Information as of June 30, 2014, unless otherwise disclosed.

Transcription

1 July 2014

2 In addition to the historical information contained within, the matters discussed in this presentation contain forward-looking statements that involve estimates, assumptions, risks and uncertainties. These risks are discussed in filings with the Securities and Exchange Commission by Healthcare Realty Trust, including its Annual Report on Form 10-K for the year ended December 31, 2013 under the heading Risk Factors, and as may be updated in its Quarterly Reports on Form 10-Q filed thereafter. Forward-looking statements represent the Company s judgment as of the date of this presentation. The Company disclaims any obligation to update forward-looking material. Information as of June 30, 2014, unless otherwise disclosed.

3 The Big Picture $3.2 B 14.3M 9.7 M INVESTED IN 202 PROPERTIES AND MORTGAGES SQUARE FEET OWNED IN 29 STATES SQUARE FEET MANAGED INTERNALLY 83% MEDICAL OFFICE AND OUTPATIENT 81% ON/ADJACENT TO HOSPITAL CAMPUSES TOP LOCATIONS SQ FT % Dallas/Fort Worth 2,348, % Charlotte 820, % Nashville 794, % Denver/Colorado Springs 724, % San Antonio 689, % Houston 591, % Indianapolis 558, % Richmond, Virginia 558, % Los Angeles 551, % Des Moines 532, % 3

4 Health System Affiliations (CHI) With nearly 80% of its portfolio associated with credit rated health systems, Healthcare Realty is aligned with well-established providers who have the resources to adapt to reform. INVESTMENT GRADE AFFILIATIONS ASSOC. SQ FT % (CHI) (Ascension) Baylor Scott & White Health 2,357, % Ascension Health 1,167, % Catholic Health Initiative (CHI) 901, % Carolinas HealthCare System 729, % Bon Secours Health System 548, % Baptist Memorial Health Care 515, % Mercy 386, % Indiana University Health 382, % University of Colorado Health 345, % CHE Trinity Health 278, % 4

5 Portfolio History $3,500 3, Acquired Baylor Healthcare Portfolio 2007 Sold Senior Living Facilities and paid special dividend of $4.75 per share 2008 Acquired Carolinas Healthcare System Portfolio 2011 Acquired Bon Secours Portfolio 2, Acquired Capstone Capital Corporation ASSETS (in millions) 2,000 1, Acquired Starr Sanders Johnson 1, % MOB 27% MULTI-TENANT 51,000 AVG SF/ BUILDING 68% MOB 60% MULTI-TENANT 54,000 AVG SF/ BUILDING 83% MOB 84% MULTI-TENANT 70,000 AVG SF/ BUILDING MEDICAL OFFICE BUILDING SPECIALITY INPATIENT SENIOR HOUSING OTHER 5

6 Industry Landscape MORE THAN $1 TRILLION OF HEALTHCARE REAL ESTATE VALUE ACUTE CARE ACUITY Hospitals $304B IRF $15B LTAC $18B RESIDENTIAL CARE OUTPATIENT CARE MOB/Outpatient $183B Skilled Nursing $104B RECOVERY & REHABILITATION Senior Housing $163B Hospital-Based Outpatient $45B Small Physician Clinics $220B SETTING Source: Sg2 and Stifel Nicolaus 6

7 Who Owns MOBs? % OF MOBS IN PORTFOLIO (1) 13% 17% 16% 14% 32% 83% 89% 1% 1% 55% HCP VTR (3) HCN DRE SNH (2) OHI HR HTA MPW NHI HCT (3) LTC SBRA % Multi-tenant % On-campus HR 81 HTA 75 Avg building size HR 72k SF HR HTA 48k SF HTA (1) Includes only public REITs (2) Includes MOBs, Life Science, and other medical use buildings MOB STATS (3) On June 2, 2014, VTR announced that it will acquire HCT Source: Company Filings 7

8 Size of MOB Market TOTAL OUTPATIENT/ MOB MARKET AVERAGE ANNUAL SALES NEW DEVELOPMENT EACH YEAR $283B* $6.1B $4B-6B REITs $20B Investor-owned $57B Non- REITs $37B Hospital-owned $226B TOP SELLERS Cogdell Spencer ( ) $709M WRIT 480M ARCT 413M Seavest 342M LaSalle 331M Development projects, more so than acquisitions, foster hospital relationships. Hospital-owned facilities are rarely for sale. * Total outpatient/mob market excludes government and most small physician clinics Source: RBC Capital Markets; Stifel Nicolaus; Real Capital Analytics; Modern Healthcare 8

9 Booming Demand The aging population and increased utilization are expected to drive higher volumes of outpatient visits. ANNUAL PHYSICIAN OFFICE VISITS BY AGE < Visits 13.8% HC Exp. % of GDP 19.9% 20.3% % over 65yr. old Visits 12.4% > Visits Healthcare employment continues to increase to meet growing demand. PATIENT VISITS BY YEAR (IN MILLIONS) EMPLOYMENT CHANGE SINCE Outpatient Visits 30% 20% + 30% Outpatient Care Centers + 15% Ambulatory (all outpatient facilities) 300 Inpatient Days 10% 0% % Healthcare Jobs + 9% Office of Physicians + 3% Total US Employment % Source: CMS.gov, US Centers for Disease Control and Prevention, US Census Bureau, AHA Hospital Statistics, BLS.gov 9

10 Provider Trends To reduce costs, hospitals are aligning with physicians and shifting more procedures to outpatient settings. Healthcare Realty's portfolio is positioned to benefit from these structural changes. Hospitals' Gross Revenue INPATIENT vs OUTPATIENT % 43% PRACT ICES OWNED BY PHYSICIANS % PRACTICES OWNED BY HOSPITALS % 0% % Source: Dixon Hughes Goodman, AHA Annual Survey data for Community hospitals 10

11 Topography Proximity to hospital drives long-term value and lowers risk. Healthcare Realty has strategically shifted its portfolio toward lower-risk, on-campus medical office buildings. O F F - C A M P U S O F F - C A M P U S A F F I L I A T E D N E A R - C A M P U S O N - C A M P U S HOSPITAL HIGHER RISK HR S % ON/ADJ TO CAMPUS BY SQUARE FEET LOWER FUNGIBILITY WHY ON-CAMPUS MATTERS ON-CAMPUS OFF-CAMPUS Occupancy* 87.6% 84.4% LOW-FUNGIBILITY: Having a unique quality which cannot be replaced exactly. Tenant Retention* 82.9% 78.1% Re-leasing Spread* 3.4% 2.3% * HR results from

12 Intrinsic Real Estate Value vs. Leasehold Value Intrinsic Real Estate Value Demand-driven Low fungibility Perpetual cash flow Duration: infinite PRICE (RENT) Multi-tenant building in dense location with strong demand. DEMAND > SUPPLY SUPPLY > DEMAND QUANTITY (SF) Credit worthy single tenant in location with few replacement tenants. Leasehold Value Credit-driven High fungibility Rent exceeds market Renewal roll down (terminal value risk) Duration: lease term (finite) 12

13 Rent Cushion MOB rent coverage provides a buffer against reimbursement changes. > 9 X > 6 X 3.4X 3 X COVERAGE RATIO 1.2X 1.5X RENT CUSHION * RENT ( 1x) Assisted Living/ Independent Living Skilled Nursing Facility Inpatient Rehab Facility Acute Care Hospital Surgical Hospital Medical Office Building * Rent Cushion (8x) = Coverage ratio (9X) - rent (1X) Source: Stifel Nicolaus; Company Filings; MGMA 13

14 Tenant Diversity HEALTHCARE REALTY S AVERAGE TENANT SIZE = 4,445 SF 0-2,500 SF 2,501-5,000 SF 5,001-7,500 SF 7,501-10,000 SF 10,000+ SF Healthcare Realty Tenant Specialties Allergy Anesthesiology Audiology Bariatric Surgery Cardio/Thoracic Surgery Cardiology Colon and Rectal Surgery Dermatology Endocrinology Family Practice Gastroenterology General Surgery Hematology/Oncology Infectious Disease Internal Medicine Neonatology Nephrology Neurology Neurosurgery Obstetrics/Gynecology Ophthalmology Orthopedics Otolaryngology Pain Management Pediatrics Physical Therapy Plastic Surgery Podiatry Psychology/Psychiatry Pulmonary Medicine Radiology Reproductive Endocrinlogy Rheumatology Sports Medicine Urology Vascular Surgery Healthcare Realty reduces risk through tenant size and diversity of medical specialties. 14

15 Historical Investment Activity Total Assets with New Investments Cumulative New Investments: $1.8B $3.2B $2.1B $111M $316M $96M $81M $2,081M $2.3B $2.6B $84M $305M $2,220M $2.9B $141M $190M $2,541M $3.0B $84M $95M $2,800M $59M $217M $2,911M D E V E L O P M E N T $ M 32% 68% A C Q U I S I T I O N $ $1,637M 1, M ANNUAL AVERAGE OF NEW INVESTMENTS: $297M DEVELOPMENT ACQUISITION 2013 Since 2007, Healthcare Realty has invested nearly $1.8B in quality assets, more than doubling its asset base, reducing risk and increasing long-term value. 15

16 MOB Differentiation Healthcare Realty s assets are predominately in the top two quadrants. LOWEST RISK 6.5-7% 6-6.5% Healthcare Demand/Need PHYSICIAN OFFICE VISITS INPATIENT PROCEDURES Beyond market dynamics, asset and portfolio value is a function of asset-specific attributes, including: PHYSICIAN NEED RECENT ACQUISITIONS HR PORTFOLIO HIGHEST RISK 7.5% + INCOME INSURED POPULATION / PAYOR MIX POPULATION GROWTH Patient Affluence 7-7.5% On/off campus Hospital strength Tenant mix Building size Ground lease vs. fee simple Building condition/functionality Competition Parking Financial measures: Growth profile Lease rates Capital needs Operating expenses Lease turnover/expirations HR DEVELOPMENT CONVERSIONS % HR S ESTIMATED CAP RATE RANGE Source: Montecito Research & Analytics 16

17 Recent MOB Acquisitions FIRST HILL SEATTLE 82,000 SQ FT Adjacent to Swedish Medical Center, part of AA rated Providence Health & Services. FRIDLEY MEDICAL CENTER MINNEAPOLIS 60,000 SQ FT On campus and attached to Unity Hospital, part of AArated Allina Health. SAINT JOSEPH REGIONAL MEDICAL CENTER MOB SOUTH BEND 206,000 SQ FT On campus and attached to Saint Joseph Regional Medical Center, part of AA- rated CHE Trinity. MEDICAL CENTER OF THE ROCKIES MOB I AND II LOVELAND (DENVER) 150,000 SQ FT On campus and attached to A+ rated University of Colorado Health's Medical Center of the Rockies. SUMMIT CROSSING GASTONIA (CHARLOTTE) 91,000 SQ FT Adjacent to AA- rated CaroMont Health Regional Medical Center. WESLEY LONG PROFESSIONAL BUILDING GREENSBORO 35,000 SQ FT On the campus of Wesley Long Hospital, part of AA rated Cone Health. Healthcare Realty targets on-campus, multi-tenant MOBs associated with market-leading hospitals. JEFFERSON MOB AUSTIN 98,000 SQ FT Affiliated with Seton Healthcare, part of AA+ rated Ascension Health WOLF RIVER GERMANTOWN (MEMPHIS) 52,000 SQ FT Adjacent to 39,000 SQ FT MOB purchased in October Affiliated with AA- rated Baptist Memorial Health Care. AUSTIN MEDICAL PLAZA AUSTIN 48,000 SQ FT On the campus of Seton Medical Center, part of AA+ rated Ascension Health. 17

18 Mercy Health Projects These two built-to-suit facilities are complete and are 100% leased to "AA-" rated Mercy Health, a Saint Louis based health system. COMPREHENSIVE OUTPATIENT FACILITY ORTHOPEDIC SURGICAL FACILITY Oklahoma City, OK Springfield, MO SIZE 200,000 SQ FT SIZE 186,000 SQ FT TOTAL PROJECT COST $91.2M (1) TOTAL PROJECT COST $111.4M (2) CONVERSION DATE May 22, 2014 CONVERSION DATE September 27, Q14 INTEREST / RENTAL INCOME $1.7M 2Q14 RENTAL INCOME $2.3M 3Q14 RENTAL INCOME $1.8M (1) Healthcare Realty purchased for $85.4M and subsequent to purchase the Company funded an additional $1.7M and anticipates funding an additional $4.1M in (2) Healthcare Realty purchased for $102.6M and subsequent to purchase the Company funded an additional $8.8M. 18

19 Growth Strategies HIGHER RISK DEVELOP MOBs Newer assets Growth markets Leading health systems Slower timeline MERGERS AND ACQUISITIONS NEW ASSET TYPES Development Portfolio Shift LOWER RETURN HIGHER RETURN Internal Growth Acquisitions As a pure-play REIT, Healthcare Realty is focused on maintaining a strong internal growth profile, supplemented by disciplined acquisitions and selective developments. LEASING DISPOSITIONS REDEVELOPMENT EXPENSE CONTROL CAPITAL IMPROVEMENTS LOWER RISK ACQUIRE MOBs Tight spreads Immediate accretion Quality vs. quantity Capital market risk 19

20 Portfolio Management $3.1 BILLION OF ASSETS * DEVELOPMENT CONVERSIONS RECENT ACQUISITIONS Like recent acquisitions, the development properties are stabilized and will be included in same store in 1Q LEASE-UP STABILIZED PROPERTIES DISPOSITION CIP NON-CORE ASSETS 0% 96% 4% $3,019M Gross Investment $120M Net Book Value * Excludes land held for development and corporate property 20

21 Stabilized Properties RECENT ACQUISITIONS (1) $459M Invested 1.3M SQ FT 13 Properties 96% occupied 7% yield on cost DEVELOPMENT CONVERSIONS $441M Invested 1.3M SQ FT 12 Properties 82% leased, 70% occupied $25M-30M of estimated NOI at stabilization $4.1M quarterly NOI as of Q (2) $5-10M in remaining TI funding in 2014 SAME STORE PROPERTIES $2.1B Invested 10.5M SQ FT 156 Properties > 8% yield on cost 91% occupied $176M annualized NOI 2-4% NOI growth profile 19% single-tenant net lease 81% multi-tenant STABILIZED PROPERTIES 96% OF ASSETS (1) Properties acquired during the prior five quarters, not included in same store (2) Adjusted to reflect NOI if all occupants at June 30, 2014 had taken occupancy and paid rent for the entire quarter 21

22 Non-Core Assets DEVELOPMENT CONVERSIONS RECENT ACQUISITIONS Through routine asset management, Healthcare Realty recycles capital into new assets. The Company projects $40M-$60M in dispositions in LEASE-UP 2014 DISPOSITIONS CIP STABILIZED PROPERTIES NON-CORE ASSETS 4% DISPOSITION $6.2M sales price 2 off campus MOBs 111k square feet 60% occupied 48% Occupied $120M net book value $2.6M annual NOI 22 MOBs (including 3 assets held for sale) 1.3M square feet 43% off campus Largest concentrations: Nashville, Dallas, New Orleans, Los Angeles, Chicago, St. Louis 22

23 Portfolio Trends DEVELOPMENT LEASE UP 82% SAME STORE OCCUPANCY 100% 100% 51% Leased Occupied 70% 87% STNL * 88% Multi-Tenant 33% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q CONTRACTUAL RENT INCREASES YEAR-OVER-YEAR SAME STORE NOI GROWTH 3.1% Multi-Tenant 3.0% 2.1% Average: 2.1% 2.5% STNL * 2.2% 2.1% Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q * Single-tenant net lease 23

24 Releasing Yield Releasing yield captures the overall economics of leases renewed, whereas releasing spreads only reflect one factor. Cash Releasing Spread Average $26.95 $27.64 Releasing Yield Average* 10.5% 11.0% OLD RENT TERM NEW RENT TENANT IMPROVEMENTS GROSS INVESTMENT RENT CONCESSIONS RENT BUMP LEASING COMMISSIONS * Not indicative of overall yield because it does not reflect any vacancy 24

25 Debt-to-EBITDA Assuming debt-to-ebitda is held constant, riskier assets would perversely support higher debt levels. DEBT LEVEL * DEBT LEVEL * DEBT EBITDA Cap Rate DEBT EBITDA Cap Rate MOB SH IRF SNF HOSP. MOB SH IRF SNF HOSP. RISK RISK Assuming equal debt levels, safer lower-yielding assets will result in higher debt-to-ebitda. * Debt level is debt as a percentage of total capital 25

26 Capital Stack and Maturities $89M 1.55% April 2017 Revolver (1) $200M 1.60% February 2019 DEBT METRICS Q Annualized Stabilized (3) 4.73% BLENDED COST OF DEBT Term loan due 2019 $163M Mortgage Notes Payable (1) $299M Senior Notes Due 2017 $398M 5.47% 6.62% 5.86% January 2017 November 2017 January 2021 Fixed Charge Coverage Ratio 2.8x 3.0x Debt Service Coverage 3.1x 3.2x Debt to EBITDA 6.4x 6.0x Debt to Total Assets 42.6% NA Senior Notes Due 2021 $248M 3.85% April 2023 Senior Notes Due 2023 $2,464M (2) Equity Market Value 0 YRS MATURITY 10 YRS $3,861 MILLION Total Capitalization (1) Balance as of June 30, 2014 (2) Based on closing price of $25.28 on July 28, 2014 and 97,461,515 shares outstanding as of July 25, 2014 (3) Reflects the stabilization of the 12 properties in development conversion using the midpoint of an estimated $25-30M of NOI from the properties 26

27 Healthcare Realty Healthcare Realty Trust is a real estate investment trust that integrates owning, managing, financing and developing real estate properties associated primarily with the delivery of outpatient healthcare services throughout the United States. The Company had investments of approximately $3.2 billion in 202 real estate properties and mortgages as of June 30, The Company s 200 owned real estate properties are located in 29 states and total approximately 14.3 million square feet. The Company provided property management services to approximately 9.7 million square feet nationwide. 27