OFFERING MEMORANDUM MEDICAL OFFICE BUILDING RALEIGH, NC

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1 OFFERING MEMORANDUM MEDICAL OFFICE BUILDING RALEIGH, NC PO Box 6309 Raleigh, NC

2 TABLE OF CONTENTS Executive Summary Property Details... 6 Cash Flows Financial Summary

EXECUTIVE SUMMARY OPPORTUNITY BACKGROUND Atlas Stark Holdings is pleased to present for your consideration the Wake Dialysis Center and NC Nephrology medical office building located at 3604 Bush

3 EXECUTIVE SUMMARY OPPORTUNITY BACKGROUND Atlas Stark Holdings is pleased to present for your consideration the Wake Dialysis Center and NC Nephrology medical office building located at 3604 Bush Street in Raleigh, NC. Location RSF 12-mo. forward NOI 1 Wake Dialysis Center (1st floor) NC Nephrology Associates (2nd floor) 22,775 RSF 8,532 RSF Total building 31,307 RSF $663, The lease at this building is corporately guaranteed by Fresenius Medical Care (FMC), the largest provider of dialysis care in the world. The second floor of the Wake Dialysis Center is home to the headquarters of NC Nephrology Associates, the pre-eminent nephrology practice in the Research Triangle Region of North Carolina. As NC Nephrology doctors act as the Medical Directors of Record for Fresenius, the co-location of these tenants incentivizes both parties to remain at this location long-term. DEAL TERMS The Seller s priorities are overall value and the potential buyer s ability to close in a timely fashion. Asking price is $10.1M. Trey Adams Atlas Stark Holdings LLC ext. 101 tadams@atlasstark.com Jon Keener Trustwell Property Group jon@trustwellgroup.com 1

EXECUTIVE SUMMARY INVESTMENT HIGHLIGHTS Opportunity to purchase the Wake Dialysis Center, a 31,307 RSF medical office building in the rapidly growing Research Triangle

Triangle Region is experiencing rapid growth in population and demand for dialysis care Investment stability due to government regulations & strength of medical office

4 EXECUTIVE SUMMARY INVESTMENT HIGHLIGHTS Opportunity to purchase the Wake Dialysis Center, a 31,307 RSF medical office building in the rapidly growing Research Triangle Region of North Carolina. Triangle Region is experiencing rapid growth in population and demand for dialysis care Investment stability due to government regulations & strength of medical office sector Key location for Fresenius corporate strategy National, credit-worthy tenant Fresenius Medical Care, who provides a corporate guarantee to the Clinic lease. INVESTMENT HIGHLIGHTS Total Square Footage 31,307 GSF NOI $663K Asking Price $10.1M Base Term Remaining 5 years Renewal Options 2 (5-year) Certified Stations 50 2

EXECUTIVE SUMMARY INVESTMENT HIGHLIGHTS TRIANGLE REGION EXPERIENCING RAPID GROWTH IN POPULATION AND DEMAND FOR DIALYSIS CARE The Triangle Region has seen unprecedented growth in the last decade, with

This growth, which has spread throughout the region, makes the current market for real estate incredibly favorable to investors and owners alike.

5 EXECUTIVE SUMMARY INVESTMENT HIGHLIGHTS TRIANGLE REGION EXPERIENCING RAPID GROWTH IN POPULATION AND DEMAND FOR DIALYSIS CARE The Triangle Region has seen unprecedented growth in the last decade, with Raleigh being consistently named among the Fastest Growing Cities in the United States. (#14, US Census Bureau, 2017). This growth, which has spread throughout the region, makes the current market for real estate incredibly favorable to investors and owners alike. Coupled with low financing rates still attainable for qualified purchasers, this environment has led to a rapidly dwindling supply of high quality investment properties. The population growth is also evident in the region s dialysis numbers. NC Nephrology s dialysis patient population is growing by five percent (5%) annually. INVESTMENT STABILITY DUE TO GOVERNMENT REGULATIONS & STRENGTH OF MEDICAL OFFICE SECTOR The medical sector has been an especially attractive investment market, as investors pursue the stability of long term professional leases associated with medical office buildings. Capitalization rates continue to be very strong for medical office buildings. Within the MOB category, dialysis centers are the strongest group trading nationally at an average of 6.13% (Stan Johnson Co. Pulse Report June 2017), which speaks to the stability and longevity of these buildings in terms of value. Dialysis properties in North Carolina have another degree of inherent stability due to the state government regulations surrounding the Certificate of Need (CON) process. The cumbersome CON process effectively prevents local competition and enhances the quality of even shortterm leases because of the difficulty in simply moving a CON, let alone being granted a new one. In the last twenty-five (25) years Fresenius has relocated only two (2) facilities in this region. Since the federal government began covering dialysis treatments in 1973, federal underwriting of dialysis treatment has grown to $34B, or approximately 1% of the total Federal Budget as of With government regulations protecting the locations and the government payment structures protecting the operators ability to support these locations, the Wake Dialysis property represents a particularly unique and attractive opportunity for commercial investors in this growing market. 3

EXECUTIVE SUMMARY INVESTMENT HIGHLIGHTS KEY LOCATION FOR FRESENIUS CORPORATE STRATEGY This property is operated under an exclusive Certificate of Need (CON), which is owned by Fresenius Medical Care.

6 EXECUTIVE SUMMARY INVESTMENT HIGHLIGHTS KEY LOCATION FOR FRESENIUS CORPORATE STRATEGY This property is operated under an exclusive Certificate of Need (CON), which is owned by Fresenius Medical Care. In order to apply for a CON, the utilization rate for each dialysis center county-wide must exceed 80% (or 3.2 patients per station). FMC tries to keep utilization rates at their locations in North Carolina below this threshold in order to limit competition from entering the market. This property is an important hub location for implementing this strategy. There are several methods that FMC uses to manipulate utilization rates at their hub locations to expand their business without facing competition including: Per CON law, FMC can move stations to other new locations in order to expand to different areas in a county. With 50 certified stations, Wake Dialysis Clinic serves as a primary hub for expansion in the region. FMC transfers stations certified under this CON to new satellite locations then applies for new stations at this hub location after utilization rates rise again. FMC can add stations to existing clinics by applying for expansion once an 80% utilization rate at an individual clinic has been achieved. If a property increases the number of stations but keeps the same number of patients, this will drop the utilization rate at that facility. FMC can move patients to other new locations. If FMC moves patients to new locations without increasing the number of stations, the utilization rate will drop at that facility. Certified Stations In-Center Patients Utilization Rate (June 2017) Patients Per Station Wake Dialysis Center %

people with chronic kidney failure. The company generates net revenue of over $17.9 billion.

7 EXECUTIVE SUMMARY INVESTMENT HIGHLIGHTS This lease is corporately guaranteed by Fresenius Medical Care. FMC IS A NATIONAL CREDIT TENANT Listed on both the Frankfurt Stock Exchange (FME) and New York Stock Exchange (NYSE: FMS), Fresenius is the world s leading provider of products and services for people with chronic kidney failure. The company generates net revenue of over $17.9 billion. During 2016, the company cared for more than 310,473 dialysis patients at their 3,654 proprietary clinics located in 45 countries worldwide. Fresenius is also the leading provider of dialysis products including dialysis machines, dialyzers and disposable accessories made at their 37 manufacturing sites around the globe. Fully fifty percent (50%) of the world s operating dialysis machines are produced by Fresenius. In January 2015, Fresenius was upgraded to "Investment-Grade" credit by Standard and Poor's. They currently have a rating of BBB- with a stable outlook. UNITED STATES GLOBAL LEADER 190,000+ US PATIENTS SERVED 50+ STATES AND TERRITORIES IN OUR NETWORK 2,200+ US DIALYSIS CLINICS 2 DECADES OF HEALTHCARE LEADERHIP 26M ANNUAL HEMODIALYSIS TREATMENT EQUIVALENTS IN NORTH AMERICA 60,000+ US EMPLOYEES 3,654 Clinics 310,473 Patients Waltham, Waltham, US US 17,911 Revenue in $M 46,529,154 Dialysis Treatments 110,530 Employees Bad, Homburg, GER Hong Kong, CN 37 Production sites Source: 5

PROPERTY DETAILS WAKE DIALYSIS & NC NEPHROLOGY PROPERTY SUMMARY Wake Dialysis Center is the primary hub for the growth of FMC s operations in the Triangle.

8 PROPERTY DETAILS WAKE DIALYSIS & NC NEPHROLOGY PROPERTY SUMMARY Wake Dialysis Center is the primary hub for the growth of FMC s operations in the Triangle. FMC transfers stations certified under this location s CON to new satellite centers then applies for new stations at this hub location after utilization rates rise again. This process allows FMC to add stations and locations within the CON process with better success, and helps limit competitors from entering the market. In 2016, FMC renewed their NNN lease and completed interior renovations to their space. The current lease runs through 2023 and has two (2) five (5)-year renewal options. This building includes a separate office suite on the second floor leased by NC Nephrology Associates, who act as the Medical Directors for this clinic as well as three others in a regional portfolio. NC Nephrology offices are on a full service gross lease. PROPERTY DETAILS Owner Address Total Building Size Year Built Wake Dialysis Rentable Square Feet Type Current Rent PSF Expiration Renewals Certified Stations Patient Utilization Rate NC Nephrology Offices (2nd Floor) Rentable Square Feet Type Current Rent PSF Expiration Renewals Combined NOI (12-month forward) Dialysis Owners, LLC 3604 Bush Street Raleigh, NC 31,307 GSF ,775 NNN $22.55 (2.5% annual escalation in July) 6/30/2023 Two (2) Five (5)-year % (June 2017) 8,532 Full Service Gross $22.50 (no escalation) 6/30/2021 (likely will be extended to 6/30/2023) None $663,

PROPERTY DETAILS WAKE DIALYSIS & NC NEPHROLOGY NORTH HILLS 34 acre expansion NORTH HILLS

retail / restaurants This property is located right off the I-440 Beltline in Raleigh, NC.

close proximity to major residential, retail, entertainment, and job centers such as North

9 PROPERTY DETAILS WAKE DIALYSIS & NC NEPHROLOGY NORTH HILLS 34 acre expansion NORTH HILLS 1M+ SF office 2 luxury hotels WAKE DIALYSIS 3604 Bush Street 1,300+ residential units 120+ retail / restaurants This property is located right off the I-440 Beltline in Raleigh, NC. It is adjacent to the growing medical office hub surrounding Duke Raleigh Hospital, and in close proximity to major residential, retail, entertainment, and job centers such as North Hills. TRADER JOES WEGMANS Under construction MEDICAL OFFICE SUBMARKET COSTCO WHOLESALE 7

10 CASH FLOWS WAKE & NC NEPH.(12 MONTH FORWARD NOI) Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Totals Fresenius Rent 22,775 $ 43, $ 43, $ 43, $ 43, $ 43, $ 43, $ 43, $ 43, $ 43, $ 43, $ 43, $ 43, $ 526, Fresenius Op Exp 1 $ 4, $ 4, $ 4, $ 4, $ 4, $ 4, $ 4, $ 4, $ 4, $ 4, $ 4, $ 4, $ 56, Wake Nephrology Rent 8,532 $ 16, $ 16, $ 16, $ 16, $ 16, $ 16, $ 16, $ 16, $ 16, $ 16, $ 16, $ 16, $ 192, Wake Nephrology Op Exp 3 Total Rent $ 59, $ 59, $ 59, $ 59, $ 59, $ 59, $ 59, $ 59, $ 59, $ 59, $ 59, $ 59, $ 718, Total Op Exp $ 4, $ 4, $ 4, $ 4, $ 4, $ 4, $ 4, $ 4, $ 4, $ 4, $ 4, $ 4, $ 56, Optg. Exp. Reimbursements Utility Reimbursements 2 $ 7, $ 7, $ 7, $ 8, $ 7, $ 6, $ 7, $ 8, $ 9, $ 8, $ 7, $ 7, $ 92, Total Income $ 72, $ 72, $ 72, $ 72, $ 71, $ 71, $ 71, $ 72, $ 74, $ 72, $ 71, $ 71, $ 867, OPERATING EXPENSES Utilities Electricity $ 4, $ 5, $ 5, $ 3, $ 3, $ 3, $ 4, $ 4, $ 3, $ 3, $ 4, $ 4, $ 50, Water & Sewer $ 5, $ 5, $ 5, $ 5, $ 5, $ 5, $ 5, $ 5, $ 5, $ 5, $ 5, $ 5, $ 61, Gas $ $ $ $ $ 1, $ 1, $ 1, $ 3, $ 1, $ 1, $ $ $ 15, Cleaning & Trash Removal Janitorial HVAC - Maintenance Contract $ $ $ $ $ 3, HVAC - Parts & Maintenance $ $ Elevators $ $ $ 2, $ $ 4, Property Tax $ 3, $ 3, $ 3, $ 3, $ 3, $ 3, $ 3, $ 3, $ 3, $ 3, $ 3, $ 3, $ 43, Common Area Maintenance & Management Bldg Engineer $ $ $ $ $ Mgmt. Fees $ $ $ $ $ $ $ $ $ $ $ $ $ 9, Bldg Maint $ 1, $ 1, $ 1, $ 1, $ 4, Pest Control Snow Removal Landscape-Ext $ $ $ $ $ $ $ $ $ $ $ $ $ 6, Landscape - seasonal Insurance $ 5, $ 5, HOA Dues Total Operating Expenses $ 18, $ 15, $ 16, $ 17, $ 14, $ 20, $ 20, $ 17, $ 16, $ 17, $ 14, $ 15, $ 204, Net Operating Income $ 53, $ 56, $ 56, $ 55, $ 57, $ 51, $ 51, $ 54, $ 57, $ 55, $ 56, $ 56, $ 663, ) Fresenius pays landlord a monthly estimate for TICAM ($4,744.79) that covers their pro-rata share (73%) of ALL operating expenses. This TICAM estimate includes taxes, insurance, HVAC maintenance, HVAC repairs below $1,500, property management, building engineer, building maintenance, and landscaping. The landlord reconciles any surplus or deficit at year end. This projection shows the estimate breaking even. 2) Fresenius monthly TICAM estimate does NOT include utilities. Fresenius pays a monthly reimbursement for their pro-rata share (73%) of electric and gas. They pay water and sewer separately. 3) NC Nephrology offices are on a full service gross lease. The landlord is responsible for covering NC Nephrology s pro-rata share (27%) of all TICAM and utilities expenses. 8

11 FINANCIAL SUMMARY LEASE TERMS Wake Dialysis (1st floor) NC Nephrology (2nd floor) TOTAL BUILDING RSF 22,735 8,532 RSF 22,775 8,532 TYPE NNN FSG CURRENT RENT PSF $22.55 $22.50 LEASE EXPIRATION 6/30/2023 6/30/2021 (working on extension to 6/30/2023) ANNUAL ESCALATIONS Jul 1 (2.5%) None RENEWALS Two (2) Five (5) Year None OPTION RENT Fair Market None 9

12 FINANCIAL SUMMARY LEASE VS ACTUAL OPERATING EXPENSES An analysis of the leases may cause confusion in how some operating expenses are actually being handled. Please refer to the chart below to understand these discrepancies. WAKE DIALYSIS Type NNN Full Service Gross Property Taxes Lease: Actual (shown in cash flows): Insurance Lease: Tenant reimburses landlord annually for its prorata share (73%) Included in a TICAM estimate that is paid monthly then reconciled at year-end Tenant pays direct for its own policy, and reimburses annually for its pro-rata share (73%) of land- NC NEPHROLOGY Landlord covers tenant s pro-rata share (27%) Per lease Tenant pays direct for its own policy, and does not reimburse annually for its pro-rata share (27%) Actual (shown in cash flows): HVAC maintenance Lease: Actual (shown in cash flows): Utilities (water, electric, gas, sewer, etc.) Lease: Actual (shown in cash flows): Included in a TICAM estimate that is paid monthly then reconciled at year-end Tenant reimburses landlord annually for maintenance- If repair cost is > $1500, landlord pays at its sole expense Included in a TICAM estimate that is paid monthly then reconciled at year-end EITHER tenant reimburses landlord annually OR tenant pays direct Tenant reimburses landlord monthly for its pro-rata share (73%) Per Lease Landlord covers tenant s pro-rata share (27%) but tenant pays for any extraordinary usage Per Lease Landlord covers tenant s pro-rata share (27%) Per Lease General Maintenance (Landscaping, snow removal, gutters, etc.) Lease: Included in a TICAM estimate that is paid monthly then reconciled at year-end Not explicitly stated Actual (shown in cash flows): Per lease (also includes property taxes, insurance, and HVAC) Landlord covers tenant s pro-rata share (27%) 10

13 CONTACT For questions, additional due diligence information, or property tours please note the following contact information. Trey Adams Atlas Stark Holdings ext. 101 Jon Keener Trustwell Property Group

FULL YEAR 2018 PRESS CONFERENCE FEBRUARY 20, Rice Powell CEO. Copyright

FULL YEAR 2018 PRESS CONFERENCE FEBRUARY 20, 2019 Rice Powell CEO Copyright Safe harbor statement: This presentation includes certain forward-looking statements within the meaning of Section 27A of the