Healthcare Realty Trust Incorporated · NYSE:HR
Healthcare Realty Trust — Investor Presentation (July 2012)
27 slides from Healthcare Realty Trust's investor presentation, Jul 31, 2012
Slide 1: Investor Presentation
Investor Presentation July 31, 2012 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 Exc
Slide 2: The Big Picture
The Big Picture HEA LT HCA RE REA LT Y ~ $2.9 billion invested in 205 properties and mortgages ~ 13.5 million square feet in 28 states ~ 10.3 million square feet managed internally ~ 85% medical office and outpatient ~ 77% on or adjacent to hospital campuses TOP LOCAT ION S SQ F T % Dallas/Fort Worth
Slide 3: Industry Landscape
Industry Landscape MORE THAN $1 TRILLION OF HEALTHCARE REAL ESTATE VALUE AC U T E C AR E Hospitals A CU I T Y $304B IRF LTAC $15B $18B O U T P AT I E N T C AR E R E COVE R Y & R E HABI L I T AT I ON Skilled Nursing R E S ID E NT I A L C A RE MOB/Outpatient $104B $169B Senior Housing $163B Hospital-B
Slide 4: Size of MOB Market
Size of MOB Market TOTAL OUTPATIENT / MOB MARKET ANNUAL SALES NEW DEVELOPMENT EACH YEAR $262B* $2.4B $5B REITs $15B Investor-owned $52B Non- REITs $37B Best prospects for fostering Hospital-owned $210B hospital relationships. Hospital-owned facilities are rarely for sale. *TOTAL OUTPATIENT/MOB MARKE
Slide 5: Who Owns MOBs?
Who Owns MOBs? 100% 90% ** 85% 75% % OF MOBs IN PORTFOLIO 50% 30% 21% 16% 15% 25% 11% 1% 1% 0% HCP VTR HCN DRE SNH OHI HR HT A M PW NHI LTC SBR A * INCLUDES ONLY PUBLIC REITs ** PERCENTAGE OF GLA SOURCE: COMPANY FILINGS | 5
Slide 6: Booming Demand
Booming Demand The aging population and increased utilization is expected to drive higher volumes of outpatient visits. AG E 20% P 1 9 . 8% GD of % p. Ex 16.1% HC <45 2.3 . o ld er 65yr % ov 45-64 3. 7 >65 6. 9 1960 2020 2 4 6 # AN N U AL PHYSI CI AN OFFI CE VI SI T S SOURCE: CMS.GOV US CENTERS FOR
Slide 7: Initial Reaction to Healthcare Reform
Initial Reaction to Healthcare Reform Reform forced physicians to rethink their future and delayed decision making. V OL U M E Paralyzed Embracing ACCOU NT AB IL IT Y & RIS K PHYSICIANS HOSPITALS AL IG NM ENT / CONSOL IDATION RE S ILIE N C Y Denial Acceptance AD M INIST RAT IV E B U RD E N UN DE RS
Slide 8: Response to Reform
Response to Reform Physicians and hospitals are increasingly moving forward with alignment models. ACO 10 0 % Bundled Payments PRACTICES OWNED BY P Clinical HYS Integration ICI AN Institute S Individual Employment Foundation S Contracts TAL 50% SPI Y HO D B Joint Venture N E S OW CE Co-Management CT
Slide 9: Topography
Topography Proximity to hospital drives long-term value and lowers risk. AC Y CE P PL SS & SU CO ED NV M IT EN LI IE NC E 77 74 75 72 69 70 HR’S % ON/ADJ TO CAMPUS 64 66 66 HOSPITAL LO WE ON-CAMPUS R SK FU RI NG R IBI E LIT W NEA S Y LO MPU Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 R-CA 2010 2011 2012 OFF -CAM PUS
Slide 10: Portfolio History
Portfolio History 2011 2008 Acquired Bon Secours 2007 Acquired Carolinas Portfolio $3,200 Sold Senior Living Facilities Healthcare System and paid special Portfolio 2004 dividend of $2,800 Acquired Baylor $4.75 per share Healthcare Portfolio 1998 2,400 Acquired Capstone Capital Corporation 2,000 199
Slide 11: Investment Activity
Investment Activity Since 2007, Healthcare Realty has nearly doubled its asset base, reducing risk and increasing long-term value. Total Assets with New Investments 2008-2011 Acquisitions & Development $2.9B TOTAL ASSETS $2.9 B $190M $2.6 B $2.3 B $84M $305M $1 $141M .3 B: $96M $81M C $2.1B UM UL $1
Slide 12: Tenant Diversity
Tenant Diversity HEALTHCARE REALTY TENANT SPECIALTIES Allergy Anesthesiology Audiology Bariatric Surgery Cardio/Thoracic Surgery Cardiology Dermatology Ear, Nose and Throat Endocrinology Family Practice Gastroenterology General Surgery Head and Neck Surgery Infectious Diseases Neonatology Nephrology
Slide 13: Portfolio Shift
Portfolio Shift 100% MULTI-TENANT 80% PROPERTIES % OF HR REVENUE 60% 40% MASTER LEASED / 20% SINGLE TENANT NET LEASE PROPERTIES 0% 00 01 02 03 04 05 06 07 08 09 10 11 12 Beginning in 2007, Healthcare Realty initiated a strategic shift away from senior living and master-leased properties … toward an
Slide 14: Transition away from Master Leases
Transition away from Master Leases NUMBER OF MASTER LEASES / SINGLE TENANT NET LEASES 75 65 Nearly 40 master lease 55 expirations over the last 5 years 45 35 25 15 5 2007 2008 2009 2010 2011 2012 | 14
Slide 15: Intrinsic Real Estate Value vs. Leasehold Value
Intrinsic Real Estate Value vs. Leasehold Value Intrinsic Real Estate Value ~ Demand-driven ~ Low fungibility ~ Perpetual cash flow ~ Duration: infinite Multi-tenant building in dense location with strong demand. SUPPLY > DEMAND DEMAND > SUPPLY Credit worthy single tenant in location with few replacem
Slide 16: Portfolio Management
Portfolio Management A CQ U IS IT IO NS $2.9 BILLION OF GROSS ASSETS LEASE-UP S T A BIL IZ E D P R O P E R T IE S DISPOSITION SIP NON-CORE MT G s CIP ASSETS 4% 1% 13% 78% 4% | 16
Slide 17: Core Portfolio
Core Portfolio LEASE-UP S TA B I L I ZED PR OPER TI ES DISPOSITION SIP NON-CORE 78% OF A S S ETS ASSETS MT G s CIP 91% Occupied > 8% Yield on Cost ~ $184M NOI ~ $2.2B Assets ~ 2-4% NOI Growth ~ 19% Single-tenant net lease ~ 81% Multi-tenant | 17
Slide 18: Non-Core Assets
Non-Core Assets Through routine asset management, Healthcare Realty recycles capital into LEASE-UP new assets. S T A BIL IZ E D P R O P E R T IE S DISPOSITION SIP NON-CORE ASSETS M TG s CIP 4% ~47% Occupied Includes expired master leases & smaller assets within portfolios acquired over past years ~
Slide 19: Development
Development Development properties can generate higher returns and enhance the longevity and sustainability of the portfolio. LEASE-UP S T A BIL IZ E D P R O P E R T IE S DISPOSITION SIP NON-CORE C IP 13% ASSETS MT G s 1% 40% Leased 51% Leased ~ $25-30M of potential NOI ~ $0.4M NOI loss in 2Q 2012 ~
Slide 20: Development Leasing
Development Leasing Historically, physicians have been relatively immune to economic cycles, but the financial crisis paired with healthcare reform created unprecedented angst and indecision. Healthcare Debate/Reform Healthcare Policy Implementation ST A B IL IZE D 95 % Typical Leasing Pattern COV E
Slide 21: Return Dynamics
Return Dynamics CORE MOB CAP RATE RANGE R E H AB HOSPI T AL S SPE CI AL T Y HOSPI T AL S O FF- CAM PU S M OBs O N - C AM P U S M O B s Potential value created by targeting development yields in excess of market cap rates 5% 6% 7% 8% 9% 1 0% ACQUISITION CAP RATE DEVELOPMENT YIELD ADVANTAGE PORTFOLIO
Slide 22: Valuation Framework
Valuation Framework Healthcare Realty’s portfolio is largely comprised of lower-risk, high-value properties. L O W E S T RI SK 6 .5-7.5% 6 -7% Asset and portfolio value is a function of market and asset- specific attributes. Market Environment PHYSICIAN OFFICE VISITS INPATIENT PROCEDURES ASSET- SPECI
Slide 23: NAV Drivers
NAV Drivers MAC R O MI C R O CA P RAT ES H EA LT H C A R E PO L I CY Occupancy Lease Rent Re-Leasing Tenant TI Operating Acquisitions Balance & Leasing Rates Escalation Spreads Retention Allowance Expense & Develop. Sheet Mgmt. | 23
Slide 24: NAV - Development
NAV - Development Over time, development properties can enhance NAV more than acquisitions. T O DA Y Perceived value Start of value Value created creation with above cost gap at current time development A VE RA G E STA BILIZ E D YIEL D COST OF C A P ITA L UP S E L EA N T P ME E LO D EV TIME | 24
Slide 25: Lease Dynamics
Lease Dynamics Multiple short-term leases in buildings with low fungibility reduce unknown variables and lead to more frequent market adjustments, thus yielding better cumulative returns. 73 % - ~ 3 -3 . 5 % P E R Y E AR 1 5- Y EA R C UM UL A T I VE I N C REASE 51% - 32% - ~ 1. 5 -2 % P E R Y E AR 1
Slide 26: Growth Profile
Growth Profile Development properties can boost the growth rate of the core portfolio. D EV ELOPMEN T 3-5% ACQUISITIONS 2-4% STABILIZED PROPERTIES 2-4% ANNUAL PORTFOLIO NOI TIME | 26
Slide 27: Capital Stack
Capital Stack OCT. 2015 $216M R 1.7 5 % evolver Se $264 M nior notes due 2014 5.19 % APR. 2014 $299M 6.62% JAN. 2017 S eni or notes due 2017 $3 , 3 07 M IL L IO N $3 97 M JA N . 2021 S en ior notes due 2021 5.86% Total Capitalization MAR. 2017 Mo $219 M (AVG. ) rtgag e notes payable 6.27% $1,912M *
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