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 Exchange Commission by Healthcare Realty Trust, including its Annual Report on Form 10-K for the year ended December 31, 2011 under the heading “Risk Factors,” and as may be updated in its Quarterly Reports on Form 10-Q filed thereafter. Forward-looking statements represent the Company’s judgment as of the date of this presentation. The Company disclaims any obligation to update forward-looking material.
Information as of June 30, 2012, unless otherwise disclosed.
Investor PresentationJuly 31, 2012
| 2
TOP LOCATIONS SQ FT %
Dallas/Fort Worth 2,314,184 17.2%
Nashville 812,608 6.0%
Charlotte 787,404 5.8%
Houston 729,712 5.4%
San Antonio 689,764 5.1%
Indianapolis 558,694 4.1%
Richmond, Virginia 558,209 4.1%
Los Angeles 551,955 4.1%
Denver/Colorado Springs 540,051 4.0%
Roanoke, Virginia 466,204 3.5%
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
| 3
Industry Landscape
MORE THAN $1 TRILLION OF HEALTHCARE REAL ESTATE VALUE
SOURCE: Sg2 AND STIFEL NICOLAUS
ACUI
TY
SETTING
OUTPATIENT CARE
RESIDENTIAL CARE
ACUTE CARE
RECOVERY & REHABILITATION
Senior Housing$163B
MOB/Outpatient$169B
Small Physician Clinics $203B
Hospital-BasedOutpatient
$42B
Hospitals$304B
Skilled Nursing$104B
LTAC$18B
IRF$15B
| 4
Size of MOB Market
NEW DEVELOPMENT EACH YEARTOTAL OUTPATIENT / MOB MARKET ANNUAL SALES
Hospital-owned$210B
Investor-owned $52B
REITs $15B
Non-REITs $37B
$2.4B $5B$262B*
*TOTAL OUTPATIENT/MOB MARKET EXCLUDES GOVERNMENT AND MOST SMALL PHYSICIAN CLINICS
SOURCE: STIFEL NICOLAUS; REAL CAPITAL ANALYTICS; MODERN HEALTHCARE
Best prospects for fostering
hospital relationships.
Hospital-owned facilities are
rarely for sale.
| 5
Who Owns MOBs?
HCP
% O
F MO
Bs IN
PORTF
OLI
O
VTR HCN DRE SNH OHI HR MPW HTA NHI LTC SBRA
0%
25%
16% 15%
21%
11%
30%
1% 1%
85%
90%**
50%
75%
100%
* INCLUDES ONLY PUBLIC REITs
** PERCENTAGE OF GLA
SOURCE: COMPANY FILINGS
| 6
Booming Demand
1960 2020 2 4 6
<45
AGE
# ANNUAL PHYSICIAN OFFICE VISITS
2.3
45-64
20%
3.7
>65 6.9
HC Exp.
% of GDP
% over 65yr. ol
d
19.8%
16.1%
SOURCE: CMS.GOVUS CENTERS FOR DISEASE CONTROL AND PREVENTIONUS CENSUS BUREAU
The aging population and increased
utilization is expected to drive higher
volumes of outpatient visits.
| 7SOURCE: DIXON HUGHES GOODMAN
UNDERSTANDING
VOLUME
ACCOUNTABILITY & RISK
ALIGNMENT / CONSOLIDATION
ADMINISTRATIVE BURDEN
REIMBURSEMENT
RESIL
IENC
Y
Paralyzed
Denial
PHYSICIANS HOSPITALS
Embracing
Acceptance
| 7
Initial Reaction to Healthcare Reform
Reform forced physicians to rethink their
future and delayed decision making.
| 8SOURCE: DIXON HUGHES GOODMAN
2002 TODAY 2013
100%
50%
0%
PRACTICE
S OWNED
BY HOS
PITALS
Institute
Co-Management
Volunteer Medical Staff
Joint Venture
IPA
Individual Employment Contracts
Recruitment Support/Income Guarantee
Clinical Integration
Foundation
ACO
Bundled Payments
RESOUR
CES
DEGREE OF ALIGNMENT
PRACTICES OWNED BY PHYSICIANS
Response to Reform
Physicians and hospitals are increasingly
moving forward with alignment models.
| 9
Topography
ACCESS & CONVENIENCE
LOWER FUNGIBILITY
HR
’S %
ON
/AD
J TO
CA
MP
US
LIMITE
D SUP
PLY
LOWE
R RIS
K
HOSPITAL
ON-CAMPUS
NEAR-CAMPUS
OFF-CAMPUS
64
Q2 Q4Q3
2010 2011 2012
Q1 Q2 Q3 Q4 Q1 Q2
66 66 69 70 72 74 75 77
LOW-FUNGIBILITY: (n.)
Having a unique quality which can not
be replaced exactly.
Proximity to hospital
drives long-term value
and lowers risk.
Healthcare Realty has strategically shifted
its portfolio toward lower-risk, on-campus
medical office buildings.
| 10
Portfolio History
$2,800
2,400
2,000
1,600
1,200
800
400
0
93
MEDICAL OFFICE BUILDING
ASSE
TS (in
million
s)
SPECIALITY INPATIENT
SENIOR LIVING
OTHER
99 0596 02 0894 00 0697 03 09 10 1195 01 0798 04
2008
Acquired Carolinas Healthcare System Portfolio
2011
Acquired Bon Secours Portfolio
1995
Acquired Starr Sanders Johnson
1998
Acquired Capstone Capital Corporation
2004
Acquired BaylorHealthcare Portfolio
2007
Sold Senior Living Facilities and paid special dividend of $4.75 per share
$3,200
Investment Activity
54%
31%
15%
| 11
$ 1 . 3 B : CUMULATIVE NEW INVESTMENTS
2008-2011 Acquisitions & Development
TOTAL ASSETS $2.9 B
ANNUAL AVERAGE OF NEW INVESTMENTS : $331 M
CUMULATIVE INVESTMENTS
DEVELOPMENT $432M
ACQUISITION $892M
2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1
Total Assets with New Investments
DEVELOPMENT
ACQUISITION
$31
6M
$11
1M$
1,6
37
M
$8
1M$
96
M$
2,0
81M
$2
,22
0M
$2
,54
1M
$30
5M$
84
M
$19
0M
$14
1M
$2 . 1 B
$ 2 . 3 B$ 2 . 6 B
$ 2 . 9 B
Since 2007, Healthcare Realty has nearly
doubled its asset base, reducing risk and
increasing long-term value.
| 12
Tenant Diversity
Healthcare Realty’s Avg. Tenant Size: 4 ,33 0 SQ FT
AllergyAnesthesiologyAudiologyBariatric SurgeryCardio/Thoracic SurgeryCardiologyDermatologyEar, Nose and ThroatEndocrinologyFamily PracticeGastroenterologyGeneral SurgeryHead and Neck SurgeryInfectious DiseasesNeonatologyNephrologyNeurologyObstetrics/GynecologyOncology/HematologyOphthalmologyOrthopedicsOtolaryngologyPain ManagementPediatricsPhysical TherapyPlastic SurgeryPodiatryPsychology/PsychiatristPulmonary MedicineRadiologyRheumatologySports MedicineVascular SurgeryUrology
HEALTHCARE REALTY TENANT SPECIALTIES
Healthcare Realty achieves diversity through
tenant size and medical specialties rather than
asset type.
| 13
Portfolio Shift
00 01 02 03 04 05 06 07 08 09 10 11 12
% O
F HR
REVE
NUE
MASTER LEASED /SINGLE TENANT NET LEASE PROPERTIES
MULTI-TENANT PROPERTIES
0%
20%
40%
60%
80%
100%
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 medical office and outpatient facilities.
| 14
Transition away from Master Leases
2007
5
15
25
35
45
55
65
75
2008 2009 2010 2011 2012
NUMB
ER O
F MA
STE
R L
EAS
ES/S
INGLE
TENA
NT N
ET
LEAS
ES
Nearly 40 master lease expirations over the last 5 years
| 15
Intrinsic Real Estate Value vs. Leasehold Value
Multi-tenant building
in dense location with
strong demand.
Credit worthy single
tenant in location with
few replacement tenants.
Leasehold Value
Credit-drivenHigh fungibilityRent exceeds marketRenewal roll down (terminal value risk)Duration: Lease term (finite)
Intrinsic Real Estate Value
Demand-drivenLow fungibilityPerpetual cash flowDuration: infinite
DEMAND > SUPPLYSUPPLY > DEMAND
| 16
Portfolio Management
$2.9 BILLION OF GROSS ASSETS
MTGs CIPSIP NON-CORE
ASSETS
STABILIZED PROPERTIES
LEASE-UP
ACQUISIT IONS
DISPOSITION
4% 1% 13% 78% 4%
| 17
NON-CORE ASSETS
STABILIZED PROPERTIES
LEASE-UP
DISPOSITION78% OF ASSETS
Core Portfolio
MTGs CIPSIP
91% Occupied
> 8% Yield on Cost
~ $184M NOI
$2.2B Assets
2-4% NOI Growth
19% Single-tenant net lease
81% Multi-tenant
| 18
Non-Core Assets
MTGs CIPSIP NON-CORE
ASSETS
STABILIZED PROPERTIES
LEASE-UP
DISPOSITION
4%
Through routine asset management,
Healthcare Realty recycles capital into
new assets.
~47% Occupied
Includes expired master leases & smaller assets within portfolios acquired over past years
$94M Repositioned Assets (17 Buildings)
No meaningful NOI
$13M Assets Held for Sale (9 Buildings)
| 19
MTGsCIP
SIP NON-CORE ASSETS
STABILIZED PROPERTIES
LEASE-UP
DISPOSITION
Development
40% Leased 51% Leased
1%13%
Development properties can generate
higher returns and enhance the longevity
and sustainability of the portfolio.
$25-30M of potential NOI
$0.4M NOI loss in 2Q 2012
$1.0M NOI contribution by 4Q 2012
| 20
Development Leasing
CO 1 YR 2 YR 3 YR
COVEROPERATINGEXPENSES
CONSTRUCTION LEASE-UP
35%
75%
50%
95%
COVER COST OF CAPITAL
STABILIZED
2008/2009 Financial Crisis
Healthcare Debate/Reform Healthcare Policy Implementation
Typical Leasing Pattern
WHERE WE ARE NOW
Historically, physicians have been relatively immune
to economic cycles, but the financial crisis paired
with healthcare reform created unprecedented angst
and indecision.
| 21
Return Dynamics
CORE MOB CAP RATE RANGEREHAB HOSPITALS
SPECIALTY HOSPITALS
OFF-CAMPUS MOBs
ON-CAMPUS MOBs
6%5% 7% 8% 9% 10%
ACQUISITION CAP RATE
DEVELOPMENT YIELD ADVANTAGE
PORTFOLIO CAP RATE PREMIUM
Potential value created by targeting development yields in excess of market cap rates
MarketEnvironment
PatientAffluence
| 22
PHYSICIAN OFFICE VISITS
INPATIENT PROCEDURES
PHYSICIAN NEED
INCOME
INSURED POPULATION
POPULATION GROWTH
HIGHEST RISK
LOWEST RISK
HR PORTFOLIO
HR DEVELOPMENTS
CURRENT CAP RATE RANGE
Valuation Framework
ASSET-SPECIFIC ATTRIBUTES
On/off campus
Hospital strength
Tenant mix
Building size
Ground lease vs. fee simple
Building condition/functionality
Competition
Parking
Financial measures:
Growth profile
Lease rates
Capital rates
Operating expenses
Lease turnover/expirations
%
6.5-7.5%
8% +
6-7%
7-8%
Healthcare Realty’s portfolio is largely
comprised of lower-risk, high-value properties.
Asset and portfolio value is a
function of market and asset-
specific attributes.
| 23
MACRO
HEALTHCARE POLICY
MICRO
Occupancy & Leasing
CAP RATES
LeaseRates
Re-LeasingSpreads
TIAllowance
Acquisitions& Develop.
RentEscalation
TenantRetention
Operating Expense
BalanceSheetMgmt.
NAV Drivers
| 24
NAV - Development
AVERAGE STABILIZED
YIELD
COST OFCAPITAL
TIME
TODAY
DEVELOPMENT
LEASE UP
Value createdabove cost
Perceived valuegap at current time
Start of value creation withdevelopment
Over time, development properties can
enhance NAV more than acquisitions.
| 25
15% -
32% -
51% -
Lease Dynamics
73% -
15-Y
EAR
CUM
ULAT
IVE INC
REAS
E
LEASE TERM / YEARS
5 10 15
~3-3.5% PER YEAR
~1.5-2% PER YEAR
Multiple short-term leases in buildings with
low fungibility reduce unknown variables and
lead to more frequent market adjustments, thus
yielding better cumulative returns.
| 26
Growth Profile
DEVELOPMENT 3-5%
ACQUISIT IONS 2-4%
STABILIZED PROPERTIES 2-4%
ANNUAL P
ORTF
OLIO
NOI
T I M E
Development properties can boost
the growth rate of the core portfolio.
| 27
Capital Stack
Revolver$216M
$264M
$219M
$299M
$1,912M*
$3,307MILLION
$397 M
Senior notes due 2014
Mortgage notes payable
Equity, market value
Total Capitalization
1.75% OCT. 2015
APR. 2014
JAN. 2017
JAN. 2021
MAR. 2017 (AVG.)
∞
5.19%
6.62%
5.86%
6.27%
0 YRS
MATURITY
10 YRS
Senior notes due 2021
Senior notes due 2017
*Based on closing price of $24.51 on July 27, 2012
Top Related