Medical Office Update (US)

Andrea Cross, National Office Research Manager | USA

John Wadsworth, National Director Healthcare Properties

March, 2014

2

About the 2014 Medical Office Outlook Report

Colliers’ first-ever national medical office report

Collaboration between Colliers Healthcare Services Group (CHSG),

U.S. Research team and local market researchers

Report supports CHSG’s activities by establishing Colliers as a thought

leader in the MOB space

Features healthcare industry overview, key healthcare real estate

trends and investment market outlook

About the 2014 Medical Office Outlook Report

Features detailed market-level statistics for 39 U.S. markets

Key differentiator from reports produced by our competitors

More markets to be added in future iterations of the report

3

What Are the Key Drivers of the MOB Market?#1: Aging Baby Boomer Population

4

What Are the Key Drivers of the MOB Market?#1: Aging Baby Boomer Population

5

What Are the Key Drivers of the MOB Market?#1: Aging Baby Boomer Population

6

Annual number of physician office visits 70% higher among

65-74 year-olds than 45-64 year-olds.

What Are the Key Drivers of the MOB Market?#2: Affordable Care Act (ACA)

7

U.S. healthcare costs highest in the world by a large margin

Goal of ACA: insure more people while achieving lower-cost,

more successful outcomes

What Are the Key Drivers of the MOB Market?#2: Affordable Care Act (ACA)

8

Electronic Health Records (EHR) requirements being phased in to

improve provider coordination

Healthcare Industry Employment Trends

9

Outpatient, home health care employment driving overall healthcare

employment.

Healthcare Industry Growth Widespread Across

Geographies

10

Large, in-place older populations supporting healthcare demand in

Northeast and Midwest.

Healthcare Industry Growth Widespread Across

Geographies

11

Above-average population growth driving healthcare demand in

South and West.

What Do These Trends Mean for MOBs?

12

MOB vacancy rate remarkably stable despite uncertainty caused by ACA.

What Do These Trends Mean for MOBs?

13

Construction activity down significantly in recent years.

Retail Space Conversions

Sources: ULI, Kaiser Permanente

Open Layouts

Sources: ULI, Davis Partnership/Align Healthcare

MOB Performance by Market

16

Small, southeastern markets top the list: strong demand, little new supply

Overbuilt Sunbelt markets starting to recover

MOB Investment Surging

17

Q4 2013 MOB investment totaled $2.47 bil., approaching Q4 2006 peak,

cap rates trending down.

Cap Rates Trending Down

18

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

Q1'06

Q3'06

Q1'07

Q3'07

Q1'08

Q3'08

Q1'09

Q3'09

Q1'10

Q3'10

Q1'11

Q3'11

Q1'12

Q3'12

Q1'13

Q3'13

Medical CBD Suburban

Note: Latest data as of Q4 2013

Source: Real Capital Analytics

Links

CHSG: http://www.colliers.com/en-us/us/healthcareservices

US Research: http://www.colliers.com/en-US/US/insights

MOB Report: http://www.colliers.com/us/medical-1H

Contact Info

Andrea CrossNational Office Research Manager | USA

Direct: 415.288.7892

Email: andrea.cross@colliers.com

CI_AndreaCross

19

20

Colliers InternationalHealthcare Services Group

Specialized Real Estate Solutions

Presented by:

John Wadsworth

National Director

An Introduction to…

Colliers Healthcare Services Group (CHSG) Overview

Formed in 2005, “Organically Grown”

76 members in US 34 markets, London and Hong Kong

Service Offerings:

Brokerage

Property Management

Valuation & Appraisal

Project Management

Market Research

Strategy & Consulting

$1B in Gross Transactions 2013

Key Differentiator: CHSG is Healthcare Real Estate Solutions Provider:

“If you are in the healthcare real estate business,

by default you are in the healthcare business”

Patient Protection and Affordable Care Act, aka “Obamacare”…

22

ACA Impacts on the Healthcare Industry,

Resulting Trends:

March 2010 present: Major shift in US healthcare delivery system

Fee for service fee for quality

Healthcare “consumer“ driven

Lower payments (reimbursements) from the Feds & Insurance

Companies

New pressure on Hospitals/Providers to:

Cut cost / Improve quality

Coordinate care for better outcomes

Preserve margins via savings (vs. more revenue)

Mandate for efficiency = Massive healthcare industry consolidation

23

Hospital Mergers and Acquisitions

5,000 hospitals in the US

2012: $143B in healthcare M&A

2013, topped 100 mergers

US Physician Consolidation

2000: 682,470 physicians in the US / 57% independent

2013: 792,594 physicians / 36% independent 24

25

Shift in Tenant Profile

Flexibility

In-patient to out-patient: higher acuity care moved to the MOB setting

Hospital driven monetization

Repurpose of non-medical assets to medical facilities

Regulatory Compliance

ACA Impact on Healthcare Real Estate, Resulting Trends:

Challenge

170,000 SF, 176-bed “dark” acute-care hospital

1970’s construction / compliance with CA seismic

standards

Find a new hospital operator to re-use the facility vs.

redevelop

Healthcare Reform

Strategy

Determine feasibility / cost of re-use of existing

building

Position as re-opportunity to comply with HC Reform

Perform need/gap analysis for full “continuum of care”

Roadshow presentation to prospects

Success Story Century City Hospital, Century City, CA

Success Story Century City Hospital, Century City, CA

Results

Secured a provider with a need to develop an

“acute-rehab” facility

Building re-purposed / modernized to comply with

licensing req’s

Partnership between UCLA, Cedars Sinai and

Select Medical

Executed 17 year, $80M lease

50 acres / 1.2M SF

Full continuum of healthcare to be developed

CHSG awarded assignment in 2013 to market, lease and sell

Current Project Canyon Springs Healthcare Center

28

How can you partner withColliers Healthcare Services Group?

Step #1 – know that CHSG exists, is “healthy” and expanding!

Leverage CHSG platform to pursue HC – “b/c you don’t understand it, don’t

ignore it”

Expand service offerings (beyond brokerage) to existing healthcare client

Collaborate!

29

30

“We take our job seriously…”

Medical Office Update (US)

Andrea Cross, National Office Research Manager | USA

John Wadsworth, National Director Healthcare Properties

March, 2014