Attached files
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EX-99.1 - EXHIBIT 99.1 - Physicians Realty Trust | a2017q4earningspressreleas.htm |
8-K - 8-K - Physicians Realty Trust | q48-k2017q4earningslpandtr.htm |
Gwinnett Physicians Center
Lawrenceville, GA
SUPPLEMENTAL OPERATING
& FINANCIAL INFORMATION
FOURTH QUARTER 2017
PHYSICIANS REALTY TRUST
NYSE: DOC
Exhibit 99.2
December 2017
Westgate MOB
Glendale, AZ
2
COMPANY OVERVIEW
ABOUT PHYSICIANS REALTY TRUST 4
FOURTH QUARTER HIGHLIGHTS 6
FINANCIAL HIGHLIGHTS 7
FINANCIAL INFORMATION
RECONCILIATION OF NON-GAAP MEASURES: FUNDS FROM OPERATIONS (FFO), NORMALIZED
FUNDS FROM OPERATIONS (NORMALIZED FFO), AND NORMALIZED FUNDS AVAILABLE FOR
DISTRIBUTION (NORMALIZED FAD) 8
RECONCILIATION OF NON-GAAP MEASURES: NET OPERATING INCOME AND ADJUSTED EBITDA 9
MARKET CAPITALIZATION AND DEBT SUMMARY 10
FINANCIAL STATISTICS AND COVENANT PERFORMANCE 11
SAME-STORE PORTFOLIO PERFORMANCE AND TENANT OCCUPANCY 12
INVESTMENT ACTIVITY AND ASSETS SLATED FOR DISPOSITION 13
PORTFOLIO GEOGRAPHIC DISTRIBUTION 14
PORTFOLIO DIVERSIFICATION 15
LEASING RELATIONSHIPS AND EXPIRATION SCHEDULE 16
CONSOLIDATED BALANCE SHEETS 17
CONSOLIDATED STATEMENTS OF INCOME 18
REPORTING DEFINITIONS 19
TABLE OF CONTENTS
3
FORWARD-LOOKING STATEMENTS
Certain statements made in this supplemental information package constitute forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 (set forth in Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)). In particular, statements pertaining to
our capital resources, portfolio performance and results of operations contain forward-looking statements. Likewise, our pro
forma financial statements and our statements regarding anticipated market conditions are forward-looking statements. You can
identify forward-looking statements by the use of forward-looking terminology such as "believes,” “expects,” “may,” “will,”
“should,” “seeks,” “approximately,” “intends,” “plans,” "outlook," "continue," "projects," “pro forma,” “estimates” or
“anticipates” or the negative of these words and phrases or similar words or phrases which are predictions of or indicate future
events or trends and which do not relate solely to historical matters. You can also identify forward-looking statements by
discussions of strategy, plans, expectations or intentions.
Forward-looking statements reflect the views of our management regarding current expectations and projections about future
events and are based on currently available information. These forward-looking statements are not guarantees of future
performance and involve numerous risks and uncertainties and you should not rely on them as predictions of future events.
Forward-looking statements depend on assumptions, data or methods which may be incorrect or imprecise and we may not be
able to realize them.
While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We disclaim any
obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors, of
new information, data or methods, future events or other changes after the date of this supplemental information package, except
as required by applicable law. You should not place undue reliance on any forward-looking statements that are based on
information currently available to us or the third parties making the forward-looking statements. For a discussion of factors that
could impact our future results, performance or transactions, see Part I, Item 1A (Risk Factors) of our Annual Report on Form 10-
K for the fiscal year ended December 31, 2017.
NON-GAAP FINANCIAL MEASURES
This presentation includes Adjusted EBITDA, EBITDAR, Net Operating Income (or NOI), Cash NOI, Funds From Operations
(or FFO), Normalized FFO, and Normalized Funds Available For Distribution (or FAD), which are non-GAAP financial
measures. For purposes of the Securities and Exchange Commission’s (“SEC”) Regulation G, a non-GAAP financial measure is a
numerical measure of a company’s historical or future financial performance, financial position or cash flows that excludes
amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable
financial measure calculated and presented in accordance with GAAP in the statement of operations, balance sheet or statement of
cash flows (or equivalent statements) of the company, or includes amounts, or is subject to adjustments that have the effect of
including amounts, that are excluded from the most directly comparable financial measure so calculated and presented. As used in
this presentation, GAAP refers to generally accepted accounting principles in the United States of America. Our use of the non-
GAAP financial measure terms herein may not be comparable to that of other real estate investment trusts. Pursuant to the
requirements of Regulation G, we have provided reconciliations of the non-GAAP financial measures to the most directly
comparable GAAP financial measures.
ADDITIONAL INFORMATION
The information in this supplemental information package should be read in conjunction with the Company’s Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, earnings press release dated February 28, 2018 and
other information filed with, or furnished to, the SEC. You can access the Company’s reports and amendments to those reports
filed or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act in the “Investor Relations” section on the
Company’s website (www.docreit.com) under the tab “SEC Filings” as soon as reasonably practicable after they are filed with, or
furnished to, the SEC. The information on or connected to the Company’s website is not, and shall not be deemed to be, a part of,
or incorporated into this supplemental information package. You also can review these SEC filings and other information by
accessing the SEC’s website at http://www.sec.gov.
4
ABOUT PHYSICIANS REALTY TRUST
Physicians Realty Trust (NYSE:DOC) (the “Trust,” the “Company,” “DOC,” “we,” “our” and “us”) is a self-managed healthcare
real estate company organized in 2013 to acquire, selectively develop, own, and manage healthcare properties that are leased to
physicians, hospitals and healthcare delivery systems.
We invest in real estate that is integral to providing high quality healthcare services. Our properties typically are on a campus with
a hospital or other healthcare facilities or strategically located and affiliated with a hospital or other healthcare facilities.
Our management team has significant public healthcare REIT experience and long established relationships with physicians,
hospitals and healthcare delivery system decision makers that we believe will provide quality investment opportunities to
generate attractive risk-adjusted returns to our shareholders.
We are a Maryland real estate investment trust and elected to be taxed as a REIT for U.S. federal income tax purposes beginning
with our short taxable year ending December 31, 2013. We conduct our business through an UPREIT structure in which our
properties are owned by Physicians Realty L.P., a Delaware limited partnership (the “operating partnership”), directly or through
limited partnerships, limited liability companies or other subsidiaries. We are the sole general partner of the operating partnership
and, as of December 31, 2017, own approximately 97.1% of the partnership interests in the operating partnership (“OP Units”).
COMPANY SNAPSHOT As of
December 31, 2017
Gross real estate investments (thousands) $ 4,330,144
Total healthcare properties (1) 280
% Leased (1) 96.6%
Total portfolio gross leasable area (sq. ft.) (1) 13,996,802
% of GLA on-campus / affiliated (1) 85%
Average remaining lease term for all buildings (years) (1) 8.3
Cash and cash equivalents (thousands) $ 2,727
Total debt to firm value 30.7%
Weighted average interest rate per annum on consolidated debt 3.9%
Equity market cap (thousands) $ 3,264,107
Quarterly dividend $ 0.230
Quarter end stock price $ 17.99
Dividend yield 5.11%
Common shares outstanding 181,440,051
OP Units outstanding and not owned by DOC 5,364,632
Total firm value (thousands) (2) $ 4,864,643
(1) Excludes the Company's 108,843 square foot corporate office building.
(2) Represents the value of outstanding common shares and OP Units based on the closing price per share on December 31, 2017 plus the amount of outstanding
debt and redeemable equity at December 31, 2017.
5
ABOUT PHYSICIANS REALTY TRUST (CONTINUED)
BOARD OF TRUSTEES
Albert C. Black Mark A. Baumgartner Stanton D. Anderson
Compensation and Nominating Finance and Investment Audit Committee Chair
Governance Committee Chair Committee Chair
Pamela J. Kesssler William A. Ebinger, M.D. Richard A. Weiss
Trustee Trustee Trustee
MANAGEMENT TEAM
John T. Thomas
Chief Executive Officer
President
Jeffrey N. Theiler D. Deeni Taylor John W. Lucey
Executive Vice President Executive Vice President Senior Vice President
Chief Financial Officer Chief Investment Officer Chief Accounting and
Administrative Officer
Bradley D. Page Daniel M. Klein Mark D. Theine
Senior Vice President Senior Vice President Senior Vice President
General Counsel Deputy Chief Investment Officer Asset & Investment Management
LOCATION AND CONTACT INFORMATION
Corporate Headquarters Independent Registered Corporate and REIT Tax Counsel
309 N. Water Street, Suite 500 Public Accounting Firm Baker & McKenzie LLP
Milwaukee, WI 53202 Ernst & Young Richard Lipton, Partner
(414) 367-5600 Chicago, IL 60606 Chicago, IL 60601
(312) 879-2000 (312) 861-8000
COVERING ANALYSTS
J. Sanabria - Bank of America Merrill Lynch P. Martin - JMP Securities
J. Kim - BMO Capital Markets Corp. J. Sadler - Keybanc Capital Markets Inc.
M. Gorman - BTIG V. Malhotra - Morgan Stanley
P. Morgan - Canaccord Genuity Inc. J. Hughes - Raymond James Financial Inc.
J. France - Cantor Fitzgerald M. Carroll - RBC Capital Markets LLC
D. Bernstein - Capital One Securities D. Babin - Robert W. Baird & Co.
C. Kucera - FBR Capital C. Vanacore - Stifel
J. Roberts - J.J.B. Hilliard W.L. Lyons LLC E. Fleming - SunTrust Robinson Humphrey
T. Okusanya - Jefferies LLC
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.
Tommy G. Thompson John T. Thomas
Chairman Chief Executive Officer
President
6
FOURTH QUARTER 2017 HIGHLIGHTS
OPERATING HIGHLIGHTS
• Fourth quarter 2017 total revenue of $97.3 million, up 32% over the prior year period
• Fourth quarter 2017 rental revenue of $73.2 million, an increase of 31% over the prior year period
• Generated quarterly net income per share of $0.05 on a fully diluted basis
• Generated quarterly normalized funds from operations (Normalized FFO) of $0.27 per share on a fully diluted basis
• Completed fourth quarter investments of $387.6 million, including 11 healthcare properties, including the remaining
controlling interest in one facility, representing 1,047,908 square feet
• Declared quarterly dividend of $0.230 per share for the fourth quarter
• 96.6% of portfolio square footage leased as of December 31, 2017
• Net increase to gross leasable square footage of 7.9% to 13,996,802 square feet across 280 healthcare properties as of
December 31, 2017 from 12,969,653 square feet across 270 healthcare properties as of September 30, 2017
COMPANY ANNOUNCEMENTS
• November 13, 2017: Announced the appointment of Pamela J. Kessler to the Company's Board of Trustees, effective
January 1, 2018.
• November 28, 2017: Announced the pricing of an offering of $350 million aggregate principal amount of 3.95% Senior
Notes which will mature on January 15, 2028. Our net proceeds from the offering, after deducting underwriting
discounts, were approximately $347 million.
• December 21, 2017: Announced the completion of $356.8 million in recent acquisitions, resulting in 2017 investment
activity of over $1.4 billion. Also, announced that our Board of Trustees authorized and declared a cash distribution of
$0.230 per common share and OP Unit for the quarterly period ended December 31, 2017. The distribution was paid on
January 18, 2018 to common shareholders and OP Unit holders of record as of the close of business on January 3, 2018.
FOURTH QUARTER INVESTMENT HIGHLIGHTS SUBSEQUENT INVESTMENTS
• Franklin MOB & ASC, Franklin, TN • Hazelwood Medical Commons, Minneapolis, MN
• Davis Portfolio (2 MOBs), Minneapolis, MN • Lee's Hill Medical Plaza MOB, Fredericksburg, VA
• Northside MOB - Center Pointe, Atlanta, GA
• Gwinnett Portfolio (3 MOBs), Atlanta, GA
• St. Vincent Building, Indianapolis, IN
• Apple Valley Medical Center, Apple Valley, MN
• Desert Cove MOB (57% Interest), Scottsdale, AZ
• Westgate MOB, Glendale, AZ
7
FINANCIAL HIGHLIGHTS
(Unaudited and in thousands, except sq. ft. and per share data)
(1) Unadjusted for unamortized fair value adjustments, unamortized discount, and unamortized deferred financing costs.
(2) Outstanding common shares and OP Units at quarter end, multiplied by share price at quarter end.
INCOME Three Months Ended
December 31, 2017 September 30, 2017
Revenues $ 97,320 $ 92,999
Net income 10,187 12,539
NOI 70,452 65,547
Annualized Adjusted EBITDA 263,148 244,352
Net income available to common shareholders per common share $ 0.05 $ 0.07
Normalized FFO 49,646 47,421
Normalized FFO per common share and OP Unit $ 0.27 $ 0.26
Normalized FAD 44,207 42,811
CAPITALIZATION As of
ASSETS December 31, 2017 September 30, 2017
Gross Real Estate Investments (including gross lease intangibles) 4,330,144 3,949,095
Total Assets 4,164,383 3,838,500
DEBT AND EQUITY
Total Debt (1) 1,491,680 1,183,574
Total Equity 2,547,634 2,538,221
Equity Market Capitalization 3,264,107 3,177,372
Implied Equity Market Capitalization (2) 3,360,616 3,272,759
Total Debt / Implied Equity Market Capitalization 44% 36%
Gross Real Estate Assets Real Estate Investments/Quarter Total Healthcare Property GLA
Portfolio Growth Since IPO
$4,500,000
$4,000,000
$3,500,000
$3,000,000
$2,500,000
$2,000,000
$1,500,000
$1,000,000
$500,000
$0
G
ro
ss
R
ea
lE
st
at
e
In
ve
st
m
en
ts
14,000,000
12,000,000
10,000,000
8,000,000
6,000,000
4,000,000
2,000,000
0
G
LA
in
SF
IPO Q3-2013
Q4-2013
Q1-2014
Q2-2014
Q3-2014
Q4-2014
Q1-2015
Q2-2015
Q3-2015
Q4-2015
Q1-2016
Q2-2016
Q3-2016
Q4-2016
Q1-2017
Q2-2017
Q3-2017
Q4-2017
$123,998
$4,330,144
8
RECONCILIATION OF NON-GAAP MEASURES:
FUNDS FROM OPERATIONS (FFO),
NORMALIZED FUNDS FROM OPERATIONS (NORMALIZED FFO)
AND NORMALIZED FUNDS AVAILABLE FOR DISTRIBUTION (NORMALIZED FAD)
(Unaudited and in thousands, except share and per share data)
Three Months Ended
December 31, 2017
Year Ended
December 31, 2017
Net income $ 10,187 $ 39,773
Net income attributable to NCI - partially owned properties (112) (491)
Preferred distributions (226) (731)
Depreciation and amortization expense 36,092 125,022
Depreciation and amortization expense - partially owned properties (121) (531)
Gain on the sale of investment properties (566) (5,874)
Impairment loss 965 965
FFO applicable to common shares and OP Units $ 46,219 $ 158,133
FFO per common share and OP Unit $ 0.25 $ 0.94
Net change in fair value of derivative (10) 150
Acquisition expenses 3,913 16,744
Net change in fair value of contingent consideration (476) (472)
Normalized FFO applicable to common shares and OP Units $ 49,646 $ 174,555
Net income available to common shareholders per common share and OP Unit $ 0.05 $ 0.23
Normalized FFO per common share and OP Unit $ 0.27 $ 1.04
Normalized FFO applicable to common shares and OP Units 49,646 174,555
Non-cash share compensation expense 1,357 5,073
Straight-line rent adjustments (5,034) (16,202)
Amortization of acquired above/below market leases/assumed debt 944 3,596
Amortization of lease inducements 344 1,309
Amortization of deferred financing costs 568 2,299
TI/LC and recurring capital expenditures (3,858) (15,319)
Seller master lease and rent abatement payments 240 973
Normalized FAD applicable to common shares and OP Units $ 44,207 $ 156,284
Weighted average number of common shares and OP Units outstanding 185,273,236 168,231,299
9
RECONCILIATION OF NON-GAAP MEASURES: NET OPERATING INCOME AND ADJUSTED EBITDA
(Unaudited and in thousands, except share and per share data)
NET OPERATING INCOME
Three Months Ended
December 31, 2017
Year Ended
December 31, 2017
Net income $ 10,187 $ 39,773
General and administrative 6,112 22,957
Acquisition expenses 3,913 16,744
Depreciation and amortization expense 36,128 125,159
Interest expense 13,723 47,008
Net change in fair value of derivative (10) 150
Gain on sale of investment properties (566) (5,874)
Impairment loss 965 965
NOI $ 70,452 $ 246,882
NOI $ 70,452 $ 246,882
Straight-line rent adjustments (5,034) (16,202)
Amortization of acquired above/below market leases 944 3,596
Amortization of lease inducements 344 1,309
Seller master lease and rent abatement payments 240 973
Net change in fair value of contingent consideration (476) (472)
Cash NOI $ 66,470 $ 236,086
ADJUSTED EBITDA
Three Months Ended
December 31, 2017
Year Ended
December 31, 2017
Net income $ 10,187 $ 39,773
Depreciation and amortization 36,128 125,159
Interest expense 13,723 47,008
Net change in fair value of derivative (10) 150
EBITDA $ 60,028 $ 212,090
Acquisition expenses 3,913 16,744
Non-cash share compensation expense 1,357 5,074
Net change in fair value of contingent consideration (476) (472)
Impairment loss 965 965
Adjusted EBITDA $ 65,787 $ 234,401
Adjusted EBITDA Annualized* $ 263,148 $ 234,401
* Amounts are annualized and actual amounts may differ significantly from the annualized amounts shown.
10
(1) Unadjusted for unamortized fair value adjustments, unamortized discount, and unamortized deferred financing costs.
(2) Weighted average maturity of Mortgage Debt is 2.7 years.
MARKET CAPITALIZATION AND DEBT SUMMARY
(Unaudited and in thousands, except share and per share data)
Debt Equity
Debt is 30.7% of Firm Value
MARKET CAPITALIZATION December 31, 2017
Unsecured credit facility debt $ 330,000
Unsecured notes 975,000
Mortgage debt 186,680
Total Debt (1) $ 1,491,680
Redeemable equity $ 12,347
Share price $ 17.99
Total common shares outstanding 181,440,051
Total OP Units outstanding 5,364,632
Implied equity market capitalization $ 3,360,616
Total Firm Value (Debt + Pref. + Equity) $ 4,864,643
Total Debt/Total Assets 35.8%
Total Debt/Total Firm Value 30.7%
DEBT SUMMARY (1)
Balance as of
December 31, 2017 Interest Rate Maturity Date
Revolving Credit Facility Debt $ 80,000 2.7 % 9/18/2020
Credit Facility Term Debt 250,000 2.9 % 6/10/2023
Senior Unsecured Notes
January '16 - Series A 15,000 4.0 % 1/7/2023
January '16 - Series B 45,000 4.4 % 1/7/2026
January '16 - Series C 45,000 4.6 % 1/7/2028
January '16 - Series D 45,000 4.7 % 1/7/2031
August '16 - Series A 25,000 4.1 % 8/11/2025
August '16 - Series B 25,000 4.2 % 8/11/2026
August '16 - Series C 25,000 4.2 % 8/11/2027
March '17 400,000 4.3 % 3/15/2027
December '17 350,000 4.0 % 1/15/2028
Mortgage Debt, Maturing (2):
2018 38,509 4.7 %
2019 18,750 5.0 %
2020 65,531 3.8 %
Thereafter 63,890 4.8 %
$ 1,491,680 3.9%
Debt Repayment Schedule as of December 31, 2017
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
2018 2019 2020 2021 2022 2023 2024 Thereafter
$54,775 $44,631
$110,122
$8,718 $24,708
$265,532
$23,194
$960,000
11
FINANCIAL STATISTICS AND COVENANT PERFORMANCE
(Unaudited and in thousands, except share and per share data)
Quarter Ended
December 31, 2017
Annualized dividend rate (1) $ 0.92
Price per share (2) $ 17.99
Annualized Dividend Yield 5.11%
Total debt (3) $ 1,491,680
Net debt (less cash) 1,488,953
Adjusted EBITDA (annualized)* 263,148
Net Debt / Adjusted EBITDA Ratio 5.66x
Adjusted EBITDA (annualized)* $ 263,148
Cash interest expense (annualized)* 52,680
Interest Coverage Ratio 5.00x
Total interest $ 13,723
Capitalized interest 373
Secured debt principal amortization 504
Total fixed charges $ 14,600
Adjusted EBITDA 65,787
Adjusted EBITDA Fixed Charge Coverage Ratio 4.51x
Implied equity market cap $ 3,360,616
Redeemable equity 12,347
Total debt (3) 1,491,680
Total Firm Value 4,864,643
Total debt (3) $ 1,491,680
Total assets 4,164,383
Total Debt / Total Assets 35.8%
Total Debt / Total Firm Value 30.7%
Weighted average common shares 179,683,948
Weighted average unvested restricted common shares and share units 224,656
Weighted average OP Units not owned by DOC 5,364,632
Weighted Average Common Shares and OP Units - Diluted 185,273,236
(1) Annualized rate based on $0.230 quarterly dividend for the quarter ending December 31, 2017. Actual dividend amounts will be
determined by the Trust's board of trustees based on a variety of factors.
(2) Closing common share price of $17.99 as of December 29, 2017.
(3) Unadjusted for unamortized fair value adjustments, unamortized discount, and unamortized deferred financing costs.
* Amounts are annualized and actual amounts may differ significantly from the annualized amounts shown.
COVENANT PERFORMANCE
Required December 31, 2017
Total Leverage Ratio ≤ 60.0% 34.7%
Total Secured Leverage Ratio ≤ 40.0% 4.3%
Maintenance of Unencumbered Assets ≥ 1.5x 2.9x
Consolidated Debt Service (Trailing Four Quarters) ≥ 1.5x 3.2x
12
SAME-STORE PORTFOLIO PERFORMANCE AND TENANT OCCUPANCY
(Unaudited and in thousands, except property count and sq. ft. data.
Same-Store data excludes Assets Slated for Disposition and Kennewick MOB)
SAME-STORE PORTFOLIO PERFORMANCE
Year-Over-Year Comparison Sequential Comparison
Q4'17 Q4'16 Change Q4'17 Q3'17 Change
Number of healthcare properties 218 218 — 218 218 —
Gross leasable area 9,465,636 9,465,636 — 9,465,636 9,465,636 —
% Leased 95.6% 95.3% 30 bps 95.6% 95.7% -10 bps
Rental revenues 63,032 61,003 +3.3% 63,032 63,678 (1.0)%
Operating expenses (18,939) (18,188) +4.1% (18,939) (20,178) (6.1)%
Same-Store Cash NOI 44,093 42,815 +3.0% 44,093 43,500 +1.4%
Same-Store Cash
NOI, 66.3%
Other Cash
NOI, 33.7%
SAME-STORE PORTFOLIO ANALYSIS
Portfolio Same-Store
Quarter Ended Quarter Ended
December 31, 2017 December 31, 2017
Number of healthcare properties (1) 280 218
Gross leasable area (1) 13,996,802 9,465,636
Cash NOI $ 66,470 $ 44,093
% Leased (1) 96.6% 95.6%
TENANT OCCUPANCY (1)
Quarter Ended Percentage of total GLA
December 31, 2017 December 31, 2017
Total GLA
Total square feet beginning of quarter 12,969,653 92.7 %
Acquired GLA (2) 1,048,088 7.5 %
Disposed GLA (20,939) (0.1)%
Total square feet end of quarter 13,996,802 100.0 %
Occupied GLA
Occupied GLA beginning of quarter 12,522,900 89.5 %
Expirations (522,508) (3.7)%
Renewals 463,903 3.3 %
Retention Rate 89%
New leases commencing in quarter 40,688 0.3 %
Net absorption / (vacancy loss) (17,917) (0.1)%
Net occupied GLA acquired 1,015,213 7.3 %
Occupied GLA end of quarter 13,520,196 96.6 %
(1) Excludes the Company's 108,843 square foot corporate office building.
(2) Includes remeasurements of existing properties totaling 180 square feet.
13
INVESTMENT ACTIVITY
(Unaudited and in thousands, except sq. ft. data)
ASSETS ACQUIRED
Acquisition First Year Purchase
Property Location Date Cash Yield % Leased Price GLA
Franklin MOB & ASC Franklin, TN 10/12/2017 6.8% 100% $ 9,950 26,859
Eagle Point MOB Lake Elmo, MN 10/31/2017 6.0% 100% 10,949 30,341
Edina East MOB Edina, MN 10/31/2017 6.4% 100% 7,800 26,002
Northside MOB - Center Pointe Atlanta, GA 11/10/2017 4.7% 94% 155,986 366,101
Gwinnett 500 Building Lawrenceville, GA 11/17/2017 4.8% 90% 25,297 74,636
Hudgens Professional Building Duluth, GA 11/17/2017 5.9% 100% 23,696 69,235
St. Vincent Building Indianapolis, IN 11/17/2017 6.1% (1) 100% 60,124 187,500
Gwinnett Physicians Center Lawrenceville, GA 12/1/2017 5.6% 100% 51,721 125,522
Apple Valley Medical Center Apple Valley, MN 12/18/2017 6.2% 100% 21,500 58,870
Desert Cove MOB (Remaining 57% Interest) Scottsdale, AZ 12/18/2017 6.1% 100% 4,560 22,948
Westgate MOB Glendale, AZ 12/21/2017 7.5% (1) 100% 15,800 59,894
Loan Investments 8.0% — 218 —
Total / Weighted Average 5.4% $ 387,601 1,047,908
(1) Refers to first year cash yield at stabilization.
Quarter Ended
ASSETS SLATED FOR DISPOSITION December 31, 2017
Number of Properties 10
Number of States 4
Total Gross Leasable Area 391,014
Franklin MOB & ASC
Franklin, TN
Northside Center Pointe MOB
Atlanta, GA
14
PORTFOLIO GEOGRAPHIC DISTRIBUTION
(As of December 31, 2017)
State GLA
Texas 1,930,348
Georgia 1,289,838
Indiana 1,039,767
Nebraska 979,303
Kentucky 976,620
Arizona 733,791
Minnesota 662,416
Ohio 650,319
New York 613,496
Washington 589,141
Other 4,531,763
Total 13,996,802
Texas, 14%
Georgia, 9%
Indiana, 7%
Nebraska, 7%
Kentucky, 7%
Arizona, 5%
Minnesota, 5%
Ohio, 5%
New York, 4%
Washington, 4%
Other, 33%
TOP TEN STATES
15
PORTFOLIO DIVERSIFICATION
(As of December 31, 2017)
THREE MONTHS ENDED DECEMBER 31, 2017
Campus Proximity
(Based on Cash NOI)
Off-Campus,
17%
On-Campus /
Affiliated, 83%
Coverage
# of Properties GLA % of Total % Leased Ratio (1)
Single-tenant MOBs 130 5,070,959 36.2% 99.7% N/A
Multi-tenant MOBs 141 8,226,699 58.8% 94.4% N/A
Hospitals 6 388,792 2.8% 100.0% 2.7x
LTACHs 3 310,352 2.2% 100.0% 1.4x
Total 280 13,996,802 100.0% 96.6%
Building Type
(Based on Cash NOI)
MOB,
92%
LTACH,
2%
Hospital,
6%
Lease Type
(Based on Revenue)
Absolute
Net, 17%
NNN,
74%
Modified Gross,
7%
Gross,
2%
Section 603 Asset Mix
(Based on Annualized Base Revenue)
603 Assets, 20%
Non-603 Assets,
80%
(1) Adjusted for the exclusion of Assets Slated for Disposition.
16
LEASING RELATIONSHIPS AND EXPIRATION SCHEDULE
(As of December 31, 2017, $ in thousands)
LEASE EXPIRATION SCHEDULE (3)
Expiration Expiring Expiring Lease % of Total Expiring Lease % of Total Average Rent
Year Leases GLA GLA ABR ABR per SF
2018 115 412,406 2.9% $ 8,266 2.9% $ 20.04
2019 105 539,574 3.9% 11,939 4.2% 22.13
2020 116 498,110 3.6% 10,548 3.7% 21.18
2021 160 688,399 4.9% 14,709 5.1% 21.37
2022 106 684,229 4.9% 16,300 5.7% 23.82
2023 87 594,185 4.2% 13,023 4.6% 21.92
2024 87 862,954 6.2% 17,524 6.1% 20.31
2025 132 1,027,311 7.3% 24,384 8.5% 23.74
2026 126 3,576,886 25.6% 71,566 25.1% 20.01
2027 78 1,362,904 9.7% 27,181 9.5% 19.94
Thereafter 104 3,199,457 22.9% 69,153 24.2% 21.61
MTM(4) 44 73,781 0.5% 1,077 0.4% 14.60
Vacant 476,606 3.4%
Total / W.A. 1,260 13,996,802 100% $ 285,670 100% $ 21.13
(1) Represents direct leases to investment grade entities and their subsidiaries.
(2) Parent rating used where direct tenant is not rated.
(3) Excludes leases related to the Company's 108,843 square foot corporate office building.
(4) Includes 4 leases that expired December 31, 2017, representing $0.3 million of total ABR.
INVESTMENT GRADE TENANCY(1)
% of Total (3)
Credit Rating (2) Leased % of Occupied Annualized Annualized
Relationship (Moody's / S&P) GLA GLA (3) Base Rent Base Rent
Catholic Health Initiatives Baa1 / BBB+ 3,133,803 23.2% $ 53,338 18.7%
Ascension Health Aa2 / AA+ 490,118 3.6% 7,973 2.8%
Baylor Scott and White Health Aa3 / AA- 268,639 2.0% 7,402 2.6%
US Oncology Baa2 / NA 262,134 1.9% 6,824 2.4%
HonorHealth (AZ) A2 / NA 243,482 1.8% 5,768 2.0%
Dignity Health (AZ) A2 / NA 246,967 1.8% 4,958 1.7%
Other Investment Grade Relationships 2,002,900 14.9% 43,410 15.2%
Total 6,648,043 49.2% $ 129,673 45.4%
TOP 10 TENANTS BY ABR
Weighted Avg. % of Total (3)
Remaining Leased % of Total (3) Annualized Annualized
Tenant Lease Term GLA GLA Base Rent Base Rent
CHI - Nebraska 8.9 893,098 6.4% $ 15,906 5.6%
CHI - KentuckyOne Health 8.3 744,101 5.3% 13,120 4.6%
Baylor Scott and White Health 8.0 268,639 1.9% 7,402 2.6%
US Oncology 7.3 256,988 1.8% 6,706 2.4%
CHI - St. Alexius (ND) 8.6 362,284 2.6% 6,239 2.2%
Northside Hospital (GA) 10.7 329,249 2.4% 6,018 2.1%
HonorHealth (AZ) 12.0 243,482 1.7% 5,768 2.0%
CHI - Franciscan (Seattle - Tacoma) 8.4 329,754 2.4% 5,594 2.0%
Great Falls Hospital (MT) 17.6 185,085 1.3% 5,194 1.8%
LifeCare 15.0 310,352 2.2% 5,021 1.8%
Total / Weighted Average 9.8 3,923,032 28.0% $ 76,968 27.1%
17
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
2017
December 31,
2016
ASSETS
Investment properties:
Land and improvements $ 217,695 $ 189,759
Building and improvements 3,568,858 2,402,643
Tenant improvements 23,056 14,133
Acquired lease intangibles 458,713 301,462
4,268,322 2,907,997
Accumulated depreciation (300,458) (181,785)
Net real estate property 3,967,864 2,726,212
Real estate loans receivable 76,195 39,154
Investment in unconsolidated entities 1,329 2,258
Net real estate investments 4,045,388 2,767,624
Cash and cash equivalents 2,727 15,491
Tenant receivables, net 9,966 9,790
Other assets 106,302 95,187
Total assets $ 4,164,383 $ 2,888,092
LIABILITIES AND EQUITY
Liabilities:
Credit facility $ 324,394 $ 643,742
Notes payable 966,603 224,330
Mortgage debt 186,471 123,083
Accounts payable 11,023 4,423
Dividends and distributions payable 43,804 32,179
Accrued expenses and other liabilities 56,405 42,287
Acquired lease intangibles, net 15,702 9,253
Total liabilities 1,604,402 1,079,297
Redeemable noncontrolling interest - Series A Preferred Units (2016) and partially owned properties 12,347 26,477
Equity:
Common shares, $0.01 par value, 500,000,000 common shares authorized, 181,440,051 and 135,966,013
common shares issued and outstanding as of December 31, 2017 and December 31, 2016, respectively 1,814 1,360
Additional paid-in capital 2,772,823 1,920,644
Accumulated deficit (315,417) (197,261)
Accumulated other comprehensive income 13,952 13,708
Total shareholders' equity 2,473,172 1,738,451
Noncontrolling interests:
Operating Partnership 73,844 43,142
Partially owned properties 618 725
Total noncontrolling interest 74,462 43,867
Total equity 2,547,634 1,782,318
Total liabilities and equity $ 4,164,383 $ 2,888,092
18
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except share and per share data)
Three Months Ended
December 31,
Year Ended
December 31,
2017 2016 2017 2016
Revenues:
Rental revenues $ 73,158 $ 55,923 $ 259,673 $ 186,301
Expense recoveries 21,861 14,059 75,425 45,875
Interest income on real estate loans and other 2,301 3,692 8,486 8,858
Total revenues 97,320 73,674 343,584 241,034
Expenses:
Interest expense 13,723 8,088 47,008 23,864
General and administrative 6,112 4,433 22,957 18,397
Operating expenses 26,956 22,005 97,035 65,999
Depreciation and amortization 36,128 26,811 125,159 86,589
Acquisition expenses 3,913 3,747 16,744 14,778
Impairment loss 965 — 965 —
Total expenses 87,797 65,084 309,868 209,627
Income before equity in income of unconsolidated entities: 9,523 8,590 33,716 31,407
Equity in income of unconsolidated entities 98 30 183 115
Gain on sale of investment properties 566 — 5,874 —
Net income 10,187 8,620 39,773 31,522
Net income attributable to noncontrolling interests:
Operating Partnership (313) (196) (1,136) (825)
Partially owned properties (112) (163) (491) (716)
Net income attributable to controlling interest 9,762 8,261 38,146 29,981
Preferred distributions (226) (436) (731) (1,857)
Net income attributable to common shareholders $ 9,536 $ 7,825 $ 37,415 $ 28,124
Net income per share:
Basic $ 0.05 $ 0.06 $ 0.23 $ 0.22
Diluted $ 0.05 $ 0.06 $ 0.23 $ 0.22
Weighted average common shares
Basic 179,683,948 135,581,976 163,123,109 126,143,114
Diluted 185,273,236 139,602,349 168,231,299 130,466,893
Dividends and distributions declared per common share and OP Unit $ 0.230 $ 0.225 $ 0.915 $ 0.900
19
REPORTING DEFINITIONS
Adjusted Earnings Before Interest Taxes, Depreciation and Amortization (Adjusted EBITDA): We define Adjusted EBITDA for DOC as net (loss) income
computed in accordance with GAAP plus depreciation, amortization, interest expense and net change in the fair value of derivative financial instruments, net (loss)
included from discontinued operations, stock based compensation, acquisition-related expenses, and other non-reoccurring items. We consider Adjusted EBITDA
an important measure because it provides additional information to allow management, investors, and our current and potential creditors to evaluate and compare
our core operating results and our ability to service debt.
Annualized Base Rent (ABR): Annualized base rent is calculated by multiplying reported base rent for December 2017 by 12 (but excluding the impact of concessions
and straight-line rent).
Assets Slated for Disposition: Properties that are included in discontinued operations, designated as held for sale, or for which there is an active intent to sell such
properties. Where indicated, such assets are excluded from property counts, concentration statistics, and performance metrics for all periods presented. Results from
these assets are included in the Company’s GAAP financial results and reconciliations.
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.
Coverage Ratio: Reflects the ratio of full-year EBITDAR to rent of indicated properties. Coverage ratios are calculated one quarter in arrears, beginning the first
full quarter after acquisition, for all properties the company has owned for fifteen months. Management fee is standardized to 4% of revenues for LTACHs.
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: We define an entity to be a health system if each of the following criteria are met: 1) the entity provides inpatient or outpatient services in the primary
course of business; 2) services are provided at more than one campus or site of care; and 3) if the entity only provides outpatient services, they must employ a minimum
of 50 physicians.
Health System-Affiliated: Properties are considered affiliated with a health system if one or more of the following conditions are met: 1) the land parcel is contained
within the physical boundaries of a hospital campus; 2) the land parcel is located adjacent to the campus; 3) the building is physically connected to the hospital
regardless of the land ownership structure; 4) a ground lease is maintained with a health system entity; 5) a master lease is maintained with a health system entity;
6) significant square footage is leased to a health system entity; 7) the property includes an ambulatory surgery center with a hospital partnership interest; or 8) a
significant square footage is leased to a physician group that is either employed, directly or indirectly by a health system, or has a significant clinical and financial
affiliation with the health system.
Hospitals: Hospitals refer to specialty surgical hospitals. These hospitals provide a wide range of inpatient and outpatient services, including but not limited to,
surgery and clinical laboratories.
LTACHs: Long-term acute care hospitals (LTACH) provide inpatient services for patients with complex medical conditions who require more sensitive care,
monitoring or emergency support than that available in most skilled nursing facilities.
20
REPORTING DEFINITIONS (continued)
Medical Office Building (MOB): Medical office buildings are office and clinic facilities, often located near hospitals or on hospital campuses, specifically constructed
and designed for use by physicians and other health care personnel to provide services to their patients. They may also include ambulatory surgery centers that are
used for general or specialty surgical procedures not requiring an overnight stay in a hospital. Medical office buildings may contain sole and group physician practices
and may provide laboratory and other patient services.
Net Operating Income (NOI): NOI is a non-GAAP financial measure that is defined as net income or loss, computed in accordance with GAAP, generated from
DOC’s total portfolio of properties before general and administrative expenses, acquisition-related expenses, depreciation and amortization expense, REIT expenses,
interest expense and net change in the fair value of derivative financial instruments, and gains or loss on the sale of discontinued properties. DOC believes that NOI
provides an accurate measure of operating performance of its operating assets because NOI excludes certain items that are not associated with management of the
properties. Additionally, DOC’s use of the term NOI may not be comparable to that of other real estate companies as they may have different methodologies for
computing this amount.
Normalized Funds Available for Distribution (Normalized FAD): DOC defines Normalized FAD, a non-GAAP measure, which excludes from Normalized FFO
non-cash share compensation expense, straight-line rent adjustments, amortization of acquired above or below market leases and assumed debt, amortization of
deferred financing costs, amortization of lease inducements, and recurring capital expenditures related to tenant improvements and leasing commissions, and includes
cash payments from seller master leases and rent abatement payments. Other REITs or real estate companies may use different methodologies for calculating
Normalized FAD, and accordingly, our computation may not be comparable to those reported by other REITs. Although the Company’s computation of Normalized
FAD may not be comparable to that of other REITs, the Company believes Normalized FAD provides a meaningful supplemental measure of its performance due to
its frequency of use by analysts, investors, and other interested parties in the evaluation of our performance as a REIT. Normalized FAD should not be considered
as an alternative to net income or loss attributable to controlling interest (computed in accordance with GAAP) or as an indicator of the Company’s financial
performance. Normalized FAD should be reviewed in connection with other GAAP measurements.
Normalized Funds From Operations (Normalized FFO): Changes in the accounting and reporting rules under GAAP have prompted a significant increase in the
amount of non-operating items included in FFO, as defined. Therefore, DOC uses Normalized FFO, which excludes from FFO net change in fair value of derivative
financial instruments, acquisition expenses, acceleration of deferred financing costs, write off contingent consideration and other normalizing items. However, our
use of the term Normalized FFO may not be comparable to that of other real estate companies as they may have different methodologies for computing this amount.
Normalized FFO should not be considered as an alternative to net income or loss (computed in accordance with GAAP), as an indicator of our financial performance
or of cash flow from operating activities (computed in accordance with GAAP), or as an indicator of our liquidity, nor is it indicative of funds available to fund our
cash needs, including its ability to make distributions. Normalized FFO should be reviewed in connection with other GAAP measurements.
Occupancy: Occupancy represents the percentage of total gross leasable area that is leased, including month-to-month leases, leases in holdover status, and leases
that are signed but not yet commenced, as of the date reported.
Off-Campus: A building portfolio that is not located on or adjacent to key hospital based-campuses.
On-Campus / Affiliated: On-campus refers to a property that is located on or within a quarter mile to a health system. Affiliated refers to a property that is not on
the campus of a health system, but anchored by a health 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.
Section 603 Assets: For the purposes of this Supplemental Information, "603 Asset" is defined to be our estimate of Annualized Base Revenue (ABR) as a percentage
of all our ABR, derived from leases to hospitals for hospital outpatient department space located in an off-campus medical office building at least 250 yards from
the hospital's main campus inpatient location, and that was billing Medicare for outpatient department services provided in that off-campus location as of November
2, 2015. ABR that is "not-603" for the purposes of this Supplemental Information could and would include ABR from space leased to a hospital outpatient department
services provided in leased space within the 250 yard requirement for on-campus locations or in buildings that are more than 250 yards from the hospital service
provider's main campus, but the hospital did not start billing for that service in the location until after November 2, 2015.