Kaiser Permanente National Facilities Services Innovations in Real Estate Development & Strategic Portfolio Planning

ULI Healthcare Real Estate Northwest

Michael J. Huaco Vice President Business Strategy & Corporate Real Estate National Facilities Services

Kaiser Foundation Health Plan

Permanente Kaiser Medical Foundation Groups Hospitals

Recognized as one of America’s leading health care providers and not-for-profit health plans

9 states 36 hospitals 8.8M $44B operating 15,129 physicians and the 593 medical members revenue 164,098 employees District of offices Columbia

High Access High Acuity

Telemedicine Hospital with Small Clinics Hospital based Employer Specialty Care kp.org Specialty Hub Small Hospitals Clinics

with Primary Care

Primary Care with Mobile Ancillaries Services

Low Cost High Cost

KP’s strategic growth relies in part on managing the 54M square foot, $20B real estate portfolio, which is a strategic enabler that supports Mission Effectiveness, Brand and Access. This forecast is intended to advise on market trends that affect KP’s facilities portfolio highlighting risks and opportunities as the economy improves and the real estate market rebounds.

KP’s Real Estate Portfolio

SF by Property Type

Hospital MOB Administrative Support Warehouse Portfolio Statistics

 Total 2012 KP Portfolio is 54M sf

14,975,051  28% MOB’s make up almost 50% of the portfolio.

 Hospital’s make up 28% of the portfolio. 1,040,616 2%  Projected net portfolio growth over next 5 2,741,176 5% 25,658,228 years is 14% or 7.5M sf. 48%  MOB’s will comprise 60% of future portfolio 9,214,498 17% growth.

October 26, 2011 | Page 4 | © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente Hospitals Kaiser Permanente Real Estate Holdings Kaiser Permanente occupies 53.6 Million Rentable Square Feet across 9 states and 1,015 Buildings. Kaiser operates 36 Hospitals program-wide; with 34 in California and 1 each in Hawaii and Oregon. Kaiser also operates over 610 Medical Office Buildings. *Excluding Other Kaiser Sites, Land, Parking and Residential Pacific Northwest Ohio Building Type # of Buildings RSF Building Type # of Buildings RSF Hospital 1 574,107 Hospital 0 0 MOB 47 1,617,195 MOB 15 703,858 Support 5 250,923 Support 1 22,189 Warehouse 1 16,500 Warehouse 1 38,621 Administrative 18 652,306 Administrative 4 123,367 Total 72 3,111,030 Total 21 888,035

Northern California Mid-Atlantic Building Type # of Buildings RSF Building Type # of Buildings RSF Hospital 22 6,664,917 Hospital 0 0 MOB 233 9,923,166 MOB 40 1,801,946 Support 46 1,353,718 Support 3 113,467 Warehouse 9 424,476 Warehouse 1 31,800 Administrative 129 3,969,017 Administrative 10 432,793 Total 439 22,335,295 Total 54 2,380,007

Southern California Georgia Building Type # of Buildings RSF Building Type # of Buildings RSF Hospital 14 7,262,479 Other Kaiser Sites Hospital 0 0 MOB 199 8,601,260 State Property Use Status # of Bldgs. RSF MOB 29 856,202 Support 17 799,243 Connecticut Administrative Leased 1 3,420 Support 0 0 Warehouse 16 486,520 Illinois Administrative Leased 1 8,065 Warehouse 0 0 Administrative 77 2,899,238 New York Administrative Leased 1 7,505 Administrative 9 322,263 Total 323 20,048,740 Total 3 18,990 Total 38 1,178,465

Hawaii Colorado Building Type # of Buildings RSF Building Type # of Buildings RSF Hospital 1 473,548 Hospital 0 0 MOB 21 620,106 MOB 28 1,534,494 Support 0 0 Support 3 201,636 Warehouse 1 14,839 Warehouse 1 27,860 Administrative 8 267,173 Administrative 8 548,340 Total 31 1,375,665 Source: CAFM/Lease Admin and REM discussions, October 2011 Total 40 2,312,331

October 26, 2011 | Page 5 | © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente Hospitals Managing KP’s Real Estate Portfolio – Market Cycles . The national Real Estate market is entering into an upward cycle from several years of flat or negative growth. . Several key urban markets are recovering and significantly improving faster than the national market. (San Francisco Bay Area, NY, Los Angeles, Denver) . The stock or inventory of distressed assets Office, Retail, Land, has greatly diminished over the past 24 months, driving projects to green field sites or new development.

Proactive Portfolio Management Leverages Market Cycles

US Market Cycle — 2006 to 2013* • 2006-08 NFS Real Estate proactively sold Rising Market Trend- New excess real estate generating over $100M in KP Real Estate Development and revenue. Sales 2006 - 08 Construction, Pricing Risk • 2009-2011 KP aggressively capitalized on

Pricing market downturn buying distressed and Risk foreclosed office and retail assets well below

New Construction replacement cost. 2006 2007 2008 2009 2010 2011 2012 2013 • 2012 – Forward rising prices and scarcity of KP Building product will drive KP towards new delivery Acquisitions models, 3rd party developers, bundling Distressed Assets

Over Supply contracts, joint ventures, systemized Rising market Incline slowing Falling market Decline Slowing Rising market construction, asset swaps.

October 26, 2011 | Page 6 | © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente Hospitals Repurposing Existing Building For Medical Use – Buying Distressed . KP has programmatically undertaken Asset Repurposing as a strategic tool to reduce capital costs and improve time to market. • Total construction cost benefit ranges from 20% to 30% • Timing benefit from 9 to 12 months shorter construction period . KP has purchased over $1B of distressed assets over the last 36 months, totaling over 3M square feet and delivering capital savings of approximately $180M.

Traditional ground up delivery method vs. asset repurposing

Traditional KP Delivery Model Alternative Delivery Model 100,000 SF Medical Office Building Benefits 100,000 SF Medical Office Building • Capital cost Buy Land $125/sf Buy Existing Building / Land $250/sf Lower by over *Build New $580/sf $100/sf. *Repurpose Building Medical $340/sf • Delivery Use (Improvements) *Total Project $705/sf improved by *Total Project $590/sf Timing 32-36 months 12months Timing 18-24 months

October 26, 2011 | Page 7 | © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente Hospitals Factors Considered for Building Conversion to Clinical Use Repurposing existing buildings combined with adequate front end capital investment resets the lifecycle age to as much as 30+ years.

CRITERIA DESCRIPTION  Meets Business Requirements Initial KP Capital Investment Will Reset the Lifecycle Clock Location  Transportation Access  Visibility Existing Initial Investment Completed New KP Refurbished  Either meets or can meet 5 spaces Building Parking  Either meets or can meet 5 spaces per 1K SF of space Infrastructure Building KP MOB

 Medical use zoning and permitted Zoning  Medical use zoning and permitted uses $  Prefer floor plate size of 20k to Floor Plate Size 40K SF with a central core

 Prefer steel frame building type II Plus 30-Yr Life Structural Construction

 Prefer upgraded Mechanical EXAMPLE Mechanical/Electrical  Prefer upgraded Mechanical Electrical Infrastructure Pasadena MOB building acquired 2007 completed in 2008

Building Code  Prefer buildings that have been up- • 60k SF MOB graded to modern codes (i.e.,(i.e., • Building originally built in mid 80’s Upgrades asbestos,asbestos, ADA,ADA, Fire/LifeFire/Life safety,safety, etc)etc) • *Purchase Price $26.5M 2007  Medical use zoning and permitted • Total TI Capital Spent $22M 2007-08 Environmental uses • Useful Life 30+ years

 Prefer buildings built post 1975 due *Amount of purchase price allocated for MOB Age toto environmentenvironment andand codecode issuesissues

Brighton, CO Copley - Kearny Mesa

Location: 859 South 4th Avenue, Brighton, CO Location: 5855 Copley Drive, San Diego, CA Size: 27,500 Square Feet Size: 171,684 Square Feet Opening Date: August 2011 Opening Date: 2011

Tyson’s Corner, VA Germantown, MD

Location: 8008 Westpark Drive, McLean, VA Location: 655 & 675 Watkins Mill Rd, Gaithersburg, MD Size: 237,000 Square Feet Size: 200,000 Square Feet Opening Date: August, 2012 Opening Date: March 19, 2012

Carson, Ca Chino Hills, CA (Retail)

Location: 18600 S. Figueroa, Carson, CA Location: 13000 Peyton Drive, Chino Hills, CA Size: 183,362 Square Feet Size: 133,000 Square Feet Opening Date: 2013 Opening Date: 2013

The Kaiser Gateway MOB will utilize an existing 32,000 SF single story former Circuit City. Primary Care

To enhance member satisfaction daylight and views will be used throughout the centralized waiting area and central corridor.

Exterior Before Exterior After

To enhance the member experience and improve member satisfaction daylight and views will be used throughout the centralized waiting and the central corridor.

Interior After The project is intended to achieve 2009 LEED for Healthcare Gold. • Bike parking, parking will be provided for 5% of all employees at Gateway. • Creating areas of respite for staff and our members. • Concrete will contain fly-ash used to maximize LEED req’s. • Design and install a Variable Refrigerant Flow (VRF) system to achieve LEED Gold Certification. This system uses air-cooled heat pumps with a condensing gas boiler. Outside air for ventilation will be provided. • On-site renewable energy (Photovoltaic System).

Size: 64,579 Square Foot Building, 41 Providers Location: Elk Grove, California Timing: Opened 2011 Structure: Ground Lease with fixed Put in year 5 Benefits: . Shorten Time to Market . Shorten Programming Time . Shift of Delivery Risk . Lower Capital Cost

October 26, 2011 | Page 13 | © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente Hospitals Clinical Pod Concept Major Benefits: • Rapid Speed from Design to Delivery • Extremely Energy Efficient • High Quality Precision Materials • Flexible Design

October 26, 2011 | Page 14 | © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente Hospitals KonaKona MedicalMedical OfficeOffice BuildingBuilding ReplacementReplacement ProjectProject State-of-the-Art Medical Facility to Serve Growing Needs in Hawaii The proposed Kona Replacement Clinic is a showcase model for how innovative clinical technology and state-of-the-art construction support an integrated healthcare model. KP can bring world class care to rural markets struggling with physician shortages and geographic barriers to care.

Size: 40,000 square foot MOB Location: Honokōhau, North Kona Target Opening Date: June 2014

• 17 provider offices • 30 Exam rooms • Radiology • Pharmacy and Optical Smart Construction for a Superior Result

High Precision Low Tech Assembly Hybrid Construction Manufactured Components Fast: Improved time to market between 20% to 30% vs. traditional construction.

Fast and easy Better : Improved building quality, install of the kit healthier, no volatile organic compounds (VOC), high air quality, factory built, reduces on-site premium materials time and on-site waste. Simple Affordable: Competitive first costs Smart kit of high precision, prefabricated install increases along with energy savings and lower life components. Design integrates best-in- the accuracy cycle costs class technology with proven methods to and quality of create high performance envelope the product. Green: Greater energy efficiency, high optimized for indoor air quality (IAQ), Leadership in Energy and Environmental Design (LEED) specification, 25% less energy thermal comfort, natural light and superior consumption, on-site waste reduction, acoustics. October 26, 2011 | Page 15 | © 2011 Kaiser Foundation Health Plan, Inc. /Kaiser Permanente Hospitals lower carbon footprint