Healthcare Realty Trust Incorporated · NYSE:HR
Healthcare Realty Trust — Investor Presentation (May 2012)
26 slides from Healthcare Realty Trust's investor presentation, May 1, 2012
Slide 1: Investor Presentation
Investor Presentation MAY 1, 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 Excha
Slide 2: The Big Picture
The Big Picture HEA LT HCA RE REA LT Y • $2.9 billion invested in 210 properties and mortgages • 13.7 million square feet in 28 states • 10.4 million square feet managed internally • 85% medical office and outpatient • 75% on or adjacent to hospital campuses TOP LOCAT ION S SQ F T % Dallas/Fort Wort
Slide 3: Industry Landscape
Industry Landscape MO R E T HA N $ 1 T R I L L I O N O F H E AL THC A R E R EA L ES TA TE VA L UE AC U T E C AR E Hospitals AC U 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
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% 85% 75% % OF MOBs IN PORTFOLIO 50% 30% 18% 16% 13% 25% 8% 1% 1% 0% H CP VTR HCN DRE SNH OHI HR M PW NHI LTC SBR A * INCLUDES ONLY PUBLIC REITs SOURCE: BARCLAYS AND 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% 19.8% DP of G xp. % 16.1% HC E <45 2.3 5yr. old ov er 6 % 45-64 3. 7 >65 6. 9 1960 2020 2 4 6 # AN N UAL PHYSI CI AN OFFI CE VI SI T S SOURCE: CMS.GOV US CENTERS FOR DISEA
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 UM E Paralyzed Embracing ACCOUNTA BI L I TY & R IS K PHYSICIANS HOSPITALS AL I G NM ENT / CONSOL ID A T IO N RE S IL IE N C Y Denial Acceptance ADM I NI STRA TI V E BURD E N U N D
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 Institute AN S Individual Employment Foundation S Contracts TAL 50% SPI Y HO Joint Venture E D B N S OW Co-Management CE 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 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 MPU Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 LO R-CA 2010 2011 2012 OFF -CAM PUS LOW-F
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 Cardiology Dermatology Ear, Nose and Throat Family Practice Gastroenterology General Surgery Head and Neck Surgery Infectious Diseases Neurology OB/GYN Oncology/Hematology Ophthalmology 0-2,500 SQ FT 2,501-5,000 S
Slide 13: Portfolio Shift
Portfolio Shift 100% 80% MULTI-TENANT PROPERTIES % OF HR REVEN UE 60% 40% MASTER LEASED / SINGLE TENANT NET LEASE PROPERTIES 20% 0% 00 01 02 03 04 05 06 07 08 09 10 11 Beginning in 2007, Healthcare Realty initiated a strategic shift away from senior living and master-leased properties … toward an ev
Slide 14: 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% 77% 5% | 14
Slide 15: Core Portfolio
Core Portfolio LEASE-UP S TA B I L I ZED PR OPER TI ES DISPOSITION SIP NON-CORE 77% 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 • 20% Single-tenant net lease • 80% Multi-tenant | 15
Slide 16: 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 5% ~40% Occupied Includes expired master leases & smaller assets within portfolios acquired over past years •
Slide 17: 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% 37% Leased 46% Leased • $25-30M of potential NOI • $0.7M NOI loss in 1Q 2012 •
Slide 18: 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 STA B IL IZE D 95 % Typical Leasing Pattern COV E
Slide 19: Return Dynamics
Return Dynamics CORE MOB CAP RATE RANGE R E H AB H OSPI 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 20: Valuation Framework
Valuation Framework Healthcare Realty’s portfolio is largely comprised of lower-risk, high-value properties. L O W E ST 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- SPEC
Slide 21: Cap Rates
Cap Rates “We applied a discount rate of 6.5% on MOBs, down 25 bps from last quarter, as we Bottom Top assume a higher portfolio premium due to Bottom 25% Median 25% Top User 9.3% 8.2% 7.3% 6.9% 5.9% Defined the uniqueness of HR’s portfolio size.” United -STIFEL NICOLAUS, FEBRUARY 28, 2012 9.3% 8.2%
Slide 22: NAV Drivers
NAV Drivers MACR O MICRO CA P RAT ES H E A LT H C A R E P O L I CY Occupancy Lease Rent Re-Leasing Tenant TI Operating Acquisitions Balance & Leasing Rates Escalation Spreads Retention Allowance Expense & Develop. Sheet Mgmt. | 22
Slide 23: 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 V E RA G E STA BIL IZ 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 | 23
Slide 24: 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 REA S E 51% - 32% - ~ 1. 5 -2 % P E R Y E AR
Slide 25: 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 | 25
Slide 26: Capital Stack
Capital Stack O C T. 2015 $238M R 1.7 5 % evolver Se $264 M nior notes due 2014 5.19% AP R. 2 01 4 $299M 6.62% JA N . 2017 S eni or notes due 2017 $3 , 1 3 4 M IL L IO N $3 9 7 M JA N . 2021 S en ior notes due 2021 5.86% Total Capitalization MA R . 2017 Mo $221M (AVG. ) rtgag e notes payable 6.29% $
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