Carter Validus Mission Critical REIT, Inc. First Quarter 2019 Results

TAMPA, Fla.–(BUSINESS WIRE)–Carter Validus Mission Critical REIT, Inc., or the Company, a public,
non-traded real estate investment trust focused on mission critical
healthcare properties, today announced operating results for the first
quarter ended March 31, 2019.

Quarter Ended March 31, 2019 and Subsequent
Highlights

• Net income attributable to common stockholders totaled $2.1 million.
• Net operating income from continuing operations, or NOI, totaled $19.3
  million.
• Funds from operations, or FFO, attributable to common stockholders
  equaled $10.9 million.
• Modified funds from operations, or MFFO, attributable to common
  stockholders equaled $6.6 million.
• During the three months ended March 31, 2019, the Company repurchased
  approximately 3.7 million shares of common stock for approximately
  $19.6 million, or $5.33 per share.
• On April 11, 2019, the Company announced it had entered into a
  definitive agreement to merge with Carter Validus Mission Critical
  REIT II, Inc, or REIT II. See further discussion in “Agreement and
  Plan of Merger” section below.

Michael Seton, Chief Executive Officer and President of the Company
stated, “We are pleased that on April 11th the Company entered into a
merger agreement to merge with Carter Validus Mission Critical REIT II,
Inc. In addition to providing a combination of cash and stock
consideration to stockholders of the Company in connection with the
closing of the merger, we anticipate the combined company would provide
an increased opportunity to maximize stockholder value through greater
portfolio diversification, enhanced size and scale, and increased
optionality for potential liquidity in the future.”

An explanation of FFO, MFFO, NOI and Tenant Reimbursements, as well
as reconciliations of such non-GAAP financial measures to the most
directly comparable U.S. GAAP measures, are included at the end of this
release.

Financial Results

Quarter Ended March 31, 2019, Compared to Quarter Ended March 31,
2018

• Net income attributable to common stockholders was $2.1 million for
  the quarter ended March 31, 2019, compared to net loss attributable to
  common stockholders of $17.2 million for the quarter ended March 31,
  2018.
• FFO attributable to common stockholders was $10.9 million for the
  quarter ended March 31, 2019, compared to negative FFO attributable to
  common stockholders of $7.0 million for the quarter ended March 31,
  2018.
• MFFO attributable to common stockholders was $6.6 million for the
  quarter ended March 31, 2019, a decrease of 16.5%, compared to MFFO
  attributable to common stockholders of $7.9 million for the quarter
  ended March 31, 2018.

The increase in net income attributable to common stockholders during
the period presented above primarily was the result of one-time write
offs in the first quarter of 2018. The Company wrote-off straight-line
rent and an in-place lease intangible asset related to one of the
Company’s former tenants, Bay Area Regional Medical Center, LLC, or Bay
Area, which experienced financial difficulties and ultimately ceased
operations. The write-offs were partially offset by a gain on the sale
of two data center properties during the quarter ended March 31, 2018.
The increase in FFO during the period presented above was the result of
the same factors, except for the gain on sales, which is removed when
calculating this metric. The decrease in MFFO during the periods
presented above primarily relates to legal and professional fees
incurred in connection with the merger transaction, as discussed below.
The straight-line rent and in-place lease intangible write-offs, which
are a part of overall straight-line rent and depreciation and
amortization line items, respectively, as well as gain on sales are
removed when calculating MFFO.

Operating Results

Quarter Ended March 31, 2019, Compared to Quarter Ended March 31,
2018

• NOI from continuing operations was $19.3 million for the quarter ended
  March 31, 2019, compared to net operating loss of $1.5 million for the
  quarter ended March 31, 2018.
• Total revenue from continuing operations was $20.9 million for the
  quarter ended March 31, 2019, compared to $1.5 million for the quarter
  ended March 31, 2018.

The increases in NOI from continuing operations, total revenue from
continuing operations and same store rental revenue and tenant
reimbursements during the quarter ended March 31, 2019, are primarily
the result of write-offs in straight-line rent and tenant reimbursements
related to Bay Area during the first quarter of 2018. The Company
terminated the lease with Bay Area on August 13, 2018, and re-leased the
property to a new tenant, the Board of Regents of the University of
Texas System on October 24, 2018.

Portfolio Overview

The Company’s operating portfolio had a weighted average occupancy of
91.2% as of March 31, 2019, with two properties vacant, and a weighted
average remaining lease term of 11.9 years.

As of March 31, 2019, the Company owned 61 properties, located in 32
markets, comprised of approximately 2.4 million of leased rentable
square feet.

Balance Sheet and Liquidity

As of March 31, 2019, the Company had total principal debt outstanding
of $235.8 million, and a net debt leverage ratio, which is the ratio of
principal debt outstanding less cash to fair value of real estate, of
18.2%. The Company’s outstanding debt was comprised of 24% debt fixed
through the use of interest rate swaps and 76% variable rate debt.

At March 31, 2019, the Company had liquidity of $105.9 million,
consisting of $28.0 million in cash and cash equivalents and $77.9
million in borrowing base availability on the unsecured credit facility.

Distributions

During the first quarter of 2019, the Company paid aggregate
distributions of $14.3 million ($7.8 million in cash and $6.5 million
reinvested in shares of common stock pursuant to the Company’s
Distribution Reinvestment Plan, or DRIP.

The Company declared weighted average distributions per share of common
stock in the amount of $0.08 and $3.14 in the first quarters ended March
31, 2019 and 2018, respectively. During the three months ended March 31,
2018, the Company paid the special cash distribution of $3.00 per share
of common stock in connection with the disposition of certain real
estate properties between December 2017 and January 2018.

Agreement and Plan of Merger

On April 11, 2019, the Company, along with REIT II, Carter/Validus
Operating Partnership, LP, or REIT I OP, Carter Validus Operating
Partnership II, LP, or REIT II OP, and Lightning Merger Sub, LLC, a
wholly owned subsidiary of REIT II, or the Merger Subsidiary, entered
into an Agreement and Plan of Merger, or the Merger Agreement.

Pursuant to the terms and conditions of the Merger Agreement, Carter
Validus Mission Critical REIT, Inc., will merge with and into the Merger
Subsidiary, and will be the surviving entity of the transaction.
Post-merger, the Merger Subsidiary will continue to operate as a wholly
owned subsidiary of REIT II.

At the time of the merger, and subject to the terms and conditions of
the Merger Agreement, each issued and outstanding share of the Company’s
common stock (or a fraction thereof), $0.01 par value per share, or REIT
I common stock, will be converted into the right to receive:

(i) $1.00 in cash; and

(ii) 0.4681 shares of REIT II Class A common stock, par value $0.01 per
share.

In order for the merger to be completed, among other conditions, the
Company’s stockholders must approve the merger and the other
transactions contemplated by the Merger Agreement, which requires the
affirmative vote of holders of a majority of the outstanding shares of
the Company’s common stock.

This is a summary of the terms and conditions of the Merger Agreement.
For a full description, see the Current Report on Form 8-K filed with
the Securities and Exchange Commission on April 11, 2019, and the
exhibits thereto.

Suspension of Distribution Reinvestment Plan
and Shift to Cash Distributions

In connection with the merger, on April 10, 2019, the Company’s board of
directors approved the suspension of the DRIP, and, therefore, suspended
the DRIP beginning with distributions that accrued in April 2019. All
stockholders now receive their distributions in cash.

Third Amended and Restated Share Repurchase
Program

In connection with entering into the Merger Agreement, on April 10,
2019, the Company’s board of directors approved the Third Amended and
Restated Share Repurchase Program, or the Third Amended & Restated SRP,
which became effective on May 11, 2019, and will apply beginning with
repurchases made on the 2019 third quarter repurchase date. Pursuant to
the Third Amended & Restated SRP, the Company will only repurchase
shares of common stock in connection with the death, qualifying
disability, or involuntary exigent circumstance (as determined by the
Company’s board of directors, in its sole discretion) of a stockholder,
subject to certain terms and conditions specified in the Third Amended &
Restated SRP. Further, pursuant to the Third Amended & Restated SRP, if
the Company does not repurchase all of the shares for which repurchase
requests were submitted in any quarter, outstanding repurchase requests
will not automatically roll over to the subsequent quarter.

Supplemental Information

The Company routinely announces material information to investors and
the marketplace using press releases, SEC filings and the Company’s
website at www.cvmissioncriticalreit.com.
The information that the Company posts to its website may be deemed
material. Accordingly, the Company encourages investors and others
interested in the Company to routinely monitor and review the
information that the Company posts on its website, in addition to
following the Company’s press releases and SEC filings. A glossary of
definitions and other supplemental information may be found attached to
the Current Report on Form 8-K filed May 17, 2019. A comprehensive
listing of the Company’s properties is also available at www.cvmissioncriticalreit.com.

About Carter Validus Mission Critical REIT, Inc.

Carter Validus Mission Critical REIT, Inc. is a public, non-traded
corporation headquartered in Tampa, Florida, that has elected to be
taxed as a real estate investment trust and invests in mission critical
healthcare real estate assets located throughout the United States.
Mission critical real estate assets are purpose-built facilities
designed to support the most essential operations of tenants.

This communication shall not constitute an offer to sell or the
solicitation of an offer to buy any securities, nor shall there be any
sale of securities in any jurisdiction in which such offer, solicitation
or sale would be unlawful prior to registration or qualification under
the securities laws of any such jurisdiction. No offering of securities
shall be made except by means of a prospectus meeting the requirements
of the federal securities laws. The Company and REIT II expect to
prepare and file with the SEC a Registration Statement on Form S-4
containing a proxy statement/prospectus. WE URGE INVESTORS TO READ THE
PROXY STATEMENT/PROSPECTUS AND ANY OTHER RELEVANT DOCUMENTS FILED BY THE
COMPANY AND REIT II IN CONNECTION WITH THE PROPOSED MERGER WHEN THEY
BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT
THE COMPANY, REIT II AND THE PROPOSED MERGER. INVESTORS ARE URGED TO
READ THESE DOCUMENTS CAREFULLY AND IN THEIR ENTIRETY. Investors will be
able to obtain these materials and other documents filed with the SEC
free of charge at the SEC’s website (www.sec.gov).
In addition, these materials will also be available free of charge by
accessing the Company’s website (www.cvmissioncriticalreit.com)
or by accessing REIT II’s website (www.cvmissioncriticalreitii.com).

Participants in the Proxy Solicitation

Information regarding the Company’s directors and executive officers is
available in its Annual Report on Form 10-K filed with the SEC on March
22, 2019, and information regarding REIT II’s directors and executive
officers is available in its Annual Report on Form 10-K filed with the
SEC on March 22, 2019. Certain directors and executive officers of the
Company and/or REIT II and other persons may have direct or indirect
interests in the merger due to securities holdings, pre-existing or
future indemnification arrangements and rights to severance payments and
retention bonuses if their employment is terminated prior to or
following the merger. If and to the extent that any of the participants
will receive any additional benefits in connection with the merger, the
details of those benefits will be described in the proxy
statement/prospectus relating to the merger. Investors and security
holders may obtain additional information regarding the direct and
indirect interests of the Company and REIT II and their respective
executive officers and directors in the merger by reading the proxy
statement/prospectus regarding the merger when it becomes available.

Forward-Looking Statements

Certain statements contained herein, other than historical fact, may be
considered “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, and are intended to be
covered by the safe harbor provided by the same. These statements are
based on management’s current expectations and beliefs regarding
operational strategies, anticipated events and trends, the economy, and
other future conditions and are subject to a number of trends and
uncertainties. No forward-looking statement is intended to, nor shall
it, serve as a guarantee of future performance. You can identify the
forward-looking statements by the use of words such as “anticipate,”
“believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,”
“outlook,” “plan,” “potential,” “predict,” “project,” “seek,” “should,”
“will” and other similar terms and phrases, including references to
assumptions and forecasts of future results. Forward-looking statements
are subject to various risks and uncertainties, and factors that could
cause actual results to differ materially from the Company’s
expectations include, but are not limited to, the risk that the merger
will not be consummated within the expected time period or at all; the
occurrence of any event, change or other circumstances that could give
rise to the termination of the Merger Agreement; the inability of the
Company to obtain stockholder approval of the merger or the failure to
satisfy the other conditions to completion of the merger; risks related
to disruption of management’s attention from the ongoing business
operations due to the merger; availability of suitable investment
opportunities; changes in interest rates, the availability and terms of
financing; general economic conditions; market conditions; legislative
and regulatory changes that could adversely impact the business of the
Company; and other factors, including those described under the section
entitled “Risk Factors” in the Company’s Annual Report on Form 10-K for
the year ended 2018, and subsequent quarterly reports filed on Form 10-Q
with the SEC, copies of which are available at www.sec.gov.
The Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future events, or otherwise, except as required by law.

Use of Non-GAAP Information

Net operating income, a non-GAAP financial measure, is defined as total
revenues, less rental expenses, which excludes depreciation and
amortization, general and administrative expenses, acquisition related
expenses, asset management fees and interest expense, net. The Company
believes that net operating income serves as a useful supplement to net
income because it allows investors and management to measure unlevered
property-level operating results and to compare operating results to the
operating results of other real estate companies between periods on a
consistent basis. Net operating income should not be considered as an
alternative to net income determined in accordance with GAAP as an
indicator of financial performance, and accordingly, the Company
believes that in order to facilitate a clear understanding of the
consolidated historical operating results, net operating income should
be examined in conjunction with net income as presented in the condensed
consolidated financial statements and data included on the Company’s
Quarterly Report on Form 10-Q filed with the SEC on May 15, 2019.

The following is a reconciliation of net income (loss) attributable to
common stockholders, which is the most directly comparable GAAP
financial measure, to net operating income (loss) from continuing
operations for the three months ended March 31, 2019 and 2018 (amounts
in thousands):

The Company generates almost all of the net operating income from
property operations. In order to evaluate the overall portfolio,
management analyzes the net operating income of same store properties.
The Company defines “same store properties” as operating properties that
were owned and operated for the entirety of both calendar periods being
compared and excludes properties under development. By evaluating the
property net operating income of the same store properties, management
is able to monitor the operations of the Company’s existing properties
for comparable periods to measure the performance of the current
portfolio and determine the effects of new acquisitions on net income.

The following table presents same store and non-same store components of
net operating income (loss) from continuing operations for the three
months ended March 31, 2019 and 2018 (amounts in thousands):

One of the Company’s objectives is to provide cash distributions to its
stockholders from cash generated by the Company’s operations. The
purchase of real estate assets and real estate-related investments, and
the corresponding expenses associated with that process, is a key
operational feature of the Company’s business plan in order to generate
cash from operations. Due to certain unique operating characteristics of
real estate companies, the National Association of Real Estate
Investment Trusts, or NAREIT, an industry trade group, has promulgated a
measure known as FFO which the Company believes is an appropriate
supplemental measure to reflect the operating performance of a REIT. The
use of FFO is recommended by the REIT industry as a supplemental
performance measure. FFO is not equivalent to the Company’s net income
as determined under GAAP.

The Company defines FFO, consistent with NAREIT’s definition, as net
income (computed in accordance with GAAP), excluding gains (or losses)
from sales of property and asset impairment write-downs, plus
depreciation and amortization of real estate assets, and after
adjustments for unconsolidated partnerships and joint ventures.
Adjustments for unconsolidated partnerships and joint ventures will be
calculated to reflect FFO on the same basis.

The Company, along with others in the real estate industry, consider FFO
to be an appropriate supplemental measure of a REIT’s operating
performance because it is based on a net income analysis of property
portfolio performance that excludes non-cash items such as depreciation
and amortization and asset impairment write-downs, which the Company
believes provides a more complete understanding of its performance to
investors and to its management, and when compared year over year,
reflects the impact on the Company’s operations from trends in occupancy.

Contacts

Investor Relations Contact:
Miranda
Davidson
IR@cvreit.com

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