medical facilities corporation tsx: dr · $290.8 . $201.3 . $51.4 . $111.1 . $45.8 . $35.0 . $40.6...
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MEDICAL FACILITIES CORPORATION June 2015
FORWARD-LOOKING STATEMENTS
This presentation may contain forward-looking statements within the meaning of certain securities laws, including the “safe harbour” provisions of the Securities Act (Ontario) and other provincial securities law in Canada. These forward-looking statements include, among others, statements with respect to our objectives, goals and strategies to achieve those objectives and goals, as well as statements with respect to our beliefs, plans, objectives, expectations, anticipations, estimates and intentions. The words “may”, “will”, “could”, “should”, “would”, “suspect”, “outlook”, “believe”, “plan”, “anticipate”, “estimate”, “expect”, “intend”, “forecast”, “objective” and “continue” (or the negative thereof), and words and expressions of similar import, are intended to identify forward-looking statements. Any such statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these forward-looking statements. For more information on the risk factors related to these forward-looking statements, please refer to the management’s discussion and analysis, annual information form and ongoing quarterly filings of Medical Facilities Corporation available on SEDAR at www.sedar.com.
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INVESTMENT HIGHLIGHTS
STABLE CASH FLOW
ATTRACTIVE MARKETS
WITH STRONG ECONOMIES
HIGH-YIELD INVESTMENT
(~6%)
HIGHLY-RATED, HIGH-QUALITY
FACILITIES
EXPERIENCED MANAGEMENT
TEAM AND BOARD
FAVORABLE INDUSTRY
GROWTH DRIVERS
3
COMPANY OVERVIEW
Majority ownership in five specialty surgical hospitals and one ambulatory surgery center
High dividend-yield stock (TSX: DR)
Current yield: ~6.9%
Market Cap: C$509M
Strong, stable cash flow
4
INDUSTRY BACKGROUND U.S. SURGICAL FACILITIES
Traditional Hospitals Specialty Surgical Hospitals (SSHs)
Ambulatory Surgical Centers (ASCs)
Full-service hospital (diagnostic & surgical)
Inpatient and outpatient
Over 60% are not-for-profit
Most specialize in orthopedics, spine, ENT
Inpatient and outpatient
~ 300 SSHs
Outpatient only
> 6,000 ASCs
Sioux falls exterior picture
Generic Hospital
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FACILITY REVENUE MODEL
PAYOR Public, Private
Insurance, Self Pay
Professional Fees
Facility Fee
PHYSICIAN Private Surgeon LLC
ANESTHESIA Private Anesthesia LLC
MFC 51% of profit
6
PHYSICIAN- OWNERS
49% of profit
MFC FACILITY
MFC’S STAKEHOLDERS
Patient Physician
High quality care
Hotel-like environment
Excellent customer service
Predictable scheduling
Ownership stake
Increased productivity
Improved professional income
Involvement in management
Payor Investor
Competitive rates
Efficient billing procedures
Stable, secure income
High-yielding investment 7
SUPERIOR OPERATIONS
Traditional MFC Hospitals
Day-to-day operations run by Administration Physicians
Types of surgeries performed Emergency & elective Only elective
Admissions & scheduling Emergency & elective Predictable & certain
Average operating room turnaround time >40 min <20 min
Average patient time in post-op care 7 days Hours - 1 day
8
LEADING-EDGE FACILITIES
HOTEL-INSPIRED ENVIRONMENT WITH ADVANCED MEDICAL TECHNOLOGIES 9
SPECIALTY SURGICAL HOSPITALS
Facility Operating Since Acquired Operating Rooms Overnight Rooms Square Feet
Sioux Falls Specialty Hospital 1985 2004 13 35 76,000
Black Hills Surgical Hospital 1997 2004 11 26 75,000
Dakota Plains Surgical Center 1998 2004 3 15 19,000
Oklahoma Spine Hospital 1999 2005 7 25 61,000
Arkansas Surgical Hospital 2005 2012 11 41* 126,000
3
1 1
* 51 licensed beds
Specialty surgical hospitals have consistently demonstrated
HIGHER PATIENT SATISFACTION ratings resulting from
HIGHER QUALITY OF CARE RECEIVED
10
Our physician owned hospitals benefit from direct physician involvement in
facility management resulting in SUPERIOR PROCESSES AND
EFFICIENCIES
WELL-SITUATED IN CURRENT MARKETS
Unemployment Rate (%) U.S. South Dakota Oklahoma Arkansas
2014 5.6 3.3 3.9 5.7
2013 6.7 3.6 5.4 7.4
65 and Over (% of population)
2013 14.1 14.9 14.3 15.4
Situated in geographic regions that have proven to be resilient against challenging economic environments
MFC physicians and staff are integral part of our success, they provide patients with innovative treatments and optimal service
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INDUSTRY DRIVERS AND OTHER FACTORS
Increased demand for surgical services Overall population growth Aging population Expanded coverage under healthcare
reform
Specialty hospitals: consistent higher quality and patient satisfaction ratings
Healthcare reform may pose some challenges, uncertainties, and opportunities ~300 specialty hospitals grandfathered
provide acquisition opportunities But specialty hospitals that survive will
be stronger
1 Source: U.S. Census Bureau, 2010 based on National Population Projections 2008; 2015 & 2020 based on National Population Projections 2012 2 Source: Centers for Medicare & Medicaid Services, National Health Expenditure Projections 2011-2021
Under 45 years 45 to 64 years 65 years and over National Health Expenditure (US$ billion)
(millions) (US$ billion)
Pop
ulat
ion
National H
ealth Expenditure
12
0
1,000
2,000
3,000
4,000
5,000
0
100
200
300
400
2010 2015E 2020E
GROWTH BY BUILDING OUR BRAND…
URGENT CARE +
PRIMARY CARE SPECIALIST
IMAGING
MFC SPECIALTY HOSPITALS
Surgery
Pain Management
PATIENT
13
…THROUGH URGENT & PRIMARY CARE
14
SELECTIVE ACQUISITIONS
Accretive metrics
Strong operating performance
Balanced composition of physicians
Attractive markets (demographics, location)
Change pic to something less similar
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FINANCIAL REVIEW
16
FACTORS DRIVING OUR RESULTS
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Revenues
Case Mix
Case Counts
Payor Mix
Ancillary Services
Level of
Revenue
Operating Margins
Salaries & Benefits
Drugs & Supplies (incl. implants)
General & Administrative
MFC PAYOR MIX – 2014
10%
25% 33%
32% 10%
33% 25%
32%
GROSS REVENUE NET REVENUE
Medicare/ Medicaid
Blue Cross/ Blue Shield
Workers Compensation
Other Private Insurance and Self-pay
18
(US$ millions, except where noted otherwise)
Q1 2015 Q1 2014 Change %
REVENUE 75.6 72.9 3.7%
INCOME FROM OPERATIONS* 17.2 13.8 24.9%
OPERATING MARGIN 22.8% 18.9% 20.6%
CASH AVAILABLE FOR DISTRIBUTION (C$ MILLIONS) 11.2 8.9 26.0%
PAYOUT RATIO 78.5% 98.9% (20.6)%
OPERATING RESULTS – Q1 2015
19 * Based on income from operations, which is income before interest expense, gains or losses on foreign currency translation and other non-operating income and expenses.
CASH AVAILABLE FOR DISTRIBUTION PER COMMON SHARE BEFORE FOREX
0.263
0.308 0.297
0.399
0.286 0.289 0.281
0.333 0.331
0.288 0.269
0.371
0.295 0.296 0.288
0.418
0.275 0.299
0.324
0.360
0.320
1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15
(US$)
20
$290.8
$201.3
$51.4
$111.1
$45.8 $35.0 $40.6
STRONG FINANCIAL POSITION – Q1 2015
21
Current Assets
Total Liabilities
Total Equity
Non-Current Assets
Cash & Cash Equivalents, Short-Term Investments
Long-term Debt (including current portion)
Convertible Debentures
Other Current Assets
Other Liabilities
* 7.5% Convertible Debentures with approximately C$38.5 million principal amount outstanding as of March 28, 2013 expired on April 30, 2013.
Consolidated Balance Sheet (US$ millions)
2.5x Current Ratio
49.5% Net Debt/Equity
2.6x Subsidiary Debt Coverage (LTM)
31.2 31.2 31.5 34.4 35.3
37.8 33.8
37.8 40.8 41.4
37.1 33.3
35.7
40.8 43.3
2010 2011 2012 2013 2014
85.2 2014
PAYOUT RATIO*
%
83.3% 92.3% 82.5%
(C$ millions)
Distributions Cash Available for Distribution (including realized gains/losses on FX forward contracts)
84.3% Payout Ratio*
*Including realized gains/losses of FX forward contracts
STRONG CASH FLOW
22
Cash Available for Distribution (Excluding realized gains/losses on FX forward contracts)
85.2%
OUR STRENGTHS
Long-Term Reliable Dividend
Luxurious Hotel-Inspired Amenities
Exceptional Patient Care Experience
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MEDICAL FACILITIES CORPORATION June 2015
www.medicalfacilitiescorp.ca
IMPACTS OF PPACA
25
Pressure on reimbursement rates
Increase in Medicare/Medicaid patients
MFC hospitals grandfathered
Physical plant expansion limited (ORs and number of beds)
Aggregate percentage of physician ownership is capped
Restrictions on Physician Ownership
Number of physician owners can increase
CORPORATE INFORMATION
26
MANAGEMENT TEAM
Michael Salter Chief Financial Officer
Michael Salter, CPA, CA, has been CFO of Medical Facilities since February 2004. Mr. Salter has held numerous financial management positions in a variety of Canadian and U.S. based companies involved in the oil and gas, manufacturing, and hospitality industries and was a Trustee of HealthLease Properties REIT until November 2014 when it was purchased by Health Care REIT, Inc. (NYSE: HCN).
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Dr. Donald Schellpfeffer Chief Executive Officer
Dr. Schellpfeffer is an original founder of Sioux Falls Specialty Hospital and a member of its Management Committee. In addition, from 1985 to 2015, Dr. Schellpfeffer was its Chief Executive Officer. He has over 30 years of experience in ambulatory surgical environments and in general, cardiovascular, and trauma practices and has also authored numerous medical publications.
BOARD OF DIRECTORS
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Seymour Temkin, CPA, CA, FMCA Chair of the Board
Dr. Gil Faclier Consultant Anaesthesiologist at Sunnybrook Health Sciences Centre (“Sunnybrook HSC”) and Pain Medicine Consultant at Sunnybrook HSC and Women’s College Hospital, University of Toronto
Irving Gerstein, C.M., O.Ont Member, Senate of Canada
Dr. Donald Schellpfeffer Chief Executive Officer, Medical Facilities Corporation
Marilynne Day-Linton, CPA, CA Corporate Director
David Bellaire Senior Advisor, Bain & Company
Dale Lawr, CPA, CA (Ontario) & CPA (Illinois) Corporate Director
John Perri Partner, Dorchester Capital, LLC
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