MEDICAL FACILITIES CORPORATION June 2014
FORWARD LOOKING STATEMENTS This presentation may contain forward-looking statements within the meaning of certain securities laws, including the safe harbour provisions of the Securities Act (Ontario) and other provincial securities law in Canada. These forward-looking statements include, among others, statements with respect to our objectives, goals and strategies to achieve those objectives and goals, as well as statements with respect to our beliefs, plans, objectives, expectations, anticipations, estimates and intentions. The words may, will, could, should, would, suspect, outlook, believe, plan, anticipate, estimate, expect, intend, forecast, objective and continue (or the negative thereof), and words and expressions of similar import, are intended to identify forward-looking statements. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these forward-looking statements. For more information on the risk factors related to these forward-looking statements, please refer to the management discussion and analysis section of Medical Facilities Corporation s AIF, Annual Report and ongoing quarterly filings. 2
INVESTMENT HIGHLIGHTS HIGH-YIELD INVESTMENT (~6%) ATTRACTIVE MARKETS WITH STRONG ECONOMIES STABLE CASH FLOW HIGHLY-RATED, HIGH-QUALITY FACILITIES FAVORABLE INDUSTRY GROWTH DRIVERS EXPERIENCED MANAGEMENT TEAM AND BOARD 3
COMPANY OVERVIEW Majority ownership in five specialty surgical hospitals and one ambulatory surgery center High dividend-yield stock (TSX: DR) Current yield: 6.4% Market Cap: C$552M Strong, stable cash flow 4
INDUSTRY BACKGROUND U.S. SURGICAL FACILITIES Generic Hospital Sioux falls exterior picture Traditional Hospitals Specialty Surgical Hospitals (SSHs) Ambulatory Surgical Centers (ASCs) Full-service hospital (diagnostic & surgical) Inpatient and outpatient Over 60% are not-for-profit Most specialize in orthopedics, spine, ENT Inpatient and outpatient ~ 300 SSHs Outpatient only > 6,000 ASCs 5
INDUSTRY BACKGROUND Inpatient Outpatient Procedures requiring overnight stays: Total joint replacements Lumbar fusions Anterior cervical fusions Patient leaves facility on same day after: Pain treatment Colonoscopy Ear, nose, throat Knee scope 6
FACILITY REVENUE MODEL Facility Fee MFC FACILITY 51% of profit MFC 49% of profit PAYOR Public, Private Insurance, Self Pay Professional Fees ANESTHESIA Private Anesthesia LLC PHYSICIAN- OWNERS PHYSICIAN Private Surgeon LLC 7
MFC S STAKEHOLDERS Patient Physician Highest quality care Hotel-like environment Extraordinary customer service Predictable scheduling Ownership stake Increased productivity Improved professional income Involvement in management Payor Investor Competitive rates Efficient billing procedures Stable, secure income High-yielding investment 8
SUPERIOR OPERATIONS Traditional MFC Hospitals Day-to-day operations run by Administration Physicians Types of surgeries performed Emergency & elective Only elective Admissions & scheduling Emergency & elective Predictable & certain Average operating room turnaround time Average patient time in post-op care 60 min <20 min 7 days Hours - 1 day 9
LEADING-EDGE FACILITIES HOTEL-INSPIRED ENVIRONMENT WITH ADVANCED MEDICAL TECHNOLOGIES 10
SPECIALTY SURGICAL HOSPITALS 3 Our physician owned hospitals benefit from direct physician involvement in facility management resulting in SUPERIOR PROCESSES AND EFFICIENCIES 1 1 Specialty Surgical Hospitals have consistently demonstrated HIGHER PATIENT SATISFACTION ratings resulting from HIGHER QUALITY OF CARE RECEIVED Facility Operating Since Acquired Operating Rooms Overnight Rooms Square Feet Sioux Falls Specialty Hospital 1985 2004 13 35 76,000 Black Hills Surgical Hospital 1997 2004 11 26 75,000 Dakota Plains Surgical Center 1998 2004 3 15 19,000 Oklahoma Spine Hospital 1999 2005 7 25 61,000 Arkansas Surgical Hospital 2001 2012 9 41* 126,000 * 51 licensed beds 11
WELL-SITUATED IN CURRENT MARKETS Unemployment Rate (%) U.S. South Dakota Oklahoma Arkansas 2012 7.8 4.4 5.2 7.3 2011 8.5 4.8 5.9 7.9 65 and Over (% of population) 2012 13.7 14.7 14.0 15.0 Situated in geographic regions that have proven to be resilient against challenging economic environments These regions continue to demonstrate unemployment rates lower than the national average MFC physicians and staff are integral part of our success, they provide patients with innovative treatments and optimal service 12
IMPACTS OF OBAMACARE Restrictions on Physician Ownership MFC hospitals grandfathered Physical plan expansion limited (ORs and number of beds) Aggregate percentage of physician ownership is capped Number of physician owners can increase Pressure on reimbursement rates Increase in Medicare/Medicaid patients 13
INDUSTRY DRIVERS AND OTHER FACTORS Under 45 years 45 to 64 years 65 years and over National Health Expenditure (US$ billion) (millions) 400 (US$ billion) 5,000 Increased demand for surgical services Overall population growth Population 300 200 100 4,000 3,000 2,000 1,000 National Health Expenditure Aging population Expanded coverage under healthcare reform Specialty hospitals: consistent higher quality and patient satisfaction ratings Healthcare reform may pose some challenges, uncertainties, and opportunities ~300 specialty hospitals grandfathered provide acquisition opportunities 0 2010 2015E 2020E 0 But specialty hospitals that survive will be stronger 1 Source: U.S. Census Bureau, 2010 based on National Population Projections 2008; 2015 & 2020 based on National Population Projections 2012 2 Source: Centers for Medicare & Medicaid Services, National Health Expenditure Projections 2011-2021 14
GROWTH BY BUILDING OUR BRAND URGENT CARE + PRIMARY CARE SPECIALIST PATIENT MFC SPECIALTY HOSPITALS IMAGING Surgery Pain Management 15
THROUGH URGENT & PRIMARY CARE 16
SELECTIVE ACQUISITIONS Change pic to something less similar Accretive metrics Strong operating performance Balanced composition of physicians Attractive markets (demographics, location) 17
FINANCIAL REVIEW 18
MFC PAYOR MIX 2013 Medicare/ Medicaid Blue Cross/ Blue Shield Workers Compensation Other Private Insurance and Self-pay 11% 10% 29% 29% 27% 37% 33% 24% GROSS BILLINGS NET REVENUE 19
OPERATING RESULTS (US$ millions, except where noted otherwise) Q1 2014 Q1 2013 % REVENUE $72.9 $72.9 -- INCOME FROM OPERATIONS* $18.1 $20.1 (11.5)% OPERATING MARGIN 24.8% 28.0% (11.5)% CASH AVAILABLE FOR DISTRIBUTION (C$ MILLIONS) $9.0 $8.7 3.5% PAYOUT RATIO 98.3% 92.2% 6.6% * Income from operations before amortization of intangibles, interest expense, gains or losses on foreign currency translation, other non-operating income and expenses and non-controlling interest 20
CASH AVAILABLE FOR DISTRIBUTION BEFORE FOREX (US$) 0.40 0.37 0.42 0.34 0.33 0.33 0.28 0.29 0.28 0.26 0.31 0.30 0.29 0.29 0.28 0.29 0.27 0.29 0.30 0.29 0.28 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14
STRONG FINANCIAL POSITION Q1 2014 Consolidated Balance Sheet (US$ millions) Current Assets Cash & Cash Equivalents, Short-Term Investments Other Current Assets $41.5 $52.8 $41.1 $42.2 $148.4 Long-term Debt (including current portion) Convertible Debentures Other Liabilities Total Liabilities Non-Current Assets $330.3 $193.0 Total Equity 1.7x Current Ratio 59.1% Net Debt/Equity 2.54x Subsidiary Debt Coverage (LTM) * 7.5% Convertible Debentures with approximately C$38.5 million principal amount outstanding as of March 28, 2013 expired on April 30, 2013. 22
STRONG CASH FLOW Distributions Cash Available for Distribution (including realized gains/losses on FX forward contracts) Cash Available for Distribution (Excluding realized gains/losses on FX forward contracts) (C$ millions) 37.8 38.6 37.9 37.1 37.8 33.8 33.3 31.2 31.2 31.2 31.5 35.7 34.4 40.8 40.8 84.3 % 2013 PAYOUT RATIO* 2009 2010 2011 2012 2013 Payout Ratio* 82.6% 82.5% 92.3% 83.3% 84.3% *Including realized gains/losses of FX forward contracts 23
OUR STRENGTHS Exceptional Patient Care Experience Luxurious Hotel-Inspired Amenities Long-Term Reliable Dividend 24
MEDICAL FACILITIES CORPORATION June 2014 www.medicalfacilitiescorp.ca