Healthcare Realty Trust Incorporated · NYSE:HR
Healthcare Realty Trust — Investor Presentation (September 2012)
28 slides from Healthcare Realty Trust's investor presentation, Sep 5, 2012
Slide 1: Investor Presentation September 2012
Investor Presentation September 2012 HEALTHCARE REALTY 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
Slide 2: The Big Picture
The Big Picture HEALTHCARE REALTY • $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 LOCATIONS SQ FT % Dallas/Fort Worth 2,314,
Slide 3: Industry Landscape
Industry Landscape MORE THAN $1 TRILLION OF HEALTHCARE REAL ESTATE VALUE ACUITY RESIDENTIAL CARE Senior Housing $163B OUTPATIENT CARE MOB/Outpatient $169B Small Physician Clinics $203B Hospital-Based Outpatient $42B ACUTE CARE Hospitals $304B IRF $15B Skilled Nursing $104B LTAC $18B RECOVERY & REHAB
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 Non-REITs $37B Investor-owned $52B Hospital-owned $210B Hospital-owned facilities are rarely for sale. Best prospects for fostering hospital relationships. *TOTAL OUTPATIENT/MOB MARKET
Slide 5: Who Owns MOBs?
Who Owns MOBs? % OF MOBs IN PORTFOLIO 100% 90% ** 85% 75% 50% 30% 21% 16% 15% 25% 11% 1% 1% 0% HCP VTR HCN DRE SNH OHI HR HTA MPW NHI LTC SBRA * INCLUDES ONLY PUBLIC REITs ** PERCENTAGE OF GLA SOURCE: COMPANY FILINGS
Slide 6: Booming Demand
Booming Demand The aging population and increased utilization is expected to drive higher volumes of outpatient visits. AGE 20% HC Exp. % of GDP 19.8% % over 65yr. old 16.1% <45 2.3 45-64 3.7 >65 6.9 1960 2020 # ANNUAL PHYSICIAN OFFICE VISITS SOURCE: CMS.GOV US CENTERS FOR DISEASE CONTROL AND PREVEN
Slide 7: Initial Reaction to Healthcare Reform
Initial Reaction to Healthcare Reform Reform forced physicians to rethink their future and delayed decision making. VOLUME ACCOUNTABILITY & RISK ALIGNMENT / CONSOLIDATION ADMINISTRATIVE BURDEN REIMBURSEMENT RESILIENCY Paralyzed Embracing PHYSICIANS HOSPITALS Denial Acceptance UNDERSTANDING SOURCE: D
Slide 8: Response to Reform
Response to Reform Physicians and hospitals are increasingly moving forward with alignment models. 100% PRACTICES OWNED BY PHYSICIANS 50% HOSPITALS BY OWNED PRACTICES 0% 2002 TODAY 2013 ACO Bundled Payments Clinical Integration Institute Individual Employment Foundation Contracts Joint Venture Co-Ma
Slide 9: Topography
Topography Proximity to hospital drives long-term value and lowers risk. ACCESS & CONVENIENCE LIMITED SUPPLY H HOSPITAL LOWER RISK ON-CAMPUS NEAR-CAMPUS OFF-CAMPUS LOWER FUNGIBILITY LOW-FUNGIBILITY: (n.) Having a unique quality which can not be replaced exactly. HR’S% ON/ADJ TO CAMPUS Q2 Q3 Q4 Q1 Q2
Slide 10: Portfolio History
Portfolio History ASSETS (in millions) 2011 2008 Acquired Bon Secours 2007 $3,200 Sold Senior Acquired Carolinas Portfolio 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
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 $1,637M $111M $316M $2.1B 2008 $2,081M $96M $81M $2.3B 2009 $2,220M $84M $305M $2.6B 2010 $2,541M $141M $190M $2.9B 2011 ANNUAL AVERAGE
Slide 12: Investment Environment
Investment Environment With the focus on development properties, leasing now exceeds 50% with solid momentum. In addition, Healthcare Realty is seeing more attractive acquisition opportunities, with several expected to move to contract in 2H 2012. INVESTMENT FUNDING (in millions) $500 $331M annual a
Slide 13: 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 14: Portfolio Shift
Portfolio Shift % OF HR REVENUE 100% 80% 60% 40% 20% 0% MULTI-TENANT PROPERTIES MASTER LEASED / SINGLE TENANT NET LEASE PROPERTIES Beginning in 2007, Healthcare Realty initiated a strategic shift away from senior living and master-leased properties … toward an even larger percentage of multi-tenant
Slide 15: Transition away from Master Leases
Transition away from Master Leases NUMBER OF MASTER LEASES / SINGLE TENANT NET LEASES 2007 2008 2009 2010 2011 2012 Nearly 40 master lease expirations over the last 5 years
Slide 16: Intrinsic Real Estate Value vs. Leasehold Value
Intrinsic Real Estate Value vs. Leasehold Value PRICE (RENT) Intrinsic Real Estate Value • Demand-driven • Low fungibility • Perpetual cash flow • Duration: infinite Multi-tenant building in dense location with strong demand. DEMAND > SUPPLY SUPPLY SUPPLY > DEMAND DEMAND QUANTITY (SF) Credit worthy
Slide 17: Portfolio Management
Portfolio Management $2.9 BILLION OF GROSS ASSETS ACQUISITIONS LEASE-UP STABILIZED PROPERTIES 78% MTGs 4% CIP 1% SIP 13% NON-CORE ASSETS 4% DISPOSITION
Slide 18: Core Portfolio
Core Portfolio LEASE-UP STABILIZED PROPERTIES CIP MTGs SIP 78% OF ASSETS NON-CORE ASSETS DISPOSITION 91% Occupied > 8% Yield on Cost ~ $184M NOI • $2.2B Assets • 2-4% NOI Growth • 19% Single-tenant net lease • 81% Multi-tenant
Slide 19: Non-Core Assets
Non-Core Assets Through routine asset management, Healthcare Realty recycles capital into new assets. LEASE-UP MTGs CIP SIP STABILIZED PROPERTIES NON-CORE ASSETS 4% DISPOSITION ~ 47% Occupied Includes expired master leases & smaller assets within portfolios acquired over past years • $94M Reposition
Slide 20: Development
Development Development properties can generate higher returns and enhance the longevity and sustainability of the portfolio. LEASE-UP MTGs CIP 1% SIP 13% STABILIZED PROPERTIES NON-CORE ASSETS DISPOSITION 40% Leased 51% Leased • $25-30M of potential NOI • $0.4M NOI loss in 2Q 2012 • $1.0M NOI contri
Slide 21: 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 Typical Leasing Pattern STABILIZED 95% COVER COST
Slide 22: Return Dynamics
Return Dynamics CORE MOB CAP RATE RANGE REHAB HOSPITALS SPECIALTY HOSPITALS OFF-CAMPUS MOBs ON-CAMPUS MOBs Potential value created by targeting development yields in excess of market cap rates 5% 6% 7% 8% 9% 10% ACQUISITION CAP RATE DEVELOPMENT YIELD ADVANTAGE PORTFOLIO CAP RATE PREMIUM
Slide 23: Valuation Framework
Valuation Framework Healthcare Realty’s portfolio is largely comprised of lower-risk, high-value properties. LOWEST RISK 6.5-7.5% 6-7% Market Environment PHYSICIAN OFFICE VISITS INPATIENT PROCEDURES PHYSICIAN NEED 8% + 7-8% HIGHEST RISK INCOME INSURED POPULATION POPULATION GROWTH Patient Affluence H
Slide 24: NAV Drivers
NAV Drivers MACRO MICRO CAP RATES HEALTHCARE POLICY Occupancy & Leasing Lease Rates Rent Escalation Re-Leasing Spreads Tenant Retention TI Allowance Operating Expense Acquisitions & Develop. Balance Sheet Mgmt.
Slide 25: NAV - Development
NAV - Development Over time, development properties can enhance NAV more than acquisitions. TODAY Start of value creation with development Value created above cost Perceived value gap at current time AVERAGE STABILIZED YIELD COST OF CAPITAL DEVELOPMENT LEASE UP TIME
Slide 26: 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% 51% 32% 15% ~3-3.5% PER YEAR ~1.5-2% PER YEAR 15-YEAR CUMULATIVE INCREASE LEASE TERM / YEARS
Slide 27: Growth Profile
Growth Profile Development properties can boost the growth rate of the core portfolio. ANNUAL PORTFOLIO NOI DEVELOPMENT 3-5% ACQUISITIONS 2-4% STABILIZED PROPERTIES 2-4% TIME
Slide 28: Capital Stack
Capital Stack $216M 1.75% OCT. 2015 Revolver $264M 5.19% APR. 2014 Senior notes due 2014 $299M Senior notes due 2017 6.62% JAN. 2017 $3,287 MILLION Total Capitalization $397 M 5.86% JAN. 2021 Senior notes due 2021 $219 M Mortgage notes payable 6.27% MAR. 2017 (AVG.) $1,892M * Equity, market value *B
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