Attached files
| file | filename |
|---|---|
| EX-99.1 - EXHIBIT 99.1 PRESS RELEASE - Physicians Realty Trust | a2018q1earningspressreleas.htm |
| 8-K - 8-K - Physicians Realty Trust | vq18-k2018q1earningslpandt.htm |
Lee's Hill Medical Plaza
Fredericksburg, VA
SUPPLEMENTAL OPERATING
& FINANCIAL INFORMATION
FIRST QUARTER 2018
PHYSICIANS REALTY TRUST
NYSE: DOC
Exhibit 99.2
March 2018
Hazelwood Medical Commons
Maplewood, MN
2
COMPANY OVERVIEW
ABOUT PHYSICIANS REALTY TRUST 4
FIRST 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 EBITDAre 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 EBITDAre, 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 May 4, 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 March 31, 2018, own approximately 97.1% of the partnership interests in the operating partnership (“OP Units”).
COMPANY SNAPSHOT As of
March 31, 2018
Gross real estate investments (thousands) $ 4,413,871
Total healthcare properties (1) 265
% Leased (1) 96.6%
Total portfolio gross leasable area (sq. ft.) (1) 13,625,726
% of GLA on-campus / affiliated (1) 85%
Average remaining lease term for all buildings (years) (1) 8.2
Cash and cash equivalents (thousands) $ 6,550
Total debt to firm value 35.3%
Weighted average interest rate per annum on consolidated debt 3.8%
Equity market cap (thousands) $ 2,832,864
Quarterly dividend $ 0.23
Quarter end stock price $ 15.57
Dividend yield 5.91%
Common shares outstanding 181,943,725
OP Units outstanding and not owned by DOC 5,464,217
Total firm value (thousands) $ 4,543,200
(1) Excludes 15 assets classified as held for sale and the Company's corporate office building.
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. Kessler 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
J. France - Cantor Fitzgerald J. Hughes - Raymond James Financial Inc.
D. Bernstein - Capital One Securities M. Carroll - RBC Capital Markets LLC
C. Kucera - FBR Capital D. Babin - Robert W. Baird & Co.
J. Roberts - J.J.B. Hilliard W.L. Lyons LLC C. Vanacore - Stifel
T. Okusanya - Jefferies LLC E. Fleming - SunTrust Robinson Humphrey
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
FIRST QUARTER 2018 HIGHLIGHTS
OPERATING HIGHLIGHTS
• First quarter 2018 total revenue of $105.2 million, up 37% over the prior year period
• First quarter 2018 rental revenue of $78.9 million, an increase of 33% over the prior year period
• Generated quarterly net income per share of $0.06 on a fully diluted basis
• Generated quarterly normalized funds from operations (Normalized FFO) of $0.26 per share on a fully diluted basis
• Completed quarterly investments of $107.8 million, including 2 healthcare properties representing 220,140 square feet
• Completed the disposition of 2 healthcare properties representing 29,733 square feet for total proceeds of $2.5 million
• Declared quarterly dividend of $0.23 per share for the first quarter
• 96.6% of portfolio square footage leased as of March 31, 2018
• Net decrease to gross leasable square footage of 2.7% to 13,625,726 square feet across 265 healthcare properties (which
excludes 15 assets classified as held for sale) as of March 31, 2018, from 13,996,802 square feet across 280 healthcare
properties as of December 31, 2017
COMPANY ANNOUNCEMENTS
• March 23, 2018: Announced that our Board of Trustees authorized and declared a cash distribution of $0.23 per common
share and OP Unit for the quarterly period ended March 31, 2018. The distribution was paid on April 18, 2018 to
common shareholders and OP Unit holders of record as of the close of business on April 3, 2018.
FIRST QUARTER INVESTMENT HIGHLIGHTS SUBSEQUENT INVESTMENTS
• Hazelwood Medical Commons, Maplewood, MN • HMG Medical Plaza, Kingsport, TN
• Lee's Hill Medical Plaza MOB, Fredericksburg, VA
Strictly Pediatrics Specialty Center
Austin, TX
Peachtree Dunwoody MOB
Atlanta, GA
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.
INCOME Three Months Ended
March 31, 2018 December 31, 2017
Revenues $ 105,223 $ 97,320
Net income 11,332 10,187
NOI 74,794 70,452
Annualized Adjusted EBITDAre 275,760 260,884
Net income available to common shareholders per common share $ 0.06 $ 0.05
Normalized FFO 49,031 49,646
Normalized FFO per common share and OP Unit $ 0.26 $ 0.27
Normalized FAD 43,049 44,207
CAPITALIZATION As of
ASSETS March 31, 2018 December 31, 2017
Gross Real Estate Investments (including gross lease intangibles) 4,413,871 4,330,144
Total Assets 4,257,007 4,164,383
DEBT AND EQUITY
Total Debt (1) 1,601,522 1,491,680
Total Equity 2,527,260 2,547,634
Equity Market Capitalization 2,832,864 3,264,107
Total Firm Value 4,543,200 4,864,643
Total Debt / Total Firm Value 35.3% 30.7%
$4,413,871
Gross Real Estate Assets Gross 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
Q1-2018
$123,998
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
March 31, 2018
Three Months Ended
December 31, 2017
Net income $ 11,332 $ 10,187
Net income attributable to NCI - partially owned properties (111) (112)
Preferred distributions (487) (226)
Depreciation and amortization expense 38,530 36,092
Depreciation and amortization expense - partially owned properties (166) (121)
Gain on the sale of investment properties (69) (566)
Impairment loss — 965
FFO applicable to common shares and OP Units $ 49,029 $ 46,219
FFO per common share and OP Unit $ 0.26 $ 0.25
Net change in fair value of derivative 2 (10)
Acquisition expenses — 3,913
Net change in fair value of contingent consideration — (476)
Normalized FFO applicable to common shares and OP Units $ 49,031 $ 49,646
Net income available to common shareholders per common share and OP Unit $ 0.06 $ 0.05
Normalized FFO per common share and OP Unit $ 0.26 $ 0.27
Normalized FFO applicable to common shares and OP Units 49,031 49,646
Non-cash share compensation expense 2,605 1,357
Straight-line rent adjustments (6,450) (5,034)
Amortization of acquired above/below market leases/assumed debt 830 944
Amortization of lease inducements 344 344
Amortization of deferred financing costs 618 568
TI/LC and recurring capital expenditures (4,158) (3,858)
Seller master lease and rent abatement payments 229 240
Normalized FAD applicable to common shares and OP Units $ 43,049 $ 44,207
Weighted average number of common shares and OP Units outstanding 187,317,243 185,273,236
9
RECONCILIATION OF NON-GAAP MEASURES: NET OPERATING INCOME AND ADJUSTED EBITDAre
(Unaudited and in thousands, except share and per share data)
NET OPERATING INCOME
Three Months Ended
March 31, 2018
Three Months Ended
December 31, 2017
Net income $ 11,332 $ 10,187
General and administrative 8,459 6,112
Acquisition expenses — 3,913
Depreciation and amortization expense 38,576 36,128
Interest expense 16,494 13,723
Net change in fair value of derivative 2 (10)
Gain on sale of investment properties (69) (566)
Impairment loss — 965
NOI $ 74,794 $ 70,452
NOI $ 74,794 $ 70,452
Straight-line rent adjustments (6,450) (5,034)
Amortization of acquired above/below market leases 830 944
Amortization of lease inducements 344 344
Seller master lease and rent abatement payments 229 240
Net change in fair value of contingent consideration — (476)
Cash NOI $ 69,747 $ 66,470
ADJUSTED EBITDAre
Three Months Ended
March 31, 2018
Three Months Ended
December 31, 2017
Net income $ 11,332 $ 10,187
Depreciation and amortization 38,576 36,128
Interest expense 16,494 13,723
Gain on sale of investment properties (69) (566)
Impairment loss — 965
EBITDAre $ 66,333 $ 60,437
Acquisition expenses — 3,913
Non-cash share compensation expense 2,605 1,357
Net non-cash changes in fair value 2 (486)
Adjusted EBITDAre $ 68,940 $ 65,221
Adjusted EBITDAre Annualized* $ 275,760 $ 260,884
* Amounts are annualized and actual amounts may differ significantly from the annualized amounts shown.
10
(1) Unadjusted for unamortized fair value adjustments, unamortized discount, and unamortized deferred financing costs.
(2) Weighted average maturity of Mortgage Debt is 2.9 years.
MARKET CAPITALIZATION AND DEBT SUMMARY
(Unaudited and in thousands, except share and per share data)
Debt Equity
Debt is 35% of Firm Value
MARKET CAPITALIZATION March 31, 2018
Unsecured credit facility debt $ 472,000
Unsecured notes 975,000
Mortgage debt 154,522
Total Debt (1) $ 1,601,522
Redeemable equity $ 23,736
Share price $ 15.57
Total common shares outstanding 181,943,725
Total OP Units outstanding 5,464,217
Implied equity market capitalization $ 2,917,942
Total Firm Value (Debt + Pref. + Equity) $ 4,543,200
Total Debt/Total Assets 37.6%
Total Debt/Total Firm Value 35.3%
DEBT SUMMARY (1)
Balance as of
March 31, 2018 Interest Rate Maturity Date
Revolving Credit Facility Debt $ 222,000 3.0 % 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 6,915 4.1 %
2019 18,750 5.0 %
2020 65,499 3.8 %
Thereafter 63,358 4.8 %
$ 1,601,522 3.8%
Debt Repayment Schedule as of March 31, 2018
$1,000,000
$800,000
$600,000
$400,000
$200,000
$0
2018 2019 2020 2021 2022 2023 2024 Thereafter
$22,618 $44,631
$252,121
$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
March 31, 2018
Annualized dividend rate (1) $ 0.92
Price per share (2) $ 15.57
Annualized Dividend Yield 5.91%
Total debt (3) $ 1,601,522
Net debt (less cash) 1,594,972
Adjusted EBITDAre (annualized)* 275,760
Net Debt / Adjusted EBITDAre Ratio 5.78x
Adjusted EBITDAre (annualized)* $ 275,760
Cash interest expense (annualized)* 63,568
Interest Coverage Ratio 4.34x
Total interest $ 16,494
Capitalized interest 84
Secured debt principal amortization 657
Total fixed charges $ 17,235
Adjusted EBITDAre 68,940
Adjusted EBITDAre Fixed Charge Coverage Ratio 4.00x
Implied equity market cap $ 2,917,942
Redeemable equity 23,736
Total debt (3) 1,601,522
Total Firm Value 4,543,200
Total debt (3) $ 1,601,522
Total assets 4,257,007
Total Debt / Total Assets 37.6%
Total Debt / Total Firm Value 35.3%
Weighted average common shares 181,809,570
Weighted average unvested restricted common shares and share units 53,179
Weighted average OP Units not owned by DOC 5,454,494
Weighted Average Common Shares and OP Units - Diluted 187,317,243
(1) Annualized rate based on $0.23 quarterly dividend for the quarter ending March 31, 2018. 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 $15.57 as of March 29, 2018.
(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 March 31, 2018
Total Leverage Ratio ≤ 60.0% 36.4%
Total Secured Leverage Ratio ≤ 40.0% 3.5%
Maintenance of Unencumbered Assets ≥ 1.5x 2.9x
Consolidated Debt Service (Trailing Four Quarters) ≥ 1.5x 4.1x
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
Q1'18 Q1'17 Change Q1'18 Q4'17 Change
Number of healthcare properties 215 215 — 215 215 —
Gross leasable area 9,551,380 9,551,380 — 9,551,380 9,551,380 —
% Leased 95.8% 95.8% — 95.8% 96.0% -20 bps
Rental revenues 65,139 64,287 +1.3% 65,139 64,224 +1.4%
Operating expenses (19,765) (20,054) (1.4)% (19,765) (18,561) +6.5%
Same-Store Cash NOI 45,374 44,233 +2.6% 45,374 45,663 (0.6)%
Same-Store Cash
NOI, 65.1%
Other Cash
NOI, 34.9%
SAME-STORE PORTFOLIO ANALYSIS
Portfolio Same-Store
Quarter Ended Quarter Ended
March 31, 2018 March 31, 2018
Number of healthcare properties (1) 265 215
Gross leasable area (1) 13,625,726 9,551,380
Cash NOI $ 69,747 $ 45,374
% Leased (1) 96.6% 95.8%
TENANT OCCUPANCY (1)
Quarter Ended Percentage of total GLA
March 31, 2018 March 31, 2018
Total GLA
Total square feet beginning of quarter 13,996,802 102.7 %
Acquired GLA (2) 218,891 1.6 %
Disposed GLA (3) (589,967) (4.3)%
Total square feet end of quarter 13,625,726 100.0 %
Occupied GLA
Occupied GLA beginning of quarter 13,520,196 99.2 %
Expirations (190,763) (1.4)%
Renewals 132,425 1.0 %
Retention Rate 69%
New leases commencing in quarter 36,396 0.3 %
Net absorption / (vacancy loss) (21,942) (0.2)%
Net occupied GLA acquired (3) (340,209) (2.5)%
Occupied GLA end of quarter 13,158,045 96.6 %
(1) Excludes 15 assets classified as held for sale and the Company's corporate office building.
(2) Includes remeasurements of existing properties totaling 1,249 square feet.
(3) Includes 15 properties classified as held for sale during the period.
13
QUARTERLY DISPOSITIONS(1)
Property Location Date Proceeds GLA
21st Century Oncology - Port Charlotte Port Charlotte, FL 2/16/2018 $ 1,425 8,395
Farmington Professional Pavilion Farmington, MI 3/30/2018 1,187 21,338
Total $ 2,612 29,733
(1) The Company's dispositions resulted in a net gain of approximately $0.1 million.
INVESTMENT ACTIVITY AND ASSETS SLATED FOR DISPOSITION
(Unaudited and in thousands, except sq. ft. data)
QUARTERLY INVESTMENTS
Acquisition
Date
First Year
Cash Yield
Purchase
PriceProperty Location % Leased GLA
Hazelwood Medical Commons Maplewood, MN 1/9/2018 5.3% 90% $ 70,702 147,885
Lee's Hill Medical Plaza Fredericksburg, VA 1/23/2018 6.0% 88% 28,000 72,255
Scottsdale, Arizona Land (1) Scottsdale, AZ 2/16/2018 5.5% — 700 —
Loan Investment Pensacola, FL 2/16/2018 8.9% — 2,000 —
NCI Buyout - Minnesota Portfolio (2) 3/1/2018 N/A — 6,406 —
Total / Weighted Average 5.6% $ 107,808 220,140
(1) The company acquired the land beneath a previously acquired facility.
(2) The company redeemed the previously outstanding preferred equity investment related to the Minnesota Portfolio.
ASSETS SLATED FOR DISPOSITION
Held for Sale Other Total
Number of Properties 15 8 23
Number of States 3 3 6
Total Gross Leasable Area 560,234 361,281 921,515
Memorial Herman Medical Complex
Katy, TX
Woodlands Medical Arts Center
The Woodlands, TX
14
PORTFOLIO GEOGRAPHIC DISTRIBUTION
(As of March 31, 2018)
State GLA
Texas 1,930,348
Indiana 1,039,767
Nebraska 979,303
Kentucky 976,620
Georgia 938,735
Minnesota 810,301
Arizona 733,791
Ohio 650,319
New York 613,496
Washington 589,141
Other 4,363,905
Total 13,625,726
Texas, 14%
Indiana, 8%
Nebraska, 7%
Kentucky, 7%
Georgia, 7%
Minnesota, 6%
Arizona, 5%
Ohio, 5%
New York, 5%
Washington, 4%
Other, 32%
TOP TEN STATES
15
PORTFOLIO DIVERSIFICATION
(As of March 31, 2018)
THREE MONTHS ENDED MARCH 31, 2018
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 123 4,960,056 36.4% 99.8% N/A
Multi-tenant MOBs 133 7,966,526 58.5% 94.3% N/A
Hospitals 6 388,792 2.9% 100.0% 2.4x
LTACHs 3 310,352 2.2% 100.0% 1.2x
Total 265 13,625,726 100.0% 96.6%
Building Type
(Based on Cash NOI)
MOB,
92%
LTACH,
2%
Hospital,
6%
Lease Type
(Based on Revenue)
Absolute
Net, 15%
NNN,
77%
Modified Gross,
6%
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 March 31, 2018, $ in thousands)
LEASE EXPIRATION SCHEDULE
Expiration Expiring Expiring Lease % of Total Expiring Lease % of Total Average Rent
Year Leases GLA GLA ABR ABR per SF
2018 79 265,358 1.9% $5,405 1.9% $20.37
2019 102 514,258 3.8% 11,489 4.1% 22.34
2020 116 494,150 3.6% 10,440 3.7% 21.13
2021 155 647,188 4.7% 14,114 5.0% 21.81
2022 100 689,145 5.1% 16,843 6.0% 24.44
2023 95 603,836 4.4% 12,912 4.6% 21.38
2024 62 734,129 5.4% 15,504 5.5% 21.12
2025 141 1,075,375 7.9% 25,788 9.1% 23.98
2026 127 3,598,190 26.4% 72,497 25.7% 20.15
2027 74 1,365,003 10.0% 27,567 9.8% 20.20
Thereafter 104 3,107,321 22.9% 68,645 24.3% 22.09
MTM 37 64,092 0.5% 938 0.3% 14.63
Vacant 467,681 3.4%
Total / W.A. 1,192 13,625,726 100% $282,142 100% $21.44
(1) Represents direct leases to investment grade entities and their subsidiaries.
(2) Parent rating used where direct tenant is not rated.
INVESTMENT GRADE TENANCY (1)
% of Total
Credit Rating (2) Leased % of Occupied Annualized Annualized
Relationship (Moody's / S&P) GLA GLA Base Rent Base Rent
Catholic Health Initiatives Baa1 / BBB+ 3,133,803 23.8% $53,391 18.9%
Ascension Health Aa2 / AA+ 549,832 4.2% 8,953 3.2%
Baylor Scott and White Health Aa3 / AA- 268,639 2.0% 7,583 2.7%
US Oncology Baa2 / NA 256,988 2.0% 6,706 2.4%
HonorHealth (AZ) A2 / NA 243,482 1.9% 5,834 2.1%
Dignity Health (AZ) A2 / NA 213,562 1.6% 4,296 1.5%
Other Investment Grade Relationships 2,158,477 16.4% 48,904 17.3%
Total 6,824,783 51.9% $135,668 48.1%
TOP 10 TENANTS BY ABR
Weighted Avg. % of Total
Remaining Leased % of Total Annualized Annualized
Tenant Lease Term GLA GLA Base Rent Base Rent
CHI - Nebraska 8.6 893,098 6.6% $15,959 5.6%
CHI - KentuckyOne Health 8.0 744,101 5.5% 13,122 4.6%
Baylor Scott and White Health 7.8 268,639 2.0% 7,583 2.7%
US Oncology 7.1 256,988 1.9% 6,706 2.4%
Northside Hospital (GA) 10.5 329,249 2.4% 6,363 2.3%
CHI - St. Alexius (ND) 8.3 362,284 2.7% 6,235 2.2%
HonorHealth (AZ) 11.8 243,482 1.8% 5,834 2.1%
CHI - Franciscan (Seattle - Tacoma) 8.2 329,754 2.4% 5,595 2.0%
Great Falls Clinic (MT) 17.3 185,085 1.4% 5,348 1.9%
Ascension - St. Vincent's - Indianapolis 8.9 363,146 2.7% 4,664 1.6%
Total / Weighted Average 9.1 3,975,826 29.4% $77,409 27.4%
17
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31,
2018
December 31,
2017
ASSETS
Investment properties:
Land and improvements $ 214,476 $ 217,695
Building and improvements 3,570,056 3,568,858
Tenant improvements 19,121 23,056
Acquired lease intangibles 459,836 458,713
4,263,489 4,268,322
Accumulated depreciation (318,393) (300,458)
Net real estate property 3,945,096 3,967,864
Real estate held for sale 93,289 —
Real estate loans receivable 71,529 76,195
Investment in unconsolidated entities 1,331 1,329
Net real estate investments 4,111,245 4,045,388
Cash and cash equivalents 6,550 2,727
Tenant receivables, net 4,293 9,966
Other assets 134,919 106,302
Total assets $ 4,257,007 $ 4,164,383
LIABILITIES AND EQUITY
Liabilities:
Credit facility $ 466,828 $ 324,394
Notes payable 966,387 966,603
Mortgage debt 154,373 186,471
Accounts payable 2,562 11,023
Dividends and distributions payable 43,388 43,804
Accrued expenses and other liabilities 56,706 56,405
Acquired lease intangibles, net 15,767 15,702
Total liabilities 1,706,011 1,604,402
Redeemable noncontrolling interest - Series A Preferred Units (2018) and partially owned properties 23,736 12,347
Equity:
Common shares, $0.01 par value, 500,000,000 common shares authorized, 181,943,725 and 181,440,051
common shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively 1,819 1,814
Additional paid-in capital 2,778,616 2,772,823
Accumulated deficit (345,571) (315,417)
Accumulated other comprehensive income 18,250 13,952
Total shareholders' equity 2,453,114 2,473,172
Noncontrolling interests:
Operating Partnership 73,527 73,844
Partially owned properties 619 618
Total noncontrolling interest 74,146 74,462
Total equity 2,527,260 2,547,634
Total liabilities and equity $ 4,257,007 $ 4,164,383
18
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share and per share data)
Three Months Ended
March 31,
2018 2017
Revenues:
Rental revenues $ 78,887 $ 59,092
Expense recoveries 24,308 16,354
Interest income on real estate loans and other 2,028 1,220
Total revenues 105,223 76,666
Expenses:
Interest expense 16,494 9,815
General and administrative 8,459 4,736
Operating expenses 30,459 22,089
Depreciation and amortization 38,576 27,933
Acquisition expenses — 5,405
Total expenses 93,988 69,978
Income before equity in income of unconsolidated entities and gain on sale of investment properties: 11,235 6,688
Equity in income of unconsolidated entities 28 28
Gain on sale of investment properties 69 —
Net income 11,332 6,716
Net income attributable to noncontrolling interests:
Operating Partnership (313) (147)
Partially owned properties (111) (167)
Net income attributable to controlling interest 10,908 6,402
Preferred distributions (487) (211)
Net income attributable to common shareholders $ 10,421 $ 6,191
Net income per share:
Basic $ 0.06 $ 0.04
Diluted $ 0.06 $ 0.04
Weighted average common shares
Basic 181,809,570 138,986,629
Diluted 187,317,243 142,605,930
Dividends and distributions declared per common share and OP Unit $ 0.230 $ 0.225
19
REPORTING DEFINITIONS
Adjusted Earnings Before Interest Taxes, Depreciation and Amortization for Real Estate (Adjusted EBITDAre): We define Adjusted EBITDAre for DOC as
EBITDAre, computed in accordance with standards established by the National Association of Real Estate Investment Trusts (“NAREIT”), plus acquisition-related
expenses, non-cash compensation, and other non-reoccurring items. We consider Adjusted EBITDAre 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 March 2018 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 or
reposition 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.
Earnings Before Interest Taxes, Depreciation and Amortization for Real Estate (EBITDAre): In 2017, NAREIT issued a white paper defining EBITDA for real
estate as net income or loss computed in accordance with GAAP plus interest expense, income tax expense, depreciation and amortization expense, impairment,
gains or losses from the sale of real estate; and the proportionate share of joint venture depreciation, amortization and other adjustments. We adopted the use of
EBITDAre in the first quarter of 2018.
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 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.