September 30, 2016
Net income $ 10,294 $ 22,902
Depreciation and amortization 23,969 59,778
Interest expense 7,300 15,776
Net change in fair value of derivative — (67)
EBITDA $ 41,563 $ 98,389
Acquisition expenses 4,398 11,031
Non-cash share compensation expense 1,005 2,976
Write-off of contingent consideration (840) (840)
Adjusted EBITDA $ 46,126 $ 111,556
Adjusted EBITDA Annualized $ 184,504 $ 148,741
10
MARKET CAPITALIZATION AND DEBT SUMMARY
(Unaudited and in thousands, except share and per share data)
Debt Equity
Debt is 20.9% of Firm Value
MARKET CAPITALIZATION September 30, 2016
Unsecured credit facility debt $ 456,000
Unsecured notes 225,000
Mortgage debt 113,780
Total Debt (1) $ 794,780
Redeemable equity $ 25,891
Share price $ 21.54
Total common shares outstanding 134,620,300
Total OP Units outstanding 3,618,988
Implied equity market capitalization $ 2,977,674
Total Firm Value (Debt + Pref. + Equity) $ 3,798,345
Total Debt/Total Assets 29.8%
Total Debt/Total Firm Value 20.9%
DEBT SUMMARY (1)
Balance as of
September 30, 2016 Interest Rate Maturity Date
Revolving Credit Facility Debt $ 206,000 1.7 % 9/18/2020
Credit Facility Term Debt 250,000 2.9 % 6/9/2023
Senior Unsecured Notes
January '16 - Series A 15,000 4.0 % 1/7/2023
January '16 - Series B 45,000 4.4 % 1/7/2026
January '16 - Series C 45,000 4.6 % 1/7/2028
January '16 - Series D 45,000 4.7 % 1/7/2031
August '16 - Series A 25,000 4.1 % 8/11/2025
August '16 - Series B 25,000 4.2 % 8/11/2026
August '16 - Series C 25,000 4.2 % 8/11/2027
Mortgage Debt, Maturing (2):
2016 — — %
2017 39,785 5.7 %
2018 28,979 3.5 %
Thereafter 45,016 5.0 %
$ 794,780 3.3%
Debt Maturity Schedule as of September 30, 2016
$500,000
$400,000
$300,000
$200,000
$100,000
$0
2016 2017 2018 2019 2020 2021 2022 Thereafter
$— $39,785 $28,979 $18,750
$210,682
$7,339 $14,245
$475,000
(1) Unadjusted for unamortized fair value adjustments and deferred financing costs
(2) Weighted average maturity of Mortgage Debt is 2.2 years
11
FINANCIAL STATISTICS
(Unaudited and in thousands, except share and per share data)
Quarter Ended
September 30, 2016
Annualized dividend rate (1) $ 0.90
Price per share (2) $ 21.54
Annualized Dividend Yield 4.18%
Total debt (3) $ 794,780
Net debt (less cash) 786,384
Adjusted EBITDA (annualized)* 184,504
Net Debt / Adjusted EBITDA Ratio 4.26x
Adjusted EBITDA (annualized)* $ 184,504
Cash interest expense (annualized)* 25,804
Interest Coverage Ratio 7.15x
Total interest $ 7,300
Secured debt principal amortization 1,646
Total fixed charges $ 8,946
Adjusted EBITDA 46,126
Adjusted EBITDA Fixed Charge Coverage Ratio 5.16x
Equity market cap $ 2,977,674
Redeemable equity 25,891
Total debt (3) 794,780
Total Firm Value 3,798,345
Total debt (3) $ 794,780
Total assets 2,670,647
Total Debt / Total Assets 29.8%
Total Debt / Total Firm Value 20.9%
Weighted average common shares 134,608,396
Weighted average unvested restricted common shares and share units 653,403
Weighted average OP Units not owned by DOC 3,618,988
Weighted Average Common Shares and OP Units - Diluted 138,880,787
(1) Annualized rate based on $0.225 quarterly dividend for the quarter ending September 30, 2016. Actual dividend amounts will be
determined by the Trust's board of trustees based on a variety of factors.
(2) Closing common share price of $21.54 as of September 30, 2016.
(3) Unadjusted for unamortized fair value adjustments and deferred financing costs.
* Amounts are annualized and actual amounts may differ significantly from the annualized amounts shown.
12
SAME-STORE PORTFOLIO PERFORMANCE AND TENANT OCCUPANCY
(Unaudited and in thousands, except property count and sq. ft. data)
SAME-STORE PORTFOLIO ANALYSIS
Portfolio Same-Store
Quarter Ended Quarter Ended
September 30, 2016 September 30, 2016
Number of properties 235 120
Gross leasable area 10,233,656 4,352,656
Cash NOI $ 46,346 $ 22,217
% Leased 95.7% 96.0%
SAME-STORE PORTFOLIO PERFORMANCE
Year-Over-Year Comparison Sequential Comparison
Q3'16 Q3'15 Change Q3'16 Q2'16 Change
Number of properties 120 120 — 120 120 —
Gross leasable area 4,352,656 4,352,656 — 4,352,656 4,352,656 —
% Leased 96.0% 96.0% — 96.0% 95.9% 10 bps
Rental revenues 30,322 29,527 +2.7% 30,322 29,585 +2.5%
Operating expenses (8,105) (7,536) +7.6% (8,105) (7,455) +8.7%
Same-Store Cash NOI 22,217 21,991 +1.0% 22,217 22,130 0.4%
TENANT OCCUPANCY
Quarter Ended Percentage of total GLA
September 30, 2016 September 30, 2016
Total GLA
Total square feet beginning of quarter 9,586,638 93.7 %
Acquired GLA (1) 647,018 6.3 %
Disposed GLA — — %
Total square feet end of quarter 10,233,656 100.0 %
Occupied GLA
Occupied GLA beginning of quarter 9,172,478 89.6 %
Expirations (130,417) (1.3)%
Renewals 100,893 1.0 %
Retention Rate 77%
New leases commencing in quarter 69,831 0.7 %
Net absorption / (vacancy loss) 40,307 0.4 %
Net occupied GLA acquired 582,523 5.7 %
Occupied GLA end of quarter 9,795,308 95.7 %
Same-Store Cash
NOI, 47.9%
Other Cash
NOI, 52.1%
(1) Includes remeasurements of existing properties totaling 9,200 square feet.
13
INVESTMENT ACTIVITY AND LEASE EXPIRATION SCHEDULE
(Unaudited and in thousands, except sq. ft. data)
LEASE EXPIRATION SCHEDULE
(As of September 30, 2016)
Expiration Expiring Expiring Lease % of Total Expiring Lease % of Total Average Rent
Year Leases GLA GLA ABR ABR per SF
2016 27 97,861 1.0% $ 1,929 0.9% $ 19.71
2017 120 410,990 4.0% 8,653 4.3% 21.06
2018 108 482,604 4.7% 9,310 4.6% 19.29
2019 82 444,784 4.3% 9,105 4.5% 20.47
2020 90 390,576 3.8% 7,757 3.8% 19.86
2021 101 491,365 4.8% 9,459 4.7% 19.25
2022 45 415,104 4.1% 9,121 4.5% 21.97
2023 53 414,625 4.1% 8,354 4.1% 20.15
2024 65 790,998 7.7% 15,883 7.8% 20.08
2025 100 758,858 7.4% 18,157 8.9% 23.93
Thereafter: 167 5,017,138 49.0% 104,361 51.4% 20.80
MTM 29 80,405 0.8% 978 0.5% 12.16
Vacant 438,348 4.3%
Total / W.A. 987 10,233,656 100% $ 203,067 100% $ 19.84
INVESTMENT ACTIVITY
Acquisition First Year Purchase
Property Location Date Cash Yield % Leased Price GLA
Prairie Care MOB Maplewood, MN 7/6/2016 7.1% 100.0% $ 4,886 13,950
RE Loan - El Paso El Paso, TX 7/7/2016 6.0% — 1,300 —
Springwoods MOB Spring, TX 7/21/2016 6.7% (1) 52.9% 19,925 101,250
Equity Buyout - Foundation TX / OK 7/26/2016 9.2% (2) — 611 —
Mezzanine Loan - Hazelwood Minnetonka, MN 7/29/2016 8.0% — 3,375 —
Jackson, Tennessee Land Jackson, TN 8/2/2016 — — 1,000 —
Unity Portfolio (4 MOBs) Lafayette, IN 8/8/2016 6.8% 100.0% 28,752 127,257
Medical Village at Maitland Orlando, FL 8/23/2016 7.3% (1) 100.0% 23,211 81,477
Tri-State Orthopaedics MOB Evansville, IN 8/30/2016 6.5% 100.0% 22,000 70,110
NCI Buyout - Great Falls Clinic Great Falls, MT 9/30/2016 6.8% (2) — 1,015 —
Maury Regional Healthcare MOB Spring Hill, TN 9/30/2016 6.1% 92.0% 18,500 62,499
Spring Ridge Medical Center Wyomissing, PA 9/30/2016 6.8% 100.0% 6,100 20,987
Doctors Community Hospital MOB Lanham, MD 9/30/2016 6.0% 100.0% 26,750 64,261
Gig Harbor Medical Pavilion Gig Harbor, WA 9/30/2016 8.8% 100.0% 4,766 30,379
Midlands One Professional Center Papillion, NE 9/30/2016 7.9% 100.0% 14,856 63,093
Total / Weighted Average 6.8% $ 177,047 635,263
(1) Refers to first year cash yield at stabilization.
(2) Refers to the acquisition of joint venture equity interests in owned properties.
14
PORTFOLIO GEOGRAPHIC DISTRIBUTION
(As of September 30, 2016)
TOP TEN STATES
State GLA
Texas 1,090,250
Kentucky 982,470
Nebraska 708,920
Indiana 646,262
Georgia 631,587
Washington 588,946
Ohio 541,095
Arizona 524,592
Minnesota 455,929
Florida 415,667
Other 3,647,938
Total 10,233,656
Texas, 11%
Kentucky, 10%
Nebraska, 7%
Indiana, 6%
Georgia, 6%
Washington, 6%
Ohio, 5%Arizona, 5%
Minnesota, 4%
Florida, 4%
Other, 36%
15
PORTFOLIO DIVERSIFICATION
(As of September 30, 2016)
THREE MONTHS ENDED SEPTEMBER 30, 2016
Campus Proximity
(Based on Cash NOI)
Off-Campus,
20%
On-Campus /
Affiliated, 80%
Coverage
# of Properties GLA % of Total % Leased Ratio
Single-tenant MOBs 110 3,825,731 37.4% 99.8% N/A
Multi-tenant MOBs 116 5,654,356 55.2% 92.6% N/A
Hospitals 5 334,374 3.3% 100.0% 3.4x
LTACHs 3 310,352 3.0% 100.0% 2.3x
Corporate Office 1 108,843 1.1% 89.6% N/A
Total 235 10,233,656 100.0% 95.7%
Lease Type
(Based on Revenue)
Absolute
Net, 21%
NNN,
65%
Modified Gross,
11%
Gross,
3%
Hospital and LTACH Payor Mix
(Trailing Twelve Months)
Medicare,
46%
Private
Pay, 54%
Building Type
(Based on Cash NOI)
MOB,
90%
LTACH,
3%
Hospital,
7%
16
TOP 10 HEALTH SYSTEM RELATIONSHIPS
(As of September 30, 2016, $ in thousands, determined by ABR)
Weighted Avg. % of Total
Remaining Leased % of Total Annualized Annualized
Tenant Lease Term GLA GLA Base Rent Base Rent
CHI - KentuckyOne Health 9.5 744,101 7.3% $ 12,805 6.3%
CHI - Nebraska 10.2 617,468 6.0% 9,275 4.6%
CHI - Franciscan (Seattle-Tacoma) 9.6 327,946 3.2% 5,420 2.7%
CHI - St. Alexius (North Dakota) 9.7 320,407 3.1% 5,278 2.6%
Great Falls Hospital 18.8 185,085 1.8% 5,145 2.5%
LifeCare 11.3 310,352 3.0% 4,911 2.4%
Trios Health 28.8 161,885 1.6% 4,684 2.3%
IMS / Dignity Health 8.6 160,001 1.6% 3,863 1.9%
EEPPMC Partners 11.9 77,000 0.8% 3,693 1.8%
Wayne State University Physician Group 13.0 176,000 1.7% 3,329 1.7%
Total / W.A. 11.6 3,080,245 30.1% $ 58,402 28.8%
Jewish Medical Center - South MOB
Shepherdsville, KY
Peachtree Dunwoody Medical Center
Atlanta, GA
17
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September 30,
2016
December 31,
2015
ASSETS
Investment properties:
Land and improvements $ 172,685 $ 130,788
Building and improvements 2,220,448 1,284,863
Tenant improvements 12,627 9,243
Acquired lease intangibles 282,798 205,168
2,688,558 1,630,062
Accumulated depreciation (153,815) (91,250)
Net real estate property 2,534,743 1,538,812
Real estate loans receivable 43,817 39,349
Investment in unconsolidated entity 1,326 1,322
Net real estate investments 2,579,886 1,579,483
Cash and cash equivalents 8,396 3,143
Tenant receivables, net 9,551 2,977
Other assets 72,814 53,283
Total assets $ 2,670,647 $ 1,638,886
LIABILITIES AND EQUITY
Liabilities:
Credit facility $ 448,321 $ 389,375
Notes payable 224,339 —
Mortgage debt 113,736 94,240
Accounts payable 2,222 644
Dividends and distributions payable 31,755 20,783
Accrued expenses and other liabilities 46,574 24,473
Acquired lease intangibles, net 9,399 5,950
Total liabilities 876,346 535,465
Redeemable noncontrolling interest - Operating Partnership and partially owned properties 25,891 26,960
Equity:
Common shares, $0.01 par value, 500,000,000 common shares authorized, 134,620,300 and 86,864,063
common shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively 1,349 872
Additional paid-in capital 1,893,745 1,129,284
Accumulated deficit (174,227) (109,024)
Accumulated other comprehensive income 652 —
Total shareholders' equity 1,721,519 1,021,132
Noncontrolling interests:
Operating Partnership 46,138 45,451
Partially owned properties 753 9,878
Total noncontrolling interest 46,891 55,329
Total equity 1,768,410 1,076,461
Total liabilities and equity $ 2,670,647 $ 1,638,886
18
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except share and per share data)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2016 2015 2016 2015
Revenues:
Rental revenues $ 53,327 $ 28,145 $ 130,378 $ 72,111
Expense recoveries 14,361 5,821 31,816 14,265
Interest income on real estate loans and other 2,322 904 5,166 2,661
Total revenues 70,010 34,870 167,360 89,037
Expenses:
Interest expense 7,300 3,341 15,776 7,244
General and administrative 4,917 4,018 13,964 11,359
Operating expenses 19,159 7,966 43,994 20,979
Depreciation and amortization 23,969 12,476 59,778 31,067
Acquisition expenses 4,398 3,257 11,031 11,764
Total expenses 59,743 31,058 144,543 82,413
Income before equity in income of unconsolidated entity, gain on
sale of investment property, and noncontrolling interests: 10,267 3,812 22,817 6,624
Equity in income of unconsolidated entity 27 26 85 78
Gain on sale of investment property — 145 — 130
Net income 10,294 3,983 22,902 6,832
Net income attributable to noncontrolling interests:
Operating Partnership (255) (200) (629) (333)
Partially owned properties (176) (79) (553) (255)
Net income attributable to controlling interest 9,863 3,704 21,720 6,244
Preferred distributions (436) (300) (1,421) (791)
Net income attributable to common shareholders $ 9,427 $ 3,404 $ 20,299 $ 5,453
Net income per share:
Basic $ 0.07 $ 0.05 $ 0.17 $ 0.08
Diluted $ 0.07 $ 0.05 $ 0.16 $ 0.08
Weighted average common shares
Basic 134,608,396 71,034,747 122,973,862 69,040,121
Diluted 138,880,787 75,104,821 127,395,989 73,040,846
Dividends and distributions declared per common share and OP Unit $ 0.225 $ 0.225 $ 0.675 $ 0.675
19
REPORTING DEFINITIONS
Adjusted Earnings Before Interest Taxes, Depreciation and Amortization (Adjusted EBITDA): We define Adjusted EBITDA for DOC as net
(loss) income computed in accordance with GAAP plus depreciation, amortization, interest expense and net change in the fair value of derivative
financial instruments, net (loss) included from discontinued operations, stock based compensation, acquisition-related expenses, and other non-
reoccurring items. We consider Adjusted EBITDA an important measure because it provides additional information to allow management, investors,
and our current and potential creditors to evaluate and compare our core operating results and our ability to service debt.
Annualized Base Rent (ABR): Annualized base rent is calculated by multiplying contractual base rent for September 2016 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. We believe that information
regarding FFO is helpful to shareholders and potential investors because it facilitates an understanding of the operating performance of our properties
without giving effect to real estate depreciation and amortization, which assumes that the value of real estate assets diminishes ratably over time.
We calculate FFO in accordance with standards established by the National Association of Real Estate Investment Trusts (“NAREIT”). NAREIT
defines FFO as net income or loss (computed in accordance with GAAP) before noncontrolling interests of holders of OP units, excluding preferred
distributions, gains (or losses) on sales of depreciable operating property, impairment write-downs on depreciable assets, plus real estate related
depreciation and amortization (excluding amortization of deferred financing costs). Our FFO computation may not be comparable to FFO reported
by other REITs that do not compute FFO in accordance with NAREIT definition or that interpret the NAREIT definition differently than we do.
The GAAP measure that we believe to be most directly comparable to FFO, net income, includes depreciation and amortization expenses, gains
or losses on property sales, impairments and noncontrolling interests. In computing FFO, we eliminate these items because, in our view, they are
not indicative of the results from the operations of our properties. To facilitate a clear understanding of our historical operating results, FFO should
be examined in conjunction with net income (determined in accordance with GAAP) as presented in our financial statements. FFO does not represent
cash generated from operating activities in accordance with GAAP, should not be considered to be an alternative to net income or loss (determined
in accordance with GAAP) as a measure of our liquidity and is not indicative of funds available for our cash needs, including our ability to make
cash distributions to shareholders.
Gross Leasable Area (GLA): Gross leasable area (in square feet).
Gross Real Estate Investments: Based on acquisition price (and includes lease intangibles).
Health System-Affiliated: Properties are considered affiliated with a health system if one or more of the following conditions are met: 1) the land
parcel is contained within the physical boundaries of a hospital campus; 2) the land parcel is located adjacent to the campus; 3) the building is
physically connected to the hospital regardless of the land ownership structure; 4) a ground lease is maintained with a health system entity; 5) a
master lease is maintained with a health system entity; 6) significant square footage is leased to a health system entity; 7) the property includes an
ambulatory surgery center with a hospital partnership interest; or 8) a significant square footage is leased to a physician group that is either employed,
directly or indirectly by a health system, or has a significant clinical and financial affiliation with the health system.
Hospitals: Hospitals refer to specialty surgical hospitals. These hospitals provide a wide range of inpatient and outpatient services, including but
not limited to, surgery and clinical laboratories.
LTACHs: Long-term acute care hospitals (LTACH) provide inpatient services for patients with complex medical conditions who require more
sensitive care, monitoring or emergency support than that available in most skilled nursing facilities.
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.
20
REPORTING DEFINITIONS (continued)
Net Operating Income (NOI): NOI is a non-GAAP financial measure that is defined as net income or loss, computed in accordance with GAAP,
generated from DOC’s total portfolio of properties before general and administrative expenses, acquisition-related expenses, depreciation and
amortization expense, REIT expenses, interest expense and net change in the fair value of derivative financial instruments, and gains or loss on
the sale of discontinued properties. DOC believes that NOI provides an accurate measure of operating performance of its operating assets because
NOI excludes certain items that are not associated with management of the properties. Additionally, DOC’s use of the term NOI may not be
comparable to that of other real estate companies as they may have different methodologies for computing this amount.
Cash Net Operating Income (NOI): Cash NOI is a non-GAAP financial measure which excludes from NOI straight-line rent adjustments,
amortization of acquired below and above market leases and other non-cash and normalizing items. Other non-cash and normalizing items include
items such as the amortization of lease inducements, and payment received from a seller master lease. DOC believes that Cash NOI provides an
accurate measure of the operating performance of its operating assets because it excludes certain items that are not associated with management
of the properties. Additionally, DOC believes that Cash NOI is a widely accepted measure of comparative operating performance in the real estate
community. However, DOC’s use of the term Cash NOI may not be comparable to that of other real estate companies as such other companies may
have different methodologies for computing this amount.
Normalized Funds Available for Distribution (Normalized FAD): DOC defines Normalized FAD, a non-GAAP measure, which excludes from
Normalized FFO non-cash compensation expense, straight-line rent adjustments, amortization of acquired above or below market leases and
assumed debt, amortization of deferred financing costs, amortization of lease inducements, and recurring capital expenditures related to tenant
improvements and leasing commissions, and includes cash payments from seller master leases and rent abatement payments. Other REITs or real
estate companies may use different methodologies for calculating Normalized FAD, and accordingly, our computation may not be comparable to
those reported by other REITs. Although the Company’s computation of Normalized FAD may not be comparable to that of other REITs, the
Company believes Normalized FAD provides a meaningful supplemental measure of its performance due to its frequency of use by analysts,
investors, and other interested parties in the evaluation of our performance as a REIT. Normalized FAD should not be considered as an alternative
to net income or loss attributable to controlling interest (computed in accordance with GAAP) or as an indicator of the Company’s financial
performance. Normalized FAD should be reviewed in connection with other GAAP measurements.
Normalized Funds From Operations (Normalized FFO): Changes in the accounting and reporting rules under GAAP have prompted a significant
increase in the amount of non-operating items included in FFO, as defined. Therefore, DOC uses Normalized FFO, which excludes from FFO net
change in fair value of derivative financial instruments, acquisition-related expenses, acceleration of deferred financing costs, and other normalizing
items. However, our use of the term Normalized FFO may not be comparable to that of other real estate companies as they may have different
methodologies for computing this amount. Normalized FFO should not be considered as an alternative to net income or loss (computed in accordance
with GAAP), as an indicator of our financial performance or of cash flow from operating activities (computed in accordance with GAAP), or as
an indicator of our liquidity, nor is it indicative of funds available to fund our cash needs, including its ability to make distributions. Normalized
FFO should be reviewed in connection with other GAAP measurements.
Occupancy: Occupancy represents the percentage of total gross leasable area that is leased, including month-to-month leases, leases in holdover
status, and leases that are signed but not yet commenced, as of the date reported.
Off-Campus: A building portfolio that is not located on or adjacent to key hospital based-campuses.
On-Campus / Affiliated: On-campus refers to a property that is located on or within a quarter mile to a healthcare system. Affiliated refers to a
property that is not on the campus of a healthcare system, but anchored by a healthcare system.
Same-Store Portfolio: The same-store portfolio consists of medical properties held by the Company for the entire preceding year and not currently
slated for disposition.