Jefferies 2018 Healthcare Conference Presentation. June 2018

Transcription

1 Jefferies 2018 Healthcare Conference Presentation June 2018

2 This document may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of These forward-looking statements concern and are based upon, among other things, the possible expansion of the company s portfolio; the sale of properties; the performance of its operators/tenants and properties; its ability to enter into agreements with new viable tenants for vacant space or for properties that the company takes back from financially troubled tenants, if any; its occupancy rates; its ability to acquire, develop and/or manage properties; the ability to successfully manage the risks associated with international expansion and operations; its ability to make distributions to shareholders; its policies and plans regarding investments, financings and other matters; its tax status as a real estate investment trust; its critical accounting policies; its ability to appropriately balance the use of debt and equity; its ability to access capital markets or other sources of funds; its ability to meet its earnings guidance; and its ability to finance and complete, and the effect of, future acquisitions. When the company uses words such as may, will, intend, should, believe, expect, anticipate, project, estimate or similar expressions, it is making forward-looking statements. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties. The company s expected results may not be achieved, and actual results may differ materially from expectations. This may be a result of various factors, including, but not limited to: material differences between actual results and the assumptions, projections and estimates of occupancy rates, rental rates, operating expenses and required capital expenditures; the status of the economy; the status of capital markets, including the availability and cost of capital; issues facing the healthcare industry, including compliance with, and changes to, regulations and payment policies, responding to government investigations and punitive settlements and operators /tenants difficulty in cost-effectively obtaining and maintaining adequate liability and other insurance; changes in financing terms; competition within the healthcare, seniors housing and life science industries; negative developments in the operating results or financial condition of operators/tenants, including, but not limited to, their ability to pay rent and repay loans; the company s ability to transition or sell facilities with profitable results; the failure to make new investments as and when anticipated; acts of God affecting the company s properties; the company s ability to re-lease space at similar rates as vacancies occur; the failure of closings to occur as and when anticipated, including the receipt of third-party approvals and healthcare licenses without unexpected delays or conditions; the company s ability to timely reinvest sale proceeds at similar rates to assets sold; operator/tenant or joint venture partner bankruptcies or insolvencies; the cooperation of joint venture partners; government regulations affecting Medicare and Medicaid reimbursement rates and operational requirements; regulatory approval and market acceptance of the products and technologies of life science tenants; liability or contract claims by or against operators/tenants; unanticipated difficulties and/or expenditures relating to future acquisitions and the integration of multi-property acquisitions; environmental laws affecting the company s properties; changes in rules or practices governing the company s financial reporting; the movement of U.S. and foreign currency exchange rates; and legal and operational matters, including real estate investment trust qualification and key management personnel recruitment and retention. Finally, the company assumes no obligation to update or revise any forward-looking statements or to update the reasons why actual results could differ from those projected in any forward-looking statements. 1

3 Company Profile Overview Portfolio Snapshot DOC is an internally managed healthcare REIT focused on the selective acquisition and management of high-quality medical office facilities leased to leading health systems Management s significant relationships with physicians, hospitals, and health systems offers a distinct strategic advantage relative to peers Gross Real Estate Assets $4.41bn # of Properties Owned 265 Gross Leasable Area (SF) 13.6mm % Leased 96.6% Weighted Average Lease Term 8.2 years Portfolio Statistics (1) (As of March 31, 2018) Building Type Campus Proximity Lease Type LTACH, 1% Hospital, 6% MOB, 93% Off Campus, 17% Gross, 2% Modified Gross, 6% Absolute Net, 15% NNN, 77% On-Campus / Affiliated, 83% (1) Based on Annualized Base Revenue All figures exclude 15 assets held for sale, representing 560k GLA 2

4 Balanced Geographic Distribution DOC s portfolio of 265 properties is diversified across 31 states, with no MSA representing over 7% of leasable square footage as of March 31, 2018 Top Ten States (% Portfolio GLA) Texas, 14% Other, 32% Washington, 4% New York, 5% Ohio, 5% Arizona, 5% Indiana, 8% Nebraska, 7% Kentucky, 7% Georgia, 7% Minnesota, 6% Top Ten MSAs MSA Ranking % GLA 1 Atlanta / Sandy Springs / Roswell, GA 9 6.9% 2 Dallas / Fort Worth / Arlington, TX 4 5.9% 3 Louisville / Jefferson County, KY / IN % 4 Phoenix / Mesa / Scottsdale, AZ % 5 Minneapolis / St. Paul / Bloomington, MN / WI % 6 Indianapolis / Carmel / Anderson, IN % 7 Omaha / Council Bluffs, NE / IA % 8 Columbus, OH % 9 Seattle / Tacoma / Bellevue, WA % 10 Houston / The Woodlands / Sugar Land, TX 5 2.6% Total 47.0% 3

5 Gross Real Estate Investments Gross Leasable Area History of Disciplined Growth Opportunistic growth through relationship-based acquisitions Peachtree Dunwoody Atlanta, GA Acquired 2/14 $36.7mm Cap Rate: 7.0% RSF: 131,368 A MN Portfolio B CHI Portfolio ROFR Minnesota Acquired 2/15 $116.3mm Cap Rate: 6.4% RSF: 362, Properties, 10 States Acquired 2Q16 $718.5mm Cap Rate: 6.3% RSF: 3,132,263 C Portfolio Properties, 3 States Acquired 2Q17 $577.0mm Cap Rate: 4.7% RSF: 1,130,552 D 4,500,000 4,000,000 D 14,000,000 3,500,000 3,000,000 C 12,000,000 10,000,000 2,500,000 8,000,000 2,000,000 1,500,000 1,000,000 A B 6,000,000 4,000, ,000 2,000, Gross Real Estate Assets Net Real Estate Investments/Quarter Total Healthcare Property GLA Average First Year Cash Yield on Investment: 2013: 8.6% 2014: 7.6% 2015: 6.9% 2016: 6.6% 2017: 5.5% 1Q2018: 5.5% 4

6 2018 Investment Strategy Management maintains a consistent commitment to responsible investing, with a defined focus on improving portfolio quality 2018 Investments to Date # of Properties 3 GLA Acquired 451,626 Aggregate Investment $170.0 mm Average First Year Yield 5.7% Hazelwood Medical Commons Maplewood, MN - Acquired 1/9/2018 For 2018, our focus will be on squeezing the best performance we can out of our portfolio, while keeping our occupancy high and our capital expenditures low, so that we can distribute that money to our shareholders instead. We will also be flexible in our growth strategy and be conscious of market conditions on our acquisition plans. - Jeff Theiler, 4Q17 Earnings Call Our board and team are committed to patience in this capital market, maximizing the performance of our industry leading (portfolio), while also pruning assets that no longer fit our long term plans. Lee s Hill Medical Plaza Fredericksburg, VA - Acquired 1/23/ John Thomas, 4Q17 Earnings Call While we are pleased with (our first quarter) investments, looking forward into 2018, we see more opportunity on the disposition side of the capital equation. We will work over the coming year to prune noncore assets and take advantage of the sellers market to improve the overall quality of our portfolio. - Jeff Theiler, 1Q18 Earnings Call HMG Medical Plaza Kingsport, TN - Acquired 4/3/2018 5

7 $2,797 $2,879 $3,026 $3,201 $3,337 $3,489 $3,675 $3,868 $4,091 $4,322 $4,562 $4,818 $5,091 $5,370 $5,696 Healthcare s Favorable Demographics The U.S. population is projected to age considerably in the coming decades Per-capita healthcare spending by individuals aged 65 and over is nearly 3x that of other groups on an annual basis Healthcare Expenditures Per Capita (FY2012) $32,411 The CMS projects a 63% increase in healthcare expenditures during the next 10 years largely driven by these demographic shifts $3,552 $4,458 $9,513 $16,872 National Health Expenditures Projected % of US Population >64 Years Old ($ in billions) 15% 17% 19% 21% 21% Sources: American Hospital Association Trendwatch Chartbook, Centers for Medicare and Medicaid Services, US Census Bureau 6

8 Inpatient Outpatient Off-Campus Momentum Rapidly increasing demand and consumerism will require care to be provided in a more efficient and convenient manner Outpatient MOBs offer convenience to consumers, while allowing providers to efficiently integrate care in a single, efficient location 72% Distribution of Outpatient vs Inpatient Revenues Healthcare delivery is already moving to the outpatient setting Inpatient admissions have declined consistently during the prior 20 years, while outpatient visits have increased dramatically 28% 54% 46% The highest revenue generating services can be executed offcampus reducing cost and increasing provider profit Outpatient Inpatient Average Revenue Generated per Specialty (U.S. Healthcare Sector - Top 10 - in $mm) Admissions / Visits per 1,000 Persons Orthopedic Surgery Cardiology (Invasive) Neurosurgery General Surgery Internal Medicine Hematology / Oncology Obstetrics / Gynecology Family Practice Gastroenterology $1.8 $1.7 $1.6 $1.5 $1.4 $2.4 $2.4 $2.2 $2.7 DOC s top tenant specialties (Orthopedics, Surgery, and Oncology) are among the highest revenue generating providers in the US ,200 2,000 1,800 1,600 1,400 1,200 1,000 Urology $1.4 Outpatient Inpatient Sources: American Hospital Association Trendwatch Chartbook, Merritt Hawkins 2016 Physician Inpatient/Outpatient Revenue Survey 7

9 Campus Quality On-campus MOBs have traditionally demanded higher pricing than off-campus equivalents due to a perceived reduction of risk by novice investors During recent periods, this premium has narrowed substantially 7.0% On- vs Off-Campus MOB Cap Rates This traditional thinking fails to acknowledge undeniable trends in healthcare delivery and overstates the importance of the campus itself 6.4% 6.3% 6.1% The most valuable component of a MOB investment strategy is health system tenancy While MOBs surrounding some hospitals may be strong investments, superior risk-adjusted returns can often be found off-campus through the strategic targeting of high quality properties occupied by investment grade health systems Off Campus On Campus Peachtree Dunwoody Medical Center Atlanta, GA - Acquired 2/28/2014 Sources: Altus Group, Revista National Transaction Database, CBRE 2017 Medical Office and Healthcare Report 8

10 How DOC Defines Quality Tenant Credit Quality Building Age 30% Traditional Real Estate Quality Measures Building Size 70% Tenant Quality Measures Market Health Building Ecosystem Tenant Affiliation Average Remaining Lease Term Market Share / Position 9

11 Top Ten Tenant Profile Top Ten Tenants: Improved quality, reduced concentration 49% of DOC ABR is from IG related health system leases (1) Top Ten Tenants (1) Primary MSA Credit Rating Leased Market (2) Ranking (Moody s / S&P) (3) GLA ABR (1) CHI - Nebraska Omaha, NE 60 Baa1 / BBB+ 893, % CHI - KentuckyOne Health Louisville, KY 45 Baa1 / BBB+ 744, % Baylor Scott and White Dallas, TX 4 Aa3 / AA- 268, % Ascension - St. Vincent s Indianapolis, IN 35 Aa2 / AA+ 363, % US Oncology, Inc. Dallas, TX 4 Baa2 / NA 256, % Northside Hospital Atlanta, GA 9 Not Rated 329, % CHI - St. Alexius Bismark, ND >100 Baa1 / BBB+ 362, % HonorHealth Phoenix, AZ 12 A2 / NA 243, % CHI - Franciscan Seattle, WA 15 Baa1 / BBB+ 329, % Great Falls Hospital Great Falls, MT >100 Not Rated 185, % Total 3,975, % 100% 36% 90% 80% 70% 85% 34% 32% 34% Top 10 Tenant Investment Grade % (% Top 10 ABR) 60% 50% 40% 30% 20% 25% Top 10 Tenant Concentration (% Portfolio ABR) 30% 28% 26% 24% 27% 10% 22% 0% 20% Top 10 / IG Top 10 / Non-IG (1) As of 3/31/2018, pro-forma for the completion of rent abatement related to one property acquired 11/2017 (2) Primary market for DOC owned properties (3) Parent rating used where appropriate 10

12 Superior Stability, Improved Quality Higher Tenant Credit Quality Larger, Higher Quality Properties Investment Grade Tenancy (% Occupied GLA) Average Building Size (GLA) 60% 50% 52% 55,000 50,000 51,418 40% 45,000 30% 23% 40,000 36,640 20% 35,000 10% 30,000 Industry-Leading Leasing Lower Near-Term Expirations 98% Portfolio % Leased 15% Near Term Lease Expirations (Average % ABR 2018 to 2022) 96% 94% 12% Peer Average: 11.8% / yr 9% 92% 90% 6% 3% 4.4% 88% 0% DOC HTA HR WELL VTR HCP DOC Big 3 - Ave HR & HTA - Ave Source: Company filings. Expiration statistics are presented as of 12/31/17 for MOBs only. VTR average expirations from 2018 to

13 Stable Expiration Schedule DOC s portfolio provides industry leading stability, exceeding closest peers in occupancy and remaining lease term (As of 3/31/18) DOC HTA / HR % Leased 96.6% 89.8% Wtd. Ave. Lease Term 8.2 Years 5.0 Years Lease Expiration Schedule (% Portfolio ABR) 30% 25% 25.7% 24.3% 20% 15% 10% 9.1% 9.8% 5% 2.2% 4.1% 3.7% 5.0% 6.0% 4.6% 5.5% 0% % Leased GLA 2.5% 3.9% 3.8% 4.9% 5.2% 4.6% 5.6% 8.2% 27.3% 10.4% 23.6% Source: Company filings. Competitor leasing statistics for MOBs only. 12

14 Kingsley Tenant Survey Performance The Kingsley Associates Assessing the Customer Experience survey is the most comprehensive performance benchmarking database in the real estate industry. The survey gauges client satisfaction, objectively measuring the quality of service delivery and building operations to provide clear roadmaps for increased retention. Physicians Realty Trust surveys every multi-tenant property on a two-year cycle. Previous Company Record: 64% Previous Company Record: 4.12 Previous Company Record: 4.35 In 2018, Physicians Realty Trust achieved an industry-leading response rate of 77%, shattering last year s company record of 64%. Not only is that a phenomenal response rate that speaks highly to the close relationships between our healthcare partners and management team, but Kingsley Associates shared that this is far and away the best response they have ever seen for the medical office survey group. Our previous record high scores in overall satisfaction and overall management satisfaction were also surpassed also marked our largest-ever survey group, targeting 83 properties, 437 tenants, and over 4.9 million square feet. 13

15 Strong Liquidity with Access to Various Sources of Capital Extensive relationships allow for flexibility in financing Demonstrated experience in accessing the capital markets Nine Follow-On Offerings Amended and Expanded Credit Facility $300 million ATM Program Multiple Direct Private Debt Placements Revolving Unsecured Credit Facility ($850mm) IPO & Follow-On Offerings ($2.5b) Private Debt Placements ($225mm) Two Public Debt Offerings Investment Grade Rated by Moody s ( Baa3 ) and S&P ( BBB- ) Unsecured Term Loan ($250mm) Public Debt Offerings ($750mm) Unencumbered Gross Real Estate Assets of over $4.1b as of March 31, 2018 ATM Equity Program ($300mm) 14

16 Conservative, Measured Leverage DOC remains comfortably in compliance with all covenant thresholds Consolidated Leverage Ratio Fixed Charge Coverage Ratio 70% 60% 50% 40% 30% 20% 10% 0% 6.00x 5.00x 4.00x 3.00x 2.00x 1.00x 0.00x DOC Threshold DOC Threshold Dividends as % of FFO Secured Debt Ratio 100% 80% 60% 40% 20% 0% 35% 30% 25% 20% 15% 10% 5% 0% DOC Threshold DOC Threshold 15

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