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NAREIT Presentation November 2019
NAREIT PresentationNovember 2019
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This document may contain “forward-looking” statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements concernand are based upon, among other things, the possible expansion of the company’s portfolio; the sale of properties; the performance of its operators/tenants andproperties; 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, ifany; its occupancy rates; its ability to acquire, develop and/or manage properties; the ability to successfully manage the risks associated with international expansionand operations; its ability to make distributions to shareholders; its policies and plans regarding investments, financings and other matters; its tax status as a real estateinvestment 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 offunds; 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-lookingstatements are not guarantees of future performance and involve risks and uncertainties. The company’s expected results may not be achieved, and actual results maydiffer 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 capitalmarkets, 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 andother insurance; changes in financing terms; competition within the healthcare, seniors housing and life science industries; negative developments in the operatingresults 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 facilitieswith 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-leasespace 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 licenseswithout unexpected delays or conditions; the company’s ability to timely reinvest sale proceeds at similar rates to assets sold; operator/tenant or joint venture partnerbankruptcies or insolvencies; the cooperation of joint venture partners; government regulations affecting Medicare and Medicaid reimbursement rates and operationalrequirements; regulatory approval and market acceptance of the products and technologies of life science tenants; liability or contract claims by or againstoperators/tenants; unanticipated difficulties and/or expenditures relating to future acquisitions and the integration of multi-property acquisitions; environmental lawsaffecting the company’s properties; changes in rules or practices governing the company’s financial reporting; the movement of U.S. and foreign currency exchangerates; and legal and operational matters, including real estate investment trust qualification and key management personnel recruitment and retention. Finally, thecompany 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 anyforward-looking statements.
2All figures as of September 30, 2019. LTACH Cash NOI excludes one-timecatch up payment from LifeCare.
Company Profile
Gross Real Estate Assets $ 4.55bn
# of Properties Owned 259
Gross Leasable Area (SF) 13.9mm
% Leased 96.0%
Weighted Average Lease Term 7.4 years
Overview Portfolio Snapshot
Portfolio Statistics
Building Type (% Cash NOI) Campus Proximity (% Cash NOI) Lease Type (% Annualized Base Rent)
On-Campus/ Affiliated,
89%
Off Campus,11%
MOB,93%Specialty
Hospital,5%
LTACH,2%
NNN,78%Absolute
Net, 16%
ModifiedGross,
5%
Gross,1%
l DOC is an internally managed healthcare REITfocused on the selective acquisition andmanagement of high-quality medical office facilitiesleased to leading health systems
l Management’s significant relationships withphysicians, hospitals, and health systems offers adistinct strategic advantage relative to peers
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-
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
3,500,000
4,000,000
4,500,000
5,000,000
Gro
ss R
eal E
stat
e In
vest
men
ts
Gross Real Estate Assets Net Real Estate Investments/Quarter
Company Snapshot
Growth When Capital Markets Permit Integration and OperationalImprovements
+ 11% Avg. Annual FAD / Sh Growth(IPO to 3Q19)
Eight Follow-On Stock Offerings(Growth to $3.4bn of Equity Mkt. Cap)
90% On-Campus / Affiliated(by GLA, as of 3Q19)
CHIPortfolio- - - - - - - - -51 Properties,10 StatesAcquired 2Q16$718.5mmCap Rate: 6.3%RSF: 3,132,263
MNPortfolio- - - - - - - - -MinnesotaAcquired 2/15$116.3mmCap Rate: 6.4%RSF: 362,355
PeachtreeDunwoody- - - - - - - - -Atlanta, GAAcquired 2/14$36.7mmCap Rate: 7.0%RSF: 131,368
ROFRPortfolio- - - - - - - - -5 Properties,3 StatesAcquired 2Q17$577.0mmCap Rate: 4.7%RSF: 1,130,552
NorthsideMidtown- - - - - - - - -Atlanta, GAAcquired 3Q18$82.1mmCap Rate: 5.0%RSF: 168,676
Internalized 57% of PropertyManagement (by GLA)
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($480,000)
($360,000)
($240,000)
($120,000)
$0
$120,000
$240,000
$360,000
$480,000
$600,000
$720,000
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Demonstrated Acquisition Discipline
DOC’s transformative growth has taken place only when advantageous
Premium to Consensus NAV vs Net Acquisition VolumeMN Portfolio- - - - - - - - - - -
Follow-OnOffering
January 2015
$297mm at$16.40 / sh
CHI Portfolio- - - - - - - - - - -
Follow-OnOffering
April 2016
$443mm at$17.85 / sh
ROFR Portfolio- - - - - - - - - - -
Follow-OnOffering
June 2017
$421mm at$20.40 / sh
CA
B
C
B
A
D
Return toGrowth
- - - - - - - - - - -$257mm of
Investments andCommitments
thru November 6
D
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2019 Acquisition Summary
Shell Ridge Portfolio (5 Assets)Walnut Creek, CAAdjacent to John Muir Memorial Hospital
TOPA Fort Worth MOB ($47mm Secured Loan)Fort Worth, TXOn Campus of Texas Health Harris Methodist
“We are close to finalizing contracts for more than $50 million in new acquisitions in2019, and are excited about the new relationships these transactions will have withinvestment grade health systems. We believe the pipeline for 2020 will continue tobe strong as DOC excels in our relationships with physicians, health systems andsellers of medical office assets.”
- Deeni Taylor, Chief Investment Officer, 3Q19 Earnings Call
2019 Investments to Date(1) Purchase Price Cap Rate % IG GLA(2)
Shell Ridge Portfolio $ 34,625,000 6.1% 100%
Rockwall II MOB 24,578,000 5.5% 79%
Shadeland Station Portfolio 23,296,000 6.3% 100%
Doctors United ASC 14,812,000 6.0% 100%
ProHealth MOB 11,300,000 6.1% 100%
Atlanta Condominium Investments 8,500,000 6.1% -
Purchased Assets (11 MOBs) 117,111,000 6.0% 88%
Sacred Heart ASC Development 28,814,000 6.3% 100%
Cambridge Denton Development 15,500,000 6.0% 100%
Total Developments (2 MOBs) 44,314,000 6.2% 100%
Loan and Other Investments 95,508,000 6.4%
2019 YTD Investments 256,933,000 6.2% 92%
Current 2020 “shadow pipeline”visibility of >$400mm
(1) Investments through Company’s November 6, 2019 Earnings Release(2) Parent rating considered where appropriate
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Non-Core Asset Update
Asset Commentary
LifeCare LTACHs(Master-Lease)
• Plano, TX• Ft. Worth, TX• Pittsburgh, PA
• New operator (“LifeCare 2.0”) assumed DOC’s in-place master lease without modification onSeptember 30, 2019
• All costs incurred related to LifeCare bankruptcy (past due rent, taxes, charges, legal fees)will be repaid with interest over twelve monthly installments
Foundation El Paso Hospital
• El Paso, TX
• Sale of the Foundation El Paso Hospital was completed on October 31, 2019 for $32 million
• As a condition of sale, DOC received $2 million in past-due rent
• The sale was partially funded with seller financing under a two year term loan at anaggregate IRR of 12%
Foundation San Antonio Hospital
• San Antonio, TX
• Physician tenants entered into a joint venture with USPI which is expected to dramaticallyimprove operations
• The JV has entered into a new ten year lease
DOC has resolved all credit issues for certain non-core Hospital and LTACH assets on its watchlist
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15%
85%
l On November 1, the University of Louisville(Moody’s:‘A3’) announced the completed acquisition ofKentuckyOne Health’s Louisville area assets andoperationsn The agreement was facilitated by the receipt of $100mm
in aid by various community partners, including the Stateof Kentucky, Jewish Hospital Foundation, and JewishHeritage Fund for Excellence
l The sale impacts nine DOC facilities in the Louisvillearea, representing $11.9mm of ABR, which will berebranded under the UofL Health umbrellan In-place leases have been assumed in full, reducing
CommonSpirit concentration to 16% of portfolio ABR(from 20% as of Sept. 30)
l The combined entity is expected to benefit fromsynergies of scale and UofL’s management expertise inthe Louisville market
l DOC’s Lexington facilities are not impacted, and willcontinue to be operated under the “CHI - Saint JosephHealth” brand
KentuckyOne Louisville Transition
Pro-Forma Distribution of Legacy KYOne ABR
$14.0mm
Source: University of Louisville Press Release.All figures as of September 30, 2019
“This is an exciting and historic day for the University of Louisville. Thisacquisition strengthens our School of Medicine and our Health SciencesCenter campus by allowing us to offer more training opportunities for ourstudents and more research capacity for our faculty.”
- Neeli Bendapudi, President, University of Louisville
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Portfolio Diversification
Top Ten MSAs MSA Rank % GLA
1 Atlanta / Sandy Springs / Roswell, GA 9 7.7%
2 Dallas / Fort Worth / Arlington, TX 4 6.2%
3 Louisville / Jefferson County, KY / IN 45 5.3%
4 Phoenix / Mesa / Scottsdale, AZ 11 5.3%
5 Minneapolis / St. Paul / Bloomington, MN / WI 16 5.2%
6 Indianapolis / Carmel / Anderson, IN 34 4.8%
7 Omaha / Council Bluffs, NE / IA 59 4.3%
8 Columbus, OH 32 3.4%
9 Seattle / Tacoma / Bellevue, WA 15 2.7%
10 Houston / The Woodlands / Sugar Land, TX 5 2.4%
Total 47.3%
Top Ten Tenants Credit Rating(1)
(Moody’s / S&P) % ABR
1 CommonSpirit - CHI – Nebraska Baa1 / BBB+ 5.6%
2 Northside Hospital Not Rated 4.4%
3 University of Louisville Health A3 / A+ 3.9%
4 Baylor Scott and White Aa3 / AA- 2.6%
5 US Oncology, Inc. Baa2 / BBB+ 2.5%
6 Ascension - St. Vincent’s Aa2 / AA+ 2.5%
7 CommonSpirit - CHI - St. Alexius Baa1 / BBB+ 2.2%
8 HonorHealth A2 / NA 2.0%
9 Surgery Partners B3 / B 1.8%
10 CommonSpirit - CHI - Franciscan Baa1 / BBB+ 1.7%
Total 29.2%
DOC’s portfolio isdiversified across 31states, with no MSA
representing over 8% ofleasable square footage
or tenant responsiblefor more than 6% of
annual base rent
(1) Parent rating used where appropriateNote: All figures as of September 30, 2019, pro-forma for UofL / KYOne transaction
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2.4%
2.8%
2.1% 2.1%
3.2%
3.5%3.3%
Internal Growth Momentum
MOB Same-Store Cash NOI History
(1) 1Q18 MOB Same-Store Cash NOI excludes effects of Kennewick MOB
2.0% - 3.0%Target
DOC’s MOB portfolio has achieved MOBSame-Store growth at the top end of Management’s
2-3% target range throughout 2019The DOC MOB Same-Store Pool includes all MOBs
owned for at least five full quarters, and isincreasingly representative of the portfolio at large
ü
üü
% of Cash NOI in MOB SS Pool
1Q18(1) 61%
2Q18 62%
3Q18 75%
4Q18 78%
1Q19 86%
2Q19 91%
3Q19 86%
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Stable Expiration Schedule
1.2%3.1%
4.2%5.9%
4.8%6.3%
7.4%
23.6%
8.9%
11.4%
23.2%
0%
5%
10%
15%
20%
25%
1.4% 3.2% 4.4% 5.1% 4.7% 6.5% 7.0% 25.6% 9.3% 10.8% 22.0%
Lease Expiration Schedule(% Portfolio ABR as of September 30, 2019)
% Leased GLA
DOC HTA / HR
% Leased 96.0% 88.8%
Wtd. Ave. Lease Term 7.4 Years 4.8 Years
DOC’s portfolio provides industry leading stability, exceedingclosest peers in occupancy and remaining lease term
Source: Company filings. 2019 expirations include MTM leases.
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Internalization of Property Management
DOC Managed Hospital or Development Partner
Columbus, OH
Indianapolis, IN
Atlanta, GA
Minneapolis, MN
Phoenix, AZ
Louisville, KY
Birmingham, AL
Omaha, NE
Dallas, TX
Houston, TX
Tacoma, WA
DOC’s In-House Property Management platform furthers our relationship-based approach to real estate,creating long-term value through improved tenant retention, rent growth, and OpEx efficiency
Internalizing management increases asset returns byup to 30bp, dependent on lease structure
Top Ten MSAs % GLA % InternalManaged
1 Atlanta / Sandy Springs / Roswell, GA 7.7%
2 Dallas / Fort Worth / Arlington, TX 6.2% 89%
3 Louisville / Jefferson County, KY / IN 5.3% 100%
4 Phoenix / Mesa / Scottsdale, AZ 5.3%
5 Minneapolis / St. Paul / Bloomington, MN / WI 5.2%
6 Indianapolis / Carmel / Anderson, IN 4.8%
7 Omaha / Council Bluffs, NE / IA 4.3% 100%
8 Columbus, OH 3.4% 100%
9 Seattle / Tacoma / Bellevue, WA 2.7% 100%
10 Houston / The Woodlands / Sugar Land, TX 2.4% 68%
Total 47.3%
“Consistent with our plans announced earlier this year, we continue to expandour in-house property management platform. Over the past 12 months, wehave transitioned property management services at 31 facilities totaling nearlytwo million square feet in Kentucky, Ohio and most recently Nebraska,Washington State and the Dallas Texas market.”
- Mark Theine, EVP of Asset Management, 2Q19 Earnings Call
Represents market with DOC Internal PM presence
Revenue Generating Function
Improved Tenant Retention
Enhanced Market Knowledge
Source of Future Investments
Benefits of DOC Property Management
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Commitment to Responsible Borrowing
$7$-$24
$291
$265
$25 $25
$70
$425$402
$- $-
$45
$- $-
$50
$100
$150
$200
$250
$300
$350
$400
$450
Mill
ions
Senior Notes
Credit Facility
Mortgages
DOC’s well laddered maturity schedule provides the opportunity for future growth
Debt Maturity Schedule(As of September 30, 2019)
Quarterly Debt Metrics
Net Debt / Adj EBITDAre 5.56x
Fixed Charge Coverage 4.21x
Interest Coverage Ratio 4.52x
Debt to Firm Value 31.2%
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Off-Campus Momentum
95
100
105
110
115
120
125
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
Inpa
tient
Out
patie
nt
Outpatient Inpatient
Distribution of Outpatient vs Inpatient Revenues
28%
48%
72%
52%
Outpatient Inpatient
l Momentum toward off-campus care is accelerating, withmore procedures removed from the CMS “Inpatient OnlyList” each yearn New in 2019, CMS permits total hip and knee replacements
(1.5% of total healthcare spend) and cardiac catheterizations(over 1mm performed annually) to be performed on anoutpatient basis
l Rapidly increasing healthcare costs and the aging USpopulation will require CMS to permit further proceduresto be performed in the off-campus setting in the future
Admissions / Visits per 1,000 Persons
$3.7$3.5$3.4
$3.3$3.0$2.9
$2.7$2.7
$2.4$2.3
Cardiovascular Surgery
Cardiology (Invasive)
Neurosurgery
Orthopedic Surgery
Gastroenterology
Hematology / Oncology
General Surgery
Internal Medicine
Pulmonology
Cardiology (Non-Invasive)
Average Revenue Generated per Specialty(U.S. Healthcare Sector - Top 10 - in $mm)
DOC’s top tenant specialties(Orthopedics, Surgery, andOncology) are among the
highest revenue generatingproviders in the US
Sources: American Hospital Association TrendWatch Chartbook 2018,Merritt Hawkins 2019 Physician Inpatient/Outpatient Revenue Survey
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Campus ≠ Quality
l Off-campus MOBs have historically traded at a discount totheir on-campus equivalent based on the assumption that anearby hospital strengthens the defensive nature of the assetn This approach fails to acknowledge undeniable trends in
healthcare, misattributing value to the campus rather than thehealth system tenant
l MOBs, which are most frequently developed on a “built-to-suit” basis by health systems, are overwhelmingly beingconstructed away from the hospital campus
l Accelerating hospital closures will continue to bring this legacypresumption of “quality” into question, and should be expectedto elevate the value of off-campus facilities as investorsidentify the favorable risk profile of the class
Source: Revista 2019 Medical Real Estate Investment Forum
43%
69%
57%
31%
Off Campus On Campus
MOB Construction Starts / On- vs Off-Campus
7.2%
6.5%
6.2%6.0%
Off Campus On Campus
On- vs Off-Campus MOB Cap Rates
Source: Bloomberg
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Off Campus Asset Review – NSH Midtown MOB
üConvenient Access for Patients- 1 minute from I-85 -- 370,000 cars per day- On-Site Parking (864 stalls)
ü Anchored by Leading Health System- 79% to Northside Hospital (implied IG Rated)
ü On-Site Ambulatory Surgery Center- 30k GLA, Operated by Northside
ü Superior Demographics- 3 mile radius: 180k population, $88k median HHI
The Northside Medical Midtown MOB is a premier destinationfor high-quality care for the residents and commuters ofAtlanta’s booming Midtown neighborhood. The property
benefits from excellent street visibility, including easy two-block on/off access to the I-75/85 corridor.
Projected to serve up to 500,000 patients annually, the facilityfeatures an optimal mix of healthcare services, including:
oncology, imaging, surgery, colon and rectal care, OBGYNservices, and a pharmacy.
MidtownMOB
MidtownMOB
Optimal Off-Campus Investment Profile
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Off Campus Asset Review – Pill Hill MOBs
üConvenient Access for Patients- At the intersection of I-285 (230,000 cars per day)
and GA-400 (143,000 cars per day)- On-Site Parking at Each Location
ü Anchored by Leading Health Systems- 53% of GLA to Northside and IG rated entities
ü On-Site Ambulatory Surgery Centers- Five total: Three at CenterPointe, two at PDMC
ü Superior Demographics- 3 mile radius: 106k population, $111k median HHI
Optimal Off-Campus Investment Profile
Peachtree Dunwoody MOBAtlanta, GA0.27 miles from Northside Hospital
Northside CenterPointe MOBAtlanta, GA
0.20 miles from Northside Hospital
Peachtree DunwoodyMedical Center
NorthsideCenterPointe
DOC ControlledDevelopment
Rights
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Off Campus Asset Review – Clearview Cancer Institute
ü Fee Simple Ownership
üConvenient Access for Patients- Direct Access to I-565 -- 114,000 cars per day- On-Site Parking (474 stalls)
ü 100% Leased by Leading Practice
ü On-Site Specialty Services- Three linear accelerators, chemotherapy, imaging
üSuperior Demographics- 10 mi. radius: 291k population, $65k median HHI- Huntsville: Highest concentration of PhDs in USA
Optimal Off-Campus Investment Profile
Clearview Cancer .
Institute .
The Clearview Cancer Institute (CCI) is a purpose built, classA+ facility. A regional destination for cancer care, CCI offers
heavy clinical use services (linear accelerators, chemotherapy)that are extremely difficult to relocate. Further, CCI participates
in Phase I-V clinical trials, offering patients access to life-saving options not available elsewhere.
As the most significant regional oncology presence outside ofAtlanta and Birmingham, CCI’s draw radius for care extends
nearly 100 miles in all directions.
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Off Campus Asset Review – Hazelwood MOB
ü Fee Simple Ownership
üConvenient Access for Patients- 3 minutes from I-694 -- 97,000 cars per day- On-site parking (650 stalls)
ü Investment Grade System Anchored- 76% GLA to Fairview Health System
ü On-Site Ambulatory Surgery Center- 22k GLA, Operated by Fairview
ü Superior Demographics- 3 mile radius: 74k population, $71k median HHI
Optimal Off-Campus Investment Profile
The 148,000 GLA Hazelwood MOB is conveniently located tomeet the needs of families in suburban Minneapolis-St. Paul.
The first floor consists of a family clinic, urgent care, onsitelab, and pharmacy. The second floor focuses on specialtiessuch as obstetrics and gynecology, pathology, and urology,
while the third floor features a dedicated outpatient ASC.
Site ofHazelwood
MOB
